CASTLETON TECHNOLOGY PLC...CASTLETON TECHNOLOGY PLC 1 ANNUAL REPORT 2019 0 5 10 15 20 25 30 2019...

ANNUAL REPORT 2019

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Castleton Technology plc Provides a platform of complementary software and cloud services focused on the social housing sector and associated market.

A ‘one stop shop’ providing essential tools and services that deliver significant improvements in service, performance and insight for customers.

WHAT WE DO

Strategic report

Chairman’s statement 6Market opportunity 8Our solutions 9Chief Executive’s review 10Chief Financial Officer’s review 16Risk management framework 21Principal risks and uncertainties 22

Governance

Board of Directors 26Corporate governance report 28Remuneration committee report 32Audit committee report 36Directors’ report 37Statement of Directors’ responsibilities 39

Financial statements

Independent auditor’s report to the members of Castleton Technology plc 42Consolidated statement of comprehensive income 46Consolidated balance sheet 47Consolidated statement of changes in equity 48Consolidated cash flow statement 50Notes to the consolidated financial statements 51Company balance sheet 83Company statement of changes in equity 84Company cash flow statement 85Notes to the company financial statements 86

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1CASTLETON TECHNOLOGY PLCANNUAL REPORT 2019

0 5 10 15 20 25 30

2019 £26.4m

£23.3m

£20.3m

2018

20170.000 0.875 1.750 2.625 3.500 4.375 5.250 6.125 7.000

2019 £6.3m

£5.1m

£4.4m

2018

20170.000 0.875 1.750 2.625 3.500 4.375 5.250 6.125 7.000

2019 £6.5m

£5.2m

£4.6m

2018

2017

OPERATIONAL fDelivery of our integrated product suite for two customers now live and referenceable fSignificant contract win with Connect Housing Association for the fully integrated solution (Total Contract Value £1.3 million) fA managed services contract with Dumfries and Galloway Housing Partnership worth £1.2 million over 4 years was signed in August 2018 fAcquisition of Deeplake Digital in January 2019 for £1.8 million, enhancing our integrated offering fStrategic partnership with Indian outsource developer to enhance development capabilities – followed by acquisition of entity in February 2019 fLaunch of Castleton.DIGITAL, a self-service customisable digital delivery platform

* Earnings for the year before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges.

FINANCIAL

Revenue

£26.4m

Adjusted EBITDA*

£6.3m

Operating cashflow

£6.5m

HIGHLIGHTS FOR THE YEAR

Organic revenue growth

7.3%

Organic EBITDA growth

13.0%

Operating cash conversion

103%

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS

2 CASTLETON TECHNOLOGY PLCANNUAL REPORT 2019

Integrated technologiesCreating a truly unrivalled suite of software, cloud and IT services.

Our clients are now able to use Castleton as their single go-to technology partner. This allows them to streamline operations, improve visibility and communication across departments, overcome compatibility issues and report more accurately; all of which improve customer service.

AT A GLANCE

18,000Housing professionals world-wide are using Castleton Technology solutions on a daily basis

600We work with c.600 social housing providers

4Customer presence in the UK, Ireland, Australia and New Zealand Australia and New ZealandIreland

UK

RECURRING REVENUESSubscription based sales model generates a contracted order backlog that will unwind into future periods, providing excellent visibility over future period performance.

Increase over prior year

+12.6% ¼ Read more on page 13

CROSS SELL OPPORTUNITYOf the c.600 Social Housing Providers customers, many only take one product, giving significant potential to increase revenues within the existing customer base.

Number of customers who take only one product

50% ¼ Read more on page 12

ORGANIC GROWTHTrack record of proven organic growth at both revenue and adjusted EBITDA* level.


+7.3%Organic EBITDA growth

+13.0% ¼ Read more on page 16

* Earnings for the year before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges.

STRONG PRODUCT PIPELINEClear Product Roadmap for the coming year. Competitive advantage in range of solutions offered.

New product launches in year

6Product releases in year

26 ¼ Read more on page 9

INVESTMENT IN RESEARCH & DEVELOPMENT (‘R&D’)Continuing investment in R&D with development capability both in the UK and India.

Total R&D spend in the period

£2.0m ¼ Read more on page 11

CASH GENERATIONStrong operating cash generation enabled by robust finance processes.

Operating cash conversion

103% ¼ Read more on page 12

INVESTMENT CASE

CASTLETON TECHNOLOGY PLCANNUAL REPORT 2019 3



Digital transformation DGHP’s commitment to a four-year end-to-end managed service contract truly reflects the strength of Castleton’s proposition and capabilities.

CASE STUDY – DUMFRIES AND GALLOWAY HOUSING ASSOCIATION (‘DGHP’)

‑The move to digital transformation is part of DGHP’s commitment to respond to the demands of a modern, digital world and will ensure it can offer fully digitalised services to customers and increase internal capacity. With Castleton’s support, we will have the flexibility to develop and innovate our services, giving us the agility we need to meet the challenges facing the housing sector both now and in the future. Hugh Carr, Director of Finance, HR and IT at DGHP

Four areas were identified as critical to DGHP’s journey to digital transformation:

fUpdating the aging infrastructure and moving to a hybrid cloud solution f Implementing a managed service with new mobile desktop f Introducing a new telephony system with unified communications fDeployment of Office 365 support

In line with DGHP’s vision, Castleton have delivered an agile working environment for employees. Electronic processes, documentation and communications now drive efficiency and break down previous service silos though the provision of shared information.

£1.2mManaged services contract

4 yearsContract period


Strategic report

Chairman’s statement 6Market opportunity 8Our solutions 9Chief Executive’s review 10Chief Financial Officer’s review 16Risk management framework 21Principal risks and uncertainties 22



Excellent financial results I am very pleased to be able to report on another year of excellent progress for Castleton. We have continued to grow our revenues organically, recording an increase of 7.3% in the year to 31 March 2019 (“FY19”). We also increased recurring revenues in absolute terms by £1.4 million and these now stand at 58% of total revenue. Furthermore, despite continued investment in the business, particularly in relation to our software products, we have been able to increase our adjusted EBITDA margin from 22% in FY18 to 24% in FY19.

Cash generation has continued to be impressive, giving us the confidence to invest over £0.6 million in refreshing our data centres in order to increase capacity for future growth, especially in cloud related services. The level of cash generation has also allowed us to reduce net debt by £1.2 million and enabled our acquisition of Deeplake Digital, a provider of digital technology for landlord and tenant communication in the social housing sector, thereby bolstering our product offering. During the year we acquired the perpetual licence for our modelling solution and also an offshore development facility in India which, in conjunction with our UK development teams, will allow us to bring new products to market more quickly.

The year under review has also seen early success in our strategy of cross-selling into our customer base, evidenced by the fact that the number of customers taking two products or more has increased to 50% from 40% in the prior year.

Market FocusWe continue to focus on the social housing sector and adjacent markets, such as the outsourced maintenance contractor business. The breadth and level of integration of our software offerings and associated expertise provides our customers with the full range of technology and services that they require. This focus, allied with our increased development capability, means that we can respond to our customers’ needs and bring new and exciting products to market in a short timescale.

CHAIRMAN’S STATEMENT

Adjusted EBITDA margin

24%FY2018: 22%


One such offering is our artificial intelligence (“AI”) capability where we have linked voice recognition devices, such as Amazon’s Alexa, to our systems, which will allow our customers to dramatically change the way they interact with tenants and thereby increase the efficiency of their operations.

The Board has considered the impact of Brexit and does not view this as causing any significant risk to our business. Whilst the uncertainty caused by Brexit could impact upon our commercial customers’ decision making, our strategic focus is on the social housing customer base, predominately UK based, and our employees are located in either the UK, India or Australia.

DividendThis is the third year in a row in which cash generation has been c. 100% of adjusted EBITDA. Given this continued strong cash generation, as a Board we are pleased to propose a maiden dividend of 1p per share, subject to shareholder approval at the Company’s AGM, which will be held on 19 August 2019. The dividend will be payable on 23 September 2019 to shareholders on the register as at 23 August 2019 and with a corresponding ex-dividend date of 22 August 2019. We will continue to review the level of dividend and intend to maintain a progressive dividend strategy.

An Enabling CultureCastleton is a young, dynamic and exciting business with a culture built on focus, pride and teamwork. The Board believe that all employees should be able to share in the success of Castleton and during the year two initiatives were launched

in order to allow this to happen. Firstly, we introduced a UK Sharesave scheme which was

well received with 45% of eligible employees investing in the scheme. Secondly, we

introduced a bonus scheme so that, subject to the achievement of targets, each

employee in Castleton has the possibility to benefit from the continued growth

and success of the Company.As a Board we seek to engage

regularly with staff, with Board meetings held at our various

offices, and any members of staff are encouraged to

approach me with any ideas or concerns they may have.

In addition, we have launched employee feedback surveys (eNPS) with collaborative workshops held to increase engagement and address key themes arising from the surveys.

OutlookThe financial year ended 31 March 2019 has been another year where our strategy to build a cash generative, high recurring revenue business with good levels of organic growth has been successfully executed. The one area that has not yet lived up to our expectations is our Australian Operation (reported within our Software Solutions division) - we have taken action to address this, but it has had a slight impact on our outlook for next year.

With our sector focus and breadth of product offering, we continue to see enormous potential to become the supplier of choice for software and IT services in the social housing market. There remains a significant cross-sell opportunity across our existing customer base as 50% of our c.600 Housing Association customers only take one of our products or services. As we continue to enhance our development capability and increase and invest into our product set in order to allow greater cloud usage, we believe we will be able to further capitalise on our already established position within the social housing sector.

To maximise this opportunity, post year end, we decided to merge our Software Solutions (UK operation) and Managed Services divisions into a single entity, with the legal hive up completed in June 2019. The primary drivers for this change are to set the right technological trajectory for Castleton, in recognition of the fact that customers are moving to a “Cloud First” deployment strategy, to maximise the cross-sell opportunity, to focus on higher margin revenue and to ensure our customers receive integrated products and services with world class support.

The combination of a healthy pipeline of new business, together with our new development capabilities and our improved organisational structure, give me confidence for the year ahead and I expect that we will show continued progress in both our financial and operational metrics when we next report.

David PayneNon-Executive Chairman18 July 2019

The financial year ended 31 March 2019 has been another year where our strategy to build a cash generative, recurring revenue business with good levels of organic growth has been successfully executed.



Enormous potentialWe continue to see enormous potential to become the supplier of choice for software and IT services in the social housing market.

MARKET OPPORTUNITY

Looking to be more efficient

Move towards more digital services

Government focus on compliance

Customer needs

With a customer base of c.600, of which 50% only take one product or service from our portfolio, there is enormous cross-sell potential to increase the number of products to our existing customer base. Whilst Housing Associations have a strong asset base, and predictable revenue streams, they are increasingly under pressure to become more efficient as the government Rent Reduction policy continues. This has driven the Housing Associations to look at ways to reduce their operational cost base resulting in increased investment in IT and Digital services. Digital enablement also provides opportunity to increase tenant engagement. There is also an increased need to ensure compliance with government regulations.

All these needs can be addressed by Castleton’s Solution offerings.

1,672Housing Associations

c.600Of these have 1,000+ properties

There are 1,672 Housing Associations in the UK, of which around 600 have over 1,000 properties. It is these larger Housing Associations who will benefit most from our integrated suite of products and managed IT solutions as they help them manage

their day-to-day interactions with their tenants, suppliers and regulatory requirements. We are also supporting the needs of smaller Housing Associations with a simplified version of our established Housing Managed services contract.


Our solutionsWe offer the widest breadth of integrated solutions to allow true business transformation across social housing organisations.

OUR SOLUTIONS

AgileCastleton.DIGITALAI Communications Manager

Our suite of solutions is centred around creating digital self-service, meeting the tenants’ demand for instant, 24/7 and real-time access to information and creating omni-channels for Social Housing Providers to engage with their customers.

CRMHousingMaintainCommunity

Industry-established CRM, Housing Management and Repair systems provide the complete solution our customers need to support the effective management of tenants, properties and available resources.

ReportingCEDRMData ServicesSchedulingFind My Engineer

Castleton solutions help to increase efficiencies, optimise output and lower operating costs for our customers.

FinancialsService ChargesP2PHousingBrixx

Tools to provide accurate cost management, finance controls and strategic forecasting, so finance departments can confidently carry out their day-to-day activities as well as achieve the longer-term strategic goals of their organisation.

CloudBusiness ContinuityInfrastructureUnified CommunicationsSupport

Our multi-cloud strategy delivers on choice, flexibility, security and scalability to our customers, ensuring entire IT estates can be managed effectively.

The complete solution f Integrated products f Digital capability f Delivered in the Cloud f Mobilisation of all products

f New offerings for smaller Housing Associations

The social housing sector is undergoing immense change and we aim to be at the forefront helping clients to meet and overcome new challenges. Our robust approach to business transformation,

boosted by our innovative solutions ensure project aims are achieved, delivering significant improvements in service, performance and insight for our customers.



Another year of significant progress Castleton have enjoyed another year of significant progress throughout the financial year ending 31 March 2019, demonstrating strong organic growth at both revenue and EBITDA level. Excellent cash generation has not only resulted in the continued reduction in net debt, but it has also enabled operational growth through the acquisition of Deeplake Digital, the launch of new digital solutions and expanded development capabilities with Castleton India.

We have seen some milestone projects go fully-live and operational with our three early adopter sites for integrated solutions; Cluid Housing, New Gorbals Housing Association and Circle Housing. These combined customer references have been a major contributor to us winning a brand-new integrated solutions contract valued at £1.3 million, with Yorkshire based Housing Association, Connect Housing.

CHIEF EXECUTIVE’S REVIEW

Our continued investment in research and development enables Castleton to keep ahead of the curve and meet the needs of our market.


+7.3%Organic EBITDA growth

+13.0%


This five-year contract demonstrates the strength of our proposition, our ability to cross-sell and the trust our customers have in our capabilities to deliver on their vision for complete digital transformation.

Our continued investment in research and development enables Castleton to keep ahead of the curve and meet the needs of our market. The addition of our Indian development capabilities means we can bring new solutions to the market faster and more cost effectively. The delivery of our Castleton.DIGITAL solution, which launched in September 2018, is an excellent example of the Indian operation’s performance.

We have continued to deliver enhancements across our solutions portfolio and service offering. The market we operate in is fast embracing digital means to engage with tenants and as a result, we launched several new solutions. This includes embarking on a first-of-its kind project with our customer Housing Solutions to introduce Artificial Intelligence technology into tenants’ homes. Add to this our portal and app platform, Castleton.DIGITAL, plus the acquisition of Deeplake’s two-way SMS technology, and we have the strongest portfolio of digital solutions that support the market’s increasing demand for digital self-service.

Just as digital self-service has become an integral part of our customers’ IT transformation strategy, we have also seen Cloud delivery becoming more significant, with the level of interest shown by our customers increasing. After the year end, we have therefore taken the decision to merge the two divisions (Software Solutions and Managed Services UK

operations) to create a truly ‘one Castleton’ structure. The legal hive up was completed

in June 2019, with plans to deliver a unified, seamless and enhanced customer

experience.

Our renewed customer-centric approach is evident by the stability we have gained across our software support services over the last 12 months. We have reduced open support tickets by 80% over the course of the year and delivered a customer satisfaction level of 96.3% against service level agreements.

Castleton have undertaken a significant exercise to increase our employee engagement. This has included the launch of a UK Sharesave scheme, with 45% of eligible employees enrolling during its launch in August 2018. We intend to make this available for new Castleton employees in August 2019. Further to this, we launched a company bonus scheme during the year based upon individuals achieving key performance metrics. This will pay out for 2019 performance. We have also started to measure employee engagement through Employee Net Promoter Score, where we have seen a 36 point improvement in employee satisfaction.

GROWTH STRATEGYOur strategy for growth comprises:

ORGANIC GROWTH fCross sell strategy into enlarged customer base fBid for new fully integrated opportunities fCastleton.DIGITAL fCastleton Community fCloud at the centre of our strategy

M&A fAdd on complementary opportunities to enhance product offering

GEOGRAPHIES fFocus on UK, Ireland and Australia



Products purchased by customer 2019 vs. 2018

1 Product 2 Products3 Products4 Products5 Products

294119673921

-36+34+17+10+6

6 Products7 Products8+ ProductsTotal

105

36591

+4-1

+5+39

Products purchased by customer 2019 vs. 2018

1 Product 2 Products3 Products4 Products5 Products

294119673921

-36+34+17+10+6

6 Products7 Products8+ ProductsTotal

105

36591

+4-1

+5+39

The focus during the year has also continued to be on optimising the business, strengthening the management team and business platform and expanding our product offering which will in turn allow the Group to grow and maximise the opportunities available in our chosen market.

Our Market and What We DoThe markets in which we operate are focused around public sector and not-for-profit social housing but also include the contractors who provide repairs services to the social housing providers. Castleton now has ten offices globally; seven in the UK, one in Australia as our operations grow following the acquisition of Kinetic in the prior year and two in India. This demonstrates our ability to grow and scale our business in new geographies.

Our Software Solutions provides all key business processes to social landlords covering everything from tenant engagement, rent collection, financial planning and control, document management and repairs management. All key processes are available to be utilised on a mobile platform via apps or digital engagement. The range of solutions provides customers with significant improvements in service, performance and insight, as well as delivering a solid return on investment.

CHIEF EXECUTIVE’S REVIEW continued

Cross-selling opportunity

Our Cloud Delivery capability offers a wide range of IT infrastructure solutions which support an organisation’s business objectives, including helping to drive efficiencies, manage legacy architectures or providing customers and staff with the latest social, mobile and cloud technologies. We also have the capability to provide a full IT outsource service where we become the Housing Associations’ IT capability.

Trading ResultsRevenue for the year showed an increase of 13.3% to £26.4 million (2018: £23.3 million) with 58% of revenue being recurring in nature (2018: 60%). Adjusted EBITDA* showed a stronger performance, improving by 23.5% to £6.3 million (2018: £5.1 million), reflecting the Company’s operational gearing and ability to scale profitably.

Operating cash conversion was 103% of adjusted EBITDA* (2018: 101%) and 98% of adjusted EBITDA* post exceptional costs (2018: 91%), demonstrating the cash generative nature of the business. The cash generated enabled a reduction in net debt of £1.2 million to £5.1 million as well as funding the acquisition of Deeplake Digital and Castleton India. The earnings per share at a basic level was 5.08p, compared to earnings per share of 5.23p in the previous year.

*Earnings for the year from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional costs and share based payment charges.


50%Of customers only take one product

7%Customers now take more than seven products

c.600 social housing providers in total, of whom 50% are now taking more than one product, compared to 40% in FY18.

DeeplakeOn 10 January 2019, the Group acquired Deeplake, a leading provider of Communications Management Software to the social housing sector, for a cash consideration of £1.8 million financed through a combination of cash generated in the year and an increase in our banking facilities.

IndiaOn 20 February 2019, the Group acquired Castleton India (previously known as CarbonNV InfoLogic India Private Limited), for a total consideration of £0.35 million comprising £0.15 million of cash consideration and the issue of 200,331 shares in the Company.

Modelling Solution LicenceDuring the year, we also acquired an exclusive and perpetual licence in relation to the platform upon which Castleton’s modelling solution is based, for £1.6 million in cash and shares, which has enhanced our margins on this product.

Operational ReviewDuring the year, we have continued to make improvements to the quality of the business processes, people, structure and control. We have also launched new products, both through our own IP and partnering arrangements. I am therefore confident that the organic growth demonstrated during the current year will continue as we further cross-sell into the customer base. Our contracted backlog of revenue has grown by 12.6%, which gives us good forward visibility of revenue.



CHIEF EXECUTIVE’S REVIEW continued

CASE STUDYNEW GORBALS HOUSING ASSOCIATIONNew Gorbals is a successful example of Castleton’s ability to cross-sell solutions across the portfolio. As early adopters of our integrated solution, New Gorbals are now seeing the benefits of true business transformation and enhanced digital engagement. Through a carefully managed and phased roll out, our integrated solutions benefit staff thanks to streamlined operations, reduced manual processes and the effective mobilisation of workforce and data.

MAY 2006

DEC 2013

SEP 2016

JAN 2017

MAR 2018

JUN 2018

DEC 2018

Housing

Financials HousingBrixx P2P CEDRMReporting

Data Services

Asset Management

Maintain CRM

Agile

Original products New products

Castleton’s consultants were very efficient, thorough and professional. Our recent expansion has doubled the amount of stock we now manage to almost 5,000 units and the new Housing system and supporting solutions has coped with this effortlessly. Mary Reilly, Head of Finance at New Gorbals Housing Association


The increase in revenue was primarily driven by the addition of new customers and through cross-selling of products and / or services into the Group’s existing base. During the year the number of customers who have two or more of our products increased to 50% from 40% in 2018. Whilst this shows good progress, it also means that 50% (2018: 60%) of our customer base still uses just one product, providing a very strong opportunity for further organic growth.

The individual value of new contracts continues to grow. New contracts signed during the year include a five-year contract with Connect Housing with a Total Contract Value of £1.3 million for the provision of the entire suite of our software products and a full end-to-end managed service contract with Dumfries and Galloway Housing Partnership (“DGHP”) worth £1.2 million over four years. Furthermore, we extended the DGHP contract by winning a second tender for a Unified Communications platform in February 2019 worth £0.4 million.

Following the acquisition of Kinetic Information Systems Pty Ltd (“Kinetic”) in December 2017, we recruited a new General Manager to head up the Castleton business in Australia. Unfortunately we had significant execution issues that resulted in the General Manager leaving the business in October 2018 after six months in post. In addition, the vendors of the Kinetic business decided to move on before the two year earn out period for personal reasons thereby foregoing deferred consideration of AUS$0.5 million. We then took the action of promoting resource from within the business in Australia and we are pleased with the last quarter of trading.

In order to increase our ability to create further innovative IP solutions we entered into a service agreement with an Indian development capability at the start of the financial year. The success of this working relationship led to the acquisition of this business, see page 13. This has allowed us to bring new solutions to the market quicker and at a reduced cost when compared to UK development costs.

Current Trading and OutlookI am delighted to report another year of strong results, with increased revenues and EBITDA and the completion of two acquisitions, augmenting the Group’s customer base and capability. Since I arrived mid-way through the financial year ending 31 March 2017 (FY17), we have successfully executed on our growth strategy, growing revenues from £20.3m in FY17 to over £26m for the year just ended. The market presents us with as much opportunity now as it did then and that, together with the acquisitions made in the intervening period, will allow us to continue to execute successfully on the growth strategy.

The benefits of the extensive changes we have made to the business are now increasingly showing through in our results and, combined with the internal reorganisation that we have just done, we are now in a significantly better position to grow and increase profitability. Competition remains strong, particularly in managed services, so referenceability is important, which we can increasingly provide.

Trading since the end of the financial year has been in line with expectations and we expect to see seasonality between the two halves of the financial year, with earnings and cash flows being stronger in the second half than the first half.

Making the best use of technology remains a key focus for the social housing sector and we are well placed to deliver the digital solutions our customers and end-users need, both now and in the future. We will continue to invest in our technology platform and solution set and look to the future with confidence.

Dean DickinsonChief Executive18 July 2019



Recurring revenues in the year increased from £14.0 million in 2018 to £15.4 million in 2019 representing 58% (2018: 60%) of total revenue.

Cash generation has been pleasing with cash generated from operations during the year of £6.5 million (2018: £5.2 million), thereby representing 103% operating cash conversion. The resulting cash flow has allowed us to reduce net debt to £5.1 million (including convertible loan notes and deferred consideration) from £6.3 million at the end of the prior year.

CHIEF FINANCIAL OFFICER’S REVIEW

I am pleased to present this report as Chief Financial Officer. Haywood Chapman

Principal events and overviewThe year ended 31 March 2019 has again been one of growing the business organically, demonstrating operational leverage as recurring revenues continue to grow and growing the business in terms of offerings and capability through acquisitions. Organic growth, which is calculated adjusting for the full year effect of acquisitions has been 7.3% at the revenue level and 13.0% at the adjusted EBITDA* level, demonstrating, as in prior years, continued operational leverage.

Recurring Revenues

£15.4m58% of total revenue

Cash conversion

103%


0.000 0.875 1.750 2.625 3.500 4.375 5.250 6.125 7.000

2019 £6.5m

£5.2m

£4.6m

2018

2017

The balance of the loan from Barclays Bank stands at £4.0 million at the end of the year following an increase in the facility of £1.5 million for the acquisition of Deeplake.

Trading results and acquisitionsThe trading results for the year comprise a full year of trading for all entities acquired in the prior years and results from two acquisitions in the year, which is a continuation of the strategy started in 2014 of bringing together a number of best of breed software and managed services providers to the social housing market.

The Company acquired Deeplake, a provider of two-way communication technologies and associated software for a cash consideration of £1.8 million on 10 January 2019. Deeplake contributed £0.3 million of revenue and £0.2 million of profit before tax in the year.

We also acquired Castleton India on 20 February 2019 for a total consideration of £351,000 comprising of 200,331 ordinary shares of 2 pence in the capital of the Group and £156,000 of cash.

Revenue and gross profitRevenue amounted to £26.4 million (2018: £23.3 million). £15.0 million was generated by the Software Solutions division (2018: £12.4 million) and £11.4 million (2018: £10.9 million) was generated by the Managed Services division. As we see the services offered by the Managed Services division, namely Cloud delivery becoming more significant going forwards and the level of interest shown by our customers increasing in this area, we took the decision post year end to merge the two divisions

(UK operations) to create a truly ‘one Castleton’ structure. The legal hive up of the trade and assets of Castleton Managed Services Limited into Castleton Technologies Limited (formerly Castleton Software Solutions Limited) was completed in June 2019. Operating from a single entity will assist in delivering a unified, seamless and enhanced customer experience.

Recurring revenue represents 58.3% of total revenues (2018: 60.1%) although recurring revenues increased by £1.4 million in absolute terms to £15.4 million, up from £14.0 million in 2018. The decrease in percentage of recurring revenue is due to the stronger performance of professional services and other one-off revenue items in the year.

Gross profit amounted to £19.0 million (2018: £16.1 million), representing a gross margin of 72% (2018: 69%).

Administrative expenses including exceptional itemsThe administrative expenses of £17.2 million (2018: £14.8 million) were incurred in the running of the business and include the cost of the Board and its advisors, including the cost of occupancy, back office support services, and the fees associated with maintaining the AIM listing as well as amortisation of £3.2 million (2018: £3.0 million).

The increase of £2.5 million year on year is largely due to: the full year effect of Kinetic overheads (four months included in the prior year), a 30% share price growth year on year driving an increase in the share based payment charge along with the associated National Insurance, investment across the business notably the Indian development team, amortisation of capitalised R&D and costs incurred for example to deliver employee benefit improvements and the capital reduction during the period.

Cash generated from operations

£6.5m



Exceptional costs of £0.3 million arising in the year (2018 credit of £0.8 million) relate to acquisition related costs for Deeplake, Castleton India and restructuring costs for Kinetic (which had been acquired in the prior year). The credit in 2018 related to restructuring activities undertaken in the year, offset by the release of exceptional provisions made in prior periods.

Key Performance Indicators (‘KPIs’)On a monthly basis, the Directors review revenue, operating costs, cash and KPIs to ensure the continued growth and development of the Group. Primary KPIs for 2018 and 2019 were:

KPIs

Year to 31 March 2019

£’000

Year to 31 March 2018

£’000

Total revenue 26,357 23,279Recurring revenue 15,370 13,996Gross Margin % 72% 69%Adjusted trading EBITDA* 8,011 6,468Adjusted EBITDA* 6,325 5,115Adjusted EBITDA* margin 24.0% 22.0%Operating profit 1,492 2,142Cash generated from operations 6,502 5,177Cash conversion ratio (Cash generated from operations/Adjusted EBITDA*) 103% 101%Net debt excluding deferred consideration and loan notes 2,704 2,840Net debt including deferred consideration and loan notes 5,079 6,301Average headcount (number) 177 169 Adjusted EBITDA* per head 35.7 30.3*Adjusted EBITDA is defined as; Earnings for the year from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional costs and share based payment charges. Adjusted Trading EBITDA is as previously defined, however earnings from the year are stated before Group costs (i.e. costs of plc Board and its advisors)

CHIEF FINANCIAL OFFICER’S REVIEW continued

177Employees working across UK, Ireland, Australia and India


Adjusted EBITDA*The adjusted EBITDA for the year amounts to £6.3 million (2018: £5.1 million).

The cost in the year for the plc Board and its advisors was £1.7 million (2018: £1.4 million). Adjusted trading EBITDA was therefore £8.0 million (2018: £6.5 million).

Finance income and costsFinance income represents the interest earned on deferred income from the sale of the consulting business sold in 2015, and finance costs comprise interest payable on bank borrowings and the interest and unwind of discount on the Kypera Loan Notes. Finance income and costs amounted to £0.01 million (2018: £0.02 million) and £0.3 million (2018: £0.3 million) respectively.

Profit for the year attributable to the owners of the parent companyThe Group profit after tax for the year to 31 March 2019 was £4.1 million (2018: profit of £4.2 million). This comprises profit before tax of £1.2 million (2018: profit of £1.8 million), which includes the finance income of £0.01 million (2018: £0.03 million), and a tax credit of £2.9 million (2018: £2.3 million).

The tax credit comprises; a credit arising from R&D tax credits of £0.9 million (2018: £0.4 million), the unwind of deferred tax recognised on intangible assets of £0.6 million (2018: £0.5 million), the movement in deferred tax asset relating to unused capital allowances of £1.1 million (2018: £1.4 million) and other movements of £0.3 million (2018: £nil).

IFRS 15IFRS 15, Revenue from Contracts with Customers, has been fully adopted during the year.

IFRS 15 has had a significant impact on revenue recognition in technology related companies and specifically software companies, so we have undertaken significant work in preparing for the implementation of this standard. We have taken account of adoption of the standard by similar companies and enlisted the assistance of our advisors in developing our policy. Overall, we were already largely compliant with the requirements of the standard and the impact on our reported revenue for the year was a reduction of £0.1 million and an insignificant change to adjusted EBITDA*. The impact on the opening net asset position was a reduction of £0.5 million before tax. Full disclosure is given in note 1 on page 58.

Earnings per shareEarnings per share at a basic level were 5.08p, compared to earnings per share of 5.23p in the previous year.

Cash flow, funding and investmentCash generated from operations during the year was very solid at £6.5 million (2018: £5.2 million), thereby representing a third year in a row with c. 100% operating cash conversion. Working capital decreased by approximately £0.2 million (2018: decrease of £0.1 million).

Net of cash acquired, £2.0 million of cash was used in business combinations with £1.8 million used for the acquisition of Deeplake. A further £0.2 million for the acquisition of Castleton India (2018: £1.1 million for Kinetic) was funded through cash generated by the business. Over the course of the year, £0.6 million (2018: £0.6 million) of the £1.8 million due under the terms of the Agile Licence was paid. The remaining balance of Agile deferred consideration at the year-end was £0.2 million and this was paid in April 2019.



During the year, the Group repaid £0.8 million of the Barclays term loan in line with the facility agreement (2018: £1.0 million). In January 2019, the remaining £2.5 million facility was re-financed to a £4.0 million facility, the £1.5 million additional facility being used to fund the £1.8 million acquisition of Deeplake. As at the balance sheet date, £4.0 million (2018: £3.3 million) of term loan was outstanding. Since the initial bank loan was put in place in 2015, the financial strength of the company has increased considerably which assisted in lowering the margin paid on our borrowings by 25 basis points.

During the year the Group invested over £0.6 million in customer related capital expenditure and infrastructure in our leased datacentre sites, providing increased capacity for future contract expansion as well as improving the capabilities offered to existing customers. Whilst we do not expect to incur similar capital expenditure amounts over the coming year, our stable and strong cash flows allow us to invest where necessary to continue to grow the business.

The Group also invested in software research and development (‘R&D’), capitalising £0.5 million of R&D expenditure during the period (2018: £0.4 million) and paid £0.5 million in order to acquire an exclusive and perpetual licence in relation to the platform upon which Castleton’s modelling solution is based (total consideration of £1.6 million including share capital issued).

During the year, on 3 April 2018, the Group paid £1.7 million to MXC in full settlement of the MXC Scheme and no further amounts are due to MXC.

Overall increase in funds in the year of £0.9 million (2018: £0.2 million) gave a net positive cash position at the balance sheet date of £1.4 million (2018: £0.5 million). Dividend and Capital ReductionAfter we stated last year that we would look to implement a progressive dividend policy, and following a Capital Reduction* completed on 23 October 2018, I am delighted to announce a maiden dividend of 1p per share, subject to shareholder approval at the Company’s AGM,

which will be held on 19 August 2019. The dividend will be payable on 23 September 2019 to shareholders on the register as at 23 August 2019 and with a corresponding ex-dividend date of 22 August 2019.

Contract Liabilities (in prior year referred to as deferred income)Contract liabilities arise where revenue is invoiced ahead of delivery of performance obligations and therefore recognition of revenue. This is common in software maintenance, hosting, managed services and software subscription agreements. Invoicing is largely quarterly, half yearly or annually in advance and therefore contract liabilities fluctuate throughout the year. At 31 March 2019 contract liabilities were £9.2 million (2018: deferred income of £7.8 million) and of the increase of £1.4 million, £1.3 million is due to the adoption of IFRS 15 whereby if implementation revenues are not considered to be a distinct performance obligation, they are recognised over the contract term. There has been an associated increase in contract costs of £0.8m. Further explanation is provided in note 1 on page 58.

Going ConcernThe Directors have prepared detailed cash flow projections including sensitivity analysis on key assumptions. The Group is forecasting significant free cash flow and the projections prepared show that not only should the Group be able to operate within the level and conditions of available funding, but also that net debt will be reduced over the coming year. Based on the funding available, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements.

Haywood Chapman Chief Financial Officer18 July 2019

CHIEF FINANCIAL OFFICER’S REVIEW continued

* The High Court of Justice in England and Wales made an order confirming the cancellation of the amount standing to the credit of the Company’s share premium account (the “Capital Reduction”) under section 648 of the Companies Act 2006. This transfers the balance into the Profit and loss reserve.


The Board has overall responsibility for the management of risk at Castleton. This includes the establishment of an appropriate risk culture, setting the Group’s risk appetite and overseeing its risk management and internal controls systems. Day to day risk management is delegated to the Executive Directors who work closely with the Senior Management Team in reviewing and monitoring risk strategies across the business.

Identifying, evaluating and managing the principal risks and uncertainties facing the Group is an integral part of the way we do business.

We have policies and procedures in place throughout our operations that enable us to do so, embedded within our management structure and as part of our normal operating processes.

Our view of the Principal Risks is shown in the heatmap below, with detailed descriptions provided on pages 22 and 23.

RISK HEAT MAP (after risk mitigation)

The Board has overall responsibility for the management of risk at Castleton.

Very

hig

hIm

pact

Probability

Low

Very highLow

2

3

4

5

6

1

RISK MANAGEMENT FRAMEWORK

Principal Risks1 Market and the economy2 Reliance on key personnel and management 3 Competition risk4 Technology risk5 Acquisition risk6 Acquisition strategy and financing



Principal Risk Risk Description Risk Background Management and Mitigation

1Market and the economy

Castleton could fail to understand and anticipate changes in the external environment, including customer needs, emerging market trends, competitor strategies and regulatory/legal requirements.

Castleton continues to work alongside customers in meeting and exceeding their needs. During the year, progress has been made on the integrated product suite, now live and referenceable at three customer sites.

We have considered the impact of Brexit on the business. The business derives the majority of its revenue and profits from UK social housing customers and so do not assess there to be a significant impact on the business. Our cost base is predominately staff costs and our employees are either UK, India or Australia based and there should be minimal impact on obtaining skilled labour in these locations as a result of Brexit. There could be some currency risk, however this is relatively low with a small number of customers in Ireland, of whom the majority transact with Castleton in sterling.

• Monitoring of trading conditions• Customer feedback sessions • Detailed and comprehensive implementation process to ensure

customer needs are captured• Product road map development to ensure products are legally

compliant and improved functionality for customers• Working with Housing regulator

2Reliance on staff and management

Castleton may fail to attract and retain highly skilled and qualified personnel and to expand, train and manage its employee base.

The success of the Group will be dependent on the services of its key executives, senior management team and operating personnel.

• Benchmarking of salaries and benefits• Introduction of a UK Sharesave and Company bonus scheme

during year • Launch of employee survey, with two completed in past financial

year• Monitoring and reporting of employee attrition

3Competition risk Competitors could materially adversely impact both the scale of the Group’s revenues and its profitability. The Group operates in a highly competitive marketplace. Some of our

competitors are much larger giving scale of operations that could allow them to offer similar services for materially lower prices than the Group could match.

• Ongoing product roadmap development to stay ahead of the competition and additional development capability added during the year in India

• Continually striving for business efficiencies which will not impact upon levels of service

• Monitoring of our competitors including competitor “gap” analysis versus our solutions

• Milestone projects now fully live and operational for integrated solutions; Cluid Housing, New Gorbals Housing Association and Circle Housing, demonstrating referenceability

4Technology risk Castleton’s products may fail to stay ahead of the market and our competitors, also new products could fail to be

commercially viable in the market or fail to meet changes in legislation such as GDPR.

Increased hosting of customer systems exposes the Group to risk of data breaches.

The market for Castleton’s products and services is in a state of constant innovation and change.

• Participation in a number of industry-wide forums• Significant resource to the development of new products and

services, ensuring new technologies can be incorporated and integrated with the Group’s core services and meet the latest legislative requirements

• Indian development capability• Increase in processes for reducing the risk of data breaches

including regular penetration testing of clients’ systems

5Acquisition risk The Group may not be able to fully achieve its strategic objectives and operating efficiencies in an acquisition, or

these may take longer than anticipated. Additionally, software products from acquired entities may not be efficiently integrated into the product suite.

The Group has been very acquisitive historically. Integrating acquisitions and the associated change management can take a period of time. The Company may lose existing customers or the customers of an acquired entity as a result of an acquisition. The Company also may lose key personnel, either from the acquired entity or from itself, as a result of an acquisition.

• Due diligence processes in place to evaluate potential acquisitions• Executive team has a proven track record in assessing potential

acquisition targets and integration of acquired businesses• During year, acquisition of Indian business to enhance development

capability. Experienced Indian management team retained• Australian execution issues, now mitigated• Development road maps in place to ensure products are efficiently

integrated

6Acquisition strategy and financing

Acquisitions could also require the Company to use substantial cash or other liquid assets or to incur debt. In such a case, it could become more susceptible to economic downturns and competitive pressures.

Future business acquisitions could be material to the Company and it may issue additional equity to pay for those acquisitions, which would dilute current shareholders’ ownership interest.

Refinancing in period was achieved at a 25 basis point lower margin, demonstrating improved financial strength of the company.

• The Group monitors cash flow and funding on a regular basis. This includes reviewing headroom against existing facilities and monitoring covenants

• To facilitate the acquisition of Deeplake in January 2019 refinancing of the existing loan facility was completed with Barclays, securing rate of 2.25% for 3 years

The principal risks are as follows:

PRINCIPAL RISKS AND UNCERTAINTIES


Principal Risk Risk Description Risk Background Management and Mitigation

1Market and the economy

Castleton could fail to understand and anticipate changes in the external environment, including customer needs, emerging market trends, competitor strategies and regulatory/legal requirements.

Castleton continues to work alongside customers in meeting and exceeding their needs. During the year, progress has been made on the integrated product suite, now live and referenceable at three customer sites.

We have considered the impact of Brexit on the business. The business derives the majority of its revenue and profits from UK social housing customers and so do not assess there to be a significant impact on the business. Our cost base is predominately staff costs and our employees are either UK, India or Australia based and there should be minimal impact on obtaining skilled labour in these locations as a result of Brexit. There could be some currency risk, however this is relatively low with a small number of customers in Ireland, of whom the majority transact with Castleton in sterling.

• Monitoring of trading conditions• Customer feedback sessions • Detailed and comprehensive implementation process to ensure

customer needs are captured• Product road map development to ensure products are legally

compliant and improved functionality for customers• Working with Housing regulator

2Reliance on staff and management

Castleton may fail to attract and retain highly skilled and qualified personnel and to expand, train and manage its employee base.

The success of the Group will be dependent on the services of its key executives, senior management team and operating personnel.

• Benchmarking of salaries and benefits• Introduction of a UK Sharesave and Company bonus scheme

during year • Launch of employee survey, with two completed in past financial

year• Monitoring and reporting of employee attrition

3Competition risk Competitors could materially adversely impact both the scale of the Group’s revenues and its profitability. The Group operates in a highly competitive marketplace. Some of our

competitors are much larger giving scale of operations that could allow them to offer similar services for materially lower prices than the Group could match.

• Ongoing product roadmap development to stay ahead of the competition and additional development capability added during the year in India

• Continually striving for business efficiencies which will not impact upon levels of service

• Monitoring of our competitors including competitor “gap” analysis versus our solutions

• Milestone projects now fully live and operational for integrated solutions; Cluid Housing, New Gorbals Housing Association and Circle Housing, demonstrating referenceability

4Technology risk Castleton’s products may fail to stay ahead of the market and our competitors, also new products could fail to be

commercially viable in the market or fail to meet changes in legislation such as GDPR.

Increased hosting of customer systems exposes the Group to risk of data breaches.

The market for Castleton’s products and services is in a state of constant innovation and change.

• Participation in a number of industry-wide forums• Significant resource to the development of new products and

services, ensuring new technologies can be incorporated and integrated with the Group’s core services and meet the latest legislative requirements

• Indian development capability• Increase in processes for reducing the risk of data breaches

including regular penetration testing of clients’ systems

5Acquisition risk The Group may not be able to fully achieve its strategic objectives and operating efficiencies in an acquisition, or

these may take longer than anticipated. Additionally, software products from acquired entities may not be efficiently integrated into the product suite.

The Group has been very acquisitive historically. Integrating acquisitions and the associated change management can take a period of time. The Company may lose existing customers or the customers of an acquired entity as a result of an acquisition. The Company also may lose key personnel, either from the acquired entity or from itself, as a result of an acquisition.

• Due diligence processes in place to evaluate potential acquisitions• Executive team has a proven track record in assessing potential

acquisition targets and integration of acquired businesses• During year, acquisition of Indian business to enhance development

capability. Experienced Indian management team retained• Australian execution issues, now mitigated• Development road maps in place to ensure products are efficiently

integrated

6Acquisition strategy and financing

Acquisitions could also require the Company to use substantial cash or other liquid assets or to incur debt. In such a case, it could become more susceptible to economic downturns and competitive pressures.

Future business acquisitions could be material to the Company and it may issue additional equity to pay for those acquisitions, which would dilute current shareholders’ ownership interest.

Refinancing in period was achieved at a 25 basis point lower margin, demonstrating improved financial strength of the company.

• The Group monitors cash flow and funding on a regular basis. This includes reviewing headroom against existing facilities and monitoring covenants

• To facilitate the acquisition of Deeplake in January 2019 refinancing of the existing loan facility was completed with Barclays, securing rate of 2.25% for 3 years

This strategic report was approved by the Board on 18 July and signed on its behalf by:

Dean DickinsonChief Executive

18 July 2019



500homes already installed with wifi provisions

4,500homes to receive Amazon Alexa devices

30%reduction in call volumes to call-centre

Working in partnership Working in partnership with Housing Solutions to deliver Artificial Intelligence (AI)technology across 4,500 homes

Beginning their IT transformation journey with a complete infrastructure overhaul, our partnership with Housing Solutions has evolved from delivering effective hosted IT estate management and business continuity solutions to supporting the housing provider with their ambitions to enhance customer service through digital means.

With the specific objective of reducing call-centre volumes by 30%, we have worked in partnership to deliver an AI solution, the first to be seen in the social housing sector. Housing Solutions customers will be able to interact with their AI device to update personal details, check rent balances and even raise and book repairs against their property.

f500 homes already installed with wifi provisions f4,500 homes to receive Amazon Alexa devices f30% reduction in call volumes to call-centre

CASE STUDY – HOUSING SOLUTIONS

Over the next few years, the organisation is set to fully embrace Digital engagement with its customers. Our move to Castleton’s desktop‑as‑a‑service with its ‘always on’ functionality ensures this happens, allowing our internal IT team to focus on the delivery of enhanced services to its customers. Our customers are excited to use AI technology to access Housing Solutions services, all without the need of picking up a phone. This frees up our own resources to tackle more specialist calls. Rich Harvey, Head of Digital and Information Services at Housing Solutions.


Governance report

Board of Directors 26Corporate governance report 28Remuneration committee report 32Audit committee report 36Directors’ report 37Statement of directors’ responsibilities 39



BOARD OF DIRECTORS

Dean DickinsonChief Executive OfficerAppointed Chief Executive Officer in October 2016Dean was previously Managing Director of Advanced Business Solutions, part of Advanced Computer Software Group Limited (previously Advanced Computer Software plc (“ACS”)), where he led the impressive growth of the Public Sector and Enterprise division following the acquisition of COA Solutions in 2010. Dean was part of the senior management team that sold ACS to Vista Private Equity for £725 million in March 2015. Dean has over 30 years’ operational experience in the software industry and was one of four directors at Walker Inc responsible for an MBO backed by Alchemy Private Equity in 2002 to form a new business called Arelon. Arelon merged with Cedar in 2003 and was rebranded COA Solutions where he became Deputy Managing Director for the business as a whole.

KEY EXTERNAL APPOINTMENTS:No external appointments

Haywood ChapmanChief Financial OfficerAppointed to the Board in December 2014.Haywood has significant technology sector expertise having held senior finance roles at FTSE 250 and Fortune 300 companies. Most recently Haywood has been Group Financial Controller of Infinity SDC, a private equity backed Data Centre operator. Before that Haywood held a number of senior finance positions at Northgate Information Solutions, having trained at PwC and gained M&A experience working in PwC’s Transaction Services team.

KEY EXTERNAL APPOINTMENTS:No external appointments

Executive Directors

An experienced Board with over 90 years’ combined tenure in software.

N


David PayneNon-executive ChairmanLed Castleton’s Board as its Chairman since July 2001.* David Payne has a varied background in the leisure, computer and property industries. For 20 years after leaving university he worked for Juliana’s, a leisure company that floated on the London Stock Exchange in 1983. He was subsequently recruited, by a venture capital fund, to become Chairman of Virtuality, a company at the forefront of developing virtual reality. He oversaw the successful flotation of this company on the LSE in 1994 and then left to devote more time to the development of a quoted property company.

David Payne is Chair of the Nomination Committee.

KEY EXTERNAL APPOINTMENTS:No other external appointments

* This spans the period prior to de-merger of Redstone plc and formation of Castleton in April 2013.

Phil KellyNon-executive Director*Appointed to the Board as Non‑executive Director in October 2014Phil brings a thirty year track record of leading successful companies within the technology sector, having worked with both quoted and private equity backed businesses.

Phil is Chair of the Audit Committee and a member of the Remuneration and Nomination Committees.

KEY EXTERNAL APPOINTMENTS:Non-executive Director of Idox plc

* Senior Independent Director

Paul GibsonNon-executive DirectorAppointed to the Board as Non‑executive Director in July 2017.Paul is a partner at MXC Capital Limited and has had a highly successful career in the TMT sector, most recently as Chief Operating Officer of Advanced Computer Software Plc (“ACS”) prior to its acquisition by Vista Equity Partners for £725 million. In his five years at ACS Paul oversaw a period of exceptional value creation and transformation, with responsibility for driving both organic and acquisitive growth. Prior to ACS, Paul held a number of senior roles in both financial and operational capacities, latterly as Finance Director of Redac Limited, the Alchemy backed turnaround that was subsequently sold to ACS for £100 million. The foundations of Paul’s career were built at Unigate, GrandMet (now Diageo) and Oracle.

Paul, who is a qualified accountant, is Chair of the Remuneration Committee and a member of the Audit and Nomination Committees.

KEY EXTERNAL APPOINTMENTS:Partner at MXC Capital Limited

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A

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Non-Executive Directors

N R A

Committee membership:Nomination Remuneration Audit Chairman



CORPORATE GOVERNANCE REPORT

Dear Shareholders,

The Board is committed to good corporate governance in the management and operation of the Group’s business. In March 2018, the London Stock Exchange introduced a new requirement for companies listed on AIM to apply a recognised corporate governance code by 28 September 2018. As an AIM listed Group, Castleton has adopted the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Sized Quoted companies (the QCA code) with effect from 28 September 2018, and has sought to meet its recommendations in so far as it considers them appropriate for a company of Castleton’s size and nature.

Board compositionAt the financial year-end the Board comprised:Executive Non-executive:

Dean DickinsonChief Executive Officer (CEO)

David PayneNon‑Executive Chairman

Haywood ChapmanChief Financial Officer (CFO)

Phil Kelly*Paul GibsonNon‑Executive Directors

*Senior Independent Non-executive Director

The Directors believe that a sound and well understood governance structure is essential to maintain the integrity of the Group in all its actions, to enhance performance and to impact positively on our shareholders, staff, customers, suppliers and other stakeholders.

The Board considers that it contains a range of skills, experience and knowledge that is appropriate for the business. Brief biographies of the Directors, together with their membership of Board Committees, are set out on pages 26 and 27.

All Directors have access to the advice and services of the Company Secretary who is responsible for ensuring that Board procedures and applicable rules and regulations are observed. The Board has a procedure whereby any Director may seek, through the office of the Company Secretary, independent professional advice, at the Company’s expense, in furtherance of his or her duties.

Independence of Non-executive DirectorsThe Board considers the Non-executive Chairman and Non-executive Directors to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement, subject to the following: Paul Gibson is a partner at MXC Capital Limited, which historically was a significant shareholder of the Group prior to fully divesting on 30 August 2018 and which also provided advisory services up until 30 September 2018.

Board operationSubject to the Articles of Association, UK legislation and any direction arising from special resolutions the business and management of the Company and its subsidiaries are the collective responsibility of the Board. The QCA Code requires an efficient, effective and dynamic management framework, which the board believes has been put in place. To ensure a balanced approach at each meeting, the Board considers and reviews the trading performance of the Group. The Board has a formal written schedule of matters reserved for its review and approval. These include the approval of the annual budget, major capital expenditure, investment proposals, the interim and annual results, and a review of the overall system of internal control and risk management. Authority for the execution of the approved policies, business plan and daily running of the business is delegated to the Executive Directors.


Board meetingsDuring the year, the Board met formally on twelve occasions. Formal agendas and reports are provided to the Board on a timely basis for Board and Committee meetings and the Chairman ensures that all Directors are properly briefed on issues to be discussed at Board meetings. Directors are able to obtain further advice or seek clarity on issues raised at the meetings from within the Company or from external sources.

The Board receives monthly financial information which includes key performance and risk indicators and the CEO reports on significant changes in the business and the external marketplace to the extent they represent significant risk. There is an established budgetary system with an annual budget approved by the Board.

The Board reviews the results monthly and year to date against budget and forecasts together with other business measures.

Board CommitteesThere are three standing Board Committees: Audit, Nominations and Remuneration. Each of these Committees acts within defined terms of reference. Copies of these terms of reference are available from the Company Secretary upon request.

Additional information is set out later in this report and also in the Remuneration Committee report in respect of the Remuneration Committee.

Board Committees description, members and attendance

Audit Committee Remuneration Committee Nominations Committee

The Audit Committee reviews matters in relation to the financial affairs of Castleton including the recommendation, appointment, re-appointment and removal of the external auditors, the review of the scope and results of the interim review and external annual audit by the auditors, their cost effectiveness, independence and objectivity. The Audit Committee also reviews the nature and extent of any non-audit services provided by the external auditors. In addition, the Audit Committee reviews the effectiveness of internal controls, considers the need for an internal audit function and considers any major accounting issues and reports on such matters to the Board. The Audit Committee reviews the integrity of the financial statements and formal announcements.

The Audit Committee report on page 36 contains more detail on the Committee’s role.

The Remuneration Committee reviews and makes recommendations in respect of the Directors’ remuneration and benefit packages, including share options and the terms of their appointment.

Details of the Remuneration Committee and its policies are set out in the Remumeration Committee Report on pages 32 to 35.

The Nominations Committee meets at least once a year to review succession planning at both Board and senior management level across the Group. For nominations, the Nominations Committee meets as and when necessary to consider the appointment of new Executive and Non-executive Directors.

Meetings during the year: Meetings during the year: Meetings during the year:

Three, no absences noted. Four, no absences noted. One, no absences noted.

Chairman Chairman Chairman

Phil Kelly Paul Gibson David Payne

Members Members Members

Paul Gibson Phil Kelly Phil KellyPaul Gibson

Conflicts of interestOther than as noted in the ‘Independence of Non-executive Directors’ the Board is not aware of any potential or actual conflicts of interest from its Directors.

Reappointment of DirectorsThe Company’s Articles of Association require one-third of the Directors, to stand for re-election each year at the Annual General Meeting (‘AGM’) and that each Director should seek re-election every three years. In addition,

Directors appointed by the Board during the year must seek re-appointment at the next AGM, along with Directors who have held office for over nine years. Accordingly, David Payne, Phil Kelly and Dean Dickinson will retire and offer themselves for re-election at the forthcoming AGM.

InsuranceThe Board has in place Directors’ and Officers’ Liability insurance.



The QCA corporate governance codeThe Board has adopted the QCA Code and set out below is how we currently comply with the key principles.

Statement of Compliance with the QCA Corporate Governance Code

Governance principles Compliant Explanation Further reading

1 Establish a strategy and business model which promote long-term value for shareholders

The purpose of the group is to become the supplier of choice for software and IT services in the social housing sector.

See Growth Strategy in Chief Executives review, page 11 and Principal risks in relation to this strategy on pages 22 and 23.

2 Seek to understand and meet shareholder needs and expectations

Regular dialogues are held with shareholders, the CEO and CFO meeting with investors following the interim and full year results and the Chairman meeting with key shareholders during the year. The Company uses the AGM as an opportunity to communicate with its shareholders.

https://www.castletonplc.com/investors

3 Take into account wider stakeholder and social responsibilities and their implications for long-term success

In order to fulfil our strategy, we recognise the importance of our staff, customers and suppliers. The principal way feedback is gathered is; for employees through meetings and eNPS surveys, for customers from engagement at roadshows or training sessions as well as customer surveys, for suppliers via meetings.

Staff and customers are considered in Principal risks pages 22 and 23.

4 Embed effective risk management, considering both opportunities and threats, throughout the organisation

The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. The implementation and maintenance of the risk management and internal control systems are the responsibility of the Executive Directors and senior management. The internal control system is designed to manage risk rather than eliminate it and can therefore only provide reasonable and not absolute assurance against material misstatement or loss. The Board, with the advice of the Audit Committee, has reviewed the effectiveness of the systems of internal control for the year to 31 March 2019.

See Principal risks and uncertainties on pages 22 and 23, Audit Committee report page 36 and Corporate Governance report page 31 section on Internal Controls.

5 Maintain the Board as a well-functioning, balanced team led by the Chair

The composition and experience of the Board is shown in the Annual report.

See pages 26 and 27, Board of Directors.

6 Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities

The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skill and experience, including in the areas of technology and software, governance, capital markets and business transformation and management.

During the year, the Non-executive Directors have attended several educational seminars on topics including IFRS accounting standards and detection of fraud risk.

See pages 26 and 27, Board of Directors.

7 Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

All Directors are subject to appraisal by the Board. The Senior Non-Executive Director is responsible for the evaluation of the Chairman.

See page 31, Corporate Governance report section on Board Performance.

8 Promote a culture that is based on ethical values and behaviours

The Board believes that the promotion of a corporate culture based on sound ethical values and behaviours is essential to creating a working environment which will allow people to fulfil their potential, and that, in doing so, this will contribute positively to long-term shareholder value.

See page 7, Chairman’s Statement.

9 Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

The Board is collectively responsible for the long-term success of Castleton. At each Board meeting, there is a schedule of matters reserved for its approval which cover the key areas of the management and governance of the Company.

See page 29, Corporate Governance report section on Board meetings

10 Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

The reports, results and presentations can be found on the Company’s website. Results from our AGMs are announced via RNS, and historical announcements can be accessed via the “RNS Announcements” page of the Investors section of our website.

https://www.castletonplc.com/investors/reports-presentations/

CORPORATE GOVERNANCE REPORT continued


Board PerformanceAll Directors are subject to appraisal by the Board. The Senior Non-Executive Director is responsible for the evaluation of the Chairman. In the course of the year the Directors put in place an internal board performance appraisal methodology and met to discuss and to agree how best to implement its findings.

Internal controlsThe Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. The implementation and maintenance of the risk management and internal control systems are the responsibility of the Executive Directors and senior management. The internal control system is designed to manage risk rather than eliminate it and can therefore only provide reasonable and not absolute assurance against material misstatement or loss. The Board confirms that there are on-going processes for identifying, evaluating and managing the significant risks faced by the Group.

The Group is committed to maintaining high standards of business conduct and operates under an established internal control framework covering financial, operational and compliance controls. This is achieved through;• An organisational structure that has clearly

defined reporting lines and delegated authorities.

• Close management of the day-to-day activities of the Group by the Executive Directors.

• A comprehensive annual budgeting process producing a detailed and integrated profit and loss, balance sheet, cash flow and order intake, which is approved by the Board. Monthly re-forecasts are performed throughout the year.

• Detailed monthly review of performance against budget and forecasts.

• Written processes to govern; expenditure, authorisation limits, purchase ordering, sales order intake, project management, inventories and assets.

The Group continues to review its system of internal control to ensure compliance with best practice, whilst also having regard to its size and the resources available. The Board considers that the introduction of an internal audit function is not appropriate at this time.

Communication with shareholders and the AGMCopies of the Annual Report and Accounts are issued to all shareholders and copies are available on the Group’s website www.castletonplc.com. The Half Year Report is also available on the Group’s website. The Group makes full use of its website to provide information to shareholders and other interested parties. The Company Secretary also deals with a number of written or emailed enquiries throughout the year.

Shareholders are given the opportunity to raise questions at the AGM and the Directors are available both prior to and after the meeting for further discussion with shareholders.

During the year, the CEO and the CFO met with institutional investors after the announcement of the interim and year-end results. Additional meetings were arranged during the year by the Group’s brokers, finnCap Ltd. Feedback arising from these meetings was communicated to the Board and the Company Secretary also reported to the Board on feedback from shareholders.

Phil Kelly, as Senior Independent Non-executive Director, is available to shareholders if they wish to raise any matters that contact through the normal channels of Non-Executive Chairman, CEO, CFO or Company Secretary has failed to resolve or for which such contact is inappropriate.

Whistle blowing policyThe Board has adopted a whistle blowing policy. The aim of the policy is to encourage all employees regardless of seniority to bring matters which cause them concern to the attention of myself.

Going ConcernThe Board is required to assess whether the Group has adequate resources to continue operations for the foreseeable future. After due consideration, the Directors have a reasonable expectation that the Company and Group will continue in operational existence for the foreseeable future and for this reason they continue to adopt the going concern basis for preparing the financial statements.

David PayneNon-executive Chairman18 July 2019



REMUNERATION COMMITTEE REPORT

Dear Shareholders,

On behalf of the Board, I am pleased to present you with the Remuneration Committee’s report for the financial year ended 31 March 2019 (FY19). The Remuneration Committee consisted of myself as chairman and Phil Kelly, Senior Independent Non-executive Director. We met as a committee four times during the year and the other board members and external advisors were invited to the meetings as appropriate.

As an AIM listed company we voluntarily seek advisory shareholder approval for our Remuneration Report in order to provide accountability and for shareholders to express their views on the remuneration policy and its implementation. It is included in the interests of transparency and in recognition of good practice. There was a very high level of support for the Remuneration Policy at the 2018 Annual General Meeting (AGM) and following review, we believe that the policy continues to be fit for purpose and will remain unchanged this year.

This Remuneration Committee report will be put to an advisory vote at the 2019 AGM. The Committee welcomes all shareholder feedback on remuneration and I will be available at the AGM to answer any questions arising from this report.

In order to deliver the Group’s strategy, the Committee believes we must continue to attract, motivate and retain individuals capable of achieving the Group’s objectives.

The Committee therefore must ensure that the remuneration policy continues to be sufficiently competitive and appropriate as the business evolves and grows. The governance of the remuneration policy is equally important to ensure it too is appropriate for an evolving and growing business.

FY19 saw the Group deliver a strong in-year financial performance and also make continued progress against the stated longer term and strategic objectives. In accordance with the rules of the Executive Directors annual bonus scheme, the committee concluded that the performance in the year justified a bonus payment of 55% of the variable element of on target earnings for the Executive Directors.

At the start of the financial year, the Chief Executive Officer’s (CEO) annual base salary increased from £155,000 to £185,000 and the Chief Financial Officer’s (CFO) base salary increased from £140,000 to £145,000. Dean Dickinson became CEO in October 2016 and following an initial evaluation period the committee decided to further increase his basic salary to the median of his peers. For financial year 2020, it is not anticipated that any adjustments will be made to base level remuneration for both Executive and Non-executive Directors.

During the year Haywood Chapman exercised 271,000 options at an exercise price of 22 pence per share at a price of 103.5 pence per share and immediately sold 270,000 ordinary shares at a price of 97 pence per share, retaining 1,000 shares. Full details of the exercise can be found in note 24 of the financial statements on page 78.

The Remuneration Committee’s policy is to ensure that executive and shareholder interests are aligned. Paul Gibson, Chairman, Remuneration Committee


Remuneration policyThe committee is responsible for determining and agreeing with the Board, within agreed terms of reference, the framework and policy for the following:• the remuneration of the Company’s CEO,

CFO and the senior leadership team• reviewing the ongoing appropriateness and

relevance of the remuneration policy• approving the design and agreeing targets

for the annual bonus schemes• approving the total annual payments made

under the annual bonus schemes• reviewing the design of LTIP’s for approval

by the Board

The Board sets the fees payable to the Non-Executive Directors.

The remuneration policy aims to ensure that the remuneration packages should be sufficiently competitive to attract, retain and motivate individuals capable of achieving the Group’s objectives and in turn are fairly rewarded for their contribution to the success of the Group and thereby enhancing shareholder value. The Board believes in pay for performance against challenging targets and stretching goals. The approach is to set base salaries around the median for our comparator group. A significant proportion of the total remuneration package is variable and linked to corporate performance. In setting Directors’ remuneration, the Committee takes account of the remuneration of other companies of similar size and complexity.

The main principles of the remuneration policy are:• Salaries should be competitive but not

excessive when compared to the peer group• Remuneration packages should align the

interests of Directors and shareholders• There should be appropriate balance

between fixed, variable and LTIP to support delivery of results over the short, medium and longer term

The Committee reviews the performance targets regularly to ensure that they are both challenging and closely linked to the Group’s strategic priorities. Furthermore, because a large part of the remuneration package is delivered in shares, they are directly exposed to the same gains or losses as all other shareholders.

Work of the committee During the year the committee considered a range of issues including the following:• Approval of the 2018 Remuneration report• Approval of the introduction of a Company-

wide general employee bonus scheme• The overall remuneration packages of the

Executive Directors • The framework, performance measures and

weightings for the bonus scheme and determining any awards made under it for both the financial year just ended and the new financial year

• Approval of executive share option exercise

Basic salary and benefitsBasic salary and benefits are provided to recognise the individual’s skills and experience and provide a competitive base reward to attract and retain Executive Directors. Base salaries are reviewed annually with changes taking effect from 1 April each year. Reviews take into account the individual’s performance, responsibility and experience, market conditions and salary levels for similar roles at relevant comparators (including companies of a similar size and sector).

PensionPension benefits are provided to provide a market competitive retirement benefit. The Group makes contributions to the private pension scheme of Haywood Chapman. Dean Dickinson receives a payment in lieu of pension contribution within his base salary.

Performance related bonusPerformance related bonus provides an incentive to drive the Executive Directors to deliver stretching performance and growth. Performance measures, targets and weightings are set by the Committee at the start of the bonus period. At the end of each bonus period, the Committee determines the extent to which targets have been achieved. The committee has the discretion to adjust the formulaic bonus outcomes to ensure that payments accurately reflect business and executive performance over the performance period. Bonuses are subject to malus and clawback provisions.

The bonuses are non-pensionable. Non-Executive Directors do not receive a bonus. Bonuses in relation to the year ended 31 March 2019 of £93,500 have been awarded to the Executive Directors, all of which were unpaid at the year end. £138,000 was paid during the year in respect of the year ended 31 March 2018.


REMUNERATION COMMITTEE REPORT continued


LTIPUnder the LTIP the directors are entitled to receive a share of the shareholder value created, subject to the achievement of share price and employment related performance criteria. Further information is detailed in the Directors remuneration section below.

Remuneration of Non-Executive DirectorsThe Board, within the limits stipulated by the Articles of Association and following recommendation by the Executive Directors, determines Non-Executive Directors’ fees. All the fees are unchanged from the prior year and are as follows; • £40,000 for Non-Executive Directors • £50,000 for the Non-Executive Chairman

The fees are inclusive of £5,000 for chairing a Board committee and £2,500 for membership of a Board committee.

Service contractsThe Company’s policy is for all Executive Directors to have service contracts with provision for termination of no more than six months’ notice.

Non-Executive Directors have letters of appointment. Appointments can be terminated by the Company giving six months’ notice or the individual giving one months’ notice. The remuneration of the Non-Executive Directors takes the form solely of fees which are not pensionable.

The details of the Executive and Non-Executive Directors’ service contracts are summarised below:

Date of first appointment Date of last re-appointmentUnexpired term at

31 March 2019Notice period

(months)

Executive DirectorsDean Dickinson 31 October 2016 23 August 2017 1 year 5 months 6 Haywood Chapman 1 December 2014 23 July 2018 2 years 4 months 6Non-Executive DirectorsDavid Payne 23 July 2001 23 July 2018 5 months 6Phil Kelly 1 October 2014 23 August 2017 1 year 5 months 6Paul Gibson 18 July 2017 23 July 2018 2 years 4 months 6

The service contracts continue until notice on either side is given.

David Payne, Dean Dickinson and Phil Kelly retire in line with the terms of the Articles of Association of the Company, and being eligible, offer themselves for re-election at the forthcoming AGM.

Directors’ remuneration

Basic salary, allowances

and fees £000

Other fees£000

Bonus £000

Benefits £000

Pension £000

2019 Total excluding

share-based

payments £000

Share-based

payments* £,000

2019 Total £000

2018 Total excluding

share-based

payments £000

Share-based

payments* £,000

2018 Total £000

ExecutiveDean Dickinson 185 – 55 – – 240 378 618 278 186 464Haywood Chapman 145 – 39 6 7 197 325 522 288 166 454Ian Smith – – – – – – – – 29 – 29Non-ExecutiveDavid Payne 50 – – – – 50 68 118 43 33 76Phil Kelly 40 – – – – 40 34 74 37 17 54Paul Gibson 40 30 – – – 70 – 70 28 – 28Total 460 30 94 6 7 597 805 1,402 703 402 1,105* The share-based payments remuneration of £805,000 (2018: £402,000) comprises £694,000 (£2018: £402,000) of IFRS 2 charge and £111,000 (2018: nil) of social security costs. The increase of £403,000 is due to share price appreciation in the period, which has led to the acceleration of charge from future periods in respect of each of the Director’s options which has now met their performance conditions in the period. Further disclosure is provided in note 24 of the Consolidated Financial Statements and in ‘Share options and Growth shares’ opposite.


Social security costs, including share-based payments, in respect of Directors’ emoluments were £205,000 (2018: £74,000).

Of the £40,000 (2018: £28,000) Director’s emoluments payable to Paul Gibson, £20,000 (2018: £28,000) were paid to MXC Capital Advisory Limited (‘MXC’) being the period to 30 September 2018 and £20,000 (2018: £nil) being paid directly for the period from 1 October 2018 onwards. In the prior period MXC was also paid emoluments of £29,000 in respect of Ian Smith. Hence, in total, MXC charged the Group £20,000 (2018: £57,000) in respect of Non-Executive and Executive Directors’ fees, £89,000 (2018: £126,000) for corporate finance advice and consultancy fees and no charges for expenses (2018: £14,000). Paul Gibson also received £30,000 in the year relating to non-director related activities.

Share options and Growth shares

At 1 April 2018

Number

Options granted1

during the year Number

Options exercised2


Options lapsed3


At 31 March

2019 Number

Options exercisable4

as at 31 March 2019 Number

ExecutiveDean Dickinson 2,736,252 8,695 – (57,498) 2,687,449 –Haywood Chapman 1,659,937 8,695 (271,000) (82,141) 1,315,491 1,306,796Non-ExecutiveDavid Payne 331,987 – – (16,428) 315,559 315,559Phil Kelly 165,994 – – (8,214) 157,780 157,780Total 4,894,170 17,390 (271,000) (164,281) 4,476,279 1,780,135

1 On 12 September 2018, Dean Dickinson and Haywood Chapman were each granted 8,695 options in relation to the UK Sharesave. This is a three-year scheme, vesting on 1 October 2021, with an exercise price of 82.8 pence per share option, subject to remaining in employment within the Group.

2 Haywood Chapman exercised 271,000 EMI share options in September 2018 and made a gain of £221,000. 3 Options lapsed in the period comprise 164,281 of lapses in respect of Directors Unapproved options, being an adjustment in respect of the cessation of the evergreen nature of

options from 21 February 2018.4 Exercisable options are those which may now be exercised, as the vesting period has ended, and any performance-related or other conditions associated with the options have

been met. During the period, share price appreciation resulted in the Growth Share Scheme awarded in July 2015 vesting on 30 April 2018. This award was made to Haywood Chapman, David Payne and Phil Kelly over the total value of 2.0%, 0.4% and 0.2% respectively of the value of the Company. The value became a fixed number of equivalent number of ordinary shares in the prior period, when the date of cessation of the evergreen nature of these awards was fixed. Whilst the total equivalent number of ordinary shares is now fixed, the mechanism of the scheme is such that, depending upon the final share price at date of exercise, the allocation between Unapproved share options, which have an exercise price of 22.0 pence, and Growth shares, can vary. The quantum of EMI share options, awarded to Haywood Chapman only, is fixed. As at the year end date, the allocation of value at a closing share price of 96.5 pence (2018: 74.75 pence) between these components resulted in 45.4% value (2018: 0% value) allocated to the Growth Shares and 54.6% value (2018: 100%) allocated to Options (both Unapproved and EMI). Further disclosure of the Growth Share Scheme has been provided in note 24 to the financial statements on page 77.

Total Shareholder Return The market price of the Company’s shares on 31 March 2019 was 96.5 pence per share (2018: 74.75 pence), generating 29% Total Shareholder Return (‘TSR’) in the period. The highest and lowest market prices during the year were 107.5 pence and 74.0 pence respectively (2018: 76.0 pence and 56.0 pence).

Share price growth vs Market Indices – 29% TSR for 12 months ended 31 March 2019

29Mar 29Jun 29Sep 29Dec 29Mar

Castleton Technology Plc

FTSE Aim All Share

FTSE Small Cap

50

60

70

80

90

100

110

Paul GibsonChairman, Remuneration Committeeon behalf of the Board18 July 2019



AUDIT COMMITTEE REPORT

Dear Shareholders,

I am pleased to present the report of the Audit Committee, which provides a summary of the Committee’s role and activities during the year ending 31 March 2019. In summary, these ensure that the interests of shareholders are protected and that the Group’s reporting is fair, balanced and understandable.

MembersDuring the year, the Audit Committee consisted of two Non-executive directors: Phil Kelly, its Chairman, and Paul Gibson. By invitation, meetings may be attended by the Chief Executive Officer, Chief Financial Officer, senior members of the Finance team and the external auditor. The Audit Committee met on three occasions during the year, with no absences from the meetings.

The Board is satisfied that the Chairman of the Audit Committee has recent and relevant financial experience.

DutiesThe Audit Committee has formal terms of reference, available on request from the Company Secretary. The main items considered by the Audit Committee during the year included: • Review of the 2018 Annual Report• Consideration of the 2018 external audit report, audit

findings report and management representation letter• Going concern review throughout the year based on

management information including monthly cash flow forecasts

• Review of the scope and results of the 30 September 2018 half year process

• Review of the 2019 audit plan and audit engagement letter

Role of the auditorThe Audit Committee monitors the relationship with the auditor, RSM UK Audit LLP (RSM), to ensure that auditor independence and objectivity are maintained. As part of

its review the Committee monitors the provision of any non-audit services by the external Auditor. The Committee recommends that RSM be re-appointed as the Group’s auditor at the next AGM.

Audit processThe Auditor prepares an audit plan for the full year audit of the financial statements and a scope of work for half year procedures . The audit plan sets out the scope of the audit, areas of special focus and audit timetable. This plan is reviewed and agreed in advance by the Audit Committee. Following the audit of the annual financial statements and the review of the interim report, the Auditor presents its findings to the Audit Committee for discussion. No major areas of concern were highlighted by the auditors during the year. However, areas of significant risk and matters of audit judgement were discussed, including:• Revenue recognition and the adoption of IFRS 15;• Recognition of current tax and deferred tax balances;• Disclosure of exceptional items and alternative

performance measures; and• Business combination accounting.

On each of these matters, the committee agreed with the treatment adopted by management and with the conclusions reached by the auditors.

Internal auditAt present, in keeping with the size and level of complexity of the affairs of the Group, it does not have an internal audit function. The Committee keeps under review the desirability of establishing an internal audit function. The Committee engages with its professional advisors in order to provide these services on an ad hoc basis.

Risk management and internal controlsAs outlined on page 31 of the Corporate Governance Report, the Group has established a framework of risk management and an internal controls system. The Audit Committee is responsible for reviewing the effectiveness of internal controls, considers the need for an internal audit function and considers any major accounting issues and reports on such matters to the Board. The Audit Committee reviews the integrity of the financial statements and formal announcements.

Whistle blowingAs outlined in the Corporate Governance report on page 31, the Group has put in place a whistle blowing policy which sets out the formal process by which an employee of the Group may, in confidence, raise concerns about possible improprieties in financial reporting or other matters. Whistle blowing is a standing item on the Committee’s agenda and updates are provided for consideration. During the year, there were no incidents for consideration.

Phil KellyChairman, Audit CommitteeOn behalf of the Board18 July 2019


DIRECTORS’ REPORT

The Directors present their report together with the audited financial statements for the year ended 31 March 2019.

Principal activityThe principal activity of the Group during the year was the provision of software and managed services to the public and not- for-profit sectors, predominately the social housing sector. The Company is an investment holding company.

Review of the business and future developmentsThe review of the year and the Directors’ strategy and objectives for the future are set out in the Chairman’s statement and in the Chief Executive’s Review and the Chief Financial Officer’s Review. These reports are incorporated into this report by reference and should be read as part of this report.

Overseas PresenceAs at 31 March 2019, the company holds indirect investments in two operational overseas businesses; Castleton Technology Pty Ltd (formerly Kypera Australia Pty Limited) and Castleton India, acquired in February 2019, which provides software development capability to the wider Group.

During the year, the trade and assets of Kinetic Information Systems Pty Ltd (“Kinetic”) which was acquired on 1 December 2017, were hived up into Castleton Technology Pty Ltd. Results of trading are reported in the consolidated accounts within the Software Solutions segment for the year ended 31 March 2019. Income streams originating from these two businesses amounted to £1.9 million (2018: £1.0 million). In the prior year, four months of trading of Kinetic were included in the consolidated results of the Group.

Research and DevelopmentCastleton’s research and development (R&D) activities underpin its new Software Solutions offerings. In the prior year, advancement of operational integration resulted in such activity being reliably measured to meet the Group’s accounting policy for capitalising such costs. Capital expenditure on R&D in the year ended 31 March 2019 amounted to £0.5 million (2017: £0.4 million). The capitalisation rate was 33% (2018: 30%).

Dividends and Capital ReductionThe Company did not pay a dividend during the year. It was announced last year that we would look to implement a progressive dividend policy.

On 23 October 2018 the High Court of Justice in England and Wales made an order confirming the cancellation of the amount standing to the credit of the Company’s share premium account (the “Capital Reduction”) under section 648 of the Companies Act 2006. This transfers the balance into the Profit and loss reserve.

Following this, for the year ended 31 March 2019, a maiden dividend of 1p per share will be paid, subject to shareholder approval at the Company’s AGM, which will be held on 19 August 2019. The dividend will be payable on 23 September 2019 to shareholders on the register as at 23 August 2019 and with a corresponding ex-dividend date of 22 August 2019.

Financial instrumentsInformation on the Group’s financial risk management objectives and policies and on the exposure of the Group to relevant risks in respect of financial instruments is set out in note 22.

Subsequent eventsA decision was taken post year end to merge the two divisions (Software Solutions* and Managed Services) to create a truly ‘one Castleton’ structure. The legal hive up of the trade and assets of Castleton Managed Services Limited into Castleton Technologies Limited (formerly Castleton Software Solutions Limited) was completed in June 2019. Operating from a single entity will assist in delivering a unified, seamless and enhanced customer experience.

* UK operations only



DIRECTORS’ REPORT continued

DirectorsThe Directors who held office during the year, and their beneficial interests and those of their families in the share capital of the Company at the reporting date were as follows:

31 March 2019 Number of

ordinary shares

31 March 2018 Number of

ordinary shares

Executive DirectorsDean Dickinson 185,000 185,000Haywood Chapman 1,000 -Non-Executive DirectorsDavid Payne 68,013 50,313Phil Kelly 136,386 136,386Paul Gibson note (a) note (a)Note (a) – Paul Gibson is a member of the key management personnel of MXC Capital Limited (“MXC”). MXC held no ordinary shares in the Company at 31 March 2019 (2018: 20,021,216 ordinary shares).

The Group is committed to employment policies, which follow best practice based on equal opportunities for all employees, irrespective of sex, race, colour, disability or marital status. The Group gives full and fair consideration to applications for employment by disabled persons, having regard to their particular aptitudes and abilities. Appropriate arrangements are made for the continued employment and training, career development and promotion of disabled persons employed by the Group. If members of staff become disabled the Group continues employment, either in the same or an alternative position, with appropriate retraining being given if necessary.

Annual General MeetingThe Annual General Meeting (“AGM”) will be held at the offices of DAC Beachcroft LLP, The Walbrook Building, 25, Walbrook, London EC4A 8AF at 11:00am on 19 August 2019 to conduct all mandatory business.

A resolution is to be proposed at the forthcoming AGM for the re-appointment of RSM UK Audit LLP as auditor of the Company, at a rate of remuneration to be determined by the Audit Committee.

Disclosure of information to auditorsThe Directors who were members of the Board at the time of approving the Directors’ Report are listed on pages 26 and 27. Having made enquiries of fellow Directors, each of these Directors confirms that:• To the best of each Director’s

knowledge and belief, there is no information relevant to the preparation of their report of which the Group’s auditors are unaware; and

• Each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Group’s auditors are aware of that information.

Helen GriffithsCompany SecretaryOn behalf of the Board18 July 2019

The Walbrook Building, 25 Walbrook, London, EC4N 8AF

Details of the Directors’ contracts, remuneration and share options granted are set out in the Remuneration Committee report.

As permitted by the Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third party indemnity provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is currently in force. The Company also purchased and maintained throughout the financial year Directors’ and Officers’ liability insurance in respect of itself and its Directors.

Staff policyThe Group’s employment policies are designed to ensure that they meet the statutory, social and market practices in the UK where the Group operates. The Group systematically provides employees with information on matters of concern to them, consulting them or their representatives regularly, so that their views can be taken into account when making decisions that are likely to affect their interests. Employee involvement in the Group is encouraged, as achieving a common awareness on the part of all employees of the financial and economic factors affecting the Group plays a major role in maintaining its relationship with its staff.


STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Strategic Report and the Directors’ Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Company financial statements for each financial year. The Directors are required by the AIM Rules of the London Stock Exchange to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and have elected under company law to prepare the parent company financial statements on the same basis.

The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the Group and the Company and the financial performance of the Group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

In preparing each of the Group and Company financial statements, the Directors are required to:• select suitable accounting policies and then

apply them consistently;• make judgements and accounting estimates

that are reasonable and prudent;• state whether they have been prepared in

accordance with IFRSs as adopted by the European Union;

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Helen GriffithsCompany SecretaryOn behalf of the Board18 July 2019

The Walbrook Building, 25 Walbrook, London, EC4N 8AF


Connect are at the beginning of a Business Transformation Programme which will deliver significant change across all parts of the organisation. The team at Connect are deploying new strategies aimed at improving the overall Customer Experience, the Employee Experience and deliver a bright, modern and engaging service that offers great value for money. At the heart of the Transformation Programme is a whole suite of Castleton products. Knowing that many legacy systems were either out of date or due for renewal, together with the fact that Connect had a number of disparate systems and multiple data sources with little system integration was a key driver for change, but changing the Customer offering and the employee experience was at the heart of process as well.


CASE STUDY – CONNECT HOUSING

Business transformationConnect Housing are delighted to be partnering with Castleton in a large project aimed at replacing all of their core Housing software.

Setting Castleton apart, in addition to the product offering meeting the requirements stated, was the work and effort the bid team put in. It felt as though Castleton had taken the time to understand the needs of Connect in presenting the solution, rather than a well polished, but somewhat generic offering from other providers.

The Connect: Castleton relationship is seen by both parties as a partnership, with both recognising that the success of this project is critical to the success of both organisations.Richard Baggott, Customer Experience Manager at Connect Housing.

£1.3mTotal Contract Value


Financial statements

Independent auditor’s report to the members of Castleton Technology plc 42Consolidated statement of comprehensive income 46Consolidated balance sheet 47Consolidated statement of changes in equity 48Consolidated cash flow statement 50Notes to the consolidated financial statements 51Company balance sheet 83Company statement of changes in equity 84Company cash flow statement 85Notes to the company financial statements 86



INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CASTLETON TECHNOLOGY PLC

OpinionWe have audited the financial statements of Castleton Technology plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 March 2019 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Balance Sheets, the Consolidated and Parent Company Statements of Changes in Equity, Consolidated and Parent Company Cash Flow Statements and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion:• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at

31 March 2019 and of the group’s profit for the year then ended;• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the

European Union;• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the

European Union and as applied in accordance with the Companies Act 2006; and• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concernWe have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not

appropriate; or• the directors have not disclosed in the financial statements any identified material uncertainties that may cast

significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Key audit mattersKey audit matters are those matters that, in our professional judgement, were of most significance in our audit of the group and parent company financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the group and parent company financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Group key audit matters Revenue recognition and the adoption of IFRS 15 “Revenue from contracts with customers”2019 revenue: £26.4m (2018 revenue: £23.3m) – refer to accounting policies 1.22, 1.27 and 1.28 (pages 56 to 58 and 60) and financial disclosures (note 2 – pages 60 to 62 regarding revenue, note 13 – page 69 regarding contract assets and note 15 – page 71 regarding contract liabilities).

The risk:The group adopted IFRS 15 at 1 April 2018 using the modified retrospective method, with the cumulative effect of initially applying the standard adjusted to opening equity at 1 April 2018. As a result, the comparative information has not been restated and continues to be reported under IAS 18.


The group’s revenue streams are relatively complex as several types of customer contracts are used and each customer contract may include multiple promises.

The application of IFRS 15 requires management to make significant judgements and estimates in respect of the following:• identifying the performance obligations in the contract. In particular, determining whether goods and/or services

promised in the contract are distinct;• determining whether services (including the grant of licences) are satisfied at a point in time or over time;• allocating the transaction price to the performance obligations; and• recognition of contract assets in respect of incremental costs of obtaining a contract and costs to fulfil a contract.

As a result, revenue recognition is considered to be one of the most significant risks of material misstatement.

Our response to the risk included:We reviewed the group’s paper on the assessment of the impact of IFRS 15 and its implementation, including the effect on opening equity of the recognition of contract asset and liability balances, and in particular the impact of the new standard on the treatment of implementation revenues.

Our procedures included:• reviewing the terms for the various contract types, including significant new contracts entered into during the year

and confirming that revenue had been recognised in compliance with the group’s revenue recognition policies and IFRS 15;

• checking the completeness of the contracts which included promises to provide implementation services;• recalculating the adjustments made by management in respect of these contracts; and• considering and challenging the assumptions made by management in calculating the adjustments to contract

assets.

Recognition of current income tax and deferred tax balances 2019: Current income tax receivable £1.2m (2018: £0.5m); Deferred tax asset £3.1m (2018: £1.5m); Deferred tax liabilities £3.0m (2018: £3.1m); Income tax credit £2.9m (2018: £2.3m) – refer to accounting policies 1.8 and 1.28 (pages 53 and 60) and financial disclosures (note 9 – pages 66 to 67).

The risk:We identified the recognition of the current income tax receivable and deferred tax assets as being potentially complex and involving a degree of management judgement in assessing appropriate estimates of the amounts expected to be recoverable. This area was significant to our audit as there is a potential range of outcomes which could exceed our assessment of financial statement materiality.

Current income tax receivable:The current income tax receivable relates to Research and Development (R&D) tax credits which are enhanced allowances for tax purposes on qualifying expenditure on development projects. Claims have been submitted to HMRC for the years ended 31 March 2016 and 31 March 2017, but full settlement of these claims has not yet been received. HMRC initially raised some queries in respect of the claim for the year ended 31 March 2016 and management understand that these have been resolved and this claim will be paid. Management considers that its claims are valid, and that similar claims will be made for the years ended 31 March 2018 and 31 March 2019. Initially management recognised receivables in respect of the 31 March 2016 and 31 March 2017 claims resulting in a risk of mis-statement in respect of the two subsequent years.

Our response to the risk included:• supplementing the audit team with a tax specialist to consider the validity and amount of claims submitted for the

years ended 31 March 2016 and 31 March 2017;• challenging management as to whether the approach adopted in prior years, based on only recognising a current

tax asset for the period which claims had been submitted, remained relevant given the progress on the claims during the year;

• in response to management’s conclusion that it was more likely than not that claims would be made and received in respect of years ended 31 March 2018 and 31 March 2019, requesting that they reconsider their estimate of the current income tax receivable at 31 March 2019; and

• considering the appropriateness of the resulting adjustment, determined by management, based on the nature of the previous claims and our knowledge of the group’s qualifying R&D activity.



INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CASTLETON TECHNOLOGY PLC continued

Deferred tax asset:Initially, a deferred tax asset in respect of unclaimed capital allowances was recognised to the extent that its recovery was anticipated over a three-year period. Whether a larger asset should be recognised, on consolidation, to the extent that it would offset deferred tax liabilities recognised on consolidation, in respect of acquired intangible assets, requires a significant degree of judgement by management.

Our response to the risk included:• supplementing the audit team with a tax specialist to consider the calculation of the deferred tax assets and liabilities

at 31 March 2019 and consider their expected future reversal;• challenging management as to whether the approach adopted in the prior year remained relevant, given that the

timing of the reversal of the deferred tax liability on the acquired intangibles is closely aligned to the expected use of the unclaimed capital allowances;

• in response to management’s conclusion that it was more likely than not that a significant element of the previously unrecognised deferred tax asset would be recovered, requesting that they reconsider their estimate of the deferred tax asset at 31 March 2019; and

• considering the appropriateness of the resulting adjustment determined by management.

Parent company key audit mattersIn connection with the separate parent company financial statements, we have determined that there are no Key Audit Matters to communicate in our report.

Our application of materialityWhen establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures. When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could reasonably influence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements. During planning materiality for the group financial statements as a whole was calculated as £275,000, which was not significantly changed during the course of our audit. Materiality for the parent company financial statements as a whole was calculated as £150,000, which was not significantly changed during the course of our audit. We agreed with the Audit Committee that we would report to them all unadjusted differences in excess of £13,750 as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

An overview of the scope of our auditThe Group has twenty-one components, of which ten are dormant. Of the remaining eleven components, five were subject to full scope audits by RSM UK Audit LLP and the remaining components were subject to specific procedures which principally consisted of desktop review of management figures.

The components subject to full scope audits accounted for 92% of group turnover and 97% of group assets.

The audit was scoped to support our audit opinion on the group and company financial statements of Castleton Technology plc and was based on group materiality and an assessment of risk at group level. The procedures described above in the key audit matters section were applied to all of the five full scope audit components, where applicable.

Other informationThe directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.


Opinions on other matters prescribed by the Companies Act 2006In our opinion, based on the work undertaken in the course of the audit:• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial

statements are prepared is consistent with the financial statements; and• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exceptionIn the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not

been received from branches not visited by us; or• the parent company financial statements are not in agreement with the accounting records and returns; or• certain disclosures of directors’ remuneration specified by law are not made; or• we have not received all the information and explanations we require for our audit.

Responsibilities of directorsAs explained more fully in the directors’ responsibilities statement set out on page 39, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our reportThis report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

CHARLES FRAY (Senior Statutory Auditor)For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered AccountantsSt Philips PointTemple RowBirminghamB2 5AF

18 July 2019



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 MARCH 2019

Note

Year ended 31 March 2019

£000

Year ended 31 March 2018

£000

Revenue 26,357 23,279Cost of sales (7,319) (7,211)Gross profit 19,038 16,068Administrative expenses (17,238) (14,770)Exceptional charges 5 (319) (576)Exceptional credits 5 11 1,420Operating profit 1,492 2,142Finance income 7 13 26Finance costs 7 (313) (340)Profit on ordinary activities before taxation 1,192 1,828Income tax credit 9 2,904 2,295Profit for the year attributable to owners of the parent company 4,096 4,123Other comprehensive incomeItems that may be subsequently reclassified to profit or lossForeign operations – foreign currency translation differences 25 41Total comprehensive income for the year attributable to owners of the parent company 4,121 4,164Earnings per share Basic earnings per share 10 5.08p 5.23pDiluted earnings per share 10 4.81p 5.00p

Non-GAAP measure: Adjusted EBITDAOperating profit 1,492 2,142Depreciation and amortisation 3,691 3,333EBITDA 5,183 5,475Share-based payments 834 484Exceptional credits 5 (11) (1,420)Exceptional charges 5 319 576Adjusted EBITDA* 6,325 5,115

* Earnings for the year from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional costs and share based payment charges.

The notes on pages 51 to 82 are an integral part of these financial statements.


CONSOLIDATED BALANCE SHEETAS AT 31 MARCH 2019

Note

31 March2019£000

31 March2018£000

AssetsNon-current assetsIntangible assets 11 34,010 32,075Property, plant and equipment 12 1,427 872Trade and other receivables 13 288 250Deferred tax asset 9 3,116 1,462

38,841 34,659Current assetsInventories 70 72Trade and other receivables 13 8,408 6,385 Current income tax receivable 1,189 516Cash and cash equivalents 14 1,389 510

11,056 7,483Total assets 49,897 42,142Equity and liabilitiesEquity attributable to owners of the parentShare capital 23 1,681 1,628Share premium account 191 17,006Equity reserve 143 251Merger reserves 7,966 7,966Translation reserve 66 41Other reserves 50 –Accumulated profit/(loss) 15,209 (8,383)Total equity attributable to the owners of the parent 25,306 18,509LiabilitiesCurrent liabilitiesTrade and other payables 15 13,929 11,080Borrowings 16 1,342 1,008Deferred consideration 18 150 592Liability in respect of MXC Scheme settlement – 1,662Provisions 19 156 121

15,577 14,463Non-current liabilitiesTrade and other payables 15 1,304 1,252Borrowings 16 2,751 2,342Convertible loan notes 17 1,883 2,378Deferred consideration 18 – 143Deferred taxation liabilities 9 2,952 3,055Provisions 19 124 –

9,014 9,170Total liabilities 24,591 23,633Total equity and liabilities 49,897 42,142

The notes on pages 51 to 82 are an integral part of these financial statements. The financial statements on pages 46 to 82 were approved by the Board and authorised for issue on 18 July 2019 and are signed on its behalf by:

Dean Dickinson Haywood ChapmanDirector Director



CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 MARCH 2019

Attributable to the owners of the Parent CompanyAccumulated

(Loss)/profit £000

Total equity£000

Called up share capital

£000

Share premium account

£000

Equity reserve (a)

£000

Merger reserve (b)

£000

Translation reserve (c)

£000

Other reserves (d)

£000

At 1 April 2017 1,625 16,995 2,919 7,966 – – (13,996) 15,509Profit for the period – – – – – – 4,123 4,123Other comprehensive income – – – – 41 – – 41Total comprehensive income – – – – 41 – 4,123 4,164Transactions with owners in their capacity as owners:Share based payments – – – – – – 484 484Waiver of Opus loan notes – – (392) – – – 392 –Exercise of warrants 3 11 – – – – – 14Settlement of MXC warrants – – – – – – (1,662) (1,662)Settlement of Equity reserve – – (2,276) – – – 2,276 –At 31 March 2018 1,628 17,006 251 7,966 41 – (8,383) 18,509Profit for the period – – – – – – 4,096 4,096Other comprehensive income – – – – 25 – – 25Total comprehensive income – – – – 25 – 4,096 4,121IFRS 15 cumulative adjustment (j) – – – – – – (426) (426)Transactions with owners in their capacity as owners:Share based payments – – – – – – 834 834Shares issued to Brixx

International (e) 29 1,157 – – – – – 1,186Conversion of MXC loan notes (f) 15 617 (108) – – – 108 632Shares issued to CarbonNV

Infologic India Private Limited (g) 4 191 – – – – – 195Exercise of share options (h) 5 55 – – – – – 60Capital Reduction (i) – (18,835) – – – – 18,835 –Tax relating to items recognised

directly in equity – – – – – – 145 145Obligation to issue shares on

exercise of options (h) – – – – – 50 – 50At 31 March 2019 1,681 191 143 7,966 66 50 15,209 25,306

(a) Equity reserveThe equity reserve consists of the equity component of convertible loan notes that were issued as part of the consideration for past acquisitions less the equity component of instruments converted or settled.

The fair value of the equity component of convertible loan notes issued is the residual value after deduction of the fair value of the debt component of the instrument from the face value of the loan note.

The £143,000 balance at 31 March 2019 relates to the loan notes issued for the purchase of Kypera Holdings Limited.

(b) Merger reserveThe merger reserve arose from the acquisition of Redstone Communications Limited (£216,000) and Maxima Holdings Limited (formerly Maxima Holdings plc) (£7,750,000) and represents the difference between the value of the shares acquired (nominal value plus related share premium) and the nominal value of the shares issued.

(c) Translation reserveOn consolidation, the balance sheets of Castleton Technology Pty Ltd (formerly Kypera Australia Pty Ltd), Kinetic Information Systems Pty Ltd and Castleton India are translated into sterling at the rates of exchange ruling at the balance sheet date. Income statement Items and cash flows are translated into sterling at rates approximating to the foreign exchange rates at the date of the transaction. Exchange gains or losses arising from the consolidation of these companies are recognised in the translation reserve.

(d) Other reserves Other reserve movements were share options exercised but not yet registered (see section (h)) below.


(e) Shares issued to Brixx International During the period, the Company issued a total of 1,432,706 new ordinary shares of 2 pence each to Brixx International Limited at a price of 82.75 pence per ordinary share, in respect of the acquisition of the exclusive, perpetual and assignable licence in relation to the Castleton Strategic Modelling (formerly “Brixx”) platform (“the Asset Purchase”), further development of the platform and settlement of pre Asset Purchase licence fees payable.

The consideration for the Asset Purchase was £1,686,000, of which £1,186,000 was satisfied by the issue of new ordinary shares of 2 pence each and £500,000 was paid in cash on 2 July 2018. The cash element has been included in “Purchase of intangible assets” in the Consolidated Cash Flow Statement.

(f) Conversion of MXC Loan notes On 9 August 2018, MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited (“MXC”) served a conversion notice with respect to the remaining convertible loan notes (“CLNs”) it held, together with the accrued interest, amounting to £632,000 in total.

The CLNs were converted at 85.6 pence per ordinary share of 2 pence each in the capital of the Company therefore 738,896 new ordinary shares of 2 pence were allotted to MXC on 17 August 2018.

(g) Shares issued to the owners of CarbonNV InfoLogic India Private LimitedOn 20 February 2019 the Company issued 200,331 ordinary shares of 2 pence in the capital of the Company (“ordinary shares”) and paid cash of £154,678 (total consideration of £350,000) for the acquisition of Castleton India (previously known as CarbonNV InfoLogic India Private Limited).

(h) Exercise of share optionsOn 29 August 2018, Haywood Chapman, Chief Financial Officer, exercised 271,000 options over new ordinary shares of 2 pence each in the capital of the Company, at an exercise price of 22 pence per ordinary share.

On 28 March 2019, options in respect of 66,225 shares of 2 pence each were exercised at an exercise price of 75.5 pence per share and application made for admission to trading. The obligation to issue the shares has been recognised in other reserves (see (d) above), and on 1 April 2019 the shares were registered and issued.

(i) Capital reductionOn 23 October 2018, the High Court of Justice in England and Wales made an order confirming the cancellation of the amount standing to the credit of the Company’s share premium account (the “Capital Reduction”) under section 648 of the Companies Act 2006. This transfers the balance into the Profit and loss reserve.

(j) IFRS 15 Cumulative adjustmentAdoption of IFRS 15 from 1 April 2018 has required an adjustment to accumulated loss to reflect the cumulative effect of the change in policy net of tax. Further details are included in note 1 ‘Accounting Policies’.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY continuedFOR THE YEAR ENDED 31 MARCH 2019



CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2019

Note

31 March 2019£000

31 March 2018£000

Cash flows from operating activitiesCash generated from operations 25 6,502 5,177 Exceptional costs 5 (381) (723) Finance charges paid (147) (142) Income taxes refunded/(paid) 198 (8) Net cash flows generated from operating activities 6,172 4,304 Cash flows from investing activitiesReceipt of deferred consideration from sale of businesses sold 68 63Acquisition of businesses net of cash acquired (1,963) (1,052) Purchase of property, plant and equipment (972) (368) Purchase of intangible assets (1,042) (356) Net cash flows used in investing activities (3,909) (1,713) Cash flows from financing activitiesIssue of share capital 110 –Exercise of share warrants – 14Settlement of deferred consideration 25 (600) (850) Settlement of MXC scheme liability 25 (1,662) –New borrowings 25 4,000 –Repayment of borrowings 25 (3,257) (1,556) Net cash used in financing activities (1,409) (2,392) Net increase in cash and cash equivalents 854 199 Foreign exchange effects 25 41Cash and cash equivalents at 1 April 510 270 Cash and cash equivalents at 31 March 14 1,389 510


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEAR ENDED 31 MARCH 2019

1 Accounting policies – GroupCastleton Technology plc (Castleton) is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on AIM, the market of that name operated by the London Stock Exchange. The registered office is The Walbrook Building, 25 Walbrook, London, EC4N 8AF and the principal place of business is the United Kingdom. The principal accounting policies, which have been applied consistently in the preparation of these consolidated financial statements throughout the year and by all subsidiary companies, are set out below:

1.1 Basis of preparationThe consolidated financial statements of Castleton have been prepared on the going concern basis and in accordance with EU adopted International Financial Reporting Standards (IFRS), IFRIC interpretations and the provisions of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Section 1.28 in the accounting policies.

New standards adopted in the year are discussed in Section 1.27.

Going ConcernThe Directors have prepared detailed cash flow projections including sensitivity analysis on key assumptions. The Group’s forecasts and projections show the Group will be able to operate within the level and conditions of available funding. Based on the performance for the year and the funding available, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements.

1.2 Basis of consolidationSubsidiaries are all entities (including special purpose entities) over which the Group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a business is the total of the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets.

Acquisition-related costs are expensed as incurred.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of contingent consideration classified as a liability is recognised in accordance with IFRS 9 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. Inter-company transactions, balances and unrealised gains or losses on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.



1 Accounting policies – Group continued1.3 Intangible assetsGoodwillGoodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of any non-controlling interest over the fair value of the net identifiable assets acquired and liabilities assumed in a business combination. If this consideration is lower than the fair value of the net assets of the business acquired, the difference is recognised in profit or loss.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

The carrying amount of goodwill allocated to a cash generating unit is taken into account when determining the gain or loss on disposal of the unit, or of an operation within it. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash generating unit retained.

Software and customer relationshipsIntangible assets that meet the criteria to be separately recognised as part of a business combination are carried at cost (which is equal to their fair value at the date of acquisition) less accumulated amortisation and impairment losses. An intangible asset acquired as part of a business combination is recognised separately if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Intangible assets acquired in this manner include software and customer relationships. They are amortised over their estimated useful lives on a straight line basis as follows:• Software – 7- 15 years• Customer contracts and related relationships – 7- 15 years

Impairment and amortisation charges are included within the administrative expenses line in the income statement.

Capitalisation of development expenditureCosts directly attributable to the development of software are capitalised as intangible assets only when technical and commercial feasibility of the project is demonstrated, the Group has an intention and ability to complete and use the software and the costs can be measured reliably as per IAS 38. Such costs include internal labour costs of employees directly involved in the project with research costs being recognised as an expense when incurred.

The amortisation period of the capitalised development costs is calculated on a project by project basis depending on the expected period during which the economic benefits will be recognised. The amortisation periods are between 3 and 7 years.

Upgrade of softwareUpgrades are specifically referred to in customer contracts which state the Company will make Patches and Upgrades available to Customers. Customers have a contractual right to these upgrades within a reasonable time after their publication. Upgrades are defined as an incremental modification or enhancement software release, in object code form, containing new enhancements, features or functionalities, and may be a consolidation of one or more Patches. They do not constitute a fundamental change in the software. As the costs occur regularly over the course of the contract they are recognised and written off to profit or loss as incurred.

1.4 Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. The cost includes the original price of the asset and the cost attributable to bringing the asset to its current working condition for its intended use.

Depreciation is calculated on a straight-line basis on the cost of the asset less residual value over the estimated useful life of the asset which is reviewed on an annual basis, as follows:

Short leasehold improvements Over the lease term or 5 years if lessNetwork infrastructure 1–5 yearsEquipment, fixtures and fittings 2–5 years

An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is de-recognised.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedYEAR ENDED 31 MARCH 2019


1 Accounting policies – Group continued1.5 Impairment of assetsGoodwill is not subject to amortisation and is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date any goodwill acquired is allocated to each of the cash generating units expected to benefit from the business combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash generating unit to which the goodwill relates. When the recoverable amount of the cash generating unit is less than the carrying amount, including goodwill, an impairment loss is recognised.

Other intangible assets and property, plant and equipment are subject to amortisation and depreciation and are reviewed for impairment whenever events or changes in circumstances indicate the carrying values may not be recoverable. In addition, the carrying value of capitalised development expenditure is reviewed for impairment annually. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.

The recoverable amount of intangible assets and property, plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined by the cash generating unit to which the asset belongs. Fair value less costs to sell is, where known, based on actual sales price net of costs incurred in completing the disposal.

Non-financial assets that were impaired in previous periods are reviewed annually to assess whether the impairment is still relevant.

1.6 Share capitalOrdinary shares and redeemable preference shares are classified as equity. The redeemable preference shares are classified as equity as the option to redeem lies with the company. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from proceeds.

1.7 LeasesWhere the Group has substantially all the risks and rewards of ownership of property, plant and equipment, the assets are capitalised as property, plant and equipment and depreciated over the shorter of their useful economic life and the lease term. The resulting lease obligations are included in borrowings net of finance charges. Interest costs on finance leases are charged to the income statement so as to produce a constant periodic rate of charge on the remaining balance of the liability for each period.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

1.8 Current and deferred income taxCurrent tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.

Tax is charged or credited in the Income Statement except when it relates to items charged or credited to equity, in which case the tax is also dealt with in equity.

Deferred income tax is provided for on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, with the following exceptions:• where the temporary difference arises from the initial recognition of goodwill or an asset or liability in a transaction

that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;

• in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and

• deferred income tax assets are recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences carried forward, tax credits or tax losses can be utilised.



1 Accounting policies – Group continued1.9 DividendsDividends are recognised when declared during the financial year and no longer at the discretion of the Company.

1.10 InventoriesInventories comprise goods for re-sale and are stated at the lower of cost and net realisable value.

1.11 Cash and cash equivalentsCash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

1.12 Foreign currenciesItems included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Pounds Sterling (£) which is the Group’s presentation currency.

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. The financial statements are presented to the nearest £’000.

Foreign exchange gains and losses relating to Intercompany loans which are part of the net investment in foreign operations are recognised in Other Comprehensive Income and accumulated within the Translation Reserve in equity in the Group consolidated financial statements.

The results and financial position of Group entities which have a functional currency different to the presentation currency are translated into the presentation currency as follows:a) Assets and liabilities for each balance sheet are translated at the closing rate at the date of that balance sheetb) Income and expenses are translated at the average exchange rate for the periodc) All resulting exchange differences are recognised in Other Comprehensive Income

1.13 ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

1.14 PensionsThe Group operates a number of defined contribution schemes. Pension costs are charged directly to the income statement in the period to which they relate on an accruals basis. The Group has no further payment obligations once contributions have been paid.

1.15 Share-based payment transactionsEquity settled and cash settled share based compensation benefits are provided to employees.

The cost of equity-settled transactions with employees is measured by reference to the fair value of the award at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date at which the relevant employees become fully entitled to the award. Fair value is determined by an external valuer using an appropriate pricing model for which the assumptions are approved by the Directors. In valuing equity-settled transactions, only vesting conditions linked to the market price of the shares of the Company are considered.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.



1 Accounting policies – Group continued1.15 Share-based payment transactions continuedAt each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of non-market conditions, number of equity instruments that will ultimately vest or in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in the cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity.

Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the existing charge is recognised immediately. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement.

The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows:• during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by

the expired portion of the vesting period.• from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the

reporting date.

All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability.

Provision is made for the amount of employers national insurance contributions on certain employee incentive schemes, assessed on a scheme by scheme basis according to the share option conditions ascribed. Where the option conditions permit that employers national insurance may be borne by the employee or employer, management judgement is required in calculation of the provision.

1.16 Accrual for employee benefits, including holiday pay Provision is made for employee benefits, including holiday pay, to the extent of the liability if all employees of the Group had left the business at its reporting date.

1.17 Financial assetsIn accordance with IFRS 9, from 1 April 2018 the Group classifies its financial assets as either those to be measured at fair value (either through profit or loss, or Other Comprehensive Income), or at amortised cost.

At the reporting date the Group’s financial assets comprise only trade and other receivables, and these are initially measured at fair value and subsequently at amortised cost, using the effective interest method.

From 1 April 2018 impairment of trade and other receivables is assessed using a forward-looking expected credit loss model, applying the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised in respect of the receivables.

Accounting policies applied until 31 March 2018The Group has applied IFRS 9 retrospectively but has elected not to restate comparative information. As a result the comparative information provided continues to be accounted for in accordance with the Group’s previous accounting policy.

In the previous period financial assets were classified as loans and receivables, and comprised trade and other receivables. The Group assessed impairment at the end of each reporting period based on whether there was evidence that the balance was not recoverable in full arising from events that had occurred, such as financial difficulty or bankruptcy of the debtor, or there were indicators of impairment such as default or delinquency in payment. The amount of the provision was the difference between the asset’s carrying amount and the present value of future cash flows.



1 Accounting policies – Group continued1.18 Compound financial instrumentsCompound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.

The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.

1.19 Interest-bearing loans and borrowingsAll loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised in the finance cost line in the income statement.

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.

1.20 Trade and other payablesTrade payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

1.21 Finance costsLoans are carried at fair value on initial recognition, net of unamortised issue costs of debt. These costs are amortised over the loan term. Where a significant change occurs in respect of a loan, any unamortised issue costs arising from previous issues of debt are recognised in the income statement in full.

All other borrowing costs are recognised in the income statement on an accruals basis, using the effective rate method.

1.22 RevenueThe Group generates revenue from the provision of software licences, implementation services, maintenance and support, outsourced hosting managed services and sale of hardware. Products and services are sold in bundled packages and may include ad-hoc consultancy services for example to implement upgrades or to provide for further user licences during the contract period.

Software licences are provided on either a ‘hosted’ or ‘installed’ basis and contracts typically include an initial contract term of more than one year and, thereafter renew on an annual basis.

Implementation services comprise ‘go live’ support which can include; design and build, data migration, training, configuration and implementation. Hosted managed services contracts are multi-element contracts which may include hosted IT infrastructure, hosted desktop, data back-up, support services and provision of various software applications.

Revenue is recognised when the performance obligation has been satisfied by transferring the promised good or service to the customer.

At contract inception, the transaction price is determined, being the amount that the Group expects to receive for transferring the promised goods or services. The transaction price is allocated to the performance obligations in the contract based on their relative standalone selling prices.

Standard payment terms are thirty days after the date of the invoice. This does not prevent the customer from withholding payment of any amount of an invoice which is the subject of a genuine and bona fide dispute. Standard warranty terms are 90 days from the delivery date.



1 Accounting policies – Group continued1.22 Revenue continuedSoftwareSoftware comprises a licence to use the software, upgrades and support and maintenance. Management have concluded that the upgrades are fundamental to the functionality of the software and that therefore, there is a single performance obligation. Management have also determined that the licence granted to the customer provides them with the right to access the intellectual property as it exists, throughout the licence period, and consequently, where there is an obligation to provide the licence with upgrades over time, revenue from this single performance obligation is recognised on a straight line basis over the contract period. In instances where there are no ongoing obligations, the revenue would be recognised at a point in time.

Implementation servicesDetermination of whether implementation is a distinct performance obligation is based on the degree of complexity involved in the service, as judged by management. Where the service comprises basic changes and configuration to implement the software, it is regarded as distinct and revenue is recognised as the performance obligation is met. Where the implementation requires significant configuration and modification of the underlying software, it is not considered to be distinct and is combined with other promises in the contract. The treatment of implementation services will be assessed on a contract by contract basis.

Managed servicesExcluding implementation, which is assessed separately (see above), all remaining goods and services within managed services contracts are part of a series of goods and services that are substantially the same and have the same pattern of transfer to the customer. The revenue from all these services is recognised on a straight-line basis over the contract period, which is the period over which the customer receives and consumes the benefits of goods and services.

Sales of hardwareSales of hardware are recognised at the point that control of the hardware is transferred to the customer. This is usually on delivery.

Financing arrangements Where a financing component exists in customer contracts, because of the payment profile of the implementation fee which is paid upfront but may be recognised over the period of the contract, the financing component of the fee is separated from the monthly revenue and recognised separately as interest.

Contract costsThe incremental costs associated with obtaining a contract are recognised as an asset if the Group expects to recover the costs. Costs that are not incremental to a contract are expensed as incurred. Management determine which costs are incremental and meet the criteria for capitalisation.

Costs to fulfil a contract, which are not in the scope of another standard, are recognised separately as a contract fulfilment asset to the extent that they relate directly to a contract which can be specifically identified and the costs are expected to be recovered. Contract fulfilment assets are amortised over the expected contract period on a systematic basis representing the pattern in which the associated performance obligation is satisfied.

Costs to fulfil a contract, which do not meet the criteria above, are expensed as incurred.

The Group undertakes an assessment, at each reporting date, to determine whether capitalised contract costs and contract fulfilment assets are impaired. An impairment loss is recognised if the carrying amount of the capitalised contract costs or contract fulfilment asset exceeds the remaining consideration expected to be received for the services to which the asset relates, less the costs that directly relate to providing the services under the contract.

Deferred and accrued incomeWhere the payment schedule within a customer contract does not match the transfer of goods and services, the Group will recognise either accrued or deferred income.

A deferred income contract liability is recognised where payments made exceed the revenue recognised at the period end date. An accrued income contract asset is recognised where payments made are less than the revenue recognised at the period end date.

1.23 Finance incomeIncome is recognised on an accrual basis using the effective interest method.



1 Accounting policies – Group continued1.24 Exceptional itemsItems which are material either because of their size or their nature, are highlighted separately on the face of the income statement. The separate reporting of exceptional items helps provide a better picture of the Group’s underlying performance. Items which may be included within the exceptional category include:• acquisition costs• spend on the integration of significant acquisitions and other major restructuring programmes; • significant goodwill or other asset impairments; and • other particularly significant or unusual items.

Spend on integration is incurred by the Group when integrating one trading business into another. The types of costs include employment related costs of staff made redundant as a consequence of integration, due diligence costs, property costs such as lease termination penalties and vacant property provisions, third party advisor and consultant fees and rebranding costs.

Exceptional items are excluded from the headline profit measures used by the Group and are highlighted separately in the income statement as management believe that they need to be considered separately to gain an understanding of the underlying profitability of the trading businesses.

1.25 Operating profit or lossThe operating profit or loss is identified in the income statement and represents the profit on activities before finance income and costs and taxation.

1.26 Segmental reportingThe Chief Operating Decision Maker has been identified as the Executive Board. The Executive Board reviews the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The Executive Board assesses the performance of the operating segments based on adjusted EBITDA. Information provided to the Executive Board is measured in a manner consistent with that in the Financial Statements.

1.27 Application of new IFRSs and interpretations (a) the following new standards impacting the Group which were adopted in the annual financial statements for the year ended 31 March 2019 and which have given rise to changes in the Group’s accounting policies are:

• International Financial Reporting Standard (IFRS) 15 ‘Revenue from contracts with customers’ (effective 1 January 2018*)• International Financial Reporting Standard (IFRS) 9 ‘Financial instruments’ (effective 1 January 2018*)

(b) The following new standards and interpretations, which are not yet effective and not yet endorsed by the EU and have not been early adopted by the Group, will be adopted in future accounting periods:

• International Financial Reporting Standard (IFRS) 16 ‘Leases’ (effective 1 January 2019*)• IFRIC 23 Uncertainty over Income Tax Treatment (effective 1 January 2019*)

* Effective for annual reporting periods beginning on or after the dates above

IFRS 15IFRS 15 (Revenue from contracts with customers) is effective for the Group for the period starting 1 April 2018. The Group has applied IFRS 15 on a cumulative effect basis with one practical expedient from the date of initial application (1 April 2018), without restatement of comparative amounts. The practical expedient used by the Group is that IFRS 15 allows immediate recognition of all contract costs as an expense if the amortisation period of such costs would not have exceeded 12 months.

Disclosures relating to IFRS 15 are given in note 2.

Quantitative impact of IFRS 15 adoptionThe quantitative impact of IFRS 15 on the 2019 financial statements is;• A reduction in revenue of £0.1 million for the year ended 31 March 2019• A reduction in cost of sales and administrative expenses of £0.1 million in total, for the year ended 31 March 2019,

resulting in no material change to operating profit• A reclassification of deferred income to contract liabilities, which have increased by £1.3 million at 1 April 2018, of

which £0.7 million is current and £0.6 million is non-current• A reclassification of £0.6 million accrued income to contract assets. A further increase in contract assets related to

deferred costs of £0.8 million at 1 April 2018, of which £0.5 million is current and £0.3 million is non-current• An increase in the deferred tax asset of £0.1 million at 1 April 2018• An adjustment to the accumulated profit and loss reserve of £0.4 million (net of tax) at 1 April 2018.



1 Accounting policies – Group continued1.27 Application of new IFRSs and interpretations continuedThe key reasons for these changes are:• Non distinct implementation services and associated contract fulfilment costs – under IFRS 15, implementation

services that do not meet the criteria to be a distinct performance obligation will result in the fees associated with these services being combined with other promises in the contract and recognised over the contract term. Under previous accounting policies, implementation costs associated with the implementation of software were expensed to the income statement as incurred. Under IFRS 15, these costs are capitalised as contract fulfilment assets and amortised over the life of the contract.

• Costs of obtaining a contract - Under previous accounting policies costs (for example sales commissions, legal costs) associated with individual contracts were recognised when contracts were signed. Under IFRS 15, where they are incremental to obtaining the contract and are expected to be recovered, these costs are capitalised and amortised over the life of the contract.

IFRS 9Effective 1 April 2018, the Group adopted IFRS 9 Financial Instruments. IFRS 9 addresses the classification, measurement and derecognition of financial instruments, and introduces new rules for hedge accounting and a new impairment model for financial assets. It replaces IAS 39 Financial Instruments: Recognition and Measurement, and comprehensive updates have been made to IFRS 7 Financial Instruments: Disclosures and IAS 32 Financial Instruments: Presentation. The adoption of IFRS 9 has had no material impact on the Group Financial Statements. The Group has not restated the comparative results on adoption and the required additional disclosures are included in Note 13.

IFRS 16The new IFRS 16 standard covering the accounting for leases will replace IAS 17 and associated interpretations. It introduces a standard accounting model for lessees. As a result, lessees are obliged to recognise right-of-use assets and liabilities for all contracts that are, or contain, a lease. The impact of IFRS 16 on Castleton is being assessed. The main impact is expected to be around property leases of which the Group currently has 10 that would be impacted.

Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under IFRS 16 will be higher when compared to lease expenses under IAS 17. However adjusted EBITDA* results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under IFRS 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component.

* Earnings for the year from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional costs and share based payment charges

IFRIC 23 Uncertainty over Income Tax TreatmentsIFRIC 23 Uncertainty over Income Tax Treatments (effective from 1 April 2019, for the year ending 31 March 2020, not yet endorsed), clarifies how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over tax treatment under IAS 12. The Group has not yet assessed the potential impact on its Group Financial Statements resulting from the application of IFRIC 23.

1.28 Critical accounting estimates and judgementsEstimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

1.28 (a) Critical accounting estimatesThe Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:

• Estimated valuation of intangibles

On acquisition of a new business, the Group identifies intangible assets. This calculation involves estimates about future revenues, costs, cash flows and the cost of capital for the Group. It also involves estimating royalty rates used in the valuation model for software acquired in business combinations, and the estimated life of customer relationships. See note 11 for further information.



1 Accounting policies – Group continued• Recognition and determination of current and deferred tax assets

Castleton Group Holdings Limited holds £33.5 million of brought forward losses. No deferred tax asset has been recognised for these losses because this company Is not currently forecasting to make profits which would be available to use against these losses.

A research and development (R&D) claim relating to 2016/17 was submitted to HMRC during the year. Further claims are expected to be made for 2017/18 and 2018/19 and estimates of the value of these claims have been recognised.

1.28 (b) Critical judgements in applying accounting policies• Revenue recognition

The Directors exercise judgement in relation to implementation services provided as to if they are non distinct or distinct performance obligations, which will affect the accounting treatment applied under IFRS 15, adopted in the period.

• Classification as exceptional costs

The Directors have exercised judgement when classifying certain costs as integration and strategic costs. They believe that these costs are all related to the costs described in note 1.24.

2 Segment reportingOperating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Makers (‘CODM’). The CODM has been identified as the Executive Board.

The Group is comprised of the following main operating segments:

Managed Services In this segment are the results of Castleton Managed Services Ltd for the year ended 31 March 2019.

The segment is engaged in the provision of IT infrastructure and support for businesses throughout the United Kingdom.

Software Solutions This segment comprises the results of Castleton Software Solutions Ltd and Castleton Technology Pty Ltd for the year ended 31 March 2019.

The results of Kinetic Information Systems Pty Ltd (“Kinetic”) are included in this segment from the date of acquisition on 1 December 2017.

The results of DeepLake and Castleton Technology India are included in this segment from their respective dates of acquisition (10 January 2019 and 20 February 2019).

The segment is engaged in the provision of integrated software solutions to the Housing Association sector.

Year ended 31 March 2019Managed Services

£000

Software Solutions

£000Central

£000Total£000

Revenue 11,353 15,004 – 26,357Operating profit/(loss) before amortisation of intangible assets and

management charge 2,942 4,589 (2,801) 4,730Amortisation of acquired intangibles (935) (2,268) (35) (3,238)Management charge (839) (982) 1,821 –Operating profit/(loss) 1,168 1,339 (1,015) 1,492Finance income 11 2 – 13Finance costs 5 (31) (287) (313)Profit/(loss) before tax 1,184 1,310 (1,302) 1,192Adjusted EBITDA* 3,279 4,732 (1,686) 6,325

* Earnings for the year before net finance costs, tax, depreciation, amortisation, exceptional items, group management charge and share based payment charges.



2 Segment reporting continuedManaged Services

£000

Software Solutions

£000Central

£000Total £000

Segment Assets 12,122 38,690 (915) 49,897Segment Liabilities (4,616) (12,977) (6,998) (24,591)Net assets/ (liabilities) 7,506 25,713 (7,913) 25,306

IFRS 15 additional disclosuresManaged Services

£000

Software Solutions

£000Central

£000Total £000

Contract assets* at 1 April 2018 (as adjusted) 381 1,024 – 1,405Contract liabilities at 1 April 2018 (as adjusted) (1,847) (7,266) – (9,113)Net contract liabilities (1,466) (6,242) – (7,708)Amortisation recognised as cost of providing services during the year (343) (756) – (1,099)Contract liabilities released to revenue during the year 1,756 5,821 – 7,577Creation of new net contract assets/(liabilities) during the year (1,398) (4,917 ) – (6,315)Net contract liabilities at 31 March 2019 (1,451) (6,094) – (7,545)Consisting of:Contract assets* at 31 March 2019 368 1,331 – 1,699Contract liabilities at 31 March 2019 (1,819) (7,425) – (9,244)

* Contract assets comprise the costs to fulfil contracts with customers

Revenue yet to be recognised on long term contracts:The following table details the value of future contracted revenue resulting from the Group’s long term recurring software, managed service contracts and fees from professional services (in total, defined as the “contracted backlog”) which are yet to be recognised in the income statement due to the relevant contractual performance obligations not being satisfied before the year end. These amounts are set to be recognised in the Consolidated statement of comprehensive income across the period from 1 April 2019 to 31 March 2028 on a contract by contract basis as and when the performance obligations are met:

Managed Services

£000

Software Solutions

£000Central

£000Total £000

10,584 19,752 – 30,336

Revenue by contract type:All revenue disclosed is recognised in line with the Group’s accounting policy detailed in note 1.22 and has been generated from contracts with customers.

Managed Services

£000

Software Solutions

£000Central

£000Total £000

Sale of goods/services at a point in time 4,684 – – 4,684Sale of services spread over the period of the work performed 1,525 4,978 – 6,503Sale of services spread over the period of the contract 5,144 10,026 – 15,170

11,353 15,004 – 26,357

Managed Services

£000

Software Solutions

£000Central

£000Total £000

Revenue by products and servicesSale of hardware 3,369 – – 3,369Fees from professional services 1,538 4,093 – 5,631Recurring software, managed service revenues and other revenue 6,446 10,911 – 17,357

11,353 15,004 – 26,357



2 Segment reporting continued

Managed Services

£000

Software Solutions

£000Central

£000Total £000

Capital Expenditure: Property, plant and equipment 837 123 13 973 Intangibles – 2,228 – 2,228Depreciation (332) (111) (10) (453)Amortisation of intangibles (935) (2,268) (35) (3,238)

Year ended 31 March 2018Managed Services

£000

Software Solutions

£000Central

£000Total£000

Revenue 10,872 12,407 – 23,279Operating profit/(loss) before amortisation of intangible assets and

management charge 3,111 3,825 (1,767) 5,169Amortisation of acquired intangibles (968) (2,022) (37) (3,027)Management charge (1,013) (489) 1,502 –Operating profit/(loss) 1,130 1,314 (302) 2,142Finance income 17 3 6 26Finance costs – (42) (298) (340)Profit/(loss) before tax 1,147 1,275 (594) 1,828Adjusted EBITDA* 3,313 3,155 (1,353) 5,115

* Earnings for the year before net finance costs, tax, depreciation, amortisation, exceptional items, group management charge and share based payment charges.

Managed Services

£000

Software Solutions

£000Central

£000Total£000

Segment Assets 12,265 30,344 (467) 42,142Segment Liabilities (4,079) (11,440) (8,114) (23,633)Net assets/(liabilities) 8,186 18,904 (8,581) 18,509

Managed Services

£000

Software Solutions

£000Central

£000Total£000

Capital Expenditure: Property, plant and equipment 319 56 3 378 Intangibles – 355 – 355Depreciation (198) (98) (10) (306)Amortisation of intangibles (968) (2,022) (37) (3,027)

Income streams originating outside of the United Kingdom comprised £1,940,000 in respect of Castleton Technology Pty Ltd (formerly Kypera Australia Pty Limited) and Kinetic which had a combined revenue in 2018 of £1,000,000. Income and expenditure from these Australian companies have been grouped within Software Solutions in the above analysis.

The Group had no customers who accounted for more than 10% of the Group’s revenue during the year (2018: nil).

Analysis of revenue by category is as follows:Managed Services

£000

Software Solutions

£000Central

£000Total £000

Revenue by products and servicesSale of hardware 3,453 – – 3,453Fees from professional services 1,494 2,951 – 4,445Recurring software, managed service revenues and other revenue 5,925 9,456 – 15,381Total revenue 10,872 12,407 – 23,279



3 Expenses by nature2019 £000

2018 £000

Direct staff costs 736 517 Direct material costs 3,202 2,735 Hosting and other cost of sales 3,381 3,959 Staff costs within administrative expenses 9,177 8,591 Amortisation of intangible assets 3,238 3,027 Depreciation of property, plant and equipment 453 306 Share-based compensation (see note 24) 834 484 Amounts payable under operating leases 306 334 Other administrative costs 3,230 2,028 Total cost of sales and administrative expenses before exceptional (credits)/costs 24,557 21,981Exceptional costs/(credits)(see note 5) 308 (844) Total cost of sales and administrative expenses after exceptional (credits)/costs 24,865 21,137

4 Auditors’ remunerationBelow are the fees payable to the auditors and their associates:

2019 £000

2018 £000

Audit services Fees payable to Company’s auditor for the audit of parent company and consolidated financial

statements 50 37 Other services: The audit of the Company’s subsidiaries 82 79 Audit related assurance services 10 23 Tax advisory services 34 32 Amounts relating to due diligence services 11 25 Other non-audit services 37 11 Total 224 207

5 Exceptional ItemsIn accordance with the Group’s policy in respect of exceptional items the following (credits)/charges arose during the year:

Exceptional Credits

£000

Exceptional Charges

£000

2019 Total£000

2019Exceptional

cash paid

2018 Total£000

2018Exceptional

cash paid

Revaluation of Agile contingent consideration – – – – (748) –Integration and strategic costs – 5 5 77 – 240 Acquisition and reorganisation costs – 314 314 301 240 207 Waiver of Opus loan notes (see note 17) – – – – (220) –Creation of contract provision relating to Opus – – – – 215 –Full and final settlement of customer claim

provision provided on acquisition of Kypera – – – – (452) 178Restructuring (11) – (11) 3 121 98

(11) 319 308 381 (844) 723

In 2018 a deferred tax charge was recognised for £523,000 of the £748,000 credit relating to the revaluation of the Agile contingent consideration.

In 2019 and 2018, the exceptional costs relating to the acquisition of Kinetic have been transferred to Castleton Technology Pty Ltd in Australia where no tax credit has been recognised.

There have been no other significant tax adjustments relating to the other exceptional items.



6 Business CombinationsDeepLake Digital Limited (‘DeepLake’)On 10 January 2019, the Group acquired DeepLake who provide digital technology via SMS, e-mail and social media platforms for landlord and tenant communication specifically in the social housing sector, using its own proprietary software. This has enabled the Group to widen its product offering and is in alignment with the Group’s strategy of driving digital adoption within its customer base.

The Group paid a cash amount of £1,800,000 to acquire 100% of the share capital of DeepLake. £153,000 of DeepLake acquisition costs were taken as an expense to exceptional costs during the year.

In the period between acquisition in January 2019 and 31 March 2019, DeepLake recorded revenue of £278,000 and profit before tax of £174,000. Due to the formation of Deeplake Digital Limited following a hive down process on 1 December 2018, there is no reportable data for the period from 1 April 2018 available and therefore the impact on the consolidated financial statements has not been able to be quantified.

CarbonNV InfoLogic India Private Limited (“Castleton India”)On 20 February 2019, the Group acquired Castleton India, which has offices in Bangalore and Vadodara, India, and has provided additional development capability to the Group via a service agreement, which commenced from 1 April 2018. In conjunction with our UK development team, the additional investment in development resources will enable the Group to bring new products to market more quickly.

The Group paid a total consideration of £351,000 to acquire 100% of the share capital of Castleton India. This comprised of 200,331 ordinary shares of 2 pence in the capital of the Group and £156,000 of cash. £77,000 of Castleton India acquisition costs were taken as an expense to exceptional costs during the year.

In the period between acquisition in February 2019 and 31 March 2019, Castleton India recorded intercompany revenue of £52,000 and loss before tax of £5,000. Due to the Indian development service agreement being in place for the full financial year, the consolidated financial statements already include these costs within the pre-tax profit, with no impact on revenues.

The goodwill primarily comprises the skilled workforce acquired.

The total gross contracted amount of trade receivables acquired in these acquisitions was £103,000.Provisional Fair ValueDeepLake

£000

Provisional Fair Value

Castleton India£000

Cash consideration paid 1,800 156Consideration paid in shares of the Company – 195Provisional fair value of purchase consideration 1,800 351Less provisional fair value of assets acquired:Property plant & equipment – (36)Trade receivables net (68) (35)Other receivables – (32)Cash – (7)Income tax payable – 6Deferred taxation 456 –Contract liabilities 437 –Other liabilities 17 56Software intangible fixed asset (650) –Customer contracts intangible fixed asset (1,992) –Provisional goodwill recognised – 303

Kinetic Information Systems Pty Ltd (“Kinetic”)A final amount of the consideration for the acquisition of Kinetic of £14,000 was paid in the year.



7 Finance income and costsFinance income

2019 £000

2018 £000

Other finance income 13 26 13 26

Finance costs

2019 £000

2018 £000

Interest payable on bank loans and overdrafts 135 150 Interest expense in respect of: Convertible loan notes and deferred consideration discount unwind 170 190 Foreign exchange loss 8 –

313 340

8 Employee benefits expense 2019 £000

2018 £000

Staff costs for the year, including Executive Directors, amounted to: Wages and salaries 8,446 8,070 Social security costs* 931 758 Pension costs 273 184 Share based payments 834 484

10,504 9,496 * Included in the Social security costs is a cost of £124,000 (2018: £nil) for the estimated liabilities in respect of employer’s national insurance contributions due on certain employee incentive schemes.

Average monthly number of people (including Executive Directors) employed:2019 2018

Sales and Administration 41 37 Management 14 17 Operations 122 115 Total average headcount 177 169

2019 £000

2018 £000

Remuneration of key management personnel Salary 1,267 1,200 Other long term benefits 33 42 Share based payment expense 694 231

1,994 1,473

Key management is considered to comprise the Senior Management Team. Social security costs in respect of the Senior Management Team were £248,000 (2018: £158,000), which includes Employers National Insurance on share based payments.



8 Employee benefits expense continuedThe remuneration of the Directors of the Company, excluding share-based payment charges, was as follows:

Basic salary,allowances

and fees £000

Other fees£000

Bonuses £000

Benefits£000

Pensions£’000

2019Total £000

2018Total£000

460 30 94 6 7 597 703

Social security costs in respect of directors’ emoluments were £188,000 which includes Employers National Insurance on share based payments (2018: £74,000).

Further details are set out in the Remuneration Committee Report.

9 Income tax credit(a) Income tax credits

2019 £000

2018 £000

Current taxCurrent tax (credit)/charge on profit for the year (286) 41Adjustment in respect of prior years (636) (427) Deferred taxOrigination and reversal of timing differences (1,982) (1,909) Total tax (credit) (2,904) (2,295)

The rate of UK Corporation tax has been 19% since 1 April 2017 and will be 17% from the year beginning 1 April 2020.

A research and development (R&D) claim relating to 2016/17 was submitted to HMRC during the year. Further claims are expected to be made for 2017/18 and 2018/19 and estimates of the value of these claims have been recognised. The total for the three years is £0.9 million.

(b) Reconciliation of the total income tax creditThe tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

2019£000

2018£000

Profit from operations before taxation 1,192 1,828 Accounting profit multiplied by the UK standard rate of corporation tax of 19% (2018: 19%) 226 347Net items not deductible for tax purposes 66 56Adjustment to tax charge in respect of previous year (636) (427)Research & Development tax relief (810) –Effect of different tax rates 5 6Previously unrecognised deferred tax (1,755) (2,277)Total income tax credit on operations (2,904) (2,295)

(c) Unrecognised deferred tax assetThe Group has unrecognised deferred tax assets in respect of certain losses and reliefs, of £6.0 million (2018: £7.3 million). The composition of these losses and reliefs is as follows: property, plant and equipment differences £0.3 million (2018: £1.6 million), and tax losses of £5.7 million (2018: £5.7 million). Deferred tax assets have not been recognised in respect of these losses and reliefs where it is the view of the Directors that it is not certain that future taxable profits of the nature required will be available to offset against any deferred tax asset.



9 Income tax credit continued(d) Deferred tax asset/(liability)

Deferred tax liability

£000

Deferred tax asset

£000

Net deferred tax liability

£000

At 1 April 2017 (3,377) – (3,377)Credit to income statement 461 1,448 1,909Acquisitions (139) 14 (125)At 31 March 2018 (3,055) 1,462 (1,593)Credit to income statement 559 1,423 1,982Credit to equity – 231 231Acquisitions (456) – (456)At 31 March 2019 (2,952) 3,116 164

Deferred tax liabilities arise in respect of the temporary differences on acquired intangible assets, and the credit for the year to the income statement relates to the reduction in the differences as the intangible assets are amortised.

Deferred tax assets are recognised for tax losses, unused capital allowances and tax relief carried forward of £2,786,000 (2018: £1,385,000) and in respect of share based payments of £316,000 (2018: £63,000), to the extent that the realisation of the related tax benefit through future taxable profits is probable.

The deferred tax credit to the income statement relates to the recognition of a previously unrecognised deferred tax asset for unclaimed capital allowances (£1.1 million) and to brought forward losses (£0.3 million). Previously an asset was recognised only on the basis of the foreseeable profits for three years but the Group has concluded that an asset will be recoverable at least up to the amount of the deferred tax liability.

The deferred tax credit to equity comprises £0.1 million in respect of the effect of the adjustment on transition to IFRS 15 at 1 April 2018 and £0.1 million in respect of share based payments.

10 Earnings per shareBasic earnings per share are calculated by dividing the profit attributable to equity shares of the Company of £4,096,000 (2018: £4,123,000) by the weighted average number of shares of 80,659,635 (March 2018: weighted average number of shares of 78,714,832).

Diluted earnings per share are calculated by dividing the profit attributable to equity shares of the Company £4,233,000 (2018: £4,123,000) by the weighted average number of shares of 88,097,141 respectively (March 2018: weighted average number of shares of 82,474,239).

2019 2018

Statutory earnings per share:Basic earnings per share 5.08p 5.23pDiluted earnings per share 4.81p 5.00p

2019£000

2018£000

EarningsProfit attributable to owners of the parent 4,096 4,123 Interest expense on convertible debt (net of tax) 137 –Profit used to determine diluted earnings per share 4,233 4,123



11 Intangible assets

Goodwill £000

Software £000

Customer contracts

and related relationships

£000

Development Expenditure

£000Total £000

Cost At 1 April 2017 12,216 5,651 21,476 445 39,788Internally developed – – – 355 355Business combinations 667 41 452 – 1,160Transferred to Property plant & equipment – – – (18) (18)At 31 March 2018 12,883 5,692 21,928 782 41,285Internally developed – – – 542 542Additions – 1,686 – – 1,686Business combinations 303 650 1,992 – 2,945At 31 March 2019 13,186 8,028 23,920 1,324 46,458AmortisationAt 1 April 2017 – (897) (5,158) (128) (6,183)Charge for the year – (504) (2,485) (38) (3,027)At 31 March 2018 – (1,401) (7,643) (166) (9,210)Charge for the year – (588) (2,586) (64) (3,238)At 31 March 2019 – (1,989) (10,229) (230) (12,448)Net carrying amount 31 March 2019 13,186 6,039 13,691 1,094 34,01031 March 2018 12,883 4,291 14,285 616 32,07531 March 2017 12,216 4,754 16,318 317 33,605

Customer contracts and related relationships relate to the value of contracts and relationships of acquired companies and includes the value of reseller agreements.

The amortisation in both years relates to operations, and is included in the profit for the year from operations in the Consolidated Statement of Comprehensive Income within administrative expenses.

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Goodwill is supported by calculating the discounted cash flows arising from the existing businesses.

Impairment tests for goodwillThe recoverable amount of all cash generating units (CGUs) has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management until 31 March 2020. Cash flows beyond this period are extrapolated using the estimated growth rates stated below. For each of the CGUs with a significant amount of goodwill the key assumptions used in the value-in-use calculations are as follows:

Assumption:Managed Services Software Solutions

2019 2018 2019 2018

Gross margin 44% 48% 80% 84%Operating margin 24% 28% 30% 28%Capital expenditure (annual) 5% of revenue 10% of revenue £700,000 £500,000Long term growth rate 2% 2% 2% 2%Discount rate 10.4% 10.2% 10.4% 10.2%Carrying value of goodwill £3,248,000 £3,248,000 £9,938,000 £9,635,000

A reasonably possible adverse movement in any of the above key assumptions made would not give rise to impairment.



12 Property, plant and equipment Leasehold

property £000

Network infrastructure

and equipment £000

Equipment, fixtures and

fittings £000

Total £000

CostAt 1 April 2017 303 713 350 1,366Additions 11 337 30 378Business Combinations – – 11 11Disposals – – (18) (18)Exchange movements – – (2) (2)Transfers (from intangibles) – 18 – 18Adjustments 2 153 (155) –At 31 March 2018 316 1,221 216 1,753Additions 12 924 37 973Business Combinations 22 – 14 36Exchange movements (1) – – (1)At 31 March 2019 349 2,145 267 2,761Accumulated depreciationAt 1 April 2017 (44) (292) (249) (585)Charge for the year (18) (235) (53) (306)Disposals – – 10 10Adjustments (2) (153) 155 –At 31 March 2018 (64) (680) (137) (881)Charge for the year (30) (360) (63) (453)At 31 March 2019 (94) (1,040) (200) (1,334)Net book amount 31 March 2019 255 1,105 67 1,42731 March 2018 252 541 79 87231 March 2017 259 421 101 781The depreciation for the year of £453,000 (2017: £306,000) has been charged to administrative expenses.

A mortgage loan of £92,000 (2018: £100,000) is secured on a long leasehold property with a book value of £163,000 (2018: £167,000). Short leasehold property has a book value of £92,000 (2017: £85,000).

For details on fixed and floating charges held by the Group’s lender over the Group’s assets, see note 16.

13 Trade and other receivables2019 £000

2018 £000

CurrentTrade receivables 6,054 5,147Less: provision for impairment of trade receivables (262) (223)Trade receivables – net 5,792 4,924Other receivables 122 806Contract assets* 1,440 –Prepayments 1,054 655Amounts due within 12 months 8,408 6,385Non-currentTrade receivables – 97Prepayments 29 23Other receivables – 130Contract assets* 259 –Amounts due after more than 12 months 288 250Total receivables 8,696 6,635

* Adoption of IFRS 15 from 1 April 2018 has resulted in the recognition of deferred costs of £0.5 million of current contract assets and £0.3 million of non-current contract assets and the reclassification of accrued income of £0.6 million included in other receivables at 31 March 2018, see note 1.27 for further detail.

Contract assets have increased against the prior year by £0.3 million due to timing differences on when the software or service was provided against when it has been invoiced to the customer.



13 Trade and other receivables continuedAnalysis of trade and other receivables

2019 2018

Gross£000

Provision£000

Net£000

Provision coverage

%Gross£000

Provision£000

Net£000

Provision coverage

%

Trade receivables – Current 3,298 – 3,298 – 3,254 – 3,254 –

1 to 30 days past due 1,481 – 1,481 – 1,240 – 1,240 –31 to 60 days past due 387 – 387 – 135 – 135 –61 to 90 days past due 124 – 124 – 145 – 145 –Over 90 days past due 764 (262) 502 34.3% 470 (223) 247 42.3%Trade receivables 6,054 (262) 5,792 4.3% 5,244 (223) 5,021 4.3%Other receivables 1,846 (25) 1,821 1.4% 936 – 936 –Prepayments 1,083 – 1,083 – 678 – 678 –Total trade and other

receivables 8,983 (287) 8,696 3.2% 6,858 (223) 6,635 3.3%

The provision in respect of trade receivables of £0.3 million (2018 £0.2 million) comprises; an IFRS 9 approach to measuring expected credit losses and a specific provision, calculated by applying a judgement as to the likelihood of recoverability taking into account age and specific circumstances relating to the receivable (2018 - specific provision only).

Under IFRS 9, the expected loss rate is calculated on historic rates of default over the past 12 months and applied over the expected life of the receivable, which results in a provision of 1% of all trade receivables which are over 90 days overdue. This creates an immaterial provision due to the low credit risk of Housing Associations. A further specific provision is then added to the IFRS 9 provision.

The specific provision is based upon individually impaired trade receivables and relates to receivables over 182 days where there are customer acceptance issues, customers in financial difficulty, or cancelled contracts. All significant balances are reviewed individually for evidence of impairment.

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security. The carrying amounts of the Group’s trade and other receivables are denominated in pounds.

The carrying value of trade receivables that would otherwise be past due or impaired but whose terms were renegotiated were £nil.

The £25,000 provision held against other receivables is included within the provisions balance. Other assets classes within trade and other receivables are not subject to a credit risk loss.Movements on the Group provision for impairment of trade receivables are as follows: £000

At 31 March 2017 220Fair Value on Business Combinations 22Utilised in year (133)Created in year 114At 31 March 2018 223Utilised in year (101)Created in year 140At 31 March 2019 262

The creation and release of a provision for impaired receivables has been included in ‘administrative expenses’ in the Consolidated Statement of Comprehensive Income. Amounts charged to the allowance account are generally written-off, when there is no expectation of recovering additional cash.

The restatement on transition to IFRS 9 as a result of applying the expected credit risk model was immaterial. Historical experience has shown that the Group’s trade receivable provisions are maintained at levels that are sufficient to absorb actual bad debt write-offs, without being excessive. The Group considers the credit quality of financial assets that are neither past due nor impaired as good.

The other asset classes within trade and other receivables do not contain impaired assets.



14 Cash and cash equivalents2019£000

2018 £000

Cash at bank and in hand (excluding overdrafts) 1,389 510

The table below shows the balance with the major counterparty in respect of cash and cash equivalents.

Credit rating2019£000

2018 £000

A 1,389 510

15 Trade and other payablesCurrent

2019 £000

2018 £000

Trade payables 2,040 1,167Other payables 448 305Taxation and social security 932 772Accruals 2,173 1,800Income tax payable 54 113Contract liabilities* 8,282 –Deferred income* – 6,923

13,929 11,080

Non current2019 £000

2018 £000

Contract liabilities* 962 –Deferred income* – 904Accrued interest 342 348

1,304 1,252

* The adoption of IFRS 15 ‘Contracts with Customers’ with effect from 1 April 2018 has resulted in both a reclassification of deferred income to contract liabilities and an increase in current contract liabilities of £0.7 million and non-current deferred income of £0.6 million, see note 1 for further detail.

Contract liabilities (formerly deferred income) have increased against the prior year by £1,417,000. This is partly due to the acquisition of DeepLake which held £302,000 of contract liabilities at the year end. The remaining increase is a result of the adoption of IFRS 15 using the Cumulative Effect Method which has no restatement of the prior year numbers.

16 Borrowings

Current2019£000

2018£000

Mortgage 9 8Bank loan 1,333 1,000

1,342 1,008

Non-current2019 £000

2018 £000

Bank Loan 2,667 2,250Mortgage 84 92

2,751 2,342

The mortgage is secured over a long leasehold property. The property is held within fixed assets at a cost of £0.2 million. The mortgage is repayable monthly at an interest rate of 2.9% above base rate. The remaining term at 31 March 2019 is 113 months.



16 Borrowings continuedOverdraft facilityThe Group has an overdraft facility of £2.5 million with Barclays Bank plc (“Barclays”). Interest is payable at 2.5% above LIBOR on the overdraft balance, which is repayable on demand. At the balance sheet date none (2018: none) of the facility had been utilised. The overdraft is secured on the assets of the Group by way of fixed and floating charges.

Bank loanOn 10 January 2019, the Company settled its loan agreement with Barclays and replaced it with a new facility for £4.0 million. Interest is payable at 2.25% (2018: 2.5%) above LIBOR on the outstanding balance, which is repayable at a rate of £333,000 (2018: £250,000) per quarter over 3 years.

The loan is secured on the assets of the Group by way of fixed and floating charges.

17 Convertible loan notesOpus £000

Kypera £000

Total £000

At 31 March 2017 215 2,882 3,097Interest unwound 5 169 174Interest due to be paid – (173) (173)Waiver (220) – (220)Repayments – (500) (500)At 31 March 2018 – due to be paid in more than one year – 2,378 2,378Interest unwound – 131 131Interest due to be paid – (126) (126)Conversion to shares – (500) (500)At 31 March 2019 – due to be paid in more than one year – 1,883 1,883

Kypera Loan notesOn 31 January 2016, in order to fund the acquisition of Kypera, the Company issued £3.5 million of unsecured loan notes (“Kypera Loan Notes”), which originally had a term of 5 years and carry interest at a rate of 5% per annum. Further to the new bank facility, the settlement date of the remaining Kypera loan notes was extended to January 2022. The Kypera Loan Notes can be converted into new ordinary shares of 2 pence each at a price of 85.6 pence per Ordinary Share. Conversion is at the option of the holder at any time during the term. The Company can redeem the Kypera Loan Notes from the third anniversary of issue if not already converted.

On 9 August 2018, MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited (“MXC”) served a conversion notice with respect to the remaining convertible loan notes (“CLNs”) it held, together with the accrued interest, amounting to £632,000 in total. The CLNs were converted at 85.6 pence per ordinary share of 2 pence each in the capital of the Company therefore 738,896 new ordinary shares of 2 pence were allotted to MXC on 17 August 2018.

Opus Loan notesOn 21 June 2017, it was agreed by the beneficiaries of the Opus Loan Notes that they would waive the remaining £0.22m of loan notes held by them in consideration of surrendering any potential warranty claims under the sale and purchase agreement.

18 Deferred consideration

Current2019£000

2018£000

Deferred consideration 150 592150 592


2018 £000

Deferred consideration – 143– 143



19 Provisions

Restructuring provision

£’000

Customer Claim provisions

£’000

Property provision

£’000

Employee Incentive Schemes

£’000

Total

£’000

At 31 March 2017 15 585 151 – 751Charged to income statement (additional provisions) – 215 – – 215Credited to income statement (unused amounts released) – (207) (14) – (221)Utilised – (523) (101) – (624)At 31 March 2018 15 70 36 – 121Charged to income statement (additional provisions) – 27 83 64 174Credited to income statement (unused amounts released) (15) – – – (15)At 31 March 2019 – 97 119 64 280The expected timing of the cash flows to settle the obligations is as follows:Within 1 year – 97 5 54 156After 1 year – – 114 10 124

– 97 119 64 28031 March 2018Within 1 year 15 70 36 – 121

RestructuringIn February 2017 the Group announced its intention to close an office of Castleton Software Solutions Ltd. Provisions have been recognised to cover redundancies and associated costs. These were settled during the year ending 31 March 2019.

Customer claimsProvision has been made in respect of customer claims for the expected liabilities arising. During the year ending 31 March 2017, a fair value adjustment to the Kypera goodwill was made in relation to an onerous contract provision which existed at the date of acquisition of £0.752 million which related to a customer claim and the associated rectification costs. During the year ending 31 March 2018, this was settled resulting in an exceptional credit of £0.5 million which includes a settlement payment from the former owner of Kypera. The remaining £70,000 relates to potential claims from other smaller Kypera customers. The £27,000 additions in the year relate to Australia.

Property Provisions are calculated using the contracted rates of rents and service charges on the individual lease arrangement. Dilapidation provisions are built up over the life of the associated lease based on estimates of costs of work required to fulfil the Group’s contractual obligation under the lease agreements to return the property to the same condition as at the commencement of the lease.

Employee incentive schemesA provision of £64,000 (2018: nil) has been made for employee incentive schemes in respect of HMRC Unapproved and certain EMI equity-settled schemes (issued at below market price). For certain schemes, the option conditions are such that it is subjective as to whether the Company is liable to pay the employers national insurance upon allotment of the share awards or whether the Company will require the employee to satisfy this liability. Due to this uncertainty, a provision has been made applying judgement to the likelihood of this arising. Where the option conditions require that the Company settles the national insurance this has been included in Accruals, note 15, of £60,000 (2018: nil).

20 Commitments and contingencies a) Operating leasesFuture aggregate minimum lease payments under non-cancellable operating leases as at 31 March are as follows:

Land and buildings

2019 £000

Other 2019 £000

Land and buildings

2018 £000

Other 2018 £000

Not later than 1 year 6 9 167 27After 1 year but not more than 5 years 470 88 444 83

476 97 611 110



20 Commitments and contingencies continuedThe Group’s operating leases relate to property, motor vehicles and office equipment, and have remaining terms of between 1 and 5 years.

(b) Capital commitmentsThe Group had no contracted but not provided for capital commitments at 31 March 2019 (2018: £nil).

(c) Contingent liabilitiesThe Group’s subsidiaries and the Company are currently, and may be from time to time, involved in a number of legal proceedings. Whilst the outcome of current outstanding actions and claims remains uncertain, it is expected that they will be resolved without a material impact on the Group’s financial position.

21 Financial instruments by categoryThe objectives of the Group’s treasury activities are to manage financial risk, secure cost-effective funding where necessary and minimise adverse effects of fluctuations in the financial markets on the value of the Group’s financial assets and liabilities, on reported profitability and on cash flows of the Group.

The Group’s principal financial instruments for financing are bank borrowings, overdraft facilities and loans. The Group has various other financial instruments such as cash, trade receivables and trade payables that arise directly from its operations.

Financial assets – amortised cost (2018: Loans and receivables)2019 £000

2018 £000

Trade receivables 5,792 5,021Other assets 1,087 936Cash and cash equivalents 1,389 510Total 8,268 6,467

The fair value of the above items equals their carrying amounts.

Financial liabilities – amortised cost2019 £000

2018 £000

Trade and other payables excluding statutory liabilities 5,003 5,282Bank loan 4,000 3,250Convertible loan notes 1,883 2,378Mortgage 93 100Deferred consideration 150 735Total 11,129 11,745


22 Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange, fair value interest rate risk, cash flow interest rate risk, and price risk), credit risk, and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

Risk management is carried out centrally under policies approved by the Board of Directors. Management identifies, evaluates and hedges financial risks. The Board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investments of excess liquidity.

(a) Market risk(i) Foreign exchange riskThe Group mainly operates within the UK and foreign exchange risk arises from future commercial transactions, recognised assets and liabilities.

(ii) Interest rate riskThe Group receives interest on cash and cash equivalents and pays interest on its borrowings.

The impact on post-tax profit and equity of a +/– 1% shift in the interest rate would not be material.



22 Financial risk management continued(iii) Price riskThe Group is not exposed to significant commodity or security price risk.

(b) Credit riskCredit risk is managed at a central level. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables, and committed transactions. Individual risk limits are set based on internal and external ratings and reviewed by the Board where appropriate. The utilisation of credit limits is regularly monitored with appropriate action taken by management in the event of a breach of credit limit.

(c) Liquidity riskManagement reviews cash forecasts of the operating companies of the Group. The Group’s liquidity management policy involves projecting cash flows and considering the level of liquid assets necessary to meet these.

The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. These amounts disclosed in the table are the contracted undiscounted cash flows which includes accrued interest after the balance sheet date. Balances within 12 months equal their carrying balances as the impact of discounting is not significant.

At 31 March 2019

Within 1 year £000

1–2 years £000

More than 2 years

£000Total £000

Trade and other payables 4,661 – 342 5,003Convertible loan notes – – 2,354 2,354Mortgage 11 11 86 108Deferred consideration 150 – – 150Bank Loan 1,456 1,409 1,363 4,228

6,278 1,420 4,145 11,843

At 31 March 2018

Within 1 year £000

1–2 years £000

More than 2 years

£000Total £000

Trade and other payables 4,934 – 348 5,282Convertible loan notes – – 3,268 3,268Mortgage 11 11 98 120Deferred consideration 600 150 – 750Bank Loan 1,098 1,066 1,287 3,451

6,643 1,227 5,001 12,871

23 Called up share capital

Number

£000

Allotted, called up and fully paid share capital Ordinary shares of 2p 1 April 2017 78,714,832 1,575Exercise of share warrants (see below a) 175,000 3Allotted, called up and fully paid share capital at 31 March 2018 78,889,832 1,578Shares issued for purchase of Brixx intangible fixed asset (b) 1,432,706 29MXC Loan notes conversion (c) 738,896 15Shares issued for Castleton India acquisition (d) 200,331 4Share options exercised (e) 271,000 5Allotted, called up and fully paid share capital at 31 March 2019 81,532,765 1,631Redeemable preference shares of 10p eachAt start and end of both years 500,000 50Total issued share capital at 31 March 2019 82,032,765 1,681Total issued share capital at 31 March 2018 79,389,832 1,628



23 Called up share capital continued(a) Exercise of warrantsOn 16 November 2017, the company issued 175,000 new Ordinary 2p Shares at a premium of 6p per share pursuant to the exercise of share warrants.

(b) Purchase of Brixx intangible fixed assetOn 8 July 2018, the Company issued 1,432,706 new ordinary shares at a premium of 80.75p per ordinary share, in respect of the acquisition of the exclusive, perpetual and assignable licence in relation to the Castleton Strategic Modelling (formerly “Brixx”) platform (“the Asset Purchase”), further development of the platform and settlement of pre Asset Purchase licence fees payable.

(c) Conversion of MXC Loan notes On 9 August 2018, the Company issued 738,896 new ordinary shares at a premium of 83.6p per ordinary share, to MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited (“MXC”), to convert to ordinary shares the remaining convertible loan notes it held, together with the accrued interest.

(d) Shares issued for Castleton India acquisitionOn 20 February 2019 the Company issued 200,331 new ordinary shares of 2 pence at a premium of 95.5p per ordinary share to the former owner of CarbonNV InfoLogic India Private Limited in respect of the acquisition of that company.

(e) Exercise of share optionsOn 29 August 2018, the Company issued 271,000 new ordinary shares of 2 pence at a premium of 20.0p per ordinary share to Haywood Chapman, Chief Financial Officer, for the exercise of share options.

On 28 March 2019 options in respect of 66,225 shares of 2 pence each were exercised and application made for admission to trading. The obligation to issue the shares has been recognised within other reserves and on 1 April 2019 the shares were registered and issued.

24 Share-based payment plansThe share-based payment charge comprises:

2019 £000

2018 £000

Equity-settled share-based charge arising from share option plans for employees 834 404Equity- settled share-based charge arising from warrants – 80Total equity-settled share-based payments 834 484Cash-settled share-based payments 9 –Total share-based payments charge 843 484

Share options are granted to directors and selected employees to reward and motivate the Group’s employees.

At the year-end the Group had the following share based payment plans in operation:

Employee Management Incentive Option scheme (“EMI Option”)The EMI was established in July 2015 and this discretionary scheme permits the grant of options to all eligible employees of the group. The options are exercisable between three and ten years from date of grant, subject to the exercise price being paid and remaining in employment with the group. During the year, the December 2015 award vested in December 2018, with an exercise price of 75.5 pence. In addition, there were two new awards made under the EMI scheme to eligible employees.

Unapproved Option scheme (“Unapproved Option”)The Unapproved scheme was established in July 2015 and this discretionary scheme permits the grant of options to all eligible employees of the Group. The options are exercisable within ten years from date of grant, subject to the exercise price being paid, employment conditions, and performance conditions being met. Following the acquisition of Castleton India in February 2019, an Unapproved award was made in February 2019 to eligible employees.

UK SharesaveDuring the year, the Company launched a UK Sharesave (‘SAYE’) scheme, to all eligible employees. The options are exercisable between three and three and a half years from the date of grant, at a 19% discount to the share price on date of award, subject to remaining in employment.



24 Share-based payment plans continuedCash-settled incentiveDuring the year, the Company launched a cash incentive plan in Australia, the equivalent of the UK Sharesave. The scheme pays a cash amount three years after the date of grant and the amount is dependent upon share price growth above a base price of 82.8 pence, subject to remaining in employment.

Director options – including value based awards (“Director options”)Certain directors of the Company have awards which are based on a percentage of the value of the Company above a base value through a Growth Share Scheme. The Growth Share Scheme was established in July 2015 and this discretionary scheme permits the grant of shares to the relevant directors of the Group.

Each of the Directors as at the date of awards purchased ordinary shares in Castleton Technology Intermediate Holding Company Limited (‘CTIHCL’), a wholly owned subsidiary of the Company, as follows; Haywood Chapman (200 ‘A’ shares), David Payne (40 ‘A’ shares), Phil Kelly (20 ‘A’ shares) and Dean Dickinson (100 ‘C’ shares and 100 ‘D’ shares). The put option in respect of these Growth Shares can be exercised after the third anniversary of the award date up to the sixth anniversary of the award date.

Details of all Directors options, including the Growth Share Scheme, are as follows:

Director

Total % growth

entitlement* Award Date Base value

Total Number of Equivalent ordinary

shares as at 31 March 2019*

Vesting date (subject to vesting

conditions)

Date performance conditions met (if

relevant)Earliest exercise

date*

Haywood Chapman (‘A’ shares) 2.0% 18 Jul 2015 22 pence 1,306,796 1 Apr 2018 30 Apr 2018 30 Apr 2018

David Payne (‘A’ shares) 0.4% 18 Jul 2015 22 pence 315,559 1 Apr 2018 30 Apr 2018 30 Apr 2018Phil Kelly (‘A’ shares) 0.2% 18 Jul 2015 22 pence 157,780 1 Apr 2018 30 Apr 2018 30 Apr 2018Dean Dickinson (‘C’ shares) 1.4% 2 Dec 2016 60 pence 1,104,458 1 Nov 2019 14 Nov 2018 1 Nov 2019Dean Dickinson (‘D’ shares) 1.0% 20 Jul 2017 69 pence 787,148 19 Jul 2020 Not yet met 19 Jul 2020Total Growth Share Scheme 5.0% 3,671,741Dean Dickinson Unapproved n/a 20 Jul 2017 2 pence 787,148 19 Jul 2020 Not yet met 19 Jul 2020Dean Dickinson UK Sharesave n/a 12 Sep 2018 82.8 pence 8,695 1 Oct 2021 n/a 1 Oct 2021Haywood Chapman UK

Sharesave n/a 12 Sep 2018 82.8 pence 8,695 1 Oct 2021 n/a 1 Oct 2021Total Director Options and Growth Shares

as at 31 March 2019 4,476,279

* The equivalent number of ordinary shares from the Growth Share Scheme is now fixed, due to the cessation on 21 February 2018 of the evergreen nature of options that were granted in previous periods. (Evergreen meant that the percentage of the fully diluted issued share capital held under option will remain constant). This has been calculated using the issued share capital as at 21 February 2018, being 78,889,332 multiplied by the total % growth entitlement.

The nature of these awards is such that the value is apportioned between three elements; • EMI Options, Unapproved Options and Growth Shares in respect of Haywood Chapman.• Unapproved Options and Growth Shares in respect of David Payne and Phil Kelly.• EMI Options and Growth Shares in respect of Dean Dickinson.

A ‘Hurdle’ share price needs to be met for the Growth Share Scheme to operate. The ‘A’,’C’ and ‘D’ Growth Shares are converted to Ordinary shares upon exercise. Due to share price appreciation during the period, the performance conditions for the Growth Share Scheme awarded in July 2015 were met as noted above and this award is now exercisable, and the performance conditions for the Growth Share Scheme awarded in December 2016 were met as noted above, becoming exercisable in FY20.

Whilst the number of EMI Options is fixed on date of award, the amount of value allocated between the Unapproved Options and Growth Share Scheme for the July 2015 award, is dependent upon the share price as at the exercise date. As at the year end date, the allocation of value at a closing share price of 96.5 pence (2018: 74.75 pence) between these components resulted in 45.4% value (2018: 0% value) allocated to the Growth Shares and 54.6% value (2018: 100%) allocated to Options (both Unapproved and EMI). This has been reflected in the ‘Movement in share options and Growth shares during the year’ as “Options Transferred” see page 78.



24 Share-based payment plans continuedMovement in share options and Growth shares during the yearThe following table illustrates the number and weighted average exercise prices of movements in share options and Growth shares during the year:

EMI Options Number

Unapproved Options

Number

Growth Share Scheme

Number of equivalent shares

UK Share save Number

MXC Share Option Scheme Number(a)

Total Number of options and Growth shares

Weighted average exercise price

As at 1 April 2017 1,528,756 2,091,579 485,307 – 4,417,491 8,523,133 30.90pOptions granted 1,333,332 926,428 787,148 – – 3,046,908 19.96pOptions lapsed (336,304) (11,046) (30,136) – – (377,486) 68.23pOptions exercised – (175,000) – – (4,417,491) (4,592,491) 21.47pTotal options granted as at

31 March 2018 2,525,784 2,831,961 1,242,319 – – 6,600,064 30.42pOptions granted(b) 191,666 185,500 – 312,044 – 689,210 37.49pOptions lapsed(c) (218,942) (164,280) – (14,780) – (398,002) 28.28pOptions cancelled(d) – – – (8,695) – (8,695) 82.80pOptions exercised(e) (337,225) – – – – (337,225) 32.51pOptions transferred(f) – (1,164,751) 1,164,751 – – – –Total options granted as at

31 March 2019 2,161,283 1,688,430 2,407,070 288,569 – 6,545,352 23.29pOptions exercisable as at

31 March 2019 284,542 715,782 932,129 – – 1,932,453 26.22p

(a) MXC Share Option Scheme has been full exercised in the prior period in exchange for cash, with the cash consideration of £1,662,000 being paid on 3 April 2019.

(b) Options granted during the period include;• 191,666 options granted under the EMI Option scheme relates to two awards to employees in July 2018 and

February 2019 respectively. The number of options vesting is subject to share price hurdles. The options have a vesting period of 3 years and vest in stages dependent on the share price growth.

• 185,500 options granted under the Unapproved Option scheme in February 2019 to overseas employees whereby the number of options vesting is subject to share price hurdles. The options have a vesting period of 3 years and vest in stages dependent on the share price growth.

• 312,044 in respect of the UK Sharesave, which was launched in September 2018 to eligible UK employees.

(c) Options lapsed in the period include; 218,942 of EMI Options and 14,780 of UK Sharesave due to participants in the schemes no longer being in employment and 164,280 of lapses in respect of Directors Unapproved options, being an adjustment in respect of the cessation of the evergreen nature of options from 21 February 2018.

(d) Where employees have cancelled their UK Sharesave but remain employed with the Group, then the options are shown as ‘Cancelled’ above and the full remaining IFRS 2 charge for the respective employee is accelerated in the current year share-based payment charge.

(e) EMI Options exercised in the period include:

EMI Option grant date Number Exercise date Exercise PriceShare price at exercise date

18 July 2015 – Director 271,000 29 August 2018 22.0 pence 103.5 pence23 December 2015 – Employee 13,245 4 March 2019 75.5 pence 91.0 pence23 December 2015 – Employee 52,980 11 March 2019 75.5 pence 95.5 penceTotal 337,225All exercises have been recorded in the Consolidated Statement of Changes in Equity on pages 48 and 49.

(f) As noted above, the Director Growth Share Scheme awards to Haywood Chapman, David Payne and Phil Kelly each contain an allocation of value between the Unapproved Option and the Growth Share Scheme which will vary according to the final share price upon exercise. These options are now exercisable, having met their performance conditions during the period. The increase in the market price of the Company’s shares from 74.75 pence on 31 March 2018 to 96.5 pence per share on 31 March 2019 has resulted in a transfer of value from Unapproved Options to Growth Share Scheme of 476,958 options. In addition, 687,793 of Directors Growth Share Scheme awarded to Dean Dickinson have also been transferred from Unapproved Option to Growth Shares during the period.



24 Share-based payment plans continuedThe fair value of the equity-settled share options granted is estimated as at the date of grant using an appropriate model to take into account market conditions attaching to the options. Key inputs to the model were:

Number of options Model used

Share price on date of award

Exercise Price Volatility*

Risk free rate

Expected Life

Expected dividend

EMI – Jul 2018 41,666 Monte-Carlo 89.0p 2p 25.67% 0.734% 3 years NilEMI – Feb 2019 150,000 Monte-Carlo 89.5p 2p 17.51% 0.730% 3 years NilUnapproved – Feb 2019 185,500 Monte-Carlo 89.5p 2p 17.51% 0.730% 3 years NilUK Sharesave – Sep 2018 312,044 Black-Scholes 102.0p 82.8p 22.94% 0.826% 3 years NilCash-settled incentive –

Sep 2018 n/a Black-Scholes 102.0p 82.8p 22.94% 0.826% 3 years Nil

* Volatility is based on statistical analysis of daily share prices over the last three years as at the date of award.

There were 1,932,453 options exercisable at the end of the year (2018: nil). The range of exercise prices for options outstanding at the end of the year was (2018: 2.0p to 82.8p). The range of exercise prices and contractual life of outstanding options is analysed as follows:

Option or Growth Share Scheme Date of grant2019

numberExercise price

(pence)

Contractual Remaining Life

(years)

Growth Share Scheme - Director Options 18 July 2015 932,129 22.0 2.0UK Sharesave 12 September 2018 288,569 82.8 3.0Growth Share Scheme - Director Options 2 December 2016 687,793 60.0 3.6Growth shares - Director Options 20 July 2017 787,148 69.0 4.3EMI Option - Director Options 18 July 2015 132,224 22.0 6.3Unapproved Option - Director Options 18 July 2015 715,782 22.0 6.3EMI Option 23 December 2015 152,318 75.5 6.7EMI Option 7 June 2016 101,744 71.75 7.2EMI Option - Director Options 2 December 2016 416,665 60.0 7.7Unapproved Option - Director Options 20 July 2017 787,148 2.0 8.3EMI Option 22 March 2018 1,166,666 2.0 9.0EMI Option 5 July 2018 41,666 2.0 9.0Unapproved Option 15 February 2019 185,500 2.0 9.9EMI Option 15 February 2019 150,000 2.0 9.9Total Share Options and Growth Shares as at 31 March 2019 6,545,352

25 Net cash flows from operating activities 2019 £000

2018 £000

Profit on ordinary activities before taxation 1,192 1,828Adjustments for: Exceptional items 308 (844)Net finance costs 300 314Depreciation of property, plant and equipment 453 306Amortisation of intangibles 3,238 3,027Equity-settled share-based payment charge 834 484Movements in working capital: Increase in trade and other receivables (1,233) (1,183)Decrease in trade and other payables 1,256 1,402Increase/(decrease) in provisions 160 (135)Decrease/(increase) inventories 2 (22)Foreign exchange losses on operating activities (8) –Cash generated from operations 6,502 5,177

The principal non-cash transactions in 2019 are as below:During the period, the Company issued a total of 1,432,706 new ordinary shares of 2 pence each to Brixx International Limited at a price of 82.75 pence per ordinary share, in respect of the acquisition of the exclusive, perpetual and assignable licence in relation to the Castleton Strategic Modelling (formerly “Brixx”) platform, further development of the platform and settlement of pre Asset Purchase licence fees payable. The consideration for the Asset Purchase was £1,686,000, of which £1,186,000 was a non cash transaction and £500,000 was also paid in cash.



25 Net cash flows from operating activities continuedOn 9 August 2018, MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited (“MXC”) served a conversion notice with respect to the remaining convertible loan notes (“CLNs”) it held, together with the accrued interest, amounting to £632,000 in total. The CLNs were converted at 85.6 pence per ordinary share of 2 pence each in the capital of the Company therefore 738,896 new ordinary shares of 2 pence were allotted to MXC on 17 August 2018.

On 20 February 2019 the Company issued 200,331 ordinary shares of 2 pence to the former owners of CarbonNV InfoLogic India Private Limited (now known as Castleton India) at a price of 97.5 pence per ordinary share in respect of the acquisition of Castleton India. The consideration for the Asset Purchase was £351,000, of which £195,000 was a non cash transaction and £156,000 was also paid in cash.

On 23 October 2018, the Company completed a capital reduction process, which debited the Company’s share premium account under section 648 of the Companies Act 2006 with £18,835,000 and credited the profit and loss reserve with £18,835,000.

Adjustments to the March 2018 balance sheet due to the introduction of IFRS 15 were made which credited contract liabilities £1,286,000, debited other debtors with £760,000, debited the deferred tax asset with £100,000 and debited the brought forward profit and loss reserve with £426,000.

The principal non-cash transactions in 2018 were as below:Settlement of the MXC Scheme which credited other creditors and debited the accumulated loss reserve with £1,662,000. On 3 April 2018, the cash was paid to MXC which resulted in a financing cash outflow of £1,662,000 during the financial year ending 31 March 2019.

The waiver of the debt part of the Opus Loan notes which credited provisions and debited Loan notes with £215,000.

The waiver of the equity part of the Opus Loan notes which credited the profit and loss reserve and debited the Equity reserves with £392,000.

Reconciliation of net debtNet debt as referred to in the Strategic Report is calculated as follows:

2019 £000

2018 £000

Cash and cash equivalents 1,389 510 Borrowings – repayable within one year (1,492) (1,600)Borrowings – repayable after one year (4,976) (5,211)Net Debt (5,079) (6,301)

Cash and cash equivalents 1,389 510 Gross debt – fixed interest rates (2,375) (3,461)Gross debt – variable interest rates (4,093) (3,350)Net Debt (5,079) (6,301)



25 Net cash flows from operating activities continuedCash / bank

overdraft £000

Finance leases £000

Bank borrowings

£000

Opus Loan notes £000

Kypera loan notes £000

Accrued interest on Loan notes

£000

Deferred consideration

£000Total £000

At 1 April 2017 270 (46) (4,360) (215) (2,882) (175) (1,545) (8,953)Cash flows 199 46 1,136 – 500 – 850 2,731Interest unwound – – (126) (5) (169) – (40) (340)Interest due to be paid – – – – 173 (173) – –Waiver – – – 220 – – – 220Foreign exchange effects 41 – – – – – – 41At 31 March 2018 510 – (3,350) – (2,378) (348) (735) (6,301)Cash flows 854 – (743) – – – 600 711Interest unwound – – – – (131) – (15) (146)Interest due to be paid – – – – 126 (126) – –Settle through share issue – – – – 500 132 – 632Foreign exchange effects 25 – – – – – – 25At 31 March 2019 1,389 – (4,093) – (1,883) (342) (150) (5,079)

Within one year 1,389 – (1,342) – – – (150) (103)Over one year – – (2,751) – (1,883) (342) – (4,976)At 31 March 2019 1,389 – (4,093) – (1,883) (342) (150) 5,079

Within one year 510 – (1,008) – – – (592) (1,090)Over one year – – (2,342) – (2,378) (348) (143) (5,211)At 31 March 2018 510 – (3,350) – (2,378) (348) (735) (6,301)

26 PensionsThe Group operates defined contribution pension schemes for eligible employees. The charge for the year ended 31 March 2019 relating to operations is £273,000 (2018: £184,000). An amount of £42,000 is included in other payables being outstanding contributions at 31 March 2019 (2018: £28,000).

27 SubsidiariesAt 31 March 2019, the Company had the following subsidiary undertakings.

Principal activity Country of incorporation

% Ordinary share capital

owned

Held by directly by Castleton Technology plc Castleton Technology Intermediate

Holding Company Limited Intermediate holding company England and Wales 99.8%Held indirectly by an intermediate holding companyCastleton Group Holdings Limited Management of Group England and Wales 100%Castleton i4e Limited(1) Non-trading England and Wales 100%Castleton Technology Holdings Ltd(1) Non-trading England and Wales 100%Castleton Information Group Limited(1) Non-trading England and Wales 100%Castleton Managed Services Ltd IT Infrastructure sales and services England and Wales 100%Castleton Software Solutions Ltd(2) Software sales and services England and Wales 100%Opus Information Technology Limited Dormant England and Wales 100%Keylogic Limited Dormant England and Wales 100%Kypera Holdings Limited Dormant England and Wales 100%Kypera Limited Dormant England and Wales 100%Castleton Technology Pty Ltd (formerly Kypera

Australia Pty Ltd) Limited Software sales and services Australia 100%Kinetic Information Systems Pty Ltd Dormant Australia 100%hometeam.net Dormant England and Wales 100%Castleton Financial Modelling Solutions Limited Dormant England and Wales 100%Impact Applications Limited Dormant England and Wales 100%Castleton Technology India Private Limited Software Design & Development India 100%Castleton IP Co Limited Dormant England and Wales 100%Castleton Innovation Limited Dormant England and Wales 100%DeepLake Digital Limited(1) Software sales and services England and Wales 100%(1) These companies are exempt from audit of the individual financial statements by virtue of a guarantee provided under section 479c of the Companies Act 2006. The

guarantee covers all liabilities of the subsidiary concerned at the reporting date until such time as they are satisfied in full.(2) Castleton Software Solutions Limited changed its name to Castleton Technologies Limited on 30 May 2019



27 Subsidiaries continuedThe registered office of Castleton Technology Pty Ltd is, Suite 2.02 Level 2, 8 West Street, North Sydney NSW 2060, Australia.

The registered office of Kinetic Information Systems Pty Ltd is, 1/27 Annie Street, Wickham, NSW 2293, Australia.

The registered office of Castleton Technology India Private Limited is, 12, Ashirvad, 5th Cross, Girinagar 1st Phase, BSK 1st stage, Bangalore, India.

The registered office address of all the other companies, is The Walbrook Building, 25 Walbrook, London, EC4N 8AF. 28 Subsequent eventsAs we see the services offered by the Managed Services division, namely Cloud delivery becoming more significant going forwards and the level of interest shown by our customers increasing in this area, we took the decision post year end to merge the two divisions to create a truly ‘one Castleton’ structure. The legal hive up of the trade and assets of Castleton Managed Services into Castleton Technologies Limited (formerly Castleton Software Solutions Limited) was completed in June 2019. Operating from a single entity will assist in delivering a unified, seamless and enhanced customer experience.

29 Related parties Paul Gibson is an operating partner at MXC.

On 20 February 2018, Castleton Technology plc agreed to pay cash of £1,662,000 to MXC in full settlement of the MXC Scheme, as described in Note 24 Share based payment plans. The cash was paid on 3 April 2018.

On 9 August 2018, MXC Guernsey Limited, a wholly owned subsidiary of MXC served a conversion notice with respect to the remaining convertible loan notes (“CLNs”) it held, together with the accrued interest, amounting to £632,000 in total. The CLNs were converted at 85.6 pence per ordinary share of 2 pence each in the capital of the Company therefore 738,896 new ordinary shares of 2 pence were allotted to MXC on 17 August 2018.

During the year, MXC charged the Group £nil (2018: £57,000) in respect of Non-Executive and Executive Directors’ fees for Ian Smith and Paul Gibson £80,000 (2018: £126,000) for corporate finance advice and consultancy fees and £nil (2018: £14,000) for expenses. At the year-end, the Group owed MXC £nil (2018: £15,000) as well as £nil (2018: £1,662,000) for the share options.

During the year, MXC disposed of its entire holdings in the share capital of the Company and was not a shareholder at 31 March 2019.



COMPANY BALANCE SHEETAS AT 31 MARCH 2019

Note

31 March 2019 £000

31 March 2018 £000

Non-current assets Investments in subsidiaries 2 4,722 4,594Prepayments 30 23Deferred tax asset 315 63

5,067 4,680Current assets Trade and other receivables 3 16,542 14,250Total assets 21,609 18,930

Equity and liabilities Share capital 13 1,681 1,628Share premium account 191 17,006Equity reserves 143 251Other reserves 50 –Accumulated profit/loss 9,993 (9,775)Total equity 12,058 9,110Liabilities Current liabilities Trade and other payables 4 153 332Liability in respect of MXC Scheme settlement – 1,662Borrowings 5 4,442 2,850Provisions 6 54 –

4,649 4,844Non-current liabilities Trade and other payables 4 342 348Borrowings 5 2,667 2,250Provisions 6 10 –Loan notes 7 1,883 2,378

4,902 4,976Total liabilities 9,551 9,820Total equity and liabilities 21,609 18,930

The Company profit for the year was £558,000 (2018: £2,060,000).

The notes on pages 86 to 93 are an integral part of these financial statements. The financial statements set out on pages 83 to 93 were approved by the Board of Directors and authorised for issue on 18 July 2019 and are signed on its behalf by.

Dean Dickinson Haywood ChapmanDirector Director



COMPANY STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 MARCH 2019

Share Capital

£000

Share premium account

£000

Equity reserve

£000

Other reserve

£000

Profit and loss account

£000Total£000

At 31 March 2017 1,625 16,995 2,527 – (12,933) 8,214Profit and total comprehensive income

for the year – – – – 2,060 2,060Shares issued 3 11 – – – 14Settlement of MXC scheme – – – – (1,662) (1,662)Settlement of Equity reserve – – (2,276) – 2,276 –Share based payment – – – – 484 484At 31 March 2018 1,628 17,006 251 – (9,775) 9,110Profit for the year – – – – 558 558Shares issued to Brixx International 29 1,157 – – – 1,186Conversion of MXC loan notes 15 617 (108) – 108 632Shares issued to CarbonNV Infologic India 4 191 – – – 195Exercise of share options 5 55 – – – 60Share based payment – – – – 834 834Capital reduction exercise – (18,835) – – 18,835 –Obligation to issue shares on exercise of options – – – 50 – 50IFRS 9 adjustment – – – – (712) (712)Tax relating to items recognised directly in equity – – – – 145 145At 31 March 2019 1,681 191 143 50 9,993 12,058

An explanation of the movements on reserves is set out in the Consolidated Statement of Changes in Equity on pages 48 and 49.


COMPANY CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2019

Note

31 March2019£’000

31 March 2018£’000

Cash flows from operating activities 15 (313) 1,037Exceptional cash flows (5) –Finance charges paid (141) (100)Income taxes refunded 2 2Net cash flows (used in)/generated from operating activities (457) 939Cash flows from financing activitiesIssue of share capital 110 14Repayment of borrowings (3,250) (1,500)New Bank borrowing 4,000 –Settlement of MXC share options (1,662) –Net cash flows used in financing activities (802) (1,486)Net decrease in cash and cash equivalents (1,259) (547)Foreign exchange effects – 5Cash and cash equivalents at 1 April (1,850) (1,308)Cash and cash equivalents at 31 March (3,109) (1,850)

Comprising:Overdraft (3,109) (1,850) (3,109) (1,850)



NOTES TO THE COMPANY FINANCIAL STATEMENTSYEAR ENDED 31 MARCH 2019

1 Accounting policies Castleton Technology Plc has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to disclose the Company profit and loss account. The profit made by the Company in the year was £558,000 (2018: £2,060,000).

The principal accounting policies, which have been applied consistently throughout the year in the preparation of the financial statements, are the same as those of the Group except that the Company has no policy on consolidation and as set out below.

(a) Basis of preparationThe financial statements of the Company have been prepared on the going concern basis and in accordance with EU adopted International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and these are consistent with those of the Group disclosed in note 1.28 to the consolidated financial statements.

(b) Investments in subsidiariesInvestments are initially recognised at cost, being the fair value of the consideration given. The carrying value of investments is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.

(c) Adoption of IFRS 9As set out in the group accounting policies, the Company has adopted IFRS 9 Financial Instruments with effect from 1 April 2018. IFRS 9 addresses the classification, measurement and derecognition of financial instruments, and introduces new rules for hedge accounting and a new impairment model for financial assets. It replaces IAS 39 Financial Instruments: Recognition and Measurement, and comprehensive updates have been made to IFRS 7 Financial Instruments: Disclosures and IAS 32 Financial Instruments: Presentation. The adoption of IFRS 9 has had a £712,000 impact on the Company Financial Statements due to increased provision being required against intercompany receivables. The Company has not restated the comparative results on adoption.

2 Investments in subsidiariesInvestments in

subsidiaries £000

Cost At 1 April 2017 6,167Additions – share based payments 404At 31 March 2018 6,571Additions – share based payments 128At 31 March 2019 6,699

Provisions for impairmentAt 1 April 2017 1,977Charge in year –At 31 March 2018 and 31 March 2019 1,977

Net book value At 31 March 2019 4,722At 31 March 2018 4,594At 31 March 2017 4,190

The directors annually review the carrying amount of the Company’s investments for impairment. Following this review, the directors consider that carrying value of the investments is supported by their underlying net assets and cash flows.

A list of the company’s subsidiaries is set out in note 27 to the consolidated financial statements.


3 Trade and other receivables

Current2019 £000

2018 £000

Amounts due from subsidiary undertakings 20,369 18,972Less provision for impairment on amounts due from subsidiary undertakings (3,894) (4,731)Prepayments 17 9Other receivables 50 –

16,542 14,250

Amounts due from subsidiary undertakings are unsecured, interest-free and have no fixed payment terms.

The provision for impairment on amounts due from subsidiary undertakings has moved as a result of IFRS 9 as follows:

Provision for impairment on amounts due from subsidiary undertakings as reported at 31 March 2018 (4,731)Change in the provision at 1 April 2018 as a result of IFRS 9 (712)Reduction in the provision during the year credited to administrative expenses due to loans repaid 1,662Increases in the provision during the year debited to administrative expenses (113)Provision for impairment on amounts due from subsidiary undertakings as reported at 31 March 2019 (3,894)

Provisions between 5% and 100% have been recognised to reflect the credit loss risk in respect of certain loans.

4 Trade and other payables

Current2019 £000

2018 £000

Amounts owed to subsidiary undertakings 84 319Accruals 60 5Other creditors 9 8

153 332


2018 £000

Accrued interest 342 348342 348

5 Borrowings

Current2019£000

2018 £000

Bank loan 1,333 1,000Overdraft 3,109 1,850

4,442 2,850

Non-current2019£000

2018 £000

Bank Loan 2,667 2,2502,667 2,250

Overdraft facilityThe Group has an overdraft facility of £2.5 million with Barclays Bank plc (“Barclays”). The facility is on composite accounting terms allowing overdrawn and positive balances to be netted off. Interest is payable at 2.5% above LIBOR on the overdraft balance, which is repayable on demand.



5 Borrowings continuedBank loanOn 10 January 2019, the Company fully settled its existing loan agreement below with Barclays and replaced it with a new facility for £4 million. Interest is payable at 2.25% above LIBOR on the outstanding balance, which is repayable at a rate of £333,000 per quarter over 3 years.

The Castleton Technology plc group has banking facilities in place, which are secured through fixed and floating charges over the Company and all property and assets of the Castleton Technology plc group, of which the Company is a member. Fixed charges are held over all property, plant and equipment including all insurance and assurance contracts, intangible assets and goodwill and trade debtors. Floating charges are held over all assets not covered by the fixed charge. At the balance sheet date, the maximum exposure to the Company was £8.2 million (2017: £5.5 million).

6 ProvisionsThe Company held no provisions at 1 April 2017 and none at 31 March 2018. During the year, the Company charged the income statement with £64,000 (2018: £nil) to create a new provision to pay employers’ National Insurance on share options exercised in future years. £54,000 of this provision is due in less than 1 year and the remaining £10,000 in more than one year.

7 Convertible loan notesOn 31 January 2016, in order to fund the acquisition of Kypera, the Company issued £3.5 million of unsecured loan notes (“Kypera Loan Notes”), which originally had a term of 5 years and carry interest at a rate of 5% per annum. Further to the new bank facility, the settlement date of the remaining Kypera loan notes was extended to January 2022. The Kypera Loan Notes can be converted into new ordinary shares of 2 pence each at a price of 85.6 pence per Ordinary Share. Conversion is at the option of the holder at any time during the term. The Company can redeem the Kypera Loan Notes from the third anniversary of issue if not already converted.

On 9 August 2018, MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited (“MXC”) served a conversion notice with respect to the remaining convertible loan notes (“CLNs”) it held, together with the accrued interest, amounting to £632,000 in total. The CLNs were converted at 85.6 pence per ordinary share of 2 pence each in the capital of the Company and therefore 738,896 new ordinary shares of 2 pence were allotted to MXC on 17 August 2018.

The Kypera Loan Notes are valued on a Black Scholes option pricing model under standard option pricing assumptions. The fair value of the Kypera Loan Notes was calculated as follows:

Non-current2019£000

2018£000

Debt element (excluding accrued interest) 1,883 2,378Equity element 143 251

2,026 2,629

A cash repayment of £0.5m was made on 27 April 2017 in respect of the Kypera Loan Notes. A further £0.5 million was settled (along with £0.1 million accrued interest) on 9 August 2018 by the Company allotting 738,896 new ordinary shares of 2 pence to MXC on 17 August 2018.

Total £000

At 31 March 2017 2,882Interest payable accrued 169Interest due to be paid (173)Repayments (500)At 31 March 2018 2,378Interest payable accrued 131Interest due to be paid (126)Settlement by conversion to shares (500)At 31 March 2019 1,883

Within one year –More than one year 1,883

1,883

NOTES TO THE COMPANY FINANCIAL STATEMENTS continued


8 Share-based payment plansSee note 24 in the Consolidated Financial Statements.

The share-based payment charge comprises:2019 £000

2018 £000

Equity-settled share-based charge arising from share option plans for employees 706 404Equity- settled share-based charge arising from warrants – 80Total equity-settled share-based payments 706 484

Share options are granted to reward and motivate the Company’s Directors and its employees. The charges and disclosures throughout this note are in respect of the Directors of the Company and any employees of Company whose costs are not recharged to other subsidiaries within the Group.

The following table illustrates the number and weighted average exercise prices of movements in share options and Growth Shares during the year:

EMI Options Number

Unapproved Options Number

Growth Share Scheme

Equivalent Number of shares

UK Share save Number

MXC Share Option

Scheme Number

Total Number of options and

Growth Shares

Weighted average

exercise price

As at 31 March 2017 859,624 2,091,580* 485,307 – 4,417,491 7,854,002* 27.23p*Options granted – 926,428 787,148 – – 1,713,576 35.48pOptions lapsed – (11,046) (30,136) – – (41,182) 22.00pOptions exercised – (175,000) – – (4,417,491) (4,592,491) 21.47pTotal options granted

as at 31 March 2018 859,624 2,831,962 1,242,319 – – 4,933,905 35.69pOptions granted (a) 83,333 – – 34,780 – 118,113 24.38pOptions lapsed (b) – (164,281) – – – (164,281) 35.30pOptions exercised (c) (271,000) – – – – (271,000) 22.00pOptions transferred (d) – (1,164,751) 1,164,751 – – – – Total options granted

as at 31 March 2019 671,957 1,502,930 2,407,070 34,780 – 4,616,737 24.45pOptions exercisable

as at 31 March 2019 171,959 715,782 932,129 – – 1,819,870 23.17p

* Total Unapproved options as at 31 March 2017 have been increased by 645,668 options from 1,445,912 as previously reported to 2,091,580 with a corresponding increase as at 31 March 2018. The weighted average exercise price has been adjusted from 27.38pence to 27.23pence as at 31 March 2017 and from 40.36p to 35.69p as at 31 March 2018.

(a) Options granted during the period include; a total of 83,333 of EMI Options to an employee in March 2018 and 34,780 of UK Sharesave to Directors and employees in September 2018.

(b) Options lapsed during the period comprise 164,281 in respect of Directors Unapproved Options, being an adjustment in respect of the cessation of the evergreen nature of options from 21 February 2018. For further disclosure see note 24.

(c) Options exercised during the period include 271,000 of EMI Options exercised by Haywood Chapman, a Director of the Company. The exercise has been recorded in the Consolidated Statement of Changes in Equity on pages 48 and 49.

(d) As disclosed in note 24, the Director Growth Share Scheme awards to Haywood Chapman, David Payne and Phil Kelly each contain an allocation of value between the Unapproved Option and the Growth Share Scheme which will vary according to the final share price upon exercise. These options are now exercisable, having met their performance conditions during the period. The increase in the market price of the Company’s shares from 74.75 pence on 31 March 2018 to 96.5 pence per share on 31 March 2019 has resulted in a transfer of value from Unapproved Options to Growth Share Scheme of 476,958 options. In addition, 687,793 of Directors Growth Share Scheme awarded to Dean Dickinson have also been transferred from Unapproved Option to Growth Shares during the period.



8 Share-based payment plans continuedAt the year-end the Company had four equity-settled share based payment plans, as outlined in note 24 in the Consolidated Financial Statements.

There were 1,819,870 options exercisable at the end of the year (2018: nil). The range of exercise prices for options outstanding at the end of the year was 2.0p to 82.8p (2018: 22.0p to 69.0p). The range of exercise prices and contractual life of outstanding options is analysed as follows:

Option Scheme Date of grant2019

numberExercise price

(pence)

Contractual Remaining Life

(years)

Growth Shares – Director Options 18 July 2015 932,129 22.0 2.0UK Sharesave 12 September 2018 34,780 82.8 3.0Growth Shares – Director Options 2 December 2016 687,793 60.0 3.6Growth Shares – Director Options 20 July 2017 787,148 69.0 4.3EMI Option – Director Options 18 July 2015 132,224 22.0 6.3Unapproved Option – Director Options 18 July 2015 715,782 22.0 6.3EMI Option 23 December 2015 39,735 75.5 6.7EMI Option – Director Options 2 December 2016 416,665 60.0 7.7Unapproved Option – Director Options 20 July 2017 787,148 2.0 8.3EMI Option 22 March 2018 83,333 2.0 9.0Total 4,616,737 The fair value of the equity-settled share options granted during the period is outlined in note 24 to the Consolidated Financial Statements.

9 Auditors’ remunerationThe Company audit fee is £50,000 (2018: £37,000). This fee was borne by another Group company.

10 Employee benefits expenseThe directors’ emoluments are paid by Castleton Group Holdings Limited and were not recharged to the Company. Details are set out in the Directors’ Remuneration report.

The employees and directors of the Company are paid by Castleton Group Holdings Limited (another group company). Details of the charges incurred by Castleton Group Holdings Limited are given below.

2019 £000

2018 £000

Staff costs for the year, including Executive Directors, amounted to: Wages and salaries 721 743Social security costs* 238 97Pension costs 44 21Share based payments* 706 404

1,709 1,265

* Social security costs includes £112,000 (2018: £nil) in respect of social security cost for share option schemes.

The average monthly number of people working in administration (including Executive Directors) was 11 (2018: 9).



11 Financial instruments by categoryThe objectives of the Company’s treasury activities are to manage financial risk, secure cost-effective funding where necessary and minimise adverse effects of fluctuations in the financial markets on the value of the Company’s financial assets and liabilities, on reported profitability and on cash flows of the Company.

The Company’s principal financial instruments for fundraising are bank borrowings, overdraft facilities and loans.

Financial assets at amortised cost2019 £000

2018 £000

Amounts due from subsidiary undertakings 16,475 14,241Other receivables 50 –Total 16,525 14,241

Other financial liabilities at amortised cost2019 £000

2018 £000

Trade and other payables excluding statutory liabilities* 495 2,340Bank loan 4,000 3,250Overdraft 3,109 1,850Convertible Loan Notes 1,883 2,378Total 9,487 9,818

* This figure includes the liability in respect of MXC Scheme settlement of £nil (2018: £1,662,000).


12 Financial risk managementThe Company’s activities expose it to liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance.

Risk management is carried out centrally under policies approved by the Board of Directors. Management identifies, evaluates and hedges financial risks. The Board provides principles for overall risk management, as well as policies covering specific areas, such as interest rate risks.

Liquidity riskManagement reviews cash forecasts of operating companies of the Company in accordance with practice and limits set by the Company. The Company’s liquidity management policy involves projecting cash flows and considering the level of liquid assets necessary to meet these.

The table below analyses the Company’s financial liabilities into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. These amounts disclosed in the table are the contracted undiscounted cash flows including interest. Balances within 12 months equal their carrying balances plus interest as the impact of discounting is not significant.

At 31 March 2019

Within 1 year £000

1–2 years £000

More than 2 years

£000Total £000

Loan Notes (including interest accrued after 31 March 2019) – – 2,354 2,354Overdraft 3,109 – – 3,109Bank Loan 1,456 1,409 1,363 4,228Trade and other payables 153 – 342 495

4,718 1,409 4,059 10,186

At 31 March 2018

Within 1 year £000

1–2 years £000

More than 2 years

£000Total £000

Loan Notes – – 3,268 3,268Overdraft 1,850 – – 1,850Bank Loan 1,098 1,066 1,287 3,451Trade and other payables 1,994 – 348 2,342

4,942 1,066 4,903 10,911



13 Called up share capitalSee note 23 to the consolidated financial statements.

14 ControlIn the opinion of the directors, there is no single controlling party. The financial statements of this Company are available to the public and may be obtained from www.castletonplc.com.

15 Net cash flows from operating activities 2019 £000

2018 £000

Profit on ordinary activities before taxation 449 1,991Adjustments for: Exceptional items 5 –Net finance costs 265 287Equity-settled share-based payment charge 706 80Movements in working capitalIncrease in other receivables (1,623) (1,488)Increase in trade and other payables (179) 167Increase in provisions 64 –Cash flows from operating activities (313) 1,037

The principal non-cash transactions in 2019 are as below:During the period, the Company issued a total of 1,432,706 new ordinary shares of 2 pence each to Brixx International Limited at a price of 82.75 pence per ordinary share, in respect of the acquisition of the exclusive, perpetual and assignable licence in relation to the Castleton Strategic Modelling (formerly “Brixx”) platform (“the Asset Purchase”), further development of the platform and settlement of pre Asset Purchase licence fees payable. The consideration for the Asset Purchase was £1,686,000, of which £1,186,000 was a non cash transaction and £500,000 was also paid in cash.

Conversion of MXC Loan notes On 9 August 2018, MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited (“MXC”) served a conversion notice with respect to the remaining convertible loan notes (“CLNs”) it held, together with the accrued interest, amounting to £632,000 in total. The CLNs were converted at 85.6 pence per ordinary share of 2 pence each in the capital of the Company therefore 738,896 new ordinary shares of 2 pence were allotted to MXC on 17 August 2018.

On 20 February 2019 the Company issued 200,331 ordinary shares of 2 pence to the former owners of CarbonNV InfoLogic India Private Limited (now known as Castleton India) at a price of 97.5 pence per ordinary share in respect of the acquisition of Castleton India. The consideration for the Asset Purchase was £351,000, of which £195,000 was a non cash transaction and £156,000 was also paid in cash.

On 23 October 2018, the Company completed a capital reduction process, which debited the Company’s share premium account under section 648 of the Companies Act 2006 with £18,835,000 and credited the profit and loss reserve with £18,835,000.

The IFRS 9 adjustment to the bad debt provision of the Company credited the bad debt provision with £712,000 and debited the profit and loss reserve.

The principal non-cash transactions in 2018 are as below:Settlement of the MXC Scheme which credited other creditors and debited the accumulated loss reserve with £1,662,000. On 3 April 2018, the cash was paid to MXC which resulted in a financing cash outflow of £1,662,000 during the financial year ending 31 March 2019.



16 Related partiesDuring the year ended 31 March 2019, no trading transactions were entered into with other members of the Group (2018: £nil).

Balances outstanding (net of provision for impairment) at the year-end are as follows.Amounts owed to

group undertakingsAmounts due from group undertakings

2019£’000

2018£’000

2019£’000

2018£’000

Castleton Software Solutions Ltd – (71) 1,599 –Castleton Managed Services Ltd (84) (84) – –Castleton Technology Intermediate Holding Company Limited – – 13,881 12,762Castleton Technology Pty Ltd – (164) 995 1,479

(84) (319) 16,475 14,241

Key management is considered to comprise the Senior Management Team. Remuneration of key management personnel is disclosed in note 8 of the consolidated financial statements. Details of directors’ remuneration are given in the Remuneration Committee report.



ADVISERS

Company SecretaryHelen Griffiths

Registered OfficeThe Walbrook Building25 WalbrookLondon EC4N 8AF

Financial Adviser and BrokerfinnCap Limited60 New Broad StreetLondon EC2M 1JJ

Independent AuditorsRSM UK Audit LLPSt Philips Point Temple RowBirmingham B2 5AF

Solicitors DAC Beachcroft LLPThe Walbrook Building25 WalbrookLondon EC4N 8AF

RegistrarsLink Asset Services34 Beckenham RoadBeckenhamKent BR3 4TU

Principal BankersBarclays Bank plc54 Lombard StreetLondon EC3V 9EX

Company Number3336134

Further details can be found on the Castleton Technology website at the following address: www.castletonplc.com

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CASTLETON TECHNOLOGY PLCThe Walbrook Building25 WalbrookLondonEC4N 8AF

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CASTLETON TECHNOLOGY PLC...CASTLETON TECHNOLOGY PLC 1 ANNUAL REPORT 2019 0 5 10 15 20 25 30 2019...

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