3	Basis of Preparation (continued)

 

Basis of consolidation

 

The consolidated financial statements incorporate the results of essensys plc and all of its subsidiary undertakings.

 

essensys plc was incorporated on 22 January 2019, and on 18 May 2019 it acquired the issued share capital of essensys (UK) Ltd, previously essensys Limited, by way of a share for share exchange.  The latter had four wholly owned subsidiaries:

 

·          essensys, Inc

·          Hubcreate Limited

·          TVOC Limited

·          Spacebuddi Limited

 

The consideration for the acquisition was satisfied by the issue of 38,836,044 ordinary shares in essensys plc to the shareholders of essensys (UK) Limited.

 

The accounting treatment for the year to 31 July 2020 in relation to the addition of essensys plc as a new UK holding company of the group falls outside the scope of IFRS 3 'Business Combinations'.  The share scheme arrangement constituted a combination of entities under common control due to all shareholders of essensys (UK) Ltd being issued shares in the same proportion, and the continuity of ultimate controlling parties.  The reconstructed group was consolidated using merger accounting principles which treated the reconstructed group as if it had always been in existence.  Any difference between the nominal value of shares issued in the share exchange and the book value of the shares obtained was recognised in a merger reserve.

 

The company applied the statutory relief as prescribed by Companies Act 2006 in respect of the share for share exchange as the issuing company has secured more than 90% equity in the other entity.  The carrying value of the investment is carried at the nominal value of the shares issued.

 

4	Summary of significant accounting policies

 

Revenue

 

The Group generates revenue primarily in the UK and the United States of America (USA).  Turnover represents services provided in the normal course of business; net of value added tax. Services provided to clients during the year, including any amounts which at the reporting date have not yet been billed to the clients, have been recognised as revenue.

 

(a) Contract

 

Set up and installation costs are partially invoiced once the customer contract is signed with the remaining balance invoiced when the service goes live.  Fixed monthly costs are invoiced one month in advance and revenue is recognised in the month the service is provided. Deferred revenue is recognised for the Group's obligation to transfer services to customers for which they have already received consideration (or an amount of consideration is due) from the customer.  Variable monthly costs (including internet usage and telephone call charges) are invoiced monthly in arrears and accrued revenue is recognised in the month that the services were consumed.

 

(b) Contractual obligation

 

The majority of customer contracts have two main services that the Group provides to the customer:

 

·          Set up / installation

·          Ongoing monthly software, services and support

 

Where a contract is modified and the remaining services are distinct from the services transferred on or before the date of the contract modification, then the Group accounts for the contract modifications as if it were a termination of the existing contract and the creation of a new contract.

 

The amount of consideration allocated to the remaining performance obligations is the sum of the consideration promised by the customer and the consideration promised as part of the contract modification.

 

(c) Determining the transaction price

 

The transaction price is determined as the fair value of the consideration the Group expects to receive over the course of the contract.  There are no incentives given to customers that would have a material effect on the financial statements.

 

(d) Allocate the transaction price to the performance obligations in the contract

 

The allocation of the transaction price to the performance obligations in the contract is non-complex for the Group. There is a fixed unit price for each product sold. Therefore, there is limited judgement involved in allocating the contract price to each unit ordered.

  

 

4	Summary of significant accounting policies (continued)

 

Revenue (continued)

 

(e) Recognise revenue when or as the entity satisfies its performance obligations

 

The contracts may cover multiple sites, but the overarching terms are consistent in each contract. The set up/installation is seen as a distinct performance obligation and revenue is recognised at a point in time, when the installation is completed, and any hardware is provided to the client for their use. The customer can benefit from the set up / installation such as new internet connectivity or new hardware provided, and therefore revenue is recognised in full when these services are provided.

 

The second performance obligation is the provision of software, infrastructure and on-demand services over the term of the contract, and the Group recognises the revenue each month as it provides these services for the duration of the contract, i.e. over time.

 

(f) Costs to obtain and fulfil a contract

 

Set up and installation costs are partially invoiced once the customer contract is signed.  The value of the invoiced amount is held as a contract liability until the performance obligation is satisfied.

 

The company incurs incremental costs in obtaining a contract in the form of sales commissions.  The Company recognises the sales commissions as an asset in relation to costs to obtain a contract.  The company believes that the costs are recoverable as the proceeds from the customer over the contract period exceed the costs to obtain the contract.  The asset is amortised over the contract life on a systematic basis.

 

Contract assets arise from the group's revenue contracts, where work is performed in advance of invoicing customers, and contract liabilities arise where revenue is received in advance of work performed.  Cumulatively, payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts.  Commission costs capitalised on contracts represents internal sales commission costs incurred on signing of customer contracts and, in line with the requirements of IFRS15, spread over the life of the customer contract.

 

Finance income

 

Finance income comprises interest receivable on funds invested and loans to related parties. Interest income is recognised in profit or loss as it accrues using the effective interest method.

 

Finance costs

 

Finance costs comprise interest on bank loans and lease liabilities. Interest on bank loans and lease liabilities is charged to the consolidated statement of comprehensive income over the term of the debt using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount.  Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.

 

Government grants

 

Government grants comprise payments from those governments where the Group has operations that have been impacted by the Covid-19 pandemic.  The grants are specific to providing business support where there has been clear impact of the pandemic.  Payment of the grants have substantive conditions where repayment of the grant is not required.  Where management are certain that these repayment measures are met the grant is treated as other operating income.

 

Intangible assets

 

(a) Internal software development

 

Research expenditure is written off in the year in which it is incurred.

 

Expenditure on internally developed products is capitalised if it can be demonstrated that:

 

·          it is technically and commercially feasible to develop the asset for future economic benefit;

·          adequate resources are available to maintain and complete the development;

·          there is the intention to complete and develop the asset for future economic benefit;

·          the company is able to use the asset;

·          use of the asset will generate future economic benefit; and

·          expenditure on the development of the asset can be measured reliably.

 

Where the costs are capitalised, they are written off over their economic life which is considered by the directors to be 5 to 7 years.

 

Internally developed products in the course of construction are carried at cost, less any recognised impairment loss. Amortisation of these assets, determined on the same basis as other property assets, commences when the assets are ready for their intended use.

 

 

4	Summary of significant accounting policies (continued)

 

Intangible assets (continued)

 

(b) Goodwill

 

Goodwill arising on the acquisition of a business represents the excess of the fair value of the consideration and the fair value of the Group's share of the identifiable assets and liabilities acquired. The identifiable assets and liabilities acquired are incorporated into the consolidated financial statements at their fair value to the Group.

 

Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses.  Goodwill is tested for impairment annually.  Any impairment is recognised immediately in the Consolidated Statement of Comprehensive Income and is not subsequently reversed.  On disposal of a business, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

 

(c) Other intangible assets

 

Other intangible assets are initially recognised at cost or, if recognised as part of a business combination, at fair value. After recognition, intangible assets are measured at cost or fair value less any accumulated amortisation and any accumulated impairment losses. Amortisation is calculated to write off the cost or fair value of intangible assets in equal annual instalments over their estimated useful lives and is included within administrative expenses.

 

The estimated useful lives for other intangible fixed assets range as follows:

 

	Customer relationships	-	6.3 years
	Website	-	1 year
	Acquired software	-	5 years

 

Property, plant and equipment

 

Property, plant and equipment is carried at historical cost less accumulated depreciation and any accumulated impairment losses.  Historical cost comprises the aggregate amount paid to acquire assets and includes costs directly attributable to making the asset capable of operating as intended.

 

At each reporting date the Group assesses whether there is an indication of impairment.  If such indication exists, the recoverable amount of the asset is determined which is the higher of its fair value less costs to sell and its value in use.  An impairment loss is recognised where the carrying value exceeds the recoverable amount.

 

Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives or, if held under a finance lease, over the shorter of the lease term and the estimated useful life, using the straight line method.  Depreciation is provided at the following annual rates:

 

	Leasehold improvements	-	20%
	Fixtures and fittings	-	25%
	Computer equipment	-	10% - 25%

 

The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, if there is an indication of a significant change since the last reporting date.

 

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within 'other operating income or losses' in the statement of comprehensive income.

 

Leasehold improvements include security equipment purchased.

 

Foreign currency translation

 

(a) Functional and presentation currency

 

Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency").  The consolidated financial information is presented in 'sterling', which is essensys plc's functional and the Group's presentation currency.

 

On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place.  All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date, including any goodwill in relation to that entity.  Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income.  

 

4	Summary of significant accounting policies (continued)

 

Foreign currency translation (continued)

 

(b) Transactions and balances

 

Foreign currency transactions are translated into essensys plc's functional currency using the exchange rates prevailing at the dates of the transactions.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

 

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within 'finance income or costs.  All other foreign exchange gains and losses are presented in the statement of comprehensive income within 'other operating income or expense'.

 

Inventories

 

Inventories are valued at the lower of cost and net realisable value.  Inventories consist exclusively of work in progress, which are items that have been purchased and allocated to satisfy specific customer contracts.   As the items have yet to be installed at the customer location, and where title has not yet passed, they remain on the statement of financial position until title has passed.

 

Trade and other receivables

 

Trade receivables, which are generally received by the end of the month following terms, are recognised and carried at the lower of their original invoiced value less provision for expected credit losses.

 

Cash and cash equivalents

 

All cash and short-term investments with original maturities of three months or less are considered cash and cash equivalents, since they are readily convertible to cash. These short-term investments are stated at cost, which approximates fair value.

 

Trade and other payables

 

Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers.  Trade and other payables are recognised at original cost.

 

Exceptional items

 

Exceptional items are those that, in the Directors' view, are required to be separately disclosed by virtue of the size or incidence to enable a full understanding of the Group's financial performance.

 

Taxation

 

The tax expense for the period comprises current and deferred tax.  Tax is recognised in the consolidated statement of comprehensive income, except that a charge attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.

 

The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where essensys plc's subsidiaries operate and generate taxable income.

 

Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the statement of financial position date, except:

 

·          The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;

·          Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and

·          Where timing differences relate to interests in subsidiaries, associates, branches and joint ventures and the Group can control their reversal and such reversal is not considered probable in the foreseeable future.

 

Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

 

Share capital

 

Ordinary shares are classified as equity. There is one class of ordinary share in issue, as detailed in note 20.   

 

4	Summary of significant accounting policies (continued)

 

Reserves

 

The Group and Company's reserves are as follows:

 

·          Called up share capital reserve represents the nominal value of the shares issued;

·          The share premium account includes the premium on issue of equity shares, net of any issue costs;

·          Share based payment reserve represents the total value expensed at the balance sheet date in relation to the fair value of the share options at their grant date expensed over the vesting period under the relevant share option schemes;

·          Merger reserve arose on the business combination that was accounted for as a merger in accordance with FRS 102;

·          Retained earnings represents cumulative profits or losses, net of dividends paid and other adjustments.

 

Financial assets

 

The Group classifies all of its financial assets at amortised cost.  Financial assets do not comprise prepayments, or contract assets, although contract assets are in scope of IFRS 9's impairment requirements as discussed below.  Management determines the classification of its financial assets at initial recognition.

 

Financial assets (continued)

 

The Group's financial assets held at amortised cost comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.  These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold their assets in order to collect contractual cash flows and the contractual cash flows are solely payments of the principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

 

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net; such provisions are recorded in a separate provision account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

 

The expected loss rates are based on the Group's historical credit losses experienced over the last three periods prior to the period end.  The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers.  The Group has identified the gross domestic product (GDP), unemployment rates and inflation rate as the key macroeconomic factors in the countries that the Group operates.

 

Impairment provisions for other receivables are recognised based on the general impairment model within IFRS 9.  Under the General approach, at each reporting date, the Group determines whether there has been a significant increase in credit risk (SICR) since initial recognition and whether the loan is credit impaired. This determines whether the loan is in Stage 1, Stage 2 or Stage 3, which in turn determines both the amount of ECL to be recognised i.e. 12-month ECL or Lifetime ECL.

 

Financial liabilities

 

The Group classifies its financial liabilities in the category of financial liabilities at amortised cost.  All financial liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provision of the instrument.

 

Financial liabilities measured at amortised cost include:

 

·          Trade payables and other short-dated monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.

·          Bank and other borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument.  Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

 

Unless otherwise indicated, the carrying values of the Group's financial liabilities measured at amortised cost represents a reasonable approximation of their fair values.

 

 

4	Summary of significant accounting policies (continued)

 

Impairment of assets

 

Assets that are subject to depreciation or amortisation are assessed at each reporting date to determine whether there is any indication that the assets are impaired. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs).

 

Where there is any indication that an asset may be impaired, the carrying value of the asset (or CGUs to which the asset has been allocated) is tested for impairment. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's (or CGU's) fair value less costs to sell and value in use. Non-financial assets that have been previously impaired are reviewed at each reporting date to assess whether there is any indication that the impairment losses recognised in prior periods may no longer exist or may have decreased. Goodwill is reviewed for impairment on an annual basis, with any impairment to goodwill not reversed at a later period.

 

 Business combinations

 

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired.

 

The consideration transferred for the acquisition of a subsidiary comprises the:

 

·          fair values of the assets transferred

·          liabilities incurred to the former owners of the acquired business

·          equity interests issued by the essensys Group

·          fair value of any asset or liability resulting from a contingent consideration arrangement, and

·          fair value of any pre-existing equity interest in the subsidiary.

 

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.  Acquisition related costs are expensed as incurred.

 

The excess of the consideration transferred and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill.

 

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

 

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

 

Share-based payments

 

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.

 

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of equity instruments that will eventually vest.  At each reporting date, the Group revises its estimate on the number of equity investments expected to vest.  The impact of the revision of the original estimates, if any, is recognised in the Statement of Comprehensive Income over the remaining vesting period, with a corresponding adjustment to the Share Based Payment Reserve.

 

Leases

 

All leases are accounted for by recognising a right-of-use asset and a lease liability except for leases of low value assets; and leases with a duration of twelve months or less, in line with the requirements of IFRS 16.

 

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

 

On initial recognition, the carrying value of the lease liability also includes:

 

·          Amounts expected to be payable under any residual value guarantee;

·          The exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option;

·          Any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

 

4	Summary of significant accounting policies (continued)

 

Leases (continued)

 

Right-of-use assets ("ROUA") are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

 

·          Lease payments made at or before commencement of the lease;

·          Initial direct costs incurred; and

·          The amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.

 

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.

When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.

 

When the Group renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification:

 

·          If the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy;

·          In all other cases where the renegotiated increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount;

·          If the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial or full termination of the lease with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount.

 

For contracts that both convey a right to The Group to use an identified asset and require services to be provided to The Group by the lessor, The Group has elected to account for the entire contract as a lease, i.e. it does allocate any amount of the contractual payments to, and account separately for, any services provided by the supplier as part of the contract.

 

Retirement benefits

 

The Group operates a number of defined contribution plans.  A defined contribution plan is a pension plan under which the employer pays fixed contributions into a separate entity.  Contributions payable to the plan are charged to the income statement in the period in which they relate.  The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

 

Holiday pay accrual

 

All employees accrue holiday pay during the calendar year, the Board encourages all employees to use their full entitlement throughout the year.  A liability is recognised to the extent of any unused holiday pay entitlement which has accrued at the statement of financial position date and carried forward to future periods.  This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the balance sheet date.

 

Standards adopted in the year

 

No new standards have been adopted in the reporting period as all were adopted previously.

 

Standards, amendments and interpretations not yet effective

 

There are no standards issued not yet effective that will have a material effect on the Group's financial statements.  The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

 

5	Significant accounting judgements, estimates and assumptions

 

The Group makes certain estimates and assumptions regarding the future.  Estimates and judgements are continually evaluated based on historical experience and other factors, including the expectation of future events that are believed to be reasonable under the circumstances.  In the future, actual experience may differ from these estimates and assumptions.  The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are detailed below.

 

Capitalisation of development costs

 

Costs are capitalised in relation to the development of the underlying software utilised within the Group.  The most critical judgement is establishing whether the costs capitalised meet the criteria set out within IAS 38.  Further, the most critical estimate is how the intangible asset can generate future economic benefit.   Projects that are maintenance in nature are expensed as incurred whereas development that generates benefits to the group are capitalised.  After capitalisation management monitors whether the recognition requirements continue to be met and whether there are any indicators that the capitalised costs are required to be impaired. See note 14 for details of amounts capitalised.

 

Measurement and impairment of goodwill and intangible assets

 

As set out in note 4 above the carrying value of goodwill is reviewed for impairment at least annually and for other intangible assets when an indication of impairment is identified.  In determining whether goodwill or intangible assets are impaired, an estimation of the value in use of the Group is required.  This calculation of value in use requires estimates to be made relating to the timing and amount of future cash flows expected and suitable discount rates based on the Group's weighted average cost of capital, in addition to the estimation involved in preparing the initial projected cash flows for the next 5 years.

 

These estimates have been used to conclude that no impairment is required to either goodwill or intangible assets but are judgemental in nature.  See note 14 for details of the key assumptions made.

 

Valuation of Share Options

 

During the year the Group incurred a share-based payment charge of £560,000 (2020: £514,000).

 

The charge related to options in the Group at IPO and during the year ended 31 July 2021 are based on valuations undertaken using a Black Scholes or Monte Carlo Simulation option pricing models, depending on the type of option.  Judgements were required when assessing the valuation in relation to  share price volatility, the expected life of the options issued, the proportion that would be exercised, the risk-free rate applicable and the likely achievement of performance targets where applicable.  The valuation of those options issued after IPO is spread over the vesting period and there will, therefore, be further share based payment expenses in future years in relation to those options.  See note 27 for details.

 

6

Segmental Reporting

 

The Group generates revenue largely in the UK and the USA. The majority of the Group's customers provide flexible office facilities together with ancillary services (e.g. meeting rooms and virtual services) including technology connectivity.

 

The Group generates revenue from the following activities:

 

·  Establishing services at customer sites (e.g. providing and managing installations, equipment and training on software);

·  Recurring monthly fees for using the Group's software platforms;

·  Revenue from usage of on demand services such as internet and telephone usage and other, on demand, variable services; and

·  Other ad-hoc services.

 

The Group has one single business segment which is the provision of software and technology platforms that manage the critical infrastructure and business processes, primarily to the flexible workspace segment of the real estate industry. The Group has two revenue segments and two geographical segments, as detailed in the tables below.

 

 

6A	Revenue analysis by geographic area
	The Group operates in two main geographic areas, the United Kingdom and the United States of America.  The whole of the turnover is attributed to the principal activity.  The Group's revenue per geographical segment is as follows:
		2021	2020
		£000	£000
	Analysis of turnover by country of destination:
	United Kingdom	10,610	12,193
	United States of America	11,334	10,306
	Rest of World	38	-
		_________	_________
	Total Income	21,982	22,499
		_________	_________

 

6	Segmental Reporting (continued)
6B	Revenue analysis by revenue streams
	The Group has two main revenue streams, Operate and Connect. The Group's revenue per revenue stream is as follows:
		2021	2020
		£000	£000
	Connect	19,934	20,552
	Operate	2,048	1,947
		_________	_________
	Total Income	21,982	22,499
		_________	_________

 

Connect revenue includes all revenue generated in relation to the Group's Connect product.  It includes revenue recognised at a point in time as well as recognised over a period of time.

 

Operate revenue includes all revenue generated in relation to the Group's Operate product.  The revenue is recognised over a period of time.

 

6C	Revenue disaggregated by 'point in time' and 'over time'
	The Group revenue disaggregated between revenue recognised 'at a point in time' and 'over time' is as follows:
		2021	2020
		£000	£000
	Revenue recognised at a point in time	2,868	3,138
	Revenue recognised over time	19,114	19,361
		_________	_________
	Total Income	21,982	22,499
		_________	_________

 

6D	Revenue from customers greater than 10%
	Revenue from customers greater than 10% in each reporting period is as follows:
		2021	2020
		£000	£000
	Customer 1	4,319	3,377
	Customer 2	2,302	2,787
		_________	_________

 

 

 

6

Segmental Reporting (continued)

 

6E

Contract assets and liabilities

 

	Contract asset movements were as follows:
		2021	2020
		£000	£000
	At 1 August	420	475
	Transfers in the period from contract assets to trade receivables	(159)	(271)
	Excess of revenue recognised over cash (or rights to cash) being recognised during the period	75	164
	Capital asset contract contributions capitalised	32	-
	Capital asset contract contributions released as contract obligations are fulfilled	(19)	-
	Capitalised commission cost released as contract obligations fulfilled	(297)	(159)
	Commission costs capitalised on contracts	293	211
		_________	_________
	At 31 July	345	420
		_________	_________
	Contract liability movements were as follows:
		2021	2020
		£000	£000
	At 1 August	550	1,044
	Amounts included in contract liabilities that were recognised as revenue during the period	(550)	(1,044)
	Cash received and receivables in advance of performance and not recognised as revenue during the period	323	550
		_________	_________
	At 31 July	323	550
		_________	_________

 

Contract assets are included within 'trade and other receivables' and contract liabilities is shown separately on the face of the statement of financial position.  Contract assets arise from the group's revenue contracts, where work is performed in advance of invoicing customers, and contract liabilities arise where revenue is received in advance of work performed.  Cumulatively, payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts.  Capital asset contract contributions represents costs incurred by the Group in the form of customer incentives spread over the life of the customer contract.  Commission costs capitalised on contracts represents internal sales commission costs incurred on signing of customer contracts and, in line with the requirements of IFRS15, spread over the life of the customer contract.

 

 

 

7	Operating  (loss)/profit
		2021	2020
		£000	£000
	This is arrived at after charging/(crediting):
	Depreciation of tangible fixed assets	969	587
	Amortisation of intangible assets	1,308	1,009
	Depreciation of right of use assets	1,205	1,424
	Fees payable to the Group's auditor (see below)	197	130
	Amortisation of loan arrangement fee	202	66
	Write off loan arrangement fees	-	-
	Exchange differences	(122)	140
	Research & Development expense	1,345	363
	Staff costs (note 8)	11,643	8,149
	Share based payment charges	560	514
	Increase to expected credit loss provision	45	470
		_______	_______
	Analysis of fees paid to the Group's auditor:
	Annual financial statements - parent company	36	19
	Annual financial statements - subsidiary companies	82	81
		_________	_________
	Audit Fee	118	100
		_________	_________
	Assurance services	35	30
	Other services	44	-
		_________	_________
	Non audit services	79	30
		_________	_________
	Total fee	197	130
		_______	_______

 

 

 

8	Employees
	Staff costs (including directors) consist of:
				2021		2020
				£000		£000
	Wages and salaries			8,663		6,186
	Social security costs			1,003		794
	Cost of defined contribution scheme			284		213
	Other			1,693		956
				_________		_________
				11,643		8,149
				_________		_________
	The average number of employees (including directors) during the year was as follows:
			2021		2020
			No.		No.
	Executive		6		5
	Sales & Marketing		20		18
	Finance & Administration		14		12
	Support		32		29
	Development		33		20
	Provisioning		7		8
			_________		_________
			112		92
			_________		_________

 

9	Key management remuneration
	Key management personnel include all the directors of the Company and the senior management and directors of essensys (UK) Limited, the Group's principal trading subsidiary, who together have authority and responsibility for planning, directing, and controlling the activities of the Group.
		2021	2020
		£000	£000
	Salaries and fees	1,687	1,838
	Social security costs	187	243
	Short term non-monetary benefits	17	15
	Company contributions to money purchase pension schemes	110	108
	Share based payment expense	408	317
		_________	_________
		2,409	2,521
		_________	_________
	Full details of directors' remuneration are included within the Remuneration Committee Report section of the Annual Report and Accounts.

 

10	Interest receivable and similar income
		2021	2020
		£000	£000
	Interest receivable from related parties	-	2
		_________	_________
		-	2
		_________	_________

 

 

 

11	Interest payable and similar charges
		2021	2020
		£000	£000
	Lease liabilities	127	132
		_________	_________
		127	132
		_________	_________
12	Taxation on (loss)/profit  on ordinary activities
		2021	2020
		£000	£000
	Current tax
	UK corporation tax	-	-
	Recovery of irrecoverable tax on loans to participators	-	(159)
	Adjustment in respect of previous periods	-	(4)
	Foreign tax on income for the year	41	12
		_________	_________
	Total current tax	41	(151)
		_________	_________
	Deferred tax
	Origination and reversal of timing differences	241	334
	Adjustments in respect of prior periods	129	8
		_________	_________
	Total deferred tax	370	342
		_________	_________
	Taxation on profit on ordinary activities	411	191
		_________	_________

 

The tax assessed for the year is higher than the standard rate of corporation tax in the UK applied to profit before tax.  The differences are explained below:

 

		2021	2020
		£000	£000
	(Loss)/profit on ordinary activities before tax	(2,928)	346
		_________	_________
	Tax using the Group's domestic tax rates (19%)	(556)	66
	Effects of:
	Fixed asset differences	239	110
	Expenses not deductible for tax purposes	19	102
	Adjustments to tax charge in respect of previous periods	-	11
	Irrecoverable tax on loans to participators	-	(159)
	Adjustment in respect of prior periods	-	(4)
	Adjustment to losses	-	(225)
	Deduction for R&D expenditure	-	(123)
	Foreign tax on income for the year	-	18
	Current tax (other)	-	63
	Adjust closing deferred tax to average rate	19	7
	Adjust opening deferred tax to average rate	-	(18)
	Timing differences not recognised	(85)	228
	Deferred tax not recognised	775	115
		_________	_________
	Total tax charge for period	411	191
		_________	_________

 

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2021 (on 10 June 2021).  This included an increase to the main rate to increase the rate to 25% from 1 April 2023.

 

The deferred tax arises primarily from timing differences on the taxation related to capitalised development costs.

 

 

13	Earnings per share
		2021	2020
	Basic weighted average number of shares	53,713,487	49,652,821
		_________	_________
	Fully diluted weighted average number of shares	53,713,487	49,794,049
		_________	_________
		2021	2020
		£000	£000
	(Loss)/profit for the year attributable to owners of the group	(3,339)	155
		_________	_________
	Basic and diluted (loss)/profit per share (pence)	(6.2p)	0.3p
		_________	_________

 

The (loss)/profit per share has been calculated using the (loss)/profit for the year and the weighted average number of ordinary shares outstanding during the period.

 

Share options held at the year-ended 31 July 2021 are anti-dilutive and so have not been excluded in the diluted earnings per share calculation.