TIDMARC
RNS Number : 3070K
Arcontech Group PLC
01 September 2021
ARCONTECH GROUP PLC
("Arcontech", the "Company" or the "Group")
Final Results for the year ended 30 June 2021
Arcontech (AIM: ARC), the provider of products and services for
real-time financial market data processing and trading, is pleased
to announce its final audited results for the year ended 30 June
2021.
Financial Highlights:
-- Turnover increased by 1.1% to GBP2,988,842 (2020: GBP2,955,314)
-- Profit before tax was GBP1,036,314 (2020: GBP1,040,969) -
broadly flat on the previous year as expected
-- Cash balances up 7.8% to GBP5,395,457 as at 30 June 2021 (30 June 2020: GBP5,006,969)
-- Fully diluted earnings per share of 7.88p (2020: 9.22p restated)
-- Final dividend increased 10% to 2.75 pence per share (2020: 2.5 pence per share)
Operational Highlights:
-- Net sales impacted by pandemic
-- Increased investment in sales and new product development
-- Sales team has built a strong pipeline of near and mid-term prospects
-- Continued cash generation and robust balance sheet and high
proportion of recurring revenue
Commenting on the results, Geoff Wicks, Chairman and
Non-Executive Director of Arcontech said:
"The future for our market remains uncertain and it may be some
time until it returns to previous levels of activity. We continue
to work towards future sales and already have a high level of pent
up demand with the strongest list of prospective new customers for
a long time. However, due to the impact of Covid on net new sales
in the 2020/21 financial year, this year's profit is expected to be
flat or lower, as any pick up in revenue will not be fully
reflected in our results until 2022/23. As the market comes out of
this difficult period we are confident we will return to growth
given the flexibility provided by our strong balance sheet and the
strength of our customer relationships and product profile".
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the company's obligations under Article 17 of MAR.
Enquiries:
Arcontech Group plc 020 7256 2300
Geoff Wicks, Chairman and Non-Executive
Director
Matthew Jeffs, Chief Executive
finnCap Ltd (Nomad & Broker) 020 7220 0500
Carl Holmes/Tim Harper
Harriet Ward - ECM
To access more information on the Group please visit:
www.arcontech.com
Chairman's Statement
Following my first full year as Chairman I am pleased to be able
to report that Arcontech has come through the pandemic so far in
good shape. The Company closed the year with revenue and profit as
expected in line with last year's performance. Profit before
taxation was GBP1,036,314 (2020: GBP1,040,969) flat on last year.
These figures include accruals no longer required which are
unrelated to the underlying business amounting to GBP88,000 (2020:
GBP86,500). After adjusting for release of these accruals, profit
before taxation is GBP948,314 (2020: GBP954,469). This was achieved
at the same time as maintaining our focus and investment on growing
our sales and marketing capability, which will stand us in good
stead as markets return to more normal conditions.
Turnover was GBP2,988,842 (2020: GBP2,955,314) up by GBP33,528
on last year. Our customers continue to be cautious and new
projects have largely been shelved. During this period of inertia
in the market our focus has been on maintaining a high level of
service to our current customer base while continuing to build our
list of potential customers. Our recurring revenue base of around
93% provides stability and visibility of earnings and has allowed
us to continue with our growth strategy with confidence.
Our cost base has been managed to good effect although we have
not reduced staff numbers nor did we furlough any staff as we
continue to build relationships in the market and to make
improvements to our products. Sales cycles have always been long
for the Company and more recently decision making in our market
segment is largely being postponed, although interest in our
products and services is still growing.
Statutory earnings per share for the year to 30 June 2021 was
7.88p (2020: 9.22p), with the decline in earnings largely
reflecting the lower tax credit. At 30 June 2021 the Group has tax
losses of approximately GBP8,500,000 (2020: GBP8,900,000) to offset
against future trading profits.
Financing
Cash balances were GBP5,395,457 (2020: GBP5,006,969) at the end
of the year, an increase of 7.8%, providing a robust balance sheet
overall. This is a reflection of the close attention paid to the
management of our cost base and allows us to have confidence to
continue with our progressive dividend policy and to continue to
look at ways to grow the business through means other than
organically.
Dividend
I am pleased to announce that, subject to approval at the Annual
General Meeting, we intend to pay a dividend of 2.75 pence per
share for the year ended 30 June 2021 (30 June 2020: 2.5 pence), an
increase of 10%, to those shareholders on the register as at the
close of business on 10 September 2021 with an ex-dividend date of
9 September 2021.
Employees
Our first thoughts through this trying period have been for the
safety and well-being of our staff. We are fortunate that they have
all been able to work from home and productivity has remained high.
I am pleased that our staff have performed well during this period
and I would like to thank them for all their hard work adapting to
new working practices and technologies.
Outlook
The future for our market remains uncertain and it may be some
time until it returns to previous levels of activity. We continue
to work towards future sales and already have a high level of pent
up demand, with the strongest list of prospective new customers for
a long time. However, due to the impact of Covid on net new sales
in the 2020/21 financial year, this year's profit is expected to be
flat or lower, as any pick up in revenue will not be fully
reflected in our results until 2022/23. As the market comes out of
this difficult period we are confident we will return to growth
given the flexibility provided by our strong balance sheet and the
strength of our customer relationships and product profile.
Geoff Wicks
Chairman
Chief Executive's Review
I am pleased to report that despite a year of uncertainty and
caution that we have achieved our strategic and financial goals and
at the same time, positioned the Company for continued stability
and growth as normality returns to the market.
Cost control remained paramount within the context of investing
in sales and despite the full year's impact of the two additional
salesmen, statutory profit before tax remained broadly unchanged at
GBP1,036,314 (2020: GBP1,040,969), equally, our preferred measure
of profit before tax which excludes accruals unrelated to the
underlying business, at GBP948,314 (GBP954,469).
In terms of business development, we won a brand new Tier 1 bank
client, added new business with an existing Tier 1 bank to upgrade
their system and integrate it with their in-house data feed but
regrettably, lost a regional client whose requirements have
changed. The number of end users for our desktop software solution
and Excelerator numbers remained stable.
Development work for the year consisted of adding functionality
in response to specific requests from existing clients, completing
our newly developed alerting and monitoring capabilities to make
them production ready and implementing the upgrade to our Unix
system interface to the in-house system for one of our Tier 1
clients.
We also made significant progress developing two new offerings
for existing and potential clients in the form of a data
permissioning system and a tick history database. The new
permissioning system rounds out our offering for a market-data
platform so that we can offer wholesale replacement rather than
select components, whilst the tick history database will enable us
to address a related business case that operates in parallel with
the areas we currently address.
The new software along with our existing systems are completely
compatible with any deployment situation or combination of
situations a client requires: on-premise, data centre co-location
or with any cloud provider.
During the year our sales team has been focused on uncovering
new opportunities. We have as a result identified and qualified
prospects across 6 countries in which we do not currently have a
presence. With an initial online relationship established we look
forward to strengthening ties with face-to-face visits when
possible. I should also note that the existing opportunities that
were in our pipeline before the pandemic remain and as confirmed by
the clients and prospective clients, have simply been deferred.
For existing clients our exceptional support continues to be a
differentiator. We have helped several clients with projects
initiated before the pandemic and continue to do so. At the same
time we have helped with and resolved the usual day to day issues
and queries for clients who are, in the main, also facing similar
challenges of remote working and restricted travel and the Board
and I are grateful to them.
Given the strength of our balance sheet we are taking a more
proactive approach to potential opportunities in the market. We
believe that there may be potential beneficial acquisitions to
explore as a result of current market conditions.
In the new financial year we are continuing to support our
clients and we expect to gain from the armoury of new product
functionality, two new product solutions and the expanded lead
base. However, face-to-face contact is still difficult with
prospects outside of the U.K. which continues to hamper the winning
of new business. We expect this to change as vaccination programs
roll out across the world, international travel resumes and clients
return to offices.
Matthew Jeffs
Chief Executive
Strategic Report
The Directors present the group strategic report for Arcontech
Group plc and its subsidiaries for the year ended 30 June 2021.
Principal activities
The principal activities of the Company and its subsidiaries
during the year were the development and sale of proprietary
software and provision of computer consultancy services.
Review of the business and prospects
A full review of the operations, financial position and
prospects of the Group is given in the Chairman's Statement and
Chief Executive's Review on pages 2 to 3.
Key performance indicators (KPIs)
The Directors monitor the business using management reports and
information, reviewed and discussed at monthly Board meetings.
Financial and non-financial KPIs used in this report include:
Financial KPIs :
Revenue GBP2,988,842 (2020: GBP2,955,314; 2019: GBP2,841,362) Measurement:
Revenue from sales made to all customers (excluding intra-group
sales which eliminate on consolidation)
Performance:
Continued growth driven by increased sales of our product
offering
Adjusted profit GBP959,110 (2020: GBP1,131,203; 2019: GBP835,248) Measurement:
Profit after tax and before release of accruals for
administrative costs in respect of prior years
Performance:
Continued growth reflects increase in revenues whilst continuing
to maintain tight cost control
Cash GBP5,395,457 (2020: GBP5,006,969; 2019: GBP4,063,484) Measurement:
Cash and cash equivalents held at the end of the year
Performance:
The Group continues to maintain healthy cash balances subject to
any exceptional circumstances or acquisition opportunities
Earnings per share (basic) 7.88p (2020: 9.22; 2019: 7.51p) Measurement:
Earnings after tax divided by the weighted average number of
shares Performance:
Continued growth
Earnings per share (diluted) 7.79p (2020: 9.03p; 2019: 7.42p) Measurement:
Earnings after tax divided by the fully diluted number of
shares
Performance:
Continued growth
Non-financial KPIs :
Staff retention rate (net) 93% (2020: 91%; 2019: 100%) Measurement:
Net retention after adjusting for joiners and leavers during the
year
Performance:
Staff morale from our dedicated employees remains strong,
reflected in the stable retention rate
Principal risks and uncertainties
The Group's performance is affected by a number of risks and
uncertainties, which the Board monitor on an ongoing basis in order
to identify, manage and minimise their possible impact. General
risks and uncertainties include changes in economic conditions,
interest rate fluctuations and the impact of competition. The
Group's principal risk areas and the action taken to mitigate their
outcome are shown below:
Risk area Mitigation
Competition Ongoing investment in research and development
Responding to the changing needs of clients to remain competitive
Loss of key personnel Employee share option scheme in place
The Directors and employees are operating remotely in order to protect their health and
Covid-19 pandemic safety
At present the Company believes that there should be no significant material disruption to
its work
Arcontech is a global company and as such seeks growth across a geographically diverse
customer
Brexit base
Relations with shareholders
Section 172(1) Statement - Promotion of the Company for the
benefit of the members as a whole
The Directors believe they have acted in the way most likely to
promote the success of the Group for the benefit of its members as
a whole, as required by s172 of the Companies Act 2006.
The requirements of s172 are for the Directors to:
-- Consider the likely consequences of any decision in the long term;
-- Act fairly between the members of the Company;
-- Maintain a reputation for high standards of business conduct;
-- Consider the interests of the Company's employees;
-- Foster the Company's relationships with suppliers, customers and others; and
-- Consider the impact of the Company's operations on the community and the environment.
The Group's operation is the development and sale of proprietary
software and provision of computer consultancy services. The Board
has identified its key stakeholders as its customers, shareholders,
employees and suppliers. The Board keeps itself appraised of its
key stakeholders' interests through a combination of both direct
and indirect engagement, and the Board has regard to these
interests when discharging its duties.
The application of the s172 requirements can be demonstrated in
relation to some of the key decisions made during the year to 30
June 2021:
-- Allocation of the Group's capital in a way which offers
significant returns to shareholders in line with the Company's
dividend policy, while also ensuring that the Group retains
flexibility to continue to deploy capital towards profitable
growth;
-- Adapting a rapid response to the working location
restrictions arising from the Covid-19 pandemic, ensuring that the
Group continued to deliver both the high level of service and
security that our customers depend on without compromising the
health and safety of employees.
During the year to 30 June 2021, the Board assessed its current
activities between the Board and its stakeholders, which
demonstrated that the Board actively engages with its stakeholders
and takes their various objectives into consideration when making
decisions. Specifically, actions the Board has taken to engage with
its stakeholders over the last twelve months include:
-- Attended the 2020 AGM to answer questions and receive additional feedback from investors;
-- Arranged meetings with certain stakeholders to provide them
with updates on the Company's operational activities and other
general corporate updates;
-- We discussed feedback from investors' and analysts' meetings
following the release of our annual and half-year announcements. We
have an investor relations programme of meetings with existing and
potential shareholders; and
-- Monitored company culture and engaged with employees on
efforts to continuously improve company culture and morale.
The Board believes that appropriate steps and considerations
have been taken during the year so that each Director has an
understanding of the various key stakeholders of the Company. The
Board recognises its responsibility to contemplate all such
stakeholder needs and concerns as part of its discussions,
decision-making, and in the course of taking actions, and will
continue to make stakeholder engagement a top priority in the
coming years.
Approved on behalf of the board on 31 August 2021 by:
Matthew Jeffs
Chief Executive
Group Income Statement and Statement of Comprehensive Income
For the year ended 30 June 2021
Note 2021 2020
GBP GBP
Revenue 3 2,988,842 2,955,314
Administrative costs (1,945,481) (1,917,502)
Operating profit 4 1,043,361 1,037,812
Net finance (expense) / income 5 (7,047) 3,157
Profit before taxation 1,036,314 1,040,969
Taxation 9 10,796 176,734
Profit for the year after tax 1,047,110 1,217,703
------------------------------------------- ----- ------------ ------------
Total comprehensive income for the year 1,047,110 1,217,703
------------------------------------------- ----- ------------ ------------
Earnings per share (basic) 10 7.88p 9.22p
------------------------------------------- ----- ------------ ------------
Adjusted* Earnings per share (basic) 10 7.22p 8.56p
------------------------------------------- ----- ------------ ------------
Earnings per share (diluted) 10 7..79p 9.03p
------------------------------------------- ----- ------------ ------------
Adjusted* Earnings per share (diluted) 10 7.14p 8.39p
---------------------------------------- --- ------ ------
*Adjusted to exclude the release of accruals for administrative
costs of GBP88,000 (2020: GBP86,500) in respect of prior years.
All of the results relate to continuing operations.
Statement of Changes in Equity
For the year ended 30 June 2021
Group:
Share Share Retained Total
capital premium Share option reserve earnings equity
GBP GBP GBP GBP GBP
Balance at 30 June 2019 1,651,314 56,381 99,647 2,842,966 4,650,308
Profit for the year - - - 1,217,703 1,217,703
Total comprehensive income for the year - - - 1,217,703 1,217,703
Dividend paid - - - (263,591) (263,591)
Share-based payments - - 98,428 - 98,428
Transfer between reserves - - (9,436) 9,436 -
Balance at 30 June 2020 1,651,314 56,381 188,639 3,806,514 5,702,848
Profit for the year - - - 1,047,110 1,047,110
Total comprehensive income for the year - - - 1,047,110 1,047,110
Dividend paid - - - (333,594) (333,594)
Exercise of options 14,663 35,979 - - 50,642
Share-based payments - - 115,866 - 115,866
Transfer between reserves - - (33,298) 33,298 -
Balance at 30 June 2021 1,665,977 92,360 271,207 4,553,329 6,582,873
----------------------------------------- ---------- --------- --------------------- ---------- ----------
Company:
Share Share Retained Total
capital premium Share option reserve earnings equity
GBP GBP GBP GBP GBP
Balance at 30 June 2019 1,651,314 56,381 99,647 4,378,109 6,185,451
Profit for the year - - - 326,348 326,348
Total comprehensive expense for the year - - - 326,348 326,348
Dividend paid - - - (263,591) (263,591)
Share-based payments - - 98,428 - 98,428
Transfer between reserves - - (9,436) 9,436 -
------------------------------------------ ---------- --------- --------------------- ---------- -----------
Balance at 30 June 2020 1,651,314 56,381 188,639 4,450,302 6,346,636
Profit for the year - - - 181,744 181,744
------------------------------------------ ---------- --------- --------------------- ---------- -----------
Total comprehensive income for the year - - - 181,744 181,744
Dividend paid - - - (333,594) (333,594)
Exercise of options 14,663 35,979 - - 50,642
Share-based payments - - 115,866 - 115,866
Transfer between reserves - - (33,298) 33,298 -
Balance as at 30 June 2021 1,665,977 92,360 271,207 4,331,751 6,361,295
------------------------------------------ ---------- --------- --------------------- ---------- -----------
Balance Sheet
As at 30 June 2021
Registered number: 04062416
Group Group Company Company
2021 2020 2021 2020
GBP GBP GBP GBP
Note
Non-current assets
Goodwill 11 1,715,153 1,715,153 - -
Property, plant and equipment 12 11,147 19,316 - -
Right of use asset 17 365,758 512,061 - -
Investments in subsidiaries 13 - - 2,017,471 2,017,471
Deferred tax asset 18 471,000 452,000 55,000 151,000
Trade and other receivables 14 141,750 141,750 - -
------------------------------- ----- ------------- ------------- ----------- -----------
Total non-current assets 2,704,809 2,840,280 2,072,471 2,168,471
------------------------------- ----- ------------- ------------- ----------- -----------
Current assets
Trade and other receivables 14 470,317 192,632 3,263,467 3,181,410
Cash and cash equivalents 15 5,395,457 5,006,969 1,077,741 1,146,700
------------------------------- ----- ------------- ------------- ----------- -----------
Total current assets 5,865,774 5,199,601 4,341,208 4,328,110
------------------------------- ----- ------------- ------------- ----------- -----------
Current liabilities
Trade and other payables 16 (1,643,407) (1,851,037) (52,384) (149,945)
Lease liabilities 17 (148,450) (141,693) - -
------------------------------- ----- ------------- ------------- ----------- -----------
Total current liabilities (1,791,857) (1,992,730) (52,384) (149,945)
------------------------------- ----- ------------- ------------- ----------- -----------
Non-current liabilities
Lease liabilities 17 (195,853) (344,303) - -
------------------------------- ----- ------------- ------------- ----------- -----------
Total Non-current liabilities (195,853) (344,303) - -
Net current assets 4,073,917 3,206,871 4,288,824 4,178,165
------------------------------- ----- ------------- ------------- ----------- -----------
Net assets 6,582,873 5,702,848 6,361,295 6,346,636
------------------------------- ----- ------------- ------------- ----------- -----------
Equity
Called up share capital 19 1,665,977 1,651,314 1,665,977 1,651,314
Share premium account 20 92,360 56,381 92,360 56,381
Share option reserve 20 271,207 188,639 271,207 188,639
Retained earnings 20 4,553,329 3,806,514 4,331,751 4,450,302
------------------------------- ----- ------------- ------------- ----------- -----------
6,582,873 5,702,848 6,361,295 6,346,636
------------------------------- ----- ------------- ------------- ----------- -----------
As permitted by s408 of the Companies Act 2006, the Company has
not presented its own income statement. The parent Company profit
for the year was GBP181,744 (2020: GBP326,348).
Approved on behalf of the board on 31 August by:
Matthew Jeffs
Chief Executive
Group Cash Flow Statement
For the year ended 30 June 2021
Note 2021 2020
GBP GBP
Cash generated from operations 22 809,559 1,315,421
Tax (paid)/recovered (8,204) 9,734
Net cash generated from operating activities 801,355 1,325,155
------------------------------------------------ ----- ---------- ----------
Investing activities
Interest received 13,260 29,914
Purchases of plant and equipment (1,482) (12,750)
Net cash generated from investing activities 11,778 17,164
------------------------------------------------ ----- ---------- ----------
Financing activities
Proceeds from the issue of shares 50,642 -
Dividend paid (333,594) (263,591)
Payment of lease liabilities (141,693) (135,243)
Net cash used in financing activities (424,645) (398,834)
------------------------------------------------ ----- ---------- ----------
Net increase in cash and cash equivalents 388,488 943,485
Cash and cash equivalents at beginning of year 5,006,969 4,063,484
------------------------------------------------ ----- ---------- ----------
Cash and cash equivalents at end of year 15 5,395,457 5,006,969
------------------------------------------------ ----- ---------- ----------
Notes to the Financial Statements
For the year ended 30 June 2021
1. Accounting policies
The principal accounting policies are summarised below. They
have all been applied consistently throughout the period covered by
these financial statements except where changes have been noted
below.
Reporting entity
Arcontech Group PLC ("the Company") is a company incorporated in
England and Wales. The consolidated financial statements
incorporate the financial statements of the Company and its
subsidiaries (together referred to as "the Group").
Basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") endorsed by
the European Union and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
On the basis of current projections, confidence of future
profitability and cash balances held, the Directors have adopted
the going concern basis in the preparation of the financial
statements.
The financial statements have been prepared under the historical
cost convention.
Going Concern
On the basis of current projections and having regard to the
Group's existing cash reserves, the Directors consider that the
Group has adequate resources to continue in operational existence
for the foreseeable future. In reaching this conclusion the
Directors have taken into account of downside conditions considered
reasonably possible in changes in trading performance due to the
impact of Covid-19. The Board has monitored business conditions
caused by the Covid-19 pandemic and assessed its impact on the
Group's performance over the last twelve months. The Group has been
able to maintain its ability operate successfully with no major
detrimental impact to performance being experienced. Although the
board achnowledges that further virus waves could have a material
impact on trading performance, the board notes the cushion provided
by the strong net cash position and the ability to cut costs.
Accordingly, the Directors have adopted the going concern basis in
the preparation of the financial statements.
Changes in accounting policies and disclosures
a) New and amended Standards and Interpretations adopted by the Group and Company
No standards or Interpretations that came into effect for the
first time for the financial year beginning 1 July 2020 have had an
impact on the Group.
b) New and amended Standards and Interpretations issued but not
effective for the financial year beginning 1 July 2020
At the date of approval of these financial statements, the
following standards and interpretations which have not been applied
in these financial statements were in issue but not yet effective
(and in some cases had not been adopted by the UK):
- Amendments to References to Conceptual Framework in IFRS
Standards - effective from 1 January 2020
- Definition of Material (Amendments to IAS 1 and IAS 8) -
effective from 1 January 2020
- Amendments to IFRS 9, IAS 39 and IFRS 17: Interest Rate
Benchmark Reform - effective from 1 January 2020
- Amendment to IFRS 3 Business Combinations - effective 1 January 2020
- Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current - effective
1 January 2023*
- Amendments to IFRS 3: Business Combinations - Reference to the
Conceptual Framework - effective 1 January 2022*
- Amendments to IFRS 9, IAS 3, IFRS 7, IFRS 4 and IFRS 16:
Interest Rate Benchmark Reform - Phase 2 - effective from 1 January
2021
- Amendments to IAS 16: Property, Plant & Equipment - effective 1 January 2022*
- Amendments to IAS 37: Provisions, Contingent Liabilities and
Contingent Assets - effective 1 January 2022*
- Annual Improvements to IFRS Standards 2018-2020 Cycle - effective 1 January 2022*
- Amendments to IAS 1: Presentation of Financial Statements and
IFRS Practice Statement 2: Disclosure of Accounting Policies -
effective 1 January 2023*
- Amendments to IAS 8: Accounting policies, Changes in
Accounting Estimates and Errors - Definition of Accounting
Estimates - effective 1 January 2023*
- Amendments to IFRS 16: Leases - Covid-19-Related Rent
Concessions beyond 30 June 2021 - effective 1 April 2021
- Amendments to IAS 12: Income Taxes - Deferred Tax related to
Assets and Liabilities arising from a Single Transaction -
effective 1 January 2023*
*subject to UK endorsement
The new and amended Standards and Interpretations which are in
issue but not yet mandatorily effective is not expected to be
material.
Basis of consolidation
The Group financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) prepared to 30 June 2021. Subsidiaries are
entities controlled by the Group. 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 result 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 with the other vote holders of the investee.
-- Rights arising from other contractual arrangements.
-- The Group's voting rights and potential voting rights.
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.
The acquisition method is used to account for the acquisition of
subsidiaries.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Business combinations and goodwill
On acquisition, the assets and liabilities and contingent
liabilities of subsidiaries are measured at their fair value at the
date of acquisition. Any excess of cost of acquisition over the
fair values of the identifiable net assets acquired is recognised
as goodwill. Any deficiency of the cost of acquisition below the
fair values of the identifiable net assets acquired (i.e. discount
on acquisition) is credited to the income statement in the period
of acquisition. Goodwill arising on consolidation is recognised as
an asset and reviewed for impairment at least annually. Any
impairment is recognised immediately in the income statement and is
not subsequently reversed.
Revenue recognition
Revenue is recognised in accordance with the transfer of
promised services to customers (i.e. when the customer gains
control of the service) and is measured as the consideration which
the group expects to be entitled to in exchange for those services.
Consideration is typically fixed on the agreement of a contract
except for quarterly flexible license contracts. Payment terms are
agreed on a contract by contract basis.
A service is distinct if the customer can benefit from the
service on its own or together with other resources that are
readily available to the customer and the entity's promise to
transfer the service to the customer is separately identifiable
from other promises in the contract.
Contracts with customers do not contain a financing
component.
Under IFRS 15, revenue earned from contracts with customers is
recognised based on a five-step model which requires the
transaction price for each identified contract to be apportioned to
separate performance obligations arising under the contract and
recognised either when the performance obligation in the contract
has been performed (point in time recognition) or over time as
control of the performance obligation is transferred to the
customer.
The group recognises revenue when it satisfies a performance
obligation by transferring a promised service to the customer as
follows:
-- Revenue from recurring license fees and other license fees is
recognised on an over time basis via a straight line across the
period the services are provided. In reaching this conclusion the
group has assessed that ongoing contractual obligations are not
separately identifiable from other promises in the contract and are
not distinct from the licence, and hence are accounted for as a
single performance obligation. As the license is not distinct the
combined performance obligation is recognised over time.
In assessing whether a licence is distinct the Group considered
the continuing requirement to:-
- optimise functionality;
- optimise performance; and
- provide enhancements to ensure user regulatory compliance.
-- Revenue from flexible license contracts that include variable
consideration are quarterly contracts assessed at the end of each
calendar quarter and revenue is recognised based on actual usage
confirmed for that quarter at the point of customer acceptance,
-- Revenue from project work is recognised on satisfactory
completion of each project, as this is considered to be the point
in time the customer gains control over the results of the project
work.
Taxation
The tax charge/(credit) represents the sum of the tax
payable/(receivable) and any deferred tax.
Research and development tax credits are recognised when
received.
The tax payable/(receivable) is based on the taxable result for
the year. The taxable result differs from the net result as
reported in the income statement because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The
Company's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries, except where
the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will
not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled, or the asset
realised. Deferred tax is charged or credited to the income
statement, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt
with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current assets and liabilities on a net basis.
Share-based payments
The cost of share-based employee compensation arrangements,
whereby employees receive remuneration in the form of shares or
share options, is recognised as an employee benefit expense in the
income statement.
The total expense to be apportioned over the vesting period of
the benefit is determined by reference to the fair value (excluding
the effect of non- market based vesting conditions) at the date of
grant. Fair value is measured by the use of the Black-Scholes
model. The expected life used in the model has been adjusted, based
on management's best estimate, for the effects of the
non-transferability, exercise restrictions and behavioural
considerations. A cancellation of a share award by the Group or an
employee is treated consistently, resulting in an acceleration of
the remaining charge within the consolidated income statement in
the year of cancellation.
Impairment of tangible and intangible assets
The carrying amounts of the Group's and Company's tangible and
intangible assets are reviewed at each year end date to determine
whether there is any indication of impairment. If any such
indication exists, the asset's recoverable amount is estimated.
Expenses incurred on Research & Development are currently
expensed through the income statement as the expenditure is
incurred on the maintenance and enhancement of existing products.
The applicability of this treatment is reviewed regularly by the
Company.
For goodwill, the recoverable amount is estimated at each year
end date, based on value in use. The recoverable amount of other
assets is the greater of their net selling price and value in
use.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset.
For an asset that does not generate largely independent cash
inflows, the recoverable amount is determined for the cash
generating unit to which the asset belongs.
An impairment loss is recognised in the income statement
whenever the carrying amount of an asset or its cash-generating
unit exceeds its recoverable amount. Impairment losses recognised
in respect of cash-generating units are allocated first to reduce
the carrying amount of any goodwill allocated to cash-generating
units and then to reduce the carrying amount of the other assets in
the unit on a pro rata basis.
A cash generating unit is the smallest identifiable group of
assets that generates cash inflows that are largely independent of
the cash inflows from other assets or groups of assets.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost of assets,
over their estimated useful lives, on the following bases:
Leasehold property - over the period of the lease
Computer equipment - 33% - 40% on cost
Office furniture and equipment - 20% - 25% on cost or reducing balance
Investments in subsidiaries
Investments in subsidiaries are stated at cost less any
provision for impairment.
Financial instruments
Financial assets and financial liabilities are recognised in the
statement of financial position when the Group becomes a party to
the contractual provisions of the instrument.
Financial assets
The Group does not hold any investments other than investments
in subsidiaries.
Trade receivables are held in order to collect the contractual
cash flows and are initially measured at the transaction price as
defined in IFRS 15, as the contracts of the Group do not contain
significant financing components. Impairment losses are recognised
based on lifetime expected credit losses in profit or loss.
Other receivables are held in order to collect the contractual
cash flows and accordingly are measured at initial recognition at
fair value, which ordinarily equates to cost and are subsequently
measured at cost less impairment due to their short-term nature. A
provision for impairment is established based on 12-month expected
credit losses unless there has been a significant increase in
credit risk when lifetime expected credit losses are recognised.
The amount of any provision is recognised in the income
statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and
short-term bank deposits with an original maturity of three months
or less.
Financial liabilities and equity
Financial liabilities and equity instruments issued by the Group
are classified in accordance with the substance of the contractual
arrangements entered into and the definitions of a financial
liability and an equity instrument. An equity instrument is any
contract that evidences a residual interest in the assets of the
Group after deducting all of its liabilities. Equity instruments
issued by the company are recorded at the proceeds received, net of
direct issue costs.
Effective interest rate method
The effective interest rate method is a method of calculating
the amortised cost of a financial asset or liability and allocating
interest income or expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future
cash flows through the expected life of the financial asset or
liability, or, where appropriate, a shorter period, to the net
carrying amount on initial recognition.
(a) Classification
The Group classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value (either
through OCI or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the Group's business model for
managing the financial assets and the contractual terms of the cash
flows.
For assets measured at fair value, gains and losses will be
recorded either in profit or loss or in OCI. For investments in
equity instruments that are not held for trading, this will depend
on whether the Group has made an irrevocable election at the time
of initial recognition to account for the equity investment at fair
value through other comprehensive income (FVOCI). See Note 16 for
further details.
(b) Recognition
Purchases and sales of financial assets are recognised on trade
date (that is, the date on which the Group commits to purchase or
sell the asset). Financial assets are derecognised when the rights
to receive cash flows from the financial assets have expired or
have been transferred and the Group has transferred substantially
all the risks and rewards of ownership.
(c) Measurement
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at fair
value through profit or loss (FVPL), transaction costs that are
directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVPL are expensed
in profit or loss.
Debt instruments
Amortised cost; Assets that are held for collection of
contractual cash flows, where those cash flows represent solely
payments of principal and interest, are measured at amortised cost.
Interest income from these financial assets is included in finance
income using the effective interest rate method.
Any gain or loss arising on derecognition is recognised directly
in profit or loss and presented in other gains/(losses) together
with foreign exchange gains and losses. Impairment losses are
presented as a separate line item in the statement of profit or
loss.
(d) Impairment
From 1 January 2018, the Group assesses, on a forward-looking
basis, the expected credit losses associated with its debt
instruments carried at amortised cost. The impairment methodology
applied depends on whether there has been a significant increase in
credit risk.
For trade receivables, the Group applies the simplified approach
permitted by IFRS 9, which requires expected lifetime losses to be
recognised from initial recognition of the receivables.
Leases
Leases are recognised as a right-of-use asset and a
corresponding lease liability at the date at which the leased asset
is available for use by the Group.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- Fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- Variable lease payment that are based on an index or a rate,
initially measured using the index or rate as at the commencement
date;
-- Amounts expected to be payable by the Group under residual value guarantees;
-- The exercise price of a purchase option if the Group is
reasonably certain to exercise that option; and
-- Payments of penalties for terminating the lease, if the lease
term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the lessee's
incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease
period.
Right-of-use assets are measured at cost which comprises the
following:
-- The amount of the initial measurement of the lease liability;
-- Any lease payments made at or before the commencement date
less any lease incentives received;
-- Any initial direct costs; and
-- Restoration costs.
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis. If the Group is reasonably certain to exercise a purchase
option, the right-of-use asset is depreciated over the underlying
asset's useful life.
Payments associated with short-term leases (term less than 12
months) and all leases of low-value assets (generally less than
GBP4k) are recognised on a straight-line basis as an expense in
profit or loss.
Provisions
Provisions are recognised when the Group has a present
obligation, legal or constructive, resulting from past events and
it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the obligation.
Research and development
Research costs are charged to the income statement in the year
incurred. Development expenditure is capitalised to the extent that
it meets all of the criteria required by IAS 38, otherwise it is
charged to the income statement in the year incurred.
Pension costs and other post-retirement benefits
The Group makes payments to occupational and employees' personal
pension schemes. Contributions payable for the year are charged in
the income statement.
Foreign currencies
Transactions denominated in foreign currencies are translated
into sterling at the exchange rate ruling when the transaction was
entered into. Where consideration is received in advance of revenue
being recognised the date of the transaction reflects the date the
consideration is received. Foreign currency monetary assets and
liabilities are translated into sterling at the exchange rate
ruling at the balance sheet date. Exchange gains or losses are
included in operating profit.
Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker
as required by IFRS 8 "Operating Segments". The chief operating
decision-maker responsible for allocating resources and assessing
performance of the operating segments has been identified as the
Board of Directors. The accounting policies of the reportable
segments are consistent with the accounting policies of the group
as a whole. Segment profit/(loss) represents the profit/(loss)
earned by each segment without allocation of foreign exchange gains
or losses, investment income, interest payable and tax. This is the
measure of profit that is reported to the Board of Directors for
the purpose of resource allocation and the assessment of segment
performance. When assessing segment performance and considering the
allocation of resources, the Board of Directors review information
about segment assets and liabilities. For this purpose, all assets
and liabilities are allocated to reportable segments with the
exception of cash and cash equivalents and current and deferred tax
assets and liabilities.
2. Critical accounting judgments and key sources of estimation uncertainty
The preparation of financial statements in conformity with
generally accepted accounting practice requires management to make
estimates and judgements that affect the reported amounts of assets
and liabilities as well as the disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of
revenues and expenses during the reporting period.
Estimates and judgements are continually evaluated and are based
on historic experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
Judgements
Determination of performance obligations and satisfaction
thereof
For the purposes of recognising revenue, the Directors are
required to identify distinct services in contracts and allocate
the transaction price to the performance obligations. Details of
determining performance obligations, passing of control and amounts
recognised as costs incurred to obtain or fulfil a contract are
given in Note 1 - Revenue recognition.
Capitalisation of development costs
As described in Note 1, the Group capitalises development costs
when certain criteria are met including the probability of relevant
future economic benefits. The directors have assessed the
likelihood of relevant future economic benefits and have judged it
appropriate to not capitalise any development costs (2020 -
GBPNil).
Estimates
Impairment of non-current assets
Determining whether non-current assets are impaired requires an
estimation of the value in use of the cash generating units to
which non-current assets have been allocated. The value in use
calculation requires the Group to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable
discount rate in order to calculate the present value. No provision
for impairment was made in the year to the carrying value of
goodwill (see note 11) or investments in subsidiaries (see note
13).
Recognition of deferred tax assets
As described in Note 1, the Group recognises deferred tax assets
arising from unused tax losses when certain criteria are met
including the probability that future relevant taxable profits will
be available. The directors have assessed the likelihood of future
taxable profits being available and have judged it appropriate to
recognise deferred tax assets for unused losses. At the year-end a
deferred tax asset of GBP471,000 (2020 - GBP452,000) was
recognised.
Share based payment transactions
The Company has made awards of options and over its unissued
share capital to certain Directors and employees as part of their
remuneration package.
The valuation of these options involves making a number of
critical estimates relating to price volatility, future dividend
yields, expected life of the options and forfeiture rates. These
assumptions have been described in more detail in Note 19.
3. Revenue
An analysis of the Group's revenue is as follows:
2021 2020
GBP GBP
Software development, licence fees and project work 2,988,842 2,955,315
------------------------------------------------------ ---------- ----------
All of the Group's revenue relates to continuing activities.
4. Operating profit for the year is stated after charging/(crediting):
2021 2020
GBP GBP
Depreciation of plant and equipment (see note 12) 9,651 8,444
Depreciation of leased assets (see note 17) 146,303 146,303
Interest on leased assets (see note 17) 20,307 26,757
Staff costs (see note 8) 1,491,063 1,401,227
Research and development 506,893 468,680
Release of accruals for administrative costs in respect of prior years (88,000) (86,500)
------------------------------------------------------------------------- ---------- ----------
5. Finance income and Finance costs:
2021 2020
GBP GBP
Finance income
Income on cash and cash equivalents 13,260 29,914
Finance costs
Lease interest expense (20,307) (26,757)
------------------------------------- --------- ---------
Net finance (expense) / income (7,047) 3,157
------------------------------------- --------- ---------
6. Auditor's remuneration:
2021 2020
GBP GBP
Fees payable to the Group's auditor for the audit of the Group's annual accounts 29,750 28,750
Fees payable to the Group's auditor for other services:
- audit of the Company's subsidiaries 6,000 6,000
----------------------------------------------------------------------------------- ------- -------
7. Operating segments:
The Group reports internally to the Chief Operating Decision
Maker (CODM), who is considered to be the Board. Intersegment
license fees and management charges are not included in the reports
reviewed by the CODM during the year but are calculated for
statutory reporting purposes and therefore are excluded from the
following revenue and operating profit disclosures.
2021 2020
GBP GBP
Revenue by segment
Software development and licence fees 2,988,842 2,955,315
-------------------------------------------------------------------- -------------- --------------
External segment revenue 2,988,842 2,955,315
-------------------------------------------------------------------- -------------- --------------
Operating profit by segment
Software development and licence fees 1,468,132 1,575,029
Unallocated overheads (445,078) (563,976)
-------------------------------------------------------------------- -------------- --------------
Total operating profit 1,023,054 1,011,053
Finance income 13,260 29,916
Total profit before tax as reported in the Group income statement 1,036,314 1,040,969
-------------------------------------------------------------------- -------------- --------------
2021 2020
GBP GBP
Segment total of assets
Software development and licence fees 7,337,340 6,514,118
Unallocated assets 4,492,208 4,533,110
---------------------------------------- ------------- -------------
11,829,548 11,047,228
Less intercompany debtors (3,258,968) (3,174,349)
Total assets 8,570,580 7,872,879
---------------------------------------- ------------- -------------
2021 2020
GBP GBP
Segment total of liabilities
Software development and licence fees 5,193,528 5,360,835
Unallocated liabilities 53,150 150,546
---------------------------------------- ------------ ---------------
5,246,678 5,511,381
Less intercompany creditors (3,258,968) (3,174,349)
---------------------------------------- ------------ ---------------
Total liabilities 1,987,710 2,337,032
---------------------------------------- ------------ ---------------
2021 2020
GBP GBP
Additions of property, plant and equipment assets by segment
Software development and licence fees 1,482 12,750
------------------------------------------------------------------------------------------- ------ -------
Total additions 1,482 12,750
------------------------------------------------------------------------------------------- ------ -------
2021 2020
GBP GBP
Depreciation of property, plant and equipment assets recognised in the period by segment
Software development and licence fees 9,651 8,444
Total depreciation 9,651 8,444
------------------------------------------------------------------------------------------- ------ -------
Non-current assets by country 2021 2020
GBP GBP
UK 2,704,809 2,840,280
Total non-current assets 2,704,809 2,840,280
-------------------------------- ---------- ----------
Geographical information - External revenue 2021 2020
GBP GBP
UK 2,065,903 2,000,457
Europe (excluding UK) 771,541 821,193
Africa 42,500 45,000
North America 83,637 78,177
Australia 11,838 4,267
Asia Pacific 13,423 6,221
2,988,842 2,955,315
--------------------------------------------- ---------- ----------
During the year there were 3 customers (2020: 4) who accounted
for more than 10% of the Group's revenues as follows:
2020 2020
Value of % of Total Value of % of Total
sales sales
GBP GBP
Customer 1 668,122 22% 659,327 22%
Customer 2 522,149 17% 516,605 17%
Customer 3 375,168 13% 371,536 13%
Customer 4 - - 300,696 10%
------------ ---------- ----------- ---------- -----------
1,565,439 52% 1,848,164 62%
------------ ---------- ----------- ---------- -----------
These revenues are attributable to the software development and
licence fees segment.
8. Staff costs:
2021 2020
GBP GBP
a) Aggregate staff costs, including Directors' remuneration
Wages and salaries 1,206,748 1,139,695
Social security costs 144,131 140,611
Pension contributions 24,318 22,493
Share-based payments 115,866 98,428
1,491,063 1,401,227
------------------------------------------------------------- ---------- ----------
b) The average number of employees (including executive Directors) was:
Sales and administration 6 5
Development and support 11 11
-------------------------------------------------------------------------- --- ---
17 16
------------------------------------------------------------------------- --- ---
GBP GBP
c) Directors' emoluments
Short-term employee benefits 232,352 312,902
Pension contributions 5,250 5,428
Share-based payments 63,030 57,432
300,632 375,762
Social security costs 49,351 37,536
---------------------------------------- -------- --------
Key management personnel compensation 439,983 413,298
---------------------------------------- -------- --------
Directors' emoluments represent the staff costs of the parent
company.
The average number of employees of the parent company is 3
(2020: 3)
The highest paid Director received remuneration of GBP186,178
(2020: GBP250,166).
The number of Directors that are members of a defined
contribution pension scheme is 1 (2020: 1). Pension contributions
paid to a defined contribution scheme in respect of the highest
paid Director amounted to GBP5,250 (2020: GBP5,100).
9. Taxation
2021 2020
GBP GBP
Current tax (8,204) 9,734
Deferred tax 19,000 167,000
-------------------------------- -------- --------
Total tax credit for the year 10,796 176,734
-------------------------------- -------- --------
The difference between the total tax credit shown above and the
amount calculated by applying the standard rate of UK corporation
tax to the profit before tax is as follows:
2021 2020
GBP GBP
Profit on ordinary activities before tax 1,036,314 1,040,969
---------------------------------------------------------------------------------------- ---------- ----------
Profit on ordinary activities multiplied by the standard rate of corporation tax in the
UK
of 19 % (2019: 19%) 196,900 197,784
Effects of:
Disallowed expenses 97 416
Temporary differences on deferred tax 1,457 1,255
Income taxes paid 8,204 -
Research and development tax credits - (9,734)
Deferred tax asset not previously recognised (19,000) (167,000)
Brought forward losses utilised/loss for the year carried forward (198,454) (199,455)
Total tax credit for the year (10,796) (176,734)
---------------------------------------------------------------------------------------- ---------- ----------
Factors which may affect future tax charges
At 30 June 2021 the Group has tax losses of approximately
GBP8,500,000 (2020: GBP8,900,000) to offset against future trading
profits.
10. Earnings per share
2021 2020
GBP GBP
Earnings
Earnings for the purpose of basic and diluted earnings per share being net profit
attributable
to equity shareholders 1,047,110 1,217,703
1,047,110 1,217,703
--------------------------------------------------------------------------------------- ---------- ----------
No. No.
Number of shares
Weighted average number of ordinary shares for the purpose of basic earnings per
share 13,290,672 13,210,510
Number of dilutive shares under option 143,168 268,484
-------------------------------------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for the purposes of dilutive earnings per
share 13,433,840 13,478,994
-------------------------------------------------------------------------------------- ----------- -----------
The calculation of diluted earnings per share assumes conversion
of all potentially dilutive ordinary shares, all of which arise
from share options. A calculation is done to determine the number
of shares that could have been acquired at fair value, based upon
the monetary value of the subscription rights attached to
outstanding share options.
11. Goodwill
2021 2020
GBP GBP
Cost and net book amount
At 1 July 2020 and at 30 June 2021 1,715,153 1,715,153
------------------------------------- ---------- ----------
Goodwill acquired in a business combination is allocated at
acquisition, to the cash generating units (CGUs) that are expected
to benefit from that business combination. The carrying amount of
goodwill has been allocated as follows:
2021 2020
GBP GBP
Arcontech Limited 1,715,153 1,715,153
1,715,153 1,715,153
------------------- ---------- ----------
The CGU used in these calculations is Arcontech Limited. The
group tests goodwill annually for impairment or more frequently if
there are indications that goodwill might be impaired. The
recoverable amounts of the CGUs are determined from value in use
calculations. The key assumptions for the value in use calculations
are those regarding the discount rates, growth rates and expected
changes to selling prices and direct costs during the period. The
discount rate is estimated using pre-tax rates that reflect current
market assessments of the time value of money and the risks
specific to the CGUs. Long-term growth rates are based on industry
growth forecasts. Changes in selling prices are based on past
practices and expectations of future changes in the market. Changes
in direct costs are based on expected cost of inflation of 2.5% and
1.8% after year 5.
Cashflow forecasts are based on the latest financial budgets and
extrapolate the cashflows for the next five years based on an
estimated growth in revenue representing an average rate of 5%
(2020: 5%) per annum, after which the UK long-term growth rate of
1.8% is applied. The Directors consider that this rate is
appropriate, given the level of new contracts achieved during the
year. Fluctuation in revenue is the most sensitive of assumptions.
Should revenue fall by more than an average of 5% per annum then
this could result in the value of goodwill being impaired.
As the Group does not have any borrowings, the rate used to
discount all the forecast cash flows is 8.8% (2020: 8.8%), which
represents the Group's cost of capital.
Goodwill on the purchase of Arcontech Limited is attributable to
the operating synergies that have arisen as a result of the
combination.
12. Property, plant and equipment - Group
Office
Leasehold furniture &
Property equipment Total
Cost GBP GBP GBP
At 1 July 2019 26,199 129,469 155,668
Additions - 12,749 12,749
At 1 July 2020 26,199 142,218 168,417
Additions - 1,482 1,482
At 30 June 2021 26,199 143,700 169,899
------------------------------------ ---------- ------------- --------
Depreciation
At 1 July 2019 19,136 121,521 140,657
Charge for the year 1,461 6,983 8,444
At 1 July 2020 20,597 128,504 149,101
Charge for the year 1,461 8,190 9,651
At 30 June 2021 22,058 136,694 158,752
------------------------------------ ---------- ------------- --------
Net book amount at 30 June 2021 4,141 7,008 11,147
------------------------------------ ---------- ------------- --------
Net book amount at 30 June 2020 5,602 13,714 19,316
------------------------------------ ---------- ------------- --------
13. Investment in subsidiaries
2021 2020
GBP GBP
Carrying amount
At 1 July 2020 2,017,471 2,017,471
Provisions written back - -
Amounts written off - -
------------------------- ---------- ----------
At 30 June 2021 2,017,471 2,017,471
-------------------------- ---------- ----------
Details of the investments in which the Group and the Company
holds 20% or more of the nominal value of any class of share
capital are listed below. The Goodwill recognised in Note 11 is in
connection with investments made in subsidiaries:
Country of Address Nature of business Ordinary
Incorporation shares
held
11-21 Paul Street, London
Arcontech Solutions Limited England EC2A 4JU Dormant 100%
11-21 Paul Street, London
Cognita Technologies Limited England EC2A 4JU Software development 100%
11-21 Paul Street, London Software development and
Arcontech Limited England EC2A 4JU consultancy 100%
14. Trade and other receivables
Group Group Company Company
2021 2020 2021 2020
GBP GBP GBP GBP
Due within one year:
Trade and other receivables 330,740 38,162 - -
Amounts owed by group undertakings - - 3,258,868 3,174,150
Prepayments and accrued income 139,577 154,470 4,599 7,160
470,317 192,632 3,263,467 3,181,310
------------------------------------ -------- -------- ---------- ----------
Group Group Company Company
2021 2020 2021 2020
GBP GBP GBP GBP
Due after more than one year:
Other receivables 141,750 141,750 - -
141,750 141,750 - -
------------------------------- -------- -------- -------- --------
Trade receivables, which are the only financial assets at
amortised cost, are non-interest bearing and generally have a 30-90
day term. Due to their short maturities, the carrying amount of
trade and other receivables is a reasonable approximation of their
fair value. A provision for impairment of trade receivables is
established using an expected loss model. Expected loss is
calculated from a provision based on the expected lifetime default
rates and estimates of loss on default.
As at 30 June 2021, trade receivables of GBPNil were impaired
(2020: GBPNil) and during the year an impairment charge relating to
trade receivables of GBPNil (2020: GBPNil) was recognised. As at 30
June 2021 trade receivables of GBP100,469 (2020: GBP792) were past
due but not impaired. The ageing analysis of these trade
receivables is as follows:
Group Group Company Company
2021 2020 2021 2020
GBP GBP GBP GBP
Up to 3 months past due 100,469 792 - -
3 to 6 months past due - - - -
100,469 792 - -
------------------------- -------- ------ -------- --------
15. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and
short-term bank deposits with an original maturity of three months
or less. The Directors consider that the carrying amount of cash
and cash equivalents approximates to their fair value.
16. Trade and other payables
Group Group Company Company
2021 2020 2021 2020
GBP GBP GBP GBP
Trade payables 52,881 76,765 4,155 21,199
Amounts owed to group undertakings - - 100 100
Other tax and social security payable 113,083 52,033 8,844 10,475
Other payables and accruals* 388,137 527,109 39,285 118,171
Deferred income 1,089,306 1,195,130 - -
1,643,407 1,851,037 52,384 149,945
--------------------------------------- ---------- ---------- -------- --------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
Trade payables and other payables and accruals constitute the
financial liabilities within the category "Financial liabilities at
amortised cost" with a total value of GBP441,018 (2020:
GBP603,874).
*Other payables and Accruals includes a provision for
dilapidations for the Office premises of GBP50,000 (2019:
GBP50,000). Refer to note 1 for the Accounting Policy for
Provisions.
17. Leases
Under IFRS 16, the Group recognises right-of-use assets and
lease liabilities for all leases on its balance sheet. The only
lease applicable under IFRS 16 is the Group's office.
The key impacts on the Statement of Comprehensive Income and the
Statement of Financial Position are as follows:
As at 30 June 2021 Lease Right Income
liability of use statement
GBP asset GBP
GBP
Carrying value at 30
June 2020 (485,996) 512,061 -
Depreciation - (146,303) (146,303)
Interest (20,307) - (20,307)
Lease payments 162,000 - -
----------- ---------- -----------
Carrying value at 30
June 2021 (344,303) 365,758 (166,610)
----------- ---------- -----------
As at 30 June 2020 Prepayments Lease liability Right of Income
GBP use asset statement
GBP GBP GBP
Balance on transition 37,125 - - -
(1 July 2019)
Recognised on adoption
of IFRS 16 (37,125) (621,239) 658,364 -
Depreciation - - (146,303) (146,303)
Interest - (26,757) - (26,757)
Lease payments - 162,000 - -
------------------ ---------------- ----------- -----------
Carrying value at 30
June 2020 - (485,996) 512,061 (173,060)
------------------ ---------------- ----------- -----------
Contractual maturity analysis of lease liabilities as at
30 June 2021
Less than 3 - 12 1 - 5 Longer
3 months Months Year than Total
GBP GBP GBP 5 years GBP
GBP
Lease liabilities 40,500 121,500 202,800 - 364,800
------------------- ---------- -------- -------- --------- --------
18. Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using the tax rate of 17% which came
into effect from 1 April 2020. The movement on the deferred tax
account is as shown below:
Group Group Company Company
2021 2020 2021 2020
GBP GBP GBP GBP
At 1 July 452,000 285,000 151,000 125,000
Tax credit recognised in group income statement 19,000 167,000 (96,000) 26,000
At 30 June 471,000 452,000 55,000 151,000
--------------------------------------------------- -------- -------- --------- --------
The deferred tax asset has been recognised in relation to
forecast taxable profits which are considered probable.
Losses to offset against future trading profits at 30 June 2021
amounted to approximately GBP8,500,000 (2020: GBP8,900,000).
19. Share capital
2021 2020
Company GBP GBP
Allotted and fully paid:
13,327,811 (2020: 13,210,510) Ordinary shares of 12.5p each 1,665,976 1,651,314
--------------------------------------------------------------- ---------- ----------
Share options
Under the Company's approved 2002 Share Option Scheme, certain
Directors and employees held options at 30 June 2021 for unissued
Ordinary Shares of 12.5 pence each as follows:
Normal
At 1 July At 30 June exercise
Share options 2020 Granted Exercised Forfeited 2021 Exercise price period
1 Sep 17 - 31
Employees: 80,000 - (80,000) - - 23.75 pence Aug 21
25 Apr 20 - 24
125,000 - - - 125,000 64.50 pence Apr 27
30 Jun 21 - 29
50,000 - - - 50,000 110.00 pence Jun 28
30- Jun 22 -
55,000 - - - 55,000 196.00 pence 27 Sep 29
30 Jun 23 - 2
- 75,000 - - 75,000 164.50 pence Oct 30
Directors:
25 Apr 20 - 24
Michael Levy 20,635 - (20,635) - - 64.50 pence Apr 27
30 Jun 21 - 29
16,666 - (16,666) - - 110.00 pence Jun 28
30- Jun 22 -
555 - - (555) - 196.00 pence 27 Sep 29
25 Apr 20 - 24
Richard Last 24,762 - - - 24,762 64.50 pence Apr 27
30 Jun 23 - 2
Geoff Wicks - 30,000 - - 30,000 164.50 pence Oct 30
1 Sep 17 - 31
Louise Barton 40,000 - - - 40,000 23.75 pence Aug 21
25 Apr 20 - 24
20,000 - - - 20,000 64.50 pence Apr 27
30 Jun 21 - 29
Matthew Jeffs 100,000 - - - 100,000 110.00 pence Jun 28
30- Jun 22 -
50,000 - - - 50,000 196.00 pence 27 Sep 29
30 Jun 23 - 2
- 50,000 - - 50,000 164.50 pence Oct 30
Total 582,618 155,000 (117,301) (555) 619,762
----------- ------------ ----------- ------------ ------------
Weighted
average
exercise price 92.9 pence 164.5 pence 43.2 pence 196.0 pence 120.2 pence
---------------- ----------- ------------ ----------- ------------ ------------
The number of options exercisable at 30 June 2021 was 359,762
(At 30 June 2020: 310,397), these had a weighted average exercise
price of 78.9 pence (2020: 128.98 pence).
The weighted average share price as at the exercise date of the
shares exercised in the year was 43.2 pence (2020: Nil pence and of
the shares were forfeited in the year was 196.0 pence (2020:
64.5).
Options granted under the Company's approved 2002 Share Option
Scheme are forfeited when the Option holder ceases to be a Director
or employee of a Participating Company. The Directors may before
the expiry of 3 months following cessation of employment permit an
Option holder to exercise their Option within a period ending no
later than 12 months from the cessation of employment.
The highest price of the Company's shares during the year was
209.0 pence, the lowest price was 147.5 pence and the price at the
year-end was 165.0 pence.
The weighted average remaining contractual life of share options
outstanding at 30 June 2021 was 7 years (2020: 6 years).
Share-based payments
The Group operates an approved Share Option Scheme for the
benefit of Directors and employees. Options are granted to acquire
shares at a specified exercise price at any time following but no
later than 10 years after the grant date. There are no performance
conditions on the exercise of the options granted prior to 1 July
2018. The performance conditions of those granted after 1 July 2018
which apply to executive directors and certain key staff, are set
out below.
The options issued in November 2018, September 2019 and in
October 2020 will be exercisable from 30 June 2021, 30 June 2022
and 30 June 2023 respectively, dependent on the Company's compound
annual rate of growth in fully diluted earnings* for the three
financial years ending 30 June 2021, 2022 and 2023,
respectively.
Options issued date Exercisable from Dependent on the Company's
compound annual rate
of growth in fully diluted
earnings* for the three
financial years ending
-------------------- ----------------- ----------------------------
November 2018 30 June 2021 30 June 2021
September 2019 30 June 2022 30 June 2022
October 2020 30 June 2023 30 June 2023
The Options will vest subject to performance criteria as
follows:
- compound annual earnings growth of 10% or more - fully vested
(100%);
- compound annual earnings growth between 5%-10% - partial
vesting between 0% and 100% on a sliding scale; and
- compound annual earnings growth of 5% and below - nil.
Any Ordinary Shares arising from the vesting of Options must be
held for a period of two years after vesting.
* Fully diluted earnings will be based on: (a) the Company's
pre-tax profit excluding exceptional items and the share option
charge and (b) the current UK corporation tax rate of 19%, such
that the fully diluted earnings calculation takes no account of
R&D and deferred tax credits. For the purposes of the fully
diluted earnings calculation, the applied rate of corporation tax
will remain constant at 19% irrespective of any current or future
changes to corporation tax.
The fair value of options is valued using the Black-Scholes
pricing model. An expense of GBP115,866 (2019: GBP98,428) has been
recognised in the period in respect of share options granted. The
cumulative share option
reserve at 30 June 2021 is GBP271,207 (2020: GBP188,639).
The inputs into the Black-Scholes pricing model are as
follows:
Directors & Employees
Grant date 1 Sep 2014 25 Apr 2017 29 Nov 2018 27 Sep 2019 2 Oct 2020
Exercise price 23.75 pence 64.5 pence 110.0 pence 196.0 pence 164.5 pence
Expected life 6 years 10 years 10 years 10 years 10 years
Expected volatility 65% 50% 50% 50% 49%
Risk free rate of interest 0.5% 0.5% 0.75% 0.75% 0.00%
Dividend yield Nil Nil Nil Nil 0.01%
Fair value of option 19.64 pence 36.7 pence 57.0 pence 115.0 pence 91.92 pence
Volatility has been estimated based on the historic volatility
over a period equal to the expected term from the grant date.
20. Reserves
Details of the movements in reserves are set out in the
Statement of Changes in Equity. A description of each reserve is
set out below.
Share premium account
This is used to record the aggregate amount or value of premiums
paid when the Company's shares are issued at a premium, net of
issue costs, less amounts cancelled by court order.
Share option reserve
This relates to the fair value of options granted which has been
charged to the income statement over the vesting period of the
options, less amounts transferred to retained earnings.
Retained earnings
This relates to accumulated profits and losses together with
distributable reserves arising from capital reductions, less
amounts distributed to shareholders.
21. Income statement
The Company has taken advantage of the exemption provided under
section 408 of the Companies Act 2006 not to publish its individual
income statement and related notes.
22. Net cash generated from operations - Group
2021 2020
GBP GBP
Operating profit 1,043,361 1,037,812
Depreciation charge 155,954 154,747
Non cash share option charges 115,867 98,428
Lease interest paid (20,307) (26,757)
Adjustment for IFRS 16 - (37,125)
(Increase)/decrease in trade and other receivables (277,686) 71,244
(Decrease)/increase in trade and other payables (207,630) 17,072
Cash generated from operations 809,559 1,315,421
Net cash generated from operations - Company
2021 2020
GBP GBP
Operating profit 274,671 289,274
Non cash share option charges 115,867 98,428
Increase in trade and other receivables (82,057) (107,891)
(Decrease)/increase in trade and other payables (97,561) 40,651
Cash generated by/(used in) operations 210,920 320,462
23. Related party transactions
Group
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are
disclosed in this part of the note.
Key management compensation
Key management are those persons having authority and
responsibility for planning, controlling and directing the
activities of the Group. In the opinion of the Board, the Group's
key management are the Directors of Arcontech Group PLC.
Information regarding their compensation is given in notes 8 and 19
for each of the categories specified in IAS 24 Related Party
Disclosures. All emoluments given in notes 8 and 19 relate to
short-term employee benefits and there are no post-employment or
other long-term benefits.
The financial statements include the following amounts in
respect of services provided to the Group:
Company
Transactions between the Parent Company and its subsidiaries
during the year were as follows:
Management charges payable by subsidiaries GBP534,094 (2020:
GBP670,640).
The amounts due from/to subsidiaries at the balance sheet date
were as follows:
2021 2020
GBP GBP
Amount due from subsidiaries 7,223,539 7,324,474
Less: Provision for impairment (3,964,671) (4,150,324)
Amount due from subsidiaries - net 3,258,868 3,174,150
------------------------------------- ------------ ------------
During the year a provision of GBP185,654 was released (2020:
GBP177,500) in respect of balances due from subsidiaries.
2021 2020
GBP GBP
Amount due to subsidiaries 670,640 670,640
670,640 670,640
---------------------------- -------- --------
24. Dividends
A final dividend of 2.75 pence will be proposed at the Annual
General Meeting but has not been recognised as it requires approval
(2020: 2.5 pence).
25. Material non-cash transactions
There were no material non-cash transactions during the
period.
26. Financial instruments
The Group's financial instruments comprise cash and cash
equivalents, and items such as trade payables and trade
receivables, which arise directly from its operations. The main
purpose of these financial instruments is to provide finance for
the Group's operations.
The Group's operations expose it to a variety of financial risks
including credit risk, liquidity risk and interest rate risk. Given
the size of the Group, the Directors have not delegated the
responsibility of monitoring financial risk management to a
sub-committee of the Board. The policies set by the Board of
Directors are implemented by the Company's finance department.
Credit risk
The Group's credit risk is primarily attributable to its trade
receivables. The Group has implemented policies that require
appropriate credit checks on potential customers before sales are
made. The amount of exposure to any individual counterparty is
subject to a limit, which is reassessed annually by the Board.
Trade receivables are considered in default and subject to
additional credit control procedures when they are more than 30
days past due in line with industry practice. Trade receivables are
only written off when there is no reasonable expectation of
recovery due to insolvency of the debtor.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at the
reporting date was:
Group Group Company Company
2021 2020 2021 2020
GBP GBP GBP GBP
Trade receivables 330,740 38,162 - -
Cash and cash equivalents 5,395,457 5,006,969 1,077,741 1,146,700
Amounts owed by group undertakings - - 3,258,868 3,174,250
5,726,197 5,045,131 4,336,609 4,320,950
------------------------------------ ---------- ---------- ---------- ----------
Interest rate risk
The Group has interest bearing assets and no interest-bearing
liabilities. Interest bearing assets comprise only cash and cash
equivalents, which earn interest at a variable rate.
The Group has not entered into any derivative transactions
during the period under review.
The Group does not have any borrowings.
The Group's cash and cash equivalents earned interest at
variable rates, between 0.15% below bank base rate and 0.5% above
bank base rate and at fixed/variable rates of between 0.25% and
1.50% (2020: 0.30% below bank base rate and 0.6% above bank base
rate and at fixed/variable rates of between 0.35% and 1.85%).
Liquidity risk
The Group has no short-term debt finance. The Group monitors its
levels of working capital to ensure that it can meet its
liabilities as they fall due.
The Group's only financial liabilities comprise trade payables
and other payables and accruals, excluding deferred income, with a
carrying value equal to the gross cash flows payable of GBP441,018
(2020: GBP603,874) all of which are payable within 6 months.
Market risk and sensitivity analysis
Equity price risk
The Directors do not consider themselves exposed to material
equity price risk due to the nature of the Group's operations.
Foreign currency exchange risk
The Directors do not consider themselves exposed to material
foreign currency risk due to the nature of the Group's operations.
All invoices are raised in sterling.
Interest rate risk
The Group is exposed to interest rate risk as a result of
positive cash balances, denominated in sterling, which earn
interest at variable and fixed rates. As at 30 June 2021, if bank
base rate had increased by 0.5% with all other variables held
constant, post-tax profit would have been GBP26,977 (2020:
GBP25,035) higher and equity would have been GBP26,977 (2020:
GBP25,035) higher. Conversely, if bank base rate had fallen 0.5%
with all other variables held constant, post-tax profit would have
been GBP26,977 (2019: GBP25,035) lower and equity would have been
GBP26,977 (2019: GBP25,035) lower.
27. Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and maintain an optimal capital
structure.
The Group defines capital as being share capital plus reserves.
The Board of Directors continually monitors the level of
capital.
The Group is not subject to any externally imposed capital
requirements.
28. Ultimate controlling party
There is no ultimate controlling party.
29. Copies of this statement
Copies of this statement are available from the Company
Secretary at the Company's registered office at 1(st) Floor, 11-21
Paul Street, London, EC2A 4JU or from the Company's website at
www.arcontech.com .
Annual General Meeting
The Annual General Meeting of Arcontech Group PLC will be held
at the Company's offices, 1st Floor, 11-21 Paul Street, London EC2A
4JU on 1 October 2021 at 10.00 a.m.
Annual report and accounts
Copies of the annual report and accounts will be sent to
shareholders shortly and will be available from the Company
Secretary at the Company's registered office at 1st Floor, 11-21
Paul Street, London, EC2A 4JU or from the Company's website at
www.arcontech.com.
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END
FR DKDBQDBKBOFN
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