Annual Report & Accounts 2017
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
29
30
31
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73
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2 | Annual Report and Accounts 2017
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.
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 2017:
• Revenues increased 6% to £34.5m (2016: £32.6m)
• Adjusted EBITDA increased 11% to £8.5m (2016: £7.6m)
• Profit Before Tax of £4.6m (2016: £4.0m)
• Cash balances of £15.4m (2016: £11.4m)
•
Full year dividend increased 17% to 1.4p per share (2016: 1.2p)
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 2016/7:
1 Organic
further sales from existing
products to UK
• Significant multi million contract win for TRACS Enterprise with a major UK
Train Operating Company – to be delivered over four years
• Additional DayOne sale generated
• Continued high level of Software licence renewals achieved across the
whole Group
• Good sales made to the Group’s key UK customer
2 Overseas Markets
showing good promise
and remain relatively untapped
• Major contract delivered in North America with a Class 1 Railroad for the
Group’s Remote Condition Monitoring technology
Traffic Data business in Ireland continues to trade well
•
• Additional Software sale won in New Zealand – to be delivered in the year
ending 2017-18
3
Acquisitions
Investment made into Vivacity Labs Limited which is an exciting prospect
•
• Additional investment made into Nutshell Software Limited in the year
• Despite a number of opportunities being appraised, no further acquisitions
completed in the year following a busy year in 2015-16
4 | Annual Report and Accounts 2017
Strategic Report
Chairman & Chief Executive Officer’s Report
A welcome from Chris Cole, Non-Executive Chairman
Tracsis has performed well over the past 12 months and delivered a good financial result set against a backdrop of substantial
industry change within the rail sector and renewed impetus into ‘intelligent’ technology and solutions across the entire traffic and
transport sector. The Group continues to evolve, diversify and professionalise its offering and I am pleased with the significant
progress that was made over the past year that will form the foundations on which Tracsis will continue to grow. On behalf of
the Board, I wish to thank everyone for their hard work and dedication and remain excited about our future prospects.
Introduction
The financial year ended 31 July 2017 was a year of further growth and Group wide consolidation given it included the first full
year of trading for Ontrac and SEP (acquired 2015/16), and also excludes Tracsis Traffic Data Pty Australia (disposed of Dec
’15). The new businesses have added significant strength and depth to our market offering and have created synergies within
the Group. These synergies have been realised primarily in the form of technology, process and people improvements which
has put the business on an excellent footing as it enters the new financial year. These changes also contributed to a further
period of growth in revenue and profitability and Tracsis remains in excellent financial health.
Business overview
Tracsis specialises in providing software, hosting services, consultancy services and bespoke technology solutions to high value,
mission critical challenges within the transport and traffic sector. The Group’s market offering can be broadly categorised into
two distinct offerings:
• Rail Technology & Services: Application software development and licensing, remote condition monitoring
technology (RCM), and associated operational and strategic consulting services.
The Group has a long pedigree in developing industrial strength application software that covers a variety of
resource/asset optimisation that removes extraneous cost, increase network uptime and robustness and improves
overall service delivery. Our software offering 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 our 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, operators and a range of regulatory bodies..
•
Traffic & Data Services: Data capture, analysis and interpretation of traffic and pedestrian movement and demand
volumes to aid with the planning, investment into, and ultimate operations of a transport environment.
Over a number of years, the Group has developed what is now the largest traffic and transport data capture and
analytics business in the UK, and this was bolstered through the most recent acquisition of SEP Events and the
investment made into Vivacity Labs. With the acquisition of SEP this division has expanded its addressable markets
from rail, roads and highways to include the pedestrian rich environments of the events industry which is a significant
and growing market within the UK.
The Group's mission is to help our clients solve complex, high value, data driven problems for which there is typically very little
by way of an alternative offering. Tracsis chooses to operate within the traffic and transport markets due to the abundance of
complex problems where our expertise and software have clear and demonstrable benefits. These markets also exhibit several
attractive traits for the Group – high barriers to entry due to domain knowledge, large and disparate data sets, and well informed
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.
The Directors believe that the traffic, transport and pedestrian rich environments (such as events and the built space), are
particularly well positioned for further, long term, growth and the Group will capitalise on this via an expanding portfolio of
products and services that have a common theme of ‘smart’ planning and ‘intelligent’ mobility.
TRACSIS PLC | 5
Chairman & Chief Executive Officer’s Report continued
Financial summary
The Group delivered revenues of £34.5m which was an increase of 6% on the previous year (2016: £32.6m). This was a good
performance given the level of consolidation within the Group, and as it was set against a difficult comparator in 2016 when
Tracsis achieved revenue growth of 29%.
Adjusted EBITDA* of £8.5m was an increase of 11% on the previous year (2016: £7.6m), with Adjusted Profit** of £7.7m being
12% higher than the previous year (2016: £6.9m). The impact of acquisitions was a key contributor to the increased profit in the
year and through further consolidation and integration of these business in future years Tracsis should be able to continue to
leverage enhanced margins. Statutory Profit before Tax was also higher than the previous year at £4.6m (2016: £4.0m), with
an increased charge being taken in respect of amortisation of acquired intangible assets and an increased share based payment
charge.
At 31 July 2017, the Group’s cash balances had grown to £15.4m (2016: £11.4m), and cash generation continues to be strong.
Overall cash balances increased by £4.0m in the financial year, after paying contingent consideration of £1.1m (in respect of
Ontrac and SEP year one earn outs) and also making a strategic investment in Vivacity Labs of £0.4m. The business therefore
generated net cash of c. £5.5m which demonstrates excellent conversion of profits to cash. The Group continues to be debt
free. Contingent consideration in respect of Ontrac and SEP year two earn outs is expected to be finalised and paid in due
course, once the Group has clarity on a major sales opportunity that is being negotiated.
* Earnings before finance income, tax, depreciation, amortisation, exceptional items, other operating income, and share-based payment
charges and share of result of equity accounted investees – see note 31 for reconciliation
** Earnings before finance income, tax, amortisation, exceptional items, other operating income, share-based payment charges, and share of
result of equity accounted investees – see note 31 for reconciliation
Trading Progress and Prospects
Rail Technology & Services
Summary segment results:
£16.0m (2016: £14.1m)
Revenue
EBITDA
£6.5m
Profit before Tax £6.3m
(2016: £5.3m)
(2016: £5.1m)
Software
Software sales, excluding Ontrac, were £6.4m (2016: £6.6m) with the vast majority of this revenue being made up by software
licences, which are typically long term customer relationships and recurring in nature each year. All aspects of the software
portfolio continued to perform well, with renewal rates for the TRACS, Compass and Retail & Operations product suites
remaining very high. The Group continued its strategy of upselling and cross selling existing and new products to its customer
base and was pleased to secure an additional sale of DayOne which should pave the way for broader market uptake of this new
product. The lack of franchise bid work in the period under review impacted slightly on anticipated performance although a quiet
year within rail franchising is often followed by a busy one.
Most significantly, in July 2017, the Group was delighted to announce a major, multiyear contract with one of the largest Train
Operating Companies in the UK for its TRACS Enterprise solution. The value of this contract runs to several million pounds, and
will be delivered over the next four years. This win was highly significant for the Group as once successfully implemented, it
should lead to follow-on reference sales with other operators. We look forward to delivering this contract on time and to the
satisfaction of our client and have already bolstered our software delivery team in Leeds and Manchester to accommodate the
work planned in the year ahead. Elsewhere, a good contract win for our Compass product was secured in New Zealand, which
builds upon our long standing relationship with this customer.
Remote Condition Monitoring (RCM)
Revenues of £2.6m were higher than the previous year (2016: £2.2m), largely due to successful delivery of a major order from
a North American Class 1 railroad operator that was announced previously. This marked the Group's first major contract outside
of the UK and the Group continues to target further sales to this operator and the broader class 1 freight operators alongside
the Transit/Metro industry within North America. As noted previously, whilst the specific timing of new sales within a new
geography will always be hard to predict, management remains confident that the US is the largest potential market for our
goods and services and expect to growth our footprint in the near and medium term. To this end, Tracsis now has an agreement
in place with a trusted reseller and channel partner who, alongside promoting our RCM offering, is also tasked with marketing
our full range of resource planning software to the US rail industry.
6 | Annual Report and Accounts 2017
Chairman & Chief Executive Officer’s Report continued
In the UK, RCM trading remained buoyant, and was comparable with the previous year. The Group was delighted to have
completed product development for busbar monitoring technology and delivered the first units as part of a pilot with its major UK
customer. If successful, there is significant opportunity for this product, and our customer has indicated the viable addressable
market demand would be a requirement is some 20,000 units for the UK network alone.
The Group continues to target alternative applications for its RCM technology and during the year, delivered its first revenue
generating projects in respect of distributed power generation monitoring. This market remains viable and Tracsis continue to
retain dedicated resources to grow this, and other, applications outside of rail.
Consultancy and Professional Services
Due to changes made by the DfT to the timetable of rail franchise competitions, revenue in the year was lower than originally
anticipated. Consultancy and professional services revenue was £1.7m (2016: £2.1m) which was a good result given the
circumstances where a high number of planning and performance related projects were successfully won and delivered to
replace the revenue that would otherwise have been delivered via bid support to owning Groups. Tracsis acknowledged some
time ago that it needed to be more resilient to unforeseen changes to the franchise bid timetable (which are not uncommon).
This acknowledgement has created a far more robust business, not only in terms of service offering, but also in relation to staff
competency and client reach.
In 2017-18, we anticipate supporting bidders for the Southeastern and West Coast franchise competitions which should lead to
a significantly better consultancy performance.
Ontrac
Ontrac, performed well in the period and contributed revenue of £5.3m (2016: £3.2m) in its first full year as part of the Tracsis
Group. Revenue was delivered from a combination of software licences, hosting services, and bespoke software development
work along with related consultancy services. The business continues to work extensively with Network Rail and 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.
Ontrac continues to work on the next iteration of its ‘Rail Hub’ product suite and in particular the eTrac product which allows for
geospatial visualisation of railway networks and asset mapping. There has been significant interest for this innovation from key
customers and the Ontrac team have high confidence that a significant sale of eTrac will be delivered in the coming financial
year. Looking ahead, with the contractual earn-out period relating to Ontrac coming to an end in 2017, further consideration will
be given to how Ontrac can be integrated more fully into the rest of the Tracsis Group and how skills and resources can be
leveraged for mutual benefit.
Traffic & Data Services
Summary segment results:
£18.5m (2016: £18.5m)
Revenue
EBITDA
£2.0m
Profit before Tax £1.4m
(2016: £2.3m)
(2016: £1.3m)
Traffic Data and Passenger Counts
Traffic Data and Passenger Counts has historically been the fastest growing division in terms of pure organic growth. Revenues
of £12.8m were delivered in the year (2016: £14.4m), reflecting the disposal of the non-core Australian business in 2015, and
also taking account of the challenging market conditions that were announced in February 2017 (2016: £13.2m excluding
Australia).
In response to the trading environment and challenges posed within this part of the business, the Group undertook and
completed significant restructuring from October 2016 through to February 2017, which should result in savings of c.£0.6m on
an annualised basis, with the full effects being realised during the current financial year ending 31 July 2018.
The Group continues to have a strong position and enjoys a favourable market share. Tracsis is excited by the opportunity that
the Vivacity technology presents in terms of the potential to improve gross margins by reducing analysis costs significantly, and
looks forward to adopting this in due course. The strategy for this part of our business remains unchanged – to transition what
was historically a ‘project led services business’ to a ‘product led technology business’. In doing so the Group believes it can
achieve enhanced operational efficiencies via increased use of technology and process improvements to improve both gross
and net margin.
TRACSIS PLC | 7
Chairman & Chief Executive Officer’s Report continued
SEP
SEP achieved revenues of £5.7m (2016: £4.1m) in its first full year as part of the enlarged Group which was a fantastic
achievement and significantly ahead of any previous year as an independent entity. Along with delivering a large number of
prominent events to a retained blue chip client base, the team was successful in growing its market share and winning several
new customers on a retained basis. SEP continues to target the stadium and fixed venue event market and sees Premier
League football clubs as a major opportunity. The Group continues to work closely with one of the largest clubs in the English
Premiership and looks forward to replicating our success within this market in the year ahead.
The year also saw the launch of Tracsis Live Traffic (TLT) which provides event operators with a real time insight into traffic and
pedestrian dynamics that comprises ANPR technology, together with application software developed internally by the Group’s
technical development team. Use of this technology means the Group can differentiate itself from the competitors, and also
provide incremental, high value services as part and parcel of an engagement. Early signs for the adoption of this system have
been positive, with good revenues being achieved in the year. The opportunity continues to exist to roll out to other existing and
potential new clients.
Dividends
In February 2012, the Board implemented a progressive dividend policy and the Group intends to maintain this going forwards.
An interim dividend of 0.6p per share for FY 2016/17 was paid in April 2017. A final dividend of 0.8p per share in respect of FY
2016/17 is proposed, to take the full year dividend to 1.4p. This represents a 17% increase on the previous year’s dividend of
1.2p 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 through further development of new products and services. The Board is committed to maintaining the
progressive dividend policy as the business continues to trade profitably and in line with its expectations.
The dividend will be paid on 16 February 2018 to shareholders on the register on 2 February 2018.
Acquisitions
The Group did not make any acquisitions in the year under review, but assessed multiple opportunities in line with our stated
strategy. Although no transaction was completed in the period, Tracsis’ appetite for continued aggregation in selected traffic and
transport markets remains unchanged and so too does the standard by which we critique potential acquisition targets. Looking
ahead, the pipeline of opportunities remains strong and Tracsis has never been in a stronger position to make further
acquisitions.
Investments
The Group was pleased to announce that it had made a strategic investment of up to £1.3m into Vivacity Labs Limited
("Vivacity"), a provider of smart, hyperlocal data for smart cities and intelligent transport systems, in return for a 28.1% equity
stake.
Vivacity has developed novel Machine Learning software and sensor technology which can be applied across a wide range of
traffic and transport issues, most specifically for the automatic counting and classification of pedestrian and vehicle flows in a
variety of environments. The business has secured a number of client wins and pilot projects with local governments,
infrastructure owners and transport providers. In March 2017 the Group was successful in winning a significant Smart Cities
grant with a value of £1.7m.
Adoption of the Vivacity technology has the potential for the Group to significantly reduce its existing costs for processing video
footage within the Traffic & Data Services Division whilst also leading to improvements in operational performance such as
increased accuracy of traffic counts and the reduction of turnaround times for clients.
As part of a broader investment round for Vivacity, the Group agreed to invest up to £1.0m via a tranched equity funding in return
for 23.3% of the enlarged share capital of Vivacity. The first investment of £0.4m was made in the year, with the balance of
£0.6m expected to be made in the year ending 31 July 2018, subject to performance milestones being fulfilled. In addition,
Tracsis holds a warrant to subscribe for a further 4.8% of the enlarged share capital for an additional £0.3m.
Tracsis is entitled to a seat on the Board of Directors of Vivacity (currently filed by John McArthur – Group CEO) to help monitor
our investment and promote the Vivacity offering to the Tracsis customer base. The investment round also included Downing
Ventures EIS Fund and the London Co-Investment Fund with Tracsis being lead investor.
8 | Annual Report and Accounts 2017
Chairman & Chief Executive Officer’s Report continued
Summary and Outlook
FY 2016-17 was another year of significant progress, consolidation and continued growth for Tracsis following the acquisitions
of SEP and Ontrac, which substantially increased the Group’s product reach and client base. The Group has demonstrated
maturity and resilience to dynamic market conditions and continues to take the initiative to innovate and evolve in new areas
that should provide for significant margin improvement and competitive advantages in the years ahead.
Revenue, adjusted EBITDA and adjusted profit were once again all well ahead of the previous year and the Group continues to
benefit from a strong balance sheet that benefits from the business’ excellent cash generation and sizeable reserves.
The Group believes that the significant Software contract win, investment in Vivacity Labs, restructuring of its Traffic Data
business and North American success all provide a good platform for growth in 2017-18.
Tracsis’ growth 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.
As always, our thanks go to our numerous customers and partners who support our growth plans, and most importantly our
talented and dedicated staff across the whole Group.
Chris Cole, Chairman
John McArthur, Chief Executive Officer
8 November 2017
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. The key risks are
as follows:
Description/Potential impact:
Rail industry structure changes
Area of Group
impacted:
Mitigation:
Change in the year:
present
structure
and
The
organisation of the rail industry in
the UK may be changed in the
future, or by a future government,
impacting the Group. The Group
continues to derive a significant
amount of its results from the UK
rail industry.
1. Rail Technology
& Services
of
the Group’s
Several
products and services are
expected to be still in demand
regardless of the structure of
the industry as some of them
have a demonstrable value
proposition and
return on
investment case. The Group
expects
for
certain solutions will remain
ownership
of
regardless
structure. However, in certain
circumstances, there is very
little
against
politically driven changes or
other structural changes.
that demand
mitigation
Competition
The success of the Group may
lead to increased competition, in
particular 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
most
strong
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. The Group
restructured its Traffic & Data
Services
with
significant cost savings now
anticipated.
Division
that
The Group continues to derive
revenues directly and indirectly
from government commitment to
invest and modernise transport
infrastructure, and would be
significantly
these
funding streams were
public
reduced.
impacted
if
1. Traffic & Data
Services
2. Rail Technology &
Services
the exposure
As the Group continues to
grow and diversify its revenue
streams,
to
government spending should
reduce but will always be a risk
for the Traffic & Data Services
Division due to the nature of its
customer base. For the Rail
Technology
Services
Division, the Group attempts to
ensure that its offerings have a
clear return on investment and
value proposition, to ensure
demand will remain strong.
&
No change in the year.
No change in the year to the
risk, though the Group has
made significant reductions
to its headcount within the
Traffic & Data Services
Division and expects to see
the full benefits of this cost
saving during the financial
year 2017-18. This should
make the group operate
more efficiently and enable
it
to changing
market conditions more
quickly.
to adapt
The
risk and potential
impact of ‘Brexit’ is covered
separately within this risk
section.
10 | Annual Report and Accounts 2017
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
The Group has a large number of
customers but derives a significant
amount of business from one key
customer for a large part of its rail
Technology & Services offering.
There can be no guarantee as to
the timing or quantum of any
potential future orders from this
customer.
the
Group’s Traffic & Data Services
division operates under a number
of Framework Agreements with
one large one in particular from
whom a significant amount of
revenue is obtained.
Furthermore,
All parts of the Group.
1. Rail Technology &
Services
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.
Delays to project delivery
The Group was successful
in
securing a significant contract with
a major UK Train Operating
Company in the year which has a
number of strict deadlines
for
implementation, along with certain
penalties should the programme
not be implemented in accordance
with the contractual requirements
and timeframes.
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
overseas markets and also
alternative uses
this
technology.
for
The Group believes it offers
competitive
remuneration
packages, and also offers
various
incentive
share
schemes to staff in order to
attract and retain high calibre
employees.
share
schemes are designed such
that employees are rewarded
in the success of the Group,
and are tied in for a period of
time.
Such
out
large
The Group has deployed an
extensive delivery team, has
carried
scale
recruitment, and has worked
with the client in question to
establish a project plan
to
ensure that the project has the
best chance of successful
delivery.
No change in the year.
Total revenues from the
Group’s largest customer
were
of Group
16%
revenue (2016: 14%).
Revenues in respect of the
Group’s Remote Condition
Monitoring accounted
for
around 8% (2016: 7%) of
total Group revenue.
continued
The Traffic & Data Services
Division
to
account for over half of
overall Group revenues and
derived
(2016:
£2.5m
£2.1m) from one particular
customer.
No change in the year.
Increased
the year
in
following this key contract
being secured.
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
Price pressure
from customers
may potentially result in margins
being eroded over 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:
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 Vivacity Labs
Limited to seek to mitigate
some of the risks posed by
technology to the Traffic &
Data Services Division.
No 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
strategic investment in Vivacity
Labs Limited during the year
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
its
operating
base
reviewing
efficiently. When
tenders and enquiries, pricing
is submitted accordingly on the
most favourable commercial
terms. The Group is committed
customer
to
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
12 | Annual Report and Accounts 2017
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
No change in the year.
employs
The Group
a
dedicated Health & Safety
team for its Traffic & Data
Services division. 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
and
policies,
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 decision
the
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
any
in government
spending.
reduction
All parts of the Group
No change in the year.
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.
All parts of the Group
It remains too early to assess
the long term implications of
this decision.
No change in the year.
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
customers.
Group
believes that its market offering
and the sectors in which it
operates provides it with good
external
to
resilience
influences
as
although,
remain
prudent
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
20
15
10
5
0
32.6
34.5
25.4
22.4
10.8
Revenue
2013
2014
2015
2016
2017
Profit Before Tax - £m
4.2
4.5
4
4.6
2.6
8.5
7.6
6.5
5.4
3.4
Adjusted EBITDA
2013
2014
2015
2016
2017
Basic Earnings Per Share - p
12.9
14.1
12.71
13.36
8.42
10
8
6
4
2
0
15
10
5
0
PBT
Basic EPS
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Cash - £m
15.4
13.3
11.4
8.9
6.6
Cash
2013
2014
2015
2016
2017
14 | Annual Report and Accounts 2017
Governance
Board of Directors
Executive Directors
John McArthur (42) 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 (39) 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 (71) 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.
John Nelson (70) 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 48 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 (46) 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 (59) 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 2017.
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 8 November 2017.
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 29 to 70
Dividends
The Directors have adopted a progressive dividend policy, subject to growth, profitability and cash position in the future. An
interim dividend of 0.6p per share was paid in April 2017. The Directors propose a final dividend of 0.8p per share, subject to
shareholder approval at the forthcoming Annual General Meeting. This will give a full year dividend of 1.4p per share (2016:
1.2p).
Directors
The directors who serve on the Board and on Board Committees during the year are set out on page 14. Lisa Charles-Jones
was appointed as a Director on 25 August 2016. Liz Richards was appointed as a Director on 1 September 2016. Charles
Winward resigned as a Director on 17 November 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 McArthur and
Chris Cole retire by rotation and, being eligible, offer themselves for re-election. 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 2017 and 2016 were as follows:
31 July 2017
31 July 2016
Number
of
shares
% of
issued
share
capital
Number
% of
issued
of
share
shares
capital
John McArthur
1,062,783
3.80% 1,062,783
3.86%
Max Cawthra
John Nelson
Chris Cole
Lisa Charles-Jones
Liz Richards
188,022
0.67%
177,860
0.65%
100,824
0.36%
100,824
0.37%
7,000
0.02%
7,000
0.02%
-
-
-
-
-
-
-
-
16 | Annual Report and Accounts 2017
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 7 November 2017, 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
Ennismore Fund Management 1,905,616
1,860,532
Unicorn Asset Management
1,473,684
Schroders
1,440,986
BlackRock Inc
1,432,852
Downing LLP
1,343,778
Liontrust Investment Partners
1,225,265
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
6.8%
6.7%
5.3%
5.2%
5.1%
4.8%
4.4%
4.2%
4.0%
3.9%
3.8%
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 2017 were 54 days (2016: 58 days).
Research and development
During the year the Group incurred £1,214,000 (2016: £970,000) 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 £5,029 during the year (2016: £5,200). 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
8 November 2017
Leeds Innovation Centre
103 Clarendon Road
Leeds
LS2 9DF
18 | Annual Report and Accounts 2017
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
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
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
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 2017 is set out below
Executive Directors
John McArthur
Max Cawthra
Non-Executive Directors
John Nelson
Charles Winward (resigned 17 Nov 16)
Chris Cole
Lisa Charles-Jones (appointed 25 Aug 16)
Liz Richards (appointed 1 Sept 16)
Basic Pension
Conts
salary
£000
£’000
Bonus
£000
Benefits
in kind
£000
Total
2017
£000
191
144
335
23
8
50
25
25
131
40
7
47
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
231
151
382
23
8
50
25
25
131
Total
2016
£000
323
214
537
23
25
50
-
-
98
Directors’ interests in shares options in the Executive Share Option Schemes
At
1 August
At
Exercise
Date from
31 July
price
Which
2016
Granted
(Note 2)
Lapsed
(Note 1)
Exercised
2017
pence
Exercisable Expiry date
Executive
Directors
John McArthur
92,727
43,045
(54,545)
-
81,227
0.4p
See note 2
Max Cawthra
71,981
28,697
(36,364)
(10,162)
54,152
0.4p
See note 2
15 Dec
2025 / 6 Jan
2027
15 Dec
2025 / 6 Jan
2027
Non-Executive
Directors
John Nelson
25,000
Chris Cole
Lisa Charles-
Jones
Liz Richards
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,000
175p
See note 3
-
-
-
-
-
-
-
-
-
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 2017
Directors’ Remuneration Report continued
Directors’ interests in shares options in the Executive Share Option Schemes (continued)
Note 1
In respect of the '2014 LTIP', none of the performance conditions regarding EPS and TSR for the year ended 31 July 2017 were
met and as such the options lapsed.
Note 2
'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
‘2016 LTIP’
• John McArthur granted maximum of 43,045 options, Max Cawthra granted a maximum of 28,697 options
• Full award is only payable should statutory diluted EPS for the year ending 31 July 2019 be 17.38p, and TSR versus
the peer group is in the top quartile
• Should statutory diluted EPS for the year ending 31 July 2019 be less than 14.38p, 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 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 £nil (2016: £355,177). 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 2016 to 31 July 2017.
140
130
120
110
100
90
80
Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17
Jul-17
Tracsis
AIM All-Share Index
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
8 November 2017
22 | Annual Report and Accounts 2017
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 6 Board members, comprising 2 Executive Directors and 4 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 18.
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 McArthur and Chris Cole will be retiring at the Annual General Meeting
and submitting themselves for re-election.
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
1/1
Meetings Committee
Meetings
-
-
2/2
2/2
1/1
-
(total/poss)
9/10
10/10
9/10
10/10
9/10
10/10
Audit
Committee
Meetings
-
-
2/2
2/2
1/2
2/2
John McArthur
Max Cawthra
John Nelson
Chris Cole
Lisa Charles-Jones
Liz Richards
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 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 Liz Richards as Chairperson, 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
The Board completed a formal evaluation process which resulted in Lisa Charles-Jones and Liz Richards being appointed as
Directors, and Sean Lippell and Charles Winward resigning as Directors.
24 | Annual Report and Accounts 2017
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
Materiality:
group financial
statements as a
whole
Coverage
£225k (2016: £235k)
4.9% of Group profit before
tax (2016: 5%of Group
profit before tax)
99% (2016: 99%) of Group
profit before tax
Risks of material misstatement
Recurring
risks
Revenue
Recognition -
Software Contracts
to the members of Tracsis plc
1. Our opinion is unmodified
We have audited the financial statements of Tracsis
plc (“the Company”) for the year ended 31 July
2017 which comprise the Consolidated Statement
of Comprehensive Income, Consolidated and
Company Balance Sheet, Consolidated and
Company Statement of Changes in Equity,
Consolidated Cash Flow Statement and the related
notes, including the accounting policies in note 3.
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 2017 and of the
Group’s profit for the year then ended;
— the Group financial statements have been
properly prepared in accordance with
International Financial Reporting Standards as
adopted by the European Union;
— the parent Company financial statements have
been properly prepared in accordance with UK
accounting standards, including FRS 101
Reduced Disclosure Framework; and
— the financial statements have been prepared in
accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (“ISAs
(UK)”) and applicable law. Our responsibilities are
described below. We have fulfilled our ethical
responsibilities under, and are independent of the
Group in accordance with, UK ethical requirements
including the FRC Ethical Standard as applied to
listed entities. We believe that the audit evidence
we have obtained is a sufficient and appropriate
basis for our opinion.
26 | Annual Report and Accounts 2017
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In
arriving at our audit opinion above, the key audit matter was as follows:
Revenue Recognition –
Software Contracts
(Parent and Group)
Software revenue (Group) :
£11,711k (2016: £9,817k)
Software revenue (Parent
Company) : £2,333k (2016:
£2,529k)
Refer to page 34 (accounting
policy) and page 47 (financial
disclosures)
The risk
Our response
Complex Accounting Treatment
Our procedures included:
Software contracts are a key
revenue stream for the Group.
These contracts often contain
multiple components resulting in
complex revenue, and ultimately
profit, recognition considerations.
— Accounting analysis : We critically
assessed the Group’s accounting
policies in relation to revenue
recognition with reference to the
accounting standards.
— Tests of detail: We tested
Given this complexity there is a risk
of error over the amount of revenue
recognised or deferred on these
contracts at the year end.
.
completeness of the deferred income
schedules by reconciliation to the
general ledger. We agreed a sample of
sales to customer orders and sales
invoices to determine whether the
contractual terms such as timing and
value had been included in the deferred
income calculation correctly.
— Expectation vs Outcome: We
performed a recalculation over a sample
of deferred income at the year end to
determine if the correct revenue amount
had been recognised by reference to the
contractual terms.
TRACSIS PLC | 27
3. Our application of materiality and an overview of the
scope of our audit
PBT
£4,616k (2016: £3,955k)
Group Materiality
£225k (2016: £235k)
Materiality for the Group financial statements as a whole
was set at £225k (2016: £235k), determined with
reference to a benchmark of Group profit before tax, of
which it represents 4.9% (2016: 5%).
Materiality for the parent Company financial statements
as a whole was set at £184k (2016: £200k), determined
with reference to a benchmark of Company profit before
tax, of which it represents 4.7% (2016: 3%).
We reported to the audit committee any corrected or
uncorrected identified misstatements exceeding £11,250
(£11,750), in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Of the Group’s 11 reporting components (2016: 11), we
subjected 9 (2016: 9) to full scope audits for Group
purposes. For the residual components, we performed
analysis at an aggregated group level to re-examine our
assessment that there were no significant risks of
material misstatement within these.
The work on all 11 (2016: 11) components was
performed by the Group team.
The Group audit team approved the component
materialities ranging from £20k - £200k (2016: £27.5k-
£200k) having regard to the mix of size and risk profile of
the Group across the components.
£225k
Whole financial
statements materiality
(2016: £235k)
£200k
Range of materiality at 11
components (£20k-£200k)
(2016: £27.5k-£200k)
PBT Group materiality
£11.250
Misstatements reported to the
audit committee
(2016: £11.750)
Group revenue
Group profit before tax
99%
(2016: 99%)
99
99
100%
(2016: 100%)
100
100
Group total assets
99%
(2016: 99%)
99
99
Key:
Full scope for group audit purposes 2017
Full scope for group audit purposes 2016
Residual components
28 | Annual Report and Accounts 2017
4. We have nothing to report on going concern
7. Respective responsibilities
We are required to report to you if we have concluded that
the use of the going concern basis of accounting is
inappropriate or there is an undisclosed material uncertainty
that may cast significant doubt over the use of that basis for
a period of at least twelve months from the date of approval
of the financial statements. We have nothing to report in
these respects.
5. We have nothing to report on the other information in
the Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have not
identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the
strategic report and the directors’ report;
— in our opinion the information given in those reports for
the financial year is consistent with the financial
statements; and
— in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
6. We have nothing to report on the other matters on
which we are required to report by exception
Under the Companies Act 2006, we are required to report to
you if, in our opinion:
— adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
— the parent Company financial statements are not in
agreement with the accounting records and
returns; or
— certain disclosures of directors’ remuneration specified
by law are not made; or
— we have not received all the information and
explanations we require for our audit.
We have nothing to report in these respects
Directors’ responsibilities
As explained more fully in their statement set out on page
[A], the directors are responsible for: the preparation of the
financial statements including being satisfied that they give
a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error; assessing the Group and,
parent Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and using the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
8. The purpose of our audit work and to whom we owe our
responsibilities
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.
David Morritt (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
8 November 2017
TRACSIS PLC | 29
Financial Statements
Consolidated Statement of Comprehensive Income
for the year ended 31 July 2017
Revenue
Cost of sales
Gross profit
Administrative costs
Adjusted EBITDA*
Depreciation
Adjusted profit **
Amortisation of intangible assets
Exceptional items
Other operating income
Share-based payment charges
Operating profit / (loss)
Finance income
Finance expense
Share of result of equity accounted investees
Profit / (loss) before tax
Taxation
Profit / (loss) after tax
Other comprehensive income:
Items that are or may be reclassified subsequently to
profit or loss
Foreign currency translation differences – foreign
operations
2017
2016
Continuing
operations
Continuing
operations
Discontinued
operations
Total
Notes
£000
£000
£000
£000
6
34,486
31,403
1,238
32,641
6
14
15
9.3
9.4
8
9
10
11
16
12
(15,279)
(12,559)
(715)
(13,274)
19,207
18,844
523
19,367
(14,491)
(14,745)
(662)
(15,407)
8,494
(799)
7,695
7,444
(744)
6,700
201
(29)
172
7,645
(773)
6,872
(1,674)
(1,378)
-
(1,378)
(136)
(311)
(447)
(139)
134
-
(1,300)
(1,087)
-
-
-
(1,087)
4,716
4,099
(139)
3,960
15
(38)
(77)
4,616
(901)
3,715
36
(37)
-
4,098
(372)
3,726
-
(4)
-
36
(41)
-
(143)
3,955
(50)
(422)
(193)
3,533
-
-
189
189
Total recognised income for the year
3,715
3,726
(4)
3,722
Earnings per ordinary share
Basic
Diluted
13
13
13.36p
12.93p
13.40p
12.93p
(0.69p)
(0.67p)
12.71p
12.26p
* Earnings before finance income, tax, depreciation, amortisation, exceptional items, other operating income, and share-based payment
charges and share of result of equity accounted investees – see note 31.
** Earnings before finance income, tax, amortisation, exceptional items, other operating income, share-based payment charges, and share of
result of equity accounted investees – see note 31.
The accompanying notes form an integral part of these financial statements
30 | Annual Report and Accounts 2017
Financial Statements
Consolidated Balance Sheet as at 31 July 2017 Company number: 05019106
Non-current assets
Property, plant and equipment
Intangible assets
Investments – loan notes receivable
Investments – equity
Loans due from associated undertakings
Investments in equity accounted investees
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
Retained earnings
Total equity
Note
14
15
16
16
16
16
5
22
17
19
5
18
21
22
18
20
21
23
24
24
24
2017
£000
2,461
24,458
-
675
187
111
-
457
2016
£000
2,608
26,132
125
375
125
125
167
573
28,349
30,230
239
8,480
-
15,350
24,069
52,418
230
-
3,718
3,948
320
8,842
5,041
620
14,823
18,771
33,647
112
5,948
3,010
24,577
33,647
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
19,924
28,666
The financial statements on pages 29 to 70 were approved and authorised for issue by the Board of Directors on 8 November 2017
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 | 31
Share
Capital
£’000
Share
Premium
£’000
Merger
reserve
£’000
Retained
Earnings
£’000
Translation
reserve
£’000
Total
£’000
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
At 1 August 2016
Profit for the year
Total comprehensive income
Transactions with owners:
Dividends
Share based payment
charges
Exercise of share options
106
4,776
1,846
-
-
-
-
-
-
-
3
1
-
-
-
-
-
-
-
846
-
110
5,622
-
-
-
-
-
-
-
-
1,164
3,010
15,838
3,533
-
-
3,533
(301)
1,087
(233)
-
-
19,924
110
5,622
3,010
19,924
-
-
-
-
2
-
-
-
-
326
5,948
-
-
-
-
-
3,715
3,715
(362)
1,300
-
3,010
24,577
(189)
22,377
-
22
167
189
-
-
-
-
-
-
-
-
-
-
-
-
-
3,533
22
167
3,722
(301)
1,087
(233)
849
1,165
28,666
28,666
3,715
3,715
(362)
1,300
328
33,647
At 31 July 2017
112
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
32 | Annual Report and Accounts 2017
Financial Statements
Consolidated Cash Flow Statement for the year ended 31 July 2017
Operating activities
Profit for the year
Finance income
Finance expense
Depreciation
Loss on disposal of plant and equipment
Loss on disposal of business
Exceptional items
Other operating income
Amortisation of intangible assets
Share of result of equity accounted investees
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
Repayment of loans from investments
Receipt of deferred consideration
Payment of contingent & deferred consideration
Net cash flow used in investing activities
Financing activities
Dividends paid
Proceeds from exercise of share options
Hire purchase repayments
Net cash flow (used in) / from financing activities
Net increase / (decrease) 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
Notes
10
11
14
5
9.3
9.4
15
16
12
8
10
11
14
5
5
5
16
5
5/21
30
18
2017
£000
3,715
(15)
38
799
12
-
139
(134)
1,674
77
901
1,300
8,506
32
(2,314)
488
6,712
15
(38)
(664)
6,025
(558)
56
-
-
(550)
111
300
(1,109)
(1,750)
(362)
328
(276)
(310)
3,965
-
11,385
15,350
2016
£000
3,533
(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)
(8,013)
(301)
849
(369)
179
(1,968)
12
13,341
11,385
The accompanying notes form an integral part of these financial statements
TRACSIS PLC | 33
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 2017 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 2016. 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 2016:
• Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)
•
Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)
• 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)
• Disclosure Initiative (Amendments to IAS 1)
• Annual Improvements to IFRSs 2012–2014 Cycle – various standards
These standards have not had a material impact on the Consolidated Financial Statements.
34 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
2
Basis of preparation (continued)
The following new or revised standards and interpretations issued by the International Accounting Standards Board
(IASB) have not been applied in preparing these accounts as their effective dates fall in periods beginning on or after
1 August 2017.
Effective for the year ending 31 July 2018
•
•
IAS 7 ‘Statement of cash flows’ – amendments relating to the IASB’s disclosure initiative intended to provide
information to help investors better understand changes in a company’s debt
IAS 12 ‘Income taxes’ – amendments relating to the accounting for deferred tax assets for unrealised losses
on debt instruments measured at fair value.
Effective for the year ending 31 July 2019
•
•
•
IFRS 2 ‘Share-based payment’ – amendments clarifying how to account for certain types of share-based
payment transactions
IFRS 9 ‘Financial instruments’ – introduces new requirements for classification and measurement of financial
assets and financial liabilities, impairment methodology and hedge accounting.
IFRS 15 ‘Revenue from contracts with customers’ – provides a single model for measuring and recognising
revenue arising from contracts with customers, unless the contracts are in the scope of other standards, such
as IAS 17. It supersedes all existing revenue requirements in IFRS.
Effective for the year ending 31 July 2020
•
IFRS 16 ‘Leases’ – provides a single lessee accounting model, specifying how leases are recognised,
measured, presented and disclosed
(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 | 35
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
36 | Annual Report and Accounts 2017
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 | 37
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
38 | Annual Report and Accounts 2017
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 | 39
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 previous 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 previous period. Traffic & Data Services
includes SEP which was acquired in the previous 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.
40 | Annual Report and Accounts 2017
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 previous 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 | 41
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:
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.
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.
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
£5.0m in respect of both acquisitions, which are management’s best estimates of the fair value of the amounts payable. Ontrac
remain in advanced negotiations regarding a major sales opportunity with the Group’s key client and a decision was still awaited
at the date of signing the annual report.
42 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
5.1
Acquisitions, disposals and investments in the current year
a)
Investment: Vivacity Labs Limited
On 3 April 2017, the Group entered into an agreement to acquire up to 28.1% of Vivacity Labs Limited for total consideration of
£1.3m, split between equity investments to be made in three tranches of £1.0m, plus a warrant for a further £0.3m. The first
tranche of the investment took place during the year and comprised an investment of £0.425m in return for 11.41%. Tranches
two and three are expected to be made during the year ending 31 July 2018, subject to the business achieving certain technical
delivery milestones.
Vivacity has developed novel machine learning software and sensor technology which is applied to solve a wide range of traffic
and transport issues, most specifically for the automatic counting and classification of pedestrian and vehicle flows in a variety
of environments.
The investment is carried at cost.
b)
Nutshell Tranche 2
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, and the second one was made in March 2017 and comprised a total of £0.125m which was split as £0.0625m
equity and £0.0625m of debt in return for a further 8.0% of the shares in the company to take the total holding to 31.3%.
The investment is accounted for as an Associated undertaking, and further details are provided in note 16.
5.2
Acquisitions, disposals and investments in the previous year
a)
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.
TRACSIS PLC | 43
Notes to the Consolidated Financial Statements continued
5.2
Acquisitions, disposals and investments in the previous year (continued)
a)
Acquisition: SEP Limited and SEP Events 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: 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
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 were 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.
44 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
5.2
Acquisitions, disposals and investments in the previous year (continued)
b)
Acquisition: Ontrac Limited and Ontrac Technology Limited
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.
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.
TRACSIS PLC | 45
Notes to the Consolidated Financial Statements continued
5.2
Acquisitions, disposals and investments in the previous year (continued)
b)
Acquisition: Ontrac Limited and Ontrac Technology Limited
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.
In the Group’s interim results to 31 January 2016, 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 Group incurred acquisition related costs of £15k which are included within administrative expenses.
46 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
5.2
Acquisitions, disposals and investments in the previous year (continued)
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.
The deferred consideration was settled during the year ended 31 July 2017, which was ahead of the contractual payment dates.
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 | 47
Notes to the Consolidated Financial Statements continued
6
Segmental analysis
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 previous period. Traffic & Data Services includes SEP which was acquired in the
previous 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 a single operating segment,
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.
Sales revenue is summarised below
Rail Technology & Services
Traffic & Data Services – continuing
Total revenue from continuing operations
Discontinued operations
2017
£000
15,964
18,522
34,486
-
2016
£000
14,066
17,337
31,403
1,238
Total revenue
34,486
32,641
Revenue can also be analysed as follows:
Software and related services
Other
Total
2017
£000
11,711
22,775
34,486
2016
£000
9,817
22,824
32,641
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.
48 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
6
Segmental analysis (continued)
2017
Rail
Technology &
Services
£000
Traffic & Data
Services
£000
Unallocated
£000
Revenues
Total revenue for reportable segments
Consolidated revenue
Profit or loss
EBITDA for reportable segments
Amortisation of intangible assets
Depreciation
Exceptional items
Other operating income
Share-based payment charges
Interest receivable/payable(net)
Share of result of equity accounted investees
15,964
15,964
6,451
-
(124)
-
-
-
-
18,522
18,522
2,043
-
(675)
-
-
-
-
Consolidated profit before tax
6,327
1,368
(3,079)
2016
Rail
Technology &
Services
£000
Traffic & Data
Services
£000
Unallocated
£000
Revenues
Total revenue for reportable segments
Consolidated revenue
Profit or loss
EBITDA for reportable segments
Amortisation of intangible assets
Depreciation
Exceptional items
Share-based payment charges
Interest receivable/payable(net)
Consolidated profit before tax
14,066
14,066
18,575
18,575
5,346
-
(111)
(79)
-
-
2,299
-
(662)
(368)
-
-
5,156
1,269
(1,300)
(1,300)
Total
£000
34,486
34,486
8,494
(1,674)
(799)
(139)
134
(23)
(77)
4,616
Total
£000
32,641
32,641
7,645
(1,378)
(773)
(447)
-
-
-
(1,674)
-
(139)
134
(23)
(77)
-
-
-
(1,378)
-
-
(1,087)
(1,087)
(5)
(2,470)
(5)
3,955
TRACSIS PLC | 49
Notes to the Consolidated Financial Statements continued
6
Segmental analysis (continued)
2017
Rail
Technology
& Services
£’000
Traffic &
Data
Services
£000
Unallocated
£000
Assets
Total assets for reportable segments (exc. cash)
3,581
7,599
Intangible assets and investments
Deferred tax assets
Cash and cash equivalents
Consolidated total assets
Liabilities
-
-
3,784
7,365
-
-
1,844
9,443
Total liabilities for reportable segments
(6,142)
(3,870)
Deferred tax
Contingent & deferred consideration
Consolidated total liabilities
-
-
-
-
(6,142)
(3,870)
-
25,431
457
9,722
35,610
-
(3,718)
(5,041)
(8,759)
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
Contingent & deferred consideration
-
-
-
-
Consolidated total liabilities
(5,004)
(4,081)
-
26,882
573
5,513
32,968
-
(4,284)
(6,150)
(10,434)
Major customers
Transactions with the Group’s largest customer represent 16% of the Group’s total revenues (2016: 14%).
Total
£000
11,180
25,431
457
15,350
52,418
(10,012)
(3,718)
(5,041)
(18,771)
Total
£000
9,345
26,882
573
11,385
48,185
(9,085)
(4,284)
(6,150)
(19,519)
Geographic split of revenue
A geographical analysis of revenue is provided below:
United Kingdom
North America
Australia
Rest of the World
Total
2017
£000
33,224
437
-
825
34,486
2016
£000
30,798
32
1,238
573
32,641
50 | Annual Report and Accounts 2017
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
2017
£000
15,273
1,200
303
1,300
18,076
2016
£000
15,033
1,110
271
1,087
17,501
Average number of employees (including directors) in the year
683
644
The staff number calculation above takes account of the Group’s permanent members of staff, and also takes account of a
large number of casual employees that are used, and includes a ‘full time equivalent’ number in respect of them.
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 or 2016 staff schemes and a revised scheme was implemented by the
Remuneration Committee. Details of this scheme are provided in the Directors Remuneration Report.
TRACSIS PLC | 51
Notes to the Consolidated Financial Statements continued
8
Share based payments (continued)
Details of the schemes are given below:
Employees
Number
Performance
Exercise
entitled
of options
conditions
price (p)
1
1
3
1
8
4
2
1
6
12
2
1
57
97
22
6
21,000
30,000
49,351
25,000
16,536
28,683
14,000
70,000
121,001
24,679
55,250
21,178
159,159
180,138
74,007
55,134
100
237,235
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
Earliest
exercise
date
28/07/2009*
20/01/2011*
22/03/2012*
21/05/2012*
02/08/2013**
02/02/2013*
08/07/2013*
28/07/2013*
01/02/2014*
52.0
51.5
63.5
57.5
0.40
123.0
159.0
155.5
162.5
0.40
01/08/2014**
199.5
01/07/2014*
0.40
0.40
01/01/2015**
01/08/2015**
0.40 01/08/2016****
0.40 25/09/2016****
0.40 01/12/2016****
0.40 01/08/2017****
Expiry
date
28/01/2019
20/05/2020
22/09/2021
21/11/2021
02/08/2022
02/08/2022
08/01/2023
28/01/2023
01/08/2023
01/08/2023
01/01/2024
01/01/2024
01/08/2024
01/08/2025
25/09/2025
01/12/2025
01/08/2026
Grant date
Staff schemes
28/01/2009
20/05/2010
22/09/2011
21/11/2011
02/08/2012
02/08/2012
08/01/2013
28/01/2013
01/08/2013
01/08/2013
01/01/2014
01/01/2014
01/08/2014
01/08/2015
25/09/2015
01/12/2015
01/08/2016
Directors’ schemes
26/03/2013
15/12/2015
06/01/2017
Outstanding
1
2
2
25,000
63,637
71,742
Time served
EPS and TSR
EPS and TSR
175.0
26/06/2013***
26/03/2023
0.40
0.40
15/12/2018
07/01/2020
15/12/2025
06/01/2027
1,342,730
* 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
52 | Annual Report and Accounts 2017
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 / lapsed
Exercised
Outstanding at 31 July
Exercisable at 31 July
2017
Weighted
Average
2017
Exercise
Number
1,556,094
324,002
(119,841)
(417,525)
1,342,730
736,801
Price
59.0p
0.4p
0.4p
78.4p
44.0p
80.0
2016
Number
1,733,207
554,902
(2,713)
(729,302)
1,556,094
798,418
2016
Weighted
Average
Exercise
Price
101.8p
0.4p
0.4p
116.5p
59.0p
98.1p
The share options outstanding at the end of the year have a weighted average remaining contractual life of 7 years (2016: 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 | 53
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 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 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/
2015
420.0p
25/09/
2015
452.5p
01/12/
2015
462.5p
15/12/
2015
550.0p
15/12/
2015
550.0p
0.4p
3.5
30%
10
10
0.4p
3.5
30%
10
10
0.4p
3.5
30%
10
10
0.4p
2
30%
10
10
0.4p
3
30%
10
10
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/
2016
438.0p
06/01/
2017
502.5p
0.4p
3.5
30%
10
10
0.4p
3.5
30%
10
10
3.5%
3.5%
-
-
The expected volatility is based on the historic volatility of the Company’s share price.
54 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
8
Share based payments (continued)
Charge to the income statement
Share based payment charges
9
Operating profit
9.1
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
9.2
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
2017
£000
1,300
2017
£000
595
204
799
12
418
29
447
1,214
2017
£000
18
45
-
9.3
Exceptional items:
The Group incurred a number of exceptional items in 2017 and 2016 which are analysed as follows:
Provision against investment
Loss on disposal of business
Legal and professional fees in respect of acquisitions
Legal and professional fees in respect of disposals
Total exceptional items
2017
£000
139
-
-
-
139
2016
£000
1,087
2016
£000
562
211
773
2
375
45
420
970
2016
£000
16
48
15
2016
£000
-
272
136
39
447
2017
The provision against the investment relates to the Group’s interests in Citi Logik Limited. Following a review of the carrying
value in the year, the Directors concluded that the value of the investment should be partly provided against and as such, an
impairment was recognised for the carrying value.
2016
The loss on disposal of the business relates to the disposal of Tracsis Traffic Data Pty Limited in December 2015, being the
Group’s non core business in Australia, plus associated costs.
The Group made a number of acquisitions in 2015-16 and incurred some exceptional deal related costs as a result.
TRACSIS PLC | 55
Notes to the Consolidated Financial Statements continued
9.4
Other operating income:
The Group no longer qualifies as a SME for R&D purposes and as such is governed by the large company ‘above the line’ credit
in respect of research and development costs for Corporation Tax purposes. This amounted to £134,000 in 2017 (2016: £nil)
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
Total deferred tax
Total tax in income statement
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 19.67% (2016: 20.00%)
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
2017
£000
15
2017
£000
38
2017
£000
1,351
-
1,351
(450)
(450)
901
2017
£000
4,616
908
127
-
-
(189)
-
55
901
2017
%
100.0
19.7
2.7
-
-
(4.1)
-
1.2
19.5
2016
£000
3,955
791
4
(252)
(14)
(158)
(26)
77
422
2016
£000
36
2016
£000
41
2016
£000
756
(14)
742
(320)
(320)
422
2016
%
100.0
20.0
0.1
(6.4)
(0.3)
(4.0)
(0.6)
1.9
10.7
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, and an additional reduction to 17% (effective from 1 April 2020) was
announced in the Budget on 16 March 2016. The deferred tax asset and liability at 31 July 2017 has been calculated based on
these rates. This will reduce the company's future current tax charge accordingly and reduce the deferred tax asset and liability
further.
56 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
12
Taxation (continued)
12.2
Recognised in reserves – direct to equity
Deferred Tax
Deferred tax charge relating to share based payments
13
Earnings per share
2017
£000
-
2016
£000
(233)
Basic earnings per share
The calculation of basic earnings per share at 31 July 2017 was based on the profit attributable to ordinary shareholders of
£3,715,000 (2016: £3,533,000) and a weighted average number of ordinary shares in issue of 27,804,000 (2016: 27,807,000),
calculated as follows:
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
2017
27,546
-
258
27,804
2016
26,564
360
883
27,807
Diluted earnings per share
The calculation of diluted earnings per share at 31 July 2017 was based on profit attributable to ordinary shareholders of
£3,715,000 (2016: £3,533,000) and a weighted average number of ordinary shares in issue after adjustment for the effects of
all dilutive potential ordinary shares of 28,738,000 (2016: 28,811,000):
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 items
Other operating income
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
2017
£’000
3,715
1,674
1,300
139
(134)
6,694
27,804
28,738
24.08p
23.29p
2016
£’000
3,533
1,378
1,087
447
-
6,445
27,807
28,811
23.18p
22.37p
TRACSIS PLC | 57
Notes to the Consolidated Financial Statements continued
14
Property, plant and equipment
Cost
At 1 August 2015
Additions
Disposals
Arising on acquisition
On disposal of business
Exchange rate variances
At 31 July 2016
Additions
Disposals
At 31 July 2017
Depreciation
At 1 August 2015
Charge for the year
Disposals
On disposal of business
Exchange rate variances
At 31 July 2016
Charge for the year
Disposals
At 31 July 2017
Net book value
At 1 August 2015
At 31 July 2016
At 31 July 2017
Freehold
Land &
Motor
Computer
Plant,
machinery,
fixtures
Buildings
Vehicles
equipment
& fittings
£000
£000
£000
£000
400
-
-
-
-
-
400
-
-
400
54
12
-
-
-
66
12
-
78
346
334
322
945
529
(254)
251
(174)
9
1,306
322
(252)
1,376
449
247
(175)
(104)
6
423
255
(194)
484
496
883
892
1,384
1,791
154
(10)
55
(64)
4
1,523
98
(2)
1,619
608
(3)
148
(500)
26
2,070
300
(171)
2,199
1,030
1,057
199
(5)
(37)
2
1,189
196
(1)
1,384
354
334
235
315
(2)
(378)
21
1,013
336
(162)
1,187
734
1,057
1,012
Total
£000
4,520
1,291
(267)
454
(738)
39
5,299
720
(425)
5,594
2,590
773
(182)
(519)
29
2,691
799
(357)
3,133
1,930
2,608
2,461
The net book value of assets held under finance lease obligations is £709,000 (2016: £791,000).
58 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
15
Intangible assets
Cost
At 1 August 2015
Arising on acquisition
At 31 July 2016 and 31 July 2017
Amortisation and impairment
At 1 August 2015
Charge for the year
At 31 July 2016
Charge for the year
At 31 July 2017
Carrying amounts
At 1 August 2015
At 31 July 2016
At 31 July 2017
Customer
related
intangibles
£000
Technology
related
intangibles
£000
7,430
14,943
22,373
1,245
1,027
2,272
1,276
3,548
6,185
20,101
18,825
2,574
1,400
3,974
617
351
968
398
1,366
1,957
3,006
2,608
Goodwill
£000
1,868
1,157
3,025
-
-
-
-
-
1,868
3,025
3,025
Total
£000
11,872
17,500
29,372
1,862
1,378
3,240
1,674
4,914
10,010
26,132
24,458
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
2017
£000
2016
£000
Customer related
intangibles
2017
2016
Technology related
intangibles
2017
2016
£000
£000
£000
£000
Tracsis Rail Consultancy Limited
Tracsis Passenger Counts Limited
Safety Information Systems Limited
MPEC Technology Limited
Tracsis Traffic Data Limited
Datasys Integration Limited
SEP Limited
Ontrac Technology Limited
671
43
136
269
390
359
555
602
671
43
136
269
390
359
555
602
3,025
3,025
425
221
168
883
973
2,601
1,184
12,370
18,825
460
240
181
947
1,143
2,756
1,328
13,046
20,101
-
-
53
262
-
1,127
-
1,166
2,608
The amortisation charge is recognised in the following line items in the income statement:
Administrative expenses
2017
£000
1,674
-
-
77
330
-
1,293
-
1,306
3,006
2016
£000
1,378
TRACSIS PLC | 59
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
2017
1.0%
10-12%
2016
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 current year and previous year, the Group made investments in Vivacity Labs Limited, 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 gross investments made were as follows (a combination of debt and equity)
Citi Logik Limited
Nutshell Software Limited
Vivacity Labs Limited
These are split as follows:
Equity investments:
Citi Logik Limited
Nutshell Software Limited
Vivacity Labs Limited
% held
At 31 July
17.2%
31.3%
11.4%
2017
£000
500
375
425
1,300
2017
£000
375
188
425
988
2016
£000
500
250
-
750
2016
£000
375
125
-
500
60 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
16
Investments (continued)
Convertible Loan notes receivable from investments:
Citi Logik Limited
Nutshell Software Limited
2017
£000
125
187
312
2016
£000
125
125
250
During the year, Citi Logik Limited repaid loan notes amounting to £111,000.
A provision of £139,000 was made against the carrying value of the investment in Citi Logik Limited comprising amounts against
the equity value of £125,000 and the remaining debt of £14,000, following a conversion of the remaining debt that took place.
Nutshell Software Limited was accounted for as an associated undertaking, with a share of results of £77,000 being recognised
based on the Group’s holding of 21.3% for a period of time and 31.3% for part of the financial year.
Following this accounting treatment, investment, repayment and provision, the carrying value of the investments as follows:
Investments – loan notes receivable
Citi Logik Limited
Investments – equity
Citi Logik Limited
Vivacity Labs Limited
Convertible Loan notes receivable from associated undertakings:
Nutshell Software Limited
Investments in equity accounted investees:
Nutshell Software Limited
At start of the year
Investment made
Share of results of equity accounted investee
At end of the year
2017
£000
-
-
2017
£000
250
425
675
2017
£000
187
187
2017
£000
111
111
2017
£000
125
63
(77)
111
2016
£000
125
125
2016
£000
375
-
375
2016
£000
125
125
2016
£000
125
125
2016
£000
-
125
-
125
TRACSIS PLC | 61
Notes to the Consolidated Financial Statements continued
17
Inventories
Raw materials & work in progress
Finished goods
2017
£000
159
80
239
2016
£000
121
150
271
The value of inventories expensed in the period in cost of sales was £600,000 (2016: £470,000). 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
2017
2016
2017
£000
320
145
85
-
-
230
550
2017
£000
664
162
-
-
(276)
550
2016
£000
368
238
58
-
-
296
664
2016
£000
400
496
187
(50)
(369)
664
Carrying
amount
£000
Contractual
cash flows
£000
Less than
one year
£000
One to
Two years
£000
Two to
Five years
£000
550
664
620
717
375
401
155
253
90
63
62 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
19
Trade and other receivables
Trade receivables
Other receivables and prepayments
Amounts recoverable on contracts
2017
£000
7,223
409
848
8,480
2016
£000
5,041
407
718
6,166
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 division.
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
2017
£000
1,070
295
172
1,537
2016
£000
1,536
170
29
1,735
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.
Notes to the Consolidated Financial Statements continued
TRACSIS PLC | 63
20
Trade and other payables
Trade payables
Other tax and social security
Deferred income
Accruals and other payables
2017
£000
1,178
1,761
4,086
1,817
8,842
2016
£000
883
1,799
3,435
2,237
8,354
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
2017
£000
680
8,000
8,680
2016
£000
680
8,000
8,680
During the year, deferred and contingent consideration of £145,000 was paid in respect of the SEP acquisition, and £964,000
was paid in respect of the Ontrac acquisition.
At the balance sheet date, the Directors assessed the fair value of the remaining amounts payable which were deemed to be
as follows. Ontrac was in advanced negotiations regarding a major sales opportunity with the Group’s key client and a decision
was still awaited at the date of signing the annual report.
SEP Limited
Ontrac Limited
2017
£000
330
4,711
5,041
2016
£000
400
5,750
6,150
64 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
22
Deferred tax
Non-current liability/(asset)
At 31 July 2015
Arising on acquisition
(Credit)/charge to income statement
Recognised in equity
At 31 July 2016
(Credit)/charge to income statement (note 12.1)
At 31 July 2017
Accelerated
Intangible
capital
Share
assets
allowances options
£000
1,629
2,942
(412)
-
4,159
(515)
3,644
£000
105
4
16
-
125
(51)
74
£000
(882)
-
76
233
(573)
116
(457)
Total
£000
852
2,946
(320)
233
3,711
(450)
3,261
The closing deferred tax asset and liability has been calculated at 17% as at 31 July 2017 (2016: 18%).
This is presented on the Balance Sheet as follows within non-current assets and liabilities.
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
2017
£000
(457)
3,718
3,261
2016
£000
(573)
4,284
3,711
2017
2017
2016
2016
Number
£
Number
£
27,963,784
111,855
27,546,259
110,185
The following share transactions have taken place during the year ended 31 July 2017:
At start of the year
Issued as consideration for business combinations
Exercise of share options (Note 8)
At end of the year
2017
Number
2016
Number
27,546,259
26,564,328
-
417,525
252,629
729,302
27,963,784
27,546,259
During the year, a number of options were exercised from the schemes with exercise price varying from 0.4p to 199.5p.
TRACSIS PLC | 65
Notes to the Consolidated Financial Statements continued
24
Capital and reserves
The following describes the nature and purpose of each reserve:
Reserve
Share capital
Share premium
Merger 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
Cumulative net profits recognised in the income statement. The share based payment
reserve which was previously shown separately has been incorporated into retained
earnings.
25
Operating leases
The Group leases several office facilities under operating leases plus various other assets. During the year £447,000 was
recognised as an expense in the income statement in respect of operating leases (2016: £420,000).
Leases as lessee
Total outstanding commitments for future minimum lease payments under non-cancellable operating leases are set out below:
Land and buildings
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
2017
£’000
410
659
1,069
2017
£’000
20
37
57
2016
£’000
266
563
829
2016
£’000
11
80
91
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
2017
Fixed
Floating
Rate
£000
Rate
£000
Total
£000
Cash and short term deposits
-
15,350
15,350
2016
Fixed
Floating
Rate
£000
Rate
£000
Total
£000
-
11,385
11,385
66 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
26
Financial risk management (continued)
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 2017, 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.
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 makes some overseas sales and some overseas purchases, some of which are invoiced in Sterling and others in
the local currency, so there continues to be a small exposure to foreign currency, in particular to the American dollar.
TRACSIS PLC | 67
Notes to the Consolidated Financial Statements continued
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
Citi Logik Limited
Nutshell Software Limited
Vivacity Labs Limited
Purchase of
Amounts owed to
goods and services
related parties
2017
£000
79
13
126
6
7
2016
£000
2017
£000
2016
£000
74
25
-
-
-
8
2
-
7
-
7
13
-
-
-
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.
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.
Vivacity Labs Limited and Citi Logik Limited are related parties by virtue of the Group’s shareholding in these entities.
WSP UK Limited
Sale of
Amounts owed by
goods and services
related parties
2017
£000
2,489
2016
£000
2,136
2017
£000
708
2016
£000
679
WSP UK Limited (WSP) is a company which is connected to Chris Cole who serves as non-executive Chairman of Tracsis plc and also of WSP
Global Inc, WSP’s parent company. Sales to WSP took place at arm’s length commercial rates and were not connected to Mr Cole’s position at
WSP.
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.
68 | Annual Report and Accounts 2017
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 £303,000
(2016: £271,000). There were outstanding contributions at 31 July 2017 of £36,000 (2016: £35,000).
29
Group entities
Below are the subsidiary undertakings which contribute to the Group results:
Held by Tracsis plc
Principal activity Country of incorporation
Tracsis Rail Consultancy Limited (1)
Rail industry consultancy
England and Wales
Tracsis Passenger Counts Limited (1)
Rail industry consultancy
England and Wales
Safety Information Systems Limited (1)
MPEC Technology Limited (1)
Tracsis Traffic Data Limited (2)
Datasys Integration Limited (1)
Tracsis Retail & Operations Limited (1)
SEP Limited (1)
SEP Events Limited (1)
Software and consultancy
Rail industry hardware &
Datalogging
Transportation data
collection
Holding Company
Rail industry software
Event planning & traffic
management
Dormant
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Ontrac Technology Limited (1)
Holding company
England and Wales
Ontrac Limited (1)
S-H TrafficData Solutions Private
Limited (6)
Sky High Data Capture Limited (2)
Sky High Traffic Data Limited (2)
The Web Factory Birmingham Limited
(2)
Forsyth Whitehead & Associates
Limited (2)
Sky High Technology (Scotland)
Limited (2)
Count on Us Traffic Limited (2)
Burra Burra Distribution Limited (2)
Sky High NCS Limited (2)
Halifax Computer Services Limited (2)
Skyhightraffic Limited (2)
The Traffic Survey Company Limited
(2)
The People Counting Company Limited
(2)
Myratech.net Limited (2)
Footfall Verification Limited (2)
Minority investments:
Citi Logik Limited (3)
Nutshell Software Limited (4)
Vivacity Labs Limited (5)
Rail industry software
England and Wales
Data processing
India
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
Dormant
England and Wales
Dormant
Dormant
England and Wales
England and Wales
Mobile Network Data
Analysis
Mobile application
development
Machine Learning
technology
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%
17.2%
31.3%
11.4%
TRACSIS PLC | 69
Notes to the Consolidated Financial Statements continued
29
Group entities (continued)
The registered offices of the subsidiaries are as follows:
(1)
(2)
(3)
(4)
(5)
(6)
Leeds Innovation Centre, 103 Clarendon Road, Leeds, England, LS2 9DF
Templar House, 1 Sandbeck Court, Sandbeck Way, Wetherby, England LS22 7BA
Albury Mill Mill Lane, Chilworth, Guildford, England, GU4 8RU
Floor 1, Baltimore House, Baltic Business Quarter, Gateshead, Tyne And Wear, England, NE8 3DF
International House 24 Holborn Viaduct, City Of London, London, England, EC1A 2BN
No.61, 2nd Main, 1st Block, Koramangala, Bangalore – 560034, India
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 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 paid
Interim dividend for 2016/17 of 0.60p per share paid
Total dividends paid
The dividends paid or proposed in respect of each financial year is as follows:
2017
£’000
2016
£000
2015
£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 paid
Interim dividend for 2016/17 of 0.60p per share paid
Final dividend for 2016/17 of 0.80p per share proposed
-
-
-
-
-
-
-
-
-
-
167
222
-
-
-
-
-
-
-
-
137
195
-
-
-
-
-
-
-
-
106
164
-
-
-
-
The total dividends paid or proposed in respect of each financial year ended 31 July is as follows:
2017
£000
-
-
195
167
362
2016
£000
164
137
-
-
301
2013
£000
-
-
75
102
-
-
-
-
-
-
-
-
2014
£000
-
-
-
-
89
119
-
-
-
-
-
-
2012
£000
48
87
-
-
-
-
-
-
-
-
-
-
Total dividends paid per share
2017
1.4p
2016
1.2p
2015
1.0p
2014
0.8p
2013
0.7p
2012
0.55p
The dividend will be payable on 16 February 2018 to shareholders on the Register at 2 February 2018.
70 | Annual Report and Accounts 2017
Notes to the Consolidated Financial Statements continued
31
Reconciliation of adjusted profit metrics
In addition to the statutory profit measures of Operating profit and profit before tax, the Group quotes Adjusted EBITDA and
Adjusted profit.
Adjusted EBITDA is defined as Earnings before finance income, tax, depreciation, amortisation, exceptional items, other
operating income, and share-based payment charges and share of result of equity accounted investees.
Adjusted EBITDA can be reconciled to statutory profit before tax as set out below:
Profit before tax
Finance income / expense – net
Share-based payment charges
Exceptional items
Other operating income
Amortisation of intangible assets
Depreciation
Share of result of equity accounted investees
Adjusted EBITDA
2017
£000
4,616
23
1,300
139
(134)
1,674
799
77
8,494
2016
£000
3,955
5
1,087
447
-
1,378
773
-
7,645
Adjusted profit is defined as Earnings before finance income, tax, amortisation, exceptional items, other operating income, share-
based payment charges, and share of result of equity accounted investees.
Adjusted profit can be reconciled to statutory profit before tax as set out below:
Profit before tax
Finance income / expense – net
Share-based payment charges
Exceptional items
Other operating income
Amortisation of intangible assets
Share of result of equity accounted investees
Adjusted profit
Adjusted EBITDA reconciles to adjusted profit as set out below:
Adjusted EBITDA
Depreciation
Adjusted profit
32
Contingent liabilities
2017
£000
4,616
23
1,300
139
(134)
1,674
77
7,695
2017
£000
8,494
(799)
7,695
2016
£000
3,955
5
1,087
447
-
1,378
-
6,872
2016
£000
7,645
(773)
6,872
After making payments in the current and previous year the maximum remaining amounts payable under the share purchase
agreements in respect of the Ontrac and SEP acquisitions is £7.5m. Management have assessed the likely amounts payable
as £5.0m 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.
TRACSIS PLC | 71
Financial Statements
Company Balance Sheet (prepared under FRS 101)
as at 31 July 2017
Company number: 05019106
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
Retained earnings
Total equity
Note
34
35
39
36
39
38
37
38
40
2017
£000
328
34,867
369
35,564
7,648
2,866
10,514
2016
£000
339
34,567
634
35,540
5,750
1,561
7,311
46,078
42,851
-
-
-
198
4,485
4,683
9,830
5,041
14,871
10,417
1,665
12,082
14,871
16,765
31,207
26,086
112
5,948
3,010
22,137
31,207
110
5,622
3,010
17,344
26,086
The Company’s profit for the year, after dividends received was £3,855,000 (2016: £6,592,000)
The financial statements were approved and authorised for issue by the Board of Directors on 8 November 2017 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
72 | Annual Report and Accounts 2017
Financial Statements
Company Statement of Changes in Equity
At 1 August 2016
Profit and total comprehensive
income
Dividends
Share based payment charges
Exercise of share options
At 31 July 2017
Share
capital
£000
110
Share
premium
£000
5,622
Merger
reserve
£000
3,010
Retained
earnings
£000
17,344
-
-
-
2
112
-
-
-
326
5,948
-
-
-
-
3,855
(362)
1,300
-
Total
equity
£000
26,086
3,855
(362)
1,300
328
3,010
22,137
31,207
At 1 August 2015
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
106
Share
premium
£000
4,776
Merger
reserve
£000
1,846
Retained
earnings
£000
10,199
-
-
-
-
3
1
-
-
-
-
846
-
-
-
-
-
-
1,164
6,592
(301)
1,087
(233)
-
-
Total
equity
£000
16,927
6,592
(301)
1,087
(233)
849
1,165
110
5,622
3,010
17,344
26,086
The following describes the nature and purpose of each reserve:
Reserve
Share capital
Share premium
Merger 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
Cumulative net profits recognised in the income statement. The share based payment
reserve which was previously shown separately has been incorporated into retained
earnings.
The accompanying notes form an integral part of these financial statements
TRACSIS PLC | 73
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.
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.
74 | Annual Report and Accounts 2017
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 | 75
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 39.
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 £3,855,000 after receiving dividends from subsidiary undertakings of
£3,550,000 (2016: profit of £6,592,000 after receiving dividends of £6,250,000).
34
Property, plant and equipment
Cost
At 1 August 2016
Additions
At 31 July 2017
Depreciation
At 1 August 2016
Charge for the year
At 31 July 2017
Net book value
At 31 July 2016
At 31 July 2017
35
Investments
At 1 August 2016
Additions
Loans repaid
Provision against investments
At 31 July 2017
Freehold
Land & Computer
Buildings
equipment
£000
£000
400
-
400
66
12
78
334
322
30
4
34
25
3
28
5
6
Total
£000
430
4
434
91
15
106
339
328
Shares in, and loans to
subsidiary
undertakings
£000
34,567
550
(111)
(139)
34,867
76 | Annual Report and Accounts 2017
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
Rail industry software
SEP Limited
England and Wales
SEP Events Limited
England and Wales
Event planning & traffic
management
Dormant
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
Tracsis Retail &
Operations 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
Vivacity Labs Limited
England and Wales
Mobile network data analysis
Mobile application
development
Machine learning technology
Ordinary 17.2%
Ordinary 31.3%
Ordinary 11.4%
Direct
Direct
Direct
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 | 77
2017
£000
356
1,573
348
577
12
2,866
2016
£000
197
538
175
630
21
1,561
The carrying value of trade receivables approximates to the fair value. Amounts owed by group undertakings are interest free
and repayable on demand.
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
2017
£000
27
45
9,229
529
9,830
2016
£000
11
45
9,778
583
10,417
The carrying value of trade receivables approximates to the fair value. Amounts owed to group undertakings are interest free
and repayable on demand.
38
Contingent and Deferred consideration
During the previous 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
2017
£000
680
8,000
8,680
2016
£000
680
8,000
8,680
During the year, deferred consideration of £145,000 was paid in respect of the SEP acquisition, and £964,000 in respect of the
Ontrac acquisition.
At the balance sheet date, the Directors assessed the fair value of the remaining amounts payable which were deemed to be
as follows. Ontrac was in advanced negotiations regarding a major sales opportunity with the Group’s key client and a decision
was still awaited at the date of signing the annual report.
SEP Limited
Ontrac Limited
2017
£000
330
4,711
5,041
2016
£000
400
5,750
6,150
78 | Annual Report and Accounts 2017
Notes to the Company Balance Sheet continued
39
Deferred tax (asset) / liability
At start of the year
Charge to income statement during the year
Charge to equity during the year
At end of the year
The deferred tax asset can be split as follows:
Accelerated Capital Allowances
Share options
At end of the year
40
Share capital
Allotted, called up and fully paid:
Ordinary shares of 0.4p each
2017
£000
(436)
67
-
(369)
2017
£000
(3)
(366)
(369)
2016
£000
(882)
213
233
(436)
2016
£000
(1)
(435)
(436)
2017
2017
2016
2016
Number
£
Number
£
27,963,784
111,855
27,546,259
110,185
The following share transactions have taken place during the year ended 31 July 2017:
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
2017
Number
2016
Number
27,546,259
26,564,328
-
417,525
252,629
729,302
27,963,784
27,546,259
2017
£’000
61
25
2016
£’000
10
-
TRACSIS PLC | 79
Notes to the Company Balance Sheet continued
42
Related Party Transactions
The following transactions took place during the year with other related parties:
Leeds Innovation Centre Limited
Purchase of
Amounts owed to
goods and services
related parties
2017
£000
79
2016
£000
74
2017
£000
8
2016
£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.
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 Company considers the directors to be its key management personnel. Full details of their compensation are set out in the
Directors’ Remuneration Report.
80 | Annual Report and Accounts 2017
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
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
Royal Bank of Scotland
Barclays
Rosenblatt Solicitors
9-13 St Andrew Street
London
EC4A 3AF