TIDMARC

RNS Number : 0207Z

Arcontech Group PLC

12 September 2022

ARCONTECH GROUP PLC

("Arcontech", the "Company" or the "Group")

Final Results for the year ended 30 June 2022

Arcontech (AIM: ARC), the provider of products and services for real-time financial market data processing and trading, is pleased to announce its final audited results for the year ended 30 June 2022.

Financial Highlights:

   --         Turnover was GBP2,757,795 (2021: GBP2,988,842) 
   --         Profit before tax was GBP758,573 (2021: GBP1,036,314) 
   --         Cash balances up 11.7% to GBP6,026,468 as at 30 June 2022 (30 June 2021: GBP5,395,457) 
   --         Fully diluted earnings per share of 4.56p (2021: 7.79p) 
   --         Final dividend increased 18.2% to 3.25 pence per share (2021: 2.75 pence per share) 

Operational Highlights:

   --         Turnover and profit impacted by earlier announced contract losses 
   --         Continued investment in sales and new product development 
   --         Greater level of engagement from both existing customers and new prospects 
   --         Sales team has built a strong pipeline of near and mid-term prospects 

-- Continued cash generation and robust balance sheet and high proportion of recurring revenue

Commenting on the results, Geoff Wicks, Chairman and Non-Executive Director of Arcontech said:

"Several years of inactivity at many of our clients and prospects has created pent up demand which is demonstrated by our robust pipeline. Although conditions remain uncertain, as economies globally face well documented challenges, we are confident that we can convert some of the current interest to orders and start to build back the revenue we lost during the pandemic".

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR.

Enquiries:

 
 Arcontech Group plc                                 020 7256 2300 
 Geoff Wicks, Chairman and Non-Executive Director 
 Matthew Jeffs, Chief Executive 
 
 finnCap Ltd (Nomad & Broker)                        020 7220 0500 
 Carl Holmes/Tim Harper 
  Harriet Ward - ECM 
 
 

To access more information on the Group please visit: www.arcontech.com

Chairman's Statement

The market for our products continued to experience challenges through 2021/2022. Customers generally were streamlining operations to manage costs and we have done well to maintain most of our customer base. As previously reported we lost two customers and this impacted the second half of the year and will have an impact on our results for 2022/2023 as well. However, we have closed some new sales towards the end of last year and we are well placed to make up some of the lost revenue during the current year.

Turnover was GBP2,757,795 (2021: GBP2,988,842) down by GBP231,047 on last year as a result of the customer losses. Profit before taxation was GBP758,573 (2021: GBP1,036,314) reflecting the lower second half revenue. Over 90% of our revenue is recurring and average contract periods have increased over the last year so while revenue has reduced, it has increased in resilience and quality. Statutory earnings per share for the year to 30 June 2022 were 4.57p (2021: 7.88p).

Through the pandemic it was difficult to visit our customer base in the UK and internationally with many of our usual contacts working from home. Budgets were tightly controlled across the board with new projects put on hold and some consolidation taking place. While this has impacted our business we remain in good shape, with a strong balance sheet, and able to take advantage of opportunities as the market improves.

We have used this period to strengthen our sales and marketing team and have worked hard to maintain a high level of customer support. Our product line has been upgraded and work is continuing on additions to products with some early-stage work on extensions to our product range for new areas of the market.

Our recurring revenue base enables us to have confidence to continue with our strategy to grow our core business and to expand into new market areas. We have made good progress with a number of prospective customers over the year but recognise that lead times are longer than before the pandemic. In recent months we have seen signs of improvement in the market with new projects being discussed with existing customers and prospective new customers.

Financing

Cash balances were GBP6,026,469 (2021: GBP5,395,457) at the period end, an increase of 11.7%. This strong balance sheet allows the Company to invest in both organic growth and to identify complementary acquisitions.

Dividend

I am pleased to announce that subject to approval at the Annual General Meeting we intend to pay a dividend of 3.25p per share for the year ended 30 June 2022 (2021: 2.75 pence) an increase of 18.2%, to those shareholders on the register as at the close of business on 30 September 2022 with a dividend payment date of 24 October 2022.

Employees

Through the difficult period of the pandemic, we have retained most of our staff and where necessary we have been able to replace leavers with candidates of a high calibre. Staff are back in the office for most of the week but we continue to operate a hybrid working environment to allow greater flexibility.

Outlook

Several years of inactivity at many of our clients and prospects has created pent up demand which is demonstrated by our robust pipeline. Although conditions remain uncertain, as economies globally face well documented challenges, we are confident that we can convert some of the current interest to orders and start to build back the revenue we lost during the pandemic.

Geoff Wicks

Chairman and Non-Executive Director

Chief Executive's Review

The 2021/22 financial year was challenging reflecting the impact Covid had on our customer landscape and we performed well to deliver revenues and profit before tax in line with market expectations.

Our pipeline is growing and prospects along with existing clients are beginning to engage. We have also managed to extend the length of contracts with some of our larger clients to multi-year terms, reflecting their confidence and satisfaction in our products and service.

The year has further seen us continue to improve and build out our software solutions to meet client needs and to differentiate us from the competition. Our tick history server, which is a development of our desktop product, is close to being ready for alpha testing as is our permissioning system. The tick history server which stores pricing data so that it can be used for other purposes, will allow us to address new markets, currently occupied by two dominant providers, whilst our permissioning system which ensures users only receive data they are licensed for allows us to replace incumbent platforms wholesale whilst targeting a wider range of prospects.

At the request of a client we have also built additional feed handlers to enable direct delivery of data by content creators, in this instance, for two of the largest inter-dealer brokers. These are currently in User Acceptance Testing at the client and add to the direct feeds we will be able to integrate to all clients. This is a good example of how closely we work with our clients and highlights the bespoke service we are able to provide.

The website and marketing materials have also been refreshed to better reflect what we do. This is a work in progress and we have more improvements planned.

We continue to grow our cash resources which enables us to proactively look for suitable acquisitions. At the same time we are researching alternative products linked to the services we already provide to create additional paths for organic growth. We are in very early-stage discussions with several clients in this regard.

Our staff are a key asset to the Company and have continued to provide exemplary service and support to our clients. I would like to express my thanks for their continued commitment.

During the year we made changes to our sales personnel which has enabled us to focus on new markets. We are also adding to our support team to provide desktop support along with the technical support we have provided to date.

With clients returning to the office and travel restrictions largely over we are seeing encouraging signs from existing clients and prospects alike. As a result we are cautiously optimistic for the year ahead and beyond.

Matthew Jeffs

Chief Executive

Strategic Report

The Directors present the group strategic report for Arcontech Group plc and its subsidiaries for the year ended 30 June 2022.

Principal activities

The principal activities of the Company and its subsidiaries during the year were the development and sale of proprietary software and provision of computer consultancy services.

Review of the business and prospects

A full review of the operations, financial position and prospects of the Group is given in the Chairman's Statement and Chief Executive's Review on pages 2 to 3.

Key performance indicators (KPIs)

The Directors monitor the business using management reports and information, reviewed and discussed at monthly Board meetings. Financial and non-financial KPIs used in this report include:

Financial KPIs :

   Revenue GBP2,757,795 (2021: GBP2,988,842; 2020: GBP2,955,314)                    Measurement: 

Revenue from sales made to all customers (excluding intra-group sales which eliminate on consolidation)

Performance:

Loss of two customers during the year impacted sales in the second half of the year

Adjusted profit GBP601,566 (2021: GBP959,110; 2020: GBP1,131,203) Measurement:

Profit after tax and before release of accruals for administrative costs in respect of prior years . This is an alternative, non-IFRS performance measure, that is considered relevant as it provides a more accurate reflection of trading performance than net profit after tax. The adjusted profit is Net profit after tax less the amount of accruals for administrative costs released as disclosed in the footnote to the Income Statement

Performance:

Decrease reflects the loss of two customers. However costs continued to be controlled tightly

   Cash GBP6,026,469 (2021: GBP5,395,457; 2020: GBP5,006,969)                          Measurement: 

Cash and cash equivalents held at the end of the year

Performance:

The Group continues to maintain healthy cash balances

   subject to any exceptional circumstances or                 acquisition 

opportunities

   Earnings per share (basic) 4.57p (2021: 7.88; 2020: 9.22p)                       Measurement: 

Earnings after tax divided by the weighted average number of shares

Performance:

Decrease due to the loss of two customers during the year

   Earnings per share (diluted) 4.56p (2021: 7.79p; 2020: 9.03p)                  Measurement: 

Earnings after tax divided by the fully diluted number of shares

Performance:

Decrease due to the loss of two customers during the year

Strategic Report (continued)

Non-financial KPIs :

   Staff retention rate (net) 87% (2021: 93%; 2020: 91%)                             Measurement: 

Net retention after adjusting for joiners and leavers during the year

Performance:

Staff morale from our dedicated employees remains strong, reflected in the stable retention rate

Principal risks and uncertainties

The Group's performance is affected by a number of risks and uncertainties, which the Board monitor on an ongoing basis in order to identify, manage and minimise their possible impact. General risks and uncertainties include changes in economic conditions, interest rate fluctuations and the impact of competition. The Group's principal risk areas and the action taken to mitigate their outcome are shown below:

 
 Risk area              Nature                                           Mitigation 
 
                        Loss of business due to existing competition     Ongoing investment in research and 
 Competition                                                             development 
                        Or new entrants into the market                  Responding to the changing needs of clients 
                                                                         to remain competitive 
 
                        Inability to execute business plan due to the 
 Loss of key personnel  risk of losing key personnel                     Employee share option scheme in place 
 
                        Inability to execute business plan due to 
                        staff absence. Difficulty in winning new         The Directors and employees returned to the 
                        business                                         office on a hybrid basis, but maintain strict 
                        due to potential customers being hard to         health and safety protocols in order to 
 Covid-19 pandemic      engage with due to remote working                protect staff. 
                                                                         At present the Company believes that there 
                                                                         should be no significant material disruption 
                                                                         to 
                                                                         its work 
 
                        Business made difficult due to increased         Arcontech is a global company and as such 
                        regulations between the UK and Europe caused     seeks growth across a geographically diverse 
                        by Brexit                                        customer 
 Brexit                                                                  base 
 

Relations with shareholders

Section 172(1) Statement - Promotion of the Company for the benefit of the members as a whole

The Directors believe they have acted in the way most likely to promote the success of the Group for the benefit of its members as a whole, as required by s172 of the Companies Act 2006.

The requirements of s172 are for the Directors to:

   --       Consider the likely consequences of any decision in the long term; 
   --       Act fairly between the members of the Company; 
   --       Maintain a reputation for high standards of business conduct; 
   --       Consider the interests of the Company's employees; 
   --       Foster the Company's relationships with suppliers, customers and others; 

-- The desirability of the Company maintaining a reputation for high standards of business conduct; and

   --       Consider the impact of the Company's operations on the community and the environment. 

Section 172(1) Companies Act 2006

The Board takes decisions with the long term in mind, and collectively and individually aims to uphold the highest standards of conduct. Similarly, the Board understands that the Company can only prosper over the long term if it understands and respects the views and needs of its customers, distributors, employees, suppliers and the wider community in which it operates.

A firm understanding of investor needs is also vital to the Company's success. The Directors are fully aware of their responsibilities to promote the success of the Company in accordance with Section 172(1) of the Companies Act 2006. The text of Section 172(1) of the Companies Act 2006 has been sent out to each main Board Director.

Strategic Report (continued)

The Board ensures that the requirements are met, and the interests of stakeholders are considered as referred to elsewhere in this report and through a combination of the following:

-- A rolling agenda of matters to be considered by the Board through the year, which includes an annual strategy review meeting, where the strategic options for the following year are developed;

-- At each board meeting, to receive and discuss a will report on customers, employees and other colleagues, and investors;

   --      Standing agenda points and papers; 

-- A review of certain of these topics through the Audit Committee and the Remuneration Committee agenda items referred to in this report; and

-- Detailed consideration is given to of any of these factors where they are relevant to any major decisions taken by the Board during the year.

The Group's operation is the development and sale of proprietary software and provision of computer consultancy services. The Board has identified its key stakeholders as its customers, shareholders, employees and suppliers. The Board keeps itself appraised of its key stakeholders' interests through a combination of both direct and indirect engagement, and the Board has regard to these interests when discharging its duties.

The application of the s172 requirements can be demonstrated in relation to some of the key decisions made during the year to 30 June 2022:

-- Allocation of the Group's capital in a way which offers significant returns to shareholders in line with the Company's dividend policy, while also ensuring that the Group retains flexibility to continue to deploy capital towards profitable growth;

-- Implementing a new hybrid location working format for staff as working environments continue to evolve post Covid-19, while ensuring that the Group continued to deliver both the high level of service and security that our customers depend on without compromising the health and safety of employees.

During the year to 30 June 2022, the Board assessed its current activities between the Board and its stakeholders, which demonstrated that the Board actively engages with its stakeholders and takes their various objectives into consideration when making decisions. Specifically, actions the Board has taken to engage with its stakeholders over the last twelve months include:

-- All Directors attended the 2021 AGM to answer questions and receive additional feedback from investors;

   --      The outcome of the AGM is published on the Company's corporate website; 

-- The Board receives regular updates on the views of shareholders through briefings and reports from the executive directors, and the Company's brokers;

-- Arranged meetings with certain stakeholders to provide them with updates on the Company's operational activities and other general corporate updates;

-- We discussed feedback from investors' and analysts' meetings following the release of our annual and half-year announcements. We have an investor relations programme of meetings with existing and potential shareholders;

-- Monitored company culture and engaged with employees on efforts to continuously improve company culture and morale; and

-- A range of corporate information (including all Company announcements) is also available to shareholders, investors and the public on the Company's corporate website: www.arcontech.com.

The Board believes that appropriate steps and considerations have been taken during the year so that each Director has an understanding of the various key stakeholders of the Company. The Board recognises its responsibility to contemplate all such stakeholder needs and concerns as part of its discussions, decision-making, and in the course of taking actions, and will continue to make stakeholder engagement a top priority in the coming years.

Approved on behalf of the board on 9 September 2022 by:

 
 Matthew Jeffs 
 Chief Executive 
 

Group Income Statement and Statement of Comprehensive Income

For the year ended 30 June 2022

 
 
                                              Note          2022          2021 
                                                             GBP           GBP 
 
 Revenue                                       3       2,757,795     2,988,842 
 
 Administrative costs                                (1,999,523)   (1,945,481) 
 
 
   Operating profit                            4         758,272     1,043,361 
 
   Net finance income / (expense)              5             301       (7,047) 
 
 
   Profit before taxation                                758,573     1,036,314 
 
 
   Taxation                                    9       (148,007)        10,796 
 
   Profit for the year after tax                         610,566     1,047,110 
-------------------------------------------  -----  ------------  ------------ 
 
   Total comprehensive income for the year               610,566     1,047,110 
-------------------------------------------  -----  ------------  ------------ 
 
 
   Earnings per share (basic)                  10          4.57p         7.88p 
-------------------------------------------  -----  ------------  ------------ 
 
   Adjusted* Earnings per share (basic)        10          4.50p         7.22p 
-------------------------------------------  -----  ------------  ------------ 
 
   Earnings per share (diluted)                10          4.56p         7.79p 
-------------------------------------------  -----  ------------  ------------ 
 
 
 Adjusted* Earnings per share (diluted)    10   4.49p   7.14p 
----------------------------------------  ---  ------  ------ 
 

*Adjusted to exclude the release of accruals for administrative costs of GBP9,000 (2021: GBP88,000) in respect of prior years. This is a non-IFRS alternative performance measure that the Board considers to be a more accurate indicator of underlying trading performance. This measure has been adopted as a KPI and is disclosed in the Strategic Report on page 4.

All of the results relate to continuing operations.

There was no Other Comprehensive Income other than Profit for the year after tax for the year under review.

The notes on pages 32 to 56 form part of these financial statements

Statement of Changes in Equity

For the year ended 30 June 2022

Group:

 
                                                Share      Share                           Retained       Total 
                                              capital    premium   Share option reserve    earnings      equity 
                                                  GBP        GBP                    GBP         GBP         GBP 
 Balance at 30 June 2020                    1,651,314     56,381                188,639   3,806,514   5,702,848 
 
   Profit for the year                              -          -                      -   1,047,110   1,047,110 
-----------------------------------------  ----------  ---------  ---------------------  ----------  ---------- 
 Total comprehensive income for the year            -          -                      -   1,047,110   1,047,110 
 
 Dividend paid                                      -          -                      -   (333,594)   (333,594) 
 
 Exercise of options                           14,663     35,979                      -           -      50,642 
 
   Share-based payments                             -          -                115,866           -     115,866 
 
 Transfer between reserves                          -          -               (33,298)      33,298           - 
-----------------------------------------  ----------  ---------  ---------------------  ----------  ---------- 
 Balance at 30 June 2021                    1,665,977     92,360                271,207   4,553,329   6,582,873 
 
 Profit for the year                                -          -                      -     610,566     610,566 
-----------------------------------------  ----------  ---------  ---------------------  ----------  ---------- 
 Total comprehensive income for the year            -          -                      -     610,566     610,566 
 
 Dividend paid                                      -          -                      -   (367,752)   (367,752) 
 
 Exercise of options                            5,624     23,401                      -           -      29,025 
 
 Share-based payments                               -          -                116,612           -     116,612 
 
 Transfer between reserves                          -          -              (116,994)     116,994           - 
-----------------------------------------  ----------  ---------  ---------------------  ----------  ---------- 
 Balance at 30 June 2022                    1,671,601    115,761                270,825   4,913,137   6,971,324 
-----------------------------------------  ----------  ---------  ---------------------  ----------  ---------- 
 

Company:

 
                                                 Share      Share                           Retained        Total 
                                               capital    premium   Share option reserve    earnings       equity 
                                                   GBP        GBP                    GBP         GBP          GBP 
 Balance at 30 June 2020                     1,651,314     56,381                188,639   4,450,302    6,346,636 
 
 Profit for the year                                 -          -                      -     181,744      181,744 
------------------------------------------  ----------  ---------  ---------------------  ----------  ----------- 
 Total comprehensive expense for the year            -          -                      -     181,744      181,744 
 
 Dividend paid                                       -          -                      -   (333,594)    (333,594) 
 
 Exercise of options                            14,663     35,979                      -           -       50,642 
 
   Share-based payments                              -          -                115,866           -      115,866 
 
   Transfer between reserves                         -          -               (33,298)      33,298            - 
------------------------------------------  ----------  ---------  ---------------------  ----------  ----------- 
 Balance at 30 June 2021                     1,665,977     92,360                271,207   4,331,751    6,361,295 
 
 Profit for the year                                 -          -                      -     273,286      273,286 
------------------------------------------  ----------  ---------  ---------------------  ----------  ----------- 
 Total comprehensive income for the year             -          -                      -     273,286      273,286 
 
 Dividend paid                                       -          -                      -   (367,752)    (367,752) 
 
 Exercise of options                             5,624     23,401                      -           -       29,025 
 
 Share-based payments                                -          -                116,612           -      116,612 
 
 Transfer between reserves                           -          -              (116,994)     116,994            - 
------------------------------------------  ----------  ---------  ---------------------  ----------  ----------- 
 Balance as at 30 June 2022                  1,671,601    115,761                270,825   4,354,279    6,412,466 
------------------------------------------  ----------  ---------  ---------------------  ----------  ----------- 
 

The notes on pages 32 to 56 form part of these financial statements.

Statements of Financial Position

Registered number: 04062416

As at 30 June 2022

 
                                               Group          Group       Company      Company 
                                                2022           2021          2022         2021 
                                                 GBP            GBP           GBP          GBP 
                                  Note 
 Non-current assets 
 
 Goodwill                          11      1,715,153      1,715,153             -            - 
 Property, plant and 
  equipment                        12          6,545         11,147             -            - 
 Right of use asset                17        219,455        365,758             -            - 
 Investments in subsidiaries       13              -              -     2,017,471    2,017,471 
 Deferred tax asset                18        318,000        471,000        56,000       55,000 
 Trade and other receivables       14        141,750        141,750             -            - 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
 
 Total non-current assets                  2,400,903      2,704,809     2,073,471    2,072,471 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
 
 Current assets 
 
 Trade and other receivables       14        348,686        470,317     3,322,737    3,263,467 
 Cash and cash equivalents         15      6,026,468      5,395,457     1,074,294    1,077,741 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
 
 Total current assets                      6,375,154      5,865,774     4,397,031    4,341,208 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
 
 Current liabilities 
 
 Trade and other payables          16    (1,608,880)    (1,643,407)      (58,036)     (52,384) 
 Lease liabilities                 17      (148,450)      (148,450)             -            - 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
 
 Total current liabilities               (1,757,330)    (1,791,857)      (58,036)     (52,384) 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
 
 Non-current liabilities 
 
 Lease liabilities                 17       (47,403)      (195,853)             -            - 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
 
 Total Non-current liabilities              (47,403)      (195,853)             -            - 
 
 Net current assets                        4,617,824      4,073,917     4,338,995    4,288,824 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
 Net assets                                6,971,324      6,582,873     6,412,466    6,361,295 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
 
 Equity 
 
 Called up share capital           19      1,671,601      1,665,977     1,671,601   1,665,977 
 Share premium account             20        115,761         92,360       115,760       92,360 
 Share option reserve              20        270,825        271,207       270,825      271,207 
 Retained earnings                 20      4,913,137      4,553,329     4,354,279   4,331,751 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
                                           6,971,324      6,582,873     6,412,466   6,361,295 
-------------------------------  -----  ------------  -------------  ------------  ----------- 
 

As permitted by s408 of the Companies Act 2006, the Company has not presented its own income statement. The parent Company profit for the year was GBP273,286 (2021: GBP181,744).

Approved on behalf of the board on 9 September by:

 
 
   Matthew Jeffs 
 Chief Executive 
 

The notes on pages 32 to 56 form part of these financial statements.

Group Statement of Cash Flows

For the year ended 30 June 2022

 
                                                   Note        2022        2021 
                                                                GBP         GBP 
 
 Cash generated from operations                     21    1,109,608     809,559 
 
 Tax paid                                                   (2,642)     (8,204) 
 
 Net cash generated from operating activities             1,106,966     801,355 
------------------------------------------------  -----  ----------  ---------- 
 
   Investing activities 
 
 Interest received                                           13,911      13,260 
 
 Purchases of plant and equipment                           (2,688)     (1,482) 
 
 
   Net cash generated from investing activities              11,223      11,778 
------------------------------------------------  -----  ----------  ---------- 
 
 Financing activities 
 
 Proceeds from the issue of shares                           29,025      50,642 
 
 Dividend paid                                            (367,752)   (333,594) 
 
 Payment of lease liabilities                             (148,450)   (141,693) 
 
 Net cash used in financing activities                    (487,177)   (424,645) 
------------------------------------------------  -----  ----------  ---------- 
 
   Net increase in cash and cash equivalents                631,012     388,488 
 
 Cash and cash equivalents at beginning of year           5,395,457   5,006,969 
------------------------------------------------  -----  ----------  ---------- 
 
   Cash and cash equivalents at end of year         15    6,026,469   5,395,457 
------------------------------------------------  -----  ----------  ---------- 
 

For the year to 30 June 2022, the Group had no debt, and there were no material non-cash transactions.

The notes on pages 32 to 56 form part of these financial statements.

Company Statement of Cash Flows

For the year ended 30 June 2022

 
                                                      Note        2022         2021 
                                                                   GBP          GBP 
 
   Net cash generated by operating activities          21      330,075      210,920 
 
 Tax paid                                                      (1,221)      (3,319) 
 
 Net cash generated from operating activities                  328,854      207,601 
---------------------------------------------------  -----  ----------   ---------- 
 
   Investing activities 
 
 Interest received                                               6,426        6,392 
---------------------------------------------------  -----  ----------   ---------- 
 
 Net cash generated from investing activities                    6,426        6,392 
---------------------------------------------------  -----  ----------   ---------- 
 
 Financing activities 
 
 Proceeds from the issue of shares                              29,025       50,642 
 
   Dividend paid                                             (367,752)    (333,594) 
 
 
   Net cash used in financing activities                     (338,727)    (282,952) 
---------------------------------------------------  -----  ----------   ---------- 
 
   Net decrease in cash and cash equivalents                   (3,447)     (68,959) 
 
 Cash and cash equivalents at beginning of year              1,077,741    1,146,700 
---------------------------------------------------  -----  ----------   ---------- 
 
   Cash and cash equivalents at end of year            15    1,074,294    1,077,741 
---------------------------------------------------  -----  ----------   ---------- 
 
 

The notes on pages 32 to 56 form part of these financial statements.

Notes to the Financial Statements

For the year ended 30 June 2022

   1.      Accounting policies 

T h e pri n c i p al accoun t i ng pol i c i es are s umm a r i s ed belo w. T hey h a ve a ll been app li ed con s i s t en t ly t hroughout t he pe r i od co v ered by t he se f i n anci al s t a t e m en t s except where changes have been noted below.

Reporting entity

Arcontech Group plc ("the Company") is a company incorporated in England and Wales with a registered address at 1(st) floor, 11-21 Paul Street, London, EC2A 4JU. The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries (together referred to as "the Group").

Principal Activity

The principal activities of the Company and its subsidiaries during the year were the development and sale of proprietary software and provision of computer consultancy services.

Bas i s of p re p arati on

These financial statements have been prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006.

On the basis of current projections, confidence of future profitability and cash balances held, the Directors have adopted the going concern basis in the preparation of the f i nanci al s t a t e m en ts.

T h e f i nanci al s t a t e m en ts h a ve been prepared under t he h i s t orical co st co n v e n t i on. As at 30 June 2022 all assets and liabilities are recorded at amortised cost, and there were no assets or liabilities recorded at fair value.

Going Concern

On the basis of current projections and having regard to the Group's existing cash reserves, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. In reaching this conclusion the Directors have projected cash flow out twelve months from the date of signing this report. Revenue projection has been based on recurring revenue streams from existing customers and a forecast for new revenue from additional sales that the Directors feel is achievable, and in line with average new business generation pre-Covid-19. The Group has a highly stable cost base which has been reviewed to incorporate the impact of additional costs for revenue generation activities such as industry trade shows. The Directors have stress tested the cash flow projections assuming no new revenue generation and an increase in costs of up to 15%, given the current inflationary environment. Under this scenario given expected cash generation from operations and existing cash balances, the Group will have sufficient resources to continue trading for well in excess of the next twelve months. Accordingly, the Directors have adopted the going concern basis in the preparation of the financial statements.

Changes in accounting policies and disclosures

   a)    New and amended Standards and Interpretations adopted by the Group and Company 

The International Accounting Standards Board (IASB) issued various amendments and revisions to International Financial Reporting Standards and IFRIC interpretations. The amendments and revisions were applicable for the period year 30 June 2022 but did not result in any material changes to the financial statements of the Group.

b) New and amended Standards and Interpretations issued but not effective for the financial year beginning 1 July 2022

 
 Standard               Impact on initial application              Effective 
                                                                    date 
---------------------  -----------------------------------------  ---------- 
 IAS 1 (Amendments)     Classification of Liabilities as Current   TBC 
                         or Non-Current 
 IAS 1 (Amendments)     Disclosure of Accounting Policies          TBC 
 IAS 1 (Amendments)     Definition of Accounting Estimates         TBC 
 IFRS 17 (Amendments)   Initial Application of IFRS 17 and 
                         IFRS 9 - Comparative Information            TBC 
---------------------  -----------------------------------------  ---------- 
 

The new and amended Standards and Interpretations which are in issue but not yet mandatorily effective is not expected to be material.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   1.      Accounting policies (continued) 

Bas i s of c on s o l id ation

The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared to 30 June 2022. Subsidiaries are entities controlled by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

-- Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee).

   --       Exposure, or rights, to variable returns from its involvement with the investee 
   --       The ability to use its power over the investee to affect its returns. 

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

   --       The contractual arrangement with the other vote holders of the investee. 
   --       Rights arising from other contractual arrangements. 
   --       The Group's voting rights and potential voting rights. 

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. The acquisition method is used to account for the acquisition of subsidiaries.

All i n tra-group tran s act i on s, ba l ance s, i nco me and e x pen s es are e l imi na t ed on con s o li da t i on.

B u s in es s c o m b in atio ns a nd g o o d w i ll

O n acqu i s i t i on, t he a ss e ts and li ab i li t i es and con t i ngent li a b i l i t i es of s ub s i d i ari es are m ea s ured at t he ir f a ir v a l ue at t he da te of acqu i s i t i on. Any e xce ss of co st of acqu i s i t i on o v er t he f a ir v a l ues of t he i den t i f i ab le net ass e ts acqu ired is recogn i s ed as goodwill. Any de f i c i ency of the cost of acqu i s i t i on be l ow the fair v a l ues of t he i den t i f i a b le net a sse ts acq u ired (i . e. d i scount on acq u i s i t i on) is credited to the income statement in t he peri od of acqu i s i t i on. G ood w i ll a r i s i ng on c on s o li da t i on is recogn i s ed as an ass et and re v i e w ed f or i m pai r m ent at l ea st annua lly. Any i m pa i rment is recogn i s ed imm e d i a t e ly in the income statement and is not s u b s equen t ly revers ed.

Revenue recognition

Revenue is recognised in accordance with the transfer of promised services to customers (i.e. when the customer gains control of the service) and is measured as the consideration which the group expects to be entitled to in exchange for those services. Consideration is typically fixed on the agreement of a contract except for quarterly flexible license contracts. Payment terms are agreed on a contract by contract basis.

A service is distinct if the customer can benefit from the service on its own or together with other resources that are readily available to the customer and the entity's promise to transfer the service to the customer is separately identifiable from other promises in the contract.

Contracts with customers do not contain a financing component.

Under IFRS 15, revenue earned from contracts with customers is recognised based on a five-step model which requires the transaction price for each identified contract to be apportioned to separate performance obligations arising under the contract and recognised either when the performance obligation in the contract has been performed (point in time recognition) or over time as control of the performance obligation is transferred to the customer.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   1.      Accounting policies (continued) 

Revenue recognition (continued)

The group recognises revenue when it satisfies a performance obligation by transferring a promised service to the customer as follows:

-- Revenue from recurring license fees and other license fees is recognised on an over time basis via a straight line across the period the services are provided. In reaching this conclusion the group has assessed that ongoing contractual obligations are not separately identifiable from other promises in the contract and are not distinct from the licence, and hence are accounted for as a single performance obligation. As the license is not distinct the combined performance obligation is recognised over time.

In assessing whether a licence is distinct the Group considered the continuing requirement to:-

- optimise functionality;

- optimise performance; and

- provide enhancements to ensure user regulatory compliance.

-- Revenue from flexible license contracts that include variable consideration are quarterly contracts assessed at the end of each calendar quarter and revenue is recognised based on actual usage confirmed for that quarter at the point of customer acceptance,

-- Revenue from project work is recognised on satisfactory completion of each project, as this is considered to be the point in time the customer gains control over the results of the project work.

T axa t i o n

The tax charge/(credit) represents the sum of the tax payable/(receivable) and any deferred tax.

Research and development tax credits are recognised when received.

The tax payable/(receivable) is based on the taxable result for the year. The taxable result differs from the net result as reported in t h e i nco me s t a t ement becau se it e x c l udes i t e ms of i nco me or e x pen se t hat are t a x a b le or deduct i b le in o t her years and it f urt her e x c l udes i t e ms t hat are n e v er t a x ab le or deduct i b l e. T he C ompany's li abil i ty f or current t ax is ca lcu l a t ed u s i ng t ax ra t es t hat h a ve been enact ed or s u b s tantively enact ed by t he ba l ance s heet da t e.

De f e rred t ax is t he t ax e x pe c t ed to be payab le or re c o v erab le on d i f f erences be t w e en t he carryi ng a m oun ts of a sse ts a nd li abi l i t i es in t he f i nanci al s t a t e m e n ts and t he corre s pond i ng t ax b a s es u s ed in t he co m pu t a t i on of t a x a b le pro f i t and is accoun t ed f or u s i ng t he ba l ance s heet li abil i ty m e t hod. D e f e rred t ax l i a b i l i t i es are genera lly recogn i s ed f or a ll t a x a b le t e m porary d i ff erences and d e f e rred t ax a ss e ts are recogn ised to t he e x t ent t h at it is probab le t hat t a x ab le pro f i ts w ill be a v a i l ab le aga i n st w h ich deduct i b le t e m porary d i ff erences can be u t ili s ed. Such ass e ts and li abi l i t i es are not recogn i s ed if the t e m porary di ff erence ari s es from good w i ll or from t he i ni t i al recogn i t i on (o t her t han in a bu s i ness co m b i na t i on) of o t her a ss e ts a nd li a b i li t i es in a tran s act i on t hat a f f e c ts ne i t her t he t a x a b le pro f it nor t he accoun t i ng pro f i t.

De f e rred t ax l i abil i t i es are recogn i s ed f or t a x a b le t e m porary d i f f erences ari s i ng on i n v e s t m e n ts in s u b s i d i ari e s, e xcept w here t he Group is ab le to con trol t he re v ers al of t he t e m porary di ff erence and it is probab le t hat t he t e m porary d i f f erence w ill not re v erse in t he f ore s eeab le f u t ure.

T h e carryi ng a m ount of d e f erred t ax a ss e ts is re v i e w ed at each ba l ance s heet da te.

De f e rred t ax is ca lcu l a t ed at t he t ax ra t es t hat are e x pect ed to app ly in t he peri od w h en t he li a b i l i ty is s e tt l ed, or t he ass et rea li s ed. De f erred t ax is charged or cred i t ed to the income statement, e xcept w hen it re l a t es to i t e ms charged or cred i t ed d ire c t ly to equi ty, in w h ich ca se t he de f erred t ax is a l so dea lt w i th in equ i ty.

De f e rred t ax a ss e ts a nd li abi l i t i es are o ff s et w hen t he re is a l ega lly en f orcea b le ri ght to s et o ff current t ax a ss e ts aga i n st current t ax l i abil i t i es and when t hey re l a te to i nco me t a x es l e v ied by t he s a me t a x a t i on au t ho r i ty and t he Group i n t ends to s e tt le i ts current ass e ts and li abi l i t i es on a net ba s i s.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   1.      Accounting policies (continued) 

Sh are-b ased p ayme nts

T h e co st of s hare-b ased e m p l oyee co m pen s a t i on arrange m en t s, w h ereby e m p l oyees recei ve re m unera t i on in t he f o rm of s hares or s ha re op t i on s, is recogn i s ed as an e m p l oyee ben e f it e x pen se in t he i nco me s t a t e m en t.

T h e t o t al e x pen se to be a pport i oned o v er t he v e s t i ng peri od of t he bene f it is de t ermi ned by re f erence to t he f a ir v a l ue (e x c l ud i ng t he e f f ect of non m arke t-ba s ed v e s t i ng cond i t i on s) at t he da te of gran t. F a ir v a l ue is m ea s ured by t he u se of the Black-Scholes m odel. T he e x pect ed li fe u s ed in t he m odel has been ad j u s t ed, b a s ed on m anage m en t 's b e st e s t ima t e, f or t he e f f e c ts of the non-transferability, e x erc i se re s trict i ons and beh a v i oural con s i dera t i on s. A cancellation of a share award by the Group or an employee is treated consistently, resulting in an acceleration of the remaining charge within the consolidated income statement in the year of cancellation.

Impairment of tangible and intangible assets

The carrying amounts of the Group's and Company's tangible and intangible assets are reviewed at each year end date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.

Expenses incurred on Research & Development are currently expensed through the income statement as the expenditure is incurred on the maintenance and enhancement of existing products. The applicability of this treatment is reviewed regularly by the Company.

For goodwill, the recoverable amount is estimated at each year end date, based on value in use. The recoverable amount of other assets is the greater of their net selling price and value in use.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.

An impairment loss is recognised in the income statement whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis.

A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Property, pl a nt a nd e q u i p me nt

Property, pl ant and equ i p m ent are s t a t ed at co st l e ss accu m u l a t ed depreci a t i on and any recogn i s ed i m pa i r m e nt l o ss.

Dep reci a t i on is charged so as to wri te o ff t he co st of ass e t s, o v er t he ir e s t i m a t ed u s e f ul l i v e s, on t he f ol l o w i ng b a s e s:

 
       Leasehold property             - over the period of the lease 
       Computer equipment             - 33% - 40% on cost 
       O ff i ce furniture and equ i 
        p m ent                       - 20% - 25% on cost or reducing balance 
 

In ves tme nts in s u b s i d i ar i es

I n v e s t m en t s in s ub s i d i ari es are s t a t ed at co st l e ss any pro v i s i on f or i m p a i r m en t.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   1.      Accounting policies (continued) 

Financial instruments

Financial assets and financial liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

The Group does not hold any investments other than investments in subsidiaries.

Trade receivables are held in order to collect the contractual cash flows and are initially measured at the transaction price as defined in IFRS 15, as the contracts of the Group do not contain significant financing components. Impairment losses are recognised based on lifetime expected credit losses in profit or loss.

Other receivables are held in order to collect the contractual cash flows and accordingly are measured at initial recognition at fair value, which ordinarily equates to cost and are subsequently measured at cost less impairment due to their short-term nature. A provision for impairment is established based on 12-month expected credit losses unless there has been a significant increase in credit risk when lifetime expected credit losses are recognised. The amount of any provision is recognised in the income statement.

Cash and cash equivalents

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group are classified in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs.

Effective interest rate method

The effective interest rate method is a method of calculating the amortised cost of a financial asset or liability and allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows through the expected life of the financial asset or liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

(a) Classification

The Group classifies its financial assets in the following measurement categories:

-- those to be measured subsequently at fair value (either through OCI or through profit or loss); and

   --       those to be measured at amortised cost. 

The classification depends on the Group's business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will be recorded either in profit or loss or in OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). See Note 16 for further details.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   1.      Accounting policies (continued) 

Financial instruments (continued)

(b) Recognition

Purchases and sales of financial assets are recognised on trade date (that is, the date on which the Group commits to purchase or sell the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

(c) Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

Debt instruments

Amortised cost; Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method.

Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in the statement of profit or loss.

(d) Impairment

The Group assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

Leases

Leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group.

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, initially measured using the index or rate as at the commencement date;

   --       Amounts expected to be payable by the Group under residual value guarantees; 

-- The exercise price of a purchase option if the Group is reasonably certain to exercise that option; and

-- Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   1.      Accounting policies (continued) 

Leases (continued)

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period.

Right-of-use assets are measured at cost which comprises the following:

   --       The amount of the initial measurement of the lease liability; 

-- Any lease payments made at or before the commencement date less any lease incentives received;

   --       Any initial direct costs; and 
   --       Restoration costs. 

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.

Payments associated with short-term leases (term less than 12 months) and all leases of low-value assets (generally less than GBP4k) are recognised on a straight-line basis as an expense in profit or loss.

Provisions

Provisions are recognised when the Group has a present obligation, legal or constructive, resulting from past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation.

Research and development

Research costs are charged to the income statement in the year incurred. Development expenditure is capitalised to the extent that it meets all of the criteria required by IAS 38, otherwise it is charged to the income statement in the year incurred. In order for development expenditure to meet the capitalisation criteria of IAS 38, it must be both technically feasible to complete the work, and there must be the intention to either use or sell the asset created.

Pension costs and other post-retirement benefits

The Group makes payments to occupational and employees' personal pension schemes. Contributions payable for the year are charged in the income statement.

Foreign currencies

Transactions denominated in foreign currencies are translated into sterling at the exchange rate ruling when the transaction was entered into. Where consideration is received in advance of revenue being recognised the date of the transaction reflects the date the consideration is received. Foreign currency monetary assets and liabilities are translated into sterling at the exchange rate ruling at the balance sheet date. Exchange gains or losses are included in operating profit.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker as required by IFRS 8 "Operating Segments". The chief operating decision-maker responsible for allocating resources and assessing performance of the operating segments has been identified as the Board of Directors. The accounting policies of the reportable segments are consistent with the accounting policies of the group as a whole. Segment profit/(loss) represents the profit/(loss) earned by each segment without allocation of foreign exchange gains or losses, investment income, interest payable and tax. This is the measure of profit that is reported to the Board of Directors for the purpose of resource allocation and the assessment of segment performance. When assessing segment performance and considering the allocation of resources, the Board of Directors review information about segment assets and liabilities. For this purpose, all assets and liabilities are allocated to reportable segments with the exception of cash and cash equivalents and current and deferred tax assets and liabilities.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   2.     Critical accounting judgments and key sources of estimation uncertainty 

T h e prepara t i on of f i nanci al s t a t e m en ts in co n f ormi ty w i th general ly accep t ed accoun t i ng pract ice requ ires m anage m ent to make e s t i m a t es and j udge m e n ts t hat a ff ect t he report ed a m oun ts of a ss e ts and li abil i t i es as w e ll as t he d i sclo s ure of con t i ngent ass e ts and li abil i t i es at t he ba l ance s h eet d a te and t he report ed a m oun ts of re v enues and e x pen s es duri ng t he report i ng pe r i od.

Estimates and judgements are continually evaluated and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Judgements

Determination of performance obligations and satisfaction thereof

For the purposes of recognising revenue, the Directors are required to identify distinct services in contracts and allocate the transaction price to the performance obligations. Details of determining performance obligations, passing of control and amounts recognised as costs incurred to obtain or fulfil a contract are given in Note 1 - Revenue recognition. There has been no change in the Group's business model from the previous year and the Directors are satisfied that the revenue recognition policy remains correct for the year under review.

Capitalisation of development costs

As described in Note 1, the Group capitalises development costs when certain criteria are met including the probability of relevant future economic benefits. The key variable in making judgement of the correct treatment of development costs is new product development versus modification and maintenance of existing products. The development work undertaken has been to existing products, and having assessed the likelihood of future economic benefit, the Directors have judged it appropriate to not capitalise any development costs (2021 - GBPNil).

Estimates

I m pa i r m e n t of non-current assets

De t e rmi n i ng w he t her non-current assets are i m p a ired requ ires an e s t i m a t i on of t he v a l ue in u se of t he ca sh genera t i ng un i ts to w h ich non-current assets have been a ll oca t ed. T he v a l ue in u se ca lcu l a t i on requ ires t he Group to e s t i m a te t he f u t ure c a sh f l ows e x pect ed to ari se from t he ca s h-g enera t i ng un it and a suitable d i scount ra te in order to ca lcu l a te t he pre s ent v a l ue. The key variables used in cash flow projections are: a timeline of fourteen years (the "time period"); the forecast for the next year which is used as the base for future years; revenue and cost projections for the time period using the average rate of increase / (decrease) achieved over the preceding ten years, No pro v i s i on f or impa i r m e nt w as m ade in t he year to t he carryi ng v a l ue of goodwill (see note 11) or investments in subsidiaries (see note 13).

Recognition of deferred tax assets

As described in Note 1, the Group recognises deferred tax assets arising from unused tax losses when certain criteria are met including the probability that future relevant taxable profits will be available. The directors have assessed the likelihood of future taxable profits being available and have judged it appropriate to recognise deferred tax assets for unused losses. The key variables used in the calculation of deferred tax assets are: a timeline of three years out from reporting date; revenue and cost projections on the same basis as used in the assessment of impairment of goodwill; a cost of capital of 8.44%. At the year-end a deferred tax asset of GBP318,000 (2021 - GBP471,000) was recognised.

Share based payment transactions

The Company has made awards of options and over its unissued share capital to certain Directors and employees as part of their remuneration package.

The valuation of these options involves making a number of critical estimates relating to price volatility, future dividend yields, expected life of the options and forfeiture rates. These assumptions have been described in more detail in Note 19.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   3.      Revenue 

An analysis of the Group's revenue is as follows:

 
                                                              2022        2021 
                                                               GBP         GBP 
 
 Software development, licence fees and project work     2,757,795   2,988,842 
------------------------------------------------------  ----------  ---------- 
 

All of the Group's revenue relates to continuing activities.

   4.      Operating profit for the year is stated after charging/(crediting): 
 
                                                                                       2022          2021 
                                                                                        GBP           GBP 
 Depreciation of plant and equipment (see note 12)                                    7,291           9,651 
 Depreciation of leased assets (see note 17)                                        146,303         146,303 
 Interest on leased assets (see note 17)                                             13,550          20,307 
 Staff costs (see note 8)                                                         1,491,348       1,491,063 
 Research and development                                                           409,618         506,893 
 Release of accruals for administrative costs in respect of prior years             (9,000)        (88,000) 
-------------------------------------------------------------------------------  ----------   ------------- 
 
 
   5.      Finance income and Finance costs: 
 
                                            2022       2021 
                                             GBP        GBP 
 Finance income 
 Income on cash and cash equivalents      13,911     13,260 
 
 Finance costs 
 Lease interest expense                 (13,550)   (20,307) 
 Other interest expense                     (60)          - 
-------------------------------------  ---------  --------- 
 Net finance income / (expense)              301    (7,047) 
-------------------------------------  ---------  --------- 
 
   6.      Auditor's remuneration: 
 
                                                                                        2022     2021 
                                                                                         GBP      GBP 
 Fees payable to the Group's auditor for the audit of the Group's annual accounts     31,500   29,750 
 Fees payable to the Group's auditor for other services: 
 - audit of the Company's subsidiaries                                                 7,000    6,000 
-----------------------------------------------------------------------------------  -------  ------- 
                                                                                      38,500   35,750 
 ----------------------------------------------------------------------------------  -------  ------- 
 

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   7.      Operating segments: 

The G r o up r e p o r ts internally to the Chief Operating Decision Maker (CODM), who is considered to be the Board. Intersegment license fees and management charges are not included in the reports reviewed by the CODM during the year but are calculated for statutory reporting purposes and therefore are excluded from the following revenue and operating profit disclosures.

 
                                                                                2022            2021 
                                                                                 GBP             GBP 
 Revenue by segment 
 
 Software development and licence fees                                     2,757,795       2,988,842 
--------------------------------------------------------------------  --------------  -------------- 
 External segment revenue                                                  2,757,795       2,988,842 
--------------------------------------------------------------------  --------------  -------------- 
 
 Operating profit by segment 
 
 Software development and licence fees                                     1,193,637       1,468,132 
 
 Unallocated overheads                                                     (448,975)       (445,078) 
--------------------------------------------------------------------  --------------  -------------- 
 Total operating profit                                                      744,662       1,023,054 
 
 Finance income                                                               13,911          13,260 
 Total profit before tax as reported in the Group income statement           758,573       1,036,314 
--------------------------------------------------------------------  --------------  -------------- 
 
 
                                                   2022           2021 
                                                    GBP            GBP 
 Segment total of assets 
 Software development and licence fees        7,541,527      7,337,340 
 
 Unallocated assets                           4,545,031      4,492,208 
----------------------------------------  -------------  ------------- 
                                             12,086,558     11,829,548 
 
 Less intercompany debtors                  (3,310,501)    (3,258,968) 
 Total assets                                 8,776,057      8,570,580 
----------------------------------------  -------------  ------------- 
 
 
                                                  2022          2021 
                                                   GBP           GBP 
 Segment total of liabilities 
 
 Software development and licence fees       5,056,787     5,193,528 
 
 Unallocated liabilities                        58,447        53,150 
----------------------------------------  ------------  ------------ 
                                             5,115,234     5,246,678 
 
 Less intercompany creditors               (3,310,501)   (3,258,968) 
----------------------------------------  ------------  ------------ 
 Total liabilities                           1,804,733     1,987,710 
----------------------------------------  ------------  ------------ 
 

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   7.      Operating segments (continued): 
 
                                                                                               2022    2021 
                                                                                                GBP     GBP 
 Additions of property, plant and equipment assets by segment 
 
 Software development and licence fees                                                        2,688   1,482 
-------------------------------------------------------------------------------------------  ------  ------ 
 Total additions                                                                              2,688   1,482 
-------------------------------------------------------------------------------------------  ------  ------ 
 
                                                                                               2022    2021 
                                                                                                GBP     GBP 
 Depreciation of property, plant and equipment assets recognised in the period by segment 
 Software development and licence fees                                                        7,291   9,651 
 Total depreciation                                                                           7,291   9,651 
-------------------------------------------------------------------------------------------  ------  ------ 
 
 
 Non-current assets by country          2022        2021 
                                         GBP         GBP 
 UK                                2,400,903   2,704,809 
--------------------------------  ----------  ---------- 
 Total non-current assets          2,400,903   2,704,809 
--------------------------------  ----------  ---------- 
 
 
 Geographical information - External revenue          2022        2021 
                                                       GBP         GBP 
 UK                                              2,013,140   2,065,903 
 Europe (excluding UK)                             581,981     771,541 
 Africa                                             40,000      42,500 
 North America                                      89,447      83,637 
 Australia                                          12,603      11,838 
 Asia Pacific                                       20,624      13,423 
----------------------------------------------  ----------  ---------- 
                                                 2,757,795   2,988,842 
 ---------------------------------------------  ----------  ---------- 
 

During the year there were 4 customers (2021: 3) who accounted for more than 10% of the Group's revenues as follows:

 
                                      2022                       2021 
                            -----------------------   ------------------------- 
                              Value of   % of Total      Value of    % of Total 
                                 sales                      sales 
                                   GBP                        GBP 
 
 Customer 1                    716,386          28%       668,122           22% 
 Customer 2                    520,990          21%       522,149           17% 
 Customer 3                    353,975          14%       375,168           13% 
 Customer 4                    241,556          10%             -             - 
--------------------------  ----------  -----------   -----------   ----------- 
                             1,832,907          73%     1,565,439           52% 
--------------------------  ----------  -----------   -----------   ----------- 
 
 

These revenues are attributable to the software development and licence fees segment.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   8.      Staff costs: 
 
                                                                      2022        2021 
                                                                       GBP         GBP 
 a) Aggregate staff costs, including Directors' remuneration 
       Wages and salaries                                        1,197,220   1,206,748 
       Social security costs                                       153,261     144,131 
       Pension contributions                                        24,255      24,318 
       Share-based payments                                        116,612     115,866 
                                                                 1,491,348   1,491,063 
 -------------------------------------------------------------  ----------  ---------- 
 
 
 b) The average number of employees (including Directors) was: 
       Sales and administration                                     7    6 
       Development and support                                      7   11 
----------------------------------------------------------------  ---  --- 
                                                                   14   17 
 ---------------------------------------------------------------  ---  --- 
 
 
                                            GBP       GBP 
 c) Directors' emoluments 
       Short-term employee benefits     231,714   232,352 
       Pension contributions              5,250     5,250 
       Share-based payments              57,200    63,030 
                                        294,164   300,632 
       Social security costs             30,843    49,351 
-------------------------------------  --------  -------- 
       Total Director compensation      325,007   349,983 
-------------------------------------  --------  -------- 
 

Directors' emoluments represent the staff costs of the parent company.

The average number of employees of the parent company is 3 (2021: 3)

The highest paid Director received remuneration of GBP183,464 (2021: GBP186,178).

The number of Directors that are members of a defined contribution pension scheme is 1 (2021: 1). Pension contributions paid to a defined contribution scheme in respect of the highest paid Director amounted to GBP5,250 (2021: GBP5,250).

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   9.      Taxation 
 
                                                 2022       2021 
                                                  GBP        GBP 
 Current tax                                    4,993    (8,204) 
 Deferred tax                               (153,000)     19,000 
-----------------------------------------  ----------  --------- 
 Total tax charge (credit) for the year       148,007   (10,796) 
-----------------------------------------  ----------  --------- 
 

The difference between the total tax credit shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows:

 
                                                                                                2022        2021 
                                                                                                 GBP         GBP 
 Profit on ordinary activities before tax                                                    758,573   1,036,314 
----------------------------------------------------------------------------------------  ----------  ---------- 
 
 Profit on ordinary activities multiplied by the standard rate of corporation tax in the 
  UK 
  of 19 % (2021: 19%)                                                                        144,128     196,900 
 
 Effects of: 
 
 Disallowed expenses                                                                             288          97 
 
 Temporary differences on deferred tax                                                           796       1,457 
 
 Income taxes paid                                                                                 -       8,204 
 
 Research and development tax credits                                                        (4,993)           - 
 
 Deferred tax asset movement                                                                 153,000    (19,000) 
 
 Brought forward losses utilised                                                           (145,212)   (198,454) 
 
   Total tax / (credit) for the year                                                         148,007    (10,796) 
----------------------------------------------------------------------------------------  ----------  ---------- 
 

Factors which may affect future tax charges

At 30 June 2022 the Group has tax losses of approximately GBP8,300,000 (2021: GBP8,500,000) to offset against future trading profits.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   10.    Earnings per share 
 
                                                                                                2022        2021 
                                                                                                 GBP         GBP 
 Earnings 
 Earnings for the purpose of basic and diluted earnings per share being net profit 
  attributable 
  to equity shareholders                                                                     610,566   1,047,110 
                                                                                             610,566   1,047,110 
 -----------------------------------------------------------------------------------------  --------  ---------- 
 
 
                                                                                                No.          No. 
 Number of shares 
 Weighted average number of ordinary shares for the purpose of basic earnings per 
  share                                                                                  13,364,195   13,290,672 
 
 Number of dilutive shares under option                                                      25,145      143,168 
--------------------------------------------------------------------------------------  -----------  ----------- 
 Weighted average number of ordinary shares for the purposes of dilutive earnings per 
  share                                                                                  13,389,340   13,433,840 
--------------------------------------------------------------------------------------  -----------  ----------- 
 

T h e c a lcu l a t i on of d il u t ed e a r n i n gs per sh a re assu m es c on v e rsi on of a ll po t e n t i a lly d i l u t ive o r d i na ry shares, all of w h i ch a r ise f r om sh a re op t i on s. A ca lcu l a t i on is d o ne to d e t e rm i ne t he nu m ber of s ha r es t h at c ou ld h ave b e en acq u i r ed at f a ir va l u e, b a s ed u p on t he m o n e t a ry va l ue of t he su bscr i p t i on r i gh ts a t t ach ed to o u tst a n d i ng s ha re o p t i o ns.

   11.    Goodwill 
 
                                               2022        2021 
                                                GBP         GBP 
 Co s t a nd n et book a m ount 
 
 A t 1 July 2 021 and at 30 June 2022     1,715,153   1,715,153 
---------------------------------------  ----------  ---------- 
 

G oodwill acqui r ed in a busi ness combi nat i on is al located at acquisi t i on, to the cash generat i ng uni ts ( C G Us) that are expected to bene f it f rom t hat business combi nat i on. The carryi ng amount of goodwill has been allocat ed as follows:

 
                            2022        2021 
                             GBP         GBP 
 Arcontech Limited     1,715,153   1,715,153 
                       1,715,153   1,715,153 
 -------------------  ----------  ---------- 
 

The CGU used in these calculations is Arcontech Limited. T he g r o up t e s ts g o o d will a n n ua lly f or i m p a i rm en t or m o re f r eq u e n t ly if t h e re a re i n d ica t i o ns t hat g o o d will m i ght be i m pa i r ed. T he r e c o v e r ab le a m ou n ts of t he C G Us a re de t e rm i ned f r om va l ue in u se ca lcu l a t i o ns. T he key assu m p t i o ns f or t he va l ue in u se ca lcu l a t i o ns are those r ega r d i ng t he d isc o u nt r a t es, g r o w th r a t es a nd exp ect ed ch a n ges to se lli ng p r ices a nd d i r ect c osts du r i ng t he pe r i od. The di scou nt rate is estimated usi ng pre- t ax r a t es t h at r e f l e ct cu r r ent m a rket ass essm e n ts of t he t i me va l ue of m o ney a nd t he r isks s peci f ic to t he C G Us. Long-term gr o w th r a t es a re ba s ed on i n d ust ry g r o w th f o r eca s ts. C h a n ges in se lli ng p r ices a re b ased on p ast p r act ices a nd exp ect a t i ons of f u t u re ch a n g es in t he m a rke t. Changes in direct costs are based on expected cost of inflation of 8.9% and 1.8% after year 5.

Cashflow forecasts are based on the latest financial budgets and extrapolate the cashf l o ws f or t he next f i ve y ea rs ba s ed on an e s t i m a t ed g r o w th in revenue representing an average rate of 4% (2021: 5%) per annum, after which the UK l o ng-t e rm g r o w th r a te of 1.8% is applied. The Directors consider that this rate is appropriate, given the current sales pipeline. Fluctuation in revenue is the most sensitive of assumptions. Should revenue fall by more than an average of 5% per annum then this could result in the value of goodwill being impaired.

As the Group does not have any borrowings, the rate used to discount all the forecast cash flows is 8.8% (2021: 8.8%), which represents the Group's cost of capital.

G o o d wil l on t he pu r c ha se of Arcontech L i m i t ed is a tt r i bu t ab le to t he ope r a t i ng sy ne r g i es that have arisen as a r e s u lt of t he co m b i n a t i o n.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   12.    Property, plant and equipment - Group 
 
                                                         Office 
                                       Leasehold    furniture & 
                                        Property      equipment      Total 
 Cost                                        GBP            GBP        GBP 
 
 At 1 July 2020                           26,199        142,218    168,417 
 
 Additions                                     -          1,482      1,482 
 
 At 1 July 2021                           26,199        143,700    169,899 
 
 Additions                                     -          2,688      2,688 
 
 Disposals                                     -       (40,447)   (40,447) 
 
 At 30 June 2022                          26,199        105,941    132,140 
------------------------------------  ----------  -------------  --------- 
 Depreciation 
 
 At 1 July 2020                           20,597        128,504    149,101 
 
 Charge for the year                       1,461          8,190      9,651 
 
 At 1 July 2021                           22,058        136,694    158,752 
 
 Charge for the year                       1,462          5,829      7,291 
 
 Disposals                                     -       (40,447)   (40,447) 
 
 
   At 30 June 2022                        23,520        102,076    125,596 
------------------------------------  ----------  -------------  --------- 
 
   Net book amount at 30 June 2022         2,679          3,865      6,544 
------------------------------------  ----------  -------------  --------- 
 
   Net book amount at 30 June 2021         4,141          7,008     11,147 
------------------------------------  ----------  -------------  --------- 
 
   13.    Investment in subsidiaries 
 
                          2022        2021 
 Carrying amount           GBP         GBP 
 
 At 1 July 2021      2,017,471   2,017,471 
 
 
 At 30 June 2022     2,017,471   2,017,471 
------------------  ----------  ---------- 
 

D e t a il s of t he i n v est m e n ts in w h ich t he G r o up a nd t he C o m p any h o l ds 2 0% or m o re of t he n o m i nal v a l ue of any cl ass of s ha re c a p i t al a re listed below. The Goodwill recognised in Note 11 is in connection with investments made in subsidiaries:

 
                                Country of        Address                       Nature of business            Ordinary 
                                 Incorporation                                                                 shares 
                                                                                                               held 
                                                  11-21 Paul Street, London 
 Arcontech Solutions Limited    England            EC2A 4JU                     Dormant                       100% 
                                                  11-21 Paul Street, London 
 Cognita Technologies Limited   England            EC2A 4JU                     Software development          100% 
                                                  11-21 Paul Street, London     Software development and 
 Arcontech Limited              England            EC2A 4JU                      consultancy                  100% 
 

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   14.    Trade and other receivables 
 
                                         Group     Group     Company     Company 
                                          2022      2021        2022        2021 
                                           GBP       GBP         GBP         GBP 
 Due within one year: 
 
 Trade and other receivables           196,541   330,740           -           - 
 
 Amounts owed by group undertakings          -         -   3,310,401   3,258,868 
 
 Prepayments and accrued income        152,145   139,577      12,336       4,599 
                                       348,686   470,317   3,322,737   3,263,467 
------------------------------------  --------  --------  ----------  ---------- 
 
 
 
                                    Group     Group   Company   Company 
                                     2022      2021      2022      2021 
                                      GBP       GBP       GBP       GBP 
 Due after more than one year: 
 
 Other receivables                141,750   141,750         -         - 
                                  141,750   141,750         -         - 
-------------------------------  --------  --------  --------  -------- 
 

Trade receivables, which are the only financial assets at amortised cost, are non-interest bearing and generally have a 30-90 day term. Due to their short maturities, the carrying amount of trade and other receivables is a reasonable approximation of their fair value. A provision for impairment of trade receivables is established using an expected loss model. Expected loss is calculated from a provision based on the expected lifetime default rates and estimates of loss on default.

A s at 30 June 2022, t r a de r ece i v ab l es of GBPNil w e re i m p a i r ed (2021: GBPNil) and during the year an impairment charge relating to trade receivables of GBPNil (2021: GBPNil) was recognised. As at 30 June 2022 t r a de r e c e iva b l es of GBPnil (2021: GBP 100,469 ) w e re p ast d ue but n ot i m p a i r e d. T he a g e i ng a na lysis of t h e se t r a de r ece i v ab l es is as f o ll o ws:

 
                           Group       Group     Company     Company 
                            2022        2021        2022        2021 
                             GBP         GBP         GBP         GBP 
 
 Up to 3 months past due       -     100,469           -           - 
 
 3 to 6 months past due        -           -           -           - 
                               -     100,469           -           - 
------------------------  ------    --------    --------    -------- 
 
   15.    Cash and cash equivalents 

Ca s h and cash equ i v a l en ts co m p r i se ca sh he ld by t he Group a nd s hort-t erm bank dep o s i ts w i th an ori g i nal m a t u r i ty of t hree m o n t hs or l e ss. The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   16.    Trade and other payables 
 
                                                    Group       Group   Company   Company 
                                                     2022        2021      2022      2021 
                                                      GBP         GBP       GBP       GBP 
 
       Trade payables                              77,772      52,881     3,849     4,155 
 
       Amounts owed to group undertakings               -           -       100       100 
 
       Other tax and social security payable       62,148     113,083     7,843     8,844 
 
       Other payables and accruals*               490,724     388,137    46,244    39,285 
 
       Deferred income                            978,236   1,089,306         -         - 
                                                1,608,880   1,643,407    58,036    52,384 
---------------------------------------------  ----------  ----------  --------  -------- 
 

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

T r ad e payables and other payables and accruals con s t i t u te t he f i n anci al liabilities wi t h in t he c a t e g o ry "Financial liabilities at amortised cost" with a total value of GBP568,496 (2021: GBP441,018).

*Other payables and Accruals includes a provision for dilapidations for the Office premises of GBP50,000 (2021: GBP50,000). Refer to note 1 for the Accounting Policy for Provisions.

   17.    Leases 

Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for all leases on its balance sheet. The only lease applicable under IFRS 16 is the Group's office.

The key impacts on the Statement of Comprehensive Income and the Statement of Financial Position are as follows:

 
 As at 30 June 2022      Lease liability     Right of       Income 
                                     GBP    use asset    statement 
                                                  GBP          GBP 
 Carrying value at 
  30 June 2021                 (344,303)      365,758            - 
 
 Depreciation                          -    (146,303)    (146,303) 
 Interest                       (13,550)            -     (13,550) 
 Lease payments                  162,000            -            - 
                        ----------------  -----------  ----------- 
 
 
 Carrying value at 
  30 June 2022                 (195,853)      219,455    (159,853) 
                        ----------------  -----------  ----------- 
 
 
 Reconciliation of lease     Operating    Financing   Non-cash       Total 
  liabilities                cash flow    cash flow 
                                   GBP          GBP        GBP         GBP 
-------------------------  -----------  -----------  ---------  ---------- 
 As at 1 July 2021                   -            -          -     344,303 
 Cash flows: 
   Interest paid              (13,550)            -          -    (13,550) 
   Liability reduction               -    (148,450)          -   (148,450) 
 Non-cash changes: 
   Interest expense                  -            -     13,550      13,550 
-------------------------  -----------  -----------  ---------  ---------- 
 As at 30 June 2022           (13,550)    (148,450)     13,550   (195,853) 
-------------------------  -----------  -----------  ---------  ---------- 
 

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   17.    Leases (continued) 
 
 As at 30 June 2021             Lease       Right       Income 
                            liability      of use    statement 
                                  GBP       asset          GBP 
                                              GBP 
 Carrying value at 30 
  June 2020                 (485,996)     512,061            - 
 
 Depreciation                       -   (146,303)    (146,303) 
 Interest                    (20,307)           -     (20,307) 
 Lease payments               162,000           -            - 
                          -----------  ----------  ----------- 
 
 
 Carrying value at 
  30 June 2021              (344,303)     365,758    (166,610) 
                          -----------  ----------  ----------- 
 
 
 Reconciliation of lease     Operating    Financing   Non-cash       Total 
  liabilities                cash flow    cash flow 
                                   GBP          GBP        GBP         GBP 
-------------------------  -----------  -----------  ---------  ---------- 
 As at 1 July 2020                   -            -          -     485,996 
 Cash flows: 
   Interest paid              (20,307)            -          -    (20,307) 
   Liability reduction               -    (141,693)          -   (141,693) 
 Non-cash changes: 
   Interest expense                  -            -     20,307      20,307 
-------------------------  -----------  -----------  ---------  ---------- 
 As at 30 June 2021           (20,307)    (141,693)     20,307   (344,303) 
-------------------------  -----------  -----------  ---------  ---------- 
 
 
 Contractual maturity analysis of lease liabilities as at 30 
  June 2022 
                      Less than    3 - 12    1 - 5     Longer 
                       3 months    Months     Year       than     Total 
                            GBP       GBP      GBP    5 years       GBP 
                                                          GBP 
 Lease liabilities       40,500   121,500   40,500          -   202,500 
-------------------  ----------  --------  -------  ---------  -------- 
 
   18.    Deferred tax 

Deferred tax is calculated in full on temporary differences under the liability method using the tax rate of 17% which came into effect from 1 April 2020. The movement on the deferred tax account is as shown below:

 
                                                                          Group     Group   Company    Company 
                                                                           2022      2021      2022       2021 
                                                                            GBP       GBP       GBP        GBP 
       At 1 July                                                        471,000   452,000    55,000    151,000 
 
         Tax credit (de-recognised)/ recognised in group income 
         statement                                                    (153,000)    19,000     1,000   (96,000) 
 
       At 30 June                                                       318,000   471,000    56,000     55,000 
-------------------------------------------------------------------  ----------  --------  --------  --------- 
 

The deferred tax asset has been recognised in relation to forecast taxable profits which are considered probable.

Losses to offset against future trading profits at 30 June 2022 amounted to approximately GBP8,300,000 (2021: GBP8,500,000).

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   19.   Share capital 
 
 Company                                                   Shares   Share Capital  Share Premium 
  Allotted and fully paid:                          of 12.5p each             GBP            GBP 
-----------------------------------------------   ---------------  --------------  ------------- 
 As at 1 July 2021                                     13,327,811       1,665,976         92,360 
 September 2021 - Exercise of options at 64.5p             45,000           5,625         23,401 
 As at 30 June 2022                                    13,372,811       1,671,601        115,761 
------------------------------------------------  ---------------  --------------  ------------- 
 

Share options

Under the Company's approved 2002 Share Option Scheme, certain Directors and employees held options at 30 June 2022 for unissued Ordinary Shares of 12.5 pence each as follows:

 
                                                                                                                Normal 
                    At 1 July                                             At 30 June                          exercise 
 Share options           2021       Granted    Exercised        Lapsed          2022   Exercise price           period 
 
 
                                                                                                        25 Apr 20 - 24 
 Employees:           125,000             -     (25,000)             -       100,000      64.50 pence           Apr 27 
                                                                                                        30 Jun 21 - 29 
                       50,000             -            -             -        50,000     110.00 pence           Jun 28 
                                                                                                          30- Jun 22 - 
                       55,000             -            -      (23,000)        32,000     196.00 pence        27 Sep 29 
                                                                                                         30 Jun 23 - 2 
                       75,000             -            -             -        75,000     164.50 pence           Oct 30 
                                                                                                        30 Jun 24 - 11 
                            -        73,500            -             -        73,500     130.50 pence           Oct 31 
 Directors: 
 
                                                                                                        25 Apr 20 - 24 
 Richard Last          24,762             -            -      (24,762)             -      64.50 pence           Apr 27 
 
                                                                                                         30 Jun 23 - 2 
 Geoff Wicks           30,000             -            -             -        30,000     164.50 pence           Oct 30 
 
                                                                                                         1 Sep 17 - 31 
 Louise Barton         40,000             -            -      (40,000)             -      23.75 pence           Aug 21 
 
                                                                                                        25 Apr 20 - 24 
                       20,000             -     (20,000)             -             -      64.50 pence           Apr 27 
 
                                                                                                        30 Jun 21 - 29 
 Matthew Jeffs        100,000             -            -             -       100,000     110.00 pence           Jun 28 
                                                                                                          30- Jun 22 - 
                       50,000             -            -      (50,000)             -     196.00 pence        27 Sep 29 
                                                                                                         30 Jun 23 - 2 
                       50,000             -            -             -        50,000     164.50 pence           Oct 30 
                                                                                                        30 Jun 24 - 11 
                            -        50,000            -             -        50,000     130.50 pence           Oct 31 
 
 Total                619,762       123,500     (45,000)     (137,762)       560,500 
---------------  ------------  ------------  -----------  ------------  ------------ 
 
 Weighted 
  average 
  exercise 
  price           120.2 pence   130.5 pence   64.5 pence   122.3 pence   126.4 pence 
---------------  ------------  ------------  -----------  ------------  ------------ 
 

The number of options exercisable at 30 June 2022 was 282,000 (at 30 June 2021: 359,762), these had a weighted average exercise price of 103.6 pence (2021: 78.9 pence).

The weighted average share price as at the exercise date of the shares exercised in the year was 64.5 pence (2021: 43.2 pence) and of the shares were forfeited in the year was 122.3 pence (2021: 196.0).

Options granted under the Company's approved 2002 Share Option Scheme are forfeited when the Optionholder ceases to be a Director or employee of a Participating Company. The Directors may before the expiry of 3 months following cessation of employment permit an Optionholder to exercise their Option within a period ending no later than 12 months from the cessation of employment.

The highest price of the Company's shares during the year was 175.0 pence, the lowest price was 72.0 pence and the price at the year-end was 73.5 pence.

The weighted average remaining contractual life of share options outstanding at 30 June 2022 was 7 years (2021: 7 years).

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   19.          Share capital (continued) 

Share-based payments

The Group operates an approved Share Option Scheme for the benefit of Directors and employees. Options are granted to acquire shares at a specified exercise price at any time following but no later than 10 years after the grant date. There are no performance conditions on the exercise of the options granted prior to 1 July 2018. The performance conditions of those granted after 1 July 2018 which apply to executive directors and certain key staff, are set out below.

The options issued in November 2018, September 2019**, October 2020 and in October 2021 will be exercisable from 30 June 2021, 30 June 2022, 30 June 2023 and 30 June 2024 respectively, dependent on the Company's compound annual rate of growth in fully diluted earnings* for the three financial years ending 30 June 2022, 2023, and 2024, respectively.

 
 Options issued date   Exercisable from    Dependent on the Company's 
                                                 compound annual rate 
                                           of growth in fully diluted 
                                              earnings* for the three 
                                               financial years ending 
--------------------  -----------------  ---------------------------- 
 November 2018             30 June 2021                  30 June 2021 
 October 2020              30 June 2023                  30 June 2023 
 October 2021              30 June 2024                  30 June 2024 
 

The Options will vest subject to performance criteria as follows:

- compound annual earnings growth of 10% or more - fully vested (100%);

- compound annual earnings growth between 5%-10% - partial vesting between 0% and 100% on a sliding scale; and

- compound annual earnings growth of 5% and below - nil.

Any Ordinary Shares arising from the vesting of Options must be held for a period of two years after vesting.

* Fully diluted earnings will be based on: (a) the Company's pre-tax profit excluding exceptional items and the share option

charge and (b) the current UK corporation tax rate of 19%, such that the fully diluted earnings calculation takes no account

of R&D and deferred tax credits. For the purposes of the fully diluted earnings calculation, the applied rate of corporation tax

will remain constant at 19% irrespective of any current or future changes to corporation tax.

** 70,000 options issued in September 2019 lapsed on 30 June 2022 as compound annual earnings growth targets for the financial years ended 30 June 2020, 2021 and 2022 were not achieved.

The fair value of options is valued using the Black-Scholes pricing model. An expense of GBP116,612 (2021: GBP115,866) has been recognised in the period in respect of share options granted. The cumulative share option

reserve at 30 June 2022 is GBP270,805         (2021: GBP271,207). 

The inputs into the Black-Scholes pricing model are as follows:

 
 Directors & Employees 
 Grant date                     25 Apr 2017   29 Nov 2018     27 Sep 2019    2 Oct 2020   11 Oct 2021 
 Exercise price                  64.5 pence   110.0 pence     196.0 pence   164.5 pence   130.5 pence 
 Expected life                     10 years      10 years        10 years      10 years      10 years 
 Expected volatility                    50%           50%             50%           49%           45% 
 Risk free rate of interest            0.5%         0.75%           0.75%         0.00%         0.60% 
 Dividend yield                         Nil           Nil             Nil         0.01%         0.01% 
 Fair value of option            36.7 pence    57.0 pence     115.0 pence   91.92 pence   70.03 pence 
 

Volatility has been estimated based on the historic volatility over a period equal to the expected term from the grant date.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   20.    Reserves 

Details of the movements in reserves are set out in the Statement of Changes in Equity. A description of each reserve is set out below.

Share capital reserve

This is used to record the aggregate nominal amount of the Company's shares on issue.

Share premium account

This is used to record the aggregate amount or value of premiums paid when the Company's shares are issued at a premium, net of issue costs, less amounts cancelled by court order.

Share option reserve

This relates to the fair value of options granted which has been charged to the income statement over the vesting period of the options, less amounts transferred to retained earnings.

Retained earnings

This relates to accumulated profits and losses together with distributable reserves arising from capital reductions, less amounts distributed to shareholders.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   21.    Net cash generated from operations - Group 
 
 
                                                                           2022                         2021 
                                                                            GBP                          GBP 
 
 
 Operating profit                                                       758,272                    1,043,361 
 
 Depreciation charge                                                    153,594                      155,954 
 
 Non cash share option charges                                          116,612                      115,867 
 
 Lease interest paid                                                   (13,550)                     (20,307) 
 
 Other interest paid                                                       (60)                            - 
 
 Decrease/(increase) in trade and other receivables                     126,624                    (277,686) 
 
 Decrease in trade and other payables                                  (31,884)                    (207,630) 
 
 
 Cash generated from operations                                       1,109,608                      809,559 
 
 

Net cash generated from operations - Company

 
                                                        2022       2021 
                                                         GBP        GBP 
 
 Operating profit                                    265,860    274,671 
 
 Non cash share option charges                       116,612    115,867 
 
 Increase in trade and other receivables            (59,270)   (82,057) 
 
 Increase/(decrease) in trade and other payables       6,873   (97,561) 
 
 
 Cash generated from operations                      330,075    210,920 
 
 

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   22.    Related party transactions 

Group

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are disclosed in this part of the note.

Key management compensation

Ke y m a n a ge m e nt a re t h ose p e rso ns h avi ng au t ho r i ty a nd r e s p o nsi b ili ty f or p l a n n i n g, co n t r o lli ng a nd d i r e c t i ng t he act ivi t i es of the Group. In t he op i n i on of t he B oa r d, t he G r o up 's key m a n a g e m e nt a re t he D i r ect o rs of Arcontech Group PLC. I n f o rm a t i on r e g a r d i ng t he ir co m p e nsa t i on is g iven in notes 8 and 19 f or e ach of the ca t e go r i es sp eci f i ed in I AS 24 R e l a t ed P a r ty Discl osu r e s . All emoluments given in notes 8 and 19 relate to short-term employee benefits and there are no post-employment or other long-term benefits.

The financial statements include the following amounts in respect of services provided to the Group:

Company

Transactions between the Parent Company and its subsidiaries during the year were as follows:

Management charges payable by subsidiaries GBP536,216 (2021: GBP534,094).

The amounts due from/to subsidiaries at the balance sheet date were as follows:

 
                                                          2022           2021 
                                                           GBP            GBP 
 
 Amount due from subsidiaries                        7,098,581      7,223,539 
 
 Less: Provision for impairment                    (3,788,180)    (3,964,671) 
 Amount due from subsidiaries - net                  3,310,401      3,258,868 
------------------------------------------------  ------------   ------------ 
 
 

During the year a provision of GBP176,491 was released (2021: GBP185,654) in respect of balances due from subsidiaries.

 
                                   2022      2021 
                                    GBP       GBP 
 
 Amount due to subsidiaries     536,216   534,094 
                                536,216   534,094 
 ----------------------------  --------  -------- 
 
   23.    Dividends 

A final dividend of 3.25 pence will be proposed at the Annual General Meeting but has not been recognised as it requires approval (2021: 2.75 pence).

   24.    Material non-cash transactions 

There were no material non-cash transactions during the period.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   25.    Financial instruments 

The Group's financial instruments comprise cash and cash equivalents, and items such as trade payables and trade receivables, which arise directly from its operations. The main purpose of these financial instruments is to provide finance for the Group's operations.

The Group's operations expose it to a variety of financial risks including credit risk, liquidity risk and interest rate risk. Given the size of the Group, the Directors have not delegated the responsibility of monitoring financial risk management to a sub-committee of the Board. The policies set by the Board of Directors are implemented by the Company's finance department.

C r ed i t r isk

The Group's credit risk is primarily attributable to its trade receivables. The Group has implemented policies that require appropriate credit checks on potential customers before sales are made. The amount of exposure to any individual counterparty is subject to a limit, which is reassessed annually by the Board. Trade receivables are considered in default and subject to additional credit control procedures when they are more than 30 days past due in line with industry practice. Trade receivables are only written off when there is no reasonable expectation of recovery due to insolvency of the debtor.

T h e c a rryi ng a m o u nt of f i n a nci al asse ts r e p r e s en ts t he m axi m um cr ed it exp osu r e. T he m axi m um exp osu re to cr e d it r isk at t he r e p o r t i ng da te w as:

 
                                           Group       Group     Company     Company 
                                            2022        2021        2022        2021 
                                             GBP         GBP         GBP         GBP 
 Trade receivables                       196,541     330,740           -           - 
 
 Cash and cash equivalents             6,026,468   5,395,457   1,074,294   1,077,741 
 
 Amounts owed by group undertakings            -           -   3,310,401   3,258,868 
                                       6,223,009   5,726,197   4,384,695   4,336,609 
------------------------------------  ----------  ----------  ----------  ---------- 
 

In t e r e st r a te r isk

T h e G r o up h as i n t e r est b e a r i ng asse ts and no i n t e r est-b ea r i ng li ab ili t i es. I n t e r est b e a r i ng asse ts co m p r ise o n ly ca sh a nd c ash e q u iva l e n ts, w h ich ea rn i n t e r e st at a va r i a b le r a t e.

T h e G r o up h as n ot en t e r ed i n to a ny d e r iva t ive t r a nsact i ons d u r i ng t he p e r i od u n der r evi e w.

The Group does not have any borrowings.

T h e G r o u p 's ca sh a nd ca sh e qu i v a l e n ts e a r n ed i n t e r e st at v a r i ab le r a tes, between 1.20% below bank base rate and 0.2% below bank base rate and at fixed/variable rates of between 0.06% below (2021: 0.15% below bank base rate and 0.5% above bank base rate and at fixed/variable rates of between 0.25% and 1.50%).

L i q u i d i t y r isk

T h e G r o up has no sh o r t - t e rm d e bt f i n a nce. T he G r o up m on i t o rs i ts l eve ls of w o rki ng cap i t al to e nsu re t h at it c an m e et i ts liabilities as t hey f a ll d u e.

T h e G r o up 's only f i n a nci al li ab ili t i es comprise trade payables and other payables and accruals, excluding deferred income, with a carrying value equal to the gross cash flows payable of GBP568,496 (2021: GBP441,018) all of which are payable within 6 months.

Notes to the Financial Statements

For the year ended 30 June 2022 (continued)

   25.    Financial instruments (continued) 

Market risk and sensitivity analysis

Equity price r i sk

The Directors do not consider themselves exposed to material equity price risk due to the nature of the Group's operations.

Foreign currency exchange r i sk

The Directors do not consider themselves exposed to material foreign currency risk due to the nature of the Group's operations. All invoices are raised in sterling.

I n t e r e st r a te r isk

T h e G r o up is exp osed to i n t e r est r a te r isk as a r esu lt of posi t i ve c a sh ba l a nces, d e no m i na t ed in st e r li ng, w h i ch ea rn i n t e r est at va r i a b le and fixed r a t es. As at 30 June 2022, if bank base rate h ad i ncr e ased by 0 . 5% wi th a ll o t her v a r i ab l es he ld co nst a n t, po s t - t ax profit would have been GBP30,132 (2021: GBP26,977) higher a nd eq u i ty w o u ld ha ve b e en GBP30,132 (2021: GBP 26,977) h i g h e r. C on v e rse ly, if bank base rate h ad f a ll en 0 . 5% wi th a ll o t h er va r i ab l es h e ld const a n t, po st-t ax profit would have been GBP 30,132 (2021: GBP 26,977 ) lower a nd e q u i ty w ou ld h ave be en GBP 30,132 (2021: GBP 26,977) l o w e r.

   26.    C a p i t a l ri sk m a n a g e m e nt 

T h e G r o up 's ob j ect ives w h en m a n a g i ng ca p i t al a re to sa f e g u a rd t he G r o u p 's ab ili ty to c o n t i n ue as a g o i ng c on c e rn in o r der to p r ovi de returns f or sha r e ho l de rs a nd m a i n t a in an o p t i m al c ap i t al st r uct u re.

T h e G r o up de f i n es c ap i t al as be i ng s ha re ca p i t al p l us r e s e rve s. T he B oa rd of Di r ect o rs continually m on i t o rs t he l e v el of ca p i t al.

T h e G r o up is n ot s ub j e ct to any ext e r n a lly i m po s ed ca p i t al r e q u i r e m e n ts.

   27.    Ultimate controlling party 

There is no ultimate controlling party.

   28.    Copies of these statements 

Copies of this statement are available from the Company Secretary at the Company's registered office at 1(st) Floor, 11-21 Paul Street, London, EC2A 4JU or from the Company's website at www.arcontech.com .

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END

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(END) Dow Jones Newswires

September 12, 2022 02:01 ET (06:01 GMT)

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