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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Grc International Group Plc | LSE:GRC | London | Ordinary Share | GB00BG06MV41 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 6.125 | 5.75 | 6.50 | 6.125 | 6.125 | 6.125 | 0.00 | 08:00:03 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Security Systems Service | 14.66M | -1.25M | -0.0116 | -5.28 | 6.6M |
From Apr 2019 to Apr 2024
TIDMGRC
RNS Number : 7046N
GRC International Group PLC
26 September 2019
26 September 2019
GRC International Group plc
Final results for the year ended 31 March 2019
GRC International Group plc ("GRC International" or the "Group"), a leading supplier of cyber security, risk management and compliance products and services, is pleased to report its audited results for the 12 months ended 31 March 2019.
The full Annual Report and Accounts together with a notice of the Company's annual general meeting (the "AGM") will be distributed to shareholders on 27 September 2019 and will shortly be made available on the Company's website at www.grci.group/. The AGM will be held at 11.00 at Citigate Dewe Rogerson, 8th Floor, Holborn Gate, 26 Southampton Buildings, London, WC2A 1AN on 29 October 2019.
Financial Highlights
Hot Features
Premium
GBP'000s FY 2019 FY 2018 Change
Billings(1) GBP15,833 GBP16,260 (3)%
Revenue GBP15,849 GBP15,688 +1%
Training GBP5,771 GBP8,366 (31)%
Consultancy GBP7,228 GBP5,274 +37%
Software GBP1,513 GBP399 +279%
Publishing and distribution GBP1,337 GBP1,649 (19)%
-- Revenue growth of 1% year-on-year to GBP15.8 million (2018: GBP15.7 million), reflecting significant
GDPR-related client spend in Q1 unwinding over the remaining three quarters, offset by good
progress in core cyber security offering
-- Gross profit down 10% year-on-year to GBP8.6 million (2018: GBP9.5 million) primarily due
to a fall in sales of some very high margin products and services that benefited from the
peak leading up to the GDPR legislation being implemented
-- Underlying EBITDA(2) declined to a GBP4.3 million loss (2018: GBP1.7 million profit), reflecting
significant investment in new business lines, infrastructure, geographies and people to build
a platform for future growth
-- Loss before tax was GBP5.4 million (2018: GBP0.4 million profit before tax)
-- Loss per share of 9.30p (2018: 0.40p earnings per share)
-- Net cash at period end of GBP0.1 million (FY 2018: GBP5.6 million), reflecting significant
investment in the business following the Group's admission to AIM in March 2018
Operational Highlights
-- Good progress made with the strategic development of the Group, strengthening and broadening
GRC International's core offering
-- In H1 2019, GRC International acquired the domain, web platform, customer list and goodwill
of www.gdpr.co.uk. The Group has enhanced the platform by offering e-Learning and Data Protection
Officer services
-- In March 2019, GRC International acquired DQM Group Holdings Ltd ("DQM"), a provider of data
consulting and technology solutions, extending the Group's existing offerings to include high
margin data governance services, adding market share through the introduction of additional
household name clients, and providing cross-selling and upselling opportunities
-- Operations established in Europe (Drogheda, Eire) and the United States (New York)
-- Significant investment in new and existing businesses, most notably Cyber Essentials, Vigilant
Software, GRC e-Learning and GRCI Law
-- Successful launch of new products and services, including broadening the range of eLearning
staff awareness courses, an anti-phishing training course and distance learning courses. 20
of GRC International's books were also published as audiobooks to further improve accessibility
-- Further to the announcement on 22 July 2019, the Group continues to hold constructive discussions
regarding the deferred consideration due to the vendors (and existing management team) of
DQM. The Board is considering a range of options to fund the cash element of the deferred
consideration. Further details in relation to this material uncertainty are set out in the
Financial Review section of this announcement and reference to this is made in the Independent
Auditor's report on the audited financial statements
(1) Billings equate to the total value of invoices raised and cash sales through the Group's websites. This figure does not take account of accrued or deferred income adjustments that are required to comply with accounting standards or revenue recognition.
(2) Underlying EBITDA is defined in the Financial Review contained within this announcement.
Commenting on the results, Alan Calder, Chief Executive Officer, said:
"FY19 was a year of strategic development and significant change for GRC International, as we worked hard to adapt and broaden our business, strengthening our core cyber security offering and our infrastructure platform to support future growth.
"Pre-IPO, we had built a core business that was very effective at monetising fast-growing demand for GDPR compliance services. Following a ramp-up in GDPR-related client activity in Q1, as clients brought forward spend in order to make themselves compliant with the new legislation ahead of deadline, we anticipated that, following a 'pause for breath', widespread regulatory enforcement action across Europe would drive a second wave of compliance spending. In the event, enforcement action was - and continues to be - limited and GDPR demand has waned.
"Our headline loss for the year reflects the fact that GDPR demand dropped off faster than we could scale back costs and for the benefits from the significant investments we made over the year, establishing regional operations in the EU and US, setting up our Law and e-Learning businesses and strengthening our core business infrastructure, to come through.
"We have worked to adapt ourselves to the new landscape. We are building our core competence in cyber security management services into a machine to monetise growing demand for cyber security and related privacy services. We have created a new divisional structure to better focus our response to the changing market and have been re-orientating our various businesses to operate in this 'post-GDPR boom' environment. Without doubt, FY19 was a challenging year, but we believe that, through our diligence and hard work, we have built GRC International into a stronger, broader and more focused business, increasingly well-positioned to service our clients' ever-evolving cyber security needs."
Enquiries:
GRC International Group plc +44 (0) 330 999 0222 Alan Calder, Chief Executive Officer Christopher Hartshorne, Finance Director Grant Thornton UK LLP (Nominated Adviser) +44 (0) 20 7383 5100 Philip Secrett Jamie Barklem Ben Roberts Citigate Dewe Rogerson +44 (0) 20 7638 9571 Nick Hayns Louise Mason-Rutherford Lucy Eyles Dowgate Capital Limited (Broker) +44 (0) 20 3903 7715 James Serjeant
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
About GRC International Group plc
GRC International Group plc was admitted to trading on the London Stock Exchange's AIM market in March 2018.
GRC International provides a comprehensive suite of products and services to address the cyber security, risk management and compliance requirements of organisations seeking to address a wide range of data protection and cyber security regulation. The Group provides a range of services and products spanning training, consultancy, publishing and distribution, and software offerings.
The Group has a diversified and international customer base which is expected to grow as GRC International expands its geographical footprint. Since listing, the Group has expanded internationally with operations now established in Ireland, the US and mainland Europe.
Chairman's Statement
Overview
GRC International is a "one-stop shop" for cyber security and data compliance products and services, based in the UK but servicing clients across the globe. The Group's strategic ambition is to become an international "one-stop shop", expanding into other forms of compliance and new jurisdictions, with non-UK revenue ultimately exceeding domestic revenue. I am pleased with the strategic progress we made in FY19, as we used the proceeds from our admission on AIM to invest in strengthening our core business and broaden our offering.
We also made two strategic acquisitions during the year, of www.GDPR.co.uk and of DQM, and expanded our geographic footprint through the opening of offices in Europe and the US.
Performance
It has been a challenging year for the Group. The first part of the year was characterised by a notable build-up to GDPR implementation in May 2018, with its attendant boost to revenues as companies brought forward spend to make themselves compliant. As expected, this unwound dramatically from Q2 onwards, a period where we also faced tough GDPR-driven comparators from the prior year.
Whilst we expected to see a slow-down in GDPR-related client spend following initial implementation of the regulation, we were surprised to see UK-based management teams, especially those of companies that had not made themselves compliant by the deadline, be so complacent when it was clear that fines for non-compliance were on their way.
There was a sense that GDPR was akin to the "Millennium Bug", something that a big fuss was being made of, but that would soon fade away not to be talked of again. However, GDPR is very much here to stay; in time it will be viewed more like health and safety, something that will become increasingly intertwined with core business practices that management teams will have to address in order to be successful and maintain a favourable reputation.
We had expected initial GDPR-related fines to emerge during the financial year and for this to spur something of a "second wave" of companies looking to make themselves compliant. This did not materialise during FY19, but we are encouraged to see two significant fines levied by the Information Commissioner's Office against global businesses in recent weeks. This has put GDPR back in the news and back on businesses radars.
In this context, we are pleased to have delivered a solid revenue performance for the year as a whole, with Group revenues up 1% to GBP15.8 million, and with double-digit revenue growth being recorded in two of our four key revenue streams.
The Group ended the period with net cash of GBP0.1 million, reflecting the considerable investment we made during the year into building the infrastructure and management structures of the core business to facilitate future growth.
As the Group continues to develop, the Board has decided to conserve cash for current working capital requirements, further expansion and potential acquisitions. Therefore, no dividend is declared in respect of the 2018/19 results.
Further to the announcement on 22 July 2019, the Group continues to hold constructive discussions regarding the deferred consideration due to the vendors (and existing management team) of DQM. The Board is considering a range of options to fund the cash element of the deferred consideration. Further details in relation to this material uncertainty are set out in the Financial Review section of this announcement and reference to this is made in the Independent Auditor's report on the audited financial statements.
Market opportunity
There is no doubt that the delay in the levying of fines noted above has slowed down the Group's delivery of its strategy. Nevertheless, I firmly believe that, aside from e-commerce, cyber security and GDPR are two of the fastest growing business sectors. Hacking is becoming more and more sophisticated and therefore suitably compliant defences will become an increasingly hot topic. Regulatory compliance is a powerful driver of new business.
While we continue to address the demand for cyber security in the UK market, there are also undoubtedly excellent opportunities in both the US and Europe which the Group has already begun to tap into and I believe these markets hold good potential for the Group.
People
The early part of FY19 saw us scale up headcount in order to service the GDPR-related revenue surge. We scaled down resources, particularly in our GDPR training and toolkit businesses, as the GDPR-related surge subsided faster than expected. We ended the year with 184 full-time employees and a cost structure that more accurately reflects the current level of demand.
Without doubt, GRC International would not be able to deliver the quality and service we offer our clients without the dedication, passion and skill of our entire staff. On behalf of the Board, I would like to thank them for their hard work over the past year.
Outlook
When GRC International was admitted to trading on AIM in March 2018, its strategy was clear: to grow organically in a highly fragmented, global market and to accelerate its growth through selective acquisitions. That strategy remains unchanged.
As already noted, GDPR-related work slowed down more markedly than anticipated in the second half of FY19 and GDPR-related fines, that would precipitate a second wave of companies seeking to make themselves compliant, took longer than expected to appear. However, we have now seen the first major fines emerge and, like health and safety, we expect to see renewed focus from UK companies.
We begin the new financial year with optimism. FY19 has been a tough year for the Group, but we are confident that we operate in the right markets, markets that are global and are set to continue to grow significantly over the medium- and long-term, and have invested to strengthen and broaden the GRC International offering. We look forward to advancing our strategy and delivering a return to profitable growth in the current financial year.
Andrew Brode
Chairman
Chief Executive Officer's Review
The year to 31 March 2019 ("FY19") has been a year of investment, strategic development and significant change for GRC International. We have had to scale back a very successful GDPR business to reflect falling demand, while working intensely to strengthen our core cyber security business and our infrastructure platform to support future growth. Our ambition to become a leading "one-stop shop" global supplier of IT governance, risk and compliance products and services is undimmed.
In spite of a backdrop of ongoing political and economic uncertainty, it is clear that our admission to trading on AIM in March 2018 has enabled us to grasp significant growth opportunities in the areas of software, e-learning and GRCI law in a fast-growing global market.
The overall performance of the Group in FY19 was mixed. As we noted in our Interim Results in December 2018, Q1 was characterised by a surge in billings associated with the implementation of the EU General Data Protection Regulation ("GDPR"), as companies brought forward spend in order to be compliant ahead of the 25 May 2018 deadline. This GDPR-related spend declined significantly in Q2, faster than expected, as we moved past the implementation deadline. We had expected to see the advent of GDPR-related fines and regulatory action from the Information Commissioner's Office ("ICO") in H2, and for this to spur a second bout of GDPR-related client spend. These did not materialise in FY19 and, as a result, the decline in GDPR-related spend continued throughout the second half of the financial year. It is not yet clear whether or not the recent large fines levied by the Information Commissioner's office have halted this decline.
Cyber security-focused products and services, which remain at the core of our business, continued to grow strongly throughout the year. While this is, in part, due to the data security aspects of GDPR, government legislation and a growing pressure for clients to demonstrate their cyber resilience also underpinned the strong growth observed in this area.
The resulting loss for the year is partly attributable to the fall-off in GDPR demand and partly to the significant levels of investment in new offerings, geographies, people and infrastructure we made during the year. Our year-end net cash position of GBP0.1 million was ahead of the Board's expectations.
We have worked hard over the past 12 months to build a more focused, structured and broader platform to service clients and, in line with our strategy communicated at the time of our admission to trading on AIM, we have successfully accelerated the launch of new product and service offerings, expanded existing services into new jurisdictions, and made two highly complementary and value-accretive acquisitions.
This is testament to GRC International's inherent nimbleness in developing new products and solutions swiftly to service all clients' cyber security and data protection needs. Utilising the skill and deep industry knowledge of our management team to identify emerging trends in the market and consequent client needs, it is one of our key competitive advantages. Furthermore, we continue to be the only organisation in the market that can deploy a full suite of services to help clients respond to proliferating cyber security threats.
Product and service development remains at the heart of what we do and is fundamental to our business model. The market we operate in changes very quickly and we are agile in launching new products and services on a regular basis. We successfully launched many new products and services in FY19, including broadening our range of e-Learning training courses, and launching an anti-phishing training course as well as distance learning courses on topical subjects (e.g. GDPR). We have also published 20 of our books as audiobooks to improve their accessibility further, making us the only GRC publisher to provide such audio books.
We have invested significantly in new and existing businesses, most notably Cyber Essentials, Vigilant Software, GRC e-Learning and GRCI Law. Through GRCI Law, we provide a suite of GDPR - related services, including privacy-as-a-service, and that business is growing quickly. Cyber Essentials, GRC e-Learning and Vigilant Software are coming together into a Software-as-a-Service division that generates high-margin recurring revenue to a growing range of clients across a broad range of sectors and geographies.
We also expanded our geographic reach during the year, launching offices in Europe and the US. These businesses are still in their early stages and we are pleased with the number of opportunities presented in these jurisdictions. Combined with our strengthened geographical footprint, this "on-the-ground" delivery capability has enabled us to win significant international contracts for blue-chip clients such as Kubota.
Just prior to the year end, in March 2019, we acquired DQM, a provider of data consulting and technology solutions.
In August 2018, we also acquired the domain, web platform, customer list and goodwill of www.gdpr.co.uk. This asset purchase has enabled us to provide a combination of legal, training and GDPR products to the UK's education sector and is performing in line with the Board's expectations.
It has been a challenging year for the Group. The exceptional performance of FY18 was driven primarily by the implementation of GDPR, where our ability to rapidly develop and launch offerings to service customer requirements saw us profitably grasp the opportunities presented. As mentioned earlier, while we continued to feel the benefits of this into early FY19, the surge in demand then moderated in Q2 and dropped further in the second half of the financial year, resulting in a drop-off in revenues, including in comparison to the strong levels of revenue recorded in the second half of the prior year.
Over the period, to capitalise on the surge in GDPR demand, we scaled up resources and increased headcount as fast as we could. Following implementation in May 2018, as demand subsided at a faster rate than our estimates, we scaled down our GDPR training, toolkit and consultancy businesses in line with demand. It is worth noting, however, that as we continue to grow, we expect to increase headcount incrementally in this part of the business.
The IT governance, risk and compliance market continues to be driven by a mounting pressure on companies to have in place data protection, privacy and cyber security systems and procedures. It is this fundamental trend - one that we see globally - that is driving the performance of our cyber security related products and services.
Given the prevailing economic and political uncertainty in the wider economy, we are closely monitoring macroeconomic developments for any events that could impact the IT governance, risk and compliance market. While we, like many others, would welcome greater political and economic certainty, we believe that we are well-positioned to respond to events and capitalise on changes in our markets.
The first quarter of FY20 continued to reflect the ongoing political and economic turbulence and our GDPR business continued to be affected by the absence of systematic enforcement action The Company did not return to profitability in the first quarter of FY20, as it had hoped. The growth in cyber security demand means that trading in the second quarter has been more encouraging.
We remain optimistic about the year ahead and believe we are well-placed to serve the growing, and global, cyber security market. In FY20, we intend to evolve our business model further to better service clients and enable us to grow margin accretive, recurring revenues. The new structure will see the Group deliver offerings through three core divisions: Software-as-a-Service, Professional Services and e-Commerce. The fundamentals of our strategy remain unchanged, with investment in our product and service offerings, across both new and existing jurisdictions, coupled with continued growth in cyber security demand, driving profitable growth for our shareholders. There are encouraging signs of sustainable future growth stemming from new products and services, the signing of annual and multi-year contracts of a recurring revenue nature, and strategic progress being made overseas.
We are confident that, since admission to AIM in March 2018, we have built GRC International into a stronger, broader and more focused business, increasingly well-positioned to service our clients' ever-evolving cyber security needs. FY19 was a challenging year for us, but also one of development and evolution; we look to FY20 and beyond with confidence.
Alan Calder
Chief Executive Officer
Market Overview
A global market driven by the growing volume and scale of cyber security threats
The market for cyber security solutions and services is driven predominantly by the rising number of cyber-attacks, globally, which are becoming increasingly sophisticated, coupled with increased demand for data security and privacy and increased demand for data processing transparency.
'The Cost of Cybercrime Study 2019', developed jointly by Accenture and The Ponemon Institute, reported that the average number of security breaches per organisation increased by 11% in 2018 to 145 breaches (up from 130 in the previous year) and an increase of 65% over the past five years.
Increased technology-enablement and digitalisation are driving companies to rely heavily on digitally-stored information, which is shared in vast quantities both internally and externally. This is increasing the opportunity for data to fall victim to a cyber-attack, resulting in potentially devastating impacts to an organisation's bottom line and reputation. The Accenture-Ponemon Institute's "Cost of Cybercrime Study 2019" also reports the average cost of cybercrime to be up 12% year-on-year to USD $13.0 million, an increase of 72% over the past five years.
Companies around the world are, however, now recognising the criticality of taking action and, in the UK alone, 59% of companies sought information or guidance on cyber security from outside their organisation in the past year (UK Government Cyber Security Breaches Survey 2019). Furthermore, the Ernst & Young 2018-19 Global Information Security Survey ("GISS") - which analyses findings from 1,400 C-suite leaders and information security and IT executives/managers around the world - reported:
-- 53% have seen an increase in their budget this year.
-- 51% are spending more on cyber analytics.
-- 65% foresee an increase in their budget next year.
-- Many organisations are currently outsourcing cyber security
functions, including functions of their security operations
centres.
End-to-end compliance across the supply chain with legal and regulatory obligations further increasing demand for our products and services
Organisations have legal and regulatory obligations to have in place data protection and cyber security systems and procedures. These laws and regulations (for example, GDPR) often have international reach outside of the countries in which they are enacted.
The Board continues to believe that the most prominent legal, regulatory and commercial standards relating to these areas will continue to be adopted more widely across the globe. Organisations will need to implement procedures and practices that will enable them to demonstrate their compliance with the standards. In order to achieve this, organisations will require a supplier that is able to successfully meet all their IT governance needs and GRC International believes there are significant opportunities for upselling and cross-selling services to its existing customers.
In addition to laws and regulations, companies are increasingly required to provide assurance to their customers, regulators and stakeholders that their data protection and cyber security systems are adequate for the current risk environment.
Businesses, therefore, require evidence of adequate security from all the entities in their supply chains. For example, the payment card brands, through their acquiring banks, require businesses (and their suppliers) that process payment cards to meet the Payment Card Industry Data Security Standard ("PCI DSS") and the UK Government already requires that organisations supplying it directly or indirectly should comply with Cyber Essentials (its own standard).
We operate in a growing and global market
Due to the "one stop shop" nature of GRC International's business, it is difficult to confirm the exact size of the global market for the Group's products and services. However, there are a number of research reports that indicate the size and growth rate of this market:
-- The global cyber security market is predicted to be worth
USD 282.3 billion by 2024, equating to a CAGR of 11.1% between
2018 and 2024 (according to VynZ Research).
-- Cyber security Ventures predicts cybercrime will continue
rising and cost businesses globally more than $6 trillion
annually by 2021.
-- Average number of security breaches in 2018: 145, up 11%
year-on-year (Accenture-Ponemon Institute Cost of Cybercrime
Study 2019).
-- Average cost of cybercrime in 2018: USD $13.0 million, up
12% year-on-year (Accenture-Ponemon Institute Cost of Cybercrime
Study 2019).
GRC International offers a unique proposition to the market
In response to market trends in cyber security, there is a rising number of consultancies, including the six major accountancy firms, who now offer cyber security services. However, the Board maintains that there are no other companies offering the wide range of products and services that GRC International provides, either in the UK or elsewhere.
Furthermore, the Board believes that no other company is able to offer a bespoke solution for clients seeking to address their IT governance, risk management and compliance requirements.
Financial Review
I am pleased to report a set of results for the year ended 31 March 2019 that demonstrates solid performance in revenue generation compared to a prior year that included a significant one-off flurry of customer activity in the lead up to GDPR implementation.
We see promising signs of sustainable future growth such as revenues being generated from new products and services, the signing of annual and multi-year contracts of a recurring revenue nature, and strategic progress being made overseas, albeit delivering a net loss for the period. This Group loss is largely attributable to a number of significant investments made into new business lines and investment in people and infrastructure.
The beginning of the financial year included the tail end of the GDPR peak, which had been a significant driver of much of the prior year growth. As referenced in our interim results statement in December 2018, the Board had always anticipated a decline in demand for GDPR-related products and services in the period immediately following the deadline date for compliance (being 25 May 2018) and we invested heavily to broaden our existing cyber security offering and overseas delivery capabilities. The immediate drop-off in GDPR-related revenue, which happened faster than expected and in parallel to the significant investment in our cyber security offering and overseas delivery capabilities, resulted in a net loss for the financial year overall, which consisted of a very profitable April and May, followed by several months of significant investment and restructuring, before a return to profitability within the final quarter of the financial year.
Revenue
Revenue for the year ended 31 March 2019 was up 1% to GBP15.8 million (2018: GBP15.7 million).
The Group has four key revenue streams:
-- Consultancy -- Publishing and Distribution -- Software -- Training
Double-digit revenue growth was recorded in two of our four key revenue streams; revenue from Consultancy was up 37% year-on-year to GBP7.2 million, from Publishing and Distribution down 19% to GBP1.3 million and from Training down 31% to GBP5.8 million. Revenue from Software sales was up 279% year-on-year to GBP1.5 million, which indicates the strategic direction of travel for the Group. We hope to see further significant growth in this division as we move towards recurring revenue and SaaS ("Software-as-a-Service") type products and services.
Significant revenue growth in the year ended 31 March 2018 was largely driven by GDPR-related products and services, as our customers endeavoured to make themselves compliant ahead of the legislation coming into effect on 25 May 2018. Following its implementation, revenues in Q2 2019 declined on a year-on-year basis as the effect of our customers bringing forward their GDPR-related spending unwound and as we lapped tough comparators from the GDPR build-up which had begun in Q2 2018. If the one-off effect on revenues caused by GDPR implementation is stripped out, we are encouraged to see the underlying performance in our core cyber security business continue on a steady growth trajectory. Our 2019 revenues are significantly ahead of 2017 - which in many ways is a more comparable year, and in line with 2018, even without much of the one-off GDPR peak.
As demonstrated by the tables below, the Group's overall revenue has grown strongly over a three-year period.
Publishing and
GBP Consultancy Distribution Software Training Total
------------------- ----------- -------------- --------- --------- ----------
2017 2,897,684 1,041,843 410,696 2,483,080 6,833,303
2018 5,273,742 1,649,060 399,212 8,366,202 15,688,216
2019 7,227,588 1,337,205 1,513,212 5,770,561 15,848,566
------------------- ----------- -------------- --------- --------- ----------
Publishing and
Period-on-period % Consultancy Distribution Software Training Total
------------------- ----------- -------------- --------- --------- ----------
2018 vs 2017 82% 58% (3)% 237% 130%
2019 vs 2018 37% (19)% 279% (31)% 1%
------------------- ----------- -------------- --------- --------- ----------
Non-UK
GBP UK Non-UK %
----- ---------- --------- ------
2017 5,525,068 1,308,235 19%
2018 12,666,042 3,022,174 19%
2019 12,886,471 2,962,095 19%
----- ---------- --------- ------
Gross profit
Gross profit was down 10% to GBP8.6 million (2018: GBP9.5 million).
Gross profit as a percentage of sales reduced to 54% (2018: 61%). The reduction in the year-on-year percentage reflects a fall in sales from some very high margin products and services that benefited from the peak leading up to the GDPR legislation being implemented. The post-25 May 2018 trading environment also resulted in lower levels of utilisation within the GDPR consultancy team. During the second half of the year, the Group scaled back the size of this team and restructured the staffing model to better reflect the rapidly changing environment and to focus more strongly on the growth areas of the business, namely our cyber security offering. Gross margin in the fourth quarter was significantly up on the year as a whole and in the final month of the year was back in line with the levels experienced in 2017 and 2018.
Operating expenses
Other operating expenses (excluding share-based payment expenses and exceptional costs) increased by GBP5.3 million to GBP13.7 million, up 63% (2018: GBP8.4 million).
In our interim results statement, we referenced the heavy investment in setting up and supporting a number of new businesses and business lines and the considerable investment made into building the infrastructure and management structures of the core business that will act as a platform for future growth, with the expectation of developing a sustainably profitable Group for the future. This investment period continued into the second half of the year but, as expected, tailed off as the period progressed due to projects reaching a natural end and headcount restructuring programmes taking effect. Operating expenses in the second half of the year reduced by GBP0.7 million to GBP6.5 million, compared to GBP7.2 million in the first six months.
Underlying EBITDA
Underlying EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) excludes share-based payment expenses and exceptional costs. Although underlying EBITDA is not a statutory measure, it is considered by the Board to be an important Key Performance Indicator that is helpful to investors. The Board considers this to be an important measure of underlying business performance as it removes the impact of non-cash accounting adjustments as well as non-operating charges and credits.
Underlying EBITDA for the year ended 31 March 2019 was a loss of GBP4.3 million, (27.2)% of revenue (2018: profit of GBP1.7 million, 10.6% of revenue).
GBP'000 FY 2019 FY 2018 ------------------------ ------- ------- Operating (loss)/profit (5,357) 365 Depreciation 183 109 Amortisation 611 392 Exceptional costs 164 714 Share-based payments 63 83 ------------------------ ------- ------- Underlying EBITDA (4,336) 1,663 ------------------------ ------- -------
Finance expense
The net finance expense of GBP7,000 (2018: GBP9,000) relates almost entirely to interest on historic term loans and finance leases taken out in the Group's early stages of growth to support working capital. The Group is repaying the balances in line with the repayment schedule. The total value of borrowings and finance leases at the balance sheet date was GBP34,000 (2018: GBP95,000).
(Loss)/Profit before tax
Loss before tax was GBP5.4 million (2018: GBP0.4 million profit before tax). Normalised loss before tax (defined as loss before tax excluding share-based payment expenses and exceptional costs) was GBP5.1 million (2018: GBP1.2 million profit).
Taxation
A tax charge of GBP29,000 (2018: GBP153,000) is recognised despite the accounting loss. The effective tax rate is driven up by disallowable expenditure in relation to the acquisition.
Earnings per share
Loss per share was (9.30) pence (2018: Earnings 0.40 pence).
Statement of financial position
Net current liabilities at period end were GBP5.5 million, down from net current assets of GBP3.3 million at 31 March 2018. Net assets were GBP7.4 million, up from GBP5.9 million at 31 March 2018.
Included within the current liabilities balance of GBP9.1 million (31 March 2018: GBP5.0 million) is a deferred income balance of GBP1.0 million (31 March 2018: GBP1.4 million), relating to training and consultancy projects due to be delivered after the statement of financial position date. The reduction from prior year is a result of presentational differences brought about by the Group's adoption of IFRS 15, resulting in a deferred income balance of GBP0.5 million being offset against trade receivables (31 March 2018: GBPnil).
The overall shift from net current assets to net current liabilities is due to the reduction in cash as set out in the "cash flow and cash" section below. Current liabilities also include a GBP3.7 million deferred consideration payment relating to the acquisition of DQM (31 March 2018: GBPnil).
Intangible assets
The Group's accounting policy is that only directly attributable staff costs of the technical teams developing the assets are capitalised.
Additions of GBP2.3 million (excluding assets acquired as a result of the purchase of DQM) largely relate to software development (GBP1.4 million) and development of the Group's e-commerce website (GBP0.7 million).
In March 2019, the Group acquired the entire share capital of DQM. In accordance with IFRS 3, the cost of the acquisition has been allocated to DQM's identifiable assets and liabilities, with the difference between the fair value of these and the purchase consideration recognised as Goodwill.
Cash flow, cash and facilities
The Group's closing cash position net of a bank overdraft was GBP0.1 million (31 March 2018: GBP5.6 million). In March 2018, the Group raised GBP5.0 million (GBP4.0 million net of costs) as a result of its successful admission to AIM, with the intention of investing into new businesses in the UK and overseas and also into the core business to create a strong platform for future growth. The funds raised account for much of the cash on the balance sheet at 31 March 2018.
During the year ended 31 March 2019, the Group invested GBP2.3 million into the purchase of intangible fixed assets (2018: GBP0.9 million), settled the initial cash consideration due on the acquisition of DQM in the amount of GBP3.5 million (GBP2.5 million of which was allocated to intangible assets acquired) and invested GBP0.2 million (2018: GBP0.4 million) into the purchase of tangible fixed assets. To fund the business acquisitions, in March 2019 the Group raised GBP5.0 million (GBP4.8 million net of costs) by way of a placing.
The net cash outflow from operating activities of GBP4.7 million is from supporting the working capital cycle of new start-up businesses in the Group alongside a restructuring of the core business to focus on delivering a broader cyber security offering and provide a solid platform for sustainable future growth.
The Group has banking facilities to provide adequate headroom for unforeseen working capital requirements by way of a short term bank overdraft facility and an invoice discounting facility that was inherited as part of the acquisition of DQM. In addition, the unsecured loan facility provided to the Company by Andrew Brode for the amount of GBP700,000 at an interest rate of 5% above the Bank of England base rate to provide additional working capital has been extended by one year and will be available to the Company until at least 31 December 2020 and shall automatically renew for a further 12 months unless terminated by either party. As Mr Brode is a Director of the Company, the loan is deemed to be a related party transaction pursuant to rule 13 of the AIM Rules for Companies. The Board of GRC International, excluding Mr Brode, having consulted with Grant Thornton as the Company's Nominated Advisor, considers the terms of this transaction to be fair and reasonable so far as the Company's shareholders are concerned.
Going concern
The Group's forecasts assume revenue growth into 2020 and beyond, and the cost base of the Group is based on this assumption. However, there is an inherent level of uncertainty associated with timing and quantum of revenue forecasting due to the rapidly changing environment, which may impact the Group's ability to generate sufficient positive cash flow if revenue falls below the Board's expectations and if it were not possible to reduce costs in line with this. However, the Group's cost base is flexible and can be scaled to reflect market demand.
The Group has certain non-operating cash requirements. The most significant of these is the deferred consideration due to the vendors (and existing management team) of DQM that was acquired by the Group at the end of the financial year, as announced on 11 February 2019. Under the sale and purchase agreement (the 'Agreement"), further consideration ('Deferred Consideration") is due to the vendors of DQM based on the financial statements for the financial year ended 28 February 2019 ('Earn-out Accounts").
DQM's financial performance was better than originally expected and the final amount of Deferred Consideration is consequently expected to be in the region of GBP3.7 million, slightly ahead of the top range of the GBP2.5 - GBP3.5 million announced on 11 February 2019.
Under the Agreement, the Deferred Consideration is intended to be satisfied through cash expected to be in the region of GBP2.2 million (as to 60% of the Deferred Consideration) and the issue of Ordinary Shares (as to 40% of the Deferred Consideration and based on an issue price per Ordinary Share of 116.5 pence) within five business days of completion of the audit of DQM's Earn-out Accounts.
In advance of the Deferred Consideration falling due, the Group is presently holding constructive discussions with the vendors of DQM, who are mainly Group employees, about the settlement of that balance.
In order to settle the Deferred Consideration, the Group is considering a range of options which includes, but is not limited to, adjusting the balance of consideration between cash and shares and exploring the feasibility of a payment schedule in order to enable the Group to satisfy the cash element of the Deferred Consideration that will fall due within 12 months of the balance sheet date. The Group is also considering different potential funding options, including but not limited to debt and equity, from existing and other potential investors, along with the possible sale of DQM. If this cannot be concluded in a satisfactory manner, the Parent Company would need to raise additional funding, with no guarantee that such funding would be secured.
Although no agreement has yet been reached, the Board believes that it is in the interests of all parties to agree a deal that maintains the strength of the Group balance sheet and the Group's ability to trade. However, the Directors' ability to renegotiate the Deferred Consideration on terms satisfactory to the Group, or otherwise fund the liability for the Deferred Consideration, cannot be predicted with certainty.
In light of the above, the Directors have identified a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern for the foreseeable future and reference to this material uncertainty is made in the Auditor's report to the audited financial statements on page 38 of the Annual Report and Accounts 2019.
The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
Capital structure
The issued share capital at 31 March 2019 was 64,484,172 ordinary shares of GBP0.001 each. During the year, GRC International Group plc issued 5,000,000 placing shares and 2,021,232 consideration shares in connection with the acquisition of DQM Group. There were no share options granted in the year to 31 March 2019, and the total number of unexercised share options at 31 March 2019 was 2,460,680 (31 March 2018: 2,348,920).
Risks and uncertainties
The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Group's performance, and the factors which mitigate these risks, are set on pages 18 to 19 of the Annual Report and Accounts 2019. The one exception being an additional point regarding liquidity risk and the Group's recognition of the need to regularly review and monitor the Group's financing. Further information is provided above under "Cash flow, cash and facilities".
Chris Hartshorne
Finance Director
Consolidated Income Statement
For the year ended 31 March
2019 2018
Notes GBP GBP
---------------------------------------------------------- ----- ------------ -----------
Revenue 2 15,848,566 15,688,216
Cost of sales (7,295,039) (6,163,690)
---------------------------------------------------------- ----- ------------ -----------
Gross profit 8,553,527 9,524,526
Administrative expenses:
---------------------------------------------------------- ----- ------------ -----------
- Other administrative expenses (13,715,750) (8,384,858)
- Share-based payment charge (63,285) (82,560)
- Exceptional administrative expenses 3 (164,149) (714,251)
---------------------------------------------------------- ----- ------------ -----------
Total administrative expenses (13,943,184) (9,181,669)
Other operating income 32,425 21,875
---------------------------------------------------------- ----- ------------ -----------
Operating (loss)/profit 4 (5,357,232) 364,732
Net finance costs 6 (7,470) (9,386)
Share of post-tax loss of equity accounted joint ventures 13 (746) -
---------------------------------------------------------- ----- ------------ -----------
(Loss)/profit before taxation (5,365,448) 355,346
Taxation 7 (29,157) (153,495)
---------------------------------------------------------- ----- ------------ -----------
(Loss)/profit for the financial year (5,394,605) 201,851
---------------------------------------------------------- ----- ------------ -----------
(Loss)/profit for the financial year attributable to:
Equity shareholders of the parent (5,394,605) 201,851
---------------------------------------------------------- ----- ------------ -----------
Basic (loss)/earnings per share (pence) 8 (9.30) 0.40
---------------------------------------------------------- ----- ------------ -----------
Diluted (loss)/earnings per share (pence) 8 (9.30) 0.39
---------------------------------------------------------- ----- ------------ -----------
Consolidated Statement of Comprehensive Income
For the year ended 31 March
2019 2018
GBP GBP
------------------------------------------------------------------------------------------------ ----------- -------
(Loss)/profit for the year (5,394,605) 201,851
Other comprehensive (loss)/income - items that may subsequently be reclassified to profit/loss:
Exchange differences on translation of foreign operations (7,618) 1,699
------------------------------------------------------------------------------------------------ ----------- -------
Other comprehensive (loss)/income for the financial year, net of tax (7,618) 1,699
------------------------------------------------------------------------------------------------ ----------- -------
Total comprehensive (loss)/income for the financial year (5,402,223) 203,550
------------------------------------------------------------------------------------------------ ----------- -------
Total comprehensive (loss)/income to equity shareholders of the parent (5,402,223) 203,550
------------------------------------------------------------------------------------------------ ----------- -------
Consolidated Balance Sheet as at 31 March
2019 2018
Notes GBP GBP
----------------------------------------------- ----- ----------- -----------
Assets
Non-current assets
Goodwill 10 6,693,234 -
Intangible assets 11 5,760,273 1,596,894
Property, plant and equipment 12 488,678 424,019
Investments in equity-accounted joint ventures 13 10,041 -
Deferred tax asset 7 143,893 641,165
----------------------------------------------- ----- ----------- -----------
13,096,119 2,662,078
----------------------------------------------- ----- ----------- -----------
Current assets
Inventories 14 64,242 76,171
Trade and other receivables 15 2,903,953 2,637,309
Cash at bank 16 639,202 5,557,576
----------------------------------------------- ----- ----------- -----------
3,607,397 8,271,056
----------------------------------------------- ----- ----------- -----------
Current liabilities
Trade and other payables 17 (4,367,219) (4,636,265)
Borrowings 18 (520,554) (51,366)
Deferred consideration 19 (3,747,025) -
Finance lease payables 22 (5,667) (9,516)
Current tax 7 (433,677) (301,831)
----------------------------------------------- ----- ----------- -----------
(9,074,142) (4,998,978)
----------------------------------------------- ----- ----------- -----------
Net current (liabilities)/assets (5,466,745) 3,272,078
----------------------------------------------- ----- ----------- -----------
Non-current liabilities
Borrowings 18 - (28,143)
Finance lease payables 22 - (5,667)
Deferred tax liability 7 (273,301) -
----------------------------------------------- ----- ----------- -----------
(273,301) (33,810)
----------------------------------------------- ----- ----------- -----------
Net assets 7,356,073 5,900,346
----------------------------------------------- ----- ----------- -----------
Equity
Share capital 24 64,484 57,463
Share premium 9,587,828 4,792,828
Merger reserve 2,352,714 -
Share-based payment reserve 440,139 628,150
Capital redemption reserve 5 5
Translation reserve (6,939) 679
(Accumulated deficit)/retained earnings (5,082,158) 421,221
----------------------------------------------- ----- ----------- -----------
Total equity 7,356,073 5,900,346
----------------------------------------------- ----- ----------- -----------
Consolidated Statement of Changes in Equity
For the year ended 31 March 2019
Share-based (Accumulated deficit)/ Capital
Share Share Merger payment retained Translation redemption
capital premium reserve reserve earnings reserve reserve Total
GBP GBP GBP GBP GBP GBP GBP GBP
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
Balance at 1
April 2018 57,463 4,792,828 - 628,150 421,221 679 5 5,900,346
Adjustment on
initial
application of
IFRS 15 - - - - (108,774) - - (108,774)
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
Adjusted Balance
at 1 April 2018 57,463 4,792,828 - 628,150 312,447 679 5 5,791,572
Loss for the
year - - - - (5,394,605) - - (5,394,605)
Foreign exchange
difference on
consolidation - - - - - (7,618) - (7,618)
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
Total
comprehensive
loss for the
year - - - - (5,394,605) (7,618) - (5,402,223)
Share-based
payment expense - - - 63,285 - - - 63,285
Deferred tax on
share-based
payments - - - (251,296) - - - (251,296)
Shares issued 7,021 4,995,000 2,352,714 - - - - 7,354,735
Cost of share
issue - (200,000) - - - - - (200,000)
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
Transactions
with owners 7,021 4,795,000 2,352,714 (188,011) - - - 6,966,724
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
At 31 March 2019 64,484 9,587,828 2,352,714 440,139 (5,082,158) (6,939) 5 7,356,073
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
For the year ended 31
March 2018
Share-based Capital
Share Share payment Retained Translation redemption
capital premium reserve earnings reserve reserve Total
GBP GBP GBP GBP GBP GBP GBP
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
Balance at 1
April 2017 1,798 1,137,098 - 94,043 (1,020) 1 1,231,920
Profit for the
year - - 201,851 - - 201,851
Foreign exchange
difference on
consolidation - - - - 1,699 - 1,699
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
Total
comprehensive
income for the
year - - - 201,851 1,699 - 203,550
Capital
reduction - (1,137,098) - 1,137,098 - - -
Dividends - - - (951,320) - - (951,320)
Purchase of own
shares (4) - - (11,994) - 4 (11,994)
Bonus issue 48,457 - - (48,457) - - -
Share-based
payment expense - - 82,560 - - - 82,560
Deferred tax on
share-based
payments - - 545,590 - - - 545,590
Shares issued on
exercise of
share options 12 5,028 - - - - 5,040
Shares issued 7,200 5,032,800 - - - - 5,040,000
Cost of share
issue - (245,000) - - - - (245,000)
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
Transaction with
owners 55,665 3,655,730 628,150 125,327 - 4 4,464,876
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
At 31 March 2018 57,463 4,792,828 628,150 421,221 679 5 5,900,346
---------------- ------- --------- ----------- ----------- ---------------------- ----------- ---------- -----------
Consolidated Statement of Cash Flows For the year ended 31 March
2019 2018
GBP GBP
-------------------------------------------------------------- ----------- -----------
Cash flows from operating activities
(Loss)/profit before tax (5,365,448) 355,346
Depreciation 183,351 108,944
Amortisation 611,220 391,550
Share-based payment expense 63,285 82,560
Foreign exchange (gains)/losses (5,329) 41,851
Share of post-tax profits of equity accounted joint ventures 746 -
Finance income (2,137) (516)
Finance costs 9,607 9,902
-------------------------------------------------------------- ----------- -----------
Operating cash flows before changes in working capital (4,504,705) 989,637
Decrease/(increase) in inventories 11,930 (37,545)
Decrease/(increase) in trade and other receivables 498,266 (1,529,039)
(Decrease)/increase in trade and other payables (660,067) 2,807,653
-------------------------------------------------------------- ----------- -----------
Net cash (outflow)/inflow from operating activities (4,654,576) 2,230,706
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired (2,512,937) -
Purchase of intangible assets (2,288,768) (945,268)
Purchase of plant and equipment (234,229) (398,406)
Sale of plant and equipment 7,522 -
Acquisition of joint venture investment (10,995) -
Interest received 2,137 516
-------------------------------------------------------------- ----------- -----------
Net cash outflow from investing activities (5,037,270) (1,343,158)
Net cash flows from financing activities
Purchase of own shares - (11,994)
Proceeds from issue of shares 5,000,000 5,045,040
Costs of share issue (200,000) (245,000)
Repayment of acquired consideration liability (450,000) -
Dividends paid - (386,500)
Repayment of loans (51,366) (80,127)
Interest paid (9,385) (12,511)
Interest on finance leases (222) (202)
Capital element of finance lease payments (7,555) (11,929)
-------------------------------------------------------------- ----------- -----------
Net cash inflow from financing activities 4,281,472 4,296,777
Net (decrease)/increase in cash and cash equivalents (5,410,374) 5,184,325
Cash and cash equivalents at beginning of financial year 5,557,576 413,552
Effects of exchange rate changes on cash and cash equivalents (411) (40,301)
-------------------------------------------------------------- ----------- -----------
Cash and cash equivalents at end of financial year 146,791 5,557,576
-------------------------------------------------------------- ----------- -----------
Comprising
Cash at bank 16 639,202 5,557,576
Bank overdraft 18 (492,411) -
Cash at bank 146,791 5,557,576
-------------------------------------------------------------- ----------- -----------
Nature of Operations and General Information
GRC International Group plc (GRC International Group or 'the Company') is a public limited company limited by shares, incorporated and domiciled in England and Wales. The registered company number is 11036180 and the registered office is Unit 3 Clive Court, Bartholemew's Walk, Cambridgeshire Business Park, Ely, Cambridgeshire, CB7 4EA.
The principal activities of GRC International Group plc and its subsidiary companies (together, the "Group") are those of a one-stop shop for IT Governance including books, tools, learning and consultancy services.
The financial information for the year ended 31 March 2019 and the year ended 31 March 2018 does not constitute the company's statutory accounts for those years.
Statutory accounts for the year ended 31 March 2018 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 March 2019 will be delivered to the Registrar of Companies in due course.
The auditors' reports on the accounts for 31 March 2019 and 31 March 2018 were unqualified but the auditor's report on the accounts for 31 March 2019 did draw attention to a material uncertainty related to going concern. This material uncertainty is described in the section below entitled "Going concern".
The auditor's report on the accounts for 31 March 2018 did not draw attention to any matters by way of emphasis.
The auditor's report and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
Principal Accounting Policies
Basis of preparation and consolidation
The consolidated financial statements of GRC International Group plc and entities controlled by the Company (its subsidiaries) for the years presented has been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the EU, and IFRIC interpretations.
The results for the year ended 31 March 2019 and 31 March 2018 include the results of GRC International Group plc and its subsidiaries. A subsidiary is a company controlled directly by the Group. Control is achieved where the Group has the power over the investee, rights to variable returns and the ability to use the power to affect the investee's returns.
GRC International Group plc was incorporated on 27 October 2017. The Company's first statutory accounting period is the period up to 31 March 2019, the Company only financial statements included in this Annual Report are for the period from incorporation to 31 March 2019. During the period to 31 March 2018 the Company was inserted as the new holding company for the pre-existing IT Governance Group. The consolidated financial results included in this Annual Report for 31 March 2018 have been prepared on a look-through basis, as if the Group always existed in its current form. This was consistent with the approach taken for the historical financial information ("HFI") in the AIM admission document.
Income and expenses of subsidiaries acquired during the year are included in the Consolidated Income Statement from the effective date of control. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Parent Company.
All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation.
All accounting policies disclosed below apply to the Group for the years presented, unless otherwise explicitly stated.
IFRS is subject to amendment and interpretation by the IASB and the IFRS Interpretations Committee, and there is an on-going process of review and endorsement by the European Commission. These accounting policies comply with each IFRS that is mandatory for accounting periods ending on 31 March 2019.
The consolidated financial statements have been prepared on a historical cost basis, except for the measurement of the deferred consideration which is carried as its fair value.
The principal accounting policies adopted are set out below.
Financial Information is presented in British pounds sterling (GBP).
The Directors of GRC International Group are responsible for the financial information and contents of the consolidated financial statements.
Going concern
The Group's capital management policy is to generate positive cash flows from operating activities to finance the Group's business operations, and where necessary to raise sufficient funding to finance the Group's future investments and capital projects.
The Group has recorded a loss for the year of GBP5,394,605 (2018: profit of GBP201,851) and at 31 March 2019, its current liabilities exceeded its current assets by GBP4,495,723 (2018: excess of current assets over current liabilities of GBP4,667,024) (excluding deferred revenues). Notwithstanding this and the material uncertainty described below, the directors consider it appropriate to prepare the financial statements on a going concern basis. The key considerations relating to this judgement are described below.
The Group has banking facilities to provide adequate headroom for unforeseen working capital requirements by way of a short term bank overdraft facility and an invoice discounting facility that was inherited as part of the acquisition of DQM. In addition, Andrew Brode has provided to the Company an unsecured loan facility for the amount of GBP700,000 at an interest rate of 5 per cent. above the Bank of England Base rate to provide additional working capital. The facility will be available to the Company until at least 31 December 2020 and shall automatically renew for a further 12 months unless terminated by either party.
The Group's forecasts assume revenue growth into 2020 and beyond, and the cost base of the Group is based on this assumption. However, there is an inherent level of uncertainty associated with timing and quantum of revenue forecasting due to the rapidly changing environment, which may impact the Group's ability to generate sufficient positive cashflow if revenue falls below the Board's expectations and it is not possible to reduce costs in line with this. However, the Group's cost base is flexible and can be scaled to reflect market demand.
The Group has certain non-operating cash requirements. The most significant of these is the deferred consideration due to the vendors (and existing management team) of DQM Holdings Limited ("DQM") that was acquired by the Group at the end of the financial year, as announced on 11 February 2019.
Under the sale and purchase agreement (the "Agreement"), further consideration ("Deferred Consideration") is due to the vendors of DQM based on the financial statements for the financial year ended 28 February 2019 ("Earn-out Accounts"). DQM's financial performance was better than originally expected and the final amount of Deferred Consideration is consequently expected to be in the region of GBP3.7 million, slightly ahead of the top range of the GBP2.5 - GBP3.5 million announced on 11 February 2019.
Under the Agreement, the Deferred Consideration is intended to be satisfied through cash (as to 60 per cent. of the Deferred Consideration) and the issue of Ordinary Shares (as to 40 per cent. of the Deferred Consideration and based on an issue price per Ordinary Share of 116.5 pence) within five business days of completion of the audit of DQM's Earn Out Accounts.
In advance of the Deferred Consideration falling due, the Group is presently holding constructive discussions with the vendors of DQM, who are mainly Group employees, about the settlement of that balance.
In order to settle the Deferred Consideration the Group is considering a range of options which includes, but is not limited to, adjusting the balance of consideration between cash and shares and exploring the feasibility of a payment schedule in order to enable the Group to satisfy the cash element of the Deferred Consideration that will fall due within 12 months of the balance sheet date. The Group is also considering different potential funding options, including but not limited to debt and equity, from existing and other potential investors, along with the possible sale of DQM. If this cannot be concluded in a satisfactory manner, the Parent Company would need to raise additional funding, with no guarantee such funding would be secured.
Although no agreement has yet been reached, the Board believes that it is in the interests of all parties to agree a deal that maintains the strength of the Group balance sheet and the Group's ability to trade. However, the Directors' ability to renegotiate the Deferred Consideration on terms satisfactory to the Group, or otherwise fund the liability for the Deferred Consideration, cannot be predicted with certainty.
In light of the above, the directors have identified a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern for the foreseeable future.
The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
Revenue
The Group often enters into transactions involving a range of the Group's products and services, for example for the delivery of consultancy, training, software and related after-sales service. In all cases, the total transaction price for a contract is allocated net of discounts amongst the various performance obligations based on their relative stand-alone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties.
Revenue is recognised either at a point in time or over time, when the Group satisfies performance obligations by transferring the promised goods or services to its customer. The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as deferred income in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. In practice, contract assets rarely arise due to the timing of invoices raised under the terms of the Group's contracts.
All material contracts which span a financial reporting period will be reviewed on an individual basis with the 5-step application of IFRS 15 applied based upon the type of product sold.
The type of products and range of services sold across the Group fall within the following four revenue streams:
-- Consultancy -- Publishing/Distribution -- Learning -- Software
To determine whether to recognise revenue, the Group follows a 5-step process:
1. Identifying the contract with a customer
2. Identifying the performance obligations
3. Determining the transaction price
4. Allocating the transaction price to the performance obligations
5. Recognising revenue when/as performance obligation(s) are
satisfied.
The following chart summarises how the 5-step process is applied for each of the four revenue streams:
Products and Nature, timing of satisfaction of performance obligations and
services significant payment terms
------------------------ ------------------------------------------------------------------------
Consultancy The Group recognises revenue over time as the services in the
- On-site and contract are performed, generally based on the consultants
remote support estimate of the progress of the work. Revenue from consultancy
consulting services, services which are either a performance obligation within a
helping organisations larger arrangement or are sold on a stand-alone basis is generally
to design and recognised over time where the Group agrees to provide labour
implement data hours/days. Contracts state a broad list of activities that
protection and the services may include. The contracts state daily/hourly
cyber security rates and estimated amounts to be billed. Contracts state that
policies and IT Governance will not exceed the total amount without prior
procedures. written approval.
In cases where contracts are structured on a time basis, the
variable amount of the consideration due will be estimated.
Where the performance obligations within an agreement are considered
to represent services that are substantially the same, these
will form a single performance obligation with labour days/hours
representing the progress measure. Several contracts define
the only obligation as support for customer led projects, and
again in these cases it will be considered that there is one
performance obligation with labour hours being the progress
measure.
Revenue shall be recognised over a time, when the Group's performance
does not create an asset with an alternative use to the Group
and the entity has an enforceable right for performance completed
to date. This is true for all services provided on a time basis.
The Group also has an enforceable right for payment for work
completed to date.
------------------------ ------------------------------------------------------------------------
Publishing/Distribution The Group recognises revenue at the point in time when control
- The Group of the asset is transferred to the customer. The product becomes
sells books, under the control of the customer when the book/software/toolkit
documentation is delivered to them. This is when the customer has legal title
templates and to the asset or has physical possession of the asset.
software via For the sale of physical softcopy books and CD-ROMs, revenue
its websites, is recognised when the goods are delivered.
both that it Where a product with a subscription or licence is sold on behalf
publishes or of a third party the revenue is recognised straight away as
writes itself, the obligation to fulfil the contract lies with the third party
and also supplied and not the Group. The full cost of the product sold by the
by third parties. Group in respect of a third-party sale is charged to the Income
The Group also Statement when the revenue is recognised.
creates and
sells sets of
documentation
templates that
are used by
customers to
assist them
to document
IT systems and
procedures.
------------------------ ------------------------------------------------------------------------
Learning - The Revenue is recognised on 'Classroom Based Training Courses'
Group sells and 'Online Training Courses' when the customer obtains control.
"in person" The product becomes under the control of the customer when
classroom-based they attend the first day of the Training Course.
training courses Revenue is recognised on 'Distance Learning Based Training
related to data Courses when the Customer gains control. The product becomes
protection, under the control of the customer at the date the online course
cyber security, is made available to them. Once the course is made available
ISO 27001 certification the Group has fulfilled its contractual obligation to deliver.
and related The date the user accesses and uses the course is not considered
topics. The relevant.
courses range Revenue is recognised on 'e-Learning Courses' dependent on
from one to the type of service provided. 'e-Learning' is split into four
five days in types. -- eLearning Hosting Services - An additional annual
length and are fee for LMS (Learning Management System) hosting
held at hired of the eLearning courses. Customers are not obliged
premises. The to but can buy our standard 'off-the-shelf' 'Hosting'
Group also provides area. All hosted client courses will be hosted
courses at customers' on our LMS. Each client will be given their own
premises for space, which can be branded with their logo and
organisations company colours. The eLearning course files hosted
that require on our LMS will be the same for all clients, and
training for each client will have a space in the course layout
a number of to add any extra information they need, such as
their employees. documents, links and contact details. Revenue is
The courses recognised on 'eLearning Hosting Services' over
are aimed at time as the customer has access to the hosting
various different area. Revenue is then pro-rated equally over the
areas of IT period (normally 12 months) to which the service
governance and relates.
at different -- Revenue is recognised on 'eLearning courses' when
skill levels. the customer obtains control. The course becomes
under the control of the customer when the online
course is made available to access.
-- eLearning Set Up Costs - Organisations/customers
can contract the Group to 'Customise' the eLearning
courses to their organisation's specifications
(i.e. Company Logo/Branding etc.). Revenue is recognised
on 'eLearning Set Up Costs' when the customer obtains
control of the course material. The product becomes
under the control of the customer when the online
courses are made available to access.
-- eLearning Training - Organisations/customers can
contract the Group to provide training for the
eLearning courses. This is a one-off fee and the
Training is a pre-agreed number of hours or days
as requested by the customer. Revenue is recognised
on 'eLearning Training' when the customer gains
control. The product comes under the control of
the customer on the first day of the Training Course.
------------------------ ------------------------------------------------------------------------
Software - The Revenue from the sale of software for a fixed fee is recognised
Group creates when or as the Group gives access to the customer to download
and sells software the software.
solutions. Maintenance Software revenue recognition.
and support Performance obligations are satisfied at a point in time when
(M&S) arrangements the Group has a right to payment for the software, the customer
are usually has legal right to use the software under the terms of the
sold on a standalone software licence agreement, and the Group has physically transferred
basis as a renewal the software to the customer. These criteria are all met at
of an existing the point in time that the Group transfer the software which
arrangement takes place.
with arrangement The Group does not undertake activities which significantly
usually running affect the intellectual property post-delivery of the software
over a 12-month which would prevent revenue being recognised at a point in
period. Generally, time.
the first time The Group does not provide free Maintenance and Support type
M&S is sold services as part of the licencing arrangements.
is when the Revenue from the sale of Maintenance and Support arrangements
customer initially are always sold on a standalone basis or as a renewal of an
buys the software. existing arrangement usually running over a 12 month period.
There are no The technical support and software updates are distinct. This
material rights is because the customer can benefit from the licence with or
to consider without the Maintenance and Support contract.
in connection Technical support: the customer benefits from the technical
with renewal support as that support is provided. The contracted support
options. period is generally 12 months, so the customer obtains the
benefit over the 12-month period. Accordingly, it is appropriate
to recognise revenue over a 12-month period.
Software updates: all software updates are unspecified within
Maintenance and support arrangements with updates being made
as and when available. The customer will continue to receive
updates during the Maintenance and support period and accordingly
will benefit from the updates as they are provided. Accordingly,
it is appropriate to recognise revenue over a 12-month period.
------------------------ ------------------------------------------------------------------------
Finance income and costs
Interest income and expense is recognised using the effective interest method which calculates the amortised cost of a financial asset or liability and allocates the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability to the net carrying amount of the financial asset or liability.
Goodwill
Goodwill arising on business combinations is reviewed and tested on an annual basis or more frequently if there is indication that goodwill might be impaired.
Goodwill is allocated to CGU's, which are determined as the lowest level of detail available for the assets to generate cash inflows relating to goodwill.
Goodwill represents the future economic benefits arising from business combinations which are not individually identified and separately recognised.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
Goodwill is carried at cost less any accumulated impairment losses until disposal or termination of the previous acquired business when the profit or loss on disposal or termination will be calculated after charging the gross amount at current exchange rates of any such goodwill through the income statement.
Intangible assets
Acquired intangible assets
An intangible asset is recognised if it is probable that the expected future economic benefits that are attributable to the asset will flow to the Group and the cost of the asset can be measured reliably.
Internally developed intangible assets
Expenditure on research activities is recognised as an expense as incurred.
Costs that are directly attributable to a project's development phase are recognised as intangible assets, provided they meet the following recognition requirements:
-- the development costs can be measured reliably;
-- the project is technically and commercially feasible;
-- the Group intends to and has sufficient resources to complete
the project;
-- the Group has the ability to use or sell the software;
and
-- the software will probably generate future economic benefits.
Development costs not meeting these criteria for capitalisation are expensed as incurred.
Directly attributable costs include an apportionment of employee costs incurred on internal development assets.
Internal development assets include software, website costs, courseware, marketing tools, consultancy products and publishing products.
Subsequent measurement
The useful lives of all intangible assets are assessed as finite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method prospectively.
The amortisation expense on intangible assets with finite lives is recognised in the income statement as administrative expenses.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
Amortisation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Trademarks 10 years Software 5 years Website costs 5 - 10 years Marketing tools 3 years Courseware 10 years Publishing products 4 years Consultancy products 10 years Customer relationships 12 years
Customer relationships
Acquired customer relationships comprise principally of existing customer relationships which may give rise to future orders (customer relationships). Acquired customer relationships are recognised at fair value at the acquisition date and have a finite useful life of 12 years. Customer relationships are amortised in line with the expected cashflows. Acquired customer relationships are stated at cost less accumulated amortisation and impairment.
Any capitalised internally developed intangible asset that is not yet complete is not amortised but is subject to impairment testing. Subsequent expenditures on the maintenance of computer software are expensed as incurred.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation less any recognised impairment losses. Cost includes expenditure that is directly attributable to the acquisition or construction of these items. Subsequent costs are included in the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the costs can be measured reliably. All other costs, including repairs and maintenance costs, are charged to the Income Statement in the period in which they are incurred.
Depreciation is provided on all property, plant and equipment and is calculated as follows:
Leasehold improvements 10 years straight line basis Computer equipment 25 - 33% reducing balance basis Office equipment 25% reducing balance basis
Depreciation is provided on cost less residual value. The residual value, depreciation methods and useful lives are annually reassessed.
Each asset's estimated useful life has been assessed with regard to its own physical life limitations and to possible future variations in those assessments. Estimates of remaining useful lives are made on a regular basis for all machinery and equipment, with annual reassessments for major items. Changes in estimates are accounted for prospectively.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.
The gain or loss arising on disposal or scrapping of an asset is determined as the difference between the sales proceeds, net of selling costs, and the carrying amount of the asset and is recognised in the Income Statement.
Impairment of non-financial assets
For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units that is expected to benefit from the synergies of the combination. Each unit to which goodwill is allocated represents the lowest level within the Group that independent cash flows are monitored. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired.
At each balance sheet date, the Directors review the carrying amounts of the Group's non-current assets, other than goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from other assets, the Directors estimated the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs of disposal 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 which the estimated future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit.
An impairment loss is recognised as an expense immediately.
An impairment loss recognised for goodwill is not reversed in subsequent periods.
Where an impairment loss on non-financial assets subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior periods. A reversal of an impairment loss is recognised in the Income Statement immediately.
Inventory
Inventory is stated at the lower of cost and net realisable value, being the estimated selling price less costs to complete and sell. Cost is based on the cost of purchase on a weighted average basis.
At the balance sheet date, inventories are assessed for impairment. If inventories are impaired, the carrying amount is reduced to its selling price less costs to complete and sell. The impairment loss is recognised immediately in profit or loss.
Cash at bank
Cash at bank comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less from inception.
Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.
Financial assets and financial liabilities are measured initially at fair value plus transactions costs. Financial assets and financial liabilities are measured subsequently as described below.
Financial instruments
Recognition and derecognition
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred.
A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.
Classification and initial measurement of financial assets
Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).
Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories: amortised cost
-- fair value through profit or loss (FVTPL). -- fair value through other comprehensive income (FVOCI).
In the periods presented the Group does not have any financial assets categorised as either FVTPL or FVOCI.
The classification is determined by both:
-- the entity's business model for managing the financial
asset.
-- the contractual cash flow characteristics of the financial
asset.
All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other administrative expenses.
Subsequent measurement of financial assets
Financial assets at amortised cost
Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL):
-- they are held within a business model whose objective
is to hold the financial assets and collect its contractual
cash flows.
-- the contractual terms of the financial assets give rise
to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.
Impairment of financial assets
IFRS 9's impairment requirements use forward-looking information to recognise expected credit losses - the 'expected credit loss (ECL) model'. Instruments within the scope of these requirements included loans and other debt-type financial assets measured at amortised cost, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss.
The Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made between:
-- financial instruments that have not deteriorated significantly
in credit quality since initial recognition or that have
low credit risk ('Stage 1') and
-- financial instruments that have deteriorated significantly
in credit quality since initial recognition and whose credit
risk is not low ('Stage 2').
'Stage 3' would cover financial assets that have objective evidence of impairment at the reporting date.
'12-month expected credit losses' are recognised for the first category while 'lifetime expected credit losses' are recognised for the second category.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument.
Trade and other receivables and contract assets
The Group makes use of a simplified approach in accounting for trade receivables as well as contract assets and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix.
The Group assess impairment of trade receivables on a collective basis and as they possess shared credit risk characteristics they have been grouped based on the days past due. Refer to Note 15 for further details.
Classification and measurement of financial liabilities
The Group's financial liabilities include trade and other payables, borrowings and deferred consideration.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss.
All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance costs or finance income.
Borrowings
Borrowings, including bank overdrafts, are classified as current liabilities unless the Group has an unconditional right to defer the settlement of the liability for at least 12 months after the balance sheet date.
Deferred Consideration
Deferred consideration is recognised at fair value at the acquisition date and subsequently at FVTPL. Changes in deferred consideration arising from additional information, obtained within one year of the acquisition date, about facts or circumstances that existed at the acquisition date, are recognised as an adjustment to goodwill.
Foreign currency
The presentation currency for the Group's consolidated financial statements is Sterling. Foreign currency transactions by Group companies are recorded in their functional currencies at the exchange rate at the date of the transaction. Monetary assets and liabilities have been translated at rates in effect at the balance sheet date, with any resulting exchange adjustments being charged or credited to the Income Statement, within administrative expenses.
On consolidation the assets and liabilities of the subsidiaries with a functional currency other than Sterling are translated into the Group's presentational currency at the exchange rate at the balance sheet date and the Income Statement items are translated at the average rate for the period. The exchange difference arising on the translation from functional currency to presentational currency of subsidiaries is classified as other comprehensive income and is accumulated within equity as a translation reserve.
The balance of the foreign currency translation reserve relating to a subsidiary that is disposed of, or partially disposed of, is recognised in the Income Statement at the time of disposal.
Current taxation
Current taxation for each taxable entity in the Group is based on the local taxable income at the local statutory tax rate enacted or substantively enacted at the balance sheet date and includes adjustments to tax payable or recoverable in respect of previous periods.
Deferred taxation
Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. No deferred tax is recognised on initial recognition of goodwill or on investment in subsidiaries. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax liabilities are provided in full, and are not discounted.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Income Statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Employment benefits
Provision is made in the financial statements for all employee benefits. Liabilities for wages and salaries, including non-monetary benefits and annual leave obliged to be settled within 12 months of the balance sheet date, are recognised in accruals.
Contributions to defined contribution pension plans are charged to the Income Statement in the period to which the contributions relate.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. The interest element of finance lease payments is charged to profit or loss as finance costs over the period of the lease. All other leases are classified as operating leases.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Equity
Equity comprises the following:
-- "Share capital" represents the nominal value of equity
shares issued.
-- "Share premium" represents amounts subscribed for share
capital, net of issue costs, in excess of nominal value.
-- "Merger Reserve" represents the excess of the fair value
of the consideration received for the issue of shares over
the nominal value of shares issued in circumstances where
the merger relief provisions of the Companies Act 2006
apply.
-- "Share-based payment reserve" represents the accumulated
value of share-based payments.
-- "Retained earnings" represents the accumulated profits
and losses attributable to equity shareholders.
-- "Capital redemption reserve" represents the nominal value
of shares repurchased by the Parent Company.
-- "Translation reserve" represents the exchange differences
arising from the translation of the financial statements
of subsidiaries into the Group's presentational currency.
Share-based payments
Equity-settled share-based payments to employees and Directors are measured at the fair value of the equity instrument. The fair value of the equity-settled transactions with employees and Directors is recognised as an expense over the vesting period. The fair value of the equity instruments is determined at the date of grant, taking into account vesting conditions. The fair value of goods and services received are measured by reference to the fair value of options.
The fair values of share options are measured using the Black Scholes model. The expected life used in the model is adjusted, based on management's best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the "vesting date").
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest.
The Income Statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.
Where an equity-settled award is forfeited, the cumulative charge expensed up to the date of forfeiture is credited to the Income Statement.
Segment reporting
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses related to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity's Chief Operating Decision Maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Chief Operating Decision Maker has been identified as the Board of Executive Directors, at which level strategic decisions are made.
Details of the Group's reporting segments are provided in note 1.
New and amended International Financial Reporting Standards adopted by the Group
A number of new standards, amendments to standards and interpretations, including IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning after 1 January 2018) have been adopted in the current year.
IFRS 15 Revenue from Contracts with Customers (effective for the year beginning 1 January 2018), and subsequent amendments 'Clarifications to IFRS 15' set out the requirements for recognising revenue and costs from contracts with customers. IFRS 15 provides a single source of accounting requirements for all contracts with customers, thereby replacing all current accounting pronouncements on revenue. Under IFRS 15, revenue is recognised in a manner that depicts the completion of performance obligations to customers in an amount that reflects the consideration to which the provider of the goods or services expects to be entitled.
The Group has applied IFRS 15 using the cumulative effect method - i.e. by recognising the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of equity at 1 April 2018. Therefore, the comparative information has not been restated and continues to be reported under IAS 18.
Details of the identified adjustments from previous IFRS are below:
Software maintenance and support
The Group previously recognised revenue for all software products when the customer took delivery of the products and formally accepted them.
Under IFRS 15, where the Group sells a support contract as part of the software package, the revenue associated with the support contract is recognised over the period of the support contract associated with the software (normally 12 months). In comparison to previous IFRS, this method reduces revenue on a pro-rata basis and records the amounts not yet earned as deferred income.
Hosting Fees
The Group previously recognised revenue for all Hosting fees when the customer took delivery of the products and formally accepted them. Under IFRS 15, the Group recognise revenue over the period of the hosting contract (normally 12 months) and records it as deferred income.
The following table summarises the impact, of transition to IFRS 15 on retained earnings as 1 April 2018.
Retained earnings
Impact of
adopting IFRS
15
at 1 April
2018
GBP
---------------------------------------------------------------- -------------
Software maintenance and support contracts recognised over time 99,432
Hosting fees recognised over time 9,342
---------------------------------------------------------------- -------------
Impact at 1 April 2018 108,774
---------------------------------------------------------------- -------------
Total comprehensive income 108,774
---------------------------------------------------------------- -------------
IFRS 9 - 'Financial instruments' (effective for years beginning on or after 1 January 2018) replaces IAS 39 'Financial instruments- Recognition and measurement' and addresses the classification and measurement of financial instruments, introduces new principles for hedge accounting and a new forward-looking impairment model for financial assets. The primary impact of IFRS 9 on the Group relates to provisioning for potential future credit losses on financial assets.
The adoption of IFRS 9 did not result in any changes in the measurement or classification of financial instruments as at 1 April 2018. All classes of financial assets and financial liabilities at 1 April 2018 had the same carrying values under IFRS 9 as they had under IAS 39.
There is no material impact on the Financial Statements of adopting IFRS 9.
International Financial Reporting Standards in issue but not yet effective
At the date of authorisation of the consolidated financial statements, the IASB and IFRS Interpretations Committee have issued standards, interpretations and amendments which are applicable to the Group.
Whilst these standards and interpretations are not effective for, and have not been applied in the preparation of, these consolidated financial statements, the following could have a material impact on the Group's financial statements going forward:
Effective date: annual
periods
New/revised
IFRSs beginning on or after EU adopted
----------- ------------------------------------------ ---------------------- ----------
IFRS 16* Leases 1 January 2019 Yes
----------- ------------------------------------------ ---------------------- ----------
Annual Improvements to IFRSs 2015
- 2017 Cycle 1 January 2019 Yes
----------- ------------------------------------------ ---------------------- ----------
IAS 1 & IAS Amendments to IAS 1 and IAS 8: Definition
8 of Material 1 January 2020 No
----------- ------------------------------------------ ---------------------- ----------
IFRS 3 Amendments to IFRS 3 Business Combinations 1 January 2020 No
----------- ------------------------------------------ ---------------------- ----------
* IFRS 16 - 'Leases' is effective for accounting periods beginning on or after 1 January 2019 and will be adopted by the Group on 1 April 2019. The Directors are assessing the likely impact on the reported results and financial position of the Group. The existing obligations under operating lease agreements at 31 March 2019 are GBP880,718, which primarily relate to buildings. We are using the modified retrospective approach for transition on 1 April 2019 and we are taking advantage of the exemption relating to low value assets, and considering other expedients available.
We have not yet concluded on the value of the expected adjustment to the balance sheet for leases capitalised and the corresponding lease liability.
New/revised International Financial Reporting Standards which are not considered likely to have an impact on the Group's financial statements going forwards have been excluded from the above.
Management anticipates that all relevant pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. New standards, interpretations and amendments not listed below are not expected to have a material impact on the Group's financial statements.
Significant management judgements in applying accounting policies and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the reporting date and the reported amounts of revenues and expenses during the reporting period.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Assumptions and accounting estimates are subject to regular review. Any revisions required to accounting estimates are recognised in the period in which the revisions are made including all future periods affected.
Significant management judgements
The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements.
Capitalisation of internally developed intangible assets
Determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. Management considers the criteria set out in IAS 38 in advance of capitalising any projects. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. Should a different judgement be taken, the amounts capitalised may differ from those presented in note 11.
Recognition of deferred tax assets
The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and timing differences on capital allowances can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.
Judgement is also applied in the recognition of deferred tax assets in respect of losses, based on management's view of the availability of future profits to offset such losses.
Identification of assets acquired in business consideration
Business combinations require management to exercise judgement in measuring the fair value of the assets acquired, equity instruments issued, and liabilities, and contingent consideration incurred or assumed. In particular, a high degree of judgement is applied in determining the fair value of the separate intangible assets acquired, their useful economic lives and which assets and liabilities are included in a business combination.
In certain acquisitions, the Group may include contingent consideration which is subject to the acquired company achieving certain performance targets.
At each reporting period, GRC International plc estimates the future earnings of acquired companies, which are subject to contingent consideration in order to assess the probability that the acquired company will achieve their performance targets and thus earn their contingent consideration. Any changes in their fair value of the contingent consideration between reporting periods are included in the determination of net income. Changes in fair value arise as a result of changes in the estimated probability of the acquired business achieving its earning targets and the consequential impact of amounts payable under these arrangements.
Identification of performance obligations in customer contracts
The identification of performance obligations in customer contracts requires management to exercise judgement to determine both the nature of the performance obligations and when those obligations are delivered in order to recognise revenue appropriately.
Estimation uncertainty
Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Estimates and assumptions
-- Income taxes - provisions for income taxes in various jurisdictions
(note 7)
-- Level of expected credit loss provision to hold or not
hold (note 15)
-- Useful lives of intangible assets acquired or internally
generated (note 11)
-- Impairment of goodwill - Estimate of future cash flows
and determination of the discount rate (note 10)
Notes to the Financial Statements
1. Segmental reporting
Operating segments
For the purposes of segmental reporting, the Group's Chief Operating Decision Maker (CODM) is considered to be the Executive Board of Directors. The Board identifies its operating segments based on the group's service lines, which represent the main product and services provided by the Group. In the opinion of the Board, the Group operates as a single operating segment.
Revenue by geographic destination
Revenue across all operating segments is generated from the UK but includes overseas sales:
2019 2018
GBP GBP
------- ---------- ----------
UK 12,886,471 12,666,042
Non-UK 2,962,095 3,022,174
------- ---------- ----------
15,848,566 15,688,216
------- ---------- ----------
2019 Non-UK Revenue includes Rest of Europe (GBP1,334,738), United States of America (GBP823,860), Australia (GBP149,967) and Rest of the World (GBP653,530).
2019 Non-UK non-current assets includes Ireland (GBP58,372), Germany (GBP10,041). In 2018 all non-current assets were held in the UK.
Information about major customers
No customers contributed 10% or more to the Group's revenue in any period presented.
2. Revenue
Revenue is all derived from continuing operations.
The Group has disaggregated revenue into various categories in the following tables which is intended to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic date:
2019 2018
GBP GBP
---------------------------- ---------- ----------
Consultancy 7,227,588 5,273,742
Publishing and distribution 1,337,205 1,649,060
Software 1,513,212 399,212
Training 5,770,561 8,366,202
---------------------------- ---------- ----------
Total revenue 15,848,566 15,688,216
---------------------------- ---------- ----------
The Group's revenue is analysed by timing of delivery of goods or services as:
2019 2018
GBP GBP
----------------------- ---------- ----------
Point in time delivery 7,557,470 5,564,953
Over time 8,291,096 10,123,263
----------------------- ---------- ----------
Total revenue 15,848,566 15,688,216
----------------------- ---------- ----------
The revenue is analysed as follows for each revenue category:
2019 2018
GBP GBP
-------------------------- ---------- ----------
Sale of goods 1,332,933 1,646,650
Provision of services 14,515,633 14,041,566
-------------------------- ---------- ----------
15,848,566 15,688,216
Other income 32,425 21,875
Interest on cash deposits 2,137 516
-------------------------- ---------- ----------
Total revenue 15,883,128 15,710,607
-------------------------- ---------- ----------
Contract balances: deferred income
Deferred income
----------------------
2019 2018
------------------------------------------------------------------------------------------- ----------- ---------
At 1 April 1,394,946 802,922
On acquisition of DQM 18,765 -
Amounts included in deferred income that were recognised as revenue in the period from the
opening balance (1,394,946) (802,922)
Amounts invoiced in the period and not recognised as revenue in the period 925,255 1,394,946 ------------------------------------------------------------------------------------------- ----------- --------- At 31 March 971,020 1,394,946 ------------------------------------------------------------------------------------------- ----------- ---------
Contract assets and contract liabilities are included within "trade and other receivables" and "trade and other payables" respectively on the face of the consolidated balance sheet. They arise from the Group's contracts that cover multiple reporting periods as payments received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts. No material contract asset balances arise in the ordinary course of business.
The Group recognised deferred income within "trade and other payables". This balance equates to the value of the remaining performance obligations for revenue recognised over time, given the nature of the Group's invoicing arrangements with customers.
3. Exceptional administrative costs
2019 2018
GBP GBP
----------------------------------------------- ------- -------
Expenses relating to the Group's AIM admission - 714,251
Expenses relating to the acquisition of DQM 164,149 -
----------------------------------------------- ------- -------
164,149 714,251
----------------------------------------------- ------- -------
4. Operating profit
2019 2018
GBP GBP
------------------------------------------------------------------------------------------- ---------- ---------
Operating profit is stated after charging:
Cost of sales
Wages and salaries 4,870,571 2,128,389
Other direct costs including consultancy and training costs, books and manuals 2,424,468 4,035,301
------------------------------------------------------------------------------------------- ---------- ---------
7,295,039 6,163,690
Other administration costs
Wages and salaries 9,023,705 6,005,590
Sales and marketing costs 1,204,769 818,654
Depreciation of property, plant and equipment 183,351 108,944
Amortisation of intangible fixed assets 611,220 391,550
Auditor's remuneration:
-Fees payable for the audit of the annual accounts 120,000 110,000
Foreign exchanges (credits)/charges (5,329) 41,851
Operating lease costs
-Building 148,714 111,410
-Other 10,216 10,170
Other costs including office administration, legal and professional, IT and website costs. 2,419,104 786,689
------------------------------------------------------------------------------------------- ---------- ---------
13,715,750 8,384,858
------------------------------------------------------------------------------------------- ---------- ---------
2018 audit fees were in respect of work performed by Deloitte LLP. 2019 fees are in respect of BDO LLP.
No non-audit fees were payable to the auditor in respect of services rendered in the year.
5. Employees
The aggregate payroll costs of the employees were as follows:
2019 2018
GBP GBP
--------------------------- ---------- ---------
Staff costs
Wages and salaries 12,490,461 7,275,850
Social security costs 1,244,250 822,837
Share-based payment charge 63,285 82,560
Pension costs 159,565 35,292
--------------------------- ---------- ---------
13,957,561 8,216,539
--------------------------- ---------- ---------
The average monthly number of persons employed by the Group during the year was as follows:
2019 2018
GBP GBP
----------------------- ---- ----
By activity
Administration 130 83
Sales and distribution 140 94
----------------------- ---- ----
270 177
----------------------- ---- ----
Remuneration of Directors is disclosed in the Remuneration Committee Report.
Details of key management personnel and their remuneration are disclosed within note 26.
6. Net finance costs
2019 2018
GBP GBP
----------------------------------- ------- -----
Interest received on cash deposits (2,137) (516)
Interest on overdrafts 92 -
Interest on loans 9,281 9,700
Interest on finance leases 234 202
----------------------------------- ------- -----
7,470 9,386
----------------------------------- ------- -----
7. Taxation
Analysis of charge in the year:
2019 2018
GBP GBP
------------------------------------- --------- -------
Corporation tax - current year 72,124 153,146
Corporation tax - prior year (139,231) -
Foreign tax - current year (118,634) 1,890
Deferred tax - current year movement 51,095 (1,541)
Deferred tax - prior year movement 163,803 -
------------------------------------- --------- -------
Total tax charge 29,157 153,495
------------------------------------- --------- -------
2019 2018
GBP GBP
-------------------------------------------------------------------------------- ----------- --------
(Loss)/Profit before taxation (5,365,448) 355,346
-------------------------------------------------------------------------------- ----------- --------
Profit by rate of tax (2019: 19%; 2018: 19%) (1,019,435) 67,516
-------------------------------------------------------------------------------- ----------- --------
Fixed asset timing differences 4,522 1,560
Expenses not deductible for tax purposes 82,949 145,930
Deferred tax not recognised 776,849 -
Adjustments to deferred tax in respect of prior periods 24,572 -
Effects of change in tax rate 113,340 192
Other movements - (439)
Prior year restatement - (73,183)
Losses carried back 37,582 -
Group relief surrendered 6,988 -
Effects of different tax rates of subsidiaries operating in other jurisdictions 1,790 11,919
-------------------------------------------------------------------------------- ----------- --------
Total tax 29,157 153,495
-------------------------------------------------------------------------------- ----------- --------
Deferred tax in equity
2019 2018
GBP GBP
-------------------------------------------------------------------------- ------- -------
Change in estimated excess tax deductions related to share-based payments 251,296 545,590
-------------------------------------------------------------------------- ------- -------
Total income tax recognised directly in equity 251,296 545,590
-------------------------------------------------------------------------- ------- -------
The Finance Act (No. 2) 2015 included a reduction in the rate of corporation tax from 20% to 19% from 1 April 2017 and the Finance Act 2016 included a reduction in the main rate of corporation tax from 19% to 17% from 1 April 2020. These tax law changes received Royal Assent before the balance sheet date and therefore are reflected in the deferred tax position.
At the balance sheet date, the Group has the following unused tax losses as the Group expects the deferred tax to unwind at a rate of 17%:
2019 2018
GBP GBP
--------------------------------------- --------- -------
Trading losses (UK) 4,318,593 -
Trading losses (Ireland) 1,124,175 183,149
Non-trading loan relationship deficits 2,330 2,330
--------------------------------------- --------- -------
At the balance sheet date, a deferred tax asset has not been recognised for excess unrelieved foreign tax of GBP19,848 (2018: GBP19,848) on the basis that it is not considered probable that there will be future taxable profits available to utilise the double tax relief credit.
Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period.
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.
Fixed asset Retirement Short term
timing benefit Share-based timing Tax losses Tax losses
differences obligations payments differences (Ireland) (UK) Intangibles Total
GBP GBP GBP GBP GBP GBP GBP GBP
------------------ ----------- ----------- ----------- ----------- ---------- ---------- ----------- ---------
At 1 April 2017 135,591 (750) - (141,205) - (82,080) - (88,444)
Charge/(credit) to
profit or loss (51,659) (1,068) (14,702) - (22,894) 88,590 - (1,733)
Credit direct to
equity - - (582,903) - - - - (582,903)
Prior year
adjustment - - - (29,635) - - - (29,635)
Effect of change
in tax rate:
- Income Statement 5,438 112 1,548 - - (6,906) - 192
- equity - - 61,358 - - - - 61,358
------------------ ----------- ----------- ----------- ----------- ---------- ---------- ----------- ---------
Deferred tax
(asset)/liability
at 31 March 2018 89,370 (1,706) (534,699) (170,840) (22,894) (396) - (641,165)
Business acquired 2,058 - - - - - 420,955 423,013
Charge/(credit) to
profit or loss 19,932 1,706 21,548 29,205 (118,634) (21,296) - (67,539)
Credit direct to
equity - - 251,296 - - - - 251,296
Prior year
adjustment 2,380 - 891 141,205 (2,365) 21,692 - 163,803
------------------ ----------- ----------- ----------- ----------- ---------- ---------- ----------- ---------
Deferred tax at 31
March 2019
Asset (Non-UK) - - - - (143,893) - - (143,893)
Liability (UK) 113,740 - (260,964) (430) - - 420,955 273,301
------------------ ----------- ----------- ----------- ----------- ---------- ---------- ----------- ---------
8. Earnings per share
Basic earnings per share is based on the (loss)/profit after tax for the year and the weighted average number of shares in issue during each year.
2019 2018
---------------------------------------------------------------- ----------- ----------
(Loss)/profit attributable to equity holders of the Group (GBP) (5,394,605) 201,851
Weighted average number of shares in issue 57,982,319 50,785,329
---------------------------------------------------------------- ----------- ----------
Basic (loss)/earnings per share (pence) (9.30) 0.40
---------------------------------------------------------------- ----------- ----------
Diluted earnings per share is calculated by adjusting the average number of shares in issue during the year to assume conversion of all dilutive potential ordinary shares.
Taking the Group's share options into consideration in respect of the Group's weighted average number of ordinary shares for the purposes of diluted earnings per share, is as follows:
2019 2018
------------------------------------------------------------------------------------------ ---------- ----------
Number of shares 57,982,319 50,785,329
Dilutive (potential dilutive) effect of share options - 378,786
------------------------------------------------------------------------------------------ ---------- ----------
Weighted average number of ordinary shares for the purposes of diluted earnings per share 57,982,319 51,164,115
------------------------------------------------------------------------------------------ ---------- ----------
Diluted (loss)/earnings per share (pence) (9.30) 0.39
------------------------------------------------------------------------------------------ ---------- ----------
Due to the losses incurred during the year, a diluted loss per share has not been calculated as this would serve to reduce the basic loss per share. There were 2,360,680 (2018: 2,360,680) share incentives outstanding at the end of the year that could potentially dilute basic earnings per share in the future.
9. Subsidiaries
Details of the Group's subsidiaries are as follows:
Place of incorporation and % ownership held by the Group
-------------------------------
Name of subsidiary and Principal activity operation 2019 2018
registered office address
-------------------------- -------------------------- -------------------------- --------------- --------------
Information technology
IT Governance Limited* governance services England & Wales 100% 100%
Vigilant Software Limited* Information technology England & Wales 100% 100%
Software development
IT Governance Europe
Limited Information technology Ireland 100% 100%
6th Floor, South Bank governance services
House, Barrow Street,
Dublin 4
IT Governance USA Inc Information technology USA 100% 100%
420 Lexington Avenue, governance services
Suite 300, New York, NY
10170, USA
IT Governance Publishing
Limited* Information technology England & Wales 100% 100%
governance publications
GRCI Law Limited* Information technology England & Wales 100% 100%
governance legal services
GRC Elearning Limited* Information technology England & Wales 100% 100%
governance internet-based
training
IT Governance Europe
Limited* Dormant company*** England & Wales 100% 100%
IT Governance Consulting
Limited* Dormant company*** England & Wales 100% 100%
IT Governance Franchising
Limited* Dormant company*** England & Wales 100% 100%
IT Governance Sales
Limited* Dormant company*** England & Wales 100% 100%
IT Governance Software
Limited* Dormant company*** England & Wales 100% 100%
IT Governance Training
Limited* Dormant company*** England & Wales 100% 100%
ITG Certifications
Limited* Dormant company*** England & Wales 100% 100%
ITG Qualifications
Limited* Dormant company*** England & Wales 100% 100%
ITG Security Testing
Limited* Dormant company*** England & Wales 100% 100%
ITG Encryption Limited* Dormant company*** England & Wales 100% 100%
Data Quality Management
Limited** Dormant company*** England & Wales 100% -
Data Quality Management
Group Limited** Information technology England & Wales 100% -
governance services
Data2 Limited** Dormant company*** England & Wales 100% -
DQM Group Holdings
Limited** Holding Company*** England & Wales 100% - -------------------------- -------------------------- --------------------------- --------------- --------------
* Registered Office: Unit 3, Clive Court, Bartholomew's Walk, Cambridge Business Park, Ely, Cambridgeshire CB7 4EA
** Registered Office: Dqm House, Baker Street, High Wycombe, Buckinghamshire, England, HP11 2RX
*** Dormant subsidiaries which have taken advantage of the s394A exemption from preparing individual accounts.
10. Goodwill
Total
GBP
-------------------------------- ---------
Cost
At 1 April 2017 & 31 March 2018 -
Additions 6,693,234
-------------------------------- ---------
At 31 March 2019 6,693,234
-------------------------------- ---------
The Directors have assessed the carrying value of the goodwill arising on the acquisition of DQM on the basis of consideration of both fair value less costs to sell and value in use in conjunction with the valuation of the business acquired in March 2019. Key assumptions included the discount rate of 15.6%, revenue growth rates consistent with market growth rates over a 5 year forecast period and a terminal growth rate of 2%. In view of the disclosures provided in notes 19 and 29 on the cost of the acquisition of DQM, the Directors do not consider that the disclosure of any further details concerning the carrying value of DQM is necessary. It is not considered that any reasonably possible changes in key assumptions as at 31 March 2019 would give rise to an impairment.
11. Intangible assets
Consultancy
Marketing Publishing products and Software and Customer
tools products Courseware Website costs Trademarks relationships Total
GBP GBP GBP GBP GBP GBP GBP
---------------- --------- ---------- -------------- --------------- ------------ --------------- ---------
Cost
At 1 April 2017 46,887 207,284 462,711 1,251,407 7,011 - 1,975,300
Additions 15,996 8,217 70,981 848,824 1,250 - 945,268
---------------- --------- ---------- -------------- --------------- ------------ --------------- ---------
At 31 March 2018 62,883 215,501 533,692 2,100,231 8,261 - 2,920,568
Additions - 71,778 164,601 2,052,389 - - 2,288,768
Business
acquired - - - 187,698 455,889 1,843,201 2,486,788
Foreign exchange
movement - - (1,161) - - - (1,161)
---------------- --------- ---------- -------------- --------------- ------------ --------------- ---------
At 31 March 2019 62,883 287,279 697,132 4,340,318 464,150 1,843,201 7,694,963
---------------- --------- ---------- -------------- --------------- ------------ --------------- ---------
Accumulated
depreciation
At 1 April 2017 42,274 139,734 148,109 599,833 2,180 - 932,130
Charge for year 5,189 32,124 49,146 304,089 1,002 - 391,550
Foreign exchange
movement - - (6) - - - (6)
---------------- --------- ---------- -------------- --------------- ------------ --------------- ---------
At 31 March 2018 47,463 171,858 197,249 903,922 3,182 - 1,323,674
Charge for year 7,357 31,310 55,555 515,973 1,025 - 611,220
Foreign exchange
movement - - (204) - - - (204)
---------------- --------- ---------- -------------- --------------- ------------ --------------- ---------
At 31 March 2019 54,820 203,168 252,600 1,419,895 4,207 - 1,934,690
---------------- --------- ---------- -------------- --------------- ------------ --------------- ---------
Net book value
At 31 March 2019 8,063 84,111 444,532 2,920,423 459,943 1,843,201 5,760,273
---------------- --------- ---------- -------------- --------------- ------------ --------------- ---------
At 31 March 2018 15,420 43,643 336,443 1,196,309 5,079 - 1,596,894
---------------- --------- ---------- -------------- --------------- ------------ --------------- ---------
At 1 April 2017 4,613 67,550 314,602 651,574 4,831 - 1,043,170
---------------- --------- ---------- -------------- --------------- ------------ --------------- ---------
Amortisation is included within administrative expenses.
All intangible assets have been developed internally with the exception of those arising on the business acquisition in the year (note 29).
The recoverable amounts of the CGU's for the purpose of monitoring impairment are determined from value-in-use calculations.
A review of the carrying amounts of the Group's non-current assets to determine whether there is an indication that these assets have suffered an impairment loss was carried out at the year-end. Due to the timing of the acquisition of DQM and the substantial amount of development in the year of new and enhanced products the Directors deemed it too early to establish the need for any impairment.
12. Property, plant and equipment
Leasehold Computer Office
improvements equipment equipment Total
GBP GBP GBP GBP
-------------------------- ------------ --------- --------- --------
Cost
At 1 April 2017 34,869 262,387 20,050 317,306
Additions 53,500 322,127 24,539 400,166
Foreign exchange movement - 129 10 139
-------------------------- ------------ --------- --------- --------
At 31 March 2018 88,369 584,643 44,599 717,611
Additions 50,162 162,362 21,705 234,229
Businesses acquired 768 - 20,893 21,661
Disposals - (12,990) (1,848) (14,838)
Foreign exchange movement (203) (133) (117) (453)
-------------------------- ------------ --------- --------- --------
At 31 March 2019 139,096 733,882 85,232 958,210
-------------------------- ------------ --------- --------- --------
Accumulated depreciation
At 1 April 2017 15,755 154,185 14,712 184,652
Charge for year 7,985 95,566 5,393 108,944
Foreign exchange movement - (3) (1) (4)
-------------------------- ------------ --------- --------- --------
At 31 March 2018 23,740 249,748 20,104 293,592
Charge for year 12,688 158,459 12,204 183,351
Disposals - (7,312) - (7,312)
Foreign exchange movement (13) (57) (29) (99)
-------------------------- ------------ --------- --------- --------
At 31 March 2019 36,415 400,838 32,279 469,532
-------------------------- ------------ --------- --------- --------
Net book value
At 31 March 2019 102,681 333,044 52,953 488,678
-------------------------- ------------ --------- --------- --------
At 31 March 2018 64,629 334,895 24,495 424,019
-------------------------- ------------ --------- --------- --------
At 31 March 2017 19,114 108,202 5,338 132,654
-------------------------- ------------ --------- --------- --------
Depreciation is included within administrative expenses.
Included within the computer equipment net book values above is GBP6,784 (2018: 18,509, 2017: GBP30,012) relating to assets held under finance leases.
13. Investments in equity-accounted joint ventures
The Group has a 50% interest in a joint venture, IBITGQ GmbH, a separate structured vehicle incorporated and operating in Germany. It was set up as a partnership together with GASQ Service GmbH dedicated to the provision of training and the continued professional development of information security, business resilience and IT governance professionals.
The contractual arrangement provides the Group with only the rights to the net assets of the joint arrangement, with the rights to the assets and obligations for liabilities of the joint arrangement resting primarily with IBITGQ GmbH. Under IFRS 11 the joint arrangement is classified as a joint venture and has been included in the consolidated financial statements using the equity method.
The principal place of business of the joint operation is in Germany.
2019
GBP
-------------------------- ------
Additions 10,995
Loss for the period (746)
Foreign exchange movement (208)
-------------------------- ------
10,041
-------------------------- ------
14. Inventories
2019 2018
GBP GBP
-------------------------- ------ ------
Finished goods for resale 64,242 76,171
-------------------------- ------ ------
2019 2018
GBP GBP
----------------------------------------------------------------------------------- ------- ------
Amounts of inventories recognised as an expense during the period as cost of sales 196,286 40,532
----------------------------------------------------------------------------------- ------- ------
2019 2018
GBP GBP
----------------------------------------------------------------- ----- -------
Amounts of inventories (written back)/impaired during the period 9,773 (5,011)
----------------------------------------------------------------- ----- -------
15. Trade and other receivables
2019 2018
GBP GBP
---------------------------------------------------- --------- ---------
Trade receivables 1,986,220 2,228,899
Less: provision for impairment of trade receivables - -
---------------------------------------------------- --------- ---------
Net trade receivables 1,986,220 2,228,899
Other receivables 217,440 66,427
Prepayments 700,293 341,983
---------------------------------------------------- --------- ---------
2,903,953 2,637,309
---------------------------------------------------- --------- ---------
None of the Company's trade and other receivables are secured by collateral or credit enhancements.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses on a collective basis. To measure expected credit losses on a collective basis, trade receivables and contract assets are grouped based on a similar credit risk and aging.
The Group's policy for default risk over receivables is based on the on-going evaluation of the collectability and ageing analysis of trade and other receivables. Considerable judgement is required in assessing the ultimate realisation of these receivables, including reviewing the potential likelihood of default, the past collection history of each customer and the current economic conditions.
The Group uses a third party credit scoring system to assess the creditworthiness of potential new customers before accepting them. Credit limits are defined by customer based on this information. All customer accounts are subject to review on a regular basis by senior management and actions are taken to address debt ageing issues. The Directors believe that there is no requirement for a provision.
All of the Group's trade and other receivables have been reviewed for indicators of impairment.
The Directors consider that the carrying amount of trade and other receivables approximates to the fair value. Included in the Group's trade receivable balance as at the year end were customer balances with a carrying amount of GBP1,349,933 (2018: GBP641,885) which are past due at the reporting date for which the Group has not recorded a provision as the Directors believe the amounts to be recoverable in full, with an immaterial remaining exposure for amounts remaining uncollected at the date the financial statements were approved and authorised for issue.
The expected loss rates are based on the Group's historical credit losses experienced over a two year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomics factors affecting the Group's customers. The Group has identified gross domestic product growth rates, employment rates and inflation rates as the key macroeconomics factors in the countries in which the Group operates. The calculated expected credit loss allowance for the current and prior reporting periods has not been included as an impairment provision as the directors consider it to be immaterial.
The maturity profile of trade and other receivables is set out in the table below:
2019 2018
GBP GBP
---------------------------------- --------- ---------
In one year or less, or on demand 2,903,953 2,637,309
---------------------------------- --------- ---------
The analysis of trade and other receivables by foreign currency is set out in the table below:
2019 2018
GBP GBP
----------- --------- ---------
UK pound 2,712,859 2,637,309
US dollars 8,572 -
Euro 182,522
----------- --------- ---------
2,903,953 2,637,309
----------- --------- ---------
The Group's foreign currency receivables are denominated in the functional currency of the subsidiaries in which they arise. There is no impact on the loss for the year from foreign exchange rate movements on such financial instruments.
16. Cash and cash equivalents
2019 2018
GBP GBP
-------------------------------- ------- ---------
Cash at bank (GBP) 609,493 5,447,646
Cash at bank (EUR) 16,096 17,378
Cash at bank (USD) 6,850 90,653
Cash at bank (AUD) 6,902 960
Cash at bank (other currencies) (139) 939
-------------------------------- ------- ---------
639,202 5,557,576
-------------------------------- ------- ---------
All significant cash and cash equivalents were deposited with major clearing banks with at least 'A' rating. Details of bank overdrafts are given in note 18.
17. Trade and other payables
Amounts falling due within one year:
2019 2018
GBP GBP
----------------------------------- --------- ---------
Trade payables 1,999,981 1,516,315
Other taxation and social security 868,644 1,019,555
Other payables 169,965 141,046
Deferred income 971,020 1,394,946
Accruals 357,609 564,403
----------------------------------- --------- ---------
4,367,219 4,636,265
----------------------------------- --------- ---------
18. Borrowings
2019 2018
GBP GBP
---------------------------- ------- ------
Secured - at amortised cost
- Bank overdrafts 492,411 -
- Bank loans - 2,297
- Other loans 28,143 77,212
---------------------------- ------- ------
520,554 79,509
---------------------------- ------- ------
Current 520,554 51,366
Non-current:
- 1-2 years - 28,143
---------------------------- ------- ------
520,554 79,509
---------------------------- ------- ------
Summary of borrowing arrangements
The Group has an overdraft facility which comprised GBP500,000 at the end of 2019 (2018: GBPnil). The facility is uncommitted and secured with fixed and floating charges over the assets of the Group.
The Group has a number of loans in the periods presented. These are secured with fixed and floating charges over the assets of the Group and are summarised as follows:
1. Funding circle loan 3 - GBP140,640 in October 2014 over
five years at 14.69% APR interest.
2. Directors' Pension scheme loan - GBP70,000 in October 2014
over five years at 9.5% APR interest.
--------------------------------------------------------------------
3. Invoicing discounting facility acquired within the DQM
acquisition.
--------------------------------------------------------------------
4. Unsecured loan facility provided by Andrew Brode at an
interest rate of 5% above the Bank of England Base rate
to provide additional working capital.
The facility will be available to the Group until at least
31 December 2020 and will automatically renew for a further
12 months unless terminated by either party.
--------------------------------------------------------------------
19. Financial instruments - Risk Management
The Group is exposed through its operations to the following financial risks:
-- Credit risk -- Interest rate risk -- Foreign exchange risk -- Other market price risk, and -- Liquidity risk.
In common with all other businesses, the Group is also exposed to risks that arise directly from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.
I. Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
-- Trade receivables -- Cash and cash equivalents -- Trade and other payables -- Bank overdrafts -- Floating-rate bank loans -- Fixed rate bank loans -- Other loans
II. Financial instruments by category
Financial assets
Fair value through profit or loss Amortised cost
----------------------------------- --------------------
2019 2018 2019 2018
GBP GBP GBP GBP
---------------------------- ----------------- ---------------- --------- ---------
Cash and cash equivalents - - 639,202 5,557,576
Trade and other receivables - - 1,986,220 2,228,899
---------------------------- ----------------- ---------------- --------- ---------
Total financial assets - - 2,625,422 7,786,475
---------------------------- ----------------- ---------------- --------- ---------
All of the above financial assets' carrying values are approximate to their fair values, as at each reporting date disclosed.
Financial liabilities
Fair value through profit or loss Amortised cost
----------------------------------- --------------------
2019 2018 2019 2018
GBP GBP GBP GBP
---------------------------- ----------------------- ---------- --------- ---------
Trade and other payables - - 2,357,590 2,228,899
Borrowings - - 520,554 79,509
Finance lease payables - - 5,667 15,183
Deferred consideration 3,747,025 - - -
---------------------------- ----------------------- ---------- --------- ---------
Total financial liabilities 3,747,025 - 2,883,811 2,323,591
---------------------------- ----------------------- ---------- --------- ---------
All of the above financial liabilities' carrying values are considered by management to be approximate to their fair values, as at each reporting date disclosed.
III. Financial instruments not measured at fair value
Financial instruments not measured at fair value includes cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair value.
Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, trade and other payables and borrowings approximates their fair value.
IV. Financial instruments measured at fair value
Classification of financial instruments
The fair value hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities.
The fair value hierarchy has the following levels:
-- Level 1: quoted prices (unadjusted) in active markets
for identical assets or liabilities;
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability,
either directly (I.e. as prices) or indirectly (i.e. derived
from prices); and
-- Level 3: inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.
The Group did not hold any level 1 or 2 financial instruments in any of the periods presented.
31 March 2019
The reconciliation of the opening and closing fair value balance of level 3 financial instruments which comprises the Group's deferred consideration liability is provided below:
Deferred
consideration
GBP
--------------------------------- -------------
At 1 April 2018 -
--------------------------------- -------------
Arising on acquisition (note 29) 3,747,025
--------------------------------- -------------
At 31 March 2019 3,747,025
--------------------------------- -------------
There have not been any changes to the amount recorded between initial recognition of the liability on 5 March 2019 and 31 March 2019. There is limited estimation uncertainty, and expected to be no material change in the value, as the measurement period for determining the amount payable has already concluded.
Any deferred consideration payable is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the deferred consideration are recognised in profit or loss.
The fair value of deferred consideration is calculated using the income approach based on the expected amounts and their associated probabilities (i.e. probability - weighted).
31 March 2018
At 31 March 2018 the Group did not hold any level 3 financial instruments.
20. Financial instrument risk exposure and management
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure that effective implementation of the objectives and policies to the Group's finance function. The Board receives monthly reports from the Group Finance Director through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The Group's internal auditors also review the risk management policies and processes and report their findings to the Audit Committee.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:
Credit risk
The Group's credit risk is primarily attributable to its trade receivables, which are presented in note 15.
In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counterparty, its counterparties have similar characteristics being small to medium sized UK businesses with a number of blue-chip organisations now being serviced by the Group following the DQM acquisition. Trade receivables consist of a large number of customers in various industries and geographical areas. Based on historical information about customer default rates management consider the credit quality of trade receivables that are not past due or impaired to be good.
The credit risk on liquid funds is limited because the third parties are large international banks with a credit rating of at least A.
The Group's total credit risk amounts to the total of the sum of the receivables and cash and cash equivalents. At the 2019 year end, this amounts to GBP2,625,422 (2018: GBP7,786,425; 2017: GBP1,296,287).
Interest rate risk
The Group has secured debt consisting of bank overdrafts, bank loans and other loans.
The interest on most of the loans (with the exception HSBC bank loan) is fixed. A variable rate interest applies to the overdraft which is a short-term liability, and therefore interest rate risk is considered to be limited.
The Group's only other exposure to interest rate risk is the interest received on the cash held on deposit, which is immaterial.
Foreign exchange risk
Most of the Group's transactions are carried out in GBP. Exposures to foreign currency exchange rates arise from the Group's overseas sales and purchases, which are denominated in a number of currencies, primarily USD, EUR and AUD. Cash balances held in these currencies are relatively immaterial (see note 16) and transactional risk is considered manageable due to the values involved.
The Group does not hold material non-GBP balances and currently does not consider it necessary to take any action to mitigate foreign exchange risk due to the immateriality of that risk.
Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash balances to ensure the Group can meet liabilities as they fall due, and ensuring adequate working capital using invoice financing arrangements.
In managing liquidity risk, the main objective of the Group is, therefore, to ensure that it has the ability to pay all of its liabilities as they fall due. The Group monitors its levels of working capital to ensure that it can meet its debt repayments as they fall due.
The table below shows the undiscounted cash flows on the Group's financial liabilities as at 31 March 2019 and 2018, on the basis of their earliest possible contractual maturity
At 31 March 2019
Within Within Greater than
Total On Demand 2 months 2-6 months 6-12 months 1-2 years 2 years
GBP GBP GBP GBP GBP GBP GBP
------------------------- --------- --------- --------- ---------- ----------- --------- ------------
Trade payables 1,999,981 - 1,999,981 - - - -
Accruals 357,609 - - 357,609 - - -
Finance lease payables 5,667 - 1,889 1,889 1,889 - -
Bank overdrafts 492,411 492,411 - - - - -
Other loans 32,236 - 9,210 18,421 4,605 - -
Contingent consideration 3,747,025 - - 3,547,025 200,000 - -
------------------------- --------- --------- --------- ---------- ----------- --------- ------------
6,634,929 492,411 2,011,080 3,924,944 206,494 - -
------------------------- --------- --------- --------- ---------- ----------- --------- ------------
At 31 March 2018
Within Within Greater than
Total On Demand 2 months 2-6 months 6-12 months 1-2 years 2 years
GBP GBP GBP GBP GBP GBP GBP
----------------------- --------- --------- --------- ---------- ----------- --------- ------------
Trade payables 1,516,315 - 1,516,315 - - - -
Accruals 564,403 - - 564,403 - - -
Finance lease payables 15,183 - 1,888 3,814 3,814 5,667 -
Bank loans 62,771 - 4,829 9,657 14,485 28,971 4,829
Other loans 235,256 - 17,221 34,441 35,563 63,667 84,364
----------------------- --------- --------- --------- ---------- ----------- --------- ------------
2,393,928 - 1,540,253 612,315 53,862 98,305 89,193
----------------------- --------- --------- --------- ---------- ----------- --------- ------------
21. Capital management
The Group's capital management objectives are:
-- to ensure the Group's ability to continue as a going concern;
and
-- to provide long-term returns to shareholders.
The Group defines and monitors capital on the basis of the carrying amount of equity plus its outstanding loan notes, less cash and cash equivalents as presented on the face of the balance sheet as follows:
2019 2018
GBP GBP
------------------------------------------ --------- -----------
Equity 7,356,073 5,900,346
Borrowings (note 18) 28,143 79,509
Less: cash and cash equivalents (note 16) (146,791) (5,557,576)
------------------------------------------ --------- -----------
7,237,425 422,279
------------------------------------------ --------- -----------
The Board of Directors monitors the level of capital as compared to the Group's commitments and adjusts the level of capital as is determined to be necessary by issuing new shares or adjusting the level of debt. The Group is not subject to any externally imposed capital requirements.
22. Dividends
2019 2018
GBP GBP
---------------------------------------------------------------------------------- ---- -------
Ordinary shares
Interim dividend for the year ended 31 March 2018 - 731,320
Final dividend for the year ended 31 March 2018 - 220,000
---------------------------------------------------------------------------------- ---- -------
Total dividends provided for or paid - 951,320
---------------------------------------------------------------------------------- ---- -------
Dividends paid in cash or satisfied by offset against directors' loan receivable.
Paid in cash - 386,500
Satisfied by offset against directors' loan receivable. - 564,820
---------------------------------------------------------------------------------- ---- -------
- 951,320
---------------------------------------------------------------------------------- ---- -------
Dividends of GBP731,320 were declared to Alan Calder by IT Governance Limited in December 2017. An additional GBP220,000 was subsequently declared as a final dividend payment from IT Governance Limited to Alan Calder on 31 December 2017. Of the Dividends declared and paid GBP386,500 was settled in cash and the remainder was offset against Alan Calder's directors loan receivable.
23. Leasing arrangements
Operating leases
Operating leases primarily relates to land and buildings, and photocopiers.
The Group does not have an option to purchase any of the operating leased assets at the expiry of the lease periods.
Payments recognised as an expense are disclosed in note 4.
Aggregate future minimum lease payments under non-cancellable operating lease commitments.
2019 2018
GBP GBP
--------------------------------------------- --------- -------
Land and buildings
Not later than one year 198,460 124,107
After one year and not later than five years 588,913 450,136
After five years 237,345 318,721
--------------------------------------------- --------- -------
1,024,718 892,964
--------------------------------------------- --------- -------
Finance leases
The Group leased certain items of its equipment under finance leases.
The Group's obligation under finance leases are secured by the lessors' title to the leased assets.
Finance lease liabilities minimum lease payments:
2019 2018
GBP GBP
--------------------------------------------- ----- ------
Not later than one year 5,667 9,516
After one year and not later than five years - 6,021
After five years - (354)
--------------------------------------------- ----- ------
5,667 15,183
--------------------------------------------- ----- ------
Finance lease liabilities are included in liabilities:
2019 2018
GBP GBP
------------ ----- ------
Current 5,667 9,516
Non-current - 5,667
------------ ----- ------
5,667 15,183
------------ ----- ------
24. Retirement benefit plans
Benefits from the contributory pension schemes to which the Group contributes are related to the cash value of the funds at retirement dates. The Group is under no obligation to provide any minimum level of benefits.
The assets of the schemes are administered by trustees in funds independent of the Group.
During the year GBP33,000 was recognised in the Income Statement in relation to pension contributions (2018: GBP33,400). As at 31 March 2019, GBPnil is payable to pension schemes (2018: GBPnil).
25. Share capital
The total allotted share capital of the Company is:
2019 2018
Number GBP Number GBP
--------------------------------- ---------- ------ ---------- ------
Ordinary shares of GBP0.001 each 64,484,172 64,484 57,462,940 57,463
--------------------------------- ---------- ------ ---------- ------
Issue of shares by GRC International Group
During the year ended 31 March 2019, shares were issued by GRC International Group as follows:
Share capital Share premium Total proceeds
Number GBP GBP GBP
------------------------------------- ---------- ------------- ------------- --------------
Ordinary shares of GBP0.001 each
Allotments:
1 April 2018 57,462,940 57,463 4,792,828 4,850,291
1 March 2019 5,000,000 5,000 4,995,000 5,000,000
Cost of share issue - - (200,000) (200,000)
5 March 2019 2,021,232 2,021 - 2,021
------------------------------------- ---------- ------------- ------------- --------------
64,484,172 64,484 9,587,828 9,652,312
------------------------------------- ---------- ------------- ------------- --------------
During the year ended 31 March 2018, further to the restructuring of the Group to add GRC International Group as the holding company of the Group, shares were issued by GRC International Group as follows:
Share capital Share premium Total proceeds
Number GBP GBP GBP
------------------------------------------------------------ ---------- ------------- ------------- --------------
Ordinary shares of GBP0.001 each
Allotments:
1 February 2018 - share-for-share issue to add GRC
International Group as Parent Company of
the Group 10,050,236 50,251 - 50,251
12 February 2018 2,352 12 5,028 5,040
Share split 40,210,352 - - -
5 March 2018 7,200,000 7,200 5,032,800 5,040,000
Cost of share issue - - (245,000) (245,000)
------------------------------------------------------------ ---------- ------------- ------------- --------------
57,462,940 57,463 4,792,828 4,850,291
------------------------------------------------------------ ---------- ------------- ------------- --------------
Rights and obligations
GRC Group International has one class of ordinary share. All shares rank pari passu in all respects, and the holders of all shares shall have the right (in particular) to receive notice of, and to attend and vote at, general meetings of the Company.
26. Share-based payments
The Group operates a share option scheme to which the employees of the Group may be invited to participate by the Remuneration Committee.
If the options remain unexercised after a period of ten years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group before the options vest.
As at 31 March 2017, 12,000 options in IT Governance Limited were exercisable at GBP0.44 per share, 1,668 options were exercisable at GBP19.00 per share. The options were to be settled in equity once exercised. All of the options had vested prior to the date of transition to IFRS. IT Governance adopted the exemption from applying IFRS 2 to options granted after 7 November 2002 and vested before the IFRS transition date.
These options have been cancelled during the prior year following the restructuring of the Group.
GRC International Group issued options during the prior year, including the holders of the former options in IT Governance described above as replacement for the cancellation of those options.
Details of the number of share options and the weighted average exercise price ("WAEP") outstanding during the year are as follows:
2019
Number of WAEP
options GBP
----------------------------------------------- --------- ----
Outstanding at the beginning of the year 2,360,680 0.08
----------------------------------------------- --------- ----
Outstanding at the year end 2,460,680 0.08
----------------------------------------------- --------- ----
Number vested and exercisable at 31 March 2018 2,203,180 0.06
----------------------------------------------- --------- ----
2018
Number of WAEP
options GBP
------------------------------------------------------------------ --------- ------
Outstanding at the beginning of the year (IT Governance) 13,668 2.71
Cancelled (13,668) (2.71)
Replacement options issued by GRC International Group 406,784 0.12
New options issued in GRC International Group 65,352 2.14
Options numbers and exercise price adjusted following share split 1,888,544 (0.32)
------------------------------------------------------------------ --------- ------
Outstanding at the year end 2,360,680 0.08
------------------------------------------------------------------ --------- ------
Number vested and exercisable at 31 March 2018 2,203,180 0.06
------------------------------------------------------------------ --------- ------
The fair values of share options issued or extended in the current financial year were calculated using the Black-Scholes model as follows:
Date of grant 12 Feb 18 12 Feb 18 12 Feb 18 --------------------------------------------------- --------- --------- --------- Number granted 31,500 31,500 2,352 Share price at date of grant GBP3.50 GBP3.50 GBP3.50 Exercise price GBP2.14 GBP2.14 GBP2.114 Expected volatility 59.93% 59.93% 59.93% Expected life from date of grant (years) 5.00 5.50 5.00 Risk free rate 1.14% 1.14% 1.14% Expected dividend yield 0% 0% 0% Fair value/incremental fair value at date of grant GBP69,463 GBP71,196 GBP5,187 Earliest vesting date 12 Feb 18 31 Mar 19 12 Feb 18 Expiry date 12 Feb 28 12 Feb 28 12 Feb 28 --------------------------------------------------- --------- --------- ---------
Expected volatility was determined based on the average historic volatility of a pool of comparable companies' shares. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behaviour considerations.
The Group recognised total expenses of GBP63,285 in relation to share options accounted for as equity-settled share-based payment transactions (2018: GBP82,560) in relation to options issued to Directors- these were recognised as expenses in the Income Statement.
27. Related party transactions
Key management personnel are identified as the Directors, including non-statutory directors, and their remuneration is disclosed as follows:
2019 2018
GBP GBP
------------------------------------------------------ ------- -------
Remuneration of key management
Remuneration 550,356 628,250
Social security costs 69,575 82,166
Share-based payment charge 63,285 82,560
Pension contributions to defined contributions scheme 35,419 34,479
------------------------------------------------------ ------- -------
718,635 827,455
------------------------------------------------------ ------- -------
Year ended 31 March 2019
The Group held no balance for the Director Loan Accounts as at 31 March 2019.
Year ended 31 March 2018
The Group held no balance for the Director Loan Accounts as at 31 March 2018.
Please refer to note 22 for details of dividends paid to Alan Calder.
Other related party borrowings transactions are as follows
Directors' pension scheme
----------------------------------------
GBP66,000 loan GBP70,000 loan Total
----------------- -------------- -------------- --------
Principal
At 1 April 2017 11,119 40,272 51,391
Loans repaid (11,119) (14,433) (25,552)
----------------- -------------- -------------- --------
At 31 March 2018 - 25,839 25,839
Loans repaid - (15,866) (15,866)
----------------- -------------- -------------- --------
At 31 March 2019 - 9,973 9,973
----------------- -------------- -------------- --------
Interest
At 1 April 2017 - - -
Interest accrued 97 1,775 1,872
Interest paid (97) (1,775) (1,872)
----------------- -------------- -------------- --------
At 31 March 2018 - - -
Interest accrued - 4,419 4,419
Interest paid - (4,419) (4,419)
----------------- -------------- -------------- --------
At 31 March 2019 - - -
----------------- -------------- -------------- --------
Alan Calder and his wife are the trustees of the IT Governance Pension Fund.
All loan notes terms' are described in note 18. Interest is accounted for on an effective interest basis and included within borrowings on the balance sheet.
Other related party transactions are as follows
Xanthos Limited is considered a related party entity as Alan Calder is a co-owner of that company with his spouse (who runs the business).
Xanthos sub-lets office space from the Group, which comprises the other income received by the Group. Transactions were carried out on an arm's length basis. Outstanding amounts due from Xanthos at 31 March 2019 totalling GBPnil (2018: GBP2,100).
The Group also makes purchases from Xanthos. During the year to 31 March 2019, the Group made purchases totalling GBP661,690 from Xanthos (2018: GBP464,052). Outstanding amounts payable to Xanthos at 31 March 2019 totalled GBP99,491 (2018: GBP27,709).
28. Ultimate controlling party
In the opinion of the Directors, there is no one individual who exercises control over the Group.
29. Business combinations during the period
On 5 March 2019 the Group acquired 100% of the voting equity instruments of DQM Group Holdings Limited, and its subsidiaries (see Note 9), a company whose principal activity is a provider of data consulting and technology solutions.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
Book value Adjustment Fair value
GBP GBP GBP
--------------------------------------------------- ---------- ---------- ----------
Goodwill - 6,693,234 6,693,234
Intangible assets:
- Non-contractual customer lists and relationships - 1,843,201 1,843,201
- Software 10,585 177,113 187,698
- Trade Name and Trademarks - 455,889 455,889
Property, plant and equipment 21,662 - 21,662
Receivables 762,244 - 762,244
Cash 1,019,197 - 1,019,197
Payables (926,218) - (926,218)
Deferred tax liability (2,058) (420,955) (423,013)
--------------------------------------------------- ---------- ---------- ----------
Total net assets 885,412 8,748,482 9,633,894
--------------------------------------------------- ---------- ---------- ----------
Fair value of consideration paid
Fair value
GBP
-------------------------------------- ----------
Cash 3,532,134
Issued ordinary shares 2,354,735
Contingent cash consideration 2,248,215
Contingently issuable ordinary shares 1,498,810
-------------------------------------- ----------
Total consideration 9,633,894
-------------------------------------- ----------
The initial accounting for the business consideration is presently incomplete as permitted by IFRS 3, due to the recent timing of the acquisition.
The primary reasons for acquiring the business, aside from DQM being a profitable and cash generative business in in its own right, were as set out below:
-- To extend the Group's existing offering to include high
margin, data governance services
-- To add market share to the Group, by introducing additional
household name clients with on-going contracts
-- To provide cross-selling and upselling opportunities through
the companies' complementary offerings
-- To broaden and strengthen the Group's second tier management
team, through the retention of existing DQM management
-- To add customer account management capability
-- To provide strategic opportunities, such as enabling the
Group to gain Data Privacy Seal accreditation
-- To provide sector crossover, such as an increased financial
sector exposure
In terms of methods of valuing contingent consideration, the cash is measured in line with the financial instruments note and the contingent shares will be issued at a price of 116.5p per share, as set out in the sale and purchase agreement.
Deferred consideration becomes payable within 5 days of the sign off of the "Earn-out Accounts", which are based on the statutory accounts for the DQM financial year ended 28 February 2019, calculated based on an agreed multiple of EBITDA of DQM, as defined in the sale and purchase agreement.
The goodwill arising on the DQM Group Holdings acquisition is not deductible for tax purposes.
Acquisition costs of GBP164,149 arose as a result of the transaction. These have been recognised as an exceptional expense included as part of administrative expenses in the statement of comprehensive income.
The main factors leading to the recognition of goodwill are the presence of certain intangibles assets, such as the assembled workforce of the acquired entity, which do not qualify for separate recognition.
Since the acquisition date, DQM has contributed GBP255,139 to Group revenues and GBP82,120 to Group profit. If the acquisition had occurred on 1 April 2018, Group revenue would have been GBP19,736,488 and Group loss for the period would have been GBP(4,323,183).
In relation to the element of the consideration which is settled by the issuance of shares, the Parent Company has recorded an amount equating to the difference between the fair value of the shares issued and their nominal value in a merger reserve, in accordance with the provisions of the Companies Act 2006 relating to merger relief.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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