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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Arcontech Group Plc | LSE:ARC | London | Ordinary Share | GB00BDBBJZ03 | ORD GBP0.125 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -2.00 | -1.65% | 119.00 | 118.00 | 120.00 | 121.00 | 119.00 | 121.00 | 38,942 | 12:12:54 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Computer Programming Service | 2.91M | 1.07M | 0.0799 | 14.89 | 16.18M |
From Jan 2023 to Jan 2025
TIDMARC
RNS Number : 3478L
Arcontech Group PLC
05 September 2023
ARCONTECH GROUP PLC
("Arcontech", the "Company" or the "Group")
Final Results for the year ended 30 June 2023
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 2023.
Financial Highlights:
-- Turnover was GBP2,730,172 (2022: GBP2,757,795) -- Profit before taxation was GBP985,696 (2022: GBP758,573) up by GBP227,123 -- Recurring revenues represented 100% of total revenues for the period (2022: 99%) -- Net cash of GBP6,411,241 (2022: GBP6,026,468), an increase of 6.4% -- Final dividend increased 7.7% to 3.5 pence per share (2022: 3.25 pence per share)
Operational Highlights:
-- Sales team improved and building a strong pipeline of near and mid-term prospects -- Singapore-based consultant engaged to extend sales reach -- Continued exploration of potential complementary acquisitions -- Planned developments delivered to clients for testing -- Investment in technical operations e.g., Python API's developed -- PoC cloud installation tested and proven
Commenting on the results, Geoff Wicks, Chairman and Non-Executive Director of Arcontech said:
"We remain optimistic that we will return to revenue growth in the near term even though our markets remain challenging. Interest in our products is higher than we have seen for some time, and we have demonstrated we can compete in a price sensitive market with products that are market leading".
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/George Dollemore - Corporate Finance Harriet Ward - ECM
To access more information on the Group please visit: www.arcontech.com
Chairman's Statement
Arcontech retains a significant customer base and has worked hard to ensure that products are resilient and competitive. We have also successfully renewed contracts for longer periods of time in order to increase the stability of our revenue base which also provides good forward visibility. There is now revenue growth at our existing customers and a number of potential new customers at an advanced stage of negotiation. We are of course cognisant that the market for our products remains challenging as turbulence in financial markets generally has slowed down decision making and increased competitive pressure. However, the year has started positively, and the Company remains confident about the outcome for the current year.
The year to 30 June 2023 had a better level of new orders although, as reported earlier, cancellations late in the previous year and during the course of the year had a negative impact on revenue for FY23. We go into the new financial year with a growing and more positive list of potential new customers that will drive better results in future years but with our starting revenue base for the current year lower than last year.
Turnover was GBP2,730,172 (2022: GBP2,757,795) down by GBP27,623 on last year as a result of a net customer loss. Profit before taxation was GBP985,696 (2022: GBP758,573) up by GBP227,123. This increase in profit before tax is, as previously reported, due to a combination of lower than anticipated staff related costs arising from lower variable costs and delayed hires, and a release of accruals to the Consolidated Statement of Income totalling GBP110,000. These are expected to be once off savings in the year to 30 June 2023. 100% of our revenue was recurring and average contract periods have increased over the last year so while revenue has reduced, it has increased in resilience and quality. Statutory earnings per share for the year to 30 June 2023 were 7.33p (2022: 4.57p).
Investment in growing technical and sales and marketing operations was held back in the early part of the year as costs were kept under review. However, towards the end of the year the Company was back up to the expected staffing levels in order to support our existing base and the increasing number of customer trials and product developments.
The strong revenue base of recurring revenue gives us confidence to continue with our strategy to grow our core business and to expand into new market areas. We have started to extend our reach geographically and continue to build our sales and marketing capability.
Financing
Cash balances were GBP6,411,241 (2022: GBP6,026,468) at the year end, an increase of 6.4%. This strong balance sheet allows the Company to invest in both organic growth and to and to be alert for opportunities to make complementary acquisitions.
Dividend
I am pleased to announce that subject to approval at the Annual General Meeting we intend to pay a dividend of 3.5p per share for the year ended 30 June 2023 (2022: 3.25 pence) an increase of 7.7%, to those shareholders on the register as at the close of business on 6 October 2023 with a dividend payment date of 3 November 2023.
Outlook
We remain optimistic that we will return to revenue growth in the near term even though our markets remain challenging. Interest in our products is higher than we have seen for some time, and we have demonstrated we can compete in a price sensitive market with products that are market leading.
Geoff Wicks
Chairman and Non-Executive Director
Chief Executive's Review
The 2022/23 financial year evidenced greater engagement with both our existing and prospective clients when compared with last year. Our continued focus on positioning ourselves as an independent provider of market-data platform components allows us to add value to the data vendors solutions and meet the varied requirements of the data consumer.
The year has seen the addition of one new client and a 9% increase in the number of end users of our products. Whilst end user growth generally has less revenue impact than the higher margin side of the business, it is encouraging, nonetheless. We are also working on several active opportunities with both existing and prospective Tier 1 clients where our software has been installed for testing. These opportunities encompass both server-side (high margin) and our user-based solutions and have involved a good degree of work to both facilitate integration and accommodate in-house client development. This work adds optionality to our product range to create additional opportunities for deployment in the wider marketplace.
During the year we have continued to work on extending the terms of our contracts with our larger clients to multiple years so that we now have just under 50% of our recurring revenues subject to multi-year agreements and further discussions are underway.
With regard to sales resources, we have two seasoned and highly experienced professionals based in London. As a result, the current pipeline is looking increasingly optimistic whilst being added to with new opportunities. Further and in recognising the value of local sales and support, we have engaged a consultants based in Asia. The consultant has several decades of experience and has been a client of Arcontech in the past. Having started working with us at the end of the reporting year we look forward to seeing the benefit of this association in terms of reassurance, continuity and new business with both clients and prospective clients, over the coming year.
During the year we have looked at and entered discussions with prospective acquisitions, however, the fit has to be right, and our search continues.
Our staff are a key asset to the Company and have continued to provide exemplary service and support to our clients. I would like to express my thanks for their continued commitment.
With our increased sales footprint and the encouraging signs from existing clients and prospects alike, we feel optimistic for the year ahead and beyond.
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 2023.
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 GBP2,730,172 (2022: GBP2,757,795; 2021: GBP2,988,842) Measurement:
Revenue from sales made to all customers (excluding intra-group sales which eliminate on consolidation)
Performance:
Loss of two customers during the year impacted sales in the second half of the year
Adjusted profit GBP861,716 (2022: GBP601,566; 2021: GBP959,110) Measurement:
Profit after tax and before release of accruals for administrative costs in respect of prior years . This is an alternative, non-IFRS performance measure, that is considered relevant as it provides a more accurate reflection of trading performance than net profit after tax. The adjusted profit is Net profit after tax less the amount of accruals for administrative costs released as disclosed in the footnote to the Income Statement. The accruals release for 2023 includes a release of GBP110,000 which is disclosed separately in the Group Statement of Income.
Performance:
Revenue is constant with the previous year and staff costs were below the previous year due to a temporary reduced headcount.
Cash GBP6,411,241 (2022: GBP6,026,468; 2021: GBP5,395,457) 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) 7.33p (2022: 4.57; 2021: 7.88p) Measurement:
Earnings after tax divided by the weighted average number of shares
Performance:
Decrease due to the loss of two customers during the year
Earnings per share (diluted) 7.32p (2022: 4.56p; 2021: 7.79p) Measurement:
Earnings after tax divided by the fully diluted number of shares
Performance:
Decrease due to the loss of two customers during the year
Strategic Report (continued)
Non-financial KPIs :
Staff retention rate (net) 94% (2022: 87%; 2021: 93%) 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:
Hot Features
Premium
Risk area Nature Mitigation
Competition Loss of business due to existing competition Ongoing investment in research and
or new entrants into the market development
responding to the changing needs of clients
to remain competitive
Inability to execute business plan due to the Employee share option scheme in place
Loss of key personnel risk of losing key personnel
Brexit Business made difficult due to increased Arcontech is a global company and as such
regulations between the UK and Europe caused seeks growth across a geographically diverse
by Brexit customer
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;
-- The desirability of the Company maintaining a reputation for high standards of business conduct; and
-- Consider the impact of the Company's operations on the community and the environment.
Section 172(1) Companies Act 2006
The Board takes decisions with the long term in mind, and collectively and individually aims to uphold the highest standards of conduct. Similarly, the Board understands that the Company can only prosper over the long term if it understands and respects the views and needs of its customers, distributors, employees, suppliers and the wider community in which it operates.
A firm understanding of investor needs is also vital to the Company's success. The Directors are fully aware of their responsibilities to promote the success of the Company in accordance with Section 172(1) of the Companies Act 2006. The text of Section 172(1) of the Companies Act 2006 has been sent out to each main Board Director.
Strategic Report (continued)
The Board ensures that the requirements are met, and the interests of stakeholders are considered as referred to elsewhere in this report and through a combination of the following:
-- A rolling agenda of matters to be considered by the Board through the year, which includes an annual strategy review meeting, where the strategic options for the following year are developed;
-- At each board meeting, to receive and discuss a will report on customers, employees and other colleagues, and investors;
-- Standing agenda points and papers;
-- A review of certain of these topics through the Audit Committee and the Remuneration Committee agenda items referred to in this report; and
-- Detailed consideration is given to of any of these factors where they are relevant to any major decisions taken by the Board during the year.
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 2023:
-- 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;
-- Continuation of a hybrid location working format for staff as working environments continue to evolve post Covid-19, while 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 2023, 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:
-- All Directors attended the 2022 AGM to answer questions and receive additional feedback from investors;
-- The outcome of the AGM is published on the Company's corporate website;
-- The Board receives regular updates on the views of shareholders through briefings and reports from the executive directors, and the Company's brokers;
-- 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;
-- Monitored company culture and engaged with employees on efforts to continuously improve company culture and morale; and
-- A range of corporate information (including all Company announcements) is also available to shareholders, investors and the public on the Company's corporate website: www.arcontech.com.
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 4 September 2023 by:
Matthew Jeffs Chief Executive
Group Income Statement and Statement of Comprehensive Income
For the year ended 30 June 2023
Note 2023 2022
GBP GBP
Revenue 3 2,730,172 2,757,795
Administrative costs (1,924,962) (1,999,523)
Operating profit 4 805,210 758,272
Net finance income 5 70,486 301
Changes in estimated variable remuneration liability 2 110,000 -
------------------------------------------------------ ----- ------------ ------------
Profit before taxation 985,696 758,573
Taxation 9 (5,587) (148,007)
Profit for the year after tax 980,109 610,566
------------------------------------------------------ ----- ------------ ------------
Total comprehensive income for the year 980,109 610,566
------------------------------------------------------ ----- ------------ ------------
Earnings per share (basic) 10 7.33p 4.57p
------------------------------------------------------ ----- ------------ ------------
Adjusted* Earnings per share (basic) 10 6.44p 4.50p
------------------------------------------------------ ----- ------------ ------------
Earnings per share (diluted) 10 7.32p 4.56p
------------------------------------------------------ ----- ------------ ------------
Adjusted* Earnings per share (diluted) 10 6.43p 4.49p
---------------------------------------- --- ------ ------
*Adjusted to exclude the release of accruals for administrative costs of GBP118,393 (2022: GBP9,000), which includes the GBP110,000 (2022: nil) shown above in respect of estimated variable remuneration liability releases in respect of prior years. This is a non-IFRS alternative performance measure that the Board considers to be a more accurate indicator of underlying trading performance. This measure has been adopted as a KPI and is disclosed in the Strategic Report on page 4.
All of the results relate to continuing operations.
There was no Other Comprehensive Income other than Profit for the year after tax for the year under review.
The notes on pages 33 to 59 form part of these financial statements
Statement of Changes in Equity
For the year ended 30 June 2023
Group:
Share Share Retained Total
capital premium Share option reserve earnings equity
GBP GBP GBP GBP GBP
Balance at 30 June 2021 1,665,977 92,360 271,207 4,553,329 6,582,873
Profit for the year - - - 610,566 610,566
----------------------------------------- ---------- --------- --------------------- ---------- ----------
Total comprehensive income for the year - - - 610,566 610,566
Dividend paid - - - (367,752) (367,752)
Exercise of options 5,624 23,401 - - 29,025
Share-based payments - - 116,612 - 116,612
Transfer between reserves - - (116,994) 116,994 -
----------------------------------------- ---------- --------- --------------------- ---------- ----------
Balance at 30 June 2022 1,671,601 115,761 270,825 4,913,137 6,971,324
Profit for the year - - - 980,109 980,109
----------------------------------------- ---------- --------- --------------------- ---------- ----------
Total comprehensive income for the year - - - 980,109 980,109
Dividend paid - - - (434,616) (434,616)
Share-based payments - - 97,328 - 97,328
Transfer between reserves - - (88,698) 88,698 -
----------------------------------------- ---------- --------- --------------------- ---------- ----------
Balance at 30 June 2023 1,671,601 115,761 279,455 5,547,328 7,614,145
----------------------------------------- ---------- --------- --------------------- ---------- ----------
Company:
Share Share Retained Total
capital premium Share option reserve earnings equity
GBP GBP GBP GBP GBP
Balance at 30 June 2021 1,665,977 92,360 271,207 4,331,751 6,361,295
Profit for the year - - - 273,286 273,286
------------------------------------------ ---------- --------- --------------------- ---------- ----------
Total comprehensive expense for the year - - - 273,286 273,286
Dividend paid - - - (367,752) (367,752)
Exercise of options 5,624 23,401 - - 29,025
Share-based payments - - 116,612 - 116,612
Transfer between reserves - - (116,994) 116,994 -
------------------------------------------ ---------- --------- --------------------- ---------- ----------
Balance at 30 June 2022 1,671,601 115,761 270,825 4,354,279 6,412,466
Profit for the year - - - 304,044 304,044
------------------------------------------ ---------- --------- --------------------- ---------- ----------
Total comprehensive income for the year - - - 304,044 304,044
Dividend paid - - - (434,616) (434,616)
Share-based payments - - 97,328 - 97,328
Transfer between reserves - - (88,698) 88,698 -
------------------------------------------ ---------- --------- --------------------- ---------- ----------
Balance as at 30 June 2023 1,671,601 115,761 279,455 4,312,406 6,379,222
------------------------------------------ ---------- --------- --------------------- ---------- ----------
The notes on pages 33 to 59 form part of these financial statements.
Statements of Financial Position
Registered number: 04062416
As at 30 June 2023
Group Group Company Company
2023 2022 2023 2022
GBP GBP GBP GBP
Note
Non-current assets
Goodwill 11 1,715,153 1,715,153 - -
Property, plant and
equipment 12 5,950 6,545 - -
Right of use asset 17 73,152 219,455 - -
Investments in subsidiaries 13 - - 2,017,471 2,017,471
Deferred tax asset 19 328,000 318,000 68,000 56,000
Trade and other receivables 14 - 141,750 - -
------------------------------- ----- ------------ ------------ ------------ ------------
Total non-current assets 2,122,255 2,400,903 2,085,471 2,073,471
------------------------------- ----- ------------ ------------ ------------ ------------
Current assets
Trade and other receivables 14 499,861 348,686 3,842,300 3,322,737
Cash and cash equivalents 15 6,411,241 6,026,468 518,678 1,074,294
------------------------------- ----- ------------ ------------ ------------ ------------
Total current assets 6,911,102 6,375,154 4,360,978 4,397,031
------------------------------- ----- ------------ ------------ ------------ ------------
Current liabilities
Trade and other payables 16 (1,308,888) (1,558,880) (67,227) (58,036)
Lease liabilities 17 (40,324) (148,450) - -
Provisions 18 (50,000) - - -
------------------------------- ----- ------------ ------------ ------------ ------------
Total current liabilities (1,399,212) (1,707,330) (67,227) (58,036)
------------------------------- ----- ------------ ------------ ------------ ------------
Non-current liabilities
Lease liabilities 17 - (47,403) - -
Provisions 18 (20,000) (50,000) - -
------------------------------- ----- ------------ ------------ ------------ ------------
Total non-current liabilities (20,000) (97,403) - -
Net current assets 5,511,890 4,667,824 4,293,751 4,338,995
------------------------------- ----- ------------ ------------ ------------ ------------
Net assets 7,614,146 6,971,324 6,383,222 6,412,466
------------------------------- ----- ------------ ------------ ------------ ------------
Equity
Called up share capital 20 1,671,601 1,671,601 1,671,601 1,671,601
Share premium account 21 115,761 115,761 115,760 115,760
Share option reserve 21 279,455 270,825 279,455 270,825
Retained earnings 21 5,547,328 4,913,137 4,312,406 4,354,279
------------------------------- ----- ------------ ------------ ------------ ------------
7,614,145 6,971,324 6,379,222 6,412,466
------------------------------- ----- ------------ ------------ ------------ ------------
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 GBP304,044 (2022: GBP273,286).
The notes on pages 33 to 59 form part of these financial statements.
Approved on behalf of the board on 4 September by:
Matthew Jeffs, Chief Executive
Group Statement of Cash Flows
For the year ended 30 June 2023
Note 2023 2022
GBP GBP
Cash generated from operations 22 901,422 1,109,608
Tax paid - (2,642)
Net cash generated from operating activities 901,420 1,106,966
------------------------------------------------ ----- ---------- ----------
Investing activities
Interest received 76,977 13,911
Purchases of plant and equipment (3,480) (2,688)
Net cash generated from investing activities 73,497 11,223
------------------------------------------------ ----- ---------- ----------
Financing activities
Proceeds from the issue of shares - 29,025
Dividend paid (434,616) (367,752)
Payment of lease liabilities 17 (155,529) (148,450)
Net cash used in financing activities (590,145) (487,177)
------------------------------------------------ ----- ---------- ----------
Net increase in cash and cash equivalents 384,772 631,012
Cash and cash equivalents at beginning of year 6,026,469 5,395,457
------------------------------------------------ ----- ---------- ----------
Cash and cash equivalents at end of year 15 6,411,241 6,026,469
------------------------------------------------ ----- ---------- ----------
For the year to 30 June 2023, the Group had no debt, and there were no material non-cash transactions.
The notes on pages 33 to 59 form part of these financial statements.
Company Statement of Cash Flows
For the year ended 30 June 2023
Note 2023 2022
GBP GBP
Net cash (used in) / generated by operating
activities 22 (129,978) 330,075
Tax paid - (1,221)
Net cash (used in) / generated from operating
activities (129,978) 328,854
--------------------------------------------------- ----- ---------- ----------
Investing activities
Interest received 8,978 6,426
--------------------------------------------------- ----- ---------- ----------
Net cash generated from investing activities 8,978 6,426
--------------------------------------------------- ----- ---------- ----------
Financing activities
Proceeds from the issue of shares - 29,025
Dividend paid (434,616) (367,752)
Net cash used in financing activities (434,616) (338,727)
--------------------------------------------------- ----- ---------- ----------
Net decrease in cash and cash equivalents (555,616) (3,447)
Cash and cash equivalents at beginning of year 1,074,294 1,077,741
--------------------------------------------------- ----- ---------- ----------
Cash and cash equivalents at end of year 15 518,678 1,074,294
--------------------------------------------------- ----- ---------- ----------
For the year to 30 June 2023, the Company had no debt, and there were no material non-cash transactions.
The notes on pages 33 to 59 form part of these financial statements.
Notes to the Financial Statements
For the year ended 30 June 2023
1. Accounting policies
T h e pri n c i p al accoun t i ng pol i c i es are s umm a r i s ed belo w. T hey h a ve a ll been app li ed con s i s t en t ly t hroughout t he pe r i od co v ered by t he se f i n anci al s t a t e m en t s except where changes have been noted below.
Reporting entity
Arcontech Group plc ("the Company") is a company incorporated in England and Wales with a registered address at 1(st) floor, 11-21 Paul Street, London, EC2A 4JU. The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries (together referred to as "the Group").
Principal Activity
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.
Bas i s of p re p arati on
These financial statements have been prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006.
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 f i nanci al s t a t e m en ts.
T h e f i nanci al s t a t e m en ts h a ve been prepared under t he h i s t orical co st co n v e n t i on. As at 30 June 2023 all assets and liabilities are recorded at amortised cost, and there were no assets or liabilities recorded at fair value.
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 projected cash flow out twelve months from the date of signing this report. Revenue projection has been based on recurring revenue streams from existing customers and a forecast for new revenue from additional sales that the Directors feel is achievable. The Group has a highly stable cost base which has been reviewed to incorporate the impact of additional costs for revenue generation activities such as industry trade shows. The Directors have stress tested the cash flow projections assuming no new revenue generation and an increase in costs of up to 8.5%, given the current inflationary environment. Under this scenario given expected cash generation from operations and existing cash balances, the Group will have sufficient resources to continue trading for well in excess of the next twelve months. 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
The International Accounting Standards Board (IASB) issued various amendments and revisions to International Financial Reporting Standards and IFRIC interpretations per the table below. The amendments and revisions were applicable for the period year 30 June 2023 but did not result in any material changes to the financial statements of the Group.
Standard Impact on initial application Effective
date
-------------------- ----------------------------------- ------------
IAS 16 (Amendments) Property, Plant and Equipment 1 January
2022
IAS 37 (Amendments) Provisions, Contingent Liabilities 1 January
and Contingent Assets 2022
Annual Improvements 2018 - 2020 Cycle
to IFRS Standards 1 January
2022
-------------------- ----------------------------------- ------------
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
1. Accounting policies (continued)
b) New and amended Standards and Interpretations issued but not effective for the financial year beginning 1 July 2022
Standard Impact on initial application Effective
date
--------------------- ------------------------------------------- ------------
IAS 1 (Amendments) Presentation of Financial Statements 1 January
and IFRS 2023
Practice Statement 2: Disclosure of
Accounting Policies
IAS 12 (Amendments) ncome Taxes - Deferred Tax related 1 January
to Assets 2023
and Liabilities arising from a Single
Transaction
IAS 8 (Amendments) Accounting policies, Changes in Accounting
Estimates and Errors - Definition of 1 January
Accounting Estimates 2023
IFRS 16 (Amendments) Leases: Lase Liability in a Sale and 1 January
Leaseback 2024
IAS 1 (Amendments) Presentation of Financial Statements: 1 January
Classification of Liabilities as Current 2024
or Non-Current
--------------------- ------------------------------------------- ------------
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 2023. 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 i n tra-group tran s act i on s, ba l ance s, i nco me and e x pen s es are e l imi na t ed on con s o li da t i on.
B u s in es s c o m b in atio ns a nd g o o d w i ll
O n acqu i s i t i on, t he a ss e ts and li ab i li t i es and con t i ngent li a b i l i t i es of s ub s i d i ari es are m ea s ured at t he ir f a ir v a l ue at t he da te of acqu i s i t i on. Any e xce ss of co st of acqu i s i t i on o v er t he f a ir v a l ues of t he i den t i f i ab le net ass e ts acqu ired is recogn i s ed as goodwill. Any de f i c i ency of the cost of acqu i s i t i on be l ow the fair v a l ues of t he i den t i f i a b le net a sse ts acq u ired (i . e. d i scount on acq u i s i t i on) is credited to the income statement in t he peri od of acqu i s i t i on. G ood w i ll a r i s i ng on c on s o li da t i on is recogn i s ed as an ass et and re v i e w ed f or i m pai r m ent at l ea st annua lly. Any i m pa i rment is recogn i s ed imm e d i a t e ly in the income statement and is not s u b s equen t ly revers ed.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
1. Accounting policies (continued)
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.
T axa t i o n
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 t h e i nco me s t a t ement becau se it e x c l udes i t e ms of i nco me or e x pen se t hat are t a x a b le or deduct i b le in o t her years and it f urt her e x c l udes i t e ms t hat are n e v er t a x ab le or deduct i b l e. T he C ompany's li abil i ty f or current t ax is ca lcu l a t ed u s i ng t ax ra t es t hat h a ve been enact ed or s u b s tantively enact ed by t he ba l ance s heet da t e.
De f e rred t ax is t he t ax e x pe c t ed to be payab le or re c o v erab le on d i f f erences be t w e en t he carryi ng a m oun ts of a sse ts a nd li abi l i t i es in t he f i nanci al s t a t e m e n ts and t he corre s pond i ng t ax b a s es u s ed in t he co m pu t a t i on of t a x a b le pro f i t and is accoun t ed f or u s i ng t he ba l ance s heet li abil i ty m e t hod. D e f e rred t ax l i a b i l i t i es are genera lly recogn i s ed f or a ll t a x a b le t e m porary d i ff erences and d e f e rred t ax a ss e ts are recogn ised to t he e x t ent t h at it is probab le t hat t a x ab le pro f i ts w ill be a v a i l ab le aga i n st w h ich deduct i b le t e m porary d i ff erences can be u t ili s ed. Such ass e ts and li abi l i t i es are not recogn i s ed if the t e m porary di ff erence ari s es from good w i ll or from t he i ni t i al recogn i t i on (o t her t han in a bu s i ness co m b i na t i on) of o t her a ss e ts a nd li a b i li t i es in a tran s act i on t hat a f f e c ts ne i t her t he t a x a b le pro f it nor t he accoun t i ng pro f i t.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
1. Accounting policies (continued)
Taxation (continued)
De f e rred t ax l i abil i t i es are recogn i s ed f or t a x a b le t e m porary d i f f erences ari s i ng on i n v e s t m e n ts in s u b s i d i ari e s, e xcept w here t he Group is ab le to con trol t he re v ers al of t he t e m porary di ff erence and it is probab le t hat t he t e m porary d i f f erence w ill not re v erse in t he f ore s eeab le f u t ure.
T h e carryi ng a m ount of d e f erred t ax a ss e ts is re v i e w ed at each ba l ance s heet da te.
De f e rred t ax is ca lcu l a t ed at t he t ax ra t es t hat are e x pect ed to app ly in t he peri od w h en t he li a b i l i ty is s e tt l ed, or t he ass et rea li s ed. De f erred t ax is charged or cred i t ed to the income statement, e xcept w hen it re l a t es to i t e ms charged or cred i t ed d ire c t ly to equi ty, in w h ich ca se t he de f erred t ax is a l so dea lt w i th in equ i ty.
De f e rred t ax a ss e ts a nd li abi l i t i es are o ff s et w hen t he re is a l ega lly en f orcea b le ri ght to s et o ff current t ax a ss e ts aga i n st current t ax l i abil i t i es and when t hey re l a te to i nco me t a x es l e v ied by t he s a me t a x a t i on au t ho r i ty and t he Group i n t ends to s e tt le i ts current ass e ts and li abi l i t i es on a net ba s i s.
Sh are-b ased p ayme nts
T h e co st of s hare-b ased e m p l oyee co m pen s a t i on arrange m en t s, w h ereby e m p l oyees recei ve re m unera t i on in t he f o rm of s hares or s ha re op t i on s, is recogn i s ed as an e m p l oyee ben e f it e x pen se in t he i nco me s t a t e m en t.
T h e t o t al e x pen se to be a pport i oned o v er t he v e s t i ng peri od of t he bene f it is de t ermi ned by re f erence to t he f a ir v a l ue (e x c l ud i ng t he e f f ect of non m arke t-ba s ed v e s t i ng cond i t i on s) at t he da te of gran t. F a ir v a l ue is m ea s ured by t he u se of the Black-Scholes m odel. T he e x pect ed li fe u s ed in t he m odel has been ad j u s t ed, b a s ed on m anage m en t 's b e st e s t ima t e, f or t he e f f e c ts of the non-transferability, e x erc i se re s trict i ons and beh a v i oural con s i dera t i on s. 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.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
1. Accounting policies (continued)
Property, pl a nt a nd e q u i p me nt
Property, pl ant and equ i p m ent are s t a t ed at co st l e ss accu m u l a t ed depreci a t i on and any recogn i s ed i m pa i r m e nt l o ss.
Dep reci a t i on is charged so as to wri te o ff t he co st of ass e t s, o v er t he ir e s t i m a t ed u s e f ul l i v e s, on t he f ol l o w i ng b a s e s:
Leasehold property - over the period of the lease
Computer equipment - 33% - 40% on cost
O ff i ce furniture and equ i
p m ent - 20% - 25% on cost or reducing balance
In ves tme nts in s u b s i d i ar i es
I n v e s t m en t s in s ub s i d i ari es are s t a t ed at co st l e ss any pro v i s i on f or i m p a i r m en t.
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.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
1. Accounting policies (continued)
Financial instruments (continued)
(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
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.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
1. Accounting policies (continued)
Leases (continued)
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. In order for development expenditure to meet the capitalisation criteria of IAS 38, it must be both technically feasible to complete the work, and there must be the intention to either use or sell the asset created.
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.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
1. Accounting policies (continued)
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
T h e prepara t i on of f i nanci al s t a t e m en ts in co n f ormi ty w i th general ly accep t ed accoun t i ng pract ice requ ires m anage m ent to make e s t i m a t es and j udge m e n ts t hat a ff ect t he report ed a m oun ts of a ss e ts and li abil i t i es as w e ll as t he d i sclo s ure of con t i ngent ass e ts and li abil i t i es at t he ba l ance s h eet d a te and t he report ed a m oun ts of re v enues and e x pen s es duri ng t he report i ng pe r i od.
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. There has been no change in the Group's business model from the previous year and the Directors are satisfied that the revenue recognition policy remains correct for the year under review.
Changes in estimated variable remuneration liability
The Group Income Statement includes the release of GBP110,000 in accrued bonuses which has been disclosed separately in the current year. The Board's best estimate of the liability to pay bonuses as at 30 June 2022 was GBP170,000 and this was recorded with the prior year accruals balance. In the current year, GBP110,000 of this liability was released to the Group Income Statement following annual reappraisal of the estimated liability at 30 June 2023. The balance being carried forward to the future periods, is the Board's estimation of a constructive obligation with regards to bonuses in respect of work undertaken to date in progressing new business development and sales opportunities.
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 key variable in making judgement of the correct treatment of development costs is new product development versus modification and maintenance of existing products. The development work undertaken has been to existing products, and having assessed the likelihood of future economic benefit, the Directors have judged it appropriate to not capitalise any development costs (2022 - GBPNil).
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
2. Critical accounting judgments and key sources of estimation uncertainty (continued)
Estimates
I m pa i r m e n t of intangible assets
De t e rmi n i ng w he t her non-current assets are i m p a ired requ ires an e s t i m a t i on of t he v a l ue in u se of t he ca sh genera t i ng un i ts to w h ich non-current assets have been a ll oca t ed. T he v a l ue in u se ca lcu l a t i on requ ires t he Group to e s t i m a te t he f u t ure c a sh f l ows e x pect ed to ari se from t he ca s h-g enera t i ng un it and a suitable d i scount ra te in order to ca lcu l a te t he pre s ent v a l ue. The key variables used in cash flow projections are: a timeline of fourteen years (the "time period"); the forecast for the next year which is used as the base for future years; revenue and cost projections for the time period using the average rate of increase / (decrease) achieved over the preceding ten years. No pro v i s i on f or impa i r m e nt w as m ade in t he year to t he carryi ng v a l ue 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. The key variables used in the calculation of deferred tax assets are: a timeline of three years out from reporting date; revenue and cost projections on the same basis as used in the assessment of impairment of goodwill; a cost of capital of 8.44%. At the year-end a deferred tax asset of GBP328,000 (2022 - GBP318,000) 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 20.
3. Revenue
An analysis of the Group's revenue is as follows:
2023 2022
GBP GBP
Software development, licence fees and project work 2,730,172 2,757,795
------------------------------------------------------ ---------- ----------
All of the Group's revenue relates to continuing activities.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
4. Operating profit for the year is stated after charging/(crediting):
2023 2022
GBP GBP
Depreciation of plant and equipment (see note 12) 4,074 7,291
Depreciation of leased assets (see note 17) 146,303 146,303
Interest on leased assets (see note 17) 6,471 13,550
Staff costs (see note 8) 1,374,676 1,491,348
Research and development 476,491 409,618
Release of accruals for administrative costs in respect of prior years (8,393) (9,000)
------------------------------------------------------------------------------- ---------- -------------
5. Finance income and Finance costs:
2023 2022
GBP GBP
Finance income
Income on cash and cash equivalents 76,977 13,911
Finance costs
Lease interest expense (6,471) (13,550)
Other interest expense (20) (60)
------------------------------------- -------- ---------
Net finance income 70,486 301
------------------------------------- -------- ---------
6. Auditor's remuneration:
2023 2022
GBP GBP
Fees payable to the Group's auditor for the audit of the Group's annual accounts 37,750 31,500
Fees payable to the Group's auditor for other services:
- audit of the Company's subsidiaries 7,000 7,000
----------------------------------------------------------------------------------- ------- -------
44,750 38,500
---------------------------------------------------------------------------------- ------- -------
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
7. Operating segments:
The G r o up r e p o r ts 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.
2023 2022
GBP GBP
Revenue by segment
Software development and licence fees 2,730,172 2,757,795
-------------------------------------------------------------------- -------------- --------------
External segment revenue 2,730,172 2,757,795
-------------------------------------------------------------------- -------------- --------------
Operating profit by segment
Software development and licence fees 1,366,930 1,193,637
Unallocated overheads (458,211) (448,975)
-------------------------------------------------------------------- -------------- --------------
Total operating profit 908,719 744,662
Finance income 76,977 13,911
Total profit before tax as reported in the Group income statement 985,696 758,573
-------------------------------------------------------------------- -------------- --------------
2023 2022
GBP GBP
Segment total of assets
Software development and licence fees 8,295,757 7,541,527
Unallocated assets 4,559,078 4,545,031
---------------------------------------- ------------- -------------
12,854,835 12,086,558
Less intercompany debtors (3,821,478) (3,310,501)
Total assets 9,033,357 8,776,057
---------------------------------------- ------------- -------------
2023 2022
GBP GBP
Segment total of liabilities
Software development and licence fees 5,172,801 5,056,787
Unallocated liabilities 67,889 58,447
---------------------------------------- ------------ ------------
5,240,690 5,115,234
Less intercompany creditors (3,821,478) (3,310,501)
---------------------------------------- ------------ ------------
Total liabilities 1,419,212 1,804,733
---------------------------------------- ------------ ------------
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
7. Operating segments (continued):
2023 2022
GBP GBP
Additions of property, plant and equipment assets by segment
Software development and licence fees 3,480 2,688
------------------------------------------------------------------------------------------- ------ ------
Total additions 3,480 2,688
------------------------------------------------------------------------------------------- ------ ------
2023 2022
GBP GBP
Depreciation of property, plant and equipment assets recognised in the period by segment
Software development and licence fees 4,074 7,291
Total depreciation 4,074 7,291
------------------------------------------------------------------------------------------- ------ ------
Non-current assets by country 2023 2022
GBP GBP
UK 2,122,255 2,400,903
-------------------------------- ---------- ----------
Total non-current assets 2,122,255 2,400,903
-------------------------------- ---------- ----------
Geographical information - External revenue 2023 2022
GBP GBP
UK 1,979,802 2,013,140
Europe (excluding UK) 584,987 581,981
Africa 42,500 40,000
North America 89,656 89,447
Australia 12,603 12,603
Asia Pacific 20,624 20,624
---------------------------------------------- ---------- ----------
2,730,172 2,757,795
--------------------------------------------- ---------- ----------
During the year there were 4 customers (2022: 4) who accounted for more than 10% of the Group's revenues as follows:
2023 2022
----------------------- -------------------------
Value of % of Total Value of % of Total
sales sales
GBP GBP
Customer 1 685,720 25% 672,091 24%
Customer 2 520,990 19% 523,138 19%
Customer 3 361,152 13% 360,661 13%
Customer 4 342,588 13% 285,051 10%
-------------------------- ---------- ----------- ----------- -----------
1,910,451 70% 1,840,942 66%
-------------------------- ---------- ----------- ----------- -----------
These revenues are attributable to the software development and licence fees segment.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
8. Staff costs:
2023 2022
GBP GBP
a) Aggregate staff costs, including Directors' remuneration
Wages and salaries 1,114,182 1,197,220
Social security costs 136,786 153,261
Pension contributions 26,380 24,255
Share-based payments 97,328 116,612
1,374,676 1,491,348
------------------------------------------------------------- ---------- ----------
b) The average number of employees (including Directors) was:
Sales and administration 7 7
Development and support 9 7
---------------------------------------------------------------- --- ---
16 14
--------------------------------------------------------------- --- ---
GBP GBP
c) Directors' emoluments
Short-term employee benefits 252,883 231,714
Pension contributions 5,513 5,250
Share-based payments 45,673 57,200
304,069 294,164
Social security costs 31,260 30,843
------------------------------------- -------- --------
Total Director compensation 335,329 325,007
------------------------------------- -------- --------
Directors' emoluments represent the staff costs of the parent company.
The average number of employees of the parent company is 3 (2022: 3)
The highest paid Director received remuneration of GBP192,114 (2022: GBP183,464).
The number of Directors that are members of a defined contribution pension scheme is 1 (2022: 1). Pension contributions paid to a defined contribution scheme in respect of the highest paid Director amounted to GBP5,513 (2022: GBP5,250).
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
9. Taxation
2023 2022
GBP GBP
Current tax (15,587) 4,993
Deferred tax 10,000 (153,000)
-------------------------------- --------- ----------
Total tax charge for the year 5,587 148,007
-------------------------------- --------- ----------
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:
2023 2022
GBP GBP
Profit on ordinary activities before tax 985,696 758,573
---------------------------------------------------------------------------------------- ---------- ----------
Profit on ordinary activities multiplied by the effective rate of corporation tax in
the UK
of 20.49 % (2022: 19.00%) 201,969 144,128
Effects of:
Disallowed expenses 52 288
Temporary differences on deferred tax 494 796
Research and development tax credits - (4,993)
Deferred tax asset movement (10,000) 153,000
Brought forward losses utilised (186,928) (145,212)
Total tax charge for the year 5,587 148,007
---------------------------------------------------------------------------------------- ---------- ----------
From 1 April 2023 the UK Government increased the corporation tax rates 25% on profits above GBP250,000. Companies with profits of GBP50,000 or less will be taxed at 19% and companies with profits between GBP50,000 and GBP250,000 will pay tax at 25% that is reduced by marginal relief on a sliding scale. The effect of this change to tax rates resulted in an additional GBP960 tax payable for the year to 30 June 2023, with the Group having an effective tax rate of 20.49%.
Factors which may affect future tax charges
At 30 June 2023 the Group has tax losses of approximately GBP8,000,000 (2022: GBP8,300,000) to offset against future trading profits.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
10. Earnings per share
2023 2022
GBP GBP
Earnings
Earnings for the purpose of basic and diluted earnings per share being net profit
attributable
to equity shareholders 980,109 610,566
980,109 610,566
------------------------------------------------------------------------------------------- -------- --------
No. No.
Number of shares
Weighted average number of ordinary shares for the purpose of basic earnings per
share 13,372,811 13,364,195
Number of dilutive shares under option 14,805 25,145
-------------------------------------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for the purposes of dilutive earnings per
share 13,387,616 13,389,340
-------------------------------------------------------------------------------------- ----------- -----------
T h e c a lcu l a t i on of d il u t ed e a r n i n gs per sh a re assu m es c on v e rsi on of a ll po t e n t i a lly d i l u t ive o r d i na ry shares, all of w h i ch a r ise f r om sh a re op t i on s. A ca lcu l a t i on is d o ne to d e t e rm i ne t he nu m ber of s ha r es t h at c ou ld h ave b e en acq u i r ed at f a ir va l u e, b a s ed u p on t he m o n e t a ry va l ue of t he su bscr i p t i on r i gh ts a t t ach ed to o u tst a n d i ng s ha re o p t i o ns.
11. Goodwill
2023 2022
GBP GBP
Co s t a nd n et book a m ount
A t 1 July 2 022 and at 30 June 2023 1,715,153 1,715,153
--------------------------------------- ---------- ----------
G oodwill acqui r ed in a busi ness combi nat i on is al located at acquisi t i on, to the cash generat i ng uni ts ( C G Us) that are expected to bene f it f rom t hat business combi nat i on. The carryi ng amount of goodwill has been allocat ed as follows:
2023 2022
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. T he g r o up t e s ts g o o d will a n n ua lly f or i m p a i rm en t or m o re f r eq u e n t ly if t h e re a re i n d ica t i o ns t hat g o o d will m i ght be i m pa i r ed. T he r e c o v e r ab le a m ou n ts of t he C G Us a re de t e rm i ned f r om va l ue in u se ca lcu l a t i o ns. T he key assu m p t i o ns f or t he va l ue in u se ca lcu l a t i o ns are those r ega r d i ng t he d isc o u nt r a t es, g r o w th r a t es a nd exp ect ed ch a n ges to se lli ng p r ices a nd d i r ect c osts du r i ng t he pe r i od. The di scou nt rate is estimated usi ng pre- t ax r a t es t h at r e f l e ct cu r r ent m a rket ass essm e n ts of t he t i me va l ue of m o ney a nd t he r isks s peci f ic to t he C G Us. Long-term gr o w th r a t es a re ba s ed on i n d ust ry g r o w th f o r eca s ts. C h a n ges in se lli ng p r ices a re b ased on p ast p r act ices a nd exp ect a t i ons of f u t u re ch a n g es in t he m a rke t. Changes in direct costs are based on expected cost of inflation of 6.0% and 1.8% after year 5.
Cashflow forecasts are based on the latest financial budgets and extrapolate the cashf l o ws f or t he next f i ve y ea rs ba s ed on an e s t i m a t ed g r o w th in revenue representing an average rate of 3.4% (2022: 4.0%) per annum, after which the UK l o ng-t e rm g r o w th r a te of 1.8% is applied. The Directors consider that this rate is appropriate, given the current sales pipeline. 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% (2022: 8.8%), which represents the Group's cost of capital.
G o o d wil l on t he pu r c ha se of Arcontech L i m i t ed is a tt r i bu t ab le to t he ope r a t i ng sy ne r g i es that have arisen as a r e s u lt of t he co m b i n a t i o n.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
12. Property, plant and equipment - Group
Office
Leasehold furniture &
Property equipment Total
Cost GBP GBP GBP
At 1 July 2021 26,199 143,700 169,899
Additions - 2,688 2,688
Disposals - (40,447) (40,447)
At 1 July 2022 26,199 105,941 132,140
Additions - 3,480 3,480
Disposals - (6,056) (6,056)
At 30 June 2023 26,199 103,365 129,564
------------------------------------ ---------- ------------- ---------
Depreciation
At 1 July 2021 22,058 136,694 158,752
Charge for the year 1,462 5,829 7,291
Disposals - (40,447) (40,447)
At 1 July 2022 23,520 102,076 125,596
Charge for the year 1,461 2,613 4,074
Disposals - (6,056) (6,056)
At 30 June 2023 24,981 98,633 123,614
------------------------------------ ---------- ------------- ---------
Net book amount at 30 June 2023 1,218 4,732 5,950
------------------------------------ ---------- ------------- ---------
Net book amount at 30 June 2022 2,679 3,865 6,545
------------------------------------ ---------- ------------- ---------
13. Investment in subsidiaries
2023 2022
Carrying amount GBP GBP
At 1 July 2022 2,017,471 2,017,471
At 30 June 2023 2,017,471 2,017,471
------------------ ---------- ----------
D e t a il s of t he i n v est m e n ts in w h ich t he G r o up a nd t he C o m p any h o l ds 2 0% or m o re of t he n o m i nal v a l ue of any cl ass of s ha re c a p i t al a re listed below. The Goodwill recognised in Note 11 is in connection with investments made in subsidiaries:
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
13. Investment in subsidiaries (continued)
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
2023 2022 2023 2022
GBP GBP GBP GBP
Due within one year:
Trade and other receivables 136,250 196,541 - -
Amounts owed by group undertakings - - 3,821,378 3,310,401
Prepayments and accrued income 221,861 152,145 20,922 12,336
Other receivables 141,750 - - -
499,861 348,686 3,842,300 3,322,737
------------------------------------ -------- -------- ---------- ----------
Group Group Company Company
2023 2022 2023 2022
GBP GBP GBP GBP
Due after more than one year:
Other receivables - 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.
A s at 30 June 2023, t r a de r ece i v ab l es of GBPNil w e re i m p a i r ed (2022: GBPNil) and during the year an impairment charge relating to trade receivables of GBPNil (2022: GBPNil) was recognised. As at 30 June 2023 t r a de r e c e iva b l es of GBP63,314 (2022: GBP nil ) w e re p ast d ue but n ot i m p a i r e d as fully recovery is expected. T he a g e i ng a na lysis of t h e se t r a de r ece i v ab l es is as f o ll o ws:
Group Group Company Company
2023 2022 2023 2022
GBP GBP GBP GBP
Up to 3 months past due 63,314 - - -
3 to 6 months past due - - - -
63,314 - - -
------------------------ ------- ------ -------- --------
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
15. Cash and cash equivalents
Ca s h and cash equ i v a l en ts co m p r i se ca sh he ld by t he Group a nd s hort-t erm bank dep o s i ts w i th an ori g i nal m a t u r i ty of t hree m o n t hs or l e ss. 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
2023 2022 2023 2022
GBP GBP GBP GBP
Trade payables 44,995 77,772 4,595 3,849
Amounts owed to group undertakings - - 100 100
Other tax and social security payable 58,185 62,148 12,740 7,843
Other payables and accruals* 323,850 440,724 49,792 46,244
Deferred income 881,858 978,236 - -
1,308,888 1,558,880 67,227 58,036
--------------------------------------------- ---------- ---------- -------- --------
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
T r ad e payables and other payables and accruals con s t i t u te t he f i n anci al liabilities wi t h in t he c a t e g o ry "Financial liabilities at amortised cost." The total value of Financial liabilities at amortised cost is GBP438,845 (2022: GBP568,496) which includes provisions (Refer to note 18).
* Other payables and accrual includes accrued bonuses of GBP70,000. The material decrease in other payables and accrual is due to the release of GBP110,000 of accrued bonus provisions. (Refer to Note 2)
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 2023 Lease liability Right of Income
GBP use asset statement
GBP GBP
Carrying value at
30 June 2022 (195,853) 219,455 -
Depreciation - (146,303) (146,303)
Interest (6,471) - (6,471)
Lease payments 162,000 - -
---------------- ----------- -----------
Carrying value at
30 June 2023 (40,324) 73,152 (152,774)
---------------- ----------- -----------
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
17. Leases (continued)
Reconciliation of lease Operating Financing Non-cash Total
liabilities cash flow cash flow
GBP GBP GBP GBP
------------------------- ----------- ----------- --------- ----------
As at 1 July 2022 - - - 195,853
Cash flows:
Interest paid (6,471) - - (6,471)
Liability reduction - (155,529) - (155,529)
Non-cash changes:
Interest expense - - 6,471 6,471
------------------------- ----------- ----------- --------- ----------
As at 30 June 2023 (6,471) (155,529) 6,471 40,324
------------------------- ----------- ----------- --------- ----------
As at 30 June 2022 Lease Right Income
liability of use statement
GBP asset GBP
GBP
Carrying value at 30
June 2021 (344,303) 365,758 -
Depreciation - (146,303) (146,303)
Interest (13,550) - (13,550)
Lease payments 162,000 - -
----------- ---------- -----------
Carrying value at
30 June 2022 (195,853) 219,455 (159,853)
----------- ---------- -----------
Reconciliation of lease Operating Financing Non-cash Total
liabilities cash flow cash flow
GBP GBP GBP GBP
------------------------- ----------- ----------- --------- ----------
As at 1 July 2021 - - - 344,303
Cash flows:
Interest paid (13,550) - - (13,550)
Liability reduction - (148,450) - (148,450)
Non-cash changes:
Interest expense - - 13,550 13,550
------------------------- ----------- ----------- --------- ----------
As at 30 June 2022 (13,550) (148,450) 13,550 195,853
------------------------- ----------- ----------- --------- ----------
Contractual maturity analysis of lease liabilities as at 30
June 2023
Less than 3 - 12 1 - 5 Longer
3 months Months Year than Total
GBP GBP GBP 5 years GBP
GBP
Lease liabilities 40,324 - - - 40,324
-------------------- ---------- -------- ------ --------- --------
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
18. Provisions
Group Group Company Company
2023 2022 2023 2022
GBP GBP GBP GBP
As at 1 July 50,000 50,000 - -
Increase in provision 20,000 - - -
As at 30 June 70,000 50,000 - -
--------------------------- ------- ------- -------- --------
Disclosed as:
Current liabilities 50,000 - - -
Non-current liabilities 20,000 50,000 - -
--------------------------- ------- ------- -------- --------
Provisions consists of dilapidations for the Office premises of GBP70,000 (2022: GBP50,000). Refer to note 1 for the Accounting Policy for Provisions. The increase during the year is management's estimate of an increase in cost of returning the office to it's original state upon termination of lease. The total estimate of dilapidation costs for the Paul Street office is GBP50,000 which is disclosed as a current liability as at 30 June 2023, the lease is due to end within twelve months. The GBP20,000 non-current dilapidations provision relates to a potential liability in connection with a previous office.
19. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using the tax rate of 20.4% which is the effective tax rate of the Group. The movement on the deferred tax account is as shown below:
Group Group Company Company
2023 2022 2023 2022
GBP GBP GBP GBP
At 1 July 318,000 471,000 56,000 55,000
Effect of change in tax rate 78,000 - 16,000 -
Effect of movement in temporary differences (68,000) (153,000) (4,000) 1,000
At 30 June 328,000 318,000 68,000 56,000
--------------------------------------------------- --------- ---------- -------- --------
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 2023 amounted to approximately GBP8,000,000 (2022: GBP8,300,000).
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
20. Share capital
The Company has authorised share capital of 16,000,000 Ordinary shares of GBP0.125 each.
Company Shares Share Capital Share Premium Allotted and fully paid: of 12.5p each GBP GBP --------------------------- --------------- -------------- ------------- As at 1 July 2022 13,372,811 1,671,601 115,761 As at 30 June 2023 13,372,811 1,671,601 115,761 ---------------------------- --------------- -------------- -------------
Share options
Under the Company's approved 2002 Share Option Scheme, certain Directors and employees held options at 30 June 2023 for unissued Ordinary Shares of 12.5 pence each as follows:
At 1 July At 30 June Normal exercise
Share options 2022 Granted Exercised Lapsed 2023 Exercise price period
25 Apr 20 - 24
Employees: 100,000 - - - 100,000 64.50 pence Apr 27
30 Jun 21 - 29
50,000 - - - 50,000 110.00 pence Jun 28
30- Jun 22 - 27
32,000 - - (12,000) 20,000 196.00 pence Sep 29
30 Jun 23 - 2
75,000 - - (32,000) 43,000 164.50 pence Oct 30
30 Jun 24 - 11
73,500 - - (6,000) 67,500 130.50 pence Oct 31
30 Jun 25 - 21
- 70,000 - - 70,000 76.50 pence Oct 32
Directors:
30 Jun 23 - 2
Geoff Wicks 30,000 - - - 30,000 164.50 pence Oct 30
30 Jun 21 - 29
Matthew Jeffs 100,000 - - - 100,000 110.00 pence Jun 28
30 Jun 23 - 2
50,000 - - (50,000) - 164.50 pence Oct 30
30 Jun 24 - 11
50,000 - - - 50,000 130.50 pence Oct 31
30 Jun 25 - 21
- 50,000 - - 50,000 76.50 pence Oct 32
Total 560,500 120,000 - (100,000) 580,500
---------------- ------------ ----------- ---------- ------------ ------------
Weighted
average
exercise price 126.4 pence 76.5 pence - 166.6 pence 109.2 pence
---------------- ------------ ----------- ---------- ------------ ------------
The number of options exercisable at 30 June 2023 was 343,000 (at 30 June 2022: 282,000), these had a weighted average exercise price of 113.3 pence (2022: 103.6 pence).
The weighted average share price as at the exercise date of the shares exercised in the year was nil pence (2022: 64.5 pence) and of the shares were forfeited in the year was 166.2 pence (2022: 122.3).
Options granted under the Company's approved 2002 Share Option Scheme are forfeited when the Optionholder 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 Optionholder 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 85.5 pence, the lowest price was 63.5 pence and the price at the year-end was 64.5 pence.
The weighted average remaining contractual life of share options outstanding at 30 June 2023 was 7 years (2022: 7 years).
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
20. Share capital (continued)
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 to certain directors and members of staff in November 2018, September 2019(2) , October 2020(3) , October 2021 and in October 2022 will be exercisable from 30 June 2021, 30 June 2022, 30 June 2023, 30 June 2024 and 30 June 2025 respectively, dependent on the Company's compound annual rate of growth in fully diluted earnings* for the three financial years ending 30 June 2022, 2023, 2024 and 2025, respectively.
Options issued date Exercisable from Dependent on the Company's
compound annual rate
of growth in fully diluted
earnings(1) 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
October 2021 30 June 2024 30 June 2024
October 2022 30 June 2025 30 June 2025
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.
(1) 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.
(2) 70,000 options issued in September 2019 lapsed on 30 June 2022 as compound annual earnings growth targets for the financial years ended 30 June 2020, 2021 and 2022 were not achieved.
(3) 70,000 options issued in October 2020 lapsed on 30 June 2023 as compound annual earnings growth targets for the financial years ended 30 June 2021, 2022 and 2023 were not achieved.
The fair value of options is valued using the Black-Scholes pricing model. An expense of GBP97,328 (2022: GBP116,612) has been recognised in the year in respect of share options granted. The cumulative share option
reserve at 30 June 2023 is GBP279,455 (2022: GBP270,805).
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
20. Share capital (continued)
The inputs into the Black-Scholes pricing model are as follows:
Directors & Employees Grant date 25 Apr 2017 29 Nov 2018 27 Sep 2019 2 Oct 2020 11 Oct 2021 21 Oct 2022 Exercise price 64.5 pence 110.0 pence 196.0 pence 164.5 pence 130.5 pence 76.5 pence Expected life 10 years 10 years 10 years 10 years 10 years 10 years Expected volatility 50% 50% 50% 49% 45% 44% Risk free rate of interest 0.5% 0.75% 0.75% 0.00% 0.60% 3.69% Dividend yield Nil Nil Nil 0.01% 0.01% 0.04% Fair value of option 36.7 pence 57.0 pence 115.0 pence 91.92 pence 70.03 pence 45.47 pence
Volatility has been estimated based on the historic volatility over a period equal to the expected term from the grant date.
21. 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 capital reserve
This is used to record the aggregate nominal amount of the Company's shares on issue.
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.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
22. Net cash generated from operations - Group
2023 2022
GBP GBP
Operating profit and exceptional items before tax 915,210 758,272
Depreciation charge 150,377 153,594
Non cash share option charges 97,328 116,612
Lease interest paid (6,471) (13,550)
Other interest paid (20) (60)
(Increase) / decrease in trade and other receivables (9,425) 126,624
Decrease in trade and other payables (265,577) (31,884)
(Increase) in provisions 20,000 -
Cash generated from operations 901,422 1,109,608
Net cash generated from operations - Company
2023 2022
GBP GBP
Operating profit 284,772 265,860
Non cash share option charges 45,673 116,612
Increase in trade and other receivables (469,614) (59,270)
Increase in trade and other payables 9,191 6,873
Cash (used in) / generated from operations (129,978) 330,075
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
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
Ke y m a n a ge m e nt a re t h ose p e rso ns h avi ng au t ho r i ty a nd r e s p o nsi b ili ty f or p l a n n i n g, co n t r o lli ng a nd d i r e c t i ng t he act ivi t i es of the Group. In t he op i n i on of t he B oa r d, t he G r o up 's key m a n a g e m e nt a re t he D i r ect o rs of Arcontech Group PLC. I n f o rm a t i on r e g a r d i ng t he ir co m p e nsa t i on is g iven in notes 8 and 20 f or e ach of the ca t e go r i es sp eci f i ed in I AS 24 R e l a t ed P a r ty Discl osu r e s . All emoluments given in notes 8 and 20 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 GBP546,676 (2022: GBP536,216).
The amounts due from/to subsidiaries at the balance sheet date were as follows:
2023 2022
GBP GBP
Amount due from subsidiaries 7,415,999 7,098,581
Less: Provision for impairment (3,594,521) (3,788,180)
Amount due from subsidiaries - net 3,821,478 3,310,401
------------------------------------------------ ------------------ ------------
During the year a provision of GBP193,659 was released (2022: GBP176,491) in respect of balances due from subsidiaries.
2023 2022
GBP GBP
Amount due to subsidiaries 546,676 536,216
546,676 536,216
---------------------------- -------- --------
24. Dividends
A final dividend of 3.5 pence will be proposed at the Annual General Meeting but has not been recognised as it requires approval (2022: 3.25 pence).
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
25. 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.
C r ed i t r isk
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.
T h e c a rryi ng a m o u nt of f i n a nci al asse ts r e p r e s en ts t he m axi m um cr ed it exp osu r e. T he m axi m um exp osu re to cr e d it r isk at t he r e p o r t i ng da te w as:
Group Group Company Company
2023 2022 2023 2022
GBP GBP GBP GBP
Trade receivables 136,250 196,541 - -
Cash and cash equivalents 6,411,241 6,026,468 518,678 1,074,294
Amounts owed by group undertakings - - 3,821,378 3,310,401
6,547,491 6,223,009 4,340,056 4,384,695
------------------------------------ ---------- ---------- ---------- ----------
In t e r e st r a te r isk
T h e G r o up h as i n t e r est b e a r i ng asse ts and no i n t e r est-b ea r i ng li ab ili t i es. I n t e r est b e a r i ng asse ts co m p r ise o n ly ca sh a nd c ash e q u iva l e n ts, w h ich ea rn i n t e r e st at a va r i a b le r a t e.
T h e G r o up h as n ot en t e r ed i n to a ny d e r iva t ive t r a nsact i ons d u r i ng t he p e r i od u n der r evi e w.
The Group does not have any borrowings.
T h e G r o u p 's ca sh a nd ca sh e qu i v a l e n ts e a r n ed i n t e r e st at v a r i ab le r a tes, between 3.65% below bank base rate and 0.25% below bank base rate and at fixed/variable rates of between 2.53% below bank base rate and 1.15% below bank base rate (2022: 1.20% below bank base rate and 0.2% above bank base rate and at fixed/variable rates of below 0.06%).
L i q u i d i t y r isk
T h e G r o up has no sh o r t - t e rm d e bt f i n a nce. T he G r o up m on i t o rs i ts l eve ls of w o rki ng cap i t al to e nsu re t h at it c an m e et i ts liabilities as t hey f a ll d u e.
T h e G r o up 's f i n a nci al li ab ili t i es comprise trade payables and other payables, provisions and accruals, excluding deferred income, with a carrying value equal to the gross cash flows payable of GBP438,845 (2022: GBP568,496) all of which are payable within 6 months.
Notes to the Financial Statements
For the year ended 30 June 2023 (continued)
25. Financial instruments (continued)
Market risk and sensitivity analysis
Equity price r i sk
The Directors do not consider themselves exposed to material equity price risk due to the nature of the Group's operations.
Foreign currency exchange r i sk
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.
I n t e r e st r a te r isk
T h e G r o up is exp osed to i n t e r est r a te r isk as a r esu lt of posi t i ve c a sh ba l a nces, d e no m i na t ed in st e r li ng, w h i ch ea rn i n t e r est at va r i a b le and fixed r a t es. As at 30 June 2023, if bank base rate h ad i ncr e ased by 0 . 5% wi th a ll o t her v a r i ab l es he ld co nst a n t, po s t - t ax profit would have been GBP32,056 (2022: GBP30,132) higher a nd eq u i ty w o u ld ha ve b e en GBP32,056 (2022: GBP 30,132) h i g h e r. C on v e rse ly, if bank base rate h ad f a ll en 0 . 5% wi th a ll o t h er va r i ab l es h e ld const a n t, po st-t ax profit would have been GBP 32,056 (2022: GBP 30,132 ) lower a nd e q u i ty w ou ld h ave be en GBP 32,056 (2022: GBP 30,132) l o w e r.
26. C a p i t a l ri sk m a n a g e m e nt
T h e G r o up 's ob j ect ives w h en m a n a g i ng ca p i t al a re to sa f e g u a rd t he G r o u p 's ab ili ty to c o n t i n ue as a g o i ng c on c e rn in o r der to p r ovi de returns f or sha r e ho l de rs a nd m a i n t a in an o p t i m al c ap i t al st r uct u re.
T h e G r o up de f i n es c ap i t al as be i ng s ha re ca p i t al p l us r e s e rve s. T he B oa rd of Di r ect o rs continually m on i t o rs t he l e v el of ca p i t al.
T h e G r o up is n ot s ub j e ct to any ext e r n a lly i m po s ed ca p i t al r e q u i r e m e n ts.
27. Ultimate controlling party
There is no ultimate controlling party.
28. Subsequent events
The Company has reached agreement on terms for a new lease agreement on the office at 11- 21 Paul Street, London, EC2A 4JU. The lease is for a five year term an on similar financial terms as the current lease which expires in December 2023. As at the date of signing this report the new lease agreement has not yet been signed as we wait for final documentation to be received from the Land Registry Office.
29. Copies of these statements
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 .
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September 05, 2023 02:00 ET (06:00 GMT)
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