Todd River Resources Limited
Annual Report 2018

Plain-text annual report

Transense Technologies plc Annual report and financial statements Registered number 01885075 For the year ended 30 June 2018 1 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Contents Directors and advisers Highlights Chairman’s statement Chief Executive’s report Strategic Report Corporate Governance Statement Remuneration report Directors’ report Statement of directors’ responsibilities in respect of the Strategic Report, Directors’ Report and the Financial Statements Independent auditor’s report to the members of Transense Technologies plc Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Company Balance Sheet Statement of Changes in Equity Consolidated and Company Cash Flow Statement Notes to the financial statements 3 4 5 8 10 15 21 24 27 28 36 37 38 39 40 41 2 Directors and advisers Directors D M Ford (Chairman) G Storey (Chief Executive) M Segal (Finance Director) R J Westhead (1, 2, 3) N F Rogers (Deputy Chairman) (1, 2, 3) 1 Non-executive 2 Member of the Audit and Risk Committee 3 Member of the Remuneration Committee Secretary and Registered Office M Segal 1 Landscape Close Weston Business Park Weston on the Green Oxfordshire OX25 3SX Auditor Grant Thornton UK LLP The Colmore Building Colmore Circus Birmingham B4 6AT Bankers HSBC Bank plc 1 Sheep Street Bicester Oxon OX26 7JA Nominated Advisers & Brokers FinnCap 60 New Broad Street London EC2M 1JJ Registrars Neville Registrars Neville House Laurel Lane Halesowen B63 3DA Registration Number 01885075 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 3 Highlights Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018  Revenues increased marginally to £2.05m (2017: £2.00m)  Translogik revenues increased by 60% to £1.90m (2017: £1.19m)  Gross margin increased to 62.9% of revenues (2017: 56.8%)  Administrative expenses reduced by 3% to £3.21m (2017:£3.32m)  Administrative expenses (excluding depreciation and amortisation) reduced by 11% to £2.65m (2017: £2.96m)  Pre-tax loss from continuing operations reduced to £1.91m (2017: £2.16m)  Successful equity fund raise of £0.92m (net of costs) in June 2018  Significant increase in recurring iTrack II revenue on subscription model; improving visibility  Significant increase in probe sales from adoption by multiple outlets  Continuing applications development for SAWSense showing positive results 4 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Chairman’s statement The Group has made steady progress over the last year in both of its core businesses. Revenue generated by Translogik increased by 60% compared with the prior year, with iTrack II producing an increased proportion of revenue from subscription services which are expected to recur in future years. It should be noted that in previous reports we have referred to revenues derived from iTrack II as rental income however as the revenue from the customer is substantially derived from providing a service we now more accurately refer to this income as a subscription service. Increased traction in the commercialisation of probes and iTrack II have resulted in gaining increased market share. We are confident that further opportunities will arise in the current financial year to build on this traction through new routes to market and partnerships. Whilst SAWSense has seen a reduction in current revenues, the level of activity and live projects continues to increase. Financial results and condition Revenues grew marginally by 2% to £2.05m (2017: £2.00m). Gross margins improved to 62.9% from 56.8%, and administrative expenses reduced by 3% to £3.21m (2017: £3.32m). Administrative expenses excluding depreciation and amortisation reduced by 11% to £2.65m (2017: £2.96m). Whilst the Company has produced a pre-tax loss from continuing operations for the year, excluding share based payments, of £1.87m this does reflect a 16% improvement on the previous year’s pre-tax loss of £2.16m. The total loss attributable to shareholders was £1.89m (2017: £2.17m) resulting in a net loss per ordinary share of 19.68 pence (2017: 22.84 pence). The Board do not recommend payment of a dividend (2017: Nil). Net cash used in operations amounted to £1.11m (2017: £0.87m). With overheads under close control and starting FY19 at a reduced cost base, and an increasing proportion of revenues on a recurring subscription service model, the net cash requirement to fund ongoing operations continues to fall. In June 2018, additional equity of £0.92m (net of associated costs) was raised in a placing with existing shareholders. Net cash balances at 30 June 2018 were £1.59m (2017: £2.52m). Strategy The Group provides innovative sensor systems for various complex applications and operates two principal businesses, SAWSense and Translogik. The Group intends to continue to commercialise sensor technologies by working closely with global businesses and where appropriate entering into partnership arrangements in order to build a profitable business that generates value for shareholders through both capital appreciation and, in due course, distributions to shareholders. SAWSense designs and develops Surface Acoustic Wave (or “SAW”) sensor devices that can be used to measure torque, pressure and/or temperature in harsh, restricted or demanding environments to very high accuracy. This world leading technology has a broad range of potential uses ranging from premium value custom applications through to high volume mass markets. Translogik designs and markets a range of Tyre Pressure Monitoring Systems (“TPMS”) and tools to facilitate tyre management. These products and services are for heavy duty off road vehicles (particularly mine-haul trucks), commercial trucks, buses as well as passenger cars. These comprise the iTrack system, which provides real-time tyre temperature and pressure measurements for mine-haul trucks in service, and a range of tyre probes and other offerings for the road transport sector. 5 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Chairman’s statement (continued) The Translogik product offerings are continually evolving with the focus on providing a comprehensive data service to clients in the mining and truck industry. The data captured by our latest product offering, iTrack II, provides an invaluable insight into the location, condition and performance of haul trucks in live operation. This provides mine operators with multiple opportunities to deliver substantial cost savings and productivity gains. Our markets SAWSense in global industries Sensor technology is widely used in virtually every industrial application across a broad range of industries, contributing to many billions of dollars in revenue. Sensors using SAW technology are powered by radio frequency, are wireless, and do not require batteries. This means that the sensor has significant benefits as the package can be extremely small and light and is suited to harsh environments or remote locations and does not require regular maintenance. Being wireless enables the sensor to be used on rotating components, other moving parts, or environments where electrical wiring would not be feasible. These benefits are particularly appropriate in drives, motors, gearboxes, valves and couplings, which are in common use in the industrial equipment, energy generation, oil & gas, aviation, military and automotive sectors. As Original Equipment Manufacturers (OEMs) seek ever more data on a real-time basis to optimise the performance of their products, accurate and frequent measurement becomes increasingly important. The world’s largest and most successful companies in these fields are recognising SAW as one of the enabling technologies in developing the “Internet of Things” in this arena, contributing to a vision by which machines are networked with embedded sensors to optimise performance using real time analytical tools, algorithms and interactive controls. TPMS in Mining The original iTrack system was developed to provide tyre pressure and temperature monitoring data to mine haul-truck operators, primarily to reduce or eliminate the incidence of tyre failure. The associated benefits in tyre life management were evident and were initially viewed as a means of payback for the improved safety performance achieved. Over recent years the collection of pressure and temperature data has become increasingly sophisticated, and our systems for measuring, monitoring and reporting tyre conditions are seen by key customers as a management tool to optimise asset utilisation and productivity, whilst continuing to make a key contribution to mine safety. iTrack II, which was launched at MINExpo in September 2016, collects live tyre performance data from sensors, and transmits this instantly to an optional in-cab display and web based applications readable in real time by the Translogik Global Control Centre as well as the individual mine operators in their own operational control rooms. This valuable data can be utilised to minimise truck down time, extend tyre life, and improve safety. Crucially, it can also be used to increase mine productivity by identifying opportunities to optimise routings, loadings, and even road architecture. 6 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Chairman’s statement (continued) The Board remains of the opinion that our system is the most technologically advanced mining truck TPMS technology available, offering specific benefits in cost savings and operating efficiency that are not delivered by competitors in the market to the same degree. We continue to provide iTrack II primarily as a subscription service model, which enables users to recognise the monthly cost in operating overheads, alongside the substantial savings in tyre operating costs and the productivity gains that are evident when in use. We are also continually developing additional features and capabilities, such as the provision of accelerometer data and improved connectivity, in order to maintain our technology leadership over potential competitors. Tyre tread depth probes Our tyre tread depth probes offer a fast and reliable way for mining and on-road truck service providers, as well as passenger car tyre fitters, to record and automatically transmit tread depth data by Bluetooth. Our product range has been manufactured for over 15 years, during which time it has earned a reputation in the market place as a rugged and reliable solution. Coupled with software developed in-house, we also offer a Passenger Car Audit System (“PCAS”), which captures tread depth data and provides a clear visual display of tyre conditions to the end customer to aid decision making. Our range is uniquely compatible with the product management systems of a number of the world’s leading tyre producers, including Bridgestone, Continental, Goodyear and Michelin. Equity fund raise In June 2018, shareholders approved a proposal that the Company issue an additional 2,500,000 shares at a price of 40 pence each to existing institutional investors to support marketing, product development and working capital requirements of the Group. The net proceeds of the placing amounted to £0.92m net of associated costs and were included in the net cash balances at the year end. Prospects The Board continues to believe that the technology and products developed by the Group along with the services provided in the mining sector ensure that the Group is extremely well positioned in all key areas of the businesses and as a result the current level of optimism for future prospects is at a high level. David M Ford Group Chairman 8 October 2018 7 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Chief Executive’s report The Group has made solid progress this year with increased traction for both iTrack II and probes with growing commercial revenues from both products and services that are well placed to offer unique solutions over a sustained period of competitive advantage in the future. SAWSense SAWSense is a leader in the development of Surface Acoustic Wave ("SAW") wireless, battery-less, sensor systems that offer significant advantages over legacy systems in common use. The business is actively involved in several projects in conjunction with major global industrial companies. In the short to medium term, the primary source of ongoing revenue is dependent upon the level of customer chargeable engineering activity and licensing fees, both of which reduced in the current year as a consequence of the more advanced stage of development of key projects. Recharged engineering costs were £0.15m in 2018, compared with £0.29m in 2017, licensing fees were £0.00m in 2018, compared to £0.58m in 2017. In the prior year, SAWSense entered into a significant licensing agreement with GE for the use of our patented, wireless, passive SAW technology in a specific torque application. The Group received a non- refundable license fee of £0.58m following successful technical validation. In the current year, a manufacturing partner has been selected and significant technical progress has been made. Commercialisation cannot be considered certain, but the likelihood is increasing through time. GE will pay to Transense a perpetual sales royalty in respect of unit sales upon commercialisation, although this is not likely to arise for several years. We are currently in discussions with GE on three further industrial projects. We also have two current projects in the automotive sector which are progressing and we continue to provide instrumented torque shafts for US Motor Sport through our Joint Development Agreement with McLaren. In addition to our on- board marine torque prop shaft trial, which continues, we have also, shortly after the year end, received funding in conjunction with one UK university from a charity connected to a major financial institution, with the aim of developing a SAW based solution focussed on improving health and safety in the maritime transportation of fluids. Translogik iTrack II Commercialisation of iTrack II has seen steady progress throughout the year, with the system live on a substantial number of trucks at the year end and covering eight mines in three continents. This generated a threefold increase in monthly subscription service income since the start of the financial year. At the end of the year there were active prospects with realistic expectations of success at a further ten sites. Much of the existing business is with world leading mine owners such as Glencore and BHP; companies which operate many thousands of trucks across hundreds of sites world-wide, and recognise the benefits of data provided by our system. We continue to believe that our product range demonstrates substantial superiority in capabilities and reliability to those of our rivals. The strength of our product offering and the iTrack brand reputation has resulted in Translogik moving from “opportunities to work more closely with selected partners” as stated in the interim report to the current state of play whereby we are holding discussions on collaborative arrangements with major global companies in this sector. 8 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Chief Executive’s report (continued) We are firmly of the view that progressing opportunities to work closely with one or more major partners could substantially accelerate market penetration, in turn producing increased recurring revenues. Probe Translogik revenues derived for the sale of our range of tyre tread depth probes increased by 83% to £0.84m (2017: £0.46m). Goodyear USA, which alone operates 2,300+ Truck and Bus tyre service centres, launched their new tyre management system in March 2018 called 'Tire Optix' which incorporates the Translogik tyre probe. We have subsequently seen a significant increase in Goodyear orders and this is a trend we expect to continue as adoption of their system expands within the USA and worldwide. In addition to this, we are seeing further rollout of Bridgestone’s corresponding ‘Toolbox’ and ‘Total Tyre Care’ systems as well as Continental’s ‘Fleetfox’ system, all of which adopt the Translogik probe. Current trading and outlook Trading in the first two months of the current year has seen an increase in revenues and a reduction in pre-tax losses compared to the first two months of the year ended 30 June 2018 (FY18) and the cash burn in the first two months of the financial year 2019 (FY19) has run at the monthly rate of £0.11m which is half the rate of the first two months in FY18. The ongoing success of ITrack II and the results of recent trials is anticipated to produce further adoption of the system in H1 of the financial year 2019. The potential collaboration with major global companies in the mining sector could lead to an acceleration in the growth rate of mines adopting iTrack II. The interest in the different versions of the probe with the major tyre suppliers has grown considerably during the year and the prospects in FY 19 remain positive as the majors continue to integrate the probe into their tyre management systems. The engagement with GE has moved from the non-recurring engineering stage through to licensing and, in the medium term, we look towards the final project stage, being the receipt of royalties Graham Storey Chief Executive 8 October 2018 9 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Strategic Report Financial Review Results for the year Revenues from continuing activities totalled £2.05m (2017: £2.00m). The pre-tax loss (before discontinued operations) totalled £1.91m (2017: £2.16m). Translogik revenues grew by 60% to £1.90m, and SAWSense generated £0.15m of revenues (2017: £0.81m which included the GE license fee of £0.58m). Gross margins improved to 62.9% (2017: 56.8% reflecting the change from selling iTrack to providing it on a subscription basis. The depreciation on capitalised iTrack kit, included in administrative expenses, increased to £0.16m (2017: £0.07m) Administrative expenses for the year, before depreciation, amortisation and interest, amounted to £2.65m compared with £2.96m in the prior year. The increase in Translogik revenues reflects the good growth in the new iTrack subscription services following the launch of iTrack II in September 2016 and an 80% increase in Probe sales during the period. During the previous year overheads rose as a result of a bad debt, additional professional fees and the launch of iTrack II in the current year we experienced a reduction in administrative overheads both pre and post depreciation and amortisation. The Earnings per share (EPS) are set out below (in Pence): EPS (including discontinued operations) EPS (excluding discontinued operations) Taxation 2018 2017 (19.68) (19.68) (22.84) (22.78) The Company has UK tax losses available to carry forward at 30 June 2018 of approximately £19.8m, subject to HMRC agreement. Certain elements of development expenditure undertaken by the Company are eligible for enhanced research and development tax relief which generally relates to salary costs of technical staff. The accounting treatment adopted is to recognise the R & D tax credits on a cash basis due to the uncertain nature of the claim. Subject to HMRC approval, the expected tax credit to be received in June 2019 in relation to 2017 and 2018 is approximately £0.27m. . Cash flow and financial position There was a net cash outflow of £0.93m (2017: £1.13m) during the year, arising from trading and £0.92m of proceeds arising from the issue of equity share capital in June 2018. Net cash used in operations amounted to £1.11m (2017: £0.88m). At 30 June 2018 the Group had net cash balances of £1.59m (2017: £2.52m). The forward looking cash flow forecasts based on the anticipated level of activity indicates that the Group should have sufficient funds available for the short to medium term. The Board are however aware that the effect of increased demand for iTrack services will put pressure on working capital due to the timeline between investment and recoupment. 10 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Strategic Report (continued) Going Concern The financial statements have been prepared on the going concern basis. The Group has made a loss for the year of £1.89m (2017: loss of £2.17m). The Group has Accumulated Losses of £1.89m (2017: Accumulated Losses of £0.01m following the Share Capital reorganisation). The balance of cash and cash equivalents at 30 June 2018 is £1.59m (2017: Cash and cash equivalents £2.52m). The Group meets its day to day working capital requirements through existing cash reserves and does not currently have an overdraft facility. The directors have prepared cash flow forecasts for the period to 30 September 2019. These forecasts indicate that the Group should continue to be able to operate within its current cash resources for the foreseeable future. Capital Structure The Company Share Capital reduction and reorganisation was completed during the previous year. A more detailed review of the financial year is provided in the Chairman’s statement and the Chief Executive’s report. Key Performance Indicators The following KPI’s are some of the tools used by management to monitor the performance of the operating business. In addition to the KPI’s the statement of financial position and cash flow analysis are reviewed at monthly Board meetings. KPI's (Excluding Discontinued Operations) Turnover EBITDA EBT FY 18 £000's FY 17 £000's £2,050 £2,003 (£1,360) (£1,829) (£1,914) (£2,157) EPS (Including Discontinued Operations) - Pence EPS (Ex Discontinued Operations) - Pence (19.68) (19.68) (22.84) (22.78) Share Price - Pence Cash Cash/Share - Pence Net Assets Net Assets/Share - Pence Market Capitalisation 36.50 77.50 £1,592 £2,520 13.21 26.44 £3,876 £4,804 32.17 50.40 £4,398 £7,388 Shares in issue (adjusted for 50:1 reduction) 12,048,948 9,532,435 11 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Strategic Report (continued) Principal risks and uncertainties Risk management is essential as part of the management process. Regular reviews are undertaken to assess the nature and magnitude of risks faced and the manner in which they may be mitigated. Where controls are in place, their adequacy is monitored. Risk and Uncertainty Intellectual Property Product Development Details of Risk & Impact Mitigation The SAWSense business is focused on the design and manufacture of technologically advanced products and applications. Major investment is made in Development and we have 40 granted patents and significant in house know how. The risk exists that our intellectual property may be infringed by third parties or that we may inadvertently infringe third loss of party rights. The profitability and cash flow and loss of market share. impact resulting in requires constant Developing new product and improving existing products of investments and potential returns which can be uncertain. Changing customer requirements and technological innovation will always present a challenge to developing market leading product. assessment Procedures are in place to ensure we monitor new third ensure applications, party adequate protection for our key intellectual property including registration and avoid infringing third party rights. We litigate any IP breaches. Development spend is regularly planned and reviewed. The of Groups customer and greatly expectations enhanced by working closely with customers on extensive product trials. understanding needs is People An experienced and knowledgeable team is essential for to continually develop complex products customers to be used in demanding environments. The market for skilled staff is extremely competitive and a failure to recruit and retain suitably qualified staff could impact the Groups ability to develop and deliver services and product. key Providing the existing team with good training and incentives is a key priority for the business and has been instrumental in retaining The recruitment and development of new employees, when is done so by required, experienced staff to ensure the correct calibre of individual is identified. staff. 12 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Strategic Report (continued) Principal risks and uncertainties (continued) Risk and Uncertainty Details of Risk & Impact Mitigation EU Membership In June 2016 the UK electorate voted to discontinue its membership of the EU. The Directors await clarification of the terms of the exit (referred to as Brexit) to assess the impact, if any, on the Group As is evident in the Segmental review on page 48 only 15% of the group’s income arise from UK & Europe and a far lesser percentage of supplied goods & services are from Europe. The Directors will take any action necessary to mitigate the effect of Brexit but consider that at this point in time the exposure is minimal. Global Companies the time initial discussions Many of the customers and competitors of Transense are major international companies .The impact on Transense dealing with customers of this size is that invariably to from receiving a PO can be far longer than the usual business transaction cycle between SME's. On the competition side the Company can be disadvantaged by not having the financial strength of far larger entities which can enable those organisations to achieve a foothold in those markets by using techniques such as loss leaders. Liquidity Transense is continually striving to achieve the point of consistent profitability and cash generation however until that point in time is reached the Group will be exposed to squeezes in liquidity. The new iTrack II continues to incur development costs as the system evolves. Future increases in rate of system installations may cause the business to require additional working capital funding and/or alter payment terms with end user customers and/or channel partners. Failure to secure such changes may constrain the ability of the Company to achieve its growth potential. far industries The Company regularly monitors cash flow to ensure that we are sufficiently funded to endure the long lead times between initial discussions and PO's with Global businesses. With regards the competition the size of smaller Transense ensures we are able to adapt to move swiftly technology customer to requirements and we have in place a very specialised team of technicians to ensure that in the in which we operate our products are best in class. There will also be opportunities to partner global companies to mitigate the cash flow effects of long lead times. During the course of FY 18 the have resources cash decreased by £0.93m . The cash resources were however bolstered by a raise producing £0.92m net of costs. Cash remain resources relatively strong moving into FY19. The Board also exert tight controls on overheads and monitor cash flow regularly and do not presently foresee any immediate for funds unless raising to required funds iTrack kit manufacture new following a in demand. further are large upturn requirement fund 13 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Strategic Report (continued) Principal risks and uncertainties (continued) Risk and Uncertainty Details of Risk & Impact Mitigation Foreign currency fluctuation Approximately 35% of purchases and sales are transacted in foreign currency, principally USD and to a smaller extent Euro's and Chilean Peso. Significant fluctuations could have an impact on results. 1.4% Transense's biggest exposure is with regards the USD and during the course of the last year the USD has decreased by against GBP producing insignificant Forex adjustments. Since the year end the GBP has only marginally weakened further by 0.3%, however should the movement become material the Group will consider forward purchases as an effective hedge. By order of the board Melvyn Segal Finance Director 8 October 2018 14 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Corporate Governance Statement The group aims to operate to high standards of moral and ethical behaviour. All members of the board fully support the value and importance of good corporate governance and in our accountability to all of the company’s stakeholders, including shareholders, employees, customers, distributors, suppliers, regulators and the wider community. The corporate governance framework set out, including board leadership and effectiveness, remuneration and internal control, is based upon practices which the board believes are proportionate to the risks inherent to the size and complexity of group operations. The board considers it appropriate to adopt the principles of the Quoted Companies Alliance Corporate Governance Code (“the QCA Code”) published in April 2018. The extent of compliance with the ten principles that comprise the QCA Code, together with an explanation of any areas of non-compliance, and any steps taken or intended to move towards full compliance, are set out below: Principle Extent of current compliance Commentary Further disclosure(s) Establish a strategy and business model which promote long term value for shareholders. Seek to understand and meet shareholder needs and expectations Fully compliant Group business strategy is set out in the Chairman’s statement above. Strategic issues, and the appropriate business model to exploit opportunities and mitigate risks, are under continuous review by the board, and reported periodically. Fully compliant Regular meetings are held with shareholders at the release of interim and final results, the AGM and a number of additional ad hoc meetings, any structured feedback given at these meetings is considered by the Board and acted on as appropriate. Go to www.transense.co.uk and follow About Us then Our Business Activities Strategic Report section of the Annual Report Go to www.transense.co.uk and follow Shareholder Presentations Reflect wider stakeholder and social responsibilities and their implications for long term success Fully compliant Directors and employees adopt a broad view during decision making to take meaningful account of the impact of our business on all key stakeholder groups. Go to www.transense.co.uk and follow Company then Company Profile. 15 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Corporate Governance Statement (continued) Principle Extent of current compliance Commentary Further disclosure(s) Principal Risks and Uncertainties section of Annual Report Board section of Annual Report. Embed effective risk management, considering both opportunities and threats, throughout the organisation Maintain the board as a well-functioning, balanced team led by the chair Fully compliant The group operates a system of internal controls designed (to the extent considered appropriate) to safeguard group assets and protect the business from identified risks, including risk to reputation. Financial risks, including adequacy of funding and exposure to foreign currencies, are identified and subject to examination during the annual external audit process. Fully compliant The board comprises five directors; two non-executive directors and three executive directors. The two non- executive directors are considered to be fully independent (Nigel Rogers and Rodney Westhead). The board is supported by appropriate board committees which are each chaired by one of the independent non- executive directors. An annual record of attendance at board meetings is included in the Annual Report at the conclusion of each year. Board section of Annual Report. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities Fully compliant The board is satisfied that the current composition provides the required degree of skills, experience, diversity and capabilities appropriate to the needs of the business. Steps are taken to challenge the status quo and encourage proper consideration of any dissenting opinion. Board composition and succession planning are subject to continuous review taking account of the potential future needs of the business. 16 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Corporate Governance Statement (continued) Extent of current compliance Partially compliant Principle Evaluate board performance based on clear and relevant objectives, seeking continuous improvement Commentary Further disclosure(s) N/A Board evaluation has not been carried out as part of a formal process, although the Chairman has actively encouraged self-evaluation by all board members, and feedback on the conduct and content of board meetings. The board will consider whether a more structured approach is required in future. Promote a corporate culture that is based on ethical values and behaviours Maintain governance structures and processes that are fit for purpose and support good decision- making by the board Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders Fully compliant The board promotes high N/A ethical and moral standards. The board and all employees expect to be judged by, and accountable for, their actions and compliance with the Company handbook. Employees are encouraged to attend training courses and maintain CPD. Fully compliant The board as a whole share responsibility for sound governance practices. The roles and responsibilities of each of the directors (including committee memberships) are clearly set out in their job descriptions and any particular responsibilities communicated and understood. Fully compliant Regular meetings with shareholders and other key representative groups provide a specific opportunity for raising any concerns related to corporate governance, including any significant votes cast against or abstaining from shareholder resolutions. A record of meetings held to engage with shareholders will be included in each Annual Report. Go to www.transense.co.uk and follow Company and Director’s profiles. Board section of Annual Report. Board section of Annual Report. 17 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Corporate Governance Statement (continued) Below is a brief description of the role of the Board and its committees, including a statement regarding the Company’s system of internal financial control. The Board of Directors The following is a list of the full names, positions and ages of the current members of the Board: The business address of each Director is 1 Landscape Close, Weston-on-the-Green, Bicester, OX25 3SX. David Ford (Chairman) Age 62 David is a qualified lawyer who specialised in IP law. In 1990 he became Tarlo Lyons’ first Managing Partner and in 1998 he led the management buyout of the consumer debt recovery department of his old firm, Tessera Group, where he was the non-executive chairman until it was acquired by Arrow Group in December 2014. Graham Storey (Group Chief Executive Officer) Age 61 Previously CEO of The Moyses Stevens Group, following a management buyout. Through a combination of organic growth and acquisitions, the group grew to become the biggest commercial and retail florist in the UK. Graham carried out a successful sale of the business in 2004 to a venture capital fund and, prior to joining Transense was involved in investing in several businesses one of which was Transense Technologies plc. Melvyn Segal (Finance Director) Age 63 Melvyn is a chartered accountant and during his career of 22 years as a senior partner of mid-sized accountancy firm Arram Berlyn Gardner he specialised in business advice, audit and taxation and was involved in the successful sale of the firm’s financial services arm. On leaving the profession Melvyn has been active as company finance director and Non-Executive director of successful SME’s Nigel Rogers (Deputy Chairman and Non-Executive Director *) Age 57 Nigel qualified as a Chartered Accountant in 1983, spending eight years with PwC before moving into industry. He has over twenty years’ experience as a director of listed businesses, including thirteen years as Group CEO of both AIM listed Stadium Group Plc (2001-2011) and 600 Group Plc (2012- 2015). Nigel serves on both the Audit and Remuneration committees. In addition to his responsibilities at Transense, he is also Executive Chairman of AIM listed Surgical Innovations Group Plc. Rodney Westhead (Non-Executive Director **) Age 74 Rodney qualified as a Chartered Accountant in 1967 spending time with PWC and Grant Thornton, the latter including a term as managing partner of the London office. His experience in Industry commenced in 1992 at Ricardo Group plc, a major automotive consulting engineering group with sales of £200 million a year, where he was finance director and subsequently CEO. After leaving Ricardo in 2005 he has had the following appointments, became Chairman of Carter and Carter plc, Chairman of Clean Air Power plc and a non-executive director of AEA Technology plc, Mouchel Plc and ACTA spa. Rodney was a member of council at Brunel University. * Member of Audit & Risk committee and chair of Remuneration committee ** Chair of Audit & Risk committee and member of Remuneration committee 18 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Corporate Governance Statement (continued) The main features of the Group’s corporate governance arrangements are: The Board intends to meet monthly for formal Board meetings. It will approve financial statements and significant changes in accounting practices and key commercial matters, such as decisions to be taken on whether to take forward or to cancel a material collaboration project or commercial agreement. There is a formal schedule of matters reserved for decision by the Board in place. Currently, the Board includes two Non-Executive Directors who are considered by the Directors to be independent for the purposes of the QCA Code, Nigel Rogers and Rodney Westhead. Nigel and Rodney joined the Board in July 2015 and April 2007 respectively, and prior to this neither had any association with the Company. As noted in the Strategic and Business Review of Activities on pages 12-14, the Board has in place a risk management policy and a risk management register for identifying, assessing and mitigating the Company’s principal risks and uncertainties. Internal Financial Control The Board is responsible for establishing and maintaining the Company’s system of internal financial controls. Internal financial control systems are designed to meet the particular needs of the Company and the risk to which it is exposed, and by its very nature can provide reasonable, but not absolute, assurance against material misstatement or loss. During the period, the Directors enhanced the Group’s finance function with a new hire, including the appointment of an Office Manager and Assistant Finance Manager who is responsible for the day to day management of the office and assisting on all finance aspects of the business. The Directors have reviewed the effectiveness of the procedures presently in place and consider that they are appropriate to the nature and scale of the operations of the Company. The Directors will continue to reassess internal financial controls as the Company expands further. Board Committees Audit Committee The Audit Committee’s principal functions include ensuring that the appropriate accounting systems and financial controls are in place, monitoring the integrity of the financial statements of the Company, reviewing the effectiveness of the Company’s accounting and internal control systems, reviewing reports from the Group’s auditors relating to the Company’s accounting and internal controls, and reviewing the interim and annual results and reports to Shareholders, in all cases having due regard to the interests of Shareholders. The Audit Committee meets at least two times a year, with regard to the reporting and audit cycle. Rodney Westhead has recent and relevant financial experience through his role as senior partner in a large firm of Chartered Accountants and CEO of other UK listed companies and acts as Chairman. Nigel Rogers the other member of the Audit Committee is a Fellow of the ICAEW and has several years experience of listed company financial reporting. Remuneration Committee The Remuneration Committee is responsible for determining and agreeing with the Board the framework for the remuneration packages for Directors. The Remuneration Committee considers all aspects of the Executive Directors’ remuneration, including pensions, bonus arrangements, benefits, incentive payments and share option awards, and the policy for, and scope of any termination payments. The remuneration of the Non-Executive Directors is a matter for the Board. The Remuneration Committee meets at least twice a year and at such other times as may be deemed necessary. No Director may be involved in discussions relating to their own remuneration. Nigel Rogers acts as Chairman of the Remuneration Committee and Rodney Westhead is the other member of the Remuneration Committee. 19 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Corporate Governance Statement (continued) Nomination Committee The Nomination Committee is responsible for reviewing the structure, size and composition of the Board based upon the skills, knowledge and experience required to ensure the Board operates effectively. The Nomination Committee is expected to meet when necessary to do so. The Nomination Committee also identifies and nominates suitable candidates to join the Board when vacancies arise and makes recommendations to the Board for the re-appointment of any Non-Executive Directors. The full Board make up the Nomination Committee. Directors Responsibilities The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union. 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 Group and Company and of the profit or loss of the Group and Company for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on AIM. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently;   make judgements and accounting estimates that are reasonable and prudent;  state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and  prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. 20 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Remuneration report Remuneration Policy The remuneration policy is to ensure that all staff, including the executive directors, are adequately motivated and rewarded in relation to companies of similar size and type. The director’s salaries paid compare adequately with the salaries of directors and senior executives in public companies in similar development situations. Although a bonus scheme was in place during the year no bonuses were awarded to the directors. The Remuneration Committee can also grant options over ordinary shares under its Enterprise Management Incentive Option Schemes (EMI) and options granted outside Company schemes, but approved by shareholders. These schemes potentially offer long term incentives to directors and key personnel. In addition to the vote to be held on this Remuneration Report, shareholders will be given the opportunity to question the Remuneration Committee Chairman, Nigel Rogers, on any aspect of the Company’s remuneration policy. The Board as a whole, set the remuneration of the non-executive directors, which consists of fees for their services in connection with Board and Board Committee meetings. The non-executive directors are not eligible for pension scheme membership, but they are eligible to participate in the Company’s Unapproved Directors Share Option Scheme (UDSOS). Each element of remuneration paid to all directors is shown in detail below. Base Salary and Benefits The base salaries for the executive directors are reviewed annually, but not necessarily increased, by the Remuneration Committee. Salary increases based on performance may be made. Executive Share Option Schemes The Committee considers that potential for share ownership and participation in the growing value of the Group increases the commitment and loyalty of directors and senior executives. Directors’ Pension Policy Executive directors are entitled to participate in the Company’s pension scheme on the same basis as other full time employees, but during the year ended 30 June 2018 they did not choose to. (2017: £3,000) Service Contracts The service contracts provide for the following notice periods: 12 months: Graham Storey, David Ford and Melvyn Segal. 3 months: Nigel Rogers No notice period: Rodney Westhead If the Company terminates without notice, the individual is entitled to a payment in lieu of notice being the value of the maximum notice period in his contract. In the event of termination for unsatisfactory performance (if necessary decided by an independent tribunal) or for reasons of misconduct, no compensation is payable. 21 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Remuneration report (continued) Directors’ Emoluments Information on directors’ emoluments is as follows: This table excludes the fair value of directors’ share based payment options as defined by International Financial Reporting Standard (IFRS) 2. Details of all options granted to directors are shown on the next page. Information on directors' emoluments is as follows: 12 months Total emoluments 12 months ended 30 June 2018 ended 30 June 2017 Benefits Pension £ £ £ £ Basic salary £ 158,400 7,232 83,250 4,030 109,050 4,566 30,800 12,900 - - - - - - - 165,632 164,528 87,280 101,583 113,616 112,960 30,800 12,900 30,400 12,750 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Executive directors G Storey M Segal D Ford Non-executive directors N Rogers R Westhead Total 2018 394,400 15,828 - 410,228 Total 2017 409,183 10,038 3,000 422,221 ============================================== ============================================== ============================================== ============================================== ============================================== ============================================== ============================================== ============================================== 22 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Remuneration report (continued) Share based payment options have been granted under EMI for executive directors. The details of these are set out below: The options can only be exercised once the share price has met or exceeded the hurdle price at any point since the date of grant of the option. Directors' interests in the EMI were: At 1 July 2017 At 30 June 2018 Earliest exercise date Exercise price per share Hurdle price per share G Storey G Storey D Ford D Ford M Segal M Segal 120,000 120,000 01/07/18 100,000 70,000 100,000 30,000 50,000 100,000 30/06/20 70,000 01/07/18 100,000 30/06/20 30,000 01/07/18 50,000 30/06/20 £0.75 £1.00 £0.75 £1.00 £0.75 £1.00 £1.50 £2.00 £1.50 £2.00 £1.50 £2.00 ============================================== ============================================== ============================================== ============================================== ============================================== Share price performance The share price performance is disclosed in the Directors’ Report on page 25. 23 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Directors’ report The directors present their annual report and audited financial statements for the year ended 30 June 2018. Business activities, review of the business and future developments Translogik, a trading division of Transense, was formed in April 2009 and the principal activities of this division includes the provision of tyre management solutions for the truck and OTR markets, by developing, manufacturing and selling of specialist Tyre probes and TPMS monitoring solutions and associated technologies. The Company continues the development of non-contact batteryless sensors and their electronic interrogation systems for measuring pressure, temperature and torque in automotive applications and extending that to various, non-automotive, industrial applications with regards the electronic interrogation. These activities continue to be carried out by our SAWSense division. A review of the Company’s business, and research and development activities for the year, together with developments since the year end and for the future, is included in the Chairman’s statements, Chief Executives report and Strategic report on pages 5 to 14. Results and Dividends The results for the year ended 30 June 2018 show a loss of £1.89m (30 June 2017: £2.17m). The directors do not recommend the payment of a dividend (30 June 2017: £nil). Directors The present directors are listed on page 3. There are no contracts of significance in which the directors had a material interest during the year. Substantial Shareholdings At 30 June 2018, the following substantial shareholdings of 3% or more of the Company’s share capital have been notified to the Company: CriSeren Investments John Peter Lobbenberg Ordinary shares of 50p each % 1,241,258 868,980 ============================================== 10.3 7.2 ============================================== 24 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Directors’ report (continued) Directors’ interests The number of shares in the Company in which the current directors were deemed to be interested at the beginning and end of the period, all of which are beneficially held, were as follows: G Storey R J Westhead D Ford M Segal N Rogers Share price Ordinary shares of 50p each 30 June 2018 Ordinary shares of 50p each 1 July 2017 78,687 5,655 5,555 22,888 80,000 78,687 5,655 5,555 22,888 60,000 ============================================== ============================================== The mid-price of the shares in the Company at 30 June 2018 was 36p (30 June 2017: 77.5p) and the range during the period was 34.5p to 80p (30 June 2017: 50p to 118.75p). As p art of t h e Ju n e 2 0 18 f un d r a is e th e O r d in ar y sh ar es wer e r e des ig na t ed as 1 0p O r d in ar y sh a r es a n d at th e sam e t im e n e w 4 0 p D ef err ed s ha res wer e a ls o iss u ed . T h is is r ef e r re d t o in more detail in note 23. Share based payment option schemes The Remuneration Committee is responsible for the operation and administration of the C om pa n y’s UDSOS and EMI Schemes. In an increasingly competitive market the Committee regards the provision of options as an important incentive for other members of staff as well as directors. Details of share based payment options granted to directors are disclosed in the Remuneration Report on page 23. Financial Instruments The directors adopt a low risk financial objective. The financial instruments are denominated in sterling, euros and US dollars and the Group does not trade in derivative instruments, (see note 26 to the financial statements). Indemnification of Directors Qualifying third party indemnity provisions (as defined in Section 413 of the Companies Act 2006) are in force for the benefit of the directors who held office during 2017/18. 25 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Directors’ report (continued) Auditors In accordance with Section 489 of the Companies Act 2006, a resolution to appoint Grant Thornton UK LLP as auditors of the Company is to be proposed at the forthcoming Annual General Meeting. By order of the board D M Ford G Storey Chairman Chief Executive 8 October 2018 1 Landscape Close Weston on the Green Oxon OX25 3SX 26 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Statement of directors’ responsibilities in respect of the Strategic Report, Directors’ Report and the Financial Statements The directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law the directors have to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The directors have elected to prepare the parent company financial statements on the same basis. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of their profit or loss of the group and parent company for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently;   make judgements and estimates that are reasonable and prudent;  state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures and explained in the Financial Statements;  prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for safeguarding the assets of the group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors confirm that:  So far as each director is aware, there is no relevant audit information of which the company’s auditor is unaware;  The directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the company’s auditor is aware of that information. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 27 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Grant Thornton UK LLP The Colmore Building Colmore Circus Birmingham B4 6AT United Kingdom Independent auditor’s report to the members of Transense Technologies plc Opinion Our opinion on the financial statements is unmodified We have audited the financial statements of Transense Technologies plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year ended 30 June 2018 which comprise the consolidated statement of comprehensive income, the consolidated and company balance sheets, the statement of changes in equity, the consolidated and company cash flow statements and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion:  the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 30 June 2018 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.    Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Who we are reporting to 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 28 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 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. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:  the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s or the parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.  Overview of our audit approach  Overall Group materiality: £61,500, which represents 3% of the Group’s revenue.  Key audit matters were identified as revenue recognition and intangible asset impairment for the Group and parent company.  We performed full scope audit procedures on UK based operations (Transense Technologies plc) and performed targeted procedures on its significant component Transense Technologies Chile Spa which is consistent with the approach taken in the previous year.  Key audit matters The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact and the extent of management judgement. High Low Low High 29 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How the matter was addressed in the audit Revenue recognition - Group and Parent Revenue is recognised to the extent that economic benefits will flow to the Group and the revenue can be reliably measured. The key revenue streams have been identified as the direct shipment of goods to customers, and the associated revenue recognised on delivery and the recognition of revenue under lease agreements. Revenue is a key driver of the business and is also a significant amount in the financial statements. We therefore identified revenue recognition (focussing on occurrence) as a significant risk, which was one of the most significant assessed risks of material misstatement. Impairment of intangible assets – Group and Parent Our audit work included, but was not restricted to:  Evaluating the Group’s accounting policies for recognition of revenue for appropriateness in accordance with the requirements of International Accounting Standard (IAS) 18 ‘Revenue’ and IAS 17 ‘Leases’.  Agreeing whether revenue has been recognised in accordance with these policies.  For revenue recognised on delivery to customers, agreeing, on a sample basis, amounts recognised in revenue in the financial statements to supporting documents including proof of shipment documents.  For revenue recognised under operating lease contracts, agreement of the total revenue recorded in the financial statements to signed lease agreements.  Agreeing, on a sample basis, amounts of revenue recorded in the last quarter of the financial year supporting documents including proof of shipment documents to ensure that revenue has been recorded in the correct period. The Group's accounting policy on revenue is shown in note 4 to the financial statements and related disclosures are included in note 5. Key Observations: Our testing did not identify any material misstatements in the revenue recognised during the year in accordance with stated 30 Key Audit Matter Intangibles assets relating to the development of a specific product is recognised to the extent that expenditure is directly attributable to product development and is expected to result in future economic benefits. The parent company has invested significant amounts in developing this product that is now available for sale. The potential impairment of this was deemed an area of key audit focus, as there is a risk that the intangible asset carrying value exceeds its recoverable amount. On the acquisition of the Translogik division in a previous year, goodwill was recognised by the parent company. The potential impairment of this was deemed an area of key audit focus, as there is a risk that the intangible asset carrying value exceeds its recoverable amount. We therefore identified impairment of intangible assets including goodwill as a significant risk, which was one of the most significant assessed risk of material misstatement. Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 How the matter was addressed in the audit accounting policies and. with IAS 18 and IAS 17. Our audit work included, but was not restricted to:  A review of management’s forecasts and subsequent impairment review calculations in relation to specific products and the division, including an assessment of the reasonableness of the significant assumptions used in these forecasts.  Sensitivity analysis on the projected future cashflows of the products and the division. The Group's accounting policy on intangible assets is shown in note 4 to the financial statements and related disclosures are included in note 14. Key Observations: Based on our audit work, we concur with management’s assessment that there is no impairment of goodwill or development cost assets. 31 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work. Materiality was determined as follows: Materiality Measure Financial statements as a whole Performance materiality used to drive the extent of our testing Communication of misstatements to the audit committee Group Parent £61,500 which is 3% of the Group’s revenue. This benchmark is considered the most appropriate due to the loss making nature of the group and because the Group deems revenue growth to be its key indicator when assessing the performance of the Group. Materiality for the current year is higher than the level that we determined for the year ended 30 June 2017 to reflect higher revenues in the year. 75% of financial statement materiality £42,000 which is 3% of the Company’s revenue. This benchmark is considered the most appropriate due to the loss making nature of the Company and because the Company deems revenue growth to be its key indicator when assessing the performance of the Company. Materiality for the current year is slightly lower than the level that we determined for the year ended 30 June 2017 to reflect lower revenues in the year for the parent company only. 75% of financial statement materiality £3,050 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £2,100 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements. Overall materiality - Group Overall materiality - parent 25% 75% Tolerance for potential uncorrected mistatements Performance materiality 25% 75% 32 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 An overview of the scope of our audit Our audit approach was a risk-based approach founded on a thorough understanding of the Group's business, its environment and risk profile. We performed full scope audit procedures on UK based operations (Transense Technologies plc). The Group has operations in Chile, Transense Technologies Chile Spa, and South Africa, Translogik South Africa Pty Ltd. The summary of our approach to the operations can be seen below. Operation Transense Technologies Plc Transense Technologies Chile Spa Translogik South Africa Ptd Ltd Percentage of group revenue 68% Percentage of group profit/(loss) (102%) Percentage of group assets 93.6% Audit approach Comprehensive 32% 1.9% 6.4% Targeted 0% 0.1% 0% Analytical We performed specified audit procedures on the material balances of Transense Technologies Chile Spa. Our current year audit approach on Transense Technologies Chile Spa is consistent with that of the prior year. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report set out on pages 3 to 23, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 33 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion, based on the work undertaken in the course of the audit:  the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.  Matters on which we are required to report under the Companies Act 2006 In the light of the knowledge and understanding of the Group and the parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:  adequate accounting records have not been kept by the parent Company, or returns adequate for our  audit have not been received from branches not visited by us; or the parent Company financial statements are not in agreement with the accounting records and returns; or  certain disclosures of Directors’ remuneration specified by law are not made; or  we have not received all the information and explanations we require for our audit. Responsibilities of Directors for the financial statements As explained more fully in the Directors’ responsibilities statement set out on page *****, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. 34 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Rebecca Eagle Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountant Birmingham 8 October 2018 35 Consolidated Statement of Comprehensive Income For the year ended 30 June 2018 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating loss Financial income Loss before taxation Taxation Loss from continuing operations Discontinued operations Loss from discontinued operation Loss for the year Basic and fully diluted loss per share (pence) Continuing operations Discontinued operations Total operations Loss for the year Other comprehensive income: Exchange difference on translating foreign operations Other comprehensive income for the year Total comprehensive income for the year attributable to the equity holders of the parent Year ended 30 June 2018 Year ended 30 June 2017 Note £'000 £'000 5 10 11 2,050 (761) 2,003 (865) ---------------------------------------------- ---------------------------------------------- 1,289 1,138 (3,208) (3,318) ---------------------------------------------- ---------------------------------------------- (1,919) 5 (2,180) 23 ---------------------------------------------- ---------------------------------------------- (1,914) 26 (2,157) (4) ---------------------------------------------- ---------------------------------------------- (1,888) (2,161) ---------------------------------------------- ---------------------------------------------- 6 - (5) ---------------------------------------------- ---------------------------------------------- (1,888) ============================================== (2,166) ============================================== (19.68) - 25 ---------------------------------------------- (19.68) (22.78) (0.06) ---------------------------------------------- (22.84) ============================================== ============================================== (1,888) (2,166) ---------------------------------------------- ---------------------------------------------- - 21 ---------------------------------------------- ---------------------------------------------- - 21 (1,888) ============================================== (2,145) ============================================== There are no other recognised income or expenses in either period. Notes to the financial statements are from pages 41 to 68. 36 Consolidated Balance Sheet at 30 June 2018 Non current assets Property, plant and equipment Intangible assets Trade lease receivables Current assets Inventories Corporation tax Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Current tax liabilities Provisions Total liabilities Net assets Equity Issued share capital Share premium Translation reserve Share based payments Accumulated loss Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Year ended 30 June Year ended 30 June Note 2018 £'000 2018 £'000 2017 £'000 2017 £'000 12 14 18 16 17 19 20 21 23 474 909 - 258 938 59 ---------------------------------------------- ---------------------------------------------- 1,383 1,255 685 - 698 1,592 985 - 702 2,520 ---------------------------------------------- ---------------------------------------------- 2,975 ---------------------------------------------- 4,358 4,207 ---------------------------------------------- 5,462 (316) (66) (100) (511) (47) (100) ---------------------------------------------- ---------------------------------------------- (482) ---------------------------------------------- 3,876 ============================================== 5,025 682 21 41 (1,893) ---------------------------------------------- 3,876 ============================================== (658) ---------------------------------------------- 4,804 ============================================== 4,766 22 21 - (5) ---------------------------------------------- 4,804 ============================================== These financial statements were approved by the board of directors and authorised for issue on 8 October 2018 and were signed on its behalf by: D M Ford Chairman G Storey Chief Executive Company registered number: 01885075 Notes to the financial statements are from pages 41 to 68. 37 Company Balance Sheet at 30 June 2018 Non current assets Property, plant and equipment Intangible assets Investments Trade lease receivables Current assets Inventories Corporation tax Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Current tax liabilities Provisions Total liabilities Net assets Equity Issued share capital Share premium Share based payments Accumulated (loss)/profit Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Year ended 30 June Year ended 30 June Note 2018 £'000 2018 £'000 2017 £'000 2017 £'000 13 14 15 18 16 17 19 20 21 23 444 909 61 - 229 938 56 59 ---------------------------------------------- ---------------------------------------------- 1,414 1,282 659 - 824 1,494 967 - 686 2,503 ---------------------------------------------- ---------------------------------------------- 2,977 ---------------------------------------------- 4,391 4,156 ---------------------------------------------- 5,438 (236) (42) (100) (481) (41) (100) ---------------------------------------------- ---------------------------------------------- (378) ---------------------------------------------- 4,013 ============================================== 5,025 682 41 (1,735) ---------------------------------------------- 4,013 ============================================== (622) ---------------------------------------------- 4,816 ============================================== 4,766 22 - 28 ---------------------------------------------- 4,816 ============================================== These financial statements were approved by the board of directors and authorised for issue on 8 October 2018 and were signed on its behalf by: D M Ford Chairman G Storey Chief Executive Company registered number: 01885075 Notes to the financial statements are from pages 41 to 68. 38 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Statement of Changes in Equity Group Share capital £'000 Share premium £'000 Translation Reserve £'000 Share based payments £'000 Cumulative losses £'000 Total equity £'000 Balance at 1 July 2016 11,546 17,218 Loss for the year Share reorganisation Costs of share reorganisation Shares issued and share premium Currency movement on subsidiary reserves - - (6,823) (17,218) - 43 - - 22 - - - - - - 21 - - - - - - (21,841) 6,923 (2,166) (2,166) 24,041 (39) - - - (39) 65 21 Balance at 30 June 2017 4,766 22 21 - (5) 4,804 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Loss for the year Share based payments - - - - Shares issued and share premium 259 660 - - - - 41 - (1,888) (1,888) - - 41 919 Balance at 30 June 2018 5,025 682 21 41 (1,893) 3,876 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ============================================== ============================================== ============================================== ============================================== ============================================== ============================================== Company Balance at 1 July 2016 Loss for the year Share reorganisation Costs of share reorganisation Shares issued and share premium Share capital £'000 Share premium £'000 Share based payments £'000 Cumulative losses £'000 11,546 17,218 - - (6,823) (17,218) - 43 - 22 - - - - - (22,062) (1,912) 24,041 (39) - Total equity £'000 6,702 (1,912) - (39) 65 Balance at 30 June 2017 4,766 22 - 28 4,816 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Loss for the year Share based payments Shares issued and share premium ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- - - 259 - - 660 - 41 - (1,763) (1,763) - - 41 919 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Balance at 30 June 2018 5,025 682 41 (1,735) 4,013 ============================================== ============================================== ============================================== ============================================== ============================================== Notes to the financial statements are from pages 41 to 68. 39 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Consolidated and Company Cash Flow Statement For the year ended 30 June 2018 Loss from operations Adjustments for: Financial income Depreciation Amortisation of intangible assets Share based payments Unrealised currency translation gain Cost of capital restructure Operating cash flows before movements in working capital (increase)//decrease in receivables (Decrease)/increase in payables Decrease)/(increase) in inventories Decrease in trade lease receivables Cash (used)/generated in operations Taxation (paid)/recovered Group Company Year ended 30 June 2018 Year ended 30 June 2017 Year ended 30 June 2018 Year ended 30 June 2017 Note £'000 £'000 (1,888) (2,166) £'000 (1,763) £'000 (1,912) 10 12,13 14 22 17 20 16 18 (5) 227 332 41 - - (23) 118 238 - 21 (39) (5) 222 332 41 - - (24) 115 238 - - (39) ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- (1,293) (1,851) (1,173) (1,622) (203) (169) 300 266 766 (57) (414) 598 (190) (376) 308 266 730 (222) (396) 598 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- (1,099) (7) (958) 81 (1,165) (28) (912) 69 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Net cash (used)/generated in operations (1,106) (877) (1,193) (843) ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Investing activities Interest received Acquisitions of property, plant and equipment Acquisitions of intangible assets Investments in associated companies 10 12,13 14 5 (443) (303) - 23 (63) (282) - 5 (437) (303) - 24 (49) (282) (53) ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Net cash used in investing activities (741) (322) (735) (360) ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Financing activities Proceeds from issue of equity share capital 23 919 65 919 65 Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and equivalents at the beginning of year ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- 919 65 919 65 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- (928) (1,134) (1,009) (1,138) 2,520 3,654 2,503 3,641 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Cash and equivalents at the end of year 19 1,592 2,520 1,494 2,503 ============================================== ============================================== ============================================== ============================================== 40 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements 1 General Information Transense Technologies plc (the “Company”) is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given on page 3. The consolidated financial statements of the Company as at and for the year ended 30 June 2018 comprise the Company and its subsidiaries (together referred to as “the Group” and individually as “Group entities”). The nature of the Group’s operations and its principal activities are discussed in the business review on page 24. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. 2 Basis of preparation Both the Parent Company financial statements and the Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”) and those parts of the Companies Act 2006 that are relevant to companies preparing accounts under IFRS. On publishing the Parent Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual statement of comprehensive income and related notes that form a part of these approved financial statements. 3 Going Concern At 30 June 2018 the group had net cash balances of £1,59m (2017: £2,52m). Whilst it is anticipated that the Company will continue to consume cash to finance on-going activities in the short term, the directors have prepared cash flow forecasts to September 2019 and consider that there are sufficient cash resources available to reach a break-even level of revenues, and accordingly are satisfied that the Group can continue trading as a going concern for the foreseeable future. 4 Accounting policies The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated financial statements. The following Adopted IFRSs have been issued but have not been applied in these financial statements. Their adoption is not expected to have a material effect on the financial statements unless otherwise indicated: Standard IASB effective date EU effective date IFRS 17 Insurance Contracts 1 January 2021 Not yet endorsed IFRS 16 Leases 1 January 2019 1 January 2019 IFRIC Interpretation 22 Foreign currency transactions and advance considerations (issued 8 December 2016) 1 January 2018 1January 2018 IFRS 15 Revenue from contracts with customers 1 January 2018 1 January 2018 IFRS 9 Financial Instruments 1 January 2018 1 January 2018 IFRS 14 Regulatory deferral accounts 1 January 2016 Deferred until final standard released IFRIC Interpretation 23 Uncertainty over Income Tax Treatments 1 January 2019 Not yet endorsed 41 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 4 Accounting policies (continued) Standard Annual Improvements to IFRS Standards 2015-2017 Cycle IASB effective date EU effective date 1 January 2019 Not yet endorsed Amendments to IAS 19: Plan amendment, Curtailment or Settlement 1 January 2019 Not yet endorsed IAS 40: Transfers of investment property 1 January 2018 1 January 2018 Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions 1 January 2018 1 January 2018 Amendments to IFRS 9: Prepayment features with negative compensation Amendments to IAS 28: Long-term Interests in Associates and Joint ventures Amendments to IFRS 4: Applying IFRS 9 financial instruments with IFRS 4 Insurance Contracts Amendments to References of the Conceptual Framework in IFRS Standards Annual improvements to IFRS 2014-2016 Cycle – Relating to IFRS 1 First time adoption of IFRS and IAS 28 Investment in associates and joint ventures Clarifications to IFRS 15 Revenue from Contracts with Customers 1 January 2019 1 January 2019 1 January 2019 Not yet endorsed 1 January 2018 1 January 2018 1 January 2020 Not yet endorsed 1 January 2018 1 January 2018 1 January 2018 1 January 2018 Other than in respect of IFRS 16, the Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the Financial Statements of the Group. With regards to IFRS 16, the group has commenced an assessment of the impact likely from adopting the standards, and the initial view is that this will not have any material impact on the Group’s reported results or financial position. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s Financial Statements. 42 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 4 Accounting policies (continued) Significant accounting judgements and sources of estimation uncertainty Certain estimates and judgements need to be made by the directors which affect the results and position of the Group as reported in the financial statements. Estimates and judgements are required if, for example, there are intangible assets which are required to be amortised over their useful lives. The following judgements and estimates have been identified by the Group:  Determining when intangible assets are impaired is a judgement which requires an estimate of the value in use of the asset based on management’s best estimate of the future cash flows that the assets are expected to generate. This also requires significant judgement as there are limited historic cash flows on which to base the future cash flows on. Discussions are held within the Group between the relevant technical, commercial and finance employees on the expected future cash flows of patents in individual territories;  Judgement is also applied when patent costs are reviewed in particular when considering patents in products and territories that are not integral to the future business plans.  Distinguishing the research and development phases of new products and determining whether the recognition requirements for the capitalisation of development costs are met and their subsequent amortisation period requires judgement. After capitalisation management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. iTrack II has required and continues to require a substantial amount of developments costs as the new iTrack is a significant improvement on the original iTrack model.  As the deferred shares have a dividend right they have been judged to be equity rather than debt.  A judgement has been made in regard to the share volatility when calculating the IFRS2 share based payments  charge It has been judged that the ongoing development cost of the iTrack II system is for iTrack II rather than the next iteration and as such the cost is being amortised to the same end date as the initial development cost that was capitalised. Measurement convention The financial statements are prepared on the historical cost basis. Non-current assets and disposal groups held for sale are stated at the lower of previous carrying amount and fair value less costs to sell. Basis of consolidation Subsidiaries The Group financial statements consolidate those of the parent company and all of its subsidiaries as of 30 June 2018. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, applicable. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. 43 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 4 Accounting policies (continued) Revenue recognition Revenue is recognised to the extent that economic benefits will flow to the Group and the revenue can be reliably measured: ● Royalty income is recognised in the year in which the royalties have been earned; ● Engineering support income, being payments for support work to assist third parties in the development of the Group’s technology for their own use, is recognised as work is completed; and ● Product sales to customers are recognised on customer acceptance of the goods. ● Revenue generated under finance lease agreements is recognised in full as the risks and rewards of the goods are transferred to the lessee. The interest element of the deal is spread over the life of the lease. ● Subscription service fees are recognised in the month that the service is provided to the end user. ● License revenue is recognised in accordance with the contractual agreement for each deal. Revenue represents sales to external customers at invoiced amounts net of VAT and other sales related taxes. Segment reporting The Group has two reportable segments being the unique trading divisions, SAWSense and Translogik, which make use of technology developed by the Group to measure and record temperature, pressure and torque. The business revenues include royalties, engineering support and sale of product in relation to this technology. Information regarding the Group’s segments is included in the primary statements and notes to the financial statements. Revenue and EBITDA are the Group’s key focus and in turn is the main performance measure adopted by management. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any provision for impairment. Depreciation of property, plant and equipment Depreciation is charged to the statement of comprehensive income on a straight line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: Plant and Equipment 3 – 5 years; and Fixtures and Fitting 3 – 10 years; and Motor Vehicles 4 years; and iTrack equipment 1 – 3 years The assets’ estimated residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. 44 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 4 Accounting policies (continued) Research and development Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred. Development costs incurred on specific projects are capitalised when all the following conditions are satisfied:  Completion of the intangible asset is technically feasible so that it will be available for use or sale  The Group intends to complete the intangible asset and use or sell it  The Group has the ability to use or sell the intangible asset  The intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output form the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits  There are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and  The expenditure attributable to the intangible asset during its development can be measure reliably. All new expenditure on research and development activities in the year has been capitalised. The amortisation of this expenditure will be charged to a fixed end date of 30 September 2019 to align with the products anticipated life. Historic expenditure on development activities has been capitalised and is being amortised over 10 years on a straight line basis. Patent fees Externally acquired patent fees are capitalised at cost and treated as an intangible asset. Amortisation is charged to administrative expenses in the statement of comprehensive income over the period to which the patent relates which is generally 15 to 20 years. In the event that a patent is superseded and the original intellectual property is embedded in a new patent, the costs of that patent and the later patents are regarded as the costs of the original patent and amortised over the life of the new patent. Patents are reviewed annually, reviewing their strategic and commercial value on a territory by territory basis. Any impairment that is identified is recognised immediately in the statement of comprehensive income. Intangible assets and goodwill All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries and is the difference between the consideration transferred and the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. 45 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 4 Accounting policies (continued) Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount of an asset is the greater of its net selling price and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the asset does not generate cash flows that are largely independent from other assets, the recoverable amount is assessed by reference to the cash generating unit to which the asset belongs. Whenever the carrying amount of an asset, or its cash generating unit, exceeds its recoverable amount, an impairment loss is recognised as an expense in the statement of comprehensive income. Investments in subsidiary undertakings In the company’s financial statements, investments in subsidiary undertakings are stated at cost unless, in the opinion of the directors, there has been an impairment to their value in which case they are immediately written down to their estimated recoverable amount. Pension costs Contributions to the Company’s defined contribution scheme are charged to the statement of comprehensive income in the year to which they relate. Operating lease agreements Subscription payments under operating leases are charged to the statement of comprehensive income on a straight line basis over the term of the lease. Current taxation The tax currently payable is based on taxable profit for the year. Taxable profit may differ from the net profit shown in the statement of comprehensive income because it excludes income or expenses that are taxable or deductible in other years and furthermore it might exclude other items that are never taxable or deductible. Current tax is provided at amounts expected to be paid or recovered using tax rates and laws enacted or substantially enacted at the balance sheet date. Deferred taxation Deferred tax is provided in full, using the liability method. It represents the tax payable on temporary differences between the carrying amounts of assets and liabilities in the financial statements as compared to corresponding tax values used in the computation of taxable profit. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets and liabilities are measured using tax rates and laws enacted or substantially enacted at the balance sheet date. 46 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 4 Accounting policies (continued) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purposes only of the statement of cash flows. Foreign currencies The assets and liabilities of foreign operations, including goodwill and fair value adjustments arise on consolidation, are translated to the Group’s presentational currency Sterling at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into Sterling upon consolidation. Where significant exchange differences arising from this translation of foreign operations these are reported as an item of other comprehensive income and accumulated in the translation reserve or non-controlling interest, as the case may be. Foreign currency transactions are translated into the functional currency of the respective group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency at year-end exchange rates are recognised in profit or loss. Share-based payment transactions The Company issues equity settled share based payments to certain employees. Equity settled share based payments are measured at fair value at the date of grant. The fair value so determined is expensed on a straight- line basis over the vesting period, based on the Company’s estimate of shares that will eventually vest. The amount recognized as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting. The fair value of services received in return for share options granted is measured by reference to the fair value of the share options. The estimate of the fair value of the services received is measured based on the Black-Scholes Option Pricing Model. This model considers the following variables: exercise price, share price at date of grant, expected term, expected share price volatility, risk free interest rate and expected dividend yield. Provisions Provisions are recognised when the Group has a present obligation as result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure. Provisions are discounted if the effect of doing so is material. A pre-tax rate that reflects risks specific to the liability is applied to the expected cash flows. Warranty provisions are made for specific product issues based on an estimate of the likely cost arising. It has been deemed prudent to provide for an amount based on historical information. Trade receivables Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses. Trade payables Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. 47 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 4 Accounting policies (continued) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. Leasing Leases are classified as finance leases whenever the terms of the contract transfers substantially all the risk and rewards of ownership to the lessee. All other contracts are classified as operating leases. In accordance with IAS 17 the Company is considered to be a lessor for its arrangements with customers. The Company provides asset finance to its customers under finance lease and hire purchase arrangements. Lease contracts with customers are recognised as finance lease receivables which are included within trade and other receivables at the Company’s net investment in the lease which equals the net present value of the future minimum lease payments. Finance lease income is recognised as revenue in the period to reflect a constant periodic rate of return on the Company’s remaining net investment in respect of the lease. 5 Revenue and segmental reporting The tables below set out the Group’s revenue split and operating segments. Revenue Chile North America United Kingdom & Europe Australia Japan Rest of the World Year ended 30 June 2018 £'000 Year ended 30 June 2017 £'000 660 322 362 400 160 146 ---------------------------------------------- 2,050 ============================================= 659 703 313 104 108 116 ---------------------------------------------- 2,003 ============================================= 48 Notes to the financial statements (continued) 5 Revenue and segmental reporting (continued) Segments Year ended 30 June 2018 Sales Gross profit Allocated overheads Contribution Group overheads Loss before taxation Taxation Loss for the year Year ended 30 June 2017 Sales Gross profit Allocated overheads Contribution Group overheads Loss from discontinued operations Loss before taxation Taxation Loss for the year Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Translogik £'000 SAWSense £'000 1,903 147 Total £'000 2,050 ===================== ===================== ==================== 1,173 (978) 116 (482) 1,289 (1,460) ----------------------------- ------------------------------ ----------------------------- 195 (366) (171) ----------------------------- ----------------------------- ----------------------------- (1,743) ------------------------------- (1,914) 26 ------------------------------- (1,888) ====================== Translogik £'000 SAWSense £'000 Total £'000 1,193 ============================================= 810 ============================================= 2,003 ============================================= 376 (1,304) ---------------------------------------------- 762 (482) ---------------------------------------------- 1,138 (1,786) ---------------------------------------------- (928) ---------------------------------------------- 280 ---------------------------------------------- (648) ---------------------------------------------- (1,509) (5) ---------------------------------------------- (2,162) (4) ---------------------------------------------- (2,166) ============================================= 49 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 5 Revenue and segmental reporting (continued) During the year ended 30 June 2018 there were 3 (year ended 30 June 2017: 3) customers whose turnover accounted for more than 10% of the Group’s total revenue as follows: Year ended 30 June 2018 Customer A Customer B Customer C Year ended 30 June 2017 Customer A Customer B Customer C Revenue £'000 Percentage of total 400 365 262 20% 18% 13% Revenue £000 Percentage of total 624 380 221 31% 19% 11% All non-current assets are held in the UK, with the exception of some property, plant and equipment, and a motor vehicle of £0.04m (year ended 30 June 2016: £0.04m) which is held in China and Chile. 6 Discontinued operation On 21 October 2015 the company disposed of the IntelliSAW division to Emerson Electrical Co. The division was classified as held for sale and as a discontinued operation in the June 2015 financial statements At the date of disposal, the carrying amounts of the divisions’ net assets were as follows Property plant and equipment Inventories Trade and other recoverable Trade and other payables Total net assets Cash consideration received Profit on disposal £'000 22 152 45 (33) ----------------------- 186 ----------------------- 218 ----------------------- 32 ----------------------- The profit on disposal is included in the loss for the year from discontinued operations in the consolidated statement of comprehensive income. The division was previously reported in the IntelliSAW segment 50 Notes to the financial statements (continued) 6 Discontinued operation (continued) The results of the IntelliSAW division until the date of disposal were as follows: Revenue Expenses Loss before tax Tax expense Loss for the year Profit before tax on disposal as above Related tax expense Net loss on disposal Loss for the year from discounted operations Cash flows from (used in) discontinued operations Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 2018 £’000 2017 £'000 - - - - - - - - - - (5) (5) - (5) - - - (5) 2018 £'000 Group 2017 £'000 2018 £'000 (Debt)/cash used in operating activities (Debt)/cash from discontinued operations - ---------------------------------------------- - ============================================= (5) ---------------------------------------------- (5) ============================================= - ---------------------------------------------- - ============================================= Company 2017 £'000 (5) ---------------------------------------------- (5) ============================================= 7 Expenses and auditor’s remuneration Included in the loss are the following: Depreciation of property, plant and equipment Amortisation of intangible assets Operating lease rentals payable – Land & Building Gain on foreign exchange transactions Auditors’ remuneration for the Group and Company: Audit of these financial statements Fees payable for tax compliance services Fees payable for tax research and development services Year ended 30 June 2018 £'000 Year ended 30 June 2017 £'000 227 332 63 - ============================================= 118 238 63 (66) ============================================= Year ended 30 June 2018 £'000 Year ended 30 June 2017 £'000 35 3 5 ============================================= 35 3 - ============================================= 51 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 8 Staff numbers and costs The average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows: Management and technical Administration Non-executive directors Number of employees Year ended 30 June 2018 Year ended 30 June 2017 18 9 2 ---------------------------------------------- 29 ============================================= 19 7 2 ---------------------------------------------- 28 ============================================= The aggregate payroll costs including directors of these persons were as follows: Wages and salaries Share based payments (note 22) Social security costs Contributions to defined contribution pension plans 9 Directors’ remuneration Directors’ emoluments Directors benefits Employers national insurance Share based payments (note 22) Year ended 30 June 2018 £'000 Year ended 30 June 2017 £'000 1,489 41 153 26 ---------------------------------------------- 1,709 ============================================= 1,439 - 151 27 ---------------------------------------------- 1,617 ============================================= Year ended 30 June 2018 £'000 Year ended 30 June 2017 £'000 394 16 ---------------------------------------------- 410 409 10 ---------------------------------------------- 419 49 22 ============================================= 51 - ============================================= The aggregate of emoluments and amounts receivable under long term incentive schemes of the highest paid director was £165,632 (2017: £164,528). No company pension contributions were made to a money purchase scheme on his behalf (2017: nil). During the year, the highest paid director did not receive any additional share options awards. The highest paid director did not exercise share options under long term incentive schemes and no shares were received or receivable by the director in respect of qualifying services under a long term incentive scheme (2016: nil). The number of directors accruing retirement benefits under money purchase schemes in the year was nil (2017: nil). The number of directors who exercised share options in the year was nil (2017: nil) The number of directors in respect of whose services were received or receivable under long term incentive schemes was nil (2017: nil). 52 Notes to the financial statements (continued) 10 Finance income and expense Recognised in profit or loss Finance income Total finance income 11 Taxation Recognised in the statement of comprehensive income Current tax expense Current year Adjustment for previous year Tax credit in statement of comprehensive income Reconciliation of effective tax rate Loss for the year Total tax credit Loss before tax Tax calculated at the average standard UK corporation tax rate of 19.00% (2017: 19.75%) Expenses not deductible for tax purposes Current year losses for which no deferred tax asset was recognised Adjustment for overseas profits Prior year adjustment Total tax (credit)/charge A deferred tax asset has not been recognised in respect of the following item: Tax Losses Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Year ended 30 June 2018 £'000 Year ended 30 June 2017 £'000 5 ---------------------------------------------- 5 ============================================= 23 ---------------------------------------------- 23 ============================================= Year ended 30 June 2018 £'000 Year ended 30 June 2017 £'000 - (26) ---------------------------------------------- (26) ============================================= 4 - ---------------------------------------------- 4 ============================================= Year ended 30 June 2018 Year ended 30 June 2017 £'000 (1,914) £'000 (2,157) - ------------------------------ (1,914) - ------------------------------- (2,157) ======================= ======================= (364) 3 357 4 (426) 48 378 4 (26) ------------------------------- - ------------------------------- (26) 4 ======================= ======================= 3,345 3,561 ======================= ======================= 53 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 11 Taxation (continued) Reductions in the UK corporation tax rate 20% to 19% (effective from 1 April 2017) has been enacted. This will reduce the Company's future current tax charge accordingly. Deferred tax has been calculated at the rate of 19% at the balance sheet date. The effect of this change is that the deferred tax asset as at 30 June 2017 has been calculated based on the rate of 19% substantively enacted at the balance sheet date. The Group has tax losses, subject to agreement by HM Revenue and Customs, in the sum of £19.7m (2017: £18.1m), which are available for offset against future profits of the same trade. There is no expiry date for tax losses. An appropriate asset will be recognised when the Group can demonstrate a reasonable expectation of sufficient taxable profits to utilise the temporary differences. The rate of Corporation Tax will reduce to 17% with effect from 1 April 2020. As a result, the effective tax rate used to calculate the current tax for the period ended 30 June 2018 was 19.00% (2017: 19.75%). 54 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 12 Property, plant and equipment – Group Cost Balance at 1 July 2016 Additions Reclassification Balance at 30 June 2017 Balance at 1 July 2017 Additions Disposals Balance at 30 June 2018 Depreciation and impairment Balance at 1 July 2016 Depreciation charge for the year Reclassification Balance at 30 June 2017 Balance at 1 July 2017 Depreciation charge for the year Disposals Balance at 30 June 2018 Net book value At 1 July 2016- At 1 July 2017 At 30 June 2018 iTrack Equipment £’000 Plant and Equipment £'000 Fixtures and Fittings £'000 Motor Vehicles £'000 - - 116 ---------------------------------------------- 116 ============================================= 116 423 (47) ---------------------------------------------- 492 ============================================= - - 72 ---------------------------------------------- 72 ============================================= 72 158 (47) ---------------------------------------------- 183 ============================================= - ============================================= 44 ============================================= 309 ============================================= 739 60 (116) ---------------------------------------------- 683 ============================================= 683 20 (193) ---------------------------------------------- 510 ============================================= 567 92 (72) ---------------------------------------------- 587 ============================================= 587 50 (193) ---------------------------------------------- 444 ============================================= 172 ============================================= 96 ============================================= 66 ============================================= 161 3 - ---------------------------------------------- 164 ============================================= 164 - (57) ---------------------------------------------- 107 ============================================= 39 21 - ---------------------------------------------- 60 ============================================= 60 17 (57) ---------------------------------------------- 20 ============================================= 122 ============================================= 104 ============================================= 87 ============================================= 26 - - ---------------------------------------------- 26 ============================================= 26 - - ---------------------------------------------- 26 ============================================= 7 5 - ---------------------------------------------- 12 ============================================= 12 2 - ---------------------------------------------- 14 ============================================= 19 ============================================= 14 ============================================= 12 ============================================= Total £'000 926 63 - ---------------------------------------------- 989 ============================================= 989 443 (297) ---------------------------------------------- 1,135 ============================================= 613 118 - ---------------------------------------------- 731 ============================================= 731 227 (297) ---------------------------------------------- 661 ============================================= 313 ============================================= 258 ============================================= 474 ============================================= Note: All depreciation is charged to administrative expenses 55 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 13 Property, plant and equipment – Company Cost Balance at 1 July 2016 Additions Reclassification Balance at 30 June 2017 Balance at 1 July 2017 Additions Disposals Balance at 30 June 2018 Depreciation and impairment Balance at 1 July 2016 Depreciation charge for the year Reclassification Balance at 30 June 2017 Balance at 1 July 2017 Depreciation charge for the year Disposals Balance at 30 June 2018 Net book value At 1 July 2016 At 1 July 2017 At 30 June 2018 iTrack Equipment £’000 Plant and equipment £'000 - - 116 ---------------------------------------------- 116 ============================================= 116 423 (47) ---------------------------------------------- 492 ============================================= - - 72 ---------------------------------------------- 72 ============================================= 72 158 (47) ---------------------------------------------- 183 ============================================= - ============================================= 44 ============================================= 309 ============================================= 739 49 (116) ---------------------------------------------- 672 ============================================= 672 14 (193) ---------------------------------------------- 493 ============================================= 567 92 (72) ---------------------------------------------- 587 ============================================= 587 47 (193) ---------------------------------------------- 441 ============================================= 172 ============================================= 85 ============================================= 52 ============================================= Fixtures and fittings £'000 159 - - ---------------------------------------------- 159 ============================================= 159 - (57) ---------------------------------------------- 102 ============================================= 39 21 - ---------------------------------------------- 60 ============================================= 60 16 (57) ---------------------------------------------- 19 ============================================= 120 ============================================= 99 ============================================= 83 ============================================= Motor vehicles £'000 10 - - ---------------------------------------------- 10 ============================================= 10 - - ---------------------------------------------- 10 ============================================= 7 2 - ---------------------------------------------- 9 ============================================= 9 1 - ---------------------------------------------- 10 ============================================= 3 ============================================= 1 ============================================= - ============================================= Total £'000 908 49 - ---------------------------------------------- 957 ============================================= 957 437 (297) ---------------------------------------------- 1,097 ============================================= 613 115 - ---------------------------------------------- 728 ============================================= 728 222 (297) ---------------------------------------------- 653 ============================================= 295 ============================================= 229 ============================================= 444 ============================================= Note: All depreciation is charged to administrative expenses 56 Notes to the financial statements (continued) 14 Intangible assets Group and company intangible assets Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Cost Balance at 1 July 2016 Additions Balance at 30 June 2017 Balance at 1 July 2017 Additions Balance at 30 June 2018 Amortisation and impairment Balance at 1 July 2016 Amortisation for the year Balance at 30 June 2017 Balance at 1 July 2017 Amortisation for the year Balance at 30 June 2018 Net book value At 1 July 2016 At 1 July 2017 At 30 June 2018 Goodwill £'000 50 - ---------------------------------------------- 50 ============================================= 50 - ---------------------------------------------- 50 ============================================= - - ---------------------------------------------- - ============================================= - - ---------------------------------------------- - ============================================= 50 ============================================= 50 ============================================= 50 ============================================= Patents rights and trademarks £'000 Development costs £'000 1,577 70 ---------------------------------------------- 1,647 ============================================= 1,647 108 ---------------------------------------------- 1,755 ============================================= 1,053 70 ---------------------------------------------- 1,123 ============================================= 1,123 82 ---------------------------------------------- 1,205 ============================================= 524 ============================================= 524 ============================================= 550 ============================================= 1,255 212 ---------------------------------------------- 1,467 ============================================= 1,467 195 ---------------------------------------------- 1,662 ============================================= 935 168 ---------------------------------------------- 1,103 ============================================= 1,103 250 ---------------------------------------------- 1,353 ============================================= 320 ============================================= 364 ============================================= 309 ============================================= Total £'000 2,882 282 ---------------------------------------------- 3,164 ============================================= 3,164 303 ---------------------------------------------- 3,467 ============================================= 1,988 238 ---------------------------------------------- 2,226 ============================================= 2,226 332 ---------------------------------------------- 2,558 ============================================= 894 ============================================= 938 ============================================= 909 ============================================= Amortisation and impairment charge The amortisation is recognised in the following line items in the statement of comprehensive income: Administrative expenses Development Costs 2018 £'000 2017 £'000 332 ---------------------------------------------- 332 ============================================= 238 ---------------------------------------------- 238 ============================================= Development expenditure of the new iTrack II was capitalised in the year amounting to £0.20m (2017: £0.21m). These development costs have been deemed to have a fixed useful economic life ending in September 2019. There were Research and Development costs expensed to the Statement of Comprehensive Income in the year of £0.05m (2017: £nil). 57 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 14 Intangible assets (continued) Impairment testing Impairment testing has been performed over the total balance of intangible assets which are allocated to the cash generating units of the Group, that of the development and sales of SAWSense and Translogik. The recoverable amount of goodwill is determined from operating cashflow projections for 12 months to June 2019 which are currently contracted to support goodwill. 15 Investments in subsidiaries The Group and Company have the following investments in subsidiaries: Status Country of Incorporation Class of shares held Translogik RFID Limited Dormant UK Lanesra Inc (Formerly IntelliSAW Inc.) Dormant USA Translogik Ltd (Formerly Cranwick Ltd) Dormant UK Transense K.K. Dormant Japan Transense Technologies Chile SPA Trading Chile Transense Electronics Technology (Shanghai) Co. Ltd Dormant China Translogik South Africa Pty Ltd Trading South Africa Ordinary Shares Ordinary Shares Ordinary Shares Ordinary Shares Ordinary Shares Ordinary Shares Ordinary Shares The following investments are included in the Company balance sheet at 2018 and 2017 Ownership 2018 2017 100% 100% 100% 100% 100% 100% 100% 100% 100% N/A 100% N/A 100% N/A Transense KK Transense Technologies Chile SPA Translogik South Africa Pty Ltd Year ended 30 June 2018 £'000 Company Year ended 30 June 2017 £'000 3 53 5 3 53 - ---------------------------------------------- 61 ============================================= ---------------------------------------------- 56 ============================================= 58 Notes to the financial statements (continued) Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 16 Inventories Raw materials Finished goods 30 June 2018 £'000 Group 30 June 2017 £'000 30 June 2018 £'000 Company 30 June 2017 £'000 120 565 ---------------------------------------------- 685 ============================================= 225 760 ---------------------------------------------- 985 ============================================= 120 539 ---------------------------------------------- 659 ============================================= 225 742 ---------------------------------------------- 967 ============================================= Raw materials, consumables and changes in finished goods and work in progress recognised as cost of sales in the year ended 30 June 2018 amounted to £0.76m (2017: £0.87m). The impairment was reduced by £0.01m in cost of sales against inventories in the year (2017: £0.13m). 17 Trade and other receivables Amounts falling due within one year Trade receivables Allowance for doubtful debts Other receivables Amounts due from group undertakings Trade finance lease receivables Accrued income Prepayments 30 June 2018 £'000 Group 30 June 2017 £'000 30 June 2018 £'000 Company 30 June 2017 £'000 423 (18) ---------------------------------------------- 405 108 - 58 30 97 ---------------------------------------------- 698 ============================================= 122 (39) ---------------------------------------------- 83 181 - 265 7 166 ---------------------------------------------- 702 ============================================= 265 (18) ---------------------------------------------- 247 83 332 58 7 97 ---------------------------------------------- 824 ============================================= 82 (39) ---------------------------------------------- 43 148 57 265 7 166 ---------------------------------------------- 686 ============================================= As at 30 June 2018 there were no past due but not impaired trade receivables. 59 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 18 Trade leases and unearned finance income The group offers its iTrack solution to be sold via a finance lease, in which a significant portion of the risks and rewards of ownership are transferred to the lessee. The amount due after one year is shown as a non-current asset in the Group and Company Balance sheet. 30 June 2018 Lease payments Unearned finance income Group and Company Minimum lease payments due Within 1 year 1 to 5 years after 5 years £'000 £'000 £'000 58 - - - - - Total £'000 58 - Net present values 58 - - 58 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ============================================= ============================================= ============================================= ============================================= 30 June 2017 Lease payments Unearned finance income Group and Company Minimum lease payments due Within 1 year 1 to 5 years after 5 years £'000 265 (5) £'000 £'000 59 - - - Total £'000 324 (5) Net present values 260 59 - 319 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ============================================= ============================================= ============================================= ============================================= 19 Cash and cash equivalents Cash and cash equivalents per balance sheet Cash and cash equivalents per cash flow statements 30 June 2018 £'000 Group 30 June 2017 £'000 30 June 2018 £'000 Company 30 June 2017 £'000 1,592 2,520 1,494 2,503 ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- 1,592 ============================================= 2,520 ============================================= 1,494 ============================================= 2,503 ============================================= 60 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 20 Trade and other payables Current Trade payables Non-trade payables and accrued expenses Group Year ended 30 June 2018 £'000 Year ended 30 June 2017 £'000 Year ended 30 June 2018 £'000 111 205 ---------------------------------------------- 316 ============================================= 280 231 ---------------------------------------------- 511 ============================================= 96 140 ---------------------------------------------- 236 ============================================= Company Year ended 30 June 2017 £'000 278 203 ---------------------------------------------- 481 ============================================= 21 Provisions At 1 July 2017 At 30 June 2018 Group and Company Provisions Warranty £'000 100 Total £'000 100 ---------------------------------------------- ---------------------------------------------- 100 100 ============================================= ============================================= The warranty provision represents management’s best estimate of the Group’s liabilities under warranties granted on its products. The timing of the utilisation of this provision is uncertain but it is expected to be used within the next year. At 1 July 2016 Additional provisions At 30 June 2017 Group and Company Provisions Warranty £'000 53 47 Total £'000 53 47 ---------------------------------------------- ---------------------------------------------- 100 100 ============================================= ============================================= 61 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 22 Employee benefits Defined contribution plans The Group operates a defined contribution pension plan. The total expense relating to these plans in the year ended 30 June 2018 was £0.03m (year ended 30 June 2017: £0.03m). Share-based payments – Group and Company The Group and Company has two share option plans, the Unapproved Discretionary Share Option Scheme and Enterprise Management Incentives (EMI) Share Option scheme the principal provisions of which are summarised below: Options to subscribe for Ordinary Shares of the Company may be granted (at the discretion of the Board and with regards executive directors the remuneration committee) to selected employees or directors of the Company. No consideration is payable for the grant of an option. Options are not transferable or assignable. The fair value of share options granted is recognised as an employee expense, within administrative expenses, with a corresponding increase in reserves. All options are settled by the physical delivery of shares. The fair value of services rendered in return for share-based payments granted is measured by reference to the fair value of those share-based payments. The estimate of the fair value of services received is measured with reference to the Black-Scholes options pricing model. The Black-Scholes model considers the exercise price, share price at grant date, expected term and expected share price volatility. The volatility level depends on the date of grant and for the current live options has been calculated at 69%. The risk-free interest rate adopted was 5% and an expected dividend yield of nil pence. The key variable is share price volatility. For the year ended 30 June 2018 the charge to the profit and loss for the year was £41,000 (2017: £nil) Unapproved Discretionary Share Option Scheme At 30 June 2018 the following share options remained outstanding under the Company’s Unapproved Discretionary Share Option Scheme. The new Share Options granted on 27 October 2014 were in respect of an US employee. . Number of Options Cancelled/ 30 June Granted Expired Exercised 2018 Option Price Date of Grant Date of Exercise First Last - - - - - - - - - 150,447 £3.75 15.08.13 15.08.13 06.03.22 - - - 1,800 5,000 5,000 £3.75 31.01.14 31.01.17 31.01.24 £3.75 27.10.14 31.01.17 27.10.24 £3.75 09.10.15 31.01.18 09.10.25 1 July 2017 150,447 1,800 5,000 5,000 62 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 22 Employee benefits (continued) Unapproved Discretionary Share Option Scheme (continued) The assumptions used in the valuation of the old share options are as follows, the value attributable to the older options has been accounted in earlier periods: Date of grant Estimated fair value Share price Option price Expected volatility Expected Life – Years Risk free rate Expected dividends 15.08.13 31.01.14 27.10.14 09.10.15 £0.5725 £0.5725 £0.5725 £0.5725 £3.75 £1.5850 £3.1250 £0.6125 £3.75 £3.75 £3.75 £3.75 Enterprise Management Incentive Option Scheme % 72.26% 72.26% 72.26% 72.26% % 0.65% 0.65% 0.65% 0.65% 1.50 1.50 1.50 1.50 % Nil Nil Nil Nil At 30 June 2018, the following shares remained outstanding under an Enterprise Management Incentive Option Scheme. Number of Options Option Price Date of Grant Date of Exercise First Last 30 June Granted Cancelled Exercised 2018 - - - (5,000) - (5,000) - - - 375,000 270,000 £0.75 26.06.17 30.06.18 30.06.21 £1.00 26.06.17 30.06.20 30.06.27 20,000 £0.75 26.06.17 30.06.20 30.06.27 1 July 2017 380,000 270,000 25,000 The assumptions used in the valuation of the current share options are as follows: Date of grant Estimated fair value Share price Option price Expected volatility Expected Life – Years Risk free rate Expected dividends 26.06.17 26.06.17 26.06.17 £0.0834 £0.0388 £0.0834 £0.715 £0.715 £0.715 £0.75 £1.00 £0.75 % 28.08% 28.08% 28.08% % 1.00% 1.00% 1.00% 3 3 3 % Nil Nil Nil 63 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 23 Share Capital Issued Share Capital 30 June 2018 30 June 2017 30 June 2018 30 June 2017 30 June 2018 30 June 2017 Ordinary shares of 10 pence Deferred shares of 40 pence Ordinary shares of 50 pence each each each On issue at 1 July 2017 Issued for cash Ordinary Shares at £0.50 on December 2017 Share reorganisation 22 June 2018 Issued for cash Ordinary Shares at £0.10 on 22 June 2018 On issue at 30 June 2018– fully paid - - 9,548,948 - - - - - 9,548,948 - - - 9,532,435 9,532,435 16,513 (9,548,948) - - 2,500,000 --------------------------- - ----------------------------- - ----------------------------- - ----------------------------- - ----------------------------- - ----------------------------- 12,048,948 ===================== - ===================== 9,548,948 ===================== - ===================== - ===================== 9,532,435 ===================== Allotted, called up and fully paid Ordinary shares of £0.50 each Ordinary shares of £0.10 each Deferred shares of £0.40 each Shares classified in shareholders’ funds 30 June 2018 £'000 - 1,205 3,820 ---------------------------------------------- 5,025 ============================================= 5,025 30 June 2017 £'000 4,766 - - ---------------------------------------------- 4,766 ============================================= 4,766 ============================================= ============================================= During the year ended 30 June 2018 a share reorganisation approved by the shareholders at the GM on 21 June 2018, took place, resulting in the creation of 40p Deferred Shares and the Ordinary Shares of 10 pence each being created. 24 Operating leases Non-cancellable operating lease rentals are payable as follows: Group and Company Land & Buildings 30 June 2018 £'000 Other Lease 30 June 2018 £'000 Land & Buildings 30 June 2017 £'000 Other Lease 30 June 2017 £'000 Less than one year Between one and five More than five years 69 73 - - - - --------------------------------- --------------------------------- --------------------------------- --------------------------------- - ======================== ======================== ======================== ======================== 63 252 110 - - - 142 425 - The operating lease relates to the lease of premises which is used by the Group and Company. During the period £0.06m was recognised as an expense in the statement of comprehensive income in respect of operating leases (year ended 30 June 2017: £0.06m). 64 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 25 Basic and fully diluted earnings/(loss) per share Basic loss per share is calculated by dividing the loss after taxation of £1.89m (2017: loss of £2.17m) by the weighted average number of ordinary shares in issue during the year of 9,595,825 (2017: 9,483,815). Unexercised options over the ordinary shares are not included in the calculation of diluted loss per share as they are anti- dilutive. Weighted average number of shares – basic Share option adjustment Weighted average number of shares – diluted Year ended 30 June 2018 Year ended 30 June 2017 Number Number 9,595,825 9,483,815 - ------------------------------ - ------------------------------ 9,595,825 ====================== 9,483,815 ====================== Year ended 30 June 2018 Year ended 30 June 2017 £'000 £'000 Loss from continuing operations (1,888) (2,160) From continuing operations Basic loss per share ------------------------------ ------------------------------ (19.68) (22.78) ====================== ====================== Loss from discontinued operations - (5) From discontinued operations Basic loss per share Earnings attributable to shareholders Basic loss per share ------------------------------ ------------------------------ (0.06) ====================== ====================== - (19.68) (22.84) ====================== ====================== There are 665,000 share options at 30 June 2018 (2017: 675,000) that are not included within diluted earnings per share because they are anti-dilutive. 65 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 26 Financial instruments Financial risk management overview The Group has exposure to the following risks, to varying degrees, from its use of financial instruments: ● Credit risk; ● Liquidity risk; and ● Market risk. This note presents information about the Group’s exposure to liquidity and market risks, the companies’ objectives, policies and processes for measuring and managing risk, and the companies’ management of capital. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group has a cash balance at period end totalling £1.59m (2017: £2.52m). Note 3 describes the potential uncertainties relating to the liquidity risk. The Group has no external borrowing and finances its operations by raising equity finance on the Alternative Investment Market (AIM). Financial Assets and Liabilities The carrying value and fair value for each of the trade and other payables, trade leases and unearned finance income and trade and other receivables are the same. Cash flow sensitivity analysis for variable rate instruments Due to the current unprecedented low rates of interest a change of 100 basis points in interest rates at the reporting date would not have created any material change in the profit or loss for 2018 or 2017. The directors consider that the Group’s exposure to interest rates is low (2016: low). Cash is invested in deposits with UK high street banks. Low and falling interest rates will reduce returns on these balances. This note is in relation to the company’s compliance with IFRS 7. 66 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 26 Financial instruments (continued) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, equity price and interest rate risk will affect the Group's income or the value of its holdings of financial instruments. The table below shows the net un-hedged monetary assets/(liabilities) of the Group that are not denominated in the functional currency of the operating unit and which therefore give rise to exchange gains and losses in the income statement. Functional currency of Group operation Sterling At 30 June 2018 Sterling At 30 June 2017 Euro £'000 158 158 122 122 US Dollar Australian Dollar Canadian Dollar £'000 623 623 259 259 £'000 £’000 (1) (1) 7 7 - - (2) (2) At the reporting date the profile of the Group’s financial instruments was: Financial assets Loans and receivables comprising: Trade receivables Amounts receivable under long term contracts Cash and cash equivalents Financial liabilities Other financial liabilities at amortised cost Trade payables Accruals Financial liabilities at amortised cost 30 June 2018 £000 30 June 2017 £000 405 58 1,592 ---------------------------------------------- 2,055 ============================================= 111 205 ---------------------------------------------- 316 ============================================= 83 324 2,520 ---------------------------------------------- 2,927 ============================================= 280 231 ---------------------------------------------- 511 ============================================= There was £0.06m of gross trade finance lease assets held on the balance sheet at the year end date. (2017: £0.32m). Management of capital The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. In order to do this the group may issue new shares in the future. There were no changes to the Group’s approach to capital management during the year. The Group is not subject to externally imposed capital requirements. 67 Transense Technologies plc Annual report and financial statements For the year ended 30 June 2018 Notes to the financial statements (continued) 27 Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that may subject the Group to credit risk consist of cash, cash equivalents, and trade and other receivables. The maximum credit exposure was £0.46m (2017: £0.41m) which is the respective carrying amounts (which is not significantly different to their fair value and contractual cash flow). There were no material financial assets that were past due at the period end. At 30 June 2018 the Group’s cash was divided between current accounts £0.67m (2017: £0.60m) and £0.93m in fixed rate monthly deposits (2017: £1.92m) with a weighted average interest rate for the year of 0.25% (2017: 0.25%). Cash and cash equivalents are held only in high street banks. The Group offers trade credit to customers, who are well established and major companies, in the normal course of business. The Group operates stringent credit control procedures on potential customers before allowing credit. The Group continually monitors its position with, and the credit quality of, the financial institutions, which are counterparts to its financial instruments, and does not anticipate non-performance or that there is a concentration of credit risk. Credit risk is considered to be low given the cash position of the Group and that there is a low exposure level in the trade and other receivables. 28 Contingencies and commitments Group The Group had no capital commitments or contingent liabilities as at 30 June 2018 (2017: £nil). Company The Company has no capital commitments or contingencies as at 30 June 2018 (2017: £nil). 29 Warrants No warrants were outstanding as at 30 June 2018. (2017: Nil). 30 Related parties Group Transactions with key management personnel who are defined as the directors of the Company and their immediate relatives control 1% of the voting shares of the Company. The compensation of key management personnel (being the directors) holding more than 1% is as follows: Key management emoluments Social security costs Group and Company Year ended 30 June 2017 £000 Year ended 30 June 2016 £000 - - ---------------------------------------------- - ============================================= - - ---------------------------------------------- - ============================================= 68 

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