Annual Report & Accounts 15 month period ending 31 March 2015
analyse : design : implement : manage
IS Solutions plc Annual Report & Accounts 2008 2015
Contents
02
Statement by the Chairman
06
Statement by the Managing Director 11
Case Study - JD Williams
14
Case Study - If Insurance
16
Strategic Report
18
Corporate Governance 21
Directors’ Report
25
Directors’ Remuneration Report Statement of Directors’ responsibilities
30 31
Independent Auditors’ report
33
Consolidated statement of comprehensive income Consolidated statement of changes in equity
34 35
Consolidated cash flow statement
36 37
Company statement of changes in equity Company balance sheet
38 39 40
Consolidated balance sheet
Company cash flow statement Notes (forming part of the accounts)
1
Statement by the Chairman
The Board is pleased to report a solid finish to the financial reporting period, with strong demand from our Analytics sector resulting in the underlying performance being in line with market expectations. In January 2015 we completed the acquisition of Speed-Trap Holdings Limited, parent company to Celebrus Technologies Limited (“Celebrus”). This business operates in the field of big data to provide business intelligence and analysis, specialising in supplying detailed data feeds on customer interactions through internet enabled devices at an individual customer level to corporates and organisations. The consideration was approximately £8.5m in cash and shares. This move has transformed the Group from a Service-led business into a more balanced Product and Services business. Following this enhancement to our business, we amended the Company’s accounting reference date from 31 December to 31 March. As well as some commercial benefit, this change was made primarily so that the market and investors would gain greater clarity and understanding of the new business model and trading performance and thereby deliver ‘clean’ operational trading results for the enlarged business with effect from 1 April 2015 onwards. The financial results being reported upon therefore cover the fifteen month trading period 1 January 2014 to 31 March 2015.
2
IS Solutions plc Annual Report & Accounts 2015
Statement by the Chairman (Continued)
Financial Results Following the stronger second half within the traditional IS Solutions business and the nine weeks of contribution from Celebrus, we are pleased to announce results for the period that are in line with market expectations. 15 months
12 months
change %
Continuing operations
ended 31
31 December
March 2015
2013
Analytics
£5.94m
£3.10m
Portals
£4.94m
£3.88m
ECM
£1.96m
£2.79m
Revenue
Total revenue
£12.84m
£9.77m
+31%
Gross profit (after acquisition costs of £270k)
£4.67m
£4.17m
+12%
Underlying profit before tax*
£1.20m
£0.96m
+25%
Operating profit
£0.69m
£0.96m
Profit before tax
£0.65m
£0.96m
Earnings per share adjusted basic*
4.02p
adjusted diluted*
3.86p
basic
1.99p
3.14p
diluted
1.92p
3.08p
-
0.48p
0.56p
1.12p
Dividends Interim paid Final proposed *before acquisition costs of £539,000
Revenue in the period under review increased by 31% to £12.839m (2013: £9.769m), of which revenue of £0.55m was contributed by Celebrus since acquisition. Recurring revenues contributed 55% to gross profit. Underlying profit before tax and pre-acquisition costs of £539,000 was £1.2m. Administration costs were higher in the period at £1.56m principally as a result of non-recurring costs including acquisition related charges totalling £0.27m. Therefore reported profit from operations was £686,000 to £959,000 in 2013 and post-tax profit of £532,000 (2013: £793,000). Cash and cash equivalents at 31 March 2015 stood at £0.095m (2013: £0.53m). Total net assets at the end of the period were £11.86m compared to £5.42m at the end of 2013. Adjusted fully diluted earnings per share was 3.86p, unadjusted EPS was 1.92p (2013: 3.08p).
3
Statement by the Chairman (Continued)
Review Looking at the performance of our business streams:
Analytics: At the start of the period, recurring revenues for Analytics was impacted by the cancellation of a large contract due to the client’s internal budget constraints. However, in December 2014 we won a large contract in the financial services sector which offers a level of recurring revenue contracted for the next five years with potential for further project work being generated. During 2014, both IS Solutions and Celebrus have been engaged in a growing number of POCs (Proof of Concept) with their partners SAS and Teradata across a number of industries and with a strong focus in the financial and retail sectors, as both sectors look for ways to minimise customer churn and maximise earnings per customer. These POCs, paid for by the client, vary in length from one month to around three months and represent a substantial investment by our clients. Although POC’s are revenue generating, it is pleasing to report that we are now benefiting from a significant number of these moving to a full scale roll out in 2015, the resultant effect being a substantial uplift in licence sales and subsequent professional services revenue from the implementation of these solutions all of which will require on-going support, and in some cases, hosting contracts thus enhancing IS Solutions’ recurring revenue stream in the current financial year and beyond. Analytics finished the period strongly with revenue increasing by 91.61% to £5.94m (2013: £3.10m). During the nine weeks under our ownership Celebrus contributed £0.55m in sales.
Portals: Growth in this segment remained flat year on year with revenue of £4.94m compared to £3.88m in 2013. This has been mainly caused (as reported at the half year) by one of our major clients requesting more of the work we carry out for them to be done off-shore in our Indian operation.
Enterprise Content Management: ECM projects and recurring revenues stabilised by the end of the period having had a very weak start to the 2014 year. Revenue amounted to £1.96m with most in product sales and the business is currently based on legacy technology. To allow this part of our business to refocus its efforts over the short to medium term, we are researching and implementing new technologies.
Dividend The Directors’ focus remains on capital growth through investment in the business and increasing ROCE. As a Board, we are also committed to a progressive dividend policy whilst balancing our investment in the business for the future benefit of all stakeholders, customers and colleagues We remain confident in the future of the business - we have a clear strategy in place to develop the opportunities we have already identified that will deliver growth. We are increasing our investments in the business in order to accelerate this particularly with Celebrus. At this stage in our development, we are proposing a final dividend of 0.56p, which, subject to Shareholder approval at the Annual General Meeting which is to be held on 30 July 2015, will be paid on 13 August 2015 to Shareholders on the Register at the close of business on 17 July 2015. The Ordinary shares become ex-dividend on 16 July 2015 The return to a progressive dividend stream will be a priority for the Board. As we indicated at the interim stage, it is our intention to review the overall dividend policy going forward so as to ensure it reflects the Company’s future prospects. On this basis we are confident that we will resume our progressive dividend policy and if appropriate, return to paying a dividend based on the overall performance in the financial period ending 31 March 2016.
4
IS Solutions plc Annual Report & Accounts 2015
Statement by the Chairman (Continued)
People I would like to take this opportunity to welcome staff who joined us during the period Following the completion of Celebrus, Geoff Shingles joined the Company as a non-executive director. Since the year end, we have also welcomed Peter Simmonds to the Main Board as non-executive deputy chairman who will take over as Chairman from Barrie Clark after the AGM. Both Geoff and Peter have considerable business entrepreneurial experience having been involved in a number of companies in various industry sectors including services, software and internet solutions. Their combined knowledge and expertise further strengthens the Board as well as increasing its independence and diversity. We continue to recruit quality staff and also invest in our people at all levels through training and personal development programmes to ensure we have the right balance of skill sets and know-how to drive the business forward. On behalf of my fellow directors and all shareholders, I would like to acknowledge the hard work and commitment of all of our highly skilled technical staff around the world who continue to work together to enhance the Group’s reputation with both our customers and suppliers.
Outlook Overall we are making good progress across the business and already have a number of project opportunities with new and existing customers in the key sectors of financial services, retail and airlines. The integration of the two businesses is ongoing and on track and has also opened up a number of cross-selling opportunities for us. Celebrus, with its strong IP, strengthens our offering in the Analytics arena whilst also giving us the opportunity to develop a much more balanced business with stronger higher margin license sales giving rise to greater project and recurring revenue. Following the strong finish to the period being reported, the Board is pleased to report that this trend has continued into the new financial year, with strong underlying demand continuing in our Analytics sector. This, together with recent contract wins, put us in a good position for the new financial year ending 31 March 2016. The market for business intelligence and Analytics is one of the fastest growing software markets. Financial organisations are the largest investors in big data solutions, with energy, utilities, communications and media organisations presenting significant growth areas as they seek to optimise the monetisation of their base of customers and potential customers. The ability to individualise and personally target customers is becoming more important to businesses and the Celebrus product portfolio caters for this trend. Having worked together as partners for the past 10 years, and now operating as one unit, we are much better placed to serve this sector and optimise the opportunities presented. All of this bodes well for the future. The Board is confident that the Company can deliver another year of solid progress and will achieve current market expectations for the year ending 31 March 2016.
Barrie Clark, Chairman 7 July 2015
5
Statement by the Managing Director
An undoubted highlight of this year was our acquisition of Speed-Trap Holdings Limited and the digital intelligence capabilities brought to us with its Celebrus Technologies solutions. We feel that Celebrus is the best kept secret in the buoyant analytics market and the acquisition presents us with a superb opportunity to grow our overall business in numerous areas.
Details of the Acquisition We announced our intention to acquire Speed-Trap Holdings Limited, the parent company of Celebrus Technologies, on 22nd December 2014 and successfully completed the acquisition on 23rd January 2015 having received approval at a General Meeting of the Company on 20th January. The acquisition took place for an aggregate consideration of £8.5 million, £1.5 million of which was made up of cash satisfied from the Company’s existing facilities and the remainder by an issue of Consideration Shares to existing Speed-Trap Holdings shareholders. This share issue resulted in an enlarged share capital, of which the Consideration Shares make up around a third of the total. Our share price has maintained its market value since the acquisition, increasing by just under 4% to 31st March 2015. The operations of Celebrus Technologies were immediately transferred to our group headquarters in Sunbury-on-Thames, Middlesex with all staff accommodated within our existing facilities. Celebrus Technologies is now running seamlessly as an IS Solutions company and the combined entity has already benefitted from reduced operating costs, increased revenues and functional synergies.
About Celebrus Celebrus will not be a new name to shareholders. We have partnered with Celebrus since 2000 and have delivered a number of successful projects during that period, many of which have yielded long-term client relationships; some of these have been detailed in our previous Annual Report and Accounts publications. Celebrus is a provider of highly detailed data feeds that deliver individual consumer level data, gathered from interactions with websites, mobile applications, streaming and social media, into big data engines to enable in-depth, real-time digital intelligence. Moreover, Celebrus boasts a gratifying range of unique selling propositions against market rivals and its technology is underpinned by numerous patents worldwide. The key contributor to the strength of Celebrus is its people and we have retained a broad range of talent from across the entire business. Their skills and experience are highly valued by us and our long-standing partnership has meant that relationships with existing IS Solutions colleagues were brought across with the acquisition thus enabling us to hit the ground running in step.
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IS Solutions plc Annual Report & Accounts 2015
Statement by the Managing Director (Continued)
How Celebrus Augments Our Existing Business In essence, Celebrus gives us unrivalled access to a leading software suite that takes clients to the next level in their understanding of online customer behaviour. It strengthens our well-established Analytics division with avenues into new areas that we had, until the acquisition, only scratched the surface of. Most notably, Celebrus is a solution for the burgeoning big data arena, delivering comprehensive data on every aspect of a customer’s online interaction with a business into the data marts and warehouses that are mined for almost unlimited purposes, in real-time if necessary. These applications include customer experience optimisation, event-driven marketing and business efficiency improvement and it is no exaggeration in stating that these are currently the key drivers of growth for progressive online businesses. As principally a technology business, Celebrus is completely focused on serving these market demands. Similarly, as a services business, IS Solutions is equally focused on solving operational and commercial issues for our clients through the efficient application of appropriate technology. Our combined strengths place us in a very strong position to exploit the forecast growth in analytics.
Analytics: State of the Marketplace We are experiencing relentless change in our industry and this is being driven by a realisation among enlightened enterprises that the key to competitive advantage lies in monetising their data. This has created a hunger to outclass rivals and, to our benefit, technology is seen as a key enabler of this – a means of demonstrating differentiation. At the forefront of this technology is advanced analytics, an area that we have specialised in for some five years and, with the acquisition of Celebrus, has been further strengthened over the course of this past year. The advanced analytics market is predicted by IDC to grow at an annual rate just shy of 10% until 2018; organisations, like IS Solutions, that offer flexible entry to this market through a proposition that includes on-premises implementation, cloud-based deployment and services that support clients on either (as well as permutations in between) are primed to reap the rewards of this anticipated growth. Furthermore, technology has matured to such a degree that many of the concepts that IS Solutions has been endorsing for years, like one-to-one personalisation, real-time decisioning and customer experience optimisation, are finally achievable both quickly and cost-effectively. We are increasingly working on projects that are delivering a return on investment that is measured in months rather than years and is genuinely helping to push our clients to the forefront of their industry sectors.
7
Statement by the Managing Director (Continued)
Joseph Stanhope of Forrester Research recently made the following comments: “It’s clear that traditional analytics approaches were not designed or intended to handle the breadth of channels, devices, volume, and speed that fuel today’s digital interactions. The endemic symptoms of these gaps are plain for anyone to see: the proliferation of analysis tools, the explosion of data warehousing projects and the struggle to translate analytics into actionable insights. It is abundantly clear that we need to take a step back and reimagine an analytics framework that adequately supports modern digital marketing. Forrester calls this updated approach to marketing analytics ‘digital intelligence.” Celebrus gives us that digital intelligence platform to truly support modern digital marketing, both to end user clients directly and via our network of partners.
Celebrus Clients and Partners Celebrus has a strong list of loyal clients and a portfolio of active industry partners and resellers, both areas in which we expect to see growth Celebrus clients are generally leaders in their markets and have made the progression from basing their online activities on aggregated trends-based data to a more personal view of their individual customers’ behaviours, their drivers for purchase over time and their preferences in one-to-one personalisation, communications and interactions. This is the key to successful and profitable long-term online customer relationships and is being realised by clients through improved marketing conversion rates, lower customer acquisition and retention costs, increased revenues and improved business efficiencies. Celebrus clients include catalogue retailers Shop Direct (Littlewoods.com, Very.co.uk, Woolworths.co.uk and more) and JD Williams, leisure brands P&O Ferries and Hilton Hotels, insurance aggregator comparethemarket.com and household names across the automotive, banking, insurance, telco and travel industries. Celebrus also boasts a truly global reach for its technology with end user clients across Europe as well as in Australia, China, Japan, South Korea, South Africa, Brazil and the USA. Celebrus partners range from resellers with specialist skills and experience in particular industries and territories all the way to industry-standard technology vendors like data warehousing specialist Teradata and business analytics leader SAS. Celebrus continues to recruit new partners around the world too; this year has seen the addition of a number of partners that offer entry into new industries and markets with their own unique approaches in using Celebrus to improve their clients’ businesses.
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IS Solutions plc Annual Report & Accounts 2015
Statement by the Managing Director (Continued)
Reciprocal Synergies Of course, for as much as Celebrus brings huge advantages to us in the analytics market, likewise our established range of services augments the Celebrus proposition, enabling a more complete range of solutions that incorporate both software and services. For instance, as a company that has, for a variety of business and client reasons, operated mainly on-premises implementations for end users, Celebrus now has the opportunity to ease its clients’ journeys to the cloud with our full range of secure hosted managed services. Underpinned by our security capabilities, now both ISO27001 and PCI Data Security Standard certified, we can offer peace of mind to all organisations, whatever their concerns over the safety of their most sensitive data. We also offer a broad professional services capability which, with its particular skills in the specification, implementation and management of analytics solutions, allows Celebrus to add increased value to existing clients and partners. Equally, our global support capability reduces territorial limitations and frees us up to pursue opportunities, confident in the knowledge that clients around the world will receive the very highest standards of responsiveness and care, wherever they are. In addition, Celebrus also positively impacts our other solutions areas. Our Portals business is enhanced by the technology, skills and experience available to us in understanding the user experience, a key battleground in the online arena. Likewise, our Enterprise Content Management business, which has traditionally sold solutions to organisations seeking compliance and corporate governance though greater control and visibility of their documents and intellectual property, will be enriched through our acquisition of transferable skills for implementing big data solutions; this is an area in which many such organisations are investing right now. Finally of course, our financial strength and long-term stability offer a platform for growth that will take Celebrus to the next level, creating a range of new opportunities that may not previously have been possible. It is anticipated that this will help accelerate the acquisition of new clients and create momentum behind Celebrus technology that will improve awareness of the enormous potential in digital intelligence.
9
Statement by the Managing Director (Continued)
Looking to the Future Our market focus is currently on maximising the commercial interest being shown across multiple industry sectors in the core areas of strength provided by Celebrus; a healthy pipeline at the time of acquisition has already delivered new clients with the expectation of more during our next financial year. At present, the key drivers we are witnessing are a need for multi-channel analytics across all of an organisation’s customer touchpoints, a desire for a single customer view which enables accurate profiling of a customer’s behaviour across these channels and a requirement for customer-centric personalised communications to respond to those behaviours (frequently in real-time). These drivers all sit within a broader market need for businesses to make better use of their information by using big data management systems like Hadoop and this need, as well as the drivers mentioned beforehand, all play to our strengths in this area. Nevertheless, we are already addressing the technology themes that are fast joining these existing interest areas. Our research and development is concentrated on solutions to the need for mobile app analytics across devices and operating systems, to the huge data challenges presented by the Internet of Things and a more connected world and to the many questions posed by the constant growth in fraud and risk across business sectors. Neither is our focus purely on technology, but also on strengthening our services capability to provide more in the way of data translation for organisations struggling to meet the need for data scientists and skilled analysts. This is a major growth area in our market and we intend to join the list of capable service providers for whom such packaged services have been very profitable. Finally, our commercial focus is geared towards a continued growth in the number of direct clients for our analytics solutions and flexible deployment options while investing in the expansion of our partner and reseller base to advance the reach of Celebrus technology. Developing new clients in this area gives us the opportunity of building long-term, profitable and mutually beneficial relationships with successful businesses – a number of vertical markets are ahead of the curve in their use of this type of technology and we are directing our attention to these first. Simultaneously expanding our partner base enables alignment with like-minded organisations that seek to evangelise about the many benefits of digital intelligence, indirectly supporting our messages and directly contributing to our revenues. We are enthusiastic about the multitude of opportunities presented by this acquisition – the extent to which it enhances our existing offering, the degree to which we can grow the potential of the technology to open up new routes to market and the capabilities of our people in bringing these opportunities to fruition for new and existing clients. We look forward to updating our shareholders in all of these areas as they begin to be executed.
John Lythall, Managing Director 7 July 2015
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IS Solutions plc Annual Report & Accounts 2015
Case Study – JD Williams
N Brown Group, and its principal subsidiary, JD Williams and Company Ltd, is a leading internet and catalogue home shopping company, with over 140 years of experience in the distance shopping market. The company was founded by James David Williams and in 1882 was the first to make use of the UK’s parcel post service to send his company’s products direct to his customers The ways in which customers interact with retailers have changed fundamentally since JD Williams was founded in 1875. A leading UK omnichannel retailer operating over 20 successful brands, the company not only generates over 58% of its sales online but also offers customers the chance to carry shopping bags across its websites – from Jacamo to Home Essentials and Simply Be for instance – and complete the checkout on any site. JD Williams’ extensive ranges of products, principally clothing, footwear, household and electrical goods, are carefully targeted at the right customers and are provided through whichever channels to market the customer demands. Celebrus Technologies has been working with JD Williams since 2009. Challenge The ways in which customers interact with retailers have changed fundamentally since JD Williams was founded in 1875. A leading UK omnichannel retailer operating over 20 successful brands, the company not only generates over 58% of its sales online but also offers customers the chance to carry shopping bags across its websites – from Jacamo to Home Essentials and Simply Be for instance – and complete the checkout on any site. Increasingly these customers are visiting using multiple devices and mobile traffic now accounts for 50% of all sessions - two years ago this figure was 16%. This creates new challenges in the quality of the customer experience but the company’s analysis of customer behaviour has revealed that those using multiple devices are significantly more valuable to the business through greater overall sales. The challenge, therefore, was to ensure that the quality and relevance of each customer’s experience was maximised, regardless of changing behaviour and devices.
Solution JD Williams has recognised the value of customer data for many years – over the past 20 years it has created a single repository for all trading and customer data in a Teradata data warehouse. The quantity of online customer information now captured is extraordinary – since 2010 the company has captured and retained every single website click, search, basket add, purchase and more within Celebrus, creating some 65Gb of customer data every month. While that’s a huge amount of data, the company keeps it all because not only does it get enormous value from having that level of detail, but the data is also an enabler to creating a more complete picture of each customer and their life-stage.
11
Case Study – JD Williams (Continued)
With 62 tables of granular data, the retailer can visualise a raft of customer activities at an individual level, from the way the customer is sorting products, to the time spent viewing a single page, the entry method to the site (such as paid search), the products added and removed, the use of filters (such as size or price) and the searches used externally such as “plus size maxidress.” Understanding how each customer is interacting with the site gives JD Williams the insight they need to truly optimise the customer experience. For instance, using Celebrus, the company can quickly compare conversion rates between individuals that do and don’t use the image zooming. Additionally, tracking exit pages, pathing customer journeys or tracking abandoned products are all important ways JD Williams can assess the way that customers are responding to the overall experience. Furthermore, Celebrus allows JD Williams to allocate a customer account number to around 50% of traffic, which means they can build up a picture of what each individual is doing on the web site in one session and then stitch that together over multiple sessions to get a highly detailed single customer view. JD Williams combines offline and online data within Teradata and that provides the company with deep customer insight, including contact, payment and order history, as well as exposure to marketing campaigns – building an accurate picture of lifetime value and the creation of a profit score for every individual. In addition to using this web data within all marketing campaigns – from e-mail to outbound telemarketing – JD Williams is using this depth of web insight to deliver a far more personalised overall experience. The retailer is using Celebrus data to drive forward with future behavioural e-mails such as “browse not bought” and “abandoned basket.” Mailing selections are informed by product preference or the way a customer sorts on site, indicating price sensitivity for example. The retailer is becoming increasingly sophisticated in its use of customer data, for instance by using predictive modelling to understand the likelihood of a customer making a purchase. JD Williams has over 50 predictive models which, before having web data, were based on transactional and payment insights. Enriching this with Celebrus web data, including browsing information which reveals a greater intent, has significantly improved the accuracy of the models from 75% to 93%. The retailer has also created a number of behavioural personas – such as value hunters, frequent abandoners and on-trend customers – in order to create a more relevant and personal experience as customers arrive on site. For instance, with value hunters – those who consistently visit the sales area or sort by price on the navigation – there is a series of triggers that can be actioned via website personalisation. By contrast, frequent abandoners are identified and offered incentives to encourage them to complete the purchase or increase the number of products in the bag while on-trend customers – those always looking for new products – can be targeted with the latest items and aspiration e-mails. These personas build on the customer segmentations that JD Williams has traditionally created using transactional data by adding a real understanding of intent and wants through the behaviour exhibited by individual customers online. The Celebrus data also plays an essential role within the company’s multi-variate testing (MVT) by identifying the downstream customer impact of MVT activity, including standard cosmetic tests, from colours and placement to call-to-action buttons. In addition, the data highlights friction points on the web site – enabling the company to rapidly highlight and address issues that could affect the overall customer experience. For example, from a practical customer service perspective, if there is downtime on the site, JD Williams can track the people who hit a holding page and follow up with an e-mail. The result of this alone has been a 7% improvement in sales per customer contacted – the company has recovered the potentially lost demand and added incremental sales. Indeed, the company is now using this customer experience data to inform ongoing website development. This has been one of the most valuable benefits the organisation has realised from the Celebrus data. For instance, JD Williams has focused heavily on the smartphone experience, including enhancements to the sign-in and checkout process, improving its Account Management functionality and improvements to Search and Navigation – all opportunities highlighted and supported by the Celebrus data.
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IS Solutions plc Annual Report & Accounts 2015
Case Study – JD Williams (Continued)
Gareth Powell, Head of Analytics at JD Williams, commented: “Traditionally the e-commerce development roadmap was based on what was happening in the retail market and industry best practices. Now we have a third key ingredient (and arguably the most vital) which is the voice of our own customer. Celebrus really helps us to understand how each customer is interacting with the site – giving us the insight we need to truly optimise the customer experience.”
Conclusion While JD Williams is ahead of the crowd in its use of customer data to improve the quality of experience, with the rest of the retail market at its heels, the company is looking to continually improve. For example, it plans to further exploit the Celebrus data to drive customer personalisation and is looking closely at the way consumers go online, encouraging more customers towards a multi-device interaction. Furthermore, the company is executing a strategy around retail stores in the UK as well as further developing its brand footprint internationally; this will boost overall brand awareness. The retailer is also focusing on creating a seamless crosschannel experience that embraces call centre, web and store. Powell concluded, “at the heart of this is the ability to perform deep dive analytics to gain a better understanding of customers’ needs across every channel.”
Key Technologies: Celebrus Technologies Celebrus Big Data Engine Celebrus Warehousing Connector Celebrus Real-time Connector Teradata Integrated Channel Intelligence data warehouse
Key Activities: Pre-sales consultancy Implementation and configuration Training Project management Ongoing support of the solution
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Case Study – If Insurance
If is the leading property and casualty insurance company in the Nordic region as well as serving Nordic customers with international operations. If has approximately 3.6 million customers in the Nordic and Baltic countries and, since 2007, also has a presence in Russia. If’s gross premiums are valued at SEK 40 billion (over £3 billion) and it has 6,200 employees. Celebrus Technologies has been working with If since 2010. Challenge If’s requirements were driven by a fundamental digital transformation. With sales via the website increasing, and over 50% of online customers arriving via mobile devices, the company recognised the importance of improving the customer digital experience and increasing engagement. If consolidated its diverse analytics tool sets into a powerful combination of Celebrus Technologies data with a third party business intelligence tool to deliver highly detailed and actionable digital analytics insight across the business.
Solution If embarked upon a strategic development to become more customer-oriented and also more data-driven. This meant that If needed to have a deep understanding of customer needs and customer journeys. In common with most organisations, If ’s web analytics tool set had grown organically over the years, with different tools, including Celebrus, used to track web activity and deliver analytics. However, each tool set was used independently – with a “traditional” web analytics tool used to provide standard web metrics reporting, Google Analytics to track online spend and Celebrus to provide a direct link between online activity and the campaign management system. As part of the new business focus, early in 2013 If undertook a review of its web analytics reporting and decided it needed to ensure individuals across the organisation had access to powerful, highly visual web analytics. Having discussed the business value that the CRM team has delivered with Celebrus data, it became clear that If could gain significant advantage from consolidating on just one tool to provide digital channel insight. If decided to make use of the integration between Celebrus and an established third party business intelligence tool to replace its standard web analytics reports, including number of visitors, conversion rates, dwell times and most popular pages. The decision to extend the use of Celebrus across the organisation was based on the flexibility, agility and actionability of the real-time granular data and tagging-free nature of the technology. The combination of Celebrus Technologies and integrated business intelligence provided If’s data scientists and analysts with the ability to mine nuggets of data as well as delivering self-service analytics and dashboards to enable data-driven decision-making across the company. In addition to having a single source of web metrics data “truth,” access to transactional level data within Celebrus enabled If to rapidly analyse results and gain real insight into web performance. Karl-Sebastian Lindblad, If’s Data Scientist, commented, “traditional web analytics tools are restrictive in terms of the data provided and the reporting that can be delivered but, as well as the standard reports, Celebrus is delivering an enormous amount of detailed information that was not previously available with our web analytics tool.” Furthermore, speed of response is also helping to build confidence in the web data. While it used to take up to a month to create a new report in the old web analytics tools – and data was only available from the day a new tag was implemented – with
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IS Solutions plc Annual Report & Accounts 2015
Case Study –If Insurance
(Continued)
Celebrus, If now has the self-service analytics required to support rapid decision-making as well as immediate access to historic data. Lindblad continued, “this speed of response, combined with great trust in the data, is triggering a completely different kind of behaviour.”
Conclusion The decision to consolidate on Celebrus enabled If to get far more control over its web data and improved the data culture across the business. Critically, it supported that essential business change demanded in this customer-centric business environment. If is now using Celebrus data to better understand the customer journey, from determining the most effective content to understanding the stages in the buying process and the questions raised at different stages, as well as identifying customer interests and sites previously visited. For If, this is all about visualising what consumers are doing on its websites and how they proceed through that funnel of engagement – from being unknown visitors on the web as a whole, into becoming If website visitors and then known customers. The Celebrus solution is transforming If’s understanding of that funnel.
Key Technologies: Celebrus Technologies Celebrus Big Data Engine Celebrus Warehousing Connector Teradata Integrated Channel Intelligence data warehouse Third party business intelligence tool
Key Activities: Pre-sales consultancy Implementation and configuration Training Project management Ongoing support of the solution
15
Strategic Report The Directors present their strategic report for the fifteen month period ended 31 March 2015.
Business Activities The Group is principally engaged in the distribution, design, installation and support of computer hardware and software systems. It focuses on three web-related areas, namely Portals, Enterprise Content Management and ‘big data’ Analytics with specialisations in business intelligence. This latter area has been strengthened by the acquisition of Celebrus Technologies which, with its strong IP, gives the Group the opportunity to develop a more balanced business with higher margin license sales yielding greater project and recurring revenues. The Group undertakes research and development into various technologies to ascertain the viability and usefulness for its client base and to explore new areas of potential business. This work is undertaken at the Group’s cost and it has incurred research and development costs of £266k (2013: £167k) in the period under review of which £nil was capitalised (2013: £nil)
Strategy and Objectives The Group positions itself as a strategic technology partner, helping its clients to develop and improve business with their clients. The Group seeks to give clients a competitive advantage by enabling them to access the best information in the most timely manner on which to base their business decisions. Analytics (providing business intelligence) is a key growth area for the Group. The acquisition of Celebrus Technologies earlier this year has substantially enhanced the Group’s Analytics offering (which should provide a greater and more predictable revenue stream from project work and recurring revenue) and paves the way for the transition of the business from being service-led into a more balanced product-led business. Achieving this is now a major objective. The Group also continues to maintain its objective of developing business which delivers recurring revenues.
Principal Risks and Uncertainties Apart from the normal economic and commercial risks facing any UK based business the major risks to the Group are: Loss of a major client Loss of a relationship with a major supplier The development of new technologies which may adversely impact the Group’s proprietary software The Group has specific relationship management systems in place and undertakes research and development into various technologies in order to mitigate these risks as far as possible. As the Group undertakes an increasing amount of business outside the UK (usually priced in US$) it becomes more exposed to exchange rate fluctuations. This led to a review of pricing policies and closer monitoring of credit terms for external business in the early part of last year. This has borne fruit and management actions coupled with favourable exchange rate movements have resulted in exchange rate gains totalling £49,000 in the accounting period to 31st March 2015. The Board manages the Group’s capital, reserves, borrowings and cash to ensure that the Group continues as a profitable going concern. There are no externally imposed capital requirements.
Performance The Group’s major financial Key Performance Indicators (‘KPI’s) are revenue, operating profit, profit before tax and earnings per share. The Group does not monitor any non-financial KPIs. In the 15 month period under review Group revenue increased by 31% to £12.839 million over the 2013 12 month period: (£9.769 million). On the same basis Group profit (before tax, acquisition costs and share based payments) rose by 24% to £1.2 million (2013: £959,000). Reported profit before tax after acquisition costs of £539,000 decreased by 33% to £652,000 (2013: £966,000). Fully diluted Earnings Per Share was 1.92p (2013: 3.08p). Underlying (before Acquisition costs) fully diluted EPS rose by 25.32% to 3.86 (2013: 3.08p).
16
IS Solutions plc Annual Report & Accounts 2015
Strategic Report (Continued)
The Group has continued to experience strong revenue growth in its Analytics projects and, despite a reduction in revenue from Portals and Enterprise Content Management projects, the overall growth in revenue from projects was 53%. Revenue from projects contributed 33% of gross profit for the period. Celebrus contributed £554,000 to revenue since completion, a period of 9 weeks and 2 days (23 January 2015 to 31 March 2015) Recurring revenue from Portals rose and held steady in Enterprise Content Management during the period under review but fell in Analytics due to the loss of a major contract early in 2014. Overall recurring revenues contributed 55% of gross profit for the period.
Outlook Overall we are making good progress across the business and already have a number of project opportunities with new and existing customers in the key sectors of financial services, retail and airlines. The integration of the two businesses is ongoing and on track and has also opened up a number of cross-selling opportunities for us. Celebrus, with its strong IP, strengthens our offering in the Analytics arena whilst as we said before, giving us the opportunity to develop a much more balanced business with stronger higher margin license sales giving rise to greater project and recurring revenue. Following the strong finish to the period being reported, the Board is pleased to report that this trend has continued into the new financial year, with strong underlying demand continuing in our Analytics sector. This, together with recent contract wins, put us in a good position for the new financial year ending 31 March 2016. The market for business intelligence and analytics is one of the fastest growing software markets. Financial organisations are the largest investors in big data solutions, with energy, utilities, communications and media organisations presenting significant growth areas as they seek to optimise the monetisation of their base of customers and potential customers. The ability to individualise and personally target customers is becoming more important to businesses and the Celebrus product portfolio caters for this trend. Having worked together as partners for the past 10 years, and now operating as one unit, we are much better placed to serve this sector and optimise the opportunities presented All of this bodes well for the future. The Board is confident that the Company can deliver another year of solid progress and will achieve current market expectations for the year ending 31 March 2016.
Approval This report was approved by the Board of Directors on 7 July 2015 and signed on its behalf by:
John Lythall, Managing Director
17
Corporate Governance
The Directors recognize and value the importance of high standards of corporate governance and observe the requirements of the Quoted Companies Alliance Guidelines to the extent that they are considered reasonably practicable in the light of the Company’s size, stage of development and resources. The Board also ensures that proper procedures are adhered to with regard to the preparation and approval of the Company’s annual and half yearly financial statements. For the period under review the Board considered that the Company is not of sufficient size to warrant a Nominations Committee or a Risk Management Committee. A statement of the Directors’ responsibilities in respect of the accounts is set out on page 30. Below is a brief description of the role of the Board and its committees, followed by a statement regarding the Group’s system of internal controls and procedures, Board reviews, auditor independence, risk management, investor relations and financial reporting.
The Board The Board comprises four non-executive Directors and three executive Directors and is responsible to shareholders for the proper management of the Group. The non-executive directors are Peter English, Roger McDowell, Geoff Shingles, Michael Tinling (Company Secretary) and Barrie Clark, who is chairman of the Board and senior independent director. The terms and conditions of engagement of the four non-executive Directors are available on request from the Company Secretary or at the AGM. The Board met 13 times in the 15 month period under review, reviewing trading performance, setting and monitoring strategy, and examining major capital expenditure and acquisition opportunities. A procedures manual for Directors and senior managers has been adopted which reserves decisions on specific matters to the Board, which include strategic matters and approval of annual plans or variations thereto. All Directors have access to the advice and services of the Company Secretary.
Audit Committee The Audit Committee comprises four non-executive Directors of the Company, Barrie Clark, Michael Tinling, Peter English and Roger McDowell. The committee is chaired by Barrie Clark, it met once with all members in attendance, and operates under formal terms of reference, which are available on request from the Company Secretary or at the AGM. The committee provides a forum for reporting by the Group’s auditors. By invitation, the meetings are also attended by the managing director of the Company and the financial controller. The Audit Committee is responsible for reviewing a wide range of financial matters including ensuring that the financial performance of the Group is adequately measured and controlled, correctly represented, reported to and understood by the Board. The Audit Committee advises the Board on the appointment of external auditors and on their remuneration, both for audit and non-audit work, and discusses the nature and scope of their audit. The Audit Committee meets the auditors at least once a year without any executive Directors present. The Audit Committee includes one financially qualified member as recognised by the Consultative Committee of Accountancy Bodies. Currently the Audit Committee Chairman fulfils this requirement. All Audit Committee members are expected to be financially literate. The Committee has considered the likelihood of a withdrawal of the auditor from the market and noted that there are no contractual obligations to restrict the choice of external auditors. Following the above, the Audit Committee has recommended to the Board that Baker Tilly UK Audit LLP is re-appointed.
18
IS Solutions plc Annual Report & Accounts 2015
Corporate Governance (Continued)
Remuneration Committee The Remuneration Committee comprises four non-executive Directors, Barrie Clark, Michael Tinling, Peter English and Roger McDowell and is chaired by Barrie Clark. The Committee met two times in 2014/15 and operates under formal terms of reference, which are available on request from the Company Secretary or at the AGM. It is responsible for reviewing and determining the policy of the Group on executive remuneration including specific remuneration packages for each of the executive members of the Board, pension rights and compensation payments. The Committee is also responsible for monitoring compliance with the implementation by the Company, so far as is reasonably practical, of the legal requirements and recommendations and guidelines relating to Directors’ remuneration. The Board’s report to shareholders on how Directors are remunerated together with details of the individual Directors’ remuneration packages is to be found on pages 25-29
Internal controls The Directors are responsible for the Group’s system of internal control and for reviewing its effectiveness which, by its nature, can only provide reasonable and not absolute assurance against material misstatement or loss regarding: i.
the safeguarding of assets against unauthorised use or disposition; and
ii.
the maintenance of proper accounting records and the reliability of financial information used with the business or for publication.
The Board has reviewed the effectiveness of the Group’s internal control systems from the period 1 January 2014 to the date of approval of these financial statements. The Board reviews the effectiveness of its control assessment system on a regular basis. Given the current size of the Group, the Directors consider that an internal audit function would not be appropriate. However this matter is kept under review. The Board has established procedures which are designed to provide effective internal control for the Group and these include:
Control Environment and Procedure The Directors have in place an organisational structure with clearly defined levels of responsibility and delegation of authority. Group policies and procedures are set out in formal procedure manuals which are held by all operating companies. These include annual budgets, detailed review and appraisal procedures, designated levels of authority and levels for board approval. In particular, there are clearly defined guidelines for the review and approval of capital expenditure projects and, where appropriate, due diligence work will be carried out when a business is to be acquired. It is Board policy that executive Directors receive suitable training for their position, which is considered as part of the appraisal process. The Directors and operating Company management meet on a regular basis to communicate the Group’s commitment to professionalism and competence. A formal whistle-blowing policy is in place and is communicated to employees via an employee manual.
Board Review The Board annually reviews the effectiveness of itself, its committees and the individual Directors in the following manner: (i)
The Role of the committees is considered by the executive Directors without the presence of the non-executive Directors.
(ii)
The Chairman and Managing Director examine the contribution and effectiveness of the individual Directors with regard to their line role and contribution at Board meetings.
(iii)
The whole Board examines its purpose and effectiveness with regard to identified key areas.
(iv)
The whole Board considers its structure, size and composition with particular regard to the skills, knowledge and experience of its members.
19
Corporate Governance (Continued)
Auditor Independence The Board has considered the issue of external auditor independence and is satisfied that independence has been maintained. Audit Committee approval is required before the external auditor may perform any non-audit work.
Risk Management The Directors and operating Company management have a clear responsibility for identifying risks facing each of the businesses and for putting in place procedures to mitigate and monitor risks. Risks are formally assessed during the annual budget process, which is monitored by the Board, and the ongoing Group strategy process. There has been (and continues to be) particular focus on credit worthiness of clients and, although the Company has a strong balance sheet, on cash flow.
Investor Relations Investor relations are managed mainly through the Annual General Meeting of the Company and on an ad hoc basis through enquiry from investors of the Directors of the Company. The Company encourages two-way communications with both its institutional and private shareholders and responds quickly to all queries received. The executive Directors hold regular meetings with major shareholders, and provide feedback of these meetings to the rest of the Board, including non-executive Directors, to inform them of the views of the major shareholders.
Financial Reporting The Group has a comprehensive system of financial reporting. There is a detailed budgeting system in place which includes the plan of the operating Company being approved by the executive Directors whilst the Board approves the overall Group budget. On a monthly basis, actual results are reported against budget and any significant adverse variances examined and remedial action taken. Revised forecasts for the year are prepared each quarter. Rolling quarterly cash forecasts are prepared on a monthly basis.
On behalf of the Board
Michael Tinling LLb, Company Secretary 7 July 2015
20
IS Solutions plc Annual Report & Accounts 2015
Directors’ Report
The Directors present their annual report and the audited financial statements for the period ended 31 March 2015, which should be read in conjunction with the Director’s Strategic Report on pages 16 to 17. The Corporate Governance Statement set out on pages 18 to 20 forms part of this report.
Incorporation IS Solutions Plc is a company incorporated in the United Kingdom under the Companies Acts 1985 to 2006.
Dividends The Directors recommend a final dividend of 0.56p (2013: 1.12p) per ordinary share to be paid on 13 August 2015 to ordinary shareholders on the register on 17 July 2015.
Capital structure Details of the authorised and issued share capital, together with details of the movements in the Company’s issued share capital during the year are shown in note 20. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. The percentage of the issued nominal value of the ordinary shares is 100% of the total issued nominal value of all share capital. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights. Details of employee share schemes are set out in note 26. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid. With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the Companies Acts and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are described in the Main Board Terms of Reference, copies of which are available on request, and the Corporate Governance Statement on page 18. Under its Articles of Association, the Company has authority to issue 37,500,000 ordinary shares. There are a number of agreements that take effect, alter or terminate upon a change of control of the Company following such as commercial contracts, bank loan agreements, property lease arrangements and employees’ share plans. None of these are considered to be significant in terms of their likely impact on the business of the Group as a whole. Furthermore, the Directors are not aware of any agreements between the Company and its Directors or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid.
Going Concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out above and the risks and uncertainties summarised below. The Group and Company has sufficient financial resources to cover budgeted future cash-flows and also has contracts in place with a number of customers and suppliers across different geographic areas and industries. As a consequence of these factors, the Directors believe that the Group is well placed to manage its business risks successfully. Having reviewed the future plans and projections for the business, the Directors believe that the Group and Company and its subsidiary undertakings have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. In accordance with the Companies Act s414c(11) information in relation to the business and risks is shown in the Strategic Report.
21
Directors’ Report (Continued)
Supplier Payment Policy It is the Company’s policy to pay all claims from suppliers according to agreed terms of payment upon receipt of a valid invoice which is materially correct. The Company does not follow a Code on standard payment practice. At 31 March 2015 the Company had 82 days (2013: 35 days) of outstanding liabilities to creditors.
Directors and Directors’ Interests The Directors who held office during the year and to the date of signing, unless otherwise stated, were as follows: BA Clark PJ Kear J Lythall MLS Tinling JL Dodkins PD English RS McDowell GS Shingles (appointed 23 Jan 2015) PA Simmonds (appointed 14 April 2015) BA Clark will be retiring as a director at the conclusion of the AGM and will not be offering himself for re-election. Peter Kear retires by rotation in accordance with the Company’s Articles of Association (“Articles”) and offers himself for re-election. In addition Godfrey Shingles and Peter Simmonds, who were appointed as directors by the Board of Directors on 23rd January 2015 and 14th April 2015 respectively, will offer themselves for re-appointment in accordance with the Articles. The Directors who held office at the end of the financial year had the following interests in the ordinary shares of the Company as recorded in the register of Directors’ share and debenture interests. Since the year end BA Clark has sold 76,500 shares to P Simmonds who joined the board on the 14 April.
Class of shares
Interest at end
Interest at
of year
beginning of year or date of appointment
BA Clark
Ordinary 2p
567,500
567,500
JL Dodkins
Ordinary 2p
366,766
366,766
PD English
Ordinary 2p
722,234
722,234
PJ Kear
Ordinary 2p
1,340,752
1,340,752
J Lythall
Ordinary 2p
2,278,960
2,278,960
MLS Tinling
Ordinary 2p
468,516
468,516
RS McDowell
Ordinary 2p
2,850,000
2,850,000
GS Shingles
Ordinary 2p
693,781
nil
During the year the Directors received dividends on their shares at the same rate as any other shareholder. Details of share options can be found on page 29. During the year the directors made loans to the company to facilitate the acquisition of SpeedTrap Holdings ltd. and included in creditors – see Note 20.
22
IS Solutions plc Annual Report & Accounts 2015
Directors’ Report (Continued)
The loans are earning interest at the rate of 3% above Base (and cannot be repaid without HSBC bank’s permission) are as follows: BA Clark, £29,723; PD English 37,827; PJ Kear £70,221; J Lythall £119,360; RS McDowell £200,000; ML Tinling £24,530 The J Lythall loan is in the name of his spouse, Mrs P Lythall.
Substantial Holdings As far as the Directors are aware, as at 26 June 2015, the only holdings of 3% or more of the Company’s issued share capital are the following: Number of ordinary shares
%
Ferlim Nominees Limited (including 2,850,000 held by RS McDowell)
6,205,000
17.52
Lynchwood Nominees Limited
3,325,000
9.39
Proven VCT PLC
2,407,017
6.80
J Lythall Esq
2,278,960
6.43
PJ Kear Esq
1,111,225
3.14
M Ward Esq
1,283,532
3.62
HSBC Global Custody Nominees Limited
1,270,752
3.59
Acquisition of the company’s own shares At the end of the year, the Directors had authority, under the shareholders’ resolutions of 23 May 2014, to purchase through the market up to 2,539,296 of the Company’s shares at a maximum price of 105% of the average middle market quotation for the five business days immediately preceding the date of purchase and a minimum price of 2p per share. This authority expires on the 23 May 2015. 166,516 shares were purchased in the 15 months to 31 March 2015.
Employees The Group has a policy of offering equal opportunities to employees at all levels in respect of the conditions of work. Throughout the Group it is the Board’s intention to provide employment opportunities and training for disabled people and to care for employees who become disabled having regard to aptitude and abilities. Regular consultation and meetings, formal or otherwise, are held with all levels of employees to discuss problems and opportunities. Information on matters of concern to employees is presented in house. The company operates share option schemes which are open to all employees. The three current Schemes are the IS Solutions Employee Share Options ‘A’ Scheme, the I S Solutions Employee Share Options ‘B’ Scheme and the I S Solutions EMI Share Options Scheme. A Resolution will be proposed at the AGM to authorise the Directors to amend the Company’s Executive Share Option ‘A’ Scheme by raising the limit on the total number of shares which may be put under option for employees during any rolling 10 year period. This has become necessary following the Company’s acquisition of Speed-Trap Holdings Limited (‘STH’) in January 2015. STH had granted Enterprise Management Incentive (‘EMI’) options over 3,725,000 shares to its employees and these have now been replaced in accordance with the relevant EMI regulations with options over 1,337,624 shares in the Company. This number of replacement share options, when aggregated with other existing share options, leaves virtually no headroom for the issue of further options under the A Scheme, hence the need for this resolution. The A Scheme is an unapproved (by HMRC) scheme and is used for the grant of options to employees who are resident and employed outside the United Kingdom.
23
Directors’ Report (Continued)
Treasury Policy The Group’s operations are funded by cash reserves. The Group has taken a mortgage to fund the purchase of its land and building. The policy of the Group is to ensure that all cash balances earn a market rate of interest. Bank relationships are maintained to ensure that sufficient cash and unutilised facilities are available to the Group.
Political and Charitable Contributions The Group made no political contributions or charitable donations during the year (2013: £nil). The Company holds Directors and Officers Liability insurance.
Disclosure of Information to Auditors In the case of each of the persons who are Directors of the Company at the date when this report was approved: so far as each of the Directors is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the Company’s auditors are unaware; and each of the Directors has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information (as defined) and to establish that the Company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006..
Auditors In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of Baker Tilly UK Audit LLP. as auditors of the Company is to be proposed at the forthcoming Annual General Meeting.
By order of the Board
PJ Kear, Director Windmill House, 91-93 Windmill Road, Sunbury-on-Thames, TW16 7EF 7 July 2015
24
IS Solutions plc Annual Report & Accounts 2015
Directors’ Remuneration Report
Introduction This report has been reviewed by the Company’s Remuneration Committee and approved by the Board.
Remuneration committee The Remuneration Committee comprises four non-executive Directors, Barrie Clark, Roger McDowell, Michael Tinling and Peter English, and is chaired by Barrie Clark. The Committee’s terms of reference also require it to meet not less than once each year. It is responsible for reviewing and determining the policy of the Company on executive remuneration including specific remuneration packages for each of the executive members of the Board, pension rights and compensation payments. The Committee is also responsible for monitoring compliance with the implementation by the Company, of the legal requirements, and (so far as reasonably practical) recommendations and guidelines relating to Directors’ remuneration. None of the Committee has any personal financial interest (other than as shareholders or as noted in the Director’s Report), conflicts of interests arising from cross-directorships or day-to-day involvement in running the business. The Committee makes recommendations to the board. No Director plays a part in any discussion about his or her own remuneration. In determining the executive Directors’ remuneration for the year, the Committee consulted Mr. John Lythall (Managing Director) about its proposals.
Remuneration policy Executive remuneration packages are prudently designed to attract, motivate and retain Directors of the high calibre needed to maintain the Company’s position as a market leader and to reward them for enhancing value to shareholders. The performance measurement of the executive Directors and key members of senior management, and the determination of their annual remuneration package are undertaken by the Committee. The remuneration of the non-executive Directors is determined by the Board within limits set out in the Articles of Association. There are four main elements of the remuneration package for executive directors and senior management: Basic annual salary (including directors’ fees) and benefits; Annual bonus payments; Share option incentives; and Pension arrangements. The Company’s policy is that a substantial proportion of the potential remuneration of the executive directors should be performance related. As described below, executive directors may earn annual incentive payments of up to 40% of their basic salary together with the benefits of participation in share option schemes. The Remuneration Committee is currently not planning any changes to this policy. Executive directors are entitled to accept appointments outside the Company providing that the Chairman’s permission is sought and fees in excess of £20,000 from all such appointments are accounted for to the Company.
25
Directors’ Remuneration Report (Continued)
Basic salary An executive director’s salary is determined by the Committee in March of each year and when an individual changes position or responsibility. In deciding appropriate levels, the Committee considers the Company as a whole and relies on objective research which gives up-to-date information on a comparable group of companies. In addition to basic salary, the executive directors receive certain benefits-in-kind, principally a car (or car allowance) and private medical insurance.
Annual bonus payments The Committee establishes the objectives that must be met for each financial year if a cash bonus is to be paid. In setting appropriate bonus parameters, the Committee takes cognisance of current economic factors and the performance of the Company versus its peers. The bonus scheme for 2016 is set out below. Bonus payments totaling £Nil were provided for in 2015 (2013: £Nil). If the Company’s profit before tax and amortisation of acquired intangible assets (‘pre-tax profits’) for the current financial year (2016) show an increase of more than 15% over the pre-tax profits for 2015, then each Director will be paid a bonus of £500 for each percentage point of such increase achieved between 16% and 24% and £700 for each percentage point of such increase achieved between 26% and 100%, together with a single bonus payment of £2,500 if an increase of 25% or more is achieved. In addition at each of the milestones of 50% and 100% increase in such profits each Director will be entitled to a bonus of £5,000 to be satisfied by the allotment or transfer of shares to him. The actual award and payment of these bonuses must be signed off by the Committee and is subject to amendment in the event of any material acquisitions or disposals occurring during the year. Also, for exceptional performance created by one off events the committee may award one off payments in recognition.
Share options The executive Directors also have options granted to them under the terms of the Company’s Share Option Schemes which are open to all employees. Information on these schemes can be found in the Directors report under the ‘Employees’ section. The Company’s policy is to grant options to executive Directors at the discretion of the Committee taking into account individual performance. It is the Company’s policy to phase the granting of share options rather than to award them in a single large block to any individual. The Company does not operate any long-term incentive schemes other than the share option schemes described above. No significant amendments are proposed to be made to the terms and conditions of any entitlement of an executive Director to share options.
Pension arrangements Executive Directors are members of the Company pension scheme. The scheme is a Money Purchase Scheme with a linked Life assurance scheme. Other than basic salary, no payments to Directors are pensionable. To the extent that contributions to the Company scheme are restricted by HMRC limits, the Company contributes 6% of the Director’s salary providing the Director contributes a minimum of 4% of his salary by way of salary sacrifice. There are no unfunded pension promises or similar arrangements for Directors. There were 3 Directors in the scheme in 2015 (2013: 3).
26
IS Solutions plc Annual Report & Accounts 2015
Directors’ Remuneration Report (Continued)
Performance graph KEY ISL.L NMX9530
ISL.L vs NMX9530
35.00
% change from 1st values
30.00 25.00 20.00 15.00 10.00 5.00 0.00 -5.00 -10.00 -15.00
12 Jun ‘15
21 May ‘15
29 Apr ‘15
8 Apr ‘15
16 Mar ‘15
2 Feb ‘15
23 Feb ‘15
12 Jan ‘15
17 Dec ‘14
26 Nov ‘14
5 Nov ‘14
15 Oct ‘14
24 Sep ‘14
3 Sep ‘14
12 Aug ‘14
22 Jul ‘14
1 Jul ‘14
10 Jun ‘14
19 May ‘14
2 Apr ‘14
12 Mar ‘14
19 Feb ‘14
29 Jan ‘14
8 Jan ‘14
-20.00
The above graph shows the Company’s performance, measured by total shareholder return, compared with the performance of the FTSE Software and Computer services sector also measured by total shareholder return. The FTSE Software and Computer services sector has been selected for this comparison because it is the Board’s opinion that it gives a true comparison to its peers.
Directors’ contracts It is the Company’s policy that executive Directors should have contracts with an indefinite term providing for a maximum of one year’s notice.
Executive Directors J Lythall, PJ Kear, JL Dodkins and have Directors’ service agreements which can be terminated on twelve months notice. These agreements were dated 29 August 1997.
Non-executive Directors BA Clark, MLS Tinling, R McDowell and PD English each have an agreement for 12 months which expires on 7 May 2015, GS Shingles has a 12 month contract that expires 23 January 2016 The fees of the non-executive Directors are determined and confirmed by the full board excluding (in each case) the non-executive Director concerned. In the event of early termination, all the Directors’ contracts provide for compensation up to a maximum of basic salary plus benefits for the notice period.
27
Directors’ Remuneration Report (Continued)
Aggregate Directors’ remuneration The total amounts for Directors’ remuneration were as follows: 2015
2013
(15 months) £000
£000
Emoluments
516
435
Money purchase pension contributions
71
42
Total excluding gains on share options
610
477
-
11
610
477
Total
Total
2015
2013
Gains on exercise of share options Total
Director emoluments (Audited) The remuneration of the individual directors is as follows: Fees/Basic
Pension
salary
Contributions
Benefits
Annual bonus
(15 months) £000
£000
£000
£000
£000
£000
J Lythall
148
43
3
-
195
143
PJ Kear
154
15
2
-
171
137
JL Dodkins
128
13
18
-
159
130
BA Clark
28
-
-
28
22
PD English
18
-
-
18
15
MLS Tinling
19
-
-
19
15
RS McDowell
18
-
-
18
15
GS Shingles
2
-
-
2
-
516
71
23
610
477
Executives
Non-Executives
(appointed 23/01/15) Total
-
The amount of £1,921.19 (2013: £1,217) was outstanding to BA Clark at the year end. Pension costs represent contributions made by the Company to the Group money purchase pension scheme.
28
IS Solutions plc Annual Report & Accounts 2015
Directors’ Renumeration Report (Continued)
Directors share options Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors. Details of options for directors who served during the year are as follows:
JL Dodkins
Number at
Lapsed
Granted
Exercised
Number at
Option
Exercisable
Expiry
1.1.14
during year
during year
during year
31.3.15
price
from
date
30,000
-
-
-
30,000
12.0p
06.06.2008
06.06.2015
70,000
-
-
-
70,000
22.25p
11.11.2010
11.11.2017
35,000
-
-
-
35,000
18.5p
07.01.2013
07.01.2020
PJ Kear
35,000
-
-
-
35,000
18.5p
07.01.2013
07.01.2020
J Lythall
70,000
-
-
-
70,000
22.25p
11.11.2010
11.11.2017
The market price of the shares at 31 March 2015 was 57.0p (60.0p at 31 December 2013) and the range in the 15 month period under review was 44.5p to 71.5p. There have been no variations to the terms and conditions or performance criteria for share options during the financial year.
Approval This report was approved by the Board of directors on 7 July 2015 and signed on its behalf by:
John Lythall, Managing Director
29
Statement of Directors’ responsibilities
The directors are responsible for preparing the Strategic Report and the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and company financial statements for each financial year. The directors have elected under company law to prepare group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and also elected under Company Law to prepare the group financial statements in accordance with IFRS as adopted by the EU. The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the group and the company and the financial performance of the group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period. In preparing the group and company financial statements, the directors are required to: a.
select suitable accounting policies and then apply them consistently;
b.
make judgements and accounting estimates that are reasonable and prudent;
c.
state whether they have been prepared in accordance with IFRSs adopted by the EU;
d.
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and the company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the IS Solutions plc website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
By order of the Board
John Lythall, Chief Executive Officer 7 July 2015
30
IS Solutions plc Annual Report & Accounts 2015
Independent Auditors’ report to the members of IS Solutions plc
We have audited the group and parent company financial statements (“the financial statements”) which comprise the consolidated statement of comprehensive income, consolidated and parent company balance sheets, consolidated and parent company statement of changes in equity, consolidated and parent company statement of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors As more fully explained in the Directors’ Responsibilities Statement set out on page 30 the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at http://www.frc.org.uk/auditscopeukprivate
Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group’s and the parent’s affairs as at 31 March 2015 and of the group’s profit for the 15 month period then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union the parent financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
31
Independent Auditors’ report to the members of IS Solutions plc (Continued)
Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit.
Jeremy Filley (Senior Statutory Auditor) For and on behalf of Baker Tilly UK Audit LLP, statutory auditor Chartered accounts 25 Farringdon St London EC4A 4AB
32
IS Solutions plc Annual Report & Accounts 2015
Consolidated statement of comprehensive income for the 15 months ended 31 March 2015 (year ended 31 December 2013) Notes
2015
2013
£’000
£’000
12,839
9,769
(8,170)
(5,603)
4,669
4,166
Continuing operations Revenue
3
Cost of sales Gross profit Distribution costs
(2,451)
(2,137)
Administration expenses
(1,557)
(1,084)
Other operating income
3
Profit from operations
25
14
686
959
3, 4
4
-
Finance costs
4
(38)
(23)
Other gains and losses
4
Investment income
-
30
652
966
8
(120)
(173)
25
532
793
57
121
589
914
Basic
1.99 p
3.14 p
Diluted
1.92 p
3.08 p
Profit before tax Tax Profit for the period Other comprehensive income Gains on property revaluation Total comprehensive income for the period attributable to equity holders of the parent Earnings per share
11
33
Consolidated statement of changes in equity for the 15 months ended 31 March 2015 (year ended 31 December 2013)
Balance at 01/01/2013
Share
Share
Revaluation
Own
Equity
Retained
Total
captial
premium
reserve
shares
reserve
earnings
£’000
503
1,842
50
-
-
2,450
4,845
793
914
(373)
(373)
Total comprehensive income Issue of share capital
121 6
51
57
Dividends paid Purchase of own shares
(42)
Sale of own shares
40
(42) (17)
Share-based payments Balance at 01/01/2014
509
1,893
199
4,677
Total comprehensive income Issue of share capital
171
(2)
-
57
3 5,427
(285) (154)
Sale of own shares
76
Deferred tax on outstanding share options Contingent shares 6,570
228
(80)
(285) (154)
Share-based payments
708
589 4,876
Purchase of own shares
34
3 2,856 532
Dividends paid
Balance at 31/03/2015
23
(50)
26
4
4
91
91
1,289
1,289
1,380
3,057 11,863
IS Solutions plc Annual Report & Accounts 2015
Consolidated balance sheet as at 31 March 2015 (31 December 2013) Notes
2015
2013
£’000
£’000 1,018
Non-current assets Goodwill
12
8,696
Other intangible assets
13
2,014
38
Property, plant and equipment
14
2,414
2,414
Investments
17
-
800
9
698
7
13,822
4,277
4,823
2,907
95
539
Deferred tax assets Current assets Trade and other receivables
19
Cash and cash equivalents
4,918
3,446
18,740
7,723
20
(4,427)
(1,427)
(59)
(166)
21
(454)
(162)
(4,940)
(1,755)
21
(1,537)
(541)
9
(400)
-
Total assets Current liabilities Trade and other payables Tax liabilities Borrowings Non-current liabilities Borrowings Deferred tax liabilities
(1,937)
(541)
Total liabilities
(6,877)
(2,296)
Net assets
11,863
5,427
Equity Share capital
22
708
509
Share premium account
23
6,570
1,893
228
171
(80)
(2)
1,380
-
Revaluation reserve Own shares
24
Equity reserve Retained earnings Attributable to equity holders of the parent
25
3,057
2,856
11,863
5,427
These financial statements of IS Solutions plc, registered number 01892751, were approved by the Board of Directors and authorised for issue on 7 July 2015 and were signed on its behalf by
J Lythall, Director
35
Consolidated cash flow statement for the period ended 31 March 2015 (year ended 31 December 2013) 2015
2013
£’000
£’000
686
959
228
168
Operating activities Profit from operations Adjustments for: Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Amortisation of intangible assets Share-based payments
-
5
24
18
4
3
942
1,153
Increase in receivables
(924)
(235)
Decrease in payables
(87)
(114)
Operating cash flows before movements in working capital
Cash generated by operations Income taxes paid Net cash from operating activities
(69)
804
(139)
(54)
(208)
750
Investing activities Interest received Interest paid Proceeds on sale of investments Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Acquisition of subsidiaries net of cash acquired Net cash (used in)/from investing activities
4
-
(38)
(23)
-
591
(171)
(115)
-
10
(1,369)
-
(1,574)
463
Financing activities Issue of new share capital Dividends paid New borrowings Repayment of borrowings Purchase of own shares (net) Net cash from/(used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at period end
36
(37)
57
(285)
(373)
2,000
-
(212)
(409)
(128)
(19)
1,338
(744)
(444)
469
539
70
95
539
IS Solutions plc Annual Report & Accounts 2015
Company statement of changes in equity for the period ended 31 March 2015 (year ended 31 December 2013)
Balance at 01/01/2013
Share
Share
Revaluation
Own
Equity
Retained
Total
captial
premium
reserve
shares
reserve
earnings
£’000
503
1,842
50
-
-
2,258
4,653
793
914
(373)
(373)
Total comprehensive income Issue of share capital
121 6
51
57
Dividends paid Purchase of own shares
(42)
Sale of own shares
40
(42) (17)
Share-based payments Balance at 01/01/2014
509
1,893
199
4.677
Total comprehensive income Issue of share capital
171
(2)
-
57
3
3
2,664
5,235
532 (285)
Purchase of own shares
(154)
Sale of own shares
76
Deferred tax on outstanding share options Contingent shares 6,570
228
(80)
(285) (154)
Share-based payments
708
589 4,876
Dividends paid
Balance at 31/03/2015
23
(50)
26
4
4
91
91
1,289
1,289
1,380
2,865
11,671
37
Company balance sheet as at 31 March 2015 (31 December 2013) Notes
2015
2013
£’000
£’000
8,696
1,018
Non-current assets Goodwill
12
Investment in subsidiaries
15
273
385
Other intangible assets
13
2,014
38
Property, plant and equipment
14
2,414
2,414
Investments
17
-
800
Deferred tax assets
9
698
7
14,095
4,662
4,823
2,907
Current assets Trade and other receivables
19
Cash and cash equivalents Total Assets
95
539
4,918
3,446
19,013
8,108
(4,892)
(2,004)
(59)
(166)
Current liabilities Trade and other payables
20
Tax liabilities Borrowings
21
(454)
(162)
(5,405)
(2,332)
(1,537)
(541)
Non-current liabilities Borrowings Deferred tax liabilities
21 9
(400)
-
(1,937)
(541)
Total liabilities
(7,342)
(2,873)
Net assets
11,671
5,235
Equity Share capital
22
708
509
Share premium account
23
6,570
1,893
228
171
(80)
(2)
1,380
-
Revaluation reserve Own shares
24
Equity reserve Retained earnings Attributable to equity holders of the company
25
2,865
2,664
11,671
5,235
These financial statements of IS Solutions plc, registered number 01892751, were approved by the Board of Directors and authorised for issue on 7 July 2015 and were signed on its behalf by
J Lythall, Director
38
IS Solutions plc Annual Report & Accounts 2015
Company cash flow statement for the period ended 31 March 2015 (year ended 31 December 2013) 2015
2013
£’000
£’000
686
959
228
168
Operating activities profit from operations Adjustments for: Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Amortisation of intangible assets Share-based payments
-
5
24
18
4
3
942
1,153
Increase in receivables
(924)
(235)
Decrease in payables
(87)
(114)
Operating cash flows before movements in working capital
Cash generated by operations Income taxes paid Net cash from operating activities
(69)
804
(139)
(54)
(208)
750
Investing activities Interest received Interest paid Proceeds on disposal of investments Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Acquisitions of subsidiaries net of cash acquired Net cash (used in)/from investing activities
4
-
(38)
(23)
-
591
(171)
(115)
-
10
(1,369)
-
(1,574)
463
Financing activities Issue of new share capital Dividends paid New borrowings Repayment of borrowings Purchase of own shares (net) Net cash from/(used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year
(37)
57
(285)
(373)
2,000
-
(212)
(409)
(128)
(19)
1,338
(744)
(444)
469
539
70
95
539
39
Notes to the financial statements
1. Significant accounting policies Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union. The presentation currency of the financial statements is British Pounds and amounts are rounded to the nearest thousand pounds.
Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out above and the risks and uncertainties summarised below. The Group has sufficient financial resources to cover budgeted future cash-flows, together with contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. Having reviewed the future plans and projections for the business, the Directors believe that the Company and its subsidiary undertakings have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
Adoption of new and revised standards Standards, amendments and interpretations effective in the period to 31 March 2015: IFRS 1
Amendments to IFRS 1: Severe hyperinflation and Removal of Fixed Dates for First-time Adopters
IFRIC 20
Stripping costs in the production phase of a surface mine
IAS 19
Employee benefits
IAS 1
Presentation of financial statements
IAS 16
Property, plant and equipment
IAS 32
Financial instruments (presentation)
IAS 34
Interim financial reporting
IFRS 7
Financial Instruments: Disclosures
IAS 12
Deferred Tax: Recovery of Underlying Assets
IFRS 3
Business Combinations
IFRS 10
Consolidated financial statements
IFRS 12
Disclosure of interests in other entities
IFRS 13
Fair value measurment
IAS 27
Separate financial statements
IAS 39
Financial Instruments (recognition and measurement)
Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group: IFRS 11
Joint arrangements
IFRS 9
Financial Instruments
IFRS 15
Revenue from contracts with customers
IAS 28
Investments in associates and joint ventures
IAS 36
Impairment of assets - amendment
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.
40
IS Solutions plc Annual Report & Accounts 2015
Notes to the financial statements (Continued)
Basis of consolidation The group accounts consolidate the accounts of IS Solutions Plc and all its subsidiary undertakings. These accounts are made up to 31 March 2015. In the company’s accounts, investments in subsidiary undertakings are stated at cost less provisions for impairment. All intra-group transactions and balances are eliminated on consolidation. In accordance with Section 408 of the Companies Act 2006 IS Solutions Plc is exempt from the requirement to present its own income statement and related notes that form a part of these approved financial statements. The profit of the parent is disclosed in note 25.
Property, plant and equipment The carrying value of these assets is stated at cost or valuation, less accumulated depreciation and any impairment loss. Freehold land is not depreciated. The estimated lives of assets are reviewed annually by the Board and freehold land and buildings are professionally valued periodically. Lives and values are adjusted as necessary. The group makes provision for depreciation so that the cost less estimated residual value of each asset is written off by equal instalments over its estimated useful economic life as follows: Buildings
- up to 35 years
Leasehold improvements
- up to 10 years
Fixtures and equipment
- up to 4 years
Motor vehicles
- 3 to 4 years
Acquisitions On the acquisition of a business net fair values are attributed to the identifiable assets and liabilities acquired. Where the cost of acquisition exceeds this net fair value, the difference is treated as purchased goodwill and capitalised in the Group balance sheet in the year of acquisition. If a subsidiary’s assets are subsequently hived up into the parent then the corresponding amount of goodwill is capitalised in the Company balance sheet too.
Goodwill Capitalised goodwill is shown in the balance sheet. Its carrying value is subject to annual review and any impairment is recognised immediately as a loss which cannot subsequently be reversed. Goodwill arising on acquisitions made before the date of transition to IFRS has been retained at the previous UK GAAP amount subject to being tested annually for impairment.
Investments The carrying value of non-current investments is stated at cost less any provision for impairment. This value is reviewed anually by the Board.
Other intangible assets IPR On the acquisition of a business, the software development cycle and the amount of effort involved between updated versions of the software acquired is estimated and capitalised. The fair value is amortised over the expected development cycle which is estimated to be 8 years.
Trade name On the acquisition of a business, the future value of the trade name of that business is estimated and capitalised. The fair value is amortised over 10 years.
Capitalised contracts On the acquisition of a business the future value of customer contracts in that business is estimated and capitalised. The fair value is amortised over the average expected life of those contracts.
41
Notes to the financial statements (Continued)
Research and development costs Expenditure on research is recognised as an expense in the period in which it is incurred. Development costs are capitalised only when an internally-generated intangible asset can be identified which will generate future revenue streams and whose cost can be measured reliably. These costs are written off on a straight line basis over the expected life of the revenue stream. Other development costs are recognised as an expense in the period in which they are incurred.
Foreign currencies Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account.
Profit from operations Profit from operations is stated before investment income, finance costs and other gains and losses.
Operating leases Rentals payable under operating leases are recognised as a cost on a straight line basis over the life of the lease. Similarly rental income arising from operating leases is credited to income on a straight-line basis over the period of those leases.
Share-based payments Periodically the Group offers share options (at the prevailing market price) to all employees. The Group has conformed with the requirements of IFRS2 “Share Based Payment” for share options issued after 7 November 2002 and unvested at 1 January 2012. Those options are measured at fair value (using the Black-Scholes model and management’s best estimates) and are expensed on a straight-line basis over their vesting period. Options vest only when the remuneration committee is satisfied that the vesting criteria have been met, and are settled subsequently by equity shares in the parent company.
Treasury shares From time to time the Company purchases its own shares for the purpose of satisfying the future exercising of outstanding share options. These shares are held in treasury and are shown as a reduction in the company’s reserves.
Pension costs The group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the group in an independently administered fund. The amount charged against profits represents the contributions payable to the scheme in respect of the accounting period.
Taxation Current tax (UK and foreign) is calculated on the profit for the year (adjusted for appropriate reliefs, allowances, non-deductible expenses and timing differences) using the appropriate tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised in respect of all material temporary differences in the treatment of certain items for taxation and accounting purposes which have arisen but have not reversed by the balance sheet date. It is recognised at the expected prevailing rate at the time of reversal, and is recognised as an asset only to the extent that it is probable that taxable profits will be available to utilise it. It is reviewed annually.
Revenue recognition Products Products are defined either as any item that is bought from an outside supplier and sold on to our clients, or licensed software generated from in-house development.
42
IS Solutions plc Annual Report & Accounts 2015
Notes to the financial statements (Continued)
Product sales are invoiced at the time of delivery, and this ordinarily coincides with the point of revenue recognition. However an assessment is made to verify that this is the case. The sale of a licence carrying no financial risk to the Group or future contractual obligation to the ultimate purchaser is treated on an agency basis and only the commission from the sale is included in revenue. Services Development services Where the Group is contracted to design and implement internet services, revenues are taken on a time and materials basis with the client being invoiced monthly. Accordingly the Group does not normally carry any work in progress or accrued income in respect of these services. Revenue is recognised in accordance with the amounts invoiced. By the nature of the Group’s contracts, although these may cover periods of greater than one month, the time and materials basis on which they are negotiated, together with the monthly billing of amounts recoverable, means that revenue is recognised with reference to the stage of completion. Where services are delivered over a period of time, revenue is recognised by reference to the stage of completion of those services. Support and maintenance services supplied by the Group The Group provides ongoing support and maintenance services to customers, ordinarily where we have also developed the sites, sold in-house software, or are hosting or monitoring client sites. Support contracts are normally 12 month contracts and revenue is spread evenly over this period. The provision of these services involves the performance of an indeterminate number of tasks over the period of the contract, as requested by the customer. The pattern of requests is even over time. Vendor Software Maintenance This is treated on an agency basis and only the commission from the sale is included in revenue. It is recognised at the point at which it is sold.
Financial Instruments Financial assets and liabilities are recognised on the balance sheet when the Group or Company becomes a party to the contractual provisions of the instrument. Derivative financial assets are initially recognised at fair value at the dates the derivative contracts are entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gains or losses are recognised in profit or loss immediately. Trade receivables do not carry interest and are stated at their cost reduced by an appropriate allowance for irrecoverable amounts Trade investments comprise the Group’s strategic investments in entities that do not qualify as subsidiaries, associates or jointly controlled entities. They are recognised at cost when acquired. Fluctuations in their fair value are dealt with through profit and loss, as are differences between carrying values and disposal receipts. Trade payables are not interest bearing and are stated at cost. Cash and cash equivalents comprise cash in hand and deposits repayable in less than three months, less overdrafts payable on demand. Equity instruments issued by the Company are recorded as the value of the proceeds received, net of direct issue costs.
Borrowings Interest-bearing bank loans are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are amortised over the period in the statement of comprehensive income using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
43
Notes to the financial statements (Continued)
Borrowing costs Borrowing costs that are directly attributable to the acquisition of a qualifying asset are capitalised as part of property, plant and equipment. Other borrowing costs are recognised as an expense in the period in which they arise.
Company accounts The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that act these have been prepared in accordance with International Financial Reporting Standards. The principal accounting policies adopted are the same as those set out above in respect of the Group. As permitted in section 408 of that act the company has elected not to present its own profit and loss account for the year.
2. Critical accounting judgements and key sources of estimation uncertainty In applying the accounting polices described in note 1. the directors are required to make judgements about, and estimates of the carrying values of assets and liabilities where for reasons of uncertainty these may differ from their book values. These judgements are reviewed on an ongoing basis.
Critical judgements in applying the Group’s accounting policies Goodwill The ongoing valuation of goodwill for the purposes of determining impairment requires the evaluation of future cash flows from the cash generating units to which the goodwill has been allocated. Note 12 shows the carrying values of the components of goodwill. Revenue recognition The management regularly reviews the application of its policy on revenue recognition in line with the accounting policies stated in note 1. Large Contracts We have undertaken a significant contract, during the period to 31 March 2015, which included hardware sales, installation and services. Revenue recognition has been applied in line with IAS 18 and the accounting policies stated in note 1. In particular the hardware has been recognised as fully installed in the period, and hence the associated revenue has been fully recognised in the period. Loan Covenant Management has recognised that there was a bank covenant that was technically breached at the time of the loan being made and at the end of the period. The bank has now removed this covenant as it was agreed that this covenant should not have been in place during the period. Intangibles As part of the acquisition of Speed–Trap Holdings Ltd, management has valued the intangible assets, IPR and the Trading name, and their useful lives in accordance with the accounting policies stated in note 1.
44
IS Solutions plc Annual Report & Accounts 2015
Notes to the financial statements (Continued)
3. Revenue Group Analysis of revenue Continuing operations Sale of goods Rendering of services Other operating income Investment income
2015
2013
£’000
£’000
1,927
1,567
10,912
8,202
12,839
9,769
25
14
4
-
12,868
9,783
Analysis of other operating income Operating lease receipts (see note 27) Director’s fees received from Speed-Trap (Holdings) Ltd.
19
4
6
10
25
14
4. Investment income, finance costs and other gains and losses Group 2015
2013
£’000
£’000
4
-
Analysis of investment income Bank interest received Analysis of finance costs Mortgage interest paid
(38)
(23)
Analysis of other gains and losses Fair value adjustment of trading investments
-
30
45
Notes to the financial statements (Continued)
5. Business and geographical segments The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and assess their performance. The information presented to the Chief Executive for the purpose of resource allocation and assessment of segment performance is focused on the type of product sold. The principal activity of the Group is split into three categories of product sold: - License sales - Project work - Recurring revenues. No allocation of other income and costs to these categories is made because the Directors consider that any such allocation would be arbitrary. Any allocation of assets and liabilities to these categories would also be arbitrary. The reporting below is consistent with that provided to the Chief Executive. Continuing operations 2015 External sales Adjustment for agency basis Reported revenue Segment result (gross profit)
Licence sales
Project work
Recurring
Total
revenues
£’000
1,927
6,146
6,048
14,121
-
-
(1,282)
(1,282)
1,927
6,146
4,766
12,839
537
1,566
2,566
Other operating costs and income
4,669 (3,983)
Investing and financing activities
(34)
Profit before tax
652
Major customers (over 10% of revenue) Customer 1
249
4,313
544
5,106
Customer 2
238
689
1,437
2,364
Licence sales
Project work
Recurring
Total
revenues
£’000
Continuing operations 2013 External sales
4,767
4,003
4,859
13,629
Adjustment for agency basis
(3,200)
-
(660)
(3,860)
Reported revenue
1,567
4,003
4,199
9,769
270
1,231
2,665
4,166
Segment result (gross profit) Other operating costs and income
(3,207)
Investing and financing activities
7
Profit before tax
966
Major customers (over 10% of revenue) Customer 1
-
1,455
971
2,426
Customer 2
-
536
938
1,474
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 1. Geographical segments The Group operates entirely within the UK.
46
IS Solutions plc Annual Report & Accounts 2015
Notes to the financial statements (Continued)
6. Profit from operations Profit from operations has been arrived at after charging/(crediting): Research and development costs
2015
2013
£’000
£’000
266
167
Net foreign exchange (gain)/loss
(49)
108
Depreciation of property, plant & equipment
228
168
Loss on disposal of property, plant & equipment Amortisation of intangible assets Staff costs (see note 7)
-
5
24
18
6,119
4,818
37
27
5
5
539
-
Auditors’ remuneration for audit services (Group and Company, the Company fee is not separately quantifiable) Auditors’ remuneration for tax compliance and advisory services Cost incurred in acquiring subsidiary
7. Staff costs The average number of employees (including directors)
Group & Company
during the period was:
2015
2013
Production and support
65
74
Distribution
16
13
Administration
17
17
98
104
£’000
£’000
5,334
4,076
Their aggregate remuneration comprised: Salaries Social security costs
535
444
Pension costs
250
298
6,119
4,818
Details of directors’ remuneration required by the Companies Act are set out in the audited information included in the directors’ remuneration report. For the purposes of IAS 24 “Related Party Disclosures” these figures also equate to the salary disclosures required of the key management personnel.
47
Notes to the financial statements (Continued)
8. Tax 2015
2013
£’000
£’000
120
170
Deferred tax
-
10
Overprovision in prior years
-
(7)
120
173
Profit before tax
652
966
UK corporation tax at 21.40% (2013: 23.75%)
140
229
Research and development credit
(57)
(40)
Relief for exercising of share options
(10)
(19)
(11)
12
Current UK tax
Corporation tax The charge for the year can be reconciled to the reported profit as follows:
Difference between writing-down allowances and depreciation Amortisation of intangibles
5
4
Other non-deductible expenses
56
5
Other timing differences
(3)
(9)
-
(9)
120
173
Tax losses
Intangibles
Lower rate relief Tax charge as above
9. Deferred tax Group As 1 January 2013
Timing
Share based
difference
payments
Total £’000
17
-
-
-
17
(10)
-
-
-
(10)
At 1 January 2014
7
-
-
-
7
Acquisition of subsidiary
-
-
600
-
600
Change to income statement
Recognition of deferred tax asset/liability
-
91
-
(400)
(309)
At 31 March 2015
7
91
600
(400)
298
Company As 1 January 2013
17
-
-
-
17
(10)
-
-
-
(10)
At 1 January 2014
7
-
-
-
7
Acquisition of subsidiary
-
-
600
-
600
Change to income statement
Recognition of deferred tax asset/liability
-
91
-
(400)
(309)
At 31 March 2015
7
91
600
(400)
298
At the end of 2013 Speed-Trap Holdings Ltd, Celebrus Technologies Ltd and Magiq Ltd had unrecognised deferred tax assets of approximately £1,190k. £600,000 of this has recognised above. The balance remains as an unrecognised deferred tax asset. Losses have been recognised to extent that they are recoverable in the foreseeable future.
48
IS Solutions plc Annual Report & Accounts 2015
Notes to the financial statements (Continued)
10. Dividends Amounts recognised as distributions to equity holders
2015
2013
£’000
£’000
285
250
Final dividend for the year ended 31 December 2013 of 1.12p (2012: 1.00p) Interim dividend for the year ended 31 March 2015 of nil (31 December 2013: 0.48p)
-
123
285
373
198
Proposed final dividend for the period ended 31 March 2015 of 0.56p
The proposed final dividend is subject to shareholders’ approval at the AGM and has not been included as a liability in these financial statements.
11. Earnings per share 2015
2013
532
793
26,784,110
25,270,620
(111,542)
(19,738)
26,672,568
25,250,882
1,065,704
460,479
27,738,272
25,711,361
Earnings, being the net profit attributable to equity holders of the parent (£’000) Weighted average of ordinary shares in issue Weighted average of own shares Weighted average for the purpose of basic earnings per share Effect of dilutive share options Weighted average for the purpose of diluted earnings per share
12. Goodwill Group
Company
2015
2013
2015
2013
Cost of goodwill
£’000
£’000
£’000
£’000
At 1 January
3,274
3,274
2,930
2,930
Recognised on hive-up of subsidiary Additions At period end
-
-
7,678
-
7,678
-
-
-
10,952
3,274
10,608
2,930
Accumulated impairment charges At 1 January
2,256
2,256
1,912
1,912
At period end
2,256
2,256
1,912
1,912
8,696
1,018
8,696
1,018
AXL customers
100
100
100
100
Chapter26 customers
918
918
918
918
Carrying amount at period end Allocation of goodwill
Speed-Trap customers
7,678
-
7,678
-
At period end
8,696
1,018
8,696
1,018
The carrying amount of goodwill represents the balance of the original cost of goodwill attached to the subsidiary companies on acquisition. The Group is required to test this value at least annually for impairment. The extant customers of the subsidiaries (all of whom are now customers of the parent company) continue to form identifiable cash generating units.
49
Notes to the financial statements (Continued)
The recoverable amounts of the cash generating units are determined from the value in use calculations. The Group prepares profit forecasts derived from the most recent budgets and forecasts approved by the Board. A range of comparable discount rates from 9% to 21% has been used to discount the forecast profits over the next three years. The calculation of value in use is most sensitive to the discount rate and management assumption that majority of these revenues are recurring on an annual basis. Management believes that no reasonable potential change in any of the above key assumptions would cause the carrying value to exceed its recoverable amount.
13. Other intangible assets Internally
IPR
generated Group & company
Trade
Total
name
£’000
£’000
£’000
£’000
At January 2013
56
-
-
56
At January 2014
56
-
-
56
Cost
Acquisition of subsidiary At 31 March 2015
-
1,858
142
2,000
56
1,858
142
2,056
Accumulated amortisation At 1 January 2013
-
-
-
-
Amortisation for the year
18
-
-
18
At 1 January 2014
18
-
-
18
Amortisation for the period
24
-
-
24
At 31 March 2015
42
-
-
42
At 31 December 2013
38
-
-
38
At 31 March 2015
14
1,858
142
2,014
Carrying amount
50
IS Solutions plc Annual Report & Accounts 2015
Notes to the financial statements (Continued)
14. Property, plant & equipment
Group and Company
Total
Land &
Fixtures &
Motor
buildings
equipment
vehicles
£’000
£’000
£’000
£’000
2,274
550
49
2,873
-
79
36
115
(74)
-
-
(74)
-
(41)
(32)
(73)
2,200
588
53
2,841
Cost At 1 January 2013 Additions Revaluation Disposals At 1 January 2014 Additions
-
152
19
171
Disposals
-
(224)
(17)
(241)
2,200
516
55
2,771
150
339
23
512
45
110
13
168
(195)
-
-
(195)
At 31 March 2015 Depreciation At 1 January 2013 Charge for year Eliminated on revaluation Eliminated on disposals
-
(41)
(17)
(58)
At 1 January 2014
-
408
19
427
Charge for 15 months
57
154
17
228
Eliminated on revaluation
(57)
-
-
(57)
Eliminated on disposals
-
(224)
(17)
(241)
At 31 March 2015
-
338
19
357
Carrying amount At 31 December 2013
2,200
180
34
2,414
At 31 March 2015
2,200
178
36
2,414
Allocation of depreciation charge
2015
2013
£’000
£’000
Cost of sales
81
49
Distribution costs
65
60
Administration expenses Charge for period
82
59
228
168
Included in land & buildings (valued at the period end by Cook Steed Associates Ltd) is freehold land at £800,000 (2013: £750,000) which is not subject to depreciation. The land and buildings original purchase cost was £2,224,000. Freehold land and buildings with carrying values as noted above have been pledged to secure borrowings of the Group (see the borrowings note 21).
51
Notes to the financial statements (Continued)
15. Investment in subsidiaries Company Cost of investment At 1 January
2015
2013
£’000
£’000
907
907
Additions
8,514
-
Realised on hive-up of assets
(8,514)
-
Disposals
(634)
-
At period end
273
907
At 1 January
522
522
Disposals
(522)
-
-
522
273
385
Accumulated provision for impairment
At period end Carrying amount at period end
All the subsidiaries are now dormant and the carrying values have accordingly been adjusted to match their underlying reserves by way of impairment charges as shown above. Country of Incorporation
Proportion of ownership interest
Celebrus Ltd
England & Wales
100%
Celebrus Technologies inc
USA
100%
Celebrus Technologies Ltd
England & Wales
100%
Chapter26 Ltd
England & Wales
100%
Internet Service Solutions Ltd
England & Wales
100%
Internet Systems Solutions Ltd
England & Wales
100%
Internet Site Solutions Ltd
England & Wales
100%
Magiq Ltd
England & Wales
100%
Speed-Trap Holdings Ltd
England & Wales
100%
AXL Performance Solutions Ltd, AXL Business Solutions Ltd, Candric Ltd and Interspective Ltd were dissolved on the 24 June 2014. Speed-Trap Holdings Ltd, Celebrus Technologies Ltd and Magiq Ltd have elected to become exempt from the requirement to be audited for the period to 31st March 2015 under s.479a of the Companies Act.
52
IS Solutions plc Annual Report & Accounts 2015
Notes to the financial statements (Continued)
16. Acquisition of subsidiary The remaining 90% of Speed-Trap Holdings Ltd shares were acquired on 23 January 2015. Details of the net assets acquired and goodwill are as follows: Provisional fair value £’000 Net assets acquired Intangible fixed assets
2,000
Deferred tax asset
600
Trade and other receivables
992
Cash and cash equivalents
143
Trade and other payables
(2,587)
Tax asset
88
Deferred tax liability
(400) 836
Goodwill
7,678
Total consideration
8,514
Satisfied by: Cash
1,512
Transfer of own shares
4,913
Accrual for future transfer of own shares
1,289
Transfer from investments
800 8,514
The fair value of the shares (both issued and accrued) was based on the price agreed for the acquisition on 23rd January 2015. This price reflected the 90 day average price prior to 22nd December 2014. This 90 day average price has been applied as the fair value price rather that the market price, due to the fact that there are restrictions on the trading of these shares. The accrual for future transfer of own shares includes £1,000,000 worth of shares contingent upon no warranty claims being made, plus £289,000 which represents the fair value of the options per note 26 less the cash received to exercise those options. Revenue
Profit before tax
Speed-Trap Holdings Ltd post aquisition contribution was
£’000
£’000
554
115
1,877
(1,156)
14,966
(488)
Had it been purchased on 1 January 2014 then its contribution to the Group would have been Group revenue and profit before tax (loss) would have been These amount have been calculated using the Groups accounting policies.
53
Notes to the financial statements (Continued)
17. Non-current investments (Group and Company) Trading investments (in Speed-Trap Holdings Ltd.)
2015
2013
£’000
£’000
Fair value at 1 January
800
800
Disposals during period
(800)
-
-
800
Cost at period end
The fair value of this share holding both before and after the acquisition date is £800,000. Therefore no gain or loss has been recognised in the accounts. During the period purchases from Speed-Trap (Holdings) Ltd amounted to £19,000 (2013: £45,000) and the Group invoiced a total of £38,000 (2013: £58,000) in fees and services.
18. Current investments (Group and Company) 2015
2013
£’000
£’000
Fair value at 1 January
-
561
Movement in fair value during period
-
30
Disposals during period
-
(591)
Fair value at period end
-
-
2015
2013
£’000
£’000
4,055
2,459
Trading investments
19. Trade and other receivables (Group and Company)
Trade receivables Other taxes receivable Other debtors Prepayments and accrued income
171
-
5
273
592
175
4,823
2,907
Trade receivables
2015
2013
Ageing of past due but not impaired receivables
£’000
£’000
Overdue 1 month
136
361
Overdue 2 months
49
40
Overdue 3 months and more
155
546
340
947
Trade receivables arise mainly from credit sales. The Board considers that their recoverable value, after considering any credit risk, does not differ materially from their carrying value. In particular those amounts past due are assessed to be fully recoverable and are not considered to be impaired. The average credit period taken on sales of goods and services was 74 days (2013: 59 days). In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors believe that no further credit provision is required.
54
IS Solutions plc Annual Report & Accounts 2015
Notes to the financial statements (Continued)
20. Trade and other payables Group
Trade payables Loans from directors
Company
2015
2013
2015
2013
£’000
£’000
£’000
£’000
2,275
445
2,275
445
482
-
482
-
Owed to subsidiaries
-
-
465
577
Other taxes payable
324
332
324
332
Accruals and deferred income
1,346
650
1,346
650
4,427
1,427
4,892
2,004
Trade payables comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 82 days (2013: 35 days). Their carrying value approximates to their fair value.
21. Borrowings (Group and Company) Bank loans and mortgage Outstanding at 1 January New borrowings during period Repaid during period
2015
2013
£’000
£’000
703
1,112
1,500
-
(212)
(409)
1,991
703
Repayable within one year
454
162
Repayable within one to two years
468
165
Repayable within two to five years
1,069
376
Repayable in more than five years
-
-
Outstanding at 31 December
The fair value of the mortgage approximates its carrying amount. The Group’s borrowing is subject to restrictive covenants, including disposal of assets and provision of certain financial information to the bank. Interest is payable at a variable rate 2.1% above base rate. Security for the mortgage comprises a first legal mortgage over the freehold property of IS Solutions plc known as Windmill House 91-93 Windmill Road Sunbury-on-Thames: a direct letter of set-off to be given by IS Solutions plc over its own accounts: a first fixed charge over all book and other debts and a first floating charge over all assets, goodwill, undertaking and uncalled capital both present and future.
22. Share capital 2015
2013
Shares
£’000
Shares
£’000
37,500,000
750
37,500,000
750
Balance at 1 January
25,436,791
509
25,146,291
503
Issued during period
9,984,787
199
290,500
6
35,421,578
708
25,436,791
509
Ordinary shares of 2p each Authorised Issued and fully paid up
Balance at period end
55
Notes to the financial statements (Continued)
23. Share premium account 2015
2013
£’000
£’000
Balance at 1 January
1,893
1,842
Premium arising on issue of equity shares
4,677
51
Balance at period end
6,570
1,893
24. Own shares (shares held in treasury)
Balance at 1 January
2015
2013
£’000
£’000
2
-
Acquired during the period
154
42
Sold during period
(76)
(40)
Balance at period end
80
2
Fair value at period end
78
2
25. Retained earnings Group
Balance at 1 January Dividends paid Loss on sale of own shares Credit to equity for equity-settled share-based payments
Company
2015
2013
2015
2013
£’000
£’000
£’000
£’000
2,856
2,450
2,664
2,258
(285)
(373)
(285)
(373)
(50)
(17)
(50)
(17)
4
3
4
3
Net profit for the period
532
793
532
793
Balance at period end
3,057
2,856
2,865
2,664
26. Share-based payments The Company has a share option scheme for all employees of the Group. Options are granted at the closing price on the previous day and have a vesting period of three years. If the options are not exercised within ten years of the grant date, or if employees leave before their options vest then those options are forfeited. 2015
2013 Weighted
Number of
av. exercise
share options
price
834,000
23.51 p
1,198,500
22.27 p
-
-
-
-
Forfeited during the period
(37,500)
38.37 p
(4,000)
29.05 p
Exercised during the period
(112,500)
19.38 p
(360,500)
19.32 p
Outstanding at period end
684,000
28.67 p
834,000
23.51 p
Exercisable at period end
575,000
20.08 p
690,000
19.96 p
Options outstanding at 1 January Granted during the period
56
Weighted Number of av. exercise share options
price
IS Solutions plc Annual Report & Accounts 2015
Notes to the financial statements (Continued)
The weighted average share price at the exercise date of the exercised shares was 54.9p (2013: 44.6p). The weighted average contractual life of the outstanding options was 2 years (2013: 5 years), exercisable in the range 12.00p to 40.50p. The Group recognised £4,000 of expense related to equity-settled share-based payments in 2015 (2013: £3,000). Post year end, 1,337,624 EMI options and 17,955 non EMI options were granted which replaced the options held in Speed-Trap Holdings Ltd by employees of that group on its acquisition, on a pro rata basis. The difference in valuation of these options at the acquisition price of 49.20p compared with the option price of 27.85p has required an accrual for the increased cost of acquisition of £289,000. These options are exercisable on date of grant.
27. Operating lease arrangements (Group and Company) As lessee The future aggregate minimum lease payments due under
2015
2013
non-cancellable operating leases are:
£’000
£’000
Due in less than one year
7
26
Due between two and five years
-
7
7
33
34
26
£’000
£’000
29
-
106
-
Lease payments recognised as an expense during the period Lease payments are for rental of premises in India As lessor The future aggregate minimum lease payments receivable under non-cancellable operating leases are: Due in less than one year Due between two and five years Due in over five years
-
-
135
-
19
4
There are no outstanding non-cancellable leases (2013: nil) Lease receipts recognised as income during the period
Lease receipts are for fixed-term sub-lets of parts of the parent company’s premises bearing no contractual right of renewal or extension.
57
Notes to the financial statements (Continued)
28. Financial instruments Capital risk management The Group’s capital structure comprises issued share capital, reserves and borrowings as disclosed in notes 22, 25 and 21 respectively, along with cash and cash equivalents. These are managed by the Board to ensure that the Group continues as a profitable going concern. There are no externally imposed capital requirements. Gearing ratio (at end of year) Debt Cash and cash equivalents Net debt Equity Net debt to equity ratio
2015
2013
£’000
£’000
1,991
703
(95)
(539)
1,896
164
11,863
5,427
15.98%
3.02%
Significant accounting policies Details for financial instruments are disclosed in note 1. Categories of financial instruments
2015
2013
£’000
£’000
95
539
4,823
2,907
6,477
2,296
Financial assets Cash and bank balances Loans and receivables Financial liabilities Other
Financial risk management The Board manages financial risk by means of internal assessment reports. The only significant risk to the business is that of interest rate changes. It is estimated each 1% rise in average interest rates, using consistent estimation methods, would reduce the reported profit before tax by £20,000 (2013: £7,000). Foreign currency risk management The carrying amounts of the Group’s assets and liabilities denominated in foreign currencies was as follows: Liabilities
US Dollars Euros
Assets
2015
2013
2015
2013
£’000
£’000
£’000
£’000
1,305
8
2,330
1,394
85
36
71
-
Credit risk management The Group uses credit reference agencies to determine and monitor the credit limits of new and existing customers. At the end of the period two customers owed a total of £2,698,000 (2013: two customers owed £1,178,000). No other customers owed more than 10% of the outstanding total. No provision for doubtful debts has been made (2013: nil).
58
IS Solutions plc Annual Report & Accounts 2015
Notes to the financial statements (Continued)
Liquidity risk management The Board manages liquidity risk by maintaining adequate reserves of cash and banking facilities to cover day-to-day trading. The Group’s policy is to pay creditors in full as and when they become due, which for all practical purposes is at latest by the end of the month following the invoice date. The Board believes that there is little liquidity risk since the Group has adequate cash balances to satisfy its creditors. Long-term borrowings are secured by way of a mortgage on the freehold property and their repayment schedule is shown in note 21. Financial facilities Secured bank overdraft facility (unused)
2015
2013
£’000
£’000
500
250
Fair value measurement Financial instruments that are measured subsequent to initial recognition at fair value, are grouped into Levels 1 to 3 based on the degree to which the fair value is observable: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The current trade investment was observable at level 1. The freehold land & buildings are observable at level 3.
59
Designed & produced by the IS Solutions Communication Design Studio July 2015
UK Registered Office (and principal place of business) Windmill House 91-93 Windmill Road Sunbury-on-Thames Middlesex TW16 7EF Tel: +44 (0) 1932 893333 Fax: +44 (0) 1932 893433 E-Mail:
[email protected] Web: www.issolutions.co.uk Company Registration Number 1892751
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