REG - Kooth PLC - Annual Financial Report
26/03/2024 07:00
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RNS Number : 2358I Kooth PLC 26 March 2024
26 March 2024
Kooth Plc
("Kooth", the "Company" or the "Group")
Full Year Results
2023 revenues up 66% to £33.3 million
Significant US growth and investment in in-market capabilities to expand into
additional States
Kooth (AIM: KOO), a global leader in youth digital mental well-being,
announces audited results for the 12 months ended 31 December 2023. All
figures relate to this period unless otherwise stated.
Strategic and post-period end highlights
· Successful launch of contract with California Department of Health Care
Services (DHCS) to deliver behavioural health care to the State's population
of 13-25 year olds, representing an expected $188 million, four-year
opportunity with possible revenue upside based on usage levels and product
development
· Development and launch of Soluna, Kooth's next-generation platform to help
build mental health skills-for-life, access peer-support and professional help
· First US Medicaid strategic partnership with Aetna Better Health Illinois to
support youth in low-income families
· Strong uptake in Pennsylvania pilot, with 1-in-10 high school students
accessing Kooth
· Accelerated investment in US Government sales to expand into additional States
· UK CYP services stable despite NHS headwinds with short-term funding pressures
Financial Highlights
· 2023 revenues of £33.3 million, increasing 66% year-on-year, driven by US
growth and continuing adoption of digital-first healthcare
· £64.6 million year end Annual Recurring Revenue, representing growth of 206%
compared to prior year
· 98% of revenue derived from contracts of 12+ months
· 98% UK Net Revenue Retention (2022: 107%)
· 8.7 percentage point gross margin increase, driven by increased US revenue mix
and contribution to product development
· £11.0 million net cash compared to £8.6 million prior year
Strong, debt-free balance sheet with net cash generated from operations of
£1.9 million, bolstered by net proceeds of £9.4 million from Kooth's
successful equity fundraise in July 2023
Current trading and outlook
· Opportunity for Kooth in the US remains unchanged, driven by the continued
need from both US State governments and Medicaid payers to invest further in
youth mental health
· UK headwinds remain, given NHS short-term financial pressures to address the
2023/24 budget deficit. Kooth's focus remains on continuing to demonstrate the
impact and savings that it generates when commissioned in a region
· Robust balance sheet enabling Kooth to invest to meet long-term, increasing
demand for its services
· Kooth's proven track record, strong recurring revenue and net cash position
give it an excellent platform for profitable growth as it enters 2024 with the
expectation of gross margins of >70%, an EBITDA margin in the mid-teens and
rising thereafter
· The strength of Kooth's model, strategy and market position - allied to
long-term demand for digital mental health services in the UK and US - support
the Company's confidence of further progress in the year ahead
· Revenue and EBITDA expected to be in line with 2024 market expectations
Tim Barker, Chief Executive of Kooth, commented:
"In 2023 Kooth significantly expanded its services and capabilities. We won
the most significant contract in our history in California to deliver
behavioural health care to the State's population of 13-25 year olds,
representing a $188 million, four-year opportunity. To support this contract,
we developed Soluna, our next-generation platform to help build mental health
skills-for-life, access peer-support and professional help.
"We have delivered record financials in 2023, with revenue increasing by 66%
year on year to £33.3 million, and adjusted EBITDA growing to £2.3 million,
an increase of 40%. To support this growth, we have grown our headcount to end
2023 with 585 employees, of which over 200 are based in the US. This means we
are well placed to support and expand our services, reflecting the continued
need from both US State governments and Medicaid payers to invest further in
youth mental health. This need was highlighted when, post-period end, we
agreed a partnership with Aetna Better, representing Kooth's first
private-sector contract in the US. In Pennsylvania, we were delighted that
within a year of launching Kooth over 1-in-10 high school students were
accessing Kooth, demonstrating strong uptake during the pilot phase of this
contract. Our UK offering remains stable in the face of ongoing headwinds
following the shift to the ICS structure and short-term funding pressures,
which we anticipate lasting until after 2024's anticipated general election.
Kooth remains well placed in the UK, and the experience and data we will
generate in the US from our significant new contracts will allow us insights
which will differentiate us further from our competition, coupled with the
launch of Soluna in the UK which we anticipate will occur within the next 12
months.
"This growth, coupled with our strong balance sheet, ensures we are very well
placed to take the available opportunities to continue growing our business. I
look forward to working alongside our team to build on our successes in 2023
into 2024 and beyond as we seek to help ever more people in the face of this
growing, global crisis."
Enquiries:
Kooth plc investorrelations@kooth.com (mailto:investorrelations@kooth.com)
Tim Barker, CEO
Sanjay Jawa, CFO
Stifel, Nominated Adviser & Sole Broker +44 (0) 20 7710 7600
Ben Maddison, Nick Adams, Nicholas Harland, Erik Anderson
FTI Consulting kooth@fticonsulting.com (mailto:kooth@fticonsulting.com)
Jamie Ricketts, Alex Shaw, Usama Ali
About Kooth plc:
Kooth (AIM:KOO) is a global leader in youth digital mental well-being. Our
mission is to provide accessible and safe spaces for everyone to achieve
better mental health. Our platform is clinically robust and accredited to
provide a range of therapeutic support and interventions. All our services are
predicated on easy access to make early intervention and prevention a reality.
Kooth is a fully safeguarded and pre-moderated community with a library of
peer and professional created content, alongside access to experienced online
counsellors. There are no thresholds for support and no waiting lists.
Kooth is the longest standing digital mental health provider to hold a UK-wide
accreditation from the British Association of Counselling and Psychotherapy
(BACP) and according to NHS England data for 2022/23 is now the largest single
access provider for mental health support for under 18s.
In 2021, Kooth began executing on its international expansion strategy, with
an initial focus on the US market. This focus is due to the growing
recognition of the importance of improving youth mental health in this key
global healthcare market, with 1-in-6 people aged 6-17 experiencing a mental
health disorder each year.
Chair's Statement
Without doubt, 2023 has been a transformational year for Kooth, with
significant growth and progress towards our vision to build mentally healthier
populations by providing everyone with access to effective digital support
from their first moment of need. I want to thank all members of the team in
both the UK and US for their incredible hard work in delivering on the
opportunities that have presented themselves to us. In addition, I want to
record my appreciation to our customers who entrust us as custodians for the
mental health of their populations.
Reflecting on the progress we have made in the US since late 2021 - first in
Pennsylvania, and then in California - we are grateful for the endorsement of
our innovation, clinical efficacy, and scale. The rapid progress we are making
in the US would not be possible without the proof points we have developed
over decades in the UK.
As a result of our $188m expected value, four-year contract win in California,
we upgraded our growth outlook, and I am pleased to report 2023 Group revenues
of £33.3 million, a 66% increase over 2022 revenues of £20.1 million, and
over 40% increase in EBITDA to £2.3 million.
Given our rapid progress in California in particular, we successfully raised
£10m of equity in July, primarily to invest in accelerating our US growth.
I'm pleased to report that this has enabled us to expand our Sales and
Research efforts, with discussions underway in a number of States, and a
partnership with Aetna to pilot Kooth in Illinois to support youth in
low-income families that qualify for Medicaid. The latter represents a
potentially significant expansion of our modes of funding, and in turn a
reinforcement of our market position.
Turning to the UK, 2023 has been a challenging year given the short-term
financial and political pressures to reduce spending to pre-pandemic levels,
whilst tackling the elective care waiting lists. Given the estimated £7
billion budget deficit at the start of 2023, NHS commissioners have been faced
with difficult decisions to scale back services to balance budgets. As a
result, churn in the UK has increased to £2.3m, up from £2.0m in 2022, with
Kooth Adult pilot contracts being disproportionately impacted.
However, given the unsustainable, continued double-digit increase in demand
for mental healthcare, and the political imperative to transform services for
the benefit of society, NHS productivity, and the economy, we anticipate an
improvement in the UK following the general election as NHS priorities and
funding solidify.
Despite these short-term headwinds, Kooth's recurring revenue business model,
with 98% of Kooth's contracts having a duration of 12 months or more, gives us
strong forward revenue visibility, ending 2023 with £64.6m Annual Recurring
Revenue (ARR), up from £21.1m a year ago.
We enter 2024 with significant growth opportunities, a solid financial
position - £11.0m in cash, no debt, and an undrawn $9.5m working capital
credit facility - a proven business model, and a strong social purpose.
Peter Whiting
Non-Executive Chair
25 March 2024
Chief Executive Officer's statement
Delivering positive social impact, cost effectively and at scale
What drew me to Kooth in 2020, in addition to its strong social purpose, was
the thoughtfulness with which the team approached tackling the ever-growing
demand for mental healthcare. In many ways, it was contrary to the thinking at
the time:
● Building a tech-enabled service supported by professionals, when
everyone was trying to build apps that can scale without human involvement.
● Growing awareness and usage of the service by embedding
engagement leads within local communities, where others focused solely on
digital promotion.
● Developing a service that could support a whole population, with
the goal of reducing demand for acute mental health care, where others were
building networks of therapists solely to service the demand for acute care.
A key reason why Kooth chose this path was because the company is ultimately
focused on what is going to turn the tide on the growing crisis in mental
health: we need to build a mentally healthier population, leaving no-one
behind.
Over the four years that I have been at Kooth, from the pandemic to today,
every year has seen its own opportunities and challenges. 2023 brought
significant opportunities in the US - and challenges in the UK given the
political and financial backdrop in the NHS. However, there are clear moments
in one's career that can be seen as pivotal to the transformation of a
business and its prospects. Based on strategic progress in 2023, I believe
this was such a year.
Executing on Kooth's strategy to expand in US States
As is well documented in this year's Annual Report, Kooth is significantly
ahead of schedule on its US expansion strategy. Firstly with Pennsylvania, and
then with California, it's clear that there was a growing imperative and
investment case for addressing youth mental health. Kooth's transformational
contract and partnership with California put the company in the spotlight to
execute and demonstrate its impact. In discussions with many investors,
execution risk was often cited as the key area of concern given the size and
scale of the contract. Seeing the hard work that so many people did to launch
Soluna (the name of the platform and app in the US) initially in September
2023 and fully on 1st January 2024, I couldn't have wished to work with a more
engaged, passionate and expert team. As CEO, given the opportunity that
California has entrusted to Kooth, this will remain mine and the team's number
one priority throughout 2024 to ensure the company is building a strong
foundation for the future. In addition, the £10m fundraise in July 2023
enabled Kooth to engage with a growing pipeline of States to bring its
services to their population, and invest in research studies with US academic
partners to demonstrate Kooth's impact. I'm optimistic that Kooth will expand
into further States in 2024.
Executing on Kooth's strategy to support youth through Medicaid managed care
providers
More than 29 million under 18s - almost 40% of the US youth population - are
covered by Medicaid, the Federal and State funded insurance programme for
low-income families; Annual Medicaid spending on youth behavioural health care
exceeds $30.2 billion. A key challenge for Medicaid programmes is providing
access to mental health support given the shortage and cost of therapists.
Through an innovative partnership and pilot programme with Aetna Better Health
of Illinois, agreed post-period end, Kooth aims to demonstrate the impact the
company can make in building mentally healthier populations. This is a key
pillar to Kooth's US strategy.
Continuing to innovate in technology to transform mental health care, Kooth's
partnership and contract with California significantly accelerated the
development of the company's product roadmap. It enabled us to build this
next-generation platform, incorporating everything Kooth has learnt over time
- co-produced with input from over 200 young people to help build 'their dream
mental health app'. Soluna will be the platform and brand the company expands
into other States, with minimal capital expenditure required to do so. In
addition, Kooth will bring its enhanced platform to the UK in the next 12
months to deliver a platform specifically designed for youth that is both
engaging and clinically effective.
Focusing on UK renewals and retention given NHS headwinds
2023 was a more challenging year in the UK for Kooth and the many
organisations that serve the NHS. With the reorganisation of NHS England from
135 Clinical Commissioning Groups to 42 Integrated Care Systems finalised,
their challenge now is to balance the budgets to pre-pandemic levels and
address the forecast £7 billion budget deficit. While Kooth's team worked
continually to demonstrate its value in each region it serves, the company at
times saw highly successful services decommissioned in response to these
financial pressures. In a small number of cases, a cheaper substitute -
providing an informational portal or peer-support only option - replaced
Kooth. The UK is Kooth's home market, and the company will continue to
prioritise and focus on its current customers. Post-election, Kooth
anticipates priorities and funding to become clearer.
Our people
When I joined Kooth in early 2020, the company had around 130 employees. Kooth
ended 2023 with 585 employees across the US and UK, with staff in 26 States
and all corners of the UK. 2023 was a year where everyone at Kooth had to
step-up; to deliver on US opportunities, tackle UK headwinds and to provide
mental health support to people where the company continued to see a long term
increase in acuity, suicidal ideation and self-harm. I couldn't be prouder of
the attitude and achievements of the team during these rapidly-changing times.
Outlook
Our proven track record, excellent recurring revenue and net cash position
give us a great platform as we enter 2024. The strength of our model, strategy
and market position - allied to long-term demand for digital mental health
services in the UK and US - support our confidence of further progress in the
year ahead.
Tim Barker
Chief Executive Officer
25 March 2024
Chief Financial Officer's statement
Significant growth
The results reflect a transformational year for the business as we executed on
our strategic plans, delivering significant growth in the US, and built solid
foundations to support future growth in the UK and internationally.
Revenue
I am pleased to report Group revenue grew strongly during the year by a record
66% (2022: 21%) to £33.3 million (2022: £20.1 million). As previously
reported, this has been driven primarily by our US growth, predominantly our
contracts during the year in California and Pennsylvania, which delivered
£14.2 million (2022: £1.5 million) with UK revenue up 3% despite headwinds
(2022: 12%)
Recurring revenue comprises income invoiced for services that are repeatable,
consumed and delivered on a monthly basis over the term of a customer
contract. Annual Recurring Revenue (ARR) of £64.6 million is the annualised
revenue of customers engaged or closed at that date (31 December) and is an
indication of the upcoming annual value of the recurring revenue. This is used
by management to monitor the long term revenue growth of the business and has
increased to 98% of total revenues (2022: 95%).
While we have seen an increase in contracts that expand upon renewal to 41%
(2022: 38%), gains were offset by £2.3 million of churn, a combination of
funding unavailable to continue pilot contracts, reductions as contracts
consolidated and a small number of competitive losses. In addition we have
excluded £2.6 million from ARR as we continue to negotiate an extension to
our contract in Pennsylvania.
Net revenue retention, which is a measure of the depth and longevity of our
client relationships, although still strong, fell to 98% in the UK (2022:
107%). This is measured by the total value of ongoing ARR at the year end from
customers in place at the start of the year as a percentage of the opening ARR
from those clients.
Gross profit
Gross profit grew by 86.6% to £25.9 million (2022: £13.9 million) with gross
margin up to 77.6% (2022: 68.9%). Direct costs are the costs of the
practitioners directly involved in the delivery of our services, a total of
304 at the year-end (2022: 267 heads). Gross margin benefitted from the
contribution within US revenues to product development where costs are either
capitalised or included in overheads. This was offset by a small fall in UK
gross margin as direct costs continued to see the impact of salary and cost
inflation.
Foreign currency impact
Whilst foreign currency markets were not as volatile as the previous year our
increasing presence in the US impacted the Group which had around 43% of
revenues in US Dollars, and 26% of Group expenses. The Group's focus on
management of foreign currency risk resulted in a small foreign currency loss
of £0.2 million (2022: loss £0.1 million).
Operating loss
The Group's operating loss for the year was £2.3 million (2022: loss of £0.9
million). This was driven by the scaling up of activities in the US as
mentioned in the section below.
Administrative expenses
Excluding depreciation, amortisation, share based payments and exceptional
costs, administrative expenses grew by £11.4 million in the year, an 92.8%
increase year on year, which whilst well ahead of revenue growth, remains in
line with our strategic investment plans. The real (i.e. non inflationary)
increase in costs was almost entirely focused on the US where, in addition to
increased commissions and bonuses, we strengthened the business development,
clinical and customer engagement teams as well as seeing increases in
non-staff costs, including legal and consulting expenses.
Adjusted EBITDA
Adjusted EBITDA grew by 40% to £2.3 million (2022: £1.6 million) in the
year, with increases in revenue and gross profit offset by our investment in
the US and higher administrative expenses as outlined above.
Adjusted results are prepared to provide a more comparable indication of the
Group's core business performance by removing the impact of certain items
including exceptional items (material and non-recurring), and other,
non-trading, items that are reported separately.
Adjusted results exclude items as set out in the consolidated statement of
profit and loss and below, with further details given in Notes 2, 3, 4, 5, 6,
11, 12 & 13 to the financial statements. In addition, the Group also
measures and presents performance in relation to various other non GAAP
measures, such as annual recurring revenue and revenue growth.
Adjusted results are not intended to replace statutory results. These have
been presented to provide users with additional information and analysis of
the Group's performance, consistent with how the Board monitors results.
£'m 2023 2022
Operating Loss (2.3) (0.9)
Add Back:
Depreciation and Amortisation 3.8 2.2
Share based payment expense 0.7 0.3
Adjusted 2.3 1.6
EBITDA
Share-based payments are adjusted to reflect the underlying performance of the
group as the fair value is impacted by market volatility that does not
correlate directly to trading performance. The total charge for share based
payments in the year was £0.7 million (2022: £0.3 million). The increase
reflects the annual issue of three year grants to staff and a credit in 2022
following a reassessment of those grants subject to performance criteria.
Taxation
There has been a corporation tax charge of £0.3 million (2022: £nil)
recognised in the year due to taxable profits accumulated in the US. There
continues to be no corporation tax charge in the UK due to accumulated losses
combined with the overall current year position (2022: £nil).
The tax credit for the year ended 31 December 2023 and 2022 relates to
Research and Development expenditure credits. This has been enhanced in 2023
as the Research and Development claim for 2022 was subsequently carried
forward at a higher effective tax rate rather than taking this as a cash
credit resulting in a prior year adjustment.
Cash
The Group has had good cash management in the year with net cash generated
from operating activities of £1.9 million (2022: £4.4 million). Free cash
flow, after taking account of capital expenditure was a net outflow of £6.8
million in 2023 compared to an inflow of £1.3 million in 2022 as we invested
significantly in the Soluna platform.
Overall the Group has net cash inflow due to the net proceeds from financing
activities following a successful placing, which resulted in the raise of a
net £9.4m. The net cash at year end was £11.0 million (2022: £8.5 million).
In addition we recently entered into a working capital credit facility with
Citibank of $9.5 million that remains undrawn at this time. The Group
continues to be debt free.
Capitalised development costs
The Group significantly increased investment in product and platform
development in 2023 to support the launch of our service in California and
this is expected to be ongoing in 2024. Costs are a combination of internal
and external spend. Where such work is expected to result in future revenue,
costs incurred that meet the definition of software development in accordance
with IAS38, Intangible Assets, are capitalised in the statement of financial
position. During the year the Group capitalised £8.7 million in respect of
software development (2022: £3.0 million) with an amortisation charge of
£3.6 million (2022: £2.1 million).
Investment in product and development continues to be significant to the Group
and we anticipate capitalising software costs at a higher rate over the next
year as we continue to invest in the Soluna platform.
Capital expenditure
Software and product development costs aside, the Group's ongoing capital
expenditure requirements remain modest at £0.3 million (2022: £0.1 million).
Capital and reserves
The strength of the Group's balance sheet with net assets of £20.8 million
(2022: £10.5 million), high levels of recurring revenue and strong cash
generation from operating activities provide the Group with financial strength
with which to execute on its investment strategy which continues to focus on
US expansion and platform investment.
Dividend policy
As outlined at the time of the IPO and previous reports, the Group's intention
in the short to medium term is to invest in order to deliver capital growth
for shareholders. The Board has not recommended a dividend in respect of the
year ended 31 December 2023 (2022: Nil) but may do so in future years.
Sanjay Jawa
Chief Financial Officer
25 March 2024
Consolidated statement of profit and loss and other comprehensive loss
For the year ended 31 December 2023
Note 2023 2022
£'000 £'000
Revenue 4 33,337 20,120
Cost of sales 5 (7,480) (6,265)
Gross profit 25,857 13,855
Administrative expenses 5 (28,119) (14,767)
Operating loss (2,262) (912)
Analysed as:
Adjusted EBITDA 2,257 1,612
Depreciation & amortisation 11, 12, 13 (3,775) (2,232)
Share based payment expense 6 (744) (292)
Operating loss (2,262) (912)
Interest income 7 298 81
Loss before tax (1,964) (831)
Tax 8 1,795 115
Loss after tax (169) (716)
Other comprehensive (expense) / income
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences (161) -
Total comprehensive loss for the year (330) (716)
Loss per share - basic and diluted (£) 9 (0.00) (0.02)
Consolidated statement of financial position
As at 31 December 2023
Note 31 December 2023 31 December 2022
£'000 £'000
Assets
Non-current assets
Goodwill 10 511 511
Development costs 11 8,750 3,681
Right of use asset 12 42 68
Property, plant and equipment 13 304 122
Deferred tax 14 2,649 -
Total non-current assets 12,256 4,382
Current assets
Trade and other receivables 15 7,174 2,618
Contract assets 16 251 649
Cash and cash equivalents 17 11,004 8,492
Total current assets 18,429 11,759
Total assets 30,685 16,141
Liabilities
Current liabilities
Trade payables 18 (1,555) (680)
Contract liabilities 19 (5,156) (2,583)
Lease liability 12 (44) (68)
Accruals and other creditors 18 (2,521) (977)
Tax liabilities 18 (651) (967)
Deferred tax 14 - (348)
Total current liabilities (9,927) (5,623)
Net current assets 8,502 6,136
Net assets 20,758 10,518
Equity
Share capital 20 1,825 1,653
Share premium account 20 23,444 14,229
P&L reserve 20 (2,503) (2,595)
Share-based payment reserve 20 2,142 1,221
Capital redemption reserve 20 115 115
Merger reserve 20 (4,104) (4,104)
Translation reserve 20 (161) -
Total equity 20,758 10,518
The financial statements of Kooth plc (Company registration number 12526594)
were approved by the Board of Directors and authorised for issue on 26 March
2024. They were signed on its behalf by:
Sanjay Jawa
Chief Financial Officer
25 March 2024
Consolidated statement of changes in equity
For the year ended 31 December 2023
Share capital Share premium Share based payment reserve P&L reserve Capital redemption reserve Merger reserve Translation reserve Total equity
Balance at 1 January 2022 1,653 14,229 959 (1,879) 115 (4,104) - 10,973
Loss for the year - - - (716) - - - (716)
Total comprehensive income 1,653 14,229 959 (2,595) 115 (4,104) - 10,257
Transactions with owners:
Share based payments - - 262 - - - - 262
As at 31 December 2022 1,653 14,229 1,221 (2,595) 115 (4,104) - 10,519
Balance at 1 January 2023 1,653 14,229 1,221 (2,595) 115 (4,104) - 10,519
Loss for the year - - - (169) - - - (169)
Other comprehensive income - - - - - - (161) (161)
Total comprehensive income 1,653 14,229 1,221 (2,764) 115 (4,104) (161) 10,189
Transactions with owners:
Share options exercised 7 - (261) 261 - - - 7
Share based payment charge - - 766 - - - - 766
Shares issued 165 9,215 - - - - - 9,380
Deferred tax - - 416 - - - - 416
As at 31 December 2023 1,825 23,444 2,142 (2,503) 115 (4,104) (161) 20,758
The accompanying notes form part of the financial statements.
Consolidated cash flow statement
For the year ended 31 December 2023
Note 2023 2022
£'000 £'000
Cash flows from operating activities
Loss for the year (169) (716)
Adjustments:
Depreciation & amortisation 11, 12, 13 3,775 2,232
Income tax received 8 569 330
Share based payment expense 6 744 292
Income tax recognised 8 (1,795) (115)
Interest income 7 (298) (81)
Movements in working capital
(Increase) / decrease in trade and other receivables 15 (4,158) 78
Increase in trade and other payables 18, 19 3,199 2,408
Net cashflow from operating activity 1,867 4,428
Cash flows from investing activities
Purchase of property, plant and equipment 13 (291) (100)
Additions to intangible assets 11 (8,713) (2,952)
Interest income 7 298 81
Net cash used in investing activities (8,706) (2,971)
Cash flows from financing activities
Proceeds from issue of share capital 20 9,923 -
Costs incurred from the issue of share capital 20 (536) -
Net cash from financing activities 9,387 -
Net increase in cash and cash equivalents 2,548 1,457
Exchange adjustments (36) (44)
Cash and cash equivalents at the beginning of the year 17 8,492 7,079
Cash and cash equivalents at the end of the year 17 11,004 8,492
Notes to the financial statements
1. Corporate Information
Kooth plc is a company incorporated in England and Wales. The address of the
registered office is 5 Merchant Square, London, England, W2 1AY.
2. Significant accounting policies
2.1 Basis of preparation
The preliminary results for the year ended 31 December 2023 are an abridged
statement of the full Annual Report which was approved by the Board of
Directors on 25 March 2024. The consolidated financial statements in the full
Annual Report are prepared in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act 2006. The
auditor's report on those consolidated financial statements were unqualified,
did not draw attention to any matters by way of emphasis without qualifying
their report and did not contain statements under section 498(2) or 498(3) of
the Companies Act 2006. The preliminary results do not comprise statutory
accounts within the meaning of section 434(3) of the Companies Act 2006. The
Annual Report for the year ended 31 December 2023 will be delivered to the
Registrar of Companies following the Company's Annual General Meeting. The
financial information included in this preliminary announcement does not
itself contain sufficient information to comply with UK-adopted International
Accounting Standards. The Annual Report and audited financial statements for
the year ended 31 December 2023 will be made available on the Company's
website in April 2024.
Measurement convention
The financial statements are prepared on the historical cost basis. These
policies have been consistently applied to all years presented unless
otherwise stated. All values are presented in Sterling and rounded to the
nearest thousand pounds (£'000) except when otherwise indicated.
Going concern
The Directors have a reasonable expectation that the Group as a whole has
adequate resources to continue in operational existence for the foreseeable
future. For this reason, the going concern basis continues to be adopted in
the accounts.
The company's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Strategic
Report on pages 8 to 25 of the 2023 Annual Report. In addition, note 22 to the
financial statements include the company's objectives, policies and processes
for managing its capital; its financial risk management objectives; and its
exposures to credit risk and liquidity risk.
During the 2023 financial year the Group generated a loss of £0.2 million
(2022: £0.7 million). Adjusted EBITDA is £2.3 million (2022: £1.6 million).
The Group is in a net asset position of £20.8 million (2022: £10.5 million).
Management has performed a going concern assessment for a period of 12 months
from signing, which indicates that the Group will have sufficient funds to
trade and settle its liabilities as they fall due. This assessment takes into
account a number of sensitivities, including a downside scenario and a reverse
stress test, which models the scenarios that would lead to a default by the
Group. Both the downside scenario and reverse stress test reflect lower
activity levels than both the Group forecast and 2023 actual results. The key
assumption used in the assessment is revenue and Management has analysed the
impact of reduced revenue on the Group's performance.
Whilst Management has concluded that the possibility of the downside scenario
occurring is remote, the Group would still have adequate resources to be able
to trade and settle its liabilities as they fall due in this scenario.
Management deemed the combination of factors occurring as set out in the
default model to be implausible.
The Directors have, at the time of approving the financial statements, a
reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future and as such continue to adopt
the going concern basis of accounting in preparing the financial statements.
2.2 Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Company and its subsidiaries as at 31 December 2023, with the comparatives
presented for the previous 12 months being the Group's combined activities for
the 12 months ended 31 December 2022.
Control is achieved when the Group is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, the Group has:
● Power over the investee (i.e., existing rights that give it the
current ability to direct the relevant activities of the investee).
● Exposure, or rights, to variable returns from its involvement with
the investee.
● The ability to use its power over the investee to affect its
returns. Generally, there is a presumption that a majority of voting rights
results in control. To support this presumption and when the Group has less
than a majority of the voting or similar rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has
power over an investee, including:
○ The contractual arrangement(s) with the other vote holders of the
investee
○ Rights arising from other contractual arrangements
○ The Group's voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control. Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the Group loses control of
the subsidiary. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated
financial statements from the date the Group gains control until the date the
Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are
attributed to the equity holders of the parent of the Group. When necessary,
adjustments are made to the financial statements of subsidiaries to bring
their accounting policies in line with the Group's accounting policies. All
intra-group assets and liabilities, equity, income, expenses and cash flows
relating to transactions between members of the Group are eliminated in full
on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control,
is accounted for as an equity transaction. If the Group loses control over a
subsidiary, it derecognises the related assets (including goodwill),
liabilities, non-controlling interest and other components of equity, while
any resultant gain or loss is recognised in profit or loss. Any investment
retained is recognised at fair value.
Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Executive
Directors that make strategic decisions. Kooth plc's operations take place in
the UK and the US.
2.3 Summary of significant accounting policies
The following are the significant accounting policies applied by the Group in
preparing its consolidated financial statements:
Revenue recognition
The Group applies IFRS 15 "Revenue from Contracts with Customers". To
determine whether to recognise revenue, the Group follows the five step
process as set out within IFRS 15.
1) Identifying the contract with a customer.
2) Identifying the performance obligations.
3) Determining the transaction price.
4) Allocating the transaction price to the performance obligations.
5) Recognising revenue as/when performance obligation(s) are satisfied.
Provision of online counselling contracts
Revenue arises from the provision of counselling services and mental health
support services under fixed price contracts. Contracts are typically for a 12
month period and are fixed price based on the population covered and an
expected number of hours of counselling provided.
Contracts with customers take the form of signed agreements from customers.
There is one distinct performance obligation, being the provision of
counselling services, to which all the transaction price is allocated. Revenue
from counselling services is recognised in the accounting period in which the
services are rendered. The contracts are satisfied monthly over the contract
term for an agreed level of support hours. Revenue is recognised over-time, on
a systematic basis over the period of the contract, which reflects the
continuous transfer of the service to the customer throughout the contracted
service period.
In certain circumstances the number of hours of counselling provided may
surpass the expected number of hours within the contract. In this
circumstance, Management does not recognise additional revenue during the
period, as contractually the Group has no right to demand payment for
additional hours. In some instances, the Group has recovered additional fees
post year end for the additional hours incurred; this additional revenue is
recognised at a point in time when the Group has agreed an additional fee and
has a right to invoice. At each reporting date there was no significant
overprovision of hours noted.
In instances where the number of counselling hours provided is less than the
contracted number of hours, the full fixed fee is still payable by the
customer.
Platform build and behavioural support services contracts
Revenue arises from the provision of a digital mental health platform
alongside supporting behavioural healthcare services, promotional campaigns,
reporting and analysis and technical support. The contracts have fixed and
variable pricing elements which depend on platform utilisation, with a service
period of more than one year. Contracts with customers take the form of signed
agreements from customers.
The contracts include an enforceable right by either party to terminate the
contract without penalty with a fixed notice period. The contract term is
therefore limited up to the end of the notice period. The transaction price is
determined as all consideration due within the contract period. The contract
term is modified each month if the termination clause is not enacted with the
modification being treated on a prospective basis as the incremental
transaction price does not reflect the standalone selling price for the
additional distinct services.
Under IFRS 15, five distinct performance obligations have been identified for
these contracts:
● Providing access to a digital mental health platform.
● Customer contact services to resolve technical issues.
● Collection and analysis of data and reporting.
● Providing on-platform behavioural healthcare services.
● Conducting promotional campaigns to spread awareness.
Revenue from the first three performance obligations is recognised evenly over
time using the output method. This is to reflect the continuous consumption
of the service by the customer over the contracted service period. For the
last two performance obligations revenue is recognised using the input method.
This is to reflect how much of the service the customer has used by comparing
the actual costs incurred to the total projected costs that are expected to be
incurred in delivering the service. These costs include directly attributable
labour and external marketing and promotion costs.
The allocation of the transaction price between the five performance
obligations included in the contract is based on an expected cost plus margin
approach as the standalone selling price is not observable.
The transaction price is determined at contract inception as being the most
likely amount of consideration in which the Group is entitled to, including
any variable consideration. This has been determined through an expected value
calculation modelling various utilisation rate projections against their
likely achievement. The variable consideration has been appropriately
constrained as the Group has limited historical experience to ensure it can be
virtually certain there will be no material reversal of revenue.
The Group typically receives cash from customers 38 days after invoicing a
customer.
Revenue to come from contracts entered into with performance obligations not
fulfilled or only partially fulfilled amounted to £35.5m as at 31 December
2023, all of which is expected to be recognised within one year.
Contract assets and liabilities
The Group recognises contract assets in the form of accrued revenue when the
value of satisfied or part satisfied performance obligations is in excess of
the payment due to the Group, and contract liabilities in the form of deferred
revenue when the amount of unconditional consideration is in excess of the
value of satisfied or part satisfied performance obligations. Once a right to
receive consideration is unconditional, that amount is presented as a trade
receivable.
Tax
Current tax
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws
used to compute the amount are those that are enacted or substantively enacted
at the reporting date in the countries where the Group operates and generates
taxable income.
Current tax relating to items recognised directly in equity is recognised in
equity and not in the statement of profit or loss. Management periodically
evaluates positions taken in the tax returns with respect to situations in
which applicable tax regulations are subject to interpretation and establishes
provisions where appropriate.
Deferred tax
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes at the reporting date. Deferred tax liabilities
are recognised for all taxable temporary differences, except:
● When the deferred tax liability arises from the initial
recognition of goodwill or an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss.
● In respect of taxable temporary differences associated with
investments in subsidiaries, associates and interests in joint arrangements,
when the timing of the reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not reverse in the
foreseeable future.
Deferred tax assets are recognised for deductible temporary differences, the
carry forward of unused tax credits and any unused tax losses. Deferred tax
assets are recognised to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences, and the
carry forward of unused tax credits and unused tax losses can be utilised,
except:
● When the deferred tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss.
● In respect of deductible temporary differences associated with
investments in subsidiaries, associates and interests in joint arrangements,
deferred tax assets are recognised only to the extent that it is probable that
the temporary differences will reverse in the foreseeable future and taxable
profit will be available, against which the temporary differences can be
utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax
asset to be utilised. Unrecognised deferred tax assets are re-assessed at each
reporting date and are recognised to the extent that it has become probable
that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the year when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date. Deferred tax relating to items
recognised outside profit or loss is recognised outside profit or loss.
Deferred tax items are recognised in correlation to the underlying transaction
either in OCI or directly in equity.
Tax benefits acquired as part of a business combination, but not satisfying
the criteria for separate recognition at that date, are recognised
subsequently if new information about facts and circumstances change. The
adjustment is either treated as a reduction in goodwill (as long as it does
not exceed goodwill) if it was incurred during the measurement period or
recognised in profit or loss.
The Group offsets deferred tax assets and deferred tax liabilities if and only
if it has a legally enforceable right to set off current tax assets and
current tax liabilities and the deferred tax assets and deferred tax
liabilities relate to income taxes levied by the same taxation authority on
either the same taxable entity or different taxable entities which intend
either to settle current tax liabilities and assets on a net basis, or to
realise the assets and settle the liabilities simultaneously, in each future
period in which significant amounts of deferred tax liabilities or assets are
expected to be settled or recovered.
Sales tax
Expenses and assets are recognised net of the amount of sales tax, except:
● When the sales tax incurred on a purchase of assets or services is
not recoverable from the taxation authority, in which case, the sales tax is
recognised as part of the cost of acquisition of the asset or as part of the
expense item, as applicable
● When receivables and payables are stated with the amount of sales
tax included
The net amount of sales tax recoverable from, or payable to, the taxation
authority is included as part of receivables or payables in the statement of
financial position.
Research and Development tax claims
Where Kooth plc has made Research and Development tax claims under the Small
and Medium Enterprise scheme and tax losses have been surrendered for a
repayable tax credit, a current tax credit is reflected in the income
statement.
Property, plant and equipment
Property, plant and equipment is stated in the statement of financial position
at cost, less any subsequent accumulated depreciation and subsequent
accumulated impairment losses.
The cost of property, plant and equipment includes directly attributable
incremental costs incurred in its acquisition and installation.
Depreciation is charged so as to write off the cost of assets over their
estimated useful lives, as follows:
Computer and office
equipment 33.33%
straight line
Goodwill and intangibles
Goodwill
Goodwill is initially measured at cost (being the excess of the aggregate of
the consideration transferred and the amount recognised for non-controlling
interests and any previous interest held over the net identifiable assets
acquired and liabilities assumed). If the fair value of the net assets
acquired is in excess of the aggregate consideration transferred, the Group
re-assesses whether it has correctly identified all of the assets acquired and
all of the liabilities assumed and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If the reassessment still
results in an excess of the fair value of net assets acquired over the
aggregate consideration transferred, then the gain is recognised in profit or
loss.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses. For the purpose of impairment testing, goodwill acquired in
a business combination is, from the acquisition date, allocated to each of the
Group's cash-generating units that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to those units.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at
cost. The cost of intangible assets acquired in a business combination is
their fair value at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and
accumulated impairment losses. Internally generated intangibles, excluding
capitalised development costs, are not capitalised and the related expenditure
is reflected in profit or loss in the period in which the expenditure is
incurred.
The useful lives of intangible assets are assessed as either finite or
indefinite.
Intangible assets with finite lives are amortised over the useful economic
life and assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The amortisation period and the amortisation
method for an intangible asset with a finite useful life are reviewed at least
at the end of each reporting period. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits embodied in
the asset are considered to modify the amortisation period or method, as
appropriate, and are treated as changes in accounting estimates. The
amortisation expense on intangible assets with finite lives is recognised in
the statement of profit or loss within administrative expenses.
An intangible asset is derecognised upon disposal (i.e., at the date the
recipient obtains control) or when no future economic benefits are expected
from its use or disposal. Any gain or loss arising upon derecognition of the
asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the statement of profit or loss.
Expenditure on internally developed software products and substantial
enhancements to existing software product is recognised as intangible assets
only when the following criteria are met:
● The technical feasibility of completing the intangible asset so
that the asset will be available for use or sale.
● Its intention to complete and its ability and intention to use or
sell the asset.
● How the asset will generate future economic benefits.
● The availability of resources to complete the asset.
● The ability to measure reliably the expenditure during
development.
Following initial recognition of the development expenditure as an asset, the
asset is carried at cost less any accumulated amortisation and accumulated
impairment losses. Amortisation of the asset begins when development is
complete and the asset is available for use. It is amortised over the period
of expected future benefit. Amortisation is recorded in the Statement of
Profit and Loss.
During the period of development, the asset is assessed for impairment
annually.
Amortisation is charged on a straight line basis over the estimated useful
life of three years.
Expenditure on research activities as defined in IFRS is recognised in the
income statement as an expense.
Impairment testing of intangible assets and property, plant and equipment
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately independent cash inflows (CGU). Those
intangible assets including goodwill and those under development are tested
for impairment at least annually. All other individual assets or CGUs are
tested for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
An impairment charge is recognised for the amount by which the asset or CGUs
carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of fair value, reflecting market conditions less costs to sell, and
value in use. All assets, with the exception of goodwill, are subsequently
reassessed for indications that an impairment loss previously recognised may
no longer exist.
Financial instruments
The Group classifies financial instruments, or their component parts, on
initial recognition as a financial asset, a financial liability or an equity
instrument in accordance with the substance of the underlying contractual
arrangement. Financial instruments are recognised on the date when the Group
becomes a party to the contractual provisions of the instrument. Financial
instruments are initially recognised at fair value except for trade
receivables which are initially accounted for at the transaction price.
Financial instruments cease to be recognised at the date when the Group ceases
to be party to the contractual provisions of the instrument.
Financial assets are included on the balance sheet as trade and other
receivables or cash and cash equivalents.
Trade receivables
Trade receivables are amounts due from customers for services performed in the
ordinary course of business. They are generally due for settlement within 30
days and are therefore all classified as current. Trade receivables are
recognised initially at the transaction price. The Group holds the trade
receivables with the objective of collecting the contractual cash flows and
therefore measures them subsequently at amortised cost using the effective
interest method.
The Group applies the simplified approach permitted by IFRS 9, which requires
expected lifetime losses to be recognised from the initial recognition of the
receivable. To measure expected credit losses, trade receivables are analysed
based on their credit risk characteristics to determine a suitable historic
loss rate. The historical loss rates are adjusted to reflect current and
forward looking information on macroeconomic factors that the Group considers
could affect the ability of its customers to settle the receivables.
Trade payables
Trade payables are obligations to pay for goods or services that have been
acquired in the ordinary course of business from suppliers. Accounts payable
are classified as current liabilities if the company does not have an
unconditional right, at the end of the reporting period, to defer settlement
of the creditor for at least twelve months after the reporting date. If there
is an unconditional right to defer settlement for at least twelve months after
the reporting date, they are presented as non-current liabilities. Trade
payables are recognised initially at fair value and all are repayable within
one year and hence are included at the undiscounted amount of cash expected to
be paid.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other
short-term highly liquid investments that have a maturity date of three months
or less from the date of acquisition, are readily convertible to a known
amount of cash and are subject to an insignificant risk of change in value.
Leases
Short term leases or leases of low value are recognised as an expense on a
straight-line basis over the term of the lease.
The Group recognises right-of-use assets under lease agreements in which it is
the lessee. The underlying assets mainly include property and office equipment
and are used in the normal course of business. The right-of-use assets
comprise the initial measurement of the corresponding lease liability payments
made at or before the commencement day as well as any initial direct costs and
an estimate of costs to be incurred in dismantling the asset. Lease incentives
are deducted from the cost of the right-of-use asset. The corresponding lease
liability is included in the consolidated statement of financial position as a
lease liability.
The right-of-use asset is depreciated over the lease-term and if necessary
impaired in accordance with applicable standards. The lease liability shall
initially be measured at the present value of the lease payments that are not
paid at that date, discounted using the rate implicit in the lease. The lease
liability is subsequently measured by increasing the carrying amount to
reflect interest on the lease liability (application of the effective interest
method) and by reducing the carrying amount to reflect the lease payments
made. No lease modification or reassessment changes have been made during the
reporting period from changes in any lease terms or rent charges.
Employee benefit plans
Defined contribution plans
The Group operates a defined contribution pension plan. Payments to defined
contribution pension plans are recognised as an expense when employees have
rendered services entitling them to the contributions.
Share-based payment
Benefits to employees are provided in the form of share-based payment
transactions, whereby employees render services in exchange for shares or
rights over shares ('equity settled transactions'). The fair value of the
employee services rendered is measured by reference to the fair value of the
shares awarded or rights granted, which takes into account market conditions
and non-vesting conditions. This cost is charged to the income statement over
the vesting period, with a corresponding increase in the share based payment
reserve.
The cumulative expense recognised at each reporting date until the vesting
date reflects the extent to which the vesting period has expired and the
company's best estimate of the number of shares that will ultimately vest. The
charge or credit to the income statement for a period represents the movement
in the cumulative expense recognised at the beginning and end of that period
and is recognised in share based payment expense.
Alternative performance measures
Adjusted results are prepared to provide a more comparable indication of the
Group's core business performance by removing the impact of certain items
including exceptional items, and other, non- trading, items that are reported
separately.
The Group believes that EBITDA before separately disclosed items ("adjusted
EBITDA") is the most significant indicator of operating performance and allows
a better understanding of the underlying profitability of the Group. The Group
defines adjusted EBITDA as operating profit/loss before interest, tax,
depreciation, amortisation, exceptional items and share based payments.
The Group also measures and presents performance in relation to various other
non-GAAP measures, such as gross margin, annual recurring revenue and revenue
growth.
Adjusted results are not intended to replace statutory results. These have
been presented to provide users with additional information and analysis of
the Group's performance, consistent with how the Board monitors results.
3. Significant accounting judgements, estimates and assumptions
In the application of the Group's accounting policies, management is required
to make judgements, estimates and assumptions about the carrying value of
assets and liabilities that are not readily apparent from other sources.
Estimates and assumptions
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of revision and future periods if the revision affects both current and future
periods. No significant estimates have been identified.
Judgements
The areas of judgement which have the most significant impact on the amounts
recognised in the financial statements are as follows:
Revenue recognition
Judgements have been taken in the application of IFRS 15 "Revenue from
Contracts with Customer". The determination of the transaction price included
judgement as to how much variable consideration was expected to be received
across the contract and how much those considerations should be constrained
based on projected contract performance. There was judgement taken in
allocating the transaction price to the identified performance obligations
based on the relative stand-alone selling price (SSP) of each distinct service
or item within the contract. An observable SSP was not available, therefore
judgement was used to estimate the SSP considering all reasonably available
information using an expected cost-plus margin approach.
Deferred tax
In assessing the requirement to recognise a deferred tax asset, management
carried out a forecasting exercise in order to assess whether the Group and
Company will have sufficient future taxable profits on which the deferred tax
asset can be utilised. This forecast required management's judgement as to the
future performance of the Group and Company.
Capitalisation of development costs
The Group capitalises costs associated with the development of the Kooth
platform. These costs are assessed against IAS 38 Intangible Assets to ensure
they meet the criteria for capitalisation. After capitalisation, management
monitors whether the recognition requirements continue to be met and whether
there are any indicators that capitalised costs may be impaired. Capitalised
development expenditure is analysed further in note 11.
Development costs largely relate to amounts paid to external developers,
consultancy costs and the direct payroll costs of the internal development
teams. Any internal time capitalised is the result of careful judgement of the
proportion of time spent on developing the platform. Capitalised development
expenditure is reviewed at the end of each accounting period for indicators of
impairment.
4. Revenue and segmental analysis
In accordance with IFRS 8 "Operating Segments", the Group requires
consideration of the Chief Operating Decision Maker ("CODM") within the Group.
In line with the Group's internal reporting framework and management
structure, the key strategic and operating decisions are made by the Executive
Directors, who review internal monthly management reports, budgets and
forecast information as part of this. Accordingly, the Executive Directors are
deemed to be the CODM.
Accordingly, the CODM determines the Group currently operates under one
reporting segment. There are no individual groups of assets generating
distinct and separately identifiable cashflows.
The total turnover of Kooth plc has been derived from its principal activity
undertaken in the UK and the US. A geographical analysis of revenue by
customer location is provided below:
2023 2022
£'000 £'000
Provision of online counselling contracts - UK 19,143 18,648
Provision of online counselling contracts - US 1,466 1,472
Platform build and behavioural support services contracts - US 12,728 -
33,337 20,120
The group had one customer (2022: none) that accounted for more than 10% of
total revenue in 2023. This customer accounted for 38% of group revenue (2022:
0%)
Segmental reporting of assets and liabilities has not been provided as the
information is not available, and the cost to develop it would be excessive.
5. Operating loss
2023 2022
£'000 £'000
Labour costs 7,354 6,150
Share based payment expense 100 65
Travel and subsistence 26 50
Total cost of sales 7,480 6,265
Employee costs 15,855 8,701
Rent and rates 492 316
IT hosting and software 1,450 963
Professional fees 3,948 1,307
Marketing 1,650 490
Depreciation & amortisation 3,775 2,236
Share based payment expense 644 292
Other costs 305 462
Total administrative expenses 28,119 14,767
Total cost of sales and administrative expenses 35,599 21,032
Cost of sales represent the costs of our service user facing employees
including external contractors.
6. Employee remuneration
2023 2022
£'000 £'000
Salaries 20,669 12,033
Pensions 529 317
Social security costs 2,325 1,189
Other staff benefits 479 207
Share based payments 744 304
24,746 14,050
Employee remuneration is presented in the financial statements in the
following locations:
2023 2022
£'000 £'000
Cost of sales 6,837 4,763
Administrative expenses 14,988 8,539
Statement of financial position 2,921 748
24,746 14,050
Employee numbers 2023 2022
Direct 259 234
Indirect 183 139
Developers 36 33
478 406
Employee numbers disclosed represent the average number of employees,
including directors, for the year.
The Directors' remuneration and share options are detailed within the Report
of the Remuneration Committee within the 2023 Annual Report (pages 85 to 90).
This includes detail of the total Directors' remuneration, including bonuses
and pension contributions and remuneration of the highest paid Director. No
directors exercised share options in the year.
The Executive Directors of the Company control 4.7% of the voting shares of
the Company (2022: 4.8%).
Share based payment 2023 2022
£'000 £'000
Long term incentive awards 744 304
An element of long term incentive awards are capitalised accounting for the
difference in long term incentive awards shown in this note compared to the
amount disclosed as an expense in the Statement of Profit and Loss.
Long term incentive awards
Long term incentive awards have been issued to all staff. Performance
conditions are attached to the incentive awards of Executives, with 50% linked
to adjusted EBITDA growth (ARR growth for grants prior to 2023) and 50% linked
to comparative total shareholder return (TSR). Vesting conditions require that
all staff remain employed by the business for three years. The shares vest
over a three year period with a maximum term of 10 years.
Number of Options Weighted average exercise price Number of Options Weighted average exercise price
2023 2023 2022 2022
Outstanding at the beginning of the year 1,873,356 £0.05 1,080,066 £0.05
Granted 882,989 £0.05 1,096,464 £0.05
Forfeited (311,520) £0.05 (303,174) £0.05
Exercised (105,808) £0.05 - £0.05
Outstanding at the end of the year 2,339,017 £0.05 1,873,356 £0.05
The share options outstanding at the end of the year have a weighted average
remaining contractual life of 8.6 years (2022: 9.0 years).
Fair value of options granted:
The fair value of the awards has been calculated using the Black Scholes
option pricing model and using a Stochastic simulation model for options with
TSR performance conditions. The following assumptions were used on options
granted in the year:
Options granted on 15/03/2023 24/05/2023 02/09/2023 14/09/2023 27/10/2023 16/11/2023
Share price at date of grant 171.5p 247.0p 329.0p 323.0p 300.0p 301.0p
Exercise price 5.0p 5.0p 5.0p 5.0p 5.0p 5.0p
Vesting period (years) 2.8 2.6 3 2.4 2.9 2.7
Expected volatility 38.50% 38.50% 38.50% 38.50% 38.50% 38.90%
Option life (years) 10 10 10 10 10 10
Expected life (years) 10 10 10 10 10 10
Risk-free rate 4.40% 4.40% 4.40% 4.40% 4.40% 4.50%
Expected dividends expressed as a dividend yield 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Fair value of options granted 137.5p 199.7p 318.1p 262.6p 234.4p 241.5p
The expected volatility is based on the historical volatility of the Company's
share price. An assessment of the likelihood of market conditions being
achieved is made at the time that the options are granted.
7. Interest
2023 2022
£'000 £'000
Interest income on cash deposits 298 81
8. Taxation
2023 2022
£'000 £'000
Current tax
UK corporation tax - (438)
Foreign tax 336 -
Adjustments in respect of prior years 451 (308)
787 (746)
Deferred tax
Current year (1,756) 9
Adjustments in respect of prior years (826) 622
(2,582) 631
Tax credit on losses (1,795) (115)
2023 2023 2022 2022
£'000 % £'000 %
Profit/(loss) before tax for the period (1,964) (831)
Tax charge/(credit) at standard rate of 23.5% (2022: 19%) (462) 23.5 (158) 19.0
Effects of:
Permanent items / additional relief under R&D scheme (782) 39.8 (398) 47.9
Difference between UK CT & DT rates (160) 8.2 3 (0.4)
Losses surrendered at 14.5% under SME tax relief scheme - 0.0 137 (16.5)
Prior year adjustments (375) 19.1 313 (37.7)
Other differences (16) 0.8 (12) 1.4
Tax credit for the year (1,795) 91.4 (115) 13.8
Tax rate
An increase in the UK corporation rate from 19% to 25% (effective 1 April
2023) was substantively enacted on 24 May 2021. This increases the Group's
current tax charge accordingly to a weighted average standard tax rate of
23.5%
Prior year adjustment
The prior year adjustment reflects a decision that was made subsequent to the
finalisation of the 2022 Annual Report not to surrender losses and claim an
R&D tax credit and instead carry forward those losses to be offset against
expected future taxable profits. The net impact of the rate used in
calculating the deferred tax balance on carried forward losses of 25% (opposed
to the tax credit at 14.5%) has resulted in this difference.
9. Earnings per share
2023 2022
£'000 £'000
Earnings used in calculation of earnings per share:
On total losses attributable to equity holders of the parent (169) (716)
2023 2022
Weighted average no. of shares (Basic) 34,768,325 33,055,776
Shares in issue
Ordinary shares in issue 36,480,873 33,055,776
Loss per share (basic and diluted, £)
On total losses attributable to equity holders of the parent (0.00) (0.02)
While there are options and potentially dilutable instruments, they have not
been included due to a loss in the year making them anti-dilutive. The
earnings per share figures above are therefore both basic and diluted.
10. Goodwill
2023 2022
£'000 £'000
Goodwill as at 1 January and 31 December 511 511
Management has established counselling services as the one CGU during the
relevant periods. All goodwill is attributable to this CGU.
The Group tests annually for impairment or more frequently if there are
indications that it might be impaired. There were no indicators of impairment
noted during the periods presented.
The Group tests goodwill for impairment by reviewing the carrying amount
against the recoverable amount of the investment. Management has calculated
the value in use using the following assumptions:
Discount rate 8%
Growth rate 2%
Forecasts are based on past experience and take into account current and
future market conditions and opportunities. Using alternative discount
(increase to 10%) and growth rates (decrease to nil) as sensitised assumptions
does not result in any impairment.
The Group prepares forecasts based on the most recent financial budgets
approved by the Board. The forecasts have been used in the value in use
calculation along with the assumptions stated above. The forecasts used are
consistent with those used in the going concern review and discussed in note
2. The forecasts extended for a period of 12 months from the date of signing.
There were no impairments in the years ended 31 December 2023 and 31 December
2022.
11. Development costs
2023 2022
£'000 £'000
Cost
Balance as at 1 January 10,315 7,363
Additions 8,713 2,952
Balance as at 31 December 19,028 10,315
Amortisation
Balance as at 1 January (6,634) (4,496)
Amortisation (3,644) (2,138)
Balance as at 31 December (10,278) (6,634)
Carrying amount 31 December 8,750 3,681
The US Soluna platform has a carrying value of £5.4m and a remaining
amortisation period of between 2 and 3 years. The UK platform has a carrying
value of £2.8m and a remaining amortisation period of between 1 and 3 years.
The US Klassic platform has a carrying value of £0.6m and remaining
amortisation period of between 1 and 2 years.
12. Leases
2023 2022
£'000 £'000
Right of use asset
As at 1 January 68 -
Additions - 68
Depreciation (22) -
Disposal - -
Currency revaluation (4) -
As at 31 December 42 68
Lease liability
As at 1 January 68 -
Additions - 68
Interest charge 5 -
Cash payment (25) -
Disposal - -
Currency revaluation (4) -
As at 31 December 44 68
13. Property, plant and equipment
2023 2022
£'000 £'000
Cost
Balance as at 1 January 551 451
Additions 291 100
Balance as at 31 December 842 551
Depreciation
Balance as at 1 January (429) (335)
Depreciation (109) (94)
Balance as at 31 December (538) (429)
Carrying amount 31 December 304 122
Property, plant and equipment refers to computer and office equipment.
14. Deferred tax assets and liabilities
Fixed asset temporary differences Other temporary differences Tax losses Total
At 1 January 2022 - asset / (liability) (458) 323 570 435
Movement - (charge) / credit (119) (98) (566) (783)
At 1 January 2023 - asset / (liability) (577) 225 4 (348)
Movement - (charge) / credit (643) 503 2,721 2,581
Amounts recognised in equity - 416 - 416
At 31 December 2023 - asset / (liability) (1,220) 1,144 2,725 2,649
Deferred tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the deductible temporary
differences can be utilised.
15. Trade and other receivables
2023 2022
£'000 £'000
Trade receivables 5,801 1,110
Prepayments 1,084 504
Other receivables 289 1,004
7,174 2,618
All amounts shown above are short term. The net carrying value of trade
receivables is considered a reasonable approximation of fair value.
Included within prepayments are £0.3m of contract costs related to the
California contract which will be amortised in line with revenue recognition
to be released in 2024.
16. Contract assets
2023 2022
£'000 £'000
Accrued income 251 649
17. Cash and cash equivalents
2023 2022
£'000 £'000
Cash and cash equivalents 11,004 8,492
18. Trade and other payable
2023 2022
£'000 £'000
Trade payables 1,555 680
Accruals and other creditors 2,521 977
Tax liabilities 651 967
4,727 2,624
The Group recognises a provision for an obligation when there is a probable
outflow of resources and an amount can be reliably estimated. This includes
legal disputes the estimated costs of which are provided for in other
creditors. Disclosure of the exact details of these claims could prejudice the
financial position of the Group and accordingly further information is not
disclosed in this report.
19. Contract liabilities
2023 2022
£'000 £'000
Contract liabilities - current 5,156 2,583
Revenue recognised in the reporting period that was included in the contract
liability balance at the beginning of the year totalled £2.5m (2022: £0.8m).
The following table shows the movement in contract liabilities:
2023 2022
£'000 £'000
Contract liabilities recognised at start of the year 2,583 797
Amounts invoiced in prior year recognised as revenue in the current year (2,525) (754)
Amounts invoiced in the current year which will be recognised as revenue in 5,098 2,540
the later years
Balance at the end of the year 5,156 2,583
20. Equity
2023 2022
£'000 £'000
Ordinary A shares 1,825 1,653
Number of Shares 2023 2022
Ordinary A shares 36,480,873 33,055,776
The share capital of Kooth plc consists of fully paid ordinary shares with a
nominal value of £0.05 per share.
The A ordinary shares have attached to them full voting, dividend and capital
distribution rights (including on winding up). They do not confer any right of
redemption.
The following share transactions have taken place during the year ended 31
December 2023:
2023 2022
Number Number
At the start of the year 33,055,776 33,055,776
Share placement 3,305,577 -
Exercise of share options 119,520 -
At the end of the year 36,480,873 33,055,776
Share capital increased from the prior year following the successful share
placement in July 2023 and the exercise of staff share options.
2023 2022
£'000 £'000
Share Premium 23,444 14,229
Share premium represents the funds received in exchange for shares over and
above the nominal value. Share premium increased from the prior year following
the successful share placement in July 2023. The movement in the reserve
represents the amounts received from the placement less the costs incurred.
2023 2022
£'000 £'000
Share based payment reserve 2,142 1,221
The share based payment reserve represents amounts accrued for equity settled
share options granted.
2023 2022
£'000 £'000
Merger reserve (4,104) (4,104)
The merger reserve was created as a result of the share for share exchange
during the year ended 31 December 2020.
2023 2022
£'000 £'000
Capital redemption reserve 115 115
The capital redemption reserve was established as a result of the deferred
share buyback during the year ended 31 December 2020.
2023 2022
£'000 £'000
Translation reserve 161 -
The translation reserve represents differences on translation of balances in
Kooth USA LLC which has a functional currency of USD.
21. Auditor's remuneration
2023 2022
£'000 £'000
Fees payable to the auditor for the audit of the Company and Consolidated 130 85
financial statements
Fees payable to the auditor and its associates for other services:
Other audit related services 5 5
22. Financial assets and liabilities
2023 2022
£'000 £'000
Financial assets
Trade receivables 5,801 1,110
Cash and cash equivalents 11,004 8,492
Financial liabilities
Trade and other payables 4,120 1,725
The carrying amount of trade receivables are denominated in the following
currencies:
2023 2022
£'000 £'000
GBP 931 1,100
USD 4,870 10
Total 5,801 1,110
The carrying amount of cash and cash equivalents are denominated in the
following currencies:
2023 2022
£'000 £'000
GBP 6,463 6,916
USD 4,508 1,576
EUR 33 -
Total 11,004 8,492
The carrying amount of trade and other payables are denominated in the
following currencies:
2023 2022
£'000 £'000
GBP 1,579 857
USD 2,541 868
Total 4,120 1,725
Management has assessed that the fair values of cash, trade receivables, trade
payables, and other current liabilities approximate their carrying amounts
largely due to the short-term maturities of these instruments.
The Group's principal financial liabilities comprise trade and other payables.
The Group has no debt facility as at 31 December 2023 (2022: £nil). The main
purpose of these financial liabilities is to finance the Group's operations.
The Group's principal financial assets include trade receivables and cash that
derive directly from its operations.
The Group is exposed to market risk, credit risk and liquidity risk. The
Group's senior management oversees the management of these risks. The Group's
senior management is supported by the Board of Directors who advise on
financial risks and the appropriate financial risk governance framework for
the Group. The Board provides assurance to the Group's senior management that
the Group's financial risk activities are governed by appropriate policies and
procedures and that financial risks are identified, measured and managed in
accordance with the Group's policies and risk objectives.
The Board of Directors reviews and agrees policies for managing each of these
risks, which are summarised below.
Market risk
Market risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: interest rate risk, currency risk
and other price risk, such as equity price risk and commodity risk.
Market risk is deemed to be immaterial to the Group given that the Group has
no debt facilities in place at the year ended 31 December 2023 (2022: £nil)
that would cause interest rate risk.
Credit risk
The Group's principal financial assets are cash and trade receivables. The
credit risk associated with cash is limited, as the counterparties have high
credit ratings assigned by international credit-rating agencies. The credit
risk associated with trade receivables is also limited as customers are
primarily government backed organisations such as the NHS or State
governments. Credit losses historically incurred have been negligible.
Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is
available to meet foreseeable needs by closely managing its cash balance.
As at the year ended 31 December 2023 the Group is solely funded by equity and
as a result liquidity risk is deemed to be immaterial. The Group monitors its
risk of a shortage of funds through both review and forecasting procedures.
Foreign currency risk
The Group is exposed to the US Dollar through the US subsidiary, Kooth USA
LLC, which raises its sales invoices to customers in US Dollars and incurs
costs in US Dollars.
With the Group reporting in Sterling, any change to the GBP/USD exchange rate
could increase the Group's foreign currency risk. The Group deems the UK and
US to be stable economies, thereby significantly reducing foreign currency
risk.
If the exchange rate between sterling and the US dollar had been 10%
higher/lower at the reporting date, the effect on profit would have been
approximately (£635,000)/£780,000 respectively (2022:(£65,000)/80,000). If
the exchange rate between sterling and euro had been 10% higher/lower at the
reporting date the effect on profit would have been approximately
(£3,000)/£4,000 respectively (2022: (£0)/£0).
23. Related party transactions
Note 25 provides information about the Group's structure, including details of
the subsidiaries and the holding company. The Group has taken advantage of the
exemption available under IAS 24 Related Party Disclosures not to disclose
transactions between Group undertakings which are eliminated on consolidation.
Key management personnel are the executive members of the Board of Directors.
Remuneration applicable to the Company is disclosed below, with further
information disclosed in the Remuneration Committee report.
2023 2022
£'000 £'000
Salaries and bonuses 1,919 709
Pension costs 25 21
Share based payment charges 227 147
2,171 877
The following table provides the total amount of transactions that have been
entered into with related parties for the relevant financial year.
2023 2022
£'000 £'000
Monitoring fees - ScaleUp Capital Limited 58 50
24. Capital management policies and procedures
The Group's capital management objectives are:
● To ensure the Group's ability to continue as a going concern.
● To provide an adequate return to shareholders by pricing products
and services in a way that reflects the level of risk involved in providing
those goods and services.
The Group monitors capital on the basis of the carrying amount of equity, less
cash and cash equivalents as presented in the statement of financial position.
The Group has no debt facilities in place as at 31 December 2023 (2022:
£nil).
Management assesses the Group's capital requirements in order to maintain an
efficient overall financing structure while avoiding excessive leverage. The
Group manages the capital structure and makes adjustments to it in the light
of changes in economic conditions and the risk characteristics of the
underlying assets. The amounts managed as capital by the Group for the
reporting periods under review are summarised as follows:
2023 2022
£'000 £'000
Total equity 20,758 10,518
Cash and cash equivalents 11,004 8,492
Capital 31,762 19,010
Total equity 20,758 10,518
Lease liability (44) (68)
Financing 20,714 10,450
25. Subsidiaries and associated companies
Name Country of Incorporation Proportion Held Activity Registered Address
Kooth Group Limited UK 100% Platform development 5 Merchant Square, London, England, W2 1AY
Kooth Digital Health Limited UK 100% Provision of online services to children, young people and adults in the UK 5 Merchant Square, London, England, W2 1AY
Kooth USA LLC US 100% Provision of online services to children, young people in the US 167 North Green Street, Chicago, IL, 60607
26. Standards issued but not yet effective
At the date of authorisation of these consolidated financial statements,
several new, but not yet effective, Standards and amendments to existing
Standards, and Interpretations have been published by the IASB. None of these
Standards or amendments to existing Standards have been adopted early by the
Group.
Management anticipates that all relevant pronouncements will be adopted for
the first period beginning on or after the effective date of the
pronouncement. New Standards, amendments and Interpretations not adopted in
the current year have not been disclosed as they are not expected to have a
material impact on the Group's consolidated financial statements.
27. Ultimate controlling party
No shareholder owns a majority of shares. The directors do not consider that
there is one ultimate controlling party.
28. Events after the reporting date
In January 2024, the Group entered into a working capital credit facility with
Citibank of $9.5 million that remains undrawn at the time of issuing this
report.
29. Capital commitments
The Group's capital commitments at 31 December 2023 are £nil (FY22: £nil).
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