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
(cid:34)(cid:83)(cid:68)(cid:80)(cid:79)(cid:85)(cid:70)(cid:68)(cid:73)(cid:1)(cid:40)(cid:83)(cid:80)(cid:86)(cid:81)(cid:1)(cid:49)(cid:45)(cid:36)
(cid:34)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1)(cid:83)eport and (cid:66)(cid:68)(cid:68)(cid:80)(cid:86)(cid:79)(cid:85)(cid:84) (cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:90)ear ended 30 June 201(cid:26)
REGISTERED NUMBER: 04062416 (England and Wales)
Arcontech Group PLC
Annual Report and Accounts
Year ended 30 June 2019
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
I am pleased to report another year of progress for Arcontech Group plc (“Arcontech” or the “Company”) with good growth in
profit before taxation for the year ended 30 June 2019 to £1,057,143 (2018: £575,632), a year-on-year increase of 84% (62%
before the adoption of IFRS 15 “Revenue from contracts with customers”). During the year we re-assessed the level of accruals to
be carried forward on our balance sheet, as a result of which we have released accruals no longer required of £156,786 (2018:
£25,500). After adjusting for release of these accruals, profit before taxation would have been £900,357 (2018: £550,132), an
increase of 64% over the previous year (35% before adoption of IFRS 15). This demonstrates the significant profit conversion
from increased revenues as we are able to deliver more from our existing and well managed cost base.
We achieved a good increase in turnover for the year which grew by 18% to £2,966,788 (2018: £2,519,699) a year-on-year
increase of £447,089 (£321,633 before the adoption of IFRS 15). This was achieved primarily through increasing our product
sales to existing customers. We sold 300 Excelerators bringing those deployed in our customer base to 1,410 and doubled our
Desktop software solution customer base to 90. Whilst sales to new customers have not been significant during the year, our
pipeline of opportunities with potential new customers is already proving positive, particularly for our Excelerator and Desktop
software products.
We believe that fully diluted earnings based on profit before taxation, excluding the release of accruals noted above, provides a
better measure of our underlying performance. As at 30 June 2019 Arcontech had tax losses of approximately £8.7m to offset
against future trading profits. On this basis earnings (determined as profit before tax, assuming no tax charge/credit for the year,)
grew by 58% to 6.73p (36% before adoption of IFRS 15) during the year ended 30 June 2019 (30 June 2018: 4.26p). Based on the
actual tax charge, adjusted earnings grew by 4.1% to 7.18p during the year to 30 June 2019 (30 June 2018: 6.90p) reflecting the
reduction in the overall tax credit.
Financing
As at 30 June 2019 Arcontech had no debt and cash balances of £4,063,484 (2018: £3,210,058) an increase of 27% which
represents a cash conversion of adjusted operating profit (determined as operating profit before share-based payments and before
the release of accruals for administrative costs in respect of prior years) of 109% (2018: 94%). Arcontech continues to be well
financed and has a robust balance sheet which is highly desirable for a small, growing software company.
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 2.0 pence per share for the year ended 30 June 2019 (30 June 2018: 1.30 pence), an increase of
54%, to those shareholders on the register as at the close of business on 6 September 2019, with an ex-dividend date of
5 September 2019.
Employees
Arcontech has a small, highly effective and committed workforce that is customer focused. Their hard work, continued support
and dedication, is greatly appreciated and for which I thank them. I should also like to thank my colleagues on the Board for their
continued support.
Outlook
As a business we face a number of uncertainties: Brexit and changes taking place in the financial markets, as well as with our
competitors. However, against this backdrop, our customer relationships remain strong. We are a global business and believe we
offer excellent levels of support and operational flexibility as well as significant competitiveness, hence, we would expect to see
continued growth, despite the macro climate. Our pipeline of prospects remains positive, albeit, as we have consistently noted, the
outlook needs to be tempered by the traditionally long and complex sales cycles that are a feature 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 £1,057,143 (2018: £575,632), an increase of 84% (2018: 54%)
compared to the previous year and a creditable performance by the Group.
The year under review saw the two global clients using our Desktop software solution increase their usage and the signing of
another client, bringing the total to three, the third being a completely new client. We now have a total of 90 end users (2018: 45)
and continue to work with other clients where we are running trials.
We also managed to grow our Excelerator end users by just over 300 which, together with our Desktop software solution, means a
further 345 end users of Arcontech software.
To increase the value provided and therefore the use case for both Excelerator and our Desktop software solution we have also
been working with a client on building a RESTful interface which will enable content in JSON and SQL formats to be pulled into
our software from the web or intranets to display and use in spreadsheets, templates and charts. This provides a huge increase in
the data available to be consumed and can benefit any client.
We are also working on our server-side offerings to provide added value. To this end, we have been collaborating with key clients
to develop the first iteration of a new GUI for Director, our interface for MVCS and our Cache.
Work on improving our sales structure continued too and we have added a pre-sales support function. This role works with sales
personnel and their clients as a dedicated resource for technical issues, whereas previously the requirement was fulfilled by
support or development staff which interfered with the development process.
The length of the sales cycle continues to be 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 and broaden our strengths whilst working with our clients to help meet their ever-changing needs.
As ever, our overriding focus remains on sales growth and building our pipeline. At the same time, we are continuing to explore
opportunities with other organisations that can complement our offerings, whilst remaining alert 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 2019.
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 £2,966,788 (2018: £2,519,699; 2017: £2,307,751)
Adjusted profit £960,675 (2018: £889,584; 2017: £441,996)
Cash £4,063,484 (2018: £3,210,058; 2017: £2,636,471)
Earnings per share (basic) 8.46p (2018: 7.14p; 2017: 3.79p)
Earnings per share (diluted) 8.35p (2018: 7.09p; 2017: 3.68p)
Non-financial KPIs:
Staff retention rate (net) 100% (2018: 92%; 2017: 100%)
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 after tax and before release of accruals for
administrative costs in respect of prior years
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 continues to maintain healthy cash balances
subject to any exceptional circumstances or acquisition
opportunities
Measurement:
Earnings after tax divided by the weighted average
number of shares
Performance:
Continued growth
Measurement:
Earnings after tax divided by the fully diluted number of
shares
Performance:
Continued growth
Measurement:
Net retention after adjusting for joiners and leavers during
the year
Performance:
Staff morale from our dedicated employees remains
strong, reflected in the stable retention rate
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 21August 2019 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) and Tribal Group plc (AIM listed). In addition, Richard 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 directors recognise the importance of, and are committed to, high standards of corporate governance. Changes to the AIM
rules as of 28 September 2018 require AIM companies to apply a recognised corporate governance code. Of the two widely
recognised formal codes, the directors have decided to adhere to the Quoted Companies Alliance’s Corporate Governance code.
The Group’s compliance with this code is summarised below and can be found in full on the Group’s website at:
www.arcontech.com.
The working of the Board and its Committees
At 30 June 2019, the Board comprised two Non-Executive Directors, one of whom is the Chairman, and two Executive Directors.
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. Both of the Non-Executive Directors, who were appointed on 15 January 2007 have served for longer than this
period. The Board are of the opinion that their shareholdings align their interests with other shareholders. At the 2018 Annual
General Meeting 100% (2017: 99.99%) of shareholders voted in favour of their re-election. As such the Board consider their
independence is not affected.
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.
The Chairman and Executive Directors have other third-party commitments including directorships of other companies. The
Company is satisfied that these commitments have no significant impact on their ability to carry out their responsibilities
effectively. All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for
ensuring that Board procedures are followed, and that applicable rules and regulations are complied with. In addition, the
Company Secretary will ensure that the Directors receive appropriate training as necessary. All Directors are supplied with
information in a timely manner in a form, and of a quality, appropriate to enable them to discharge their duties.
During the year, certain Directors who were not Committee members attended meetings of the Audit Committee and
Remuneration Committee by invitation. These details have not been included in the table.
Board meeting attendance
Board
Meeting
Audit
Committee
Remuneration
Committee
Nomination
Committee
Executive Directors
Matthew Jeffs
Michael Levy
Non-Executive Directors
Richard Last (Independent)
Louise Barton (Independent)
10/10
10/10
10/10
10/10
Board performance
1/1
N/A
1/1
1/1
N/A
N/A
4/4
4/4
N/A
1/1
2/2
2/2
The Company has a formal process of annual performance evaluation for the Board, its Committees and individual Directors. The
Board and its Committees are satisfied that they are operating effectively. A performance evaluation of the Board, its Committees
and individual Directors is conducted annually.
The review is based on key areas, to include Board composition, information, process, internal control, accountability, CEO and
top management and standards of conduct. The areas are scored by all members, reviewed by the Chairman and Company
Secretary and compared against the previous evaluation. Lower scores are discussed.
The Company has Directors’ and officers’ liability insurance in place.
ARCONTECH GROUP PLC
7
Corporate Governance (continued)
Corporate governance report (continued)
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.
Relations with shareholders
The Board gives shareholder communication high priority, by way of press releases and presentations at the time of the release of
the interim and annual results. The Group issues its results on a timely basis. The website is updated on a regular basis to record
any relevant news.
The Board uses the Annual General Meeting to communicate with investors.
Richard Last
Chairman and Non-Executive Director
21 August 2019
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 2019, 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.
Adoption of IFRS 15
For the purposes of recognising revenue under IFRS 15, the Directors are required to identify distinct services in contracts and
allocate the transaction price to the performance obligations. The Audit Committee reviewed the implementation of IFRS 15 as
applied to contracts and agreed with management that no adjustments to the amounts recognised was required.
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
21 August 2019
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 2019.
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.
Louise Barton
Remuneration Committee Chairman
21 August 2019
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:
1 July.
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. was increased by 3.0% to
iii) 1 July 2019 and
£170,000
The Group Finance
Director’s base salary
was reviewed on:
i) 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
Base salary (continued)
Purpose
Operation
Potential
remuneration
ii) 1 January 2018 and
was increased by 5.0% to
£26,250.
Performance
metrics
Benefits
To attract and retain
key executives.
An Executive Director
is entitled to
participate in the
Company’s life
and medical insurance
schemes.
Premiums vary from
year to year. The
Remuneration
Committee monitors
the overall cost of the
benefits package.
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.
3% (previously 2%) 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 £5,000
(2018: £Nil) 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
and/or pension
contributions
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.
may be granted to eligible in respect of which
employees at the
discretion of the
Remuneration.
Committee
The Remuneration
Committee may
impose certain
options can be
granted is limited in any performance
financial year to shares
with a market value of
no more than 100% of
salary. (In the case of the conditions have been
Group Finance Director
this also includes fees
payable).
conditions on any
option preventing its
exercise unless such
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. They no
longer 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)
£30,750
£20,500
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 £25,625 reviewed annually
Discretionary performance related
Participation in the Company’s life
Matthew Jeffs
29 April 2013
3 months’ notice given by either party
Currently £170,000 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 3% of basic salary contributed by Currently 3% 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 2019.
Remuneration Committee
The Remuneration Committee consisted of the following Directors during the year ended 30 June 2019:
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.
Chairman and Non-Executive Directors
Richard Last (Chairman)
Louise Barton
Total Non-Executive
Executive Directors
Matthew Jeffs*
Michael Levy
Total Executives
Total remuneration
Salary/fees
Benefits
Bonus
Share options
Pension
Total
Year ended 30 June 2019
30,750
20,500
51,250
165,000
25,625
190,625
241,875
628
-
628
3,900
2,435
6,335
6,963
-
-
-
3,022
2,441
5,463
-
-
-
34,400
22,941
57,341
46,282
3,500
49,782
49,782
12,871
8,954
21,825
27,288
8,703*
591
9,294
9,294
236,756
41,105
277,861
335,202
*£5,000 of the overall bonus in respect of the prior year was paid as an additional pension contribution instead of cash.
ARCONTECH GROUP PLC
14
Corporate Governance (continued)
Remuneration Committee report (continued)
Directors’ Remuneration (Continued)
Analysis of bonuses:
Directors
Matthew Jeffs
Year ended 30 June 2018
Year ended 30 June 2019
Michael Levy
Year ended 30 June 2018
Year ended 30 June 2019
Total
Accrued
Paid
as cash
Paid
as pension
Total
(81,428)
46,756
(34,672)
(3,500)
3,500
-
(34,672)
80,954
-
80,954
3,500
-
3,500
84,454
5,000
-
5,000
-
-
-
5,000
4,526
46,756
51,282
-
3,500
3,500
54,782
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
Director
Matthew Jeffs
Year ended 30 June 2017
Year ended 30 June 2018
Michael Levy
Year ended 30 June 2018
Total
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
Accrued
Paid
as cash
Paid
as pension
Total
(60,000)
81,428
21,428
3,500
3,500
24,928
73,067
-
73,067
-
-
73,067
7,000
-
7,000
-
-
7,000
20,067
81,428
101,495
3,500
3,500
104,995
*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 2019 was:
Director
Richard Last
Louise Barton
Matthew Jeffs
Michael Levy
Directors’ share options interests
30 June 2019
1,541,659
1,071,416
910,000
129,660
30 June 2018
1,691,659
1,071,416
890,000
129,660
Director
At 1 July 2018
Granted
Exercised
At 30 June 2019
Richard Last
Louise Barton
Matthew Jeffs
Michael Levy
24,762
40,000
20,000
-
20,635
-
-
-
-
100,000
-
50,000
-
-
-
-
-
-
24,762
40,000
20,000
100,000
20,635
50,000
Exercise
price
64.50 pence
23.75 pence
64.50 pence
110.00 pence
64.50 pence
110.00 pence
Normal exercise
period
25 Apr 20 – 24 Apr 27
1 Sep 17 – 31 Aug 21
25 Apr 20 – 24 Apr 27
30 Jun 21 – 29 Jun 28
25 Apr 20 – 24 Apr 27
30 Jun 21 – 29 Jun 28
There are no performance conditions on the exercise of the options granted prior to 1 July 2018. The performance conditions of
the share options granted during the year are set out below.
The Options will be exercisable from 30 June 2021, dependent on the Company’s compound annual rate of growth in fully diluted
earnings* for the three financial years ending 30 June 2021. The Options will vest subject to performance criteria as follows:
- compound annual earnings growth of 10% or more - fully vested (100%);
- compound annual earnings growth between 5%-10% - partial vesting between 0% and 100% on a sliding scale; and
- compound annual earnings growth of 5% and below - nil.
Any Ordinary Shares arising from the vesting of Options must be held for a period of two years after vesting.
* Fully diluted earnings will be based on: (a) the Company’s pre-tax profit excluding exceptional items and the share option
charge and (b) the current UK corporation tax rate of 19%, such that the fully diluted earnings calculation takes no account of
R&D and deferred tax credits. For the purposes of the fully diluted earnings calculation, the applied rate of corporation tax will
remain constant at 19% irrespective of any current or future changes to corporation tax.
Louise Barton
Remuneration Committee Chairman
21 August 2019
ARCONTECH GROUP PLC
16
Directors’ Report
The Directors present their Report and financial statements for the year ended 30 June 2019.
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 2.0 pence per
ordinary share (2018: 1.3 pence per share) to be paid on 4 October 2019 to ordinary shareholders on the register on 6 September
2019 £264,210 (2018: £171,334).
Directors
The Directors who have held office during the period from 1 July 2018 to the date of this report are as follows:
Richard Last
Matthew Jeffs
Michael Levy
Louise Barton
Matthew Jeffs, who retires by rotation under Article 106 of the Company's articles of association and, who being eligible, offers
himself to be re-elected as a Director of the Company.
Except as disclosed in note 22 to the financial statements none of the Directors had an interest in any contracts with the Company
or its subsidiaries during the year.
Independence of Non-Executive Directors
Richard Last and Louise Barton were appointed Non-Executive Directors on 19 February 2007 and have served for more than
10 years. The Board are of the opinion that their shareholdings align their interests with other shareholders, and, in addition, they
offer themselves for re-election each year. At the 2018 Annual General Meeting 100% (2017: 99.99%) of shareholders voted in
favour of their re-election. As such the Board consider their independence is not affected.
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.
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.
Future developments
The outlook for the year ending 30 June 2020 is expected to see continued growth, despite the macro climate and tempered as
always by the traditionally long and complex cycles that are a feature of 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 ensuring that they meet their responsibilities under the AIM rules.
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 2019 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 2019 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 SME 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 in respect of the group 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. There were no key audit matters identified in respect of the parent company.
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
How the matter was addressed in the audit and key
observations arising with respect to that risk
Revenue recognition
Due to the adoption of a
new accounting standard
for revenue with contracts
with customers (IFRS 15)
and the nature of revenue
recognition of the group in
various
respect
of
performance
obligations
within contracts, and the
estimates and
judgement
involved in determining the
amount of
to
recognise each year, we
have considered revenue
recognised a key area of
audit focus.
revenue
The main procedures performed on the revenue recognised and
areas where we challenged management were as follows:
A sample of contracts with customers were obtained and reviewed
against the steps referenced by IFRS 15. Assessment of
management’s accounting treatment were performed on each
contract sampled in respect of:
contracts identified;
performance obligations identified;
determination and allocation of transaction price for each
of those; and
determination of
satisfying those performance obligations.
recognition method
revenue
for
Management were challenged on judgements made.
The revenue recognised in the year was assessed against the
criteria specified in the standard that demonstrates control has
passed to the customer.
The appropriateness and completeness of the disclosures made in
the financial statements in respect of revenue recognition in
accordance with the new standard was considered.
The following further tests were also performed on revenue:
performing tests of detail on revenue covering both
existence and completeness; and
performing cut-off procedures on revenue recognised.
Materiality
The materiality for the group financial statements as a whole was set at £59,300. This has been determined with reference to the
benchmark of the group’s revenue, 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 2% of the group’s revenue as presented on the face of
the consolidated Income Statement.
The materiality for the parent company financial statements as a whole was set at £47,400. 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 1 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 remaining component was dormant for the year.
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.
Kelly Jones
Senior Statutory Auditor, for and on behalf of
Nexia Smith & Williamson
Statutory Auditor
Chartered Accountants
Portwall Place
Portwall Lane
Bristol
BS1 6NA
21 August 2019
ARCONTECH GROUP PLC
23
Group Income Statement and Statement of Comprehensive Income
For the year ended 30 June 2019
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)
Adjusted* Earnings per share (basic)
Earnings per share (diluted)
Adjusted* Earnings per share (diluted)
Note
3
4
8
9
9
9
9
2019
£
2018
£
2,966,788
2,519,699
(1,936,829)
(1,958,176)
1,029,959
561,523
27,184
14,109
1,057,143
575,632
60,318
339,452
1,117,461
915,084
1,117,461
915,084
8.46p
7.27p
8.35p
7.18p
7.14p
6.94p
7.09p
6.90p
*Adjusted for release of accruals for administrative costs of £156,786 (2018: £25,500) in respect of prior years.
All of the results relate to continuing operations.
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 2019
Group:
Balance at 30 June 2017
Profit for the year
Total comprehensive income for the year
Dividend paid
Issue of shares
Share-based payments
Transfer between reserves
Balance at 30 June 2018
Adjustment for adoption of IFRS 15
Profit for the year
Total comprehensive income for the year
Dividend paid
Share-based payments
Transfer between reserves
Balance at 30 June 2019
Balance at 30 June 2017
Profit for the year
Total comprehensive expense for the year
Dividend paid
Issue of shares
Share-based payments
Transfer between reserves
Balance at 30 June 2018
Share
capital
£
1,562,676
Share
premium
£
9,802
-
-
-
-
-
-
88,638
46,579
Share
option
reserve
£
188,425
-
-
-
-
-
-
51,224
Retained
earnings
£
1,039,082
Total
equity
£
2,799,985
915,084
915,084
915,084
915,084
(125,760)
(125,760)
-
-
135,217
51,224
-
1,651,314
-
56,381
(183,283)
56,366
183,283
2,011,689
-
3,775,750
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,026,119
1,026,119
1,117,461
1,117,461
1,117,461
1,117,461
(171,334)
(171,334)
53,857
-
53,857
-
1,651,314
-
56,381
(10,576)
99,647
10,576
3,994,511
-
5,801,853
Share
capital
£
1,562,676
Share
premium
£
9,802
-
-
-
-
-
-
88,638
46,579
Share
option
reserve
£
188,425
-
-
-
-
-
-
51,224
Retained
earnings
£
3,062,385
Total
equity
£
4,823,288
1,076,709
1,076,709
1,076,709
1,076,709
(125,760)
(125,760)
-
-
135,217
51,224
-
1,651,314
-
56,381
(183,283)
56,366
183,283
4,196,617
-
5,960,678
Company:
Profit for the year
Total comprehensive income for the year
Dividend paid
Share-based payments
-
-
-
-
-
-
-
-
-
-
-
342,250
342,250
342,250
342,250
(171,334)
(171,334)
53,857
-
53,857
Transfer between reserves
Balance as at 30 June 2019
-
1,651,314
-
56,381
(10,576)
99,647
10,576
4,378,109
-
6,185,451
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 2019
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
2019
£
Group
2018
£
Company
2019
£
Company
2018
£
1,715,153
1,715,153
15,011
17,941
-
-
-
-
-
-
2,017,471
2,017,471
285,000
270,000
125,000
50,000
141,750
2,156,914
141,750
2,144,844
-
2,142,471
-
2,067,471
263,875
310,123
3,073,519
2,571,949
4,063,484
4,327,359
3,210,058
3,520,181
1,078,755
4,152,274
1,458,390
4,030,339
(682,420)
(682,420)
(1,889,275)
(1,889,275)
(109,294)
(109,294)
(137,132)
(137,132)
3,644,939
1,630,906
4,042,980
3,893,207
5,801,853
3,775,750
6,185,451
5,960,678
1,651,314
1,651,314
1,651,314
1,651,314
56,381
99,647
56,381
56,381
56,381
56,366
99,647
56,366
3,994,511
2,011,689
4,378,109
5,801,853
3,775,750
6,185,451
4,196,617
5,960,678
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 £342,250 (2018: £1,076,709).
Approved on behalf of the board on 21 August 2019 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 2019
Cash generated from operations
20
966,060
482,659
Note
2019
£
2018
£
Tax recovered
Net cash generated from operating activities
Investing activities
Interest received
Purchases of plant and equipment
45,318
69,452
1,011,378
552,111
27,184
14,109
(13,802)
(2,090)
Net cash generated from investing activities
13,382
12,019
Financing activities
Issue of shares
Dividend paid
-
135,217
(171,334)
(125,760)
Net cash (invested in)/generated from financing activities
(171,334)
9,457
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
853,426
573,587
3,210,058
2,636,471
Cash and cash equivalents at end of year
14
4,063,484
3,210,058
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 2019
Net cash used in operating activities
20
(219,528)
(218,821)
Note
2019
£
2018
£
Investing activities
Interest received
Net cash generated from investing activities
Financing activities
Issue of shares
Dividend paid
11,227
11,227
9,715
9,715
-
135,217
(171,334)
(125,760)
Net cash (invested in)/generated from financing activities
(171,334)
9,457
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
(379,635)
(199,649)
1,458,390
1,658,039
Cash and cash equivalents at end of year
14
1,078,755
1,458,390
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 2019
1. Accounting policies
The principal accounting policies are summarised below. They have all been applied consistently throughout the period
covered by these financial statements except where changes have been noted below.
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.
Changes in accounting policies and disclosures
a) New and amended Standards and Interpretations adopted by the Group and Company
The Group and Company have adopted IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from contracts with
customers” for the first time this period.
b) New and amended standards and Interpretations mandatory for the first time for the financial year beginning 1 July
2018 but not currently relevant to the Group or Company
The following new and amended Standards and Interpretations are not currently relevant to the Group or Company;
however, they may have a significant impact in future years:
- Amendments to IFRS2: Classification and measurement of share-based payment transactions
-
IFRIC 22: Foreign currency transactions and advance consideration
c) New and amended Standards and Interpretations issued but not effective for the financial year beginning 1 July 2018.
At the date of approval of these financial statements, the following standards and interpretations which have not been applied
in these financial statements were in issue but not yet effective (and in some cases had not been adopted by the EU):
-
IFRS 16 “Leases” will be effective for the year ending 30 June 2020 onwards and the impact on the financial statements
will be significant. IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and right-of-use
asset for all lease contracts. The Group’s only operating lease commitment (approximately £785,000 on an undiscounted
basis as shown in Note 21 of the financial statements) would be brought onto the statement of financial position and
amortised and depreciated separately. There will be no impact on cash flows, although the presentation of the cash flow
statement will change significantly. Management are currently working on the new processes and systems that will be
required to comply with this accounting standard.
The effect of all other new and amended Standards and Interpretations which are in issue but not yet mandatorily effective is
not expected to be material.
ARCONTECH GROUP PLC
29
Notes to the Financial Statements
For the year ended 30 June 2019 (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 2019. 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 is recognised in accordance with the transfer of promised services to customers (i.e. when the customer gains
control of the service) and is measured as the consideration which the group expects to be entitled to in exchange for those
services. Consideration is typically fixed on the agreement of a contract except for quarterly flexible license contracts.
Payment terms are agreed on a contract by contract basis.
Contracts include promises to transfer services to a customer (i.e. “performance obligations”) which are typically indistinct
and hence are accounted for together in a single performance obligation.
A service is distinct if the customer can benefit from the service on its own or together with other resources that are readily
available to the customer and the entity's promise to transfer the service to the customer is separately identifiable from other
promises in the contract.
Contracts with customers do not contain a financing component.
The group recognises revenue when it satisfies a performance obligation by transferring a promised service to the customer
as follows:
• Revenue from recurring license fees and other license fees is recognised at the point of customer acceptance, flexible
license contracts that include variable consideration are quarterly contracts assessed at the end of each calendar quarter and
revenue is recognised based on actual usage confirmed for that quarter at the point of customer acceptance.
• Revenue from project work is recognised on satisfactory completion of each project, as this is considered to be the point in
time the customer gains control over the results of the project work.
Prior to 1 July 2018, deferred income arose where license fee income was spread over the period of the licence and reflected
the remaining passage of time on the license. As a result of the adoption of IFRS 15 “Revenue from contracts with
customers” from 1 July 2018 licence income is now recognised at the point of customer acceptance and accordingly
previously held deferred income has been released as an IFRS 15 adjustment at 1 July 2018.
ARCONTECH GROUP PLC
30
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
1. Accounting policies (continued)
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.
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.
ARCONTECH GROUP PLC
31
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
1. Accounting policies (continued)
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.
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 in the statement of financial position when the Group becomes a party
to the contractual provisions of the instrument.
Financial assets
The Group does not hold any investments other than investments in subsidiaries.
Trade receivables are held in order to collect the contractual cash flows and are initially measured at the transaction price as
defined in IFRS 15, as the contracts of the Group do not contain significant financing components. Impairment losses are
recognised based on lifetime expected credit losses in profit or loss.
Other receivables are held in order to collect the contractual cash flows and accordingly are measured at initial recognition at
fair value, which ordinarily equates to cost and are subsequently measured at cost less impairment due to their short-term
nature. A provision for impairment is established based on 12-month expected credit losses unless there has been a
significant increase in credit risk when lifetime expected credit losses are recognised. The amount of any provision is
recognised in the income statement.
ARCONTECH GROUP PLC
32
Notes to the Financial Statements
For the year ended 30 June 2019 (continued
1. Accounting policies (continued)
Financial instruments (continued)
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.
Financial liabilities and equity
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.
Effective interest rate method
The effective interest rate method is a method of calculating the amortised cost of a financial asset or liability and allocating
interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated
future cash flows through the expected life of the financial asset or liability, or, where appropriate, a shorter period, to the net
carrying amount on initial recognition.
Leases
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
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 occupational and 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. Where consideration is received in advance of revenue being recognised the date of the transaction reflects
the date the consideration is received. 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.
ARCONTECH GROUP PLC
33
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
2. Critical accounting 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 historic experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
Judgements
Determination of performance obligations and satisfaction thereof
For the purposes of recognising revenue, the Directors are required to identify distinct services in contracts and allocate the
transaction price to the performance obligations. Details of determining performance obligations, passing of control and
amounts recognised as costs incurred to obtain or fulfil a contract are given in Note 1 - Revenue recognition.
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 (2018 - £Nil).
Estimates
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).
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. At the
year-end a deferred tax asset of £285,000 (2018 - £270,000) was recognised.
ARCONTECH GROUP PLC
34
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
3. Revenue
An analysis of the Group’s revenue is as follows:
2019
£
2018
£
Software development, licence fees and project work
2,966,788
2,519,699
All of the Group’s revenue relates to continuing activities.
The group recognises revenue when it satisfies a performance obligation by transferring a promised service to the customer.
Prior to 1 July 2018, deferred income arose where license fee income was spread over the period of the licence and reflected
the remaining passage of time on the license. As a result of the adoption of IFRS 15 “Revenue from contracts with
customers” from 1 July 2018 licence income is now recognised at the point of customer acceptance and accordingly
previously held deferred income (see note 15) has been released as an IFRS 15 adjustment at 1 July 2018.
4. Operating profit for the year is stated after charging/(crediting):
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
Release of accruals for administrative costs in respect of prior years
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:
2019
£
16,732
1,493,460
145,159
584,524
(156,786)
2019
£
19,000
6,000
2018
£
17,974
1,446,965
140,866
517,042
(25,500)
2018
£
17,000
5,000
The Group reports internally to the Chief Operating Decision Maker (CODM), who is considered to be the Board.
Intersegment license fees and management charges are not included in the reports reviewed by the CODM during the year
but are calculated for statutory reporting purposes and therefore are excluded from the following revenue and operating
profit disclosures.
Revenue by segment
Software development and licence fees
External segment revenue
Operating profit by segment
2019
£
2018
£
2,966,788
2,966,788
2,519,699
2,519,699
Software development and licence fees
1,513,240
1,126,932
Unallocated overheads
Total operating profit
Finance income
Total profit before tax as reported in the Group income statement
ARCONTECH GROUP PLC
(483,281)
1,029,959
27,184
1,057,143
(565,409)
561,523
14,109
575,632
35
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
6. Operating segments (continued):
Segment total of assets
Software development and licence fees
Unallocated assets
Less inter company debtors
Total assets
Segment total of 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
Depreciation of property, plant and equipment assets recognised in the
period by segment
Software development and licence fees
Total depreciation
Non-current assets by country
UK
Total non-current assets
2019
£
2018
£
5,196,369
4,090,852
4,357,274
9,553,643
4,140,338
8,231,190
(3,069,370)
6,484,273
(2,566,166)
5,665,024
2019
£
2018
£
3,642,199
4,318,229
109,591
3,751,790
137,212
4,455,441
(3,069,370)
682,420
(2,566,166)
1,889,275
2019
£
13,802
13,802
2019
£
16,732
16,732
2019
£
2,156,914
2,156,914
2018
£
2,090
2,090
2018
£
17,974
17,974
2018
£
2,144,844
2,144,844
ARCONTECH GROUP PLC
36
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
6. Operating segments (continued):
Geographical information - External revenue
UK
Europe (excluding UK)
Africa
North America
Asia Pacific
2019
£
1,997,490
822,251
45,000
99,010
3,037
2,966,788
2018
£
1,669,949
796,468
22,562
28,488
2,232
2,519,699
During the year there were 4 customers (2018: 3) who accounted for more than 10% of the Group’s revenues as follows:
Customer 1
Customer 2
Customer 3
Customer 4
2019
2018
Value of
sales
£
643,491
527,145
378,326
361,426
1,910,388
% of Total
22%
18%
13%
12%
65%
Value of
sales
£
620,630
477,258
375,219
96,000
1,569,107
These revenues are attributable to the software development and licence fees segment.
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
Pension contributions
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 (2018: 4)
2019
£
1,263,341
151,286
24,976
53,857
1,493,460
6
10
16
£
298,621
9,294
27,286
335,201
36,126
371,327
% of Total
25%
19%
15%
4%
63%
2018
£
1,211,183
167,280
17,279
51,223
1,446,965
6
10
16
£
366,123
9,290
26,835
402,248
69,409
471,657
The highest paid Director received remuneration of £236,757 (2018: £306,780).
ARCONTECH GROUP PLC
37
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
7.
Staff costs (continued):
The number of Directors that are members of a defined contribution pension scheme is 2 (2018: 2). Pension contributions
paid to a defined contribution scheme in respect of the highest paid Director amounted to £8,704 (2018: £8,969).
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
2019
£
45,318
15,000
60,318
2018
£
69,452
270,000
339,452
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
2019
£
1,057,143
2018
£
575,632
Profit on ordinary activities multiplied by the standard rate of corporation
tax in the UK of 19 % (2018: 19%)
200,857
109,370
Effects of:
Disallowed expenses
Temporary differences on deferred tax
Research and development tax credits
Deferred tax asset not previously recognised
1,400
1,800
1,984
2,841
(45,318)
(69,452)
(15,000)
(270,000)
Brought forward losses utilised/loss for the year carried forward
(204,057)
(114,195)
Total tax credit for the year
(60,318)
(339,452)
Factors which may affect future tax charges
At 30 June 2019 the Group has tax losses of approximately £8,700,000 (2018: £9,600,000) to offset against future trading
profits.
ARCONTECH GROUP PLC
38
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
9. Earnings 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
2019
£
2018
£
1,117,461
1,117,461
915,084
915,084
No.
No.
13,210,510
12,821,702
165,223
77,699
13,375,733
12,899,401
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
2019
£
2018
£
At 1 July 2018 and at 30 June 2019
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
2019
£
1,715,153
1,715,153
2018
£
1,715,153
1,715,153
The CGU used in these calculations is Arcontech Limited. 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 1.8%.
Cashflow forecasts are based on the latest financial budgets and extrapolate the cashflows for the next five years based on an
estimated growth in revenue representing an average rate of 5% (2018: 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 5% then this
could result in the value of goodwill being impaired.
As the Group does not have any borrowings, the rate used to discount all the forecast cash flows is 8.8% (2018: 9.9%),
which represents the Group’s cost of capital.
Goodwill on the purchase of Arcontech Limited is attributable to the operating synergies that have arisen as a result of the
combination.
ARCONTECH GROUP PLC
39
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
11. Property, plant and equipment - Group
Cost
At 1 July 2017
Additions
At 1 July 2018
Additions
At 30 June 2019
Depreciation
At 1 July 2017
Charge for the year
At 1 July 2018
Charge for the year
At 30 June 2019
Leasehold
Property
£
Office
furniture &
equipment
£
Total
£
18,892
120,884
139,776
-
18,892
7,307
26,199
2,090
122,974
6,495
2,090
141,866
13,802
129,469
155,668
9,839
96,112
105,951
4,723
13,251
17,974
14,562
109,363
123,925
4,574
12,158
16,732
19,136
121,521
140,657
Net book amount at 30 June 2019
Net book amount at 30 June 2018
7,063
4,330
12. Investment in subsidiaries
Carrying amount
At 1 July 2018
Provisions written back
Amounts written off
At 30 June 2019
7,948
13,611
2019
£
15,011
17,941
2018
£
2,017,471
2,017,373
-
-
99
(1)
2,017,471
2,017,471
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
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
Nature of business
Dormant
Ordinary
shares
held
100%
Software development
100%
Software development
and consultancy
100%
ARCONTECH GROUP PLC
40
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
13. Trade and other receivables
Due within one year:
Trade receivables
132,625
161,540
-
-
Group
2019
£
Group
2018
£
Company
2019
£
Company
2018
£
Amounts owed by group undertakings
Prepayments and accrued income
Due after more than one year:
Other receivables
-
131,250
263,875
Group
2019
£
141,750
141,750
-
3,069,270
2,565,925
148,583
310,123
4,249
3,073,519
6,024
2,571,949
Group
2018
£
141,750
141,750
Company
2019
£
Company
2018
£
-
-
-
-
Trade receivables, which are the only financial assets at amortised cost, are non-interest bearing and generally have a 30-90
day term. Due to their short maturities, the carrying amount of trade a n d o t h e r receivables is a reasonable
approximation of their fair value. A provision for impairment of trade receivables is established using an expected loss
model. Expected loss is calculated from a provision based on the expected lifetime default rates and estimates of loss on default.
As at 30 June 2019, trade receivables of £Nil were impaired (2018: £Nil) and during the year an impairment charge relating to
trade receivables of £Nil (2018: £Nil) was recognised. As at 30 June 2019 trade receivables of £8,893 (2018: £33,588)
were past due but not impaired. The ageing analysis of these trade receivables is as follows:
Group
2019
£
5,000
3,893
8,893
Group
2018
£
24,997
8,591
33,588
Company
2019
£
Company
2018
£
-
-
-
-
-
-
Up to 3 months past due
3 to 6 months 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.
ARCONTECH GROUP PLC
41
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
15. Trade and other payables
Trade payables
Amounts owed to group undertakings
Other tax and social security payable
Other payables and accruals
Deferred income
Group
2019
£
76,823
-
27,365
578,232
-
682,420
Group
2018
£
45,335
-
64,008
753,813
1,026,119
1,889,275
Company
2019
£
Company
2018
£
9,824
100
7,531
91,839
-
109,294
1,868
241
6,726
128,297
-
137,132
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” with a total value of £655,055 (2018: £799,148).
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 2018
Tax credit recognised in group income
statement
Group
2019
£
270,000
Group
2018
£
-
Company
2019
£
50,000
15,000
270,000
75,000
At 30 June 2019
285,000
270,000
125,000
Company
2018
£
-
50,000
50,000
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 2019 amounted to approximately £8,700,000 (2018: £9,600,000).
17. Share capital
Company
Allotted and fully paid:
2019
£
2018
£
13,210,510 (2018: 13,210,510) Ordinary shares of 12.5p each
1,651,314
1,651,314
ARCONTECH GROUP PLC
42
Notes to the Financial Statements
For the year ended 30 June 2019 (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 2019
for unissued Ordinary Shares of 12.5 pence each as follows:
Share options
At 1 July
2018
Granted
Exercised
Forfeited
At 30 June
2019
Exercise price
Normal exercise period
Employees:
80,000
165,000
-
-
-
50,000
Directors:
Michael Levy
20,635
-
Richard Last
Louise Barton
-
50,000
24,762
40,000
20,000
-
-
-
Matthew Jeffs
-
100,000
350,397
200,000
-
-
-
-
-
-
-
-
-
-
-
80,000
23.75 pence
1 Sep 17 – 31 Aug 21
(40,000)
125,000
64.50 pence
25 Apr 20 – 24 Apr 27
-
-
-
-
-
-
-
50,000
110.00 pence
30 Jun 21 – 29 Jun 28
20,635
64.50 pence
25 Apr 20 – 24 Apr 27
50,000
110.00 pence
30 Jun 21 – 29 Jun 28
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
100,000
110.00 pence
30 Jun 21 – 29 Jun 28
(40,000)
510,397
Weighted
average exercise
price
50.5 pence
110.0 pence
- 64.5 pence
72.7 pence
The number of options exercisable at 30 June 2019 was 120,000 (At 30 June 2018: 120,000), these had a weighted average
exercise price of 23.75 pence (2018: 23.75 pence).
The weighted average share price as at the exercise date of the shares exercised in the year was Nil pence (2018: 66.6 pence
and of the shares were forfeited in the year was 64.5 pence (2018: Nil).
Options granted under the Company’s approved 2002 Share Option Scheme are forfeited 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 183.5 pence, the lowest price was 75 pence and the price at
the year-end was 164 pence.
The weighted average remaining contractual life of share options outstanding at 30 June 2019 was 7 years (2018: 7 years).
ARCONTECH GROUP PLC
43
Notes to the Financial Statements
For the year ended 30 June 2019 (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 options granted prior to 1 July 2018. The performance conditions of those
granted during the year are set out below.
The options will be exercisable from 30 June 2021, dependent on the Company’s compound annual rate of growth in fully
diluted earnings* for the three financial years ending 30 June 2021. The Options will vest subject to performance criteria as
follows:
- compound annual earnings growth of 10% or more - fully vested (100%);
- compound annual earnings growth between 5%-10% - partial vesting between 0% and 100% on a sliding scale; and
- compound annual earnings growth of 5% and below - nil.
Any Ordinary Shares arising from the vesting of Options must be held for a period of two years after vesting.
* Fully diluted earnings will be based on: (a) the Company’s pre-tax profit excluding exceptional items and the share option
charge and (b) the current UK corporation tax rate of 19%, such that the fully diluted earnings calculation takes no account
of R&D and deferred tax credits. For the purposes of the fully diluted earnings calculation, the applied rate of corporation tax
will remain constant at 19% irrespective of any current or future changes to corporation tax.
The fair value of options is valued using the Black-Scholes pricing model. An expense of £53,857 (2018: £51,224) has been
recognised in the period in respect of share options granted. The cumulative share option reserve at 30 June 2019 is £99,647
(2018: £56,366). The inputs into the Black-Scholes pricing model are as follows:
30 June
2019
Directors
30 June
2019
Employees
30 June
2018
Directors
30 June
2018
Employees
Exercise price
Expected life
Expected volatility
Risk free rate of interest
Dividend yield
Weighted average share
price
Fair value of option
23.75/64.5/110.0 pence
6/10 years
50%-65%
0.5%-0.75%%
Nil
23.75/64.5/110.0 pence
6/10 years
50%-65%
0.5%-0.75%
Nil
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
23.75/64.5/110.0 pence
19.64/36.7/57.0 pence
23.75/64.5/110.0 pence
19.64/36.7/ 57.0 pence
23.75/64.5 pence
19.64/36.7 pence
23.75/64.5 pence
19.64/36.7 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.
ARCONTECH GROUP PLC
44
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
18. Reserves (continued)
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 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.
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
Adjustment for adoption of IFRS 15
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables
2019
£
1,029,959
16,732
53,857
1,026,119
46,248
(1,206,855)
2018
£
561,523
17,974
51,224
-
(134,626)
(13,436)
Cash generated from operations
966,060
482,659
Net cash generated from operations - Company
Operating profit
Non cash share option charges
Increase in trade and other receivables
Decrease in trade and other payables
2019
£
256,023
53,857
(501,570)
(27,838)
2018
£
1,018,397
51,224
(765,606)
(522,836)
Cash used in operations
(219,528)
(218,821)
ARCONTECH GROUP PLC
45
Notes to the Financial Statements
For the year ended 30 June 2019 (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
2019
£
162,000
623,219
-
785,219
Group
2018
£
129,336
-
-
129,336
Company
2019
£
Company
2018
£
-
-
-
-
-
-
-
-
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 £59,945 (2018: £57,875). At 30 June 2019 the amount outstanding was £Nil (2018: £Nil).
Company
Transactions between the Parent Company and its subsidiaries during the year were as follows:
Management charges payable by subsidiaries £574,017 (2018: £659,214).
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
2019
£
2018
£
7,397,095
7,054,104
(4,327,825)
3,069,270
(4,488,179)
2,565,925
During the year a provision of £160,354 was released (2018: £455,386) in respect of balances due from subsidiaries.
Amount due to subsidiaries
ARCONTECH GROUP PLC
2019
£
574,017
574,017
2018
£
659,214
659,214
46
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
23. Dividends
A final dividend of 2.0 pence will be proposed at the Annual General Meeting but has not been recognised as it requires
approval (2018: 1.3 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. Trade receivables are considered in default and
subject to additional credit control procedures when they are more than 30 days past due in line with industry practice. Trade
receivables are only written off when there is no reasonable expectation of recovery due to insolvency of the debtor.
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
2019
£
132,625
Group
2018
£
161,540
Company
2019
£
-
Company
2018
£
-
Cash and cash equivalents
4,063,484
3,210,058
1,078,755
1,458,390
Amounts owed by group undertakings
-
4,196,109
-
3,371,598
3,069,270
4,148,025
2,565,925
4,024,315
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 0.55% below bank base rate and 0.6% above
bank base rate and at fixed/variable rates of between 0.45% and 2.04% (2018: 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%).
ARCONTECH GROUP PLC
47
Notes to the Financial Statements
For the year ended 30 June 2019 (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 £655,055 (2018: £799,148) 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 2019, if bank base rate had increased by 0.5% with all other variables held
constant, post-tax profit would have been £18,184 (2018: £14,616) higher and equity would have been £18,184 (2018: £14,616)
higher. Conversely, if bank base rate had fallen 0.5% with all other variables held constant, post-tax profit would have been
£18,184 (2018: £14,616) lower and equity would have been £18,184 (2018: £14,616) 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. Adoption of IFRS 15
IFRS 15 “Revenue from contracts with customers” was adopted from 1 July 2018 in line with transitional provisions provided
in the new standards. The changes in accounting policies have been described in Note 1. The standard has been adopted using
the modified retrospective approach where the prior periods have not been restated but any difference between amounts
recognised under IFRS 15 and those previously recognised under IAS 39, IAS 11 and IAS 18 has been recognised in the
opening retained earnings at 1 July 2018.
The impact on the results of the Group or the Company as a result is shown below.
Group Income Statement and Statement of Comprehensive Income:
Revenue increased by £125,426
Profit for the year before taxation and after taxation increased by £125,426
ARCONTECH GROUP PLC
48
Notes to the Financial Statements
For the year ended 30 June 2019 (continued)
27. Adoption of IFRS 15 (Continued)
Statement of Changes in Equity:
Total comprehensive income for the year at 30 June 2019 increased by £1,026,119
Retained earnings at 30 June 2019 increased by £1,026,119
Group Balance Sheet:
Trade and other payables – Deferred income (Note 15) reduced by £1,151,545
28. Ultimate controlling party
There is no ultimate controlling party.
29. Copies of this statement
Copies of this statement are available from the Company Secretary at the Company’s registered office at 1st Floor, 11-21
Paul Street, London, EC2A 4JU or from the Company’s website at www.arcontech.com.
ARCONTECH GROUP PLC
49
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
(cid:34)(cid:83)(cid:68)(cid:80)(cid:79)(cid:85)(cid:70)(cid:68)(cid:73)(cid:1)(cid:40)(cid:83)(cid:80)(cid:86)(cid:81)(cid:1)(cid:49)(cid:45)(cid:36)
(cid:34)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1)(cid:83)eport and (cid:66)(cid:68)(cid:68)(cid:80)(cid:86)(cid:79)(cid:85)(cid:84) (cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:90)ear ended 30 June 201(cid:26)