Ixico Regulatory News (IXI)

IXICO plc

("IXICO" or the "Company")

Financial Results for the year ended 30 September 2017

Strong revenue growth and reduced operating losses as momentum builds

IXICO plc (AIM: IXI), the digital technologies company serving neuroscience, today announces its final results for the year ended 30 September 2017.

Highlights

Commercial

Multi-year contracts in a broad range of neurological diseases to drive future top line growth

· $1.2m phase IIa clinical study in progressive supranuclear palsy ('PSP')

· $1.5m phase IIb clinical study in PSP

· Contract with Araclon Biotech for phase II clinical study in Alzheimer's Disease

· £1.2m phase II clinical study in Huntington's Disease

· $0.7m phase II clinical study in Huntington's Disease

· Expansion of existing phase II/III contract increasing total value from $6.8m to $7.7m

Financial

· Revenue of £4.1m (2016: £3.3m restated*) or 26% growth at transaction exchange rates

· Revenue of £3.7m (2016: £3.1m) or 20% growth at Project Exchange Rates ('PER')**

· Reduced operating loss of £1.9m (2016: £2.9m) combining commercially led growth with cost control

· Reduced loss per share of 5.7 pence (2016: 8.7 pence)

· Cash of £2.4m (2016: £3.1m)

Post year-end highlights

First biosensor contracts demonstrating continued commercial momentum

· £0.5m phase II clinical trial for a neurological disorder

· £0.8m late phase clinical trial for a psychiatric disorder

* An element of the foreign exchange gain previously reported in general and administrative expenses has been reclassified to revenue

** PER revenue is recognised from multi-year contracts with fixed Project Exchange Rates. PER revenue demonstrates the underlying performance of the business, excluding the impact of foreign exchange.

Giulio Cerroni, CEO of IXICO, said: "I am pleased to report that in 2017, the business delivered robust revenue growth strengthened by the entry into a number of new commercial contracts in a broad range of neurological diseases. These multi-year contracts underpin our confidence in building further commercial momentum and I am excited about the goals we have set ourselves in our drive to achieve profitability. I look forward to the new year with confidence".

Notice of AGM

IXICO also announces that its AGM will be held at 9.30am on 22 January 2018 at the offices of FTI Consulting, 200 Aldersgate Street, London EC1A 4HD. The full annual report and accounts will be posted to shareholders on 15 December 2017.

For further information please contact:

About IXICO

IXICO is the digital technologies company serving neuroscience. Our mission is to transform the pursuit of improving brain health through the application of digital technologies to neuroscience. IXICO's specialist data analytics services are used by the global pharmaceutical industry to select participants for clinical trials, assess the safety and efficacy of new drugs in development and in post marketing surveillance. Our neurological disease focus includes Alzheimer's disease, Huntington's disease, Multiple Sclerosis, Parkinson's disease and our integrated digital platform encompasses the entire drug development lifecycle. It is a scalable and secure infrastructure for the capture and analysis of regulatory compliant clinical data to enable sponsors to make rapid, better informed decisions. IXICO is also collaborating with partners to develop new companion digital health products targeted at improving patient outcomes.

To learn more about IXICO, please visit: www.IXICO.com

Chairman's Statement

Delivering shareholder return

I am pleased to report a strong performance with increased revenue and reduced operating losses. This has been a year of change and a renewed focus on our biopharmaceutical customers.

Board

We were delighted to welcome Giulio Cerroni as he joined the Board in the year. He has extensive experience in both scaling operations to build businesses and supplying sophisticated products and services to the pharmaceutical and research communities. In his first Chief Executive's report, Giulio has set out his strategy for accelerating commercially led growth. 

Performance

The results for the year represent a positive first step on our path to profitability.

Revenue growth to £4.1 million (2016: £3.3 million restated*) represents 26% growth at actual exchange rates and underlying 20% growth on a Project Exchange Rate (PER) basis. PER represents the fixed foreign exchange rate applied to each individual customer project.

The revenue performance reflected an increased number of projects and new contract wins. Furthermore, the Assessa® PML collaboration with Biogen expanded in the year as the project scope broadened to include pharmacovigilance reporting and the on-boarding of additional clinical sites to the pilot.

This momentum in top-line growth positively impacted gross profit which improved to £2.3m (2016: £1.6m restated*) which represents an improvement of £0.7m or 46%. The gross profit percentage increased by 8% to 57% (2016: 49% restated*). Importantly, the revenue growth was achieved without a commensurate growth in our cost base as the underlying operating expenditure (excluding non-recurring administrative expenses) reduced by £0.1m to £4.4m (2016: £4.5m restated*).

The operating loss reduced by £1.0m to £1.9m (2016: £2.9m) which reflects our objective of combining commercially led growth with appropriate cost control.

Net cash at 30 September 2017 was £2.4m (2016: £3.1m) reflecting careful cash management together with grant reimbursement and R&D tax credits received in the second half of the year.

Following the Group's change in its commercial focus and strategy, the value of the behavioural health technology, associated marketing know-how and commercialisation of the technology assets has been de-emphasised. Consequently, as at 30 September 2017, the foreseeable recoverable amount was estimated to be £nil (2016: £0.3m), resulting in an impairment loss of £0.3m for the year.

*An element of the foreign exchange gain previously reported in general and administrative expenses has been reclassified to recognised revenue. More details are set out in note 2 of the consolidated financial statements.

Key Performance Indicators (KPIs)

The KPIs used to monitor the business are financial and relate to revenue, gross profit, operating losses and cash resources as shown below:

Revenue KPIs are reported at actual exchange and PER which demonstrate the underlying performance of the business, excluding the impact of foreign exchange.

The Board monitor progress on a regular basis and it is planned to establish other key performance indicators including operational and delivery KPIs reflecting our four core values:

· Technological and scientific Expertise which has been developed over the last 13 years,

· Innovative and talented people,

· Driving Quality in business operations and practices,

· Conducting our business relationships with Integrity as a trusted partner of choice.

Outlook

We made demonstrable progress executing our business strategy in the year. We announced two new contracts in September and two new contracts post year end, which together with existing projects, means that we look forward with enthusiasm and confidence.

Our partnerships with biopharmaceutical companies demonstrate their trust in us as a partner and their interest in our digital technologies and services. We are particularly pleased with the progress made in our new wearable biosensors offering and believe that we are at the forefront of remote data capture of real world data.

We will continue to work closely with our customers, collaborators and business partners to realise our vision and would like to thank them as well as all our staff, shareholders and advisers for their continued commitment, enthusiasm and support.

Chief Executive's Statement

I was delighted to join IXICO in February 2017 as Chief Executive Officer, and I am pleased to share the goals we have set ourselves.

This has been a year of transition for the business. Having completed a strategic and operational review, we have defined our commercially led growth plan to deliver double-digit top-line growth. I am pleased to highlight that in 2017, the business delivered 20% organic revenue growth at Project Exchange Rate (PER), with currency gains resulting in reported revenue growth of 26%. PER represents the fixed foreign exchange rate applied to each individual customer project. This underpins our confidence in building further commercial momentum.

An attractive growth market

Starting with the market that we operate in, there are a number of macro and micro market factors, which support and influence our strategy for sustained growth. The global trend of rising life expectancy and an ageing population is unprecedented. The growing awareness and impact of this demographic shift on the global healthcare system is driving the need for effective, safe new medicines for people whose lives are, unfortunately, increasingly impacted by neurological diseases.

Against this backdrop, there is the continuous impact of technological advances, which could improve the efficiency of the drug development process and the way that medical care is delivered. IXICO's digital technology platform has matured to a point where we have demonstrated our capability, scale and experience to provide new technology led specialist services across all phases of drug development and into post marketing surveillance. We understand the evolving needs of our customers and are committed to provide highly differentiated and valued digital technology solutions.

The combination of these demographic, scientific and technological drivers provide a runway of commercial opportunities and growth for IXICO.

Targeting double-digit revenue growth

We have established a five-point growth plan led by our objective of delivering double-digit revenue growth:

1. Focus on delivering scale and operational excellence

2. Accelerate penetration of clinical trials market

3. Target later clinical phases

4. Innovate: Commercialise IXICO's proprietary digital technologies

5. Enhance organic growth through selective M&A

Our organic growth projections are based on our detailed analysis of how we can better leverage the commercial and scientific assets that IXICO has established as a trusted partner to the biopharmaceutical industry. Specifically, we have identified three key value segments where our technology platform and capabilities provide mission critical value:

· Selecting patients for clinical trials

· Assessing safety and efficacy in every phase of drug development

· Post marketing surveillance of marketed medicines

Our primary route to market will remain a direct contractual relationship with our biopharmaceutical customers. However, as a U.K. headquartered business, we will give further consideration to our partnering strategy to accelerate traction, with a particular focus on improving our commercial and operational reach in North America.

Commercialising new digital technology tools to accelerate growth

In the last two years, as part of a commercial collaboration with Biogen and including European clinical centres as part of a multi-territory pilot, we have made excellent progress in development of our Assessa® PML companion technology platform in post marketing surveillance. The pilot was expanded during the year and since September 2017, we have been on-boarding sites in Germany, Netherlands and Spain, ahead of planning the roll out and deployment in 22 different countries.

I am also very pleased with our recent progress in expanding our services to include wearable biosensors as potential digital biomarkers to measure sleep disturbance. Here we are providing innovative new tools by combining our longstanding experience of compliant data collection and management with our new, proprietary artificial intelligence data analytics. Our approach is to be device neutral to ensure that our services utilise the most appropriate device for our customer's needs and build the value we derive from our proprietary algorithms. We recently announced our first commercial contracts for adoption in phase II clinical trials and have a healthy pipeline of identified opportunities. Our trusted partner position in providing specialist neuro-imaging services to both our current and new biopharmaceutical customers, means we are well placed to cross sell these highly valued new digital tools. I have identified this as an exciting new business area for IXICO to generate significant growth and further accelerate our commercially led growth plan on our path to profitability.

Management and organisation

I would like to thank Derek Hill for his support in the first months of my new role.

Our Company values of Expertise, Innovation, Quality and Integrity are demonstrated in many ways every day by our staff. The success of the business is built upon our ability to understand our current and prospective customer's needs and be responsive to changes in the market and competitive environment. We do this through our highly talented colleagues who support our customers in their quest to develop and provide safe, effective treatments to improve brain health. As such, we recognise that our greatest assets are our people.

Moving forward

Our mission is to transform the pursuit of improving brain health through the application of digital technologies. I am pleased with the momentum built in these early months and our five-point growth plan sets out how we will deliver on our commitment to our stakeholders.

Put simply, our growth strategy is based on building on our core strengths and growing our capabilities and technologies into every stage of the drug development process and into post marketing surveillance for neurological disorders. To support our commercially-led accelerated growth plan, we are investing in our operational delivery and innovation roadmap to commercialise new products and services to capitalise on the inflection point reached by digital health technology.

Along the path to profitability, my personal goal is to ensure that IXICO fully captures its entitlement to the value being created by disruptive digital health tools gaining adoption for remote patient monitoring in chronic health conditions.

Principal Risks and Uncertainties

We face a number of risks and uncertainties, which reflect the business environment within which we operate. We also face risks as we look to scale up our operational and commercial footprint.

The following are the principal risks and uncertainties that the Board considers could have a material impact on the Group's operational results, financial condition and prospects.

Financial

The Group has a history of operating losses, due to investment in new product development. The Group has a stated objective of a path to profitability, which depends upon the success of our products and services together with the execution of our commercial strategy. The Group carefully monitors costs and cash flow to ensure that the losses are commensurate with the Group's strategic plans and ensuring that the Group continues to operate as a going concern. The Group has instigated financial risk management policies and procedures in respect of financial instruments, which are set out in, note 23 of the consolidated financial statements.

There can be no guarantee that the grant funding or the Research and Development Expenditure Credit ('RDEC') will continue to be available to the Group, which could affect the level of investment in new product development.

Management and employees

The Group's success reflects our stated values and the contribution of key management and employees. The loss of key employees could weaken the Group's scientific, technical and management capabilities and negatively impact our business. It could also slow down the pace at which we can grow. All employees are on permanent employment contracts and the remuneration includes salary, pension and a performance related bonus. The Business Development team receive performance related sales commission. The leadership team and key individuals are granted share options in accordance with the IXICO EMI Share Option Plan 2014.

Industry and competition

A significant proportion of the Group's revenue is dependent on the biopharmaceutical industry and therefore there is a risk of reduced revenues resulting from the timing or reduction of expenditure by customers in this sector. Biopharmaceutical companies may change their strategic focus away from neurodegenerative diseases, which could negatively impact our accessible market. Clinical trials can be stopped at any time if the drug is deemed not effective or unsafe which could negatively impact the revenue derived from customer projects.

We face competition in this sector from larger companies or from consolidation in the market. We face continuous pricing competition from commercial service providers and academic institutions. As a technology services provider there is always the risk of new disruptive technologies that could render IXICO's technology uncompetitive.

We aim to strengthen our market position and sustain our competitive advantage by building collaborative, commercial partnerships. We have been successful in broadening our customer base and have invested in innovative technology and product development to build upon a long-standing expertise in Alzheimer's disease by broadening our therapeutic focus in neurodegenerative diseases.

Reliance on key customers

We value our customers and work closely with them to ensure that we meet their timelines, requirements and deliver a quality service. To maintain an equitable balance we continue to broaden our customer base to manage the risk of being overly dependent on any one customer. We have won new contracts with new biopharmaceutical customers, to mitigate this business risk.

Regulatory and compliance

We operate in a highly regulated environment and any change in that environment could negatively impact our growth strategy, revenues and path to profitability. We maintain oversight of potential changes and participate in collaborative consortia and industry bodies so that we can anticipate and manage change accordingly.

We have a project team in place to address the requirements of the General Data Protection Regulation ('GDPR'). This team is responsible for reviewing and updating our standard operating policies and procedures, as required, before the enforcement date of 25 May 2018.

Macroeconomic conditions

Like many companies we continue to monitor the impact of the United Kingdom's relationship with the European Union, particularly in respect of patent protection and data protection regulations within which we operate.

This year we have reported revenue at actual exchange rates and also project exchange rates to reflect the impact of foreign exchange movement. Most of our customer projects are multi-year contracts and include individual fixed project exchange rate mechanisms. Revenue reported at the fixed project exchange rates allows management to focus on the underlying performance excluding the impact of foreign exchange, which it cannot control.

We continue to closely monitor the impact of the movement of Sterling against other currencies in which we trade which include U.S. Dollar, Euro and Swiss Franc.

Intellectual property and proprietary technology

We actively seek to manage, develop and protect our intellectual property portfolio. Our technologies are based on software and data analytics, which are considered to be less of a barrier to competitors than other patents related to hardware devices. Copyright in the software incorporated into our products is a further form of potential protection.

We maintain business know-how and knowledge in our quality management system and standard operating procedures.

Financial review

The financial performance for the year ended 30 September 2017 was in line with expectations. The comparatives refer to the year ended 30 September 2016.

Revenue

Revenue for the period of £4.1 million (2016: £3.3 million restated) was generated from clinical trials services, preliminary revenues related to Assessa® PML and licensing revenues from BioTelemetry Research (Cardicore &VirtualScopics).

The prior year restatement is due to a reclassification which is detailed in note 2 of the consolidated financial statements.

Other income

Other income comprised income from grants of £0.5 million (2016: £0.6 million) and RDEC of £0.1 million (2016: £0.1 million). The £0.1 million reduction in grant income reflected the completion of a project which had been ongoing in the prior year.

Operating expenditure 

Operating expenditure in the year reflected investment in people and product development

· Research and development expenses of £1.3 million (2016: £1.6 million) were in line with Group's plans to innovate by improving existing products and investing in new product development.

· Sales and marketing expenses were unchanged at £0.8 million (2016: £0.8 million).

· General and administrative expenses of £2.3 million (2016: £2.2 million restated) were in line with expectations.

Non-recurring administrative expenses of £0.5 million (2016: £0.7 million) comprised intangible asset impairment charge, professional fees and reorganisation costs.

Taxation

The Group has elected to take advantage of the RDEC, whereby a company may surrender corporation tax losses incurred on qualifying research and development expenditure for a corporation tax refund. In addition, the Group has claimed research and development tax credits under the small or medium enterprise research and development credit scheme.

The corporation tax refund due for the year of £0.4 million (2016: £0.6 million) has been recognised as a current tax receivable.

Non-current assets

Non-current assets at 30 September 2017 included property, plant and equipment of £0.1 million (2016: £0.1 million) and intangible assets of £0.1 million (2016: £0.6 million). The net book value of the behavioural health technology and marketing know-how has been reviewed as part of the Group's commercial strategy and focus. As at 30 September 2017, the recoverable amount is estimated to be £nil, resulting in an impairment loss of £0.3 million (2016: £0.6 million) being recognised for the year ended 30 September 2017.

The Directors will continue to monitor the investment in IXICO Technologies Limited if the company's net liabilities continue to increase.

Current assets

Current assets at 30 September 2017 of £4.3 million (2016: £5.0 million) reflected a decrease in cash and cash equivalents to £2.4 million (2016: £3.1 million).

The Group holds all cash and cash equivalents in Sterling and U.S. Dollar accounts with institutions with a recognised high rating (typically AA or above) or with one of the major clearing banks.

Current liabilities

Total current liabilities at 30 September 2017 were £1.6 million (2016: £1.5 million).

Equity

Total equity of £2.9 million at 30 September 2017 (2016: £4.1 million) reflected additional accumulated losses of £1.5 million.

Cash flow

Operating cash outflows of £1.2 million in the year were offset by an inflow of £0.6 million from research and development tax credits. This resulted in a closing cash balance of £2.4 million (2016: £3.1 million).

Results and dividends

The Group's net loss after tax for the year decreased to £1.5 million (2016: £2.2 million).

The Directors do not recommend the payment of a dividend.

Financial risk management

The financial risk management and objectives of the Group are set out in note 23 of the consolidated financial statements.

Political donations

The Group made no political donations during the period (2016: £nil).

Consolidated Statement of Comprehensive Income

for the year ended 30 September 2017 and 30 September 2016

* Revenue and general and administrative expenses reflect a reclassification which is set out in note 2 of the consolidated financial statements.

Consolidated and Company Statements of Financial Position

as at 30 September 2017 and 30 September 2016

Parent Company Income Statement

As permitted by Section 408 of the Companies Act 2006, the income statement of the Company is not presented as part of these financial statements. The Company's loss for the financial year was £1,388,000 (2016: £802,000).

Consolidated Statement of Changes in Equity

for the year ended 30 September 2017 and 30 September 2016

Company Statement of Changes in Equity

for the year ended 30 September 2017 and 30 September 2016

Consolidated and Company Statements of Cash Flows

for the year ended 30 September 2017 and September 2016

Notes to the Financial Statements

1. GENERAL INFORMATION

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

The Company is an established provider of technology enabled speciality services to the global biopharmaceutical industry. The Company's services are used to select patients for clinical trials, assess the safety and efficacy of new drugs in development and in post marketing surveillance.

2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION

Basis of preparation

The consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU, IFRIC interpretations and the Companies Act 2006 applicable to companies operating under IFRS.

The consolidated financial statements have been prepared under the historical cost convention modified by the revaluation of certain financial instruments.

The consolidated financial statements are presented in Sterling (£). This is the predominant functional currency of the Company, and is the currency of the primary economic environment in which it operates. Foreign transactions are accounted in accordance with the policies set out below.

Basis of consolidation

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

Subsidiaries are entities controlled by the Group. Control exists when the Group has the control, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain economic benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.

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

The acquisition method is used to account for the acquisition of subsidiaries.

Going concern

At the time of approving the consolidated financial statements, the Directors have considered the expected future performance together with the Group's estimated future cash inflows from existing long-term contracts, sales pipeline and funded collaborations. Changes to the operating cost base are made in the normal course of business, so that expenditure and investment are in line with the Group's strategy and financial resources. After due consideration and taking into account management's estimate of future revenues and expenditure, the Directors have a reasonable expectation that the Company and the Group will have adequate financial resources to continue in operation for the foreseeable future. Thus they have adopted the going concern basis of accounting in preparing the consolidated financial statements.

Significant management judgement in applying accounting policies and estimation uncertainty

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

Significant management judgements

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

Revenue recognition

The Group recognises revenue with regard to amounts chargeable to customers under service contracts and an agreed scope of work or work order. The service contracts are typically multi-year and may be amended through a change order process. As such, change orders represent a contract modification where deliverables are added or de-scoped from the original customer contract.

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

The Group's revenue is recognised in two main categories: service revenue and licensing revenue.

Service revenue is mainly derived from activities related to technology services provided to biopharmaceutical customers engaged in clinical development. Service revenue also includes revenue arising from a commercial partnership where the Group acts as an agent. The Group identified one agency relationship in the year ended 30 September 2017 (2016: one).

Licensing revenue includes one agreement, which grants a right to use the Group's TrialTracker software in their normal course of business.

Significant judgement is required in determining the period and terms and conditions under which revenue is recognised.

Capitalisation of internally developed software

Distinguishing the research and development phases of a new software product and determining whether the requirements for the capitalisation of development costs are met requires judgement. Expenditure on research and development is recognised as an expense as incurred. No internal development costs have been recognised as meeting the criteria for capitalisation in the year.

Recovery of deferred tax assets

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

Estimation uncertainty

Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.

Fair value measurements on business combinations

The measurement of fair values on a business combination requires the recognition and measurement of the identifiable assets, liabilities and contingent liabilities. The key judgements involved are the identification and valuation of intangible assets, which require the estimation of future cash flows and the selection of a suitable discount rate.

Impairment of intangible assets

Amortised intangibles are tested for impairment where there are indications of impairment. These impairment tests require the Group to make an estimate of the expected cash flows and to select suitable discount rates. These require an estimation of the value in use of these assets.

Directors will continue to monitor the value of the investment in IXICO Technologies Limited.

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted, detailed in note 21 of the consolidated financial statements.

Changes in accounting policies

The Group has not applied any new accounting policies that have a material effect on the consolidated statement of financial position for the year ended 30 September 2017.

Prior period reclassification

In the year ended 30 September 2017, the Company performed a detailed review of the treatment of foreign exchange in its customer projects and the impact of foreign currency translation on recognised revenue.

The customer projects reflect work performed against multi-year service contracts, which include fixed exchange rate mechanisms. In the year ended 30 September 2017, revenue has been reported at transaction rates and project exchange rates to reflect the impact of foreign exchange movements. The project exchange rate represents the fixed foreign exchange rate applied to each individual customer project.

An element of the foreign exchange gain previously recorded in general and administrative expenses has been reclassified to recognised revenue as follows:

Accounting developments

At the date of approval of the consolidated financial statements, the following Standards and Interpretations which have not been applied in the consolidated financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

· IFRS 9 Financial Instruments (effective date 1 January 2018)

· IFRS 15 Revenue from contracts with customers (effective date 1 January 2018)

· IFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2 (effective date 1 January 2018)

· IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration (effective date 1 January 2018)

· Amended by Annual Improvements to IFRS Standards 2014-2016 Cycle (effective date 1 January 2018)

· IFRS 16 Leases (effective date 1 January 2019)

· Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (effective date 1 January 2017)

· Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions (effective date 1 January 2017)

· Amendments to IAS 7: Disclosure Initiative (effective date 1 January 2017)

The Group is preparing for the introduction of IFRS 15 and IFRS 16. Apart from these, the Directors anticipate, based on the current business processes, that the future introduction of the standards, amendments and interpretations listed above will not have a material impact on the consolidated and Company financial statements.

Revenue

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

Revenue from short-term contracts, such as consultancy and training, is recognised as the service is performed.

Revenue on longer-term contracts for services is recognised according to the substance of the Group's obligations under a contract. Where the substance of a transaction is that the Group's contractual obligations are performed gradually over time, revenue is recognised as contract activity progresses, to reflect the Group's partial performance of its contractual obligations. Where the substance of a contract is that a right to consideration does not arise until the occurrence of a critical event, revenue is not recognised until the event occurs.

Where longer-term contracts for services allow for the reimbursement of certain expenses incurred by the Group in the execution of the service contract, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered. These reimbursements are included in revenue and are subject to a nil gross margin.

Where it has been assessed that the Group is acting as agent in respect of an agency relationship, revenues are recognised on a net basis after deducting revenue earned by the principal.

Revenue relating to licence income is recognised on an accruals basis in accordance with the substance of the relevant agreement.

Revenue recognised in the income statement but not yet invoiced is held on the consolidated statement of financial position within 'trade and other receivables'. Revenue invoiced but not yet recognised in the income statement is held on the consolidated statement of financial position within 'trade and other payables'.

Other income

Government grants received relating to tangible fixed assets are treated as deferred income and released to the consolidated statement of comprehensive income over the expected useful lives of the assets concerned.

Other government or European grants received are recognised on a work performed and delivered basis.

The Group has elected to take advantage of the RDEC introduced in the Finance Act 2013. A company may surrender corporation tax losses on research and development expenditure incurred on or after 1 April 2013 for a corporation tax refund. Relief is given as a taxable credit on 11% of qualifying research and development expenditure. The Group recognises research and development expenditure credit as an item of other income, taking advantage of the 'above the line' presentation.

Research and development expenditure

Research and development costs are written off to the consolidated statement of comprehensive income in the year in which they are incurred. All research and development costs, whether funded by grant or not, are included within operating expenses and classified as research and development costs.

All ongoing development expenditure is expensed in the year in which it is incurred. Due to the regulatory and other uncertainties inherent in the development of the Group's programmes, the criteria for development costs to be recognised as an asset, as prescribed by IAS 38 'Intangible assets', are not met until the product has been submitted for regulatory approval, such approval has been received and it is probable that future economic benefits will flow to the Group. The Group does not currently have any such internal development costs that qualify for capitalisation as intangible assets.

Exceptional items

Exceptional items are disclosed separately in the consolidated financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount. These amounts are of a non-recurring nature.

Share-based payments

Equity-settled share-based payments are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 21 of the consolidated financial statements. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions.

The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Employee benefits

All employee benefit costs, notably holiday pay and contributions to the Group or personal defined contribution plans, are recognised in the statement of comprehensive income as they are incurred.

As at 30 September 2017, all employees have been automatically enrolled into the Group's defined contribution plan and the Group is no longer contributing to individual personal plans. The assets of the Group scheme are held separately from those of the Group in independently administered funds. The Group does not offer any other post-retirement benefits.

Employee share trust

The Group recognises the assets and liabilities of the trust in its own accounts and shares held by the trust are recorded at cost as a deduction at arriving at total equity until such time as the shares vest unconditionally to employees. The trust is a separately administered trust, funded by contributions from employees and the Group.

The IXICO Share Incentive Plan 2007 was closed on 15 November 2013 and during the year ended 30 September 2017, there were no shares held by the employee trust.

Operating leases

Rentals payable under operating leases are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term.

Property, plant and equipment

Property, plant and equipment are stated at historic purchase cost less accumulated depreciation.

The cost of property, plant and equipment is its purchase cost, together with any directly attributable expenses of acquisition. Depreciation is calculated so as to write off the cost of property, plant and equipment, less its estimated residual value, on a straight-line basis over the expected useful economic lives of the assets concerned.

The principal rates used for this purpose are:

· Leasehold improvements: straight-line over the shorter of 5 years or the lease term

· Fixtures and fittings: 33% straight-line

· Equipment: 33% straight-line

The assets' residual values and useful lives are reviewed, and adjusted if necessary, at each balance sheet date.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within the consolidated statement of comprehensive income.

Intangible assets

Acquired intangible assets are recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights, is expected to generate future economic benefits and its fair value can be reliably measured.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses.

Intangible assets are amortised using the straight-line method over their estimated useful economic life of 5 years. Amortisation is disclosed under general and administrative expenses in the consolidated statement of comprehensive income.

The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes are treated as changes in accounting estimates.

Intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired.

Impairment of assets

Non-current assets are reviewed for impairment both annually and when there is an indication that an asset may be impaired (when events or changes in circumstances indicate that carrying value may not be recoverable). An impairment loss is recognised in the consolidated statement of comprehensive income for the amount by which the asset's carrying value exceeds its recoverable amount.

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

Investments in Group undertakings

Investments in Group undertakings are carried at cost less any impairment provision. Such investments are subject to an annual impairment review.

Trade and other receivables

Trade and other receivables are initially recognised at fair value and subsequently stated at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (exceeding credit terms) are considered indicators that the trade receivable is impaired.

The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the statement of comprehensive income within general and administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against general and administrative expenses in the consolidated statement of comprehensive income.

Current tax

Current tax represents United Kingdom tax recoverable and is provided at amounts expected to be recovered using the tax rates and laws that have been enacted at the balance sheet date.

Cash and cash equivalents

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

Foreign currency translation

Transactions denominated in foreign currencies are translated into sterling at actual rates of exchange ruling at the date of transaction. Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the end of the financial year. All foreign currency exchange differences are taken to the consolidated statement of comprehensive income in the year in which they arise.

Trade and other payables

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

Equity instruments

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

Financial instruments

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

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

Deferred taxation

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

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

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

3. BUSINESS COMBINATION

On 8 December 2015, the Company acquired the entire issued share capital of Optimal Medicine Limited. The aggregate consideration for the acquisition was £1,498,000 in consideration shares at a consideration share price of 49 pence comprising:

· the initial issue of 2,355,295 new ordinary shares upon completion of the acquisition;

· the issue of 590,093 deferred consideration shares on 31 December 2016, subject to the satisfaction of any claims made against warranties given by the sellers; and

· call options over 111,401 shares which in substance reflect replacement awards issued by IXICO plc to satisfy outstanding share options under the Optimal Medicine Limited unapproved share option scheme.

On 4 January 2017, the Company issued 590,093 new ordinary shares in respect of the deferred consideration for the acquisition of Optimal Medicine Limited.

On 7 December 2016, 10,209 share option instruments which were not exercised by their expiry date duly lapsed.

On 29 March 2017, 55,846 new ordinary shares were issued and allotted in the Company pursuant to the put and call arrangement in respect of the Optimal Medicine Limited approved share option instruments. The options were exercised at a weighted average share price of £0.26.

On 7 June 2017, 45,346 share option instruments which were not exercised by their expiry date duly lapsed.

Group

The Group has identified that the value of the behavioural health technology and marketing know-how has diminished following the Group's change in its commercial focus and strategy. As at 30 September 2017, the recoverable amount was estimated to be £nil (2016: £359,000), resulting in an impairment loss of £316,000 (2016: £603,000) for the year ended 30 September 2017.

Company

The Company has identified that the value of the investment in Optimal Medicine Limited has diminished following a change in commercial focus and strategy. As at 30 September 2017, the recoverable amount was estimated to be £nil (2016: £359,000), resulting in an impairment loss of £360,000 (2016: £543,000) for the year ended 30 September 2017.

4. INVESTMENTS IN SUBSIDIARIES

The consolidated financial statements of the Group as at 30 September 2017 include:

As at 25 July 2017, Phytodevelopments Limited was dissolved

As at 21 August 2017, Optimal Medicine SARL was dissolved.

At 30 September 2017, the trade and assets of IXITech Limited and Optimal Medicine Limited were transferred to IXICO Technologies Limited.

5. SEGMENTAL INFORMATION

The Group's development, commercial and operational delivery teams operate across all of the Company's activities. The Group's customer projects are managed by Project Managers with inputs to each project provided by other functional team members. The leadership team review the Group's management information reports to assess performance and allocate resources. The customer projects are reported as a single business unit and Executive management monitor the operating performance of the business based on these reports. The chief operating decision maker has been identified as the Chief Executive Officer.

Accordingly, the Directors consider that there is only one reporting segment.

The Group is domiciled in the United Kingdom with all sales originating in the United Kingdom.

In the year ended 30 September 2017, the Group had four customers that exceeded 10% of total revenue, being 14%, 13%, 11% and 10%. In the year ended 30 September 2016, the Group had three customers that exceeded 10% of total revenue, being 15%, 14% and 11%.

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

An analysis of the Group's revenue by geographic location of its customers is as follows:

An analysis of the Group's non-current assets by geographic location is as follows:

* Reflect a reclassification, which is set out in note 2 of the consolidated financial statements.

6. OTHER INCOME

All grant income originates in the United Kingdom.

The Group recognised RDEC as an item of other income, taking advantage of the above the line presentation.

7. EXCEPTIONAL EXPENSES

During the year ended 30 September 2017, exceptional expenses included the impairment of an intangible asset, redundancy costs and professional fees incurred in the dissolution of Optimal Medicine SARL together with the transfer of trade and assets of IXITech Limited and Optimal Medicine Limited to IXICO Technologies Limited.

During the year ended 30 September 2016, exceptional expenses included the impairment of an intangible asset, professional fees incurred in the acquisition of Optimal Medicine Limited and post-acquisition costs.

These expenses have been recognised in the consolidated statement of comprehensive income as exceptional expenses due to their non-recurring nature.

8. AUDITORS' REMUNERATION

The analysis of the auditors' remuneration is as follows:

9. EMPLOYEES AND DIRECTORS

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

At 30 September 2017 the Group had 59 employees (2016: 67).

Staff costs in respect of these employees were:

The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group in independently administered funds. The amounts outstanding at 30 September 2017 in respect of pension costs were £21,000 (2016: £43,000).

Key management remuneration:

Key management includes Executive Directors, Non-Executive Directors and senior management who have the responsibility for managing directly or indirectly, the activities of the Group.

The aggregate Directors' remuneration was £665,000 (2016: £646,000) and aggregate pension of £28,000 (2016: £30,000).

10. OPERATING LOSS

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

(1) Impairment charge of £316,000 for the year ended 30 September 2017 (2016: £603,000) is disclosed under exceptional expenses. See note 7 of the consolidated financial statements for further information.

11. TAXATION

The tax charge for each period can be reconciled to the loss per consolidated statement of comprehensive income as follows:

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

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

The following is a reconciliation between the tax charge and the tax receivable within the consolidated statement of financial position:

The tax credit for each period can be reconciled to the current period credit recognised in tax receivable within the consolidated statement of financial position in each period as follows:

12. LOSS PER SHARE

Basic loss per share is calculated by dividing the loss for the period attributable to equity holders by the weighted average number of ordinary shares outstanding during the period after the deduction of the weighted average number of the ordinary shares held by the employee benefit trust during the period. At 30 September 2017, there were no shares held by the employee benefit trust.

For diluted loss per share, the loss for the period attributable to equity holders and the weighted average number of ordinary shares outstanding during the period is adjusted to assume conversion of all dilutive potential ordinary shares. As the effect of the share options would be to reduce the loss per share, the diluted loss per share is the same as the basic loss per share.

At 30 September 2017 and 30 September 2016, the Group has no dilutive potential ordinary shares in issue.

The calculation of the Group's basic and diluted loss per share is based on the following data:

13. PROPERTY, PLANT AND EQUIPMENT

At 30 September 2017 and 30 September 2016, the Company had no property, plant and equipment.

14. INTANGIBLE ASSETS

Computer Software

Computer Software costs included the purchase of business software as part of the Group's investment in management information systems.

Registered intellectual property, neurodegenerative disease technology and marketing know-how

Intangible assets were acquired through the reverse acquisition on 14 October 2013 and recognised at their fair value at the date of acquisition. Intangible assets include registered intellectual property (royalty income from a third party), technology and marketing related intangibles associated with neurodegenerative disease conditions arising from IXICO plc's historic research and development activities.

Registered intellectual property

The Group identified that the value of the registered intellectual property had diminished as the estimated future cash flows were £nil following the licensor's notification that the study was terminated. Following this termination there would be no further clinical development and therefore the intellectual property will not generate future cash flows from milestones or commercialisation.

Neurodegenerative disease technology and marketing know-how

During the reporting period, the Group identified no evidence that indicate the neurodegenerative disease technology and marketing know-how intangible asset may be impaired. The assumptions in respect of the future cash flows and discount rate have not changed since initial recognition.

Behavioural health technology and marketing know-how

Intangible assets were acquired through the business combination on 8 December 2015 and recognised at their fair value at the date of acquisition. Intangible assets represent technology and marketing related intangibles associated with behavioural health arising from Optimal Medicine Limited's research and development activities.

The Group has identified that the value of the behavioural health technology and marketing know-how has diminished in value following a change in commercial focus and strategy. As at 30 September 2017, the recoverable amount was estimated to be £nil (2016: £359,000), resulting in an impairment loss of £316,000 (2016: £603,000) being recognised for the year ended 30 September 2017.

At 30 September 2017 and 30 September 2016, the Company had no intangible assets.

15. INVESTMENTS IN GROUP UNDERTAKINGS

IXITech Limited

The investment in IXITech Limited amounts to the par value of the ordinary share capital of £2,000. As at 30 September 2017, the business, trade and assets of IXITech Limited were transferred to IXICO Technologies Limited.

IXICO Technologies Limited

The capital contribution relating to share-based payments relates to share options granted by the Company to employees of subsidiary undertakings in the Group in respect of the IXICO EMI Share Option Plan 2014.

Optimal Medicine Limited

On 29 March 2017, 55,846 new ordinary shares were issued and allotted in the Company pursuant to the put and call arrangement in respect of the Optimal Medicine Limited share option instruments. The options were exercised at a weighted average share price of £0.26.

The Company has identified that the cost of investment in Optimal Medicine Limited has diminished in value following a change in commercial focus and strategy. As at 30 September 2017, the recoverable amount is estimated to be £nil (2016: £359,000), resulting in an impairment loss of £360,000 (2016: £543,000) being recognised for the year ended 30 September 2017.

At 30 September 2017, the business trade and assets of Optimal Medicine Limited was transferred to IXICO Technologies Limited.

16. TRADE AND OTHER RECEIVABLES

The average credit period granted to customers ranges from 30 to 90 days (2016: 30 to 90 days).

As at 30 September 2017, the Group had not recognised an allowance for doubtful debts which are estimated to be irrecoverable amounts.

Trade receivables include amounts which are past due at the year end but against which the Group has not recognised an allowance for doubtful receivables based on previous experience of payment timings with these customers. There has not been a significant change in credit quality and the amounts (which include interest accrued on overdue receivable balances) are still considered recoverable. As at 30 September 2017, the average age of the receivables is 82 days (2016: 120 days).

As at the year end, the ageing of trade receivables which are past due but not impaired is as follows:

The fair value of trade and other receivables approximate their current book values. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 23 of the consolidated financial statements.

Amounts due from subsidiary undertakings are interest bearing (2016: interest bearing), unsecured and have no fixed date of repayment but are not anticipated to be receivable until after more than one year.

17. DEFERRED TAX ASSET (UNRECOGNISED)

The unrecognised deferred tax asset is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which temporary differences reverse, based on tax rates and laws enacted or substantively enacted at the latest balance date, currently 19% (2016: 20%).

The unrecognised deferred tax is based on material temporary differences that have originated but not reversed at the balance sheet date from transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future.

18. TRADE AND OTHER PAYABLES