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A Leader in integrated
cyber security
Annual Report and Accounts 2020
INTRODUC TION
We are a leading,
global integrated
cyber security
service provider
delivering great
value to clients.
As a group of companies,
we provide a range of
products and services to
address the cyber security
governance, risk management
and compliance requirements
of organisations to enable
them to meet the commercial
requirements and regulatory
standards that are now in
force, or are coming into
force, in jurisdictions
across the world.
Strategic Report
1-27
Highlights
At a Glance
Our Value Proposition
Chairman’s Statement
Chief Executive Officer’s Review
Our Story So Far
Market Overview
Business Model
Our Strategy
Financial Review
Risk Management
Key Performance Indicators
Stakeholder Engagement
Governance
28-43
Corporate Governance Statement
Application of the QCA Code
Board of Directors
Audit Committee Report
Remuneration Committee Report
Directors’ Report
Statement of Directors’
Responsibilities
Financial Statements
44-100
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
Consolidated Statement of
Cash Flows
Nature of Operations and
General Information
Notes to the Financial
Statements
Company Balance Sheet
Company Statement of
Changes in Equity
Notes to the Company Financial
Statements
1
2
4
6
8
10
12
14
16
18
22
24
26
28
30
34
36
39
42
43
44
49
49
50
51
52
53
67
88
89
90
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
HIGHlIGHTS
Improving financial performance
resulted in positive underlying
EBITDA in Q4, a better quality of
earnings, and greater visibility
– Continued investment in Software as a Service (SaaS)
products: CyberComply, GRC e-learning, ITGP
DocumentKits and Cyber Essentials
– Operational restructure to leverage strengths in
e-commerce, SaaS and Professional Services
– Continued billings growth in recently established
businesses: GRCI Law, IT Governance Europe and IT
Governance USA
– Completed the payment for DQM GRC
– Pandemic-proofed the operations of the business
by transitioning the entire Group to a cyber secure
remote working model, with the vast majority of staff
now permanently home-based and 98% of services
capable of remote delivery
FINANCIAL HIGHLIGHTS
Revenue (£’000)
£14,146
2019: £15,849
(11%)1
Loss after tax (£’000)
£(3,206)
2019: £(5,395)
41%1
OPERATIONAL HIGHLIGHTS
Total billings3 (£’000)
£14,027
2019: £15,833
(11%)1
Loss before tax (£’000)
£(3,651)
2019: £(5,365)
32%1
Underlying EBITDA2 (£’000)
£(1,501)
2019: £(4,336)
65%1
Earnings per share (undiluted)
(4.67)p
2019: (9.30)p
50%1
Average FTE headcount
Billings per month per FTE
187
2019: 270
(31)%1
£6,307
2019: £4,881
29%1
Website visits (‘000)
Website revenue (£’000)
Net customer additions4
3,552
2019: 4,902
(28%)1
£2,293
2019: £3,374
(32)%1
3,864
2019: 3,300
+17%1
1. Year-on-year: 2020 compared with 2019
2. Underlying EBITDA (“Earnings Before Interest, Tax, Depreciation, Amortisation“) excludes share-based
payment expenses (which are excluded as they are a non-cash expense) and exceptional costs in relation
to acquisitions made in the year
3. The relationship between billings and revenue is explained on page 20
4. 2019 excludes customers acquired from DQM Group Holdings Ltd
GRC International Group plc Annual Report and Accounts 2020
1
AT A Gl ANCe
A comprehensive suite of
quality services and products
Our unique mix of innovative off-the-shelf products and productised
services, and our capability to create bespoke packages that reach across all
divisions, enables us to provide unique solutions to our customers’
requirements, regardless of company size, maturity or business sector.
WHAT WE OFFER
OUR SUITE OF QUALITY SERVICES AND PRODUCTS
A leading, global, "one-stop shop” supplier of cyber security governance,
risk and compliance products and services delivering great value to clients.
GRC: GOVERNANCE, RISK MANAGEMENT AND COMPLIANCE
CYBER RESILIENCE
GOVERNANCE AND RISK MANAGEMENT
DATA PROTECTION
COMPLIANCE, GDPR
CYBER SECURITY
AND
ISO 27001
IT GOVERNANCE AND COBIT®
SERVICE MANAGEMENT
RISK MANAGEMENT
PCI DSS
ISO 9001, ISO 14001, ISO 45001
INCIDENT RESPONSE
PENETRATION
TESTING
AND CYBER
ESSENTIALS
ITIL® AND ISO 20000
BCM AND ISO 22301
PROJECT MANAGEMENT, PRINCE2®
CONSULTANCY
AND
CERTIFICATION
TECHNICAL
SECURITY
SOFTWARE
TOOLS
BOOKS AND
TOOLKITS
TRAINING
AND
QUALIFICATIONS
Training
A comprehensive market-leading portfolio
of instructor-led and self-paced training
courses on data protection, cyber security,
ISO 27001 certification, and business
continuity, with live online delivery.
Consultancy
On-site and remote support to help
organisations design and implement cyber
security, data protection and privacy
policies, procedures and practices.
Penetration testing, Payment Card Industry
Data Security Standard (“PCI DSS“) and
SoC2 compliance and Cyber Essentials
certification and consultancy, Privacy by
Design, Privacy as a Service and GDPR
compliance.
Publishing and Distribution
Books, toolkit documentation templates and
software sold via the Group’s websites, both
those GRC publishes or writes itself and
those supplied by third parties.
Software
Software solutions created and sold by the
Group including a range of “software-as-a-
service” products such as e-learning, risk
assessment and data flow mapping tools,
data seeding and data watermarking
solutions.
Our customers include
BAE Systems, Barclays, BBC, BT, Carlsberg,
Domino’s, Freshfields Bruckhaus Deringer,
Grant Thornton, Halfords, HSBC, John Lewis,
Kubota, National Health Service, Next,
Inmarsat, Royal Mail, Slaughter & May,
Thames Water, The Bank of England, UK
national and local government departments,
Vodafone, Volkswagen, US Army, PwC.
Where we are
– Registered offices: UK, Belgium,
Netherlands, Ireland and the United
States.
– EU website: 11 country websites.
2
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
OUR DIVISIONAL STRUCTURE
New divisional structure
Our new structure helps to
leverage our strengths as well as
to improve market focus, to
cross-sell, upsell, improve
account retention, reduce
overheads and improve overall
visibility of business activity.
– Training
– Distribution
– UK Digital Marketing
26%
of revenue
E-COMMERCE
DIVISION
OSS, client acquisition,
high transaction
volume, breadth
of offering.
1
2
10%
of revenue
64%
of revenue
SAAS DIVISION
High volume, low value,
recurring revenue,
increasingly automated
delivery.
3
PROFESSIONAL
SERVICES DIVISION
Relationships, longer
term contracts, CSaaS
and PaaS offering.
– Cyber Essentials
– GRC e Learning
(including
Bespoke)
– GDPR.co.uk
– Vigilant Software
– GDPR and GRC
Consultancy
– Technical Services
– GRCI Law
– DQM GRC
CROSS SALES / DIVISION
1
2
3
– Service Centre
– Websites
– CRM System(s)
– ITGP Books
& Toolkits
– EU and USA
– Channel Team
GRC International Group plc Annual Report and Accounts 2020
3
OUR v Al Ue p ROpOSITION
Working at the forefront of
a market driven by a growing
need for cyber security and
data protection compliance
OPERATING IN
AN ATTRACTIVE,
HIGH-GROWTH MARKET
A COMPREHENSIVE SUITE OF
HIGH-QUALITY SERVICES
AND PRODUCTS
– Demand for products and services is
directly correlated to a market that is
experiencing rapid expansion in the
volume of cyber security, data
protection and privacy demand.
– The Department of Business, Energy
and Industrial Strategy estimates
governance to be the fastest growing
area of the cyber security market.
– In a global and fragmented market,
GRC International’s “one-stop shop”
solution offers a highly attractive
proposition.
– A clearly addressable market:
– Cyber security is a global business
risk issue, where cyber breaches
have strong financial and
reputational implications.
– The global cyber security market is
predicted to be worth USD 243.6
billion by 2025, equating to a
CAGR of 11.7% between 2020 and
2025 (according to VynZ Research).
– US: More states are implementing
data protection laws with
significant financial exposures for
breached organisations.
– EU: Regulatory action strongly
focused on data protection
requirements of the GDPR.
– A broad range of both “off-the-shelf”
and bespoke solutions for clients
seeking to address their cyber
security governance, risk
management and compliance
requirements.
– Our e-learning, publishing, training,
certification and consultancy
solutions can be tailored specifically
to each client’s unique strategies and
requirements.
– Cost-effective and flexible delivery
options to suit our clients’ needs.
– A dominant digital marketing
presence, a strong, recognised brand
and a well-established e-commerce
offering that brings significant
volumes of new customers.
– Extensive cross-selling and upselling
opportunities owing to multiple
touch points with clients and
complementary offerings.
– A consultancy and professional
services team with widely-recognised
skills and competences in cyber
security and privacy.
– The creation of a cyber compliance
“platform” provides the opportunity
to embed further into client
operations.
4
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
PROVEN TRACK RECORD
– Strong organic growth in the Group’s
core business of cyber security
related products and services.
– Successful track record in introducing
new products and services – many
new products launched in the past
12 months.
– Successfully helped over 800
companies achieve ISO 27001
certification, proving their
compliance with one of the world’s
most demanding management
system standards.
A HIGH-QUALITY, DIVERSIFIED
AND INTERNATIONAL
CUSTOMER BASE
– Strong UK establishment with
customer base spanning multiple
jurisdictions, including the USA,
Ireland, France, Italy, Belgium, the
Netherlands and the Gulf.
– Significant potential to expand our
geographic footprint further.
– Blue-chip client base including BT,
Microsoft, Domino’s, Royal Mail,
Vodafone and a variety of other
household names.
– No single client accounting for more
than 5% of Group revenues.
– In the year ended 31 March 2020,
19% (2019: 17%) of the Group’s
billings originated from customers
outside of the UK. The Board’s
ambition over time is for non-UK
revenue to exceed domestic revenue.
AN EXPERIENCED
MANAGEMENT TEAM
WITH A CLEAR STRATEGY,
SUPPORTED BY A DYNAMIC
AND ENGAGED TALENT POOL
– Management team widely
recognised as leading authorities on
cyber security, IT governance,
regulation, systems and certification
in the UK and globally.
– Senior management team has been
active in the field of cyber security
governance, risk and compliance for
more than 20 years.
– Experienced multi-discipline
consultancy team.
– An innovative and agile workforce,
with strong product development
and customer account management
capabilities.
– Clear aim to invest in business
development and new client
solutions.
GRC International Group plc Annual Report and Accounts 2020
5
CHAIRmAN’S S TATemeNT
We are confident that the Group operates
in global markets that are set to grow
significantly over the medium and long
term, whilst gaining in importance
The Group’s strategic ambition
is to become an international
“one-stop shop” under the
umbrella of governance, regulation
and compliance, expanding into
other forms of compliance and
new jurisdictions.
A S Brode
Chairman
Fundraise
£3.75m
February 2020
Overview
I am pleased to share GRC International’s Annual Report
for the year ended 31 March 2020, the Group’s third
Annual Report since admission to the London Stock
Exchange’s AIM market in March 2018.
GRC International provides a “one-stop shop” for cyber
security and data compliance products and services.
The Group is largely UK-based but its clients are global.
The Group’s strategic ambition is to become an
international “one-stop shop” expanding into other
forms of compliance and new geographies, with non-UK
revenues eventually exceeding domestic sales.
Overall, the Group believes that cyber security, business
continuity and privacy compliance issues will become
increasingly critical for all companies in sectors with
ongoing business operations. The Group is well-
positioned to deliver the required products and services
to address client needs.
Performance
FY20 was a challenging year for the Group due to an
industry wide misconception that following the May
2018 introduction of GDPR, UK business would embrace
the ongoing importance of GDPR compliance and that
the Information Commissioner’s office would begin to
issue large fines for breaches of the new legislation.
Instead the sector experienced an immediate and
significant reduction in business which the Group had
not anticipated. The Group mistakenly held on to its
GDPR consultancy staff for too long and therefore was
required to undertake a cost cutting exercise in the first
half of the year in order to ’right-size’ the business.
As a result, the Group’s cash balance was constrained
for the first nine months of FY20. However, in February
2020 the Group announced the successful equity
fundraise of £3.75 million, enabling it to complete the
acquisition of DQM Group and to provide additional
working capital to expand the product suite. In the
Group’s Q4, we headed into the COVID-19 pandemic.
I was, therefore, pleased to note that the Group was
EBITDA-positive in each of the three months of Q4.
6
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
OUR MISSION
We engage with directors, business
executives, senior managers and IT
professionals, to help them:
1. Protect and secure their data and IT systems.
2. Comply with relevant data regulation.
3. Thrive as cyber security enables them to achieve
strategic business objectives.
OUR VALUES
We are dedicated to:
1. Solving our clients’ real business problems.
2. Being open and transparent with our clients,
partners and other stakeholders.
3. Being honest, responsible and accountable for the
work we do.
4. Collaborating with our colleagues and
stakeholders.
5. Showing leadership and initiative both within the
business and externally.
6. Delivering results and exceeding our clients’
expectations.
7. Being distinctive through the range of our skills
and the depth of our experience.
8. Delivering great value to our clients.
COVID-19
The widespread shift to remote working from March
2020 as a result of COVID-19 has created new
vulnerabilities for clients and, therefore, new
opportunities for GRC International’s products and
services. Whilst the onset of the COVID-19 crisis
impacted revenues from mid-February, management
moved swiftly to protect our employees, who all
migrated successfully to a working-from-home business
model. The Group put in place a pandemic response
plan allowing for a substantial drop in revenues and cash
receipts and is currently trading ahead of this plan.
People
Following on from the substantial scale-up in headcount
in 2018 to cope with the anticipated GDPR-related
increase in revenues, the Group had already begun
to scale down GDPR resources entering into FY20. This
reduction in staff has continued throughout most
of FY20. Having right-sized the business the Group have
then had to manage the impact of COVID-19.
GRC International is essentially a people business,
dependent upon the skills, passion and commitment
of its entire workforce to be able to deliver the quality
and service clients expect. On behalf of the Board,
I would like to place on record our thanks for their hard
work in challenging circumstances, especially when the
pandemic lockdown took hold.
Outlook
In its pandemic response plan, the Group modelled a
significant decline in FY21 Q1 performance. GRC
International traded well ahead of that model in terms of
billings, and with all costs under tight control.
Whilst the Group is unable to provide financial guidance
for FY21 given the prolonged uncertainty caused by the
pandemic, we are confident that the Group operates in
global markets that are set to grow significantly over the
medium and long term, whilst gaining in importance.
We have made the necessary investments to broaden
the range of our products and services and will continue
to do so.
A S Brode
Chairman
GRC International Group plc Annual Report and Accounts 2020
7
CHIe F e XeCUTIve OFFIC eR ’S Re vIe W
FY20 has been a year of strategic
development, evolution and return
through H2 to positive EBITDA
We have worked intensely throughout
the year to ‘right-size’ the Group,
become eBITDA-positive, improve
the quality and visibility of earnings,
and strengthen our core business
platform for future growth, enabling
us to accelerate our strategy to
become a leading “one-stop shop”
global supplier of cyber security,
risk and compliance services.
Alan Calder
Chief Executive Officer
The year to 31 March 2020 (“FY20”) has been another
year of investment, strategic development and
significant change for GRC International. We have
successfully ‘right-sized’ the Group, completed the
acquisition of DQM, embedded data protection
(including GDPR and Privacy Services) into our broader
cyber security business and, with the exception of the
seasonally weak December, achieved positive EBITDA
throughout the second half of FY20.
The fact that the Group continued to achieve EBITDA-
positive results throughout FY20 Q4, in spite of the
deteriorating economic climate caused by the global
coronavirus pandemic, highlights the greatly improved
financial stability of the Group due to the ‘right-sizing’
programme that was so successfully executed in the first
half of the financial year.
Our ambition remains to become a leading “one-stop
shop” global supplier of cyber security governance,
risk management and compliance services. However,
ongoing Brexit negotiations and associated political
uncertainty impacted much of FY20 and the onset of the
COVID-19 pandemic in Q4 bookended the financial year.
These uncertainties caused some clients to de- prioritise
their cyber security spending in the short term. The wave
of operational retrenchments across most sectors of the
economy in Q4 also had a slowing effect on expected Q4
revenue growth.
Despite the headwinds, the Group’s increasingly robust
business and invoicing model did, however, mean that
in Q4 we could hold all our clients to their existing
contracts. We also successfully scaled up our existing
remote-delivery capability across our continuity, security
and privacy compliance services worldwide. With very
minor exceptions, we were able to meet all our clients’
delivery needs – including instructor-led training,
consultancy, audit, testing and legal compliance services,
across the world on a remote basis.
Overall performance
The overall performance of the Group in FY20 showed
steady, sustained improvement. As we noted in our
Interim Results, the decline in GDPR-related demand
from the peak of the GDPR demand curve in May 2018
meant that revenue in H1 was down 20% to £7.1 million
(H1 2019: £8.9 million). This overall decline reflected a
53% decline in Privacy partially offset by an increase of
1% in Cyber Security. Gross profit in H1 was down 22%
to £4.0 million (H1 2019: £5.1 million), with margins
broadly stable against the comparative period at 56%
(H1 FY19: 57%).
However, the quarter-on-quarter comparison showed
the steady improvement in performance across the
Group. Revenue in the first half grew steadily, with Q2
revenue up +15% on Q1. There was also a steady
improvement in gross margin through H1 FY20, from
55.8% in Q1 to 59.4% in Q2. As a result, Q2 saw a
significant EBITDA improvement with positive EBITDA
achieved for the first time this year in September.
Monthly, Quarterly and Half yearly numbers are unaudited
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GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
Divisional overview
During Q1 FY20, we divided our UK businesses into three operating
divisions: e-commerce, Software as a Service and Professional
Services.
e-Commerce Division (28% of Group revenue)
The Group operates multiple business-to-business (“B2B”)
e-commerce websites, which provide a leading source of useful
information and other content to our customers which also provide
a route to market for the majority of our products and productised
services. e-commerce generated 26% of our sales in FY20 and
has a positive effect on the Group’s cash flow. The improvements in
UK performance across the year were noticeable:
– H2 vs H1 Website performance: visitor volumes up by 8.5%.
Web transaction volume up by 17%.
– Classroom training fill rates up from 47% in April 2019 to 77.5% in
March 2020.
– Distance learning product sales portfolio up by 9% since
April 2019.
– IT Governance Publishing revenues up 4% against H2 FY19, with
strong growth in the audio books product group.
SaaS Division (19% of Group revenue)
Vigilant Software Ltd was the Group’s initial software business.
vsRisk, a cyber security and ISO/IEC 27001 risk assessment tool, was
originally sold on a desktop licence basis. Over the last two years,
the vsRisk product has been expanded into a complete cyber
security and privacy management platform (CyberComply), available
on a subscription, SaaS basis.
The Group has converted its Cyber Essentials certification
business into an annual subscription model, expanded its
subscription-based e-learning staff awareness training and launched
a subscription version of its documentation toolkits.
In addition, the Group has continued to work with the education
sector in its use of the GDPR.co.uk platform, which was acquired
in Q2 of FY19.
High-margin, recurring revenue is a key feature of the SaaS division
activity; subscription billings were approximately 11% of total group
billings from all subscription and contractually recurring products
and services were around 29% of total group billings.
– Cyber Essentials certifications in H2 FY20 were up 8% on H1 FY20.
– Staff awareness training (e-learning) client profile changing from a
high number of small clients to smaller number of larger, more
committed organisations and the overall number of users of our
Learning Management System ("LMS") is 87,000 at 31 March
2020, a 24% increase on the total at 31 March 2019.
– Vigilant Software subscription pricing now driving a steady
increase in revenue.
– Driven by continuing demand for data protection support, our
DQM business, acquired in March 2019, and GRCI Law, set up in
Q3 of FY19, both continued to trade profitably through the year.
– GRCI Law has approximately 90% of its revenues on a
contracted, recurring basis providing a range of ongoing data
protection and privacy-related services to a growing range of
medium and large organisations. DQM has 50%+ of its revenue
on an annual contracted basis.
Our continued progress through FY20 is testament to GRC
International’s inherent nimbleness in developing new products
and solutions swiftly to service all clients’ cyber security and data
protection needs. Utilising the skill and deep industry knowledge
of our management team to identify emerging trends in the market
and consequent client needs, it is one of our key competitive
advantages. Furthermore, we continue to be the only organisation
in the market that can deploy a full suite of services to help clients
respond to proliferating cyber security threats.
Product and service development remains at the heart of what we
do and is fundamental to our business model. The market we
operate in changes very quickly and we are agile in launching new
products and services on a regular basis. The fact that, in the final
weeks of Q4 FY20, we were able to launch ten new products focused
on supporting organisations shifting to remote working clearly
demonstrates how important this agility is to our performance.
Our businesses in the EU and the USA both made continued
progress through the year. Both are still small businesses and do
not yet offer the full range of products and services that are
available through our UK websites. Nevertheless both businesses
continue to win new clients, and both made positive EBITDA
contributions to the Group.
The cyber security market continues to be driven by a mounting
pressure on companies to have in place data protection, privacy
and cyber security systems and procedures. It is this fundamental
trend – one that we see globally – that is driving the performance
of our cyber security related products and services across all three
of our divisions.
The depth of the negative economic impact of the coronavirus
crisis remains unclear; we nevertheless believe we are well-placed
to serve the growing, and global, cyber security market. In FY21,
we intend to evolve our business model further to better service
clients and enable us to grow margin-accretive, recurring revenues.
The fundamentals of our strategy remain unchanged, with
investment in our product and service offerings, across both new
and existing jurisdictions, coupled with continued growth in cyber
security demand, driving profitable growth for our shareholders.
Professional Services division (53% of Group revenue)
The Group’s Professional Services division includes all the cyber
security and data protection consultancy services that we deliver
to clients of all sizes across most industrial sectors.
– Demand for cyber security testing and compliance services
continues to be driven by a combination of compliance and
regulatory pressure.
– ISO/IEC 27001 (the international standard for an information
security management system) consultancy is the backbone
of our Professional Services division. In FY20 we helped 79
businesses achieve certification (FY19:31).
Alan Calder
Chief Executive Officer
Monthly, Quarterly and Half yearly numbers are unaudited
GRC International Group plc Annual Report and Accounts 2020
9
OUR S TORY SO FAR
How we got here
Alan Calder and Steve Watkins
become the first people in the
UK to successfully implement an
Information Security
Management System (“ISMS“)
compliant with BS 7799 (the
precursor to ISO 27001).
Incorporation of
IT Governance Ltd.
Alan Calder, CEO, becomes sole
shareholder and appointed as
Director.
1997
2002
2016
2012
Subsidiary incorporated
in Ireland (IT Governance
Europe Ltd).
Vigilant Software Ltd becomes a
wholly-owned subsidiary of the
Group.
2017
2018
Ireland subsidiary commences trading.
19% of Group revenues come from
customers outside the UK.
Many of our products and services
translated, for the first time, into
German, French, Spanish and Italian.
Following a reorganisation, a newly
incorporated company, GRC
International Group plc created.
GRC International Group becomes the
holding Company and is admitted to
trading on the LSE’s AIM market.
US subsidiary incorporated and office
opened in New York.
In August, first acquisition completed:
www.gdpr.co.uk
10
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
IT Governance Ltd co-founds
Vigilant Software Ltd and
subscribes to 50% of the equity.
Vigilant develops software
programme to help
organisations assess risks to
information and select
appropriate controls to reduce
risks.
First training course
delivered in Pakistan.
Alan Calder starts undertaking
consultancy work.
e-commerce website launched
selling books and
documentation toolkits on
information security.
2005
2006
2007
2010
2009
2008
The Group acquires control of
80% of Vigilant Software Ltd.
Successful growth of the Consulting
division leads to the launch of a
“penetration testing” service (testing
customer data protection and cyber
security processes).
Software division established, focused on
developing software to help organisations
assess risks to information and select
appropriate controls to reduce risks.
Alan Calder starts working for IT
Governance full time as
Executive Chairman.
Begins providing public training
courses on information security
management.
Steve Watkins begins working
full time for IT Governance in
April 2008.
2019
Acquisition of DQM Group Holdings
Ltd, a provider of data consulting and
technology solutions.
2020
Settlement of deferred consideration
paid to owners of DQM using
proceeds of new Shares in February.
Restructure and refocus on Cyber
Security side of the business.
GRC International Group plc Annual Report and Accounts 2020
11
mARK e T OveRvI e W
A global market driven by the
growing volume and scale of
cyber security threats
The market for cyber security solutions and services is driven
predominantly by the rising number of cyber-attacks, globally, which
are becoming increasingly sophisticated, coupled with increased
regulatory pressure for data security and privacy and a growing
demand for data processing transparency.
Data protection complaints received by the ICO in the UK increased
from 21,019 in 2017/18 to 41,661 in 2018/19. The FBI’s IC3 2019
Internet Crime Report indicates that, globally, more than $3.5 billion
was reported lost as the result of cyber crime in 2019; a total of
467,351 incidents were reported by businesses and individuals.
Increased technology-enablement and digitalisation are driving
companies to rely heavily on digitally-stored information, which is
shared in vast quantities both internally and externally. This is
increasing the opportunity for data to fall victim to a cyber-attack,
resulting in potentially devastating impacts to an organisation’s
bottom line and reputation.
Companies around the world are, however, now recognising the
criticality of taking action and, in the UK alone, 54% of companies
sought information or guidance on cyber security from outside
their organisation in the past year (UK Government Cyber Security
Breaches Survey 2020). Furthermore, the Ernst & Young 2018-19
Global Information Security Survey (“GISS“) – which analyses
findings from 1,400 C-suite leaders and information security
and IT executives/managers around the world – reported:
– 53% saw an increase in their budget;
– 51% are spending more on cyber analytics;
– 65% foresee an increase in their budget;
– Many organisations are currently outsourcing cyber security
functions, including functions of their security operations centres.
Accenture reported that cyber security breaches had increased
by 11% since 2018 and 67% since 2014, and that 68% of business
leaders felt their cyber security risks were increasing.
End-to-end compliance across the supply chain
with legal and regulatory obligations further
increasing demand for our products and services
Organisations have legal and regulatory obligations to have in place
data protection and cyber security systems and procedures. These
laws and regulations (for example, GDPR in the EU and a patchwork
of state-level laws in the USA) often have international reach outside
of the countries in which they are enacted.
The Board continues to believe that the most prominent legal,
regulatory and commercial standards relating to these areas will
continue to be adopted more widely across the globe.
Organisations will need to implement procedures and practices
that will enable them to demonstrate their compliance with the
standards. In order to achieve this, organisations will require a
supplier that is able to successfully meet all their cyber security
governance needs and GRC International believes there are
significant opportunities for upselling and cross-selling services to
its existing customers.
In addition to laws and regulations, companies are increasingly
required to provide assurance to their customers, regulators and
stakeholders that their data protection and cyber security systems
are adequate for the current risk environment.
Businesses, therefore, require evidence of adequate security from
all the entities in their supply chains. For example, the payment card
brands, through their acquiring banks, require businesses (and their
suppliers) that process payment cards to meet the Payment Card
Industry Data Security Standard (“PCI DSS“) and the UK Government
already requires that organisations supplying it directly or indirectly
should comply with Cyber Essentials (its own standard).
12
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
We operate in a growing and
global market
Due to the “one-stop shop” nature of GRC
International’s business, it is difficult to
confirm the exact size of the global market
for the Group’s products and services.
However, there are a number of research
reports that indicate the size and growth
rate of this market:
– The global cyber security market is
predicted to be worth USD 243.6 billion
by 2025, equating to a CAGR of 11.7%
between 2020 and 2025 (according to
VynZ Research).
– Cyber security Ventures predicted
cybercrime will continue rising and
would cost businesses globally more
than $5.2 trillion over the next five years.
– Average total to identify and contain
a breach in 2019: 280 days (Accenture-
Ponemon Institute Cost of Cybercrime
Study 2020).
– Average total cost of a cyber breach
in 2019: USD $3.86million (Accenture-
Ponemon Institute Cost of Cybercrime
Study 2020).
– Where cyber security skills were
concerned, 82% of employers report a
shortage of cyber security skills and 61%
of companies thought their cyber security
applicants weren’t adequately qualified.
GRC International offers a unique
proposition to the market
In response to market trends in cyber
security, there is a rising number of
consultancies, including the six major
accountancy firms, who now offer some
cyber security services. However, the Board
maintains that there are no other companies
offering the wide range of integrated
products and services that GRC International
provides, either in the UK or elsewhere.
Furthermore, the Board believes that no
other company is able to offer a bespoke
solution for clients seeking to address their
cyber security governance, risk management
and compliance requirements.
“THE GLOBAL CYBER
SECURIT Y MARKET IS
PREDIC TED TO BE WORTH
USD 243.6 BILLION BY 2025,
EQUATING TO A C AGR
OF 11.7% BET WEEN 2020
AND 2025 (ACCORDING
TO V YNZ RESE ARCH).”
GRC International Group plc Annual Report and Accounts 2020
13
BUSINe SS m ODel
Our core proposition is built
around our ability to provide
a comprehensive range of
integrated services to clients
WHAT WE DELIVER
HOW WE DELIVER
TRAINING
Courses related to data protection, cyber security,
ISO 27001 certification and related topics.
Online training, e-learning courses and examinations
that are required to obtain certification.
PROFESSIONAL
SERVICES
The range of consultancy services and products has
grown over the years to meet the customer demand.
Our two service offerings are:
– Consultancy
– Technical services
PUBLISHING
We sell books and documentation templates, both
those we publish or write and those supplied
by third parties.
Instructor-led courses range from one to five days with typically 8-20
delegates. Courses are held at:
– Our classroom training business is now completely online, with a bio-secure
training centre opening in Cambridgeshire with an innovative ’Learn from
Anywhere’ multi-channel delivery model.
– Hired premises.
– Customers’ premises (for organisations that require training for a number of
their employees).
– Via live webinars to domestic and international audiences.
– Self-paced courses enable learners to acquire new skills at their own pace
and in their own time.
Consultancy
We provide on-site and remote support, helping organisations to design and
implement data protection and cyber security policies and procedures.
Through GRCI Law, we also provide specialist legal privacy advice, and annual
support packages like Privacy as a Service and DPO as a Service.
DQM GRC is the leading Privacy by Design consultancy.
The Group attracts most of its consultancy customers via online searches carried
out by the customer, through attendance on training courses, recommendation
or as a result of relationships that have developed over time.
We are successfully delivering 95% of our cyber security, privacy and continuity
services remotely to customers across the world.
Materials are sold through the Group’s websites.
Books
We commission authors to write books on the basis of feedback from clients
or knowledge of the markets in which the Group operates.
Most of the books we sell relate to how organisations should manage their IT
risk exposures or standards published by various bodies.
SOFTWARE
We create and sell software solutions, including a
range of “software-as-a-service” products such as
e-learning, risk assessment and data flow mapping
tools, data seeding and watermarking solutions, all on
an annual subscription basis. Our in-house
development team is able to deliver continual
improvements on the basis of customer feedback and
our own subject matter expertise.
We create and sell software solutions through our subsidiary, Vigilant
Software Ltd, including:
– vsRisk (provides a programme for identifying and recording management
decisions relating to information security risk levels within an organisation).
– A compliance management tool.
– A data flow mapping tool.
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GRC International Group plc Annual Report and Accounts 2020
HOW WE DELIVER
STRATeGIC RepORT
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FINANCIAl STATemeNTS
Advertising and marketing of our training courses is predominantly through use of
search engine optimisation. Resulting bookings and sales are usually through:
– Online e-commerce sale or booking with no human intervention.
– Inbound phone or online enquiries that lead to a booking or sale.
– Active sales calls to the organisation making the enquiry.
Technical services
Through this line we provide:
– Penetration testing: we carry out an authorised simulated attack on a customer’s
IT systems to test the effectiveness of the systems and procedures and to identify any
weaknesses. We also offer simulated phishing attacks and a broad range of security
testing services.
– PCI DSS assessments: in line with contractual payment card industry requirements,
we regularly test organisations’ data protection and cyber security systems.
– Cyber Essentials certification and consultancy: we provide an accredited
certification service that helps organisations of all sizes become certified to the UK
Government’s Cyber Essentials scheme.
Documentation templates
We create and sell 37 sets of documentation
templates, the most important of which are now sold
through a cloud-based subscription service.
GRC International Group plc Annual Report and Accounts 2020
15
OUR S TR ATeGY
We have four strategic
priorities that enable us
to grow our “one-stop shop”
Our integrated services are designed
to help customers protect the data
they hold by enabling them to:
Understand what their legal, regulatory and
commercial obligations are;
Identify the risks to their data protection and cyber
security systems and procedures;
Design and implement systems and processes
to train their management and employees so
that they can meet their obligations
and address the risks identified; and
Prepare for, and obtain, certification to standards
such as: ISO/IEC 27001 or Cyber Essentials or
demonstrate compliance with requirements such as
PCI DSS or the GDPR.
EXPAND EXISTING SERVICES
IN EXISTING MARKETS
The Group’s largest business, IT Governance Ltd, has a well
established brand, reflected in the strength of its online market
positioning in the UK and globally. We continuously innovate,
launching new products and services into the changing and maturing
market, both within the UK and internationally. We also continue to
invest in building IT Governance Ltd’s infrastructure to support and
automate its operations, so that it is more cost-effectively able to
service growing numbers of small and medium-sized organisations
that require access to appropriate cyber security and data protection
products and services.
Alongside our increasingly automated internet and website systems,
we have significantly grown our account management and business
development teams in order to better develop our relationships with
medium and large organisations.
DELIVERING AGAINST OUR STRATEGY
We have continued to invest significantly in three of our existing
businesses during FY20:
– Vigilant Software – an existing subsidiary with a risk assessment
tool. We have significantly improved the underlying cyber
compliance platform and developed a suite of GDPR-related
software tools which, together or individually, are used by
organisations to automate key parts of their risk and compliance
activity and provide an integrated compliance and cyber risk view.
This also has a software-as-a-service (“SaaS“) business model.
The Co-op is the first organisation to take all the modules.
– GRC e-learning – in order to foster its growth, we moved our
e-learning activity out of IT Governance UK and created a separate
business for it. We developed a bespoke Learning Management
System and established an offer that makes it easy for clients to
deploy off-the-shelf staff awareness training, as well as custom-
built products. Carlsberg is a significant customer of our
e-learning business.
– GRCI Law – many of our clients seek legal advice from our GDPR
implementation consultants and, rather than refer them to their
own lawyers, we set up GRCI Law to provide specialist legal advice.
The Company operates within the UK’s legal framework, does not
deal with litigation or property transactions, and focuses primarily
on fixed-price, privacy-related advice. GRCI Law now also manages
Privacy as a Service and Data Protection Officer (“DPO“) as service
contracts, for a growing number of organisations.
16
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
EXPAND EXISTING SERVICES
INTO NEW JURISDICTIONS
ADDING NEW SERVICES
FOR EXISTING AND NEW CLIENTS
MAKE SELECTIVE ACQUISITIONS
The Company is rolling out its ‘tried and
tested’ successful business model and
infrastructure to the EU and USA, but with
appropriate adjustments to reflect local
cultures and market dynamics. While we
expect it to take some time to establish
sizeable, profitable operations across these
regions, these are all identified as clear
growth markets for cyber compliance
activities and these markets are EBITDA.
We continue to evaluate market demand
for new services, products and propositions
to deliver to both existing and new
customers in both existing and new
jurisdictions. Agile and innovative, in Q4,
we launched ten new products and services
specifically focused on serving the cyber
security establishment and training needs
of organisations rapidly shifting to a remote
working model.
In addition to organic growth, the Group
continues to scan the environment for
businesses that own complementary
technology and intellectual property, offer
access to new markets or territories, or
extend our existing capabilities and the
range of products and services offered to
our customers.
DELIVERING AGAINST OUR STRATEGY
DELIVERING AGAINST OUR STRATEGY
DELIVERING AGAINST OUR STRATEGY
We have established IT Governance-
branded operations in Ireland (Drogheda,
Eire) which coordinates all non-UK pan-EU
activities, and in the US (New York). All
these businesses are performing well and
have led to significant contract wins,
including Kubota and Microsoft.
Product development is fundamental to
what we do. The market changes very
quickly and we are agile in launching new
products and services on a regular basis.
We have successfully launched many new
products and services in the year ended
31 March 2020, including:
In August 2018, the Group acquired the
domain, web platform, customer list and
goodwill of www.gdpr.co.uk from Wonde
Ltd. The Group has enhanced the platform
by offering relevant books, e-learning and
Data Protection Officer services available
across www.gdpr.co.uk.
In March 2019, the Group acquired DQM
Group Holdings Limited, a provider of data
consulting and technology solutions. This
acquisition extended the Group’s existing
offering to include high margin, data
governance services; add market share to
the Group, by introducing additional
household name clients with ongoing
contracts; provide cross-selling and
upselling opportunities; and provide
strategic opportunities and additional
sector crossover.
This acquisition enabled us to broaden our
audit offering, add a growing range of
Privacy by Design services, as well as
watermarking and data breach tracking
services.
– ISO/IEC 27701 consultancy services
– e-Learning staff awareness training
courses
– Anti-phishing training course (updated
on a quarterly basis to reflect market
changes)
– Learning management system
– Self-paced learning courses on key
topics (e.g. Cyber Security Foundation)
– Converted 20 of our pre-existing book
titles into audio books to improve
accessibility
– Subscription version of our
documentation toolkit business
– Cyber security hotline
– Cyber “instant-response” service
– Data flow mapping tool
– Data protection impact assessment tool
– GDPR manager to deal with breach
reporting, gap analysis and supply chain
management
GRC International Group plc Annual Report and Accounts 2020
17
FINANCIAl R e vIe W
We are leaner and fitter with
an improving quality of earnings
The initial phases of the restructure delivered improved
internal efficiencies with significant cost savings,
together with more focused marketing and messaging
to drive revenue growth in the three divisions.
Underpinning the restructure is a clear shift away from
GDPR/Privacy products driving growth and back to Cyber
Security products driving growth supported by GDPR/
Privacy, demonstrating a transition back to what has
delivered many years of strong performance historically.
In H2, headcount savings from the restructure and tight
cost control in other areas delivered consistently EBITDA
positive monthly results with the only exception being
known seasonality in the month of December where
customer demand reduces over the Christmas period.
A positive Q4 result is particularly pleasing in light of
the fact that February and March revenue growth was
noticeably curtailed by the early impact of the COVID-19
pandemic.
Revenue
Overall revenue in FY20 was down 11% to £14.1 million
(FY19: £15.8 million). However, the direction of travel
following the restructure is clearly positive, with H2
revenue of £7.05 million being almost exactly equal to
H1 revenue of £7.09 million despite the notable impact
of COVID-19 on the final two months of Q4.
The Group has four key revenue streams:
– Consultancy
– Publishing and Distribution
– Software
– Training
As shown in the period-on-period table below, despite
revenue being down in three of the four revenue
streams, double-digit revenue growth was recorded in
Consultancy (up 19% on the prior year), which includes
much of the Group’s Cyber Security activity along with
the legal services delivered through GRCI Law Ltd,
mostly on a contracted recurring revenue basis.
The GDPR-fuelled growth through FY18 was strongly
seen in the Group’s Training business as customers
raced to upskill themselves and to understand the new
regulatory landscape. It is therefore unsurprising that
this business has declined following the implementation
date of GDPR in May 2018. This also impacted the
Publishing and Distribution business. It is however
pleasing to see the Group replace this revenue with
revenue from other products and services over the last
three years.
I’m delighted to present a set of
results that sees the Group return
to positive eBITDA in Q4 and
improve the forward visibility
of revenue.
Chris Hartshorne
Finance Director
In H1 of FY20 the Group went through a period of
restructuring and rebuilding in order to scale back parts of
the business built to handle the spike in demand for
General Data Protection Regulation ("GDPR") related
products and services and focus more strongly on the
underlying growth in the cyber security business that has
historically been at the core of the Group’s activities. In H2
the benefits of restructuring and changing of focus began
to show through in the financial performance, with the
Group getting back to being consistently cash generative
and EBITDA positive throughout Q4.
The Group’s Q1 results to 30 June 2019 made it apparent
that the lack of regulatory action and the uncertainty in the
wider economic and political landscape meant that the
temporary decline in GDPR-related products and services,
that had always been anticipated by the Board, was not
likely to give way to a second wave of GDPR fuelled growth
in the near future. At the end of Q1 the Board took the
decision to restructure the Group into 3 divisions:
– e-Commerce
– Software as a Service (SaaS)
– Professional Services
18
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
As demonstrated by the tables below, the Group’s overall revenue has grown strongly from £6.8m FY17 to £14.4m FY20.
£’000
FY17
FY18
FY19
FY20
Period-on-period
%
FY18
FY19
FY20
£’000
FY17
FY18
FY19
FY20
Consultancy
Publishing and
Distribution
Software
Training
2,898
5,274
7,228
8,635
1,042
1,649
1,337
977
410
399
1,513
1,356
2,483
8,366
5,771
3,178
Consultancy
Publishing and
Distribution
Software
Training
82%
37%
19%
58%
(19)%
(27)%
(3)%
279%
(10)%
237%
(31)%
(45)%
UK
Non-UK
5,525
12,666
12,886
11,680
1,308
3,022
2,962
2,466
Total
6,833
15,688
15,849
14,146
Total
130%
1%
(11)%
Non-UK
%
19%
19%
19%
17%
Gross profit
While Gross profit was down 6% to £8.1 million (FY19: £8.6 million) compared with the prior year, gross profit as a
percentage of sales is up 300 basis points on the prior year at 57% (FY19: 54%). Whilst the improvement for the year
as a whole is encouraging, the upward trend through the year is more significant, with H2 FY20 at 58% compared to
H1 FY20 at 56%. This half year on half year improvement comes despite the COVID-19 impact on revenue in Q4 and
December being a traditionally low margin month because the reduced number of trading days impacts revenue
but not headcount costs, which account for the majority of the Direct Costs within the Group.
Operating expenses
Other operating expenses (excluding share-based payment expenses and exceptional costs) decreased by
£2.5 million to £11.2 million, down 18% (FY19: £13.7 million).
Whilst the overall reduction is pleasing, it is the steady reduction through the period that is more meaningful.
The overhead run rate at the end of the period was significantly down on that at the beginning of the period;
and some of the reductions that came through in the H2 numbers were a result of actions taken as part of the
restructuring work in H1. The reduction in overhead costs is predominantly due to lower headcount reduction and
in associated headcount related overheads, together with a strong management focus on non-headcount related
overheads which has also delivered savings.
By the end of FY20 overheads were running at an annualised run rate more than £4 million lower than the full year
FY19 figure.
Underlying EBITDA
Underlying EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) excludes share-based payment
expenses (non-cash) and non-recurring exceptional costs. Although underlying EBITDA is not a statutory measure,
it is considered by the Board to be an important Key Performance Indicator that is helpful to investors. This is
considered to be a more accurate measure of underlying business performance as it removes the impact of
non-cash accounting adjustments.
Underlying EBITDA for FY20 was a loss of £1.5 million, (10.6)% of revenue (FY19: loss of £4.3 million, (27.2)%).
Not only is this a significant improvement from FY19 to FY20, but also to HY2 from HY1 is set out in the table below:
£’000
Operating loss
Depreciation
Amortisation
Exceptional costs
Share-based payments
Underlying EBITDA
Unaudited
HY1 FY20
Unaudited
HY2 FY20
(2,149)
194
586
63
–
(1,306)
(1,276)
192
594
295
–
(195)
FY20
(3,425)
386
1,180
358
–
(1,501)
FY19
(5,357)
183
611
164
63
(4,336)
Finance expense
The net finance expense of £222k (FY19: £8k) relates mainly to interest on the Group’s new borrowings (£139k) and
leases (£61k) due to the increase in borrowings and the change in accounting policy relating to the introduction of
IFRS 16 respectively.
GRC International Group plc Annual Report and Accounts 2020
19
FINANCIAl R e vIe W CONTINUED
Loss before tax
Loss before tax was £3.6 million (FY19: £5.4 million). Normalised loss
before tax (defined as loss before tax excluding share-based
payment expenses and exceptional costs relating to the acquisition
of DQM) was £3.3 million (FY19: £5.1 million).
Taxation
A tax credit of £0.4 million has been recognised in the period
(FY19: £29k charge). The tax credit recognised relates primarily to
the unwinding of deferred tax on the acquisition of DQM and a
Research and Development tax credit.
Earnings per share
Loss per share was 4.67 pence (FY19: loss per share 9.30 pence).
Statement of financial position
Net current liabilities at period end were £2.8 million, reduced from
£5.5 million at 31 March 2019.
Property, plant and equipment has increased to £0.8million (31 March
2019 £0.5m) due to the addition of Right of Use Assets under the
introduction of IFRS 16.
In February 2020 the Group successfully completed an equity
fundraise of approximately £3.75 million (net of expenses of £0.1
million), resolving the cash element of the contingent consideration
(£1.6 million) consistent with the DQM Deed of Variation, the balance
of deferred consideration being settled by the issue of shares now
paid to the vendors of DQM and repaying a bank borrowing facility
(£0.5 million). The remainder of the funds raised provided additional
working capital for the Group to strengthen the overall balance sheet
position. Consequently trade and other payables are down to
£3.6 million at the period end (31 March 2019 £4.4 million).
Included within the current liabilities balance of £5.4 million (FY19:
£9.1 million) is a deferred income balance of £0.9 million (FY19: £1.0
million), relating to training and consultancy projects due to be
delivered after the statement of financial position date. Also included
within current liabilities is the deferred liabilities payable to HMRC as
laid in the Going Concern section.
The Board continues to pay close attention to the working capital
management of debtors and creditors.
Accounting for leases under IFRS 16
During the period the Group has adopted IFRS 16 under the modified
retrospective method. Further information is provided in note 22.
Lease obligations under IFRS 16 at 31 March 2020 were: Current
£0.2 million, Non-current £0.3 million.
Intangible assets
The Group’s accounting policy is that only directly attributable staff
costs of the technical teams developing the assets are capitalised.
No management time is capitalised, and neither is any proportion of
overheads or borrowing costs.
Additions of £1.1 million largely relate to software development of
£0.9 million and consultancy and courseware products £0.2 million.
Cash flow and cash/debt
The Group’s closing cash position net of bank overdrafts was £0.2
million (FY19: £0.1 million). The significant reduction in operating
cash outflows before changes in working capital (FY20: £1.9 million,
FY19: £4.5 million) is a reflection of the improvement in trading result
during the period. The decrease in trade and other payables (FY20:
£4.4 million, FY19 £0.7 million) is the result of clearing the contingent
consideration relating to the acquisition of DQM along with a
conscious effort to reduce the size of the trade payables ledger.
The Group has banking facilities to provide adequate headroom for
unforeseen working capital requirements by way of an invoice
discounting facility that was inherited as part of the acquisition of
DQM. In addition, the unsecured loan facility provided to the
Company by Andrew Brode for the amount of £700k at an interest
rate of 5% above the Bank of England base rate to provide
additional working capital is available to the Company until at least
31 December 2021 and shall automatically renew for a further 12
months unless terminated by either party.
Borrowings (excluding both bank overdraft and lease obligations) at
period end were £1.8 million (31 March 2019: £nil, 30 September
2018: £nil) an increase on the previous period to support the
working capital requirements during the restructuring in the first
9 months of the year. A full schedule of Borrowings and terms are
disclosed in note 18.
Going concern
The Group has recorded a loss for the year of £3.2m (2019: £5.4m) and
at 31 March 2020 its current liabilities (excluding deferred income)
exceeded its current assets by £1.9m (2019: £4.5m). Notwithstanding
this, the Directors consider it appropriate to prepare the financial
statements on a going concern basis. The key considerations relating
to this judgement are described below.
During FY20 the Group significantly restructured its operations,
including reducing its cost base. Of the loss for the year of £3.2m,
£2.2m (69%) was incurred in H1 and £1.0m in H2 the Group was
EBITDA positive in 5 out of the 6 months, with the only exception
being known seasonality in the month of December as our
customers’ businesses wind down for the Christmas period. Also,
during H2 the Group successfully completed a placing of new shares
which raised £3.75m (approximately £3.5m net of fees) enabling the
Group to settle the cash element of the contingent consideration
(£1.6m) due to the vendors of DQM, acquired in March 2019, and
repaying a bank borrowing facility (£0.5m). The remainder of the
funds raised provided additional working capital for the Group to
strengthen the overall balance sheet position.
Having been through a transitional year the Group was looking
forward to a strong FY21, continuing its H2 FY20 momentum and
anticipating profitable results for the year. However, the global COVID-19
pandemic led to an immediate reduction in monthly billings as
customers delayed projects, reduced spend seen as not immediately
critical to day-to-day operations and focussed on establishing new
business processes and procedures to survive the short term. This
unprecedented trading environment resulted in a reduction in revenues
and the net result for April and May 2020, followed by a recovery towards
pre-COVID-19 levels of revenue and profitability in June prior to a
flattening out of trading levels over July and August 2020 as is the
traditional pattern in the Group’s annual cycle.
In response to the pandemic the Board revisited its FY21 and FY22
forecasts, increased the regularity of its short and medium term
cash flow planning, implemented a number of key cost reduction
measures and took advantage of government initiatives that have
been introduced in the geographies that the Group operates in
order to preserve liquidity, supplemented by deferring the payment
of certain liabilities to HMRC.
Notably; the Group has made savings in marketing costs, property
and training venue costs, and continues to rationalise IT
infrastructure. Having extended the hiring freeze the Group is
continuing to see payroll costs reduce. In particular, early progress
on the integration of DQM with the rest of the GRC group enabled
one of the founder directors to take early retirement and the other
to reduce workload by 60%; and these savings (c. £0.2m annualised)
became effective from 1 April 2020. Furthermore, IT Governance
USA Inc. qualified for a $0.1m loan through the Paycheck Protection
20
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
Programme (PPP) which should qualify in due course for forgiveness.
The Group also deferred certain liabilities payable to HMRC
amounting to approximately £1.0m, representing a rolling
3-4 months of the Group’s monthly liability, which the Group has
scheduled to repay both in the base case and worst case forecast on
an instalment basis commencing from April 2021.
Despite the drop in monthly billings the Group has focused
operationally on developing new products and services and
redesigning existing ones such that all products and services can be
delivered remotely or in person as customer preference and rapidly
changing regulation and guidance dictate. As evidenced by the
early months of FY21, the Directors believe the Group is in a strong
position to continue to support its customers and deliver services in
a rapidly changing environment and is well placed to benefit from
the need for organisations to change their business processes in a
cyber secure and regulatory compliant manner.
Notwithstanding some easing of trading conditions and subsequent
improvement in performance since the outbreak of the global
pandemic reached the United Kingdom (which represents around
93% of the Group’s revenue in FY20), the Directors acknowledge
that trading conditions will necessarily remain uncertain for the
foreseeable future. Those uncertainties having effect include:
– The possibility of further local or another national “lockdown”.
– The levels of revenue in the context of weakened demand for the
Group’s products and services.
– Should the Group need to reduce its scalable cost base, its ability
to make those adjustments and realise the benefits from doing
that on a timely basis.
– The continued access to financing, including government support
in its various forms, that would be sufficient to fund any further
cash requirement over the foreseeable future
To assess going concern the Directors have prepared an integrated
profit and loss, balance sheet and cash flow forecast by month to
31 March 2022 (the ‘base case forecast’). A key assumption to the
base case forecast is that the level of business interruption caused
by the pandemic would gradually ease over the summer with a
resumption of more normal pre-COVID-19 levels of billings from
September 2020 onwards, though still notably lower than originally
budgeted prior to the impact of COVID-19 . The Group’s base case
forecast identifies that through the going concern review period the
Group is able to meet its liabilities as they fall due subject to
settlement of the outstanding HMRC liabilities from April 2021.
Additionally, the Directors have prepared a sensitised forecast to the
base case forecast where if the COVID-19 pandemic was more
prolonged than currently envisaged by the Directors (the ‘worst case
forecast’). This worst case forecast assumes that revenues between
September 2020 and March 2022 are 30% below the base case and
cost reduction measures, to reflect the reduced level of billings, have
been effected. The worst case forecast does not identify a potential
cash flow shortfall in any month, on the basis that outstanding HMRC
liabilities are capable of being further deferred.
The Directors are monitoring actual business performance and cash
flow against the base case forecast. Encouragingly, since the year
end the Group has traded ahead of the expectations set out in the
base case forecast and is currently seeing trading almost back at
pre-COVID levels, although behind the growth plans originally
budgeted. Furthermore in the view of the Directors any temporary
cash flow shortfall can be mitigated through the deferment or
removal of selected planned marketing, capital expenditure and
other scheduled cash outflows.
Based on the base case forecasts (including the currently expected
payment profile of the deferred liabilities to HMRC referred to above)
and the medium and longer term planning in place, the Directors
have identified that they have a reasonable expectation of being able
to reduce costs sufficiently in the required timeframe should revenue
levels reduce by any reasonably foreseeable degree and that the
Group will remain within the currently available facility levels, none of
which has any financial covenant compliance requirements. Central to
those facilities is the £700,000 unsecured loan facility provided by
Andrew Brode which is at present 50% utilised, and which remains in
place until at least 31 December 2021, although the Group does also
have access to additional liquidity through its invoice discounting
facility, which is not currently utilised and is not currently expected to
be relied upon in the base case forecast or the short term rolling cash
flow forecast reviewed by the Board.
Nevertheless, in order to trade through the pandemic period
without making significant headcount cuts that would have
damaged the rate of the Group’s recovery, it was necessary for the
Group to defer the HMRC liabilities described above without a
formal payment arrangement being in place. At the time of writing
this report the Directors’ are confident that these liabilities can be
settled in the near future, and the Group currently has adequate
cash and facilities in place to settle the liabilities in full if required.
Given Government’s clear advice to HMRC to be supportive of UK
businesses and based on the Group’s communications with HMRC
to date management do not expect that the immediate need to
settle the deferred balance in full is likely. However, in the event that
the liabilities are demanded in full and the effect of COVID-19 on
future trading is more prolonged or severe than the Directors’
expectations, the two events combined may impact the Group’s
ability to generate sufficient positive cashflow to settle future
liabilities as they fall due and as a result the Parent Company would
be required to raise additional funding in order to meet its liabilities
with no guarantee such funding would be secured.
These conditions indicate the existence of a material uncertainty
which may cast significant doubt on the Group's and the Company's
ability to continue as a going concern. Notwithstanding the impact
of COVID-19 identified above, the Directors have a reasonable
expectation that the Group will have sufficient cash flow and
available resources and if necessary will be able to raise additional
funds to continue operating for at least 12 months from the approval
date of these Financial Statements. Accordingly, the Directors
continue to adopt the going concern basis in preparing the Group
and the Company its Financial Statements.
The financial statements do not include the adjustments that would
be required should the going concern basis of preparation no
longer be appropriate.
Capital structure
The issued share capital at 31 March 2020 was 99,577,589 ordinary
shares of £0.001 each (31 March 2019: 64,484,172). There were no
share options granted in the period to 31 March 2020, and the total
number of unexercised share options at 31 March 2020 was 780,680
(31 March 2019: 2,360,680).
Risks and uncertainties
The Board continuously assesses and monitors the key risks of the
business. The key risks that could affect the Group’s performance,
and the factors which mitigate these risks, are set on pages 18 to 19.
The one exception is an additional point regarding liquidity risk and
the Group’s recognition of the need to regularly review and monitor
the Group’s financing. Further information is provided above under
“Cash flow and cash/debt”.
Chris Hartshorne
Finance Director
GRC International Group plc Annual Report and Accounts 2020
21
RISK m ANAGeme NT
Our principal risks
and uncertainties
The Group is exposed to a number of potential risks which may have a material
effect on our reputation, financial or operational performance. The Board is
aware that the nature and scope of risks can evolve and that there may be
further risks to which GRC International is exposed. While this list is not intended
to be exhaustive, the Directors consider the below to be the principal risks and
uncertainties faced by the Group. The Board has overall responsibility for risk
management and internal control and is fully supported by the Audit Committee.
Risk
Mitigation
i
c
m
o
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key geographic markets it operates in. The Group could be
affected by unforeseen events outside of its control including:
t Our operations are affected by overall economic conditions in the
n
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m
n
o
r
i
v
n
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– Economic and political events, such as Brexit and COVID-19
– Inflation or deflation
– Currency exchange fluctuation
The COVID-19 disruption has led to reduced sales in the short
term and deferred projects. It has also disrupted daily business life
with remote working instigated wherever possible and a shift to
remote working
and delivery.
With the continued uncertainty associated with the virus it is too
early to assess the impact on the Group’s operational and financial
performance in FY21.
Competition: The Company’s current competitors, or new entrants
to the market, particularly the data protection and cyber security
market, might bring superior technologies, products or services to
the market, or equivalent products or services at a lower price which
may have an adverse effect on the Company’s business.
Customers: Loss of key customers has the potential to materially
impact Group revenue.
Compliance environment: Customer activity is to a significant
extent driven by their fear of a data or cyber security breach and
the regulatory and commercial consequences thereof. A reduction
in external compliance pressure on the Company’s clients may
have an adverse effect on the Company’s business.
Suppliers: We have a strategic relationship with Xanthos Ltd, a key
supplier of digital marketing and website services, and a related
party. If Xanthos Ltd were to withdraw provision of these services,
it may have an adverse impact on the business, results of operations
and financial condition of the Group.
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O
While the increasing geographic diversity of GRC provides some mitigation
from individual country economic fluctuations, we continue to review and
monitor our economic environment and will continue to consult widely to
better understand any economic uncertainty and associated impacts.
GRC operates on a basis of natural hedging to help minimise exposure to
this risk.
Business Continuity: GRC has executed its UK business continuity plan in
response to the UK Government’s instruction that where possible and as far
they are able to, all employees should work from home. The Company is able
to confirm that by 25 March all our staff across the Group in the UK, USA and
EU were successfully working from home and carrying out business as usual.
Encouragingly, to date this approach has meant that the Group has suffered
minimal disruption as a result of staff having to self-isolate.
Customer Focus: During March, we successfully shifted almost all of our client
service delivery across our continuity, security and privacy compliance services
worldwide, online. With very minor exceptions, we are now able to meet all our
client’s delivery needs – including classroom training, consultancy, audit, testing
and legal compliance services, on a remote basis to clients across the world.
Privacy Management: While executing our continuity plan and completing
our pivot to comprehensive online service delivery, we were also successfully
audited against ISO/IEC 27701, the new privacy management extension to
ISO/IEC 27001. It is another standard for which we provide training and
implementation services.
The Group has adequate cash resource and committed undrawn debt facilities
available to ensure that the immediate impact of the disruption can be managed.
The business has a proven track record of disciplined cost control which will
continue to be vital in the current trading environment. We are continuing to take
action to reduce costs and preserve cash and, where possible, will take advantage
of emerging Government support schemes in all of the geographies in which
we operate including deferral of tax payments and furloughing of some staff.
We believe that the best way to mitigate this risk is to continue to deliver and
maintain high-quality products and services to our customers. We continually
review and monitor competitive activity in all our markets to ensure GRC remains
innovative, competitive and attractive in the markets in which we operate.
We have adapted to COVID-19 pandemic by moving to remote working and
delivery of some of our services.
In addition to the above, we seek to balance our exposure to customer
dependency across all our geographic markets.
We monitor customer demand and, in the event of a reduction in demand,
would take steps to reduce delivery capacity and overhead.
We maintain a close working and contractual relationships with key suppliers
and endeavour to limit those services for which we have a single point of failure.
22
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
Risk
Mitigation
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n The markets in which the Group operates are subject to legal and
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regulatory changes and the emergence of new industry standards.
To compete successfully, the Group will need to continue to
improve its products and services, and to develop and market new
products and services that keep pace with changes in legislation,
regulation and commercial practices.
We monitor developments and proposed changes in Government policies,
legislation, regulation and other factors that may impact our business and our
customers’ businesses. Our strategy is kept under close review to ensure we
respond to any such impact.
We have well-developed IT systems, operational controls, comprehensive
training and a rigorous compliance monitoring programme in order to maintain
adherence to legislation.
n The continued expansion of the Group into new countries brings
associated risks. With a number of offices located outside the UK,
o
i
s
there is a risk that the Group’s growth overseas may result in a
n
a
reduction in the quality of control and oversight provided by
p
senior management.
x
e
The Board and senior management review international activity on a
regular basis and consider both strategic and operational issues that may
impact performance.
The Board has full oversight of UK and overseas operations through
regular management meetings, both remotely and in person.
l
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Factors such as different time zones, languages, regulatory
regimes and working cultures may all reduce the efficacy of the
oversight provided by senior management.
The financial performance of the Group may be impacted by
changes to taxation regulation and the repatriation of profits,
as the UK begins to leave the EU.
The nature of the Group’s business means that it is exposed to a
number or risks associated with information technology which
have the potential to cause a significant impact on operational
performance, Company reputation and financial performance.
These risks include:
We manage this risk in a number of ways, including external certification to
international security standards, such as ISO/IEC 27001 and UK standards such
as Cyber Essentials Plus.
Our GDPR compliance management system is externally audited to comply with
BS 10012.
– Cyber security breach
– Data breach
– Reliance on key systems, including defects in software
A business continuity plan is in place to minimise the impact to the business
should IT systems fail. The internal IT team assesses risks associated with
potential cyber threats on a regular basis and uses antivirus software, amongst
other controls, to protect the integrity of systems. We also undertake regular
penetration testing to assess infrastructure and data security.
In the event that an IT incident does occur, back-up facilities are in place to
ensure business interruptions are minimised and internal and customer data is
protected from corruption or unauthorised access. GRC also has cyber insurance
appropriate to its risk profile.
We continue to invest in cyber security measures, tools and infrastructure, as
well as seeking to develop and upgrade systems in line with the Group’s plans
for significant expansion.
The Company’s future will be greatly influenced by the continued
services and performance of its Directors and senior management.
GRC takes pride in creating a positive and exciting workplace environment,
through training, engagement, rewards and values.
Furthermore, failure to recruit and retain skilled personnel at all
levels across the business could also have an adverse impact.
The Remuneration Committee seeks to ensure that rewards correspond with
performance and retention.
l
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p
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e
p
With a strategy for the Group of significant growth, including
further international expansion, the Board recognises the
importance of regular review and monitoring of the Group’s
financing.
The Group maintains an invoice discount facility short-term and
has an unsecured loan facility provided by Andrew Brode to
provide additional working capital. The Group only has a limited
forward order book for its services, creating unpredictability in
revenues and cash, hence impacting on the level of liquidity.
Further details are included on page 20 of this Annual Report
and in note 1 of the financial statements.
Keyman insurance has been put in place in respect of the Chief Executive
Officer, Alan Calder, for £750,000.
The Group maintains regular and transparent dialogue with its facility lenders
to ensure they are aware of developments in the business and reviews the level
of facilities required based on the Group’s forecasts.
The Board receives weekly and monthly information to enable it to consider
the Group’s short and medium-term performance. If performance is not in
line with forecast, the Group has a number of mitigating actions that could
be implemented.
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GRC International Group plc Annual Report and Accounts 2020
23
Ke Y pe RFORmANCe INDIC ATORS
How we measure our performance
BILLINGS
Billings equate to the total value of invoices raised and cash sales through
Group websites.
This figure does not take account of accrued or deferred income adjustments that
are required to comply with accounting standards.
AVERAGE FTE HEADCOUNT
While the number of full-time equivalent (“FTE“) employees is not a KPI in itself, the
decrease demonstrates the scale of the Group’s restructure over the course of the
financial year.
MONTHLY BILLINGS DIVIDED BY FTE EMPLOYEES
This is an internal target given to the Group’s sales and marketing teams.
Total billings
£14,026,660
(11)%
(£000s)
16,260
15,833
14,026
20,000
15,000
10,000
5,000
7,412
0
2017
2018
2019
2020
Average FTE headcount
187
(31)%
FTE as at 31 March 2020: 163
FTE as at 31 March 2019: 184
300
250
200
150
100
50
0
270
177
187
74
2017
2018
2019
2020
Billings per FTE
£6,307
29%
(£)
10,000
8,000
6,000
4,000
2,000
8,250
7,465
6,307
4,881
0
2017
2018
2019
2020
24
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
WEBSITE VISITS
The Group invests significant funds into digital marketing in order to maintain our
dominance of certain web search term results. There is a distinct correlation between
website visits and sales, however, we remain careful to use the term “correlation” rather
than “causation”.
Website visits
3,552,335
(27)%
(000s)
4,902
3,107
3,552
5,000
4,000
3,000
2,000
1,000
1,403
0
2017
2018
2019
2020
WEBSITE REVENUE
This equates to debit and credit card sales via the website that turn into cash
immediately. This is an important KPI as it is a key driver of the Group’s working capital.
Furthermore, the Group refers to website sales trends to estimate the returns generated
through digital marketing campaigns and, therefore, how to prioritise these accordingly.
Website revenue
£2,293,422
(32)%
(£000s)
5,000
4,000
3,000
2,000
1,000
1,333
4,683
3,374
2,293
0
2017
2018
2019
2020
The Strategic Report was approved by the Board of Directors and signed on its behalf.
Alan Calder
Director
25 September 2020
GRC International Group plc Annual Report and Accounts 2020
25
S TAKeHOlDeR e NGAGemeNT
We engage with our
stakeholders to develop
effective relationships and
improve business decisions
By understanding our stakeholders
and listening to their views and
feedback, we can factor into
Board discussions, the potential
impact of our decisions on each
stakeholder group and consider
their needs and concerns.
OUR STAKEHOLDERS
MATERIAL TOPICS
EMPLOYEES
Engaging with our people enables us to
create an inclusive company culture and a
positive working environment.
– Opportunities for
development and
progression
– Opportunity to share ideas
and make a difference
– Diversity and inclusion
CUSTOMERS
Listening to our customers helps us to
better understand their needs and provide
suitable and reliable products and services.
– Help customers make better
decisions
– Personalised customer
propositions
– Leveraging a deep
understanding of their needs
and views to create
innovative solutions
SHAREHOLDERS
Our shareholders are vital to the future
success of our business, providing funds
which aid business growth and the
generation of sustainable returns.
– Financial performance
– Strategy and business model
– Proactive approach to
communication
THIRD PARTY SUPPLIERS
Interaction with our suppliers and treating
our suppliers fairly allows to drive higher
standards and reduce risk in our supply
chain whilst benefiting from cost efficiencies
and positive environmental outcomes.
– Long-term partnerships
– Collaborative approach
– Open terms of business
– Fair payment terms
S172 Statement
As required by s172 of the Companies Act
2006, a director of a company must act in the
way he considers, in good faith, would most
likely promote the success of the company for
the benefit of its shareholders. In so doing,
the director must have regards amongst other
matters to the:
– Likely consequences of any decision in the
long term
– Interests of the company’s employees
– Need to foster the company’s business
relationships with suppliers, customers
and others
– Impact of the company’s actions on the
community and environment
– Desirability of the company maintaining
a reputation for high standards of business
conduct
– Need to act fairly between members of
the company
26
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
HOW WE ENGAGE
OUTCOMES
We have an experienced, diverse and dedicated workforce which
we recognise as the key asset of our business. It is vital to the
success of the Group to continue to create the right environment
to encourage and create opportunities for individuals and teams
to realise potential. FY20 was a transition year for employees as
we welcomed our new colleagues from DQM to the Group.
Throughout the COVID-19 lockdown daily employee briefings have
been held.
Employees have been consulted on some very difficult decisions
facing the Group during the COVID-19 crisis. We have had an
overwhelming level of support throughout the organisation.
The majority of our previously office-based staff in all our
geographic locations are now permanently home-based.
Following the introduction of the HR Software tool in the later part
of FY19 we have much greater data accuracy, increased over data,
improved efficiency and a modern employment experience.
Social media is a key channel for mobilising customer engagement.
During the COVID-19 crisis we have actively supported many of our
customers with payment holidays and flexible approaches on
delivering our products.
Our classroom training business is now completely online, with a
bio-secure training centre opening in Cambridgeshire with an
innovative ’Learn from Anywhere’ multi-channel delivery model.
We are successfully delivering 95% of our cyber security, privacy
and continuity services remotely to customers across the world.
During the year the primary mechanism for engaging with
shareholders in more depth was via meetings with the largest
shareholders following the financial results for the half and full year.
In addition, in FY20, Board members consulted informally with the
largest investors on the acquisition of DQM. Additional areas of
discussion with the largest shareholders were focused on the
future development of the Group.
We operate in a way that safeguards against unfair business
practices and encourages suppliers and contractors to adopt
responsible business policies and practices for mutual benefit.
We recognise that we must, where possible, integrate our business
values and operations to meet the expectations of our
stakeholders, including customers, suppliers, the community and
environment.
Investors showed their support for the Board and the Company’s
strategy by passing all resolutions at the Annual General Meeting
and the general meetings to approve the raising of additional
funds to complete the purchase of DQM and additional working
capital requirements.
We regularly monitor the relationship and engagement approach
with our third-party suppliers.
GRC International Group plc Annual Report and Accounts 2020
27
CORpOR ATe GOveRNANCe S TATemeNT
Andrew Brode
Non-Executive Chairman
On behalf of the Board of Directors, I am pleased to introduce the
Group’s Corporate Governance Statement for the year ended
31 March 2020.
Introduction
This statement of the report sets out GRC International Group plc’s
approach to corporate governance and intends to provide
information on how the Board and its Committees operate. As a
Board, we take corporate governance very seriously, and I will
continue to ensure that we maintain high standards throughout
my tenure.
As a Company whose shares are traded on the AIM market of the
London Stock Exchange, GRC International has chosen to monitor
and report its compliance with the Quoted Companies Alliance
(“QCA”) Corporate Governance Code (“the Code”) and its
Statement of Compliance with the same can be found and
information on governance arrangements on the Company website
(https://www.grci.group/corporate-governance).
Further information is provided in the table on pages 30-32.
This report seeks to inform shareholders about how it complies with
the QCA Code, and where it departs from the QCA Code, the
Board will provide an explanation of the reason(s) for doing so.
The role of the Board
The Board is collectively responsible for GRC International’s
performance and creating value for shareholders. The Board meets
as often as required to effectively conduct its business. The Board is
responsible for overseeing the management of the Group and
approving the strategic direction of GRC International.
Composition of the Board and meetings
The QCA Code states that a company should have at least two
independent Non-Executive Directors.
The Board comprises six Directors; four Executive Directors and
two independent Non-Executive Directors, reflecting a blend of
different experiences and backgrounds, as set out on pages 34
and 35.
The Board believes that the current composition of the Board brings
a desirable range of skills and experience in light of the Company’s
challenges and opportunities following admission to AIM in March
2018, while simultaneously ensuring that no individual or group can
dominate the Board’s decision making.
The structure of the Board is designed to ensure that the Board
focuses on the strategic direction of the Group, monitoring its
performance, governance, risk and control issues.
The Board meets regularly to review, formulate and approve the
Group’s strategy, budgets, corporate actions and oversee the
Group’s progress towards its goals. The Company will continue to
appraise the structure of the Board on an ongoing basis.
28
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
The table below sets out the Directors’ attendance at scheduled
Board meetings during the period ended 31 March 2020, against
the number of meetings each Board member was eligible to attend:
More information about this Board Committee can be found in the
Remuneration Committee Report on pages 39 to 41.
Andrew Brode
Alan Calder
Christopher Hartshorne
Stephen Watkins
Neil Acworth
Ric Piper
Nomination Committee
No nomination committee has been established. Instead, decision-
making on matters of nomination and succession will be retained
with the Board as a whole. This approach is considered appropriate
considering the small size of the Board and is believed to enable all
Board members to take an active involvement in the consideration
of Board candidates and to support the Chair in matters of
nomination and succession.
10/10
10/10
10/10
9/10
10/10
10/10
Board effectiveness
In line with the requirements of the QCA Code, an annual evaluation
process is undertaken which considers the effectiveness of the
Board, its Committees and individual Directors. This review
identifies areas for improvement, informs training plans for Directors
and identifies areas of knowledge, expertise or diversity which
should be considered in the Group’s succession plans.
The evaluation for the year ended 31 March 2020 was conducted on
21 July 2020 and was carried out by the Board, led by the Chairman.
In addition to the annual evaluation exercise, there remains an
ongoing dialogue within the Board to ensure that it operates
effectively and that any matters raised are addressed in a timely
manner. The Board maintains strong relationships with external
advisers and has access to advice as required.
The performance of the Executive Directors is reviewed annually by
the Remuneration Committee in conjunction with their annual pay
review and the payment of bonuses.
The Corporate Governance Statement was approved by the Board
of Directors and signed on its behalf.
Andrew Brode
Non-Executive Chairman
25 September 2020
At each Board meeting, the Directors follow a formal agenda, which
is circulated in advance by the Company Secretary.
Board Committees
The Board has delegated specific responsibilities to the Audit
Committee and the Remuneration Committee, details of which are
set out below.
Each Committee has written Terms of Reference setting out
its duties, authorities and reporting responsibilities which can
be obtained from the Company Secretary on application via
https://www.grci.group/contact.
Audit Committee
The Audit Committee has the responsibility of reviewing and
reporting to the Board on the Group’s financial reporting, internal
control and risk management systems, the independence and
effectiveness of the external auditor and the effectiveness of the
Internal Audit function.
The Audit Committee meets no less than three times in each
financial year and has unrestricted access to the Group’s external
auditor. The members of the Audit Committee comprise two
Non-Executive Directors: Ric Piper (as Chairman) and Andrew Brode.
More information about this Board Committee can be found in the
Audit Committee Report on pages 36 to 38.
Remuneration Committee
The Remuneration Committee reviews the performance of the
Executive Directors, Chairman of the Board and senior management
of the Group and makes recommendations to the Board on
matters relating to their remuneration and terms of service.
The Remuneration Committee also makes recommendations to the
Board on proposals for the granting of share options and other
equity incentives pursuant to any employee share option scheme
or equity incentive plans in operation from time to time.
The Remuneration Committee meets as and when necessary,
but at least twice each year.
In exercising this role, the Directors have regard to the
recommendations put forward in the QCA Code and, where
appropriate, the QCA Remuneration Committee Guide and
associated guidance.
The members of the Remuneration Committee include two
Non-Executive Directors. The Remuneration Committee comprises
Ric Piper (as Chairman) and Andrew Brode.
GRC International Group plc Annual Report and Accounts 2020
29
ApplIC ATION OF THe QC A CODe
The QCA Code sets out ten principles which should be applied by companies which have adopted it as their corporate governance code.
These are listed below, together with a short explanation of how the Company applies them.
Governance principle
Compliant
Explanation
Establish a strategy and business model
which promote long-term value for
shareholders.
Yes
The Board is committed to delivering long-term value for GRC
International’s shareholders. The Group’s business model and strategy is
explained fully within the Strategic Report on pages 16 to 17.
Seek to understand and meet shareholder
needs and expectations.
Yes
Details of the principal risks and uncertainties which the Board considers to
be associated with the Group’s activities, together with the mitigating
actions which are being pursued in relation to them, are set out on
pages 22 to 23.
The Board attaches great importance to communication with all of GRC
International’s shareholders. We encourage all our shareholders to attend
our AGM, which provides a forum and time for shareholders’ questions and
open discussions.
Furthermore, feedback from investors is obtained through direct interaction
with the Chief Executive Officer and Finance Director at meetings following
its interim full-year results, and certain other ad hoc meetings that take
place during the year.
There is a regular dialogue with shareholders through the medium of the
Company’s corporate broker, Dowgate Capital Ltd.
The voting record at the Company’s general meetings is monitored and we
are pleased that all resolutions proposed so far have been passed by
shareholders (with a great majority being passed by 100% of attending
votes).
Take into account wider stakeholder and
social responsibilities and their implications
for long-term success
Yes
As an international company, GRC International places significant
importance on understanding and respecting different cultural and social
values within the international realm in which it operates.
The Group has adopted policies to encourage an open and transparent
corporate culture, including policies addressing anti-slavery, anti-bribery
and whistleblowing. We continue to adopt new policies and monitor
existing policies on an ongoing basis.
Details of the stakeholder engagement which the board considers to be
associated with the Group’s activities are set out in the S172 disclosure on
pages 26 to 27.
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Governance principle
Compliant
Explanation
Embed effective risk management,
considering both opportunities and threats,
throughout the organisation.
Yes
Details of the principal risks and uncertainties which the Board considers to
be associated with the Group’s activities, together with the mitigating
actions which are being pursued in relation to them, are set out on pages
22 to 23.
The Company sets out in its annual report the steps taken to ensure that
effective risk management is embedded within the Company culture. The
Board has identified the principal business and financial risks and has
implemented control procedures. The Company has an established
framework of internal financial controls which is subject to review by the
Directors and the Audit Committee considering the ongoing risks faced by
the Group.
The Board acknowledges its responsibility for reviewing the effectiveness
of the systems that are in place to manage risk. However, no such system
can provide absolute assurance against misstatement or loss. The Board
considers that the internal controls that are in place are appropriate for the
size and complexity of the Group. The key elements of the Group’s internal
control environment include:
– close involvement of the Executive Directors in the day-to-day running of
the Group;
– weekly Executive Committee meetings
– clear lines of authority and reporting established;
– centralised control and decision making over key areas such as capital
expenditure and financing; and
– a suite of daily and monthly reports focusing on the key performance and
risk areas. Such reports include detailed annual budget setting with
monthly monitoring and daily reporting including reports on sales, orders
and cash balances compared with budget.
The Board, with the advice of the Audit Committee, has reviewed
the effectiveness of the systems of internal control for the year to
31 March 2020.
Given the current size of the Group and the close involvement of the
Executive Directors in the day-to-day operations, the Group does not
consider it necessary to have a separate financial internal audit function due
to the Group’s size and its centralised administrative function but keeps this
need under review. The Company receives regular feedback from its
external auditors on the effectiveness of its internal controls and aims to
implement any improvements identified.
The Group undertakes regular updates and reviews of its business
processes, co-ordinated by the Group quality function to ensure that it not
only addresses basic financial controls but that non-financial controls are
also in place over areas such as health and safety, environmental issues and
adherence to law and regulations.
Mitigation can only provide reasonable, but not absolute, assurance against
material misstatement or loss. As such the Group maintains appropriate
insurance cover for the Group’s activities, with the types of cover and
insured values being reviewed on a periodic basis by the Board.
The Group also has a Business Continuity Plan to manage significant risks
such as the COVID-19 pandemic.
GRC International Group plc Annual Report and Accounts 2020
31
ApplIC ATION OF THe QC A CODe CONTINUED
Governance principle
Compliant
Explanation
Maintain the Board as a well-functioning,
balanced team led by the Chair.
Yes
Ensure that between them the Directors
have the necessary up-to-date experience,
skills and capabilities.
Yes
Evaluate Board performance based on clear
and relevant objectives, seeking continuous
improvement.
Yes
The Board is responsible for taking all major strategic decisions and also
addressing any significant operational matters. In addition, the Board
reviews the risk profile of the Group and ensures that an adequate system
of internal control is in place.
The Board has a formal schedule of matters reserved for its approval and is
supported by the Audit and Remuneration Committees. All Directors are
required to devote sufficient time to carry out their role.
The Board believes that the current composition of the Board brings a
desirable range of skills and experience in light of the Company’s
challenges and opportunities following admission to AIM in March 2018,
while simultaneously ensuring that no individual or group can dominate the
Board’s decision making.
Non-executive Directors have a time commitment to the Company of not
less than eight days per annum including the attendance of Board meetings
and the Company AGM. In addition, Non-executive Directors are expected
to devote appropriate preparation time ahead of each meeting.
The structure of the Board is designed to ensure that the Board focuses on
the strategic direction of the Group, monitoring its performance,
governance, risk and control issues.
The Board has considered Mr Brode’s independence and, notwithstanding
his shareholding in the Company and his position as a debt provider, the
Board considers that Mr Brode is of independent mind in regards to his
interactions with the Company.
Ric Piper is considered to be independent as described on page 35.
The composition and experience of the Board is shown on pages 34 to 35
of the Annual Report.
The GRCI Board has, in its opinion, an appropriate balance of sector,
financial and public market skills and experience, as well as an appropriate
balance of personal qualities including gender balance and capabilities to
successfully execute the Group’s strategy. The Board fully supports and
funds any training, formally or otherwise, that is required by any individual
Board member so as to ensure that their knowledge and experience
remains relevant and effective.
The Directors receive briefings at Board meetings on regulatory and other
issues relevant to the Group and its business sector and may attend
external courses to assist in their professional development.
All Directors, the Audit Committee and Remuneration Committee are able
to take independent professional advice in the furtherance of their duties, if
necessary.
A summary of the skills and experience of each Board member is included
in their biographies on pages 34 to 35 of the Annual Report.
In line with the requirements of the QCA Code, an annual evaluation
process is undertaken which considers the effectiveness of the Board, its
Committees and individual Directors. This review identifies areas for
improvement, informs training plans for Directors and identifies areas of
knowledge, expertise or diversity which should be considered in the
Group’s succession plans.
The process of Board evaluation is a continuous one as the Board
communicates regularly as a group, picking up on matters where a
particular Director’s time and efforts should be focused. Both the Chairman
and the CEO hold regular one-to-one conversations with other members of
the Board, with the Finance Director also communicating regularly with the
Chairman of the Audit Committee. The Board is considered to be operating
effectively and appropriately for the size and complexity of the Group.
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Governance principle
Compliant
Explanation
Promote a corporate culture that is based on
ethical values and behaviours.
Yes
Maintain governance structures and
processes that are fit for purpose and
support good decision-making by the
Board.
Yes
Communicate how the Company is
governed and is performing by maintaining
a dialogue with shareholders and other
relevant stakeholders.
Yes
The Board believes that the promotion of a corporate culture based on
sound ethical values and behaviours is essential to creating a workplace
environment that allows people to flourish and this will contribute to
enhancing shareholder value.
Each Director places great importance on demonstrating ethical
behaviours, both during the decision-making process, and in the
implementation and communication of strategic decisions. Senior
managers are also encouraged to lead by example in the promotion of
ethical values and behaviours.
So far as possible, we ensure that these values are visible through our
recruitment process, internal communications and management style,
corporate reports and external announcements.
Our values are set out on page 4 to 5.
The Board meets regularly throughout the year to consider strategy,
performance and the framework of internal controls. A scheduled meeting
calendar is arranged as far in advance as possible, and ad hoc meetings are
held in person or by telephone when it is necessary for the Board to discuss
specific issues.
To enable the Board to discharge its duties, the Directors receive
appropriate and timely information. A formal agenda and briefing papers
are distributed to the Directors in advance of each Board meeting. The
Directors have access to the advice and services of the Finance Director
and Company Secretary, who is responsible for ensuring that the Board
procedures are followed, and that applicable rules and regulations are
complied with.
The Board reviews its governance structures regularly to ensure they are
fit for purpose and will carry out a review of the terms of the Audit and
Remuneration Committees during financial year 2021.
Further details on our governance structure and the role of our Board
Committees are set out on pages 28 to 29.
The Board attaches great importance to communication with shareholders.
Regular communication is maintained with our shareholders primarily
through:
– our Annual General Meeting;
– our website (www.grci.group);
– meetings and conversations between the Chief Executive Officer and
shareholders, both on an ad hoc basis, and following publication of the
interim and final results; and
– Company announcements.
Our Group website (www.grci.group) sets out details of the Group and its
activities, regulatory announcements and Company press releases, annual
reports, half-year reports, notices of general meetings and information
required by the AIM Rules for companies and the QCA Code.
The “Investors“ section of the Group website includes a dedicated
“Corporate Governance” section, where our annual Corporate Governance
Statements can be found (www.grci.group/corporate-governance).
Further information can also be found in the Audit Committee report on
page 36 to 38 and the Remuneration Committee report on pages 39 to 41.
GRC International Group plc Annual Report and Accounts 2020
33
BOARD OF DIReC TORS
Bringing a broad range of skills
and a depth of experience
The existing Directors of GRC International Group plc are listed below. The Directors’ Report on page 42 sets out
details of the Directors who served during the year ended 31 March 2020. The Board is committed to maintaining
high standards of corporate governance.
The Company has adopted policies and procedures which reflect the principles of the QCA’s Corporate
Governance Guidelines for Smaller Quoted Companies (“QCA Code“) as appropriate to a company whose shares
are admitted to trading on AIM.
ANDREW STEPHEN BRODE
NON-EXECUTIVE CHAIRMAN
ALAN PHILIP CALDER
CHIEF EXECUTIVE OFFICER
CHRISTOPHER JOHN HARTSHORNE,
FCCA
FINANCE DIRECTOR
Appointment to the Board
November 2012
April 2002
April 2017
April 2008
April 2017
February 2018
Key skills and experience
In 2012, Andrew acquired an initial shareholding
in IT Governance Ltd before later joining the Board
as a Non-Executive Director in November 2012.
In 2014, Andrew subscribed for further shares in
IT Governance Ltd, increasing his shareholding to
22% (of the issued share capital of the Company
prior to Admission). Andrew was appointed
Non-Executive Chairman of the Company in
February 2018.
As well as being a Chartered Accountant, Andrew
has gained significant leadership experience on
the boards of several listed companies. He was
Chief Executive of Wolters Kluwer (UK) plc
between 1978 and 1990 and Andrew is currently
Chairman of RWS Holdings plc and Learning
Technologies Group plc. These roles together with
his extensive executive experience, ensure he is
well placed to lead the Board of GRC International
plc effectively.
As CEO and founder of IT Governance Ltd,
Alan leads the senior team and is responsible for
delivering GRC International plc’s strategy.
Chris joined the Group in April 2017
as Finance Director.
Prior to this, Chris qualified as a Chartered
Certified Accountant with Deloitte in 2007 and
subsequently worked for PwC. In 2015, Chris
joined MM (UK) Limited as Financial Controller
before leaving to take up his position with
GRC International.
Prior to founding IT Governance Ltd in 2002,
Alan held a number of roles including the position
of CEO of Business Link London City Partners,
CEO of Focus Central London, CEO of Wide
Learning, the Outsourced Training Company and
was Chairman of CEME.
Alan graduated from the University of
Witwatersrand in 1978 before moving to the UK.
Alan has written a number of books about IT
management including the definitive compliance
guide “IT Governance: An International Guide to
Data Security and ISO27001/ISO27002” (co-written
with Steve Watkins), which is in its sixth edition
and is the basis for the UK Open University’s
postgraduate course on information security and
“IT Governance – Guidelines for Directors”.
With his significant executive experience and
expertise in the field of IT governance, risk
management and compliance, Alan is well placed
to lead the senior team of GRC International
plc effectively.
Board Committee membership
– Audit Committee member
– Remuneration Committee member
Principal external appointments
– Chairman of RWS Holdings plc
– Chairman of Learning Technologies Group plc
– Non-Executive Director of a number of private
equity backed media companies
– None
– None
– None
Steve joined the Group as a Director in 2008 and is
In his role as Chief Information Officer and Chief
Ric has over 40 years of experience as a Chartered
responsible for the Professional Services division
Information Officer, Neil is responsible for the
Accountant, including a number of senior finance
of the Group. Prior to joining IT Governance
Group’s information technology systems including
roles at ICI, Citicorp and Logica. He was also
Steve’s senior management career spanned the
its websites and Vigilant Software Ltd, the Group’s
Group Finance Director at WS Atkins plc from 1993
public and private sectors.
software development subsidiary.
to 2002. Ric advises a number of businesses in the
Engineering and Technology sectors. He was a
He is an active member of the international
Neil was appointed as a Director of IT Governance
Member of the Financial Reporting Review Panel
standards technical committee responsible for
Ltd in 2017 after originally joining IT Governance
for ten years until May 2019.
cyber security information security and privacy
Ltd in 2012 as Chief Technology Officer and
protection and chairs the UK committee that
Chief Information Officer. Prior to this, he held
mirrors that. He is a Technical Assessor for the UK
roles at Featurespace (as Chief Technology
national accreditation body, UKAS assessing audit
Officer), Cambridge Assessment, Sequel
bodies offering ISO/IEC 27001 and ISO/IEC
Business Solutions Limited and Close Brothers
20000-1 certification services.
Treasury Services.
Steve has authored titles relating to data
protection and information security.
– None
– Chair of IST/33 which is responsible for UK
contributions to ISO 27001, ISO 27002 and
other cyber security and privacy standards
– ISMS (& ITSMS) Technical Assessor for UKAS
– Chairman of the UK ISO/IEC 27001 User Group
– None
– None
– Audit Committee Chair
– Remuneration Committee Chair
– Partner at Restoration Partners
– Senior NED at Elektron Technology plc
34
GRC International Group plc Annual Report and Accounts 2020
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Appointment to the Board
Key skills and experience
In 2012, Andrew acquired an initial shareholding
As CEO and founder of IT Governance Ltd,
Chris joined the Group in April 2017
in IT Governance Ltd before later joining the Board
Alan leads the senior team and is responsible for
as Finance Director.
as a Non-Executive Director in November 2012.
delivering GRC International plc’s strategy.
In 2014, Andrew subscribed for further shares in
Prior to this, Chris qualified as a Chartered
IT Governance Ltd, increasing his shareholding to
Prior to founding IT Governance Ltd in 2002,
Certified Accountant with Deloitte in 2007 and
22% (of the issued share capital of the Company
Alan held a number of roles including the position
subsequently worked for PwC. In 2015, Chris
prior to Admission). Andrew was appointed
of CEO of Business Link London City Partners,
joined MM (UK) Limited as Financial Controller
Non-Executive Chairman of the Company in
CEO of Focus Central London, CEO of Wide
before leaving to take up his position with
February 2018.
Learning, the Outsourced Training Company and
GRC International.
was Chairman of CEME.
As well as being a Chartered Accountant, Andrew
has gained significant leadership experience on
Alan graduated from the University of
the boards of several listed companies. He was
Witwatersrand in 1978 before moving to the UK.
Chief Executive of Wolters Kluwer (UK) plc
Alan has written a number of books about IT
between 1978 and 1990 and Andrew is currently
management including the definitive compliance
Chairman of RWS Holdings plc and Learning
guide “IT Governance: An International Guide to
Technologies Group plc. These roles together with
Data Security and ISO27001/ISO27002” (co-written
his extensive executive experience, ensure he is
with Steve Watkins), which is in its sixth edition
well placed to lead the Board of GRC International
and is the basis for the UK Open University’s
plc effectively.
postgraduate course on information security and
“IT Governance – Guidelines for Directors”.
With his significant executive experience and
expertise in the field of IT governance, risk
management and compliance, Alan is well placed
to lead the senior team of GRC International
plc effectively.
Board Committee membership
– Audit Committee member
– Remuneration Committee member
Principal external appointments
– Chairman of RWS Holdings plc
– Chairman of Learning Technologies Group plc
– Non-Executive Director of a number of private
equity backed media companies
– None
– None
– None
November 2012
April 2002
April 2017
April 2008
April 2017
February 2018
STEPHEN GEORGE WATKINS
EXECUTIVE DIRECTOR
NEIL ROGER ACWORTH
CHIEF INFORMATION OFFICER
RICHARD JOHN PIPER, ACA
INDEPENDENT NON-EXECUTIVE
DIRECTOR
Steve joined the Group as a Director in 2008 and is
responsible for the Professional Services division
of the Group. Prior to joining IT Governance
Steve’s senior management career spanned the
public and private sectors.
In his role as Chief Information Officer and Chief
Information Officer, Neil is responsible for the
Group’s information technology systems including
its websites and Vigilant Software Ltd, the Group’s
software development subsidiary.
He is an active member of the international
standards technical committee responsible for
cyber security information security and privacy
protection and chairs the UK committee that
mirrors that. He is a Technical Assessor for the UK
national accreditation body, UKAS assessing audit
bodies offering ISO/IEC 27001 and ISO/IEC
20000-1 certification services.
Neil was appointed as a Director of IT Governance
Ltd in 2017 after originally joining IT Governance
Ltd in 2012 as Chief Technology Officer and
Chief Information Officer. Prior to this, he held
roles at Featurespace (as Chief Technology
Officer), Cambridge Assessment, Sequel
Business Solutions Limited and Close Brothers
Treasury Services.
Steve has authored titles relating to data
protection and information security.
Ric has over 40 years of experience as a Chartered
Accountant, including a number of senior finance
roles at ICI, Citicorp and Logica. He was also
Group Finance Director at WS Atkins plc from 1993
to 2002. Ric advises a number of businesses in the
Engineering and Technology sectors. He was a
Member of the Financial Reporting Review Panel
for ten years until May 2019.
– None
– Chair of IST/33 which is responsible for UK
contributions to ISO 27001, ISO 27002 and
other cyber security and privacy standards
– ISMS (& ITSMS) Technical Assessor for UKAS
– Chairman of the UK ISO/IEC 27001 User Group
– None
– None
– Audit Committee Chair
– Remuneration Committee Chair
– Partner at Restoration Partners
– Senior NED at Elektron Technology plc
GRC International Group plc Annual Report and Accounts 2020
35
AUDIT COmmIT Tee RepOR T
Ric Piper
Audit Committee Chair
Remuneration Committee Chair
As Chairman of the Audit Committee, I am pleased to present this
report of the Audit Committee (“Committee“) for the year ended
31 March 2020. This report is intended to explain how the
Committee has met its responsibilities.
I will be available at the Annual General Meeting (“AGM“) to
respond to any questions shareholders may raise on any of the
Committee’s activities.
Apart for the material uncertainty related to going concern in the
independent auditor’s report on page 44, from a “business as
usual” perspective, there is nothing to bring to your specific
attention.
Aims and objectives
The Committee has responsibility for monitoring the integrity of the
annual and interim financial statements and formal announcements
relating to the Group’s financial performance, including advising the
Board that the Annual Report is fair, balanced and understandable.
It reviews significant financial reporting issues and accounting
policies and disclosures in financial reports, the effectiveness of the
Group’s internal control procedures and risk management systems
and considers how the Group’s internal audit requirements shall be
satisfied, making recommendations to the Board. It reviews the
independent auditor’s audit strategy and implementation plan
and its findings in relation to the Annual Report and Interim
Financial Statements.
The main duties of the Committee are set out in its Terms of
Reference which are available from the Company Secretary on
application via https://www.grci.group/contact.
Committee membership, meetings and attendance
Membership
Throughout the year ended 31 March 2020, and since the year
end to the date of this Report, the Committee comprised two
Non-Executive Directors:
– Ric Piper (Chairman of the Committee and independent
Non-Executive Director); and
– Andrew Brode (Chairman of the Board).
Both Andrew Brode and Ric Piper are Chartered Accountants and
the Board considers them to have recent and relevant financial
experience. Further information on Mr Piper and Mr Brode can be
found in the Directors’ biographies on pages 34 to 35. The Board
considers that the Committee as a whole has competence relevant
to the sector in which the Group operates.
Meetings and attendance
The Audit Committee met two times during the year ended
31 March 2020.
The Committee has met with the external auditor to agree the Audit
Plan, including the likely impact of COVID-19 working arrangements
on the preparation and audit of the financial statements.
The Chief Executive Officer and the Finance Director are also
routinely invited to Committee meetings.
The attendance at the Audit Committee meetings is set out in the
following table:
Andrew Brode
Ric Piper
2/2
2/2
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GRC International Group plc Annual Report and Accounts 2020
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FINANCIAl STATemeNTS
Since the year end, the Committee met privately with the
independent auditor. Ric Piper, the Committee Chairman, also met
privately with the senior statutory auditor, Tim Neathercoat, outside
of the Committee meetings.
Operation of the Committee
Each year, the Committee works to a planned programme of activities
which are focused on key events in the annual financial reporting
cycle and other matters that are considered in accordance with its
Terms of Reference.
It provides oversight and guidance to contribute to the ongoing good
governance of the business, particularly by providing assurance that
shareholders’ interests are being properly protected by appropriate
financial management, reporting and internal controls.
The main activities of the Committee in the year ended
31 March 2020 are as follows:
– Financial statements: The Committee reviewed the Annual
Report. Presentations were made by management and the auditor
about the key technical and judgemental matters relevant to the
financial statements.
– Acquisition of Data Quality Management Group Limited (“DQM“):
On 1 March 2019 shareholders approved the acquisition of DQM.
In the light of the changes, notified to shareholders on 31 January
2020, under a Deed of Variation to the Deferred Consideration, the
Committee has reviewed the accounting for the acquisition. Further
information is set out in note 29 to the financial statements.
– Taxation: The Group operates under varied tax regimes. The
completeness and valuation of provisions to cover the range of
potential final determinations by the tax authorities of the Group’s
tax positions are the subject of judgement. Further information is
set out in note 7 to the financial statements. The provisions held
by the Group were reviewed by management as at 31 March
2020. The Committee agreed with management’s assessment
of the Group’s tax provisions. The Committee notes that the
Group is committed to paying the correct amount of tax and
receiving the correct amount of research and development tax
credits and will only undertake transactions that have a genuine
commercial purpose.
– Fair, balanced and understandable: The content and disclosures
made in the Annual Report are subject to a verification exercise by
management to ensure that no statement is misleading in the form
and context in which it is included, no material facts are omitted
which may make any statement of fact or opinion misleading, and
implications which might be reasonably drawn from the statement
are true. The Committee was satisfied that it was appropriate for
the Board to approve the financial statements and that the Annual
Report taken as a whole is fair, balanced and understandable such
that it allows shareholders to assess the Group’s performance
against the Group’s strategy and business model.
– Internal financial control systems: The Committee reviewed the
observations made by the independent auditor, as part of the
audit process, and management’s responses and actions. The
Committee was satisfied that it was appropriate for the Board to
make the statements regarding internal controls included in the
Corporate Governance Statement.
Compliance reviews, both of financial and operational activities,
were satisfactorily completed for the Group’s International
Organisation for Standardisation (“ISO“) accreditations.
Internal Audit is reported on below.
The Chairman of the Committee reported to the Board on the
Committee’s activities after each meeting, identifying relevant
matters requiring communication to the Board and recommendations
on the steps to be taken.
Significant issues related to the
financial statements
The Committee reviewed the key judgements applied to a number
of significant issues in the preparation of the financial statements.
The review included consideration of the following:
Revenue recognition and recoverability of
accounts receivables
The Group has well-developed accounting policies for revenue
recognition – see the principal accounting policies section in
the financial statements. The Committee receives reports from
management and from the independent auditor to ensure that the
policies are complied with across the Group.
The Board also receives regular reports on the collectability of aged
accounts receivables, accrued income and deferred income. On the
basis of these reports, the Committee concluded that it was content
with the judgements that had been made.
Intangibles: accounting
As set out in intangibles accounting policy to the financial statements,
the Group has significant unamortised intangibles. As at 31 March
2020, the Committee agreed with the management’s recommendation
on capitalisation and that no impairment charge was required.
Intangibles impairment assessments (including assumptions about
future performance) are carried out at least annually by management
and reviewed by the Board and the Committee.
Going concern
The Group continues to prepare its financial statements on a going
concern basis, as set out in the accounting policies to the financial
statements on page 53. Management produces working capital
forecasts on a regular basis. The forecasts are reviewed by the
Board, particularly ahead of the publication of interim and annual
results. Having reviewed the forecasts as at the date of this report,
the Committee concluded that it was appropriate for the Group to
continue to prepare its financial statements on a going concern
basis. Shareholder attention is drawn to the material uncertainty
related to going concern in the independent auditor’s report on
page 44.
This year, the Committee also considered several other matters,
including the accounting for and disclosure of exceptional items (see
the principal accounting policies section in the financial statements),
accounting for share-based payments and the introduction of
IFRS 16 Leases (further information is set out in note 22 to the
financial statements.
Shareholders’ attention is drawn to the sections titled
“Responsibilities of Directors” and “Auditor’s responsibilities for
the audit of the financial statements” in the Independent Auditor’s
Report on page 44, about specific areas as reported by the
independent auditor in order to provide its opinion on the Financial
Statements as a whole.
GRC International Group plc Annual Report and Accounts 2020
37
AUDIT COmmIT Tee RepOR T CONTINUED
Independent auditor
The appointment of the independent auditor is approved by
shareholders annually. The independent auditor’s audit of the
financial statements is conducted in accordance with International
Standards on Auditing (UK) (“ISAs“), issued by the Financial
Reporting Council.
There are no contractual obligations that act to restrict the
Committee’s choice of external auditor.
At the Annual General Meeting on 29 October 2019 shareholders
approved the reappointment of BDO LLP as the Group’s
independent auditor, with Tim Neathercoat as the senior
statutory auditor.
This year, having considered the effectiveness and performance of
the independent auditor, the Committee has recommended to the
Board the appointment of BDO LLP as independent auditor of the
Company for the next financial year.
Services, independence and fees
The independent auditor provides the following:
– A report to the Committee giving an overview of the results and
judgements and observations on the control environment.
– An opinion on the truth and fairness of the Group financial
statements.
The Committee monitors the cost effectiveness of audit and any
non-audit work performed by the independent auditor and also
considers the potential impact, if any, of this work on independence.
It recognises that certain work of a non-audit nature may be best
undertaken by the independent auditor as a result of its unique
position and knowledge of key areas of the Company.
Approval is required, prior to the independent auditor commencing
any material non-audit work, in accordance with a Group policy
approved by the Committee. Certain work, such as providing
bookkeeping services and taxation planning advice, is prohibited.
The Committee requires that non-audit fees do not have any
material negative impact on BDO’s independence.
The Committee regulates the appointment of former employees of
the independent auditor to positions in the Group. The independent
external auditor also operates procedures designed to safeguard its
objectivity and independence. These include the periodic rotation of
the senior statutory auditor, use of independent concurring partners,
use of a technical review panel (where appropriate) and annual
independence confirmations by all staff.
The independent auditor reports to the Committee on matters
including independence and non-audit work, on an annual basis.
Risk management and internal control
The Group holds weekly Executive Directors’ meetings to discuss
all business matters which includes risks and risk mitigation.
Depending on the nature of the risk, it is escalated to the
Committee and/or Board meetings for review.
The Group’s principal risks and uncertainties and the Board’s
approach to mitigation are set out on pages 22 and 23 of the
Annual Report.
Internal audit
During the year, the Board received regular updates from the internal
audit function. There are no matters to report to shareholders.
The Board is satisfied that there are no significant weaknesses
in these systems and that the Group’s internal controls are
operating effectively.
Evaluation of the Committee
There are no matters to report to shareholders.
Approval
This report was approved by the Committee, on behalf of the Board,
and signed on its behalf by:
Further, the Committee seeks positive evidence of the
independence of the independent auditor through its challenge
to management.
Ric Piper
Chair of the Audit Committee
The Committee regularly reviews all fees for non-audit work paid
to the independent auditor. There were no fees from BDO LLP for
non-audit work in the year ended 31 March 2020.
The Committee will continue to keep the area of non-audit work
under close review, particularly in the context of developing best
practice on auditor’s independence.
38
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
RemUNeR ATION COmmIT Tee RepOR T
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 March 2020. This report
is intended to explain how the Remuneration Committee (the
“Committee”) has met its responsibilities.
Whilst there is no requirement for companies quoted on AIM to
produce a formal Remuneration Report, the Committee prepares
this Remuneration Report for information purposes in order to give
shareholders, and other users of the financial statements, greater
transparency about the way in which the Directors of GRC
International Group plc are remunerated.
This report sets out the remuneration paid to the Directors for the
year ended 31 March 2020 and sets out the remuneration policy for
the forthcoming financial year and beyond.
We value the views of our shareholders and guidance issued by
investor bodies. As Chair of the Committee, I will be available at the
AGM to respond to any questions shareholders may raise on any of
the Committee’s activities.
Aims and objectives
The Committee has responsibility for determining the overall
remuneration policies and practices within GRC International Group
plc, taking into account applicable laws, regulations and the
principles of good governance. In particular, the Committee is
responsible for:
– Setting the remuneration policy for all Executive Directors.
– Approving their remuneration packages.
– Reviewing the ongoing appropriateness and relevance of the
remuneration policy.
– Reviewing and approving the overall remuneration spend (fixed
and variable) to ensure that evidence exists to demonstrate that
awards have been adjusted where appropriate for risk and will not
limit the ability to strengthen the capital base.
– Approving the design of, and determining targets for, all
performance-related incentive plans operated by the Group and
approving the total annual payments made under such plans.
– Reviewing the design of all share incentive plans for approval by
the Board and shareholders. For plans such as these, the
Committee will make recommendations to the Board on
proposals for the granting of share options, and other equity
incentives, pursuant to any employee share option scheme or
equity incentive plans in operation from time to time.
The Committee’s Terms of Reference can be obtained
from the Company Secretary on application via
https://www.grci.group/contact.
In exercising their roles, the Directors shall have regard to the
recommendations put forward in the QCA Code and, where
appropriate, the QCA Remuneration Committee Guide and
associated guidance.
Committee membership, meetings and
attendance
Membership
The Committee comprises two Non-Executive Directors:
– Ric Piper (Chairman of the Committee and independent
Non-Executive Director); and
– Andrew Brode (Chairman of the Board).
The Chief Executive Officer and the Finance Director only attend
meetings by invitation from the Committee, but may not be present
when their own remuneration is being discussed.
Meetings and attendance
The Remuneration Committee met once during the year ended
31 March 2020. The attendance at the Remuneration Committee
meetings is set out in the following table.
Andrew Brode
Ric Piper
1/1
1/1
In the context of the early months’ impact of COVID-19 on the
Group’s operations and performance, the Committee has yet to
consider and determine the annual bonus scheme for the Executive
Directors for the year to 31 March 2021.
Remuneration policy objectives
The main objective of the Committee is to ensure that the
Company’s policy:
– Attracts, motivates and retains executives in order to deliver
the Group’s strategic goals and business outputs.
– Encourages and supports a high-performance sales and
service culture.
– Adheres to the principles of good corporate governance and
appropriate risk management.
– Aligns executives with the interests of shareholders and other
key stakeholders.
We remain committed to a remuneration policy that rewards high
individual performance to drive strong results.
Basic salary
The basic salaries of the Group’s Executive Directors will be
reviewed on an annual basis. The Committee seeks to establish a
basic salary for each position commensurate with the individual’s
responsibilities and performance, taking into account comparable
salaries for similar companies of a similar size in the same market.
GRC International Group plc Annual Report and Accounts 2020
39
RemUNeR ATION COmmIT Tee RepOR T CONTINUED
Directors’ remuneration
The remuneration of each of the Directors during the year ended 31 March 2020 has been audited as part of the financial statements and is
set out in detail below:
Directors remuneration for the year ended 31 March 2020
£000s
Andrew Brode
Alan Calder
Christopher Hartshorne
Stephen Watkins
Neil Acworth
Ric Piper
Directors remuneration for the year ended 31 March 2019
£000s
Andrew Brode
Alan Calder
Christopher Hartshorne
Stephen Watkins
Neil Acworth
Ric Piper
Salary
and fees
All taxable
benefits
Annual
bonuses
Pension
–
220
110
115
113
35
–
–
–
–
–
–
–
–
–
–
–
–
–
33
1
1
1
–
Salary
and fees
All taxable
benefits
Annual
bonuses
Pension
–
220
105
115
110
35
–
–
–
–
–
–
–
–
–
–
–
–
–
33
1
1
1
–
Total for the
year ended
31 March
2020
–
253
111
116
114
35
Total for the
year ended
31 March
2019
–
253
106
116
111
35
The Executive Directors have entered into a service agreement with
the Company. Each Director’s appointment will be terminable on six
months’ notice given by either party and summarily by the Company
in certain limited circumstances. Each Director has given certain
non-compete and non-solicitation undertakings which will apply
during his engagement and in respect of the period of 12 months
post termination.
Following admission, further options, in addition to those referred
to above, were limited to a further 10% of the nominal value of the
shares in issue at 6:00 p.m. (London time) on the date which is three
business days following Admission. Options granted following
Admission are subject to standard performance conditions, as
determined and recommended by the Remuneration Committee in
accordance with the plan rules.
Share-based incentive schemes
In order to align the interests of shareholders and employees
following admission, the Company adopted a new employee share
option scheme, as further detailed in the Group’s AIM admission
document which is available on the Group’s website
at https://www.grci.group/investors.
Share options held at 31 March 2020 are set out below:
Steve Watkins
Neil Acworth
Chris Hartshorne
Exercise
price (pence
per share)
Total
exercise
value
–
12.71474
42.85714
–
£45,000
£135,000
Shares
–
353,920
315,000
Options held by Steve Watkins and Neil Acworth had fully vested
and were exercisable from the date of admission to AIM, being a
direct replacement of already vested options previously held. In the
case of Chris Hartshorne, 50% of the options vested and became
exercisable from the date of admission to AIM.
Steve Watkins exercised options over 1,680,000 ordinary shares of
0.1 pence in the Company ("Ordinary Shares") at a price of 0.31429
pence per share, with 898,646 Ordinary Shares being immediately
sold at a price of 13 pence per Ordinary Share to cover a personal
tax liability. Both transactions took place on 31 January 2020.
Directors’ share interests are set out below:
Alan Calder
Calder family
(including Alan’s shares above)
Andrew Brode
Steve Watkins
Neil Acworth
Ric Piper
Chris Hartshorne
29,822,461 shares (29.95%)
31,049,218 shares (31.18%)
13,972,108 shares (14.03%)
4,542,282 shares (4.56%)
1,245,465 shares (1.25%)
319,231 shares (0.32%)
11,760 shares (0.01%)
On 20 February 2020, Andrew Brode purchased 2,692,308 ordinary
shares. On 20 February 2020, Alan Calder purchased 603,393
ordinary shares. On 20 February 2020, Steve Watkins purchased
115,385 ordinary shares. On 20 February 2020, Neil Acworth
purchased 115,385 ordinary shares. On 20 February 2020, Ric Piper
purchased 269,231 ordinary shares.
On 10 April 2019, ITG Pension Fund, a self-invested personal pension
scheme for the benefit of Alan Calder and his wife, purchased
3,500 ordinary shares.
Other benefits
Depending on the exact terms of each individual Executive Director’s
service contract with GRC International Group plc, they are entitled
to a range of benefits including contributions to pension schemes.
40
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
Non-Executive Directors
The Group has two Non-Executive Directors: Andrew Brode, the
Chairman and Ric Piper. Both Non-Executive Directors have letters
of appointment, initially for a three-year period, to be reviewed
annually thereafter.
The Non-Executive Directors’ letters of appointment do not provide
specifically for any termination payments, although the Group
might make payments in lieu of notice. Non-Executive Director
fees are determined by the Executive Directors, having regard
to the requirement to attract high calibre individuals with the
right experience, the time requirements and the responsibilities
incumbent on an individual acting as a Non-Executive Director for a
company, such as GRC International Group plc, admitted to trading
on AIM. The Non-Executive Directors are not eligible for annual
discretionary bonuses and do not participate in the Group’s
long-term incentive plans.
At his request, the Chairman does not receive a Director’s fee or
other remuneration.
Ric Piper receives an annual fee of £35,000, paid monthly in arrears.
Evaluation of the Committee
There is nothing to report to shareholders.
Approval
This report was approved by the Committee, on behalf of the Board,
and signed on its behalf by:
Ric Piper
Chair of the Remuneration Committee
GRC International Group plc Annual Report and Accounts 2020
41
DIReC TORS’ RepOR T
The Directors present their annual report on the affairs of the
Group, together with the financial statements and Auditor’s Report,
for the year ended 31 March 2020. The Corporate Governance
Statement set out on pages 28 and 29 forms part of this report.
There have been no significant events since the balance sheet date.
An indication of likely future developments in the business of the
Company are included in the Strategic Report.
Directors
The Directors, who served throughout the year, are as follows:
– Andrew Brode – Non-Executive Chairman
– Alan Calder – Chief Executive Officer
– Christopher Hartshorne – Finance Director
– Stephen Watkins – Executive Director
– Neil Acworth – Chief Information Officer
– Ric Piper – Independent Non-Executive Director
Information about the use of financial instruments by the
Company and its subsidiaries is given in notes 19 and 20 to the
financial statements.
Capital structure and dividends
The board is not proposing a dividend for the year.
Details of the authorised and issued share capital, together with
details of the movements in the Company’s issued share capital
during the year are shown in note 2 to the financial statements.
The Company has one class of ordinary shares which carry no right
to fixed income. Each share carries the right to one vote at general
meetings of the Company.
There are no specific restrictions on the size of a holding nor on the
transfer of shares, which are both governed by the general
provisions of the Articles of Association and prevailing legislation.
The Directors are not aware of any agreements between holders of
the Company’s shares that may result in restrictions on the transfer
of securities or on voting rights.
Details of employee share schemes are set out in note 26 to the
financial statements.
No person has any special rights of control over the Company’s
share capital and all issued shares are fully paid.
With regard to the appointment and replacement of Directors,
the Company is governed by its Articles of Association, the
Companies Act and related legislation. The Articles themselves may
be amended by special resolution of the shareholders. The powers
of Directors are described in the Main Board Terms of Reference,
copies of which are available on request, and the Corporate
Governance Statement on pages 28 and 29.
Under its Articles of Association, the Company has authority to issue
up to 10% of issued share capital.
Directors’ indemnities
The Company has made qualifying third-party indemnity provisions
for the benefit of its Directors which were made during the year and
remain in force at the date of this report.
Employee consultation
The Group places considerable value on the involvement of its
employees and has continued to keep them informed on matters
affecting them as employees and on the various factors affecting
the performance of the Group. This is achieved through formal and
informal meetings, the Company magazine and a special edition
for employees of the annual financial statements. Employee
representatives are consulted regularly on a wide range of matters
affecting their current and future interests. The employee share
scheme has been running successfully since its inception on
12 February 2018. Options can be granted to any employee or
Director within the Group. The Board may set performance or time
conditions for vesting. The option holder indemnifies the Company
against income tax and national insurance. Options are normally
exercisable after they have vested. In addition, all employees receive
an annual bonus related to the overall profitability of the Group.
R&D activity
Research activity is expensed through the income statement as it is
incurred. At the point where all relevant recognition criteria are met
the expenditure incurred on internally guaranteed intangible fixed
assets, where relevant to development activity, is capitalised in line
with the Group’s accounting policy.
Auditor
Each of the persons who is a Director at the date of approval of this
annual report confirms that:
– so far as the Director is aware, there is no relevant audit
information of which the Group’s auditor is unaware; and
– the Director has taken all the steps that he/she ought to have
taken as a Director in order to make himself/herself aware of any
relevant audit information and to establish that the Group’s
auditor is aware of that information.
The Directors’ Report was approved by the Board of Directors and
signed on its behalf.
Alan Calder
Director
25 September 2020
42
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
S TATeme NT OF DIReC TORS’ ReSp ONSIBIl ITIe S
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company, and enable them to ensure
that the financial statements comply with the requirements of the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Group, and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for ensuring the Annual Report and
the financial statements are made available on a website. Financial
statements are published on the Group’s website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Group’s website is the responsibility of the Directors.
The Directors’ responsibility also extends to the ongoing integrity
of the financial statements contained therein.
BDO LLP has expressed their willingness to continue in office as
auditor and a resolution to reappoint them will be proposed at the
forthcoming AGM.
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 period. Under that law the Directors
have elected to prepare the Group’s Consolidated Financial
Statements in accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the European Union and the
Company’s Financial Statements in accordance with United
Kingdom generally accepted accounting practice (United Kingdom
accounting standards and applicable law).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group for that period. The Directors are also
required to prepare financial statements in accordance with the
rules of the London Stock Exchange for companies trading securities
on the AIM.
In preparing these financial statements, the Directors are
required to:
– select suitable accounting policies and then apply them
consistently;
– make judgements and accounting estimates that are reasonable
and prudent;
– state whether they have been prepared in accordance with IFRS
as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements;
and
– prepare the financial statements on a going concern basis unless
it is inappropriate to presume that the Group will continue in
business.
GRC International Group plc Annual Report and Accounts 2020
43
INDepe NDe NT AUDITOR'S RepOR T TO THe
memBeRS OF GRC INTe RNATIONAl GROU p pl C
Opinion
We have audited the financial statements of GRC International Group Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the
year ended 31 March 2020 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income,
the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the
Company Balance Sheet and notes to the Consolidated and Parent Company 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 Disclosure 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 March 2020 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.
Material uncertainty related to going concern
We draw attention to note 1 to the financial statements which states that the ability of the Group and Parent Company to continue as a
going concern is reliant upon both the continuing recovery of the trading performance following the onset of the effects of the COVID-19
pandemic and the ability to continue to defer settlement of unpaid HMRC liabilities that are past due, with no formal arrangement in place.
If the deferred liabilities are demanded in full and the effect of COVID-19 on future trading is more prolonged or severe than the Directors’
expectations, the two events combined would impact the Group’s ability to generate sufficient positive cashflows and the Parent Company
would be required to raise additional funding in order to meet its liabilities, with no guarantee such funding would be secured.
These conditions indicate a material uncertainty exists that may cast significant doubt on the Group’s and Parent Company’s ability to
continue as a going concern. Our opinion is not modified in respect of this matter.
Given the conditions and uncertainties noted above, we considered going concern to be a key audit matter. We have performed the
following work as part of our audit:
• we examined the terms of the Group’s borrowing arrangements and made enquiries as to the Group’s repayment plans for certain other
liabilities which had not been settled during the COVID-19 pandemic;
• we critically assessed Management’s financial forecasts and the underlying key assumptions, including operating and capital
expenditure. In doing so, we considered factors such as whether the forecast operating expenditure is reasonable in light of historic
spend;
• we reviewed the mathematical accuracy of the going concern model prepared by Management and the underlying calculations used
within it;
• we considered the possible courses of action HMRC may take in relation to amounts that have not been settled by their due dates and in
respect of which no repayment plan has been agreed;
• we compared data on the Group’s expected cash outflows in relation to its liabilities as at the last practical date for which information
was available post year end to the forecast trading scenarios and sensitivity analysis used by the Directors to assess the Group’s and
Parent Company’s ability to meet its financial obligations over a period of at least 12 months after the approval of these financial
statements;
• we gained an understanding of the Directors’ plans for cost reduction measures in the event that revenue levels were not sustained at a
level that would enable the Group’s operations to generate sufficient positive cash flows; and
• we evaluated the adequacy of disclosure made in the financial statements in respect of going concern.
44
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and in 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.
Revenue recognition
Key Audit Matter
The Group’s accounting policy for revenue recognition is disclosed on page 55 and the financial
statements disclose further detail concerning the Group’s revenues in note 2.
The Group’s revenue of £14.1m (2019: £15.8m) is generated from a number of different revenue
streams. We evaluated in our planning the risks we expected would be present across revenue as a
whole, as well as the risks specific to each stream.
We considered that a significant risk of material misstatement existed in all revenue streams, in relation
to the possibility of overstatement. We formed this assessment having considered the susceptibility of
the financial statements to fraud risks and we identified that the risk was most likely to present itself in
the Consultancy and Software revenue streams in the non-deferral of revenues invoiced pre year end
but earned post year end, because of the nature of the Group’s contracts and invoicing arrangements.
Whilst considered less susceptible to errors of judgement, we also considered cut off in other revenue
streams such as in Learning and Publishing/Distribution to pose a significant risk of material
misstatement.
How we addressed the
matter in our audit
Our procedures across revenues as a whole included testing of supporting documentation including
contracts, records of delivery or of performance of the service, from sources outside the Group or
from systems independent of the Group’s accounting systems.
Our work was planned to ensure we tested both information in the accounting system as well as
outside of the accounting system in such a way as to ensure that revenues existed and where
appropriate the relevant proportion of amounts invoiced prior to the year end were deferred in
to future periods where performance obligations had not been fully satisfied.
For each stream we performed cut off testing, agreeing relevant documentation as set out above to
ledger entries, based on a representative sample of revenues invoiced pre-year end and post-year end.
Using data interrogation software, we conducted a targeted procedure on journal entries posted to
revenue to enable us to confirm that entries recorded in revenue arose from transactions that existed,
by analysing the types of entries made and the method in which they were recorded.
Key observations
Nothing has come to our attention as a result of performing the above procedures that causes us to
believe that a material misstatement is present in respect of revenue recognition.
Impairment of goodwill and intangible assets
Key Audit Matter
The Group’s accounting policy for impairment is disclosed on page 59 and the financial statements
disclose further detail concerning the Group’s impairment testing in notes 10 and 11.
In accordance with IAS 36, goodwill is tested for impairment annually and other non-current tangible
assets with finite lives are tested for impairment whenever an indicator of impairment arises.
The Group’s goodwill balance attaches only to the DQM cash generating unit (“CGU”), along with the
Group’s acquired finite-lived intangible assets. The Group’s internally-generated intangible assets
attach only to the GRC cash generating unit.
Having identified indicators of impairment in the GRC CGU, management performed impairment tests
on a value in use basis in respect of both of the Group’s CGUs. The preparation of impairment tests
under IAS 36 requires significant management judgement over the timing and degree of certainty
attaching to forecast net cash flows and the rate at which those future cash flows should be discounted
to present value. The degree of management judgement involved and the sensitivity of the conclusion
to changes in key assumptions was the driver for us assessing this area to be significant in our audit.
The recoverable amount of both of the Group’s CGUs was assessed as being higher than its carrying
value at the reporting date and therefore, management concluded that the goodwill and intangible
assets were not impaired at the reporting date.
GRC International Group plc Annual Report and Accounts 2020
45
INDepe NDe NT AUDITOR'S RepOR T CONTINUED
How we addressed the
matter in our audit
Our work on the impairment tests prepared by management had a dual focus: firstly, to ensure the
models were mechanically accurate and prepared in accordance with the detailed requirements of
IAS36 and secondly, to ensure that the assumptions regarding future cash flows and the rate at which
they had been discounted were appropriate to the respective CGUs’ circumstances.
We used internal valuations specialists in order to assist with our interrogation of the impairment
testing models. This work also included comparison to industry data, historic trading, and macro-
economic factors.
Our audit procedures relating to the review of operating cash flows included analysis of CGU
performance trends, post year end performance and key assumptions relating to revenue levels and
projected operating cost levels.
We examined development cost intangible assets to determine that no additional impairment
indicators in respect of specific assets within the CGU were present.
Key observations
Nothing has come to our attention as a result of performing the above procedures that causes us to
believe that a material misstatement is present in respect of impairment of goodwill and intangible
assets. The related disclosures in the financial statements are appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning,
we consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of
reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that
any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take into account the nature of
identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as
a whole.
level of
materiality
applied and
rationale
We considered revenue to be the most appropriate performance measure for the basis of materiality in respect of the
audit of the Group as this measure reflects the volume of business undertaken by the Group, which is a critical driver
for the Group at this stage in its life cycle. Using this benchmark, we set materiality at £230,000 (2019: £233,500),
being 1.6% (2019: 1.5%) of revenue.
Materiality in respect of the audit of the Parent Company has been set at £171,000 (2019: £200,000) based on a similar
percentage of total assets, on the basis that the Parent Company is primarily an investment entity.
Performance materiality was set at 62.5% (2019: 62.5%) of materiality for both the Group and Parent Company audits.
In setting the level of performance materiality, we considered a number of factors including the expected total value
of known and likely misstatements and the extent to which we expected to use sampling in our audit approach.
Component
materiality
The significant components comprise two UK trading subsidiaries and the Parent Company. We set materiality for the
significant component trading subsidiaries at a level commensurate with the component’s own revenues, again
adopting 1.6% (2019: 1.5%) of subsidiary revenues as our benchmark. The materiality of the Parent Company has been
set as explained above.
In the audit of each component, we further applied a performance materiality level of 62.5% (2019: 65%) of the
component materiality to our testing to ensure that the risk of errors exceeding component materiality was
appropriately mitigated.
Agreement
with the
Audit
Committee
We agreed with the Audit Committee that we would report to the Committee all audit differences individually in
excess of £5,700 (2019: £5,800). We also agreed to report differences below this threshold that, in our view, warranted
reporting on qualitative grounds.
46
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
An overview of the scope of our audit
We identified three significant components in the Group as explained above, which were subject to full scope audits. Excluding dormant
subsidiaries, we assessed seven group companies (five UK subsidiaries and two overseas subsidiaries) as non-significant components on
the grounds of their size and assessed risk of material misstatement to the Group financial statements. We performed targeted audit
procedures on one overseas non-significant component according to our assessment of audit risk across the Group, as well as analytical
procedures on the remaining non-significant components. The Group audit team was responsible for the component audits of all
significant components and the procedures performed in relation to non-significant components. The coverage we obtained over the
Group’s loss before tax, revenue and total assets is summarised as follows:
7%
Revenue
93%
8%
Loss
before
tax
92%
10%
Total
assets
90%
Full audit scope
Analytical and other
procedures at Group level
Full audit scope
Analytical and other
procedures at Group level
Full audit scope
Analytical and other
procedures at Group level
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.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in
our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the Parent Company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 43, 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.
GRC International Group plc Annual Report and Accounts 2020
47
INDepe NDe NT AUDITOR'S RepOR T CONTINUED
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Tim Neathercoat (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
25 September 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
48
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
CONSOlIDATe D INCOme S TATeme NT
FOR THE YE AR ENDED 31 MARCH
Revenue
Cost of sales
Gross profit
Administrative expenses:
– Other administrative expenses
– Share-based payment charge
– Exceptional administrative expenses
Total administrative expenses
Other operating income
Operating loss
Net finance costs
Share of post-tax loss of equity accounted joint ventures
Loss before taxation
Taxation
Loss for the financial year
Loss for the financial year attributable to:
Equity shareholders of the parent
Basic loss per share (pence)
Diluted loss per share (pence)
All of the Group’s loss relates to continuing operations.
The accompanying accounting policies and notes form an integral part of these financial statements.
CONSOlIDATe D S TATeme NT OF COmpReHe NSIve INCO me
FOR THE YE AR ENDED 31 MARCH
Loss for the year
Other comprehensive loss – items that may subsequently be reclassified to profit/loss:
Exchange differences on translation of foreign operations
Other comprehensive loss for the financial year, net of tax
Total comprehensive loss for the financial year
Total comprehensive loss to equity shareholders of the parent
The accompanying accounting policies and notes form an integral part of these financial statements.
Notes
2
3
4
6
13
7
8
8
2020
£’000
14,146
(6,082)
8,064
(11,230)
–
(358)
(11,588)
99
(3,425)
(222)
(4)
(3,651)
445
(3,206)
(3,206)
(4.67)
(4.67)
2020
£’000
(3,206)
(6)
(6)
(3,212)
(3,212)
2019
£’000
15,849
(7,295)
8,554
(13,716)
(63)
(164)
(13,943)
32
(5,357)
(8)
(1)
(5,366)
(29)
(5,395)
(5,395)
(9.30)
(9.30)
2019
£’000
(5,395)
(7)
(7)
(5,402)
(5,402)
GRC International Group plc Annual Report and Accounts 2020
49
CONSOLIDATED BAL ANCE SHEE T
AS AT 31 MARCH
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Investments in equity-accounted joint ventures
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash at bank
Current tax
Current liabilities
Trade and other payables
Borrowings
Contingent consideration
Lease liabilities
Current tax
Net current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Deferred tax liability
Net assets
Equity
Share capital
Share premium
Merger reserve
Share-based payment reserve
Capital redemption reserve
Translation reserve
Accumulated deficit
Total equity
Notes
2020
£’000
2019
£’000
10
11
12
13
7
14
15
16
17
18
19
22
7
18
22
7
24
6,804
5,706
783
7
144
13,444
61
2,247
245
76
2,629
(3,629)
(1,446)
(100)
(201)
–
(5,376)
(2,747)
(401)
(286)
(582)
(1,269)
9,428
100
13,182
4,276
171
–
(12)
(8,289)
9,428
6,693
5,760
489
10
144
13,096
64
2,904
639
–
3,607
(4,367)
(521)
(3,747)
(6)
(433)
(9,074)
(5,467)
–
–
(273)
(273)
7,356
64
9,588
2,353
440
–
(6)
(5,083)
7,356
The financial statements were approved by the Board of Directors and authorised for issue on 25 September 2020 and were signed on its
behalf by:
Chris Hartshorne
Director
Company registration number: 11036180
The accompanying accounting policies and notes form an integral part of these financial statements.
50
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
CONSOlIDATe D S TATeme NT OF CHANGeS IN e QUIT Y
FOR THE YE AR ENDED 31 MARCH
For the year ended 31 March 2020
Balance at 1 April 2019
Loss for the year
Foreign exchange difference on consolidation
Total comprehensive loss for the year
Deferred tax on share-based payments
Shares issued
Cost of share issue
Transactions with owners
At 31 March 2020
For the year ended 31 March 2019
Balance at 1 April 2018
Adjustment on initial application of IFRS 15
(net of tax)
Adjusted balance at 1 April 2018
Loss for the year
Foreign exchange difference on consolidation
Total comprehensive loss for the year
Share-based payment expense
Deferred tax on share-based payments
Shares issued
Cost of share issue
Transactions with owners
At 31 March 2019
Share
capital
Share
premium
£
64
–
–
–
–
36
–
36
£
9,588
–
–
–
–
3,725
(131)
3,594
100
13,182
Merger
reserve
£
2,353
–
–
–
–
1,923
–
1,923
4,276
Share-based
payment
reserve
Retained
earnings
Translation
reserve
Capital
redemption
reserve
£
440
–
–
–
(269)
–
–
(269)
£
(5,083)
(3,206)
–
(3,206)
–
–
–
–
£
(6)
–
(6)
(6)
–
–
–
–
171
(8,289)
(12)
£
–
–
–
–
–
–
–
–
–
Share
capital
£
57
–
57
–
–
–
–
–
7
–
7
64
Share
premium
£
4,793
–
4,793
–
–
–
–
–
4,995
(200)
4,795
9,588
Merger
reserve
£
Share-based
payment
reserve
£
Retained
earnings
£
Translation
reserve
£
Capital
redemption
reserve
£
–
–
–
–
–
–
–
–
2,353
–
2,353
2,353
628
–
628
–
–
–
63
(251)
–
–
(188)
440
421
(109)
312
(5,395)
–
(5,395)
–
–
–
–
–
(5,083)
1
–
1
–
(7)
(7)
–
–
–
–
–
(6)
–
–
–
–
–
–
–
–
–
–
–
Total
£
7,356
(3,206)
(6)
(3,212)
(269)
5,684
(131)
5,284
9,428
Total
£
5,900
(109)
5,791
(5,395)
(7)
(5,402)
63
(251)
7,355
(200)
6,967
7,356
The accompanying accounting policies and notes form an integral part of these financial statements.
GRC International Group plc Annual Report and Accounts 2020
51
CONSOlIDATe D S TATeme NT OF C A SH FlOWS
FOR THE YE AR ENDED 31 MARCH
Cash flows from operating activities
Loss before tax
Depreciation
Amortisation
Share-based payment expense
Foreign exchange gains
Share of post-tax profits of equity accounted joint ventures
Finance income
Finance costs
Operating cash flows before changes in working capital
Decrease in inventories
Decrease in trade and other receivables
Decrease in trade and other payables
Net cash outflow from operating activities
Cash flows from investing activities
Settlement of contingent consideration
Acquisition of subsidiary, net of cash acquired
Purchase of intangible assets
Purchase of plant and equipment
Sale of plant and equipment
Acquisition of joint venture investment
Interest received
Net cash outflow from investing activities
Net cash flows from financing activities
Proceeds from issue of shares
Costs of share issue
Repayment of acquired contingent consideration liability
Proceeds from borrowings
Repayment of borrowings
Interest paid
Interest on lease liability on right of use asset
Payments of lease liabilities on right of use asset
Capital element of finance lease payments
Net cash inflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of financial year
Comprising
Cash at bank
Bank overdraft
Cash at bank
The accompanying accounting policies and notes form an integral part of the financial statements.
Notes
11
19
11
24
19
18
18
18
22
22
16
18
2020
£’000
2019
£’000
(3,651)
386
1,180
–
(22)
4
–
222
(1,881)
3
625
(815)
(2,068)
(1,626)
–
(1,124)
(11)
–
–
–
(2,761)
3,750
(130)
(100)
2,356
(568)
(134)
(60)
(181)
(6)
4,927
98
147
–
245
245
–
245
(5,366)
183
611
63
(5)
1
(2)
10
(4,505)
12
498
(660)
(4,655)
–
(2,513)
(2,289)
(234)
8
(11)
2
(5,037)
5,000
(200)
(450)
–
(52)
(9)
–
–
(8)
4,281
(5,411)
5,558
–
147
639
(492)
147
52
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
NATURe OF O peR ATIONS AND GeNe R Al INFOR mATION
GRC International Group plc (GRC International Group or "the Company") is a public limited company limited by shares, incorporated and
domiciled in England and Wales. The registered company number is 11036180 and the registered office is Unit 3 Clive Court,
Bartholemew’s Walk, Cambridgeshire Business Park, Ely, Cambridgeshire, CB7 4EA.
The principal activities of GRC International Group plc and its subsidiary companies (together, the “Group”) are those of a one-stop shop
for IT Governance including books, tools, learning and consultancy services.
Principal accounting policies
Basis of preparation and consolidation
The consolidated financial statements of GRC International Group plc and entities controlled by the Company (its subsidiaries) for the
years presented has been prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the EU, and
IFRIC interpretations.
The Directors of GRC International Group are responsible for the financial information and contents of the consolidated financial statements.
The results for the year ended 31 March 2020 and 31 March 2019 include the results of GRC International Group plc and its subsidiaries.
A subsidiary is a company controlled directly by the Group. Control is achieved where the Group has the power over the investee, rights
to variable returns and the ability to use the power to affect the investee’s returns.
Income and expenses of subsidiaries acquired during the year are included in the Consolidated Income Statement from the effective date
of control. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line
with those used by the Group.
All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation.
All accounting policies disclosed below apply to the Group for the years presented, unless otherwise explicitly stated.
IFRS is subject to amendment and interpretation by the IASB and the IFRS Interpretations Committee, and there is an ongoing process of
review and endorsement by the European Commission. These accounting policies comply with each IFRS that is mandatory for accounting
periods ending on 31 March 2020.
The consolidated financial statements have been prepared on a historical cost basis, except for the measurement of the contingent
consideration which is carried at its fair value.
The principal accounting policies adopted are set out below.
Going concern
The Group has recorded a loss for the year of £3.2m (2019: £5.4m) and at 31 March 2020 its current liabilities (excluding deferred income)
exceeded its current assets by £1.9m (2019: £4.5m). Notwithstanding this, the Directors consider it appropriate to prepare the financial
statements on a going concern basis. The key considerations relating to this judgement are described below.
During FY20 the Group significantly restructured its operations, including reducing its cost base. Of the loss for the year of £3.2m, £2.2m
(69%) was incurred in H1 and £1.0m in H2 the Group was EBITDA positive in 5 out of the 6 months, with the only exception being known
seasonality in the month of December as our customers' businesses wind down for the Christmas period. Also, during H2 the Group
successfully completed a placing of new shares which raised £3.75m (approximately £3.5m net of fees) enabling the Group to settle the
cash element of the contingent consideration (£1.6m) due to the vendors of DQM, acquired in March 2019, and repaying a bank borrowing
facility (£0.5m). The remainder of the funds raised provided additional working capital for the Group to strengthen the overall balance
sheet position.
Having been through a transitional year the Group was looking forward to a strong FY21, continuing its H2 FY20 momentum and
anticipating profitable results for the year. However, the global COVID-19 pandemic led to an immediate reduction in monthly billings as
customers delayed projects, reduced spend seen as not immediately critical to day-to-day operations and focussed on establishing new
business processes and procedures to survive the short term. This unprecedented trading environment resulted in a reduction in revenues
and the net result for April and May 2020, followed by a recovery towards pre-COVID-19 levels of revenue and profitability in June prior to
a flattening out of trading levels over July and August 2020 as is the traditional pattern in the Group's annual cycle.
In response to the pandemic the Board revisited its FY21 and FY22 forecasts, increased the regularity of its short and medium term cash
flow planning, implemented a number of key cost reduction measures and took advantage of government initiatives that have been
introduced in the geographies that the Group operates in order to preserve liquidity, supplemented by deferring the payment of certain
liabilities to HMRC.
GRC International Group plc Annual Report and Accounts 2020
53
NATURe OF O peR ATIONS AND GeNe R Al INFOR mATION CONTINUED
Going concern continued
Notably; the Group has made savings in marketing costs, property and training venue costs, and continues to rationalise IT infrastructure.
Having extended the hiring freeze the Group is continuing to see payroll costs reduce. In particular, early progress on the integration
of DQM with the rest of the GRC group enabled one of the founder directors to take early retirement and the other to reduce workload
by 60%; and these savings (c. £0.2m annualised) became effective from 1 April 2020. Furthermore, IT Governance USA Inc. qualified for
a $0.1m loan through the Paycheck Protection Programme (PPP) which should qualify in due course for forgiveness. The Group also
deferred certain liabilities payable to HMRC amounting to approximately £1.0m, representing a rolling 3-4 months of the Group's monthly
liability, which the Group has scheduled to repay both in the base case and worst case forecast on an instalment basis commencing from
April 2021.
Despite the drop in monthly billings the Group has focused operationally on developing new products and services and redesigning
existing ones such that all products and services can be delivered remotely or in person as customer preference and rapidly changing
regulation and guidance dictate. As evidenced by the early months of FY21, the Directors believe the Group is in a strong position to
continue to support its customers and deliver services in a rapidly changing environment and is well placed to benefit from the need for
organisations to change their business processes in a cyber secure and regulatory compliant manner.
Notwithstanding some easing of trading conditions and subsequent improvement in performance since the outbreak of the global
pandemic reached the United Kingdom (which represents around 93% of the Group's revenue in FY20), the Directors acknowledge that
trading conditions will necessarily remain uncertain for the foreseeable future. Those uncertainties having effect include:
• The possibility of further local or another national "lockdown".
• The levels of revenue in the context of weakened demand for the Group's products and services.
• Should the Group need to reduce its scalable cost base, its ability to make those adjustments and realise the benefits from doing that on
a timely basis.
• The continued access to financing, including government support in its various forms, that would be sufficient to fund any further cash
requirement over the foreseeable future
To assess going concern the Directors have prepared an integrated profit and loss, balance sheet and cash flow forecast by month to
31 March 2022 (the 'base case forecast'). A key assumption to the base case forecast is that the level of business interruption caused by the
pandemic would gradually ease over the summer with a resumption of more normal pre-COVID-19 levels of billings from September 2020
onwards, though still notably lower than originally budgeted prior to the impact of COVID-19 . The Group's base case forecast identifies
that through the going concern review period the Group is able to meet its liabilities as they fall due subject to settlement of the
outstanding HMRC liabilities from April 2021 onwards.
Additionally, the Directors have prepared a sensitised forecast to the base case forecast where if the COVID-19 pandemic was more
prolonged than currently envisaged by the Directors (the 'worst case forecast'). This worst case forecast assumes that revenues between
September 2020 and March 2022 are 30% below the base case and cost reduction measures, to reflect the reduced level of billings, have
been effected. The worst case forecast does not identify a potential cash flow shortfall in any month, on the basis that outstanding HMRC
liabilities are capable of being further deferred.
The Directors are monitoring actual business performance and cash flow against the base case forecast. Encouragingly, since the year
end the Group has traded ahead of the expectations set out in the base case forecast and is currently seeing trading almost back at
pre-COVID levels, although behind the growth plans originally budgeted. Furthermore in the view of the Directors any temporary cash
flow shortfall can be mitigated through the deferment or removal of selected planned marketing, capital expenditure and other scheduled
cash outflows.
Based on the base case forecasts (including the currently expected payment profile of the deferred liabilities to HMRC referred to above)
and the medium and longer term planning in place, the Directors have identified that they have a reasonable expectation of being able to
reduce costs sufficiently in the required timeframe should revenue levels reduce by any reasonably foreseeable degree and that the Group
will remain within the currently available facility levels, none of which has any financial covenant compliance requirements. Central to those
facilities is the £700,000 unsecured loan facility provided by Andrew Brode which is at present 50% utilised, and which remains in place
until at least 31 December 2021, although the Group does also have access to additional liquidity through its invoice discounting facility,
which is not currently utilised and is not currently expected to be relied upon in the base case forecast or the short term rolling cash flow
forecast reviewed by the Board.
54
GRC International Group plc Annual Report and Accounts 2020
STRATeGIC RepORT
GOveRNANCe
FINANCIAl STATemeNTS
Nevertheless, in order to trade through the pandemic period without making significant headcount cuts that would have damaged the rate
of the Group's recovery, it was necessary for the Group to defer the HMRC liabilities described above without a formal payment
arrangement being in place. At the time of writing this report the Directors' are confident that these liabilities can be settled in the near
future, and the Group currently has adequate cash and facilities in place to settle the liabilities in full if required. Given Government's clear
advice to HMRC to be supportive of UK businesses and based on the Group's communications with HMRC to date management do not
expect that the immediate need to settle the deferred balance in full is likely. However, in the event that the liabilities are demanded in full
and the effect of COVID-19 on future trading is more prolonged or severe than the Directors' expectations, the two events combined may
impact the Group's ability to generate sufficient positive cashflow to settle future liabilities as they fall due and as a result the Parent
Company would be required to raise additional funding in order to meet its liabilities with no guarantee such funding would be secured.
These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Group's and the Company's
ability to continue as a going concern. Notwithstanding the impact of COVID-19 identified above, the Directors have a reasonable
expectation that the Group will have sufficient cash flow and available resources and if necessary will be able to raise additional funds to
continue operating for at least 12 months from the approval date of these Financial Statements. Accordingly, the Directors continue to
adopt the going concern basis in preparing the Group and the Company Financial Statements.
The financial statements do not include the adjustments that would be required should the going concern basis of preparation no longer
be appropriate.
Revenue
The type of products and range of services sold across the Group fall within the following four revenue streams:
• Consultancy
• Publishing/Distribution
• Learning
• Software
To determine whether to recognise revenue, the Group follows a five-step process:
1. Identifying the contract with a customer
2. Identifying the performance obligations
3. Determining the transaction price
4. Allocating the transaction price to the performance obligations
5. Recognising revenue when/as performance obligation(s) are satisfied.
Revenue is recognised either at a point in time or over time, when the Group satisfies performance obligations by transferring the promised
goods or services to its customer. The Group often enters into transactions involving a range of the Group’s products and services, for
example for the delivery of consultancy, training, software and related after-sales service. In all cases, the total transaction price for a
contract is allocated net of discounts amongst the various performance obligations based on their relative stand-alone selling prices.
The transaction price for a contract excludes any amounts collected on behalf of third parties.
The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these
amounts as deferred income in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives
the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether
something other than the passage of time is required before the consideration is due. In practice, contract assets rarely arise due to the
timing of invoices raised under the terms of the Group’s contracts.
All material contracts which span a financial reporting period will be reviewed on an individual basis with the five-step application of IFRS 15
applied, based upon the type of product sold.
Customer rights to refunds are limited and are not considered material to the financial statements.
GRC International Group plc Annual Report and Accounts 2020
55
NATURe OF O peR ATIONS AND GeNe R Al INFOR mATION CONTINUED
The following chart summarises how the five-step process is applied for each of the four revenue streams:
Products and services
Nature, timing of satisfaction of performance obligations and significant payment terms
Consultancy
– On-site and remote
support consulting
services, helping
organisations to design
and implement data
protection and cyber
security policies and
procedures.
The Group recognises revenue over time as the services in the contract are performed, generally based on the
consultants’ estimate of the progress of the work. Revenue from consultancy services which are either a
performance obligation within a larger arrangement or are sold on a stand-alone basis is generally recognised
over time where the Group agrees to provide labour hours/days. Contracts state a broad list of activities that
the services may include. The contracts state daily/hourly rates and estimated amounts to be billed. Contracts
state that IT Governance will not exceed the total amount without prior written approval.
In cases where contracts are structured on a time basis, the variable amount of the consideration due will be
estimated.
Publishing/ Distribution
– The Group sells books,
documentation templates
and software via its
websites, both that it
publishes or writes itself,
and also supplied by third
parties. The Group also
creates and sells sets of
documentation templates
that are used by customers
to assist them to document
IT systems and procedures.
Learning – The Group sells
“in person” classroom-
based training courses
related to data protection,
cyber security, ISO 27001
certification and related
topics. The courses range
from one to five days in
length and are held at
hired premises. The Group
also provides courses at
customers’ premises for
organisations that require
training for a number of
their employees. The
courses are aimed at
various different areas of
IT governance and at
different skill levels.
Where the performance obligations within an agreement are considered to represent services that are
substantially the same, these will form a single performance obligation with labour days/hours representing the
progress measure. Several contracts define the only obligation as support for customer-led projects, and again
in these cases it will be considered that there is one performance obligation with labour hours being the
progress measure.
Revenue shall be recognised over a time, when the Group’s performance does not create an asset with an
alternative use to the Group and the entity has an enforceable right for performance completed to date. This
is true for all services provided on a time basis. The Group also has an enforceable right for payment for work
completed to date.
The Group recognises revenue at the point in time when control of the asset is transferred to the customer.
The product becomes under the control of the customer when the book/software/toolkit is delivered to them.
This is when the customer has legal title to the asset or has physical possession of the asset.
For the sale of physical soft copy books and CD-ROMs, revenue is recognised when the goods are delivered.
Where a product with a subscription or licence is sold on behalf of a third party the revenue is recognised
straight away as the obligation to fulfil the contract lies with the third party and not the Group. The full cost
of the product sold by the Group in respect of a third-party sale is charged to the Income Statement when
the revenue is recognised.
Revenue is recognised on ‘Classroom Based Training Courses’ and ‘Online Training Courses’ when the customer
obtains control. The product becomes under the control of the customer when they attend the first day of the
Training Course.
Revenue is recognised on ‘Distance Learning Based Training Courses, when the customer gains control. The
product becomes under the control of the customer at the date the online course is made available to them.
Once the course is made available the Group has fulfilled its contractual obligation to deliver. The date the
user accesses and uses the course is not considered relevant.
Revenue is recognised on ‘e-learning Courses’ dependent on the type of service provided. ‘e-learning’ is split
into four types:
• e-Learning Hosting Services – An additional annual fee for LMS (Learning Management System) hosting of
the e-learning courses. Customers are not obliged to but can buy our standard ‘off-the-shelf’ ‘Hosting’ area.
All hosted client courses will be hosted on our LMS. Each client will be given their own space, which can be
branded with their logo and company colours. The e-learning course files hosted on our LMS will be the
same for all clients, and each client will have a space in the course layout to add any extra information they
need, such as documents, links and contact details. Revenue is recognised on ‘e-learning Hosting Services’
over time as the customer has access to the hosting area. Revenue is then pro-rated equally over the period
(normally 12 months) to which the service relates.
• Revenue is recognised on ‘e-learning Courses’ when the customer obtains control. The course becomes
under the control of the customer when the online course is made available to access.
• e-Learning Set Up Costs – Organisations/customers can contract the Group to ‘Customise’ the e-learning
courses to their organisation’s specifications (i.e. company logo/branding etc.). Revenue is recognised on
‘e-learning Set Up Costs’ when the customer obtains control of the course material. The product becomes
under the control of the customer when the online courses are made available to access.
• e-Learning Training – Organisations/customers can contract the Group to provide training for the e-learning
courses. This is a one-off fee and the Training is a pre-agreed number of hours or days as requested by the
customer. Revenue is recognised on ‘e-learning Training’ when the customer gains control. The product
comes under the control of the customer on the first day of the Training Course.
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Products and services
Nature, timing of satisfaction of performance obligations and significant payment terms
Software – The Group
creates and sells software
solutions.
Maintenance and Support
("M&S") arrangements are
usually sold on a stand-
alone basis as a renewal of
an existing arrangement
usually running over a
12-month period.
Generally, the first time
M&S is sold is when the
customer initially buys the
software. There are no
material rights to consider
in connection with renewal
options.
Revenue from the sale of software for a fixed fee is recognised when or as the Group gives access to the
customer to download the software.
Software revenue recognition.
Performance obligations are satisfied at a point in time when the Group has a right to payment for the
software, the customer has legal right to use the software under the terms of the software licence agreement,
and the Group has physically transferred the software to the customer. These criteria are all met at the point in
time that the Group transfers the software.
The Group does not undertake activities which significantly affect the intellectual property post-delivery of the
software which would prevent revenue being recognised at a point in time.
The Group does not provide free Maintenance and Support type services as part of the licensing arrangements.
Revenue from the sale of Maintenance and Support arrangements are always sold on a stand-alone basis or as a
renewal of an existing arrangement usually running over a 12-month period. The technical support and software
updates are distinct. This is because the customer can benefit from the licence with or without the Maintenance
and Support contract.
Technical support: the customer benefits from the technical support as that support is provided. The contracted
support period is generally 12 months, so the customer obtains the benefit over the 12-month period.
Accordingly, it is appropriate to recognise revenue over a 12-month period.
Software updates: all software updates are unspecified within Maintenance and Support arrangements with
updates being made as and when available. The customer will continue to receive updates during the
Maintenance and Support period and accordingly will benefit from the updates as they are provided.
Accordingly, it is appropriate to recognise revenue over a 12-month period.
Exceptional administrative costs
The group presents separately those costs which, by there nature, are material and related to non-routine events such as business
combinations or capital transactions.
Finance income and costs
Interest income and expense is recognised using the effective interest method which calculates the amortised cost of a financial asset or
liability and allocates the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts or payments through the expected life of the financial asset or liability to the net carrying amount of the
financial asset or liability.
Goodwill
Goodwill arising on business combinations is reviewed and tested on an annual basis or more frequently if there is indication that goodwill
might be impaired.
Goodwill is allocated to CGUs, which are determined as the lowest level of detail available for the assets to generate cash inflows relating
to goodwill.
Goodwill represents the future economic benefits arising from business combinations which are not individually identified and separately
recognised.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest
over the net identifiable assets acquired and liabilities assumed. If the consideration is lower than the fair value of the net assets of the
subsidiary acquired, the difference is recognised in profit or loss.
Goodwill is carried at cost less any accumulated impairment losses until disposal or termination of the previous acquired business when the
profit or loss on disposal or termination will be calculated after charging the gross amount at current exchange rates of any such goodwill
through the income statement.
Intangible assets
Acquired intangible assets
An intangible asset is recognised if it is probable that the expected future economic benefits that are attributable to the asset will flow to
the Group and the cost of the asset can be measured reliably.
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Internally developed intangible assets
Expenditure on research activities is recognised as an expense as incurred.
Costs that are directly attributable to a project’s development phase are recognised as intangible assets, provided they meet the following
recognition requirements:
• the development costs can be measured reliably;
• the project is technically and commercially feasible;
• the Group intends to and has sufficient resources to complete the project;
• the Group has the ability to use or sell the software; and
• the software will probably generate future economic benefits.
Development costs not meeting these criteria for capitalisation are expensed as incurred. Directly attributable costs include an
apportionment of employee costs incurred on internal development assets.
Internal development assets include software, website costs, courseware, marketing tools, consultancy products and publishing products.
Subsequent measurement
The useful lives of all intangible assets are assessed as finite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful
life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption
of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method prospectively.
The amortisation expense on intangible assets with finite lives is recognised in the income statement as administrative expenses.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and
the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
Amortisation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Trademarks
Software
Website costs
Marketing tools
Courseware
Publishing products
Consultancy products
Customer relationships
10 years
5 years
5–10 years
3 years
10 years
4 years
10 years
12 years
Customer relationships
Any capitalised internally developed intangible asset that is not yet complete is not amortised but is subject to impairment testing.
Subsequent expenditures on the maintenance of computer software are expensed as incurred.
Acquired customer relationships comprise principally of existing customer relationships which may give rise to future orders (customer
relationships). Acquired customer relationships are recognised at fair value at the acquisition date and are expected to have a finite useful
life of 12 years in line with the expected cash flows. Acquired customer relationships are stated at cost less accumulated amortisation and
impairment.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation less any recognised impairment losses. Cost includes expenditure
that is directly attributable to the acquisition or construction of these items. Subsequent costs are included in the asset’s carrying amount only
when it is probable that future economic benefits associated with the item will flow to the Group and the costs can be measured reliably.
All other costs, including repairs and maintenance costs, are charged to the Income Statement in the period in which they are incurred.
Depreciation is provided on all property, plant and equipment and is calculated as follows:
Leasehold improvements
Computer equipment
Office equipment
10 years straight line basis
25–33% reducing balance basis
25% reducing balance basis
Depreciation is provided on cost less residual value. The residual value, depreciation methods and useful lives are annually reassessed.
Each asset’s estimated useful life has been assessed with regard to its own physical life limitations and to possible future variations in those
assessments. Estimates of remaining useful lives are made on a regular basis for all machinery and equipment, with annual reassessments
for major items. Changes in estimates are accounted for prospectively.
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Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there
is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease
term and their useful lives.
The gain or loss arising on disposal or scrapping of an asset is determined as the difference between the sales proceeds, net of selling costs,
and the carrying amount of the asset and is recognised in the Income Statement.
Impairment of non-financial assets
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units that is expected to benefit from
the synergies of the combination. Each unit to which goodwill is allocated represents the lowest level within the Group that independent
cash flows are monitored. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently
when there is indication that the unit may be impaired.
At each balance sheet date, the Directors review the carrying amounts of the Group’s non-current assets, other than goodwill, to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of
the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are
independent from other assets, the Directors estimated the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset for which the estimated future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the
asset or cash-generating unit is reduced to its recoverable amount. The impairment loss is allocated first to reduce the carrying amount of
any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit.
An impairment loss is recognised as an expense immediately. An impairment loss recognised for goodwill is not reversed in
subsequent periods.
Where an impairment loss on non-financial assets subsequently reverses, the carrying amount of the asset or cash-generating unit is
increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior periods.
A reversal of an impairment loss is recognised in the Income Statement immediately.
Inventory
Inventory is stated at the lower of cost and net realisable value, being the estimated selling price less costs to complete and sell. Cost is
based on the cost of purchase on a weighted average basis.
At the balance sheet date, inventories are assessed for impairment. If inventories are impaired, the carrying amount is reduced to its selling
price less costs to complete and sell. The impairment loss is recognised immediately in profit or loss.
Cash at bank
Cash at bank comprises cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities
of three months or less from inception.
Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.
Financial assets and financial liabilities are measured initially at fair value plus transactions costs. Financial assets and financial liabilities are
measured subsequently as described below.
Recognition and derecognition
Financial assets and financial liabilities 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.
A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. When a financial liability and a financial asset
relating to the same contract exist these are offset.
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).
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Financial assets are classified as "Amortised cost" financial assets.
In the periods presented the Group does not have any financial assets categorised as either FVTPL or FVOCI.
The classification is determined by both:
• The entity’s business model for managing the financial asset.
• The contractual cash flow characteristics of the financial asset.
All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income
or other financial items, except for impairment of trade receivables which is presented within other administrative expenses.
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.
Subsequent measurement of financial assets
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.
Impairment of financial assets
IFRS 9’s impairment requirements use forward-looking information to recognise expected credit losses – the expected credit loss ("ECL")
model. Instruments within the scope of these requirements included loans and other debt-type financial assets measured at amortised
cost, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some financial guarantee
contracts (for the issuer) that are not measured at fair value through profit or loss.
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.
Trade and other receivables and contract assets
The Group makes use of a simplified approach in accounting for trade receivables as well as contract assets and records the loss allowance
as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any
point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-
looking information to calculate the expected credit losses using a provision matrix.
The Group assess impairment of trade receivables on a collective basis and as they possess shared credit risk characteristics they have
been grouped based on the days past due. Refer to note 15 for further details.
Classification and measurement of financial liabilities
The Group’s financial liabilities include trade and other payables, borrowings and contingent consideration.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated
a financial liability at fair value through profit or loss.
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Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for financial liabilities designated
at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss.
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within
finance costs or finance income.
Borrowings
Borrowings, including bank overdrafts, are classified as current liabilities unless the Group has an unconditional right to defer the settlement
of the liability for at least 12 months after the balance sheet date.
Contingent consideration
Contingent consideration is recognised at fair value at the acquisition date and subsequently at FVTPL. Changes in deferred consideration
arising from additional information, obtained within one year of the acquisition date, about facts or circumstances that existed at the
acquisition date, are recognised as an adjustment to goodwill.
Foreign currency
The presentation currency for the Group’s consolidated financial statements is Sterling. Foreign currency transactions by Group companies
are recorded in their functional currencies at the exchange rate at the date of the transaction. Monetary assets and liabilities have been
translated at rates in effect at the balance sheet date, with any resulting exchange adjustments being charged or credited to the Income
Statement, within administrative expenses.
On consolidation the assets and liabilities of the subsidiaries with a functional currency other than Sterling are translated into the Group’s
presentational currency at the exchange rate at the balance sheet date and the Income Statement items are translated at the average rate
for the period. The exchange difference arising on the translation from functional currency to presentational currency of subsidiaries is
classified as other comprehensive income and is accumulated within equity as a translation reserve.
The balance of the foreign currency translation reserve relating to a subsidiary that is disposed of, or partially disposed of, is recognised
in the Income Statement at the time of disposal.
Current taxation
Current taxation for each taxable entity in the Group is based on the local taxable income at the local statutory tax rate enacted or
substantively enacted at the balance sheet date and includes adjustments to tax payable or recoverable in respect of previous periods.
Deferred taxation
Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However, if the deferred tax arises from the initial recognition of an
asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable
profit or loss, it is not accounted for. No deferred tax is recognised on initial recognition of goodwill or on investment in subsidiaries.
Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax liabilities are provided in full, and are not discounted.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Income Statement, except where they relate
to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Employment benefits
Provision is made in the financial statements for all employee benefits. Liabilities for wages and salaries, including non-monetary benefits
and annual leave obliged to be settled within 12 months of the balance sheet date, are recognised in accruals.
Contributions to defined contribution pension plans are charged to the Income Statement in the period to which the contributions relate.
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Leases
For any new contracts entered into on or after 1 April 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as
‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’.
To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:
• the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at
the time the asset is made available to the Group;
• the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use,
considering its rights within the defined scope of the contract;
• the Group has the right to direct the use of the identified asset throughout the period of use. The Group assesses whether it has the right
to direct ‘how and for what purpose’ the asset is used throughout the period of use.
a) measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of use asset is
measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate
of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement
date (net of any incentives received).
The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such
indicators exist.
At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date,
discounted using the interest rate implicit in the lease if that rate is readily available or, if not, the Group’s incremental borrowing rate.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the
following lease payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable;
• variable lease payment that are based on an index or a rate;
• amounts expected to be payable by the lessee under residual value guarantees;
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability;
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs; and
• restoration costs.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect
any reassessment or modification, or if there are changes in substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-
use asset is already reduced to zero.
The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients available under IFRS 16.
Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on
a straight-line basis over the lease term. The expense relating to leases falling within this exemption in the year ended 31 March 2020 was £nil.
b) measurement and recognition of leases as a lessor
Lease payments received under operating leases are recognised as income on a straight-line basis over the lease term as part of ‘other income’.
Equity
Equity comprises the following:
• “Share capital” represents the nominal value of equity shares issued.
• “Share premium” represents amounts subscribed for share capital, net of issue costs, in excess of nominal value.
• “Merger reserve” represents the excess of the fair value of the consideration received for the issue of shares over the nominal value of
shares issued in circumstances where the merger relief provisions of the Companies Act 2006 apply.
• “Share-based payment reserve” represents the accumulated value of share-based payments.
• “Retained earnings” represents the accumulated profits and losses attributable to equity shareholders.
• “Capital redemption reserve” represents the nominal value of shares repurchased by the Parent Company.
• “Translation reserve” represents the exchange differences arising from the translation of the financial statements of subsidiaries into the
Group’s presentational currency.
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Share-based payments
Equity-settled share-based payments to employees and Directors are measured at the fair value of the equity instrument. The fair value
of the equity-settled transactions with employees and Directors is recognised as an expense over the vesting period. The fair value of the
equity instruments is determined at the date of grant, taking into account vesting conditions. The fair value of goods and services received
are measured by reference to the fair value of options.
The fair values of share options are measured using the Black-Scholes model. The expected life used in the model is adjusted, based on
management’s best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award
(the “vesting date”).
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which
the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.
The Income Statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and
end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,
which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or
service conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense
as if the terms had not been modified. An additional expense is recognised for any modification which increases the total fair value of the
share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised
for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement
award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as
described in the previous paragraph.
Where an equity-settled award is forfeited, the cumulative charge expensed up to the date of forfeiture is credited to the Income Statement.
Segment reporting
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses related to transactions with other components of the same entity), whose operating results are regularly
reviewed by the entity’s Chief Operating Decision Maker to make decisions about resources to be allocated to the segment and assess its
performance, and for which discrete financial information is available. The Chief Operating Decision Maker has been identified as the Board
of Executive Directors, at which level strategic decisions are made.
Details of the Group’s reportable operating segments are provided in note 1.
New and amended International Financial Reporting Standards adopted by the Group
The Group has adopted IFRS 16 ‘Leases’ from 1 April 2019 which has changed lease accounting for leases under operating leases. Such
agreements now require recognition of an asset, representing the right to use the leased items, and a liability representing future lease
payments. Lease costs (such as property rent) are recognised in the form of depreciation and interest, rather than as an operating cost.
The Group has adopted the modified retrospective approach with the right of use asset equal to the lease liability at transition date,
adjusted by any prepayments or lease incentives recognised immediately before the date of initial application. Under the modified
retrospective transition approach, the comparative information is not restated.
The Group has elected to apply a single discount rate to assets with similar characteristics.
On transition, the Group adopted the practical expedient to apply IFRS 16 to contracts that were previously identified as leases. The Group
has also elected not to recognise right of use assets and lease liabilities for short-term leases (i.e. lease terms less than 12 months) or low-value
assets (i.e. under £5,000). The Group will continue to expense the lease payments associated with these leases on a straight-line basis over
the lease term.
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leases
The Group leases many assets, including office space and office equipment.
Balance on transition at 1 April 2019
Net book value at 31 March 2020
Property
£’000
664
470
Total
£’000
664
470
Impact on Financial Statements
1) Impact on transition
On transition to IFRS 16, the Group recognised right of use assets and lease liabilities. This impact on transition is summarised below.
Right-of-use assets presented in property, plant and equipment (net of rent incentives)
Lease liabilities
£664,000
£664,000
When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using its
incremental borrowing rate at 1 April 2019. The weighted-average rate applied is 10%.
Operating lease commitment at 31 March 2019 as disclosed in the Group’s consolidated financial statements
Adjustment to operating lease commitment at 31 March 2019
Impact of discounting using the incremental borrowing rates at 1 April 2019
Effect of expected exercise of break clause
Lease liabilities recognised at 1 April 2019
1 April 2019
£’000
(1,025)
(145)
99
407
(664)
2) Impact for the year
As a result of applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Group recognised £664,000
of right of use assets in property, plant and equipment (see note 12) and £664,000 of lease liabilities (see note 22) as at 31 March 2019.
Also, in relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs, instead of operating lease expense.
During the year ended 31 March 2020, the Group recognised £198,000 of depreciation charges and £60,000 of interest costs from those
leases. IFRS 16 had an impact of a decrease in profit before tax of £16,000 but increases our EBITDA by £242,000.
For leases excluded from IFRS 16 under the exemption for leases with terms of less than 12 months, and low-value assets (i.e. under £5,000),
the Group recognised less than £10,000 in rent expense in the period.
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Other new or amended accounting standards
Accounting standard
Requirement
Amendment to IAS 19
‘Employee Benefits’
The amendment clarifies that the current service costs and net interest for the period after a plan amendment,
curtailment or settlement, are determined using the assumptions used for the remeasurement.
Amendment to IAS 28
‘Investments in Associates
and Joint Ventures’
The amendment clarifies the application of IFRS 9 ‘Financial Instruments’ to long-term interests in associates
or joint ventures.
IFRIC 23 ‘Uncertainty over
Income Tax'
The interpretation clarifies the determination of taxable profits or losses, tax bases, unused tax losses or
credits and tax rate, when there is uncertainty over income tax treatments under IAS 12 ‘Income Taxes’.
Amendment to IFRS 9
‘Financial Instruments’
The amendment allows for more assets to be measured at amortised cost, in particular some prepayable
financial assets. The amendment also clarifies how to account for a modification of a financial liability.
Annual Improvements to
IFRS Standards 2015 –
2017 cycle
Amendments to a number of IFRSs including IFRS 3 ‘Business Combinations’, IFRS 11 ‘Joint Arrangements’
providing clarity on control of a business that is a joint operation, IAS 12 ‘Income Taxes’ clarifying income tax
consequences of dividends, IAS 23 ‘Borrowing costs’ clarifying borrowings outstanding after the related asset
is ready for use or sale.
EU endorsed accounting standards effective in future periods
The Directors considered the impact on the Group of other new and revised accounting standards, interpretations or amendments that are
currently endorsed but not yet effective. The Directors do not expect any other standards to have a significant impact on the Group’s results.
International Financial Reporting Standards in issue but not yet effective
At the date of authorisation of the consolidated financial statements, the IASB and IFRS Interpretations Committee have issued standards,
interpretations and amendments which are applicable to the Group.
Whilst these standards and interpretations are not effective for, and have not been applied in the preparation of, these consolidated
financial statements, the following could have a material impact on the Group’s financial statements going forward:
New/revised IFRSs
IAS 1 & IAS 8
Amendments to IAS 1 and IAS 8: Definition of Material
IFRS 3
Amendments to IFRS 3 Business Combinations
Effective date: annual periods
beginning on or after
EU adopted
1 January 2020
1 January 2020
No
No
New/revised International Financial Reporting Standards which are not considered likely to have an impact on the Group’s financial
statements going forwards have been excluded from the above.
Management anticipates that all relevant pronouncements will be adopted in the Group’s accounting policies for the first period beginning
after the effective date of the pronouncement. New standards, interpretations and amendments not listed above are not expected to have
a material impact on the Group’s financial statements.
Significant management judgements in applying accounting policies and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates
and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the
reporting date and the reported amounts of revenues and expenses during the reporting period.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. Assumptions and accounting estimates are subject to regular
review. Any revisions required to accounting estimates are recognised in the period in which the revisions are made including all future
periods affected.
Significant management judgements
The following are significant management judgements in applying the accounting policies of the Group that have the most significant
effect on the financial statements.
GRC International Group plc Annual Report and Accounts 2020
65
Capitalisation of internally developed intangible assets
Determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. Management
considers the criteria set out in IAS 38 in advance of capitalising any projects. After capitalisation, management monitors whether the
recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. Should a
different judgement be taken, the amounts capitalised may differ from those presented in note 11.
Recognition of deferred tax assets
The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will
be available against which the deductible temporary differences and timing differences on capital allowances can be utilised. In addition,
significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.
Judgement is also applied in the recognition of deferred tax assets in respect of losses, based on management’s view of the availability
of future profits to offset such losses.
Identification of assets acquired in business combinations
Business combinations require management to exercise judgement in measuring the fair value of the assets acquired, equity instruments
issued, and liabilities, and contingent consideration incurred or assumed. In particular, a high degree of judgement is applied in
determining the fair value of the separate intangible assets acquired, their useful economic lives and which assets and liabilities are
included in a business combination.
In certain acquisitions, the Group may include contingent consideration which is subject to the acquired company achieving certain
performance targets.
At each reporting period, GRC International plc estimates the future earnings of acquired companies, which are subject to contingent
consideration in order to assess the probability that the acquired company will achieve their performance targets and thus earn their
contingent consideration. Any changes in their fair value of the contingent consideration between reporting periods are included in the
determination of net income. Changes in fair value arise as a result of changes in the estimated probability of the acquired business
achieving its earning targets and the consequential impact of amounts payable under these arrangements.
Identification of performance obligations in customer contracts
The identification of performance obligations in customer contracts requires management to exercise judgement to determine both the
nature of the performance obligations and when those obligations are delivered in order to recognise revenue appropriately in the correct
amount and in the correct accounting period.
Going concern:
The identification by management of the Group to continue as a Going concern is a key judgement and has been explained further
on page 53.
Estimation uncertainty
Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities,
income and expenses is provided below. Actual results may be substantially different.
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
In the future, actual experience may differ from these estimates and assumptions.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
Estimates and assumptions
• Income taxes – provisions for income taxes in various jurisdictions (note 7)
• Level of expected credit loss provision to hold or not hold (note 15)
• Useful lives of intangible assets acquired or internally generated (note 11)
• Impairment of goodwill – estimate of future cash flows and determination of the discount rate (note 10)
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NOTe S TO THe FINANCIA l S TATeme NTS
1. Segmental reporting
Operating segments
For the purposes of segmental reporting, the Group’s Chief Operating Decision Maker (CODM) is considered to be the Executive Board of
Directors. The Board identifies its operating segments based on the Group’s service lines, which represent the main product and services
provided by the Group. In the opinion of the Board, therefore the Group operates as a single operating segment.
Revenue by geographic destination
Revenue across all operating segments is generated from the UK but includes overseas sales:
UK
Non-UK
2020
£’000
11,680
2,466
14,146
2019
£’000
12,886
2,963
15,849
2020 Non-UK revenue includes Rest of Europe £939,000 (2019: £1,335,000), United States of America £863,000 (2019: £824,000), Australia
£180,000 (2019: £150,000) and Rest of the World £484,000 (2019: £654,000).
2020 Non-UK non-current assets includes Ireland £33,000 (2019: £58,000) and Germany £7,000 (2019: £10,000).
Information about major customers
No customers contributed 10% or more to the Group’s revenue in any period presented.
2. Revenue
Revenue is all derived from continuing operations.
Notwithstanding that the Group's revenues are often interdependent, the Group has disaggregated revenue into various categories in the
following tables which is intended to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by
economic date:
Consultancy
Publishing and Distribution
Software
Training
Total revenue
The Group’s revenue is analysed by timing of delivery of goods or services as:
Point in time delivery
Over time
Total revenue
The revenue is analysed as follows for each revenue category:
Sale of goods
Provision of services
Other income
Interest on cash deposits
Total revenue
2020
£’000
8,635
977
1,356
3,178
14,146
2020
£’000
9,023
5,123
14,146
2020
£’000
976
13,170
14,146
99
–
14,245
2019
£’000
7,228
1,337
1,513
5,771
15,849
2019
£’000
7,557
8,292
15,849
2019
£’000
1,333
14,516
15,849
32
2
15,883
GRC International Group plc Annual Report and Accounts 2020
67
NOTe S TO THe FINANCIA l S TATeme NTS CONTINUED
2. Revenue continued
Contract liabilities: deferred income
At 1 April
On acquisition of DQM
Amounts included in deferred income that were recognised as revenue in the period from
the opening balance
Amounts invoiced in the period and not recognised as revenue until later periods
At 31 March
Deferred income
2020
£’000
971
–
(971)
855
855
2019
£’000
1,395
19
(1,395)
952
971
The Group recognises deferred income as a contract liability. This balance equates to the value of the remaining performance obligations
for revenue recognised over time, given the nature of the Group’s invoicing arrangements with customers.
Contract assets and contract liabilities are included within “trade and other receivables” and “trade and other payables” respectively
on the face of the consolidated balance sheet. They arise from the Group’s contracts that cover multiple reporting periods as payments
received from customers at each balance sheet date do not necessarily equal the amount of revenue recognised on the contracts.
No material contract asset balances arise in the ordinary course of business.
3. Exceptional administrative costs
Expenses relating to the acquisition of DQM
2020
£’000
358
358
2019
£’000
164
164
The Group's exceptional administration costs comprise substantially of professional fees. These professional fees relate to the DQM deed
of variation of contract and also to the fundraise to settle the outstanding contingent consideration.
4. Operating profit
Operating profit is stated after charging:
Cost of sales
Wages and salaries
Other direct costs including consultancy and training costs, books and manuals
Other administration costs
Wages and salaries
Sales and marketing costs
Depreciation of property, plant and equipment
Amortisation of intangible fixed assets
Auditor’s remuneration:
– Fees payable for the audit of the annual accounts
Foreign exchanges (credits)/charges
Operating lease costs
– Building
– Other
Other costs including office administration, legal and professional, IT and website costs
No non-audit fees were payable to the auditor in respect of services rendered in the year.
2020
£’000
2019
£’000
3,533
2,549
6,082
6,935
634
386
1,180
141
1
–
–
1,953
11,230
4,871
2,424
7,295
9,024
1,205
183
611
120
(5)
149
10
2,419
13,716
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5. Employees
The aggregate payroll costs of the employees were as follows:
Staff costs
Wages and salaries
Social security costs
Share-based payment charge
Pension costs
Directors made gains of £364k on exercise of share options (2019:£nil).
The average monthly number of persons employed by the Group during the year was as follows:
By activity
Administration
Sales and distribution
Remuneration of Directors is disclosed in the Remuneration Committee Report.
Details of key management personnel and their remuneration are disclosed within note 26.
6. Net finance costs
Interest received on cash deposits
Interest on overdrafts
Interest on loans
Interest on lease liabilities
Other interest
2020
£’000
2019
£’000
9,706
866
–
230
10,802
12,490
1,244
63
160
13,957
2020
92
95
187
2020
£’000
–
11
138
61
12
222
2019
130
140
270
2019
£’000
(2)
–
10
–
8
GRC International Group plc Annual Report and Accounts 2020
69
NOTe S TO THe FINANCIA l S TATeme NTS CONTINUED
7. Taxation
Analysis of (credit) charge in the year:
Current tax – current period
Current tax – adjustment in respect of prior period
Foreign tax – current period
Deferred tax – current period movement
Deferred tax – adjustment in respect of prior period
Total tax (credit)/charge
Loss before taxation
Profit by rate of tax (2020: 19%; 2019: 19%)
Expenses not deductible for tax purposes
Deferred tax asset not recognised
Adjustments to deferred tax in respect of prior period
Adjustments to current tax in respect of prior period
Effects of change in tax rate
Losses carried back
Adjustment in respect of prior period: Research and development tax credit
Effects of different tax rates of subsidiaries operating in other jurisdictions
Total tax
Deferred tax in equity
Change in estimated excess tax deductions related to share-based payments
Total income tax recognised directly in equity
2020
£’000
(60)
(427)
–
50
(8)
(445)
2020
£’000
(3,651)
(694)
33
640
(8)
(243)
(41)
52
(184)
–
(445)
2020
£’000
269
269
2019
£’000
72
(139)
(119)
51
164
29
2019
£’000
(5,365)
(1,019)
93
777
25
–
113
38
–
2
29
2019
£’000
251
251
The Finance Act 2016 included legislation to reduce the main rate of UK corporation tax from 20% to 19% from 1 April 2017 and to 17% from
1 April 2020. Legislation has been substantively enacted following the budget on 11 March 2020 to repeal the reduction of the main
corporation tax rate thereby maintaining the current rate of corporation tax at 19%. Temporary differences have been measured using these
enacted tax rates.
At the balance sheet date, the Group has the following unused tax losses for which no deferred tax asset has been recognised on the basis
that it is not considered probable that there will be future projects available to utilise the tax losses:
Trading losses (UK)
Trading losses (Ireland)
Trading losses (USA)
Non-trading loan relationship deficits
2020
£’000
4,901
1,446
232
2
2019
£’000
4,319
1,124
–
2
At the balance sheet date, a deferred tax asset has not been recognised for excess unrelieved foreign tax of £20,435 (2019: £19,848) on the
basis that it is not considered probable that there will be future taxable profits available to utilise the double tax relief credit.
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Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and
prior reporting period.
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.
At 1 April 2018
Business acquired
Charge/(credit) to profit or loss
Credit direct to equity
Prior year adjustment
Deferred tax (asset)/liability at
31 March 2019
Charge/(credit) to profit or loss
Credit direct to equity
Prior year adjustment
Deferred tax at 31 March 2020
Asset (Non-UK)
Liability (UK)
Deferred tax at 31 March 2019
Asset (Non-UK)
Liability (UK)
Fixed asset
timing
differences
£’000
Retirement
benefit
obligations
£’000
Share-based
payments
£’000
Short-term
timing
differences
£’000
Tax losses
(Ireland)
£’000
Tax losses
(UK)
£’000
Intangibles
£’000
89
2
20
–
2
113
103
–
(6)
210
–
210
–
113
(2)
(535)
(171)
–
2
–
–
–
(2)
–
–
(2)
–
(2)
–
–
–
22
251
1
(261)
(7)
269
(2)
(1)
–
(1)
–
(261)
–
29
–
141
(1)
(4)
–
–
(5)
–
(5)
–
(1)
(23)
–
(119)
–
(2)
(144)
–
–
–
(144)
(144)
–
(144)
–
–
–
(21)
–
22
1
–
–
–
1
–
1
–
–
–
421
–
–
–
421
(40)
–
–
381
–
381
–
421
Total
£’000
(642)
423
(67)
251
164
129
(50)
269
(8)
438
(144)
582
(144)
273
8. Earnings per share
Basic earnings per share is based on the (loss)/profit after tax for the year and the weighted average number of shares in issue during each year.
Loss attributable to equity holders of the Group (£)
Weighted average number of shares in issue
Basic loss per share (pence)
2020
‘000
(3,206)
68,689,792
(4.67)
2019
‘000
(5,395)
57,982,319
(9.30)
Diluted earnings per share is calculated by adjusting the average number of shares in issue during the year to assume conversion of all
dilutive potential ordinary shares.
Taking the Group’s share options into consideration in respect of the Group’s weighted average number of ordinary shares for the purposes
of diluted earnings per share, is as follows:
Number of shares
Dilutive (potential dilutive) effect of share options
Weighted average number of ordinary shares for the purposes of diluted earnings per share
Diluted loss per share (pence)
2020
2019
68,689,792
–
68,689,792
57,982,319
–
57,982,319
(4.67)
(9.30)
Due to the losses incurred during the year, a diluted loss per share has not been calculated as this would serve to reduce the basic loss per
share. There were 1,680,680 (2019: 2,360,680) share incentives outstanding at the end of the year that could potentially dilute basic earnings
per share in the future.
GRC International Group plc Annual Report and Accounts 2020
71
NOTe S TO THe FINANCIA l S TATeme NTS CONTINUED
9. Subsidiaries
Details of the Group’s subsidiaries are as follows:
Name of subsidiary and registered office address
Principal activity
IT Governance Limited*
Vigilant Software Limited*
IT Governance Europe Limited
6th Floor, South Bank House, Barrow Street, Dublin 4
IT Governance USA Inc
420 Lexington Avenue, Suite 300, New York, NY 10170, USA
IT Governance Publishing Limited*
GRCI Law Limited*
GRC Elearning Limited*
IT Governance Europe Limited*
IT Governance Consulting Limited*
IT Governance Franchising Limited*
IT Governance Sales Limited*
IT Governance Software Limited*
IT Governance Training Limited*
ITG Certifications Limited*
ITG Qualifications Limited*
ITG Security Testing Limited*
ITG Encryption Limited*
Data Quality Management Limited**
Data Quality Management Group Limited**
Data2 Limited**
DQM Group Holdings Limited**
Information technology
governance services
Information technology
Software development
Information technology
governance services
Information technology
governance services
Information technology
governance publications
Information technology
governance legal services
Information technology
governance internet-based
training
Dormant company***
Dormant company***
Dormant company***
Dormant company***
Dormant company***
Dormant company***
Dormant company***
Dormant company***
Dormant company***
Dormant company***
Dormant company***
Information technology
governance services
Dormant company***
Holding Company***
* Registered Office: Unit 3, Clive Court, Bartholomew’s Walk, Cambridge Business Park, Ely, Cambridgeshire CB7 4EA
** Registered Office: DQM House, Baker Street, High Wycombe, Buckinghamshire HP11 2RX
*** Dormant subsidiaries which have taken advantage of the s394A exemption from preparing individual accounts
% ownership held by the
Group
Place of
incorporation and
operation
England & Wales
England & Wales
Ireland
2020
100%
100%
100%
USA
100%
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2019
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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GRC International Group plc Annual Report and Accounts 2020
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10. Goodwill
Cost and NBV
At 1 April
Additions
Measurement period adjustments
At 31 March
2020
Total
£’000
6,693
–
111
6,804
2019
Total
£’000
–
6,693
–
6,693
Goodwill arising from business combinations has been allocated to the Group’s DQM cash generating unit (“CGU”).
Goodwill is tested at least annually for impairment and whenever there are indications that goodwill might be impaired.
The global COVID-19 pandemic has brought uncertainty and wider market disruption globally. GRC international has seen a 30% revenue
reduction to date and this reduction has not yet been recovered in the provision of its products and services, and the sector within which
the Company operates.
For the DQM CGU, the carrying amount of Goodwill has been assessed for impairment by comparing the carrying amount of the CGU in
which it is included to the recoverable amount based on value in use of the CGU. The value in use calculation for the Cash generating unit
uses estimated future cash flows, for which the key assumptions are forecast revenue over the next five years, based on management’s
estimates; the terminal growth rate for revenues beyond that period, which reflects the a cautious approach for the purpose of measuring a
value in use and a pre-tax discount rate, which is based on management’s assessment of risk inherent in the estimated future cash flows.
The pre-tax cash flows for the forecast period are derived from the most recent financial budget for the year ending 31 March 2021
approved by the Board. The extrapolation for the period 2022 to 2024 is based on management estimates.
The impairment model is built to take into account performance over a number of years. If FY21 were to be further impacted by COVID-19
into the second half of the year, and revenue dramatically reduced as a result, we would realistically expect a recovery to more normal
levels in FY22 and then growth in the future. Therefore the approach taken in terms of using the FY21 budget for each year in the model,
without any growth, is significantly more cautious in terms of an impairment model than using a very poor current year, a return to normal in
FY22 and then growth going forwards.
As of 31 March 2020, the value in use of the cash generating unit was greater by £1,477k than the CGU’s carrying amount. The key
assumptions used were the forecasts as explained above, the terminal growth rate of 2%, and the pre-tax discount rate of 6.35%.
There are reasonably possible changes in key assumptions that would give rise to a material impairment loss.
a) The discount rate would have to increase by 2% to give rise to an impairment
b) Operating costs would have to rise by 7% to give rise to an impairment, this assumes that revenue levels remain constant.
c) If Revenue was to fall by 5% (assuming margins remained the same) this would give rise to an impairment.
GRC International Group plc Annual Report and Accounts 2020
73
NOTe S TO THe FINANCIA l S TATeme NTS CONTINUED
11. Intangible assets
Cost
At 1 April 2018
Additions
Business acquired
Foreign exchange movement
At 31 March 2019
Additions
Foreign exchange movement
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for year
Foreign exchange movement
At 31 March 2019
Charge for year
Foreign exchange movement
At 31 March 2020
Net book value
At 31 March 2020
At 31 March 2019
At 1 April 2018
Marketing
tools
£’000
Publishing
products
£’000
Consultancy
products and
courseware
£’000
Software and
website
costs
£’000
Trademarks
£’000
Customer
relationships
£’000
63
–
–
–
63
–
–
63
48
7
–
55
6
–
61
2
8
15
215
72
–
–
287
46
–
333
172
31
–
203
31
–
234
99
84
44
534
165
–
(1)
698
182
1
881
196
56
1
253
73
(1)
904
516
–
1,420
854
–
325
2,274
556
445
337
2,960
2,920
1,196
Total
£’000
2,920
2,289
2,487
(1)
7,695
1,124
1
2,100
2,052
188
–
4,340
894
–
8
–
456
–
464
2
–
–
–
1,843
–
1,843
–
–
5,234
466
1,843
8,820
3
1
–
4
50
–
54
412
460
5
–
–
–
–
166
–
166
1,677
1,843
–
1,323
611
1
1,935
1,180
(1)
3,114
5,706
5,760
1,597
Amortisation is included within administrative expenses.
Intangible assets includes capitalised related party costs incurred as further explained in note 27.
All intangible assets have been developed internally with the exception of those arising on the business acquisition in the prior year
(note 29). The recoverable amounts of the CGUs for the purpose of monitoring impairment are determined from value-in-use calculations.
A review of the carrying amounts of the Group’s non-current assets to determine whether there is an indication that these assets have
suffered an impairment loss was carried out at the year-end.
Having identified indicators of impairment, management conducted an impairment test to determine recoverable amount of the cash
generating unit, and conducted that no impairment of internally generated intangible had arisen as at 31 March 2020.
Those intangible assets were acquired in the 2019 acquisition of DQM (note 29) were tested for impairment as explained in note 10.
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12. Property, plant and equipment
Cost
At 1 April 2018
Additions
Businesses acquired
Disposals
At 31 March 2019
Additions
IFRS 16 transition
At 31 March 2019
Accumulated depreciation
At 1 April 2018
Charge for year
Disposals
At 31 March 2019
Charge for year
Foreign exchange movement
At 31 March 2020
Net book value
At 31 March 2020
At 31 March 2019
At 31 March 2018
Leasehold
improvements
£’000
Computer
equipment
£’000
Office
equipment
£’000
Right of
use assets –
properties *
£’000
88
50
1
–
139
1
–
140
24
13
–
37
13
–
50
90
103
65
585
162
–
(13)
734
5
–
739
250
158
(7)
401
150
–
551
188
333
335
45
22
21
(2)
86
5
–
90
20
12
–
32
24
–
56
35
53
24
–
–
–
–
–
–
664
664
–
–
–
–
199
(5)
194
470
–
–
Total
£’000
718
234
22
(15)
959
11
664
1,633
294
183
(7)
470
386
(5)
851
783
489
424
* Under the modified retrospective approach in IFRS 16 ‘Leases’, the 2019 numbers are not restated.
Depreciation is included within administrative expenses.
13. Investments in equity-accounted joint ventures
The Group has a 50% interest in a joint venture, IBITGQ GmbH, a separate structured vehicle incorporated and operating in Germany.
It was set up as a partnership together with GASQ Service GmbH dedicated to the provision of training and the continued professional
development of information security, business resilience and IT governance professionals.
The contractual arrangement provides the Group with only the rights to the net assets of the joint arrangement, with the rights to the
assets and obligations for liabilities of the joint arrangement resting primarily with IBITGQ GmbH. Under IFRS 11 the joint arrangement is
classified as a joint venture and has been included in the consolidated financial statements using the equity method.
The principal place of business of the joint operation is in Germany.
As at 1 April
Additions
Loss for the period
Foreign exchange movement
2020
£’000
10
–
(4)
1
7
2019
£’000
–
11
(1)
–
10
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NOTe S TO THe FINANCIA l S TATeme NTS CONTINUED
14. Inventories
Finished goods for resale
Amounts of inventories recognised as an expense during the period as cost of sales
Amounts of inventories (written back)/impaired during the period
15. Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
Other receivables
Prepayments
2020
£’000
61
2020
£'000
83
2020
£'000
(8)
2020
£’000
1,543
(15)
1,528
129
590
2,247
2019
£’000
64
2019
£’000
196
2019
£’000
10
2019
£’000
1,986
–
1,986
218
700
2,904
None of the Company’s trade and other receivables are secured by collateral or credit enhancements.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses on a collective basis. To measure expected credit
losses on a collective basis, trade receivables and contract assets are grouped based on a similar credit risk and ageing.
The Group’s policy for default risk over receivables is based on the ongoing evaluation of the collectability and ageing analysis of trade and
other receivables. Considerable judgement is required in assessing the ultimate realisation of these receivables, including reviewing the
potential likelihood of default, the past collection history of each customer and the current economic conditions.
The Group uses a third party credit scoring system to assess the creditworthiness of potential new customers before accepting them.
Credit limits are defined by customer based on this information. All customer accounts are subject to review on a regular basis by senior
management and actions are taken to address debt ageing issues. The Directors believe that there is no requirement for a provision.
All of the Group’s trade and other receivables have been reviewed for indicators of impairment.
The Directors consider that the carrying amount of trade and other receivables approximates to the fair value. Included in the Group’s
trade receivable balance as at the year end were customer balances with a carrying amount of £1,197,000 (2019: £1,350,000) which are past
due at the reporting date for which the Group has not recorded a provision as the Directors believe the amounts to be recoverable in full,
with an immaterial remaining exposure for amounts remaining uncollected at the date the financial statements were approved and
authorised for issue.
The expected loss rates are based on the Group’s historical credit losses experienced over a two-year period prior to the period end. The
historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group’s customers.
The Group has identified gross domestic product growth rates, employment rates and inflation rates as the key macroeconomic factors in the
countries in which the Group operates. The calculated expected credit loss allowance for the current and prior reporting periods has not
been included as an impairment provision as the Directors consider it to be immaterial.
The maturity profile of trade and other receivables is set out in the table below:
In one year or less, or on demand
2020
£’000
2,247
2019
£’000
2,904
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The analysis of trade and other receivables by foreign currency is set out in the table below:
UK pound
US dollar
Euro
2020
£’000
2,158
11
78
2,247
2019
£’000
2,713
9
182
2,904
The Group’s foreign currency receivables are denominated in the functional currency of the subsidiaries in which they arise. There is no
impact on the loss for the year from foreign exchange rate movements on such financial instruments.
16. Cash and cash equivalents
Cash at bank (GBP)
Cash at bank (EUR)
Cash at bank (USD)
Cash at bank (AUD)
Cash at bank (other currencies)
2020
£’000
221
20
–
3
1
245
2019
£’000
609
16
7
7
–
639
All significant cash and cash equivalents were deposited with major clearing banks with at least ‘A’ rating. Details of bank overdrafts are
given in note 18.
17. Trade and other payables
Amounts falling due within one year:
Trade payables
Other taxation and social security
Other payables
Deferred income
Accruals
2020
£’000
1,220
1,043
204
855
307
3,629
2019
£’000
2,000
869
170
971
357
4,367
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18. Borrowings
Secured
Bank loans (i)
Bank overdraft
Total secured borrowings
Unsecured
Bank Loans
Loans from related parties
Total unsecured borrowings
Total borrowings
Current
£’000
2020
Non-current
£’000
Total
£’000
Current
£’000
2019
Non-current
£’000
523
–
523
194
700
894
1,446
5
–
5
396
–
396
401
528
–
528
590
700
1,290
1,847
–
490
490
31
–
31
521
–
–
–
–
–
–
–
Total
£’000
–
490
490
31
–
31
521
* Further information relating to loans from related parties is set out in note 20.
(i) Secured liabilities and assets pledged as security
Of the Bank loans, £426,000 is secured against future receivables. The remaining secured bank loans and overdrafts are secured against
assets of the business.
Lease liabilities are secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default.
Directors’ pension scheme loan
Paypal
Wesleyan
Bute Capital
Federal
You Lend
LDF Finance No. 3 Ltd
Portman Asset Finance
A Brode
Total
As at
1 April 2019
£’000
Cash proceeds
from borrowings
£’000
Repayments
of capital
£’000
Repayments
of interest
£’000
Interest
accruing
As at 31 March
2020
31
–
–
–
–
–
–
–
–
31
–
246
282
227
65
396
150
290
700
2,356
(28)
(108)
(33)
(138)
(27)
(108)
(110)
(16)
–
(568)
(1)
(6)
(12)
(17)
(8)
(22)
(14)
(30)
–
1
6
12
17
8
22
14
30
28
3
138
249
89
38
288
40
274
728
(110)
138
1,847
The group has a number of loans in the period presented, and are summarised as follows:
Amount Advanced
£’000
Security pledged
Term
Effective Interest rate
Directors’ pension scheme loan
Paypal
Wesleyan
Wesleyan
Bute Capital
Federal Capital
You Lend
LDF Finance No. 3 Ltd
Portman Asset Finance
Portman Asset Finance
Unsecured loan facility provided by
Andrew Brode.
20
262
227
70
246
Unsecured
Secured against
future receivables
Parent company
guarantee
Secured against
assets of business
Secured against
assets of business
65 Director’s Guarantee
Secured against
future receivables
50 Director’s Guarantee
125 Director’s Guarantee
165 Director’s Guarantee
Unsecured
700
396
60 Months
12 Months
9.5%
4.26% – 10.49%
60 Months
14.32%
36 Months
22%
14-16 Months
6.65% – 10.36%
12 Months
12 Months
29%
16.67%
10.16%
29.28%
8.8%
5.0% above the
Bank of England
base rate
36 Months
24 Months
60 Months
Available to the
Group until at least
31 December 2021 and
will automatically renew
for a further 12 months
unless terminated by
either party.
In addition, the Group has access to Invoicing discounting facility acquired within the DQM acquisition.
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19. Financial instruments – risk management
The Group is exposed through its operations to the following financial risks:
• Credit risk
• Interest rate risk
• Foreign exchange risk
• Other market price risk, and
• Liquidity risk.
In common with all other businesses, the Group is also exposed to risks that arise directly from its use of financial instruments. This note
describes the Group’s objectives, policies and processes for managing those risks and methods used to measure them. Further quantitative
information in respect of these risks is presented throughout these financial statements.
I. Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
• Trade receivables
• Cash and cash equivalents
• Trade and other payables
• Bank overdrafts
• Floating rate bank loans
• Fixed rate bank loans
• Other loans
II. Financial instruments by category
Financial assets
Cash and cash equivalents
Trade and other receivables
Total financial assets
Fair value through profit or loss
Amortised cost
2020
£'000
–
–
–
2019
£'000
–
–
–
2020
£'000
247
1,528
1,775
All of the above financial assets’ carrying values are approximate to their fair values, as at each reporting date disclosed.
Financial liabilities
Trade and other payables
Borrowings
Lease payables
Contingent consideration
Total financial liabilities
Fair value through profit or loss
Amortised cost
2020
£’000
–
–
–
100
100
2019
£’000
–
–
–
3,747
3,747
2020
£’000
1,524
1,847
470
–
3,841
2019
£'000
639
1,986
2,697
2019
£’000
2,170
521
6
–
2,885
All of the above financial liabilities’ carrying values are considered by management to be approximate to their fair values, as at each
reporting date disclosed.
III. Financial instruments not measured at fair value
Financial instruments not measured at fair value includes cash and cash equivalents, trade and other receivables and trade and other
payables, and approximate their fair value.
Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, trade and other payables and
borrowings approximates their fair value.
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19. Financial instruments – risk management continued
IV. Financial instruments measured at fair value
Classification of financial instruments
The fair value hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair
value of the financial assets and liabilities.
The fair value hierarchy has the following levels:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value
measurement.
The Group did not hold any level 1 or 2 financial instruments in any of the periods presented.
31 march 2020
The reconciliation of the opening and closing fair value balance of level 3 financial instruments which comprises the Group’s contingent
consideration liability is provided below:
At 1 April 2019
Adjustment
Repaid in cash
Issue of ordinary shares
At 31 March 2020
Contingent
consideration
£’000
3,747
7
(1,726)
(1,928)
100
There have not been any changes to the amount recorded between initial recognition of the liability on 5 March 2019 and 31 March 2019,
although the DQM Deed of Variation resulted in a change in the proportion of the balance which was to be settled in cash and the balance
which was to be settled by an issue of ordinary shares. There is limited estimation uncertainty, and expected to be no material change in
the value, as the measurement period for determining the amount payable has already concluded.
Any contingent consideration payable is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the
contingent consideration are recognised in profit or loss.
The fair value of contingent consideration is calculated using the income approach based on the expected amounts and their associated
probabilities (i.e. probability-weighted).
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20. Financial instrument risk exposure and management
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining
ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure that effective
implementation of the objectives and policies to the Group’s finance function. The Board receives monthly reports from the Group Finance
Director through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it
sets. The Group’s internal auditors also review the risk management policies and processes and report their findings to the Audit Committee.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s
competitiveness and flexibility. Further details regarding these policies are set out below:
Credit risk
The Group’s credit risk is primarily attributable to its trade receivables, which are presented in note 15.
In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counterparty, its
counterparties have similar characteristics being small to medium sized UK businesses with a number of blue-chip organisations now being
serviced by the Group following the DQM acquisition. Trade receivables consist of a large number of customers in various industries and
geographical areas. Based on historical information about customer default rates management consider the credit quality of trade
receivables that are not past due or impaired to be good.
The credit risk on liquid funds is limited because the third parties are large international banks with a credit rating of at least A.
The Group’s total credit risk amounts to the total of the sum of the receivables and cash and cash equivalents. At the 2020 year end, this
amounts to £1,773k (2019: £2,625k; 2018: £7,786k).
Interest rate risk
The Group has secured debt consisting of bank loans and other loans.
The interest on most of the loans is fixed, and therefore interest rate risk is considered to be limited.
Interest rate risk arising from borrowing at variable rates is not hedged.
Foreign exchange risk
Most of the Group’s transactions are carried out in GBP. Exposures to foreign currency exchange rates arise from the Group’s overseas sales
and purchases, which are denominated in a number of currencies, primarily USD, EUR and AUD. Cash balances held in these currencies are
relatively immaterial (see note 16) and transactional risk is considered manageable due to the values involved.
The Group does not hold material non-GBP balances and currently does not consider it necessary to take any action to mitigate foreign
exchange risk due to the immateriality of that risk.
Liquidity risk
Liquidity risk represents the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to
managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
Prudent liquidity risk management includes maintaining sufficient cash balances to ensure the Group can meet liabilities as they fall due,
and ensuring adequate working capital using invoice financing arrangements.
The Group’s approach to managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The table below shows the undiscounted cash flows on the Group’s financial liabilities as at 31 March 2020 and 2019, on the basis of their
earliest possible contractual maturity.
At 31 march 2020
Trade payables
Accruals
Finance lease payables
Bank overdrafts
Other loans
Contingent consideration
Total
£’000
1,220
308
481
–
1,847
100
3,956
GRC International Group plc Annual Report and Accounts 2020
On
demand
£’000
Within
2 months
Within
2-6 months
£’000
£’000
6-12
months
£’000
1-2 years
£’000
Greater
than 2 years
£’000
715
–
–
–
728
–
1,443
505
–
–
–
138
–
668
–
308
119
–
263
100
715
–
–
82
–
316
–
448
–
–
82
–
175
–
257
–
–
198
–
227
–
425
81
NOTe S TO THe FINANCIA l S TATeme NTS CONTINUED
20. Financial instrument risk exposure and management continued
At 31 march 2019
Trade payables
Accruals
Finance lease payables
Bank overdrafts
Other loans
Contingent consideration
Total
£’000
2,000
357
6
492
29
3,747
6,631
On
demand
£’000
Within
2 months
£’000
Within
2-6 months
£’000
6-12
months
£’000
1-2 years
£’000
Greater than
2 years
£’000
–
–
–
492
–
–
492
2,000
–
2
–
9
–
2,011
–
357
2
–
18
3,547
3,924
–
–
2
–
2
200
204
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21. Capital management
The Group’s capital management objectives are:
• to ensure the Group’s ability to continue as a going concern; and
• to provide long-term returns to shareholders.
The Group defines and monitors capital on the basis of the carrying amount of equity plus its outstanding loans, less cash and cash
equivalents as presented on the face of the balance sheet as follows:
Equity
Borrowings (note 18)
Less: cash and cash equivalents (note 16)
2020
£’000
10,378
1,847
(245)
11,980
2019
£’000
7,356
521
(639)
7,238
The Board of Directors monitors the level of capital as compared to the Group’s commitments and adjusts the level of capital as is determined
to be necessary by issuing new shares or adjusting the level of debt. The Group is not subject to any externally imposed capital requirements.
22. Leasing arrangements
The following table outlines the maturity analysis of the lease liabilities:
Contractual discounted cash flows
Less than one year
Two to five years
More than five years
Lease liabilities at 31 March
Lease liabilities
Total lease liabilities
The following amounts have been included in the Income Statement:
Interest expense on lease liabilities
Operating costs relating to short-term leases and low value assets
Amounts recognised in the Income Statement
1 April 2019
£’000
(664)
(664)
Net
cash flow
£’000
181
181
Currency and
non-cash
movements
£’000
(4)
(4)
2020
£’000
201
286
–
487
31 March 2020
£’000
(487)
(487)
2020
£’000
(60)
–
(60)
The Group has elected not to recognise right of use assets and lease liabilities for short-term leases (i.e. lease term less than 12 months) or
low-value assets (i.e. under £5,000). The Group will continue to expense the lease payments associated with these leases on a straight-line
basis over the lease term. At 1 April 2019, this was less than £1,000.
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Variable lease payments that depend on an index or a rate are also less than £5,000.
The Group subleases office space to Xanthos as outlined in note 27.
The total undiscounted future minimum lease payments under non-cancellable operating leases as at 1 April 2019 was as follows:
2019
Within one year
Later than one year and not later than five years
Later than five years
Property
£’000
198
589
238
1,025
Other
£’000
–
–
–
–
Total
£’000
198
589
238
1,025
23. Retirement benefit plans
Benefits from the contributory pension schemes to which the Group contributes are related to the cash value of the funds at retirement
dates. The Group is under no obligation to provide any minimum level of benefits.
The assets of the schemes are administered by trustees in funds independent of the Group.
During the year £33,000 was recognised in the Income Statement in relation to pension contributions (2019: £33,000). As at 31 March 2020,
£nil is payable to pension schemes (2019: £nil).
24. Share capital
Authorised share capital
The authorised share capital comprises 99,577,589 (2019: 64,484,172) ordinary shares of £0.001 each.
1 April 2018
57,462,940 ordinary shares of £0.001
Issued
5,000,000 ordinary shares of £0.001
2,021,232 ordinary shares of £0.001
31 March and 1 April 2019
1,680,000 ordinary shares of £0.001
1,288,910 ordinary shares of £0.001
3,278,353 ordinary shares of £0.001
28,846,154 ordinary shares of £0.001
31 March 2020
99,577,589 ordinary shares of £0.001
£’000
57
5
2
64
2
1
4
29
100
On 1 March 2019, 5,000,000 ordinary shares with a nominal value of 0.1p were issued at 100p per share by way of a subscription and placing.
On 5 March 2019, 2,021,232 ordinary shares with a nominal value of 0.1p were issued at 116.5p per share by way of issue
On 31 January 2020, 1,680,000 ordinary shares with a nominal value of 0.1p were issued at 0.003p per share as the result of the exercise
of employee share options.
On 18 February 2020, 28,846,154 ordinary shares with a nominal value of 0.1p were issued at 13p per share by way of a subscription and placing.
On 18 February 2020, 1,288,910 ordinary shares with a nominal value of 0.1p were issued at 116.5p per share by way of issue.
On 18 February 2020, 3,278,353 ordinary shares with a nominal value of 0.1p were issued at 13p per share by way of issue.
GRC International Group plc Annual Report and Accounts 2020
83
NOTe S TO THe FINANCIA l S TATeme NTS CONTINUED
25. Share premium
1 April 2018
57,462,940 ordinary shares of £0.001
Issued
5,000,000 ordinary shares of £1.00 less issue costs
31 March and 1 April 2019
1,680,000 ordinary shares of £0.003
28,846,154 ordinary shares of £0.13 less issue costs
31 March 2020
£’000
4,793
4,795
9,588
4
3,589
13,181
Consideration received in excess of the nominal value of the 28,846,154 shares issued on 18 February as a result of the subscription
and placing has been included in share premium, less registration and commission of £131,000.
Consideration received in excess of the nominal value of the 5,000,0000 shares issued on 1 March 2019 as a result of the subscription
and placing has been included in share premium, less registration and commission of £200,000.
26. Share-based payments
The Group operates a share option scheme to which the employees of the Group may be invited to participate by the Remuneration
Committee.
If the options remain unexercised after a period of ten years from the date of grant, the options expire. Options are forfeited if the
employee leaves the Group before the options vest.
Details of the number of share options and the weighted average exercise price (“WAEP”) outstanding during the year are as follows:
2020
Outstanding at the beginning of the year
Exercised
Outstanding at the year end
Number vested and exercisable at 31 March 2020
2019
Outstanding at the beginning of the year
Outstanding at the year end
Number vested and exercisable at 31 March 2019
Number of
options
2,460,680
(1,680,000)
780,680
780,680
Number of
options
2,360,680
2,460,680
2,203,180
WAEP
£
0.08
0.03
0.27
0.27
WAEP
£
0.08
0.08
0.06
The Group recognised no expenses in relation to share options accounted for as equity-settled share-based payment transactions during
the year (2019: £63,285) in relation to options issued to Directors – these were recognised as expenses in the Income Statement.
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27. Related party transactions
Key management personnel are identified as the Directors, including non-statutory directors, and their remuneration is disclosed as follows:
Remuneration of key management
Remuneration
Social security costs
Share-based payment charge
Pension contributions to defined contributions scheme
Other related party borrowings transactions are as follows:
Principal
At 1 April 2018
Loans repaid
At 31 March 2019
Loans advance
Loans repaid
At 31 March 2020
Interest
At 1 April 2018
Interest accrued
Interest paid
At 31 March 2019
Interest accrued
Interest paid
At 31 March 2020
2020
£’000
558
73
–
37
668
Directors’ pension
scheme
Andrew Brode
£'000
£70,000 loan
£'000
–
–
–
700
–
700
–
–
–
–
28
–
28
26
(16)
10
(10)
–
–
2
(2)
–
1
(1)
–
2019
£’000
550
70
63
35
718
Total
£'000
26
(16)
10
(10)
700
–
2
(2)
–
4
(4)
28
Alan Calder and his wife are the trustees of the IT Governance Pension Fund.
All loan notes terms’ are described in note 18. Interest is accounted for on an effective interest basis and included within borrowings on the
balance sheet.
Other related party transactions are as follows:
Xanthos Limited is considered a related party entity as Alan Calder is a co-owner of that company with his spouse (who runs the business).
Xanthos sub-leases office space from the Group, which is included within other income. During the year to 31 March 2020 this totalled £20k
(2019: £20k). Transactions were carried out on an arm’s length basis. Outstanding amounts due from Xanthos at 31 March 2019 totalled £2k
(2019: £nil).
The Group also makes purchases from Xanthos. During the year to 31 March 2020, the Group made purchases totalling £533k from Xanthos
(2019: £662k) of which £420k (FY19: £500k) was capitalised. Outstanding amounts payable to Xanthos at 31 March 2020 totalled £96k
(2019: £99k).
28. Ultimate controlling party
In the opinion of the Directors, there is no one individual who exercises control over the Group.
GRC International Group plc Annual Report and Accounts 2020
85
NOTe S TO THe FINANCIA l S TATeme NTS CONTINUED
29. Business combinations completed in the prior period
On 5 March 2019 the Group acquired 100% of the voting equity instruments of DQM Group Holdings Limited, and its subsidiaries (see note
9), a company whose principal activity is a provider of data consulting and technology solutions.
As disclosed in last year's Annual Report, the value of the identifiable net assets of DQM group Holdings Limited had only been determined
on a provisional basis. Having since finalised the acquisition accounting, the fair value of assets and liabilities has been revised such that the
Goodwill arising on acquisition has further increased by £111k.
Details of the (restated) fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
Goodwill
Intangible assets:
– Non-contractual customer lists and relationships
– Software
– Trade name and trademarks
Property, plant and equipment
Receivables
Cash
Payables
Deferred tax liability
Total net assets
Fair value of consideration paid
Cash
Issued ordinary shares
Contingent cash consideration
Contingently issuable ordinary shares
Total consideration
Book value
£’000
Adjustment
£’000
–
6,804
Fair value
£’000
6,804
–
11
–
22
840
1,019
(1,308)
(2)
582
1,843
177
456
–
–
–
–
(421)
8,859
1,843
188
456
22
840
1,019
(1,308)
(423)
9,441
Fair value
£’000
3,532
2,355
1,626
1,928
9,441
The 2019 comparatives have been not been restated in these financial statements to include the effect of the adjustments to goodwill
noted above. Under paragraph 10(f) of IAS 1 Presentation of financial statements, this restatement would ordinarily require the presentation of
a third consolidated statement of financial position as at 1 April 2019. However, as the restatement of the provisional fair values would have no
effect on the statement of financial position as at that date, the Directors do not consider that this would provide useful additional information
and, in consequence, have not presented a third consolidated statement of financial position due to prior period business combinations.
The primary reasons for acquiring the business, aside from DQM being a profitable and cash generative business in its own right, were as
set out below:
• To extend the Group’s existing offering to include high margin, data governance services
• To add market share to the Group, by introducing additional household name clients with ongoing contracts
• To provide cross-selling and upselling opportunities through the companies’ complementary offerings
• To broaden and strengthen the Group’s second tier management team, through the retention of existing DQM management
• To add customer account management capability
• To provide strategic opportunities, such as enabling the Group to gain Data Privacy Seal accreditation
• To provide sector crossover, such as an increased financial sector exposure
In terms of methods of valuing contingent consideration, the cash is measured in line with the financial instruments note and the contingent
shares will be issued at a price of 116.5 pence per share, as set out in the sale and purchase agreement.
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Contingent consideration becomes payable within five days of the sign off of the “Earn-out Accounts”, which are based on the statutory
accounts for the DQM financial year ended 28 February 2019, calculated based on an agreed multiple of the EBITDA of DQM, as defined
in the sale and purchase agreements. The contingent consideration arrangements were subsequently varied as explained in note 19.
The goodwill arising on the DQM Group Holdings acquisition is not deductible for tax purposes.
Acquisition costs of £164,149 arose as a result of the transaction. These have been recognised as an exceptional expense included as part
of administrative expenses in the statement of comprehensive income.
The main factors leading to the recognition of goodwill are the presence of certain intangibles assets, such as the assembled workforce of
the acquired entity, which do not qualify for separate recognition.
Since the acquisition date, for the period from the acquisition date to 31 March 2019, DQM has contributed £255k to Group revenues and
£82k to Group profit. If the acquisition had occurred on 1 April 2018, Group revenue for the year ended 31 March 2019 would have been
£19,736k and Group loss for the period would have been £(4,323k).
In relation to the element of the consideration which is settled by the issuance of shares, the Parent Company has recorded an amount
equating to the difference between the fair value of the shares issued and their nominal value in a merger reserve, in accordance with the
provisions of the Companies Act 2006 relating to merger relief.
30. Post balance sheet events
Facilities
On 17 September 2020, the minimum term on the loan facility provided by the Group’s Chairman Andrew Brode has been extended to
31 December 2021. No other changes were made to the facility provided by the Chairman.
Covid-19
Whilst the onset of the pandemic occurred prior to the group’s reporting date, Covid-19 has continued to have a material effect on the
wider environment in which the group operates. Management’s current assessment of the impacts of Covid-19 is provided within the
section “Going Concern” in note 1 to the financial statements.
GRC International Group plc Annual Report and Accounts 2020
87
COmpANY BAl ANCe SHee T
FOR THE PERIOD ENDED 31 MARCH 2 02 0
Assets
Non-current assets
Intangible assets
Investments in subsidiaries
Deferred tax asset
Current assets
Trade and other receivables
Current liabilities
Trade and other payables
Contingent consideration
Borrowings
Net current assets
Net assets
Equity
Share capital
Share premium
Merger reserve
Share-based payment reserve
Retained earnings
Shareholders’ funds
Notes
2020
£’000
2019
£’000
3
4
5
6
7
8
9
10
11
452
10,817
2
11,271
6,682
6,682
(846)
–
(728)
(1,574)
5,108
16,379
100
14,508
4,276
171
(2,676)
16,379
342
11,010
261
11,613
4,696
4,696
(743)
(3,747)
–
(4,489)
206
11,819
64
10,913
2,353
440
(1,951)
11,819
As permitted by Section 408 of the Companies Act 2006, a separate income statement for the Company has not been presented.
The Company’s loss for the period ended 31 March 2020 was £611,000 (2019: £1,952,000).
Additionally, no cash flow statement is presented as permitted by FRS.101.8(L). The accompanying notes form part of the financial
statements.
The financial statements were approved by the Board of Directors and authorised for issue on 25 September 2020 and were signed its
behalf by:
Chris Hartshorne
Director
Company registration number: 11036180
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FINANCIAl STATemeNTS
COmpANY S TATeme NT OF CHANGeS IN e QUIT Y
FOR THE PERIOD ENDED 31 MARCH 2 02 0
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Share-based
payment
reserve
£’000
Retained
earnings
£’000
Total
£’000
At 1 April 2019
Loss for the period
Total comprehensive loss for the period
Shares issued
Cost of share issue
Shares issued on the acquisition of DQM
Deferred tax on share-based payments
Transactions with owners
At 31 March 2020
Loss for the period
Total comprehensive loss for the period
Investment in 10,050,236 ordinary shares
Issue of share options
Shares issued
Cost of share issue
Shares issued on the acquisition of DQM
Cost of share issue
Share-based payment expense
Deferred tax on share-based payments
Transactions with owners
At 31 March 2019
64
–
31
–
5
–
36
10,913
2,353
440
(1,951)
11,819
–
–
–
(725)
(725)
3,725
(130)
–
–
3,595
–
–
1,923
–
1,923
4,276
–
–
–
(269)
(269)
–
–
–
–
–
3,756
(130)
1,928
(269)
5,285
171
(2,676)
16,379
100
14,508
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Share-based
payment
reserve
£’000
–
–
50
–
7
–
7
–
–
–
64
64
–
–
1,326
5
5,033
(245)
4,995
(200)
–
–
10,913
10,913
–
–
–
–
–
–
2,353
–
–
–
2,353
2,353
–
–
–
–
–
–
–
–
146
294
440
440
Retained
earnings
£’000
(1,952)
(1,952)
–
–
–
–
–
–
–
(1,951)
Total
£’000
(1,952)
(1,952)
1,376
5
5,040
(245)
7,355
(200)
146
294
13,771
11,819
GRC International Group plc Annual Report and Accounts 2020
89
NOTe S TO THe CO mpANY FINANCIAl S TATeme NTS
1. Principal accounting policies
The principal accounting policies are summarised below. They have all been applied consistently throughout the period.
General information
GRC International Group plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the
Registered Office is given on page 53 of this Annual Report and Accounts. The Company is a holding company that manages the other
trading subsidiaries of the GRC International Group.
Basis of preparation
The financial statements have been prepared in accordance with Financial Reporting Standard 100 Application of Financial Reporting
Requirements (“FRS 100”) and Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”) and the Companies Act 2006
(the "Act"). The Company is a qualifying entity for the purposes of FRS 101.
The financial statements have been prepared on a historical cost basis, except for the following items (refer to individual accounting
policies for details):
• Contingent consideration
As permitted by FRS 101, no share-based payment disclosures have been included in these financial statements. Details of the share option
scheme can be found in note 25 of the Group financial statements.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
• the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information in respect of:
– paragraph 79(a)(iv) of IAS 1;
– paragraph 73(e) of IAS 16 'Property, Plant and Equipment';
– paragraph 118(e) of IAS 38 'Intangible Assets'.
• IFRS 2, ‘Share-based Payment’.
• IFRS 7, ‘Financial Instruments: Disclosures'
• the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134-136 of IAS 1 Presentation of
Financial Statements.
• the requirements of IAS 7 'Statement of Cash Flows'.
• the requirements of paragraphs 30 and 31 of IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors'.
• the requirements of paragraph 17 and 18A of IAS 24 'Related Party Disclosures'.
• the requirements in IAS 24 'Related Party Disclosures' to disclose related party transactions entered into between two or more members
of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member.
• the requirements of the second sentence of paragraph 110 and paragraphs 113(a), 114, 115, 118, 119(a) to (c), 120 to 127 and 129 of IFRS
15 'Revenue from Contracts with Customers'.
Going concern
The Group has recorded a loss for the year of £3.2m (2019: £5.4m) and at 31 March 2020 its current liabilities (excluding deferred income)
exceeded its current assets by £1.9m (2019: £4.5m). Notwithstanding this, the Directors consider it appropriate to prepare the financial
statements on a going concern basis. The key considerations relating to this judgement are described below.
During FY20 the Group significantly restructured its operations, including reducing its cost base. Of the loss for the year of £3.2m, £2.2m
(69%) was incurred in H1 and £1.0m in H2 the Group was EBITDA positive in 5 out of the 6 months, with the only exception being known
seasonality in the month of December as our customers' businesses wind down for the Christmas period. Also, during H2 the Group
successfully completed a placing of new shares which raised £3.75m (approximately £3.5m net of fees) enabling the Group to settle the cash
element of the contingent consideration (£1.6m) due to the vendors of DQM, acquired in March 2019, and repaying a bank borrowing facility
(£0.5m). The remainder of the funds raised provided additional working capital for the Group to strengthen the overall balance sheet position.
Having been through a transitional year the Group was looking forward to a strong FY21, continuing its H2 FY20 momentum and
anticipating profitable results for the year. However, the global COVID-19 pandemic led to an immediate reduction in monthly billings as
customers delayed projects, reduced spend seen as not immediately critical to day-to-day operations and focussed on establishing new
business processes and procedures to survive the short term. This unprecedented trading environment resulted in a reduction in revenues
and the net result for April and May 2020, followed by a recovery towards pre-COVID-19 levels of revenue and profitability in June prior to
a flattening out of trading levels over July and August 2020 as is the traditional pattern in the Group's annual cycle.
In response to the pandemic the Board revisited its FY21 and FY22 forecasts, increased the regularity of its short and medium term cash flow
planning, implemented a number of key cost reduction measures and took advantage of government initiatives that have been introduced in
the geographies that the Group operates in order to preserve liquidity, supplemented by deferring the payment of certain liabilities to HMRC.
Notably; the Group has made savings in marketing costs, property and training venue costs, and continues to rationalise IT infrastructure.
Having extended the hiring freeze the Group is continuing to see payroll costs reduce. In particular, early progress on the integration
of DQM with the rest of the GRC group enabled one of the founder directors to take early retirement and the other to reduce workload
by 60%; and these savings (c. £0.2m annualised) became effective from 1 April 2020. Furthermore, IT Governance USA Inc. qualified for
a $0.1m loan through the Paycheck Protection Progr amme (PPP) which should qualify in due course for forgiveness. The Group also deferred
certain liabilities payable to HMRC amounting to approximately £1.0m, representing a rolling 3-4 months of the Group's monthly liability,
which the Group has scheduled to repay both in the base case and worst case forecast on an instalment basis commencing from April 2021.
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Despite the drop in monthly billings the Group has focused operationally on developing new products and services and redesigning
existing ones such that all products and services can be delivered remotely or in person as customer preference and rapidly changing
regulation and guidance dictate. As evidenced by the early months of FY21, the Directors believe the Group is in a strong position to
continue to support its customers and deliver services in a rapidly changing environment and is well placed to benefit from the need for
organisations to change their business processes in a cyber secure and regulatory compliant manner.
Notwithstanding some easing of trading conditions and subsequent improvement in performance since the outbreak of the global
pandemic reached the United Kingdom (which represents around 93% of the Group's revenue in FY20), the Directors acknowledge that
trading conditions will necessarily remain uncertain for the foreseeable future. Those uncertainties having effect include:
• The possibility of further local or another national "lockdown".
• The levels of revenue in the context of weakened demand for the Group's products and services.
• Should the Group need to reduce its scalable cost base, its ability to make those adjustments and realise the benefits from doing that on
a timely basis.
• The continued access to financing, including government support in its various forms, that would be sufficient to fund any further cash
requirement over the foreseeable future
To assess going concern the Directors have prepared an integrated profit and loss, balance sheet and cash flow forecast by month to
31 March 2022 (the 'base case forecast'). A key assumption to the base case forecast is that the level of business interruption caused by the
pandemic would gradually ease over the summer with a resumption of more normal pre-COVID-19 levels of billings from September 2020
onwards, though still notably lower than originally budgeted prior to the impact of COVID-19 . The Group's base case forecast identifies
that through the going concern review period the Group is able to meet its liabilities as they fall due subject to settlement of the
outstanding HMRC liabilities from April 2021 onwards.
Additionally, the Directors have prepared a sensitised forecast to the base case forecast where if the COVID-19 pandemic was more
prolonged than currently envisaged by the Directors (the 'worst case forecast'). This worst case forecast assumes that revenues between
September 2020 and March 2022 are 30% below the base case and cost reduction measures, to reflect the reduced level of billings, have
been effected. The worst case forecast does not identify a potential cash flow shortfall in any month, on the basis that outstanding HMRC
liabilities are capable of being further deferred.
The Directors are monitoring actual business performance and cash flow against the base case forecast. Encouragingly, since the year
end the Group has traded ahead of the expectations set out in the base case forecast and is currently seeing trading almost back at
pre-COVID levels, although behind the growth plans originally budgeted. Furthermore in the view of the Directors any temporary cash
flow shortfall can be mitigated through the deferment or removal of selected planned marketing, capital expenditure and other scheduled
cash outflows.
Based on the base case forecasts (including the currently expected payment profile of the deferred liabilities to HMRC referred to above)
and the medium and longer term planning in place, the Directors have identified that they have a reasonable expectation of being able to
reduce costs sufficiently in the required timeframe should revenue levels reduce by any reasonably foreseeable degree and that the Group
will remain within the currently available facility levels, none of which has any financial covenant compliance requirements. Central to those
facilities is the £700,000 unsecured loan facility provided by Andrew Brode which is at present 50% utilised, and which remains in place
until at least 31 December 2021, although the Group does also have access to additional liquidity through its invoice discounting facility,
which is not currently utilised and is not currently expected to be relied upon in the base case forecast or the short term rolling cash flow
forecast reviewed by the Board.
Nevertheless, in order to trade through the pandemic period without making significant headcount cuts that would have damaged the rate
of the Group's recovery, it was necessary for the Group to defer the HMRC liabilities described above without a formal payment
arrangement being in place. At the time of writing this report the Directors' are confident that these liabilities can be settled in the near
future, and the Group currently has adequate cash and facilities in place to settle the liabilities in full if required. Given Government's clear
advice to HMRC to be supportive of UK businesses and based on the Group's communications with HMRC to date management do not
expect that the immediate need to settle the deferred balance in full is likely. However, in the event that the liabilities are demanded in full
and the effect of COVID-19 on future trading is more prolonged or severe than the Directors' expectations, the two events combined may
impact the Group's ability to generate sufficient positive cashflow to settle future liabilities as they fall due and as a result the Parent
Company would be required to raise additional funding in order to meet its liabilities with no guarantee such funding would be secured.
These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Group's and the Company's
ability to continue as a going concern. Notwithstanding the impact of COVID-19 identified above, the Directors have a reasonable
expectation that the Group will have sufficient cash flow and available resources and if necessary will be able to raise additional funds to
continue operating for at least 12 months from the approval date of these Financial Statements. Accordingly, the Directors continue to
adopt the going concern basis in preparing the Group and the Company Financial Statements.
The financial statements do not include the adjustments that would be required should the going concern basis of preparation no longer
be appropriate.
GRC International Group plc Annual Report and Accounts 2020
91
NOTe S TO THe CO mpANY FINANCIAl S TATeme NTS CONTINUED
1. Principal accounting policies continued
Investments
Investments in subsidiaries and associates are measured at cost less impairment. For investments in subsidiaries acquired as part of a group
reorganisation for consideration, including the issue of shares qualifying for merger relief, cost is measured by reference to the nominal value
of the shares issued plus fair value of other consideration. Any premium is ignored.
For other acquisitions, investments in subsidiaries and associates are measured at fair value at the transaction date.
Financial instruments
Recognition and derecognition
Financial assets and financial liabilities are recognised when the Company 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.
A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.
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 are classified into the following categories:
• amortised cost
• fair value through profit or loss ("FVTPL")
• fair value through other comprehensive income ("FVOCI").
In the period presented the Company does not have any financial assets categorised as FVOCI or FVTPL.
The classification is determined by both:
• the entity’s business model for managing the financial asset, and
• the contractual cash flow characteristics of the financial asset.
All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income
or other financial items, except for impairment of trade receivables which is presented within other administrative expenses.
Subsequent measurement of financial assets
Financial assets at amortised cost
Financial assets are measured at amortised cost if the assets meet the following conditions:
• they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows, and
• 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 Company’s cash and cash equivalents, trade and most other receivables fall into this category of
financial instruments.
Classification and measurement of financial liabilities
The Company’s financial liabilities include trade and other payables and contingent consideration.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Company designated
a financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial
liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss.
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within
finance costs or finance income.
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Deferred consideration
Deferred consideration is recognised at fair value at the acquisition date and subsequently at FVTPL. Changes in deferred consideration
arising from additional information, obtained within one year of the acquisition date, about facts or circumstances that existed at the
acquisition date are recognised as an adjustment to the investment value.
Impairment of assets
At each balance sheet date, the Directors review the carrying amounts of the Company’s non-current assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from
other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the
asset or cash-generating unit is reduced to its recoverable amount. If the recoverable amount of a cash-generating unit is less than its
carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro rata based on the carrying amount of each asset in the unit.
An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate
of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognised for the asset or cash-generating unit in prior periods. A reversal of an impairment loss is recognised
in the Income Statement immediately.
Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates
and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the
balance sheet date.
Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise
from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial
statements. Unrelieved tax losses and other deferred tax assets are recognised only to the extent that, on the basis of all available
evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the
underlying timing differences can be deducted.
Foreign currency
The functional currency of GRC International Group plc is considered to be UK Sterling because that is the currency of the primary
economic environment in which the Company operates.
Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date.
Exchange differences are recognised in profit or loss in the period in which they arise.
Share-based payment
The Company grants to its employees rights to its equity instruments of GRC International Group plc. The fair value of awards granted is
recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the
period during which the employees become unconditionally entitled to receive the awards. The fair value of the awards granted is measured
using a pricing model, taking into account the terms and conditions upon which the awards were granted. The amount recognised as an
expense is adjusted to reflect the actual value of share awards that vest except where forfeiture is only due to share prices not achieving
the threshold for vesting.
Where the Company grants awards over its own shares to the employees of its subsidiaries, it recognises an increase in the cost of investment
in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its subsidiaries’ financial statements with the
corresponding credit being recognised directly in equity.
GRC International Group plc Annual Report and Accounts 2020
93
NOTe S TO THe CO mpANY FINANCIAl S TATeme NTS CONTINUED
1. Principal accounting policies continued
Equity
Equity comprises the following:
• “Share capital” represents the nominal value of equity shares issued.
• “Share premium” represents amounts subscribed for share capital, net of issue costs, in excess of nominal value.
• “Merger reserve” represents the excess of the fair value of the consideration received for the issue of shares over the nominal value of
shares issued.
• “Share-based payment reserve” represents the accumulated value of share-based payments.
• “Retained earnings” represents the accumulated profits and losses attributable to equity shareholders.
Dividends
Dividends are recognised in the period in which they are approved by the Company’s shareholders, or in the case of an interim dividend,
when the dividend is paid. Dividends receivable from subsidiaries are recognised when either received in cash or applied to reduce a
creditor balance with a subsidiary.
2. Employees
Staff costs
Wages and salaries
Social security costs
Share-based payment charge
Pension costs
The average monthly number of persons employed by the Group during the year was as follows:
By activity
Administration
Sales and distribution
Remuneration of Directors is disclosed in the Remuneration Committee Report.
3. Intangible assets
Cost
Additions
At 31 March 2019
Additions
At 31 March 2020
Accumulated depreciation
Charge for year
At 31 March 2019
Charge for year
At 31 March 2020
Net book value
At 31 March 2020
At 31 March 2019
2020
£’000
3,134
345
–
66
3,545
2020
40
4
44
Consultancy
products and
courseware
£’000
Software and
website
costs
£’000
75
75
–
75
–
–
8
8
67
75
267
267
162
429
–
–
44
44
385
267
2019
£’000
3,756
462
63
44
4,325
2019
59
38
97
Total
£’000
342
342
162
504
–
–
52
52
452
342
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GRC International Group plc Annual Report and Accounts 2020
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4. Investments in subsidiaries
Cost and net book amount
Additions – IT Governance
Additions – DQM
At 31 March 2019
Reduction – DQM
At 31 March 2020
Investments in
subsidiaries
£’000
1,376
9,634
11,010
(193)
10,817
The carrying value of investments in subsidiaries relates to investments in IT Governance Limited and DQM Data Quality Group Holdings
Limited.
On 5 March 2018, the Company acquired 100% of the issued share capital of IT Governance Limited for £1,375,875. On 5 March 2019,
the Company acquired 100% of DQM Group Holding Limited for a total consideration of £9,633,894.
Further information about subsidiaries is provided in note 9 of the consolidated financial statements.
5. Deferred tax
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.
The deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the asset can
be utilised by way of parent company management services charges.
At inception
Charge to profit or loss
Credit direct to equity
Deferred tax asset at 31 March 2019
Charge to profit and loss
Debit direct to equity
Deferred tax asset at 31 March 2020
6. Trade and other receivables
Amount owed by subsidiary undertaking
Prepayments
Provision for expected credit loss
7. Trade and other payables
Trade payables
Other tax and social security
Accruals
Other creditors
Share-based
payments
£’000
–
(9)
270
261
10
(269)
2
2019
£’000
5,393
139
(836)
4,696
2019
£’000
392
226
75
50
743
2020
£’000
7,783
66
(1,167)
6,682
2020
£’000
305
266
227
48
846
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NOTe S TO THe CO mpANY FINANCIAl S TATeme NTS CONTINUED
8. Contingent consideration
At inception
Arising on acquisition
At 31 March 2019
Repaid in cash
Issue of ordinary shares
Adjustment to investment
At 31 March 2020
Deferred
consideration
£’000
–
3,747
3,747
(1,626)
(1,928)
(193)
–
For further information, please refer to notes 19 and 29 in the Group’s financial statements.
9. Borrowings
Unsecured
Loans from related parties
Total unsecured borrowings
Total borrowings
Current
£’000
728
728
728
2020
Non-current
£’000
–
–
–
Total
£’000
728
728
728
Current
£’000
2019
Non-current
£’000
–
–
–
–
–
–
Total
£’000
–
–
–
Further information relating to loans from related parties is set out in note 20 in the Group's financial statements.
The group has a number of loans in the period presented, and are summarised as follows:
Unsecured loan facility provided by Andrew Brode
700
Amount Advanced
£'000
Security pledged
Unsecured
Term
Effective
Interest rate
5.0% above the
Bank of England
base rate
Available to the
Group until at least
31 December 2021 and
will automatically renew
for a further 12 months
unless terminated by
either party.
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10. Share capital
The total allotted share capital of the Company is:
Ordinary shares of £0.001 each
Authorised share capital
2020
Number
99,577,589
£’000
100
2019
Number
64,484,172
The authorised share capital comprises 99,577,589 (2019: 64,484,172) ordinary shares of £0.001 each.
1 April 2018
57,462,940 ordinary shares of £0.001
Issued
5,000,000 ordinary shares of £0.001
2,021,232 ordinary shares of £0.001
31 March and 1 April 2019
1,680,000 ordinary shares of £0.001
1,288,910 ordinary shares of £0.001
3,278,353 ordinary shares of £0.001
28,846,154 ordinary shares of £0.001
31 March 2020
99,577,589 ordinary shares of £0.001
£’000
64
£’000
57
5
2
64
2
1
3
29
100
On 1 March 2019, 5,000,000 ordinary shares with a nominal value of 0.1p were issued at 100p per share by way of a subscription and placing.
On 5 March 2019, 2,021,232 ordinary shares with a nominal value of 0.1p were issued at 116.5p per share by way of issue.
On 31 January 2020, 1,680,000 ordinary shares with a nominal value of 0.1p were issued at 0.003p per share as the result of the exercise
of employee share options.
On 18 February 2020, 28,846,154 ordinary shares with a nominal value of 0.1p were issued at 13p per share by way of a subscription and placing.
On 18 February 2020, 1,288,910 ordinary shares with a nominal value of 0.1p were issued at 116.5p per share by way of issue.
On 18 February 2020, 3,278,353 ordinary shares with a nominal value of 0.1p were issued at 13p per share by way of issue.
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NOTe S TO THe CO mpANY FINANCIAl S TATeme NTS CONTINUED
11. Share premium
1 April 2018
57,462,940 ordinary shares of £0.001
Issued
5,000,000 ordinary shares of £1.00 less issue costs
31 March and 1 April 2019
1,680,000 ordinary shares of £0.003
28,846,154 ordinary shares of £0.13 less issue costs
31 March 2020
£’000
4,793
4,795
9,588
4
3,589
13,181
Consideration received in excess of the nominal value of the 28,846,154 shares issued on 18 February as a result of the subscription
and placing has been included in share premium, less registration and commission of £131,000.
Consideration received in excess of the nominal value of the 5,000,0000 shares issued on 1 March 2019 as a result of the subscription
and placing has been included in share premium, less registration and commission of £200,000.
12. Post balance sheet events
Facilities
On 17 September 2020, the minimum term on the loan facility provided by the Group’s Chairman Andrew Brode has been extended to
31 December 2021. No other changes were made to the facility provided by the Chairman.
Covid-19
Whilst the onset of the pandemic occurred prior to the group’s reporting date, Covid-19 has continued to have a material effect on the
wider environment in which the group operates. Management’s current assessment of the impacts of Covid-19 is provided within the
section “Going Concern” in note 1 to the financial statements.
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NOTeS
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NOTeS
100
GRC International Group plc Annual Report and Accounts 2020
GRC International Group plc
Unit 3, Clive Court
Bartholomew’s Walk
Cambridgeshire Business Park
Ely CB7 4EA
T: 0330 999 0222
www.grci.group