Bringing
the digitaltwin to life

Ubisense Group plc Annual Report 2017

B R I N G I N G T H E D I G I TA L T W I N T O L I F E

PASSENGER
VEHICLES

The power of location data

COMMERCIALVEHICLES

We have one simple goal: to revolutionise the world’s ability to locate,connect and manage industrial assets, making them more productive,
flexible, profitable and safe. We are proud to be a trusted adviser to someof the biggest automotive, aerospace, telecoms and utility companies in theworld, offering in-depth knowledge of the sectors in which we operate andthe challenges that our customers face, at every level of the organisation.

AEROSPACE &DEFENCEGENERAL INDUSTRY(MANUFACTURING
AND LOGISTICS)

Our solutions are based on powerful enterprise platforms, supported
by a range of customer-led applications, that use location to enable ourcustomers to deliver a real-time digital twin of their physical operations,proven to drive quality, increase productivity, manage complexity andreduce costs.
Ubisense has carved out a unique place for itself in the quest to enable thecreation of digital twins across both sides of the business. A digital twin is adigital replica of a physical object or process, interpreting a wide range oftechnology to create a 'living' model that supports a production processduring its lifecycle.
We have two enterprise products that enable the creation of digital twins.

PUBLIC TRANSPORTTELECOMMUNICATIONSRTLS SmartSpace
Delivering new levels of visibility and control, SmartSpace provides a foundation
platform for manufacturers’ Industry 4.0 strategy. Enabling customers to createa real-time digital twin of the production environment, Ubisense’s technology
connects activities in the real world to manufacturing execution andplanning systems, making real-world processes involving moving assets
visible and measurable.

Geospatial myWorld
CABLE

GAS

ELECTRIC

myWorld transforms the ability of infrastructure companies to manage
their geographically dispersed assets by creating a single architecture
for geospatial-based applications. It enables customers to create a real-time
digital twin of their physical operations that can be shared by thousandsof field and office staff across all departments, connecting seamlessly
to other critical enterprise systems.

• 2017: Strong progress was demonstrated in terms of revenue
growth of our own products, cost management and order book
• Software focus: New strategy is delivering significant wins
across both sides of the business, with a 21% increase insoftware sales• Global growth: Demand for Ubisense solutions has
increased across new centres of manufacturing such as
Turkey and Thailand• RTLS SmartSpace product development: Modularised theenterprise software platform to address Industry 4.0 and
emerging opportunities for Industrial Internet of Things(“IIoT”) applications• Geospatial myWorld product development: Extended the
product portfolio to include an analytics suite that significantly
reduces time to market for cable and telecoms network builds
and upgrades
See our strategic focus on page 12

FINANCIAL HIGHLIGHTS• Revenue generated from Ubisense’s own products increasedby 28% and now represents over 60% of revenue (2016: 49%)
• Total revenue increased to £27.3 million (2016: £26.5 million)
while managing a 22% planned decline in services associatedwith third party products• Operating loss reduced to £3.1 million (2016: £6.2 million) andadjusted EBITDA profits of £0.4 million (2016: £0.3 million)• £5.5 million (gross) raised from shareholders in November 2017
to accelerate go-to-market and development activity

Strategic report
1Highlights
2 Chairman’s statement
4 Chief Executive’s statement
6 Our business8 Our products
10 Our markets
12 Strategy
13 Case studies
18 KPIs
19 Chief financial officer’s statement
23 Principal risks and uncertainties

Strategic report

S T R AT E G I C H I G H L I G H T S

Corporate governance
26 Board of Directors
28 Corporate governance report
30 Directors’ report
32 Directors’ remuneration report
34 Directors’ responsibilities statement
Financial statements
36 Independent auditor’s report
42 Consolidated income statement
43 Consolidated statementof comprehensive income
44 Consolidated statementof changes in equity
45 Consolidated statementof financial position
46 Consolidated statementof cash flows
47 Notes to the consolidated
financial statements
70 Company balance sheet
71 Company statement of changes
in equity
72 Notes to the company
financial statements
IBC Advisers• Cash balance of £9.1 million (2016: £3.5 million) and net cashof £6.6 million (2016: £0.2 million)
See our KPIs on page 18

For more information
view our website:www.ubisense.net

Ubisense Group plc Annual Report 20171

C H A I R M A N ’ S S TAT E M E N T

Driving value fromour own products
We've refocused our sales effort and development towards the twoenterprise location intelligence software platforms – Real-Time Location
System (RTLS) SmartSpace and Geospatial myWorld.

Board of directors and GovernanceAt the end of 2016, we welcomed Richard Petti
to the Board as the new Chief Executive Officer. I’mdelighted that he has stepped into the role successfully,
enabling me to resume my non-Executive Chairmanrole in August 2017. Richard has led the business,clarifying the positioning and strategy of the company’s
two product portfolios, focusing and training the sales
force whilst we continue to build the sales capacity.

28%
revenue
growth in RTLS
SmartSpaceand Geospatial
myWorld

Results overview
2017 results continued to demonstrate that Ubisense
has excellent products which deliver measurable
benefits for customers as they strive for productivity
improvements. In total, Ubisense has delivered 28%
revenue growth for the company’s own products,
RTLS SmartSpace and Geospatial myWorld, offsetting
the planned decline in Geospatial revenues associatedwith third party products. We have continued to see
growth in our own software revenues, which remainsof key importance to us as we drive growth in new
and recurring revenues.
The RTLS SmartSpace agreement with Lockheed
Martin for the F35 program highlighted the productivity
gains that industrial customers need to make, withintegration of location information a key success‑enabling
factor. The strength of our technology alongside a
flexible, highly scalable software platform that can
integrate multiple location technologies were key
factors in this aerospace win. A win in the satellite
and space sector highlights the further opportunities
that exist in high-tech manufacturing.
Our Geospatial myWorld customers are now exploiting
the flexibility of the platform to create new use cases
liberating geospatial information across theirorganisation, integrating with other platforms anddriving productivity improvements. For Ubisense,
this drives sales of additional licences, further
services engagements and involvement incustomers’ longer term IT strategy.

2

Ubisense Group plc Annual Report 2017

The structure of the Board and individual responsibilities
remain unchanged from last year. We ensure that
the Company adopts proper standards of corporate
governance and that the principles of best practiceas set out in the UK Corporate Governance Codeare followed where reasonably practicable. The
Board continually reviews its composition and thatof its committees and feels that, at this stage of theGroup’s development, the skills and mix of its
members best serves our current needs.

Group strategy
In October 2017 we led a successful £5.5 million
fundraise with new and existing shareholders, toallow us to capitalise on our strategy and accelerate
our go-to-market and development activity.

“

In October 2017, we led
a successful £5.5 million
fundraise with new andexisting shareholders,highlighting some of thecustomer productivity
improvement opportunities
based on Ubisense
software platforms.”

Strategic report“

Enabling our customers tocreate digital twins of their
physical environments is
helping companies worldwide
to improve their profitability
and meet the most stringent
quality control requirements.”
Some of the customer productivity improvement
opportunities based on Ubisense software
platforms include:
RTLS SmartSpace: substantial investment in Industry
4.0 / Smart Factory / Industrial Internet of Things (IIoT)in industry with automation of non-linear processes
using location information.
Geospatial myWorld: communications and utility
operators spending billions of dollars upgrading
their networks, needing to optimise the workflow
across their organisation with accurate real-time
geographically-based information.
For the Geospatial business, we will continue toleverage the highly specialist skills that we have inthe team, focusing on increasing the volume of
myWorld activity. In line with our strategy to reduce
third party Geospatial consulting services, agreement
was reached in March 2018 to dispose of that partof the Japanese business effective 30 March 2018.
To strengthen sales of our own products we haverecruited strong new sales leadership in Japan andare making good progress on sales of myWorld andSmartSpace with our Japanese and Thai partners.

Corporate social responsibility
We are committed to corporate social responsibility
that is tangible, practical and fits with the ethos of thebusiness; this ensures that it is supported globally.
During 2017 we continued our charity day program,allowing employees to take time off to support
their charity of choice as well as organising local
fundraising events. We continue to collaborate withlocal and national organisations to engage interns,
industrial placements, apprenticeships and mentoring
schemes, as well as being active members of local
networks and clubs.

Current trading and outlook
The market opportunity for the Group is excellent for
both divisions, with software-led strategies targetingproductivity-enhancing opportunities in industry sectorsthat are growing and investing heavily in digitisation.
By enabling our customers to create digital twins of
their physical environments, we are helping companies
worldwide to improve their profitability and meet themost stringent quality control requirements.
Trading in the first two months of 2018 has been inline with our expectations and we intend to build on
our strengths through continued focus on developing
and commercialising our software portfolio. We have
improved the sales and go-to-market skills of theorganisation and intend to further accelerate themomentum of sales of our own products throughboth divisions, which will ultimately drive improved
gross margin and profitability.
We expect that the run-off of legacy third party services
revenues will largely complete over the course of 2018,
following which our results should better reflect thegrowth we are targeting in our own products, and as
the proportion of third party services revenue in our mix
declines, our gross margin will also naturally increase.
The growing success of our products, our stronger
pipeline and discussions with customers lead us to bevery excited about the prospects for our myWorld and
RTLS SmartSpace products.
Our success is thanks to our people; we have a great
team who have not only made this growth possible but
are well positioned to take the business forwards.
I would like to thank our shareholders - old and new for their continued support and our employees for theircommitment in delivering success across both divisions.

Peter Harverson
Chairman

14 March 2018

Ubisense Group plc Annual Report 20173

C H I E F E X E C U T I V E ’ S S TAT E M E N T

Bringing thedigital twin to life
We have made good progress in realigning ourbusiness around our two core products.

Our solutions are chosen because they combine
industry-leading technology that includes: indoor
and outdoor geolocation, wirelessly enabledmachine‑to-machine and machine-to-device
communication, advanced analytics and big
data middleware.

Underlying strategic focus

Market opportunity
Ubisense excels at helping customers to convert
their physical worlds into a living, breathing digitaltwin of their core operational assets, products andprocesses. In fact, Lockheed Martin, a giant in theaerospace industry, recently listed digital twins as thenumber one technology trend of 2018. This is why in2017 we have sold more of our own products tomore customers.
Looking at the trends in our main markets of automotive,
aerospace, telecoms and utilities we see somecommon challenges such as increased competition
from globalisation, more demanding technical savvy
customers and ageing workforces with skill gaps.
However, as we look more closely within our target
segments we also see some very positive indicators
including automotive manufacturing output at an all-timehigh of 93.5m units1, aircraft order backlogs at an all-timehigh of 8-10 years2 and global rollout plans for millions
of homes worldwide to be connected to fibre
broadband services in the next few years.
These long term trends are creating tremendous
opportunities for us. This is why Lockheed Martin hastrusted Ubisense with its mission critical function ofcontrolling all shop floor tool operations for its highprofile F-35 fighter program. This is also why Daimler
has standardised every plant worldwide to work with
our SmartSpace software to deliver their global visionof a “paperless factory”. And this is why one of thelargest North American utilities business has employees
using our myWorld solution every day.

4

Ubisense Group plc Annual Report 2017

Our progress in 2017 can most easily be measured
by observing the percentage of revenue our own
products generate. For 2017 I am proud to reportthat not only did we break the 50% barrier but that
we exceeded 60%. This important shift in our revenue
mix has been achieved by focusing on athree‑point strategy:

1. Refocusing the business:
Since 2016 we have been growing our focus on
own-product sales into four main verticals: automotive,
aerospace, telecoms and utilities. In doing so we are
actively managing out our legacy third-party Geospatialservice business which has now been reduced
by 22% year on year. This has allowed greater
management focus on building a stronger businessthat is based on our own products. Our goal is tobecome a market standard in each of our chosenverticals, we are focusing on the top global quartileof our selected market, which means concentrating
our efforts on a group of approximately 200 global
companies worldwide.
Focusing ensures that we develop a deeper
understanding of our chosen markets. In 2017
we seeded our product roadmaps with extensive
customer research which has helped us understandnew areas where existing and prospective customers
are facing specific problems. This market research
has led to the launch of important new products
in both product lines and increased pipeline
generation. By increasing our focus on specificverticals we have been able to offer existingcustomers new product roadmaps that align with
their challenges, and give new customers reasons
to adopt Ubisense technology.

Within our own organisation we have strengthened
our go‑to‑market capabilities by recruiting market
leading sales, pre-sales and marketing talent over2017 and we have invested in training to help ourorganisation successfully complete complex
multi-stakeholder buying processes.
As a result of this we have seen a significant shift inthe shape of our pipeline, and across both businesslines we have seen increases in the number ofopportunities in the £250K–£1m band by an averageof 115% and the £1M+ band by 25%. We have also
increased our presence in new markets suchas Thailand and Turkey by signing new distributionagreements with carefully selected partners thathave both sales and delivery capabilities into ourstrategic markets of automotive, aerospace,telecoms and utilities.

3. Repositioning the product portfolio:
Thanks to our renewed engagement with our chosenmarkets we have invested in the development of our
two enterprise class software solutions: SmartSpaceand myWorld. Both product sets have been elevatedfrom a positioning perspective so that our ability
to solve enterprise level problems are more clearlycommunicated to our target markets. This elevation
takes the form of positioning our products in the context
of enterprise systems already in place (in manufacturing,for example, this is referred to as the ‘manufacturing
enterprise systems stack’) and targeting our messaging
directly at specific job roles.
In addition to elevating the two products, we haveinvested in modularising them, separating functionality
into applications which can be packaged to address
customer specific needs. This approach allows us toposition both products along the value chains of ourtarget market and illustrates how our products canimprove core operations at each node in the value
chain of their added-value operations. By positioning
our product along the value chain we have been able
to offer specific solutions to the challenges in particularareas, thereby eliminating the need to purchaseenterprise licenses to solve discrete problems andpreserving more value for future sales.

Strategic report

2. Improved sales execution:“

Real progress towards ourgoal of revolutionising theworld’s ability to locate,connect and manage
industrial assets.”
Financial results
The repositioning work has allowed us to increase
the percentage of software across the board and ina typical transaction software will be the dominantsource of revenue and margin. This ability to drive
software sales underpins our goal of increasing
margin and recurring revenue by way of maintenanceand support services.
With respect to financial performance, we wereable to grow our top line to £27.3 million, more thanovercoming the decline in our legacy third party
service revenues. This top line growth is thanks to theincreased sales of our own products, which grew at
an impressive rate of 28%. Our margins made somepositive progress which will improve further as themomentum builds from the sales of our own products.
Above all, the Ubisense team continues to work hardto deliver improved returns for your investment.

Richard Petti

Chief Executive Officer
14 March 20181	https://thefly.com/landingPageNews.php?id=2508077&headline=GM;NSANY;F;VLK
AY;TM;DDAIF;FCAU;HMC-IHS-Markit-Global-auto-sales-set-to-reach-M-in2	https://centreforaviation.com/insights/analysis/record-global-aircraft-deliveries-in2017-boeing-ahead-of-airbus-again-but-behind-on-order-backlog-393914

Ubisense Group plc Annual Report 2017

5

OUR BUSINESSOur location-based
solutions create digital
twins of the physical world
Ubisense products integrate location into the daily operations ofbusinesses across the world. From tracking vehicles as they movethrough a production process to providing live geospatial data to fieldtechnicians for cable and utility companies, we are experts in turning
location data into business value.

Our vision

Why customers choose us

To enable our customers to create digital twins• World-class technology with a proven trackrecord of reducing costs and increasing
efficiencies across operationsof their physical worlds that deliver visibility
and control to increase productivity, flexibility,
profitability and improve quality.

Ubisense works in partnership with global
businesses across the automotive, aerospace,telecoms and utility sectors. Our products are
structured to meet the specific needs of eachindustry – from giving telecoms companies
greater visibility to helping automotive
manufacturers reduce errors andincrease throughput.

• Trusted advisors offering deep understandingof our customers’ businesses• Strong customer references with compelling
Return on Investments• Demonstrated ability to improvecustomer satisfaction

Our partners
Ubisense collaborates with a network of highly skilled partners around the globe. Together we’reable to tackle real-world problems that span disciplines and traditional silos.

6

Ubisense Group plc Annual Report 2017

Strategic report

Where we operate
Ubisense has offices in North America, Europe and Asia and serves
more than 250 customers across 20 countries across the world.
See our markets on page 10

Our office locations9



of the top 10 global automobile
manufacturers around the world
use our solutions6



of the top 10 Fortune 500
manufacturers are
Ubisense customers

25

 f the top 3 aerospaceomanufacturers use
our solutions

 ajor telecoms networkmoperators around the world use
our solutions and 2 of the top 4
cable companies in US rely on
Ubisense solutions

Ubisense Group plc Annual Report 20177

OUR PRODUCTS

Creating digital twinsof the physical world
RTLS SmartSpace
SmartSpace solutions are basedon a modular software platform thatmanages real-time location andidentification data from multiple
sources to support industrial-scale,mission-critical visibility and control
applications. SmartSpace has been
proven time and time again to help
global leaders in manufacturing
drive productivity, quality
and performance.

Customer’s existing
business systems

SmartSpace platform

Our technology enables customers
to create a digital representationof the phyical world and connects
it to critical manufacturing andoperational systems to createa digital twin that can drive key
success factors in their operations.
Industries:• Passenger andCommercial Vehicles• Aerospace and Defence• General Industry(manufacturing and logistics)• Public Transport

Physical world

How we ensure return on investment
IMPROVED

REDUCEDFASTER• Flexibility• Complexity of supply chain• Production times• Productivity• Operational costs• Rework times• Quality• WIP (work in progress)
and inventory costs• Revenue growth• Customer satisfaction

8

Ubisense Group plc Annual Report 2017

• Decision-making

Strategic report

Geospatial myWorld
myWorld transforms the abilityof infrastructure companies to manage
their geographically dispersed
assets by creating a single architecture
for geospatial-based applications.
myWorld enables a digital twin ofassets and operations to global
leaders in utility, telecoms and cable
companies that can be tailored tomeet their business processes anddeliver enterprise level improvements
in productivity, quality andcustomer satisfaction.

myWorld platform

Sectors:••••

Operations

Telecoms
Cable
Gas
Electric

Physical world

How we ensure return on investment
IMPROVED

REDUCEDFASTER• Field productivity• Operational cost

• Time to market• Network KPIs

• Time-to-repair• Resolution times• Customer service• Errors and accidents• Revenue growth• Data quality• Customer attrition• Decision-making

Ubisense Group plc Annual Report 20179

OUR MARKETSFrom “future state”
to mission critical
The digitisation of the industrial workplace, development of digital twins andthe growth of the Industrial Internet of Things (IIoT) has resulted in a unique setof opportunities for Ubisense to capitalise on.
In the past 15 years, we have built up a strong customer
base including 6 of the top 10 Fortune 500 manufacturers,
9 of the leading 10 automotive manufacturers, 2 of the
top 3 aerospace manufacturers and 5 of the major telecoms
network operators around the world use our solutions
including 3 of the top 4 in North America.
With our new software-led approach, we are looking tofurther increase our reach within these sectors in newand existing customers and territories.

We are continuing to see growth in sectors including
aerospace and defence and 2017 saw our very first salein space and satellites, an exciting new sector which offers
huge potential for Ubisense’s SmartSpace solutions.
A new team is in place to sell Ubisense's myWorld
into European communications and utilities businesses,
utilising our strong customer case studies and use
cases from the North American market to help promote
the benefits and proven ROI of our myWorld platform.

How Ubisense is best placed to deliver growth
Transition to software led business
The move to software has delivered huge benefits for Ubisense and its
customers, with higher value sales that improve integration, automationand productivity for our customers. With renewed positioning and a strong
pipeline, Ubisense is in an excellent position to continue this growth.
Poised to capture the dominant digitisation growth cycle
4 in 10 manufacturers are earmarking 5-20% of their total research anddevelopment budgets to IIoT products and service development. Over the
next five years, the same number expect that investment to ramp up to 10-20%1.
Established and experts in key sectors
Ubisense already works with some of the leading organisations in each of the
key sectors in which we operate. With excellent customer case studies and ateam boasting experts in each of our target markets, Ubisense is able tofurther penetrate these high value sectors.

110

http://usblogs.pwc.com/industrialinsights/2017/10/02/for-us-manufacturers-the-iiot-future-is-now-part-3/.

Ubisense Group plc Annual Report 2017

Strategic report

What are the drivers for Industry 4.0 and digital twins for
Real-Time Location System (RTLS) SmartSpace?
Industry investment in smart factory and digital twin technology is increasing and significant.
Industry 4.0 investment until 2020:

Investments in smart factory technology
Companies in every industry sector are planning substantial investments
Industry 4.0 investment(in % p.a. until 2020)

Aerospace, defence
and security

Automotive

$15bn

$65bn

Aerospace, defence &security

5%

15

Automotive

5%

65

Chemicals

5%

Transportationand logistics$177bn

$97bn

243

5%

195
15

4%

Industrial manufacturing

5%

Metals4%

Transportation & logistics

5%

Weighted Average

5%

Source:45
7%Electronics
Engineering &construction
Forest, paper &packaging

Industrial
manufacturing

Industry 4.0 investment(in US $bn p.a. until 2020)

177
55
97
907

PWC 2016 “Building the digital enterprise”

What are the drivers for Geospatial myWorld?
Global fiber to the home is expected to grow significantly in all markets around the world– 24% CAGR 2015–2021 – with customers committing to multi-billion pound rollouts.

Global fiber to the home growthMarket drivers for more bandwidth

300
250

Exabytes per month

Increasing amounts of video at
increasing resolution (4K+) for
applications including Netflix,
Youtube and cable.

24% CAGR 2015-2021

200
150

More pervasive cameras generating
video (home security systems, cars
with autonomous driving
technologies, streaming fromphones, etc), IoT, gaming, video
calls and more.

100
50
0
2016
Gaming(1%, 4%)

Source:2017
File Sharing(8%, 3%)

2018

2019

Web/Data(18%, 11%)

Cisco VNI Global IP Traffic forecast, 2016-2021

2020
IP VOD(22%, 14.5%)

2021
Internet Video(51%, 67.4)

Communications providers also havean imperative to deliver the next
generation of fibre based products
before 5G wireless technologies
become available, which are likely
to bring new competition.

Ubisense Group plc Annual Report 201711

S T R AT E G Y

Our strategic focus
To revolutionise the world’s ability to locate, connect andmanage assets, enabling customers to create digital twins thatdrive productivity, flexibility and quality across their operations.

To become theworld’s enterpriselocation technology
partner of choice

To increase growthin existing markets

To take our enterprisesoftware platforms
to new markets

What we are doing …
Now

What we are doing …
Now

What we are doing …
Now

Continue to invest in the productroadmap across both sides of thebusiness, adding enterprise capabilities
such as analytics and reporting, deeper
integration with third-party hardware andenhancing geomobility. This will enable
our enterprise platforms to be truly
capable of taking data from any source
and offer real-time visibility and insight.

Be a trusted adviser to our customers
and become a strategic part of theirmedium and long range planning as they
expand their operations globally andintroduce new products and services.

To target global leaders in new verticals
and new geographic markets we have
employed industry experts to help
develop our offering specifically for
new business challenges in thesemarkets. This will help us to leverage
new opportunities for businesses
that can only be realised throughlocation technology.

In the future
To help our customer solve theirbusiness challenges by bringing
emerging technologies such asmachine learning, augmented
reality, digital image recognition
and industrial drones to them ina form that has a clear return on
investment and is robust enough forindustrial operating environments.

12

Ubisense Group plc Annual Report 2017

In the future
Engage earlier in product development
cycles to ensure that we can help themto manage challenges and exploit
opportunities by giving them fasterand more accurate insight of their own
production and operation environments.
This will increase our speed of innovation
and ability to introduce new productsthat help our customers with theirstrategic challenges.

In the future
We are actively developing our portfolioof global partners with extensive
networks of expertise and customer
access. This will enable us to shorten
sales cycles for enterprise scale
projects and provide the highest levelsof post‑production support.

CASE STUDIES

Thailand’s booming
auto sector

Strategic report

How we make a difference
RTLS SmartSpace

Ubisense selected as technology
to drive Industry 4.0 in Thailand’s
booming automotive sector.
Read more on page 14

Ubisense responds
to market demandfor improving
fiber network

Geospatial myWorld

Papers by Accenture and PwC
summarise the opportunity that the
global rollout of fiber represents
for Ubisense.
Read more on page 16

Ubisense Group plc Annual Report 201713

RTLS SmartSpace

Thailand’s booming
automotive sector
Ubisense selected as technology to drive Industry 4.0 in Thailand’s booming automotive sector
Ubisense SmartSpace has attracted a network ofpartners around the world, including Logiprotech in Thailand.
Founder Ryoichi Sasaki was President of Toyota Thailand
plus the President of Toyota Motor Asia-Pacific and is at theforefront of driving Industry 4.0 in the region.
He said: “In May 2017 we began a feasibility study
on Ubisense products in Thailand. We were of the viewthat the latest information technology based on Ubisense
market-leading RTLS technology would attract the potential
demand for breakthrough improvement in the production
and logistics operations across the region.”“We soon recognised that it would make sense to bring in
Ubisense products to further enhance the competitive edgeof various industries in Thailand. The Thai government is
actively promoting the “Thailand 4.0”, the policy to makeeffective use of the most up-to-date technologies in an
attempt to restructure and revitalise the industries inThailand. Taking such factors into consideration, we
decided to establish a new joint venture company called
LPTT, “Logiprotech (Thailand) Co., Ltd.”, in June 2017.”“The Thailand 4.0 policy also gives new government
incentives to the latest technologies administered by
BOI, Board of Investment. They confirmed that our RTLS,
based on Ubisense technology, satisfies the BOI criteria
allowing our project to receive relevant incentives. This
will certainly contribute to the successful developmentof our project.”“LPTT launched its first project at a factory of Toyota Motor
Thailand at the beginning of November 2017. This is thevery first step significantly meaningful to the future of our
project. Toyota is well known as one of the most successful
automotive manufacturers. In particular, Toyota Production
System (TPS), is highly recognised on a global basis. I
believe that the IoT technology will help to further develop
TPS and hope that our system based on Ubisense RTLS
will be able to contribute to such activities. We intend tocontinue our efforts in deploying our system in Thailandand eventually in other countries in Southeast Asia. We
are beginning to receive a number of positive enquiries
from other automotive companies as well as otherindustries than automotive field in Thailand.”“Southeast Asia or ASEAN has huge potential as a big
growing market and also as a competitive and reliable
manufacturing base. This area, in particular Thailand as
the leading country in the region, has signs of needing
something innovative to stimulate to dramatically heighten
their production and logistics capabilities. I believe that
Ubisense RTLS will satisfy such requirements due to its
unique and distinctive technology.”

Thailand’s automotive sector• As of 2017, Thailand’s automotive industry was
the largest in Southeast Asia and the 12th largest
in the world• The Thailand industry has an annual output of nearly
two million vehicles. That’s more than countries suchas Belgium, UK, Italy, Czech Republic and Turkey

14

Ubisense Group plc Annual Report 2017

Strategic report“We soon recognised that it would
make sense to bring in Ubisense
products to further enhance thecompetitive edge of various
industries in Thailand.”
Ryoichi Sasaki, Founder of Logiprotech in Thailand and former President of Toyota Motor Asia PacificUbisense Group plc Annual Report 201715

“Providing unparalleledvisibility of a communications
or utility business by delivering
a location-based common
operational view of theenterprise”
Geospatial myWorld

Ubisense responds to market
demand for improving fiber network
Research by Accenture and PwC summarise the opportunity thatthe global rollout of fiber represents for Ubisense.
“The communication industry has made dramatic advancesin the last five years, witnessing rapid adoption of the latest
generation of connected devices and increasing investments
in faster networks. At the same time, digital has transformed
the consumer experience, bringing new expectations anddifferent rules of engagement1.”

Utilising complex mathematical analytical models
provided by a partner and integrated with myWorld, it
allows customers to produce high quality cost-optimized
Fibre to the Home (“FTTH”) layouts quickly, enabling
faster and more accurate capital planning, prioritization,and mobilization – improving overall time to market.

“The coming era of next-generation broadband networks
is bringing about the end of telecommunications operators’
traditional deployment model. A number of changes will
require innovative responses: Consumers are demanding
ever greater bandwidth to support new applications andservices. A larger variety of access network technology
and rollout options, along with their substantial deployment
costs, are forcing operators to make tough choices2.”

Ubisense myWorld Fiber Planning has enabled a customer
to: “Reduce the planned number of designers for a large,
multi-year FTTX project from 100 to 20.”

The broadband industry now needs to roll-out next-generation
fiber network within aggressive time frames and fixed budgets– improving fibre network technology deployment strategies
and solutions is top priority.
In response, Ubisense has launched myWorld Fiber Planning.
Now rolled out for a Tier 1 broadband customer, Ubisense’s
Fiber Planning automates the network infrastructure layout
and optimizes the design, utilizing existing infrastructure
where possible for the lowest cost results.

Key benefits include:• Reduces labour costs associated with the engineeringand design process by over 40%• Time to market is reduced 10 – 20% for any size Fibre
to the Home/Cabinet (“FTTX”) roll-out• Enables rapid adjustment to account for ﬁeld changes• Produces the most cost effective standards based
designs for any scenario reducing capital costs
Fiber to the X (FTTX) comprises the many variants of fiber
optic access infrastructure–including fiber to the home
(FTTH), fiber to the premise (FTTP), fiber to the building(FTTB), fiber to the node (FTTN), and fiber to the curb
or cabinet (FTTC).

1	https://www.accenture.com/gb-en/insight-challenges‑cable‑operators‑disruption
2	http://strategyand.pwc.com/media/uploads/The_Era_of_Next‑Generation_Access.pdf

16

Ubisense Group plc Annual Report 2017

Strategic report

Ubisense Group plc Annual Report 2017

17

KPIs

Key Performance Indicators(KPIs)
Own product revenue

Software revenue

M&S revenue

Total revenue£16.6m

£3.9m

£1.8m

£27.3m17

17£16.6m

16
15

£3.9m

16

£12.9m

15

£9.5m

£3.2m
£1.4m

17

£1.8m

16
15

£1.4m

17

£27.3m16£26.5m15£1.0m£22.0mOwn product revenue
increased by 28% in 2017with the focus on RTLS
SmartSpace and myWorld.

Software sales haveincreased by 21% in 2017,
which will drive recurring
revenues from maintenanceand support arrangements
in future periods.

Maintenance & support
revenue increased by
34% as a result of higher
software sales andoperational maintenancerecurring revenues.

Total revenue increased
by 3% while managing a
22% decline in Geospatialservices associated withthird party products.

Gross margin

Adjusted EBITDA

Operating loss

Net cash

40%

£0.4m

£3.1m

£6.6m
17

17

40%

17

£0.4m

17

16

39%

16

£0.3m

16 £6.2m

15-£5.2m

15

15

35%

Gross margin increases
are a result of higher softwaresales and a reduced
reliance on Geospatialservices connectedto third party products.

Following the restructure
undertaken in 2015, thebusiness has stabilisedwith revenue and grossmargin growth achieved
alongside efficientmanagement of
the cost base.

£3.1m£17.0mRestructuring of the businessin 2016 and subsequent
recovery has resulted in a
reduction of operating loss.

£6.6m

16

£0.2m

15

-£0.2mThe Group is in a stronger
position following the
successful fundraiseof £5.2 million (net)through a placing of new
ordinary shares and tight
management of operating
cash flow.

Non-financial key performance indicators
Non-financial key performance indicators for the Group include:• Quantity and quality of lead generation, pipeline and conversions to deals in the sales pipeline.
• Headcount including the number of sales people.
The Board regularly reviews the KPIs in respect of changes within periods and changes between the reporting periods.

18

Ubisense Group plc Annual Report 2017

C H I E F F I N A N C I A L O F F I C E R ’ S S TAT E M E N T

Strategic report

Strategy delivering
improved results
Significant growth in revenues from Ubisense’s own RTLS SmartSpaceand Geospatial myWorld products resulted in an improved financial
performance for 201734%

increase inmaintenanceand support
revenues
in 2017

I’m pleased to present the 2017 results which reflect
the continued progress that we’ve made in redefining
our software-led strategy and building our go-to-market
activity. Our strategy to enable digital twins for bothdivisions is aligned to our customers’ desire to drive
productivity and operational performance improvements
in line with the digitisation and Industry 4.0 themes
which are attracting significant investment spend.
With our new modularised software offerings aiding
the Return on Investment proposition to our target
customers, we have developed a stronger pipeline ofbetter qualified opportunities including increased
software values, which will lead to further growth inorders, revenues and margins delivering profitability.

A 28% increase in revenues of Ubisense products
has exceeded the decline in services associatedwith third-party and non-core products within the
Geospatial division. The successful placing inNovember 2017 supports the future growth plansof the Group through investment in go-to-market
and product development capacity.

Revenue
The Group is organised into two divisions, RTLS
SmartSpace and Geospatial myWorld. Both divisions
provide software solutions and services to enterprisecustomers, with RTLS SmartSpace additionallyproviding hardware solutions. The revenue
composition by division is summarised in
the table below:

Revenue by division

2017
£m

% of total
revenue2016£m% of total
revenueYear on year
growth (%)

RTLS SmartSpace revenue– Geospatial myWorld– Geospatial services from third party products
Total Geospatial revenue
Total revenue

10.8
5.8
10.7
16.5
27.3

40
21
39
60
100

9.1
3.8
13.6
17.4
26.5

34
15
51
66
100

18
52
(22)
(5)
3

Further revenue composition detail is summarised in the table below:
Revenue detail

2017
£m

% of total
revenue2016£m% of total
revenueYear on year
growth (%)

Software
Maintenance and support
HardwareServices
Total revenue generated from own products
Geospatial services from third party products
Total revenue

3.9
1.8
4.8
6.1
16.6
10.7
27.3

14
7
18
22
61
39
100

3.2
1.4
3.8
4.5
12.9
13.6
26.5

12
5
14
18
49
51
100

21
34
30
31
28
(22)
3

Ubisense Group plc Annual Report 201719

C H I E F F I N A N C I A L O F F I C E R ’ S S TAT E M E N T c o n t i n u e dRevenue continued

Orders

The software focus in both divisions delivered good
progress in 2017 with sales into new sectors as well
as expanding deployments with existing customers.
Modularisation of our software platform offerings
together with sales of the new myWorld Fiber Planning
product have been key factors in supporting 2017
growth and provide a foundation for growth in futureyears. The increase in software revenue leads directly
to increasing maintenance and support revenues
with a 34% increase shown in 2017 over 2016.
These maintenance and support revenues arerecurring contracts, which are expected to be
renewed by customers annually.

Bookings for own products in 2017 were £17.5 million(2016: £15.5 million). The increase was in line with thestrategy to focus on our own products. £10.7 millionof new orders related to RTLS SmartSpace(2016: £10.9 million), £6.8 million related to
Geospatial myWorld (2016: £4.6 million).
Total bookings of new customer orders in2017 were £22.7 million (2016: £29.3 million).
The order book backlog as at 31 December 2017was £8.7 million (2016: £12.6 million), most of which
will be recognised during 2018. £3.6 million of thisrelated to RTLS SmartSpace (2016: £3.7 million),£2.9 million related to Geospatial myWorld(2016: £1.8 million) and £2.2 million to Geospatial
third party Services (2016: £7.1 million).

Gross margin
The Group gross margin increased to 40% in 2017 from 39% in 2016.
Gross margin by division is summarised as follows;
Gross margin by division
RTLS SmartSpace
Geospatial
Total gross margin

2017
£m

Gross margin
%

2016
£m

Gross margin%

Gross margin
movement (%)

4.5
6.4
10.9

42
39
40

4.0
6.2
10.2

44
36
39

(2)
3
1

The gross margin of the RTLS SmartSpace division has reduced compared to 2016 due to a revenue mix
with a higher proportion of lower margin hardware and services revenues. The Geospatial division’s grossmargin increased due to growth in myWorld software revenues partially offset by the 3rd party costs of themathematical model embedded in the myWorld Fiber Planning product.

Operating expense and adjusted EBITDA
Operating expenses were £13.9 million (2016: £16.4 million) and are summarised as follows:

Other operating expense
Depreciation
Amortisation and impairment
Share based payments expense
Unrealised forex on intercompany trading balances
Non-recurring items
Total operating expense

2017
£m

2016
£m

10.5
0.4
2.4
0.3
0.3
—
13.9

9.9
0.3
8.4
—
(1.9)
(0.3)
16.4

Other operating expenses include sales, marketing, product development, administration. Operating loss
reduced to £3.1 million (2016: £6.2 million) due to impairments recognised in 2016. Share-based payments
expense of £0.3 million (2016: £nil) relates to shares options granted in December 2016.

20

Ubisense Group plc Annual Report 2017

Finance costs
Net interest payable for the period was £0.1 million(2016: £0.3 million) with reduced costs in 2017 following
the restructuring of the HSBC debt in 2016.

Income tax
The Group has a net tax credit of £0.1 million(2016: £1.1 million) as a result of non-cash deferred
tax movements. The Group does have substantial
tax losses carried forward but does not currently
recognise a deferred tax asset in respect ofthese losses.

Earnings and dividend
Loss before tax reduced to £3.1 million (2016: £6.4 million)
and loss after tax was £3.1 million (2016: £5.3 million).
The adjusted diluted loss per share was 4.3 pence(2016: 3.9 pence loss per share). Reported basic anddiluted loss per share was 5.2 pence (2016: 10.4 pence).
The Board does not propose a dividend for the year.

Impact of IFRS 15
IFRS 15 Revenue from Contracts with Customers
will replace IAS 18 Revenue. The new standard isapplicable from 1 January 2018, however 2017
comparatives will be restated under IFRS 15.
IFRS 15 introduces a number of new concepts andrequirements relating to revenue recognition, andalso provides guidance and clarification on
existing practice.

Strategic report

Adjusted EBITDA excludes amortisation and impairment,
depreciation, share-based payments, unrealised
foreign exchange gains on intercompany tradingbalances and non-recurring items and is reported
as it reflects the performance of the Group. Adjusted
EBITDA was £0.4 million (2016: £0.3 million) with the
improvement driven by higher revenues at anincreased gross margin.

The financial impact of the adoption of IFRS 15
will be disclosed within the interim results to
30 June 2018.

Impact of IFRS 16
IFRS 16 Leases will replace IAS 17 and three
related interpretations. Leases will be recordedon the statement of financial position in the formof a right-of-use asset and a lease liability. The
consolidated income statement will be impacted
through reduced operating expenses, and higher
depreciation and finance costs. The new standard
is applicable from 1 January 2019 with an option to
adopt it early. The Group intend to early adopt IFRS
16 from 1 January 2018 alongside IFRS 15 Revenue.
The Group leases all of the premises from which it
conducts business with annual commitments underoperating leases totalling £0.7 million and therefore
the impact of IFRS 16 will be material to the financial
statements. The Group has assessed the impact of
IFRS 16 and the results of the assessment are statedon page 48.

Consolidated statement of financial position
In November 2017, the Group completed a shareplacing raising gross proceeds of £5.5 million withthe placement of 17,187,500 new ordinary sharesat a price of £0.32 per share with new and existing
shareholders. The net proceeds of £5.2 million fromthe placing will be used to grow the business, investingin go-to-market capacity and product development.
Alongside the fundraise, the terms of the HSBC loan
were renegotiated and this is discussed further innote 17 to the consolidated financial statements.
As at 31 December 2017, the Group had a positive
net cash position of £6.6 million (2016: £0.2 million)
being £9.1 million of cash and £2.5 million of debt.
In January 2018 a further repayment of £0.8 million
was made.

The Group has assessed the impact of IFRS 15
and the results of the assessment are stated on
page 47. The majority of Ubisense’s sales are for
products sold on a standalone basis and it isexpected that the revenue recognition policy
applied to these sales will be unaffected by theapplication of IFRS 15. Larger, more complex
contracts, which involve multiple performanceobligations, that include a combination of products
and services, are affected by the applicationof IFRS 15. IFRS 15 requires the Group to evaluate
the performance obligations for the contracted
products and services to identify whether thesecomponents are distinct. Accordingly, thesignificance of the impact of IFRS 15 is dependent
upon the details of those complex contracts
particularly those with delivery close to a financial
reporting period end.

Ubisense Group plc Annual Report 201721

C H I E F F I N A N C I A L O F F I C E R ’ S S TAT E M E N T c o n t i n u e d

Non-current assets

Non-current liabilities

Total non-current assets were £3.5 million(2016: £4.4 million).

Total non-current liabilities decreased to £2.5 million(2016: £3.4 million) following the reduction in long-term
debt from £2.5 million in 2016 to £1.8 million as at
31 December 2017.

Capitalised development costs represent the key
intangible assets of the Group whereby this investment
in Ubisense's own products will deliver the future
growth of the business. Capitalised development
costs of £1.6 million (2016: £1.9 million) were recognisedin 2017 offset by amortisation of £2.2 million (2016:£2.6 million). The appropriateness of the assessmentof the useful life of current development projects
was reviewed, but no change has been made to thecurrent three year amortisation period, due to thefast moving nature of the technology. The recoverable
amount of the capitalised development costs is
supported through the growth in revenues of
Ubisense’s own RTLS SmartSpace and myWorld
products achieved in 2017 and anticipated infuture periods.

Current assets
Total current assets increased to £21.1 million(2016: £17.8 million).
Cash increased to £9.1 million (2016: £3.5 million).
Trade receivables net of provisions decreased to£6.2 million (2016: £9.2 million) due to the timing ofdeals during the year.
Amounts recoverable on contracts totalled £2.7 million(2016: £2.9 million) which are generated from services
contracts or end of period deliveries, and are theninvoiced in the following month or as the relevant
milestone is reached.
Hardware inventories increased to £1.5 million(2016: £1.1 million) due to the completion of a RTLS
SmartSpace sensor build program prior to the year
end. The Group continues to manage its investment
in inventory through the sales forecasting process
and regular review of the expected lead times tocreate RTLS SmartSpace hardware. The sensor
build programs are sized to try to balance volume
demands against unit cost efficiency and need towork on a 4–6 month lead time as increased global
demand is extending component lead times.

Total assets
Total assets increased to £24.6 million(2016: £22.1 million).

Current liabilities
Total current liabilities increased to £10.0 million(2016: £9.0 million). Trade payables increased to£3.0 million (2016: £1.5 million) which was partly
due to inventory related purchases close to
the year end.

22

Ubisense Group plc Annual Report 2017

Net assets
Net assets increased to £12.1 million (2016: £9.8 million)
following the placement of 17,187,500 new ordinary
shares at £0.32 in November 2017.

Cash and cash flow
Operating cash flow before working capital movement
was £0.4 million inflow (2016: £0.3 million).
Operating cash flows from operating activities after
adjusting for working capital and tax was £3.6 million
inflow (2016: £2.0 million outflow). Working capital
improvements were driven by a reduction in the
trade receivables balance at year end.
The Group had investment outflows of £2.1 million(2016: £2.0 million), which is largely made up of
expenditure on product development.
Cash inflows from financing activities were £4.3 million(2016: £1.8 million). This included net proceeds fromplacings of £5.2 million (2016: £4.5 million) offset
by repayment of borrowings and interest on
those borrowings.

Tim Gingell

Chief Financial Officer
14 March 2018

P R I N C I PA L R I S K S A N D U N C E R TA I N T I E SStrategic report

How we manage risk
The Directors of Ubisense Group plc confirm that we have carried out a detailed assessment of the principal risks facing theCompany, including those that would threaten its business model, future performance, solvency or liquidity. Risks that present
a potential material impact are identified and governed in accordance to our risk management policies.
Effective risk management is critical to the achievement of the Group’s long-term growth. The Board has overall accountability forensuring that risk is effectively managed across the Group through the implementation and review of the Group’s risk processes.
The principal risks listed in the table are those we believe could cause our results to differ materially from expected and historicalresults. They are also the risks that may impact the achievement of the Group’s strategic priorities.

Principal risk and impact

Mitigation

Strategic risks
Growth management
Near-term expansion is expected in the future to develop existing markets and to
expand into new markets. The risks associated with growth include the delivery ofmarket penetration through the conversion of leads to sales, and control of increases
in fixed operating costs to support revenue growth. If the Group is unable to manage
expansion effectively, its business and financial results could suffer.

• Close monitoring of business development
strategy and regular reviews of the sales
opportunity pipeline at Board meetings.
• Head office support of regional office developmentin the event of accelerated regional growth.
• Development of systems and processes that canscale with the business while maintaining goodfinancial management.

Dependence on key customers
The Group has a concentrated customer base, many of which are substantially larger
enterprises than the Group. The Group is reliant on significant projects with its key
customers to deliver financial results. The conversion of opportunities to signed contracts
and then the subsequent timing of the projects is not fully under the control of the Group.

• The Group’s management performs regular reviewsof the opportunity pipeline, including critical stages
to complete the larger deals with status reported
at Board meetings.
• Increase the breadth of the opportunity pipeline
through recruitment of more quota-carrying sales
and pre‑sales personnel.
• The Group continues to invest in the key customer
relationships that it has successfully retained overmany years, while also maintaining a strategy toextend and diversify its customer base.

Technological risk
The Group operates in an industry where competitive advantage is heavily dependent
on technology. Technological development may reduce the importance of theGroup’s function in the market.

• Regular monitoring of the industry and advances
through participation in research forums.
• Review of the RTLS SmartSpace and myWorld productroadmaps by the Board to ensure competitiveness.
• Continued investment in technologies that meetcustomer needs.
• Monitoring of planned R&D to ensure resources
are allocated to deliver advances that are aligned
to the Group strategy.

Ubisense Group plc Annual Report 201723

P R I N C I PA L R I S K S A N D U N C E R TA I N T I E S c o n t i n u e dPrincipal risk and impact

Mitigation

Operational risks
Customer satisfaction and retention
Barriers to entry into the market are high with proof of delivery in customer environments
essential. The Group operates in a market with a small number of significant customers
and reputational damage through poor customer satisfaction could be significant.
Large customers generate a high proportion of recurring business as well as up selland cross sell opportunities. These customers also provide solution references andoften trial new products or updates to existing ones.

• Maintain regular communications with customers.
• Ensure appropriate level of resources are applied
to key customer accounts.
• Deal with issues quickly through a clear
escalation path.

Additionally, poor customer satisfaction could result in delays in the timing ofcustomer payments which would reduce the working capital available to the Group.

Intellectual property (“IP”)
The Group has a patent portfolio filed in territories worldwide. Should a third party
successfully demonstrate priority over any of these rights, it could inhibit the Group, or theGroup’s customers, from selling products in certain territories.

• The Group regularly reviews the patent status of its
intellectual property within its core territories,
working with advisers.

Failure to protect the Group’s IP may result in another party using its proprietary
technology without authorisation. There may not be adequate protection for the IP inevery country in which the Group’s products are made available and policing
unauthorised use is difficult and expensive.
Furthermore, the Group may need to take legal action to enforce its intellectual
property, to protect trade secrets or to determine the validity or scope of the
proprietary rights of others. The costs of protecting IP and the diversion of resources
and management time may be substantial, and there can be no guarantees as to theoutcome of litigation.

Staff recruitment and retention
The Group’s success is substantially dependent upon recruiting, retaining andincentivising senior management and key technically skilled employees, the lossof whom could have an adverse impact on the performance of the business.

• The Group has in place appropriate incentive
structures to attract and retain the calibre of
employees necessary to ensure the efficientdevelopment and management of the Group.
• The Group has implemented Employer of Choice
initiatives including career planning andorganisational development.

Legal and regulatory breaches
The Group is required to comply with local laws, regulations and legislation in eachjurisdiction in which it operates. These include compliance with financial reportingand conduct requirements, Health & Safety, Data Protection and anti-Bribery rules.
Failure to comply with local laws may result in the cessation of the ability to trade in thatjurisdiction, fines or the allocation of resources to perform corrective actions.

• The Group monitors new developments taking
input from local advisers.
• The Group regularly reviews its processes toensure that the risk of default is minimised.

International trade
On 29 March 2019, the UK will leave the European Union. The risks associated with Brexit
include a potential increase in the level of market volatility, barriers to trade between
the UK and the EU following the end of any transition arrangements that come into
force post Brexit, and may impact the investment plans of our customers.
The Group is exposed to economic downturn within the markets in which it operates.

• European customers enter into contracts with local
subsidiaries of Ubisense Group plc including legal
entities based in France and Germany.
• The Group could consider moving its manufacturinglocation if trade barriers became
prohibitively expensive.
• The Group’s customer sales are spread acrossmultiple territories which will partially mitigate
against a down-turn in any one region.

Digital infrastructure and cyber security
Breaches of the Group’s digital security through cyber attacks or otherwise,or failure of the Group’s digital infrastructure could seriously disrupt operations,
including the provision of customer services and result in the loss or misuse of
sensitive information, legal or regulatory breaches resulting in potential liability,
and reputational damage among the customer base leading to a decline in revenues.

• The Group continues to invest in resources inenhancing site resilience and defences, improving
network monitoring and reviewing the incident
response processes to mitigate the impact of asecurity breach.
• Short and medium-term cyber security plans are
regularly reviewed by the Board.

24

Ubisense Group plc Annual Report 2017

Mitigation

Strategic report

Principal risk and impact

Financial risks
Future funding requirements
The Group may need to raise additional funding beyond that provided by the shareplacing in November 2017 and the existing HSBC facility. There is no certainty thatsuch fundraising will be possible or on acceptable terms. In addition, the terms ofany such financing may be dilutive to, or otherwise adversely affect shareholders.

• Clear communication of our medium and long-term
strategy to our investors and bankers.
• Monitoring of mid to long-term cash flow
requirements and anticipated businessperformance. Adjusting activities through thebusiness planning process.

Bank covenants
In October 2016, the Group restructured the HSBC working capital loan facility. As at
31 December 2017, the balance of the facility was £2.5 million. The Group is required tomeet the covenants as explained in note 17 to the financial statements. If the Group wereunable to meet the covenants of the facility the debt would be repayable on demand,
which would have an impact on the working capital available to the business.

• Net cash position of £6.6 million (2017: £0.2 million).
• Monitoring of cash flow requirements and adjusting
activities through the business planning process.
• Monitoring of covenants and testing for actual orforecast breach throughout the year.

Taxation
The Group operates globally and is exposed to international tax laws. Changes totaxation legislation such as the withdrawal/reduction of UK tax incentives to perform R&D,
would have an adverse impact on the working capital of the Group.

• The Group reviews local compliance andupcoming changes to legislation with its advisersand continues to update forecasts accordingly.

Foreign exchange risk
The Group’s international operations expose it to a number of risks that include theeffect of changes in foreign currency exchange rates. A major proportion of theGroup’s receivables and payables is currently denominated in Canadian dollars, US
dollars, Euros and Japanese Yen.

• The Group relies on a partial natural hedge ofCanadian dollar, US dollar, Euro and Japanese Yen
receivables being in the same currency as the
local operation’s payables.
• The Group’s working capital is forecast and monitored
in the local currency of each subsidiary allowing
the foreign currency exposure across the Groupto be reviewed.

Financial reporting risk
In preparing the financial statements, the Group makes accounting estimates thathave a significant risk of causing material adjustment to the carrying amounts ofassets and liabilities within the next financial year. These judgements are detailed
further in note 4 to the financial statements and include revenue recognition, thetreatment of RTLS SmartSpace and myWorld development costs and valuationof inventories.
A material error in the accounting estimates applied during a reporting period would
impact upon bank covenants testing for the existing HSBC loan and could
adversely impact the ability of the Group to raise additional funding.

• In forming our accounting judgements, management
discuss estimates with internal experts within the
Ubisense Group to ensure all relevant facts
are understood.
• The underlying fact pattern and conclusions reachedin making accounting judgements are discussed indetail with the Audit Committee of the Group.
• Early consideration of forthcoming changes suchas IFRS 15 and IFRS 16.

Risks reported in prior year which are no longer considered to be principal risks
Credit risk associated with delays in customer payment, was identified as a principal risk in prior periods due to the potential
impact on working capital available to the Group. While the risks continue to be monitored, management no longer believe thisto be a principal risk due to the stronger cash position of the Group. As the majority of the Group’s customers are large, blue-chiputilities, telecoms and manufacturing companies, the risk of non-payment is more likely to be related to customer satisfaction
and this continues to be a principal risk that has been considered above.
The Strategic report was approved by the Board of Directors on 14 March 2018 and signed on its behalf by:

Tim Gingell

Chief Financial Officer
14 March 2018

Ubisense Group plc Annual Report 201725

BOARD OF DIRECTORS

Guidance and counsel
The Board of Directors has
overall responsibility for theGroup. Its aim is to provide theleadership and industry specificinsight required to develop a
successful business, throughutilising the broad range ofskills and experience of theBoard members.

Peter Harverson
Chairman
Experience

Peter was appointed chairman on 1 January 2016 (executive chairman
from 18 May 2016 to 31 July 2017) having been appointed a non-executive
director on 10 November 2005. Peter has held a number of seniorinternational sales and marketing roles in the IT industry including
Regional Director, Intel Corporation and Vice President Europe,
Cadence Design Systems. In 1995 he joined Sun Microsystems
where he was responsible for the development of the company’s
European Corporate Accounts programme. Subsequently he became
Director of Services Sales – EMEA with a charter to develop newareas of business, including professional services. Peter retired fromSun Microsystems in December 2004. He was non-executive chairmanof Aspex Semiconductors Limited, sold to Ericsson AB in July 2012,and more recently, senior non-executive director at Brady plc, andnon-executive director at eoSemi Ltd.

Other Appointments

Currently, Peter is a non-executive director CRFS Ltd and also
non-executive chairman of enModus Ltd.

Richard Petti

Tim Gingell

Chief Executive Officer

Chief Financial Officer

Experience

Experience

Richard Petti brings 25 years of experience in developing market
leading businesses for automotive, financial and industrial customers.
He was previously CEO of Asset Control, a supplier of data management
systems to leading financial institutions, and COO at WEMA, a leading
provider of sensors to commercial vehicle manufacturers.

26

Ubisense Group plc Annual Report 2017

Tim has over 25 years of commercial and financial experience across
software, wireless and telecoms industries. Tim qualified as a Chartered
Accountant with Deloitte in London and held leadership positions at
i2/IBM, The Cloud Networks and MFS/WorldCom.

Paul Taylor

Non-Executive Director

Non-Executive Director

Experience

Experience

Dr Robert Sansom co-founded and was CTO of FORE Systems which
was listed on NASDAQ in 1994, and acquired by Marconi for $4.5 billion
in 1999. Robert joined the Ubisense board on 16 December 2005.
An active angel investor and mentor to start-ups, he co-founded
and was chairman of the Cambridge Angels from 2001 to 2010.

Other Appointments

Robert is a non-executive director in a number of entrepreneurial
companies and charitable enterprises including Myrtle Software Ltd,
Focal Point Positioning Ltd, Featurespace Ltd, Camfed International,
Cambridge Communication Systems Ltd, CRFS Ltd and Netronome Inc.
Robert was elected as a Fellow of the Royal Academy of Engineers
in 2010.

Paul Taylor spent over twenty-one years with AVEVA Group plc
a global engineering IT software supplier to the plant, power andmarine industries and was Group Finance Director from 2001 to 2011.
Paul is a Fellow of the Chartered Association of Certified Accountants
and was recipient of the FTSE250 Finance Director of the Year in 2008.
Paul was appointed to the Ubisense board on 28 February 2011.
Previously, Paul was a non-executive director of Anite plc prior to its
acquisition by Keysight Technologies in 2015 and KBC Advanced
Technologies plc prior to its acquisition by Yokogawa in 2016.

Other Appointments

Paul serves as a non-executive director of Escher Group Holdings plc,
a non-executive director of Thruvision Group plc, and a trustee of the
CAD Centre Pension Fund.

Ian Kershaw

Oliver Scott

Non-Executive Director

Non-Executive Director

Experience

Experience

Ian has over 30 years’ experience in the automotive, manufacturing andpower industries. Ian was appointed as a non-executive director to the
Ubisense board on 23 May 2014. Previously, Ian was a director of
Ricardo UK Ltd.

Other Appointments

Ian is executive chairman of Coryton Advanced Fuels (Premier Topco
Limited), a supplier of bespoke fuels to the world’s automotive industry.
He is also a non-executive director of Surface Generation Ltd.

Corporate governance

Dr Robert Sansom

Oliver was a founding partner of Kestrel Partners LLP in 2009. Prior to
Kestrel, Oliver spent 20 years advising smaller quoted and unquoted
companies, latterly as a director of KBC Peel Hunt Corporate Finance.
Oliver was appointed as a non-executive director of Ubisense Groupplc on 18 May 2016. Previously Oliver was a non-executive director of
KBC Advanced Technologies plc prior to its acquisition by Yokogawa
in 2016.

Other Appointments

Oliver is a fund manager of Kestrel Opportunities which pursues anactivist investment strategy focused on small and microcap companies
listed on the London Stock Exchange. The fund has a particular focus
on enterprise software and services companies.

Ubisense Group plc Annual Report 201727

C O R P O R AT E G O V E R N A N C E R E P O R T

Although not required to do so by the
AIM Listing Rules, the Directors have chosen
to provide selected corporate governancedisclosures with this report, which they
consider to be valuable to the reader.
The Directors believe that effective
corporate governance, appropriate to
the Group considering its size and stageof development, will assist in the deliveryof corporate strategy, the generation ofshareholder value and the safeguardingof shareholders’ long-term interests. We
do not comply with the UK Corporate
Governance Code June 2016 (“the Code”).
However, the Directors are committed,
wherever it is reasonably practicable, toensure that the Group is managed inaccordance with the principles set out
in the Code.

Composition of the Board
The Board comprises the Non-Executive
Chairman, four Non-Executive Directors
and two Executive Directors. Biographicaldetails of all members of the Board are
set out on pages 26 and 27. In May 2016,
the Chairman moved from a Non-Executive
position to Executive on the departure of
the previous CEO. The Chairman resumed
a Non-Executive position on 1 August 2017.
Since the flotation of the Company in 2011,no equity-based incentives have been
granted to Non-Executive Directors andthere are no such plans for any suchgrants in the future. The Chairman was
granted share options in December 2017
while he was Executive Chairman andthese options remain active. At the endof the year, all Non-Executive Directors
except Oliver Scott held shares in UbisenseGroup plc. Oliver Scott is a partner andfounder of Kestrel Partners who have asignificant interest in Ubisense Group plc.
The holding of shares and/or share options
by Non-Executive Directors could, among
other things, be relevant in determining
whether a Non-Executive Director isindependent. Therefore, after detailed
consideration, the Board has determinedthat Paul Taylor and Ian Kershaw are theonly independent Non-Executive Directors
within the meaning of the Code, notingthat their shareholdings in the Group aresmall. Paul Taylor is recognised by theboard as the Senior Independent Director.

28

Ubisense Group plc Annual Report 2017

The roles of Non-Executive Chairman
and Chief Executive Officer are vested
in separate individuals, each with a clear
allocation of accountability and responsibility.
The Non-Executive Chairman has prime
responsibility for running the Board andthe Chief Executive Officer has executive
responsibilities for the Group’s strategic
development, operations and results.
The structure of the Board is such that
there is no one individual or group
dominating the decision making process.

The role of the Board
The Board holds full meetings at least
ten times per year, with attendance
required in person whenever possible.
The principal matters that it considers
are as follows:• reviewing operating andfinancial performance;• ensuring that appropriate
management development andsuccession plans are in place;• receiving, reviewing and approving
recommendations by the designatedcommittee on matters related to audit,
nominations and remuneration.
The Board is supplied with information ina timely manner and in a form and of aquality appropriate to enable it to discharge
its duties. The Board has a policy to set
out which matters are reserved for thedecision of the Board and those to which
the Executive Directors need not refer
for approval. This policy also requiresthat all recommendations and decisions
by a Board Committee are approved or
ratified by the Board.

Summary of Board meeting
attendance in 2017
The Board is expected to meet regularly
on a formal basis at least ten times a year.
15 Board meetings were held in 2017.
Attendance at the meetings was as follows:
Total meetings attended• approving and accepting all newcommitted funding facilities;

Peter Harverson
Richard Petti
Tim Gingell
Robert Sansom
Paul Taylor
Ian Kershaw
Oliver Scott• approving and accepting majorchanges in the capital structureof the Company;

Figures in brackets denote the maximum
number of meetings that could havebeen attended by that person.

• reviewing and approving formal
treasury policies relating to funding,liquidity, transactional foreign exchange
and interest rate risk management;

Board Committees• determining corporate strategy, including
consideration and approval of theCompany’s annual strategy review;• establishing dividend policy;• reviewing the health and safety
and environmental performanceof the Group;

15 (15)15 (15)15 (15)14 (15)15 (15)13 (15)13 (15)The Board has established three
Committees: the Audit Committee,
the Nomination Committee andthe Remuneration Committee.

• approving corporate acquisitions,mergers, divestments, joint venturesand major capital expenditure; andSummary of Committee membership
The Committee membership as at 31 December 2017 was as follows;
Peter Harverson
Robert Sansom
Paul Taylor
Ian Kershaw
Oliver Scott

Audit Committee

Nomination Committee

Remuneration Committee

—
—
Chair
Yes
—

Yes
Chair
Yes
—
—

—
—
Yes
Chair
Yes

Summary of Committee meeting attendanceNomination Committee

Remuneration Committee

—
—
4 (4)
4 (4)
—

2 (2)
2 (2)
2 (2)
—
—

—
—
2 (2)
2 (2)
2 (2)

Peter Harverson
Robert Sansom
Paul Taylor
Ian Kershaw
Oliver Scott

Figures in brackets denote the maximum number of meetings that individual could
have attended.
The role of each Committee is described in more detail below:

Audit Committee

The Audit Committee has responsibility
for the following matters:• Identifying and recommending to theBoard candidates to fill Board vacancies.

Financial reporting• Ensuring Non-Executive Directors areable to make the necessary timecommitments to fulfil their role.

• Review of all financial reports released
to the market and shareholders.
• Review of significant reporting issues
and key judgements.
• Review of accounting policies
selected and their application.

External audit• Recommending appointment,
re-appointment or removal of theexternal auditors.
• Overseeing the Group’s relationshipwith the external auditors, including
assessing their independence.
• Agreeing the annual audit plan andreviewing the finding andeffectiveness of the audit.

Whistleblowing• Review of the Group’s whistleblowing
policies and procedures.
As part of its procedures, the Committee
discusses the interim and annual financial
statements with the external auditors.
When appropriate, non-Committee
members are invited to attend. During
the period under review, the Committee
has met four times on a formal basis. The
Committee is expected to meet formallyfour times a year.

Nomination Committee
The Nomination Committee has
responsibility for the following matters:• Reviewing the size and compositionof the Board to ensure that an
appropriate mix of skills, knowledge
and experience is achieved.

• Ensuring Non-Executive Directors
receive letters of appointment,
detailing their responsibilities.
• Making recommendations to the Board
about the appointment, removal orcontinuation in office of any Director.
During the period under review, theCommittee has met twice on a formal
basis. The Committee is expected tomeet formally twice a year.

Remuneration Committee
The Remuneration Committee has
responsibility for the following matters:• Agreeing the framework for theGroup’s remuneration policy for
Directors and key management
personnel, including determining
individual remuneration policies for
Executive Directors.
• Approving the design and targets for
short and long term incentive plans.
• Determining the policy and scope of
pension arrangements.
• Ensuring contractual terms and payments
made on termination are fair to boththe individual and the Group.
• Agreeing the policy for authorisingexpense claims by the Chairman andChief Executive.

The Group has a formal and transparent
procedure for developing policy on
Directors’ remuneration. No Director isinvolved in deciding his own remuneration.
The Committee aims to set levels of
remuneration for Executive Directorsthat are sufficient to attract, retain andmotivate directors of the quality required,without paying more than necessary,and that are appropriate for the sizeand complexity of the Group. It aims
to see that a significant proportion ofeach Executive Director’s remuneration
package is performance-related.
During the period under review, theCommittee has met twice on a formal
basis. The Committee is expected tomeet formally twice a year.

Internal control
The Board of Directors has overall
responsibility for the Group’s system
of internal control and for reviewing
its effectiveness. The risk managing
process and systems of internal control
are designed to manage rather thaneliminate the risk of failure to achieve
the Group’s objectives. It should berecognised that such systems can only
provide reasonable but not absoluteassurance against material misstatement
or loss. The Directors acknowledge their
responsibilities for the Group’s system
of internal control and for reviewing its
effectiveness. The principal features ofthe system of internal financial controls are:• Budgetary control over all operations,
measuring performance against
pre-determined targets on at least
a monthly basis.
• Regular forecasting and reviews covering
trading performance, assets, liabilities,
cash flows and bank covenants.
• Delegated limits of authority covering
key financial commitments including
capital expenditure and recruitment.
• Identification and management of key
business risks.
The Board continually reviews theeffectiveness of other internal controls,
including financial, operational, compliance
controls and risk management.

• Succession planning for the Boardand other key management roles.

Ubisense Group plc Annual Report 201729

Corporate governance

Audit CommitteeDIRECTORS’ REPORTThe Directors present their annual reporton the affairs of the Group together withthe audited financial statements for theyear to 31 December 2017. The Corporate
Governance Statement set out on pages
28 and 29 forms part of this report.

Incorporation and constitution
Ubisense Group plc is domiciled in Englandand incorporated in England and Wales
under Company Number 05589712.
Ubisense Group plc’s Articles of Association
are available on the Group’s website atwww.ubisense.net.

Principal activity
The Group delivers enterprise location
intelligence solutions that enable ourcustomers to create a real-time digitaltwin of their physical operations.

Capital structure
The Company has one class of ordinary
share of two pence each which carries noright to fixed income. Each share carries
the right to one vote at general meetingsof the Company.
Details of the share capital of the Company,
including shares issued during the year, canbe found in note 19 of the consolidated
financial statements.
There are no specific restrictions on the sizeof a holding nor on the transfer of shares,
which are both governed by the generalprovisions of the Articles of Association andprevailing legislation. The Directors are notaware of any agreements between holdersof the Company’s shares that may result
in restrictions on the transfer of securities
or on voting rights.
Details of employee share schemes are
set out in note 20.
No person has any special rights of control
over the Company’s share capital andall issued shares are fully paid.
With regard to the appointment andreplacement of Directors, the Company
is governed by its Articles of Association,
the Companies Act and related legislation.
The Articles themselves may be amended
by special resolution of the shareholders.

30

Ubisense Group plc Annual Report 2017

Directors
The Directors serving at 31 December 2017 were as follows:
Peter Harverson
Riccardo (Richard) Petti
Timothy (Tim) Gingell
Robert Sansom
Paul Taylor
Ian Kershaw
Oliver Scott

Board changes
In May 2016, the Chairman, Peter Harverson, moved from a Non-Executive position to
Executive on the departure of the previous CEO. The Chairman resumed a Non-Executive
position on 1 August 2017

Substantial shareholdings
On 14 March 2018, the Company had been notified of the following significant
interests in its ordinary share capital:
Kestrel Partners
Columbia Threadneedle Investments
Robert Sansom
NFU Mutual Insurance Society Ltd
Janus Henderson Investors
Hargreave Hale
Seren Capital Management

Total holding Number% of issued share capital

20,645,493
13,621,793
6,235,899
4,326,490
3,525,271
2,900,000
2,750,000

28.25%
18.64%
8.53%
5.92%
4.82%
3.97%
3.76%

Directors’ interests – shares
Directors’ interests in the ordinary shares of Ubisense Group plc at 31 December 2017
were as follows:

Peter Harverson
Richard Petti
Tim Gingell
Robert Sansom
Paul Taylor
Ian Kershaw
Total

2017
Number

2016
Number223,286
78,12586,875
6,235,899
191,459
2,000
6,817,644

145,161—
40,0004,985,899
113,334
2,000
5,286,394

Oliver Scott has no direct interest in the ordinary shares of Ubisense Group plc but isa partner with the significant shareholder Kestrel.
In November 2017, Ubisense Group plc completed a placing of 17,187,500 new ordinary
shares at a price of 32 pence per share raising gross proceeds of £5.5 million. Kestrel
and certain Directors subscribed to an aggregate 6,081,250 shares for total considerationof £1.9m. The subscriptions by Robert Sansom (1,250,000 shares), Peter Harverson(78,125 shares), Paul Taylor (78,125 shares), Richard Petti (78,125 shares), Tim Gingell(46,875 shares), Kestrel (4,550,000 shares), are all related party transactions underthe AIM Rules for Companies.
There has been no change in the interests set out above between 31 December 2017
and 14 March 2018.

Directors’ interests
Details of Directors’ remuneration and shareoptions are provided in the Directors’
remuneration report on pages 32
and 33. There are no loans to or fromthe Directors.

The Group has made qualifying third‑party
indemnity provisions for the benefit of its
Directors which were made during the year
and remain in force at the date of this report.
The Group has purchased and maintained
throughout the year Directors’ & Officers’
liability insurance in respect of itself andits Directors.

Financial risk management
Financial risks and mitigating activities
have been set out within the Strategic reportand note 24 to the financial statements.

Going concern review
The Board has considered the going
concern position of the Group which
is discussed further in note 3 to thefinancial statements.

Post-balance sheet events
On 6 March, Ubisense Group plc enteredinto agreements to carve out the third party
geospatial services business of its
Japanese subsidiary, Geoplan Company
Limited. Under the terms of the agreement
customer relationships, the Geoplan brand
name, fixed assets including certain market
specific products, stock and 13 employees
will be transferred to a new company,
with the new company being sold fora consideration of JPY 100 million(approximately £0.7 million). The assets
being sold have an immaterial carrying
value within the consolidated statementof financial position as at 31 December 2017.

Alongside this transaction, Ubisense has
agreed, subject to contract completion,to acquire the 23% minority interest ofGeoplan Company Limited. The acquisitionof this minority interest will give the Group
100% ownership of its remaining Japanese
operations. Geoplan Company Limited will
be renamed Ubisense Japan K.K.

Corporate governanceDirectors’ indemnity arrangements

The agreed completion date of thetransaction is 30 March 2018.

These transactions are consistent with
Ubisense’s strategy of refocusing theGroup on growing revenues from its own
IP whilst managing the reduction in third
party geospatial services revenues.

Dividends
The Directors do not recommend paymentof a dividend for the year (2016: £nil).

AuditorA resolution to re-appoint Grant Thornton
UK LLP as the Group’s auditor will be
proposed at the forthcoming Annual
General Meeting. In accordancewith normal practice, the Directors
will be authorised to determine the
Auditor’s remuneration.
Approved by the Board of Directors
and signed on behalf of the Board

Tim Gingell

Chief Financial Officer and Company
Secretary
14 March 2018

Ubisense Group plc
Registered number: 05589712

Ubisense Group plc Annual Report 201731

D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T

Introduction
Ubisense Group plc has elected voluntarily
to prepare a Directors’ remuneration report.
As a company admitted to trading on theAIM, the Company is not required to provide
a formal remuneration report and this isprovided to give greater transparency of
the Group’s remuneration policy.
This report is on the activities of theRemuneration Committee for the period
to 31 December 2017. It sets out the
remuneration policy and remuneration
details for the Executive and Non-Executive
Directors of the Company.

Composition of the Remuneration
Committee
The Remuneration Committee comprisesof Ian Kershaw, Paul Taylor and Oliver Scott
who are Non-Executive Directors of
the Company.
The Committee advises the Board on
remuneration policy and defines the
remuneration and terms and conditionsof employment of the Executive Directors.
In addition, it reviews the remuneration
policy for the Group as a whole andoversees and approves the Group’s
share incentive plans for all participants.
Oliver Scott who is not an independent
Director, sits on the Remuneration
Committee. The Board acknowledge that
this is not considered best practice but
feel that it is appropriate for the scaleand structure of the Group at this stage
given his knowledge, experience andability to represent investor interests.

Remuneration practice overview
The Committee believes in pay for
performance and that Executive Directors’
remuneration should be designed topromote the long-term success of
the Group.

32

Ubisense Group plc Annual Report 2017

When reviewing and setting remuneration
policy, the Committee benchmarks
remuneration against quoted companiesof a similar size and considers a range offactors including the Group’s strategy
and circumstances, the prevailing economic
environment and best practice guidelines.
The policy must also enable UbisenseGroup plc to attract, retain and motivate
the talent it needs to ensure success.

Bonuses
Executive Directors are eligible to participate
in an annual bonus programme, which is
calculated by reference to the annual
financial targets of the Group and theachievement of strategic goals set by
the Remuneration Committee.

Pensions

The remuneration of the Non-Executive
Directors is determined by the Executive
Directors, the Senior Independent
Director and the Chairman, rather
than the Remuneration Committee.

The Group operates a defined contribution
personal pension scheme. Under thescheme rules the Group pays a matched
contribution of up to 5% of base salary as
adjusted for current pension legislation.
The scheme is open to Executive
Directors and employees.

Remuneration of Executive
Directors

Remuneration of Non-Executive
Directors

The Executive Directors are entitled toreceive base salary, benefits, employer
pension contributions and to participate
in share option schemes approved by
the Remuneration Committee.
The appointment of the Chief Executive
Officer and the Chief Financial Officer isterminable on six months’ notice byeither party.

Base salary
Base salaries are reviewed annually andadjustments made if required to reflect
Group performance, individual performanceand market rates. Remuneration is throughthe Group’s flexible benefits scheme underwhich the individuals can elect to switch
basic salary into pension contributions
and other benefits.

Benefits
The Group offers benefits to all employees
including life assurance and healthcare
solutions, appropriate to each of themarkets in which it operates.

The Non-Executive Directors haveentered into letters of appointment
with the Company. The appointments
are terminable on one month’s noticeby either party. The Non-Executive
Directors, including the Non-Executive
Chairman, may participate in theGroup’s pension scheme.
The appointment of the Non-Executive
Chairman is terminable on three months’
notice by either party.

Directors’ remuneration
The Directors received the following remuneration during the year:
Benefits
in kind£’000

Performance
payments£’000

2017 total
excludingpensions£’000

Pensions
£’000

Total
2017
£’000

Total
2016
£’000

Richard Petti1
Tim Gingell2
Richard Green
Executive Directors
Peter Harverson3
Robert Sansom4
Paul Taylor
Oliver Scott5
Ian Kershaw
Non-Exec Directors
Total

210
151
—
361
134
—
25
20
25
204
565

2
2
—
4
—
—
—
—
—
—
4

50
20
—
70
—
—
—
—
—
—
70

262
173
—
435
134
—
25
20
25
204
639

37
8
—
45
11
—
—
—
—
11
56

299
181
—
480
145
—
25
20
25
215
695

7
71
242
320
195
—
43
12
25
275
595

1	2016 remuneration for Richard Petti is included from the date of his appointment as CEO on 14 December 2016. He is entitled to a performance related bonus of up
to £125,000
2 2016 remuneration for Tim Gingell is included from the date of his appointment on 6 August 2016. He is entitled to a performance related bonus of up to £50,000
3	From 18 May 2016 the salary of Peter Harverson while acting as Executive Chairman was £185,000. From 1 August 2017, Peter Harverson resumed the role of
Non-Executive Chairman and the salary reduced to £75,000.
4	Robert Sansom has waived his entitlement to annual remuneration of £25,000 (2016: £25,000 waived).
5	Oliver Scott was appointed Non-Executive Director of the Company on 17 May 2016. The annual remuneration of the appointment is £20,000.

Share options
The Company issues share options to the Executive Directors and employees to reward performance and to align interests withthose of the shareholders.
The aggregate emoluments disclosed above within Directors’ remuneration does not include any amounts for the value of
options to acquire ordinary shares in the Company granted to or held by the Directors.
On 14 December 2016 Ubisense Group plc implemented a long-term incentive share option plan for Executive Directors and key
management. As participants in the new share scheme, Ubisense Group plc granted 3,150,000 options of 2 pence each in the
Company to the Executive Directors with an exercise price set at the nominal value. The options will vest if the Company’s shareprice exceeds 70p for 60 consecutive days between the 2nd and 3rd anniversary of issue and the period of employment
continues for over 3 years.

Award date
Year

Vests
Years

Expires
Year

Peter Harverson

2010
2016

2011-13
2019

2020
2026

Richard Petti
Tim Gingell
Total

2016
2016

2019
2019

2026
2026

Director

AwardsOutstandingat 1 January
2017
NumberGrantedduringthe year
NumberExercisedduringthe year
NumberAwards
Lapsed outstanding at
during 31 December
the year2017
NumberNumberAwardsexercisable at
31 December
2016
Number

0.14
91,3330.02 850,000
941,333
0.02 1,600,000
0.02 700,000
3,241,333

—
—
—
—
—
—

—
—
—
—
—
—

—
91,333— 850,000— 941,333— 1,600,000— 700,000— 3,241,333

91,333—
91,333——
91,333

Exercise
price£

Ubisense Group plc Annual Report 201733

Corporate governanceDirectorBasicsalary£’000

D I R E C T O R S ’ R E S P O N S I B I L I T I E S S TAT E M E N T

The Directors are responsible forpreparing the Annual Report and thefinancial statements in accordance withapplicable law and regulations.
Company law requires the Directors to
prepare financial statements for eachfinancial year. Under that law the Directors
are required to prepare the consolidated
financial statements in accordance with
International Financial Reporting Standards(IFRSs) as adopted by the European
Union and have elected to prepare theparent company financial statements inaccordance with United Kingdom
Generally Accepted Accounting Practice(United Kingdom Accounting Standards
and applicable law, including FRS 102‘The Financial Reporting Standard’applicable in the UK and Republic of
Ireland). Under company law thedirectors must not approve the financial
statements unless they give a true andfair view of the state of affairs and profit
or loss of the Company and Group forthat period. In preparing these financial
statements, the Directors are required to:• select suitable accounting policies
and then apply them consistently;• make judgements and estimates thatare reasonable and prudent;

34

Ubisense Group plc Annual Report 2017

• state whether applicable IFRSs as
adopted by the European Union havebeen followed, subject to any material
departures disclosed and explained in
the consolidated financial statements;• state whether applicable UK AccountingStandards have been followed, subject
to any material departures disclosed
and explained in the Company
financial statements; and• prepare the financial statements on
the going concern basis unless it isinappropriate to presume that theCompany will continue in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions and disclosewith reasonable accuracy at any time
the financial position of the Company
and enable them to ensure that thefinancial statements comply with theCompanies Act 2006. They are also
responsible for safeguarding the assetsof the Company and hence for taking
reasonable steps for the prevention anddetection of fraud and other irregularities.

The Directors confirm that:• so far as each Director is aware, there
is no relevant audit information ofwhich the companies auditor isunaware; and• the Directors have taken all the steps
they ought to have taken as Directors
in order to make themselves aware of
any relevant audit information and toestablish that the companies auditor
is aware of that information.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on
the Company’s website. Legislationin the United Kingdom governing
the preparation and dissemination offinancial statements may differ fromlegislation in other jurisdictions.

Financial
Statements
36
42
43
44
45
46
47
70
71
72
IBC

Independent auditor’s report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated statement of financial position
Consolidated statement of cash flows
Notes to the consolidated financial statements
Company balance sheet
Company statement of changes in equity
Notes to the company financial statements
Advisers

Ubisense Group plc Annual Report 2017

35

INDEPENDENT AUDITOR’S REPORTto the members of Ubisense Group plc

OpinionOur opinion on the financial statements is unmodified
We have audited the financial statements of Ubisense Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for
the year ended 31 December 2017 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive
Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Financial Position, the Consolidated
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 the preparation of the Group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been appliedin the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including
Financial Reporting Standard 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 of the Parent Company’s affairs as at
31 December 2017 and of the Group’s loss 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 United Kingdom Generally
Accepted Accounting Practice; and• the financial statements 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 ourreport. We are independent of the Group and the 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 listed entities, and we havefulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.

Who we are reporting toThis 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 tostate 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 forthe opinions we have formed.

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 ofat least twelve months from the date when the financial statements are authorised for issue.

Overview of our audit approach• Overall Group materiality: £271,000, which represents 1% of the Group’s revenue excluding rental income;• We performed full scope procedures at Ubisense Group plc, Ubisense Limited, Ubisense Inc.;targeted procedures on Ubisense Solutions Inc, Ubisense GmbH, Ubisense Inc (Japan), Geoplan Co.
Limited; analytical procedures were performed for all other components; and• Key audit matters were identified as• improper recognition of revenue due to fraud;• the capitalisation of intangible development costs may not be appropriate; and• impairment of the carrying value of capitalised development costs.

36

Ubisense Group plc Annual Report 2017

Key audit matters

Potential
financialstatement
impact

7
4
6

3
2

1

Inventory quantities
are not valid

2

Validity of tradereceivables

3

Carrying value ofinvestments

4

Improper revenue
recognition

5

Management
override of controls

6

Capitalisation of
intangibles
development costs
may not be appropriate
Carrying valueof capitalised
development costs
may not be appropriate

5

1

7

Low	

High

Extent of management judgement

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due tofraud) that we identified. These matters included those that 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 financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key Audit Matter – Group
Improper recognition of revenue due to fraud

How the matter was addressed in the audit – GroupThe Group has recognised revenues of £27.3m (2016: £26.5m)
in the year. Whilst the Group is organised into two divisions,revenue comprises sales of hardware, software, maintenanceand support and labour and installation services. The natureof the Group’s revenue involves the processing of numerous
transactions, with each stream possessing different revenue
recognition criteria.

Software – agreement to customer confirmation of receipt for
new licences, or purchase orders for renewed licences.
Where no purchase orders are received we have agreed theinvoices to cash receipt

We have ensured the occurrence of revenue by selecting a
Under International Standard on Auditing (UK) 240 ‘The Auditor’s sample of sales orders from the four revenue streams andResponsibilities Relating to Fraud in an Audit of Financial Statements’, testing as follows:
there is a rebuttable presumed risk that revenue may be misstated Hardware – agreement to signed contracts or shipping
due to the improper recognition of revenue due to fraud.
documentation to ensure occurrence

As the Group’s revenue is material to the financial statements,
comprises various streams and is subject to different recognition
policies, the presumed risk of improper recognition of revenue
due to fraud has been identified as a significant risk, which
was one of the most significant assessed risks ofmaterial misstatement.

Maintenance and support – obtained purchase orders,
recalculated revenue recognised and verified theappropriateness of any deferred income at the year end
Labour and installation services – agreement to signed
contracts or purchase orders. Percentage completion workings
were obtained and verified to timesheets, subcontractor
invoices or other supporting documentation. The appropriatenessof any deferred or accrued income balances was verified byrecalculating revenue recognised to date against invoices andother supporting documentation.

Ubisense Group plc Annual Report 201737

Financial statements

Low	HighThe graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement
impact and the extent of management judgement.

INDEPENDENT AUDITOR’S REPORT continued

to the members of Ubisense Group plc

Key Audit Matter – Group
Improper recognition of revenue due to fraud –continued

How the matter was addressed in the audit – Group
Other audit work included, but was not restricted to:• the testing of revenue recognition policies for consistency
and compliance with relevant accounting standards;• analytical procedures over revenue in total disaggregatedby revenue stream, operating segment, location and month(month by month analysis of current year against prior year
revenue) to identify and analyse key movements andsignificant transactions which have occurred in the year;• obtaining explanations and corroborating evidence forkey movements and significant transactions identified.
 he Group’s accounting policy on revenue recognition isT
disclosed in note 3 to the financial statements and related
disclosures are included in note 5.
Key observations
Our testing did not identify any material misstatements in therevenue recognised during the year or any instances of revenue
not being recognised in accordance with stated accounting policies

Capitalisation of intangible development costs may
not be appropriate
Under IAS 38 ‘Intangible Assets’, development costs must be
capitalised if the recognition criteria is met, including determining
whether the project provides a future economic benefit to the Group.
This presents a risk that development costs are incorrectly capitalised.

Our audit work included, but was not restricted to:• assessing product development activities alongside thequalifying nature of the projects to ensure that capitalisation
is in accordance with the appropriate criteria under IAS 38;
and• detailed substantive testing on capitalised labour costadditions in the year has been performed, tracing
employee costs to supporting documentation, including
timesheets and salary data.
The capitalisation of these costs is subject to specific recognition
criteria, as set forth in IAS 38, which includes the judgments and The Group’s accounting policy on intangible assets is shown
assumption involved in determining whether the projects willin note 3 to the financial statements and related disclosuresprovide future economic benefit to the Group and be financially
are included in note 11.
viable. This leads to a risk that these criteria may not be met.
Key observations
Due also to the materiality of the balance, the capitalisation of
Our testing did not identify any material misstatements in theintangible development costs has been identified as a significant capitalisation of intangible development costs in accordancerisk, which was one of the most significant assessed risks ofwith IAS 38. Intangibles capitalised were found to be inmaterial misstatement.
accordance with stated accounting policies.
During the year, the Group has capitalised £1.6m (2016: £1.9m)
in development costs in relation to various projects.

38

Ubisense Group plc Annual Report 2017

Key Audit Matter – GroupHow the matter was addressed in the audit – Group

Carrying value of capitalised development costs may
not be appropriate

Our audit work included, but was not restricted to:

There is a risk, due to the degree of uncertainty involved inforecasting and discounting future cash flows associated with
development projects, that development assets may be impaired.

• assessing the amortisation policy applied against capitalised
development costs for consistency with prior year andadequacy of the useful economic life;

The impairment review is based on identifiable assets for which•
future revenues and gross margins can be assigned to calculate
a value in use based on a discounted cash flow model. Management’s
assessment of the potential impairment of the Group’s development •costs incorporates key assumptions over the timing and extent
of future revenues, gross margin and the discount rate used.
Due to the inherent uncertainty involved in forecasting anddiscounting future cash flows, we therefore identified the
impairment of the carrying value of capitalised development
costs as a significant risk, which was one of the most significant
assessed risks of material misstatement.

comparing projects against which amounts are capitalised to
the net present value calculations, produced by management,
based on future income generation the technology will realise;
checking the mathematical accuracy of the impairment models;testing the accuracy of management’s estimates used in
the net present value calculations by comparing the 2017budgeted sales and gross profit to the results achieved forthe year and performing sensitivity analysis of expected
revenue for 2018 onwards;
evaluating the sensitivity of the discount rate applied
to future cash flow;

Financial statements•
The net book value of capitalised development costs at the year
end amounted to £2.7m (2016: £3.3m), including amortisation
charged on capitalised development costs of £2.2m (2016: £2.6m).
These costs are amortised by the company to ensure the capitalised •cost reflects the anticipated benefit of the development project •to the Group over time. In accordance with IAS 36, ‘Impairmentof Assets’, an annual review is required to assess whether there
is any indication that assets may be impaired. Due to the financial
performance of the group, an impairment review has been performedby management to determine whether the carrying value of•these assets is appropriate.

discussing and corroborating the ongoing viability of
projects with relevant Group personnel; andassessing management’s review of possible impairmentof intangible assets and challenging the basis of key
assumptions used.

The Group’s accounting policy on intangible assets isdisclosed in note 3 to the financial statements and related
disclosures are included in note 11.
Key observations
Our testing did not identify any material misstatements in the
carrying value of the capitalised development costs and any
reasons for impairment of intangible assets or additional factors
to consider that would impact the carrying value of intangible
assets recognised within the financial statements and we
found no material errors in the calculations.

We did not identify any Key Audit Matters relating to the audit of the financial statements of the Parent Company.

Ubisense Group plc Annual Report 2017

39

INDEPENDENT AUDITOR’S REPORT continued

to the members of Ubisense Group plc

Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature,timing and extent of our audit work and in evaluating the results of that work.
Materiality was determined as follows:

Materiality measureGroup

Financial statements as a whole£271,000 which is 1% of the Group revenue £203,000 which is 1% of expected total
assets restricted to Group performance
excluding rental income for the year.
materiality. This benchmark is consideredThis benchmark is considered the mostthe most appropriate because the Parent
appropriate because the Group is aCompany does not generate revenues orcommercially focused organisation
profits and holds investments in subsidiaries.
with fluctuating results.

Performance materiality used to drive
the extent of our testingSpecific materiality

Communication of misstatements to theaudit committee

ParentMateriality for the current year is higher
than the level that we determined for theyear ended 31 December 2016 using thesame basis.
75% of financial statement materiality.

Materiality for the current year is higher
than the level that we determined for theyear ended 31 December 2016 using thesame basis.
75% of financial statement materiality.

We also determine a lower level of specific We also determine a lower level of specificmateriality for directors’ remuneration and materiality for directors’ remuneration
related party transactions of £1,000 due to and related party transactions of £1,000
the inherent sensitivity of these transactions due to the inherent sensitivity of thesetransactions and related disclosures.
and related disclosures.
£13,500 and misstatements below that
£10,000 and misstatements below thatthreshold that, in our view, warrant
threshold that, in our view, warrant
reporting on qualitative grounds.
reporting on qualitative grounds.

The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.

Overall materiality – group

Overall materiality – parent

25%

25%

Tolerance for potential uncorrected
mistatements
Performance materiality
75%

75%

An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the Group’s business, its environmentand risk profile and in particular included:• evaluation by the Group audit team of identified components to assess the significance of that component and to determine
the planned audit response based on a measure of materiality. Significance was determined as a percentage of the Group’s
total assets, revenues and profit before taxation;• full scope audit procedures performed at Ubisense Group plc, Ubisense Limited and Ubisense Inc, targeted procedures
performed at Ubisense GmbH, Ubisense Solutions Inc, Ubisense Inc (Japan) and Geoplan Co. Limited, and analyticalprocedures performed at all other components;• component auditors were used to complete audit procedures for Ubisense GmbH, Ubisense Inc (Japan) and Geoplan Co. Limited.
The Group audit team sent Group instructions to the component auditors as to the required procedures to be completed overthe significant areas for Group purposes within each component. The Group audit team reviewed the underlying audit working
papers for these significant areas;• the total percentage coverage of full-scope and targeted procedures over the Group’s revenue was 100%;• the total percentage coverage of full scope and targeted procedures over the Group’s total assets was 96%; and• our audit approach in the current year is consistent with the audit approach adopted for the year ended 31 December 2016
being substantive in nature.

40

Ubisense Group plc Annual Report 2017

Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report set out on pages 1 to 34, 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 thework 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.

Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:

Financial statements• 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 under the Companies Act 2006
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in thecourse of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

Matters on which we are required to report by exception
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 directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 34, 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 statements
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 isa 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: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Paul Naylor

Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Cambridge
14 March 2018
Ubisense Group plc Annual Report 201741

C O N S O L I DAT E D I N C O M E S TAT E M E N T

for the year ended 31 December 2017

Notes

Revenue
Cost of revenues
Gross profit
Operating expenses
Operating loss
Analysed as:
Gross profit
Other operating expenses
Adjusted EBITDA
Depreciation
Amortisation and impairment of acquired intangible assets
Amortisation and impairment of other intangible assets
Share option expense
Unrealised foreign exchange gains/(losses) on intercompany
trading balances
Non-recurring items
Operating loss
Finance income
Finance costs
Loss before tax
Income tax
Loss for the year
Loss attributable to:Equity shareholders of the Company
Non-controlling interest
Loss per share attributable to the equity shareholders of the parent (pence)
Basic
Diluted

5

12
11
11
20

8
7
7
9

10
10

The notes on pages 47 to 69 are an integral part of these consolidated financial statements.

42

Ubisense Group plc Annual Report 2017

2017
£’000

2016
£’000

27,255(16,398)
10,857(13,912)(3,055)

26,523(16,280)
10,243(16,408)(6,165)

10,857(10,492)
365
(417)
—
(2,435)(316)

10,243(9,919)324(345)(1,223)(7,143)—(252)—(3,055)8(87)(3,134)61(3,073)

1,877
345(6,165)44(323)(6,444)
1,136(5,308)(3,055)(18)(3,073)(5,196)(112)(5,308)(5.2p)(5.2p)(10.4p)(10.4p)C O N S O L I DAT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E

for the year ended 31 December 2017

Loss for the year
Other comprehensive income:Items that may be reclassified subsequently to profit and loss
Exchange difference on retranslation of net assets and results of overseas subsidiaries
Total comprehensive loss for the year
Attributable to:Equity shareholders of the Company
Non-controlling interest
Total comprehensive loss for the year

2017
£’000

2016
£’000

(3,073)(5,308)(33)(3,106)(1,357)(6,665)(3,067)(39)(3,106)(6,682)
17(6,665)The notes on pages 47 to 69 are an integral part of these consolidated financial statements.

Financial statements

Ubisense Group plc Annual Report 201743

C O N S O L I DAT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y

for the year ended 31 December 2017

Attributable to equity shareholders of the parent company
Sharecapital
£’000

Share
premium£’000

Share based
payment
reserve£’000

Translation
reserve£’000

Retainedearnings£’000

Sub-total£’000

Non-controllinginterest
£’000

Total
£’000

Balance at 1 January 2016
Loss for the year
Exchange difference on retranslation of
net assets and results of overseas
subsidiaries

732—

37,422
—

875
—

(539)
—

(26,996)(5,196)

11,494(5,196)456(112)

11,950(5,308)———(1,486)—(1,486)129(1,357)

Total comprehensive loss for the year
Reserve credit for equity-settled
share‑based payment

—

—

—

(1,486)(5,196)(6,682)

17(6,665)

—

—

(52)

—

—

(52)

—

(52)

386

—

—

—

—

386

—

386

Premium on new share capital

—

4,427

—

—

—

4,427

—

4,427

Share issue costs

—

(295)

—

—

—

(295)

—

(295)

Issue of new share capital

Transactions with owners

386

4,132

(52)

—

—

4,466

—

4,466

Balance at 31 December 2016

1,118

41,554823(2,025)(32,192)

9,278

473

9,751

—

—

—

—

(3,055)(3,055)(18)(3,073)

Loss for the year
Exchange difference on retranslation of
net assets and results of overseas
subsidiaries

—

—

—

(12)

—

(12)

(21)

(33)

—

—

—

(12)

(3,055)(3,067)(39)(3,106)

—

—

316

—

—

316

—

316

344

—

—

—

—

344

—

344

Premium on new share capital

—

5,158

—

—

—

5,158

—

5,158

Share issue costs

—

(337)

—

—

—

(337)

—

(337)

Total comprehensive loss for the year
Reserve credit for equity-settled
share‑based payment
Issue of new share capital

Transactions with owners
Balance at 31 December 2017

344

4,821

316

—

—

5,481

—

5,481

1,462

46,3751,139(2,037)(35,247)

11,692434

12,126

The notes on pages 47 to 69 are an integral part of these consolidated financial statements.

44

Ubisense Group plc Annual Report 2017

C O N S O L I DAT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N

for the year ended 31 December 2017

2016
£’000

AssetsNon-current assets
Intangible assets
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Bank loans
Total current liabilities
Non-current liabilities
Deferred income tax liabilities
Trade and other payables
Bank loans
Other payables
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to owners of the parent company
Ordinary share capital
Share premium
Share based payment reserve
Translation reserves
Retained earnings
Equity attributable to shareholders of the Company
Non-controlling interests
Total equity

11
12

2,962
493
3,455

3,616
745
4,361

13
14
15

1,459
10,544
9,114
21,117
24,572

1,064
13,221
3,498
17,78322,14416
17(9,211)(750)(9,961)(8,239)(750)(8,989)

9

(516)
(40)
(1,750)(179)(2,485)(12,446)
12,126(683)(42)(2,500)(179)(3,404)(12,393)
9,751

1,462
46,3751,139(2,037)(35,247)
11,692434
12,126

1,118
41,554823(2,025)(32,192)
9,278
473
9,751

17
18

19
19
20

The notes on pages 47 to 69 are an integral part of these consolidated financial statements.
The financial statements were approved and authorised for issue by the Board of Directors on 14 March 2018 and signed on its
behalf by:

Richard Petti,							Tim Gingell,

Chief Executive Officer						Chief Financial Officer
Ubisense Group plc
Registered Number: 05589712

Ubisense Group plc Annual Report 201745

Financial statements

2017
£’000

Notes

C O N S O L I DAT E D S TAT E M E N T O F C A S H F LO W S

for the year ended 31 December 2017

Notes

Loss before tax
Adjustments for:
Depreciation
Amortisation and impairment
Adjustments to contingent consideration
Loss on the disposal of property, plant and equipment
Revaluation of intercompany balances
Share-based payments charge
Finance income
Finance costs
Operating cash flows before working capital movement
Change in inventories
Change in receivables
Change in payables
Cash used in operations before tax
Net income taxes (paid)/received
Net cash flows from operating activities
Cash flows from investing activities
Payment of contingent consideration
Purchases of property, plant and equipment
Expenditure on intangible assets
Interest received
Net cash flows from investing activities
Cash flows from financing activities
Repayment of borrowings
Interest paid
Proceeds from the issue of ordinary share capital
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period

12
11
8
8
20
7
7

15

The notes on pages 47 to 69 are an integral part of these consolidated financial statements.

46

Ubisense Group plc Annual Report 2017

2017
£’000

2016
£’000

(3,134)(6,444)

417
2,435
—
2
252
316
(8)
87
367
(395)
2,678
987
3,637
(14)
3,623

345
8,366
(355)
24
(1,877)
(20)
(44)
323
318
1,751
(3,941)(743)(2,615)579(2,036)

(197)
(140)
(1,813)8(2,142)—(26)(2,059)44(2,041)

(750)
(110)
5,165
4,305
5,786
3,498
(170)
9,114

(2,373)
(352)
4,518
1,793
(2,284)
5,392
390
3,498

N O T E S T O T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S

1 General information
Ubisense Group plc (“the Company”) and its subsidiaries (together, “the Group”) deliver Enterprise Location Intelligence solutions
that enable customers with complex operations to track the precise location of assets across their business in real-time to deliver
operational efficiencies, increase flexibility, quality, and reduce costs. We offer in-depth knowledge of the sectors in which we
operate and have long-standing relationships with many of our customers across target markets including automotive, aerospace,communications and utilities.
The Company is a public limited company which is listed on the Alternative Investment Market (“AIM”) of the London Stock Exchange(UBI) and is incorporated and domiciled in the United Kingdom. The value of Ubisense Group plc shares, as quoted on the
London Stock Exchange at 31 December 2017, was 45 pence per share (31 December 2016: 41.5 pence).
The Company was incorporated as Ubisense Trading Limited on 11 October 2005 and changed its name to Ubisense Group plc
on 31 May 2011 ahead of its initial public offering and listing on AIM on 22 June 2011. The address of its registered office is
St. Andrew’s House, St. Andrew’s Road, Chesterton, Cambridge, CB4 1DL.
The Group has its main operations in the UK, USA, Canada, Germany, France and Japan and sells its products and services
mainly in North America, Europe and Asia. The Group legally consists of ten companies headed by Ubisense Group plc. A full listof subsidiaries is given in note 22 of the financial statements.

2 New accounting standards
For the purposes of the preparation of the consolidated financial statements, the Group has applied all standards andinterpretations as adopted in the European Union that are effective for accounting periods beginning on or before 1 January 2017.
The accounting policies used are the same as set out in detail in the Report and Accounts 2016 and have been applied consistently
to all periods presented in the financial statements. No new standards or amendments or interpretations to existing standards that
became effective during the year were material to the Group. No new standards, amendments or interpretations to existing
standards having an impact on the financial statements that have been published and that are mandatory for the Group’s
accounting periods beginning on or before 1 January 2018, or later periods, have been adopted early.
Standards and interpretations not yet applied by the GroupThe following new Standards and Interpretations, which are yet to become mandatory, have not been applied in the Group’s
financial statements.
• IFRS 9 ‘Financial Instruments’ (effective date financial year commencing on/after 1 January 2018)• IFRS 15 ‘Revenue from contracts with customers’ (effective date financial year commencing on/after 1 January 2018)• IFRS 16 ‘Leases’ (effective date financial year commencing on/after 1 January 2019)

IFRS 9The Directors are of the opinion, that the application of IFRS 9 will not have a significant impact, other than increased disclosures,on the financial statements of the Group.

IFRS 15IFRS 15 Revenue from Contracts with Customers will replace IAS 18 Revenue. The new standard is applicable from 1 January 2018.
IFRS 15 introduces a number of new concepts and requirements relating to revenue recognition, and also provides guidance andclarification on existing practice.
For sales within the RTLS SmartSpace division, the Group contracts with customers to provide software, maintenance & support,
hardware or services. The contractual arrangements may be to provide one of these elements on a standalone basis or to provide
a combination of products and services. Currently, software licence revenue is recognised at the point the software is delivered tothe customer, hardware is recognised on dispatch to the customer, maintenance and services are recognised over the term of theagreement on a straight line basis and installation and consultancy services are recognised as the service is performed.
For sales connected to the myWorld product, the Group contracts with customers to provide software, maintenance & support, orservices. The contractual arrangements may be to provide one of these elements on a standalone basis or to provide a combinationof the products and services. Currently, software licence revenue is recognised at the point the software is delivered to the customer
provided that only configuration is required. Maintenance and service revenues are recognised over the term of the agreement on astraight line basis. Consultancy and customisation services are recognised as the service is performed.
The majority of Ubisense’s sales are for products sold on a standalone basis and it is expected that the revenue recognition policy
applied to these sales will be unaffected by the application of IFRS 15. Larger, more complex contracts, which involve multiple
performance obligations that include a combination of products and services, are affected by the application of IFRS 15.
Accordingly, the significance of the impact of IFRS 15 is dependent upon the timing of the delivery of performance obligations
within complex contracts close to a financial reporting period end. The key area under review is the number of distinct
performance obligations for sales which include a combination of some or all of the above products and services.

Ubisense Group plc Annual Report 201747

Financial statements

The consolidated financial statements have been approved for issue by the Board of Directors on 14 March 2018.

N O T E S T O T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S c o n t i n u e d

2 New accounting standards continued
IFRS 15 continued
Under IFRS 15, the Group must evaluate the performance obligations for the promised goods or services to identify whether the
products and/or services are distinct. A promised good or service is distinct if both the customer benefits from the item either
on its own or together with other readily available resources and it is separately identifiable from other promises in the contract(i.e. the Group does not provide a significant service integrating, modifying or customising it). The details of the performanceobligations within complex contracts with a combination of goods and services is currently being assessed, and will beconsidered further to ensure an accurate conclusion is reached. The financial impact of the adoption of IFRS 15 will be
disclosed within the interim results to 30 June 2018.

IFRS 16IFRS 16 Leases will replace IAS 17 and three related interpretations. Leases will be recorded on the statement of financial position in
the form of a right-of-use asset and a lease liability. The consolidated income statement will be impacted through reduced
operating expenses, and higher depreciation and finance costs. The new standard is applicable from 1 January 2019 with an option
to adopt it early. The Group intend to early adopt IFRS 16 from 1 January 2018 alongside IFRS 15 Revenue.
The Group leases all of the premises from which it conducts business with annual commitments under operating leases totalling£0.7 million. Application of IFRS 16 will result in the Group no longer recognising rental expense associated with the leased
premises within operating expenses in the consolidated income statement. The Group will recognise a right-of-use asset inrespect of the leasehold premises within the consolidated statement of financial position alongside a liability for the leasehold
commitments, and depreciation and finance costs in the consolidated income statement. Accordingly, total assets will increase
as will total liabilities. Additionally, the Group leases other assets including motor vehicles, however, the impact of application of
IFRS 16 to these leases will not be material.

3 Summary of significant accounting policies
The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation
The consolidated financial statements of Ubisense Group plc have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the European Union (IFRSs as adopted by the EU) and the Companies Act 2006
applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historicalcost convention. The consolidated financial statements are presented in GBP and all values are rounded to the nearest thousand
pounds (£’000) except when otherwise indicated.
The preparation of these financial statements in conformity with IFRS requires the Directors to make certain critical accounting
estimates and judgements that affect the amounts reported in the financial statements and accompanying notes. 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 note 4.

Going concern basis
The Group’s business activities, together with factors likely to affect its future development, performance and position are set out
in the Strategic report and Directors’ report on pages 1 to 31.
In determining the basis for preparing the consolidated financial statements, the Directors are required to consider whether theCompany can continue in operational existence for the foreseeable future, being a period of not less than twelve months from thedate of the approval of the consolidated financial statements.

48

Ubisense Group plc Annual Report 2017

3 Summary of significant accounting policies continued
Going concern basis continued
The Group had cash of £9.1 million at the balance sheet date. As disclosed in note 17, the Group amended the terms of it’s HSBC
loan in November 2017, with covenants requiring £750,000 repayable on or before each of 31 December 2017 and 31 January
2018 and then £187,500 each quarter starting on 31 March 2019. The amended financial covenant on operating cash flow before
working capital adjustments is £2 million negative in 2017, £2 million negative in 2018, £1 million negative in 2019 and £1 million
positive from 2020 onwards. The balance of this facility as at 31 December 2017 was £2.5 million.
Management prepares detailed working capital forecasts which are reviewed by the Board on a regular basis. The forecasts
include assumptions regarding the opportunity funnel from both existing and new clients, growth plans, risks and mitigating
actions. In particular, operating cashflow and profitability are highly sensitive to revenue mix and the positive contribution ofcontinuing growth in software sales.
In reaching their going concern conclusion, the Directors have considered the following points:• The Group had cash, net of debt of £6.6 million as at 31 December 2017.
• It is not anticipated that the Group will breach the covenants of the existing working capital facility which are described in note 17.

The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, support the conclusionthat there is a reasonable expectation that the Company and the Group have adequate resources to continue in operational
existence for the foreseeable future, a period of not less than twelve months from the date of this report. The Group, therefore,
continues to adopt the going concern basis in preparing the consolidated financial statements.

Consolidation
The Group financial statements include the results, financial position and cash flows of the Company and all of its subsidiary undertakings.
Subsidiary undertakings are those entities controlled directly or indirectly by the Company. Control arises when the Company has
the power to govern the financial and operating policies of an entity, uses this power to affect the returns from that entity and has
exposure to variable returns from its investment in the entity.
Co-terminus financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistentaccounting policies. Businesses acquired or disposed during the year are accounted for using acquisition method principles from,or up to, the date control passed. Intra-group transactions and balances are eliminated on consolidation. All subsidiaries use
uniform accounting policies for like transactions and other events and similar circumstances.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein.
Non-controlling interests consist of the amount of those interests at the date of the original business combination and thenon-controlling interest’s share of changes in equity since the date of combination.

Foreign currencies
a. Functional and presentation currency
The functional currency of each Group entity is the currency of the primary economic environment in which each entity operates.
The consolidated financial statements are presented in GBP.
b. Transactions and balances
Foreign currency transactions are translated into the functional currency of each Group entity using the exchange rates prevailingat the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated at rates ruling at theperiod end date. Such exchange differences are included in the income statement within “operating expenses”. Non-monetary
items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the datesof the initial transactions.
c. Consolidation
For the purpose of presenting consolidated financial statements, the results and financial position of all the Group entities (noneof which have the currency of a hyperinflationary economy) that have a functional currency other than GBP are translated into
GBP as follows:• assets and liabilities for each statement of financial position are translated at the exchange rate at the period end date;• income and expenses for each income statement are translated at the exchange rate ruling at the time of each period thetransaction occurred; and• all resulting exchange differences are recognised in other comprehensive income.

Ubisense Group plc Annual Report 201749

Financial statements• The Group has met the next repayment instalment of £0.75 million during January 2018 and no further capital repayments are
due within the next 12 months.

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3 Summary of significant accounting policies continued
Segment reporting
IFRS 8 requires a “management approach” under which information in the financial statements is presented on the same basis
as that used for internal management reporting purposes.
The Group is organised on a global basis into two operating segments based on the Group’s divisions: RTLS SmartSpace andGeospatial. The Directors believe that the Chief Operating Decision Maker (CODM) is the Chief Executive Officer of the Group.
The CODM and the rest of the Board are provided with information on a divisional basis to assess the financial performance of,and allocate resources to, each division and central resources.
The internal management accounting information is prepared on an IFRS basis but has a non-GAAP “Adjusted EBITDA” as theprimary measure of profit and this is reported on the face of the income statement.

Revenue recognition
Revenue represents amounts derived from the provision of goods and services which fall within the Group’s ordinary activities,
exclusive of discounts, value added tax and other similar sales taxes. Revenue is measured by reference to the fair value ofconsideration received or receivable.
Revenues on product sales are recognised at the time that units are shipped, except for shipments under arrangements involving
significant acceptance requirements. Under such arrangements, revenue is recognised when the Group has substantially met allits performance obligations.
Revenue earned from sales under licence agreements is recognised when the software is made available. When the saleincludes a period of support and maintenance, a proportion of the revenue is deferred and recognised straight line over theperiod of support. For licence rental fees, amounts are recognised over the period of the contract, commencing from when thesoftware is available for use.
Services and training revenue from time and materials contracts is recognised in the period that the services and training areprovided on the basis of time worked at agreed contractual rates and as direct expenses are incurred.
Revenue from fixed price, long-term customer specific contracts, including customisation and modification, is recognised on thestage of completion of each assignment at the period end date compared to the total estimated service to be provided over theentire contract where the outcome can be estimated reliably. If a contract outcome cannot be estimated reliably, revenues arerecognised equal to costs incurred, to the extent that costs are expected to be recovered. An expected loss on a contract isrecognised immediately in the income statement.
Where bundled sales including a combination of some or all of the above are made, the revenue attributable to the deal is apportioned
across the constituents of the bundle, and then recognised according to the policies stated above.

Employee benefits
a. Retirement benefits
The Group operates various defined contribution pension arrangements for its employees.
For defined contribution pension arrangements, the amount charged to the income statement represents the contributions
payable in the period. Differences between contributions payable in the period and contributions actually paid are shown as
either accruals or prepayments in the statement of financial position.
b. Share-based payments
The Group issues equity-settled share-based payments to certain employees. Vesting conditions are continuing employment andcan include, for senior employees, a diluted EPS performance target or share price target. Equity-settled share-based payments
are measured at fair value at the date of grant using an appropriate pricing model. The fair value is expensed on a straight-line
basis over the vesting period, together with a corresponding increase in equity in the share-based payment reserve, based on
the Group’s estimate of the number of shares that will eventually vest.

Operating lease income and expense
The Group as the lessor
a. Rental income
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs
incurred in negotiating the lease are recognised straight-line over the lease term. Rental income is presented within the
Geospatial division within note 5.
The Group as the lessee
b. Rental expense
Operating lease rentals are charged as operating expenses to the income statement in equal annual amounts over the lease
term. Assets leased under operating leases are not recorded in the statement of financial position because the lessor retains
a significant portion of the risks and rewards of ownership.

50

Ubisense Group plc Annual Report 2017

3 Summary of significant accounting policies continued
Operating lease income and expense continuedc. Lease incentives
The benefit of lease incentives such as rent-free periods or up-front cash payments are spread equally on a straight-line basis
over the lease term.

Non-recurring items
Non-recurring items are disclosed separately in the financial statements where it is necessary to do so to provide further
understanding of the financial performance of the Group. They are material one-off items of income or expense that havebeen shown separately due to the significance of their nature or amount and do not reflect the ongoing cost base orrevenue‑generating ability of the Group.

Interest income and expense
Interest income and expense is included in the income statement on a time basis, using the effective interest method by reference
to the principal outstanding.

Tax
The tax charge or credit comprises current tax payable and deferred tax:

b. Deferred tax
Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of thecarrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. In addition, tax
losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred
tax assets. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset
or liability, unless the related transaction is a business combination or affects tax or accounting profit.
Deferred tax liabilities are always provided in full. Deferred tax assets are recognised to the extent that it is probable that theunderlying deductible temporary differences will be able to be offset against future taxable income. Deferred tax assets andliabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation,
provided they are enacted or substantively enacted at the reporting date. Deferred tax is recognised as a component of tax
expense in the income statement, except where it relates to items charged or credited directly to other comprehensive income
or equity when it is recognised in other comprehensive income or equity.

Business combinations
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisitionof a subsidiary is 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 provisional fair values at the acquisition date. Fair values are reassessed during the measurement
period and updated if required. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisitionbasis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s
identifiable net assets.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in
the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequentchanges to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordancewith IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as
equity is not remeasured and its subsequent settlement is accounted for within equity.

Goodwill
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controllinginterest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net
assets of the subsidiary acquired, the difference is recognised in profit or loss.
Goodwill arising on an acquisition of a business is the difference between the fair value of the consideration paid and the net fairvalue of the assets and liabilities acquired. Goodwill is carried at cost less accumulated impairment losses.

Ubisense Group plc Annual Report 201751

Financial statements

a. Current tax
The current tax charge represents an estimate of the amounts payable or receivable to or from tax authorities in respect of theGroup’s taxable profits and is based on an interpretation of existing tax laws. Taxable profit differs from profit before tax as reported
in the income statement because it excludes certain items of income and expense that are taxable or deductible in other years or
are never taxable or deductible. Taxation received is recognised only when it is probable that the Group is entitled to the asset.

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3 Summary of significant accounting policies continued
Research and development
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
Development activities involve a plan or design for the production of new or substantially improved products and processes.
Development expenditure is only capitalised if all of the following conditions are met:
• completion of the intangible asset is technically feasible so that it will be available for use or sale;• the Group intends to complete the intangible asset and use or sell it;• the Group has the ability to use or sell the intangible asset;• the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market
for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be usedin generating such benefits;• there are adequate technical, financial and other resources to complete the development and to use or sell the intangible
asset; and• the expenditure attributable to the intangible asset during its development can be measured reliably.
Internally-generated intangible assets, consisting mainly of direct labour costs, are amortised on a straight-line basis over theiruseful economic lives. Amortisation is shown within administrative expenses in the income statement. The estimated useful livesof current development projects are three years. Upon completion the assets are subject to impairment testing.
Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the
period in which it is incurred.

Other intangible assets
Intangible assets that are purchased separately, such as software licences that do not form an integral part of related hardware,
are capitalised at cost and amortised on a straight-line basis over their useful economic life which is typically 3 years.

Acquired intangible assets
Intangible assets acquired through a business combination are initially measured at fair value and amortised on a straight line
basis over their useful economic lives. Amortisation is shown within operating expenses in the income statement. All acquired
intangibles were fully amortised or impaired as at 31 December 2016 and 2017.

Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged to the income statement so as to write off the cost or valuation less estimated residual values over their
expected useful lives on a straight-line basis over the following periods:• Fixtures and fittings: three to ten years, or period of the lease if shorter• Computer equipment: three years
Residual values and useful economic lives are assessed annually. The gain or loss on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and the carrying amount of the asset and is recognised in operating expenses.

Impairment of non-financial assets
Assets that have an indefinite useful life – for example, goodwill or intangible assets not ready to use – are not subject toamortisation and are tested at least annually for impairment and whenever there is an indication that the asset may be impaired.
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Impairment losses are recognised immediately in profit or loss.
Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at eachreporting date. Where an impairment loss is reversed, it is reversed to the extent that the increased carrying amount does notexceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversalof an impairment loss is recognised immediately in profit or loss.

Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is the actual cost of third-party components and labour,and is applied on a first in, first out basis. Net realisable value is based on estimated selling price less additional cost to completionand disposal. Provision is made for obsolete, slow moving or defective items where appropriate and are recognised as an expensein the period in which the write-down or loss occurs.

52

Ubisense Group plc Annual Report 2017

3 Summary of significant accounting policies continued
Trade receivables
Trade receivables are amounts due from customers for products sold or services performed in the ordinary course of business.
If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment.

Cash and cash equivalents
In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks
and other short-term highly liquid investments with original maturities of three months or less.

Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business fromsuppliers. Accounts 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 payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised
cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement
over the period of the borrowings using the effective interest method.
All borrowing costs are recognised in the income statement in the period they are incurred.

Share capital and share premium
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shownin equity as a deduction, net of tax, from the proceeds. The nominal value of shares issued is classified as share capital and theamounts paid over the nominal value in respect of share issues, net of related costs, is classified as share premium.

Share-based payment reserve
The share-based payment reserve relates to a cumulative charge made in respect of share options granted by the Company to
the Group’s employees under its employee share option plans.

Translation reserve
Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations from their functional
currencies to the Group’s presentation currency of GBP, are recognised directly in other comprehensive income and accumulated
in the translation reserve.

Retained earnings
Retained Earnings include all current and prior period retained profits/losses.

Non-controlling interests
Non-controlling interests, presented as part of equity, represent a proportion of a subsidiary’s profit or loss and net assets that is
not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the assets of the parent
and the non-controlling interests based on their respective ownership interests.

4 Critical accounting judgements and key sources of estimation and uncertainty
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to thecarrying amounts of assets and liabilities within the next financial year are addressed below.

Capitalisation, amortisation and impairment of development costs
The point at which development costs meet the criteria for capitalisation is critically dependent on management’s judgement of
the point at which technical and commercial feasibility is demonstrable. The carrying amount of capitalised development costs at
31 December 2017 is £2.7 million (2016: £3.3 million).
Capitalised development costs are amortised over a three years period which is management’s estimate of the useful lives ofcurrent development projects. In reaching this conclusion, management have made assumptions in respect of future customer
requirements and developments within the industry.
The Group tests capitalised development costs for impairment annually in accordance with the accounting policy stated in note 3.
In performing the impairment review, management is required to make assumptions of the future cash flows generated from the
SmartSpace and myWorld products. This includes consideration of both the current business pipeline and estimations beyond theexisting pipeline.

Ubisense Group plc Annual Report 2017

53

Financial statements

Borrowings

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4 Critical accounting judgements and key sources of estimation and uncertainty continued
Revenue recognition
Significant management judgement is applied in determining the allocation and timing of the recognition of revenue on fixedprice, long-term customer specific contracts. In this process management takes into account milestones, hardware supplied,
actual work performed, and further obligations and costs expected to complete the work. The carrying value of amounts
recoverable on contracts at 31 December 2017 is £2.7 million (2016: £2.9 million).

Inventories
The provision for obsolete, slow-moving or defective inventory is based on management’s estimation of the commercial life of
inventory lines and is applied on a prudent basis. In assessing this, management takes into consideration the sales history of
products and the length of time that they have been available for resale.

Deferred tax
A deferred tax asset is recognised where the Group considers it probable that future tax profits will be available against which thetax credit will be utilised in the future. This specifically applies to tax losses and to outstanding vested share options at the statementof financial position date. In estimating the amount of the deferred tax asset that should be recognised, the Directors make judgements
based on current budgets and forecasts about the amount of future taxable profits and the timings of when these will be realised.
No deferred tax asset is currently recognised.

5 Segment information
5.1 Operating segments
Management has determined the operating segments to be the Group’s divisions based on the information reported to theChief Operating Decision Maker (CODM) for the purpose of assessing performance and allocating resources. The CODM is
the Chief Executive Officer.
The Real-Time Location Systems (RTLS) division takes real-time location data from Ubisense’s own sensing hardware, or fromstandards based integration with third party hardware, and transforms this data into high value spatial event information,delivering highly reliable, automatic, adaptive asset identification, precise real-time location and spatial-monitoring to offer
meaningful insights that help businesses make smarter decisions.
The Geospatial division delivers software solutions that integrate data from any source – geographic, real-time asset, GPS, location,
corporate and external cloud-based sources – into a live geospatial common operating picture, empowering all users in thecustomer’s organisation to access, input and analyse operational intelligence to proactively manage their networks, respondquickly to emergency events and effectively manage day-to-day operations.
Each operating segment is managed separately by a business unit leader as each deals with different technologies and predominately
a different customer base. The performance of the operating segments is assessed on a measure of contribution, being gross profit
less sales and business unit marketing expenditure. Assets and liabilities are not presented to the CODM on a divisional basis.
Costs incurred centrally or not directly attributable to either the RTLS or Geospatial divisions are reported in the Central division.
The results of each segment are prepared using accounting policies consistent with those of the Group as a whole.
No intra‑segmental transactions are reported.
Year ended 31 December 2017

Revenues
Cost of revenues
Gross profit
Sales and marketing costs
Contribution
Other operating costs
Adjusted EBITDA
Depreciation
Amortisation and impairment of intangibles
Share option expense
Unrealised foreign exchange gains/(losses)
on intercompany trading balances
Non-recurring items
Operating loss
Net finance costs
Loss before tax
Income tax
Loss after tax
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Ubisense Group plc Annual Report 2017

RTLS
£’000

Geospatial£’000

Central
£’000

Total
£’000

10,796(6,310)4,486(3,062)
1,424

16,459(10,088)
6,371(2,004)
4,367

—
—
—
—
—
(5,426)(5,426)(417)(2,435)(316)

27,255(16,398)
10,857(5,066)
5,791(5,426)365(417)(2,435)
(316)

(252)
—
(8,846)(79)(8,925)61(8,864)(252)—(3,055)(79)(3,134)61(3,073)

1,424

4,367

5 Segment information continued
5.1 Operating segments continued
Year ended 31 December 2016

Geospatial£’000

Central
£’000

Total
£’000

9,113
(5,097)
4,016(2,931)
1,085

17,410(11,183)
6,227(1,792)
4,435

—
—
—
(91)
(91)
(5,105)(5,196)(345)(8,366)
2,222(11,685)(279)(11,964)
1,136(10,828)

26,523

1,085

4,435

(16,280)
10,243(4,814)

5,429(5,105)324(345)(8,366)

2,222(6,165)(279)(6,444)
1,136(5,308)5.2 Geographical areas
The Board and Management Team also review the revenues on a geographical basis, based around the regions where theGroup has its significant subsidiaries or markets.
The Group’s revenue from external customers in the Group’s domicile, the UK, and its major worldwide markets have been
identified on the basis of the customers’ geographical location. Non-current assets are allocated based on their physical location.
Revenue

UK
FranceGermany
Europe otherUSA
CanadaJapan
Asia Pacific otherRest of World

Non-current assets

2017
£’000

2016
£’000

2017
£’000

2016
£’000

383
303
8,218
554
10,954
2,845
3,545
187
266
27,255

365
313
6,456
936
12,325
1,664
4,328
91
45
26,523

3,132
5
29
—
180
3
106
—
—
3,455

3,940
3
106
—
183
—
129
—
—
4,361

5.3 Information about major customers
During 2017, the Group had two customers who generated revenues of greater than 10% of total revenue. £2.8 million was
generated from a European customer and £3.2 million was generated from a US customer.
During 2016, the Group had two customers who generated revenues of greater than 10% of total revenue. £3.7 million was
generated from a European customer and £3.4 million was generated from a US customer.

Ubisense Group plc Annual Report 201755

Financial statements

Revenues
Cost of revenues
Gross profit
Sales and marketing costs
Contribution
Other operating costs
Adjusted EBITDA
Depreciation
Amortisation and impairment of intangibles
Non-recurring items
Operating loss
Net finance costs
Loss before tax
Income tax
Loss after tax

RTLS
£’000

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6 Employee information
6.1 Employee numbers
The average monthly number of people, including Executive Directors, employed by the Group during the year was:
Actual number of people as at 31 December
By activity

Technical consultants
Sales & marketing
Research & development
Administration

By geography

United Kingdom
EuropeAmericas
Asia

Average monthly number of people

2017
Number

2016
Number

2017
Number

2016
Number

55
41
20
22
138

59
38
22
23
142

58
38
20
23
139

64
42
25
23
154

2017
Number

2016
Number

2017
Number

2016
Number

41
20
48
29
138

43
19
53
27
142

41
21
49
28
139

46
26
57
25
154

2017
£’000

2016
£’000

11,591
1,126
584
316
13,617

12,392
1,162
521
(20)
14,055

6.2 Employee benefits
The aggregate employee benefit expense, including Executive Directors, comprised:
Notes

Wages and salaries
Social security costs
Contributions to defined contribution pension arrangements
Share-based payments
Total aggregate employee benefits

20

Included in the wages and salaries figure above are termination benefits of £ nil (2016: £0.1 million) which are presented as
non-recurring costs in the income statement – see note 8.2.

7 Finance income and costs
Interest income from cash and cash equivalents
Finance income
Interest payable – bank
Interest payable – other
Finance costs
Net finance costs

56

Ubisense Group plc Annual Report 2017

2017
£’000

2016
£’000

8
8
(86)
(1)
(87)
(79)

44
44
(302)
(21)
(323)
(279)

8 Loss before tax: analysis of expenses by nature
8.1 Expenses by nature
The following items have been charged/ (credited) to the income statement in arriving at loss before tax:
Notes

8.2 Non-recurring items
Reorganisation costs
Adjustment to contingent consideration
OthersTotal non-recurring items

11
11
12

8.2
8.3

2016
£’000

—
2,435
417
2
648
94
2,408
457
(102)

1,223
7,143
345
24
625
89
1,532
466
(350)

252
—
157

(1,877)
(345)
212

2017
£’000

2016
£’000

—
—
—
—

139
(355)
(129)
(345)

During the year ended 31 December 2016, non-recurring items included £0.1 million reorganisation costs and a £0.4 million gain in
respect of adjustments to contingent consideration.

8.3 Auditors’ remuneration
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor andits associates:
Fees payable to the Group’s auditor for the audit of:
Parent Company and consolidated financial statements
Financial statements of subsidiaries, pursuant to legislation
Interim reporting fees
Total audit fees
Fees payable to the Group’s auditor for other services:
Tax services
Other services
Total non-audit fees
Total auditors’ remuneration

2017
£’000

2016
£’000

39
72
14
125

28
89
15
132

30
2
32
157

25
55
80
212

The auditor of Ubisense Group plc is Grant Thornton UK LLP.

Ubisense Group plc Annual Report 201757

Financial statements

Amortisation and impairment of acquired intangible assets
Amortisation and impairment of other intangible assets
Depreciation of owned property, plant and equipment
Loss on disposal of property, plant and equipment
Operating lease rental charges – land and buildings
Operating lease rental charges – other
Inventory recognised as an expense
Research & development costs expensed
Net foreign currency (gains)/losses
Unrealised foreign exchange (gains)/losses on intercompany
trading balances
Non-recurring items (excluding impairment of goodwill)
Auditors’ remuneration

2017
£’000

N O T E S T O T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S c o n t i n u e d

9 Income tax
9.1 Income tax recognised in the income statement
Current tax
UK corporation tax
Foreign tax
Research & development tax credits – prior years
Total current tax credit
Deferred tax
Origination and reversal of temporary differences
Total deferred tax credit
Total income tax credit

2017
£’000

2016
£’000

—
106
—
106

—

(2)
(579)
(581)

(167)
(167)
(61)

(555)
(555)
(1,136)

The tax credit differs from the standard rate of corporation tax in the UK for the year of 19.3% (2016: 20.0%) for the following reasons:
Loss before tax
Loss before tax multiplied by the standard rate of corporation tax in the UK of 19.3%(2016: 20.0%)
Tax effects of:
Expenses not deductible for tax purposes
Utilisation of previously unrecognised tax losses
Unrecognised deferred tax movements
Tax unprovided in prior years
Research & development tax credits – prior years
Difference on tax treatment of share options – unrecognised
Differential on overseas tax rates
Total income tax credit

2017
£’000

2016
£’000

(3,134)(6,444)(603)(1,289)

129
(82)
429
106
—
60
(100)
(61)

780
(270)
450
—
(579)
(4)
(224)
(1,136)

9.2 Factors that may affect future tax charges
The Group has tax losses of £24.5 million (2016: £17.6 million) that are available for offset against future taxable profits of thosesubsidiary companies in which the tax losses arose. Deferred tax assets have not been recognised in respect of these losses as
they may not be used to offset taxable profits elsewhere in the Group, and they have arisen in subsidiaries whose future taxable
profits are uncertain. No deferred tax has been recognised on the unremitted earnings of overseas subsidiaries, because theearnings are continually reinvested by the Group and no tax is expected to be payable on them in the foreseeable future.
On 26 October 2015, the UK Government substantially enacted reductions to the UK corporation tax rates. Effective from 1 April
2020, the rate will further reduce to 18%. The deferred tax balances have been measured at 19%, the rate of realisation expected.

9.3 Deferred tax
The movement in deferred tax in the Consolidated statement of financial position during the year is as follows:
Deferred income tax assets

At 1 January
Deferred tax credited to the income
statement
Deferred tax charged to the income
statement
Foreign exchange movements
At 31 December

58

Ubisense Group plc Annual Report 2017

Deferred income tax liabilities

2017
£’000

2016
£’000

2017
£’000

2016
£’000

—

—

(683)

(1,157)

—

—

403

958

—
—
—

—
—
—

(236)
—
(516)

(403)
(81)
(683)

9 Income tax continued
9.3 Deferred tax continued
The components of deferred tax included in the Consolidated statement of financial position are as follows:
Development costs capitalised
Other
Total deferred income tax liabilities

2017
£’000

2016
£’000

(516)
—
(516)

(669)
(14)
(683)

Deferred tax assets have not been recognised in respect of the following items because it is not probable that future taxable
profits will be available against which the Group can utilise the benefits:
Tax losses carried forward
Equity-settled share options temporary differences
Total unrecognised deferred tax assets

Earnings
Earnings for the purposes of basic and diluted EPS being net loss attributable toequity holders of the parent company (£’000)
Number of shares
Weighted average number of ordinary shares for the purposes of basic EPS (‘000)
Effect of dilutive potential ordinary shares:– Share options (‘000)
Weighted average number of ordinary shares for the purposes of diluted EPS (‘000)
Basic EPS (pence)
Diluted EPS (pence)

2016
£’000

5,637
19
5,656

4,823
18
4,841

2017

2016

(3,055)(5,196)58,47949,756215
58,694
(5.2)
(5.2)

211
49,967(10.4)(10.4)

Basic earnings per share is calculated by dividing profit/(loss) for the period attributable to ordinary shareholders of the Company
by the weighted average number of ordinary shares outstanding during the period. For diluted earnings per share, the weighted
average number of shares is adjusted to allow for the effects of all dilutive share options and warrants outstanding at the end of
the year. Options have no dilutive effect in loss-making years, and hence the diluted loss per share for the year is the same as thebasic loss per share.
The Group also presents an adjusted diluted earnings per share figure which excludes amortisation and impairment of acquired
intangible assets and goodwill, share-based payments charge, unrealised foreign exchange gains/(losses) on intercompany
trading balances and non-recurring items from the measurement of profit for the period.
Notes

Earnings for the purposes of diluted EPS being net loss
attributable to equity holders of the parent company (£’000)
Adjustments:
Amortisation and impairment of acquired intangible assets (£’000)
Impairment of goodwill (£’000)
Reversal of share-based payments charge (£’000)
Unrealised foreign exchange gains/(losses) on intercompany
trading balances
Reversal of non-recurring items (£’000)
Net adjustments (£’000)
Adjusted earnings (£’000)
Adjusted diluted EPS (pence)

8, 11
8, 11
20

8

2017

2016

(3,055)(5,196)

—
—
316

1,223
4,271
(20)

252
—
568
(2,487)(4.3)(1,877)(345)
3,252(1,944)(3.9)

The adjusted EPS information is considered to provide a fairer representation of the Group’s trading performance. Options haveno dilutive effect in loss-making years, and hence the diluted loss per share for the year is the same as the basic loss per share.

Ubisense Group plc Annual Report 2017

59

Financial statements

10 Earnings per share (EPS)

2017
£’000

N O T E S T O T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S c o n t i n u e d

11 Intangible assets

Cost
At 1 January 2016
Exchange difference
Additions
Disposals
At 31 December 2016
Exchange difference
Additions
At 31 December 2017
Accumulated amortisation
At 1 January 2016
Effects of movement in exchange rates
Charge for the year
Elimination on disposal
Impairment for the year
At 31 December 2016
Effects of movement in exchange rates
Charge for the year
At 31 December 2017
Net book amountAt 31 December 2017
At 31 December 2016

Acquiredcustomer
relationships
Goodwilland order£’000 backlog £’000

Acquired
softwareproducts£’000

Capitalised
product
development
costs
£’000

Software
£’000

Total
£’000

8,314
491
—
—
8,805
—
—
8,805

1,900
340
—
—
2,240
—
—
2,240

563
87
—
—
650
—
—
650

12,405—
1,948—
14,353—
1,583
15,936

1,300
150
111
(315)
1,246
(69)
230
1,407

24,482
1,068
2,059
(315)
27,294(69)
1,813
29,038(4,043)(491)——(4,271)(8,805)——(8,805)(1,018)
(134)
(119)
—
(969)
(2,240)——(2,240)

(449)
(66)
(135)
—
—
(650)
—
—
(650)

(8,425)—(2,585)——(11,010)—(2,210)(13,220)

(761)
(240)
(287)
315
—
(973)
37
(225)
(1,161)(14,696)(931)(3,126)315(5,240)(23,678)37(2,435)(26,076)

—
—

—
—

—
—

2,716
3,343

246
273

2,962
3,616

Capitalised product development costs relate to expenditure that can be applied to a plan or design for the production of newor substantial improvements to SmartSpace and myWorld products. The Group is loss making and this is an indicator for potential
impairment of development costs. Management have completed impairment reviews through estimating the future discounted
cash flows to be generated from these assets and concluded that no impairment is required as the cash flows exceeded thecarrying value of the asset.
The remaining average amortisation period for capitalised product development costs is 2 years.
The software assets represent assets purchased from third parties.

60

Ubisense Group plc Annual Report 2017

12 Property, plant and equipment

Fixtures and fittings £’000

Computer equipment £’000

Total £’000

786
88
7
(47)
834
(9)
30
(122)
733

1,117
211
19
(131)
1,216
(19)
110
(15)
1,292

1,903
299
26
(178)
2,050
(28)
140
(137)
2,025

(149)
10
(197)
41
(295)
3
(221)
122
(391)

(811)
(164)
(148)
113
(1,010)52(196)
13(1,141)

(960)
(154)
(345)
154
(1,305)
55
(417)
135
(1,532)

342
539

151
206

493
745

2017
£’000

2016
£’000

414
1,045
1,459

412
652
1,064

13 Inventories
Raw materials
Finished goods
Total inventories

The Group’s inventories are comprised of products which are not generally subject to rapid obsolescence on account ofdeterioration in condition, market trends or technological reasons. The balance as at 31 December 2017 includes a £0.6 million
impairment provision (2016: £0.4 million).

14 Trade and other receivables
Notes

Trade receivables, grossAllowances for doubtful debts
Trade receivables, net
Amounts recoverable on contracts
Other receivables
Prepayments
Corporation tax recoverable
VAT and taxation receivable
Total trade and other receivables

14.1
14.2

2017
£’000

2016
£’000

7,663
(1,460)
6,203
2,666
275
933
4
463
10,544

11,304(2,151)
9,153
2,912
220
933
3
—
13,221

All amounts disclosed are short term. The carrying value of trade receivables is considered a reasonable approximation of fair value.
The following disclosures are in respect of trade receivables that are either impaired or past due. The individually impaired receivables
mainly relate to customers who are in unexpectedly difficult economic situations, and are assessed on a customer-by-customer
basis following detailed review of the particular circumstances. To the extent they have not been specifically provided against,
the trade receivables are considered to be of sound credit rating.

Ubisense Group plc Annual Report 2017

61

Financial statements

Cost
At 1 January 2016
Effect of movements in exchange rates
Additions
Disposals
At 31 December 2016
Effect of movements in exchange rates
Additions
Disposals
At 31 December 2017
Accumulated depreciation
At 1 January 2016
Effect of movements in exchange rates
Charge for the year
Elimination on disposals
At 31 December 2016
Effect of movements in exchange rates
Charge for the year
Elimination on disposals
At 31 December 2017
Net book amountAt 31 December 2017
At 31 December 2016

N O T E S T O T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S c o n t i n u e d

14 Trade and other receivables continued
14.1 Movement in allowance for doubtful debts
At 1 January
Exchange differences
Amounts recovered in the year
Amounts written off in the year
Allowance released
Allowance madeAt 31 December

2017
£’000

2016
£’000

(2,151)
50
519
217
30
(125)
(1,460)(1,691)
(158)
6
—
—
(308)
(2,151)As at 31 December 2017, the allowance for doubtful debts includes £1,326,000 (2016: £2,065,000) in respect of amounts owed by
two entities in the Asia Pacific region. Provision was made in 2015 against these balances as their recoverability is uncertain.

14.2 Ageing of past due but not impaired receivables
Neither past due nor impaired
Past due but not impaired:
0 to 90 days overdue
More than 90 days overdue
Total

15 Cash and cash equivalents
Cash at bank and in hand
Cash and cash equivalents

2017
£’000

2016
£’000

4,784

7,179

1,084
335
6,203

1,227
747
9,153

2017
£’000

2016
£’000

9,114
9,114

3,498
3,498

The carrying amount approximates to fair value because of the short-term maturity of these instruments, being no greater than
three months.
Cash at bank earns interest at floating rates based on daily bank overnight deposit rates. Short-term cash deposits earn interest
at fixed rates for the term of the deposit.
The composition of cash and cash equivalents by currency is as follows:
By currency

British Pound (GBP)
Euro (EUR)
US Dollar (USD)
Japanese Yen (JPY)
Canadian Dollar (CAD)
Cash and cash equivalents

62

Ubisense Group plc Annual Report 2017

2017
£’000

2016
£’000

4,474
1,829
1,693
480
638
9,114

320
675
1,947
335
221
3,498

16 Trade and other payables
Deferred income
Trade payables
Trade accruals
Current tax liability
Other taxation and social security
Contingent consideration
Other payables
Total trade and other payables

2017
£’000

2016
£’000

2,386
3,040
2,840
101
768
—
76
9,211

2,279
1,549
2,919
—
1,223
197
72
8,239

All amounts disclosed are short term. The carrying value of trade payables is considered a reasonable approximation of fair value.
Ubisense Group plc acquired the Ubisense Inc (formerly named Geoplan Interworks K.K.) group of companies (“Geoplan”)
in December 2013. The purchase consideration contained a contingent cash element, which was settled in full during 2017.

In October 2016, an £8.0 million HSBC working capital facility was restructured, becoming a £4.0 million repayment loan
with £0.75 million repayable each year. £0.75 million of this facility was repaid in each of December 2016 and December 2017.
This loan is secured on the fixed and floating assets of the Group, attracts an interest charge of LIBOR + 3% and is subject
to an operating covenant linked to “operating cash flow” performance (profit or loss before tax adding back any non-recurring items,
finance costs, foreign exchange costs, share based payments, depreciation, amortisation or capitalisation of product development).
Following the placing in November 2017, the terms of the operating covenant were amended as follows: 2017 - from nil to £2 million
negative; 2018 - from £1 million positive to £2 million negative; 2019 – from £1 million positive to £1 million negative, 2020 and beyond– remained at £1 million positive.
The covenants require future repayments of £750,000 before 31 January 2018 and then £187,500 each quarter startingon 31 March 2019.

18 Other payables
Property provisions
Total other payables

2017
£’000

2016
£’000

179
179

179
179

The property provision is a dilapidation provision to restore leased offices to their original state. Part of this provision is expected
to be used in 2018 with the remainder expected to be utilised in 2027.

19 Share capital and premium

Balance at 1 January 2016
Issued under share-based payment plans
Issued on placing to institutional shareholders
Change in year
Balance at 31 December 2016
Issued under share-based payment plans
Issued on placing to institutional shareholders
Change in year
Balance at 31 December 2017

Number ofordinary sharesof £0.02 each

Share capital £’000

Share premium £’000

Total
£’000

36,620,247
32,907
19,230,000
19,262,907
55,883,154
17,25017,187,500
17,204,750
73,087,904

732
1
385
386
1,118
—
344
344
1,462

37,422
4
4,128
4,132
41,554
2
4,819
4,821
46,375

38,154
5
4,513
4,518
42,672
2
5,163
5,165
47,837The Company has one class of ordinary shares which carry no right to fixed income.
During the period, the Company issued 17,204,750 shares, increasing the total number of shares in issue from 55,883,154
to 73,087,904 as follows:• 17,187,500 shares at £0.32 per share for a total gross consideration of £5,500,000 with share issue costs of £337,000
written off against share premium; and• 17,250 shares as a result of options exercised with a weighted average exercise price of £0.14 per share for total cash
consideration of £2,415.

Ubisense Group plc Annual Report 2017

63

Financial statements

17 Bank loans

N O T E S T O T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S c o n t i n u e d

20 Share-based payments: options
20.1 Equity-settled share-based payment arrangements
The Group operates a number of plans to award options over shares in the Company to incentivise high performing key
employees of the Group periodically.
Other than the December 2016 share option plan set out in note 20.4, the options generally vest evenly over three years on theanniversary from the date of the grant or entirely on the third anniversary from the date of grant, depending on continuing service
during the vesting period. The contractual life of the options is ten years from the date of grant after which they expire if unexercised.

20.2 Analysis of amounts recognised in the financial statements(a) Analysis of amounts recognised in the consolidated income statement
Total share-based payments charge recognised in operating profit

2017
£’000

2016
£’000

316

(20)

2017
£’000

2016
£’000

316

(52)

2017
£’000

2016
£’000

1,139

823

(b) Analysis of amounts recognised in the consolidated statement of changes in equity in the year

Net share-based payments credit recognised in equity(c) Cumulative amounts included within equity in the consolidated statement of financial position

Cumulative reserve credit for share-based payments

20.3 Reconciliation of movements in equity-settled share-based payment arrangements in the year

Arrangement

Options

Award
date
Year

Vests
Years

ExpiresYear

Exercise
price
£

2010
2011
2012
2013
2014
2016

2011 – 13
2012 – 14
2013 – 15
2014 – 16
2015 – 172017 – 19

2020
2021
2022
2023
2024
2026

0.140
1.050
2.125
2.055
2.250
0.020

Total
Weighted average exercise price (£)

Awardsoutstanding at
1 Jan 2017
NumberGrantedduringthe year
NumberExercisedduring theyear
NumberForfeited
during theyear
NumberAwardsoutstanding at
31 Dec 2017
NumberAwardsexercisable at
31 Dec 2017
Number349,728
114,200
91,000108,800
70,0005,600,000
6,333,728
0.135

—
—
—
—
—
—
—
—

(17,250)—————(17,250)0.140(9,806)(5,500)(15,500)(15,200)(5,000)—(51,006)
1.619

322,672
108,700
75,50093,60065,0005,600,000
6,265,472
0.123

322,672
108,700
75,50093,60065,000—665,472
0.989

20.4 Principal assumptions
On 14 December 2016 Ubisense Group plc implemented a new long-term incentive share option plan for Executive Directors
and key management. Ubisense Group plc granted 5,600,000 options of two pence each in the Company with an exercise priceset at the nominal value. The options vest if the Company’s share price exceeds 70p for 60 consecutive calendar days between
the 2nd and 3rd anniversary of issue and the period of employment continues for over three years. No charge had beenrecognised in the 2016 financial statements in respect of these share options granted and the Directors had assessed the impact
on the 2016 financial statements to be immaterial.
The share options were valued using a Monte Carlo valuation model during 2017. The expected life is the expected period from
grant to exercise based on management’s best estimate of the effects of non-transferability, exercise restrictions and behaviouralconsiderations. The risk-free return is an average yield on the zero-coupon UK Government Bond in issue at the date of grantwith a similar life to the option. Volatility is estimated at the grant date based on the historical daily share price movements of thecompany over a four-year period.

64

Ubisense Group plc Annual Report 2017

20 Share-based payments: options continued
20.4 Principal assumptions continued
The following assumptions were used in the model for options granted:
Instrument

OptionNumber granted
Grant date
Share price at grant date (£)
Exercise price (£)
Fair value per option (£)
Expected life (years)
Expected volatility (%)
Risk-free interest rate (%)
Expected dividends expressed as a dividend yield (%)

5,600,000
14 Dec 2016
0.41
0.02
0.17
4
45.00
0.45
—

21 Operating lease commitments
Leases as lessee
On 22 December 2017, Ubisense entered into a new ten year lease arrangement in respect of it’s UK head office reducing thespace from 13,981 to 7,552 sq ft.
At 31 December 2017, the Group has lease agreements in respect of property and equipment for which payments extend over anumber of years. The Group enters into these arrangements as these are a cost-efficient way of obtaining the short-term benefitsof these assets. The Group lease rental charge is disclosed in note 8.1. There are no other material off-balance sheet arrangements.
The Group’s future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Land and buildings
Lease ending

No later than one year
Later than one year and no later than fiveyears
Later than five years
Total

Other

2017
£’000

2016
£’000

2017
£’000

2016
£’000

681

664

94

53

1,513
982
3,176

2,267
527
3,458

10
—
104

40
—
93

The above table reflects the committed cash payments under operating leases, rather than the expected charge to the income
statement in the relevant periods. The effect on the income statement will differ to the above figures due to the amortisationof rent-free and discounted rent periods included in property leases signed in 2017. The expected charge in 2018 for operatingleases is expected to be £44,000 higher than the committed cash payments shown above. From existing subleasing agreements
under non-cancellable operating leases which end in less than one year, the Group received income of £45,000.
The Group has guaranteed rent bonds issued by its banks on its behalf totalling £128,000 as at 31 December 2017 (2016: £122,000).
These are not expected to result in any material financial loss.

Ubisense Group plc Annual Report 2017

65

Financial statements

In the 2017 financial statements a charge of £316,000 has been recognised in respect of share options granted on 14 December
2016 to Executive Directors and key management.

N O T E S T O T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S c o n t i n u e d

22 Subsidiaries
The group consists of the parent company, Ubisense Group plc, incorporated in the UK, and a number of subsidiary companies which
operate and are incorporated around the world. Information about the composition at the end of the reporting period is as follows:

Principal activity

Proportion ofordinary shares
held by group (%)

Proportion ofordinaryshares held by
non-controllinginterests (%)

UK

Location solutions

100—

Ubisense GmbHGermany

Location solutions

100—

Ubisense SAS

FranceLocation solutions

100—

Ubisense Inc.

US

Location solutions

100—

CanadaLocation solutions

100

—

UK

Non —trading

100—

Ubisense Inc.

Japan

100

—

Geoplan Company Limited*

Japan

Intermediateholding company
Location solutions

77

23

Binary Star Developments K.K.*

Japan

Non —trading

100—

Country ofincorporation

Ubisense Limited

Subsidiary

Ubisense Solutions Inc.
Geospatial Systems Limited

RegisteredofficeSt Andrew’s House, St Andrew’s Road,
Chesterton, Cambridge, CB4 1DL, UK
Franz-Rennefeld-Weg 6, 40472
Düsseldorf, Germany
52 Boulevard de Sébastopol, 75003
Paris, France
999 18th Street, Suite 901, Denver,
CO 80202, United States
250 Howe Street, Suite 1400,
Vancouver, BC V6C3S7St Andrew’s House, St Andrew’s Road,
Chesterton, Cambridge, CB4 1DL, UK
2nd Floor, Hongo TK Bldg. 1-28-10 Hongo
Bunkyo-ku, Tokyo 113-0033, Japan
2nd Floor, Hongo TK Bldg. 1-28-10 Hongo
Bunkyo-ku, Tokyo 113-0033, Japan
2nd Floor, Hongo TK Bldg. 1-28-10 Hongo
Bunkyo-ku, Tokyo 113-0033, JapanAll subsidiaries are directly held by Ubisense Group plc except those denoted* which are held by the intermediate holding company,
Ubisense Inc.
All subsidiaries prepare local statutory accounts up to 31 December each year except for Binary Star Developments K.K. which
prepares accounts to 31 January. For subsidiaries which have a different financial year-end to the Group, additional co-terminus
accounts are prepared reflecting the same financial reporting as the Group for the purposes of consolidation.

23 Related party transactions
23.1 Remuneration of key personnel
The key management have been assessed to be the Directors of the Group (Executive and Non-Executive) during the 2017 and2016 period.
During the year, there was an average number of 7 key management personnel (2016: 6) and 7 personnel at 31 December 2017(2016: 7). The compensation paid or payable to key management for employee services is shown below:

Short-term employee benefits
Wages and salaries
Social security costs
Other benefits
Post-employment benefits
Contributions to defined contribution pension arrangements
Share-based payments
Equity-settled share-based payments
Total key management compensation

2017
£’000

2016
£’000

635
71
4
710

572
48
1
621

56

22

178
944

—
643

Included in the wages and salaries figure above are termination benefits of £nil (2016: £149,000) which are presented as non-recurringcosts in the income statement.

23.2 Transactions with the group related parties
There were no other related party transactions with Directors of the Company during 2017 or 2016 other than acquisition ofshares described within the Director’s Report.

66

Ubisense Group plc Annual Report 2017

24 Financial risk management24.1 Risk management objectives and policies
The Group is exposed to various risks in relation to financial instruments. The Group’s financial assets and liabilities by category
are summarised within note 24.8. The main types of risks are market risk (including foreign currency risk and interest rate risk),credit risk and liquidity risk.
The Group’s risk management is coordinated at its headquarters, in close cooperation with the Board of Directors, and focuseson actively securing the Group’s short to medium-term cash flows. The Group does not actively engage in the trading of financial
assets for speculative purposes. The most significant financial risks to which the Group is exposed are described below.

24.2 Foreign currency risk management
The Group operates globally and undertakes certain transactions denominated in foreign currencies, predominantly in US dollars(USD), Euros (EUR) and Japanese Yen (JPY), exposing the Group to foreign currency risk. The Group’s risk management policy is
to maintain natural hedges where possible, by matching foreign currency revenue and expenditure. The Group does not enter
into forward exchange contracts to mitigate the exposure to foreign currency risk as the Group’s currency transactions are notconsidered significant enough to warrant this.

Japanese Yen

AssetsLiabilities

US Dollars

Euros

2017
£’000

2016
£’000

2017
£’000

2016
£’000

2017
£’000

2016
£’000

—
—

—

142
—

509
(7)

194
(2)

201
—

—

All foreign currency financial assets and liabilities are classified as current.

24.3 Foreign currency sensitivity analysis
The following table illustrates the sensitivity of profit and equity in regards to the Group’s financial assets and financial liabilities
and the USD/GBP, EUR/GBP and JPY/GBP exchange rates “all other things being equal”. It assumes a +/- 5% change in the GBP
exchange rate against the relevant foreign currencies.
The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation
at the period end. A positive number indicates an increase in profit and equity.
Japanese Yen

Effect of a 5% appreciation of the local currency:
Income statement
EquityEffect of a 5% depreciation of the local currency:
Income statement
EquityUS Dollars

Euros

2017
£’000

2016
£’000

2017
£’000

2016
£’000

2017
£’000

2016
£’000

41
41

(25)
(25)

179
179

31
31

164
164

3
3

(37)
(37)

25
25

(162)
(162)

(31)
(31)

(148)
(148)

(3)
(3)

Exposure to foreign currency exchange rates varies during the year, depending on the volume of transactions. Nonetheless,the analysis above is considered to be representative of the Group’s exposure to currency risk.

24.4 Interest rate sensitivity
The Group’s exposure to interest rate risk relates primarily to the Group’s variable rate bank loan facility which is partially offset bycash held at variable rates. Interest is payable at LIBOR plus 3% on the £2.5 million outstanding at 31 December 2017 (2016: £3.25 million).
The following table illustrates the sensitivity of the net profit of the Group for the year and equity to a reasonably possible change
in interest rates of +/-0.5%. These changes are considered to be reasonably possible based on observation of current market
conditions. The calculations are based on a change in the interest rate with effect from the beginning of the year and the financial
instruments held at the reporting date that are sensitive to interest rate changes. All other variables are held constant. A positive
number indicates an increase in profit or equity.

Effect of a 0.5% decrease in interest rate on:
Income statement
EquityEffect of a 0.5% increase in interest rate on:
Income statement
Equity

2017
£’000

2016
£’000

17
17

24
24

(17)
(17)

(24)
(24)

Ubisense Group plc Annual Report 2017

67

Financial statements

Foreign currency denominated monetary assets and liabilities which expose the Group to currency risk are disclosed below.
The amounts shown are those not denominated in the local functional currency, translated into GBP at the closing rate.

N O T E S T O T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S c o n t i n u e d

24 Financial risk management continued
24.5 Credit risk analysis
Credit risk is the risk that a counterparty fails to discharge a contractual obligation resulting in financial loss to the Group.
The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting
date, as summarised in note 24.8, which are principally cash and cash equivalents and trade receivables.
Cash and cash equivalents are held at banks with good independent credit ratings in accordance with the Group Treasury policy.
The Group continuously monitors defaults of customers and other counterparties, identified either individually or by the Group,
and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports
on customers and other counterparties are obtained and used. The Group’s policy is to deal only with creditworthy counterparties.
The Group’s management considers that its financial assets that are not impaired or past due for each of the reporting dates underreview are of good credit quality. All receivables are subject to regular review to ensure that they are recoverable and any issues
identified as early as possible. In order to manage credit risk the Directors set limits for customers based on a combination of
payment history and third-party credit references. Credit limits are reviewed by the credit controller on a regular basis in conjunction
with debt ageing and collection history. In addition many of the Group’s customers, and approximately 80% by balance at any
given time, are large utility companies and other blue-chip companies that would be considered a low credit risk.
The amount of exposure to any single counterparty or a group of counterparties having similar characteristics is subject to a limit,
which is reassessed periodically by management. At 31 December 2017, one customer individually accounted for more than 14%of the gross trade receivables balance (31 December 2016: more than 10%).
None of the Group’s financial assets are secured by collateral or other credit enhancements.
Details of certain trade receivables at 31 December 2017 that have not been settled by the contractual due date but are not considered
to be impaired are included in note 14.2.

24.6 Liquidity risk analysis
Liquidity risk is the risk arising from the Group not being able to meet its obligations as they fall due. The Group seeks to manage
this risk by monitoring scheduled debt servicing payments for long-term financial liabilities, regularly reviewing forecast inflows
and outflows due in day-to-day business and investing cash assets safely and profitably. The data used for analysing thesecash flows is consistent with that used in the contractual maturity analysis below.
Cash flow forecasting is performed at the subsidiary level and aggregated by Group finance. Rolling cash flow forecasts are usedby the Group to monitor liquidity requirements to ensure it has sufficient cash to meet operational needs, as well as maintaining
sufficient headroom so that loan covenants are not breached. The Group policy throughout the year has been to remit surplus
working capital balances at the subsidiary level to Group treasury and place on short-term deposit or interest bearing reserve
accounts and to draw down on borrowing facilities and distribute funds locally when required. As disclosed in note 17, the Group
has total bank loan facilities of £2.5 million, of which £2.5 million was drawn down at 31 December 2017 (2016: £3.25 million facility,£3.25 million drawn down).
The Group considers expected cash flows from financial assets, predominately cash and trade receivables, in assessing andmanaging liquidity risk. The Group’s cash and trade receivable resources at 31 December 2017 (see note 14) exceed the current
cash outflow requirements.
As at 31 December 2017, the Group’s financial liabilities, including interest payments where applicable, have contractual maturities
as summarised below:
Current

As at 31 December 2017
Trade and other payables
Bank loan
Other payables
As at 31 December 2016
Trade and other payables
Bank loan
Other payables

Non-current

Within6 months£’000

Between 6 and12 months£’000

Between1 and 5 years£’000

Later than
5 Years
£’000

9,211
750
—

—
—
—

40
1,750
—

—
—
179

7,763

476
750
—

42
2,500
—

—
—
179

—

Financial assets used for managing liquidity risk
Cash flows from trade and other receivables are contractually due within six months in the majority of cases. Extended credit
terms have been agreed with specific customers. Cash is generally held in accounts with immediate notice. Where surplus
cash deposits are identified these are placed in accounts with access terms of no more than three months.

68

Ubisense Group plc Annual Report 2017

24 Financial risk management continued
24.7 Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising
the return to stakeholders and to maintain an optimal capital structure to reduce the long-term cost of capital. The capital structureof the Group consists of cash and cash equivalents and capital and reserves attributable to the owners of the Company, and theGroup’s borrowing facilities.
In order to maintain or adjust the capital structure, the Group may issue shares, take on debt, sell assets to raise cash, adjust
the amount of dividends payable to shareholders or return capital to shareholders.
The capital structure is continually monitored by the Group. The Group’s strategy is to have a capital structure that allows investment
in long-term profitable growth, takes into account prevailing trading conditions and seeks to improve balance sheet efficiency overtime. The Group is not subject to externally imposed capital requirements.
The Group has bank facilities at 31 December 2017 of £2.5 million (31 December 2016: £3.25 million) all dominated in GBP.

24.8 Categories of financial instruments

2017
£’000

2016
£’000

14
14
14
15

6,203
2,666
275
9,114
18,258

9,153
2,912
223
3,498
15,786

16
16
16
18
17

3,040
2,840
116
179
2,500

1,549
2,919
114
179
3,250

16

—
8,675

197
8,208

Notes

Financial assets
Loans and receivables:– Trade receivables– Amounts recoverable on contracts– Other receivables– Cash and cash equivalents
Total financial assets
Financial liabilities
Amortised cost:– Trade payables– Trade accruals– Other payables– Provisions– Bank loans
Fair value:– Contingent consideration
Total financial liabilities

25 Post balance sheet events
On 6 March, Ubisense Group plc entered into agreements to carve out the third party geospatial services business of its Japanesesubsidiary, Geoplan Company Limited. Under the terms of the agreement customer relationships, the Geoplan brand name, fixed
assets including certain market specific products, stock and 13 employees will be transferred to a new company, with the newcompany being sold for a consideration of JPY 100 million (approximately £0.7 million). The assets being sold have an immaterial
carrying value within the consolidated statement of financial position as at 31 December 2017.
The agreed completion date of the transaction is 30 March 2018.
Alongside this transaction, Ubisense has agreed, subject to contract completion, to acquire the 23% minority interest of Geoplan
Company Limited. The acquisition of this minority interest will give the group 100% ownership of its remaining Japanese operations.
Geoplan Company Limited will be renamed Ubisense Japan K.K.
These transactions are consistent with Ubisense’s strategy of refocusing the Group on growing revenues from its own IP whilst
managing the reduction in third party geospatial services revenues.

Ubisense Group plc Annual Report 2017

69

Financial statements

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement
and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity
instrument, are disclosed in the accounting policies in note 3. The carrying amounts presented in the Consolidated statementof financial position relate to the following categories of financial instrument:

C O M PA N Y B A L A N C E S H E E T

For the year ended 31 December 2017

Fixed assets
Investments in subsidiaries
Current assets
Debtors
Cash at bank and in hand
Creditors – amounts falling due within one year
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called-up share capital
Share premium accountShare-based payment reserve
Profit and loss reserve
Equity shareholders’ funds

Notes

2017
£’000

2016
£’000

3

9,808

9,639

4

11,24810
11,258(557)
10,701
20,50920,50911,874
10
11,884(5,939)5,945
15,584
15,584

1,462
46,375
1,139(28,467)
20,5091,118
41,554823(27,911)
15,58456
7
7
7The notes on pages 72 to 74 are an integral part of the Company financial statements.
As permitted by Section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss accountfor the year. Ubisense Group plc reported a loss for the financial year ended 31 December 2017 of £556,000 (2016: £3,790,000).
The financial statements were approved and authorised for issue by the Board of Directors on 14 March 2018 and signed on its
behalf by:

Richard Petti,							Tim Gingell,

Chief Executive Officer						Chief Financial Officer
Ubisense Group plc
Registered Number: 05589712

70

Ubisense Group plc Annual Report 2017

C O M PA N Y S TAT E M E N T O F C H A N G E S I N E Q U I T Y

For the year ended 31 December 2017

Attributable to equity shareholders
Share premium
£’000

732
—
—
386
—
—
386
1,118
—
—
344
—
—
344
1,462

37,422
—
—
—
4,427
(295)
4,132
41,554
—
—
—
5,158
(337)
4,821
46,375

Share based
payment reserve Retained earnings
£’000
£’000

875
—
(52)
—
—
—
(52)
823
—
316
—
—
—
316
1,139

(24,121)(3,790)————(3,790)(27,911)
(556)
—
—
—
—
(556)
(28,467)

Total
£’000

14,908(3,790)
(52)
386
4,427
(295)
676
15,584
(556)
316
344
5,158
(337)
4,925
20,509The notes on pages 72 to 74 are an integral part of the Company financial statements.

Ubisense Group plc Annual Report 2017

71

Financial statements

Balance at 1 January 2016
Total comprehensive loss for the year
Reserve credit for equity-settled share-based payment
Issue of new share capital
Premium on new share capital
Share issue costs
Transactions with owners
Balance at 31 December 2016
Total comprehensive loss for the year
Reserve credit for equity-settled share-based payment
Issue of new share capital
Premium on new share capital
Share issue costs
Transactions with owners
Balance at 31 December 2017

Share capital£’000

N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S

1 Principal accounting policies
Basis of preparation
The financial statements of Ubisense Group plc have been prepared in compliance with United Kingdom accounting standards,
including Financial Reporting Standard 102 (“FRS 102”) and the Companies Act 2006. A summary of the significant accounting
policies which have been reviewed by the Board of Directors is set out below.
The financial statements are prepared under the historical cost convention.
The Company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted
by FRS 102, as it is a qualifying entity and its financial statements are included in the consolidated financial statements ofUbisense Group plc.
• The requirements of Section 4 Statement of Financial Position 4.12(a)(iv);• The requirements of Section 7 Statement of Cash Flows;• The requirements of Section 3 Financial Statement Presentation paragraph 3;• The requirements of financial instruments paragraphs 11.41(b), 11.41(c), 11.41(e), 11.41(f), 11.42, 11.44, 11.47, 11.48(a)(iii), 11.48(iv), 11.48(b)and 11.48(c); and• The requirements of Section 33 Related Party Disclosures paragraph 33.7.
The company has taken advantage of the exemption under FRS102 paragraph 1.12(b), from preparing a statement of cash flows,on the basis that it is a qualifying entity and the consolidated financial statements of Ubisense Group includes the Company’s
cash flows.

Share-based payments
The Company issues equity-settled share-based payments to certain employees of its subsidiaries. Vesting conditions arecontinuing employment and can include, for senior employees, a diluted EPS performance target or share price target. Equity‑settled
share-based payments are measured at fair value at the date of grant using an appropriate pricing model. The share-based payment
is accounted for as a capital contribution to the subsidiaries. Investments in subsidiaries are increased by the aggregate amountof share-based payment with a corresponding increase in equity for the same amount. Information on share options which havebeen granted to Directors and employees are given in note 20 to the consolidated financial statements.

Investments in subsidiaries
Fixed asset investments are shown at cost less provision for impairment.

Debtors
Short-term debtors are measured at transaction price, less impairment. Loans receivable are measured subsequently at amortised
cost using the effective interest method less any impairment.

Creditors
Short-term trade creditors are measured at transaction price. Other financial liabilities, including bank loans, are measured initiallyat fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest rate.

Deferred taxation
Deferred tax is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, ora right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law.
Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different fromthose in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as
more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.

Critical accounting judgements and key sources of estimation and uncertainty
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to thecarrying amounts of assets and liabilities within the next financial year are addressed below.
The Group is loss making and this is an indicator for potential impairment of the investments in the trading subsidiaries of
Ubisense Group plc. In undertaking impairment reviews, management is required to make assumptions of the future cash flows
generated from its subsidiaries. This includes consideration of both the current business pipeline and estimations beyond theexisting pipeline.

72

Ubisense Group plc Annual Report 2017

2 Profit and loss account
The Company does not have any employees (2016: nil). Directors’ emoluments are disclosed in note 23 of the consolidated
financial statements. The Directors were not remunerated by the Parent Company.
Auditors remuneration attributable to the Company is as follows:
Audit fee – statutory audit
Other services

2017
£’000

2016
£’000

39
2
41

28
2
30

3 Investments in subsidiaries

Investments in
subsidiaries
£’000

9,639
268
(99)
9,808

Capital contribution and impairment
The capital contributions relating to share-based payments arise because the Company has granted share options to theemployees of its various subsidiaries.
Capital contributions made to investments impaired in prior periods were immediately impaired.
The carrying value of investments in subsidiaries relates to investments in Ubisense Limited and Ubisense Inc., which is theparent company of Geoplan Company Limited. The Group is loss making and this is an indicator for potential impairment of its
investments. Management have completed impairment reviews through estimating the future discounted cashflows to begenerated from these assets and concluded that no impairment is required as the cash flows exceeded the value of the investment.
In reaching this conclusion, management have considered the sale of the third party geospatial services business of Geoplan
Company Limited which is disclosed in note 9.
Further information about subsidiaries is provided in note 22 of the consolidated financial statements.

4 Debtors
Amounts owed by subsidiary undertakings

2017
£’000

2016
£’000

11,248
11,248

11,874
11,874

Included within amounts owed by subsidiary undertakings is a balance of £1.1 million (2016: £1.1 million) due after one year. Interestis charged at a rate of 3% on the balance owed.
Amounts owed by subsidiary undertakings are unsecured.

5 Creditors: amounts falling due within one year
Trade accruals
Amounts owed to subsidiary undertakings

6 Share capital
Allotted, called up and fully paid
Ordinary shares of £0.02 each

2017
£’000

2016
£’000

24
533
557

24
5,915
5,939

2017
Number

2016
Number

2017
£’000

2016
£’000

73,087,904

55,883,154

1,462

1,118

A description of the movements in share capital in the year is given in note 19 of the consolidated financial statements.

Ubisense Group plc Annual Report 2017

73

Financial statements

Cost and net book amountAt 1 January 2017
Capital contribution relating to share-based payments
Impairment
At 31 December 2017

N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S c o n t i n u e d

7 Reserves
Share capital and share premium
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown inequity as a deduction, net of tax, from the proceeds. The nominal value of shares issued is classified as share capital and theamounts paid over the nominal value in respect of share issues, net of related costs, is classified as share premium.

Share-based payment reserve
The share-based payment reserve relates to a cumulative charge made in respect of share options granted by the Company to
the Group’s employees under its employee share option plans.

Retained earnings
Retained Earnings include all current and prior period retained profits/losses.

8 Related party transactions
The Company takes advantage of the exemption under FRS102 for transactions with wholly owned group companies. There wereno other related party transactions, other than the issue of shares to certain directors detailed within the Directors report.

9 Post balance sheet events
On 6 March, Ubisense Group plc entered into agreements to carve out the third party geospatial services business of its Japanesesubsidiary, Geoplan Company Limited. Under the terms of the agreement customer relationships, the Geoplan brand name, fixed
assets including certain market specific products, stock and 13 employees will be transferred to a new company, with the newcompany being sold for a consideration of JPY 100 million (approximately £0.7 million). The assets being sold have an immaterial
carrying value within the consolidated statement of financial position as at 31 December 2017.
The agreed completion date of the transaction is 30 March 2018.
Alongside this transaction, Ubisense has agreed, subject to contract completion, to acquire the 23% minority interest of Geoplan
Company Limited. The acquisition of this minority interest will give the group 100% ownership of its remaining Japanese operations.
Geoplan Company Limited will be renamed Ubisense Japan K.K.
These transactions are consistent with Ubisense’s strategy of refocusing the Group on growing revenues from its own IP whilst
managing the reduction in third party geospatial services revenues.

74

Ubisense Group plc Annual Report 2017

ADVISERS

Registered Office
Ubisense Group plc
St. Andrew’s House
St. Andrew’s Road
Chesterton
Cambridge CB4 1DL
Tel: +44 (0)1223 535 170
Fax: +44 (0)1223 535 167
Website: www.ubisense.net

Nominated Advisors and Brokers
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT

Lawyers
Mills & Reeve LLP
Cambridge OfficeBotanic House
98-100 Hills Road
Cambridge CB2 1PH

AuditorGrant Thornton UK LLP
Cambridge Office
101 Cambridge Science Park
Milton Road
Cambridge CB4 0FYRegistrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ

BankerHSBC Bank plc
VitrumSt John’s Innovation Park
Cowley Road
Cambridge CB4 0WS

Ubisense’s commitment to environmental issues is reflected in this annual reportwhich has been printed on Novatech Silk, made from an FSC® certified andECF (Process Chlorine Free) material. Printed in the UK by Proco using theirenvironmental printing technology. Both manufacturing mill and the printerare registered to the Environmental Management System ISO14001 and are
Forest Stewardship Council® (FSC) chain-of-custody certified.

Ubisense Group plc
St. Andrew’s House
St. Andrew’s Road
Chesterton
Cambridge
CB4 1DLubisense.net