Ideagen plc

Notes to the Financial Statements for the year ended 30 April 2021

 

1           Accounting policies

Reporting entity, principal activities and basis of preparation

Ideagen plc is a public limited company, incorporated and domiciled in England & Wales. The ordinary shares of the Company are traded on the AIM market of the London Stock Exchange. 

The principal activities of the Group are the development and sale of information management software to businesses in highly regulated industries and the provision of associated professional services and support.

The business has a track record of organic and acquisitive growth, having made 18 acquisitions before 30 April 2020 and a further 3 in the year ended April 2021.  There is an established process for the execution and integration of acquisitions, both from an operational and financial perspective.  This includes a 72-point checklist and staff members across the business with deep integration experience.   The approach to accounting for goodwill and intangibles is set out in the Accounting Policies note below.       

The financial statements have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006.

The results shown do not constitute statutory financial statements for the year ended 30 April 2021 within the meaning of section 435 of the Companies Act 2006 but are extracted from those financial statements. Statutory accounts for the year ended 30 April 2021 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.  

The financial statements are presented in Pounds Sterling, being the functional currency of the Group, generally rounded to the nearest thousand. The annual financial statements have been prepared on the historical cost basis, except for derivative financial instruments which are carried at fair value.

The Group financial statements include all of its subsidiary undertakings made up to 30 April 2021. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All intra-group balances and transactions are eliminated. The financial statements of all subsidiaries are prepared up to the same date as the parent Company with the exception of Ideagen EOOD in Bulgaria which makes its financial statements up to 31 December each year as required by Bulgarian law.

The preparation of financial statements in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates.

Going Concern

Our going concern assessment and related disclosure has been enhanced this year in view of the ongoing uncertainty around the COVID-19 pandemic, and its potential macroeconomic impact.  The approach focuses on a review of the following factors:

·      External market dynamics and any changes or trends likely to impact demand or the competitive landscape

·      Current financial condition of the business, including recurring revenue, profitability and cashflow trends and forecasts

·      Banking facilities and liquidity position

·      Customer relationships

·      Other business risks

A comprehensive assessment is made of each area taking into account all available information - internal and external - and focused on a one year period from approval of the financial statements. 

Our decisions and actions during the pandemic have been based on the principles of protecting our people, ensuring our business remains strong and working collaboratively with our customers through the challenges they face.   Management of this transition has been effective and due to systems and processes established prior to the pandemic has had a limited impact on the operational performance of the Group. 

At the outset of the pandemic in the UK, the directors reviewed the business and took the strategic decision to reduce cost via a targeted redundancy programme.  These decisions were both an acceleration of strategic initiatives in moving towards a digital marketing function and a reshaping of the operational cost base.  The savings provided additional financial resilience at a point when COVID-19 was starting to unfold. 

 

1           Accounting policies (continued)

Foreign currencies

             In preparing the financial information of each individual group entity, transactions in currencies other than the entity's functional currency are recognised at the rates of exchange prevailing at the date of those transactions. At the end of the financial year, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognised in profit or loss in the period in which they arise.

For the purposes of the consolidated financial information, the assets and liabilities of foreign operations are translated into sterling using exchange rates prevailing at the end of each financial year. Income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the year, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising are recognised in other comprehensive income and accumulated in a foreign currency translation reserve within equity.

Leases

Leases - company as lessee

At inception of the contract, the group and company assesses whether a contract is, or contains, a lease. It recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee. The right-of-use assets and lease liabilities are presented as separate line items in the statement of financial position.

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 and company's incremental borrowing rate on commencement of the lease is used.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, plus lease payments made on or before the commencement day, less any lease incentives received and plus any initial direct costs. They are subsequently measured at cost less accumulated depreciation. Right-of-use assets are depreciated over the term of the respective lease.

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 12 months or less.

Derivative financial instruments

The Group and company uses foreign currency forward contracts to reduce its exposure to risks from foreign exchange movements. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at fair value. Changes in the fair value of derivatives are recognised in profit or loss, within operating costs.

Financial assets at fair value through profit or loss

Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss.

Exceptional items

The Group presents as exceptional items on the face of the Statement of Comprehensive Income those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to better understand the elements of financial performance in the year, so as to facilitate comparison with prior years.

1           Accounting policies (continued)

Taxation

The tax charge or credit is based on the result for the year and comprises current and deferred income tax.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the year-end date and includes any adjustment to tax payable in respect of previous years.

Deferred income tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities included in the financial statements and the tax base of those assets and liabilities. Deferred income tax assets are recognised only to the extent that the directors consider that it is probable that there will be suitable taxable profits in the future against which an asset can be utilised.

Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the year-end date. Deferred income tax assets and deferred income tax liabilities arising in different tax jurisdictions are not offset.

Provisions

Provisions are made where an event has taken place that gives the Group and Company a legal or constructive obligation that probably requires settlement by a transfer of economic benefit, and a reliable estimate can be made of the amount of the obligation.

Provisions are charged as an expense to the Statement of Comprehensive Income in the year that the Group and Company becomes aware of the obligation, and are measured at the best estimate at the Statement of Financial Position date of the expenditure required to settle the obligation, taking into account relevant risks and uncertainties.

When payments are eventually made, they are charged to the provision carried in the Statement of Financial Position.

Pensions and post-retirement benefits

The Group operates a defined contribution pension scheme which is available to all employees. The assets of the scheme are held separately from those of the Group in independently administered funds. Payments are made by the Group to this scheme and contributions are charged in the Statement of Comprehensive Income as they become payable.

Goodwill

Goodwill arising on business combinations is initially measured at cost being the excess of the fair value of the consideration paid over the Group's interest in the net fair value of the identifiable assets and liabilities acquired. Costs of acquiring businesses are expensed as incurred. Goodwill is subsequently measured at cost less any accumulated impairment losses.

Goodwill is not amortised but is reviewed annually for impairment. Impairment is determined by assessing the recoverable amount of the cash-generating unit which contains the goodwill. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in the Statement of Comprehensive Income.

Other intangible assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. The estimated useful life and amortisation method are reviewed annually with the effect of any changes being reflected on a prospective basis.

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at their initial fair value less amortisation and accumulated impairment losses.

Research costs are expensed as incurred.  An intangible asset arising from development expenditure on a project is only recognised if management considers that it is technically feasible and that there are sufficient resources available to complete the asset so that it will be available for use or sale, that it intends to complete and is able to sell or use the asset to generate future economic benefits and that the costs of the development project can be measured reliably. Following the initial recognition of the expenditure, the asset will be carried at cost less accumulated amortisation and impairment losses.

 

1           Accounting policies (continued)

Amortisation is applied once the asset is available for use to write off the cost over the period which is expected to benefit from the sale of the asset.

The annual amortisation rates applied to the Group's intangible assets on a straight-line basis are as follows:

Software                                                           20%

Development costs                                           20%

Customer relationships                                    10%

Amortisation charges are included in 'Depreciation and amortisation' in the Statement of Comprehensive Income.

The Company's investments in subsidiaries

The Company recognises its investments in subsidiaries at cost less any impairment in its separate financial statements. Costs of acquiring businesses are expensed as incurred. Impairment is determined by assessing the recoverable amount of the investment. Where the recoverable amount is less than the carrying amount, an impairment loss is recognised in the Statement of Comprehensive Income.

The recoverable amount is determined using a value in use methodology based on discounted cash flow projections.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated at the annual rates shown below so as to write off the cost, less any estimated residual values, over the expected useful economic lives of the assets concerned:

·      Office equipment at 15% - 33% on a straight-line basis

·      Motor vehicles at 25% - 33% on a reducing balance basis

·      Leasehold improvements over the remaining lease term

·      All other plant and equipment assets at 15% - 33% on a straight-line basis.

The remaining useful lives and residual values of property, plant and equipment are reassessed by the directors each year.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any indication exists, the carrying values are written down to the recoverable amount.

Impairment of non-financial assets

The Group reviews the carrying amounts of its tangible and intangible assets if there is a triggering event to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount provided that this does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Trade and other receivables

Trade and other receivables are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest method less any allowance for expected credit losses.

The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. The expected loss rate against certain balances is adjusted where there are specific indicators that the trade receivable is either irrecoverable or the risk of loss is high. Indicators include, amongst others, the failure of a debtor to engage in a repayment plan with the Group or a failure to make contractual payments for a period greater than 120 days past due.

 

1           Accounting policies (continued)

Cash and cash equivalents

Cash and cash equivalents in the Statement of Financial Position comprise cash at bank and in hand. For the purpose of the Statement of Cash Flows, cash and cash equivalents as defined above are stated net of any outstanding bank overdrafts.

Trade and other payables

Trade and other payables are recognised initially at fair value. After initial recognition, they are measured at amortised cost using the effective interest method.

Contract liabilities are recognised when payment from a customer is received in advance of performance obligations being satisfied. Contract liabilities are shown as deferred revenue within trade and other payables.

Financial liabilities and equity instruments

Equity and debt instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

The Group's financial liabilities include trade and other payables and borrowings which are measured at amortised cost using the effective interest rate method.

An equity instrument is any contract which evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group, such as share capital and share premium, are recognised at the proceeds received net of direct issue costs.

Contingent consideration

Contingent consideration is initially measured at fair value at the date of completion of the acquisition.

The accounting for changes in the fair value of contingent consideration arising on business combinations that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as a liability is remeasured to fair value at subsequent reporting dates and the corresponding gain or loss is recognised in the Statement of Comprehensive Income.

Share-based payments

The cost of equity settled transactions with employees is measured by reference to the fair value on the date they are granted. Where there are no market conditions attaching to the exercise of the options, the fair value is determined using a range of inputs into a Black-Scholes pricing model. Where there are market conditions attaching to the exercise of the options a trinomial option pricing model is used to determine fair value based on a range of inputs.  The value of equity-settled transactions is charged to the Statement of Comprehensive Income over the period in which the service conditions are fulfilled with a corresponding credit to a share-based payments reserve in equity.

On the exercise of share options, an amount equal to the fair value of the option at the date it was granted is transferred from the share-based payments reserve into retained earnings.

The Group has a Share Incentive Scheme under which all eligible employees can be awarded free shares. The fair value of shares awarded under the Scheme is the market value of those shares at the date of grant which is then recognised on a straight-line basis over the vesting period. The free shares awarded are issued at nominal value and held in a trust managed by a third-party trustee. On vesting, an amount equal to the fair value of the shares at the date the shares were awarded is transferred from the share-based payments reserve into retained earnings.

Dividends

Dividends distributed to the Company's shareholders are recognised as a liability in the financial statements in the period in which the dividends are approved by the Company's shareholders or, in the case of interim dividends, when they are paid.

 

1           Accounting policies (continued)

Use of estimates and judgements

 

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets, liabilities, revenues and expenses. However, the nature of estimation means that actual outcomes could differ from those estimates.

 

In applying the Group's accounting policies, management has made the following judgements and estimates which have the most significant effect on the amounts recognised in the financial statements.

 

Acquisition intangibles

 

The Group initially measures the separable intangible assets acquired in a business combination at their fair value at the date of acquisition. Management judgement is required in deriving a number of assumptions which are used in assessing the fair value of each acquisition intangible including the timing and amount of future incremental cash flows expected to be generated by the asset and in calculating an appropriate cost of capital. Management judgement is also required in assessing the useful economic lives of these assets for the purposes of amortisation.

 

Deferred income tax assets

 

Management judgement is required to determine the amount of deferred income tax assets that can be recognised, based on the likely timing and level of future taxable profits. Details of the deferred income tax assets recognised in respect of trading losses and share-based payments are given in Note 7.

 

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. Judgement is required in determining the most appropriate valuation model and the most appropriate inputs into the model including the level of volatility and the expected life of the option. Further information is given in Note 24.

 

Impairment of goodwill

 

The Group tests goodwill for impairment on an annual basis in line with the accounting policy noted above. This involves judgement regarding the future development of the business and the estimation of the level of future growth, cash flows and

an appropriate discount rate to support the carrying value of goodwill.

 

Trade and other receivables

 

Management judgement is required in considering the recoverability of debts and in the estimation of expected credit losses which may be incurred. Further information is provided in notes 14 and 25.

 

Impairment of other assets

 

The Group reviews the carrying value of all other assets for indications of impairment at each period end. If indicators of impairment exist, the carrying value of the asset is subject to further testing to determine whether its carrying value exceeds its recoverable amount. This process will usually involve the estimation of future cash flows which are likely to be generated by the asset.

 

Development costs

 

Management judgement is required in assessing the fair value of development costs capitalised including the future economic benefit expected to be generated by those assets and in calculating the attributable costs. Management judgement is also required in assessing the useful economic lives of these assets for the purposes of amortisation. Further information is provided in note 9.

 

Revenue recognition

Management judgement is required in assessing the point at which revenue should be recognised. Revenue is recognised at the point when the significant risks and rewards of ownership have passed to the buyer through the satisfaction of performance obligations.

2    Revenue

The directors consider that the Group has a single business segment, being the sale of information management software to highly regulated industries. The operations of the Group are managed centrally with group-wide functions covering sales and marketing, development, professional services, customer support and finance and administration.

An analysis of revenue by product or service is given below.

 

	2021 £'000		2020 £'000
Recurring software subscription/SaaS	32,183		22,092
Recurring support & maintenance	22,009		20,993
Total recurring revenues	54,192		43,085
Software - new licences & development kits	6,283		7,189
Professional services	5,169		5,910
Other revenues	-		381
	65,644		56,565
Revenue recognised on an "Over a period of time" basis	59,367		48,995
Revenue recognised on a "Point in time" basis	6,277		7,570
	65,644		56,565

 

 

2   Revenue (continued)

 

An analysis of external revenue by location of customers and non-current assets by location of assets is given below:

            

		External revenue by location of customers						Non-current assets by location of assets*
	2021			2020			2021			2020
		£'000			£'000			£'000			£'000
United Kingdom		29,195			24,205			151,802			101,775
North America		23,321			18,861			27,471			15,094
Europe		7,064			6,548			3,658			4,010
Middle East		1,880			2,379			3			29
Rest of the World		4,184			4,572			762			712
Unallocated		-			-			2,091			2,296
		65,644			56,565			185,787			123,916

 

*Non-current assets exclude deferred income tax assets.

 

The following table shows a split of revenue between brought-forward contract liabilities (deferred revenue) that were subsequently recognised and the satisfaction of in-period performance obligations.

	2021 £'000		2020 £'000
Revenue recognised in the period relating to brough forward contract liabilities	22,495		18,323
Revenue related to performance obligations satisfied during the year	43,149		38,242
	65,644		56,565

 

 

As at 30 April 2021 the value of contract liabilities relating to contracts with customers was £34,662,000 (30 April 2020: £22,799,000), defined as deferred revenue on the Statement of Financial Position. Contract liabilities have increased by £11,863,000 partly as a result of acquisitions in the year (see note 21) and an increase in overall contract activity. 98% of the deferred revenue balance as at 30 April 2021 will be recognised as revenue in the year ended 30 April 2022.

 

No single customer accounted for more than 10% of total revenue in either year.

 

 

3           Operating costs

	2021			2020
	£'000			£'000
Wages and salaries (note 4)		26,947			22,929
Lease charges - land & buildings		48			166
Loss on disposal of property, plant and equipment		81			-
Foreign exchange losses		16			3
Net losses on financial instruments measured at FVTPL		121			24
Other operating costs		10,286			9,795
		37,499			32,917
Depreciation and amortisation:
Amortisation of acquisition-related intangible assets		12,072			9,454
Amortisation of software		85
Amortisation of other intangible assets		2,481			1,814
Total amortisation of intangible assets		14,638			11,268
Depreciation of property, plant and equipment		688			614
Depreciation of right of use asset		1,377			1,045
Total depreciation and amortisation		16,703			12,927
Total research and development costs		10,374			8,734
Less: development costs capitalised		(3,884)			(3,929)
Research and development costs expensed		6,490			4,805
Auditor's remuneration
- The audit of the consolidated and parent company's annual accounts		12			12
Fees payable for other services provided by the Auditor and its related entities:
- The audit of the Company's subsidiaries' annual accounts		192			141
- Tax compliance and advisory services		-			31

4           Particulars of employees

             The average number of staff, including directors, employed by the Group during the year, analysed by category, was as follows:

 

	2021   Number			2020   Number
Administrative staff		83			57
Sales and marketing		161			147
Technical and support		368			333
		612			537

There were no staff employed by the Company in the year.

The aggregate payroll costs of these employees were as follows:

	2021    £'000			2020    £'000
Wages and salaries		27,016			23,466
Social security costs		2,988			2,578
Other pension costs (note 27)		827			814
		30,831			26,858
Less: internal development costs capitalised		(3,884)			(3,929)
		26,947			22,929
Share based payment costs (note 24)
- on options granted		1,777			1,248
- on share incentive scheme		515			442
- national insurance		704			20
		29,943			24,639

5           Net finance costs

		2021   £'000			2020   £'000
Borrowing facility fees amortised		138			108
Interest payable on bank borrowings		764			656
Bank interest receivable		(1)			(14)
Interest expense on lease liabilities		98			53
Interest income on lease receivables		(8)			(4)
		991			799