Annual Report & Accounts 2021 Technology Makes It Possible, People Make It Happen 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 Environmental, Social and Governance (ESG) Strategy Key Performance Indicators Section 172 Statement 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 2 9 14 20 25 28 31 34 36 38 41 43 44 Financial Statements Consolidated Statement of 54 Comprehensive Income 55 Consolidated Balance Sheet 56 Consolidated Statement of Changes in Equity 57 Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements 58 98 Company Balance Sheet 99 Company Statement of Changes in Equity 100 Notes to the Company Balance Sheet 110 Group Information Our Business at a Glance Who we are Tracsis’ purpose is to develop innovative technology-driven solutions that solve complex problems which maximise efficiency in regulated industries. Our approach focuses on combining leading edge software and hardware knowledge, data capture, analytics and industry expertise to generate insights and fast-to-market products and services. Key Group locations Livingston Newcastle Wetherby Manchester Boroughbridge Leeds (Head Office) Derby Coleshill Coventry Silverstone Chelmsford London Dublin 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. Since then the Group has grown rapidly, diversified into related transport technologies, and successfully executed a strategy that has seen it make a total of sixteen acquisitions and three investments. Today Tracsis is a leading provider of software, hardware, data analytics/GIS and services for the rail, traffic data and wider transport industries. 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. We also work extensively with large transport authorities and infrastructure operators such as Network Rail, the Department for Transport, a wide range of government agencies and local authorities, a variety of large engineering and infrastructure companies, plus event organisers. The Group today has c.500 permanent employees serving its growing customer base from offices in the UK and Ireland. For the financial year ended 31 July 2021, the Group has been reorganised into a new Divisional structure in order to better align with key areas of future growth. Our Business at a Glance (continued) Revenue by Division % 47 53 Rail Technology & Services Data, Analytics, Consultancy & Events Global Sales Revenue % 1 12 87 UK Europe Rest of the World Tracsis plc Annual Report & Accounts 2021 3 Strategic ReportGovernanceFinancial Statements Our Business at a Glance (continued) Our Divisions Rail Technology & Services Revenue £m +12.7% Adjusted EBITDA* £m +4.9% PBT £m +3.1% 23.4 26.4 8.6 9.1 8.1 8.3 FY 2020 FY 2021 FY 2020 FY 2021 FY 2020 FY 2021 Core activities: Operations and Planning Supplies a range of software products to passenger and freight operators that enable them to increase the efficiency of their operations and provide an enhanced experience for their customers. The product suite covers all aspects of transport operations including timetabling, resource and rolling stock planning & optimisation, real time performance and control, service recovery, incident management, retail services and asset management. Products include TRACS, ATTUne, Compass, and Retail & Operations product suites. TRACS Enterprise is a high availability, cloud hosted, enterprise-wide modular planning and delivery system for passenger and freight operators providing a single source of information for all timetable, resource planning, work allocation and control decision support. Customer Experience Transit and Ticketing Solutions (iBlocks) Provides smart-ticketing solutions and bespoke software development of mission-critical back office solutions used by train operators and the Rail Delivery Group (“RDG”). smartTIS is a unique account based ticketing product already deployed on about 20% of the UK rail network, that offers a flexible, multi-modal, tap and travel system with a best fare guarantee, and is the only RDG accredited pay- as-you-go solution on the UK rail network. It is capable of performing the full cycle from token-agnostic tap capture through to fare generation, payment collection and revenue settlement. Capable of applying all rail fare types, railcard discounts, weekly capping and flexible ticketing, it is uniquely placed to facilitate the move towards a paperless, pay-as-you-go smart ticketing environment. 4 Tracsis plc Annual Report & Accounts 2021 Automated Delay Repay (iBlocks and TCS) Provides automated delay-repay claim assessment on the UK rail network for train operators, including claim decision, fulfilment and fraud detection. Digital Railway / Infrastructure Remote Condition Monitoring (MPEC) Provides hardware and software solutions that enable reactive, condition-based and predictive maintenance of critical infrastructure assets, improving their performance and life cycle. We are a leading provider of rail approved data loggers and sensors to monitor asset performance within level crossings, switch machines, track circuits, wiring and signalling systems. Supported by our own web-based data acquisition software platform Centrix, we offer infrastructure owners a complete solution to deliver operational efficiencies. Safety and Risk Management (OnTrac) Supplies software solutions that allow infrastructure providers and maintainers to plan and deliver safe work on the railways by automating heavily regulated business processes, by enabling users to plan and execute work collaboratively, and by providing better quality and more visual information. Our flagship product RailHub is a digital platform with unique capabilities including schematics on demand, live work site monitoring and digital sign-offs, that ensure work being carried out on or near the line is done so safely and productively. Accessible simultaneously across smartphones, tablets and desktops, our software solutions are part of the move to a more digital railway. Our Business at a Glance (continued) Data, Analytics, Consultancy & Events Revenue £m -3% Adjusted EBITDA* £m +114.2% PBT £m 24.6 23.8 3.9 +494% 3.0 FY 2020 FY 2021 FY 2020 FY 2021 FY 2020 FY 2021 1.8 0.5 Core activities: Data Informatics (Compass Informatics and Icon GEO)(1) Provides location-related technologies including geographical information systems (GIS) and Earth Observation, as well as analytics solutions and services, to assist government and commercial organisations to deliver more efficient operations, protect their assets and meet regulatory requirements. Application sectors are primarily regulated industries including transportation, utilities, environment and planning. The focus on location technology creates particularly valuable insights for planning transport services and assets, protecting and enhancing natural resources, and ensuring and facilitating regulatory compliance. Headquartered in Dublin, the business has a strong client base in Ireland and UK. Transport Insights (Tracsis Transport Consultancy)(1)(2) Provides consultancy, training and technology-related professional services to support operational, commercial, customer service and strategic planning activities in Rail, Bus and the wider transport industry. Our unique offering combines sector-specific expertise with innovative bespoke software tool development and passenger analytics capabilities including access to the range of products and services offered across the Tracsis Group. Traffic Data Provides transport data collection and analysis for local authorities, transport planners and operators, highways authorities, and large engineering consultancies. Through the application of automatic data collection systems, video with machine learning AI, and manual survey methods, we provide temporary or permanent data collection in any traffic environment and for any class of traffic including motor vehicle type, cyclists and pedestrians. The insights we offer are deployed by industry-leading public and private sector clients to improve the flow of traffic and trade throughout the UK and Ireland. Event Traffic Management (SEP and CTM) Deliver traffic management solutions and event admission control services for large, complex operations including cultural and sporting events, festivals, large retail sites and other ad hoc activities. We support our customers with all aspects of planning, control, signage, traffic management and car parking. Technologies such as Tracsis Live Technology (TLT) offer improved traffic monitoring and traffic flow in and out of major event venues. (*) This report provides Alternative Performance Measures (“APMs”) which are not defined or specified under the requirements of International Financial Reporting Standards (“IFRS”). The Group uses these APMs to improve the comparability of information between reporting periods and Divisions, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group’s businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in note 31 to the Consolidated Financial Statements on pages 96 and 97. (1) Data Informatics and Transport Insights operate across the whole of the Group, but are reported within the Data, Analytics, Consultancy & Events segment. (2) The Group’s previous segmental structure included Rail Consultancy within the Rail Technology & Services segment. This is now reported as part of Transport Insights in the Data, Analytics, Consultancy & Events segment. Tracsis plc Annual Report & Accounts 2021 5 Strategic ReportGovernanceFinancial Statements Our Business at a Glance (continued) Our Businesses Rail Technology & Services Operations & Planning • Operational Planning and Rail Performance Software. Digital Railway/ Infrastructure • Remote Condition Monitoring Hardware and Data Acquisition. • Safety and Risk Management Software and Asset Visualisation. Customer Experience • Transit and Ticketing Solutions. • Automated Delay Repay. 22% of revenue 26% of revenue 5% of revenue Data Informatics • Location Technologies and Analytics Solutions Transport Insights • Consultancy, Passenger Analytics and Bespoke Software Solutions 6 Tracsis plc Annual Report & Accounts 2021 11% of revenue 7% of revenue Our Business at a Glance (continued) Our Brands Data, Analytics, Consultancy & Events Traffic Data • Traffic Data Capture and Analysis (Video, ANPR, Machine Learning). Event Traffic Management • Event Transport Planning and Management. 15% of revenue 14% of revenue 11% of revenue 7% of revenue Tracsis plc Annual Report & Accounts 2021 7 Data Informatics • Location Technologies and Analytics Solutions Transport Insights • Consultancy, Passenger Analytics and Bespoke Software Solutions Strategic ReportGovernanceFinancial Statements Our Business at a Glance (continued) Investment Case Strong Market Fundamentals High Value Products and Services Multiple Growth Vectors Our products and services enable our customers to deliver mission-critical activities with increased efficiency, enhanced performance, higher productivity, and improved safety. This is well aligned with industry drivers in the short, medium and long term. The Williams-Shapps Plan for UK Rail issued in May 2021 outlined a strategic vision for the rail industry in the UK, with a greater focus on passenger and freight customers, the delivery of an increasingly safe and reliable rail network, and greater integration across different transport modes whilst prioritising innovation in new technologies. Tracsis is well aligned to help deliver this strategic vision. With the rail industry focused on improving safety, improving timetabling and on-time train performance, increasing pre-emptive and asset- condition maintenance, and accelerating innovation in areas like pay as you go smart ticketing and delay repay, the Group is well positioned to benefit from the commitment to greater innovation and investment in a digital railway. Our products and services offer compelling value propositions for our customers. They are well differentiated, and in several cases are unique. We have strong, long-term relationships with our customers, which support a high level of recurring and repeat revenue and provide valuable insight in developing the next generation of products. This is underpinned by sector-specific expertise that allows us to provide expert advisory support and consultancy to our customers, and to fully understand their challenges and how best to provide a solution. Our growth strategy is focused on five core areas. In the Rail Technology & Services segment, these are: 1. Operational performance software; 2. Remote condition monitoring hardware and software; 3. Risk management and safety software; and 4. Smart ticketing and customer experience software. In the Data, Analytics, Consultancy & Events segment, the fifth growth vector is: 5. ’Big Data’ (data informatics and GIS) These multiple vectors ensure diversification of our growth opportunities across customers and industry drivers, which supports our confidence that the Group can deliver further significant value for shareholders and provides some resilience against short-term market volatility. Strong Balance Sheet The Group has net cash of £25.4m at 31 July 2021, with no debt and high levels of operating cash generation. Our strong balance sheet enables us to invest for future growth and gives the financial flexibility to support investment in innovation and the development of our business infrastructure to deliver this. M&A Opportunities A Resilient Business Model We are actively pursuing M&A opportunities to expand our addressable markets and increase our technical capabilities. In the year to 31 July 2021 we completed the acquisition of Flash Forward Consulting Ltd to enhance our Transport Consultancy offering, and post year end we acquired Icon Group which will be integrated into our Data Informatics business. Our business model is highly resilient, and is built upon long-term customer relationships, well differentiated products and services that deliver compelling value propositions, high levels of recurring and repeat revenue, and strong cash generation. Our Rail Technology & Services products principally support the operational requirements of running and maintaining the railway and are therefore largely resilient against changes in passenger numbers, as demonstrated during the Covid-19 pandemic. The wider focus on investing in modernising and digitising the UK railway is an important long-term trend that will support growth. The Covid-19 pandemic did reduce activity levels in certain parts of our business, most significantly in the Events, Traffic Data and Delay Repay businesses. We successfully implemented cost reduction actions in response, whilst at the same time protecting jobs. This has enabled these businesses to respond quickly to increasing activity levels as Covid-related restrictions have eased. 8 Tracsis plc Annual Report & Accounts 2021 Strategy and Business Model Our vision for Tracsis is to become a leading provider of high value, niche technology solutions and services that solve complex problems which maximise efficiency in regulated industries. 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 strategy to achieve this vision is focused in four areas, as outlined below. We believe this strategy will allow Tracsis to continue the growth trajectory it has achieved since IPO in 2007 and to deliver further significant value to shareholders in the short, medium and longer term. Strategic Priority Progress in 2021 Future Focus 1 Organic Growth Delivery of our pipeline, continual innovation of products and services, flawless high quality delivery and an excellent close working relationship with our customers 2 Expand Addressable Markets Selling our products and services into new markets, including overseas, and expansion into select sectors that share problems with the industries we currently serve 3 Acquisitions Reinvesting Group profits to fund further accretive acquisitions that meet our disciplined investment criteria 4 Integration and Capability Enhanced integration and collaboration across the Group, increasing management capability and bandwidth, and improving our systems and processes, as key foundations to deliver our growth strategy • 5% revenue growth for the Group; 13% growth in Rail Technology & Services • Awarded multi-year significant contract in UK for RailHub software suite • Record year for Remote Condition Monitoring product sales • Large pipeline of multi-year contract opportunities for TRACS Enterprise and smart ticketing • Activity levels in Events, Traffic Data and Delay Repay impacted by Covid-19 • Delivery of pipeline of large multi-year software contracts • Continued investment in software & technology products • Support UK Rail Industry to deliver the strategic vision outlined in the Williams- Shapps Plan • Complete post-Covid recovery in affected business units • Remote Condition Monitoring hardware and software contract win with major transit agency in North America • Continued growth in data informatics and GIS • Targeted growth opportunities overseas • Further growth from Compass or in adjacent market segments Informatics in Ireland and mainland UK • Active pursuit of M&A to extend rail software and data informatics footprint – focus on recurring revenue growth • Acquisition of Flash Forward Consulting Ltd to strengthen the Group’s Transport Insights offering • Post year end acquisition of Icon Group to enhance the Group’s Data Informatics capabilities • Further potential targets evaluated during the year • Launch of Group-wide Tracsis branding • ISO 27001 certification secured • R&D collaboration via Innovation Hub • Enhance management capability & across all Rail Technology & Services businesses bandwidth • Continued alignment of Group-wide • Shared service model implemented in systems and processes core functions • Focused people development • Investment in training and development Tracsis plc Annual Report & Accounts 2021 9 Strategic ReportGovernanceFinancial Statements Growth Drivers The Group’s organic growth strategy is focused on five core areas Product/Software based 1. Operational Performance Software 2. Remote Condition Monitoring Hardware and Software Industry Drivers • Increasing demand from Government and train operators to deliver cost, efficiency and performance improvements • Legacy systems are under- invested and poorly integrated • Operational efficiencies from real- time asset tracking and condition- based maintenance • Improvements in asset and rail network performance and availability Tracsis Solution Progress • TRACS Enterprise is a high availability, cloud hosted, enterprise-wide modular planning and delivery system for rail operators built around existing Tracsis standalone software products • Products sold as three modules: 1. Short and Long Term Train Planning 2. Roster and Resourcing 3. Control • Single source of information for all timetable, resource planning, work allocation and control decision support • Delivers significant cost savings • First passenger operators due to go live with TRACS Enterprise in 2022 • Record pipeline of UK opportunities with passenger and freight operators • Our Remote Condition Monitoring products enable both reactive and predictive maintenance of rail industry assets, improving their performance and lifecycle • Hardware: rail approved data loggers and sensors monitor asset performance and predict failure modes within level crossings, switch machines, track circuits, wiring and signalling systems • Software: our own web-based data acquisition, diagnostics and performance analysis software called Centrix • Continued growth in UK installed base: − 20,000 data loggers installed − 30,000 assets monitored − 5 million events recorded − 19,000 alarms raised • Hardware and software contract win with major transit agency in North America 10 Tracsis plc Annual Report & Accounts 2021 Growth Drivers (continued) Capability based 5. Data Analytics and GIS 3. Risk Management and Safety Software 4. Smart Ticketing and Customer Experience • Improving safety, specifically to reduce the number of near-miss incidents and fatalities when working on or near the railway • Software solutions in safety and risk management are part of the move to a more digital railway, removing complex paper processes • The RailHub platform has been developed to change the way the rail industry approaches the management and planning of work on the railway, and provides access to a range of digital applications • Functionality includes: 1. Safe work packs 2. National hazard directory 3. Access points 4. Person-in-charge electronic approval 5. Digital asset schematics 6. Work package plans / task briefing forms • Ensuring customers can purchase flexible, multi-modal tickets and have access to the best value fares via Pay-as-you-Go technology • Key theme of the Willams-Shapps Plan for Rail recommendations • Data rich organisations seeking greater insights into how they can facilitate better and faster decision-making utilising ‘big data’ • Market regulated industries requiring GIS solutions to demonstrate ongoing compliance • smartTIS is a unique Account • Our Compass Informatics Based Ticketing product. Token agnostic journey taps are captured and virtual tickets are created that are electronically billed to the customer post completion of their journey • Capable of applying all rail fare types, railcard discounts, weekly capping - the customer always pays the cheapest fare • Delay repay compensation automatically calculated • It is the only UK rail accredited Account Based Ticketing solution business based in Ireland has capabilities in the following areas: − Geographical Information Systems (GIS) − Earth Observation (EO) − Data analytics and field computing − Mobile app development • Customer base across transport, utilities and environmental sectors • Large, multi-year RailHub contract win in UK which will double user base to over 30,000 individuals • smartTIS already deployed on • Continue to launch innovative around 20% of the UK rail network (GTR, South Western Railway) new products (BIO used by three water utilities) • Secured another smartTIS • Ongoing expansion of Irish contract award post year-end • Opportunities for growth with ITSO smartcard, EMV contactless and mobile app / barcode deployment customer base with opportunity to grow into the EU market • Post year-end acquisition of the Icon Group has enhanced our capabilities in this growing market Tracsis plc Annual Report & Accounts 2021 11 Strategic ReportGovernanceFinancial Statements Financial Highlights • Strong financial performance with growth in revenue and profit despite continued Covid-19 challenges • Revenue increased to £50.2m (2020: £48.0m) with growth in the higher margin Rail Technology & Services Division and in Data Analytics/GIS offset by lower sales in our Events and Traffic Data businesses as expected due to ongoing Covid-19 restrictions on their end markets − Revenue growth of 12.7% in Rail Technology & Services Division − Revenue decrease of only 3.0% in Data, Analytics, Consultancy & Events Division which was impacted by Covid-19 • Adjusted EBITDA* of £13.0m (2020: £10.5m) reflects growth in software revenue and the positive impact of cost reduction actions taken in response to the pandemic • PBT increased to £4.6m (2020: £4.1m) • Cash balances of £25.4m (31 July 2020: £17.9m) with no Covid deferrals due to be paid • The Board is not declaring a final dividend but expects to restore the progressive dividend policy for the year to 31 July 2022 Revenue £50.2m 2021 2020 2019 2018 2017 Cash £25.4m Adjusted EBITDA* £13.0m PBT £4.6m 50.2 48.0 49.2 39.8 34.5 2021 2020 2019 2018 2017 13.0 10.5 10.5 9.4 8.5 2021 2020 2019 2018 2017 4.6 4.1 4.6 6.6 8.3 Adjusted EBITDA Margin* 25.8% Basic EPS 8.1p 2021 2020 2019 2018 2017 25.4 17.9 24.1 22.3 15.4 2021 2020 2019 2018 2017 8.1 10.0 25.8 21.8 21.7 23.7 24.6 2021 2020 2019 2018 2017 17.8 25.7 13.4 Adjusted Basic EPS 31.9p 2021 2020 2019 2018 2017 31.9 24.1 28.3 26.3 34.5 * Earnings before finance income & expense, tax, depreciation, amortisation, exceptional items, other operating income, share-based payments charges and share of results of equity accounted investees. See note 31 for reconciliation. 12 Tracsis plc Annual Report & Accounts 2021 Operational Highlights Large RailHub Enterprise Software Contract Win Our safety and risk management software business, OnTrac, was awarded a significant multi-year contract in the UK that will double the user base of its RailHub product to over 30,000 individuals. This reflects the growing momentum in UK rail’s shift to digital and underpins our confidence in the future of the RailHub platform with both rail infrastructure providers and maintainers. Strong Post Covid recovery Our highest priorities through the pandemic have been to look after the wellbeing of our employees and to protect as many jobs as possible. We have achieved this through a number of measures, which included utilising the Government Coronavirus Job Support Scheme and delivering cost reduction actions in line with expectations. Any salary reductions taken by our teams to support these initiatives were repaid. The vast majority of our teams have been working from home, and we are currently transitioning to a hybrid working model. We have been able to respond quickly as activity levels have started to increase in those markets that were impacted by the pandemic. Acquisition of Flash Forward Consulting The Groups’ Transport Insights offering was strengthened through the acquisition of Flash Forward in February 2021. This has been fully integrated with the Group’s existing Rail Consultancy and Passenger Analytics businesses to create a consolidated Tracsis Transport Consultancy business offering products and services that cover all areas of the Group. • Continued to implement a number of large multi-year TRACS Enterprise rail contracts won in previous years • Continued growth of pipeline of other multi-year rail contract opportunities • Well positioned to benefit from the strategic direction outlined for the UK Rail industry in the Williams-Shapps plan for Rail • Continued investment in Group integration, management capability, processes and systems, including launch of new groupwide branding and securing ISO27001 certification across all our rail businesses Post Year End Highlights • Rebound of activity levels in Events and Traffic Data with both markets expected to recover to full activity levels through the course of the coming year • Acquisition of Icon Group to enhance the Group’s Data Analytics/GIS capabilities • Secured another smart ticketing contract award in the UK Tracsis plc Annual Report & Accounts 2021 13 Strategic ReportGovernanceFinancial Statements Chairman & Chief Executive Officer’s Report Introduction The Group has performed well during the year ended 31 July 2021, delivering growth in revenue and adjusted EBITDA*, and making further progress in executing its strategy, despite ongoing Covid-19 driven revenue challenges. Activity levels in the Rail Chris Cole, Chairman Technology and Services Division remain high and this part of the Group has demonstrated the resilience of its business model in supporting the operational requirements of running and maintaining the railway. The Division has won some key contracts during the year, and there has been good progress in delivering large multi-year contracts won in previous years. Our focus on these projects is to work closely with our customers as a partner to deliver significant value over the long-term. Delivery timelines here are determined in partnership with our customers. The release of the Williams-Shapps Plan for Rail in May 2021 has provided clarity on the strategic direction of the UK rail industry, with a greater focus on passenger and freight customers, the delivery of an increasingly safe and reliable rail network, and greater integration across different transport modes whilst prioritising innovation in new technologies. The Directors believe that Tracsis is well positioned to help deliver this strategic vision. With the rail industry focused on improving safety, improving timetabling and on-time train performance, increasing pre-emptive and asset-condition maintenance, and accelerating innovation in areas like pay as you go smart ticketing and delay repay, the Group is well positioned to benefit from the commitment to greater innovation and investment in a digital railway. Our pipeline across the Rail Technology and Services Division is at record levels, and the diversification of our revenue streams provides some mitigation against any potential short-term volatility as the industry transitions to a new Great British Railways-led operating model. As anticipated, there were continued Covid-related challenges in the Events and Traffic Data businesses. Cost reduction actions taken in summer 2020 in response to these challenges were delivered in line with expectations. By taking these actions, we were able to protect jobs and both businesses were able to respond quickly when activity levels in their end markets increased as Covid restrictions were eased. We anticipate a continued recovery in these 14 Tracsis plc Annual Report & Accounts 2021 Chris Barnes, Chief Executive Officer markets through the coming year. There was further growth in Data Analytics/GIS during the year, and our Transport Insights offering has been significantly enhanced with the acquisition of Flash Forward Consulting in February 2021 and the subsequent consolidation of our rail consultancy and passenger analytics businesses into Tracsis Transport Consultancy. The Group has made good progress in implementing a more integrated business model and adopting common processes and systems. Key achievements in the year include securing ISO27001 certification across all our rail businesses, rolling out new Group-wide branding, launching the Innovation Hub to drive ‘next generation’ R&D and implementing a shared services model across core support functions. The Board would like to recognise the outstanding contribution that Tracsis’ people have made during the year, especially during the unprecedented Covid pandemic. Our highest priorities through this period were to safeguard our employee’s health and welfare and to protect as many jobs as possible. The response of our teams to these unique challenges was outstanding and it is pleasing to see high activity levels across all parts of the Group. Financial Summary Group revenues of £50.2m (2020: £48.0m) were £2.2m (4.7%) higher than prior year. Revenues in the Rail Technology and Services segment grew by £3.0m (12.7%), with the impact of Covid-19 limited only to reduced delay repay transaction revenues which were a direct result of lower passenger numbers. In the Data, Analytics, Consultancy and Events segment revenue was £0.7m (3.0%) lower than prior year as a result of the continued impact of Covid-19 restrictions on end markets in our Events and Traffic Data businesses. The adverse year-on-year revenue performance across the Events, Traffic Data and Delay Repay businesses was £2.1m (12.3%). Across the rest of the Group, there was organic revenue growth of £2.4m (7.7%) after adjusting for a net £1.9m year-on-year benefit from acquisitions. Adjusted EBITDA* of £13.0m was £2.5m (24.0%) higher than prior year (2020: £10.5m). This includes increased revenue from software and the positive impact of cost reduction actions taken in response to the pandemic, which delivered a benefit to EBITDA versus the comparative period of £1.8m. In addition, the Group has claimed through the Coronavirus Job Retention Scheme (“CJRS”) in respect of furloughed staff in the year, with support to the income statement of £0.9m (2020: £0.7m(1)). Statutory profit before tax of £4.6m is £0.5m higher than prior year (2020: £4.1m). In addition to the increase in adjusted EBITDA* described above, this reflects the following items: • £1.6m depreciation charge (2020: £1.9m) which includes a net charge of £1.0m (2020: £1.0m) in relation to right of use assets in accordance with IFRS accounting standards; • £4.3m amortisation of intangible assets (2020: £3.6m) reflecting a full year charge following the acquisition of iBlocks in March 2020 and the initial charge for the five month period following the acquisition of Flash Forward Consulting in February 2021; • £1.3m share-based payment charges (2020: £1.1m) which principally relate to employee participation in the Group share option schemes as summarised in note 8 to the Consolidated Financial Statements; • £1.1m exceptional items (2020: £0.1m credit) reflecting £0.7m unwinding of previously discounted contingent consideration balances in accordance with IFRS accounting standards; a £0.3m net increase in the assessed fair value of contingent consideration based on the future expectations of performance from previous acquisitions; and £0.1m of transaction costs associated with the acquisition of Flash Forward Consulting; • £0.4m other operating income (2020: £0.4m) relating to a credit in respect of research and development costs for Corporation Tax purposes; • £0.1m net finance expense (2020: £nil) representing the interest charge on lease liabilities in accordance with IFRS accounting standards; and • £0.4m charge (2020: £0.3m) relating to the share of the result of equity accounted investees Chief Executive Officer’s Report (continued) The Group continues to have significant levels of cash and remains debt free. At 31 July 2021, the Group’s cash balances were £25.4m (2020: £17.9m). Cash generation remains strong. The Group has paid all contingent consideration, VAT, PAYE and Corporation Tax due in the period and has not taken advantage of any Government support in respect of taxes. Trading Progress and Prospects Rail Technology & Services Summary segment results: Revenue Adjusted EBITDA * Profit before Tax 2021 £26.4m £9.1m £8.3m 2020 £23.4m £8.6m £8.1m The Division has delivered further revenue growth in the year and continues to benefit from high levels of recurring software revenue, including that from multi-year contract wins in previous years. Annual recurring and routinely repeating revenue for the year to 31 July 2021 was approximately 70%. Underlying organic revenue growth, after adjusting for the effect of acquisitions and the impact of Covid-19 on delay repay revenue, was £2.4m (10.9%). We continue to see good growth in our Operations & Planning product suites, where work continues on implementing our TRACS Enterprise product suite with Train Operating Companies (“TOCs”). Our digital railway and infrastructure businesses delivered record revenue in the year, and secured notable contract wins for our remote condition monitoring and risk and safety management products. The impact of Covid-19 in this Division was limited to delay repay revenues, with fewer passengers travelling due to Government restrictions. This was more than offset by the contribution from iBlocks, acquired in March 2020, where the pipeline for its smart ticketing technology is growing strongly. Rail Operations & Planning Total revenues from the Group’s rail operations & planning software and hosting offerings were £10.9m (2020: £10.5m). This takes account of the various revenue streams from our TRACS, ATTUne, COMPASS, and Retail & Operations product suites. Software sales continue to benefit from high renewal rates from existing customers, and also from multi-year contract wins from previous years which we are currently implementing for our clients. Work continues on implementing our TRACS Enterprise product with TOCs which were secured in previous years. Delivery timelines here are determined in partnership with our customers, and we expect two major TOC’s to go-live in the early stages of 2022. An update on timing for a third TOC will be (*) 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. (1) Total received under the CJRS for the year ending 31 July 2020 was £2.4m, of which £1.7m was paid directly to casual labour leaving a balance of £0.7m which represents the true support to the Income Statement regarding permanent employees. Tracsis plc Annual Report & Accounts 2021 15 Strategic ReportGovernanceFinancial Statements Chief Executive Officer’s Report (continued) provided in due course. We have a strong pipeline of new large multi-year TRACS Enterprise opportunities in both the passenger and freight sectors of the industry. Bellvedi continues to perform well, and the ATTUne product forms an integral part of the overall TRACS Enterprise solution. Digital Railway & Infrastructure Total revenues across the Digital Railway and Infrastructure offerings increased by 19% to a record £13.0m (2020: £11.0m). Our remote condition monitoring business MPEC had a very strong year. It has continued to see strong demand from our core UK client base and during the year was awarded new contracts for the supply of remote condition monitoring hardware and software to a major North American transit agency which will expand our installed base in this market. Our safety and risk management software business OnTrac also had a very strong year. Activity here was dominated by design and development work on our RailHub product suite as part of a funded enterprise licence project. The completion of this work led to the award of a significant multi-year contract in the UK that will double RailHub’s user base to over 30,000 individuals. This reflects the growing momentum in UK rail’s shift to digital, and underpins our confidence in the future of the RailHub platform with both rail infrastructure providers and maintainers. The contract award delivered a non-repeat high-margin licence contribution in the year to 31 July 2021, and will deliver additional recurring annual software revenue in future years in this part of the Group. Both businesses have a good pipeline of large contract opportunities. Customer Experience Revenue of £2.5m increased by £0.5m versus prior year (2020: £2.0m). As anticipated, the reduction in rail passenger numbers as a result of Covid-19 restrictions resulted in lower delay repay transaction revenues. This business continues to operate from a modest cost base. The decrease in delay repay revenue was more than offset by the revenue contribution from iBlocks that was acquired in March 2020. We are seeing good levels of interest in iBlocks’ smart ticketing product offering, which is well aligned with future passenger requirements as Covid-19 restrictions are lifted and with the UK Government’s strategic intent to deliver increased Pay As You Go (PAYG), multi-modal ticketing as outlined in the Williams-Shapps Plan for Rail. Post year-end we were awarded another contract to supply this technology in the UK. Data, Analytics, Consultancy & Events Summary segment results: Revenue Adjusted EBITDA * Profit before Tax 2021 £23.8m £3.9m £3.0m 2020 £24.6m £1.8m £0.5m 16 Tracsis plc Annual Report & Accounts 2021 As anticipated, Covid-19 restrictions had a significant impact on the end markets of our Events and Traffic Data businesses in the year. In both cases, demand for our products and services remains strong and we have seen activity levels progressively recover as restrictions have been lifted. Our primary objective throughout the Covid pandemic was to protect jobs and employee wellbeing, as a result of which we have been well positioned to respond quickly to this increase in demand. We anticipate further recovery in activity levels in these markets through the year to 31 July 2022, supported by the Government-backed insurance scheme for the live events sector. The Data Analytics/GIS market continues to offer attractive opportunities for growth and has been largely unaffected by Covid-19. We have a strong pipeline of opportunities in this area and post year-end we enhanced our product offering with the acquisition of Icon Group. Our Transport Insights business continues to perform well and was strengthened in the year by the acquisition of Flash Forward Consulting and the subsequent launch of a broader Transport Consultancy offering. Despite lower revenue, adjusted EBITDA* increased by £2.1m which includes the £1.8m benefit from cost reduction actions taken in response to the pandemic. Data Analytics/GIS Revenue increased to £5.7m for the year (2020: £5.4m) with high activity levels across Irish and UK customers. During the year the business went live with an innovative new product that is now used by three water utilities to manage the regulated use of biosolids in agriculture, and continued to develop a range of innovative mobile apps and data analytics tools for other clients across the rail, bus, environmental and utilities sectors. The business has a strong pipeline of new opportunities. Post year-end, the acquisition of Icon Group has further enhanced our product offering in this growing market by adding earth observation capabilities. Icon Group will be integrated with Tracsis’ existing Data Analytics/GIS solutions provider Compass Informatics to create an Irish-based Data Analytics centre of excellence specialising in providing location-related technologies and analytics solutions to government and commercial organisations. The combined Irish business will have c.130 staff and will work across a variety of sectors deriving most of its revenue from regulated industries including transportation, asset management, environmental and utilities. Transport Insights Revenue of £3.5m was broadly similar to the prior year (2020: £3.4m). The Flash Forward Consulting business acquired at the end of February 2021 was fully integrated during the second half of the year with the Group’s existing Rail Consultancy and Passenger Analytics businesses to create a consolidated Tracsis Transport Consultancy business delivering an enhanced offering to customers that covers all areas of the Group. This is already delivering a growing pipeline of opportunities and expanding our reach outside of rail into other transport industry sectors. Chief Executive Officer’s Report (continued) Rail Consultancy revenue increased versus the prior year, and there was further incremental contribution from Flash Forward. This was offset by lower activity in Passenger Analytics which was impacted by lower rail passenger numbers. Traffic Data Revenue of £7.7m was £1.0m lower than the prior year (£2020: £8.7m) due to the impact of Covid-19 related restrictions, which resulted in work being postponed or cancelled as the prevailing traffic conditions were not representative of client needs. The main exception was the National Road Traffic Census which continued and was a valuable source of revenue in the year. Cost reduction measures were implemented in this part of the Group, including utilising the CJRS to protect jobs. This has left the business well placed to respond to increasing activity levels as Covid-related restrictions have eased. We anticipate a full recovery in activity levels through the coming financial year, although the timing of this remains uncertain. Event Transport Planning & Management Revenue of £6.9m was very close to the prior year (2020: £7.0m) despite continued headwinds in the first half of the year from events being cancelled or postponed due to the Covid pandemic. This reflects the business winning additional work with new and existing customers, as well as a recovery in underlying activity levels in the final months of the financial year as Covid restrictions were lifted. New work secured included contracts to support Covid test and vaccination centres which delivered £1.3m revenue in the year. Similar to the Traffic Data business, the CJRS scheme enabled us to both protect jobs and to respond quickly to the rapid increase in demand towards the end of the year. The demand for sporting events and music festivals remains strong and we anticipate a full recovery in activity levels through the coming financial year. Acquisitions The Group acquired Flash Forward Consulting Limited (“FFC”) on 26 February 2021, which has enabled it to consolidate and expand its Transport Insights offering. Established in 2012, FFC is a London-based consultancy business that operates predominantly across the rail and bus sectors. It has a well-established senior level network across the transport owning groups, local and central transport governing authorities and Network Rail, and offers a range of strategic and practical technical consultancy services. Alex Warner, FFC founder, has joined the Group to lead our consolidated consultancy business which combines FFC with our existing Rail Consultancy and Passenger Analytics offerings. The consolidated business delivers an expanded offering to customers across the transport industries and offers consultancy services that cover all areas of the Group. The acquisition consideration comprised an initial cash payment of £1.1m to reflect the net current asset position of the business which was funded out of Tracsis cash reserves and the issue of shares in Tracsis to a value of £0.1m. Deferred consideration totalling £0.9m is payable in three equal instalments on the first, second and third anniversary of the acquisition. Additionally the sellers were allotted 10,225 “A” shares in Tracsis Rail Consultancy Limited which have an assessed fair value of £0.6m at the acquisition date. The “A” shares have full dividend and capital distribution rights attached but do not have any voting rights attached to them. The Group holds a call option to re-purchase the full amount of “A” shares for a pre-determined multiple of Profit Before Tax from two years after the acquisition date. Post year end the Group acquired Icon Group (“Icon”) on 3 November 2021. Headquartered in Dublin, Icon is an interdisciplinary geoscience business who specialise in earth observation (EO), GIS and spatial data analytics. Icon Group has several long-term repeat contracts and employs around 60 full-time staff, all of whom will remain with the business post transaction. Tracsis plc Annual Report & Accounts 2021 17 Strategic ReportGovernanceFinancial Statements Chief Executive Officer’s Report (continued) The acquisition consideration comprises an initial cash payment of £1.9m which was funded out of Tracsis cash reserves and the issue of 68,762 new ordinary shares in Tracsis to a value of £0.6m. An additional payment of approximately £1.7m will be made on a euro for euro basis to reflect the net current asset position of the business (above a working capital hurdle) at completion and will be finalised in due course. Additional contingent consideration of up to £1.5m is payable subject to Icon Group achieving certain stretched financial targets in the three years post acquisition. People The Group is thankful to the whole team for their hard work during the year, especially during the unprecedented Covid pandemic. Our priorities throughout this period have been to safeguard the health, welfare and safety of our people, and to protect as many jobs as possible. The response of our teams has been outstanding. We largely moved to remote homeworking across the Group, whilst ensuring that our product and service offerings have continued. As Covid restrictions have eased, we have re-opened all of our offices with safe working practices in place and we are transitioning to a hybrid working model with most employees spending some time in the office and some time working from home. The Board believes that the long-term success of the Company depends on the engagement and commitment of its employees. We consider our employees to be some of the best in the sector, and we strive to provide them with opportunities for personal development, career progression, and a safe and inclusive working culture. The Group hired a Director of People in July 2021. This role is part of the senior leadership team and will ensure we have the processes, learning & development frameworks, and robust succession plans in place to continue to offer a compelling proposition to current and future employees, and to ensure we have the capabilities and talent to deliver our growth strategy. Operations The Group has made progress in implementing a more closely integrated operating model, as we continue to implement best practice across the Group and to lay the foundations to deliver further growth. A shared services structure has been adopted in core support functions including health & safety, HR, bid management, finance, IT security, risk management and quality. New Group-wide branding was implemented in the second half of the year, ensuring that all parts of the Group share a consistent brand identity. This will broaden the awareness of the Group’s breadth of products and services, whilst enhancing collaboration across the business. ISO27001 certification has been secured for all Rail Technology & Services businesses. 18 Tracsis plc Annual Report & Accounts 2021 Dividends As detailed above, certain of the Group’s businesses were adversely impacted by the Covid-19 pandemic. In order to protect jobs in the Group that would otherwise have been at risk, the Group utilised the Coronavirus Job Retention Scheme (“CJRS”) in respect of furloughed staff in the year. In this context, the Board does not consider it appropriate to pay a final dividend this year. The Board expects to restore the progressive dividend policy for the year ending 31 July 2022. Board On 1 February 2021 Andy Kelly was appointed Chief Financial Officer, replacing Max Cawthra. The Board would like to thank Max for his significant contribution to Tracsis over the past decade. Mac Andrade resigned from the Board on 31 July 2021 to focus on other interests and the Board would like to thank Mac for his contribution. Post year-end Dr James Routh was appointed to the Board as a Non-Executive Director and Senior Independent Director on 29 September 2021. Summary and Outlook Our end market drivers are strong, and Tracsis’ products and services are well aligned with these drivers as they enable our customers to deliver mission-critical activities with increased efficiency, enhanced performance, higher productivity, and improved safety. The Group has a clear growth strategy and has a strong balance sheet to support its delivery. We continue to implement a number of large multi year enterprise software contracts and have a record pipeline of future opportunities. Whilst the timing of these remains difficult to predict, the Directors believe they establish a strong foundation for future growth. In addition to delivering organic growth, M&A remains a core part of our strategy. We also recognise the need to continue to enhance integration and collaboration across our businesses, increase senior management bandwidth and talent, and improve our systems and processes as we prepare for scalable growth. We have made good progress in the year and will continue to invest in this area. Q1 trading has been in line with the Board’s expectations, and we have seen further recovery in activity levels in those parts of the Group that have been previously impacted by Covid-19. We believe that activity levels will progressively return to normal through the rest of the financial year, although the timing of this remains uncertain. The Board believes that the Group is well positioned to deliver further growth in the coming financial year and beyond. Chris Cole, Chairman 9 November 2021 Chris Barnes, Chief Executive Officer Case study Tracsis Traffic Data Deliver Data Dashboard Tracsis Traffic Data developed an interactive public-facing dashboard for Scottish Borders Council, via their Data Solutions Team. The software displayed transport data through an integrated map and enabled comparison of before and after 20mph implementation as well as a central hub for all the data collected across recent years. The cloud hosted data enabled it to be readily accessible, saving the Council time and cost and increasing the value of the past and present data. Tracsis plc Annual Report & Accounts 2021 19 Strategic ReportGovernanceFinancial Statements Risk Management Improving the way we manage our risks The Group continues to grow rapidly including through acquisition, which brings additional challenges for managing risk. We have implemented a risk management model to systematically capture and evaluate risk at both the operating business and the Group level. The Group’s ability to effectively manage risk within a defined framework is maturing including the use of risk-based management systems such as ISO9001 and ISO27001. The key risks facing the Group are reviewed by the Board on a regular basis. Key risks The key risks currently facing the Group, and a summary of the mitigation measures in place, are set out below: Description/Potential impact: Mitigation: Change in the year: Coronavirus (Covid-19) The business, like most businesses in the UK and the wider World, was impacted by the Covid-19 pandemic. The main effect was a significant decrease in activity levels in our end markets, most notably in the Events and Traffic Data businesses. There remains a risk of a re-emergence of Covid-related restrictions in the UK and globally. There is a risk that another global event, as yet unforeseeable, could have a similar adverse impact on our markets. Project Delivery The Group has several significant contracts with major UK Train Operating Companies and Infrastructure Providers which contain a number of deadlines for implementation, in accordance with the contractual requirements and timeframes. The scale and complexity of these projects require careful management to ensure delivery. Certain events within the Data, Analytics, Consultancy and Events Division are significant and require large staff deployments and delivery. Decreased. Covid-related restrictions are easing globally, and mitigating actions have proved to be effective. Implement remote working and Covid- safe working environments, consistent with evolving Government advice. Regular monitoring of staff health and wellbeing. Access Government support schemes where available to help protect jobs. Implement cost reduction measures. Redeploy staff across the Group where possible. Increased in Rail Technology & Services in the year due to additional contracts secured and growing pipeline of large, multi-year software opportunities. The Group continues to deploy an extensive delivery team and works with clients to establish a programme and project plan to ensure that deliverables can be achieved. Best practice is shared across the operating businesses and is co-ordinated from the Group centre where appropriate. Event related work is subject to significant advance planning. 20 Tracsis plc Annual Report & Accounts 2021 Risk Management (continued) Description/Potential impact: Mitigation: Change in the year: Rail industry structure changes The Group continues to derive a significant proportion of its revenue from the UK rail industry. The current UK Government have indicated a strategic intention to change the present structure and organisation of the UK rail industry. Legislation to enact this has yet to be passed. A future Government may introduce further changes. Cyber Security Incident A malicious cyber-attack or security breach on the Group’s IT systems. National Cyber Security Centre (NCSC) information and guidance to UK businesses, indicates that such an incident should attract a high probability rating. Any such incident could disrupt business continuity or impact contracted delivery requirements. Downturn or Instability in Major Markets The Group derives revenues directly and indirectly from the UK and Irish governments, and would be significantly impacted if these public funding streams were reduced as a result of spending reviews or a change in Government. Several of the Group’s products and services are expected to still be required regardless of any changes to the structure of the industry as they have a clear value proposition and return on investment. These products and services are predominantly focused on improving the efficiency, health and safety, and customer experience on the UK railway, which are all well-aligned with the strategic goals of the Williams-Shapps Plan for UK Rail published in May 2021. In some parts of the Group there is a risk that competitor products could be adopted as an industry-wide solution. ISO27001 certification has been achieved during the year for certain parts of the Group. All of our Rail Technology & Services business now have this certification. Cyber Essentials Certification has been maintained as a baseline for the remainder of the Group. The Group’s outsourced IT Services Provider manages some elements of operational risk within the framework required by ISO27001. The Group has a Head of Quality, Risk, Safety & Compliance. Business continuity plans are in place, tested and maturing as a result of implementing ISO27001. The Group is currently engaged in developing an integrated IT strategy. As the Group grows and diversifies its revenue streams, the exposure to government spending should reduce. It will always be a risk for parts of the Data, Analytics, Consultancy & Events Division due to the nature of its customer base. For the Rail Technology & Services Division, the Group seeks to ensure that its offerings have a clear return on investment and value proposition, to ensure demand remains high. Decreased in the year due to the publication of the Williams-Shapps Plan for UK Rail which has clarified the current Government’s strategic plan for the railways. This aligns well with the Group’s product and service offering in the Rail Technology & Services Division. No change No change in the year Tracsis plc Annual Report & Accounts 2021 21 Strategic ReportGovernanceFinancial Statements Risk Management (continued) Description/Potential impact: Mitigation: Change in the year: Reliance on certain key customers The Group has a large number of customers but derives a significant amount 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. There is therefore some exposure to the largest customer’s funding cycles and procurement processes. In addition, the Group’s Data, Analytics, Consultancy and Events Division operates under a number of Framework Agreements with one large customer from whom a significant amount of revenue is obtained. Across the Group, there are a number of key customers which contribute to large amounts of revenue. Attraction and retention of key employees The Board believes that the long- term success of the Group depends on the engagement and commitment of its employees. The Group has a number of key individuals, plus a wide and diverse workforce. Skills and expertise in the Group’s key markets are specialist and can be difficult to find or develop, and so growth of the business may be impacted should key individuals leave employment, or if the business is unable to attract, recruit and develop staff for its growth plans. Competition The success of the Group could lead to increased competition, in particular in Data, Analytics, Consultancy and Events where our products and services can be more easily replicated. The Group has a wide range of product and service offerings and some are more exposed to more competition than others. No change in the year Total revenues from the Group’s largest customer were 17% of Group revenue (2020: 21%). As the Group continues to grow both organically and by acquisition, the exposure to and reliance on any one customer will reduce, relative to total Group revenue. Although there will always be an exposure to certain key customers, it manages this risk by managing customer requirements proactively to understand their needs and respond to them to ensure that its products and services are embedded with the customer as much as possible. Increased in the year due to increased competition in the post-Covid jobs market Unchanged in the year. The Group seeks to offer competitive remuneration packages, and also offers various share incentive schemes to staff in order to attract and retain good calibre employees. The Group seeks to offer career development opportunities in order to offer its staff with opportunities to progress within the business. The Group has recruited a Director of People during the year to ensure we continue to offer a compelling proposition to current and future employees, and to ensure we have the capabilities and talent to deliver our growth strategy. The Group pays close attention to pricing and customer satisfaction for areas subject to the most competition and seeks to be competitively priced where possible. The Group attempts to ensure its products and services have a clear value proposition and return on investment, and seeks to build long-term customer relationships that reduce the exposure to potential new entrants. 22 Tracsis plc Annual Report & Accounts 2021 Risk Management (continued) Description/Potential impact: Mitigation: Change in the year: Technological changes The Group has a variety of product and service offerings which may be threatened should competitors or other new market entrants develop rival technology or develop more effective ways of doing things. Health & Safety The Group has a large number of employees operating at a variety of temporary and permanent locations across the UK and Ireland. Some employees fulfil established high-risk and safety critical worker roles Customer pricing pressure Price pressure from customers may potentially result in margins being reduced over time if lower revenues are achieved than those which were achieved historically. Unchanged in the year. No change in the year No change in the year The Group continues to invest in its technology product development to ensure that they remain up to date and also relevant to the customer base. It also receives feedback from its clients about their requirements from the products which helps to ensure that they remain relevant. Some of the Group’s offerings continue to be protected by customer relationships, Framework Agreements, contractual terms and also a barrier to entry is the significant development costs required to enter the market, which provides some protection. The Group’s ‘Innovation Hub’ provides a forum for cross-Divisional collaboration to help identify opportunities and drive future product development Dedicated Group led Health & Safety team trained to IOSH & NEBOSH standards, as well as 24/7 access to external Health & Safety consultancy support, retained by contract. Structured Health & Safety processes, policies and procedures are in place, led by a dedicated and appropriately- trained Health & Safety team. Dashcams and tracker devices installed in white fleets, whilst an external provider manages driver risk, licence and competence checks. On-site risk-based internal assurance activity is provided by dedicated Group resource. All work activity is assessed for risk and subject to a documented safe system of work. The Group seeks to operate a lean organisation structure in order to mitigate pricing pressure, and ensures that its cost base operates efficiently and effectively. Pricing for large tenders and enquiries is reviewed at Group level prior to commitment. The Group is committed to ensuring customer satisfaction and offering a compelling return on investment for its products with a clear long-term value proposition to our customers. Tracsis plc Annual Report & Accounts 2021 23 Strategic ReportGovernanceFinancial Statements Risk Management (continued) Description/Potential impact: Mitigation: Change in the year: Brand reputation Any adverse publicity concerning the Group, or any of its subsidiary businesses may have an impact on future trading prospects if the Group’s brand is adversely affected as a result of this. Regulatory breach Deviation from regulatory compliance leading to a fine, sanction of enforcement order imposed on the business by a Court or Regulatory body (including but not limited to FCA, HSE, ICO, etc). Any security incident leading to a data breach could undermine trust and confidence in the Group’s ability to meet the requirements of the Privacy regulatory environment. Integration risk The Group has made one acquisition in the year, and has further M&A as a core part of its growth strategy. It plans to integrate each acquired business to deliver synergies and ensure compliance with all required governance policies and procedures. No change in the year. No change in the year No change in the year. There is a broad range of preventative measures in place across the Group that contribute to reducing this risk, including: Environmental, Social and Governance (ESG) policies, principle and ethos; structured risk management processes; internal reporting mechanisms; embedded health & safety policy, processes and culture; and an internal compliance function. As part of its Corporate Governance, 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. Trained and qualified staff are in key appointments, there is an internal incident reporting mechanism, and structured risk management model. Effective Group level Corporate governance mechanisms exercised. Directors briefed on AIM rules in conjunction with Nominated Advisor, and regular dialogue maintained with our broker finnCap throughout the year. Group controlled Privacy Programme in place designed to demonstrate regulatory compliance. The programme is benchmarked against the International Association of Privacy Professionals (IAPP), Certified Information Privacy Managers (CIPM) principles and doctrine. Appointed PECB trained and certified Data Protection Officer to provide guidance, advice and support. Comprehensive due diligence processes are undertaken prior to acquisition. A Group-controlled integration plan is developed for each acquisition, under the direction of the Group Operations Director, linked to the mitigation of risk and delivering synergies and growth. 24 Tracsis plc Annual Report & Accounts 2021 Description/Potential impact: Mitigation: Change in the year: There is a broad range of preventative No change in the year. Brand reputation Any adverse publicity concerning the Group, or any of its subsidiary businesses may have an impact on future trading prospects if the Group’s brand is adversely affected as a result of this. measures in place across the Group that contribute to reducing this risk, including: Environmental, Social and Governance (ESG) policies, principle and ethos; structured risk management processes; internal reporting mechanisms; embedded health & safety policy, processes and culture; and an internal compliance function. As part of its Corporate Governance, 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. Trained and qualified staff are in key appointments, there is an internal incident reporting mechanism, and structured risk management model. governance mechanisms exercised. Directors briefed on AIM rules in conjunction with Nominated Advisor, and regular dialogue maintained with our broker finnCap throughout the Group controlled Privacy Programme in place designed to demonstrate regulatory compliance. The programme is benchmarked against the International Association of Privacy Professionals (IAPP), Certified Information Privacy Managers (CIPM) principles and doctrine. Appointed PECB trained and certified Data Protection Officer to provide guidance, advice and support. processes are undertaken prior to acquisition. A Group-controlled integration plan is developed for each acquisition, under the direction of the Group Operations Director, linked to the mitigation of risk and delivering synergies and growth. Regulatory breach Deviation from regulatory compliance leading to a fine, sanction of enforcement order imposed on the business by a Court or Regulatory body (including but not limited to FCA, HSE, ICO, etc). Any security incident leading to a data year. breach could undermine trust and confidence in the Group’s ability to meet the requirements of the Privacy regulatory environment. Integration risk The Group has made one acquisition in the year, and has further M&A as a core part of its growth strategy. It plans to integrate each acquired business to deliver synergies and ensure compliance with all required governance policies and procedures. Comprehensive due diligence No change in the year. Effective Group level Corporate No change in the year Environmental, Social & Governance (ESG) Strategy The Group is committed to the development and implementation of an effective ESG strategy that will be at the heart of how we operate Responsibility Tracsis’ objective is to deliver sustainable growth that benefits the communities in which we, and our customers, operate. As we execute our growth strategy, Environmental, Social and Governance (ESG) initiatives are at the heart of how we operate. We recognise that this is increasingly important to our customers, employees and shareholders, and the Group is committed to providing greater transparency of our policies, practices and performance in this regard. We have made good progress this year towards formalising an ESG strategy that will establish our operating framework and shape our business culture. This strategy is being set by the Board, who are monitoring the Group’s performance in delivering these objectives. This section of the Annual Report provides an overview of our purpose, our approach, our core principles and our objectives for the next 12 months. In formalising our ESG strategy, we are building from a robust foundation: • Our corporate governance frameworks are well established and details of these are provided on pages 41 to 42 of this report • Our products and services deliver positive efficiency/ performance, environmental and health and safety outcomes for our customers and for their end-users, and our growth strategy is focused in these areas • Our energy and water consumption and CO2 production are low given the nature of our business • The Group is focused on offering a compelling proposition to current and future employees. As an example, we already offer a share option scheme to all UK employees that enables them to share in the success of the business • We have good gender diversity for our industry. At senior levels we have 33% Board gender diversity, and at 31 July 2021 the total Female/Male mix of permanent employees was 25%/75% • Our effective tax rate is in excess of 19% with £1.4m corporation tax paid in the year Progress made during the year includes: • Establishing an ESG working group with representation from a diverse range of employees from across the Group and at different levels of the organisation. This team have clear objectives to help identify what is most important and meaningful to our employees and our communities, and how Tracsis can best support making a positive impact in these areas • Rolling out the first set of groupwide policies that enable our people to make an active contribution to the Group’s environmental and social impact including: − Volunteer & Community Outreach Policy that provides paid time off to enable and encourage our people to volunteer their time and skills to support community and charitable initiatives − Energy Suppliers Policy through which the Group will transition to suppliers who generate energy from sustainable sources − Waste Management Policy to reduce the amount of waste the Group produces, and to increase the amount of re-use and recycling of waste materials • Recruiting the Group’s first Director of People to drive initiatives to further enhance equality, diversity and inclusion, and to ensure that we have the learning and development frameworks in place to help our people to progress their careers within Tracsis. Tracsis plc Annual Report & Accounts 2021 25 Strategic ReportGovernanceFinancial Statements Environmental, Social & Governance (ESG) Strategy (continued) We have a number of focus areas for the next 12 months as we continue to formalise our strategy and embed it within our operating processes. These include: • Establishing a set of KPIs linked to our strategic objectives that will increase the transparency of our performance • Creating an Equality, Diversity and Inclusion forum to drive further improvements and awareness in these areas • Formalising further groupwide policies to shape how the Group operates and how it engages with the wider community • Putting in place a roadmap for developing our climate- related reporting with reference to the Greenhouse Gas Protocol and the Taskforce of Climate-related Financial Disclosures (“TCFD”) Making a positive difference We are proud that our products and services enable our customers to make a positive environmental and social difference in the sectors and communities where they operate. These include: Safety and Risk Management Our RailHub digital platform was developed to change the way the rail industry approaches the management and planning of work on the railway. It has been designed to ensure work is carried out safely hence reducing the number of accidents and fatalities on the railway. Modern, Low Carbon Transportation Our TRACS Enterprise and Remote Condition Monitoring solutions enable passenger and freight operators, and rail infrastructure owners, to achieve cost, efficiency and performance improvements in operating the railway. Our 26 Tracsis plc Annual Report & Accounts 2021 Smart Ticketing products are helping to support increasing post-Covid rail passenger numbers by facilitating flexible, paperless, pay-as-you-go ticketing. By helping to deliver an efficient, modern railway with high levels of availability, we support our customers in providing a low carbon transport service for millions of users Reuse of Biosolids in Agriculture Compass BIO is a bioresources operations management and compliance platform developed by our Data Analytics / GIS business Compass Informatics, which is used by water utilities to monitor the regulated use of biosolids generated in waste and wastewater treatment plants for safe reuse in agriculture. It allows for regulatory compliance for the multiple steps between the treatment plant and the field, to ensure that this resource is re-used in a safe and sustainable manner. Monitoring Biodiversity The National Biodiversity Data Centre, the national hub for biodiversity data and information in Ireland, makes extensive use of informatics and digitised data sets developed by Compass Informatics to mobilise biodiversity data that resides in archives, museums and libraries. This helps to support conservation initiatives and to track changes in the environment. Optimising Traffic Flow at Major Events Tracsis Live Technology is a bespoke digital offering to deliver optimised monitoring, management and control of traffic accessing major events (musical festivals, sports etc.). It enables an event organiser to efficiently and safely manage large volumes of traffic whilst minimising the environmental impact on the local community. Environmental, Social & Governance (ESG) Strategy (continued) Traffic Data Monitoring Transport data collection and analysis to help highways/ local authorities, transport planners and operators deliver optimised transport infrastructure solutions which contribute to sustainable transport initiatives and CO2 reduction. Our Purpose Is straightforward: to develop innovative technology driven solutions that solve complex problems which maximise efficiency in critical/regulated industries. Our Approach Focuses on combining leading edge software and hardware knowledge, data capture, analytics, and industry expertise to generate insights and fast-to-market products and services. Our products and services are used to increase efficiency, reduce cost and improve the operational and decision making capabilities for our customers. We see ourselves as an enabler, helping clients achieve their own ESG goals, as our products and services contribute to reduced energy consumption/carbon footprint and deliver positive environmental impacts, whilst also improving health and safety outcomes Our Objectives The following objectives will be progressed during the next 12 months: • Strategy: Formalise and articulate a comprehensive groupwide ESG strategy that identifies key focus areas and objectives • Measurement: Adopt an appropriate ESG scorecard that applies across the Group • Reporting: Establish a standard set of KPIs linked to our strategic objectives that will increase transparency of our performance, and establish a roadmap for maturing our climate-related reporting • Standards: Benchmark performance against appropriate industry standards • Engagement: Maximise opportunity and ability for our people to participate in shaping and delivering our ESG activities ESG Core principles Our principles reflect our values: • We recognise that an effective ESG culture evolves through participation and engagement, starting with our employees, whilst any progress must be measurable • We believe that a responsible ESG approach towards the Group’s customers, employees, suppliers, local communities, the environment, and wider society, is essential to our commercial success • By embedding ESG principles in our business cycles, we seek to ensure prominence is given to creating value for all our stakeholders • Fundamentally, we are committed to building a sustainable business that grows at pace, and generates economic benefit and employment, whilst ensuring that it does so in a sustainable, environmentally friendly, and socially responsible manner • Our approach will be managed and controlled within a defined corporate governance model, with regulatory compliance as a baseline Tracsis plc Annual Report & Accounts 2021 27 Strategic ReportGovernanceFinancial Statements Key Performance Indicators The KPIs used to monitor the financial performance of the Group are set out below. These KPIs give insight into the growth, profitability and financial position of the business and therefore enable progress on the implementation of the Group strategy to be monitored. KPI Definition Performance Comment Revenue (£m) Value of goods sold and services provided to customers, net of sales taxes Adjusted EBITDA (£m) Adjusted EBITDA margin (%) Earnings before finance income, tax, depreciation, amortisation, exceptional items, other operating income, share-based payment charges and share of result of equity accounted investees. See note 31 for reconciliation Adjusted EBITDA divided by revenue Profit Before Tax (£m) Earnings before Taxation Basic Earnings per Share (p) Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue Cash (£m) Value of cash and cash equivalents 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 50.2 48.0 49.2 13.0 39.8 34.5 10.5 10.5 9.4 8.5 25.8 21.8 21.7 23.7 24.6 6.6 8.3 4.6 4.1 4.6 8.1 10.0 17.8 25.7 13.4 Growth in Rail Technology & Services Division partly offset by lower sales in our Events and Traffic Data businesses as expected due to the effect of Covid-19 restrictions on their end markets Strong performance from higher margin Rail Technology & Services Division. Includes the benefit from management’s cost saving actions in response to the Covid pandemic Reflects the increased weighting of Rail Technology & Services revenue and the benefit from management’s cost saving actions Reflects increased adjusted EBITDA, partly offset by higher amortisation of intangible assets, share based payment charges and exceptional items Increase in profit before tax is more than offset by a higher tax charge, principally reflecting the movement in deferred tax balances as a result of the future increase in the UK corporation tax rate from 19% to 25% 25.4 Continued strong cash generation across the Group 24.1 22.3 17.9 15.4 2017 to 2018 financial statements prepared under IAS 18 (‘Revenue’). 2019, 2020 and 2021 financial statements prepared under IFRS 15 (‘Revenue from Contracts with Customers’). 2016 to 2019 financial statements prepared under IAS 17 (‘Leases’). 2020 and 2021 financial statements prepared under IFRS 16 (‘Leases’). 28 Tracsis plc Annual Report & Accounts 2021 Case study CrossCountry implements its first TRACS Enterprise module Joining Transport for Wales Rail Limited and c2c Rail in the revolution to significantly improve performance and efficiency across its operations, CrossCountry has successfully implemented the Tracsis Information Manager (TIM) system. A communications module of the revolutionary end-to-end resource planning and management system, TRACS Enterprise, TIM enables CrossCountry to use state-of-the- art messaging and communications features that are significantly more advanced than any current control log system in the UK. The system saves time and cost and increases the availability of accurate real-time information. Tracsis plc Annual Report & Accounts 2021 29 Strategic ReportGovernanceFinancial Statements Case study Tracsis Events support Glastonbury Festival CTM have enabled the operational delivery of the traffic and transport plan at Glastonbury Festival since 1998, working hand in hand with the festival to provide efficient solutions across all transport modes including rail and coach. Along with all management and personal to operate all the festivals onsite car parks, CTM manage the festival’s external transport routes using our CSAS accredited personnel and implement technology-based solutions to further maximise the efficiency of the festival’s traffic & transport plan. 30 Tracsis plc Annual Report & Accounts 2021 Section 172 Statement Broader Stakeholder Interests Directors of the Group must consider Section 172 of the Companies Act 2006 which requires them to act in the way that would most likely promote the success of the Group for the benefit of all its stakeholders. The Board and its committees consider who its key stakeholders are, the potential impact of decisions made on them taking into account a wider range of factors, including the impact on the Group’s operations and the likely consequences of decisions made in the long term. The Group’s key stakeholders, material issues and how the Board and the Group have engaged with them during the year is set out below. The Directors promote a culture within Tracsis of treating everyone fairly and with respect and this extends to all principal stakeholders including shareholders, employees, consultants, suppliers, customers and the communities where it is active. Long Term Decision Making The Directors have acted in a way that they consider, in good faith, to be most likely to promote the long- term success of the Company and to deliver long-term shareholder value. The Board has a structured governance model in place with scheduled Board meetings and clear documentation. Detailed budgets and forecasts are prepared to enable the Board to monitor performance and to ensure that mitigation steps are taken as appropriate. During the year to 31 July 2021 the Board paid particularly close attention to the impact of Covid-19 on performance. Measures were taken to reduce costs to mitigate lower revenue, and these were reported in detail to the Board on a regular basis. The Board did not lose sight of the importance of ensuring that long-term prospects for the business were not harmed. This notably included ensuring that as many jobs as possible were protected during the pandemic, which has enabled those businesses affected to respond quickly to increases in activity levels as Covid- related restrictions were eased. Details of the Group’s long term strategy are provided on page 9. The Board believes that this strategy will lead to further growth in the future and will deliver further value to shareholders. The Board reviews this strategy on an annual basis, the most recent review being in September 2021. Employees The Board believes that the long-term success of the Group depends on the engagement and commitment of its employees. We consider our employees to be some of the best in the sector, and we strive to provide them with opportunities for personal development, career progression, and a safe and inclusive working culture. Our employees have continued to be impacted by Covid-19 through the year, and it has been our primary objective to support them through this by prioritising employee wellbeing and protecting jobs. The vast majority of our people have been working from home through this time. As Covid restrictions have eased, we have re-opened all of our offices with safe working practices in place and we are transitioning to a hybrid working model with most employees spending some time in the office and some time working from home. We continued to claim support from the Coronavirus Job Retention Scheme (CJRS) through the year in order to protect jobs. The number of staff on ‘furlough’ under this scheme progressively reduced as activity levels in the affected markets recovered. By 31 July 2021 we were no longer accessing this scheme. As part of cost-reduction measures to mitigate the impact of Covid-19 on revenue, certain employees took a salary reduction for a period of time through the year. This included members of the senior team including the CEO and CFO. As activity levels returned in those markets that were impacted by the pandemic, the Board reviewed the situation and decided that the Company had sufficient headroom to repay all of the salary reduction that employees had taken whilst working. The CEO and CFO provide regular updates to each member of the Senior Leadership Team throughout the Group to keep them informed of what is happening across the wider Group. Since Covid restrictions have been eased, they have also been making regular visits to our offices which provide opportunities for all staff to engage with them and to ask questions in a more informal setting. We have continued to hold regular ‘lunch and learn’ sessions via videoconference which offer all employees the opportunity to learn about the Group’s various product and service offerings. The Group hired a Director of People in July 2021, to ensure we have the processes, learning & development frameworks, and robust succession plans in place to continue to offer a compelling proposition to current and future employees, and to ensure we have the capabilities and talent to deliver our growth strategy. The health and safety of all employees is a top priority for the Board. Health and safety activities are co-ordinated centrally by the Group Health & Safety Manager and are reported to senior management on a monthly basis. The Group’s Traffic Data and Event based work are considered to carry the highest risk from a Health & Safety perspective, as the majority of the Group’s other functions are office- based which is deemed to be lower risk. Risk assessments have been completed for all the Group’s offices as staff have returned to work, to ensure they are Covid safe. During the year there were five RIDDORs. Business conduct, ethics and regulation The Group is committed to high standards of business conduct and ethics. Further details are provided in the Governance section on pages 34 to 43. Tracsis is required to comply with all AIM rules and has done so during the year. Information on the Company’s compliance with AIM Rule 26 is available on the Group website, www.tracsis.com, on the Investors page. Some of the Group’s subsidiary companies are certified for ISO 27001, and certain ones are also certified for ISO 9001. During the year the Group completed an initiative to obtain Tracsis plc Annual Report & Accounts 2021 31 Strategic ReportGovernanceFinancial Statements Investors Responsibility for managing shareholder relationships rests with CEO and CFO, with the support and assistance of the Company’s broker. Two investor roadshows were completed in the year for the final results from the previous year and interim results from the current year, and also various ad hoc meetings throughout the year covering both UK and overseas investors. Both roadshows were held virtually given the travel restrictions imposed by Covid-19. These roadshows cover both existing and potential new investors. The Board is committed to communicating openly with shareholders to ensure that its strategy and performance are understood. This is achieved through the Annual Report and the Interim Statement, face-to-face and online investor presentations for both institutional and private retail shareholders given by management, trading and other announcements made on RNS, and at the Annual General Meeting (“AGM”). The Group encourages all shareholders to attend the AGM. Full year and Interim results presentations and Q&A sessions are provided for private investors and for institutional shareholders, and overviews are available on the Company website. The Chairman has also had some contact with institutional shareholders. The Group discloses contact details on its website and on all announcements released via RNS. In addition, investor relations queries may be routed via the Group’s broker, finnCap Ltd. Each of the Board members consider that they have acted together, in good faith in a way most likely to promote the success of the Group for the benefit of its broader range of stakeholders as a whole taking into account section 172 (1) (a-f) of the Companies Act 2006. Section 172 Statement (continued) ISO 27001 certification for all of its Rail Technology & Services businesses. Clients The Group has a wide range of current and prospective clients across its various Divisions and business units. Regular contact is maintained through a variety of relationships at all levels throughout the organisation. The Group has a number of large projects that are ongoing at any point in time which require regular dialogue and close liaison with the customer base. Our products and services offer a compelling value case for our customers, and we seek to develop strong, long-term relationships with them to become trusted partners and innovators who can help them to address future challenges. Suppliers The majority of the Group’s costs are staff costs. In respect of external suppliers, the Group has a policy of treating all suppliers fairly and paying in accordance with agreed payment terms which are generally within 30 days of invoice. The Group provides details of its payment practices twice a year and the January 2021 report indicated that the average time taken to pay invoices was 21 days, and that 79% of invoices were paid within 30 days. The July 2021 report indicated that the average time taken to pay invoices was 21 days and that 85% of invoices were paid within 30 days. Community & Environment The Board are increasingly aware of the need to ensure that the Group’s operations, products and services positively contribute to the communities within which the Group operates. In the main, the individual businesses hold these relationships at a local level. During the year the Group has articulated its approach to ESG, which is set out in more detail on pages 25 to 27. This will be rolled out fully over the coming year. The strategic report has been approved by the Board of Directors and signed on their behalf. Andy Kelly Director Tracsis plc Nexus Discovery Way Leeds, United Kingdom LS2 3AA 32 Tracsis plc Annual Report & Accounts 2021 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 34 36 38 41 43 44 Tracsis plc Annual Report & Accounts 2021 33 Strategic ReportGovernanceFinancial Statements Board of Directors Chris Cole (75) Independent Non-Executive Chairman Chris is Non-Executive Chairman of WSP Global Inc. (listed on the Toronto Stock Exchange), a leading global engineering and environmental consultancy. Chris held the post of Chief Executive Officer at WSP between 1987 and 2012, and in that time grew the Company both organically and by acquisition to become a market leader employing over 10,000 people across 40 countries. Most recently, Chris led the merger of WSP with Genivar Inc and has become the Chairman of the enlarged entity, now named WSP Global Inc. WSP Global now trades on the Toronto Stock Exchange under the ticker WSP with turnover in excess of CAD $2bn. Chris is a Chartered Engineer and Chairman of the Association of Consulting Engineers. Chair of Nomination Committee. Chris Barnes (46) Chief Executive Officer Andy Kelly (44) Chief Financial Officer Chris was appointed as Chief Executive Officer on 1 May 2019. Prior to joining Tracsis, Chris was Managing Director of Ricardo UK Limited’s automotive consulting division, and had previously held a number of senior roles within Ricardo plc. Before joining Ricardo he held positions at Ford Motor Company and at A.T. Kearney. Chris has a Master’s degree in Engineering, Economics and Management from the University of Oxford and is an alumnus of Harvard Business School. Andy was appointed as Chief Financial Officer on 1 February 2021. Prior to joining Tracsis he spent eight years at The Vitec Group plc in a number of senior roles including Group Financial Controller and Divisional Finance Director. Before joining Vitec he held positions in finance and strategy at Anglo American plc and Carphone Warehouse plc. Andy is a Chartered Accountant, having qualified with Deloitte, and holds a first class degree in Natural Sciences from the University of Cambridge. Other Directors serving in the year: Executive Directors Max Cawthra (43) Chief Financial Officer Max was Chief Financial Officer of Tracsis from August 2011 until his resignation on 1 February 2021. He is a Chartered Accountant, having trained with EY in Leeds. Max resigned as Chief Financial Officer on 1 February 2021 and remained working with the Group until 5 March 2021. Non-Executive Directors Mac Andrade (45) Independent Non-Executive Director Mac was appointed to the Board on 1 November 2018 and served as a Non- Executive Director during the year until his resignation on 31 July 2021. Mac served as a member of the Audit Committee, Remuneration Committee and Nomination Committee during the year. 34 Tracsis plc Annual Report & Accounts 2021 Board of Directors (continued) Lisa Charles-Jones (50) Independent Non-Executive Director Dr James Routh (48) Senior Independent Non-Executive Director Liz Richards (63) Independent Non-Executive Director Lisa is currently HR Director for Parkdean Resorts. She is an 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. Lisa is also a Trustee for the Percy Hedley Foundation. She is a member of the Chartered Institute of Personnel and Development and holds an MBA from the University of Durham. Chair of Remuneration Committee. Member of Audit Committee and Nomination Committee. James was appointed to the Board on 29 September 2021. He is currently Chief Executive Officer of AB Dynamics plc, having held the position since 2018. Prior to this he was Group Managing Director at FTSE 250 listed Diploma PLC for six years where he delivered a series of successful international acquisitions. His previous career involved leadership positions predominantly in the aerospace and defence industry, including senior roles at Chemring Group PLC and Cobham PLC. James holds a PhD in engineering and is a Chartered Mechanical Engineer and Fellow of the Institution of Mechanical Engineers. Member of Audit Committee, Remuneration Committee and Nomination Committee. Liz is a highly experienced executive and non-executive director with a career spanning the Financial Services, Data and Software sectors. She was previously Chief Financial Officer of CallCredit (now Transunion), a successful consumer data business where, as a founder member, she oversaw its rapid growth from start-up in 2000 to a £150m revenue business by 2015. Liz currently also holds Non-Executive Director and Audit Committee Chair positions at both LINK Scheme Ltd and dotdigital plc, as well as two pro bono roles – Governor and Chair of Audit for Leeds Trinity University and Trustee and Chair of Finance and Investment for Yorkshire Cancer Research. Chair of Audit Committee. Member of Remuneration Committee and Nomination Committee. Tracsis plc Annual Report & Accounts 2021 35 Strategic ReportGovernanceFinancial Statements Directors’ Report The directors present their report and the audited financial statements for the year ended 31 July 2021. 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 Nexus, Discovery Way, Leeds, United Kingdom, LS2 3AA. 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 9 November 2021. 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. The Corporate Governance statement included on pages 41 to 42 forms part of the Directors’ 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 54 to 109. Dividends The Board does not consider it appropriate to pay a final dividend this year as the Group utilised the Coronavirus Job Retention Scheme (“CJRS”) in respect of furloughed staff. The Board expects to restore the progressive dividend policy for the year ending 31 July 2022. Directors The directors who serve on the Board and on Board Committees during the year are set out on pages 34 to 35. Max Cawthra resigned as Chief Financial Officer on 1 February 2021. Andy Kelly was appointed as Chief Financial Officer on 1 February 2021. Mac Andrade resigned as a Director on 31 July 2021. Dr James Routh was appointed as a Director on 29 September 2021. Under the Articles of Association of the Company, one third of the directors (excluding those being re-elected for the first time by shareholders) are subject to retirement by rotation at the forthcoming Annual General Meeting (“AGM”), notice of which accompanies this Report and Accounts. Accordingly, Liz Richards retires by rotation and, being eligible, offers herself for re-election. The Company’s Articles of Association also require any person who has been appointed as a director since the date of the Company’s last AGM to retire at the next AGM following their appointment. Accordingly, Andy Kelly and Dr James Routh will retire from office at the forthcoming AGM and will stand 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 38 to 40. 36 Tracsis plc Annual Report & Accounts 2021 Directors’ shareholdings Directors’ beneficial interests in the shares of the Company, including family interests, at 31 July 2021 and 2020 were as follows: 31 July 2021 31 July 2020 Number of shares - - % of issued share capital - - Number of shares - - % of issued share capital - - 7,000 0.02% 7,000 0.02% - - - - - - - - - - - - Chris Barnes Andy Kelly Chris Cole Lisa Charles-Jones Liz Richards James Routh 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 31 October 2021, 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: Schroder Investment Management Unicorn Asset Management Charles Stanley Canaccord Genuity Wealth Management AXA Framlington Investment Managers Franklin Templeton Fund Management Downing Premier Miton Investors Investec Wealth & Investment Rathbones Berenberg Asset Management Number of shares 2,205,647 1,998,766 1,886,888 1,650,000 1,507,273 1,470,000 1,323,962 1,204,181 1,189,917 1,129,821 983,495 % of issued shares 7.5% 6.8% 6.4% 5.6% 5.1% 5.0% 4.5% 4.1% 4.1% 3.9% 3.4% 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 2021 were 56 days (2020: 42 days). Our approach to engagement with suppliers is detailed further in the section 172 statement on page 31 to 32. Research and development During the year the Group incurred £3,383,000 (2020: £3,048,000) of expenditure on research and development activity mainly relating to software development, which has been charged to the Income Statement in accordance with the Group’s accounting policy. 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 schemes. In addition, the Group is committed to training courses, with a number of staff undertaking apprenticeships and other technical training, and is also to career development and internal promotion where possible within the Group. Further details on employee engagement is provided in the Section 172 statement on pages 31 and 32. Environment The Group adheres to all environmental regulations and has, where possible, utilised environmental-sustaining policies such as recycling and waste reduction. Further details of the Group’s Environmental, Social & Governance strategy are provided on pages 25 to 27. The Group is classed as large under the Companies Act 2006 and therefore falls under the scope of the Streamlined Energy & Carbon Reporting (SECR) requirements. The Group is exempt from disclosure related to SECR as no individual UK registered subsidiary is a large company and the parent company itself consumes less than 40,000 KWH of energy per year. Future business developments Details of these are provided in the strategic report, and the Chairman & Chief Executive Officer’s report on pages 14 to 18. Significant Contracts There are a number of significant contracts in operation across the Group. • Tracsis plc has some large contracts with Train Operating Companies from which it derives significant amounts of revenue; • MPEC Technology Limited, a subsidiary company, 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 contract with a major worldwide engineering consultancy company from which it has historically derived a significant amount of business; • Ontrac Limited has a large contract with a major railway infrastructure provider, from which it derives a significant amount of business; • SEP Limited, and Cash & Traffic Management Limited both have a number of significant, multi-year contracts with a number of key clients; Directors’ Report (continued) • Compass Informatics Limited has a range of contracts with government bodies and private sector organisations; and • iBlocks Limited has some significant contacts with Train Operating Companies and also industry association bodies Auditor A resolution to reappoint Grant Thornton UK 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. Anti-bribery and corruption The Group is committed to conducting business with honesty and integrity. We have a policy on anti-bribery and corruption measures that sets out a zero-tolerance approach to these matters, and identifies the responsibilities and behaviours expected of all Tracsis employees in this regard. Third party indemnity provisions All Directors benefit from qualifying third party indemnity provisions in place during the financial year and at the date of this report. Events after the Balance Sheet date The Group acquired Icon Group (“Icon”) on 3 November 2021. Headquartered in Dublin, Icon is an interdisciplinary geoscience business who specialise in earth observation (EO), GIS and spatial data analytics. Icon will be integrated with Tracsis’ existing Compass Informatics business to create an Irish-based Data Analytics centre of excellence specialising in providing location-related technologies and analytics solutions and services to government and commercial organisations. The acquisition of Icon adds EO capabilities that enhance our offer in this growing market, and has a customer base that is complementary to Tracsis’. The acquisition consideration comprises an initial cash payment of £1.9m which was funded out of Tracsis cash reserves and the issue of 68,762 new ordinary shares in Tracsis to a value of £0.6m. An additional payment of approximately £1.7m will be made on a euro for euro basis to reflect the net current asset position of the business (above a working capital hurdle) at completion and will be finalised in due course. Additional contingent consideration of up to £1.5m is payable subject to Icon Group achieving certain stretched financial targets in the three years post acquisition. By order of the Board Andy Kelly Company Secretary 9 November 2021 Nexus, Discovery Way Leeds United Kingdom LS2 3AA Tracsis plc Annual Report & Accounts 2021 37 Strategic ReportGovernanceFinancial Statements Directors’ Remuneration Report As a company listed on AIM, the Company is not required to comply with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in August 2013 (the “Regulations”), nor is it required to comply with the principles relating to directors’ remuneration in the UK Corporate Governance Code 2018 (the “Code”). Unaudited information: Tracsis plc, presents its remuneration 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. None of the committee members has any personal financial interest, other than as shareholders, in the matters to be decided. Activities during the year • Reviewed the remuneration for the CEO and CFO in light of Covid-19 and approved appropriate reductions • Reviewed the remuneration package to attract the right calibre of candidates for the appointment of a new CFO following the departure of Max Cawthra • Reviewed the remuneration package for the CEO to ensure that it remains competitive to attract and retain the right calibre of individual • Appointed FIT Remuneration Consultants LLP to review the fees for the Chairman to ensure that it remains competitive to attract and retain the right individuals. Although not under the Committee’s remit, Non-Executive Director fees were also reviewed • Reviewed performance against the 2020/21 annual bonus plan targets and resulting awards and agreed the metrics for the 2021/22 bonus plan; and • Reviewed LTIP award levels and performance metrics / targets for the 2021 LTIP awards 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 Chris Barnes Andy Kelly Non-Executive Directors Chris Cole Lisa Charles-Jones Liz Richards James Routh Date of contract Commencement date Unexpired term Notice period 04.02.19 01.02.21 28.04.14 25.08.16 01.09.16 29.09.21 04.02.19 01.02.21 Indefinite Indefinite 6 months 6 months 28.04.14 25.08.16 01.09.16 29.09.21 Indefinite Indefinite Indefinite Indefinite 3 months 3 months 3 months 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, as well as motivating them to deliver the Group’s strategy. In determining the level of remuneration for each Director, the Remuneration Committee considers remuneration packages at companies of a similar size and market capitalisation that are of similar complexity to Tracsis. The Remuneration Committee aims to position and maintain the total remuneration package for each Director within the market range. 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, which is based on profit related targets and also personal objectives. The Remuneration Committee is entitled to decide whether any bonuses are payable, and if so, what amounts should be granted to Executive Directors. Performance Outcomes The bonus scheme for Executive Directors pays out a maximum bonus of 80% of salary for financial performance against sliding scale profit targets and 20% of salary for personal objectives. The bonus award for each Executive Director for the year to 31 July 38 Tracsis plc Annual Report & Accounts 2021 Directors’ Remuneration Report (continued) 2021 will be 42% of a maximum 100% of salary. 26% of salary will be paid in respect of financial performance which reflects the fact that the bonus target was partially achieved. 16% of salary will be paid in respect of personal objectives which were based on continuing to execute the Group’s growth strategy. 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. 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 at a rate of 10% of basic salary for Chris Barnes and for Andy Kelly. Chris Barnes elected to exchange employer pension contributions for additional salary. There was no additional cost to the Group in respect of this arrangement. Directors’ remuneration Directors’ remuneration for the year ended 31 July 2021 is set out below Executive Directors Chris Barnes Andy Kelly (from 1 February 2021) Max Cawthra (to 1 February 2021) Non-Executive Directors Chris Cole Lisa Charles-Jones Liz Richards Mac Andrade Basic salary £000 Pension Conts £’000 Bonus £000 Benefits in kind £000 282 88 75 445 60 33 33 30 156 - 9 4 13 - - - - - 109 37 34 180 - - - - - 1 - - 1 - - - - - Total 2021 £000 392 134 113 639 60 33 33 30 156 Total 2020 £000 300 - 178 478 60 33 33 30 156 Directors’ interests in share options in the Executive Share Option Schemes Executive Directors Chris Barnes (note a) Andy Kelly (note b) Non-Executive Directors Chris Cole Lisa Charles-Jones Liz Richards James Routh At 1 August 2020 Granted (note c) 60,378 40,891 - - - - - 21,174 - - - - Lapsed Exercised At 31 July 2021 Exercise price pence Date from Which Exercisable Expiry date - - - - - - - - - - - - 101,269 0.4p 04/02/2022 01/05/2029 21,174 0.4p 01/02/2024 01/02/2031 - - - - - - - - - - - - - - - - In accordance with Corporate Governance best practice, the Group no longer grants stock options to Non-Executive Directors. This ensures objectivity and independence within the Board’s decision making process. From 1 August 2021 shareholding objectives exist to ensure Executive Directors build up to a minimum of 100% of salary within five years. Tracsis plc Annual Report & Accounts 2021 39 Strategic ReportGovernanceFinancial Statements Directors’ Remuneration Report (continued) Note a In connection with Chris Barnes’ appointment as a Director of the Group, the Remuneration Committee agreed a share option award to compensate Chris for unvested incentives forfeited from his previous employer on joining Tracsis. As such, Chris was awarded 21,417 share options in Tracsis plc with an exercise price of 0.4p, that can be exercised on or after 4 February 2022 being three years since Chris joined the Group. ‘2019 LTIP’ • Chris Barnes granted a maximum of 38,961 options • Full award is only payable should statutory diluted EPS for the year ending 31 July 2022 be 25.92p, and TSR versus the peer group is in the top quartile • Should statutory diluted EPS for the year ending 31 July 2022 be less than 22.92p, and TSR versus the peer group is less than the median, no options will be awarded Note c ‘2020 LTIP’ • Chris Barnes granted a maximum of 40,891 options, Andy Kelly granted a maximum of 13,482 options • Full award is only payable should statutory diluted EPS for the year ending 31 July 2023 be 23.78p, and TSR versus the peer group is in the top quartile • Should statutory diluted EPS for the year ending 31 July 2023 be less than 20.78p, 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 • Any options vesting will be able to be exercised from the following dates: − Chris Barnes: 29 December 2023 onwards, being three years from the grant date − Andy Kelly: 5 February 2024 onwards, being three years • For scenarios between the above range, the options will be from the grant date exercisable on a sliding scale basis in both instances • Any options vesting will be able to be exercised from 3 December 2022 onwards, being three years from the grant date Note b In connection with Andy Kelly’s appointment as a Director of the Group, the Remuneration Committee agreed a share option award to compensate Andy for unvested incentives forfeited from his previous employer on joining Tracsis. As such, Andy was awarded 7,692 share options in Tracsis plc with an exercise price of 0.4p, that can be exercised on or after 1 February 2024 being three years since Andy joined the Group. The aggregate amount of pre-tax gains made by Directors on the exercise of share options was £nil (2020: £nil). No Directors received or were due to receive any shares under long term incentive schemes other than under the share options schemes set out above. 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 2020 to 31 July 2021. 180 160 140 120 100 80 60 40 20 0 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Tracsis AIM All-Share Index The committee has selected the above index because it is most relevant for a company of Tracsis’s size and sector On behalf of the Board Lisa Charles-Jones Chair of the Remuneration Committee 9 November 2021 40 Tracsis plc Annual Report & Accounts 2021 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, adopts the Quoted Company Alliance’s Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 (updated April 2018) (the “QCA Code”) which supports the Group’s long term success and strategy for growth. The Board believes that the Group currently complies with the provisions of the QCA Code in all areas with the exception of the formal board evaluation. Further details of the Group’s compliance with the QCA code can be found on the Group’s website https://www. tracsis.com/investors/corporate-governance.. The Board There are currently six Board members, comprising two Executive Directors and four 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 pages 34 and 35. The Directors each have diverse backgrounds and a wide range of experience is available to the Group. The Board meets ten times a year 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 38. 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 (“AGM”). It also requires any person who has been appointed as a director by the Board since the date of the Company’s last AGM to retire at the next AGM following their appointment. Accordingly, Liz Richards, Andy Kelly and Dr James Routh 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. Independence of Non-Executive Directors The Directors consider all Non-Executive Directors to be independent. Board committees Nomination Committee The Nomination Committee comprises Chris Cole as Chairman, Lisa Charles-Jones, Liz Richards, and James Routh (from 29 September 2021). Mac Andrade served on the Nomination Committee until his resignation on 31 July 2021. 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, Liz Richards, and James Routh (from 29 September 2021). Chris Cole is an attendee. Mac Andrade served on the Remuneration Committee until his resignation on 31 July 2021. 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 comprises Liz Richards as Chairperson, Lisa Charles-Jones and James Routh (from 29 September 2021). Chris Cole is an attendee. Mac Andrade served on the Audit Committee until his resignation on 31 July 2021. 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. The significant issues considered by the Audit Committee relating to the Group’s financial statements include Revenue recognition, Intangible Assets, and Contingent Consideration, as detailed in note 4 to the financial statements. Non audit services In accordance with its policy on non audit services provided by the Group’s auditor, the Audit Committee reviews and Chris Barnes Andy Kelly Max Cawthra Chris Cole Lisa Charles-Jones Liz Richards Mac Andrade Board Meetings (total/poss) 10/10 6/6 4/4 10/10 10/10 10/10 10/10 Nomination Committee Meetings - - - 1/1 1/1 1/1 1/1 Remuneration Committee Meetings - - - 3/3 3/3 3/3 3/3 Audit Committee Meetings 3/3 1/1 2/2 3/3 3/3 3/3 3/3 Tracsis plc Annual Report & Accounts 2021 41 Strategic ReportGovernanceFinancial Statements Corporate Governance (continued) 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. During the year, £5,000 was paid to Grant Thornton UK LLP in respect of non audit work (2020: £nil). This non audit work comprised the review of the half-yearly financial statements. 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. In reaching this conclusion the Audit Committee considered the Group’s acquisition of Flash Forward Consulting Ltd (“FFC”) on 26 February 2021. Alex Warner was a director and owner of FFC until its acquisition by Tracsis Rail Consultancy (“TRC”) on that date. Since then he has remained a director of FFC and TRC, and he holds shares in both Tracsis plc and TRC. Alex’s brother, Ed Warner, was an independent non-executive director and independent Chair of the Partnership Governance Board at Grant Thornton UK LLP until 31 March 2021. Alex and Ed Warner are considered Close Family Members under the FRC Ethical Standard (2019) but are not Persons Closely Associated and Ed Warner was neither a Partner nor a Covered Person for Grant Thornton UK LLP’s audit or other public interest assurance engagements. Further, there was no ongoing work in relation to audit or other public interest assurance engagements by Grant Thornton UK LLP during the 33-day crossover period to 1 April 2021. The Audit Committee is therefore satisfied that the external auditor has remained independent and objective. 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 42 Tracsis plc Annual Report & Accounts 2021 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 at least twelve months from the signing of the financial statements in operational existence and have therefore adopted the going concern basis in preparing the accounts. The Group is debt free and has substantial cash resources. At 31 July 2021 the Group had net cash and cash equivalents totalling £25.4m. The Board has prepared cash flow forecasts for the forthcoming year based upon assumptions for trading and the requirements for cash resources including contingent consideration. These forecasts take into account reasonably possible changes in trading financial performance, and indicate that it is appropriate to use the going concern basis for the preparation of the consolidated financial statements. Further to this, management prepared a severe but plausible scenario, reducing revenues from budget and including a more pessimistic view of working capital. There was still ample headroom under this scenario. A reverse stress test was also considered. The revenue and cashflow assumptions required to eliminate any headroom under the reverse stress test are considered by the Board to be highly unlikely and particularly given trading performance to date. Board evaluation process The Board completed a formal evaluation process in a previous financial year which resulted in charges to the Board but has not completed a formal board evaluation process during the year. The Board collectively has skills in the areas of strategy, finance, human resources and global commercial experience to assist with the implementation of our strategy. Directors keep their skills and knowledge up to date through relevant training and development courses including from the Company’s advisors. All directors are encouraged to use their independent judgement and to constructively challenge other directors where appropriate. Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements 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 are also responsible for safeguarding the assets of the parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that: • so far as each Director is aware, there is no relevant audit information of which the parent Company’s auditor is unaware; and • the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the parent Company’s auditor is aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors are responsible for preparing the Annual Report and the Group and parent Company 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 the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with International Accounting Standards in conformity with the Companies Act 2006 (“IFRSs”) and they have elected to prepare the parent Company financial statements in accordance with UK accounting standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework. 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 and profit or loss of the parent Company and Group for that period. Note that where the exemption has been taken under section 408, Companies Act 2006 not to publish the parent Company’s profit and loss account, section 408(3) states that the Directors must still prepare and approve the parent company’s profit and loss account even though it is not published. 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; • for the Group financial statements, state whether applicable International Accounting Standards in conformity with the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the financial statements; • for the parent Company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. Tracsis plc Annual Report & Accounts 2021 43 Strategic ReportGovernanceFinancial Statements Independent auditor’s report to the members of Tracsis plc Opinion Our opinion on the financial statements is unmodified We have audited the financial statements of Tracsis plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 July 2021, which comprise the Consolidated statement of comprehensive income, Consolidated balance sheet, Consolidated statement of changes in equity, Consolidated cash flow statement, Company balance sheet, Company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice). In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 July 2021 and of the group’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; • the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities 44 Tracsis plc Annual Report & Accounts 2021 in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause the group or the parent company to cease to continue as a going concern. Our evaluation of the directors’ assessment of the group’s and the parent company’s ability to continue to adopt the going concern basis of accounting included evaluation of management’s cashflow forecast for at least 12 months from date of approval of the financial statements, along with challenge and assessment of the inputs and assumptions used to prepare the forecast. We tested management’s severe but plausible case to check that there is adequate headroom in the forecast to cover unforeseen costs or reduced revenues. In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the group’s and the parent company’s business model including effects arising from macro-economic uncertainties such as Brexit and Covid-19, we assessed and challenged the reasonableness of estimates made by the directors and the related disclosures, and we analysed how those risks might affect the group’s and the parent company’s financial resources or ability to continue operations over the going concern period. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for the financial statements’ section of this report. Independent auditor’s report to the members of Tracsis plc (continued) Our approach to the audit Overview of our audit approach Description Overall materiality: Group: £220,000, which represents approximately 5% of the group’s profit before taxation. Parent company: £135,000, which represents 3% of the parent company’s revenue. Audit reponse Description Audit reponse Materiality Materiality Key audit matters Key audit matters Scoping Scoping Key audit matters were identified as: • Revenue recognition (same as previous year); • Impairment of goodwill and other intangible assets (same as previous year); • Valuation of intangible assets arising on acquisition (same as previous year); and • Valuation of contingent consideration payable (same as previous year). Disclosures Our results Disclosures Our results KAM KAM Our auditor’s report for the year ended 31 July 2020 included one key audit matter that has not been reported as a key audit matter in our current year’s report. This relates to going concern which is not a key audit matter this year as the level of uncertainty in the assumptions and forecasts used to assess the future prospects of the group and the parent company has reduced. Scoping has been determined to ensure appropriate coverage of the significant risks as well as coverage of the key results in the financial statements: We performed an audit of the financial information of five components using component materiality (full-scope audit) and an audit of one or more account, balances, classes of transactions or disclosures of the component (specific-scope audit) for four components. We performed analytical procedures at group level (analytical procedures) on the financial information of all the remaining group components. In the previous year, we performed full- scope audits on all components. The scope has been changed in the current year to include only those components with a material impact on the group results or that are materially exposed to the significant risks. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters Materiality Scoping In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit. Description Audit reponse KAM Disclosures Our results Profit before tax £4,635,000 Profit before tax £4,635,000 PM £165,000, 75% FSM £220,000, 5% Revenue £4,510,000 PM £101,000 75% FSM £135,000 3% TFPUM £55,000 25% PM £165,000, 75% FSM £220,000, 5% Revenue £4,510,000 TFPUM £34,000 25% FSM £135,000 3% PM £101,000 75% TFPUM £55,000 25% TFPUM £34,000 25% Tracsis plc Annual Report & Accounts 2021 45 Profit before tax £4,635,000 Revenue £4,510,000 £165,000, PM 75% £220,000, FSM 5% £101,000 PM 75% FSM £135,000 3% TFPUM £55,000 25% TFPUM £34,000 25% Strategic ReportGovernanceFinancial Statements Independent auditor’s report to the members of Tracsis plc (continued) High Potential financial statement impact Going concern Impairment of goodwill and intangible assets Revenue recognition Accuracy of staff costs including furlough receipts Valuation of contingent consideration payable Management override of controls Valuation of intangible assets arising on acquisition Existence and valuation of trade receivables and contract assets Existence of assets and completeness of liabilities for IFRS 16 - Leases Completeness and accuracy of trade creditors and accruals Accuracy of the share based payment charge Low Low Extent of management judgment High Commercial in confidence Key audit matter Significant risk Other risk Key Audit Matter – Group Key audit matter Significant risk Other risk How our scope addressed the matter – Group © 2021 Grant Thornton UK LLP | Audit Findings Report | 29 October 2021 Revenue recognition We identified the risk that the revenue cycle includes fraudulent transactions as one of the most significant assessed risks of material misstatement due to fraud. We determined that the risk of material misstatement lies within the two types of revenue recognised as follows: Revenue recognised over time Management allocate amounts of consideration to performance obligations and assess the stage of completion within a contract. This area includes judgments in relation to incomplete contracts at the year-end in accordance with International Financial Reporting Standard (IFRS) 15 ‘Revenue from Contracts with Customers’. The significant risk is in relation to this and could occur through manipulation or error in revenue or deferred income which could be inaccurate or incomplete. Total revenue recognised over time is £12.2m (2020: £10.5m). Revenue recognised at a point in time The significant risk identified is in relation to the acceleration of revenues that should be recognised in FY22 into FY21. This primarily impacts revenue recognised at the end of the financial year. Total revenue recognised at a point in time is £38.1m (2020: £37.5m). In responding to the key audit matter, we performed the following audit procedures: • evaluating the revenue recognition policies for consistency with IFRS 15, through assessment of management’s IFRS 15 paper including, specifically, consideration of management’s identification of performance obligations and allocation of the transaction prices to the performance obligations; 1 • performing analytical procedures through comparing revenue earned in the year to the prior year and budget, corroborating management’s explanation for significant or unusual variances; • recalculating IFRS 15 adjustments made by management based on the supporting documentation of contracts and proof of acceptance used to make these adjustments, in order to gain assurance over the accuracy of IFRS 15 adjustments made; • testing a sample of revenue transactions through to supporting documentation, checking the revenue in the selected item is recognised as per the group’s accounting policy, and performing a recalculation of the revenue recognised in the year to determine the amount of revenue, if any, that should be deferred; • recalculating the year-end deferred revenue balance in full based on management’s schedules, and performing procedures on a sample basis to ensure schedules were complete and accurate. To further assess completeness, we used our revenue sample to determine whether a deferred income balance should be recorded; • sampling from sales made around the period end and determining whether cut-off procedures are appropriate by agreeing to evidence of performance; • checking a sample of credit notes raised throughout the year and post year end to ensure revenue is not being artificially inflated at the year-end. Where we identified unusual credit notes, we tested them to supporting evidence to confirm the credit note should have been raised; and • testing a sample of manual journals posted to revenue by agreeing to supporting documentation, in order to gain an understanding of the rationale for these entries to check that they were not indicative of management override of controls. Relevant disclosures in the Annual Report and Accounts 2021 • Financial statements: Note 4 Critical Accounting Estimates and Judgements • Financial statements: Note 6 Revenue and Segmental analysis Our results Based on our audit work performed, we have not identified any material misstatements relating to revenue recognition. 46 Tracsis plc Annual Report & Accounts 2021 Independent auditor’s report to the members of Tracsis plc (continued) Key Audit Matter – Group How our scope addressed the matter – Group Impairment of Goodwill and Intangible Assets We identified impairment of goodwill and intangible assets as one of the most significant assessed risks of material misstatement due to error. The group recorded goodwill and other intangible assets with a carrying value of £51.7m as at 31 July 2021 (2020: £54.4m). There is an increased risk that the goodwill and intangibles held by the group are impaired as per International Accounting Standard (‘IAS’) 36 ‘Impairment of Assets’ because of the high level of estimation uncertainty in assessing the future performance of the group using operating cash flows and long-term growth rates and also in assessing the appropriate discount rate to apply in calculating the ‘value in use’ of the cash generating units (CGUs). Our significant risk relates to the iBlocks and Tracsis Travel Compensation Services (TTCS) CGUs as these represent £19.7m of intangible assets and one has seen a delay in certain contracts and the other is reliant on rail passenger numbers. In responding to the key audit matter, we performed the following audit procedures: • assessing and challenging management’s impairment review, checking whether appropriate costs are included or excluded, that cash flows included in the model are appropriate, and that the methodology used is in accordance with the requirements of IAS 36; • utilising internal valuation experts to independently determine a weighted average cost of capital (WACC) for the group and to assess whether the WACC used by management as determined by the management expert, is appropriate; • assessing the competence of management’s expert through reference to their qualifications and experience; • performing sensitivity analysis on the forecast cash flows, long term growth rates and discount rates and determining their impact on the carrying value of the intangible assets; • evaluating historical forecasting accuracy by comparing results achieved in prior years to budgets; • evaluating whether the goodwill and intangible assets are allocated to the CGUs appropriately and challenging whether the CGUs identified are appropriate; and • assessing whether the disclosure included for the headroom Furthermore, there has been a change in the CGUs reported in the year which could increase the risk of error. sensitivities is appropriate and assessing whether the accounting policy is in line with IAS 36. Relevant disclosures in the Annual Report and Accounts 2021 • Financial statements: Note 4 Critical Accounting Estimates and Judgements • Financial statements: Note 15 Intangible assets Our results From our audit work performed we are satisfied with management’s judgement that the goodwill and intangibles allocated to the iBlocks CGU and TTCS CGU are not materially impaired. Valuation of Intangible Assets arising on acquisition We identified valuation of intangible assets arising on acquisition as one of the most significant assessed risks of material misstatement due to error. The group acquired Flash Forward Limited in the year resulting in additions of £1.7m to intangible assets, of which £0.7m is allocated to customer related intangibles and £1.0m allocated to goodwill. IFRS 3 ‘Business Combinations’ requires most newly acquired assets and liabilities to be recorded at fair value. There is significant management judgement involved in determining the fair value of the assets and liabilities acquired and consideration, including the calculation of the fair value of technology and customer related intangibles acquired, and the discount rate and long-term growth rates used in the valuation. In responding to the key audit matter, we performed the following audit procedures: • utilising our valuation experts to assist in assessing the work performed by management’s valuation expert in relation to the valuation of acquired intangible assets and consideration paid. This included challenging whether the methodology used in the valuation is in line with acceptable valuation methods and whether inputs such as future profits, attrition rates and discount rates used are appropriate; • assessing the competence of management’s expert through reference to their qualifications and experience; • challenging management’s rationale and calculations behind the fair values of any contingent consideration, including the assessment of the value and classification of an option in favour of Tracsis plc over the shares issued in a subsidiary as consideration; • testing of the acquisition balance sheet by agreeing material balances to supporting evidence, including cash balances on acquisition; • reperforming the calculation of goodwill and comparing to the figure as determined by management to gain assurance over the mathematical accuracy of the calculation; • agreeing the consideration paid, by reference to acquisition agreement, to bank statements; and • assessing the adequacy of the accounting policy and relevant disclosures made in the financial statements with respect to the acquisition to determine whether they are complete, accurate and in line with IFRS 3 Relevant disclosures in the Annual Report and Accounts 2021 • Financial statements: Note 4 Critical Accounting Estimates and Judgements • Financial statements: Note 5 Acquisitions and investments in the Our results Based on our audit work performed we have not identified any material misstatements relating to the valuation of intangible assets arising on acquisition. current year Tracsis plc Annual Report & Accounts 2021 47 Strategic ReportGovernanceFinancial Statements Independent auditor’s report to the members of Tracsis plc (continued) Key Audit Matter – Group How our scope addressed the matter – Group Valuation of Contingent Consideration payable We identified the valuation of contingent consideration payable as one of the most significant assessed risks of material misstatement due to error. As at the year end, the group has total contingent consideration payable of £7.9m (2020: £7.3m). iBlocks and Bellvedi account for £7.2m of the total balance and there were material movements in the underlying profit estimates for both. The valuation of contingent consideration at fair value involves a significant degree of management judgement and is a material accounting estimate with a high degree of estimation uncertainty. In responding to the key audit matter, we performed the following audit procedures: • agreeing contingent consideration per management’s workings to the trial balance and financial statements, and agreeing brought forward contingent consideration to prior year financial statements; • checking the mathematical accuracy of the schedules provided to us by performing recalculations of contingent consideration due; • testing the movement in contingent consideration payable year on year, through agreeing payments made to bank records and checking whether any changes to the fair value of existing contingent consideration agreed to supporting documentation, including correspondence with the relevant individuals, and that the assumptions behind the changes to fair value are appropriate; • challenging management’s rationale and assumptions used in calculations behind the fair values of any contingent consideration, including the assessment of the range of possible outcomes and the probability of each of these. This included a focussed assessment of the discounting used in measuring fair value of the contingent consideration; • assessing whether contingent consideration due in more than one year has been discounted at an appropriate rate and performing a recalculation of the contingent consideration due after discounting; and • assessing the adequacy of the accounting policy and relevant disclosures made in the financial statements to ensure they are complete, accurate and in line with IFRS 9 ‘Financial Instruments’. Relevant disclosures in the Annual Report and Accounts 2021 • Financial statements: Note 4 Critical Accounting Estimates and Judgements • Financial statements: Note 21 Contingent consideration Key observations Based on our audit work performed we have not identified any material misstatements relating to the valuation of contingent consideration payable. We did not identify any key audit matters relating to the audit of the financial statements of the parent company. 48 Tracsis plc Annual Report & Accounts 2021 Independent auditor’s report to the members of Tracsis plc (continued) Our application of materiality We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report. Materiality was determined as follows: Materiality measure Group Parent company Materiality for financial statements as a whole We define materiality as the magnitude of misstatement in the financial statements that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of these financial statements. We use materiality in determining the nature, timing and extent of our audit work. Materiality threshold £220,000, which is approximately 5% of the group’s profit before tax. £135,000, which is 3% of the parent company’s revenue. Significant judgements made by auditor in determining the materiality In determining materiality, we made the following significant judgements: • Profit before tax is a key performance indicator In determining materiality, we made the following significant judgements: • This benchmark is considered the most for the group. Materiality for the current year is higher than the level that we determined for the year ended 31 July 2020 to reflect the increase in the group’s profit before tax for the year. appropriate because the parent company is a trading company, and the revenue figure is less volatile than profit before tax. Materiality for the current year is higher than the level that we determined for the year ended 31 July 2020 to reflect the increase in the parent company’s revenue for the year. Performance materiality used to drive the extent of our testing We set performance materiality at an amount less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality threshold £165,000, which is 75% of financial statement materiality. £101,000, which is 75% of financial statement materiality. Significant judgements made by auditor in determining the performance materiality In determining performance materiality, we made the following significant judgements: • Based on prior experience, we have not In determining performance materiality, we made the following significant judgements: • Based on prior experience, we have not Specific materiality Specific materiality Communication of misstatements to the audit committee Threshold for communication identified a significant number of uncorrected misstatements or significant control deficiencies in respect of the group. identified a significant number of uncorrected misstatements or significant control deficiencies in respect of the parent company. We determine specific materiality for one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. We determined a lower level of specific materiality for the following areas: • Directors’ remuneration; and • Related party transactions outside of the normal We determined a lower level of specific materiality for the following areas: • Directors’ remuneration; and • Related party transactions outside of the normal course of business. course of business. We determine a threshold for reporting unadjusted differences to the audit committee. £11,000 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £6,800 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. Tracsis plc Annual Report & Accounts 2021 49 Strategic ReportGovernanceFinancial Statements Description Description Audit reponse Audit reponse Materiality Materiality Key audit Key audit matters matters KAM KAM Scoping Scoping Disclosures Disclosures Our results Our results Independent auditor’s report to the members of Tracsis plc (continued) The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements. Overall materiality – Group Overall materiality – Parent company Profit before tax £4,635,000 Profit before tax £4,635,000 PM £165,000, 75% PM £165,000, 75% FSM £220,000, 5% FSM £220,000, 5% Revenue £4,510,000 Revenue £4,510,000 PM £101,000 75% PM £101,000 75% FSM £135,000 3% FSM £135,000 3% FSM: Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected misstatements TFPUM £55,000 25% TFPUM £55,000 25% TFPUM £34,000 25% TFPUM £34,000 25% An overview of the scope of our audit We performed a risk-based audit that requires an understanding of the group’s and the parent company’s business and in particular matters related to: Understanding the group, its components, and their environments, including group-wide controls • we obtained an understanding of the group and its environment, including group-wide controls, and assessed the risks of material misstatement at the group level; and • we obtained an understanding of the effect of the group organisational structure on the scope of the audit, for example, the level of centralisation of the group control function and the use of service organisations. Identifying significant components • we evaluated the identified components to assess their significance and determined the planned audit response based on a measure of materiality. Significance was determined as a percentage of the group’s total revenue, profit before tax and total assets as well as considering qualitative factors, such as a component’s specific nature or circumstances; and • For five components we responded with a full-scope audit of their financial information and for a further four components we performed specific-scope audit. For the remaining ten components we performed analytical procedures. 50 Tracsis plc Annual Report & Accounts 2021 Performance of our audit • All four KAMs were addressed with the full-scope audit procedures and specific-scope audits where relevant to the component; • Specific procedures were primarily designed to obtain further coverage of the KAMs; • we performed the full-scope audit and specific-scope audits across the components in line with the scope described. We engaged with the component auditor to provide support to the group engagement team. Changes in approach from previous period • In the previous year, we performed full-scope audits on all components. The scope has been changed in the current year to include only those components with a material impact on the group results or that are materially exposed to the significant risks. Audit approach Full-scope audit Specified audit procedures Analytical procedures Total Number of components 5 % coverage Revenue 55 % coverage Loss before tax 67 4 10 19 29 16 100 24 9 100 Other information The directors are responsible for the other information. The other information comprises the information included in the annual report and accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Independent auditor’s report to the members of Tracsis plc (continued) In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matter on which we are required to report under the Companies Act 2006 In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of directors for the financial statements As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non- compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below: • We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and the parent company and determined that the most significant are applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006 (for the group), United Tracsis plc Annual Report & Accounts 2021 51 Strategic ReportGovernanceFinancial Statements Independent auditor’s report to the members of Tracsis plc (continued) Kingdom Generally Accepted Accounting Practice (for the parent company), AIM rules and relevant tax regulations. • We assessed the susceptibility of the group’s and the parent company’s financial statements to material misstatement, including how fraud might occur, by evaluating management’s incentives and opportunities for manipulation of the financial statements. This included the evaluation of the risk of management override of controls. We determined that the principal risks were in relation to: − journal entries that increased revenues or that reclassified costs from the income statement to the balance sheet that are posted by senior finance personnel; − potential management bias in determining accounting estimates, especially in relation to their assessment of the valuation of intangible assets and contingent consideration; and − transactions with related parties. • Assessment of the appropriateness of the collective competence and capabilities of the engagement team including consideration of the engagement team’s: − understanding of, and practical experience with, audit engagements of a similar nature and complexity through appropriate training and participation − knowledge of the industry in which the group and the parent company operate; and • We obtained an understanding of the group’s and the parent company’s control environment, including the adequacy of the training to inform staff of the relevant legislation, the adequacy of procedures for authorisation of transactions and procedures to ensure that possible breaches of requirements are appropriately investigated and reported. • We made enquiries of the one component auditor, and requested that they confirm to us instances of non- compliance with laws and regulations that gave rise to a risk of material misstatement of the group financial statements. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. − understanding of the legal and regulatory requirements specific to the group and the parent company. Mark Overfield BSc FCA Senior Statutory Auditor • We had team communications in respect of potential non- compliance with laws and regulations and fraud included the potential for fraud in revenue recognition through manipulation of deferred income. • In assessing the potential risks of material misstatement, we obtained an understanding of the group’s and the parent company’s operations, including the nature of their revenue sources, products and services and of their objectives and strategies to understand the classes of transactions, account balances, expected financial statement disclosures and business risks that may result in risks of material misstatement. for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Leeds 9 November 2021 52 Tracsis plc Annual Report & Accounts 2021 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 54 55 56 57 58 98 99 100 110 Tracsis plc Annual Report & Accounts 2021 53 Strategic ReportGovernanceFinancial Statements Consolidated Statement of Comprehensive Income for the year ended 31 July 2021 2021 2020 Revenue Cost of sales Gross profit Administrative costs Adjusted EBITDA* Depreciation Adjusted profit ** Amortisation of intangible assets Other operating income Share-based payment charges Operating profit before exceptional items Exceptional items: Impairment losses Other Operating profit Finance income Finance expense Share of result of equity accounted investees Profit before tax Taxation Profit after tax Other comprehensive (expense)/income Items that are or may be reclassified subsequently to profit or loss Foreign currency translation differences Total comprehensive income/(expense) for the year Earnings per Ordinary Share Basic Diluted Group excluding in-year acquisitions £000 49,825 (15,157) 34,668 (29,390) 12,941 (1,602) 11,339 (4,240) 440 (1,276) 6,263 - (985) 5,278 11 (98) (434) 4,757 (2,258) 2,499 (126) 2,373 Acquisitions in-year £000 412 (267) 145 (267) 37 (1) 36 (29) 7 - - - (129) (122) - - - (122) (21) (143) - (143) Total £000 50,237 (15,424) 34,813 (29,657) 12,978 (1,603) 11,375 (4,269) 440 (1,276) 6,270 - (1,114) 5,156 11 (98) (434) 4,635 (2,279) 2,356 (126) 2,230 8.06p 7.82p Total £000 47,998 (16,796) 31,202 (26,779) 10,463 (1,882) 8,581 (3,599) 376 (1,050) 4,308 (1,155) 1,270 4,423 76 (79) (309) 4,111 (1,234) 2,877 21 2,898 9.95p 9.67p Notes 6 6, 31 14 31 15 9.4 8 9.3 9.3 9 10 11 16 12 13 13 * 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 54 Tracsis plc Annual Report & Accounts 2021 Consolidated Balance Sheet as at 31 July 2021 Company number: 05019106 Non-current assets Property, plant and equipment Intangible assets Investments – equity Investments in equity accounted investees Deferred tax assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Non-current liabilities Lease Liabilities Contingent consideration payable Deferred consideration payable Deferred tax liabilities Current liabilities Lease liabilities Trade and other payables Contingent consideration payable 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 Translation reserve Total equity Note 14 15 16 16 22 17 19 18 21 21 22 18 20 21 21 23 24 24 24 24 S t r a t e g i c R e p o r t i F n a n c i a l S t a t e m e n t s 2021 £000 3,540 51,745 50 605 551 2020 £000 3,581 54,376 50 1,039 877 56,491 59,923 381 11,263 25,387 37,031 93,522 1,131 3,220 584 8,517 13,452 928 17,007 4,689 308 473 23,405 36,857 56,665 117 6,401 5,525 44,710 (88) 430 6,382 17,920 24,732 84,655 986 5,587 - 8,234 14,807 1,128 13,509 1,747 - 439 16,823 31,630 53,025 116 6,373 5,420 41,078 38 56,665 53,025 The financial statements on pages 54 to 97 were approved and authorised for issue by the Board of Directors on 9 November 2021 and were signed on its behalf by: Chris Barnes Chief Executive Officer Andrew Kelly Chief Financial Officer The accompanying notes form an integral part of these financial statements Tracsis plc Annual Report & Accounts 2021 55 Strategic ReportGovernanceFinancial Statements Consolidated Statement of Changes in Equity At 1 August 2019 Adjustment on initial application of IFRS 16 (net of tax) Profit for the year Other comprehensive income Total comprehensive income Transactions with owners: Dividends Share based payment charges Exercise of share options Shares issued as consideration for business combinations At 31 July 2020 Share Capital £’000 115 Share Premium £’000 6,343 Merger Reserve £’000 3,921 Retained Earnings Translation Reserve £’000 37,545 (106) 2,877 - 2,877 (288) 1,050 - - £’000 17 - - 21 21 - - - - Total £’000 47,941 (106) 2,877 21 2,898 (288) 1,050 30 1,500 - - - - - - 30 - - - - - - - - 1,499 6,373 5,420 41,078 38 53,025 - - - - - - - 1 116 At 1 August 2020 116 6,373 5,420 41,078 38 53,025 Profit for the year Other comprehensive income Total comprehensive income Transactions with owners: Share based payment charges Exercise of share options (note 23) Shares issued as consideration for business combinations - - - - - 1 - - - - 28 - - - - - - 105 2,356 - 2,356 1,276 - - - (126) (126) - - - 2,356 (126) 2,230 1,276 29 105 At 31 July 2021 117 6,401 5,525 44,710 (88) 56,665 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 56 Tracsis plc Annual Report & Accounts 2021 Consolidated Cash Flow Statement for the year ended 31 July 2021 Notes 2021 £000 2020 £000 Operating activities Profit for the year Finance income Finance expense Depreciation Profit on disposal of plant and equipment Non cash 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 Interest received Interest paid 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 (net of cash acquired) Payment of contingent consideration Net cash flow used in investing activities Financing activities Dividends paid Proceeds from exercise of share options Lease liability payments Lease receivable receipts Net cash flow used in financing activities Net increase/(decrease) in cash and cash equivalents Exchange adjustments Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The accompanying notes form an integral part of these financial statements 10 11 14 9.1 9.3 9.4 15 16 12 8 10 11 14 5 21 30 18 2,356 (11) 98 1,603 (46) 985 (440) 4,269 434 2,279 1,276 12,803 49 (4,796) 2,784 10,840 7 (74) (1,417) 9,356 (400) 88 127 (410) (595) - 27 (1,260) 32 (1,201) 7,560 (93) 17,920 25,387 2,877 (76) 79 1,882 (12) (320) (376) 3,599 309 1,234 1,050 10,246 (49) 5,121 (3,875) 11,443 76 (79) (908) 10,532 (387) 66 (13,852) (1,228) (15,401) (288) 30 (1,089) 11 (1,336) (6,205) 21 24,104 17,920 Tracsis plc Annual Report & Accounts 2021 57 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements 1 Reporting entity Tracsis plc (the ‘Company’) is a public company incorporated, domiciled and registered in England in the United Kingdom. The registered number is 05019106 and the registered address is Nexus, Discovery Way, Leeds, LS2 3AA. The consolidated financial statements of the Company for the year ended 31 July 2021 comprise the Company and its subsidiaries (together referred to as the ‘Group’) and equity account the Group’s interest in associates. The parent company financial statements present information about the Company as a separate entity and not about its Group. 2 Basis of preparation (a) Statement of compliance The Group consolidated financial statements have been prepared in accordance with International Accounting Standards in conformity with the Companies Act 2006 (“IFRSs”). 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. (b) Basis of measurement The Accounts have been prepared under the historical cost convention, with the exception of the valuation of investments, contingent consideration, financial liabilities and initial valuation of assets and liabilities acquired in business combinations which are included on a fair value basis. (c) Presentation currency These consolidated financial statements are presented in sterling. All financial information presented in sterling has been rounded to the nearest thousand. (d) 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 58 Tracsis plc Annual Report & Accounts 2021 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 Accounting Standards in conformity with the Companies Act 2006 (“IFRSs”). The accounting policies have been applied consistently to all periods presented in the consolidated financial statements, unless otherwise stated. There are no new standards, amendments to existing standards or interpretations that are not yet effective that are expected to have a material impact on the Group. (f) Going concern The Group is debt free and has substantial cash resources. At 31 July 2021 the Group had net cash and cash equivalents totalling £25.4m. The Board has prepared cash flow forecasts for the forthcoming year based upon assumptions for trading and the requirements for cash resources, these forecasts take into account reasonably possible changes in trading financial performance and include an expectation of the Group’s continued recovery from the impact of Covid-19 predominantly on entities within the Data, Analytics, Consultancy and Events segment. The Group’s policies for financial risk management are detailed in note 26 to these financial statements. Further to this, management prepared a severe but plausible scenario, reducing revenues from budget and including a more pessimistic view of working capital. There was still ample headroom under this scenario. A reverse stress test was also considered. The revenue and cashflow assumptions required to eliminate any headroom under the reverse stress test are considered by the Board to be highly unlikely and particularly given trading performance to date. 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. Notes to the Consolidated Financial Statements (continued) 3 Significant accounting policies (b) Revenue recognition 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. The Group applies IFRS 15 “Revenue from Contracts with Customers”. IFRS 15 established a comprehensive framework for determining whether, how much and when revenue is recognised. The Group derives revenue from software licencing and bespoke development work, post contract customer support, sale of hardware & condition monitoring technology, consultancy and professional services, traffic data collection & capture, passenger counting, plus event planning, parking and traffic management services. The following tables provide information about the nature and timing of the satisfaction of performance obligations in contracts with customers, and the related revenue recognition policies. Revenue is recognised when the performance obligation in the contract has been performed (either at a “point in time” or “over time” as control is transferred to the customer). Consideration received in advance of the performance obligation being satisfied by the Group is included as a contract liability on the balance sheet. An asset is recognised in accordance with IFRS 15:95 in relation to costs associated with incomplete performance obligations where the costs relate directly to the contract and can be specifically identified, the costs generate or enhance resources of the Group and the costs are expected to be recovered. Adjustments are made to allocate discounts relative to the stand-alone selling price of each performance obligation. The Group does not adjust the transaction price for the time value of money as it does not expect to have any contracts where the period between the transfer of the promised service to the client, and the payment by the client exceeds one year. (a) Basis of consolidation Subsidiaries are entities controlled by the Company. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights. 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 balances and transactions, including unrealised profits arising from intra-group transactions, are eliminated fully on consolidation. Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist either when the Group holds between 20 and 50 percent of the voting power of another entity or when the Group is deemed to have a significant influence by virtue of a Board position. Associates are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee. Tracsis plc Annual Report & Accounts 2021 59 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 3 Significant accounting policies (continued) (b) Revenue recognition (continued) The details of the significant accounting policies under IFRS 15 are set out below for each of the two operating segments within the Group. Rail Technology & Services Revenue Stream Recognition Policy Software – perpetual and non-cancellable annual software licenses, and support and maintenance services associated with these licenses Software as a service, and support services associated with these licenses Bespoke software development work The criteria under IFRS 15 have been considered to assess whether the software licenses and support and maintenance are distinct performance obligations. As the support and updates do not makes changes to the software that are so fundamental that the software would not be able to operate without them they are considered distinct. The Group recognises the revenue from the sale of perpetual and non-cancellable annual software licenses at the time that the license is made available to the customer as it is considered that control passes at that point in time. Additionally the Group does not undertake activities that significantly affect the license after the point at which it was provided to the customer. The allocation of the transaction price between the two performance obligations included in the contract is based on an expected cost plus margin approach as the stand- alone selling price is not observable. Revenue related to ongoing support and periodic updates is recognised over the license period as the Group is unable to predict at inception of the license when the support and updates will be required to be provided to the customer. As such, control is considered to pass over time. Under IFRS 15 two distinct performance obligations have been identified for these contracts. • Hosted software licenses • Maintenance and support Revenue from the provision of the hosted software license is recognised evenly over the period in which the license is hosted by the Group. This policy reflects the continuous transfer of the service to the customer throughout the contracted license period. For renewals of hosted licenses, the revenue is recognised over the period of the contract Revenue related to ongoing support and periodic updates is recognised over the license period as the Group is unable to predict at inception of the license when the support and updates will be required to be provided to the customer. Revenue in relation to bespoke development work is recognised on completion of the work in most contracts as it is considered that control of the work does not pass until all development work has been completed. The development work does not create an asset with an alternative use to the Group. In some contracts the Group does have an enforceable contractual right to payment for performance completed to date and revenue is recognised over time. 60 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 3 Significant accounting policies (continued) (b) Revenue recognition (continued) Revenue Stream Recognition Policy Hardware Under IFRS 15, the Group has identified one performance obligation in relation to the sale of hardware items, being delivery to the customer, which is considered the point in time that control passes and revenue is recognised. Hardware items are also sold to the customer alongside a license for condition monitoring software however the license is considered to be distinct from the hardware under IFRS 15 criteria as the two can be sold and used separately from each other. The transaction price is allocated to the components of the contract based on an adjusted market assessment approach. Revenue recognition for the condition monitoring software license is recognised in line with the nature of the software (hosted Software as a Service) which is detailed further above. Provision is made for any returns by customers. Data, Analytics, Consultancy & Events Revenue Stream Recognition Policy Traffic data collection & capture and passenger counting Revenue from traffic data collection & capture and passenger counting services deliverables is recognised on the provision of the contract deliverables as agreed with the customer, unless there is an enforceable right to payment under the contract, in which instance revenue would be recognised over the completion of the project based on actual costs compared to expected total project costs, the input method under IFRS 15. Event planning, parking and traffic management services There is considered to be one performance obligation in the completion of event planning, parking and traffic management, which is the completion of the service, and this is satisfied upon its completion of the service, being at a point in time. Consultancy services Consultancy service contracts are either contracted on a time and materials basis, or as fixed fee contracts. Time and materials contracts are recognised over time as services are provided at the fee rate agreed with the client where there is an enforceable right to payment for performance completed to date. Fixed fee contracts are recognised over time based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided where there is an enforceable right to payment, the output method under IFRS 15. In contracts where there is no enforceable right to payment for performance completed to date, revenue is recognised on completion of the contracted deliverables. Tracsis plc Annual Report & Accounts 2021 61 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 3 Significant accounting policies (continued) (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. 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) 4% on cost Computer equipment 33 1/3% on cost Office fixtures and fittings 0% – 20% on cost Motor vehicles 20 – 25% per annum reducing balance basis (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 assess the fair value of net identifiable assets and liabilities in accordance with International Financial Reporting Standards. 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 (“CGUs”) 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”. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. When the recoverable amount of the CGU 62 Tracsis plc Annual Report & Accounts 2021 is less than the carrying amount including goodwill, an impairment loss is recognised. Any impairment is recognised immediately as an expense and is not subsequently reversed. Business Combinations From 1 August 2009 the Group has applied IFRS 3 Business Combinations (2008) in accounting for business combinations. 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. Subsequent changes to the fair value of the contingent consideration are recognised in operating profit or loss as such changes are primarily as a result of operating performance. Settlement of contingent consideration is included within investing activities in the Statement of Cash flows. 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. Notes to the Consolidated Financial Statements (continued) 3 Significant accounting policies (continued) (d) Intangible assets (continued) 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. 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 and amortisation charges are included within operating expenditure in the income statement. (e) Impairment of property, plant and equipment 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. (f) 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. 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. Capitalised development costs would be amortised over the periods the Group expected to benefit from selling the products developed. (g) Financial instruments i) Recognition and initial measurement Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the company becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at Fair Value Through Profit and Loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. ii) Classification and subsequent measurement Financial assets Classification On initial recognition, a financial asset is classified as measured at: amortised cost; Fair Value through Other Comprehensive Income (FVOCI) – debt investment; FVOCI – equity investment; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. A financial asset is measured at amortised cost if it meets both of the following conditions: • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All financial assets not classified as measured at amortised cost or FVOCI are measured at FVTPL. This includes all derivative financial assets. Tracsis plc Annual Report & Accounts 2021 63 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 3 Significant accounting policies (continued) (g) Financial instruments (continued) Subsequent measurement and gains and losses Financial assets at FVTPL - these assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. Financial assets at amortised cost - These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Financial liabilities and equity Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: (a) they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the company; and (b) where the instrument will or may be settled in the Group own equity instruments, it is either a non- derivative that includes no obligation to deliver a variable number of the company’s own equity instruments or is a derivative that will be settled by the company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares. Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held- for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. 64 Tracsis plc Annual Report & Accounts 2021 iii) Impairment The Group recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost and debt investments measured at FVOCI. The Group measures loss allowances at an amount equal to lifetime ECL, except for other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition, which are measured as 12-month ECL. The Group applies the IFRS 9 simplified model of recognising lifetime expected credit losses for all trade receivables as these items do not have a significant financing component. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the company expects to receive). ECLs are discounted at the effective interest rate of the financial asset. Write-offs The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. (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 Notes to the Consolidated Financial Statements (continued) 3 Significant accounting policies (continued) (h) Taxation (continued) 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. (i) 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. (j) Leases The Group has applied IFRS 16 Leases throughout the financial year. For any new contracts entered into the Group considers whether a contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether: • the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group • the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract • the Group has the right to direct the use of the identified asset throughout the period of use. The Group assesses whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. Measurement and recognition of leases as a lessee At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received). The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right- of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist. At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of- use asset, or profit and loss if the right-of-use asset is already reduced to zero. The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of- use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. (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. (l) 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. Tracsis plc Annual Report & Accounts 2021 65 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 3 Significant accounting policies (continued) (l) Share based payments (continued) Directors LTIPs have two conditions attached – Earnings per Share (non-market condition) and Total Shareholder Return (TSR – market condition). An assessment of the fair value is made when the options are granted and in respect of TSR/market conditions, no further adjustment is made regardless of whether the conditions are met or not. In respect of share options which are not linked to TSR, which is the vast majority of share options for staff including EMI options and discounted LTIP, the fair value of the option 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 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. (m) Retirement benefits Contributions to defined contribution pension schemes are charged to the income statement in the year to which they relate. (n) 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, contingent consideration credits, any goodwill impairments and profit/loss on disposal, 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. (o) 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. (p) Cash and cash equivalents Cash and cash equivalents comprise cash balances 66 Tracsis plc Annual Report & Accounts 2021 and call deposits. The Group considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. (q) Operating segments The Group has divided its results into two segments being ‘Rail Technology and Services’ and ‘Data, Analytics, Consultancy & Events’. 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. (s) 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. Notes to the Consolidated Financial Statements (continued) 3 Significant accounting policies (continued) 4 Critical Accounting Estimates and Judgements (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. (u) Investments Investments are carried at fair value. A review takes place each year to check for indicators of impairment and where a subsequent remeasurement is required, this is recognised in the Statement of Comprehensive Income 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. (v) Equity accounted investees Associates are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee. (w) Government grants Grant income is recognised when work has been performed to be able to support making a claim under the terms of the grant, which could be linked to performance obligations or other milestones. In relation to the Coronavirus Job Retention Scheme grant from the UK Government, this is recognised in the period to which the employee cost relates. 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: Estimates 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. Total intangible assets of £1.6m were recognised in respect of the acquisition of Flash Forward Consulting Limited completed in the year, and the net book value of all intangible assets is £51.7m at the end of the financial year. Estimation uncertainty exists due to the possibility that 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. Contingent consideration Within the share purchase agreements for the acquisitions of Compass Informatics Limited, Cash & Traffic Management Limited, Bellvedi Limited, iBlocks Limited and Tracsis Travel Compensation Services Limited and Delay Repay Sniper Limited, are various provisions relating to the payment of contingent consideration which are linked to financial performance post acquisition. There is a degree of estimation uncertainty in calculating the fair value of the contingent consideration as it is dependent on the future profit performance which results from assumptions about revenues and costs of the acquired businesses, and each of which is subject to a separate share purchase agreement and basis Tracsis plc Annual Report & Accounts 2021 67 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 4 Critical Accounting Estimates and Judgements (continued) for calculating contingent consideration. Each Share Purchase Agreement contains different provisions for calculating contingent consideration, timeframes over which it is calculated and payable, and therefore sensitivities regarding the total amount to be paid. Included within the balance sheet is a total amount of £7.9m, which is management’s best estimates of the fair value of the amount payable in respect of all of the acquisitions which have a remaining contingent consideration liability. Further details on management’s assessment of this, including sensitivities, is provided in note 21 to these financial statements. Judgements Revenue Recognition Judgements have been taken in the application of IFRS 15 “Revenue from Contracts with Customer”. Performance obligations have been identified based on the contracts in place with customers in the accounting period, and because certain contracts include multiple performance obligations. Consideration has subsequently been allocated to these performance obligations. A judgement has been taken by the Group as to whether the performance obligations and subsequent revenue recognition is at a point in time or over a period of time. The criteria under IFRS 15 to recognise revenue over time are judgemental and the Group assesses on a contract by contract basis whether these are met. This includes considering for individual contracts whether there is an enforceable right to payment for work completed to date. There are judgements taken in allocating revenue recognised over time utilising the input and output methods under IFRS 15. Additionally judgements are made as to whether the performance obligation has been met prior to revenue being recognised. Investments in Associates Judgements have been taken in assessing the accounting for the investment in Vivacity Labs Limited applying IAS 28 Investment in Associates and Joint Ventures (2011). In the financial year the Group holding in Vivacity Labs Limited fell below 20% to 17.6%, however the Group continued to maintain a Board seat and take an active role in the future development of Vivacity Labs Limited. Considering the criteria set out in IAS 28 it was determined that the Group continues to exert significant influence over Vivacity Labs Limited and the investment continues to be accounted for using the equity method. 68 Tracsis plc Annual Report & Accounts 2021 5 IFRS 16 Leases Judgements have been taken in the application of IFRS 16 in assessing the existence of significant events (including the likelihood of break clauses being exercised by the Group) at the reporting date. Uncertainty existed at the end of the previous financial year due to the Covid-19 pandemic and a judgement was made by management that break clauses on certain properties would be utilised when calculating the IFRS 16 right of use asset and lease liabilities. These judgements have been re-assessed at 31 July 2021 with the increased certainty and lease modifications recognised where appropriate. Right of Use Assets of £2.2m and Lease Liabilities of £2.1m have been included in the Balance Sheet at 31 July 2021. Acquisitions and investments in the current year On 26 February 2021 the Group acquired Flash Forward Consulting Limited (“FFC”), a UK based transport consultancy business that operates predominantly across the rail and bus sectors. It has a well established senior level network across the transport owning groups, local and central transport governing authorities and Network Rail and offers a range of strategic and practical technical consultancy services. The acquisition aligns with the strategic objective of the Group to expand the existing consultancy offering to customers across the transport industries. On completion of the acquisition FFC has been consolidated with the Group’s existing Rail Consulting and Passenger Analytics businesses to form a new business unit “Tracsis Transport Consultancy” under the existing Tracsis Rail Consultancy Limited statutory entity. The acquisition consideration comprised an initial cash payment of £1.1m to reflect the net current asset position of the business which was funded out of Tracsis cash reserves and the issue of shares in Tracsis to a value of £0.1m. Deferred consideration totalling £0.9m is payable in three equal instalments on the first, second and third anniversary of the acquisition. Additionally the sellers were allotted 10,225 “A” shares in Tracsis Rail Consultancy Limited which have an assessed fair value of £0.6m at the acquisition date. The “A” shares have full dividend and capital distribution rights attached but do not have any voting rights attached to them. “A” shares guarantee the holder a dividend each financial year. Notes to the Consolidated Financial Statements (continued) 5 Acquisitions and investments in the current year (continued) The A ordinary shares are classified as financial liabilities due to the shares having no voting rights and the dividend rights attached to them. The financial liability is held at fair value with changes recognised in the profit and loss. The fair value of the A shares has been calculated with reference to discounted future cashflows from the Tracsis Transport Consultancy business unit which has been assessed as £590,000 at the acquisition date, which will be included at amortised cost going forward. The Group holds a call option to re-purchase the full amount of “A” shares for a pre-determined multiple of Profit before Tax from two years after the acquisition date, and which is accounted for at Fair Value through Profit and Loss (FVTPL). The business is cash generative and debt free. In the period from acquisition to 31 July 2021 Flash Forward Consulting contributed revenue to the Group of £0.4m and pre tax profit of £36,000, before amortisation of associated intangible assets and exceptional deal costs. If the acquisition had occurred on 1 August 2020 management estimates that the contribution to Group revenue would have been £1.1m and Group pre tax profit for the period of £0.2m. The fair value of intangible assets will be assessed throughout the measurement period up to 12 months from the date of acquisition. 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 gross contractual amounts receivable for acquired receivables is consistent with fair value. Acquired receivables are expected to be collected in full following acquisition. 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 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 £0.1m which are included within administrative expenses. The acquisition had the following effect on the Group’s assets and liabilities on the acquisition date: Intangible assets: Customer related intangibles Tangible fixed assets Cash and cash equivalents Trade and other receivables Trade and other payables Income tax payable Deferred tax liability Net identified assets and liabilities Goodwill on acquisition Consideration paid in cash Consideration paid: fair value of shares issued Present value of deferred consideration payable Interest in Tracsis Rail Consultancy Limited Total consideration Pre-acquisition carrying amount £000 - 1 1,269 143 (157) (49) - 1,207 Fair value adjustments £000 684 - - - - - (130) 554 Recognised value on acquisition £000 684 1 1,269 143 (157) (49) (130) 1,761 954 2,715 1,142 105 878 590 2,715 Tracsis plc Annual Report & Accounts 2021 69 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 6 Revenue and Segmental analysis a) Revenue Rail Technology & Services Data, Analytics, Consultancy & Events Total revenue 2021 £000 26,424 23,813 50,237 2020 £000 23,441 24,557 47,998 As reported in the Group’s final results for the year ended 31 July 2020, the Group has been reorganised into a new segmental structure to better align with key areas of future growth. See note 6b for further details of this change. Comparative periods have been re-stated to reflect these segments. Revenue can also be analysed as follows: Software and related services Other Total 2021 £000 20,980 29,257 50,237 2020 £000 18,840 29,158 47,998 Revenue to come from contracts entered into with performance obligations not fulfilled or only partially fulfilled amounted to £15.1m as at 31 July 2021, of which £8.9m is expected to be recognised within one year, and £6.2m after one year (£12.5m as at 31 July 2020, with £9.9m to be recognised within one year and £2.6m after one year). Further information on revenue is provided below: Recognised over time At a point in time Rail Technology & Services Recognised over time At a point in time Data, Analytics, Consultancy & Events / Traffic & Data Services Recognised over time At a point in time Total revenue 2021 £000 12,180 14,244 26,424 - 23,813 23,813 12,180 38,057 50,237 Major customers Transactions with the Group’s largest customer represent 17% of the Group’s total revenues (2020: 21%). Geographic split of revenue A geographical analysis of revenue is provided below: 2020 £000 10,544 15,051 25,595 - 22,403 22,403 10,544 37,454 47,998 2020 £000 41,529 5,885 242 57 285 2021 £000 43,965 5,449 338 189 296 50,237 47,998 United Kingdom Ireland Rest of Europe North America Rest of the World Total 70 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 6 Revenue and Segmental analysis (continued) b) Segmental Analysis As reported in the Group’s final results for the year ended 31 July 2020, the Group has been reorganised into a new segmental structure in order to align with key areas of future growth. The Group has divided its results into two segments being ‘Rail Technology & Services’ and ‘Data, Analytics, Consultancy & Events’. As a result of this change the results of one subsidiary entity are now presented within the Data, Analytics, Consultancy & Events segment which were previously presented in the Rail Technology & Services segment. Flash Forward Consulting Limited is included in ‘Data, Analytics, Consultancy & Events’. The comparatives included in these financial statements have been re-stated to reflect the new segmental structure. The Group has a wide range of products and services and products and services for the rail industry, such as software, hosting services, and remote condition monitoring, and these have been included within the Rail Technology & Services segment as they have similar customer bases (such as Train Operating Companies and Infrastructure Providers). Traffic data collection and event planning & traffic management, and data and analytics and consultancy offerings have similar economic characteristics and distribution methods and so have been included within the Data, Analytics, Consultancy & Events segment. 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 Executive Directors, who review internal monthly management reports, budgets and forecast information as part of this. Accordingly, the Executive Directors are deemed to be the CODM. Operating segments have then been identified based on the internal reporting information and management structures within the Group. From such information it has been noted that the CODM reviews the business as two operating segments, receiving internal information on that basis. The management structure and allocation of key resources, such as operational and administrative resources, are arranged on a centralised basis. Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items Information regarding the results of the reportable segments 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. Revenues Total revenue for reportable segments Consolidated revenue Profit or loss EBITDA for reportable segments Amortisation of intangible assets Depreciation Exceptional items (net) Other operating income Share-based payment charges Interest payable (net) Share of result of equity accounted investees Consolidated profit before tax 2021 Rail Technology & Services Data, Analytics, Consultancy & Events Unallocated £000 £000 £000 26,424 26,424 23,813 23,813 9,059 - (699) - - - (36) - 3,919 - (904) - - - (37) - 8,324 2,978 - - - (4,269) - (1,114) 440 (1,276) (14) (434) (6,667) Total £000 50,237 50,237 12,978 (4,269) (1,603) (1,114) 440 (1,276) (87) (434) 4,635 Tracsis plc Annual Report & Accounts 2021 71 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 6 Revenue and Segmental analysis (continued) b) Segmental Analysis (continued) Segmental Analysis prepared to 31 July 2020 As noted previously the segmental structure has changed from the previous financial year end. As a result of this change the results of one subsidiary entity are now presented within the Data, Analytics, Consultancy & Events which were previously presented in the Rail Technology & Services segment. Presented below are the 2020 results split by this new segmental structure. Revenues Total revenue for reportable segments Consolidated revenue Profit or loss EBITDA for reportable segments Amortisation of intangible assets Depreciation Exceptional items (net) Other operating income Share-based payment charges Interest receivable/(payable) net Share of result of equity accounted investees Consolidated profit before tax 2020 Rail Technology & Services Data, Analytics, Consultancy & Events Unallocated £000 £000 £000 23,441 23,441 8,633 - (589) - - - 33 - 8,077 24,557 24,557 1,830 - - - - (3,599) - 115 376 (1,050) - (309) (4,467) (1,293) - - - (36) - 501 2021 Rail Technology & Services Data, Analytics, Consultancy & Events Unallocated £’000 £000 £000 Assets Total assets for reportable segments (exc. cash) 6,515 8,669 - Intangible assets and investments Deferred tax assets Cash and cash equivalents Consolidated total assets Liabilities - - 16,862 23,377 - - 6,483 15,152 Total liabilities for reportable segments (11,913) (7,036) 52,400 551 2,042 54,993 (590) (8,517) (7,909) (892) Total £000 47,998 47,998 10,463 (3,599) (1,882) 115 376 (1,050) (3) (309) 4,111 Total £000 15,184 52,400 551 25,387 93,522 (19,539) (8,517) (7,909) (892) - - - - - - (11,913) (7,036) (17,908) (36,857) Deferred tax liabilities Contingent consideration Deferred Consideration Consolidated total liabilities 72 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 6 Revenue and Segmental analysis (continued) b) Segmental Analysis (continued) 2020 Rail Technology & Services Data, Analytics, Consultancy & Events Unallocated £’000 £000 £000 Assets Total assets for reportable segments (exc. cash) 5,070 5,323 - Intangible assets and investments Deferred tax assets Cash and cash equivalents Consolidated total assets Liabilities Total liabilities for reportable segments Deferred tax Contingent consideration Consolidated total liabilities Non current assets can be split as follows Non-current assets Property, plant and equipment Intangible assets Investments – equity Investments in equity accounted investees Non-current assets Property, plant and equipment Intangible assets Investments – equity Investments in equity accounted investees - - 11,103 16,173 - - 4,827 10,150 (11,562) (4,500) - - - - (11,562) (4,500) UK £000 3,240 48,116 50 605 UK £000 3,482 50,398 50 1,039 55,465 877 1,990 58,332 - (8,234) (7,334) (15,568) 2021 Ireland £000 300 3,629 - - 2020 Ireland £000 99 3,978 - - Total £000 10,393 55,465 877 17,920 84,655 (16,062) (8,234) (7,334) (31,630) Total £000 3,540 51,745 50 605 Total £000 3,581 54,376 50 1,039 Tracsis plc Annual Report & Accounts 2021 73 Strategic ReportGovernanceFinancial Statements 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 Split: Cost of Sales Administrative expenses Total Average number of permanent staff Average number of casual staff (full time equivalents) 2021 £000 21,834 2,419 804 1,276 26,333 7,031 19,302 26,333 434 124 558 2020 £000 21,470 2,223 736 1,050 25,479 9,197 16,282 25,479 449 308 757 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. Included within the staff costs are claims made under the furlough scheme totalling £884,000 (2020: £2,369,000). The directors’ remuneration and share options are detailed within the Directors’ Remuneration Report on pages 38 to 40. Total directors’ remuneration, including bonus and pension contributions was £795,000 (2020: £634,000). The aggregate remuneration of the highest paid director was £392,000 (2020: £300,000). The highest paid director did not exercise any share options during the year. No directors (2020: nil) exercised share options during the year. Two directors (2020: one) currently participate in the long term incentive plan. One director (2020: one) receives employer pension contributions into a personal pension scheme. Directors of the Company control 0.02% of the voting shares of the company (2020: 0.6%). Details of other key management personnel are disclosed in note 27. 8 Share based payments The Group has various share option schemes for its employees. 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 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. This scheme is no longer open to new participants. 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 were also able to exchange an element of annual salary in return for share options. The vesting period is three years. 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. This scheme is no longer open to new participants. 74 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 8 Share based payments (continued) 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 UK- based staff except for Directors. Staff are also able to exchange an element of annual salary in return for share options. The vesting period is three and a half years. 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. Employees are liable for settling income tax and national insurance liabilities arising from the exercise of options. Directors’ scheme Directors were not entitled to take part in the 2015 to 2020 staff schemes and a revised scheme was implemented by the Remuneration Committee. Details of this scheme are provided in the Directors Remuneration Report. Details of the schemes are given below: Grant date Staff schemes Employees entitled Number of options Performance conditions Exercise price (p) Earliest exercise date Expiry date 02/08/2012 02/08/2012 08/01/2013 28/01/2013 01/08/2013 01/08/2013 01/08/2014 01/08/2015 25/09/2015 01/12/2015 01/08/2016 01/08/2017 01/08/2018 16/01/2019 01/05/2019 01/08/2019 01/08/2020 Directors’ schemes (5) 01/05/2019 02/12/2019 29/12/2020 01/02/2021 05/02/2021 Outstanding 3 2 1 1 2 2 11 26 10 5 30 25 63 11 7 66 105 1 1 1 1 1 5,867 Time served 0.40 02/08/2013 (1) 02/08/2022 20,000 Time served 123.0 02/02/2013 (2) 02/08/2022 2,500 Time served 159.0 08/07/2013 (2) 08/01/2023 65,000 Time served 155.5 28/07/2013 (2) 28/01/2023 4,501 Time served 162.5 01/02/2014 (2) 01/08/2023 1,616 Time served 34,796 Time served 46,167 Time served 0.40 0.40 0.40 01/08/2014 (1) 01/08/2023 01/08/2015 (1) 01/08/2024 01/08/2016 (3) 01/08/2025 24,600 Time served 0.40 25/09/2016 (3) 25/09/2025 41,188 Time served 112,641 Time served 54,334 Time served 103,884 Time served 56,743 Time served 0.40 0.40 0.40 0.40 0.40 01/12/2016 (3) 01/12/2025 01/08/2017 (3) 01/08/2026 01/08/2018 (3) 01/08/2027 01/08/2019 (3) 01/08/2028 16/01/2020 (3) 16/01/2029 40,075 Time served 0.40 01/05/2023 (4) 01/05/2029 105,963 Time served 0.40 01/08/2020 (3) 01/08/2029 212,477 Time served 0.40 01/08/2021 (3) 01/02/2030 21,417 Time served 38,961 EPS and TSR 40,891 EPS and TSR 7,692 Time served 13,482 EPS and TSR 1,054,795 0.40 0.40 0.40 0.40 0.40 04/02/2022 04/02/2029 02/12/2022 02/12/2029 29/12/2023 29/12/2030 01/02/2024 01/02/2031 05/02/2024 05/02/2031 (1) 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 (2) 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. (3) 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 (4) Vesting of these options are linked to time served and also the financial performance of Bellvedi Limited which was acquired in 2019 (5) Details of EPS and TSR are disclosed in the Directors remuneration report Tracsis plc Annual Report & Accounts 2021 75 Strategic ReportGovernanceFinancial Statements 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 Lapsed Exercised Outstanding at 31 July Exercisable at 31 July 2021 Weighted Average Exercise Price 17.0p 0.4p 0.4p 14.9p 13.2p 25.5p 2021 Number 978,469 275,668 (5,912) (193,430) 1,054,795 543,821 2020 Weighted Average Exercise Price 18.9p 0.4p 0.4p 16.4p 17.0p 27.4p 2020 Number 1,035,892 155,468 (31,847) (181,044) 978,469 608,938 Share options were exercised at numerous points in the year, and the average share price for the year ended 31 July 2021 was 695p (2020: 634p). The share options outstanding at the end of the year have a weighted average remaining contractual life of 6.5 years (2020: 6.4 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 on options granted in the 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 01/08/2020 29/12/2020 01/02/2021 05/02/2021 575.0p 630.0p 650.0p 640.0p 0.4p 3.5 30% 10 10 3.5% - 0.4p 3.0 30% 10 10 3.5% - 0.4p 3.0 30% 10 10 3.5% - 0.4p 3.0 30% 10 10 3.5% - The expected volatility is based on the historic volatility of the Company’s share price. An assessment of the likelihood of market conditions being achieved is made at the time that the options are granted. The fair value of the options granted in the year was 587p per share. 76 Tracsis plc Annual Report & Accounts 2021 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/(crediting): Depreciation of property, plant and equipment - owned Depreciation of property, plant and equipment – leased (including right of use assets) Total depreciation of property, plant and equipment (note 14) Total amortisation (note 15) Profit on disposal of plant and equipment Operating lease rentals: Land and buildings * Operating lease rentals: Motor Vehicles* Operating lease rentals: Plant & machinery * Total operating lease rentals 2021 £000 1,276 2020 £000 1,050 2021 £000 560 1,043 1,603 4,269 (46) 53 50 1 104 2020 £000 870 1,012 1,882 3,599 (12) 40 - 1 41 Research and development expenditure expensed as incurred 3,383 3,048 Grants received: Government grants Coronavirus Job Retention Scheme ** (625) (884) (322) (2,369) * Operating lease rentals in 2021 and 2020 relate to items for which the recognition and measurement exemptions have been taken available within IFRS 16 ** Of the total amount of £0.9m (2020: £2.4m) received, £nil (2020: £1.7m) was paid directly to casual labour leaving a balance of £0.9m (2020: £0.7m) which is deemed to be true support to the Income Statement regarding permanent employees. 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 2021 £000 72 153 5 2020 £000 65 135 - Tracsis plc Annual Report & Accounts 2021 77 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 9 Operating profit (continued) 9.3 Exceptional items: The Group incurred a number of exceptional items in 2021 and 2020 which are analysed as follows: Impairment losses Non cash: Goodwill and investment impairment Total impairment losses Other Non cash: Contingent consideration fair value adjustment Unwind of discounting of contingent consideration Cash: Legal and professional fees in respect of acquisitions Total other Total exceptional items Split Non cash Cash Total 2021 £000 - - 327 658 129 1,114 1,114 2021 £000 985 129 1,114 2020 £000 1,155 1,155 (1,475) - 205 (1,270) (115) 2020 £000 (320) 205 (115) 2021 During 2021 the Group acquired Flash Forward Consulting Limited and incurred exceptional deal related costs totalling £129,000 in relation to this. A net exceptional charge of £327,000 has also been recognised in the year to increase the assessed fair value of the contingent consideration based on future expectations of performance of the entities. The increase in the fair value of contingent consideration payable principally reflects an increased pipeline of software contract opportunities, partly offset by some extension of procurement cycles from certain customers. Unwind of discounting of contingent consideration totalling £0.7m was completed in the year. Contingent consideration at 31 July 2021 has been discounted at 12% (31 July 2020: 12%). A breakdown of the remaining fair value of contingent consideration by acquisition is included in note 21. These costs are deemed to be exceptional items due to the size and volatility of the items which can vary significantly from year to year. 2020 In the previous financial year the Group incurred £205,000 of costs relating to the acquisition of iBlocks Limited. In addition, the Group reviewed the carrying value of the investment in Citi Logik Limited and concluded it was impaired, and as such a loss of £300,000 was recognised. A further impairment charge of £855,000 was also made against the remaining intangible assets of Tracsis Travel Compensation Services Limited. During the year, an exceptional credit of £1,475,000 was recognised due to a change in accounting estimate arising from the review of the assumptions of the fair value of the contingent consideration relating to recent acquisitions. The overall level of contingent consideration payable was assessed as being lower than in previous years due to reduced profit expectations and also using a higher discount rate, given the impact of Covid-19. 9.4 Other operating income: The Group does not qualify 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 £440,000 in 2021 (2020: £376,000). 78 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 10 Finance income Interest received on bank deposits Interest on Lease receivable 11 Finance expense Interest on Lease liabilities Net foreign exchange loss Unwind of discount of Deferred Consideration Total finance expense 12 Taxation Recognised in the income statement Current tax expense Current year Adjustment in respect of prior periods Total current tax Deferred tax Current year Origination and reversal of temporary differences Rate changes Adjustment in respect of prior periods 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 19.0% (2020: 19.0%) Expenses not deductible for tax purposes Rate changes Adjustments in respect of previous years Overseas tax not at 19% Trading losses carried forward Other movements Total tax expense 2021 £000 4,635 881 (251) 1,673 (100) (79) 77 78 2,279 2021 % 100.0 19.0 (5.4) 36.1 (2.2) (1.7) 1.7 1.7 49.2 2021 £000 7 4 11 2021 £000 74 10 14 98 2021 £000 1,850 (48) 1,802 (1,144) 1,673 (52) 477 2,279 2020 £000 4,111 781 17 557 20 (82) - (59) 1,234 2020 £000 73 3 76 2020 £000 73 6 - 79 2020 £000 1,484 (81) 1,403 (827) 557 101 (169) 1,234 2020 % 100.0 19.0 0.4 13.5 0.5 (2.0) - (1.4) 30.0 A UK corporation rate of 19% (effective 1 April 2020) was substantively enacted on 17 March 2020, reversing the previously enacted reduction in the rate from 19% to 17%. An increase in the UK corporation rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. This will increase the Group’s future current tax charge accordingly. The net deferred tax liability has been calculated at the rate that it is anticipated to unwind either 19% or 25% (2020: 19%). The group has carried forward tax losses at the year end totalling £0.9m (2020: £1.2m) which are anticipated to be offset against future taxable profits. There are no unrecognised tax losses carried forward. Tracsis plc Annual Report & Accounts 2021 79 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 13 Earnings per share Basic earnings per share The calculation of basic earnings per share at 31 July 2021 was based on the profit attributable to ordinary shareholders of £2,356,000 (2020: £2,877,000) and a weighted average number of ordinary shares in issue of 29,229,000 (2020: 28,919,000), 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 2021 29,122 7 100 2020 28,749 76 94 29,229 28,919 Diluted earnings per share The calculation of diluted earnings per share at 31 July 2021 was based on profit attributable to ordinary shareholders of £2,356,000 (2020: £2,877,000) and a weighted average number of ordinary shares in issue after adjustment for the effects of all dilutive potential ordinary shares of 30,131,000 (2020: 29,740,000): 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. These figures are relevant to the Group and are provided to provide a comparison to similar businesses and are metrics used by Equities Analysts who cover the Group. The largest components of the adjusting items, being amortisation, and share based payment charges are deemed to be ‘non cash’ in nature, and therefore excluded in order to assist with the understanding of underlying trading. A reconciliation of this figure is provided below. The Group has also presented an ‘Adjusted Profit’ metric as detailed in note 31, with the key difference between the numbers presented below, and those disclosed in note 31 being the income tax charge. Profit after tax Amortisation of intangible assets Share-based payment charges Exceptional items (net) Other operating income Tax impact of adjusting items 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 For the purposes of calculating Dilutive earnings per share Basic adjusted earnings per share Diluted adjusted earnings per share 80 Tracsis plc Annual Report & Accounts 2021 2021 £’000 2,356 4,269 1,276 1,114 (440) 746 9,321 29,229 902 30,131 31.89p 30.93p 2020 £’000 2,877 3,599 1,050 (115) (376) (55) 6,980 28,919 821 29,740 24.14p 23.47p Notes to the Consolidated Financial Statements (continued) 14 Property, plant and equipment Cost At 1 August 2019 Arising on initial adoption of IFRS 16 Additions Arising on acquisition Disposals At 31 July 2020 Lease Modifications Additions Arising on acquisition Disposals Exchange adjustment At 31 July 2021 Depreciation At 1 August 2019 Charge for the year Disposals At 31 July 2020 Charge for the year Disposals Exchange adjustment At 31 July 2021 Net book value At 1 August 2019 At 31 July 2020 At 31 July 2021 Land & Buildings £000 Motor Vehicles £000 Plant, machinery, fixtures & fittings Computer equipment £000 £000 400 1,206 443 459 - 2,508 644 356 - - - 3,508 105 736 - 841 814 - - 1,655 295 1,667 1,853 1,458 1,953 2,306 - 196 - (195) 1,459 - 233 - (426) - 1,266 485 420 (143) 762 251 (400) - 613 973 697 653 - 155 2 (201) 1,909 - 194 1 (1) (6) 96 251 31 (280) 2,404 - 176 - (39) - 2,097 2,541 1,517 241 (200) 1,558 223 - (6) 1,332 485 (279) 1,538 315 (24) - 1,775 1,829 436 351 322 974 866 712 Total £000 6,117 1,302 1,045 492 (676) 8,280 644 959 1 (466) (6) 9,412 3,439 1,882 (622) 4,699 1,603 (424) (6) 5,872 2,678 3,581 3,540 Additional information on Right of Use Assets included in the total property, plant and equipment balance is provided below. Tracsis plc Annual Report & Accounts 2021 81 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 14 Property, plant and equipment (continued) Cost At 1 August 2020 Lease Modifications Additions Disposals Transfer to ownership At 31 July 2021 Depreciation At 1 August 2020 Charge for the year Disposals Transfer to ownership At 31 July 2021 Net book value At 31 July 2020 At 31 July 2021 Land & Buildings £000 Plant & Machinery Total Right of Use asset £000 £000 2,109 644 356 - - 3,109 714 798 - - 1,512 1,395 1,597 1,054 - 203 (114) (32) 1,111 428 245 (104) (20) 549 626 562 3,163 644 559 (114) (32) 4,220 1,142 1,043 (104) (20) 2,061 2,021 2,159 Lease modifications have arisen due to the re-assessment of the lease term in the financial year following decisions in the year to renew five leases at the break clause date. 15 Intangible assets Cost At 1 August 2019 Arising on acquisition At 31 July 2020 Arising on acquisition At 31 July 2021 Amortisation and impairment At 1 August 2019 Impairment charge Charge for the year At 31 July 2020 Charge for the year At 31 July 2021 Carrying amounts At 1 August 2019 At 31 July 2020 At 31 July 2021 82 Tracsis plc Annual Report & Accounts 2021 Customer related intangibles Technology related intangibles £000 £000 Goodwill £000 4,741 7,109 11,850 954 12,804 623 - - 623 - 623 4,118 11,227 12,181 32,135 3,990 36,125 684 36,809 6,448 386 2,278 9,112 2,263 11,375 25,687 27,013 25,434 11,498 8,919 20,417 - 20,417 2,491 469 1,321 4,281 2,006 6,287 9,007 16,136 14,130 Total £000 48,374 20,018 68,392 1,638 70,030 9,562 855 3,599 14,016 4,269 18,285 38,812 54,376 51,745 Notes to the Consolidated Financial Statements (continued) 15 Intangible assets (continued) The following carrying values of intangible assets arising from the acquisitions that the Group has completed in the current and previous years are analysed into the following cash generating units: Goodwill Customer related intangibles Technology related intangibles Rail Operations(1) Bellvedi Limited MPEC Technology Limited Ontrac Technology Limited iBlocks Limited 2021 £000 495 40 269 602 7,109 2020 £000 495 40 269 602 7,109 Tracsis Travel Compensation Services Limited & Delay Repay Sniper Limited - - Tracsis Traffic Data Limited Event Traffic Management(2) Compass Informatics Limited Transport Consultancy(3) 390 587 1,021 1,668 12,181 390 587 1,021 714 11,227 2021 £000 2,094 3,912 628 9,671 3,487 616 291 1,923 1,725 1,087 25,434 2020 £000 2,263 4,135 691 10,346 3,753 678 462 2,244 1,956 485 27,013 2021 £000 463 3,682 - 606 7,841 656 - - 882 - 14,130 2020 £000 629 4,148 56 746 8,733 823 - - 1,001 - 16,136 (1) Comprises Safety Information Systems Limited and Datasys Integration Limited (2) Comprises SEP Limited and Cash & Traffic Management Limited (3) Comprises Tracsis Rail Consultancy Limited, Tracsis Passenger Analytics Limited and Flash Forward Consulting Limited The amortisation charge is recognised in the following line items in the income statement: Administrative expenses 2021 £000 4,269 2020 £000 3,599 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. Customer related intangibles have between 2 and 17 years left to amortise. Technology related intangibles have between 3 and 9 years remaining to amortise. The majority of technology related intangibles relates to six brands of software that have been acquired in past acquisitions. These are named in the annual report and accounts. In accordance with the requirements of IAS36 “Impairment of Assets”, goodwill is allocated to the Group’s cash generating units (CGUs) which are expected to benefit from the combination. CGUs are not larger than the operating segments of the Group. Each CGU is assessed for impairment annually or whenever there is a specific indicator of impairment. As part of the annual impairment test review, the carrying value of goodwill has been assessed with reference to value in use over a projected period of three years together with a terminal value. This reflects the projected cash flows of the CGU based on the actual operating results, the most recent Board approved Budget and management projections. Tracsis plc Annual Report & Accounts 2021 83 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 15 Intangible assets (continued) Long term growth rate Discount rate 2021 2.0% 12% 2020 1.0% 12% The key assumptions on which the value in use calculations are based relate to business performance over the next three years, long-term growth rates beyond 2024 and the discount rates applied. The key judgements are the level of revenue and margins anticipated and the proportion of operating profit converted into cash flow in each year. Forecasts are based on past experience and take into account current and future market conditions and opportunities. Sensitivities of reasonably possible changes have been considered for each CGU as below, resulting in the carrying amount not exceeding the recoverable amount for each CGU: • a 1% point increase in the discount rate • a 1% point reduction in the long term growth rate The discount rate applied would need to increase by more than 2% points before the carrying amount would not exceed the recoverable amount in any CGU. The CGU that is most sensitive to changes in key assumption is iBlocks. Were the discount rate to increase by 2.5% points, this would lead to an impairment of £0.7m. For this same CGU cash flows would need to reduce by more than 18% from those forecast before its carrying amount would exceed the recoverable amount Management do not consider either scenario to be reasonably possible. 16 Investments The Group has made investments in Vivacity Labs Limited, Citi Logik Limited and Nutshell Software Limited. The carrying value of the investments is detailed below: Investments- Equity Citi Logik Limited Investments in equity accounted investees Nutshell Software Limited Vivacity Labs Limited % held At 31 July 2021 14.9% 23.4% 17.6% 2021 £000 50 57 548 655 2020 £000 50 217 822 1,089 In assessing the fair value of the investment in Citi Logik in the previous financial year, the Directors reduced the balance by £300,000. During the financial year, Vivacity Labs Limited secured additional funding through the issue of A preferred shares. The Group did not subscribe for any of these newly issued preferred shares. This reduced the overall holding of the Group in Vivacity Labs Limited to 17.6% at the year end date. The Group continues to account for the investment as an associate despite the holding falling below 20% of the overall issued share capital as the Group has demonstrated that it continues to exert significant influence over Vivacity Labs Limited using the criteria set out in IAS 28 including, but not limited, to the maintenance of a Board seat. Nutshell Software Limited continues to be accounted for as an equity accounted investee by virtue of the fact that the Group has a shareholding exceeding 20% of the issued share capital and continues to have significant influence over Nutshell Software Limited. 84 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 16 Investments (continued) The Group’s share of the loss of Nutshell Software Limited and Vivacity Labs Limited can be summarised as follows: Nutshell Software Limited Vivacity Labs Limited Summary financial information in respect of each Company is as follows: 2021 £000 (160) (274) (434) 2020 £000 (144) (165) (309) Prior years £000 (139) (313) (452) Total £000 (443) (752) (1,195) Name Nutshell Software Limited Vivacity Labs Limited 17 Inventories Raw materials & work in progress Finished goods Date of last signed accounts Revenue Loss after tax Net assets/ (liabilities) 30 September 2020 31 December 2020 £000 242 4,634 £000 (684) (1,447) 2021 £000 83 298 381 £000 (1,661) 4,705 2020 £000 96 334 430 The value of inventories expensed in the period in cost of sales was £1,585,000 (2020: £1,352,000). 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 Lease Liabilities Due within one year Due after more than one year: Between one and two years Between two and five years Total due after more than one year Total obligation A reconciliation of the obligation is stated below. At 1 August Arising on adoption of IFRS 16 Lease modifications New contracts Arising on acquisition Total cash outflow Interest At 31 July 2021 £000 928 754 377 1,131 2,059 2021 £000 2,114 - 644 561 - (1,334) 74 2,059 2020 £000 1,128 612 374 986 2,114 2020 £000 562 1,386 - 796 459 (1,089) - 2,114 Tracsis plc Annual Report & Accounts 2021 85 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 18 Lease Liabilities (continued) For new leases entered into in the year, the discount rate has been calculated as the incremental borrowing rate available to the Group at the date of the lease commencement. The range of incremental borrowing rates utilised to value the leases existing at the end of the year is 2.6% to 2.7% (2020: 2.6% to 2.7%) Future minimum lease payments at 31 July 2021 were as follows: 2021 2020 Carrying amount Contractual cash flows Less than one year One to Two years Two to Five years £000 2,059 2,114 £000 2,105 2,190 £000 985 1,172 £000 632 633 £000 488 385 Lease Payments not recognised as a liability The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight line basis. The expense relating to payments not included in the measurement of the lease liability is as follows: Short-term leases Leases of low value assets Total 19 Trade and other receivables Trade receivables Other receivables and prepayments Lease receivable 2021 £000 103 1 104 2021 £000 8,874 2,290 99 11,263 2020 £000 40 1 41 2020 £000 4,387 1,868 127 6,382 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 as detailed in note 6 (2021: 17% of revenue, 2020: 21% of revenue), though there are no concerns over the credit worthiness of the customer. 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 fair values of trade and other receivables are approximately the same as their book values. The expected credit loss for Group trade receivables is immaterial. The other classes within trade and other receivables do not contain impaired assets. 86 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 20 Trade and other payables Trade payables Other tax and social security Contract liabilities Accruals and other payables Financial liability 2021 £000 1,173 2,644 8,085 4,515 590 17,007 2020 £000 883 1,681 7,809 3,136 - 13,509 The Directors consider that the carrying amounts of trade payables approximates to their fair value. Contract liabilities relates to consideration received in advance of the completion of the associated performance obligation. Revenue recognised in the reporting period that was included in the contract liability balance at beginning of the year totalled £6,079,000 (2020: £6,789,000). Financial liabilities are valued at fair value through the profit and loss (FVTPL). The instrument has arisen on the acquisition of Flash Forward Consulting Limited (see note 5 for further detail) and is in relation to A shares issued in Tracsis Rail Consultancy, which have no voting rights attached to them, and guarantee the holder a dividend each financial year. There is a call option held by the Group which allows for the re-purchase of the full amount of A shares at a pre-determined multiple of Profit before Tax from two years after the acquisition date. 21 Contingent and deferred consideration a. Contingent consideration During the previous financial year, the Group acquired iBlocks Limited. Under the share purchase agreement in place for this acquisition, contingent consideration is payable which is linked to the profitability of the acquired business for a three year period post acquisition and the signing of certain contracts currently under negotiation. The maximum amount payable is £8.5m, and the fair value of the amount payable was assessed at £2.8m at the year end date. In 2019, the Group acquired Cash & Traffic Management Limited, Compass Informatics Limited and Bellvedi Limited. Under the share purchase agreements for each of these companies, contingent consideration is payable which is linked to the profitability of the acquired businesses over a two to four year period post acquisition. The maximum amount payable is £750,000 for Cash & Traffic Management Limited, €2,000,000 for Compass Informatics Limited and £7,900,000 for Bellvedi Limited. The fair value of the amount payable was assessed at £253,000 for Cash & Traffic Management Limited, £462,000 for Compass Informatics Limited and £4,357,000 for Bellvedi Limited. During the financial year, contingent consideration of £410,000 was paid in respect of the Compass Informatics Limited acquisition which was made in year ended 31 July 2019 (2020: £332,000), £nil in respect of the Cash & Traffic Management Limited acquisition which was made in year ended 31 July 2019 (2020: £491,000), £nil in respect of the Bellvedi Limited acquisition which was made in the year ended 31 July 2019 (2020: £57,000), and £nil (2020: £348,000) in respect of the acquisition of Tracsis Travel Compensation Services Limited and Delay Repay Sniper Limited which was made in the year ended 31 July 2018. As detailed in note 9.3, a net exceptional charge of £327,000 was recognised, following a review of the assumptions of the fair value of the contingent consideration as at 31 July 2021. At the balance sheet date, the Directors assessed the fair value of the remaining amounts payable which were deemed to be as follows Tracsis Travel Compensation Services Limited & Delay Repay Sniper Limited Cash & Travel Management Limited Compass Informatics Limited Bellvedi Limited iBlocks Limited 2021 £000 - 253 462 4,357 2,837 7,909 2020 £000 88 112 681 3,193 3,260 7,334 Tracsis plc Annual Report & Accounts 2021 87 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 21 Contingent and deferred consideration (continued) The Group has made numerous acquisitions over the past few years and carries contingent consideration payable in respect of them, which is considered to be a ‘Level 3 financial liability’ as defined by IFRS 13. These are carried at fair value, which is based on the estimated amounts payable based on the provisions of the Share Purchase Agreements which specify the specific arrangements and calculations relating to each acquisition. This involves assumptions about future profit forecasts, which results from assumptions about revenues and costs, and is discounted back to the present value using an appropriate discount rate and an estimate of when it is expected to be payable. A range of outcomes is considered, and a probability/likelihood weighting is applied to each of them in order to produce a weighted assessment of the amount payable. The Group has considered multiple profit related scenarios in estimating the fair value of contingent consideration payable in the future. In all cases, contingent consideration payable could range from zero to the maximum amount included in the Share Purchase Agreements as detailed in this note and also note 5. Each Share Purchase Agreement contains different provisions for calculating contingent consideration, timeframes over which it is calculated and payable, and therefore sensitivities regarding the total amount to be paid. Contingent consideration in respect of Cash & Traffic Management Limited was paid in October 2021 totalling £0.3m. In respect of Compass Informatics Limited, Bellvedi Limited and iBlocks Limited a change in the estimated profit of 10% would result in a change in the fair value of contingent consideration of £1.1m. The movement on contingent consideration can be summarised as follows: At the start of the year Arising on acquisition (note 5) Cash payment Fair value adjustment to Statement of Comprehensive Income Unwind of discounting At the end of the year The ageing profile of the remaining liabilities can be summarised as follows: Payable in less than one year Payable in more than one year Total b. Deferred consideration 2021 £000 7,334 - (410) 327 658 7,909 2021 £000 4,689 3,220 7,909 2020 £000 6,183 3,854 (1,228) (1,475) - 7,334 2020 £000 1,747 5,587 7,334 The Group acquired Flash Forward Consulting Limited on 26 February 2021. As part of this acquisition cash consideration totalling £945,000 is payable in three equal instalments on the 1st, 2nd and 3rd anniversary of the acquisition date. At acquisition the present value of this deferred consideration was assessed as £878,000 discounted using a rate of 3.75%. At 31 July 2021 the present value of this deferred consideration is £892,000. The movement on deferred consideration can be summarised as follows: At the start of the year Arising on acquisition (note 5) Unwind of discounting At the end of the year 88 Tracsis plc Annual Report & Accounts 2021 2021 £000 - 878 14 892 2020 £000 - - - - Notes to the Consolidated Financial Statements (continued) 21 Contingent and deferred consideration (continued) The ageing profile of the remaining liabilities can be summarised as follows: Payable in less than one year Payable in more than one year Total 22 Deferred tax Non-current liability/(asset) At 31 July 2019 Arising on acquisition (Credit)/charge to statement of comprehensive income (note 12) At 31 July 2020 Arising on acquisition (note 5) Charge/(credit) to statement of comprehensive income (note 12) At 31 July 2021 Intangible assets £000 5,859 2,453 (112) 8,200 132 1,140 9,472 Accelerated capital allowances £000 83 - (49) 34 - 22 56 2021 £000 308 584 892 Other £’000 (105) (202) 64 (243) - (2) 2020 £000 - - - Total £000 5,275 2,251 (169) 7,357 132 477 Share options £000 (562) - (72) (634) - (683) (1,317) (245) 7,966 The net deferred tax liability has been calculated at the rate that it is anticipated to unwind either 19% or 25% (2020: 19%). 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 2021 £000 (551) 8,517 7,966 2020 £000 (877) 8,234 7,357 2021 Number 2021 £ 2020 Number 2020 £ 29,332,177 117,329 29,122,548 116,490 The following share transactions have taken place during the year ended 31 July 2021: At start of the year Issued as consideration for business combinations Exercise of share options (Note 8) At end of the year 2021 Number 2020 Number 29,122,548 28,748,578 16,199 193,430 192,926 181,044 29,332,177 29,122,548 During the year, a number of options were exercised from the schemes with exercise price varying from 0.4p to 162.5p – all took place at either the nominal value or above the nominal value Tracsis plc Annual Report & Accounts 2021 89 Strategic ReportGovernanceFinancial Statements 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 Translation reserve Description and purpose Amount subscribed for share capital at nominal value Amount subscribed for share capital in excess of nominal value Amounts arising from the premium of the fair value of shares issued over their nominal value, in respect of certain business combinations Cumulative net profits recognised in the income statement. The share based payment reserve which was previously shown separately was incorporated into retained earnings during a previous year. Translation differences on retranslation of Irish subsidiary 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 fair values of the financial assets are approximately equal to their year end carrying values and represent the maximum exposure to credit risk. Financial Assets Cash and short term deposits (1) Trade Receivables (1) Investments in Equity and Debt instruments (3) Lease Receivable (4) 2021 £000 25,387 8,874 50 99 2020 £000 17,920 4,387 50 127 34,410 22,484 Cash and short term deposits at 31 July 2021 are held in bank accounts with a floating rate of interest. This is consistent with cash and short term deposits held at 31 July 2020. Financial Liabilities Trade and Other Payables (1) Contingent Consideration (2) Financial Liabilities (2) Deferred Consideration (4) Lease Liabilities (4) 2021 £000 5,688 7,909 590 892 2,059 17,138 2020 £000 4,019 7,334 - - 2,114 13,467 The Group had no 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. 1. Items are measured at amortised cost. There are no significant financing components and short-term in nature. 2. Measured at fair value with changes through the Income Statement 3. Investments in equity measured at fair value, investments in debt instruments measured at amortised cost 4. Measured at amortised cost The Group considers that the fair value is materially consistent with amortised cost for those assets measured on this basis. 90 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 26 Financial risk management (continued) 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, though the interest rates being offered by the major financial institutions are generally less than 0.5% with many being much less than this. Total finance income in the year amounted to £11,000. The Group has cash balances of £25.4m as at 31 July 2021 which is spread across different banks as detailed below, and each attracts a different interest rate. Any sensitivity to interest rates would depend on the following factors: Tracsis subsidiary entity making the investment, the amount invested, the length of commitment and ability to access to the funds, and the choice of financial institution. In view of current interest rates and the current economic backdrop, the Group does not consider that it has a major exposure to interest rates and should interest rates rise, any additional rates would have a small impact on the amount of finance income receivable. 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 2021, the Group had £nil in a fixed rate 30 day deposit account (2020: £nil). 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. The Group did not incur any material bad debts in the financial year, and has historically not had any either, and so views the overall credit risk to be low. As noted in note 6 and note 19, the Group derives c. 17% of its revenue from a major customer, whose credit worthiness is unquestionably strong. The Group had a trade receivables balance of £8,874,000 at 31 July 2021, and this related to over 100 individual customers. The largest individual receivable was £1,054,000 and related to a major worldwide engineering Group in a very strong financial position. Other receivables over £100,000 were spread across 17 individual clients, and amounted to c. £5.4m. These clients include for example large infrastructure providers, Train Operators and Owning groups, numerous Government departments and other bodies, engineering consultants, plus shopping centre providers; all of whom are deemed to be creditworthy. 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. The Group holds its cash balances with highly rated financial institutions and it is also spread across numerous institutions to avoid any exposure to one individual bank. As at 31 July 2021, of the Group’s total cash balances of £25.4m, £24.4m was spread across six major, highly rated banking institutions with £9.5m held at the lead bank, £8.2m held at another bank, and £6.6m held with others. The remainder of the cash balances of £1.1m was spread across other financial institutions. The maturity of the Group’s financial liabilities has been disclosed below. The tables below include the gross cash outflows associated with the financial liabilities on an undiscounted basis. Maturity analysis of financial liabilities at 31 July 2021: Balance Sheet value at 31 July 2021 Due within one year Due between one and five years Total Maturity analysis of financial liabilities at 31 July 2020: Balance Sheet value at 31 July 2020 Due within one year Due between one and five years Total Trade and Other payables £000 5,688 5,688 - 5,688 Trade and Other payables £000 4,019 4,019 - 4,019 Contingent Consideration Deferred Consideration Lease liabilities Financial liability £000 7,909 5,047 3,914 8,961 £000 892 315 630 945 £000 2,059 985 1,120 2,105 Contingent Consideration Deferred Consideration Lease liabilities £000 7,334 1,783 7,162 8,945 £000 - - - - £000 2,114 1,172 1,018 2,190 £000 590 590 - 590 Financial liability £000 - - - - Tracsis plc Annual Report & Accounts 2021 91 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 26 Financial risk management (continued) 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 and Australian dollar though these are not significant and as detailed in note 6 and total revenue in the year from these countries and others amounted to £485,000. The Group is exposed to the Euro following the acquisition of Compass Informatics Limited in 2019 which raises the vast majority of its sales invoices in Euros. Total sales to/from Ireland amounted to £5,449,000 in the year representing around 11% of total Group sales revenue. The closing exchange rate used was c.1.17 Euros to GBP, with an average throughout the year of c.1.14 GBP to Euros. Any changes to this exchange rate would increase the Group’s foreign currency risk, though as noted above the vast majority of sales continue to be made in Sterling. In addition, as detailed in note 21 the Group has assessed the fair value of the contingent consideration relating to the acquisition of Compass Informatics Limited as £0.5m, which under the terms of the Share Purchase Agreement has to be made in Euros. Any changes to the exchange rate would impact on the foreign currency exposure but as these payments are to be made over a number of years, the impact is not expected to be significant. 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. 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. Changes in liabilities from financing activities Contingent Consideration Deferred Consideration Lease liabilities £000 7,334 - - 327 - (410) - 658 7,909 £000 - - - - - - 878 14 892 £000 2,114 (1,334) (1,334) - - - 1,205 74 2,059 Financial liability £000 - - - - 590 - - - 590 At 1 August 2020 Changes from financing cash flows Payment of lease liabilities Total changes from financing cash flow Changes in fair value Other changes Arising on acquisition Payment of contingent consideration Lease additions and modifications Interest unwind on liabilities At 31 July 2021 92 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 26 Financial risk management (continued) At 1 August 2019 Adoption of IFRS 16 Revised 1 August 2019 Changes from financing cash flows Payment of lease liabilities Total changes from financing cash flow Changes in fair value Other changes Arising on acquisition Payment of contingent consideration Lease additions and modifications At 31 July 2020 Contingent Consideration Deferred Consideration Lease Liabilities £000 6,183 - - - - (1,475) 3,854 (1,228) - 7,334 £000 - - - - - - - - - - £000 562 1,386 1,948 (1,089) (1,089) - 459 - 796 2,114 Financial liability £000 - - - - - - - - - - 27 Related Party Transactions The following transactions took place during the year with other related parties: Nutshell Software Limited (1) Vivacity Labs Limited (1) WSP UK Limited (2) Nutshell Software Limited (1) Vivacity Labs Limited (1) Purchase of goods and services Amounts owed to related parties 2021 £000 97 439 2020 £000 13 404 2021 £000 8 - 2020 £000 - 4 Sale of goods and services Amounts owed by related parties 2021 £000 3,112 93 6 2020 £000 2,706 14 - 2021 £000 1,054 4 2 2020 £000 495 - - (1) Citi Logik Limited, Nutshell Software Limited, and Vivacity Labs Limited, are related parties by virtue of the Group’s shareholding in these entities. (2) 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. In the financial statements for the previous financial year Nexus Leeds Limited was identified as a related party through its connection to the University of Leeds. Having assessed this entity at 31 July 2021 against the criteria set out in IAS 24 Related Party Disclosures the entity no longer meets the definition of being a related party, and consequently disclosure of transactions is no longer required. 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. Tracsis plc Annual Report & Accounts 2021 93 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 27 Related Party Transactions (continued) Compensation of key management personnel of the Group The Group considers the key management personnel to be its directors and the directors of the Group’s subsidiaries. Full details of their compensation are set out below: Total remuneration Share based payment charges 28 Employee benefits 2021 £’000 3,190 610 3,800 2020 £’000 3,280 541 3,821 The Group makes contributions to defined contribution pension schemes for its employees. The assets of the schemes are held separately in independently administered funds. The pension cost charge for the year comprises contributions payable by the Group to the schemes and other personal pension plans and amounted to £804,000 (2020: £736,000). There were outstanding contributions at 31 July 2021 of £113,000 (2020: £99,000). 29 Group entities Below are the subsidiary undertakings which contribute to the Group results: Held by Tracsis plc Tracsis Rail Consultancy Limited (1)* Tracsis Passenger Analytics Limited (1) 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 (2) Ontrac Technology Limited (1) Ontrac Limited (1) Tracsis Travel Compensation Services Limited (1) Delay Repay Sniper Limited (1) Cash & Traffic Management Limited (2) Compass Informatics Limited (6) Bellvedi Limited (1) iBlocks Limited (1) Flash Forward Consulting Limited (1)* Compass Informatics UK Limited (2) S Dalby Consulting Limited (1) 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) Principal activity Rail industry consultancy Rail industry consultancy Software and consultancy Rail industry hardware & Datalogging Transportation data collection Holding Company Rail industry software Event planning & traffic management Dormant Holding company Rail industry software Rail industry software Rail industry software Event planning & traffic management Software development Rail industry software Rail industry software Transport industry consultancy Software development Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Country of incorporation England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales Republic of Ireland England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales % ordinary share capital owned 89.775% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 89.775% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 94 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 29 Group entities (continued) Minority investments: Citi Logik Limited (3) Nutshell Software Limited (4) Vivacity Labs Limited (5) Mobile Network Data Analysis Mobile application development Machine Learning technology England and Wales England and Wales England and Wales 14.9% 23.4% 17.6% * In the year 10,225 A Ordinary shares were issued in Tracsis Rail Consultancy Limited reducing the percentage of ordinary shares held by Tracsis plc. Flash Forward Consulting Limited is indirectly owned by Tracsis plc through Tracsis Rail Consultancy Limited. The registered offices of the subsidiaries are as follows: (1) (2) (3) (4) (5) Nexus, Discovery Way, Leeds, England, LS2 3AA Templar House, 1 Sandbeck Court, Sandbeck Way, Wetherby, England LS22 7BA The Platform, New Station Street, Leeds, England, LS1 4JB 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 (6) Block 8, Blackrock Business Park, Carysfort Avenue, Blackrock, County Dublin, Ireland, A94 W209 30 Dividends The Group introduced a progressive dividend policy during previous years. The Board does not consider it appropriate to pay a final dividend this year. The Board is committed to restoring the progressive dividend policy at the earliest possible date. The cash cost of the dividend payments is below: Final dividend for 2018/19 of 1.0p per share paid Total dividends paid The dividends paid or proposed in respect of each financial year is as follows: 2021 £000 - - 2020 £000 288 288 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 paid Interim dividend for 2017/18 of 0.70p per share paid Final dividend for 2017/18 of 0.90p per share paid Interim dividend for 2018/19 of 0.80p per share paid Final dividend for 2018/19 of 1.0p per share paid Interim dividend for 2019/20 of 0.0p per share paid Final dividend for 2019/20 of 0.0p per share paid Interim dividend for 2020/21 of 0.0p per share paid Final dividend for 2020/21 of 0.0p per share paid 2021 2020 2019 2018 2017 2016 2015 2014 2013 £000 £000 £000 £000 £000 £000 £000 £000 £000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 229 288 - - - - - - - - - - - - - - 198 257 - - - - - - - - - - - - - - 167 225 - - - - - - - - - - - - - - 137 195 - - - - - - - - - - - - - - 106 164 - - - - - - - - - - - - - - 89 119 - - - - - - - - - - - - - - 75 102 - - - - - - - - - - - - - - - - The total dividends paid or proposed in respect of each financial year ended 31 July is as follows: Total dividends paid per share 2021 2020 2019 2018 2017 2016 2015 Nil Nil 1.8p 1.6p 1.4p 1.2p 1.0p 2014 0.8p 2013 0.7p Tracsis plc Annual Report & Accounts 2021 95 Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements (continued) 31 Reconciliation of alternative performance measures (“APMs”) The Group uses APMs, which are not defined or specified under the requirements of International Financial Reporting Standards (“IFRS”), to improve the comparability of reporting between different periods. These metrics are used by Equities Analysts who cover the Group as they reflect the underlying performance of the Group, and its ability to generate cash. The largest components of the adjusting items, being depreciation, amortisation, share based payments, and share of result of equity accounted investees, are ‘non cash’ items and are separately analysed to assist with the understanding of underlying trading. Share based payments are adjusted to reflect the underlying performance of the group as the fair value is impacted by market volatility that does not correlate directly to trading performance. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. Adjusted EBITDA Calculated as Earnings before finance income, tax, depreciation, amortisation, exceptional items, other operating income, share-based payment charges and share of result of equity accounted investees. This metric is used to show the underlying trading performance of the Group from period to period in a consistent manner, and is a key management incentive metric. The closest equivalent statutory measure is profit before tax. Adjusted EBITDA can be reconciled to statutory profit before tax as set out below: Profit before tax Finance expense – net Share-based payment charges Exceptional items - net Other operating income Amortisation of intangible assets Depreciation Share of result of equity accounted investees Adjusted EBITDA 2021 £000 4,635 87 1,276 1,114 (440) 4,269 1,603 434 12,978 2020 £000 4,111 3 1,050 (115) (376) 3,599 1,882 309 10,463 96 Tracsis plc Annual Report & Accounts 2021 Notes to the Consolidated Financial Statements (continued) 31 Reconciliation of alternative performance measures (“APMs”) (continued) Adjusted Profit Calculated as Earnings before finance income, tax, amortisation, exceptional items, other operating income, share-based payment charges, and share of result of equity accounted investees. This metric is used to show the underlying business performance of the Group from period to period in a consistent manner. The closest equivalent statutory measure is profit before tax. Adjusted profit can be reconciled to statutory profit before tax as set out below: Profit before tax Finance expense – net Share-based payment charges Exceptional items - net 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 2021 £000 4,635 87 1,276 1,114 (440) 4,269 434 11,375 2021 £000 12,978 (1,603) 11,375 2020 £000 4,111 3 1,050 (115) (376) 3,599 309 8,581 2020 £000 10,463 (1,882) 8,581 Adjusted Basic Earnings per Share Calculated as profit after tax before amortisation, share-based payment charges, exceptional items and other operating income divided by the weighted average number of ordinary shares in issue during the period. This is a common metric used by the market in monitoring similar businesses and is used by Equities Analysts who cover the Group to better understand the underlying performance of the Group. See note 13 “Earnings per share” 32 Subsequent Events Post year end the Group acquired Icon Group (“Icon”) on 3 November 2021. Headquartered in Dublin, Icon is an interdisciplinary geoscience business who specialise in earth observation (EO), GIS and spatial data analytics. Icon will be integrated with Tracsis’ existing Data Analytics/GIS solutions provider Compass Informatics to create an Irish- based Data Analytics centre of excellence specialising in providing location-related technologies and analytics solutions and services to government and commercial organisations. The acquisition of Icon adds EO capabilities that enhance our offer in this growing market, and has a customer base that is complementary to Tracsis’. The acquisition consideration comprises an initial cash payment of £1.9m which will be funded out of Tracsis cash reserves and the issue of 68,762 new ordinary shares in Tracsis to a value of £0.6m. An additional payment of approximately £1.7m will be made on a euro for euro basis to reflect the net current asset position of the business (above a working capital hurdle) at completion and will be finalised in due course. Additional contingent consideration of up to £1.5m is payable subject to Icon Group achieving certain stretched financial targets in the three years post acquisition. A formal valuation exercise has not yet been completed due to the timing of the acquisition Tracsis plc Annual Report & Accounts 2021 97 Strategic ReportGovernanceFinancial Statements Company Balance Sheet (prepared under FRS 101) as at 31 July 2021 Company number: 05019106 Note 2021 £000 2020 £000 Non-current assets Property, plant and equipment Investments Deferred tax assets Current assets Cash and cash equivalents Trade and other receivables Total assets Non-current liabilities Lease Liabilities Contingent consideration Current liabilities Trade and other payables Lease Liabilities Contingent consideration Total liabilities Net assets Capital and reserves Called up share capital Share premium reserve Merger reserve Retained earnings Total equity 34 35 40 36 37 39 38 37 39 41 431 74,186 225 74,842 3,571 4,943 8,514 636 74,186 233 75,055 2,547 2,081 4,628 83,356 79,683 - 3,220 3,220 17,727 137 4,689 22,553 137 5,587 5,724 16,101 179 1,747 18,027 25,773 23,751 57,583 55,932 117 6,401 5,525 45,540 57,583 116 6,373 5,420 44,023 55,932 The Company’s profit for the year, after dividends received was £241,000 (2020: £10,018,000) The financial statements were approved and authorised for issue by the Board of Directors on 9 November 2021 and were signed on its behalf by: Chris Barnes Chief Executive Officer Andrew Kelly Chief Financial Officer The accompanying notes form an integral part of these financial statements 98 Tracsis plc Annual Report & Accounts 2021 Company Statement of Changes in Equity At 1 August 2020 Profit and total comprehensive income Transactions with owners Share based payment charges Shares issued as consideration for business combinations Exercise of share options At 31 July 2021 At 1 August 2019 Adjustment on initial application of IFRS 16 (net of tax) Profit and total comprehensive income Transactions with owners Dividends Share based payment charges Shares issued as consideration for business combinations Exercise of share options At 31 July 2020 Share Capital £000 116 Share Premium £000 6,373 Merger Reserve £000 5,420 5,525 45,540 57,583 Retained Earnings £000 44,023 241 1,276 - - Total Equity £000 55,932 241 1,276 105 29 Retained Earnings £000 33,264 (21) Total Equity £000 43,643 (21) 10,018 10,018 (288) 1,050 - - (288) 1,050 1,500 30 - - 105 - - - - - 1,499 - 5,420 44,023 55,932 Share Capital £000 115 Share Premium £000 6,343 Merger Reserve £000 3,921 - - - 1 117 - - - 28 6,401 - - - - - 1 116 - - - - - 30 6,373 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 is incorporated in retained earnings in the previous and current financial year. The accompanying notes form an integral part of these financial statements Tracsis plc Annual Report & Accounts 2021 99 Strategic ReportGovernanceFinancial Statements Notes to the Company Balance Sheet 33 Company accounting policies Tracsis plc (“the Company”) was incorporated and is domiciled in England, in the United Kingdom. Its registered office is Nexus, Discovery Way, Leeds, LS2 3AA, 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 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 Group’s financial statements. Revenue recognition The Company has initially applied IFRS 15 “Revenue from Contracts with Customers” from 1 August 2018. IFRS 15 has established a comprehensive framework for determining whether, how much and when revenue is recognised. The Company derives revenue from software licencing, bespoke development work and post contract customer support. The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, and the related revenue recognition policies. Revenue is recognised either when the performance obligation in the contract has been performed (“point in time” or “over time” as control is transferred to the customer). Consideration received in advance of the performance obligation being satisfied by the Company is included as a Contract Liability on the balance sheet. An asset is recognised when a performance obligation has been completed, but no consideration has yet been received. Adjustments are made to allocate discounts relative to the stand-alone selling price of each performance obligation. The Company does not adjust the transaction price for the time value of money as it does not expect to have any contracts where the period between the transfer of the promised service to the client, and the payment by the client exceeds one year. 100 Tracsis plc Annual Report & Accounts 2021 Notes to the Company Balance Sheet (continued) 33 Company accounting policies (continued) Revenue Stream Recognition Policy Software – perpetual and non-cancellable annual software licenses, and support and maintenance services associated with these licenses Software as a service, and support services associated with these licenses There are two separate performance obligations associated with this revenue stream: • Provision of the perpetual or non cancellable annual software license • Maintenance and support services The company recognises the revenue from the sale of perpetual and non-cancellable annual software licenses at the time that the license is made available to the customer as it is considered that control passes at that point in time. The allocation of the transaction price between the two performance obligations included in the contract is based on an expected cost plus margin approach as the stand- alone selling price is not observable. Revenue related to ongoing support and periodic updates is recognised over the license period as the Company is unable to predict at inception of the license when the support and updates will be required to be provided to the customer. As such, control is considered to pass over time. Under IFRS 15 two distinct performance obligations have been identified for these contracts. • Hosted software licenses • Maintenance and support Revenue from the provision of the hosted software license is recognised evenly over the period in which the license is hosted by the Company. This policy reflects the continuous transfer of the service to the customer throughout the contracted license period. Revenue related to ongoing support and periodic updates is recognised over the license period as the Company is unable to predict at inception of the license when the support and updates will be required to be provided to the customer. Bespoke software development work Revenue in relation to bespoke development work is recognised on completion of the work in most contracts as it is considered that control of the work does not pass until all development work has been completed. The development work does not create an asset with an alternative use to the Group. In some contracts the Group does have an enforceable contractual right to payment for performance completed to date and revenue is recognised over time. Tracsis plc Annual Report & Accounts 2021 101 Strategic ReportGovernanceFinancial Statements Notes to the Company Balance Sheet (continued) 33 Company accounting policies (continued) 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 Fixtures and Fittings – – – 4% on cost 33 1/3% on cost 10% 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 Company 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. Leases For any new contracts entered into the Company considers whether a contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Company assesses whether the contract meets three key evaluations which are whether: • the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group • the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract • the Group has the right to direct the use of the identified asset throughout the period of use. The Group assesses whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. 102 Tracsis plc Annual Report & Accounts 2021 Notes to the Company Balance Sheet (continued) 33 Company accounting policies (continued) Measurement and recognition of leases as a lessee At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received). The Company depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist. At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero. The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. 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 65. Where there are charges relating to subsidiary undertakings, these are borne in full by the relevant subsidiary undertakings via a recharge. Profit and Loss account 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 £241,000 after receiving dividends from subsidiary undertakings of £2,500,000 (2020: profit of £10,018,000 after receiving dividends from subsidiary undertakings of £9,950,000). Tracsis plc Annual Report & Accounts 2021 103 Strategic ReportGovernanceFinancial Statements Notes to the Company Balance Sheet (continued) 34 Property, plant and equipment Cost At 1 August 2020 Additions At 31 July 2021 Depreciation At 1 August 2020 Charge for the year At 31 July 2021 Net book value At 31 July 2020 At 31 July 2021 Land & Buildings* Computer equipment Fixtures And Fittings £000 £000 £000 838 - 838 281 179 460 557 378 149 11 160 88 35 123 61 37 20 - 20 2 2 4 18 16 Total £000 1,007 11 1,018 371 216 587 636 431 *Includes land of £100,000 which is not depreciated Included in the net carrying amount of property, plant and equipment are assets held under leases of £104,000 (2020: £271,000). A reconciliation of the Right of Use Asset is as follows: Cost At 1 August 2020 At 31 July 2021 Depreciation At 1 August 2020 Charge for the year At 31 July 2021 Net book value At 31 July 2020 At 31 July 2021 Land & Buildings £000 438 438 167 167 334 271 104 104 Tracsis plc Annual Report & Accounts 2021 Notes to the Company Balance Sheet (continued) 35 Investments At 1 August 2020 At 31 July 2021 Shares in, and loans to subsidiary undertakings £000 74,186 74,186 On 26 February 2021 Tracsis Rail Consultancy Limited (a subsidiary of the Company) acquired 100% of the share capital of Flash Forward Consulting Limited. Further details about this acquisition are found in note 5 to the Group financial statements. The companies in which Tracsis plc’s interest is more than 10% at the year end are as follows: MPEC Technology Limited England and Wales Name Subsidiary undertakings: Tracsis Rail Consultancy Limited* Tracsis Passenger Counts Limited Safety Information Systems Limited Tracsis Traffic Data Limited Datasys Integration Limited Tracsis Retail & Operations Limited SEP Limited SEP Events Limited Ontrac Technology Limited Ontrac Limited Tracsis Travel Compensation Services Limited Delay Repay Sniper Limited Cash & Traffic Management Limited Compass Informatics Limited Bellvedi Limited iBlocks Limited Flash Forward Consulting Limited* Compass Informatics UK Limited S Dalby Consulting Limited Sky High Data Capture Limited Sky High Traffic Data Limited Country of incorporation Principal activity Class and percentage of shares held England and Wales Rail industry consultancy Ordinary 89.775% England and Wales Rail industry ancillary services England and Wales Software and consultancy England and Wales Rail industry hardware & datalogging Transportation data collection Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 100% England and Wales Holding Company Ordinary 100% England and Wales Rail industry software Ordinary 100% England and Wales Event planning & traffic management England and Wales Dormant England and Wales Holding Company England and Wales Rail industry software England and Wales Rail industry software Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 100% England and Wales Rail industry software Ordinary 100% England and Wales Event planning & traffic management Ordinary 100% Republic of Ireland Software Development Ordinary 100% England and Wales Rail industry software England and Wales Rail industry software England and Wales Transport industry consultancy Ordinary 100% Ordinary 100% Ordinary 89.775% England and Wales Software development Ordinary 100% England and Wales Dormant Ordinary 100% England and Wales Dormant Ordinary 100% England and Wales Dormant Ordinary 100% Holding Direct Direct Direct Direct Direct Direct Indirect Direct Indirect Direct Indirect Indirect Direct Direct Direct Direct Direct Indirect Indirect Direct Indirect Indirect Tracsis plc Annual Report & Accounts 2021 105 Strategic ReportGovernanceFinancial Statements Notes to the Company Balance Sheet (continued) 35 Investments (continued) Country of incorporation Principal activity England and Wales Dormant Class and percentage of shares held Ordinary 100% England and Wales Dormant Ordinary 100% England and Wales Dormant Ordinary 100% England and Wales Dormant Ordinary 100% England and Wales Dormant Ordinary 100% England and Wales England and Wales England and Wales England and Wales Dormant Dormant Dormant Dormant Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 100% England and Wales Dormant Ordinary 100% England and Wales England and Wales Dormant Dormant Ordinary 100% Ordinary 100% Name 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 14.9% Ordinary 23.4% Ordinary 17.6% Holding Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Direct Direct Direct * In the year 10,225 A Ordinary shares were issued in Tracsis Rail Consultancy Limited reducing the percentage of ordinary shares held by Tracsis plc. Flash Forward Consulting Limited is indirectly owned by Tracsis plc through Tracsis Rail Consultancy Limited. 36 Trade and other receivables Trade receivables Amounts owed by Group undertakings Other debtors Corporation Tax Prepayments 2021 £000 284 2,871 600 922 266 4,943 2020 £000 431 671 295 629 55 2,081 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. 106 Tracsis plc Annual Report & Accounts 2021 Notes to the Company Balance Sheet (continued) 37 Lease Liabilities Due within one year Due after more than one year: Between one and two years Between two and three years Total due after more than one year Total obligation A reconciliation of the obligation is stated below. At start of the year Lease liabilities recognised on adoption of IFRS 16 Interest on lease liabilities Total cash outflow At end of the year Future minimum lease payments at 31 July 2021 were as follows 2021 £000 137 - - - 137 2021 £000 316 - 6 (185) 137 2020 £000 179 137 - 137 316 2020 £000 - 483 - (167) 316 2021 2020 Carrying amount Contractual cash flows Less than one year One to Two years Two to Five years £000 137 316 £000 139 324 £000 139 185 £000 - 139 £000 - - The Company has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight line basis. The expense relating to payments not included in the measurement of the lease liability is as follows: Short-term leases Leases of low value assets Total 38 Trade and other payables Trade payables Other tax and social security Amounts owed to Group undertakings Accruals and contract liabilities 2021 £000 - 1 1 2020 £000 148 97 14,441 1,415 16,101 2021 £000 88 139 15,278 2,222 17,727 The carrying value of trade payables approximates to the fair value. Amounts owed to Group undertakings are interest free and repayable on demand. Tracsis plc Annual Report & Accounts 2021 107 Strategic ReportGovernanceFinancial Statements Notes to the Company Balance Sheet (continued) 39 Contingent consideration During the previous financial year, the Group acquired iBlocks Limited. Under the share purchase agreement in place for this acquisition, contingent consideration is payable which is linked to the profitability of the acquired businesses for a three year period post acquisition. The maximum amount payable is £8.5m, and the fair value of the amount payable was assessed at £2.8m at the year end date. In 2019, the Group acquired Cash & Traffic Management Limited, Compass Informatics Limited and Bellvedi Limited. Under the share purchase agreements for each of these companies, contingent consideration is payable which is linked to the profitability of the acquired businesses over a two to four year period post acquisition. The maximum amount payable is £750,000 for Cash & Traffic Management Limited, €2,000,000 for Compass Informatics Limited and £7,900,000 for Bellvedi Limited. The fair value of the amount payable was assessed at £253,000 for Cash & Traffic Management Limited, £462,000 for Compass Informatics Limited and £4,357,000 for Bellvedi Limited. During the financial year, contingent consideration of £410,000 was paid in respect of the Compass Informatics Limited acquisition which was made in year ended 31 July 2019 (2020: £332,000), £nil in respect of the Cash & Traffic Management Limited acquisition which was made in year ended 31 July 2019 (2020: £491,000), £nil in respect of the Bellvedi Limited acquisition which was made in the year ended 31 July 2019 (2020: £57,000), and £nil (2020: £348,000) in respect of the acquisition of Tracsis Travel Compensation Services Limited which was made in the year ended 31 July 2018. As detailed in note 9.3, an exceptional debit of £327,000 was recognised, following a review of the assumptions of the fair value of the contingent consideration as at 31 July 2021. At the balance sheet date, the Directors assessed the fair value of the remaining amounts payable which were deemed to be as follows. Tracsis Travel Compensation Services Limited & Delay Repay Sniper Limited Cash & Travel Management Limited Compass Informatics Limited Bellvedi Limited iBlocks Limited The ageing profile of the remaining liabilities can be summarised as follows: Payable in less than one year Payable in more than one year Total 40 Deferred tax (asset) At start of the year Charge to statement of comprehensive income during the year At end of the year 108 Tracsis plc Annual Report & Accounts 2021 2021 £000 - 253 462 4,357 2,837 7,909 2021 £000 4,689 3,220 7,909 2021 £000 (233) 8 (225) 2020 £000 88 112 681 3,193 3,260 7,334 2020 £000 1,747 5,587 7,334 2020 £000 (208) (25) (233) Notes to the Company Balance Sheet (continued) 40 Deferred tax (asset) (continued) The deferred tax asset can be split as follows: Accelerated Capital Allowances Share options At end of the year 41 Share capital Allotted, called up and fully paid: Ordinary shares of 0.4p each 2021 £000 (1) (224) (225) 2020 £000 5 (238) (233) 2021 Number 2021 £ 2020 Number 2020 £ 29,332,177 117,329 29,122,548 116,490 The following share transactions have taken place during the year ended 31 July 2021: At start of the year Issued as consideration for business combinations Exercise of share options At end of the year 42 Related Party Transactions 2021 Number 2020 Number 29,122,548 28,748,578 16,199 193,430 192,926 181,044 29,332,177 29,122,548 In the financial statements for the previous financial year Nexus Leeds Limited was identified as a related party through its connection to the University of Leeds. Having assessed this entity at 31 July 2021 against the criteria set out in IAS 24 Related Party Disclosures the entity no longer meets the definition of being a related party, and consequently disclosure of transactions is no longer required. 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. Tracsis plc Annual Report & Accounts 2021 109 Strategic ReportGovernanceFinancial Statements Group information Company Secretary and Registered Office Andrew Kelly Nexus Discovery Way Leeds LS2 3AA The registered office of all subsidiary entities is detailed in note 29 to the Group Financial statements. Telephone: +44 (0) 845 125 9162 +44 (0) 845 125 9163 Fax: Registered number 05019106 Website www.tracsis.com Auditor Grant Thornton UK LLP No 1 Whitehall Riverside Leeds LS1 4BN Principal bankers HSBC Bank plc 33 Park Row Leeds LS1 1LD Additional bankers Barclays NatWest Santander Royal Bank of Scotland Co-Operative Bank of Ireland Triodos Nominated Advisor and Stockbroker finnCap Limited 1 Bartholomew Close London EC1A 7BL Registrars Neville Registrars 18 Laurel Lane Halesowen West Midlands B63 3DA Solicitors Haynes & Boone LLP 1 New Fetter Lane London EC4A 1AN 110 Tracsis plc Annual Report & Accounts 2021 © Copyright Tracsis plc 2021 www.tracsis.com Technology Makes It Possible, People Make It Happen