Arcontech Group PLC
1st Floor, 11-21 Paul Street
LONDON
EC2A 4JU
tel: +44 (0)20 7256 2300
web: www.arcontech.com
email: mail@arcontech.com
Arcontech Group PLC
Report and financial statements for the year ended 30 June 2016
REGISTERED NUMBER: 04062416 (England and Wales)
Arcontech Group PLC
Year ended 30 June 2016
Contents
Chairman’s Statement
Chief Executive’s Review
Strategic Report
Company Information
Board of Directors
Directors’ Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Group Income Statement and Statement of Comprehensive Income
Statement of Changes in Equity
Balance Sheets
Group Cash Flow Statement
Company Cash Flow Statement
Page
1
2
3
4
5
6 - 7
8
9-10
11
12
13
14
15
Notes to the Financial Statements
16 – 36
ARCONTECH GROUP PLC
Chairman’s Statement
Arcontech Group plc (“Arcontech“ or the “Company”) is pleased to report a profit before taxation for the year ended 30 June 2016
of £302,329 compared to £243,660 for the year ended 30 June 2015. After taking the benefit of the Research and Development tax
credit of £105,813 (2015: £109,378) which the company receives due to the amount it has invested in qualifying product design
and development, Arcontech achieved a profit after tax of £408,142 (2015: £353,038).
Turnover for the year increased modestly by 0.5% to £2,141,630 (2015: £2,129,958) reflecting the situation that new business
predominantly from existing customers only marginally exceeded the impact of the loss in revenue from the Asian focused bank,
previously reported, from the start of the second half. With the “soft launch” of our new Desktop product we would expect to see
increased sales momentum in the coming year.
Throughout the year ended 30 June 2016 we maintained tight control of costs which has helped improve our profitability. We
have continued to invest in new product development which we expect to maintain going forward as we believe product
development and innovation is key to our future success. Further investment in sales and marketing resources is expected but this
will be dependent on new sales wins
Financing
As at 30 June 2016 Arcontech had no debt and cash balances of £1,633,159 (2015: £1,069,755), reflecting increased profitability.
This leaves the business well financed for the future.
Dividend and Share Consolidation
In March 2016 Arcontech obtained court approval to cancel and thereby re-designate its share premium account, creating positive
distributable reserves. This will enable the directors to recommend the payment of dividends out of retained profit in the future.
Due to the large number of shares in issue and to avoid fractional entitlements to the dividend it is the Board’s intention to
consolidate the number of shares prior to announcing a dividend. The details of the share consolidation will be forwarded to
shareholders in the Notice of Annual General Meeting.
Employees
Once again I would like to thank our employees who are the core of the business and whose support and dedication is greatly
appreciated.
Outlook
We believe, as a result of continued product investment and from listening to our customers, we have a good product set that is
suitable for our markets. Our focus is now fundamentally on winning new business and whilst we believe the opportunities for
increased sales exist, the sales cycle remains longer than we would like. We also need to fully compensate for the reduction in
revenue during the year from the Asian focused bank. Our prospects, however, whilst positive need to be tempered against
uncertainties in the banking sector as a result of the low interest rate environment and potential issues following Brexit.
Richard Last
Chairman
ARCONTECH GROUP PLC
1
Chief Executive’s Review
I am pleased to report that during the year our continued attention to managing costs whilst bringing the sales pipeline forward,
has resulted in an increase in profit before tax of 24% compared to the previous year.
Our endeavours resulted in revenue growth of 0.5% and a reduction in costs of 2%. This had a significant and positive impact to
our bottom line to generate a profit before tax of £302,329.
As well as progressing the sales pipeline, this year has also seen us improve our product offering by adding functionality to
existing products as well as building out the product portfolio with a new Desktop component. This is currently in trials with
several Tier 1 clients with whom prospects for commercial deployment are looking very promising.
More generally, the outlook for the business remains positive and as yet has been unaffected by the wider uncertainties
surrounding Brexit. What does continue to affect revenues, however, is the length of the sales cycle. This is largely attributable to
the fact that our traditional offerings invariably need to displace an incumbent for which the existing contract terms can affect our
prospects. As has been stated previously, however, once a commercial relationship has been established, we inevitably find many
opportunities to grow the relationship both through displacement and development of new solutions. We also look forward to
securing cornerstone clients for our newly developed Desktop component in order to generate new and additional revenues outside
of our traditional target market due to the broad appeal of its value proposition.
Having maintained momentum and grown profitability over the previous year, we have reconfirmed the value of our products to
the market whilst strengthening our position. We are now working to capitalise on this by increasing revenues. Sales growth
remains our clear priority.
Matthew Jeffs
Chief Executive
ARCONTECH GROUP PLC
2
Strategic Report
The Directors present the group strategic report for Arcontech Group plc and its subsidiaries for the year ended 30 June 2016.
Principal activities
The principal activities of the Company and its subsidiaries during the year were the development and sale of proprietary software
and provision of computer consultancy services.
Review of the business and prospects
A full review of the operations, financial position and prospects of the Group is given in the Chairman’s Statement and Chief
Executive’s Review on pages 1 to 2.
Key performance indicators (KPIs)
The Directors monitor the business using management reports and information, reviewed and discussed at monthly Board
meetings. Financial and non-financial KPIs used in this report include:
-
-
-
-
-
-
-
-
subscription, software development and consultancy revenues
revenue and overhead variations against budget
technical development (e.g. project updates and progress)
personnel matters
revenue increased by 0.5% (2015 – 7.5%)
administrative costs decreased by 2% (2015 – 5%)
staff retention (net) 93% (2015 – 93%)
staff costs spent on R&D 62% (2015 - 64%)
Principal risks and uncertainties
The Group’s performance is affected by a number of risks and uncertainties, which the Board monitor on an ongoing basis in
order to identify, manage and minimise their possible impact. General risks and uncertainties include changes in economic
conditions, interest rate fluctuations and the impact of competition. The Group’s principal risk areas and the action taken to
mitigate their outcome are shown below:
Risk area
Competition
Mitigation
Ongoing investment in R&D
Responding to the changing needs of clients to remain competitive
Loss of key personnel
Employee share option scheme in place
Approved on behalf of the board on 9 August 2016 by:
Matthew Jeffs
Chief Executive
Michael Levy
Group Finance Director
ARCONTECH GROUP PLC
3
Company Information
Directors
Richard Last (Chairman and Non-Executive Director)*+
Matthew Jeffs (Chief Executive)+
Michael Levy (Group Finance Director)
Louise Barton (Non-Executive Director)*+
Secretary and Registered Office
Nominated Adviser and Broker
Michael Levy
1st Floor
11-21 Paul Street
London EC2A 4JU
finnCap Ltd
60 New Broad Street
London EC2M 1JJ
Registered Number
04062416
Solicitors
Auditors
Registrars
Principal Bankers
DWF LLP
Capital House
85 King William Street
London
EC4N 7BL
Nexia Smith & Williamson
Statutory Auditor
Chartered Accountants
Portwall Place
Portwall Lane
Bristol
BS1 6NA
Capita IRG Plc
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Nat West Bank Plc
94 Moorgate
London
EC2M 6UR
Company website
www.arcontech.com
* Members of the Remuneration Committee
+ Members of the Audit Committee
ARCONTECH GROUP PLC
4
Board of Directors
Directors - Executive
Matthew Jeffs (54)
Matthew was appointed Chief Executive Officer in April 2013. Matthew spent 10 years with Barclays International, 10 years with
Dow Jones and then 6 years with Reuters in a variety of senior roles. In addition to the UK, he has wide experience in the Asia
Pacific region, working in Hong Kong, Japan, Korea (where he was country manager for Reuters and country representative for
Dow Jones), Thailand and Vietnam. In his most recent role, Matthew was the Managing Director, ICS International at Broadridge
Financial Solutions where he was responsible for the overall management of the Global Proxy business with offices in the U.K.,
U.S., Japan, Australia and India. Matthew has an MBA from Buckinghamshire Business School.
Michael Levy (54)
Michael was appointed Group Finance Director in May 2001. In addition he operates his own Chartered Accountants practice,
Michael Levy & Co. Michael obtained a BA (Econ) in Economics and Social Studies from the University of Manchester in 1983.
He qualified as a Chartered Accountant in 1986 with BDO Stoy Hayward and is a Fellow of The Institute of Chartered
Accountants in England and Wales.
Directors – Non-Executive
Richard Last (59)
Richard was appointed Chairman and Non-Executive Director in February 2007. He has over 20 years experience in IT and
communications. Currently, he is Chairman and Non-Executive Director of Servelec Group plc (fully listed), Gamma
communications plc (AIM listed), Tribal Group plc (AIM listed), Corero Network Security plc and APD communications Limited
(private company). In addition, Richard is Chairman of The British Smaller Companies VCT 2 PLC and Lighthouse Group plc
(AIM listed), a financial services company. He is a Fellow of the Institute of Chartered Accountants in England and Wales.
Louise Barton (66)
Louise was appointed Non-Executive Director in February 2007. She worked for five years with the Institute of Applied
Economic and Social Research in Melbourne before joining Prudential Portfolio Managers in 1979. She moved into stock
broking/investment banking in 1987, joining CCF Laurence Prust and subsequently moved to Investec Henderson Crosthwaite in
1990. She retired from the City in 2002 when she was ranked UKs No 1 small company media analyst and is now an independent
consultant.
ARCONTECH GROUP PLC
5
Directors’ Report
The Directors present their Report and financial statements for the year ended 30 June 2016.
General information
Arcontech Group plc is a public limited company which is listed on the AIM market of the London Stock Exchange and is
incorporated in the United Kingdom.
Results and dividends
Details of the results for the year are given on page 11. The Directors do not recommend the payment of a dividend (2015: £Nil).
Directors
The Directors who have held office during the period from 1 July 2015 to the date of this report are as follows:
Richard Last
Matthew Jeffs
Michael Levy
Louise Barton
Michael Levy, who retires by rotation under Article 106 of the Company's articles of association and, who being eligible, offers
himself to be re-elected as a Director of the Company.
Except as disclosed in note 22 to the financial statements none of the Directors had an interest in any contracts with the Company
or its subsidiaries during the year.
Independence of Non-Executive Directors
Richard Last and Louise Barton were appointed Non-Executive Directors on 19 February 2007 and have served for more than
9 years. The Board are of the opinion that their independence is not affected.
Employees
The Directors recognise the importance of good communication with employees to ensure a common awareness of factors
affecting the Group. They also recognise their statutory responsibilities. Matters of current concern or interest are discussed with
staff on a regular basis.
Corporate governance
The Company’s shares are traded on AIM, a market operated by the London Stock Exchange and the Company is not, therefore,
required to report on compliance with the UK Corporate Governance Code (“the Code”). However, the Board of Directors support
the Code and also the recommendations made by Quoted Companies Alliance in its bulletin “Corporate Governance Code for
Small and Mid-Sized Quoted Companies 2013”. The bulletin provides a series of recommendations for smaller quoted companies
in approaching the question of corporate governance which the Company has complied with where it is considered justified as
being relevant to a business of this size.
Internal control
The Directors acknowledge their responsibilities for the Group’s system of internal control. The Board considers major business
and financial risks. All strategic decisions are referred to the Board, which meets monthly, for approval. Accepting that no system
of control can provide absolute assurance against material misstatement or loss, the Directors believe that the established systems
of internal control within the Group are appropriate to the business.
Financial risk management
The Group's financial instruments comprise cash and cash equivalents, and items such as trade payables and trade receivables,
which arise directly from its operations.
The main risks arising from the Group’s financial instruments are interest rate fluctuations and liquidity risk. It is the Group’s
policy to finance its operations through a mixture of cash and, where appropriate, external finance and to review the projected
cash flow requirements of the Group with an acceptable level of risk exposure.
ARCONTECH GROUP PLC
6
Directors’ Report (continued)
Going concern
On the basis of current projections and having regard to the facilities available to the Group, the Directors consider that the Group
has adequate resources to continue in operational existence for the foreseeable future. Accordingly the Directors have adopted the
going concern basis in the preparation of the financial statements.
Research and Development
The Group continues to make progress in product development, while continuing to keep control of costs. Research and
development expenditure is charged to the income statement in the year incurred, unless it meets the criteria under IAS 38 to
capitalise.
Disclosures to auditors
In the case of each of the persons who are Directors at the time when the report is approved, the following applies:
- so far as each of the Directors are aware, there is no relevant audit information of which the Company’s auditors are
unaware; and
- each of the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware
of any relevant audit information and to establish that the Company’s auditors are aware of that information.
This information is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
Auditors
A resolution to re-appoint Nexia Smith & Williamson will be proposed at the annual general meeting.
On behalf of the Board
Michael Levy
Company Secretary
9 August 2016
ARCONTECH GROUP PLC
7
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Strategic Report, Directors' Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have
elected to prepare the financial statements in accordance with applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with
the provisions of the Companies Act 2006. Under company law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs of the company and of the group and of the profit or loss
of the group for that period. In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgments and accounting estimates that are reasonable and prudent;
state whether applicable IFRSs as adopted by the European Union have been followed subject to any material departures
disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will
continue in business;
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's
transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure
that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
ARCONTECH GROUP PLC
8
Independent Auditor’s Report to the members of
Arcontech Group PLC
We have audited the financial statements of Arcontech Group PLC for the year ended 30 June 2016 which comprise the Group
Income Statement and Statement of Comprehensive Income, the Group and Company Statement of Changes in Equity, the Group
and Company Balance Sheets, the Group and Company Cash Flow Statements and the related notes 1 to 29. The financial
reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 8, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the FRC’s website at
www.frc.org.uk/auditscopeukprivate
Opinion on financial statements
In our opinion:
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at
30 June 2016 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
ARCONTECH GROUP PLC
9
Independent Auditor’s Report to the members of
Arcontech Group PLC
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our
opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Jonathan Talbot
Senior Statutory Auditor, for and on behalf of
Nexia Smith & Williamson
Statutory Auditor
Chartered Accountants
Portwall Place
Portwall Lane
Bristol
BS1 6NA
9 August 2016
ARCONTECH GROUP PLC
10
Group Income Statement and Statement of Comprehensive Income
For the year ended 30 June 2016
Revenue
Administrative costs
Operating profit
Finance income
Profit before taxation
Taxation
Profit for the year after tax
Total comprehensive income for the year
Earnings per share (basic)
Earnings per share (diluted)
All of the results relate to continuing operations.
Note
3
4
8
9
9
2016
£
2015
£
2,141,630
2,129,958
(1,849,257)
(1,890,242)
292,373
239,716
9,956
3,944
302,329
243,660
105,813
109,378
408,142
353,038
408,142
353,038
0.027p
0.026p
0.023p
0.023p
The notes on pages 16 to 36 form part of these financial statements
ARCONTECH GROUP PLC
11
Statement of Changes in Equity
For the year ended 30 June 2016
Group:
Company:
Balance at 30 June 2014
Profit for the year
Total comprehensive income for the year
Share-based payments
Share
capital
£
1,536,672
Share
premium
£
9,430,312
Share
option
reserve
£
72,562
Retained
earnings
£
(9,622,661)
Total
equity
£
1,416,885
-
-
-
-
-
-
-
-
353,038
353,038
353,038
353,038
20,199
-
20,199
Balance at 30 June 2015
1,536,672
9,430,312
92,761
(9,269,623)
1,790,122
Profit for the year
Total comprehensive income for the year
Cancellation of share premium account
-
-
-
-
-
(9,430,312)
Issue of shares
5,060
2,024
-
-
-
-
Share-based payments
-
-
26,931
408,142
408,142
408,142
408,142
9,430,312
-
-
-
7,084
26,931
Balance at 30 June 2016
1,541,732
2,024
119,692
568,831
2,232,279
Balance at 30 June 2014
Loss for the year
Total comprehensive expense for the year
Share-based payments
Share
capital
£
1,536,672
Share
premium
£
9,430,312
Share
option
reserve
£
72,562
Retained
earnings
£
(7,679,231)
Total
equity
£
3,360,315
-
-
-
-
-
-
-
-
(118,454)
(118,454)
(118,454)
(118,454)
20,199
-
20,199
Balance at 30 June 2015
1,536,672
9,430,312
92,761
(7,797,685)
3,262,060
Profit for the year
Total comprehensive income for the year
Cancellation of share premium account
-
-
-
-
-
(9,430,312)
Issue of shares
5,060
2,024
-
-
-
-
Share-based payments
-
-
26,931
10,899
10,899
10,899
10,899
9,430,312
-
-
-
7,084
26,931
Balance as at 30 June 2016
1,541,732
2,024
119,692
1,643,526
3,306,974
The notes on pages 16 to 36 form part of these financial statements.
ARCONTECH GROUP PLC
12
Balance Sheets
Registered number: 04062416
As at 30 June 2016
Non-current assets
Goodwill
Property, plant and equipment
Investments in subsidiaries
Trade and other receivables
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Current liabilities
Trade and other payables
Total current liabilities
Net current assets/(liabilities)
Net assets
Equity
Called up share capital
Share premium account
Share option reserve
Retained earnings
Group
2016
£
Group
2015
£
Company
2016
£
Company
2015
£
1,715,153
1,715,153
44,785
41,605
-
-
-
-
-
-
2,017,373
2,017,373
141,750
1,901,688
141,750
1,898,508
-
2,017,373
-
2,017,373
265,360
478,402
206,769
806,382
1,633,159
1,898,519
1,069,755
1,548,157
1,272,292
1,479,061
649,907
1,456,289
(1,567,928)
(1,567,928)
(1,656,543)
(1,656,543)
(189,460)
(189,460)
(211,602)
(211,602)
330,591
(108,386)
1,289,601
1,244,687
2,232,279
1,790,122
3,306,974
3,262,060
1,541,732
1,536,672
1,541,732
1,536,672
2,024
9,430,312
2,024
9,430,312
119,692
92,761
119,692
92,761
568,831
(9,269,623)
1,643,526
(7,797,685)
2,232,279
1,790,122
3,306,974
3,262,060
Note
10
11
12
13
13
14
15
17
18
18
18
Approved on behalf of the board on 9 August 2016 by:
Matthew Jeffs
Chief Executive
Michael Levy
Group Finance Director
The notes on pages 16 to 36 form part of these financial statements.
ARCONTECH GROUP PLC
13
Group Cash Flow Statement
For the year ended 30 June 2016
Net cash generated from operating activities
20
567,420
369,982
Note
2016
£
2015
£
Investing activities
Interest received
Purchases of plant and equipment
Proceeds of sales of plant and equipment
9,956
3,944
(21,056)
(38,014)
-
167
Net cash invested in investing activities
(11,100)
(33,903)
Financing activities
Issue of shares
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
7,084
7,084
563,404
1,069,755
-
-
336,079
733,676
Cash and cash equivalents at end of year
14
1,633,159
1,069,755
The notes on the pages 16 to 36 form part of these financial statements.
ARCONTECH GROUP PLC
14
Company Cash Flow Statement
For the year ended 30 June 2016
Net cash generated from operating activities
20
605,860
609,347
Note
2016
£
2015
£
Investing activities
Interest received
Net cash generated from investing activities
Financing activities
Issue of shares
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
9,441
9,441
7,084
7,084
622,385
649,907
2,706
2,706
-
-
612,053
37,854
Cash and cash equivalents at end of year
14
1,272,292
649,907
The notes on the pages 16 to 36 form part of these financial statements.
ARCONTECH GROUP PLC
15
Notes to the Financial Statements
For the year ended 30 June 2016
1. Accounting policies
The principal accounting policies are summarised below. They have all been applied consistently throughout the period
covered by these financial statements.
Reporting entity
Arcontech Group PLC (“the Company”) is a company incorporated in the United Kingdom. The consolidated financial
statements incorporate the financial statements of the Company and its subsidiaries (together referred to as “the Group”).
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
endorsed by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under
IFRS.
On the basis of current projections, confidence of future profitability and cash balances held, the Directors have adopted the
going concern basis in the preparation of the financial statements.
The financial statements have been prepared under the historical cost convention.
Accounting standards and interpretations adopted during the period
There have only been minor improvements to existing International Financial Reporting Standards and interpretations that
are effective for the first time in the current financial year that have been adopted by the Group. These have had no impact
on its consolidated results or financial position.
Standards, amendments and interpretations that are expected to be effective for periods beginning on or after 1 July
2016 for standards, amendments subject to EU endorsement:
Standards, interpretations and amendments to existing standards that have been published, and are mandatory to accounting
periods beginning on or after 1 July 2016 or later periods and that have not been early adopted by the Group or the Company
include the following:
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts
with Customers
Annual Improvements to IFRSs
2012–2014 Cycle
IFRS 16 Leases
Effective date (periods
beginning on or after)
1 January 2018
1 January 2018
1 January 2016
1 January 2019
EU adopted
No
No
No
No
A number of other interpretations and amendments to existing standards have been made by the IASB and IFRIC but are not
considered relevant to the Group’s operations.
The directors are considering the impact of the above new standards and amendments on the reported results of the Group
and Company.
ARCONTECH GROUP PLC
16
Notes to the Financial Statements
For the year ended 30 June 2016
1. Accounting policies (continued)
Basis of consolidation
The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company
(its subsidiaries) prepared to 30 June 2016. Control is achieved where the Company has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from
the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into
line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Business combinations and goodwill
On acquisition, the assets and liabilities and contingent liabilities of subsidiaries are measured at their fair value at the date of
acquisition. Any excess of cost of acquisition over the fair values of the identifiable net assets acquired is recognised as
goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount
on acquisition) is credited to the income statement in the period of acquisition. Goodwill arising on consolidation is
recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the
income statement and is not subsequently reversed.
Revenue recognition
Revenue comprises the value of sales of proprietary software and the provision of consultancy services.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for
services provided in the normal course of business, net of discounts, VAT and other sales related taxes.
Revenue arising from the provision of consultancy services is recognised when and to the extent that the Group obtains
the right to consideration in exchange for the performance of its contractual obligations as follows:
Software development and licence fee income – recognised evenly over the contracted licence period.
Taxation
The tax charge/(credit) represents the sum of the tax payable/(receivable) and any deferred tax.
The tax payable/(receivable) is based on the taxable result for the year. The taxable result differs from the net result as
reported in the income statement because it excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated
using tax rates that have been enacted or substantially enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
ARCONTECH GROUP PLC
17
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
1. Accounting policies (continued)
Taxation (continued)
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where
the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset
realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to
settle its current assets and liabilities on a net basis.
Share-based payments
The cost of share-based employee compensation arrangements, whereby employees receive remuneration in the form of
shares or share options, is recognised as an employee benefit expense in the income statement.
The total expense to be apportioned over the vesting period of the benefit is determined by reference to the fair value
(excluding the effect of non market-based vesting conditions) at the date of grant. Fair value is measured by the use of the
Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the
effects of the non-transferability, exercise restrictions and behavioural considerations. A cancellation of a share award by the
Group or an employee is treated consistently, resulting in an acceleration of the remaining charge within the consolidated
income statement in the year of cancellation.
Impairment of tangible and intangible assets
The carrying amounts of the Group’s and Company’s tangible and intangible assets are reviewed at each year end date to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is
estimated.
For goodwill the recoverable amount is estimated at each year end date, based on value in use. The recoverable amount of
other assets is the greater of their net selling price and value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash
generating unit to which the asset belongs.
An impairment loss is recognised in the income statement whenever the carrying amount of an asset or its cash-generating
unit exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to
reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the
other assets in the unit on a pro rata basis.
ARCONTECH GROUP PLC
18
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
1. Accounting policies (continued)
Impairment of tangible and intangible assets (continued)
A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of
the cash inflows from other assets or groups of assets.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost of assets, over their estimated useful lives, on the following bases:
Leasehold property
Computer equipment
Office furniture and equipment
- over the period of the lease
- 33% - 40% on cost
- 20% - 25% on cost or reducing balance
Investments in subsidiaries
Investments in subsidiaries are stated at cost less any provision for impairment.
Financial instruments
Financial assets and financial liabilities are recognised on the balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
Financial liabilities and equity instruments issued by the Group are classified in accordance with the substance of the
contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its
liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Trade and other receivables
Trade and other receivables are measured at initial recognition at fair value, and are subsequently measured at amortised
cost using the effective interest method. A provision is established when there is objective evidence that the Group will not
be able to collect all amounts due. The movement on any provision is recognised in the income statement.
Trade and other payables
Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the
effective interest rate method.
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three
months or less.
Leasing commitments
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
ARCONTECH GROUP PLC
19
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
1. Accounting policies (continued)
Research and development
Research costs are charged to the income statement in the year incurred. Development expenditure is capitalised to the extent
that it meets all of the criteria required by IAS 38, otherwise it is charged to the income statement in the year incurred.
Pension costs and other post-retirement benefits
The Group makes payments to employees’ personal pension schemes. Contributions payable for the year are charged in the
income statement.
Foreign currencies
Transactions denominated in foreign currencies are translated into sterling at the exchange rate ruling when the transaction
was entered into. Foreign currency monetary assets and liabilities are translated into sterling at the exchange rate ruling at
the balance sheet date. Exchange gains or losses are included in operating profit.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker as required by IFRS 8 “Operating Segments”. The chief operating decision-maker responsible for
allocating resources and assessing performance of the operating segments has been identified as the Board of Directors.
The accounting policies of the reportable segments are consistent with the accounting policies of the group as a whole.
Segment profit/(loss) represents the profit/(loss) earned by each segment without allocation of foreign exchange
gains or losses, investment income, interest payable and tax. This is the measure of profit that is reported to the Board of
Directors for the purpose of resource allocation and the assessment of segment performance. When assessing segment
performance and considering the allocation of resources, the Board of Directors review information about segment assets and
liabilities. For this purpose, all assets and liabilities are allocated to reportable segments with the exception of cash and cash
equivalents, available-for-sale financial assets and current and deferred tax assets and liabilities.
2. Critical judgments and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted accounting practice requires management to
make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of
contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the
reporting period.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
ARCONTECH GROUP PLC
20
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
2. Critical judgments and key sources of estimation uncertainty (continued)
Share-based payments
In determining the fair value of equity settled share-based payments and the related charge to the income statement, the
Group makes assumptions about future events and market conditions. In particular, judgement must be made as to the
likely number of shares that will vest, and the fair value of each award granted. The fair value is determined using a valuation
model which is dependent on further estimates, including the Group’s future dividend policy, the timing with which options
may be exercised and the future volatility in the price of the Group’s shares. Such assumptions are based on publicly
available information and reflect market expectations and advice taken from qualified personnel. Different assumptions about
these factors to those made by the Group could materially affect the reported value of share-based payments.
Impairment of non-current assets
Determining whether non-current assets are impaired requires an estimation of the value in use of the cash generating units
to which non-current assets have been allocated. The value in use calculation requires the Group to estimate the future cash
flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. No
provision for impairment was made in the year to the carrying value of goodwill (see note 10) or investments in subsidiaries (see
note 12).
Capitalisation of development costs and recognition of deferred tax assets
As described in Note 1 the Group capitalises development costs when certain criteria are met including the probability of
relevant future economic benefits and recognises deferred tax assets arising from unused tax losses when certain criteria are
met including the probability that future relevant taxable profit will be available. The directors have assessed the likelihood
of relevant future economic benefits and taxable profits being available and considering the application of prudence have
judged it appropriate to not capitalise any development costs and to not recognise any deferred tax assets for unused losses.
3. Revenue
An analysis of the Group’s revenue is as follows:
Software development and licence fees
2,141,630
2,129,958
2016
£
2015
£
All of the Group’s revenue relates to continuing activities.
4. Operating profit for the year is stated after charging:
Depreciation of plant and equipment
Loss on disposal of fixed assets
Staff costs (see note 7)
Operating lease rentals - land and buildings (see note 21)
Research and development
2016
£
17,140
736
1,325,064
140,866
514,526
2015
£
8,682
6,673
1,352,295
88,789
592,185
ARCONTECH GROUP PLC
21
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
5. Auditor’s remuneration:
Fees payable to the Group’s auditor for the audit of the Group’s annual
accounts
Fees payable to the Group’s auditor for other services:
- audit of the Company’s subsidiaries
6. Operating segments:
2016
£
16,000
9,000
2015
£
16,000
7,850
The Group reports internally to the Chief Operating Decision Maker (CODM), who is considered to be the Board.
Intersegment license fees and management charges are not included in the reports reviewed by the CODM during the year
but are calculated for statutory reporting purposes and therefore are excluded from the following revenue and operating
profit disclosures.
Revenue by segment
Software development and licence fees
External segment revenue
Operating profit by segment
2016
£
2015
£
2,141,630
2,141,630
2,129,958
2,129,958
Software development and licence fees
656,226
595,854
Unallocated overheads
Total operating profit
Finance income
Total profit before tax as reported in the Group income statement
Segment total of assets
Software development and licence fees
Unallocated assets
Less inter company debtors
Total assets
(363,853)
292,373
9,956
302,329
2016
£
(356,138)
239,716
3,944
243,660
2015
£
4,419,890
4,224,012
1,795,400
6,215,290
1,673,396
5,897,408
(2,415,083)
3,800,207
(2,450,743)
3,446,665
ARCONTECH GROUP PLC
22
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
6. Operating segments (continued):
Segment total liabilities
Software development and licence fees
Unallocated liabilities
Less inter company creditors
Total liabilities
Additions of property, plant and equipment assets by segment
Software development and licence fees
Total additions
Disposals of property, plant and equipment assets by segment
Software development and licence fees
Total disposals
Depreciation of property, plant and equipment assets recognised in the
period by segment
Software development and licence fees
Total depreciation
Non-current assets by country
UK
2016
£
2015
£
3,792,521
3,894,619
190,490
3,983,011
212,667
4,107,286
(2,415,083)
1,567,928
(2,450,743)
1,656,543
2016
£
21,056
21,056
26,462
26,462
2016
£
17,140
17,140
2015
£
38,014
38,014
125,957
125,957
2015
£
8,682
8,682
2016
£
1,901,688
1,901,688
2015
£
1,756,758
1,756,758
ARCONTECH GROUP PLC
23
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
6. Operating segments (continued):
External revenue by country
UK
Singapore
Denmark
USA
Germany
Belgium
Switzerland
2016
£
1,354,976
195,758
379,626
127,459
32,793
19,040
31,978
2,141,630
2015
£
1,212,279
338,697
356,881
138,641
19,937
33,994
29,529
2,129,958
During the year there was 1 customer (2015: 2) who accounted for more than 10% of the Group’s revenues as follows:
Customer 1
Customer 2
2016
2015
Value of
sales
£
601,616
-
601,616
% of Total
28%
-
28%
Value of
sales
£
585,431
338,277
923,708
% of Total
27%
16%
43%
These revenues are attributable to the software development and licence fees segment.
ARCONTECH GROUP PLC
24
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
7.
Staff costs:
a) Aggregate staff costs, including Directors’ remuneration
Wages and salaries
Social security costs
Share-based payments
b) The average number of employees (including executive Directors) was:
Sales and administration
Development and support
c) Directors’ emoluments
Short-term employee benefits
Share-based payments
Social security costs
Key management personnel compensation
Executive Directors
Michael Levy
Matthew Jeffs
Non-Executive Directors
Richard Last
Louise Barton
- emoluments*
- share-based payments
- emoluments
- share-based payments
- emoluments
- share-based payments
- emoluments
- share-based payments
2016
£
1,159,066
139,067
26,931
1,325,064
6
11
17
£
266,978
21,545
288,523
32,352
320,875
2015
£
1,191,884
140,212
20,199
1,352,295
6
13
19
£
209,599
16,159
227,578
24,735
252,313
£
£
21,346
-
206,242
16,159
24,240
-
15,150
5,386
288,523
20,961
-
151,458
12,119
24,000
-
15,000
4,040
227,578
The number of Directors that are members of a defined contribution pension scheme is Nil (2015: Nil).
*Fees payable to Michael Levy & Co, Chartered Accountants, in which Michael Levy is the principal, in respect of
accountancy services are disclosed in note 22.
ARCONTECH GROUP PLC
25
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
8. Taxation
Current tax
Deferred tax
Total tax credit for the year
2016
£
105,813
-
105,813
2015
£
109,378
-
109,378
The difference between the total tax credit shown above and the amount calculated by applying the standard rate of UK
corporation tax to the loss before tax is as follows:
Profit on ordinary activities before tax
2016
£
302,329
2015
£
243,660
Profit on ordinary activities multiplied by the standard rate of corporation
tax in the UK of 20.0% (2015: 20.75%)
60,466
50,560
Effects of:
Disallowed expenses
Temporary differences on deferred tax not recognised
Singapore taxable profit at lower tax rate
Loss on sale of fixed assets
679
556
(42)
147
1,852
(9,309)
(296)
1,385
Research and development tax credits
(105,813)
(109,378)
(Brought forward losses utilised)/loss for the year carried forward
(61,806)
(44,192)
Total tax credit for the year
(105,813)
(109,378)
Factors which may affect future tax charges
At 30 June 2016 the Group has tax losses of approximately £9,900,000 (2015: £10,200,000) to offset against future trading
profits.
ARCONTECH GROUP PLC
26
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
9. Profit per share
Earnings
Earnings for the purpose of basic and diluted earnings per share being net
profit attributable to equity shareholders
Number of shares
Weighted average number of ordinary shares for the purpose of basic
earnings per share
Number of dilutive shares under option
Weighted average number of ordinary shares for the purposes of dilutive
earnings per share
2016
£
2015
£
408,142
408,142
353,038
353,038
No.
No.
1,537,198,758
1,536,672,013
26,682,073
15,602,384
1,563,880,831
1,552,274,847
The calculation of diluted earnings per share assumes conversion of all potentially dilutive ordinary shares, all of which arise
from share options. A calculation is done to determine the number of shares that could have been acquired at fair value,
based upon the monetary value of the subscription rights attached to outstanding share options.
10. Goodwill
Cost and net book amount
2016
£
2015
£
At 1 July 2015 and at 30 June 2016
1,715,153
1,715,153
Goodwill acquired in a business combination is allocated at acquisition, to the cash generating units (CGUs) that are
expected to benefit from that business combination. The carrying amount of goodwill has been allocated as follows:
Arcontech Limited
Arcontech Pte. Ltd.
2016
£
1,715,153
-
1,715,153
2015
£
1,715,153
-
1,715,153
The CGUs used in these calculations are Arcontech Limited, Arcontech Solutions Limited and Arcontech Pte. Ltd. which
should be considered together. The group tests goodwill annually for impairment or more frequently if there are
indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use
calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates
and expected changes to selling prices and direct costs during the period. The discount rate is estimated using pre-tax rates that
reflect current market assessments of the time value of money and the risks specific to the CGUs. Long-term growth rates
are based on industry growth forecasts. Changes in selling prices a re based on past practices and expectations of future
changes in the market. Changes in direct costs are based on expected cost of inflation of 2.5%.
ARCONTECH GROUP PLC
27
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
10. Goodwill (continued)
Cashflow forecasts are based on the latest financial budgets and extrapolate the cashflows for the next five years based on an
estimated growth in revenue representing an average rate of 5% (2015: 8%) per annum, after which the UK long-term growth
rate is applied. The Directors consider that this rate is appropriate, given the level of new contracts achieved during the year.
Growth in revenue is the most sensitive of assumptions. Should this fall below an average of 2.5% then this could result in
the value of goodwill being impaired.
As the Group does not have any borrowings, the rate used to discount all the forecast cash flows is 8.6% (2015: 13.5%),
which represents the Group’s cost of capital.
Goodwill on the purchase of Arcontech Limited is attributable to the anticipated future operating synergies which will arise
as a result of the combination.
11. Property, plant and equipment - Group
Cost
At 1 July 2014
Additions
Disposals
At 1 July 2015
Additions
Disposals
At 30 June 2016
Depreciation
At 1 July 2014
Charge for the year
On disposals
At 1 July 2015
Charge for the year
On disposals
At 30 June 2016
Net book amount at 30 June 2016
Net book amount at 30 June 2015
Leasehold
Property
£
10,049
6,642
(10,049)
6,642
12,250
-
18,892
Office
furniture &
equipment
£
217,623
31,372
(115,908)
133,087
Total
£
227,672
38,014
(125,957)
139,729
8,806
21,056
(26,462)
115,431
(26,462)
134,323
9,327
199,233
208,560
860
7,822
8,682
(10,049)
138
(109,069)
97,986
(119,118)
98,124
4,979
-
12,161
17,140
(25,726)
(25,726)
5,117
84,421
13,775
6,504
31,010
35,101
89,538
44,785
41,605
ARCONTECH GROUP PLC
28
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
12. Investment in subsidiaries
Carrying amount
At 1 July 2015
At 30 June 2016
2016
£
2015
£
2,017,373
2,017,373
2,017,373
2,017,373
Details of the investments in which the Group and the Company holds 20% or more of the nominal value of any class of
share capital are as follows:
Country of
Incorporation and
place of business
Nature of business
% voting rights and shares held
Arcontech Solutions Limited
England and Wales
Cognita Technologies Limited England and Wales
England and Wales
Arcontech Limited
Arcontech Pte. Ltd.
Singapore
Software development
and consultancy
Software development
Software development
and consultancy
Software development
and consultancy
100% of Ordinary shares
100% of Ordinary shares
100% of Ordinary shares
100% of Ordinary shares
13. Trade and other receivables
Due within one year:
Group
2016
£
Group
2015
£
Company
2016
£
Company
2015
£
Trade receivables
188,961
417,531
-
-
Amounts owed by group undertakings
Other receivables
Prepayments and accrued income
Due after more than one year:
Other receivables
-
4,590
71,809
265,360
Group
2016
£
141,750
141,750
-
199,156
798,206
8,075
52,796
478,402
Group
2015
£
141,750
141,750
-
7,613
206,769
3,489
4,687
806,382
Company
2016
£
Company
2015
£
-
-
-
-
Trade receivables, other receivables and accrued income constitute the financial assets within the category “Loans and
receivables” as defined by IAS 39 with a total value of £335,301 (2015: £567,356). Trade receivables are non-interest bearing
and generally have a 30-90 day term. Due to their short maturities, the fair value of trade receivables approximates their
book value.
A provision for impairment of trade receivables is established when there is no objective evidence that the Group will
be able to collect all amounts due according to the original terms. The Group considers factors such as default or
delinquency in payment, significant financial difficulties of the debtor and the probability that the debtor will enter
bankruptcy in deciding whether the trade receivable is impaired. Trade and other receivables are disclosed net of
allowances for bad and doubtful debts.
ARCONTECH GROUP PLC
29
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
13. Trade and other receivables (continued)
As at 30 June 2016, trade receivables of £Nil were impaired (2015: £Nil). As at 30 June 2016 trade receivables of £117,310
(2015: £336,199) were past due but not impaired. The ageing analysis of these trade receivables is as follows:
Up to 3 months past due
Group
2016
£
117,310
117,310
Group
2015
£
336,199
336,199
Company
2016
£
Company
2015
£
-
-
-
-
Other receivables do not contain impaired assets or any amounts which are past due. The Directors consider that there has
been no deterioration in the credit quality of debts which are past due.
14. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three
months or less. The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.
15. Trade and other payables
Trade payables
Amounts owed to group undertakings
Other tax and social security payable
Group
2016
£
36,662
-
9,166
Group
2015
£
48,692
-
62,718
Other payables and accruals
752,941
668,132
Deferred income
769,159
1,567,928
877,001
1,656,543
Company
2016
£
Company
2015
£
1,289
87,420
-
100,751
-
189,460
1,925
128,345
7,459
73,873
-
211,602
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
Trade payables and other payables and accruals constitute the financial liabilities within the category “Financial liabilities at
amortised cost” as defined by IAS 39 with a total value of £789,603 (2015: £712,433).
16. Deferred tax
There is no actual or potential liability for deferred taxation due to the availability of losses, which at 30 June 2016 amounted
to approximately £9,900,000 (2015: £10,200,000). The unprovided deferred tax asset at 30 June 2016 was £2,000,000 (2015:
£2,000,000).
Currently the criteria for the recognition of a deferred tax asset have not been met and accordingly a deferred tax asset has
not been included in the balance sheet as at 30 June 2016 and as at 30 June 2015.
ARCONTECH GROUP PLC
30
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
17.
Share capital
Company
Allotted and fully paid:
2016
£
2015
£
1,541,731,537 (2015: 1,536,672,013) Ordinary Shares of 0.1p each
1,541,732
1,536,672
On 24 May 2016 the company issued 5,059,524 Ordinary Shares of 0.1p each at 0.14p per share.
Share options
Under the Company’s approved 2002 Share Option Scheme, certain Directors and employees held options at 30 June 2016
for unissued Ordinary Shares of 0.1 pence each as follows:
Share options
At 1 July
2015
Employees:
4,000,000
37,876,985
10,000,000
Directors:
Michael Levy
9,920,635
Richard Last
11,904,762
Louise Barton
10,000,000
Matthew Jeffs
30,000,000
113,702,382
Weighted
average exercise
price
0.16 pence
Granted
Exercised
Lapsed
At 30 June
2016
Exercise price
Normal exercise period
-
-
-
-
-
-
-
-
-
-
(5,059,524)
-
-
-
-
-
(5,059,524)
-
-
-
-
-
-
-
-
4,000,000
0.125 pence
17 Sep 12 – 16 Sep 16
32,817,461
0.14 pence
18 Oct 13 – 17 Oct 17
10,000,000
0.19 pence
1 Sep 17 – 31 Aug 21
9,920,635
0.14 pence
18 Oct 13 – 17 Oct 17
11,904,762
0.14 pence
18 Oct 13 – 17 Oct 17
10,000,000
0.19 pence
1 Sep 17 – 31 Aug 21
30,000,000
0.19 pence
1 Sep 17 – 31 Aug 21
108,642,858
0.14 pence
-
0.16 pence
The number of options exercisable at 30 June 2016 was 58,642,858 (At 30 June 2015: 63,702,382), these had a weighted
average exercise price of 0.14 pence (2015: 0.14 pence).
Options granted under the Company’s approved 2002 Share Option Scheme lapse when the Optionholder ceases to be a
Director or employee of a Participating Company. The Directors may before the expiry of 3 months following cessation of
employment permit an Optionholder to exercise their Option within a period ending no later than 12 months from the
cessation of employment.
The highest price of the Company’s shares during the year was 0.36p, the lowest price was 0.18p and the price at the year-
end was 0.31p.
The weighted average remaining contractual life of share options outstanding at 30 June 2016 was 3 years (2015: 4 years).
ARCONTECH GROUP PLC
31
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
17. Share capital (continued)
Share-based payments
The Group operates an approved Share Option Scheme for the benefit of Directors and employees. Options are granted to
acquire shares at a specified exercise price at any time following but no later than 6 years after the grant date. There are no
performance conditions on the exercise of the share options.
Options granted under the Scheme lapse when the Optionholder ceases to be a Director or employee of a Participating
Company. The Directors may before the expiry of 3 months following cessation of employment permit an Optionholder to
exercise their Option within a period ending no later than 12 months from the cessation of employment.
The fair value of options is valued using the Black-Scholes pricing model. An expense of £26,931 (2015: £20,199) has been
recognised in the period in respect of share options granted. The cumulative share option reserve at 30 June 2016 is £119,692
(2015: £92,761). The inputs into the Black-Scholes pricing model are as follows:
Exercise price
Expected life
Expected volatility
Risk free rate of interest
Dividend yield
30 June
2016
Directors
0.14/0.19 pence
6 years
100%
5%
Nil
30 June
2016
Employees
0.125/0.14/0.19 pence
6 years
100%
5%
Nil
30 June
2015
Directors
0.14/0.19 pence
6 years
100%
5%
Nil
30 June
2015
Employees
0.125/0.14/0.19 pence
6 years
100%
5%
Nil
Weighted average share price
0.12/0.19 pence
0.125/0.12/0.19 pence
0.12/0.19 pence
0.125/0.12/0.19 pence
Fair value of option
0.1135/0.19 pence
0.12/0.1135/0.19 pence
0.1135/0.19 pence
0.12/0.1135/0.19 pence
Volatility has been estimated based on the historic volatility over a period equal to the expected term from the grant date.
18. Reserves
Details of the movements in reserves are set out in the Statement of Changes in Equity. A description of each reserve is set
out below.
Share premium account
This is used to record the aggregate amount or value of premiums paid when the Company’s shares are issued at a premium,
net of issue costs, less amounts cancelled by court order.
Share option reserve
This relates to the fair value of options granted which has been charged to the income statement over the vesting period of
the options.
Retained earnings
This relates to accumulated profits and losses together with distributable reserves arising from capital reductions.
19. Income statement
The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish
its individual income statement and related notes. The profit dealt with in the financial statements of the Parent Company
was £10,899 (2015: Loss £118,454).
ARCONTECH GROUP PLC
32
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
20. Net cash generated from operations - Group
Operating profit
Depreciation charge
Non cash share option charges
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Loss on disposal of plant and equipment
Cash generated from operations
Tax recovered
Net cash generated from operations - Company
Operating profit/(loss)
Non cash share option charges
Decrease in trade and other receivables
(Decrease)/increase in trade and other payables
2016
£
292,373
17,140
26,931
213,042
(88,615)
736
461,607
105,813
2015
£
239,716
8,682
20,199
(259,136)
244,471
6,672
260,604
109,378
567,420
369,982
2016
£
1,458
26,931
599,613
(22,142)
2015
£
(121,159)
20,199
704,343
5,964
Cash generated from operations
605,860
609,347
21. Operating lease commitments
At the year-end date the Group has lease agreements in respect of property for which the payments extend over a number of
years. The commitments fall due as follows:
Land and buildings:
Due within one year
Due between two and five years
ARCONTECH GROUP PLC
Group
2016
£
141,094
270,430
411,524
Group
2015
£
141,094
411,523
552,617
Company
2016
£
Company
2015
£
-
-
-
-
-
-
33
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
22. Related party transactions
Group
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation
and are not disclosed in this note.
Key management compensation
Key management are those persons having authority and responsibility for planning, controlling and directing the activities of
the Group. In the opinion of the Board, the Group’s key management are the Directors of Arcontech Group PLC.
Information regarding their compensation is given in notes 7 and 17 for each of the categories specified in IAS 24 Related
Party Disclosures. All emoluments given in notes 7 and 17 relate to short-term employee benefits and there are no post-
employment or other long-term benefits.
The financial statements include the following amounts in respect of services provided to the Group:
Michael Levy:
Fees payable to Michael Levy & Co, Chartered Accountants, in which Michael Levy is the principal, in respect of
accountancy services of £48,242 (2015: £45,542). At 30 June 2016 the amount outstanding was £Nil (2015: £Nil).
Company
Transactions between the Parent Company and its subsidiaries during the year were as follows:
Management charges payable by subsidiaries £491,041 (2015: £254,445).
The amounts due from/to subsidiaries at the balance sheet date were as follows:
Amount due from subsidiaries
Less: Provision for impairment
Amount due from subsidiaries - net
2016
£
2015
£
6,470,942
7,001,582
(6,271,786)
199,156
(6,203,376)
798,206
During the year a provision of £68,410 was made (2015: £20,461) in respect of balances due from subsidiaries.
Amount due to subsidiaries
23. Dividends
There were no dividends paid or proposed during the period (2015: £Nil).
2016
£
87,420
87,420
2015
£
128,345
128,345
ARCONTECH GROUP PLC
34
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
24. Material non-cash transactions
There were no material non-cash transactions during the period.
25. Financial instruments
The Group's financial instruments comprise cash and cash equivalents, and items such as trade payables and trade
receivables, which arise directly from its operations. The main purpose of these financial instruments is to provide finance
for the Group's operations.
The Group’s operations expose it to a variety of financial risks including credit risk, liquidity risk and interest rate risk.
Given the size of the Group, the Directors have not delegated the responsibility of monitoring financial risk management to a
sub-committee of the Board. The policies set by the Board of Directors are implemented by the Company’s finance
department.
Credit risk
The Group’s credit risk is primarily attributable to its trade receivables. The Group has implemented policies that require
appropriate credit checks on potential customers before sales are made. The amount of exposure to any individual
counterparty is subject to a limit, which is reassessed annually by the Board.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the
reporting date was:
Trade receivables
Other receivables
Group
2016
£
188,961
Group
2015
£
417,531
4,590
8,075
Company
2016
£
-
-
Company
2015
£
-
3,489
Cash and cash equivalents
1,633,159
1,069,755
1,272,292
649,907
Amounts owed by group undertakings
-
1,826,710
-
1,495,361
199,156
1,471,448
798,206
1,451,602
Interest rate risk
The Group has interest bearing assets and no interest bearing liabilities. Interest bearing assets comprise only cash and cash
equivalents, which earn interest at a variable rate.
The Group has not entered into any derivative transactions during the period under review.
The Group does not have any borrowings.
The Group’s cash and cash equivalents earned interest at variable rates based on bank base rate, between 0.25% and 0.45%
below bank base rate and at a fixed rate of 1% (2015: between 0.25% and 0.45% below bank base rate and at a fixed rate of
1%).
Liquidity risk
The Group has no short-term debt finance. The Group monitors its levels of working capital to ensure that it can meet its
liabilities as they fall due.
The Group’s only financial liabilities comprise trade payables and other payables and accruals, excluding deferred income,
with a carrying value equal to the gross cash flows payable of £789,603 (2015: £712,433) all of which are payable within 6
months.
ARCONTECH GROUP PLC
35
Notes to the Financial Statements
For the year ended 30 June 2016 (continued)
26. Financial instruments (continued)
Market risk and sensitivity analysis
Equity price risk
The Directors do not consider themselves exposed to material equity price risk due to the nature of the Group’s operations.
Foreign currency exchange risk
The Directors do not consider themselves exposed to material foreign currency risk due to the nature of the Group’s
operations. All invoices are raised in sterling.
Interest rate risk
The Group is exposed to interest rate risk as a result of positive cash balances, denominated in sterling, which earn interest
at variable and fixed rates. As at 30 June 2016, if bank base rate had increased by 0.5% with all other variables held
constant, post-tax profit would have been £6,750 (2015: £4,500) higher and equity would have been £6,750 (2015: £4,500)
higher. Conversely, if bank base rate had fallen 0.5% with all other variables held constant, post-tax profit would have been
£6,750 (2015: £4,500) lower and equity would have been £6,750 (2015: £4,500) lower.
27. Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order
to provide returns for shareholders and maintain an optimal capital structure.
The Group defines capital as being share capital plus reserves. The Board of Directors continually monitors the level of
capital.
The Group is not subject to any externally imposed capital requirements.
28. Ultimate controlling party
There is no ultimate controlling party.
29. Copies of this statement
Copies of this statement are available from the Company Secretary at the Company’s registered office at 1st Floor, 11-21
Paul Street, London, EC2A 4JU or from the Company’s website at www.arcontech.com.
ARCONTECH GROUP PLC
36
Arcontech Group PLC
1st Floor, 11-21 Paul Street
LONDON
EC2A 4JU
tel: +44 (0)20 7256 2300
web: www.arcontech.com
email: mail@arcontech.com
Arcontech Group PLC
Report and financial statements for the year ended 30 June 2016