Ixico Regulatory News (IXI)

7 December 2022

IXICO plc

("IXICO" or the "Group")

Financial Results for year ended 30 September 2022

Board succession planning & Notice of AGM

IXICO plc (AIM: IXI), the AI data analytics company delivering insights in neuroscience, announces its results for the year ended 30 September 2022.

Highlights:

Financial:

· £8.6 million revenues (2021: £9.2 million) reflects existing and new client contracts partially offset by material client trial cessations (as first announced in March 2021);

· Gross margin of 61% (2021: 66%) reflects an increased proportion of revenues relating to early phase trials;

· EBITDA1 of £1.5 million (2021: £1.7 million) reflects a fourth consecutive year of profitability and is in line with market expectations;

· Closing cash of £5.8 million (2021: £6.7 million), incorporating operating cash2 inflows of £0.9m (2021: £0.3m) offset by long-term technology investments of £2.2 million (2021: £2.2 million); and

· Closing balance sheet (net assets) increased to £12.5 million (20213: £11.5 million) as the Group continues investing for the long term to address the growing neurological clinical trials market opportunity.

Operational & Commercial:

· 2022-2027 5-year strategy 'Precision in Neuroscience' targeting further market penetration;

· HD-IH consortium agreement with CHDI, UniQure and PTC therapeutics applying IXICO's AI technology to create the world's leading data set on quantitative magnetic resonance imaging (MRI) in Huntington's disease;

· Release of IXIQ.Ai analysis platform, to support the requirement for improved predictive insights from MRI imaging biomarkers across neurodegenerative therapeutic indications;

· Closing order book of £16.0 million (2021: £18.8 million) future years' contracted revenues;

· £12.6 million of new client contracts in 2022, including 11 new projects, further diversifying the order book; and

· End-to-end services delivered to 24 clients across over 10 neurological therapeutic indications.

1Earnings before interest, tax, depreciation, and amortisation

2Operating cash excluding R&D tax credit inflows

3Restated

Giulio Cerroni, CEO of IXICO, said: "2022 has been a year of significant achievement. Whilst delivering a strong set of financial results, we have simultaneously enhanced the capabilities and global reach of IXICO as a specialist Neuroimaging CRO. Building on the resilience demonstrated by the Group in recent years, our strong balance sheet supports the execution of our renewed five-year strategic plan to commercialise and deploy a "broad and deep" portfolio of specialist neuroimaging services. Specifically, this includes the analysis of neuroimaging biomarkers as objective measures to improve patient selection, monitor patient safety and determine efficacy of new potential investigative treatments."

Board Succession planning

In line with current governance best practice guidelines, and as Charles Spicer has now served for nine years as a Non-Executive Director, the Board has agreed that Charles will retire from the role of Board Chair during 2023. Mark Warne, a current Non-Executive Director, will at that time assume the role of Chair. The Group has initiated a search for a new Non-Executive director and Charles will remain on the Board for a period of time as deemed appropriate by the Board to ensure a smooth handover of Board and sub-committee roles as part of a well-managed governance process.

Giulio Cerroni, CEO of IXICO, said: "I and the rest of the Board are tremendously grateful for all that Charles has given to IXICO. His leadership of the Board has been balanced and considered at all times over the years as he has been a wonderful adviser to me and to my leadership team. I am delighted that Charles has confirmed he is willing to remain on the Board whilst we undertake a managed transition of the roles within the Board and I look forward to continuing to work closely with him and with Mark across 2023."

Notice of AGM

IXICO announces that its 2023 Annual General Meeting ("AGM") will be held at CCT Venues Smithfield, Two East Poultry Avenue, Smithfield, London EC1A 9PT on 27 January 2023 at 10.30am.

The full Annual Report and Accounts, along with Notice of AGM, will be posted to shareholders on 16 December 2022 and at the same time will be made available on the Group's website in accordance with AIM Rule 20.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (MAR)

For further information please contact:

About IXICO

IXICO is dedicated to delivering insights in neuroscience. Our purpose is to advance medicine and human health by turning data into clinically meaningful information, providing valuable new insights in neuroscience and our goal is to be a leading proponent of artificial intelligence in medical image analysis. We will achieve this by developing and deploying breakthrough data analytics, at scale, through our remote access technology platform, to improve the return on investment in drug development and reduce risk and uncertainty in clinical trials for our pharmaceutical clients.

More information is available on www.IXICO.com and follow us on Twitter @IXICOnews

Chair's statement

Focussing on investments and early phase trials is providing a bedrock for a return to growth

Setting a purpose-driven strategy designed to benefit all stakeholders

Overview

As uncertainty around the globe continues, it is ever more important for companies to hold themselves accountable to increased investor and societal scrutiny with interest focussed not just on corporate financial returns but also on the benefits (or harm) that any company is delivering to society and the global environment. Businesses are rightly expected to be managed in a manner accountable to both direct stakeholders (i.e. shareholders, clients, suppliers and employees) as well as the broader indirect stakeholders. It is with this perspective that the IXICO Board has sought to direct its governance activities over the past 12 months.

Given what was a challenging year for IXICO, the Board is particularly pleased with how the Group has enhanced its focus and purpose. IXICO has invested in technologies that elevate insights into the safety and efficacy of urgently needed new drugs in neurological disease areas. This investment enhances the likelihood of our biopharmaceutical clients bringing disease modifying drugs to rapidly increasing populations of AD, PD, HD and other rare and orphan neurological diseases. 

Delivering the groundwork for future growth

Despite the cancellation of three large client trials between March 2021 and January 2022, the Group has delivered a year of stable revenues and continued strong EBITDA. As importantly, we have further accelerated the diversification of those clients and projects that constitute our order book, something the Board identified in 2020 as a key priority to build the project pipeline that underpins future growth.

Developments and breakthroughs in scientific understanding of neurological disease in the drug development process continue, but so also do drug development failures. Neurological clinical trials will fail and so having an order book sufficiently diversified across projects, clients and trial phases is essential to deliver sustainable growth and to build operational scale.

The Group has delivered this despite the post-COVID challenges arising from an increasingly active jobs market and inflationary headwinds. Those companies that have responded best to such challenges are those that foresaw them and acted proactively to address them. The Board is proud that IXICO was one such company.

During the year we further improved our hybrid working model. Recognising that communication avenues between clients and suppliers are changing, we have adjusted our commercial approach accordingly. We also appreciate the pressures experienced by our employees due to the cost-of-living crisis and are proactively supporting them. 

As IXICO continues to scale and implements new market needed solutions in image biomarker analysis, the Board believes it is most important to expand our commercial reach to drive increased client diversification and penetration. Broadening market awareness of the IXICO brand, particularly across North America, is critical to ensure our market leading offering is understood and accessible by an increasing share of the available market.

Governance and people

IXICO's future depends on our people and the Board thanks all our employees for their hard work, dedication and flexibility. As a Group we continue to promote our values - Aspiration, Ability, Agility and Accountability - to augment our positive, motivated, and effective culture and align our team with our purpose.

The Board has been closely involved as the Group has renewed its five-year strategy for the period 2022-27, meeting formally nine times during the year with several additional ad-hoc meetings to discuss specific topics. The Group uses the ten principles outlined in the Quoted Companies Alliance ('QCA') Corporate Governance Code to ensure it maintains appropriate governance arrangements and the Board conducts itself in a manner which places IXICO's values and the QCA principles at the core of our culture.

At the 2023 Annual General Meeting ('AGM'), in accordance with the Company's Articles of Association, Giulio Cerroni will stand for re-election and Kate Rogers will stand for election, supported by the Board of Directors' recommendation.

Shareholders

The Group has an impressive list of leading institutions who have joined our shareholder register over the last few years, and we would like to thank all our shareholders for their continued support and enthusiasm.

Outlook

The Board remains focussed on the Group's opportunity to grow and is delighted with the progress made over the last 12 months in building up its order book following client trial failures.

We expect to continue this progress over the coming 12 months. While 2023 will see a short-term contraction in revenues as the full impact of recent client trial failures is felt in the Group's short-term revenues, continued traction in the market, coupled with successful wins of new early phase trials, should provide the bedrock for a return to growth over the medium and long term.

IXICO is well positioned in its market which continues to grow and attract new investment in the global pursuit of therapies to neurological diseases that impact the lives of millions of people and impose significant social and economic burdens. We are a small but important part of the solution to this high unmet medical need and the Board are proud of the way that the Group approaches its business activities with this significant responsibility held firmly at the front of mind.

Charles SpicerNon-Executive Chair

Chief Executive's Statement

Building on the successes of previous years.

Executing our five year Precision in Neuroscience strategy 

A year of achievement

We have delivered 2022 revenues of £8.6 million at a gross margin of over 60% and achieved EBITDA profitability of £1.5 million, an EBITDA margin of 18%. We have simultaneously enhanced the capabilities and global reach of IXICO as a specialist neuroimaging CRO. Building on the resilience demonstrated by the Group in recent years, our strong balance sheet supports the execution of our renewed five-year strategic plan to commercialise and deploy a 'broad and deep' portfolio of specialist neuroimaging services. Specifically, this includes the analysis of neuroimaging biomarkers as objective measures to improve patient selection, monitor patient safety and determine efficacy of new potential investigative treatments.

I am pleased to highlight several of these achievements and share details of the strategic pillars that underpin our ambitious goals for the period 2022 to 2027.

Delivering on our purpose

Our purpose is to enable the advance of medicine and human health in an increasingly broad range of neurodegenerative diseases. New services developed in our data analytics offering during 2022 have further strengthened our position to deliver on this purpose, underlined by over £12 million of new contracts signed during the year with new and existing clients.

During the year, I have articulated our Precision in Neuroscience strategy for the period 2022 to 2027, focussing on precision in neuroscience. The detail of this is communicated further in the full annual report. This reflects the completion of the five-year strategy that I set out on joining IXICO in 2017, which has driven substantial development of our scientific, technological and operational capabilities. This has seen a more than doubling of our revenues and a rapid move to profitability, all of which strengthen our ability to support our clients and deliver on our purpose.

This strategic renewal comes at a time when the Group has faced significant short-term challenges following client decisions to halt three large trials being supported by the Group; but also at a time when significant breakthroughs are being seen which enhance the medium and long-term opportunity for us. These include the increased adoption of imaging biomarkers in neurological diseases clinical trial protocols, together with new scientific approaches to addressing these diseases. These advances, alongside an aging global population and escalating associated healthcare costs are further developing the market opportunity for our services. In particular, we see promising momentum and opportunity in clinical development programmes of new investigative treatments for Alzheimer's disease.

Patient need, societal benefit, and market opportunity

We are achieving our purpose by building our specialist position in neurodegenerative conditions, which continues to be a focus of significant R&D investment by the global biopharmaceutical industry.

Clinical development in neurology is recognised as amongst the most challenging of therapeutic areas and will frequently mean that clinical trials will not reach regulatory approval. However, the potential quality of life benefits of new treatments to many millions of patients and families, and to society in general, supports the conviction that we are on a path of continued and accelerating clinical development and healthcare system investments in neurological conditions.

IXICO is well positioned to capitalise on the expected corresponding growing demand for neuroimaging biomarker analytics services. In addition to our strong innovation roadmap, we continue to invest in our technology and operational capabilities.

As we address an increasing number of client opportunities, it is important to demonstrate our ability to deliver our services, efficiently and at scale; accompanied by a secure and resilient infrastructure. In recent years, we have made significant capital investments in both our IT infrastructure and in the development of our next generation, Microsoft Azure-cloud based, TrialTracker platform. This will be deployed in 2023, enabling greater agility, enhanced client service levels and support new commercial services to support our long-term growth ambitions.

Executing on our forward-looking strategy

Our goal over the next five-year period is to establish IXICO as a global neuroimaging specialist CRO of scale. Our strategy is to continue to build a leadership position in rare diseases, such as Huntington's disease, whilst capitalising on the growing demand for neuroimaging services in Alzheimer's disease, Parkinson's disease and Multiple Sclerosis. Having established agreements for neuroimaging services with an increasing portfolio of leading biopharmaceutical clients, these act as a 'springboard for growth' by enhancing access to new prospective clinical trials being initiated in these large adjacent therapeutic areas.

As we enter the new year with £5.8m cash and remain debt free, our strong balance sheet enables us to support the necessary investments required to support the five pillars underpinning our ambitious growth strategy for the period 2022 to 2027.

Most of all, we are a people business

I have spoken to how ongoing investments in our technology platform and innovation roadmap ensures we continue to deliver superior AI driven analytics services, through our CRO project management infrastructure, utilising our end-to-end imaging technology platform. However, most important of all is the talent and commitment of my colleagues at IXICO. Our employees drive our performance, and I am proud of the organisation's tireless commitment to support our clients and enable continued progress in achieving our purpose. I would like to sign off this year, as in previous, in thanking all my colleagues at IXICO for another year of exceptional progress in achieving our purpose of advancing medicine and human health in neurological diseases. I look forward to 2023 being another year in which IXICO further develops its position as a trusted technology partner to the global biopharmaceutical industry.

Giulio Cerroni

Chief Executive Officer

Financial review

Strategically reinvesting profits to deliver on our purpose.

Sustained profitability and a strengthened balance sheet aimed at delivering future growth.

In 2022, the Group has delivered a year of continued strong EBITDA profitability despite a reduction in revenues following the cessation of its three largest client trials between March 2021 and January 2022. Further, whilst revenues are expected to contract in 2023, the underlying strength of the Group's order book has developed across the second half of 2022, both in terms of total value and the diversification of clients and projects. The Group continues to generate operating cash inflows, supporting its programme of investment which is designed to capture increased market share, in a growing market, across the medium and longer-term.

This review includes a comparison of the financial KPIs used to measure progress over the prior year, a summary of which is shown below:

Revenue

Revenue for the year of £8.6 million (2021: £9.2 million) represents a year-on-year contraction of 6%.

This contraction was caused by three large client trial cessations arising across 2021 and early 2022, each materially impacting future revenues. Replacing the revenues lost from these trials takes time, both in contracting and initiating new trials and reflecting that those new trials will tend to be lower value, earlier phase trials compared to the large, failed trials (which were predominantly late stage). Positively, the Group signed £12.6 million of new client contracts during the year, reflecting its continued traction in expanding its position within the market.

The Group will therefore see a reduction in revenues in 2023 but expects this to be a short-term contraction whilst new trials are contracted and initiated.

Gross profit

The Group reports gross profit of £5.2 million for the year (2021: £6.0 million). This equates to a gross margin of 61% (2021: 66%). Whilst gross margin remains strong, it has reduced on the prior year reflecting both the reduction in revenues and a revenue mix increasingly reflective of earlier phase trials, which tend to be lower margin.

Looking forward, as early phase trials continue to increase as a proportion of revenues delivered, we expect that gross margins will contract. Beyond 2023, as the Group wins additional trials, the operational leverage opportunity within the Group's cost structure supports long-term gross margin levels as we scale.

Earnings before interest, tax, depreciation, and amortisation ('EBITDA')

The Group delivered an EBITDA profit of £1.5 million in the year (2021: £1.7 million). EBITDA is considered a key alternative performance measure as it presents the underlying operating performance of the Group. This was achieved despite the year-on-year revenue contraction and reflects:

· careful management of expenditure, including no performance bonus payments in the year;

· the impact of capitalising costs in the Group's next generation TrialTracker platform (thereby reflecting an element of cost that would have been reported in the Consolidated Statement of Comprehensive Income onto the Consolidated Statement of Financial Position); and

· a small number of one-time benefits that have supported profitability in the year including foreign currency exchange gains and a write back of long term incentive charges reflecting that some share options awarded to the management team are no longer expected to achieve their performance conditions.

Looking forward, we expect to see a return to EBITDA losses in 2023 to reflect the reorientation of the order book to earlier phase trials, the loss of the one-time beneficial impacts seen in 2022 and a carefully managed continuation of investments as we focus on the growing medium and long-term opportunity available to the Group. EBITDA is reconciled by the following adjustments:

Operating profit

Operating expenditure in the year reflected careful cost management alongside targeted investment, specifically:

· research and development expenses of £1.2 million (2021: £1.2 million) included research into new algorithms to support image analysis in new and existing therapeutic indications. In addition, the Group capitalised £0.9 million of internal development employee costs primarily in respect of its next generation TrialTracker platform (2021: £1.0 million);

· sales and marketing expenses of £1.2 million (2021: £1.2 million) reflecting increased travel and conference expenditure supporting client relationship development post COVID-19 offset by savings resulting from employee turnover; and

· general and administrative expenses of £2.6 million (2021: £2.9 million) reflecting careful cost management within the business as well as a couple of one-time impacts that reduced expenditure as referred to in the EBITDA section above.

Operating profit of £0.9 million (2021: £1.1 million) equated to an operating profit margin of 11% (2021: 12%).

Order book

The Group continues to benefit from a healthy order book. On 30 September 2022 this totalled £16.0 million (2021: £18.8 million), which takes account of £8.6 million of revenues delivered during the financial year, £12.6 million of new and expanded multi-year contracts secured during the year and £6.8 million of trial descopes due to client trial failures including a minor foreign exchange movement in the year.

New contracts won were across 16 different clients, across 11 projects, 3 of whom are new to IXICO.

Cash

The Group reported operating cash inflows of £0.9 million before tax receipts in the year (2021: £0.3 million) reflecting the Group's sustained profitability and a reduced impact of the timing of working capital cash movements compared to the prior year.

The Group had a closing cash balance as at 30 September 2022 of £5.8 million (2021: £6.7 million) with the reduction in cash reflecting £2.2 million of focussed investment in technology assets designed to support future scalability and £0.1 million of lease payments on the Group offices. These investments were partially offset by £1.4 million of operating cash and taxation inflows. This strong, debt-free, cash balance means the Group is well positioned to continue to invest for growth.

Consideration of the Group as a going concern is discussed in the Directors' Report.

Non-current asset investments

The Group capitalised £2.3 million of non-current assets in the year to 30 September 2022 (2021: £2.6 million). This increase in non-current assets was primarily driven by the investment of £2.0 million in its next generation TrialTracker platform (2021: £1.8 million).

The next generation TrialTracker platform will further enhance the Group's capabilities to remotely collect, and centrally analyse, brain images in support of clinical trials. The platform has been developed on Microsoft Azure's cloud infrastructure supporting further improvements in system resilience, security, scalability, and efficiency. The platform development is now largely complete and is being tested ahead of launch in 2023.

Net assets

The Group's net asset position increased by £1.0 million to £12.5 million across the year (2021: £11.5 million). This is reflective of the Group's continued profitability, as well as the Group's commitment to build its technology assets to meet long-term future growth aspirations and market demands.

Profit per share

The Group reports a profit per share of 2.14p (2021: 3.17p).

The Group is delivering against its strategy, is profitable, and is well capitalised, providing a strong basis to continue to invest to secure and strengthen its position in an expanding market.

________

Grant NashChief Financial Officer

Consolidated Statement of Comprehensive Income

for the years ended 30 September 2022 and restated for 30 September 2021

Consolidated Statement of Financial Position

as at 30 September 2022 and restated for 30 September 2021 and 30 September 2020

Company Statement of Financial Position

as at 30 September 2022 and 30 September 2021

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 £741,000 (2021: £966,000).

Consolidated Statement of Changes in Equity

for the years ended 30 September 2022 and 30 September 2021

Company Statement of Changes in Equity

for the years ended 30 September 2022 and 30 September 2021

Consolidated and Company Statements of Cash Flows

for the years ended 30 September 2022 and 30 September 2021

Notes to the financial statements

For the years ended 30 September 2022 and 30 September 2021

The financial information set out in these results does not constitute the Group's consolidated statutory accounts for the years ended 30 September 2022 or 2021. Statutory accounts for the year ended 30 September 2021 have been filed with the Registrar of Companies. The statutory accounts for the year ended 30 September 2022 will be delivered to the Registrar in due course. Those accounts have been reported on by the Independent Auditors; their report for the accounts for both financial years was (i) unqualfied; (ii) did not include a reference of any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under 498 (2) or 498 (3) of the Companies act 2006.

Copies of the Annual Report 2022 will be posted to shareholders on or about 16 December 2022.

1. Presentation of the financial statements

a. General information

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

The Company is a parent of a number of subsidiaries detailed in note 16, together referred to throughout as 'the Group'. The Group is an established provider of technology-enabled services to the global biopharmaceutical industry. The Group's services are used to select participants for clinical trials and assess the safety and efficacy of new drugs in development within the field of neurological disease.

b. Basis of preparation

The consolidated financial statements have been prepared on a going concern basis and in accordance with international accounting standards in conformity with the requirement of the Companies Act 2006.

The consolidated financial statements comprise a Statement of Comprehensive Income, a Statement of Financial Position, a Statement of Changes in Equity, a Statement of Cash Flows, and accompanying notes. These financial statements have been prepared under the historical cost convention modified by the revaluation of certain financial instruments.

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

c. Basis of consolidation

The consolidated financial statements incorporate the accounts of the Company and its subsidiary companies adjusted to eliminate intra-Group balances and any unrealised gains and losses or income and expenses arising from intra-Group transactions. The Company's subsidiaries are detailed in note 16. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.

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

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

d. Going concern

Whilst COVID-19, and the associated uncertainties are now receding, the conflict in eastern Europe, accompanied by rising inflation, interest rates and a broad degree of macro-economic and political disruption continue to create challenges for the global economy.

The Group is not immune to these challenges but benefits from serving a sector that is less exposed to economic slowdowns as compared to others. The Group itself is well capitalised and debt-free, meaning it is able to benefit from rising interest rates on its cash reserves without any exposure to increased costs of debt.

Whilst the Group has suffered material client contract cessations during the year, these are not atypical for the neurological market the Group serves, in which it is notoriously challenging to achieve a market approved drug. The Group has a strong balance sheet for its size, with a large cash balance and has secured £12.6 million of new contracts in the year providing it with good visibility of future revenues across a diversified portfolio of clients and projects.

In assessing going concern, management has prepared detailed sensitised forecasts which consider different scenarios throughout the course of the next 12 months. These include the risk to current projects and expected future sales pipelines, assessed through a Reverse Stress Test. The Directors have considered these forecasts, alongside the Group's strong balance sheet and cash balance as well as the ability for the Group to mitigate costs if necessary. After due consideration of these forecasts, the Directors concluded with confidence that the Group has adequate financial resources to continue in operation for the foreseeable future.

2. New and amended accounting standards and interpretations

a. Adoption of new accounting standards for the year ended 30 September 2022

The Group has adopted all new and amended accounting standards and interpretations issued by the International Accounting Standards Board ('IASB') that are mandatory for the current reporting period. The standards and amendments that are now effective and have been adopted by the Group include:

• Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

There was no impact on the Group's financial statements as a result of adopting these standards.

b. Accounting developments affecting financial statements in subsequent periods

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

• Classification of liabilities as current or non-current (Amendments to IAS 1)

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

3. Prior period adjustment

Under IFRS 15, an entity should recognise as an asset the incremental costs of obtaining a contract with a client if it expects to recover those costs. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a client that it would not have incurred if the contract had not been obtained. The asset is then amortised on a systematic basis over the contract period.

Following an internal review of the Group's accounting policies, including IFRS 15, it was identified that some elements of its sales commission payments constitute incremental costs of obtaining client contracts. This portion of sales commission costs were being recognised in full when the corresponding client contract was signed. This treatment is incorrect. The correct treatment was for these costs to have been capitalised and amortised on a systematic basis to reflect the period of the client contract. This error impacted the financial years 2017 through 2021.

The impact of this error led to an overstatement of total comprehensive income in 2021 by £63,000 due to no recognition of amortisation of commission contracts from financial years 2017 through to 2021, instead the commission was recognised at the time the corresponding contract was signed. Due to the Group surrendering taxable losses under the R&D tax credit schemes the restatement did not materially affect the Group's tax position. The 2021 liability position was also identified as overstated by £191,000 due to a recognition of a commission accrual, representing commission that was likely to be earned through the life of the contract. As this element of the commission payment requires the respective employee to remain in service for a specific period, this element of commission should have been accrued over time as this service was provided. Finally, the 2021 asset position was understated by £130,000 as no commission asset was recognised. The full extent of the 2021 restatement is therefore to increase net assets by £258,000 as can be seen below:

4. Significant accounting policies

4.1 Revenue

Revenue is principally derived from service revenue. Revenue comprises the transaction price, being the amount of consideration the Group expects to be entitled to in exchange for transferring promised goods or services to a customer in the ordinary course of business net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.

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

1. Identifying the contract with a client;

2. Identifying the performance obligations;

3. Determining the transaction price;

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

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

All services provided to clients are agreed at the inception of a project through contracts, wherein the transaction price is determined and agreed for each performance obligation in the schedule of work. The transaction price agreed at the outset is not variable or subject to any refunds or warranties, this is consistent across all revenue streams. A critical part of the contract is a detailed schedule of work that provides the list of services to be provided by the Group. Under the requirements of IFRS 15 - Revenue from Contracts with Customers, the Group is required to identify individual and distinct performance obligations within each contract. This represents a judgement, and the Group has considered whether each individual service provided meets these requirements in its own right and in the context of the contract, by assessing in particular the level of interrelationship between each type of service and the nature of the contract entered in to with clients. The Group has identified performance obligations within each of the revenue streams as set out below. The transaction price associated to each performance obligation is allocated based on their relative stand-alone selling price. Revenue is recognised once the performance obligation is met for each distinct service. Deferred income and advanced payments are recognised where consideration is received before all performance considerations have been completed. They are then released in line with contractual terms which dictate which performance obligations they relate to. The Group invoices in the month performance obligations are completed and hence do not recognise any contract assets relating to revenue.

Revenue types

The Group's contracts comprise a variety of performance obligations. These obligations are all considered streams of a single revenue type, being service revenue. Most of the Group's revenue is recognised at a point in time; the Group recognises this revenue once control is passed to the client, or once the service has been delivered on behalf of the client.

The Group's most significant streams of service revenue are outlined below and have the respective recognition criteria:

Change orders

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

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

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

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

In line with note 5, the Group has determined that it acted as an agent in one material contract in the year. The Group charges a management fee and recognises this as revenue. This contract delivered £192,000 of revenues in the year.

4.2 Other income

Government grants

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

Research and Development Expenditure Credit ('RDEC')

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

4.3 Research and development expenditure

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

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

- Demonstrating technical feasibility of completing the intangible asset;

- Intention to complete the asset;

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

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

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

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

4.4 Share-based payments

Equity-settled share-based payments are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight-line basis over the performance period, based on the Group's estimate of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of any non-market-based performance conditions.

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

Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 22 of the consolidated financial statements.

In the year the Group modified the terms of two option awards. The Group accounts for the incremental fair value expense of these modifications on a straight-line basis over the remaining performance period in line with the accounting policy as described above.

4.5 Employee benefits

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

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

4.6 Leased assets

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

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

Initial recognition

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

Subsequent measurement

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

On the statement of financial position, right-of-use assets are included in property, plant and equipment and lease liabilities are shown separately. Please see note 19 for more information.

4.7 Property, plant and equipment

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

Initial recognition

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

Subsequent measurement

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

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

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

4.8 Intangible assets

Acquired intangibles

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

Initial recognition

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

Subsequent measurement

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

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

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

Internally generated intangible assets

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

Initial recognition

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

Subsequent measurement

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

4.9 Impairment of non-current assets

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

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

4.10 Investments in Group undertakings

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

4.11 Trade and other receivables

Trade and other receivables are initially recognised at fair value and subsequently stated at amortised cost using the effective interest method, less any expected credit losses. The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses.

The Group assess impairment of trade receivables on an individual basis as they possess individual credit risk characteristics based on each client. Refer to note 17 for further information on aging of trade receivables and an analysis of any expected credit losses.

The Group recognises commission payments as incremental costs from obtaining a contract. Those that are paid immediately are capitalised under IFRS 15 and amortised over 3 years (2021: 3 years), being the average length of contracts entered into by the Group. Those not paid immediately are accrued over a period of time as this element of the commission payment requires the respective employee to remain in service for a specific period.

4.12 Taxation

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

Research and development credits The benefit associated with UK-based research and development is recognised under the UK's Research and Development Expenditure Credit scheme. Details of the recognition are set out in note 4.2.

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

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

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

Deferred tax assets are recognised to the extent it is probable that the underlying tax loss or deductible temporary difference will be utilised against future taxable income. This is assessed based on the Group's forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit. As such, the Group does not recognise any deferred tax assets, see note 20.

4.13 Cash and cash equivalents

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

4.14 Foreign currency translation

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

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

4.15 Trade and other payables

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

4.16 Provisions, contingent assets and contingent liabilities

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

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

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

4.17 Equity instruments

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

4.18 Financial instruments

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

The Group holds one type of derivative financial instrument - forward contracts used for the purposes of hedging. These are designated as cash flow hedges and held at fair value with changes held in the cash flow hedge reserve. On crystallisation the gain or loss is recycled to revenue to reflect the risks being hedged. The ineffective portion of the hedging instrument is recognised in the profit or loss account immediately.

Further information relating to financial instruments and the policies adopted by the Group to manage risk is found in note 23.

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

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

Significant management judgements

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

Determination of acting as agent or principal

The scope of a client project or its contract terms are reviewed to determine whether the Group is acting as principal or agent. This determination depends on the facts and circumstances of each individual project or contract and requires judgement, which are made in accordance with the applicable standards. The primary indicator used to determine whether the Group is acting as a principal is whether control of the good or service is gained prior to the good or service transferring to the client. If control is gained, revenue is recognised on a gross basis. If no control is achieved, then revenue is recognised on a net basis. During the prior year, the Group entered into a contract with a client to arrange the delivery of products from a third party to various client trial sites. The Group determined this was an agency relationship. If this judgement was incorrect and the Group was acting as principal, it would result in a material increase in revenue and cost of sales recognised in the year and in the prior year and a decrease in profit margins achieved.

Capitalisation of internally developed software

Distinguishing the research and development phases of a new software product and determining whether the requirements for the capitalisation of development costs are met requires judgement. Management will assess whether a project meets the recognition criteria as set out in IAS 38 based on an individual project basis. More detail is included in note 4.3 as to the specific considerations given to each project when determining whether to capitalise internally developed software. Where the criteria are not met, the research and development expenditure will be expensed in the Consolidated Statement of Comprehensive Income. Where the recognition criteria are met, the items will be capitalised as an intangible asset.

During the year ended 30 September 2022, research and development expenses totalled £2,129,000 (2021: £2,270,000). Of this amount, £912,000 (2021: £1,030,000) was capitalised as an intangible asset relating to employee costs. The balance of expenditure being £1,217,000 (2021: £1,240,000) is recognised in the Consolidated Statement of Comprehensive Income as an expense.

Recovery of deferred tax assets

Deferred tax assets have not been recognised for deductible temporary differences and tax losses. The Directors consider that there is not sufficient certainty that future taxable profits will be available to utilise those temporary differences and tax losses. Further information on the Group's deferred tax asset can be found in note 20 of the consolidated financial statements.

Estimation uncertainty

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

Determination of transaction prices in revenue recognition

Client contracts include an agreed work order so the transaction price for a contract is allocated against each distinct performance obligations for each service, based on their relative stand-alone selling prices. For legacy contracts prior to the adoption of IFRS 15, management were required to estimate the standalone price allocated to each distinct service that were previously grouped in a single price. For new contracts, the fair value of individual components is based on actual amounts charged by the Group on a stand-alone basis. Management have determined that for items recognised on a straight-line basis, including project, site and data management, the demands of this on the Group are spread evenly over the life of the revenue stream. This was determined through an understanding of the work required to deliver the various revenue streams and the obligations within the contract needing to be met.

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. Details of the estimations used in determining the fair value of the options in issue are detailed in note 22. In line with IAS 2, management assess whether non-market conditions will be achieved and adjusts appropriately.

Useful lives of depreciable assets

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

Commission assets

The Group capitalises incremental costs incurred through contracts in line with IFRS 15. These costs are spread over 3 years which is the average length of a contract, as opposed to using a tailored time period for each project. Management annually reviews this assessment to determine that there are no material variances.

6. Revenue

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

All material revenue streams derived by the Group relate to the delivery of services in support of clinical trials. As such, all revenue is deemed to belong to one stream, being service revenue.

Revenue derived from services provided over time do not constitute a material portion of revenue and therefore disclosure distinguishing between revenue recognised at a point in time versus over time is not made.

For the year ended 30 September 2022, revenue includes £499,000 (2021: £438,000) held in contract liabilities within trade and other payables at the beginning of the period. This amount includes the satisfaction of performance obligations relating to legacy contracts whereby TrialTracker deployments and access are combined in a single access fee, with this access fee being recognised over the duration of the project. This amount also includes performance obligations relating to advance payments that were not yet complete at the end of the prior year. Advance payments are charged to clients to de-risk start-up activities and are recognised at a point in time once an activities performance obligation is met, £575,000 of advanced payments were recognised on the balance sheet as at 30 September 2022 (2021: £214,000).

7. Segmental information

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

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

During the year ended 30 September 2022, the Group had three clients (2021: two clients) that exceeded 10% of total revenue. In 2022 the individual percentage revenue associated with these clients was 38% (£3,320,000), 14% (£1,175,000) and 11% (£976,000). In 2021, the individual percentage revenue associated with the two largest clients was 55% (£5,012,000) and 14% (£1,248,000).

Geographical information

The Group's revenue can be categorised by country, based on the location of the contracting client. Sometimes clients of the Group, which include global biopharmaceutical companies with offices in multiple locations across the world, request the Group to contract directly with their regional offices in the United Kingdom or European locations. In such circumstances the associated revenues are reported as being based in the contracting location even though much of the operational execution of the contract will include entities or partners of the client based elsewhere in the world.

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

8. Other income

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

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

9. Auditor's remuneration