G a t t a c a p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 2 1 Building a better future, one job at a time Gattaca plc Annual Report and Accounts 2021 Gattaca plc Annual Report and Accounts 2021 About us Providing the skills needed to build a better future, one job at a time Contents Overview Strategic Report Corporate Governance Financial Statements 1 Our Purpose-Driven 6 Our Strategy Approach 2 At a Glance 4 Financial and Operational Highlights 8 Investment Case 10 Chair’s Statement 12 CEO’s Statement 14 Our Purpose, Mission, Vision & Values 16 Our Purpose in Action 22 Our Business Model 24 Market Overview 28 Key Performance Indicators Report 30 Chief Financial Officer’s Report 34 Responsible Business 44 Risk Assurance 47 Principal Risks and Uncertainties For further information go to: www.gattacaplc.com/investors 54 Chair’s Introduction to Governance 81 Independent Auditors’ Report 56 Board of Directors 89 Consolidated Income 58 Corporate Governance Statement 62 Directors’ Report 65 Audit Committee Report 70 Nominations Committee Report 73 Remuneration Committee Statement 90 Consolidated Statement of Comprehensive Income 91 Statements of Changes in Equity 93 Consolidated and Company Statements of Financial Position 94 Consolidated and Company Cash Flow Statements 95 Notes forming Part of the Financial Statements Overview Strategic Report Governance Financial Statements 1 Our Purpose-Driven Approach Following the completion of the Improvement Plan and as we embark on a growth phase, the time was right to refresh our Purpose, Vision, Mission and Values. After a year like no other, Gattaca has taken action to link strategy and operations to a shared purpose: “To provide the skills needed to build a better future, one job at a time”. Becoming purpose-led helps us create greater value for our key stakeholders: candidates, clients, colleagues, suppliers and investors. To help achieve our purpose, we launched our new Vision, Mission and Values, to align our actions and behaviours to the change we want to see. Purpose Providing the skills needed to build a better future, one job at a time Read more about how we have relaunched our Purpose, Mission, Vision and Values on page 14 Helping over 2,000 unemployed candidates back to work On a mission to help 10,000 client contacts build a better future Inspiring the next generation of STEM talent Page 17 Page 18 Page 20 ACHIEVED THROUGH Vision To be the STEM talent partner of choice Mission Everyday we deliver a service that is so trusted that our clients, candidates, colleagues and suppliers recommend us without hesitation UNDERPINNED BY Values Trust Professional Ambition Fun 2 Gattaca plc Annual Report and Accounts 2021 At a Glance What we do An AIM-listed group delivering technical recruitment, outsourced services and workforce solutions to sectors requiring STEM talent. Technical Recruitment Services Workforce Solutions Statement of Work (‘SOW’) Services Delivering total coverage through technical engineering, technology, professional and training skill specialists Collaborative workforce solutions for clients with technical skill needs: sourcing, compliance, onboarding and experience Solving complex technical and operational challenges through engineering or technology-led packages of work Talent consultancy Across all of our solutions, we are also able to offer additional talent consultancy, including but not limited to: Talent mapping and insights Rate/salary benchmarking Diversity consultancy Talent attraction and employer branding Recruitment process analysis Recruitment technology services Workforce compliance Workforce planning Assessment and selection Read more about our products and services on page 24 Overview Strategic Report Governance Financial Statements 3 We connect STEM employers with technical candidates and outcomes through tailored solutions, expert consultancy, robust governance and subject matter expertise. Our markets We operate across 8 markets providing in-depth industry knowledge of the best STEM (‘Science, Technology, Engineering and Mathematics’) talent, services and solutions to serve our clients. DEFENCE • Air • Land • Sea ENERGY • Renewables • Oil and gas • Transmission and distribution FINANCE, BANKING AND INSURANCE • Banking • Insurance • Fintech • Communications • Nuclear • Mining and extraction INFRASTRUCTURE MOBILITY PUBLIC SECTOR TECHNOLOGY • Highways, traffic and planning • Automotive • Buildings and construction • Maritime and shipping • Rail • Water, fibre and utilities • Aerospace • Central government • Local government • NHS RETAIL, MANUFACTURING AND LIFE SCIENCES TECHNOLOGY, MEDIA AND TELECOMS • Logistics • eCommerce • Pharmaceutical • Medical • Technology • Media and broadcasting • Telecommunications Read more about our markets on pages 25–27 4 Gattaca plc Annual Report and Accounts 2021 Financial and Operational Highlights Accelerating the rebuild for future growth Financial highlights 2021 2020 restated 2019 £415.7m 2021 £42.1m 2021 £534.7m 2020 restated £52.8m 2020 restated £634.3m 2019 £69.1m 2019 REVENUE FROM CONTINUING OPERATIONS £415.7m (2020 restated1: £534.7m) NET FEE INCOME2 (‘NFI’) FROM CONTINUING OPERATIONS PROFIT BEFORE TAX FROM CONTINUING OPERATIONS £42.1m (2020 restated1: £52.8m) £2.2m (2020 restated1: £1.3m) 2021 2020 restated 2019 £3.2m £4.8m 2021 1.8p 2021 2020 -5.5p 2020 restated £11.7m 2019 -18.3p 2019 CONTINUING UNDERLYING3 PROFIT BEFORE TAX BASIC EARNINGS PER SHARE £3.2m (2020 restated1: £4.8m) 1.8p (2020: -5.5p) CONTINUING UNDERLYING3 BASIC EARNINGS PER SHARE 8.4p (2020 restated1: 11.7p) £2.2m £1.3m £3.4m 8.4p 11.7p 28.4p 2021 2020 2019 DIVIDEND PER SHARE4 1.5p (2020: nil) 1.5p 2021 nil nil 2020 2019 8.6% 11.7% 19.8% OPERATING MARGIN FROM CONTINUING UNDERLYING OPERATIONS 8.6% (2020 restated1: 11.7%) 2020 figures have been restated for the presentation of operations discontinued in 2021 as explained in Note 11 of the consolidated financial statements. 1 2 Net fee income is equivalent to gross profit, being revenue less cost of sales. 3 Underlying results are defined as total consolidated results less non-underlying items, amortisation and impairment of goodwill and acquired intangible assets, impairment of plant, property and equipment and right-of-use assets and foreign exchange differences. 4 Subsequent to year end, the Group declared a dividend of 1.5p per share. Overview Strategic Report Governance Financial Statements 5 Operational highlights • In response to the significant • In April 2021 we successfully impact of the COVID-19 pandemic on trading and operations, the Group completed its organisational restructure in October 2020, ensuring the right balance of resources across functions and geographies. As we have seen demand increase in our core sectors and markets, we have seen our numbers employed gradually increase in the second half of the year, particularly in the high growth areas of sales. • With the Improvement Plan now largely complete, we are now in growth mode and took the decision to review our group purpose, vision, mission and values. This was launched in July 2021 and we believe this will serve as a guiding light as we continue to develop our capability to deliver a service that is so trusted that our clients, candidates and colleagues recommend us without hesitation. completed the implementation of our new global technology platform which replaced all of our legacy systems, the single biggest change initiative in the Group’s history. • The ongoing success of our Gattaca Solutions business continues to provide core support to a number of our major clients and was recognised again for our achievements in both HRO Today ‘Baker’s Dozen’ and TIARA Talent Solutions awards. • On 27 October 2020 the Group repaid the £7.5m remainder of the Revolving Credit Facility (‘RCF’) in full and cancelled the facility. As a result the Group no longer has any covenant obligations. During the year the Group has maintained a robust balance sheet and liquidity position. • Resumption of a dividend payment announced, the first since 2018. 71/29 HEADCOUNT RATIO Sales 71% Group Support 29% 75/25 CONTRACT VS PERMANENT NFI SPLIT Contract 75% Permanent 25% Reporting segments As a leading provider of engineering and technology recruitment solutions we report our segments for the UK by the skills we recruit for, providing our full range of products and services across each segment: £42.1m • Our UK Engineering segment encompasses those services within engineering. • Our UK Technology segment encompasses those services within technology and IT. • Our International segment comprises our operations principally in North America. GROUP CONTINUING NFI BY SEGMENT UK Engineering £28.4m 67.5% UK Technology £10.2m 24.3% International £3.5m 8.2% For further information go to: www.gattacaplc.com/investors 6 Gattaca plc Annual Report and Accounts 2021 Our Strategy Beyond the Improvement Plan VISION An ambitious vision that will require us to outgrow the market MISSION A mission that ensures trust is at the heart of our actions STRATEGIC PILLARS The core principles of how we will bring our vision and mission into being STRATEGIC PRIORITIES The priority objectives for Gattaca to execute our strategic pillars, which will alter over time to reflect market conditions Overview Strategic Report Governance Financial Statements 7 Our growth strategy foundations are built on the building blocks put in place from the Improvement Plan we launched in 2019 and focuses on our vision to be the STEM talent partner of choice. Our strategic pillars provide the Group with the core principles that will deliver our growth trajectory going forwards. To be the STEM talent partner of choice Everyday we deliver a service that is so trusted that our clients, candidates, colleagues and suppliers recommend us without hesitation SELL TO MARKET ADD VALUE BY PRODUCT EXPERT FULFILMENT BY SKILL COLLABORATIVE HIGH-PERFORMING CULTURE • Focus on STEM sectors which offer long-term sustainable growth potential • Focus on growth opportunities in our primary locations of the UK and North America • Provide a full range of services to meet customers’ needs within our target sectors and embed a systematic sales approach • Grow workforce solutions • Continue to innovate and develop our product offerings • Provide a first-class candidate experience to improve attraction and retention • Increase the capability and efficiency of candidate attraction by realising the potential of our fulfilment function • Enable our people to achieve their full potential through focused training and development • Harness our new technology platform to deliver a better and more efficient service • Become a more diverse and sustainable organisation 8 Gattaca plc Annual Report and Accounts 2021 Investment Case Our vision is to be the STEM talent partner of choice Defining arguments: Market-leading solutions with a trusted reputation Defined, long-term high-growth markets Supporting evidence: • A leading provider of • STEM skills are especially in demand across geographies and markets, driven by the growing importance of the digital economy • Well-established and scalable UK business, with further growth and market share opportunity • Extensive client base within high-growth engineering and technology sectors • Presence in North America, as well as UK markets specialised and in-demand engineering and technology skills • Ability to deliver tailored solutions and products • Broad client base and long-term partnerships • Recognised with awards for a second year in: – HRO Today ‘Baker’s Dozen’ in five different categories including being named as the number one provider for both size and breadth of services for mid-sized deals – 2021 TIARA Talent Solutions highly commended ‘Best Client Service’ and ‘Best Long-Term Partnership’ – 2020 TIARA Talent Solutions ‘Best Candidate Experience’ Overview Strategic Report Governance Financial Statements 9 An established, trusted partner providing innovative solutions with clear opportunities to scale in growth markets. Deep expertise with revitalised leadership Focused growth strategy Resilient business model • Deep skill and market- • Cross-selling and focus • Focused on STEM based expertise within the business • A motivated management team that brings fresh perspective and drive to professionalise the business • Group-wide Improvement Plan completed over last three years, setting the business up for growth on growing share of client staffing spend provides growth opportunity • New integrated technology platform replacing all core systems successfully implemented across all business units in April 2021, enabling productivity optimisation, coordinated sales activity and improved data and insights • Investing in organic growth in geographies with clear growth prospects • Growing and investing in Gattaca Solutions which embeds Gattaca within client operations and delivers incremental margin improvement • A more agile, scalable business being built skills which will remain in high demand • Significantly strengthened and robust balance sheet and financial resilience • No financing covenants • Contract-permanent NFI split of 75/25 provides more predictable and recurring revenues • A growing Gattaca Solutions business, further increasing revenue diversity • Strong contract mix provides resilience and visibility and the permanent market provides future growth opportunities For further information go to: www.gattacaplc.com/investors 10 Gattaca plc Annual Report and Accounts 2021 Chair’s Statement Well-placed and robust for the future The pandemic had a significant impact on nearly all our clients, candidates and colleagues throughout the whole of the financial period. There was a noticeable positive change around mid-year as many of our clients reassessed their talent requirements. It is also notable that the STEM skill shortages that we have often discussed are even more apparent as the economy improves. We are very quickly moving to a candidate-led market. We are determined that whilst the pandemic has had an impact on our operations we will not let it define us. Our leadership team and colleagues have grown immensely as a result of the challenges thrown at them and we commend them accordingly. It has allowed us to re-look at how we operate and we have found that hybrid working, when done well, can be as productive as working full-time in the office. This also enables us to recruit our own talent from a wider pool, with many consultants able to be based closer to their clients. This is the new ‘norm’ and we will embrace it. Overview The financial year has been a year of two halves. The first six months remained significantly impacted by the pandemic as clients were cautious in the search for talent. By mid-year there were early signs of a recovery and the market for STEM skills had rebounded. It is not back to the pre-pandemic levels as there are a number of key markets where the recovery is slower than others, but it is moving in the right direction. Initially we have seen a step up in permanent opportunities and we also expect further growth from our contractor base. The balance has swung in favour of candidates and indeed in many areas there is a shortage of STEM skills. This has always been anticipated but the speed of the change has been surprising. There is no single reason for this and we look forward to the challenge to support our clients and to be seen as the STEM partner of choice. Our leadership team have been exceptional throughout the year, even though the majority of our people were working from home for the whole period. They have used the opportunity to reset the business for the post-pandemic period. The Improvement Plan is now completed and in the final stages we implemented a revitalised commission scheme, focused on core delivery for our larger clients, embraced hybrid working, successfully supported our customers through IR35 and launched our new systems. At the same time they have worked tirelessly to support our people to ensure everyone remains connected. In July we launched our new Purpose, Vision, Mission and Values which we believe will ensure we deliver a service that is so trusted that our clients, candidates and colleagues recommend us without hesitation. As part of the reset we initially had to make a number of colleagues redundant during October 2020. This allowed us to keep our costs under control at the low point of the pandemic cycle but it has subsequently allowed us to address the balance of skills required in the business. We have seen our numbers employed in UK sales gradually increase in the second half (16% from January to July). Towards the end of the year we chose to close our operations in Mexico as recent government legislation prohibiting outsourcing of workers meant that it would no longer be financially viable to operate in the market. We also agreed the divestment of our South African operations to a management buyout. The sales operation in South Africa was always borderline and we took the decision to focus on our core support centre in the region who provide delivery support for our UK and North American operations. We remain focused on managing our working capital and our net cash position. We ended the year with £19.9m of net cash (excluding lease liabilities), compared with £27.3m at the end of 2020. This is largely due to the repayment of £4.7m of deferred VAT together with a deterioration in debtor days. The latter is closely monitored and we are cognisant that as our clients emerge from the pandemic their balance sheets are often stretched. Following the repayment of our revolving credit facility last year we no longer have any covenant restrictions. In addition, we have £53.4m of liquidity at the year end, being our cash resources and our undrawn invoice financing facility. Whilst future growth will see the need for additional working capital we have mitigated this to some extent by changes in contractor terms and therefore we expect to maintain a strong balance sheet. Overview Strategic Report Governance Financial Statements 11 “ We are confident that the changes we have made in the business leave us better placed for the future.” Patrick Shanley Non-Executive Chair Dividend When we announced we would not be paying any dividends in 2018, the decision was not taken lightly. At that time we had net debt of £40m and needed to address our balance sheet. We believe we have now done so and feel confident that we can manage any challenges thrown up by the pandemic. Our long-standing objective has been to achieve a through-the-cycle dividend pay-out of approximately 50% of profits after tax. The Board believe that this year we should reinstate the dividend and feel that 1.5p per share is a reasonable first step towards our objective. Diversity and inclusion We recognise that we fell short on the gender balance on the Board and indeed within our leadership group. We are grateful that Tracey James joined the Board as a non-executive director with effect from December 2020. Tracey chairs the Audit Committee and is a member of the Remuneration Committee. Tracey is a chartered accountant who has spent 26 years with Grant Thornton, the latter 14 years as an audit partner. As a result David Lawther has moved over to chair the Remuneration Committee. It is the Board’s intention to appoint a further independent non-executive director in the near term to address the balance between independent and non-independent directors. Below Board level we have also committed to ensuring that by 2024, 40% of our leadership group will be female. We recognise as an organisation we need to redress the balance within the Group and Tracey has agreed to provide Board sponsorship with Kevin of our Diversity and Inclusion steering group. This group will look at the wider aspects of diversity and inclusion. Outlook The fundamentals of our business model position us well for the upswing in the economy. It is well recognised that the demand for STEM skills will only increase and we are well balanced to fulfil our role with our clients in finding the talent that they require. Last year we were cautious regarding the timing and whilst we feel more confident today we are also aware that this pandemic may well be wounded but is not yet finished. There may well be twists and turns over the coming months. What we do know is that our business is in the best possible position to exploit any market growth having been focused on our core markets for over 37 years. We have left behind us Brexit, IR35, new systems implementation and hopefully the worst of COVID-19. What lies ahead is a period where the expectation for major infrastructure projects in the UK is unprecedented and an optimism amongst our client base that we are entering a growth phase for STEM skills with a shortage of candidates. We are therefore hopeful that as the markets return we will see a significant recovery in the medium-term to our level of profitability. Patrick Shanley Non-Executive Chair 5 November 2021 12 Gattaca plc Annual Report and Accounts 2021 CEO’s Statement Using group expertise to support clients with their STEM skills needs to sustain the recovery Introduction This has been a challenging year for our clients, candidates and colleagues as we continued to be significantly impacted by the effects of the global pandemic. Whilst successfully operating remotely for a significant part of the year, we focused on ensuring that we continued to support our clients with their talent requirements through the challenges posed by the pandemic, alongside managing operational costs to an appropriate level. This could not have been achieved without the commitment, dedication and expertise of our people. I would like to thank them all as they have continued to focus on our clients, contractors and candidates whilst managing the complexities of the new environment that we have all had to adapt to. Each colleague is a valued member of the Gattaca family. Some difficult decisions were needed in the early part of the year whilst the impact of the pandemic continued, namely the reset of our cost base with a redundancy programme. We ensured the appropriate operational scale during this time but also proactively accelerated our plans to align the organisation with the markets and our client’s needs. This included the closure of our Mexico business and the sale of our trading operations in South Africa. We worked extensively with our client and contractor base in the period leading up to the much delayed IR35 changes in the private sector which were implemented in April 2021, with relatively little disruption compared to 2017 when the changes came into force in the public sector. Since February we have seen the markets returning to growth across the majority of our major sectors, which has led to a candidate short market. We are now in investment mode and in January embarked on a sales hiring programme to invest in talent with skill sets aligned to our new operating model. At the end of the year our people numbers were 512 colleagues compared to 587 the previous year. The Group delivered net fee income of £42.1m (2020 restated: £52.8m). The pandemic primarily impacted the last quarter of the prior financial year, whereas it has impacted all of our 2021 results, albeit that we saw sequential growth of 5% in the second half of the year. The Group is reporting continuing underlying profits before tax of £3.2m (2020 restated: £4.8m), exceeding our expectations at the beginning of the year. During the year we also accelerated our plans to adjust our operating model and I am pleased that these foundations are now in place. GROUP CONTINUING REVENUE £415.7m (2020 restated: £534.7m) GROUP CONTINUING NFI £42.1m (2020 restated: £52.8m) Accelerating the rebuild The year ended July 2021 has been a significant year of rebuilding for the Group as together with the senior leaders of the business we accelerated and implemented a number of key initiatives which were introduced in our last annual report. Whilst this investment will be a factor in 2022 profits, it will set the business up for growth in the medium and long-term. Through our UK Engineering, Technology and International businesses, we will be focused on the following market sectors: • Defence, • Energy, • Finance, banking and insurance, • Infrastructure, • Mobility, • Public sector technology, • Retail manufacturing and life sciences, and • Technology, media and telecoms. These are sectors that have significant requirement for STEM skills and that offer long-term sustainable growth potential. With our focus on STEM skills, our sales activities are now aligned to market sectors with an agile structure around account management, account development and new client acquisition and we have further increased the scale of our centralised delivery capability. Overview Strategic Report Governance Financial Statements 13 We have seen increasing optimism with our clients “ We have seen increasing optimism with our clients and continued significant investment in major and continued significant investment in major infrastructure projects in the UK. Our business infrastructure projects in the UK. Our business is well placed to support future market growth.” is well placed to support future market growth.” Kevin Freeguard Chief Executive Officer Following our major systems investment programme we were pleased to go live with our new technology platform across all businesses in April. This is the biggest change programme the Group has ever undertaken. This platform replaced all of our core systems and whilst such a major change programme did inevitably cause some brief disruption, we are already seeing substantial benefits. We now have a holistic view of all our operations with granular visibility to underlying activity, enabling more efficient and effective customer delivery capability and deeper business insight for the Group. There is an increasing focus on Environmental, Social and Governance (‘ESG’) matters and whilst this is an area that has always been part of Gattaca’s DNA we are mindful there is more we can do. As such, during the year we started to take a more structured approach which is covered in more detail later in the strategic report. As we emerged from lockdown we have chosen to embrace hybrid working as a core practice having observed some of the benefits arising from the working patterns adopted during the pandemic. This offers greater flexibility to our people which helps retention and we believe enhances productivity, but also enables access to wider markets for internal talent. We have also revised our purpose, vision, mission and values to ensure it is fully aligned to support the direction of the Group. I am pleased with progress as we roll out and embed this across the organisation. Our vision to be the STEM staffing partner of choice is underpinned by our four strategic priorities: • Sell to a market – growing our customer base and deepening relationships, • Add value by product – innovating and developing products to meet customer needs, • Expert fulfilment by skill – enriching the customer experience and enhancing our service delivery capability, and • Collaborative high performing culture – improving organisational alignment and performance. With these changes made, our business model will now be better positioned to support market demand. Outlook The demand for STEM skills remains high and in certain areas clients are finding it more challenging to identify and secure specialist talent. This plays well to our core capability which is all about finding critical skills and expertise for businesses. We have seen increasing optimism within our clients and continued significant investment in major infrastructure projects in the UK. We continue to invest in sales headcount and expect sustainable growth over the medium to long term in our chosen markets. Finally, as part of our increasing confidence in the future we are pleased to be resuming dividends. Kevin Freeguard Chief Executive Officer 5 November 2021 14 14 Gattaca plc Gattaca plc Annual Report and Accounts 2021 Annual Report and Accounts 2021 Our Purpose, Mission, Vision & Values We are proud to have relaunched our Purpose, Mission, Vision and Values. These are the building blocks that define what Gattaca Stand for. We are proud to present how each underpins how we support our clients, candidates and colleagues. Purpose Our purpose is clear: Providing the skills needed to build a better future, one job at a time Our purpose helps every single person associated with Gattaca understand why we exist, beyond the individual tasks we do or the goals we have – it all comes back to building a better future. Through the skills of our colleagues, we deliver the talent and solutions our clients need to build a faster, smarter, cleaner and fairer world. We stay grounded in the knowledge that change doesn’t happen overnight – we focus project-by-project and job-by-job to live our purpose. Read more about our purpose in action on Pages 16-21 Vision Our vision is simple: To be the STEM talent partner of choice Our vision is both ambitious and achievable, but most importantly drives change in our organisation to help us continuously pursue the goal of being the number one choice for our clients, candidates, colleagues, suppliers and investors. With 37 years experience, we’re deeply embedded and ideally positioned within STEM industries, but we recognise that we will only be the partner of choice by continuing to invest in the people, systems and solutions that they need. Overview Strategic Report Governance Financial statements 15 15 “ Talent is both the biggest risk and greatest opportunity for any business, especially in engineering and technology markets. As such, finding, recruiting and retaining high-quality STEM talent has never been more important. Gattaca is ideally positioned to be the partner of choice for organisations requiring STEM talent, whether they’re a fledgling startup or a large enterprise.” Kevin Freeguard Chief Executive Officer Mission Our mission is bold: Every day we deliver a service that is so trusted that our clients, candidates, colleagues and suppliers recommend us without hesitation Our mission ensures that ‘service’ and ‘trust’ is at the heart of our actions. For our stakeholders to recommend us without hesitation, they must trust us. For this to happen, we need to deliver an exceptional service. Our mission drives these priorities not just into our strategic activities, but in the day-to-day actions of every one of our colleagues. This could mean helping our clients make talent become an enabler for their success, enriching the lives of our candidates through the right career opportunities, creating more fun, inclusive and fulfilling working environments for our colleagues, or generating shared value and opportunity for our supply chain. Values Underpinned by our purpose, mission and vision, our values define the behaviours that we aspire towards and help us achieve greater success. Trust We do the right thing, honour our commitments and deliver on our promises. Above all else, nothing is more important to us than our clients’ trust. Professional We’re proud of our reputation and maintain high standards internally and externally. We deliver a professional service that clients don’t hesitate to recommend. Ambition We’re high performers, and we operate with edge and pace. Every day, we strive to set an industry example in everything we do and try to make a positive impact to everyone we work with. Fun We enjoy the work we do and the people we do it with. We collaborate, celebrate and promote a working environment where everyone is valued for their contributions and treated with respect. 16 Gattaca plc Annual Report and Accounts 2021 Our Purpose in Action “ Sometimes in recruitment it’s easy to forget the impact you are having on the lives of those around you. When we pledged to get over 2,000 unemployed workers back into employment, it helped remind me and my colleagues of the life-changing work we do, and it brought us all an important sense of fulfilment in tough times.” Recruitment consultant in Gattaca Overview Strategic Report Governance Financial Statements 17 Helping over 2,000 unemployed candidates back to work At the start of our financial year in August 2020, unemployment was rising and putting many into uncertain and unstable waters, with more challenges to come over the winter months. Many talented STEM candidates found themselves out of work and facing the prospect of being overlooked, due to the competitive nature of the job market and the unfortunate reality that employers often favour candidates who are currently in work. As a staffing business we naturally place many thousands of STEM-skilled workers into employment every year, but in these new operating environments, we felt it was imperative to focus our efforts on championing those who had lost the stability of full-time employment. We also wanted to begin transitioning to being more purpose-led approach, and helping our colleagues appreciate and feel proud of the impact they were having on the lives of those around them. We therefore made a pledge: to help over 2,000 unemployed and displaced candidates (not including those who were between assignments) back into work. We didn’t know how long it would take, but our colleagues proved straight away how keen they were to help their communities across the globe. They began talking to their clients about the initiative and asking for their support; as well as filling their shortlists of candidates with unemployed talent. We are incredibly proud to say we completed our mission before the end of June 2021. Below is a quote about the initiative from one of the candidates we helped find work: “ I found myself unemployed right at the beginning of the pandemic in March 2020. I thought I wouldn’t be back in work until the pandemic was over, and it began to impact my mental health. Gattaca changed all of that. They responded to my emails very quickly, and it only took 2-3 weeks to find a new role for me. I’d lost my financial stability, and Gattaca helped me get it back.” Systems Subject Matter Expert placed into a Healthcare business 18 Gattaca plc Annual Report and Accounts 2021 Our Purpose in Action On a mission to help 10,000 client contacts build a better future Beyond our goal to help unemployed candidates, we also pledged to support our clients through a highly challenging time. We knew the main way we could help them was by cultivating a range of resources to help them adjust to the rapidly evolving talent landscape. We set a target to support 10,000 clients contacts build a better future. In particular, we knew we could help them: Attract, engage & retain talent more effectively Control workforce costs and risk Optimise their workforce strategies Our main method of providing our customers with helpful resources was through the purpose-built Insights Centre on our website, which included a calendar to all our virtual events (all of which are also available on-demand) and a range of free tools and resources to help business achieve their talent ambitions. We’re proud to have helped over 2,500 client contacts with their workforce challenges through insightful webinars, helpful downloads, useful online tools and resources and one-to-one calls with internal and external specialists. “We want to do everything we can to help our customers through these difficult times, and whilst we’ve got a great range of talent solutions services available, we wanted to offer more”, said Matthew Wragg, Chief Customer Officer. “As such, we’ve pulled together as a group and reached out to our valued partner network to provide our customers with a variety of events and resources to help them and their business in the post- COVID-19 world,” Matthew commented. “From how to engage your staff in a remote environment, transforming your business, coordinating mindfulness sessions to help your personal wellbeing, to facilitating a roundtable event on how to embed diversity into your business, and much more in between, we’re here to help.” Overview Strategic Report Governance Financial Statements 19 20 Gattaca plc Annual Report and Accounts 2021 Our Purpose in Action Inspiring the next generation At Gattaca, we’re proud to work within vital STEM sectors, placing thousands of talented engineers and technologists into extraordinary companies that help shape the modern world. However, we’re also aware of the current skills shortage, which is why it’s so important to help inspire the next generation and build a pipeline of future talent. In addition, with the COVID-19 pandemic resulting in many of our key communities working from home with their children, we wanted to help make home-schooling a little easier and more exciting, with the hope of inspiring young minds. To help with this we launched ‘Building STEM futures’: an online hub dedicated to helping inspire the next generation of STEM talent. We launched a range of simple but fun video-guided activities that subtly taught children about a range of STEM-focused skills and topics such as the forces, coding, problem solving, perseverance, experimenting, logical thinking and much more. We also put together a ‘STEM toys playbook’; a book featuring commentary and reviews on some of the best STEM-based toys available for a wide range of age groups. These toys were reviewed by none other than Gattaca’s parents and their children, rating how fun, educational and (most importantly) how long they kept the children entertained for! To launch this campaign, we ran a competition, aimed at providing schools and nurseries with a selection of these toys to get children learning all about STEM skills. We donated toys to school classes, nominated by our winners. The toys were delivered with great excitement all round. One of our winners, Greg of the RNLI, nominated his son’s infant school and said: “ Thank you so much I am really overwhelmed by how amazing the prize is for the school... thank you! My son is definitely an engineer in the making and really loves his STEM toys.” Overview Strategic Report Governance Financial Statements 21 You can explore our four STEM- You can explore our four STEM- based video guided activities and based video guided activities and download the STEM toys playbook download the STEM toys playbook by scanning the QR code here. by scanning the QR code here. 22 Gattaca plc Annual Report and Accounts 2021 Our Business Model Our business model is straightforward We connect STEM employers with technical talent and solution based outcomes through tailored offerings, expert consultancy through robust governance, processes, systems, data and subject matter expertise. How we do this is where Gattaca excels. E T S M E M P L O Y E R S & ORGANISA l expertise l S k i TI O N S Our clients and candidates are very often the same community. Through our vision, mission and our values, we seek to treat all of our customers with the same professional service, with emphasis on building trusted, long-term partnerships. R e c r u i t m e n t e x p e rtise e s i t r e p arket ex M C A NDIDATES & O U T C O M E S Overview Strategic Report Governance Financial statements 23 Skill expertise It takes real skill to match the right job with the right person, and our business has excelled for 37 years at developing the market-leading fulfilment specialists to execute this role. Our ‘inch-wide, mile-deep’ philosophy means that each and every recruiter has a market, skill and geographical focus so they are able to foster true expertise on the talent availability in that space. We further enable our people through a market-leading technology platform and innovative tools to support this process and deliver value to both our candidates and our clients. Market expertise We’re deeply embedded in eight market sectors, enabling greater intimacy and understanding of our clients’ requirements, the talent solutions that best enable their business, the skills they need to be successful and the competitive landscape in which they operate. We invest in sector-specific governance and compliance processes, underpinned by a robust central framework, to tailor our service appropriately. Recruitment expertise Our clients trust us to excel in recruitment best practice, helping them to attract, engage and retain talent and shape their people strategies. We cater for every talent challenge, from single vacancies, through to complex workforce programmes for thousands of hires, and everything in between. Our workforce solutions and talent consultancy delivers an enhanced quality, cost, speed and compliance experience through robust processes, systems and data, which in turn helps drive our clients’ success. 24 Gattaca plc Annual Report and Accounts 2021 Market Overview Understanding the trends and opportunities The industry markets we operate in As a group we provide technical recruitment, statement of work services and outsourced talent solutions to our clients across our eight market segments. Technical recruitment Demand for technical recruitment has been affected by the pandemic over the last 18 months. We have remained resilient through the challenges in 2020 and have seen growth opportunities with our clients as confidence builds in 2021. Current conditions see a greater growth in demand than the market has ever seen. This combined with a shortage in supply especially across STEM candidates means we are in a candidate-driven market. Our long established in-depth knowledge of the most niche STEM candidates allows us to identify and engage talent with the right skills that others cannot. The insight we hold, enables our clients to access this talent and as the demand for talent increases we are well placed to capitalise on this. Outsourced solutions Our tailored and collaborative outsourced solutions model provides flexible, permanent and total workforce solutions across the engineering and technology markets. As businesses become more aware of the importance of talent optimisation, so does the market for mature, forward-thinking workforce strategies. The global market for permanent Recruitment Process Outsourcing (‘RPO’) solutions is expected to achieve a Combined Annual Growth Rate (‘CAGR’) of 18.5% in the period to 2027, according to a new report by US-based Grand View Research. Similarly, according to research conducted by Everest, the global Managed Service Provider (‘MSP’) market for contractor recruitment solutions has a current approximate value of $150bn. The UK and US, both Gattaca territories, are two of the top three largest geographical markets. The market size for MSP is projected to grow by a CAGR of 13% for at least the next 5 years. We are continuing to invest in our workforce solutions offering to better support customers’ growing preference for these models, particularly at mid and enterprise levels, as demonstrated by our recent inclusion onto the HRO Today’s “Baker’s Dozen” list of top midsize RPO providers globally, based on customer feedback. Statement of work Our projects business which provides outcome-based services has grown steadily in 2021 with a growing client base that have benefited from our experience in project management and in-depth technical expertise. Our ability to provide the solutions to complex technical and operational challenges has allowed us to build partnerships across our client base. Our business mix Our contract business proved resilient with net fees 20.2% lower in the period on a continuing basis. Contract NFI now accounts for 74% (2020 restated: 74%) of group net fee income on a continuing basis, at £31.3m (2020 restated: £41.2m). Contract gross margin on a continuing basis was 7.5% (2020 restated: 7.3%). Permanent recruitment, which was more susceptible to the economic shocks at the start of the year, declined 15% on prior year with net fees of £11.5m (2020 restated: £13.5m). Permanent net fees represented 27% (2020 restated: 25%) of group NFI on a continuing basis. As companies rebound, demand for permanent labour is the fastest growing service line and as such we have invested in headcount to focus on this accordingly, since January we have increased the size of the permanent recruitment sales team by 8%. Overview Strategic Report Governance Financial Statements 25 Our markets DEFENCE ENERGY During the 2021 financial year, defence, our second largest sector, was characterised by long-term capital projects providing a level of stability. Our defence market saw only an 11% NFI reduction year-on-year, with much of this attributed to a single customer particularly impacted by the COVID-19 pandemic. There is long-term government commitment to defence programmes and this year saw a £2bn increase in sector spend in the UK compared to the prior year. The continued investment to meet NATO’s 2% of GDP target gives a positive expectation of continued growth in the next ten years, both in terms of spend and employment. With ten other countries spending more on defence than the UK, export opportunities continue to exist across the globe. The recent AUKUS Nuclear Deterrent agreement is just one example. A resurgent and indeed buoyant private technology market has removed the candidate attraction benefit this market had during the height of COVID-19. This has been further challenged by the slow candidate security vetting process in the UK. Though this could be perceived as negative for the outlook, this plays to our strength as clients look for closer collaboration to leverage our very strong presence in this market. A large part of our focus in this and in many of our sectors is the convergence between engineering and technology. According to the REC (‘Recruitment and Employment Confederation’) data software engineers have the third highest shortfall of candidates versus the demand in the market. Our energy market was impacted less by COVID-19 with only 11% lower NFI year-on-year. Energy demand remains high with our offering being diversified across: renewables, nuclear, transmission and distribution and with minimal exposure to the oil and gas downturn earlier in the year. The oil and gas market, to which we have limited exposure, saw a major decline in the year but has now stabilised. With a consolidation in the client and competitor space, we are now seeing signs of increased demand, much of which remains associated to essential maintenance and turnaround projects. We are not expecting any sign-off on capital programmes until 2022. In transmission and distribution, there is significant investment in to HVDC (‘High Voltage to Direct Current’) connections to enable greater energy distribution between the UK and Europe. Nuclear new build is steady, Hinkley Point C has been delayed but Sizewell C is going through planning, so the market offers long-term sustainable opportunity to the group and with developments on smaller ‘off-the-shelf’ reactors providing a cheaper future energy option. Both the UK and US governments continue to add stimulus to the growing green agenda and we’re seeing governments’ investment moving towards renewables which plays well to our credentials in the offshore wind market. We expect continued demand and success supporting both Arklow and Dogger Bank programmes. FINANCE, BANKING AND INSURANCE A small but growing market within our UK operations, the Finance, Banking and Insurance (‘FBI’) market offers us great growth potential. Economies are recovering across Europe and we saw technology skill demand at banks increase earlier than most other markets. Digital transformation is prime in the sector, with large numbers of mid and front office colleagues being replaced by digitised processes. Even at the height of COVID-19, investment continued for more creative, agile and disruptive services and ways to interact and predict customer behaviours, with significant investment in machine learning, artificial intelligence and customer analytics. As markets recovered there was an acceleration of hiring and talent requirements into the financial technology sector. We expect to continue to see a shift from traditional systems and development roles to cloud, microservices and cloud development. 26 Gattaca plc Annual Report and Accounts 2021 Market Overview continued INFRASTRUCTURE MOBILITY Infrastructure is by far our largest market within the Group, with a predominant focus on the provision of contract labour for major programme based work. Infrastructure has performed inline with the group average of 18% decline in NFI year-on-year. Across the larger infrastructure sub-markets of rail, utilities and highways there has been a consistent theme that the major programmes have continued, but not at the pace of pre-COVID-19. All markets have been impacted to some degree through the shortage of both materials and skilled labour. Typical funding cycles in regulated markets saw considerably less spend committed in the early part of our financial year as they looked to offset the loses brought about from less commercial revenues. Pleasingly though, we have seen the levels of spend commitment increasing as industry confidence grows. With commercial revenues increasing and programme spending commitments falling within a compressed period, demand for contract labour is likely to increase. In rail, CP6 (‘Contract Period 6’) has two more years to run and will see a continuation of spend, with a heavy focus on maintenance and repair and some smaller construction jobs being moved to CP7 which commences in April 2024. Major programmes such as the Transpennine upgrade, East-West Rail New Line and HS2 will generate significant STEM labour demand for many years to come across a broad geography. In utilities, we’ve seen a significant increase in demand to assist in the roll out of enhanced fibre networks. In the water and waste markets any reduction in spend in prior year is resulting in increased investment over a shorter period with programmes such as the upgrade of sewage treatment works at Mogden and Beckton and the utility diversion works at Euston Station, which form part of the HS2 project. In highways, the market has large demand across nearly all geographies within the UK with various new frameworks going live equating to over £20bn of investment. These include the National Highways (formerly Highways England) Regional Delivery Partnerships (‘RDP’) framework, the Smart Motorway Alliance, SDF (‘Scheme Delivery Frameworks’) highways improvements as well as major works on programmes such as Silver Town Tunnel and the Lower Thames Crossing. Mobility has been one of our most impacted sectors within the Group with 44% lower NFI year-on-year. The aerospace market has been significantly impacted by the substantial reduction in air travel which is still 40% down on pre-pandemic levels, which is a significant increase on it’s low of 80% down at the beginning of the financial year. Despite this the second half of the year saw a return in confidence and increase in client demand. Opportunities have been provided in maintenance, repair and overhaul work as aircraft begin to be brought back in to operation and flight travel is now four times higher than at its lowest levels. The automotive market has continued to see a significant investment and growing consumer confidence in electric and plug-in hybrid vehicles, which this year equated to 16% of all vehicles sales in the 9 months to September 2021, up from 9% in prior year. However, the well publicised semi-conductor shortage has impacted the ability of automotive companies to recover. Our focus remains on both the technology skills and high-end premium brands within this market. Though areas of the maritime market have been impacted heavily by reduction in travel and tourism, our focus has been towards the naval premium leisure brands and companies supporting shipping which has lessened the impact. Similar to the automotive market, our focus on premium brands and leveraging our coverage of both engineering and technology skills has enabled us to grow within the rapidly expanding automated technology areas. PUBLIC SECTOR TECHNOLOGY Our public sector technology market has seen solid growth of 24% NFI year-on-year, albeit on a small base, with hiring both for permanent and contract resource continuing to remain high as the public sector deals with the unpredictability of the demands brought about by the COVID-19 pandemic and Brexit. Contingent labour demands grew across technology skills due to the need for upgrading systems at pace to work in a remote world. Implementation of IR35 within the private sector rebalanced the relative attractiveness of assignments in the public sector versus the private sector. We have invested in our team and leadership capability in this area to capitalise on an estimated £3.2bn spend on contingent labour in the UK. We expect to benefit from further mandating of the public sector recruitment frameworks in which we participate. We also see a trend for public sector bodies releasing tenders for packages of work and solutions, playing to our skill, scale and service strengths. Though the demand has increased across all markets, this will increase the competition for candidates to public sector bodies. Overview Strategic Report Governance Financial Statements 27 RETAIL, MANUFACTURING AND LIFE SCIENCES INTERNATIONAL Retail, manufacturing and life sciences have seen a 22% reduction in NFI year-on-year, with restrictions in manufacturing facilities severely restricted and consumer spending low. On a continuing basis, revenue was £10.2m (2020 restated: £13.8m), and NFI declined by 30% to £3.5m (2020 restated: £5.0m). International operations represented 8% of the Group’s continuing NFI. As the economy has recovered we have seen a steady increase in demand in this market. However, this is one of the markets most impacted by the skills and materials availability challenges caused by Brexit. Leisure and luxury markets are forecasting significant growth, but this comes with a level of fragility which, when compared with our other sectors, is closely aligned with economic factors. Candidate confidence to work indoors on production lines has risen during the year but the skills shortage is still rife. Our presence in the life sciences market focuses on the medical device market, which saw significant growth in the early days of the pandemic with Gattaca playing a significant part in the ventilator programme, but we have not been positioned to capitalise on the growth across the broader technology and R&D investment as yet. In the US & Canada we focus on growing within the energy and technology markets from Dallas and Toronto. We’ve matured our offering in the region with the development RPO, which offers scalable opportunity for growth. This year has seen a further consolidation of our international footprint with the closing of our Mexican operations and the sale of our South African operations. The changes in legislation for contract recruitment in Mexico meant we could not see an opportunity for significant, scalable and sustainable profitability. In South Africa we have retained a significant operations team to support our activities across Europe and North America. TECHNOLOGY, MEDIA AND TELECOMS Whilst impacted by the pandemic, this market has recovered quickly with a continued focus on investment in new technologies such as 5G, eSIM and iSIM as all companies look for a more digitised operating model. NFI for our technology, media and telecommunications business was 30% lower compared with the previous year. This unit was impacted in particular by two managed service contracts which were impacted by the COVID-19 pandemic. We are seeing key skill set demand, including: software development, cloud, infrastructure, data and enterprise resource planning, and as such the market is candidate- driven, resulting in average salaries increasing and clients increasingly becoming open to fully remote working. 28 Gattaca plc Annual Report and Accounts 2021 Key Performance Indicators Financial KPIs NFI (£m) NFI from continuing operations (£m) Adjusted net cash/(debt)(£m) 2021 2020 2019 2018 43.1 54.7 2021 20201 2019 2018 72.1 78.9 42.1 52.8 2021 19.9 2020 27.3 69.1 (24.8) 71.4 (40.9) 2019 2018 £43.1m (2020: £54.7m) £42.1m (2020 restated: £52.8m) £19.9m (2020: £27.3m) d e n i a l p x e t n e m e r u s a e M Net Fee Income (‘NFI’), equivalent to gross profit, is revenue less cost of sales, predominately the sum of contract NFI and fees for the placement of permanent candidates, less any directly attributable adjustments or rebates. NFI from continuing operations is revenue less cost of sales from continuing business, predominately the sum of contract NFI and fees for the placement of permanent candidates, less any directly attributable adjustments or rebates. Total group net cash/(debt) excluding lease liabilities, less any cash and cash equivalents, after capitalised financing costs. e l a n o i t a R Indicates the volume of business generated in the year and is a prerequisite to any sustainable bottom-line growth. Indicates the volume of continuing business generated in the year. Adjusted net cash/(debt) is a key element of the Group’s capital structure. Operational KPIs NFI mix (%) Average NFI per sales head (£’000) NFI Mix: UK vs International (%) 2021 20201 2019 2018 75 75 70 72 25 25 30 28 2021 2020 2019 2018 125.0 113.4 135.8 126.1 2021 20201 2019 2018 92 91 87 81 8 9 13 19 d e n i a l p x e t n e m e r u s a e M e l a n o i t a R 75%/25% (2020 restated: 75%/25%) £125.0 (2020: £113.4) 92%/8% (2020 restated: 91%/9%) Total NFI generated through temporary contractor placements or permanent placements separated out and expressed as a percentage of total group NFI. Total NFI divided by the average annual number of sales heads. Total NFI generated from business operations outside of the UK, expressed as a percentage of total group NFI. Contract NFI provides better visibility of income and generates long-term relationships with our clients. Growth in permanent recruitment NFI enables the group to benefit quickly from operational gearing. Indicator of staff productivity, with growth demonstrating an improved efficiency in fee earner activity or a higher percentage of fee earners at full capacity. Geographic diversification spreads risk and reduces reliance on any one economy. 1 Due to the discontinuation of certain operations in 2021 the Group has chosen to present a number of adjusted KPIs for continuing operations as a more representative measure of ongoing business. 2020 figures for continuing operations have been restated for the presentation of operations discontinued in 2021, as explained in Note 11 of the consolidated financial statements. Overview Strategic Report Governance Financial Statements 29 Continuing underlying basic EPS (pence) Underlying profit from continuing operations (£m) Continuing underlying profit before taxation (£m) Conversion ratio (%) 2021 8.4 20201 11.7 2019 2018 2021 3.6 20201 6.2 2021 3.2 20201 4.8 2021 8.6 20201 11.7 28.4 2019 13.7 2019 11.7 2019 22.5 2018 12.4 2018 10.9 2018 19.8 17.4 8.4p £3.6m £3.2m 8.6% (2020 restated: 11.7p) (2020 restated: £6.2m) (2020 restated: £4.8m) (2020 restated: 11.7%) The amount of underlying profit for the year per one share in the group; calculated as the continuing underlying profit attributable to the Group’s equity shareholders, divided by the average number of shares in issue throughout the year. Underlying profitability of the group for continuing operations before interest and taxes with adjustments for non-recurring costs, impairment and amortisation of acquired intangibles and impairment of right-of-use leased assets. Profitability of the group from continuing operations before tax with adjustments for non-recurring costs, impairment and amortisation of acquired intangibles, impairment of right-of-use leased assets and foreign exchange differences. Underlying continuing profit from operations expressed as a percentage of continuing NFI. A strong indication as to the continuing underlying profitability of a company for its shareholders. Demonstrates the profitability of the group and how efficient it is at managing its controllable cost base. Demonstrates the profitability of the group and how efficient it is in managing its cost base, before taxation. Indicates the efficiency of fee earners in generating NFI, the group’s ability to control central costs and the level of investment in future growth. NFI per £ staff cost (£) Staff mix (%) Positive engagement score (%) 2021 2020 2019 2018 1.53 1.70 1.68 1.69 2021 2020 2019 2018 71 72 72 73 29 28 28 27 2021 2020 2019 2018 76 78 78 77 £1.53 (2020: £1.70) 71%/29% (2020: 72% / 28%) 76% (2020: 78%) Total NFI divided by the annual costs of all staff in the group. The ratio of fee earning versus operational support staff headcount taken as an average for the year. An engagement index based on employee responses to seven actionable workplace elements. Key staff productivity metric for Gattaca, as well as reflecting the operational efficiency of the business as a whole. Demonstrates the group’s ability to maintain a consistent balance of sales and support headcount throughout other business changes. Employee engagement has proven linkages to performance, productivity, customer service, quality, retention and increased profit. 1 Due to the discontinuation of certain operations in 2021 the Group has chosen to present a number of adjusted KPIs for continuing operations as a more representative measure of ongoing business. 2020 figures for continuing operations have been restated for the presentation of operations discontinued in 2021, as explained in Note 11 of the consolidated financial statements. 30 Gattaca plc Annual Report and Accounts 2021 Chief Financial Officer’s Report Key highlights • Continuing underlying profit before tax of £3.2m for the year (2020 restated: £4.8m) in a period which continued to be significantly impacted by the pandemic. • Adjusted net cash, which excludes IFRS 16 finance lease liabilities, of £19.9m (2020: £27.3m). • Revolving credit facility (‘RCF’) repaid in October 2020 leaving the group covenant free. • Completion of our new group-wide technology platform. • Investment in our staff adding 16% to our UK sales headcount between January and July 2021. Financial performance On a continuing basis, revenue of £415.7m (2020 restated: £534.7m) generated NFI of £42.1m (2020 restated: £52.8m). We achieved contract NFI of £31.3m (2020 restated: £39.3m) at a margin of 7.5% (2020 restated: 7.3%), and permanent recruitment fees of £10.8m (2020 restated: £13.5m). Underlying profit before tax from continuing operations was £3.2m (2020 restated: £4.8m). Statutory profit after tax for the total group was £0.6m (2020: loss of £1.8m). Net cash at 31 July 2021 (excluding lease liabilities) was £19.9m (31 July 2020: £27.3m), the reduction in net cash year-on-year of £7.4m predominantly as a result of £4.7m repayments of temporary VAT deferral (outstanding VAT deferral payment at 31 July 2021: £5.6m). Whilst we continued to optimise working capital including with regard to payment terms for certain contractors, we had a significant but largely temporary increase in our DSO (‘Day Sales Outstanding’) as explained on page 33. Continuing underlying results Continuing underlying results are shown beneath the consolidated income statement. Continuing underlying profit before tax at £3.2m (2020 restated: £4.8m) was £1.6m below last year with the most significant factor being the impact of the COVID-19 pandemic through most of the period. Whilst we moved to full remote working within days of the various national restrictions without any interruption to our operational capability, we saw a significant and relatively sudden reduction in trading volumes, and having anticipated this, took early mitigating actions on our cost base, including acceleration of Improvement Plan efficiencies. We were also able to achieve significant positive changes in terms of digitalisation and process optimisation. Overview Strategic Report Governance Financial Statements 31 “ As our markets emerged from the pandemic, our focus has been in ensuring we have the right resources in the right places to capitalise on our growth opportunities, whilst continuing to enhance our operational capability which includes the successful completion of our technology platform implementation.” Salar Farzad Chief Financial Officer Continuing underlying results (0.7) (0.4) (0.4) m £ ’ 46.6 (2.2) (0.4) (0.8) (2.4) (0.3) (0.6) 38.4 g n i u n i t n o C 0 2 Y F i n m d a g n y i l r e d n u t s o c s g n v a s i f f a t s s e l a S K U i g n v a s f f a t s t r o p p u S K U & s u n o b s e v i t n e c n i , n o i s s i m m o C l a n o i t a n r e t n I s g n v a s i t s o c f f a t s s g n v a s i t s o c y c n a t l u s n o C & l e v a r t f f a t S s g n v a s i e s n e p x e e d a r t n o l s e b a v i e c e r s e s n e p x e t b e d d a b n i n o i t c u d e R s t s o c i n m d a r e h t O e g r a h c n i n o i t c u d e R n o i t a i c e r p e d g n i u n i t n o C 1 2 Y F i n m d a g n y i l r e d n u t s o c Discontinued operations and non-underlying costs The group-wide Improvement Plan continued at pace during 2021 and drove some of the non-underlying costs below: £’000 Continuing underlying profit before tax Restructuring costs and onerous lease payments Operating loss related to discontinued operations Restructuring and closure costs relating to discontinued operations Amortisation of acquired intangibles Foreign exchange differences Reported statutory profit before tax for the total group Profit/(loss) before tax 3,227 193 (457) (693) (548) (741) 981 In October 2020, the Group completed the UK restructure and the final staff exit costs were lower than anticipated which led to a £0.2m credit to continuing non-underlying costs above. On 30 July 2021, we announced the closure of our Mexican business and sale of our South African trading operations which were not generating appropriate returns, allowing us to devote resources to markets with greater potential. We have retained a team in South Africa to support our ongoing UK fulfilment and solutions operations. We continue to co-operate with the US Department of Justice and there have been no significant new matters in this regard during the year. Legal fees on this matter were £29,000 in the year (2020: £1.4m). As shown in Note 28 to the financial statements, the Group is not currently in a position to know what the outcome of these enquiries may be and we are therefore unable to quantify the potential financial impact, if any. 32 Gattaca plc Annual Report and Accounts 2021 Chief Financial Officers Report continued Cost actions and UK Government Coronavirus Job Retention Scheme During the year we claimed £0.5m of government grants (2020: £3.8m) with respect to our staff and contractors who were placed on the Coronavirus Job Retention Scheme. Following the successful conclusion of our group restructure in October 2020 we ended our participation in the scheme. The group restructure allowed us to rebalance resource levels in response to the new levels of demand as a result of COVID-19. As demand started to return in the UK recruitment market, we have added sales headcount based on our new operating model and skill requirements, facing those markets where we see most opportunity, growing our sales headcount by 16% between January and July 2021. Taxation The Group’s reported effective tax rate was 40.7% (2020: 50.5%) as set out in Note 10. One of the drivers of our reduced rate was due to a loss carry back claim under the COVID-19 related US Cares Act enabling additional utilisation of local brought forward losses. The continuing underlying effective tax rate was 15.7% (2020 restated: 20.8%), similarly impacted by the same overseas loss claims. Earnings per share Basic earnings per share was 1.8 pence (2020: (5.5) pence), and on a fully diluted basis was 1.8 pence (2020: (5.5) pence). Continuing underlying basic earnings per share was 8.4 pence (2020 restated: 11.7 pence). Cash flow and net cash/(debt) Dividends The Board proposes to pay a final dividend of 1.5 pence (2020: nil pence), amounting to £0.5 million in total. This will be paid on 17 December 2021 to shareholders on the register as at close of business on 12 November 2021. The ex-dividend date will be 11 November 2021. Capital expenditure Capital expenditure in the period of £2.2m (2020: £2.5m) was mainly investment in software related to our Primary Business Systems initiative where we have replaced our in-house built legacy systems with fully integrated industry leading third party systems. This will enhance the data flow and performance management across the entire group. Following the successful go-live of this substantial investment program in April 2021, we expect moderate to more normal levels of capital expenditure in 2022. Net assets and shares in issue at 31 July 2021 The Group had net assets of £40.9m (2020: £38.7m) and had £32.3m (2020: £32.3m) fully paid ordinary shares in issue. Cash flow and net cash/net debt Working capital optimisation continues to be a key focus for the Group. Net cash at 31 July 2021 was £14.1m (2020: £19.6m). Adjusted net cash (net cash excluding IFRS 16 lease liabilities) was £19.9m (2020: £27.3m). 0.2 (1.2) 3.5 3.4 (4.7) 3.3 (7.0) (2.4) 1.4 (2.2) (1.9) I T B E g n y i l r e d n U s m e t i h s a c - n o N s e s n e p x e g n y i l r e d n u - n o N n o s e s s o L s n o i t a r e p o d e u n i t n o c s i d f o t n e m y a p e R T A V d e r r e f e d s m r e t t n e m y a p r o t c a r t n o c d e d n e t x E y r a r o p m e T e g n a h C O S D i x m s m r e t t n e i l c n i e g n a h C g n i k r o w r e h t O s t n e m e v o m l a t i p a c 1 2 0 2 19.9 t e n d e t s u d A j l y u J 1 3 t a h s a c l a t i p a C e r u t i d n e p x e i n g e r o F , e g n a h c x e x a t d n a t s e r e t n i m £ ’ 0 2 0 2 27.3 t e n d e t s u d A j l y u J 1 3 t a h s a c Overview Strategic Report Governance Financial Statements 33 During the period, we repaid £4.7m of deferred VAT to HMRC and the outstanding VAT deferral payment as at 31 July 2021 was £5.6m, which will be repaid in full by 31 January 2022. We have also repaid the outstanding balance on our RCF (31 July 2020: £7.5m) thus eliminating all covenants and significantly reducing financial risk. We have continued the roll out of the change to payment terms of certain contractors from 7 to 28 days which is in alignment with normal payment cycles for businesses and most company employees. During the financial year this has resulted in further cashflow benefit of £3.3m. There was a significant increase in DSO to 43.9 (2020: 35.3) using the countback methodology. Our high performing pay, bill and collections team were heavily involved in the go-live of our new technology platform which was the single biggest change initiative undertaken in the Group’s history, and this inevitably caused some short term disruption and slightly longer billing times leading to higher levels of accrued revenue. We estimate that approximately 75% of the increase in DSO was driven by this temporary disruption. The remainder is largely driven by a change in mix of clients, for example in infrastructure, where industry custom is for longer payment terms and more complex, and therefore longer, billing processes. Cash used in operating activities was £2.4m compared to £57.6m cash generated in 2020. In 2020 cash from operating activities was significantly positively impacted by the sudden reduction in trading and therefore receivables balances. In 2021, our receivables have begun to increase as we return to growth. We expect our working capital requirement to be lower as we grow, due to the recent change in certain contractors payment terms from 7 to 28 days. Banking facilities and interest rate risk On 27 October 2020, the Group repaid the £7.5m remaining outstanding RCF balance and cancelled the facility. As a result the Group no longer has any covenant obligations. As of 31 July 2021 the Group had a working capital facility of £75m. This facility includes both recourse and non-recourse facility. Under the terms of the non-recourse facility, the trade receivables assigned to the facility are owned by HSBC and so have been derecognised from the Group’s statement of financial position; in addition, the non-recourse working capital facility does not meet the definition of loans and borrowings under IFRS. The utilisation of this facility at 31 July 2021 was £9.3m recourse and £14.2m non-recourse with £7.1m restricted cash collected from customers relating to non-recourse facility. Critical accounting policies The statement of significant accounting policies is set out in Note 1 to the financial statements. Group financial risk management The board reviews and agrees policies for managing financial risks. The Group’s finance function is responsible for managing investment and funding requirements including banking and cash flow monitoring. It seeks to ensure that adequate liquidity exists at all times, to meet its cash requirements. The Group’s financial instruments comprise borrowings, cash and various items, such as trade receivables and trade payables that arise from its operations, and some matching forward foreign exchange contracts. The Group does not trade in financial instruments. The main risks arising from the Group’s financial instruments are described below. Credit risk The Group seeks to trade only with recognised, creditworthy third parties. We monitor receivable and unbilled balances on an ongoing basis and in 2021 have taken a conservative approach to receivables and unbilled risk and have increased our loss allowance by £0.2m to £4.5m. There are no significant concentrations of credit risk within the group, with no single debtor accounting for more than 7% (2020: 8%) of total receivables balances at 31 July 2021. In October 2021 NMCN Plc entered into administration. We first became aware that this client had some financial difficulties and had embarked on a refinancing path in February 2021 and since then we continued to support them to protect our existing receivable asset in the expectation that the refinancing was likely to be successful. Our exposure at 31 July 2021 was £0.8m (which had increased to £1.4m in total by in October 2021 when the client went into administration). The July exposure was covered by the existing expected credit loss provision thus not impacting PBT. We had increased this provision during the pandemic taking account of market conditions and the situation of this particular client. Foreign currency risk The Group generates 8% of its annualised NFI from continuing business in international markets. The Group does face risks to both its reported performance and cash position arising from the effects of exchange rate fluctuations. The Group manages these risks by matching sales and direct costs in the same currency and where appropriate entering into forward exchange contracts to effect the same where sales and costs are not in the same currency. Salar Farzad Chief Financial Officer 5 November 2021 34 Gattaca plc Annual Report and Accounts 2021 Responsible Business Putting our values at the heart of our business Introduction The first half of the year was dominated by the pandemic and the lockdown restrictions that changed the way we managed our people. Moving overnight from being a group with a location-based workforce to one with a remote workforce was a shock to the system and tested the resilience of our people. The resilience of our leaders was also tested as we restructured to face the realities of the changed market, not only did they have to manage some very challenging organisational and people issues but they were also placing people on furlough and restructuring the business. This is tough at the best of times but in the middle of a pandemic, when emotions are heightened, this was a difficult reality. People & culture New Purpose, Vision, Mission and Values As we launched the Group’s new Purpose, Vision, Mission and Values to the wider business, having taken the management and leadership teams through, we considered how we weave these values into our practices and processes to ensure they become truly embedded in the organisation. They will also influence the development of our employment value proposition. In a highly competitive talent market, we need to ensure we are setting ourselves apart from our competitors. The new values have been developed to support the success of our business and to clarify the behaviours that we aspire to and those that are unacceptable. As the new calendar year kicked in and the UK vaccination programme picked up traction, confidence increased within our marketplace and our HR focus moved from being one of restructuring, supporting remote working, and resilience, to one of hiring, training, talent pooling, hybrid working and starting to focus on our long term goals again. We relaunched our Purpose, Vision, Mission & Values to reinforce the company culture and also launched initiatives within our diversity and inclusion and ESG programmes. More detail below: Trust We placed a great deal of trust in our people through the pandemic period and our people trusted the company to be there for them. We have been able to measure levels of trust through our Employee Engagement tool (Peakon), launched in November 2020, which enables the organisation to provide anonymised feedback on a weekly basis. Our engagement score of 76% across 2020/21 places us within the ‘good’ range for professional services companies (the benchmark is 79%). With a high participation rate, the tool enables managers to obtain real time feedback, and to respond to it, capturing the voice of our people and prioritising actions. 86% PEAKON PARTICIPATION RATE Peakon participation rate 86% Overview Strategic Report Governance Financial Statements 35 “ Values are at the heart of our business and we place great emphasis on each when considering how decisions affect our stakeholders, colleagues and communities.” Claire Cross HR Director Professional Professional development in Gattaca remains a priority to ensure our people have the skills required to best support our clients. We currently have a significant number of active apprenticeships and professional qualifications in progress. We have reinvigorated our Sales Training Academy to support with effectively onboarding new people. Upon launching our new Primary Business Systems, we ensured a great deal of rigour around the training provision to minimise disruption to the business and support with upskilling our people in using the new system. Whilst much training has been delivered virtually this year we are now taking a more hybrid approach. In order to drive our strategy more effectively a number of structural changes have been made to the business this year as we begin to align our sales teams to market sectors. The introduction of client development managers to the business will better support our clients by identifying those where there are opportunities to provide a broader range of services. Ambition We remain ambitious, at both individual and organisational level. Despite having to restructure through the COVID-19 pandemic, we continued to promote people through the year and invested in the growth and development of our people, at the same time revolutionising our approach to training. We recognised the importance of self-directed learning, launching our new e-learning hub ‘Gattaca Explore’. In addition, we took the opportunity to maximise attendance at larger development events by hosting virtual seminars for our people. We have had several speakers, the latest being Geoff Ramm, who talked about providing a “Celebrity Service”. Fun Virtual working presented new challenges in keeping our people engaged with the company. During the months of formal lockdown our leaders engaged with each individual and their teams regularly to support them, and arranged various virtual team events. As a company we also wanted to ensure that people remained involved and provided regular updates through our communication channels. During the lockdowns we provided a number of virtual events for our people and their families which were very well received. Throughout the lockdown period our engagement scores remained stable. 36 Gattaca plc Annual Report and Accounts 2021 Responsible Business continued Diversity, equality and inclusion This year we marked International Women’s Day (8 March) by setting ourselves specific targets around gender diversity in our management population. We are driving towards 40% of our management positions being filled by females by August 2024 and to promote five women into management roles by August 2022. While we score 85% (in Peakon) for non- discrimination, which places us in the top 25% for professional services companies, we recognise we have some work to do to improve our diversity and inclusion scores which are 72% and 80%. We have chosen to focus on gender initially as we already have data to measure improvements made and this will raise awareness more broadly around the diversity and inclusion agenda. We have set up a diversity and inclusion action group and network, which has a good representation of people from across the business, with board sponsorship from non-executive director Tracey James and our CEO, Kevin Freeguard Returning to the new normal/hybrid working As a sales-based organisation, we do understand the importance of bringing our teams together to share experiences and develop together. At the same time, we know that the world has changed, as have the expectations of our people to operate with greater flexibility. We want our people to be the best that they can be. We therefore consulted with our leadership team and listened to feedback from our people through Peakon to ensure that, as we developed our approach to hybrid working, we created the best outcome for the business and our people. We know (through Peakon) that many of our people have benefitted from having greater flexibility in achieving a sustainable work-life balance. Our approach is outlined below and will continue to evolve as we get feedback from our people and our leaders. Our people remain at the heart of every decision we make. Enabling their success and maximising their potential through an enhanced training offering, providing inclusive and flexible ways of working and celebrating their successes though meaningful recognition programmes will continue to be a feature as we look forward. Wellbeing for our people Wellbeing has been a focus area for Gattaca over the past year as all of our communities adjusted to the challenges of lockdown. To help with this, we have rolled out a mental health and wellbeing hub on our intranet, where we host support mechanisms such as an Employee Assistance Programme (‘EAP’), resilience and mental health workshops led by our in-house management and executive coach, and details of the five mental health first aiders who we have trained to help support our colleagues. As well as providing wellbeing support for our people, it was crucial we maintained the levels of connectivity that had supported us so well through the pandemic. Our social events had pivoted from in-person to virtual, and we needed to maintain the engagement of our people. For example we hosted pizza nights, sending ingredients through the post to our people, we all joined for a ‘Masterchef’ style lesson which this was made more entertaining for our younger family members by providing a magician. At Christmas we sent goodie boxes out to colleagues and had a night of comedians. Whilst we were unable to hold our annual children’s Christmas event physically, we sent each child a STEM-related gift. In recognition of the Gattaca team’s efforts to support the Group over the last 18 months, we have announced that all colleagues will receive an extra three days of holiday between the Christmas and New Year period. Charitable giving/support in local communities While events to fundraise for the community have been challenging to organise during he COVID-19 restrictions, our people have participated in a range of events for charities including Movember, MacMillan and Trinity. Our main focus this year has been to support Foothold, a charity which, in partnership with the Institute of Engineering and Technology, specifically supports the wellbeing of engineers and technologists. Through the fundraising work we have done with Foothold, we have helped them launch their new wellbeing hub (see myfoothold.org/wellbeinghub), offering free, readily available expertise on all things mental wellbeing for our STEM-based communities. Across all of our charity work this year we have raised funds for national and local charities and maintained our platinum status in the Pennies from Heaven Scheme, donating through payroll giving (which 55% of our colleagues participate in). Overview Strategic Report Governance Financial Statements 37 The assessment utilised research of our markets, industry and the wider sustainability landscape, including guidance and input from best practice methodologies and independent, respected reporting guidelines and frameworks. The materiality assessment helped us to identify five areas most relevant to our business and our stakeholders, which will form the basis of our sustainability strategy. • Energy and climate change: we strive to minimise our use of finite resources by working towards net zero, whilst continually improving our environmental performance across our business operations by reducing water and waste. • Philanthropy and local communities: we actively support and engage with local communities to invest in our society and create a positive social impact, including support for charitable organisations. Environmental, social and governance Sustainability is at the core of our purpose to provide the skills needed to build a better future, and we are committed to improving the positive impact we can have in Environmental, Social and Governance (‘ESG’) areas across our business operations. During the year we engaged a specialist external consultant to conduct a materiality assessment to review the ESG issues, impacts and opportunities most relevant to our business. Area of materiality for our business • Governance, management and compliance: best-in-class governance, management, compliance and stakeholder relationships are the core of our business operations. • People and wellbeing: we are committed to promoting the health, safety and wellbeing of our people by providing an engaging, diverse and inclusive environment focused on wellbeing, development, talent management, and reward and recognition. • Fair and ethical conduct: we always conduct ourselves in a professional manner, acting with honesty and integrity, complying with applicable laws, regulations and appropriate standards in all countries in which we operate, and working with our clients, suppliers and other third parties to ensure our high ethical standards are maintained. Our contribution to the United Nations Sustainable Development Goals (SDGs) The areas of materiality and priorities align to SDG 3, 5, 8, 9, 10, 11, 12, 13 and 16 where we consider our ESG priorities will have the greatest impact. 38 Gattaca plc Annual Report and Accounts 2021 Responsible Business continued 2021 Highlights Area of materiality Governance, management and compliance People and wellbeing 2021 highlights Commentary Focus for 2022 SDG We have always maintained strong corporate governance, adhering to the QCA Code and also the UK Corporate Governance Code where appropriate for our business. • Continue to evolve our robust governance policies and procedures. • Establish a sustainability action group, with board sponsorship, evidencing commitment to the execution of the ESG strategy. • Link the ESG strategy, and its effectiveness and progress, to executive remuneration policies. • Creation of an annual executive and board training calendar. • Continue to make progress towards our target to increase gender diversity across our management, leadership and board community. • Continue to drive participation rates and employee engagement as measured by our engagement tool. • Ensure our global pay practices continue to align to the Living Wage across our direct business operations. • Continue to provide insights, resources and events to the wider community of people with whom we collaborate, including for our clients, suppliers and contractors on issues such as diversity and inclusion. • Continuing to develop our new approach to learning and development, and to support the wellbeing of our people. The physical, mental and financial wellbeing of our people and stakeholders remains our top priority. During the year we refreshed our values, aligning our purpose, vision and mission to our people strategy, communicating our commitment to maintaining a diverse and inclusive culture in which our people can thrive. We introduced the Peakon tool in order to measure engagement trends across our business. Our overall engagement score remained stable through the year at 76% which is just 3% below the industry benchmark. Our participation rates weekly averaged over 50% and our aggregated participation rate at 86% is 1% below the benchmark. This means that 86% of our total population have engaged with and participated within the survey. We ran a number of Gattaca academies and provided learning interventions around hybrid working, resilience and leadership to support our people through the pandemic. We maintain ethical and compliant labour practices across all of our business operations. We protect our people by adhering to recommended health and safety guidelines, embedding the importance of health and safety in our company culture, working with third parties to extend this influence across our supply chain. We have dedicated health and safety resources for our high-risk rail business and maintain our ISO 45001 (H&S) certification. • Improving diversity of the board with the appointment of our first female non-executive director. • Implementing continuous improvement opportunities identified via an annual review of the effectiveness of the board and each of the committees. • Strengthening our internal controls with the introduction of a new Risk Assurance Framework. • Implementing our single end-to-end technology platform improving transparency and accuracy of reporting, further enhancing our control environment. • Maintaining our ISO 9001 (quality) certification and Cyber Essentials accreditation. • Refreshing our values, emphasising the importance of respect and an inclusive culture in which individual contributions are valued. • Launching a new diversity and inclusion initiative across the group, including a diversity and inclusion action group with board-level sponsorship and ambitious targets to increase gender diversity across our management and leadership community. • Launching our new engagement tool, which enables continuous feedback and input across a wide range of subjects. • Continuing to focus on employee mental health and wellbeing, introducing mental health first aiders, 1:1 resilience coaching for all staff and resilience workshops for managers. • Introducing our hybrid working environment to promote work-life balance, also providing detailed guidance for managers to support hybrid teams. • Refreshing our learning and development offering to increase opportunities for staff across the business. • Supporting our clients via industry round-table discussions, webinars and marketing materials to facilitate improvements to recruitment practices to ensure commitment to diversity and inclusion for candidates. • Developing a new approach to learning and development through a leading edge programme of online, virtual and face-to-face training interventions designed to ensure our people are equipped for their role at all stages of their career. This coincided with leadership coaching interventions which supported our leadership community. Overview Strategic Report Governance Financial Statements 39 2021 highlights Commentary Focus for 2022 SDG We are committed to acting with integrity, ethically and responsibly in all our business activities. We maintain strong standards of compliance and ethical conduct, regularly reviewing, adapting and updating our policies and procedures to align to best practice and the changing nature of our business. We maintain a mandatory training programme covering key legal and ethical topics, and provide an independent whistleblowing reporting service for our people to anonymously report any concerns. While we have made efforts to limit and reduce our energy demands, we recognise that a more targeted approach is required to achieve significant improvement. We are committed to achieving net zero across our direct business operations and our focus for 2022 is to develop our plans and set timescales to achieve this. Area of materiality Fair and ethical conduct • Refreshing key mandatory training including anti-bribery, tax compliance and sanctions. • Refreshing our values, emphasising the importance of trust, doing the right thing and delivering on our commitments. Energy and climate change • Maintaining our client and candidate presence in the renewable energy sector. • Retaining our ISO 14001:2018 (environmental management system) certification and silver membership of EcoVadis. • Significantly reducing UK and international travel. Although we expect travel to increase during 2022 due to the easing of COVID-19 restrictions, we continue to invest in technology to enable our people to collaborate and engage in the most efficient manner. • Implementing a hybrid working environment which will further reduce the environmental impact by the business. Philanthropy and local communities • Our people also continue to be passionate about supporting our communities and raised £11,663 for charity during the financial year. • Partnering with registered charity Foothold to launch a mental health and wellbeing hub aimed at supporting engineering and technology contractors. • Achieving our target to assist 2,000 unemployed candidates back to work. We take our responsibilities as an employer seriously and continue to support several local and wider charity and community initiatives. We partner and support several organisations dedicated to promoting inclusivity of opportunities in STEM industries; including Women in Tech, Women into Construction, the Womens Engineering Society, STEMNet, and Pride in STEM. • Expand the range and delivery method of our compliance training to further drive engagement and retention of learning. • Embed our new values, including refreshing our code of professional conduct. • Develop an ambitious but attainable target to achieve net zero across our direct business operations, whilst challenging our procurement methods and supply chain to reduce our carbon footprint across our indirect business operations. • Target client and NFI growth across all sectors in renewable energy projects. • Work towards a transition to renewable energy suppliers across our direct business operations. • Reduce our carbon footprint by removing single-use plastics and moving to a paperless office, actively promoting the use of technology for staff in our direct business operations. • Reduce contractor and client carbon footprint by moving to electronic timesheets/invoices. • Set a target to reduce UK and international business travel on pre-COVID-19 levels. • Actively drive our existing group volunteering programme. • Implement a group-wide global charity activity for all staff. Looking ahead Whilst we are pleased with our achievements to date, we recognise we are on a journey to embed sustainability into our business operations for the long-term. To that aim, in addition to the specific actions outlined above, our focus for 2022 will be on strategy development to enable us to establish: • baseline assessments and measurements; • data, monitoring and reporting protocols; and • ambitious but attainable targets; • implementation initiatives to effectively embed • clear action plans and timescales; change within the organisation. We look forward to providing further updates on our sustainability journey in future reports. 40 Gattaca plc Annual Report and Accounts 2021 Responsible Business continued 2020-2021 Energy and carbon reporting We have calculated our environmental impact across scope 1, 2 and 3 (selected categories) emission sources for the UK only. Our emissions are presented on both a location and market basis. On a location basis (using the UK grid emissions intensity) our emissions are 425 tCO2e, which is an average impact of 1.0 tCO2e per employee. We have calculated emission intensity metrics on both an employee and floor area basis. Further detail of the measures we have taken to meet our environmental responsibilities, and our journey to embed sustainability into our business operations for the long-term, can be found on pages 37 and 39. The methodology used to calculate the Greenhouse Gas (‘GHG’) emissions is in accordance with the requirements of the following standards: • World Resources Institute (‘WRI’) GHG Protocol (revised version). • Defra’s Environmental Reporting Guidelines: including Streamlined Energy and Carbon Reporting requirements (March 2019). • UK office emissions have been calculated using the DEFRA 2020 and DEFRA 2021 issue of the conversion factor repository. Following an operational control approach to defining our organisational boundary, our calculated GHG emissions from business activities fall within the reporting period of August 2020 to July 2021. Emissions and energy usage Scope 1 (tCO2e) Scope 2 (tCO2e) Scope 3 (tCO2e) Emissions source Gas and transport usage Electricity Electricity transmission and distribution Total scope 3 (tCO2e) Total (market based) (tCO2e) Total (location based) (tCO2e) Total energy usage (kWh)1 Normaliser Normaliser Employee cars Rail Business flights tCO2e per FTE tCO2e per m2 2020-2021 2019-2020 57 120 11 < 1 < 1 83 94 318 271 81 109 9 8 – – 17 257 207 868,549 852,643 0.6 0.04 0.5 0.03 1 Energy reporting includes kWh from scope 1, scope 2 and scope 3 employee cars only (as required by the SECR regulation). During our FY2021 review of our energy and emissions data we have noted some inconsistencies in the quality of our data and in FY2022 we will be improving the accuracy of our data sources to enable a robust benchmark to be set. The Group have also changed travel providers in the year, which now allow us to capture the carbon consumption from flights taken by both our employees and our contractor population. This will allow us to better track our consumption from business travel going forwards. Overview Strategic Report Governance Financial Statements 41 Stakeholder engagement and section 172 The Board recognises that the long-term success of the business is dependent on the way we interact with a range of key stakeholders. Gattaca has a history of collaborative and informative stakeholder engagement and considerate decision- making; we comply with the QCA Code which, under principles 3 and 9, requires companies to take account of wider stakeholder and social responsibilities and their implications for long-term success, and to maintain governance structures and processes that support good decision-making. This section articulates how, as required by section 172 of the UK Companies Act 2006, the directors have acted to promote the success of the company for the benefit of its stakeholders. In meeting this responsibility during the year, the directors have had regard, amongst other matters, to: A. the likely consequences of any decisions in the long-term; B. the interests of the Group’s colleagues; C. the need to foster the Group’s business relationships with suppliers, customers and others; D. the impact of the Group’s operations on the community and environment; E. the Group’s reputation for high standards of business conduct; and F. the need to act fairly as between members of the Group. Stakeholder engagement Why we engage Clients Gattaca’s success has been built on numerous long-standing and trusted client relationships. We must ensure that we understand evolving client requirements in order to best match them with our candidates and services. Candidates One of Gattaca’s key strengths is building relationships with candidates that last many years and even across whole careers. In-depth candidate knowledge also enables us to deliver services and solutions for our clients. How we engage Material topics We engage with clients via regular communications in our day-to-day activities, and via formal feedback requests. • Recruitment services and solutions • Market expertise • Access to high quality candidates • Building long-term partnerships We engage with candidates via regular communications in our day-to-day activities. • Career opportunities • The candidate experience • Data governance • Building long-term partnerships Colleagues We are a people business, and the knowledge, experience and dedication of our team members is paramount to our success. In order to attract and retain the best people, and to get the most out of them during their time with us, we believe in fostering a culture of engagement, collaboration, support and inclusivity. In addition to our ongoing employee engagement tool, Peakon, we utilise group forums, intranet forums, onboarding surveys and exit interviews to interact with our people. We hold regular business updates at which our people have the opportunity to ask questions directly to the management team, and undertake specific engagement surveys on topical issues. • Training and development opportunities • Career progression and recognition • Compensation and incentives • Group culture and reputation • Health, safety and wellbeing Investors The Board regards effective communication with shareholders as crucial to understanding and meeting their needs and expectations. The full Board regularly considers feedback from investors. Our investor relations programme includes presentations and the opportunity for shareholders to meet with the Chair, Chief Executive Officer and Chief Financial Officer following the announcement of our interim and preliminary results. We release the results of general meetings through a regulatory news service and also on our website, which also contains historical results, presentations and communications. • Financial and operational performance • Long-term growth • Business model and strategy • Capital allocation • Dividends 42 Gattaca plc Annual Report and Accounts 2021 Responsible Business continued Examples of principal decisions in 2021 Principal decisions in 2021 The Board considered the interests of and the impact on all stakeholders when making a number of key decisions during the year, as demonstrated by the following examples. Principal decision 1 Following the COVID-19 pandemic and lockdowns across all of our global offices, we introduced a new hybrid working approach for our people. In making the decision, we considered: The impact on the long-term sustainable success of the Group As we entered the post-pandemic world of work, we had an opportunity to review and take stock of how we operate as a business. One such consideration has been around where we physically locate ourselves; office or remote, to maximise our performance and retain the benefits that have been felt by not travelling into any office location on a full-time basis. With the lockdowns ending, we took a proactive approach to design a hybrid working approach to ensure we have a model that is productive, balanced and effective to benefit both Gattaca and our people. Stakeholder considerations Colleagues Our hybrid working approach was designed utilising feedback from staff via our employee engagement tool, Peakon, and round-table discussions, as well as extensive consultation with our leadership team. Our people told us that they had become tired of endless Teams calls, and that some activities are more effective (and more enjoyable!) when we are physically together, for example, on-the-job learning, relationship building and problem solving. However, our people also told us that focus tasks that require time and space can be best performed without the distraction of the office environment. We reviewed this feedback in detail and designed our hybrid working approach to strike the right balance of office and remote working going forward, which we consider contributes to our success in how we attract, develop and engage talent at Gattaca. Clients and candidates Ensuring we have the talent we need to deliver on client opportunities and provide excellent service to our clients, candidates and contractors is essential. Only by having the talent we need will we achieve deepening relationships with our clients, candidates and contractors which are central to our vision to be the STEM talent partner of choice. Ensuring continuity of service for our clients and candidates was a fundamental consideration in building our hybrid working approach. Investors The purpose of our hybrid working approach is to ensure we attract and retain the best talent in the market to deliver excellent service and ensure it continues to deliver sustainable growth in the long term. Outcome Our hybrid working approach has been launched and is effectively enabling our people to maintain flexibility in their working patterns and is a strong factor in our approach to talent acquisition. Overview Strategic Report Governance Financial Statements 43 Principal decision 2 In October 2020, we repaid a £7.5m revolving credit facility (‘RCF’) with HSBC, thus eliminating all banking covenant requirements. In making the decision, we considered: The impact on the long-term sustainable success of the Group Repayment and repositioning of the Group’s financing facilities provides stability and strength to the Group’s balance sheet, thus improving our ability to respond to the changing economic environment during the pandemic, and positioning us in a better position to achieve future growth as we emerge from the uncertainty of the last 18 months. Stakeholder considerations Colleagues Increased stability enables the Group to undertake further investment in the systems, processes and development initiatives that support our people in their day-to-day activities. Clients and candidates Repaying the RCF improves the stability and strength of the Group’s balance sheet which allows us to work with a broader range of clients and support a greater number of candidates and contractors in our markets. Investors Removing banking covenants and repaying the RCF provides stability for the Group, lowers risk and reduces financing costs, thus contributing to our long-term sustainability and profitability. A stronger balance sheet also allows us to better weather the economic change and uncertainty as we emerge post-pandemic. Outcome The outstanding RCF balance was repaid in full in October 2020, and the facility was cancelled, thus eliminating banking covenants, increasing stability and strengthening the Group’s balance sheet. 44 Gattaca plc Annual Report and Accounts 2021 Risk Assurance Risk assurance is a key factor in all decision making throughout the organisation to enable effective and transparent decisions that balance appropriate levels of risk with reward. Risk and uncertainties are an inherent part of any business. Gattaca’s approach to risk reflects our strategic priorities, commercial reality, and our ability to manage potential impact in the event the risk materialises. Effective and efficient risk governance and oversight provide management and the Board with assurance that our business activities will be positively enhanced by opportunities but not be adversely impacted by threats that could have been foreseen, to minimise negative impact on our ability to achieve our strategic priorities. During the financial year, the Group implemented a revised Risk Assurance Framework (‘Framework’) to improve the overall structure, direction and oversight for the systematic and consistent identification and assessment, and effective and efficient management of risk. The Framework ensures that risk assurance is a key factor in all decision making throughout the organisation to enable effective and transparent decisions that balance appropriate levels of risk with reward. Overview Strategic Report Governance Financial Statements 45 Risk Assurance Framework Roles & Responsibilities Overall responsibility Overall responsibility for risk assurance, including approving the Group’s risk appetite, and regular review of the risk register sits with the Board. Oversight The Audit Committee considers regular assurance reports from management on risk exposure relative to risk appetite and tolerance, including regular review of the risk register. Management and monitoring Management are accountable for implementation of appropriate risk assurance, for allocating responsibilities to review and manage risk, and for reviewing and challenging the risk register to ensure controls are operating effectively as intended and that open issues are closed out. Management are also responsible for defining the Group’s risk appetite, setting the tone and influencing culture of risk assurance across the business, including approving major programmes/ projects that affect Gattaca’s risk profile or exposure, and deciding what types of operational risk are acceptable/unacceptable. Ownership Business units (supported by group risk) are responsible for managing component risks including escalating key changes to the status of component risks, monitoring and reviewing assigned component risks and controls with sufficient frequency to ensure the ongoing effectiveness of controls, and providing timely and positive assurance on the management of risks and on the effectiveness of controls. The Framework places strong importance on a robust control environment and the maintenance of a risk-aware culture, the characteristics of which include: • a distinct and consistent tone from the Board in respect of risk-taking, awareness and, where appropriate, avoidance; • common acceptance throughout Gattaca of the importance of continuous risk assurance, including clear accountability for, and ownership of, specific risk and risk areas, together with clear delegated authorities; • transparent and timely risk information flowing up, down and across the organisation; • commitment to ethical principles and the consideration of wider stakeholder positions in decision making; • actively seeking to learn from mistakes and near misses; • the encouragement of appropriate risk-taking behaviours, whilst challenging inappropriate behaviours; • valuing, encouraging and development of risk management skills and knowledge; and • sufficient diversity of perspectives, values and beliefs to ensure that the status quo is consistently and rigorously challenged. The Framework is designed to meet the Group’s particular needs and aims, facilitate efficient and effective operations, safeguard the Group’s assets, ensure proper accounting records are maintained, and ensure that financial information used within the business and for publication is reliable. Such a system of internal control can only be designed to manage and mitigate, rather than eliminate, risk and provide reasonable but not absolute assurance against material misstatement and loss. 46 Gattaca plc Annual Report and Accounts 2021 Risk Assurance continued Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The financial position of the Group, its cash flows and liquidity position mirror those of our ultimate parent company and can be found in the Chief Financial Officer’s Report of the 2021 annual report for Gattaca plc. The majority of our staff have now been working remotely for over twelve months and there has not been any significant impact to our ability to operate effectively. The initial reduction in contractor numbers in April 2020, whilst impacting profitability, has resulted in reduced working capital requirements and has created further liquidity. The Group has also undertaken other actions, including an increase to the payment terms of certain contractors and these actions have created a permanent working capital benefit, and will reduce our working capital requirements during growth. We have seen signs of extensions in debtor days as a result of the pandemic impact on trading at our clients and we continue to be alert for any sudden changes. There is sufficient headroom on our working capital facilities to absorb a level of extensions, but we would also manage supply to the customer if payment within an appropriate period was not being made. A significant deterioration in payment terms would significantly impact the Group’s liquidity. The Directors have prepared detailed cash flow forecasts to July 2024, covering a period of 33 months from the date of approval of these financial statements. This base case is drawn up with appropriate regard for the current macroeconomic environment and the particular circumstances in which the Group operates. This conservative base case assumes a recovery of the UK business to 100% of pre-COVID-19 contract and permanent NFI by July 2022, with a further growth to 115% of pre-COVID-19 by July 2023 and 124% growth of pre-COVID-19 by July 2024 years. Trading has been broadly in line with this forecast since the year end. The output of the base case forecasting process has been used to perform sensitivity analysis on the Group’s cash flow to model the potential effects should principal risks actually occur either individually or in unison. The sensitivity analysis modelled scenarios in which the Group incurred a sustained loss of business arising from a prolonged global downturn as a result of the COVID-19 pandemic, with a slower recovery scenario considered. The Group has modelled the impact of a severe but plausible scenario including a reduction in recovery to 80% of pre-COVID NFI by July 2022, and subsequent slow recovery to 90% of pre-COVID NFI by July 2023, as well as the impact of a subsequent 5 day deterioration in the recovery of customer receivables. After making appropriate enquiries and considering the uncertainties described above, the directors have a reasonable expectation at the time of approving these financial statements that the Group and the Company has adequate resources to continue in operational existence for the foreseeable future. Following careful consideration the directors do not consider there to be a material uncertainty with regards to going concern and consider it is appropriate to adopt the going concern basis in preparing the financial statements. Viability statement The Board formally adopted the QCA Code from the year ended 31 July 2018 onwards. Consistent with previous years, Gattaca continues to seek to comply with certain provisions of the UK Corporate Governance Code, where appropriate for our business, on a voluntary basis. In accordance with this position, and in accordance with the provisions of the UK Corporate Governance Code, the directors have assessed the long term prospects of the Group based upon business plans and cash flow projections for the three-year period ending 31 July 2024. The period of which the directors consider it possible to form a reasonable expectation as to the Group’s long- term viability is the three year period to 31 July 2024. This is based on the directors confidence in: • the Group’s projected financial resources, including the expected cash generation of its operations; • the low likelihood of all or even most of the identified potential principal risks materialising simultaneously; • the length of major operating contracts; • the Group’s international operations plus its established business relationships with many customers and suppliers throughout territories in which the Group operates; and • the incorporation of the uncertainty arising from the ongoing COVID-19 pandemic on both the Group’s activities and those of the wider economies in which the Group operates In forming their opinion, the directors have performed a robust assessment of the principal risk and uncertainties facing the Group as set out on pages 47 to 53. In addition, note 26 to the financial statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk. The directors believe that the Group has a robust balance sheet and considerable financial resources and accordingly they remain confident of the Group’s long-term growth prospects, based on a diverse range of clients and suppliers across different geographical locations and sectors. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully. Based upon the robust assessment of the principal risks and uncertainties facing the Group and the stress- testing-based assessment of the Group’s prospects, the directors have, subject to no unforeseen events outside of the Group’s control, a reasonable expectation, that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 31 July 2024. Overview Strategic Report Governance Financial Statements 47 Principal Risks and Uncertainties Effective risk assurance The Framework identifies the principal and component risks and uncertainties facing the Group, including those that would negatively impact our ability to achieve our strategic priorities. The table on the following page is not exhaustive and is subject to change as risks which are considered immaterial today may evolve to be more important in the future. The Group’s principal risks are presented in categories (strategic, financial, people, operational, and compliance) for ease of reference. The graph below shows each of our principal risks on a residual basis according to the likelihood of occurrence and potential impact on a residual basis, after the application of the key controls and mitigations (which, together with the description of each risk and the potential impact of the risk materialising, are set out in the table below). Due to the new methodology of our Risk Assurance Framework, the status of the risk has been assessed at the date of this report rather than status as compared to our 2020 Annual Report. Risk heat map d o o h i l e k i L r a e N n i a t r e c y l e k i L e l b i s s o P y l e k i l n U e r a R 9 2 7 4 6 3 8 11 12 13 10 5 1 Low Moderate High Severe Strategic Financial Operational – Group Support Impact 1. Uncertain regulatory environment 2. Failure to anticipate and/or embrace change 3. Ineffective stakeholder management 4. Inadequate budgeting, forecasting or financial reporting and protection of company assets 5. Inadequate financing 6. Ineffective systems and security 7. Operational financial process failure Operational – Sales 8. Failure in revenue generation effectiveness People Compliance 9. Ineffective talent management 10. Ineffective management of health and safety 11. Non-compliance with legislation, regulation or code 12. Poor contract management 13. Poor data management 48 Gattaca plc Annual Report and Accounts 2021 Principal Risks and Uncertainties continued Strategic Executive accountable: Kevin Freeguard, Chief Executive Officer Uncertain regulatory environment Description and impact Potential for future regulation to be introduced or existing regulations change that impact Gattaca’s ability to operate and/or profitability. Key controls and mitigations • The Group maintains investment in its internal legal and compliance departments, employing subject matter experts to identify proposed and new regulation which may impact our business, and to help the business anticipate and prepare for regulatory change. Failure to anticipate and/or embrace change Description and impact Failure to employ effective horizon scanning strategies to identify trends and disruptors that could impact competitive advantage, market position, and long-term performance. Key controls and mitigations • The Group’s global strategy includes regular market research and horizon scanning activities across all of our market verticals to enable best practice and sector-specific growth plans above market rates. • The board and management meet regularly to discuss and define a clear vision of the regions, sectors and skills we operate in. Ineffective stakeholder management Description and impact Failure to anticipate and deploy the right reputational management strategy leading to loss of stakeholder confidence in the Gattaca group. Key controls and mitigations • The group has an effective global strategy to manage its approach to markets, products, people and marketing, and takes a proactive approach to communications. • The board regards effective communication with shareholders as crucial and operates an ongoing investor relations programme, which includes presentations and the opportunity for shareholders to meet with the Chair, Chief Executive Officer and Chief Financial Officer following announcement of our interim and full year results. The full board receives reports on feedback from investors. • We release regular trading updates and the results of general meetings through a regulatory news service and also on the regulatory news section of our website. We are committed to regular and transparent communications with all stakeholders to mitigate risks in this area. Current status Heat map 1 2 3 L M M Overview Strategic Report Governance Financial Statements 49 Key Current status of risk Relative severity Increased Stable Decreased H High M Medium L Low Financial Executive accountable: Salar Farzad, Chief Financial Officer Inadequate budgeting, forecasting or financial reporting and protection of company assets Description and impact Failure in adequate budgeting and forecasting leading to an adverse impact on working capital which adversely affects our ability to operate. Mis-management of financial reporting impacting on management and/or statutory results including regulatory requirements, leading to inappropriate financial decisions (including but not limited to insurance coverage), fines, reputational damage, negative banking and credit consequence and/or financial loss. Failure to appropriately protect company assets including but not limited to incidents of fraud and adequate insurance provision. Inadequate financing Description and impact Failure to secure & manage adequate financing leading to an inability to operate. Current status Heat map 4 M Key controls and mitigations • The Group has a dedicated financial planning and analysis team of subject matter experts who work closely with our operational leaders to monitor performance against budgets and produce rolling forecasts including net cash/(debt) and trading performance. • The Group has appropriate procedures to minimise foreign exchange exposure. • The Group maintains strong cash flow management processes, including direct and indirect cashflow forecasts, short and long-term cashflow planning, and bid modelling. • We have appropriate financial governance procedures to prepare, review and provide oversight of financial reporting, including internal audit. • We maintain appropriate financial approval procedures to protect company assets, including segregation of duties. All staff receive training on fraud awareness on a regular basis. • We maintain appropriate levels of insurance. Key controls and mitigations • The Group paid off in full its revolving credit facility during the financial year and is now covenant free. 5 M • We maintain a working capital financing facility with HSBC, with reconciliations performed monthly providing both live view and pipeline visibility. • We have a strong relationship with our bank, which is supportive of our business, and we hold regular discussions to ensure we have our bank’s backing to fund strategic plans. Where we foresee material uncertainty we engage proactively with our lenders to mitigate this. 50 Gattaca plc Annual Report and Accounts 2021 Principal Risks and Uncertainties continued Operational – Group Support Executive accountable: Salar Farzad, Chief Financial Officer Ineffective systems and security Description and impact Failure in efficiency of IT systems leading to an inability to operate, or exposure to regulatory breach or operational loss resulting from breaches of, or attacks on, information systems. Operational financial process failure Description and impact Failure in efficiency of operational financial processes leading to an inability to operate core business financial processes, including contractor pay and client invoicing requirements. Current status Heat map Key controls and mitigations • During the financial year we implemented our cloud-based end-to-end 6 integrated technology platform. This move to a cloud-based system has improved systems security which, together with proactive and effective vendor management, reduces our exposure to material systems failure. M • We have subject matter experts in our internal technology team to share best practice, undertake peer review of critical business systems and effectively troubleshoot and manage the recovery of failed or degraded systems. • We utilise specialist security services to conduct regular penetration testing of security measures to review our resilience in light of the changes and threats we face. • The Group’s approach to business continuity focuses on our critical systems and processes to ensure continuity of service, including crucially the payment of workers engaged on our clients’ sites, and we continue to evolve our business continuity planning in light of our transition to our new technology platform. Key controls and mitigations • Our key financial processes are documented, implemented and regularly audited to ensure they are operating as intended and effectively. 7 M • Dual-approval controls and validation checks operate to manage the risk of payments to contractors, our people and suppliers. • New clients are onboarded by a dedicated team in line with due diligence procedures, including a credit check, and we also conduct detailed and regular credit reviews of all of our client accounts. • We maintain credit insurance on a small subset of our clients, and separately the Group holds appropriate levels of public liability, employers’ liability and professional indemnity insurance. • The Group maintains a delegation of authority policy and matrix to manage approvals. Operational – Sales Executive accountable: Kevin Freeguard, Chief Executive Officer Failure in revenue generation effectiveness Current Status Heat map Description and impact Failure to attract, secure, manage and retain clients leading to an adverse effect on NFI generation and client retention. Key controls and mitigations • The Group’s global business strategy ensures NFI is generated across a broad range of territories, sectors and clients, with a weighting towards contract recruitment leading to more stable business streams and reducing the risk of reliance on territory or sector-specific markets. 8 M • The group has a very broad base of clients, with no dependency on any one client. • The group continuously monitors the creditworthiness of our clients. • We employ industry and sector experts, making sure the business is clear on the skills it needs to have within the business and has the mechanisms in place to attract them. • This specialist offering enhances our ability to source the right candidates. • The group undertakes a regular client framework review, seeking to ensure it minimises the risk of losing clients to competitors. • The group is focusing increasingly on exclusive arrangements and new solutions. Overview Strategic Report Governance Financial Statements 51 Key Current status of risk Relative severity Increased Stable Decreased H High M Medium L Low People Executive accountable: Kevin Freeguard, Chief Executive Officer Ineffective talent management Description and impact Failure to attract, allocate, develop, retain and implement succession planning for our people may adversely affect our ability to operate and/or negatively impact our culture and the long-term aims of the Group. Current status Heat map 9 M Key controls and mitigations • The Group has appropriate talent attraction, acquisition and management frameworks to effectively manage the end-to-end people journey within Gattaca, and which focuses on remuneration policies to attract the best talent, opportunities to improve the people experience for those working with us, maximising performance, and extending retention of our high performing people. • Our engagement tool, Peakon, captures feedback and engagement on an ongoing basis which is reviewed regularly by the board. • The Group maintains and implements processes, procedures and policies to support with ensuring Gattaca complies with its obligations to our people and to protect the business (including but not limited to appropriate contractual provisions and post-termination restrictions), as well as allowing us the means to implement appropriate consequence management to address inappropriate behaviour where necessary. • Our newly implemented approach to hybrid working, including continued investment in technology, supports our people wherever their place of work. • Our learning and development team provide relevant and effective training and development opportunities to all level of colleagues to ensure they have the knowledge and skills to effectively deliver their job role thus enabling them to make their contribution to the organisations goals. • The Group has recently refreshed its values to reflect those behaviours necessary and consistent with our history and culture as a compliant and ethical organisation. Implementation of these values is ongoing with a programme of activities including management training and support and refreshing our core HR procedures to reflect and embed these values. Ineffective management of health and safety Description and impact Ineffective management of workplace safety leading to loss of life or injury to colleagues, contractors or persons visiting Gattaca locations. Key controls and mitigations • The Group has appropriate frameworks in place to manage our health and safety requirements for the protection of our people, contractors and visitors. 10 M • The Group is committed to providing for the health and safety and welfare of all of our people and has established an occupational health and safety management system that complies with ISO 45001. The Group also has procedures in place to comply with all legal and contractual obligations relevant to the Group’s activities. • Our dedicated H&S rail manager provides specialist support to our higher risk rail business. • We have a an effective and appropriately maintained group crisis management approach, including personnel, contacts and specialist sub-areas, to appropriately manage and respond effectively to any significant incidents within the Group. • The Group provides a range of mental health support and resources for our people, including a community of mental health first aiders and training for managers on mental health awareness. • Specifically during COVID-19, we maintained a COVID-19 playbook which outlines the measures we have implemented to keep our people safe in our offices, and have a dedicated project team to react to the changing situation and government guidance in each of our locations. 52 Gattaca plc Annual Report and Accounts 2021 Principal Risks and Uncertainties continued Compliance Executive accountable: Salar Farzad, Chief Financial Officer Non-compliance with legislation, regulation or code Description and impact Failure to comply with applicable legislation, regulation and codes, or failure to assess and prepare for known, incoming legislation, could expose the Group to potential legal, financial and reputational risks. Key controls and mitigations • The Group has dedicated legal, compliance and tax functions which manage the Group’s compliance with its legal and regulatory obligations and monitor changes in legislation that affect our business, supported by leading external advisers as appropriate. The Audit Committee provides governance and oversight of the Group’s compliance and tax risks. Current status Heat map 11 H • The Group also works closely with the Recruitment and Employment Confederation (‘REC’) to ensure it is up to date with all industry trends and best practice relating to current and emerging legislative and regulatory changes in the markets we operate in. • The Group has clearly defined standards covering our business activities, which are outlined in our code of professional conduct with which all colleagues are required to comply. The Group also has clear policies and statements setting out the Group’s zero-tolerance approach to, amongst other matters, bribery and corruption, sanctions violations, facilitation of tax evasion, and modern slavery. All of these core policies are referred to in our contracts of employment, and are underpinned by training to reinforce these policies, and the associated required behaviour. • The Group has recently refreshed its values to reflect those behaviours necessary and consistent with our history and culture as a compliant and ethical organisation. Implementation of these values is ongoing with a programme of activities including management training and support and refreshing our core HR procedures to reflect and embed these values. • The Group maintains an independent whistleblowing reporting service for colleagues to raise any matters of concern anonymously. Any reported incidents are investigated and reported to the Audit Committee. • We maintain appropriate governance processes and a strong internal control environment, including delegation of authorities. • We worked closely with our clients to effectively implement the changes to the IR35 rules in the private sector, which came into force in April 2021. • The Group made use of the Coronavirus Job Retention Scheme for our people and contractors, an area that will undoubtedly be under intense scrutiny. We implemented robust and effective processes and procedures to ensure we were meticulous in the claims process and to ensure our furloughed colleagues adhered to the guidance by not working whilst on furlough. • Although there has been an increase in legal and regulatory requirements on our business over the past few years, we continue to be comfortable that we are managing these external developments appropriately and responsibly. In this regard, we consider that the external risk environment in this area has not changed. As noted in previous announcements, we continue to cooperate with US authorities with respect to historical transactions in our discontinued telecommunication infrastructure business. Overview Strategic Report Governance Financial Statements 53 Key Current status of risk Relative severity Increased Stable Decreased H High M Medium L Low Compliance Executive accountable: Salar Farzad, Chief Financial Officer Poor contract management Description and impact Failure to appropriately manage risks within contracts or over commitment to terms deemed uncommercial, leading to a contract breach or unprofitable contract arrangement. Poor data management Description and impact Failure to prevent a breach of any individual’s personal or special category data, or corporate sensitive or confidential data which Gattaca is responsible for, could lead to potential legal, financial, operational and reputational risks. Current status Heat map Key controls and mitigations • The Group’s legal team review non-standard commercial contracts and adhere to a contract playbook which defines our risk appetite. 12 M • We have appropriate governance procedures in place to ensure commercial decisions are taken by the right people and are properly documented. • Where appropriate, we liaise with our insurance providers regarding onerous non-standard terms. Key controls and mitigations • The Group maintains procedures for handling and storing sensitive, confidential and personal data as part of its Data Protection and IT Systems Usage policies and information security processes and procedures. • Our people receive data protection training on joining the Group, and regular refresher training sessions. Specialised training is provided where required. • The Group maintains appropriate resource in the compliance team to ensure continued adherence to data protection legislation, and we monitor developments in the law and manage our response as appropriate. 13 M Strategic Report approval The Strategic Report on pages 4 to 53 was approved by the Board of Directors on 5 November 2021 and signed on its behalf by Kevin Freeguard Chief Executive Officer Salar Farzad Chief Financial Officer 54 Gattaca plc Annual Report and Accounts 2021 Chair’s Introduction to Governance Committed to a culture of good governance “ The Board is responsible for ensuring strong governance throughout the Group’s operations to support management in building sustainable growth for all of our stakeholders.” BOARD COMPOSITION: 33% executive 67% non-executive Patrick Shanley Non-Executive Chair 5 November 2021 Board tenure: 0-3 years 4-6 years 6+ years 50% 33% 17% Overview Strategic Report Governance Financial Statements 55 In looking ahead to 2022 reporting, the Board is mindful of the increased focus on sustainability. We are committed to improving the positive impact we can have in environmental, social and governance areas across our business operations, and I look forward to communicating our progress in developing our sustainability strategy in our 2022 report. The right balance of skills and experience: Patrick Shanley (Chair) Tracey James David Lawther George Materna Kevin Freeguard Salar Farzad Exec Non-exec Appointment December 2015 Tenure 5 years December 2020 11 months June 2018 July 1984 October 2018 June 2017 3 years 37 years 3 years 4 years I am pleased to present the Board’s Annual Report on Corporate Governance. The Board has adopted the QCA’s Corporate Governance Code (‘the QCA Code’) although, where appropriate for our business, Gattaca also complies with most provisions of the UK Corporate Governance Code, on a voluntary basis. This Annual Report, together with the information on our website, sets out how we comply with the principles of the QCA Code and provides insights into how our governance framework underpins our day-to-day activities and decisions. The Board’s primary focus this year has been to position the business for success coming out of the pandemic. To this end, the Board has participated in regular and extensive dialogue with the senior leadership team to review our strategic objectives, refresh our purpose, vision and mission, and revise our values to reflect the organisation we are now. In addition, the Board continued to fulfil and develop its approach to our core governance responsibilities, including implementation of a new Risk Assurance Framework and continuous improvement opportunities identified via Board evaluation. Staffing Customer service/ marketing People Operations International Technology Regulatory Finance Patrick Shanley (Chair) Tracey James David Lawther George Materna Kevin Freeguard Salar Farzad 56 Gattaca plc Annual Report and Accounts 2021 Board of Directors The right mix of skills and experience Patrick Shanley Kevin Freeguard Salar Farzad Non-Executive Chair Chief Executive Officer Chief Financial Officer Appointment December 2015 October 2018 June 2017 Committee membership Skills and experience Key to Committee membership Audit Committee Nomination Committee Remuneration Committee Chair Kevin was previously Managing Director for Verifone from 2015 to 2018 and has extensive international and business transformation experience across multiple sectors including Financial Services, Technology and Industrial, having held senior leadership positions with organisations such as De La Rue, Siemens and Motorola. Patrick has extensive boardroom experience having previously been Chair of chemicals business, Accsys Technologies, CFO of Courtaulds plc and Acordis bv, CEO of Corsadi bv, Chair of Cordenka Investments bv and of Finacor bv. Patrick began his career working for British Coal where he qualified as a chartered management accountant. He has a strong operational, restructuring, merger and acquisition background and has worked in high growth businesses, manufacturing and service industries. Salar, a chartered accountant, has a background of finance leadership in high-paced international businesses experiencing significant change. His previous roles include Group CFO of Zodiak Media, Global Finance Director of Macmillan Science & Education, CFO of 2 Entertain, CFO of MTV Networks International and finance leadership roles with EMI Music within its North American and digital operations. His early career was with Price Waterhouse in audit followed by lead advisory in mergers and acquisitions. Overview Strategic Report Governance Financial Statements 57 George Materna David Lawther Tracey James Non-Executive Deputy Chair Independent Non-Executive Director, Senior Independent Director Independent Non-Executive Director Katie Selves1 Group Company Secretary and General Counsel August 1984 June 2018 December 2020 December 2017 George has over 40 years’ experience in the recruitment industry and is the founder of the Group, having founded Matchmaker Personnel in 1984 and Matchtech Engineering in 1990, before combining the two businesses in 2002 to form Matchtech Group plc. George is a fellow of both the Institute of Recruitment Professionals and the Chartered Institute of Personnel and Development. The Board does not consider George to be independent. David is a senior leader in the global construction industry. He was formerly CEO at ISG Plc, where he grew the company to a £1.6bn turnover, operating internationally in 26 countries – gaining its reputation as a world- leading fit-out specialist focused on commercial, retail and data centres. Prior to that, David was Chief Financial Officer at ISG. David has served as the Group Finance Director for Wilson Connelly Holdings, a quoted house builder and commercial property developer operating across the UK. David is also currently a non-executive Chair for Syntegragroup plc and senior independent non-executive for Maris LLP. Tracey is a Chartered Accountant and leadership coach. She trained and spent most of her career at Grant Thornton where she was a Senior Audit Partner as well as a member of the Partner Oversight Board and Audit Risk Committee; specialising in advising fast growing quoted companies around financial reporting and governance. Tracey has also lived in France and Canada where in the latter she was the Director of Finance for a medical supplies business. Tracey was a NED at Places for People Group Limited and was the Chair of Audit at Activate Learning. Katie is Group General Counsel and Company Secretary, and advises the Board on all governance matters. Katie started her career as an HR specialist and is a chartered member of the Chartered Institute of Personnel and Development. She went on to qualify as a solicitor and spent 11 years in private practice in the City of London before moving in-house at Gattaca. Katie joined Gattaca in 2016 as Head of Employment and was promoted to General Counsel and Company Secretary, responsible for the legal and compliance function, in 2017. 1 Katie Selves is not a member of the Board. 58 Gattaca plc Annual Report and Accounts 2021 Corporate Governance Statement QCA Code Compliance The Board has adopted the Quoted Companies Alliance (QCA) Corporate Governance Code. Set out below is our Statement of Compliance with the key principles of the QCA Code. Governance Principle Compliant Explanation 1 2 3 4 5 6 7 8 9 Establish a strategy and business model which promotes long-term value for shareholders Seek to understand and meet shareholder needs and expectations Take into account wider stakeholder and social responsibilities and their implications for long-term success Embed effective risk management, considering both opportunities and threats, throughout the organisation Maintain the Board as a well-functioning, balanced team led by the Chair Ensure that between them the Directors have the necessary up-to- date experience, skills and capabilities Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement Promote a corporate culture that is based on ethical values and behaviours Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board By providing recruitment solutions and support to both clients and candidates with engineering and technology skills, we help to unleash potential in people, projects and companies. The CEO and CFO communicate regularly with shareholders, investors and analysts, including at our half-yearly results roadshows. The full Board is available at the Annual General Meeting (‘AGM’) to communicate with shareholders. In addition to our shareholders, our clients, candidates, contractors, suppliers and colleagues are our most important stakeholders. We engage with these communities via regular communications in our day-to-day activities, and via formal feedback frameworks. Ultimate responsibility for risk management rests with the Board but day-to-day management of risk is delivered through the way we do business and our culture and is monitored via our Risk Assurance Framework. The Board has three established Committees for Audit, Nominations and Remuneration. The composition and experience of the Board is reviewed regularly, primarily by the Nominations Committee. The Board is satisfied that its current composition includes an appropriate balance of skills, experience and capabilities, including experience of the recruitment, technology and international markets. The Board regularly considers the effectiveness and relevance of its contributions, any learning and development needs and the level of scrutiny of the Senior Management Team. During the 2021 financial year the Board undertook an internal Board Evaluation which included input from all Directors and the Company Secretary. The output of the Evaluation, together with recommendations for continuous improvement was considered and, as appropriate, implemented by the Board. Our values define the standards and behaviour we work and live by and underpin our culture. Our values are integrated into our business operations and are regularly reinforced via training and performance management. The Board is responsible for the Group’s overall strategic direction and management, and for the establishment and maintenance of a framework of delegated authorities and controls to ensure the efficient and effective management of the Group’s operations. The Board maintains a list of matters reserved for the Board. 10 Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders The Investors section of our website includes our results, presentations and communications to shareholders. We release the results of general meetings through a regulatory news service and also on the Regulatory News section of our website. Further reading See pages 6 to 23 www.gattacaplc.com/ investors/corporate- governance See pages 8 to 9 and 34 to 43 See pages 44 to 53 See pages 70 to 72 See pages 54 to 57 See pages 60 to 61 See pages 34 to 39 See pages 44 to 45 and www.gattacaplc.com/ investors/corporate- governance/role-of-the- board https://www.gattacaplc. com/investors Overview Strategic Report Governance Financial Statements 59 Board composition The Board, via the Nominations Committee, regularly reviews the composition of the Board. At the date of this report, the Board has four Non-Executive Directors, including the Chair. The Board considers the independence of the Board annually to determine independence from management on the basis that the Directors have no business or other relationship that could interfere materially with the exercise of their judgement. Due to George Materna’s long-standing relationship with the Group and his material shareholding, the Board does not consider George Materna to be independent. The composition of the Board as at the date of this report therefore comprises, the Chair, two Independent Directors and three Non- Independent Directors (including Executive Directors). Under the Company’s Articles of Association, all Directors must retire at the first AGM following their appointment and may offer themselves for election or re-election by shareholders. In accordance with best practice, all Directors will retire at the AGM and, being eligible, will offer themselves for election or re-election. Governance structure The Board has three established Committees for Audit, Nominations and Remuneration which each have Terms of Reference that are reviewed at least bi-annually. The Terms of Reference for all Committees were reviewed, updated and formally approved by the Board in November 2020. Copies of the Terms of Reference are available on the Group’s website or on request from the Company Secretary. The Board may, on occasion, delegate authority to a sub-committee consisting of any two Directors to facilitate final sign-off for an agreed course of action within strict parameters. The responsibilities and operation of the Audit, Nominations and Remuneration Committees are summarised below: Audit Committee The Committee monitors the integrity of the interim and annual Financial Statements and formal announcements relating to the Group’s financial performance. It reviews significant financial reporting issues, accounting policies and disclosures, reviews the effectiveness of internal controls and risk management, as well as overseeing the engagement and scope of the annual audit. The Audit Committee report on pages 65 to 69 contains further information on the Committee’s role and activities. Nominations Committee The Committee reviews the structure, size and composition of the Board and its Committees, and makes recommendations to the Board with regard to any changes required to ensure an appropriate balance of skills, expertise, knowledge, diversity and independence. The Nominations Committee report on pages 70 to 72 contains further information on the Committee’s role and activities. Remuneration Committee The Committee reviews and makes recommendations as to the Directors’ remuneration, including benefits, terms of appointment and share schemes. The Remuneration Committee report on pages 73 to 80 contains further information on the Committee’s role and activities. 60 Gattaca plc Annual Report and Accounts 2021 Corporate Governance Statement continued Board responsibilities Patrick Shanley (Chair) Richard Bradford Tracey James David Lawther George Materna Kevin Freeguard Salar Farzad Maximum formal meetings Meetings attended 10 4 7 10 10 10 10 10 4 7 10 9 10 10 The Board recognises its employment, environmental and health and safety responsibilities and devotes appropriate resources towards monitoring and improving compliance with existing standards. The Executive Directors have responsibility for these areas at Board level, ensuring that the Group’s policies are upheld and providing the necessary resources. The Board approves a business plan and annual budgets for individual business units and the Group. All Directors receive regular and timely information on the Group’s operational and financial performance, including detailed Executive and Operational Board reports which are provided in advance of all Board meetings and which report on performance (actual and forecasted) against the agreed budget and any significant variances. We report to our shareholders on a half-yearly basis. Members of the Senior Management Team regularly present at Board meetings to provide detailed information on their business units and central functions and to allow an opportunity for Directors to review and assess matters requiring decision or insight. A detailed list of matters reserved for the Board is available on our website: https://www.gattacaplc.com/ investors/corporate-governance/role-of-the-board Conflicts of interest Each Director is required, in accordance with Companies Act 2006, to declare on appointment any interests that may give rise to a conflict of interest with the Company and its subsidiaries subsequently as they arise. Where such a conflict or potential conflict arises, the Board is empowered under the Company’s Articles of Association to consider and authorise such conflicts, as appropriate. The Chair and Non-Executive Directors do not participate in any meeting at which discussions in respect of matters relating to their own position takes place. There are effective procedures in place to monitor and deal with conflict of interest. The Board is aware of the other commitments and interests of its Directors, and Directors are required to report any changes to these commitments and interests to the Board for discussion and, where appropriate, agreement. There were no notified conflicts of interest during the 2021 financial year. Information and support Directors are regularly briefed on regulations which affect the business through presentations arranged by our advisers and our leadership team. During the year we specifically covered diversity and inclusion, IR35 and directors’ duties. Directors are also encouraged to remain up to date through independent seminars and continuous professional development courses. The Board also receives regular updates on matters of corporate culture via the Executive Report, compliance updates to the Audit Committee (including details of matters raised via the Speak Up reporting service, as appropriate) and regular presentations from the Group HR Director. The Group receives advice from a number of external advisers. Specific advisers to the Board committees are set out in the Committee reports at pages 65 to 80. During the year, the Board received specific advice on repayment of the Revolving Credit Facility, and the Group’s continued cooperation with the US Department of Justice. The Company Secretary advises the Board, through the Chair, on all governance matters. All Directors have access to the services of the Company Secretary and may take independent professional advice at the Group’s expense in conducting their duties. In accordance with the Articles of Association and the Group Delegation of Authorities Policy, the appointment and removal of the Company Secretary is a matter for the whole Board. Board evaluation During the financial year, and in line with principle 7 of the QCA Code, the Board undertook an internal Board evaluation which included input from all Directors and the Company Secretary. The output of the evaluation, together with recommendations for continuous improvement, was considered and, as appropriate, implemented by the Board. The review covered several specific areas including the role of the various sub committees. The overall conclusion was the Board is open, well-structured and an environment where everyone can challenge or express opinions. There is widespread recognition that everyone can contribute to the success of the organisation and is encouraged to be engaged. Overview Strategic Report Governance Financial Statements 61 The evaluation also concluded that the Board and its sub-committees were performing well and addressing key issues. Concern was expressed around Values and Culture which is not unsurprising given the historical challenges following the Networkers acquisition and a desire to grow the business from a solid base. The Group has subsequently launched a new set of values around Trust, Professionalism, Ambition and Fun, and the Board understand the importance of their role in living these values to effectively embed these across the organisation. Diversity had also been a concern at previous reviews, but the addition of Tracey James has started to address the gender balance on the Board and we are committed to making further progress in this area in the short-term. We have also set ourselves a target of 40% of our leadership team will be female by 2024. The review agreed that the Board continues to have a clear understanding of its role relative to the business, although it occasionally lapses into operational issues rather than strategic. This was felt to be inevitable given the restructuring over the last two to three years. However, as we move into a growth phase in the economy, it was expected that the Board would focus more on strategic areas and particularly challenge progress against the strategic plan. There was a sense of continued progress being made in terms of the functioning of the Board with meetings regularised, well prepared and managed with good discipline. There was a suggestion that we could split meetings, so some were focused on reporting whilst others were mainly strategic which is being considered as we finalise our 2022 Board schedule. Although we meet the AIM test of having two independent NEDs on the Board, there was acknowledgement that there would be benefit in the addition of one more. It was also acknowledged we had a financial bias on the Board and any additional NED should have a sales background. We are committed to addressing this balance in the short-term. The division of responsibilities between the Chair and Chief Executive has been well established for a number of years as are ‘The Role of the Board’ and its three committees. The schedule of matters reserved for the Board is considered appropriate and is regularly and properly reviewed. Equally, the Board has frequent interaction with members of the Senior Management Team and other senior managers through regular presentations. Perhaps the most challenging areas was the interaction of NEDs with members of senior management outside of the Board. Whilst interaction is always encouraged, there was acknowledgement that such interaction should not step into management’s area of responsibility. It was acknowledged that interaction by NEDs with a wider community of our colleagues had been somewhat limited due to the pandemic, but that this was being addressed in the 2022 Board schedule. There was agreement that the information presented to the Board had improved over the last four years but also recognition that the detailed papers could be refreshed with highlighted key information in summary format. As we move into the next phase, we recognise that we should be looking at more strategic information rather than historical – whilst still keeping one eye firmly fixed on performance. It was felt that the Risk Assurance framework launched during the year would be a significant benefit and help mitigate the need for substantial historical data. It was acknowledged that the Board understood the key risks across the business but the introduction of the Risk Assurance framework would be a significant step forward in formalising this process. There was agreement that this needed to be owned by the business leaders for it to be truly effective. In addition to the Board evaluation, the Chair undertook a formal review of the performance of all individual Directors, with a review of the Chair undertaken by the Senior Independent Director. 62 Gattaca plc Annual Report and Accounts 2021 Directors’ Report Directors The Directors have the benefit of an indemnity covered by insurance which is a qualifying third-party indemnity provision as defined by Section 234 of the Companies Act 2006. The Company has granted this indemnity in favour of the Directors of the Company as is permitted by Section 232-235 of the Companies Act 2006. The indemnity was in force during the full financial year up to the date of approval of the financial statements. Neither the insurance nor the indemnities provide cover where the relevant Director or officer has acted fraudulently or dishonestly. The Board may exercise all the powers of the Company, subject to the provisions of relevant legislation, the Company’s Articles of Association and any directions given by a special resolution of the shareholders. Specific powers are detailed in the Company’s Articles of Association, including the power to issue and buy back shares, along with the rules for the appointment and removal of Directors. Substantial shareholders In addition to the Directors’ interests shown in the Remuneration Report, and in accordance with Part 22 of the Companies Act 2006, the Company has been notified that the following shareholders’ interests exceeded 3% of the Company’s ordinary share capital in issue at 31 July 2021: Shareholder George Materna MMGG Acquisition Ltd Chelverton Asset Management Hargreaves Lansdown Asset Mgt Paul Raine Interactive Investor Winterflood Securities Matchtech Group SIP % 25.01 20.01 6.10 6.02 5.52 4.07 3.04 3.00 Subsequent to the year end, the Company has not been notified of any changes to significant shareholdings. As at 31 July 2021, 28.11% of the Company’s share capital was held by Directors, senior management and other colleagues. The Group made no donations for political purposes either in the UK or overseas during the year (2020: £nil). Policy on the payment of creditors The Group’s policy is to agree terms and conditions for its business transactions with suppliers and to endeavour to abide by these terms and conditions, subject to the supplier meeting its obligations. No single supplier arrangement is considered essential to the business of the Group. Statement of directors’ responsibilities in respect of the annual report and the financial statements The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group and the company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The group has also prepared financial statements in accordance with and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Under company law, 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 group and company and of the profit or loss of the group for that period. In preparing the financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed for the group financial statements and international accounting standards in conformity with the requirements of the Companies Act 2006 have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements; • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business. The directors are responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and company and enable them to ensure that the financial statements comply with the Companies Act 2006. Overview Strategic Report Governance Financial Statements 63 The directors are responsible for the maintenance and integrity of the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ confirmations In the case of each director in office at the date the directors’ report is approved: • so far as the director is aware, there is no relevant audit information of which the group’s and company’s auditors are unaware; and • they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the group’s and company’s auditors are aware of that information. Disclosure of audit information Each Director confirms that, as at the date this report was approved, and so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware and that he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Audit exemption For the year ended 31 July 2021, Gattaca plc has provided a legal guarantee under s479A of the Companies Act 2006 to the following companies: • Alderwood Education Ltd • Application Services Limited • Barclay Meade Ltd • Cappo Group Limited • Cappo International Limited • CommsResources Limited • Connectus Technology Limited • Gattaca Solutions Limited • Matchtech Group (Holdings) Limited • Matchtech Group (UK) Limited • Networkers International Limited • Networkers International (UK) Limited • Resourcing Solutions Limited • The Comms Group Limited This guarantee is dated 5 November 2021 and all the above entities have 31 July year ends. 64 Gattaca plc Annual Report and Accounts 2021 Directors’ Report continued Auditor In December 2020, the Board proposed, and shareholders approved at the AGM, the appointment of PwC LLP as the Company’s registered independent public accounting firm for the financial year ended 31 July 2021, with Julian Gray as the senior statutory auditor. The Board has decided to propose the reappointment of PwC LLP and a resolution concerning its reappointment will be proposed at the forthcoming AGM. Company registered office 1450 Parkway, Solent Business Park, Whiteley, Fareham, Hampshire, PO15 7AF. Company registered number 04426322 Further information on the following areas (which are incorporated into this Report by reference) can be found as follows: A full description of the Group’s principal activities, business performance, likely future developments, principal risks and uncertainties See pages 1 to 53 Anti-Bribery and Corruption Statement Company’s Articles of Association Corporate culture Corporate responsibility (including environmental responsibilities and charitable donations) List of Directors serving at the date of this Report List of principal subsidiary undertakings Main Committees of the Board and their activities Stakeholder engagement (including employee engagement and our commitment to equal opportunities) Statement of Going Concern www.gattacaplc.com/investors/corporate- governance/statements www.gattacaplc.com/investors/shareholder- information/AIM-Rule-26 See pages 34 to 40 See pages 34 to 40 See page 56 to 57 See pages 63 See pages 59 See pages 41 to 43 See page 46 Use of financial instruments and financial risk management See pages 33, 49, 130 to 131 Viability Statement See page 46 Cautionary statement Under the Companies Act 2006, a company’s Directors’ Report is required, among other matters, to contain a fair review by the Directors of the Group’s business through a balanced and comprehensive analysis of the development and performance of the business of the Group and the position of the Group at the year end, consistent with the size and complexity of the business. The Directors’ Report set out above, including the Chair’s Statement, the Chief Executive Officer’s Review and the Chief Financial Officer’s Report incorporated into it by reference, has been prepared only for the shareholders of the Company as a whole, and its sole purpose and use is to assist shareholders to exercise their governance rights. In particular, the Directors’ Report has not been audited or otherwise independently verified. The Company and its Directors and colleagues are not responsible for any other purpose or use or to any other person in relation to the Directors’ Report. The Directors’ Report contains indications of likely future developments and other forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates. These factors include, but are not limited to, those discussed under principal risks and uncertainties. Approved by the Board and signed by order of the Board by: Katie Selves Group Company Secretary and General Counsel 5 November 2021 Overview Strategic Report Governance Financial Statements 65 Audit Committee Report Providing oversight and guidance “ The Audit Committee continues to provide assurance that shareholders’ interests are being properly protected by appropriate financial management, reporting and internal controls.” I am pleased to present the Audit Committee’s (‘the Committee’) Annual Report on its activities for the period up to the review of our 2021 Annual Report and Accounts. This report is intended to explain how the Committee has met its responsibilities throughout the year and what it has done to address continued regulatory change. As Chair of the Committee, I would welcome questions from shareholders on any of the Committee’s activities, at CoSec@gattacaplc.com. 4 Meetings 100% Attendance Committee members Tracey James (Chair) Patrick Shanley David Lawther Committee experience Management Industry Finance Recruitment Patrick Shanley David Lawther Tracey James Tracey James Chair of the Audit Committee 5 November 2021 66 Gattaca plc Annual Report and Accounts 2021 Audit Committee Report continued Aims and objectives The Committee monitors the integrity of the Financial Statements of the Interim and Annual Reports and formal announcements relating to the Group’s financial performance, including advising the Board that the Annual Report taken as a whole is fair, balanced and understandable. It reviews significant financial reporting issues, key judgements and accounting policies and disclosures in financial reports, reviews the effectiveness of the Group’s internal control procedures and risk management systems and considers how the Group’s internal audit requirements shall be satisfied, making recommendations to the Board. It reviews the independent auditor’s audit strategy and implementation plan and its findings in relation to the Annual Report and Interim Financial Statements. It monitors the relationship with the Group’s independent auditor including the consideration of audit fees and independence. Membership of the Committee During the year to 31 July 2021, the responsibilities of the Committee Chair were transferred to Tracey James from December 2020 who joins the Group as Independent non-Executive Director. David Lawther retains responsibility as independent Non-Executive Director on the Audit Committee alongside Patrick Shanley who has joined the Audit Committee replacing George Materna for the 2021 cycle. The Board considers that the Committee as a whole has competence relevant to the sector in which the Group operates. Meetings and attendance The Committee met four times during the year. NED Tracey James (Chair) David Lawther Patrick Shanley Maximum meetings Meetings attended 4 4 4 4 4 4 The Executive Directors are routinely invited to Committee meetings, with the Chair of the Board now a permanent member. During the period from the last report to the date of this report, the Committee met privately with the independent auditor. The Committee Chair also met privately with the senior statutory auditor, Julian Gray, outside of the Committee meetings. Operation of the Committee The Committee reviews and updates the Terms of Reference regularly, to conform to best practice, which are subject to approval by the Board. The Terms of Reference are available on the Group’s website (www.gattacaplc.com), as well as in hard copy format from the Company Secretary. Each year, the Committee works to a planned programme of activities, which are focused on key events in the annual financial reporting cycle and other matters that are considered in accordance with its Terms of Reference. It provides oversight and guidance to contribute to the ongoing good governance of the business, particularly by providing assurance that shareholders’ interests are being properly protected by appropriate financial management, reporting and internal controls. The Committee approves the terms of all audit and non-audit services provided by the Group’s Auditors to ensure audit objectivity is maintained. The main activities of the Committee during the period since the last Report were as follows: Financial statements: The Committee reviewed the Interim and Annual Reports. Management and PwC gave presentations about the key technical and judgemental matters relevant to the Financial Statements. Going concern, including the Viability Statement: The Group continues to prepare its Financial Statements on a going concern basis, as set out in Note 1 to the Financial Statements on page 95. Management produces working capital forecasts on a regular basis. The Board reviews those forecasts, particularly ahead of the publication of Interim and Annual results. The Board continue to scrutinise the Group’s detailed economic forecasts in light of the changing economic conditions created COVID-19 pandemic to ensure that all relevant events and conditions are being incorporated that might affect both short, medium and long term performance. Having reviewed the forecasts as at the date of this Report, the Committee concluded that it was appropriate for the Group to continue to prepare its Financial Statements on a going concern basis and to publish the Viability Statement on page 46. Overview Strategic Report Governance Financial Statements 67 Billing system migration: The Committee reviewed the impact of the migration of the Group’s legacy pay and billing systems to the new Primary Business Systems in the year. The Committee focused the review on the processes for closing the Group’s legacy systems, reviewing the effects of the transition on the Group’s financial records and ensuring the policies adopted were appropriate. The Committee continue to monitor the impact of the new systems on the Group’s financial records, putting processes in place to ensure Internal Audit provide the Committee assurance over the post migration control environment in the 2022 cycle. Taxation: The Group operates under multiple and varied tax regimes. The completeness and valuation of provisions to cover the range of potential final determinations by the tax authorities of the Group’s tax positions are the subject of judgement and estimation uncertainty. Further information is set out in Notes 10 and 16 to the Financial Statements. The provisions held by the Group as at 31 July 2021 were reviewed by management. The Committee agreed with management’s assessment of the Group’s tax provisions. The Committee reviewed the Group’s Tax Strategy which was approved by the Board in July 2021. Fair, balanced and understandable: The content and disclosures made in the Annual Report are subject to a verification exercise by management to ensure that no statement is misleading in the form and context in which it is included, no material facts are omitted which may make any statement of fact or opinion misleading, and implications which might be reasonably drawn from the statement are true. The Committee was satisfied that it was appropriate for the Board to approve the Financial Statements and that the Annual Report taken as a whole is fair, balanced and understandable such that it allows shareholders to assess the Group’s performance against the Group’s strategy and business model. Risk management and internal control framework: The Committee reviewed the Group’s Risk management and internal control framework in the year, providing input and recommendations to management on the scope, methodology and governance of the Group’s risk processes as management evolve the activities. The Committee have regular dialogue with the Group’s risk and compliance function to ensure the risks and control monitoring activities are effective and appropriate for the Group. The Committee was satisfied that it was appropriate for the Board to make the statements regarding internal controls included in the Corporate Governance Statement. Internal audit: As part of the Committee’s policy, certain specialist internal audit work is undertaken by external organisations. In 2021, the Group refreshed the Internal Audit plan with the Group’s outsourced internal audit provider KPMG. The committee reviewed the scope and extent of the plan to ensure the testing programmed focused on both financial and non-financial processes and controls within the Group, adopting a risk based approach. The internal audit function have substantially completed the review of the Group’s IT Risk Management, Infrastructure and Governance to review the overall effectiveness of the function. The committee review the findings of the internal audit reviews, ensuring findings are scrutinised and remediation plans are regularly reviewed by the Committee where appropriate. The Chair of the Committee reported to the Board on the Committee’s activities after each meeting, identifying relevant matters requiring communication to the Board and recommendations on the steps to be taken. 68 Gattaca plc Annual Report and Accounts 2021 Audit Committee Report continued Significant issues The Committee reviewed the key judgements applied to a number of significant issues in the preparation of the Financial Statements. The review included consideration of the following: Issue How the committee addresses Revenue recognition The Group has well-developed accounting policies for revenue recognition in compliance with IFRS15 as shown in Note 1.6 to the Financial Statements. Goodwill and acquired intangibles: assessment for impairment Receivable and accrued income provisions The Committee receives reports from management and from the auditors to evidence that the policies are complied with across the Group. On the basis of these reports, the Committee concluded that it was content with the judgements that had been made. As set out in Note 1 (parts 1.10 and 1.11) and Note 13 to the Financial Statements, following the acquisition of Networkers in 2015, the Group recognised significant goodwill and finite life intangible assets. The acquisition of Resourcing Solutions Limited in February 2017 further increased the Group’s goodwill and finite life intangible assets. Goodwill and intangible asset impairment calculations (including assumptions about future performance of the Group) and sensitivities are undertaken at least annually by management and reviewed by the Board and the Committee. Based on the impairment reviews as at 31 July 2021 and reflecting on the decisions arising from management’s detailed review of operations, the Committee agreed with management’s recommendation that there were no impairment’s identified at 31 July 2021. The Committee also considered and agreed the appropriateness of the sensitivity analysis disclosures. The Group has significant trade receivable and accrued income balances and reviewed the level of provisioning required in light of the economic conditions in which the Group operates as a result of the COVID-19 pandemic. The Group hold both specific provisions against identified risk of recovery as well as an expected credit loss provisioning methodology. The committee regularly reviews managements judgements over the level of provisioning required against specific client receivables, such as £0.8m provision recorded against the NMCN plc balances at 31 July 2021, as well as reviewing the Group’s provisioning methodology including scenario testing to ensure the judgements adopted by the Group are robust and appropriate. The Board receives regular reports on the collectability of aged accounts receivables and accrued income. Contingent liabilities As previously announced and further discussed, the Group continues to co-operate with the United States Department of Justice regarding certain factual enquiries. The Group is not currently in a position to know what the outcome of these enquiries may be and whether this line of enquiry will lead to any liabilities for the Company or its subsidiaries. The Committee has received regular reports from management in respect of the ongoing enquiries and, on that basis, has agreed with the conclusion management has reached in respect of contingent liabilities recognition and disclosures. Accounting for and disclosure of non-underlying items The Committee considered the accounting for and disclosure of non-underlying items (see note 4 to the Financial Statements). The Committee reviewed with management and discussed the accounting and disclosure with the Group’s auditors. The Committee concluded it was content with the accounting for and disclosure of non-underlying items. COVID-19 The Committee continue to consider the continuing impact of the COVID-19 pandemic on the cash flows and liquidity of the Group, particularly in relation to the preparation of the Group’s financial statements on a going concern basis and the assessment of the Group’s viability. Appropriate financial modelling has been undertaken to support the assessment of the business as a going concern with no material uncertainty from COVID-19 and in support of viability. More detail is given on page 66. The Group and Company’s going concern and Viability Statements are set out on page 46. Shareholders’ attention is drawn to the section titled ‘Responsibilities for the financial statements and the audit’ in the Report from the independent auditor on pages 81 to 88, about specific areas as reported by the independent auditor in order to provide its opinion on the Financial Statements as a whole. Overview Strategic Report Governance Financial Statements 69 The Committee regularly reviews all fees for non-audit work paid to the independent auditor. Details of these fees can be found in Note 4 to the Financial Statements. Non-audit fees were £nil in both 2021 and 2020. The Committee concluded that the level of non-audit fees, which represent 0% (2020: 0%) of the audit fees for the Group, did not have a negative impact on PwC’s independence. The Committee will continue to keep the area of non-audit work under close review, particularly in the context of developing best practice on auditors’ independence. The Committee regulates the appointment of former colleagues of the independent auditor to positions in the Group. The independent external auditor also operates procedures designed to safeguard its objectivity and independence. These include the periodic rotation of the senior statutory auditor, use of independent concurring partners, use of a technical review panel (where appropriate) and annual independence confirmations by all staff. The independent external auditor reports to the Committee on matters including independence and non-audit work on an annual basis. Approval This report was approved by the Committee, on behalf of the Board, on the date shown below and signed on its behalf by: Tracey James Chair of the Audit Committee 5 November 2021 Independent auditor: reappointment The appointment of the independent external auditor is approved by shareholders annually. The independent auditor’s audit of the Financial Statements is conducted in accordance with International Standards on Auditing (UK) (‘ISAs’), issued by the Auditing Practices Board. There are no contractual obligations that act to restrict the Committee’s choice of external auditor. In December 2020, the Board proposed and shareholders approved at the AGM, the appointment of PwC LLP as the Group’s registered independent public accounting firm for the financial year ended 31 July 2021. This year, having considered the effectiveness and performance of the independent auditor, the Committee recommended to the Board the reappointment of PwC LLP as independent auditor of the Company for the next financial year. Independent auditor: services, independence and fees The independent auditor provides the following services: • A report to the Committee giving an overview of the results, significant contracts, estimates, judgements and observations on the control environment • An opinion on whether the Group and Company Financial Statements are true and fair • An internal controls report to the Committee, following its audit, highlighting to management any areas of weakness or concern highlighted through the course of their external audit work The Committee monitors the cost-effectiveness of audit and any non-audit work performed by the independent auditor and also considers the potential impact, if any, of this work on independence. It recognises that certain work of a non-audit nature may be best undertaken by the independent auditor as a result of its unique position and knowledge of key areas of the Group. Approval is required prior to the independent auditor commencing any material non-audit work in accordance with a Group policy approved by the Committee. Certain work, such as providing bookkeeping services and taxation planning advice, is prohibited. Further, the Committee seeks positive evidence of the independence of the independent auditor through its challenge to management. 70 Gattaca plc Annual Report and Accounts 2021 Nominations Committee Report Providing oversight and guidance “ The Board is committed to promoting diversity, inclusion and accessibility in all its actions, including Board composition and culture.” Committee activities 2021 • Appointment of Tracey James as Non-executive Director in December 2020 • Changes to the composition of Board Committees to ensure an appropriate balance of skills, expertise, knowledge and independence • Consideration of succession plans for the Board and operational Management Board. • Reflecting on the Board evaluation and the improvement opportunities identified therein in relation to the Committee’s activities and responsibilities. 2 Meetings 100% Attendance George Materna Chair of the Nominations Committee 5 November 2021 Committee members George Materna (Chair) Patrick Shanley David Lawther Committee experience Management Industry Finance Recruitment Patrick Shanley George Materna David Lawther Overview Strategic Report Governance Financial Statements 71 I am pleased to present to the shareholders the report of the Nominations Committee (the ‘Committee’) for the year. The Committee’s focus for the year has again been to ensure the size, structure and experience of the Board is suited to meet the opportunities and challenges facing the Group going forward. After over nine years’ service as a Non- Executive Director, and Chair of the Remuneration Committee, Richard Bradford stepped down as independent Non-Executive Director and Chair of the Remuneration at the AGM in December 2020. The Board would like to thank Richard for his highly significant and intelligent contribution to the business and wish him every success in the future. David Lawther moved from his role as Chair of the Audit Committee to Chair the Remuneration Committee at the AGM in December 2020. After a full and proper process to recruit to new Chair for the Audit Committee, engaging The Inzito Partnership to provide independent search advice, Tracey James was appointed Independent Non-Executive Director and Chair of the Audit Committee at the AGM in December 2020. In line with the Board’s Diversity Policy, Tracey’s appointment was made on merit and delivered the Board’s recognition of the importance of a diverse and inclusive culture as an essential element in maintaining Board effectiveness. The Committee continues to review succession planning and Board composition. Aims and objectives The aims and objectives of the Nominations Committee are set out in the Nominations Committee’s full Terms of Reference, which can be found in the Corporate Governance section on the Company’s website, www.gattacaplc.com. In summary, the role of the Committee is to: • review the structure, size and composition of the Board, and make recommendations to the Board with regard to any changes required to ensure an appropriate balance of skills, expertise, knowledge and independence; • review the succession plan for Executive Directors and the operational Management Board, as appropriate; • identify and nominate, for Board approval, candidates to fill Board and operational Management Board vacancies as and when they arise; • review annually the time commitment required of Non-Executive Directors; and • make recommendations to the Board regarding membership of the Audit and Remuneration Committees in consultation with the Chair of each Committee. The Nominations Committee, assisted by an external executive search agency, primarily manages appointments to the Board, but all Board members have the opportunity to meet shortlisted candidates, thus ensuring a wide range of feedback in the appointment process. All Executive Directors are engaged on a full-time basis. Non-Executive Directors have letters of appointment stating their annual fee, their re-election at forthcoming AGMs, the minimum required time commitment and that their appointment is subject to satisfactory performance. Their appointment may be terminated with a maximum of three months’ written notice at any time. Copies of letters of appointment are available at the Group’s registered office during normal business hours, and will also be available for inspection prior to and during the AGM. 72 Gattaca plc Annual Report and Accounts 2021 Nominations Committee Report continued The remuneration of the Chair and Non-Executive Directors is determined by the Board following proposals from the Nominations Committee, within the limits set out in the Articles of Association, including reviewing the level of fees paid by comparator companies. Membership of the Committee During the relevant year, the Committee comprised its Chair, George Materna, Patrick Shanley, Richard Bradford (August to December 2020) and David Lawther (December 2020 to July 2021). Patrick Shanley, Richard Bradford and David Lawther are all Independent Non-Executive Directors, who have been members of the Committee since 2017, 2013 and 2020 respectively. Meetings and attendance The Committee met twice during the year. NED George Materna (Chair) Patrick Shanley Richard Bradford1 David Lawther Maximum meetings Meetings attended 2 2 0 2 2 2 0 2 1 Richard Bradford resigned on 8 December 2020. Nominations Committee activities The key activities during the year have been in reviewing the structure, size and composition of the Board and its Committees. The Board is satisfied that its current composition includes an appropriate balance of skills, experience and capabilities, including experience of the Recruitment, Technology and International markets. Priorities for the coming year In the coming year, the Committee will: • continue to monitor the composition and effectiveness of the Board and its Committees, specifically in relation to the balance of Independent and Non-Independent Directors; • continue to review succession plans for the Board and operational Management Board; and • keep abreast of developments in corporate governance to ensure that we act in the spirit of good governance practice. Diversity policy As an organisation dedicated to helping companies realise their full people potential, the Board understands the value diversity brings to every workplace. The Board is committed to promoting diversity, inclusion and accessibility in all its actions, including Board composition and culture. The Board appreciates the range of perspectives, insights and challenge needed to support good decision making that a diverse culture brings. All appointments to the Board and its Committees will be made on merit, taking into account suitability for the role, composition, independence and balance of the Board, together with diversity of skills, knowledge, experience, personal characteristics and background. Information and training All Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that Board procedures and applicable rules and regulations are observed. There is an agreed procedure for Directors to obtain independent professional advice, paid for by the Group. George Materna Chair of the Nominations Committee 5 November 2021 Overview Strategic Report Governance Financial Statements 73 Remuneration Committee Report Remuneration to support the Group’s objectives “ The Committee has considered carefully remuneration outcomes and its approach to assessing performance as the Group recovers from the pandemic” David Lawther Chair of the Remuneration Committee 5 November 2021 Committee activities 2021 Gattaca’s Remuneration Policy was approved by shareholders at the 2019 AGM. 2021 was the second year of the three-year policy and no changes are being proposed to the policy for 2022. The pay outcomes for 2021 are in line with company performance and takes into account our wider stakeholders, and our approach to implementing the Directors’ remuneration in 2022 will be in line with the approved policy. On behalf of the Board, I am pleased to present the Remuneration Committee’s (‘the Committee’) report for the year ended 31 July 2021. The stated aim of our Policy is to: • Attract, motivate and retain Executives in order to deliver the Group’s strategic objectives and business outputs; • Encourage and support a high-performance sales and service culture; • Adhere to the principles of good corporate governance and appropriate risk management; and • Align Executives with the interests of shareholders and other key stakeholders 6 Meetings 100% Attendance Committee members David Lawther (Chair) Patrick Shanley Tracey James Committee experience Management Industry Finance Recruitment Patrick Shanley David Lawther Tracey James 74 Gattaca plc Annual Report and Accounts 2021 Remuneration Committee Report continued We are committed to engaging on pay matters with our shareholders and wider stakeholders Implementation of Policy in 2021/2022 For 2021/22 Executive Directors’ base salaries and Non-Executive Directors’ fees will increase by 3% in line with the general workforce increase of 3%. Business context and remuneration outcomes for 2021 The 2021 full year results for the Group show continuing underlying profit before tax (‘PBT’) of £3.2m. This was 33% lower than the prior year primarily due to the trading downturn driven by the COVID-19 pandemic. Continuing underlying basic EPS fell from 11.7 pence (restated) to 8.4 pence as COVID-19 continued to impact the global economy. The decisions the Committee made on remuneration were taken in this context. At the start of the last financial year, as disclosed in last year’s remuneration report, the Remuneration Committee determined that no bonus scheme would operate having taken into account the impact of the pandemic on the business and that it would reconvene and consider whether a bonus scheme should apply for the second half of the year at an opportunity of no more than 50% of maximum. As the year progressed and pandemic restrictions eased, the Remuneration Committee implemented a bonus scheme for the second half of the year to motivate and incentivise senior colleagues but at a further reduced opportunity of 35% of salary for executive directors. The strong H2 recovery in the business has meant that the maximum stretch PBT target of £2m was exceeded and a 35% of salary bonus became payable to the CEO and CFO. The Remuneration Committee believes this outcome is appropriate taking into account the underlying performance of the business over the course of the year, the fact that no Government support was taken in the H2 financial year and the payment of bonuses to the wider employee population. The Committee was mindful of the UK corporate governance code requirements and investor sentiments relating to executive pension levels. At the present time the committee has concluded that our arrangements in this regard are appropriate and has not proposed a change in the remuneration policy at this time. However for any new executive the pension contribution level will be capped at the workforce main contribution rate of 5%. The annual bonus for 2021/22 will enable executive directors to earn 100% of their annual base salary subject to the achievement of pre-set measures and targets; 40% will be based on NFI, 40% on PBT and 20% on the achievement of strategic objectives (including an ESG criteria). The Remuneration Policy provides the opportunity to grant Executive Directors LTIP awards with a face value of 120% of base salary in shares. Despite the recovery in the Company’s share price, the Remuneration Committee has decided the FY21 grant level should be set at 100% of base salary. The vesting of these will be subject to EPS performance condition and a relative TSR metric measured over a three-year performance period ending 31 July 2024. The EPS measure will apply to 75% of the awards with the remaining 25% based on TSR measured against the FTSE Small Cap constituents (excluding Investment Trusts). During the year, the Company established an Employee Benefit Trust to enable it to purchase shares in the market to partially satisfy vested share awards. 2022 is the final year of our shareholder approved remuneration policy. Over the course of this year, we will be reviewing our Directors’ Remuneration Policy ahead of a vote at the 2022 AGM. We are committed to hearing, and taking active interest in, your views as shareholders and if you have any comments or feedback on this report or input into the design of the new policy, then I would welcome your views and can be reached via the Company Secretary at CoSec@gattacaplc.com. On behalf of the Committee and Board, David Lawther Chair of the Remuneration Committee 5 November 2021 Overview Strategic Report Governance Financial Statements 75 Directors’ remuneration policy The Group’s remuneration strategy is to provide a remuneration framework based on the following five principles: 1. Attract, motivate and retain Executives in order to deliver the Group’s strategic goals and business outputs. 2. Encourage and support a high-performance sales and service culture. 3. Recognise and reward delivery of the Group’s business plan and key strategic goals. 4. Adhere to the principles of good corporate governance and appropriate risk management. 5. Align Executives with the interests of shareholders and other key stakeholders. The Committee believes that the remuneration structure in place will support and motivate our executive directors in furthering the Group’s long-term strategic objectives including the creation of sustainable shareholder returns. Furthermore, the Committee is satisfied that the composition and structure of the remuneration package is appropriate and does not incentivise undue risk-taking or reward underperformance. Full detail of the remuneration policy can be found on the Gattaca plc website (www.gattacaplc.com/investors). Executive director remuneration Single figure remuneration table The remuneration of Executive Directors, showing the breakdown between components with comparative figures for the prior financial year, is shown below: Kevin Freeguard (Chief Executive Officer) Salar Farzad (Chief Financial Officer) Keith Lewis3 (Chief Operating Officer) Base salary £’000 Taxable benefits1 £’000 Bonus £’000 Long-term incentives2 £’000 Pension £’000 Total £’000 2021 2020 2021 2020 2021 2020 300 280 227 211 – 163 11 12 13 13 – 5 105 – 79 – – – – – – – – – 30 28 23 21 – 5 446 320 342 245 – 173 1 Taxable benefits comprise car benefits and private medical insurance. 2 Long-term incentives vesting relate to the performance in the financial year. 3 Resigned on 5 November 2019. 4 Salaries in 2020 were reduced by 20% as part of our COVID-19 measures for 4 months Annual bonus outcomes for the financial year ending 31 July 2021 As explained in the Annual Statement and in last year’s remuneration report, the Remuneration Committee decided not to implement a bonus scheme and at the start of the 2020/21 financial year in light of the continued uncertainty resulting from the global pandemic and that it would consider operating a bonus scheme at the half year for H2 at an opportunity of no more than half the maximum annual opportunity. Following easing of restriction measures, the Committee implemented a bonus scheme at the half year under which executive directors could earn up to 35% of salary if PBT targets were achieved. The table below provides information on the PBT targets, actual performance and resulting bonus payment for each Executive Director. Based on this performance the CEO and CFO have earned a bonus of 35% of salary for 2021 performance (2020: £nil). Performance measure Bonus opportunity Threshold performance (20% of bonus payable) Maximum performance (100% of bonus payable) Actual performance % of maximum bonus payable Underlying profit before tax 35% of salary £1m £2m 100% 35% 76 Gattaca plc Annual Report and Accounts 2021 Remuneration Committee Report continued Long-term incentive awards made during the year LTIP awards made on 1 December 2020 were equivalent to a face value of 50% of salary for each Executive Director. The awards granted are summarised in the table below: Number of options granted Performance measures and targets Vesting date Exercise price Kevin Freeguard 178,571 Salar Farzad 134,881 The award is based on achieving cumulative underlying PBT targets over the three-year period ending 31 July 2023. 1 December 2023 £0.01 Targets: • Below £16m: 0% vesting • £16m: 25.0% vesting • Between £16m and £24m: straight-line vesting between 25%–100% • Above £24m: 100% vesting SIP awards granted in 2021 During the year, the Group operated a Share Incentive Plan (‘SIP’) for Executive Directors and all staff. Under the scheme, staff are entitled to buy shares in the Company out of pre-tax salary. Staff can invest up to a maximum of £1,800 per annum, which will be used to purchase shares. The Group will award one free share for every share that is purchased. Staff will receive matching shares at the end of a three-year holding period, subject to remaining employed within the Group and the shares they bought remaining in the plan throughout the holding period. The table below details the shares bought and matching shares awarded to the Executive Directors during the year. Director Kevin Freeguard Salar Farzad Payments to past Directors for loss of office There were no payments to directors for loss of office during the year. Purchased Matching shares awarded – – – – Overview Strategic Report Governance Financial Statements 77 1. Implementation of Policy in 2020/2021 Fixed remuneration Executive Directors will receive a salary increase of 3% in line with the increase provided to the general employee population. The Committee has concluded that the current executive directors’ pension contribution rate of 10% of salary is appropriate for this year and reflect the terms agreed on joining the Board. However, for any new executive director appointments (including promotions), the pension contribution level will be capped at the workforce contribution rate of 5% of salary. The Remuneration Committee will continue to monitor best and market practice on pensions and other corporate governance related matters over the course of the year. Bonus The 2021/22 annual bonus opportunity for executive directors is 100% of salary; 40% will be based on NFI, 40% on PBT and 20% on the achievement of strategic objectives (including an ESG criteria). The targets are commercially sensitive and are not disclosed in this report. However, they will be disclosed in full together with the bonus outcomes in next year’s remuneration report. LTIP The Committee intends to make a grant to Executive Directors of face value of 100% of base salary in the year (which is lower than the 120% of salary policy maximum). Vesting will be subject to two measures – 75% on underlying EPS targets and 25% on relative TSR, both measured after three years. The TSR measurement would be calculated with reference to the relevant TSR against a benchmark of FTSE small cap (excluding Investment Trusts). The introduction of relative TSR provides an appropriate balance between profit delivery and share price growth. In setting the EPS target, the Committee has taken steps to ensure that these have been calibrated to represent a stretch target at vesting threshold and exceptional stretch at maximum opportunity. In determining the vesting outcome, the Committee will exercise its discretion and take into account a number of criteria one of which will be the Company’s dividends over the period. 2. Non-executive director remuneration policy and letters of appointment Remuneration policy table The Board as a whole is responsible for setting the remuneration of the Non-Executive Directors, other than the Chair whose remuneration is determined by the Committee and recommended to the Board. The Non-Executive Director Remuneration Policy remains the same as reported in the 2020 Annual Report. 78 Gattaca plc Annual Report and Accounts 2021 Remuneration Committee Report continued 3. Non-executive director remuneration Single figure remuneration table The remuneration of non-executive directors showing the breakdown between components, with comparative figures for the prior year, is shown below: Director Patrick Shanley George Materna Richard Bradford2 David Lawther3 Tracey James4 Fees £’000 Other benefits £’000 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 100 93 51 48 18 48 57 51 34 – – – – – – – – – – – Total £’000 100 93 51 48 18 48 57 51 34 – 1 As a result of pandemic, all non executive Directors in office during the prior year made a sacrifice through a 20% reduction in base fees which is reflected in the table above. 2 Resigned 8 December 2020. 3 David Lawther was appointed as Senior Independent Director (SID) from December 2019 with an additional fee of £5,300. This increase was off-set by the 20% voluntary fee reduction taken as a result of the COVID-19 pandemic from April to July 2020. 4 Appointed 8 December 2020. Fees to be provided in 2022 to the non-executive directors The Board has determined that a workforce-aligned 3% fee increase will be applied to the current Chair and Non-Executive fees in 2022. Fee component per role Chair fee Non-Executive Director base fee Senior Independent Director fee Committee Chair fee (Audit and Remuneration Committees) Committee member fee (Audit and Remuneration Committees) 2022 £’000 2021 £’000 % change 103 47 5 5 100 46 5 5 – 3% 3% 0% 0% – Overview Strategic Report Governance Financial Statements 79 4. Directors’ shareholding and share interests Shareholding and other interests at 31 July 2021 Directors’ share interests are set out below. In order that their interests are aligned with those of shareholders, Executive Directors are encouraged to build and maintain a personal shareholding in the Company equal to 200% of their base salary. Director Kevin Freeguard Salar Farzad Patrick Shanley George Materna Richard Bradford David Lawther Tracey James4 Total Shareholding at 31 July 2021 Interests in shares under the LTIP SIP awards (matching shares) Number of beneficially owned shares2 % of salary held3 Total interests subject to conditions Total vested interests unexercised Total interests subject to conditions Total interests at 31 July 2021 12,880 10% 597,099 – 15,000 8,077,405 – – – – – – – – – 456,735 – – – – – 8,105,285 1,053,834 – – – – – – – – – – – – – – – – 609,979 456,753 15,000 8,077,405 – – – 9,159,119 1 Appointed 1 October 2018. 2 Beneficial interests include shares held directly or indirectly by connected persons. These also include partnership and vested match shares held under the SIP. 3 % of salary held calculated using the share price on 31 July 2021, being 241.0 pence. 4 Tracey James joined the Board on 8 December 2020. There have been no changes between 31 July 2021 and the date that this Report was signed. 5. Considerations by the Committee of matters relating to Directors’ remuneration in 2021. The Committee determines and agrees with the Board the Policy for the Chair of the Board, the Executive Directors and other management team members, and approves the structure of, and targets for, their annual performance- related pay schemes. It reviews the design of share incentive plans for approval by the Board and shareholders, and determines the annual award policy to Executive Directors and Management Board members under existing plans. Within the terms of the agreed Policy, the Committee determines the remainder of the remuneration packages (principally comprising salary and pension) for each Executive Director and senior leadership member. It also reviews and notes the remuneration trends across the Group. The Committee’s full Terms of Reference are available on the Company’s website, www.gattacaplc.com. Members of the Committee during 2021 David Lawther (Chair) Richard Bradford1 (Chair) Patrick Shanley Tracey James2 1 Resigned on 8 December 2020. 2 Appointed on 8 December 2020. Independent Number of meetings held Meetings attended Yes Yes No Yes 6 2 6 4 6 2 6 4 80 Gattaca plc Annual Report and Accounts 2021 Remuneration Committee Report continued During the year, there were six Committee meetings. The matters covered at each meeting included setting up an employee benefit trust to enable the Company to purchase shares to partially satisfy share awards, the 2021 bonus scheme (including setting of targets at the half year), the LTIP grants made during the year and LTIP vesting outcomes, 2021 salary review budget proposal, Remuneration Committee advisers and senior management remuneration plans for 2022. None of the Committee members has any personal financial interest (other than as a shareholder) in the decisions made by the Committee, of conflicts of interests arising from cross-directorships or day-to-day involvement in running the business. The Chief Executive Officer, Chief Financial Officer and HR Director may attend meetings at the invitation of the Committee, but are not present when their own remuneration is being discussed. The Committee is supported by the HR Director, finance and company secretariat functions. The Committee received external advice in 2021 from FIT Remuneration Consultants (‘FIT’). The total fee paid to FIT in respect of services to the Committee during the year was £25,699. 6. Statement of voting The 2021 Directors’ Remuneration Report will be put forward to shareholders on an advisory basis at the next AGM. This report was approved by the Committee, on behalf of the Board, on the date shown below and signed on its behalf by: David Lawther Chair of the Remuneration Committee 5 November 2021 Overview Strategic Report Governance Financial Statements 81 Independent Auditors’ Report to the members of Gattaca plc Report on the audit of the financial statements Opinion In our opinion, Gattaca plc’s group financial statements and company financial statements (the “financial statements”): • give a true and fair view of the state of the group’s and of the company’s affairs as at 31 July 2021 and of the group’s profit and the group’s and company’s cash flows for the year then ended; • have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; and • have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Accounts 2021 (the “Annual Report”), which comprise: the Consolidated and Company Statements of Financial Position as at 31 July 2021; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income, the Consolidated and Company Cash Flow Statements, and the Consolidated and Company Statements of Changes in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our audit approach Overview Audit scope • We conducted full scope audit work over four operating units which accounted for 93% of the group’s revenue and 81% of the group’s continuing underlying profit before taxation. • We performed procedures at group level over goodwill, acquired intangible assets, share-based payments, taxation and testing of the consolidation. Key audit matters • Recoverability of trade receivables and accrued income (group) • Risk of fraud in revenue recognition – permanent and contractors (group) • Impact of COVID-19 (group and company) Materiality • Overall group materiality: £340,000 (2020: £445,000) based on 0.8% of net fee income (gross profit) from continuing operations (2020: 5% of the average of the last three years’ profit from continuing operations before tax adjusted for non-underlying items). • Overall company materiality: £1,105,000 (2020: £1,104,000) based on 1% of total assets. • Performance materiality: £255,000 (group) and £828,750 (company). The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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) identified by the auditors, 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, and any comments we make on the results of our procedures thereon, 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. 82 Gattaca plc Annual Report and Accounts 2021 Independent Auditors’ Report continued to the members of Gattaca plc Our audit approach continued This is not a complete list of all risks identified by our audit. Non-underlying costs and discontinued operations and goodwill and acquired intangible asset impairment assessments, which were key audit matters last year, are no longer included because of, in the case of non-underlying costs and discontinued operations, a significantly reduced quantum of non-underlying costs are recorded in the current year and there is limited judgement or estimation in the discontinued operations assessment. In the case of goodwill and acquired intangible asset impairment assessments there is significant headroom in the value in use models produced by management, including when sensitised to include significant shortfalls in cashflows versus the base models. Otherwise, the key audit matters below are consistent with last year. Key audit matter How our audit addressed the key audit matter Recoverability of trade receivables and accrued income (group) Refer to page 68 (Audit Committee Report), Note 1.17 (The Group and Company Significant Accounting Policies) and Note 17 (Trade and Other Receivables). At 31 July 2021, the group had gross trade receivables and accrued income balances of £65,443,000 (2020: £47,859,000) and provisions of £4,514,000 (2020: £4,256,000). The recoverability of trade receivables, accrued income and the level of provisions for expected credit losses are considered to be a key risk due to the significant quantum of these balances to the financial statements and the judgements required in determining these provisions, including the impact of COVID-19. In order to test the recoverability of trade receivables and accrued income, we performed the following procedures: • We sent accounts receivable confirmations to a sample of customers. Where these were not received, we assessed recoverability by reference to cash received subsequent to year end, and issue of credit notes post year end, as necessary; • Where cash had not been received post year end, we performed alternative procedures by agreeing amounts recorded to supporting timesheets approved by the customer and corroborated rates used in calculating bill rates to supporting documents; • We considered, at a total debtor level, the quantum of cash received post year end against the debtor book and how this supported the expected credit loss provision applied; • We assessed the reasons the amounts that were not yet paid with Gattaca’s local management teams to determine if there were indicators of impairment; • We evaluated the group’s credit control procedures, including the use of non-recourse invoice financing and credit insurance and validated the ageing profile of trade receivables; • We agreed a sample of accrued income to approved timesheets, rates and post year end invoices to agree that revenue had been accrued for time that had been worked pre year end. Where payment has been received to date we also traced cash receipts to bank statements; • We considered the appropriateness of judgements regarding the level of expected credit loss for trade receivables and accrued income and assessed whether the associated provisions were calculated in accordance with the group’s expected credit loss policies and IFRS 9 ‘Financial Instruments’ and whether there was evidence of management bias in provisioning, obtaining supporting evidence as necessary; • We evaluated the known circumstances with regards to doubtful recovery of the NMCN plc receivable balances at 31 July 2021, and subsequent administration, and agreed with management’s treatment in providing for the full exposure at 31 July 2021; • We challenged management as to the recoverability of specific aged unprovided debtors, corroborating management’s explanations with underlying documentation and correspondence with the relevant customers; • We researched viability of a sample of debtors and considered provisioning rates of businesses in the same industry; • We agreed that management appropriately considered the heightened risk of collectability of debtors held by discontinued operations noting that all material balances are provided for in full; and • We agreed that management had appropriately incorporated the actual experience and future anticipated impact of COVID-19 into the estimates made. There were no material issues identified in the testing of trade receivables or accrued income and the respective expected credit loss provisions. Overview Strategic Report Governance Financial Statements 83 Key audit matter How our audit addressed the key audit matter Risk of fraud in revenue recognition – permanent and contractors (group) Refer to page 68 (Audit Committee Report), Note 1.6 (The Group and Company Significant Accounting Policies), Note 2 (Segmental Information) and Note 3 (Revenue from Contracts With Customers). There is an inherent incentive to manipulate income through the fraudulent posting of journals to revenue during the year to meet financial targets. At the year end, significant manual journals are posted to record accrued income, in respect of time worked by contractors that has not been billed. The audit risk includes both of the above aspects. We determined that these specifically impact the occurrence of revenue and pre-year end cut-off. We performed the following procedures to address the risk that revenue had been recorded fraudulently: • We assessed the design and implementation of key controls around all streams of revenue recognised. This included conducting an end to end walkthrough of the contractor pay to bill process both under the group’s legacy system, and the new ‘PBS’ system. Testing of key controls was performed for the contractor revenue stream; • For contractor revenue we tested the occurrence of revenue journals posted throughout the year using a combination of data auditing techniques and corroboration of transactions to third party documentation for a sample of invoices; • We tested the permanent revenue stream through agreement to third party documentation and tracing cash receipt to bank statement; • We tested a sample of credit notes post year end to identify where revenue recognised during the year has been subsequently reversed; • We tested the accrued income associated with work performed by contractors before the year end, by comparing the amounts to customer approved timesheets submitted after year end; • We considered the appropriateness and accuracy of any cut-off adjustments processed by considering the start date of permanent placements and the term of a temporary placement with reference to the year end date; and • We tested material rebate arrangements to the underlying agreement and tested the accuracy of the calculations. We validated that the group’s revenue recognition accounting policy complies with the requirements of IFRS 15 ‘Revenue from contracts with customers’. We have agreed that revenue has been recognised in accordance with Gattaca’s accounting policy by reviewing the details of the group’s revenue recognition policy, the application of this, and any significant new contracts. There were no material issues identified by our testing of revenue during the period and no instance of fraud in revenue recognition identified. 84 Gattaca plc Annual Report and Accounts 2021 Independent Auditors’ Report continued to the members of Gattaca plc Our audit approach continued Key audit matter How our audit addressed the key audit matter Impact of COVID-19 (group and company) In advance of the year end, and throughout the course of our audit procedures, we assessed the risks arising from COVID-19. We have performed the following procedures in order to assess the group’s and company’s response to the uncertainty created by COVID-19 specifically in relation to going concern, as explained in the section below entitled ‘Conclusions relating to going concern’. We have performed the following procedures in order to assess the group’s response to the uncertainty created by COVID-19 specifically in relation to goodwill and acquired intangible impairment assessments: • We challenged the cash flow projections used within the model, by reference to current levels of sales, including the impact of COVID-19 and anticipated recovery, and assessment of management’s historical forecasting accuracy. We held discussions with financial and non- financial personnel, corroborating explanations to supporting documentation, including third party evidence, such as industry reports, where possible. We consider the projections to be reasonable; and • With the assistance of our valuation specialists, we assessed the growth and discount rates used in the impairment calculations, by comparing the group’s assumptions to external data. We concluded that the group’s assumptions were appropriate. We concur with management’s conclusion that there is no impairment in goodwill and acquired intangible assets. We have performed the following procedures where COVID-19 has had an impact on other areas of the financial statements: Assessed the process for placing employees and contractors on furlough, audited a sample of the amounts received from the UK Government support programmes, agreed a sample of the employees to the returns and reviewed that the accounting treatment and disclosures are in line with IAS 20; Considered the appropriateness of management’s disclosure of the impact of the pandemic on the trading environment and future plans and that they are consistent with our wider understanding of the business; We assessed that the conclusions reached and disclosures provided in relation to COVID-19 are appropriate; Whilst we have undertaken much of our year end audit work remotely, we did not encounter any significant difficulties in performing our audit testing or in obtaining the required evidence to support our audit conclusions. Refer to page 68 (Audit Committee Report), Note 1.3 (Group and Company Significant Accounting Policies), Note 1.10 (The Group and Company Significant Accounting Policies), Note 1.11 (The Group and Company Significant Accounting Policies) and Note 13 (Goodwill and Intangible Assets) and disclosures in the Executive Review of the Annual Report. In the year to 31 July 2021, and subsequently, the impact of COVID-19 on the UK and global economy has been significant. Measures including restructuring programmes and placing workers on furlough were taken by the group in responding to the short-term impact. However, as an international recruitment business, the group continues to be impacted by the pandemic. The forecasts used for going concern and goodwill and acquired intangible impairment purposes have taken into consideration these ongoing COVID-19 impacts upon the group. Management has concluded that the group and company remains a going concern and that there is no material uncertainty in respect of this conclusion. Management have also concluded that the carrying value of goodwill and acquired intangible assets are supported by the present value of the projected future cash flows of the Cash Generating Units (CGUs) to which they relate and hence no impairment is recorded. The pandemic has resulted in the year end financial close process, as well as the external audit, having to take place through a mixture of remote and on-site work. Overview Strategic Report Governance Financial Statements 85 How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate. The group has 42 operating units which fall into three reporting segments, namely UK Engineering, UK Technology and International. Of the group’s 42 operating units, we performed audits of complete financial information at 4 operating units in the UK due to their financial significance to the group representing 93% of the group’s revenue and 81% of the group’s continuing underlying profit before taxation. In addition, we performed analytical procedures on the remaining 38 operating units to understand key balances and transactions in the year and performed additional procedures on any unusual balances identified. All testing was performed by the group engagement team with no component teams utilised. The combination of the work referred to above, together with additional procedures performed at group level including over goodwill, intangible assets, share-based payments, taxation and testing of the consolidation and adjustments made to the financial statements gave us the evidence we needed for our opinion on the financial statements as a whole. We performed testing over material financial statement line items in the company financial statements, including the in year capital contribution and impairment testing over the carrying value of the investment. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied Financial statements – group Financial statements – company £340,000 (2020: £445,000). £1,105,000 (2020: £1,104,000). 0.8% of net fee income (gross profit) from continuing operations (2020: 5% of the average of the last three years’ profit from continuing operations before tax adjusted for non-underlying items). 1% of total assets. The profit measure previously used has been disproportionately impacted by the impact of COVID-19 on the business. Net fee income is considered to be a benchmark we believe best reflects the performance of the business. We believe that total assets are an appropriate metric for assessing the company as it holds the investment instruments of the group and intercompany positions with subsidiaries. We applied a lower materiality of £323,000 to certain line items, account balances and disclosures that were in scope for the audit of the group financial statements. 86 Gattaca plc Annual Report and Accounts 2021 Independent Auditors’ Report continued to the members of Gattaca plc Our audit approach continued For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between £275,000 and £320,000. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £255,000 for the group financial statements and £828,750 for the company financial statements. In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate. We agreed with those charged with governance that we would report to them misstatements identified during our audit above £17,000 (group audit) (2020: £22,500) and £17,000 (company audit) (2020: £22,500) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern Our evaluation of the directors’ assessment of the group’s and the company’s ability to continue to adopt the going concern basis of accounting included: • Assessing the inputs and underlying assumptions of the base case going concern model prepared by management which includes the anticipated future impacts of COVID-19. • Verified the mathematical accuracy of the going concern forecasts. • Assessing the severe but plausible downside scenario which has been used to sensitise the base case model, including consideration of the underlying assumptions within this forecast. • Assessing the liquidity headroom on the group’s invoice financing facility on both the base case and severe but plausible downside. We held discussions with the group’s key banking partner, who provide the invoice financing facility in order to assess the availability of the facility for the foreseeable future. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the company’s ability to continue as a going concern. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance 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 an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of 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 based on these responsibilities. With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. Overview Strategic Report Governance Financial Statements 87 Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 July 2021 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors’ responsibilities in respect of the Annual Report and Financial Statements, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the 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 company or to cease operations, or have no realistic alternative but to do so. Auditors’ 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 auditors’ 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. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to employment matters, tax legislation, including areas such as the Construction Industry Scheme, compliance with accounting standards and the Companies Act and specific areas of dispute and potential litigation, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue or reduce expenditure, and management bias in accounting estimates. Audit procedures performed by the engagement team included: • With regard to potential non-compliance with laws and regulations, we held discussions with group board members and management at multiple levels across the business and the group’s legal counsel throughout the year, as well as at year end. These discussions have included enquiries of known or suspected instances of non-compliance with laws and regulations and fraud, outcomes of investigations and actions taken. • With regard to the legal matter discussed in note 28 (Contingent Liabilities), we held discussions with the group’s external legal counsel. • With regard to fraudulent manipulation, we sought to identify and test journal entries, in particular any journal entries posted with unusual account combinations or posted by senior management. • Incorporating elements of unpredictability into the audit procedures performed, including analysis of significant payments made to contractors. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. 88 Gattaca plc Annual Report and Accounts 2021 Independent Auditors’ Report continued to the members of Gattaca plc Reporting on other information continued Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not obtained all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or • certain disclosures of directors’ remuneration specified by law are not made; or • the company financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Julian Gray (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Southampton 5 November 2021 Overview Strategic Report Governance Financial Statements 89 Consolidated Income Statement For the year ended 31 July 2021 Continuing operations Revenue Cost of sales Gross profit Administrative expenses2 Profit from continuing operations Finance income Finance cost Profit before taxation Taxation Profit for the year after taxation from continuing operations Discontinued operations Loss for the year from discontinued operations (attributable to equity holders of the Company) Profit/(loss) for the year Note 2021 £’000 Restated1 2020 £’000 2 2 4 6 7 10 415,726 534,709 (373,646) (481,953) 42,080 (38,796) 3,284 56 (1,136) 2,204 (415) 1,789 52,756 (49,218) 3,538 24 (2,245) 1,317 (590) 727 11 (1,208) (2,508) 581 (1,781) Profit/(loss) for the year for 2021 and 2020 are wholly attributable to equity holders of the Company. The Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the parent company income statement. Total earnings per ordinary share Basic earnings per share Diluted earnings per share Earnings from continuing operations per ordinary share Basic earnings per share Diluted earnings per share Note 12 12 Note 12 12 2021 pence 1.8 1.8 2021 pence 5.5 5.5 2020 pence (5.5) (5.5) Restated1 2020 pence 2.3 2.2 Reconciliation to adjusted profit measure Underlying profit is the Group’s key adjusted profit measure; profit from continuing operations is adjusted to exclude non-underlying income and expenditure as defined in the Group’s accounting policy, amortisation and impairment of goodwill and acquired intangibles, impairment of leased right-of-use assets and net foreign exchange gains or losses. Profit from continuing operations Add Depreciation of property, plant and equipment, depreciation of leased right-of-use assets and amortisation of software and software licences Non-underlying items included within administrative expenses Amortisation and impairment of goodwill and acquired intangibles and impairment of leased right-of-use assets Underlying EBITDA Less Depreciation and impairment of property, plant and equipment, leased right-of-use assets and amortisation of software and software licences Net finance costs excluding foreign exchange gains and losses Underlying profit before taxation Underlying taxation Underlying profit after taxation from continuing operations Note 2 2,4 2 6,7 10 2021 £’000 3,284 2,467 (193) 548 6,106 Restated1 2020 £’000 3,538 3,088 1,248 1,382 9,256 (2,467) (3,088) (412) 3,227 (506) 2,721 (1,389) 4,779 (995) 3,784 2020 figures have been restated for the presentation of discontinued operations as explained in Note 11. 1 2 Administrative expenses from continuing operations includes net impairment losses on trade receivables and accrued income of £420,000 (2020 restated: £2,554,000). 90 Gattaca plc Annual Report and Accounts 2021 Consolidated Statement of Comprehensive Income For the year ended 31 July 2021 Profit/(loss) for the year Other comprehensive income/(loss) Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations Other comprehensive income/(loss) for the year Total comprehensive income/(loss) for the year attributable to equity holders of the parent Attributable to: Continuing operations Discontinued operations 2021 £’000 581 281 281 862 2021 £’000 2,022 (1,160) 862 2020 £’000 (1,781) (1,091) (1,091) (2,872) Restated1 2020 £’000 507 (3,379) (2,872) 1 2020 figures have been restated for the presentation of discontinued operations as explained in Note 11. Overview Strategic Report Governance Financial Statements 91 Consolidated and Company Statement of Changes in Equity For the year ended 31 July 2021 A) Consolidated At 1 August 2019 as per originally presented Adjustment on initial application of IFRS 16, net of tax Restated total equity at 1 August 2019 Loss for the year Other comprehensive loss Total comprehensive loss Deferred tax movement in respect of share options Reversal of share-based payments charge (Note 23) Share-based payments reserves transfer Issue of treasury shares to employees Transactions with owners Share capital £’000 Share premium £’000 Merger reserve £’000 Share- based payment reserve £’000 Translation reserve £’000 Treasury shares reserve £’000 Retained earnings £’000 Total £’000 323 8,706 28,750 753 944 (140) 2,571 41,907 – – – – – – 770 770 323 8,706 28,750 753 944 (140) 3,341 42,677 – – – – – – – – – – – – – – – – – – – – – – – – – – – – (60) (167) – (227) – (1,091) (1,091) – – – – – – – – – – – 43 43 (1,781) (1,781) – (1,091) (1,781) (2,872) (16) (16) – (60) 167 – 151 – 43 (33) At 31 July 2020 323 8,706 28,750 526 (147) (97) 1,711 39,772 At 1 August 2020 Profit for the year Other comprehensive income Total comprehensive income Deferred tax movement in respect of share options Share-based payments charge (Note 23) Share-based payments reserves transfer Issue of treasury shares to employees Transactions with owners 323 8,706 28,750 526 (147) (97) 1,711 39,772 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 104 (176) – (72) – 281 281 – – – – – – – – – – – 60 60 581 – 581 65 581 281 862 65 – 104 176 – 241 – 60 229 At 31 July 2021 323 8,706 28,750 454 134 (37) 2,533 40,863 92 Gattaca plc Annual Report and Accounts 2021 Consolidated and Company Statement of Changes in Equity continued For the year ended 31 July 2021 B) Company Share capital £’000 Share premium £’000 Merger reserve £’000 Share- based payment reserve £’000 Treasury shares reserve £’000 Retained earnings £’000 Total £’000 At 1 August 2019 323 8,706 28,526 753 Loss and total comprehensive expense for the year (Note 9) Reversal of share-based payments charge (Note 23) Share-based payments reserves transfer Transactions with owners – – – – – – – – – – – – – (60) (167) (227) At 31 July 2020 323 8,706 28,526 526 At 1 August 2020 323 8,706 28,526 526 Loss and total comprehensive expense for the year (Note 9) Share-based payments charge (Note 23) Share-based payments reserves transfer Purchase of treasury shares Transactions with owners – – – – – – – – – – – – – – – – 104 (176) – (72) – – – – – – – – – – (16) (16) 2,390 40,698 (1,111) (1,111) – 167 167 (60) – (60) 1,446 39,527 1,446 39,527 (866) (866) – 176 – 176 104 – (16) 88 At 31 July 2021 323 8,706 28,526 454 (16) 756 38,749 Overview Strategic Report Governance Financial Statements 93 Consolidated and Company Statement of Financial Position As at 31 July 2021 Group Company Note 2021 £’000 2020 restated1 £’000 2021 £’000 2020 £’000 Non-current assets Goodwill and intangible assets Property, plant and equipment Right-of-use assets Investments Deferred tax assets Total non-current assets Current assets Trade and other receivables Corporation tax receivables Cash and cash equivalents Assets classified as held for sale Total current assets Total assets Non-current liabilities Deferred tax liabilities Provisions Lease liabilities Bank loans and borrowings Total non-current liabilities Current liabilities Trade and other payables Provisions Current tax liabilities Lease liabilities Bank loans and borrowings Liabilities directly associated with assets classified as held for sale Total current liabilities Total liabilities Net assets Equity Share capital Share premium Merger reserve Share-based payment reserve Translation reserve Treasury shares reserve Retained earnings Total equity 13 14 22 15 16 13,778 1,578 5,674 – – 12,877 1,492 7,338 19 – 13 – – 38,463 – 21,030 21,726 38,476 17 63,937 48,862 818 29,238 346 94,339 26 34,796 – 3,046 195 4 – 83,684 3,245 101,885 16 – – 8,520 – 8,536 101,610 275 – – 115,369 105,410 41,721 110,421 (524) (1,269) (4,281) – (277) (1,587) (5,746) (7,304) (6,074) (14,914) (56,121) (464) (796) (1,480) (9,348) (223) (46,129) (1,207) (1,247) (1,990) (151) – – – – – – – – – (7,304) (7,304) (2,972) (63,590) – – – – – – – – – – (68,432) (50,724) (2,972) (63,590) (74,506) (65,638) (2,972) (70,894) 40,863 39,772 38,749 39,527 323 8,706 28,750 454 134 (37) 2,533 40,863 323 8,706 28,750 526 (147) (97) 1,711 323 8,706 28,526 454 – (16) 756 39,772 38,749 323 8,706 28,526 526 – – 1,446 39,527 11 16 18 22 20 19 18 22 20 11 23 The amount of loss generated by the parent Company was £866,000 for the year ended 31 July 2021 (2020: loss of £1,111,000). The accompanying notes on pages 95 to 132 form part of these financial statements. The financial statements on pages 89 to 132 were approved by the board of directors on 5 November 2021 and signed on its behalf by Salar Farzad Chief Financial Officer 1 Presentation of provisions between current and non-current liabilities for the year ended 31 July 2020 has been restated as explained in Note 1. 24 94 Gattaca plc Annual Report and Accounts 2021 Consolidated and Company Cash Flow Statements For the year ended 31 July 2021 Cash flows from operating activities Profit/(loss) after taxation Adjustments for: Depreciation of property, plant and equipment and amortisation of goodwill and intangible assets Depreciation of leased right-of-use assets Profits from sale of subsidiary, associate or investment Loss on disposal of property, plant and equipment Impairment of goodwill and acquired intangibles Impairment of right-of-use assets Impairment of property, plant and equipment Interest income Interest costs Taxation expense recognised in income statement (Increase)/decrease in trade and other receivables Increase /(decrease) in trade and other payables (Decrease)/increase in provisions Share-based payment charge Cash (used in)/generated from operations Interest paid Interest on lease liabilities Interest received Income taxes paid Group Company Note 2021 £’000 2020 £’000 2021 £’000 2020 £’000 581 (1,781) (866) (1,111) 4 4 4 4 4 4 1,183 1,831 3 4 1,875 2,041 – 8 – 183 18 (65) 1,218 400 (304) 52 334 432 – (91) 1,936 598 – – – – – – – – – – – – – – 260 (189) 593 (339) (15,384) 47,537 68,992 – 10,098 5,453 (60,617) 9,120 (1,064) 1,085 23 271 77 – – – – (678) 59,200 7,583 8,267 (320) (1,052) (63) (524) (156) (214) 65 91 (1,322) (387) – – – – – – Cash (used in)/generated from operating activities (2,411) 57,638 7,520 7,743 Cash flows from investing activities Purchase of plant and equipment Purchase of intangible assets Purchase of investments Proceeds from sale of subsidiary, associate or investment Cash used in investing activities Cash flows from financing activities Lease liability principal repayment Issue from/(purchase of) treasury shares Working capital facility utilised/(repaid) Finance costs paid Repayment of term loan Cash used in financing activities Effects of exchange rates on cash and cash equivalents (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of year Cash and cash equivalents at end of year1 14 13 15 (332) (191) (1,872) (2,348) – – (19) 304 (2,204) (2,254) (2,355) (1,987) – – – – – – 60 (67) (16) 9,197 (28,968) – (223) – – – (20) – – (20) – – – (223) (7,500) (7,500) (7,500) (7,500) (598) (38,745) (7,516) (7,723) (345) (1,016) (5,558) 15,623 34,796 19,173 29,238 34,796 – 4 – 4 – – – – Net decrease in cash and cash equivalents for discontinued operations was £1,534,000 (2020 restated: decrease of £3,059,000). 1 Included in cash and cash equivalents is £7,115,000 of restricted cash (2020: £2,034,000) which meets the definition of cash and cash equivalents but is not available for use by the Group. This balance arises from the Group’s non-recourse working capital arrangements, which were entered into in 2020 as explained in Note 20. Overview Strategic Report Governance Financial Statements 95 Notes Forming Part of the Financial Statements 1 The Group and Company Significant Accounting Policies 1.1 The Business of the Group Gattaca plc (‘the Company’) and its subsidiaries (together ‘the Group’) is a human capital resources business providing contract and permanent recruitment services in the private and public sectors. The Company is a public limited company, which is listed on the Alternative Investment Market (AIM) and is incorporated and domiciled in England, United Kingdom. The Company’s address is: 1450 Parkway, Solent Business Park Whiteley, Fareham, Hampshire, PO15 7AF. The registration number is 04426322. 1.2 Basis of preparation of the financial statements The financial statements of Gattaca plc have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. These financial statements have been prepared under the historical cost convention. The accounting policies have been applied consistently to all years throughout both the Group and the Company for the purposes of preparation of these financial statements. A summary of the principal accounting policies of the Group are set out below. The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 1.23. 1.3 Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The financial position of the Group, its cash flows and liquidity position mirror those of our ultimate parent company and can be found in the Chief Financial Officer’s Report of the 2021 annual report for Gattaca plc. The majority of our staff have now been working remotely for over twelve months and there has not been any significant impact to our ability to operate effectively. The initial reduction in contractor numbers in April 2020, whilst impacting profitability, has resulted in reduced working capital requirements and has created further liquidity. The Group has also undertaken other actions, including an increase to the payment terms of certain contractors and these actions have created a permanent working capital benefit, and will reduce our working capital requirements during growth. We have seen signs of extensions in debtor days as a result of the pandemic impact on trading at our clients and we continue to be alert for any sudden changes. There is sufficient headroom on our working capital facilities to absorb a level of extensions, but we would also manage supply to the customer if payment within an appropriate period was not being made. A significant deterioration in payment terms would significantly impact the Group’s liquidity. The Directors have prepared detailed cash flow forecasts to July 2024, covering a period of 33 months from the date of approval of these financial statements. This base case is drawn up with appropriate regard for the current macroeconomic environment and the particular circumstances in which the Group operates. This conservative base case assumes a recovery of the UK business to 100% of pre-COVID-19 contract and permanent NFI by July 2022, with a further growth to 115% of pre-COVID-19 by July 2023 and 124% growth of pre-COVID-19 by July 2024. Trading has been broadly in line with this forecast since the year end. The output of the base case forecasting process has been used to perform sensitivity analysis on the Group’s cash flow to model the potential effects should principal risks actually occur either individually or in unison. The sensitivity analysis modelled scenarios in which the Group incurred a sustained loss of business arising from a prolonged global downturn as a result of the COVID-19 pandemic, with a slower recovery scenario considered. The Group has modelled the impact of a severe but plausible scenario including a reduction in recovery to 80% of pre-COVID NFI by July 2022, and subsequent slow recovery to 90% of pre-COVID NFI by July 2023, as well as the impact of a subsequent 5 day deterioration in the recovery of customer receivables. After making appropriate enquiries and considering the uncertainties described above, the Directors have a reasonable expectation at the time of approving these financial statements that the Group and the Company has adequate resources to continue in operational existence for the foreseeable future. Following careful consideration the Directors do not consider there to be a material uncertainty with regards to going concern and consider it is appropriate to adopt the going concern basis in preparing the financial statements. 96 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 1 The Group and Company Significant Accounting Policies continued 1.4 New standards and interpretations The following are new standards or improvements to existing standards that are mandatory for the first time in the Group’s accounting period beginning on 1 August 2020 and no new standards have been early adopted. The Group’s July 2021 consolidated financial statements have adopted these amendments to IFRS: • Amendment to IFRS 16, ‘Leases’ – COVID-19 related rent concessions (effective 1 June 2020) • Amendment to IFRS 9, IAS39 and IFRS 7 – Interest rate benchmark reform (effective 1 January 2020) • Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of material (effective 1 January 2020) • IFRS 3 (amendments) Business Combinations – Definition of a business (effective 1 January 2020) • Revised Conceptual Framework for Financial Reporting – Various interpretation amendments (effective 1 January 2020) There have been no alterations made to the accounting policies as a result of considering all of the other amendments above that became effective in the year, as these were either not material or were not relevant to the Group or Company. New standards in issue, not yet adopted The Group has not yet adopted certain new standards, amendments and interpretations to existing standards, which have been published but which are only effective for the Group accounting periods beginning on or after 1 August 2021. Forthcoming amendments are noted below. The directors continually evaluate the impact of the adoption of new standards, amendments and interpretations but currently do not expect them to have a material impact on the Group’s or Company’s operations or results. Forthcoming requirements The following amendments are required for application for the Group’s year beginning after 1 August 2021 or later: Standard IAS 1 Amendments Classification of liabilities as current or non-current IAS 16 Amendments Property, plant and equipment: proceeds before intended use IAS 37 Amendments Onerous contracts – cost of fulfilling a contract IFRS 3 Amendments Reference to the conceptual framework IFRS Standards 2018-2022 Annual improvements on IFRS 9, IFRS 16 and IFRS 1 Effective date (annual periods beginning on or after) 1 January 2022 1 January 2022 1 January 2022 1 January 2022 1 January 2022 1.5 Basis of consolidation Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date on which that control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree, and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Where necessary, amounts reported by subsidiaries have been adjusted to conform to the Group’s accounting policies. Overview Strategic Report Governance Financial Statements 97 1.6 Revenue Revenue is measured by reference to the fair value of consideration received or receivable by the Group for services provided, excluding VAT and trade discounts. Temporary placements Revenue from temporary, or contract placements is recognised at the point in time when the candidate provides services, upon receipt of a client-approved timesheet or equivalent proof of time worked. Timing differences between the receipt of a client-approved timesheet and the raising of an invoice are recognised as accrued income. The Group has assessed its use of third party providers to supply candidates for temporary placements under the agent or principal criteria and has determined that it is the principal on the grounds that it retains primary responsibility for provision of the services. A number of contractual rebate arrangements are in place in respect of volume and value of sales; these are accounted for as variable consideration reducing revenue and estimated in line with IFRS 15. Variable consideration is calculated on a contract-by-contract basis and dependent on the volume of candidate placements in a given period or the achievement of certain pricing thresholds holds. Any consideration payable at the start of contracts to customers is recognised as a prepayment and released to profit or loss over the terms of the contract it relates to, as a reduction to revenue. Permanent placements Revenue from permanent placements, which is based on a percentage of the candidate’s remuneration package, is recognised when candidates commence employment which is the point at which the performance obligation of the contract is considered met. Some permanent placements are subject to a ‘claw-back’ period whereby if a candidate leaves within a set period of starting employment, the customer is entitled to a rebate subject to the Group’s terms and conditions. Provisions as a reduction to revenue are recognised for such arrangements if material. In addition, a number of contractual rebate arrangements are in place in respect of volume and value of sales; these are accounted for as variable consideration reducing revenue and estimated in line with IFRS 15. Other Other revenue streams are generated from provision of engineering services and other fees. Revenue for certain engineering services is measured based on the consideration specified in a contract and recognised when the Group provides a service to a customer, taking into account the requirements of IFRS 15 ‘Revenue from Contracts with Customers’. The requirements include identifying the different performance obligations within each contract separately and applying the recognition when the obligation has been satisfied, taking into account contract modifications and variable consideration. 1.7 Government grants Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to operating activities. Government grants are recognised when there is a reasonable assurance that the Group will comply with the conditions attached to it and that the grant will be received. They are recognised in the consolidated income statement on a systematic basis over the periods in which the related costs that they compensate are recognised as expenses. Grants are either presented as grant income or deducted in reporting the related expense they compensate in the income statement. 1.8 Non-underlying items Non-underlying items are income or expenditure that are considered unusual and separate to underlying trading results because of their size, nature or incidence and are presented within the income statement but highlighted through separate disclosure. The Group’s directors consider that these items should be separately identified within the income statement to enable a proper understanding of the Group’s business performance. Items which are included within this category include but are not limited to: • material restructuring costs including related professional fees and staff costs; • costs of acquisitions; and • integration costs following acquisitions. In addition, the Group also excludes from underlying results amortisation and impairment of goodwill and acquired intangibles, impairment of leased right-of-use assets and net foreign exchange gains or losses. 98 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 1 The Group and Company Significant Accounting Policies continued 1.8 Non-underlying items continued Specific adjusting items are included as non-underlying based on the following rationale: Distorting due to irregular nature year on year Distorting due to fluctuating nature (size) Does not reflect in-year operational performance of continuing business Item Material restructuring costs Amortisation and impairment of goodwill and acquired intangibles Impairment of leased right-of-use assets Net foreign exchange gains and losses Costs of acquisitions Integration costs following acquisitions Tax impact of the above 1.9 Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset. Annual depreciation rates are as follows: Motor vehicles Fixtures, fittings and equipment 12.5% to 33.3% Leasehold improvements 25.0% Over the period of the lease term Straight line Reducing balance Straight line The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. 1.10 Goodwill Goodwill arises on the acquisition of subsidiaries and represents the excess of the fair value of the consideration given for a business over the Company’s interest in the fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree. Goodwill is stated at cost less accumulated impairment. Goodwill impairment reviews are undertaken annually, or more frequently if events or changes in circumstances indicate a potential impairment. Goodwill is allocated to cash-generating units, being the lowest level at which goodwill is monitored. The carrying value of the assets of the cash-generating unit, including goodwill, intangible and tangible assets and working capital balances, is compared to its recoverable amount, which is the higher of value-in-use and fair value less costs to sell. Any excess in carrying value over recoverable amount is recognised immediately as an impairment expense and is not subsequently reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. 1.11 Intangible assets Customer relationships Customer relationships comprise principally of existing customer relationships which may give rise to future orders (customer relationships), and existing order books. They are recognised at fair value at the acquisition date, and subsequently measured at cost less accumulated amortisation and impairment. Customer relationships are determined to have a useful life of ten years and are amortised on a straight-line basis. Trade names and trademarks Trade names and trademarks have either arisen on the consolidation of acquired businesses or have been separately purchased and are recognised at fair value at the acquisition date. They are subsequently measured at cost less accumulated amortisation and impairment. Trade names and trademarks are determined to have a useful life of ten years and are amortised on a straight-line basis. Software and software licences Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortised using the straight-line method to allocate the cost of the software licences over their useful lives of between two and five years. Subsequent licence renewals are expensed to profit or loss as incurred. Software licences are stated at cost less accumulated amortisation and impairment. Overview Strategic Report Governance Financial Statements 99 Internally generated intangible assets Development costs that are directly attributable to the design and testing of identifiable and unique software products are capitalised as part of internally generated software and include employee costs and professional fees attributable to the development of the asset. Other expenditure that does not meet these criteria is recognised as an expense to profit or loss as incurred. Software development costs recognised as assets are amortised on a straight-line basis over their estimated useful lives of between two and ten years. Expenditure on internally generated brands and other intangible assets is expensed to profit or loss as incurred. Other Other intangible assets acquired by the Group have a finite useful life between five and ten years and are measured at cost less accumulated amortisation and accumulated losses. Amortisation of intangible assets and impairment losses are recognised in profit or loss within administrative expenses. Intangible assets are tested for impairment either as part of a goodwill-carrying cash-generating unit, or when events arise that indicate an impairment may be triggered. Provision is made against the carrying value of an intangible asset where an impairment is deemed to have occurred. Impairment losses on intangible assets are recognised in the income statement under administrative expenses. 1.12 Disposal of assets The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement at the time of disposal. 1.13 Leases The Group leases office property, motor vehicles and equipment. Rental contracts range from monthly to seven years. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Contracts may contain both lease and non-lease components, and consideration is allocated in the contract to the lease and non-lease components based on their relative stand-alone prices. Assets and liabilities arising from a lease are initially measured on a present value basis at the lease commencement date. Lease liabilities include the net present value of the fixed payments less any lease incentives receivable, variable lease payments that are based on an index or a rate, amounts expected to be payable by the Group under residual value guarantees, the exercise price of any purchase option if the Group is reasonably certain to exercise that option, and payments of penalties for terminating the lease if that option is expected to be taken. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. Lease payments are discounted at either the interest rate implicit in the lease or when this interest rate cannot be readily determined, the Group’s incremental borrowing rate associated with a similar asset. When calculating lease liabilities, the Group uses its incremental borrowing rate, being the rate it would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic climate with similar terms, security and conditions. This is estimated using publicly available data adjusted for changes specific to the lease in financing conditions, lease term, country and currency. The Group does not have leases with variable lease payments based on an index or rate. Extension or termination options are included in a number of the Group’s leases. In determining the lease term, the Group considers all facts and circumstances that create an economic incentive to exercise, or not to exercise, an option. Extension options are only included in the lease term if the lease is reasonably certain to be extended. The lease term is reassessed if an option is actually exercised or the Group becomes obliged to exercise (or not to exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs that is within the control of the Group. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. 100 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 1 The Group and Company Significant Accounting Policies continued 1.13 Leases continued Right-of-use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liability, • any lease payments made at or before the commencement date less any lease incentives received, • any initial direct costs, and • restoration costs. Right-of-use assets are depreciated on a straight-line basis over the term of the lease with depreciation expense recognised in the income statement. Lease modifications are a change in scope of a lease that was not part of the original lease. Any change that is triggered by a clause already part of the original lease contract is a reassessment and not a modification. Changes to lease cash flows as part of a reassessment result in a remeasurement of the lease liability using an updated discount rate and a corresponding adjustment to the carrying value of the right-of-use asset. A lease is deemed to be onerous where the costs required to fulfil the contract are higher than the economic benefit to be obtained from the contract. Where leases are deemed to be onerous, the carrying value of the right-of-use asset is reduced by way of an impairment charge recognised in the income statement. Advantage has been taken of the practical expedients for exemptions provided for leases with less than 12 months to run, for leases of low value, to account for leases with similar characteristics as a portfolio with a single discount rate and to present existing onerous lease provisions against the carrying value of right-of-use assets. Payments associated with short-term leases and leases of low value are recognised on a straight-line basis as an expense in profit or loss. 1.14 Taxation The tax expense for the year comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the statement of financial position date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the statement of financial position date. Deferred tax on temporary differences associated with shares in subsidiaries is not provided for if these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to the offset and there is an intention to settle balances on a net basis. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity (such as share-based payments) in which case the related deferred tax is also charged or credited directly to equity. 1.15 Pension costs The Group operates a number of country-specific defined contribution plans for its employees. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. Once the contributions have been paid the Group has no further payment obligations. The contributions are recognised as an expense when they are due. Amounts not paid are shown in other creditors in the consolidated statement of financial position. The assets of the plan are held separately from the Group in independently administered funds. Overview Strategic Report Governance Financial Statements 101 1.16 Share-based payments All share-based remuneration is ultimately recognised as an expense in the income statement with a corresponding credit to the share-based payment reserve. All goods and services received in exchange for the grant of any share-based remuneration are measured at their fair values. Fair values of employee services are indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options, proceeds received net of attributable transaction costs are credited to share capital and share premium. The Company is the granting and settling entity in the Group share-based payment arrangement where share options are granted to employees of its subsidiary companies. The Company recognises the share-based payment expense as an increase in the investment in subsidiary undertakings. The Group operates two long-term incentive share option plans. The Zero Priced Share Option Bonus covers all share options issued with an exercise price of £0.01; the Long-Term Incentive Plan Options have an exercise price above £0.01. Grants under both categories have been made as part of a CSOP scheme, depending on the terms of specific grants. The Group also operates a Share Incentive Plan (‘SIP’), the Gattaca plc Share Incentive Plan (‘The Plan’), which is approved by HMRC. The Plan is held by Gattaca plc UK Employee Benefit Trust (‘the EBT’), the purpose of which is to enable employees to purchase company shares out of pre-tax salary. For each share purchased the Group grants an additional share at no cost to the employee. The expense in relation to these ‘free’ shares is recorded as employee remuneration and measured at fair value of the shares issued as at the date of grant. The assets and liabilities of the EBT are included in the Gattaca plc consolidated statement of financial position. 1.17 Financial instruments Financial assets IFRS 9 contains a classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. Under IFRS 9, all financial assets are measured at either amortised cost, fair value through profit and loss (‘FVTPL’) or fair value through other comprehensive income (‘FVOCI’). Financial assets: debt instruments The Group classifies its debt instruments in the following measurement categories depending on the Group’s business model for managing the asset and the cash flow characteristics of the asset: (i) those to be measured subsequently at fair value through other comprehensive income (OCI): Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses are presented as separate line item in the income statement. (ii) those to be measured subsequently at FVTPL: assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on a debt investment that is subsequently measured at FVTPL is recognised in profit or loss and presented net within other gains/(losses) in the year in which it arises. (iii) those to be measured subsequently at 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 income statement. 102 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 1 The Group and Company Significant Accounting Policies continued 1.17 Financial instruments continued The Group reclassifies debt investments when and only when its business model for managing those assets changes. Financial assets: equity instruments The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group’s right to receive payments is established. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. Impairment of financial assets IFRS 9 requires the application of the Expected Credit Loss (‘ECL’) model. This applies to all financial assets measured at amortised cost or FVOCI, except equity investments. The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The Group has reviewed each category of its financial assets to assess the level of credit risk and ECL provision to apply: • Trade receivables: the Group has chosen to take advantage of the practical expedient in IFRS 9 when assessing default rates over its portfolio of trade receivables, to estimate the ECL based on historical default rates specific to groups of customers by industry and geography that carry similar credit risks. Separate ECL’s have been modelled for UK customers in different industries, and customers in the Americas, Europe, Asia and Africa. • Accrued income is in respect of temporary placements where a client-approved timesheet has been received or permanent placements where a candidate has commenced employment, but no invoice has been raised. Default rates have been determined applying consistent method with trade receivables other than 100% provision for any unbilled amounts over 6 months. • Cash and cash equivalents are held with established financial institutions. The Group has determined that based on the external credit ratings of counterparties, this financial asset has a very low credit risk and that the estimated expected credit loss provision is not material. At each reporting date, the ECL provision will be reviewed to reflect changes in credit risk and historical default rates and other economic factors. Changes in the ECL provision are recognised in profit or loss. Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument and comprise trade and other payables and bank loans. Financial liabilities are recorded initially at fair value, net of direct issue costs and are subsequently measured at amortised cost using the effective interest rate method. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged, cancelled or expires. Non-recourse receivables factoring is not recognised as a financial liability as there is no contractual obligation to deliver cash; subsequently, the receivables are derecognised and any difference between the receivable value and amount received through non-recourse factoring is recognised as a finance cost. 1.18 Cash and cash equivalents In the consolidated cash flow statement, cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. In the statement of financial position and cash flow statement, bank overdrafts are netted against cash and cash equivalents where the offsetting criteria are met. Cash in transit inbound from, or outbound to, a third party is recognised when the transaction is no longer reversible by the party making the payment. This is determined to be in respect of all electronic payments and receipt transactions that commence before or on the reporting date and complete within one business day after the reporting date. Restricted cash and cash equivalent balances are those which meet the definition of cash and cash equivalents but are not available for wider use by the Group. These balances arise from the Group’s non-recourse working capital arrangements. Overview Strategic Report Governance Financial Statements 103 1.19 Provisions Provisions are recognised where the Group has a present legal or constructive obligation as a result of past events; where probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are not recognised for future operating losses. 1.20 Dividends Dividend distributions payable to equity shareholders are included in ‘other short-term financial liabilities’ when the dividends are approved in general meeting prior to the financial position date. 1.21 Foreign currencies Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which each entity operates (‘the functional currency’). The consolidated financial statements are presented in ‘currency’ (GBP), which is the Group’s presentation currency. Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the statement of financial position date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Income and expenses are translated at the actual rate. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the income statement in the year in which they arise. The assets and liabilities in the financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the statement of financial position date. The individual financial statements of each group company are presented in its functional currency. On consolidation, the assets and liabilities of overseas subsidiaries, including any related goodwill, are translated to sterling at the rate of exchange at the balance sheet date. The results and cash flows of overseas subsidiaries are translated to sterling using the average rates of exchange during the period. Exchange adjustments arising from the retranslation of the opening net investment and the results for the period to the period end rate are accounted for in the translation reserve in the statement of Comprehensive Income. On divestment, these exchange differences are reclassified from the translation reserve to the income statement. 1.22 Equity Equity comprises the following: • ‘Share capital’ represents the nominal value of equity shares. • ‘Share premium’ represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. • ‘Merger reserve’ represents the equity balance arising on the merger of Matchtech Engineering and Matchmaker Personnel and to record the excess fair value above the nominal value of the share consideration on the acquisition of Networkers International plc. • ‘Share-based payment reserve’ represents equity-settled share-based employee remuneration until such share options are exercised or lapsed. • ‘Translation reserve’ represents the foreign currency differences arising on translating foreign operations into the presentational currency of the Group. • ‘Treasury shares reserve’ represents company shares purchased directly by the Group to satisfy obligations under the employee share plan. • ‘Retained earnings’ represents retained profits. 104 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 1 The Group and Company Significant Accounting Policies continued 1.23 Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, the directors are required to make judgments (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors, including anticipated future events and market conditions, that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. Critical accounting judgements The directors are of the opinion there are no critical accounting judgements. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date that carry a risk of causing a material adjustment within the next 12 months are discussed below: ECL provisions in respect of trade receivables and accrued income The Group’s policy for default risk over receivables is based on the ongoing evaluation of the credit risk of its trade receivables and accrued income. Estimation is used in assessing the ultimate realisation of these receivables and accrued income, including reviewing the potential likelihood of default, the past collection history of each customer, any insurance coverage in place and the current economic conditions. As a result, expected credit loss provisions for impairment of trade receivables and accrued income have been recognised, as discussed in Note 17. The ongoing impact of COVID-19 has been incorporated into these estimates. The Group’s policy on specifically providing for doubtful debts reflects a key customer going into administration post year end. Management have made a judgement as to the trigger point for specifically providing for balances, which includes where there is a reasonable possibility that the company may go in to administration, based on publicly available information. In the case of the customer in question, the judgement is that the balances were credit impaired as at 31 July 2021. This judgement will impact the treatment of revenue and receipts in subsequent periods. Valuation of goodwill and intangible assets Goodwill and intangible assets (including acquired intangibles) are tested for impairment on an annual basis or otherwise when changes in events or situations indicate that the carrying value may not be recoverable. This requires an estimate to be made of the recoverable amount of the cash-generating unit to which the assets are allocated, including forecasting future cash flows of each cash-generating unit and forming assumptions over the discount rate and long-term growth rate applied. The impact of COVID-19 has been reflected in the forecast future cash flows. Further details on the sensitivity of the carrying value of goodwill and intangible assets to changes in the key assumptions are set out in Note 13. 1.24 Restatement of provisions presentation between current and non-current liabilities In July 2020, the Group publicly announced plans for a significant restructuring of its UK employee base and restructuring provisions of £971,000 were recognised based on the directors’ best estimate of the forecast direct costs arising from the restructuring. In the financial statements for the year ended 31 July 2020, the £971,000 was incorrectly classified as non-current liabilities. The UK restructure was completed in October 2020, we have therefore concluded that it is appropriate to change the presentation of the £971,000 provision from non-current to current liabilities for the year ended 31 July 2020. The restatement has decreased the total non-current liabilities from £15,885,000 as reported to £14,914,000 as restated and increased total current liabilities from £49,753,000 as reported to £50,724,000 as restated. The restatement has no impact on Group’s consolidation results for the year ended 31 July 2020, total net assets or cash flow statements as at 31 July 2020, or the consolidated statement of financial position as at 31 July 2019. Overview Strategic Report Governance Financial Statements 105 2 Segmental Information An operating segment, as defined by IFRS 8 ‘Operating segments’, is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. The Group is managed through its three reporting segments: UK Engineering, UK Technology and International, which form the operating segments on which the information below is prepared. The Group determines and presents operating segments based on the information that is provided internally to the chief operating decision maker, which has been identified as the board of directors of Gattaca plc. 2021 All amounts in £’000 Revenue Gross profit UK Engineering UK Technology International Continuing underlying operations Non-underlying items1 Discontinued operations Group total 269,993 135,526 10,207 415,726 28,398 10,212 3,470 42,080 – – – 3,432 419,158 1,047 43,127 (213) 23,521 Operating contribution 17,324 5,163 1,247 23,734 Depreciation, impairment and amortisation Central overheads Profit/(loss) from operations Finance cost, net Profit/(loss) before taxation 2020 Restated2 All amounts in £’000 Revenue Gross profit Operating contribution Depreciation, impairment and amortisation (1,424) (781) (262) (2,467) (548) (244) (3,259) (11,911) 3,989 (3,812) (1,905) (17,628) 570 (920) 3,639 (412) 193 (355) (668) (693) (18,128) (1,150) 2,134 (73) (1,153) 3,227 (1,023) (1,223) 981 UK Engineering UK Technology International Continuing underlying operations Non-underlying items1 Discontinued operations Group total 347,173 173,648 13,888 534,709 34,177 20,913 13,602 7,061 4,977 52,756 1,319 29,293 – – – 4,281 538,990 1,911 54,667 (759) 28,534 (1,816) (873) (399) (3,088) (1,382) (168) (4,638) Central overheads (13,065) (4,773) (2,199) (20,037) (1,248) (1,949) (23,234) Profit/(loss) from operations 6,032 1,415 (1,279) 6,168 (2,630) (2,876) 662 Finance (cost)/income, net Profit/(loss) before taxation (1,389) (832) 376 (1,845) 4,779 (3,462) (2,500) (1,183) A segmental analysis of total assets has not been included as this information is not used by the board; the majority of assets are centrally held and are not allocated across the reportable segments. Geographical information All amounts in £’000 UK Rest of Europe Middle East and Africa Americas Asia Pacific Total Total Group revenue Non-current assets 2021 2020 2021 2020 402,254 515,869 20,204 21,051 2,316 1,685 12,903 – 3,469 1,786 17,534 332 – 551 275 – 1 286 388 – 419,158 538,990 21,030 21,726 Revenue and non-current assets are allocated to the geographical market based on the domicile of the respective subsidiary. 1 Non-underlying items includes non-underlying income and expenses, amortisation and impairment of goodwill and acquired intangibles, impairment of right-of-use assets and net foreign exchange gains or losses. 2 From the 1 August 2020, a reorganisation of the internal composition of the Group moved the reporting of the Engineering Technology division from UK Engineering to UK Technology. As required under IFRS 8, segmental disclosures for the year ended 31 July 2020 have been restated accordingly. In addition, 2020 International figures have been restated for the presentation of discontinued operations as explained in Note 11. 106 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 3 Revenue from Contracts with Customers Revenue from contracts with customers is disaggregated by major service line and operating segment, as well as timing of revenue recognition as follows: Major service lines – continuing underlying operations UK Engineering UK Technology International Total 2021 £’000 Restated1 2020 £’000 2021 £’000 Restated1 2020 £’000 2021 £’000 Restated1 2020 £’000 2021 £’000 Restated1 2020 £’000 Temporary placements 260,642 339,004 133,527 171,150 7,976 10,771 402,145 520,925 Permanent placements 6,579 7,886 2,004 2,502 2,231 3,117 10,814 13,505 Other Total 2,772 283 (5) (4) – – 2,767 279 269,993 347,173 135,526 173,648 10,207 13,888 415,726 534,709 Timing of revenue recognition – continuing underlying operations Point in time Over time Total UK Engineering UK Technology International Total 2021 £’000 Restated1 2020 £’000 2021 £’000 Restated1 2020 £’000 2021 £’000 Restated1 2020 £’000 2021 £’000 Restated1 2020 £’000 267,495 346,890 135,526 173,648 10,207 13,888 413,228 534,426 2,498 283 – – – – 2,498 283 269,993 347,173 135,526 173,648 10,207 13,888 415,726 534,709 No single customer contributed more than 10% of the Group’s revenue (2020: none). Revenue is wholly recognised in relation to performance obligations satisfied in the period. The Group has determined that its contract assets from contracts with customers are trade receivables, accrued income, and its contract liabilities are deferred income, which are set out below: Trade receivables (Note 17) Accrued income (Note 17) Deferred income (Note 19) 31 July 2021 £’000 31 July 2020 £’000 34,187 26,742 27,703 15,900 (880) (1,090) Accrued income relates to the Group’s right to consideration for temporary and permanent placements made but not billed by the year end. These transfer to trade receivables once billing occurs. All accrued income at a given reporting date is billed within the following financial year and is classified in current assets. A provision has been recognised against 100% of the value of unbilled accrued income over 6 months old. Deferred income at a given reporting date is recognised as revenue in the following financial year once performance obligations are satisfied and is classified in current liabilities. 1 From the 1 August 2020, a reorganisation of the internal composition of the Group moved the reporting of the Engineering Technology division from UK Engineering to UK Technology. As required under IFRS 8, segmental disclosures for the year ended 31 July 2020 have been restated accordingly. In addition, 2020 International figures have been restated for the presentation of discontinued operations as explained in Note 11. Overview Strategic Report Governance Financial Statements 4 Profit/(Loss) from Total Operations Profit/(loss) from total operations is stated after charging/(crediting): Depreciation of plant, property and equipment (Note 14) Depreciation of right-of-use leased assets (Note 22) Amortisation of acquired intangibles (Note 13) Amortisation of software & software licences (Note 13) Impairment of plant, property and equipment (Note 14) Impairment of goodwill and acquired intangibles (Note 13) Impairment of right-of-use leased assets (Note 22) Loss on disposal of property, plant and equipment Operating lease costs: – Plant and machinery – Land and buildings Non-recourse working capital facility bank charges Share-based payment charges The aggregate auditors’ remuneration was as follows: Fees payable for the audit of the parent company financial statements Fees payable for the audit of the subsidiary company financial statements Total auditors’ remuneration Non-audit services: – Taxation – Other services pursuant to legislation Total non-audit services Non-underlying items included within administrative expenses were as follows: Continuing operations Restructuring costs1 Gain on sale of investment2 Onerous lease payments3 Non-underlying items included in profit from continuing operations Discontinued operations Advisory fees4 Costs relating to discontinuation of group undertakings5 Non-underlying items included in loss from discontinued operations Total non-underlying items 2021 £’000 213 1,875 548 422 18 – 183 8 14 – 287 271 2021 £’000 10 344 354 – – – 2021 £’000 (284) – 91 (193) 2021 £’000 29 664 693 500 107 2020 £’000 943 2,041 616 272 – 334 432 52 47 192 241 77 2020 £’000 10 294 304 – – – 2020 £’000 1,552 (304) – 1,248 2020 £’000 1,395 554 1,949 3,197 1 A gain of £284,000 (2020: cost of £1,552,000) was recognised in 2021 as a result of releasing unutilised provisions for employee related expenses and 2 professional fees. In November 2019, the Group concluded the sale of its 10% minority interest investment in Concilium Search Limited for consideration in cash of £304,000. The investment carrying value was £nil, so a profit on sale of investments of £304,000 was recognised, and presented as non-underlying due to its material value and nature not arising from trading activities. 3 Lease expenses of £91,000 were incurred in 2021 in respect of a UK office building no longer in use by the business. 4 Legal fees incurred in 2021 and 2020 in relation to the Group’s co-operation with certain voluntary enquiries from the US Department of Justice. 5 Ongoing costs relating to the preparation of entities affected by the closure of the contract Telecoms Infrastructure business and operations in China for liquidation, including professional fees and impairment of certain working capital balances. In addition for 2021, the closure costs also includes Group’s operations in Mexico, including staff termination costs and impairment of certain working capital balances. 108 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 5 Particulars of Employees The monthly average number of staff employed by the Group, including executive directors, during the financial year amounted to: Total operations Sales Administration Directors Total 2021 No. 345 131 7 483 2020 No. 482 176 7 665 UK employees are directly contracted with the ultimate parent company Gattaca plc and staff costs are paid by the Matchtech Group (UK) Limited then recharged to fellow UK subsidiaries. The aggregate payroll costs of the above were: Total operations Wages and salaries Social security costs Other pension costs Share-based payments Total 2021 £’000 24,269 2,830 791 271 2020 £’000 27,918 3,394 806 77 28,161 32,195 Amounts due to defined contribution pension providers at 31 July 2021 were £138,000 (2020: £117,000). Disclosure of the remuneration of the statutory directors is further detailed in the audited part of the Remuneration Report on pages 73 to 80. Disclosure of the remuneration of Group’s key management personnel, as required by IAS 24, is detailed below: Total operations Short-term employee benefits Contributions to defined contribution pension schemes Share-based payments Total 6 Finance Income Continuing operations Interest income Total 7 Finance Costs Continuing operations Bank interest expense Interest expense on lease liabilities Amortisation of capitalised finance costs Net losses on foreign currency translation Total 2021 £’000 1,738 123 106 2020 £’000 1,687 119 (62) 1,967 1,744 2021 £’000 56 56 2021 £’000 124 148 196 668 1,136 Restated1 2020 £’000 24 24 Restated1 2020 £’000 1,059 203 151 832 2,245 1 2020 figures have been restated for the presentation of discontinued operations as explained in Note 11. Overview Strategic Report Governance Financial Statements 109 8 Government Grants Grant income recognised from government grants recognised in cost of sales and administrative expenses are as follows: Continuing operations UK Government Coronavirus Job Retention Scheme grant income recognised in cost of sales for temporary workers UK Government Coronavirus Job Retention Scheme grant income recognised in administrative expenses for employees Total 2021 £’000 43 458 501 2020 £’000 2,335 1,471 3,806 As a response to the COVID-19 global pandemic, the Group made use of the UK Government’s Coronavirus Job Retention Scheme (2021: claim period is from August 2020 to October 2020, 2020: claim period is from April 2020 to July 2020). Under this scheme, Her Majesty’s Revenue & Customs (HMRC) provided UK companies with a non-refundable grant equivalent to a portion of wages, National Insurance contributions and pension contributions for employees and temporary workers who were retained in employment but placed on furlough. From 1 August 2021 National Insurance contributions and pension contributions were no longer eligible for claims. When considering temporary workers, the contractors employed by Gattaca’s clients that Gattaca provides payroll services to and whose costs are recognised as cost of sales by Gattaca, were also considered eligible. As the scheme was conditional upon the Group retaining its employees in employment, or the temporary contract workers being retained by their employers, whilst they are furloughed during the COVID-19 pandemic, it was designed to compensate companies for staff or temporary worker costs incurred. As all claims submitted for the period have been received, the Group considers the scheme meets the definition of a government grant as set out in IAS 20 and has accounted for it as such. For grants received for Gattaca’s employees on furlough, the Group has presented the grant income as a deduction to staff costs presented in administrative expenses in the income statement; for grants received for temporary contract workers of Gattaca’s clients on furlough, the Group has presented the grant income as a deduction to cost of sales. 9 Parent Company Loss The amount of loss generated by the parent company was: 10 Taxation Analysis of charge in the year Current tax: UK corporation tax Deferred tax (Note 16): Overseas corporation tax Adjustments in respect of prior years Origination and reversal of temporary differences Adjustments in respect of prior years Changes in tax rate Income tax charge/(credit) for the year UK corporation tax has been charged at 19% (2020: 19%). 2021 £’000 (866) 2020 £’000 (1,111) Continuing Discontinued Continuing Discontinued 2021 £’000 748 (134) (511) 103 (58) 290 80 312 415 2021 £’000 (48) 40 – (8) (5) (2) – (7) (15) Restated1 2020 £’000 Restated1 2020 £’000 790 92 (260) 622 (143) 111 – (32) 590 (269) 124 143 (2) 11 (1) – 10 8 1 2020 figures have been restated for the presentation of discontinued operations as explained in Note 11. 110 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 10 Taxation continued The charge for the year can be reconciled to the profit/(loss) as per the income statement as follows: Profit/(loss) before tax Profit/(loss) before tax multiplied by the standard rate of corporation tax in the UK of 19% (2020: 19%) Expenses not deductible for tax purposes and goodwill impairment loss Effect of share-based payments Irrecoverable withholding tax Overseas losses not recognised as deferred tax assets Difference between UK and overseas tax rates Adjustment to tax charge in respect of previous years Changes in tax rates Total taxation charge/(credit) for the year Tax (credit)/charge recognised in equity: Deferred tax (credit)/charge recognised directly in equity Total tax (credit)/charge recognised directly in equity Continuing Discontinued Continuing Discontinued 2021 £’000 2,204 2021 £’000 (1,223) Restated1 2020 £’000 Restated1 2020 £’000 1,317 (2,500) 419 (232) 250 (475) 139 (19) 56 46 (85) (221) 80 415 172 – – 163 (116) (2) – (15) 21 70 38 513 (153) (149) – 590 2021 £’000 (65) (65) 2021 £’000 415 43 (37) 85 506 11 – 4 387 (61) 142 – 8 2020 £’000 16 16 Restated1 2020 £’000 590 143 280 (18) 995 Reconciliation of statutory continuing tax charge to continuing underlying tax charge: Income tax expense Impairment and amortisation of acquired intangibles Non-underlying items Foreign currency exchange differences Underlying income tax expense Future tax rate changes The main UK corporation tax rate of 19% will increase to 25% from 1 April 2023 and this has been reflected in the consolidated financial statements. As these changes of rates have been enacted at the balance sheet date, the impact of this increase has been reflected in the deferred tax liability at 31 July 2021. Overview Strategic Report Governance Financial Statements 111 11 Discontinued Operations 2021 On 30 July 2021, the Group announced the decision to close its Mexico operations entirely. In addition, the Group also announced a management buy-out agreement of the South African recruitment operations which is expected to complete within one year of 31 July 2021. The Fulfilment, Solutions and Group Support functions of the South African recruitment operations will be retained and transferred to a new South African entity. As a result, the Group has reclassified its entire Mexican operations and South African recruitment operations as discontinued in the consolidated financial statements for the year ended 31 July 2021. 2020 On 9 March 2020, the Group commenced communications with the management and employees of its Chinese subsidiary, announcing its intention to cease its remaining operations in China, having previously ceased all Telecoms Infrastructure business undertaken by China already in 2019. As at 31 July 2020, all operations and staff had been terminated and the Group continued to work with in-country advisors to commence company closure proceedings. As this resulted in the Group’s withdrawal from all operations in China, the Group classified its Chinese operations as discontinued in the consolidated financial statements for the year ended 31 July 2020. Financial performance and cash flow information Revenue Cost of sales Gross profit Administrative expenses2 Loss from operations Finance income Finance costs Income from fixed asset investments Loss before taxation Taxation Loss for the year after taxation from discontinued operations Exchange differences on translation of discontinued operations Other comprehensive loss from discontinued operations 2021 £’000 3,432 (2,385) 1,047 (2,197) (1,150) 39 (112) – Restated1 2020 £’000 4,281 (2,370) 1,911 (4,787) (2,876) 383 (84) 77 (1,223) (2,500) 15 (8) (1,208) (2,508) 48 (1,160) (871) (3,379) The following assets and liabilities were reclassified as held for sale in relation to the discontinued South African recruitment operations as at 31 July 2021: Assets classified as held for sale Software licences Property, plant and equipment Right-of-use assets Investments Deferred tax assets Trade and other receivables Cash and cash equivalents Total assets of disposal group held for sale 2021 £’000 1 7 29 19 9 171 110 346 2020 £’000 – – – – – – – – 1 2 2020 figures have been restated for the presentation of discontinued operations as explained above. Included in administrative expenses are £693,000 (2020: £1,949,000) of non-underlying items, as detailed in Note 4. In addition, it includes net impairment costs on trade receivables from discontinued operations of £80,000 (2020 restated: release of £4,000). 112 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 11 Discontinued Operations continued Liabilities directly associated with assets classified as held for sale Trade and other payables Provisions Current tax liabilities Lease liabilities Total liabilities of disposal group held for sale Net cash outflow from operating activities Net cash (outflow)/inflow from investing activities Net cash outflow from financing activities Effects of exchange rates on cash and cash equivalents Net decrease in cash generated by discontinued operations 2021 £’000 (136) (46) (27) (14) (223) 2021 £’000 2020 £’000 – – – – – Restated1 2020 £’000 (1,348) (2,160) (32) (139) (15) 1 (134) (766) (1,534) (3,059) 12 Earnings per Share Earnings per share (EPS) has been calculated by dividing the consolidated profit or loss after taxation attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share has been calculated on the same basis as above, except that the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares (arising from the Group’s share option schemes) into ordinary shares has been added to the denominator. Share options (Note 23) are treated as dilutive when, at the reporting date, they would be issuable had the performance year ended at that date. The Group has dilutive potential ordinary shares, being the LTIP and Zero-priced share options (Note 23). The number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) is calculated based on the monetary value of the subscription rights attached to the outstanding share options. The effect of potential ordinary shares are reflected in diluted EPS only when they are dilutive. Potential ordinary shares are considered dilutive when their inclusion in the calculation would decrease EPS, or increase the loss per share from continuing operations in accordance with IAS 33. This is regardless of whether the potential ordinary shares are dilutive for EPS from total operations. The effect of potential ordinary shares are considered to be dilutive for year ended 31 July 2021 and 31 July 2020 and therefore have been included in the calculation below. The diluted loss per share is lower than basic loss per share because of the effect of losses from discontinued operations. There are no changes to the profit numerator as a result of the dilution calculation. 1 2020 figures have been restated for the presentation of discontinued operations as explained in Note 11. Overview Strategic Report Governance Financial Statements 113 2020 £’000 (1,781) 2020 £’000 2021 £’000 581 2021 £’000 32,290 32,285 68 68 32,358 32,353 2021 pence 1.8 1.8 2021 £’000 1,789 2021 pence 5.5 5.5 2021 £’000 2020 pence (5.5) (5.5) Restated1 2020 £’000 727 Restated1 2020 pence 2.3 2.2 Restated1 2020 £’000 (1,208) (2,508) 2021 pence (3.7) (3.7) 2021 £’000 2,721 2021 pence 8.4 8.4 Restated1 2020 pence (7.8) (7.8) Restated1 2020 £’000 3,784 Restated1 2020 pence 11.7 11.7 Total profit/(loss) attributable to ordinary shareholders Number of shares Basic weighted average number of ordinary shares in issue Dilutive potential ordinary shares Diluted weighted average number of shares Total earnings per share Earnings per ordinary share Earnings from continuing operations Total profit for the year Total earnings per share for continuing operations Earnings per ordinary share from continuing operations Earnings from discontinuing operations Total loss for the year Total earnings per share for discontinuing operations Earnings per ordinary share from discontinuing operations Earnings from continuing underlying operations Total profit for the year Basic Diluted Basic Diluted Basic Diluted Total earnings per share for continuing underlying operations Earnings per ordinary share from continuing underlying operations Basic Diluted 1 2020 figures have been restated for the presentation of discontinued operations as explained in Note 11. 114 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 13 Goodwill and Intangible Assets Group Cost Amortisation and impairment At 1 August 2019 Additions At 31 July 2020 Additions Reclassification to assets held for sale Goodwill £’000 Customer relationships £’000 Trade names £’000 Other £’000 Software and software licences £’000 Total £’000 28,739 22,245 5,346 3,809 6,225 66,364 – – – – 2,348 2,348 28,739 22,245 5,346 3,809 8,573 68,712 – – – – – – – – 1,872 1,872 (2) (2) At 31 July 2021 28,739 22,245 5,346 3,809 10,443 70,582 At 1 August 2019 24,382 19,924 4,951 3,289 2,067 54,613 Amortisation for the year Impairment At 31 July 2020 Amortisation for the year Impairment Reclassification to assets held for sale – – 325 281 53 53 238 – 272 – 888 334 24,382 20,530 5,057 3,527 2,339 55,835 – – – 332 – – 45 – – 171 422 970 – – – (1) – (1) At 31 July 2021 24,382 20,862 5,102 3,698 2,760 56,804 Net book value At 31 July 2020 At 31 July 2021 4,357 4,357 1,715 1,383 289 244 282 111 6,234 12,877 7,683 13,778 Other intangibles comprises candidate databases and non-compete agreements. Included in software and software licenses was a cost of £7,684,000 (2020: £5,819,000) and a net book value of £7,447,000 (2020: £5,819,000) relating to internally generated intangible assets. The carrying amount of goodwill allocated to Cash Generating Unit’s (CGU’s) is as follows: UK Engineering Resourcing Solutions Limited Total Impairment testing 2021 £’000 1,712 2,645 4,357 2020 £’000 1,712 2,645 4,357 Goodwill and intangible assets are reviewed and tested for impairment on an annual basis or more frequently to determine if there is an indication of impairment. If any indication of impairment exists, then the goodwill CGU or individual asset’s recoverable amount is calculated. The recoverable amounts of the CGU’s are determined from value-in-use calculations. The key assumptions and estimates used when calculating a CGU’s value-in-use, are as follows: Cash flows from operations Cash flows from operations are based on the Group’s 2022 budget as approved by the Group’s board of directors plus four years of forecasts at a CGU level updated for any key changes, which are prepared using expectations of revenue and operating cost growth over the next five years. The Group prepares cash flow forecasts adjusted for allocations of group overhead costs, and extrapolates cash flows into perpetuity based on long-term growth rates. The impact of COVID-19 has been incorporated into these forecasts, based on the time expected for trading to return to pre-pandemic levels. Overview Strategic Report Governance Financial Statements 115 Discount rates The pre-tax rates used to discount the forecast cash flows were a range from 15.0% to 16.0% (2020: 13.9% to 14.9%) reflecting the Group’s weighted average cost of capital, adjusted for specific risks associated with the asset’s estimated cash flows. The discount rate is based on the weighted average cost of capital (WACC). The risk-free rate, based on government bond rates, is adjusted for equity and industry risk premiums, reflecting the increased risk compared to an investor who is investing the market as a whole. Net present values are calculated using pre-tax discount rates derived from the Group’s post-tax WACC of 12.5% (2020: 11.7%) for CGUs assessed. Growth rates The medium-term growth rates are based on management forecasts, reflecting past experience and economic environment. Long-term growth rates are based on external sources of an average estimated growth rate of 2.0% (2020: 2.0%), using a weighted average of operating country real growth expectations. As a result of these forecasts, no impairment losses (2020: £334,000) have been recorded in respect of goodwill and acquired intangible assets within any CGUs (2020 impairment loss in UK Technology CGU) as follows: UK Technology Total Goodwill 2021 £’000 – – Intangible assets 2021 £’000 – – Total 2021 £’000 – – Goodwill 2020 £’000 – – Intangible assets 2020 £’000 334 334 Total 2020 £’000 334 334 Goodwill and acquired intangibles within the UK Technology, UK Engineering and International CGU’s relate to the Networkers acquisition. At 31 July 2021, the recoverable amount of the UK Engineering CGU was £6,027,000 (2020: £5,075,000) and £13,995,000 (2020: £14,603,000) for the Resourcing Solutions Limited CGU. The UK Technology CGU was fully impaired in the prior year. Sensitivity analysis has been performed to show the impact of reasonable or possible changes in key assumptions, in particular with reference to the economic uncertainty surrounding the impact of, and future recovery from, the COVID-19 pandemic. An increase in the discount rate by a factor of 0.2% to 12.7%, or a reduction in the long-term growth rate to 1.8%, would not trigger a material impairment for any of the CGU’s. A moderate reduction of 10% of management’s forecast growth projection for FY22 and FY23 respectively would not trigger an impairment of goodwill for either RSL or UK Engineering CGU’s. Company Cost At 1 August 2019 Additions At 31 July 2020 Additions At 31 July 2021 Amortisation and impairment At 1 August 2019 Amortisation for the year Impairment At 31 July 2020 Amortisation for the year Impairment At 31 July 2021 At 31 July 2020 At 31 July 2021 Net book value Trade names £’000 – 20 20 – 20 – 4 – 4 3 – 7 16 13 116 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 14 Property, Plant and Equipment Group Cost At 1 August 2019 Reclassification of dilapidation assets Additions Disposals Effects of movements in exchange rates At 31 July 2020 Additions Disposals Impairment Accumulated depreciation Reclassification to assets held for sale At 31 July 2021 At 1 August 2019 Reclassification of dilapidation assets Charge for the year Released on disposal At 31 July 2020 Charge for the year Released on disposal Impairment Reclassification to assets held for sale Net book value At 31 July 2021 At 31 July 2020 At 31 July 2021 Motor vehicles £’000 Leasehold improvements £’000 Fixtures, fittings & equipment £’000 4,632 – 90 (1) – 4,721 332 – (92) (13) Total £’000 9,383 (1,535) 191 (242) (37) 7,760 332 (9) (121) (13) 4,730 (1,535) 101 (204) (37) 3,055 – (25) (29) – 3,001 4,948 7,949 1,897 (576) 564 (18) 1,867 58 (17) (29) – 1,879 1,188 1,122 4,177 – 374 (134) 4,417 155 – (74) (6) 4,492 304 456 21 – – (37) – (16) – 16 – – – 17 – 5 (38) (16) – 16 – – – – – Impairment during the year relates to the closure of the Mexican operations as disclosed in Note 11. There were no capital commitments as at 31 July 2021 or 31 July 2020. 15 Investments in Subsidiary Undertakings Cost and carrying value: Balance at 1 August Purchase of investments Capital contributions to subsidiaries/(reversal of capital contributions) Reclassification to assets held for sale Balance at 31 July Group Company 2021 £’000 2020 £’000 19 – – (19) – – 19 – – 19 2021 £’000 8,520 – 29,943 – 38,463 The movement in investments in group undertakings represents capitalisation of intercompany receivables due from Matchtech Group (Holdings) Limited in return for an issue of shares in Matchtech Group (Holdings) Limited as well as capital contributions made in Matchtech Group (UK) Limited relating to share-based payments. In the prior year, a reversal of the capital contribution was recorded as historical share-based payment charges were reversed due to vesting performance conditions not being met. 6,091 (576) 943 (190) 6,268 213 (1) (103) (6) 6,371 1,492 1,578 2020 £’000 8,580 – (60) – 8,520 Overview Strategic Report Governance Financial Statements 117 Kula Nathi Investments Proprietary Limited formed a partnership with Ingenious Equity Proprietary Limited in 2018 to set up Sakha Sonke Private Equity Fund. Kula Nathi has control over the private equity fund in line with the criteria of IFRS 10 and therefore Sakha Sonke Private Equity Fund has been consolidated in the Group’s result until 31 July 2021 before it was classified as held for sale. Following the announcement of the expected sales of the South African recruitment operations on 30 July 2021, both Kula Nathi Investments Proprietary Limited and Sakha Sonke Private Equity Fund will be sold as part of the deal. As such any assets or liabilities held in those two entities’ balance sheets have been reclassified as held for sale as at 31 July 2021. During the 2020 financial year, Sakha Sonke Private Equity Fund invested a total of £19,000 in external minority investments in accordance with the partnership agreement between Kula Nathi Investments Proprietary Limited and Ingenious Equity Proprietary Limited. At 31 July 2021, this investment has been classified as an asset held for sale as part of the sale of the South African recruitment operations. The subsidiary undertakings at the year end are as follows: Registered Office Note Country of Incorporation Share Class % held 2021 % held 2020 Main Activities Alderwood Education Ltd1 Application Services Limited1 Barclay Meade Ltd1 Cappo Group Limited1 Cappo International Limited1 Comms Software Limited2 Comms Resources Limited1 Connectus Technology Limited1 Elite Computer Staff Ltd. 2 Gattaca Recruitment Limited2 Gattaca Solutions Limited1 Matchtech Engineering Limited2 Matchtech Group (Holdings) Limited1 Matchtech Group (UK) Limited1 Matchtech Group Management Company Limited 2 Matchtech Limited2 MSB Consulting Services Limited2 Networkers International (UK) Limited1 Networkers International Limited1 Networkers International Trustees Limited2 Networkers Recruitment Services Limited2 Provanis Limited2 Resourcing Solutions Limited1 The Comms Group Limited1 Gattaca GmbH MSB International GMBH Gattaca BV Cappo Inc. Matchtech Engineering Inc.4 Networkers Inc. Networkers International LLC Networkers International (Canada) Inc. Gattaca Mexico Services, S.A. de C.V NWI Mexico, S. de R.L. de C.V. Kithara Investments Proprietary Limited Kula Nathi Investments Proprietary Limited Networkers International Proprietary Limited Networkers International South Africa Proprietary Limited Networkers International (China) Co. Limited Comms Resource Sdn Bhd Networkers International (Malaysia) Sdn Bhd NWKI Consultancy FZ LLC4 Cappo Qatar LLC3 Networkers Consultancy (Singapore) PTE. Limited Gattaca Information Technology Services SLU Gattaca Recruitment ETT, SLU Networkers International (India) PTE 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 13 3 5 4 5 5 11 6 6 8 7 7 7 9 10 10 12 15 14 16 16 17 United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Provision of recruitment consultancy Provision of recruitment consultancy Provision of recruitment consultancy Holding Provision of recruitment consultancy Non trading Provision of recruitment consultancy Provision of recruitment consultancy Non trading Non trading Provision of recruitment consultancy Non trading United Kingdom Ordinary 99.7% 99.7% Holding United Kingdom Ordinary 99.998% 99.998% Provision of recruitment consultancy United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary Germany Germany Netherlands United States United States United States United States Canada Mexico Mexico South Africa South Africa South Africa South Africa China Malaysia Malaysia United Arab Emirates Qatar Singapore Spain Spain India Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 49% 100% 100% 100% 100% Non trading Non trading Non trading Provision of recruitment consultancy Holding Non trading Non trading Non trading Provision of recruitment consultancy Holding Provision of recruitment consultancy Non trading Provision of recruitment consultancy Provision of recruitment consultancy Non trading Provision of recruitment consultancy Non trading Provision of recruitment consultancy Provision of recruitment consultancy Provision of recruitment consultancy Holding Holding Provision of recruitment consultancy Provision of recruitment consultancy Provision of recruitment consultancy Non trading Non trading Non trading Non trading Non trading Provision of recruitment consultancy Non trading Non trading 1 For the year ended 31 July 2021, Gattaca plc has provided a legal guarantee dated 5 November 2021 under s479a–s479c of the Companies Act 2006 to these subsidiaries for audit exemption. 2 These dormant companies are exempt from preparing individual financial statements by virtue of s394A of Companies Act 2006. 3 Gattaca plc has 100% of the beneficial interest in these entities, and consolidates them as wholly owned subsidiaries in line with IFRS 10. 4 These companies were disposed of or liquidated in the year, with the shareholding remaining the same as per the year ended 31 July 2020 up to the date of disposal or liquidation. 118 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 15 Investments in Subsidiary Undertakings continued All holdings by Gattaca plc are indirect except for Matchtech Group (Holdings) Limited, Gattaca GmbH and Matchtech Group Management Company Limited. Networkers International (UK) Limited has a branch in Russia which is consolidated into the Group’s result. The Group’s Share Incentive Plan (SIP) is held by Gattaca plc UK EBT. The Group has control over the EBT and therefore it has been consolidated in the Group’s results. During the year, Gattaca plc set up a branch for a new Employee Benefit Trust (the EBT) and appointed Apex Financial Services Limited as the Trustee and the administrator to this new EBT. The Company and Group has control over the new EBT and therefore it has been consolidated in the Group and Company’s results. 1450 Parkway, Solent Business Park, Whiteley, Fareham, Hampshire, PO15 7AF, United Kingdom c/o Grant Thornton, Jahnstrasse 6, 70597, Stuttgart, Germany Registered office addresses 1 2 3 Herengracht 124–128, 1015 BT Amsterdam, Netherlands 4 5 6 Avenida Paseo de la Reforma No. 296 Piso 15 Oficina A, Colonia Juárez, Delegación Cuauhtémoc, 33 SW Flager Avenue, Stuart, Florida, USA 6400 International Parkway, Suite 1510, Plano TX 75093, USA Código Postal 06600. Ciudad de México, Mexico 201 Heritage House, 20 Dreyer Street, Claremont, 7735, South Africa 6th Floor, 119 Hertzog Boulevard, Foreshre, Cape Town, 8001, South Africa B-2701, Di San Zhi Ye Building, No. A1 Shuguang Xili, Chao Yang District, Beijing, China 7 8 9 10 Level 8, Symphony House, Block D13, Pusat Dagangan Dana 1, Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor, Malaysia 1 Richmond Street West, Suite 902, Toronto, Ontario, M5H 3W4, Canada 11 12 Office 3022, Shatha Tower, Dubai Media City, Dubai, United Arab Emirates 13 Franlinstr. 48, 60456, Frankfurt, Germany 14 371 Beach Road, #15-09 Keypoint, Singapore 199597 15 Suite #204, Office #40 Al Rawabi Street, Muntazah, Doha, State of Qatar. PO Box 8306 16 Calle General, Moscardo 6. Espaco Office, Madrid 28020, Spain 17 3rd Floor, 301 DLF City Court Sikandarpur, Gurgaon-122002 Harayana, India 16 Deferred Tax Group Share-based payments Accelerated capital allowances Acquired intangibles Other temporary and deductible differences Gross deferred tax assets/(liabilities) Asset 2021 £’000 146 – – 174 320 Liability 2021 £’000 – (466) (369) – Net 2021 £’000 146 (466) (369) 174 Credited/ (charged) to profit 2021 £’000 Credited to equity 2021 £’000 Foreign exchange 2021 £’000 Impact of transition to IFRS 16 2021 £’000 60 (360) 45 (50) 65 – – – – – – 2 2 – – – – – (835) (515) (305) 65 Amounts available for offset (320) 320 Reclassification to assets held for sale Net deferred tax assets/(liabilities) – – (9) (524) (524) – (9) Net 2020 £’000 21 (106) (414) 222 Asset 2020 £’000 Liability 2020 £’000 – (106) (414) – 21 – – 222 243 (520) (277) (243) 243 – – (277) (277) Credited/ (charged) to profit 2020 £’000 (Charged) to equity 2020 £’000 Foreign exchange 2020 £’000 Impact of transition to IFRS 16 2020 £’000 (68) (114) 142 62 22 (16) – – – (16) – – – (6) (6) – – – 119 119 Group Share-based payments Accelerated capital allowances Acquired intangibles Other temporary and deductible differences Gross deferred tax assets/(liabilities) Amounts available for offset Net deferred tax assets/(liabilities) Overview Strategic Report Governance Financial Statements The movement on the net deferred tax is as shown below: At 1 August Impact of transition to IFRS 16 Recognised in income (Note 10) Recognised in equity Foreign exchange Reclassification to assets held for sale At end of year Deferred tax assets reversing within 1 year Deferred tax liabilities reversing within 1 year Reclassification of deferred tax assets reversing within 1 year to assets held for sale At end of year Deferred tax assets reversing after 1 year Deferred tax liabilities reversing after 1 year At end of year Unrecognised deferred tax assets Tax losses carried forward against profits of future years Net deferred tax assets 119 2020 £’000 (396) 119 22 (16) (6) – Group 2021 £’000 (277) – (305) 65 2 (9) (524) (277) 2021 £’000 248 (84) (9) 155 2021 £’000 72 (751) (679) 2020 £’000 179 (232) – (53) 2020 £’000 64 (288) (224) Group 2021 £’000 1,865 1,865 2020 £’000 1,640 1,640 Of the unused tax losses £2,071,000 (2020: £3,234,000) can be carried forward indefinitely, £817,000 (2020: £340,000) expires within 10 years and £3,053,000 (2020: £142,000) expires within 20 years. No deferred tax is recognised on unremitted earnings of overseas subsidiaries as the Group is in a position to control the timing of the reversal of temporary differences and it is probable that such differences will not reverse in the foreseeable future. The temporary differences associated with the investments in subsidiaries for which a deferred tax liability has not been recognised aggregate to £3,675,000 (2020: £5,345,000). If the earnings were remitted, tax of £45,000 (2020: £120,000) would be payable. The main UK corporation tax rate of 19% will increase to 25% from 1 April 2023. Deferred tax has been valued based on the substantively enacted rates at each balance sheet date at which the deferred tax is expected to reverse. 17 Trade and Other Receivables Trade receivables from contracts with customers, net of loss allowance Amounts owed by group companies Other receivables Prepayments Accrued income Total Group 2021 £’000 2020 £’000 34,187 27,703 Company 2021 £’000 – 2020 £’000 – – 1,619 1,389 26,742 63,937 – 3,046 101,610 3,554 1,705 15,900 48,862 – – – – – – 3,046 101,610 The amounts owed by group companies in the company statement of financial position are considered to approximate to fair value. Amounts owed by group companies are unsecured, repayable on demand and accrue no interest. 120 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 17 Trade and Other Receivables continued The directors consider that the carrying amount of trade and other receivables approximates to the fair value. Accrued income relates to the Group’s right to consideration for temporary and permanent placements made but not billed at the year end. These transfer to trade receivables once billing occurs. Impairment of accrued income Gross accrued income Loss allowance Accrued income, net of loss allowance Group 2021 £’000 27,807 (1,065) 26,742 2020 £’000 16,169 (269) 15,900 The loss allowance for accrued income was determined as follows: 31 July 2021 Weighted expected loss rate (%) Gross carrying amount – accrued income (£’000) Loss allowance (£’000) 31 July 2020 Weighted expected loss rate (%) Gross carrying amount – accrued income (£'000) Loss allowance (£'000) Current 2.9% 21,455 624 Current 0.0% 13,858 – More than 30 days past due More than 60 days past due More than 90 days past due 2.7% 3,546 96 2.6% 1,519 40 23.7% 1,287 305 More than 30 days past due More than 60 days past due More than 90 days past due 0.0% 1,398 – 0.0% 38.7% 218 – 695 269 Total 27,807 1,065 Total 16,169 269 The loss allowance for accrued income at year end reconciles to the opening loss allowance as per below: Opening loss allowance at 1 August Increase in loss allowance recognised in profit and loss during the year Closing loss allowance at 31 July Impairment of trade receivables from contracts with customers Trade receivables from contracts with customers, gross amounts Loss allowance Trade receivables from contracts with customers, net of loss allowance Group 2021 £’000 269 796 1,065 2020 £’000 – 269 269 Group 2021 £’000 37,636 (3,449) 34,187 2020 £’000 31,690 (3,987) 27,703 Trade receivables are amounts due from customers for services performed in the ordinary course of business. They are generally settled within 30-60 days and are therefore all classified as current. The Group uses a third party credit scoring system to assess the creditworthiness of potential new customers before accepting them. Credit limits are defined by customer based on this information. All customer accounts are subject to review on a regular basis by senior management and actions are taken to address debt aging issues. Trade receivables are subject to the expected credit loss model. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics by geographical region or customer industry. The expected loss rates are based on the payment profiles of sales over a period of 36 months before the relevant year end and the corresponding historical credit losses experienced within this period. The historic loss rates are then adjusted to reflect any relevant current and forward-looking information expected to affect the ability of customers to settle the receivables. Additionally, the ongoing impact of COVID-19 and projected post-COVID economic recovery, based on external reports, forecast data and scenario analysis, have been taken into account when assessing the credit risk profiles for specific industries and geographies. Overview Strategic Report Governance Financial Statements 121 Total 37,636 3,449 Total 31,690 3,987 2020 £’000 2,189 2,281 (483) 3,987 Total £’000 2,681 (934) 1,747 (38) The loss allowance for trade receivables was determined as follows: 31 July 2021 Weighted expected loss rate (%) Gross carrying amount – trade receivables (£'000) Loss allowance (£'000) 31 July 2020 Weighted expected loss rate (%) Gross carrying amount – trade receivables (£'000) Loss allowance (£'000) Current 5.2% 33,741 1,756 Current 6.9% 19,079 1,307 More than 30 days past due More than 60 days past due More than 90 days past due 5.0% 654 33 18.6% 743 138 60.9% 2,498 1,522 More than 30 days past due More than 60 days past due More than 90 days past due 8.8% 8,941 783 10.2% 1,788 183 91.1% 1,882 1,714 The loss allowance for trade receivables at year end reconciles to the opening loss allowance as per below: Opening loss allowance at 1 August (Decrease)/increase in loss allowance recognised in profit and loss during the year Receivables written off during the year as uncollectible Closing loss allowance at 31 July Group 2021 £’000 3,987 (296) (242) 3,449 18 Provisions Group Balance at 1 August Adjustment on initial application of IFRS 16 Restated balance at 1 August Effects of movements in exchange rates Provisions made in the year Provisions utilised Provisions released Provisions reclassified to held for sale Balance at 31 July Group Non-current Current Total 2021 Dilapidation provisions £’000 Onerous lease provisions £’000 Other provisions £’000 Total £’000 Dilapidation provisions £’000 2020 Onerous lease provisions £’000 Other provisions £’000 1,710 – 1,710 – 74 – (58) (46) 1,680 – – – – – – – – – 1,084 2,794 1,747 934 – – – (934) 1,084 2,794 – 114 (679) (450) (46) – 40 (679) (392) – 53 1,747 (38) 1 – – – 1,733 1,710 – – – – – – – – – – – 1,084 1,085 – – – – – – 1,084 2,794 2021 2020 restated1 Dilapidation provisions £’000 Onerous lease provisions £’000 Other provisions £’000 1,269 411 1,680 – – – – 53 53 Total £’000 1,269 464 1,733 Dilapidation provisions £’000 Onerous lease provisions £’000 Other provisions £’000 Total £’000 1,587 123 1,710 – – – – 1,587 1,084 1,207 1,084 2,794 Dilapidation provisions are held in respect of the Group’s office properties where lease obligations include contractual obligations to return the property to its original condition at the end of the lease term, ranging between one and seven years. 1 Presentation of provisions between current and non-current liabilities for the year ended 2020 has been restated as explained in Note 1.24. 122 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 18 Provisions continued Other provisions have been recognised primarily for restructuring activities, with the remainder in respect of claims for certain legal matters. In July 2020, the Group publicly announced plans for a significant restructuring of its UK employee base and restructuring provisions of £971,000 were recognised based on the directors’ best estimate of the forecast direct costs arising from the restructuring. £679,000 of the restructuring provision was utilised in the year to 31 July 2021 and the remainder of the provision has been released. As such, there is no restructuring provision held as at 31 July 2021. Other provisions held as at 31 July 2021 are primarily in respect of claims for certain legal matters. No provisions are held by the parent Company (2020: £nil). 19 Trade and Other Payables Trade payables Amounts owed to group undertakings Taxation and social security Contractor wages payable Accruals and deferred income Other payables Total Group Company 2021 £’000 4,530 – 10,473 27,209 5,158 8,751 56,121 2020 £’000 1,750 – 15,859 20,519 4,348 3,653 46,129 2021 £’000 – 2,972 – – – – 2020 £’000 – 63,590 – – – – 2,972 63,590 Amounts owed to group undertakings are unsecured, repayable on demand and accrue no interest. 20 Loans and Borrowings Group Company Working capital facility Bank loans and borrowings due in less than one year Revolving credit facility Finance costs capitalised Bank loans and borrowings due in more than one year 2021 £’000 9,348 9,348 – – – 2020 £’000 151 151 7,500 (196) 7,304 Total bank loans and borrowings 9,348 7,455 2021 £’000 – – – – – – 2020 £’000 – – 7,500 (196) 7,304 7,304 In January 2020, the Group transferred a portion of its recourse working capital facility to a non-recourse working capital facility. Under the terms of the non-recourse facility, the trade receivables assigned to the facility are owned by HSBC and so have been de-recognised from the Group’s statement of financial position; in addition, the non- recourse working capital facility does not meet the definition of loans and borrowings under IFRS. The Group continues to collect cash from trade receivables assigned to the non-recourse facility on behalf of HSBC which is then transferred to them periodically each month. Any cash collected from trade receivables under the non- recourse facility at the end of reporting period that had not been transferred to HSBC, is presented as restricted cash included within the Group’s cash balance. At 31 July 2021, the Group had agreed banking facilities with HSBC totalling £75m (31 July 2020: £75m) invoice financing working capital facility (recourse and non-recourse). The Group’s working capital facilities are secured by way of an all assets debenture, which contains fixed and floating charges over the assets of the Group. This facility allows certain companies within the Group to borrow up to 90% of invoiced or accrued income up to a maximum of £75m. Interest is charged on the recourse borrowings at a rate of 1.75% (31 July 2020: 1.75%) over the HSBC Bank base rate of 0.1% (2020: 0.1%). The Group’s £7.5m revolving credit facility was secured by way of a fixed and floating charge over assets of the Group. In October 2020, the Group repaid the £7.5m revolving credit facility in full and no longer is required to comply with certain financial covenants over the revolving credit facility. Overview Strategic Report Governance Financial Statements 123 21 Financial Assets and Liabilities Statement of Financial Position Classification The carrying amount of the Group’s financial assets and liabilities as recognised at the statement of financial position date of the reporting years under review may also be categorised as follows: Financial assets are included in the statement of financial position within the following headings: Group 2021 £’000 Company 2020 £’000 2021 £’000 2020 £’000 Trade and other receivables (Note 17) – Financial assets recorded at amortised cost 62,548 47,157 3,046 101,610 Cash and cash equivalents – Financial assets recorded at amortised cost Total 29,238 91,786 34,796 81,953 4 – 3,050 101,610 Financial liabilities are included in the statement of financial position within the following headings: Borrowings (Note 20) – Financial liabilities recorded at amortised cost 9,348 7,455 Leases (Note 22) – Financial liabilities recorded at amortised cost 5,761 7,736 – – Group 2021 £’000 Company 2020 £’000 2021 £’000 2020 £’000 7,304 – Trade and other payables (Note 19) – Financial liabilities recorded at amortised cost Total 45,648 60,757 30,270 45,461 2,972 2,972 63,590 70,894 The amounts at which the assets and liabilities above are recorded are considered to approximate to fair value. 124 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 22 Leases On 1 August 2019, the Group adopted IFRS 16 Leases, applying a modified retrospective approach to transition. The consolidated statement of financial position shows the following amounts related to leases where the Group is a lessee. Right-of-use-assets Cost At 1 August 2019 Accumulated depreciation Reclassification of dilapidation assets Additions Effect of reassessment of lease term Effect of movement in exchange rates At 31 July 2020 At 1 August 2020 Effect of reassessment of lease term Effect of movement in exchange rates Reclassification to assets held for sale At 31 July 2021 At 1 August 2019 Reclassification of dilapidation assets Depreciation charge Impairment Effect of movement in exchange rates At 31 July 2020 At 1 August 2020 Depreciation charge Impairment Effect of movement in exchange rates Reclassification to assets held for sale Net book value At 31 July 2021 At 1 August 2020 At 31 July 2021 Properties £’000 9,335 1,535 42 (862) (46) 10,004 10,004 416 41 (216) Vehicles £’000 336 – 12 – – 348 348 – – – 10,245 348 – 576 1,858 432 (19) 2,847 2,847 1,749 183 40 (190) 4,629 7,157 5,616 – – 176 – – 176 176 119 – – – 295 172 53 Other £’000 17 – – – (1) 16 16 5 1 (14) 8 – – 7 – – 7 7 7 – – Total £’000 9,688 1,535 54 (862) (47) 10,368 10,368 421 42 (230) 10,601 – 576 2,041 432 (19) 3,030 3,030 1,875 183 40 (11) (201) 3 9 5 4,927 7,338 5,674 At 31 July 2021, included within property right-of-use assets is costs of £1,491,000 (2020: £1,577,000) and net book value of £526,000 (2020: £802,000) relating to dilapidation assets. During the year, the Group recognised an impairment of £114,000 in respect of a UK office property that is no longer is use by the business. The remainder of the £69,000 impairment charge in the year is due to the closure of Mexico operations. In addition, the lease term for the Canadian office has been extended to September 2025 which led to additional right-of-use assets as shown in the disclosure above. Lease liabilities Current Non-current Total 31 July 2021 31 July 2020 Properties £’000 Vehicles £’000 Other £’000 1,423 4,268 5,691 55 9 64 2 4 6 Total £’000 1,480 4,281 5,761 Properties £’000 Vehicles £’000 Other £’000 1,855 5,696 7,551 132 44 176 3 6 9 Total £’000 1,990 5,746 7,736 Lease liabilities for properties have lease terms of between one and seven years. The discount rates used to measure the lease liabilities at 31 July 2021 range between 1.6% to 10.1% for properties (2020: 2.0% – 10.1%), 4.7% for vehicles (2020: 4.7%) and 10.1% for other leases (2020: 10.1%). Overview Strategic Report Governance Financial Statements Reconciliation of lease liabilities movement in the year At 1 August 2019 Lease payments Interest expense on lease liabilities Effect of reassessment of lease term Effect of movement in exchange rates At 31 July 2020 Properties £’000 10,260 (2,011) 201 (862) (37) 7,551 Vehicles £’000 347 (183) 12 – – 176 Other £’000 17 (7) 1 – (2) 9 Properties £’000 Vehicles £’000 Other £’000 At 1 August 2020 Lease payments Interest expense on lease liabilities Effect of reassessment of lease term Effect of movement in exchange rates Liabilities directly associated with assets held for sale At 31 July 2021 7,551 (2,387) 151 268 120 (12) 5,691 176 (116) 4 – – – 64 Amounts in respect of leases recognised in the income statement Depreciation expense of right-of-use assets Impairment of right-of-use assets Interest expense on lease liabilities Expense relating to leases of low-value assets and short-term leases (included in administrative expenses) 23 Share Capital Authorised share capital 40,000,000 (2020: 40,000,000) Ordinary shares of £0.01 each Allotted, called up and fully paid: 32,290,400 (2020: 32,290,000) Ordinary shares of £0.01 each The number of shares in issue in the Company is shown below: In issue at 1 August Exercise of share options In issue at 31 July 125 Total £’000 10,624 (2,201) 214 (862) (39) 7,736 Total £’000 7,736 (2,511) 156 273 121 (14) 5,761 2020 £’000 2,041 432 214 239 2020 £’000 400 2020 £’000 323 9 (8) 1 5 1 (2) 6 2021 £’000 1,875 183 156 14 Company 2021 £’000 400 Company 2021 £’000 323 Company 2021 000s 2020 000s 32,290 32,285 – 5 32,290 32,290 The Company has one class of ordinary shares. Each share is entitled to one vote in the event of a poll at a general meeting of the Company. Each share is entitled to participate in dividend distributions. 126 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 23 Share Capital continued Share options The following options arrangements exist over the Company’s shares: 2021 ‘000s 2020 ‘000s Date of grant Exercise price pence From To Exercise period Zero Priced Share Option Bonus Zero Priced Share Option Bonus Zero Priced Share Option Bonus Zero Priced Share Option Bonus Zero Priced Share Option Bonus Zero Priced Share Option Bonus Zero Priced Share Option Bonus Zero Priced Share Option Bonus Zero Priced Share Option Bonus Zero Priced Share Option Bonus Zero Priced Share Option Bonus Zero Priced Share Option Bonus Long-Term Incentive Plan Options Long-Term Incentive Plan Options Long-Term Incentive Plan Options Long-Term Incentive Plan Options Long-Term Incentive Plan Options – – 1 1 1 2 4 32 3 24 231 171 510 194 129 90 63 1 04/02/2011 1 04/02/2011 1 1 1 2 4 31/01/2012 31/01/2012 31/01/2013 31/01/2013 01/01/2014 32 01/01/2014 3 28/01/2015 24 28/01/2015 231 171 19/12/2018 19/12/2018 510 20/01/2020 194 20/01/2020 – 01/12/2020 – 01/12/2020 – 01/12/2020 1 03/02/2013 04/02/2021 1 03/02/2014 04/02/2021 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 30/01/2014 31/01/2022 30/01/2015 31/01/2022 30/01/2015 31/01/2023 30/01/2016 31/01/2023 01/01/2016 01/01/2024 01/01/2017 01/01/2024 28/01/2017 28/01/2025 28/01/2018 28/01/2025 19/12/2021 19/12/2028 19/12/2021 19/12/2028 20/01/2023 20/01/2030 20/01/2023 20/01/2030 01/12/2023 01/12/2030 01/12/2023 01/12/2030 01/12/2023 01/12/2030 Total 1,456 1,176 During the year, the Group granted share options under the Long-Term Incentive Plan for executive directors and senior management. The share options were granted on 1 December 2020 to members of staff to be held over a three-year vesting period and are subject to a cumulative continuing underlying PBT performance condition. All share options have a life of 10 years from grant date and are equity settled on exercise. The movement in share options is shown below: Outstanding at 1 August Granted Forfeited/ lapsed Exercised Outstanding at 31 July Exercisable at 31 July 2021 Weighted average exercise price (pence) 74.6 1.0 1.3 – 1.2 1.0 Number ‘000s 1,176 1,106 (826) – 1,456 69 Weighted average share price (pence) – – – – 2020 Weighted average exercise price (pence) Weighted average share price (pence) – – – 116.7 13.1 1.0 27.3 1.0 74.6 1.0 Number ‘000s 883 704 (406) (5) 1,176 69 Overview Strategic Report Governance Financial Statements 127 The numbers and weighted average exercise prices of share options vesting in the future are shown below. Exercise Date 19/12/2021 20/01/2023 01/12/2023 31/01/2024 Total 2021 2020 Weighted average remaining contract life (months) 5 18 28 30 Weighted average exercise price (pence) Weighted average remaining contract life (months) 1.0 1.0 2.4 – 17 30 – – Number ‘000s 402 703 219 60 1,384 Weighted average exercise price (pence) 1.0 1.0 – – Number ‘000s 402 704 – – 1,106 In addition to the share option schemes the Group operated a Share Incentive Plan (SIP), which is an HMRC approved plan available to all employees enabling them to purchase shares out of pre-tax salary. For each share purchased the Company grants an additional share at no cost. During the year the Company purchased 73,190 shares (2020: 124,912) under this scheme. The Group’s Share Incentive Plan is held by an Employee Benefit Trust (EBT) for tax purposes. The EBT buys shares with funds from the Group and any shares held by the EBT are distributed to employees once vesting conditions are satisfied. The Group has control over the EBT and therefore it has been consolidated at 31 July 2021 and 31 July 2020. During the year, a new EBT was set up as the branch of Gattaca plc and Apex Financial Services Limited was pointed as the Trustee and the administrator to this new EBT. As at 31 July 2021, excess funds of £28,000 (2020: £70,000) was held by the EBT, which has been included in cash and cash equivalents. The following expenses or credits were recognised in the income statement in relation to share-based payment transactions: Group Zero Priced Share Option Bonus Long-Term Incentive Plan Options Share Incentive Plan Total 2021 £’000 – 133 138 271 2020 £’000 (62) 2 137 77 128 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 23 Share Capital continued The key assumptions used in the calculation of fair value per awards are as follows: Date of grant 09/09/2016 SIP 07/10/2016 08/11/2016 07/12/2016 16/01/2017 SIP SIP SIP SIP 31/01/2017 Zero Priced Share Option Bonus 31/01/2017 Zero Priced Share Option Bonus 31/01/2017 Zero Priced Share Option Bonus 31/01/2017 Zero Priced Share Option Bonus 31/01/2017 Long Term Incentive Plan Options 03/02/2017 Long Term Incentive Plan Options 07/02/2017 07/03/2017 SIP SIP 07/04/2017 SIP 09/05/2017 SIP 07/06/2017 SIP 07/07/2017 SIP 07/08/2017 SIP 08/09/2017 SIP 09/10/2017 08/11/2017 08/12/2017 09/01/2018 SIP SIP SIP SIP 08/02/2018 SIP 08/03/2018 SIP 12/04/2018 SIP 09/05/2018 SIP 08/06/2018 SIP 09/07/2018 SIP 08/08/2018 SIP 10/09/2018 SIP 08/10/2018 SIP 08/11/2018 10/12/2018 SIP SIP 19/12/2018 Zero Priced Share Option Bonus 19/12/2018 Zero Priced Share Option Bonus 09/01/2019 SIP 08/02/2019 SIP 11/03/2019 SIP 08/04/2019 SIP 09/05/2019 SIP 10/06/2019 SIP 08/07/2019 SIP 07/08/2019 SIP 09/09/2019 SIP 08/10/2019 SIP Share price on the date of grant (£) Exercise price (£) Volatility (%) Vesting period (yrs) Dividend yield (%) Risk free rate of interest (%) Fair value (£) 3.87 3.57 3.16 2.95 2.98 2.92 2.92 2.90 2.90 2.90 2.90 2.94 2.94 3.10 3.18 3.28 3.09 2.87 2.99 3.10 3.12 3.05 3.00 2.63 2.31 1.84 1.40 1.58 1.25 1.50 1.40 1.30 1.41 1.14 1.07 1.07 1.13 1.17 1.18 1.39 1.58 1.53 1.43 1.44 1.28 1.32 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.72 1.45 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 N/A N/A N/A N/A N/A 31.6% 31.6% 31.6% 31.6% 31.6% 31.6% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 44.9% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 N/A N/A N/A N/A N/A 7.9% 7.9% 7.9% 7.9% 7.9% 7.9% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.0% 0.0% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.7% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3.87 3.57 3.16 2.95 2.98 1.27 1.51 1.23 1.49 0.86 0.66 2.94 2.94 3.10 3.18 3.28 3.09 2.87 2.99 3.10 3.12 3.05 3.00 2.63 2.31 1.84 1.40 1.58 1.25 1.50 1.40 1.30 1.41 1.14 1.08 0.73 1.13 1.17 1.18 1.39 1.58 1.53 1.43 1.44 1.28 1.32 Overview Strategic Report Governance Financial Statements 129 Date of grant 08/11/2019 09/12/2019 SIP SIP 10/01/2020 SIP 10/02/2020 SIP 09/03/2020 SIP 09/04/2020 SIP 11/05/2020 SIP 08/06/2020 SIP 10/07/2020 SIP 20/01/2020 Long Term Incentive Plan Options 20/01/2020 Long Term Incentive Plan Options 14/08/2020 SIP 08/09/2020 SIP 08/10/2020 SIP 10/11/2020 SIP 08/12/2020 SIP 11/01/2021 12/02/2021 SIP SIP 08/03/2021 SIP 12/04/2021 11/05/2021 SIP SIP 08/06/2021 SIP 07/07/2021 SIP 01/12/2020 Long Term Incentive Plan Options 01/12/2020 Long Term Incentive Plan Options Share price on the date of grant (£) Exercise price (£) Volatility (%) Vesting period (yrs) Dividend yield (%) Risk free rate of interest (%) Fair value (£) 1.18 1.10 1.29 0.82 0.76 0.39 0.44 0.45 0.45 1.24 1.24 0.54 0.58 0.54 0.60 0.82 0.82 0.86 1.15 1.50 1.49 2.24 2.64 0.84 0.79 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1.18 1.10 1.29 0.82 0.76 0.39 0.44 0.45 0.45 1.13 1.13 0.54 0.58 0.54 0.60 0.82 0.82 0.86 1.15 1.50 1.49 2.24 2.64 0.84 2.32 For Zero Priced Share Option Bonus grants in 2020 that are subject to an Earnings per Share (EPS) growth vesting condition, a Binomial model was used for valuation. Prior to the 2018 award, the volatility of the Company’s share price on each date of grant was calculated as the average of the annualised standard deviations of daily continuously compounded returns on the Company’s stock, calculated over five years back from the date of grant, where applicable. For 2018 onwards, the volatility of the Company’s share price on date of grant was calculated using the historical daily share price of the Company over a term commensurate with the expected life of the award. For all awards the risk-free rate is the yield to maturity on the date of grant of a UK Gilt Strip, with term to maturity equal to the life of the option. 24 Transactions with Directors and Related Parties During the year the Group made no sales (2020: £16,000) to InHealth Group Ltd and made no purchases (2020: £7,400) from Preventicum UK Limited which were related parties by virtue of the common directorship of Richard Bradford (resigned as a director of Gattaca plc on 8 December 2020). During the year the Group made no sales (2020: £87,000) to Tricoya Technologies Limited, a subsidiary of Accsys Technologies Plc, which were considered as a related party transaction by virtue of common directorship of Patrick Shanley (resigned as a director of Accsys Technologies Plc on 18 September 2020). As at the year end 31 July 2021 and 31 July 2020, there were no balances outstanding for any transactions for InHealth Group Ltd, Preventicum UK Limited or Tricoya Technologies Limited. Group policy is for all transactions with related parties to be made on an arm’s length basis and no guarantees have been given to, or received from, related parties. There were no other related party transactions with entities outside of the Group. During the year Matchtech Group (UK) Limited charged Gattaca plc £525,000 (2020: £467,000) for provision of management services. Further details of transactions with directors are included in the director’s Remuneration Report on pages 73 to 80. The remuneration of key management is disclosed in Note 5. 130 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 25 Financial Instruments The financial risk management policies and objectives including those related to financial instruments and the qualitative risk exposure details, comprising credit and other applicable risks, are included within the Chief Financial Officer’s report under the heading ‘Group financial risk management’. Maturity of financial liabilities The following table sets out the contractual maturities of financial liabilities, including interest payments. This analysis assumes that interest rates prevailing at the reporting date remain constant: Group 2021 Revolving credit facility Invoice financing working capital facility Lease liabilities Trade payables Total 2020 Revolving credit facility Invoice financing working capital facility Lease liabilities Trade payables Total Company 2021 Revolving credit facility Total 2020 Revolving credit facility Total Interest rate sensitivity 0 to <1 years £’000 1 to <2 years £’000 2 to <5 years £’000 5 years and over £’000 Contractual cash flows £’000 – 9,382 1,494 40,490 51,366 5,117 170 1,990 25,922 33,199 – – 1,192 – 1,192 88 – 5,746 – 5,834 – – 2,438 – 2,438 2,515 – – – 2,515 – – 651 – 651 – – – – – – 9,382 5,775 40,490 55,647 7,720 170 7,736 25,922 41,548 0 to <1 years £’000 1 to <2 years £’000 2 to <5 years £’000 5 years and over £’000 Contractual cash flows £’000 – – 5,117 5,117 – – 88 88 – – 2,515 2,515 – – – – – – 7,720 7,720 The directors have calculated that the effect on profit of a 100 basis point increase in interest rates would be an expense of £782,000 (2020: expense of £402,000). Borrowing facilities The Group makes use of working capital facilities, details of which can be found in Note 20. The undrawn working capital facilities available at year end in respect of which all conditions precedent had been met was as follows: Expiring in one to five years Group Company 2021 £’000 24,163 2020 £’000 23,715 2021 £’000 – 2020 £’000 – The directors believe that the carrying value of borrowings approximates to their fair value. Overview Strategic Report Governance Financial Statements 131 Liquidity Risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group has a robust approach to forecasting both net debt and trading results on a monthly basis, looking forward to at least the next 12 months. At 31 July 2021, the Group had agreed banking facilities with HSBC totalling £75m (31 July 2020: £82.5m) comprised solely of a £75m invoice financing working capital facility (31 July 2020: £75m invoice financing working capital facility and a £7.5m revolving credit facility). The available financing facilities in place are sufficient to meet the Group’s forecast cash flows. Foreign Currency Risk The Group’s main foreign currency risk is the short-term risk associated with the trade debtors denominated in US dollars and Euros relating to the UK operations whose functional currency is sterling. The risk arises on the difference between exchange rates at the time the invoice is raised to when the invoice is settled by the client. For sales denominated in foreign currency, the Group ensures that direct costs associated with the sale are also denominated in the same currency. Further foreign exchange risk arises where there is a gap in the amount of assets and liabilities of the Group denominated in foreign currencies that are required to be translated into sterling at the year end rates of exchange. Where the risk to the Group is considered to be significant, the Group will enter into a matching forward foreign exchange contract with a reputable bank. Net foreign currency monetary assets are shown below: US Dollar Euro Group 2021 £’000 6,436 5,224 2020 £’000 6,155 4,070 The effect of a 25 percent strengthening of the Euro and US Dollar against sterling at the financial position date on the Euro and US Dollar denominated trade and other receivables and payables carried at that date would, all other variables held constant, have resulted in a net increase in pre-tax profit for the year and increase of net assets of £3,397,000 (2020: £2,635,000). A 25 percent weakening in the exchange rates would, on the same basis, have decreased pre-tax profit and reduced net assets by £2,352,000 (2020: £1,734,000). The company only holds balances denominated in its functional currency and so is not exposed to foreign currency risk. 26 Capital Management Policies and Procedures Gattaca plc’s capital management objectives are: • to ensure the Group’s ability to continue as a going concern; • to provide an adequate return to shareholders; and • by pricing products and services commensurately with the level of risk. The Group monitors capital on the basis of the carrying amount of equity as presented on the face of the statement of financial position. The Group sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Group manages the capital structure and makes adjustments in the light of changes in economic conditions and risk characteristics of the underlying assets. Capital for the reporting year under review is summarised as follows: Total equity Cash and cash equivalents Capital Total equity Borrowings Lease liabilities Overall financing Capital to overall financing ratio Group 2021 £’000 40,863 2020 £’000 39,772 (29,238) (34,796) 11,625 4,976 40,863 9,348 5,761 55,972 39,772 7,455 7,736 54,963 21% 9% 132 Gattaca plc Annual Report and Accounts 2021 Notes Forming Part of the Financial Statements continued 27 Net Debt and Adjusted Net Debt Net debt is the total amount of cash and cash equivalents less interest-bearing loans and borrowings, including finance lease liabilities. The table below provides the required reconciliation evaluating the changes in liabilities arising from financing activities. Net cash flows include the net drawdown of loans and borrowings and cash interest paid relating to loans and borrowings. A reconciliation to adjusted net debt, which excludes lease liabilities and is the Group’s preferred net debt measure is also shown below. 2021 Cash and cash equivalents Interest-bearing term loan Working capital facilities Lease liabilities Total net cash Capitalised finance costs 1 August 2020 £’000 Net cash flows £’000 Non-cash movements £’000 34,796 (7,500) (151) (7,736) 19,409 196 (5,558) 7,500 (9,197) 2,511 (4,744) – 31 July 2021 £’000 29,238 – (9,348) (5,761) 14,129 – 14,129 5,761 19,890 – – – (536) (536) (196) (732) 536 (196) Total net cash after capitalised finance costs 19,605 (4,744) Excluding lease liabilities Adjusted total net cash excluding lease liabilities 7,736 27,341 (2,511) (7,255) 2020 Cash and cash equivalents Interest-bearing term loan Working capital facilities Lease liabilities Total net (debt)/cash Capitalised finance costs Total net (debt)/cash after capitalised finance costs Excluding lease liabilities Adjusted total net (debt)/cash excluding lease liabilities 1 August 2019 £’000 Net cash flows £’000 Non-cash movements £’000 31 July 2020 £’000 19,173 (15,000) 15,623 7,500 (29,119) 28,968 (10,624) 2,201 (35,570) 54,292 124 223 (35,446) 54,515 10,624 (24,822) (2,201) 52,314 – – – 687 687 (151) 536 (687) (151) 34,796 (7,500) (151) (7,736) 19,409 196 19,605 7,736 27,341 28 Contingent Liabilities We continue our cooperation with the United States Department of Justice and in 2021 have incurred £29,000 (2020: £1.4m) in advisory fees on this matter. The Group is not currently in a position to know what the outcome of these enquiries may be and therefore we are unable to quantify the likely outcome for the Group. 29 Dividends Equity dividends proposed after the year end (not recognised as a liability) at 1.5 pence per share (2020: nil pence) The Group declared a dividend of 1.5 pence per share on 4 November 2021. 30 Events After the Reporting Date The Group has not identified any subsequent events. 2021 £’000 484 2020 £’000 – G a t t a c a p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 2 1 Gattaca plc 1450 Parkway Solent Business Park Whiteley Fareham Hampshire PO15 7AF T: 01489 898989 E: info@gattacaplc.com www.gattacaplc.com