Annual Report & Accounts 2016
TRACSIS PLC | 1
Contents
Strategic Report
Our Business at a Glance
Strategy and Business Model
Chairman and Chief Executive Officer’s Report
(incorporating Business Review and Future Developments)
Risk Management
Key Performance Indicators
Governance
Board of Directors
Directors’ Report
Directors’ Remuneration Report
Corporate Governance
Statement of Directors’ Responsibilities
Independent Auditor’s Report to the members of Tracsis plc
Financial Statements
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Balance Sheet
Group Information
2
3
4
9
13
14
15
18
22
24
25
26
28
29
30
31
67
68
69
77
2 | Annual Report and Accounts 2016
Strategic Report
Our Business at a Glance
Tracsis plc was founded in January 2004 to commercialise world class research and expertise developed in the field of transport
scheduling and software optimisation technologies.
In the subsequent years Tracsis has grown rapidly, diversified into related transport technologies, and successfully executed a
strategy that has seen it make a total of eight acquisitions and two investments. Today, the Group specialises in solving a
variety of data capture, reporting and resource optimisation problems along with the provision of a range of associated
professional services.
Tracsis’ products and services are used to increase efficiency, reduce cost and improve the operational performance and
decision making capabilities for its customers. The Group has a blue chip client base which includes the majority of UK transport
operators and the business also works extensively with large transport authorities and infrastructure operators such as Network
Rail, the Department for Transport, Transport Scotland, Transport for London, local authorities and a variety of large engineering
and infrastructure companies.
The Group’s products and services comprise two principal offerings:
• Rail Technology & Services
o Software: Industry strength optimisation and rail management software that cover a variety of asset and
information classes, plus related hosting services;
o Remote Condition Monitoring (RCM): Technology and reporting for critical infrastructure assets in real time,
to identify problems and aid with preventative maintenance;
o Professional Services: Consulting and technology related professional services across the operational and
strategic planning horizon for traffic and transport customers and network operators
•
Traffic & Data Services:
o Collection, collation and analytical services of traffic and passenger/customer data within rail, traffic and
pedestrian rich environments;
o Event planning, traffic management and parking for outdoor and sporting event markets.
Tracsis has multiple offices in the UK which service our growing client base. At year end we employed over 400 permanent
staff many of whom are shareholders in the company.
The business drives growth both organically and via strategic acquisition and has made eight acquisitions since coming to
market in 2007.
Financial highlights
for the year ended 31 July 2016:
• Revenues increased 29% to £32.6m (2015: £25.4m)
• Adjusted EBITDA increased 17% to £7.6m (2015: £6.5m)
• Profit Before Tax of £4.0m (2015: £4.5m)
• Cash balances of £11.4m (2015: £13.3m)
•
Full year dividend increased 20% to 1.2p per share (2015: 1.0p)
TRACSIS PLC | 3
Strategic Report
Strategy and Business Model
Our vision for Tracsis is to become a leading provider of high value, niche technology solutions and services for the global traffic
and transportations markets. Our business model remains focussed on specialist offerings that have high barriers to entry, are
sold on a recurring basis under contract, and to a retained customer base that is largely blue chip in nature. Our vision is being
achieved via the delivery of a three pronged strategy.
1) Manageable, industry-led organic growth through continual innovation of products and services and an excellent close
working relationship with our customers.
2) International expansion into select overseas markets that share problems with the industries we currently serve.
3) Reinvesting company profits to fund further accretive acquisitions that meet with our disciplined investment criteria.
We believe our strategy will allow Tracsis to continue the growth trajectory we have achieved since IPO in 2007 and deliver
further significant value to shareholders in the short, medium and long term. Achievements made in the past year in respect of
our business strategy can be summarised as follows:
Strand of Strategy:
Achievements 2015/16:
1 Organic
further sales from existing
products to UK
•
First sales of new products achieved: TRACS Enterprise and DayOne
• High level of Software licence renewals achieved across the TRACS,
Datasys and COMPASS product suites
• Good sales made to the Group’s key UK customer
• Positive levels of trading throughout the UK
2 Overseas Markets
showing good promise
and remain relatively untapped
• Post period end, agreement signed with North American Class 1 Railroad
for the Group’s Remote Condition Monitoring technology
Traffic Data business in Ireland continues to trade well
Further Software projects delivered in Sweden and New Zealand
•
•
• Disposal of the Group’s non-core Australian business completed during the
period for strategic reasons
3
Acquisitions
• Ontrac and SEP bring new sales opportunities and increase the Group’s
product and service offerings
• Acquisition of Ontrac Limited and Ontrac Technology Limited completed in
the year – improves the Group’s software, hosting and bespoke software
development capabilities
• Acquisition of SEP Limited and SEP Events Limited completed – adds event
planning and traffic management to the Group’s service offerings
Investment made into Citi Logik in the year
Investment made into Nutshell Software Limited in the year
•
•
4 | Annual Report and Accounts 2016
Strategic Report
Chairman & Chief Executive Officer’s Report
A welcome from Chris Cole, Non-Executive Chairman
The enlarged Group has performed well in the year, and 2015-16 was a busy transactional period supporting our strategy, with
two acquisitions completed, two small investments made, and the disposal of a non-core asset. This activity was all successfully
completed whilst Tracsis delivered a further period of strong trading which is testament to the hard work and dedication from the
teams. The Board thanks everyone for their hard work and contribution made during the year.
Introduction
The Group has once again enjoyed another year of growth and consolidation, with revenues rising to over £32m - ahead of
original expectations, and EBITDA of over £7.5m. Both of these metrics are well ahead of the previous year and are significant
achievements for Tracsis. The business continues to benefit from a strong financial position, a great product and service offering,
high degrees of predictable and recurring revenue, and a customer base made up of all the major transport owning Groups,
infrastructure managers, and multiple blue chip engineering firms. The acquisitions made during the year have strengthened
and expanded the Group’s customer footprint and opened up a host of new opportunities for its technology and services.
Business overview
Tracsis specialises in providing software products, consultancy services and delivering bespoke projects to solve a variety of
problems within the transport and traffic sector. The Group’s market offering can be broadly categorised into two distinct
offerings:
• Rail Technology & Services: Software development and licensing, remote condition monitoring (RCM), and
technology led consulting.
The Group has a long pedigree in developing industrial strength optimisation software that covers a variety of
resource/asset classes with the goal of reducing customer costs whilst increasing network performance. This is
complemented by the Group’s RCM offering (hardware and software) that allows for real-time reporting on the status
of critical infrastructure assets, to identify problems and aid with preventative maintenance. Utilizing its expertise in the
sector, the Group’s professional services division, provides consultancy and specialist advice across the operational
and strategic planning horizons and play a key role in advising owning Groups and regulatory bodies. By profit, this is
the Group’s largest division with higher margins.
•
Traffic & Data Services: Data capture, analysis and interpretation of traffic and pedestrian data to aid with the
planning, investment and ultimate operations of a transport environment.
The Group has provided a variety of data capture and analytics since 2009, and have bolstered this offering to expand
the Group’s activities through a number of acquisitions and investments. In the past year – and via the acquisition of
SEP – this division has expanded its addressable markets from rail, traffic and pedestrian movement to include the
events industry, which is a significant and growing market within the UK. By revenue, this is the largest part of the
Tracsis Group and its broad offering uses a variety of technologies (such as WiFi, ATC, ANPR, mobile telco data) to
deliver projects for a wide range of blue chip clients.
The Group's mission from the outset has been to solve complex, high value, data driven problems in the transportation markets.
Having recognised these problems exist in other related markets including the traffic and events industries and the Group has
applied its expertise to address this. These markets contain several attractive traits from a Tracsis perspective – high barriers
to entry due to domain knowledge, large and disparate data sets, and with customers that understand the inherent value that
can be released through the provision of a good solution or service. In short, Tracsis focuses on solving problems that are well
understood by its customers but for which there is poor provision from traditional technology providers due to the niche nature
of these problems.
Through the provision of the Group’s products and services, Tracsis provides clients with better visibility and information on their
operations which assists with key decision making. This ultimately supports improving efficiency and productivity, reducing cost,
and delivers a better, safer, more professional solution for the end consumer.
The Directors believe that the traffic, transport and event industries, in particular but not limited to passenger rail, is well
positioned for further growth and the Group is able to capitalise on this with an expanding portfolio of products and service
offerings.
TRACSIS PLC | 5
Chairman & Chief Executive Officer’s Report continued
Financial summary
The Group delivered revenue of £32.6m for the year, an increase of 29% on the prior year (2015: £25.4m) which exceeded the
Board's original expectations and with contributions made from all parts of the business including the acquisitions completed
during the year. Adjusted pre-tax profit of £6.9m was also ahead of expectations and an increase of 19% on the previous year
(2015: £5.8m).
Adjusted EBITDA* increased by 17% to £7.6m (2015: £6.5m) with statutory Profit before Tax lower than the previous year at
£4.0m (2015: £4.5m). As outlined within the January interim results, statutory PBT was impacted by exceptional items in respect
of the two significant acquisitions made in H1 and the disposal of Tracsis Traffic Australia Pty. In addition, share based payments
rose due to the adoption and take-up from Tracsis employees of the Group’s Long Term Incentive Plan, which has been a great
success in terms of attracting, motivating and retaining the best and brightest talent.
At 31 July 2016, the Group had cash balances of £11.4m (2015: £13.3m), and cash generation remains strong. Overall cash
balances decreased by £1.9m in the financial year, which takes account of c. £7.5m of investments being made in acquisitions
and investments (net of cash acquired). The business therefore generated net cash of c. £5.6m excluding the acquisitions,
which demonstrates excellent conversion of profits to cash. The Group also continues to be debt free.
* Earnings before finance income, tax, depreciation, amortisation, exceptional items and share-based payment charges
Trading Progress and Prospects
Rail Technology & Services
Summary segment results:
Revenue
£14.1m
£5.3m
EBITDA
Profit before Tax £5.1m
Software
Software sales, excluding Ontrac, which was acquired in December 2015, increased significantly by 18% to £6.6m (2015: £5.6m)
with the vast majority of this revenue being made up by software licences, which are recurring in nature. All aspects of the
software portfolio performed well, with continued high levels of renewal rates for the TRACS, Compass and Datasys product
suites. Additional revenues were delivered from a combination of upselling and cross selling the Group’s existing products to
its customer base and also initial sales of new product lines. During the year the Group continued to invest in product
development and was pleased to secure the first sales for ‘TRACS Enterprise’ and ‘Bugle DayOne’. These new products take
advantage of increased connectivity within a customer workforce via mobile devices, to deliver enhanced reporting across an
organisation that can lead to improved decision making and service delivery. Both products were developed in conjunction with
the UK rail industry and there is a good opportunity to roll these out to the wider Tracsis customer base in due course.
Remote Condition Monitoring (RCM)
As seen in previous years, the timing of the revenue from the Framework Agreement with the Group’s major UK customer is
variable. As such, revenues of £2.2m were lower than the previous year (2015: £3.0m), largely due to the absence of any
significant Framework Agreement orders.
On 17 August 2016, the Group was pleased to announce a significant order from a North American Class 1 railroad operator for
its RCM technology, which marks the Group's first major contract outside of the UK. Under the terms of the agreement, the
initial order comprises the outright purchase of RCM hardware units, software licences for the Group's data aggregation and
analysis tool (Centrix), and various ancillary products. The RCM units have already begun to be installed and this process will
continue in the coming months across multiple locations on the client's network. The total order value is in excess of $0.4m and
is expected to be fulfilled before the end of 2016.
The Directors continue to view the overseas rail industry as providing exciting growth opportunities for the Group’s RCM offering
and extensive business development activity is underway. The US market in particular is the largest and most accessible market
and in recent years the Group has spent time getting to know the landscape and where remote condition monitoring technology
can make a difference. The contract win illustrates that the Group has the capability and product set to address this opportunity,
and whilst the specific timing of further sales will always be difficult to predict, management remains confident of further growth
and new sales in the short to medium term.
With the nature of this technology being applicable to other industries, the Group has focused on expanding this offering into
new ventures in new sectors outside of the rail industry. As such, the Group was pleased to have won several pilots for monitoring
of distributed power generation plants both in the UK and overseas. Tracsis achieved its first revenue generating projects post
year-end and these will be fulfilled in late 2016 / early 2017.
6 | Annual Report and Accounts 2016
Chairman & Chief Executive Officer’s Report continued
Consultancy and Professional Services
Revenue rose 7% to £2.1m (2015: £2.0m) with the Tracsis team supporting bidders for the East Anglia franchise competition,
the Manchester Metrolink bid, and also the South Western franchise competition. Alongside franchise bidding, the team
continues to deliver a mix of work and its diversification into new service offerings such as performance modelling and train crew
analysis was instrumental in achieving this growth. The Group continues to target projects outside of franchise bid work in order
to smooth the inherent revenue volatility that comes with work of this nature and good progress was made in this regard. Looking
ahead, the focus within the professional services team will be to further broaden and strengthen its consultancy offering whilst
remaining flexible to the significant opportunities that exist within franchise bidding.
Ontrac
Ontrac, which was acquired in December 2015, performed well in the eight months post acquisition and contributed revenue of
£3.2m. This revenue came from a combination of software licences, hosting services, and bespoke software development work
along with related consultancy services. The business works extensively with Network Rail along with a wide variety of
engineering and construction companies within the railway supply chain who use Ontrac’s Connect, Rail Hub and National
Hazard Directory products.
The acquisition of Ontrac has added significant breadth and depth to the Group’s software offering, and also increased the
weighting of recurring revenue (via licensing and hosting) as a proportion of overall Group income. Furthermore, the diversity
of the Ontrac customer base outside of the core UK rail market further diversifies Group revenue and offers some attractive
cross-selling opportunities.
Traffic & Data Services
Summary segment results:
£18.5m
Revenue
EBITDA
£2.3m
Profit before Tax £1.3m
Traffic Data and Passenger Counts
Traffic Data and Passenger Counts remains the largest part of the Group by revenue. Revenues from continuing operations
increased 5% from £12.7m to £13.2m. As announced, in the period the Group disposed of Tracsis Traffic Data Pty Limited, a
non-core operation which had contributed £2.2m of revenue in 2015 and £1.2m of revenue in 2016. Taking the disposal into
account, there was a small decrease in sales from £14.9m to £14.4m in the year.
In the past year trading conditions have remained positive and the Group’s traffic data business is the largest of its type within
the UK with an estimated market share of c. 45%. The strategy for the division remains one of margin improvement through a
variety of initiatives. Good progress has already been made and the focus over the coming years will be to continue to transition
to a business that achieves enhanced operational efficiencies via an increased use of technology and process improvements.
In doing so management believes significant improvements can be made to underlying profit margins. Good progress has
already been made, which should be reflected in future results although the full process is likely to take one to two years to
complete.
SEP
SEP was acquired in the year, and has significantly increased the service offering and customer base of the Traffic Data division.
SEP’s core business is traffic planning, consultancy and on-the-ground management of pedestrian and vehicle rich environments
within the events industry, which covers a variety of large and complex venues ranging from music festivals to sporting events
where the customer experience is critical. With the Group’s existing offering in place, SEP was an obvious target for Tracsis,
particularly with its long pedigree spanning over 25 years and an excellent reputation within the event space. SEP continues to
work with major, high profile clients, and has undertaken projects for a multitude of clients and event days. Its client base includes
Silverstone, Goodwood, a Premier League Football Club, Jockey Club and many more.
SEP achieved revenues of £4.1m in the period since acquisition (10 months) and traded in line with expectations.
Australian disposal
As previously announced, on 22 December 2015, the Group disposed of Tracsis Traffic Data Pty Limited (‘TTD’), a data capture
operation that was originally acquired as part of the Sky High PLC acquisition in 2013. The disposal took the form of a
management buy-out and was in line with the Group's strategy to maintain strength in core markets where there is obvious
ability to leverage from Group resources.
TRACSIS PLC | 7
Chairman & Chief Executive Officer’s Report continued
The disposal proceeds include an initial payment of AUS $285k and deferred consideration of AUS $799k payable over three
years to give total consideration of AUS $1,084k. As part of the disposal agreement, the Group has security arrangements over
the shares and assets of TTD and connected parties, which will remain in place until the consideration is paid in full.
Dividends
In February 2012, the Board implemented a progressive dividend policy and the Group intends to maintain this going forwards.
An interim dividend of 0.5p per share for FY 2015/16 was paid in April 2016. A final dividend of 0.7p per share in respect of FY
2015/16 is proposed, to take the full year dividend to 1.2p. This represents a 20% increase on the previous year’s dividend of
1.0p per share.
The dividends remain well covered by the Group’s profitability and cash position, which supports its primary focus on growth via
acquisition and further development of new products and services. The Board is committed to maintaining the progressive
dividend policy provided the business continues to trade in line with expectations.
The dividend will be paid on 10 February 2017 to shareholders on the register on 27 January 2017.
Acquisitions
This was a busy year for Tracsis from an M&A perspective, with the Group completing the acquisitions of SEP and Ontrac, and
making investments into Citi Logik and Nutshell.
SEP Limited
On 25 September 2015, the Group acquired SEP Limited (‘SEP’). Based from Boroughbridge, North Yorkshire, SEP is a leading
provider of traffic planning, consultancy and management services for the events industry. Since its formation in 1989, SEP's
client list has grown to include many of the UK's largest and most prestigious outdoor entertainment and sporting fixtures, along
with major agricultural events, air shows and music festivals.
Having successfully collaborated on major events, it was clear that SEP is a natural enhancement to Tracsis' existing Traffic &
Data Services division and offers strong cross sell and upsell opportunities along with a range of synergies from shared labour,
technology and back office resources, providing an opportunity to increase profit margins.
The acquisition consideration comprised an initial cash payment of £1.6m and the issue of ordinary shares with a value of
£0.25m. Contingent and deferred and consideration of up to £0.7m is payable over two years based on SEP achieving certain
financial targets, giving a total maximum consideration of £2.6m.
In the ten months since acquisition, SEP contributed revenue of £4.1m and an EBITDA of £0.3m which was in line with
expectations. The full benefits of this acquisition will be experienced in the year ending 31 July 2017 which would mark the end
of a full 12 month period as part of the Tracsis Group and will include the months of August and September which form part of
the peak months of the event season.
Ontrac Limited
On 1 December 2015, the Group acquired the entire issued share capital of Ontrac Limited and Ontrac Technology Limited
(together being ‘Ontrac’). Based in Gateshead and London, Ontrac is an award winning software development and IT solutions
company that works with a range of clients in the transport, construction, engineering and local government sectors. Ontrac’s
products have helped digitise process intensive workflows and aided with collaborative working through access to shared
information. Ontrac is highly complementary to Tracsis' existing software development and consulting division and offers good
cross sell and upsell opportunities across the Group along with obvious integration synergies and shared resources.
The acquisition consideration comprised an initial cash payment of £6.0m which was funded out of Tracsis cash reserves and
the issue of ordinary shares in Tracsis with a value of £0.9m, along with a payment of £4.6m that represented the value of the
Company's tangible net assets at completion. Additional contingent consideration of up to £8.0m is payable subject to Ontrac
achieving certain stretch financial targets in the two years post acquisition which are based on the profit contribution to the
Group. Therefore, Tracsis paid an initial amount of £11.5m (£6.9m goodwill and £4.6m for tangible assets) and on the basis
that all stretch financial targets are achieved, the maximum total consideration will be £19.5m.
In the eight months since acquisition, Ontrac contributed revenue of £3.2m and an EBITDA of £1.1m. This was in line with
expectations and as noted in the interim results, the Group expected a large contribution in the second half of the financial year,
which was delivered. The full benefits of this acquisition will be experienced in the year ending 31 July 2017 which would mark
the end of a full 12 months as part of the Tracsis Group.
Investments
The Board made a number of small investments in the period:
8 | Annual Report and Accounts 2016
Chairman & Chief Executive Officer’s Report continued
In July 2016, the Group made an investment in Nutshell Software Limited ('Nutshell'). Nutshell specialises in application software
for the rapid creation of mobile business applications across multiple platforms for large enterprise organisations within the
transport, utilities, healthcare and energy sectors. The business was formed in 2015, and is currently revenue generating. As
well as the complementary addressable markets, the Group believes there are good opportunities for Nutshell to benefit from
the Group's links to the UK transport industry along with entering related industries. Under the terms of the investment, Tracsis
have agreed to invest up to £0.5m via a combination of equity and convertible debt to acquire up to 37.8% of Nutshell. The
funds raised will be used primarily to promote sales and business development activity as the product is taken to market.
On 4 September 2015, the Group made a strategic investment to acquire up to 29.4% of Citi Logik Limited (‘Citi Logik’) via a
combination of equity and convertible debt. Citi Logik is an exciting proposition with a compelling value proposition to utilise
consumer mobile phone data to model pedestrian and traffic movements through an environment. So far, Tracsis has invested
£0.5m into Citi Logik and holds an interest of 17%. A Tracsis executive holds a position on the Citi Logik board of Directors and
the Group continues to work with the executive team to promote the solution to its customer base. Further investment into Citi
Logik would only be undertaken in line with Citi Logik progress on their business plan and seeing traction with business
development opportunities, although the technology and market opportunity at this stage remains compelling.
Overseas
Overseas growth continues to be a key part of the Group’s long term growth strategy and given its success within the UK,
overseas markets have remained relatively untapped, however solid progress has been made in the past year. As noted
previously, the Group secured a key win with a North American Class 1 operator for its remote condition monitoring technology,
which is a significant milestone. The Group continues to appraise multiple overseas opportunities and post year end achieved
a software sale in the United Arab Emirates and also the North American RCM sale noted previously. Total overseas revenues
(excluding the disposal of Tracsis Traffic Data Pty) were £0.6m in the year, with work being delivered in Ireland, Sweden, New
Zealand and the United States.
Impact of the EU Referendum
Following the EU Referendum decision, the Group has not experienced any material change in business activity or demand for
its products and services. Whilst it is too early to assess any long term implications of this decision, the Group has not made
any changes to financial forecasts in light of this.
Tracsis continues to benefit from operating within specific niche verticals of the traffic data and transport markets where it can
provide demonstrable cost and efficiency savings to its customers. The Group believes that its market offering and the sectors
in which it operates provides it with good resilience to external influences although, as prudent to do so, it remains vigilant of
these influences.
Summary and Outlook
FY 2015/16 was another year of significant progress for Tracsis and the Group has continued to execute on its growth strategy.
The Group’s technology and service offering has grown organically whilst also being bolstered by the additions of SEP and
Ontrac, the full benefit of which will be seen later this year. Furthermore, the Group’s strategic investments offer exciting
opportunities for the future.
Revenue, adjusted EBITDA and adjusted profit were all well ahead of the same period last year and the Group continues to
benefit from a robust balance sheet with strong levels of cash generation and significant cash reserves.
Tracsis’ strategy remains unchanged: to deliver shareholder value both organically and through acquisition of complementary
businesses, and by developing products and services that solve well recognised, high value problems that are poorly served by
existing technology. The Group’s business model continues to focus on markets that generally have high barriers to entry, with
contracts that are sold on a recurring/repeat basis, and to a retained customer base that is predominantly blue chip in
nature. This strategy has worked well in the past to generate good growth and significant returns for shareholders and the
Group believes it will continue to work well in the future especially given the pace of change within its target markets.
Tracsis remains well placed to benefit from a growing UK traffic and transportation industry and the Group will continue to
develop its overseas activities, which remain a significant opportunity for the future. Alongside this, the Group will continue to
identify new opportunities where its technology and solutions can be applied. In the meantime, Tracsis will continue to diversify
its technology portfolio through working closely with its customers and through the prudent allocation of capital to make further
acquisitions as and when these opportunities present themselves.
Thanks go to customers, shareholders, and most importantly the team here at Tracsis.
Chris Cole, Chairman
John McArthur, Chief Executive Officer
16 November 2016
TRACSIS PLC | 9
Strategic Report
Risk Management
Key risks
The board carefully considers the risks facing the Group and endeavour to minimise the impact of those risks and has reviewed
this assessment during the year following the acquisitions of Ontrac Limited and SEP Limited and the disposal of the group’s
Australian business. The key risks are as follows:
Description/Potential impact:
Rail industry structure changes
Area of Group
impacted:
Mitigation:
Change in the year:
present
structure
The
and
organisation of the rail industry in
the UK may be changed in the
future, or by a future government,
impacting the Group. The Group
derives a significant amount of its
results from the UK rail industry.
1. Rail Technology
& Services
of
Several
the Group’s
products and services will still
be in demand regardless of the
structure of the industry as
them have a
some of
demonstrable
value
proposition and
return on
investment case. The Group
expects
for
certain solutions will remain
regardless
ownership
of
structure. However, in certain
circumstances, there is very
little
against
politically driven changes or
other structural changes.
that demand
mitigation
continued
In previous years, Network
Rail became part of HM
further
Treasury but no
structural changes
took
place in the year under
review. The Group notes
the
press
releases from Network Rail,
associated media
and
coverage
its
regarding
operation and performance.
The
threat of structural
changes has existed for
some time and is always a
risk.
Competition
to
The success of the Group may
increased competition,
lead
especially
in Traffic & Data
Services where our products and
services may be more easily
replicated. The Group has a variety
of product and service offerings
and some are more exposed to
more competition than others.
1. Traffic & Data
Services
2. Rail Technology &
Services
Reduced government spending
to
subject
pays
pricing
close
The Group
attention
and
to
customer satisfaction for areas
strong
most
competition and endeavours to
make sure it is competitively
appropriate.
priced where
Where possible,
the Group
tries to ensure its products and
services have a clear value
return on
proposition and
investment such
the
products and services are
embedded within its customer
base to reduce the exposure to
new entrants.
that
For the year under review,
Traffic & Data Services, the
area most heavily exposed
to competitive pressures,
continued to account for
around half of the Group’s
revenues, so this specific
risk
remained
unchanged, but the generic
risks
of
competition for the whole
Group remain the same.
respect
has
in
and
indirectly
revenues
The Group derives
directly
from
government commitment to invest
transport
and
infrastructure, and would be
significantly
these
public
funding streams were
reduced.
modernise
impacted
if
The
risk and potential
impact of ‘Brexit’ is covered
separately within this risk
section.
1. Traffic & Data
Services
2. Rail Technology &
Services
to
As the Group continues to
grow and develop more
diverse revenue streams, the
government
exposure
spending should theoretically
reduce but will always be a risk
for the Traffic & Data Services
part of the Group due to the
nature of its customer base. In
terms of Rail Technology &
Services, the Group attempts
to ensure that its offerings have
a clear return on investment
to
and value proposition,
ensure demand will remain
strong.
10 | Annual Report and Accounts 2016
Risk Management continued
Description/Potential impact:
Area of Group
impacted:
Mitigation:
Change in the year:
1. Rail Technology &
Services
2. Traffic & Data
Services
Reliance on certain key customers
for
The Group has a large number of
customers but derives a significant
amount of business from one key
its Software &
customer
Services and also
its Remote
Condition Monitoring technology.
The latter has no guarantee as to
the timing or quantum of any
potential
orders.
future
Furthermore, the Group’s Traffic &
Data Services division operates
under a number of Framework
Agreements with one large one in
particular.
to
certain
engaging
As the Group continues to
grow and evolve, the exposure
to and reliance on any one
customer will reduce. Although
the Group will always be
exposed
key
customers, it manages this risk
the
by
customers
to
understand their needs and
respond to them in terms of
changes to products or service
the
offerings
relationship to ensure that its
products and services are
embedded with the customer
as best as possible.
proactively
reinforce
with
to
The Group continues to seek to
mitigate its exposure to one
customer in Remote Condition
targeting
by
Monitoring
and
overseas
markets
alternative uses
this
technology.
for
The Group acquired Ontrac
during
the year, which
works extensively with the
Group’s major customer
already.
Total revenues from the
Group’s largest customer
were
of Group
14%
revenue (2015: 11%).
Revenues in respect of the
Group’s Remote Condition
Monitoring were
again
reduced compared to the
previous year, which was
anticipated to some extent
and revenues from this part
of the group accounted for
around 7% (2015: 12%) of
total Group revenue.
continued
The Traffic & Data Services
division
to
account for over half of
overall Group revenues and
(2015:
£2.1m
derived
£1.4m) from one particular
customer.
All parts of the Group.
Attraction and retention of key
employees
The Group has a number of key
individuals, though their individual
importance has arguably reduced
as the Group has grown and the
reliance on certain people reduces.
However, skills and expertise in
our markets are specialist and hard
to find or develop, and so further
growth of the business may be
restricted.
The Group believes it offers
competitive
remuneration
packages, and also offers
various share schemes to staff
in order to attract and retain
high calibre employees. Such
share schemes are designed
that employees are
such
rewarded in the success of the
Group, and are tied in for a
period of time. As the Group
has grown, a number of staff
continue
to hold old EMI
options from historic times. As
the Group grows, the reliance
on and exposure to certain
individuals in terms of impact
on
is
the overall Group,
reduced.
from
Largely unchanged
previous years. As
the
economy continues to grow
then the risk of not being
able to recruit or retain key
individuals increases given
the competition from other
In
potential employers.
respect of the acquisitions
made in the year, the Group
negotiated
contingent
consideration
arrangements in both cases
and also negotiated terms
for key
and conditions
management
the
of
acquired companies.
Risk Management continued
Description/Potential impact:
Technological changes
Area of Group
impacted:
1. Traffic & Data
Services
2. Rail Technology &
Services
The Group has a variety of product
and service offerings which may be
under threat should competitors
develop rival technology or should
more effective ways of doing things
be discovered which make some of
the Group’s services redundant.
This could potentially
to
reduced levels of business.
lead
Customer pricing pressure
from customers
Price pressure
may potentially result in margins
being eroded in the fullness of time
if lower revenues are achieved
than those which were achieved
historically.
1. Traffic & Data
Services
2. Rail Technology &
Services
TRACSIS PLC | 11
Mitigation:
Change in the year:
The Group continues to invest
in research and development
for its technology products to
ensure that they remain up to
date and also relevant to the
customer base, as it also takes
feedback from its clients about
what they require from the
products. This helps to ensure
that they remain relevant. The
Group works closely with its
customers to deliver the next
generation of products. For
certain parts of the Group, the
business
with
technology partners who have
specific expertise and can help
its
the Group
service offerings. Some of the
Group’s offerings are protected
relationships,
by
Framework
Agreements,
contractual agreements and
also significant development
costs, which provide protection
even if new entrants may come
along. The Group made a
in Citi
investment
strategic
Logik Limited in September
2015.
to maximise
customer
works
cost
The Group believes it operates
a relatively lean business in
order to protect against pricing
pressure, and
is constantly
searching for ways to maintain
operating
base
its
efficiently. When
reviewing
tenders and enquiries, pricing
is submitted accordingly on the
most favourable commercial
terms. The Group is committed
to
customer
satisfaction and offering a
compelling
on
investment for its products with
a clear value proposition, with
the objective that the customer
base will continue to take its
products due to their quality
and business case, with price
being of less concern to them.
ensuring
return
This
is under constant
review as a Technology
focussed business and as
the group becomes more
diverse and larger, each of
the Group’s product and
service
are
subject to different levels of
at
threats
technology
various points in time.
offerings
The Group made a strategic
investment
in Citi Logik
Limited in September 2015
to attempt to mitigate the
risk posted by the use of
mobile phone data
for
transport data collection.
Following the acquisition of
SEP, Traffic & Data
Services continues to make
up a large part of the overall
Group, and this part of the
business is most exposed
to pricing pressure and it
also operates at lower profit
margins
Rail
Technology & Services. As
the element of revenue
derived from Traffic & Data
Services has remained at
around half of Group
risk has
the
revenues,
remained unchanged on a
Groupwide basis.
than
12 | Annual Report and Accounts 2016
Risk Management continued
Description/Potential impact:
Area of Group
impacted:
Mitigation:
Change in the year:
Health & Safety
The Group has a large number of
employees operating at a variety of
sites around the country.
1. Traffic & Data
Services
2. Rail Technology
& Services
Following the acquisition of
SEP in the year, the Group
uses an increased number
of casual employees during
the year to perform various
services and as a result, the
incident has
risk of an
the
to
increased due
number of events that the
Group works at, and also
the number of casual staff
engaged with.
employs
The Group
a
dedicated Health & Safety
Manager for its Traffic & Data
Services division along with
external advisors. The Remote
Condition Monitoring division
engages the services of a
specialist Health & Safety
Advisor. Business unit heads
report on Health & safety
matters to the Board at every
board meeting. Across
the
Group, there are a number of
policies,
and
method statements to provide
mitigation against health &
safety risk.
procedures
Brand reputation
Any adverse publicity concerning
the Group, or any of its subsidiary
businesses may have an impact on
if
future
the
trading prospects
Group’s
adversely
brand
affected as a result of this.
is
Impact of EU Referendum
to
on
leave
the
The decision
European Union may have a
potential
the
impact
macroeconomic conditions in the
UK, from which the Group derives
the majority of its revenue and
profit, which may impact on the
Group’s customers, in particular
those revenues derived from the
public sector should this lead to
in government
any
spending.
reduction
All parts of the Group
The Board maintains regular
dialogue with Operational staff
and Heads of Department and
so is made aware of any issues
so that corrective action can be
taken if necessary.
The Group and its brand is
more high profile following
the acquisitions of SEP and
Ontrac and operates at a
number of high profile
clients and their events.
This is both an opportunity
and a threat.
All parts of the Group
Increased risk given that
the referendum took place
during
the year under
review.
Following the EU Referendum
decision, the Group has not
experienced
any material
change in business activity or
demand for its products and
services. Whilst it is too early
to assess
term
the
implications of this decision,
the Group has not made any
changes to financial forecasts
in light of this.
long
it
can
cost
Tracsis continues to benefit
from operating within specific
niche verticals of the traffic
data and transport markets
provide
where
and
demonstrable
to
efficiency
its
Group
customers.
believes that its market offering
and the sectors in which it
operates provides it with good
external
to
resilience
as
although,
influences
prudent
remain
vigilant of these influences.
savings
The
to do so,
TRACSIS PLC | 13
Strategic Report
Key Performance Indicators
1. The Group’s main Key Performance Indicators (KPIs) assessed at Group Level are as follows:
a. Sales Revenue and various Profit metrics versus budget, forecast and prior year
b. Sales prospects and forecasts versus budget and prior year
c. Cash balances, debtors and working capital requirements
2. Additional Key Performance Indicators specific to specific divisions:
a. Rail Technology & Services
i. Customer renewal rates for Software and new customer take up / product matrix
ii. Staff utilisation and chargeability
iii. Revenue by customer and by product type
iv. Delivery of major orders versus customer requirements
b. Traffic & Data Services:
i. Customer enquiries and conversion rates,
ii. Working capital tie up in debtors and work in progress and Capital expenditure
iii. Number of events and event days, plus casual staff costs relative to revenue
Revenue - £m
Adjusted EBITDA - £m
40
30
20
10
0
5
4
3
2
1
0
15
10
5
0
32.6
25.4
22.4
8.7
10.8
Revenue
2012
2013
2014
2015
2016
Profit Before Tax - £m
4.2
4.5
4
3
2.6
7.6
6.5
5.4
3.3
3.4
Adjusted EBITDA
2012
2013
2014
2015
2016
Basic Earnings Per Share - p
12.9
14.1
12.71
9.96
8.42
8
6
4
2
0
15
10
5
0
PBT
Basic EPS
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Cash - £m
13.3
11.4
7.6
6.6
8.9
Cash
2012
2013
2014
2015
2016
14 | Annual Report and Accounts 2016
Governance
Board of Directors
Executive Directors
John McArthur (41) Chief Executive Officer
John has been the Chief Executive Officer of Tracsis since the formation of the company in January 2004. Prior to this he
worked as an investment manager with Techtran Group Limited which specialises in developing the commercial potential of
intellectual property developed at the University of Leeds. John also worked for several years with Axiomlab Group plc, a
technology venture capital company, having started his career with Arthur Andersen & Co. He holds a first class degree in
Management Science from the University of Strathclyde in Glasgow.
Max Cawthra (38) Chief Financial Officer
Max joined Tracsis in September 2010 as Financial Controller and was promoted to the Board in August 2011. Max is a
Chartered Accountant, having trained with Ernst & Young in Leeds. Prior to joining Tracsis, Max spent seven years at Persimmon
plc in a variety of roles.
Non-Executive Directors
Chris Cole (70) Non-Executive Chairman
Chris is Non-Executive Chairman of WSP Global Inc. (listed on the Toronto Stock Exchange), the successor to WSP Group plc.
He is also Non-Executive Chairman of Ashtead Group plc, having previously been a Non-Executive Director, Senior Independent
Non-Executive Director of Infinis plc, and Non-Executive Chairman of Redcentric plc.
Charles Winward (46) Non-Executive Director
Charles is currently Investment Director at NVM Private Equity and was previously an Executive Director of IP Group plc until
April 2014, where he successfully invested in and served as Non-Executive Director at high potential technology companies,
including Retroscreen Virology plc and Xeros Technology plc. Charles is a Chartered Financial Analyst, holds an MBA from the
University of California at Berkeley and an undergraduate engineering degree from the University of Bristol.
John Nelson (69) Non-Executive Director
John Nelson has worked at the top of the rail industry for over thirty years and has been in the sector for 47 in total. Before
privatisation he was Managing Director of British Rail's biggest business, Network South East, and prior to that was General
Manager of the Eastern Region, then a quarter of the rail network in the UK. Since privatisation he has established 7 new
businesses including leading strategic management consultancy First Class Partnerships and the country's first Open Access
company, Hull Trains. At one time or another he has chaired the Boards of 13 train operating companies and sat on the Boards
of 4 others as a Non Executive Director. He continues to promote new rail ventures and was recently granted an award for
outstanding personal contribution to the rail industry at the National Rail Awards 2013.
Lisa Charles-Jones (45) Non-Executive Director
Lisa, is a HR professional and worked for LSL Property Services plc for 13 years, which is listed on the Main Market of the
London Stock Exchange, firstly as Head of HR and for the last ten years as Group HR Director. She is a member of the Chartered
Institute of Personnel and Development and holds an MBA from the University of Durham
Liz Richards (58) Non-Executive Director
Liz was previously Group Finance Director of Callcredit Information Group, from 2000 to 2015. Callcredit is a consumer data
business, which grew from a start-up in 2000 to a £150m turnover business with over 1,000 employees. Following its significant
growth and success, the business was sold in 2014 for circa £500m. Liz is a Chartered Accountant, having trained with EY, and
currently is Non-executive Director and audit committee chair of LINK Scheme Ltd, the UK ATM network operator. Prior to
Callcredit, Liz worked in a variety of finance roles.
TRACSIS PLC | 15
Governance
Directors’ Report
The directors present their report and the audited financial statements for the year ended 31 July 2016.
Tracsis plc (‘the Company’) is a public limited company incorporated and domiciled in the United Kingdom and under the
Companies Act 2006.
The address of the Company’s registered office is Leeds Innovation Centre, 103 Clarendon Road, Leeds, LS2 9DF.
The Company is listed on AIM, part of the London Stock Exchange.
The Group financial statements were authorised for issue by the Board of Directors on 16 November 2016.
Further information on the activities of the business, the Group strategy and an indication of the outlook for the business are
presented in the Chairman and Chief Executive Officer’s Statement and the Strategy and Business Model sections of the report.
Financial results
Details of the Group’s financial results are set out in the Consolidated Statement of Comprehensive Income, other primary
statements and in the Notes to the Consolidated Financial Statements on pages 26 to 66
Dividends
The Directors have adopted a progressive dividend policy, subject to growth, profitability and cash position in the future. An
interim dividend of 0.50p per share was paid in April 2016. The Directors propose a final dividend of 0.7p per share, subject to
shareholder approval at the forthcoming Annual General Meeting. This will give a full year dividend of 1.2p per share (2015:
1.0p).
Directors
The directors who serve on the Board and on Board Committees during the year are set out on page 14. Sean Lippell resigned
as a Director on 23 May 2016. Lisa Charles-Jones was appointed as a Director on 25 August 2016. Liz Richards was appointed
as a Director on 1 September 2016.
Under the Articles of Association of the Company, one third of the directors are subject to retirement by rotation at the
forthcoming Annual General Meeting, notice of which accompanies this Report and Accounts. Accordingly John Nelson and
Max Cawthra retire by rotation and, being eligible, offer themselves for re-election. In addition, Lisa Charles-Jones and Liz
Richards will seek re-election given they were both appointed since the last Annual General Meeting. In relation to the re-
elections of each of the directors, the Board is satisfied that each of these directors continues to be effective and to demonstrate
commitment to the Company
Information in respect of directors’ remuneration is given in the Directors’ Remuneration Report on pages 18 to 21.
Directors’ shareholdings
Directors’ beneficial interests in the shares of the Company, including family interests, at 31 July 2016 and 2015 were as follows:
31 July 2016
31 July 2015
Number
of
shares
% of
issued
share
capital
Number
% of
issued
of
share
shares
capital
John McArthur
1,062,783
3.86% 1,117,433
4.21%
Max Cawthra
John Nelson
Charles Winward
Chris Cole
Lisa Charles-Jones
Liz Richards
177,860
0.65%
54,000
0.20%
100,824
0.37%
230,824
0.87%
99,771
7,000
0.36%
0.02%
86,771
0.33%
7,000
0.03%
-
-
-
-
-
-
-
-
16 | Annual Report and Accounts 2016
Directors’ Report continued
None of the Directors had any interests in the share capital of subsidiaries. Further details of share options held by the directors
are set out in the Directors’ Remuneration Report.
Substantial shareholdings
At 16 November 2016, being the latest practicable date prior to the publication of this document, the Company has been advised
of the following shareholdings of 3% or more in the issued share capital of Tracsis plc:
Number
of
shares
Unicorn Asset Management
1,860,532
Ennismore Fund Management 1,661,274
1,473,684
Schroders
1,440,986
BlackRock Inc
1,343,778
Liontrust Investment Partners
1,269,248
Downing LLP
1,262,500
Hargreave Hale Limited
1,183,182
Fidelity
1,131,648
Investec Asset Management
1,090,000
The University of Leeds
1,062,783
John McArthur
% of
issued shares
6.7%
6.0%
5.3%
5.2%
4.9%
4.6%
4.6%
4.2%
4.1%
4.0%
3.9%
Payment of suppliers
It is the Group’s policy to pay suppliers in accordance with the terms and conditions agreed in advance, providing all trading
terms and conditions have been met. All payments are made in the ordinary course of business and the Group expects to pay
all supplier debts as they become due.
Trade payable days for the Group at 31 July 2016 were 58 days (2015: 55 days).
Research and development
During the year the Group incurred £970,000 (2015: £437,000) of expenditure on research activity, which has been charged to
the Income Statement.
Financial instruments
Details of the Group’s exposure to financial risks are set out in Note 26 to the financial statements.
Employment policy
It is the policy of the Group to operate a fair employment policy. No employee or job applicant is less favourably treated than
another on the grounds of their sex, sexual orientation, age, marital status, religion, race, nationality, ethnic or national origin,
colour or disability and all appointments and promotions are determined solely on merit. The Directors encourage employees to
be aware of all issues affecting the Group and place considerable emphasis on employees sharing in its success through its
employee share option scheme.
Environment
The Group adheres to all environmental regulations and has, where possible, utilised environmental-sustaining policies such as
recycling and waste reduction.
Significant Contracts
One of the Group’s subsidiaries, MPEC Technology Limited, has a significant Framework Agreement with a major railway
infrastructure provider, from which it has historically derived a significant amount of business. Tracsis Traffic Data Limited,
another subsidiary company, has a significant Framework Agreement with a major worldwide engineering consultancy company
from which it has historically derived a significant amount of business. Ontrac Limited works extensively with a major railway
infrastructure provider, from which it has historically derived a significant amount of business. SEP Limited has a number of
significant, multi-year contracts with a number of key clients.
TRACSIS PLC | 17
Directors’ Report continued
Charitable donations
The Group made charitable donations to various charities amounting to £5,200 during the year (2015: £6,290). No political
donations were made.
Auditor
A resolution to appoint KPMG LLP will be proposed at the Annual General Meeting.
Provision of information to auditor
All of the current Directors have taken all steps that they ought to have taken to make themselves aware of any information
needed by the Company’s auditor for the purposes of their audit and to establish that the auditor is aware of that information.
The Directors are not aware of any relevant audit information of which the auditor is unaware.
By order of the Board
Max Cawthra
Company Secretary
16 November 2016
Leeds Innovation Centre
103 Clarendon Road
Leeds
LS2 9DF
18 | Annual Report and Accounts 2016
Governance
Directors’ Remuneration Report
Unaudited information:
Tracsis plc, as an AIM company, is not required to present a Directors Remuneration Report in accordance with the Combined
Code. As part of the Company’s commitment to Corporate Governance, we present a voluntary report below.
Remuneration committee
The Remuneration Committee is described in the Report on Corporate Governance. The remuneration for each Executive
Director is determined by the Remuneration Committee, which comprises the Non-Executive Directors. None of the committee
members has any personal financial interest, other than as shareholders, in the matters to be decided.
Service contracts
It is the Group’s policy to enter into service contracts or letters of appointment with all Directors. Specific terms are:
Executive Directors
John McArthur
Max Cawthra
Non-Executive Directors
John Nelson
Charles Winward
Chris Cole
Lisa Charles-Jones
Liz Richards
Date Commencement Unexpired
of contract
date
term
Notice
period
21.11.07
20.09.10
21.11.07
21.11.07
28.04.14
25.08.16
01.09.16
01.01.04
Indefinite
6 months
20.09.10
Indefinite
3 months
21.11.07
Indefinite
3 months
21.11.07
Indefinite
3 months
28.04.14
Indefinite
3 months
25.08.16
Indefinite
3 months
01.09.16
Indefinite
3 months
None of the service contracts or letters of appointment provide for any termination payments.
Remuneration policy
The remuneration packages for Directors and senior management have been structured so as to fairly compensate them for
their contribution to the Group and to encourage them to remain within the Group. The basic components of these packages
include:
Basic salary and bonus arrangements
Each Director receives an annual salary or Directors’ fee for his/her services. These salaries are reviewed annually by the
Remuneration Committee and take into account the financial performance of the Group and market conditions. The Group
operates a bonus scheme. The Remuneration Committee is entitled to decide whether any bonuses are payable, and if so, what
amounts should be granted to Executive Directors.
External appointments
The committee recognises that its directors may be invited to become executive or non-executive directors of other companies
or to become involved in charitable or public service organisations. As the Committee believes that this can broaden the
knowledge and experience of the directors to the benefit of the Group, it is the Group’s policy to approve such appointments
provided that there is no conflict of interest and the commitment is not excessive. The director concerned can retain the fees
relating to any such appointment.
TRACSIS PLC | 19
Directors’ Remuneration Report continued
Pensions and benefits in kind
All staff, Executive Directors and senior management are entitled to participate in the stakeholder pension plan established by
the Group. Benefits are provided to certain Executive Directors, including private health cover. The Group does not provide
any company cars to any of its Directors. The Group makes employer pension contributions to the pension schemes of J
McArthur and M Cawthra at a standard 5% of basic salary, in line with the level of contributions for other members of staff.
During a previous financial year, John McArthur elected to take a reduction in basic salary in return for additional employers
pension contributions and this was continued in the financial year under review. There was no additional cost to the Group in
respect of this arrangement.
Audited information:
Directors’ remuneration
Directors’ remuneration for the year ended 31 July 2016 is set out below
Executive Directors
John McArthur
Max Cawthra
Non-Executive Directors
John Nelson
Charles Winward
Chris Cole
Sean Lippell (to 23 May 2016)
Lisa Charles-Jones (appointed 25 Aug 16)
Liz Richards (appointed 1 Sept 16)
Basic Pension
Conts
salary
£000
£’000
184
140
324
23
25
50
21
-
-
119
40
7
47
-
-
-
-
-
-
-
Bonus
£000
99
67
166
-
-
-
-
-
-
-
Benefits
in kind
£000
-
-
-
-
-
-
-
-
-
-
Total
2016
£000
323
214
537
23
25
50
21
-
-
Total
2015
£000
299
197
496
23
25
50
25
-
-
119
123
Directors’ interests in shares options in the Executive Share Option Schemes
At
1 August
At
Exercise
Date from
31 July
price
Which
2015 Granted* Lapsed Exercised
2016
pence
Exercisable Expiry date
Executive
Directors
John McArthur
100,000
92,727
Max Cawthra
160,162
61,819
Non-Executive
Directors
John Nelson
25,000
Charles Winward
50,000
Chris Cole
Lisa Charles-
Jones
Liz Richards
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(100,000)
92,727
0.4p
See note 1
(150,000)
71,981
0.4p
See notes 1
and 2
15 Dec
2025
15 Dec
2025 /1 Aug
2022
-
25,000
175p
See note 3
(50,000)
-
-
-
-
-
-
-
175p
See note 3
-
-
-
-
-
-
26 Mar
2023
26 Mar
2023
-
-
-
In accordance with Corporate Governance best practice, the Group will no longer be granting stock options to Non-Executive
Directors in lieu of salary. This will ensure objectivity and independence within the Board’s decision making process.
20 | Annual Report and Accounts 2016
Directors’ Remuneration Report continued
Directors’ interests in shares options in the Executive Share Option Schemes (continued)
Note 1
Following a meeting of the remuneration committee on 14 December 2015, Tracsis formally granted 92,727 share options on
15 December 2015 to John McArthur, Chief Executive Officer and 61,819 share options to Max Cawthra, Chief Finance Officer,
together the Group's Executive Directors.
The remuneration committee believes it is important to retain and motivate Executive Directors whilst at the same time setting
challenging performance targets that are aligned with the Group's strategic goals and in shareholders' interests. The
remuneration committee had sought to implement a formalised LTIP scheme for the Executive Directors for some time, but had
been unable to do so due to close period restrictions imposed by various corporate activities (primarily acquisitions) and statutory
reporting close periods.
Following the acquisition of Ontrac Technology Limited and Ontrac Limited (announced 2nd December 2015), the remuneration
committee was now able to grant the options and has incorporated two years' worth of grants dating back to 1 August 2014.
The committee took formal advice from KPMG LLP in establishing the LTIP scheme rules and in determining appropriate targets
and peer group comparators.
The options awarded have an exercise price of 0.4p and are directly linked to performance targets based on Group profitability
and Total Shareholder Return relative to an AIM peer group determined by Tracsis' remuneration committee which can be
summarised as follows:
'2014 LTIP'
• John McArthur granted a maximum of 54,545 options, Max Cawthra issued a maximum of 36,364 options
• Full award is only exercisable should statutory diluted Earnings Per Share (EPS) for the year ending 31 July 2017 be
17.37p, and Total Shareholder Return (TSR) versus AIM peer group is in the top quartile
• Where statutory diluted EPS for the year ending 31 July 2017 be less than 14.37p, and TSR versus the peer group is
less than the median, no options will be exercisable
• For scenarios between the above range, the options will be exercisable on a sliding scale basis in both instances
'2015 LTIP'
• John McArthur granted maximum of 38,182 options, Max Cawthra granted a maximum of 25,455 options
• Full award is only payable should statutory diluted EPS for the year ending 31 July 2018 be 17.95p, and TSR versus
the peer group is in the top quartile
• Should statutory diluted EPS for the year ending 31 July 2018 be less than 14.95p, and TSR versus the peer group is
less than the median, no options will be awarded
• For scenarios between the above range, the options will be exercisable on a sliding scale basis in both instances
Note 2
Options granted in 2012/13 relate to the Company’s previous LTIP scheme where Max Cawthra exchanged an element of his
2011/12 cash bonus for discounted share options as part of a scheme available to all staff, in return for 10,162 options with an
exercise price of 0.4p
Note 3
Options granted in 2012/13 are exercisable in batches in 3 monthly intervals commencing 3 months from the date of grant (26
March 2013). All options will be fully exercisable 24 months after the date of grant.
The aggregate amount of pre-tax gains made by directors on the exercise of share options was £355,177 (2015: £nil). No
directors received or were due to receive any shares under long term incentive schemes other than under the share options
schemes set out above.
TRACSIS PLC | 21
Directors’ Remuneration Report continued
Performance graph
The following graph shows the Company’s share price (rebased) compared with the performance of the FTSE AIM all-share
index (rebased) for the period from 1 August 2015 to 31 July 2016.
120
115
110
105
100
95
90
85
80
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Tracsis - rebased
AIM All Share - rebased
The committee has selected the above indices because they are most relevant for a company of Tracsis’s size and sector.
On behalf of the Board
Lisa Charles-Jones
Chair of the Remuneration Committee
16 November 2016
22 | Annual Report and Accounts 2016
Governance
Corporate Governance
Tracsis plc was listed on AIM on 27 November 2007. The Group recognises the importance of, and is committed to, high
standards of corporate governance. Tracsis plc, as an AIM Company, is not required to comply with the current UK Corporate
Governance Code, although it has adopted some of the principles as set out below.
The Board
There are currently 7 Board members, comprising 2 Executive Directors and 5 Non-Executive Directors. The role of the Non-
Executive Directors is to bring independent judgement to Board deliberations and decisions. Chris Cole was appointed as a
Non-Executive Chairman of the Board in 2014 to oversee Board meetings and field all concerns regarding the executive
management of the Group and the performance of the Executive Directors. A biography of each Director appears on page 14.
The Directors each have diverse backgrounds and a wide range of experience is available to the Group. The Board meets on a
monthly basis to review the Group’s performance and to review and determine strategies for future growth. The Board has
delegated specific responsibilities to its committees as set out below.
Each of the Directors is subject to either an executive services agreement or a letter of appointment as set out on page 14.
Tracsis plc’s Articles of Association require directors to retire from office and submit themselves for re-election on a one third
rotation at each Annual General Meeting. John Nelson and Max Cawthra will be retiring at the Annual General Meeting
and submitting themselves for re-election. In addition, Lisa Charles-Jones and Liz Richards will seek re-election given they were
appointed since the last Annual General Meeting.
Board meetings and attendance
Board meetings were held on 10 occasions during the year. The table below shows attendance at the meetings whether in
person or by telephone. The Company Secretary records attendance at all board meetings including where attendance is by
telephone conference.
Board Nomination Remuneration
Committee
Meetings
-
-
2/2
2/2
2/2
2/2
Meetings Committee
Meetings
-
-
-
-
-
-
(total/poss)
10/10
10/10
9/10
10/10
10/10
5/8
Audit
Committee
Meetings
-
-
2/2
2/2
2/2
1/1
John McArthur
Max Cawthra
John Nelson
Charles Winward
Chris Cole
Sean Lippell
Board committees
Nomination Committee
The Nomination Committee comprises Chris Cole as Chairman, and the Non-Executive Directors. The committee’s primary
responsibilities are to make recommendations to the Directors on all new appointments of Directors and senior management,
interviewing nominees, to take up references and to consider related matters.
Remuneration Committee
The Remuneration Committee comprises Lisa Charles-Jones (previously Sean Lippell) as Chairperson and the Non-Executive
Directors. The committee’s primary responsibilities are to review the performance of the Executive Directors and to determine
the terms and conditions of service of senior management and any Executive Director appointed to the Board (including the
remuneration of and grant of options to any such person under any share scheme adopted by the Group).
Audit Committee
The Audit Committee similarly comprises Charles Winward as Chairperson, with this position transitioning to Liz Richards, and
the Non-Executive Directors. The audit committee’s primary responsibilities are to monitor the financial affairs of the Group, to
ensure that the financial performance of the Group is properly measured and reported on, and to review reports from the Group’s
auditor relating to the accounting and internal controls.
TRACSIS PLC | 23
Corporate Governance continued
Non audit services
In accordance with its policy on non audit services provided by the Group’s auditor, the Audit Committee reviews and approves
the award of any such work. The Audit Committee refers to the Board for approval of any work comprising non audit services
where the fees for such work represent more than 25% of the annual audit fee.
Auditor independence and conflicts of interest
The Audit Committee continues to evaluate the independence and objectivity of the external auditor and takes into consideration
all United Kingdom professional and regulatory requirements. Consideration is given to all relationships between the Group and
the audit firm (including in respect of the provision of non audit services). The Audit Committee considers whether, taken as a
whole, and having regard to the views, as appropriate, of the external auditor and management, those relationships appear to
impair the auditor’s judgement or independence. The Audit Committee feels they do not.
Internal audit
The Audit Committee agrees that there should be no internal audit function of the Group at this time considering the size of the
Group and the close involvement of senior management over the Group’s accounting systems. However, the Committee will
keep this matter under review in the event that circumstances warrant an internal function for the Group in the future.
Control procedures
The Board approves the annual budget each year. This process allows the Board to identify key performance targets and risks
expected during the upcoming year. The Board also considers the agreed budget when reviewing trading updates and
considering expenditures throughout the year. Progress against budget is monitored via monthly reporting of actual financial
performance against budget and prior year actual results.
The Group has clear authority limits deriving from the list of matters reserved for decision by the Board including capital
expenditure approval procedures.
Relations with shareholders
The Board recognises and understands that it has a fiduciary responsibility to the shareholders. The Chairman’s Statement and
Chief Executive’s Statement include detailed analysis of the Group’s performance and future expectations. The Group’s website
(www.tracsis.com) allows shareholders access to information, including contact details and the current share price. The Chief
Executive is responsible for on-going dialogue and relationships with shareholders, alongside the Chief Financial officer and
Chairman.
The Annual General Meeting will be a platform for the Board to communicate with shareholders and the Board welcomes the
attendance and participation of all shareholders.
Going concern
The Directors have a reasonable expectation that the Group has adequate resources to continue for the foreseeable future in
operational existence and have therefore adopted the going concern basis in preparing the accounts.
Independence of Non-Executive Directors
The Directors consider all Non-Executive Directors to be independent.
Board evaluation process
During the previous year, the Board commenced a formal evaluation process. During the year, Sean Lippell stood down as a
Director. Post year end, Lisa Charles-Jones and Liz Richards were appointed as Directors.
24 | Annual Report and Accounts 2016
Statement of Directors’ Responsibilities in respect of the
Annual Report and the Financial Statements
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 group and parent company financial statements for each financial year. Under
that law they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and
applicable law and 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 the group and parent company and of their profit or loss for that period. In preparing each of
the group and parent company 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 they have been prepared in accordance with IFRSs as adopted by the EU; and
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 its financial statements comply with the Companies Act 2006. They have general responsibility for
taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the directors in respect of the annual financial report
We confirm that to the best of our knowledge:
the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the
consolidation taken as a whole; and
the strategic report includes a fair review of the development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal
risks and uncertainties that they face.
•
•
.
TRACSIS PLC | 25
Independent Auditor’s Report to the Members
of Tracsis plc
We have audited the financial statements of Tracsis plc for
the year ended 31 July 2016 set out on pages 26 to 76. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the EU and, as
regards the parent company financial statements, as applied
in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone
other than the company and the company’s members, as a
body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement set out on page 24, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit, and express an opinion on, the financial
statements
law and
in accordance with applicable
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council’s website at:
www.frc.org.uk/auditscopeukprivate..
Opinion on financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs
as at 31 July 2016 and of the group's profit for the year
then ended;
the group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
EU;
the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the EU and as applied in accordance with the
provisions of the Companies Act 2006; and
the
in
financial statements have been prepared
accordance with the requirements of the Companies Act
2006 and, as regards the group financial statements,
Article 4 of the IAS Regulation
Opinion on other matters prescribed by the Companies Act
2006
•
•
•
the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with
the Companies Act 2006;
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 information given in the Corporate Governance
Statement set out on pages 22 and 23 with respect to
internal control and risk management systems in relation
to financial reporting processes and about share capital
structures is consistent with the financial statements.
Based solely on the work required to be undertaken in the
course of the audit of the financial statements and from
reading the Strategic Report, the Directors’ Report and the
Corporate Governance Statement:
• we have not identified material misstatements in the
Strategic Report, the Directors’ Report, or the specified
Corporate Governance information;
in our opinion, the Strategic Report and the Directors’
Report have been prepared in accordance with the
Companies Act 2006; and
•
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you
if, in our opinion:
•
•
•
adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified
by law are not made; or
• we have not
the
explanations we require for our audit.
received all
information and
David Morritt (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
16 November 2016
26 | Annual Report and Accounts 2016
Financial Statements
Consolidated Statement of Comprehensive Income
for the year ended 31 July 2016
Revenue
Cost of sales
Gross profit
Administrative costs
Adjusted EBITDA*
Amortisation of intangible assets
Depreciation
Exceptional item: Acquisition and disposal costs
Exceptional item: Loss on disposal
Share-based payment charges
Operating profit / (loss)
Finance income
Finance expense
Profit / (loss) before tax
Taxation
Profit / (loss) after tax
2016
2015
Continuing
operations
Acquisitions
Discontinued
operations
Total
Continuing
operations
Discontinued
operations
Total
Notes
£000
£000
£000
£000
£000
£000
£000
6
24,062
7,341
1,238
32,641
23,137
2,245
25,382
(8,448)
(4,111)
(715)
(13,274)
(8,324)
(1,308)
(9,632)
15,614
3,230
523
19,367
14,813
937
15,750
(11,783)
(2,962)
(662)
(15,407)
(10,605)
(677)
(11,282)
6
15
14
5
5
8
9
10
11
12
6,021
(714)
(621)
-
-
1,423
(664)
(123)
(136)
201
7,645
-
(1,378)
(29)
(39)
-
(272)
(773)
(175)
(272)
6,197
(714)
(652)
-
-
(855)
(232)
-
(1,087)
(623)
3,831
21
(27)
3,825
(372)
3,453
268
15
(10)
273
-
273
(139)
3,960
4,208
-
(4)
(143)
(50)
(193)
36
(41)
3,955
(422)
3,533
31
(20)
4,219
(679)
3,540
332
-
(72)
-
-
-
260
-
(9)
251
(62)
189
6,529
(714)
(724)
-
-
(623)
4,468
31
(29)
4,470
(741)
3,729
Other comprehensive income/(expense):
Items that are or may be reclassified subsequently to profit
or loss
Foreign currency translation differences – foreign
operations
Total recognised income for the year
-
3,453
-
189
189
-
(89)
273
(4)
3,722
3,540
100
(89)
3,640
TRACSIS PLC | 27
Earnings per ordinary share
Basic
Diluted
13
13
12.42p
11.98p
0.98p
0.95p
(0.69p)
(0.67p)
12.71p
12.26p
13.39p
12.80p
0.71p
0.68p
14.10p
13.48p
* Earnings before finance income, tax, depreciation, amortisation, exceptional items and share-based payment charges.
The accompanying notes form an integral part of these financial statements
28 | Annual Report and Accounts 2016
Financial Statements
Consolidated Balance Sheet as at 31 July 2016 Company number: 05019106
Non-current assets
Property, plant and equipment
Intangible assets
Investments – loan notes receivable
Investments – equity
Deferred consideration receivable
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Deferred consideration receivable
Cash and cash equivalents
Total assets
Non-current liabilities
Hire-purchase contracts
Contingent & Deferred consideration payable
Deferred tax liabilities
Current liabilities
Hire-purchase contracts
Trade and other payables
Contingent & Deferred consideration payable
Current tax liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the company
Called up share capital
Share premium reserve
Merger reserve
Share based payments reserve
Retained earnings
Translation reserve
Total equity
Note
14
15
16
16
5
22
17
19
5
18
21
22
18
20
21
23
24
24
24
24
24
2016
£000
2,608
26,132
250
500
167
573
30,230
271
6,166
133
11,385
17,955
48,185
296
4,485
4,284
9,065
368
8,354
1,665
67
10,454
19,519
28,666
110
5,622
3,010
2,408
17,516
-
28,666
2015
£000
1,930
10,010
-
-
-
882
12,822
274
4,273
-
13,341
17,888
30,710
229
-
1,734
1,963
171
5,697
-
502
6,370
8,333
22,377
106
4,776
1,846
1,321
14,517
(189)
22,377
The financial statements on pages 26 to 66 were approved and authorised for issue by the Board of Directors on 16
November 2016 and were signed on its behalf by:
John McArthur – Chief Executive Officer
Max Cawthra – Chief Financial Officer
The accompanying notes form an integral part of these financial statements
Financial Statements
Consolidated Statement of Changes in Equity
TRACSIS PLC | 29
Share
Share-
based
Share
Premium
Merger
Payments Retained
Capital
Reserve
Reserve
Reserve
Earnings
£000
£000
£000
£000
£000
Translation
Reserve
£000
Total
£000
At 1 August 2014
105
4,591
1,846
698
10,709
(100)
17,849
Profit for the year
Other comprehensive
expense
Total comprehensive income
Transactions with owners:
Dividends
Share based payment
charges
Tax movements in equity
Exercise of share options
At 31 July 2015
At 1 August 2015
Profit for the year
Other comprehensive income
Reclassification on disposal
Total comprehensive income
Transactions with owners:
Dividends
Share based payment
charges
Tax movements in equity
Exercise of share options
Shares issued as
consideration
At 31 July 2016
-
-
-
-
-
-
-
-
-
-
-
-
1
106
185
4,776
-
-
-
-
-
-
-
-
-
-
-
623
-
-
3,729
-
3,729
-
(89)
(89)
3,729
(89)
3,640
(225)
-
304
-
-
-
-
-
(225)
623
304
186
1,846
1,321
14,517
(189)
22,377
106
4,776
1,846
1,321
14,517
(189)
22,377
-
-
-
-
-
-
-
3
1
-
-
-
-
-
-
-
846
-
110
5,622
-
-
-
-
-
-
-
-
1,164
3,010
-
-
-
-
-
1,087
-
-
-
3,533
-
-
3,533
(301)
-
(233)
-
-
2,408
17,516
-
22
167
189
-
-
-
-
-
-
3,533
22
167
3,722
(301)
1,087
(233)
849
1,165
28,666
Details of the nature of each component of equity are set out in Notes 23 and 24.
The accompanying notes form an integral part of these financial statements
30 | Annual Report and Accounts 2016
Financial Statements
Consolidated Cash Flow Statement
for the year ended 31 July 2016
Operating activities
Profit for the year
Finance income
Finance expense
Depreciation
Loss on disposal of plant and equipment
Loss on disposal of business
Amortisation of intangible assets
Income tax charge
Share based payment charges
Operating cash inflow before changes in working capital
Movement in inventories
Movement in trade and other receivables
Movement in trade and other payables
Cash generated from operations
Finance income
Finance expense
Income tax paid
Net cash flow from operating activities
Investing activities
Purchase of plant and equipment
Proceeds from disposal of plant and equipment
Acquisition of subsidiaries
Proceeds from disposal of subsidiaries
Equity investments and loans to investments
Receipt of deferred consideration
Notes
2016
£000
2015
£000
3,533
3,729
10
11
14
5
15
12
8
10
11
14
5
5
5
5
(36)
41
773
2
272
1,378
422
1,087
7,472
3
(506)
(17)
6,952
36
(41)
(1,081)
5,866
(795)
83
(6,761)
166
(750)
74
(30)
(31)
29
724
3
-
714
741
623
6,532
(11)
169
(378)
6,312
31
(29)
(964)
5,350
(697)
59
-
-
-
-
-
Payment of contingent & deferred consideration
5/21
Net cash flow used in investing activities
(8,013)
(638)
Financing activities
Dividends paid
Proceeds from exercise of share options
Hire purchase repayments
Net cash flow from / (used in) financing activities
Net (decrease) / increase in cash and cash equivalents
Effect of exchange fluctuations
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
30
18
(301)
849
(369)
179
(1,968)
12
13,341
11,385
(225)
186
(186)
(225)
4,487
(66)
8,920
13,341
The accompanying notes form an integral part of these financial statements
TRACSIS PLC | 31
Financial Statements
Notes to the Consolidated Financial Statements
1
Reporting entity
Tracsis plc (the ‘Company’) is a company incorporated in the United Kingdom. The consolidated financial statements
of the Company for the year ended 31 July 2016 comprise the Company and its subsidiaries (together referred to as
the ‘Group’).
2
Basis of preparation
(a)
(b)
(c)
(d)
Statement of compliance
The Group consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (‘IFRSs’) as adopted by the EU and applicable law. The Company has elected to prepare its parent company
financial statements in accordance with FRS 101. These parent company statements appear after the notes to the
consolidated financial statements.
Basis of measurement
The Accounts have been prepared under the historical cost convention.
Functional and presentation currency
These consolidated financial statements are presented in sterling, which is the Group and Company’s functional
currency. All financial information presented in sterling has been rounded to the nearest thousand.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on historical experience and various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of the
revision and future periods, if the revision affects both current and future periods.
Judgements made by management in the application of IFRSs that have a significant effect on the Group financial
statements and estimates with a significant risk of material adjustment in future years are disclosed in Note 4.
(e)
Accounting developments
The Group and Company financial statements have been prepared and approved by the directors in accordance with
International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). The accounting policies have
been applied consistently to all periods presented in the consolidated financial statements, unless otherwise stated.
Certain new standards, amendments and interpretations to existing standards have been published that are mandatory
for the group’s accounting period beginning on or after 1 August 2015. The following new standards and amendments
to standards are mandatory and have been adopted for the first time for the financial year beginning 1 August 2015:
• Annual Improvements to IFRSs 2010 - 2012 Cycle
• Annual Improvements to IFRSs 2011 - 2013 Cycle
These standards have not had a material impact on the Consolidated Financial Statements.
32 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
2
Basis of preparation (continued)
Certain new standards, amendments and interpretations to existing standards have been published that are mandatory
for the group’s accounting period beginning on or after 1 August 2016. The Group has elected not to adopt early these
standards which are described below:
Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)
• Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)
• Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)
• Equity Method in Separate Financial Statements (Amendments to IAS 27)
• Annual Improvements to IFRSs 2012–2014 Cycle – various standards
•
• Disclosure Initiative (Amendments to IAS 1)
• Disclosure Initiative (Amendments to IAS 7)
• Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)
•
•
• Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)
•
IFRS 15 Revenue from Contracts with Customers
IFRS 9 Financial Instruments
IFRS 16 Leases
The above are not expected to have a material impact on the group’s reported results.
(f)
Going concern
The Group is debt free and has substantial cash resources. The Board has prepared cash flow forecasts for the
forthcoming year based upon assumptions for trading and the requirements for cash resources.
Based upon this analysis, the Board has concluded that the Group has adequate working capital resources and that it
is appropriate to use the going concern basis for the preparation of the consolidated financial statements.
3
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated
financial statements and have been applied consistently by Group entities, except as stated in note 2(e), which
addresses changes in accounting policies.
(a)
Basis of consolidation
The Group’s accounting policy with respect to business combinations is set out below.
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date control ceases. The accounting
policies of subsidiary companies have been changed where necessary to align them with the policies adopted by the
Group.
The Group entities included in these consolidated financial statements are those listed in note 29.
All intra-group balance and transactions, including unrealised profits arising from intra-group transactions, are
eliminated fully on consolidation.
(b)
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable (excluding value added tax and
discounts given) derived from the provision of goods and services to customers during the period. The Group derives
revenue from software, post contract customer support, sale of hardware & condition monitoring technology,
consultancy and professional services, and data capture/passenger counting services.
Revenue from software is derived from the sale of software both as a perpetual and non-cancellable annual licences,
the provision of software as a service and the support and hosting services associated with this.
TRACSIS PLC | 33
Notes to the Consolidated Financial Statements continued
3
Significant accounting policies (continued)
Revenue recognition (continued)
The Group recognises the revenue from the sale of perpetual and non-cancellable annual software licences and
specified upgrades upon shipment of the software product or upgrade, when there are no significant vendor obligations
remaining, when the fee is fixed and determinable and when collectability is considered probable. Where appropriate
the Group provides a reserve for estimated returns under the standard acceptance terms at the time the revenue is
recognised. Payment terms are agreed separately with each customer.
Revenue from the provision of Software as a Service under contracts with extended terms which combine software and
support services elements are recognised evenly over the period to which the services relate. Customers pay an agreed
fee covering a range of periods, for a defined contractual term, and the contracts provide the customer with various
rights during the term of the contract. This policy reflects the continuous nature of the transfer of value to the customer.
Revenue capable of being allocated to customer support services is recognised on a straight-line basis over the term
of the support contract. Revenue not recognised in the income statement under this policy is classified as deferred
income in the balance sheet.
Revenue capable of being allocated to hosting services is recognised on a straight line basis over the term of the
hosting contract. Revenue not recognised in the income statement under this policy is classified as deferred income in
the balance sheet.
In the case where a single contract involves the combination of any or all of sale of software as a perpetual or non-
cancellable annual licence, provision of Software as a Service, support services and hosting services, the amount of
consideration is derived from an assessment of the fair value of each of the individual constituent elements of the goods
and services provided. The revenue allocated to each element is recognised as outlined above.
Revenue from hardware sales and condition monitoring technology is recognised as the products are shipped to
customers. Provision is made for any returns to customers, or credit notes to be issued.
Revenue from consultancy and professional services is recognised when the services have been performed, once the
work and value has been agreed with the customer.
In respect of data collection and counting services, revenue is recognised on services not yet billed at the fair value of
consideration expected to be receivable to the extent that the work has already been carried out at the year end. Where
the outcome of a contract can be estimated reliably, revenue and costs are recognised by reference to the stage of
completion of the contract activity at the end of the reporting period, measured based on work performed and if its
receipt is considered probable. Where the outcome of a contract cannot be estimated reliably, contract revenue is only
recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised
as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total
contract revenue, the expected loss is recognised as an expense immediately.
Revenue from event planning and traffic management services is recognised when the services have been performed,
once the work and value has been agreed with the customer.
(c)
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes
directly attributable costs. The corresponding liability is recognised within provisions. Items of property, plant and
equipment are carried at depreciated cost.
Depreciation is provided on all items of property, plant and equipment so as to write off the carrying value of items over
their expected useful economic lives. It is applied at the following rates:
Freehold buildings (excluding land)
Computer equipment
Office fixtures and fittings
Motor vehicles
–
–
–
–
4% on cost
33 1/3% on cost
10% – 20% on cost
20 – 25% per annum reducing balance basis
34 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
3
Significant accounting policies (continued)
(d)
Intangible assets
Goodwill
Goodwill arising on acquisitions comprises the excess of the fair value of the consideration for investments in subsidiary
undertakings over the fair value of the net identifiable assets acquired at the date of acquisition. Adjustments are made
to fair values to bring the accounting policies of the acquired businesses into alignment with those of the Company.
The costs of integrating and reorganising acquired businesses are charged to the post acquisition income statement.
Goodwill arising on acquisitions of subsidiaries is included in intangible assets.
Goodwill is not amortised but is tested annually for impairment and carried at cost less accumulated impairment losses.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of those cash-generating
units represents the lowest level within the group at which the associated level of goodwill is monitored for management
purposes and are not larger than the operating segments determined in accordance with IFRS 8 “Operating Segments”.
Business Combinations
From 1 August 2009 the Group has applied IFRS 3 Business Combinations (2008) in accounting for business
combinations. The change in accounting policy has been applied prospectively and has had no material impact on
earnings per share. Business combinations are accounted for using the acquisition method as at the acquisition date,
which is the date on which control is transferred to the Group. An investor controls an investee when the investor is
exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those
returns through its power over the investee.
For acquisitions on or after 1 August 2009, the Group measures goodwill at the acquisition date as:
•
•
•
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is
achieved in stages, the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such
amounts are generally recognised in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group
incurs in connection with a business combination are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration
is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent
changes to the fair value of the contingent consideration are recognised in profit or loss. Contingent consideration is
treated as part of the costs of acquisition provided it is not contingent on the continuing employment of the vendors.
For acquisitions prior to 1 August 2009, goodwill represents the excess of the cost of the acquisition over the Group’s
interest in the recognised amounts (generally fair value) of the identifiable assets, liabilities and contingent liabilities of
the acquiree.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in
connection with business combinations were capitalised as part of the cost of acquisition.
TRACSIS PLC | 35
Notes to the Consolidated Financial Statements continued
3
Significant accounting policies (continued)
Intangible assets (continued)
Other intangible assets
An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent
that it is probable that the expected future economic benefits attributable to the asset will flow to the group and that its
cost can be measured reliably. The asset is deemed to be identifiable when it is separable or when it arises from
contractual or other legal rights.
Intangible assets, primarily customer relationships and technology related assets, acquired as part of a business
combination are capitalised separately from goodwill and are carried at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is calculated using a straight line method over the estimated useful life
of the assets of 10 to 20 years for customer related assets and 10 years for technology related assets.
Impairment of non-current assets
Where an indication of impairment is identified, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). If the recoverable amount (higher of fair value less cost to sell and value in
use of an asset) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its
recoverable amount.
Research and Development Costs
Expenditure on internally developed products is capitalised as intangible assets if it can be demonstrated that:
•
•
•
•
•
•
it is technically feasible to develop the product for it to be sold;
adequate resources are available to complete the development;
there is an intention to complete and sell the product;
the Group is able to sell the product;
sale of the product will generate future economic benefits; and
expenditure on the project can be measured reliably.
(e)
(f)
Capitalised development costs would be amortised over the periods the Group expected to benefit from selling the
products developed. At present, the Group has not considered that its development expenditure meets the criteria for
capitalisation.
Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects
are recognised in the income statement as incurred.
(g)
Financial instruments
The Group classifies its financial instruments, or their component parts, on initial recognition as a financial asset, a
financial liability or an equity instrument in accordance with the substance of the contractual arrangement.
Financial instruments are recognised on the balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition
of a financial liability. The Group’s ordinary shares are classified as equity instruments, net of issue costs.
Trade receivables
Cash and cash equivalents
(i)
Cash and cash equivalents in the balance sheet are included at cost and comprise cash at bank, cash in hand and
short term deposits with an original maturity of three months or less.
(ii)
Trade receivables do not carry interest and are stated at their nominal value as reduced by appropriate allowances for
estimated irrecoverable amounts.
(iii)
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
(iv)
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Equity instruments
36 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
3
Significant accounting policies (continued)
(h)
Taxation
The tax on the profit or loss for the year represents current and deferred tax.
The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in
the income statement because it excludes items of income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using
tax rates that have been enacted at the balance sheet date.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying value in the financial statements.
The principal temporary differences arise from depreciation on plant and equipment and share options granted by the
Group to employees and directors.
Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply
when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted
at the balance sheet date.
Where the deferred tax asset recognised in respect of share-based payments would give rise to a credit in excess of
the related accounting charge at the prevailing tax rate the excess is recognised directly in equity.
(i)
(j)
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in
the period in which the dividends are approved by the Company’s shareholders, or in the case of interim dividends,
when paid.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are
initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present
value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a
finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease
obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are
charged directly to profit or loss, unless they are directly attributable to qualifying assets, in which case they are
capitalised in accordance with the Group’s general policy on borrowing costs. Contingent rentals are recognised as
expenses in the periods in which they are incurred.
Operating lease payments are recognised as an expense on a straight line basis over the lease term, except where
another systematic basis is more representative of the time pattern in which economic benefits from the leased asset
are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which
they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a
liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight line basis,
except where another systematic basis is more representative of the time pattern in which economic benefits from the
leased asset are consumed.
(k)
Employee benefits
Wages, salaries, social security contributions, paid annual leave, bonuses and non-monetary benefits are accrued in
the year in which the associated services are rendered by the employees of the Group. Where the Group provides
long term employee benefits, the cost is accrued to match the rendering of the services by the employees concerned.
TRACSIS PLC | 37
Notes to the Consolidated Financial Statements continued
3
(l)
(m)
(n)
(o)
(p)
(q)
Significant accounting policies (continued)
Share based payments
The Group issues equity-settled share based payments to certain employees (including directors). Equity-settled share
based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the
equity-settled share based payments is expensed on a straight line basis over the vesting period, together with a
corresponding increase in equity, based upon the Group’s estimate of the shares that will eventually vest.
Fair value is measured using the Black-Scholes option pricing model. The expected life used in the model has been
adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and
behavioural considerations.
Where the terms and conditions of options are modified, as a minimum an expense is recognised as if the terms had
not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of
the modification, as measured at the date of modification.
Where an equity-settled transaction is cancelled, it is treated as if it had vested on the date of the cancellation, and any
expense not yet recognised for the transaction is recognised immediately. However, if a new transaction is substituted
for the cancelled transaction, and designated as a replacement transaction on the date that it was granted, the cancelled
and new transactions are treated as if they were a modification of the original transaction as described in the previous
paragraph.
Retirement benefits
Contributions to defined contribution pension schemes are charged to the income statement in the year to which they
relate.
Exceptional items
Items which are significant by virtue of their size or nature and/or which are considered non-recurring are classified as
exceptional operating items. Such items, which include for example costs relating to acquisitions, profit/loss on
disposal, amortisation of intangible assets and share based payment charges, are included within the appropriate
consolidated income statement category but are highlighted separately. Exceptional operating items are excluded from
the profit measures used by the board to monitor underlying performance.
Finance income
Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or
loss, using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. The Group considers all highly liquid
investments with original maturity dates of three months or less to be cash equivalents.
Operating segments
Following the acquisitions of SEP Limited and Ontrac Limited and the disposal of Tracsis Traffic Australia Pty Limited
in the period, the Group has reviewed its internal reporting structures and has amended its Operating Segments. The
Group has divided its results into two segments being ‘Rail Technology and Services’ and ‘Traffic & Data Services’.
‘Rail Technology and Services’ includes the Group’s Software, Consultancy, and Remote Condition Monitoring
Technology and also includes Ontrac which was acquired in the period. Traffic & Data Services includes SEP which
was acquired in the period. The level of disclosure of segmental and other information is determined by such
assessment. Further details of the considerations made and the resulting disclosures are provided in note 6 to the
financial statements.
(r)
Inventories
Inventories are measured at the lower of cost and net realisable value. Provision is made for slow moving and obsolete
inventories on a line by line basis.
38 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
3
(s)
Significant accounting policies (continued)
Foreign currencies
The individual financial statements of each Group entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each Group entity are expressed in Pounds Sterling, which is the
functional currency of the Company and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions.
At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing
at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are
retranslated at the rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise except for:
•
•
exchange differences that relate to assets under construction for future productive use, which are included in
the cost of those assets when they are regarded as an adjustment to interest costs on foreign currency
borrowings; and
exchange differences on monetary items receivable from or payable to a foreign operation for which settlement
is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which
are recognised in the foreign currency translation reserve and recognised in profit or loss on disposal of the
net investment.
(t)
Translation of financial statements of foreign entities
The assets and liabilities of foreign operations are translated using exchange rates at the balance sheet date. The
components of shareholders’ equity are stated at historical value. An average exchange rate for the period is used to
translate the results and cash flows of foreign operations.
Exchange differences arising on translating the results and net assets of foreign operations are taken to the translation
reserve in equity until the disposal of the investment. The gain or loss in the income statement on the disposal of foreign
operations includes the release of the translation reserve relating to the operation that is being sold.
During the year, the Group disposed of Tracsis Traffic Data Pty Limited and the translation reserve was eliminated as
a result of this disposal.
(t)
Investments
Investments are recorded at cost and less provision for any impairment in value.
Where it is deemed that the group has a significant influence over the investment, then the investment will be accounted
for as an associated undertaking under the equity method.
TRACSIS PLC | 39
Notes to the Consolidated Financial Statements continued
4
Critical Accounting Estimates and Judgements
The Group’s accounting policies are set out in Note 3.
The Directors consider that the key judgements and estimates made in the preparation of the consolidated financial statements
are:
Intangible fixed assets
On acquisition, the Company calculates the fair value of the net assets acquired. Due to the nature of the companies acquired,
this often requires the recognition of additional intangible assets, specifically in relation to technology or customer relationships.
The assessment of intangible assets acquired is necessarily judgemental and has been performed using a discounted cash flow
model. Significant judgement has been applied in assessing the future revenues to be achieved from that acquisition, the growth
rate of that revenue, the associated costs and the discount factor to be applied. In addition, management make estimates as to
the useful economic life of the resulting intangible assets, based on their industry expertise. These estimates affect the amount
of amortisation recognised in each financial year.
Actual results may vary significantly from expectations in future years. Annual reviews of the Group’s intangible fixed assets
are carried out, using commercial judgements to determine whether there is any evidence that the useful economic life is no
longer appropriate, or whether there are impairment indicators relating to specific intangible assets due to changes in
circumstance during the financial year in question.
Revenue recognition
Certain of the Group’s contracts for software licences, software provided as a service, maintenance services and other
consultancy projects have a term of more than one year. The Directors assess the fair value of the entire contract attributable
to each of the different services and the timing of when revenues should be recognised and this assessment can differ from the
legally contracted values. A level of judgement and estimate is required in assessing the level of potential customer returns for
certain hardware products. Some of the Group’s revenue is derived from data capture/counting services, in which projects can
last for an extended period of time. As such, an element of judgement is required when assessing the stage of completion at a
period end.
Share-based payments
The Group has equity settled share-based remuneration schemes for employees. The fair value of share options is estimated
by using the Black-Scholes valuation model, on the date of grant based on certain assumptions. These assumptions include,
among others, expected volatility, expected life of the options and number of options expected to vest.
Contingent consideration
Within the share purchase agreements for the acquisitions of SEP Limited and Ontrac Technology Limited, are various
provisions relating to contingent consideration. As part of both of these transactions, contingent consideration is payable, which
is linked to the financial performance of both companies post acquisition. Included within the balance sheet are amounts of
£6.15m in respect of both acquisitions, which are management’s best estimates of the fair value of the amounts payable.
40 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
5
a)
Acquisitions, disposals and investments in the current year
Acquisition: SEP Limited and SEP Events Limited
On 25 September 2015, the Group acquired 100% of the share capital of SEP Limited and its wholly owned subsidiary SEP
Events Limited (SEP).
Based in North Yorkshire, SEP are leading providers of traffic planning and management services for the events industry. Since
its formation in 1989, SEP's client list has grown to include many of the UK's largest and most prestigious outdoor entertainment
and sporting fixtures, along with major agricultural events, air shows and music festivals.
SEP is highly complementary to Tracsis' existing Traffic & Data Services division and will offer strong cross sell and upsell
opportunities in the fullness of time. Both companies have worked together in the past and collaborated on major events such
as Royal Ascot, T in the Park, The Grand National and the Wings and Wheels air show.
In the year ended 30 September 2014, SEP generated revenue of £4.0m, an adjusted EBITDA of £0.4m and Profit before Tax
of £0.3m. The business is debt free and had cash balances at completion of c. £0.6m, with tangible net assets of c. £0.6m.
SEP employs 30 permanent staff, all of whom will remain with the business post transaction. In addition, the business deploys
several thousand contract workers at its events throughout the year.
The acquisition consideration comprised an initial cash payment of £1.625m and the issue of 55,005 ordinary shares of 0.4p
each in Tracsis at an issue price of 454.5p (a total value of £0.25m). Deferred consideration of £0.1m is payable over two years
with performance consideration of up to £0.6m is payable based on SEP achieving certain financial targets in the two years post
acquisition, giving a total consideration of up to £2.6m.
In the period to 31 July 2016 the Company contributed revenue of £4.1m and pre tax profit of £0.15m to the Group’s results,
excluding amortisation of associated intangible assets, exceptional costs and share based payments. If the acquisition had
occurred on 1 August 2015, management estimates that the contribution to Group revenue would have been £5.4m and Group
pre tax profit for the period of £0.35m. In determining these amounts, management has assumed that the fair value adjustments,
determined provisionally that arose on the date of acquisition would have been the same if the acquisition had occurred on 1
August 2015.
The acquisition had the following effect on the Group’s assets and liabilities on the acquisition date:
Pre-acquisition
Fair value
value on
carrying amount
adjustments
acquisition
Recognised
Intangible assets: Customer relationships
Tangible fixed assets
Trade and other receivables
Trade and other payables and deferred income
Hire Purchase contracts
Deferred tax liability
Net identified assets and liabilities
Goodwill on acquisition
Consideration paid in cash
Net cash acquired
Net cash flow
Consideration paid: fair value of shares issued
Fair value of deferred and performance consideration payable
Total consideration
£000
-
333
811
(980)
(133)
-
31
£000
1,449
-
-
(100)
-
(261)
1,088
£000
1,449
333
811
(1,080)
(133)
(261)
1,119
555
1,674
1,638
(644)
994
250
430
1,674
TRACSIS PLC | 41
Notes to the Consolidated Financial Statements continued
5
a)
Acquisitions, disposals and investments in the current year (continued)
Acquisition: SEP Limited and SEP Events Limited (continued)
Pre-acquisition carrying amounts were determined based on applicable IFRSs, immediately prior to the acquisition. The values
of assets and liabilities recognised on acquisition are the estimated fair values. The goodwill that arose on acquisition can be
attributed to a multitude of assets that cannot readily be separately identified for the purposes of fair value accounting.
The fair value adjustments were provisional and arise in accordance with the requirements of IFRSs to recognise intangible
assets acquired. In determining the fair values of intangible assets the Group has used discounted cash flow forecasts. The
fair value of shares issued was based on market value at the date of issue.
The Group incurred acquisition related costs of £37k which are included within administrative expenses.
There were no subsequent adjustments to provisional fair values
b)
Acquisition: Ontrac Limited and Ontrac Technology Limited
On 1 December 2015, the Group acquired the entire issued share capital of Ontrac Limited and Ontrac Technology Limited
(together being "Ontrac").
Based in Gateshead and London, Ontrac is an award winning software development and IT solutions company that work with
a range of clients in the transport, construction and local government sectors. Ontrac works extensively within UK rail where
their products have helped digitise process intensive workflows and aided with collaborative working through access to shared
information. Ontrac is highly complementary to Tracsis' existing software development and consulting division and offers strong
cross sell and upsell opportunities across the Group.
In the year ended 31 January 2015, Ontrac generated revenue of £7.1m and adjusted Profit before Tax of £2.4m. The business
is debt free and has a history of strong organic growth coupled with excellent cash generation. Ontrac employs around 30
permanent staff, all of whom will remain with the business post transaction.
The acquisition consideration comprises an initial cash payment of £6.0m which was funded out of Tracsis cash reserves and
the issue of 197,624 new ordinary shares in Tracsis (issued at a price of 463p which valued the shares at £915k), along with a
payment of around £4.6m that represents the value of the Company's tangible net assets at completion.
Additional Deferred Consideration of up to £5.0m along with Performance Consideration of up to £3.0m is payable subject to
Ontrac achieving certain financial targets in the two years post acquisition. Therefore, Tracsis paid an initial amount of £11.5m
(£6.9m goodwill and £4.6m for tangible assets) and on the basis that all stretch financial targets are achieved, a maximum total
consideration of up to £19.5m.
In the period to 31 July 2016 the Company contributed revenue of £3.2m and pre tax profit of £1.1m to the Group’s results,
excluding amortisation of associated intangible assets, exceptional costs and share based payment charges. If the acquisition
had occurred on 1 August 2015, management estimates that the contribution to Group revenue would have been £5.2m and
Group pre tax profit for the period of £1.7m. In determining these amounts, management has assumed that the fair value
adjustments, determined provisionally that arose on the date of acquisition would have been the same if the acquisition had
occurred on 1 August 2015.
42 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
5
b)
Acquisitions, disposals and investments in the current year (continued)
Acquisition: Ontrac Limited and Ontrac Technology Limited (continued)
The acquisition had the following effect on the Group’s assets and liabilities on the acquisition date:
Pre-acquisition
Fair value
value on
carrying amount
adjustments
acquisition
Recognised
Intangible assets: Technology assets
Intangible assets: Customer relationships
Tangible fixed assets
Trade and other receivables
Trade and other payables and deferred income
Hire purchase contracts
Income tax payable
Deferred tax liability
Net identified assets and liabilities
Goodwill on acquisition
Consideration paid in cash
Net cash acquired
Net cash flow
Consideration paid: fair value of shares issued
Fair value of deferred and performance consideration payable
Total consideration
£000
-
-
121
1,510
(1,483)
(54)
(5)
(4)
85
£000
1,400
13,494
-
-
(468)
-
-
(2,681)
11,745
£000
1,400
13,494
121
1,510
(1,951)
(54)
(5)
(2,685)
11,830
602
12,432
10,741
(4,974)
5,767
915
5,750
12,432
Pre-acquisition carrying amounts were determined based on applicable IFRSs, immediately prior to the acquisition. The values
of assets and liabilities recognised on acquisition are the estimated fair values. The goodwill that arose on acquisition can be
attributed to a multitude of assets that cannot readily be separately identified for the purposes of fair value accounting.
The fair value adjustments were provisional and arise in accordance with the requirements of IFRSs to recognise intangible
assets acquired. In determining the fair values of intangible assets the Group has used discounted cash flow forecasts. The
fair value of shares issued was based on market value at the date of issue.
The Group incurred acquisition related costs of £64k which are included within administrative expenses.
c)
Investment: Strategic Investment in Citi Logik Limited
On 4 September 2015, the Group made a strategic investment to acquire up to 29.4% of Citi Logik Limited (Citi Logik). Under
the terms of the agreement, the Group agreed to invest up to £1.0m via a combination of equity and debt funding in return for
up to 29.4% of the issued share capital in Citi Logik.
Investment of £0.5m (£0.375m equity and £0.125m debt) was made immediately with a further £0.5m subject to delivery of
agreed business plan milestones. The initial investment represented 17.24% of the issued share capital of Citi Logik.
In February 2016, it became apparent that the business plan milestones were not being achieved and as a result, the Group did
not invest the balance of £0.5m.
TRACSIS PLC | 43
Notes to the Consolidated Financial Statements continued
5
c)
Acquisitions, disposals and investments in the current year (continued)
Investment: Strategic Investment in Citi Logik Limited (continued)
In the Group’s interim results to 31 January, Citi Logik was accounted for as an associated undertaking as the Group believed
it had significant influence and had the intention to invest the full amount and take a 29.4% stake. However, due to a review in
February 2016, it was concluded that this was not appropriate for the year end accounts. As such, the Group’s investment in
Citi Logik has been treated as an Investment.
The investment is carried at cost.
The Group incurred acquisition related costs of £20k which are included within administrative expenses.
d)
Investment: Nutshell Software Limited
On 21 July 2016, the Group entered into an agreement to acquire up to 37.8% of Nutshell Software Limited for total consideration
of £0.5m split as £0.25m of equity and £0.25m of debt. The investment will be made in three tranches and the first one made in
July 2016 comprised a total of £0.25m which was split £0.125m equity and £0.125m of debt in return for 23.3% of the shares in
the company.
Nutshell specialises in application software for the rapid creation of mobile business applications (apps) across multiple platforms
for large enterprise organisations within the transport, utilities, healthcare and energy sector. The business was formed in 2015,
and is currently revenue generating although has yet to post accounts. Tracsis management believe there are good
opportunities for Nutshell to benefit from the Group’s links to the UK transport industry along with entering related industries.
The investment is carried at cost.
The Group incurred acquisition related costs of £15k which are included within administrative expenses.
e)
Disposal: Tracsis Traffic Data Pty Limited
On 22 December 2015, the Group disposed of Tracsis Traffic Data Pty Limited (“TTD”), its data capture operation in Australia,
to Martin Prowse, the Managing Director of that Company as part of a management buy-out (the “Disposal”).
The Disposal aligns with the Group’s strategy to maintain strength in its core markets and operate in high value, niche markets.
The Board is focused on continuing to drive its growth strategy in the UK and overseas but no longer believe TTD’s data capture
operations in Australia is required to achieve this goal. The Directors believe that disposing TTD, which has limited trading
visibility and does not have critical mass, mitigates the Group’s execution risk which is inherent in operations of this kind.
In the year ended 31 July 2015, TTD generated revenue of £2.2m, EBITDA of £0.3m, Profit before Tax of £0.25m and had
tangible net assets of circa £0.5m.
The Disposal proceeds include an initial payment of AUS $285k and deferred consideration of AUS $799k payable over 3 years
to give total consideration of AUS $1,084k.
For the period 1 August 2015 to 22 December 2015, TTD generated revenue of £1.2m and Profit before Tax of £0.2m.
As part of the disposal agreement, the Group has security arrangements over the shares and assets of TTD and connected
parties, which will remain in place until the consideration is paid in full.
44 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
5
d)
Acquisitions, disposals and investments in the current year (continued)
Disposal: Tracsis Traffic Data Pty Limited (continued)
Further details on this disposal are as follows:
Consideration:
Initial
Deferred
Overdraft
Net assets at disposal excl overdraft
Loss on disposal pre foreign exchange
Elimination of translation reserve
Loss on disposal
Initial Consideration received
Deferred consideration received
Receivable after more than one year
Receivable in less than one year
Total
Overdraft
Total consideration
AUS
$’000
285
799
1,084
64
1,148
285
145
290
364
1,084
GBP
£’000
136
374
510
30
540
645
(105)
(167)
(272)
136
74
167
133
510
30
540
The Group incurred disposal related costs of £39,000 which are included within administrative expenses.
The disposal had the following effect on the Group’s assets and liabilities on the disposal date:
Tangible fixed assets
Trade and other receivables
Trade and other payables
Income tax payable
Hire purchase contracts
Net identified assets and liabilities
Elimination of translation reserve
Loss on disposal
Consideration received in cash
Deferred consideration receivable
Overdraft disposed of
Total consideration receivable
Value on
disposal
£000
219
934
(357)
(101)
(50)
645
167
(272)
540
136
374
30
540
TRACSIS PLC | 45
Notes to the Consolidated Financial Statements continued
6
Segmental analysis
Following the acquisitions of SEP Limited and Ontrac Limited and the disposal of Tracsis Traffic Australia Pty Limited in the
period, the Group has reviewed its internal reporting structures and has amended its Operating Segments. The Group has
divided its results into two segments being ‘Rail Technology and Services’ and ‘Traffic & Data Services’.
‘Rail Technology and Services’ includes the Group’s Software, Consultancy and Remote Condition Monitoring technology and
also includes Ontrac which was acquired in the period. Traffic & Data Services includes SEP which was acquired in the period.
In accordance with IFRS 8 ‘Operating Segments’, the Group has made the following considerations to arrive at the disclosure
made in these financial statements.
IFRS 8 requires consideration of the Chief Operating Decision Maker (“CODM”) within the Group. In line with the Group’s
internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of
Directors, who review internal monthly management reports, budgets and forecast information as part of this. Accordingly, the
Board of Directors are deemed to be the CODM.
Operating segments have then been identified based on the internal reporting information and management structures within
the Group. From such information it has been noted that the CODM reviews the business as two segments, receiving internal
information on that basis. The management structure and allocation of key resources, such as operational and administrative
resources, are arranged on a centralised basis.
In addition to the two segments referred to above, the CODM reviews a split of revenue streams on a monthly basis and as
such, this additional information has been provided below.
Revenue
Software
Consultancy
Acquisition: Ontrac
Remote Condition Monitoring Technology
Rail Technology & Services
Traffic & Data Services
Acquisition: SEP
Traffic & Data Services
Total revenue
2016
£000
6,605
2,091
3,213
2,157
14,066
14,447
4,128
18,575
2015
£000
5,593
1,956
-
2,975
10,524
14,858
-
14,858
32,641
25,382
Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items
Information regarding the results of the reportable segment is included below. Performance is measured based on segment
profit before income tax, as included in the internal management reports that are reviewed by the Board of Directors. Segment
profit is used to measure performance. There are no material inter-segment transactions, however, when they do occur, pricing
between segments is determined on an arm’s length basis. Revenues disclosed below materially represent revenues to external
customers.
46 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
6
Segmental analysis (continued)
Revenues
Total revenue for reportable segments
Consolidated revenue
Profit or loss
EBITDA for reportable segments
Amortisation of intangible assets
Depreciation
Exceptional item: Acquisition & disposal costs
Exceptional item: Loss on disposal
Share-based payment charges
Interest receivable/payable(net)
Consolidated profit before tax
Revenues
Total revenue for reportable segments
Consolidated revenue
Profit or loss
EBITDA for reportable segments
Amortisation of intangible assets
Depreciation
Share-based payment charges
Interest receivable/payable(net)
Consolidated profit before tax
Rail
Technology &
Services
£000
14,066
14,066
5,346
-
(111)
(79)
-
-
-
2016
Traffic & Data
Services
£000
18,575
18,575
2,299
-
(662)
(96)
(272)
-
-
5,156
1,269
Unallocated
£000
-
-
-
(1,378)
-
-
-
Total
£000
32,641
32,641
7,645
(1,378)
(773)
(175)
(272)
(1,087)
(1,087)
(5)
(2,470)
(5)
3,955
Rail
Technology &
Services
£000
10,524
10,524
4,343
-
(73)
-
-
2015
Traffic & Data
Services
£000
14,858
14,858
2,186
-
(651)
-
-
Unallocated
£000
-
-
-
(714)
-
(623)
2
4,270
1,535
(1,335)
Total
£000
25,382
25,382
6,529
(714)
(724)
(623)
2
4,470
TRACSIS PLC | 47
Notes to the Consolidated Financial Statements continued
6
Segmental analysis (continued)
2016
Rail
Technology
& Services
£’000
Traffic &
Data
Services
£000
Unallocated
£000
Assets
Total assets for reportable segments (exc. cash)
2,401
6,944
Intangible assets and investments
Deferred tax assets
Cash and cash equivalents
Consolidated total assets
Liabilities
-
-
4,365
6,766
-
-
1,507
8,451
Total liabilities for reportable segments
(5,004)
(4,081)
Deferred tax
Deferred/contingent consideration
Consolidated total liabilities
-
-
-
-
(5,004)
(4,081)
-
26,882
573
5,513
32,968
-
(4,284)
(6,150)
(10,434)
2015
Rail
Technology &
Services
£’000
Traffic & Data
Services
£000
Unallocated
£000
Assets
Total assets for reportable segments (exc. cash)
1,722
4,755
Intangible assets
Deferred tax assets
Cash and cash equivalents
Consolidated total assets
Liabilities
-
-
3,863
5,585
-
-
1,277
6,032
Total liabilities for reportable segments
(3,967)
(2,632)
Deferred tax
Consolidated total liabilities
-
-
(3,967)
(2,632)
-
10,010
882
8,201
19,093
-
(1,734)
(1,734)
Major customers
Transactions with the Group’s largest customer represent 14% of the Group’s total revenues (2015: 11%).
Total
£000
9,345
26,882
573
11,385
48,185
(9,085)
(4,284)
(6,150)
(19,519)
Total
£000
6,477
10,010
882
13,341
30,710
(6,599)
(1,734)
(8,333)
Geographic split of revenue
A geographical analysis of revenue is provided below:
United Kingdom
Australia
Rest of the World
Total
2016
£000
30,798
1,238
605
32,641
2015
£000
22,534
2,245
603
25,382
48 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
7
Employees and personnel costs
Staff costs:
Wages and salaries
Social security contributions
Contributions to defined contribution plans
Equity-settled share based payment transactions
2016
£000
15,033
1,110
271
1,087
17,501
2015
£000
10,651
875
176
623
12,325
Average number of employees (including directors) in the year
644
401
The directors’ remuneration and share options are detailed within the Directors’ Remuneration Report on pages 18 to 21.
8
Share based payments
The Group has four share option schemes for all employees (including directors).
EMI Share options
Options are exercisable at a price agreed at the date of grant. The vesting period is usually between one and five years. The
exercise of options is dependent upon eligible employees meeting performance criteria. The options may not be exercised
before the occurrence of a takeover, sale or admission. The options are settled in equity once exercised. If the options remain
unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the employee leaves
the Group before the options vest.
Discounted EMI Share options
In August 2012, the Group implemented a new EMI share option scheme, resulting in discounted EMI share options being
issued to staff instead of cash bonuses, provided certain predetermined performance criteria were met for both the overall group,
and the part of the business the employee directly works in. This scheme was made available to all staff. Staff are also able to
exchange an element of annual salary in return for share options too. The vesting period is three years. The exercise of options
is dependent upon eligible employees meeting performance criteria. The options may not be exercised before the occurrence
of a takeover, sale or admission. The options are settled in equity once exercised. If the options remain unexercised after a
period of 10 years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group before the
options vest.
Unapproved Share options
In August 2015, the Group implemented a revised share option scheme, resulting in discounted unapproved share options being
issued to staff instead of cash bonuses, provided certain predetermined performance criteria were met for both the overall group,
and the part of the business the employee directly works in. This scheme was made available to all staff except for Directors.
Staff are also able to exchange an element of annual salary in return for share options too. The vesting period is three and a
half years. The exercise of options is dependent upon eligible employees meeting performance criteria. The options may not
be exercised before the occurrence of a takeover, sale or admission. The options are settled in equity once exercised. If the
options remain unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the
employee leaves the Group before the options vest.
Directors’ scheme
Directors were not entitled to take part in the 2015 staff scheme and a revised scheme was implemented by the Remuneration
Committee. Details of this scheme are provided in the Directors Remuneration Report.
TRACSIS PLC | 49
Notes to the Consolidated Financial Statements continued
8
Share based payments (continued)
Details of the schemes are given below:
Grant date
28/01/2009
20/05/2010
12/01/2011
22/09/2011
21/11/2011
02/08/2012
02/08/2012
08/01/2013
28/01/2013
26/03/2013
26/03/2013
01/08/2013
01/08/2013
01/01/2014
01/01/2014
01/08/2014
02/01/2015
01/08/2015
25/09/2015
01/12/2015
15/12/2015
Employees
Number
Performance
Exercise
entitled
of options
conditions
price (p)
2
3
1
3
1
11
8
5
1
1
1
11
31
2
2
63
1
106
29
5
2
42,000
30,000
12,500
49,351
25,000
31,958
64,183
42,500
70,000
25,000
14,286
248,751
59,959
61,250
24,686
198,912
856
262,349
82,873
55,134
154,546
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
Time served
EPS and TSR
Earliest
exercise
date
28/07/2009*
20/01/2011*
12/07/2011*
22/03/2012*
21/05/2012*
02/08/2013**
02/02/2013*
08/07/2013*
28/07/2013*
Expiry
date
28/01/2019
20/05/2020
12/01/2021
22/09/2021
21/11/2021
02/08/2022
02/08/2022
08/01/2023
28/01/2023
26/06/2013***
26/03/2023
52.0
51.5
49.5
63.5
57.5
0.40
123.0
159.0
155.5
175.0
0.40
26/03/2014**
162.5
01/02/2014*
0.40
01/08/2014**
199.5
01/07/2014*
0.40
0.40
0.40
01/01/2015**
01/08/2015**
02/01/2016**
0.40 01/08/2016****
0.40 25/09/2016****
0.40 01/12/2016****
0.40
15/12/2017
26/03/2023
01/08/2023
01/08/2023
01/01/2024
01/01/2024
01/08/2024
02/01/2025
01/08/2025
25/09/2025
01/12/2025
15/12/2025
Outstanding
1,556,094
* Vesting dates for these options are: 10% vest six months after grant date, 15% vest 12 months after grant date, 15% vest 18 months after
grant date, 15% vest 24 months after grant date, 20% vest 30 months after grant date, 25% vest 36 months after grant date.
** Vesting dates for these options are linked to time served, and were awarded based on certain performance conditions being met, and in
exchange for an annual cash bonus. The full vesting is achieved over a 3 year period, with various forfeit/reductions if exercise takes place
sooner
*** Vesting dates for these options are in equal three month instalments over a 24 month period
**** Vesting dates for these options are linked to time served, and were awarded based on certain performance conditions being met, and in
exchange for an annual cash bonus. The full vesting is achieved over a 3.5 year period, with various forfeit/reductions if exercise takes place
sooner
50 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
8
Share based payments (continued)
The number and weighted average exercise price of share options are as follows:
Outstanding at 1 August
Granted
Forfeited
Exercised
Outstanding at 31 July
Exercisable at 31 July
2016
Weighted
Average
2016
Exercise
2015
Number
Price
Number
1,733,207
101.8p
1,838,560
554,902
(2,713)
0.4p
0.4p
206,763
(5,902)
(729,302)
116.5p
(306,214)
1,556,094
798,418
59.0p
98.1p
1,733,207
1,159,321
2015
Weighted
Average
Exercise
Price
106.0p
0.4p
0.4p
60.9p
101.8p
110.1p
The share options outstanding at the end of the year have a weighted average remaining contractual life of 7 years (2015: 7
years).
Fair value assumptions of share based payment charges
The estimate of the fair value of share based awards is calculated using the Black-Scholes option pricing model. The following
assumptions were used:
Options granted in previous years:
Options granted on
Share price at date of grant
Exercise price
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free rate
01/06/
2011
50.0p
50.0p
3
12/01/
2011
49.5p
49.5p
3
01/08/
2010
50.5p
50.5p
3
20/05/
2010
51.5p
51.5p
3
17/03/
2010
50.5p
50.5p
3
15%
15%
15%
15%
15%
10
10
10
10
10
10
10
10
10
10
28/01/
2009
52p
26/11/
2007
40p
52p
3
15%
10
10
40p
1
40%
10
10
3.5%
0.5%
0.5%
0.5%
0.5%
0.5%
4.75%
Expected dividends expressed as a dividend yield
-
-
-
-
-
-
-
Options granted in previous years (continued):
Options granted on
Share price at date of grant
Exercise price
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free rate
22/09/
2011
63.5p
63.5p
3
21/11/
2011
57.5p
57.5p
3
01/02/
2012
62.0p
62.0p
3
20/06/
2012
89.0p
89.0p
3
50%
50%
50%
50%
10
10
10
10
10
10
10
10
3.5%
3.5%
3.5%
3.5%
Expected dividends expressed as a dividend yield
-
-
-
-
TRACSIS PLC | 51
Notes to the Consolidated Financial Statements continued
8
Share based payments (continued)
Options granted in previous years (continued):
Options granted on
Share price at date of grant
Exercise price
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free rate
02/08/
2012
123.0p
02/08/
2012
123.0p
01/11/
2012
133.5p
08/01/
2013
159.0p
28/01/
2013
155.5p
28/01/
2013
155.0p
26/03/
2013
175.0p
26/03/
2013
175.0p
0.4p
123.0p
133.5p
159.0p
0.4p
155.0p
175.0p
0.4p
3
3
3
3
3
3
2
3
20%
20%
20%
20%
20%
20%
20%
20%
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
Expected dividends expressed as a dividend yield
-
-
-
-
-
-
-
-
Options granted in previous years (continued):
Options granted on
Share price at date of grant
Exercise price
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free rate
01/08/
2013
162.5p
162.5p
01/08/
2013
162.5p
01/11/
2013
185.0p
01/01/
2014
199.5p
01/01/
2014
199.5p
01/08/2
014
330.0p
02/01/2
015
411.5p
0.4p
185.0p
199.5p
0.4p
3
3
3
3
3
0.4p
3
30%
30%
30%
30%
30%
30%
10
10
10
10
10
10
10
10
10
10
10
10
0.4p
3
30%
10
10
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
Expected dividends expressed as a dividend yield
-
-
-
-
-
-
-
Options granted in the current year:
Options granted on
Share price at date of grant
Exercise price
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free rate
Expected dividends expressed as a dividend yield
01/08/
2015
420.0p
25/09/
2015
452.5p
01/12/
2015
462.5p
0.4p
3.5
30%
10
10
0.4p
3.5
30%
10
10
0.4p
3.5
30%
10
10
15/12/
2015
550.0p
0.4p
2
15/12/
2015
550.0p
0.4p
3
30%
30%
10
10
10
10
3.5%
3.5%
3.5%
3.5%
3.5%
-
-
-
-
-
The expected volatility is based on the historic volatility of the Company’s share price.
Charge to the income statement
Share based payment charges
2016
£000
1,087
2015
£000
623
52 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
9
Operating profit
Operating profit is stated after charging:
Depreciation of property, plant and equipment - owned
Depreciation of property, plant and equipment - leased
Total depreciation
Loss on disposal of plant and equipment
Operating lease rentals: Land and buildings
Operating lease rentals: Plant & machinery
Total operating lease rentals
Research and development expenditure expensed as incurred
Auditor’s remuneration:
Audit of these financial statements
Amounts receivable by auditors and their associates in respect of:
- Audit of financial statements of subsidiaries pursuant to legislation
- Other services relating to taxation
- Other services
10
Finance income
Interest received on bank deposits
11
Finance expense
Interest on finance lease obligations
12
Taxation
12.1
Recognised in the income statement
Current tax expense
Current year
Adjustment in respect of prior periods
Total current year
Deferred tax
Current year
Adjustment in respect of prior periods
Total deferred tax
Total tax in income statement
2016
£000
562
211
773
2
375
45
420
970
2016
£000
16
42
6
15
2016
£000
36
2016
£000
41
2016
£000
756
(14)
742
(320)
-
(320)
422
2015
£000
640
84
724
3
237
68
305
437
2015
£000
16
38
3
32
2015
£000
31
2015
£000
29
2015
£000
959
14
973
(232)
-
(232)
741
TRACSIS PLC | 53
Notes to the Consolidated Financial Statements continued
12
Taxation (continued)
Reconciliation of the effective tax rate
Profit before tax for the period
Expected tax charge based on the standard rate of
corporation tax in the UK of 20% (2015: 20.66%)
Expenses not deductible for tax purposes
Research and development enhancement
Adjustment in respect of prior periods
Effect of rate changes
Losses brought forward
Other movements
Total tax expense
2016
£000
3,955
791
4
(252)
(14)
(158)
(26)
77
422
2016
%
100.0
20.0
0.1
(6.4)
(0.3)
(4.0)
(0.6)
1.9
10.7
2015
£000
4,470
924
22
(115)
14
-
-
(104)
741
2015
%
100.0
20.7
0.5
(2.6)
0.3
-
-
(2.3)
16.6
Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015)
were substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April
2020) were substantively enacted on 26 October 2015. The deferred tax asset and liability at 31 July 2016 has been calculated
based on these rates. An additional reduction to 17% (effective from 1 April 2020) was announced in the Budget on 16 March
2016. This will reduce the company's future current tax charge accordingly and reduce the deferred tax asset and liability further.
12.2
Recognised in reserves – direct to equity
Deferred Tax
Deferred tax (charge) / credit relating to share based payments
13
Earnings per share
2016
£000
(233)
2015
£000
304
Basic earnings per share
The calculation of basic earnings per share at 31 July 2016 was based on the profit attributable to ordinary shareholders of
£3,533,000 (2015: £3,729,000) and a weighted average number of ordinary shares in issue of 27,807,000 (2015: 26,443,000),
calculated as follows:
The earnings figure of £3,533,000 is split as £3,453,000 from continuing operations (2015: £3,540,000), £273,000 from
acquisitions and (£193,000) from discontinued operations (2015: £189,000).
Weighted average number of ordinary shares
In thousands of shares
Issued ordinary shares at 1 August
Effect of shares issued related to business combinations
Effect of shares issued for cash
Weighted average number of shares at 31 July
2016
26,564
360
883
27,807
2015
26,258
-
185
26,443
Diluted earnings per share
The calculation of diluted earnings per share at 31 July 2016 was based on profit attributable to ordinary shareholders of
£3,533,000 (2015: £3,729,000) and a weighted average number of ordinary shares in issue after adjustment for the effects of
all dilutive potential ordinary shares of 28,811,000 (2015: 27,656,000):
54 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
13
Earnings per share (continued)
Adjusted EPS
In addition, Adjusted Profit EPS is shown below on the grounds that it is a common metric used by the market in monitoring
similar businesses. A reconciliation of this figure is provided below:
Profit attributable to ordinary shareholders
Amortisation of intangible assets
Share-based payment charges
Exceptional item: Acquisition and disposal costs
Exceptional item: Loss on disposal
Adjusted profit for EPS purposes
Weighted average number of ordinary shares
In thousands of shares
For the purposes of calculating Basic earnings per share
Adjustment for the effects of all dilutive potential ordinary shares
Basic adjusted earnings per share
Diluted adjusted earnings per share
2016
£’000
3,533
1,378
1,087
175
272
6,445
27,807
28,811
23.18p
22.37p
2015
£’000
3,729
714
623
-
-
5,066
26,443
27,656
19.16p
18.32p
TRACSIS PLC | 55
Notes to the Consolidated Financial Statements continued
14
Property, plant and equipment
Freehold
Land &
Motor
Computer
Plant,
machinery,
fixtures
Buildings
Vehicles
equipment
& fittings
£000
£000
£000
£000
Cost
At 1 August 2014
Additions
Disposals
Exchange rate variances
At 31 July 2015
Additions
Disposals
Arising on acquisition
On disposal of business
Exchange rate variances
At 31 July 2016
Depreciation
At 1 August 2014
Charge for the year
Disposals
Exchange rate variances
At 31 July 2015
Charge for the year
Disposals
On disposal of business
Exchange rate variances
At 31 July 2016
Net book value
At 1 August 2014
At 31 July 2015
At 31 July 2016
400
1,306
1,523
400
-
-
-
400
-
-
-
-
-
771
367
(156)
(37)
945
529
(254)
251
(174)
9
42
12
-
-
54
12
-
-
-
66
358
346
334
480
104
(106)
(29)
449
247
(175)
(104)
6
423
291
496
883
1,172
1,487
292
(13)
(67)
391
(70)
(17)
1,384
1,791
154
(10)
55
(64)
4
879
211
(6)
(54)
608
(3)
148
(500)
26
2,070
740
397
(65)
(15)
1,030
1,057
199
(5)
(37)
2
1,189
293
354
334
315
(2)
(378)
21
1,013
747
734
1,057
The net book value of assets held under finance lease obligations is £791,000 (2015: £426,000).
Total
£000
3,830
1,050
(239)
(121)
4,520
1,291
(267)
454
(738)
39
5,299
2,141
724
(177)
(98)
2,590
773
(182)
(519)
29
2,691
1,689
1,930
2,608
56 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
15
Intangible assets
Cost
At 1 August 2014
Arising on acquisition
At 31 July 2015
Arising on acquisition
At 31 July 2016
Amortisation and impairment
At 1 August 2014
Charge for the year
At 31 July 2015
Charge for the year
At 31 July 2016
Carrying amounts
At 1 August 2014
At 31 July 2015
At 31 July 2016
Customer
related
intangibles
£000
Technology
related
intangibles
£000
7,430
-
7,430
14,943
22,373
789
456
1,245
1,027
2,272
6,641
6,185
20,101
2,574
-
2,574
1,400
3,974
359
258
617
351
968
2,215
1,957
3,006
Goodwill
£000
1,868
-
1,868
1,157
3,025
-
-
-
-
-
1,868
1,868
3,025
Total
£000
11,872
-
11,872
17,500
29,372
1,148
714
1,862
1,378
3,240
10,724
10,010
26,132
The following carrying values of intangible assets arising from the acquisitions that the Group has completed in the current
and previous years are analysed as follows:
Goodwill
2016
£000
2015
£000
Customer related
intangibles
2016
2015
Technology related
intangibles
2016
2015
£000
£000
£000
£000
Tracsis Rail Consultancy Limited
(previously) RWA Rail Limited
Tracsis Passenger Counts Limited
(previously Peeping Limited)
Safety Information Systems Limited
MPEC Technology Limited
Tracsis Traffic Data Limited
(previously Sky High Technology
Limited and Sky High plc)
Datasys Integration Limited
SEP Limited
Ontrac Technology Limited
671
43
136
269
390
359
555
602
671
43
136
269
390
359
-
-
3,025
1,868
460
240
181
947
496
258
195
1,011
1,143
1,314
2,756
1,328
13,046
20,101
2,911
-
-
6,185
The amortisation charge is recognised in the following line items in the income statement:
Administrative expenses
-
-
77
330
-
1,293
-
1,306
3,006
2016
£000
1,378
-
-
100
398
-
1,459
-
-
1,957
2015
£000
714
TRACSIS PLC | 57
Notes to the Consolidated Financial Statements continued
15
Intangible assets (continued)
Customer related intangibles and technology related intangibles are amortised over their useful life, which is the period during
which they are expected to generate revenue.
Goodwill acquired in a business combination is allocated to cash generating units (CGUs) and is tested for impairment on an
annual basis, or more frequently if there are indications that the carrying value might be impaired, by comparing the carrying
amount against the discounted cash flow projections of the CGU. CGUs are not larger than the operating segments of the
Group.
The carrying value of the goodwill has been determined based on value in use calculations, covering detailed budgets and three
year forecasts, followed by an extrapolation of expected cash flows at growth rates given below. The growth rates reflect prudent
long term growth rates for the services provided by the CGU. Gross and operating margins have been assumed to remain
constant based on budget and past experience.
Long term growth rate
Discount rate
2016
1.0%
10-12%
2015
1.0%
10-12%
The directors’ key assumptions relate to revenue growth and the discount rate, however, carrying value is not significantly
sensitive to reasonably foreseeable changes in either assumption. No impairment charges in respect of goodwill arose during
the year.
16
Investments
During the year, the Group made investments in Citi Logik Limited and Nutshell Software Limited. Further details regarding
these transactions are shown in note 5 ‘Acquisitions, disposals and investments in the current year’.
The total investments made were as follows (a combination of debt and equity)
Citi Logik Limited
Nutshell Software Limited
These are represented as follows:
Equity investments:
Citi Logik Limited
Nutshell Software Limited
Convertible Loan notes receivable from investments:
Citi Logik Limited
Nutshell Software Limited
% held
At 31 July
17.2%
23.3%
2016
£000
500
250
750
2016
£000
375
125
500
2016
£000
125
125
250
2015
£000
-
-
-
2015
£000
-
-
-
2015
£000
-
-
-
58 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
17
Inventories
Raw materials & work in progress
Finished goods
2016
£000
121
150
271
2015
£000
100
174
274
The value of inventories expensed in the period in cost of sales was £470,000 (2015: £759,000). Provision is made for slow
moving and obsolete stock on a line by line basis. The value of any write downs/reversals in the current and previous period
was not material.
18
Hire purchase contracts
Due within one year
Due after more than one year:
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Total due after more than one year
Total hire purchase contract obligation
A reconciliation of the obligation is stated below.
At start of the year
New hire purchase contracts
Arising on acquisition
On disposal of business
Repayments
At end of the year
Hire Purchase Obligations
2016
2015
2016
£000
368
238
58
-
-
296
664
2016
£000
400
496
187
(50)
(369)
664
2015
£000
171
135
72
7
15
229
400
2015
£000
233
353
-
-
(186)
400
Carrying
amount
£000
Contractual
cash flows
£000
Less than
one year
£000
One to
Two years
£000
Two to
Five years
£000
664
400
717
433
401
191
253
145
63
97
TRACSIS PLC | 59
Notes to the Consolidated Financial Statements continued
19
Trade and other receivables
Trade receivables
Other receivables and prepayments
Amounts recoverable on contracts
2016
£000
5,041
407
718
6,166
A breakdown of trade receivables between the United Kingdom and Australia operations is as follows:
United Kingdom
Australia
2016
£000
5,041
-
5,041
2015
£000
2,864
305
1,104
4,273
2015
£000
2,466
398
2,864
Although the Group has a large number of customers, there is a concentration of risk in that the Group derives a large amount
of revenue from one major customer, though the credit worthiness of this customer is unquestionably strong. In other cases,
where one customer represents a significant proportion of overall revenue, the relationship consists of a large number of small
contracts which are not considered to be interdependent. The directors do not consider that any of the amounts from the sale
of goods to be irrecoverable, hence no provision has been made for bad or doubtful debts in either the current or preceding
year.
The fair values of trade and other receivables are the same as their book values.
Amounts recoverable on contracts relate to part completed projects related to the Group’s transportation data collection
operations within the Traffic & Data Services part of the group.
Trade receivables that are past due are considered individually for impairment. The Group uses a monthly ageing profile as an
indicator when considering impairment. The summarised ageing analysis of trade receivables past due but considered to be
not impaired is as follows:
Under 30 days overdue
Between 30 and 60 days overdue
Over 60 days overdue
2016
£000
1,536
170
29
1,735
2015
£000
585
268
58
911
The other classes within trade and other receivables do not contain impaired assets. The Group did not incur any material
impairment losses on trade receivables in the period. The ageing profile above takes account of the enlarged Group, and the
fact that the payment terms/collection period for an enlarged Group with a wide variety of customers has evolved.
60 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
20
Trade and other payables
Trade payables
Other tax and social security
Deferred income
Accruals and other payables
2016
£000
883
1,799
3,435
2,237
8,354
2015
£000
646
1,000
1,930
2,121
5,697
The Directors consider that the carrying amounts of trade payables approximates to their fair value.
Deferred income relates to sales invoiced in advance of the completion of post contract customer support and hosting
obligations, instances where the Group has raised sales invoices in advance of installation and acceptance of certain software
sales, and also for software licences covering several accounting periods. Support, and revenue from Software as a Service will
be recognised in the income statement over the remaining period of the contract, with other deferred income being recognised
when the successful installation takes place, or over the period of time for which multiyear deals relate to.
21
Contingent and deferred consideration
During the year, the Group acquired SEP Limited and Ontrac Limited. Under the share purchase agreements in respect of both
acquisitions, contingent consideration is payable which is linked to the profitability of the acquired businesses for a two year
period post acquisition.
Under the terms of the share purchase agreements, the maximum amounts payable are as follows:
SEP Limited
Ontrac Limited
2016
£000
680
8,000
8,680
2015
£000
-
-
-
During the year, deferred consideration of £30k was paid in respect of the SEP acquisition.
At the balance sheet date, the Directors assessed the fair value of the remaining amounts payable which were deemed to be
as follows:
SEP Limited
Ontrac Limited
2016
£000
400
5,750
6,150
These total amounts payable are split between amounts due within one year and more than one year as follows:
Due within one year
Due after more than one year
2016
£000
1,665
4,485
6,150
2015
£000
-
-
-
2015
£000
-
-
-
TRACSIS PLC | 61
Notes to the Consolidated Financial Statements continued
22
Deferred tax
Non-current liability/(asset)
At 31 July 2014
(Credit)/charge to income statement
Recognised in equity
At 31 July 2015
Arising on acquisition
(Credit)/charge to income statement
Recognised in equity
At 31 July 2016
Accelerated
Intangible
capital
Share
assets
allowances options
£000
1,771
(142)
-
1,629
2,942
(412)
-
4,159
£000
£000
101
4
-
105
4
16
-
125
(560)
(18)
(304)
(882)
-
76
233
(573)
Other
£000
76
(76)
-
-
-
-
-
-
The closing deferred tax asset and liability has been calculated at 18% as at 31 July 2016 (2015: 20%).
This is presented on the Balance Sheet as follows within non-current assets and liabilities.
Total
£000
1,388
(232)
(304)
852
2,946
(320)
233
3,711
2015
£000
(882)
1,734
852
2016
£000
(573)
4,284
3,711
Deferred tax assets
Deferred tax liabilities
Net liability per table above
23
Share capital
Allotted, called up and fully paid:
Ordinary shares of 0.4p each
2016
2016
2015
2015
Number
£
Number
£
27,546,259
110,185
26,564,328
106,257
The following share transactions have taken place during the year ended 31 July 2016:
At start of the year
Issued as consideration for business combinations
Exercise of share options
At end of the year
2016
Number
2015
Number
26,564,328
26,258,114
252,629
729,302
-
306,214
27,546,259
26,564,328
62 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
24
Capital and reserves
The following describes the nature and purpose of each reserve:
Description and purpose
Amount subscribed for share capital at nominal value
Amount subscribed for share capital in excess of nominal value
Amounts arising from the premium of the fair value of shares issued over their
nominal value, in respect of certain business combinations
Amounts arising from the requirement to expense the fair value of share options
in accordance with IFRS2 Share-based Payments
Cumulative net profits recognised in the income statement
Translation differences on retranslation of Australian subsidiary (until disposal in Dec 2015)
Reserve
Share capital
Share premium
Merger reserve
Share based payments reserve
Retained earnings
Translation reserve
25
Operating leases
Leases as lessee
Total outstanding commitments for future minimum lease payments under non-cancellable operating leases are set out below:
Land and buildings
The Group leases several office facilities under operating leases. During the year £420,000 was recognised as an expense in
the income statement in respect of operating leases (2015: £305,000).
Minimum lease payments are payable as follows:
Within one year
In the second to fifth years
Plant and machinery
Within one year
In the second to fifth years
2016
£’000
266
563
829
2016
£’000
11
80
91
2015
£’000
12
367
379
2015
£’000
21
130
151
TRACSIS PLC | 63
Notes to the Consolidated Financial Statements continued
26
Financial risk management
The principal financial instruments comprise cash and short term deposits. The main purpose of these financial instruments is
to provide finance for the Group’s operations. The Group has various other financial instruments, such as trade receivables and
payables that arise directly from its operations. The Group has taken advantage of the exemption to exclude short term debtors
and creditors from the disclosures given below. The fair values of the financial instruments are equal to their year end carrying
values and represent the maximum exposure.
Financial assets
2016
Fixed
Floating
Rate
£000
Rate
£000
Total
£000
2015
Fixed
Floating
Rate
£000
Rate
£000
Total
£000
Cash and short term deposits
-
11,385
11,385
1,000
12,341
13,341
The Group had no financial liabilities or derivative contracts in either the current or previous year. It is policy that no trading in
financial instruments should be undertaken. The surplus cash balances have been invested in deposit accounts.
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
•
•
•
trade receivables;
cash at bank;
trade and other payables.
The main risks arising from the financial instruments are interest rate risk and liquidity risk. The Board reviews and agrees
policies for managing each of these risks and they are summarised below.
Fair value or cash flow interest rate risk
Currently the Group has surplus cash balances so does not have a borrowing requirement. Surplus cash is put on short term
deposit with high credit worthy banking institutions where appropriate at either fixed or floating rates. The Board monitors the
financial markets and the Group’s future cash requirements to ensure that this policy is exercised in the Group’s best interests.
At 31 July 2016, the Group did not have any fixed-rate deposits in place.
Credit risk
The Group monitors credit risk closely and considers that its current policies of credit checks meet its objectives of managing
exposure to risk. The Group has no significant concentration of credit risk. Amounts shown in the balance sheet best represent
the maximum credit risk exposure in the event that other parties fail to perform their obligations under financial instruments.
Liquidity risk
Liquidity risk is managed on a day to day basis. Facilities are agreed at appropriate levels having regard to the Group’s forecast
operating cash flows and future capital expenditures.
Capital disclosures
The Group’s objectives when maintaining capital are:
-
to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders
and benefits for other stakeholders, and;
to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.
-
The capital structure of the Group consists of cash and cash equivalents, and equity attributable to shareholders of the parent,
comprising issued share capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in
Equity and Notes 13, 23 and 24. The Group sets the amount of capital it requires in proportion to risk. The Group manages its
capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
Sensitivity analysis
In managing interest rates the Group aims to reduce the impact of short term fluctuations on the Group’s earnings. Over the
long term, permanent changes in interest rates would have an impact on consolidated earnings. The Directors consider that a
change of 100 basis points in interest rates at any period end would not have a material impact on cash flows.
64 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
26
Financial risk management (continued)
Market risks
The Directors consider that the Group has no significant exposure to market risks with respect to its financial instruments.
Foreign currency risk
The Group had an Australian subsidiary which was disposed of during the year. Balances and transactions in Australian dollars
were converted into Sterling and hence the Group was exposed to an element of currency risk/fluctuation until its disposal.
27
Related Party Transactions
The following transactions took place during the year with other related parties:
Leeds Innovation Centre Limited
Ashtead Plant Hire Co Limited
Purchase of
Amounts owed to
goods and services
related parties
2016
£000
74
25
2015
£000
75
-
2016
£000
7
13
2015
£000
7
-
Leeds Innovation Centre Limited is a company which is connected to The University of Leeds. Tracsis plc rents its office accommodation, along
with related office services, from this company.
Ashtead Plant Hire Co Limited is a subsidiary of Ashtead Group plc (Ashtead) of which Chris Cole is Chairman. SEP Limited, one of the Group’s
subsidiaries purchased goods and services from Ashtead during the year. All transactions with Ashtead took place at arm’s length commercial
rates and were not connected to Mr Cole’s position at Ashtead. SEP Limited traded with Ashtead prior to its acquisition by Tracsis plc.
WSP | Parsons Brinckerhoff
Sale of
Amounts owed by
goods and services
related parties
2016
£000
2,136
2015
£000
1,487
2016
£000
679
2015
£000
519
WSP | Parsons Brinckerhoff (WSP) is a company which is connected to Chris Cole who serves as non-executive Chairman of Tracsis plc and
also of WSP. Sales to WSP took place at arm’s length commercial rates and were not connected to Mr Cole’s position at WSP as the Group
traded with WSP prior to his appointment at Tracsis in April 2014. On 31 October 2014, WSP completed the acquisition of Parsons Brinckerhoff
(PB) which made PB a related party of the Group from this date. One of the Group’s subsidiary companies, (Tracsis Traffic Data Limited,
previously Sky High Technology Limited), traded extensively with PB prior to its acquisition by WSP as it carried out an agreement for a significant
piece of data collection work for a UK transport agency which was entered into in May 2014. All transactions with PB took place at arm’s length
commercial rates and were not connected to Mr Cole’s position at WSP.
Nutshell Software Limited
On 21 July 2016, the Group entered into an agreement to make an investment in Nutshell Software Limited, a company connected to Martyn
Cuthbert who is a Director of Ontrac Limited and Ontrac Technology Limited, subsidiary companies of the Group following their acquisition in
December 2015. Further details regarding this investment are provided in note 5.
Terms and conditions of transactions with related parties
The purchases from related parties are made at normal market prices. Outstanding balances that relate to trading balances are
unsecured, interest free and settlement occurs in cash. There have been no guarantees provided or received for any related
party receivables or payables.
Compensation of key management personnel of the Group
The Group considers the directors to be its key management personnel. Full details of their compensation are set out in the
Directors’ Remuneration Report.
TRACSIS PLC | 65
Notes to the Consolidated Financial Statements continued
28
Employee benefits
The Group makes contributions to defined contribution pension schemes for its employees. The pension cost charge for the
year comprises contributions payable by the Group to the schemes and other personal pension plans and amounted to £271,000
(2015: £176,000). There were outstanding contributions at 31 July 2016 of £35,000 (2015: £19,000).
29
Group entities
Below are the subsidiary undertakings which contribute to the Group results:
Held by Tracsis plc
Tracsis Rail Consultancy Limited
(previously RWA Rail Limited)
Tracsis Passenger Counts Limited
(previously Peeping Limited)
Safety Information Systems Limited
MPEC Technology Limited
Tracsis Traffic Data Limited (previously
Sky High Technology Limited and Sky
High plc)
Datasys Integration Limited
Datasys Limited
SEP Limited
SEP Events Limited
Ontrac Technology Limited
Ontrac Limited
S-H TrafficData Solutions Private
Limited
Sky High Data Capture Limited
Sky High Traffic Data Limited
The Web Factory Birmingham Limited
Forsyth Whitehead & Associates
Limited
Sky High Technology (Scotland)
Limited
Count on Us Traffic Limited
Burra Burra Distribution Limited
Sky High NCS Limited
Halifax Computer Services Limited
Skyhightraffic Limited
The Traffic Survey Company Limited
The People Counting Company Limited
Myratech.net Limited
Footfall Verification Limited
Disposed in the year:
Tracsis Traffic Data Australia Pty
Limited (previously Sky High Traffic
Data Australia Pty Limited)
Minority investments:
Citi Logik Limited
Nutshell Software Limited
Principal activity Country of incorporation
Rail industry consultancy
England and Wales
Rail industry consultancy
England and Wales
Software and consultancy
Rail industry hardware &
Datalogging
Transportation data
collection
England and Wales
England and Wales
England and Wales
Holding Company
England and Wales
Rail industry software
Event planning & traffic
management
Dormant
England and Wales
England and Wales
England and Wales
Holding company
England and Wales
Rail industry software
England and Wales
Data processing
India
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
% ordinary
share
capital owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Transportation data
collection
Mobile Network Data
Analysis
Mobile application
development
Australia
100%
England and Wales
England and Wales
17.2%
23.3%
66 | Annual Report and Accounts 2016
Notes to the Consolidated Financial Statements continued
30
Dividends
The Group introduced a progressive dividend policy during previous years. The cash cost of the dividend payments is shown
below:
Final dividend for 2013/14 of 0.45p per share paid
Interim dividend for 2014/15 of 0.40p per share paid
Final dividend for 2014/15 of 0.60p per share paid
Interim dividend for 2015/16 of 0.50p per share paid
Total dividends paid
2016
£000
-
-
164
137
301
The dividends paid or proposed in respect of each financial year is as follows:
2016
£000
2015
£000
2014
£000
Interim dividend for 2011/12 of 0.20p per share paid
Final dividend for 2011/12 of 0.35p per share paid
Interim dividend for 2012/13 of 0.30p per share paid
Final dividend for 2012/13 of 0.40p per share paid
Interim dividend for 2013/14 of 0.35p per share paid
Final dividend for 2013/14 of 0.45p per share paid
Interim dividend for 2014/15 of 0.40p per share paid
Final dividend for 2014/15 of 0.60p per share paid
Interim dividend for 2015/16 of 0.50p per share paid
Final dividend for 2015/16 of 0.70p per share proposed
-
-
-
-
-
-
-
-
137
194
-
-
-
-
-
-
106
164
-
-
-
-
-
-
89
119
-
-
-
-
The total dividends paid or proposed in respect of each financial year ended 31 July is as follows:
2013
£000
-
-
75
102
-
-
-
-
-
-
2015
£000
119
106
-
-
225
2012
£000
48
87
-
-
-
-
-
-
-
-
Total dividends paid per share
2016
1.2p
2015
1.0p
2014
0.8p
2013
0.7p
2012
0.55p
The dividend will be payable on 10 February 2017 to shareholders on the Register at 27 January 2017.
31
Events after the Balance Sheet date
In August 2016, one of the Group’s subsidiaries, MPEC Technology Limited, signed a significant order with a North American
Class 1 railroad operator for its Remote Condition Monitoring technology. Under the terms of the agreement, the initial order
comprises the outright purchase of hardware units, a software licence for the Group's data aggregation and analysis tool Centrix,
and various ancillary products. The Directors continue to view the US rail industry as being the largest and most accessible
growth market for the Group's RCM technology although the specific timing of further sales in new territories remains difficult to
predict.
32
Contingent liabilities
As detailed in note 21, the maximum remaining amounts payable under the share purchase agreements in respect of the Ontrac
and SEP acquisitions is £8.65m. Management have assessed the likely amounts payable as £6.15m and have included a
contingent consideration creditor in respect of this amount. It is therefore possible that additional amounts may be payable, but
in order for this to happen, the performance of both acquisitions will have to be stronger than anticipated which will lead to
revenue and profit in excess of expectations.
Financial Statements
Company Balance Sheet (prepared under FRS 101)
as at 31 July 2016
Company number: 05019106
2016
Note
£000
Non-current assets
Property, plant and equipment
Investments
Deferred tax assets
Current assets
Cash and cash equivalents
Trade and other receivables
Total assets
Non-current liabilities
Deferred tax liabilities
Contingent & deferred consideration
Current liabilities
Trade and other payables
Contingent & deferred consideration
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium reserve
Merger reserve
Share based payments reserve
Retained earnings
Total equity
34
35
39
36
39
38
37
38
40
TRACSIS PLC | 67
2015
(Note 42)
£000
349
14,093
882
15,324
339
34,567
634
35,540
5,750
1,561
7,311
9,182
867
10,049
42,851
25,373
198
4,485
4,683
10,417
1,665
12,082
-
-
-
8,446
-
8,446
16,765
8,446
26,086
16,927
110
5,622
3,010
2,408
14,936
26,086
106
4,776
1,846
1,321
8,878
16,927
The financial statements were approved and authorised for issue by the Board of Directors on 16 November 2016 and were
signed on its behalf by:
John McArthur – Chief Executive Officer
Max Cawthra
– Chief Financial Officer
The accompanying notes form an integral part of these financial statements
68 | Annual Report and Accounts 2016
Financial Statements
Company Statement of Changes in Equity
Share
capital
£000
106
Share
premium
£000
4,776
Merger
reserve
£000
1,846
-
-
-
-
3
1
-
-
-
-
846
-
-
-
-
-
-
1,164
Share
based
payments
reserve
£000
1,321
-
-
1,087
-
-
-
Retained
earnings
£000
8,878
Total
equity
£000
16,927
6,592
6,592
(301)
-
(233)
-
-
(301)
1,087
(233)
849
1,165
110
5,622
3,010
2,408
14,936
26,086
At 1 August 2015 (note 42)
Profit and total comprehensive
income
Dividends
Share based payment charges
Tax movements in equity
Exercise of share options
Shares issued as consideration
for business combinations
At 31 July 2016
Share
capital
£000
105
Share
premium
£000
4,591
Merger
reserve
£000
1,846
At 1 August 2014 (note 42)
Profit and total comprehensive
income
Dividends
Share based payment charges
Tax movements in equity
Exercise of share options
-
-
-
-
1
-
-
-
-
185
4,776
Share
based
payments
reserve
£000
698
-
-
623
-
-
Retained
earnings
£000
7,098
1,701
(225)
-
304
-
Total
equity
£000
14,338
1,701
(225)
623
304
186
-
-
-
-
-
At 31 July 2015 (note 42)
106
1,846
1,321
8,878
16,927
The following describes the nature and purpose of each reserve:
Reserve
Share capital
Share premium
Merger reserve
Share based payments reserve
Retained earnings
Description and purpose
Amount subscribed for share capital at nominal value
Amount subscribed for share capital in excess of nominal value
Amounts arising from the premium of the fair value of shares issued over their
nominal value, in respect of certain business combinations
Amounts arising from the requirement to expense the fair value of share options
in accordance with IFRS2 Share-based Payments
Cumulative net profits recognised in the income statement
The accompanying notes form an integral part of these financial statements
TRACSIS PLC | 69
Financial Statements
Notes to the Company Balance Sheet
33
Company accounting policies
Tracsis plc (“the Company”) was incorporated and is domiciled in the United Kingdom. Its registered office is Leeds Innovation
Centre, 103 Clarendon Road, Leeds, LS2 9DF, registered number 05019106. The principal activity of Tracsis plc is that of a
holding company and also software development and consultancy for the rail industry.
The company’s accounting reference date is 31 July.
a) Basis of preparation
The financial statements have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’ (“FRS 101”) which has been applied.
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have
been consistently applied to all the years presented, unless otherwise stated.
The financial statements have been prepared on a historical cost basis. The presentation currency used is sterling and amounts
have been presented in round thousands (“£000s”).
Disclosure exemptions adopted:
In preparing these financial statements the company has taken advantage of all disclosure exemptions conferred by FRS 101.
Therefore these financial statements do not include:
•
•
•
•
•
•
•
certain comparative information as otherwise required by EU endorsed IFRS;
certain disclosures regarding the company’s capital;
a statement of cash flows;
the effect of future accounting standards not yet adopted;
these financial statements do not include certain disclosures in respect of share based payments.
the disclosure of the remuneration of key management personnel; and
disclosure of related party transactions with other wholly owned members of the Tracsis plc group of companies.
In addition, and in accordance with FRS 101 further disclosure exemptions have been adopted because equivalent disclosures
are included in the Company’s financial statements.
b) Accounting policies
First time application of FRS 101
In the current year the company has adopted FRS 101. In previous years the financial statements were prepared in accordance
with applicable UK accounting standards.
This change in the basis of preparation has not materially altered the recognition and measurement requirements previously
applied in accordance with applicable UK accounting standards. Consequently the principal accounting policies are unchanged
from the prior year. The change in basis of preparation has enabled the Company to take advantage of all of the available
disclosure exemptions permitted by FRS 101 in the financial statements. There have been no other material amendments to the
disclosure requirements previously applied in accordance with applicable UK accounting standards.
A reconciliation of the position pre and post transition to FRS 101 is provided in note 42.
70 | Annual Report and Accounts 2016
Notes to the Company Balance Sheet continued
33
Company accounting policies (continued)
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable (excluding value added tax and discounts
given) derived from the provision of goods and services to customers during the period. The Company derives revenue from
software licences, post contract customer support and consultancy services.
The Company recognises the revenue from the sale of software licences and specified upgrades upon shipment of the software
product or upgrade, when there are no significant vendor obligations remaining, when the fee is fixed and determinable and
when collectability is considered probable. Where appropriate the Company provides a reserve for estimated returns under the
standard acceptance terms at the time the revenue is recognised. Payment terms are agreed separately with each customer.
Revenue from post contract customer support and consultancy services is recognised on a straight-line basis over the term of
the contract. Revenue received and not recognised in the profit and loss account under this policy is classified as deferred
income in the balance sheet.
Revenue from other products and services is recognised as the products are shipped or services provided.
Revenue from consultancy and professional services is recognised when the services have been performed, once the work and
value has been agreed with the customer.
Property, plant and equipment
Property, plant and equipment is initially recognised at cost. As well as the purchase price, cost includes directly attributable
costs.
Depreciation is provided on all items so as to write off the carrying value of items over their expected useful economic lives. It
is applied at the following rates:
Freehold buildings (excluding land)
Computer equipment
–
–
4% on cost
33 1/3% on cost
Investments
Fixed asset investments are stated at cost less provision for impairment where appropriate. The directors consider annually
whether a provision against the value of investments on an individual basis is required. Such provisions are charged in the
income statement in the year.
Taxation
The tax on the profit or loss for the year represents current and deferred tax.
The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been
enacted at the balance sheet date.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying value in the financial statements. The principal temporary differences arise from depreciation on
plant and equipment and share options granted by the Group to employees and directors.
Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the
related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet
date. Where the deferred tax asset recognised in respect of share-based payments would give rise to a credit in excess of the
related accounting charge at the prevailing tax rate the excess is recognised directly in equity.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
TRACSIS PLC | 71
Notes to the Company Balance Sheet continued
33
Company accounting policies (continued)
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases. Operating lease payments are recognised as an
expense on a straight line basis over the lease term, except where another systematic basis is more representative of the time
pattern in which economic benefits from the leased asset are consumed.
Share based payments
The Company’s accounting policies followed are in all material regards the same as the Group’s policy as shown on page 37.
Where there are charges relating to subsidiary undertakings, these are borne by the relevant subsidiary undertakings via a
recharge.
The Company has not presented its own profit and loss account as permitted by Section 408 of the Companies Act 2006. The
Company’s profit after taxation for the year amounted to £6,592,000 after receiving dividends from subsidiary undertakings of
£6,250,000 (2015: profit of £1,701,000 after receiving dividends of £1,600,000).
34
Property, plant and equipment
Cost
At 1 August 2015
Additions
At 31 July 2016
Depreciation
At 1 August 2015
Charge for the year
At 31 July 2016
Net book value
At 31 July 2015
At 31 July 2016
35
Investments
Cost
At 1 August 2015
Additions
At 31 July 2016
Freehold
Land & Computer
Buildings
equipment
£000
£000
400
-
400
54
12
66
346
334
26
4
30
23
2
25
3
5
Total
£000
426
4
430
77
14
91
349
339
Shares in, and loans to
subsidiary
undertakings
£000
14,093
20,474
34,567
72 | Annual Report and Accounts 2016
Notes to the Company Balance Sheet continued
35
Investments (continued)
The companies in which Tracsis plc’s interest is more than 10% at the year end are as follows:
Country of
incorporation
Class and
percentage
Principal activity
of shares held
Holding
England and Wales
Rail industry consultancy
Ordinary 100%
Direct
England and Wales
Rail industry ancillary
services
Ordinary 100%
Direct
MPEC Technology Limited
England and Wales
England and Wales
Software and consultancy
Rail industry hardware &
datalogging
Ordinary 100%
Ordinary 100%
Direct
Direct
England and Wales
Transportation data collection
Ordinary 100%
Direct
England and Wales
Holding Company
England and Wales
England and Wales
Rail industry software
Event planning & traffic
management
Dormant
SEP Events Limited
England and Wales
Ontrac Technology Limited
England and Wales
Holding Company
England and Wales
Rail industry software
Ordinary 100%
Ordinary 100%
Ordinary 100%
Ordinary 100%
Ordinary 100%
Ordinary 100%
Direct
Indirect
Direct
Indirect
Direct
Indirect
India
Data processing
Ordinary 100%
Indirect
England and Wales
Dormant
Ordinary 100%
Indirect
England and Wales
Dormant
Ordinary 100%
Indirect
England and Wales
Dormant
Ordinary 100%
Indirect
England and Wales
Dormant
Ordinary 100%
Indirect
England and Wales
Dormant
Ordinary 100%
Indirect
England and Wales
Dormant
Ordinary 100%
Indirect
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Dormant
Ordinary 100%
Indirect
Dormant
Ordinary 100%
Indirect
Dormant
Ordinary 100%
Indirect
Dormant
Ordinary 100%
Indirect
Dormant
Ordinary 100%
Indirect
Dormant
Ordinary 100%
Indirect
Dormant
Ordinary 100%
Indirect
Dormant
Ordinary 100%
Indirect
Name
Subsidiary undertakings:
Tracsis Rail Consultancy
Limited (previously)
R.W.A. Rail Limited
Tracsis Passenger Counts
Limited (previously)
Peeping Limited
Safety Information
Systems Limited
Tracsis Traffic Data
Limited (previously Sky
High Technology Limited
and Sky High plc)
Datasys Integration
Limited
Datasys Limited
SEP Limited
Ontrac Limited
S-H TrafficData Solutions
Private Limited
Sky High Data Capture
Limited
Sky High Traffic Data
Limited
The Web Factory
Birmingham Limited
Forsyth Whitehead &
Associates Limited
Sky High Technology
(Scotland) Limited
Count on Us Traffic
Limited
Burra Burra Distribution
Limited
Sky High NCS Limited
Halifax Computer Services
Limited
Skyhightraffic Limited
The Traffic Survey
Company Limited
The People Counting
Company Limited
Myratech.net Limited
Footfall Verification
Limited
Minority investments
Citi Logik Limited
England and Wales
Nutshell Software Limited
England and Wales
Mobile network data analysis
Mobile application
development
Ordinary 17.2%
Direct
Ordinary 23.3%
Indirect
Tracsis Traffic Data Pty, an Australian company that was held indirectly via Tracsis Traffic Data Limited, was disposed of
during the year.
Notes to the Company Balance Sheet continued
36
Trade and other receivables
Trade receivables
Amounts owed by group undertakings
Other debtors
Corporation Tax
Prepayments
TRACSIS PLC | 73
2016
£000
197
538
175
630
21
1,561
2015
£000
179
245
12
416
15
867
The carrying value of trade receivables approximates to the fair value.
Corporation tax is recoverable from other Group companies as Tracsis plc acts as the lead company for the Group’s Payment
on Account regime.
37
Trade and other payables
Trade payables
Other tax and social security
Amounts owed to subsidiary undertakings
Accruals and deferred income
2016
£000
11
45
9,778
583
10,417
2015
£000
32
86
7,767
561
8,446
The carrying value of trade receivables approximates to the fair value.
38
Contingent and Deferred consideration
During the year, the Company acquired SEP Limited and Ontrac Limited. Under the share purchase agreements in respect of
both acquisitions, contingent consideration is payable which is linked to the profitability of the acquired businesses for a two
year period post acquisition.
Under the terms of the share purchase agreements, the maximum amounts payable are as follows:
SEP Limited
Ontrac Limited
2016
£000
680
8,000
8,680
2015
£000
-
-
-
During the year, deferred consideration of £30k was paid in respect of the SEP acquisition.
At the balance sheet date, the Directors assessed the fair value of the remaining amounts payable which were deemed to be
as follows:
SEP Limited
Ontrac Limited
2016
£000
400
5,750
6,150
2015
£000
-
-
-
74 | Annual Report and Accounts 2016
Notes to the Company Balance Sheet continued
38
Contingent and Deferred consideration (continued)
These total amounts payable are split between amounts due within one year and more than one year as follows:
Due within one year
Due after more than one year
39
Deferred tax (asset) / liability
At start of the year – restated
(Credit) / charge to income statement during the year
Charge / (Credit) to equity during the year
At end of the year
2016
£000
1,665
4,485
6,150
2016
£000
(882)
213
233
(436)
2015
£000
-
-
-
2015
(Note 42)
£000
(557)
(21)
(304)
(882)
40
Share capital
Allotted, called up and fully paid:
Ordinary shares of 0.4p each
2016
2016
2015
2015
Number
£
Number
£
27,546,259
110,185
26,564,328
106,257
The following share transactions have taken place during the year ended 31 July 2016:
At start of the year
Issued as consideration for business combinations
Exercise of share options
At end of the year
41
Operating leases
Operating lease commitments
Minimum lease payments are payable as follows:
Land and buildings:
Within one year
Between one and two years
2016
Number
2015
Number
26,564,328
26,258,114
252,629
729,302
-
306,214
27,546,259
26,564,328
2016
£’000
10
-
2015
£’000
-
60
TRACSIS PLC | 75
Notes to the Company Balance Sheet continued
42
Explanation of transition to FRS 101
Under UK GAAP, the company did not recognise a deferred tax asset on gains made by employees on share options. Upon
transition to FRS 101, the company has recognised a deferred tax asset where appropriate.
A reconciliation is set out below showing the impact of this restatement.
The total impact of this was to recognise a deferred tax asset in respect of share options amounting to £867k. As detailed below,
and in the Statement of Changes in Equity, this was split as an asset of £563k as at 31 July 2014, with £304k relating to the
year ended 31 July 2015 to give a total adjustment required of £867k.
No other adjustments were required.
Date of transition – 1 August 2014
Non-current assets
Property, plant and equipment
Investments
Deferred tax assets
Current assets
Cash and cash equivalents
Trade and other receivables
Effect of
transition
to FRS
101
£000
UK GAAP
£000
359
14,093
-
14,452
5,294
1,261
6,555
-
-
563
563
-
-
-
FRS 101
£000
359
14,093
563
15,015
5,294
1,261
6,555
Total assets
21,007
563
21,570
Current liabilities
Trade and other payables
Non Current liabilities
Deferred Tax
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium reserve
Merger reserve
Share based payments reserve
Retained earnings
Total equity
7,226
6
6
7,232
-
-
-
-
-
7,226
6
6
7,232
13,775
563
14,338
105
4,591
1,846
698
6,535
13,775
-
-
-
-
563
563
105
4,591
1,846
698
7,098
14,338
76 | Annual Report and Accounts 2016
Notes to the Company Balance Sheet continued
42
Explanation of transition to FRS 101 (continued)
31 July 2015 comparatives
Non-current assets
Property, plant and equipment
Investments
Deferred tax assets
Current assets
Cash and cash equivalents
Trade and other receivables
Effect of
transition
to FRS
101
£000
UK GAAP
£000
349
14,093
15
14,457
9,182
867
10,049
-
-
867
867
-
-
-
FRS 101
£000
349
14,093
882
15,324
9,182
867
10,049
Total assets
24,506
867
25,373
Current liabilities
Trade and other payables
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium reserve
Merger reserve
Share based payments reserve
Retained earnings
Total equity
8,446
8,446
8,446
-
-
-
8,446
8,446
8,446
16,060
867
16,927
106
4,776
1,846
1,321
8,011
16,060
-
-
-
-
867
867
106
4,776
1,846
1,321
8,878
16,927
Group information
Company Secretary and Registered
Office
Max Cawthra
Auditor
KPMG LLP
Leeds Innovation Centre
103 Clarendon Road
Leeds
LS2 9DF
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
Telephone +44 (0) 845 125 9162
Principal bankers
Fax +44 (0) 845 125 9163
Registered number
05019106
Website
www.tracsis.com
HSBC Bank plc
33 Park Row
Leeds
LS1 1LD
TRACSIS PLC | 77
Nominated Advisor and
Stockbroker
Investec Bank plc
2 Gresham Street
London
EC2V 7QP
Registrars
Neville Registrars
18 Laurel Lane
Halesowen
West Midlands
B63 3DA
Additional bankers
Solicitors
NatWest
Santander
Co-Operative
Lloyds
Royal Bank of Scotland
Barclays
Rosenblatt Solicitors
9-13 St Andrew Street
London
EC4A 3AF