2.         Significant accounting policies

Basis of preparation

The financial statements have been prepared in accordance with IFRSs adopted by the European Union (EU) and the Companies Act 2006 that applies to companies reporting under IFRS as adopted by the EU and IFRIC interpretations.

The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.  It also requires management to exercise its judgement in the process of applying the Group's accounting policies.  The areas involving a higher degree of judgement or conformity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3 of the Financial Statements which can be found in the Annual Report.

3.         Segmental information

Segment reporting

             The Group identifies three reportable segments with different economic characteristics. The three reportable segments reflect the level at which the Group's Chief Operating Decision Maker ("CODM") reviews the financial performance of the business and makes decisions about the allocation of resources and other operational matters. The reportable segments are equal to the operating segments.

The three reportable segments "Artilium", "United Telecom" and "Comsys" correspond with the three principal trading activities of the Group.

Artilium provides advanced mobile telecommunications software to network operators and enablers (managed services providers, systems integrators etc). Its core product is its ARTA Mobile Applications Platform which enables network operators to open networks to third party developers and launch new services which feature elements from the telecoms and web environments.

The business of United Telecom consists of rendering telecom services to the Belgium corporate and consumer market as well as the development and sale of advanced "carrier grade" shared services for telecom service providers (including fixed, mobile and VOIP).

Comsys is a specialist in interactive telephony services and provides telecommunication products, solutions and hosted services in the converging arena of IN, 3G, SIP and VOIP networks for mobile and fixed line telephone operators, MVNOs and contact centres.

             In line with the Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of Directors which is considered to be the CODM. The CODM reviews on a regular basis the following financial key data of each segment:

·      Revenue;

·      Recurring adjusted EBITDA = Operating result before depreciation, amortization, impairment of assets and non-recurring expenses;

·      Recurring EBIT = Operating result before interests and taxes less non-recurring expenses;

·      Non-recurring items;

·      Segment profit/loss.

The accounting principles applied to the operating segments are the same as those described in note 2.

3.         Segmental information (continued)

             An analysis of the Group's result is as follows:

Refer to note 4 for a reconciliation of the operating result and net result to the adjusted EBITDA and above for the definition of the adjusted EBITDA.

Refer to 'Principal activities' within the strategic report for a description of revenue by type.

The acquisition of Ello Mobile during the year has been allocated to the United Telecom segment.

The acquisition of Wbase during the year has been allocated to the Artilium segment.

3.         Segmental information (continued)

An analysis of the Group's assets and liabilities is as follows:

All assets and liabilities of the Group are allocated to the operating segments. Segment assets and liabilities are presented before intersegment balances. Intersegment sales and transfers are registered at arm's length as if the sales and transfers were executed with third parties.

Geographical information

The Group revenue and location of non-current assets is derived from and located in mainland Europe.  An analysis by geographical destination is as follows:

Information about major customers

22% of the consolidated revenue is generated by sales to an external customer within the segment "Artilium" (25% for the year ended 30 June 2016). There are no other sales to single external customers exceeding 10% of the consolidated revenue.

4.         Reconciling table net result, operating result-adjusted EBITDA

            Artilium defines adjusted EBITDA as operating result before interests, taxes, depreciation and impairments of property, plant and equipment and client's receivables and amortization and impairments of intangible assets.

5.         Earnings per share

             The weighted average number of ordinary shares is calculated as follows:

            Basic and diluted earnings per share is calculated as follows:

6.         Business Combinations

Ello Mobile BVBA

On 23 December 2016 Artilium plc acquired 100% of the share capital of Ello Mobile BVBA and thereby obtained 100% of the voting power. Ello Mobile BVBA is an MVNO based in Belgium.

The following summarises the details about the acquisition.

Consideration transferred

The acquisition cost of Ello Mobile BVBA of €0.3 million was settled by the issuance of 3,823,636 new ordinary shares at 6.6 pence per share, being the market share price on the acquisition date.

The excess of consideration paid over net liabilities acquired, amounting to €0.756 million, has been fully attributed to the fair value of the customer base acquired, including deferred taxation at 34%.

Assets acquired and liabilities recognized at date of acquisition

6.         Business Combinations (continued)

             Goodwill arising on acquisition

The revenue included in the Consolidated Income Statement since 23 December 2016 contributed by Ello Mobile BVBA was €259,000. Ello Mobile BVBA reported a profit of €31,000 over the same period.

             Wbase Comm. V

On 12 April 2017 Artilium plc acquired 100% of the share capital of Wbase and thereby obtained 100% of the voting power. Wbase is a web development agency based in Belgium.

The following summarises the details about the acquisition.

            Consideration transferred

The acquisition cost of Wbase Comm. V of €0.11 million was settled by the issuance of 254,776 new ordinary shares at 6.6 pence per share, being the market share price on the acquisition date and €90,000 in cash which was immediately used by the vendors to satisfy an outstanding debt owed to Wbase.

Under the terms of the sale and purchase agreement, additional shares up to a maximum of €0.3 million may be issued to the vendors, dependent upon Wbase achieving certain revenue targets over the next financial year. No liability has been recognised in the financial statements in respect of these contingent additional shares on the basis that the targets were not expected to be met at the date of acquisition.

Valuation of acquired software

Software with a fair value of €0.1 million was identified and separately recognised. The fair value of the acquired software was calculated on an estimated replacement cost basis.

6.         Business Combinations (continued)

Assets acquired and liabilities recognized at date of acquisition

             Goodwill arising on acquisition

No revenue or profit/(loss) has been included in the Consolidated Income Statement since 12 April 2017.

7.         Trade and other receivables

Amounts receivable for the sale of goods and services are all denominated in Euros.

The Directors consider that the carrying amount of trade and other receivables above approximates to their fair value. The average credit period taken on sales of goods is 67 days (2016: 53 days). No interest is charged on receivables.

Included within trade and other receivables is an amount of €338,000 (2016: €335,000) in respect of amounts that were past due at 30 June, but not impaired. The Group believes that the balances are ultimately recoverable based on a review of past payment history and the credit quality of those customers.

The ageing analysis of past due but not impaired receivables are shown below:

The Group holds no collateral against these receivables at the reporting date.

As at 30 June 2017 €247,000 of trade receivables were impaired (2016: €1,136,000). This allowance is specific and has been determined by reference to the age of the debt or where amounts are in dispute on a customer by customer basis. To the extent they have not been specifically provided against, the trade receivables are considered to be of sound credit rating. The ageing analysis of the allowance for doubtful debts is as follows:

Movement in the Group's allowance for doubtful debt is as follows:

Other receivables includes a loan due to the Group of €1 million (2016:€nil). On 18 July 2016 the Group entered into a Strategic Alliance with Green IT Globe NV to launch the OneApp platform and issued a loan note for a cash amount of €1 million, financed by external investors in the Group. The loan was repayable by 26 July 2017 and interest is receivable at ten per cent per annum. During the year Green IT Globe NV assigned the loan to GIG Technology NV and, on 12 June 2017, both parties agreed to postpone the repayment date to 26 July 2018.        

8.         Trade and other payables

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value.

9.         Bank Loans

            The different bank loans are mainly secured on the trade receivables of the Group. One unsecured loan with an outstanding amount of €65,000 is repayable in 12 months on a monthly basis. Interest rates are fixed at 2.21% per annum respectively and are market conforming. The carrying amount approximates to fair values because of the short maturity of these loans. The second bank loan with a principal of €85,000 is repayable in 48 months on a monthly basis. The interest rate is fixed at 2.43% per annum.

10.       Other loans

Other loans comprise loans from third parties at interest rates of between 7.5% and 10% and are repayable as follow:

€1,308,000 (repayable within one year)

€400,000 (repayable August 2018)

€350,000 (repayable between 2 to 5 years at €120,000 per annum)

11.       Notes to the cash flow statement

12.       Events since the balance sheet date

On 28 August 2017 Artilium NV entered into an agreement with GIG Technology NV ("GIG NV") and its parent undertaking, Green IT Globe Holding S.C.S ("GIG Holdings"), to replace the original loan agreement entered into on 18 July 2016. Under the original agreement, the Group had issued a loan note to Green IT Globe NV (which subsequently merged with GIG NV) for €1,000,000 which was financed by loans to the Group from external investors for an equal amount. As at 30 June 2017, the amount due from GIG NV and payable to external investors for €1,000,000 and €1,200,000 respectively was included in other receivables and other loans . Under the new agreement, the loan to GIG NV is assigned to GIG Holdings and converted into share capital of that entity. The Group in turn has entered into agreements with the external investors dated 12 September 2017 to repay their loans using the shares of GIG Holdings.

On 19 October 2017 the Group opened a new office in Germany via subsidiary undertaking Artilium GmbH, to achieve revenues through IT resellers and system integrators to business customers. 

On 16 October 2017 Artilium has entered into a strategic partnership (the "Alliance") with Pareteum Corporation (NYSE: TEUM) ("Pareteum") to jointly pursue new and developed markets. In conjunction with the Alliance, Artilium and Pareteum have also entered into a share exchange agreement whereby Artilium will issue 27,695,177 ordinary shares in the Company ("New Ordinary Shares") at a notional price of 11 pence each to Pareteum in exchange for Pareteum issuing 3,200,332 common shares in Pareteum ("New Common Shares") at a notional price of USD$1.26 each to Artilium. Following the Share Exchange, Artilium will be beneficially interested in approximately 19.9% of Pareteum's issued share capital and Pareteum will be beneficially interested in approximately 8.8% of Artilium's issued share capital. ("New Common Shares") at a notional price of USD$1.26 each to Artilium. Following the Share Exchange, Artilium will be beneficially interested in approximately 19.9% of Pareteum's issued share capital and Pareteum will be beneficially interested in approximately 8.8% of Artilium's issued share capital.