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 2020
REGISTERED NUMBER: 04062416 (England and Wales)
Arcontech Group PLC
Annual Report and Accounts
Year ended 30 June 2020
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
4-6
7
8-18
19-20
21
22-26
27
28
29
30
31
32-56
Company Information
Directors
Richard Last (Chairman and Non-Executive Director)
Matthew Jeffs (Chief Executive Officer)
Louise Barton (Non-Executive Director)
Geoff Wicks (Non-Executive Director) – appointed 20 July 2020
Company Secretary
Ben Hodges
Registered Office
Nominated Adviser and Broker
1st Floor
11-21 Paul Street
London EC2A 4JU
finnCap Ltd
1 Bartholomew Close
London EC1A 7BL
Registered Number
04062416
Solicitors
Auditors
Registrars
Principal Bankers
Faegre Baker Daniels LLP
7 Pilgrim Street
London
EC4V 6LB
PKF Littlejohn
Statutory Auditor
Chartered Accountants
15 Westferry Circus
Canary Wharf
London
E14 4HD
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 solid progress for Arcontech Group plc (“Arcontech” or the “Company”) despite the global
pandemic, with good growth in profit before taxation for the year ended 30 June 2020 to £1,040,969 (2019: £931,717 restated
(refer to Note 28 for further detail on 2019 restated numbers)), a year-on-year increase of 12%. These figures include accruals no
longer required which are unrelated to the underlying business amounting to £86,500 (2019: £156,786). After adjusting for release
of these accruals, profit before taxation is £954,469 (2019: £774,931 restated), an increase of 23% over the previous year. 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 an increase in turnover for the year of 4% against a challenging business backdrop particularly in the second half.
Revenue grew by £113,952 to £2,955,314 (2019: £2,841,362 restated) primarily through increasing our product sales to existing
customers, including growing our Desktop software solution customer base to 130 (2019:90), which is a creditable performance.
Whilst sales to new customers in the year have not been what we had hoped due to extending sales cycles and potential customers
less inclined to take on new products during the pandemic, our pipeline of opportunities with potential new customers is looking
increasingly positive, particularly for server-side software products. In the year to 30 June 2020 recurring annual license fees
accounted for 93% of our revenue with the bulk of the balance represented by fees under contract but subject to some fluctuation.
Statutory earnings per share for the year to 30 June 2020 was 9.22p (7.51p) an increase of 23% over the corresponding figure for
the previous 12 months. These figures included the release of accruals mentioned above. The tax credit for the year was £176,734
(2019: £60,318) reflecting the benefits from historic tax losses and recognition of a deferred tax asset. As at 30 June 2020
Arcontech had tax losses of approximately £7.5m to offset against future trading profits. We believe a better representation of our
performance is provided by fully diluted earnings per share based on profit before taxation, excluding the release of accruals
relating to a legacy liability that has no direct connection with the Group’s revenues or costs incurred for the year under review.
On this basis adjusted earnings per share was 8.39p, a 34% increase over the adjusted earnings figure of 6.24p for the year to 30
June 2019.
Financing
As at 30 June 2020 Arcontech had, excluding right of use lease liabilities, no debt and cash balances of £5,006,969 (2019:
£4,063,484) an increase of 23%. This represents a cash conversion of adjusted operating profit (determined as operating profit
before share-based payments and before the release of accruals in respect of prior years) of 90% (2019: 109%). 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, subject to approval at the Annual General Meeting, we intend to pay a dividend of 2.5 pence per
share for the year ended 30 June 2020 (30 June 2019: 2.0 pence), an increase of 25%, to those shareholders on the register as at
the close of business on 11 September 2020, with an ex-dividend date of 10 September 2020.
Employees
Arcontech has a small, highly effective and committed workforce that has proved more than up to delivering excellent customer
service whilst working remotely due to the COVID-19 pandemic. On behalf of the Board and shareholders I should like to thank
them for their continued support, commitment and dedication to the Company and its customers .
Board
As has been previously reported I am standing down , after 13 years , as Chairman and Non-executive director at our forth coming
Annual General Meeting (AGM), which is due to take place on 29 September 2020. Geoff Wicks , who joined the Board as a non-
executive director on 20 July will take over as Chairman; I wish him well in taking Arcontech through the next stages of its
development. I should like to thank my Board colleagues, Matthew Jeffs and Louise Barton as well as our Head of Development
Darren Lewis for their support; we have taken Arcontech on a long journey to achieving good sustainable profits with excellent
cash generation. I wish them and Arcontech every success for the future.
Outlook
Our recurring annual licence fees provide a stable base for the business and our pipeline of prospects remains positive, but, as with
most businesses we face a number of uncertainties: the impact of the Covid-19 pandemic, Brexit and changes taking place in the
financial markets, as well as with our competitors. However, against this background our workforce has shown resilience and
flexibility in dealing with the consequences of the pandemic and 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 have the ingredients for growth, despite the macro economic climate. However, given the uncertain backdrop the
outlook needs to be tempered by the possibility of further magnification of our traditionally long and complex sales cycles.
Richard Last
Chairman and Non-Executive Director
ARCONTECH GROUP PLC
2
Chief Executive’s Review
During the year we continued to focus on expanding and delivering on the sales pipeline whilst controlling costs, resulting in a
statutory profit before tax of £1,040,969 (2019 restated: £931,717), an increase of 12% compared to the previous year and a 23%
increase in adjusted profit to £954,469.
The year under review also saw the number of end users for our desktop software solution increase so that we now have a total of
130 end users (2019 - 90) amongst 3 global institutions. Excelerator numbers remained stable.
With regard to development, we rolled out our RESTful interface which has been performing as expected. This will significantly
increase the available data for consumption for our current and future clients by enabling content in JSON and SQL formats to be
pulled into our software from the web or intranets to use in spreadsheets, templates and charts.
We have also rolled out our new GUI for Director, which is our interface for MVCS and our Cache for which feedback has been
excellent. The new interface has made administration intuitive and straight forward whilst adding value by, for example, alerting
designated staff to data or communication issues when they happen instead of when they are reported by users of the data.
Therefore reducing or removing operational, reputational and financial risk.
Work on our sales structure continued with the recruitment of two sales professionals at the end of January. Regrettably no sooner
than we had conducted product training and allocated territories, the increase in Covid 19 infections required we protect our staff
and work from home. This exercise which was undertaken in March went very smoothly thanks to the staff themselves.
Our staff adjusted to this change pragmatically and since decamping to their respective home-offices, we have supported our
clients seamlessly and developed and rolled out new software to accommodate vendor developments, and more generally, to meet
clients’ needs. Equally, our sales staff continued to uncover new opportunities and develop those already in the pipeline. Such
dedication and professionalism reflects well on the company for which the board and I are very grateful. Richard Last steps down
as Chairman after the AGM on 29 September 2020 after 13 years. He has played a major part in turning Arcontech from a loss
making company to the profitable one it is today. The Board thanks him for his valuable contribution to the success of the Group
during his term of office. Geoff Wicks becomes Chairman after the AGM on 29 September and we very much look forward to
working with him.
The impact of Covid 19 has also been felt by our existing clients although to-date we have seen little impact on our business. It
remains to be seen whether there will be permanent changes to the manner in which we secure future growth by signing up
completely new clients given the new norm of online interaction. Our challenge is to ensure we devise our own strategies to
succeed in this environment. We have already seen one positive in that we can meet people without the cost of travel or attending
tradeshows.
Improving the frequency of sales remains our prime focus against our traditional background of a long sales cycle. We believe
the expanded product offering and sales capability, along with our clients and potential clients need to reduce costs, should
improve the frequency of sales.
We will also continue to explore opportunities with other organisations that can complement our offerings, whilst remaining alert
for strategic acquisition opportunities that will benefit the Group.
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 2020.
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 £2,955,314 (2019: £2,841,362 restated; 2018: £2,519,699) 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
Adjusted profit £1,131,203 (2019: £835,248 restated; 2018: £889,584) Measurement:
Cash £5,006,969 (2019: £4,063,484; 2018: £3,210,058)
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
Earnings per share (basic) 9.22p (2019: 7.51p restated; 2018: 7.14p) Measurement:
Earnings after tax divided by the weighted average
number of shares
Performance:
Continued growth
Earnings per share (diluted) 9.03p (2019: 7.42p restated; 2018: 7.09p)
Measurement:
Non-financial KPIs:
Staff retention rate (net) 91% (2019: 100%; 2018: 92%)
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
Mitigation
Competition
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
Covid-19 pandemic
The Directors and employees are operating remotely in order to protect their health and safety
At present the Company believes that there should be no significant material disruption to its work
Brexit
Arcontech is a global company and as such seeks growth across a geographically diverse customer base
Relations with shareholders
Section 172(1) Statement - Promotion of the Company for the benefit of the members as a whole
The Directors believe they have acted in the way most likely to promote the success of the Group for the benefit of its members as
a whole, as required by s172 of the Companies Act 2006.
The requirements of s172 are for the Directors to:
• Consider the likely consequences of any decision in the long term;
• Act fairly between the members of the Company;
• Maintain a reputation for high standards of business conduct;
• Consider the interests of the Company’s employees;
• Foster the Company’s relationships with suppliers, customers and others; and
• Consider the impact of the Company’s operations on the community and the environment.
The Group’s operation is the development and sale of proprietary software and provision of computer consultancy services. The
Board has identified its key stakeholders as its customers, shareholders, employees and suppliers. The Board keeps itself appraised
of its key stakeholders’ interests through a combination of both direct and indirect engagement, and the Board has regard to these
interests when discharging its duties.
The application of the s172 requirements can be demonstrated in relation to some of the key decisions made during the year to 30
June 2020:
• Allocation of the Group’s capital in a way which offers significant returns to shareholders in line with the Company’s
dividend policy, while also ensuring that the Group retains flexibility to continue to deploy capital towards profitable
growth;
• Adapting a rapid response to the working location restrictions arising from the Covid-19 pandemic, ensuring that the
Group continued to deliver both the high level of service and security that our customers depend on without
compromising the health and safety of employees.
ARCONTECH GROUP PLC
5
Strategic Report (continued)
During the year to 30 June 2020, the Board assessed its current activities between the Board and its stakeholders, which
demonstrated that the Board actively engages with its stakeholders and takes their various objectives into consideration when
making decisions. Specifically, actions the Board has taken to engage with its stakeholders over the last twelve months include:
•
•
•
•
Attended the 2019 AGM to answer questions and receive additional feedback from investors;
Arranged meetings with certain stakeholders to provide them with updates on the Company’s operational activities and
other general corporate updates;
We discussed feedback from investors’ and analysts’ meetings following the release of our annual and half-year
announcements. We have an investor relations programme of meetings with existing and potential shareholders; and
Monitored company culture and engaged with employees on efforts to continuously improve company culture and
morale.
The Board believes that appropriate steps and considerations have been taken during the year so that each Director has an
understanding of the various key stakeholders of the Company. The Board recognises its responsibility to contemplate all such
stakeholder needs and concerns as part of its discussions, decision-making, and in the course of taking actions, and will continue
to make stakeholder engagement a top priority in the coming years.
Approved on behalf of the board on 1 September 2020 by:
Matthew Jeffs
Chief Executive
ARCONTECH GROUP PLC
6
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.
Directors – Non-Executive
Richard Last (Chairman)
Richard was appointed Chairman and Non-Executive Director in February 2007. He has over 25 years’ experience in Hyve 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. Richard steps down as Chairman
after the AGM on 29 September 2020.
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.
Geoff Wicks
Geoff was appointed Non-Executive Directors in July 2020. He was most recently Chairman of ULS Technology plc, the provider
of online technology platforms for the UK conveyancing and financial intermediary markets. Prior to this, he was CEO of Group
NBT plc, a specialist in online brand protection and digital asset management, from 2001 until he led the sale of the business to
HGCapital in 2011. He remained part of the Group NBT business, now renamed NetNames, as a non-executive director until
2013. Geoff spent much of his earlier career at Reuters, including heading divisions in the UK, France and Nordic regions and
latterly was director of corporate communications. Prior to Reuters, Geoff worked in the banking and insurance industries. Geoff
becomes Chairman of Arcontech after the AGM on 29 September 2020.
ARCONTECH GROUP PLC
7
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 2020, the Board comprised two Non-Executive Directors, one of whom is the Chairman, and one Executive Director.
Subsequent to reporting date a third Non-Executive Director was appointed to the Board. 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 2019 Annual
General Meeting 100% (2018: 100%) of shareholders voted in favour of their re-election. As such the Board consider their
independence is not affected.
Richard Last stands down after the AGM on 29 September 2020. Given Louise Barton’s length of service she will retire under
Article 106 of the Company's articles of association and, being eligible, offers herself to be re-elected as a non-executive Director
of the Company.
The Chairman and Executive Director 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 Levy1
Non-Executive Directors
Richard Last (Independent)
Louise Barton (Independent)
10/10
1/3
10/10
10/10
3/3
N/A
3/3
3/3
N/A
N/A
5/5
5/5
N/A
N/A
1/1
1/1
1 Michael Levy ceased to be a director on 22nd January 2020
Board performance
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.
ARCONTECH GROUP PLC
8
Corporate Governance (continued)
Corporate governance report (continued)
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.
Committees
The following committees deal with the Group’s affairs:
Audit Committee
Details of the Audit Committee are given in its Report on pages 10-11.
Remuneration Committee
Details of the Remuneration Committee are given in its Report on pages 12-18. 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 Louise Barton. Richard Last is the other committee member. The Nomination
Committee meets not less than once a year.
Richard Last
Chairman and Non-Executive Director
1 September 2020
ARCONTECH GROUP PLC
9
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 Finance Director of the trading subsidiary also attends by invitation. At 30 June
2020, 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
Issue
• Accounting policies
Action
The Committee reviewed and discussed the significant
accounting policies with management and the external
auditor and reached the conclusion that each policy was
appropriate to the Group.
•
• Adopting IFRS 16 Accounting for leases
IFRS 15 Revenue from Customers restatement The Committee reviewed its offering and performance
obligations under the terms of recurring license fee contracts
and also sought independent advice. The conclusion reached
is that in the context of IFRS 15 the correct approach for the
recognition of revenue is on an over time basis with 2019
comparative results restated in accordance. (Refer to Note
28 for further detail).
The Committee elected to adopt IFRS 16 using the modified
retrospective approach with the effect of applying this
standard at the date of initial recognition of 1 July 2019
(Refer to Note 17 for further detail).
The Committee considered the ability of the Group to
operate as a Going Concern considering cash flow forecast
for the next 12 months and milestone achievements. It was
determined by the Committee that it was reasonable to
expect that the Group has or will have sufficient funds for
the next 12 months and that it was appropriate for the
Financial Statements to be prepared on a going concern
basis.
• Going concern review
ARCONTECH GROUP PLC
10
Corporate Governance (continued)
Audit Committee report (continued)
Issue
• Review of audit and non-audit services and fees
Action
The external auditor is not engaged by the Group to carry out
any non-audit work in respect of which it might, in the future,
be required to express an audit opinion. The role of external
auditor was put out to tender during the year and The Audit
Committee took the decision to change the external auditor for
the Group and Company for the year under review.
The Committee reviewed the fees charged for the provision of
audit and non-audit services and determined that they were in
line with fees charged to companies of similar size and stage of
development.
The Committee considered and was satisfied the external
auditor’s assessment of its own independence.
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
1 September 2020
ARCONTECH GROUP PLC
11
Corporate Governance (continued)
Remuneration Committee report
Dear shareholder
I am pleased to introduce the Directors’ Remuneration Report for the year ended 30 June 2020.
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
1 September 2020
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
iv) 1 July 2020 and was
increased by 2.9% to £175,000
ARCONTECH GROUP PLC
12
Corporate Governance (continued)
Remuneration Committee report (continued)
Key elements of Remuneration (continued)
Remuneration
element
Benefits
Purpose
Operation
Potential
remuneration
Performance
metrics
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.
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.
Executive Directors are
able to request that the
Company, at the discretion
of the Remuneration
Committee, makes additional
contributions where
salary or bonus has been
waived.
During the year the
company made pension contributions
of £5,100 (2019: £5,000).
Annual bonus
To incentivise the
achievement of the
company’s annual
financial and strategic
targets.
Performance is measured The CEO’s maximum
capped bonus potential
on an annual basis for
is 150% of salary.
each financial year.
Targets are established at
the beginning of each
financial year. At the end
of the year the
Remuneration Committee
determine the extent to
which these have been
achieved.
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.
The Remuneration
Committee may
impose certain
may be granted to eligible in respect of which
employees at the
discretion of the
Remuneration.
Committee
options can be
granted is limited in any performance
financial year to shares
with a market value of
no more than 100% of
salary.
conditions on any
option preventing its
exercise unless such
conditions have been
satisfied.
ARCONTECH GROUP PLC
13
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
14
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 fees paid in the year to 30 June 2020 are set out below:
Richard Last (Chairman and Non-Executive Director)
Louise Barton (Non-Executive Director)
£31,500
£21,000
Directors’ Service Agreements
Executive Directors’ Service Agreements
Date of service agreement
Notice period
Basic salary
Annual bonus
Benefits
Share schemes
Pension contributions
Termination payments
ARCONTECH GROUP PLC
Matthew Jeffs
29 April 2013
3 months’ notice given by either party
Currently £175,000 reviewed annually
Discretionary performance related
Participation in the Company’s life
assurance and medical insurance schemes
Eligible to participate in Company share
schemes
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
15
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 2020.
Remuneration Committee
The Remuneration Committee consisted of the following Directors during the year ended 30 June 2020:
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 meets whenever it is appropriate. The committee met five times in the current year. In addition to
agreeing the remuneration report and reviewing the remuneration of the Executive Directors and a new non-executive
director/Chairman designate, an additional meeting was required to deal with matters related to the death of Finance Director,
Michael Levy.
Directors’ Remuneration
The detailed emoluments of the Executive and Non-Executive Directors are set out below.
Year ended 30 June 2020
Salary/fees
Benefits
Bonus
Share options
Pension
Total
Chairman and Non-Executive Directors
Richard Last (Chairman)
Louise Barton
Total Non-Executive
31,500
21,000
52,500
797
-
797
-
-
-
2,518 -
-
2,033
-
4,551
34,815
23,033
57,848
Executive Directors
Matthew Jeffs
Michael Levy*
Total Executives
Total remuneration
170,000
5,066
70,000
37,747
5,100
287,913
10,938
180,938
233,438
1,501
6,567
7,364
2,100
72,100
72,100
1,659
39,406
43,957
328
5,428
5,428
16,526
304,439
362,287
*Fees payable to Michael Levy & Co, Chartered Accountants, in which Michael Levy is the principal, in respect of accountancy
services are disclosed in note 23 to the Financial Statements. Michael Levy ceased to be a Director of the Company on 22 January
2020.
ARCONTECH GROUP PLC
16
Corporate Governance (continued)
Remuneration Committee report (continued)
Directors’ Remuneration (Continued)
Analysis of bonuses:
Directors
Matthew Jeffs
Year ended 30 June 2019
Year ended 30 June 2020
Michael Levy
Year ended 30 June 2019
Year ended 30 June 2020
Total
Accrued
Paid
as cash
Paid
as pension
Total
(46,756)
70,000
23,244
(3,500)
1,050
(2,450)
20,794
46,756
-
46,756
3,500
1,050
4,550
51,306
-
5,100
5,100
-
-
-
5,100
-
75,100
75,100
-
2,100
2,100
77,200
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.
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
ARCONTECH GROUP PLC
17
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 2020 was:
Director
Richard Last
Louise Barton
Matthew Jeffs
Directors’ share options interests
30 June 2020
1,541,659
1,071,416
910,000
30 June 2019
1,541,659
1,071,416
910,000
Director
At 1 July 2019
Granted
Exercised
At 30 June 2020
Richard Last
Louise Barton
Matthew Jeffs
24,762
40,000
20,000
100,000
-
-
-
-
-
50,000
-
-
-
-
-
24,762
40,000
20,000
100,000
50,000
Exercise
price
64.50 pence
23.75 pence
64.50 pence
110.00 pence
196.00 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
30 Jun 22 – 29 Jun 30
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 2022, dependent on the Company’s compound annual rate of growth in fully diluted
earnings* for the three financial years ending 30 June 2022. 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
1 September 2020
ARCONTECH GROUP PLC
18
Directors’ Report
The Directors present their Report and financial statements for the year ended 30 June 2020.
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 26. The Directors recommend the payment of a final dividend of 2.5 pence per
ordinary share (2019: 2.0 pence per share) to be paid on 9 October 2020 to ordinary shareholders on the register on 10 September
2020 £330,263 (2019: £264,210).
Directors
The Directors who have held office during the period from 1 July 2019 to the date of this report are as follows:
Richard Last
Matthew Jeffs
Michael Levy – ceased to be a Director on 22 January 2020
Louise Barton
Geoff Wicks – appointed 20 July 2020
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.
Geoff Wicks, who was appointed since the date of the last annual general meeting, retires and, who being eligible, offers himself
to be re-elected as a Director of the Company.
Michael Levy ceased to be a Director of the Company on 22 January 2020.
Except as disclosed in note 23 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
Louise Barton was appointed Non-Executive Director on 19 February 2007 and has served for more than 10 years. The Board is
of the opinion that her shareholding aligns her interests with other shareholders, and, in addition, she offers herself for re-election
each year. At the 2019 Annual General Meeting 100% (2018: 100%) of shareholders voted in favour of her re-election. As such
the Board considers her independence is not affected.
Given her length of service she retires under Article 106 of the Company's articles of association and, being eligible, offers herself
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.
ARCONTECH GROUP PLC
19
Directors’ Report (continued)
Future developments
The outlook for the year ending 30 June 2020 is expected to see continued growth from both increased business with existing
clients and winning new business., despite the macro climate and tempered as always by the traditionally long and complex cycles
that are a feature of the business.
Financial risk management
The Group's financial instruments comprise cash and cash equivalents, and items such as trade payables and trade receivables,
which arise directly from its operations.
The main risks arising from the Group’s financial instruments are interest rate fluctuations and liquidity risk. Refer to Note 26 for
further detail on the Group’s financial instruments and risk exposures. 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 Group’s existing cash reserves, 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 PKF Littlejohn LLP will be proposed at the annual general meeting.
On behalf of the Board
Matthew Jeffs
Chief Executive
ARCONTECH GROUP PLC
20
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
21
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 2020 which comprise the Group Income Statement and Statement of Comprehensive Income, the Group
and Company Balance Sheets, the Group and Company Statements of Changes in Equity, the Group and Company Cash Flow
Statements and 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 2020 and of the group’s and parent company’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not
appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a
period of at least twelve months from the date when the financial statements are authorised for issue.
Our application of materiality
Materiality 2020
Basis for materiality
Group £ 44,300
2% of revenue
Company £ 33,225
75% of Group materiality
We consider revenue to be the most significant determinant of the group’s financial position and performance used by
shareholders. The going concern of the group is dependent on its ability to continue to generate profits through revenue growth.
ARCONTECH GROUP PLC
22
Independent Auditor’s Report to the members of
Arcontech Group PLC (continued)
Whilst materiality for the group financial statements as a whole was set at £44,300, materiality for the significant components was
set at a level of £33,225 with performance materiality set at 75%. We applied the concept of materiality both in planning and
performing our audit, and in evaluating the effect of misstatements.
We agreed with the audit committee that we would report to the committee all audit differences identified during the course of our
audit in excess of £2,215.
An overview of the scope of our audit
In designing our audit, we determined materiality and assessed the risk of material misstatement in the financial statements. In
particular, we looked at areas requiring the directors to make subjective judgements, for example in respect of assessing the
carrying value and recoverability of investments in subsidiaries at parent company level, the valuation of share-based payments
and the consideration of future events that are inherently uncertain. We also addressed the risk of management override of internal
controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement
due to fraud.
We considered revenue recognition to be a significant risk and key audit matter, and designed our audit procedures to address the
risk of misstatement of revenue, including consideration of key contractual terms within customer agreements and whether
recognition is therefore in accordance with IFRS 15 Revenue from Contracts with Customers.
An audit was performed on the financial information of the group’s significant operating components which, for the year ended 30
June 2020, were located in the United Kingdom.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
ARCONTECH GROUP PLC
23
Independent Auditor’s Report to the members of
Arcontech Group PLC (continued)
Key Audit Matter
Revenue recognition
The Group generates sales from the licensing of its
proprietary software, which delivers real time market
data information tailored to customer requirements, as
well as support and maintenance services.
Under IFRS 15 Revenue from Contracts with
Customers, a key consideration for the Group is
whether the performance obligation/s within their
contracts with customers are met either at a point in
time or over time.
financial statements
The
include a prior year
adjustment in respect of an error in treatment at the
time of initial adoption of IFRS 15 as at 1 July 2018.
There is a risk the group is not recognising revenue in
accordance with IFRS 15.
How the scope of our audit responded to the key
audit matter
Our work in this area included:
§ Understanding the core nature of the business
and how Arcontech performs its services for
its clients;
§ Documenting the systems and key controls in
place surrounding significant income
streams;
§ Performing a walkthrough test to understand
the internal control environment in operation
for the significant income streams and ensure
that the key controls within these systems
have been operating in the period under
audit;
§ Reviewed the relevant papers prepared both by
management and third parties in respect of
revenue recognition under IFRS 15 and
conclude and challenge the appropriateness
of the proposed treatment;
§ Reviewed the prior year adjustment workings,
ensuring the accuracy of the accounting
entries in line with IFRS 15, and review the
financial statements to ensure the prior year
adjustment is presented and disclosed
appropriately;
§ Substantive transactional testing of income
recognised in the financial statements,
including testing of deferred income
balances; and
§ Reviewing post year end receipts to ensure
completeness of income recorded in the
accounting period.
ARCONTECH GROUP PLC
24
Independent Auditor’s Report to the members of
Arcontech Group PLC (continued)
Other information
The other information comprises the information included in the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information. Our opinion on the group and parent company
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.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with 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 company and its 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 in relation to which 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 and the part of the directors’ remuneration report to be audited 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 Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the
group and parent company financial statements and for being satisfied that they give a true and fair view, and for such internal
control 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 group and parent company financial statements, the directors are responsible for assessing the group’s and 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
25
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 company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone, other than the company and the company's members as a body, for our audit work, for this report, or for
the opinions we have formed.
Joseph Archer (Senior Statutory Auditor)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
15 Westferry Circus
Canary Wharf
London E14 4HD
ARCONTECH GROUP PLC
26
Group Income Statement and Statement of Comprehensive Income
For the year ended 30 June 2020
Revenue
Administrative costs
Operating profit
Net 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
5
9
10
10
10
10
2020
£
Restated
2019
£
2,955,314
2,841,362
(1,917,502)
(1,936,829)
1,037,812
904,533
3,157
27,184
1,040,969
931,717
176,734
60,318
1,217,703
992,035
1,217,703
992,035
9.22p
8.56p
9.03p
8.39p
7.51p
6.32p
7.42p
6.24p
*Adjusted to exclude the release of accruals for administrative costs of £86,500 (2019: £156,786) in respect of prior years.
All of the results relate to continuing operations.
The notes on pages 32 to 56 form part of these financial statements
ARCONTECH GROUP PLC
27
Statement of Changes in Equity
For the year ended 30 June 2020
Group:
Balance at 30 June 2018
Profit for the year
Adjustment for IFRS 15 restatement
Total comprehensive income for the year
Dividend paid
Share-based payments
Share
capital
£
1,651,314
Share
premium
£
56,381
-
-
-
-
-
-
-
-
Share
option
reserve
£
56,366
-
-
-
Retained
earnings
£
2,011,689
1,117,461
(125,426)
992,035
Total
equity
£
3,775,750
1,117,461
(125,426)
992,035
(171,334)
(171,334)
53,857
-
53,857
Transfer between reserves
Restated Balance at 30 June 2019
-
1,651,314
-
56,381
(10,576)
99,647
10,576
2,842,966
-
4,650,308
Profit for the year
Total comprehensive income for the year
Dividend paid
Share-based payments
Transfer between reserves
Balance at 30 June 2020
Company:
Balance at 30 June 2018
Profit for the year
Total comprehensive expense for the year
Dividend paid
Share-based payments
Transfer between reserves
Balance at 30 June 2019
-
-
-
-
-
-
-
-
-
1,651,314
-
56,381
Share
capital
£
1,651,314
Share
premium
£
56,381
-
-
-
1,217,703
1,217,703
1,217,703
1,217,703
(263,591)
(263,591)
98,428
(9,436)
188,639
Share
option
reserve
£
56,366
-
98,428
9,436
3,806,514
-
5,702,848
Retained
earnings
£
4,196,617
Total
equity
£
5,960,678
-
-
-
-
-
-
-
-
-
-
-
342,250
342,250
342,250
342,250
(171,334)
(171,334)
53,857
-
53,857
-
1,651,314
-
56,381
(10,576)
99,647
10,576
4,378,109
-
6,185,451
Profit for the year
Total comprehensive income for the year
Dividend paid
Share-based payments
-
-
-
-
-
-
-
-
Transfer between reserves
Balance as at 30 June 2020
-
1,651,314
-
56,381
-
-
-
326,348
326,348
326,348
326,348
(263,591)
(263,591)
98,428
(9,436)
188,639
-
98,428
9,436
4,450,302
-
6,346,636
The notes on pages 312 to 56 form part of these financial statements.
ARCONTECH GROUP PLC
28
Balance Sheets
Registered number: 04062416
As at 30 June 2020
Non-current assets
Goodwill
Property, plant and equipment
Right of use asset
Investments in subsidiaries
Deferred tax asset
Trade and other receivables
Group
2020
£
1,715,153
19,316
512,061
-
452,000
141,750
Note
11
12
17
13
18
14
Restated
Group
2019
£
1,715,153
15,011
-
-
285,000
141,750
Company
2020
£
Company
2019
£
-
-
-
2,017,471
151,000
-
-
-
-
2,017,471
125,000
-
Total non-current assets
2,840,280
2,156,914
2,168,471
2,142,471
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Current liabilities
Trade and other payables
Lease liabilities
Total current liabilities
Non-current liabilities
14
15
192,632
5,006,969
263,875
4,063,484
3,181,410
1,146,700
3,073,519
1,078,755
5,199,601
4,327,359
4,328,110
4,152,274
16
17
(1,851,037)
(141,693)
(1,833,965)
-
(149,945)
-
(109,294)
-
(1,992,730)
(1,833,965)
(149,945)
(109,294)
Lease liabilities
17
(344,303)
(344,303)
3,206,871
5,702,848
-
-
-
-
-
-
2,493,394
4,650,308
4,178,165
6,346,636
4,042,980
6,185,451
19
20
20
20
1,651,314
56,381
188,639
3,806,514
1,651,314
56,381
99,647
2,842,966
1,651,314
56,381
188,639
4,450,302
5,702,848
4,650,308
6,346,636
1,651,314
56,381
99,647
4,378,109
6,185,451
As permitted by s408 of the Companies Act 2006, the Company has not presented its own income statement. The parent Company
profit for the year was £326,348 (2019: £342,250).
Approved on behalf of the board on 1 September by:
Matthew Jeffs
Chief Executive
The notes on pages 32 to 56 form part of these financial statements.
ARCONTECH GROUP PLC
29
Total Non-current liabilities
Net current assets
Net assets
Equity
Called up share capital
Share premium account
Share option reserve
Retained earnings
Group Cash Flow Statement
For the year ended 30 June 2020
Cash generated from operations
22
1,315,421
966,060
Note
2020
£
Restated
2019
£
Tax recovered
Net cash generated from operating activities
Investing activities
Interest received
Purchases of plant and equipment
9,734
45,318
1,325,155
1,011,378
29,914
27,184
(12,750)
(13,802)
Net cash generated from investing activities
17,164
13,382
Financing activities
Dividend paid
Payment of lease liabilities
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
(263,591)
(171,334)
(135,243)
-
(398,834)
(171,334)
943,485
853,426
4,063,484
3,210,058
Cash and cash equivalents at end of year
15
5,006,969
4,063,484
The notes on pages 32 to 56 form part of these financial statements.
ARCONTECH GROUP PLC
30
Company Cash Flow Statement
For the year ended 30 June 2020
Net cash generated by/(used in) operating activities
22
320,462
(219,528)
Note
2020
£
2019
£
Investing activities
Interest received
Net cash generated from investing activities
Financing activities
11,074
11,074
11,227
11,227
Dividend paid
(263,591)
(171,334)
Net cash used in financing activities
(263,591)
(171,334)
Net increase/(decrease) in cash and cash equivalents
67,945
(379,635)
Cash and cash equivalents at beginning of year
1,078,755
1,458,390
Cash and cash equivalents at end of year
15
1,146,700
1,078,755
The notes on pages 32 to 56 form part of these financial statements.
ARCONTECH GROUP PLC
31
Notes to the Financial Statements
For the year ended 30 June 2020
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.
Going Concern
On the basis of current projections and having regard to the Group’s existing cash reserves, the Directors consider that the
Group has adequate resources to continue in operational existence for the foreseeable future. In reaching this conclusion
the Directors have taken into account of downside conditions considered reasonably possible in changes in trading
performance due to the impact of Covid-19. The Board do not foresee a material negative impact on trading performance
as a result of the current pandemic. Accordingly, the Directors have adopted the going concern basis in the preparation of
the financial statements.
Changes in accounting policies and disclosures
a) New and amended Standards and Interpretations adopted by the Group and Company
The Group and Company has adopted IFRS 16 “Leases” for the first time this period. The Group has only one lease
arrangement in place and the impact on transition is shown in Note 17.
No other standards or Interpretations that came into effect for the first time for the financial year beginning 1 July 2019 have
had an impact on the Group.
b) New and amended Standards and Interpretations issued but not effective for the financial year beginning 1 July 2019
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):
- Amendments to References to Conceptual Framework in IFRS Standards – effective from 1 January 2020
- Definition of Material (Amendments to IAS 1 and IAS 8) – effective from 1 January 2020
- Amendment to IFRS 3 Business Combinations – effective 1 January 2020*
- Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current –
effective 1 January 2022*
*subject to EU endorsement
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
32
Notes to the Financial Statements
For the year ended 30 June 2020 (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 2020. Subsidiaries are entities controlled by the Group. Control is achieved when the
Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those
returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the
investee).
• Exposure, or rights, to variable returns from its involvement with the investee
• The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee, including:
• The contractual arrangement with the other vote holders of the investee.
• Rights arising from other contractual arrangements.
• The Group’s voting rights and potential voting rights.
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses
control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are
included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control
the subsidiary. The acquisition method is used to account for the acquisition of subsidiaries.
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.
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.
Under IFRS 15, revenue earned from contracts with customers is recognised based on a five-step model which requires the
transaction price for each identified contract to be apportioned to separate performance obligations arising under the contract
and recognised either when the performance obligation in the contract has been performed (point in time recognition) or over
time as control of the performance obligation is transferred to the customer.
ARCONTECH GROUP PLC
33
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
1. Accounting policies (continued)
Revenue recognition (continued)
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 on an over time basis via a straight line across the
period the services are provided. In reaching this conclusion the group has assessed that ongoing contractual obligations are
not separately identifiable from other promises in the contract and are not distinct from the licence, and hence are accounted
for as a single performance obligation. As the license is not distinct the combined performance obligation is recognised over
time.
In assessing whether a licence is distinct the Group considered the continuing requirement to:–
– optimise functionality;
– optimise performance; and
– provide enhancements to ensure user regulatory compliance.
• Revenue from 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.
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.
ARCONTECH GROUP PLC
34
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
1. Accounting policies (continued)
Share-based payments
The cost of share-based employee compensation arrangements, whereby employees receive remuneration in the form of
shares or share options, is recognised as an employee benefit expense in the income statement.
The total expense to be apportioned over the vesting period of the benefit is determined by reference to the fair value
(excluding the effect of non market-based vesting conditions) at the date of grant. Fair value is measured by the use of the
Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the
effects of the non-transferability, exercise restrictions and behavioural considerations. A cancellation of a share award by the
Group or an employee is treated consistently, resulting in an acceleration of the remaining charge within the consolidated
income statement in the year of cancellation.
Impairment of tangible and intangible assets
The carrying amounts of the Group’s and Company’s tangible and intangible assets are reviewed at each year end date to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is
estimated.
Expenses incurred on Research & Development are currently expensed through the income statement as the expenditure is
incurred on the maintenance and enhancement of existing products. The applicability of this treatment is reviewed regularly
by the Company.
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.
ARCONTECH GROUP PLC
35
Notes to the Financial Statements
For the year ended 30 June 2020 (continued
1. Accounting policies (continued)
Financial instruments (continued)
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.
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.
(a) Classification
The Group classifies its financial assets in the following measurement categories:
•
•
those to be measured subsequently at fair value (either through OCI or through profit or loss); and
those to be measured at amortised cost.
The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the
cash flows.
For assets measured at fair value, gains and losses will be recorded either in profit or loss or in OCI. For investments in
equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at
the time of initial recognition to account for the equity investment at fair value through other comprehensive income
(FVOCI). See Note 16 for further details.
ARCONTECH GROUP PLC
36
Notes to the Financial Statements
For the year ended 30 June 2020 (continued
1. Accounting policies (continued)
Financial instruments (continued)
(b) Recognition
Purchases and sales of financial assets are recognised on trade date (that is, the date on which the Group commits to purchase
or sell the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have
expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
(c) Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair
value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Debt instruments
Amortised cost; Assets that are held for collection of contractual cash flows, where those cash flows represent solely
payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in
finance income using the effective interest rate method.
Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together
with foreign exchange gains and losses. Impairment losses are presented as a separate line item in the statement of profit or
loss.
(d) Impairment
From 1 January 2018, the Group assesses, on a forward-looking basis, the expected credit losses associated with its debt
instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant
increase in credit risk.
For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime
losses to be recognised from initial recognition of the receivables.
Leases
In the current year, the Group, for the first time, has applied IFRS 16 Leases. IFRS 16 replaces IAS 17, the previous leasing
standard, and introduces new or amended requirements with respect to lease accounting. It introduces significant changes to
lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right
of use asset and a corresponding lease liability at the lease commencement date for all leases. There is an exemption
available in respect of short-term leases (less than 12 months) and leases of low value assets. The impact of the adoption of
IFRS 16 on the Group’s financial statements is described below and in Note 17.
The date of initial application of IFRS 16 for the Group is 1 July 2019.
The Group has applied IFRS 16 using the modified retrospective approach. Comparative figures for the year ended 30 June
2019 are not restated to reflect the adoption of IFRS 16.
ARCONTECH GROUP PLC
37
Notes to the Financial Statements
For the year ended 30 June 2020 (continued
1. Accounting policies (continued)
Leases (continued)
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17. These lease
arrangements were previously expensed to the statement of comprehensive income over the lease term. Applying IFRS 16,
the Group:
•
•
•
recognises right of use assets and lease liabilities in the statement of financial position, initially measured at the
present value of future lease payments;
recognises depreciation of right of use assets and interest on lease liabilities in the statement of profit or loss; and
separates the total amount of cash paid into a principal portion (presented within financing activities) and interest
(presented within operating activities) in the statement of cash flows.
Under IFRS 16, right of use assets are tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces
the previous requirement to recognise a provision for onerous lease contracts.
The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of
right of use assets and leases liabilities. There is no impact on retained profit.
The application of IFRS 16 has an impact on the statement cash flows of the Group.
Under IFRS 16, lessees must present:
• Cash paid for the interest portion of lease liability as either operating activities or financing activities, as permitted
by IAS 7 (the Group has opted to include the interest paid as part of operating activities); and
• Cash payments for the principal portion for leases liability, as part of financing activities.
Under IAS 17, all lease payments on operating leases were presented as part of cash flows from operating activities.
The adoption of IFRS 16 did not have an impact on net cash flows.
Note 17 shows the impact on each affected line item in the financial statements.
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.
ARCONTECH GROUP PLC
38
Notes to the Financial Statements
For the year ended 30 June 2020 (continued
1. Accounting policies (continued)
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-
maker as required by IFRS 8 “Operating Segments”. The chief operating decision-maker responsible for allocating resources
and assessing performance of the operating segments has been identified as the Board of Directors. The accounting policies
of the reportable segments are consistent with the accounting policies of the group as a whole. Segment profit/(loss)
represents the profit/(loss) earned by each segment without allocation of foreign exchange gains or losses, investment
income, interest payable and tax. This is the measure of profit that is reported to the Board of Directors for the purpose of
resource allocation and the assessment of segment performance. When assessing segment performance and considering the
allocation of resources, the Board of Directors review information about segment assets and liabilities. For this purpose, all
assets and liabilities are allocated to reportable segments with the exception of cash and cash equivalents and current and
deferred tax assets and liabilities.
2. Critical 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 (2019 - £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 £452,000 (2019 - £285,000) was recognised.
ARCONTECH GROUP PLC
39
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
2. Critical accounting judgments and key sources of estimation uncertainty (continued)
Prior year adjustment – Application of IFRS 15
The Group has undertaken a review and analysis of revenue from recurring license fees under IFRS 15 “Revenue from
contracts with customers” which was first adopted for the year ended 30 June 2019 where an ‘at a point in time’ basis was
reported. The conclusion reached is that in the context of IFRS 15 the correct approach for the recognition of revenue is on an
over time basis whereby deferred income arises upon entering into a license fee agreement and is then subsequently
recognised as revenue across the remaining passage of time on the license.
As a result of the change to this revenue recognition policy the 2019 results have been restated with both revenue and
operating results decreasing by £125,426, and in the balance sheet Trade and other payables increasing by £1,151,545 and
Retained earnings decreasing by £1,151,545.
3. Revenue
An analysis of the Group’s revenue is as follows:
2020
£
Restated
2019
£
Software development, licence fees and project work
2,955,315
2,841,362
All of the Group’s revenue relates to continuing activities.
During the year the group undertook further internal analysis on the adoption of IFRS 15 “Revenue from contracts with
customers” and its application to the group’s revenue from recurring license fees, as well as seeking independent review. The
conclusion reached from both the internal analysis and independent review was that the correct method of revenue
recognition for recurring license fees is on an over time basis via a straight line across the period the services are provided.
Accordingly, the 2019 numbers have been restated to reflect this change in revenue recognition. (see note 28 for further
detail on the impact of the restatement)
4. Operating profit for the year is stated after charging/(crediting):
Depreciation of plant and equipment (see note 12)
Depreciation of leased assets (see note 17)
Interest on leased assets (see note 17)
Staff costs (see note 8)
Operating lease rentals - land and buildings
Research and development
Release of accruals for administrative costs in respect of prior years
5. Finance income and Finance costs:
Finance income
Income on cash and cash equivalents
Finance costs
Lease interest expense
Net finance income
ARCONTECH GROUP PLC
2020
£
8,444
146,303
26,757
1,401,227
-
468,680
(86,500)
2019
£
16,732
-
-
1,493,460
145,159
584,524
(156,786)
2020
£
2019
£
29,914
27,184
(26,757)
3,157
-
27,184
40
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
6. 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
7. Operating segments:
Current
auditor
2020
£
28,750
6,000
Previous
auditor
2019
£
19,000
6,000
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
Software development and licence fees
Unallocated overheads
Total operating profit
2020
£
Restated
2019
£
2,955,315
2,955,315
2,841,362
2,841,362
1,575,029
1,387,813
(563,976)
1,011,053
(483,280)
904,533
Finance income
Total profit before tax as reported in the Group income statement
29,916
1,040,969
27,184
931,717
Segment total of assets
Software development and licence fees
Unallocated assets
Less intercompany debtors
Total assets
Segment total of liabilities
Software development and licence fees
Unallocated liabilities
Less intercompany creditors
Total liabilities
ARCONTECH GROUP PLC
2020
£
2019
£
6,514,118
5,196,369
4,533,110
11,047,228
4,357,274
9,553,643
(3,174,349)
7,872,879
(3,069,370)
6,484,273
2020
£
2019
£
5,360,835
3,642,199
150,546
5,511,381
109,591
3,751,790
(3,174,349)
2,337,032
(3,069,370)
682,420
41
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
7. Operating segments (continued):
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
Geographical information - External revenue
UK
Europe (excluding UK)
Africa
North America
Australia
Asia Pacific
2020
£
12,749
12,749
2020
£
2019
£
13,802
13,802
2019
£
8,444
8,444
16,732
16,732
2020
2019
£
2,840,280
2,840,280
£
2,156,914
2,156,914
2020
£
2,000,457
821,193
45,000
78,177
4,267
6,221
2,955,315
Restated
2019
£
1,910,969
804,989
44,938
75,767
-
4,699
2,841,362
During the year there were 3 customers (2019: 4) who accounted for more than 10% of the Group’s revenues as follows:
Customer 1
Customer 2
Customer 3
Customer 4
2020
2019
Value of
sales
£
659,327
516,605
371,536
300,696
1,848,164
% of Total
22%
17%
13%
10%
62%
Value of
sales
£
643,491
507,373
376,411
280,906
1,808,181
% of Total
22%
18%
13%
10%
63%
These revenues are attributable to the software development and licence fees segment.
ARCONTECH GROUP PLC
42
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
8.
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 3 (2019: 4)
The highest paid Director received remuneration of £287,913 (2019: £236,757).
2020
£
1,139,695
140,611
22,493
98,428
1,401,227
5
11
16
£
312,902
5,428
57,432
375,762
37,536
413,298
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
The number of Directors that are members of a defined contribution pension scheme is 1 (2019: 2). Pension contributions
paid to a defined contribution scheme in respect of the highest paid Director amounted to £5,100 (2019: £8,704).
Fees payable to Michael Levy & Co, Chartered Accountants, in which Michael Levy was the principal, in respect of
accountancy services are disclosed in note 23.
ARCONTECH GROUP PLC
43
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
9. Taxation
Current tax
Deferred tax
Total tax credit for the year
2020
£
9,734
167,000
176,734
2019
£
45,318
15,000
60,318
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
2020
£
1,040,969
Restated
2019
£
931,717
Profit on ordinary activities multiplied by the standard rate of corporation
tax in the UK of 19 % (2019: 19%)
197,784
177,026
Effects of:
Disallowed expenses
Temporary differences on deferred tax
Research and development tax credits
416
1,255
1,400
1,800
(9,734)
(45,318)
Deferred tax asset not previously recognised
(167,000)
(15,000)
Brought forward losses utilised/loss for the year carried forward
(199,455)
(180,226)
Total tax credit for the year
(176,734)
(60,318)
Factors which may affect future tax charges
At 30 June 2020 the Group has tax losses of approximately £7,400,000 (2018: £8,700,000) to offset against future trading
profits.
ARCONTECH GROUP PLC
44
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
10. 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
2020
£
Restated
2019
£
1,217,703
1,217,703
992,035
992,035
No.
No.
13,210,510
13,210,510
268,484
165,223
13,478,994
13,375,733
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.
11. Goodwill
Cost and net book amount
2020
£
2019
£
At 1 July 2019 and at 30 June 2020
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
2020
£
1,715,153
1,715,153
2019
£
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 2.5%
and 1.8% after year 5.
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% (2019: 5%) per annum, after which the UK long-term growth
rate of 1.8% 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% per
annum 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% (2019: 8.8%),
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
45
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
12. Property, plant and equipment - Group
Cost
At 1 July 2018
Additions
At 1 July 2019
Additions
At 30 June 2020
Depreciation
At 1 July 2018
Charge for the year
At 1 July 2019
Charge for the year
At 30 June 2020
Net book amount at 30 June 2020
Net book amount at 30 June 2019
13. Investment in subsidiaries
Carrying amount
At 1 July 2019
Provisions written back
Amounts written off
At 30 June 2020
Leasehold
Property
£
Office
furniture &
equipment
£
Total
£
18,892
122,974
141,866
7,307
6,495
13,802
26,199
129,469
155,668
-
12,749
12,749
26,199
142,218
168,417
14,562
109,363
123,925
4,574
12,158
16,732
19,136
121,521
140,657
1,461
6,983
8,444
20,597
128,504
149,101
5,602
7,063
13,714
7,948
19,316
15,011
2020
£
2019
£
2,017,471
2,017,471
-
-
-
-
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 listed below. The Goodwill recognised in Note 11 is in connection with investments made in subsidiaries:
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
46
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
14. Trade and other receivables
Due within one year:
Trade and other receivables
38,162
132,625
-
Group
2020
£
Group
2019
£
Company
2020
£
Company
2019
£
-
Amounts owed by group undertakings
Prepayments and accrued income
Due after more than one year:
Other receivables
-
154,470
192,632
Group
2020
£
141,750
141,750
-
3,174,150
3,069,270
131,250
263,875
7,160
3,181,310
4,249
3,073,519
Group
2019
£
141,750
141,750
Company
2020
£
-
-
Company
2019
£
-
-
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 2020, trade receivables of £Nil were impaired (2019: £Nil) and during the year an impairment charge relating to
trade receivables of £Nil (2019: £Nil) was recognised. As at 30 June 2020 trade receivables of £792 (2019: £8,893) were
past due but not impaired. The ageing analysis of these trade receivables is as follows:
Group
2020
£
720
-
720
Group
2019
£
5,000
3,893
8,893
Company
2020
£
-
-
-
Company
2019
£
-
-
-
Up to 3 months past due
3 to 6 months past due
15. 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
47
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
16. Trade and other payables
Trade payables
Amounts owed to group undertakings
Group
2020
£
76,765
-
Restated
Group
2019
£
76,823
-
Other tax and social security payable
52,033
27,365
Other payables and accruals
527,109
578,232
Deferred income
1,195,130
1,851,037
1,151,545
1,833,965
Company
2020
£
Company
2019
£
21,199
100
10,475
118,171
-
149,945
9,824
100
7,531
91,839
-
109,294
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 £603,874 (2019: £655,055).
17. Leases
The Group has adopted IFRS 16 using the modified retrospective approach with the effect of applying this standard at the
date of initial recognition of 1 July 2019, consequently comparatives have not been restated.
As a lessee, the Group has previously classified leases as operating or finance leases based on whether the lease transferred
significantly all of the risks and rewards incidental to the ownership of the underlying asset. Under IFRS 16, the Group
recognises right-of-use assets and lease liabilities for all leases on its balance sheet. The only lease applicable under IFRS 16
is the Group’s office.
The key impacts on the Statement of Comprehensive Income and the Statement of Financial Position are as follows:
Balance on transition (1 July 2019)
Recognised on adoption of IFRS 16
Depreciation
Interest
Lease payments
Prepayments
£
37,125
(37,125)
-
-
-
Lease
liability
£
-
(621,239)
-
(26,757)
162,000
Right of use
asset
£
-
658,364
(146,303)
-
-
Income
statement
£
-
-
(146,303)
(26,757)
-
Carrying value at 30 June 2020
-
(485,996)
512,061
(173,060)
Contractual maturity analysis of lease liabilities as at 30 June 2020
Lease liabilities
Less than
3 months
£
40,500
3 – 12
Months
£
101,193
1 – 5
Year
£
344,303
Longer than
5 years
£
-
Total
£
485,996
ARCONTECH GROUP PLC
48
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
18. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using the tax rate of 17% which came
into effect from 1 April 2020. The movement on the deferred tax account is as shown below:
At 1 July 2019
Tax credit recognised in group income
statement
Group
2020
£
285,000
Group
2019
£
270,000
Company
2020
£
125,000
Company
2019
£
50,000
167,000
15,000
26,000
75,000
At 30 June 2020
452,000
285,000
151,000
125,000
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 2020 amounted to approximately £7,500,000 (2019: £8,700,000).
19. Share capital
Company
Allotted and fully paid:
2020
£
2019
£
13,210,510 (2019: 13,210,510) Ordinary shares of 12.5p each
1,651,314
1,651,314
Share options
Under the Company’s approved 2002 Share Option Scheme, certain Directors and employees held options at 30 June 2020
for unissued Ordinary Shares of 12.5 pence each as follows:
Granted
Exercised
Forfeited
At 30 June
2020
Exercise price
Normal exercise period
Share options
Employees:
Directors:
Michael Levy
Richard Last
Louise Barton
At 1 July
2019
80,000
125,000
50,000
-
-
-
-
55,000
20,635
50,000
-
24,762
40,000
20,000
-
-
10,000
-
-
-
Matthew Jeffs
100,000
-
-
50,000
Total
510,397
115,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
80,000
23.75 pence
1 Sep 17 – 31 Aug 21
125,000
50,000
64.50 pence
110.00 pence
25 Apr 20 – 24 Apr 27
30 Jun 21 – 29 Jun 28
55,000
196.00 pence
30- Jun 22 – 27 Sep 29
-
(33,334)
(9,445)
20,635
16,666
555
64.50 pence
110.00 pence
196.00 pence
25 Apr 20 – 24 Apr 27
30 Jun 21 – 29 Jun 28
30- Jun 22 – 27 Sep 29
-
-
-
-
-
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
50,000
110.00 pence
196.00 pence
30 Jun 21 – 29 Jun 28
30- Jun 22 – 27 Sep 29
(42,779)
582,618
Weighted
average exercise
price
72.7 pence
196.0 pence
- 67.3 pence
92.9 pence
ARCONTECH GROUP PLC
49
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
19. Share capital (continued)
The number of options exercisable at 30 June 2020 was 310,397 (At 30 June 2019: 120,000), these had a weighted average
exercise price of 128.98 pence (2019: 23.75 pence).
The weighted average share price as at the exercise date of the shares exercised in the year was Nil pence (2019: Nil pence
and of the shares were forfeited in the year was Nil pence (2019: 64.5).
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 238 pence, the lowest price was 107 pence and the price at
the year-end was 169 pence.
The weighted average remaining contractual life of share options outstanding at 30 June 2020 was 6 years (2019: 7 years).
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 10 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 after 1 July 2018 which apply to executive directors and certain key staff, are set out below.
The options issued in November 2018 and in September 2019 will be exercisable from 30 June 2021 and 30 June 2022
respectively, dependent on the Company’s compound annual rate of growth in fully diluted earnings* for the three financial
years ending 30 June 2021 and 2022, respectively.
Options issued date
Exercisable from
November 2018
September 2019
30 June 2021
30 June 2022
The Options will vest subject to performance criteria as follows:
Dependent on the Company’s
compound annual rate of growth in
fully diluted earnings* for the three
financial years ending
30 June 2021
30 June 2022
- 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 £98,428 (2019: £53,857) has been
recognised in the period in respect of share options granted. The cumulative share option reserve at 30 June 2020 is £188,639
(2019: £99,647).
ARCONTECH GROUP PLC
50
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
19. Share capital (continued)
The inputs into the Black-Scholes pricing model are as follows:
Directors & Employees
Grant date
Exercise price
Expected life
Expected volatility
Risk free rate of interest
Dividend yield
Fair value of option
1 Sep 2014
23.75 pence
6 years
65%
0.5%
Nil
19.64 pence
25 Apr 2017
64.5 pence
10 years
50%
0.5%
Nil
36.7 pence
29 Nov 2018
110.0 pence
10 years
50%
0.75%
Nil
57.0 pence
27 Sep 2019
196.0 pence
10 years
50%
0.75%
Nil
115.0 pence
Volatility has been estimated based on the historic volatility over a period equal to the expected term from the grant date.
20. Reserves
Details of the movements in reserves are set out in the Statement of Changes in Equity. A description of each reserve is set
out below.
Share premium account
This is used to record the aggregate amount or value of premiums paid when the Company’s shares are issued at a premium,
net of issue costs, less amounts cancelled by court order.
Share option reserve
This relates to the fair value of options granted which has been charged to the income statement over the vesting period of
the options, less amounts 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.
21. 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.
ARCONTECH GROUP PLC
51
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
22. Net cash generated from operations - Group
Operating profit
Depreciation charge
Non cash share option charges
Lease interest paid
Adjustment for IFRS 16
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables
2020
£
1,037,812
154,747
98,428
(26,757)
(37,125)
71,244
17,072
Restated
2019
£
904,533
16,732
53,857
-
-
46,248
(55,310)
Cash generated from operations
1,315,421
966,060
Net cash generated from operations - Company
Operating profit
Non cash share option charges
2020
£
289,274
98,428
2019
£
256,023
53,857
Increase in trade and other receivables
(107,891)
(501,570)
Increase/(Decrease) in trade and other payables
40,651
(27,838)
Cash generated by/(used in) operations
320,462
(219,528)
ARCONTECH GROUP PLC
52
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
23. 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 was the principal, in respect of
accountancy services of £38,215 (2019: £59,945). At 30 June 2020 the amount outstanding was £Nil (2019: £Nil).
Company
Transactions between the Parent Company and its subsidiaries during the year were as follows:
Management charges payable by subsidiaries £670,640 (2019: £574,017).
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
2020
£
2019
£
7,324,474
7,397,095
(4,150,324)
3,174,150
(4,327,825)
3,069,270
During the year a provision of £177,500 was released (2019: £160,354) in respect of balances due from subsidiaries.
Amount due to subsidiaries
24. Dividends
2020
£
670,640
670,640
2019
£
574,017
574,017
A final dividend of 2.5 pence will be proposed at the Annual General Meeting but has not been recognised as it requires
approval (2019: 2.0 pence).
25. Material non-cash transactions
There were no material non-cash transactions during the period.
ARCONTECH GROUP PLC
53
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
26. 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
2020
£
38,162
Group
2019
£
132,625
Company
2020
Company
2019
£
-
£
-
Cash and cash equivalents
5,006,969
4,063,484
1,146,700
1,078,755
Amounts owed by group undertakings
-
5,045,131
-
4,196,109
3,174,250
4,320,950
3,069,270
4,148,025
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 0.30% below bank base rate and 0.6% above
bank base rate and at fixed/variable rates of between 0.35% and 1.85% (2019: 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%).
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 £603,874 (2019: £655,055) all of which are payable within 6
months.
ARCONTECH GROUP PLC
54
Notes to the Financial Statements
26. Financial instruments (continued)
Market risk and sensitivity analysis
Equity price risk
The Directors do not consider themselves exposed to material equity price risk due to the nature of the Group’s operations.
Foreign currency exchange risk
The Directors do not consider themselves exposed to material foreign currency risk due to the nature of the Group’s
operations. All invoices are raised in sterling.
Interest rate risk
The Group is exposed to interest rate risk as a result of positive cash balances, denominated in sterling, which earn interest
at variable and fixed rates. As at 30 June 2020, if bank base rate had increased by 0.5% with all other variables held
constant, post-tax profit would have been £25,035 (2019: £18,184) higher and equity would have been £25,035 (2019: £18,184)
higher. Conversely, if bank base rate had fallen 0.5% with all other variables held constant, post-tax profit would have been
£25,035 (2019: £18,184) lower and equity would have been £25,035 (2019: £18,184) lower.
27. Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order
to provide returns for shareholders and maintain an optimal capital structure.
The Group defines capital as being share capital plus reserves. The Board of Directors continually monitors the level of
capital.
The Group is not subject to any externally imposed capital requirements.
28. Prior year restatement
IFRS 15 “Revenue from contracts with customers” was adopted from 1 July 2018 in line with transitional provisions provided
in the new standards. The audited financial statements for the year ended 30 June 2019 recognised revenue from recurring
license fees on an ‘at a point in time’ basis. The Group has undertaken a further review and analysis of its offering and
performance obligations under the terms of recurring license fee contracts and has also sought independent advice. The
conclusion reached is that in the context of IFRS 15 the correct approach for the recognition of revenue is on an over time
basis whereby deferred income arises upon entering into a license fee agreement and is then subsequently recognised as
revenue across the remaining passage of time on the license.
This is consistent with the Group’s approach to revenue recognition for recurring license fees prior to the introduction of
IFRS 15.
The comparatives for the year to 30 June 2019 have been restated in this report to recognise revenue from recurring license
fee contracts on an over time basis. The effect of this change on the trading result for the year to 30 June 2019 as a result of
this change in revenue recognition policy is shown below.
Group Income Statement and Statement of Comprehensive Income:
Revenue decreased by £125,426
Profit for the year before taxation and after taxation decreased by £125,426
Basic earnings per share decreased from 8.49p to 7.40p
Diluted earnings per share decreased from 8.35p to 7.30p
Statement of Changes in Equity:
Total comprehensive income for the year at 30 June 2019 decreased by £125,426
Retained earnings at 30 June 2019 decreased by £1,151,545
Group Balance Sheet:
Trade and other payables - Deferred income (Note 15) increased by £1,151,545
ARCONTECH GROUP PLC
55
Notes to the Financial Statements
For the year ended 30 June 2020 (continued)
28. Prior year restatement (continued)
A third statement of financial position as at the beginning of the preceding period has not been presented in accordance with
IAS8 paragraph 42 as the amount relating to the preceding period is immaterial.
29. Ultimate controlling party
There is no ultimate controlling party.
30. 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
56
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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)