Delivering Strategy, Driving Growth Annual Report & Accounts 2017 A n n u a l R e p o r t & A c c o u n t s 2 0 1 7 U L S T e c h n o l o g y The Old Grammar School Church Road Thame OX9 3AJ Tel: 01844 262392 Fax: 08432 906959 Web: www.ulstechnology.com Email: enquiries@ulstechnology.com A UK leader in the provision of online legal services Highlights • Exceeded market expectations • Further widening of distribution Delivered higher than predicted revenue and profit The business has won a number of new introducer despite difficult market conditions. • Delivered growth Despite the uncertain economic environment and a sluggish housing market, the business continued its track record of increasing year-on-year profits. • Acquisition of Conveyancing Alliance (“CAL”) The successful acquisition of CAL delivers significant new growth opportunities for the business, specifically targeting estate agents and mortgage brokers, supporting its strategy to become the leading handler of conveyancing in the UK. contracts, which, combined with the acquisition of CAL, has reduced the run-rate percentage of business from the largest introducer down to below 40%. • Lender solutions There has been a focus on widening the Group’s offering to lenders to build on its excellent reputation in the market. This has resulted in the winning of a number of new contracts. ULS Technology Annual Report 2017 01 O V E R V E W I I S T R A T E G C R E P O R T G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Revenue £22.3m +8% (2016: £20.7m) EBITDA (underlying) £5.1m +14% (2016: £4.5m) Profit before tax (underlying) £4.4m +15% (2016: £3.8m) Contents Overview 01 Highlights 02 At a glance 03 Investment case Strategic Report 06 Chairman’s statement 08 Our business model 10 Our market 12 Our strategy 14 Chief Executive’s statement 16 Financial review 19 Principal risks and uncertainties Governance 20 Board of Directors 22 Directors’ report 25 Independent auditor’s report Financial Statements 26 Consolidated income statement 27 Consolidated statement of comprehensive income 28 Consolidated balance sheet 29 Consolidated statement of changes in equity 30 Consolidated statement of cash flows 31 Notes to the consolidated financial statements 57 Parent Company balance sheet 58 Parent Company statement of changes in equity 59 Notes to the Parent Company financial statements 65 Company information Must reads Why invest in ULS Technology PAGE 03 Our business model PAGE 08 Our strategy PAGE 12 Chief Executive’s statement PAGE 14 You can help us to reduce our environmental impact by opting to receive shareholder communications online at www.ulstechnology.com/investors 02 At a glance Our vision What we do Revenue To become the leading service provider of technology comparison solutions to the Legal Services, Financial Services and Property sectors. Our central and unerring focus will be to help an increasing number of customers to move home as easily and cost-effectively as possible. We bring together customers and solicitors utilising technology backed- up by excellent customer service. We provide customers with choice, price competition and quality ratings. We provide solicitors and conveyancers with the opportunity to win work with no upfront cost. Our distribution channels We primarily provide our services through white-labels to mortgage brokers, banks, building societies and price comparison websites amongst others. Our service allows them to provide their customers choice and enables them to complete mortgage applications efficiently. Our mission To help customers who are making important lifetime decisions to have the best possible experience, and feel they have received excellent value. Our strategy We will achieve our vision through a clear and deliberate strategy. Always improving We will consistently strive to understand exactly what our customers and business partners want, and deliver this to them. Innovation We will develop new products and services that enable us to hold a competitive advantage over other firms in our market. Growth Through constantly improving and trying to perfect the products and services we offer, we will attract increased new business from our existing customers and business partners. Additionally, we will forge new relationships that will increase new business, including acquiring other businesses where appropriate to do so. £22.3m Revenue is generated principally from the completion of conveyancing cases and also the associated sales of searches and ID checks. EBITDA (underlying) £5.1m EBITDA (underlying) excludes exceptional items (see reconciliation on page 16). Conveyancing instructions 89,208 A conveyancing instruction is the point where a customer chooses a conveyancer through the ULS platform. This provides a strong indication of future revenues. Instructions typically take three or four months to complete with around 70% reaching completion. Conveyancing completions 56,789 A conveyancing completion is when the conveyancing transaction has been marked as completed on the ULS platform by the conveyancer. This is the point where revenue is recognised on a conveyancing case. ULS Technology Annual Report 2017 ULS Technology Annual Report 2017 03 O V E R V E W I I S T R A T E G C R E P O R T G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Investment case Profitable Growth The Group has a long track record of profitable growth. It has increased its market share and has plenty of scope to maintain this momentum via organic and acquisitive growth. Progressive Dividend The growth and cash generation of the business has allowed it to pay a progressive dividend. The directors intend to continue to pursue this policy of increasing the dividend payment each year. Proprietary IT The websites and the sophisticated background technology that the Group operates are all built in-house. The Group has a strategy of continual innovation and improvement. Cash Generative The Group is highly cash generative, turning a high percentage of profit into cash. This allows it to invest in future growth, product development and acquisitions whilst still paying a dividend. Independent Unlike many of the Group’s competitors, the business does not undertake any conveyancing itself. This allows it to give customers an independent choice, and engenders a feeling of trust in the quality ratings that the Group publishes, on each solicitor or conveyancer on its panel. 04 ULS Technology Annual Report 2017 ULS Technology Annual Report 2017 05 O V E R V E W I I S T R A T E G C R E P O R T G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Strategic Report 06 Chairman’s statement 08 Our business model 10 Our market 12 Our strategy 14 Chief Executive’s statement 16 Financial review 19 Principal risks and uncertainties 06 Chairman’s statement I am delighted with the progress the Group has shown this year in terms of profit growth, with our first large acquisition trading well. There are good prospects for the coming year as we increase our market share. Review of the year Over the last few years the Group has been developing a growing pipeline of prospective business. Bringing a number of these prospects on stream during the year, as well as a keen focus on maintaining high-levels of service for existing introducers, allowed the business to grow over the period. I was particularly pleased to see us organically grow our transactional volumes by 4% while the market shrank in volume terms by 13%. Final dividend Subject to approval by shareholders at the Annual General Meeting to be held on 28 July 2017, the board proposes a final dividend of 1.10p per share, payable on 4 August 2017 to those shareholders on the register at the close of business on 7 July 2017. This, together with interim dividend of 1.10p per share already paid, takes total proposed distributions relating to the year ending 31 March 2017 to 2.20p per share. There were challenging times with the changes in the buy-to-let regulations, followed by the slow down post EU referendum. However, this was less prolonged than initially feared and the housing market returned to more normal levels in the autumn, although the longer- term issue of a lack of housing stock for sale is still a factor. Acquisition of Conveyancing Alliance Holdings Limited (CAL) The Group was delighted CAL joined us in December 2016. Harpal Singh and John Phillips have done an excellent job in building a profitable business with an excellent reputation; their openness to improving both our businesses’ profitability is welcome. The business has developed and launched a new panel management solution for lenders which has been well received and has resulted in a number of new contracts being won. Some of these contracts have only recently gone live and I am excited by the opportunities for the business in this area. CAL provides similar conveyancing services to United Legal Services in the mortgage broker and estate agency channels, but with some service and brand differences which will be maintained. Since acquisition CAL has continued to grow and has contributed to the overall Group’s profitability in the year under review. Board changes As trailed in the last Annual Report, Nigel Hoath, founder of the Group, stepped down from his position as Non-executive Director in August. Again, our thanks go to Nigel for his contribution to building the business. Outlook The prospects for the housing market and the wider economy remain uncertain but with Brexit two years away there appears to be a general feeling of just getting on with things. While there was a fall in housing transactions last year, the OBR is predicting a modest increase this year. Whatever the backdrop, the business has a good pipeline of prospects and will continue to help its existing introducers to grow their business. The Group is focused on providing the customer with an excellent experience and will continue to develop products and services which further enhance this. The Group has had another busy year bringing on new clients while coping with changing market conditions. We are very much a people business and everyone has been asked to row just a little harder during the year and I am delighted that they have risen to the challenge. I would like to thank all our staff for their adaptability and enthusiasm. We have been able to increase the number of employees who hold options during the year meaning that two-thirds of our staff now hold options enabling them to share in our success. The team at ULS looks forward to the coming year. Peter Opperman Non-executive Chairman ULS Technology plc 26 June 2017 ULS Technology Annual Report 2017 Peter Opperman Non-executive Chairman 07 O V E R V E W I I S T R A T E G C R E P O R T G O V E R N A N C E I I F N A N C A L S T A T E M E N T S Revenue £22.3m Revenue is generated principally from the completion of conveyancing cases and also the associated sales of searches and ID checks. £10.6m 2013 £16.3m 2014 £16.1m 2015 £20.7m 2016 £22.3m 2017 EBITDA (underlying) £5.1m EBITDA (underlying) excludes exceptional items (see reconciliation on page 16). £1.7m 2013 £2.7m 2014 £3.4m 2015 £4.5m 2016 £5.1m 2017 ULS Technology Annual Report 2017 08 Our business model What we provide for our customers We bring customers and legal professionals together via housing market comparison services, delivered through our systems. We partner with solicitors and conveyancing firms to create panels that compete for customer business on price, location and service rating. 5 PAYMENT PAYMENT 7 PAYMENT 6 Customer 1 Introducer 2 3 Solicitor 4 1 A house buyer approaches a mortgage broker or other intermediary. 3 The ULS platform 5 The house buyer pays instructs the selected solicitor to undertake the conveyancing. the solicitor (typically as part of the transaction completion monies). 2 The mortgage broker uses the ULS eConveyancer platform to identify a solicitor to undertake the conveyancing, filtering by price, location, service rating and the user’s requirements. 4 The solicitor sends their letter of engagement to the house buyer, executes the conveyancing and invoices the house buyer on completion of the transaction. 6 The solicitor pays fees to ULS via the eConveyancer platform. Solicitors also generate additional revenues for ULS by using the platform to perform legal searches and ID checks. 7 ULS remits a proportion of the fees to the mortgage broker or other intermediary. ULS Technology Annual Report 2017 09 How we create value for stakeholders Benefits for Customers Cost Saving Choice Service ULS aims to reduce the cost of services to users by creating price competition between providers. ULS increases the choice of services available to users by aggregating a broad range of providers via a single platform. ULS provides ratings on its providers helping the customer to make an informed choice. Benefits for Introducers Scope Reward Time saving ULS enables intermediaries to offer users a broad range of conveyancing services from a wide choice of providers in a range of locations at competitive prices. ULS enables intermediaries to access multiple related services from a single interface, helping them to generate multiple sales from the user in one sitting and to increase profitability. ULS’ user-friendly, simple click-through interface is designed to reduce the time taken to complete the sales process, further enhancing broker ROI. Benefits for Solicitors Volume Market Reach ULS connects service providers with a large pool of potential clients via intermediaries, increasing work flow at a low cost of acquisition. ULS provides a platform for service providers such as law firms who have low brand recognition, raising their profile and helping them attract new business. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 Our market Over the period, housing transactions have declined significantly compared to the previous year, and are markedly below long term average levels. The year saw two unique events. Firstly, there was a hangover from the rush for Buy-to-Let Landlords to complete purchases before a key Stamp Duty deadline and, secondly, in the summer of 2016 the market slowed down for a month or two following the EU Referendum outcome. Despite this, ULS has continued its momentum and grown its share of conveyancing completions. 10 Driver of demand: Housing transactions Driver of demand: Mortgage lending Driver of demand: House building Driver of demand: Interest rates ULS Technology Annual Report 2017 Our market 11 The first half of the financial year started more quietly than is usually the case. Although ULS held no disproportionate exposure to Buy-to-Let, the overall activity levels in the market were somewhat muted following the rush that led up to Stamp Duty changes for landlords. Activity recovered through Spring into the EU Referendum vote, at which point things became markedly quieter, before some sort of recovery got underway in September. It then held steady to the end of the financial year, resulting overall in a year where transactions were down by 13% but where the fall had looked likely to be bigger at one point. In terms of housing transactions, the year saw a rise in activity from first time buyers and a reduction in activity for subsequent movers and landlords buying property to let. ULS has a fairly typical exposure to all three segments and therefore has not unduly been affected by these movements. In terms of other market developments, the Government produced its white paper to tackle the so-called housing crisis. This paper is tenure neutral effectively, with policy assisting tenants as well as homeowners. General consensus is that there will be little if any market impact from this, certainly in the short term and quite possibly in the medium and longer term too. One of the major challenges for the housing market is the lack of subsequent home movers. Many homeowners find it unnecessary or too expensive to move up a rung on the ladder. Changes to Stamp Duty haven’t helped certainly in London and have hindered other areas. The result of few people moving from one home to another is reduced housing stock for sale. This remains at record lows and is probably the greatest factor in the fall in housing transactions. On the plus side, this trend should reverse at some point, however for the foreseeable future, housing transactions look to remain at current levels although the OBR is forecasting a modest increase. Remortgaging increased noticeably in 2016. Although conveyancing opportunities are fewer and further between for remortgages, and the commercial benefits are much reduced compared to those linked to home moves, this market is likely to continue to operate at higher levels than during much of the last decade. ULS is exploring ways to become more active in this market, which offers upside potential for the Group. From a positive point of view, firstly the housing market is already trading at low levels compared to historical norms. Secondly, the UK housing market is a domestic market in the main, and therefore ought to remain somewhat immune, and insulated from any possible Brexit fallout. In terms of the specific conveyancing market that ULS operates in, we continue to see improvements and modernisation in technology. Mortgage and conveyancing processes remain slow compared to more technologically advanced markets and this gives scope for potential further disruption, and opportunity for ULS. Conveyancing firms continue to consolidate, and ULS holds strong trading relationships with most of the major specialist firms. These firms are growing through becoming highly efficient and technological in their processes, thereby completing customers’ home moves more quickly and giving them a better experience. Finally, there is the result of the EU Referendum and the likely Brexit process, which looks to be uncertain and lengthy in its nature. Currently, it looks as though any initial Referendum shock has largely worn off and business is returning to normal. However, much remains unknown and therefore uncertain. ULS is investing in its own technology to improve customer experience to ensure that along with its conveyancing partners, customers continue to receive the best possible value for money, service experience and means of interacting with their chosen solicitor or conveyancing firm. Property transactions and forecasts (thousands) Total ULS completions v Total UK market 897 879 921 928 1,134 1,202 1,330 1,159 1,281 2010 2011 2012 2013 2014 2015 2016 2017 2018 250.0 200.0 150.0 100.0 50.0 0.0 * Years are to 31 March * Historical data is per HMRC * Forecast is per OBR (published March 2017) 2012 2013 2014 2015 2016 2017 Total ULS Completions Total UK market * Both lines based to 100 in FY2012 OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 12 Our strategy Group strategy is to focus on continual improvement, innovation and quality, and acquire businesses in sectors we understand. The conveyancing market continues to consolidate into a smaller number of larger firms. These firms specialise in processing volume conveyancing, and have become more efficient through investment in technology and economies of scale. Against this market backdrop, these large firms have ever- growing operations to feed. ULS continues to successfully grow its strong relationships with many of these large specialist firms, through procuring many more new customers for them, and by building integrated technology links designed to make all parties’ involvement in the conveyancing process as straightforward and painless as possible. Customer journey In addition to working closely with its partner firms, ULS is committing resource into seeking its own new ways to revolutionise conveyancing. This is particularly through improved communication with all stakeholders involved in the home moving process, as well as providing a more automated and involved interaction with customers themselves. Technology and communication in other sectors has improved significantly over recent years and conveyancing in some areas has a long way to go to catch up. ULS intends to be at the forefront of change, helping its business partners to fend off any threat from fresh competition and disruptive market newcomers. In addition, ULS will dedicate resource to helping home movers at an earlier stage in the home moving process with conveyancing, as well as more broadly in the future with other services. Organic growth ULS has very strong, successful and loyal business partners that make up its conveyancing distribution. By helping these business partners to increase their conveyancing, ULS continues to grow. Over the last year, the Group has successfully continued its momentum by earning the right to work with more new business partners, adding to growth from existing partners. ULS has deliberately expanded into markets where it has not historically been strong and where clear upside exists. For example, the Group is now much more involved in procuring and servicing conveyancing needs for customers requiring and using an Estate Agent - both traditional Estate Agents, as well as those that trade online only. Also, through a major new house builder relationship, the Group is forging inroads into providing conveyancing for the highly competitive and service- centric new homes market. Over the last year, ULS has won at least two new lender conveyancing contracts, having used its subsidiary company Legal Eye to boost its all-round conveyancing service to mortgage lenders. This is another new area into which ULS intends to continue its growth. New products Last year the Group invested in HomeOwners Alliance (HOA), the online property portal that has experienced good growth in web traffic since it was founded four years ago. ULS has now successfully integrated or embedded its conveyancing platform and Estate Agency comparison technology into HOA’s portal, and is now receiving new business directly from customers digitally as well. This is an important channel for ULS to be invested in, as it provides scalability and a degree of control over longer term future new business volumes. It also serves as a direct-to- customer channel through which ULS can tailor and launch new technology and housing related products and services in the future, beyond simply conveyancing itself. Acquisitions Over the last year ULS has been actively looking at potentially complementary acquisition opportunities. In December 2016 the Group successfully acquired Conveyancing Alliance Holdings Limited, instantly enabling the Group’s entry into Estate Agency related conveyancing and also opening up the small mortgage adviser market for conveyancing. This acquisition was highly earnings enhancing for the Group, and a great strategic fit. Management remains active in seeking new and fitting opportunities that may exist, to grow the Group from where it has progressed to today. ULS Technology Annual Report 2017 ULS Technology Annual Report 2017 13 Strategic Acquisition Conveyancing Alliance The acquisition of CAL enables us to directly progress a clear strategy of increasing our market share of new conveyancing. CAL is complementary to ULS as its success has come from providing technology based conveyancing solutions to mortgage intermediaries, specifically smaller firms. In addition, CAL has been successful in forging a good proportion of its growth from providing Estate Agents with conveyancing related technology and services, a path that we have deliberately wanted to explore and grow into. Our new relationship with CAL is going from strength to strength and we are excited about how well we can all work together to accelerate our combined success. 15,170 completions in 2016 (calendar year) O V E R V E W I I S T R A T E G C R E P O R T G O V E R N A N C E I I F N A N C A L S T A T E M E N T S 14 Ben Thompson Chief Executive Officer Chief Executive’s statement ULS has continued to make good progress, building on its clear strategy of growing market share, revenue and profit, through a combination of organic growth and tactical acquisition activity. Overview of operational performance ULS agreed that it would focus on the following as part of its growth strategy: • Build new technology to attract more lender-related conveyancing; • Forge inroads into providing conveyancing to customers who traditionally would have bought conveyancing through Estate Agents; and • Acquire businesses that directly or indirectly assist ULS in growing its overall conveyancing market share. All of the above have progressed well throughout the year, contributing to a revenue increase of 8% and underlying profit growth of 15%. Strategic progress The Group has made strong progress over the last year, with healthy organic growth achieved against a market where housing transactions have continued to fall markedly below long term historical averages. In addition, the last year has been a tough market, with tax changes impacting landlords and the Buy-to-Let market, and the slowdown in activity following the EU Referendum. In 2016, ULS took a 35% stake in HomeOwners Alliance (HOA), with an option to acquire the business between three and five years following completion of the investment. ULS Technology Annual Report 2017 15 O V E R V E W I I S T R A T E G C R E P O R T G O V E R N A N C E I I F N A N C A L S T A T E M E N T S The Group is pleased to report that it has successfully tailored and embedded its technology within HOA’s website and that this has delivered new conveyancing growth over the last year. attracts customers who wish to move house and need help selecting a suitable conveyancing service, thereby enabling the Group to make inroads directly to customers in this market. The Group has won new conveyancing contracts with two mortgage lenders, having invested efforts into building a complete suite of technology and services to help lenders provide their customers with the best possible moving experience. This new proposition to lenders includes services offered by Legal Eye, which ULS acquired in 2015. ULS intends to continue its growth into lender related conveyancing through the coming year and beyond. ULS has been pursuing complementary acquisition opportunities, and at the end of 2016, acquired Conveyancing Alliance Holdings Limited. CAL constitutes a perfect fit for ULS, in that they have experienced strong growth with small mortgage broker firms, whereas ULS has successfully grown with larger firms. Also CAL has enjoyed comparable success partnering independent Estate Agents to provide conveyancing services. One of the other new markets into which ULS can grow is the Estate Agency conveyancing market. ULS has historically not been involved in this market, but has now built two routes through which it can offer its technology and services to customers selling and buying homes through this sector: 1. Via its own Estate Agency comparison technology accessed through HomeOwners Alliance (www.estateagent4me.co.uk); 2. Through Conveyancing Alliance Limited. CAL is therefore the second channel that ULS has acquired and will use to grow conveyancing market share in the Estate Agency sector, helping customers to access a breadth of choice at comparatively low cost, and move home as seamlessly as possible. This tactical acquisition of CAL was highly earnings enhancing for ULS and enables the Group to continue its deliberate strategy of growing its conveyancing market share, through adding to its existing channels as well as accessing new ones. ULS has spent the last year or so honing and piloting new technology to enable home sellers to compare the performance of traditional and online Estate Agents free of charge on one technology platform. The Group has now successfully embedded this technology into HomeOwners Alliance, which promotes this online via its own portal. Through this promotion, ULS Outlook We approach the new financial year in the knowledge that we are successfully increasing our conveyancing market share in a smaller housing transactions market. We intend to continue outperforming the market through further enhancing our technology and services that we provide to our business partners and their customers. We see that technology and processes will continually need to be further honed and improved, as technology progresses and advances at pace. We are committed to doing things better than our competitors, with customers central in influencing our thinking and technology design. Our expectations are for a slightly smaller housing market in terms of transactions. We will strive to further increase our market share organically through expansion into more lender related conveyancing and through becoming more involved in conveyancing in the Estate Agency sector. There is a lot of upside potential from this organic growth. In addition, we will continue to look actively at acquiring businesses that help us to progress our strategy more quickly and will acquire where appropriate and possible to do so. We are pleased with how ULS has grown over the last year and look forward to what we expect to be an exciting and rewarding new financial year. Ben Thompson Chief Executive Officer ULS Technology plc 26 June 2017 Conveyancing completions Conveyancing instructions 46,692 46,566 53,830 68,479 62,548 2014 2015 2016 74,657 30,840 46,659 2013 56,789 89,208 2017 ULS Technology Annual Report 2017 16 Financial review The Group delivered significant profit growth and made a sizeable acquisition. Summary • Revenue £22.3 million (2016: £20.7 million). • Gross margin £9.5 million (2016: £8.7 million). • Underlying PBT £4.4 million (2016: £3.8 million). • Net debt £3.5 million (2016: net cash £2.9 million). • Group continues to pay a progressive dividend. • Increase in underlying EBITDA of 14%. Results The Group delivered significant profit growth in 2017 with underlying profit before tax up by 15% and, excluding the acquisition of CAL, it was up by 8%. This was against a backdrop of a 13% fall in housing transactions. There were exceptional costs in the year of £704,000. These primarily relate to movements in the deferred consideration provision relating to the acquisitions of Legal Eye and CAL, as well as costs related to acquisition activity. Underlying PBT Capitalised development resource Amortisation of capitalised development resource Adjusted underlying PBT 2017 £000’s 4,364 (642) 2016 £000’s 3,797 (285) 395 395 4,117 3,907 Capitalisation of internal IT resource In accordance with accounting rules, we capitalise internal and external IT resource where there is a clear definable project and we can identify a profitable revenue stream. The capitalisation is shown under intangible assets and amortised over the expected useful life of the asset. However, it is useful to look at the impact on profit if we had purely expensed all of this type of expenditure and we do this in the table opposite. This gives a closer indication as to the cash generative ability of the business rather than looking at reported profit. During the year more development projects were undertaken and more resource taken on as we continue to invest in the future of the company. Additionally, a limited amount of external resource was used and the acquisition of CAL increased the spend in this area (as they also capitalise development, which they outsource entirely). Key performance indicators Our key performance indicators are set out on pages 1 to 2. Underlying PBT Profit before taxation (PBT) Amortisation of intangible assets arising on acquisition Exceptional operating costs Acquisition activity costs Adjustment to expected deferred consideration Exceptional operating costs NPV adjustment of deferred consideration Underlying PBT Underlying EBITDA Underlying PBT Finance income Finance costs Amortisation (excluding arising on acquisition) Depreciation Underlying EBITDA 2017 £000’s 386 – 2016 £000’s 52 333 2017 £000’s 3,456 204 386 318 4,364 2017 £000’s 4,364 (12) 83 395 271 5,101 2016 £000’s 3,081 91 385 240 3,797 2016 £000’s 3,797 (9) 63 395 228 4,474 ULS Technology Annual Report 2017 17 John Williams Finance Director Shares and dividends In December 2016, the Group paid an interim dividend of 1.10 pence per share. It has proposed a final dividend of 1.10 pence per share in line with its aim of paying the total dividend in two equal amounts. No new shares have been issued in the year. Acquisition of Conveyancing Alliance Holdings Limited On the 19 December 2016, the Group acquired the entire share capital of Conveyancing Alliance Holdings Limited and its wholly owned subsidiary, Conveyancing Alliance Limited. This was for an initial cash consideration of £7.2m plus an amount for free cash, together with an earn-out until 31 March 2019 to be wholly satisfied in cash. Cash and debt The Group continued to generate positive operating cash flow: • Payments of £890,000 made to repay the term loan with Clydesdale Bank in full ahead of schedule; • Arrangement of £7million HSBC facility (term loan and RCF) and acquisition of CAL; • Dividends paid of £0.9 million; and • Leverage down to 0.69 as at 31 March 2017 despite acquisition of CAL only a few months earlier. The underlying position of the Group is that it continues to turn a significant proportion of its profit into cash, which it expects to allow payment of a progressive dividend, while still investing in the growth of the business. Where opportunities exist, the business will also take on debt facilities to fund acquisition growth and currently uses a guideline of having a maximum leverage of one times EBITDA which it is currently well below. Its bank covenants allow for much higher leverage. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 18 Group strategy is to focus on continual improvement, innovation and quality, and acquire businesses in sectors we understand. ULS Technology Annual Report 2017 Principal risks and uncertainties 19 Risk Areas Potential Impact Mitigation Loss of key introducer The contract with Lloyds Banking Group delivers significant gross margin. The loss of this contract would clearly have a significant impact on the scale and performance of the Group although there are a number of parts to the contract. Loss of key panel firms The Group operates a panel of over 100 solicitors and licensed conveyancer firms, but the largest firms receive significant percentages of the work. Macro-economic conditions The revenue of the business is closely linked with the number of transactions in the UK housing market. New products The Group continually looks to innovate and develop new products. Competition There are a number of competitors of varying sizes across the market. The loss of a major panel firm could impact on the Group’s ability to fulfil all the orders it receives and could reduce price competition. Changes in interest rates, house prices, government policy, GDP growth and wider economic factors can positively or negatively impact the number of housing transactions. When developing products there is a risk that products developed are not commercially successful or cost more to develop than planned. Where there is competition there is always a risk that others will gain a competitive edge and either make it more difficult to win new customers and/or to retain existing customers. IT systems The Group is dependent on its IT systems to be able to provide its services. Computer systems are inherently open to failure or security breaches. These could impact the ability of the Group to be able to provide its service and serious failures could result in the loss of customers. The Group is widening its routes to market and has now reduced the share of gross margin attributable to this contract to below 40% on a run-rate basis. Additionally, it works closely with Lloyds Banking Group to ensure it is delivering a high level of service and constantly enhancing the service being offered. This includes recently being part of Lloyds Digital World project. The Group constantly monitors its panel of firms and their capacity and looks to bring on new firms across a range of sizes to maintain sufficient capacity within the model and keep prices at a competitive level, while keeping quality of service high. The Group is widening its distribution channels by increasing the number of introducers as well as the markets they operate in. This means that the Group is not solely reliant on growth in the general market for its own growth. Additionally, by increasing its spread it has reduced its risk from changes in specific areas such as the recent tax changes in the buy-to-let market. It has demonstrated this by growing in a falling market. The Group plans to continually gather and obtain market research prior to the launch of any new initiative. The Group is focused on continual improvement, innovation and quality in order to maintain its competitive advantage and values existing introducers as much as potential new ones. Additionally, while the Group is increasing its market share it still holds a relatively small percentage and there is plenty of scope for growth. There are also opportunities within competitors as illustrated by the recent acquisition of CAL. The Group ensures that anti-virus software is kept up-to-date and regular penetration tests are performed. The main servers are located off-site at dual locations, enabling immediate failover in the event of a server becoming unavailable at one of the locations. Acquisitions The Group has made acquisitions and plans to continue to be acquisitive. Making acquisitions is inherently risky. Risks include over paying, not achieving expected synergies and impact on the existing business due to distraction of management. The general strategy of the Group is to acquire businesses in sectors it understands, to undertake proper due diligence and to resource sufficiently and effectively. Acquisitions made to date have maintained or exceeded value paid for them. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 20 Board of Directors 01 02 Peter Opperman Non-executive Chairman Ben Thompson Chief Executive Officer 03 John Williams Finance Director Peter joined the Company in January 2011 at the point that Lloyds Development Capital (LDC) invested in the business. Peter has spent over 20 years in executive and Non-executive roles working in private equity backed businesses. Peter is currently Non-executive Chairman of Adestra Limited, Decision Technology Limited and Connect Managed Services Limited. Ben has been in financial services since 1986 and joined ULS Technology in 2014 as Managing Director, before assuming the role of Chief Executive officer in November 2015. Prior to his appointment, he was at Legal & General, where he ran their market-leading mortgage distribution business, as well as the banking division. Ben previously held roles at Paymentshield, St. James’s Place, Winterthur Life and TSB. His career has most recently been focused on mortgages and financial services. However, Ben also has good experience in both retail and private banking, as well as a wealth of experience in residential property, in particular estate agency. John joined the business in January 2011 at the point of LDC’s investment in the Group. Prior to joining the Company, John was Finance Director at Stortext FM Limited, a private equity backed SaaS business specialising in document management. There, he led a merger process before taking the lead in a successful trade sale of the merged entity to Box-it Limited. John is a chartered accountant, having qualified with Ernst & Young, before he gained blue-chip experience with Motorola in a number of roles. ULS Technology Annual Report 2017 21 04 Andrew Weston Co-founder and IT Director 05 Geoff Wicks Independent Non-executive Director Andrew co-founded ULS in 2003. He started his career developing and implementing software solutions at PE International plc and Vintner Computer Systems. He founded his own businesses: Weston Computing, in 1995; and Weston Technology in 2000. Geoff Wicks was CEO of Group NBT plc, a specialist in online brand protection and digital asset management, from 2001 until he led the sale of the business to HgCapital in 2011. He remained as part of the Group NBT business, now renamed NetNames, as a Non-executive Director until 2013. Andrew has spent the last 14 years building property, financial and legal services applications for the Group and also co-founded ehips Ltd in 2007, now part of ULS. Geoff spent much of his earlier career at Reuters, including heading divisions in the UK, France and Nordic regions, and latterly was Director of Corporate Communications. Prior to Reuters, Geoff worked in the banking and insurance industries. ULS Technology Annual Report 2017OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 22 Directors’ report The Directors present their report and the financial statements of ULS for the year ended 31 March 2017. Principal activity The Company acts as a holding company for its three subsidiaries and provides management services to its subsidiary companies. The main subsidiary, United Legal Services Limited, develops and provides software that supports the provision of online legal comparison services, particularly in the conveyancing sector. Its disruptive technology creates competition amongst the providers of legal services to the benefit of the consumer. Conveyancing Alliance Limited operates in a similar fashion. Legal-Eye Limited provides risk management and compliance services to solicitors and licensed conveyancers. United Home Services Limited develops, hosts and operates web based systems that provide property information, including energy performance certificates (EPCs). It is has also developed a commercial proposition for the estate agency comparison product. Its operations are currently immaterial to the Group. Review of business and future developments The review of the business and future developments is outlined in the Chairman’s statement on pages 6 to 7 and the Chief Executive’s Statement on pages 14 to 15. Dividends A final dividend in respect of the year ended 31 March 2016 of 0.26 pence per share was paid on 5 August 2016. An interim dividend of 1.10 pence per share was paid on 16 December 2016. A final dividend of 1.10 pence per share is proposed by the Directors subject to approval at the AGM. Directors The Directors of the company during the year and their beneficial interest in the ordinary shares and share options of the company at 31 March 2017 are set out below: Nigel Hoath Peter Opperman Andrew Weston John Williams Ben Thompson Geoffrey Wicks Ordinary shares Share options 2017 2016 2017 2016 7,628,414 7,628,414 2,704,625 2,704,625 1,276,625 1,276,625 48,291 20,000 52,000 48,291 20,000 52,000 – – 226,898 485,809 – – – 258,911 1,942,337 1,618,197 – – 11,729,955 11,729,955 2,655,044 1,877,108 Directors’ remuneration The following table sets out an analysis of the pre-tax remuneration for the year ended 31 March 2017 for the individual directors who held office in the company during the year: Nigel Hoath Peter Opperman Andrew Weston John Williams Ben Thompson Geoffrey Wicks Nigel Hoath resigned as a Director on 2 August 2016. 2017 Salary/fees £ 21,780 35,000 110,000 92,700 140,000 36,050 435,530 2017 Bonuses £ – – 25,000 45,000 80,000 – 2017 Benefits in kind £ 2017 Share-based payment £ – 51 565 476 719 – – – 3,280 9,046 29,833 – 150,000 1,811 42,159 2017 Total £ 21,780 35,051 138,845 147,222 250,552 36,050 629,500 2016 Total £ 235,750 30,833 135,833 127,870 260,152 35,613 826,051 ULS Technology Annual Report 2017 23 Share options and warrants The share-based payment of £42,159 (2016: £30,918) to Directors represents the share-based expense relating to share options issued in prior years. The following share options table comprises share options held by Directors who held office during the year ended 31 March 2017: John Williams John Williams Ben Thompson Ben Thompson Ben Thompson Andrew Weston Options granted in period Options exercised in period Options held at 31 March 2017 Options held at 31 March 2016 258,911 – – 226,898 970,918 647,279 – – – – 324,140 226,898 – – – – – – 258,911 226,898 970,918 647,279 324,140 226,898 Exercise price (p) Exercisable from Exercisable to 40.00 76.75 39.50 47.50 76.75 76.75 18/08/17 21/12/19 28/11/17 30/03/18 21/12/19 21/12/19 17/08/24 20/12/26 27/11/24 29/03/25 20/12/26 20/12/26 Research and development The Group develops software products in-house and CAL uses an external provider to do the same. These are capitalised in line with the accounting policies shown on page 31. Financial instruments and risks The Group’s operations expose it to a variety of liquidity, credit and interest rate risks. Details of the use of financial instruments by ULS and these risks are contained in pages 50 to 52 of the financial statements. Corporate governance ULS Technology plc and its subsidiaries are committed to high standards of corporate governance. The Directors recognise the importance of sound corporate governance and confirm that they aim to comply with best practice appropriate for a company of its nature and scale. Audit Committee The Audit Committee is chaired by Peter Opperman and includes Geoff Wicks. It meets at least twice a year and may invite other Directors to attend its meetings. The committee is responsible for reviewing a wide range of matters, including half- year and annual results before their submission to the Board, and for monitoring the controls that are in force to ensure the integrity of information reported to the shareholders. Employee involvement The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them as employees and on the various factors affecting the performance of the Group. This is achieved through informal discussions between Group management, operating company management and employees as well as regular ‘town hall’ meetings. The Group operates an EMI share option scheme and, as well as options issued to Directors as shown above, options have also been issued to and are held by a significant number of employees. Substantial shareholders The Company has been notified of the following interests of 3 per cent or more in its issued share capital as at 31 March 2017. Shareholder Kestrel Partners LLP Schroder Investment Management Nigel Hoath* No. of shares 14,304,192 8,380,000 7,628,414 City Financial Investment Company Ltd 5,013,912 Herald Investment Management Ltd 4,650,000 Lombard Odier Asset Management (Europe) Ltd Unicorn Asset Management Ltd Peter Opperman** Octopus Investments Ltd 3,915,000 3,750,200 2,704,625 2,571,041 Artemis Investment Management LLP 2,500,000 % 22.06 12.93 11.77 7,73 7.17 6.04 5.78 4.17 3.97 3.86 * Nigel Hoath Non-executive Director (resigned 2 August 2016) ** Peter Opperman Non-executive Director ULS Technology Annual Report 2017OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 24 Directors’ report continued Remuneration Committee The Remuneration Committee is chaired by Geoff Wicks and includes Peter Opperman. It meets at least twice a year and no Director is permitted to participate in discussion or decisions concerning his own remuneration. The Remuneration Committee reviews the performance of the Executive Directors. It sets and reviews the scale and structure of their remuneration, the basis of their remuneration and the terms of their service agreements with due regard to the interests of shareholders. In determining the remuneration of Executive Directors, the Remuneration Committee will seek to enable the Group to attract and retain staff of the highest calibre. The Remuneration Committee will also make recommendations to the Board concerning the allocation of share options to employees. Nominations Committee The Nominations Committee is chaired by Peter Opperman and includes Geoff Wicks. It meets at least twice a year and is responsible for reviewing the size, structure and composition of the board, succession planning, the appointment and/or replacement of additional directors and for making appropriate recommendations to the board. Share dealing code The Group has adopted a share dealing code for Directors and applicable employees of the Group for the purpose of ensuring compliance by such persons with the provisions of the AIM rules relating to dealings in the Group’s securities (including, in particular, Rule 21 of the AIM rules). The Directors consider that this share dealing code is appropriate for a company whose shares are admitted to trading on AIM. The Group takes proper steps to ensure compliance by the Directors and applicable employees with the terms of the share dealing code and the relevant provisions of the AIM rules (including Rule 21). Website publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Group’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Disclosure of information to auditors The Directors confirm that, in so far as each Director is aware: • There is no relevant audit information of which the Group’s auditor is unaware; and • The Directors have taken all steps that they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Group’s auditor is aware of that information. Directors’ responsibilities statement The Directors are responsible for preparing the strategic report, Directors’ report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable laws). 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 and loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgments and accounting estimates that are reasonable and prudent; • State whether applicable IFRSs and UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions, and disclose with reasonable accuracy at any time the financial position of the Group, and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Auditors Grant Thornton UK LLP are the appointed auditor of ULS Technology plc. A resolution to reappoint them as auditors and to authorise the Directors to agree their remuneration will be placed before the forthcoming Annual General Meeting of the Company. Approved by the Board of Directors and signed on its behalf: Ben Thompson CEO ULS Technology plc John Williams Finance Director ULS Technology plc 26 June 2017 Company number: 07466574 ULS Technology Annual Report 2017 Independent auditor’s report to the members of ULS Technology plc 25 We have audited the financial statements of ULS Technology plc for the year ended 31 March 2017 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the notes to the consolidated financial statements, the Parent Company Balance Sheet and the notes to the Parent Company financial statements. • 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; and, as regards the Group financial statements, Article 4 of the IAS regulation. The financial reporting framework that has been applied in the preparation of the consolidated financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 (United Kingdom Generally Accepted Accounting Practice) including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and Directors’ Report has been prepared in accordance with applicable legal requirements. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 24, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate Opinion on financial statements In our opinion: • The financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2017 and of the Group’s profit for the year then ended; • The consolidated financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; Matter on which we are required to report under the Companies Act 2006 • In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report and Directors’ Report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • Adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • The parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • Certain disclosures of directors’ remuneration specified by law are not made; or • We have not received all the information and explanations we require for our audit. Tracey James Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Oxford 26 June 2017 ULS Technology Annual Report 2017OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 26 Consolidated income statement for the year ended 31 March 2017 Revenue Cost of sales Gross profit Administrative expenses Operating profit before exceptional expenses Exceptional admin expenses Operating profit Finance income Finance costs Exceptional finance costs Profit before tax Tax expense Profit for the financial year attributable to the Group’s equity shareholders Earnings per share from operations Basic earnings per share (£) Diluted earnings per share (£) Notes 1 3 2 5 6 6 7 8 8 2017 £000’s 22,260 (12,796) 9,464 (5,233) 4,231 (386) 3,845 12 (83) (318) 3,456 (581) 2016 £000’s 20,658 (11,997) 8,661 (4,901) 3,760 (385) 3,375 9 (63) (240) 3,081 (704) 2,875 2,377 0.0443 0.0421 0.0367 0.0351 ULS Technology Annual Report 2017 Consolidated statement of comprehensive income for the year ended 31 March 2017 27 Profit for the financial year Total comprehensive income for the financial year attributable to the owners of the parent 2017 £000’s 2,875 2016 £000’s 2,377 2,875 2,377 OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 28 Consolidated balance sheet as at 31 March 2017 Assets Non-current assets Intangible assets Goodwill AFS financial assets Investment in associates Property, plant and equipment Long-term receivables Prepayments Current assets Inventory Trade and other receivables Cash and cash equivalents Total assets Equity and liabilities Capital and reserves attributable to the group’s equity shareholders Share capital Share premium Capital redemption reserve Share based payment reserve Retained earnings Total equity Non-current liabilities Borrowings Deferred consideration Deferred taxation Current liabilities Trade and other payables Borrowings Current tax payable Total liabilities Total equity and liabilities Notes 13 10 11 12 14 16 16 15 16 17 18 20 28 7 19 20 2017 £000’s 7,064 11,008 100 549 516 200 173 2016 £000’s 2,945 4,524 100 575 485 100 181 19,610 8,910 40 1,676 2,242 3,958 22 1,301 3,781 5,104 23,568 14,014 259 4,585 113 151 4,145 9,253 3,750 2,613 1,092 7,455 4,229 2,000 631 6,860 14,315 23,568 259 4,585 113 80 2,148 7,185 170 852 438 1,460 4,234 720 415 5,369 6,829 14,014 The financial statements were approved by the Board of Directors on 26 June 2017 and were signed on its behalf by: Ben Thompson Chief Executive Officer ULS Technology plc John Williams Finance Director ULS Technology plc Company number: 07466574 ULS Technology Annual Report 2017 Consolidated statement of changes in equity for the year ended 31 March 2017 29 Balance at 1 April 2015 Profit for the year Total comprehensive income Issue of shares Share-based payments Payment of dividends Total transactions with owners Balance at 31 March 2016 Balance at 1 April 2016 Profit for the year Total comprehensive income Exercise of options Share-based payments Payment of dividends Total transactions with owners Share capital £000’s 259 Share premium £000’s 4,530 Capital Redemption Reserve £000’s 113 – – – – – – 259 259 – – – – – – – – 55 – – 55 4,585 4,585 – – – – – – – – – – – – 113 113 – – – – – – Balance at 31 March 2017 259 4,585 113 Share- based payments reserve £000’s Retained earnings £000’s 23 – – – 57 – 57 80 80 – – (1) 72 – 71 151 1,609 2,377 2,377 – – (1,838) (1,838) 2,148 2,148 2,875 2,875 1 – (879) (878) 4,145 Total Equity £000’s 6,534 2,377 2,377 55 57 (1,838) (1,726) 7,185 7,185 2,875 2,875 - 72 (879) (807) 9,253 OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 30 Consolidated statement of cash flows for the year ended 31 March 2017 Cash flow from operating activities Profit for the financial year before tax Finance income Finance costs Loss/(profit) on disposal of plant and equipment Share of loss from associate Amortisation Depreciation Share-based payments Tax paid Changes in working capital (Increase)/decrease in inventories Increase in trade and other receivables (Decrease)/increase in trade and other payables Cash inflow from operating activities Cash flow from investing activities Purchase of intangible software assets Purchase of property, plant and equipment Disposal of property, plant and equipment Acquisition of associates/investments Acquisition of subsidiary (net of cash acquired) Payment of deferred consideration Interest received Net cash used in investing activities Cash flow from financing activities Share issue proceeds (net of issue costs) Dividends paid Interest paid New loans Repayment of loans Notes 2017 £000’s 2016 £000’s 3,456 3,081 5 6 12 13 14 13 14 11/12 28 5 18a 32 6 20 20 (12) 401 1 26 599 271 72 (625) 4,189 (18) (246) (68) 3,857 (642) (281) 4 – (6,989) (1,080) 12 (8,976) – (879) (401) 7,000 (2,140) (9) 303 (1) – 486 228 57 (678) 3,467 7 (693) 1,894 4,675 (285) (51) 4 (575) – – 9 (898) 55 (1,838) (303) – (720) Net cash generated from/(used in) financing activities 3,580 (2,806) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year (1,539) 3,781 2,242 971 2,810 3,781 ULS Technology Annual Report 2017 Notes to the consolidated financial statements Principal accounting policies 31 Basis of preparation The Consolidated Financial Statements of ULS Technology plc and its subsidiaries (together, “the Group”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the EU, IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. IFRS is subject to amendment and interpretation by the International Accounting Standards Board (“IASB”) and the IFRS Interpretations Committee, and there is an on-going process of review and endorsement by the European Commission. These accounting policies comply with each IFRS that is mandatory for accounting periods ending on 31 March 2017. The financial statements have been prepared under the historical cost convention. The principal accounting policies set out below have been consistently applied to all periods presented. Basis of consolidation The Consolidated Financial Statements incorporate the results of ULS Technology plc (“the company”) and entities controlled by the company (its subsidiaries). Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities and the ability to use its power over the investee to affect the returns from the investee. Income and expenses of subsidiaries acquired or disposed of during the year are included in the Consolidated Income Statement from the effective date of acquisition and up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Business combinations The group financial statements consolidate those of the parent company and all of its subsidiaries as of 31 March 2017. All subsidiaries have a reporting date of 31 March except Conveyancing Alliance Holdings Limited and its subsidiary Conveyancing Alliance Limited, although their results for the period since acquisition to 31 March 2017 have been included in the consolidated numbers. The reporting date for these companies has now been changed to 31 March which will come in to effect for the period ending 31 March 2018. The group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. All transactions and balances between group companies are eliminated on consolidation, including unrealised gains and losses on transactions between group companies. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Acquisition-related costs are expensed as incurred. Interest in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The post-tax results of associates are incorporated in the Group’s results using the equity method of accounting. Under the equity method, investments in associates are carried in the Consolidated Balance Sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of investment. Losses of associates in excess of the Group’s interest in that associate are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture or associate. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 32 Notes to the consolidated financial statements Principal accounting policies continued Revenue recognition Revenue recognised represents the value of all services provided during the period at selling price exclusive of Value Added Tax. Revenue is recognised at the point at which the Group has fulfilled its contractual obligation to the customer, which is considered to be on completion of legal services. Typically, for a conveyancing transaction, this will be on completion of the property transaction and if the transaction falls through prior to completion, the customer does not have to pay. The proportion of the fee that ULS receives on completion of a conveyancing transaction that is remitted to a third party, such as a mortgage broker or intermediary, is recognised as a cost of sale. This is because the group bears most of the credit risk, delivers the service and sets the pricing. Segmental reporting An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses related to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s Chief Operating Decision Maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Chief Operating Decision Maker has been identified as the Board of Executive Directors, at which level strategic decisions are made. Details of the Group’s reporting segments are provided in note 1. Operating expenses Operating expenses are recognised in profit or loss upon utilisation of the service or as incurred. Exceptional operating expenses are non-recurring in nature and of a material size. Items are classified as exceptional to aid the understanding of the underlying performance of the business. Finance income and costs Interest is recognised using the effective interest method which calculates the amortised cost of a financial asset or liability and allocates the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability to the net carrying amount of the financial asset or liability. Goodwill Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. Other intangible assets Capitalised development expenditure An internally-generated intangible asset arising from development expenditure is recognised if, and only if, all of the following criteria have been demonstrated: • The technical feasibility of completing the intangible asset so that it will be available for use of sale; • The intention to complete the intangible asset and use or sell it; • The ability to use or sell the intangible asset; • How the intangible asset will generate probable future economic benefits; • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • The ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is expensed in the period in which it is incurred. ULS Technology Annual Report 2017 33 Amortisation is calculated so as to write off the cost of an asset, net of any residual value, over the estimated useful life of that asset as follows: Capital development expenditure – Straight line over 4–7 years Brand names and customers lists Brand names and customer lists acquired in a business combination that qualify for separate recognition are recognised as intangible assets at their fair values. Amortisation is calculated so as to write off the cost of an asset on a straight line basis, net of any residual value, over the estimated useful life of that asset as follows: Customer and supplier relationships – 10 to 20 years Brand names – 10 years Acquired technology platform – 9 years Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and less any recognised impairment losses. Cost includes expenditure that is directly attributable to the acquisition or construction of these items. Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the group and the costs can be measured reliably. All other costs, including repairs and maintenance costs, are charged to the Income Statement in the period in which they are incurred. Depreciation is provided on all property, plant and equipment and is calculated on a straight-line basis as follows: Leasehold improvements – Over the life of the lease Computer equipment – 25% on cost Fixtures and fittings – 25% on cost Depreciation is provided on cost less residual value over the asset’s useful life. The residual value, depreciation methods and useful lives are annually reassessed. Each asset’s estimated useful life has been assessed with regard to its own physical life limitations and to possible future variations in those assessments. Estimates of remaining useful lives are made on a regular basis for all equipment, with annual reassessments for major items. Changes in estimates are accounted for prospectively. The gain or loss arising on disposal or scrapping of an asset is determined as the difference between the sales proceeds, net of selling costs, and the carrying amount of the asset and is recognised in the Income Statement. Impairment of non-current assets including goodwill For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash- generating units) that is expected to benefit from the synergies of the combination. Each unit to which goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. At each balance sheet reporting date the Directors review the carrying amounts of the Group’s tangible and intangible assets, other than goodwill, to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 34 Notes to the consolidated financial statements Principal accounting policies continued Impairment of non-current assets including goodwill continued If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. If the recoverable amount of a cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. An impairment loss is recognised as an expense immediately. An impairment loss recognised for goodwill is not reversed in subsequent periods. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior periods. A reversal of an impairment loss is recognised in the Income Statement immediately. Inventories Work in progress is valued on the basis of direct costs attributable to jobs under completion at the reporting date. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets and financial liabilities are measured initially at fair value plus transactions costs. Financial assets and financial liabilities are measured subsequently as described below. Financial assets The Group classifies its financial assets as ‘loans and receivables’ and available for sale (AFS) financial assets. The Group assesses at each balance sheet reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables are classified as ‘trade and other receivables’ in the Balance Sheet. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulty, high probability of bankruptcy or a financial reorganisation and default are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at original effective interest rate. The loss is recognised in the Income Statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the Income Statement. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. AFS financial assets AFS financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. The Group’s AFS financial assets includes the Group’s 15% share in Financial Eye Limited. The equity investment in Financial Eye Limited is measured at cost less any impairment charges, as its fair value cannot currently be estimated reliably. Impairment charges are recognised in profit or loss. ULS Technology Annual Report 2017 35 Financial liabilities The Group’s financial liabilities include trade and other payables, borrowings and contingent consideration. Trade payables and borrowings are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Contingent consideration is measured at fair value at each reporting date with movements recognised as a profit or loss. A financial liability is de-recognised when it is extinguished, discharged, cancelled or expires. Current taxation Current taxation for each taxable entity in the Group is based on the taxable income at the UK statutory tax rate enacted or substantively enacted at the balance sheet reporting date and includes adjustments to tax payable or recoverable in respect of previous periods. Deferred taxation Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial information. However, if the deferred tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax liabilities are provided in full. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Income Statement, except where they relate to items that are charged or credited directly to equity or other comprehensive income in which case the related deferred tax is also charged or credited directly to equity or other comprehensive income. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Employment benefits Provision is made in the financial information for all employee benefits. Liabilities for wages and salaries, including non-monetary benefit and annual leave obliged to be settled within 12 months of the balance sheet reporting date, are recognised in accruals. The Group’s contributions to defined contribution pension plans are charged to the Income Statement in the period to which the contributions relate. Leasing Operating lease payments are recognised as an expense on a straight-line basis over the lease term. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 36 Notes to the consolidated financial statements Principal accounting policies continued Equity and reserves Equity and reserves comprises the following: • “Share capital” represents amounts subscribed for shares at nominal value • “Share premium” represents amounts subscribed for share capital, net of issue costs, in excess of nominal value • “Capital redemption reserve” represents the nominal value of re-purchased share capital • “Share based payment reserve” represents the accumulated value of share-based payments expensed in the profit and loss • “Retained earnings” represents the accumulated profits and losses attributable to equity shareholders. Share-based employee remuneration The Group operates share option based remuneration plan for its employees. None of the Group’s plans are cash settled. Where employees are rewarded using share-based payments, the fair value of employees’ services is determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date using a Black- Scholes model. All share-based remuneration is ultimately recognised as an expense in profit and loss with a corresponding credit to retained earnings. The expense is allocated over the vesting period. Other than the requirement to be an employee at the point of exercise there are no other vesting requirements and all share options are expected to become exercisable. Subsequent revisions to this give rise to an adjustment to cumulative share-based compensation which is recognised in the current period. The number of vested options ultimately exercised by holders does not impact the expense recorded in any period. Upon exercise of share options, the proceeds received net of any directly attributable transaction costs, are allocated to share capital up to the nominal (par) value of the shares issued with any excess being recorded as share premium. Contingent liabilities No liability is recognised if an outflow of economic resources as a result of present obligations is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote. New and amended International Financial Reporting Standards adopted by the group There were no new standards, amendments to standards or interpretations which are effective for the first time this year applicable to or which had a material effect on the Group. International Financial Reporting Standards in issue but not yet effective At the date of authorisation of these Consolidated Financial Statements, the IASB and IFRS Interpretations Committee have issued standards, interpretations and amendments which are applicable to the Group. Whilst these standards and interpretations are not effective for, and have not been applied in the preparation of, these Consolidated Financial Statements, the following may have an impact going forward: New/Revised International Financial Reporting Standards IFRS 9 Financial Instruments: Classification and Measurement Effective date: annual periods beginning on or after: 1 January 2018 IFRS 15 Revenue from Contracts with Customers 1 January 2018 IFRS 16 Leases 1 January 2019 EU adopted Impact on group Yes Yes No No material impact No material impact Most operating leases will be capitalised on the balance sheet ULS Technology Annual Report 2017 37 Critical accounting judgements and key sources of estimation uncertainty The preparation of financial information in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet reporting date and the reported amounts of revenues and expenses during the reporting period. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Estimates The following are the significant estimates used in applying the accounting policies of the group that have the most significant effect on the financial statements: Fair value of intangible assets acquired in business combinations In determining the fair value of intangible assets acquired in business combinations, estimates have been used by a specialist valuation company on behalf of management, using information supplied by management, in order to determine the fair values using appropriate modelling techniques. Impairment review The Group assesses the useful life of intangible assets to determine if there is a definite or indefinite period of useful economic life; this requires the exercise of judgement and directly affects the amortisation charge on the asset. The Group tests whether there are any indicators of impairment at each reporting date. Discounted cash flows are used to assess the recoverable amount of each cash generating unit, and this requires estimates to be made. If there is no appropriate method of valuation of an intangible asset, or no clear market value, management will use valuation techniques to determine the value. This will require assumptions and estimates to be made. Useful lives of depreciable assets Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technological obsolescence that may change the utility of certain software and IT equipment. Contingent consideration arising on business combinations Contingent consideration is payable based on the future performance of an acquisition to the former shareholders. The likelihood of payment and ultimate value payable are a matter of judgement. Contingent Consideration occurs in the circumstances where an element of the consideration for an acquired business is determined based upon one or more criteria that are achievable in future periods. The most commonly applied is the achievement of forecast profitability. A defined value of consideration will be payable based on such achievement, and any underperformance against those targets will be credited back to the Income Statement. Judgements The following are the significant judgements used in applying the accounting policies of the Group that have the most significant effect on the financial information: Capitalisation of development expenditure The Group applies judgement in determining whether internal research and development projects meet the qualifying criteria set out in IAS 38 for the capitalisation of development expenditure as internally generated intangible assets. The particular uncertainty and judgment centres around whether a project will be commercially successful, particularly in the pre-revenue phase. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 38 Notes to the consolidated financial statements continued 1. Segmental reporting Operating segments Management identifies its operating segments based on the Group’s service lines, which represent the main product and services provided by the Group. The Group’s three main operating segments, which are all in the UK, are: • Comparison services • Compliance consultancy for the legal sector • All other segments which includes head office functions. Any inter-segment indebtedness is excluded when arriving at the assets and liabilities for each segment. Consolidation items such as goodwill and intangibles sit within ‘Other’. Comparison £’000s Compliance £’000s Other £’000s Total £’000s For the year ended 31 March 2016 Revenue Operating profit Total assets Total liabilities For the year ended 31 March 2017 Revenue Operating profit Total assets Total liabilities 19,657 4,191 5,745 3,280 21,357 4,858 5,623 3,713 1,001 394 604 168 903 129 264 140 Revenues from customers who contributed more than 10% of revenues were as follows: 1 2 3 2. Operating profit Operating profit is stated after charging: Fees payable to the Group’s auditors for the audit of the annual financial statements Fees payable to the Group’s auditors and its associates for other services to the Group: – Audit of the accounts of subsidiaries – Tax compliance services – Other services Amortisation Depreciation Operating lease rentals payable: – Office and equipment – (1,210) 7,665 3,381 – (1,142) 17,681 10,462 2017 £000’s 3,523 2,785 2,606 20,658 3,375 14,014 6,829 22,260 3,845 23,568 14,315 2016 £000’s 3,768 – 2,178 2017 £000’s 2016 £000’s 27 20 7 2 599 271 53 12 20 7 – 486 228 58 ULS Technology Annual Report 2017 3. Exceptional administrative expenses Acquisition expenses Adjustment to expected deferred consideration 39 2017 £000’s 2016 £000’s 386 – 386 52 333 385 4. Directors and employees The aggregate payroll costs of the employees, including both management and Executive Directors, were as follows: Staff costs Wages and salaries Social security costs Pension costs Average monthly number of persons employed by the Group during the year was as follows: By activity: Production Distribution Administrative Management Remuneration of Directors Emoluments for qualifying services Pension contributions Social security costs Highest paid Director Remuneration The highest paid Director received share options as shown in the Directors’ report on page 22. A breakdown of the emoluments for Directors can be found in the Directors’ report on page 22. Key management personnel are identified as the Executive Directors. 2017 £000’s 2016 £000’s 3,115 471 51 3,637 3,008 284 2 3,294 2017 Number 2016 Number 22 20 18 10 70 22 15 16 8 61 2017 £000’s 2016 £000’s 628 2 89 719 826 – 62 888 2017 £000’s 2016 £000’s 251 260 OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 40 Notes to the consolidated financial statements continued 4. Directors and employees continued Share options have been issued to Directors during the 2017 financial year see page 23. No share options have been exercised by any of the Directors, and payments of pensions contributions have been made on behalf of Directors (see page 39). 5. Finance income Bank interest 6. Finance costs Interest on borrowings Exceptional Finance costs NPV adjustment of deferred consideration 7. Taxation Analysis of credit in year Current tax United Kingdom 2017 £000’s 12 2016 £000’s 9 2017 £000’s (83) 2016 £000’s (63) (318) (240) 2017 £000’s 2016 £000’s UK corporation tax on profits for the year 608 765 Deferred tax United Kingdom Origination and reversal of temporary differences Corporation tax charge The differences are explained as follows: Profit before tax UK corporation tax rate Expected tax expense Adjustments relating to prior year Adjustment for changes in tax rate Adjustment for additional R&D tax relief Adjustment for non-deductible expenses – Expenses not deductible for tax purposes – Other permanent differences Income tax charge (27) 581 (61) 704 2017 £000’s 3,456 20% 2016 £000’s 3,081 20% 691 (113) (2) (159) 164 – 581 616 – (9) (109) 179 27 704 ULS Technology Annual Report 2017 41 Deferred tax Deferred tax liabilities at applicable rate for the period of 20%: Opening balance at 1 April – Property, plant and equipment and capitalised development spend temporary differences – Deferred tax recognised on acquisitions of Legal Eye and Conveyancing Alliance (note 28) Deferred tax liabilities – closing balance at 31 March 2017 £000’s 2016 £000’s 438 10 644 1,092 499 (43) (18) 438 8. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to Ordinary Shareholders by the weighted average number of Ordinary Shares outstanding during the year. Basic earnings per share Total basic earnings per share Total diluted earnings per share 2017 £ 0.0443 2016 £ 0.0367 0.0421 0.0351 The earnings and weighted average number of Ordinary Shares used in the calculation of basic earnings per share were as follows: Earnings used in the calculation of total basic and diluted earnings per share Number of shares 2017 £000’s 2,875 2016 £000’s 2,377 2017 Number 2016 Number Weighted average number of Ordinary Shares for the purposes of basic earnings per share 64,828,057 64,735,539 Taking the Group’s share options and warrants into consideration in respect of the Group’s weighted average number of ordinary shares for the purposes of diluted earnings per share, is as follows: Number of shares Dilutive (potential dilutive) effect of share options, conversion shares and warrants 2017 Number 2016 Number 3,542,525 3,039,893 Weighted average number of ordinary shares for the purposes of diluted earnings per share 68,370,582 67,775,432 OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 42 Notes to the consolidated financial statements continued 9. Subsidiaries Details of the Group’s subsidiaries are as follows: Name of subsidiary Principal activity United Legal Services Limited Development and hosting of internet based software applications for legal services businesses United Home Services Limited Development and hosting of internet based software applications for property services businesses Legal-Eye Limited Compliance consultancy services for solicitors Class of shares Place of incorporation and operation Ordinary England & Wales % ownership held by the group 2017 100% 2016 100% Ordinary England & Wales 100% 100% Ordinary England & Wales 100% 100% Conveyancing Alliance (Holdings) Limited Intermediary non-trading holding company Ordinary England & Wales 100% Conveyancing Alliance Limited Development and hosting of internet based software applications for legal services businesses Ordinary England & Wales 100% – – 10. Goodwill Opening value at 1 April Acquired in the year (see note 28) Closing value at 31 March 2017 £000’s 4,524 6,484 11,008 2016 £000’s 4,524 – 4,524 ULS Technology CGU All of the carrying amount of goodwill acquired prior to 31 March 2014 is allocated to the cash generating unit (CGU) of the ULS Technology group of companies. The recoverable amount of the ULS Technology CGU has been determined from value in use calculations based on cash flow projections from a formally approved 12 month forecast which has been extrapolated out over a five-year period. Other major assumptions are as follows: Impairment review date Discount rate Growth assumptions used to extrapolate one-year budget forecast: – 2 years – 3 years – 4 years – 5 years 2017 % 12.0 1.0 1.0 1.0 1.0 2016 % 12.0 1.0 1.0 1.0 1.0 ULS Technology Annual Report 2017 43 Discount rates are based on management’s assessment of specific risks related to the CGU. Growth rates beyond the first year to year five are based on economic data for the wider economy, and represent a prudent expectation of growth. The recoverable amount for the ULS Technology CGU exceeds its carrying amount by the following amounts in each year assessed: Amount by which recoverable amount exceeds carrying amount 2017 £’000 11,790 2016 £’000 11,447 The Directors believe that any reasonable possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit. Legal Eye CGU The recoverable amount of the Legal Eye CGU has been determined from value in use calculations based on cash flow projections from a formally approved 24 month forecast which has been extrapolated out over a five-year period followed by a perpetuity. Other major assumptions are as follows: Impairment review date Discount rate Growth assumptions used to extrapolate 2 year budget forecast: – 3 years – 4 years – 5 years – Terminal Value 2017 % 12.0 1.0 1.0 1.0 1.0 2016 % 12.0 1.0 1.0 1.0 1.0 Discount rates are based on management’s assessment of specific risks related to the CGU. Growth rates beyond the first year are based on economic data for the wider economy, and represent a prudent expectation of growth. The recoverable amount for the Legal Eye CGU exceeds its carrying amount by the following amounts in each year assessed: Amount by which recoverable amount exceeds carrying amount 2017 £’000 1,859 2016 £’000 1,932 The Directors believe that any reasonable possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 44 Notes to the consolidated financial statements continued 10. Goodwill continued Conveyancing Alliance CGU The recoverable amount of the Conveyancing Alliance CGU has been determined from value in use calculations based on cash flow projections from a formally approved 24 month forecast which has been extrapolated out over a five-year period followed by a perpetuity. Other major assumptions are as follows: Impairment review date Discount rate Growth assumptions used to extrapolate 2 year budget forecast: – 3 years – 4 years – 5 years – Terminal Value 2017 % 15.8 1.0 1.0 1.0 1.0 Discount rates are based on management’s assessment of specific risks related to the CGU. Growth rates beyond the first year are based on economic data for the wider economy, and represent a prudent expectation of growth. The recoverable amount for the Conveyancing Alliance CGU exceeds its carrying amount by the following amounts in each year assessed: Amount by which recoverable amount exceeds carrying amount 2017 £’000 241 The Directors believe that any reasonable possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit. 11. AFS financial assets Opening value at 1 April Closing value at 31 March 2017 £’000 100 100 2016 £’000 100 100 The Group acquired 15% of Financial Eye on 27 February 2015 as a separately identifiable part of the transaction in which Legal Eye was acquired. 12. Investment in associates Opening value at 1 April 35% interest in HOA Share of losses for the period Closing value at 31 March 2016 £’000 575 (26) 549 2015 £’000 – 575 – 575 The Group acquired 35% of HOA on 29 February 2016. HOA’s place of incorporation and operation is in the UK. ULS Technology Annual Report 2017 45 13. Intangible assets Cost At 1 April 2015 Additions Disposals At 31 March 2016 Additions Acquired within business combination (note 28) Disposals At 31 March 2017 Accumulated amortisation At 1 April 2015 Charge Disposals At 31 March 2016 Charge Acquired within business combination (note 28) Disposals At 31 March 2017 Net book value At 1 April 2015 At 31 March 2016 At 31 March 2017 Capitalised development expenditure £000’s Acquired technology platform £000’s Customer and supplier relationships £000’s Brands £000’s Total £000’s 2,401 285 (11) 2,675 642 130 (29) 3,418 545 395 (11) 929 395 61 (29) 1,356 1,856 1,746 2,062 – – – – – 1,117 – 1,117 – – – – 36 – – 36 – – 1,081 1,071 226 3,698 – – 1,071 – 2,548 – 3,619 5 68 – 73 135 – – 208 1,066 998 3,411 – – 226 – 342 – 568 2 23 – 25 33 – – 58 224 201 510 285 (11) 3,972 642 4,137 (29) 8,722 552 486 (11) 1,027 599 61 (29) 1,658 3,146 2,945 7,064 Amortisation is included within administrative expenses. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 46 Notes to the consolidated financial statements continued 14. Property, plant and equipment Leasehold improvements £000’s Computer equipment £000’s Fixtures and fittings £000’s Total £000’s Cost At 1 April 2015 Additions Disposals At 31 March 2016 Additions Acquired within business combination (note 28) Disposals At 31 March 2017 Accumulated depreciation At 1 April 2015 Charge Disposals At 31 March 2016 Charge Acquired within business combination (note 28) Disposals At 31 March 2017 Net book value At 1 April 2015 At 31 March 2016 At 31 March 2017 15. Inventories Work in progress 569 0 – 569 0 – – 569 173 119 – 292 119 – 411 396 277 158 505 42 (118) 429 280 40 (130) 619 290 93 (116) 267 136 20 (130) 293 215 162 326 77 9 (1) 84 1 8 (9) 84 23 16 (1) 38 16 2 (4) 52 54 46 32 1,151 51 (119) 1,082 281 48 (139) 1,272 486 228 (117) 597 271 22 (134) 756 665 485 516 2017 £’000 40 2016 £’000 22 ULS Technology Annual Report 2017 47 2017 £’000 1,179 282 215 1,676 173 200 373 2016 £’000 1,046 57 198 1,301 181 100 281 2017 £’000 2,242 2016 £’000 3,781 16. Trade and other receivables Current assets Trade receivables Other receivables Pre-payments Non-current assets Pre-payments Long-term receivables (loans to associate and EBT) The Directors consider the carrying value of trade and other receivables is approximate to its fair value. Details of the Group’s exposure to credit risk is given in Note 21. 17. Cash and cash equivalents Cash at bank (GBP) At March 2017 and 2016 all significant cash and cash equivalents were deposited with major clearing banks in the UK with at least an ‘A’ rating. 18. A) Share capital Allotted, issued and fully paid The company has one class of Ordinary share which carries no right to fixed income nor has any preferences or restrictions attached. Ordinary shares of £0.40 each 64,828,057 259 64,828,057 64,828,057 259 64,828,057 259 259 2017 2016 No £000’s No £000’s As regards income and capital distributions, all categories of shares rank pari passu as if the same constituted one class of share. Shares issued and fully paid Beginning of the year New shares issue Shares issued and fully paid 2017 Number 2016 Number 64,828,057 64,727,875 – 100,182 64,828,057 64,828,057 On 4 March 2016, the Company issued 100,182 new ordinary shares of 0.4p with a share premium of £54,600. The issue of shares was in part consideration for the investment in HomeOwners Alliance Limited (see note 12). OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 48 Notes to the consolidated financial statements continued 18. A) Share capital continued Allotments during the year Year ended March 2017 Share issue Year ended March 2016 Share issue Number – Number 100,182 Par value £000’s – Par value £000’s – 18. B) Share-based payments Ordinary share options: The Group operates an EMI share option scheme to which the Executive Directors and employees of the Group may be invited to participate by the remuneration committee. Options are exercisable at a price equal to the closing price of the Company’s share on the day prior to the date of grant. The options vest in three equal tranches, three, four and five years after date of grant. The options are settled in equity once exercised. Where the individual limits for an EMI scheme the options will be treated as unapproved but within the same scheme rules. 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. Options were valued using the Black-Scholes option-pricing model. The following table shows options issued which were outstanding as at 31 March 2017: Date of grant 18 August 2014 28 November 2014 30 March 2015 21 August 2015 4 March 2016 7 November 2016 21 December 2016 Exercise price (£) Share price at date of grant (£) Options in issue as 31 March 2017 0.4000 0.3950 0.4750 0.5350 0.5600 0.7025 0.7675 0.4800 0.3950 0.4750 0.5350 0.5600 0.7025 0.7675 938,542 970,918 647,279 77,670 64,828 621,466 1,231,661 The Group recognised total expenses of £72,000 (2016: £57,000) related to share options accounted for as equity-settled share- based payment transactions during the year. ULS Technology Annual Report 2017 49 A reconciliation of option movements over the year to 31 March 2017 is shown below: As at 31 March 2017 As at 31 March 2016 Outstanding at 1 April Granted Forfeited prior to vesting Exercised Outstanding at 31 March 19. Trade and other payables Trade payables PAYE and social security VAT Other creditors Accruals and deferred income Deferred consideration 20. Borrowings Secured – at amortised cost – Bank loan Current Non-current Weighted average exercise price £ 0.43 0.76 0.44 0.40 0.56 Number of options 2,912,739 278,424 (12,945) – 3,178,218 Number of options 3,178,218 1,853,127 (466,036) (12,945) 4,552,364 2017 £000’s 2,039 100 586 21 494 989 Weighted average exercise price £ 0.41 0.54 0.40 – 0.43 2016 £000’s 2,209 82 423 21 510 989 4,229 4,234 2017 £000’s 2016 £000’s 5,750 5,750 2,000 3,750 5,750 890 890 720 170 890 Summary of borrowing arrangements: • The Group fully repaid a term loan with Clydesdale ahead of schedule in September 2016. In December 2016, it took out a 5-year term loan for £5 million and a £2 million revolving cash flow facility. Both have an initial interest rate of 1.90% above LIBOR although there is the possibility for the amount above LIBOR to reduce when certain financial criteria are met. The term loan Is subject to repayments of £250,000 plus accrued interest quarterly. • Loans are secured by way of fixed and floating charges over all assets of the Group. • Amounts shown represent the loan principals; accrued interest is recognised within accruals – any amounts due at the reporting date are paid within a few days. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 50 Notes to the consolidated financial statements continued 21. Financial instruments Classification of financial instruments The Group has AFS financial assets (see note 11) which are measured at cost less impairment cost. The tables below set out the Group’s accounting classification of each class of its financial assets and liabilities. Financial assets Loans and receivables (note 16) AFS asset (note 11/12) Cash and cash equivalents (note 17) Loans and other receivables 2017 £000’s 1,661 649 2,242 4,552 2016 £000’s 1,203 675 3,781 5,659 The investment in HomeOwners Alliance Limited represents a 35% equity interested in an unlisted company acquired in 2016. The investment in Financial Eye Limited represents a 15% equity interest in an unlisted company acquired in 2015. All of the above financial assets’ carrying values are approximate to their fair values, as at 31 March 2017 and 2016. Financial liabilities Financial liabilities measured at amortised cost (note 19) Borrowings (note 20) Measured at amortised cost 2017 £000’s 2,554 5,750 8,304 2016 £000’s 2,740 890 3,630 Current loan instruments are linked to LIBOR with a margin of 1.90% per annum, which is a fairly standard market rate. Financial assets and financial liabilities measured at fair value in the balance sheet are grouped into three Levels of a fair value hierarchy. The three Levels are defined based on the observability of significant inputs to the measurement, as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3: unobservable inputs for the asset or liability. The Group carries none of its assets at fair value. The only financial liability carried at fair value is the contingent consideration (carried at fair value through profit or loss). The fair value of contingent consideration related to the acquisition of Legal Eye Limited and Conveyancing Alliance Holdings Limited (see note 28) is estimated using a present value technique. For Legal Eye Limited, the £989,000 fair value is using the known amount of consideration due adjusting for risk and discounting at 16.2%. The known consideration before discounting is £1,080,000. The discount rate used is 16.2%, based on the Group’s estimated weighted average cost of capital at the reporting date, and therefore reflects the Group’s credit position. Sensitivity analysis using a +/– 1% change in the discount rate gives a fair value range of £985,000 to £994,000. ULS Technology Annual Report 2017 51 For Conveyancing Alliance Holdings Limited, the £2,613,000 fair value is using as estimated amount of consideration due adjusting for risk and discounting at 16.2%. The estimated consideration before discounting is £3,473,000. The discount rate used is 16.2%, based on the Group’s estimated weighted average cost of capital at the reporting date, and therefore reflects the Group’s credit position. Sensitivity analysis using a +/-1% change in the discount rate gives a fair value range of £2,571,000 to £2,655,000. Level 3 fair value measurements The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows: Balance at 1 April 2016 Acquired through business combination Payments made Movement in consideration Movement in NPV Balance at 31 March 2017 Contingent consideration 2017 £000’s 1,841 2,523 (1,080) – 318 3,602 2016 £000’s 1,268 – – 333 240 1,841 Financial instrument risk exposure and management The Group’s operations expose it to degrees of financial risk that include liquidity risk, credit risk and interest rate risk. This note describes the Group’s objectives, policies and process for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented in notes 15, 16, 17, 19, and 20. Liquidity risk Liquidity risk is dealt with in note 22 of this financial information. Credit risk The Group’s credit risk is primarily attributable to its cash balances and trade receivables. The Group does not have a significant concentration of risk, with exposure spread over a number of third parties. All of the Group’s trade and other receivables have been reviewed for indicators of impairment. The Group suffers a very small incidence of credit losses. However, where management views that there is a significant risk of non-payment, a specific provision for impairment is made and recognised as a deduction from trade receivables. Impairment provision The amount of trade receivables past due but not considered to be impaired at 31 March is as follows: Not more than 3 months More than 3 months but not more than 6 months More than 6 months but not more than 1 year More than one year Total 2017 £000’s 99 2016 £000’s 87 2017 £000’s 2016 £000’s 122 10 8 21 161 419 10 8 7 444 The credit risk on liquid funds is limited because the third parties are large international banks with a credit rating of at least A. The Group’s total credit risk amounts to the total of the sum of the receivables and cash and cash equivalents, as described in note 16. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 52 Notes to the consolidated financial statements continued 21. Financial instruments continued Interest rate risk The Group has secured debt as disclosed in note 20. The interest on this debt is linked to LIBOR and therefore there is an interest rate risk. However, the relative amount of debt outstanding is low which limits the risk. The balances disclosed above represent the principal debt. Interest is paid quarterly, and all interest due has either been paid at each reporting date, or is paid within a few days of that date – in the latter case, interest accrued is included within accruals. The Group’s only other exposure to interest rate risk is the interest received on the cash held on deposit, which is immaterial. 22. Liquidity risk Prudent liquidity risk management includes maintaining sufficient cash balances to ensure the group can meet liabilities as they fall due. In managing liquidity risk, the main objective of the Group is therefore to ensure that it has the ability to pay all of its liabilities as they fall due. The Group monitors its levels of working capital to ensure that it can meet its debt repayments as they fall due. The table below shows the undiscounted cash flows on the group’s financial liabilities as at 31 March 2017 and 2016, on the basis of their earliest possible contractual maturity. At 31 March 2017 Trade payables Other payables Accruals Deferred and contingent consideration Loans At 31 March 2016 Trade payables Other payables Accruals Deferred and contingent consideration Loans Within 2 months £000’s Within 2–6 months £000’s 6–12 months £000’s 1–2 years £000’s Greater than 2 years £000’s Total £000’s 2,039 21 494 4,553 6,043 13,150 2,039 21 494 – – 2,554 Total £000’s Within 2 months £000’s 2,209 21 510 2,160 918 5,818 2,209 21 510 – – 2,740 – – – – 1,562 1,562 Within 2–6 months £000’s – – – – 379 379 – – – 1,080 550 1,630 – – – 1,453 1,081 2,534 – – – 2,020 2,850 4,870 6–12 months £000’s 1–2 years £000’s Greater than 2 years £000’s – – – 1,080 367 1.447 – – – 1,080 172 1,252 – – – – – – The amounts payable for loans, as presented above, include the quarterly interest payments due in accordance with the terms described in note 20 in addition to the repayment of principal at maturity. ULS Technology Annual Report 2017 53 23. Capital management The Group’s capital management objectives are: • To ensure the Group’s ability to continue as a going concern; and • To provide long-term returns to shareholders. The Group defines and monitors capital on the basis of the carrying amount of equity plus its outstanding loan notes, less cash and cash equivalents as presented on the face of the Balance Sheet and further disclosed in notes 17 and 20. The Board of Directors monitors the level of capital as compared to the Group’s commitments and adjusts the level of capital as is determined to be necessary by issuing new shares. The Group is not subject to any externally imposed capital requirements. These policies have not changed in the year. The Directors believe that they have been able to meet their objectives in managing the capital of the Group. The amounts managed as capital by the Group for the reporting period under review are summarised as follows: Total Equity Cash and cash equivalents Capital Total Equity Borrowings Financing Capital-to-overall financing ratio 2017 £000’s 9,253 2,242 11,495 9,253 5,750 15,003 0.77 24. Operating lease arrangements The Group does not have an option to purchase any of the operating leased assets at the expiry of the lease periods. Payments recognised as an expense Minimum lease payments Non-cancellable operating lease commitments Not later than 1 year Later than 1 year and not later than 5 years 25. Financial commitments There are no other financial commitments. 2017 £000’s 53 2017 £000’s 56 37 93 2016 £000’s 7,185 3,781 10,966 7,185 890 8,075 1.36 2016 £000’s 56 2016 £000’s 52 85 137 26. Retirement benefit plans The Group operates a defined contribution pension scheme for its employees. The pension cost charge represents contributions payable by the Group and amounted to £51,000 (2016: £2,000). OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 54 Notes to the consolidated financial statements continued 27. Related party transactions Directors: P Opperman G Wicks N Hoath B Thompson A Weston J Williams For remuneration of Directors please see note 4 and the more detailed disclosures in the Directors’ Report on page 22. Dividends paid to Directors are as follows: Peter Opperman Geoff Wicks Nigel Hoath Ben Thompson Andrew Weston John Williams 2017 £000’s 2016 £000’s 35 1 100 – 17 1 76 1 422 – 36 1 28. Business combinations During the year, the Group acquired 100% of the issued ordinary share capital of Conveyancing Alliance Holdings Limited and its 100% subsidiary Conveyancing Alliance Limited, companies incorporated in England and Wales: Principal activity Conveyancing comparison software and services Proportion of voting equity interest acquired (%) Consideration transferred 100% 10,552,000 Date of acquisition 19 Dec 16 The primary purpose of the acquisition of Conveyancing Alliance Limited was to enhance the earnings of the Group and its market share in the conveyancing comparison market. Consideration transferred Cash Contingent consideration Total consideration £000’s 8,029 2,523 10,552 ULS Technology Annual Report 2017 Assets acquired and liabilities recognised at the date of acquisition: Current assets Cash and cash equivalents Trade and other receivables Non-current assets Goodwill Intangible assets Tangible assets Current liabilities Trade and other payables Non-current liabilities Deferred tax 55 £000’s 1,040 221 6,484 4,076 26 (598) (697) 10,552 Goodwill is primarily related to growth expectations, expected future profitability, the skill and expertise of Conveyancing Alliance’s workforce and expected synergies. Goodwill is not expected to be deductible for tax. The contingent consideration is based on a range of between 0.5 and 1.75 times annualised PBT of Conveyancing Alliance for the period between completion to 31 March 2018 and also for the 12 months ending 31 March 2019. The undiscounted value of this element of the consideration has been estimated at £3,473,000. The total undiscounted consideration including that already paid is capped at £13,329,000. Net cash inflow on acquisition of subsidiaries Consideration paid in cash Less: cash and cash equivalent balances acquired 2017 £000’s 8,029 (1,040) 6,989 The acquiree has been included in the consolidated financial information for the first time in 2017, with revenue of £1,446,000 and a net profit of £239,000 included. If the acquiree had been in the group from 1 April 2016, Group Revenues would have been £26,012,000 and net profit would have been £3,625,000. Acquisition-related expenses of £212,000 were incurred in the acquisition of Conveyancing Alliance. These are included within exceptional admin expenses in the consolidated income statement. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 56 Notes to the consolidated financial statements continued 29. Contingent liabilities The Directors are not aware of any contingent liabilities within the Group or the Company at 31 March 2017 and 2016. 30. Ultimate controlling party The Directors do not consider there to be an ultimate controlling party. 31. Events after the balance sheet date There have been no reportable subsequent events between 31 March 2017 and the date of signing this report. 32. Dividends paid Final Dividend for the year ended 31 March 2016 of 0.26p (2016: 1.00p) per share 1st Interim Dividend 1.10p (2016: 1.05p) per share 2nd Interim Dividend 0.0p (2016: 0.79p) per share Total dividends paid 2017 £000’s 168 711 – 879 2016 £000’s 647 680 511 1,838 As well as the dividends paid as shown in the table above, the Board proposes a final dividend of £711,000 (1.10 pence per share) in respect of the year ended 31 March 2017 and subject to approval at the Annual General Meeting. As the final dividend is declared after the balance sheet date it is not recognised as a liability in these financial statements. ULS Technology Annual Report 2017 Parent company balance sheet as at 31 March 2017 57 Assets Non-current assets Investments Non-current receivables Current assets Trade and other receivables Cash and cash equivalents Total assets Equity and liabilities Capital and reserves attributable to the Group’s equity shareholders Share capital Share premium Capital redemption reserve Capital contribution reserve Share-based payment reserve Opening retained earnings Profit for the year Payment of dividends Total retained earnings Total equity Non-current liabilities Borrowings Provisions Current liabilities Trade and other payables Borrowings Total liabilities Total equity and liabilities Notes 2017 £000’s 2016 £000’s 2 3 3 7 5 6 4 5 17,511 86 17,597 259 601 860 18,457 259 4,585 113 77 152 1,569 2,931 (879) 3,621 8,807 3,750 2,613 6,363 1,287 2,000 3,287 9,650 18,457 6,887 15 6,902 1,928 949 2,877 9,779 259 4,585 113 35 80 1,283 2,124 (1,838) 1,569 6,641 170 852 1,022 1,396 720 2,116 3,138 9,779 The financial statements were approved by the Board of Directors on 26 June and were signed on its behalf by: Ben Thompson Chief Executive Officer ULS Technology plc Company number: 07466574 OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 58 Parent company statement of changes in equity for the years ended 31 March 2017 Share capital £000’s Share premium £000’s Capital redemption reserve £000’s Capital contribution reserve £000’s Balance at 1 April 2015 259 4,530 113 Profit for the year Total comprehensive income Issue of shares Share-based payments Payment of dividends Total transactions with owners – – – – – – – – 55 – – 55 Balance at 31 March 2016 259 4,585 Balance at 1 April 2016 259 4,585 Profit for the year Total comprehensive income Share-based payments Payment of dividends Total transactions with owners – – – – – – – – – – – – – – – – 113 113 – – – – – Balance at 31 March 2017 259 4,585 113 – – – – 35 – 35 35 35 – – 42 – 42 77 Share- based payments reserve £000’s Retained earnings £000’s 23 1,283 Total Equity £000’s 6,208 2,124 2,124 55 92 (1,838) (1,691) 6,641 2,124 2,124 – – (1,838) (1,838) 1,569 1,569 6,641 2,931 2,931 – (879) (879) 2,931 2,931 114 (879) (765) – – – 57 – 57 80 80 – – 72 – 72 152 3,621 8,807 ULS Technology Annual Report 2017 Notes to the Parent Company financial statements 59 1. Parent Company accounting policies Basis of Preparation The annual financial statements of ULS Technology plc (the Parent Company financial statements) have been prepared in accordance with Financial Reporting Standard 100 Application of Financial Reporting Requirements (“FRS 100”) and Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). Disclosure exemptions adopted In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore, these financial statements do not include: • Certain comparative information as otherwise required by EU endorsed IFRS; • Certain disclosures regarding the company’s capital; • A statement of cash flows; • The effect of future accounting standards not yet adopted; • The disclosure of the remuneration of key management personnel; and • Disclosure of related party transactions with the Company’s wholly owned subsidiaries. In addition, and in accordance with FRS 101 further disclosure exemptions have been adopted because equivalent disclosures are included in the Company’s Consolidated Financial Statements. These financial statements do not include certain disclosures in respect of: • Financial instruments (other than certain disclosures required as a result of recording financial instruments at fair value); and • Fair value measurement other than certain disclosures required as a result of recording financial instruments at fair value). As permitted by section 408 of Companies Act 2006, a separate Income Statement for the Company has not been included in these financial statements. The principal accounting policies adopted in the preparation of the financial statements as set out below have been consistently applied to all periods presented. Financial instruments Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument. Financial assets and financial liabilities are measured initially at fair value plus transactions costs. Financial assets and financial liabilities are measured subsequently as described below. Financial assets The Company classifies its financial assets as ‘loans and receivables’. The Company assesses at each balance sheet reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables are classified as ‘trade and other receivables’ in the Balance Sheet. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulty, high probability of bankruptcy or a financial reorganisation and default are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at original effective interest rate. The loss is recognised in the Income Statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the Income Statement. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 60 Notes to the Parent Company financial statements continued 1. Parent Company accounting policies continued Financial liabilities The Company’s financial liabilities include trade and other payables, borrowings and contingent consideration. Trade payables and borrowings are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Contingent consideration is measured at fair value at each reporting date with movements recognised as a profit or loss. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Investments Investments in subsidiaries are shown within the parent undertaking’s financial statements at cost, less any provision for impairment in value. Current taxation Current taxation for each taxable entity in the Company is based on the taxable income at the UK statutory tax rate enacted or substantively enacted at the balance sheet reporting date and includes adjustments to tax payable or recoverable in respect of previous periods. Deferred taxation Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial information. However, if the deferred tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax liabilities are provided in full. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Income Statement, except where they relate to items that are charged or credited directly to equity or other comprehensive income in which case the related deferred tax is also charged or credited directly to equity or other comprehensive income. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Employment benefits Provision is made in the financial information for all employee benefits. Liabilities for wages and salaries, including non-monetary benefit and annual leave obliged to be settled within 12 months of the balance sheet reporting date, are recognised in accruals. The Company’s contributions to defined contribution pension plans are charged to the Income Statement in the period to which the contributions relate. Leasing Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Equity and reserves Equity and reserves comprises the following: • “Share capital” represents amounts subscribed for shares at nominal value • “Share premium” represents amounts subscribed for share capital, net of issue costs, in excess of nominal value • “Capital redemption reserve” represents the nominal value of re-purchased share capital • “Share based payment reserve” represents the accumulated value of share-based payments expensed in the profit and loss • “Retained earnings” represents the accumulated profits and losses attributable to equity shareholders ULS Technology Annual Report 2017 61 Share-based employee remuneration The Company operates share option based remuneration plan for its employees. None of the Company’s plans are cash settled. Where employees are rewarded using share-based payments, the fair value of employees’ services is determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date using a Black-Scholes model. All share-based remuneration is ultimately recognised as an expense in profit and loss with a corresponding credit to retained earnings. The expense is allocated over the vesting period. Other than the requirement to be an employee at the point of exercise there are no other vesting requirements and all share options are expected to become exercisable. Subsequent revisions to this give rise to an adjustment to cumulative share-based compensation which is recognised in the current period. The number of vested options ultimately exercised by holders does not impact the expense recorded in any period. Upon exercise of share options, the proceeds received net of any directly attributable transaction costs, are allocated to share capital up to the nominal (par) value of the shares issued with any excess being recorded as share premium. Contingent liabilities No liability is recognised if an outflow of economic resources as a result of present obligations is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote. 2. Investments The Company holds the issued share capital of the following subsidiary undertakings: Name of subsidiary United Legal Services Limited United Homes Services Limited Principal activity Development and hosting of internet based software applications for legal services businesses Class of shares Ordinary Place of incorporation and operation UK Development and hosting of internet based software applications for property services businesses Ordinary UK Legal-Eye Limited Compliance consultancy services for solicitors Intermediary non-trading holding company Ordinary Ordinary UK UK Conveyancing Alliance (Holdings) Limited Conveyancing Alliance Limited Home Owners Alliance Limited Financial Eye Limited Development and hosting of internet based software applications for legal services businesses Ordinary UK Operation of website for home owners and prospective home owners Financial compliance consultancy services for solicitors Ordinary UK Ordinary UK Cost As at 1 April 2015 Acquisitions (See notes 12 of the group accounts) Share-based payment reserve As at 31 March 2016 Acquisitions (See note 28 of the group accounts) Share-based payment reserve As at 31 March 2017 Investments in Group undertakings £000’s Investments in associates £000’s Loans to associates £000’s 6,154 – 58 6,212 10,552 72 16,836 – 575 – 575 – – 575 – 100 – 100 – – 100 % ownership held by the Company 2017 100 100 100 100 100 35 15 2016 100 100 100 – – 35 15 Total £000’s 6,154 675 58 6,887 10,552 72 17,511 OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 62 Notes to the Parent Company financial statements continued 3. Receivables Current receivables: Amounts owed by Group undertakings Other debtors Prepayments Non-current receivables: Prepayments 4. Trade and other payables Trade payables Amounts owed to Group undertakings Social security and other taxes Accruals Deferred consideration 5. Borrowings Current liabilities: Bank loans Non-current liabilities: Bank loans 6. Provisions Non-current liabilities: Deferred/contingent consideration 2017 £000’s 76 106 77 259 2017 £000’s 86 2016 £000’s 1,858 – 70 1,928 2016 £000’s 15 2017 £000’s 2016 £000’s 26 63 – 209 989 1,287 2017 £000’s 2,000 2017 £000’s 3,750 2017 £000’s 2,613 10 – 29 368 989 1,396 2016 £000’s 720 2016 £000’s 170 2016 £000’s 852 ULS Technology Annual Report 2017 63 7. Share capital Allotted, issued and fully paid The company has one class of Ordinary share which carries no right to fixed income nor has any preferences or restrictions attached. Ordinary shares of £0.40 each 64,828,057 259 64,828,057 Ordinary shares of £0.40 each 64,828,057 259 64,828,057 259 259 2017 2016 No £000’s No £000’s As regards income and capital distributions, all categories of shares rank pari passu as if the same constituted one class of share. Shares issued and fully paid Beginning of the year New shares issue Shares issued and fully paid No new shares were issued during the year. Allotments during the year Year ended March 2017 Share issue Year ended March 2016 Share issue 2017 Number 2016 Number 64,828,057 64,727,875 – 100,182 64,828,057 64,828,057 Number – Number 100,182 Par value £000’s – Par value £000’s – During the year ended 31 March 2016 the issued 100,182 new ordinary shares of 0.4p with a share premium of £54,600. The issue of shares was in part consideration for the investment in HomeOwners Alliance Limited (see note 12 to the Consolidated Financial Statements). Ordinary share options: The Company operates a share option scheme to which the Executive Directors and employees of the Group may be invited to participate by the remuneration committee. Disclosures relating to the Company’s share options are detailed in note 18B to the Group financial statements, there being no difference between the Company and Group disclosures. OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 64 Notes to the Parent Company financial statements continued 8. Related party transactions Related party transactions with third parties other than the Company’s subsidiaries are disclosed in note 27 to the Consolidated Financial Statements. 9. Post balance sheet events There have been no reportable subsequent events between 31 March 2017 and the date of signing this report. 10. Dividends paid Final Dividend for the year ended 31 March 2016 of 0.26p (2016: 1.00p) per share 1st Interim Dividend 1.10p (2016: 1.05p) per share 2nd Interim Dividend 0.0p (2016: 0.79p) per share Total dividends paid 2017 £000’s 168 711 – 879 2016 £000’s 647 680 511 1,838 As well as the dividends paid as shown in the table above, the Board proposes a final dividend of £711,000 (1.10 pence per share) in respect of the year ended 31 March 2017 and subject to approval at the Annual General Meeting. As the final dividend is declared after the balance sheet date it is not recognised as a liability in these financial statements. ULS Technology Annual Report 2017 65 Company information Directors Peter Opperman – Non-executive Chairman Ben Thompson – Chief Executive Officer John Williams – Finance Director Andrew Weston – Co-founder and IT Director Geoff Wicks – Independent Non-executive Director Nominated adviser & broker: Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Registered address: The Old Grammar School Church Road Thame Oxfordshire OX9 3AJ Independent auditor: Grant Thornton UK LLP 3140 Rowan Place John Smith Drive Oxford Business Park South Oxford OX4 2WB Company registration number: 07466574 Solicitors: Dentons UKMEA LLP One Fleet Place London EC4M 7WS Financial public relations: Walbrook PR Limited 4 Lombard Street London EC3V 9HD Registrar: Equiniti Limited Aspect House Spencer Road Lancing BN99 6DA OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSULS Technology Annual Report 2017 Delivering Strategy, Driving Growth Annual Report & Accounts 2017 A n n u a l R e p o r t & A c c o u n t s 2 0 1 7 U L S T e c h n o l o g y The Old Grammar School Church Road Thame OX9 3AJ Tel: 01844 262392 Fax: 08432 906959 Web: www.ulstechnology.com Email: enquiries@ulstechnology.com