Getech Group plc ANNUAL REPORT AND ACCOUNTS YEAR ENDED 31 DECEMBER 2019 Company Registration Number: 02891368 d a t a k n o w l e d g e a n a l y s i s Getech Group plc We supply the expertise, support and knowledge that companies and governments need to better discover, develop and manage energy and natural resources. We do this by offering our customers a combination of products and services that allow them to benefit from market leading earth science and geospatial expertise and technology. Covid-19 and Oil Price update The move to home working has been smooth, with projects continuing to be delivered on time and to cost. Actions have been taken to preserve capital, with monthly Group costs lowered by c26%. We retain further flexibility and have maintained the capacity to deliver both our orderbook and the resources we need to maximise the impact of our sales conversations and new business activities. The current business environment is challenging but Q1 2020 revenue, new sales and profitability were all ahead of Q1 2019, and year-to-date there have been no negative orderbook revisions. As might be expected, April and May have been quieter in terms of new sales closed but we have remained busy across a wide range of sales conversations. Operational Highlights Gravity & Magnetic Solutions Geoinformation Products Continued demand for our expertise and data, Globe 2019 released on schedule and to budget, providing underlining our market leading position in this domain. innovative new analytic tools and content. New super-major customers added in Q4 2019 and Q1 2020. GIS Software GIS Services Unconventionals Analyst software released on ArcGIS Super-major support contract wins, further diversification Pro, high subscription renewal rates, product suite into new markets, service team awarded Esri’s “ArcGIS awarded Esri’s “Release Ready Specialty” designation. Online Specialty” designation. Geoscience Services Restructured, relocated, integrated. Innovation New team established to lead cross-discipline R&D, with early success in hydrocarbon micro-seep detection service. Getech Group plc Annual Report and Accounts 2019 2019 Financial Highlights Revenue £6.1m (2018: £8.0 million), with new forward sales up 41% to c£2.4 million (2018: £1.7 million), a significant portion of which will unwind to revenue in 2020 Annualised Recurring Revenue £2.3m at 31 December 2019 (31 December 2018: £2.3 million) Orderbook increased by 48% to £3.1m at 31 December 2019 (31 December 2018: £2.1 million) Total Cost Base 16% below 2018 (2019: £6.4 million; 2018: £7.6 million) Adjusted* EBITDA £0.9m (2018: £1.3 million), before exceptional items totalling £2.8 million Adjusted* Earnings per share (0.75)p (2018: 1.88p) S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c i a l S t a t e m e n t s Net cash £2.7m at 31 December 2019 (31 December 2018: £0.5 million), with the Group generating free cash in H2-19 *Adjusted for exceptional items (see page 19 for details). Getech Group plc Annual Report and Accounts 2019 01 01 Getech Group plc Annual Report and Accounts 2019 Strategic Report Strategic Report 0202 Getech Group plc Annual Report and Accounts 2019 Table of Contents About Getech Getech Group plc Operational Highlights 2019 Financial Highlights Strategic Report At a Glance Products and Services Globe Multi-Sat 2020 Business Development Chairman and Chief Executive’s Review Operations Review Financial Review Principal Risks and Uncertainties Governance Board of Directors Corporate Governance Directors’ Report Financial Statements Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Parent Company Statement of Financial Position Parent Company Statement of Changes in Equity Notes to the Parent Company Financial Statements Notice of Annual General Meeting Advisors Notes S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c i a l S t a t e m e n t s IFC IFC 01 04 06 10 11 12 13 16 18 22 26 28 32 35 41 42 43 44 45 73 74 75 85 91 92 Getech Group plc Annual Report and Accounts 2019 03 03 Strategic ReportGovernanceFinancial StatementsGetech Group plc Annual Report and Accounts 2019 Strategic Report At a Glance We supply the expertise, support and knowledge that companies and governments need to better discover, develop and manage energy and natural resources. We do this by offering our customers a combination of products and services that allow them to benefit from market leading earth science and geospatial expertise and technology. 04 04 Getech Group plc Annual Report and Accounts 2019 Getech Group plc Annual Report and Accounts 2019 Our Customers Our customers work across a wide range of energy and natural resource sectors including petroleum, mining, nuclear and water. From super-major petroleum companies and national oil companies to renewable energy providers, our customers share one goal: to identify, recover and distribute their energy sources in a way that is sensitive to the protection of the environment, whilst ensuring safe operations and optimum efficiency. Our Products Our customers use our data, knowledge and software products to de-risk their exploration projects and more easily locate, produce and manage energy and natural resources. We enhance our products through a combination of domain expertise, customer collaboration and innovation. Our products are key to our future growth, delivering recurring revenue and opening margin upside. Our Services We position our services to showcase our technical skills and the practical value of our products. We combine our geoscience and geospatial expertise to provide solutions to complex customer problems, which add value to their strategic and day-to-day decision making. Through this formula, services are an important access point into new sectors; the work of our geospatial team in particular having expanded to projects in the nuclear, water and energy infrastructure sectors. 05 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Strategic Report Products and Services Our unique data products provide the evidence for the location of energy and natural resources. Our geospatial products and services enable visual and analytical insights into the management of complex operations and our diverse team of geoscientists offers world-class knowledge and experience that help inform our customers’ decision making. 06 06 Getech Group plc Annual Report and Accounts 2019 Getech Group plc Annual Report and Accounts 2019 Geophysical Solutions Our gravity and magnetic data and analysis are an essential component of integrated geoscience interpretation projects, providing crucial insights into areas of interest in order to help our customers minimise exploration risk. We hold one of the world’s largest libraries of data, the global coverage of which is multiple times larger than our closest peer. We continue to refresh and enhance our data holdings; as well as expand them to include seismic, well and other technical geoscience data. Our gravity and magnetic experts are recognised world leaders in potential field data QC and processing, collectively having over 150 years of combined experience, and deliver bespoke processing services to customers in the mining and petroleum sectors. Globe Globe is a geospatial information product that helps its customers strengthen their understanding of the Earth’s evolution and enhances their ability to predict the location of its natural resources. Globe does this by providing paleogeographic, structural geology and paleoclimate data through geologic time; factors that combine to control the formation and location of oil and gas. These data are presented across 58 consecutive stratigraphic stages that cover the earth’s history from 300 million years ago to the present. The Globe user base consists of super-major and large independent oil and gas companies. By using Globe, they are better positioned to understand petroleum systems and predict geological risk and uncertainty. Geospatial Software Our petroleum-focused software solutions provide enriched visualisation, powerful analytics and data integration tools for companies that need to locate and extract new hydrocarbon resources, improve field management and ensure regulatory compliance. Our Data Assistant software makes data integration simpler and easier across a range of subsurface interpretation applications, our Exploration Analyst software allows users to perform complex play-based exploration workflows, and through our Unconventionals Analyst software we have broadened our install-base to the production environment, enabling users to reduce development costs and simplify reserves evaluation. 07 07 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Strategic Report Geospatial Services We support organisations across the world with a unique blend of petroleum industry, geoscience, geospatial, data management and IT expertise. Our petroleum-focused solutions provide enriched visualisation, geospatial analytics and powerful data integration for businesses that need to locate and extract new resources, improve field management and ensure compliance. The transferable nature of our geospatial skills has also proved very effective in opening doors to new sectors; the team having completed recent projects in sectors that include nuclear monitoring, water management and energy infrastructure. Geoscience Services Our team delivers a combination of specialist upstream oil and gas expertise, a breadth of industry-specific knowledge and an in-depth understanding of modern exploration workflows. The reduced oil price and oil company customer budget cuts have combined to intensify competition in this area of business, however our core technical expertise and ability to leverage our Group products whilst delivering complex integrated geoscience and geospatial consultancy projects remain key differentiators. Government Advisory Services We assist Governments and National Oil Companies with Licensing Rounds, Data Management, Capacity Building and Advisory services. In 2019, we worked for the Governments of Sierra Leone and Lebanon. In Sierra Leone we have worked in partnership with the Petroleum Directorate since 2016 and we continue to assist them in running the ongoing Fourth Licensing Round. Our Government Advisory work enables us to access a rich portfolio of technical data, which we are then able to license on behalf of the Government. 08 Getech Group plc Annual Report and Accounts 2019 Getech Group plc Annual Report and Accounts 2019 0909 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Globe Earth’s Evolution Unlocked for Better Exploration Globe is a geoscience knowledge-base for petroleum exploration companies who need to understand Earth’s geological evolution, to better predict the location of its natural resources. Using Globe’s high-quality fundamental observations and data, consistently executed and validated geological interpretations and cutting-edge environmental models, geoscientists can illuminate the conditions where natural resources are likely to occur based on building a regional picture of basin play element distribution: • Presence and maturation of source materials • Reservoir presence and quality • Seal presence and quality • Context and evolution of structures What makes Globe unique in the challenge to better understand basin play element distribution is that every element of Globe rests on a solid foundation; from gravity and magnetic data used to derive crustal architecture and its plate model, to gross depositional environments that, analysed alongside structures, tectonic history, palaeo-topography and palaeo-bathymetry, are used to develop palaeo-drainage reconstructions. In Globe, these solid foundations are available everywhere on the Earth’s surface, for every time period since the Devonian, provided in a consistent format and fully documented – all made available to analyse using the power and flexibility of ArcGIS from Esri. Strategic Report 10 10 Getech Group plc Annual Report and Accounts 2019 Multi-Sat 2020 Getech is at the forefront of advances in developing gravity data from satellite altimetry, resulting in significant work being undertaken to enhance and upgrade our Multi-Sat 2016 global gravity data product, covering all offshore areas of the world and its large lakes. The new geodetic missions of satellites AltiKa and Jason-2 provided an opportunity for us to significantly upgrade our Multi-Sat data product as their new orbital paths allow us to add significantly to the product’s input dataset. Having data from more satellites has allowed us to increase the resolution of the product by reducing track spacing from 2km to 1.5km. This enables us to produce gravity data with more detail and for our customers this means greater data resolution leading to reduced exploration risk Visual comparisons with both Multi-Sat 2016 and marine data show that Multi-Sat 2020 delineates shorter-wavelength features. Statistical correlation with marine data is also improved: the correlation coefficient was improved from 0.938 in the original 2004 study to 0.955 in 2016, and further improved to 0.967 in the 2020 feasibility study. 11 11 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Business Development We are using Getech’s skills and technologies to extend our work beyond hydrocarbon exploration. Our focus is to grow and diversify Getech’s revenue and profit along the energy value chain – targeting opportunity in and around petroleum production operations, energy infrastructure and low carbon assets. Getech is contracted to design and maintain geospatial systems that assist in the monitoring of hydrocarbon production operations. In these activities, we utilise real time data for asset and people tracking, and to manage emergency response systems. We have also built scalable data management platforms for pipeline and electricity infrastructure projects, which our customers use to ensure system integrity and to maintain regulatory compliance. Our services and software/platform solutions are already deployed in some of the world’s most operationally challenging and environmentally sensitive locations, and the business benefits – increased efficiency, safety, environmental protection and sustainability – are tangible, quantifiable and valuable. In 2020 we are focused on continuing to expand this work, whilst also combining the geospatial applications, workflows and skills that we have developed with our earth science data, skills and knowledge, to address new areas of energy problem solving. Projects include exploring ways that our geophysical data and heat-flow tools can be used to de-risk access to geothermal energy, and in partnership with Esri we are promoting the role that our skills and technologies can play in simplifying the processes of site selection for renewable energy assets, and the optimisation of their management. These diversification activities are all focused on opportunities that have the potential to materially grow Getech, and to date they have been delivered through organic product investment, service enhancement and innovation. We are also working to accelerate this journey through acquisition, where we see the opportunity to deliver a stepwise series of growth-focused transactions. Strategic Report 1212 Getech Group plc Annual Report and Accounts 2019 Strategic Report Chairman and Chief Executive’s Review Getech provides products and services that commercialise our expertise in the development, application and deployment of the earth sciences and geospatial technology. To date we have principally used these skills to build and sell data, knowledge and analytical products that address specific petroleum market workflows and data management challenges. Our customers use these products and services to de-risk exploration programmes and improve the management of their assets and resources. We have also been successful in diversifying into new markets. Getech sells data products and geoscience services to mining companies, and we have utilised our geospatial skills in the water, transportation, nuclear, pipeline and electricity infrastructure sectors. Whilst these end markets are not yet material in the context of the Group, we have the expertise and technologies to create significant value in these new markets. Dr Stuart Paton Chairman Dr Jonathan Copus Chief Executive 13 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Strategic Report Chairman and Chief Executive’s Review cont. Covid-19 – Global Economic Disruption Like all businesses however, we do not know how and Getech’s Response long Covid-19 disruption and oil price weakness will last, Since 31 December 2019, the Covid-19 pandemic has and so to preserve capital we implemented a range of led to unprecedented restrictions on social and business actions that have lowered Group monthly costs by c26%. activity. These have deeply disrupted the global economy, Getech retains additional cost flexibility, but, importantly, and, in the face of sharp falls in oil demand, a relatively we have also maintained our capacity to deliver our short-lived but untimely OPEC-Russia supply war added contracted orderbook and to maximise the impact unwelcome complexity. of our sales and new business conversations. Oil prices have touched 20-year lows, and although We believe Getech is now well positioned to rapidly adjust production cuts are growing and evidence builds that to any further deterioration, or improvement, in our core demand is now recovering, significant uncertainty remains. markets. This flexibility, and our balance sheet strength, In response, petroleum companies have cut c$178 billion will underpin Getech throughout 2020 and 2021. from their budgets, including a c35% reduction in 2020 capex. 12 months to 31 December 2019 2020 will undoubtedly be a very challenging and In 2019 customer budgets remained constrained, a position uncertain year but the combination of a strong balance that has continued since the oil price slump of 2014, and sheet, a significantly enhanced orderbook and sustained the steps that we have taken in recent years to manage this recurring revenues will help Getech navigate this. Net cash longer-term environment have made Getech more robust at 31 December 2019 totalled £2.7 million. Our debt levels against the current market uncertainty. are low, and the repayment profile is back-end-loaded with an October 2023 maturity. We own a non-core property asset with an ‘in use’ carrying value of £2.4 million. We have continued to close new sales in the current year and there have been no negative orderbook revisions. This has resulted in Q1 2020 revenue, forward sales and profitability all ahead of Q1 2019, and in April an important global software licence was renewed. Operationally, the move to home working has been smooth, with projects remaining on schedule – both in terms of time and cost. Having established solid remote communication practices early, we have also enhanced our ability to deliver online trials of our products. The uptake in product training from home working customers across our customer and contact base has been strong, and having expanded our programme of digital marketing, webinar attendance has increased significantly. Together, this creates a unique opportunity to both increase our profile and reach deeper into our customers’ organisations and we have reshaped our sales and marketing activities to capture the benefit of this. Key to this has been to strategically drive orderbook growth, with a focus on annually recurring revenue. This has increased Getech’s earnings visibility, and it is progressively lessening our exposure to ‘lumpy’ data transactions. We have also strengthened our financial and operational controls, we are disciplined in our capital spending, and our customers’ needs are central to everything we do. The importance of these initiatives is highlighted in our 2019 financial results, where, against a volatile and uncertain commercial environment, with oil prices and drilling activity down year-on-year, Getech closed 41% more forward sales compared to the prior year. These forward sales expanded our orderbook of committed revenue, which grew by 48%, and most of the value of this orderbook will unwind to revenue in 2020. Getech grew its cash balance across 2019; first half growth of £1.6 million driven by working capital, second half growth of £0.6 million driven by operational free cash flow. We closed 2019 with a net cash balance of £2.7 million (31 December 2018: £0.5 million). We have also accelerated new business activities, focusing As previously announced, negotiations on several substantial on the value that our transferable skills and technologies transactions did not close by 31 December 2019, and can deliver in new energy and infrastructure settings. total revenue (£6.1 million) therefore fell below our earlier expectations for the year (2018: £8.0 million). Current market conditions mean these delayed transactions have not since materialised, but in 2019 the profitability impact of this revenue shortfall was mitigated by lower total cash costs. 14 Getech Group plc Annual Report and Accounts 2019 In 2019, the adjusted gross margin* of our activities Although it remains too early to estimate how deep or long increased; and our service division, which made a loss in the downturn in our core markets will be, our orderbook is 2018, grew its revenue contribution and returned to profit. larger and our sales pipeline remains diverse and continues Across the year, Getech generated an adjusted EBITDA* to benefit from 2019 campaigns in new regions, with new of £0.9 million (2018: £1.3 million). potential customers. Redoubling our focus on diversified growth We expect May’s sharp rebound in oil prices, which has Getech retains significant profit leverage to growth and continued into June, to take time to filter through to our we are focused on continuing to diversify our revenue customer conversations. Getech’s revenue is normally by growing the materiality of the Group’s activities further weighted 40:60 between H1 and H2 and there is the along the energy value chain. likelihood this weighting becomes accentuated into H2 In 2019, we expanded our work in two focus areas – petroleum production operations and hydrocarbon and electricity infrastructure. We also continue to explore new opportunities relevant to the energy transition and the low carbon economy. What drives our focus on these specific business sectors is that we see clear customer needs in areas where we can use our existing skills and technologies to add value. We also see potential to extend our skills and add complementary technologies and services. Each focus area is of a scale that would enable significant growth and we see potential to accelerate our expansion into these markets through M&A that would be accretive to both profit and cash generation, either directly or via a quick path to shareholder value creation (synergies, technology acceleration etc). Conclusion and Outlook The pace at which the Covid-19 pandemic has reshaped the global business environment is unprecedented. In energy markets the speed at which demand has fallen has triggered cuts to capital investment and, in oil and gas specifically, these have been faster and deeper than followed either the in 2020. In H1 2020 we have focused on the replenishment of our orderbook and protecting annually recurring revenue. Year-to-date, we are cautiously encouraged by the renewal rate across our software products and we have won service extensions that deliver monthly revenue to year-end. We are also negotiating various licence renewals to our Globe knowledge product. These discussions would normally conclude in June and July. Globe contracts are an important part of our orderbook, and they set the shape and scale of our H2 2020 investment. As we plan this investment, we are confident that Getech’s financial strength, our flexibility and the transferable nature of our skills and technologies give us the toolkit to successfully navigate what are exceptional commercial conditions. We also see an opportunity to accelerate our diversification and growth plans – both through organic expansion and acquisition. Navigating this extreme operational environment will require an unwavering focus on customer needs, continued operational delivery, and creativity in our thinking. In what are exceptionally challenging times, we thank our staff for their dedication, adaptability, and inspirational teamwork. We also thank our shareholders for their time, advice and 2008 or 2014 oil price falls and our customers have placed continued support. many regional ‘project-based’ investment plans on hold. * Adjusted for exceptional items (see page 19 for details). Getech Group plc Annual Report and Accounts 2019 1515 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Strategic Report Operations Review The core skills at the heart of Getech’s products and services offerings are earth science and geospatial in nature. To date, we have principally combined these skills to develop solutions for the oil and gas market, but we also operate in other energy and natural resources sectors. Chris Jepps Chief Operating Officer 16 • Our Earth Science staff are experts in geology, potential fields geophysics, seismic geophysics, geochemistry, structural geology, plate tectonics, geodynamics, palaeoclimate modelling and remote sensing • Our Geospatial staff are experts in designing, implementing, and managing geographical information systems (GIS) technology that is used to spatially integrate and analyse business data in order to derive unique insights In line with UK Government Covid-19 guidance, all Getech staff moved to home working in early March. This move was completed smoothly, and projects are operating to time and on cost. Our Gravity and Magnetic Solutions team performed solidly in 2019, underscoring our market leading position in this domain despite the challenges posed by the continuing tough exploration market. Aside from the disappointment that several larger data sales did not close by their expected date in December, the underlying performance of the team was strong and their expertise in the science of potential fields data and processing was once again recognised by a steady stream of bespoke gravity and magnetic service contracts. In addition, key projects were undertaken to research, update and enhance strategically important data products in order to bring new products to market for 2020/21. Included in these was Getech’s unique Multi-Sat data product. In 2019 we further enhanced our flagship Globe product, developed by our Geoscience Information Products team. The “Globe 2019” release was delivered to customers on time and within budget, and featured enhancements that leveraged skills from across the Group – with Getech’s geoscience, geospatial and software expertise once again combining to deliver new information, analytic tools and additional usability for Globe customers. Following its release, we held two successful Globe User Group Meetings in the autumn – in London and Houston. These scientific, workflow and demo focused sessions stimulated excellent customer feedback about product use, features and opportunities for future product enhancements. Getech Group plc Annual Report and Accounts 2019 Our ongoing efforts around re-positioning of Globe for the current exploration market were further rewarded in 2019 by securing a new super-major customer with high renewal rates for existing subscribers and those on multi-year licence agreements. The focus for our GIS Software team has been to migrate our software products to ArcGIS Pro, Esri’s new desktop GIS application and ArcMap replacement. In June 2019, these migration efforts completed with the full commercial release of the Unconventionals Analyst extension for ArcGIS Pro, providing significant enhancements to its onshore shale gas/oil well pad & lateral planning capabilities. In April 2019, our software team was commended by Esri by being awarded its “Release Ready Specialty” designation in recognition of adopting and continually supporting the latest versions of the ArcGIS product suite. As with Globe, software renewal rates through 2019 remained high and we were able to add several new customers during the year. Our GIS Services team continues to be recognised as experts in the use of Esri technology within the petroleum and natural resources sectors, which in 2019 was further demonstrated by being awarded the “ArcGIS Online Specialty” designation by Esri. This award was in recognition of the team’s expertise in designing, delivering, and deploying web-based GIS technology and associated components of the ArcGIS platform. Through the year our GIS Services team remained highly utilised, and we renewed several strategic long-term GIS support contracts, including agreeing a three-year support contract renewal with an international joint venture organisation focused on a GIS managing above ground operations. In addition, the team successfully delivered a wide variety of GIS services and training projects, including our first significant GIS implementation project in the pipeline sector. The market for our geoscience services has remained challenging throughout the industry downturn, and we have responded by continuing to focus on profitability by managing our operational costs and re-positioning our geoscience services. In parallel, our work with governments also continued in 2019, and we worked in partnership with the Sierra Leone government on its Fourth Licensing Round. A new Group-wide Innovation team was established in Q1 2019 with the remit to research and develop cross-discipline opportunities for new markets, capabilities, partnerships, products, and services. An early success for the team in 2019 resulted in delivering revenue generating services projects for onshore hydrocarbon micro-seep detection. 1717 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Strategic Report Financial Review Since 31 December 2019, the Covid-19 pandemic has cast a shadow over the global economy and Getech’s response is detailed in the Chairman and Chief Executive’s Review in this Annual Report. These events build on an already challenging business environment, which in 2019 saw a continuation of the macroeconomic and investment themes that led to volatility and uncertainty in both oil prices and the levels of exploration spending by our petroleum customers. Andrew Darbyshire Chief Financial Officer 18 The impact of climate change also moved up the social agenda, and this placed the energy transition firmly on the strategic roadmap of Getech and our customers. Brent averaged $64/bbl (2018: $71/bbl) and long-dated crude prices traded around the mid-$50/bbl, down from above $60/bbl in 2018. In step with lower prices, exploration spending fell, and the number of exploration wells drilled fell faster. However, the resource replacement ratio was the highest since 2015 – driven by a small number of high-volume, high-value conventional deep-water discoveries. More encouragingly for Getech, a stronger focus on capital discipline and economic returns drove a rotation out of onshore ‘unconventional’ settings (principally US shale) and back into ‘conventional’ offshore opportunities. This rebalancing plays to the strengths of Getech’s products and services. We remained close to our customers, focusing on their most pressing needs and targeting product and service renewals that increase revenue visibility and lower the Group’s reliance on ‘lumpy’ transactions. The importance of this strategy was highlighted in Q4 2019, when several substantial data transactions failed to close, and 2019 revenue fell year-on-year to £6.0 million (2018: £8.0 million). In the same period, Getech grew its orderbook by 48% and held annualised recurring revenue flat on 2018. In addition, profitability was protected by lower total costs. Getech closed 2019 with a cash balance of £3.6 million (31 December 2018: £1.4 million). In accordance with our accounting policies we perform periodic reviews of Getech’s assets and liabilities. This includes, but is not limited to, identifying potential indicators of impairment of assets, annual impairment reviews of intangible assets, and regular review of significant accounting judgements and estimates. An important element of Getech’s 2019 total cost base management were the steps taken to relocate and reshape our Geoscience Services team, which in 2018 made a significant loss. Bought through the acquisition of ERCL in April 2015, the Board now considers it prudent to fully impair the goodwill relating to this acquisition. Getech Group plc Annual Report and Accounts 2019 Table 1 – Financial summary Revenue EBITDA Operating (loss)/profit (Loss)/profit after tax Earnings per share Cash inflow from operations (before W/C adjustments) Development costs Net increase/(decrease) in cash Cash and cash equivalents Net cash (1) Exceptional cost of sales Reported ) (audited £’000 2019 1) (2) ( Adjusted ) (unaudited £’000 Reported (audited) £’000 2018 Adjusted (unaudited £’000 (1) (2) ) 6,058 (1,935) (3,091) (3,088) 6,058 872 (284) (281) 8,019 1,071 250 508 (8.22)p (0.75) p 1.35p 935 (1,108) 2,154 935 (1,108) 2,154 3,554 2,700 1,073 (861) (1,040) 1,400 468 8,019 1,268 447 705 1.88p 1,270 (861) (843) Exceptional cost of sales total a £325,000 credit (2018: £nil). This adjustment is the net impact of an impairment of Getech’s library of Reports (£621,000 debit), together with a reduction to the carrying value of direct cost accruals (£946,000 credit). The direct cost accruals credit results from updated information that became available during 2019 around the contractual liability position relating to previously accrued balances. On the Statement of Financial Position, the impairment of Reports impacts intangible assets and the reduction to direct cost accruals impacts trade and other payables. These accounting adjustments are non-cash in nature and so there are no corresponding adjustments to cash flows (see Note 24 to the accounts). (2) Exceptional administrative expenses Exceptional administrative expenses total £3,132,000 (2018: £197,000). In 2019, this is a write down of £3,132,000 to the carrying value of goodwill relating to the acquisition of ERCL. This is a non-cash adjustment and so there is no corresponding adjustment to cash flows. In Q4 2018, the Group combined its activities in London and Henley into one new London office, and restructured the Geoscience Services team (previously based in Henley) to address its declining revenues and profitability. This resulted in one-off costs of £197,000 during 2018 (see Note 24 to the accounts). In addition, with there being reduced interest in Regional During 2019 Getech also closed £2.4 million in new forward Reports during 2019, the Board also believes it is prudent sales relating to projects, services and subscriptions for to fully impair the value previously attributed to the Group’s which revenue will be recognised in 2020 and beyond. library of Reports. Whilst we may make further Report As a result, at 31 December 2019, Getech’s orderbook had sales in the future, the near-term path to market is unclear. grown to £3.1 million (2018: £2.1 million). Getech reports three exceptional items: in cost of sales, an impairment of the carrying value of Regional Reports, The Group’s Annualised Recurring Revenue from product subscriptions and recurring services was maintained at offset by a one-off adjustment to direct cost accruals, and £2.3 million (2018: £2.3 million). in administrative expenses, an impairment to goodwill. To aid in the analysis of Getech’s underlying financial Gross margins before exceptional items Gross margin before exceptional items was 58%, an increase performance, the table below sets out key reported figures from 47% in 2018. This reflects improved margins in both from the financial statements and the equivalent figure Products and Services divisions. The products margin adjusted for these exceptional items, detailed in footnotes improved from 62% in 2018 to 76% in 2019, this reflected 1 and 2. Operating results a movement in Product sales mix between 2019 and 2018 and increased product investment. Revenue Revenue for 2019 totalled £6,058,000, a decrease of Following restructuring of our Geoscience Service offering in late 2018, and an expansion in the activity in our Gravity £1,961,000 from £8,019,000 in 2018. The drop in revenue & Magnetic and Geospatial Services teams in 2019; Getech’s resulted when several substantial transactions did not close Services division returned to profit with a gross margin of as expected at the year end. For the same reasons, Products revenue fell by 33%. Whilst the Services market remained 8% (2018: 14% negative margin). Getech continues to target a return to a 25% margin for the Services division in the challenging, revenue grew by 3% – growth from Gravity mid-term. & Magnetic Services and Geospatial Services, more than offsetting a contraction in Geoscience Service income. 19 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Strategic Report Financial Review cont. Table 2 – Gross margin by reporting segment (before exceptional items) Revenue Cost of sales Gross profit Gross margin 2019 2018 Products Services Products Services 4,324 (1,025) 3,299 76% 1,636 (1,506) 130 8% 6,434 (2,421) 4,013 62% 1,585 (1,810) (225) (14)% Administrative costs Amortisation of intangible assets totalled £940,000 Administrative expenses include £1,124,000 of depreciation (2018: £689,000). This charge is allocated to administrative and amortisation charges. Excluding these charges and costs in the income statement, except for ‘Reports’ where exceptional items, administrative expenses totalled £2,684,000; the charge is allocated to cost of sales. Following an annual a 5% increase (2018: £2,553,000). This reflects the Group impairment review Reports was impaired by £621,000 returning all staff to a progressive rate of pay, whilst also and is allocated to exceptional cost of sales in the strengthening our project management, marketing and income statement. sales teams, and expanding our innovation programme. Such steps reflect Getech’s strategic repositioning, which has also reshaped the structure of our cost base. Cost base analysis As a result of merging the London and Henley offices and reducing headcount in the Geoscience Services team in Q4 2018, Getech benefited from a lower fixed cost base in 2019, in addition to lower variable costs due to differing products sales mix. The Group cost base, excluding exceptional items, for 2019 was 16% lower than the prior year at £6,362,000 (2018: £7,607,000). In 2019 we also began to apportion for the environmental cost of our activities. Getech has contributed to the funding of a Verified Carbon Standard UK tree planting initiative that fully offsets carbon dioxide emissions from heating and lighting its offices, and international travel. The table below reconciles our cost base to the financial statements. EBITDA A lower cost base and continued investment in the drivers of recurring revenue has limited the impact of lower revenue on EBITDA. EBITDA excluding exceptional items totalled £872,000 (2018: £1,268,000). Impairment of goodwill relating to the acquisition of ERCL totalling £3,132,000 is allocated to exceptional administrative costs on the income statement. Operating profit The Group reported an operating loss of £287,000 excluding exceptional items (2018: £447,000 profit). As noted above, the impact of a fall in revenue on profitability was limited through a lower cost base and continued investment in our products. Income tax To help our customers understand and resolve their exploration and operational challenges requires Getech to undertake pioneering research and development. Against the cost of this work we obtained corporation tax relief, and subsequently realised a tax credit relating to the current year for 2019 of £38,000 (2018: £57,000). Getech reported a loss after tax, adjusted for exceptional items, of £281,000 (2018: £705,000 profit). Operating cash flows In 2018 Getech refinanced its loan, continued to invest in its products, benefited from significant cash tax receipts and had a large negative movement in working capital due to significant outstanding receivables at the year end. This year Depreciation and amortisation Getech continued to repay its loan, increase investment in Depreciation of non-current assets amounted to £216,000 its products, grew its orderbook, benefited from smaller tax and was allocated to administrative costs in the income receipts (partially offset by foreign taxation payments) and statement (2018: £131,000). The increase relates to the IFRS had a large positive movement in working capital due to 16 accounting treatment of the London office lease, which collection of the significant prior year receivables. commenced in Q4 2018. 20 Before working capital adjustments Getech generated £935,000 in cash from operations (2018: £1,073,000). In 2018 this included restructuring costs of £197,000. Getech Group plc Annual Report and Accounts 2019 Table 3 – Cost base reconciliation Cost of sales Development costs capitalised Capitalised cost of building Reports Administrative costs Payment of lease liabilities Depreciation and amortisation charges Exchange adjustments Movement on provisions % variance 2019 2,532 1,108 — 3,809 71 (1,156) (2) — 2018 4,231 861 13 3,341 — (821) 16 (34) Cost base, excluding exceptional items (16)% 6,362 7,607 Cost base is measured as: cost of sales, administrative costs, development costs capitalised and payment of lease liabilities, less depreciation and amortisation, and adjusted for movement in work in progress, non-cash foreign exchange adjustments. Changes in working capital This has been achieved through overhead cost management, During the past two years there were significant movements a loan capital repayment holiday, use of the UK Government in working capital (2019: £2,612,000 positive movement, Job Retention Scheme, US Government Paycheck Protection 2018: £1,919,000 negative movement). A large proportion Program, and Group-wide salary reductions. Reductions to of this movement was due to the timing of a high value sale staff pay have been led by the Board and Getech’s senior of data and products towards the end of 2018, for which management, and range from 20% for Getech’s Board to cash was received in early 2019. 15% to 12% for senior staff and c8% for most other employees. Cash taxation Whilst revenue uncertainty exists, Getech retains additional Getech received net cash tax credits totalling £37,000 cost flexibility, and the benefits of the actions already taken (2018: £514,000). Tax credits were significantly lower combine with our strong balance sheet and orderbook in 2019 due to foreign taxation payments made in the year to provide significant financial capacity. This will underpin and the Group’s increased profitability in 2018. Getech’s Getech throughout 2020 and 2021. current tax asset provision at 31 December 2019 is £136,000 (31 December 2018: £104,000). Liquidity and going concern At the end of 2019, Getech held £3,554,000 in cash and Investment and capital expenditure cash equivalents (2018: £1,400,000). Net of borrowings, In line with the Group’s strategy to invest and enhance Getech’s cash balance was £2,700,000 (2018: £468,000). its product offering, development expenditure on Globe and Software increased to £1,108,000 (2018: £861,000). Getech expects to continue with this level of investment in its products throughout 2020. Financing Getech’s business activities and the factors likely to affect its future development, performance and position are set out in the Chairman’s and Chief Executive’s Review. The financial position of the Group, its cash flows and its liquidity position are described in the financial statements. In addition, Notes During the year Getech made repayments against a loan 16 and 17 include details of Getech’s key financial risks and facility of £78,000. In 2018 Getech refinanced its borrowings the Group’s policies and procedures for capital management. by repaying the balance of its outstanding loan (£652,000) and drawing down on a new loan facility (£950,000). In making the going concern assessment, the Board of Directors has considered Group budgets and detailed Repayment of lease liabilities totalled £71,000 (2018: £29,000) cash flow forecasts to 31 December 2021. The Board has and relate to the new London office to which Getech relocated considered the sensitivity of these forecasts with regards in Q4 2018. Post balance sheet events We do not know how long Covid-19 disruption and oil to different assumptions about future income and costs, and various scenarios have been run on the potential impact of Covid-19 (see Note 1.2 for more detail). price weakness will last but there is certainty that when These cash flow projections, when considered in conjunction the world emerges from lockdown it will be in a deep with Getech’s existing cash balances, and the cost saving recession. To manage the risk that is associated with this measures implemented, demonstrate that the Group Getech has taken steps that deliver a c26% reduction has sufficient working capital for the foreseeable future. in monthly Group costs. Consequently, the Directors are fully satisfied that Getech is a going concern. 21 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Strategic Report Principal Risks and Uncertainties How we manage risk The Group constantly monitors the Group’s risk exposures and reports to the Audit Committee and the Board on a regular basis. The Audit Committee receives and reviews these reports and focuses on ensuring that the effective systems of internal financial and non-financial controls including the management of risk are maintained. The results of this work are reported to the Board which in turn performs its own review and assessment on an annual basis. Key risk areas Strategic risk Making sure we apply the appropriate strategies in certain situations and ensuring we deliver on strategic objectives. Operational risk Successfully developing products and providing services that meet our customers’ needs. Financial risk Prudent financial management seeks to mitigate the impact of market fluctuations. Risk management framework The Board The Board is responsible for setting the Group’s risk appetite and acceptable risk tolerance and putting in place a framework for risk management. Read more about the Board on pages 26 to 27 The Audit Committee The Audit Committee oversees the framework for risk management and ensures it is operating effectively. Read more about the Audit Committee on page 29 Senior management and risk owners The risks are separated into strategic, operational and financial categories. Senior management are assigned responsibility for the identified risks within the three categories. 22 Getech Group plc Annual Report and Accounts 2019 Risk management process The risk management process utilises a risk register held by the Executive Committee (ExCom). Key risks in these registers have assigned owners and are reviewed during ExCom meetings. The risk owners believe that the risks are monitored, mitigated and appropriate controls are implemented. The Audit Committee has delegated authority to the ExCom to manage the risks. Risk matrix Each risk on the risk register is rated for its likelihood of occurring and on the risk’s potential impact on the Group. Ratings are from 1 to 5, where 1 is least likely / lowest impact and 5 is most likely / highest impact. The key risks are summarised on the risk matrix below: h g H i 10 5 9 1 2 6 8 3 4 7 Likelihood High t c a p m I w o L Low Risk scale 1 2 3 4 Covid-19 and oil price Energy transition and climate change Stakeholder engagement Withdrawal of the UK from the EU 5 Data security 6 7 8 9 Innovation People Operational control Visibility of revenues 10 Liquidity and cash flow risk 23 23 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Strategic Report Principal Risks and Uncertainties cont. Risk Strategic 1 Covid-19 and oil price There is no way of knowing how long Covid-19 disruption and oil price weakness will last but there is certainty that when the world emerges from lockdown it will be in a deep recession. Executive ownership Mitigation Change Impact Likelihood CEO To preserve capital, we have undertaken 4 4 a broad range of measures, which together lower Getech’s monthly costs by c26%. Point forward, the Group retains additional cost flexibility, but we have been careful to maintain our capacity to deliver our orderbook of contracted work, and to retain the ability to maximise our sales conversations and to enhance our new business activities. 2 Energy transition and CEO Diversification of Getech’s product climate change Customers permanently reduce their spending on hydrocarbon exploration. and service offerings to areas outside of hydrocarbon exploration. 3 Stakeholder engagement CEO Provide clear, transparent and consistent If Getech does not engage with its stakeholders, they will not understand the Group’s commercial, strategic and corporate value. communication to all stakeholders. Ensure delivery against the Group strategic plan. Regular meetings with shareholders and potential shareholders. 4 3 4 3 4 Withdrawal of the UK CFO If trading restrictions are to be applied 2 3 from the EU The risk that the UK’s withdrawal from the EU will affect the Group’s ability to trade with EU customers. Operational Data security 5 to UK companies by the EU directly, then the Group has the flexibility to trade through its US entity. Furthermore, the majority of our EU customer base have trading entities in the US and beyond that would be unrestricted. CFO Periodic audit of disaster recovery 4 3 If there is loss or theft of data then our data could be processes and controls. Ensuring appropriate data licence agreements are devalued and we may lose the in place with our customers. Investment ability to sell the data. in IT security and periodic IT security audit. 24 Getech Group plc Annual Report and Accounts 2019 Risk status key Risk unchanged Risk increased Risk decreased Risk Operational cont. Executive ownership Mitigation Change Impact Likelihood 6 Innovation COO Continue to invest in innovation. 3 2 If we do not continue to innovate and provide cutting edge products and services, Ensuring Getech has a clear innovation strategy. Creating a working environment that encourages the sharing of knowledge our competitors and customers and ideas. will leave us behind. 7 People COO The Group aims to ensure that it 2 3 Retention of specialist staff is crucial to the success of the business. provides stimulating work in an attractive environment; together with its employment policies, these features are designed to attract and retain the high-quality staff that form the basis for the Group’s success. 8 Operational control COO Investment in our Project Office 3 2 Delivery on time and to cost. Product plans and services that are in step with our customers’ needs. Financial 9 Visibility of revenues If we are not able to accurately forecast revenues then we will not be able to plan or guide properly, resulting in sub- optimal decision making. team. Ensure that project managers are adequately trained and have the appropriate tools to manage their projects. Monthly progress and performance reports presented to the Executive Committee. CEO/CFO Strategically grow recurring revenues 4 3 through the positioning of our core products and services, reducing the Group’s reliance on one-off lumpy transactions. Careful budgeting, regular forecasting and review of performance against targets. 10 Liquidity and cash flow risk CFO Cash flow forecasts and future income 5 2 The Group may be unable to meet short-term financial demands as a result of a volatile working capital cycle. levels are carefully monitored on a regular basis to pre-empt liquidity issues before they occur. Careful budgeting and close control over expenditure mitigate risk. Approval of the Strategic Report The Strategic Report on pages 4 to 25 was approved by the Board on 4 June 2020. Dr Stuart Paton Chairman 4 June 2020 25 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Governance Board of Directors Dr Stuart Paton Peter Stephens Dr Alison Fielding Chris Flavell Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Stuart holds a number Peter was a practising Alison is an experienced Chris holds a BSc in Geology of advisory roles, including barrister and investment entrepreneur and non- and an MSc in Applied with GLG and Reform banker. He now runs his own executive director. Her Geophysics from the Scotland. He has previously Venture Capital business. He career has spanned scientific University of Birmingham. been an advisor for Lime is currently Chairman of ASX research at Zeneca plc, He started his career in 1980 Rock Partners and the quoted Etherstack, Boisdale strategy consultancy at with BP in London and has Technical and Commercial Canary Wharf and True McKinsey & Company, since worked for a variety Director and CEO of Dana Petroleum, delivering a number of acquisitions for them. Before joining Dana, he held a number of roles at Shell. Stuart has a BA in Earth Sciences and a PhD in Geology from Cambridge University. A N R Luxury Travel, having been an original investor in Scott Dunn in 1988, sold in 2014. He was Chairman of Getech from its flotation on AIM in 2005 up until 2011 and remains a Director. Previously, Peter was one of six early investors in Tristel plc which they floated in 2003 and remained a director from the company’s flotation on AIM in 2005 up until 2011. He was the Head of European Equities Sales at Salomon Brothers 1986- investment and business of small to large Independent building at IP Group plc and Oil Companies in various she is currently a board technical and managerial member of Maven Income roles, as well as consulting and Growth VCT plc, Nanoco for eight years. Chris’s last oil Group plc, Zotefoams plc company role was General and the Carnegie Trust for Manager of Exploration for the Universities of Scotland. Tullow Oil when the company Alison holds an MBA from grew rapidly following the Manchester Business School, discovery of major new a PhD in Organic Chemistry oil provinces in Ghana, and a First-Class degree Uganda and Kenya. Chris in Chemistry from the is the Executive Chairman University of Glasgow. of Zinc Consultants. 2000 and Crédit Lyonnais A N R N R 2000-2004. He was Chairman of Cavendish Ware, Wealth Manager from 2008 until 2018 and remains a significant shareholder. Peter has an MA in Jurisprudence from Oxford University and he qualified as a barrister in 1978. A N 26 Getech Group plc Annual Report and Accounts 2019Governance Dr Jonathan Copus Andrew Darbyshire Chris Jepps Chief Executive Officer Chief Financial Officer Chief Operating Officer Jonathan brings to his role Andrew started his Chris has extensive extensive industry, corporate accounting and finance petroleum industry, GIS and finance and capital markets career at Garbutt & Elliott entrepreneurial experience, experience. Having worked and went on to work in audit having worked within as a deep-water exploration for Grant Thornton. Andrew integrated exploration teams geologist at Shell he moved joined Getech in 2014, to at Shell, as a professional into the City, where as an establish our new finance services consultant at energy sector equity analyst team. He was appointed Landmark Graphics and most he was consistently rated to the Board in February recently as Technical Director number 1 by the investing 2018. Andrew has a Master’s at Exprodat, where Chris institutions. In 2011 he was degree in Mathematics from established the company’s appointed CFO at Salamander the University of York and technical strategy and led Energy plc, a Southeast is a member of the Institute its software design and Asian-focused oil and gas of Chartered Accountants development. Following production company that in England and Wales. Exprodat’s acquisition by was sold to Ophir plc in He is also the treasurer for Getech Group plc in 2016, 2015. Jonathan has a PhD a charity, Live Music Now. Chris initially joined as from the University of Cambridge and a First-Class BSc in Geology from the University of Durham. Products Director, becoming Getech Group plc COO in February 2018. Chris has a BSc in Geology from Imperial College, London, and is a current member of Esri’s Partner Advisory Council. Committee membership A Audit Committee N Nomination Committee R Remuneration Committee 27 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Governance Corporate Governance Getech is committed to high standards of corporate The Board is responsible for approving overall strategic, governance. As such, the Board has chosen to adopt financial and operational matters and for the identification the principles of the Quoted Companies Alliance (‘QCA’) of risks faced by the Group. Board approval is required Corporate Governance Code for Small and Mid-Size Quoted for certain matters, the most significant of which are: Companies 2018 (‘the Code’). Details of how Getech complies with the Code, and the reasons for any non-compliance, are set out in this Corporate Governance statement. Prior to formal adoption of the Code, the Group has operated in compliance with recommendations of the QCA, in so far as the size of the Group and its Board permitted. For that reason, no significant changes in governance-related matters have been needed. No key governance matters have • Final approval of the Annual Report and Accounts • The budget and major capital expenditure • The dividend policy • Acquisitions and alliances policies The Board delegates certain matters regarding audit, remuneration and nomination to its principal committees, each of which has written terms of reference. arisen since the publication of the last Annual Report. Attendance by each Director at full meetings of the Board The Board considers that the structure of the Board provides a cost-effective and practical method of directing and Board committees of which they were a formal member during the year is summarised below. and managing the Group. As the Group’s activities develop The effectiveness of the Board is reviewed on an annual in size, nature and scope, the size of the Board and the basis, and progress against the review recommendations implementation of additional corporate governance is monitored on a regular basis. Directors who have been policies and structures will be reviewed. appointed to the Company have been chosen because The Board of the skills and experience they offer. The Board currently comprises four Non-Executive Directors The Company undertakes regular monitoring of personal and three Executive Directors. The roles of the Chairman, and corporate performance using agreed Key Performance who is non-executive and elected by the Board, and the Chief Indicators and detailed financial reports. Responsibility Executive are separated. All Directors are subject to retirement for assessing and monitoring the performance of the by rotation and re-election is a matter for the shareholders. Executive Directors lies with the Chairman and the The Non-Executive Directors ensure a balance to the Board Non-Executive Directors. by constructively challenging the Executive Directors. The Board undertakes an annual Company health-check, A Directors’ responsibilities statement in respect of the where the Board performs an appraisal of its effectiveness as financial statements is set out in this Annual Report a whole. Where areas for improvement are identified, specific on page 33. actions are set, to be completed in a suitable timescale. Progress of these actions is monitored on a regular basis. The Board considers the need for the periodic refreshing of its membership, which involves ensuring the skillsets provided by the Board members continue to be aligned with corporate strategy and risk. 28 Getech Group plc Annual Report and Accounts 2019Governance Company Secretary Remuneration Committee The Company Secretary is responsible for ensuring that the The Remuneration Committee consists of three Board procedures are followed, that the Company complies non-executive members of the Board and meets at least with company law and the AIM rules, and that the Board once a year. The principal duties and responsibilities receives the information it needs to fulfil its duties. of the Remuneration Committee include: All Directors have access to the Company Secretary and their • Setting the remuneration policy for all Executive Directors appointment (or termination of appointment) is a matter for and the Chairman decision by the full Board. Audit Committee The Audit Committee consists of three non-executive members of the Board and meets at least twice a year. The principal duties and responsibilities of the Audit Committee include: • Recommending and monitoring the level and structure of remuneration for senior management • Approving the design of, and determining targets for, performance-related pay schemes operated by the Company and approve the total annual payments made under such schemes • Monitor the Group’s internal financial controls and assess • Reviewing the design of all share incentive plans for their adequacy approval by the Board and shareholders • Review key estimates, judgements and assumptions None of the Committee members have any personal applied by management in preparing published financial interest (other than as shareholders), conflicts financial statements • Review and update the Group’s risk register • Assess annually the auditor’s independence and objectivity • Make recommendations in relation to the appointment, of interest arising from cross-directorships or day-to-day involvement in the running of the business. No Director plays a part in any final decision about his or her own remuneration. re-appointment and removal of the Company’s Nomination Committee external auditor • Review and consider for approval significant new contracts The Nomination Committee consists of four non-executive members of the Board and meet at least once a year. The principal duties and responsibilities of the Nomination Committee include: • Regularly reviewing the structure, size and composition of the Board • Giving consideration to succession planning for Directors and other senior executives • Identifying and nominating for the approval of the Board candidates to fill Board vacancies as and when they arise • Deciding membership of the Audit and Remuneration Committees Board of Directors’ attendance Director Dr Stuart Paton Peter Stephens Dr Alison Fielding Chris Flavell Dr Jonathan Copus Andrew Darbyshire Chris Jepps Board Audit Committee Remuneration Committee Nomination Committee 6/6 5/6 5/6 6/6 6/6 6/6 6/6 2/2 2/2 2/2 — — — — 1/1 — 1/1 1/1 — — — 1/1 1/1 1/1 1/1 — — — 29 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Corporate Governance cont. The Ten Principles of the QCA code Number Principles Disclosed in the 2019 Annual Report 1 2 3 4 5 6 7 8 9 Establish a strategy and business model that promotes long-term Pages 13 to 15 value for shareholders Seek to understand and meet shareholders’ needs and expectations Take into account wider stakeholder and social responsibilities and their implications for long-term success Page 31 Page 31 Embed effective risk management, considering both opportunities Pages 22 to 25 and threats throughout the organisation Maintain the Board as a well-functioning, balanced team led by the Chair Pages 28 to 29 Ensure that between them the Directors have the necessary and Pages 26 to 29 up-to-date experience, skills and capabilities Evaluate Board performance based on clear and relevant objectives, Pages 28 to 29 seeking continuous improvement Promote a corporate culture that is based on ethical values and behaviours Page 31 Maintain governance structures and processes that are fit for Pages 28 to 34 purpose and support good decision-making by the Board 10 Communicate how the Company is governed and is performing by Page 31 maintaining a dialogue with shareholders and other relevant stakeholders 30 Getech Group plc Annual Report and Accounts 2019Governance Communications with shareholders We engage annually with our Globe and potential Globe The Board is committed to maintaining an open dialogue customers at the Getech Globe User Group Meeting, with shareholders. Working in coordination with Getech’s which provides valuable insight into our customers’ needs. Broker and Nomad, communication with shareholders is led In addition, we regularly request feedback on our products by the Chief Executive Officer, the Group Finance Director and services from our customers. and the Non-Executive Chair. Feedback is an essential part of all control mechanisms. Throughout the year, the Board maintains a regular Systems need to be in place to solicit, consider and act dialogue with institutional investors, providing them on feedback from all stakeholder groups. Key relationships with such information on the Company’s progress with customers, suppliers, contractors and regulators as is permitted within the guidelines of the AIM rules, are closely managed by the Executive Directors and the Market Abuse Regulation (MAR) and requirements Executive Committee. All new suppliers and contractors of the relevant legislation. Twice yearly, at the time of announcing the Group’s interim and full-year results, the Company does a round of visits must complete our ‘New Business Associates’ process and all contractors must agree to the terms of our anti-bribery policies. to its major shareholders, as well as prospective new The Board is appraised of any issues arising. The Board also shareholders, to update them on developments and to understands that it has a responsibility to consider, where receive feedback and suggestions from them. The Board practicable, the social, environmental and economic impact believes that the Annual Report and Accounts, and the of its corporate strategy. Interim Report published at the half-year, play an important part in presenting all shareholders with an assessment of the Group’s position and prospects. All reports and press releases are published in the Investor section of the Group’s website. The Board is aware of the need to protect the interests of minority shareholders and balancing these interests with those of any more substantial shareholders. The Annual General Meeting (‘AGM’) is the principal opportunity for private shareholders to meet and discuss the Group’s business with the Directors. There is an open question and answer session during which shareholders may ask questions both about the resolutions being proposed and the business in general. The Directors are also available after the meeting for an informal discussion with shareholders. The Board produces a series of updates throughout the year relating to Company performance; these are distributed by RNS and RNS reach. Copies of all RNS announcements and the resolutions passed following the most recent AGM can be found on the Getech website. Getech’s Broker also regularly publishes detailed financial research on the Group. Corporate social responsibility The Board recognises the growing awareness of social, environmental and ethical matters. The Board also recognises the impact that its wider stakeholders have on the Group’s long-term success, including employees, contractors, customers and suppliers. As part of the staff appraisal process, employees are invited into an open dialogue and agreement on goals targets, aspirations and personal development opportunities. As part of our social responsibility and to safeguard our employees and contractors, we follow the UK Foreign Office advice on travelling and working abroad in high risk countries and territories. As a Group we aim to minimise our carbon footprint; initiatives include the introduction of low energy LED lighting in our offices, waste recycling and the use of video conferencing in place of international travel where practical. In 2019, Getech produced carbon dioxide emissions totalling 266 tonnes (2018: 216 tonnes) through international travel and heating and lighting its offices. Getech has contributed to the funding of a Verified Carbon Standard UK tree planting initiative that fully offsets these carbon dioxide emissions. Dr Stuart Paton Chairman 4 June 2020 31 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Governance Directors’ Report The Directors present their report and financial statements for the year ended 31 December 2019. Dr Stuart Paton Chairman 4 June 2020 32 Principal activities The principal activity of the Group is to provide geoscience and geospatial products and services that companies and governments use to de-risk their exploration programmes and improve their management of natural resources. Future developments The future developments of the Group are included in the Outlook section of the Chairman and Chief Executive’s Review. Directors The Directors of the Parent Company who served during the year were: Dr Jonathan Copus Andrew Darbyshire Dr Alison Fielding Chris Flavell Chris Jepps Dr Stuart Paton Peter Stephens Results and dividends The results for the year are set out on page 41. The Directors do not recommend a dividend (2018: no dividend). Directors’ indemnity The Group maintains Directors’ and Officers’ liability insurance, which gives cover against legal action that may be taken against them. Qualifying third-party indemnity provisions (as defined in Section 234 of the Companies Act 2006) are in force for the benefit of Directors. Risks The principal risks of the Group including around financial risk management are included in the Strategic Report (see pages 22 to 25). Substantial shareholders The Parent Company was notified on 25 March 2020 of the following interests in excess of 3% of its issued Ordinary Share capital. Please see the table on page 33. Corporate Governance See separate Corporate Governance report. Getech Group plc Annual Report and Accounts 2019Governance Companies Act s172 statement The Directors set out their statement of compliance with The Board has overall responsibility for ensuring high standards of governance, and to determine the Group’s s172 (1) of the Companies Act 2006 (s172), which should purpose, values and strategy. The primary aim of the Board be read in conjunction with the rest of the Annual Report is to promote the long-term sustainable success of Getech, and the Corporate Governance section of the Getech website. generating value for shareholders and contributing to S172 requires Directors to take into consideration the interests wider society. of stakeholders in their decision making. The Board continues Statement of Directors’ responsibilities to have regard to the interests of the Company’s shareholders, employees and other stakeholders, including the impact of its activities on the community, the environment and the Company’s reputation, when making decisions. In particular: • The Board has a strategy for diversified growth, which is discussed in more detail in the Chairman and Chief Executive’s Review. The Board therefore gives careful consideration to the long-term consequences of any immediate decisions The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and to prepare the Parent Company’s financial • Our employees are fundamental to the success of the statements under United Kingdom Accounting Standards business. The Executive Committee provides weekly (United Kingdom Generally Accepted Accounting Practice). Group-wide ‘Friday updates’ to all staff and Getech’s CEO hosts a town-hall forum for staff discussion every quarter. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give There are also a range of other initiatives, which are aimed a true and fair view of the state of affairs of the Company at enhancing the learning, interaction and interest of and Group and of the profit or loss of the Company and our employees Group for that year. In preparing these financial statements, • Getech values its relationships with customers and the Directors are required to: suppliers. As a part of our ISO 9001 accreditation, • Select suitable accounting policies and then apply customers are regularly asked to complete satisfaction them consistently surveys to ensure that the products and services that we provide are to the highest standards • Make judgements and estimates that are reasonable and prudent • Getech is a responsible corporate citizen and we minimise • State whether applicable IFRS have been followed in our impact on the environment. More detail of our interactions with our employees, customers, suppliers, community and environment can be found on page 31 of the Corporate Governance report the consolidated financial statements and whether UK Accounting Standards have been followed in the Parent Company’s financial statements, subject to any material departures disclosed and explained in the financial statements • As a Board, it is our intention to behave responsibly toward our shareholders and treat them fairly and equally, so that • Prepare the financial statements on a going concern basis, unless it is inappropriate to presume that the Company they all benefit from the success of the Group or Group will continue in business Substantial shareholders BGF Investments Eiffel Investment Group Canaccord Genuity Group Mr Peter Stephens Chris Green Mr Derek Fairhead Hargreaves Lansdown Number of Ordinary Shares % of issued share capital 5,855,350 5,566,468 4,762,167 1,876,500 1,797,080 1,458,474 1,358,228 15.6 14.8 12.7 5.0 4.8 3.9 3.6 33 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Directors' Report cont. The Directors are responsible for keeping adequate accounting records that are sufficient to show and Post balance sheet events See post balance sheet events section of the Financial explain the Company’s transactions and disclose with Review on page 21. reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group, and hence for taking reasonable steps for the prevention and detection of fraud Auditor Grant Thornton UK LLP has expressed its willingness to continue in office as external auditor. A resolution to re-appoint Grant Thornton UK LLP will be proposed at the forthcoming Annual General Meeting. By order of the Board Dr Stuart Paton Chairman 4 June 2020 and other irregularities. The Directors confirm that: • So far as each Director is aware, there is no relevant audit information of which the Group’s external auditor is unaware • The Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the external auditor is aware of that information The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Going concern In making the going concern assessment, the Board of Directors has considered Group budgets and detailed cash flow forecasts to 31 December 2021. The Board has considered sensitivity of these forecasts with regards to different assumptions about future income and costs, and various scenarios have been run on the potential impact of Covid-19 (see Note 1.2 for more detail). These cash flow projections, when considered in conjunction with Getech’s existing cash balances, and the cost saving measures implemented, demonstrate that the Group has sufficient working capital for the foreseeable future. Consequently, the Directors are fully satisfied that Getech is a going concern. 34 Getech Group plc Annual Report and Accounts 2019Governance Financial Statements Independent Auditor’s Report to the members of Getech Group plc Opinion Our opinion on the financial statements is unmodified We have audited the financial statements of Getech Group Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2019, which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Parent Company Statement of Financial Position, the Parent Company Statement of Changes in Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 ‘Reduced Disclosures Framework’ (United Kingdom Generally Accepted Accounting Practice). In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2019 and of the Group’s loss for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. The impact of macro-economic uncertainties on our audit Our audit of the financial statements requires us to obtain an understanding of all relevant uncertainties, including those arising as a consequence of the effects of macro-economic uncertainties such as Covid-19 and Brexit. All audits assess and challenge the reasonableness of estimates made by the Directors and the related disclosures and the appropriateness of the going concern basis of preparation of the financial statements. All of these depend on assessments of the future economic environment and the Group’s future prospects and performance. Covid-19 and Brexit are amongst the most significant economic events currently faced by the UK, and at the date of this report their effects are subject to unprecedented levels of uncertainty, with the full range of possible outcomes and their impacts unknown. We applied a standardised firm-wide approach in response to these uncertainties when assessing the Group’s future prospects and performance. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company associated with these particular events. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the Directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Company's ability to continue to adopt the going concern basis of accounting for a period of at least 12 months from the date when the financial statements are authorised for issue In our evaluation of the Directors' conclusions, we considered the risks associated with the Group's business, including effects arising from macro-economic uncertainties such as Covid-19 and Brexit, and analysed how those risks might affect the Company's financial resources or ability to continue operations over the period of at least 12 months from the date when the financial statements are authorised for issue. In accordance with the above, we have nothing to report in these respects. 35 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Independent Auditor’s Report cont. to the members of Getech Group plc However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Company will continue in operation. Overview of our audit approach Overall materiality: £40,000, which represents approximately 0.7% of the Group’s total revenues; Key audit matters were identified as revenue recognition and the carrying value of goodwill and other intangible assets; and We have assessed the components within the Group by considering each as a percentage of Group’s total assets, liabilities, revenues and loss before tax, and performed a combination of comprehensive audits and targeted audit procedures. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter – Group and Parent How the matter was addressed in the audit – Group and Parent Revenue recognition There is a risk that revenue may be misstated due to the improper recognition of revenue. This risk is heightened based on the level of revenue which is accrued or deferred based on underlying contracts. In respect of revenue recognised for ongoing projects, there is a risk that revenue is recognised before the risk and rewards of ownership have transferred to the customer, and performance obligations have been met. As there are contractual arrangements with customers, there is a risk that revenue is misstated as each contract’s outcome and stage of completion requires professional judgement. We therefore identified revenue recognition as a significant risk, which was one of the most significant assessed risks of material misstatement. Our audit work included, but was not restricted to: • Obtaining an understanding through reperformance by walkthrough of the systems and controls in place around the recording of revenue • Evaluation of the revenue recognition policies for appropriateness with IFRS 15, including challenge around stage of completion at the year end • Testing a sample of revenue transactions in respect of sale of products and provision of services and assessing them against supporting documentation to determine whether income has been appropriately recognised in accordance with IFRS 15 and the Group’s accounting policy • Testing of transactions around the year end to determine the application of correct cut-off procedures, including assessment of appropriate deferral of revenue • Comparison of current year revenue with that from the prior period and obtaining and corroborating the explanations received for significant and unusual variances The Group's accounting policy on revenue recognition including the key sources of estimation uncertainty is shown in Notes 1.5 and 1.7 in the Accounting Policies section and related disclosures are included in Note 2 to the consolidated financial statements. Key observations Based on our work performed and following correct treatment and adjustment of material amendments identified, we can conclude that revenue recognised appears to be free from material misstatement. 36 Getech Group plc Annual Report and Accounts 2019Financial Statements Key audit matter – Group and Parent cont. How the matter was addressed in the audit – Group and Parent cont. Carrying value of goodwill and other intangible assets Within the consolidated statement of financial position are significant balances for goodwill and other intangible assets arising from both previous acquisition activity and ongoing development work. These balances represent a significant proportion of the total assets figure within the consolidated statement of financial position and, if the underlying subsidiaries are not performing in line with forecast, are at risk of being materially misstated due to unrecorded impairment. Further, the forward forecasts for the Group include a degree of estimation as to future projects to be delivered and the results to be derived therefrom. We therefore identified carrying value of goodwill and other intangible assets as a significant risk, which was one of the most significant assessed risks of material misstatement. Going concern As stated in ‘The impact of macro-economic uncertainties on our audit’ section of our report, Covid-19 is one of the most significant economic events currently faced by the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty. This event could adversely impact the future trading performance of the Group and Company and as such increases the extent of judgement and estimation uncertainty associated with management’s decision to adopt the going concern basis of accounting in the preparation of the financial statements. As such we identified going concern as a significant risk, which was one of the most significant assessed risks of material misstatement. Our audit work included, but was not restricted to: • Obtaining an understanding through reperformance by walkthrough of the systems and controls in place around the assessment of carrying value of goodwill and intangible assets • Determination of whether the assigned life of each applicable intangible asset remains appropriate • Testing on a sample basis of additions to intangible assets during the year to supporting documentation • Development of an expectation of amortisation expense for the year and comparison against the expense recorded • Assessment and challenge of management prepared reviews of the carrying value of goodwill and intangible assets. Our challenge focused around the assumptions regarding future revenues and cash flows from the underlying cash generating units relative to historic performance, prospects of future commercial projects, and assessment of the growth rates and discount rates applied The Group’s accounting policy on intangible assets including the key sources of estimation uncertainty is shown in Notes 1.5 and 1.16 in the Accounting Policies section and related disclosures are included in Notes 9 and 10 to the consolidated financial statements. Key observations Based on our audit work we have not identified any material misstatements in the carrying value of goodwill and intangible assets in the consolidated statement of financial position. This is as a result of the impairment identified and posted by management during the year against goodwill and intangible assets, as detailed in Notes 9 and 10 to the consolidated financial statements. We undertook procedures to evaluate management’s assessment of the impact of Covid-19 on the Group and Company’s forecasted earnings and cash flows. This included, but was not restricted to: • Obtaining management’s original forecasts covering the period to December 2020. We assessed how these forecasts were compiled, including assessing their accuracy by validating the reasonableness of underlying assumptions; • Assessing the reliability of management’s forecasting by comparing the accuracy of actual financial performance to the forecast information; • Obtaining management’s revised forecasts, covering the period to December 2021, prepared to assess the potential impact of Covid-19. We evaluated the assumptions applied, including the reduction in revenue, reduction in costs and the resulting effect on the forecasted earnings and cash flows during the estimated period of Covid-19, for reasonableness and determined whether they had been applied accurately. We also considered whether the assumptions are consistent with our understanding of the business; 37 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Independent Auditor’s Report cont. to the members of Getech Group plc Key audit matter – Group and Parent cont. Going concern cont. How the matter was addressed in the audit – Group and Parent cont. • Assessing management’s cash position throughout the period of re-forecast. This assessment included the corroboration of mitigating actions taken by management to relevant documentation and evaluation of their application in the revised forecasts for accuracy; • Performing sensitivity analysis on management’s revised forecasts to determine the reduction in revenue, earnings and cash that would lead to elimination of the headroom in their original cash flow forecasts; and • Assessing the adequacy of the going concern disclosures included within the financial statements Key observations Based on the procedures performed, we have identified no issues regarding management’s assessment of the impact of Covid-19 on the Company’s forecasted cash position. We have nothing to report in addition to that stated in the ‘Conclusions relating to going concern’ section of our report. Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work. Materiality was determined as follows: Materiality measure Group Parent £40,000, which is approximately 0.7% of total revenues. This benchmark is considered the most appropriate because revenues are the most consistent balance in the financial statements over recent years and are the key driver of the Group. Materiality for the current year is lower than the level that we determined for the year ended 31 December 2018 to reflect the lower revenue number for the year ended 31 December 2019 and the continued position of being close to break even in terms of profit or loss before exceptional items. £34,000, which is based on the Parent Company’s total revenues, assessed by reference to the significance of the component to the Group. This benchmark is considered the most appropriate because the Parent Company is also the largest trading company, therefore the total revenues basis ensures that materiality is based on a key figure to users of the financial statements. Materiality for the current year is lower than the level that we determined for the year ended 31 December 2018, due to lower revenue in the Parent Company when compared to prior year. 75% of financial statement materiality. 75% of financial statement materiality. £2,000 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £1,700 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. Financial statements as a whole Performance materiality used to drive the extent of our testing Communication of misstatements to the Audit Committee 38 Getech Group plc Annual Report and Accounts 2019Financial Statements The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements. Overall materiality – Group Overall materiality – Parent 25% Performance materiality 25% Performance materiality Tolerance for potential uncorrected misstatements Tolerance for potential uncorrected misstatements 75% 75% An overview of the scope of our audit Our audit approach was a risk-based approach founded on a thorough understanding of the Group's business, its environment and risk profile and in particular included: • Documenting and evaluating the processes and controls covering the key audit matters • Evaluation by the Group audit team of identified components to assess the significance of each component and to determine the planned audit response based on a measure of materiality considering each as a percentage of Group’s total assets, liabilities, revenues and loss before tax • For those components that were evaluated as significant components, a full-scope audit approach was determined based on their relative materiality to the Group and our assessment of the audit risk; • We performed a full-scope audit of the financial information of the Parent Company, Getech Group plc, as well as subsidiaries ERCL Limited and Exprodat Consulting Limited and of the Group’s operations throughout the United Kingdom. The Group’s component in the US, Geophysical Exploration Technology Incorporated, was subject to specified procedures over the balance sheet and income statement, performed taking into account Group materiality and Group performance materiality, with a focus on key audit matters and other significant risks, and the significance to the Group’s balances • The components subject to a full-scope audit approach cover 58% of the consolidated revenues, 94% of consolidated assets and 92% of total loss before tax, with the component subject to a targeted approach representing 42% of the consolidated revenues and 6% of consolidated assets • The accounting functions are performed centrally for all entities. All audit work has been undertaken by the Group audit team Other information The Directors are responsible for the other information. The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 39 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Independent Auditor’s Report cont. to the members of Getech Group plc Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements Matters on which we are required to report under the Companies Act 2006 In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit Responsibilities of Directors for the financial statements As explained more fully in the Directors’ responsibilities statement set out on page 33, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Victoria McLoughlin BA FCA Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Leeds 4 June 2020 40 Getech Group plc Annual Report and Accounts 2019Financial Statements Consolidated Statement of Comprehensive Income for the year ended 31 December 2019 Sales revenue Cost of sales Gross profit before exceptional items Exceptional cost of sales Gross profit Administrative expenses Operating profit before exceptional administrative costs Exceptional administrative expenses Operating (loss)/profit Finance revenue Finance costs (Loss)/profit before tax Tax credit Loss)/profit for the year Other comprehensive income Currency translation differences on translation of foreign operations Total comprehensive income for the year attributable to owners of the Parent Company Notes 2 2 24 2 24 3 5 6 7 2019 £’000 6,058 (2,533) 3,525 325 3,850 (3,809) 41 (3,132) (3,091) 14 (64) (3,141) 53 (3,088) 6 (3,082) 2018 £’000 8,019 (4,231) 3,788 — 3,788 (3,341) 447 (197) 250 — (25) 225 283 508 36 544 Earnings per ordinary share (EPS) Basic EPS Diluted EPS 8 8 (8.22)p (8.22)p 1.35p 1.33p All activities relate to continuing operations. The accompanying accounting policies and notes form an integral part of these financial statements. 41 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Consolidated Statement of Financial Position as at 31 December 2019 Non-current assets Goodwill Intangible assets Property, plant and equipment Deferred tax asset Current assets Trade and other receivables Tax receivable Cash and cash equivalents Total assets Current liabilities Short-term borrowings Trade and other payables Net current assets Non-current liabilities Long-term borrowings Trade and other payables Deferred tax liabilities Total liabilities Net assets Share capital Share premium Merger reserve Share-based payment (SBP) reserve Currency translation reserve Retained earnings Total equity Notes 9 10 11 7 12 7 13 14 15 14 15 7 18 2019 £’000 296 3,568 2,906 346 7,116 1,994 136 3,554 5,684 2018 £’000 3,428 4,018 3,086 305 10,837 4,941 104 1,400 6,445 12,800 17,282 78 1,697 1,775 3,909 776 421 109 1,306 3,081 9,719 94 3,053 2,407 242 31 3,892 9,719 113 2,906 3,019 3,426 819 565 137 1,521 4,540 12,742 94 3,053 2,407 183 25 6,980 12,742 The financial statements of Getech Group plc (Company number: 02891368) were approved by the Board of Directors and authorised for issue on 4 June 2020. Andrew Darbyshire Chief Financial Officer 42 Getech Group plc Annual Report and Accounts 2019Financial Statements Consolidated Statement of Changes in Equity for the year ended 31 December 2019 Share capital £’000 Share premium £’000 Merger reserve £’000 SBP reserve £’000 Currency translation reserve £’000 Retained earnings £’000 1 January 2018 Profit for the year Other comprehensive income Total comprehensive income Transactions with owners: Share-based payment charge 31 December 2018 Loss for the year Other comprehensive income Total comprehensive income Transactions with owners: Share-based payment charge 31 December 2019 94 — — — — 94 — — — — 94 3,053 — — — — 2,407 — — — — 3,053 2,407 — — — — — — — — 3,053 2,407 164 — — — 19 183 — — — 59 242 (11) — 36 36 — 25 — 6 6 — 31 Total equity £’000 12,179 508 36 544 19 6,472 508 — 508 — 6,980 12,742 (3,088) — (3,088) — 3,892 (3,088) 6 (3,082) 59 9,719 43 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Consolidated Statement of Cash Flows for the year ended 31 December 2019 Cash flows from operating activities (Loss)/profit before tax Finance income Finance costs Depreciation charge Amortisation of intangible assets Impairment of goodwill Impairment of intangible assets Adjustment to direct cost accruals Share-based payment charge Foreign exchange adjustments Cash inflow from operating activities Movements in working capital: (Increase)/decrease in trade and other receivables Increase/(decrease in trade and other payables Cash generated from operations Tax (paid)/received Net cash inflow/(outflow) from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Development costs capitalised Capitalised cost of reports Interest received Net cash outflow from investing activities Cash flows from financing activities Drawdown of loan Repayment of loan Repayment of lease liabilities Interest paid Net cash (outflow)/inflow from financing activities (Decrease)/increase in net cash and cash equivalents Cash and cash equivalents at the beginning of the year Foreign exchange adjustments to cash and cash equivalents Cash and cash equivalents at the end of the year 44 Notes 2019 £’000 2018 £’000 5 6 11 10 9 10 12 15 11 10 10 10 5 6 13 (3,141) (14) 64 216 940 3,132 621 (946) 59 3 225 — 25 131 689 — — — 19 (16) 934 1,073 2,861 (336) 3,459 37 3,496 (30) (5) (1,108) — 14 (1,129) — (78) (71) (64) (213) 2,154 1,400 — 3,554 (2,820) 901 (846) 514 (332) (78) — (861) (13) — (952) 950 (652) (29) (25) 244 (1,040) 2,393 47 1,400 Getech Group plc Annual Report and Accounts 2019Financial Statements Notes to the Consolidated Financial Statements for the year ended 31 December 2019 1 Accounting Policies 1.1 Basis of preparation The consolidated financial statements of Getech Group plc (the Company) and subsidiaries (the Group) have been prepared in accordance with International Financial Reporting Standards, adopted for use by the European Union (IFRS) as they apply to the Group for the year ended 31 December 2019 and with the Companies Act 2006. The accounts were approved by the Board and authorised for issue on 4 June 2020. Getech Group plc is a public limited company incorporated and registered in England and Wales and listed on the Alternative Investment Market (AIM). The financial statements are prepared on a going concern basis under the historical cost convention except for certain items measured at fair value and are presented to the nearest thousand pounds (£’000) except as otherwise stated. New and amended standards and interpretations During the year, the Group adopted the following new and amended IFRSs for the first time for its reporting period commencing 1 January 2019: Standard or interpretation IFRS 9 Prepayment features with negative compensation Annual improvements 2015-2017 IAS 12, IAS 23, IFRS 3 and IFRS 11 EU effective date 1 January 2019 1 January 2019 Getech adopted IFRS 16 Leases early, starting from 1 January 2018; other new and amended standards and interpretations have not had a material impact on the Group’s financial statements. New standards and interpretations not yet adopted Certain new standards, interpretations and amendments to existing standards have been published that are mandatory only for the Group’s accounting periods beginning on or after 1 January 2020 and which the Group has not adopted early. Those that may be applicable to the Group in the future are as follows: Standard or interpretation Amendments to IFRS 9, IAS 39 and IFRS 7: Interest rate benchmark reform Amendments to IFRS 3 Business Combinations Amendments to references to the conceptual framework in IFRS standards Amendments to IAS 1 and IAS 8 Definition of material EU effective date 1 January 2020 1 January 2021 1 January 2020 1 January 2020 The Group does not expect any material impact on the financial statements from the implementation of the above future standards. 1.2 Going concern The Directors have performed regular reviews of trading and cash flow forecasts and have considered the sensitivity of these forecasts with regards to different assumptions about future income and costs. Various scenarios have been run on the potential impact of Covid-19. These include an assessment of the orderbook – customer contractual commitments and Getech’s ability to deliver this work; the drivers of licence renewals; and the modelling of extreme and hypothetical ‘zero new revenue’ downside scenarios, these extending across multiple years. Additional cost actions have also been modelled, including a bottom up restructuring of the Group’s overhead, offices, technical staff and commercial activities. In addition to the sensitivity models of future income and costs, we have made various assumptions to model cash flow forecasts: it has been assumed that the UK Government Job Retention Scheme will continue to be available until the end of September 2019 and that current social distancing measures, which impact our ability to meet clients in person, will also be in place until the end of September. We have also not relied on the availability of additional sources of cash in our forecast assumptions. These cash flow projections, when considered in conjunction with Getech’s existing cash balances, and the cost saving measures implemented, demonstrate that the Group has sufficient working capital for the foreseeable future. Consequently, the Directors are fully satisfied that Getech is a going concern. 45 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 1 Accounting Policies cont. 1.3 Basis of consolidation The Group’s financial statements consolidate those of the Parent Company and of its subsidiary undertakings, drawn up to 31 December 2019. A subsidiary is an entity controlled by the Group. Control is achieved where the Group has the power to govern the financial and operating policies of an entity to obtain benefits from its activities. All intercompany transactions and balances between the Group companies, including unrealised profits, have been eliminated on consolidation. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. 1.4 Business combinations Business combinations are accounted for using the acquisition method of accounting. The acquired identifiable tangible and intangible assets are measured at their fair values at the date of the acquisition. Acquisition costs incurred are expensed under administrative expenses. Goodwill is initially measured at the excess of the aggregate of the consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. 1.5 Exceptional items Items which are material either because of their size or their nature, and which are non-recurring, are presented within their relevant consolidated income statement category, but highlighted through separate disclosure. The separate reporting of exceptional items helps provide a better picture of the Company’s underlying performance. Items which are included within the exceptional category include: • spend on the integration of significant acquisitions and other major restructuring programmes; • significant goodwill or other asset impairments relating to specific market events; and • other particularly significant or unusual items 1.6 Revenue The Group has adopted IFRS 15 and its principles. Revenue is measured by reference to the fair value of consideration received or receivable by the Group for products and services provided, excluding VAT and comparable overseas taxes. Typical invoice payment terms are 30 days for all categories of revenue. Revenue from products and services falls into the four categories below: Consultancy services The Group provides various consulting services to its customers. Revenue from these services is recognised on a time-and- materials basis plus a margin as the services are provided at a rate agreed in the customer contract. Customers are invoiced monthly as work progresses. The Group also provides outsourcing services for a fixed fee for an agreed period, as agreed in the customer contract. As the amount of work required to perform these services does not vary significantly from month to month, revenue is recognised on a straight-line basis over the term of the contract. This revenue accounting policy is applicable for revenues from Government Advisory Services, Geoscience Services and Geospatial Solutions. Multiclient products For sales of data and completed products, revenue is recognised when performance obligations have been satisfied, which is on dispatch unless otherwise agreed. The transaction price is fixed and agreed in the customer contract. This revenue accounting policy is applicable for revenues from Geophysical Data, Globe and Regional Reports. 46 Getech Group plc Annual Report and Accounts 2019Financial Statements 1 Accounting Policies cont. 1.6 Revenue cont. Multiple element contracts Where contracts for multiple element products with staged deliverables involve delivery of several different elements which are not fully delivered or performed by the year end, revenue is recognised based on the proportion of the fair value of the elements delivered to the fair value of the respective overall contracts. Where the outcome of contracts that are long term in nature and contracts for ongoing deliverables cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable. Revenue from multiple element contracts is recognised after separating the contract income as follows: • Completed project elements and specific reports that are immediately deliverable – revenue is recognised when the performance obligations have been satisfied, which is on dispatch unless otherwise agreed • Service elements of the contract – revenue is recognised in line with the accounting treatment for consultancy services • Project elements that are to be delivered from development work that is yet to be completed – revenue is recognised when the performance obligations have been satisfied, which is on dispatch unless otherwise agreed Software licences Customers subscribe to Getech’s software licences, usually over a 12-month term. The customer has the rights to all of the benefits provided by the product over the term of the licence; as such, revenue is recognised over the term of the licence at the fixed fee agreed in the customer contract. The balance of the revenue invoiced is deferred. This revenue accounting policy is applicable for revenues from Geospatial Solutions Software. 1.7 Foreign currency translation The Group’s financial statements are presented in pound sterling, which is also the functional currency of the Parent Company. Where supplies are obtained, or sales are made on terms denominated in foreign currency, such transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the end of the reporting period. Exchange gains or losses arising on the settlement or translation of monetary items are included in profit or loss from operations. The assets and liabilities of the Group’s overseas subsidiary undertaking are translated into the presentation currency using exchange rates prevailing at the end of the reporting period. Translation differences in respect of the assets and liabilities of the foreign subsidiary are accounted for in the Group’s currency translation reserve within equity. Income and expenses of this undertaking are translated at the average exchange rates for the period that approximate to the actual rates on transaction dates. Exchange differences arising, if any, are recognised in other comprehensive income and the Group’s currency translation reserve. 1.8 Employee benefits Pension schemes The Group operates defined contribution pension schemes. The assets of the schemes are held separately from the Group in an independently administered fund. The pension charge represents contributions payable by the Group to the schemes. Share options Where share options are granted, a charge is made to profit or loss and a reserve is created to record the fair value of the awards in accordance with IFRS 2 ‘Share-based Payment’. A charge is recognised in profit or loss in relation to share options granted based on the fair value (the economic value) of the grant, measured at the grant date. The charge is spread over the vesting period. The valuation methodology takes into account assumptions and estimates of share price volatility, the future risk-free interest rate and exercise behaviour, and is based on the Black Scholes method. When share options are exercised, there is a transfer from the share option reserve to retained earnings. At the end of each reporting period, the Group revises its estimate of the number of share options that are expected to vest, taking into account those that have lapsed or been cancelled. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to the share option reserve. If the terms and conditions of share options are modified before they vest, the change in the fair value of the share options, measured immediately before and after the modification, is charged to profit or loss over the remaining vesting period. 47 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 1 Accounting Policies cont. 1.9 Research Research expenditure is charged to profit or loss in the period in which it is incurred. 1.10 Right-of-use assets and lease liabilities The Group recognises a right-of-use asset and a lease liability at the commencement date of the contract for all leases conveying the right to control the use of an identified asset for a period of time. The commencement date is the date on which a lessor makes an underlying asset available for use. The right-of-use assets are initially measured at cost, which comprises: • The amount of initial measurement of the lease liability; • Any lease payments made at or before the commencement date, less any lease incentives; • Any initial direct costs incurred by the lessee; • An estimate of costs to be incurred by the lessee in dismantling and removing the underlying assets or restoring the site on which the assets are located After the commencement date the right-to-use assets are measured at cost less accumulated depreciation and accumulated impairment losses and adjusted for any re-measurement of the lease liability. Depreciation is calculated using the straight-line method over the life of the lease. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. The lease payments are discounted using the Group’s incremental borrowing rate (3.5%), or the rate implicit in the lease contract. Lease liabilities are included within trade and other payables (both current and non-current) in the Statement of Financial Position. After the commencement date, the Group measures the lease liability by: • Increasing the carrying amount to reflect interest on the lease liability; and • Reducing the carrying amount to reflect lease payments made 1.11 Property, plant and equipment Property, plant and equipment are carried at acquisition cost, net of depreciation and any provision for impairment. Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment by equal instalments over their estimated useful economic lives at the following rates: Freehold property Plant and equipment – 2% per annum on cost – 33.3% and 25% per annum on cost Material residual value and useful life estimates are updated as required, but at least annually. Freehold land is carried at acquisition cost. As no finite useful life for land can be determined, related carrying amounts are not depreciated. 1.12 Intangible assets Expenditure on development activities is capitalised if the product or process meets the recognition criteria for development expenditure as set out in IAS 38 ‘Intangible Assets’. The expenditure capitalised includes all directly attributable costs, from the date that the intangible asset meets the recognition criteria, necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Development expenditure is identified as being capital in nature if the costs can be measured reliably, the product is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditure not meeting these criteria is recognised in profit or loss as incurred. Once the asset is ready for use, the capitalised development expenditure is stated at cost less accumulated amortisation (see below) and impairment losses. Intangible assets not yet ready for use are tested for impairment annually. 48 Getech Group plc Annual Report and Accounts 2019Financial Statements 1 Accounting Policies cont. 1.12 Intangible assets cont. Other intangible assets include acquired data holdings that qualify for recognition as intangible assets in a business combination. As these assets have finite useful economic lives, they are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives. Residual values and useful lives are reviewed at each reporting date. In addition, intangible assets are subject to annual impairment reviews or a review whenever there is an indication of impairment. The following useful lives are applied: Customer relationships – fifteen years Software development – five years Development costs – five to ten years Reports – ten years – ten years Data holdings Goodwill on consolidation – indefinite, annual impairment review Amortisation is included within ‘Administrative costs’, except for amortisation of Reports, which is included in ‘Cost of sales’. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments. 1.13 Financial assets Financial assets are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. Classification and initial measurement of financial assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories: • amortised cost • fair value through profit or loss (FVTPL) • fair value through other comprehensive income (FVOCI) In the periods presented the Group does not have any financial assets categorised as FVOCI or FVTPL. Subsequent measurement of financial assets – Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL): • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. 49 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 1 Accounting Policies cont. 1.13 Financial assets cont. Impairment of financial assets IFRS 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. This replaced IAS 39’s ‘incurred loss model’. Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. In applying this forward-looking approach, a distinction is made between: • financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and • financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’) ‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date. ‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the second category. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. 1.14 Income taxes Current tax is the tax currently payable or receivable based on the taxable profit or loss for the year. 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 on temporary differences associated with shares in subsidiaries is not provided if the reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets. Deferred tax assets and liabilities are calculated 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 end of the reporting period. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except where they relate to items that are charged or credited directly to equity (in which case, the related deferred tax is also charged or credited directly to equity), or where they relate to items of other comprehensive income (in which case, they are recognised in other comprehensive income). 1.15 Cash and cash equivalents Cash and cash equivalents comprise cash-in-hand and demand deposits. 50 Getech Group plc Annual Report and Accounts 2019Financial Statements 1 Accounting Policies cont. 1.16 Equity Equity comprises the following: • ‘Share capital’ represents the nominal value of equity shares • ‘Share premium account’ represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue • ‘Merger relief reserve’ represents the premium on shares issued to acquire ERCL Limited and Exprodat Consulting Limited • ‘Capital redemption reserve’ represents the nominal value of equity shares redeemed • ‘Share option reserve’ represents the fair value of share options in accordance with IFRS 2 ‘Share-based Payment’ • ‘Currency translation reserve’ represents the value of exchange differences in translating the assets and liabilities of the foreign subsidiary • ‘Retained earnings’ represents retained profits 1.17 Dividends Dividend distributions payable to equity shareholders are included in ‘Other short-term financial liabilities’ when dividends are approved in general meetings prior to the end of the reporting period. 1.18 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. Financial liabilities categorised as at fair value through profit or loss are recorded initially at fair value and all transaction costs are recognised immediately in profit or loss. All other financial liabilities are recorded initially at fair value, net of direct issue costs. Financial liabilities categorised as at fair value through profit or loss are re-measured at each reporting date at fair value, with changes in fair value being recognised in profit or loss. All other financial liabilities are recorded at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance costs in profit or loss. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to profit or loss on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Financial liabilities are categorised as at fair value through profit or loss where they are designated as at fair value through profit or loss on initial recognition. Deferred consideration on acquisitions of assets, which is contingent on subsequent sales of such assets, is treated as financial liability at fair value through profit or loss, and the value is allocated between current and non-current liabilities in accordance with best estimates of the timing and amounts expected to fall due. A financial liability is derecognised only when the obligation is extinguished; that is, when the obligation is discharged or cancelled, or it expires. 1.19 Significant accounting judgements and estimates In applying the Group’s adopted accounting policies, management has made appropriate estimates in key areas, and the actual outcomes may differ from those calculated. Significant areas of judgement The key sources of judgement at the end of the reporting period are as follows: Recognition of revenue from multiple element contracts Management use judgement in determining the fair value of multiple element contracts in order to appropriately recognise the revenue attributable to each element. The value of revenue recognised in the period is dependent on an assessment of work to completion. 51 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 1 Accounting Policies cont. 1.19 Significant accounting judgements and estimates cont. Significant areas of judgement cont. Capitalisation of development costs The capitalisation of development expenditure is dependent on the costs meeting the recognition criteria in accordance with IAS 38 ‘Intangible Assets’. In assessing the criteria, management makes judgements on the level of future economic benefits of the asset flowing to the Company. Management is assisted in making these judgements through the monitoring both of sales forecasts and of the level of future cost benefits arising. Deferred taxation Management judgement is required in determining provisions for deferred tax liabilities and assets. The process involves estimating the actual current tax exposure together with assessing temporary differences resulting from the different valuation of certain assets and liabilities in the financial statements and the tax returns. Management must assess the probability that the deferred tax assets will be recovered from future taxable income. Significant areas of estimation uncertainty The key sources of estimation uncertainty at the end of the reporting period are as follows: Multiple element contracts Management uses estimates in determining the fair value of individual elements of the multiple element contracts in order to appropriately recognise the revenue attributable to each element. A value is assigned to each element of the contract, based on an estimate of the value of that element if it were sold individually; the ratio of these values is then used to calculate a fair value for each element. The value of revenue recognised during the year is also dependent on estimates of work to completion, as with long-term contracts. Were the proportion of work completed to total work to be performed to differ by 5% from management’s estimates, the amount of revenue recognised would increase/decrease by £44,000. Carrying amount of non-current assets Where there is an indication of impairment, a review of the carrying values of non-current assets is undertaken as follows: • Intangible non-current assets, including goodwill, are estimated on the basis of value in use The value is calculated from the present value of future cash flows expected to be derived from the asset under review. The key elements of estimation are the calculation of future cash flows. For intangible assets, future cash flows are forecast revenues from the associated cash-generating unit. Further estimation is made in determining an appropriate discount rate that reflects the specific risks associated with the asset or cash-generating unit. See Notes 9 and 10 for further details of assumptions made and sensitivity testing regarding goodwill and intangible assets. Share options Share-based payments are valued using the Black Scholes valuation model. Estimates are made in expected volatility and the risk-free rate. Where appropriate, management uses historical market data as a basis for estimating the fair value of share options on grant. Increasing the risk-free rate by 2% and increasing the volatility window in the calculation of volatility from 5 days to 30 days made no material difference to the valuation of share options issued during the year. 2 Segment Reporting Information reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance focuses on the types of goods and services delivered or provided. The Directors of the Company have chosen to organise the Group around differences in products and services. Operating segments with similar characteristics, and where segments are similar in respect of the nature of the products and services, the nature of the production processes, the type of customer and where they have similar methods of distribution, have been aggregated into a single operating segment. Specifically, the Group’s reportable segments under IFRS 8 are as follows: • Products (Including Geophysical Data, Globe, Regional Reports and Software revenues) • Services (Including Government Advisory Services, Geoscience Services and Geospatial Solutions revenues) • The sources of income included in ‘other segments’ are other miscellaneous income 52 Getech Group plc Annual Report and Accounts 2019Financial Statements 2 Segment Reporting cont. 2.1 Segment revenues and results The following is an analysis of the Group’s revenue and results from continuing operations by reportable segment. Products Services Other Total revenue/profit before exceptional items Central administrative costs Exceptional cost of sales Exceptional administrative costs Net finance costs Profit before tax Revenue £’000 4,324 1,636 98 6,058 Revenue £’000 6,434 1,585 — 8,019 2019 Profit £’000 3,299 128 98 3,525 (3,809) 325 (3,132) (50) (3,141) 2018 Profit £’000 4,013 (225) — 3,788 (3,341) — (197) (25) 225 The segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales. The accounting policies of the reportable segments are the same as in the Group’s accounting policies described in Note 1. Segment profit represents the profit before tax earned by each segment without allocation of central administration costs, restructuring costs and finance costs. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. Assets and liabilities are not reported to the chief operating decision maker by segment. 2.2 Revenue and assets by geographical markets In the following table, revenue and non-current assets are disaggregated by geographical market. United Kingdom Rest of Europe Americas Asia-Pacific Africa Total revenue/non-current assets 2019 2018 Revenue £’000 Non-current assets £’000 Revenue £’000 Non-current assets £’000 965 851 2,580 1,041 621 6,058 6,962 — 243 — — 7,205 992 4,122 1,379 1,244 282 8,019 10,576 — 261 — — 10,837 Within revenue there are sales to one customer exceeding 10% of turnover amounting to £816,000 (2018: £2,506,000). 53 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 2 Segment Reporting cont. 2.3 Revenue from contracts with customers Revenue by timing of recognition In the following table, revenue is disaggregated by timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the Group’s two reportable segments. At a point in time Over time Other Total revenue Products Services 2019 £’000 2,412 1,962 — 4,374 2018 £’000 3,470 2,964 — 6,434 2019 £’000 — 1,636 — 1,636 2018 £’000 — 1,585 — 1,585 3 Operating (Loss)/Profit The operating (loss)/profit for the year is stated after charging/(crediting): Depreciation of property, plant and equipment Amortisation of intangible assets Exceptional impairment of goodwill Exceptional impairment of intangible assets Exceptional adjustment to direct cost accruals Exceptional restructure costs Remuneration receivable by the Group’s auditor for services: – the auditing of the accounts – audit related services Operating leases: rental costs of land and building Foreign exchange movement Share-based payments charge Research and development costs expensed as incurred 2019 £’000 2,412 3,598 48 6,058 2019 £’000 216 940 3,132 621 (946) — 45 6 — — 59 628 Total 2018 £’000 3,470 4,549 — 8,019 2018 £’000 132 689 — — 197 43 6 311 39 19 597 The above charges and credits are included in ‘Cost of sales’ and ‘Administrative costs’ in the consolidated statement of comprehensive income. 4 Directors and Employees 4.1 Number of employees The average monthly number of employees, including Executive Directors, employed by the Group was: Directors Administration Technical 54 2019 Number 2018 Number 3 16 47 66 4 16 59 79 Getech Group plc Annual Report and Accounts 2019Financial Statements 4 Directors and Employees cont. 4.2 Staff costs Staff costs in respect of those employees were as follows: Salaries Social security costs Other pension costs Share-based payment charge 2019 £’000 3,485 382 232 59 4,158 2018 £’000 3,825 401 222 30 4,478 A proportion of the Group’s staff costs shown above are capitalised as additions to intangible assets – development costs in accordance with the Group’s accounting policies. 4.3 Directors’ remuneration Directors’ remuneration for the year ended 31 December 2019 was as follows: Executive Directors Dr Jonathan Copus Chris Jepps Andrew Darbyshire Non-Executive Directors Dr Alison Fielding1 Dr Stuart Paton Peter Stephens2 Chris Flavell3 Salary/Fees £’000 Pension contributions £’000 Benefits in kind £’000 Total before share options £’000 Share options £’000 263 158 120 21 42 21 21 646 13 8 6 — — — — 27 — — — — — — — — 276 166 126 21 42 21 21 673 15 8 8 — — — — 31 1 For the period to 31 March 2019 Directors’ fees for Alison Fielding were paid to IP Group plc, a company of which she was a consultant, subsequent fees were paid through payroll. 2 For the period to 31 March 2019 Directors’ fees for Peter Stephens were paid to Noon & Co Limited, a company for which he is a director; subsequent fees were paid through payroll. 3 For the period to 31 March 2019 Directors’ fees for Chris Flavell were paid to TantlonGeo Limited, a company of which he is a director; subsequent fees were paid through payroll. 55 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 4 Directors and Employees cont. 4.3 Directors’ remuneration cont. Directors’ remuneration for the year ended 31 December 2018 was as follows: Executive Directors Dr Jonathan Copus1 Chris Jepps1 Andrew Darbyshire1 Huw Edwards2 Non-Executive Directors Dr Alison Fielding3 Dr Stuart Paton Peter Stephens4 Chris Flavell5 Salary/Fees £’000 Pension contributions £’000 Benefits in kind £’000 Total before share options £’000 Share options £’000 250 125 83 30 20 40 20 20 588 11 6 4 — — — — — 21 — — — — — — — — — 261 131 87 30 20 40 20 20 609 15 1 1 — — — — — 17 1 Andrew Darbyshire and Chris Jepps were appointed to the Board on 28 February 2018, as such only remuneration from this date is included. 2 Huw Edwards worked a four-day week and left office on 28 February 2018, as such only remuneration up to this date is included. 3 Directors’ fees for Alison Fielding were paid to IP Group plc, a company of which she was a consultant. 4 Directors’ fees for Peter Stephens were paid to Noon & Co Limited, a company for which he is a director. 5 Directors’ fees for Chris Flavell were paid to TantlonGeo Limited, a company of which he is a director. 4.4 Directors’ share options Number of shares Date granted Exercise period Option price 2 Aug 2017 – 2 Aug 2026 2 Aug 2018 – 2 Aug 2026 2 Aug 2019 – 2 Aug 2026 2 Aug 2019 – 19 Nov 2028 20 Nov 2019 – 19 Nov 2028 20 Nov 2020 – 19 Nov 2028 20 Nov 2019 – 19 Nov 2028 20 Nov 2020 – 19 Nov 2028 20 Nov 2019 – 19 Nov 2028 20 Nov 2020 – 19 Nov 2028 27 Apr 2011 – 27 Apr 2021 27 Apr 2012 – 27 Apr 2021 27 Apr 2013 – 27 Apr 2021 27 Apr 2014 – 27 Apr 2021 24.50p 24.50p 24.50p 35.00p 35.00p 35.00p 35.00p 35.00p 35.00p 35.00p 17.50p 17.50p 17.50p 17.50p 24 Dec 2012 – 24 Dec 2021 15.00p 41,490 31 Dec 2018 500,000 500,000 400,000 100,000 125,000 125,000 125,000 125,000 125,000 125,000 300,000 200,000 200,000 200,000 Granted Lapsed — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 31 Dec 2019 500,000 500,000 400,000 100,000 125,000 125,000 125,000 125,000 125,000 125,000 300,000 200,000 200,000 200,000 41,490 Dr Jonathan Copus 2 Aug 2016 2 Aug 2016 2 Aug 2016 20 Nov 2018 20 Nov 2018 20 Nov 2018 Chris Jepps 20 Nov 2018 20 Nov 2018 Andrew Darbyshire 20 Nov 2018 20 Nov 2018 Dr Stuart Paton 27 Apr 2011 27 Apr 2011 27 Apr 2011 27 Apr 2011 Peter Stephens 24 Dec 2010 56 Getech Group plc Annual Report and Accounts 2019Financial Statements 4 Directors and Employees cont. 4.4 Directors’ share options cont. The market price of the shares at the end of the financial year was 26.50p and the range of market prices during the year was between 22.50p and 32.00p. Full share-based payment disclosures are provided in Note 19. 5 Finance Income Interest on bank deposits 6 Finance Costs Interest on borrowings Interest on leases 7 Income Tax 7.1 Analysis of income tax credit Current tax Current year Prior year Foreign taxation Total current tax Deferred tax Current year Prior year Total deferred tax Total tax credit 2019 £’000 14 2019 £’000 36 28 64 2018 £’000 — 2018 £’000 25 — 25 2019 £’000 2018 £’000 (38) 5 54 21 (19) (55) (73) (53) (57) (80) — (137) (141) (5) (146) (283) 57 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 7 Income Tax cont. 7.2 Factors affecting the tax credit for the year The tax rate applied to profit on ordinary activities in preparing the reconciliation below is the UK corporation tax rate applicable to the Group’s profits. The difference between the total credit show above and the amount calculated by applying the standard rate of UK corporation tax of 19% (2018: 19%) to the consolidated profit before tax is as follows: 2019 £’000 (3,091) (587) 7 27 595 118 (221) 12 22 — 54 (41) 6 5 (50) (53) 2018 £’000 225 43 14 10 — — (268) 74 (9) (35) (4) — — (23) (85) (283) 2019 £’000 2018 £’000 305 4 — (18) (6) 61 346 207 — 2 42 — 54 305 (Loss)/profit on ordinary activities before tax Tax at UK corporation tax rate of 19% (2018: 19%) Effects of: Fixed asset differences Expenses not deductible for tax purposes Impairment of goodwill Impairment of intangible assets Research and development enhanced expenditure Surrender of tax losses for R&D tax credit refund Movement in deferred tax not recognised Share-based payments charge Foreign tax charges/(credits) Adjustment for tax computation in foreign jurisdictions Foreign exchange adjustments Other differences Adjustment to tax charge in respect of prior years Group tax credit for the year 7.3 Deferred tax The movement on the deferred tax asset and deferred tax liability in the year is shown below: Deferred tax asset Asset at 1 January Share-based payments Intangible assets of foreign subsidiary company Tax losses Exchange differences Foreign tax jurisdictions Asset at 31 December 58 Getech Group plc Annual Report and Accounts 2019Financial Statements 7 Income Tax cont. 7.3 Deferred tax cont. Deferred tax liability Liability at 1 January Accelerated capital allowances Intangible assets on capitalised development costs Intangible assets acquired in business combinations Share-based payments Exchange differences Liability at 31 December Analysis of deferred tax balances by category Share-based payments Accelerated capital allowances Foreign tax jurisdictions Intangible assets of foreign subsidiary company Tax losses Intangible assets acquired in business combinations Intangible assets on capitalised development costs Provisions Post-employment benefits Net deferred tax asset 2019 £’000 2018 £’000 137 1 (17) (17) — 5 109 194 — — (22) (35) — 137 2019 £’000 2018 £’000 39 (92) 55 (11) 311 — (72) 3 4 237 36 (91) (5) (28) 360 (111) — 3 4 168 The deferred tax asset in respect of the UK company is calculated at 17% (2018: 17%) in light of the future tax rates announced. The deferred tax asset in respect of foreign tax jurisdictions arises as a result of future capital allowances available following the part-payment of the deferred consideration for the acquisition of assets from Lisle Gravity Inc. in an earlier period. These will be relieved against profits of the foreign subsidiary. The deferred tax asset in respect of tax losses arises as a result of losses incurred by ERCL after 1 April 2017. The Group is expected to generate future taxable profits, which these losses will be set against. The trading losses carried forward have no expiry date. Losses incurred by ERCL prior to 1 April 2017 amount to £130,000 for which no deferred tax asset has been recognised. 59 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 8 Earnings Per Share (EPS) Basic EPS is calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year. Diluted EPS is calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of Ordinary Shares outstanding plus the weighted average number of shares that would be issued on conversion of all the dilutive share options into Ordinary Shares. (Loss)/profit attributable to equity holders of the parent (Loss)/profit attributable to equity holders of the parent adjusted for dilution Weighted average number of Ordinary Shares for basic EPS Effects of dilution from share options Weighted average number of Ordinary Shares adjusted for dilution Basic EPS Diluted EPS 2019 £’000 (3,088) (3,088) 2018 £’000 508 508 2019 Thousands 2018 Thousands 37,564 979 38,543 2019 pence (8.22) (8.22) 37,564 739 38,303 2018 pence 1.35 1.33 There have been no other transactions involving Ordinary Shares or share options between the reporting date and the date of authorisation of these financial statements. 9 Goodwill Cost At 1 January 2018, 1 January 2019 and 31 December 2019 Accumulated impairment losses/amortisation At 1 January 2018 and 1 January 2019 Impairment losses for the year At 31 December 2019 Carrying amount At 31 December 2019 At 1 January 2018 and 1 January 2019 Goodwill £’000 3,428 — 3,132 3,132 296 3,428 Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments. The recoverable amount was determined based on value in use calculations, covering a detailed five-year forecast, followed by an extrapolation of expected cash flows for the remaining useful lives. The present value of the expected cash flows is determined by applying a suitable discount rate reflecting the current market assessments of the time value of money and risks specific to the cash-generating unit. 60 Getech Group plc Annual Report and Accounts 2019Financial Statements 9 Goodwill cont. The recoverable amount is set out below: Group goodwill and intangible assets 2019 £’000 2018 £’000 19,453 18,399 In extrapolating future cash flows, long-term industry growth has been modelled at an annual rate of 3%, together with a 3% rate of inflation on costs annually. Sales volumes over the five-year period are based on past performance and management’s expectations of a market recovery staggered over that period, reflected by 5% year-on-year growth. The discount rate applied of 10.7% takes into consideration the industry-wide risks as well as those specific to the Group’s Services operating segment. Sensitivity analysis is carried out on all budgets, strategic plans and discount rates used in the calculations. The cash flow model is sensitive to short-term market recovery. The future cash flow model for goodwill relating to the acquisition of ERCL Limited indicated that goodwill should be impaired, resulting in an impairment of the full carrying value of this goodwill. The remaining carrying value of goodwill relates to the acquisition of Exprodat Consulting Limited. 10 Intangible Assets Cost At 1 January 2018 Additions Exchange differences At 31 December 2018 Additions Exchange differences At 31 December 2019 Amortisation and impairment At 1 January 2018 Amortisation charge Exchange differences At 31 December 2018 Amortisation charge Impairment charge Exchange differences At 31 December 2019 Carrying amount At 31 December 2019 At 31 December 2018 At 1 January 2017 Customer relationships £’000 Software development £’000 Development costs £’000 Reports £’000 Data holdings £’000 Other intangibles £’000 877 — — 877 — — 877 409 38 — 447 38 — — 485 392 430 468 462 — — 462 — — 462 143 92 — 235 92 — — 327 135 227 319 3,037 861 — 3,898 1,108 — 5,006 780 503 — 1,283 760 — — 2,043 2,963 2,615 2,257 1,496 13 — 1,509 — — 1,509 823 33 — 856 32 621 — 1,509 — 653 673 1,634 — 94 1,728 — (58) 1,670 1,531 15 89 1,635 16 — (56) 1,595 75 93 103 29 — — 29 5 — 34 21 8 — 29 2 — — 31 3 — 8 Total £’000 7,535 874 94 8,503 1,113 (58) 9,558 3,707 689 89 4,485 940 621 (56) 5,990 3,568 4,018 3,828 61 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 10 Intangible Assets cont. Amortisation charges are included in ‘Administrative costs’ in the consolidated statement of comprehensive income with the exception of Reports, where amortisation charges are included in ‘Cost of sales’. As a result of management’s impairment review of Reports it was deemed appropriate to impair its carrying value in full. Included in development costs are completed phases of product development that are being amortised. The total cost of these products is £4,460,000 and they carry a net book value of £2,409,000. 11 Property, Plant and Equipment Cost At 1 January 2018 Additions Disposals Exchange differences At 31 December 2018 Additions Disposals Exchange differences At 31 December 2019 Depreciation At 1 January 2018 Charge for the period Disposals Exchange differences At 31 December 2018 Charge for the period Disposals Exchange differences At 31 December 2019 Carrying amount At 31 December 2019 At 31 December 2018 At 1 January 2018 Freehold land and buildings £’000 Right-of-use assets £’000 Plant and equipment £’000 2,798 — — — 2,798 — — — 2,798 374 36 — — 410 36 — — 446 2,352 2,388 2,424 — 641 — — 641 — — — 641 — 34 — — 34 128 — — 162 479 607 — 1,080 78 (33) 1 1,126 30 (1) 7 1,162 1,005 62 (33) 1 1,035 52 (1) 1 1,087 75 91 75 Total £’000 3,878 719 (33) 1 4,565 30 (1) 7 4,601 1,379 132 (33) 1 1,479 216 (1) 1 1,695 2,906 3,086 2,499 The carrying amount of freehold land not subject to depreciation amounted to £1,000,000 (2018: £1,000,000). The Group continues to explore the future sale of Kitson House. The requirements of IFRS 5 have been reviewed and based on the expected timeframe for disposal it is considered appropriate to continue to classify the land and buildings as a non-current asset rather than an asset held for sale. Depreciation charges are included in ‘Administrative costs’ in the consolidated statement of comprehensive income. 62 Getech Group plc Annual Report and Accounts 2019Financial Statements 12 Trade and Other Receivables Trade receivables Other receivables Prepayments Accrued income 2019 £’000 763 42 291 898 1,994 2018 £’000 3,523 88 235 1,095 4,941 The carrying amounts of trade and other receivables are considered to be reasonable approximations to fair value. The Group’s trade receivables have been reviewed for expected credit losses. Provisions have been made amounting to £nil (2018: £283,000). It is considered that the expected credit loss for receivables balances less than six months is £nil. The carrying value for trade and other receivables is stated after the following allowance for credit losses: Allowance for credit losses at 1 January Loss allowances charged Loss allowances reversed Allowance for credit losses at 31 December 2019 £’000 283 — (283) — 2018 £’000 249 34 — 283 During the year £283,000 loss allowances were reversed when management wrote off the corresponding trade receivables. The expected credit loss for trade receivables as at 31 December 2019 was determined as follows: Expected credit loss rate Gross carrying amount Lifetime expected credit loss Current Less than 3 months Less than 6 months More than 6 months 0% 527 — 0% 233 — 0% — — 100% — — The expected credit loss for trade receivables as at 31 December 2018 was determined as follows: Expected credit loss rate Gross carrying amount Lifetime expected credit loss Current 0% 2,917 — Less than 3 months Less than 6 months More than 6 months 0% 275 — 0% 48 — 100% 283 283 Total — 763 — Total — 3,523 283 63 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 13 Cash and Cash Equivalents Cash at bank and in hand 2019 £’000 3,554 2018 £’000 1,400 14 Borrowings The bank loan carries a variable interest rate of 2.75% above bank base rate and is repayable in monthly instalments over a 60-month term. The loan is secured by land and buildings owned by the Parent Company, with a current carrying value of £2,352,000 (2018: £2,388,000). Borrowings are presented as £78,000 due in less than one year, and £776,000 due in more than one year. 15 Trade and Other Payables 15.1 Trade and other payables due within one year Trade payables Social security and other taxes Other payables Accruals Deferred income Lease liabilities 2019 £’000 778 101 28 138 507 145 1,697 All deferred revenue is expected to be recognised as revenue within one year. Revenue recognised in the year that was included in opening deferred income amounted to £701,000. 15.2 Trade and other payables due after more than one year Lease liabilities Dilapidation provisions 2019 £’000 396 25 421 The carrying amounts of trade and other payables are considered to be reasonable approximations to fair value. The lease liabilities relate to long-term property leases. 2018 £’000 1,805 120 36 172 701 72 2,906 2018 £’000 540 25 565 64 Getech Group plc Annual Report and Accounts 2019Financial Statements 16 Financial Instruments The Group is exposed to financial risks. The Group’s risk management is co-ordinated by its Directors who focus actively on securing the Group’s short to medium-term cash flows through regular reviews of the operating activity of the business. The Group does not actively engage in the trading of financial assets for speculative purposes, nor does it write options. The most significant financial risks to which the Group is exposed are described below. 16.1 Foreign currency risk Exposure to currency exchange rates arises from the Group’s overseas sales and purchases, most of which are denominated in US dollars and some of which are denominated in euros. Assets and liabilities denominated in US dollars and euros give rise to foreign exchange exposures at the end of the reporting period. To mitigate the Group’s exposure to foreign currency risk, exchange rates are monitored and the timing of settling invoices, where sales and purchases are made in currencies other than pound sterling, is matched as far as possible. Furthermore, there is no systematic exposure to exchange rates because selling prices are not fixed in currencies other than sterling. The Group has a US-based subsidiary whose net assets are exposed to foreign currency translation risk. With no matching borrowings denominated in US dollars, it is the Group’s policy not to hedge against this translation exposure. The Group had short-term exposure to the US dollar and the euro at 31 December 2019. The following table illustrates the sensitivity of the net result for the year with regard to the Group’s financial assets and financial liabilities. It assumes a +/-10% change of the US dollar and the euro exchange rates for the period ended 31 December 2019. Sensitivity analysis is based on the Group’s foreign currency financial instruments held at the end of each reporting period. If pound sterling had strengthened or weakened against the US dollar and the euro by 10%, this would have had the following impact: Reported profit/(loss) before tax Sensitivity to movement in currency exchange rates: US dollar Euro (Loss)/profit before tax +10% £’000 2019 -10% £’000 (3,141) (3,141) (8) (20) 9 22 (3,169) (3,110) +10% £’000 225 (119) (12) 94 2018 -10% £’000 225 131 13 369 Exposures to foreign exchange rates vary during the year depending on the value of overseas transactions. Nonetheless, the analysis above is considered to be representative of Getech’s exposure to currency risk. There is no effect on equity in respect of currency exchange rate sensitivity. The Group’s actual currency exposures at the end of the reporting period were as follows: Denominated in US dollars Financial assets Financial liabilities Net exposure Denominated in euros Financial assets Financial liabilities Net exposure 2019 £’000 734 (147) 587 227 (8) 219 2018 £’000 3,513 (1,516) 1,997 137 (10) 127 65 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 16 Financial Instruments cont. 16.2 Credit risk analysis The Group’s exposure to credit risk is limited to the carrying amount of its financial assets at the end of the reporting period, as summarised below: Classes of financial assets – carrying amounts Trade and other receivables Cash and cash equivalents 2019 £’000 1,703 3,554 5,257 2018 £’000 4,706 1,400 6,106 In respect of trade and other receivables that are not impaired, the Group is not exposed to any significant credit risk exposure to any single counterparty or group of counterparties having similar characteristics. The Group’s customers are generally major natural resource companies with whom the Group has strong trading relationships with no recent history of default. The Group continually monitors its trade receivables and incorporates this information into its credit risk controls. Trade receivables are stated on the basis of factors such as historical trends, age of debts and debt specific information. Details of amounts past due but not impaired are set out in Note 12. The credit risk for liquid funds is considered negligible since counterparties are reputable banks with high-quality external credit ratings. The Group does not hold any collateral as security. 16.3 Interest rate risk At 31 December 2019 the Group had cash subject to variable rates of £3,554,000 (2018: £1,400,000) and borrowings subject to variable rates of £854,000 (2018: £931,000). There is no other material interest rate risk. To mitigate the Group’s exposure to interest rate risk, market rates are monitored. The following table illustrates the sensitivity of the profit before tax for the year to a reasonably possible change in interest rates of +/-1% with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on the Group’s financial instruments held at the end of each reporting period. All other variables are held constant. Reported (loss)/profit before tax Sensitivity to changes in interest rates (Loss)/profit before tax +1% £’000 (3,141) 11 (3,130) 2019 -1% £’000 (3,141) (11) (3,152) 2018 -1% £’000 225 (1) 224 +1% £’000 225 1 226 16.4 Capital and liquidity risk The Group manages its liquidity needs by carefully monitoring scheduled cash outflows and anticipated cash inflows. Having regard to modest visibility of sales, the cash forecasts are regularly reviewed and cover alternative income scenarios. The contractual maturity of the Group’s financial liabilities at the end of the reporting period was as follows: Trade and other payables – held at amortised cost Borrowings – held at amortised cost 66 Within one year £’000 In one to two years £’000 In two to five years £’000 1,045 78 1,123 — 78 78 — 698 698 2019 £’000 1,045 854 1,899 Getech Group plc Annual Report and Accounts 2019Financial Statements 16 Financial Instruments cont. 16.4 Capital and liquidity risk cont. Trade and other payables – held at amortised cost Borrowings – held at amortised cost Within one year £’000 In one to two years £’000 In two to five years £’000 2,013 113 2,126 — 113 113 — 705 705 Summary of the Group’s financial assets and liabilities as defined in IFRS 9 ‘Financial Instruments: Recognition and Measurement’ Current assets – loans and receivables Trade and other receivables Cash and cash equivalents Current liabilities Borrowings – held at amortised cost Trade and other payables – held at amortised cost Non-current liabilities Borrowings – held at amortised cost Net financial assets and liabilities 2019 £’000 1,703 3,554 5,257 (78) (1,045) (1,123) (776) (776) 3,358 2018 £’000 2,013 931 2,944 2018 £’000 4,706 1,400 6,106 (113) (2,013) (2,126) (819) (819) 3,161 The Directors consider that the fair value of financial assets and liabilities equates to the carrying value for both 2019 and 2018. 17 Capital Management Policies and Procedures The Group’s capital management objectives are as follows: • To ensure the Group’s ability to continue as a going concern • To provide an adequate return to shareholders These objectives are maintained by pricing products and services commensurately with the level of risk and by exercising a policy of progressive dividends as appropriate. The Group monitors capital on the basis of the carrying amount of equity less cash and cash equivalents as presented on the face of the consolidated statement of financial position. Capital for the reporting period under review is set out below: Total equity Less: cash and cash equivalents 2019 £’000 9,719 (3,554) 6,165 2018 £’000 12,742 (1,400) 11,342 In order to achieve the Group’s objectives in capital management, the goal is to maintain adequate capital with the minimum amount of appropriate borrowing. The Group has met its stated objectives for the year. 67 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 18 Share Capital Authorised 90,000,000 Ordinary Shares of £0.0025 each (2018: 90,000,000) Issued, called up and fully paid 37,563,615 Ordinary Shares of £0.0025 each (2018: 37,563,615) Shares issued, called up and fully paid Balance brought forward Shares issued under share-based payments Balance carried forward 2019 £’000 225 94 2018 £’000 225 94 2019 Number 2018 Number 37,563,615 — 37,563,615 — 37,563,615 37,563,615 Each share issued has the same right to receive dividends and the repayment of capital and represents one vote at the shareholders’ meeting of the Group. 19 Share-based Payments At 31 December 2019, the Group operated an approved Enterprise Management Incentive (EMI) share scheme and an unapproved options scheme. Under the share options plans, the Directors can grant options over shares in the Company to employees, subject to approval from the Remuneration Committee. Options are granted with a fixed exercise price and the contractual life of an option of 10 years. Options will become exercisable on the second anniversary of the date of grant. Exercise of an option is subject to continued employment. At 31 December 2019, rights to options over Ordinary Shares of the Parent Company were outstanding as follows: EMI share scheme Exercise period Granted 24 December 2010, exercise price: 15p per share 24 December 2012–24 December 2020 Granted 13 December 2012, exercise price: 21.3p per share 13 December 2014–12 December 2022 Granted 22 July 2014, exercise price: 48.0p per share 22 July 2016–21 July 2024 Granted 2 August 2016, exercise price: 24.5p per share 2 August 2017 – 1 August 2026 2 August 2018 – 1 August 2026 Granted 20 November 2018, exercise price: 35.0p per share 20 November 2019 – 19 November 2028 20 November 2020 – 19 November 2028 Total EMI share scheme options 1 Jan 2019 27,549 200,000 280,000 500,000 500,000 500,000 500,000 2,507,549 68 Number of shares Granted Exercised Lapsed 31 Dec 2019 27,549 200,000 280,000 500,000 500,000 500,000 500,000 — — — — — — — — 2,507,549 — — — — — — — — — — — — — — — — Getech Group plc Annual Report and Accounts 2019Financial Statements 19 Share-based Payments cont. Unapproved options scheme Exercise period Granted 24 December 2010, exercise price: 15p per share 24 December 2012–24 December 2020 Granted 27 April 2011, exercise price: 17.5p per share 27 April 2011–27 April 2021 27 April 2012–27 April 2021 27 April 2012–27 April 2021 27 April 2012–27 April 2021 Granted 2 August 2016, exercise price: 24.5p per share 2 August 2019 – 1 August 2026 Granted 20 November 2018, exercise price: 35.0p per share 2 August 2019 – 19 November 2028 20 November 2019 – 19 November 2028 20 November 2020 – 19 November 2028 Total unapproved options Total EMI share scheme and unapproved options 1 Jan 2019 41,490 300,000 200,000 200,000 200,000 400,000 100,000 125,000 125,000 1,691,490 4,199,039 Options outstanding at 31 December 2019 Options exercisable at 31 December 2019 Number of shares Granted Exercised Lapsed — — — — — — — — — — — — — — — — — — — — — — — — 31 Dec 2019 41,490 300,000 200,000 200,000 200,000 400,000 100,000 125,000 125,000 — — — — — — — — — — — 1,691,490 — 4,199,039 Weighted average exercise price 35.0p 26.3p Number 625,000 3,574,039 4,199,039 69 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 19 Share-based Payments cont. At 31 December 2018, rights to options over Ordinary Shares of the Parent Company were outstanding as follows: Number of shares Granted Exercised Lapsed EMI share scheme Exercise period Granted 24 December 2010, exercise price: 15p per share 24 December 2012–24 December 2020 Granted 13 December 2012, exercise price: 21.3p per share 13 December 2014–12 December 2022 Granted 22 July 2014, exercise price: 48.0p per share 22 July 2016–21 July 2024 Granted 2 August 2016, exercise price: 24.5p per share 2 August 2017 – 1 August 2026 2 August 2018 – 1 August 2026 1 Jan 2018 27,549 200,000 280,000 500,000 500,000 Granted 20 November 2018, exercise price: 35.0p per share 20 November 2019 – 19 November 2028 20 November 2020 – 19 November 2028 — — 500,000 500,000 Total EMI share scheme options 1,507,549 1,000,000 Unapproved options scheme Exercise period Granted 24 December 2010, exercise price: 15p per share 24 December 2012–24 December 2020 Granted 27 April 2011, exercise price: 17.5p per share 27 April 2011–27 April 2021 27 April 2012–27 April 2021 27 April 2012–27 April 2021 27 April 2012–27 April 2021 Granted 2 August 2016, exercise price: 24.5p per share 2 August 2019 – 1 August 2026 1 Jan 2018 41,490 300,000 200,000 200,000 200,000 400,000 Granted 20 November 2018, exercise price: 35.0p per share 2 August 2019 – 19 November 2028 20 November 2019 – 19 November 2028 20 November 2020 – 19 November 2028 — — — 100,000 125,000 125,000 Total unapproved options 1,341,490 350,000 Total EMI share scheme and unapproved options 2,849,039 350,000 70 — — — — — — — — — — — — Number of shares Granted Exercised Lapsed 31 Dec 2018 27,549 200,000 280,000 500,000 500,000 500,000 500,000 31 Dec 2018 41,490 300,000 200,000 200,000 200,000 — — — — — — — — — — — — — — 2,507,549 — 400,000 — — — 100,000 125,000 125,000 — 1,691,490 — 4,199,039 — — — — — — — — — — — — — — — — — — — — Getech Group plc Annual Report and Accounts 2019Financial Statements 19 Share-based Payments cont. Unapproved options scheme cont. Options outstanding at 31 December 2018 Options exercisable at 31 December 2018 No share options were exercised during the year. 20 Financial Commitments 20.1 Capital commitments There were no capital commitments at 31 December 2019 (2018: £nil). 20.2 Guarantees No guarantees have been given, or have been received, by the Group. Weighted average exercise price 32.6p 24.1p Number 1,750,000 2,449,039 4,199,039 21 Related Party Transactions During the year, members of key management as defined by IAS 24 ‘Related Party Disclosures (revised 2009)’ included non-Directors and their compensation was as follows: Short-term employee benefits Post-employment benefits Share-based payments 2019 £’000 771 45 47 863 2018 £’000 830 44 39 913 The remuneration of the Directors, who are all Directors of the Parent Company, is set out in Note 4. The Directors did not receive dividends during the year. During the period Getech made payments to Zinc Consultants Limited amounting to £12,000 (2018: £nil) for recruitment services, a company of which Chris Flavell is a director. All transactions were conducted under standard commercial terms. 22 Ultimate Controlling Party The Directors consider that there is no ultimate controlling party. 23 Pensions The Group currently operates a Group personal pension plan for the benefit of employees. The amount recognised as an expense is £232,000 (2018: £222,000). 71 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Statements cont. for the year ended 31 December 2019 24 Exceptional items Exceptional (costs)/credits included in the income statement are detailed in the table below: Exceptional cost of sales Impairment of intangible assets Adjustment to carrying value of direct cost accruals Exceptional administrative costs Restructuring costs Impairment to goodwill Notes 10 9 2019 £’000 2018 £’000 (621) 946 325 — (3,132) (3,132) — — — (197) — (197) The above table lists the exceptional items reported in the Consolidated Statement of Comprehensive Income. Classified as exceptional cost of sales, the impairment of intangible assets reduces the carrying value of Getech’s inventory of Reports to £nil (2018: £653,000). Also classified as an exceptional cost of sale is a reduction to the carrying value of direct cost accruals, included in trade and other payables. The direct cost accruals credit results from updated information that became available during 2019 around the contractual liability position relating to previously accrued balances. Classified as an exceptional administrative cost, the impairment of goodwill relating to the acquisition of ERCL reduces the carrying value of total goodwill (2019: £296,000; 2018: £3,428,000). The remaining goodwill relates to the acquisition of Exprodat. In 2018 restructuring costs totalling £197,000 were classified as an exceptional administrative cost. 25 Post balance sheet events We do not know how long Covid-19 disruption and oil price weakness will last but there is certainty that when the world emerges from lockdown it will be in a deep recession. To manage the risk that is associated with this Getech has taken steps that deliver a c26% reduction in monthly Group costs. This has been achieved through overhead cost management, a loan capital repayment holiday, use of the UK Government Job Retention Scheme, US Government Paycheck Protection Program, and Group-wide salary reductions. Reductions to staff pay have been led by the Board and Getech’s senior management, and range from 20% for Getech’s Board to 15% to 12% for senior staff and c8% for most other employees. 72 Getech Group plc Annual Report and Accounts 2019Financial Statements Parent Company Statement of Financial Position as at 31 December 2019 Non-current assets Intangible assets Property, plant and equipment Investments Current assets Trade and other receivables Tax receivable Cash and cash equivalents Total assets Current liabilities Short-term borrowings Trade and other payables Net current assets Non-current liabilities Long-term borrowings Trade and other payables Deferred tax liabilities Total liabilities Net assets Share capital Share premium Merger reserve Share-based payment (SBP) reserve Retained earnings Total equity Notes 3 4 5 7 8 9 10 9 10 6 11 11 2019 £’000 2,722 2,863 1,760 7,345 1,588 60 2,681 4,329 2018 £’000 2,879 3,032 6,519 12,430 3,910 46 606 4,562 11,674 16,992 78 2,247 2,325 2,004 776 421 95 1,292 3,617 8,057 94 3,053 — 242 4,668 8,057 113 2,707 2,820 1,742 819 565 25 1,409 4,229 12,763 94 3,053 2,407 183 7,026 12,763 As permitted by s408 Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income and related notes. The Company’s loss for the year was £4,765,000 (2018: £119,000 profit). The financial statements of Getech Group plc (Company number: 02891368) were approved by the Board of Directors and authorised for issue on 4 June 2020. Andrew Darbyshire Chief Financial Officer The accompanying accounting policies and notes form an integral part of these financial statements. 73 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Parent Company Statement of Changes in Equity for the year ended 31 December 2019 1 January 2018 Profit for the year Total comprehensive income Transactions with owners: Share-based payment charge 31 December 2018 Loss for the year Other comprehensive income Total comprehensive income Transactions with owners: Transfer of merger reserve Share-based payment charge 31 December 2019 94 — — — 94 — — — — — 94 Share capital £’000 Share premium £’000 Merger reserve £’000 2,407 — — — 3,053 — — — 3,053 2,407 — — — — — 3,053 — — — (2,407) — — SBP reserve £’000 Retained earnings £’000 164 — — 19 183 — — — — 59 242 6,907 119 119 — 7,026 (4,765) — (4,765) 2,407 — 4,668 Total equity £’000 12,179 119 119 19 12,763 (4,765) — (4,765) — 59 8,057 During the year, £2,407,000 was transferred from the merger relief reserve to retained earnings as a result of an impairment to the corresponding investment in ERCL. 74 Getech Group plc Annual Report and Accounts 2019Financial Statements Notes to the Parent Company’s Financial Statements for the year ended 31 December 2019 1 Accounting Policies 1.1 Basis of preparation The Company’s financial statements have been prepared on a historical cost basis, in accordance with applicable accounting standards and in accordance with Financial Reporting Standard 101 – ‘The Reduced Disclosure Framework’ (FRS 101). The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have all been applied consistently throughout the year unless otherwise stated. The Company’s financial statements are presented in pound sterling and all values are rounded to the nearest thousand pounds (£’000) except when otherwise indicated. 1.2 Disclosure exemptions The Company has taken advantage of the following disclosure exemptions under FRS 101: • A statement of cash flows and related notes • The requirement to produce a balance sheet at the beginning of the earliest comparative period • The requirements of IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more members of the Group as they are wholly owned within the Group • Presentation of comparative reconciliations for property, plant and equipment and intangible assets • Disclosure of key management personnel compensation • Capital management disclosures • Presentation of comparative reconciliation of the number of shares outstanding at the beginning and end of the period • The effect of future accounting standards not adopted • Disclosures in relation to impairment of assets • Disclosures in respect of financial instruments (other than disclosures required as a result of recording financial instruments at fair value) • Fair value measurement disclosures (other than disclosures required as a result of recording financial instruments at fair value) 1.3 Revenue The Company has adopted IFRS 15 and its principles. Revenue is measured by reference to the fair value of consideration received or receivable by the Company for products and services provided, excluding VAT and comparable overseas taxes. Typical invoice payment terms are 30 days for all categories of revenue. Revenue from products and services falls into the three categories below: Consultancy services The Company provides various consulting services to its customers. Revenue from these services is recognised on a time-and- materials basis plus a margin as the services are provided. Customers are invoiced monthly as work progresses. The Company also provides outsourcing services for a fixed fee for an agreed period. As the amount of work required to perform these services does not vary significantly from month to month, revenue is recognised on a straight-line basis over the term of the contract. This revenue accounting policy is applicable to revenues from Geoscience Services. Multiclient products For sales of data and completed products, revenue is recognised when performance obligations have been satisfied, which is on dispatch unless otherwise agreed. This revenue accounting policy is applicable for revenues from Geophysical Data, Globe and Regional Reports. 75 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Parent Company’s Financial Statements cont. for the year ended 31 December 2019 1 Accounting Policies cont. 1.3 Revenue cont. Multiple element contracts Where contracts for multiple element products with staged deliverables involve delivery of several different elements which are not fully delivered or performed by the year end, revenue is recognised based on the proportion of the fair value of the elements delivered to the fair value of the respective overall contracts. Where the outcome of contracts that are long term in nature and contracts for ongoing deliverables cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable. Revenue from multiple element contracts is recognised after separating the contract income as follows: • Completed project elements and specific reports that are immediately deliverable – revenue is recognised when the performance obligations have been satisfied, which is on dispatch unless otherwise agreed • Service elements of the contract – revenue is recognised in line with the accounting treatment for consultancy services • Project elements that are to be delivered from development work that is yet to be completed – revenue is recognised when the performance obligations have been satisfied, which is on dispatch unless otherwise agreed 1.4 Foreign currency translation Where supplies are obtained, or sales made on terms denominated in foreign currency, such transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the end of the reporting period. Exchange gains or losses arising on the settlement or translation of monetary items are included in profit or loss from operations. 1.5 Share options When share options are granted, a charge is made to the Parent Company’s profit and loss account and a reserve is created to record the fair value of the awards in accordance with IFRS 2 ‘Share-based Payment’. A charge is recognised in the profit and loss account in relation to share options granted based on the fair value (the economic value) of the grant, measured at the grant date. The charge is spread over the vesting period. The valuation methodology takes into account assumptions and estimates of share price volatility, the future risk-free interest rate and exercise behaviour, and is based on the Black Scholes method. When share options are exercised, there is a transfer from the share option reserve to retained earnings. At each balance sheet date, the Parent Company revises its estimate of the number of share options that are expected to vest, taking into account those that have lapsed or been cancelled. It recognises the impact of the revision to original estimates, if any, in the profit and loss account, with a corresponding adjustment to the share option reserve. If the terms and conditions of share options are modified before they vest, the change in the fair value of the share options, measured immediately before and after the modification, is also charged to profit or loss over the remaining vesting period. 1.6 Property, plant and equipment Property, plant and equipment are carried at acquisition cost, net of depreciation and any provision for impairment. Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment by equal instalments over their estimated useful economic lives at the following rates: Freehold property Plant and equipment – 2% per annum on cost – 33.3% and 25% per annum on cost Material residual value and useful life estimates are updated as required, but at least annually. Freehold land is carried at acquisition cost. As no finite useful life for land can be determined, related carrying amounts are not depreciated. No depreciation is provided on freehold land. 1.7 Investments Fixed asset investments are stated at cost less provisions for diminution in value. 76 Getech Group plc Annual Report and Accounts 2019Financial Statements 1 Accounting Policies cont. 1.8 Intangible assets Expenditure on development activities is capitalised if the product or process meets the recognition criteria for development expenditure as set out in IAS 38 ‘Intangible Assets’. The expenditure capitalised includes all directly attributable costs, from the date that the intangible asset meets the recognition criteria, necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Development expenditure is identified as being capital in nature if the costs can be measured reliably, the product is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditure not meeting these criteria is recognised in profit or loss as incurred. Once the asset is ready for use, the capitalised development expenditure is stated at cost less accumulated amortisation (see below) and impairment losses. Intangible assets not yet ready for use are tested for impairment annually. Residual values and useful lives are reviewed at each reporting date. In addition, intangible assets are subject to annual impairment reviews or a review whenever there is an indication of impairment. The following useful lives are applied: Development costs Reports – five to ten years – ten years Amortisation for Development costs is included within ‘Administrative costs’ and amortisation of Reports is included in ‘Cost of sales’. 1.9 Income taxes Current tax is the tax currently payable or receivable based on the taxable profit or loss for the year. 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 on temporary differences associated with shares in subsidiaries is not provided if the reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets. Deferred tax assets and liabilities are calculated 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 end of the reporting period. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except where they relate to items that are charged or credited directly to equity (in which case, the related deferred tax is also charged or credited directly to equity), or where they relate to items of other comprehensive income (in which case, they are recognised in other comprehensive income). 1.10 Equity Equity comprises the following: • ‘Share capital’ represents the nominal value of equity shares • ‘Share premium account’ represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue • ‘Merger relief reserve’ represents the premium on shares issued to acquire ERCL and Exprodat Consulting Limited • ‘Share option reserve’ represents the fair value of share options in accordance with IFRS 2 ‘Share-based Payment’ • ‘Retained earnings’ represents retained profits 77 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Parent Company’s Financial Statements cont. for the year ended 31 December 2019 1 Accounting Policies cont. 1.11 Significant areas of judgement and estimation uncertainty In applying the above accounting policies, management has made appropriate estimates in key areas, and the actual outcomes may differ from those calculated. Significant areas of judgement The key sources of judgement at the end of the reporting period are as follows: Recognition of revenue from multiple element contracts Management use judgement in determining the fair value of multiple element contracts in order to appropriately recognise the revenue attributable to each element. The value of revenue recognised in the period is dependent on an assessment of work to completion. Capitalisation of development costs The capitalisation of development expenditure is dependent on the costs meeting the recognition criteria in accordance with IAS 38 ‘Intangible Assets’. In assessing the criteria, management makes judgements on the level of future economic benefits of the asset flowing to the Company. Management is assisted in making these judgements through the monitoring both of sales forecasts and of the level of future cost benefits arising. Deferred taxation Management judgement is required in determining provisions for deferred tax liabilities and assets. The process involves estimating the actual current tax exposure together with assessing temporary differences resulting from the different valuation of certain assets and liabilities in the financial statements and the tax returns. Management must assess the probability that the deferred tax assets will be recovered from future taxable income. Significant areas of estimation uncertainty The key sources of estimation uncertainty at the end of the reporting period are as follows: Multiple element contracts Management uses estimates in determining the fair value of individual elements of the multiple element contracts in order to appropriately recognise the revenue attributable to each element. A value is assigned to each element of the contract, based on an estimate of the value of that element if it were sold individually; the ratio of these values is then used to calculate a fair value for each element. The value of revenue recognised during the year is also dependent on estimates of work to completion, as with long-term contracts. Were the proportion of work completed to total work to be performed to differ by 5% from management’s estimates, the amount of revenue recognised would increase/decrease by £48,000. Carrying amount of non-current assets Where there is an indication of impairment, a review of the carrying values of non-current assets is undertaken as follows: • Intangible non-current assets and investments are estimated on the basis of value in use The value is calculated from the present value of future cash flows expected to be derived from the asset under review. The key elements of estimation are the calculation of future cash flows. For intangible assets and investments, future cash flows are forecast revenues from the associated asset or cash-generating unit. Further estimation is made in determining an appropriate discount rate that reflects the specific risks associated with the asset or cash-generating unit. See Note 5 for further details of assumptions made and sensitivity testing regarding investments. Share options Share-based payments are valued using the Black Scholes valuation model. Estimates are made in expected volatility and the risk-free rate. Where appropriate, management uses historical market data as a basis for estimating the fair value of share options on grant. Increasing the risk-free rate by 2% and increasing the volatility window in the calculation of volatility from 5 days to 30 days made no material difference to the valuation of share options issued during the year. 78 Getech Group plc Annual Report and Accounts 2019Financial Statements 2 Employees The employee benefit expenses during the year were as follows: Short-term employee benefits Social security costs Pension costs Share-based payment charge The average number employed by the Company, including Executive Directors, was as follows: 2019 £’000 2,661 285 120 59 3,125 2018 £’000 2,384 256 136 30 2,806 2019 £’000 2018 £’000 Directors Administration Technical 3 Intangible Assets Cost At 1 January 2019 Additions At 31 December 2019 Amortisation and impairment At 1 January 2019 Amortisation charge Impairment charge At 31 December 2019 Net book value At 31 December 2019 At 1 January 2019 3 11 37 51 Development costs £’000 Reports £’000 Other £’000 3,803 905 4,708 1,281 708 — 1,989 2,719 2,522 399 — 399 42 25 332 399 — 357 — 5 5 — 2 — 2 3 — 3 13 39 55 Total £’000 4,202 910 5,112 1,323 735 332 2,390 2,722 2,879 79 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Parent Company’s Financial Statements cont. for the year ended 31 December 2019 4 Property, Plant and Equipment Cost At 1 January 2019 Additions At 31 December 2019 Depreciation At 1 January 2019 Charge for the year At 31 December 2019 Net book value At 31 December 2019 At 1 January 2019 Freehold property £’000 Plant and equipment £’000 Right-of-use assets £’000 2,798 — 2,798 409 36 445 2,353 2,389 1,006 20 1,026 970 25 995 31 36 641 — 641 34 128 162 479 607 The net book value of freehold land in the Parent Company, not subject to depreciation, amounted to £1,000,000 (2018: £1,000,000). 5 Investments Gross carrying value At 1 January 2019 Additions At 31 December 2019 Accumulated impairment At 1 January 2019 Charge for the year At 31 December 2019 Net book value At 31 December 2019 At 1 January 2019 Subsidiary undertakings £’000 7,228 — 7,228 709 4,759 5,468 1,760 6,519 Total £’000 4,445 20 4,465 1,413 189 1,602 2,863 3,032 Total £’000 7,228 — 7,228 709 4,759 5,468 1,760 6,519 The Parent Company owns 100% equity interest in Geophysical Exploration Technology Inc., a company incorporated in the USA. The principal activity of Geophysical Exploration Technology Inc. is the marketing of gravity and magnetic data, services and geological evaluations. The cost of US$10 capital stock was £1 and this has been written off in an earlier period. The results of Geophysical Exploration Technology Inc. are included in the consolidated figures for the year. The Parent Company owns 100% of the Ordinary Share capital in ERCL, a company incorporated in England and Wales. The principal activity of ERCL is specialist international upstream oil and gas consultancy. The Parent Company owns 100% of the Ordinary Share capital in Exprodat Consulting Limited, a company incorporated in England and Wales. The principal activity of Exprodat Consulting Limited is providing geospatial and information management solutions to the upstream oil and gas industry. 80 Getech Group plc Annual Report and Accounts 2019Financial Statements 5 Investments cont. The investment in subsidiary undertakings has been tested for impairment and the Company has impaired the carrying value of its investment in ERCL Limited by £4,759,000. In the opinion of the Directors, the aggregate value of the Company’s investment in subsidiary undertakings is not less than the amount included in the balance sheet. The recoverable amount was determined based on value in use calculations, covering a detailed five-year forecast, followed by an extrapolation of expected cash flows for the remaining useful lives. The present value of the expected cash flows is determined by applying a suitable discount rate reflecting the current market assessments of the time value of money and risks specific to the segment. In extrapolating future cash flows, long-term industry growth has been modelled at an annual rate of 3%, together with a 3% rate of inflation on costs annually. Sales volumes over the five-year period are based on past performance and management’s expectations of a market recovery staggered over a five-year period, reflected by 5% year-on-year growth. The discount rate applied of 10.7% takes into consideration the industry-wide risks as well as those specific to the Group’s Services operating segment. 6 Deferred Tax The movement on the deferred tax liability in the year is shown below: Deferred tax liability Liability at 1 January Accelerated capital allowances Intangible assets on capitalised development costs Share-based payments Liability at 31 December Analysis of deferred tax balances by category Share-based payments Accelerated capital allowances Tax losses Post-employment benefits Intangible assets on capitalised development costs Net deferred tax asset/(liability) 2019 £’000 2018 £’000 25 2 72 (4) 95 39 (88) 21 4 (72) (95) 60 — — (35) 25 35 (85) 21 4 — (25) The deferred tax asset in respect of the UK company is calculated at 17% (2018: 17%) in light of the future tax rates announced. 81 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Parent Company’s Financial Statements cont. for the year ended 31 December 2019 7 Trade and Other Receivables Trade receivables Amounts owed by Group undertakings Social security and other taxes Other receivables Prepayments and accrued income 2019 £’000 132 393 — 14 1,049 1,588 All amounts are short term. The carrying amounts of trade and other receivables are considered to be reasonable approximations to fair value. All of the Company’s trade and other receivables have been reviewed for expected credit loss. Any credit losses against receivables were found to be immaterial. In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows: Not more than three months More than three months but not more than six months More than six months but not more than one year 8 Cash and Cash Equivalents Cash at bank and in hand 2019 £’000 — — — — 2019 £’000 2,681 2018 £’000 2,856 26 — 28 1,000 3,910 2018 £’000 162 25 — 187 2018 £’000 606 9 Borrowings The bank loan carries a variable interest rate of 2.75% above bank base rate and is repayable in equal monthly instalments. The loan is secured by land and buildings owned by the Parent Company, with a current carrying value of £2,353,000 (2018: £2,389,000). Borrowings – held at amortised cost Within one year £’000 In one to two years £’000 In two to five years £’000 78 78 698 2019 £’000 854 82 Getech Group plc Annual Report and Accounts 2019Financial Statements 10 Trade and Other Payables 10.1 Trade and other payables due within one year Trade payables Amounts owed to Group undertakings Social security and other taxes Other payables Lease liabilities Accruals and deferred income 10.2 Trade and other payables due after one year Lease liabilities Dilapidation provisions 2019 £’000 673 1,120 85 26 145 198 2,247 2019 £’000 396 25 421 The carrying amounts of trade and other payables are considered to be reasonable approximations to fair value. The lease liabilities relate to long-term property leases. 11 Share Capital and Equity Authorised 90,000,000 Ordinary Shares of 0.25p each (2018: 90,000,000) Issued, called up and fully paid 37,563,615 Ordinary Shares of 0.25p each (2018: 37,562,415) Shares issued, called up and fully paid Balance brought forward Shares issued under share-based payments Balance carried forward 2018 £’000 1,780 425 81 34 72 315 2,707 2018 £’000 540 25 565 2018 £’000 225 94 2019 £’000 225 94 2019 Number 2018 Number 37,563,615 — 37,563,615 — 37,563,615 37,563,615 During the year, £2,407,000 was transferred from the merger relief reserve to retained earnings as a result of an impairment to the corresponding investment in ERCL. 83 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes to the Parent Company’s Financial Statements cont. for the year ended 31 December 2019 12 Related Party Transactions The remuneration of the Directors of the Parent Company is set out in Note 6 to the consolidated financial statements. Transactions with Directors of the Parent Company during the period and outstanding amounts at the balance sheet date were as follows: Dividends paid £’000 Amounts charged to the Company £’000 Amounts payable at 31 Dec 2019 £’000 — — — 5 5 12 — — — Dividends paid £’000 Amounts charged to the Company £’000 Amounts payable at 31 Dec 2018 £’000 — — — 20 20 — 3 5 — Class of shareholding % held directly % held indirectly Ordinary Ordinary Ordinary 100 100 100 — — — Other related parties Noon and Co. Limited TantlonGeo Limited Zinc Consultants Limited For the year ended 31 December 2018: Other related parties Noon and Co. Limited TantlonGeo Limited Zinc Consultants Limited The Directors consider that there is no ultimate controlling party. 13 Subsidiaries Details of the Company’s subsidiaries as at 31 December 2019 are as follows: Name of undertaking and country of incorporation or residency Exprodat Consulting Limited1 England & Wales ERCL Limited2 England & Wales Geophysical Exploration Technology Inc3 Nature of business Consultancy Consultancy United States of America Sales & Marketing agency The registered offices of the subsidiaries listed above are as follows: 1 as the Company. 2 as the Company. 3 3000 Wilcrest Drive, Suite 155, Houston, TX 77042, USA. 84 Getech Group plc Annual Report and Accounts 2019Financial Statements Notice of Annual General Meeting Notice is given that the twenty-sixth Annual General Meeting of Getech Group plc (hereafter referred to as the Company) will be held at Kitson House, Elmete Hall, Elmete Lane, Leeds LS8 2LJ on 23 July 2020 at 12.00 noon to consider and, if thought fit, pass the resolutions below. Resolutions 9 and 10 will be proposed as special resolutions; all other resolutions will be proposed as ordinary resolutions. Ordinary Business To consider and, if thought fit, pass resolutions 1 to 6 as ordinary resolutions. 1. To receive the Report of the Directors, the Strategic Report and the audited accounts of the Company for the year ended 31 December 2019. 2. To re-elect Chris Flavell as a Director of the Company, in accordance with article 35 of the Company’s Articles of Association, who offers himself for re-election as a Director of the Company. 3. To re-elect Chris Jepps as a Director of the Company, in accordance with article 35 of the Company’s Articles of Association, who offers himself for re-election as a Director of the Company. 4. To re-elect Andrew Darbyshire as a Director of the Company, in accordance with article 35 of the Company’s Articles of Association, who offers himself for re-election as a Director of the Company. 5. To re-appoint Grant Thornton UK LLP as auditor of the Company to hold office until the conclusion of the next general meeting at which accounts are laid before the Company. 6. To authorise the Directors to determine the auditor’s remuneration. Special Business To consider and, if thought fit, pass the following resolutions which in the case of resolution 7 will be proposed as an ordinary resolution and in the case of resolutions 8 and 9 will be proposed as special resolutions. In the subsequent resolutions, the following words and expressions shall have the following meanings: ‘Act’ ‘Latest Practicable Date’ ‘Ordinary Shares”’ ‘Rights’ – the Companies Act 2006 (as amended) – close of business on 3 June 2020 – Ordinary Shares of 0.25p each in the capital of the Company – rights to subscribe for or to convert any security into shares in the Company 7. To authorise the Board generally and unconditionally pursuant to Section 551 of the Act to exercise all powers of the Company to allot shares in the Company and to grant Rights: 7.1. up to an aggregate nominal amount of £31,303.01 (being one-third of the issued share capital of the Company as at the Latest Practicable Date); and 7.2. comprising equity securities (within the meaning of Section 560 of the Act) up to an aggregate nominal amount of £62,606.03 (after deducting from such amount any shares allotted under the authority conferred by virtue of resolution 7.1) in connection with or pursuant to a Rights Issue (as defined below), provided that: a) such authorities shall expire on the earlier of either midnight on 23 October 20211 or the date of the next annual general meeting of the Company after the passing of this resolution unless varied, revoked or renewed by the Company in a general meeting (save that the Board may, before the expiry of the authorities granted by this resolution, make a further offer or agreement that would or might require shares to be allotted or Rights to be granted after such expiry and the Board may allot shares and grant Rights in pursuance of such an offer or agreement as if the authorities conferred by this resolution had not expired); and b) the authorities granted by this resolution are in substitution for all previous authorities granted to the Directors to allot shares and grant Rights which (to the extent that they remain in force and unexercised) are revoked but without prejudice to any allotment or grant of Rights made or entered into prior to the date of resolution 7. 1 15 months from date of AGM. 85 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notice of Annual General Meeting cont. Special Business cont. For the purposes of resolution 7, ‘Rights Issue’ means an offer or invitation to: i) holders of Ordinary Shares in proportion (as nearly as may be practicable) to the respective numbers of Ordinary Shares held by them on the record date for such allotment, and ii) holders of other classes of equity securities if this is required by the rights of such securities (if any) or, if the Directors of the Company consider necessary, as permitted by the rights of those securities, to subscribe for further securities, but subject in both cases to such exclusions or other arrangements as the Directors of the Company may deem necessary or expedient in relation to fractional entitlements, treasury shares, record dates or legal, regulatory or practical difficulties that may arise under the laws of, or the requirements of, any recognised regulatory body or any stock exchange in any territory or any other matter whatever. 8. To authorise the Company to send or supply documents or information to members by making them available on a website or by electronic means. Special Resolutions 9. To empower the Board (subject to the passing of resolution 7) pursuant to Sections 570 and 573 of the Act to allot equity securities (within the meaning of Section 560 of the Act) for cash pursuant to the authority conferred upon them by resolution 7 or where the allotment constitutes an allotment of equity securities by virtue of Section 560(3) of the Act as if Section 561(1) and sub-sections (1)–(6) of Section 562 of the Act did not apply to any such allotment, provided that this power shall be limited to: 9.1. the allotment of equity securities in connection with or pursuant to a Rights Issue (as defined in resolution 7); and 9.2. the allotment (otherwise than pursuant to sub-paragraph 9.1 above) of equity securities up to an aggregate nominal value of £14,086.36 (being 15% of the issued share capital of the Company as at the Latest Practicable Date); and the authorities given by resolution 9 shall expire on the earlier of either midnight on 23 October 2021 or the date of the next annual general meeting after the passing of this resolution, unless renewed or extended prior to such expiry, save that the Company may, before the expiry of any power contained in this resolution, make a further offer or agreement that would or might require equity securities to be allotted after such expiry and the Board may allot equity securities in pursuance of such offer or agreement as if the powers conferred by this resolution had not expired. 10. To authorise the Company generally and unconditionally for the purpose of Section 701 of the Act to make one or more market purchases (within the meaning of Section 693(4) of the Act) of Ordinary Shares provided that: 10.1. the maximum aggregate number of Ordinary Shares authorised by this resolution to be purchased is 3,756,361 (representing approximately 10% of the Company’s issued share capital as at the Latest Practicable Date); 10.2. the minimum price that may be paid for such Ordinary Shares is 0.25p per share (exclusive of expenses); 10.3. the maximum price (exclusive of expenses) that may be paid for an Ordinary Share is the higher of a) 5% above the average of the middle market quotations for an Ordinary Share as derived from the London Stock Exchange Daily Official List for the 5 business days immediately preceding the day on which the Ordinary Share is purchased and b) the higher of the price quoted for i) the last independent trade of or ii) the highest current independent bid for any number of Ordinary Shares on the trading venue where the purchase is carried out; and 10.4. unless previously revoked or varied, the authority conferred by this resolution shall expire on the earlier of either midnight on 23 October 2021 or the date of the next annual general meeting of the Company after the passing of this resolution, save that the Company may, before such expiry, make a contract or contracts to purchase Ordinary Shares after such expiry as if the power conferred by this resolution had not expired. By order of the Board Andrew Darbyshire Company Secretary 4 June 2020 86 Getech Group plc Annual Report and Accounts 2019Financial Statements Notes The following notes explain your general rights as a shareholder and your right to attend and vote at this meeting (the Meeting or AGM) or to appoint someone else to vote on your behalf. 1. IMPORTANT NOTICE REGARDING THE COVID-19 PANDEMIC In light of the Covid-19 pandemic, the UK Government recently published compulsory measures requiring people to stay at home, closing certain businesses and venues, and stopping gatherings of more than two people in public. These measures (known as the Stay at Home Measures) were passed into law on 26 March 2020 under The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020. The Stay at Home Measures prohibit gatherings of more than two people in a public place, subject to a few limited exceptions, including where the gathering is essential for work purposes. Attendance at the Meeting by a shareholder (other than one specifically required to form the quorum for the meeting) is not essential for work purposes. Consequently, whilst the Stay at Home Measures remain in force, shareholders are prohibited from attending the Meeting in person and any shareholder attempting to attend the Meeting will be refused entry. Shareholders wishing to vote on the resolutions should submit their vote by way of proxy. Details of how shareholders can vote by proxy are set out in notes 3 – 10 below. If the Stay at Home Measures have been relaxed or are no longer in force by the date of the Meeting (such that shareholders are no longer prohibited from attending the meeting in person), delivery of an appointment of a proxy will not preclude a shareholder from attending and voting in person if he/she wishes to do so. Shareholders who would have raised questions at the AGM are invited to instead submit their questions by email to: info@getech.com in advance of the AGM. We will endeavour to promptly provide answers to questions from shareholders which would ordinarily have been raised and answered at the AGM. Shareholders should note that the current situation is evolving rapidly and that further announcements may be required. In particular, shareholders should note that further legislation may come into force before the AGM which will have an impact on it. Shareholders are encouraged to check the Company's website regularly for updates. 2. To be entitled to attend and vote at the Meeting (and for the purpose of the determination by the Company of the number of votes they may cast), shareholders must be registered in the Register of Members of the Company at 12 noon on 21 July 2020. Changes to the Register of Members after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the Meeting. 3. Shareholders are entitled to appoint another person as a proxy to exercise all or part of their rights to attend and to speak and vote on their behalf at the Meeting. As set out in detail in note 1 above, whilst the Stay at Home Measures remain in force, any proxy other than the Chairman of the Meeting will be prohibited from attending the Meeting and will be refused entry. Shareholders should therefore appoint the Chairman of the Meeting as their proxy in order to ensure their vote can be counted. 4. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s Register of Members in respect of the joint holding (the first named being the most senior). 5. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the Meeting. 6. You can vote: • by logging on to www.signalshares.com and following the instructions; • by requesting a hard copy form of proxy directly from the registrars, Link Asset Services (previously called Capita), on Tel: 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales; or • in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the procedures set out below 87 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notice of Annual General Meeting cont. Notes cont. In order for a proxy appointment to be valid a completed form of proxy must be received by Link Asset Services at 34 Beckenham Road, Beckenham, Kent, BR3 4ZF by 12 noon on 21 July 2020 (together with, in the case of a hard copy form of proxy, the original or a certified copy of any power of attorney or other authority pursuant to which such form of proxy has been signed). Shareholders are strongly encouraged to vote, in the case of CREST members, by utilising the CREST electronic proxy appointment service, and otherwise, by logging on to www.signalshares.com. 7. If you return more than one proxy appointment, either by paper or electronic communication, the appointment received last by the Registrar before the latest time for the receipt of proxies will take precedence. You are advised to read the terms and conditions of use carefully. Electronic communication facilities are open to all shareholders and those who use them will not be disadvantaged. 8. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the Meeting (and any adjournment of the Meeting) by using the procedures described in the CREST Manual (available from www.euroclear.com/site/public/EUI). CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 9. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the issuer’s agent (ID RA10) by 12 noon on 21 July 2020. For this purpose, the time of receipt will be taken to mean the time (as determined by the timestamp applied to the message by the CREST application host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 10. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 11. Any corporation which is a shareholder can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a shareholder provided that no more than one corporate representative exercises powers in relation to the same shares. 12. As at 3 June 2020 (being the latest practicable business day prior to the publication of this Notice), the Company’s ordinary issued share capital consists of 37,563,615 Ordinary Shares, carrying one vote each. Therefore, the total voting rights in the Company as at 3 June 2020 are 37,563,615. 13. Under Section 527 of the Companies Act 2006, shareholders meeting the threshold requirements set out in that section have the right to require the Company to publish on a website a statement setting out any matter relating to: (i) the audit of the Company’s financial statements (including the Auditor’s Report and the conduct of the audit) that are to be laid before the Meeting; or (ii) any circumstances connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual financial statements and reports were laid in accordance with Section 437 of the Companies Act 2006 (in each case) that the shareholders propose to raise at the relevant meeting. The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with Sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under Section 527 of the Companies Act 2006, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Meeting for the relevant financial year includes any statement that the Company has been required under Section 527 of the Companies Act 2006 to publish on a website. 88 Getech Group plc Annual Report and Accounts 2019Financial Statements 14. Copies of the Directors’ letters of appointment or service contracts are available for inspection during normal business hours at the registered office of the Company on any business day from the date of this Notice until the time of the Meeting and may also be inspected at the Meeting venue, as specified in this Notice, from 11.45 am on the day of the Meeting until the conclusion of the Meeting. Whilst the Stay at Home Measures remain in force, shareholders will not be permitted to inspect these documents at the registered office of the Company or at the Meeting venue – if you would like to request an electronic copy of these documents, please email: info@getech.com. 15. You may not use any electronic address (within the meaning of Section 333(4) of the Companies Act 2006) provided in either this Notice or any related documents (including the form of proxy) to communicate with the Company for any purposes other than those expressly stated. 16. All references to times in this Notice are to UK time. A copy of this Notice, and other information required by Section 311A of the Companies Act 2006, can be found on the Company’s website at www.getech.com Explanation of Resolutions Resolution number 1 – accounts The Directors of the Company are obliged to present to shareholders the report of the Directors and the accounts for the Company for the year ended 31 December 2019. That report and those accounts, and the report of the Company’s auditor on those accounts, are set out on pages 32 to 84 of this document. Resolution numbers 2, 3 and 4 – re-election of Directors At each general meeting, one-third of the Directors for the time being (other than those appointed since the latest annual general meeting) are required to retire. If the number of relevant Directors is not a multiple of three, the number nearest to but not less than one-third of the Directors should be obliged to retire. Directors due to retire by rotation are those who have been longest in office since their last re-election and as between persons who become or were last re-elected on the same day, those due to retire shall (unless they otherwise agree among themselves) be determined by lot. A retiring Director is eligible for re-election. Chris Flavell, Chris Jepps and Andrew Darbyshire retire by rotation and are offering themselves for re-election. Resolution number 5 – re-appointment of auditor and approving its remuneration At each general meeting at which accounts are laid, the Company is required to appoint an auditor to hold office until the next general meeting. The present auditor, Grant Thornton UK LLP, is willing to continue in office for a further year, and this resolution proposes its re-appointment. Resolution number 6 – authority to determine auditor’s remuneration In accordance with standard practice, this resolution will authorise the Directors to determine the level of the auditor’s remuneration. Resolution number 7 – authority to allot shares The resolution grants the Directors authority to allot relevant securities up to an aggregate nominal amount of £31,303.01, being one-third of the Company’s Ordinary Share capital in issue at 3 June 2020. In line with guidance issued by the Association of British Insurers, resolution 7 also grants the Directors of the Company authority to allot unissued share capital in connection with a Rights Issue in favour of ordinary shareholders up to an aggregate nominal amount of £62,606.03 (representing two-thirds of the Company’s Ordinary Share capital in issue at 3 June 2020) as reduced by the nominal amount of any shares issued under resolution 7.1. It is not the Directors’ current intention to allot relevant securities pursuant to this resolution. This authority replaces the existing authority to allot relevant securities but does not affect the ability to allot shares under the Company’s share option schemes. 89 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notice of Annual General Meeting cont. Explanation of Resolutions cont. Resolution number 8 – electronic communications This resolution authorises the Company to send or supply documents or information to members by making them available on a website or by electronic means. Resolution number 9 – disapplication of statutory pre-emption rights This resolution disapplies the statutory pre-emption rights that would otherwise apply on an issue of shares for cash and is limited to allotments in connection with Rights Issues or other pre-emptive offers and, otherwise, authorises the Directors to allot securities on a non-pre-emptive basis for cash up to a nominal value of £14,086.36, being 15% of the Company’s Ordinary Share capital in issue at 3 June 2020. This replaces the existing authority to disapply pre-emption rights and expires at the conclusion of the next annual general meeting of the Company after the passing of this resolution or 15 months after the date of the annual general meeting, whichever is the earlier. Resolution number 10 – purchase of own shares In certain circumstances, it may be advantageous for the Company to purchase its own shares, and this resolution seeks authority to do this. The Directors would only consider making purchases if they believed that such purchases would be in the best interests of shareholders generally, having regard to the effect on earnings per share and the Company’s overall financial position. The resolution gives general authority for the Company to make purchases of up to 3,756,361 Ordinary Shares (being approximately 10% of the Company’s Ordinary Share capital in issue at 3 June 2020) at a minimum price of 0.25p and a maximum price being the higher of a) 105% of the average of the middle market quotations for Ordinary Shares for the 5 business days prior to the purchase or b) the higher of the price of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out. Companies are permitted to retain any of their own shares that they have purchased as treasury stock with a view to possible re-issue at a future date, rather than cancelling them. The Company will consider holding any of its own shares that it purchases pursuant to the authority conferred by this resolution as treasury stock. This would give the Company the ability to re-issue treasury shares quickly and cost effectively and would provide the Company with additional flexibility in the management of its capital base. 90 Getech Group plc Annual Report and Accounts 2019Financial Statements Advisors Registered office for the Parent Company Kitson House Elmete Hall Elmete Lane Leeds LS8 2LJ Nominated advisor and broker Cenkos Securities plc 6 7 8 Tokenhouse Yard London EC2R 7AS Auditor Grant Thornton UK LLP No. 1 Whitehall Riverside Whitehall Road Leeds LS1 4BN Solicitors Womble Bond Dickinson 1 Whitehall Riverside Leeds LS1 4BN Principal bankers National Westminster Bank Plc PO Box 183 8 Park Row Leeds LS1 1QT Registrars Link Asset Services Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0GA 91 Getech Group plc Annual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Notes 92 Getech Group plc Annual Report and Accounts 2019 Design and Production www.carrkamasa.co.uk Design and Production www.indzine.co.uk Getech Group plc Annual Report and Accounts 2019 Getech Group plc Kitson House Elmete Hall Elmete Lane Leeds LS8 2LJ UK +44 (0)113 322 2200 info@getech.com www.getech.com