Arcontech Group PLC
1st Floor, 11-21 Paul Street
LONDON
EC2A 4JU
tel: +44 (0)20 7256 2300
web: www.arcontech.com
email: mail@arcontech.com
Arcontech Group PLC
Annual report and accounts for the year ended 30 June 2018
REGISTERED NUMBER: 04062416 (England and Wales)
Arcontech Group PLC
Annual Report and Accounts
Year ended 30 June 2018
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
7-16
17-18
19
20-23
24
25
26
27
28
29-50
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
Faegre Baker Daniels LLP
7 Pilgrim Street
London
EC4V 6LB
Nexia Smith & Williamson
Statutory Auditor
Chartered Accountants
Portwall Place
Portwall Lane
Bristol
BS1 6NA
Link Asset Services
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 another year of good growth, with profit before
taxation for the year ended 30 June 2018 of £575,632 (2017: £373,263), a year-on-year increase of 54% and ahead of
expectations. Arcontech achieved a profit after tax of £915,084 (2017: £470,251) for the year, this included a deferred tax credit of
£270,000 arising from recognising previous tax losses due to the improving profitability of the Group.
Turnover for the year increased by 9% to £2,519,699 (2017: £2,307,751). This was achieved mainly through additional annual
licence sales to existing customers. During the year we redeployed our Hong Kong based salesman to the UK to focus on our
Desktop software solution which was launched in late 2017. Since the year-end we have taken on additional sales resource to
drive new sales activity whilst continuing to provide excellent account management to existing customers.
Fully diluted earnings per share for the year ended 30 June 2018 increased by 92% to 7.09 pence (2017: 3.68 pence).
Although we have invested in additional sales resource we have maintained tight cost control throughout the year. Investment in
product development and enhancement continued at similar levels to the previous year, which we expect to sustain going forward.
We also expect to invest in additional marketing of our MVCS and desktop software solution in the coming year.
Financing
As at 30 June 2018 Arcontech had no debt and cash balances of £3,210,058 (2017: £2,636,471) after paying a maiden dividend, an
increase of 21% reflecting increased profitability. The business continues to be well financed and has a robust balance sheet.
Dividend
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 dividend of 1.30 pence per share for the year ended 30 June 2018 (1.0 pence per share for the year ended
30 June 2017), an increase of 30%, to those shareholders on the register as at the close of business on 7 September 2018, with an
ex-dividend date of 6 September 2018.
Employees
I would like to thank our employees and my colleagues on the Board for their hard work, continued support and dedication, which
is greatly appreciated.
Outlook
Arcontech is a well-run Company where operational gearing is such that increased sales will have a material positive impact on
our profitability. We have added additional sales resource to increase our focus on new business growth and while this will add to
our cost base we believe it will generate positive results in the near future. Our pipeline of prospects remains positive, albeit they
need to be tempered by the traditionally long and complex sales cycles that are an enduring facet of our business.
Richard Last
Chairman and Non-Executive Director
ARCONTECH GROUP PLC
2
Chief Executive’s Review
I am pleased to report that during the year we maintained our focus on expanding and delivering on the sales pipeline, whilst
continuing to control costs, which resulted in a profit before tax of £575,632 (2017: £373,263), an increase of 54% compared to
the previous year and a creditable performance by the Group.
The year under review saw two global clients that were trialling our desktop software solution signed up as paying users.
Pleasingly, they have both rolled out our solution internationally. We also have six other clients running trials and secured an
additional client for our cache product in Africa, our first client on that continent. The majority of our business during the year
was a result of expanding our existing client relationships.
Significantly, we renewed a multi-year agreement with an existing global client who is moving from a traditional market data
platform to an open-source solution. As an integral part of the overall solution we expect the relationship will grow as the new
solution is rolled out globally across the business. Other installations and upgrades, such as Windows to Linux, continue without
issue.
We relocated our Hong Kong based salesperson to London, where we believe greater opportunities exist both within the UK and
also by using it as a base from where we can target other regions. We have also recruited another salesperson to help accelerate
sales growth further. Learning new products and building new relationships in our domain takes time and we expect to see an
increasingly positive impact towards the latter part of the current year.
Our participation in the FinTech community, where we both add and receive value, continues to be beneficial for all parties. We
have retained our membership of the OpenMAMA steering committee and changed our membership of the Symphony Foundation
to now become a development partner with Symphony LLC. As these organisations evolve we will benefit through exposure of
our solutions and the ways in which we can meet market data needs to the broader financial community.
The outlook for the business remains positive and unaffected by the wider uncertainties surrounding Brexit.
The length of the sales cycle has been longer that we would like, however, we believe the expanded product offering and sales
capability should improve the frequency of sales. Coupled with the excellent work of our development and support teams, we
continue to build on our strengths whilst working with our clients to help meet their ever-changing needs.
Our overriding focus remains on sales growth and continuing to build our pipeline. We are also exploring opportunities with other
organisations that will complement our offerings, whilst continuing to look for strategic acquisition opportunities that will benefit
the Group.
We look forward to continued growth in the year ahead.
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 2018.
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 £2,519,699 (2017: £2,307,751; 2016: £2,141,630)
Adjusted profit £626,856 (2017: £441,996; 2016: £329,260)
Cash £3,210,058 (2017: £2,636,471; 2016: £1,633,159)
Earnings per share (basic) 7.14p (2017: 3.79p; 2016: 3.38p)
Earnings per share (diluted) 7.09p (2017: 3.68p; 2016: 3.25p)
Non-financial KPIs:
Staff retention rate (net) 92% (2017: 100%; 2016: 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:
Earnings after tax divided by the weighted average
number of shares
Performance:
Expected to grow
Measurement:
Earnings after tax divided by the fully diluted number of
shares
Performance:
Continued growth
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 small net decrease
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 22 August 2018 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 25 years’ experience in IT and
communications. Currently, he is Chairman and Non-Executive Director of Gamma Communications plc (AIM listed), ITE Group
plc (fully listed), Tribal Group plc (AIM listed) and Lighthouse Group plc (AIM listed). In addition, Richard is Chairman of The
British Smaller Companies VCT2 plc (fully listed) and is a Non-Executive Director of Corero Network Security plc (AIM listed).
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 2018, 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 9.
Remuneration Committee
Details of the Remuneration Committee are given in its Report on pages 10-16. 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.
Nomination Committee
The Nomination Committee assists the Board in discharging its responsibilities relating to the composition and make-up of the
Board and any committees of the Board. It is also responsible for periodically reviewing the Board’s structure and identifying
potential candidates to be appointed as Directors or committee members as the need may arise. The Nomination Committee is
responsible for evaluating the balance of skills, knowledge and experience and the size, structure and composition of the Board
and committees of the Board, retirements and appointments of additional and replacement Directors and committee members and
will make appropriate recommendations to the Board on such matters.
The Nomination Committee is chaired by Richard Last. Its other members are Louise Barton and Michael Levy. The Nomination
Committee meets not less than once a year.
ARCONTECH GROUP PLC
7
Corporate Governance (continued)
Corporate governance report (continued)
Relations with shareholders (continued)
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
22 August 2018
ARCONTECH GROUP PLC
8
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 2018, 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
22 August 2018
ARCONTECH GROUP PLC
9
Corporate Governance (continued)
Remuneration Committee report
Dear shareholder
I am pleased to introduce the Directors’ Remuneration Report for the year ended 30 June 2018.
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
22 August 2018
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;
- Average workforce
i) 1 January 2017 and
was increased by 5% to
£157,500; and
ii) 1 July 2018 and
salary adjustments. was increased by 4.8% to
Salaries are benchmarked £165,000.
against companies of
similar size and sector. Director’s base salary
The Group Finance
was reviewed on
1 January 2017 and was
increased by 22.5% to
£25,000.
ARCONTECH GROUP PLC
10
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
eligible staff) are entitled annum of basic salary into
to participate in the
Company’s workplace
pension scheme.
2% (previously 1%) per
the scheme. The
Executive Directors are
able to request that the
Company, at the discretion
of the Remuneration
Committee, makes additional
additional contributions where
salary or bonus has been.
waived. During the year the
company contributed £Nil
(2017: £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 100% of salary.
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
11
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.
The Chairman’s fee is
approved by the Board
on the recommendation
of the Non-Executive
Director and Executive
Directors.
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
size and complexity.
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
12
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 £165,000 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 2% of basic salary contributed by Currently 2% 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
13
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 2018.
Remuneration Committee
The Remuneration Committee consisted of the following Directors during the year ended 30 June 2018:
Richard Last, Independent Non-Executive Director and Chairman of the Board
Louise Barton (Chairman), Independent Non-Executive Director
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.
Salary/fees
Benefits
Bonus
Share options
Pension
Total
Year ended 30 June 2018
Chairman and Non-Executive Directors
Richard Last (Chairman)
Louise Barton
Total Non-Executive
30,750
20,500
51,250
516
-
516
-
-
-
3,525
3,745
7,270
-
-
-
34,791
24,245
59,036
Executive Directors
Matthew Jeffs
Michael Levy*
Total Executives
Total remuneration
154,053
3,468
101,495
47,764
1,969
308,749
25,625
179,678
230,928
2,080
5,548
6,064
3,500
104,995
104,995
2,938
50,702
57,972
321
2,290
2,290
34,464
343,213
402,249
ARCONTECH GROUP PLC
14
Corporate Governance (continued)
Remuneration Committee report (continued)
Directors’ Remuneration (Continued)
Analysis of bonuses:
Directors
Matthew Jeffs
Year ended 30 June 2017
Year ended 30 June 2018
Michael Levy
Year ended 30 June 2018
Total
Accrued
Paid
as cash
Paid
as pension
Total
7,000
(60,000)
81,428
-
21,428 73,067 7,000
73,067
-
20,067
81,428
101,495
3,500
3,500
24,928 73,067 7,000
-
3,500
- 3,500
104,995
-
-
Salary/fees
Benefits
Bonus
Share options
Pension
Total
Year ended 30 June 2017
Chairman and Non-Executive Directors
Richard Last (Chairman)
Louise Barton
Total Non-Executive
27,240
17,650
44,890
375
-
375
-
-
-
- -
-
-
5,386
5,386
27,615
23,036
50,651
Executive Directors
Matthew Jeffs
Michael Levy*
Total Executives
Total remuneration
Director
Matthew Jeffs
Year ended 30 June 2017
Total
154,423
2,408
10,000
57,961
46,683
271,745
22,700
177,123
222,013
1,412
3,820
4,195
-
10,000
10,000
-
57,961
63,347
179
46,862
46,862
24,291
295,766
346,417
Accrued
Paid
as cash
Paid
as pension
Total
100,000
100,000
-
-
(40,000)
(40,000)
60,000
60,000
*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.
ARCONTECH GROUP PLC
15
Corporate Governance (continued)
Remuneration Committee report (continued)
Directors’ Remuneration (Continued)
Directors’ share interests
The number of ordinary shares of the Company in which the Directors were beneficially interested at 30 June 2018 was:
Director
Richard Last
Louise Barton
Matthew Jeffs
Michael Levy
30 June 2018
1,691,659
1,071,416
890,000
129,660
30 June 2017
1,596,421
1,031,416
450,000
50,295
Directors’ share options interests
No awards were made to Directors during the year ended 30 June 2018.
Director
At 1 July 2017
Granted
Exercised
At 30 June 2018
Richard Last
Louise Barton
Matthew Jeffs
Michael Levy
95,238
24,762
80,000
20,000
240,000
127,516
79,365
20,635
-
-
-
-
-
-
-
-
95,238
-
40,000
-
240,000
127,516
79,365
-
-
24,762
40,000
20,000
-
-
-
20,635
Exercise
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
Normal exercise
period
18 Oct 13 – 17 Oct 17
25 Apr 20 – 24 Apr 27
1 Sep 17 – 31 Aug 21
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
Louise Barton
Remuneration Committee Chairman
22 August 2018
ARCONTECH GROUP PLC
16
Directors’ Report
The Directors present their Report and financial statements for the year ended 30 June 2018.
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 24. The Directors recommend the payment of a final dividend of 1.3 pence per
ordinary share (2017: 1.0 pence per share) to be paid on 4 October 2018 to ordinary shareholders on the register on 24 August
2018 £171,737 (2017: £125,760).
Directors
The Directors who have held office during the period from 1 July 2017 to the date of this report are as follows:
Richard Last
Matthew Jeffs
Michael Levy
Louise Barton
Michael Levy, who retires by rotation under Article 106 of the Company's articles of association and, who being eligible, offers
himself to be re-elected as a Director of the Company.
Except as disclosed in note 22 to the financial statements none of the Directors had an interest in any contracts with the Company
or its subsidiaries during the year.
Independence of Non-Executive Directors
Richard Last and Louise Barton were appointed Non-Executive Directors on 19 February 2007 and have served for more than 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
17
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
ARCONTECH GROUP PLC
18
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
19
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 2018 which comprise the Group Income Statement and Statement of Comprehensive Income, Group and
Company Statements of Changes in Equity, Group and Company Balance Sheets, Group and Company Cash Flow Statements 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.
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 2018 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 as applied to listed entities, 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
20
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 which have been
form one
to
combined
group’s
CGU.
The
assessment
carrying
value requires significant
in particular
judgement,
regarding
flows,
cash
growth rates, discount rates
sensitivity
and
assumptions.
of
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
assumptions
historical
by
trading
comparing
rates of both
considered
performance
recent growth
revenue and operating profit;
assessed the appropriateness of
the
concerning
growth rates and inputs to the
discount
latest
market expectations;
performed sensitivity analysis to
determine the minimum revenue
and profit growth necessary to
support the goodwill balance;
and
performed sensitivity analysis to
an
determine
impairment would be required if
costs increase at a higher than
forecast rate.
whether
In performing our procedures, we used
our internal valuation specialists and
to assess
third party evidence
the
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 £55,000. This has been determined with reference to the
benchmark of the group’s profit before tax, which we consider to be one of the principal considerations for members of the parent
company in assessing the performance of the group. Materiality represents 10% of the group’s profit before tax as presented on
the face of the consolidated Income Statement.
The materiality for the parent company financial statements as a whole was set at £44,000. This has been determined with
reference to the parent company’s assets, which we consider to be an appropriate measure for a company with significant
investment holdings. Materiality represents 1% of the net assets as presented on the face of the parent company’s Balance Sheet.
ARCONTECH GROUP PLC
21
Independent Auditor’s Report to the members of
Arcontech Group PLC (continued)
An overview of the scope of our audit
Of the group’s 4 reporting components, we subjected 2 to audits for group reporting purposes and 2 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 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 and accounts, 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 19, 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
22
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.
Use of our report
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.
Michael Neale
Senior Statutory Auditor, for and on behalf of
Nexia Smith & Williamson
Statutory Auditor
Chartered Accountants
Portwall Place
Portwall Lane
Bristol
BS1 6NA
22 August 2018
ARCONTECH GROUP PLC
23
Group Income Statement and Statement of Comprehensive Income
For the year ended 30 June 2018
Revenue
Administrative costs
Operating profit
Finance income
Profit before taxation
Taxation
Profit for the year after tax
Total comprehensive income for the year
Earnings per share (basic)
Earnings per share (diluted)
All of the results relate to continuing operations.
Note
3
4
8
9
9
2018
£
2017
£
2,519,699
2,307,751
(1,958,176)
(1,942,430)
561,523
365,321
14,109
7,942
575,632
373,263
339,452
96,988
915,084
470,251
915,084
470,251
7.14p
7.09p
3.79p
3.68p
The notes on pages 29 to 50 form part of these financial statements
ARCONTECH GROUP PLC
24
Statement of Changes in Equity
For the year ended 30 June 2018
Group:
Balance at 30 June 2016
Profit for the year
Share
capital
£
1,541,732
Share
premium
£
2,024
Share
option
reserve
£
119,692
Retained
earnings
£
568,831
Total
equity
£
2,232,279
-
-
-
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
Share-based payments
20,944
7,778
-
-
-
68,733
-
-
28,722
68,733
Balance at 30 June 2017
1,562,676
9,802
188,425
1,039,082
2,799,985
Dividend paid
Profit for the year
-
-
-
-
-
-
(125,760)
(125,760)
915,084
915,084
Total comprehensive income for the year
1,562,676
9,802
188,425
1,828,406
3,589,309
Issue of shares
Share-based payments
Realisation of share option reserve
88,638
46,579
-
-
-
-
-
51,224
(183,283)
183,283
-
-
-
135,217
51,224
Balance at 30 June 2018
1,651,314
56,381
56,366
2,011,689
3,775,750
Company:
Balance at 30 June 2016
Profit for the year
Share
capital
£
1,541,732
Share
premium
£
2,024
Share
option
reserve
£
119,692
Retained
earnings
£
1,643,526
Total
equity
£
3,306,974
-
-
-
1,418,859
1,418,859
Total comprehensive expense for the year
1,541,732
2,024
119,692
3,062,385
4,725,833
Issue of shares
Share-based payments
20,944
7,778
-
-
-
68,733
-
-
28,722
68,733
Balance at 30 June 2017
1,562,676
9,802
188,425
3,062,385
4,823,288
Dividend paid
Profit for the year
-
-
-
-
-
-
(125,760)
(125,760)
1,076,709
1,076,709
Total comprehensive income for the year
1,562,676
9,802
188,425
4,013,334
5,774,237
Issue of shares
Share-based payments
Realisation of share option reserve
88,638
46,579
-
-
-
-
-
51,224
(183,283)
183,283
-
-
-
135,217
51,224
Balance as at 30 June 2018
1,651,314
56,381
56,366
4,196,617
5,960,678
The notes on pages 29 to 50 form part of these financial statements.
ARCONTECH GROUP PLC
25
Balance Sheets
Registered number: 04062416
As at 30 June 2018
Non-current assets
Goodwill
Property, plant and equipment
Investments in subsidiaries
Deferred tax asset
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
2018
£
Group
2017
£
Company
2018
£
Company
2017
£
1,715,153
1,715,153
17,941
33,825
-
-
-
-
-
270,000
141,750
2,144,844
-
-
141,750
1,890,728
2,017,471
2,017,373
50,000
-
2,067,471
-
-
2,017,373
310,123
175,496
2,571,949
1,806,341
3,210,058
3,520,181
2,636,471
2,811,967
1,458,390
4,030,339
1,658,039
3,464,380
(1,889,275)
(1,889,275)
(1,902,710)
(1,902,710)
(137,132)
(137,132)
(658,465)
(658,465)
1,630,906
909,257
3,893,207
2,805,915
3,775,750
2,799,985
5,960,678
4,823,288
1,651,314
1,562,676
1,651,314
1,562,676
56,381
56,366
9,802
56,381
9,802
188,425
56,366
188,425
2,011,689
1,039,082
4,196,617
3,775,750
2,799,985
5,960,678
3,062,385
4,823,288
Note
10
11
12
16
13
13
14
15
17
18
18
18
The profit dealt with in the financial statements of the Parent Company was £1,076,709 (2017: £1,418,859).
Approved on behalf of the board on 22 August 2018 by:
Matthew Jeffs
Chief Executive
Michael Levy
Group Finance Director
The notes on pages 29 to 50 form part of these financial statements.
ARCONTECH GROUP PLC
26
Group Cash Flow Statement
For the year ended 30 June 2018
Net cash generated from operating activities
20
552,111
974,800
Note
2018
£
2017
£
Investing activities
Interest received
Purchases of plant and equipment
14,109
7,942
(2,090)
(8,152)
Net cash generated from/(invested in) investing activities
12,019
(210)
Financing activities
Issue of shares
Dividend paid
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
135,217
28,722
(125,760)
-
9,457
28,722
573,587
1,003,312
2,636,471
1,633,159
Cash and cash equivalents at end of year
14
3,210,058
2,636,471
The notes on pages 29 to 50 form part of these financial statements.
ARCONTECH GROUP PLC
27
Company Cash Flow Statement
For the year ended 30 June 2018
Net cash (used in)/generated from operating activities
20
(218,821)
349,506
Note
2018
£
2017
£
Investing activities
Interest received
Net cash generated from investing activities
Financing activities
Issue of shares
Dividend paid
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
9,715
9,715
7,519
7,519
135,217
28,722
(125,760)
-
9,457
28,722
(199,649)
385,747
1,658,039
1,272,292
Cash and cash equivalents at end of year
14
1,458,390
1,658,039
The notes on pages 29 to 50 form part of these financial statements.
ARCONTECH GROUP PLC
28
Notes to the Financial Statements
For the year ended 30 June 2018
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 England and Wales. 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
Yes
Yes
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
29
Notes to the Financial Statements
For the year ended 30 June 2018 (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 2018. 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.
Research and development tax credits are recognised when received.
The tax payable/(receivable) is based on the taxable result for the year. The taxable result differs from the net result as
reported in 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
30
Notes to the Financial Statements
For the year ended 30 June 2018 (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.
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
31
Notes to the Financial Statements
For the year ended 30 June 2018 (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
32
Notes to the Financial Statements
For the year ended 30 June 2018 (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
33
Notes to the Financial Statements
For the year ended 30 June 2018 (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
As described in Note 1, the Group capitalises development costs when certain criteria are met including the probability of
relevant future economic benefits. The directors have assessed the likelihood of relevant future economic benefits and have
judged it appropriate to not capitalise any development costs.
Recognition of deferred tax assets
As described in Note 1, the Group recognises deferred tax assets arising from unused tax losses when certain criteria are met
including the probability that future relevant taxable profits will be available. The directors have assessed the likelihood of
future taxable profits being available and have judged it appropriate to recognise deferred tax assets for unused losses.
3. Revenue
An analysis of the Group’s revenue is as follows:
Software development and licence fees
2,519,699
2,307,751
2018
£
2017
£
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 (see note 11)
Staff costs (see note 7)
Operating lease rentals - land and buildings (see note 21)
Research and development
2018
£
17,974
1,446,965
140,866
517,042
2017
£
19,112
1,431,316
140,866
516,160
ARCONTECH GROUP PLC
34
natNotes to the Financial Statements
For the year ended 30 June 2018 (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:
2018
£
17,000
5,000
2017
£
16,000
4,500
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
2018
£
2017
£
2,519,699
2,519,699
2,307,751
2,307,751
Software development and licence fees
1,126,932
854,981
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
(565,409)
561,523
14,109
575,632
2018
£
(489,660)
365,321
7,942
373,263
2017
£
4,090,852
3,547,110
4,140,338
8,231,190
3,802,083
7,349,193
(2,566,166)
5,665,024
(2,646,498)
4,702,695
ARCONTECH GROUP PLC
35
Notes to the Financial Statements
For the year ended 30 June 2018 (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
2018
£
2017
£
4,318,229
3,890,649
137,212
4,455,441
658,560
4,549,209
(2,566,166)
1,889,275
(2,646,499)
1,902,710
2018
£
2,090
2,090
-
-
2018
£
2017
£
8,152
8,152
2,699
2,699
2017
£
Depreciation of property, plant and equipment assets recognised in the
period by segment
Software development and licence fees
Total depreciation
17,974
17,974
19,112
19,112
Non-current assets by country
UK
Total non-current assets
2018
£
2,144,844
2,144,844
2017
£
1,890,728
1,890,728
ARCONTECH GROUP PLC
36
Notes to the Financial Statements
For the year ended 30 June 2018 (continued)
6. Operating segments (continued):
Geographical information - External revenue
UK
Europe (excluding UK)
Africa
North America
Asia Pacific
2018
£
1,669,949
796,468
22,562
28,488
2,232
2,519,699
2017
£
1,600,027
652,894
-
27,830
27,000
2,307,751
During the year there were 3 customers (2017: 3) who accounted for more than 10% of the Group’s revenues as follows:
Customer 1
Customer 2
Customer 3
2018
2017
Value of
sales
£
620,630
477,258
375,219
1,473,107
% of Total
25%
19%
15%
59%
Value of
sales
£
612,998
357,327
309,232
1,279,557
% of Total
27%
15%
13%
55%
These revenues are attributable to the software development and licence fees segment.
ARCONTECH GROUP PLC
37
Notes to the Financial Statements
For the year ended 30 June 2018 (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
Directors’ emoluments represent the staff costs of the parent company.
The average number of employees of the parent company is 4 (2017: 4)
The highest paid Director received remuneration of £306,780 (2017: £270,582).
2018
£
1,211,183
167,280
17,279
51,223
1,446,965
6
10
16
£
375,413
26,835
402,248
69,409
471,657
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
The number of Directors that are members of a defined contribution pension scheme is 2 (2017: 2). Pension contributions
paid to a defined contribution scheme in respect of the highest paid Director amounted to £8,969 (2017: £1,163).
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
2018
£
69,452
270,000
339,452
2017
£
96,988
-
96,988
ARCONTECH GROUP PLC
38
Notes to the Financial Statements
For the year ended 30 June 2018 (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
2018
£
575,632
2017
£
373,263
Profit on ordinary activities multiplied by the standard rate of corporation
tax in the UK of 19 % (2017: 19.75%)
109,370
73,719
Effects of:
Disallowed expenses
Temporary differences on deferred tax
Singapore taxable profit at overseas tax rate
1,984
2,841
-
1,172
765
426
Research and development tax credits
(69,452)
(96,988)
Deferred tax asset not previously recognised
(270,000)
-
Brought forward losses utilised/loss for the year carried forward
(114,195)
(76,082)
Total tax credit for the year
(339,452)
(96,988)
Factors which may affect future tax charges
At 30 June 2018 the Group has tax losses of approximately £9,600,000 (2017: £9,900,000) to offset against future trading
profits.
ARCONTECH GROUP PLC
39
Notes to the Financial Statements
For the year ended 30 June 2018 (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
2018
£
2017
£
915,084
915,084
470,251
470,251
No.
No.
12,821,702
12,396,220
77,699
367,595
12,899,401
12,763,815
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
2018
£
2017
£
At 1 July 2017 and at 30 June 2018
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
2018
£
1,715,153
1,715,153
2017
£
1,715,153
1,715,153
The CGUs used in these calculations are Arcontech Limited and Arcontech Solutions Limited which have been combined to
form one CGU as they do not operate independently. 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 1.5%.
ARCONTECH GROUP PLC
40
Notes to the Financial Statements
For the year ended 30 June 2018 (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% (2017: 7%) 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 6% 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 9.9% (2017: 9.6%),
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 2016
Additions
Disposals
At 1 July 2017
Additions
At 30 June 2018
Depreciation
At 1 July 2016
Charge for the year
On disposals
At 1 July 2017
Charge for the year
At 30 June 2018
Net book amount at 30 June 2018
Net book amount at 30 June 2017
Leasehold
Property
£
Office
furniture &
equipment
£
Total
£
18,892
115,431
134,323
-
-
18,892
-
8,152
(2,699)
120,884
2,090
8,152
(2,699)
139,776
2,090
18,892
122,974
141,866
5,117
84,421
4,722
-
9,839
4,723
14,390
(2,699)
96,112
13,251
89,538
19,112
(2,699)
105,951
17,974
14,562
109,363
123,925
4,330
9,053
13,611
24,772
17,941
33,825
ARCONTECH GROUP PLC
41
Notes to the Financial Statements
For the year ended 30 June 2018 (continued)
12. Investment in subsidiaries
Carrying amount
At 1 July 2017
Provisions written back
Amounts written off
At 30 June 2018
2018
£
2017
£
2,017,373
2,017,373
99
(1)
-
-
2,017,471
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
11-21 Paul Street, London
EC2A 4JU
11-21 Paul Street, London
EC2A 4JU
11-21 Paul Street, London
EC2A 4JU
Software development
and consultancy
Software development
Software development
and consultancy
Ordinary
shares
held
100%
100%
100%
13. Trade and other receivables
Due within one year:
Group
2018
£
Group
2017
£
Company
2018
£
Company
2017
£
Trade receivables
161,540
98,262
-
-
Amounts owed by group undertakings
Prepayments and accrued income
Due after more than one year:
Other receivables
-
148,583
310,123
Group
2018
£
141,750
141,750
-
2,565,925
1,800,565
77,234
175,496
6,024
2,571,949
5,776
1,806,341
Group
2017
£
141,750
141,750
Company
2018
£
Company
2017
£
-
-
-
-
ARCONTECH GROUP PLC
42
Notes to the Financial Statements
For the year ended 30 June 2018 (continued)
13. Trade and other receivables (continued)
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 £303,290 (2017: £240,012). 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.
As at 30 June 2018, trade receivables of £Nil were impaired (2017: £Nil). As at 30 June 2018 trade receivables of £33,588
(2017: £95,972) were past due but not impaired. The ageing analysis of these trade receivables is as follows:
Up to 3 months past due
More than 3 months past due
Group
2018
£
24,997
8,591
33,588
Group
2017
£
95,972
-
95,972
Company
2018
£
Company
2017
£
-
-
-
-
-
-
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
2018
£
45,335
-
Group
2017
£
39,729
-
Other tax and social security payable
64,008
51,404
Other payables and accruals
753,813
823,968
Deferred income
1,026,119
1,889,275
987,609
1,902,710
Company
2018
£
Company
2017
£
1,868
241
6,726
128,297
-
137,132
1,562
508,233
-
148,670
-
658,465
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 £799,148 (2017: £863,697).
ARCONTECH GROUP PLC
43
Notes to the Financial Statements
For the year ended 30 June 2018 (continued)
16. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using the tax rate at which it is expected
to unwind, being 19% until 31 March 2020 and then 17% from 1 April 2020. The movement on the deferred tax account is
as shown below:
At 1 July 2017
Tax credit recognised in group income
statement
At 30 June 2018
Group
2018
£
-
270,000
270,000
Group
2017
£
-
-
-
Company
2018
£
-
50,000
50,000
Company
2017
£
-
-
-
The deferred tax asset has been recognised in relation to forecast taxable profits which are considered probable.
Losses to offset against future trading profits at 30 June 2018 amounted to approximately £9,600,000 (2017: £9,900,000).
17.
Share capital
Company
Allotted and fully paid:
2018
£
2017
£
13,210,510 (2017: 12,501,407) Ordinary shares of 12.5p each
1,651,314
1,562,676
During the year the company allotted new ordinary shares as follows:
Date
5 July 2017
21 July 2017
15 August 2017
21 September 2017
11 October 2017
18 April 2018
18 April 2018
19 April 2018
Number of shares
18,413
10,952
76,190
21,429
174,603
127,516
240,000
40,000
Price per share
17.5p
17.5p
17.5p
17.5p
17.5p
12.5p
23.75p
23.75p
ARCONTECH GROUP PLC
44
Notes to the Financial Statements
For the year ended 30 June 2018 (continued)
17. Share capital (continued)
Share options
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:
Share options
At 1 July
2017
Employees:
126,985
80,000
165,000
79,365
20,635
95,238
24,762
80,000
20,000
Directors:
Michael Levy
Richard Last
Louise Barton
Matthew Jeffs
240,000
127,516
1,059,501
Granted
Exercised
Lapsed
At 30 June
2018
Exercise price
Normal exercise period
-
-
-
-
-
-
-
-
-
-
-
-
(126,985)
-
-
(79,365)
-
(95,238)
-
(40,000)
-
(240,000)
(127,516)
(709,104)
-
-
-
-
-
-
-
-
-
-
-
-
-
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
-
17.50 pence
18 Oct 13 – 17 Oct 17
20,635
64.50 pence
25 Apr 20 – 24 Apr 27
-
17.50 pence
18 Oct 13 – 17 Oct 17
24,762
64.50 pence
25 Apr 20 – 24 Apr 27
40,000
23.75 pence
1 Sep 17 – 31 Aug 21
20,000
64.50 pence
25 Apr 20 – 24 Apr 27
23.75 pence
1 Sep 17 – 31 Aug 21
12.50 pence 1 Sep 2017 – 31 Aug 21
-
-
350,397
Weighted
average exercise
price
29.5 pence
-
19.1 pence
-
50.5 pence
The number of options exercisable at 30 June 2018 was 120,000 (At 30 June 2017: 301,587), these had a weighted average
exercise price of 23.75 pence (2017: 17.5 pence).
The weighted average share price as at the exercise date of the shares exercised in the year was 66.6 pence (2017: 59.5
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 79 pence, the lowest price was 62 pence and the price at the
year-end was 76 pence.
The weighted average remaining contractual life of share options outstanding at 30 June 2018 was 7 years (2017: 4 years).
ARCONTECH GROUP PLC
45
Notes to the Financial Statements
For the year ended 30 June 2018 (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.
The fair value of options is valued using the Black-Scholes pricing model. An expense of £51,224 (2017: £68,733) has been
recognised in the period in respect of share options granted. The cumulative share option reserve at 30 June 2018 is £56,366
(2017: £188,425). 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:
30 June
2018
Directors
30 June
2018
Employees
Exercise price
Expected life
Expected volatility
Risk free rate of interest
Dividend yield
23.75/64.5 pence
6/10 years
60%-65%
0.5%
Nil
23.75/64.5 pence
6/10 years
60%-65%
0.5%
Nil
Weighted average share price
23.75/64.5 pence
23.75/64.5 pence
Fair value of option
19.64/36.7 pence
19.64/36.7 pence
30 June
2017
Directors
17.5/23.75/12.5/
64.5
pence
4.5/6/10 years
100%
0.5%
Nil
30 June
2017
Employees
15.625/17.5/23.75/64.5
pence
6/10 years
100%
0.5%
Nil
15.0/23.75/64.5
pence
15.625/15.0/23.75/64.5
pence
14.1875/19.64/
43.71/64.5 pence
15.0/14.1875/19.64/
64.5 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, less amounts realised and transferred to retained earnings.
Retained earnings
This relates to accumulated profits and losses together with distributable reserves arising from capital reductions, less
amounts distributed to shareholders.
ARCONTECH GROUP PLC
46
Notes to the Financial Statements
For the year ended 30 June 2018 (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.
20. Net cash generated from operations - Group
Operating profit
Depreciation charge
Non cash share option charges
(Increase)/decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Cash generated from operations
Tax recovered
Net cash generated from operations - Company
Operating profit
Non cash share option charges
2018
£
561,523
17,974
51,224
(134,626)
(13,436)
482,659
69,452
2017
£
365,321
19,112
68,733
89,864
334,782
877,812
96,988
552,111
974,800
2018
£
2017
£
1,018,397
1,411,340
51,224
68,733
Increase in trade and other receivables
(765,606)
(1,599,572)
(Decrease)/increase in trade and other payables
(522,836)
469,005
Cash (used in)/generated from operations
(218,821)
349,506
ARCONTECH GROUP PLC
47
Notes to the Financial Statements
For the year ended 30 June 2018 (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
2018
£
129,336
-
-
129,336
Group
2017
£
141,094
129,336
-
270,430
Company
2018
£
Company
2017
£
-
-
-
-
-
-
-
-
Land and buildings:
Due within one year
Due between two and five years
After more than 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 disclosed in this part of the 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 £57,875 (2017: £53,664). At 30 June 2018 the amount outstanding was £Nil (2017: £Nil).
Company
Transactions between the Parent Company and its subsidiaries during the year were as follows:
Management charges payable by subsidiaries £659,214 (2017: £570,563).
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
2018
£
2017
£
7,054,104
6,744,129
(4,488,179)
2,565,925
(4,943,564)
1,800,565
During the year a provision of £455,386 was released (2017: provision released £1,328,222) in respect of balances due from
subsidiaries.
Amount due to subsidiaries
ARCONTECH GROUP PLC
2018
£
659,214
659,214
2017
£
508,233
508,233
48
Notes to the Financial Statements
For the year ended 30 June 2018 (continued)
23. Dividends
A final dividend of 1.3 pence will be proposed at the Annual General Meeting but has not been recognised as it requires
approval (2017: 1.0 pence).
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
Group
2018
£
161,540
Group
2017
£
98,262
Company
2018
£
-
Company
2017
£
-
Cash and cash equivalents
3,210,058
2,636,471
1,458,390
1,658,039
Amounts owed by group undertakings
-
3,371,598
-
2,734,733
2,565,925
4,024,315
1,800,565
3,458,604
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 0.24% below bank base rate and 1.1% above
bank base rate and at fixed/variable rates of between 0.35% and 1.79% (2017: 0.10% below bank base rate and 1.54% above
bank base rate and at fixed/variable rates of between 0.35% and 1.1%).
ARCONTECH GROUP PLC
49
Notes to the Financial Statements
For the year ended 30 June 2018 (continued)
25. Financial instruments (continued)
Liquidity risk
The Group has no short-term debt finance. The Group monitors its levels of working capital to ensure that it can meet its
liabilities as they fall due.
The Group’s only financial liabilities comprise trade payables and other payables and accruals, excluding deferred income,
with a carrying value equal to the gross cash flows payable of £799,148 (2017: £863,697) 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 2018, if bank base rate had increased by 0.5% with all other variables held
constant, post-tax profit would have been £14,616 (2017: £10,675) higher and equity would have been £14,616 (2017: £10,675)
higher. Conversely, if bank base rate had fallen 0.5% with all other variables held constant, post-tax profit would have been
£14,616 (2017: £10,675) lower and equity would have been £14,616 (2017: £10,675) 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
50
Arcontech Group PLC
1st Floor, 11-21 Paul Street
LONDON
EC2A 4JU
tel: +44 (0)20 7256 2300
web: www.arcontech.com
email: mail@arcontech.com
Arcontech Group PLC
Report and financial statements for the year ended 30 June 2018