Financial Results for the year ended 30 Sept 2020

Notes to the financial statements

For the years ended 30 September 2020 and 30 September 2019

 

The financial information set out in these results does not constitute the company's statutory accounts for 2020 or 2019. Statutory accounts for the years ended 30 September 2020 and 30 September 2019 have been reported on by the Independent Auditors; their report was (i) unqualfied; (ii) did not draw attention to any matters by way of emphasis; and (iii) did not contain a statement under 498 (2) or 498 (3) of the Companies act 2006.

 

Statutory accounts for the year ended 30 September 2019 have been filed with the Registrar of Companies. The statutory accounts for the year ended 30 September 2020 will be delivered to the Registrar in due course. Copies of the Annual Report 2020 will be posted to shareholders on or about 18 December 2020.

 

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 detailed in note 16, 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 consolidated 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.

 

The consolidated financial statements 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 consolidated 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 in accordance with the policies set out below.

 

c.       Basis of consolidation

 

The consolidated 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. The Company's subsidiaries are detailed in note 16. 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 consolidated 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 consolidated 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.

 

The ongoing COVID-19 pandemic is causing significant uncertainty across global markets for the short and medium term. During 2020, the Group reacted quickly to this by preparing a series of financial scenario forecasts based on discussions with clients over the likely impact of the pandemic on their clinical trials. In parallel the Group moved rapidly to a fully remote model, which included providing additional equipment to employees enabling all to work from home effectively and allowing the Group to trade uninterrupted throughout the year.

 

In assessing going concern, management has prepared detailed sensitised forecasts which consider different scenarios throughout the course of the next 12 months. These include the risk to current projects and expected future sales pipelines, the ability for patients to attend imaging centres (due to global COVID-19 lockdown restrictions) and potential delays in new trial start-up timelines. The Directors have considered these forecasts, alongside the Group's strong balance sheet and cash balance as well as the ability for the Group to mitigate costs if necessary.

 

After due consideration of these forecasts, the Directors concluded with confidence that the Group has adequate financial resources to continue in operation for the foreseeable future.

 

 

2.       New and amended accounting standards and interpretations

 

a.       Adoption of new accounting standards for the year ended 30 September 2020

 

The Group has adopted all new and amended accounting standards and interpretations issued by the International Accounting Standards Board ('IASB') that are mandatory for the current reporting period. Analysis of the impacts of these standards are set out below.

IFRS 16 - Leases
The Group adopted IFRS 16 from 1 October 2019. IFRS 16 requires a lessee to recognise lease assets and liabilities, previously accounted for as operating leases, on the Statement of Financial Position. Subsequently, depreciation of the lease assets and interest on the lease liabilities is recognised within the Statement of Comprehensive Income over the remaining 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 term. 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	462	778
Provisions	-	90	90
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		(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

 

b.       Accounting developments affecting financial statements in subsequent periods

 

At the date of authorisation of these financial statements, several new, but not yet effective, standards and amendments to existing standards and interpretations have been published by the IASB. The standards and amendments that are not yet effective and have not been adopted early by the Group include:

•       Amendments to References to Conceptual Framework in IFRS Standards

•       Definition of Material (Amendments to IAS 1 and IAS 8)

•       Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

The Directors anticipate, based on current business processes, that the introduction of the above standards and amendments will not have a material impact on the Group and Company financial statements and therefore the impact of these changes on the financial statements have not been made.

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

The Group's contracts comprise a variety of performance obligations. These obligations are all considered streams of a single revenue type, being service revenue. The Group's most significant streams of service revenue are outlined below and have the respective recognition criteria:

 

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 is 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.

 

4.2    Other income

Government grants

A government grant is recognised only when there is reasonable assurance that the Group will comply with any conditions attached to the grant and the grant will be received. The grants are recognised as income over the period necessary to match them with the related costs, for which they are intended to compensate, on a systematic basis. The Group recognises grant income as an item of other income.

 

Research and Development Expenditure Credit ('RDEC')

The Group has elected to take advantage of the RDEC introduced in the Finance Act 2013. A company may surrender corporation tax losses on research and development expenditure incurred on or after 1 April 2013 for a corporation tax refund. Relief is given as a taxable credit on 13% (which increased from 12% from 1 April 2020) of qualifying research and development expenditure. The Group recognises research and development expenditure credit as an item of other income, taking advantage of the 'above the line' presentation, and is recognised in the year for which the research and development relates.

 

4.3    Research and development expenditure

In all instances across the Group, research expenditure is expensed through the income statement. For development expenditure, items will be expensed where the recognition criteria for internally generated intangible assets is not met.

 

The main criteria used to assess this, as required under IAS 38 - Intangible Assets, are:

-       Demonstrating technical feasibility of completing the intangible asset;

-       Intention to complete the asset;

-       Ability to use or sell the asset in order to generate future economic benefit;

-       Availability of adequate technical or other resources to complete development; and

-       Ability to measure reliably the expenditure attributable to the asset.

It was determined that the Group continued to meet the above criteria in respect of specific developments to its TrialTracker platform and data analytics service offering. As a result, associated development costs are capitalised in the year in relation to TrialTracker and an intangible asset is recognised as set out in note 15.

 

4.4    Share-based payments

Equity-settled share-based payments 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 equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions.

 

Any changes that impact the original estimates, for example the effect of employees who have left the Group in the year and have forfeited their options, is recognised in the Consolidated Statement of Comprehensive Income such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

 

Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 23 of the consolidated financial statements.

 

4.5    Employee benefits

All employee benefit costs are recognised in the Consolidated Statement of Comprehensive Income as they are incurred. These principally relate to holiday pay and contributions to the Group defined contribution plan.

 

The assets of the Group scheme are held separately from those of the Group in independently administered funds. The Group does not offer any other post-retirement benefits.

 

4.6    Leased assets

A lease is defined as a contract that gives the Group the right to use an asset for a period of time in exchange for consideration. The Group identifies from the contract the total length and cost of the lease contract, and determines whether it meets the definition of a right-of-use asset. Recognition of a right-of-use asset is met if it is longer than 12 months and of a high value. For those leases that do not meet these criteria, the rental charge payable under these leases are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term.

 

The initial recognition and subsequent measurement of right-of-use asset leases are:

 

Initial recognition

At the commencement date, the Group measures the lease liability at the present value of future lease payments, discounted using the Group's incremental borrowing rate. The Group also recognises a right-of-use asset which is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs and an estimate of any costs to reinstate the asset to its original condition. 

 

Subsequent measurement

The lease liability is reduced for payments made and increased for interest, and is remeasured for any modifications made to the lease. The right-of-use asset is depreciated on a straight-line basis over the expected lease term. The asset is also assessed for impairment when such indicators exist.

 

On the statement of financial position, right-of-use assets are included in property, plant and equipment and lease liabilities within trade and other payables.

 

4.7    Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and, where appropriate, less provisions for impairment. The initial recognition and subsequent measurement of property, plant and equipment are:

 

Initial recognition

Property, plant and equipment is initially recognised at acquisition cost, including any costs directly attributable to bringing the assets to the location and condition necessary for them to be capable of operating. In most circumstances, the cost will be its purchase cost, together with the cost of delivery.

 

Subsequent measurement

An asset will only be depreciated once it is ready for use. Depreciation is charged so as to write off the cost of property, plant and equipment, less its estimated residual value, over the expected useful economic lives of the assets.

 

Depreciation is charged on a straight-line basis as follows:

 

Office buildings	over expected lease term
Leasehold improvements	shorter of 5 years or the lease term
Fixtures and fittings	3 years
Equipment	3 years

 

The disposal or retirement of an asset is determined by comparing the sales proceeds with the carrying amount. Any gains or losses are recognised within the Consolidated Statement of Comprehensive Income.

4.8    Intangible assets

Acquired intangibles

Intangible assets that are acquired through business combinations are recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights. These assets will only be recognised if they are also expected to generate future economic benefits and its fair value can be reliably measured.

 

Initial recognition

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition.

 

Subsequent measurement

Following capitalisation, the intangible assets are carried at cost less any accumulated amortisation, and where appropriate, less provisions for impairment.

 

Intangible assets are amortised using the straight-line method over their estimated useful economic life as follows:

 

Intangibles acquired through business combinations	5 years
Other acquired intangible assets
-       Computer software	3 years
-       Data acquisition	5 years

 

Amortisation is charged to the Consolidated Statement of Comprehensive Income and is included within cost of sales for those items directly related to project activities, or otherwise within general and administrative expenses.

 

Internally generated intangible assets

Intangible assets that are capitalised internally are deemed to have met the recognition criteria set out in IAS 38. These items relate to research and development costs and are considered in note 4.3.

 

Initial recognition

Internally generated intangible assets are initially recognised at cost once the recognition criteria of IAS 38 are met.

 

Subsequent measurement

Any assets that are not yet ready for use will be capitalised as assets under construction and will not be amortised. Once the asset is ready for use, amortisation will begin. The amortisation rates adopted are based on the expected useful economic life of the projects to which they relate. The assets useful economic life is as follows:

 

Internally generated technology

3 - 5 years

 

4.9    Impairment of non-current assets

Each category of non-current assets is reviewed for impairment both annually and when there is an indication that an asset may be impaired, being when events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognised in the Consolidated Statement of Comprehensive Income for the amount by which the asset's carrying value exceeds its recoverable amount.

 

The recoverable amount is the higher of an asset's fair value less cost to sell and value in use. Non-financial assets, other than goodwill, which have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

 

4.10  Investments in Group undertakings

Investments in Group undertakings are initially recognised at cost and subsequently measured at cost less any impairment provision. Investments are subject to an annual impairment review, with any impairment charge being recognised through the Consolidated Statement of Comprehensive Income. Additions to investments are amounts relating to share options for the services performed by employees of the subsidiaries of the Company and are classified as capital contributions within note 16. 

 

4.11  Trade and other receivables

Trade and other receivables are initially recognised at fair value and subsequently stated 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 difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or significant delinquency in payments (exceeding credit terms) are considered indicators that the trade receivable should be impaired.

 

The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Consolidated Statement of Comprehensive Income within general and administrative expenses. 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 against general and administrative expenses in the Consolidated Statement of Comprehensive Income.

 

4.12  Taxation

Current tax
Current tax represents amounts recoverable within the United Kingdom and is provided at amounts expected to be recovered using the tax rates and laws that have been enacted at the Statement of Financial Position date.

Research and development credits
The benefit associated with UK-based research and development is recognised under the UK's Research and Development Expenditure Credit scheme. Details of the recognition are set out in note 4.3.

Deferred taxation
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements in accordance with IAS 12 - Income taxes. Deferred tax liabilities are recognised for all taxable temporary differences. A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available in future years to utilise the temporary difference. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither the accounting, nor taxable profit or loss.

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the Statement of Financial Position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

 

Deferred tax assets and liabilities are offset only when there is a legally enforceable right to set off current tax assets against current tax liabilities, they relate to income taxes levied by the same taxation authority and the Group intends to settle these on a net basis.

 

4.13  Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand with original maturities at inception of 3 months or less.

 

4.14  Foreign currency translation

Transactions denominated in foreign currencies are translated into Great British Pounds at actual rates of exchange prevailing at the date of transaction. Monetary assets and liabilities expressed in foreign currencies are translated into Great British Pounds at rates of exchange prevailing at the end of the financial year. All foreign currency exchange differences are taken to the Consolidated Statement of Comprehensive Income in the year in which they arise.

 

Non-monetary items are not retranslated at year end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

 

4.15  Trade and other payables

Trade and other payables are non-interest-bearing and are initially recognised at fair value and subsequently stated at amortised cost.

 

4.16  Provisions, contingent assets and contingent liabilities

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. The timing of such outflows may still be uncertain. Such provisions are measured at the estimated expenditure required to settle the present obligation based on the most reliable estimate available at the reporting date, discounted to the present value where material.

Any reimbursement that the Group is virtually certain to collect from a third party in relation to the related provision will be recognised as a separate asset.

Liabilities are not recognised where the outflow of economic resources is not probable, but are instead disclosed as contingent liabilities.

4.17  Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

 

4.18  Financial instruments

Financial assets and financial liabilities are recognised on the Consolidated Statement of Financial Position when the Group or the Company becomes a party to the contractual provisions of the instrument. Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

 

Further information relating to financial instruments and the policies adopted by the Group to manage risk is found in note 24.

 

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 year ended 30 September 2020, total research and development expenses totalled £1,553,000 (2019: £1,147,000). Of this amount, £244,000 (2019: £161,000) was capitalised as an intangible asset. The balance of expenditure being £1,309,000 (2019: £986,000) 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. Further information on the Group's deferred tax asset can be found in note 21 of the consolidated financial statements.

 

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 23.

 

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.  

 

Provisions

The amounts included in both long- and short-term provisions are based on estimates provided by professionals relevant to the field the provision relates. These were reviewed by management and are considered to be a reasonable estimate of the expected cost of fulfilling these provisions.

 

6.       Revenue

 

An analysis of the Group's revenue by type is as follows:

 

					2020	2019
					£000	£000
Service revenue					9,532	7,561

 

 

For the year ended 30 September 2020, revenue includes £227,000 (2019: £1,271,000) held in contract liabilities within trade and other payables at the beginning of the period.

 

 

7.       Segmental information

 

The Board considers there to be only one core operating segment for the Group's activities. This is based on the Group's development, commercial and operational delivery teams operating across the entirety of the Group, which is wholly based in the United Kingdom. The projects undertaken by the Group are managed by project managers, who receive inputs for each project by other team members. Performance information is reported as a single business unit to the leadership team, who review the Group's management information.

 

The information gathered for each project is subsequently reported to the Group's Chief Executive Officer, who is considered to be the chief operating decision-maker. This information is used for resource allocation and assessment of performance. Therefore, the entirety of the Group's revenue and assets can be attributed wholly to this operating segment with reference to the Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position.

 

During the year ended 30 September 2020, the Group had 1 client (2019: 2 clients) that exceeded 10% of total revenue. In 2020 the individual percentage revenue associated with this client was 65% (£6,232,000). In 2019 the individual percentage revenue associated with this client was 39% (£2,976,000) and 14% (£1,086,000) related to the other client which exceeded 10% of total revenue.

 

 

Geographical information

 

The Group's revenue can be categorised by type of revenue and by country, based on the contracting client location of the contracting client entity.

 

					2020	2019
					£000	£000
United States					1,990	3,388
United Kingdom					6,374	2,764
Europe					1,168	1,404
Rest of World					-	5
Revenue					9,532	7,561

 

 

As the Group is domiciled in the United Kingdom, the entirety of the revenue originates from this location.

 

 

8.       Other income

 

Items of other income principally relate to government grants received, originating solely in the United Kingdom. Grants are recognised as income over the period required to match them with the related costs, for which they are intended to compensate, on a systematic basis.

 

The Group also recognises Research and Development Expenditure Credit ('RDEC') as other income.

 

 

	2020	2019
	£000	£000
Grant income	444	433
RDEC	162	155
Other income	606	588

 

 

9.       Auditor's remuneration

 

	2020	2019
	£000	£000
Audit services
- Group and Parent Company	33	31
- subsidiary companies	22	20
Total audit fees	55	51
Audit-related assurance services	6	6
Tax compliance services	-	9
Tax advisory services	-	1
Total auditor's remuneration	61	67

 

 

 

10.    Employees and Directors

 

The average monthly number of persons (including Executive and Non-Executive Directors) employed by the Group was:

               

	2020	2019
	Number	Number
Administration	15	17
Operations, research and development	67	51
Average total persons employed	82	68

 

 

The aggregate remuneration of employees in the Group was:

 

	2020	2019
	£000	£000
Wages and salaries	5,480	4,630
Social security costs	845	535
Other pension costs	203	177
Share-based payments charge	184	113
Total remuneration for staff	6,712	5,455
Staff costs capitalised	(244)	(161)
Net staff costs	6,468	5,294

 

 

The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group in independently administered funds. The amounts outstanding at 30 September 2020 in respect of pension costs were £31,000 (2019: £27,000).

 

The remuneration of the Group's Directors is set out in the Directors' Remuneration Report in the full annual report, as well as in note 25 under related party transactions.

 

The Company did not directly employ any staff and therefore there is no cost recognised in respect of staff costs.

 

 

 

11.    Operating profit

 

An analysis of the Group's operating profit has been arrived at after charging:

               

	2020	2019
	£000	£000
Research and development expenses	1,309	986
Sales and marketing expenses	1,579	1,154
Operating lease charges: land, buildings and printers	21	144
Depreciation of tangible assets	356	72
Loss on disposal of tangible and intangible assets	3	-
Amortisation of intangible assets	26	40
Foreign exchange (gain) / loss	(17)	27
Administrative expenses	2,819	2,743
Total operating expenses	6,096	5,166

 

There is a further amortisation charge of £56,000 (2019: £nil) recognised in cost of sales for those items directly related to project activities. The total amortisation charge for the year is £82,000 (2019: £40,000).

 

 

12.    Taxation

 

The tax charge for each period can be reconciled to the result per the Consolidated Statement of Comprehensive Income as follows:

 

	2020		2019
	£000		£000
Profit on ordinary activities before taxation	858		366
Profit before tax at the effective rate of corporation tax
in the United Kingdom of 19% (2019: 19%)	163		70
Effects of:
Expenses not deductible for tax purposes	16		(2)
Temporary differences	(131)		(85)
Research and development uplifts net of losses surrendered for tax credits	(145)		(28)
Prior period adjustment	3		(21)
Tax credit for the period	(94)		(66)

 

The tax credit for each period can be reconciled as follows:

 

	2020		2019
	£000		£000
Small or medium enterprise research and development credit	(127)		(74)
Deduction for corporation tax on RDEC	30		29
Prior period adjustment	3		(21)
Tax credit for the period	(94)		(66)

 

 

The Group has elected to take advantage of the RDEC, introduced in the Finance Act 2013 whereby a company may surrender corporation tax losses on research and development expenditure incurred on or after 1 April 2013 for a corporation tax refund.

 

The following is a reconciliation between the tax charge and the tax receivable within the Consolidated Statement of Financial Position:

	2020	2019
	£000	£000
Current tax receivable at start of period	450	229
Current period credit	256	221
Corporation tax repayment	(447)	-
Current tax receivable at end of period	259	450

 

 

The tax credit for each period can be reconciled to the current period credit recognised in tax receivable within the Consolidated Statement of Financial Position in each period as follows:

 

	2020	2019
	£000	£000
Tax credit for the year	94	66
Deferred tax movement on amortisation	-	-
RDEC gross of corporation tax deduction	162	155
Current period credit	256	221

 

 

13.    Earnings per share

 

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

	2020		2019
Earnings
Earnings for the purposes of basic and diluted EPS, being net profit attributable to the owners of the Company (£000)	952		432
Number of shares
Weighted average number of shares for the purposes of basic EPS	47,036,398		46,786,375
Effect of potentially dilutive ordinary shares:
-       Weighted average number of share options	513,521		9,182
Weighted average number of shares for the purposes of diluted EPS	47,549,919		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:

	2020	2019
Basic earnings per share	2.02p	0.92p
Diluted earnings per share	2.00p	0.92p

 

14.    Property, plant and equipment

 

Group

 

	Office	Leasehold	Fixtures and
	building	improvement	fittings	Equipment	Total
Cost	£000	£000	£000	£000	£000
At 1 October 2018	-	62	7	140	209
Additions	-	102	5	204	311
Disposals	-	(62)	(7)	(61)	(130)
At 30 September 2019	-	102	5	283	390
Adjustment on transition to IFRS 16	462	-	-	-	462
Additions	-	44	-	549	593
Disposals	-	-	-	(1)	(1)
At 30 September 2020	462	146	5	831	1,444
Accumulated depreciation
At 1 October 2018	-	53	7	72	132
Charge for the period	-	11	2	59	72
Disposals	-	(62)	(7)	(61)	(130)
At 30 September 2019	-	2	2	70	74
Charge for the period	191	45	2	118	356
Disposals	-	-	-	-	-
At 30 September 2020	191	47	4	188	430
Net book value
At 30 September 2019	-	100	3	213	316
At 30 September 2020	271	99	1	643	1,014

 

The only right-of-use asset is held within the office building category. At 30 September 2020, the carrying amount of the right-of-use asset was £271,000 (2019: £nil).

 

 

Company

At 30 September 2020 and 30 September 2019, the Company had no property, plant and equipment.