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GRC International Group PLC Preliminary Results - Year Ended 31 March 2020

21/09/2020 7:00am

UK Regulatory (RNS & others)


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TIDMGRC

RNS Number : 4999Z

GRC International Group PLC

21 September 2020

21 September 2020

GRC International Group plc

("GRC" or the "Group")

Preliminary results for the year ended 31 March 2020

Improving financial performance following restructuring

H2 results significantly stronger than H1

GRC International Group plc, a leading supplier of cyber security, risk management and compliance products and services, is pleased to report its preliminary results for the 12 months ended 31 March 2020.

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 28 September 2020 and will also be made available on the Company's website at www.grci.group.

The AGM will be held at 11.00 on Tuesday 20(th) October 2020 at GRC International Group plc, Unit 3, Clive Court, Bartholomew's Walk, Ely, Cambridgeshire, CB7 4EA as a closed meeting.

Financial highlights

-- Revenues and billings 1 down 11% to GBP14.1 million (FY19: GBP15.8 million) and GBP14.0 million (FY19: GBP15.8 million) despite H2 including seeing the early impact COVID-19 pandemic.

   --       Strong growth in consultancy revenues of 19% to GBP8.6 million (FY19: GBP7.2 million) 

-- Increase in gross profit margin to 57% (FY19: 54%), despite a 6% decrease in gross profit to GBP8.1 million (FY19: GBP8.6 million)

-- Substantial reduction to underlying EBITDA 2 loss of GBP1.5 million (FY19: loss of GBP4.3 million)

-- Improvement in underlying EBITDA 2 performance during the year (H1: loss of GBP1.3 million, H2 loss of GBP0.2 million)

   --       Significant decrease in loss before tax of GBP3.6 million (FY19: loss of GBP5.4 million) 

-- Net cash at period end of GBP0.2 million (FY19: GBP0.1 million). Borrowings (excluding both bank overdraft and lease obligations) at period end were GBP1.3 million (31 March 2019 GBPnil). The Group's full financial position including cash, borrowings, unused facilities and deferred payments to HMRC is disclosed in the Going Concern section of financial review

   --       Loss per share of 4.67p (FY19: loss of 9.30p per share) 

Operational Highlights

   --       Profitable at underlying EBITDA 2  level in Q4 and in 5 out of the 6 months of H2. 

-- High quality recurring revenue services now account for 29% of monthly billings 1 (FY19: 10%)

-- Continued progress made with the strategic development of the Group, strengthening and broadening GRC's core offering

   --       9 Lines of Business based on subscription contracts 
   --       Further strengthened the Group's cyber security offering 
   --       Completion of a successful equity fundraise of GBP3.75 million in February 
   --       Continue to effectively integrate DQM into the Group both financially and operationally 

-- Continue to successfully launch 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

-- Continued investment in new and existing businesses, most notably Cyber Essentials, Vigilant Software, GRC e-Learning and GRCI Law

-- Cyber security revenue continues to increase at a rate far higher than the decline in GDPR revenue

   --       Increase in productivity through reduction in headcount in line with the demand profile 
   --       Regional businesses continue to grow with increased revenues 

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 revenue accounting standards.

(2) Underlying EBITDA is defined in the Financial Review contained within this announcement.

Outlook

   --       Q1 impact of the COVID-19 pandemic less severe than management had modelled 
   --       Underlying EBITDA 2  is currently trading ahead of FY21 pandemic response plan 
   --       Management is confident about the outlook for H2 and beyond 

Commenting on the results, Alan Calder, Chief Executive Officer, said:

In FY20 GRC International Group continued to increase its cyber security revenues and encouragingly from September 2019, returned to EBITDA-positive monthly trading. In a year of macro-economic and Brexit uncertainty, bookended by the growing COVID-19 crisis, the Group's focus on delivering value for its clients saw a 22% increase in cyber security consultancy revenue; ongoing investment in product development, automation and software supported the steady improvement in gross margin.

FY19 contained the final, peak revenue months of the GDPR peak as well as the multi-month fall-off in GDPR demand and the extended period of 'right-sizing' the business. That is now well behind us and our FY20 H2 performance, in which we saw steady revenue improvements as well as positive monthly EBITDA, reflects our overall progress. Although the COVID-19 shock had a short-term impact on our business, our agility and innovativeness enable us to respond quickly to changing demand patterns and to manage cost appropriately.

We have, in particular, been focusing on the development of what we call our 'XaaS' (X-as-a-Service) business model. We now have nine Lines of Business which are based on subscription contracts. These services cover obvious software-as-a-service areas such as staff awareness training and our Risk and Compliance Management software, CyberComply; they also now include less obvious areas such as documentation toolkits, privacy-as-a-service and cyber security-as-a-service. Each of these Lines of Business offer our clients access to a focused range of services on a monthly or annual subscription model. Our ongoing investment in these areas is designed to support our plans for a very substantial increase in the percentage of Group revenue that comes from subscription businesses.

Although the macro-economic environment remains turbulent, I believe that GRC International is well-placed to deliver the strategy we are pursuing, which enables us to continue to take advantage of the growing recognition that cyber crime is a major business issue.

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 
    Jen Clarke 
    Seamus Fricker 
   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

I am pleased to share GRC International's results for the year ended 31 March 2020, the Group's third set of results since admission to the London Stock Exchange's AIM market in March 2018.

GRC International provides a "one-stop shop" for cyber security and data compliance products and services. The Group is largely UK-based but its clients are global. The Group's strategic ambition is to become an international "one-stop shop" expanding into other forms of compliance and new geographies, with non-UK revenues eventually exceeding domestic sales.

Overall, the Group believes that cyber security, business continuity and privacy compliance issues will become increasingly critical for all companies in sectors with ongoing business operations. The Group is well-positioned to deliver the required products and services to address client needs.

Performance

FY20 was a challenging year for the Group due to an industry wide misconception that following the May 2018 introduction of GDPR, UK business would embrace the ongoing importance of GDPR compliance and that the Information Commissioner's office would begin to issue large fines for breaches of the new legislation. Instead the sector experienced an immediate and significant reduction in business which the Group had not fully anticipated. The Group mistakenly held on to its GDPR consultancy staff for too long and therefore was required to undertake a cost cutting exercise in the first half of the year in order to 'right-size' the business.

As a result, the Group's cash balance was constrained for the first nine months of FY20. However, in February 2020 the Group announced the successful equity fundraise of GBP3.75 million, enabling it to complete the acquisition of DQM Group and to provide additional working capital to expand the product suite. In the Group's Q4, we headed into the Covid-19 pandemic.

I was, therefore, pleased to note that the Group was EBITDA-positive in each of the three months of Q4.

COVID-19

The widespread shift to remote working from March 2020 as a result of COVID-19 has created new vulnerabilities for clients and, therefore, new opportunities for GRC International's products and services. Whilst the onset of the COVID-19 crisis impacted revenues from mid-February, management moved swiftly to protect our employees, who all migrated successfully to a working-from-home business model. The Group put in place a pandemic response plan allowing for a substantial drop in revenues and cash receipts and is currently trading ahead of this plan.

People

Following on from the substantial scale-up in headcount in 2018 to cope with the anticipated GDPR-related increase in revenues, the Group had already begun to scale down GDPR resources entering into FY20. This reduction in staff has continued throughout most of FY20. Having right-sized the business the Group have then had to manage the impact of COVID-19.

GRC International is essentially a people business, dependent upon the skills, passion and commitment of its entire workforce to be able to deliver the quality and service clients expect. On behalf of the Board, I would like to place on record our thanks for their hard work in challenging circumstances, especially when the pandemic lockdown took hold.

Outlook

In its pandemic response plan, the Group modelled a significant decline in FY21 Q1 performance. GRC International traded well ahead of that model in terms of billings, and with all costs under tight control.

Whilst the Group is unable to provide financial guidance for FY21 given the prolonged uncertainty caused by the pandemic, we are confident that the Group operates in global markets that are set to grow significantly over the medium and long term, whilst gaining in importance.

We have made the necessary investments to broaden the range of our products and services and will continue to do so.

Andrew Brode

Chairman

Chief Executive Officer's Review

The year to 31 March 2020 ("FY20") has been another year of investment, strategic development and significant change for GRC International. We have successfully 'right-sized' the Group, completed the acquisition of DQM, embedded data protection (including GDPR and Privacy Services) into our broader cyber security business and, with the exception of the seasonally weak December, achieved positive EBITDA throughout the second half of FY20.

The fact that the Group continued to achieve EBITDA-positive results throughout FY20 Q4, in spite of the deteriorating economic climate caused by the global coronavirus pandemic, highlights the greatly improved financial stability of the Group due to the 'right-sizing' programme that was so successfully executed in the first half of the financial year.

Our ambition remains to become a leading "one-stop shop" global supplier of cyber security governance, risk management and compliance services. However, ongoing Brexit negotiations and associated political uncertainty impacted much of FY20 and the onset of the COVID-19 pandemic in Q4 bookended the financial year. These uncertainties caused some clients to de- prioritise their cyber security spending in the short term. The wave of operational retrenchments across most sectors of the economy in Q4 also had a slowing effect on expected Q4 revenue growth.

Despite the headwinds, the Group's increasingly robust business and invoicing model did, however, mean that in Q4 we could hold all our clients to their existing contracts. We also successfully scaled up our existing remote-delivery capability across our continuity, security and privacy compliance services worldwide. With very minor exceptions, we were able to meet all our clients' delivery needs - including instructor-led training, consultancy, audit, testing and legal compliance services, across the world on a remote basis.

Overall performance

The overall performance of the Group in FY20 showed steady, sustained improvement. As we noted in our Interim Results, the decline in GDPR-related demand from the peak of the GDPR demand curve in May 2018 meant that revenue in H1 was down 20% to GBP7.1 million (H1 2019: GBP8.9 million). This overall decline reflected a 53% decline in Privacy partially offset by an increase of 1% in Cyber Security. Gross profit in H1 was down 22% to GBP4.0 million (H1 2019: GBP5.1 million), with margins broadly stable against the comparative period at 56% (H1 FY19: 57%).

However, the quarter-on-quarter comparison showed the steady improvement in performance across the Group. Revenue in the first half grew steadily, with Q2 revenue up +15% on Q1. There was also a steady improvement in gross margin through H1 FY20, from 55.8% in Q1 to 59.4% in Q2. As a result, Q2 saw a significant EBITDA improvement with positive EBITDA achieved for the first time this year in September.

Divisional overview

At the end of Q1 FY20, we divided our UK businesses into three operating divisions: e-Commerce, Software as a Service and Professional Services.

e-Commerce Division (28% of Group revenue)

The Group operates multiple business-to-business ("B2B") e-commerce websites, which provide a leading source of useful information and other content to our customers which also provide a route to market for the majority of our products and productised services. e-Commerce generated 26% of our sales in FY20 and has a positive effect on the Group's cash flow. The improvements in UK performance across the year were noticeable:

   --      H2 vs H1 Website performance: visitor volumes up by 8.5%. Web transaction volume up by 17%. 
   --      Classroom training fill rates up from 47% in April 2019 to 77.5%in March 2020. 
   --      Distance learning product sales portfolio up by 9% since April 2019. 

-- IT Governance Publishing revenues up 4% against H2 FY19, with strong growth in the audio books product group.

SaaS Division (19% of Group revenue)

Vigilant Software Ltd was the Group's initial software business. vsRisk, a cyber security and ISO/IEC 27001 risk assessment tool, was originally sold on a desktop licence basis. Over the last two years, the vsRisk product has been expanded into a complete cyber security and privacy management platform (CyberComply), available on a subscription, SaaS basis.

The Group has converted its Cyber Essentials certification business into an annual subscription model, expanded its subscription-based e-learning staff awareness training and launched a subscription version of its documentation toolkits.

In addition, the Group has continued to work with the education sector in its use of the GDPR.co.uk platform, which was acquired in Q2 of FY19.

High-margin, recurring revenue is a key feature of the SaaS division activity; Subscription billings were approximately 11% of total group billings from all subscription and contractually recurring products and services were around 29% of total Group billings.

   --      Cyber Essentials certifications in H2 FY20 were up 8% on H1 FY20. 

-- Staff awareness training (e-learning) client profile changing from a high number of small clients to smaller number of larger, more committed organisations and the overall number of users of our Learning Management System ("LMS") is 87,000 at 31 March 2020, a 24% increase on the total at 31 March 2019.

   --      Vigilant Software subscription pricing now driving a steady increase in revenue. 

Professional Services division (53% of Group revenue)

The Group's Professional Services division includes all the cyber security and data protection consultancy services that we deliver to clients of all sizes across most industrial sectors.

-- Demand for cyber security testing and compliance services continues to be driven by a combination of compliance and regulatory pressure.

-- ISO/IEC 27001 (the international standard for an information security management system) consultancy is the backbone of our Professional Services division. In FY20 we helped 79 businesses achieve certification (FY19 31).

-- Driven by continuing demand for data protection support, our DQM business, acquired in March 2019, and GRCI Law, set up in Q3 of FY19, both continued to trade profitably through the year.

-- GRCI Law has approximately 90% of its revenues on a contracted, recurring basis providing a range of ongoing data protection and privacy-related services to a growing range of medium and large organisations. DQM has 50%+ of its revenue on an annual contracted basis.

Our continued progress through FY20 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. The fact that, in the final weeks of Q4 FY20, we were able to launch ten new products focused on supporting organisations rapidly shifting to remote working clearly demonstrates how important this agility is to our performance.

Our businesses in the EU and the USA both made continued progress through the year. Both are still small businesses and do not yet offer the full range of products and services that are available through our UK websites. Nevertheless both businesses continue to win new clients, and both made positive EBITDA contributions to the Group.

The cyber security 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 across all three of our divisions.

The depth of the negative economic impact of the coronavirus crisis remains unclear; we nevertheless believe we are well-placed to serve the growing, and global, cyber security market, more details can be found in the Going Concern section below. In FY21, we intend to evolve our business model further to better service clients and enable us to grow margin-accretive, recurring revenues. 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.

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 regulatory pressure for data security and privacy and a growing demand for data processing transparency.

Data protection complaints received by the Information Commissioner's Office in the UK increased from 21,019 in 2017/18 to 41,661 in 2018/19 up 98%. The FBI's IC3 2019 Internet Crime Report indicates that, globally, more than $3.5 billion was reported lost as the result of cyber crime in 2019; a total of 467,351 incidents were reported by businesses and individuals.

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.

Companies around the world are, however, now recognising the criticality of taking action and, in the UK alone, 54% of companies sought information or guidance on cyber security from outside their organisation in the past year (UK Government Cyber Security Breaches Survey 2020). 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% saw an increase in their budget; 
   --      51% are spending more on cyber analytics; 
   --      65% foresee an increase in their budget; 

-- Many organisations are currently outsourcing cyber security functions, including functions of their security operations centres.

Accenture reported that cyber security breaches had increased by 11% since 2018 and 67% since 2014, and that 68% of business leaders felt their cyber security risks were increasing.

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 in the EU and a patchwork of state-level laws in the USA) 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 cyber security 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 243.6 billion by 2025, equating to a CAGR of 11.7% between 2020 and 2025 (according to VynZ Research).

-- Cyber security Ventures predicted cybercrime will continue rising and would cost businesses globally more than $5.2 trillion over the next five years.

-- Average total to identify and contain a breach in 2019: 280 days (Accenture-Ponemon Institute Cost of Cybercrime Study 2020).

-- Average total cost of a cyber breach in 2019: USD $3.86million (Accenture-Ponemon Institute Cost of Cybercrime Study 2020).

-- Where cyber security skills were concerned, 82% of employers report a shortage of cyber security skills and 61%of companies thought their cyber security applicants weren't adequately qualified.

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

In FY20 H1 the Group went through a period of restructuring and rebuilding in order to scale back parts of the business built to handle the spike in demand for General Data Protection Regulation ("GDPR") related products and services and focus more strongly on the underlying growth in the cyber security business that has historically been at the core of the Group's activities. In H2 the benefits of restructuring and changing of focus began to show through in the financial performance, with the Group getting back to being consistently cash generative and EBITDA positive throughout Q4.

The Group's Q1 results to 30 June 2019 made it apparent that the lack of regulatory action and the uncertainty in the wider economic and political landscape meant that the temporary decline in GDPR-related products and services, that had always been anticipated by the Board, was not likely to give way to a second wave of GDPR fuelled growth in the near future. At the end of Q1 the Board took the decision to restructure the Group into 3 divisions:

   --      E-Commerce 
   --      Software as a Service (SaaS) 
   --      Professional Services 

The initial phases of the restructure delivered improved internal efficiencies with significant cost savings, together with more focused marketing and messaging to drive revenue growth in the three divisions. Underpinning the restructure is a clear shift away from GDPR/Privacy products driving growth and back to Cyber Security products driving growth supported by GDPR/Privacy, demonstrating a transition back to what has delivered many years of strong performance historically.

In H2, headcount savings from the restructure and tight cost control in other areas delivered consistently EBITDA positive monthly results with the only exception being known seasonality in the month of December where customer demand reduces over the Christmas period. A positive Q4 result is particularly pleasing in light of the fact that February and March revenue growth was noticeably curtailed by the early impact of the COVID-19 pandemic.

Revenue

Overall revenue in FY20 was down 11% to GBP14.1 million (FY19: GBP15.8 million). However, the direction of travel following the restructure is clearly positive, with H2 revenue of GBP7.05 million being almost exactly equal to H1 revenue of GBP7.09 million despite the notable impact of COVID-19 on the final two months of Q4.

The Group has four key revenue streams:

   --      Consultancy 
   --      Publishing and Distribution 
   --      Software 
   --      Training 

As shown in the period-on-period table, despite revenue being down in three of the four revenue streams, double-digit revenue growth was recorded in Consultancy (up 19% on the prior year), which includes much of the Group's Cyber Security activity along with the legal services delivered through GRCI Law Ltd, mostly on a contracted recurring revenue basis.

The GDPR-fuelled growth through FY18 was strongly seen in the Group's Training business as customers raced to upskill themselves and to understand the new regulatory landscape. It is therefore unsurprising that this business has declined following the implementation date of GDPR in May 2018. This also impacted the Publishing and Distribution business. It is however pleasing to see the Group replace this revenue with revenue from other products and services over the last three years.

As demonstrated by the tables below, the Group's overall revenue has grown strongly from GBP6.8m FY17 to GBP14.4m FY20.

 
                                                 Publishing 
  GBP'000            Consultancy           and Distribution    Software    Training    Total 
-----------------  -------------  -------------------------  ----------  ----------  ------- 
FY17                       2,898                      1,042         410       2,483    6,833 
FY18                       5,274                      1,649         399       8,366   15,688 
FY19                       7,228                      1,337       1,513       5,771   15,849 
FY20                       8,635                        977       1,356       3,178   14,146 
-----------------  -------------  -------------------------  ----------  ----------  ------- 
 
Period-on-period     Consultancy                 Publishing    Software    Training    Total 
 %                                         and Distribution 
-----------------  -------------  -------------------------  ----------  ----------  ------- 
FY18                         82%                        58%        (3)%        237%     130% 
FY19                         37%                      (19)%        279%       (31)%       1% 
FY20                         19%                      (27)%       (10)%       (45)%    (11)% 
-----------------  -------------  -------------------------  ----------  ----------  ------- 
 
 
                          Non-UK 
GBP'000       UK  Non-UK       % 
--------  ------  ------  ------ 
FY17       5,525   1,308     19% 
FY18      12,666   3,022     19% 
FY19      12,886   2,962     19% 
FY20      11,680   2,466     17% 
--------  ------  ------  ------ 
 

Gross profit

While Gross profit was down 6% to GBP8.1 million (FY19: GBP8.6 million) compared with the prior year, gross profit as a percentage of sales is up 300 basis points on the prior year at 57% (FY19: 54%). Whilst the improvement for the year as a whole is encouraging, the upward trend through the year is more significant, with H2 FY20 at 58% compared to H1 2020 at 56%. This half year on half year improvement comes despite the COVID-19 impact on revenue in Q4 and December being a traditionally low margin month because the reduced number of trading days impacts revenue but not headcount costs, which account for the majority of the Direct Costs within the Group.

Operating expenses

Other operating expenses (excluding share-based payment expenses and exceptional costs) decreased by GBP2.5 million to GBP11.2 million, down 18% (FY19: GBP13.7 million).

Whilst the overall reduction is pleasing, it is the steady reduction through the period that is more meaningful. The overhead run rate at the end of the period was significantly down on that at the beginning of the period; and some of the reductions that came through in the H2 numbers were a result of actions taken as part of the restructuring work in H1. The reduction in overhead costs is predominantly due to lower headcount and in the associated headcount related overheads, together with a strong management focus on non-headcount related overheads which has also delivered savings.

By the end of FY20 overheads were running at an annualised run rate more than GBP4 million lower than the full year FY19 figure.

Underlying EBITDA

Underlying EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) excludes share-based payment expenses (non- cash) and non-recurring 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. This is considered to be a more accurate measure of underlying business performance as it removes the impact of non-cash accounting adjustments.

Underlying EBITDA for FY20 was a loss of GBP1.5 million, (10.6)% of revenue (FY19: loss of GBP4.3 million, (27.2)%).

Not only is this a significant improvement from FY19 to FY20, but also to HY2 from HY1 is set out in the table below:

 
GBP'000 
                         HY1 FY20    HY2 FY20    FY20     FY19 
---------------------  ----------  ----------  -------  ------- 
Operating loss         (2,149)     (1,276)     (3,425)  (5,357) 
Depreciation           194         192         386      183 
Amortisation           586         594         1,180    611 
Exceptional costs      63          295         358      164 
Share-based payments   -           -           -        63 
---------------------  ----------  ----------  -------  ------- 
Underlying EBITDA      (1,306)     (195)       (1,501)  (4,336) 
---------------------  ----------  ----------  -------  ------- 
 

FY20 includes the adoption of the new IFRS16 leases which has increased EBITDA by GBP242k compared to FY19.

Finance expense

The net finance expense of GBP222k (FY19: GBP8k) relates mainly to interest on the Group's new borrowings (GBP139k) and leases (GBP61k) due to the increase in borrowings and the change in accounting policy relating to the introduction of IFRS16 respectively.

Loss before tax

Loss before tax was GBP3.6 million (FY19: GBP5.4 million). Normalised loss before tax (defined as loss before tax excluding share-based payment expenses and exceptional costs relating to the acquisition of DQM) was GBP3.3 million (FY19: GBP5.1 million).

Taxation

A tax credit of GBP0.4 million has been recognised in the period (FY19: GBP29k charge). The tax credit recognised relates primarily to the unwinding of deferred tax on the acquisition of DQM and a Research and Development tax credit.

Earnings per share

Loss per share was 4.67 pence (FY19: loss per share 9.30 pence).

Statement of financial position

Net current liabilities at period end were GBP2.8 million, reduced from GBP5.5 million at 31 March 2019.

Property, plant and equipment has increased to GBP0.8m (31 March 2019 GBP0.5m) due to the addition of Right of Use Assets under the introduction of IFRS16.

In February 2020 the Group successfully completed an equity fundraise of approximately GBP3.75 million (net of expenses of GBP0.1 million), resolving the cash element of the contingent consideration (GBP1.6 million) consistent with the DQM Deed of Variation, the balance of contingent consideration being settled by the issue of shares now paid to the vendors of DQM and repaying a bank borrowing facility (GBP0.5 million). The remainder of the funds raised provided additional working capital for the Group to strengthen the overall balance sheet position. Consequently, trade and other payables are down to GBP3.6 million at the period end (31 March 2019 GBP4.4 million).

Included within the current liabilities balance of GBP5.4 million (FY19: GBP9.1 million) is a deferred income balance of GBP0.9 million (FY19: GBP1.0 million), relating to training and consultancy projects due to be delivered after the statement of financial position date. Also included within current liabilities is the deferred liabilities payable to HMRC as set out in the Going Concern section below.

The Board continues to pay close attention to the working capital management of debtors and creditors.

Accounting for lease under IFRS 16

During the period the Group has adopted IFRS 16 under the modified retrospective method. Further information is provided in note 22.

Lease obligations under IFRS 16 at 31 March 2020 were: Current GBP0.2 million, Non-current GBP0.3 million.

Intangible assets

The Group's accounting policy is that only directly attributable staff costs of the technical teams developing the assets are capitalised. No management time is capitalised, and neither is any proportion of overheads or borrowing costs.

Additions of GBP1.1 million largely relate to software development of GBP0.9 million and consultancy and courseware products of GBP0.2 million.

Cash flow, cash/debt.

The Group's closing cash position net of bank overdrafts was GBP0.2 million (FY19: GBP0.1 million). The significant reduction in operating cash outflows before changes in working capital (FY20: GBP1.9 million, FY19: GBP4.5 million) is a reflection of the improvement in trading result during the period. The decrease in trade and other payables (FY20: GBP4.4 million, FY19 GBP0.7 million) is the result of clearing the contingent consideration relating to the acquisition of DQM along with a conscious effort to reduce the size of the trade payables ledger.

The Group has banking facilities to provide adequate headroom for unforeseen working capital requirements by way of 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 the Group's Chairman for the amount of GBP700,000 at an interest rate of 5% above the Bank of England base rate to provide additional working capital is available to the Company until at least 31 December 2021 and shall automatically renew for a further 12 months unless terminated by either party.

Borrowings (excluding both bank overdraft and lease obligations) at period end were GBP1.3 million (31 March 2019: GBPnil), an increase on the previous period to support the working capital requirements during the restructuring in the first 9 months of the year. A full schedule of Borrowings and terms are disclosed in note 18.

Going concern

The Group has recorded a loss for the year of GBP3.2m (2019: GBP5.4m) and at 31 March 2020 its current liabilities (excluding deferred income) exceeded its current assets by GBP1.9m (2019: GBP4.5m). Notwithstanding this, 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.

During FY20 the Group significantly restructured its operations, including reducing its cost base. Of the loss for the year of GBP3.2m, GBP2.2m (69%) was incurred in H1 and GBP1.0m. In H2 the Group was EBITDA positive in 5 out of the 6 months, with the only exception being known seasonality in the month of December as our customers' businesses wind down for the Christmas period. Also, during H2 the Group successfully completed a placing of new shares which raised GBP3.75m (approximately GBP3.5m net of fees) enabling the Group to settle the cash element of the contingent consideration (GBP1.6m) due to the vendors of DQM, acquired in March 2019, and repaying a bank borrowing facility (GBP0.5m). The remainder of the funds raised provided additional working capital for the Group to strengthen the overall balance sheet position.

Having been through a transitional year the Group was looking forward to a strong FY21, continuing its H2 FY20 momentum and anticipating profitable results for the year. However, the global COVID-19 pandemic led to an immediate reduction in monthly billings as customers delayed projects, reduced spend seen as not immediately critical to day-to-day operations and focussed on establishing new business processes and procedures to survive the short term. This unprecedented trading environment resulted in a reduction in revenues and the net result for April and May 2020, followed by a recovery towards pre-COVID-19 levels of revenue and profitability in June prior to a flattening out of trading levels over July and August 2020 as is the traditional pattern in the Group's annual cycle.

In response to the pandemic the Board revisited its FY21 and FY22 forecasts, increased the regularity of its short and medium term cash flow planning, implemented a number of key cost reduction measures and took advantage of government initiatives that have been introduced in the geographies that the Group operates in order to preserve liquidity, supplemented by deferring the payment of certain liabilities to HMRC.

Notably; the Group has made savings in marketing costs, property and training venue costs, and continues to rationalise IT infrastructure. Having extended the hiring freeze the Group is continuing to see payroll costs reduce. In particular, early progress on the integration of DQM with the rest of the GRC group enabled one of the founder directors to take early retirement and the other to reduce workload by 60%; and these savings (c. GBP0.2m annualised) became effective from 1 April 2020. Furthermore, IT Governance USA Inc. qualified for a $0.1m loan through the Paycheck Protection Programme (PPP) which should qualify in due course for forgiveness. The Group also deferred certain liabilities payable to HMRC amounting to approximately GBP1.0m, representing a rolling 3-4 months of the Group's monthly liability, which the Group has scheduled to repay both in the base case and worst case forecast on an instalment basis commencing from April 2021.

Despite the drop in monthly billings the Group has focused operationally on developing new products and services and redesigning existing ones such that all products and services can be delivered remotely or in person as customer preference and rapidly changing regulation and guidance dictate. As evidenced by the early months of FY21, the Directors believe the Group is in a strong position to continue to support its customers and deliver services in a rapidly changing environment and is well placed to benefit from the need for organisations to change their business processes in a cyber secure and regulatory compliant manner.

Notwithstanding some easing of trading conditions and subsequent improvement in performance since the outbreak of the global pandemic reached the United Kingdom (which represents around 93% of the Group's revenue in FY20), the Directors acknowledge that trading conditions will necessarily remain uncertain for the foreseeable future. Those uncertainties having effect include:

   --      The possibility of further local or another national "lockdown". 

-- The levels of revenue in the context of weakened demand for the Group's products and services.

-- Should the Group need to reduce its scalable cost base, its ability to make those adjustments and realise the benefits from doing that on a timely basis.

-- The continued access to financing, including government support in its various forms, that would be sufficient to fund any further cash requirement over the foreseeable future

To assess going concern the Directors have prepared an integrated profit and loss, balance sheet and cash flow forecast by month to 31 March 2022 (the 'base case forecast'). A key assumption to the base case forecast is that the level of business interruption caused by the pandemic would gradually ease over the summer with a resumption of more normal pre-COVID-19 levels of billings from September 2020 onwards, though still notably lower than originally budgeted prior to the impact of COVID-19 . The Group's base case forecast identifies that through the going concern review period the Group is able to meet its liabilities as they fall due subject to settlement of the outstanding HMRC liabilities from April 2021 onwards.

Additionally, the Directors have prepared a sensitised forecast to the base case forecast where if the COVID-19 pandemic was more prolonged than currently envisaged by the Directors (the 'worst case forecast'). This worst case forecast assumes that revenues between September 2020 and March 2022 are 30% below the base case and cost reduction measures, to reflect the reduced level of billings, have been effected. The worst case forecast does not identify a potential cash flow shortfall in any month, on the basis that outstanding HMRC liabilities are capable of being further deferred.

The Directors are monitoring actual business performance and cash flow against the base case forecast. Encouragingly, since the year end the Group has traded ahead of the expectations set out in the base case forecast and is currently seeing trading almost back at pre-COVID levels, although behind the growth plans originally budgeted. Furthermore in the view of the Directors any temporary cash flow shortfall can be mitigated through the deferment or removal of selected planned marketing, capital expenditure and other scheduled cash outflows.

Based on the base case forecasts (including the currently expected payment profile of the deferred liabilities to HMRC referred to above) and the medium and longer term planning in place, the Directors have identified that they have a reasonable expectation of being able to reduce costs sufficiently in the required timeframe should revenue levels reduce by any reasonably foreseeable degree and that the Group will remain within the currently available facility levels, none of which has any financial covenant compliance requirements. Central to those facilities is the GBP700,000 unsecured loan facility provided by Andrew Brode which is at present 50% utilised, and which remains in place until at least 31 December 2021, although the Group does also have access to additional liquidity through its invoice discounting facility, which is not currently utilised and is not currently expected to be relied upon in the base case forecast or the short term rolling cash flow forecast reviewed by the Board.

Nevertheless, in order to trade through the pandemic period without making significant headcount cuts that would have damaged the rate of the Group's recovery, it was necessary for the Group to defer the HMRC liabilities described above without a formal payment arrangement being in place. At the time of writing this report the Directors' are confident that these liabilities can be settled in the near future, and the Group currently has adequate cash and facilities in place to settle the liabilities in full if required. Given Government's clear advice to HMRC to be supportive of UK businesses and based on the Group's communications with HMRC to date management do not expect that the immediate need to settle the deferred balance in full is likely. However, in the event that the liabilities are demanded in full and the effect of COVID-19 on future trading is more prolonged or severe than the Directors' expectations, the two events combined may impact the Group's ability to generate sufficient positive cashflow to settle future liabilities as they fall due and as a result the Parent Company would be required to raise additional funding in order to meet its liabilities with no guarantee such funding would be secured.

These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Group's and the Company's ability to continue as a going concern. Notwithstanding the impact of COVID-19 identified above, the Directors have a reasonable expectation that the Group will have sufficient cash flow and available resources and if necessary will be able to raise additional funds to continue operating for at least 12 months from the approval date of these Financial Statements. Accordingly, the Directors continue to adopt the going concern basis in preparing the Group and the Company its Financial Statements.

The financial statements do not include the adjustments that would be required should the going concern basis of preparation no longer be appropriate.

Capital structure

The issued share capital at 31 March 2020 was 99,577,589 ordinary shares of GBP0.001 each (31 March 2019 64,484,172). There were no share options granted in the period to 31 March 2020, and the total number of unexercised share options at 31 March 2020 was 780,680 (31 March 2019: 2,360,680).

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 out in the Annual Report on pages 18 to 19.

Chris Hartshorne

Finance Director

Consolidated Income Statement

For the year ended 31 March

 
                                                                            2020      2019 
                                                                 Notes   GBP'000   GBP'000 
-------------------------------------------  -------------------------  --------  -------- 
Revenue                                                          2        14,146    15,849 
Cost of sales                                                            (6,082)   (7,295) 
-------------------------------------------  -------------------------  --------  -------- 
Gross profit                                                               8,064     8,554 
Administrative expenses: 
-------------------------------------------  -------------------------  --------  -------- 
- Other administrative expenses                                         (11,230)  (13,716) 
- Share-based payment charge                                                   -      (63) 
- Exceptional administrative expenses                            3         (358)     (164) 
-------------------------------------------  -------------------------  --------  -------- 
Total administrative expenses                                           (11,588)  (13,943) 
Other operating income                                                        99        32 
-------------------------------------------  -------------------------  --------  -------- 
Operating loss                                                   4       (3,425)   (5,357) 
Net finance costs                                                6         (222)       (8) 
Share of post-tax loss of equity accounted 
 joint ventures                                                   13         (4)       (1) 
-------------------------------------------  -------------------------  --------  -------- 
Loss before taxation                                                     (3,651)   (5,366) 
Taxation                                                         7           445      (29) 
-------------------------------------------  -------------------------  --------  -------- 
Loss for the financial year                                              (3,206)   (5,395) 
-------------------------------------------  -------------------------  --------  -------- 
Loss for the financial year attributable 
 to: 
Equity shareholders of the parent                                        (3,206)   (5,395) 
-------------------------------------------  -------------------------  --------  -------- 
Basic loss per share (pence)                                     8        (4.67)    (9.30) 
-------------------------------------------  -------------------------  --------  -------- 
Diluted loss per share (pence)                                   8        (4.67)    (9.30) 
-------------------------------------------  -------------------------  --------  -------- 
 

Consolidated Statement of Comprehensive Income

For the year ended 31 March

 
                                                             2020     2019 
                                                          GBP'000  GBP'000 
-------------------------------------------------------  --------  ------- 
Loss for the year                                         (3,206)  (5,395) 
Other comprehensive loss- items that may subsequently be reclassified 
 to profit/loss: 
Exchange differences on translation of foreign 
 operations                                                   (6)      (7) 
-------------------------------------------------------  --------  ------- 
Other comprehensive loss for the financial 
 year, net of tax                                             (6)      (7) 
-------------------------------------------------------  --------  ------- 
Total comprehensive loss for the financial 
 year                                                     (3,212)  (5,402) 
-------------------------------------------------------  --------  ------- 
Total comprehensive loss to equity shareholders 
 of the parent                                            (3,212)  (5,402) 
-------------------------------------------------------  --------  ------- 
 

Consolidated Balance Sheet as at 31 March

 
                                                                           2020     2019 
                                                                 Notes  GBP'000  GBP'000 
--------------------------------------  ------------------------------  -------  ------- 
Assets 
Non-current assets 
Goodwill                                                          10      6,804    6,693 
Intangible assets                                                 11      5,706    5,760 
Property, plant and equipment                                     12        783      489 
Investments in equity-accounted joint 
 ventures                                                         13          7       10 
Deferred tax asset                                                7         144      144 
--------------------------------------  ------------------------------  -------  ------- 
                                                                         13,444   13,096 
--------------------------------------  ------------------------------  -------  ------- 
Current assets 
Inventories                                                       14         61       64 
Trade and other receivables                                       15      2,247    2,904 
Cash at bank                                                      16        245      639 
Current tax                                                                  76        - 
--------------------------------------  ------------------------------  -------  ------- 
                                                                          2,629    3,607 
--------------------------------------  ------------------------------  -------  ------- 
Current liabilities 
Trade and other payables                                          17    (3,629)  (4,367) 
Borrowings                                                        18    (1,446)    (521) 
Contingent consideration                                          19      (100)  (3,747) 
Lease liabilities                                                 22      (201)      (6) 
Current tax                                                       7           -    (433) 
--------------------------------------  ------------------------------  -------  ------- 
                                                                        (5,376)  (9,074) 
--------------------------------------  ------------------------------  -------  ------- 
Net current liabilities                                                 (2,747)  (5,467) 
--------------------------------------  ------------------------------  -------  ------- 
Non-current liabilities 
Borrowings                                                        18      (401)        - 
Lease liabilities                                                 22      (286)        - 
Deferred tax liability                                            7       (582)    (273) 
--------------------------------------  ------------------------------  -------  ------- 
                                                                        (1,269)    (273) 
--------------------------------------  ------------------------------  -------  ------- 
Net assets                                                                9,428    7,356 
--------------------------------------  ------------------------------  -------  ------- 
Equity 
Share capital                                                     24        100       64 
Share premium                                                       25   13,182    9,588 
Merger reserve                                                            4,276    2,353 
Share-based payment reserve                                                 171      440 
Capital redemption reserve                                                    -        - 
Translation reserve                                                        (12)      (6) 
Accumulated deficit                                                     (8,289)  (5,083) 
--------------------------------------  ------------------------------  -------  ------- 
Total equity                                                              9,428    7,356 
--------------------------------------  ------------------------------  -------  ------- 
 

Consolidated Statement of Changes in Equity

For the year ended 31 March 2020

 
                                                                Share- 
                                                                 based                                     Capital 
                                Share      Share     Merger      payment    Accumulated    Translation  redemption 
                              capital    premium    reserve      reserve        deficit        reserve     reserve      Total 
                              GBP'000    GBP'000    GBP'000      GBP'000        GBP'000        GBP'000     GBP'000    GBP'000 
--------------------------  ---------  ---------  ---------  -----------  -------------  -------------  ----------  --------- 
Balance at 1 April 
 2019                              64      9,588      2,353          440        (5,083)            (6)           -      7,356 
Loss for the year                   -          -          -            -        (3,206)              -           -    (3,206) 
Foreign exchange 
 difference on 
 consolidation                      -          -          -            -              -            (6)           -        (6) 
--------------------------  ---------  ---------  ---------  -----------  -------------  -------------  ----------  --------- 
Total comprehensive 
 loss for the year                  -          -          -            -        (3,206)            (6)           -    (3,212) 
Deferred tax on 
 share-based 
 payments                           -          -          -        (269)              -              -           -      (269) 
Shares issued                      36      3,725      1,923            -              -              -           -      5,684 
Cost of share issue                 -      (131)          -            -              -              -           -      (131) 
--------------------------  ---------  ---------  ---------  -----------  -------------  -------------  ----------  --------- 
Transactions with 
 owners                            36      3,594      1,923        (269)              -              -           -      5,284 
--------------------------  ---------  ---------  ---------  -----------  -------------  -------------  ----------  --------- 
At 31 March 2020                  100     13,182      4,276          171        (8,289)           (12)           -      9,428 
--------------------------  ---------  ---------  ---------  -----------  -------------  -------------  ----------  --------- 
     For the year ended 31 March 2019 
                                                    Share-  (Accumulated 
                                                     based     deficit)/                  Capital 
                        Share    Share   Merger    payment      retained  Translation  redemption 
                      capital  premium  reserve    reserve      earnings      reserve     reserve    Total 
                      GBP'000  GBP'000  GBP'000    GBP'000       GBP'000      GBP'000     GBP'000  GBP'000 
      Balance at 1 
       April 
       2018                57    4,793        -        628           421            1           -    5,900 
      Adjustment on 
       initial 
       application 
       of IFRS 
       15 (net of 
       tax)                 -        -        -          -         (109)            -           -    (109) 
      --------------  -------  -------  -------  ---------  ------------  -----------  ----------  ------- 
      Adjusted 
       balance 
       at 1 April 
       2018                57    4,793        -        628           312            1           -    5,791 
      Loss for the 
       year                 -        -        -          -       (5,395)            -           -  (5,395) 
      Foreign 
       exchange 
       difference on 
       consolidation        -        -        -          -             -          (7)           -      (7) 
      --------------  -------  -------  -------  ---------  ------------  -----------  ----------  ------- 
      Total 
       comprehensive 
       loss for the 
       year                 -        -        -          -       (5,395)          (7)           -  (5,402) 
      Share-based 
       payment 
       expense              -        -        -         63             -            -           -       63 
      Deferred tax 
       on 
       share-based 
       payments             -        -        -      (251)             -            -           -    (251) 
      Shares issued         7    4,995    2,353          -             -            -           -    7,355 
      Cost of share 
       issue                -    (200)        -          -             -            -           -    (200) 
      --------------  -------  -------  -------  ---------  ------------  -----------  ----------  ------- 
      Transactions 
       with 
       owners               7    4,795    2,353      (188)             -            -           -    6,967 
      --------------  -------  -------  -------  ---------  ------------  -----------  ----------  ------- 
      At 31 March 
       2019                64    9,588    2,353        440       (5,083)          (6)           -    7,356 
      --------------  -------  -------  -------  ---------  ------------  -----------  ----------  ------- 
 

Consolidated Statement of Cash Flows For the year ended 31 March

 
                                                                               2020     2019 
                                                      Notes                 GBP'000  GBP'000 
-----------------------------------------------  ----------------  ----------------  ------- 
Cash flows from operating activities 
Loss before tax                                                             (3,651)  (5,366) 
Depreciation                                                                    386      183 
Amortisation                                            11                    1,180      611 
Share-based payment expense                                                       -       63 
Foreign exchange gains                                                         (22)      (5) 
Share of post-tax profits of equity accounted 
 joint ventures                                                                   4        1 
Finance income                                                                    -      (2) 
Finance costs                                                                   222       10 
-----------------------------------------------  ----------------  ----------------  ------- 
Operating cash flows before changes in 
 working capital                                                            (1,881)  (4,505) 
Decrease in inventories                                                           3       12 
Decrease in trade and other receivables                                         625      498 
Decrease in trade and other payables                                          (815)    (660) 
-----------------------------------------------  ----------------  ----------------  ------- 
Net cash (outflow)/inflow from operating 
 activities                                                                 (2,068)  (4,655) 
Cash flows from investing activities 
Settlement of contingent consideration                                      (1,626)        - 
Acquisition of subsidiary, net of cash 
 acquired                                                                         -  (2,513) 
Purchase of intangible assets                           11                  (1,124)  (2,289) 
Purchase of plant and equipment                                                (11)    (234) 
Sale of plant and equipment                                                       -        8 
Acquisition of joint venture investment                                           -     (11) 
Interest received                                                                 -        2 
-----------------------------------------------  ----------------  ----------------  ------- 
Net cash outflow from investing activities                                  (2,761)  (5,037) 
Net cash flows from financing activities 
Proceeds from issue of shares                           24                    3,750    5,000 
Costs of share issue                                                          (130)    (200) 
Repayment of acquired contingent consideration 
 liability                                                                    (100)    (450) 
Proceeds from borrowings                                18                    2,356        - 
Repayment of borrowings                                 18                    (568)     (52) 
Interest paid                                           18                    (134)      (9) 
Interest on lease liability on right of 
 use asset                                              22                     (60)        - 
Payments of lease liabilities on right 
 of use asset                                           22                    (181)        - 
Capital element of finance lease payments                                       (6)      (8) 
-----------------------------------------------  ----------------  ----------------  ------- 
Net cash inflow from financing activities                                     4,927    4,281 
Net increase/(decrease) in cash and cash 
 equivalents                                                                     98  (5,411) 
Cash and cash equivalents at beginning 
 of financial year                                                              147    5,558 
Effects of exchange rate changes on cash                                          -        - 
 and cash equivalents 
-----------------------------------------------  ----------------  ----------------  ------- 
Cash and cash equivalents at end of financial 
 year                                                                           245      147 
-----------------------------------------------  ----------------  ----------------  ------- 
Comprising 
Cash at bank                                            16                      245      639 
Bank overdraft                                          18                        -    (492) 
-----------------------------------------------  ----------------  ----------------  ------- 
Cash and cash equivalents                                                       245      147 
-----------------------------------------------  ----------------  ----------------  ------- 
 
 

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 2020 and the year ended 31 March 2019 does not constitute the company's statutory accounts for those years.

Statutory accounts for the year ended 31 March 2019 have been delivered to the Registrar of Companies.

The auditor's reports on these accounts was unqualified but did draw attention to a material uncertainty related to going concern.

The auditor's report and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The financial information for the year ended March 2020 is preliminary. The statutory accounts for that year will be delivered to the Registrar of Companies in due course. The audit report will draw attention to the material uncertainty related to going concern which is explained below.

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 Directors of GRC International Group are responsible for the financial information and contents of the consolidated financial statements.

The results for the year ended 31 March 2020 and 31 March 2019 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.

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 Group.

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 ongoing 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 2020.

The consolidated financial statements have been prepared on a historical cost basis, except for the measurement of the contingent consideration which is carried at its fair value.

The principal accounting policies adopted are set out below.

Going concern

The Group has recorded a loss for the year of GBP3.2m (2019: GBP5.4m) and at 31 March 2020 its current liabilities (excluding deferred income) exceeded its current assets by GBP1.9m (2019: GBP4.5m). Notwithstanding this, 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.

During FY20 the Group significantly restructured its operations, including reducing its cost base. Of the loss for the year of GBP3.2m, GBP2.2m (69%) was incurred in H1 and GBP1.0m in H2 the Group was EBITDA positive in 5 out of the 6 months, with the only exception being known seasonality in the month of December as our customers' businesses wind down for the Christmas period. Also, during H2 the Group successfully completed a placing of new shares which raised GBP3.75m (approximately GBP3.5m net of fees) enabling the Group to settle the cash element of the contingent consideration (GBP1.6m) due to the vendors of DQM, acquired in March 2019, and repaying a bank borrowing facility (GBP0.5m). The remainder of the funds raised provided additional working capital for the Group to strengthen the overall balance sheet position.

Having been through a transitional year the Group was looking forward to a strong FY21, continuing its H2 FY20 momentum and anticipating profitable results for the year. However, the global COVID-19 pandemic led to an immediate reduction in monthly billings as customers delayed projects, reduced spend seen as not immediately critical to day-to-day operations and focussed on establishing new business processes and procedures to survive the short term. This unprecedented trading environment resulted in a reduction in revenues and the net result for April and May 2020, followed by a recovery towards pre-COVID-19 levels of revenue and profitability in June prior to a flattening out of trading levels over July and August 2020 as is the traditional pattern in the Group's annual cycle.

In response to the pandemic the Board revisited its FY21 and FY22 forecasts, increased the regularity of its short and medium term cash flow planning, implemented a number of key cost reduction measures and took advantage of government initiatives that have been introduced in the geographies that the Group operates in order to preserve liquidity, supplemented by deferring the payment of certain liabilities to HMRC.

Notably; the Group has made savings in marketing costs, property and training venue costs, and continues to rationalise IT infrastructure. Having extended the hiring freeze the Group is continuing to see payroll costs reduce. In particular, early progress on the integration of DQM with the rest of the GRC group enabled one of the founder directors to take early retirement and the other to reduce workload by 60%; and these savings (c. GBP0.2m annualised) became effective from 1 April 2020. Furthermore, IT Governance USA Inc. qualified for a $0.1m loan through the Paycheck Protection Programme (PPP) which should qualify in due course for forgiveness. The Group also deferred certain liabilities payable to HMRC amounting to approximately GBP1.0m, representing a rolling 3-4 months of the Group's monthly liability, which the Group has scheduled to repay both in the base case and worst case forecast on an instalment basis commencing from April 2021.

Despite the drop in monthly billings the Group has focused operationally on developing new products and services and redesigning existing ones such that all products and services can be delivered remotely or in person as customer preference and rapidly changing regulation and guidance dictate. As evidenced by the early months of FY21, the Directors believe the Group is in a strong position to continue to support its customers and deliver services in a rapidly changing environment and is well placed to benefit from the need for organisations to change their business processes in a cyber secure and regulatory compliant manner.

Notwithstanding some easing of trading conditions and subsequent improvement in performance since the outbreak of the global pandemic reached the United Kingdom (which represents around 93% of the Group's revenue in FY20), the Directors acknowledge that trading conditions will necessarily remain uncertain for the foreseeable future. Those uncertainties having effect include:

   --      The possibility of further local or another national "lockdown". 

-- The levels of revenue in the context of weakened demand for the Group's products and services.

-- Should the Group need to reduce its scalable cost base, its ability to make those adjustments and realise the benefits from doing that on a timely basis.

-- The continued access to financing, including government support in its various forms, that would be sufficient to fund any further cash requirement over the foreseeable future

To assess going concern the Directors have prepared an integrated profit and loss, balance sheet and cash flow forecast by month to 31 March 2022 (the 'base case forecast'). A key assumption to the base case forecast is that the level of business interruption caused by the pandemic would gradually ease over the summer with a resumption of more normal pre-COVID-19 levels of billings from September 2020 onwards, though still notably lower than originally budgeted prior to the impact of COVID-19 . The Group's base case forecast identifies that through the going concern review period the Group is able to meet its liabilities as they fall due subject to settlement of the outstanding HMRC liabilities from April 2021 onwards.

Additionally, the Directors have prepared a sensitised forecast to the base case forecast where if the COVID-19 pandemic was more prolonged than currently envisaged by the Directors (the 'worst case forecast'). This worst case forecast assumes that revenues between September 2020 and March 2022 are 30% below the base case and cost reduction measures, to reflect the reduced level of billings, have been effected. The worst case forecast does not identify a potential cash flow shortfall in any month, on the basis that outstanding HMRC liabilities are capable of being further deferred.

The Directors are monitoring actual business performance and cash flow against the base case forecast. Encouragingly, since the year end the Group has traded ahead of the expectations set out in the base case forecast and is currently seeing trading almost back at pre-COVID levels, although behind the growth plans originally budgeted. Furthermore in the view of the Directors any temporary cash flow shortfall can be mitigated through the deferment or removal of selected planned marketing, capital expenditure and other scheduled cash outflows.

Based on the base case forecasts (including the currently expected payment profile of the deferred liabilities to HMRC referred to above) and the medium and longer term planning in place, the Directors have identified that they have a reasonable expectation of being able to reduce costs sufficiently in the required timeframe should revenue levels reduce by any reasonably foreseeable degree and that the Group will remain within the currently available facility levels, none of which has any financial covenant compliance requirements. Central to those facilities is the GBP700,000 unsecured loan facility provided by Andrew Brode which is at present 50% utilised, and which remains in place until at least 31 December 2021, although the Group does also have access to additional liquidity through its invoice discounting facility, which is not currently utilised and is not currently expected to be relied upon in the base case forecast or the short term rolling cash flow forecast reviewed by the Board.

Nevertheless, in order to trade through the pandemic period without making significant headcount cuts that would have damaged the rate of the Group's recovery, it was necessary for the Group to defer the HMRC liabilities described above without a formal payment arrangement being in place. At the time of writing this report the Directors' are confident that these liabilities can be settled in the near future, and the Group currently has adequate cash and facilities in place to settle the liabilities in full if required. Given Government's clear advice to HMRC to be supportive of UK businesses and based on the Group's communications with HMRC to date management do not expect that the immediate need to settle the deferred balance in full is likely. However, in the event that the liabilities are demanded in full and the effect of COVID-19 on future trading is more prolonged or severe than the Directors' expectations, the two events combined may impact the Group's ability to generate sufficient positive cashflow to settle future liabilities as they fall due and as a result the Parent Company would be required to raise additional funding in order to meet its liabilities with no guarantee such funding would be secured.

These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Group's and the Company's ability to continue as a going concern. Notwithstanding the impact of COVID-19 identified above, the Directors have a reasonable expectation that the Group will have sufficient cash flow and available resources and if necessary will be able to raise additional funds to continue operating for at least 12 months from the approval date of these Financial Statements. Accordingly, the Directors continue to adopt the going concern basis in preparing the Group and the Company its Financial Statements.

The financial statements do not include the adjustments that would be required should the going concern basis of preparation no longer be appropriate.

Revenue

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 five-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. 

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 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.

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 five-step application of IFRS 15 applied, based upon the type of product sold.

Customer rights to refunds are limited and are not considered material to the financial statements.

The following chart summarises how the five-step process is applied for each of the four revenue streams:

 
 Products and services                                         Nature, timing of satisfaction of performance 
                                                               obligations 
                                                               and significant payment terms 
------------------------------------------------------------  -------------------------------------------------------- 
 Consultancy                                                   The Group recognises revenue over time as the services 
   *    On-site and remote support consulting services,        in the contract are performed, generally based on 
        helping organisations to design and implement data     the consultants' estimate of the progress of the 
        protection and cyber security policies and             work. Revenue from consultancy services which are 
        procedures.                                            either a performance obligation within a larger 
                                                               arrangement 
                                                               or are sold on a stand-alone basis is generally 
                                                               recognised 
                                                               over time where the Group agrees to provide labour 
                                                               hours/days. Contracts state a broad list of activities 
                                                               that the services may include. The contracts state 
                                                               daily/hourly rates and estimated amounts to be billed. 
                                                               Contracts state that IT Governance will not exceed 
                                                               the total amount without prior 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 
  *    The Group sells books, documentation templates and      when control of the asset is transferred to the 
       software via its websites, both that it publishes or    customer. 
       writes itself, and also supplied by third parties.      The product becomes under the control of the customer 
       The Group also creates and sells sets of                when the book/software/toolkit is delivered to them. 
       documentation templates that are used by customers to   This is when the customer has legal title to the 
       assist them to document IT systems and procedures.      asset or has physical possession of the asset. 
                                                               For the sale of physical softcopy books and CD-ROMs, 
                                                               revenue is recognised when the goods are delivered. 
                                                               Where a product with a subscription or licence is 
                                                               sold on behalf of a third party the revenue is 
                                                               recognised 
                                                               straight away as the obligation to fulfil the contract 
                                                               lies with the third party and not the Group. The 
                                                               full cost of the product sold by the Group in respect 
                                                               of a third-party sale is charged to the Income 
                                                               Statement 
                                                               when the revenue is recognised. 
------------------------------------------------------------  -------------------------------------------------------- 
 Learning                                                      Revenue is recognised on 'Classroom Based Training 
  *    The Group sells "in person" classroom- based training   Courses' and 'Online Training Courses' when the 
       courses related to data protection, cyber security,     customer 
       ISO 27001 certification and related topics. The         obtains control. The product becomes under the control 
       courses range from one to five days in length and are   of the customer when they attend the first day of 
       held at hired premises. The Group also provides         the Training Course. 
       courses at customers' premises for organisations that   Revenue is recognised on 'Distance Learning Based 
       require training for a number of their employees. The   Training Courses, when the customer gains control. 
       courses are aimed at various different areas of IT      The product becomes under the control of the customer 
       governance and at different skill levels.               at the date the online course is made available to 
                                                               them. Once the course is made available the Group 
                                                               has fulfilled its contractual obligation to deliver. 
                                                               The date the user accesses and uses the course is 
                                                               not considered relevant. 
                                                               Revenue is recognised on 'e-Learning Courses' dependent 
                                                               on the type of service provided. 'e-Learning' is 
                                                               split into four types: 
                                                               e-Learning Hosting Services - An additional annual 
                                                               fee for LMS (Learning Management System) hosting 
                                                               of the e-Learning courses. Customers are not obliged 
                                                               to but can buy our standard 'off-the-shelf' 'Hosting' 
                                                               area. All hosted client courses will be hosted on 
                                                               our LMS. Each client will be given their own space, 
                                                               which can be branded with their logo and company 
                                                               colours. The e-Learning course files hosted on our 
                                                               LMS will be the same for all clients, and each client 
                                                               will have a space in the course layout to add any 
                                                               extra information they need, such as documents, links 
                                                               and contact details. Revenue is recognised on 
                                                               'e-Learning 
                                                               Hosting Services' over time as the customer has access 
                                                               to the hosting area. Revenue is then pro-rated equally 
                                                               over the period (normally 12 months) to which the 
                                                               service relates. 
                                                               Revenue is recognised on 'e-Learning Courses' when 
                                                               the customer obtains control. The course becomes 
                                                               under the control of the customer when the online 
                                                               course is made available to access. 
                                                               e-Learning Set Up Costs - Organisations/customers 
                                                               can contract the Group to 'Customise' the e-Learning 
                                                               courses to their organisation's specifications (i.e. 
                                                               company logo/branding etc.). Revenue is recognised 
                                                               on 'e-Learning 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. 
                                                               e-Learning Training - Organisations/customers can 
                                                               contract the Group to provide training for the 
                                                               e-Learning 
                                                               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 'e-Learning 
                                                               Training' when the customer gains control. The product 
                                                               comes under the control of the customer on the first 
                                                               day of the Training Course. 
------------------------------------------------------------  -------------------------------------------------------- 
 Software                                                      Revenue from the sale of software for a fixed fee 
   *    The Group creates and sells software solutions.        is recognised when or as the Group gives access to 
                                                               the customer to download the software. 
                                                               Software revenue recognition. 
  Maintenance and                                              Performance obligations are satisfied at a point 
  Support ("M&S")                                              in time when the Group has a right to payment for 
  arrangements are                                             the software, the customer has legal right to use 
  usually sold on                                              the software under the terms of the software licence 
  a stand- alone basis                                         agreement, and the Group has physically transferred 
  as a renewal of                                              the software to the customer. These criteria are 
  an existing arrangement                                      all met at the point in time that the Group transfers 
  usually running                                              the software. 
  over a 12-month                                              The Group does not undertake activities which 
  period. Generally,                                           significantly 
  the first time M&S                                           affect the intellectual property post-delivery of 
  is sold is when                                              the software which would prevent revenue being 
  the customer initially                                       recognised 
  buys the software.                                           at a point in time. 
  There are no material                                        The Group does not provide free Maintenance and Support 
  rights to consider                                           type services as part of the licensing arrangements. 
  in connection with                                           Revenue from the sale of Maintenance and Support 
  renewal options.                                             arrangements are always sold on a stand-alone basis 
                                                               or as a renewal of an existing arrangement usually 
                                                               running over a 12-month period. The 
                                                               technical support and software updates are distinct. 
                                                               This is because the customer can benefit from the 
                                                               licence with or without the Maintenance and Support 
                                                               contract. 
                                                               Technical support: the customer benefits from the 
                                                               technical support as that support is provided. The 
                                                               contracted support 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. 
------------------------------------------------------------  -------------------------------------------------------- 
 

Exceptional administrative costs

The group presents separately those costs which, by their nature, are material and related to non-routine events such as business combinations or capital transactions.

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 CGUs, 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

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.

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 are expected to have a finite useful life of 12 year in line with the expected cashflows. Acquired customer relationships are stated at cost less accumulated amortisation and impairment.

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 comprises 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.

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. When a financial liability and a financial asset relating to the same contract exists these are offset.

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 are classified as "Amortised cost" financial assets.

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.

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.

Subsequent measurement of financial assets

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 contingent 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.

Contingent consideration

Contingent 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

For any new contracts entered into on or after 1 April 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration'.

To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:

-- the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group;

-- the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract;

-- the Group has the right to direct the use of the identified asset throughout the period of use. The Group assesses whether it has the right to direct 'how and for what purpose' the asset is used throughout the period of use.

   a)                    measurement and recognition of leases as a lessee 

At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.

At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or, if not, the Group's incremental borrowing rate.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

-- fixed payments (including in-substance fixed payments), less any lease incentives receivable;

   --                     variable lease payment that are based on an index or a rate; 

-- amounts expected to be payable by the lessee under residual value guarantees;

-- the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and

-- payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

Right-of-use assets are measured at cost comprising the following:

   --                     the amount of the initial measurement of lease liability; 

-- any lease payments made at or before the commencement date less any lease incentives received;

   --                     any initial direct costs; and 
   --                     restoration costs. 

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of- use asset is already reduced to zero.

The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients available under IFRS16. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. The expense relating to leases falling within this exemption in the year ended 31 March 2020 was GBPnil

   b)                     measurement and recognition of leases as a lessor 

Lease payments received under operating leases are recognised as income on a straight-line basis over the lease term as part of 'other income'.

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 reportable operating segments are provided in note 1.

New and amended International Financial Reporting Standards adopted by the Group

The Group has adopted IFRS 16 'Leases' from 1 April 2019 which has changed lease accounting for leases under operating leases. Such agreements now require recognition of an asset, representing the right to use the leased items, and a liability representing future lease payments. Lease costs (such as property rent) are recognised in the form of depreciation and interest, rather than as an operating cost.

The Group has adopted the modified retrospective approach with the right of use asset equal to the lease liability at transition date, adjusted by any prepayments or lease incentives recognised immediately before the date of initial application. Under the modified retrospective transition approach, the comparative information is not restated.

The Group has elected to apply a single discount rate to assets with similar characteristics.

On transition, the Group adopted the practical expedient to apply IFRS 16 to contracts that were previously identified as leases. The Group has also elected not to recognise right of use assets and lease liabilities for short-term leases (i.e. lease terms less than 12 months) or

low-value assets (i.e. under GBP5,000). The Group will continue to expense the lease payments associated with these leases on a straight-line basis over the lease term.

 
Leases 
 The Group leases many assets, including office 
 space and office equipment. 
                                                            ======== 
                                                  Property     Total 
                                                   GBP'000   GBP'000 
================================================  ========  ======== 
Balance on transition at 1 April 2019                  664       664 
================================================  ========  ======== 
Net book value at 31 March 2020                        470       470 
================================================  ========  ======== 
 
 

Impact on Financial Statements

   1)                    Impact on transition 

On transition to IFRS 16, the Group recognised right of use assets and lease liabilities. This impact on transition is summarised below.

 
 Right-of-use assets presented in property, plant and   GBP664,000 
  equipment (net of rent incentives) 
-----------------------------------------------------  ----------- 
 Lease liabilities                                      GBP664,000 
-----------------------------------------------------  ----------- 
 

When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using its incremental borrowing rate at 1 April 2019. The weighted-average rate applied is 10%.

 
                                                                 GBP'000 
--------------------------------------------------------------  -------- 
 Operating lease commitment at 31 March 2019 as disclosed in 
  the Group's consolidated financial statements                  (1,025) 
 Impact of discounting using the incremental borrowing rates 
  at 1 April 2019                                                    130 
 Recognition exemption for leases with break clauses expected 
  to be exercised at transition                                      231 
--------------------------------------------------------------  -------- 
 Lease liabilities recognised at 1 April 2019                      (664) 
--------------------------------------------------------------  -------- 
 
   2)                     Impact for the year 

As a result of applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Group recognised GBP664,000 of right of use assets in property, plant and equipment and GBP664,000 of lease liabilities as at 31 March 2019.

Also, in relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs, instead of operating lease expense. During the year ended 31 March 2020, the Group recognised GBP198,000 of depreciation charges and GBP60,000 of interest costs from those leases. IFRS 16 had an impact of a decrease in profit before tax of GBP16,000 and increases our EBITDA by GBP242,000.

For leases excluded from IFRS 16 under the exemption for leases with terms of less than 12 months, and low-value assets (i.e. under

GBP5,000), the Group recognised less than GBP10,000 in rent expense in the period.

Other new or amended accounting standards

 
 Accounting standard          Requirement 
---------------------------  ------------------------------------------------------------- 
 Amendment to IAS             The amendment clarifies that the current service costs 
  19 "Employee Benefits'      and net interest for the period after a plan amendment, 
                               curtailment or settlement, are determined using the 
                               assumptions used for the remeasurement. 
---------------------------  ------------------------------------------------------------- 
 Amendment to IAS             The amendment clarifies the application of IFRS 9 
  28 'Investments              'Financial Instruments' to long-term interests in 
  in Associates and            associates or joint ventures. 
  Joint Ventures' 
---------------------------  ------------------------------------------------------------- 
 IFRIC 23 'Uncertainty        The interpretation clarifies the determination of 
  over Income Tax'             taxable profits or losses, tax bases, unused tax losses 
                               or credits and tax rate, when there is uncertainty 
                               over income tax treatments under IAS 12 'Income Taxes'. 
---------------------------  ------------------------------------------------------------- 
 Amendment to IFRS            The amendment allows for more assets to be measured 
  9 'Financial Instruments'    at amortised cost, in particular some prepayable financial 
                               assets. The amendment also clarifies how to account 
                               for a modification of a financial liability. 
---------------------------  ------------------------------------------------------------- 
 Annual Improvements          Amendments to a number of IFRSs including IFRS 3 'Business 
  to IFRS Standards            Combinations', IFRS 11 'Joint Arrangements' providing 
  2015 - 2017 cycle            clarity on control of a business that is a joint operation, 
                               IAS 12 'Income Taxes' clarifying income tax consequences 
                               of dividends, IAS 23 'Borrowing costs' clarifying 
                               borrowings outstanding after the related asset is 
                               ready for use or sale. 
---------------------------  ------------------------------------------------------------- 
 

EU endorsed accounting standards effective in future periods

The Directors considered the impact on the Group of other new and revised accounting standards, interpretations or amendments that are currently endorsed but not yet effective. The Directors do not expect any of these standards to have a significant impact on the Group's results.

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:

 
New/revised                                           Effective date:  EU adopted 
 IFRSs                                       annual periods beginning 
                                                          on or after 
===========  =============================  =========================  ========== 
IAS 1 & IAS  Amendments to IAS 1 and IAS               1 January 2020          No 
 8            8: Definition of Material 
===========  =============================  =========================  ========== 
IFRS 3       Amendments to IFRS 3 Business             1 January 2020          No 
              Combinations 
===========  =============================  =========================  ========== 
 

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 combinations

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 in the correct amount and in the correct accounting period.

Going Concern

The identification by management of the Group to continue as a Going Concern as further described above.

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

   o         Income taxes - provisions for income taxes in various jurisdictions (note 7) 
   o         Level of expected credit loss provision to hold or not hold (note 15) 
   o         Useful lives of intangible assets acquired or internally generated (note 11) 

o 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:

 
            2020     2019 
         GBP'000  GBP'000 
-------  -------  ------- 
UK        11,680   12,886 
Non-UK     2,466    2,963 
-------  -------  ------- 
          14,146   15,849 
-------  -------  ------- 
 

2020 Non-UK Revenue includes Rest of Europe GBP939k (2019: GBP1,335k), United States of America GBP863k (2019: GBP824k), Australia GBP180k (GBP150k) and Rest of the World GBP484k (2019: GBP654).

2020 Non-UK non-current assets includes Ireland GBP33k (2019: GBP58k), Germany GBP7k (2019: GBP10k).

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:

 
                                 2020     2019 
                              GBP'000  GBP'000 
----------------------------  -------  ------- 
Consultancy                     8,635    7,228 
Publishing and distribution       977    1,337 
Software                        1,356    1,513 
Training                        3,178    5,771 
----------------------------  -------  ------- 
Total revenue                  14,146   15,849 
----------------------------  -------  ------- 
 

The Group's revenue is analysed by timing of delivery of goods or services as:

 
                            2020     2019 
                         GBP'000  GBP'000 
-----------------------  -------  ------- 
Point in time delivery     9,023    7,557 
Over time                  5,123    8,292 
-----------------------  -------  ------- 
Total revenue             14,146   15,849 
-----------------------  -------  ------- 
 

The revenue is analysed as follows for each revenue category:

 
                               2020     2019 
                            GBP'000  GBP'000 
--------------------------  -------  ------- 
Sale of goods                   976    1,333 
Provision of services        13,170   14,516 
--------------------------  -------  ------- 
                             14,146   15,849 
Other income                     99       32 
Interest on cash deposits         -        2 
--------------------------  -------  ------- 
Total revenue                14,245   15,883 
--------------------------  -------  ------- 
 
 

Contract liabilities: deferred income

 
      Deferred income 
                                                               2020       2019 
                                                            GBP'000    GBP'000 
---------------------------------------------------------  --------  --------- 
At 1 April                                                      971      1,395 
On acquisition of DQM                                             -         19 
Amounts included in deferred income that were recognised 
 as revenue in the period from the opening balance            (971)    (1,395) 
Amounts invoiced in the period and not recognised 
 as revenue in the period                                       855        952 
---------------------------------------------------------  --------  --------- 
At 31 March                                                     855        971 
---------------------------------------------------------  --------  --------- 
 
 

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

 
                                          2020     2019 
                                       GBP'000  GBP'000 
-------------------------------------  -------  ------- 
Expenses relating to the acquisition 
 of DQM                                    358      164 
-------------------------------------  -------  ------- 
                                           358      164 
-------------------------------------  -------  ------- 
 

The Group's exceptional administration costs comprise substantially of professional fees. These professional fees relate to the DQM deed of variation of contract and also to the fundraise to settle the outstanding contingent consideration.

4. Operating profit

 
                                                        2020     2019 
                                                     GBP'000  GBP'000 
---------------------------------------------------  -------  ------- 
Operating profit is stated after charging: 
Cost of sales 
Wages and salaries                                     3,533    4,871 
Other direct costs including consultancy and 
 training costs, books and manuals                     2,549    2,424 
---------------------------------------------------  -------  ------- 
                                                       6,082    7,295 
Other administration costs 
Wages and salaries                                     6,935    9,024 
Sales and marketing costs                                634    1,205 
Depreciation of property, plant and equipment            386      183 
Amortisation of intangible fixed assets                1,180      611 
Auditor's remuneration: 
-Fees payable for the audit of the annual accounts       141      120 
Foreign exchanges charges/(credit)                         1      (5) 
Operating lease costs 
-Building                                                  -      149 
-Other                                                     -       10 
Other costs including office administration, 
 legal and professional, IT and website costs.         1,953    2,419 
---------------------------------------------------  -------  ------- 
                                                      11,230   13,716 
---------------------------------------------------  -------  ------- 
 

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:

 
                                 2020     2019 
                              GBP'000  GBP'000 
--------------------------  ---------  ------- 
Staff costs 
Wages and salaries              9,706   12,490 
Social security costs             866    1,244 
Share-based payment charge          -       63 
Pension costs                     230      160 
--------------------------  ---------  ------- 
                      10,802            13,957 
----------------------------  ---------------- 
 
 

Directors made gains of GBP364k on exercise of share options (2019: GBPnil).

The average monthly number of persons employed by the Group during the year was as follows:

 
                         2020  2019 
-----------------------  ----  ---- 
By activity 
Administration             92   130 
Sales and distribution     95   140 
-----------------------  ----  ---- 
                          187   270 
-----------------------  ----  ---- 
 

Details of key management personnel and their remuneration are disclosed within note 26.

6. Net finance costs

 
                                        2020     2019 
                                     GBP'000  GBP'000 
-----------------------------------  -------  ------- 
Interest received on cash deposits         -      (2) 
Interest on overdrafts                    11        - 
Interest on loans                        138       10 
Interest on lease liabilities             61        - 
Other interest                            12        - 
-----------------------------------  -------  ------- 
                                         222        8 
-----------------------------------  -------  ------- 
 

7. Taxation

Analysis of (credit)/charge in the year:

 
                                             2020     2019 
                                          GBP'000  GBP'000 
----------------------------------------  -------  ------- 
Corporation tax - current year               (60)       72 
Corporation tax - adjustment in respect 
 of prior year                              (427)    (139) 
Foreign tax - current year                      -    (119) 
Deferred tax - current year movement           50       51 
Deferred tax - adjustment in respect 
 of prior year                                (8)      164 
----------------------------------------  -------  ------- 
Total tax (credit)/charge                   (445)       29 
----------------------------------------  -------  ------- 
 
 
                                                    2020     2019 
                                                 GBP'000  GBP'000 
-----------------------------------------------  -------  ------- 
Loss before taxation                             (3,651)  (5,365) 
-----------------------------------------------  -------  ------- 
Profit by rate of tax (2020: 19%; 2019: 19%)       (694)  (1,019) 
-----------------------------------------------  -------  ------- 
Fixed asset timing differences                        52        3 
Expenses not deductible for tax purposes              33       83 
Deferred tax asset not recognised                    640      777 
Adjustments to in respect of prior periods         (251)       25 
Effects of change in tax rate                       (41)      113 
Losses carried back                                   52       38 
Adjustment in respect of prior period:Research 
 and development tax credit                        (184)        - 
Other movements                                     (52)        - 
Effects of different tax rates of subsidiaries 
 operating in other jurisdictions                      -        2 
-----------------------------------------------  -------  ------- 
Total tax                                          (445)       29 
-----------------------------------------------  -------  ------- 
 

Deferred tax in equity

 
                                                       2020     2019 
                                                    GBP'000  GBP'000 
--------------------------------------------------  -------  ------- 
Change in estimated excess tax deductions related 
 to share-based payments                                269      251 
--------------------------------------------------  -------  ------- 
Total income tax recognised directly in equity          269      251 
--------------------------------------------------  -------  ------- 
 

The Finance Act 2016 included legislation to reduce the main rate of UK corporation tax from 20% to 19% from 1 April 2017 and to 17% from 1 April 2020. Legislation has been substantively enacted following the budget on 11 March 2020 to repeal the reduction of the main corporation tax rate thereby maintaining the current rate of corporation tax at 19%. Temporary differences have been measured using these enacted tax rates.

At the balance sheet date, the Group has the following unused tax losses for which no deferred tax asset has been recognised on the basis that it is not considered probable that there will be future profits available to utilise the tax losses:

 
                                            2020     2019 
                                         GBP'000  GBP'000 
---------------------------------------  -------  ------- 
Trading losses (UK)                        4,901    4,319 
Trading losses (Ireland)                   1,446    1,124 
Trading losses (USA)                         232        - 
Non-trading loan relationship deficits         2        2 
---------------------------------------  -------  ------- 
 

At the balance sheet date, a deferred tax asset has not been recognised for excess unrelieved foreign tax of GBP20,435 (2019: 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.

 
                                   Retirement                      Short 
                         Timing       benefit  Share-based   term timing  Tax losses  Tax losses 
Fixed Asset         differences   Obligations     payments   differences   (Ireland)        (UK)  Intangibles    Total 
                        GBP'000       GBP'000      GBP'000       GBP'000     GBP'000     GBP'000      GBP'000  GBP'000 
------------------  -----------  ------------  -----------  ------------  ----------  ----------  -----------  ------- 
At 1 April 2018              89           (2)        (535)         (171)        (23)           -            -    (642) 
Business acquired             2             -            -             -           -           -          421      423 
Charge/(credit) to 
 profit or loss              20             2           22            29       (119)        (21)            -     (67) 
Credit direct to 
 equity                       -             -          251             -           -           -            -      251 
Prior year 
 adjustment                   2             -            1           141         (2)          22            -      164 
Deferred tax 
 (asset)/liability 
 at 31 March 2019           113             -        (261)           (1)       (144)           1          421      129 
Charge/(credit) to 
 profit or loss             103           (2)          (7)           (6)           -           -         (40)       48 
Credit direct to 
 equity                       -             -          269             -           -           -            -      269 
Prior year 
 adjustment                 (6)             -          (2)             -           -           -            -      (8) 
------------------  -----------  ------------  -----------  ------------  ----------  ----------  -----------  ------- 
Deferred tax at 31 
 March 2020                 210           (2)          (1)           (7)         210         210          210      210 
Asset (Non-UK)                -             -            -             -       (144)           -            -    (144) 
Liability (UK)              210           (2)          (1)           (7)           -           1          381      582 
------------------  -----------  ------------  -----------  ------------  ----------  ----------  -----------  ------- 
Deferred tax at 31 
 March 2019 
Asset (Non-UK)                -             -            -             -       (144)           -            -    (144) 
Liability (UK)              113             -        (261)           (1)           -           -          421      273 
------------------  -----------  ------------  -----------  ------------  ----------  ----------  -----------  ------- 
 
   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.

 
                                                   2020        2019 
-------------------------------------------  ----------  ---------- 
Loss attributable to equity holders of 
 the Group (GBP)                                (3,206)     (5,395) 
Weighted average number of shares in issue   68,689,792  57,982,319 
-------------------------------------------  ----------  ---------- 
Basic loss per share (pence)                     (4.67)      (9.30) 
-------------------------------------------  ----------  ---------- 
 

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:

 
                                                       2020        2019 
-----------------------------------------------  ----------  ---------- 
Number of shares                                 68,689,792  57,982,319 
Dilutive (potential dilutive) effect of share             -           - 
 options 
-----------------------------------------------  ----------  ---------- 
Weighted average number of ordinary shares for 
 the purposes of diluted earnings per share      68,689,792  57,982,319 
-----------------------------------------------  ----------  ---------- 
Diluted loss per share (pence)                       (4.67)      (9.30) 
-----------------------------------------------  ----------  ---------- 
 

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 680,680 (2019: 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 Companys' subsidiaries are as follows:

 
                                                           Place of           % ownership held 
                                                            incorporation         by the Group 
                                                            and 
                                                                            ------------------ 
Name of subsidiary and registered   Principal activity     operation            2020        2019 
 office address 
----------------------------------  ---------------------  ---------------  --------  ---------- 
                                    Information 
                                     technology 
                                     governance            England & 
IT Governance Limited*               services               Wales               100%        100% 
                                    Information            England & 
Vigilant Software Limited*           technology             Wales               100%        100% 
                                    Software development 
                                    Information 
IT Governance Europe Limited         technology            Ireland              100%        100% 
6th Floor, South Bank House,        governance 
 Barrow Street, Dublin 4             services 
                                    Information 
IT Governance USA Inc                technology            USA                  100%        100% 
420 Lexington Avenue, Suite         governance 
 300, New York, NY 10170, USA        services 
                                    Information            England & 
IT Governance Publishing Limited*    technology             Wales               100%        100% 
                                    governance 
                                     publications 
                                    Information            England & 
GRCI Law Limited*                    technology             Wales               100%        100% 
                                    governance 
                                     legal services 
                                    Information            England & 
GRC Elearning Limited*               technology             Wales               100%        100% 
                                    governance 
                                     internet- based 
                                     training 
                                                           England & 
IT Governance Europe Limited*       Dormant company***      Wales               100%        100% 
                                                           England & 
IT Governance Consulting Limited*   Dormant company***      Wales               100%        100% 
IT Governance Franchising                                  England & 
 Limited*                           Dormant company***      Wales               100%        100% 
                                                           England & 
IT Governance Sales Limited*        Dormant company***      Wales               100%        100% 
                                                           England & 
IT Governance Software Limited*     Dormant company***      Wales               100%        100% 
                                                           England & 
IT Governance Training Limited*     Dormant company***      Wales               100%        100% 
                                                           England & 
ITG Certifications Limited*         Dormant company***      Wales               100%        100% 
                                                           England & 
ITG Qualifications Limited*         Dormant company***      Wales               100%        100% 
                                                           England & 
ITG Security Testing Limited*       Dormant company***      Wales               100%        100% 
                                                           England & 
ITG Encryption Limited*             Dormant company***      Wales               100%        100% 
                                                           England & 
Data Quality Management Limited**   Dormant company***      Wales               100%        100% 
Data Quality Management Group       Information            England & 
 Limited**                           technology             Wales               100%        100% 
                                    governance 
                                     services 
                                                           England & 
Data2 Limited**                     Dormant company***      Wales               100%        100% 
                                                           England & 
DQM Group Holdings Limited**        Holding Company***      Wales               100%      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 
 
                                2020          2019 
                                 Total       Total 
  Cost and NBV                   GBP'000   GBP'000 
At 1 April                      6,693            - 
Measurement period adjustment   111              - 
Additions                       -            6,693 
------------------------------  --------  -------- 
At 31 March                     6,804        6,693 
------------------------------  --------  -------- 
 

Goodwill arising from business combinations has been allocated to the Group's DQM cash generating unit ("CGU").

Goodwill is tested at least annually for impairment and whenever there are indications that goodwill might be impaired.

The global COVID-19 pandemic has brought uncertainty and wider market disruption globally. GRC International has seen a 30% revenue reduction to date and this reduction has not yet been recovered.

For the DQM CGU, the carrying amount of Goodwill has been assessed for impairment by comparing the carrying amount of the CGU in which it is included to the recoverable amount based on value in use of the CGU. The value in use calculation for the Cash generating unit uses estimated future cash flows, for which the key assumptions are forecast revenue over the next five years, based on management's estimates; the terminal growth rate for revenues beyond that period, which reflects the a cautious approach for the purpose of measuring a value in use and a pre-tax discount rate, which is based on management's assessment of risk inherent in the estimated future cash flows.

The pre-tax cash flows for the forecast period are derived from the most recent financial budget for the year ending 31 March 2021 approved by the Board. The extrapolation for the period 2022 to 2024 is based on management estimates.

The impairment model is built to take into account performance over a number of years. If FY21 were to be further impacted by COVID-19 into the second half of the year, and revenue dramatically reduced as a result, we would realistically expect a recovery to more normal levels in FY22 and then growth in the future. Therefore the approach taken in terms of using the FY21 budget for each year in the model, without any growth, is significantly more cautious in terms of an impairment model than using a very poor current year, a return to normal in FY22 and then growth going forwards.

As of 31 March 2020, the value in use of the cash generating unit was greater by GBP1,477k than the CGU's carrying amount. The key assumptions used were the forecasts as explained above, the terminal growth rate of 2%, and the pre-tax discount rate of 6.35%.

There are reasonably possible changes in key assumptions that would give rise to a material impairment loss.

   a)          The discount rate would have to increase by 2% to give rise to an impairment 

b) Operating costs would have to rise by 7% to give rise to an impairment, this assumes that revenue levels remain constant.

c) If Revenue was to fall by 5% (assuming margins remained the same) this would give rise to an impairment.

   11.        Intangible assets 
 
                                                Consultancy       Software 
                    Marketing     Publishing       products    and Website                         Customer 
                        tools       products            and          costs     Trademarks     relationships      Total 
                                                 Courseware 
                      GBP'000        GBP'000        GBP'000        GBP'000        GBP'000           GBP'000    GBP'000 
--------------  -------------  -------------  -------------  -------------  -------------  ----------------  --------- 
Cost 
At 1 April 
 2018                      63            215            534          2,100              8                 -      2,920 
Additions                   -             72            165          2,052              -                 -      2,289 
Business 
 acquired                   -              -              -            188            456             1,843      2,487 
Foreign 
 exchange 
 Movement                   -              -            (1)              -              -                 -        (1) 
--------------  -------------  -------------  -------------  -------------  -------------  ----------------  --------- 
At 31 March 
 2019                      63            287            698          4,340            464             1,843      7,695 
Additions                   -             46            182            894              2                 -      1,124 
Foreign 
 exchange 
 Movement                   -              -              1              -              -                 -          1 
At 31 March 
 2020                      63            333            881          5,234            466             1,843      8,820 
--------------  -------------  -------------  -------------  -------------  -------------  ----------------  --------- 
Accumulated 
 depreciation 
At 1 April 
 2018                      48            172            196            904              3                 -      1,323 
Charge for 
 year                       7             31             56            516              1                 -        611 
Foreign 
 exchange 
 movement                   -              -              1              -              -                 -          1 
--------------  -------------  -------------  -------------  -------------  -------------  ----------------  --------- 
At 31 March 
 2019                      55            203            253          1,420              4                 -      1,935 
Charge for 
 year                       6             31             73            854             50               166      1,180 
Foreign 
 exchange 
 Movement                   -              -            (1)              -              -                 -        (1) 
--------------  -------------  -------------  -------------  -------------  -------------  ----------------  --------- 
At 31 March 
 2020                      61            234            325          2,274             54               166      3,114 
--------------  -------------  -------------  -------------  -------------  -------------  ----------------  --------- 
Net book value 
At 31 March 
 2020                       2             99            556          2,960            412             1,677      5,706 
--------------  -------------  -------------  -------------  -------------  -------------  ----------------  --------- 
At 31 March 
 2019                       8             84            445          2,920            460             1,843      5,760 
--------------  -------------  -------------  -------------  -------------  -------------  ----------------  --------- 
At 1 April 
 2018                      15             44            337          1,196              5                 -      1,597 
--------------  -------------  -------------  -------------  -------------  -------------  ----------------  --------- 
 

Amortisation is included within administrative expenses.

Intangible assets includes capitialised related party costs incurred as further explained in note 27.

All intangible assets have been developed internally with the exception of those arising on the business acquisition in the prior 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.

Having identified indicators of impairment, management conducted an impairment test to determine recoverable amount of the cash generating unit, and concluded that no impairment of internally generated intangibles had arisen as at 31 March 2020. Those intangible assets that were acquired in the 2019 acquisition of DQM (note 29) were tested for impairment as explained in note 10.

   12.        Property, plant and equipment 
 
 
                                                                              Right of 
                                  Leasehold     Computer       Office       use assets      Total 
                               Improvements    equipment    equipment    - properties* 
                                    GBP'000      GBP'000      GBP'000          GBP'000    GBP'000 
 --------------------------  --------------  -----------  -----------  ---------------  --------- 
Cost 
At 1 April 2018                          88          585           45                -      718 
Additions                                50          162           22                -      234 
Businesses acquired                       1            -           21                -       22 
Disposals                                 -         (13)          (2)                -     (15) 
At 31 March 2019                        139          734           86                -      959 
Additions                                 1            5            5                -       11 
IFRS 16                                   -            -            -              664      664 
At 31 March 2020                        140          739           90              664    1,634 
---------------------------  --------------  -----------  -----------  ---------------  ------- 
Accumulated depreciation 
At 1 April 2018                          24          250           20                -      294 
Charge for year                          13          158           12                -      183 
Disposals                                 -          (7)            -                -      (7) 
---------------------------  --------------  -----------  -----------  ---------------  ------- 
At 31 March 2019                         37          401           32                -      470 
Charge for year                          13          150           24              199      386 
Foreign exchange movement                 -            -            -              (5)      (5) 
At 31 March 2020                         50          551           56              194      851 
---------------------------  --------------  -----------  -----------  ---------------  ------- 
Net book value 
At 31 March 2020                         90          188           35              470      783 
---------------------------  --------------  -----------  -----------  ---------------  ------- 
At 31 March 2019                        103          333           53                -      489 
---------------------------  --------------  -----------  -----------  ---------------  ------- 
At 31 March 2018                         65          335           24                -      424 
---------------------------  --------------  -----------  -----------  ---------------  ------- 
 
 

Depreciation is included within administrative expenses.

   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.

 
                               2020     2019 
                            GBP'000  GBP'000 
--------------------------  -------  ------- 
As at 1 April                    10        - 
Additions                         -       11 
Loss for the period             (4)      (1) 
Foreign exchange movement         1        - 
--------------------------  -------  ------- 
At 31 March                       7       10 
--------------------------  -------  ------- 
 
   14.        Inventories 
 
                               2020     2019 
                            GBP'000  GBP'000 
--------------------------  -------  ------- 
Finished goods for resale        61       64 
--------------------------  -------  ------- 
 
 
                                                      2020      2019 
                                                   GBP'000   GBP'000 
------------------------------------------------  --------  -------- 
Amounts of inventories recognised as an expense 
 during the period as cost of sales                     83       196 
------------------------------------------------  --------  -------- 
 
 
                                                 2020  2019 
                                                  GBP   GBP 
-----------------------------------------------  ----  ---- 
Amounts of inventories (written back)/impaired 
 during the period                                (8)    10 
-----------------------------------------------  ----  ---- 
 
   15.        Trade and other receivables 
 
                                             2020     2019 
                                          GBP'000  GBP'000 
----------------------------------------  -------  ------- 
Trade receivables                           1,543    1,986 
Less: provision for impairment of trade 
 receivables                                 (15)        - 
----------------------------------------  -------  ------- 
Net trade receivables                       1,528    1,986 
Other receivables                             129      218 
Prepayments                                   590      700 
----------------------------------------  -------  ------- 
                                            2,247    2,904 
----------------------------------------  -------  ------- 
 

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 GBP1,197k (2019: GBP1,350k) 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:

 
                                       2020     2019 
                                    GBP'000  GBP'000 
----------------------------------  -------  ------- 
In one year or less, or on demand     2,247    2,904 
----------------------------------  -------  ------- 
 

The analysis of trade and other receivables by foreign currency is set out in the table below:

 
                2020     2019 
             GBP'000  GBP'000 
-----------  -------  ------- 
UK pound       2,158    2,713 
US dollars        11        9 
Euro              78      182 
-----------  -------  ------- 
               2,247    2,904 
-----------  -------  ------- 
 

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 
 
                                     2020     2019 
                                  GBP'000  GBP'000 
--------------------------------  -------  ------- 
Cash at bank (GBP)                    221      609 
Cash at bank (EUR)                     20       16 
Cash at bank (USD)                      -        7 
Cash at bank (AUD)                      3        7 
Cash at bank (other currencies)         1        - 
--------------------------------  -------  ------- 
                                      245      639 
--------------------------------  -------  ------- 
 

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:

 
                                        2020     2019 
                                     GBP'000  GBP'000 
-----------------------------------  -------  ------- 
Trade payables                         1,220    2,000 
Other taxation and social security     1,043      869 
Other payables                           204      170 
Deferred income                          855      971 
Accruals                                 307      357 
-----------------------------------  -------  ------- 
                                       3,629    4,367 
-----------------------------------  -------  ------- 
 
 
   18.        Borrowings 
 
                                                2020                              2019 
                               Current   Non-current     Total   Current   Non-current     Total 
                               GBP'000       GBP'000   GBP'000   GBP'000       GBP'000   GBP'000 
 Secured 
 Bank loans (i)                    523             5       528         -             -         - 
 Bank overdraft                      -             -         -       490             -       490 
----------------------------  --------  ------------  --------  --------  ------------  -------- 
 Total secured borrowings          523             5       528       490             -       490 
----------------------------  --------  ------------  --------  --------  ------------  -------- 
 
 Unsecured 
 Bank Loans                        194           396       590        31             -        31 
 Loans from related parties        700             -       700         -             -         - 
----------------------------  --------  ------------  --------  --------  ------------  -------- 
 Total unsecured borrowings        894           396     1,290        31             -        31 
----------------------------  --------  ------------  --------  --------  ------------  -------- 
 Total borrowings                1,446           401     1,847       521             -       521 
----------------------------  --------  ------------  --------  --------  ------------  -------- 
 

* Further information relating to loans from related parties is set out in note 20.

   (i)         Secured liabilities and assets pledged as security 

Of the Bank loans, GBP426,000 is secured against future receivables. The remaining secured bank loans and overdrafts are secured against assets of the business.

Lease liabilities are secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default.

 
 
                            As at 1       Cash proceeds     Repayments       Repayments     Interest       As at 31 
                         April 2019     from borrowings     of capital      of interest     accruing     March 2020 
 
                            GBP'000             GBP'000        GBP'000          GBP'000      GBP'000        GBP'000 
--------------------  -------------  ------------------  -------------  ---------------  -----------  ------------- 
 Directors' pension 
  scheme loan                    31                               (28)              (1)            1              3 
Paypal                                              246          (108)              (6)            6            138 
Wesleyan                                            282           (33)             (12)           12            249 
Bute Capital                                        227          (138)             (17)           17             89 
Federal                                              65           (27)              (8)            8             38 
You Lend                                            396          (108)             (22)           22            288 
LDF Finance No. 
 3 Ltd                                              150          (110)             (14)           14             40 
Portman Asset 
 Finance                                            290           (16)             (30)           30            274 
A Brode                                             700              -                -           28            728 
Total                            31               2,356          (568)            (110)          138          1,847 
 

The group has a number of loans in the period presented, and are summarised as follows:

 
                    Amount Advanced 
                            GBP'000     Security pledged                Term    Effective Interest rate 
Directors' 
 pension scheme 
 loan                            70            Unsecured           60 Months                       9.5% 
 
Paypal                          246      Secured against           12 Months             4.26% - 10.49% 
                                      future receivables 
                                          Parent company 
Wesleyan                        262            guarantee           60 Months                     14.32% 
                                         Secured against 
                                               assets of 
Wesleyan                         20             business           36 Months                        22% 
Bute Capital                    227      Secured against        14-16 Months             6.65% - 10.36% 
                                               assets of 
                                                business 
                                              Director's 
Federal Capital                  65            Guarantee           12 Months                        29% 
                                         Secured against 
You Lend                        396   future receivables           12 Months                     16.67% 
LDF Finance                                   Director's 
 No. 3 Ltd                       50            Guarantee           36 Months                     10.16% 
Portman Asset                                 Director's 
 Finance                        125            Guarantee           24 Months                     29.28% 
Portman Asset                                 Director's 
 Finance                        165            Guarantee           60 Months                       8.8% 
Unsecured                       700            Unsecured           Available        5.0% above the Bank 
 loan facility                                                  to the Group       of England base rate 
 provided by                                                  until at least 
 Andrew Brode.                                                   31 December 
                                                               2020 and will 
                                                               automatically 
                                                                   renew for 
                                                                   a further 
                                                                   12 months 
                                                           unless terminated 
                                                                   by either 
                                                                      party. 
 
 
 

In addition, the Group has access to Invoicing discounting facility acquired within the DQM acquisition.

   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 
----------------------------------------------  ---------------- 
                                 2020     2019     2020     2019 
                              GBP'000  GBP'000  GBP'000  GBP'000 
                                       ------- 
Cash and cash equivalents           -        -      247      639 
Trade and other receivables         -        -    1,528    1,986 
                                       ------- 
Total financial assets              -        -    1,775    2,625 
 
 

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 
                                 2020     2019            2020     2019 
                              GBP'000  GBP'000         GBP'000  GBP'000 
Trade and other payables            -        -           1,524    2,170 
Borrowings                          -        -           1,847      521 
Lease payables                      -        -             470        6 
Contingent consideration          100    3,747               -        - 
Total financial liabilities       100    3,747           3,841    2,697 
 
 

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 contingent consideration liability is provided below:

 
                          Contingent 
                       consideration 
                             GBP'000 
At 1 April 2019                3,747 
Adjustment                         7 
Repaid in cash               (1,726) 
Conversion to equity         (1,928) 
At 31 March 2020                 100 
 

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 contingent consideration payable is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.

The fair value of contingent consideration is calculated using the income approach based on the expected amounts and their associated probabilities (i.e. probability - weighted).

   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 2020 year end, this amounts to GBP1,773k (2019: GBP2,625k; 2018: GBP7,786k).

Interest rate risk

The Group has secured and non-secured debt consisting of bank loans and other loans.

The interest on most of the loans is fixed., and therefore interest rate risk is considered to be limited.

Interest rate risk arising from borrowing at variable rates is not hedged.

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

Liquidity risk represents the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

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.

The Group's approach to managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The table below shows the undiscounted cash flows on the Group's financial liabilities as at 31 March 2020 and 2019, on the basis of their earliest possible contractual maturity.

At 31 March 2020

 
                                                                                                  Greater 
                             Total    On Demand      Within        Within    Within       Within   than 2 
                                                   2 months    2-6 months      6-12    1-2 years    years 
                                                                             months 
                           GBP'000      GBP'000     GBP'000       GBP'000   GBP'000      GBP'000  GBP'000 
Trade payables               1,220          715         505             -         -            -        - 
Accruals                       308            -           -           308         -            -        - 
Lease payables                 481            -           -           119        82           82      198 
Borrowings                   1,847          728         138           263       316          175      227 
Contingent consideration       100            -          25            25        50            -        - 
                             3,956        1,443         668           715       448          257      425 
 

At 31 March 2019

 
                                                                                                  Greater 
                             Total    On Demand      Within        Within    Within       Within   than 2 
                                                   2 months    2-6 months      6-12    1-2 years    years 
                                                                             months 
                           GBP'000      GBP'000     GBP'000       GBP'000   GBP'000      GBP'000  GBP'000 
Trade payables               2,000            -       2,000             -         -            -        - 
Accruals                       357            -           -           357         -            -        - 
Finance lease payables           6            -           2             2         2            -        - 
Bank overdrafts                492          492           -             -         -            -        - 
Other loans                     29            -           9            18         2            -        - 
Contingent consideration     3,747            -           -         3,547       200            -        - 
                             6,631          492       2,011         3,924       204            -        - 
 

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:

 
                                           2020     2019 
                                        GBP'000  GBP'000 
Equity                                   10,378    7,356 
Borrowings (note 18)                      1,847      521 
Less: cash and cash equivalents (note 
 16)                                      (245)    (639) 
                                         11,980    7,238 
 

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.        Leasing arrangements 

The Group leased certain items of its equipment under lease arrangements.

The Group's obligation under lease arrangements are secured by the lessors' title to the leased assets.

   The following table outlines the maturity analysis of the lease liabilities        : 
 
                                        2020 
                                     GBP'000 
Contractual discounted cash flows 
Less than one year                       201 
Two to five years                        286 
More than five years                       - 
                                         487 
 

The following table outlines the maturity analysis of the lease liabilities:

 
                                    1 April       Net cash            Currency       31 March 
                                       2019           flow        and non-cash           2020 
                                                                     movements 
                                    GBP'000        GBP'000             GBP'000        GBP'000 
     Lease liabilities                (664)            181                 (4)          (487) 
     Total lease liabilities          (664)            181                 (4)          (487) 
 

The Group has elected not to recognise right of use assets and lease liabilities for short-term leases (i.e. lease term less than 12 months) or low-value assets (i.e. under GBP5,000). The Group will continue to expense the lease payments associated with these leases on a straight-line basis over the lease term. At 1 April 2019, this was less than GBP1,000.

Variable lease payments that depend on an index or a rate are also less than GBP5,000.

The Group sub leases office space to Xanthos Limited as outlined in note 27.

The total undiscounted future minimum lease payments under non-cancellable operating lease as at 1 April 2019 was as follows:

 
                                              Property         Other         Total 
     2019                                      GBP'000       GBP'000       GBP'000 
     Within one year                               198             -           198 
     Later than one year and not later 
      than five years                              589             -           589 
     Later than five years                         238             -           238 
                                                 1,025             -         1,025 
 
   23.        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 (2019: GBP33,000). As at 31 March 2020, GBPnil is payable to pension schemes (2019: GBPnil).

   24.        Share capital 
 
The authorised share capital comprises 99,577,589 (2019: 
 64,484,172) ordinary shares of GBP0.001 each. 
 
                                                           GBP'000 
1 April 2018 
 57,462,940 ordinary shares of GBP0.001                         57 
Issued 
 5,000,000 ordinary shares of GBP0.001                           5 
2,021,232 ordinary shares of GBP0.001                            2 
31 March and 1 April 2019                                       64 
1,680,000 ordinary shares of GBP0.001                            2 
1,288,910 ordinary shares of GBP0.001                            1 
3,278,353 ordinary shares of GBP0.001                            4 
28,846,154 ordinary shares of GBP0.001                          29 
31 March 2020 
 99,577,589 ordinary shares of GBP0.001                        100 
 
 

On 1 March 2019, 5,000,000 ordinary shares with a nominal value of 0.1p were issued at 100p per share by way of a subscription and placing.

On 5 March 2019, 2,021,232 ordinary shares with a nominal value of 0.1p were issued at 116.5p per share by way of issue.

On 31 January 2020, 1,680,000 ordinary shares with a nominal value of 0.1p were issued at 0.003p per share as the result of the exercise of employee share options.

On 18 February 2020, 28,846,154 ordinary shares with a nominal value of 0.1p were issued at 13p per share by way of a subscription and placing.

On 18 February 2020, 1,288,910 ordinary shares with a nominal value of 0.1p were issued at 116.5p per share by way of issue.

On 18 February 2020, 3,278,353 ordinary shares with a nominal value of 0.1p were issued at 13p per share by way of issue.

   25.   Share premium 

GBP'000

 
1 April 2018 
 57,462,940 ordinary shares of GBP0.001              4,793 
Issued 
 5,000,000 ordinary shares of GBP1.00 less issue 
 costs                                               4,795 
31 March and 1 April 2019                            9,588 
1,680,000 ordinary shares of GBP0.003                    4 
28,846,154 ordinary shares of GBP0.13 less issue 
 costs                                               3,589 
31 March 2020                                       13,181 
 

Consideration received in excess of the nominal value of the 28,846,154 shares issued on 18 February as a result of the subscription and placing has been included in share premium, less registration and commission of GBP131,000.

Consideration received in excess of the nominal value of the 5,000,0000 shares issued on 1 March 2019 as a result of the subscription and placing has been included in share premium, less registration and commission of GBP200,000.

   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.

Details of the number of share options and the weighted average exercise price ("WAEP") outstanding during the year are as follows:

2020

 
                                        Number of  WAEP 
                                          options   GBP 
Outstanding at the beginning of the 
 year                                   2,460,680  0.08 
Exercised                             (1,680,000)  0.03 
Outstanding at the year end               780,680  0.27 
Number vested and exercisable at 31 
 March 2020                               780,680  0.27 
 

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 
 2019                                       2,203,180  0.06 
 

The Group recognised no expenses in relation to share options accounted for as equity- settled share-based payment transactions (2019: GBP63,285) 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:

 
                                                    2020     2019 
                                                 GBP'000  GBP'000 
Remuneration of key management 
Remuneration                                         558      550 
Social security costs                                 73       70 
Share-based payment charge                             -       63 
Pension contributions to defined contributions 
 scheme                                               37       35 
                                                     668      718 
 

Other related party borrowings transactions are as follows

 
                   Andrew Brode loan  Directors' pension    Total 
                                                  scheme 
                                               GBP70,000 
                                                    loan 
                             GBP'000             GBP'000  GBP'000 
Principal 
At 1 April 2018                    -                  26       26 
Loans repaid                       -                (16)     (16) 
At 31 March 2019                   -                  10       10 
Loans advanced                   700                   -      700 
Loans repaid                       -                (10)     (10) 
At 31 March 2019                 700                   -      700 
Interest 
At 1 April 2018                    -                   -        - 
Interest accrued                   -  2                         2 
Interest paid      -                                 (2)      (2) 
At 31 March 2019   -                  -                         - 
Interest accrued                  28                   1       29 
Interest paid                      -                 (1)      (1) 
At 31 March 2020                  28                   -       28 
 

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 is included within other income. During the year to 31 March 2020 this totalled GBP20k (2019:GBP20k). Transactions were carried out on an arm's length basis. Outstanding amounts due from Xanthos at 31 March 2020 totalling GBP2k (2019: GBPnil).

The Group also makes purchases from Xanthos. During the year to 31 March 2020, the Group made purchases totalling GBP532,512 from Xanthos (2019: GBP661,690) of which GBP420,000 (FY19: GBP500,279) was capitalised. Outstanding amounts payable to Xanthos at 31 March 2020 totalled GBP95,982 (2019: GBP99,491).

   28.        Ultimate controlling party 

In the opinion of the Directors, there is no one individual who exercises control over the Group.

   29.        Business combinations completed in prior 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.

As disclosed in last year's Annual Report, the value of the identifiable net assets of DQM group Holdings Limited had only been determined on a provisional basis due to an independent valuation being carried out on certain assets not being finalised when the 2019 financial statements were issued. Had the valuation been finalised the 2019 financial statements would have differed to those previously reported by GBP111k.

Details of the (restated) fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

 
                                                     Book value  Adjustment  Fair value 
                                                        GBP'000  GBP'000        GBP'000 
Goodwill                                                      -  6,804            6,804 
Intangible assets: 
- Non-contractual customer lists and relationships            -  1,843            1,843 
- Software                                                   11  177                187 
- Trade Name and Trademarks                                   -  456                456 
Property, plant and equipment                                22  -                   22 
Receivables                                                 840  -                  840 
Cash                                                      1,019  -                1,019 
Payables                                                (1,308)  -              (1,308) 
Deferred tax liability                                      (2)  (421)            (423) 
Total net assets                                            582  8,859       9,441 
 

Fair value of consideration paid

 
Fair value 
GBP'000 
                                        ----- 
Cash                                    3,532 
Issued ordinary shares                  2,355 
Contingent cash consideration           1,626 
Contingently issuable ordinary shares   1,928 
Total consideration                     9,441 
 
 

The 2019 comparatives have been not been restated in these financial statements to include the effect of the adjustments noted on the previous page. Under paragraph 10(f) of IAS 1 Presentation of financial statements, this restatement would ordinarily require the presentation of a third consolidated statement of financial position as at 1 April 2019. However, as the restatement of the provisional fair values would have no effect on the statement of financial position as at that date, the Directors do not consider that this would provide useful additional information and, in consequence, have not presented a third consolidated statement of financial position due to prior period business combinations.

The primary reasons for acquiring the business, aside from DQM being a profitable and cash generative business 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 ongoing 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 116.5 pence per share, as set out in the sale and purchase agreement.

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