REGISTERED NUMBER: 04062416 (England and Wales)
Arcontech Group PLC
Year ended 30 June 2017
Contents
Company Information
Chairman’s Statement
Chief Executive’s Review
Strategic Report
Board of Directors
Corporate Governance
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
Notes to the Financial Statements
ARCONTECH GROUP PLC
Page
1
2
3
4-5
6
7-14
15-16
17
18-21
22
23
24
25
26
27-48
Company Information
Directors
Richard Last (Chairman and Non-Executive Director)
Matthew Jeffs (Chief Executive Officer)
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
ARCONTECH GROUP PLC
1
Chairman’s Statement
Arcontech Group plc (“Arcontech” or the “Company”) is pleased to report a profit before share-based payments and taxation for
the year ended 30 June 2017 of £441,996 (2016: £329,260), a year-on-year increase of 34.2%. After taking the benefit of the
Research and Development tax credit of £96,988 (2016: £105,813) which the Company receives, due to the amount it has invested
in qualifying product design and development and the cost of share based payments of £68,733 (2016: £26,931), Arcontech
achieved a profit after tax of £470,251 (2016: £408,142) for the year.
Turnover for the year increased by 7.8% to £2,307,751 (2016: £2,141,630) this was achieved mainly through additional sales of
server-side infrastructure solutions to existing customers. The level of new sales has not yet benefitted from the new business
expected from our new desktop software solution launched earlier in the year. Expected desktop solution sales in 2018 and the full
year effect of the net new sales achieved in the year ended 30 June 2017 is expected to lead to an increase in turnover for the year
ending 30 June 2018.
We have continued to operate tight cost control throughout the year, whilst maintaining investment in product development and
enhancement, which we expect to sustain going forward. The sales resource was increased during the year, which, together with
marketing, are areas where we expect to see additional investment in 2018.
Financing
As at 30 June 2017 Arcontech had net cash balances of £2,636,471 (2016: £1,633,159), reflecting increased profitability and an
improved working capital position. The business is well financed for the future and has a robust balance sheet.
Dividend and Share Consolidation
Having completed the cancellation of the share premium account (creating positive distributable reserves) and the share
consolidation, I am pleased to announce that subsequent to the year-end we agreed to propose, subject to approval at the Annual
General Meeting, to pay a maiden dividend of 1 pence per share for the year ended 30 June 2017, to those shareholders on the
register as at the close of business on 25 August 2017, with an ex-dividend date of 24 August 2017.
Employees
We have a small team of dedicated employees who are the core of our business. I would like to thank them for their hard work and
continued support which is greatly appreciated.
Outlook
Arcontech is a well-run business where costs, including continued product investment, are well controlled such that increases in
revenue materially improve profitability. Our focus is, therefore, on winning new business. Whilst we believe the opportunities for
increased sales exist, the sales cycle is unpredictable and remains longer than we would like. Our prospects are positive, albeit
they need to be tempered against uncertainties in the investment banking and finance sectors, as a result of the low interest rate
environment and issues following Brexit.
Richard Last
Chairman and Non-Executive Director
ARCONTECH GROUP PLC
2
Chief Executive’s Review
I am pleased to report that during the year our continued attention to costs whilst building out and delivering on the sales pipeline
resulted in a profit before tax of £373,263 (2016: £302,329), an increase of 23.5% compared to the previous year.
During the year under review we have further reconfirmed the value of our products and quality of support to the market by
increasing the use of our server-side solutions such as our real-time last value cache and symbol mapper with existing clients, and
on the desktop with Excelerator, whilst not receiving a single contract cancellation.
We continue to progress the sales pipeline and improve our product offering by adding functionality to existing products as well
as enhancing our new desktop software solution. This software solution continues to be of significant interest to our clients, with
one of the trials with Tier 1 clients culminating in a signed agreement for its deployment in New York. It is hoped by both
ourselves, and our client, that it will expand from there and be rolled out in additional office locations over coming months. The
prospects elsewhere, whilst taking time, continue to develop and are looking promising.
To increase sales growth, in January 2017 we recruited a sales person in Hong Kong to explore opportunities in this region
During the year we have also increased our participation in the fintech community, where we believe we can both add and receive
value. This includes becoming members of the OpenMAMA steering committee and more recently, the Symphony Foundation.
Both these global, open source, not for profit organisations include major Tier 1 clients and non-clients as members, who we are
working closely with, whilst providing vendor agnostic solutions to the market data needs of the broader financial community.
The outlook for the business remains positive and to date unaffected by the wider uncertainties surrounding Brexit. The length of
the sales cycle is something that is a constant and the only realistic way to address it is to create more sales opportunities. This is
being done by building solutions that increase the addressable market whilst increasing our sales resource. As a result, the sales
pipeline is looking healthy.
In order to supplement the Company’s growth strategy, we will continue to review prospective complementary acquisition
opportunities.
With such a strong foundation, we will keep working to strengthen our position by focusing on increasing revenues. Going
forward, sales growth remains our clear priority.
Matthew Jeffs
Chief Executive
ARCONTECH GROUP PLC
3
Strategic Report
The Directors present the group strategic report for Arcontech Group plc and its subsidiaries for the year ended 30 June 2017.
Principal activities
The principal activities of the Company and its subsidiaries during the year were the development and sale of proprietary software
and provision of computer consultancy services.
Review of the business and prospects
A full review of the operations, financial position and prospects of the Group is given in the Chairman’s Statement and Chief
Executive’s Review on pages 2 to 3.
Key performance indicators (KPIs)
The Directors monitor the business using management reports and information, reviewed and discussed at monthly Board
meetings. Financial and non-financial KPIs used in this report include:
Financial KPIs:
Revenue £2,307,751 (2016: £2,141,630; 2015: £2,129,958)
Adjusted profit £441,996 (2016: £329,260; 2015: £263,859)
Cash £2,636,471 (2016: £1,633,159; 2015: £1,069,755)
Non-financial KPIs:
Staff retention rate (net) 100% (2016: 93%; 2015: 93%)
Measurement:
Revenue from sales made to all customers (excluding
intra-group sales which eliminate on consolidation)
Performance:
Continued growth driven by increased sales of our product
offering
Measurement:
Profit before share based payments and tax
Performance:
Continued growth reflects increase in revenues whilst
continuing to maintain tight cost control
Measurement:
Cash and cash equivalents held at the end of the year
Performance:
The Group intends to maintain cash balances at this level
subject to any exceptional items or acquisition
opportunities that may arise
Measurement:
Net movement in joiners and leavers as a percentage of
the number of staff at the beginning of the year
Performance:
Staff morale from our dedicated employees remains
strong, reflected in the net increase
ARCONTECH GROUP PLC
4
Strategic Report (continued)
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 research and development
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 11 August 2017 by:
Matthew Jeffs
Chief Executive
Michael Levy
Group Finance Director
ARCONTECH GROUP PLC
5
Board of Directors
Directors - Executive
Matthew Jeffs (Chief Executive Officer)
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 (Group Finance Director)
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 (Chairman)
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 fully listed Servelec Group plc and The British
Smaller Companies VCT 2 Plc, and Chairman of AIM listed Gamma communications plc, Tribal Group plc and Lighthouse
Group plc. He is also a Non-Executive director of Corero Network Security plc and Chairman of APD communications, a private
company. He is a Fellow of the Institute of Chartered Accountants in England and Wales.
Louise Barton
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 UK No 1 small company media analyst and is now an independent
consultant.
ARCONTECH GROUP PLC
6
Corporate Governance
Corporate governance report
The Company does not comply with all aspects of the UK Corporate Governance Code (the “Code”). We have reported on our
Corporate Governance arrangements by drawing upon best practice available, including those aspects of the Code we consider
relevant to the Company and best practice. As an AIM quoted company we are not required to comply with the Code.
The working of the Board and its Committees
At 30 June 2017, the Board comprised two Non-Executive Directors, one of whom is the Chairman, and two Executive Directors.
Both of the Non-Executive Directors are considered to be independent. The Board is responsible to the shareholders for the proper
management of the Group. It meets regularly to review financial and non-financial performance. Matters for review by the Board
are circulated before the Board Meetings.
All of the Directors are subject to election at the first Annual General Meeting following their appointment and to re-election at
least once every three years. Non-Executive Directors who have served for more than nine years on the Board are subject to re-
election annually.
The Chairman and Executive Directors have other third-party commitments including directorships of other companies. The
Board is satisfied that these commitments do not affect their ability to discharge their responsibilities effectively.
The Company Secretary is responsible to the Board for ensuring that Board procedures are complied with. The appointment of the
Company Secretary is a matter for the Board as a whole. All Directors are supplied with information on a timely basis to enable
them to discharge their duties.
Board performance
The performance of the Board and individual Directors is monitored and reviewed annually. The Company has Directors’ and
officers’ liability insurance in place.
Committees
The following committees deal with the Group’s affairs:
Audit Committee
Details of the Audit Committee are given in its Report on page 8.
Remuneration Committee
Details of the Remuneration Committee are given in its Report on pages 9-14. This includes details of the Directors’
remuneration, interest in shares, interest in share options, and service contracts. No Director is involved in decisions about their
own remuneration.
Relations with shareholders
The Board gives shareholder communication high priority, by way of press releases and presentations at the time of the release of
the interim and annual results. The Group issues its results on a timely basis. The website is updated on a regular basis to record
any relevant news.
The Board uses the Annual General Meeting to communicate with investors.
Richard Last
Chairman and Non-Executive Director
11 August 2017
ARCONTECH GROUP PLC
7
Corporate Governance (continued)
Audit Committee report
The Audit Committee is responsible for ensuring that the financial position of the Group is properly monitored. The Audit
Committee generally meets twice a year and the Group Finance Director also attends by invitation. At 30 June 2017, the members
of the Audit Committee were:
Richard Last (Chairman)
Louise Barton
Matthew Jeffs
There were no changes to the membership of the Audit Committee during the year.
Objectives and responsibilities
The role of the Audit Committee is to primarily monitor the Group’s financial statements, the effectiveness of financial controls
and systems and to oversee the relationship with external auditors.
Activities of the Audit Committee during the year
The Audit Committee focuses on financial reporting and the statutory audit, and the assessment of internal controls.
Financial reporting and statutory audit
The Audit Committee reviews the half year and annual financial statements with emphasis on:
-
-
-
-
the overall truth and fairness of the results and financial position;
the appropriateness of the accounting policies;
the resolution of management’s significant accounting judgements or of matters raised by the external auditors;
the quality of the Annual Report as a whole.
The Audit Committee considers that the Annual Report taken as a whole is fair, balanced and understandable.
Accounting policies, practices and judgements
The selection of appropriate accounting policies and practices is the responsibility of management. Significant areas considered in
respect of these financial statements are as follows.
Impairment
Goodwill is tested annually to determine if there has been any impairment and also to consider whether the fixed assets used in the
business are carried at an appropriate amount. The Audit Committee reviewed the impairment testing carried out and agreed with
management that there was no impairment of goodwill or any of the fixed assets used in the business.
Internal audit
The Group does not have internal auditors as the Audit Committee considers that it is not yet of a size or complexity to necessitate
this.
Richard Last
Audit Committee Chairman
11 August 2017
ARCONTECH GROUP PLC
8
Corporate Governance (continued)
Remuneration Committee report
Dear shareholder
I am pleased to introduce the Directors’ Remuneration Report for the year ended 30 June 2017.
The Chairman’s Statement on page 2 provides a summary of the progress the Group has made during the financial year. The
Remuneration Committee is committed to structuring executive remuneration that supports the Group’s strategy and performance
and to help it grow profitably. The Remuneration Committee is appointed by the Board and comprises the two independent Non-
Executive Directors.
Short-term performance is incentivised by an annual bonus scheme based on the achievement of certain financial and non-
financial performance targets. Long-term performance is incentivised by the Group’s Share Option Scheme.
As an AIM-listed company this report is not mandatory, but is included as a matter of best practice.
Louise Barton
Remuneration Committee Chairman
11 August 2017
Directors’ Remuneration Policy
This part of the Directors’ Remuneration Report sets out the Group’s remuneration policy.
Policy on Executive Remuneration
The Group’s remuneration policy is designed to ensure that the Company is able to attract, motivate and retain executives and
senior management to promote long-term success. The retention of key management and the alignment of management incentives
with the creation of shareholder value are key objectives of this policy.
The Remuneration Committee seeks to ensure that salaries are market competitive for similar companies.
Key elements of Remuneration
Remuneration
element
Base salary
Purpose
Operation
To attract and retain
key executives.
Potential
remuneration
The CEO’s base salary Not applicable.
Performance
metrics
Reviewed annually,
effective from 1 January. was reviewed on
The review considers:
- Role, experience
and performance;
1 January 2017 and was
increased by 5% to
£157,500.
- Average workforce The Group Finance
salary adjustments. Director’s base salary
Salaries are benchmarked was reviewed on
against companies of
similar size and sector.
1 January 2017 and was
increased by 22.5% to
£25,000.
ARCONTECH GROUP PLC
9
Corporate Governance (continued)
Remuneration Committee report (continued)
Key elements of Remuneration (continued)
Remuneration
element
Benefits
Purpose
Operation
To attract and retain
key executives.
An Executive Director
is entitled to
participate in the
Company’s life
and medical insurance
schemes.
Potential
remuneration
Premiums vary from
year to year. The
Remuneration
Committee monitors
the overall cost of the
benefits package.
Performance
metrics
Not applicable.
Pension
To attract and retain
key executives.
Annual bonus
To incentivise the
achievement of the
company’s annual
financial and strategic
targets.
The Executive Directors The Company contributes Not applicable.
(together with all other
1% per annum of basic
eligible staff) are entitled salary into the scheme.
to participate in the
Company’s workplace
pension scheme.
The Executive Directors
are able to request that
the Company, at the
discretion of the
Remuneration Committee,
makes additional
contributions where salary
or bonus has been waived.
During the year the company
contributed £45,520 on
behalf of the CEO in lieu
of bonus.
Performance is measured The CEO’s maximum
capped bonus potential
on an annual basis for
is £200,000.
each financial year.
Director’s maximum
Targets are established at The Group Finance
the beginning of each
financial year. At the end capped bonus
of the year the
Remuneration Committee salary.
determine the extent to
which these have been
achieved.
potential is 100% of
Bonuses are paid in cash.
Any bonus is
discretionary and
subject to
achievement against
targets set by the
Remuneration
Committee.
The Remuneration
Committee has
discretion to adjust
the bonus to ensure
alignment of pay
with the performance
of the business in the
financial year.
Share Option Scheme
To motivate and facilitate Options to acquire shares The number of shares
share ownership.
The Remuneration
Committee may
impose certain
may be granted to eligible in respect of which
employees at the
discretion of the
Remuneration.
Committee
options can be
granted is limited in any performance
financial year to shares
with a market value of
no more than 100% of
salary.
conditions on any
option preventing its
exercise unless such
conditions have been
satisfied.
ARCONTECH GROUP PLC
10
Corporate Governance (continued)
Remuneration Committee report (continued)
Key elements of Remuneration (continued)
Remuneration
element
Chairman and
Non-Executive
Directors
Purpose
Operation
To attract and retain
Non-Executive
Directors of the
right calibre.
The Chairman and
Non-Executive
Directors’
remuneration
comprises fees
and share options.
Performance
metrics
Not applicable.
Potential
remuneration
Details of the fees
currently payable are set
out in the Annual Report
on Remuneration. The
fees are reviewed
periodically taking into
account the time
commitment and
responsibilities involved
and fees paid by other
companies of comparable
The Chairman’s fee is
approved by the Board
on the recommendation
of the Non-Executive
Directors and Executive size and complexity.
Directors.
Fees for the
Non-Executive Directors
are approved by the Board
on the recommendation
of the Chairman and
Executive Directors.
The Chairman and
Non-Executive Directors
are not involved in any
discussion or decision
about their own
remuneration.
The Chairman and
Non-Executive Directors
are entitled to be
reimbursed for reasonable
expenses.
Alignment of Executive Remuneration and the Market
The Remuneration Committee takes advantage of various annual AIM Directors’ Remuneration reports as well as available data
about similar companies. The Company aims to ensure that Directors’ salaries are set at a level sufficient to ensure there is
significant incentive and regard for better than average long-term results.
Consideration of Employee Pay
The Remuneration Committee takes account of pay and conditions of employees throughout the Group when setting pay and
benefits for Executive Directors. The Company endeavours to provide competitive remuneration packages for all employees.
Employees may be eligible to participate in the Share Option Scheme at the discretion of the Remuneration Committee. The
Company does not consult directly with its employees as part of the process for determining Executive pay.
Policy on recruitment
When appointing new Executive Directors, the Remuneration Committee will consider their remuneration by reference to the
Remuneration Policy set out in this Report. The Remuneration Committee would not usually expect to pay sign-on payments or
compensate new Directors for any variable remuneration forfeited from any employment prior to joining the Board other than in
exceptional circumstances, recognising that the Company needs to attract appropriately skilled and experienced individuals.
ARCONTECH GROUP PLC
11
Corporate Governance (continued)
Remuneration Committee report (continued)
Policy on recruitment (continued)
Salary and annual bonus will be set so as to be competitive with comparable companies and also taking into account the
experience, seniority and responsibility of the appointee coming into the new role. New Executive Directors will receive benefits
and pension contributions in line with the Company’s existing policy and to participate in the annual bonus scheme on a pro-rated
basis for the portion of the financial year for which they are in post.
Policy on Loss of Office
Executive Directors leaving employment from the Group, other than in circumstances of gross misconduct or incompetence,
serious dishonesty or wilful neglect of duty (in which cases no amount will be payable), will be entitled to receive salary in
accordance with their notice periods and pro-rated annual bonus to the date of leaving. The notice periods and the contractual
rights on termination of each Director are set out below. The Company’s Employee Share Option Scheme also provides leaver
provisions as follows:
An Executive Director who ceases to be a Director or employee of the Group by reason of death, retirement, ill-health, injury or
disability, redundancy or the sale of the company for which he works will be a good leaver. As such they will be permitted to
exercise their options. Where the cessation is on any other grounds the awards will lapse on the date of cessation, unless the
Remuneration Committee determines at its discretion prior to the date of cessation that the awards shall vest.
Share option awards held by good leavers that are already capable of being exercised at the date of cessation may, at the discretion
of the Remuneration Committee, be exercised up to 12 months of the leaving date (depending on the reason for leaving). If the
good leaver ceases to be an employee or Director before the end of the third anniversary of the grant of the award it may, at the
discretion of the Remuneration Committee, be allowed to vest on the normal vesting date.
External appointments
It is the Board’s policy to allow Executive Directors to accept directorships of other quoted and non-quoted companies provided
that they have obtained the consent of the Chairman of the group. Any such directorships must be formally notified to the Board.
Policy on Non-Executive Director Remuneration
The remuneration of the Chairman and the other Non-Executive Director comprises fees that are paid via the payroll as well as
being entitled to participate in the Company’s Share Option Scheme. Fees are reviewed annually. The Non-Executive Directors
are not involved in any decisions about their own remuneration. No additional fees are payable to the chairmen of the Audit and
Remuneration Committees. Details of the current fees are set out below:
Richard Last (Chairman and Non-Executive Director)
Louise Barton (Non-Executive Director)
£30,000
£20,000
Directors’ Service Agreements
Executive Directors’ Service Agreements
Date of service agreement
Notice period
Basic salary
Annual bonus
Benefits
Share schemes
Pension contributions
Termination payments
ARCONTECH GROUP PLC
Michael Levy
10 May 2001
3 months’ notice given by either party
Currently £25,000 reviewed annually
Discretionary performance related
Participation in the Company’s life
Matthew Jeffs
29 April 2013
3 months’ notice given by either party
Currently £157,500 reviewed annually
Discretionary performance related
Participation in the Company’s life
assurance and medical insurance schemes assurance and medical insurance schemes
Eligible to participate in Company share
schemes
Currently 1% of basic salary contributed by Currently 1% of basic salary contributed by
the Company into the Company’s
workplace pension scheme
The Company has discretion to pay a payment in lieu of notice to terminate the employment
forthwith in the event of notice being given
Eligible to participate in Company share
schemes
the Company into the Company’s
workplace pension scheme
12
Corporate Governance (continued)
Remuneration Committee report (continued)
Non-Executive Directors’ Letters of Appointment
The Non-Executive Directors have Letters of Appointment stating that their appointment is for an initial term up until they are
required to retire by rotation. The Letters of Appointment provide for termination of the appointment on three months’ notice by
either party.
The current Non-Executive Directors’ appointments commenced on the following dates:
Richard Last
Louise Barton
Annual Report on Remuneration
15 January 2007
15 January 2007
Introduction
The Annual Report on Remuneration sets out information about the remuneration of the Directors of the Company for the year
ended 30 June 2017.
Remuneration Committee
The Remuneration Committee consisted of the following Directors during the year ended 30 June 2017:
Louise Barton (Chairman), Independent Non-Executive Director
Richard Last, Independent Non-Executive Director and Chairman of the Board
Role of the Remuneration Committee
The Remuneration Committee assists the Board in determining the remuneration and benefits package for the Executive Directors.
Activities of the Remuneration Committee during the year
The Remuneration Committee met once during the year to agree the remuneration report and to review the remuneration of the
Executive Directors.
Directors’ Remuneration
The detailed emoluments of the Executive and Non-Executive Directors are set out below.
Chairman and Non-Executive Directors
Richard Last (Chairman)
Louise Barton
Total Non-Executive
Executive Directors
Matthew Jeffs
Michael Levy*
Total Executives
Total remuneration
Analysis of bonuses:
Director
Matthew Jeffs
Year ended 30 June 2016
Year ended 30 June 2017
Total
ARCONTECH GROUP PLC
Salary/fees
Benefits
Bonus
Share options Pension
Total
Year ended 30 June 2017
27,240
17,650
44,890
154,423
22,700
177,123
222,013
375
-
375
-
-
-
2,408
1,412
3,820
4,195
10,000
-
10,000
10,000
-
5,386
5,386
57,961
-
57,961
63,347
-
-
-
27,615
23,036
50,651
46,683
179
46,862
46,862
271,745
24,291
295,766
346,417
Accrued
Paid
as cash
Paid
as pension
Total
(50,000)
100,000
50,000
-
-
-
-
(40,000)
(40,000)
(50,000)
60,000
10,000
13
Corporate Governance (continued)
Remuneration Committee report (continued)
Directors’ Remuneration (Continued)
Chairman and Non-Executive Directors
Richard Last (Chairman)
Louise Barton
Total Non-Executive
Executive Directors
Matthew Jeffs
Michael Levy*
Total Executives
Total remuneration
Director
Matthew Jeffs
Year ended 30 June 2016
Total
Salary/fees
Benefits
Bonus
Share options
Pension Total
Year ended 30 June 2016
24,240
15,150
39,390
155,135
20,200
175,335
214,725
329
-
329
2,172
1,323
3,495
3,824
-
-
-
50,000
-
50,000
50,000
-
5,386
5,386
16,159
-
16,159
21,545
-
-
-
-
-
-
-
24,569
20,536
45,105
223,466
21,523
244,989
290,094
Accrued
Paid
as cash
Paid
as pension
Total
50,000
50,000
-
-
-
-
50,000
50,000
*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 to the Financial Statements.
Directors’ share interests
The number of ordinary shares of the Company in which the Directors were beneficially interested at 30 June 2017 was:
Director
Richard Last
Louise Barton
Matthew Jeffs
Michael Levy
30 June 2017
1,596,421
1,031,416
450,000
50,295
30 June 2016
1,596,421
1,031,416
384,000
50,295
Directors’ share options interests
The awards made to Directors during the year ended 30 June 2017 are set out below. No awards were made during the year ended
30 June 2016.
Director
At 1 July 2016
Granted
Richard Last
Louise Barton
Matthew Jeffs
Michael Levy
95,238
-
80,000
-
240,000
-
79,365
-
-
24,762
-
20,000
-
127,516
-
20,635
Louise Barton
Remuneration Committee Chairman
11 August 2017
Exercised/ At 30 June 2017 Exercise
lapsed
-
-
-
-
-
-
-
-
price
17.50 pence
64.50 pence
23.75 pence
64.50 pence
23.75 pence
12.50 pence
17.50 pence
64.50 pence
95,238
24,762
80,000
20,000
240,000
127,516
79,365
20,635
Normal exercise
period
18 Oct 13 – 17 Oct 17
25 Apr 20 – 24 Apr 27
18 Oct 13 – 17 Oct 17
25 Apr 20 – 24 Apr 27
1 Sep 17 – 31 Aug 21
1 Sep 17 – 31 Aug 21
18 Oct 13 – 17 Oct 17
25 Apr 20 – 24 Apr 27
ARCONTECH GROUP PLC
14
Directors’ Report
The Directors present their Report and financial statements for the year ended 30 June 2017.
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 22. The Directors recommend the payment of a final dividend of 1 pence per
ordinary share to be paid on 29 September 2017 to ordinary shareholders on the register on 25 August 2017 (2016: £Nil).
Directors
The Directors who have held office during the period from 1 July 2016 to the date of this report are as follows:
Richard Last
Matthew Jeffs
Michael Levy
Louise Barton
Matthew Jeffs, 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 10
years. The Board are of the opinion that their independence is not affected. However, given their length of service both retire
under Article 106 of the Company's articles of association and, being eligible, offer themselves to be re-elected as non-executive
Directors of the Company.
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.
ARCONTECH GROUP PLC
15
Directors’ Report (continued)
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.
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.
Directors’ and Officers’ Liability Insurance
Directors’ and Officers’ liability insurance is in place at the date of this report. The Board remains satisfied that an appropriate
level of cover is in place and a review of cover takes place annually.
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
Group Finance Director
11 August 2017
ARCONTECH GROUP PLC
16
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
17
Independent Auditor’s Report to the members of
Arcontech Group PLC
Opinion
We have audited the financial statements of Arcontech Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the
year ended 30 June 2017 which comprise the Group Income Statement and Statement of Comprehensive Income, the Statement of
Changes in Equity, Balance Sheets, Group Cash Flow Statement, Company Cash Flow Statement and the notes to the financial
statements, including a summary of significant accounting policies. 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 parent 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 parent 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 parent company and the parent company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
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 2017 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
-
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate;
or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a
period of at least twelve months from the date when the financial statements are authorised for issue.
-
Key audit matters
We identified the key audit matter described below as that which was most significant in the audit of the financial statements of
the current period. Key audit matters include the most significant assessed risks of material misstatement, including those risks
that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction of the efforts of
the audit team.
In addressing this matter, we have performed the procedures below which were designed to address the matter in the context of
the financial statements as a whole and in forming our opinion thereon. Consequently, we do not provide a separate opinion on
this individual matter.
ARCONTECH GROUP PLC
18
Independent Auditor’s Report to the members of
Arcontech Group PLC (continued)
Key audit matter
Description of risk
Carrying value and
impairment of goodwill
The group has a significant
goodwill balance relating to
three Cash Generating
Units considered together.
The group’s assessment of
requires
carrying value
significant
in
particular regarding cash
rates,
growth
flows,
discount
and
rates
sensitivity assumptions.
judgement,
How the matter was addressed in the
audit and key observations arising
with respect to that risk
We challenged the assumptions used in
the
impairment model for goodwill,
described in note 10. As part of our
procedures we:
-
-
-
-
-
rate
against
utilisation
assumptions
historical
by
trading
comparing
rates of both
management’s
the group’s
assets
the
strategic plan by
considered
performance
recent growth
revenue and operating profit;
assessed the appropriateness of
the
concerning
growth rates and inputs to the
discount
latest
market expectations;
considered
assertions about
future
following a
business’s
CGU;
performed sensitivity analysis to
determine the minimum revenue
and profit growth necessary to
support the goodwill balance;
and
performed sensitivity analysis to
determine
an
impairment would be required if
costs increase at a higher than
forecast rate.
review of
whether
of
In performing our procedures, we used
our internal valuation specialists and
the
third party evidence
to assess
appropriateness of
the discount rate
applied.
Based on our procedures we concluded
that the carrying value of goodwill is
appropriate.
Materiality
The materiality for the group financial statements as a whole was set at £141,000. This has been determined with reference to the
benchmark of the group’s assets, which we consider to be an appropriate measure for a group of companies involved in the
research and development of software products. Materiality represents 3% of total assets as presented on the face of the Group
Balance Sheet.
The materiality for the parent company financial statements as a whole was set at £112,800. This has been determined with
reference to the group’s assets, which we consider to be an appropriate measure for a company involved in the research and
development of software products. Materiality represents 2% of net assets as presented on the face of the parent company’s
Balance Sheet.
ARCONTECH GROUP PLC
19
Independent Auditor’s Report to the members of
Arcontech Group PLC (continued)
An overview of the scope of our audit
Of the group’s 5 reporting components, we subjected 2 to audits for group reporting purposes and 3 to specific audit procedures
where the extent of our audit work was based on our assessment of the risk of material misstatement and of the materiality of that
component. The latter were not individually significant enough to require an audit for group reporting purposes but were still
material to the group.
The components within the scope of our work covered: 100% of group revenue, 100% of group profit before tax and 100% of
group net assets.
Other information
The other information comprises the information included in the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
-
-
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; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course
of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
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.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 17, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal controls as
the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
ARCONTECH GROUP PLC
20
Independent Auditor’s Report to the members of
Arcontech Group PLC (continued)
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Michael Neale
Senior Statutory Auditor, for and on behalf of
Nexia Smith & Williamson
Statutory Auditor
Chartered Accountants
Portwall Place
Portwall Lane
Bristol
BS1 6NA
11 August 2017
ARCONTECH GROUP PLC
21
Group Income Statement and Statement of Comprehensive Income
For the year ended 30 June 2017
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)
Note
3
4
8
9
9
2017
£
2016
as restated
£
2,307,751
2,141,630
(1,942,430)
(1,849,257)
365,321
292,373
7,942
9,956
373,263
302,329
96,988
105,813
470,251
408,142
470,251
408,142
3.79p
3.68p
3.38p
3.25p
Comparative figures for the year ended 30 June 2016 have been restated to take into account the share consolidation carried out in
September 2016.
All of the results relate to continuing operations.
The notes on pages 27 to 48 form part of these financial statements
ARCONTECH GROUP PLC
22
Statement of Changes in Equity
For the year ended 30 June 2017
Group:
Balance at 30 June 2015
Profit for the year
Total comprehensive income for the year
Cancellation of share premium account
Share
capital
£
1,536,672
Share
premium
£
9,430,312
Share
option
reserve
£
92,761
-
-
-
-
-
(9,430,312)
Retained
earnings
£
(9,269,623)
Total
equity
£
1,790,122
408,142
408,142
408,142
408,142
9,430,312
-
-
-
7,084
26,931
Issue of shares
5,060
2,024
Share-based payments
-
-
26,931
Balance at 30 June 2016
1,541,732
2,024
119,692
568,831
2,232,279
Profit for the year
-
-
-
470,251
470,251
Total comprehensive income for the year
1,541,732
2,024
119,692
1,039,082
2,702,530
Issue of shares
20,944
7,778
-
Share-based payments
-
-
68,733
-
-
28,722
68,733
Balance at 30 June 2017
1,562,676
9,802
188,425
1,039,082
2,799,985
Company:
Balance at 30 June 2015
Profit for the year
Total comprehensive expense for the year
Cancellation of share premium account
Share
capital
£
1,536,672
Share
premium
£
9,430,312
Share
option
reserve
£
92,761
-
-
-
-
-
(9,430,312)
Issue of shares
5,060
2,024
Share-based payments
-
-
26,931
Retained
earnings
£
(7,797,685)
Total
equity
£
3,262,060
10,899
10,899
10,899
10,899
9,430,312
-
-
-
7,084
26,931
Balance at 30 June 2016
1,541,732
2,024
119,692
1,643,526
3,306,974
Profit for the year
-
-
-
1,418,859
1,418,859
Total comprehensive income for the year
1,541,732
2,024
119,692
3,062,385
4,725,833
Issue of shares
20,944
7,778
-
Share-based payments
-
-
68,733
-
-
28,722
68,733
Balance as at 30 June 2017
1,562,676
9,802
188,425
3,062,385
4,823,288
The notes on pages 27 to 48 form part of these financial statements.
ARCONTECH GROUP PLC
23
-
-
-
-
-
-
-
-
Balance Sheets
Registered number: 04062416
As at 30 June 2017
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
Net assets
Equity
Called up share capital
Share premium account
Share option reserve
Retained earnings
Group
2017
£
Group
2016
£
Company
2017
£
Company
2016
£
1,715,153
1,715,153
33,825
44,785
-
-
-
-
-
-
2,017,373
2,017,373
141,750
1,890,728
141,750
1,901,688
-
2,017,373
-
2,017,373
175,496
265,360
1,806,341
206,769
2,636,471
2,811,967
1,633,159
1,898,519
1,658,039
3,464,380
1,272,292
1,479,061
(1,902,710)
(1,902,710)
(1,567,928)
(1,567,928)
(658,465)
(658,465)
(189,460)
(189,460)
909,257
330,591
2,805,915
1,289,601
2,799,985
2,232,279
4,823,288
3,306,974
1,562,676
1,541,732
1,562,676
1,541,732
9,802
2,024
9,802
2,024
188,425
119,692
188,425
119,692
1,039,082
568,831
3,062,385
2,799,985
2,232,279
4,823,288
1,643,526
3,306,974
Note
10
11
12
13
13
14
15
17
18
18
18
The profit dealt with in the financial statements of the Parent Company was £1,418,859 (2016: £10,899).
Approved on behalf of the board on 11 August 2017 by:
Matthew Jeffs
Chief Executive
Michael Levy
Group Finance Director
The notes on pages 27 to 48 form part of these financial statements.
ARCONTECH GROUP PLC
24
Group Cash Flow Statement
For the year ended 30 June 2017
Net cash generated from operating activities
20
974,800
567,420
Note
2017
£
2016
£
Investing activities
Interest received
Purchases of plant and equipment
7,942
9,956
(8,152)
(21,056)
Net cash invested in investing activities
(210)
(11,100)
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
28,722
28,722
7,084
7,084
1,003,312
563,404
1,633,159
1,069,755
Cash and cash equivalents at end of year
14
2,636,471
1,633,159
The notes on the pages 27 to 48 form part of these financial statements.
ARCONTECH GROUP PLC
25
Company Cash Flow Statement
For the year ended 30 June 2017
Net cash generated from operating activities
20
349,506
605,860
Note
2017
£
2016
£
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
7,519
7,519
28,722
28,722
385,747
1,272,292
9,441
9,441
7,084
7,084
622,385
649,907
Cash and cash equivalents at end of year
14
1,658,039
1,272,292
The notes on the pages 27 to 48 form part of these financial statements.
ARCONTECH GROUP PLC
26
Notes to the Financial Statements
For the year ended 30 June 2017
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
2017 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 2017 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
2014–2016 Cycle
IFRS 16 Leases
Effective date (periods
beginning on or after)
1 January 2018
1 January 2018
1 January 2018
1 January 2019
EU adopted
Yes
Yes
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
27
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
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 2017. 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 and licensing 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 is recognised when and to the extent that the Group obtains the right to consideration in exchange for the
performance of its contractual obligations.
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 substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
ARCONTECH GROUP PLC
28
Notes to the Financial Statements
For the year ended 30 June 2017 (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
29
Notes to the Financial Statements
For the year ended 30 June 2017 (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
30
Notes to the Financial Statements
For the year ended 30 June 2017 (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 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
31
Notes to the Financial Statements
For the year ended 30 June 2017 (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
2,307,751
2,141,630
2017
£
2016
£
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
2017
£
19,112
-
1,431,316
140,866
516,160
2016
£
17,140
736
1,325,064
140,866
514,526
ARCONTECH GROUP PLC
32
Notes to the Financial Statements
For the year ended 30 June 2017 (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:
2017
£
16,000
4,500
2016
£
16,000
9,000
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
2017
£
2016
£
2,307,751
2,307,751
2,141,630
2,141,630
Software development and licence fees
854,981
656,226
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
(489,660)
365,321
7,942
373,263
2017
£
(363,853)
292,373
9,956
302,329
2016
£
3,547,110
4,419,890
3,802,083
7,349,193
1,795,400
6,215,290
(2,646,498)
4,702,695
(2,415,083)
3,800,207
ARCONTECH GROUP PLC
33
Notes to the Financial Statements
For the year ended 30 June 2017 (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
Total non-current assets
2017
£
2016
£
3,890,649
3,792,521
658,560
4,549,209
190,490
3,983,011
(2,646,499)
1,902,710
(2,415,083)
1,567,928
2017
£
8,152
8,152
2,699
2,699
2017
£
19,112
19,112
2016
£
21,056
21,056
26,462
26,462
2016
£
17,140
17,140
2017
£
1,890,728
1,890,728
2016
£
1,901,688
1,901,688
ARCONTECH GROUP PLC
34
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
6. Operating segments (continued):
Geographical information - External revenue
UK
Europe (excluding UK)
North America
Asia Pacific
2017
£
1,600,027
652,894
27,830
27,000
2,307,751
2016
£
1,354,976
463,437
127,459
195,758
2,141,630
During the year there were 3 customers (2016: 1) who accounted for more than 10% of the Group’s revenues as follows:
Customer 1
Customer 2
Customer 3
2017
2016
Value of
sales
£
612,998
357,327
309,232
1,279,557
% of Total
27%
15%
13%
55%
Value of
sales
£
601,616
-
-
601,616
% of Total
28%
-
-
28%
These revenues are attributable to the software development and licence fees segment.
ARCONTECH GROUP PLC
35
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
7.
Staff costs:
a) Aggregate staff costs, including Directors’ remuneration
Wages and salaries
Social security costs
Pension contributions
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
2017
£
1,172,764
138,031
51,788
68,733
1,431,316
6
11
17
£
283,070
63,347
346,417
32,779
379,196
2016
£
1,159,066
139,067
-
26,931
1,325,064
6
11
17
£
268,549
21,545
290,094
32,352
322,446
Directors’ emoluments represent the staff costs of the parent company.
The highest paid Director received remuneration of £270,582 (2017: £223,466).
The number of Directors that are members of a defined contribution pension scheme is 2 (2016: Nil). Pension contributions
paid to a defined benefit contribution scheme in respect of the highest paid Director amounted to £1,163 (2016: £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.
8. Taxation
Current tax
Deferred tax
Total tax credit for the year
2017
£
96,988
-
96,988
2016
£
105,813
-
105,813
ARCONTECH GROUP PLC
36
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
8. Taxation (continued)
The difference between the total tax credit shown above and the amount calculated by applying the standard rate of UK
corporation tax to the profit before tax is as follows:
Profit on ordinary activities before tax
2017
£
373,263
2016
£
302,329
Profit on ordinary activities multiplied by the standard rate of corporation
tax in the UK of 19.75% (2016: 20.00%)
73,719
60,466
Effects of:
Disallowed expenses
Temporary differences on deferred tax not recognised
Singapore taxable profit at lower tax rate
Loss on sale of fixed assets
1,172
765
426
-
679
556
(42)
147
Research and development tax credits
(96,988)
(105,813)
(Brought forward losses utilised)/loss for the year carried forward
(76,082)
(61,806)
Total tax credit for the year
(96,988)
(105,813)
Factors which may affect future tax charges
At 30 June 2017 the Group has tax losses of approximately £9,900,000 (2016: £9,900,000) to offset against future trading
profits.
ARCONTECH GROUP PLC
37
Notes to the Financial Statements
For the year ended 30 June 2017 (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
2017
£
2016
as restated
£
470,251
470,251
408,142
408,142
No.
No.
12,396,220
12,297,590
367,595
213,457
12,763,815
12,511,047
The number of shares for the year ended 30 June 2017 takes into account the share consolidation of 125:1 carried out in
September 2016. The number of shares for the year ended 30 June 2016 has been restated accordingly.
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
2017
£
2016
£
At 1 July 2016 and at 30 June 2017
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.
2017
£
1,715,153
-
1,715,153
2016
£
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 1.9%.
ARCONTECH GROUP PLC
38
Notes to the Financial Statements
For the year ended 30 June 2017 (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 7% (2016: 5%) 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.
Fluctuation in revenue is the most sensitive of assumptions. Should revenue fall by more than an average of 0.5% 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 9.6% (2016: 8.6%),
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 2015
Additions
Disposals
At 1 July 2016
Additions
Disposals
At 30 June 2017
Depreciation
At 1 July 2015
Charge for the year
On disposals
At 1 July 2016
Charge for the year
On disposals
At 30 June 2017
Net book amount at 30 June 2017
Net book amount at 30 June 2016
Leasehold
Property
£
Office
furniture &
equipment
£
6,642
12,250
-
18,892
-
-
18,892
133,087
8,806
(26,462)
115,431
8,152
(2,699)
120,884
138
97,986
4,979
-
5,117
4,722
-
12,161
(25,726)
84,421
14,390
(2,699)
Total
£
139,729
21,056
(26,462)
134,323
8,152
(2,699)
139,776
98,124
17,140
(25,726)
89,538
19,112
(2,699)
9,839
96,112
105,951
9,053
13,775
24,772
31,010
33,825
44,785
ARCONTECH GROUP PLC
39
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
12. Investment in subsidiaries
Carrying amount
2017
£
2016
£
At 1 July 2016 and 30 June 2017
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
Address
Nature of business
Arcontech Solutions Limited*
England
Cognita Technologies Limited* England
Arcontech Limited
England
Arcontech Pte. Ltd.*
Singapore
11-21 Paul Street, London
EC2A 4JU
11-21 Paul Street, London
EC2A 4JU
11-21 Paul Street, London
EC2A 4JU
10 Hoe Chiang Road,
#07-07 Keppel Towers,
Singapore 089315
Software development
and consultancy
Software development
Software development
and consultancy
Software development
and consultancy
Ordinary
shares
held
100%
100%
100%
100%
*Exempt from audit
13. Trade and other receivables
Due within one year:
Group
2017
£
Group
2016
£
Company
2017
£
Company
2016
£
Trade receivables
98,262
188,961
-
-
Amounts owed by group undertakings
Other receivables
Prepayments and accrued income
Due after more than one year:
Other receivables
-
-
77,234
175,496
Group
2017
£
141,750
141,750
-
1,800,565
199,156
4,590
71,809
265,360
Group
2016
£
141,750
141,750
-
5,776
1,806,341
Company
2017
£
-
7,613
206,769
Company
2016
£
-
-
-
-
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 £240,012 (2016: £335,301). 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
40
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
13. Trade and other receivables (continued)
As at 30 June 2017, trade receivables of £Nil were impaired (2016: £Nil). As at 30 June 2017 trade receivables of £95,972
(2016: £117,310) were past due but not impaired. The ageing analysis of these trade receivables is as follows:
Up to 3 months past due
Group
2017
£
95,972
95,972
Group
2016
£
117,310
117,310
Company
2017
£
Company
2016
£
-
-
-
-
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
Group
2017
£
39,729
-
Group
2016
£
36,662
Company
2017
£
1,562
-
508,233
Other tax and social security payable
51,404
9,166
Other payables and accruals
823,968
752,941
Deferred income
987,609
1,902,710
769,159
1,567,928
-
148,670
-
658,465
Company
2016
£
1,289
87,420
-
100,751
-
189,460
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 £863,697 (2016: £789,603).
16. Deferred tax
There is no actual or potential liability for deferred taxation due to the availability of losses, which at 30 June 2017 amounted
to approximately £9,900,000 (2016: £9,900,000). The unprovided deferred tax asset at 30 June 2017 was £2,000,000 (2016:
£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 2017 and as at 30 June 2016.
ARCONTECH GROUP PLC
41
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
17.
Share capital
Company
Allotted and fully paid:
2017
£
2016
£
12,501,407 Ordinary shares of 12.5p each
(2016: 1,541,731,537 Ordinary Shares of 0.1p each)
1,562,676
1,541,732
On 27 September 2016 the company consolidated every 125 existing ordinary shares of 0.1p each into 1 new ordinary share
of 12.5p each.
During the year the company allotted for cash the following ordinary shares of 0.1p each:
Date
10 August 2016
Number of shares
4,000,000
Price per share
0.125p
During the year the company allotted for cash the following new ordinary shares of 12.5p each:
Date
7 December 2016
8 March 2017
5 May 2017
30 June 2017
Number of shares
25,238
31,746
47,619
30,952
Price per share
17.5p
17.5p
17.5p
17.5p
ARCONTECH GROUP PLC
42
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
17. Share capital (continued)
Share options
The number of share options and exercise price for the year ended 30 June 2017 takes into account the share consolidation of
125:1 carried out in September 2016. The number of share options at 1 July 2016 has been restated accordingly.
Under the Company’s approved 2002 Share Option Scheme, certain Directors and employees held options at 30 June 2017
for unissued Ordinary Shares of 12.5 pence each as follows:
Granted
Exercised
Lapsed
At 30 June
2017
Exercise price
Normal exercise period
Share options
At 1 July
2016
as restated
Employees:
32,000
262,540
80,000
-
-
-
-
165,000
Directors:
Michael Levy
79,365
-
-
20,635
Richard Last
95,238
-
-
24,762
Louise Barton
80,000
-
-
20,000
Matthew Jeffs
240,000
-
-
127,516
(32,000)
(135,555)
-
-
-
-
-
-
-
-
-
-
869,143
357,913
(167,555)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15.625 pence
17 Sep 12 – 16 Sep 16
126,985
17.50 pence
18 Oct 13 – 17 Oct 17
80,000
23.75 pence
1 Sep 17 – 31 Aug 21
165,000
64.50 pence
25 Apr 20 – 24 Apr 27
79,365
17.50 pence
18 Oct 13 – 17 Oct 17
20,635
64.50 pence
25 Apr 20 – 24 Apr 27
95,238
17.50 pence
18 Oct 13 – 17 Oct 17
24,762
64.50 pence
25 Apr 20 – 24 Apr 27
80,000
23.75 pence
1 Sep 17 – 31 Aug 21
20,000
64.50 pence
25 Apr 20 – 24 Apr 27
240,000
23.75 pence
1 Sep 17 – 31 Aug 21
127,516
12.50 pence 1 Sep 2017 – 31 Aug 21
1,059,501
Weighted
average exercise
price
20.0 pence
46.0 pence
17.1 pence
-
29.5 pence
The number of options exercisable at 30 June 2017 was 301,587 (At 30 June 2016: 469,143), these had a weighted average
exercise price of 17.5 pence (2016: 17.5 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 71.5p, the lowest price was 37.5p and the price at the year-
end was 65p.
The weighted average remaining contractual life of share options outstanding at 30 June 2017 was 4 years (2016: 3 years).
ARCONTECH GROUP PLC
43
Notes to the Financial Statements
For the year ended 30 June 2017 (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 £68,733 (2016: £26,931) has been
recognised in the period in respect of share options granted. The cumulative share option reserve at 30 June 2017 is £188,425
(2016: £119,692). The inputs into the Black-Scholes pricing model, which take into account the share consolidation of 125:1
carried out in September 2016, are as follows:
Exercise price
Expected life
Expected volatility
Risk free rate of
interest
Dividend yield
Weighted average
share price
Fair value of option
30 June
2017
Directors
17.5/23.75/12.5/ 64.5
pence
4.5/6/10 years
100%
30 June
2017
Employees
15.625/17.5/23.75/
64.5 pence
6/10 years
100%
5%
Nil
5%
Nil
30 June
2016
Directors
17.5/23.75 pence
6 years
100%
5%
Nil
15.0/23.75/64.5
pence
15.625/15.0/23.75/
64.5 pence
15.0/23.75 pence
14.1875/19.64/
43.71/64.5 pence
15.0/14.1875/19.64/
64.5 pence
14.1875/23.75 pence
30 June
2016
Employees
15.625/17.5/23.75
pence
6 years
100%
5%
Nil
15.625/15.0/23.75
pence
15.0/14.1875/23.75
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.
ARCONTECH GROUP PLC
44
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
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 £1,418,859 (2016: £10,899).
20. Net cash generated from operations - Group
Operating profit
Depreciation charge
Non cash share option charges
Decrease in trade and other receivables
Increase/(decrease) 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
Non cash share option charges
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
2017
£
365,321
19,112
68,733
89,864
334,782
-
877,812
96,988
2016
£
292,373
17,140
26,931
213,042
(88,615)
736
461,607
105,813
974,800
567,420
2017
£
1,411,340
68,733
(1,599,572)
469,005
2016
£
1,458
26,931
599,613
(22,142)
Cash generated from operations
349,506
605,860
ARCONTECH GROUP PLC
45
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
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:
Group
2017
£
141,094
129,336
270,430
Group
2016
£
141,094
270,430
411,524
Company
2017
£
Company
2016
£
-
-
-
-
-
-
Land and buildings:
Due within one year
Due between two and five years
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 £53,664 (2016: £48,242). At 30 June 2017 the amount outstanding was £Nil (2016: £Nil).
Company
Transactions between the Parent Company and its subsidiaries during the year were as follows:
Management charges payable by subsidiaries £570,563 (2016: £491,041).
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
2017
£
2016
£
6,744,129
6,470,942
(4,943,564)
1,800,565
(6,271,786)
199,156
During the year a provision of £1,328,222 was released (2016: provision made £68,410) in respect of balances due from
subsidiaries.
Amount due to subsidiaries
ARCONTECH GROUP PLC
2017
£
508,233
508,233
2016
£
87,420
87,420
46
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
23. Dividends
A final dividend of 1 pence will be proposed at the Annual General Meeting but has not been recognised as it requires
approval (2016: £Nil).
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
2017
£
98,262
Group
2016
£
188,961
-
4,590
Company
2017
£
-
-
Company
2016
£
-
-
Cash and cash equivalents
2,636,471
1,633,159
1,658,039
1,272,292
Amounts owed by group undertakings
-
2,734,733
-
1,826,710
1,800,565
3,458,604
199,156
1,471,448
Interest rate risk
The Group has interest bearing assets and no interest-bearing liabilities. Interest bearing assets comprise only cash and cash
equivalents, which earn interest at a variable rate.
The Group has not entered into any derivative transactions during the period under review.
The Group does not have any borrowings.
The Group’s cash and cash equivalents earned interest at variable rates, between 0.10% below bank base rate and 1.54% above
bank base rate and at fixed rates of between 0.35% and 1.1% (2016: 1% 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.
ARCONTECH GROUP PLC
47
Notes to the Financial Statements
For the year ended 30 June 2017 (continued)
25. Financial instruments (continued)
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 £863,697 (2016: £789,603) all of which are payable within 6
months.
Market risk and sensitivity analysis
Equity price risk
The Directors do not consider themselves exposed to material equity price risk due to the nature of the Group’s operations.
Foreign currency exchange risk
The Directors do not consider themselves exposed to material foreign currency risk due to the nature of the Group’s
operations. All invoices are raised in sterling.
Interest rate risk
The Group is exposed to interest rate risk as a result of positive cash balances, denominated in sterling, which earn interest
at variable and fixed rates. As at 30 June 2017, if bank base rate had increased by 0.5% with all other variables held
constant, post-tax profit would have been £10,675 (2016: £6,750) higher and equity would have been £10,675 (2016: £6,750)
higher. Conversely, if bank base rate had fallen 0.5% with all other variables held constant, post-tax profit would have been
£10,675 (2016: £6,750) lower and equity would have been £10,675 (2016: £6,750) lower.
26. 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.
27. Ultimate controlling party
There is no ultimate controlling party.
28. 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
48