Half yearly report to 31 March 2020

Consolidated Statement of Cashflows
For the six months ended 31 March 2020 - unaudited

		31 Mar 20 6 months	31 Mar 19 6 months	30 Sep 19 12 months
		Unaudited	Unaudited	Audited
		£000	£000	£000
Cash flows from operating activities
Profit for the period		475	215	432
Finance income		(17)	(1)	(2)
Finance expense		10	-	-
Taxation		18	(109)	(66)
Depreciation		152	19	72
Amortisation		36	12	40
Research and development expenditure credit		(91)	(76)	(155)
Share option charge		101	34	113
		684	94	434
Changes in working capital
(Increase)/decrease in trade and other receivables		(214)	63	(239)
(Decrease)/increase in trade and other payables		(982)	(464)	(325)
Cash (used in)/generated from operations		(512)	(307)	(130)
Taxation received		251	-	-
Net cash (used in)/generated from operating activities		(261)	(307)	(130)
Cash flows from investing activities
Purchase of property, plant and equipment		(203)	(70)	(217)
Purchase of intangible assets including staff costs capitalised		(101)	(32)	(300)
Finance income		12	1	4
Net cash used in investing activities		(292)	(101)	(513)
Cash flows from financing activities
Issue of shares		65	-	48
Repayment of lease liabilities		(99)	-	-
Net cash generated from financing activities		(34)	-	48
Movements in cash and cash equivalents in the period		(587)	(408)	(595)
Cash and cash equivalents at start of period		7,264	7,861	7,861
Effect of exchange rate fluctuations on cash held		(13)	-	(2)
Cash and cash equivalents at end of period		6,664	7,453	7,264

 

 

 

Notes to the financial statements

 

1.      Presentation of the financial statements

 

a.      General information

 

IXICO plc (the 'Company') is a public limited company incorporated in England and Wales and is admitted to trading on the AIM market of the London Stock Exchange under the symbol IXI. The address of its registered office is 4th Floor, Griffin Court, 15 Long Lane, London EC1A 9PN.

 

The Company is a parent of a number of subsidiaries, together referred to throughout as 'the Group'. The Group is an established provider of technology-enabled services to the global biopharmaceutical industry. The Group's services are used to select patients for clinical trials and assess the safety and efficacy of new drugs in development within the field of neurological disease.

 

b.      Basis of preparation

 

The condensed consolidated interim financial statements were approved by the Board of Directors for issue on 19 May 2020. The condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The condensed consolidated interim financial statements together with the comparative information for the six months ended 31 March 2019 are unaudited.

 

The statutory accounts of the Company for the year ended 30 September 2019 were approved by the Board of Directors on 3 December 2019 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

 

The condensed consolidated interim financial statements have been prepared on a going concern basis and in accordance with IFRS as adopted by the EU, IFRIC interpretations and the Companies Act 2006 applicable to companies operating under IFRS. They comprise a Statement of Comprehensive Income, a Statement of Financial Position, a Statement of Changes in Equity, a Statement of Cash Flows, and accompanying notes. These financial statements have been prepared under the historical cost convention modified by the revaluation of certain financial instruments.

 

The condensed consolidated interim financial statements are presented in Great British Pounds ('£' or 'GBP') and are rounded to the nearest thousand unless otherwise stated. This is the predominant functional currency of the Group, and is the currency of the primary economic environment in which it operates. Foreign currency transactions are accounted for in accordance with the policies set out below.

 

c.       Basis of consolidation

 

The condensed consolidated interim financial statements incorporate the accounts of the Company and its subsidiary companies adjusted to eliminate intra-Group balances and any unrealised gains and losses or income and expenses arising from intra-Group transactions. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.

 

The Group controls a subsidiary when the Group is exposed to, or has rights to, variable returns from its involvement with a subsidiary and has the ability to affect those returns through its power over a subsidiary. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.

 

The results of subsidiary companies are included in the condensed consolidated interim financial statements from the date that control commences until the date that control ceases. The assets and liabilities of foreign operations are translated into GBP at exchange rates prevailing at the end of the reporting period. Income statements and cash flows of foreign operations are translated into GBP at average monthly exchange rates which approximate foreign exchange rates at the date of the transaction. Foreign exchange differences arising on retranslation are recognised directly in a separate translation reserve.

 

d.      Going concern

 

At the time of approving the condensed consolidated interim financial statements, the Directors have considered the expected future performance together with the Group's estimated future cash inflows from existing long-term contracts and sales pipeline. Changes to the cost base are made in the normal course of business, so that operating expenditure and planned investment are in line with the Group's strategy and financial resources.

 

In light of the recent COVID-19 pandemic, the Group has carefully considered the potential impact on revenue through consultations with clients, as well as reforecasting future expenditure. The Group established remote working practices early in the pandemic to allow the ongoing support of clinical trials to our clients, and whilst there is significant uncertainty over the length of time at which the pandemic may continue, the Group continues to maintain a strong financial position with significant cash to meet the future cashflow needs of the business. After due consideration, and taking into account management's updated estimates of future revenue and expenditure, the Directors have a reasonable expectation that the Company and the Group will have adequate financial resources to continue in operation for the foreseeable future.

 

2.      New and amended accounting standards and interpretations

 

Adoption of new accounting standards for the period ended 31 March 2020

 

IFRS 16 - Leases

The Group adopted IFRS 16 from 1 October 2019. IFRS 16 requires a lessee to recognise assets and liabilities, previously accounted for as operating leases, on the Statement of Financial Position, with subsequent recognition of depreciation of the lease assets and interest on the lease liabilities over the term of the lease. The Group has applied the modified retrospective approach requiring the Group to calculate lease assets and liabilities at the beginning of the current period and therefore the comparative information has not been restated and continues to be reported under IAS 17.

The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with all operating leases except for those identified as low-value or having a remaining lease term of less than 12 months which continue to be recognised on a straight line basis as a lease expense over the remaining lease. The incremental borrowing rate used for discounting purposes and applied to the lease liabilities recognised under the new Standard is 6%, being the expected rate at which the Group could reasonably borrow at from banking institutions.

The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at 30 September 2019 to the carrying amount at 1 October 2019:

 

	Carrying amount at 30 September 2019   £000	Remeasurement     £000	Carrying amount at 1 October 2019   £000
Property, plant and equipment	316	372	688
Lease liabilities	-	(372)	(372)

 

The following is a reconciliation of total operating lease commitments at 30 September 2019 (as disclosed in the financial statements to 30 September 2019) to the lease liabilities recognised at 1 October 2019:

		£000
Total operating lease commitments disclosed at 30 September 2019		441
Recognition exemptions: Leases of low value assets		(1)
Operating lease liabilities before discounting		440
Discounted using incremental borrowing rate		(68)
Total lease liabilities recognised under IFRS 16 at 1 October 2019		372

 

3.      Prior period adjustment

 

During the year to 30 September 2016, a subdivision of shares occurred, dividing the existing share capital of 15,215,664 ordinary shares of nominal value £0.50 into 15,215,664 ordinary shares of nominal value £0.01 and 15,215,664 deferred shares of nominal value £0.49. The deferred shares were rendered effectively worthless by virtue of the rights attached to them. On 22 December 2016, the deferred shares were repurchased for £1 and subsequently cancelled, however no accounting entries were made in respect of this transaction.

 

As a result of the deferred share cancellation, the share capital for the years ended 30 September 2017, 30 September 2018 and 30 September 2019 is overstated by £7,455,675, whilst the capital redemption reserve is understated in the same periods by £7,455,675

 

		Share capital	Capital redemption reserve
		£000	£000
Balance as at 30 September 2017		7,727	-
Repurchase and cancellation of deferred shares		(7,456)	7,456
Restated balance as at 30 September 2017		271	7,456
Balance as at 30 September 2018		7,923	-
Repurchase and cancellation of deferred shares		(7,456)	7,456
Restated balance as at 30 September 2018		467	7,456
Balance as at 30 September 2019		7,925	-
Repurchase and cancellation of deferred shares		(7,456)	7,456
Restated balance as at 30 September 2019		469	7,456

 

 

 

There is no impact on total profit or loss in any year and subsequently no impact on taxation. The number of shares in issue in each of the periods was correct and therefore there is no impact on the earnings per share or diluted earnings per share in each of the periods.

 

4.      Significant accounting policies

 

4.1    Revenue

Revenue is principally derived from service revenue. This revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

 

In determining whether to recognise revenue, the Group follows a 5-step process:

 

1.    Identifying the contract with a client;

2.    Identifying the performance obligations;

3.    Determining the transaction price;

4.    Allocating the transaction price to the performance obligations; and

5.    Recognising revenue when/as performance obligation(s) are satisfied.

 

Each type of revenue has separate recognition criteria depending on the type of service provided. These services are agreed at the inception of a project through contracts with clients. A critical part of the contract is a detailed schedule of work that provides the list of services to be provided by the Group. Performance obligations are attached to each service, with revenue being recognised once these are satisfied. The transaction price associated to each performance obligation is allocated based on their relative stand-alone selling price.

 

Revenue types

Many of the Group's contracts comprise a variety of performance obligations including, but not limited to, project set-up and management, site set-up and management, TrialTracker configuration and access, data reading and analysis, data management and quality control and scientific study reporting.

 

The most significant service revenue streams to the Group and the respective recognition criteria are:

 

Project and site set-up

At the point a client approaches the Group to complete work, a project manager is assigned. The project manager co-ordinates the project set-up and ongoing delivery of the service. At inception, the project manager will also prepare the clinical study protocol and other essential study documents.

 

Once the project and/or the site is set-up, all performance obligations are satisfied. These services are therefore recognised at a point in time, being when the Group has delivered the relevant material to the client.

 

Project and site management

Each contract requires various project management activities, provided by the project manager. These services are provided throughout the duration of a contract. Site management services are provided throughout the duration of a site being operational, typically being shorter than the project management cycle.

 

The services provided for project and site management represents a provision of on-going services. Therefore, revenue for these items are recognised on a straight-line basis.

 

Site training and materials

A contract will typically include training of each individual site. Various materials are prepared in advance and provided to clients as tools for site training. Site training is provided either through live online training or through a self-paced training module. These activities are combined in one revenue transaction per site.

 

Revenue from site training is recognised when each site has completed the training activity.

 

TrialTracker configuration and access

The TrialTracker platform delivers a robust and comprehensive set of centralised imaging services designed to efficiently manage the complex imaging workflow from: image upload, quality control, reading and analysis. The platform also allows for reporting and data transfer.

 

The Group has identified 2 separate performance obligations in the TrialTracker platform:

 

1.    A set-up fee is recognised at a point in time once TrialTracker access is provided to the client;

 

2.    An ongoing access fee is recognised over the duration of the project, with revenue being recognised on a straight-line basis.

 

Data reading and analysis

The Group provides data analysis services across a range of biomarkers, providing high-quality, clinically meaningful data. Fees are charged to clients on a 'per data read'.

 

As these services have no ongoing obligations from the Group, revenue is recognised once the data read and analysis has taken place.

Data management and quality control

Ensuring data are managed appropriately and that the data are of a high quality is critical in the delivery of the Group's service. The data management and imaging teams work in collaboration to ensure ongoing integrity of data.

 

The performance of data management represents the provision of an on-going service and so the straight-line method of recognition is used.

 

Revenue recorded from data quality control is recognised at a point in time when the Group has delivered the service to the client.

 

Scientific reports

Scientific reports are provided at interim points and at the end of a study. Such reports contain data analysis and statistical interpretation.

 

These reports represent an individual performance obligation with no further work required by the Group. Revenue from these services is recognised at a point in time when the Group provides the report to the client.

 

Licence revenue

Revenue relating to licensing is entirely attributable to TrialTracker. Each agreement will grant the user rights to use the software and receive associated technical support during the licence period.

 

The licence is a distinct performance obligation and revenue is recognised over the contract term. 

 

Change orders

Throughout the duration of a contract, the client may request additional services or service changes to be made. For revenue recognition purposes, the Group treats a change order or contract modification to a client agreement as a separate contract, if both:

 

·    the scope changes due to the addition of 'distinct' services; and

·    the price change reflects the services' stand-alone selling prices ('SSP') under the circumstances of the modified contract.

 

The revenue recognition for the change order is applied in the same way as the original contract, as detailed above, with the original client agreement remaining unchanged.

 

5.      Significant management judgement in applying accounting policies and estimation uncertainty

 

When preparing the consolidated financial statements, the Directors make a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses.

 

Significant management judgements

The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the consolidated financial statements.

 

Revenue recognition

The Group recognises revenue in accordance with amounts charged to clients under service contracts. All contracts include an agreed, detailed work order which defines the deliverables. The service contracts are typically multi-year and may be amended through a change order process, which may include changes to data volumes (increased or decreased), different methods of data analysis or changes to the timing of providing the deliverables. 

 

Revenue is recognised upon achievement of deliverables set out in the service contract. The recognition is expected to approximate to the timing of the physical performance of the contracts. The Group records the performance of the contractual obligations to determine that the deliverables and actual work performed is in accordance with the contract and agreed change orders. The scope of the project and contract terms are reviewed to determine whether the Group is acting as principal or agent in respect of the project, which depends on facts and circumstances and requires judgement.

 

Client contracts include an agreed work order so the transaction price for a contract is allocated against distinct performance obligations based on their relative stand-alone selling prices. Management determines the fair value of individual components based on actual amounts charged by the Group on a stand-alone basis. The transaction price for a contract excludes any amounts collected on behalf of third parties.

 

Capitalisation of internally developed software

Distinguishing the research and development phases of a new software product and determining whether the requirements for the capitalisation of development costs are met requires judgement. Management will assess whether a project meets the recognition criteria as set out in IAS 38 based on an individual project basis. Where the criteria are not met, the research and development expenditure will be expensed in the Consolidated Statement of Comprehensive Income. Where the recognition criteria are met, the items will be capitalised as an intangible asset.

 

During the period ended 31 March 2020, research and development expenses totalled £711,000 (2019: £458,000). Of this amount, £80,000 (2019: £nil) was capitalised as an intangible asset. The balance of expenditure being £631,000 (2019: £458,000) is recognised in the Consolidated Statement of Comprehensive Income as an expense.

 

Recovery of deferred tax assets

Deferred tax assets have not been recognised for deductible temporary differences and tax losses. The Directors consider that there is not sufficient certainty that future taxable profits will be available to utilise those temporary differences and tax losses.

 

Estimation uncertainty

Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Changes to these estimations may result in substantially different results for the year.

 

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. Details of the estimations used in determining the fair value of the options in issue are detailed in note 8.

 

Useful lives of depreciable assets

The useful lives of depreciable assets are determined by management at the date of purchase based on the expected useful lives of the assets. These are subsequently monitored and reviewed annually and where there is objective evidence of changes in the useful economic lives, these estimates are adjusted. Any changes to these estimates may result in significantly different results for the period.

 

6.      Earnings per share

 

The calculation of basic and diluted earnings per share ('EPS') of the Group is based on the following data:

 

	31 Mar 20 6 months	31 Mar 19 6 months	30 Sep 19 12 months
	Unaudited	Unaudited	Audited
Earnings
Earnings for the purposes of basic and diluted EPS, being net profit attributable to the owners of the Company (£000)	475	215	432
Number of shares
Weighted average number of shares for the purposes of basic EPS	46,981,814	46,777,000	46,786,375
Effect of potentially dilutive ordinary shares:
-     Weighted average number of share options	701,770	-	9,182
Weighted average number of shares for the purposes of diluted EPS	47,683,584	46,777,000	46,795,557

 

Basic earnings per share is calculated by dividing earnings attributable to the owners of the Company by the weighted average number of shares in issue during the year. The diluted EPS is calculated by dividing earnings attributable to the owners of the Company by the weighted average number of shares in issue taking into account the share options outstanding during the year.

 

The basic and diluted earnings per share for the Group and Company is:

 

	31 Mar 20 6 months	31 Mar 19 6 months	30 Sep 19 12 months
	Unaudited	Unaudited	Audited
Basic earnings per share	1.01p	0.46p	0.92p
Diluted earnings per share	1.00p	0.46p	0.92p

 

 

7.      Issued capital and reserves

 

Ordinary shares and share premium

The Company has one class of ordinary shares. The share capital issued has a nominal value of £0.01 and all carry the right to one vote at shareholders' meetings and are eligible to receive dividends. Share premium is recognised when the amount paid for a share is in excess of the nominal value.

 

During the period, an accounting entry was made relating to a share transaction that occurred in December 2016 and has resulted in a prior period adjustment. Further information on this is detailed in note 3.

 

The Group and Company's opening and closing share capital and share premium reserves are:

 

	Group and Company
	Ordinary	Share	Share
	shares	capital	premium
	Number	£000	£000
Authorised, issued and fully paid
At 30 September 2019 (restated)	46,902,294	469	84,436
Share options exercised	188,998	2	63
At 31 March 2020	47,091,292	471	84,499

 

Exercise of share options

During the period, the following share options were exercised:

 

	Key management personnel	Other Employees	Total	Exercise price	Value
Date of exercise	Shares	Shares	Shares	Pence	£000
15 January 2020	45,176	15,058	60,234	30.5	19
15 January 2020	113,706	-	113,706	34.0	39
15 January 2020	-	7,529	7,529	36.5	3
15 January 2020	-	7,529	7,529	49.0	4
Total	158,882	30,116	188,998	-	65

 

 

8.      Share-based payments

 

Certain Directors and employees of the Group hold options to subscribe for shares in the Company under share option schemes. There are 2 separate structures to the share options in operation in the Group (2019: 2). Both structures relate to a single scheme outlined in the EMI Share Option Plan 2014.

                                                               

Total share options outstanding have a range of exercise prices from £0.01 to £0.49 per option and the weighted average contractual life is 4.1 years (2019: 5.1 years). The total charge for the period relating to employee share-based payment plans for continuing operations is £101,000 (2019: £34,000).

                                               

                                                                               

EMI Share Option Plan 2014

 

This scheme is open, by invitation, to Executive Directors and key management personnel. Participants are granted share options in the Group which contain standard and enhanced vesting conditions. These are subject to the achievement of individual employee and Group performance criteria as determined by the Board. The vesting period varies by award and the conditions approved by the Board. Options are forfeited if the employee leaves the Group before the options vest.

 

Details of the share options outstanding during the year are as follows:                                                

 

	As at 31 March 2020		As at 30 September 2019
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at start of the period	1,872,050	£0.36	2,707,835	£0.35
Granted	-	-	-	-
Exercised	(188,998)	£0.34	(125,294)	£0.38
Lapsed	(75,000)	£0.34	(710,491)	£0.33
Outstanding at end of the period	1,608,051	£0.36	1,872,050	£0.35
Exercisable at end of the period	1,118,581	£0.36	1,068,110	£0.36

 

There were no grants issued under the EMI Share Option Plan 2014 during the period (2019: nil).

"Long-Term Incentive Plan"

 

2018 LTIP options

 

On 4 June 2018, the Company issued options with an exercise price of £0.01 as an alternative approach to incentivising employees under the EMI Share Option Plan 2014. It termed this approach of issuing options with an exercise price of £0.01 its Long-Term Incentive Plan ('LTIP'). The LTIP was approved by shareholders on 29 May 2018. The LTIP operates under the umbrella of the EMI Share Option Plan 2014.

 

The original share options granted are subject to share price performance, measured against the 3-month volume weighted average price of the Company's ordinary shares. The measurement date will be made in the 3 months prior to the third anniversary from the date of the grant. The performance conditions of this LTIP Award is as follows:

 

-     0% of the LTIP will vest if the share price increases by less than 50%;

-     25% of the LTIP will vest if the share price increases by 50% from the date of issue of the grant;

-     25% - 100% of the LTIP will vest on a straight-line basis if the share price increases by up to 100% from the date of issue of the grant.

 

The share price at the date of issue of the grant was £0.28.

 

On 5 December 2019, the share options granted to those still employed at the Group were modified. This modification removed a minimum floor price of £0.50 and aligned the vesting and holding periods to that of the 2019 award detailed below. A revised valuation model was used to determine the incremental fair value of the modified share options. The model used to value the grants was the Monte Carlo method followed by 'Hull White' trinomial lattice and the inputs used were as follows:

	Original	Modified
Weighted average share price	£0.35	£0.70
Weighted average exercise price	£0.01	£0.01
Expected volatility	46.7%	66.9%
Expected life	6 years	4.5 years
Expected dividend yield	0%	0%
Risk-free interest rate	1.05%	0.62%

2019 LTIP options

On 5 December 2019, the Company issued options with an exercise price of £0.01. These options are subject to share price performance, measured against the twenty-day volume weighted average price of the Company's ordinary shares in the twenty days following the third anniversary from the date of the grant. This LTIP award is also subject to achieving a compound annual growth rate of 10% on annual revenues over the three financial years to 30 September 2022. The performance conditions of this LTIP award are measured against a share price of £0.32 and is as follows:

 

-     0% of the LTIP will vest if the share price increases by less than a compound annual growth rate of 12.5%;

-     25% of the LTIP will vest if the share price increases on a compound annual growth rate of 12.5%;

-     25% - 100% of the LTIP will vest on a straight-line basis if the share price increases up by up to a compound annual growth rate of 25.0%.

 

The model used to value the grants was the Monte Carlo method followed by 'Hull White' trinomial lattice and the inputs used were as follows:

 

Weighted average share price		£0.70
Weighted average exercise price		£0.01
Expected volatility		66.7%
Expected life		5 years
Expected dividend yield		0%
Risk-free interest rate		0.55%

 

Details of the share options under the LTIP schemes outstanding during the period are as follows:

 

 

	As at 31 March 2020		As at 30 September 2019
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at start of the period	1,818,522	£0.01	2,571,910	£0.01
Granted	1,540,000	£0.01	-	-
Exercised	-	-	-	-
Lapsed	(194,842)	£0.01	(753,388)	£0.01
Outstanding at end of the period	3,163,680	£0.01	1,818,522	£0.01
Exercisable at end of the period	-	-	-	-