ANNUAL REPORT 2020 Recurring Value Delivery UK | USA | Singapore | Russia | India | Malaysia | Philippines | Brazil Our Presence ANNUAL REPORT 3 Company Information Directors Registrars Subash Menon (Managing Director and CEO) Equiniti Limited Sudeesh Yezhuvath (COO) Aspect House , Spencer Road Richard Day (Chairman – Non-executive) Nic Hellyer (Finance Director) Pieter Verkade (Non-executive) Lancing West Sussex BN99 6DA Auditor Crowe U.K. LLP 55 Ludgate Hill London EC4M 7JW Bankers ICICI Bank UK PLC One Thomas More Street London E1W 1YN Bank of America, N.A. P.O. Box 25118 Tampa, FL 33622-5118 DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre, Tower 3, Singapore 018982 Shareholder enquiries: Tel. 0371 384 2030* (from UK); +44 121 415 7047 (from overseas) * lines are open from 8.30am to 5.30pm Monday to Friday Nominated Advisers and Stockbrokers Cenkos Securities plc 6-8 Tokenhouse Yard London, EC2R 7AS Solicitors Memery Crystal LLP 165 Fleet Street London EC4A 2DY Share Capital The ordinary share capital of Pelatro Plc is admitted to trading on AIM, a market operated by London Stock Exchange Group plc. The shares are quoted under the Kotak Mahindra Bank trading ticker PTRO. 4m-411 – S.K.L.N.S Complex, 3rd Block, Kam- manahalli Bangalore 560043, India ICICI Bank Ltd Kalyan Nagar, No.4 M-417, 80 Feet Road HRBR 3rd Block, Kammanahalli, Kalyan Nagar, Bangalore 560043, India The ISIN number is GB00BYXH8F66 and the SEDOL number is BYXH8F6. Website http://www.pelatro.com/investors/ 4 ANNUAL REPORT Five Year Track Record Year to/as at 31 December 2020 2019 2018 2017 2016 Revenue Revenue growth $’000 4,020 6,667 6,123 3,146 1,205 % (40%) 9% 95% 161% 241% Adjusted EBITDA (see Note 7) $'000 441 2,893 3,776 2,004 498 Adjusted EBITDA margin % 11% 43% 61% 64% 41% Operating profit/(loss) (before exceptional items) $'000 (2,055) 883 2,861 1,801 360 Operating margin % n/a 13% 47% 57% 30% Reported profit/(loss) before tax $'000 (2,082) 1,009 2,513 1,096 360 Adjusted earnings/(loss) per share (basic and diluted) Statutory earnings/(loss) per share (basic and diluted)1 ¢ ¢ (5.5¢) 4.2¢ 10.2¢ 8.9¢ 2.0¢ (7.2¢) 2.5¢ 8.0¢ 4.8¢ 2.0¢ Net cash flow from operating activities $'000 2,262 1,412 881 (33) 447 Net cash used in investing activities $'000 (4,569) (2,393) (9,092) (744) (401) Net cash used in/(from) financing activities $'000 3,071 (289) 6,814 4,707 54 Net cash at year end $'000 365 484 1,823 3,086 196 ANNUAL REPORT 5 Highlights of 2020 Completed successful transition from license to recurring revenue model Completed roll out of mViva for our largest customer – over 400m subscribers spread across 23 markets Launched new version of mViva - V6 TABLE OF CONTENTS A. Strategic Report About Pelatro Chairman’s Statement Managing Director and CEO’s Report Relevance – the key consideration Analytics in mViva Vein - connecting them all! Proactively managing human capital during the pandemic Environmental, Social and Governance report (“ESG”) Key Performance Indicators Principal Risks and Uncertainties Financial Review B. Corporate Governance Corporate Governance Review s.172 statement Audit Committee Report Director’s Report C. Financial Statements Independent Auditor’s Report Group Statement of Comprehensive Income Group Statement of Financial Position Group Statement of Cash Flows Group Statement of Changes in Equity Notes to Group Financial Statements Company Statement of Financial Position Company Statement of Changes in Equity Notes to the Company Financial Statements 7 9 11 16 18 21 23 25 27 28 32 38 47 50 54 60 66 67 69 71 72 116 118 119 ANNUAL REPORT 7 Strategic Report For the year ended 31 December 2020 About Pelatro Pelatro is a focused and specialised player in the in real time, in the form of marketing campaigns and telecom marketing space. We provide enterprise promotions to subscribers, resulting in improved results class software solutions that help our customers, as compared to legacy solutions. In order to provide the telecom operators, to increase revenue and re- high quality marketing campaigns and promotions, our duce churn. This is achieved by analysing the be- solutions employ AI/ML techniques coupled with various haviour of each subscriber in the telecom network, algorithms, models etc. This has resulted in a high level creating their profile and suggesting appropriate of predictive, descriptive and prescriptive analytics in products and promotions to each subscriber in a our solutions. “segment of one” manner to enable higher consump- tion and an increased level of customer satisfaction. Products Technology The mViva Customer Engagement Hub is a suite of solutions designed for deep engagement between tel- cos and its customers to increase revenue and reduce Given the extremely high volume of data that is churn. The mViva suite offers solutions for Contextual generated in each telecom network, our solutions Campaign Management, Loyalty Management, Data employ Big Data technology to collect and process Monetisation and Unified Communication Management all the data in real time. Our technologically advanced in a single integrated tool that enables teams to deliver products are telco-grade with significant scalability, effective customer interactions that maximize value, at security and high availability. As data is processed in high work velocity. Its ready-to-use propensity models real time, the output from our solutions is also in real and data analytics functionality is optimised for Cam- time and is relevant and contextual. This output leads paign Analysts to anatomise customer data, to launch to relevant, contextual and personalised interventions precisely targeted campaigns not just to micro-seg- 8 ANNUAL REPORT -ments but to segments-of-one. The seamless, intuitive, and concise campaign management workflow enables teams to easily extend campaign management services to enterprise customers and monetize subscriber data. The mViva suite empowers Customer Value Man- agement (“CVM”) teams to rapidly design and deploy campaigns, launch loyalty programs to reduce churn of customers and provide omni-channel communica- tion. The mViva Customer Engagement Hub offers four key solutions tailor-made for CVM Teams: mViva Contextual Campaign Management Solution A comprehensive tool to design, configure and run campaigns to manage the entire life- cycle for subscribers, retailers and enterprises mViva Loyalty Management Solution Enables design and launch of loyalty pro- grams to reward and retain customers mViva Data Monetisation Platform Solution Enables teams to easily extend campaign management services to other B2C enter- prises and brands in order for the telco to monetise subscriber data mViva Unified Communication Management Solution Makes it possible to manage all messaging to customers from a central platform and thus en- sure that all contact policies are honoured Presence We have offices in five countries and serve large telco groups (including Telenor, Vodafone, SingTel, Axiata etc.) in 17 countries. The largest single network that we serve has about 400 million subscribers, one of the largest globally. As all telcos have some solution for campaign management, our aim is to replace the incumbents to win customers. Given the advanced nature and uniqueness of our products and the fact that we have successfully replaced legacy solutions from IBM, SAS, Oracle, FlyTxt, Evolving Systems etc. in multiple telcos, our market opportunity is huge with over 300 telcos to be addressed around the world. ANNUAL REPORT 9 Chairman’s Statement For the year ended 31 December 2020 Dear Stakeholder Overview This past year always promised to be one of continuing development at Pelatro, and significant progress has been made notwithstanding the COVID-19 pandemic and its effect on social and business interaction. There is still a long way to go but there is clearly light at the end of the tunnel, with the increasing roll-out of effective vaccines around the world and effective steps being taken to help keep the virus in check. Most of our employees have been working from home, with an increasing though limited number working from our offices in India as the lockdown restrictions are being lift- ed there. We currently have 20-30% of our staff safely attending our offices for work and we expect that to rise steadily over the coming months. Our customers, the telcos, have continued to rely on our support and our mViva software platform to help them with dedicated and appropriate customer engagement across their networks. We started the year with 18 telco customers and increased that to 19; we have focused this year on extending our reach across our managed networks systems services. Our shareholders will be aware that we have, over the last two years been gradually moving our business model from a predominantly licence fee one to one based on annual recurring revenues. Subash in his CEO’s report covers this more fully. I will simply say that this has been a process which we knew would take some time and we very much appreciate the support we have had from all our stakeholders in going through this process. We already have visibility of c. $6m of revenues for this current year, which is a much stronger position than we have been in before; furthermore, our earnings from predominantly licence fee income historically tended to be more back-end weighted, whereas we are now seeing with our annual recurring revenues model a much more even income stream throughout the year. The collection cycle for trade debtors also tends to be shorter. Operations From an operational point of view, the roll-out of our upgraded version of mViva to the current V6 has been well re- ceived, with three existing customers placing contracts to upgrade. We are also seeing numerous Change Requests coming in as well as customers taking up the Group’s new modules. Importantly, this demonstrates Pelatro’s ability to enhance our mViva platform to ensure we continue to satisfy the changing and evolving needs of our industry. In August, we took the opportunity to raise $2.6m net of expenses by way of an equity placing. The funds were raised to invest in growing the business, as well as to fund working capital to ensure we were well placed to look for larger contracts. Marketing for new business is still being impacted due to the pandemic, allowing us to focus more on sell- 10 ANNUAL REPORT -ing our services to our existing customers. We have taken on two new salespeople, for Latin America and also for Africa, the Middle East and Asia. We were also able to expand our relationship with two separate large telco groups which were already customers of Pelatro, by winning from each a new contract from other operating companies in other territories respectively within those groups. We continue to develop and look at new applications for our mViva platform. By way of example, during the year we collaborated closely with one of our large telco group customers which is seeing us develop with them advanced analytical capabilities for four operating companies in their group in different countries. In February 2021, we were delighted to be able to announce the final implementation of mViva had been completed in the network of our largest customer under our five-year Managed Services contract with them. The network has over 400 million individual subscribers and the roll-out was achieved in several tranches, with a smooth and success- ful implementation. It was executed during the pandemic remotely without any on-site activity being required. This is a significant validation of the scalability of our mViva product. Environmental, Social and Governance We present in these accounts our Environmental, Social and Governance report. As a support service company to the telco industry, we are not engaged in any manufacturing process directly producing harmful substances or products. However, we are mindful of the sustainable conservation of natural resources and monitor and control our energy and water consumption as well as our waste production. All employees are valued members of the team and we seek to implement provisions to retain and incentivise them in a fair and open way. We have adopted the Quoted Companies Alliance Corporate Governance Code and believe that strong and transparent governance policies are a key ingredient of our success. Outlook We ended 2020 in a much stronger position, with a substantial order book and good visibility over revenues for the coming year. Our mViva platform has been successfully stress-tested to the extreme in being implemented across a network of over 400m subscribers without any losses or fall out. We have been successfully selling our enhanced offering out across our customer base and reaching out to new customers. The start of the second phase of our journey into the mobile advertising space is particularly exciting as an area complementary to our existing operations. We have every confidence in meeting our customers’ requirements, growing our business and meeting financial expectations for the year. Richard Day Chairman ANNUAL REPORT 11 Managing Director and CEO’s Report For the year ended 31 December 2020 Dear Shareholder Relationships between organisations are heavily dependent on the val- ue delivered by one organisation to the other. The higher the value, the deeper and stronger the relationship. As a reliable partner to the tele- com industry, your company endeavours to consistently deliver value in every area of engagement covering all aspects of our business like provisioning of software, implementation, support, consulting and re- lated services. This leads to the concept of recurring delivery of value. Recurring Value Delivery Pelatro has been morphing from a company that relies on one-time revenue engagements with telcos to a company that derives most of its revenue from recurring engagements. Such recurring engagements result in higher revenue at a lower cost of obtaining that sale and also leads to a deep relationship with our customers. It enables us to be- come an integral and almost indispensable part of their business process and system architecture. Attaining such a position is very valuable and will ensure zero or minimal churn in our customer base. When your company embarked on this journey of strategic change in the nature and quality of our revenue, most of our revenues were “one off” in nature. Over a three year period the scenario has changed significantly with Annual Recurring Revenue (“ARR”)1 run rate moving from zero to $5.4 million. The graph given below shows the trajectory of growth: 5.4 4.0 1.5 0 Dec 17 Dec 18 Dec 19 Dec 20 Recurring Revenue Run Rate in US$M 1 ARR is calculated by reference to the full annualised value of a contract; the total ARR thus calculated may not all accrue in the 12 months following due to (for example) implementation periods and other timing differences between signing a contract and the “Go Live” or similar date 12 ANNUAL REPORT This metamorphosis is the result of various new products being accepted by our customers and a marked change in the underlying activities that are part of the engagement model. The most fundamental shift is the addition of sev- eral customers for our Managed Services offering. While the scope and size of the operations for each customer is different, the general offering is by and large the same - Pelatro handles the operations of the mViva Campaign Man- agement Solution on behalf of the telco, including configuration of campaigns, execution of campaigns, reporting, support and business consulting. This change has led to increasing value addition from Pelatro to its customers. It is pertinent to note that this value addition continues for a long period of time spread over several years. The period is generally between three to five years and the contracts provide for further extension of this period. An important consequence of such long periods of value creation is the embedding of Pelatro and its products and services within the business of our customers. We will continue to endeavour to leverage the relationships thus built to further grow our business and revenue. Quality of Revenue One time revenues are both lumpy and unpredictable which leads to a high level of volatility in annual revenue and profit. Further, new contracts need to be won each year to generate revenue for that particular year. In contrast, re- curring revenue contracts ensure a stable predictable stream of revenue each year. New contracts will continue to build on the existing base resulting in the power of compounding. Given the excellent visibility provided by recurring revenue contracts, the Group can also plan investments well in advance and for a longer period of time. Thus, the recurring revenue model tends to be more highly valuable to us compared new business from one-off contracts. Our strategy to shift our business from reliance largely on one time revenues to predominantly recurring revenue has led to an increasing proportion of recurring revenue in the overall revenue of the Group. This proportion has increased steadily over the past four years to reach 71% in 2020. As the Group continues to win recurring revenue contracts, we expect the proportion to tilt further in favour of this attractive and highly beneficial revenue model. 71% 44% 30% 15% 0 2016 2017 2018 2019 2020 Recurring Revenue as %of Total Revenue ANNUAL REPORT 13 2019 and 2021 – a study in contrast As we have stated many times in recent years, your company started the shift from contracts with one time revenues to contracts with recurring revenues in early 2019. The process gathered momentum, and was largely complete to- wards the end of 2020. Consequently, 2021 will be our first full year of operation after this strategic shift. During the 2019-20 period, reported revenues experienced stagnation and decline, although the overall value of contracts over a longer period is higher, as we are able to rely on dependable receipts over several years. The natural consequence was lumpy revenue giving way to more dependable revenue spread over a longer period of time. In view of this major shift, it is pertinent to compare the two relevant years (2019 and 2021) to appreciate the full impact of the change. At the start of 2021, we had $5.6m of contracts in hand to be executed and the associated revenue recognised in 2021 (and have since increased that figure to $6.0m). With the mix of potential contracts in our current pipeline, we would expect the year end outturn to be broadly as follows: The graph given below shows the significant change in the composition of revenue in 2019 and 2021. 120 100 80 60 40 20 0 2019A 2021P Non Recurring Revenue % Recurring Revenue % Thus, while the level of revenues in 2019 and the anticipated revenues in 2021 are similar, the composition and quality has changed dramatically with Recurring Revenue increasing in proportion from 44% to around 80%. This is leading to a fundamental change in the quality of revenue and the underlying value of the business. As explained ear- lier, we expect this trend to continue in the coming years with the proportion of recurring revenue increasing steadily. 14 ANNUAL REPORT Establishing scale The year that passed has been one when the scalability of our platform mViva and that of our operations was estab- lished. We rolled out mViva across 23 markets covering the entire country of India encompassing over 400 million subscribers. This huge project was executed remotely without any onsite presence. The execution was flawless and the migration from two incumbent campaign management solutions was completed without negatively impacting the business of our customer. Consequent to this successful roll out, mViva now has one of the largest implementations in the world and handles the data of over 800 million subscribers globally. Entry into mobile advertising space For some time, the Group has been reviewing opportunities in the fast-growing mobile advertising space, as an area complementary to its existing operations. The global mobile advertising market, according to a survey by IMARC Group, is expected to grow from $52 billion in 2018 to $221 billion in 2024 at a CAGR of 27%. Commenting on this space as one of the key opportunities for telecom companies, Gartner identified entry into mobile advertising model as given below and commented as follows: “Market Trends: CSPs Must Transform Their Advertising Model”, Gartner Formulate and prioritize investments to develop a position in data monetisation in the advertising market before other advertising strategies. Focus should be on maximising Communication Service Provider (“CSP”) data usage and availability, rather than on generating and selling ad inventory. Develop a trusted data provider position with brands, agencies and the wider ecosystem on top of the media or technology activities already developed. As a trusted source of data, CSPs will add transparency by reducing fraud and waste.” The Business Mobile phones are ubiquitous and the significant penetration of smart phones (in developed countries as high as 80%, and in Asia for example currently about 50%) has opened up a new channel for advertising, namely mobile advertising. This segment is growing at a frenetic pace and currently accounts for about $100 billion globally. Communication Service Providers or CSPs are in a unique situation in this market as they hold the maximum amounts of data about their customers (who may number tens of millions and even hundreds of millions in some countries). This data, with appropriate consent and anonymity, can be shared with B2C players in financial services, retail, travel & hospitality, FMCG and brands to enable the latter to engage in targeted marketing of their products across advertising, campaigns, surveys, loyalty programmes etc. Such targeted campaigning will be contextual, relevant, personalised and real time. Pelatro’s platform mViva, which handles such marketing for telcos using the vast quantity of data that it collects and processes applying AI/ML and other analytical techniques, is uniquely positioned to provide access to the segments mentioned earlier for mobile advertising and related activities. ANNUAL REPORT 15 Pelatro’s strategy and readiness Pelatro is now seeing various opportunities by partnering with its telco customers to enter this huge market. To start with, we have already identified six large markets where we have several telco customers using our software collecting and processing the data of about 700 million mobile subscribers. Out of these, about 350 million i.e. 50%, have smart phones. Our technology can help brands and B2C companies to target these 350 million subscribers and mViva’s AI/ML capabilities will help us to differentiate our offering from that of the competition by enriching the data through deep analysis. Pelatro’s strategy is to partner with our telco customers and sell this access to data to ad agencies who will in turn on-sell to their customers, who are the brands and B2C companies. These end customers will pay based on their usage (i.e. number of campaigns sent, targeting parameters used, number of people targeted etc.). This is then shared by the ad agency, Pelatro and the telco, with a large portion being retained by Pelatro. This strategy therefore builds on our relationships with our telco customers, underpinned by the expansion of our existing business and with clear synergies between the two. Looking forward Your company has come a long way since its inception in 2013 and the IPO in December 2017. Apart from winning several Tier 1 telecom companies as customers in 17 countries, we have also built a strong foundation for the future. We will continue to build on this strong foundation to deliver superior results and shareholder value in the coming years. I thank every one of our stakeholders for the support extended during the last year while the company was progressing on the recurring revenue front. We will continue to build Pelatro into a global leader in our chosen space. Subash Menon Managing Director, CEO and Co-Founder 16 ANNUAL REPORT Relevance – the key consideration In 2007, Yankelovich, a market research firm, estimat- ed that the average American was exposed to about 5,000 advertisements in a day. While there are no offi- Objective cial estimates as to what that number would be today, Measure Data by some reckoning that figure is now probably around 10,000, with some variations likely depending on which part of the planet they are in. The point is pretty clear though – people are inundated with advertisements and marketing messages. This would only have in- creased with the arrival of the COVID-19 pandemic as physical contact has reduced. It is obvious that the key question facing marketers is about how to ensure that their messages stand out and are seen and noticed by customers. This is where the concept of relevance becomes very important. When people are faced with a deluge of mes- sages, it is important that the message connects with them if they have to notice it. They should feel that this is meant for them or people like them. As Peter Drucker said: ““The perfect advertisement is one of which the reader can say, “This is for me, and me alone.” The Lexico Dictionary defines the word “relevant” as “ap- propriate to the current time, period, or circumstances; of contemporary interest”. So, if a marketing message has to be relevant to a potential customer, it has to be squarely in the context of that particular individual. Thankfully, in these days of abundant data, this is not an impossible (though not easy) task for someone with the right tools. Deploy Analyse Strategise A key requirement for successful adoption of this frame- work is for the marketer to have access to a tool that can help with all the steps mentioned in the framework. Operationally, this means: • Gather all relevant data • Use AI/ML and rules to identify behaviour and con- text of customers • Identify the right offer for each individual customer • Communicate the offer through the right channel at the right time This is an approach completely in contrast with the “spray-and-pray” approach taken by many marketers even now. We can all relate to experiences of having received offers which have left us wondering why such This is especially true in the telecom world wherein a an offer was sent to us at all. It is a pity that even today, large telco may be faced with billions of records per there are marketers who believe that their chance of day, which pertain to customer transactions and be- success is directly related to the number of messages haviour. To sift through these in real time or near real they send out in a given day. Needless to say, these time to pin-point a customer and his or her context is are the marketers who are losing the attention and trust quite a daunting task indeed. In essence, what is re- of their customers. Once this happens, customers will quired is Precision Marketing. Given below is a frame- likely not notice any offer from that marketer. work that facilitates this. ANNUAL REPORT 17 Pelatro facilitates Precision Marketing for its customers through its mViva Contextual Campaign Management Solu- tion. It handles very large volumes of data – tens of billions of transactions a day – and churns through it in real time to address each individual customer in his or her context. Sudeesh Yezhuvath COO and Co-Founder 18 ANNUAL REPORT Analytics in mViva In the last year we added several AI/ML and analytics components to mViva: Analytics Workbench mViva has added a GUI-driven Analytics Workbench that has been designed to be used by Citizen Data Scientists – business users with domain expertise but without the deep knowledge in statistics and machine learning required by data scientists. The motivation be- hind the workbench is to enable these users to develop models on their own with the aid of a “wizard”, thus per- mitting the rapid development, testing and deployment of different models for several classes of problems. This approach has the advantage of freeing up the data science team to work on more complex problems. The Workbench supports several algorithms config- ured with sensible defaults that work out of the box on different problems. More knowledgeable users can modify these defaults within the wizard to improve per- The Workbench includes all the standard stages pres- ent in model building – definition of data sets, labelling for supervised problems, pre-processing pipelines, splitting data into train/test and validation sets and so on. The Workbench supports an iterative approach to- wards building models for a specific problem – differ- ent algorithms, parameters and pre-processing can be tried. The performance of different models can then be compared and the best performer deployed into pro- duction. Next Best Offer Module Subscribers are often eligible for multiple offers. The Next Best Offer (“NBO”) module automatically suggests the best offer for a subscriber. The module works for both push (configured by the campaign manager) as well as pull offers (initiated by the user or on request by a CRM system). One of the difficulties is, of course, deciding what should be regarded as best – it is sometimes a retention cam- paign and at other times an upsell offer. This is handled by permitting the user to modify or define a set of rules that is used by the NBO module while determining the best campaign. Ideally, these rules should align to the business objectives. For example, one may want to specify that if subscribers have been on the network for 6 months, to try to send an offer that maximises upsell. It is important to note that the rules are only guidance formance. Several algorithms are included for both and not absolute. supervised and unsupervised learning models. After a model has been trained, its performance can be as- sessed using automatically generated reports that in- clude recommendations and explanatory text. Once performance is assessed as sufficient, the model can be deployed into production directly from the GUI and have its predictions populated into the subscriber pro- file, enabling immediate usage in campaigns without any support from engineering or data science teams. ANNUAL REPORT 19 This approach requires an accurate estimation of offer and-dice”. However, this approach has several practical performance. This is achieved by: limitations: • recording the outcome of offers on several differ- • it requires the user to band/create bins for each of ent criteria, for example: uptake, uplift, success at the continuous features. These bands will often fail cross-selling, popularity etc. to reveal distinctive behaviour • recording offer performance criteria for different • If many dimensions are used, the ensuing combina- subscribers with regards to both their short-term torial explosion makes analysis difficult. In addition, state (e.g. current balance) and long-term charac- many of the resulting segments may be too small to teristics (e.g. ARPU). target to be worth targeting with a campaign The module uses several different algorithms to de- ments may not contain enough information of rel- • If too few dimensions are used, the ensuing seg- cide on the best offer, mixing clustering and variations evance. of expectation maximisation. Recency-Frequency-Monetary Modelling A new component to support Recency-Frequen- cy-Monetary (“RFM”) modelling and analysis has been added into mViva. This is a popular marketing approach qualitatively to understand a base in terms of the recency, frequency and quantum of some key metrics such as top-ups or purchases. The component permits building RFM segments on any ordinal field that has a time component associat- ed with it. These segments can then be overlaid onto other aggregable metrics such as counts, revenue, data usage etc. and analysed using different interac- tive visualizations. As the analysis proceeds, users can allocate the segments into larger, more meaning- ful groups (for example, users at risk of churn, can- didates for up-sell etc.). Appropriate campaigns can then be built for each of these segments. Segment Shattering The traditional technique used to analyse the be- haviour of a subscriber base (or segment) is “slice- Segment Shattering is an approach specifically de- signed to overcome these shortcomings. It can work with a large number of dimensions and automatically identifies a few, manageable and relevant segments. In addition, the identified segments are automatically described in terms of their distinguishing features. For example, Segment A contains subscribers with very high age in network and low data usage, whereas Seg- ment B contains subscribers that recharge three times a week or more. This description makes it easier for the user to develop a campaign to encourage desirable behaviour, or to head off undesirable tendencies. The Shattering component displays the different seg- ments using an interactive visualisation that permits further analysis as well as directly creating a campaign for the segment. The number of segments can also be increased and decreased by the user at any point. 20 ANNUAL REPORT While the default parameters are usually sufficient, the module also supports configurability for more complex analy- sis. An advantage in using a visualisation is that subscribers in bordering segments are in fact very close together in behaviour. This makes it easier to design campaigns to encourage subscribers to move from one segment to another neighbouring segment that exhibits more desirable behaviour. Segment shattering uses a neural network to identify patterns in high-dimensional data. Intuitively, the network can be thought of like a cloth laid over a rough and uneven object. It is in a sense a dimensionality reduction algorithm but unlike techniques like Principal Component Analysis it is dimension preserving. Customer Lifetime Value mViva has also introduced a component that estimates Customer Lifetime Value using Markov chains. Using this module, the Customer Lifetime Value (“CLV”) values for each subscriber are added to the subscriber profile, making it simple to design campaigns that take a long-term view. While this component is most frequently used for lifetime value, it can also be repurposed to predict other metrics such as data usage. The following graph shows the performance of this module over 10 months of real-world data. Notice how much closer it is to estimating the aggregated value than a campaign that is based off a subscriber’s ARPU (the simple baseline estimate). Actual Network Revenue Baseline estimate using ARPU Revenue predicted by the CLV Component P T George Principal Architect - Analytics ANNUAL REPORT 21 Vein - connecting them all! The ability to ingest billions of records at real time into mViva and stream them reliably in parallel to a number of real time analytical engines holds the key to solving the contextual marketing puzzle. Pelatro achieves streaming at that scale using an indigenously designed messaging framework called Vein, built on top of a high speed Zero MQ mes- saging library. Vein is a cross-over between four fundamental messaging patterns – Request Reply, Service Oriented Reliable Queuing, Push Pull and Publish Subscribe, carefully curated to achieve the best of both worlds, reliability and accuracy, while maintaining very high transfer rates. Client Client Client “Give me coffee” “Give me tea” Client REQ Broker Hello World “Water” Worker “Tea” Worker “Coffee” Worker REP Server Publisher PUB REP (3) (1) (2) SUB REQ Subscriber PUSH PUSH PUSH R1, R2, R3 R4 R5, R6 fair queuing R1, R4, R5 R2, R6, R3 PULL 22 ANNUAL REPORT Vein data services are made available to clients using agents backed service discovery with negotiable QoS pa- rameters. Vein is modelled on a real life Post Box metaphor where rightful owners seamlessly relocate with their postboxes to newer container addresses as and when engines hop from one node to another as part of transparent failovers and failbacks that are the norm with elastic services. CAGE is Pelatro’s proprietary, patent pending real time aggregation and event check framework leveraging on in- place 2s complement algebra on user-managed-heaps for high-speed addition with low memory access overheads. Vein feeds into CAGE and facilitates consumption of Telco Grade Deep Packet Inspection data at real time and aggregates them on the fly. Labelling rules perform traffic categorization and CAGE aggregates them on the fly to different levels of granularity like last 1m, 2m, 5m, 10m, 30m, 60m across different traffic types such as YouTube, Facebook, Twitter, gaming etc. Vein and CAGE complement each other enabling mViva to ingest diverse streaming data at rates in excess of One Million Events Per Second, build real time contextual profiles using a multitude of dimensions spanning across IP traffic, Geo Location and various time-aware business datasets and then target subscribers using real-time con- text-aware campaigns. mViva Contextual targeting uses a mix of Rule based Decisioning and Machine Learning to arrive at the right offer for the subscriber riding on insights drawn from ongoing-browsing-sessions and sends them an actionable notification to activate the right offer through an interactive channel like web-push from where they can avail the benefits instantly. We are proud to be able to claim that mViva Vein seamlessly ingests data from over two dozen sources for 400m subscribers in one of our largest installations whereas CAGE continues to stream records in excess of 800k records processing over 63 billion transactions with ease every-day at one of our other customer installations. Pramod K P Chief Architect ANNUAL REPORT 23 Proactively managing human capital during pandemic Amid the changes of a still-unfolding COVID-19 crisis, Post on boarding, an elaborate training plan was imple- employees are increasingly seen by Pelatro as vital mented to integrate the new joiners, with all activities stakeholders. At Pelatro, human capital governance happening remotely. Induction talks by both the CEO has a renewed focus. and COO as well as “open house” meetings were con- Future of work: fast-tracked While the debate on the “future of work” was well un- derway before the pandemic, COVID-19 has clearly hastened its arrival. For example, in the era of so- cial distancing and increased remote working, it was very easy for Pelatro to move to a remote model. As all employees get a laptop and internet connectivity on joining, the transition to working from home was seamless, we simply had to add more bandwidth to our leased line and VPN connections. With applica- tions such as Microsoft Teams, we were easily able to achieve work portability quite quickly. Prioritise talent acquisition and management This was also the year in which we achieved one of our largest product deployments at an operator with 400m+ subscribers. This required procurement and deployment of hardware, software deployment and, since the contract was for Managed Services, we also needed to hire about 50 new people with different functions and skill sets. Hiring was done remotely and HR used the following tools to ensure that the expe- rience of hiring “in person” was not diluted. We used: • • tools for incorporating tests remotely video calls in all rounds with the shortlisted can- didates • “on boarding” remotely by HR ducted remotely. Communication is key Communication is a low-cost way to reduce turnover and effectively manage the workforce. The normal dai- ly “stand up” meetings went virtual and all tasks were allocated and tracked in Jira, a specialised agile project management software, with managers stepping in to help as needed. Getting the right message to the right people at the right time can be critical to help quell anxi- ety and instil confidence in the Group’s future, especial- ly during an economic downturn. Employee pay: a focus on fairness At Pelatro, we continued with business as usual with regard to pay, with increases given in line with the nor- mal timetable even though many organisations were not increasing pay or were even reducing variable pay or postponing rises. Well-being: critical to sustaining operations Change and uncertainty have strained employees physically, emotionally and financially. Even before COVID-19, employee emotional and financial well-be- ing were top concerns for businesses. Now, as com- panies continue to adapt to changing pandemic con- ditions, workforce health, resilience and well-being are even more critical to sustaining operations. 24 ANNUAL REPORT With widespread stay-at-home orders, employers physical modifications or take the workplace entirely have adjusted and shifted workforces online, all of online. With this transformation, Pelatro has promoted which have affected overall employee well-being. At a culture for physical and psychological safety, all while Pelatro, we ran many programmes remotely. These delivering business results. included: • ergonomics during work from home – conducted by a physiotherapist • nutrition during Work from Home, guided by a nu- trition expert • nutrition for women for common health issues, • • guided by a nutrition expert 6 mental wellbeing webinars confidential free counselling by certified coun- sellors for any issue that employees might face whether personal or work. Leadership: promoting a culture that encourages well-being Since the physical workplace has become a potential health hazard, companies have been quick to make Culture: values and purpose move to the forefront Pelatro has remained committed to its employees, or- ganisational purpose and values in these difficult times. We have used our purpose and cultural values to make fast decisions and create as much certainty as possible for employees. Bringing it together Pelatro has prioritised human capital as part of its broader sustainability strategy and to be able to miti- gate risk and support value creation more broadly in the coming years. Anuradha Chief Mentor ANNUAL REPORT 25 Environmental, Social and Governance report (“ESG”) Social With the increasing focus on environmental, social and A key ethos at Pelatro is encouraging our talented peo- governance (“ESG”) issues around the world and the ple to do well with us and giving them every opportu- widespread concern over sustainable conservation of nity to succeed. Our main research and development natural resources, we present below our key ESG met- operations is at our sites in Bangalore, India and, by rics. In reporting these metrics, we have carefully not- the nature of our business, most of our intake of new ed the message from the stakeholders in our business employees are graduates. There is a wide talent pool that they do not feel one size fits all: they would rather available from the major cities in India; however, we have a relevant review with the right metrics, appropri- also have an active recruitment drive of approximate- ate to the company. We also consider that a responsi- ly 30% of our intake from the second-tier villages as ble corporate outlook helps us demonstrate the quality well, where opportunities to progress in an international of our management, identify how we are mitigating ex- technology company such as Pelatro can be more limit- posure to any business risks and work on areas where ed. As such, we are able to make a major contribution we can leverage business opportunities. to the overall quality of lives of our employees which Environmental may otherwise be out of their reach. Pelatro recognises the importance of investing in its employees and provides opportunities for training and Being a provider of services to telcos, we are not di- personal development, as well as encouraging the in- rectly involved in the direct manufacture of harmful volvement of employees in the planning and direction substances or products. In more normal times, our of their work. operations are predominantly office-based or deliv- ered from the offices of our customers, where we can Employee turnover 6% monitor and control our energy and water consumption Tax paid (% of turnover) 8% as well as waste production more effectively. Howev- Male/female employee ratio er, with the widespread lockdowns as a result of the Health & Safety events in year 3/1 None COVID-19 pandemic, our teams have been predomi- Employees participating in share scheme 32% nantly working from home. As such, these measures are not currently relevant, but are set out below for The pandemic this year has seen a necessary change more normal working times. Energy consumption (MWh/$m) 18 in working practices, with national lockdowns in various countries. Mindful of our overall employee well-being, we have sought to be flexible and supportive of their needs, as well as those of our business. We have run various support programmes open to our employees to Water consumption (m3/$m) 32 attend remotely, such as: ergonomics during working from home, run by a physiotherapist; nutrition during work and also nutrition for women’s common health problems, run by a nutrition expert; mental well-being; and free counselling by certified counsellors. 26 Governance ANNUAL REPORT We have a diversity on our Board of various skill sets, experience and qualities, with members from Asia, the Neth- erlands and the United Kingdom. We believe that good governance is also good business, with transparency helping to build trust and confidence with our stakeholders. Pelatro aims to conduct its business with integrity, respecting the different cultures and the dignity and rights of individuals in the countries where it operates. The Group supports the UN Universal Declaration of Human Rights and recognises the obligation to promote universal respect for and observance of human rights and fundamental freedoms for all, without distinction as to race, religion, gender, language or disability. Independent board members 40% CEO cash compensation v UK median earning 5.9x Chairman/CEO role split Yes Adheres to Corporate Governance Code Yes - QCA Our Chairman’s statement on corporate governance with fuller details and information on the way the Board oper- ates and the various committees of our Board is set out in the separate corporate governance section in this report. ANNUAL REPORT 27 Key Performance Indicators For the year ended 31 December 2020 Introduction of overall strategy execution success. All KPIs are re- viewed annually, including consideration of appropriate The Directors consider that revenue, recurring rev- non-financial KPIs. enue, adjusted EBITDA (Earnings Before Interest, Depreciation and Amortisation) and profit before tax, In a growing business with a high proportion of well and the related margins as a percentage of revenue, qualified and experienced staff the rate of staff reten- are key performance indicators (“KPIs”) in measuring tion is seen as an important KPI: in 2020 we recruit- ed 81 new members of staff and 24 left the business (2019: 75 joined and 20 left). Some 40 of these joiners were staff taken on specifically to implement various managed services contracts started in the year. As the business develops the Board will consider add- ing, as appropriate, further KPIs to monitor progress against a broader range of objectives. Group financial performance. We track revenue as it is an indicator of the Group’s overall size and complexity and adjusted EBITDA as it is a key measure of the Group’s effectiveness in con- verting revenue to earnings, excluding the effects of certain non-operational and/or exceptional transac- tions. We track contractually recurring revenue as this KPI provides a forward-looking view of the minimum expected revenues in the next twelve months, which gives confidence to business planning and investment decisions. In addition, the Directors believe that further important KPIs are the Group’s cash flows, including operating cash flow and expenditure on investing activities (prin- cipally on software development and where relevant, third-party hardware installations). Performance of these KPIs is discussed further in the Managing Director’s Statement and Financial Review. Non- financial performance indicators The Group monitors certain non-financial performance indicators at an operational level, including the number of new customers in the year, Requests for Propos- al received, movement of sales pipeline and Change Requests. However, none of these are currently con- sidered to be individually appropriate as a measure 28 ANNUAL REPORT Principal Risks and Uncertainties For the year ended 31 December 2020 Introduction Our aim is to recognise and address the key risks and uncertainties facing the Group at all levels of our business. There are a number of risk factors that could adversely affect the Group’s execution of its strategic plan and, more generally, the Group’s operations, business model, financial results, future performance, solvency, or the value or liquidity of its equity. The Board is committed to addressing these risks by implementing systems for effective risk management and internal control. The Board continually assesses the principal risks and uncertainties that could threaten Pelatro’s business, business model, strategies, financial results, future performance, solvency or liquidity. The items listed below represent the known principal risks and uncertainties but does not list all known or potential risks and uncertainties exhaustively. Where possible, steps are taken to mitigate risks. Principal risk Technology Mitigation The Group employs highly qualified software engineers and senior management who monitor closely developments in The industry in which Pelatro operates is in the process technology that might affect its research capability and of continual change reflecting technical developments as product evolution. industry and government standards and practices change and emerge. New products and features are assessed against their target markets and in response to customer feedback prior The markets in which Pelatro operates are competitive and to development. As Pelatro engages with more customers rapidly evolving. The Group’s existing products may become with an increased product portfolio, a broader spread of less competitive or even obsolete if competitors introduce new feedback is obtained enabling the business to engage with products and/or customer behaviour or requirements change. customers more quickly and effectively. Building sales We have been investing in our sales and marketing operations by working closely with specialist consultants Central to our strategic growth plan is winning new mViva and have sales capability covering most global regions, contracts, increasingly those which deliver recurring revenue enhanced by partners in various other countries to over a period of years. Failure to do so would directly impact assist us. Following the release of the advanced version our achievement of overall objectives or lengthen the period of our core software in early 2020, we are continuing to taken to achieve them. add features and functionalities to ensure technological advantage over competing products. Sales cycles are often very lengthy and may sometimes be delayed or restructured late in the process. Whilst the impact The Group (along with the telco industry generally) of COVID-19 is diminishing, a worsening of the situation in has evolved systems and processes to work remotely any of the areas in which the Group is seeking to sell products where necessary and otherwise to mitigate the effect of to new or existing customers could further lengthen the sales COVID-19, and continues to do so in line with changing cycle. circumstances. ANNUAL REPORT 29 Principal risk Mitigation Misdirected product, operational or strategic investments We are continually investing in product development and Strong communication lines between relevant stakeholders operational requirements to support mViva-led growth. Failure are ensured through regular formal meetings and monthly to achieve meaningful returns on investments would hinder reporting. The Board reviews and challenges all strategic the Group’s strategic growth plan and potentially jeopardise investments. the Group’s position in the market and its prospects. IP, data and cyber risks A significant IP loss, third party IP challenge, data loss, We implement robust processes across IP and IT systems, security breach or cyber-attack could significantly threaten which are overseen by the Head of Engineering. Pelatro’s ability to do business, particularly in the short term, and could result in significant financial loss. Reputational risk Maintaining a strong reputation is vital to the Group’s success Strong corporate governance and dedicated senior as a business. A loss of confidence in the Group’s ability to management remain the key elements of effective undertake new client opportunities may be caused by an reputational management. Senior management provide a adverse impact to the Group’s reputation which may, in turn model of best practice and guidance to ensure the Group’s significantly affect our financial performance and growth values and expected behaviours are clear and understood prospects. by everyone. Significant impact to the Group’s reputation could be caused As our business continues to grow and develop, we will by an incident involving major harm to one of our people or remain strongly focused on protecting the strength of customers, inadequate financial control processes or failure the Group’s reputation through effective governance, to comply with regulatory requirements. Impact of this type leadership, and through cultivating open and transparent would potentially result in financial penalties, losses of key relationships with all stakeholders. contracts, an inability to win new business and challenges in retaining key staff and recruiting new staff. Product and service delivery failures Issues or failures with our software products or services could Pelatro mitigates inherent product and service risks lead to failed implementations, project delays, cost overruns, through robust quality assurance and project governance data loss, security issues, customer dissatisfaction, early processes. Product releases are unit tested prior to delivery termination, service level breaches and contractual claims, and subjected to further customer testing prior to first use. all of which could adversely impact the Group’s revenues, Customer testing and acceptance sign-offs are required earnings and reputation. prior to go-live. The risks of servicing large telcos are significant but generally stable and well understood, and the Group has not suffered any material product or service failures since inception. Risks are generally greater with new clients, but formal RFP processes are routinely carried out by telcos, which provides clarity as to requirements and expectations. 30 ANNUAL REPORT Principal risk Mitigation Attracting and retaining skilled people Attracting and retaining the best skilled people at all levels of the Our business model has created a pipeline of opportunities business is critical. This is particularly the case in ensuring we for staff at every level of the business. This will continue to have access to a diverse range of views and experience and in be the case as the Group develops. The Group’s focus on attracting specific expertise at both managerial and operational competency at all levels of the business continues to ensure levels where the market may be highly competitive. that we develop the Group’s people and enable them to Failure to attract new talent, or to develop and retain the Group’s business. Incentive programmes are also in place to ensure successfully manage the changing profile of the Group’s existing employees, could impact the Group’s ability to achieve that key individuals are retained. the Group’s strategic growth objectives. As we continue to grow and diversify into new areas, this risk will continue to be a focus Pelatro recognises the importance of investing in its for the Board. employees and provides opportunities for training and personal development, as well as encouraging the involvement of employees in the planning and direction of their work. Economic, international trade and market conditions The Group is generally exposed to economic, trade and market Mitigation against the short-term impact of such risks is risk factors, such as global or localised economic downturn, provided through an increasing spread of geographies and changing international trade relationships, foreign exchange customers. Pelatro monitors political developments and will fluctuations, consolidation or insolvency of existing or prospective seek to mitigate emerging risks where possible. Pelatro’s high customers or competitor products, all of which could significantly margin revenues provide a level of protection against volatile threaten Pelatro’s performance and prospects. Pelatro’s current economic or market conditions and our policy of ongoing focus on emerging markets customers may increase such risks. product development helps us to maintain our competitive advantage. Credit risks The Group is exposed to the credit risk of an increasing range The Group’s principal financial assets comprise cash and of counterparties with whom it does business, often in respect of cash equivalents, deposits, trade and other receivables considerable amounts. Extended delivery, installation and sales and contract assets. As these instruments are exposed to cycles may cause the Group to be so exposed for considerable conventional risks, they are managed on the simple basis periods of time. of credit terms, credit worthiness and cash collection or settlement. The Group only contracts with major (often regional or global) telcos who have sound credit ratings. Increasingly the Group is entering into longer-term managed service/recurring revenue contracts, where billing is monthly or quarterly, thus shortening the billing cycle and reducing the overall credit risk per customer. The Group did not enter into derivative transactions during the year. It is the Group’s policy that no speculative trading in financial instruments will be undertaken. ANNUAL REPORT Principal risk Liquidity risks 31 Mitigation Fluctuations in working capital may leave the Group with Group cash balances are monitored on a weekly basis to inadequate cash resources to fund its operations. ensure that the Group has sufficient funds to meet its needs. Cash flow forecasts are generated and reviewed regularly by management. The Directors have prepared projected cash flow information for the coming year. The projections take into account the new business opportunities highlighted in the Managing Director’s Statement, the timing and quantum of which will affect the Group’s cash requirements, which are continually monitored by the Board. On the basis of these projections, the Group has sufficient working capital facilities for the foreseeable future. 32 ANNUAL REPORT Financial Review For the year ended 31 December 2020 Introduction For the year, total revenue decreased by 40 per cent, to $4.02m. This included $2.85m of recurring revenue (which comprises gain share, managed services and post-contract support (“PCS”)) accounting for around 71% of the total; together with around $0.4m of change request revenue this resulted in repeating revenue of $3.3m. The decline in revenue year on year arose principally from a significant reduction in “one off” type revenue (typically license fees) which was not unexpected as our sales efforts were targeted towards the pivot of the Group’s revenues towards a recurring revenue base; however, in addition and as announced in November 2020, whilst the coronavirus pandemic had a relatively limited impact on high-level decision making at our customers, other than them necessarily needing to focus more on their day-to-day operations, by Q4 COVID-19 had started to affect some of the employees and immediate relatives of both Pelatro and our customers. This led to a slower than scheduled implementation of certain projects (principally change requests), and as this revenue is recognised only on completion of the relevant project, certain revenue which was visible and expected in 2020 was deferred to the first half of 2021. Key Performance Indicators Revenue Recurring revenue 2020 2019 Growth $4.02m $6.67m (40)% $2.85m $2.96m (4)% Recurring revenue as percentage of total 71% 44% Adjusted EBITDA (see Note 7) $0.44m $2.89m (85)% Adjusted EBITDA margin 11% 43% Profit/(loss) before tax (before exceptional items) $(2.23)m $0.77m Cash generated from operating activities $2.26m $1.41m Contracted customers (at year end) 20 19 n/a 60% 1 ANNUAL REPORT 33 Income Statement Revenue Out of the total revenue of $4.02m, approximately Additionally, whilst net staff numbers grew in the year, $0.7m arose from sales of licenses and associated leavers were all employees whose cost was charged to implementation (2019: $1.9m) and some $2.9m arose overheads, whilst the majority of new joiners were re- from recurring revenue, comprising approximately cruited for specific customer contract roles (and hence $1.5m from managed service and gain share contracts are charged to cost of sales); accordingly the net cost of and the balance from post-contract support. Change staff charged to overheads reduced. There was also a request income fell from $1.5m to just over $0.4m, prin- general reduction in other costs including plc costs and cipally due to the effect of COVID-19 which affected the certain consultancy contracts. scheduled implementation of certain projects as noted above. Exceptional gains The second stage earn-out payment due to the vendors One new customer was added during the year; this, of Danateq was agreed in the year at $1m gross under together with the number of recurring revenue custom- the terms of the SPA. The net amount paid was some ers, further reduced customer concentration with now $193,000 lower, being reduced by sums relating either only three customers accounting for more than 10% of to amounts paid by customers in advance to the former revenue. As noted last year, a proportion of the Group’s Danateq business but due to Pelatro, or amounts de- revenue is now invoiced in Indian Rupees (“INR”) which ductible under the terms of the SPA due to differences forms a natural hedge against the Group’s cost base, in outturn in disclosure items. The difference between of which around 60% (in cash terms) is in INR. the estimated value of the liability brought forward and Cost of sales the amount paid (as adjusted for the imputed discount due to the time value of money to the date of payment) resulted in the exceptional gain shown of $149,000. Cost of sales increased by 71% to $1.71m (2019: $1.00m). These costs comprise principally (i) the di- Profitability rect salary costs of providing software support and Adjusted EBITDA (earnings before interest, tax, de- maintenance, professional services and consultancy; preciation, amortisation and exceptional items) fell by (ii) expensed customer implementation; (iii) third-par- 85% in the year to $0.44m (2019: $2.89m). Loss before ty software maintenance and licensing costs; and (iv) tax before exceptional items was $(2.22)m (2019: prof- sales commissions. The increase in FY20 results al- it $0.77m). Adjusted loss per share was (5.5)¢ (2019: most entirely from the cost of extra staff taken on to positive 4.2¢), and reported loss per share was (7.2)¢ service several managed service and similar contracts (2019: positive 2.5¢). The reported loss before tax was implemented during the year. $(2.08)m (2019: profit $1.01m). Overheads Taxation Pre-exceptional overheads (excluding depreciation The Group suffers a tax charge despite a reported con- and amortisation) decreased to $1.9m (2019: $2.8m), solidated loss before tax as (i) the Group’s operating largely due to a substantial reduction in travel costs. subsidiary in India is necessarily profitable on a stand- 34 ANNUAL REPORT -alone basis in order to comply with local tax laws; and Development costs (ii) customer payments in respect of sales to certain ju- risdictions suffer Withholding Tax (“WHT”) deductions: subject to various restrictions this may be offsetable against other profits but, in the absence of such profits, the WHT is treated as tax suffered. The taxation charge for the year comprises a charge of $0.30m relating to current tax (2019: $0.25m), which is net of a credit of $18,000 relating to the reassess- ment of prior year Group tax liabilities and WHT assets, principally in the UK and the US. Partly as a result of that reassessment, the Group is due a tax refund of approximately $42,000. WHT also accounts for the ma- jority of the “Income tax paid” of $0.34m in the Group Statement of Cash Flows. The Group is committed to the continuous enhance- ment of its software suite, and we aim to offer a mar- ket-leading platform which addresses the needs of our telco customers. The Group now employs around 95 developers in Bangalore and around 20 in the Group’s other development centre in Nizhny Novgorod. In addi- tion to the release of the advanced V6 of our proprietary mViva software, the Group released various add-on modules (as detailed above), thus further expanding the scope, functionality and optionality of the software suite. Costs incurred of around $2.9m (2019: $2.1m) were capitalised accordingly. Amortisation on development cost assets increased to $1.4m (2019: $1.0m) and, net of amortisation, this capitalisation resulted in a net book value of intangible assets relating to development costs in the statement of financial position of approximately The tax charge also reflects a charge of $72,000 relat- ing to the derecognition of deferred tax assets (2019: $5.9m (2019: $4.4m). $53,000 credit) due to uncertainty over the timing of Property, plant and equipment when the previously recognised deferred tax assets could be offset against future profits. Statement of Financial Position Intangible assets Customer relationships and acquired software for re- sale Expenditure of $0.90m on property, plant and equip- ment relates principally to $0.87m spend on IT equip- ment placed on site at a customer’s premises to im- plement the related managed services contract. The balance related mainly to spend on fixtures, fittings and leasehold improvements due to the continued expan- sion of the Group’s office space. Depreciation in the year amounted to $0.20m (exclud- ing amounts relating to Right-to-Use assets now rec- Assets acquired pursuant to the Danateq Acquisition ognised under IFRS 16, and gross of amounts capi- comprised principally customer relationships and en- talised as intangible assets) (2019: $93,000), and the terprise software for resale to third parties; the custom- aggregate net book value of property, plant and equip- er relationships acquired are being amortised over 10 ment rose from $0.52m to $1.22m. years. Net of accumulated amortisation for the year, the net book value of the standalone intangible assets Trade receivables and contract assets acquired (i.e. the customer relationships) was approxi- mately $5.2m at the year end. Trade receivables At 31 December 2020 total trade receivables (i.e. in- cluding long-term receivables) stood at $3.5m (2019: ANNUAL REPORT 35 $5.5m). Of these receivables, approximately $1.4m -pected to reverse after more than one year) decreased has been received since the year end to date. to $0.31m (2019: $0.51m), reflecting the invoicing pro- The short-term trade receivables balance at the year end is analysed as follows: file of various products and services, principally on PCS. Fulfilment assets included in contract assets total $0.15m (2019: $9,000) in respect of short-term assets (representing costs directly relating to certain con- tracts to be recognised in profit and loss in the next 12 months); and $0.44m (2019: $nil) in respect of long- term assets (representing costs directly relating to cer- tain contracts to be recognised in profit and loss after one year). Trade and other payables, provisions and contract liabilities The above figures have been adjusted where appropriate for balance Trade and other payables sheet reallocations, and exclude contract assets and the associated incremental revenue. At the year end, short-term trade payables stood at $1.1m (2019: $82,000) principally comprising an Given the wide variety and bespoke nature of the amount of $0.72m due in respect of sales commissions Group’s contracts, figures shown for debtor days are payable. Other short-term payables of $0.28m (2019: pro forma for illustration only. Contract assets $0.44m), were due principally to $0.22m in respect of staff bonuses and the balance for sundry creditors. Provisions Contract assets are recognised relating to support and maintenance revenue and license fees as invoices are Short-term provisions include amounts estimated in re- raised in arrears of the revenue recognition relating to spect of leave encashment and “gratuity” payments (in the services being provided. In addition, contract as- respect of staff leavers in the Group’s Indian subsidiary), sets include contract fulfilment assets relating to sales plus sundry expense provisions, in total $79,000 (2019: commission provisions, the cost of which is amortised $53,000). Tax provisions of $84,000 (2019: $149,000) over the life of the corresponding contract. comprise $60,000 relating to current tax payable and a deferred tax liability of $24,000. Short-term contract assets deriving from revenue (i.e. those which are expected to reverse in less than one Long-term provisions of $0.17m (2019: $0.12m) relate year) increased to $0.46m (2019: $0.29m) largely due solely to amounts estimated in respect of leave encash- to one license contract signed in the year which had ment and gratuity payments. invoicing terms which differed significantly from the un- derlying performance obligations. Long-term contract assets deriving from revenue (i.e. those which are ex- 36 ANNUAL REPORT Contract liabilities Summary Contract liabilities represent customer payments re- Our performance this year represents a year of transi- ceived in advance of satisfying performance obliga- tion: the change in the quality of revenue, which now tions, which are expected to be recognised as revenue includes major long-term managed service contracts, a in 2021 and beyond. Short-term contract liabilities de- solid base of support revenue as well as valuable high creased to $0.50m (2019: $0.66m) and long-term con- margin training and other consultancy income, gives us tract liabilities to $0.21m (2019: $0.27m) as the per- a sound platform from which to build. Given the geo- formance conditions in the underlying contracts were graphic spread of the Group, Brexit had little or no ef- fect and, whilst we continue to stay abreast of any de- velopments, we do not anticipate any material impact arising from the EU-UK Trade and Cooperation Agree- ment. Whilst COVID-19 provides a continuing cause for caution across the world, the Group has made an excellent start to the year, with a material proportion of the expected revenues for the year underpinned by recurring and repeating revenue with significant further change request and other contracts added in the first quarter. The Board therefore remains optimistic that the Group is on track to deliver a strong year of growth. Nic Hellyer Finance Director 11 April 2021 satisfied. Statement of Cash Flows Cash flow and financing Cash generated by operations before tax payments amounted to $2.60m (2019: $1.75m), largely resulting from the realisation of trade receivables (net working capital inflow of c. $2.2m). As the Group transitions to a recurring revenue model, more contracts and hence revenue will be on a quarterly or even monthly billing cycle and hence we would expect this trend to contin- ue. During the year the Group secured financing of ap- proximately $0.8m (on a term basis over 6 years) in order to match fund the cost of hardware associated with the major managed services contract announced in December 2019. In addition, the FY19 year end overdraft of $0.17m was repaid. In August the Group raised c. $2.6m net of expenses by way of an equity placing. This has supported the Group’s expansion, both in terms of recruitment (in particular in sales) and working capital generally. Net of expenditure on intangibles (principally devel- opment costs of $2.8m) and the hardware referred to above, the Group had closing gross cash of $1.8m (2019: $1.1m). Borrowings amounted to $1.4m (2019: $0.6m) excluding amounts relating to lease liabilities. ANNUAL REPORT 37 The s172 Statement that is required to be covered in the Strategic Report is included in the Corporate Governance review on pages 47 and 49 and is hereby incorporated within the Strategic Report by reference. The Strategic Report was approved by the Board of Directors on 11 April 2021 On behalf of the Board Subash Menon 11 April 2021 Nic Hellyer 11 April 2021 38 ANNUAL REPORT Corporate Governance Review For the year ended 31 December 2020 Executive Directors Non-executive Directors Subash Menon - Managing Director, CEO and Co-Founder Richard Day – Chairman (i)(ii)(iii) Subash co-founded the Group in April 2013. Prior to Pelatro, Subash was the CEO and founder of Subex Limited (“Subex”), a company he transformed from a systems integrator in telecoms hardware to a glob- al leader in Telco software for business optimisation. Subash also guided Subex through a successful IPO in India (NSE and BSE) in 1999 and through seven acqui- sitions in the UK, US and Canada, driving revenues to in excess of US$100m, prior to leaving Subex in 2012. Sudeesh Yezhuvath COO and Co-Founder Richard has significant board and business experience from a number of companies, both publicly quoted and private. He is a qualified solicitor and a Chartered Member of the Securities Institute. Richard co-founded institutional brokers Arden Partners in 2002 and was instrumental in growing their corporate offering as well as their admission to AIM in 2006. Richard is current- ly a director of EGS Energy Limited and Chairman of their special purpose vehicle Eden Geothermal Limit- ed, which has secured funding to develop and operate their deep geothermal site in Cornwall. He is also a director of Alchemac Limited, a UK company with an aggregates quarrying business in Southern India. Sudeesh co-founded the Group with Subash in 2013. Pieter Christiaan Verkade (i)(ii)(iii) Sudeesh joined Subash at Subex in 1993, where he worked as a Sales Engineer. There, he progressed to a board Director and Chief Operating Officer. Sudeesh left Subex in 2012, by which time it had grown to be a global leader with over 200 telco operators, across more than 70 countries. Nic Hellyer, FCA Finance Director Nic is a Chartered Accountant who brings extensive board level experience from his 25 years in investment banking. Nic spent the majority of his banking career at UBS and HSBC, advising on a wide range of trans- actions including public takeovers, private M&A, IPOs Pieter serves as an executive director on the board of Discover Digital International, responsible for Market- ing and Sales, and is Chairman and Co-Founder of Viva Africa, an African content aggregator and producer for video, a role he has held since February 2016. In addi- tion, he is Chairman for Andocure (Mobile Advertising) and UNBOX (behavioural solutions). He was the Chief Commercial Officer for Unitel in Angola from August 2017 to August 2019. Prior to this, Pieter spent sixteen years working in numerous board level roles, varying from CFO, CMO, CCO to CEO for various companies within the telecommunications industry. These includ- ed Telenor International, Orange and MTN, where he was Group Chief Commercial Officer, working across and other equity fund raisings. Nic joined Pelatro in both Europe and Africa. 2017 prior to the IPO of the Group in December that (i) Member of Audit Committee year. He is also part-time CFO of Byotrol plc, a biocidal (ii) Member of Remuneration Committee products company which is also quoted on AIM. (iii) Member of Nomination Committee ANNUAL REPORT 39 Statement of compliance with the 2018 QCA Corporate Governance Code QCA principles SECTION 1: DELIVER GROWTH Chairman’s introduction High standards of corporate governance are a key priority for the Board of Pelatro and, in line with the London Stock Exchange’s changes to the AIM Rules requiring all AIM-quoted companies to adopt and com- ply with a recognised corporate governance code, the Board has adopted the 2019 Quoted Companies Alli- ance Corporate Governance Code (the “QCA Code”) as the basis of the Group’s governance framework. It is the responsibility of the Board to ensure that the Group is managed for the long-term benefit of all sharehold- ers and stakeholders, with effective and efficient de- cision-making. Corporate governance is an important aspect of this, reducing risk and adding value to the Group’s business. The QCA Code is constructed around ten broad prin- ciples and a set of disclosures. The QCA has stated what it considers to be appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures. We have consid- ered how we apply each principle to the extent that the Board judges these to be appropriate in the circum- stances, and below we provide an explanation of the approach taken in relation to each. The Board consid- ers that it has complied with the principles of the QCA Code. Richard Day Non-Executive Chairman Principle 1: Establish a strategy and business mod- el which promote long-term value for shareholders As evidenced by continuing progress in winning con- tracts from new customers as well as new business from existing customers, Pelatro has an increasing rep- utation in the MultiChannel Marketing software space. To deliver this growth and hence promote long-term value for shareholders, the Board established a clear three-pronged strategy and business model when the Group floated on the AIM market in 2017 and identified the following key areas of operation to focus on improv- ing on the Group’s performance: Sales strategy, which encompasses all critical areas progressively to open up new vistas and enable the Group to address larger market opportunities while positioning it as a key player in its chosen space Diversification strategy to offer complementary ser- vices Acquisition-led growth strategy where and when ap- propriate to expand the business model. A fuller explanation of how the strategy and business model have been executed is contained in both the Company’s Admission Document dated 13th December 2017 and Placing Circular dated 30th July 2018 (which documents are available to download from the Group website). As discussed further in the Managing Direc- tor’s statement this strategy has been evolving, in line with our growing business and changing operational landscape and we have moved from a predominantly licence fee model to one now of more annual recurring revenues. This helps us work more closely in partner- ship with our telco customers and is giving us greater financial visibility over the longer term. 40 ANNUAL REPORT Principle 2: Seek to understand and meet share- encouraged to contact the company directly with any holder needs and expectations enquiries they may have. Private shareholder events are usually attended by the CEO and Finance Director, Introduction as well as the Chairman. The Company remains committed to listening and Analyst research communicating openly with its shareholders to ensure that its strategy, business model and performance are The Group has not commissioned any “paid for” re- clearly understood. Understanding what analysts and search from third party analysts and have no current in- investors think about us, and in turn, helping these tention of doing so. The Company’s broker Cenkos and audiences understand our business, is a key part of equity data distributor Proquote produce research on driving our business forward and we actively seek di- the Group which is freely available from their internet alogue with the market. We do so via investor road- portal, linked via the “Investors” section of the Pelatro shows, attending investor conferences, hosting capital website. markets days and our regular reporting, remotely when necessary. Report and accounts Institutional shareholders The Board has ultimate responsibility for reviewing and approving the Annual Report and Accounts and it has The Directors actively seek to build a relationship with considered and endorsed the arrangements for their institutional shareholders. Shareholder relations are preparation, under the guidance of its audit committee. managed by the Chief Executive Officer and Finance The Directors confirm that the Annual Report and Ac- Director who make presentations to institutional share- counts, taken as a whole, is fair, balanced and under- holders and analysts regularly following the release of standable and provides the information necessary for the full-year and half-year results, as well as for any shareholders to assess the Group’s position and per- significant strategic developments. The non-executive formance, business model and strategy. Chairman and non-executive Director are also avail- able to meet investors, whenever required. The Board Private shareholders At every Board meeting, the Chief Executive Officer and the Finance Director provide a summary of the In normal times private shareholders have had ac- content of any engagement they have had with inves- cess to Pelatro presentations through various inves- tors to ensure that major shareholders’ views are com- tor events throughout the year which they can attend; municated to the Board as a whole. The Board is also whilst this has been curtailed in the last year because provided with brokers’ and analysts’ reports when pub- of restrictions on group events, the Directors plan to lished. This process enables the Chairman and the oth- address this in the coming year through online events. er Non-executive Director to be kept informed of major Private shareholders also have access to selected an- shareholders’ opinions on strategy and governance, alysts’ research which is made available to them by and for them to understand any issues or concerns. Pelatro through the Group’s website. They are also ANNUAL REPORT 41 The non-executive Directors are available to discuss The Group believes that having empowered and re- any matter stakeholders might wish to raise, and the sponsible employees who display sound judgment and Chairman attends meetings with investors and ana- awareness of the consequences of their decisions or lysts, as well as professional advisers, as required. actions, and who act in an ethical and responsible way, Investors may also make contact requests through the Company’s broker. Corporate Social Responsibility is key to the success of the business. Principle 3: Take into account wider stakeholder The Group recognises the increasing importance of and social responsibilities and their implications corporate social responsibility and endeavours to take for longer-term success it into account when operating its business in the inter- ests of its stakeholders, including its investors, employ- Our wider stakeholder group includes our employees, ees, customers, suppliers, business partners and the customers, advisers and investors. Engaging with our communities where it conducts its activities. stakeholder base strengthens our relationships across our stakeholder base and helps us make better busi- The operation of a profitable business is a priority and ness decisions to deliver on our commitments. The that means investing for growth as well as providing Board is regularly updated on wider stakeholder en- returns to its shareholders. To achieve this, the Group gagement feedback to stay abreast of stakeholder in- recognises that it needs to operate in a sustainable sights into the issues that matter most to them and our manner and therefore has adopted core principles to business, and to enable the Board to understand and its business operations which provide a framework for consider these issues in decision-making. both managing risk and maintaining its position as a Employees good “corporate citizen”, and also facilitate the setting of goals to achieve continuous improvement. Alongside our shareholders, suppliers and customers, The Group aims to conduct its business with integri- our employees are important stakeholders in our busi- ty, respecting the different cultures and the dignity and ness and the Board therefore closely monitors and re- rights of individuals in the countries where it operates. views the performance and satisfaction of our employ- The Group supports the UN Universal Declaration of ees through regular dialogue and a regular appraisal Human Rights and recognises the obligation to pro- programme as well as other feedback it receives to mote universal respect for and observance of human ensure alignment of interests. rights and fundamental freedoms for all, without dis- tinction as to race, religion, gender, language or dis- Pelatro operates an Employee Share Option scheme, ability. with options having been granted to some 70 employ- ees. The Group is still a young, dynamic business and Customers is small enough to ensure that each employee is able to meet with management at any time to discuss busi- Our success and competitive advantage are dependent ness-related issues. upon fulfilling customer requirements. The longevity of customer relationships is a key part of our strategy, and an understanding of current and emerging 42 ANNUAL REPORT requirements of customers enables us to develop new issues so as to ensure that any adverse effects on the and enhanced services, together with software to sup- environment are minimised. It strives to provide and port the fulfilment of those services. The Group encour- maintain safe and healthy working conditions, and to ages feedback from its customers through engagement keep its entire staff informed of its environmental policy with individual customers throughout a project. The whilst encouraging them to consider environmental is- number of customers has been growing significantly sues as an everyday part of their role. over recent years, but the overall number of customers still allows us to have regular interface with custom- The Group presents an Environmental, Social and ers and ensure their needs are appreciated. The team Governance Report elsewhere in this Annual Report. holds periodic meetings with every customer to under- stand and resolve their “pain points” while collecting Principle 4: Embed effective risk management, con- valuable feedback on all aspects of business such as sidering both opportunities and threats, through- product features, quality of delivery, support and so on. out the organisation Health and Safety The Board has overall responsibility for the Group’s internal control systems and for monitoring their effec- The Directors are committed to ensuring the highest tiveness. The Board, with the assistance of the Audit standards of health and safety, both for employees and Committee, maintains a system of internal controls to for the communities within which the Group operates. safeguard shareholders’ investment and the Group’s The Group seeks to exceed legal requirements aimed assets, and has established a continuous process for at providing a healthy and secure working environ- identifying, evaluating and managing the significant ment to all employees and understands that success- risks the Group faces. ful health and safety management involves integrating sound principles and practice into its day-to-day man- The Board currently takes the view that an internal au- agement arrangements and requires the collaborative dit function is not considered necessary or practical due effort of all employees. All employees are positively to the size of the Group and the close day to day con- encouraged to be involved in consultation and commu- trol exercised by the executive directors. However, the nication on health and safety matters that affect their Board will continue to monitor the need for an internal work. Environment audit function. Further details of the principal risks faced by the Group, together with their potential impact and the mitigation The Directors are committed to minimising the impact measures in place, are set out in the section titled “Prin- of the Group’s operations on the environment. The cipal risks and uncertainties” in this Annual Report. The Group recognises that its business activities have an Board believes these risks to be currently the most sig- influence on the local, regional and global environment nificant with the potential to impact the Group’s strate- and accepts that it has a duty to carry these out in an gy, financial and operational performance and ultimate- environmentally responsible manner. It is the Group’s ly, its reputation. policy to endeavour to meet relevant legal require- ments and codes of practice on environmental The Board considers risk to the business on an ongoing basis and the Group formally reviews and ANNUAL REPORT 43 documents the principal risks at least annually. Both is summarised below: the Board and senior management are responsible for reviewing and evaluating risk and the executive Direc- Director Board Audit Remuneration tors meet on a regular basis to review ongoing trading Richard Day performance, discuss budgets and forecasts and any Nic Hellyer new risks associated with ongoing trading, the out- come of which is reported to the Board. SECTION 2: MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK Principle 5: Maintain the Board as a well-function- ing balanced team led by the Chair The Board is responsible to the shareholders and sets the Group’s strategy for achieving long-term success. It is ultimately responsible for the management, gov- ernance, controls, risk management, direction and performance of the Group. The members of the Board have a collective responsibility and legal obligation to promote the interests of the Group and are collective- ly responsible for defining corporate governance ar- rangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chairman of the Board, Richard Day. The Chairman also ensures effective communication with sharehold- ers and facilitates the effective contribution of the other non-executive Director. The Board consists of five directors of which three are executive and two are independent non-executives. The Board is supported by three committees: audit, remuneration and nomination. Non-executive directors are required to attend all Board meetings (usually in London, although with current COVID-19 restrictions these have mainly been via video conferencing host- ed from London) and to be available at other times as required for face-to-face and telephone meetings with the executive team and investors. In addition, they at- tend Board committee meetings as required. Meetings held during 2020 and the attendance of Directors 6 6 5 5 4 2 2 n/a 2 n/a 1 n/a n/a 1 n/a Subash Menon Pieter Verkade Sudeesh Yezhuvath To enable the Board to discharge its duties, all Direc- tors receive appropriate and timely information. Brief- ing papers are distributed to all Directors in advance of Board and Committee meetings. All Directors have access to the advice and services of the Finance Direc- tor (who is also Company Secretary): he is responsible for ensuring that the Board procedures are followed, and that applicable rules and regulations are complied with. In addition, procedures are in place to enable the Directors to obtain independent professional advice in the furtherance of their duties, if necessary, at the Company’s expense. The Board encourages the ownership of shares in the Company by executive and non-executive Directors alike and in normal circumstances does not expect Di- rectors to undertake dealings of a short-term nature. The Board considers ownership of Company shares by non-executive Directors as a positive alignment of their interest with shareholders. The Board will period- ically review the shareholdings of the non-executive Directors and will seek guidance from its advisers if, at any time, it is concerned that the shareholding of any non-executive Director may, or could appear to, con- flict with their duties as an independent non-executive Director of the Company or their independence itself. Directors’ emoluments, including Directors’ interests in shares and options over the Company’s share capital, are set out in the Report of the Directors. 44 ANNUAL REPORT The Company has adopted a code for directors’ and Principle 7: Evaluate board performance based on employees’ dealings in securities which is appropriate clear and relevant objectives, seeking continuous for a company whose securities are traded on AIM and improvement which is in accordance with Rule 21 of the AIM Rules and the Market Abuse Regulations. The effectiveness of the Board is reviewed by the Chairman on an annual basis. As a quoted company, Principle 6: Ensure that between them the Direc- we have an obligation to keep the market informed tors have the necessary up-to-date experience, of material developments and hence we are in regu- skills and capabilities lar contact with our Nomad and Broker. As part of this The Board currently comprises three executive and on the effectiveness of the Board which they confirmed two non-executive Directors with an appropriate bal- was satisfactory. We asked the same of our UK law- ance of sector, financial and public market skills and yers Memery Crystal and received similar confirmation. yearly review, we specifically asked them their opinion experience. The skills and experience of the Board are set out in their biographical details above. The expe- As an AIM company, we are required to adopt a rec- rience and knowledge of each of the Directors gives ognised corporate governance code and we have ad- them the ability constructively to challenge the strate- opted ours from the Quoted Companies Alliance. As gy and to scrutinise performance. The Board also has a Board, we have also recently conducted an annual access to a network of external advisers and receive evaluation of the Board, led by the Chairman, in accor- regular briefings on legal, accounting and regulatory dance with the recommendation from the FRC and with matters from these advisers where necessary to keep reference to the FRC guidance on the list of questions their skills and knowledge base up to date. a board should be asking of themselves. Executive and non-executive Directors are subject to We have three committees, being Audit, Remuneration re-election intervals as prescribed in the Company’s Ar- and Nomination. Given the size of our board with only ticles of Association. At each Annual General Meeting two NEDs, the NEDs sit on each committee. Richard one-third of the Directors, who are subject to retirement Day is Chairman of Audit and Remuneration, and Pi- by rotation shall retire from office. They can then offer eter Verkade is Chairman of Nomination. The QCA themselves for re-election. The executive directors are consider it is unusual for the Chairman of an AIM com- employed under service contracts requiring 12 months’ pany also to be Chairman of the Remco; however, this notice (by either party) in the case of Subash Menon was discussed with our Nomad and investors when we and Sudeesh Yezhuvath, and three months’ notice in floated in 2017. Richard Day is also a member of the the case of Nic Hellyer. The non-executive director and QCA group which recently produced the new version of the Chairman receive payments under appointment the QCA Remuneration Code. letters which are terminable on three months’ notice. These committees are required to act independently of the executive of the Board and indeed may need at times to be in conflict with the executive members. Because of the respective experience and qualities of the NEDs, they are considered by our Nomad to have sufficient qualities to fulfil these roles. ANNUAL REPORT 45 Principle 8: Promote a corporate culture that is The Chairman, Richard Day, is responsible for lead- based on ethical values and behaviours ership of the Board, ensuring its effectiveness on all aspects of its role, setting its agenda and ensuring that The Group adopts a policy of equal opportunities in the the Directors receive accurate, timely and clear infor- recruitment and engagement of staff as well as during mation. The Chairman also ensures effective commu- the course of their employment. It endeavours to pro- nication with shareholders and facilitates the effective mote the best use of its human resources on the ba- contribution of the other non-executive Director. Sub- sis of individual skills and experience matched against ash Menon, as Chief Executive Officer, is responsible those required for the work to be performed. for the operational management of the Group and the implementation of Board strategy and policy. By divid- The Group recognises the importance of investing in ing responsibilities in this way, no one individual has its employees and, as such, the Group provides op- unfettered powers of decision-making. portunities for training and personal development and encourages the involvement of employees in the There is a formal schedule of matters reserved for de- planning and direction of their work. These values are cision by the Board in place which enables the Board applied regardless of age, race, religion, gender, sex- to provide leadership and ensure effectiveness. Such ual orientation or disability. The Group recognises that matters include business strategy and management, commercial success depends on the full commitment financial reporting (including the approval of the annual of all its employees and commits to respecting their budget), Group policies, corporate governance mat- human rights, to provide them with favourable working ters, major capital expenditure projects, material ac- conditions that are free from unnecessary risk and to quisitions and divestments and the establishment and maintain fair and competitive terms and conditions of monitoring of internal controls. service at all times. The appropriateness of the Board’s composition and In regard to how ethical values are recognised and corporate governance structures are reviewed through respected, we are this year for the first time includ- the ongoing Board evaluation process and on an ad ing a specific Environmental, Social and Governance hoc basis by the Chairman together with the other section in this Annual Report. We aim to conduct our Directors, and these will evolve in parallel with the business with integrity, respecting the different cultures Group’s objectives, strategy and business model as and the dignity and rights of individuals in the countries the Group develops. where we operate. We support the UN Universal Dec- laration of Human Rights and recognise the obligation Board committees to promote universal respect for and observance of human rights and fundamental freedoms for all, with- The Board has established Audit, Nomination and Re- out distinction as to race, religion, gender, language or muneration Committees. disability. All the board have a responsibility to ensure we follow appropriate ethical values. The Audit Committee has Richard Day as Chairman and has primary responsibility for monitoring the quali- Principle 9: Maintain governance structures and ty of internal controls, ensuring that the financial perfor- processes that are fit for purpose and support mance of the Group is properly measured and reported good decision-making by the Board on, and for reviewing reports from the Group’s 46 ANNUAL REPORT auditors relating to the Group’s accounting and internal controls, in all cases having due regard to the interests of shareholders. The Audit Committee meets at least twice a year. Pieter Verkade is the other member of the Audit Committee. A report on the duties of the Audit Committee and how it discharges its responsibilities is set out below. The Remuneration Committee has Richard Day as Chairman, and reviews the performance of the Executive Direc- tors, and determines their terms and conditions of service, including their remuneration and the grant of options, hav- ing due regard to the interests of shareholders. The Remuneration Committee meets as necessary. Pieter Verkade is the other member of the Remuneration Committee. Details of the activities and responsibilities of the Remuneration Committee are set out below. The Nomination Committee has Pieter Verkade as Chairman, and identifies and nominates, for the approval of the Board, candidates to fill board vacancies as and when they arise. The Nomination Committee meets as necessary and did not meet in the financial year 2020 as there have been no Board vacancies. Richard Day is the other member of the Nomination Committee. The terms of reference of each Committee can be downloaded from www.pelatro.com SECTION 3: BUILD TRUST Principle 10: Communicate how the Group is governed and is performing The Board maintains a frequent dialogue with all of its stakeholders, both in person and through formal channels such as the Annual Report (which, inter alia, contains details of the work of the Board and the various committees during the year) and the London Stock Exchange Regulatory News Service. ANNUAL REPORT 47 s.172 statement For the year ended 31 December 2020 Companies Act 2006 s. 172 statement The Board acknowledges its responsibilities under the Companies Act 2006 (the “Act”) and below sets out the re- quirements of the Act and in particular section 172(1), and the key processes and considerations that demonstrate how the Directors discharge their duties and promote the success of the Company. References to the Company include the wider Group where relevant. As noted in the Corporate Governance Report, the Board meet 6 times a year with papers circulated in advance to allow the Directors to fully understand the performance and position of the Company, alongside matters arising for decision. Each decision that is made by the Directors is supported by analyses of the possible outcomes so that an educated decision can be made based upon the likely impact on the Company, so a decision can be made which best promotes the success of the Company and what impact there may be on the wider stakeholder group. Decisions of the Board take into account not just short-term, but also medium- and long-term consequences, which are carefully considered and balanced, having regard to the needs and priorities of the business, its customers, part- ners, employees and other stakeholders. For example, the decision to prioritise recurring revenue contracts as op- posed to license contracts, leading to a reduction in short-term revenue, was based on the view that this strengthens customer relationships, creates a more stable revenue stream and boosts the value of the business in the long-term. Factors (a) to (f) below, are all taken into account during the decision-making process. (a) The likely consequences of any decision in the long term Supporting each key decision, the Board are given access to management papers which set out the potential out- come of decisions. The papers include diligence on the financial impact via forecasts, as well as non-financial factors and how the decision fits with the strategy of the Company. Strategy is reviewed in detail each year at a Board “Away Day” (travel restrictions permitting) and this strategic thinking is intrinsic to future decision-making processes. Where appropriate, the Board will delegate responsibility to a sub-committee of Directors for areas such as M&A, investor relations and so on. (b) The interests of the Company’s employees The Directors actively consider the interest of employees in all major decisions. The Directors’ Report and Corporate Governance report set out in greater detail Pelatro’s policy towards its employees. Value is created through innova- tion and customer service, which is a product of motivated employees. This year in particular has been challenging for all employees, both corporately and personally, and our efforts to address this are set out in the section entitled “Proactively managing human capital during the pandemic”. 48 ANNUAL REPORT (c) The need to foster the Company’s business relationships with suppliers, customers and others Pelatro’s success also depends on strategic relationships with key partners, customers and suppliers, so the Board maintains ongoing oversight of these. Management packs report to the Board on the status of key relationships, which have Board-level engagement from an operational perspective through the CEO and the COO. Product per- formance is constantly monitored, and customer feedback continuously captured through regular account meetings, which are always attended by management-level, and often director-level representatives. (d) The impact of the Company’s operations on the community and environment The Company takes its responsibility within the community and wider environment seriously and acknowledge that more can be done. Pelatro is a global company and has based itself in strategic locations for the long term. The Company has a relatively low carbon footprint in terms of its operations, but acknowledges improvements can always be made, particularly as travel schedules can be extensive. In normal times employees typically would travel for three activities – sales, implementation and support. With regard to sales, whilst traveling is essential and much more help- ful to progress various cases, video conferencing as a tool can replace physical meetings to a limited extent. With respect to implementation and support, the Company has always been keen to minimise the need for on-site activity to minimise costs, hence implementation and support processes lend themselves very well to remote handling; in fact the Group has managed successfully to transition almost entirely to remote implementation this year with a con- sequent reduction of both costs and environmental impact. Further information on our environmental impact and the steps being taken to mitigate it are set out in our Environmental, Social and Governance report. Pelatro seeks to make a positive contribution to its community, at local and global levels, and to minimize as far as possible its impact on the environment. Pelatro backs its employees’ interests in community activities, supporting them in terms of time to attend to these commitments and financial backing. Of particular note is the Group’s commit- ment to employing graduates and others from local second-tier villages in India, hence enabling us to make a major contribution to the overall quality of lives of our employees which may otherwise be out of their reach. The Board’s adoption and application of the QCA Corporate Governance Code further supports these principles, with more detail of the steps Pelatro has taken set out in the disclosures against the relevant Principles of the Code, which can be found in the section on Corporate Governance and on the Pelatro website at https://www.pelatro.com/ investors/corporate-governance/. (e) The desirability of the Group maintaining a reputation for high standards of business conduct The Directors and the Group are committed to high standards of business conduct and governance. The Group has fully adopted the QCA Corporate Governance Code. Additionally, where there is a need to seek advice on particular issues, the Board will seek advice from its lawyers and/or nominated adviser to ensure the consideration of business conduct, and its reputation is maintained. ANNUAL REPORT 49 (f) The need to act fairly between members of the Company The Directors regularly meet with investors and strive to give equal access to all investors and potential investors. We intend to enhance this contact this coming year by increasing use of online platforms giving private investors access to the management team. Through its advisers, the Directors seek and obtain feedback from meetings with investors and incorporate such feedback into its decision-making processes where appropriate. Where conflicting needs arise, advice is sought from the wider Board and, as necessary, from advisers. Through the careful balancing of stakeholder needs, Pelatro seeks to promote success for the long-term benefit of shareholders. 50 ANNUAL REPORT Audit Committee Report For the year ended 31 December 2020 Dear Shareholder As Chairman of Pelatro’s Audit Committee, I present the Audit Committee Report for the year ended 31 December 2020, which has been prepared by the Committee and approved by the Board. The Committee is responsible for reviewing and reporting to the Board on financial reporting, internal control and risk management, and for reviewing the performance, independence and effectiveness of the external auditors in carrying out the statutory audit. The Committee advises the Board on the statement by the Directors that the Annual Report when read as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy. During the year, the Committee’s primary activity involved meeting with the external auditors Crowe U.K. LLP (“Crowe”), considering material issues and areas of judgement, and reviewing and approving the interim and year end results and accounts. In addition, the Committee reviewed the audit and tax services provided by Crowe. The Committee concluded that Crowe are delivering the necessary audit scrutiny and that the tax services provided did not pose a threat to their objectivity and independence. Accordingly, the Committee recommended to the Board that Crowe be re-appointed for the next financial year. In the coming year, in addition to the Committee’s ongoing duties, the Committee will: • consider significant issues and areas of judgement with the potential to have a material impact on the financial statements, including impairments of the Company’s investments and technologies; • keep the need for an internal audit function under review, having regard to the Company’s strategy and resources ANNUAL REPORT 51 Audit committee and attendance Objectives and responsibilities The Audit Committee comprises Richard Day and Piet- The Committee is responsible for monitoring the in- er Verkade. The Board considers that Richard Day has tegrity of the Group’s financial statements, including sufficient relevant financial experience to chair the Au- its Annual and Interim Reports, preliminary results an- dit Committee given that he has worked for more than nouncements and any other formal announcements 25 years in corporate finance, first at Cazenove & Co relating to its financial performance prior to release. (now JP Morgan Cazenove) and then at institutional The Committee’s main responsibilities can be sum- stockbrokers Arden Partners plc, where he was Head marised as follows: of Corporate Finance for most of his time there. He is a qualified solicitor and was chief financial officer from • to review the Company’s internal financial controls 2015 to 2020 at iEnergizer Limited, quoted on the AIM and risk management systems; market of the London Stock Exchange. Pieter Verkade • to monitor the integrity of the financial statements holds a Bachelor’s degree in business economics and and any formal announcements relating to the has held a number of controller and management ac- Group’s financial performance, reviewing signifi- countant roles in AT&T and Telenor, culminating in the cant judgements contained in them; CFO role for KPN Orange in Belgium. • to make recommendations to the Board in relation to the appointment of the external auditors and to The Committee is required by its terms of reference to recommend to the Board the approval of the re- meet at least twice a year. During the year, the Commit- muneration and terms of engagement of the ex- tee met twice. In addition, Nic Hellyer, Finance Direc- ternal auditors; tor, attended both Committee meetings by invitation. • to review and monitor the external auditors’ in- dependence and objectivity, taking into consid- eration relevant UK professional and regulatory requirements; • to develop and implement policy on the engage- ment of the external auditors to supply non-audit services, taking into account relevant ethical guid- ance regarding the provision of non-audit services by the external auditors; and • to report to the Board, identifying any matters in respect of which it considers that action or im- provement is needed, and to make recommenda- tions as to steps to be taken. The terms of reference are reviewed annually and are available on the Company’s website at pelatro.com/ investors. 52 ANNUAL REPORT Significant issues considered during the year During the year, the Committee: • reviewed and approved the annual audit plan and met with the external auditors to receive their find- ings and report on the annual audit; whether there was any indication that those assets had suffered any impairment. The Audit Committee consider the key judgements to be the discount rate and growth rates used in the value in use calculations. Following a review of the impact of the sensitivities performed by management on the discount rate and growth rate in the value in use calculations, the Audit Committee con- sidered that the rates used were reasonable and indi- • considered significant issues and areas of judge- cated no impairment. ment with the potential to have a material impact on the financial statements, including impairments of the Group’s investments and technologies; • considered the integrity of the published financial information and whether the Annual Report and Accounts taken as a whole are fair, balanced and understandable and provide the information nec- essary to assess the Group’s position and perfor- mance, business model and strategy; and The Committee also reviewed the basis of capitalisa- tion and considered the intangible value attributed to its intangible software development costs. The Committee was satisfied that the resultant net book values were appropriately prepared on a reasonable basis. Going Concern • reviewed and approved the interim and year end The Committee reviewed the cash flow forecasts for results and accounts. the Group and discussed the key assumptions and risks relevant to their achievement. The Committee was The significant accounting areas and judgements con- satisfied that the basis for adopting the going concern sidered by the Committee were: Recoverability of trade receivables basis in preparing the Group and Company financial statements, set out in note 3, was reasonable. Alternative performance measures The Committee continued to review the track record of receipts from slow-paying debtors and sought regu- The Group reports a number of performance measures lar updates from management as to the status of trade which are not in accordance with the reporting require- receivables. In light of this, the Committee reviewed ments of IFRS. The audit committee has reviewed these and accepted management proposals that no impair- during the year ended 31 December 2020 to ensure ment of trade receivables was required (other than as they are appropriate and that in each case the reason required by IFRS 9) and was satisfied that the trade for their use is clearly explained; they are reconciled receivables balance was fairly stated. to the equivalent IFRS figure; and they are not given prominence over the equivalent IFRS figure. Carrying value of goodwill and other intangible as- sets Risk review process The Audit Committee reviewed the judgements taken in the impairment review performed for each of the Group’s two cash generating units to determine The Audit Committee is responsible for reviewing the financial risks and the internal controls relating thereto but the Board as a whole has responsibility for reviewing the overall business risks and risk management frame- ANNUAL REPORT 53 framework. The Group’s principal risks and uncertainties are set out in the Strategic Report together with mitigating actions and the internal controls and risk management procedures are summarised in the Corporate Governance Report. External auditor The Committee reviewed the effectiveness of the audit process in respect of the year ended 31 December 2019. In doing so, the Committee considered the reports produced by Crowe, met the audit engagement partner and dis- cussed the audit with the Finance Director. The Committee continues to be satisfied that the external auditors are delivering the necessary scrutiny and robust challenge in their work. Accordingly, the Committee recommended to the Board that it is appropriate to re-appoint Crowe as the Group’s external auditors for the next financial year. External audit and non-audit services During the year, Crowe provided tax advisory services in respect of FY19. However, the Financial Reporting Coun- cil’s Revised Ethical Standard 2019 became effective on 15 March 2020, and accordingly Crowe was precluded from providing such services in respect of FY20 and another firm was engaged by the Group in respect of those services. Richard Day Chairman of the Audit Committee 11 April 2021 54 ANNUAL REPORT Directors’ Report For the year ended 31 December 2020 Remuneration Committee Report Dear Shareholder As Chairman of Pelatro’s Remuneration Committee, I present the Remuneration Committee Report for the year end- ed 31 December 2020, which has been prepared by the Committee and approved by the Board. As an AIM company, the Directors’ Remuneration Report Regulations do not apply to Pelatro and so the report that follows is disclosed voluntarily and has not been subject to audit. The Remuneration Committee is responsible for determining the remuneration policy for the Executive Directors, and for overseeing the Company’s long-term incentive plans. The Board as a whole is responsible for determining non-executive Directors’ remuneration. In setting the Group’s remuneration policy, the Remuneration Committee considers a number of factors including the following • • • salaries and benefits available to executive directors of comparable companies; the need to both attract and retain executives of appropriate calibre; and the continued commitment of executives to the Group’s development through appropriate incentive arrange- ments. Consistent with this policy, benefit packages awarded to executive directors comprise a mix of basic salary and per- formance-related remuneration that is designed as an incentive. The remuneration packages comprise the following elements: • base salary: the Remuneration Committee sets base salaries to reflect responsibilities and the skills, knowledge and experience of the individual; • bonus scheme: the executive directors are eligible to receive a bonus dependent on both individual and Group • • performance as determined by the Remuneration Committee; equity: share options (for non-founder executive directors); and provision of car (leased or purchased), and company contribution into a personal pension scheme (in the UK only). Purchased cars remain the property of the Group and the annual benefit to the individual comprises (i) the interest cost on the loan taken to fund the purchase; (ii) the depreciation on the vehicle and (iii) sundry expenses defrayed by the Group. ANNUAL REPORT 55 Remuneration decisions for 2020 Notwithstanding the difficult trading conditions encountered this year from the COVID-19 pandemic, significant prog- ress has still been made across the business. However, both Subash Menon and Sudeesh Yezhuvath declined to take a bonus payment this year, until the trading conditions we face are on a more normalised footing. A bonus was paid to Nic Hellyer in regard to significant progress made in aligning market expectations more in line with our evolv- ing strategy of focussing more on annual recurring revenues. A payment was also made in respect of work undertak- en outside the usual terms of his contract. No performance bonuses were granted during the year. Richard Day Chairman of the Remuneration Committee 11 April 2021 56 ANNUAL REPORT Directors’ Report The Directors present their annual report on the affairs Reporting Standards (IFRSs) as adopted by the EU of the Group, together with the consolidated financial and applicable law. statements and independent auditor’s report, for the year ended 31 December 2020. Under company law the Directors must not approve the Principal activities financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the The Pelatro Group provides specialised, enterprise Group for that period. class software solutions, principally through its flagship software suite mViva, to telecommunication companies In preparing these financial statements, the Directors (“telcos”), who face a series of challenges including are required to: market maturity, saturation and customer churn. Pela- tro’s software enhances the telco’s understanding of • select suitable accounting policies and then apply its customers and hence its engagement with them, in- them consistently; creasing revenue enhancement, enabling smart pricing • make judgements and accounting estimates that bundling, predicting churn and plugging revenue leak- are reasonable and prudent. ages. The software can be extended further to enable • state whether applicable accounting standards data monetisation. have been followed, subject to any material de- partures disclosed and explained in the financial Pelatro is well positioned in the Multichannel Marketing statements; and Hub space (MMH) - this is technology that orchestrates • prepare the financial statements on the going con- a customer’s communications and offers to customer cern basis unless it is inappropriate to presume segments across multiple channels to include web- that the Company will continue in business. sites, social media, apps, SMS, USSD and others. Further information on the Group’s activities, its pros- accounting records that are sufficient to show and ex- pects and likely future developments is given in the plain the Company’s transactions and disclose with sections titled “Strategic Report” and “Financial State- reasonable accuracy at any time the financial posi- The Directors are responsible for keeping adequate ments”. tion of the Company and enable them to ensure that the financial statements comply with the requirements Directors’ responsibilities of the Companies Act 2006. They are also responsi- ble for safeguarding the assets of the Company and The Directors are responsible for preparing the annual hence for taking reasonable steps for the prevention report and the financial statements for each financial and detection of fraud and other irregularities. They are year in accordance with applicable law and regula- further responsible for ensuring that the Report of the tions. Company law requires the Directors to prepare Directors and other information included in the Annual financial statements for each financial year. Under that Report and Financial Statements is prepared in accor- law the Directors have elected to prepare the financial dance with applicable law in the United Kingdom. statements in accordance with International Financial ANNUAL REPORT Website publication 57 The Directors at 31 December 2020 and their beneficial interests in the share capital of the Company were as The maintenance and integrity of the Pelatro Plc web follows: site, which includes compliance with AIM Rule 26, is the responsibility of the Directors; the work carried out Name of Director Number of Ordinary Shares of 2.5p each Options over Ordinary shares by the auditor does not involve the consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred Subash Menon 1 9,684,244 Sudeesh Yezhuvath 1 3,309,309 in the accounts since they were initially presented on Richard Day the website. Financial instruments Nic Hellyer 2 Pieter Verkade 19,457 105,000 - - - - 17,000 - Information about the use of financial instruments by the Company and its subsidiaries and the Group’s fi- 1 held in the name of Bannix Management LLP 2 52,600 Ordinary shares held by his wife, Dr Fawzia Ali; a further 84,000 op- tions over ordinary shares are unvested nancial risk management policies are given in note 28 No changes took place in the beneficial interests of of the financial statements. the Directors between 31 December 2020 and 11 April Directors and their interests 2021. The Directors who served during the year are as shown ber 2020 was 38p and the range during the year was below: 27p to 70p. The market price of the Ordinary Shares at 31 Decem- Subash Menon Managing Director Sudeesh Yezhuvath Executive Director Substantial shareholdings Richard Day Chairman As at 11 April 2021, the Company had received notifica- Nic Hellyer Finance Director Pieter Verkade Non-Executive tion of the following significant interests in the ordinary share capital of the Company*: In accordance with the Company’s articles Pieter Ver- Name of Holder Number of Ordinary Shares Percentage of Issued Share Capital kade will retire by rotation at the Annual General Meet- Bannix Management LLP* 12,993,553 35.1% ing and, being eligible, will offer himself for re-election. Chelverton Asset Management Rathbones Investment Management Herald Investment Management 1,725,000 1,615,626 1,561,986 4.7% 4.4% 4.2% * Bannix Management LLP (“Bannix”) is the investment vehicle of Kiran Me- non, Varun Menon and Sudeesh Yezhuvath, who hold shares in Bannix pro- portional to the interests shown in “Directors’ interests” above 58 ANNUAL REPORT Corporate governance which is periodically undertaken by the Board The Company has formalised the following matters by • main control procedures, which include the setting Board resolution: • • a formal schedule of Board responsibilities; the procedure for Directors to take independent professional advice if necessary, at the Company’s expense; of annual and longer-term budgets and the month- ly reporting of performance against them, agreed treasury management and physical security proce- dures, formal capital expenditure and investment appraisal approval procedures and the definition of authorisation limits (both financial and otherwise). • the procedure for the nomination and appointment • monitoring, particularly through the regular review of non-executive Directors, for specified periods and without automatic re-appointment; and • establishment of and written terms of reference for an audit, nomination and remuneration committees Internal control The Board has overall responsibility for ensuring that of performance against budgets and the progress of development and sales undertaken by the Board. The Board reviews the operation and effectiveness of this framework on a regular basis. The Directors con- sider that there have been no weaknesses in internal controls that have resulted in any losses, contingencies or uncertainties requiring disclosures in the financial the Group maintains a system of internal control to pro- statements. vide its members with reasonable assurance regard- ing the reliability of financial information used within Going concern the business and for publication, and that assets are safeguarded. There are inherent limitations in any sys- tem of internal control and accordingly even the most effective system can provide only reasonable, and not absolute, assurance with respect to the preparation of accurate financial information and the safeguarding of assets. The key features of the internal control system that operated throughout the year are described under the following headings: • control environment - particularly the definition of the organisation structure and the appropriate delegation of responsibility to operational manage- ment • identification and evaluation of business risks and control objectives - particularly through a formal process of consideration and documentation of risks and controls The Group’s business activities, together with the fac- tors likely to affect its future development, performance and position are set out in the Strategic Report; the fi- nancial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the notes to the financial statements, in particular in the consolidated cash flow statement, in Note 23 “Loans and borrowings” and Note 28 “Financial instruments”. The financial statements have been prepared on a go- ing concern basis. Overall, the Directors are of the view that the Group has adequate financing to be able to meet its financial obligations for a period of at least 12 months from the date of approval of this annual report and financial statements. ANNUAL REPORT 59 Events after the reporting date Coronavirus/COVID-19 There have been no significant events which have oc- Whilst the Group suffered some impact of in-country curred subsequent to the reporting date. restrictions during the year due to the coronavirus pan- Research and development lifted in the principal countries in which the Group op- Details of the Group’s activities on research and de- the part of our customers and the global rollout of vac- velopment during the year are set out in the Financial cination programmes, means that the Directors consid- erates. This, as well as a gradual “return to normal” on demic, such restrictions have now been partly or fully Review. Auditor er that coronavirus no longer presents a material risk to the Group. Each of the persons who are Directors of the Compa- ny at the date when this report was approved confirms that: By order of the Board • so far as the Director is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the Company’s auditor is unaware; and • the Director has taken all steps that he ought to have taken as a Director to make himself aware Nic Hellyer of any relevant audit information (as defined in Company Secretary the Companies Act 2006) and to establish that the 49 Queen Victoria Street Company’s auditor is aware of that information. London EC4N 4SA This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the 11 April 2021 Companies Act 2006. The Directors intend to place a resolution before the Annual General Meeting to appoint Crowe U.K. LLP as auditor for the following year. Liability insurance for Company officers As permitted by section 233 of the Companies Act 2006, the Company has purchased insurance cover for the Directors against liabilities that might arise in rela- tion to the Group. 60 ANNUAL REPORT Independent Auditors’ Report For the year ended 31 December 2020 Opinion • the financial statements have been prepared in accordance with the requirements of the Companies We have audited the financial statements of Pelatro Plc (the “Parent Company”) and its subsidiaries (the “Group”) for the year ended 31 December 2020, which Act 2006. Basis for opinion comprise: • the Group statement of comprehensive income for the year ended 31 December 2020; • the Group and Parent Company statements of fi- nancial position as at 31 December 2020; • the Group statement of cash flows for the year then ended; • the Group and Parent Company statements of changes in equity for the year then ended; and • the 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 state- ments is applicable law and United Kingdom Account- ing Standards, including Financial Reporting Standard 101 Reduced Disclosures Framework (UKGAAP). In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Com- pany’s affairs as at 31 December 2020 and of the Group’s loss for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the Parent Company financial statements have been properly prepared in accordance with UK- GAAP; and We conducted our audit in accordance with Internation- al Standards on Auditing (UK) (ISAs (UK)) and appli- cable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our re- port. We are independent of the Group 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, 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 In auditing the financial statements, we have conclud- ed that the directors’ use of the going concern basis of accounting in the preparation of the financial state- ments is appropriate. Our evaluation of the directors’ assessment of the ability of the Group and Parent Company to continue to adopt the going concern basis of accounting included the following procedures: • Obtaining the directors’ assessment of going con- cern which covered the period to 31 December 2022 and included a range of scenarios • Evaluating the reasonableness of the assumptions used in the assessment including obtaining details of the latest sales pipeline and the current cash position • Considering the plausibility of potential actions that the directors could take to preserve cash in a ‘worst case scenario’ position. ANNUAL REPORT 61 Based on the work we have performed, we have not We agreed with the Audit Committee to report to it all identified any material uncertainties relating to events identified errors in excess of $2,400. Errors below that or conditions that, individually or collectively, may cast threshold would also be reported to it if, in our opin- significant doubt on the group and parent company’s ion as auditor, disclosure was required on qualitative ability to continue as a going concern for a period of grounds. at least twelve months from when the financial state- ments are authorised for issue. Overview of the scope of our audit Our responsibilities and the responsibilities of the di- Whilst the Parent Company’s activity and accounting is rectors with respect to going concern are described in in the United Kingdom, the main activity of the Group is the relevant sections of this report. accounted for from its operating location in India. Overview of our audit approach In establishing our overall approach to the Group audit, Materiality we determined the type of work that needed to be under- taken at each of the components by us, as the primary audit engagement team. For the full scope components In planning and performing our audit we applied the in Singapore and India where the finance functions concept of materiality. An item is considered material were carried out in India work was performed by a local if it could reasonably be expected to change the eco- audit team in India under our direction. The local audit nomic decisions of a user of the financial statements. team were from a Crowe Global network firm. We de- We used the concept of materiality to both focus our termined the appropriate level of involvement to enable testing and to evaluate the impact of misstatements us to determine that sufficient audit evidence had been identified. obtained as a basis for our opinion on the Group as a whole. We discussed the risks of material misstatement Based on our professional judgement, we determined with the subcontracting auditor. overall materiality for the Group financial statements as a whole to be $80,000, based on approximately 5% The primary team led by the Senior Statutory Auditor of group adjusted operating loss, a key reporting metric was ultimately responsible for the scope and direc- (2019: $90,000 based on 5% of group adjusted profit). tion of the audit process. The primary team interacted regularly with the local team where appropriate during We use a different level of materiality (“performance various stages of the audit, reviewed relevant working materiality”) to determine the extent of our testing for papers and were responsible for the scope and direc- the audit of the financial statements. Performance ma- tion of the audit process. As part of the audit and due to teriality is set based on the audit materiality as adjust- COVID-19 travel restrictions the Senior Statutory Audi- ed for the judgements made as to the entity risk and tor had meeting calls with both local management and our evaluation of the specific risk of each audit area the local audit team. This, together with the additional having regard to the internal control environment. procedures performed at Group level, gave us appro- priate evidence for our opinion on the Group financial Where considered appropriate performance materiality statements. may be reduced to a lower level, such as, for related party transactions and directors’ remuneration. 62 Key audit matters ANNUAL REPORT Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We identified going concern as a key audit matter and have detailed our response in the conclusions relating to going concern section above. This is not a complete list of all risks identified by our audit. Key audit matter How the scope of our audit addressed the key audit matter Revenue recognition We selected a sample of contracts to ensure that the performance obligations had been correctly identified, the transaction price allocated The Group’s operating revenue arises from mViva products. appropriately and evidence existed of the satisfaction of those Customer contracts can contain multiple different performance performance obligations before revenue was recognised. For support obligations with different revenue recognition points. We considered and maintenance revenue recognised over time we reperformed the the risk that the incorrect application of the policy could result in calculation on the recognition of revenue for a sample of contracts. material error. Capitalisation of development costs We obtained an understanding of the processes and controls over the recognition of research and development expenses. As disclosed in note 18, the Group has capitalised approximately $2.9 million of development costs relating to the development of We have evaluated the appropriateness of the capitalisation of the the mViva product. development expenditure by discussing with management and obtaining We have focussed on this because research and development the year, we challenged management to ensure that the developments represents a significant part of this business and judgement is were capital in nature and did not relate to routine software maintenance. required in determining the appropriate accounting treatment. As part of this work we met with the Head of Technology. Tests of detail a technical overview of the developments made to the mViva software in The Directors use judgement to determine whether research and included: development costs should be expensed or whether they meet the • testing the allocation of overhead costs to capitalised development criteria for capitalisation. This criteria includes assessing whether costs for mathematical accuracy and reasonableness including the product being developed is commercially feasible, whether challenging whether the overheads were directly attributable to the the Group has adequate technical, financial and other required software development and agreeing underlying data to headcount resources to complete the development and whether the costs will information; be fully recovered through future sale or licensing of the product. • On a sample basis, we tested the amounts allocated to development The Directors determined that the development costs meet the costs to underlying payroll records and invoices; and criteria for capitalisation. • Reviewing the pipeline of potential work to assess whether the software still has commercial potential. The capitalisation of intangibles is included within note 4 as an area of critical accounting estimate and judgement. The accounting policy for intangibles is outlined in note 3. 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. ANNUAL REPORT 63 Other information Matters on which we are required to report by ex- The other information comprises the information in- ception cluded in the annual report including the Strategic and In light of the knowledge and understanding of the Governance reports set out on pages 7 to 59, other Group and the Parent Company and their environment than the financial statements and our auditor’s report obtained in the course of the audit, we have not iden- thereon. The directors are responsible for the other tified material misstatements in the strategic report or information. Our opinion on the financial statements the Directors’ report. does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do We have nothing to report in respect of the following not express any form of assurance conclusion thereon. matters where the Companies Act 2006 requires us to In connection with our audit of the financial statements, report to you if, in our opinion: our responsibility is to read the other information and, in doing so, consider whether the other information is • adequate accounting records have not been kept materially inconsistent with the financial statements or by the Parent Company, or returns adequate for our knowledge obtained in the audit or otherwise ap- our audit have not been received from branches pears to be materially misstated. If we identify such not visited by us; or material inconsistencies or apparent material misstate- • the Parent Company financial statements are not ments, we are required to determine whether there is in agreement with the accounting records and re- a material misstatement in the financial statements or turns; or a material misstatement of the other information. If, • certain disclosures of Directors’ remuneration based on the work we have performed, we conclude specified by law are not made; or that there is a material misstatement of the other infor- • we have not received all the information and expla- mation, we are required to report that fact. nations we require for our audit. We have nothing to report in this regard. Responsibilities of the Directors for the financial Opinion on other matters prescribed by the Com- panies Act 2006 statements As explained more fully in the Directors’ responsibil- ities statement set out on page 63, the Directors are In our opinion based on the work undertaken in the responsible for the preparation of the financial state- course of our audit: ments and for being satisfied that they give a true and fair view, and for such internal control as the Directors • the information given in the strategic report and determine is necessary to enable the preparation of the Directors’ report for the financial year for which financial statements that are free from material mis- the financial statements are prepared is consistent statement, whether due to fraud or error. with the financial statements; and • the Directors’ report and strategic report have been In preparing the financial statements, the Directors prepared in accordance with applicable legal re- are responsible for assessing the Group’s and Parent quirements. Company’s ability to continue as a going concern, dis- closing, as applicable, matters related to going concern 64 ANNUAL REPORT and using the going concern basis of accounting un- outcome. Our audit procedures to respond to these less the Directors either intend to liquidate the group or risks included enquiries of management about their the Parent Company or to cease operations, or have own identification and assessment of the risks of irreg- no realistic alternative but to do so. ularities, sample testing on the posting of journals and reviewing accounting estimates for bias. Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations. These inherent limitations are particularly significant in the case of misstatement resulting from fraud as this may involve sophisticated schemes designed to avoid detection, including deliberate failure to record trans- actions, collusion or the provision of intentional misrep- resentations. 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/audi- torsresponsibilities. This description forms part of our auditor’s report. Auditor’s responsibilities for the audit of the finan- cial 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 con- ducted in accordance with ISAs (UK) will always de- tect a material misstatement when it exists. Misstate- ments can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic de- cisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, in- cluding fraud is detailed below: We obtained an understanding of the legal and regu- latory frameworks within which the company operates, focusing on those laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements. The laws and regulations we considered in this context were the relevant company law and taxation legislation in the UK and India, the Group’s primary operating locations. We identified the greatest risk of material impact on the financial statements from irregularities, including fraud, to be the override of controls by management and the inappropriate use of accounting estimates and judgements to achieve a particular financial reporting ANNUAL REPORT Use of our report 65 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. Matthew Stallabrass (Senior Statutory Auditor) for and on behalf of Crowe U.K. LLP Statutory Auditor London 11 April 2021 66 ANNUAL REPORT Group Statement of Comprehensive Income For the year ended 31 December 2020 Revenue Cost of sales and provision of services Gross profit Adjusted administrative expenses Adjusted operating profit/(loss) Exceptional items Amortisation of acquisition-related intangibles Share-based payments Operating profit/(loss) Finance income Finance expense Profit/(loss) before taxation Income tax expense PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT Other comprehensive income/(expense): Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations Other comprehensive income, net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR Earnings per share Note 5 6 7 18 11 12 13 14 2020 $’000 (audited) 4,020 (1,710) 2019 $’000 (audited) 6,667 (999) _______ _______ 2,310 5,668 (3,647) _______ (1,337) 149 (686) (32) _______ (1,906) 64 (240) (4,048) _______ 1,620 236 (686) (52) _______ 1,118 54 (164) _______ _______ (2,082) (375) _______ (2,457) 1,008 (194) _______ 814 25 _______ 25 (25) _______ (25) (2,432) 789 Attributable to the owners of the Pelatro Group (basic and diluted) 15 (7.2)¢ 2.5¢ The accompanying notes 1 to 32 are an integral part of these financial statements. ANNUAL REPORT 67 Group Statement of Financial Position For the year ended 31 December 2020 Assets Non-current assets Intangible assets Tangible assets Right-of-use assets Deferred tax assets Contract assets Trade and other receivables Current assets Contract assets Trade receivables Other assets Cash and cash equivalents TOTAL ASSETS Liabilities Non-current liabilities Borrowings Lease liabilities Contract liabilities Long-term provisions Current liabilities Trade and other payables Short term borrowings Lease liabilities Contract liabilities Provisions Other financial liabilities TOTAL LIABILITIES NET ASSETS Note 2020 $’000 (audited) 2019 $’000 (audited) 18 19 20 14 21 21 21 21 22 23 24 25 26 25 23 24 25 26 27 11,649 1,218 308 16 751 149 10,891 515 339 63 519 231 _______ _______ 14,091 12,558 609 3,335 485 1,805 293 5,283 501 1,101 _______ _______ 6,234 20,325 7,178 19,736 1,196 172 207 173 _______ 1,748 1,093 244 174 495 163 - 362 187 274 124 _______ 947 321 246 205 665 202 948 _______ _______ 2,169 3,917 2,587 3,534 16,408 16,202 68 ANNUAL REPORT Issued share capital and reserves attributable to owners of the parent Share capital Share premium Other reserves Retained earnings TOTAL EQUITY Note 28 28 28 2020 $’000 (audited) 1,212 14,045 (583) 1,734 2019 $’000 (audited) 1,065 11,603 (643) 4,177 _______ _______ 16,408 16,202 The financial statements of Pelatro Plc, registered number 10630166, were approved by the board of Directors and authorised for issue on 11 April 2021. They were signed on its behalf by: Subash Menon (Director) Nic Hellyer (Director) The accompanying notes 1 to 32 are an integral part of the financial statements. ANNUAL REPORT Group Statement of Cash Flows For the year ended 31 December 2020 Cash flows from operating activities Profit/(loss) for the year Adjustments for: Income tax expense recognised in profit or loss Finance income Finance costs Depreciation of tangible non-current assets Profit on disposal of fixed assets Amortisation of intangible non-current assets Fair value adjustment on contingent consideration Share-based payments Foreign exchange gains/(losses) Operating cash flows before movements in working capital (Increase)/decrease in trade and other receivables (Increase) in contract assets Increase in trade and other payables Increase/(decrease) in contract liabilities Cash generated from operating activities Income tax paid Net cash generated from operating activities Cash flows from investing activities Development of intangible assets Purchase of intangible assets Acquisition of property, plant and equipment Payment of earn out consideration relating to prior period acquisition Net cash used in investing activities Cash flows from financing activities Proceeds from issue of ordinary shares, net of issue costs Proceeds from borrowings Repayment of borrowings Repayments of principal on lease liabilities Interest received Interest paid 69 2019 $’000 (audited) 814 194 (11) 160 188 - 1,726 (236) 52 (8) _______ 2,879 (1,509) (428) 103 701 _______ 1,746 (334) _______ 1,412 (2,102) (35) (256) - _______ (2,393) - 317 (313) (171) 11 (93) 2020 $’000 (audited) (2,457) 375 (20) 232 366 (10) 2,122 (149) 32 25 _______ 516 2,229 (544) 676 (276) _______ 2,601 (339) _______ 2,262 (2,807) (9) (902) (851) _______ (4,569) 2,589 1,753 (919) (171) 20 (185) 70 ANNUAL REPORT Interest expense on lease liabilities Net cash generated by/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Foreign exchange differences Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Comprising: Cash at bank and in hand Overdraft 2020 $’000 (audited) (16) _______ 3,071 764 (60) 1,101 _______ 1,805 1,805 - _______ 1,805 2019 $’000 (audited) (40) _______ (289) (1,270) (20) 2,224 _______ 934 1,101 (167) _______ 934 ANNUAL REPORT 71 Group Statement of Changes in Equity For the year ended 31 December 2020 Share capital Share premium Exchange reserve Merger reserve Retained profits Total Share- based payments reserve $’000 $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 January 2019 as previously reported 1,065 11,603 (193) (527) Profit after taxation for the period Share-based payments Other comprehensive income: Exchange differences Transactions with owners: Shares issued by Pelatro Plc for cash Issue costs Balance at 31 December 2019 Profit after taxation for the period Share-based payments Transfer on lapse of share options Other comprehensive income: Exchange differences Transactions with owners: Shares issued by Pelatro Plc for cash Issue costs - - - - - - - - - - - - (23) - - - - - - - 100 - - 3,363 15,311 814 - - 814 100 (23) - - _____ _____ _____ _____ _____ _____ _____ 1,065 11,603 (216) (527) 100 4,177 16,202 - - - - - - 147 - 2,620 (178) - - (24) - - - - - - - - (2,457) (2,457) 98 (14) - - - - 14 - - - 98 - (24) 2,767 (178) _____ _____ _____ _____ _____ _____ _____ Balance at 31 December 2020 1,212 14,045 (240) (527) 184 1,734 16,408 Reserve Sales Description and purpose Nominal value of issued shares Software development Amount subscribed for share capital in excess of nominal value less associated costs Support Marketing The difference arising on the translation of foreign operations denominated in currencies other than US Dollars into the presentational currency of the Group Amounts arising on the elimination of the members’ capital in Pelatro LLC and its subsidiary on presentation of the Group results under merger accounting principles Administration Cumulative amounts charged in respect of unsettled options issued All other net gains and losses not recognised elsewhere The accompanying notes 1 to 32 are an integral part of these financial statements. 72 ANNUAL REPORT Notes to the Group Financial Statements As at 31 December 2020 1. General information measured at fair value), and in accordance with the AIM Rules, International Financial Reporting Stan- dards (“IFRS”) as adopted by the European Union that are applicable to the Group’s statutory accounts, and the applicable provisions of the Companies Act 2006. Pelatro Plc (“Pelatro” or the “Company”) is a public lim- ited company incorporated and domiciled in England. Basis of consolidation The Company’s ordinary shares are traded on the AIM market of the London Stock Exchange. These financial The consolidated financial statements incorporate the statements are the consolidated financial statements financial statements of the Company and entities con- of Pelatro Plc and its subsidiaries (“the Pelatro Group” trolled by the Company (its subsidiaries) made up to 31 or the “Group”) and the company financial statements December each year. Pelatro Solutions Private Limited for Pelatro Plc. The financial statements are presented (“PSPL”, the Group’s Indian subsidiary) has a statu- in US dollars as the currency of the primary economic tory year end of 31 March, however, for the purposes environment in which the Group operates. of consolidation, financial statements have been pre- pared for PSPL as at 31 December 2020 on the same Pelatro’s registered office is at 49 Queen Victoria accounting principles as for the rest of the Group. Street, London EC4N 4SA and its principal place of business is at 403, 7th A Main, 1st Block, HRBR Lay- The Company controls an investee if, and only if, the out, Bangalore 560043, India. Company has the following: 2. Adoption and impact of new and/ or revised standards • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activ- ities of the investee); • Exposure of rights to variable returns from its in- One amendment has been adopted in the annual finan- volvement with the investee; and cial statements for the year ended 31 December 2020, • The ability to use its power over the investee to but have not had a significant effect on the Group: affect its returns. • Revised Conceptual Framework for Financial Re- The results of subsidiaries or businesses acquired porting 3. Significant accounting policies Basis of accounting The financial statements have been prepared on a historical cost basis (except for certain financial instru- ments and share-based payments that have been during the year are included in the consolidated in- come statement from the effective date of acquisition. Where necessary, adjustments are made to the finan- cial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and ex- penses are eliminated on consolidation. ANNUAL REPORT Going concern 73 When the consideration transferred by the Group in a business combination includes assets or liabilities re- These financial statements have been prepared on a sulting from a contingent consideration arrangement, going concern basis. The Directors have reviewed the the contingent consideration is measured at its fair val- Company’s and the Group’s going concern position ue on the acquisition date and included as part of the taking account of its current business activities, bud- consideration transferred in a business combination. geted performance and the factors likely to affect its fu- ture development, set out in this Annual Report, and in- Acquisition-related costs are expensed as incurred. cluding the Group’s objectives, policies and processes for managing its capital, its financial risk management Goodwill objectives and its exposure to credit and liquidity risks. The excess of the: Following such review, the Directors are of the view that the Group has adequate financing to be able to meet its financial obligations for a period of at least 12 • • consideration transferred; amount of any non-controlling interest in the ac- months from the date of approval of the Annual Report quired entity; and and financial statements. Accordingly the Group and • acquisition-date fair value of any previous equity Company continue to adopt the going concern basis in interest in the acquired entity. preparing these financial statements. over the fair value of the net identifiable assets ac- quired is recorded as goodwill, which is initially rec- Business combinations, goodwill and contingent ognised as an asset at cost and is subsequently mea- consideration Business combinations sured at cost less any accumulated impairment. For the purpose of impairment testing, goodwill is allocated to the cash-generating units expected to benefit from the combination. Cash-generating units to which goodwill The acquisition method of accounting is used to ac- has been allocated are tested for impairment annually, count for all business combinations, regardless of or more frequently when there is an indication that the whether equity instruments or other assets are ac- unit may be impaired. If the recoverable amount of the quired. The consideration transferred for the acquisi- cash-generating unit is less than the carrying amount tion of a business comprises the: of the unit, the impairment loss is allocated first to re- duce the carrying amount of any goodwill allocated to • • • • fair values of the assets transferred; the unit and then to the other assets of the unit pro-rata liabilities to the former owners of the acquired busi- on the basis of the carrying amount of each asset in the ness incurred; unit. Any impairment is recognised immediately in the equity interests issued by the Group; income statement and is not subsequently reversed. fair value of any asset or liability resulting from a contingent consideration arrangement; and • fair value of any pre-existing equity interest in the subsidiary. 74 ANNUAL REPORT Where settlement of any part of cash consideration is (iii) collection of the amount due from the customer is deferred (whether because it is contingent or other- reasonably assured wise), the amounts payable in the future are discounted to their present value as at the date of exchange. The The amount which is recognised is the amount to which discount rate used is the Group’s incremental borrowing the Group expects to be entitled to in exchange for the rate, being the rate at which a similar borrowing could goods or services transferred. Some contracts include be obtained from an independent financier under com- multiple deliverables, such as the sale of hardware as parable terms and conditions. Contingent consideration well as software, and/or services such as post-con- tract support, and usually include installation services - typically, software installation could be performed by another party and is therefore accounted for as a sep- Contingent consideration is initially measured at fair val- arate performance obligation. Where contracts include ue at the date of completion of the acquisition and may multiple performance obligations, the transaction price be classified either as equity or a financial liability. The is allocated to each performance obligation based on accounting for changes in the fair value of contingent the Group’s best estimate of their Standalone Selling consideration arising on business combinations that Price (“SSP”) notwithstanding any absence or contrary do not qualify as measurement period adjustments de- allocation of total cost within a contract. Where this is pends on how the contingent consideration is classified: not directly observable, it is estimated based on the best available evidence, for example expected cost • amounts classified as a financial liability are sub- plus margin. sequently remeasured to fair value at subsequent reporting dates and the corresponding gain or loss Software licenses is recognised in the Statement of Comprehensive Income Revenue in respect of the sale of perpetual licenses for • contingent consideration that is classified as equity on-premise software is recognised on the later of the is not remeasured at subsequent reporting dates grant of the license or delivery of the software as ap- and its subsequent settlement is accounted for propriate. Certain contracts provide for revenue which within equity Revenue recognition is contractually linked to the incremental revenue de- rived by that customer from use of the software, the amount being based on a pre-agreed share of that in- cremental revenue which is recognised at the end of Revenue is measured based on the consideration to each month (a “gain share” contract). Certain contracts which the Group expects to be entitled in a contract with may provide for both a guaranteed (usually monthly) a customer and excludes amounts collected on behalf payment over a period (typically 2-3 years) as well as of third parties. Each element of revenue (described be- a gain share component. If the contract is a “right to low) is recognised only when: use” contract, then the upfront and fixed payments are recognised on transfer of the license at their ag- (i) when a performance obligation has been satisfied, gregate present value using an imputed cost of funds. that is, a customer obtains control of a good or service; A notional finance income recognised on the reducing (ii) consideration receivable is fixed or determinable; balance of the notional balance outstanding (which is and recognised as a contract asset). ANNUAL REPORT 75 Implementation services Hardware Revenue in respect of implementation of on-premise Revenue in respect of sales of third-party hardware is software is recognised on completion of the implemen- recognised when goods are delivered. tation. Change Requests ing Component Interest income on contracts with a Significant Financ- Revenue in respect of Change Requests (i.e. formal Interest income is recognised on contracts with a Sig- proposals from customers to change an existing sys- nificant Financing Component as interest accrues using tem, product or service) is recognised on completion of the effective interest method. The effective interest rate the work necessary to implement the required change. is the rate that discounts estimated future cash receipts through the expected life of the financial instrument to Professional services its net carrying amount. Revenue and profits from the provision of professional Cost of sales and provision of services services such as managed services, training and con- sultancy are delivered under a “time and materials” The cost of provision of services includes the direct type contract and are therefore recognised rateably costs of consultants and employees who provide ser- over time and based upon number of days worked. vices, support or maintenance to customers, direct Revenue from this revenue stream may create “Un- sales commissions paid to third parties, and certain billed Revenue” receivables through yet to be billed third-party software licenses which are integral to the time input and expenses at the reporting date. performance of contracts. Cost of sales also includes the acquisition cost of hardware resold to end custom- Annual support and maintenance (also known as ers. Post-Contract Support or “PCS”) Leases Revenue from support and maintenance services is recognised rateably over the period of the contract. Applying IFRS 16, for all leases (except as noted be- Revenue is recognised when the provision of support low), the Group: and maintenance and completion of the performance obligations are carried out which is deemed to be (i) recognises right-of-use assets and lease liabilities in evenly throughout the term of the contract. Revenue the consolidated statement of financial position, initial- from this revenue stream may create a contract liabil- ly measured at the present value of future lease pay- ity if contractually stated PCS income is lower than its ments; SSP and an element thereof has thus effectively been included in the license fee as stated in the contract. (ii) recognises depreciation of right-of-use assets, and A contract asset may be recognised if PCS income interest on lease liabilities, in the consolidated state- is recognised even though it is not contractually due ment of comprehensive income; and and payable (for example when the first year of PCS is deemed as “free” to the customer). 76 ANNUAL REPORT (iii) separates the total amount of cash paid in respect the functional currency of the Company and the pre- of lease obligations into a principal portion and interest sentation currency for the consolidated financial state- (both presented within financing activities) in the con- ments. solidated statement of cash flows. In preparing the financial statements of the individual Lease payments under (i) are discounted using the in- companies, transactions in currencies other than the terest rate implicit in the lease, if that rate can be deter- entity’s functional currency (foreign currencies) are re- mined, or the Group’s estimated incremental borrowing corded at the rates of exchange prevailing on the dates rate. The finance expense is charged to the Consolidat- of the transactions. At each balance sheet date, mon- ed Statement of Comprehensive Income over the lease etary assets and liabilities that are denominated in for- period so as to produce a constant periodic rate of in- eign currencies are retranslated at the rates prevailing terest on the remaining balance of the liability for each on the balance sheet date. Non-monetary items that period. The right-of-use asset is depreciated over the are measured in terms of historical cost in a foreign shorter of the asset’s useful life and the lease term on a currency are not retranslated. straight-line basis. Additionally under IFRS 16, right-of- use assets are tested for impairment in accordance with Exchange differences arising on the settlement of mon- IAS 36 Impairment of Assets. This replaces the previ- etary items, are included in profit or loss for the period. ous requirement to recognise a provision for onerous For the purpose of presenting consolidated financial lease contracts. statements, the assets and liabilities of the Group’s for- eign operations are translated at exchange rates pre- For short-term leases (lease term of 12 months or less) vailing on the balance sheet date. Income and expense and leases of low-value assets the Group has opted to items are translated at the average exchange rates for recognise a lease expense on a straight-line basis as the period where it approximates the rates on the dates permitted by the Standard. This expense is presented of the underlying transactions. Exchange differences within other expenses in the consolidated statement of arising, if any, are classified as equity and transferred profit or loss. to the Group’s translation reserve. Where lease-related expenses are directly attributable Share-based payments to the cost of development of the Group’s proprietary software (as further detailed in Note 18), such expenses The Group has applied the requirements of IFRS 2 are capitalised in accordance with the Group’s account- Share-based payments in respect of options granted ing policy relating to such development expenditure. under a share option plan for senior employees dat- Foreign currencies ed 15 January 2019 (the “Plan”) and certain options issued at the time of the Company’s IPO. Under the terms of both the Plan and the options issued at IPO, The individual financial statements of each Group com- the Group is able to make equity-settled share-based pany are prepared in the currency of the primary eco- payments to certain employees and a Director by way nomic environment in which it operates (its functional of issue of options over ordinary shares. Such equi- currency). For the purpose of the consolidated financial ty-settled share-based payments are measured at fair statements, the results and financial position of each value at the date of grant. This fair value is determined Group company are expressed in US Dollars, which is as at the grant date of the options and is expensed on ANNUAL REPORT 77 a straight-line basis over the vesting period, based on Taxation the Group’s estimate of the number of options that will eventually vest. A corresponding amount is credited to Any tax payable is based on taxable profit for the year. equity reserves. Taxable profit differs from net profit as reported in the income statement because it excludes items of income Fair value is measured by use of a Black-Scholes mod- or expense that are taxable or deductible in other years el and key inputs to that model have been assessed and it further excludes items that are never taxable or as follows: deductible. The Group’s liability for current tax is cal- culated using tax rates that have been enacted or sub- • expected volatility was based upon historical vol- stantively enacted by the reporting date. atility and applied over the expected life of the schemes; Deferred tax is the tax expected to be payable or recov- • expected life was based upon historical data and erable on differences between the carrying amounts of was adjusted based on management’s best esti- assets and liabilities in the financial statements and the mates for the effects of non-transferability, exer- corresponding tax bases used in the computation of cise restrictions and behavioural considerations; taxable profit and is accounted for using the balance and sheet liability method. Deferred tax liabilities are pro- • risk-free rate was taken as the two-, three- and four vided in full, with no discounting, for all taxable tem- year UK gilt yields as appropriate for the expected porary differences; deferred tax assets are recognised life of the options concerned to the extent that it is probable that taxable profits will be available against which deductible temporary differ- Proceeds received on exercise of share options and ences can be utilised. Deferred tax is calculated at the warrants are credited to share capital (in respect of tax rates that are expected to apply in the period when nominal value) and share premium account (in respect the liability is settled or the asset is realised. Deferred of the excess over nominal value). Cancelled options tax is charged or credited in the income statement, ex- are accounted for as an acceleration of vesting. The cept when it relates to items charged or credited direct- unrecognised grant date fair value is recognised in the ly to equity, in which case the deferred tax is also dealt consolidated statement of comprehensive income in with in equity. the year that the options are cancelled. Such assets and liabilities are not recognised if the Where share-based payment expenses are directly at- temporary difference arises from the initial recognition tributable to the cost of development of the Group’s of goodwill or from the initial recognition (other than in proprietary software (as further detailed in Note 18), a business combination) of other assets and liabilities such expenses are capitalised in accordance with the in a transaction that affects neither the tax profit nor the Group’s accounting policy relating to such develop- accounting profit. ment expenditure. Borrowing costs The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits All borrowing costs are recognised in profit or loss in will be available to allow all or part of the asset to be the period in which they are incurred. recovered. 78 ANNUAL REPORT Deferred tax assets and liabilities are offset when there Patents and licenses is a legally enforceable right to set off current tax as- sets against current tax liabilities and when they relate The costs incurred in purchasing licenses and estab- to income taxes levied by the same taxation authority lishing patents are measured at cost, net of any amor- and the Group intends to settle its current tax assets tisation and any provision for impairment. Amortisation and liabilities on a net basis. is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic Intangible assets life of that asset as follows: Development expenditure Intellectual property/patents over 10 years on a straight-line basis Expenditure on the development of the Group’s pro- Licenses over 5 years on a straight-line prietary enterprise software where it meets certain basis criteria (given below), is capitalised and subsequently amortised on a straight-line basis over its useful life. Where no internally generated intangible asset can be Customer relationships recognised, development expenditure is written-off in the period in which it is incurred. Customer relationships acquired are recognised as in- tangible assets at their fair values (see note 18). Cus- An asset is recognised only if all of the following con- tomer relationships are amortised on a straight-line ditions are met: basis over 10 years. • • the product is technically feasible and marketable; Impairment of tangible and intangible assets ex- the Group has adequate resources to complete the cluding goodwill development of the product; • it is probable that the asset created will generate At each reporting date, the Group reviews the carry- future economic benefits; and ing amounts of its tangible and intangible assets to • the development cost of the asset can be mea- determine whether there is any indication that those sured reliably assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset Development expenditure is amortised on a straight- is estimated in order to determine the extent of the im- line basis over 4 years, such amortisation being pairment loss (if any). Where the asset does not gen- charged to profit or loss. Expenditure on research ac- erate cash flows that are independent from other as- tivities is recognised as an expense in the period in sets, the Group estimates the recoverable amount of which it is incurred. the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is test- ed for impairment annually and whenever there is an indication that the asset may be impaired. ANNUAL REPORT 79 Recoverable amount is the higher of fair value less Financial assets costs to sell and value in use. If the recoverable amount of an asset (or cash-generating unit) is estimated to be Financial assets are recognised on the consolidated less than its carrying amount, the carrying amount of statement of financial position when the Group has the asset (cash-generating unit) is reduced to its recov- become a party to the contractual provisions of the in- erable amount. Any impairment loss is recognised as strument. The Group’s financial assets consist of cash, an expense through profit and loss. loans, deposits, and receivables and contract assets. Property, plant and equipment The classification of financial assets at initial recogni- tion depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for Items of property, plant and equipment are stated at managing them. The Group has reviewed its business cost less accumulated depreciation and accumulated model for its financial assets and has concluded that impairment losses, if any. The cost of an asset com- they are held for collecting contractual associated cash prises its purchase price and any directly attributable flows. Under IFRS 9 receivables and contract assets costs of bringing the asset to the location and condition (other than those which contain a significant financing for its intended use. component) are initially recognised at fair value and will subsequently be measured at amortised cost. Depreciation is charged to profit or loss (unless it is included in the carrying amount of another asset) on a The Group recognises lifetime expected credit loss- straight-line basis to write off the depreciable amount es (“ECL”) for trade receivables and contract assets. of the assets net of the estimated residual values over The expected credit losses on these financial assets their estimated useful lives as follows: are estimated using a provision matrix based on the Computer equipment Over 3 years on a straight-line basis Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general eco- nomic conditions and an assessment of both the cur- Leasehold improvements Over 5 years on a straight-line rent as well as the forecast conditions at the reporting basis date, including time value of money where appropriate. Office equipment Over 5 years on a straight-line basis Trade and other receivables and contract assets Vehicles Over 8 years on a straight-line These assets arise principally from the provision of basis sales of software and services and support and main- tenance to customers in the ordinary course of busi- The assets’ residual values and useful lives are re- ness. They are generally due for settlement between viewed, and adjusted if appropriate, at each reporting 30 and 90 days and therefore are generally classified date. An asset’s carrying amount is written down im- as current other than where the terms of the contract mediately to its recoverable amount if the asset’s car- provide for payment over an extended period of time rying amount is greater than its estimated recoverable (in which case the relevant element of the receivable amount. is classified as current and the balance is classified as non-current, net of an allowance for the time value of money). The timing of revenue recognition, invoicing 80 ANNUAL REPORT and cash collections results in both invoiced accounts is multiplied by the amount of the expected loss arising receivable and uninvoiced receivables, as well as from default to determine the lifetime expected credit contract assets. Invoicing may be implemented (de- loss for the trade receivables. In the absence of any pending on the contract with the end customer) ac- historic credit losses and the expectation of no specif- cording to usage or upon achievement of contractual ic losses in the foreseeable future, the Directors as- milestones. sessed a hypothetical likely default amount by applying a percentage “probability of default” to the receivables Trade receivables are recognised initially at the balance, such probability being related to the underly- amount of consideration that is unconditional unless ing credit rating of the customer or country of origin. they contain significant financing components, when Trade receivables and contract assets are reported net, they are recognised at fair value. The Group holds with such provisions recorded in a separate provision the trade receivables with the objective to collect the account with the loss being recognised within cost of contractual cash flows and therefore measures them sales in the consolidated statement of comprehensive subsequently at amortised cost using the effective in- income. terest method, less provision for impairment. Long-term trade receivables Contract assets represent amounts relating to reve- nue recognised at the date of the statement of finan- Long-term trade receivables represent amounts relat- cial position but not yet due or invoiceable under the ing to revenue recognised at the date of the statement terms of the contract. These arise most typically for of financial position but not yet due or invoiceable un- the Group either in (i) licenses of software where the der the terms of the contract. These arise most typically consideration is structured as an upfront payment fol- for the Group as a result of the sale of licenses as an lowed by a series of additional payments, which may upfront payment followed by a series of additional pay- comprise fixed sums or fixed sums plus sums relating ments, which may comprise fixed sums or fixed sums to some measure of (for example) sales made by the plus sums relating to some measure of (for example) purchaser of the license; or (ii) licenses of software gains made by the purchaser of the license. Such pay- where payment for the aggregate consideration may ments may extend over several years. Under IFRS 15, be structured such that the initial consideration does if the contract is a “right to use” contract, then the up- not fully reflect the SSP of the license. front and fixed payments are recognised on transfer of the license at their aggregate present value using an Such payments may extend over several years. Un- imputed cost of funds. der IFRS 15, if the contract is a “right to use” contract, then the upfront and fixed payments are recognised Contract fulfilment assets on transfer of the license at their aggregate present value using an imputed cost of funds. Contract fulfilment costs are divided into: (i) costs that give rise to an asset; and (ii) costs that are expensed as Impairment provisions for current and non-current incurred. When determining the appropriate accounting trade receivables and contract assets are recognised treatment for such costs, the Group firstly considers based on the simplified approach within IFRS 9 using any other applicable standards. If those standards pre- a provision matrix for the determination of lifetime ex- clude capitalisation of a particular cost, then an asset is pected credit losses, which assesses the probability not recognized under IFRS 15. If other standards are ANNUAL REPORT 81 not applicable to contract fulfilment costs, the Group Cash and cash equivalents applies the following criteria which, if met, result in cap- italisation: (i) the costs directly relate to a contract or Cash and cash equivalents include cash in hand, de- to a specifically identifiable anticipated contract; (ii) the posits held at call with banks, other short term high- costs generate or enhance resources of the entity that ly liquid investments with original maturities of three will be used in satisfying (or in continuing to satisfy) months or less, and – for the purpose of the statement performance obligations in the future; and (iii) the costs of cash flows - bank overdrafts. Bank overdrafts are are expected to be recovered. shown within loans and borrowings in current liabilities on the consolidated statement of financial position. The assessment of these criteria requires the appli- cation of judgement, in particular when considering if Financial liabilities and equity instruments costs generate or enhance resources to be used to sat- isfy future performance obligations and whether costs Equity and debt instruments are classified as either fi- are expected to be recoverable. nancial liabilities or as equity in accordance with the substance of the contractual arrangements and the The Group’s contract fulfilment assets are due princi- definitions of a financial liability and an equity instru- pally to sales commissions payable to third parties in ment. The Group’s financial liabilities include trade and return for assistance in obtaining certain contracts. The other payables and borrowings which are measured at Group amortises capitalised costs to obtain a contract amortised cost using the effective interest rate method. over the expected life of that contract in line with the Financial liabilities are recognised on the consolidat- recognition of revenue relating to that contract. Such ed statement of financial position when the Group has amortisation is included within cost of sales. become a party to the contractual provisions of the in- strument. A capitalised cost to obtain a contract is derecognised either when it is disposed of or when no further econom- An equity instrument is any contract which evidences ic benefits are expected to flow from its use or disposal. a residual interest in the assets of an entity after de- At each reporting date, the Group determines wheth- ducting all of its liabilities. Equity instruments issued by er there is an indication that cost to obtain a contract the Group, such as share capital and share premium, maybe impaired. If such indication exists, the Group are recognised at the proceeds received net of direct makes an estimate by comparing the carrying amount issue costs. of the assets to the remaining amount of consideration that the Group expects to receive less the costs that Borrowings relate to providing services under the relevant contract. In determining the estimated amount of consideration, Interest-bearing loans are recorded initially at fair val- the Group uses the same principles as it does to de- ue, net of direct issue costs. Finance charges, includ- termine the contract transaction price, except that any ing premiums payable on settlement or redemption constraints used to reduce the transaction price will be and direct issue costs, are accounted for on an accru- removed for the impairment test. als basis in profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. 82 ANNUAL REPORT Provisions Exceptional items Provisions are recognised when the Group has a Exceptional items are disclosed separately in the fi- present obligation as a result of a past event, and it is nancial statements where it is necessary to do so to probable that the Group will be required to settle that provide further understanding of the financial perfor- obligation. Provisions are measured at the Directors’ mance of the Company or the Group. They are items of best estimate of the expenditure required to settle the income or expense that have been shown separately obligation at the reporting date and are discounted to due to their nature. present value where the effect is material. Long-term provisions are those provisions where the settlement of the obligation is expected to be on a date more than one year from the reporting date. 4. Critical accounting judgements and key sources of estimation uncertainty Segmental information For management purposes, the Group’s activities are principally related to the provision of data analytics ser- vices to customers, and all other activities performed by the Pelatro Group are solely to support its primary revenue generation activities. All the processes are pri- marily subject to the same risks and returns and the Directors therefore consider that there are no identifi- able business segments that are subject to risks and returns different to the core business. As such, internal reporting provided to the chief operating decision-mak- er (“CODM”), which has been determined to be the Board of Directors for making decisions about resource allocations and performance assessment relates to the consolidated operating results of the Pelatro Group. The preparation of financial information in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and lia- bilities, and income and expenses. The estimates and associated assumptions are based on historical expe- rience and various other factors that are believed to be reasonable under the circumstances. However, the nature of estimation means that actual outcomes could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Re- visions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Accordingly, the Directors have determined that there is only one reportable segment under IFRS 8 and the financial information therefore presents entity-wide in- formation. The results and assets for this segment can be determined by reference to the statement of com- prehensive income and statement of financial position. The key assumptions and critical accounting judge- ments concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below: The Pelatro Group primarily serves customers in south and south-east Asia and Africa, with a developing pres- ence in Europe. ANNUAL REPORT Revenue 83 Critical judgements Estimates Revenue and the associated profit are recognised from sale Estimates relating to revenue include the appropriate SSP for various of software licences, rendering of services, and maintenance components of a contract, and in the case of contracts which have and support. When software licences are sold, the Board must a Significant Financing Component, the appropriate discount rate to exercise judgement as to when the appropriate point in time has apply to the payment profile in order to derive an appropriate present passed at which all performance obligations for that software value to record as revenue. licence have been performed, at which point revenue in relation to the stand-alone sales price (“SSP”) of the software licence A number of contracts entered into by the Group during the year is recognised. In many cases performance obligations do not are recognised for revenue in a manner which differs materially simply follow the commercial and contractual arrangement from the contractual terms; in certain cases this resulted in revenue agreed with the customer, in some cases the revenue streams being recognised earlier than contractually due; in others it deferred are combined within an overall commercial arrangement. revenue after the date at which it was contractually due. The effect of Such combined circumstances require judgement to assess this is shown in Note 5. performance obligations associated with each revenue stream and further judgement as to when and how such performance obligations have been discharged in order to recognise the associated revenue. Furthermore, agreements with customers may include multiple performance obligations. Determination of the appropriate revenue recognition is therefore considered a critical judgement. The critical judgement includes, but is not limited to, assessment as to whether a performance obligation has been satisfied and allocation of revenue where such agreements involve more than one performance obligation. Assessment of performance obligations also involves determining whether a set of contractual obligations represent distinct performance obligations or whether they are highly dependent on, or highly interrelated with one another, and hence fall to be treated as one single performance obligation under IFRS 15. 84 ANNUAL REPORT Capitalised development costs Critical judgements Estimates Estimates relating to capitalised development costs include the asset’s likely revenue generation and its applicable useful economic life. These estimates are continually reviewed and updated based on past experience and reviews of competitor products available in the market. Development costs are accounted for in accordance with IAS 38 Intangible Assets, and costs that meet the qualifying criteria are capitalised and systematically amortised over the useful economic life of the intangible asset. Determining whether development costs qualify for capitalisation as intangible assets requires judgement, including assessments of the nature of the work underlying the costs carried out by relevant employees, estimates of the technical and commercial viability of the asset created, and its applicable useful economic life. These estimates are continually reviewed and updated based on past experience and reviews of competitor products available in the market. Impairment reviews Critical judgements Estimates The Group tests goodwill, intangible assets and property, plant The Group uses long-term forecasts of cash flow and estimates of and equipment annually for impairment, or more frequently future growth both to value acquired intangible assets and goodwill if there are indications that an impairment may be required. and to assess whether goodwill or intangible assets are impaired, Judgement is required as to whether indicators of impairment and to determine the useful economic lives of its intangible assets. exist and hence whether to perform more detailed analysis to Estimates are therefore required of the level of future growth, evaluate any impairment required. Identifying indicators of resulting cash flows as well as an appropriate discount rate to derive impairment requires judgements to be made as to the prospects their carrying value. Assumptions regarding sales and operating and value drivers of the individual assets. profit growth, gross margin, and discount rate are considered to be the key areas of estimation in the impairment review process – In valuing these assets and liabilities, judgement is required as to further disclosure regarding such estimates is made in Note 18. the likelihood of occurrence of future events which will affect the value of such assets. ANNUAL REPORT 5. Revenue and segmental analysis An analysis of revenue by type is as follows: The Directors consider that the Group has a single Recurring software sales and services business segment, being the sale of information man- Maintenance and support At 31 December agement software and related services to providers of telecommunication services (“telcos”). The operations of the Group are managed centrally with Group-wide functions covering sales and marketing, development, professional services, customer support and finance and administration. Total recurring revenues Change requests Total repeating revenues Software – new licenses Consulting Resale of hardware 2020 $’000 1,528 1,323 –––––– 2,851 426 ______ 3,277 698 45 - 85 2019 $’000 133 256 –––––– 2,962 1,551 ______ 4,513 1,887 258 9 An analysis of revenue by product or service and by geography is given below. Revenue by geography 4,020 6,667 Revenue by type The Group has five principal revenue models, being: 1. contracts for the use of the Group’s software on a regular (usually monthly) basis, which may also provide for Group employees to provide related services the customer (“managed services”) and/or for the Group to take a share of the revenue gain achieved through use of the software (“gain share”); 2. contracts based on the sale of perpetual licenses for use of the Group’s proprietary enterprise soft- ware; 3. provision of specific customer-requested modifica- tions to Group software (“change requests”); 4. provision of maintenance and support for the soft- ware and its users; and 5. provision of consultancy services and/or training re- lating to the use of the software The Group recognises revenue in seven geographical regions based on the location of customers, as set out in the following table: At 31 December Caribbean Central Asia Eastern Europe North Africa South Asia South East Asia Sub-Saharan Africa 2020 $’000 2019 $’000 145 175 168 64 1,096 2,372 133 256 91 135 1,791 4,181 - _______ 80 _______ 4,020 6,667 Management makes no allocation of costs, assets or liabilities between these segments since all trading ac- tivities are operated as a single business unit. An analysis of revenue by status of invoicing is as fol- lows: At 31 December In addition, the Group may, if required by the customer, supply appropriate hardware on which to host the soft- (i) Revenue invoiced to customers under contractual terms (ii) Revenue recognised under terms of contract but unbilled at period end (“UBR”) ware, either for the account of the customer or (partic- (iii) Net revenue recognised other than (ii) ularly in the case of managed services) retained in the ownership of the Group. Less: revenue recognised or to be recognised as interest under IFRS 15 2020 $’000 2,593 2019 $’000 2,619 1,232 3,947 239 (44) 3,947 (43) _____ _____ Total revenue recognised in the year 4,020 6,667 86 ANNUAL REPORT Customer concentration PCS at other than a standalone selling price (“SSP”). The Group has three customers representing individual- deemed to accrue over the full term of the service ly over 10% of revenue each and in aggregate approxi- provision (whether paid or otherwise) and, as far as is mately 53% of total revenue at $2.14m (2019: four such estimable, at a deemed market rate (i.e. the SSP). Ac- customers, in aggregate approximately 67% of revenue cordingly, the financial statements reflect adjustments For revenue recognition purposes PCS income is at $4.48m). The three customers accounted for reve- to income: nue of $0.89m, $0.63m and $0.62m respectively (2019: $2.02m, $0.82m, $0.81m and $0.79m). (i) to accelerate the recognition of revenue for initial Revenue recognition years for which no contractual payment is due (and consequent adjustments to revenue to derecognise revenue in later years when contractual payments ex- License revenue ceed revenue to be recognised); and As explained in Note 2, the Group recognises revenue (ii) to accelerate or defer the recognition of revenue in from the sale of licenses and the implementation of the cases where the contractual PCS charge is lower (or software so licensed separately, as the two activities higher) than a market rate (the difference being netted represent distinct performance obligations. However, as off or added to the revenue recognised in respect of the implementation to date has always been carried out by license fee). Group personnel and is usually viewed by the customer as an integral part of the license purchase, the two ac- For the financial year 2020 revenue includes/(excludes) tivities are reported as one. (i) a net amount of $(101,000) representing income from PCS already recognised ahead of its contractu- Irrespective of the split between license and implemen- ally due dates (2019: $104,000 recognised ahead of tation recognition, some contracts provide for fixed pay- its contractually due dates), and (ii) an amount of $nil ments to be made by customers (usually monthly) over (2019: $248,000) representing revenue netted off li- a given term (e.g. three or five years). Under IFRS 15, in cense income and allocated to PCS. order to reflect the time value of money, such contracts are recognised (at the point of transfer of the license) Remaining performance obligations as the capitalised value of the income stream. In addi- tion, interest income accrues on the credit deemed to There are certain software support, professional ser- be extended to the customer (on a reducing balance vice, maintenance and licences contracts that have basis). For the financial year 2020 this figure amounts been entered into for which both: to license revenue of $0.20m and interest income of $44,000 (2019: $0.45m and $7,000). • the original contract period was greater than 12 PCS Ancillary to a license sale, the Group typically provides five years of PCS but does not charge for the first year; similarly in certain contracts the Group may provide months; and • the Group’s right to consideration does not corre- spond directly with performance. ANNUAL REPORT 87 The amount of revenue that will be recognised in future Non-current assets comprise intangible assets, good- periods on these contracts when those remaining per- will, and plant, property and equipment. formance obligations will be satisfied is shown below Year to 31 December 2021 $’000 2022 $’000 2023-6 $’000 579 394 442 Revenue expected to be recognised on software and service contracts Comparative figures for the year ended 31 December 6. Operating expenses Profit for the year has been arrived at after charging: 2020 $’000 2019 $’000 Amortisation of intangible non-current assets 2,122 1,726 Depreciation of tangible non-current assets (Profit)/loss on disposal of Right to Use 198 (10) 93 - 2019 were as follows: assets Year to 31 December 2020 $’000 2021 $’000 2022-5 $’000 595 461 522 Staff costs (see note 9) 1,787 1,503 Auditor’s remuneration (see note 8) Short-term lease expenses Realised foreign exchange (gains)/losses 41 23 3 41 23 (14) Revenue expected to be recognised on software and service contracts Costs of obtaining and fulfilling contracts of $0.59m have been capitalised in 2020 (net of amortisation against revenue recognised in respect of those con- tracts) (2019: $9,000). Non-current assets Information about the Group’s non-current assets by location of assets is as follows: At 31 December India Russia Singapore UK 2020 $’000 1,208 25 5,516 6,426 2019 $’000 495 53 3,825 7,603 _______ _______ 13,175 11,976 88 ANNUAL REPORT 7. Non-GAAP profit measures and exceptional items Reconciliation of operating profit to adjusted earnings years relating to that grant; also the value of the share before interest, taxation, depreciation and amortisation option to the employee differs considerably in value (“EBITDA”) and timing from the actual cash cost to the Group. Year to 31 December Operating profit/(loss) Adjusted for: 2020 $’000 2019 $’000 (1,906) 1,118 Amortisation and depreciation 2,420 1,915 Revenue recognised as interest under IFRS 15 44 43 Exceptional items: - gain on adjustment of contingent liability (149) (236) Expensed share-based payments 32 52 Adjusted EBITDA ______ ______ 441 2,892 Criteria for adjustments to operating profit or loss in the calculation of adjusted EBITDA are that they (i) arise from an irregular and significant event or (ii) are such that the income/cost is recognised in a pattern that is unrelated to the resulting operational performance. Exceptional items are treated as exceptional by reason of their nature and are excluded from the calculation of adjusted EBITDA (and adjusted earnings per share in Note 15) to allow a better understanding of comparable year-on-year trading and thereby an assessment of the underlying trends in the Group’s financial performance. These measures also provide consistency with the Group’s internal management reporting. Exceptional items in 2020 comprise the gain on the adjustment of contingent liabilities relating to the final earnout pay- ment in respect of the Danateq Acquisition. Elements of depreciation on right-to-use assets rec- ognised under IFRS 16 and share-based payment ex- pense are deemed to be directly attributable overheads for the purposes of capitalising relevant expenditure on developing intangible assets (see Note 18). The fig- ures above are shown net of amounts so capitalised. EBITDA (and adjusted EPS) are financial measures that are not defined or recognised under IFRS and should not be considered as an alternative to other in- dicators of the Group’s operating performance, cash flows or any other measure of performance derived in accordance with IFRS. Accordingly, these non-IFRS measures should be viewed as supplemental to, but not as a substitute for, measures presented in this An- nual Report and Accounts. Information regarding these measures is sometimes used by investors to evaluate the efficiency of an entity’s operations; however, there are no generally accepted principles governing the cal- culation of these measures and the criteria upon which these measures are based can vary from company to company. These measures, by themselves, do not pro- vide a sufficient basis to compare the Group’s perfor- mance with that of other companies and should not be considered in isolation or as a substitute for operating profit or any other measure as an indicator of operating performance, or as an alternative to cash generated from operating activities as a measure of liquidity. Adjustment for share-based payment expense is made The calculation of adjusted earnings per share is because, once the cost has been calculated for a giv- shown in Note 15. en grant of options, the Directors cannot influence the share-based payment charge incurred in subsequent ANNUAL REPORT 8. Auditor’s renumeration Year to 31 December Audit of the financial statements of Pelatro Plc Amounts receivable by auditor in respect of: Tax compliance 9. Staff costs Wages and salaries Social security contributions Less: amounts capitalised as intangible assets The average number of persons employed by the Com- pany during the period was: Year to 31 December Sales Software development Support Marketing Administration 89 2019 $’000 41 3 2020 $’000 41 4 _______ ______ 45 44 2020 $’000 4,410 83 2019 $’000 3,495 65 (2,706) (2,057) _______ ______ 1,787 1,503 2020 2019 4 96 48 3 15 4 88 40 3 15 _______ ______ 166 150 90 ANNUAL REPORT 10. Directors’ remuneration and transactions The Directors’ emoluments in the year ended 31 December 2020 were: Executive Directors S. Menon S. Yezhuvath N. Hellyer Non-Executive Directors R. Day P. Verkade Basic salary 2020 $’000 Bonus 2020 $’000 Benefits in kind Share-based payments Pension Total Total 2020 $’000 2020 $’000 2020 $’000 2020 $’000 2019 $’000 191 191 90 70 39 - - 28 - - 29 16 11 - - - - 5 - - - - 3 2 - 220 207 137 72 39 262 253 111 72 38 _______ ______ ______ ______ _______ _______ ______ 581 28 56 5 5 675 736 The remuneration of the executive Directors is decided by the Remuneration Committee. Save as disclosed above no Director had a material interest in any contract of significance with the Group in either year. 11. Share-based payments In addition to options granted to a director at the time of the Group’s IPO, the Group introduced a share option plan for senior employees on 15 January 2019 (the “Plan”). Each share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option and the Company has no legal obligation to repurchase or settle the options in cash. The options carry neither rights to dividends nor voting rights prior to the date on which the options are exercised. Options may be exercised at any time from the date of vesting to the date of expiry. A charge of $32,000 (net of amounts capitalised of $66,000) (2019: $52,000) has been recognised during the year for share-based payments over the vesting period. This share-based payment expense comprises the charge in the current period relating to the expensing of the fair value of (a) the 1,640,000 options granted under the Plan and (b) the 50,000 options issued at the time of the Company’s IPO. The options issued under the terms of the Plan were granted with an exercise price of 73p, vesting in tranches as follows: 25% after one year, 25% after two years and 50% after three years. There are no conditions attaching to the vesting of the options other than continued employ- ment. Of this amount, $27,000 net (2019: $45,000) relates to costs of share options issued to subsidiary employees. ANNUAL REPORT 91 Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: Outstanding at the beginning of the year Granted during the year Forfeited/cancelled during the year No. of options Weighted average exercise price 2020 1,631,500 - (126,000) 2019 50,000 1,640,000 (58,500) 2020 72.7p - 73.0p ___________ __________ 2019 62.5p 73.0p 73.0p Outstanding at the end of the year 1,505,500 1,631,500 72.7p 72.7p Outstanding options are exercisable at prices between 62.5p and 73p, and have a weighted average remaining con- tractual life of 6.8 years. The fair values of the share options issued in the year was derived using a Black Scholes model. The following key assumptions were used in the calculations: Grant date Exercise price Share price at grant date Risk free rate Volatility Expected life Fair Value 17 January 2019 73p 73p 0.86 - 0.92% 35% 4.5 - 5.5 years 19.0 - 20.8p The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price per share at 31 December 2020 was £0.380 (31 December 2019: £0.705) and hence no deferred tax is provided in respect of the potential ex- ercise of options currently extant. 12. Finance income Interest receivable on interest-bearing deposits Notional interest accruing on contracts with a significant financing component Total finance income 2020 $’000 20 44 2019 $’000 11 43 _______ _______ 64 54 92 ANNUAL REPORT 13. Finance expense Interest and finance charges paid or payable on borrowings Interest on lease liabilities under IFRS 16 Less: amounts capitalised as intangible assets Acquisition-related financing expense (unwinding of discount on financial liabilities) Total finance income 2020 $’000 198 31 (14) 25 _______ 240 2019 $’000 96 40 (19) 47 _______ 164 An element of interest on lease liabilities is deemed to be directly attributable overheads for the purposes of capital- ising relevant expenditure on developing intangible assets (see Note 18). 14. Taxation Tax on profit on ordinary activities Year to 31 December Current tax UK corporation tax charge/(credit) on profit for the current year Overseas income tax charge/(credit) Adjustments in respect of prior periods Total current income tax Deferred tax Reversal/(recognition) of deferred tax asset Total deferred income tax Total income tax expense recognised in the year Reconciliation of the total tax charge 2020 $’000 - 321 (18) 2019 $’000 (32) 286 (7) _______ _______ 303 247 72 (53) _______ _______ 72 375 (53) 194 The effective tax rate in the income statement for the year is higher than the standard rate of corporation tax in the UK of 19% (2019: lower). A reconciliation of income tax expense applicable to the profit before taxation at the statutory tax rate to income tax expense at the effective tax rate is as follows: ANNUAL REPORT Year to 31 December Profit/(loss) before taxation Tax charge/(credit) at the applicable rate of 19% Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Fixed asset differences Expenses not deductible for tax purposes and other permanent items Income not taxable and other permanent items Movement in fair value of contingent consideration not taxable Tax exemptions, allowances and rebates Foreign tax credits Overseas taxation at different rates Overseas withholding tax expenses Recognition of deferred tax liability Derecognition of deferred tax asset Adjustments recognised in current year tax in respect of prior years Current tax (prior period) exchange difference Deferred tax not recognised Income tax expense recognised for the current year 93 2019 $’000 1,009 192 (113) 179 (118) (45) (22) 109 51 21 - (53) (7) - - 2020 $’000 (2,082) (396) (425) 247 5 (28) (47) 186 63 - 24 61 (18) (1) 704 _______ 375 _______ 194 The tax effect of exchange differences recorded within the Group Statement of Comprehensive Income is a credit of $6,000 (2019: $5,000 credit). Temporary differences associated with Group investments At 31 December 2020, there was no recognised deferred tax liability (2019: $nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries as the Group has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future. Deferred tax Recognised deferred tax asset At 1 January Recognised in profit and loss At 31 December Comprising: Timing differences Tax losses 2020 $’000 63 (47) 2019 $’000 10 53 _______ _______ 16 - 16 63 8 55 _______ _______ 16 63 94 ANNUAL REPORT Deferred income tax assets have only been recognised to the extent that it is considered probable that they can be recovered against future taxable profits based on profit forecasts for the foreseeable future. The deferred income tax assets at 31 December 2020 above are expected to be utilised in the next two years. Recognised deferred tax liability At 1 January Recognised in profit and loss At 31 December Comprising: Timing differences Factors affecting future tax charges UK 2020 $’000 - 24 2019 $’000 - - _______ _______ 24 24 - - _______ _______ 24 - The current rate for corporation tax in the UK is 19% but, as a result of the March 2021 Budget statement, this is due to rise to 25% from 1 April 2023 for profits in excess of £250,000. This tax rate is yet to be substantively enacted. India Under Indian tax law, with effect from 1 April 2019 any company which opted not to utilise certain tax exemptions or incentives was eligible for a reduced income tax rate of 22% (previously 25%). For the tax year to 31 March 2020 the effective tax rate for the Group’s Indian subsidiary PSPL was therefore 27.82% inclusive of surcharges and cess. PSPL has now opted for the reduced rate and its effective tax rate from henceforth will be 25.17%. ANNUAL REPORT 15. Earnings Reported earnings per share 95 Basic earnings per share (“EPS”) amounts are calculated by dividing net profit or loss for the year attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the year. The Group has one category of security potentially dilutive to ordinary shares in issue, being those share options granted to employees where the exercise price (plus the remaining expected charge to profit under IFRS 2) is less than the average price of the Company’s ordinary shares during the period in issue. No dilution arose in the year as the exercise price was above the average share price for the year. The following reflects the earnings and share data used in the basic earnings per share computations: Year to 31 December 2020 $’000 Profit/(loss) attributable to equity holders of the parent: Profit/(loss) attributable to ordinary equity holders of the parent for basic earnings (2,457) 2019 $’000 814 Weighted average number of ordinary shares in issue 34,136,617 32,532,431 Basic earnings/(loss) per share attributable to shareholders (7.2)¢ 2.5¢ Adjusted earnings per share Adjusted earnings per share is calculated as follows: Year to 31 December Profit/(loss) attributable to ordinary equity holders of the parent for basic earnings Adjusting items: - exceptional items (see note 7) - share-based payments - finance expense on liabilities relating to contingent consideration - amortisation of acquisition-related intangibles - prior year adjustments to tax charge Adjusted earnings attributable to owners of the Parent 2020 $’000 (2,457) (149) 32 25 686 (18) _______ (1,881) 2019 $’000 814 (236) 52 47 686 (7) _______ 1,356 Weighted number of ordinary shares in issue 34,136,617 32,532,431 Adjusted earnings/(loss) per share attributable to shareholders (5.5)¢ 4.2¢ 96 ANNUAL REPORT The criteria for inclusion of adjusting items in the calculation of adjusted EPS are the same as those relating to the calculation of adjusted EBITDA as set out in Note 7. Additionally, finance expense on liabilities relating to contingent consideration are non-cash costs reflecting the time value of money in arriving at the fair value of such liabilities and the effluxion of time over the period for which they are outstanding; and amortisation of acquisition-related intangibles relates to the amortisation of intangible assets in respect of customer relationships and brands which are recognised on a business combination and are non-cash in nature. 16. Dividends paid and proposed No dividends were declared or paid during the year and no dividends will be proposed for approval at the AGM (2019: none). 17. Group investments The Company has investments in the following subsidiary undertakings, which contribute to the net assets of the Group: Subsidiary undertakings Country of incorporation and operation Registered office Principal activity Description and proportion of shares held by the Company Pelatro LLC USA 110 Summit Avenue Montvale, NJ 07645, USA Sales 100% of members’ capital Pelatro Pte Limited Singapore One Raffles Place, #10-62, Tower 2, Singapore 048616 Ownership of IP; operation of branch in Russia 100% ordinary shares Pelatro Solutions Private Limited India 403, 7th A Main, HRBR Layout, Bangalore 560043, India Research, development and support 100% ordinary shares Pelatro Sdn Bhd Malaysia Suite 21.02, Level 21, Centerpoint South, Mid Valley City, Lingakaran Syed Putra, 59200 Kuala Lumpur W.P., Kuala Lumpur, Malaysia Employment of Malaysian national 100% ordinary shares ANNUAL REPORT 97 18. Intangible assets Intangible assets comprise capitalised development costs (in relation to internally generated software and software acquired through business combinations), software acquired from third parties for use in the business, patents, cus- tomer relationships and goodwill. An analysis of goodwill and other intangible assets is as follows: Development costs $’000 Third party software $’000 Patents Customer relationships Goodwill Total $’000 $’000 $’000 $’000 Financial year 2020 Cost At 1 January 2020 Additions Foreign exchange At 31 December 2020 Amortisation At 1 January 2020 Charge for the year Foreign exchange At 31 December 2020 Net carrying amount At 31 December 2020 6,391 2,872 - _______ 9,263 (1,957) (1,416) - _______ (3,373) 5,890 At 1 January 2020 4,434 108 4 (2) 23 4 - 6,862 470 13,854 - - - - 2,880 (2) _______ _______ _______ _______ _______ 110 27 6,862 470 16,732 (34) (20) 2 - - - (972) (686) - - - - (2,963) (2,122) 2 _______ _______ _______ _______ _______ (52) - (1,658) - (5,083) 58 74 27 23 5,204 470 11,649 5,890 470 10,891 98 ANNUAL REPORT Financial year 2019 Development costs Third party software Patents Customer relationships Goodwill Total $’000 $’000 $’000 $’000 $’000 $’000 Cost At 1 January 2019 Additions Fair value adjustment Foreign exchange 4,144 2,247 - - 98 12 - (2) - 23 - - 6,862 - - - 745 - (275) - 11,849 2,282 (275) (2) _______ _______ _______ _______ _______ _______ At 31 December 2019 6,391 108 23 6,862 470 13,854 Amortisation At 1 January 2019 Charge for the year Foreign exchange (935) (1,022) - (19) (18) 3 - - - (286) (686) - - - - (1,240) (1,726) 3 _______ _______ _______ _______ _______ _______ At 31 December 2019 (1,957) (34) Net carrying amount At 31 December 2019 At 1 January 2019 Development costs 4,434 3,209 74 79 - 23 - (972) - (2,963) 5,890 6,576 470 745 10,891 10,609 Development costs comprise capitalised staff costs (and allocable related direct costs, including depreciation and interest charges relating to property leases held by the Group and accounted for under IFRS 16) associated with the development of new products and services which will be saleable to more than one customer. Software Software assets represent purchased licences and distribution rights for third party software which are capitalised at cost and amortised on a straight-line basis over the relevant estimated useful life. Patents Patent costs represent the capitalised value of work undertaken (either internally or externally by appropriate legal or other consultants) to develop and protect patents, know-how and other similar assets. Customer relationships Customer relationships as stated were acquired as part of a business combination. ANNUAL REPORT Goodwill 99 Goodwill arose on the acquisition of (i) the Danateq Assets and (ii) PSPL. It is assessed as having an indefinite life but the Group tests whether goodwill has suffered any impairment on an annual basis. Danateq The Danateq Acquisition in 2018 comprised various contracts and customer relationships, certain enterprise software and the related workforce. Given the opportunity to leverage this expertise across Pelatro’s existing business and the ability to exploit the Group’s thus enlarged customer base, the fair value of the Danateq assets acquired was deemed to be greater than the assessed book value of the assets as recognised in the financial statements of Pelatro, thus leading to the recognition of an amount of goodwill. Given that the software acquired has been subsumed into the Group’s mViva product suite, the contracts acquired have been transitioned onto and/or are being fulfilled (for ex- ample in the case of the Telenor framework agreement) by the mViva product, and the workforce are employed by a branch of Pelatro in Singapore and work across the product suite, the former Danateq cash-generating unit (“CGU”) no longer has a separable identity. The goodwill relating to this former CGU was tested for impairment at 31 Decem- ber 2020 by comparing its carrying value with the recoverable amount, which was determined using a value in use methodology based on discounted cash flow projections, comparing the estimated implicit values of the Group cum and ex the acquisition. PSPL cash-generating unit The PSPL CGU comprises the Group’s software development and administrative centre in Bangalore which was ac- quired in December 2017, and whose principal activity was at the time to develop the Group’s software and provide administrative support for the rest of the Group. Subsequent to its acquisition, the activities of this subsidiary have grown to include the provision of post-contract support and other services to customers. The goodwill relating to this CGU was tested for impairment at 31 December 2020 by comparing the carrying value of the CGU with the recoverable amount. The recoverable amount was determined using a value in use methodology based on discounted cash flow projections over 5 years. The key assumptions used in the value in use calculations were as follows: (i) The operating cash flows for this business for the years to 31 December 2021 and 2022 are taken from the budget approved by the Board which is closely linked with recent historical performance and current expected levels of activity. The operating cash flow budget is most sensitive to the number of employees, particularly the more highly skilled developers, and the related costs of employment; revenue for the CGU is all intra-Group and is thus depen- dent on other Group companies making third-party sales; (ii) Growth has been assumed in operating cash flows for the remainder of the value in use such that a con- sistent post-tax margin is maintained over the calculation period (which is how the business is managed within the Group). Revenue growth after 5 years is forecast at nil% in local currency terms; A pre-tax discount rate of 11.6% has been used (being the Weighted Average Cost of Capital in local curren- ANNUAL REPORT 100 (iii) cy). Sensitivity to changes in assumptions The key assumptions for the value in use calculations are those regarding growth rates, discount rates and expected changes to selling prices and direct costs during the period. Changes in selling prices and direct costs, if any, are based on expectations of future changes in the market. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money. A change in a key assumption in respect to oper- ating cash flows could cause the carrying value of the goodwill to exceed the recoverable amount, resulting in an im- pairment charge. The Board is confident that the assumptions in respect of operating cash flows remain appropriate. The Group has conducted sensitivity analyses on the impairment test of the goodwill’s carrying value which reflects the risk profile of the Danateq and PSPL CGUs. The Group believes that there are no reasonably possible changes to the key assumptions in the next year which would result in the carrying amount of goodwill exceeding the recoverable amount. This view is based upon inherently judgemental assumptions; however, it takes account of the headroom in the Value-in-Use calculation versus the current carrying value. Conclusion The Directors have concluded that, based on the above, recoverable value exceeds the carrying value of the goodwill at 31 December 2020. 101 Total $’000 677 902 - _______ 1,579 (162) (198) (1) _______ (361) 1,218 515 Total $’000 436 256 (15) ANNUAL REPORT 19. Tangible assets Financial Year 2020 Cost At 1 January 2020 Additions Foreign exchange differences At 31 December 2020 Depreciation At 1 January 2020 Charge for the year Foreign exchange differences At 31 December 2020 Net carrying amount At 31 December 2020 At 1 January 2020 Cost At 1 January 2019 Additions Foreign exchange differences At 31 December 2019 Depreciation At 1 January 2019 Charge for the year Foreign exchange differences At 31 December 2019 Net carrying amount At 31 December 2019 At 1 January 2019 Leasehold improvements $’000 Computer equipment $’000 Office equipment $’000 Vehicles $’000 312 1 (7) 59 1 (1) _______ _______ 59 (9) (11) - 305 (59) (36) - _______ _______ (20) 39 50 (95) 210 253 109 24 (2) _______ 131 (7) (17) - _______ (24) 107 102 197 877 10 _______ 1,084 (87) (134) (1) _______ (222) 862 110 Financial Year 2019 Leasehold improvements $’000 Computer equipment $’000 Office equipment $’000 Vehicles $’000 49 63 (3) 93 106 (2) 30 31 (2) 264 56 (8) _______ _______ _______ _______ _______ 109 - (7) - 197 (46) (44) 3 59 (2) (8) 1 312 (26) (34) 1 _______ _______ _______ _______ (7) 102 49 (87) 110 47 (9) 50 28 (59) 253 238 677 (74) (93) 5 _______ (162) 515 362 102 ANNUAL REPORT 20. Right-of-use assets Right-of-use assets comprise leases over office buildings and vehicles as follows: 2020 Cost At 1 January 2020 Additions in respect of new leases Disposals in respect of leases terminated Effects of foreign exchange movements At 31 December 2020 Depreciation At 1 January 2020 Charge for the period Eliminated on leases terminated Effects of foreign exchange movements At 31 December 2020 Net carrying amount At 31 December 2020 At 1 January 2020 2019 Cost At 1 January 2019 Effect of adoption of IFRS 16 Additions in the period Effects of foreign exchange movements At 31 December 2019 Depreciation At 1 January 2019 Effect of change of accounting policy Charge for the period Effects of foreign exchange movements At 31 December 2019 Net carrying amount At 31 December 2019 At 1 January 2019 Office building $’000 690 227 (231) (25) _______ 661 (368) (153) 157 9 _______ (355) 306 322 Office buildings $’000 - 557 139 (6) _______ 690 - (212) (160) 4 _______ (368) 322 - Vehicles $’000 31 - - 1 _______ 32 (14) (14) - (2) _______ (30) 2 17 Vehicles $’000 - - 30 1 _______ 31 - - (13) (1) _______ (14) 17 - Total $’000 721 227 (231) (24) _______ 693 (382) (167) 157 7 _______ (385) 308 339 Total $’000 - 557 169 (5) _______ 721 - (212) (173) 3 _______ (382) 339 - ANNUAL REPORT 103 21. Trade and other receivables and contract assets The timing of revenue recognition, invoicing and cash collection results in the recognition of the following assets on the Consolidated Statement of Financial Position: (i) invoiced accounts receivable; (ii) accounts invoiceable but uninvoiced at the period end (i.e. “unbilled revenue” or UBR) (collectively with (i) rec- ognised as “trade receivables”); and (iii) amounts relating to revenue recognised at the date of the statement of financial position but not invoiceable under the terms of the contract, or fulfilment assets (“contract assets”). Aged analysis of trade receivables Year to 31 December Carrying amount Neither impaired or past due Past due (in days) but not impaired 2020 Trade receivables 2019 Trade receivables $’000 3,484 5,514 $’000 3,152 5,114 61-90 $’000 91-120 $’000 More than 121 $’000 34 - 93 - 205 400 104 Contract assets Due after one year At 1 January Contract assets recognised in the period Transfer to current contract assets At 31 December Due within one year At 1 January Contract assets recognised in the period, net of releases to receivables or cash, or amortisation to profit or loss Transfer from non-current contract assets At 31 December Contract assets are comprised as follows: Due after one year Contract assets relating to revenue Contract fulfilment assets Due within one year Contract assets relating to revenue Contract fulfilment assets ANNUAL REPORT 2019 $’000 312 320 (113) _______ 519 2019 $’000 72 108 113 _______ 293 2019 $’000 519 - _______ 519 2019 $’000 284 9 _______ 293 2020 $’000 519 441 (209) _______ 751 2020 $’000 293 107 209 _______ 609 2020 $’000 311 440 _______ 751 2020 $’000 457 152 _______ 609 ANNUAL REPORT 105 Trade terms, credit risk and impairments The Group’s exposure to credit risk equates to the carrying value of cash held on deposit (whether at banks or as deposits against liabilities, e.g. leases) and trade and other receivables and contract assets. The Group’s credit risk is primarily attributable to trade receivables and contract assets, and management has a credit policy in place to ensure exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on customers as deemed necessary based on, inter alia, the nature of the prospect and size of order. Unless specific agreement has been reached with individual customers, sales invoices are typically due for payment between 60 and 90 days after the date of the invoice; where customers delay making payment, an assessment of the potential loss of customer goodwill arising from the enforcement of contractual payment terms may take place when considering actions to be taken to secure payment. Trade receivables include amounts that are past due at the reporting date for which no specific impairment provision has been recognised as these amounts are still considered to be recoverable. The Group does not require collateral in respect of financial assets. As outlined in Note 2, the Group recognises impairments under IFRS 9 for relevant classes of assets. The Group thus reviews the amount of expected credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions as opposed to relying on past historical default rates. In the absence of any historic credit losses and the expectation of no specific losses in the foreseeable future, the Di- rectors assess a hypothetical likely default amount by applying a percentage “probability of default” to the receivables balance, such probability being related to the underlying credit rating of the customer or country of origin. Further- more, taking into account the time value of money when applied to contracts assets (which may unwind over a period of years following their initial recognition), a loss allowance for expected credit losses has been recorded as follows: Loss allowance at 1 January Increase in loss allowance Loss allowance at 31 December The loss allowance is comprised as follows: On trade receivables On contract assets Loss allowance at 31 December 2020 $’000 29 8 _______ 37 2020 $’000 30 7 _______ 37 2019 $’000 - 29 _______ 29 2019 $’000 25 4 _______ 29 106 ANNUAL REPORT The largest individual counterparty to a receivable included in trade and other receivables at 31 December 2020 was $562,000 (of which some $523,000 related to unbilled revenue) (2019: $1,067,000). Based on invoiced receivables, the largest individual counterparty owed the Group $200,000 (2019: $210,000). The Group’s customers are spread across a broad range of geographies and consequently it is not otherwise exposed to significant concentrations of credit risk on its trade receivables. 22. Other assets At 31 December Prepayments Deposits Other assets (including withholding tax, GST and VAT refunds) Total other assets 23. Loans and borrowings Loans and borrowings comprise: At 31 December Non-current liabilities Secured term loans Unsecured borrowings Current liabilities Current portion of term loans Unsecured borrowings Total loans and borrowings 2020 $’000 130 80 275 _______ 485 2020 $’000 277 919 _______ 1,196 99 145 _______ 244 1,440 2019 $’000 109 131 261 _______ 501 2019 $’000 362 - _______ 362 79 167 _______ 246 608 The Group has six term loans, all in its operating subsidiary in India and denominated in INR, with interest rates be- tween 10% and 13.5% (in INR) and one USD-linked loan at 5.5%, and repayable between 5 and 6 years from their inception, between April 2023 and September 2026. ANNUAL REPORT 107 Reconciliation between opening and closing balances for liabilities resulting in financing cash flows 1 January 2020 Non-cash changes – foreign exchange movements Non-cash changes – net lease liabilities taken on Interest accruals included in cash flow Transfer from non-current to current 31 December 2020 Cash flows - net (repayments) and drawdowns $’000 $’000 $’000 $’000 $’000 $’000 $’000 Non-current liabilities Secured term loans Unsecured borrowings Lease liabilities Current liabilities Current portion of secured term loan Unsecured borrowings Lease liabilities 362 187 79 167 205 (8) - (9) 5 (5) (9) - 135 - - 8 Total 1,000 (26) 143 - - - 6 - 6 (77) (114) (141) 77 114 141 - - 1,033 - (62) (137) (171) 277 919 172 99 145 174 663 1,786 The Directors consider that the carrying amount of borrowings approximates to their fair value. 24. Lease liabilities Lease liabilities comprise liabilities arising from the committed and expected payments on leases over office buildings and vehicles. Financial year 2020 Amounts due in more than one year At 1 January 2020 Liabilities taken on in the period Liabilities (disposed of) in the period Transfer from long-term to short-term Effects of foreign exchange movements At 31 December 2020 Office buildings Vehicles Total $’000 $’000 $’000 186 163 (28) (140) (9) 1 - - (1) - 187 163 (28) (141) (9) _______ _______ _______ 172 - 172 108 ANNUAL REPORT Amounts due in less than one year At 1 January 2020 Liabilities taken on in the period Liabilities (disposed of) in the period Repayments of principal Transfer from long-term to short-term Effects of foreign exchange movements At 31 December 2020 Financial year 2019 Amounts due in less than one year At 1 January 2019 Effect of change of accounting policy Leases taken on in the period Transfer from long-term to short-term Effects of foreign exchange movements At 31 December 2019 Amounts due in less than one year At 1 January 2019 Effect of adoption of IFRS 16 Leases taken on in the period Repayments of principal Transfer from long-term to short-term Effects of foreign exchange movements At 31 December 2019 Office buildings Vehicles Total $’000 193 69 (56) (164) 140 (8) $’000 12 - - (12) 1 (1) $’000 205 69 (56) (176) 141 (9) _______ _______ _______ 174 - 174 Office buildings Vehicles Total $’000 $’000 $’000 - 273 97 (180) (4) - - 12 (11) - - 273 109 (191) (4) _______ _______ _______ 186 1 187 Office buildings Vehicles Total $’000 $’000 $’000 - 124 43 (155) 180 1 - - 17 (16) 11 - - 124 60 (171) 191 1 _______ _______ _______ 193 12 205 PSPL, the Group’s main operating subsidiary, has entered into various leases over office space in Bangalore and Mumbai, typically on 3 to 4 year terms with rollover options. The Group also has a lease on office space in Nizhny Novgorod in Russia. Given the impact of COVID-19 and working from home options, and the near-term expiry of certain leases, the Group intends to review its office accommodation arrangements in 2021/22. ANNUAL REPORT 109 25. Trade and other payables and contract liabilities At 31 December Due within one year Trade payables Other payables 2020 $’000 2019 $’000 810 283 82 239 _______ _______ Total trade and other payables 1,093 321 Trade payables include amounts due in respect of sales commissions due to sales agents which is payable in less than one year. Other payables comprise principal- ly amounts due in respect of staff bonuses declared for December and paid in January. The average credit period taken for normal trade pur- chases is between 30 and 60 days. Most suppliers do not charge interest on trade payables for the first 30 days from the date of the invoice. The Group has risk management policies in place to ensure that all pay- ables are paid within the appropriate credit time frame. The Directors consider that the carrying amount of trade payables approximates to their fair value. At 31 December Due within one year 2020 $’000 2019 $’000 Contract liabilities at 1 January 665 61 Contract liabilities recognised/ (released to revenue) in the period Transfers from long-term liabilities Contract liabilities at 31 December 26. Provisions At 31 December Due within one year Employee gratuities Leave encashment Other provisions (including tax) (257) 564 87 40 _______ _______ 495 665 2020 $’000 2019 $’000 13 24 126 9 16 177 _______ _______ 163 202 Contract liabilities At 31 December 2020 2019 Contract liabilities represent consideration received in respect of unsatisfied performance obligations. Chang- es to the Group’s contract liabilities are attributable solely to the satisfaction of performance obligations. Due after one year Employee gratuities Leave encashment $’000 $’000 116 57 81 43 _______ _______ 173 124 At 31 December Due after one year Contract liabilities at 1 January Contract liabilities recognised in the period Transfers to short-term liabilities 2020 $’000 2019 $’000 274 20 112 202 (87) (40) Other provisions comprise tax and other expenses. Under the Indian Payment of Gratuity Act 1972, em- Contract liabilities at 31 December 207 274 for the payment of a “gratuity” upon certain end of _______ _______ ployees with more than 5 years’ service are eligible 110 ANNUAL REPORT employment events, including retirement, resignation, arising taken to goodwill or profit and loss as appropri- death and termination or redundancy. The calculation ate. These valuations were based on Level 3 inputs, of the gratuity due is based on the last drawn salary i.e. Inputs which are not based on observable market and number of years of service. The potential liability data. The valuation technique used was based on ex- arising from these requirements is calculated by third pectations of future revenue and the probability that the party actuaries based on employee profiles, their com- acquired assets would meet the obligations under the pleted number of years in the organization, their age, sale and purchase agreement; inputs for the valuation salary and also on the probability of termination of em- were principally management estimates on the prob- ployment, and a provision made accordingly. ability and timescale of the assets acquired meeting the revenue targets specified in the sale and purchase Under the terms of their employment, employees are agreement. There have been no changes to valuation eligible to carry forward 30 “earned leaves” (EL) to the techniques in the year. next calendar year. Any EL balance over and above this is paid in cash by March the following year, hence A reconciliation of such liabilities carried at fair value is resulting in a long-term provision. as follows: 27. Other financial liabilities As at 31 December 2020 2019 $’000 $’000 Consideration on the acquisition of the Danateq Assets - potentially due within one year - 948 As at 31 December Balance b.f. Finance expense Fair value adjustment to goodwill Fair value adjustment to profit or loss Settlement of liability net of other SPA adjustments _______ _______ - 948 Balance c.f. 2020 $’000 948 25 - 2019 $’000 1,439 47 (275) (149) (263) (824) _______ _______ - 948 Part of the consideration for the Danateq Acquisition in August 2018 was contingent on the achievement of certain stretch targets for revenue pertaining to the assets acquired, payable (if earned) in two tranches in respect of the first year following completion of the acquisition and similarly the second. On acquisition these liabilities were provisionally as- sessed at an aggregate fair value of $1.43m (as dis- counted to the present value at the time of acquisition) based on a probability-weighted analysis of revenue expectations at the time and hence the likely outturn payments; this valuation was subsequently reassessed at the end of each reporting period and the differences ANNUAL REPORT 111 28. Share capital and reserves Share capital and share premium Ordinary shares of 2.5p each (issued and fully paid) $’000 Number of the Pelatro LLC capital LLC capital at the time of the acquisition was transferred to the merger reserve, together with certain other items relating to investments At 1 January 2019 1,065 32,532,431 in subsidiaries. Issued for cash during the year - - _______ _______ 29. Financial instruments At 31 December 2019 1,065 32,532,431 Issued for cash during the year 147 4,500,000 Financial risk management At 31 December 2020 1,212 37,032,431 _______ _______ On 21 and 22 August the Company issued a further 4,500,000 2.5 pence Ordinary shares at a price of 47.0 pence per share by way of a placing to institutional and other investors. The Company incurred incremental costs totalling $178,000 in respect of the Placing. IAS 32 Financial Instruments: Presentation requires the costs of issuing new shares to be charged against the share premium account. Management reviewed the incremental costs to identify those solely incurred in issuing new shares, those incurred in connection with the entire share capital, and those not associated with issuing new shares. All of the costs relating to the Plac- ing were deemed to relate directly to the issue of new shares and thus resulted in a debit to share premium of $178,000. Merger reserve The Group’s principal financial instruments are cash and deposits, trade receivables, contract assets, bor- rowings, trade payables and contingent consideration payable in respect of certain acquisitions. The Group therefore has exposure to certain risks from its use of financial instruments unrelated to the performance of the Group itself. The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s financial performance and such risk management is carried out by the Directors. The Group’s activities expose it to certain financial risks: market risk, credit risk and liquidity risk, as ex- plained below. • Market risk is the risk of loss that may arise from changes in market factors such as interest rates and foreign currency movements • Credit risk is the financial loss to the Group if a The acquisition by Pelatro Plc of Pelatro LLC on 7 customer or counterparty to financial instruments September 2017 was accounted for as a reverse asset fails to meet a contractual obligation. Credit risk acquisition. Consequently, the previously recognised arises from the Group’s cash and cash equivalents book values and assets and liabilities were retained and receivables balances. Cash is held predomi- and the consolidated financial information for the peri- nantly with ICICI, an institution with a Baa3 bank od from the date of acquisition has been presented as deposit credit rating from Moody’s, and Kotak Ma- a continuation of the Pelatro business which was previ- hindra Bank, which has an A-3 (short term) and ously wholly owned by Pelatro LLC. The difference be- BBB- (long term) credit rating from Standard and tween the nominal value of the shares issued pursuant Poors. The credit quality of customers is assessed to the above share arrangement and the nominal value by taking into account their financial position, past 112 ANNUAL REPORT experience and other factors, and the Group mini- Classification of financial instruments mises credit risk by dealing exclusively with those customers who it believes have a high credit rating Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. This risk relates to the Group’s liquidity risk management and implies maintaining sufficient cash and/or committed borrowing facilities. The Directors monitor rolling forecasts of liquidity and cash and cash equivalents based on expected cash flows Financial assets Cash Deposits Trade receivables Contract assets Financial liabilities The capital structure of the Group consists of debt, Other payables and accruals which includes borrowings as disclosed in note 23, Trade payables cash and cash equivalents and equity attributable to Short-term borrowings equity holders of the parent, comprising issued capi- Long-term borrowings tal, reserves and retained earnings as disclosed in the Lease liabilities Other financial liabilities - contingent consideration Group 2020 $’000 1,805 80 3,484 1,360 619 810 244 1,196 346 - Group 2019 $’000 1,101 131 5,514 812 441 82 246 362 379 948 Group statement of changes in equity. The Group is not subject to any externally imposed capital require- ments and the objective when managing capital is to maintain adequate financial flexibility to preserve the ability to meet financial obligations, both current and long term - the resulting capital structure is managed and adjusted to reflect changes in economic conditions and with a view to maximising the return to sharehold- ers through optimisation of the balance of debt and equity. Financing decisions are made based on fore- casts of the expected timing and level of capital and operating expenditure required to meet commitments and development plans. There was no change in the Group’s approach to capital management during the financial period under review. All trade receivables are due from customers outside the UK. Foreign currency risk management and sensitivity analysis The Group undertakes certain transactions denomi- nated in foreign currencies. Hence, exposures to ex- change rate fluctuations arise. The Group is mainly ex- posed to the currencies of the UK (Great British Pounds or GBP), the US (US dollars or USD) and India (Indian Rupees or INR), both with respect to balance sheet amounts and income and expenditure, with some ex- penditure exposure to the currencies of Singapore (Sin- gapore Dollars or SGD), Malaysia (Malaysian Ringgits or MYR) and Russia (rouble or RUB). Foreign currency risk is monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level. ANNUAL REPORT 113 The following table shows the denomination of the Limitations of sensitivity analysis year end cash, cash equivalents and borrowings, and trade receivables and payables balances in the princi- The sensitivity analysis above demonstrates the ef- pal currencies disclosed above: fect of a change in one of the key assumptions while As at 31 December 2020 USD GBP other assumptions remain unchanged. In reality, such an occurrence is very unlikely due to correlation be- tween the factors. Furthermore, these sensitivities are non-linear, and larger or smaller impacts cannot easi- ly be derived from the results. The sensitivity analysis does not take into consideration that the Group’s as- sets and liabilities are actively managed and may vary at the time that any actual market movement occurs. INR ’000 33,060 5,845 20,857 - (105,146) ’000 580 - 3,271 1,360 - ’000 556 - - - - (780) (18) (2,550) - (1) (25,191) _______ _______ _______ Interest rate risk management and sensitivity anal- ysis Cash and cash equivalents Deposits Trade receivables Contract assets Borrowings Trade payables Lease liabilities Net currency exposure 4,431 537 (73,125) As at 31 December 2019 USD GBP INR Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate be- cause of changes in market interest rates. At the year end the Group had no exposure to interest rate risks Cash and cash equivalents Deposits Trade receivables Contract assets Borrowings Trade payables Lease liabilities ’000 498 - 5,541 812 - (26) ’000 ’000 as all of its borrowings were fixed rate. 8 - - - - 41,358 9,347 - 642 Liquidity risk management and interest risk tables Ultimate responsibility for liquidity risk management (43,304) rests with the Board of Directors, which has built an (25) (2,508) appropriate liquidity risk management framework for - (10) (27,002) the management of the Group’s short, medium and _______ _______ _______ long-term funding and liquidity management require- Net currency exposure 6,825 (27) (21,467) ments. The Group manages liquidity risk by maintain- ing adequate reserves and borrowing facilities and Had the foreign exchange rate between the US dollar by continuously monitoring forecast and actual cash and the other Group currencies changed by 5%, this flows. would have affected the profit for the year and the net assets of the Group by $10,000 (2019: $5,000). 114 ANNUAL REPORT The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. As at 31 December 2020 Fixed rate instruments - borrowings Lease liabilities Total As at 31 December 2019 Fixed rate instruments - borrowings Lease liabilities Total Weighted average effective interest rate Less than 1 year 2-5 years More than 5 years $’000 $’000 $’000 13.2% 9.2% 244 174 1,074 172 122 - Total $’000 1,440 346 _______ _______ _______ _______ 418 1,246 122 1,786 Weighted average effective interest rate Less than 1 year 2-5 years More than 5 years $’000 $’000 $’000 10.0% 9.1% 246 205 283 187 79 - Total $’000 608 392 _______ _______ _______ _______ 451 470 79 1,000 Fair values of financial assets and financial liabilities As at 31 December 2020 and 31 December 2019 there were no material differences between the book value and fair value of the Group’s financial assets and liabilities. ANNUAL REPORT 115 30. Related party transactions Amounts outstanding at the end of the year in respect To comply with local legislation regarding resident di- of transactions with related parties were as follows: rectors, Hamish Christie is a director of Pelatro Pte Amount outstanding – (debtor)/ creditor Key management personnel - outstanding reimbursements in respect of expenses incurred on behalf of Group companies 2020 2019 $’000 $’000 - 14 The remuneration of the Directors, who are deemed to be the only key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Wages and salaries Bonuses Share-based payments Pension cost and other benefits in kind 2020 $’000 581 28 5 61 2019 $’000 571 98 7 60 Ltd. Mr Christie is also the proprietor of H.A. Christie & Co. and Christie Cosec Services Pvt. Ltd, which firms provide accountancy, tax and other advisory services to that company. During the year payments of approx- imately $14,000 were made to those two companies; there was a balance of approximately $2,500 out- standing at the year end in relation to 2020 expenses. Other than disclosed in this note or elsewhere in this financial information as appropriate, no related party transactions have taken place during the year that have materially affected the financial position or per- formance of the Group. 31. Capital commitments and contin- gent liabilities Other than as disclosed above, as at 31 December 2020 the Group had no material capital commitments _______ _______ (2019: nil) nor any contingent liabilities (2019: nil). 675 736 During the year Suresh Yezhuvath (the brother of Sub- 32. Events after the reporting date ash Menon and Sudeesh Yezhuvath) arranged a loan whereby a syndicate of certain business associates of There have been no events subsequent to the reporting his would provide funding of INR 60m (approx. $820k) date which would have a material impact on the finan- in order to facilitate the acquisition of computer hard- cial statements. ware needed for the implementation of a long-term managed services contract. The loan was on a 6 year term basis at an interest rate of 15.25%. Neither Mr Me- non nor Mr Yezhuvath took any benefit from this loan, which was considered to be on reasonable commercial terms. Suresh Yezhuvath participated in the funding in the amount of c. $130k at the same rate. 116 ANNUAL REPORT Company Statement of Financial Position As at 31 December 2020 Assets Non-current assets Investments in subsidiaries Intangible assets Right-of-use assets Contract assets Trade and other receivables Current assets Contract assets Trade and other receivables Cash and cash equivalents Total Assets Liabilities Non-current liabilities Lease liabilities Contract liabilities Other long-term liabilities Current liabilities Lease liabilities Contract liabilities Trade and other payables Other financial liabilities Total Liabilities NET ASSETS Note 7 8 9 10 11 10 11 12 13 12 13 14 2020 $’000 (audited) 825 5,742 1 746 149 _______ 7,463 552 4,042 1,206 2019 $’000 (audited) 746 6,740 16 467 211 _______ 8,180 224 5,326 400 _______ _______ 5,800 13,263 5,950 14,130 - 207 360 1 294 - _______ _______ 567 1 486 460 - 295 13 637 182 948 _______ _______ 947 1,514 11,749 1,780 2,075 12,055 ANNUAL REPORT 117 Issued share capital and reserves attributable to owners of the parent Share capital Share premium Other reserves Retained earnings TOTAL EQUITY Note 15 15 15 2020 $’000 (audited) 2019 $’000 (audited) 1,212 14,045 (186) (3,322) 1,065 11,603 (214) (399) _______ _______ 11,749 12,055 For the period ended 31 December 2020, the Company recorded a loss of $2,923,000 (2019: loss $657,000). The financial statements of Pelatro Plc, registered number 10630166, were approved by the board of Directors and authorised for issue on 11 April 2021. They were signed on its behalf by: Subash Menon (Director) Nic Hellyer (Director) The accompanying notes 1 to 17 are an integral part of these financial statements. 118 ANNUAL REPORT Company Statement of Changes in Equity For the year ended 31 December 2020 Share capital Share premium Exchange reserve Retained profits Total equity Share- based payments reserve $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 January 2019 1,065 11,603 (211) Profit after taxation for the year Share-based payments Other comprehensive income: Exchange differences Balance at 31 December 2019 Profit after taxation for the year Share-based payments Other comprehensive income: Exchange differences Transactions with owners: Shares issued by Pelatro Plc for cash Issue costs - - - - - - - - 100 - - (103) - 258 12,715 (657) (657) - - 100 (103) _______ _______ _______ _______ _______ _______ 1,065 11,603 (314) 100 (399) 12,055 - - - - - - 147 - 2,620 (178) - - (54) - - - 83 - - - (2,923) (2,923) - - - - 83 (54) 2,767 (178) _______ _______ _______ _______ _______ _______ Balance at 31 December 2020 1,212 14,045 (368) 183 (3,322) 11,749 Reserve Share capital Share premium Exchange reserve Share-based payments reserve Description and purpose Nominal value of issued shares Amount subscribed for share capital in excess of nominal value less associated costs The difference arising on the translation of balances denominated in currencies other than US Dollars into the presentational currency of the Company Cumulative amounts charged in respect of unsettled options issued Retained earnings All other net gains and losses not recognised elsewhere The accompanying notes 1 to 18 are an integral part of these financial statements. ANNUAL REPORT 119 Notes to the Company Financial Statements 1. Accounting policies Share capital Share Exchange premium reserve Share- based Retained profits Total equity Basis of preparation In addition, and in accordance with FRS 101, further disclosure exemptions have been adopted because $’000 $’000 $’000 $’000 $’000 $’000 The Parent Company financial statements of Pelatro equivalent disclosures are included in the consolidated Plc (the “Company”) have been prepared in accor- financial statements. These financial statements do not dance with Financial Reporting Standard 101 Reduced include certain disclosures in respect of: Disclosure Framework and as required by the Compa- nies Act 2006. • • business combinations; financial instruments (other than certain disclo- The financial statements have been prepared in US sures required as a result of recording financial Dollars, which is the currency of the primary economic instruments at fair value); environment in which the Company operates (its func- • fair value measurement (other than certain disclo- tional currency). The financial statements are prepared sures required as a result of recording financial in- under the historical cost convention and were approved struments at fair value); and for issue on 11 April 2021. • impairment of assets. No profit and loss account is presented by the Compa- Investments in subsidiaries Shares issued by Pelatro Plc for cash Issue costs 147 2,620 (178) ny as permitted by section 408 of the Companies Act 2006. Balance at 31 December 2020 1,212 14,045 (368) 183 (3,322) 11,749 Disclosure exemptions adopted _______ _______ _______ _______ _______ _______ Investments consist of the Company’s subsidiary un- dertakings. Investments are initially recorded at cost, being the fair value of the consideration given and in- cluding directly attributable charges associated with Balance at 1 January 2019 1,065 11,603 (211) 258 12,715 Profit after taxation for the year Share-based payments Other comprehensive income: Exchange differences Balance at 31 December 2019 Profit after taxation for the year Share-based payments Other comprehensive income: Exchange differences Transactions with owners: payments reserve 100 83 - - - - - - - - - - - - - (103) (54) - - - - - - (657) (657) - - - - - - 100 (103) 83 (54) 2,767 (178) _______ _______ _______ _______ _______ _______ 1,065 11,603 (314) 100 (399) 12,055 (2,923) (2,923) - - - - - - - In preparing these financial statements the Company the investment. Subsequently they are reviewed for has taken advantage of all disclosure exemptions con- impairment if events or changes in circumstances indi- ferred by FRS 101. Therefore, these financial state- cate the carrying value may not be recoverable. ments do not include: Trade receivables • certain disclosures regarding the Company’s cap- • • ital; a statement of cash flows; Short term trade receivables are measured at trans- action price, less any impairment. The Company as- the effect of future accounting standards not yet sesses at each reporting date whether any trade re- adopted; ceivables or other assets or group of financial assets • the disclosure of the remuneration of key manage- is impaired. ment personnel; and • disclosure of related party transactions with other wholly-owned members of the Pelatro Group. 120 Taxation Income taxes Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to tax- ation authorities, based on tax rates and laws that are enacted or substantively enacted by the statement of financial position date. Deferred income tax is recognised on all temporary dif- ferences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions: • where the temporary difference arises from the ini- tial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; • in respect of taxable temporary differences associ- ated within investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and • deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible tempo- rary differences, carried forward tax credits or tax losses can be utilised. Deferred income tax assets and liabilities are mea- sured at the tax rates that are expected to apply when the related asset is realised, or liability is settled, based on tax rates and laws enacted or substantively enacted at the statement of financial position date. ANNUAL REPORT The carrying amount of deferred income tax assets is reviewed at each statement of financial position date. Deferred income tax assets and liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred in- come taxes relate to the same taxation authority and that authority permits the Group to make a single net payment. Income tax is charged or credited to other comprehen- sive income or directly to equity if it relates to items that are credited or charged to other comprehensive income or directly to equity. Otherwise, income tax is recognised in the income statement. Foreign currencies Transactions denominated in foreign currencies are translated at an approximation of the exchange rate ruling on the date of the transaction. Assets and liabil- ities denominated in foreign currencies are translated at the exchange rate ruling on the balance sheet date. Resulting exchange gains and losses are taken to the profit and loss account. Related party transactions The Company has taken advantage of the exemption under FRS 101 from disclosing related party transac- tions with entities that are wholly owned subsidiary un- dertakings of the Pelatro Group. ANNUAL REPORT 121 2. Critical accounting judgements and key sources of estimation uncertainty Key sources of estimation uncertainty 5. Share-based payments Share-based payments associated with share options granted to employees of subsidiaries of the parent company are treated as an expense of the subsidiary company to be settled by equity of the parent company. The key assumptions concerning the future and other The share-based payment expense increases the val- key sources of estimation uncertainty at the reporting ue of the parent company’s investment in the subsidiar- date that have a significant risk of causing a material ies and is credited to retained earnings. adjustment to the carrying amounts of assets and liabil- ities within the next financial year, are as follows: 6. Dividends paid and proposed Investments in subsidiary companies No dividends were declared or paid during the year and no dividends will be proposed for approval at the Annu- The carrying cost of the Company’s investments in sub- al General Meeting of the Company. sidiary companies is reviewed at each reporting date by reference to the income that is projected to arise 7. Investment in subsidiaries therefrom. From a review of these projections, the Di- rectors have made no provisions against their carrying values as the Directors believe that the investments concerned will generate sufficient economic benefits to At 1 January 2019 justify their carrying values. Investment in the period – share-based payments in respect of subsidiaries At 31 December 2019 Investment in the period – share-based payments in respect of subsidiaries At 31 December 2020 3. Auditor’s remuneration The figures within the auditors’ remuneration note in the Pelatro consolidated financial statements include fees charged by the Company’s auditors to Pelatro plc in respect of audit and non-audit services. As such, no separate disclosure has been given above. 4. Directors’ remuneration Information concerning Directors’ remuneration can be found in note 10 to the Group financial statements. $’000 654 92 _______ 746 79 _______ 825 122 ANNUAL REPORT 8. Intangible assets Intangible assets comprise software acquired through business combinations, customer relationships and goodwill. An analysis of goodwill and other intangible assets is as follows: Financial year 2020 Cost At 1 January 2020 Additions Acquired software Customer relationships Goodwill $’000 $’000 $’000 1,250 - 6,862 - 43 - Total $’000 8,155 - At 31 December 2020 1,250 6,862 43 8,155 _______ _______ _______ _______ Amortisation or impairment At 1 January 2020 Charge for the year At 31 December 2020 Net carrying amount At 31 December 2020 At 1 January 2020 (443) (312) _______ (755) 495 807 (972) (686) _______ (1,658) 5,204 5,890 - - (1,415) (998) _______ _______ - (2,413) 43 43 5,742 6,740 Goodwill arose on the acquisition of the Danateq Assets. It is assessed as having an indefinite life but the Company tests whether goodwill has suffered any impairment on an annual basis. The Danateq Acquisition in 2018 comprised various contracts and customer relationships, certain enterprise software and the related workforce. Given the op- portunity to leverage this expertise across Pelatro’s existing business and the ability to exploit the Group’s thus en- larged customer base, the fair value of the Danateq assets acquired was deemed to be greater than the assessed book value of the assets as recognised in the financial statements of the Company, thus leading to the recognition of an amount of goodwill. ANNUAL REPORT 9. Right-of-use assets Right-of-use assets comprise a lease over a vehicle as follows: Cost At 1 January 2020 Effects of foreign exchange movements At 31 December 2020 Depreciation At 1 January 2020 Charge for the period Eliminated on leases terminated Effects of foreign exchange movements Vehicles $’000 31 1 _______ 32 (15) (14) - (2) _______ 2019 Cost At 1 January 2019 Additions in the period Effects of foreign exchange movements At 31 December 2019 Depreciation At 1 January 2019 Charge for the period Effects of foreign exchange movements At 31 December 2020 (31) At 31 December 2019 Net carrying amount At 31 December 2020 At 1 January 2020 Net carrying amount At 31 December 2019 At 1 January 2019 1 16 123 Vehicles $’000 - 30 1 _______ 31 - (13) (2) _______ (15) 16 - 124 ANNUAL REPORT 10. Contract assets Due after one year At 1 January Contract assets recognised in the period, net of releases to receivables or cash, or amortisation to profit or loss 2020 $’000 467 2019 $’000 198 the expectation of no specific losses in the foresee- able future, the Directors assess a hypothetical likely default amount by applying a percentage “probability of default” to the receivables balance, such probabil- 430 330 ity being related to the underlying credit rating of the Transfer to current contract assets (151) (61) At 31 December _______ _______ 746 467 customer or country of origin. Furthermore, taking into account the time value of money when applied to con- tracts assets (which may unwind over a period of years following their initial recognition), a loss allowance for expected credit losses has been recorded as follow: Due within one year At 1 January Contract assets recognised in the period, net of releases to receivables or cash, or amortisation to profit or loss 2020 $’000 224 2019 $’000 54 177 109 Loss allowance at 1 January Increase in loss allowance 2020 2019 $’000 $’000 29 8 - 29 _______ _______ Transfer from non-current contract assets 151 61 Loss allowance at 31 December 37 29 At 31 December 552 224 The loss allowance is comprised as follows: _______ _______ On trade receivables On contract assets 2020 $’000 30 7 2019 $’000 25 4 _______ _______ Loss allowance at 31 December 37 29 Contract assets are comprised as follows: Contract assets relating to revenue Contract fulfilment assets 2020 2019 $’000 $’000 306 440 467 - _______ _______ 746 467 Credit risk and impairments The Group recognises impairments under IFRS 9 for relevant classes of assets. The Group thus reviews the amount of expected credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit con- ditions as opposed to relying on past historical default rates. In the absence of any historic credit losses and 125 Vehicles $’000 - - 12 (11) - _______ 1 Vehicles $’000 - 17 (16) 11 - _______ 12 ANNUAL REPORT 11. Trade and other receivables Due within a year Trade receivables Other receivables and prepayments Intra-Group receivables 2020 $’000 2019 $’000 2,915 5,055 96 1,031 125 146 _______ _______ Total trade and other receivables 4,042 5,326 Financial year 2019 Amounts due in more than one year At 1 January 2019 Effect of change of accounting policy Leases taken on in the period Transfer from long-term to short-term Effects of foreign exchange movements Due after more than one year Trade receivables 149 211 At 31 December 2019 Amounts due in less than one year At 1 January 2019 Leases taken on in the period Repayments of principal Transfer from long-term to short-term Effects of foreign exchange movements At 31 December 2019 12. Lease liabilities Lease liabilities comprise liabilities arising from the committed and expected payments on a lease over a vehicle. Amounts due in more than one year At 1 January 2020 Liabilities taken on in the period Liabilities (disposed of) in the period Transfer from long-term to short-term Effects of foreign exchange movements At 31 December 2020 Amounts due in less than one year At 1 January 2020 Liabilities taken on in the period Liabilities (disposed of) in the period Repayments of principal Transfer from long-term to short-term At 31 December 2020 Vehicles $’000 1 - - (1) - _______ - Vehicles $’000 12 - - (12) 1 _______ 1 126 ANNUAL REPORT 13. Contract liabilities Contract liabilities represent consideration received in respect of unsatisfied performance obligations. Chang- es to the Group’s contract liabilities are attributable Due after more than one year solely to the satisfaction of performance obligations. Trade payables 2020 $’000 2019 $’000 360 - _______ _______ At 31 December Due after one year Contract liabilities at 1 January Contract liabilities recognised in the period Transfers to short-term liabilities 2020 2019 $’000 $’000 294 - (87) 112 222 (40) _______ _______ Contract liabilities at 31 December 207 294 At 31 December Due within one year 2020 $’000 2019 $’000 Contract liabilities at 1 January Contract liabilities recognised/(released to revenue) in the period Transfers from long-term liabilities 637 (238) 87 33 564 40 Contract liabilities at 31 December 486 637 _______ _______ 14. Trade and other payables Due within a year Trade payables Other payables 2020 $’000 2019 $’000 446 14 58 124 _______ _______ Total trade and other payables 460 182 Total trade and other payables 360 - 15. Share capital and reserves Share capital and share premium Ordinary shares of 2.5p each (issued and fully paid) $’000 Number At 1 January 2019 1,065 32,532,431 Issued for cash during the year - - _______ _______ At 31 December 2019 1,065 32,532,431 Issued for cash during the year 147 4,500,000 _______ _______ At 31 December 2020 1,212 37,032,431 On 21 and 22 August the Company issued a further 4,500,000 2.5 pence Ordinary shares at a price of 47.0 pence per share by way of a placing to institutional and other investors. The Company incurred incremental costs totalling $178,000 in respect of the Placing. IAS 32 Financial Instruments: Presentation requires the costs of issuing new shares to be charged against the share premium account. Management reviewed the incremental costs to identify those solely incurred in issuing new shares, those incurred in connection with the entire share capital, and those not associated with issuing new shares. All of the costs relating to the Plac- ing were deemed to relate directly to the issue of new shares and thus resulted in a debit to share premium of $178,000. ANNUAL REPORT 127 Share-based payments As further detailed in Note 11 to the Consolidated Financial Statements, the Company has granted under the terms of a share option plan for employees options with an exercise price of 73p, vesting in tranches as follows: 25% after one year, 25% after two years and 50% after three years. There are no conditions The expected life used in the model has been adjust- ed, based on management’s best estimate, for the ef- fects of non-transferability, exercise restrictions and be- havioural considerations. The share price per share at 31 December 2020 was £0.380 (31 December 2019: £0.705) and hence no deferred tax is provided in re- spect of the potential exercise of options currently ex- attaching to the vesting of the options other than tant. continued employment. An expense of $27,000 (2019: $45,000) recorded in the Consolidated Financial Statements relates to costs of share options issued to subsidiary employees. 16. Capital commitments and contin- gent liabilities Movements in the number of share options outstanding Other than as disclosed in the Group financial state- and their related weighted average exercise prices are ments, as at 31 December 2020 the Group had no ma- as follows: terial capital commitments nor any contingent liabilities No. of options Weighted average exercise price 2020 2019 2020 2019 1,631,500 50,000 72.7p 62.5p (2019: $nil) 17. Events after the reporting date - 1,640,000 - 73.0p curred subsequent to the reporting date. There have been no significant events which have oc- (126,000) (58,500) 73.0p 73.0p _______ _______ 18. Related parties 1,505,500 1,631,500 72.7p 72.7p The Company is exempt from disclosing transactions Outstanding at the beginning of the year Granted during the year Forfeited/ cancelled during the year Outstanding at the end of the year within the wholly owned subsidiaries in the Group. Oth- er related party transactions are included within those disclosed in the Group consolidated financial state- ments. The fair values of the share options issued in the year was derived using a Black Scholes model. The follow- ing key assumptions were used in the calculations: Grant date 17 January 2019 Exercise price Share price at grant date 73p 73p Risk free rate Volatility Expected life Fair Value 0.86 - 0.92% 35% 4.5 - 5.5 years 19.0 - 20.8p W W W . P E L A T R O . C O M
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