PEPPERMINT_TECHNOLOGY_HOL - Accounts

The directors present the strategic report for the year ended 30 June 2020.

Peppermint Technology is a leading cloud software company offering the legal sector an opportunity to transform, modernise and grow. Peppermint’s platform provides the full suite of legal applications – matter management, case management, client engagement (CRM), document management and practice management - built on Microsoft Dynamics 365 and Power Platform and delivered as Software as a Service (SaaS).

The client-centric software platform enables high performing legal businesses to drive every process, activity and insight through a single source of information. The software incorporates business intelligence reporting, automated workflows, risk and compliance management tools; together with a suite of collaboration tools that seamlessly integrate with other legal software. Peppermint’s solution harnesses the power of leading-edge, agile technology, supporting customers to drive strategic growth and deliver unrivalled client service.

The company continues to strengthen its management team and made several key appointments to drive the quality and growth of the company. In September 2019, the company recruited Matt O’Callaghan from Microsoft into the role of Director of Business Development. Matt spent 14 years in Microsoft and led their UK Enterprise sales effort in Professional Services, including the Top 30 law firms in the UK.

The Key Financial and other performance indicators during the year were as follows:

Revenues decreased 4% compared to the prior year at £5.932m (2019 - £6.205m). Recurring revenues represent 86% of total revenue, compared to 80% in the previous year. The Operating loss of £0.324m compares to a loss of £1.915m in the previous year.

During the year, the company reviewed its strategy in line with its growth ambitions and market opportunities. The company is focusing its resources on its private cloud CX offering and developing the CX platform into the Microsoft public cloud and online environment, branded as CX365. Importantly, the platform has been modularised to make it easier for customers to buy, implement and consume.

Peppermint has a strategic relationship with Microsoft having been granted the Certified for Microsoft Dynamics award and is also a Microsoft Independent Software Vendor (ISV) and Cloud Solution Provider (CSP). Peppermint continues to invest to deliver the benefits of Microsoft Dynamics 365 and Power Platform exclusively to the legal sector. The development roadmap will architect the software to continue to take full advantage of the Microsoft Dynamics 365, Power Platform and the wider Microsoft Cloud eco-system.

The decrease in revenue reflects the short-term impact of Covid-19 which detrimentally affected the last quarter of the financial year. The Covid-19 response caused a number of customer projects to be put on hold or deferred, as law firms focused on their own business continuity plans, which led to a decrease in professional service revenue compared to the prior year. The group took the decision to support its existing customer base and accommodated contract variations to reflect customer staff reductions due to Covid-19 and this, together with deferred sales opportunities, meant that recurring revenue did not grow as anticipated. Given the unprecedented nature of Covid-19 the Directors are satisfied with the group’s performance.

The £1.591m improvement in operating loss reflects cost savings and government support received as a result of Covid-19, together with the successful resolution of a long running corporate tax enquiry.

During the year two customers completed their implementation and go-live and three more upgraded from “on-premise” to the “Peppermint Cloud”, taking advantage of the company’s hosting technology to deliver an enhanced customer experience. The Peppermint Cloud CX upgrade programme was completed, allowing the removal of technical debt by way of CRM 2011 code and infrastructure to support the legacy version. Peppermint continues to focus on ensuring its software adds value to its customers, with the product and customer success teams engaged with the customer community to gather feedback and insight to improve the software quality, functionality and overall user experience.

After the initial Covid-19 business continuity planning and under the new normal of remote working, procurement activity in the sector increased and a number of firms came to the market for new, modern cloud-based systems. Peppermint secured several significant multi-year contracts with Top 100 UK law firms and its sales pipeline has materially strengthened.

Notably, Peppermint secured the company’s largest client to date – DWF LLP, executing on its strategy to win market share in large law.

In line with the strategy to develop a world class partner programme, Peppermint has signed contracts with Wilson Allen and Pinnacle to implement and support Peppermint solutions in selected customers in both the UK and US. Peppermint intend to further strengthen its partner programme during 2021.

Going Concern and events after the reporting date

In March 2020, the impact of the Covid-19 pandemic was apparent globally.

The company’s transition to remote working was swift and effective, without any disruption to customers or productivity. The Directors took decisive action to safeguard the business, employees and customers and focussed on preserving cash.

This Directors reviewed detailed cash flow and profit and loss forecasts, considering all reasonably foreseeable potential scenarios and uncertainties in relation to income and expenditure. Based on the forecasts prepared the company decided to initiate a fund raise and re-negotiate the terms of its existing debt financing with Accel KKR, to support the planned growth of the business. In November 2020 the group concluded its renegotiations with Accel KKR and secured a new funding round with its existing equity investor, Scottish Equity Partners and FF Nominees Ltd.

Following the completion of the refinancing, the directors, in their consideration of whether the Company is a going concern, have reviewed the group's future cash forecasts and revenue projections, considering all reasonably foreseeable potential scenarios and uncertainties in relation to income and expenditure. Based on the forecasts prepared, the Directors have concluded that the Covid-19 pandemic does not create a material uncertainty in relation to going concern, as such the Directors view is that the business will continue in operational existence for a period of at least 12 months from the signing of these financial statements and have therefore prepared the financial statements on the going concern basis. The group's activities expose it to a number of financial risks, including cash flow risk, credit risk and liquidity risk. The group does not use derivative financial instruments for speculative purposes.

Cash Flow Risk

The group's cash flow risk is its exposure to variability in cash flows associated with a recognised asset or liability, such as future interest payments on a debt. The company’s loan from Accel-KKR bears a fixed rate of interest.

In addition, the group manages this risk, by monitoring cash flow projections on a regular basis to ensure that appropriate funding is in place.

Credit Risk

The group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of a provision for doubtful receivables. A provision for impairment is made where there is an identified loss event which is evidence of a reduction in the recoverability of the balance due.

Peppermint seeks to mitigate commercial and operational risks through ensuring operational policies are followed, ensuring strong credit control procedures are in place and by an ongoing review of changes in the industry. All new customer contracts are subject to internal legal, commercial, operational and finance sign off.

Liquidity Risk and Interest Risk

The cash generated by operations is monitored closely and all funds are held in readily accessible bank accounts. The group's cash flow forecasts are updated regularly to ensure that sufficient funds are available to meet all financial commitments.

Foreign Currency Risk

The company’s debt funding from Accel-KKR is denominated in sterling and therefore does not present a foreign currency risk. The company is currently negotiating contracts with legal firms based overseas and will evaluate the risk and any requirement to mitigate such risk.

The group is committed to investing in the Peppermint software platform, enhancing and innovating to offer a market leading SaaS service to the Legal sector. Additionally, the group continues to focus on sales and marketing and on delivering exceptional customer experience through its software, services and support. The group is investing in its partner programme to deliver its software and serve both the domestic and international markets. The Board is confident of the group’s future prospects.

On behalf of the board

The directors present their annual report and financial statements for the year ended 30 June 2020.

The principal activity of the company during the year was as a holding company to its trading subsidiary Peppermint Technology Limited.

The principal activity of Peppermint Technology Limited is the provision of software to the legal profession.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

The results for the year are set out on page 10.

No ordinary dividends were paid. The directors do not recommend payment of a further dividend.

The company has made qualifying third party indemnity provisions for the benefit of its directors during the year. These provisions remain in force at the reporting date.

Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment within the group continues and that the appropriate training is arranged. It is the policy of the group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.

The group's policy is to consult and discuss with employees matters likely to affect employees' interests.

Azets Audit Services were appointed as auditor to the group and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the auditor of the company is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the auditor of the company is aware of that information.

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). 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 company, and of the profit or loss of the group for that period. In preparing these 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 applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that 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 company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

We have audited the financial statements of Peppermint Technology Holdings Ltd (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 June 2020 which comprise the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows 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 United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

•     give a true and fair view of the state of the group's and the parent company's affairs as at 30 June 2020 and of the group's loss for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We 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 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, 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 concern

We 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.

Other information

The 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 2006

In our opinion, based on the work undertaken in the course of our 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.

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report and the directors' report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

As explained more fully in the directors' responsibilities statement, 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.

Our 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 report

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

As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £484,286 (2019 - £644,101 loss).

Peppermint Technology Holdings Ltd (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Oaktree House, 2 Phoenix Place, Phoenix Court, Nottingham NG8 6BA.

The group consists of Peppermint Technology Holdings Ltd and all of its subsidiaries.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.

In the parent company financial statements, the cost of a business combination is the fair value at the acquisition date of the assets given, equity instruments issued and liabilities incurred or assumed, plus costs directly attributable to the business combination. The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill. The cost of the combination includes the estimated amount of contingent consideration that is probable and can be measured reliably, and is adjusted for changes in contingent consideration after the acquisition date. Provisional fair values recognised for business combinations in previous periods are adjusted retrospectively for final fair values determined in the 12 months following the acquisition date. Investments in subsidiaries, joint ventures and associates are accounted for at cost less impairment.

Deferred tax is recognised on differences between the value of assets (other than goodwill) and liabilities recognised in a business combination accounted for using the purchase method and the amounts that can be deducted or assessed for tax, considering the manner in which the carrying amount of the asset or liability is expected to be recovered or settled. The deferred tax recognised is adjusted against goodwill or negative goodwill.

The consolidated financial statements incorporate those of Peppermint Technology Holdings Ltd and all of its subsidiaries (ie entities that the group controls through its power to govern the financial and operating policies so as to obtain economic benefits). Subsidiaries acquired during the year are consolidated using the purchase method. Their results are incorporated from the date that control passes.

All financial statements are made up to 30 June 2020. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

In assessing the appropriateness of the going concern assumption, the directors have reviewed detailed profit and cashflow forecasts considering reasonably foreseeable potential scenarios and uncertainties in relation to income and expenditure for a period of at least 12 months from the sign off of these financial statements. The company continues to trade and has met liability payments as they fall due and the directors have concluded that the Covid-19 pandemic does not create a material uncertainty in relation to going concern and as such have deemed it appropriate for the financial statements to be prepared on the going concern basis.

Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.

Revenue for software as a service, subscription services and maintenance are recognised over the length of the contract on a straight line basis. Revenue from consulting and implementation services are recognised when the services are delivered.

Goodwill represents the excess of the cost of acquisition of a business over the fair value of net assets acquired. It is initially recognised as an asset at cost and is subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is considered to have a finite useful life and is amortised on a systematic basis over its expected life, which is 10 years.

For the purposes of impairment testing, goodwill is allocated to the cash-generating units expected to benefit from the acquisition. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Intangible assets acquired on business combinations are recognised separately from goodwill at the acquisition date where it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the fair value of the asset can be measured reliably; the intangible asset arises from contractual or other legal rights; and the intangible asset is separable from the entity.

Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the profit and loss account.

Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.

In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.

A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The group considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.

Investments in associates are initially recognised at the transaction price (including transaction costs) and are subsequently adjusted to reflect the group’s share of the profit or loss, other comprehensive income and equity of the associate using the equity method. Any difference between the cost of acquisition and the share of the fair value of the net identifiable assets of the associate on acquisition is recognised as goodwill. Any unamortised balance of goodwill is included in the carrying value of the investment in associates.

Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate.

In the parent company financial statements, investments in associates are accounted for at cost less impairment.

Entities in which the group has a long term interest and shares control under a contractual arrangement are classified as jointly controlled entities.

At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.

Recoverable amount is the higher 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 which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks.

The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.

Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.

Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.

Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

Share warrants

Where share warrants are awarded for services delivered to the group, the fair value of the warrants at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of warrants that eventually vest. Market vesting conditions are factored into the fair value of the warrants granted. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of warrants are modified before they vest, the increase in the fair value of the warrants, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period.

Where share warrants are granted to debt holders, the consolidated statement of comprehensive income is charged with the fair value of the warrants as other finance costs over the term of the vesting period.

A liability has been recognised in the consolidated balance sheet in relation to outstanding warrants.

In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

The following judgements and estimates have had the most significant effect on amounts recognised in the financial statements.

The carrying value of tangible and intangible fixed assets is reviewed annually for impairment taking into account the current trading performance and anticipated future cash flows to assess whether there is any indication of impairment. In assessing forecasted cash flows past performance will often be taken as the best available guide, unless it is known that circumstances have changed. These future cash flows are then discounted, using the company's cost of capital. As a result of the estimates involved, the actual impairment required in the future may differ from the assessment made in these financial statements.

Management considers fair value of the identifiable assets and liabilities for each business combination. The fair values of any intangible assets recognised are considered individually. The method of valuing intangible assets depends upon the class of asset to be recognised. Management have used discounted cash flow analysis to determine the fair value of intangible assets recognised as part of the business combination.

Customer relationships intangible asset valuation is initially recognised at fair value. Determining the fair value requires an estimation of the future cash flows expected to arise from the brand using a suitable discount rate in order to calculate present value.

Software valuation is initially recognised at fair value. Determining the fair value requires an estimation of the replacement costs of equivalent assets, taking into account the time and development costs.

Tangible and intangible fixed assets are depreciated and amortised over the useful lives of the related assets taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values.

Investments are considered annually for impairment. Determining whether a fixed asset is impaired requires an estimation of the value in use of the cash generating investment, which requires the entity to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate present value. The carrying amount of fixed asset investments at the balance sheet date is considered appropriate with no impairment required.

Audit fees of the company are borne by its subsidiary company, Peppermint Technology Limited.

The average monthly number of persons (including directors) employed by the group and company during the year was:

Their aggregate remuneration comprised:

Investment income includes the following:

The actual credit for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:

As at 30 June 2020 the group had estimated tax losses of £6,929,000 (2019 - £6,742,000) available to carry forward against future taxable profits. Deferred tax assets on available tax losses have not been recognised due to uncertainties over timing of future profits.

Details of the company's subsidiaries at 30 June 2020 are as follows:

In May 2020 an additional £600,000 of deep discounted loan notes were issued which have a maturity date of 18 January 2023, for cash proceeds of £400,000.

The maturity date of the existing discounted loan notes of £1.5million, for cash proceeds of £1.0million, was changed to 18 January 2023 (previously 30 June 2023).

On 18th January 2019, the company issued discounted loan notes of £2.4m, for cash proceeds of £1.6m with a maturity date of 18 January 2023.

On 18 January 2019, the company entered a term loan facility agreement for £5.5m of which £4.4m is repayable on 31 January 2023. This has been split in the notes as amounts due within and after one year.

The term loan agreement carries interest of 11.5% per annum. At the year end £31,014 (2019: £31,538) of interest has been accrued and is shown in other loans due within one year.

Total issue costs of £233,494 were incurred at the time of arranging the loan notes, which have been deducted from the carrying value and are charged to the profit or loss as part of the interest charge using the effective interest rate method.

The finance charge in the year relating to the amortisation of loan issue costs and interest is £676,415 (2019: £340,126).

Other loans are secured by fixed and floating charges over the assets of the company.

The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:

A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.

On 23 July 2019 2,425 Ordinary shares were cancelled by Peppermint Technology Holdings Limited. The nominal value of the own shares was transferred to the capital redemption reserve.

Also on 23 July 2019 3,450,108 A3 Ordinary shares of £0.01 each were allotted.

Ordinary shares, A Preferred ordinary shares and B Preferred ordinary shares have the right to receive notice of and to attend, speak and vote at all general meetings of the company.

The deferred shares do not entitle the holders thereof, to attend, to speak or to vote at any general meeting of the company.

Share Warrants

The Company has granted share warrants to its debt holder in exchange for services it delivered. Warrants are exercisable at a price equal to the estimated fair value of the Company's shares on the date of grant. The vesting period is between 3 and 5 years.

At the year end, there are 495,511 share warrants outstanding and exercisable in respect of A Preferred ordinary shares. The timing and amount of warrants that could be exercised are subject to meeting certain conditions.

As at the year end, there are 602,577 share warrants outstanding over Ordinary shares that are exercisable at a future date. The timing and amount of warrants that could be exercised are subject to meeting certain conditions.

No share warrants were exercised, forfeited or expired during the year.

The fair value of the share warrants at the grant date was calculated using the Black Scholes and Monte Carlo model, which is considered to be the most appropriate generally accepted valuation method of measuring fair value.

The Group recognised total expenses of £41,544 (2019 - £66,187) share warrants as other finance costs in the year.

At the year end the Company also have 12,000,000 share warrants over ordinary shares outstanding. These are exercisable on a sliding scale if the share price is within a certain range.

The company's capital and reserves are as follows:

Called up share capital

Called up share capital represents the nominal value of the shares issued.

Share premium account

The share premium account includes the premium on issue of equity shares, net of any issues costs.

Capital redemption reserve

The capital redemption reserve contains the nominal value of own shares that have been acquired by the company and cancelled.

Other reserve

The other reserve arose on the acquisition of Peppermint Technology Limited and reflects the premium of the shares exchanged by the shareholders in Peppermint Technology Limited for ordinary shares in Peppermint Technology Holdings Limited.

Profit and loss account

The profit and loss account represents cumulative profits or losses net of dividends paid and other adjustments.

At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Amounts contracted for but not provided in the financial statements:

The impact of the Covid-19 pandemic was apparent globally. The directors have assessed the current and future impact of this outbreak on the group and are of the view that the business is well placed to deal with any financial difficulties that may arise, albeit they are of the view that the likelihood of any such issues occurring is remote and as such continue to prepare the accounts on the going concern basis.

During the year fees of £22,500 (2019 - £15,000) were charged by Scottish Equity Partners, a shareholder in Peppermint Technology Holdings Limited. As at the year end, a balance of £Nil (2019 - £7,500) is due to Scottish Equity Partners and included in trade creditors.

During the year a variation agreement was passed whereby an additional £600,000 (2019 - £2.4m) of deep discounted loan notes were issued to Scottish Equity Partners which have a maturity date of 31 January 2023, for cash proceeds of £400,000 (2019 - £1.6m). These amounts are included in other loans falling due after more than one year disclosed in note 18.

Key management personnel include all directors across the group who together have authority and responsibility for planning, directing and controlling the activities of the group. The total compensation paid to key management personnel for services provided to the group was £427,275 (2019 - 581,210).

Peppermint Technology Holdings Limited is the largest and smallest group which prepares group financial statements including the results of the company. There is no ultimate controlling party. Financial statements are available from Companies House, Crown Way, Cardiff, CF14 3UZ.

A prior year adjustment has been processed to remove previously prepaid loan interest from Other Debtors. The adjusted accounting treatment is such that interest is instead accrued under the effective interest method with unpaid interest included within Other Borrowings.

As such the previously reported Other Debtors due within 1 year have been reduced by £435,734 alongside a reduction in Other Debtors due in more than 1 year of £474,869. Similarly, Other Borrowings due in more than 1 year have been reduced by £1,122,234. The previously reported interest payable and similar expenses included within the profit and loss account have also reduced by £211,631.