B e R elevant #231f20 c=0, y=0 m=0 k=100 #e78f24 #333333 c=7, y=50 m=100 k=0 c=69, y=63 m=62 k=58 2021 ANNUAL REPORT GOING ABOVE AND BEYOND UK | USA | Singapore Russia | India | Philippines | Brazil 2 ANNUAL REPORT Our Presence Bulgaria Kazakhstan Nepal Cyprus UK North Macedonia Bahamas USA Morocco South Sudan Sudan Russia Saudi UAE India India Bangladesh Myanmar Thailand Philippines Philippines Malaysia Singapore Cambodia Vietnam Sri Lanka Maldives - Office Locations ANNUAL REPORT 3 Company Information Directors Registrars Richard Day (Chairman – non-executive) Equiniti Limited Nic Hellyer (CFO) Aspect House, Spencer Road Subash Menon (Managing Director and CEO) Pieter Verkade (non-executive) Sudeesh Yezhuvath (COO) Lancing West Sussex BN99 6DA Shareholder enquiries: 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 Kotak Mahindra Bank 4m-411 – S.K.L.N.S Complex, 3rd Block, Kammanahalli Bangalore 560043, India ICICI Bank Ltd Kalyan Nagar, No.4 M-417, 80 Feet Road HRBR 3rd Block, Kammanahalli, Kalyan Nagar, Bangalore 560043, India 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 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 trading ticker PTRO. The ISIN number is GB00BYXH8F66 and the SEDOL number is BYXH8F6. Website http://www.pelatro.com/investors/ 5 Year Track Record YEAR TO/AS AT 31 DECEMBER 2021 2020 2019 2018 2017 Revenue $’000 7,266 4,020 6,667 6,123 3,146 Revenue growth % 81% (40%) 9% 95% 161% Adjusted EBITDA (see Note 7) $’000 2,808 441 2,893 3,776 2,004 Adjusted EBITDA margin % 39% 11% 43% 61% 64% Adjusted operating profit/(loss) (before exceptional items) $’000 (489) (1,337) 1,620 3,147 1,801 Adjusted earnings/(loss) per share (basic and diluted) Statutory earnings/ (loss) per share (basic and diluted)1 Net cash flow from operating activities Net cash used in investing activities ¢ ¢ (0.4¢) (5.5¢) 4.2¢ 10.2¢ 8.9¢ (2.1¢) (7.2¢) 2.5¢ 8.0¢ 4.8¢ $’000 1,013 2,262 1,412 881 (33) $’000 (2,670) (4,569) (2,393) (9,092) (744) Net cash used in/(from) financing activities $’000 3,255 3,071 (289) 6,814 4,707 Net cash at year end $’000 2,587 365 484 1,823 3,086 1 : From Continuing Operations Report and Financial Statements for the year ended 31 December 2021 Registration Number: 10630166 01 Strategic Report 02 Corporate Governance Review 09 12 15 18 20 22 24 27 29 33 About Pelatro Chairman’s Statement Managing Director’s Statement Artificial Intelligence (AI)/ Machine Learning (ML) and CVM What the Subscribers Want- Changing Telco-Customer Relationship and the Role of Marketing 39 41 49 52 54 57 Board of Directors Statement of Compliance with the 2018 QCA Corporate Governance Code Audit Committee Report Remuneration Committee Report Companies Act 2006 s. 172 statement Environmental, Social and Governance Statement mViva Container Orchestration Framework (mCoF): One Key to all Deployment Puzzles! Directors’ Report 03 New Normal to Evolving Normal! Key Performance Indicators Principal Risk and Uncertainties Financial Review 04 Financial Statements 65 72 73 75 77 78 127 129 130 Independent Auditors’ Report Group Statement of Comprehensive Income Group Statement of Financial Position Group Statement of Cash Flow Group Statement of Changes in Equity Notes to the Group Financial Statements Company Statement of Financial Position Company Statement of Changes in Equity Notes to the Company Financial Statements Going Above and Beyond Digitalisation has fundamentally changed consumer behaviour, and telcos need to adopt a new approach to serve these demanding consumers. There is a need to redesign customer-centric strategies and engage partners who share the vision to think and act customer first, which will enable telcos to deliver the best customer experience. Pelatro fulfils the need for such a partner by sharing the vision and risk of our customers. ANNUAL REPORT 9 About Pelatro Pelatro is a focused and specialised solution provider in the telecom marketing space. We enable telecom operators across the globe to increase revenue and reduce churn through our enterprise grade software solu- tions. Telecom operators can analyse the behaviour of the subscribers within their network, create individual profiles to suggest appropriate products and promotions in a segment of one manner to enable higher con- sumption and an increased level of customer satisfaction. Technology Given the extremely high volume of data that is generated in each telecom network, our solutions employ Big Data and AI/ML technology to collect and process all the data in real time. Our technologically advanced products are telco-grade with significant scalability, security and high availability. As data is processed in real time, our solutions offer telcos highly accurate and precise output to make data driven decisions. This output leads to relevant, contextual and personalised interventions in real time, in the form of marketing campaigns and promotions to subscribers, resulting in improved results as compared to legacy solutions. In order to provide high quality marketing campaigns and promotions, our solutions employ AI/ML techniques coupled with various algorithms, models etc. This has resulted in a high level of predictive, descriptive and prescriptive analytics in our solutions. Products The mViva Customer Engagement Hub is a suite of solutions designed for deep engagement between telcos and its customers to increase revenue and reduce churn. The mViva suite offers solutions for Contextual Campaign Management, Loyalty Management and Data Monetisation in a single integrated tool that enables teams to deliver effective customer interactions that maximize value, at high work velocity. Its ready-to-use propensity models and data analytics functionality are optimised for Campaign Analysts to anatomise custom- er data and launch precisely targeted campaigns not just to micro-segments but also 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. 10 ANNUAL REPORT The mViva suite empowers Customer Value Management (“CVM”) teams to rapidly design and deploy cam- paigns, launch loyalty programs to reduce churn of customers and provide omni-channel communication. The mViva Customer Engagement Hub offers three 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 lifecycle for subscribers, retailers and enterprises mViva Loyalty Management Solution Enables design and launch of loyalty programs to reward and retain customers mViva Data Monetisation Platform Solution Enables teams to easily extend campaign management services to other B2C enterprises and brands in order for the telco to monetise subscriber data Presence We have offices in five countries and serve large telco groups (including Telenor, Vodafone, SingTel, Axiata etc.) in 20 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 incum- bents 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 Highlight 11 Appreciation and acknowledgment of hard work are the key pillars of Pelatro’s employee engagement. Glimpses from our Founder’s Day Celebration. 12 ANNUAL REPORT Chairman’s Statement Dear Shareholder The markets we serve have become increasingly sophisticated but the underlying themes of providing good service with outstanding products and generating real value for our customers continue to serve us and our customer base well. For us this has resulted in a year of consolidating our position as a recurring revenues service provider as well as winning new customers, ensuring we are able to report healthy growth in our business. We will still provide our software and services through a licence model if that is preferred by a customer, but this is no longer the norm. Operations We started the year in January 2021 with our mViva platform being chosen by an Asian telco for campaign management operations. This Asian telco is part of a much larger international telco group and we have found this is an ideal way to penetrate these larger diverse entities. We followed this with a Framework Agreement later in the year with the parent company, so that its operating companies in various jurisdictions can be ser- viced by Pelatro under one agreement. Including these and despite the Covid situation, Pelatro won three new telco customers in 2021, taking us to 23 customers in various countries around the world. We have also been extending the breadth and quality of our products and services we provide to our telco customers. Part of our growth effort has been directed towards the non-telco space, where non-telco brand campaigns and adverts can be sent to consumers via their mobile phones. We have recruited a senior manager for this area and are building the team but are proceeding cautiously in terms of new contracts to ensure that they are on appropriate terms. India has taken longer to emerge from the various Covid disruptions than the UK. With our main operations based in Bangalore, we have successfully managed home working by our staff which has meant there has not been a significant effect on our day-to-day operations and we have been able to continue to provide excellent levels of service to our customers. This included our five year Managed Services contract which went live with our largest customer in India. The implementation was smooth and successful, with over 400 million subscrib- ers being transferred over to the new system. ANNUAL REPORT 13 The numbers of staff attending our offices safely for work has been at the 30% level for some time now and we expect this gradually to grow over the coming months. Our executive team have also been prevented from travelling overseas, but air travel has also opened up and they are now able to meet our international custom- er base and pursue new opportunities in person. Non telco operations Pelatro has been working on entering non telco sectors for the past nine months. We have initially focused on banks and fintech companies as sectors, with over 50 potential customers being targeted in India, as a geographic starting point. Through these extensive interactions over these months, it has become amply clear that these enterprises are keen on customer journey mapping, customer journey analytics and customer jour- ney orchestration. This is a very new product set to these businesses but a number have expressed interest in exploring an engagement. Given our extensive experience in the telco sector our product mViva has very strong capabilities with respect to customer journey orchestration and on that basis we are confident of win- ning our first customer in this space during 2022. We expect to undertake further recruitment to service this space when our initial customer engagements begin to mature and the business model develops further. The extent of this recruitment will depend on the potential geographic and sector breadth of the roll out. Other Developments In June, we took the opportunity to raise approximately £3.3m through an equity placing of new shares with new and existing shareholders to help grow our sales and marketing as well as to repay debt and strengthen the Group’s balance sheet. In December, our CFO Nic Hellyer, who had been with Pelatro for over four years on a part-time basis, moved to a full-time role with us. We continue to closely monitor the situation in Ukraine, the response of international governments and any potential impact on the Group. Pelatro has a small development and support team in Russia, representing around 13% of the Group’s cash cost base. This team can and does operate remotely with no requirement for travel, and is currently fully operational. The Group has no revenue from Russia or any other related sanc- tioned jurisdiction. 14 Outlook ANNUAL REPORT Against this backdrop, we are delighted to be able to show in these results figures which are in line with expec- tations; with solid growth in the revenue line of over 80% to $7.3m from $4.0m the previous year, with the ma- jority being of a recurring revenue nature. This recurring revenue base gives us good visibility over the coming year and, together with our new business pipeline, gives us every confidence for the rest of 2022 and beyond. Richard Day Chairman ANNUAL REPORT 15 Managing Director’s Statement Dear Shareholder Change, as they say, is the only constant phenomenon. Does this mean change can only be involuntary and accidental? Absolute- ly not. The type of change that people and organisations benefit from are those that are brought about by design. Those that involve strategizing and meticulous execution – particularly when it comes to a company. Your company went through a well-orchestrated change during 2019 and 2020 and the results came in during 2021. The Orchestrated Change When we started the process in 2019, we had clearly articulated both the goal and the path to it. The objective was to shift our revenue model from one-time license fee model to recurring and/or repeating revenue, with an emphasis on recurring. Given that recurring revenue is now a sustainable 70% or so of revenue we believe we have achieved that goal. Recurring Repeating Total 89% 81% 68% 71% 63% 64% 20% 15% 5% 2017 0 0 0 2016 33% 30% 44% 24% 25% 10% 2018 2019 2020 2021 Recurring and Repeating Revenue as % of Total Revenue 16 ANNUAL REPORT As can be seen from the graph, from a low of 20% at the time of the IPO in 2017, recurring and repeating busi- ness has gone up to around 90%, thereby significantly increasing the predictability and stability of the revenue stream, with the visibility quite high at the start of the year itself, with a key element of this being the quantum of annual recurring revenue (“ARR”) as we win new contracts. We believe that we have now reached a stable level with respect to the share of these revenue streams and that augurs well for the business going forward. A key element of this orchestrated change is the quantum of annual recurring revenue which has been going up steadily. The progress is mapped in the graph given below. We expect this trend to continue in the years to come. 6.5 5.4 4.0 1.5 0 Dec 17 Dec 18 Dec 19 Dec 20 Dec 21 Recurring Revenue Run Rate in US$M Growing Customer Base Over the years, we have been successful in adding customers. While this was impacted by Covid-19, we added three new customers in 2021 taking our tally to 23 customers in 20 countries. Some of the key statistics are given below. • Processing data of over one billion subscribers every day • Processing over 60 billion transactions per day, in real time, in one customer site alone • Executing over 15,000 campaigns every day • Present in 20 countries Scale is a critical element for any enterprise software and for us that has now been well established. From a geographical perspective, we now have a dominant presence in Asia and Africa. Leveraging these achieve- ments, we are now spreading into Europe. ANNUAL REPORT 17 Going Above and Beyond Our customers are operating in a highly competitive market wherein they are being squeezed by two strong forces – reducing revenue per customer and increasing churn. Between these two debilitating factors, the telcos are finding it extremely difficult to increase revenue and margin. In this tough situation, vendors need to shoulder more responsibilities and become true partners. Pelatro is committed to this vision. Over the past few years, we have built extensive capabilities in the following areas. • Development of campaign strategy • Campaign consultancy • Campaign execution • Platform operation • Reporting With these enhanced capabilities, we help our customers to effectively use our solution to increase revenue and reduce churn. In many instances, some of Pelatro’s revenue is linked to performance, thereby ensuring that interests are aligned with our customers. Thus, we share the risk perceived by our customers while help- ing them to meet their objectives to the fullest extent possible. We have been on this specific journey for the past three years and are convinced that this is the way forward. Our customers are increasingly seeing us as partners and not mere vendors. They are highly appreciative of the value added by Pelatro with respect to both the software solution and the overall operations of the same. Such engagements are flourishing on the basis of the actual incremental revenue generated by Pelatro over the past few years and a comparison of the same with the status within the telcos prior to that period. The uplift brought about by Pelatro is compelling enough for the telcos to increasingly rely on us for operations in the form of managed services. These engagements have helped us to increase our revenue growth and will continue to do so in the years to come. As noted in the Chairman’s statement, we have also begun the journey similarly to add value to non-telco customers. We will invest in this side of the business prudently and, while it is early days, we expect these engagements to further increase our revenue in the years to come. I take this opportunity to thank all of you and look forward to your continued support in our effort to go above and beyond. Subash Menon Managing Director, CEO and Co-Founder 18 ANNUAL REPORT Artificial Intelligence (AI) /Machine Learning (ML) and CVM By Sudeesh Yezhuvath, COO and Co-Founder Telecom is a classic example of a mature market. Growth in telecom used to be driven by the twin engines of connectivity products (such as Voice, SMS and Data) and subscriber acquisition. No new connectivity product has emerged in more than a decade and, whilst 5G is expected to provide a fillip to growth, there is no real clarity on how exactly this is going to happen. In most markets, telecom penetration is almost at a hundred percentage or beyond and this means that revenue growth through the addition of new subscribers is also not possible. In the last few years, telecom marketers have realised that they have to move from being product-centric to customer-centric. Being customer-centric is not just a shift in attitude but also in systems and processes as well. A whole new approach has evolved in telecom marketing around Customer Value Management (CVM). To effectively manage and optimise value in engagement with a customer, it is essential that the telco has a complete view of the customer’s behaviour and needs. This has given rise to a 360-degree approach wherein the telco can even anticipate what the customer might do next and take an appropriate step. While CVM has been talked about for the last five or six years, McKinsey, in a recent study, has opined that most of the telcos are really just starting out on their CVM journey. To quote from the study: “Very few telcos - only around 5 percent, we’ve found - are unlocking the full potential of analytics and data-driven personal- ization to achieve true competitive advantage and to maximize revenue growth.” CVM can well prove to be a significant lever for revenue growth as it is estimated that a well-executed CVM strategy can help a telco grow revenues by ten percent. In the early days, CVM was driven by rule-based segmentation with offers promoted to those segments. However, in the last few years, analytics capabilities have increased manifold and this offers very interesting possibilities in the CVM space, and AI/ML is proving to be the bedrock on which next generation CVM systems can be built. There are basically four stages in a customer’s lifecycle, which can be categorised as Baby-care, Growth, Retention and Win-back. The use of AI/ML can help in each stage of the customer lifecycle: in the Baby-care stage, AI/ML can be used to assess risk and also start predicting Customer Lifetime Value, which can be a very good pointer on the path to take with the customer. Cross-sell and Upsell opportunities can be identified and made use of in the Growth stage. Here, the focus is on helping the customer find the products that bring them the best value and thus maximize the quality of the engagement. In the Retention or Sustain stage, the focus is on trying to keep the customer with the network and reduce churn. Analytics models can help very significantly here by helping spot customers that might have a tendency to churn and intervene appropriately. ANNUAL REPORT 19 In the win-back stage, it is a last ditch effort to get subscribers back to the active stage after they have become dormant. The problem that telcos face with all this, is the problem of scale. Few other businesses have transaction volumes like telcos. For instance, one of our telco customers has about 400 million subscribers and they gen- erate several billions of transactions a day. The difficulty is to churn through this voluminous data and find the nuggets that are of value. If this requirement was just a rule-based approach driven by certain hypotheses, this was easily doable. However, as mentioned above, the need is to have a high level of personalisation wherein the treatment of each customer is based on their actual behaviour and not some generic hypothesis. This calls for approaches including Descriptive, Predictive, Prescriptive and Diagnostic Analytics. Various stages of the customer journey need to be broken down and studied in detail and appropriate AI/ML methodologies applied. For instance, some problems such as churn management might call for a combination of approaches based on, for example, Supervised Neural Networks and Reinforcement Learning. An essential tool to establish a strong CVM practice is a well-rounded software product that can handle all the above mentioned requirements. The system should have zero touch campaign capability augmented by a strong and flexible rules engine. This will help attain the holy grail of hyper-personalisation, which will take telcos to the next growth orbit. Sudeesh Yezhuvath COO and Co-Founder 20 ANNUAL REPORT What the subscribers want - Changing telco- customer relationship and the role of marketing By Sanjay Bhatt, Manager, Marketing Why knowing the subscribers is a challenge for telcos? If only telcos could know what their subscribers want, it would be so easy for them to serve them correctly. This has always been a challenge for telecom operators and ever-evolving customer behaviour has added more complexity to it. Though operators use advanced predictive/prescriptive analytics and AI/ML capabilities, it is still a challenge for telcos to figure out how to serve their customers best. But why is it a challenge? Access to the internet has changed the way of living. It has made digital-first customers more impatient, grant- ed access to a lot of information, and set absurdly high expectations from their service providers. The primary reason for this perception is the redefined customer experience and service standards set by digital natives or webscale companies. Telecom subscribers are more demanding and expect their service providers to offer a seamless experience all the time. Every interaction they have with the operators has to be value driven. They expect the service provider to be exceptionally customer-centric. It does not only mean that they respond to what their customers want, but that they can anticipate their needs and wants in advance and act fast to provide a solution. Obvi- ously, now all this must be in real-time. The customer expectation here is of an exclusive relationship, where the telco understands the customer bet- ter than themselves, provides contextually relevant products at the right time, offers exceptional service, and is there for them all the time. Even after all this, there is no long-term commitment, and customers can switch to another service provider for a better price or service anytime. Are telcos ready to swipe right? Interestingly, telcos are already embracing the change and forging a redefined relationship model with their subscribers. But how? For starters, telcos have put to use the massive amount of data points they have for each subscriber with the help of big data, AI/ML technology and easy to use, super-smart new-age solutions like mViva. Businesses have all the capabilities to generate real-time insights to make data-driven decisions and according to ANNUAL REPORT 21 McKinsey, the telecom industry can predict and reduce customer churn by up to 15% using advanced data analytics. Here is what telcos are doing to understand their customers, drive higher engagement, and generate higher product adoption and ARPU: • 360-degree customer analytics • Customer profiling • Customer journey mapping and orchestration • Contextual campaigns with personalized offers in real-time • Real-time data-driven decision making Telcos are learning the art of analytics-driven marketing from their counterpart digital natives. Netflix, for ex- ample, earns up to 75% on purchases offered by its recommendation system based on both personalized and collaborative algorithms. Can telecom service providers expect similar results from these techniques? Communicating the value proposition to customers and prospects We have evolved our marketing function to help customers understand the value mViva can bring to them. The platform can truly transform how service providers engage with their subscribers and drive more value for them. We enable the telco marketers to bring that change. Here is how we are putting things into perspective for our existing and new customers: • Strengthening the thought leadership and brand • Collaborating with industry forums and analyst bodies to share Pelatro’s vision on industry trends, new capabilities and what is driving the customer engagement in telecom. • Creating more visibility for Pelatro’s mViva platform and solutions • Using different channels such as social media, email, AR, PR to promote the work that Pelatro has ac- complished for its customers • Feedback loop to improve and align the roadmap with customer expectations • Gaining better market understanding and feedback on the features and capabilities and more • Regular analyst discussions, customer reviews and inputs help us know the market nerve to match the demand-supply bridge. Our social media presence is growing and gaining more followers as we speak. Our customers are our brand ambassadors, and giving voice to their opinions through success stories, testimonials, and interviews is al- ways our priority. Sanjay Bhatt Manager, Marketing 22 ANNUAL REPORT mViva Container Orchestration Framework (mCoF): one Key to all Deployment Puzzles! By Pramod K P, Chief Architect Pelatro enables its clients to deliver the finest contextual marketing experiences to all their customers by building a 360-degree profile encompassing factual, derived and learned information from both real-time in- teractions and past behaviours. Rapid growth in BI, warehouses, data lakes and other analytics applications have resulted in each telco having a unique IT ecosystem that has evolved over time leaving a legacy trail of technology and protocols. The last few years have seen public clouds making serious inroads into telcos and most of them are in a phase of transformation where certain workloads are already on cloud while others are in the process of migration. In a typical installation, mViva integrates with at least a dozen IT systems, and up to 50+ in larger ones, and mViva ends up processing anywhere between a few tens of millions of records to several tens of billions of transactions every day. Adapting to diverse deployment architectures, aligning with incumbent Data Ecosystems, and leveraging all contemporary digital channels hold the key to success and Pelatro’s home-grown container orchestration framework, mCoF helps us do exactly that. mCoF containers rely on state of the art, CvmRDT technique, a cross over between CmRDT and CvRDT for efficient state synchronization with conflict detection and resolution. In distributed computing, a conflict-free replicated data type (CRDT) is a data structure that can be replicated across multiple computers in a network where the replicas can be updated independently and concurrently without coordination between the replicas, and where it is always mathematically possible to resolve inconsistencies that may arise. In Commutative Replicated Data Types or CmRDT, replicas propagate state by transmitting only the update operation. De- spite the efficiency, this doesn’t render itself suitable for all data needs. In contrast to CmRDTs, Convergent Replicated Datatypes or CvRDTs send their full local state to other replicas, where the states are merged by a function that must be commutative, associative, and idempotent. Pelatro’s CvmRDT is a novel CRDT, a patent pending algorithm that works to the strengths of both the techniques and helps mViva in striking the fine balance between efficiency, time for conflict resolution and the recovery range of conflicted states that can co-operatively participate in overcoming a conflicted state. ANNUAL REPORT 23 The testimony of mCoF lies in the fact that the same code and same product runs well on extremes all the way from the smallest of Pelatro’s customers with c. 200k subscribers deployed over a handful of VMs to the largest one with c. 400m subscribers over 100+ physical machines over 5 racks. mCoF facilitates installations on physical machines, on-premise VMs, private cloud, public cloud and any mix of the above. As a product, mViva ought to be cloud-neutral and yet, at the same time also be cloud-native to each of the flavours so that telcos benefit the most by leveraging core-strengths of their incumbent cloud partner. mCoF ships with pre- built APIs that enables mViva to get deployed seamlessly on AWS, Azure or GCP leveraging on various IAAS, PAAS and SAAS offerings to that telco’s liking. Pramod K P Chief Architect 24 ANNUAL REPORT New Normal to Evolving Normal! By Shruthi S, Senior Director, HR Our People Philosophy at Pelatro is in line with our vision of Going Above & Beyond to drive value and busi- ness growth to our customers. Our employee governance has been refined with a view to attracting, develop- ing and retaining the right talent. We believe committed employees delight our customers, and hence we focus on influencing and improving employees’ overall experience and boosting morale through various employee wellbeing, engagement and development initiatives. The world of work isn’t the same as it was. The pandemic has forced us to re-evaluate our HR strategies to adapt and adjust to a new era of work, where remote work followed by a hybrid-work system has become the norm. Keeping employees engaged has taken on a very different format and the job market into a true can- didate’s playground. With individuals applying for roles across the country, the work from anywhere attitude has become a key deciding factor for many seeking new opportunities. However, the job was not complete by attracting the right talent; we re-strategize to foster candidate engagement and enhance the candidate experience via: • Communication and newsletters about Pelatro • Calendarised events planned for offered candidates • Connecting with business leaders who illustrate the growth path and differentiating aspects of Pelatro Good Start Being physically distant from a workplace has changed the way candidates/employees perceive companies and how and where they fit into overall business goals. A recent survey shows that 82% of new joiners are retained by great onboarding. With lots of zest, we plan new employees’ first day and the first few months to ensure they are integrated well and develop a sense of assurance and inclusion; this leads to boosted moti- vation and enhanced productivity: • Thoughtfully designed training gives them an immediate structure to ease into and work • One on one meeting with the business leader • Regular check-ins and chats with newly joined employees have been immensely beneficial. This ensures employees stay on track, focus on the goal at hand, and provide a much–needed boost of motivation ANNUAL REPORT 25 Employee experience and result-oriented culture in a Hybrid Work System When some employees prefer working remotely, it reduces stressful daily commutes adding to productivity, a distraction-free working environment and helps in work/life balance; others feel isolated and blur lines be- tween home and work. So, employees’ choices can be varied from remote working to a hybrid model to flex- ible hours. Hence, we understand that one work model may not fit all and provision for flexible work models. In a blended work model, we ensure employees overall engagement and wellbeing through: • ‘Feel the pulse’ - Chat with leaders to know how and what employees feel so that we can make informed decisions and course corrections in the existing process • Town Halls to hear from employees and get directions from the leadership giving clarity and assurance to the employees • Talk with COO, CEO - affirming ‘we care, we hear’ • Comprehensive and robust Rewards and Recognition program to keep the employees highly motivated and productive • Cohesive and effective hybrid team collaboration in alignment with the organisational needs • Creative way of engaging with employees to enhance stickiness with the organisation • Talent development and through upskilling and cross-skilling Talent management and development Pelatro focuses on scoring high above all the pandemic challenges and building a result-oriented culture: • Setting clear and motivating goals for functions and various roles, in line with company objectives • Involving employees in the entire process, so they own it and strive to achieve it • Proactively identify performance issues and bridge the gap through talent development initiatives • Accelerated career path for top achievers and their development • Cross-team utilization of resources by cross-skilling • Well defined career path for all roles across all functions As part of people development, we focus on bridging skill gap, cross and upskilling employees, creating a portion of fungible talent who can be utilized across teams depending on the business needs and helping in retention and meeting employees’ aspirations. This plays an important role in the company’s ongoing success and its ability to adapt to changing market forces, economic conditions and external influences. 26 ANNUAL REPORT Pelatro aims to build a resilient, agile, motivating and flexible culture, which drives employees to deliver above & beyond the call of duty to offer business growth to our customers and value to our shareholders! Shruthi S Senior Director, HR ANNUAL REPORT 27 Key Performance Indicators The Directors consider that revenue, recurring revenue, adjusted EBITDA (Earnings Before Interest, Depre- ciation and Amortisation as adjusted for certain non-operational and/or exceptional transactions) and profit before tax, and the related margins as a percentage of revenue, are key performance indicators (“KPIs”) in measuring Group financial performance. We track revenue as it is an indicator of the Group’s overall size and complexity; we track contractually re- curring 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. Adjusted EBITDA is a key measure of the Group’s effectiveness in converting revenue to earnings. In addition, the Directors believe that further important KPIs are the Group’s cash flows, including operating cash flow and expenditure on investing activities (principally on software development and where relevant, third-party hardware installations). 2021 2020 Growth Revenue $7.27m $4.02m Recurring revenue $4.79m $2.85m 81% 68% Recurring revenue as percentage of total 66% 71% Adjusted EBITDA (see Note 7) $2.81m $0.44m 539% Adjusted EBITDA margin 39% 11% (Loss) before tax (before exceptional items) $(0.67)m $(2.23)m Cash generated from operating activities $1.01m $2.26m (55)% Contracted customers (at year end) 23 20 15% 28 ANNUAL REPORT Non- financial performance indicators The Group monitors certain non-financial perfor- In a growing business with a high proportion of well mance indicators at an operational level, including qualified and experienced staff the rate of staff re- the number of new customers in the year, Requests tention is seen as an important KPI: in 2021 we re- for Proposal received, movement of sales pipeline cruited 108 new members of staff and 83 left the and Change Requests. However, none of these is business (2020: 81 joined and 24 left). currently considered to be individually appropriate as a measure of overall strategy execution success. As the business develops the Board will consider All KPIs are reviewed annually, including consider- adding, as appropriate, further KPIs to monitor prog- ation of appropriate non-financial KPIs. ress against a broader range of objectives. ANNUAL REPORT 29 Principal Risks and Uncertainties Introduction Our aim is to recognise and address the key risks and uncertainties facing the Group at all levels of our busi- ness. 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 uncer- tainties exhaustively. Where possible, steps are taken to mitigate risks. Principal risk Technology Mitigation The industry in which Pelatro operates is in the process The Group employs highly qualified software engineers of continual change reflecting technical developments and senior management who monitor closely as industry and government standards and practices developments in technology that might affect its research change and emerge. capability and product evolution. The markets in which Pelatro operates are competitive New products and features are assessed against their and rapidly evolving. The Group’s existing products may target markets and in response to customer feedback become less competitive or even obsolete if competitors prior to development. As Pelatro engages with more introduce new products and/or customer behaviour or customers with an increased product portfolio, a broader requirements change. Building sales spread of feedback is obtained enabling the business to engage with customers more quickly and effectively. Central to our strategic growth plan is winning new mViva We have been investing in our sales and marketing contracts, increasingly those which deliver recurring operations by working closely with specialist consultants revenue over a period of years. Failure to do so would and have sales capability covering most global regions, directly impact our achievement of overall objectives or enhanced by partners in various other countries to assist lengthen the period taken to achieve them. us. Following the release of the advanced version of our core software in early 2020, we are continuing to add features and functionalities to ensure technological advantage over competing products. , including a new version of our Unified Communication Management link program 30 ANNUAL REPORT Principal risk Mitigation Sales cycles are often very lengthy and may sometimes The Group (along with the telco industry generally) be delayed or restructured late in the process. Whilst has evolved systems and processes to work remotely the impact of COVID-19 is diminishing, a worsening of where necessary and otherwise to mitigate the effect of the situation in any of the areas in which the Group is COVID-19, and continues to do so in line with changing seeking to sell products to new or existing customers circumstances. could further lengthen the sales cycle. Misdirected product, operational or strategic investments We are continually investing in product development and Strong communication lines between relevant operational requirements to support mViva-led growth. stakeholders are ensured through regular formal Failure to achieve meaningful returns on investments meetings and monthly reporting. The Board reviews and would hinder the Group’s strategic growth plan and challenges all strategic investments. potentially jeopardise the Group’s position in the market and its prospects. IP, data and cyber risks A significant IP loss, third party IP challenge, data We implement robust processes across IP and IT loss, security breach or cyber-attack could significantly systems, which are overseen by the Head of Engineering. threaten 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 Strong corporate governance and dedicated senior success as a business. A loss of confidence in the management remain the key elements of effective Group’s ability to undertake new client opportunities reputational management. Senior management provides may be caused by an adverse impact to the Group’s a model of best practice and guidance to ensure the reputation which may, in turn significantly affect our Group’s values and expected behaviours are clear and financial performance and growth prospects. understood by everyone. Significant impact to the Group’s reputation could As our business continues to grow and develop, we be caused by an incident involving major harm to will remain strongly focused on protecting the strength one of our people or customers, inadequate financial of the Group’s reputation through effective governance, control processes or failure to comply with regulatory leadership, and through cultivating open and transparent requirements. Impact of this type would potentially result relationships with all stakeholders. in financial penalties, losses of key contracts, an inability to win new business and challenges in retaining key staff and recruiting new staff. ANNUAL REPORT 31 Principal risk Mitigation Product and service delivery failures Issues or failures with our software products or services Pelatro mitigates inherent product and service risks could lead to failed implementations, project delays, through robust quality assurance and project governance cost overruns, data loss, security issues, customer processes. Product releases are unit tested prior to dissatisfaction, early termination, service level breaches delivery and subjected to further customer testing prior to and contractual claims, all of which could adversely first use. Customer testing and acceptance sign-offs are impact the Group’s revenues, earnings and reputation. required 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. Attracting and retaining skilled people Attracting and retaining the best skilled people at all Our business model has created a pipeline of opportunities levels of the business is critical. This is particularly the for staff at every level of the business. This will continue case in ensuring we have access to a diverse range of to be the case as the Group develops. The Group’s focus views and experience and in attracting specific expertise on competency at all levels of the business continues to at both managerial and operational levels where the ensure that we develop the Group’s people and enable market may be highly competitive. them to successfully manage the changing profile of the Group’s business. Incentive programmes are also in Failure to attract new talent, or to develop and retain the place to ensure that key individuals are retained. Group’s existing employees, could impact the Group’s ability to achieve the Group’s strategic growth objectives. Pelatro recognises the importance of investing in its As we continue to grow and diversify into new areas, this employees and provides opportunities for training and risk will continue to be a focus for the Board. 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 Mitigation against the short-term impact of such risks is market risk factors, such as global or localised economic provided through an increasing spread of geographies downturn, changing international trade relationships, and customers. Pelatro monitors political developments foreign exchange fluctuations, consolidation or and will seek to mitigate emerging risks where possible. insolvency of existing or prospective customers or Pelatro’s high margin revenues provide a level of competitor products, all of which could significantly protection against volatile economic or market conditions threaten Pelatro’s performance and prospects. Pelatro’s and our policy of ongoing product development helps us current focus on emerging market customers may to maintain our competitive advantage. increase such risks. 32 ANNUAL REPORT Principal risk Mitigation As a growing international business, the Group operates The Group has taken, and continues to take, third-party in and across a number of jurisdictions where relevant advice from appropriately qualified professional advisers laws and regulations may not yet be developed or tested with regard to such exposures; however, given the in dealing with the range and nature of transactions which continually evolving framework of laws and regulations, the Group undertakes. This may apply, inter alia, to inter- relevant precedents and case law, there is a risk of company trading arrangements, the Group’s operating deemed non-compliance which may give rise to financial presence in a given jurisdiction, financing or tax domicile or other penalties. The Group considers the risk of any arrangements. There are risks that tax or other regulatory material penalties arising is remote. authorities could challenge and investigate the Group’s historical trading, operating, financing or tax domicile arrangements and the resulting transactions. Credit risks The Group is exposed to the credit risk of an increasing The Group’s principal financial assets comprise cash and range of counterparties with whom it does business, cash equivalents, deposits, trade and other receivables often in respect of considerable amounts. Extended and contract assets. As these instruments are exposed to delivery, installation and sales cycles may cause the conventional risks, they are managed on the simple basis Group to be so exposed for considerable periods of time. of credit terms, credit worthiness and cash collection or settlement. The Group only contracts with major (often regional or global) telcos that 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. Liquidity risks Fluctuations in working capital may leave the Group with Group cash balances are monitored on a weekly basis inadequate cash resources to fund its operations. to 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. ANNUAL REPORT 33 Financial Review For the year ended 31 December 2021 Income Statement Revenue Out of our total revenue of $7.27m, approximately $4.79m (66%) arose from recurring revenue (2020: $2.85m), comprising some $3.46m from managed service and gain share contracts and the balance from post-contract support. A further $1.96m came from change requests (2020: $0.43m) which are not contractually “recurring” but tend to provide “repeat” income as our customers’ usage of the product evolves. Accordingly, over 90% of revenue was “repeating” in nature, compared to just over 80% in 2020. This increase reflects the push by the Group over the last few years into recurring revenue contracts which initially resulted in a fall in revenue as “one off” license revenues were replaced by sustainable longer-term contracts. Whilst the coronavirus pandemic over the last two years had a relatively limited impact on high-level decision making at our customers, it did nonetheless slow our marketing efforts which, for high-level enter- prise software such as ours, do require some level of face-to-face contact. Despite this, three new customers were added during the year; this, together with the number of recurring revenue customers, further reduced customer concentration with now only two customers accounting for more than 10% of revenue. Cost of sales and overheads Cost of sales increased by 29% to $2.2m (2020: $1.7m). These costs comprise principally (i) the direct salary costs of providing software support and maintenance, professional services and consultancy; (ii) expensed customer implementation; (iii) third-party software maintenance and licensing costs; and (iv) sales commis- sions. The increase in 2021 results almost entirely from the full year effect of staff taken on to service managed service and similar contracts commenced in 2020. Pre-exceptional overheads (excluding depreciation and amortisation) increased to $2.3m (2020: $1.9m), re- flecting the increase in business activity and hence people costs, plus additional efforts in sales and market- ing, notably establishing the Group presence via social media. Travel costs were maintained at a relatively low level given the ongoing restrictions on international travel and the Group’s success in enabling support and implementation functions remotely. 34 Profitability ANNUAL REPORT Adjusted EBITDA (earnings before interest, tax, depreciation, amortisation and exceptional items, as adjust- ed for the effect of certain non-recurring or exceptional items) rose strongly by over 6x in the year to $2.81m (2020: $0.44m). After taking into account net finance costs and depreciation and amortisation (including c. $0.7m of acquisition-related amortisation) loss before tax before exceptional items was $(0.67)m (2020: loss of $(2.22)m before exceptional items). Adjusted loss per share was (0.4)¢ (2020: loss of (5.5)¢), and reported loss per share was (2.1)¢ (2020: loss (7.2)¢). ANNUAL REPORT 35 Statement of Financial Position now recognised under IFRS 16, and gross of amounts Intangible assets Capitalised development costs and patents capitalised as intangible assets) (2020: $0.20m). The increase largely reflects depreciation now charged on the customer site IT assets referred to above. The aggregate net book value of property, plant and equipment fell accordingly from $1.22m to $0.98m. Capitalised development costs reduced slightly to $2.6m (2020: $2.9m) reflecting a reduction in direct costs attributable to software development, par- Right of use assets ticularly in Nizhny Novgorod. Amounts capitalised during the year included investments in the mViva Contextual Marketing Platform (“CMP”) which was developed from v.6.1 v.6.2, the Unified Communica- tion management (“UCM”)/Link product from 12.1 to 13.0 and various new modules which add to and enhance the core product suite. The carrying value of these software assets together with the carrying value of software assets capitalised in previous pe- riods was reviewed for impairment at the balance sheet date and no impairment was required. The Group continues to protect its IP by registering The Group recognises certain long-term leases un- der IFRS 16 as “right of use” assets. The reduction in the overall value of the right of use assets from $0.31m in 2020 to $0.24m in 2021, is net of deprecia- tion of $0.17m and capital additions of $0.1m. These additions do not reflect new leases but instead the capitalised value of expected extensions to current leases. The Group has had its office accommodation requirements (principally in Bangalore) under review for some time, however, the COVID pandemic and associated uncertainty had put such considerations on hold, but the Group now believes that a significant office consolidation will take place by the beginning patents when relevant, and spent a further $30,000 of 2023. on patent development over the year. Net of amorti- sation, the net book value of intangible assets relat- ing to development costs and patents in the state- ment of financial position is approximately $6.4m (2020: $5.9m). Property, plant and equipment Expenditure on property, plant and equipment was Trade receivables and contract assets Trade receivables At 31 December 2021 total trade receivables (i.e. including long-term receivables) stood at $4.96m (2020: $3.48m). This figure includes: minimal at $88,000, principally relating to IT and (a) a receivable of $0.64m, the payment of which peripheral equipment. This compares to $0.9m is subject to a government approval process in the in 2020 which is related mainly to IT equipment customer’s jurisdiction. This process generally leads placed on site at a customer’s premises to imple- to a substantial delay to the payment of the amount ment the related managed services contract. outstanding - the payment concerned was originally Depreciation in the year amounted to $0.30m (ex- pounded by a change to the underlying procedure cluding amounts relating to Right-to-Use assets which has resulted in the payment now being expected in Q4 2021; however, the delay was com- 36 ANNUAL REPORT expected in Q2 2022. This delay is purely proce- Fulfilment assets included in contract assets total dural and no impairment of the underlying amount $0.18m (2020: $0.15m) in respect of short-term as- is expected; and sets (representing costs directly relating to certain contracts to be recognised in profit and loss in the (b) a receivable of $1.14m relating to an entire li- next 12 months); and $0.38m (2020: $0.44m) in re- cense contract which, though live with the custom- spect of long-term assets (representing costs directly er, was pending final approval. This has taken place relating to certain contracts to be recognised in profit post the year end and $0.46m of the debt has been and loss after one year). This reflects the net of a received to date. full year’s charge to P&L in respect of sales commis- In addition to the $0.46m, a further $1.35m has been received since the year end to date, i.e. a total Trade and other payables, provisions and con- sions first contracted in 2020. of $1.8m. Contract assets tract liabilities Trade and other payables Contract assets are recognised relating to support At the year end, short-term trade payables stood and maintenance revenue and license fees as invoic- at $0.15m (2020: $0.81m), the reduction being due es are raised in arrears of the revenue recognition entirely to an exceptional amount due in respect of relating to the services being provided. In addition, sales commissions payable at the end of 2020. Other contract assets include contract fulfilment assets short-term payables of $0.45m (2020: $0.28m), were relating to sales commission provisions, the cost of due principally to amounts due in respect of staff bo- which is amortised over the life of the corresponding nuses and the balance for sundry creditors. contract. Short-term contract assets deriving from revenue (i.e. Provisions those which are expected to reverse in less than one Under the Indian Payment of Gratuity Act 1972, em- year) decreased to $0.38m (2020: $0.46m), arising ployees in the Group’s Indian subsidiary with more from one license contract signed in the year which than 5 years’ service are eligible for the payment of had invoicing terms which differed significantly from a “gratuity” upon certain end of employment events the underlying performance obligations. Long-term - short-term provisions include amounts estimated in contract assets deriving from revenue (i.e. those respect of such gratuity payments, as well as car- which are expected to reverse after more than one ried over leave payments and sundry expense pro- year) decreased to $0.23m (2020: $0.31m), reflect- visions, in total $37,000 (2020: $79,000). The tax ing the invoicing profile of various products and ser- provision fell from $84,000 to $35,000 mainly due to vices, principally on PCS. an increase in the amount of advance tax payable from our Indian subsidiary, which reduced the year end tax creditor. ANNUAL REPORT 37 Long-term provisions of $0.20m (2020: $0.17m) re- Summary late solely to amounts estimated in respect of leave encashment and gratuity payments. Further details Our performance this year reflects the work done of such provisions are given in Note 26. Contract liabilities over the last few years in transitioning the Group towards long-term managed service contracts un- derpinned by a solid base of support revenue, and a more normal year of change request imcome. The Contract liabilities represent customer payments Group starts the year with a material proportion of the received in advance of satisfying performance ob- expected total revenue for the year underpinned by ligations, which are expected to be recognised as recurring revenue already contracted and repeating revenue in 2022 and beyond. Short-term contract revenue (i.e. change requests) under purchase or- liabilities remained broadly stable at $0.47m (2020: ders. The Board therefore remains optimistic that the $0.50m) and long-term contract liabilities increased Group is on track to deliver a strong year of growth. slightly to $0.28m (2020: $0.21m). Nic Hellyer Chief Financial Officer 20 May 2022 Statement of Cash Flows Cash flow and financing Cash generated by operations before tax payments amounted to $1.27m (2020: $2.60m), the reduction largely resulting from the effect of the trade receiv- ables which were still outstanding at the year end referred to above. In July raised c. $4.3m 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), the repayment of debt (some $0.75m) and working capital generally. The Group had closing gross cash of $3.3m (2020: $1.8m). Borrowings amounted to $0.75m (2020: $1.4m), excluding amounts relating to lease liabilities. These borrowings are repaid on an Equal Monthly In- stalment (“EMI”) basis over the next 2-5 years. 38 ANNUAL REPORT The s172 Statement that is required to be covered in the Strategic Report is included in the Corporate Gov- ernance review on pages 54,55 and 56 and is hereby incorporated within the Strategic Report by reference. The Strategic Report was approved by the Board of Directors on 20th May 2022 On behalf of the Board Subash Menon 20 May 2022 Nic Hellyer 20 May 2022 ANNUAL REPORT 39 Corporate Governance Review For the year ended 31 December 2021 Executive Directors Subash Menon - Managing Director, CEO and Non-executive Directors Co-Founder Subash co-founded the Group in April 2013. Prior to Richard Day – Chairman(i)(ii)(iii) Pelatro, Subash was the CEO and founder of Sub- ex Limited (“Subex”), a company he transformed from a systems integrator in telecoms hardware to a global leader in Telco software for business op- timisation. Subash also guided Subex through a successful IPO in India (NSE and BSE) in 1999 and through seven acquisitions in the UK, US and Can- ada, driving revenues to in excess of US$100m, prior to leaving Subex in 2012. Sudeesh Yezhuvath - COO and Co-Founder Sudeesh co-founded the Group with Subash in 2013. 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 tel- co operators, across more than 70 countries. Nic Hellyer, FCA - CFO Richard has significant board and business expe- rience from a number of companies, both publicly quoted and private. He is a qualified solicitor and a Chartered Member of the Securities Institute. Rich- ard co-founded institutional brokers Arden Partners in 2002 and was instrumental in growing their cor- porate offering as well as their admission to AIM in 2006. Richard is currently a director of EGS Energy Limited and Chairman of its special purpose vehi- cle Eden Geothermal Limited, which has completed drilling its first well to a depth of 5km at their deep geothermal site at the Eden Project in Cornwall. He is also Chairman of The British Honey, a distillery business with shares trading on the Acquis Market and Deputy Chairman of ATOME Energy, a hydrogen business with plants in development in Paraguay and Iceland, which was admitted to trading on AIM in December 2021. Richard is a member of the QCA industry panel on remuneration and benefits which published the updated version of the QCA Remco Guide for companies. Nic is a Chartered Accountant who brings extensive board level experience from his 25 years in invest- Pieter Christiaan Verkade(i)(ii)(iii) ment banking. Nic spent the majority of his bank- ing career at UBS and HSBC, advising on a wide range of transactions including public takeovers, private M&A, IPOs and other equity fund raisings. Nic joined Pelatro in 2017 prior to the IPO of the Group in December that year. Pieter serves as an executive director on the board of Discover Digital International, responsible for Mar- keting and Sales, and is Chairman and Co-Founder of Viva Africa, an African content aggregator and pro- ducer for video, a role he has held since February 40 ANNUAL REPORT 2016. 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 working across both Europe and Africa. These included Telenor International, Orange and MTN, where he was Group Chief Commercial Officer, responsible for the Consumer, Enterprise and Digital Services. He has a bachelor’s degree in marketing and Business Economics. (i) (ii) (iii) Member of Audit Committee Member of Remuneration Committee Member of Nomination Committee ANNUAL REPORT 41 Statement of compliance with the 2018 QCA Corporate Governance Code 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 AIM Rules requiring all AIM-quoted companies to adopt and comply with a recognised corporate governance code, the Board has adopted the Quoted Companies Alliance Cor- porate 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 shareholders and stakeholders, with effective and efficient decision-making. Corporate governance is an important aspect of this, reducing risk and add- ing value to the Group’s business. The QCA Code is constructed around ten broad principles and a set of disclosures. We have con- sidered how we apply each principle to the extent that the Board judges these to be appropriate in the circumstances, and below we provide an explana- tion of the approach taken in relation to each and how we comply with them. Richard Day Non-Executive Chairman QCA principles SECTION 1: DELIVER GROWTH Principle 1: Establish a strategy and business model which promote long-term value for share- holders To help deliver growth and promote long-term val- ue for shareholders, the Board established a clear three-pronged strategy and business model when the Group floated on the AIM market in 2017 based on: • Sales strategy, which encompasses all critical areas progressively to open up new vistas and enable the Group to address larger market op- portunities while positioning it as a key player in its chosen space • Diversification strategy to offer complementary services • Acquisition-led growth strategy where and when appropriate to expand the business model This strategy has evolved 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 reve- nues. This helps us work more closely in partner- ship with our telco customers and gives us greater financial visibility over the longer term. Principle 2: Seek to understand and meet share- holder needs and expectations Introduction The Company welcomes communication with its 42 ANNUAL REPORT shareholders. Understanding what analysts and in- tributor Proquote produce research on the Group, vestors think about us, and in turn, helping these which is freely available from their internet portal, audiences understand our business, is a key part of linked via the “Investors” section of the Pelatro web- driving our business forward and we actively seek site. dialogue with our shareholders and the market. Covid has limited face-to face meetings so this has Report and accounts been largely remotely but we seek to do more in- vestor roadshows, attending investor conferences The Board has ultimate responsibility for reviewing and hosting capital markets days, as well as our and approving the Annual Report and Accounts and regular reporting. Institutional shareholders The Directors actively seek to build a relationship with institutional shareholders. Shareholder rela- tions are managed by the Chief Executive Officer and Finance Director who make presentations to institutional shareholders and analysts regularly following the release of the full-year and half-year results, as well as for any significant strategic de- velopments. The non-executive Chairman and non-executive director are also available to meet investors, whenever required. Private shareholders In normal times private shareholders have had ac- cess to Pelatro presentations through various in- vestor events throughout the year which they can attend; whilst this has been curtailed in the last year because of restrictions on group events, the Direc- tors have and continue to address this in the com- ing year through online events. Private sharehold- ers also have access to selected analysts’ research which is made available to them by Pelatro through the Group’s website. They are also encouraged to contact the company directly with any enquiries they may have. Analyst research The Company’s broker Cenkos and equity data dis- it has considered and endorsed the arrangements for their preparation, under the guidance of its audit committee. The Directors confirm that the Annual Report and Accounts, taken as a whole, is fair, bal- anced and understandable and provides the infor- mation necessary for shareholders to assess the Group’s position and performance, business model and strategy. The Board At every Board meeting, the Chief Executive Officer and the Chief Financial Officer provide a summary of the content of any engagement they have had with investors to ensure that major shareholders’ views are communicated to the Board as a whole. The Board is also provided with brokers’ and ana- lysts’ reports when published. The Chairman also communicates with the Company’s advisers on a regular basis and is available to investors generally. Principle 3: Take into account wider stakehold- er and social responsibilities and their implica- tions for longer-term success Our wider stakeholder group includes our employ- ees, suppliers, customers, advisers and investors. Engaging with our stakeholder base strengthens our relationships across our stakeholder base and helps us make better business decisions to deliver on our commitments. The Board is regularly updat- ed on wider stakeholder engagement feedback ANNUAL REPORT 43 to stay abreast of stakeholder insights into the is- providing returns to its shareholders. To achieve sues that matter most to them and our business, this, the Group recognises that it needs to operate and to enable the Board to understand and consid- in a sustainable manner and therefore has adopted er these issues in decision-making. core principles to its business operations which pro- Employees vide a framework for both managing risk and main- taining its position as a good “corporate citizen”, and also facilitate the setting of goals to achieve Our employees are important stakeholders in our continuous improvement. business and the Board therefore, closely monitors and reviews the performance and satisfaction of our The Group aims to conduct its business with integ- employees through regular dialogue and a regular rity, respecting the different cultures and the digni- appraisal programme as well as other feedback it ty and rights of individuals in the countries where receives to ensure alignment of interests. it operates. The Group supports the UN Universal Declaration of Human Rights and recognises the Pelatro operates an Employee Share Option obligation to promote universal respect for and ob- scheme, with options having been granted to some servance of human rights and fundamental free- 70 employees. The Group is still a young, dynamic doms for all, without distinction as to race, religion, business and is small enough to ensure that each gender, language or disability. employee is able to meet with management at any time to discuss business-related issues. Customers The Group believes that having empowered and Our success and competitive advantage are de- responsible employees who display sound judg- pendent upon fulfilling customer requirements. The ment and awareness of the consequences of their longevity of customer relationships is a key part of decisions or actions, and who act in an ethical and our strategy, and an understanding of current and responsible way, is key to the success of the busi- emerging requirements of customers enables us to ness. develop new and enhanced services, together with software to support the fulfilment of those services. Corporate Social Responsibility The Group encourages feedback from its custom- ers through engagement with individual customers The Group recognises the increasing importance of throughout a project. The number of customers corporate social responsibility and endeavours to has been growing significantly over recent years, take it into account when operating its business in but the overall number of customers still allows us the interests of its stakeholders, including its inves- to have a regular interface with customers and en- tors, employees, customers, suppliers, business sure their needs are appreciated. The team holds partners and the communities where it conducts its periodic meetings with every customer to under- activities. stand and resolve their “pain points” while collecting valuable feedback on all aspects of business such The operation of a profitable business is a priority as product features, quality of delivery, support and and that means investing for growth as well as so on. 44 Health and Safety ANNUAL REPORT Principle 4: Embed effective risk management, considering both opportunities and threats, The Directors are committed to ensuring the high- throughout the organisation est standards of health and safety, both for em- ployees and for the communities within which The Board has overall responsibility for the Group’s the Group operates. The Group seeks to exceed internal control systems and for monitoring their ef- legal requirements aimed at providing a healthy fectiveness. The Board, with the assistance of the and secure working environment to all employees Audit Committee, maintains a system of internal and understands that successful health and safe- controls to safeguard shareholders’ investment and ty management involves integrating sound princi- the Group’s assets. ples and practice into its day-to-day management arrangements and requires the collaborative effort The Board currently takes the view that an inter- of all employees. All employees are positively en- nal audit function is not considered necessary or couraged to be involved in consultation and com- practical due to the size of the Group and the close munication on health and safety matters that affect day-to-day control exercised by the executive direc- their work. Environment tors. However, the Board will continue to monitor the need for an internal audit function. Further details of the principal risks faced by the The Directors are committed to minimising the im- Group, together with their potential impact and the pact of the Group’s operations on the environment. mitigation measures in place, are set out in the sec- The Group recognises that its business activities tion titled “Principal risks and uncertainties” in this have an influence on the local, regional and global Annual Report. Regular monthly reporting keeps environment and accepts that it has a duty to carry the Board appraised of the risk management pro- these out in an environmentally responsible man- cess, emerging risks, health and safety and the ner. It is the Group’s policy to endeavour to meet Group’s internal controls processes. relevant legal requirements and codes of practice on environmental issues so as to ensure that any SECTION 2: MAINTAIN A DYNAMIC MANAGE- adverse effects on the environment are minimised. MENT FRAMEWORK It strives to provide and maintain safe and healthy working conditions, and to keep its entire staff in- Principle 5: Maintain the Board as a well-func- formed of its environmental policy whilst encourag- tioning balanced team led by the Chair ing them to consider environmental issues as an everyday part of their role. The Board is responsible to the shareholders and sets the Group’s strategy for achieving long-term The Group presents an Environmental, Social and success. It is ultimately responsible for the man- Governance Report elsewhere in this Annual Re- agement, governance, controls, risk management, port. direction and performance of the Group. The mem- bers of the Board have a collective responsibility ANNUAL REPORT 45 and legal obligation to promote the interests of the To enable the Board to discharge its duties, all Di- Group and are collectively responsible for defin- rectors receive appropriate and timely information. ing corporate governance arrangements. Ultimate Briefing papers are distributed to all Directors in responsibility for the quality of, and approach to, advance of Board and Committee meetings. All corporate governance lies with the chairman of the Directors have access to the advice and services Board, Richard Day. The Chairman also ensures ef- of the Finance Director (who is also the Company fective communication with shareholders and facil- Secretary): he is responsible for ensuring that the itates the effective contribution of the other non-ex- Board procedures are followed, and that applicable ecutive Director. rules and regulations are complied with. In addition, procedures are in place to enable the Directors to The Board consists of five directors of which three obtain independent professional advice in the fur- are executive and two are independent non-execu- therance of their duties, if necessary, at the Com- tives. The Board is supported by three committees: pany’s expense. audit, remuneration and nomination. Non-executive directors are required to attend all Board meetings The Company has adopted a code for directors’ and (usually in London, although with current COVID-19 employees’ dealings in securities which is appropri- restrictions these have mainly been via video con- ate for a company whose securities are traded on ferencing hosted from London) and to be available AIM and which is in accordance with Rule 21 of the at other times as required for face-to-face and tele- AIM Rules and the Market Abuse Regulations. phone meetings with the executive team and in- vestors. In addition, they attend Board committee meetings as required. Meetings held during 2020 Principle 6: Ensure that between them, the Di- and the attendance of Directors is summarised be- rectors have the necessary up-to-date experi- low: ence, skills and capabilities Director Board Audit Remuneration Richard Day Nic Hellyer Subash Menon Pieter Verkade Sudeesh Yezhuvath 9 9 9 8 7 2 2 n/a 2 n/a 2 n/a n/a 2 n/a The Board currently comprises three executive and two non-executive Directors with an appropri- ate balance of sector, financial and public market skills and experience. The skills and experience of the Board are set out in their biographical details above. The experience and knowledge of each of the Directors gives them the ability constructively to challenge the strategy and to scrutinise perfor- mance. The Board also has access to a network of external advisers and receive regular briefings on legal, accounting and regulatory matters from these advisers where necessary to keep their skills and knowledge base up to date. 46 ANNUAL REPORT Executive and non-executive Directors are subject of the Remco; however, this was discussed with to re-election intervals as prescribed in the Compa- our Nomad and investors when we floated in 2017. ny’s Articles of Association. At each Annual General Richard Day is also a member of the QCA group Meeting, one-third of the Directors, who are sub- which produced the new version of the QCA Re- ject to retirement by rotation shall retire from office. muneration Code. They can then offer themselves for re-election. The executive directors are employed under service These committees are required to act independent- contracts requiring 12 months’ notice (by either ly of the executive of the Board and indeed may party) in the case of Subash Menon and Sudeesh need at times to be in conflict with the executive Yezhuvath, and 6 months’ notice in the case of Nic members. Because of the respective experience Hellyer. The non-executive director and the Chair- and qualities of the NEDs, they are considered by man receive payments under appointment letters our Nomad to have sufficient qualities to fulfil these which are terminable on three months’ notice. roles. Principle 7: Evaluate board performance based Principle 8: Promote a corporate culture that is on clear and relevant objectives, seeking con- based on ethical values and behaviours tinuous improvement The Group adopts a policy of equal opportunities in As a small and cohesive Board we openly discuss the recruitment and engagement of staff as well as our performance and effectiveness against strategy during the course of their employment. It endeav- on a regular basis. The effectiveness of the Board ours to promote the best use of its human resourc- is reviewed by the Chairman on an annual basis. es on the basis of individual skills and experience As part of this yearly review, we specifically ask our matched against those required for the work to be Nomad and Broker and UK lawyers for their opinion performed. on the effectiveness of the Board. The Group provides opportunities for training and As a Board, we conduct an annual evaluation of personal development and encourages the involve- the Board, led by the Chairman, in accordance with ment of employees in the planning and direction the recommendation from the FRC and with refer- of their work. These values are applied regardless ence to the FRC guidance on the list of questions a of age, race, religion, gender, sexual orientation or board should be asking of themselves. disability. The Group recognises that commercial We have three committees, being Audit, Remu- employees and commits to respecting their human neration and Nomination. Given the size of our rights, to provide them with favourable working con- board with only two NEDs, the NEDS sit on each ditions that are free from unnecessary risk and to committee Richard Day is Chairman of Audit and maintain fair and competitive terms and conditions success depends on the full commitment of all its Remuneration, and Pieter Verkade is Chairman of of service at all times. Nomination. The QCA consider it is unusual for the Chairman of an AIM company also to be Chairman In regard to how ethical values are recognised and ANNUAL REPORT 47 and respected, we include a specific Environmen- the establishment and monitoring of internal con- tal, Social and Governance section in this Annual trols. Report. We aim to conduct our business with integ- rity, respecting the different cultures and the dignity The appropriateness of the Board’s composition and rights of individuals in the countries where we and corporate governance structures are reviewed operate. We support the UN Universal Declaration through the ongoing Board evaluation process and of Human Rights and recognise the obligation to on an ad hoc basis by the Chairman together with promote universal respect for and observance of the other Directors, and these will evolve in parallel human rights and fundamental freedoms for all, with the Group’s objectives, strategy and business without distinction as to race, religion, gender, lan- model as the Group develops. guage or disability. All the board have a responsibil- ity to ensure we follow appropriate ethical values. Board committees Principle 9: Maintain governance structures and The Board has established Audit, Nomination and processes that are fit for purpose and support Remuneration Committees. good decision-making by the Board The Audit Committee has Richard Day as Chairman The Chairman, Richard Day, is responsible for lead- and has primary responsibility for monitoring the ership of the Board, ensuring its effectiveness on all quality of internal controls, ensuring that the finan- aspects of its role, setting its agenda and ensuring cial performance of the Group is properly measured that the Directors receive accurate, timely and clear and reported on, and for reviewing reports from the information. The Chairman also ensures effective Group’s auditors relating to the Group’s accounting communication with shareholders and facilitates and internal controls, in all cases having due regard the effective contribution of the other non-executive to the interests of shareholders. The Audit Commit- Director. Subash Menon, as Chief Executive Offi- tee meets at least twice a year. Pieter Verkade is cer, is responsible for the operational management the other member of the Audit Committee. A report of the Group and the implementation of Board strat- on the duties of the Audit Committee and how it dis- egy and policy. By dividing responsibilities in this charges its responsibilities is set out below. way, no one individual has unfettered powers of de- cision-making. The Remuneration Committee has Richard Day as Chairman, and reviews the performance of the Ex- There is a formal schedule of matters reserved for ecutive Directors, and determines their terms and decision by the Board in place which enables the conditions of service, including their remuneration Board to provide leadership and ensure effective- and the grant of options, having due regard to the ness. Such matters include business strategy and interests of shareholders. The Remuneration Com- management, financial reporting (including the ap- mittee meets as necessary. Pieter Verkade is the proval of the annual budget), Group policies, corpo- other member of the Remuneration Committee. rate governance matters, major capital expenditure Details of the activities and responsibilities of the projects, material acquisitions and divestments and Remuneration Committee are set out below. 48 ANNUAL REPORT The Nomination Committee has Pieter Verkade as Chairman, and identifies and nominates, for the approval of the Board, candidates to fill board va- cancies 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 49 Audit Committee impact on the financial statements, including im- pairments of the Company’s investments and Audit Committee Report technologies; Dear Shareholder As Chairman of Pelatro’s Audit Committee, I pres- ent the Audit Committee Report for the year ended 31 December 2021, 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, inter- nal control and risk management, and for reviewing the performance, independence and effectiveness of the external auditors in carrying out the statuto- ry 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 under- standable and provides the information necessary for shareholders to assess the Group’s perfor- mance, 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 approv- ing 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 indepen- dence. 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 judge- ment with the potential to have a material • keep the need for an internal audit function under review, having regard to the Company’s strategy and resources Audit committee and attendance The Audit Committee comprises Richard Day and Pieter Verkade. The Board considers that Richard Day has sufficient relevant financial experience to chair the Audit Committee given that he has worked for more than 25 years in corporate finance, first at Cazenove & Co (now JP Morgan Cazenove) and then at institutional stockbrokers Arden Partners plc, where he was Head of Corporate Finance for most of his time there. He is a qualified solicitor and was chief financial officer from 2015 to 2020 at iE- nergizer Limited, quoted on the AIM market of the London Stock Exchange. Pieter Verkade holds a Bachelor’s degree in business economics and has held a number of controller and management ac- countant roles in AT&T and Telenor, culminating in the CFO role for KPN Orange in Belgium. The Committee is required by its terms of reference to meet at least twice a year. During the year, the Committee met twice. In addition, Nic Hellyer, CFO, attended both Committee meetings by invitation. Objectives and responsibilities The Committee is responsible for monitoring the in- tegrity of the Group’s financial statements, including its Annual and Interim Reports, preliminary results announcements and any other formal announce- ments relating to its financial performance prior to release. The Committee’s main responsibilities can be sum- marised as follows: 50 ANNUAL REPORT • to review the Company’s internal financial con- • considered the integrity of the published finan- trols and risk management systems; cial information and whether the Annual Re- • to monitor the integrity of the financial state- port and Accounts taken as a whole are fair, ments and any formal announcements relating balanced and understandable and provide the to the Group’s financial performance, reviewing information necessary to assess the Group’s significant judgements contained in them; position and performance, business model and • to make recommendations to the Board in rela- strategy; and tion to the appointment of the external auditors • reviewed and approved the interim and year and to recommend to the Board the approval of end results and accounts the remuneration and terms of engagement of the external auditors; The significant accounting areas and judgements • to review and monitor the external auditors’ in- considered by the Committee were: dependence and objectivity, taking into consid- eration relevant UK professional and regulatory Recoverability of trade receivables requirements; • to develop and implement policy on the engage- The Committee continued to review the track record ment of the external auditors to supply non-au- of receipts from slow-paying debtors and sought dit services, taking into account relevant ethical regular updates from management as to the status guidance regarding the provision of non-audit of trade receivables. In light of this, the Committee services by the external auditors; and reviewed and accepted management proposals • to report to the Board, identifying any matters that no impairment of trade receivables was re- in respect of which it considers that action or quired (other than as required by IFRS 9) and was improvement is needed, and to make recom- satisfied that the trade receivables balance was mendations as to steps to be taken fairly stated. The terms of reference are reviewed annually and are available on the Company’s website at pelatro. Carrying value of goodwill and other intangible as- com/investors. sets Significant issues considered during the year During the year, the Committee: During the year, the Committee: The Audit Committee reviewed the judgements tak- en in the impairment review performed for each of the Group’s two cash generating units to determine whether there was any indication that those assets • reviewed and approved the annual audit plan had suffered any impairment. The Audit Committee and met with the external auditors to receive consider the key judgements to be the discount rate their findings and report on the annual audit; and growth rates used in the value in use calcula- • considered significant issues and areas of tions. Following a review of the impact of the sensi- judgement with the potential to have a materi- tivities performed by management on the discount al impact on the financial statements, including rate and growth rate in the value in use calculations, impairments of the Group’s investments and the Audit Committee considered that the rates used technologies; were reasonable and indicated no impairment. ANNUAL REPORT 51 The Committee also reviewed the basis of capital- are summarised in the Corporate Governance Re- isation and considered the intangible value attribut- port. ed to its intangible software development costs. The Committee was satisfied that the resultant net External auditor book values were appropriately prepared on a rea- sonable basis. Going Concern The Committee reviewed the effectiveness of the audit process in respect of the year ended 31 De- cember 2020. In doing so, the Committee consid- ered the reports produced by Crowe, met the audit The Committee reviewed the cash flow forecasts engagement partner and discussed the audit with for the Group and discussed the key assumptions the CFO. The Committee continues to be satisfied and risks relevant to their achievement. The Com- that the external auditors are delivering the neces- mittee was satisfied that the basis for adopting the sary scrutiny and robust challenge in their work. going concern basis in preparing the Group and Accordingly, the Committee recommended to the Company financial statements, set out in note 3, Board that it is appropriate to re-appoint Crowe as was reasonable. the Group’s external auditors for the next financial Alternative performance measures year. External audit and non-audit services The Group reports a number of performance mea- sures which are not in accordance with the report- During the year, Crowe provided tax advisory ser- ing requirements of IFRS. The audit committee has vices in respect of certain routine overseas tax mat- reviewed these during the year ended 31 Decem- ters. This was considered permissible under the Fi- ber 2021 to ensure they are appropriate and that nancial Reporting Council’s Revised Standard. Richard Day Chairman of the Audit Committee 20 May 2022 in each case the reason for their use is clearly ex- plained; they are reconciled to the equivalent IFRS figure; and they are not given prominence over the equivalent IFRS figure. Risk review process The Audit Committee is responsible for reviewing the financial risks and the internal controls relating thereto but the Board as a whole has responsibili- ty for reviewing the overall business risks and risk management framework. The Group’s principal risks and uncertainties are set out in the Strategic Report together with mitigating actions and the in- ternal controls and risk management procedures 52 ANNUAL REPORT Remuneration Committee Remuneration Committee Report Dear Shareholder As Chairman of Pelatro’s Remuneration Commit- tee, I present the Remuneration Committee Report for the year ended 31 December 2021, 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 Exec- utive Directors, and for overseeing the Company’s long-term incentive plans. The Board as a whole is responsible for determining non-executive Direc- tors’ remuneration. In setting the Group’s remuneration policy, the Re- muneration Committee considers a number of fac- tors including the following • salaries and benefits available to executive di- rectors 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 in- centive arrangements Consistent with this policy, benefit packages award- ed to executive directors comprise a mix of basic salary and performance-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 individ- ual; • bonus scheme: the executive directors are eli- gible to receive a bonus dependent on both in- dividual and Group performance as determined by the Remuneration Committee; • equity: share options (for non-founder execu- tive 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. The Committee will continue to monitor market trends and developments in order to assess those relevant for the Group’s future remuneration policy. Remuneration decisions for 2021 Both Subash Menon and Sudeesh Yezhuvath de- clined to take a bonus payment in the previous year, pending our trading conditions returning to a more normalised footing. Difficult operating condi- tions have continued this year from the COVID-19 pandemic, but staff have been increasingly able to return to the offices and the executive team have now started to travel again from our Indian centre. Against this backdrop, significant progress has still been made across the business and performance bonuses have been awarded to each of the three executive directors. Under our existing Bonus Plan for the executive team, there are six broad targets for any performance bonus award, allocated ANNUAL REPORT 53 proportionally to the executives; • • • • • • sales - the total contract value signed in the period revenue - total revenue for the period net result - the net Result for the period share price change accounts receivable and DSO status reporting and pipeline plus product releases These are in addition to an assessment of overall progress being made in the business. Accordingly, notwith- standing the disappointing performance of our share price over the period, performance bonuses have been made Richard Day Chairman of the Remuneration Committee 20 May 2022 54 ANNUAL REPORT Companies Act 2006 s. 172 statement (a) The likely consequences of any decision in the long term Supporting each key decision, the Board are given The Board acknowledges its responsibilities under access to management papers which set out the the Companies Act 2006 (the “Act”) and below sets potential outcome of decisions. The papers include out the requirements of the Act and in particular diligence on the financial impact via forecasts, as section 172(1), and the key processes and consid- well as non-financial factors and how the decision erations that demonstrate how the Directors dis- fits with the strategy of the Company. Where ap- charge their duties and promote the success of the propriate, the Board will delegate responsibility to a Company. References to the Company include the sub-committee of Directors for areas such as M&A, wider Group where relevant. investor relations and so on. As noted in the Corporate Governance Report, the Board typically meet 6 times a year with papers cir- culated in advance to allow the Directors to fully un- derstand the performance and position of the Com- pany, alongside matters arising for decision. Each decision that is made by the Directors is supported by analyses of the possible outcomes so that an ed- ucated 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 stake- holder group. (b) The interests of the Company’s employees The Directors actively consider the interest of em- ployees 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 innovation and customer ser- vice, which is a product of motivated employees. Like 2020, 2021 has been a challenging year for all employees, both corporately and personally. (c) The need to foster the Company’s business relationships with suppliers, customers and Decisions of the Board take into account not just others short-term, but also medium- and long-term conse- quences, which are carefully considered and bal- anced, having regard to the needs and priorities of the business, its customers, partners, employees and other stakeholders. For example, the decision to prioritise recurring revenue contracts as opposed 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. Pelatro’s success also depends on strategic rela- tionships with key partners, customers and sup- pliers, 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 per- spective through the CEO and the COO. Product performance is constantly monitored, and custom- er feedback continuously captured through regular account meetings, which are always attended by management-level, and often director-level repre- Factors (a) to (f) below, are all taken into account sentatives. during the decision-making process. ANNUAL REPORT 55 (d) The impact of the Company’s operations on make a major contribution to the overall quality of the community and environment life of our employees which may otherwise be out The Company takes its responsibility within the of their reach. community and wider environment seriously and The Board’s adoption and application of the QCA acknowledges that more can be done. Pelatro is a Corporate Governance Code further supports these global company and has based itself in strategic lo- principles, with more detail of the steps Pelatro has cations for the long term. The Company has a rela- taken set out in the disclosures against the relevant tively low carbon footprint in terms of its operations, Principles of the Code, which can be found in the but acknowledges improvements can always be section on Corporate Governance and on the Pela- made, particularly as travel schedules can be ex- tro website at: tensive. In normal times employees typically would travel for three activities – sales, implementation https://www.pelatro.com/investors/corporate-gov- and support. With regard to sales, whilst traveling is ernance/. essential and much more helpful to progress vari- ous cases, video conferencing as a tool can replace (e) The desirability of the Group maintaining a physical meetings to a limited extent. With respect reputation for high standards of business con- to implementation and support, the Company has duct always been keen to minimise the need for on-site activity to minimise costs, hence implementation The Directors and the Group are committed to high and support processes lend themselves very well standards of business conduct and governance. to remote handling; in fact the Group has managed The Group has fully adopted the QCA Corporate successfully to transition almost entirely to remote Governance Code. Additionally, where there is a implementation this year with a consequent reduc- need to seek advice on particular issues, the Board tion of both costs and environmental impact. Fur- will seek advice from its lawyers and/or nominat- ther information on our environmental impact and ed adviser to ensure the consideration of business the steps being taken to mitigate it are set out in our conduct, and its reputation is maintained. Environmental, Social and Governance report. (f) The need to act fairly between members of Pelatro seeks to make a positive contribution to the Company its community, at local and global levels, and to minimize as far as possible its impact on the envi- The Directors regularly meet with investors and ronment. Pelatro backs its employees’ interests in strive to give equal access to all investors and po- community activities, supporting them in terms of tential investors. We have enhanced this contact time to attend to these commitments and financial this coming year by increasing use of online plat- backing. Of particular note is the Group’s commit- forms giving private investors access to the man- ment to employing graduates and others from local agement team. second-tier villages in India, hence enabling us to 56 ANNUAL REPORT 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. ANNUAL REPORT 57 Environmental, Social and Governance Statement Environmental Being a provider of services to telcos, we are not directly involved in the direct manufacture of harm- We as a company are mindful of our various Envi- ful substances or products. In more normal times, ronmental, Social and Governance (“ESG”) obliga- our operations are predominantly office-based or tions and welcome the opportunity to engage with delivered from the offices of our customers, where our stakeholders on the various considerations, we can monitor and control our energy and water measures and steps we follow in this regard. As a consumption as well as waste production more ef- technology and support services company to the fectively. However, with the widespread lockdowns telco industry, we are not engaged in any manu- continuing to be felt particularly in India where most facturing process directly producing harmful sub- of our operations are based and, as a result of the stances or products. However, we are mindful of COVID-19 pandemic, our office occupancy is still the sustainable conservation of natural resources around the 35% level and our teams have been and monitor and control our energy and water con- predominantly working from home. As such, these sumption as well as our waste production. All em- measures are not currently relevant. ployees are valued members of the team and we seek to implement provisions to retain and incentiv- Social ise them in a fair and open way. We have adopted the Quoted Companies Alliance Corporate Gover- A key ethos at Pelatro is encouraging our talent- nance Code and believe that strong and transpar- ed people to do well with us and giving them every ent governance policies are not only fair but also opportunity to succeed. Our main research and de- good business and a key ingredient of our success. velopment operations is at our sites in Bangalore, India and, by the nature of our business, most of With the increasing focus on ESG issues around our intake of new employees are graduates. There the world and the widespread concern over sustain- is a wide talent pool available from the major cities able conservation of natural resources, we present in India; however, we also have an active recruit- below our key ESG metrics. In reporting these met- ment drive of approximately 30% of our intake from rics, we have carefully noted the message from the second-tier villages as well, where opportunities the stakeholders in our business that they do not to progress in an international technology company feel one size fits all: they would rather have a rel- such as Pelatro can be more limited. As such, we evant review with the right metrics, appropriate to are able to make a major contribution to the overall the company. We also consider that a responsible quality of lives of our employees which may other- corporate outlook helps us demonstrate the quality wise be out of their reach. of our management, identify how we are mitigating exposure to any business risks and work on areas Pelatro recognises the importance of investing in its where we can leverage business opportunities. employees and provides opportunities for training and personal development, as well as encouraging 58 ANNUAL REPORT the involvement of employees in the planning and the obligation to promote universal respect for and direction of their work. Employee turnover Tax paid (% of turnover) Male/female employee ratio Health & Safety events in year Employees participating in share scheme 30% 4% 3/1 None 19% The pandemic this year has seen a necessary change in working practices, with national lock- observance of human rights and fundamental free- doms for all, without distinction as to race, religion, gender, language or disability. Independent board members CEO cash compensation v UK median earnings Chairman/CEO role split 40% 6.1x Yes Adheres to Corporate Governance Code Yes-QCA downs in various countries. Mindful of our overall Fuller details and information on the way the Board employee well-being, we have sought to be flexible operates and the various committees of our Board and supportive of their needs, as well as those of is set out in the separate corporate governance our business. We have run various support pro- section in this report. grammes open to our employees to attend remote- ly, such as: ergonomics during working from home, run by a physiotherapist; nutrition during work and also nutrition for women’s common health prob- lems, run by a nutrition expert; mental well-being; and free counselling by certified counsellors. Governance We have a diversity on our Board of various skill sets, experience and qualities, with members from Asia, the Netherlands and the United Kingdom. We believe that good governance is also good busi- ness, 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 oper- ates. The Group supports the UN Universal Decla- ration of Human Rights and recognises ANNUAL REPORT 59 Directors’ Report For the year ended 31 December 2021 Directors’ responsibilities The Directors present their annual report on the af- fairs of the Group, together with the consolidated financial statements and independent auditor’s re- port, for the year ended 31 December 2021. Principal activities The Pelatro Group provides specialised, enterprise class software solutions, principally through its flag- ship software suite mViva, to telecommunication companies (“telcos”), who face a series of chal- lenges including market maturity, saturation and customer churn. Pelatro’s software enhances the telco’s understanding of its customers and hence its engagement with them,increasing revenue en- The Directors are responsible for preparing the an- nual report and the financial statements for each fi- nancial year in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK-adopted international accounting standards and applicable law. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the Direc- hancement, enabling smart pricing bundling, pre- tors are required to: dicting churn and plugging revenue leakages. The software can be extended further to enable data monetisation. Pelatro is well positioned in the Multichannel Mar- keting Hub space (MMH) - this is technology that orchestrates a customer’s communications and offers to customer segments across multiple chan- nels to include websites, social media, apps, SMS, USSD and others. Further information on the Group’s activities, its prospects and likely future developments is given in the sections titled “Strategic Report” and “Finan- cial Statements”. • select suitable accounting policies and then ap- ply them consistently; • make judgements and accounting estimates that are reasonable and prudent. • state whether applicable accounting standards have been followed, subject to any material de- partures disclosed and explained in the finan- cial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to pre- sume that the Company will continue in busi- ness 60 ANNUAL REPORT The Directors are responsible for keeping adequate Directors and their interests accounting records that are sufficient to show and explain the Company’s transactions and disclose The Directors who served during the year are as with reasonable accuracy at any time the financial shown below: position of the Company and enable them to en- sure that the financial statements comply with the requirements of the Companies Act 2006. They Richard Day Chairman Nic Hellyer Chief Financial Officer are also responsible for safeguarding the assets Subash Menon Managing Director of the Company and hence for taking reasonable Pieter Verkade Non-Executive steps for the prevention and detection of fraud and other irregularities. They are further responsible for ensuring that the Report of the Directors and other information included in the Annual Report and Fi- nancial Statements is prepared in accordance with applicable law in the United Kingdom. Website publication Sudeesh Yezhuvath Executive Director In accordance with the Company’s articles Sudeesh Yezhuvath will retire by rotation at the Annual Gen- eral Meeting and, being eligible, will offer himself for re-election. The Directors at 31 December 2021 and their ben- eficial interests in the share capital of the Company The maintenance and integrity of the Pelatro Plc web site, which includes compliance with AIM Rule were as follows: 26, is the responsibility of the Directors. Name of Director Number of Ordinary Shares of 2.5p each Options over Ordinary shares Financial instruments Subash Menon 1 9,684,244 Information about the use of financial instruments by the Company and its subsidiaries and the Group’s financial risk management policies are given in note 28 of the financial statements. Nic Hellyer 2 Richard Day Pieter Verkade 105,000 19,475 - Sudeesh Yezhuvath 1 3,309,309 - - 83,000 18,000 - 1 held in the name of Bannix Management LLP 2 52,600 Ordinary shares held by his wife, Dr Fawzia Ali ANNUAL REPORT 61 No changes took place in the beneficial interests of the Directors between 31 December 2021 and 20 May 2022. The market price of the Ordinary Shares at 31 December 2021 was 29.8p and the range during the year was 29.5p to 61.0p. Substantial shareholdings As at 20 May 2022, the Company had received notification (or is otherwise aware) of the following significant interests in the ordinary share capital of the Company*: Name of Holder Bannix Management LLP* Rathbones Investment Management Herald Investment Management Number of Ordinary Shares 12,993,553 3,116,205 1,962,035 Percentage of Issued Share Capital 28.6% 6.9% 4.3% * Bannix Management LLP (“Bannix”) is the investment vehicle of Kiran Menon, Varun Menon and Sudeesh Yezhuvath, who hold shares in Bannix proportional to the interests shown in “Directors’ interests” above Corporate governance The Company has formalised the following matters by Board resolution: • • a formal schedule of Board responsibilities; the procedure for Directors to take independent professional advice if necessary, at the Company’s ex- pense; • the procedure for the nomination and appointment 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 62 Internal control ANNUAL REPORT The Board has overall responsibility for ensuring that the Group maintains a system of internal control to pro- vide its members with reasonable assurance regarding the reliability of financial information used within the business and for publication, and that assets are safeguarded. There are inherent limitations in any system 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 management • identification and evaluation of business risks and control objectives - particularly through a formal process of consideration and documentation of risks and controls which is periodically undertaken by the Board • main control procedures, which include the setting of annual and longer-term budgets and the monthly reporting of performance against them, agreed treasury management and physical security procedures, formal capital expenditure and investment appraisal approval procedures and the definition of authorisa- tion limits (both financial and otherwise). • monitoring, particularly through the regular review 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 consid- er that there have been no weaknesses in internal controls that have resulted in any losses, contingencies or uncertainties requiring disclosures in the financial statements. Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report; the financial 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 con- solidated cash flow statement, in Note 23 “Loans and borrowings” and Note 28 “Financial instruments”. The financial statements have been prepared on a going 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 63 Events after the reporting date There have been no significant events which have occurred subsequent to the reporting date. Research and development Details of the Group’s activities on research and development during the year are set out in the Financial Re- view. Auditor Each of the persons who are Directors of the Company at the date when this report was approved confirms that: • 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 of any relevant audit information (as defined in the Companies Act 2006) and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the 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 relation to the Group. Coronavirus/COVID-19 Whilst the Group suffered some impact of in-country restrictions during the year due to the coronavirus pan- demic, such restrictions have now been partly or fully lifted in the principal countries in which the Group operates. This, as well as a gradual “return to normal” on the part of our customers and the global rollout of vaccination programmes, means that the Directors consider that coronavirus no longer presents a material risk to the Group. 64 ANNUAL REPORT By order of the Board Nic Hellyer Company Secretary 49 Queen Victoria Street London EC4N 4SA 20 May 2022 ANNUAL REPORT 65 Independent Auditors’ Report For the year ended 31 December 2021 Opinion • the Group financial statements have been prop- erly prepared in accordance with UK-adopted international accounting standards; • the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Account- ing Practice; and We have audited the financial statements of Pela- tro Plc (the “Parent Company”) and its subsidiar- • the financial statements have been prepared in accordance with the requirements of the Com- ies (the “Group”) for the year ended 31 December panies Act 2006 2021, which comprise: • the Group statement of comprehensive income for the year ended 31 December 2021; • the Group and Parent Company statements of financial position as at 31 December 2021; • 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 ap- plied in the preparation of the group financial state- ments is applicable law and UK-adopted interna- Basis for opinion We conducted our audit in accordance with Inter- national Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial state- ments section of our report. We are independent of the Group in accordance with the ethical require- ments 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 require- ments. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a tional accounting standards. The financial reporting basis for our opinion. framework that has been applied in the preparation of the parent company financial statements is ap- plicable law and United Kingdom Accounting Stan- dards, including Financial Reporting Standard 101 Reduced Disclosures Framework (United Kingdom Generally Accepted Accounting Practice). In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Par- Conclusions relating to going concern In auditing the financial statements, we have con- cluded that the directors’ use of the going concern basis of accounting in the preparation of the finan- cial statements 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 ent Company’s affairs as at 31 December 2021 procedures: and of the Group’s loss for the year then ended; 66 ANNUAL REPORT • Obtaining the directors’ assessment of going approximately 2% EBITDA, a key reporting metric. concern which covered the period to 31 De- Parent’s materiality was determined to be $39,000. cember 2023 and included a range of scenarios • Evaluating the reasonableness of the assump- We use a different level of materiality (“performance tions used in the assessment including obtain- materiality”) to determine the extent of our testing ing details of the latest sales pipeline and the for the audit of the financial statements. Perfor- current cash position mance materiality is set based on the audit materi- • Considering the plausibility of potential actions ality as adjusted for the judgements made as to the that the directors could take to preserve cash in entity risk and our evaluation of the specific risk of a ‘worst case scenario’ position. each audit area having regard to the internal control environment. This is set at $39,000 for the Group Based on the work we have performed, we have and $27,000 for the Parent. not identified any material uncertainties relating to events or conditions that, individually or collectively, Where considered appropriate performance mate- may cast significant doubt on the group and parent riality may be reduced to a lower level, such as, for company’s ability to continue as a going concern related party transactions and directors’ remuner- for a period of at least twelve months from when the ation. financial statements are authorised for issue. Our responsibilities and the responsibilities of the We agreed with the Audit Committee to report to it directors with respect to going concern are de- all identified errors in excess of $1,700. Errors be- scribed in the relevant sections of this report. low that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on Overview of our audit approach qualitative grounds. Materiality Overview of the scope of our audit In planning and performing our audit we applied the Whilst the Parent Company’s activity and account- concept of materiality. An item is considered ma- ing is in the United Kingdom, the main activity of the terial if it could reasonably be expected to change Group is accounted for from its operating location the economic decisions of a user of the financial in India. statements. We used the concept of materiality to both focus our testing and to evaluate the impact of In establishing our overall approach to the Group misstatements identified. audit, we determined the type of work that need- Based on our professional judgement, we deter- us, as the group audit engagement team. Where mined overall materiality for the Group financial the finance functions are based in India work was statements as a whole to be $56,000, based on performed with the assistance of a Crowe Global ed to be undertaken at each of the components by network firm locally as a subcontracting auditor. ANNUAL REPORT 67 The group audit team led by the Group audit partner was ultimately responsible for the scope and direction of the audit process. The group audit team interacted regularly with the local team during various stages of the au- dit and were responsible for the scope and direction of the audit process and as part of the audit the Group audit partner had meeting calls with the local audit team. This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group financial statements.. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 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 Capitalisation of development costs As disclosed in note 18, the Group has capitalised approximately We obtained an understanding of the processes and controls over $2.6 million of development costs relating to the development of the recognition of research and development expenses. the mViva product. We have focussed on this because research and development represents a significant part of this business and judgement is required in determining the appropriate accounting treatment. We have evaluated the appropriateness of the capitalisation of the development expenditure by discussing with management and obtaining a technical overview of the developments made to the mViva software in the year, we challenged management to ensure that the developments were capital in nature and did not relate to routine software maintenance. As part of this work we met with the The Directors use judgement to determine whether research and development costs should be expensed or whether they meet Head of Technology. the criteria for capitalisation. This criteria includes assessing Tests of detail included; whether the product being developed is commercially feasible, • testing the allocation of overhead costs to capitalised whether the Group has adequate technical, financial and other development costs for mathematical accuracy and required resources to complete the development and whether the reasonableness including challenging whether the overheads costs will be fully recovered through future sale or licensing of the were directly attributable to the software development and product. The Directors determined that the development costs agreeing underlying data to headcount information; meet the criteria for capitalisation. • On a sample basis, we tested the amounts allocated to development costs to underlying payroll records and invoices; and • Reviewing the pipeline of potential work to assess whether the software still has commercial potential. 68 ANNUAL REPORT Key audit matter How the scope of our audit addressed the key audit matter The capitalisation of intangibles and assessment of indications We considered, challenging management where appropriate, as to of impairment is included within note 4 as an area of critical whether there were indications the carrying value of the asset may accounting estimate and judgement. The accounting policy for be impaired. intangibles is outlined in note 3. Revenue recognition The Group’s operating revenue arises from mViva products. We selected a sample of contracts to ensure that the performance Customer contracts can contain multiple different performance obligations had been correctly identified, the transaction price obligations with different revenue recognition points. We allocated appropriately and evidence existed of the satisfaction of considered the risk that the incorrect application of the policy those performance obligations before revenue was recognised. could result in material error. For support and maintenance revenue recognised over time we reperformed the calculation on the recognition of revenue for a sample of contracts. 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 Other information 69 • the Directors’ report and strategic report have been prepared in accordance with applicable The other information comprises the information legal requirements. included in the annual report other than the finan- cial statements and our auditor’s report thereon. Matters on which we are required to report by The directors are responsible for the other informa- exception tion. Our opinion on the financial statements does not cover the other information and, except to the In light of the knowledge and understanding of the extent otherwise explicitly stated in our report, we Group and the Parent Company and their environ- do not express any form of assurance conclusion ment obtained in the course of the audit, we have thereon. In connection with our audit of the financial not identified material misstatements in the strate- statements, our responsibility is to read the other gic report or the Directors’ report. information and, in doing so, consider whether the other information is materially inconsistent with the We have nothing to report in respect of the following financial statements or our knowledge obtained matters where the Companies Act 2006 requires us in the audit or otherwise appears to be materially to report to you if, in our opinion: misstated. If we identify such material inconsisten- cies or apparent material misstatements, we are • adequate accounting records have not been required to determine whether there is a material kept by the Parent Company, or returns ade- misstatement in the financial statements or a mate- quate for our audit have not been received from rial misstatement of the other information. If, based branches not visited by us; or on the work we have performed, we conclude that • the Parent Company financial statements are there is a material misstatement of the other infor- not in agreement with the accounting records mation, we are required to report that fact. and returns; or • certain disclosures of Directors’ remuneration We have nothing to report in this regard. specified by law are not made; or • we have not received all the information and explanations we require for our audit. Opinion on other matters prescribed by the Companies Act 2006 Responsibilities of the Directors for the finan- In our opinion based on the work undertaken in the course of our audit: cial statements As explained more fully in the Directors’ responsi- bilities statement set out on page 59, the Directors • the information given in the strategic report and are responsible for the preparation of the financial the Directors’ report for the financial year for statements and for being satisfied that they give a which the financial statements are prepared is true and fair view, and for such internal control as consistent with the financial statements; and the Directors determine is necessary to enable the 70 ANNUAL REPORT preparation of financial statements that are free We obtained an understanding of the legal and reg- from material misstatement, whether due to fraud ulatory frameworks within which the company op- or error. erates, focusing on those laws and regulations that have a direct effect on the determination of mate- In preparing the financial statements, the Directors rial amounts and disclosures in the financial state- are responsible for assessing the Group’s and Par- ments. The laws and regulations we considered in ent Company’s ability to continue as a going con- this context were the relevant company law and cern, disclosing, as applicable, matters related to taxation legislation in the UK and India, the Group’s going concern and using the going concern basis primary operating locations. of accounting unless the Directors either intend to liquidate the group or the Parent Company or to We identified the greatest risk of material impact cease operations, or have no realistic alternative on the financial statements from irregularities, in- but to do so. cluding fraud, to be the override of controls by man- agement and the inappropriate use of accounting Auditor’s responsibilities for the audit of the fi- estimates and judgements to achieve a particular nancial statements financial reporting outcome. Our audit procedures to respond to these risks included enquiries of man- Our objectives are to obtain reasonable assurance agement about their own identification and assess- about whether the financial statements as a whole ment of the risks of irregularities, sample testing on are free from material misstatement, whether due the posting of journals and reviewing accounting to fraud or error, and to issue an auditor’s report estimates for bias. that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that Owing to the inherent limitations of an audit, there is an audit conducted in accordance with ISAs (UK) an unavoidable risk that we may not have detected will always detect a material misstatement when it some material misstatements in the financial state- exists. Misstatements can arise from fraud or error ments, even though we have properly planned and and are considered material if, individually or in the performed our audit in accordance with auditing aggregate, they could reasonably be expected to standards. We are not responsible for preventing influence the economic decisions of users taken on non-compliance and cannot be expected to detect the basis of these financial statements. non-compliance with all laws and regulations. Irregularities, including fraud, are instances of These inherent limitations are particularly signif- non-compliance with laws and regulations. We icant in the case of misstatement resulting from design procedures in line with our responsibilities, fraud as this may involve sophisticated schemes outlined above, to detect material misstatements in designed to avoid detection, including deliberate respect of irregularities, including fraud. The extent failure to record transactions, collusion or the provi- to which our procedures are capable of detecting sion of intentional misrepresentations. irregularities, including fraud is detailed below: ANNUAL REPORT 71 A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Peter Gilligan (Senior Statutory Auditor) for and on behalf of Crowe U.K. LLP Statutory Auditor London 20 May 2022 72 ANNUAL REPORT Group Statement of Comprehensive Income For the year ended 31 December 2021 Revenue Cost of sales and provision of services Gross profit Administrative expenses Adjusted operating profit/(loss) Exceptional items Amortisation of acquisition-related intangibles Share-based payments Operating (loss) Finance income Finance expense (Loss) before taxation Income tax expense (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 Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of equity balances Other comprehensive income, net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR Earnings per share Note 5 6 7 18 11 12 13 14 2021 $’000 (audited) 7,266 (2,206) 2020 $’000 (audited) 4,020 (1,710) _______ _______ 5,060 2,310 (4,831) _______ 229 - (686) (32) _______ (489) 44 (221) (3,647) _______ (1,337) 149 (686) (32) _______ (1,906) 64 (240) _______ _______ (666) (181) _______ (847) (2,082) (375) _______ (2,457) (147) 31 50 _______ (97) (55) _______ (24) (944) (2,481) Attributable to the owners of the Pelatro Group (basic and diluted) 15 (2.1)¢ (7.2)¢ The accompanying notes 1 to 31 are an integral part of these financial statements. ANNUAL REPORT 73 Group Statement of Financial Position For the year ended 31 December 2021 Assets Non-current assets Intangible assets Tangible assets Right-of-use assets Deferred tax assets Contract assets Trade 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 Short term borrowings Lease liabilities Trade and other payables Contract liabilities Provisions TOTAL LIABILITIES NET ASSETS Note 2021 $’000 (audited) 2020 $’000 (audited) 18 19 20 21 21 21 21 22 23 24 25 26 23 24 25 25 26 11,453 982 240 14 606 163 11,649 1,218 308 16 751 149 _______ _______ 13,458 14,091 555 4,793 315 3,331 609 3,335 485 1,805 _______ _______ 8,994 22,452 6,234 20,325 608 80 278 202 _______ 1,168 136 188 603 469 72 1,196 172 207 173 _______ 1,748 244 174 1,093 495 163 _______ _______ 1,468 2,636 2,169 3,917 19,816 16,408 74 ANNUAL REPORT Issued share capital and reserves attributable to owners of the parent Share capital Share premium Other reserves Retained earnings TOTAL EQUITY Note 27 27 2021 $’000 (audited) 1,501 18,046 (639) 908 2020 $’000 (audited) 1,212 14,045 (583) 1,734 _______ _______ 19,816 16,408 The financial statements of Pelatro Plc, registered number 10630166, were approved by the board of Direc- tors and authorised for issue on 20 May 2022. They were signed on its behalf by: Subash Menon Director Nic Hellyer Director The accompanying notes 1 to 31 are an integral part of the financial statements. ANNUAL REPORT 75 Group Statement of Cash Flows For the year ended 31 December 2021 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 2021 $’000 (audited) 2020 $’000 (audited) (847) (2,457) 181 (44) 221 467 (10) 2,814 - 32 9 _______ 2,823 (1,271) 206 (532) 45 _______ 1,271 (258) _______ 1,013 (2,540) (42) (88) - _______ (2,670) 4,290 70 (748) (173) 44 (203) 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) 76 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 2021 $’000 (audited) (25) _______ 3,255 1,598 (72) 1,805 _______ 3,331 2020 $’000 (audited) (16) _______ 3,071 764 (60) 1,101 _______ 1,805 ANNUAL REPORT 77 Group Statement of Changes in Equity For the year ended 31 December 2021 Balance at 1 January 2020 as previously reported (Loss) 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 Share capital Share premium Exchange reserve Merger reserve Retained profits Total Share- based payments reserve $’000 $’000 $’000 $’000 $’000 $’000 $’000 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 (Loss) 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 - - - - - - 289 - 4,334 (333) - - (97) - - - - - - - - (847) (847) 62 (21) - - - - 21 - - - 62 - (97) 4,623 (333) Balance at 31 December 2021 1,501 18,046 (337) (527) 225 908 19,816 Reserve Description and purpose Share Capital Nominal value of issued shares Share premium Amount subscribed for share capital in excess of nominal value less associated costs The difference arising on the translation of foreign operations denominated in currencies other than US Exchange reserve Merger reserve Share-based payments reserve 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 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 31 are an integral part of these financial statements. 78 ANNUAL REPORT Notes to the Group Financial Statements For the year ended 31 December 2021 1. General information 3. Significant accounting policies Basis of accounting The financial statements have been prepared on a historical cost basis (except for certain financial Pelatro Plc (“Pelatro” or the “Company”) is a public instruments and share-based payments that have limited company incorporated and domiciled in En- been measured at fair value), and in accordance gland. The Company’s ordinary shares are traded with the UK-adopted international accounting stan- on the AIM market of the London Stock Exchange. dards and UK Company Law. These financial statements are the consolidated financial statements of Pelatro Plc and its subsid- Basis of consolidation iaries (“the Pelatro Group” or the “Group”) and the company financial statements for Pelatro Plc. The The consolidated financial statements incorporate financial statements are presented in US dollars as the financial statements of the Company and en- the currency of the primary economic environment tities controlled by the Company (its subsidiaries) in which the Group operates. made up to 31 December each year. Pelatro Solu- tions Private Limited (“PSPL”, the Group’s Indian Pelatro’s registered office is at 49 Queen Victoria subsidiary) has a statutory year end of 31 March, Street, London EC4N 4SA and its principal place however, for the purposes of consolidation, finan- of business is at 403, 7th A Main, 1st Block, HRBR cial statements have been prepared for PSPL as at Layout, Bangalore 560043, India. 31 December 2021 on the same accounting princi- 2. Adoption and impact of new and/or revised standards One amendment has been adopted in the annual financial statements for the year ended 31 Decem- ber 2021, but have not had a significant effect on the Group: • Revised Conceptual Framework for Financial Re- porting ples as for the rest of the Group. The Company controls an investee if, and only if, the Company has the following: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); • Exposure of rights to variable returns from its involvement with the investee; and • The ability to use its power over the investee to affect its returns ANNUAL REPORT 79 The results of subsidiaries or businesses acquired of whether equity instruments or other assets are during the year are included in the consolidated acquired. The consideration transferred for the ac- income statement from the effective date of acqui- quisition of a business comprises the: sition. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balanc- es, income and expenses are eliminated on con- solidation. • • • • fair values of the assets transferred liabilities to the former owners of the acquired business incurred equity interests issued by the Group fair value of any asset or liability resulting from a contingent consideration arrangement; and Going concern • fair value of any pre-existing equity interest in the subsidiary. These financial statements have been prepared on a going concern basis. The Directors have reviewed When the consideration transferred by the Group in the Company’s and the Group’s going concern po- a business combination includes assets or liabilities sition taking account of its current business activ- resulting from a contingent consideration arrange- ities, budgeted performance and the factors likely ment, the contingent consideration is measured at to affect its future development, set out in this An- its fair value on the acquisition date and included as nual Report, and including the Group’s objectives, part of the consideration transferred in a business policies and processes for managing its capital, its combination. financial risk management objectives and its expo- sure to credit and liquidity risks. Acquisition-related costs are expensed as incurred. Following such review, the Directors are of the view Goodwill that the Group has adequate financing to be able to meet its financial obligations for a period of at The excess of the: least 12 months from the date of approval of the Annual Report and financial statements. According- ly the Group and Company continue to adopt the • • consideration transferred; amount of any non-controlling interest in the ac- going concern basis in preparing these financial quired entity; and statements. • acquisition-date fair value of any previous equi- ty interest in the acquired entity Business combinations and goodwill Business combinations The acquisition method of accounting is used to ac- count for all business combinations, regardless 80 ANNUAL REPORT over the fair value of the net identifiable assets ac- (i) when a performance obligation has been satis- quired is recorded as goodwill, which is initially rec- fied, that is, a customer obtains control of a good ognised as an asset at cost and is subsequently or service; measured at cost less any accumulated impairment. For the purpose of impairment testing, goodwill is (ii) consideration receivable is fixed or determin- allocated to the cash-generating units expected able; and to benefit from the combination. Cash-generat- ing units to which goodwill has been allocated are (iii) collection of the amount due from the customer tested for impairment annually, or more frequently is reasonably assured when there is an indication that the unit may be im- paired. If the recoverable amount of the cash-gen- The amount which is recognised is the amount to erating unit is less than the carrying amount of the which the Group expects to be entitled to in ex- unit, the impairment loss is allocated first to reduce change for the goods or services transferred. Some the carrying amount of any goodwill allocated to the contracts include multiple deliverables, such as the unit and then to the other assets of the unit pro-rata sale of hardware as well as software, and/or ser- on the basis of the carrying amount of each asset in vices such as post-contract support, and usually the unit. Any impairment is recognised immediately include installation services - typically, software in the income statement and is not subsequently installation could be performed by another party reversed. and is therefore accounted for as a separate per- formance obligation. Where contracts include mul- Where settlement of any part of cash consideration tiple performance obligations, the transaction price is deferred (whether because it is contingent or is allocated to each performance obligation based otherwise), the amounts payable in the future are on the Group’s best estimate of their Standalone discounted to their present value as at the date of Selling Price (“SSP”) notwithstanding any absence exchange. The discount rate used is the Group’s or contrary allocation of total cost within a contract. incremental borrowing rate, being the rate at which Where this is not directly observable, it is estimated a similar borrowing could be obtained from an in- based on the best available evidence, for example dependent financier under comparable terms and expected cost plus margin. conditions. Revenue recognition Software licenses Revenue is measured based on the consideration to for on-premise software is recognised on the later which the Group expects to be entitled in a contract of the grant of the license or delivery of the software with a customer and excludes amounts collected as appropriate. Revenue in respect of the sale of perpetual licenses on behalf of third parties. Each element of revenue (described below) is recognised only when: ANNUAL REPORT 81 Certain contracts provide for revenue which is of days worked. Revenue from this revenue stream contractually linked to the incremental revenue de- may create “Unbilled Revenue” receivables through rived by that customer from use of the software, yet to be billed time input and expenses at the re- the amount being based on a pre-agreed share of porting date. that incremental revenue which is recognised at the end of each month (a “gain share” contract). Cer- Annual support and maintenance (also known as tain contracts may provide for both a guaranteed Post-Contract Support or “PCS”) (usually monthly) payment over a period (typically 2-3 years) as well as a gain share component. If the Revenue from support and maintenance services is contract is a “right to use” contract, then the upfront recognised rateably over the period of the contract. and fixed payments are recognised on transfer of Revenue is recognised when the provision of sup- the license at their aggregate present value using port and maintenance and completion of the perfor- an imputed cost of funds. A notional finance income mance obligations are carried out which is deemed recognised on the reducing balance of the notional to be evenly throughout the term of the contract. balance outstanding (which is recognised as a con- Revenue from this revenue stream may create a tract asset). contract liability if contractually stated PCS income is lower than its SSP and an element thereof has Implementation services thus effectively been included in the license fee as Revenue in respect of implementation of on-prem- ognised if PCS income is recognised even though ise software is recognised on completion of the im- it is not contractually due and payable (for example plementation. when the first year of PCS is deemed as “free” to stated in the contract. A contract asset may be rec- Change Requests the customer). Hardware Revenue in respect of Change Requests (i.e. for- mal proposals from customers to change an exist- Revenue in respect of sales of third-party hardware ing system, product or service) is recognised on is recognised when goods are delivered. completion of the work necessary to implement the required change. Interest income Professional services Interest income is recognised on contracts with a Significant Financing Component as interest ac- Revenue and profits from the provision of profes- crues using the effective interest method. The effec- sional services such as managed services, training tive interest rate is the rate that discounts estimated and consultancy are delivered under a “time and future cash receipts through the expected life of the materials” type contract and are therefore rec- financial instrument to its net carrying amount. ognised rateably over time and based upon number 82 ANNUAL REPORT Cost of sales and provision of services The finance expense is charged to the Consolidat- ed Statement of Comprehensive Income over the The cost of provision of services includes the direct lease period to produce a constant periodic rate of costs of consultants and employees who provide interest on the remaining balance of the liability for services, support or maintenance to customers, each period. The right-of-use asset is depreciated direct sales commissions paid to third parties, and over the shorter of the asset’s useful life and the certain third-party software licenses which are inte- lease term on a straight-line basis. Additionally un- gral to the performance of contracts. Cost of sales der IFRS 16, right-of-use assets are tested for im- also includes the acquisition cost of hardware re- pairment in accordance with IAS 36 Impairment of sold to end customers. Assets. This replaces the previous requirement to Leases recognise a provision for onerous lease contracts. For short-term leases (lease term of 12 months or Applying IFRS 16, for all leases (except as noted less) and leases of low-value assets the Group has below), the Group: opted to recognise a lease expense on a straight- line basis as permitted by the Standard. This ex- (i) recognises right-of-use assets and lease liabili- pense is presented within other expenses in the ties in the consolidated statement of financial posi- consolidated statement of profit or loss. tion, initially measured at the present value of future lease payments; Where lease-related expenses are directly attrib- utable to the cost of development of the Group’s (ii) recognises depreciation of right-of-use assets, proprietary software (as further detailed in Note 18), and interest on lease liabilities, in the consolidated such expenses are capitalised in accordance with statement of comprehensive income; and the Group’s accounting policy relating to such de- (iii) separates the total amount of cash paid in re- spect of lease obligations into a principal portion Foreign currencies and interest (both presented within financing activ- velopment expenditure. ities) in the consolidated statement of cash flows. The individual financial statements of each Group Lease payments under (i) are discounted using the ry economic environment in which it operates (its interest rate implicit in the lease, if that rate can be functional currency). For the purpose of the consol- determined, or the Group’s estimated incremental idated financial statements, the results and finan- company are prepared in the currency of the prima- borrowing rate. cial position of each Group company are expressed in US Dollars, which is the functional currency of the Company and the presentation currency for the consolidated financial statements. ANNUAL REPORT 83 In preparing the financial statements of the individu- ordinary shares. Such equity-settled share-based al companies, transactions in currencies other than payments are measured at fair value at the date of the entity’s functional currency (foreign currencies) grant. This fair value is determined as at the grant are recorded at the rates of exchange prevailing date of the options and is expensed on a straight- on the dates of the transactions. At each balance line basis over the vesting period, based on the sheet date, monetary assets and liabilities that are Group’s estimate of the number of options that will denominated in foreign currencies are retranslated eventually vest. A corresponding amount is credited at the rates prevailing on the balance sheet date. to equity reserves. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retrans- Fair value is measured by use of a Black-Scholes lated. model and key inputs to that model have been as- sessed as follows: Exchange differences arising on the settlement of • expected volatility was based upon historical monetary items, are included in profit or loss for the volatility and applied over the expected life of period. For the purpose of presenting consolidat- the schemes; ed financial statements, the assets and liabilities • expected life was based upon historical data of the Group’s foreign operations are translated and was adjusted based on management’s at exchange rates prevailing on the balance sheet best estimates for the effects of non-transfer- date. Income and expense items are translated at ability, exercise restrictions and behavioural the average exchange rates for the period where it considerations; and approximates the rates on the dates of the under- • risk-free rate was taken as the two-, three- and lying transactions. Exchange differences arising, if 4-year UK gilt yields as appropriate for the ex- any, are classified as equity and transferred to the pected life of the options concerned Group’s translation reserve. Proceeds received on exercise of share options and Share-based payments warrants are credited to share capital (in respect of nominal value) and share premium account (in re- The Group has applied the requirements of IFRS 2 spect of the excess over nominal value). Cancelled Share-based payments in respect of options grant- options are accounted for as an acceleration of ed under a share option plan for senior employees vesting. The unrecognised grant date fair value is dated 15 January 2019 (the “Plan”) and certain recognised in the consolidated statement of com- options issued at the time of the Company’s IPO. prehensive income in the year that the options are Under the terms of both the Plan and the options cancelled. issued at IPO, the Group is able to make equity-set- tled share-based payments to certain employees and a Director by way of issue of options over 84 ANNUAL REPORT Where share-based payment expenses are direct- statement, except when it relates to items charged ly attributable to the cost of development of the or credited directly to equity, in which case the de- Group’s proprietary software (as further detailed in ferred tax is also dealt with in equity. Note 18), such expenses are capitalised in accor- dance with the Group’s accounting policy relating to Such assets and liabilities are not recognised if the such development expenditure. temporary difference arises from the initial recogni- Borrowing costs tion of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax All borrowing costs are recognised in profit or loss profit nor the accounting profit. in the period in which they are incurred. Taxation The carrying amount of deferred tax assets is re- viewed at each reporting date and reduced to the extent that it is no longer probable that sufficient Any tax payable is based on taxable profit for the taxable profits will be available to allow all or part of year. Taxable profit differs from net profit as report- the asset to be recovered. ed in the income statement because it excludes items of income or expense that are taxable or de- Deferred tax assets and liabilities are offset when ductible in other years and it further excludes items there is a legally enforceable right to set off current that are never taxable or deductible. The Group’s tax assets against current tax liabilities and when liability for current tax is calculated using tax rates they relate to income taxes levied by the same tax- that have been enacted or substantively enacted by ation authority and the Group intends to settle its the reporting date. current tax assets and liabilities on a net basis. Deferred tax is the tax expected to be payable or Intangible assets recoverable on differences between the carrying amounts of assets and liabilities in the financial Development expenditure statements and the corresponding tax bases used in the computation of taxable profit and is account- Expenditure on the development of the Group’s ed for using the balance sheet liability method. proprietary enterprise software where it meets cer- Deferred tax liabilities are provided in full, with no tain criteria (given below), is capitalised and subse- discounting, for all taxable temporary differences; quently amortised on a straight-line basis over its deferred tax assets are recognised to the extent useful life. Where no internally generated intangible that it is probable that taxable profits will be avail- asset can be recognised, development expenditure able against which deductible temporary differenc- is written-off in the period in which it is incurred. es can be utilised. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income ANNUAL REPORT 85 An asset is recognised only if all of the following Customer relationships conditions are met: • the product is technically feasible and market- intangible assets at their fair values (see note 18). able; Customer relationships are amortised on a straight- • the Group has adequate resources to complete line basis over 10 years. Customer relationships acquired are recognised as the development of the product; • it is probable that the asset created will gener- Impairment of tangible and intangible assets ate future economic benefits; and excluding goodwill • the development cost of the asset can be mea- sured reliably At each reporting date, the Group reviews the car- rying amounts of its tangible and intangible assets Development expenditure is amortised on a to determine whether there is any indication that straight-line basis over 4 years, such amortisation those assets have suffered an impairment loss. If being charged to profit or loss. Expenditure on re- any such indication exists, the recoverable amount search activities is recognised as an expense in the of the asset is estimated in order to determine the period in which it is incurred extent of the impairment loss (if any). Where the Patents and licenses asset does not generate cash flows that are inde- pendent from other assets, the Group estimates the recoverable amount of the cash-generating unit to The costs incurred in purchasing licenses and es- which the asset belongs. An intangible asset with tablishing patents are measured at cost, net of any an indefinite useful life is tested for impairment an- amortisation and any provision for impairment. Am- nually and whenever there is an indication that the ortisation is calculated so as to write off the cost of asset may be impaired. an asset, less its estimated residual value, over the useful economic life of that asset as follows: Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable Intellectual property/patents over 10 years on a straight-line amount of an asset (or cash-generating unit) is es- basis timated to be less than its carrying amount, the car- Licenses over 5 years on a straight-line basis rying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Any impairment loss is recognised as an expense through profit and loss. Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation and accumulat- ed impairment losses, if any. The cost of an asset 86 ANNUAL REPORT comprises its purchase price and any directly at- Group’s business model for managing them. The tributable costs of bringing the asset to the location Group has reviewed its business model for its finan- and condition for its intended use. cial assets and has concluded that they are held for Depreciation is charged to profit or loss (unless it is IFRS 9 receivables and contract assets (other than included in the carrying amount of another asset) those which contain a significant financing compo- on a straight-line basis to write off the depreciable nent) are initially recognised at fair value and will amount of the assets net of the estimated residual subsequently be measured at amortised cost. collecting contractual associated cash flows. Under values over their estimated useful lives as follows: Computer equipment Over 3 years on a straight- line basis Leasehold improvements Over 5 years on a straight- line basis Office equipment Over 5 years on a straight- The Group recognises lifetime expected credit loss- es (“ECL”) for trade receivables and contract as- sets. The expected credit losses on these financial assets are derived using hypothetical likely default amounts estimated by applying a percentage “prob- ability of default” to the receivables balance, such probability being related to the underlying credit rat- line basis ing of the customer or country of origin. Vehicles Over 8 years on a straight- line basis Trade and other receivables and contract assets These assets arise principally from the provision of sales of software and services and support and The assets’ residual values and useful lives are maintenance to customers in the ordinary course of reviewed, and adjusted if appropriate, at each re- business. They are generally due for settlement be- porting date. An asset’s carrying amount is written tween 30 and 90 days and therefore are generally down immediately to its recoverable amount if the classified as current other than where the terms of asset’s carrying amount is greater than its estimat- the contract provide for payment over an extended ed recoverable amount. Financial assets period of time (in which case the relevant element of the receivable is classified as current and the balance is classified as non-current, net of an al- lowance for the time value of money). The timing of Financial assets are recognised on the consolidat- revenue recognition, invoicing and cash collections ed statement of financial position when the Group results in both invoiced accounts receivable and has become a party to the contractual provisions of uninvoiced receivables, as well as contract assets. the instrument. The Group’s financial assets consist Invoicing may be implemented (depending on the of cash, loans, deposits, and receivables and con- contract with the end customer) according to usage tract assets. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the ANNUAL REPORT 87 or upon achievement of contractual milestones. assesses the probability of the non-payment of the trade receivables, which probability is multiplied by Trade receivables are recognised initially at the the amount of the expected loss arising from de- amount of consideration that is unconditional un- fault to determine the lifetime expected credit loss less they contain significant financing components, for the trade receivables. In the absence of any his- when they are recognised at fair value. The Group toric credit losses and the expectation of no specific holds the trade receivables with the objective to col- losses in the foreseeable future, the Directors as- lect the contractual cash flows and therefore mea- sessed a hypothetical likely default amount by ap- sures them subsequently at amortised cost using plying a percentage “probability of default” to the re- the effective interest method, less provision for im- ceivables balance, such probability being related to pairment. the underlying credit rating of the customer or coun- try of origin. Trade receivables and contract assets Contract assets represent amounts relating to rev- are reported net, with such provisions recorded in enue recognised at the date of the statement of fi- a separate provision account with the loss being nancial position but not yet due or invoiceable under recognised within cost of sales in the consolidated the terms of the contract. These arise most typically statement of comprehensive income. for the Group either in (i) licenses of software where the consideration is structured as an upfront pay- Long-term trade receivables ment followed by a series of additional payments, which may comprise fixed sums or fixed sums plus Long-term trade receivables represent amounts sums relating to some measure of (for example) relating to revenue recognised at the date of the sales made by the purchaser of the license; or (ii) statement of financial position but not yet due or licenses of software where payment for the aggre- invoiceable under the terms of the contract. These gate consideration may be structured such that the arise most typically for the Group as a result of the initial consideration does not fully reflect the SSP of sale of licenses as an upfront payment followed by the license. a series of additional payments, which may com- prise fixed sums or fixed sums plus sums relating Such payments may extend over several years. to some measure of (for example) gains made by Under IFRS 15, if the contract is a “right to use” the purchaser of the license. Such payments may contract, then the upfront and fixed payments are extend over several years. Under IFRS 15, if the recognised on transfer of the license at their aggre- contract is a “right to use” contract, then the upfront gate present value using an imputed cost of funds. and fixed payments are recognised on transfer of the license at their aggregate present value using Impairment provisions for current and non-current an imputed cost of funds. trade receivables and contract assets are rec- ognised based on the simplified approach within IFRS 9 using a provision matrix for the determina- tion of lifetime expected credit losses, which 88 ANNUAL REPORT Contract fulfilment assets to obtain a contract maybe impaired. If such indi- cation exists, the Group makes an estimate by Contract fulfilment costs are divided into: (i) costs comparing the carrying amount of the assets to the that give rise to an asset; and (ii) costs that are remaining amount of consideration that the Group expensed as incurred. When determining the ap- expects to receive less the costs that relate to pro- propriate accounting treatment for such costs, the viding services under the relevant contract. In de- Group firstly considers any other applicable stan- termining the estimated amount of consideration, dards. If those standards preclude capitalisation of the Group uses the same principles as it does to a particular cost, then an asset is not recognized determine the contract transaction price, except under IFRS 15. If other standards are not applica- that any constraints used to reduce the transaction ble to contract fulfilment costs, the Group applies price will be removed for the impairment test. the following criteria which, if met, result in capital- isation: (i) the costs directly relate to a contract or Cash and cash equivalents to a specifically identifiable anticipated contract; (ii) the costs generate or enhance resources of the en- Cash and cash equivalents include cash in hand, tity that will be used in satisfying (or in continuing to deposits held at call with banks, other short term satisfy) performance obligations in the future; and highly liquid investments with original maturities of (iii) the costs are expected to be recovered. three months or less, and – for the purpose of the The assessment of these criteria requires the ap- overdrafts are shown within loans and borrowings plication of judgement, in particular when consid- in current liabilities on the consolidated statement statement of cash flows - bank overdrafts. Bank ering if costs generate or enhance resources to be of financial position. used to satisfy future performance obligations and whether costs are expected to be recoverable. Financial liabilities and equity instruments The Group’s contract fulfilment assets are due Equity and debt instruments are classified as either principally to sales commissions payable to third financial liabilities or as equity in accordance with parties in return for assistance in obtaining certain the substance of the contractual arrangements and contracts. The Group amortises capitalised costs to the definitions of a financial liability and an equity obtain a contract over the expected life of that con- instrument. The Group’s financial liabilities include tract in line with the recognition of revenue relating trade and other payables and borrowings which to that contract. Such amortisation is included with- are measured at amortised cost using the effective in cost of sales. interest rate method. Financial liabilities are rec- ognised on the consolidated statement of financial A capitalised cost to obtain a contract is derecognised position when the Group has become a party to the either when it is disposed of or when no further eco- contractual provisions of the instrument. nomic benefits are expected to flow from its use or disposal. At each reporting date, the Group deter- mines whether there is an indication that cost ANNUAL REPORT 89 An equity instrument is any contract which evidenc- processes are primarily subject to the same risks es a residual interest in the assets of an entity after and returns and the Directors therefore consider deducting all of its liabilities. Equity instruments is- that there are no identifiable business segments sued by the Group, such as share capital and share that are subject to risks and returns different to the premium, are recognised at the proceeds received core business. As such, internal reporting provided net of direct issue costs. to the chief operating decision-maker ((“CODM”), Borrowings which has been determined to be the Board of Di- rectors) for making decisions about resource allo- cations and performance assessment relates to the Interest-bearing loans are recorded initially at fair consolidated operating results of the Pelatro Group. value, net of direct issue costs. Finance charges, including premiums payable on settlement or re- Accordingly, the Directors have determined that demption and direct issue costs, are accounted for there is only one reportable segment under IFRS on an accruals basis in profit or loss using the ef- 8 and the financial information therefore presents fective interest rate method and are added to the entity-wide information. The results and assets for carrying amount of the instrument to the extent that this segment can be determined by reference to the they are not settled in the period in which they arise. statement of comprehensive income and statement of financial position. Provisions Provisions are recognised when the Group has a south and south-east Asia and Africa, with a devel- The Pelatro Group primarily serves customers in present obligation as a result of a past event, and oping presence in Europe. it is probable that the Group will be required to set- tle that obligation. Provisions are measured at the Exceptional items Directors’ best estimate of the expenditure required to settle the obligation at the reporting date and are Exceptional items are disclosed separately in the fi- discounted to present value where the effect is ma- nancial statements where it is necessary to do so to terial. Long-term provisions are those provisions provide further understanding of the financial per- where the settlement of the obligation is expected formance of the Company or the Group. They are to be on a date more than one year from the report- items of income or expense that have been shown ing date. separately due to their nature. Segmental information For management purposes, the Group’s activities are principally related to the provision of data ana- lytics services to customers, and all other activities performed by the Pelatro Group are solely to sup- port its primary revenue generation activities. All the 90 ANNUAL REPORT 4. Critical accounting judgements and key sources of estimation uncertainty 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 liabilities, and income and expenses. The estimates and associated assumptions are based on historical ex- perience 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. Revisions to accounting estimates are recognised in the pe- riod 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. The key assumptions and critical accounting judgements concerning the future and other key sources of es- timation 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: ANNUAL REPORT Revenue 91 Critical judgements Estimates Revenue and the associated profit are recognised from sale Estimates relating to revenue include the appropriate SSP for of software licences, rendering of services, and maintenance various components of a contract, and in the case of contracts and support. When software licences are sold, the Board which have a Significant Financing Component, the appropriate must exercise judgement as to when the appropriate point discount rate to apply to the payment profile in order to derive an in time has passed at which all performance obligations appropriate present value to record as revenue. for that software licence have been performed, at which point revenue in relation to the stand-alone sales price A number of contracts entered into by the Group during the (“SSP”) of the software licence is recognised. In many year are recognised for revenue in a manner which differs cases performance obligations do not simply follow the materially from the contractual terms; in certain cases this commercial and contractual arrangement agreed with the resulted in revenue being recognised earlier than contractually customer, in some cases the revenue streams are combined due; in others it deferred revenue after the date at which it was within an overall commercial arrangement. Such combined contractually due. The effect of this is shown in Note 5. circumstances require judgement to assess 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. 92 ANNUAL REPORT Capitalised development costs Critical judgements Estimates Development costs are accounted for in accordance with IAS Estimates relating to capitalised development costs include 38 Intangible Assets, and costs that meet the qualifying criteria the asset’s likely revenue generation and its applicable useful are capitalised and systematically amortised over the useful economic life. These estimates are continually reviewed and economic life of the intangible asset. Determining whether updated based on past experience and reviews of competitor development costs qualify for capitalisation as intangible assets products available in the market. 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, The Group uses long-term forecasts of cash flow and estimates plant and equipment annually for impairment, or more of future growth both to value acquired intangible assets and frequently if there are indications that an impairment may be goodwill and to assess whether goodwill or intangible assets required. Judgement is required as to whether indicators of are impaired, and to determine the useful economic lives of its impairment exist and hence whether to perform more detailed intangible assets. Estimates are therefore required of the level analysis to evaluate any impairment required. Identifying of future growth, resulting cash flows as well as an appropriate indicators of impairment requires judgements to be made as discount rate to derive their carrying value. Assumptions to the prospects and value drivers of the individual assets. regarding sales and operating profit growth, gross margin, and discount rate are considered to be the key areas of estimation In valuing these assets and liabilities, judgement is required in the impairment review process – further disclosure regarding as to the likelihood of occurrence of future events which will such estimates is made in Note 18. affect the value of such assets. ANNUAL REPORT 93 5. Revenue and segmental analysis The Directors consider that the Group has a sin- gle business segment, being the sale of information management software and related services to pro- viders of telecommunication services (“telcos”). The operations of the Group are managed centrally with In addition, the Group may, if required by the cus- tomer, supply appropriate hardware on which to host the software, either for the account of the cus- tomer or (particularly in the case of managed ser- vices) retained in the ownership of the Group. An analysis of revenue by type is as follows: Group-wide functions covering sales and market- At 31 December ing, development, professional services, customer support and finance and administration. An analysis of revenue by product or service and by geography is given below. Revenue by type The Group has five principal revenue models, be- ing: (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 licens- es for use of the Group’s proprietary enterprise soft- ware; (3) provision of specific customer-requested modifi- cations to Group software (“change requests”); (4) provision of maintenance and support for the software and its users; and (5) provision of consultancy services and/or training relating to the use of the software Recurring software sales and services Maintenance and support Total recurring revenues Change requests Total repeating revenues Software – new licenses Consulting 2021 $’000 3,456 1,334 –––––– 4,790 1,958 ______ 6,748 498 20 - 2020 $’000 1,528 1,323 –––––– 2,851 426 ______ 3,277 698 45 - 7,266 4,020 Revenue by geography The Group recognises revenue in seven geograph- ical 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 2021 $’000 2020 $’000 130 443 426 104 2,656 3,407 145 175 168 64 1,096 2,372 100 _______ - _______ 7,266 4,020 94 ANNUAL REPORT Management makes no allocation of costs, assets the income stream. In addition, interest income ac- or liabilities between these segments since all trad- crues on the credit deemed to be extended to the ing activities are operated as a single business unit. customer (on a reducing balance basis). For the financial year 2021 this figure amounts to license revenue of $0.50m and interest income of $38,000 (2020: $0.20m and $44,000). PCS Ancillary to a license sale, the Group typically pro- vides five years of PCS but does not charge for the first year; similarly in certain contracts the Group may provide PCS at other than a standalone selling price (“SSP”). For revenue recognition purposes PCS income is deemed to accrue over the full term of the service provision (whether paid or otherwise) and, as far as is estimable, at a deemed market rate (i.e. the SSP). Accordingly, the financial statements reflect adjustments to income: (i) to accelerate the recognition of revenue for initial years for which no contractual payment is due (and consequent adjustments to revenue to derecognise revenue in later years when contractual payments exceed revenue to be recognised); and Customer concentration The Group has two customers representing indi- vidually over 10% of revenue each and in aggre- gate approximately 38% of total revenue at $2.73m (2020: three customers, approximately 53% of total revenue at $2.14m). The two customers accounted for revenue of $1.63m and $1.10m (2020: $0.89m, $0.63m and $0.62m). Revenue recognition License revenue As explained in Note 3, the Group recognises reve- nue from the sale of licenses and the implementa- tion of the software so licensed separately, as the two activities represent distinct performance obli- gations. However, as implementation to date has always been carried out by Group personnel and is usually viewed by the customer as an integral part of the license purchase, the two activities are re- ported as one. Irrespective of the split between license and imple- mentation recognition, some contracts provide for fixed payments to be made by customers (usually monthly) over a given term (e.g. three or five years). Under IFRS 15, in order to reflect the time value of money, such contracts are recognised (at the point of transfer of the license) as the capitalised value of ANNUAL REPORT 95 (ii) to accelerate or defer the recognition of revenue Comparative figures for the year ended 31 Decem- in cases where the contractual PCS charge is lower ber 2020 were as follows: (or higher) than a market rate (the difference being netted off or added to the revenue recognised in re- spect of the license fee). For the financial year 2021 revenue includes/(ex- cludes) (i) a net amount of $(101,000) representing income from PCS already recognised ahead of its contractually due dates (2020: $(88,000)), and (ii) an amount of $40,000 (2020: $nil) representing rev- enue netted off license income allocated to PCS. Remaining performance obligations There are certain software support, professional service, maintenance and licences contracts that have been entered into for which both: Year to 31 December 2021 $’000 2022 $’000 2023-6 $’000 579 394 442 Revenue expected to be recognised on software and service contracts Costs of obtaining and fulfilling contracts of $0.12m have been capitalised in 2021 (net of amortisation against revenue recognised in respect of those contracts) (2020: $0.59m). Non-current assets Information about the Group’s non-current assets by location of assets is as follows: • the original contract period was greater than 12 At 31 December months; and • the Group’s right to consideration does not cor- respond directly with performance. India Russia Singapore The amount of revenue that will be recognised in UK future periods on these contracts when those re- maining performance obligations will be satisfied is shown below. 2021 $’000 991 26 6,329 5,329 2020 $’000 1,208 25 5,516 6,426 _______ _______ 12,675 13,175 Non-current assets comprise intangible assets, goodwill, and plant, property and equipment. Year to 31 December 2022 $’000 2023 $’000 2024-7 $’000 449 314 320 Revenue expected to be recognised on software and service contracts 96 ANNUAL REPORT 6. Operating expenses Profit for the year has been arrived at after charging: 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 2021 $’000 2020 $’000 (ii) are such that the income/cost is recognised in a pattern that is unrelated to the resulting operational Amortisation of intangible non-current 2,814 2,122 performance. assets Depreciation of tangible non-current 413 298 assets (Profit)/loss on disposal of Right to Use (10) (10) Exceptional items are treated as exceptional by reason of their nature and are excluded from the calculation of adjusted EBITDA (and adjusted earn- assets Staff costs (see note 9) 2,865 1,787 ings per share in Note 15) to allow a better under- Auditor’s remuneration (see note 8) Short-term lease expenses Realised foreign exchange (gains)/losses 47 35 17 41 23 3 7. Non-GAAP profit measures and exceptional items Reconciliation of operating profit to adjusted earn- ings before interest, taxation, depreciation and am- ortisation (“EBITDA”) Year to 31 December Operating profit/(loss) Adjusted for: 2021 $’000 2020 $’000 (489) (1,906) standing of comparable year-on-year trading and thereby an assessment of the underlying trends in the Group’s financial performance. These mea- sures also provide consistency with the Group’s in- ternal management reporting. Adjustment for share-based payment expense is made because, once the cost has been calculated for a given grant of options, the Directors cannot in- fluence the share-based payment charge incurred in subsequent years relating to that grant; also the value of the share option to the employee differs considerably in value and timing from the actual cash cost to the Group. Elements of depreciation on right-to-use assets Amortisation and depreciation 3,227 2,420 recognised under IFRS 16 and share-based pay- EBITA Revenue recognised as interest under IFRS 15 Expensed share-based payments Exceptional items: - gain on adjustment of contingent liability _____ _____ 2,738 514 ment expense are deemed to be directly attribut- able overheads for the purposes of capitalising rel- 38 32 44 32 evant expenditure on developing intangible assets (see Note 18). The figures above are shown net of amounts so capitalised. - (149) EBITDA (and adjusted EPS) are financial measures that are not defined or recognised under IFRS and ______ ______ should not be considered as an alternative to oth- Adjusted EBITDA 2,808 441 er indicators of the Group’s operating performance, cash flows or any other measure of performance ANNUAL REPORT 97 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 Annual 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 calculation of these measures and the criteria upon which these measures are based can vary from company to company. These measures, by themselves, do not provide a sufficient basis to compare the Group’s performance 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 op- erating performance, or as an alternative to cash generated from operating activities as a measure of liquidity. The calculation of adjusted earnings per share is shown in Note 15. 8. Auditor’s remuneration Year to 31 December Audit of the financial statements of Pelatro Plc Amounts receivable by auditor in respect of: Tax compliance 9. Staff Costs Year to 31 December Wages and salaries Social security contributions Less: amounts capitalised as intangible assets The average number of persons employed by the Company during the period was: Year to 31 December Sales Software development Support Marketing Administration 2021 $’000 47 1 2020 $’000 41 4 _______ ______ 48 45 2021 $’000 5,256 80 2020 $’000 4,410 83 (2,471) (2,706) _______ ______ 2,865 1,787 2021 3 98 113 3 18 2020 4 96 48 3 15 _______ ______ 235 166 98 ANNUAL REPORT 10. Directors’ remuneration and transactions The Directors’ emoluments in the year ended 31 December 2021 were: Executive Directors N. Hellyer S. Menon S. Yezhuvath Non-Executive Directors R. Day P. Verkade Basic salary 2021 $’000 Bonus 2021 $’000 Benefits in kind Share-based payments Pension Total Total 2021 $’000 2021 $’000 2021 $’000 2021 $’000 2020 $’000 87 201 201 66 41 21 57 57 - - 10 21 14 - - 1 - - - - 3 - - 2 - 122 279 272 68 41 137 220 207 72 39 _______ ______ ______ ______ _______ _______ ______ 596 135 45 1 5 782 675 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, and 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 $30,000) (2020: $32,000) 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) 1,323,500 options granted under the Plan (net of lapsed or forfeited options) and (b) the 33,000 options (net of forfeited options) issued at the time of the Company’ 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 employment. Of this amount, $14,000 net (2020: $27,000) relates to costs of share options issued to subsidiary employees. ANNUAL REPORT 99 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 1,505,500 1,631,500 Forfeited/cancelled during the year (149,000) (126,000) 2021 2020 2021 72.7p 73.0p 2020 72.7p 73.0p No. of options Weighted average exercise price ___________ __________ Outstanding at the end of the year 1,356,500 1,505,500 72.7p 72.7p Outstanding options are exercisable at prices between 62.5p and 73p and have a weighted average remain- ing contractual 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 2021 was £0.295 (31 December 2020: £0.380) and hence no deferred tax is provided in respect of the potential exercise 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 2021 $’000 6 38 2020 $’000 20 44 _______ _______ 44 64 100 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 2021 $’000 202 25 (6) 2020 $’000 198 31 (14) Acquisition-related financing expense (unwinding of discount on financial liabilities) - _______ 25 _______ Total finance expense 221 240 An element of interest on lease liabilities is deemed to be directly attributable overheads for the purposes of capitalising 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 2021 $’000 - 232 (42) 2020 $’000 - 321 (18) _______ _______ 190 303 (9) 72 _______ _______ (9) 181 72 375 ANNUAL REPORT 101 Reconciliation of the total tax charge 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% (2020: higher). 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: Year to 31 December (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 (De)recognition of deferred tax liability (De)recognition of deferred tax asset Loss carry back/tax repayable 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 2021 $’000 (666) (127) (275) 244 11 - - 109 12 (11) (2) (67) 13 - 274 2020 $’000 (2,082) (396) (425) 247 5 (28) (47) 186 63 24 61 - (18) (1) 704 _______ 181 _______ 375 The tax effect of exchange differences recorded within the Group Statement of Comprehensive Income is a credit of $4,000 (2020: $6,000 credit). Temporary differences associated with Group investments At 31 December 2021, there was no recognised deferred tax liability (2020: $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. 102 Deferred tax Recognised deferred tax asset At 1 January 2021 Recognised in profit and loss At 31 December 2021 Comprising: Tax losses ANNUAL REPORT 2021 $’000 16 (2) 2020 $’000 63 (47) _______ _______ 14 14 16 16 _______ _______ 14 16 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 de- ferred income tax assets at 31 December 2021 above are expected to be utilised in the next two years. Recognised deferred tax liability At 1 January 2021 Recognised in profit and loss At 31 December 2021 Comprising: Timing differences 2021 $’000 24 (11) 2020 $’000 - 24 _______ _______ 13 13 24 24 _______ _______ 13 24 ANNUAL REPORT 103 Factors affecting future tax charges UK The current rate for corporation tax in the UK is 19% but, as a result of the March 2021 Budget statement which was enacted in May 2021, this is due to rise to 25% from 1 April 2023 for profits in excess of £250,000. This tax rate is therefore considered when calculating deferred tax on timing differences expected to reverse on or after 1 April 2023. India Under Indian tax law, with effect from 1 April 2019 any company which opted not to utilise certain tax exemp- tions or incentives was eligible for a reduced income tax rate of 22% (previously 25%). For the local 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%. 104 ANNUAL REPORT 15. Earnings 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 Profit/(loss) attributable to equity holders of the parent: 2021 $’000 2020 $’000 Profit/(loss) attributable to ordinary equity holders of the parent for basic earnings (847) (2,475) Weighted average number of ordinary shares in issue 41,153,537 34,136,617 Basic earnings/(loss) per share attributable to shareholders (2.1)¢ (7.2)¢ Adjusted earnings per share Adjusted earnings per share is calculated as follows: 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 2021 $’000 (847) - 32 - 686 (42) _______ (171) 2020 $’000 (2,475) (149) 32 25 686 (18) _______ (1,881) Weighted number of ordinary shares in issue 41,153,537 34,136,617 Adjusted earnings/(loss) per share attributable to shareholders (0.4)¢ (5.5)¢ ANNUAL REPORT 105 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 relation- ships 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 (2020: 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 Pelatro LLC USA 110 Summit Avenue Montvale, NJ 07645, USA Sales Description and proportion of shares held by the Company 100% of members’ capital Pelatro Pte Limited Singapore One Raffles Place, #10-62, Tower 2, Singapore 048616 Pelatro Solutions Private Limited India 403, 7th A Main, HRBR Layout, Bangalore 560043, India 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 Ownership of IP; operation of branch in Russia 100% ordinary shares Research, development and support 100% ordinary shares Dormant 100% ordinary shares 106 ANNUAL REPORT 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 busi- ness, patents, customer relationships and goodwill. An analysis of goodwill and other intangible assets is as follows: Financial year 2021 Development costs Third party software Patents Customer relationships Goodwill Total $’000 $’000 $’000 $’000 $’000 $’000 Cost At 1 January 2021 Additions Foreign exchange At 31 December 2021 Amortisation At 1 January 2021 Charge for the year Foreign exchange At 31 December 2021 Net carrying amount At 31 December 2021 9,263 2,576 - _______ 11,839 (3,373) (2,105) - _______ (5,478) 6,361 At 31 December 2020 5,890 110 12 (2) 27 30 - 6,862 470 16,732 - - - - 2,618 (2) _______ _______ _______ _______ _______ 120 57 6,862 470 19,348 (52) (21) 2 - (2) - (1,658) (686) - - - - (5,083) (2,814) 2 _______ _______ _______ _______ _______ (71) (2) (2,344) - (7,895) 49 58 55 27 4,518 470 11,453 5,204 470 11,649 ANNUAL REPORT 107 Financial year 2020 Development costs Third party software Patents Customer relationships Goodwill Total $’000 $’000 $’000 $’000 $’000 $’000 Cost At 1 January 2020 Additions Foreign exchange 6,391 2,872 - 108 4 (2) 23 4 - 6,862 470 - - - - 13,854 2,880 (2) _______ _______ _______ _______ _______ _______ At 31 December 2020 9,263 110 27 6,862 470 16,732 Amortisation At 1 January 2020 Charge for the year Foreign exchange (1,957) (1,416) - (34) (20) 2 - - - (972) (686) - - - - (2,963) (2,122) 2 _______ _______ _______ _______ _______ _______ At 31 December 2021 6,862 470 19,348 _______ _______ _______ _______ _______ At 31 December 220 (3,373) (52) - (1,658) - (5,083) Net carrying amount At 31 December 2020 At 31 December 2019 Development costs 5,890 4,434 58 74 27 23 5,204 5,890 470 470 11,649 10,891 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) associ- ated with the development of new products and services which will be saleable to more than one customer. 6,361 4,518 470 11,453 Software At 31 December 2020 5,890 5,204 470 11,649 Software assets represent purchased licences and distribution rights for third party software which are capi- talised 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. Financial year 2021 Development Patents Customer Goodwill Total Third party software relationships $’000 $’000 $’000 $’000 $’000 costs $’000 9,263 2,576 - - _______ 11,839 (3,373) (2,105) _______ (5,478) Cost At 1 January 2021 Additions Foreign exchange Amortisation At 1 January 2021 Charge for the year Foreign exchange At 31 December 2021 Net carrying amount At 31 December 2021 6,862 470 16,732 - - (1,658) (686) - (2,344) - - - - - - 2,618 (2) (5,083) (2,814) 2 (7,895) 110 12 (2) 120 (52) (21) 2 (71) 49 58 27 30 - 57 (2) - - (2) 55 27 _______ _______ _______ _______ _______ 108 ANNUAL REPORT Customer relationships Customer relationships as stated were acquired as part of a business combination. Goodwill 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 soft- ware acquired has been subsumed into the Group’s mViva product suite, the contracts acquired have been transitioned onto and/or are being fulfilled (for example 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 good- will relating to this former CGU was tested for impairment at 31 December 2021 by comparing its carrying val- ue with the recoverable amount, which was determined using a value in use methodology based on discount- ed 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 acquired 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 Directors noted that, at the time of testing, the market capitalisation of the Group was less than its net asset value. Under IAS 36 this is an indicator of potential impairment and accordingly the Directors considered the cause of this as well as a number of other indicators, none of which suggested impairment. The goodwill relating to this CGU was tested for impairment at 31 December 2021 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. ANNUAL REPORT 109 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 2022 and 2023 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, par- ticularly the more highly skilled developers, and the related costs of employment; revenue for the CGU is still mostly intra-Group and is thus dependent on other Group companies making third-party sales (the balance of third party sales is material but is largely under fixed revenue contracts); (ii) A range of scenarios for growth in costs and revenues for the remainder of the value in use has been considered, notably with regard to costs which have been assumed to increase in line with local inflation rates. Revenue growth after 5 years is forecast at nil% in local currency terms; (iii) A pre-tax discount rate of 17.6% has been used (being the Weighted Average Cost of Capital in local currency) 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 operating cash flows could cause the carrying value of the goodwill to exceed the recoverable amount, resulting in an impairment 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 pos- sible 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 2021. 110 ANNUAL REPORT 19. Tangible assets Financial Year 2021 Leasehold improvements Computer equipment Office equipment Vehicles $’000 $’000 $’000 $’000 Cost At 1 January 2021 Additions Foreign exchange differences At 31 December 2021 Depreciation At 1 January 2021 Charge for the year Foreign exchange differences At 31 December 2021 Net carrying amount At 31 December 2021 At 31 December 2020 131 - (2) 1,084 88 (21) 59 - (1) 305 - (6) _______ _______ _______ _______ 129 (24) (18) 1 1,151 (222) (238) 6 58 (20) (11) - _______ _______ _______ (41) 88 107 (454) (31) 697 862 27 39 299 (95) (36) 2 _______ (129) 170 210 Financial Year 2020 Leasehold improvements Computer equipment Office equipment Vehicles $’000 $’000 $’000 $’000 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 31 December 2019 109 24 (2) 197 877 10 59 1 (1) 312 - (7) _______ _______ _______ _______ 131 (7) (17) - 1,084 59 (87) (134) (1) (9) (11) - 305 (59) (36) - _______ _______ _______ _______ (24) 107 102 (222) (20) 862 110 39 50 (95) 210 253 Total $’000 1,579 88 (30) _______ 1,637 (361) (303) 9 _______ (655) 982 1,218 Total $’000 677 902 - _______ 1,579 (162) (198) (1) _______ (361) 1,218 515 ANNUAL REPORT 111 20. Right-of-use assets Right-of-use assets comprise leases over office buildings and vehicles as follows: 2021 Cost At 1 January 2021 Additions in respect of new leases Disposals in respect of leases terminated Effects of foreign exchange movements At 31 December 2021 Depreciation At 1 January 2021 Charge for the period Eliminated on leases terminated Effects of foreign exchange movements At 31 December 2021 Net carrying amount At 31 December 2021 At 31 December 2020 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 31 December 2019 Office building $’000 661 112 (10) (13) _______ 750 (355) (164) - 9 _______ (510) 240 306 Office buildings $’000 690 227 (231) (25) _______ 661 (368) (153) 157 9 _______ (355) 306 322 Vehicles $’000 32 - (32) - _______ - (30) (2) 32 - _______ - - 2 Vehicles $’000 31 - - 1 _______ 32 (14) (14) - (2) _______ (30) 2 17 Total $’000 693 112 (42) (13) _______ 750 (385) (166) 32 9 _______ (510) 240 308 Total $’000 721 227 (231) (24) _______ 693 (382) (167) 157 7 _______ (385) 308 339 112 ANNUAL REPORT 21. Trade and other receivables and contract assets The timing of revenue recognition, invoicing and cash collection results in the recognition of the following as- sets 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) recognised as “trade receivables”); and (iii) amounts relating to revenue recognised at the date of the statement of financial position but not invoice- able under the terms of the contract, or fulfilment assets (“contract assets”) 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 2021 $’000 751 195 (340) _______ 606 2021 $’000 609 (394) 340 _______ 555 2020 $’000 519 441 (209) _______ 751 2020 $’000 293 107 209 _______ 609 ANNUAL REPORT 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 113 2020 $’000 311 440 _______ 751 2020 $’000 457 152 _______ 293 2021 $’000 227 379 _______ 606 2021 $’000 375 180 _______ 555 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 per- formed 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 rec- ognised as these amounts are still considered to be recoverable. The Group does not require collateral in respect of financial assets. 114 ANNUAL REPORT As outlined in Note 3, 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 Directors 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. Furthermore, 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 2021 $’000 37 52 _______ 89 2021 $’000 75 14 _______ 89 2020 $’000 29 8 _______ 37 2020 $’000 30 7 _______ 37 ANNUAL REPORT 115 The largest individual counterparty to a receivable included in trade and other receivables at 31 December 2021 was $1.14m (of which some $0.68m related to unbilled revenue) (2020: $0.56m). Based on invoiced receivables, the largest individual counterparty owed the Group $0.52m (2020: $0.20m). The increase in loss allowance is due almost entirely to two individually significant receivables balances (other than the largest) from customers located in a jurisdiction with a notionally higher risk of default, and the weighting of the largest within the loss allowance calculation. Other than these, the Group’s customers are spread across a broad range of geographies, and approximately $1.5m has been received from customers since the reporting date. Trade receivables by hypothetical “probability of default” (by reference to country risk) Impairment Impairment Carrying amount At 31 December 2021 Default risk 0 - 1% 1 - 2% 2 - 3% 3 - 4% At 31 December 2020 Default risk 0 - 1% 1 - 2% 2 - 3% 3 - 4% $’000 (16) (26) (32) (1) % 0.9% 1.3% 2.4% 3.1% _______ _______ 5,031 (75) Gross amount $’000 1,719 1,927 1,349 36 Gross amount $’000 1,750 1,651 99 14 Impairment Impairment Carrying amount $’000 (5) (22) (2) (1) % 0.3% 1.3% 2.1% 3.5% _______ _______ 3,514 (30) $’000 1,703 1,901 1,317 35 _______ 4,956 $’000 1,745 1,629 97 13 _______ 3,484 116 ANNUAL REPORT 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 2021 $’000 146 77 92 _______ 315 2021 $’000 23 585 _______ 608 11 125 _______ 136 744 2020 $’000 130 80 275 _______ 485 2020 $’000 277 919 _______ 1,196 99 145 _______ 244 1,440 The Group has two term loans, in its operating subsidiary in India and denominated in INR, with interest rates between 10% and 15.5% (in INR) , repayable between 5 and 6 years from their inception, between June 2023 and September 2024. ANNUAL REPORT 117 Reconciliation between opening and closing balances for liabilities resulting in financing cash flows 1 January 2021 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 2021 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 277 919 172 99 145 174 (3) (14) (3) - (1) (6) - - 14 - - 88 - - - - - - (77) (161) (103) 77 161 103 (174) (159) - (165) (180) (171) 23 585 80 11 125 188 _______ _______ _______ _______ _______ _______ _______ Total 1,786 (27) 102 - - (849) 1,012 The Directors consider that the carrying amount of borrowings approximates to their fair value. 118 ANNUAL REPORT 24. Lease liabilities Lease liabilities comprise liabilities arising from the committed and expected payments on leases over office buildings and vehicles. 2021 Amounts due in more than one year At 1 January 2021 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 2021 Amounts due in less than one year At 1 January 2021 Liabilities taken on in the period Liabilities (disposed of) in the period Repayments of principal Transfer to short-term from long-term Effects of foreign exchange movements At 31 December 2021 Office buildings Vehicles Total $’000 $’000 $’000 172 24 (10) (103) (3) - - - - - 172 24 (10) (103) (3) _______ _______ _______ 80 - 80 Office buildings Vehicles Total $’000 174 89 (1) (171) 103 (6) $’000 - - - - - - $’000 174 89 (1) (171) 103 (6) _______ _______ _______ 188 - 188 ANNUAL REPORT 2020 Amounts due in less 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 to short-term from long-term Effects of foreign exchange movements At 31 December 2020 119 Office buildings Vehicles Total $’000 $’000 $’000 186 163 (28) (140) (9) 1 - - (1) - 187 163 (28) (141) (9) _______ _______ _______ 172 - 172 Office buildings Vehicles Total $’000 $’000 $’000 193 69 (56) (164) 140 (8) 12 - - (12) 1 (1) 205 69 (56) (176) 141 (9) _______ _______ _______ 174 - 174 PSPL, the Group’s main operating subsidiary, has entered into various leases over office space in Bangalore and Mumbai, which are now all out of their initial commitment terms on notice periods of typically 2-3 months with rollover options. The Group also has a lease on office space in Nizhny Novgorod in Russia. Now the impact of COVID-19 is diminishing and working from home flexibility is becoming more defined, the Group intends to review its office accommodation with a view to consolidating its principal office accommodation rom the beginning of 2023. 120 ANNUAL REPORT 25. Trade and other pay- ables and contract liabilities At 31 December 2021 $’000 2020 $’000 At 31 December Due within one year Trade payables Other payables 2021 $’000 152 451 2020 $’000 810 283 Due after one year Contract liabilities at 1 January Contract liabilities recognised in the period Transfers to short-term liabilities Total trade and other payables 603 1,093 _______ _______ Contract liabilities at 31 December 207 152 274 20 (81) (87) _______ _______ 278 207 2021 $’000 2020 $’000 Trade payables include amounts due in respect of sales commissions due to sales agents which is payable in less than one year. Other payables com- prise principally amounts due in respect of staff bo- nuses declared for December and paid in January. The average credit period taken for normal trade purchases is between 30 and 60 days. Most suppli- ers 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 payables are paid within the appropriate credit time frame. The Directors consider that the carrying amount of trade payables approximates to their fair value. Contract liabilities Contract liabilities represent consideration received in respect of unsatisfied performance obligations. Changes to the Group’s contract liabilities are at- tributable solely to the satisfaction of performance obligations. At 31 December Due within one year Contract liabilities at 1 January 495 665 Contract liabilities recognised/ (released to revenue) in the period Transfers from long-term liabilities Contract liabilities at 31 December (107) (257) 81 87 _______ _______ 469 495 26. Provisions At 31 December Due within one year Employee gratuities Leave encashment 2021 $’000 141 61 2020 $’000 116 57 _______ _______ 202 173 ANNUAL REPORT 121 At 31 December 2021 2020 27. Share capital and reserves $’000 $’000 Share capital and share premium Due after one year Employee gratuities Leave encashment Other provisions (including tax) 7 30 35 13 24 126 _______ _______ 72 163 Other provisions comprise tax and other expenses. Under the Indian Payment of Gratuity Act 1972, em- ployees with more than 5 years’ service are eligible for the payment of a “gratuity” upon certain end of employment events, including retirement, resig- nation, death and termination or redundancy. The calculation of the gratuity due is based on the last drawn salary and number of years of service. The potential liability arising from these requirements is calculated by third party actuaries based on em- ployee profiles, their completed number of years in the organization, their age, salary and also on the probability of termination of employment, and a pro- vision made accordingly. Under the terms of their employment, employees are eligible to carry forward 30 “earned leaves” (EL) to the next calendar year. Any EL balance over and above this is paid in cash by March the following year, hence resulting in a long-term provision. Ordinary shares of 2.5p each (issued and fully paid) $’000 Number At 1 January 2020 1,065 32,532,431 Issued for cash during the year 147 4,500,000 _______ _______ At 31 December 2020 1,212 37,032,431 Issued for cash during the year 289 8,375,000 At 31 December 2021 1,501 45,407,431 _______ _______ On 2 and 5 July the Company issued a further 8,375,000 2.5 pence Ordinary shares at a price of 40.0 pence per share by way of a placing to institutional and other investors. The Company in- curred incremental costs totalling $333,000 in re- spect 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 Placing were deemed to relate directly to the is- sue of new shares and thus resulted in a debit to share premium of $333,000. 122 Merger reserve ANNUAL REPORT • Credit risk is the financial loss to the Group if a customer or counterparty to financial instru- The acquisition by Pelatro Plc of Pelatro LLC on 7 ments fails to meet a contractual obligation. September 2017 was accounted for as a reverse Credit risk arises from the Group’s cash and asset acquisition. Consequently, the previously rec- cash equivalents and receivables balances. ognised book values and assets and liabilities were • Cash is held predominantly with ICICI, an in- retained and the consolidated financial information stitution with a Baa3 credit rating on its senior for the period from the date of acquisition has been unsecured medium term notes from Moody’s presented as a continuation of the Pelatro busi- and a BBB- rating from Standard & Poors, ness which was previously wholly owned by Pela- and Kotak Mahindra Bank, which has an A-3 tro LLC. The difference between the nominal value (short term) and BBB- (long term) credit rating of the shares issued pursuant to the above share from Standard & Poors. The credit quality of arrangement and the nominal value of the Pelatro customers is assessed by considering their LLC capital at the time of the acquisition was trans- financial position, experience and other fac- ferred to the merger reserve, together with certain tors, and the Group minimises credit risk by other items relating to investments in subsidiaries. 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 main- taining sufficient cash and/or committed bor- rowing facilities. The Directors monitor roll- ing forecasts of liquidity and cash and cash equivalents based on expected cash flows The capital structure of the Group consists of debt, which includes borrowings as disclosed in note 23 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the Group statement of changes in equity, as follows: 28. Financial instruments Financial risk management The Group’s principal financial instruments are cash and deposits, trade receivables, contract as- sets, borrowings and trade payables. The Group therefore has exposure to certain risks from its use of financial instruments unrelated to the perfor- mance of the Group itself. The Group’s overall risk management programme seeks to minimise poten- tial adverse effects on the Group’s financial perfor- mance 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 explained below. • Market risk is the risk of loss that may arise from changes in market factors such as interest rates and foreign currency movements ANNUAL REPORT 123 At 31 December 2021 2020 Classification of financial instruments: $’000 $’000 Financial assets Borrowings 744 1,440 Equity attributable to equity holders of the parent 19,816 16,408 _______ _______ Financial assets at amortised cost Cash Deposits 20,560 17,848 Trade receivables The Group is not subject to any externally im- posed capital requirements 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 condi- tions and with a view to maximising the return to shareholders through optimisation of the balance Contract assets Financial liabilities at amortised cost Other payables and accruals Trade payables Short-term borrowings Long-term borrowings Lease liabilities Group 2021 $’000 Group 2020 $’000 3,331 1,805 77 4,956 1,161 451 152 136 608 268 80 3,484 1,360 283 810 244 1,196 346 of debt and equity. Financing decisions are made All trade receivables are due from customers out- based on forecasts of the expected timing and side the UK. level of capital and operating expenditure required to meet commitments and development plans. Foreign currency risk management and sensi- There was no change in the Group’s approach to tivity analysis capital management during the financial period under review. The Group undertakes certain transactions de- nominated in foreign currencies. Hence, expo- sures to exchange rate fluctuations arise. The Group is mainly exposed 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. Foreign currency risk is monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level. The following table shows the denomination of the year end cash, cash equivalents and borrowings, and trade receivables and payables balances in the principal currencies disclosed above: 124 ANNUAL REPORT As at 31 December 2021 Cash and cash equivalents Deposits Trade receivables Contract assets Borrowings Trade payables Lease liabilities Net currency exposure As at 31 December 2020 Cash and cash equivalents Deposits Trade receivables Contract assets Borrowings Trade payables Lease liabilities Net currency exposure USD ’000 406 - 4,331 939 - (121) - _______ 5,555 USD ’000 580 - 3,271 1,360 - (780) - _______ 4,431 GBP ’000 1,875 - - - - (19) - _______ 1,856 GBP ’000 556 - - - - (18) (1) _______ 537 INR ’000 27,282 5,430 52,641 - (53,477) (7,823) (17,961) _______ 6,092 INR ’000 33,060 5,845 20,857 - (105,146) (2,550) (25,191) _______ (73,125) Had the foreign exchange rate between the US dollar and the other Group currencies changed by 5%, this would have affected the profit for the year and the net assets of the Group by $154,000 (2020: $10,000). Limitations of sensitivity analysis The sensitivity analysis above demonstrates the effect of a change in one of the key assumptions while other assumptions remain unchanged. In reality, such an occurrence is very unlikely due to correlation between the factors. Furthermore, these sensitivities are non-linear, and larger or smaller impacts cannot easily be derived from the results. The sensitivity analysis does not take into consideration that the Group’s assets and liabilities are actively managed and may vary at the time that any actual market movement occurs. Interest rate risk management and sensitivity analysis 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 as all of its borrowings were fixed rate. ANNUAL REPORT 125 Liquidity risk management and interest risk tables Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and borrowing facilities and by continuously monitoring forecast and actual cash flows. 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 earli- est date on which the Group can be required to pay. The table includes both interest and principal cash flows. As at 31 December 2021 Weighted average effective interest rate Less than 1 year 2-5 years More than 5 years Total Carrying value $’000 $’000 $’000 $’000 Fixed rate instruments - borrowings Lease liabilities Trade and other payables 15.0% 7.1% - 231 201 603 819 87 - - - - 1,050 288 603 744 268 603 _______ _______ _______ _______ _______ Total 1,035 906 - 1,941 1,615 As at 31 December 2020 Weighted average effective interest rate Less than 1 year 2-5 years More than 5 years Total Carrying value $’000 $’000 $’000 $’000 Fixed rate instruments - borrowings Lease liabilities Trade and other payables 13.2% 392 1,399 179 9.2% - 195 1,093 188 - - - 1,970 383 1,093 1,440 346 1,093 _______ _______ _______ _______ _______ Total 1,680 1,587 179 3,446 2,879 Fair values of financial assets and financial liabilities As at 31 December 2021 and 31 December 2020 there were no material differences between the book value and fair value of the Group’s financial assets and liabilities. 126 ANNUAL REPORT 29. Related party transactions Amounts outstanding at the end of the year in re- spect of transactions with related parties were as follows: advisory services to that company. During the year payments of approximately $17,000 were made to those two companies; there was a bal- ance of approximately $5,000 outstanding at the year end in relation to 2021 expenses. Amount outstanding – (debtor)/ creditor Key management personnel - outstanding reimbursements in respect of expenses incurred on behalf of Group companies 2021 2020 Other than disclosed in this note or elsewhere in $’000 $’000 2 - this financial information as appropriate, no relat- ed party transactions have taken place during the year that have materially affected the financial po- sition or performance of the Group. 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 30. Capital commitments and contingent liabilities categories specified in IAS 24 Related Party Dis- Other than as disclosed above, as at 31 Decem- closures. Wages and salaries Bonuses Share-based payments Pension cost and other benefits in kind ber 2021 the Group had no material capital com- mitments (2020: nil) nor any contingent liabilities (2020: nil). 31. Events after the reporting There have been no events subsequent to the re- porting date which would have a material impact on the financial statements. 2021 $’000 596 135 1 50 2020 $’000 581 28 5 61 _______ _______ 782 675 Suresh Yezhuvath (the brother of Subash Menon and Sudeesh Yezhuvath), due to his participation in a loan to the Group taken out in 2020, received interest of approximately $138,000 on normal com- mercial terms. To comply with local legislation regarding resident directors, Hamish Christie is a director of Pelatro Pte 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 ANNUAL REPORT 127 Company Statement of Financial Position As at 31 December 2021 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 Contract liabilities Current liabilities Lease liabilities Contract liabilities Trade and other payables Total Liabilities NET ASSETS Note 7 8 9 10 9 10 2021 $’000 (audited) 371 4,744 - 606 121 _______ 5,842 548 6,241 2,778 2020 $’000 (audited) 825 5,742 1 746 149 _______ 7,463 552 4,042 1,206 _______ _______ 9,567 15,409 5,800 13,263 11 278 207 _______ _______ 278 - 462 145 11 13 207 1 486 820 _______ _______ 607 885 14,524 1,307 1,514 11,749 128 ANNUAL REPORT Issued share capital and reserves attributable to owners of the parent Share capital Share premium Other reserves Retained earnings TOTAL EQUITY 13 13 13 1,501 18,046 (96) (4,927) _______ 14,524 1,212 14,045 (186) (3,322) _______ 11,749 *For the period ended 31 December 2021, the Company recorded a loss of $1,606,000 (2020: loss $2,923,000). The financial statements of Pelatro Plc, registered number 10630166, were approved by the board of Direc- tors and authorised for issue on 20 May 2022. They were signed on its behalf by: Subash Menon Director Nic Hellyer Director The accompanying notes 1 to 16 are an integral part of these financial statements. ANNUAL REPORT 129 Company Statement of Changes in Equity For the year ended 31 December 2021 Share capital Share premium Exchange reserve Retained profits Total equity Share- based payments reserve $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 January 2020 1,065 11,603 (314) 100 (399) 12,055 Profit/(loss) 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 147 - 2,620 (178) - - (55) - - - 83 - - - (2,923) (2,923) - - - - 83 (55) 2,767 (178) Balance at 31 December 2020 1,212 14,045 (369) 183 (3,322) 11,749 _______ _______ _______ _______ _______ _______ Profit/(loss) after taxation for the year 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 - - - - - - - - 289 - 4,334 (333) - - - 50 - - - 41 (1) - - - (1,606) (1,606) - 1 - - - 41 - 50 4,623 (333) _______ _______ _______ _______ _______ _______ Balance at 31 December 2021 1,501 18,046 (319) 223 (4,927) 14,524 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 16 are an integral part of these financial statements. 130 ANNUAL REPORT Notes to the Company financial statements For the year ended 31 December 2021 1. Accounting policies Basis of preparation • the effect of future accounting standards not yet adopted; • the disclosure of the remuneration of key management personnel; and • disclosure of related party transactions with other wholly-owned members of the Pelatro Group. In addition, and in accordance with FRS 101, fur- ther disclosure exemptions have been adopted The Parent Company financial statements of Pela- because equivalent disclosures are included in tro Plc (the “Company”) have been prepared in ac- the consolidated financial statements. These fi- cordance with Financial Reporting Standard 101 nancial statements do not include certain disclo- Reduced Disclosure Framework and as required by sures in respect of: the Companies Act 2006. The financial statements have been prepared in US Dollars, which is the currency of the primary eco- • • business combinations; financial instruments (other than certain dis- closures required as a result of recording fi- nomic environment in which the Company operates nancial instruments at fair value); (its functional currency). The financial statements • fair value measurement (other than certain are prepared under the historical cost convention disclosures required as a result of recording and were approved for issue on 20 May 2022. financial instruments at fair value); and No profit and loss account is presented by the Com- pany as permitted by section 408 of the Companies Investments in subsidiaries • impairment of assets. Act 2006. Disclosure exemptions adopted Investments consist of the Company’s subsidiary undertakings. Investments are initially recorded at cost, being the fair value of the consideration giv- In preparing these financial statements the Com- en and including directly attributable charges as- pany has taken advantage of all disclosure exemp- sociated with the investment. Subsequently they tions conferred by FRS 101. Therefore, these finan- are reviewed for impairment if events or changes cial statements do not include: in circumstances indicate the carrying value may not be recoverable. • certain disclosures regarding the Company’s capital; • a statement of cash flows; ANNUAL REPORT Trade receivables 131 • deferred income tax assets are recognised only to the extent that it is probable that tax- Short term trade receivables are measured at trans- able profit will be available against which the action price, less any impairment. The Company deductible temporary differences, carried for- assesses at each reporting date whether any trade ward tax credits or tax losses can be utilised. receivables or other assets or group of financial as- sets is impaired. Taxation Income taxes Deferred income tax assets and liabilities are measured at the tax rates that are expected to ap- ply 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. Current tax assets and liabilities are measured at the amount expected to be recovered from or paid The carrying amount of deferred income tax as- to taxation authorities, based on tax rates and laws sets is reviewed at each statement of financial that are enacted or substantively enacted by the position date. Deferred income tax assets and lia- statement of financial position date. bilities are offset only if a legally enforceable right exists to set off current tax assets against current Deferred income tax is recognised on all temporary tax liabilities, the deferred income taxes relate to differences arising between the tax bases of assets the same taxation authority and that authority per- and liabilities and their carrying amounts in the fi- mits the Group to make a single net payment. nancial statements, with the following exceptions: • where the temporary difference arises from the prehensive income or directly to equity if it relates initial recognition of goodwill or of an asset or to items that are credited or charged to other com- liability in a transaction that is not a business prehensive income or directly to equity. Otherwise, combination that at the time of the transaction income tax is recognised in the income statement. Income tax is charged or credited to other com- affects neither accounting nor taxable profit or loss; Foreign currencies • in respect of taxable temporary differences as- sociated within investments in subsidiaries, as- Transactions denominated in foreign currencies sociates and joint ventures, where the timing of are translated at an approximation of the ex- the reversal of the temporary differences can be change rate ruling on the date of the transaction. controlled and it is probable that the temporary Assets and liabilities denominated in foreign cur- differences will not reverse in the foreseeable rencies are translated at the exchange rate ruling future; and on the balance sheet date. Resulting exchange gains and losses are taken to the profit and loss account. 132 ANNUAL REPORT Related party transactions 4. Directors’ remuneration The Company has taken advantage of the exemp- Information concerning Directors’ remuneration tion under FRS 101 from disclosing related party can be found in note 10 to the Group financial transactions with entities that are wholly owned statements. subsidiary undertakings of the Pelatro Group. 2. Critical accounting judgements and key sources of estimation un- certainty Key sources of estimation uncertainty The key assumptions 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 as- sets and liabilities within the next financial year, are as follows: Investments in subsidiary companies The carrying cost of the Company’s investments in subsidiary companies is reviewed at each reporting date by reference to the income that is projected to 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 share-based payment expense increases the value of the parent compa- ny’s investment in the subsidiaries and is credited to retained earnings. 6. Dividends paid and proposed No dividends were declared or paid during the year and no dividends will be proposed for ap- proval at the Annual General Meeting of the Com- pany. arise therefrom. From a review of these projections, 7. Investment in subsidiaries the Directors have made no provisions against their carrying values as the Directors believe that the in- vestments concerned will generate sufficient eco- At 1 January 2020 nomic benefits to justify their carrying values. 3. Auditor’s remuneration The figures within the auditors’ remuneration note in the Pelatro consolidated financial statements in- clude fees charged by the Company’s auditors to Pelatro plc in respect of audit and non-audit ser- vices. As such, no separate disclosure has been given above. Investment in the period – share-based payments in respect of subsidiaries At 31 December 2020 Investment in the period – share-based payments in respect of subsidiaries Impairment provision At 31 December 2021 $’000 746 79 _______ 825 36 (490) _______ 371 ANNUAL REPORT 133 During the year the Directors considered the carrying value of the Group’s investment in Pelatro LLC (“LLC”). This amount arose as part of the group reconstruction in September 2017 and not as a result of direct in- vestment by Pelatro Plc in the subsidiary; however, given the levels of trading activity in LLC, the Directors considered it appropriate to reduce the carrying value to its net asset value. 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 2021 Acquired software Customer relationships Goodwill $’000 $’000 $’000 Cost At 1 January 2021 Additions 1,250 - 6,862 - 43 - Total $’000 8,155 - At 31 December 2021 1,250 6,862 43 8,155 _______ _______ _______ _______ Amortisation or impairment At 1 January 2021 Charge for the year At 31 December 2021 Net carrying amount At 31 December 2021 At 31 December 2020 (755) (312) _______ (1,067) 183 495 (1,658) (686) _______ (2,344) 4,518 5,204 - - (2,413) (998) _______ _______ - (3,411) 43 43 4,744 5,742 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 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 the Company, thus leading to the recognition of an amount of goodwill. 134 ANNUAL REPORT 9. 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 2021 2020 $’000 $’000 746 467 195 430 Transfer to current contract assets (335) (151) At 31 December 606 746 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 2021 2020 $’000 $’000 552 224 (339) 177 Transfer from non-current contract assets 335 151 At 31 December 548 552 Contract assets are comprised as follows: past historical default rates. In the absence of any historic credit losses and the expectation of no specific losses in the foreseeable future, the Directors assess a hypothetical likely default amount by applying a percentage “probability of default” to the receivables balance, such proba- bility being related to the underlying credit rating of the customer or country of origin. Furthermore, taking into account the time value of money when applied to contracts assets (which may unwind over a period of years following their initial recog- nition), a loss allowance for expected credit losses has been recorded as follows: Loss allowance at 1 January Increase in loss allowance 2021 2020 $’000 $’000 37 52 29 8 _______ _______ Loss allowance at 31 December 89 37 The loss allowance is comprised as follows: Contract assets relating to revenue Contract fulfilment assets 2021 2020 $’000 $’000 On trade receivables 595 559 706 592 _______ _______ 1,154 1,298 On contract assets Loss allowance at 31 December 2021 $’000 75 14 2020 $’000 30 7 _______ _______ 89 37 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 asso- ciated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions as opposed to relying on ANNUAL REPORT 10. Trade and other receivables At 31 December 135 2021 $’000 2020 $’000 Due within a year Trade receivables 2021 $’000 2020 $’000 Due within one year Contract liabilities at 1 January 486 637 Contract liabilities recognised/(released to revenue) in the period (105) (238) 3,997 2,915 Transfers from long-term liabilities 81 87 Other receivables and prepayments 162 96 _______ Intra-Group receivables 2,082 1,031 Contract liabilities at 31 December 462 486 Total trade and other receivables 6,241 4,042 12. Trade and other payables _______ _______ Due after more than one year Trade receivables 121 149 The Directors considered the carrying value of the intra-Group receivables at the reporting date and concluded that no impairment was required. Due within a year Trade payables Other payables 2021 $’000 2020 $’000 133 12 446 14 _______ _______ Total trade and other payables 145 460 11. Contract liabilities Contract liabilities represent consideration received in respect of unsatisfied performance obligations. Changes to the Group’s contract liabilities are at- tributable solely to the satisfaction of performance obligations. At 31 December Due after one year Contract liabilities at 1 January Contract liabilities recognised in the period 2021 2020 $’000 $’000 207 152 274 20 Transfers to short-term liabilities (81) (87) Contract liabilities at 31 December 278 207 136 ANNUAL REPORT 13. Share capital and reserves after two years and 50% after three years. There are no conditions attaching to the vesting of the Share capital and share premium options other than continued employment. An ex- Ordinary shares of 2.5p each (issued and fully paid) $’000 Number Consolidated Financial Statements relates to costs pense of $32,000 (2020: $27,000) recorded in the At 1 January 2020 1,065 32,532,431 Issued for cash during the year 147 4,500,000 _______ _______ At 31 December 2020 1,212 37,032,431 of share options issued to subsidiary employees. Movements in the number of share options out- standing and their related weighted average exer- Issued for cash during the year 289 8,375,000 cise prices are as follows: _______ _______ At 31 December 2021 1,501 45,407,431 On 2 and 5 July the Company issued a further 8,375,000 2.5 pence Ordinary shares at a price of 40.0 pence per share by way of a placing to institutional and other investors. The Company in- curred incremental costs totalling $333,000 in re- spect 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 Placing were deemed to relate directly to the is- sue of new shares and thus resulted in a debit to share premium of $333,000. Share-based payments As further detailed in Note 11 to the Consolidated Financial Statements, the Company has granted No. of options Weighted average exercise price 2021 2020 2021 2020 1,505,500 1,631,500 72.7p 72.7p - - - - (149,000) (126,000) 73.0p 73.0p Outstanding at the beginning of the year Granted during the year Forfeited/ cancelled during the year _______ _______ Outstanding at the end of the year 1,356,500 1,505,500 72.7p 72.7p 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 calcu- lations: Grant date Exercise price Share price at grant date Risk free rate Volatility Expected life 17 January 2019 73p 73p 0.86 - 0.92% 35% 4.5 - 5.5 years 19.0 - 20.8p under the terms of a share option plan for employ- Fair Value ees options with an exercise price of 73p, vesting in tranches as follows: 25% after one year, 25% ANNUAL REPORT 137 The expected life used in the model has been ad- justed, based on management’s best estimate, for the effects of non-transferability, exercise restric- tions and behavioural considerations. The share price per share at 31 December 2021 was £0.298 (31 December 2020: £0.380) and hence no deferred tax is provided in respect of the potential exercise of options currently extant. tax is provided in respect of the potential exercise of options currently extant. 14. Capital commitments and con- tingent liabilities Other than as disclosed in the Group financial state- ments, as at 31 December 2021 the Group had no material capital commitments nor any contingent li- abilities (2020: $nil) 15. Events after the reporting date There have been no significant events which have occurred subsequent to the reporting date. 16. Related parties The Company is exempt from disclosing transac- tions within the wholly owned subsidiaries in the Group. Other related party transactions are includ- ed within those disclosed in the Group consolidated financial statements. WWW.PELATRO.COM
Continue reading text version or see original annual report in PDF format above