TIDMGATC
RNS Number : 7006G
Gattaca PLC
08 November 2018
8 November 2018
Gattaca plc
Preliminary Results for the year ended 31 July 2018
Gattaca plc ("Gattaca" or the "Group"), the specialist
Engineering and Technology (IT & Telecoms) recruitment
solutions business, today announces its Preliminary Results for the
year ended 31 July 2018.
Financial Highlights
2018 2017
Statutory Underlying(2) Statutory Underlying(2) Pro Forma Statutory Underlying(2) Pro Forma
(Audited) (Audited) Underlying(3) (Audited) Underlying(3)
========= ============= ========= ============= ============= ========= ============= =============
GBPm GBPm GBPm GBPm GBPm % % %
========= ============= ========= ============= ============= ========= ============= =============
Revenue 667.5 667.5 642.4 638.4 663.5 +4% +5% +1%
========= ============= ========= ============= ============= ========= ============= =============
Net Fee
Income
(NFI)(1) 78.9 78.9 74.7 74.2 78.1 +6% +6% +1%
========= ============= ========= ============= ============= ========= ============= =============
Profit from
operations (23.4) 14.3 12.7 17.3 18.2 - (17%) (21%)
========= ============= ========= ============= ============= ========= ============= =============
Profit before
tax (24.9) 12.7 11.5 16.1 17.0 - (21%) (25%)
========= ============= ========= ============= ============= ========= ============= =============
Basic
earnings
per share (85.3p) 22.6p 23.4p 34.9p 37.4p - (35%) (40%)
========= ============= ========= ============= ============= ========= ============= =============
Diluted
earnings
per share (85.3p) 22.6p 22.7p 33.9p 36.3p - (33%) (38%)
========= ============= ========= ============= ============= ========= ============= =============
Dividend per
share 3.0p 23.0p -
========= ============= ========= ============= ============= ========= ============= =============
Net debt at GBP40.9m GBP0.6m
end
of period GBP40.3m
========= ============= ========= ============= ============= ========= ============= =============
The following footnotes apply, unless where otherwise indicated,
throughout these Preliminary Results:
(1) NFI is calculated as revenue less contractor payroll
costs
(2) Underlying results exclude the trading profits / (losses) of
discontinued businesses (2018: GBP0.5m loss; 2017: GBP0.0m),
acquisitions costs (2018: GBP0.0m; 2017: GBP0.2m), amortisation of
acquired intangibles (2018: GBP2.7m; 2017: GBP3.1m), impairment of
goodwill and acquired intangibles (2018: GBP33.3m; 2017: GBP0.0m)
and integration and restructuring costs (2018: GBP1.2m; 2017:
GBP1.4m), exchange gains from revaluation of foreign assets and
liabilities (2018: GBP0.1m; 2017: GBP0.0) and is presented on a
constant currency basis
(3) Pro forma underlying results include the results for RSL as
if it had been a fully owned subsidiary in 2017 H1 in addition to
note 2 above
Operational Performance and other developments*
-- NFI growth driven by Engineering (+1%) and IT (+4%)
-- Offset by weak Telecoms performance (-20%)
-- Overall positive performance in International, with 5% growth
o Americas +28%
o China +6%
o Underperforming regional offices in Dubai, Qatar and Malaysia
closed post year end
o Zero margin business in Telecom Infrastructure in Africa, Asia
and Latin America also exited post year end
o New office opened in Atlanta, USA
-- During H2, rationalisation of operations to focus on the strong core and improve margin
o Cost reduction programme eliminated GBP3m of costs
o Bromley office closed at end of October
-- New CEO, Kevin Freeguard, appointed 1st October 2018
Financial
-- Underlying operating profit of GBP14.3m (2017: GBP17.3m) in
line with the Board's expectations communicated to the market in
August
-- Decline in margin driven by higher cost base that has not
delivered requisite improvement in revenue
o Cost reduction programme well underway to reverse this trend
and restore the Group's market-leading NFI conversion margin
-- Underlying PBT of GBP12.7m (2017: GBP16.1m), in line with market expectations
-- Significant one-off impairment charge in relation to
write-down of Networkers acquisition goodwill and intangibles,
totalling GBP33.3m (2017: GBPnil). No cash impact
-- Year end net debt broadly flat on prior year at GBP40.9m (2017: GBP40.3m)
-- No final dividend declared, in line with revised policy communicated at interim results
Outlook
-- Brexit uncertainty continues to be a headwind for Gattaca's
end user markets and the UK staffing sector in general
-- Trading in the first quarter of the year is in line with prior year
-- Overseas office closures and exit of Telecom Infrastructure
will reduce NFI, operating profit and PBT, however this will be
broadly neutral at PAT level due to the benefit of reduced
withholding tax
-- Further one-off restructuring costs will be incurred in 2019
but will be offset by the positive impact of the working capital
unwind of the operations being exited
-- Full year NFI and PAT outlook in-line with market expectations
-- Net debt not expected to increase in 2019 after further investment in systems
-- The Board will review any dividend in respect of 2019 against
our policy. We are assuming no interim dividend in 2019.
Commenting on the results, Patrick Shanley Chairman of the Group
said:
"This was a year of change for Gattaca as we decided to reset
the business - reorganising it to establish stable foundations for
future growth. Since the half year, we have simplified our
operations, removing less stable and non-core businesses which were
not expected to contribute to ongoing profits. With Kevin now in
place as CEO, we look forward to building on our core resilient
businesses - in particular UK Engineering, UK IT and our North
American operations through our Matchtech, Networkers and Gattaca
Solutions brands."
Kevin Freeguard, CEO commented:
"I am pleased to see the progress that has been made during the
second half of 2018 in resetting the business and I am looking
forward to developing the business further with the Board and the
rest of the Gattaca team."
* NFI commentary is on an underlying like for like basis
For further information please contact:
Gattaca plc +44 (0) 1489 898989
Kevin Freeguard, Chief Executive Officer
Salar Farzad, Chief Financial Officer
Citigate Dewe Rogerson +44 (0) 20 7638 9571
Chris Barrie / Nick Hayns / Sam Stibbs
Numis Securities Limited +44 (0) 20 7260 1000
Michael Meade / Kevin Cruickshank
/ Tom Ballard
CHAIRMAN'S STATEMENT
This was a year of change for Gattaca as we decided to reset the
business - reorganising it to establish stable foundations for
future regrowth. Results over the previous four years have been
flat, or declining, and the share price has reflected this poor
performance. Following the departure of Brian Wilkinson as CEO at
the end of January, we have taken the company back to its basic
strengths.
Overall NFI grew to GBP78.9m (2017: GBP74.7m) driven by both
Engineering and IT having grown this year However, underlying
profit before tax decreased to GBP12.7m (2017GBP16.2m) as a result
of increased costs. In addition we took an impairment of GBP33.3m
against the goodwill and intangibles arising from the Networkers
acquisition following the decision to close some of our
international operations and exit the Telco Infrastructure business
in Asia, Africa and Latin America.
At the heart of our Group, we have a well established and
resilient engineering and IT business, one based on the deep
knowledge that is characteristic of our talented people, our most
valuable asset.
Where we were not doing well was in Telco Infrastructure in
Asia, Africa and Latin America. This is a mature segment where the
value we can add as a solutions provider is not reflected in the
margins our customers are prepared to pay.
It is a complex segment with a high cost-to-deliver, with low
margins and high demands on working capital. We determined that in
2019, it would make no contribution to Group profit after tax,
therefore we announced our withdrawal from the sector in September
2018.
At the same time, we redrew our footprint by announcing our
intention to close our offices in Malaysia, Dubai and Qatar. This
followed our decision in January to close our German and Singapore
operations. Our mantra is very clear with our overseas offices: the
business has to be significant, scalable and sustainable. This does
not preclude us from investing in new locations where we can see
clearly that the region is capable of meeting these criteria.
We will continue to support our North American operations, which
grew strongly in the year with net fee income up 28% in constant
currency. This business has its base in Dallas, Texas, and
satellite operations in both Canada and Mexico, and has announced
the opening of an additional office in Atlanta, Georgia, to serve
the east coast. Our rate of growth in FY19 will decline slightly as
we extract ourselves from the Telco infrastructure business in
Mexico. China is another important area for us; NFI there grew 6%
during the year and we believe it has all the attributes necessary
to replicate our North American business.
The uncertainty surrounding Brexit is clearly a concern for many
of our customers. We continue to discuss with our customers their
requirements and are conscious Brexit offers both challenges and
opportunities for us as a business. We do however believe we are
well placed to support our customers in their staffing requirements
during this transitional phase. Internally, we have refocused on
the key drivers of profitability and our efforts are very much
targeted on NFI per GBP of sales costs. This, together with
removing some central costs which were not adding to the bottom
line will improve our conversion factor over the coming years as we
get back to basics.
At our interim results, we announced a revised dividend policy,
which aligns the dividend with the financial position and future
prospects of the business. We have agreed the dividend will be 50%
of profit after tax through the cycle, subject to a sustained
reduction in net debt. Accordingly, we will therefore not be paying
a final dividend for FY18 as we focus on reducing debt levels below
2 x EBITDA.
There has been substantial change in the composition of the
Board. We take governance very seriously and following the
departure of Brian Wilkinson, we appointed a specialist executive
search agency to find a successor. Their process considered both
external and internal candidates, as well as those with recruitment
experience and those from other relevant sectors. The Board is very
pleased that Kevin Freeguard has joined the Board and Company as
CEO from 1 October.
Due to other career commitments, Mark Mamone will be stepping
down from his Non-Executive Director role at our forthcoming Annual
General Meeting (AGM) and I would like to thank Mark for his
valuable contribution.
In addition, both Ric Piper (Senior Independent Director and
Chair of Audit Committee) and Roger Goodman retired from the Board
at the end of July. We thank them both for their contribution to
the business over the years. David Lawther joined the Board on 1
June, and became Chair of the Audit Committee from 1 August.
I would also like to thank Keith Lewis, Salar Farzad and the
leadership team for their continued support throughout this period.
We have accomplished a great deal in the past six months and I know
they will continue to support Kevin in his new role. Lastly, I
would wish to thank our employees, who are our principal assets,
for their continued valuable contribution.
Patrick Shanley
Non-Executive Chairman
Chief Executive Officer's review
Following Brian Wilkinson's departure in February 2018, Salar
Farzad, CFO and Keith Lewis, COO led the management team until our
new Chief Executive Officer, Kevin Freeguard, joined the business
in October.
Our business has gone through a period of significant
transformation during the year as we have been implementing changes
to refocus it for its next phase.
During the second half, we conducted a detailed review of our
operations, aiming to prioritise markets where we can achieve
significant, scalable and sustainable profit in the near term. In
the UK, this included looking both at the effectiveness of our
sales operations, with particular emphasis on NFI per GBP1 of sales
staff costs, and at the investments we have made in our support
functions. Internationally, we reviewed operations at all our
offices using the three key measures above.
The results of this review led to our repositioning the business
in certain areas:
-- International footprint: We decided to withdraw from
operations in Dubai, Malaysia and Qatar from September (and Germany
and Singapore in H1). These were not making an appropriate
contribution, and we believe were less scalable than other
markets.
-- Telecoms profitability: We withdrew from the telecoms
infrastructure contractor markets in Africa, Asia and Latin
America. This business had been declining, generated the majority
of our non-recoverable withholding tax, and tended to be working
capital intensive as well as complex to service. Our review
indicated that this business would not be contributing to net
profits in the future.
-- We altered the structure and emphasis of our support functions by:
3/4 Integrating our UK finance, legal and HR functions from
Matchtech, Networkers and Resourcing Solutions Limited (RSL) fully.
These had been spread mostly over three UK locations. Each function
now has one unified team based at our Whiteley hub.
3/4 Repositioning the marketing function so its major focus is
on revenue generating client related activities.
3/4 Reducing the significant cost increases, in both sales and
support, implemented in late 2017 and early 2018.
The review also led us, at the same time, to continue and
increase our support for our growth areas. These include:
-- In our Solutions business which services large clients
through matrix arrangements with our Engineering and Technology
divisions. Solutions which; designs, builds and runs bespoke talent
programmes to enable clients to benefit from superior processes,
increased speed and quality of service and provides the Group long
term value based relationships. In this financial year we have seen
8% organic growth on established clients and grown the client base
by 30% from 22 to 29 programmes at year end. Solutions now
represents 22% of our global NFI.
-- In our North America business, NFI grew 28% on a constant
currency basis, and we opened our second hub in September 2018, in
Atlanta.
-- Our core UK Engineering business, which continues to be a
leader in its niche, during the year we took full ownership of RSL
which has enhanced our offering in the rail sector, and;
-- We have upgraded resources in Gattaca Projects which will
allow us to accelerate innovation and deliver broader solutions for
our customers.
We also invested in our business systems, to enable future
efficiencies and to improve productivity.
During the review process, we have also analysed our capital
structure and have taken steps to address our debt over the medium
term. This action includes specific measures taken on working
capital and, as announced in our interim results statement, a
refined dividend policy. This policy ensures a sustainable balance
between returns made to shareholders through dividends, and
maintaining an appropriate level of gearing.
On an underlying basis Gattaca is a strong and profitable
business which is highly respected by customers in the markets it
serves. The changes we have outlined above have reset the business,
and positioned it for growth from a more stable and solid
foundation.
UK Engineering
60% of Group NFI on a pro forma basis
UK Engineering, Matchtech showed 1% underlying(1) growth in NFI
with a headcount of 276 which, reflecting our increased focus on
productivity, was 25 lower than at the end of 2017.
Aerospace declined 15% year on year due to the loss of two
accounts and a drop in both recruitment spending and contractor
requirements, along with margin pressures. The outlook for the
industry has since become more positive, with recent growth in
output expected to continue as demand for aircraft increases around
the world. New technology is propelling the market, with the wider
use of composites, advanced manufacturing technology and conversion
to new electrical systems all changing the way aircraft are
manufactured. With rapidly ageing fleets in the mature markets and
growing demand from airlines and fleet operators for next
generation, fuel efficient, technologically advanced aircraft, many
customers are now focusing on replacing their older fleets.
Our Infrastructure business which represents around 40% of UK
Engineering was 1% lower than the previous year, though performance
was mixed within the business unit. As we noted at the half year,
our rail focused team, RSL, has been affected by the bidding, award
and uncertainty of the HS2 project, as well as delayed investment
into ongoing maintenance projects. The lack of Network Rail funding
in the latter stages of CP5, Crossrail winding down, and the well
publicised collapse of Carillion all had an impact. 2019 looks set
for more investment in capital projects and the new Rail Control
Period (CP6) will create further opportunities. We have seen strong
performances in other areas offsetting this, some of which can be
attributed to mega-projects such as Hinkley Point, Tideway and the
Heathrow expansion.
Our Highways business has capitalised on both design and
construction projects, where high levels of spending have
continued, while our Buildings team made progress on improving
investment in design projects. The Water and Environment
marketplace has also remained strong in the build up to the peak in
the OFWAT asset management plan cycle.
Engineering Technology continued its upward trajectory,
achieving 19% growth, with continued high demand for electronics,
software and automation skills across the traditional defence,
automotive and commercial electronics sectors. Ongoing developments
within hybrid, electric, automated vehicles and connected cars
ensure continued demand for skills in the UK. Connectivity and
digitalisation also continue to create opportunities in the
evolving convergence of skills between traditional engineering and
IT, while the UK infrastructure market offers exciting
opportunities in areas such as smart cities and rail network
digitalisation.
In Energy, NFI was 5% down on prior year driven by reduced rates
on key account renewals. However, sentiment in Oil & Gas, both
in the UK and internationally, continues to suggest signs of market
recovery, with the increase in oil price, and operators are
beginning to go ahead with previously shelved projects. The
transmission and distribution market continues to receive
investment to upgrade infrastructure, while the renewables and
nuclear markets remain strong thanks to the increasing demand for
cleaner energy.
Our Automotive sector continued to grow by 9% this year. Rapidly
changing technology combined with diminishing skill sets in
traditional engineering has kept recruitment demand high. The vast
majority of automotive manufacturers plan to create new jobs over
the next two years, though this is tempered by OEMs taking
protective measures against a possible hard Brexit. This has the
potential to reduce car manufacturing output and move engineering
to outside of the UK. The UK's attractiveness as an automotive
marketplace depends on a number of factors, including the
productivity of UK plants, the ease of importing and exporting,
exchange rates and domestic demand.
In Maritime NFI grew 13% on last year, with UK growth in the
naval sector on major programmes such as T26 frigate and
Dreadnought class submarine. In addition the leisure market remains
buoyant. International demand is high, and we have achieved success
on the Canadian NSPS (National Shipbuilding Procurement
Strategy).
In General Engineering, NFI was down 6% on last year. The
principal causes of this were lower demand for contractors from key
clients as well as churn within our own staffing. However, the UK
remains the ninth largest manufacturing country by output (source:
Engineering Employers' Federation 2017), and sectors such as
telecoms, high tech distribution and the more traditional
industrial companies are continuing to use high numbers of
temporary workers. The Science and Medical markets continue to
suffer from skill shortages across the UK, which has led to an
increased use of contractors and campaigns to attract overseas
candidates and we remain committed to this business.
Barclay Meade, our professional services brand, and Alderwood,
our training brand, have performed well, up 17% and 18%
respectively. The apprenticeship reform, implemented in April 2017,
has had a positive impact on Alderwood's business, with clients and
apprentices benefiting from a more commercial funding model. At
Barclay Meade, the finance and procurement sectors are transforming
their functions, forming integral partnerships within big business
strategy, advising on sound data-driven decision making, backed up
by commercial trend analysis. Permanent recruitment remain the
predominant part of the professional services business.
UK Technology
21% of Group NFI on a pro forma basis
Our UK Technology NFI was 3% lower than in the previous year,
with the vast majority of the shortfall being due to our Telecoms
Infrastructure business.
Our Telecoms business declined by 20%, with Telecoms
Infrastructure 34% lower than the prior year. In February, we hired
a new head of Telecoms and have been working closely with him on a
detailed review, resulting in the changes noted in the first part
of this statement. We have restructured the entire Telecoms team,
and its focus will be in the communications sector, within Research
and Innovation, Digital Networks and Networks, with a complete
shift away from Telecoms Infrastructure, where both contractor
numbers and margins have been in decline. In Research and
Innovation, the team will be engaged in all activities from
blue-sky projects to taking products to market. Digital Networks
has a focus on software and services for Operations Support Systems
(OSS), Billing Support Systems (BSS), and Customer Relationship
Management (CRM). The Networks team's focus will be on Fibre, 5G
from test networks to commercialisation, and 4G evolution
projects.
Our IT business grew by 4% on last year, with strong
performances from our Development and Cloud business units, thanks
to strong demand for senior AI and Data experts across mainland
Europe specifically within the automotive industry, as we see the
move to autonomous (and mainly electric) vehicles. An increased
focus on making the car a fully connected and integrated technology
solution is also fuelling the demand for Technology staff in that
sector. Growth in Cloud has also come from a number of key clients
who are undergoing large scale IT transformation programmes. This
has led to demand for candidates with experience in virtualisation
solutions for these high value projects.
The fierce competition for Development skills within the London
start-up and fintech markets is driving up both salaries and
demand, and we have invested to capitalise on this growing market.
This creates a wide choice for candidates, though our clients are
finding it increasingly difficult to secure and retain the
appropriate technical skills. Our teams are able to add genuine
value to our clients, helping them unearth talent they would not
previously have had access to.
The continued growth in Cloud, AI and Development has been
tempered by lower performances in ERP and Public Sector. The Public
Sector in particular has had a challenging year with continuing
changes in IR35 tax legislation which came into force in April 2017
and the reallocation of the central government recruitment
framework (CL1).
We saw a significant shift in the mix in the UK Technology
division, with permanent recruitment increasing to 24% from 16%
last year, thanks to strong performances from our permanent-focused
teams and an increase in exclusive arrangements with our clients.
These changes enable our high quality skills based consultants to
find exceptional candidates for our clients.
International business
19% of Group NFI on a pro forma basis
Given the changes we announced to our international footprint,
and the significance of the Americas region, we have provided
commentary on that specific region, followed by the rest of the
international segment.
Americas
This region continued its strong performance, growing NFI 28%
last year on year. Our team now includes a new Executive Vice
President of Operations and Regional Sales Director, working with
our regional President to capture market share through cross
selling.
During the past two years, we have made significant progress
while building the infrastructure for the business to achieve
sustainable growth. Identifying, developing and retaining top sales
and recruitment talent will be the focus as we continue our plan to
expand the business, while maintaining healthy profit levels.
This growth has come primarily through increased permanent
recruitment, leading to a change in mix. In 2019, this mix will be
affected by our withdrawal from the Telecoms Infrastructure
contractor markets in Latin America, and also by our plans to
increase our contractor base in North America.
We continue to maintain efficiency by using central delivery
hubs in Mexico City and Plano to support sales offices, which
include Austin, Houston and, since year end, new offices in
Atlanta, USA and Monterrey, Mexico.
Atlanta will provide support to our clients in the Energy,
Engineering and Technology sectors. It will also be a main sales
centre, and will allow us to benefit from being in a city that was
recently named on the Forbes top 10 Best Places for Business and
Careers. With the fifth largest population in the USA, Atlanta is
considered to be a top business city and a primary transportation
hub, and has one of the largest international airports. The city
also contains the world headquarters of Home Depot, UPS, Coca-Cola
and Delta Airlines.
Other International
Our other international businesses declined by 13% overall. As
part of our detailed review, we are exiting our operations in
Dubai, Malaysia and Qatar, implementation having started in
September. Our business in China grew 6% on the previous year. In
2019, this business will be affected by our exit from Telecoms
Infrastructure, contract business, which was not expected to make
an appropriate net-profit contribution. China offers us great
potential in both Engineering and Technology however and we have
repositioned this business to focus on value added higher margin
business, primarily in permanent recruitment.
Due to the significant Telecoms mix, South Africa declined by
22% last year on year. We have exited the Telecoms Infrastructure
Contract market there, and carried out a significant restructuring
in September.
As with China, we have repositioned this business to focus on
higher margin value added assignments in IT and Engineering.
Although South Africa does not offer the same scalability as other
regions, it has the potential to allow us to obtain efficiencies
through in-house offshoring of some support activity, as the
country offers lower cost high quality talent, as well as language
and time-zone advantages. During 2018, we ran a small and
successful pilot in this respect for our Solutions business, and we
will be exploring this option further.
Outlook
Since February, we have acted to stabilise our business and
focus our resources on areas which offer significant, scalable and
sustainable profit potential in the near term. Our core businesses
in UK Engineering and IT have shown growth and resilience, to add
to an excellent performance in the Americas. We are continuing with
this phase of our stabilisation, which will reset the business on a
much firmer footing. On this, our new CEO, management team and our
industry leading staff will create the next chapter in the Group's
success.
The uncertainty surrounding Brexit continues to affect nearly
all our markets, prompting close discussions with our key
customers. Their concerns are on the impact new custom arrangements
will have on their ability to import and export, and the
availability of skilled labour in the market place. We are well
placed to help our customers attract the key skills they need, but
are reliant on the UK Government reaching agreement with the EU on
customs arrangements. To some extent, where there is greater
shortage of skills, our services will be in greater demand. Along
with the rest of the sector, our business also tends to be impacted
by economic growth and any impact of Brexit on the economy would
have an impact on the business and we remain mindful of these
headwinds as we manage the business in 2019.
Keith Lewis
Chief Operating Officer
Salar Farzad
Chief Financial Officer
1 All comparatives within this performance review are on a like
for like (as if RSL had been owned for all 2017) and constant
currency basis.
Chief Financial Officer's Report
Performance
Revenue of GBP667.5m (2017: GBP642.4m) generated NFI of GBP78.9m
(2017: GBP74.7m). We achieved contract NFI of GBP56.8m (2017:
GBP56.4m) at a margin of 9% (2017: 9%), and permanent recruitment
fees were GBP22.1m (2017: GBP18.3m). Gross margins grew slightly to
11.8% (2017: 11.6%) driven by the higher mix of permanent income
compared to last year (2018: 28:72, 2017: 24:76). Whilst we have
seen a slight increase in the permanent income mix in Engineering,
the change is driven principally by a shift to permanent
recruitment in our UK IT business (primarily caused by IR35 in the
public sector), in China where we have been building the business
beyond the acquired client base, and in the US where most of our
FY18 growth has come from permanent income where again we have been
expanding our customer base.
Loss from operations of GBP23.4m (2017: GBP12.7m profit) has
been impacted by non-cash charges of GBP36.0m in respect of
amortisation and impairment of acquired intangibles (2017:
GBP3.1m). This includes a GBP33.3m (2017 GBPnil) impairment charge
related to the acquisition of Networkers PLC, recognising that this
transaction has turned out not to be value accretive. As mentioned
in the CEO report, since the half year we have taken significant
actions to simplify the business and to eliminate elements which
have been diluting our performance.
Statutory loss after tax was GBP27.1m (2017: GBP7.3m
profit).
Underlying results
To provide greater transparency we have shown underlying results
beneath the Income Statement including a reconciliation to
statutory results. Underlying profit before taxation at GBP12.7m
(2017: GBP16.2m) was GBP3.5m lower than last year. This is solely a
function of higher administrative costs of GBP7.3m of which GBP2.2m
relates to the full year consolidation of RSL. NFI was GBP4.2m
higher which was largely consolidation of RSL for a full year
at
GBP6.3m (2017 GBP3.2m).
The table below breaks out the increase in underlying
administrative costs:
GBPm 2018 2017
------------------------------------------------------------- ------- ------
Administrative expenses 102.3 62.0
Less:
Non-underlying items included within administrative expenses (1.7) (1.6)
Amortisation and impairment of acquired intangibles (36.0) (3.1)
------------------------------------------------------------- ------- ------
Underlying administrative expenses 64.6 57.3
------------------------------------------------------------- ------- ------
Underlying administrative expenses increased by 13% as
follows:
GBPm
----------------------------------------------- -----
2017 Underlying administrative expenses 57.3
Impact of full year of RSL consolidation 2.2
Net investment in UK sales 2.8
Investment in US office 1.0
Reduction in Asia and MEA sales (1.0)
Group support staff investment 0.5
Finance and professional fees increase 1.0
Increase in bad and doubtful debt charge 0.6
Depreciation and other administrative expenses 0.2
----------------------------------------------- -----
2018 Underlying administrative expenses 64.6
----------------------------------------------- -----
The cost increase in UK sales was broadly split between UK
Engineering and Solutions. The UK Engineering increase was driven
by higher commissions as a result of higher NFI, whilst Solutions,
which offers higher quality and more efficient services to our
clients, and better returns for our stakeholders is a key area of
focus for the group and an example of where we have invested with
weighted average headcount increasing to 57 in 2018 from 36 in
2017.
The reduction in sales staff in Asia and MEA was a precursor to
the announced closure since year end of our offices in Dubai,
Malaysia and Qatar.
As we continue to professionalise the business we have increased
our investment in group support.
The increase in professional fees related to amortisation of set
up costs on a long term contract and mostly one-off external
professional advice on projects including GDPR, transfer pricing
and refinancing.
Non-underlying items within administrative expenses of GBP1.7m
(2017: GBP1.6m) are costs of the discontinued Munich operation of
GBP0.5m as well as redundancy and integration costs related to RSL,
and restructurings within the group support functions and in our
Technology business.
The primary driver of our business, and therefore the primary
cost relates to headcount. Our headcount during the year was as
follows:
2018 2017
July weighted July weighted
2018 average 2017 average
----------------------------------- ----- --------- ----- ---------
UK Engineering 277 305 305 284
UK Technology 97 111 118 126
Solutions and Business Development 61 57 46 36
International sales 143 152 148 155
Group Support 232 235 252 231
----------------------------------- ----- --------- ----- ---------
810 860 869 832
----------------------------------- ----- --------- ----- ---------
Whilst we have reduced headcount in most areas to increase
efficiency, we continue to invest where this will drive
performance.
Cost actions, international footprint and Telecoms
infrastructure
In late 2017 and early 2018 the Group had invested in overheads
in anticipation of significantly higher NFI which did not
materialise. Since early February we have taken a number of actions
to abate the rate of the cost growth of the Group including in the
UK.
In addition to these actions as noted in the CEO report, after
year end we took the strategic decision to exit our Dubai, Malaysia
and Qatar operations as well as withdrawing from our Telecoms
Infrastructure activity in Africa, Asia and Latin America.
These operations also generated the majority of our non
recoverable withholding tax, which therefore will reduce
significantly in 2019, and consequently we expect this withdrawal
to be neutral to the Group at profit after tax level.
Within this exercise, since year end we also closed our Bromley
office, with all UK Group support now being provided from our
Whiteley hub.
These actions commenced after July 2018 and together will reduce
2019 NFI, EBITDA and profit before tax. However, we expect the
impact on profit after tax to be broadly neutral. These businesses
had been declining and were expected to continue to decline; our
actions remove a potential downward force on Group results, to
improve operational gearing and simplify the business.
Whilst the 2019 results will also reflect one-off costs arising
from these actions, we expect an improvement in ongoing working
capital, as the customers of these exited businesses tended to be
working capital intensive and more complex to service.
Conversion ratio
Underlying profit from operations (profit from operations less
non-underlying costs, amortisation and impairment of acquired
intangibles and goodwill) of GBP14.3m (2017: GBP17.4m) represented
18% (2017: 23%) of gross profit. Whilst lower than prior years we
expect the actions we have taken in FY18 H2 and the first part the
FY19 financial year around our cost base, international footprint
and Telecoms business, as well as the investments in our strong
Engineering, UK IT and North America businesses to positively
impact this ratio in the future. It is a key measure of our
productivity and we expect to return to being a leader amongst UK
listed staffing firms for this measure.
Taxation
The Group's underlying effective tax rate was 41% (2017: 31%).
This higher than normal rate, which will reduce going forwards is
driven by our non-recoverable withholding tax which was 11% (2017:
12%) of underlying profit before tax and an adjustment to the tax
charge of GBP1.1m in respect of prior periods. Tax has been a
particular focus during 2018 and as well as dealing with non
recoverable withholding tax we have reassessed other areas, in
particular for international operations. The prior year tax
adjustment relates to amendment of historical transfer pricing
provisions and amendments of overseas deferred tax provisions.
We expect a significant reduction in non-recoverable withholding
tax as a result of our withdrawal from the Telecoms Infrastructure
markets in Africa, Asia and Latin America.
Earnings per share
Basic earnings per share was negative 85.3 pence (2017: 23.4
pence), and on a fully diluted basis was negative 85.3 pence (2017:
22.7 pence).
Underlying basic earnings per share was 22.6 pence (2017:35.3
pence).
Dividends paid/proposed
In accordance with our dividend policy announced in April with
our interim results, the Board is not recommending a final dividend
for 2018. Our policy which we set out in our half year results, is
to achieve a through the cycle dividend payout of approximately 50%
of profits after tax, subject to a sustained reduction in net debt.
The total dividend paid during the year therefore is 20 pence
(2017: 23 pence). The Board will review any dividend in respect of
2019 against our policy as we focus on reducing overall debt to
below 2 times EBITDA.
Tangible and intangible assets
Capital expenditure in the year including tangible assets and
software, was GBP2.8m (2017: GBP1.5m). This included GBP1.4m mostly
related to leasehold improvements at our Whiteley campus to bring
the premises up to a reasonable standard. This is where the bulk of
our UK staff are based and an appropriate working environment is
critical to maintaining a motivated and productive workforce. There
was also a GBP0.9m investment in software and software licences for
our primary business systems where we are working to replace our
dated in-house built legacy software with modern standardised
external products.
Acquisitions
During the year, the minority holders of RSL shares exercised
their put options and we acquired the remaining 30% of RSL for
GBP3.6m. In 2017 we acquired 70% of the business for GBP7.4m and
assumed GBP3.8m of the company's debt. RSL is now integrated within
our Infrastructure business and has significantly strengthened our
offering, in particular in the Rail sector.
Net assets and shares in issue
At 31 July 2018, the Group had net assets of GBP47.0m (2017:
GBP84.7m) and had 32.3m (2017: 31.8m) fully paid ordinary shares in
issue. The change in net assets is principally driven by the
impairment of intangibles related to the Networkers
acquisition.
Cash flow and net debt
Net debt at 31 July 2018 was GBP40.9m (2017: GBP40.3m),
consisting a working capital facility of GBP35.9m (2017:
GBP25.7m), bank term loan of GBP15.0m (2017: GBP20.7m), less
cash of GBP9.8m (2017: GBP5.8m) and capitalised finance costs of
GBP0.2m (2017: GBP0.3m).
Cash generated from operations at GBP17.9m (2017: GBP12.4m) was
GBP5.5m higher than prior year. In addition to the change in
underlying profits and non underlying costs this was driven by an
improvement in working capital of GBP4.2m (2017: GBP5.0m
deterioration) which was due to lower trade and other receivables.
Working capital optimisation has been a major focus during the year
and DSO (days sales outstanding) of 52 (2017: 55) were 3 days
better than prior year.
Cash used in investing activities was GBP6.2m (2017: GBP8.8m)
driven by the investment in Tangible and Intangible assets and the
earnout payment for the acquisition of RSL.
Cash used in financing activities was GBP2.0m (2017: GBP2.6m
generated) due to dividends paid in the year of GBP6.4m (2017:
GBP7.2m) offset by net movement in financing facilities.
Banking facilities and interest rate risk
Our financing facilities include three covenants: Interest
Cover; Adjusted Leverage; and RCF (revolving credit facility) to
adjusted EBITDA. We are comfortable with our ability to service our
debt and meet our covenants and we monitor projections for covenant
ratios as part of our routine monthly reporting.
Given the headwinds around Brexit and its potential impact on
the economy, we have renegotiated our facilities with HSBC,
removing excess facilities and agreeing a more generous covenant
profile. As of November 2018 the Group has facilities of GBP90m,
consisting of a GBP75m working capital financing facility and a
GBP15m bank term loan, both committed until October 2020.
The Group's exposure to market risk for changes in interest
rates relates primarily to the Group's bank loan and sales
financing facility debt obligations. Bank interest is charged on a
floating rate basis.
Brexit
As with last year, the Board continues to follow developments on
Brexit. The effect of Brexit on business confidence is an important
factor for us to the extent it affects the UK economic environment,
as noted in the Principal Risks and Uncertainties report.
IR35
In his October 2018 budget, the Chancellor stated the
Government's intention to extend, in April 2020, into the private
sector the IR35 rules which were brought to the public sector in
2017.
Underlying engineering and technology projects will continue to
require resource and as leading providers of resources to those
sectors, we will continue to offer a valuable service to our
clients through our contingent and solutions offerings.
Critical accounting policies
The statement of significant accounting policies is set out in
Note 1 to the Financial Statements.
Group financial risk management
The Board reviews and agrees policies for managing financial
risks. The Group's finance function is responsible for managing
investment and funding requirements including banking and cash flow
monitoring. It seeks to ensure that adequate liquidity exists at
all times, to meet its cash requirements. The Group's financial
instruments comprise borrowings, cash and various items, such as
trade receivables and trade payables that arise from its
operations, and some matching forward foreign exchange contracts.
The Group does not trade in financial instruments. The main risks
arising from the Group's financial instruments are described
below.
Credit risk
The Group trades only with recognised, creditworthy third
parties. We monitor receivable balances on an ongoing basis, with
the result that the Board feels the exposure to bad debt is not
significant. There are no significant concentrations of credit risk
within the Group, with no single debtor accounting for more than 4%
(2017: 4%) of total receivables balances at 31 July 2018. During
our year we increased our provision for doubtful debts by
GBP0.5m.
Foreign currency risk
The Group generates around 30% of its annualised NFI in overseas
markets including overseas revenue generated from the UK. The Group
does face risks to both its reported performance and cash position
arising from the effects of exchange rate fluctuations. The Group
manages these risks by matching sales and direct costs in the same
currency, entering into forward exchange contracts to minimise the
gap in assets and liabilities denominated in foreign
currencies.
2018 trading and outlook
Trading in the first quarter of our 2018 financial year has been
broadly in line with prior year and we believe this trend is likely
to continue for the year, notwithstanding external headwinds around
Brexit and IR35 and the significant amount of internal change the
company is currently absorbing.
Salar Farzad
Chief Financial Officer
Consolidated Income Statement for the year ended 31 July
2018
2018 2017
Note GBP'000 GBP'000
Revenue 2 667,544 642,365
Cost of sales (588,681) (567,657)
------------------------------ ----- ---------- ----------
Gross profit 2 78,863 74,708
Administrative expenses (102,268) (62,004)
------------------------------ ----- ---------- ----------
(Loss)/profit from operations 3 (23,405) 12,704
Finance income 5 198 44
Finance costs 6 (1,652) (1,240)
------------------------------ ----- ---------- ----------
(Loss)/profit before taxation (24,859) 11,508
Taxation 9 (2,217) (4,160)
------------------------------ ----- ---------- ----------
(Loss)/profit for the year (27,076) 7,348
------------------------------ ----- ---------- ----------
Attributable to:
Equity holders of the parent (27,351) 7,176
Non-controlling interests 275 172
------------------------------ ----- ---------- ----------
(27,076) 7,348
------------------------------ ----- ---------- ----------
All of the activities of the Group are classed as continuing.
The Company has elected to take the exemption under section 408 of
the Companies Act 2006 from presenting the parent Company Income
Statement.
Earnings per ordinary share
2018 2017
Note pence pence
--------------------------- ----- ------- ------
Basic earnings per share 10 (85.3) 23.4
Diluted earnings per share 10 (85.3) 22.7
--------------------------- ----- ------- ------
Underlying profit after taxation
2018 2017
Note GBP'000 GBP'000
------------------------------------------------------------------------------------------- ----- -------- --------
(Loss)/profit from operations (23,405) 12,704
Add:
Depreciation of property, plant and equipment and amortisation of software and software
licences 3 1,027 896
Non-underlying items included within administrative expenses 3 1,676 1,610
Amortisation and impairment of acquired intangibles 3 36,011 3,074
------------------------------------------------------------------------------------------- ----- -------- --------
Underlying EBITDA 15,309 18,284
Less:
Depreciation of property, plant and equipment and amortisation of software and software
licences (1,027) (896)
Net finance costs excluding foreign exchange differences (1,540) (1,232)
------------------------------------------------------------------------------------------- ----- -------- --------
Underlying profit before taxation 12,742 16,156
Underlying taxation 9 (5,222) (5,076)
------------------------------------------------------------------------------------------- ----- -------- --------
Underlying profit after taxation 7,520 11,080
------------------------------------------------------------------------------------------- ----- -------- --------
Underlying earnings per ordinary share
2018 2017
Note pence pence
--------------------------- ------ ------ ------
Basic earnings per share 22.6 35.3
Diluted earnings per share 22.6 34.3
----------------------------------- ------ ------
Consolidated Statement of Comprehensive Income for the year
ended 31 July 2018
2018 2017
GBP'000 GBP'000
------------------------------------------------------- --------- --------
(Loss)/profit for the year (27,076) 7,348
Other comprehensive (loss)/income
Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translating foreign operations (734) 218
------------------------------------------------------- --------- --------
Other comprehensive (loss)/income for the year (734) 218
------------------------------------------------------- --------- --------
Total comprehensive (loss)/income for the year (27,810) 7,566
------------------------------------------------------- --------- --------
Attributable to:
Equity holders of the parent (28,085) 7,394
Non-controlling interests 275 172
------------------------------------------------------- --------- --------
(27,810) 7,566
------------------------------------------------------- --------- --------
Total comprehensive income attributable to equity shareholders
arises wholly from continuing operations.
Statements of Changes In Equity for the year ended 31 July
2018
A) Group
Share-
based Translation
Share Share Merger payment of foreign Retained Non-controlling
capital premium reserve reserve operations earnings interests Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
At 1 August 2016 312 8,696 28,750 2,537 815 40,504 - 81,614
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
Profit for the year - - - - - 7,176 172 7,348
Other comprehensive income - - - - 218 - - 218
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
Total comprehensive income - - - - 218 7,176 172 7,566
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
Dividends paid in the
year (Note 7) - - - - - (7,195) - (7,195)
Deferred tax movement
re share options - - - - - (121) - (121)
Deferred consideration - - - - - - 2,050 2,050
IFRS 2 charge - - - 774 - - - 774
IFRS 2 reserves transfer - - - (1,896) - 1,896 - -
Shares issued 6 8 - - - - - 14
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
Transactions with owners 6 8 - (1,122) - (5,420) 2,050 (4,478)
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
At 31 July 2017 318 8,704 28,750 1,415 1,033 42,260 2,222 84,702
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
At 1 August 2017 318 8,704 28,750 1,415 1,033 42,260 2,222 84,702
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
(Loss)/profit for the
year - - - - - (27,351) 275 (27,076)
Other comprehensive loss - - - - (734) - - (734)
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
Total comprehensive loss - - - - (734) (27,351) 275 (27,810)
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
Dividends paid in the
year (Note 7) - - - - - (6,441) - (6,441)
Deferred tax movement
re share options - - - - - (211) - (211)
Acquisition of
non-controlling
interest - - - - - (3,552) (3,552)
Non-controlling interest
transfer - - - - - (1,055) 1,055 -
IFRS 2 charge - - - 324 - - - 324
IFRS 2 reserves transfer - - - (665) - 665 - -
Shares issued 5 2 - - - - - 7
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
Transactions with owners 5 2 - (341) - (7,042) (2,497) (9,873)
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
At 31 July 2018 323 8,706 28,750 1,074 299 7,867 - 47,019
-------------------------- -------- -------- -------- -------- ----------- --------- --------------- ---------
B) Company
Share-
based
Share Share Merger payment Retained
capital premium reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------- --------- --------- -------- ---------- ---------
At 1 August 2016 312 8,696 28,526 2,537 2,158 42,229
------------------------------- --------- --------- --------- -------- ---------- ---------
Profit and total comprehensive
income for the year - - - - 6,278 6,278
Dividends paid in the year - - - - (7,195) (7,195)
IFRS 2 charge - - - 774 - 774
IFRS 2 reserves transfer - - - (1,896) 1,896 -
Shares issued 6 8 - - - 14
------------------------------- --------- --------- --------- -------- ---------- ---------
Transactions with owners 6 8 - (1,122) (5,299) (6,407)
------------------------------- --------- --------- --------- -------- ---------- ---------
At 31 July 2017 318 8,704 28,526 1,415 3,137 42,100
------------------------------- --------- --------- --------- -------- ---------- ---------
At 1 August 2017 318 8,704 28,526 1,415 3,137 42,100
------------------------------- --------- --------- --------- -------- ---------- ---------
Profit and total comprehensive
income for the year - - - - 4,670 4,670
Dividends paid in the year - - - - (6,441) (6,441)
IFRS 2 charge - - - 324 - 324
IFRS 2 reserves transfer - - - (665) 665 -
Shares issued 5 2 - - - 7
------------------------------- --------- --------- --------- -------- ---------- ---------
Transactions with owners 5 2 - (341) (5,776) (6,110)
------------------------------- --------- --------- --------- -------- ---------- ---------
At 31 July 2018 323 8,706 28,526 1,074 2,031 40,660
------------------------------- --------- --------- --------- -------- ---------- ---------
Consolidated and Parent Company Statements of Financial Position
at 31 July 2018
Group Company
-------------------- --------------------
2018 2017 2018 2017
Note GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- ----- --------- --------- --------- ---------
Non-current assets
Intangible assets 11 16,349 51,802 - -
Property, plant and equipment 12 3,620 2,504 - -
Investments 13 - - 8,311 7,987
Deferred tax asset 14 135 773 - -
-------------------------------------------- ----- --------- --------- --------- ---------
Total non-current assets 20,104 55,079 8,311 7,987
-------------------------------------------- ----- --------- --------- --------- ---------
Current assets
Trade and other receivables 15 112,912 114,997 94,927 86,608
Cash and cash equivalents 9,758 5,802 - -
-------------------------------------------- ----- --------- --------- --------- ---------
Total current assets 122,670 120,799 94,927 86,608
-------------------------------------------- ----- --------- --------- --------- ---------
Total assets 142,774 175,878 103,238 94,595
-------------------------------------------- ----- --------- --------- --------- ---------
Non-current liabilities
Deferred tax liability 14 (1,636) (3,914) - -
Provisions 16 (1,390) (1,596) - -
Bank loans and borrowings 18 (14,931) (20,464) (14,931) (20,464)
-------------------------------------------- ----- --------- --------- --------- ---------
Total non-current liabilities (17,957) (25,974) (14,931) (20,464)
-------------------------------------------- ----- --------- --------- --------- ---------
Current liabilities
Trade and other payables 17 (40,850) (38,990) (47,647) (32,031)
Current tax liability (1,247) (586) - -
Bank loans and borrowings 18 (35,701) (25,626) - -
-------------------------------------------- ----- --------- --------- --------- ---------
Total current liabilities (77,798) (65,202) (47,647) (32,031)
-------------------------------------------- ----- --------- --------- --------- ---------
Total liabilities (95,755) (91,176) (62,578) (52,495)
-------------------------------------------- ----- --------- --------- --------- ---------
Net assets 47,019 84,702 40,660 42,100
-------------------------------------------- ----- --------- --------- --------- ---------
Equity
Share capital 21 323 318 323 318
Share premium 8,706 8,704 8,706 8,704
Merger reserve 28,750 28,750 28,526 28,526
Share-based payment reserve 1,074 1,415 1,074 1,415
Translation of foreign operations 299 1,033 - -
Retained earnings 7,867 42,260 2,031 3,137
-------------------------------------------- ----- --------- --------- --------- ---------
Total equity attributable to equity holders
of the parent 47,019 82,480 40,660 42,100
-------------------------------------------- ----- --------- --------- --------- ---------
Non-controlling interest - 2,222 - -
-------------------------------------------- ----- --------- --------- --------- ---------
Total equity 47,019 84,702 40,660 42,100
-------------------------------------------- ----- --------- --------- --------- ---------
The Company has taken advantage of the exemption in section 408
of the Companies Act 2006 not to present the parent Company's
Income Statement. The parent Company's profit of GBP4,670,000
(2017: GBP6,278,000) for the year is shown in Note 8 of the
Financial Statements. The accompanying notes form part of these
financial statements.
The financial statements were approved by the Board of Directors
on 7 November 2018 and signed on its behalf by:
Salar Farzad
Chief Financial Officer
Consolidated and Parent Company Cash Flow Statements for the
year ended 31 July 2018
Group Company
------------------------ -------------------
2018 2017 Restated 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- --------- ------------- --------- --------
Cash flows from operating activities
(Loss)/profit after taxation (27,076) 7,348 4,670 6,278
Adjustments for:
Depreciation and amortisation 3,718 3,970 - -
Profit on disposal of property, plant
and equipment (14) (9) - -
Impairment of acquired intangibles 33,320 - -
Interest income (198) (44) - -
Interest costs 1,652 1,240 - -
Taxation expense recognised in Income
Statement 2,217 4,160 - -
Decrease/(increase) in trade and other
receivables 2,326 (3,774) (8,069) (6,273)
Increase/(decrease) in trade and other
payables 1,860 (2,215) 15,547 320
Increase/(decrease) in provisions (206) 994 - -
Share-based payment charge 324 774 - -
Investment income - - (5,474) (7,200)
----------------------------------------- --------- ------------- --------- --------
Cash generated from/(used in) operations 17,923 12,444 6,674 (6,875)
----------------------------------------- --------- ------------- --------- --------
Interest paid (1,537) (1,145) - -
Interest received 112 - - -
Income taxes paid (3,648) (6,034) - -
----------------------------------------- --------- ------------- --------- --------
Cash from/(used in) operating activities 12,850 5,265 6,674 (6,875)
----------------------------------------- --------- ------------- --------- --------
Cash flows from investing activities
Purchase of plant and equipment (1,853) (1,027) - -
Purchase of intangible assets (899) (512) - -
Acquisitions net of cash received - (7,378) - -
Acquisition of non-controlling interest (3,552) - - -
Proceeds from sale of property, plant
and equipment 67 76 - -
Dividends received - - 5,474 7,200
----------------------------------------- --------- ------------- --------- --------
Cash (used in)/generated from investing
activities (6,237) (8,841) 5,474 7,200
----------------------------------------- --------- ------------- --------- --------
Cash flows from financing activities
Proceeds from issue of share capital 7 14 7 14
Drawdown of term loan - 7,106 - 7,106
Drawdown of working capital facilities 10,166 2,970 -
Finance costs paid (25) (250) (250)
Repayment of term loan (5,714) - (5,714) -
Dividends paid (6,441) (7,195) (6,441) (7,195)
----------------------------------------- --------- ------------- --------- --------
Cash (used in)/generated from financing
activities (2,007) 2,645 (12,148) (325)
----------------------------------------- --------- ------------- --------- --------
Effects of exchange rates on cash and
cash equivalents (650) (695) - -
Increase/(decrease) in cash and cash
equivalents 3,956 (1,626) - -
Cash and cash equivalents at beginning
of year 5,802 7,428 - -
----------------------------------------- --------- ------------- --------- --------
Cash and cash equivalents at end of year 9,758 5,802 - -
----------------------------------------- --------- ------------- --------- --------
Following enquiry from the Financial Reporting Council, the 2017
comparative figures in the Consolidated Cash Flow Statement have
been restated. Please refer to the Note 1 for more details.
Notes Forming Part of the Financial Statements
1 The Group and Company Significant Accounting Policies
i The business and address of the Group
Gattaca plc (the Company) and its subsidiaries (together the
Group) is a human capital resources business providing contract and
permanent recruitment services in the private and public sectors.
The Company is a public limited company, which is listed on the
Alternative Investment Market (AIM) and is incorporated and
domiciled in England, United Kingdom. The Company's address is:
1450 Parkway, Solent Business Park, Whiteley, Fareham, Hampshire,
PO15 7AF. The registration number is 04426322.
ii Basis of preparation of the Financial Statements
The Financial Statements of Gattaca plc have been prepared in
accordance with International Financial Reporting Standards (IFRS)
and IFRS Interpretations Committee (IFRIC) interpretations as
adopted by the European Union and with the Companies Act 2006
applicable to companies reporting under IFRS.
These Financial Statements have been prepared under the
historical cost convention. The accounting policies have been
applied consistently to all years throughout both the Group and the
Company for the purposes of preparation of these Financial
Statements. A summary of the principal accounting policies of the
Group are set out below.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the Consolidated
Financial Statements, are disclosed in Note 1 xxvi.
iii Going concern
The Directors have reviewed forecasts and budgets for the coming
year, which have been drawn up with appropriate regard for the
current macroeconomic environment and the particular circumstances
in which the Group operates. These were prepared with reference to
historic and current industry knowledge, taking future strategy of
the Group into account. As a result, at the time of approving the
Financial Statements, the Directors consider that the Company and
the Group have sufficient resources to continue in operational
existence for the foreseeable future and in compliance with key
financial covenants, and accordingly, that it is appropriate to
adopt the going concern basis in the preparation of the Financial
Statements. As with all business forecasts, the Directors cannot
guarantee that the going concern basis will remain appropriate
given the inherent uncertainty about future events.
iv New standards and interpretations
No new standards are required to be adopted from 1 August 2017
or during the financial year.
New standards in issue, not yet effective
IFRS 15 'Revenue from contracts with customers'
During 2014 the International Accounting Standards Board (IASB)
issued IFRS 15 'Revenue from contracts with customers', which has
become effective from 1 August 2018 for the Group. The Group has
assessed the estimated impact that adoption of IFRS 15 will have on
its Consolidated Financial Statements. The estimated impact of
application of this new standard on the beginning of the 2019
financial year is based on assessments taken to date and is
summarised below. The actual impact of adoption may change because
relevant accounting policies are subject to change until the Group
presents its first financial statements that include the date of
initial application.
IFRS 15, 'Revenue from contracts with customers', deals with
revenue recognition and establishes principles for reporting useful
information to users of Financial Statements about the nature,
amount, timing and uncertainty of revenue and cash flows arising
from an entity's contracts with customers. The standard replaces
IAS 18 'Revenue', IAS 11 'Construction contracts', IFRIC 13
'Customer loyalty programmes', SIC 31 'Revenue - Barter
transactions involving advertising services' and related
interpretations.
The following major revenue streams have been assessed as
follows:
Temporary placements
Revenue from temporary placements is recognised at the point in
time when a candidate provides services. The Group has assessed its
use of third party providers to supply candidates under the agent
or principal criteria and has determined that it is the principal
on the grounds that it retains primary responsibility for provision
of the services. Under IFRS 15, the timing and amount of revenue
recognition is expected to be materially unchanged, with no impact
expected on retained earnings on 1 August 2018.
A number of rebate arrangements are in place in respect of
volume and value of sales; these will be accounted for as variable
consideration and estimated in line with IFRS 15. In addition,
consideration payable to customers has been capitalised and
amortised over the term of the contracts it relates to; this will
also be accounted for as a reduction to the transaction price.
Under IAS 18 these are accounted for as a reduction to revenue;
under IFRS 15, the accounting treatment will remain, with no impact
on gross profit expected.
Permanent placements
Revenue from permanent placements is recognised at the point in
time when the candidate commences employment, with 'claw-back'
provisions provided for. Under IFRS 15, the timing and amount of
revenue recognition is expected to be materially unchanged, with a
no estimated impact on retained earnings on 1 August 2018.
Provision of engineering services
Revenue from provision of engineering services is recognised
over the period of the contract, on completion of work in line with
milestones per contracts or approved timesheets. Under IFRS 15, the
timing and the amount of revenue recognised is expected to be
materially unchanged, with no impact expected on retained earnings
at 1 August 2018.
Transition
The Group plans to adopt IFRS 15 using the cumulative effect
method, with the effect of initially applying this standard on the
date of initial application, being 1 August 2018. As a result, the
Group will not apply the requirements of IFRS 15 to the comparative
Financial Statements.
IFRS 9 'Financial Instruments'
IFRS 9 'Financial instruments' is effective for the Group from 1
August 2018. The new standard sets out requirements for recognising
and measuring financial assets and financial liabilities. The Group
has assessed the impact of the adoption of this new standard and
plans to adopt retrospectively, taking advantage of the exemption
to not restate comparative information with respect to
classification and measurement changes.
The Group does not expect any material changes to the Statement
of Financial Position or Equity at 1 August 2018 as a result of
adoption of IFRS 9. The actual impact of adoption may change
because relevant accounting policies are subject to change until
the Group presents its first Financial Statements that include the
date of initial application.
Further details of each aspect of the standard have been
included below:
Classification and measurement
IFRS 9 contains a new classification and measurement approach
for financial assets that reflects the business model in which
assets are managed and their cash flow characteristics. Under IFRS
9, the number of classification categories has reduced, resulting
in all financial assets being measured at amortised cost, fair
value through profit and loss (FVTPL) or fair value through other
comprehensive income (FVOCI).
The Group does not believe that the new classification
requirements will have any impact on its accounting for trade and
other receivables.
IFRS 9 largely retains the existing requirements for
classification of financial liabilities in IAS 39. The Group's
assessment did not identify any changes to classification and
measurement of financial liabilities on 1 August 2018.
Impairment
IFRS 9 replaces the incurred loss model of IAS 39 with an
'Expected Credit Loss' model (ECL). This applies to all financial
assets measured at amortised cost or FVOCI, except equity
investments. Depending on certain criteria, it measures all default
events that are expected to occur in 12 months from the reporting
date, or over the lifetime of the financial assets.
The Group has reviewed each category of financial assets to
assess the level of credit risk and ECL to apply:
-- The Group has chosen to take advantage of the practical
expedient in IFRS when assessing default rates over its portfolio
of trade receivables, to estimate the ECL based on historical
default rates specific to groups of customers by industry and
geography. Separate ECL's have been modelled for UK construction
customers, rest of UK customers, and customers in Americas, Europe,
Asia and Africa. The estimated impairment provision of trade
receivables at 1 August 2018 under IFRS 9 is not materially
different to the impairment provision held at 31 July 2018 of
GBP1,547,000, and therefore the Group estimates that there will be
no material impact on retained earnings at 1 August 2018.
-- Cash and cash equivalents are held with financial
institutions. The Group has determined that based on the external
credit ratings of counterparties, it has very low credit risk and
that the estimated ECL is not material.
At each reporting date, the ECL will be reviewed to reflect
changes in credit risk and adjustments made where necessary.
Additional disclosure requirements under IFRS 9 on credit risk and
ECL's will be assessed in advance of the next reporting period
end.
Hedging
The Group has no existing hedging relationships to be considered
under IFRS 9.
Transition
The Group plans to adopt IFRS 9 using the cumulative effect
method, with the effect of initially applying this standard on the
date of initial application, being the 1 August 2018. As a result,
the Group will not apply the requirements of IFRS 9 to the
comparative financial statements.
IFRS 16 'Leases'
IFRS 16 'Leases' addresses the definition of a lease,
recognition and measurement of leases, and it establishes
principles for reporting useful information to users of financial
statements about the leasing activities of both lessees and
lessors. A key change arising from IFRS 16 is that most operating
leases will be accounted for on the Statement of Financial Position
for lessees. The standard replaces IAS 17, 'Leases', and related
interpretations. The standard is effective for annual periods
commencing on or after 1 January 2019, and so will be adopted by
the Group from 1 August 2019.
Adoption of IFRS 16 is expected to result in changes to the
Group's Consolidated Financial Statements. Under IFRS 16, certain
lease commitments could be accounted for 'on-balance sheet', with
recognition of a lease liability and corresponding right-of-use
assets. Under IFRS 16, the operating lease charge would be replaced
by a depreciation charge that, whilst lower over the life of the
lease than the current operating lease charge, is not expected to
be materially different. Rental expenses will also be accounted for
as finance costs rather than within operating expenses.
The Group is currently performing an impact assessment of the
application of the new standard.
Forthcoming requirements
The following amendments are required for application for the
groups periods beginning after 1 August 2018:
Effective date (annual periods
Standard beginning on or after)
-------- ----------------------------------------- ------------------------------
IFRS 2 Share-based payments 1 January 2018
IFRS 9 Implementation of IFRS 9 1 January 2018
Investments in associates and joint
IAS 28 ventures 1 January 2018
IAS 16 Property, plant and equipment 1 January 2018
IFRIC Foreign currency transactions and advance
22 consideration 1 January 2018
IFRIC
23 Uncertainty over income tax treatments 1 January 2019
-------- ----------------------------------------- ------------------------------
The Group does not intend to adopt any of these new standard or
amendments early and does not expect any significant impact of
adoption on the Financial Statements.
v Basis of consolidation
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are deconsolidated
from the date on which that control ceases.
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the fair value of the assets transferred, the
liabilities incurred to the former owners of the acquiree, and the
equity interests issued by the Group. The consideration transferred
includes the fair value of any asset or liability resulting from a
contingent consideration arrangements. Identifiable assets acquired
and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair value at the
acquisition date. The Group recognises any non-controlling interest
in the acquiree on an acquisition-by-acquisition basis, either at
fair value or at the non-controlling interest's proportionate share
of the recognised amounts of the acquiree's identifiable net
assets.
Acquisition-related costs are expensed as incurred.
Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated. Where necessary, amounts reported by
subsidiaries have been adjusted to conform to the Group's
accounting policies.
Put options over equity of subsidiary companies
The potential cash payments related to put options issued by the
Group over the equity of subsidiary companies are accounted for as
financial liabilities where such options can only be settled either
by exchange of a fixed amount of cash or another financial asset
for a fixed number of shares in the subsidiary. The amount that
might become payable under the option on exercise is initially
recognised at fair value within borrowings, with a corresponding
charge directly to equity. The charge to equity is recognised
separately as written put options over non-controlling interests,
adjacent to non-controlling interests in the net assets of
consolidated subsidiaries.
The Group recognises the cost of writing such put options,
determined as the excess of the fair value of the option over any
consideration received, as a financing cost. Such options are
subsequently measured at amortised costs, using the effective
interest rate method in order to accrete the liability up to the
amount payable under the option at the date at which it first
becomes exercisable. The charge arising is recorded as a financing
cost. In the event that the option expires unexercised, the
liability is de-recognised, with a corresponding adjustment to
equity.
vi Restatement of consolidated cash flow statement prior period
comparatives
In light of an enquiry from the Financial Reporting Council, the
Company has considered the tentative committee decision of IFRIC
issued in March 2018 concerning the classification of short-term
loans and credit facilities under IAS 7 'Statement of Cash Flows'.
This decision clarifies certain aspects of the definition of cash
equivalent balances and the Company has concluded that it is
appropriate to change its presentation of its working capital
facility ('Invoice Finance facility') in the Financial Statements
for the year ended 31 July 2018 and treat it as a financing cash
flow. Accordingly, the comparative financial information for the
year ended 31 July 2017 has been restated under the new basis.
The change in presentation reclassifies cash flows into and out
of the invoice finance facility as financing activities cash flows.
Previously the facility was deemed to be a cash equivalent which
meant that movements were not separately presented.
The restatement has increased cash and cash equivalents in the
cash flow statement at 31 July 2017 by GBP25,693,000 from negative
cash of GBP(19,891,000) to net cash of GBP5,802,000 and at 31 July
2016 by GBP18,939,000 from negative cash of (GBP11,511,000) to net
cash of GBP7,428,000. For the year ended 31 July 2017 net cash used
in investing activities has reduced by GBP3,784,000 from
(GBP12,625,000) to (GBP8,841,000), net cash from financing has
increased by GBP2,970,000 from net cash used in financing of
(GBP325,000) to net cash generated from financing of GBP2,645,000
and the net increase/(decrease) in cash and cash equivalents has
reduced from (GBP8,380,000) to (GBP1,626,000).
The Group's net debt (being cash and cash equivalents and
current and non-current bank loans and overdrafts) remains as
reported in Note 25 at GBP40,288,000.
vii Revenue
Revenue is measured by reference to the fair value of
consideration received or receivable by the Group for services
provided, excluding VAT and trade discounts.
Revenue on temporary placements is recognised when the worker
provides services, with invoices raised upon receipt of a client
approved timesheet or equivalent proof of time worked. Timing
differences between when the work is performed and the receipt of a
client approved timesheet are recognised as accrued income. In
specific parts of the Group where work cycles are monthly, accrued
income for timesheet timing differences is based on contractual
terms and invoice rates, together with expected utilisation based
on historical working patterns.
Revenue from permanent placements, which is based on a
percentage of the candidate's remuneration package, is recognised
when candidates commence employment, at which point it is probable
that the economic benefits associated with the transaction will be
transferred. Permanent placements made are subject to a 'claw-back'
period whereby if a candidate leaves within a set period of
starting employment, the client may be entitled to a rebate subject
to the Group's terms and conditions. Based on historical experience
and data, rebates are infrequent. Where a permanent candidate
starts employment but does not work for the specified contractual
period, a provision is made in respect of the required refund or
credit note due to the client if material.
Revenue from provision of engineering services is recognised
over the period of the contract, on completion of work in line with
milestones per contracts or approved timesheets. Other fees are
recognised on confirmation from the client committing to the
agreement. Other fees mainly relate to contractual services
provided that are neither temporary contract services nor permanent
placement fees. These typically relate to account management fees
for providing recruitment services. These fees are recognised in
accordance with terms of each individual agreement, such as a
monthly service fee.
viii Non-underlying items
Non-underlying items are income or expenditure that are
considered unusual and separate to underlying trading results
because of their size, nature or incidence and are presented within
the consolidated income statement but highlighted through separate
disclosure. The Group's Directors consider that these items should
be separately identified within the income statement to enable a
better understanding of the Group's results.
Items which are included within this category include:
-- costs of acquisitions;
-- integration costs following acquisitions; and
-- significant restructuring costs.
ix Property, plant and equipment
Property, plant and equipment is stated at cost, net of
depreciation and any provision for impairment.
Depreciation is calculated so as to write off the cost of an
asset, less its estimated residual value, over the useful economic
life of that asset in terms of annual depreciation as follows:
Motor vehicles 25.0% Reducing balance
Fixtures, fittings and
equipment 12.5% to 33.3% Straight line
Over the period of the
Leasehold improvements lease term Straight line
The assets' residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each reporting period.
An asset's carrying amount is written down immediately to its
recoverable amount if the asset's carrying amount is greater than
its estimated recoverable amount.
When revalued assets are sold, the amounts included in other
reserves in respect of those assets are transferred to retained
earnings.
x Intangible assets
Goodwill
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the fair value of the consideration given
for a business over the Company's interest in the fair value of the
net identifiable assets, liabilities and contingent liabilities of
the acquiree. Goodwill is stated at cost less accumulated
impairment.
Goodwill is allocated to cash-generating units (CGUs) and is not
amortised, but is tested at least annually for impairment. For the
purpose of impairment testing, goodwill acquired in a business
acquisition is allocated to each of the cash generating units, or
groups of CGUs that is expected to benefit from the synergies of
the combination. Each unit or group of units to which the goodwill
is allocated represents the lowest level within the entity at which
the goodwill is monitored for internal management purposes.
Goodwill impairment reviews are undertaken annually or more
frequently if events or changes in circumstances indicate a
potential impairment. The carrying value of goodwill is compared to
the recoverable amount, which is the higher of value in use and
fair value less costs to sell. Any impairment is recognised
immediately as an expense and is not subsequently reversed. Gains
and losses on the disposal of an entity include the carrying amount
of goodwill relating to the entity sold.
Expenditure on internally generated brands and intangibles is
expensed in the Income Statement when incurred.
Customer relationships
Acquired customer relationships comprise principally of existing
customer relationships which may give rise to future orders
(customer relationships), and existing order books. Acquired
customer relationships are recognised at fair value at the
acquisition date and have a finite useful life of 10 years.
Customer relationships are amortised in line with the expected
cashflows. Acquired customer relationships are stated at cost less
accumulated amortisation and impairment. Backlog orders are
recognised at fair value at the acquisition date and amortised in
line with the expected cash flows. Backlog orders are stated at
cost less accumulated amortisation and impairment.
Trade names and trademarks
Trade names and trademarks have arisen on the consolidation of
recently acquired businesses and are recognised at fair value at
the acquisition date. Trade names and trademarks are considered to
have a finite useful life and amortisation is calculated using the
straight line method to allocate the cost of trade names and
trademarks over their estimated useful lives of 10 years. Trade
names and trademarks are stated at cost less accumulated
amortisation and impairment.
Software and software licences
Acquired computer software licences are capitalised on the basis
of the costs incurred to acquire and bring into use the specific
software. These costs are amortised using the straight line method
to allocate the cost of the software licences over their useful
lives of between two and five years. Software licences are stated
at cost less accumulated amortisation.
Directly attributable costs that are capitalised as part of
internally generated software include the software development
employee costs and an appropriate portion of relevant overheads.
Other development expenditures that do not meet these criteria are
recognised as an expense as incurred. Computer software development
costs recognised as assets are amortised over their estimated
useful lives of between two and five years.
Other
Other intangible assets acquired by the Group and have a finite
useful life between five and ten years and are measured at cost
less accumulated amortisation and accumulated losses.
Amortisation of intangible assets is recognised in the Income
Statement under administrative expenses. Provision is made against
the carrying value of intangible assets where an impairment in
value is deemed to have occurred. Impairment losses are recognised
in the Income Statement under administrative expenses.
xi Disposal of assets
The gain or loss arising on the disposal of an asset is
determined as the difference between the disposal proceeds and the
carrying amount of the asset and is recognised in the Income
Statement.
xii Operating lease agreements
Rentals applicable to operating leases are expensed to profit
and loss on a straight line basis over the lease term. Lease
incentives are spread over the term of the lease.
xiii Taxation
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the Income Statement, except to the
extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the tax is also
recognised in other comprehensive income or directly in equity,
respectively.
The current tax charge is calculated on the basis of the tax
laws enacted or substantively enacted at the Statement of Financial
Position date in the countries where the company and its
subsidiaries operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect
to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions, where appropriate, on
the basis of amounts expected to be paid to the tax
authorities.
Deferred income taxes are calculated using the liability method
on temporary differences. Deferred tax is generally provided on the
difference between the carrying amounts of assets and liabilities
and their tax bases. However, deferred tax is not provided on the
initial recognition of goodwill, nor on the initial recognition of
an asset or liability unless the related transaction is a business
combination or affects tax or accounting profit.
Deferred tax liabilities are provided in full, with no
discounting. Deferred tax assets are recognised to the extent that
it is probable that the underlying deductible temporary differences
will be able to be offset against future taxable income. Current
and deferred tax assets and liabilities are calculated at tax rates
that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at
the Statement of Financial Position date.
Deferred tax on temporary differences associated with shares in
subsidiaries is not provided for if these temporary differences can
be controlled by the Group and it is probable that reversal will
not occur in the foreseeable future.
Changes in deferred tax assets or liabilities are recognised as
a component of tax expense in the Income Statement, except where
they relate to items that are charged or credited directly to
equity (such as share-based payments) in which case the related
deferred tax is also charged or credited directly to equity.
xiv Pension costs
The Company operates a defined contribution pension scheme for
employees. The assets of the scheme are held separately from those
of the Company. The annual contributions payable are charged to the
income statement as they accrue.
xv Share-based payments
All share-based remuneration is ultimately recognised as an
expense in the Income Statement with a corresponding credit to
'share-based payment reserve'. All goods and services received in
exchange for the grant of any share-based remuneration are measured
at their fair values. Fair values of employee services are
indirectly determined by reference to the fair value of the share
options awarded. Their value is appraised at the grant date and
excludes the impact of non-market vesting conditions (for example,
profitability and sales growth targets).
If vesting periods or other non-market vesting conditions apply,
the expense is allocated over the vesting period, based on the best
available estimate of the number of share options expected to vest.
Estimates are subsequently revised if there is any indication that
the number of share options expected to vest differs from previous
estimates. Any cumulative adjustment prior to vesting is recognised
in the current period. No adjustment is made to any expense
recognised in prior periods if share options ultimately exercised
are different to that estimated on vesting. Upon exercise of share
options, proceeds received net of attributable transaction costs
are credited to share capital and share premium.
The Company is the granting and settling entity in the Group
share-based payment arrangement where share options are granted to
employees of its subsidiary companies. The Company recognises the
share-based payment expense as an increase in the investment in
subsidiary undertakings.
The Group operates a Share Incentive Plan (SIP) which is HMRC
approved, and enables employees to purchase Company shares out of
pre-tax salary. For each share purchased the Company grants an
additional share at no cost to the employee. The expense in
relation to these 'free' shares is recorded as employee
remuneration and measured at fair value of the shares issued as at
the date of grant.
xvi Business Combinations Completed Prior to Date of Transition
to IFRS
The Group has elected not to apply IFRS 3 'Business
combinations' retrospectively to business combinations prior to 1
August 2006. Accordingly the classification of the combination
(merger) remains unchanged from that used under UK GAAP. Assets and
liabilities are recognised at date of transition if they would be
recognised under IFRS, and are measured using their UK GAAP
carrying amount immediately post-acquisition as deemed cost under
IFRS, unless IFRS requires fair value measurement. Deferred tax is
adjusted for the impact of any consequential adjustments after
taking advantage of the transitional provisions.
xvii Financial assets
All financial assets are recognised when the Group becomes a
party to the contractual provisions of the instrument. Financial
assets are recognised at fair value plus transaction costs.
In the Company Financial Statements, investment in the
subsidiary Company is measured at cost, and provision made where an
impairment value is deemed to have occurred.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Trade receivables are classified as loans and receivables.
Loans and receivables are measured subsequent to initial
recognition at amortised cost using effective interest method, less
provision for impairment. Any change in their value through
impairment or reversal of impairment is recognised in the income
statement.
Provision against trade receivables is made when there is
objective evidence that the Group will not be able to collect all
amounts due to it in accordance with the original terms of those
receivables. The amount of the write-down is determined as the
difference between the asset's carrying amount and the present
value of estimated future cash flows.
A financial asset is derecognised only where the contractual
rights to cash flows from the asset expire or the financial asset
is transferred and that transfer qualifies for derecognition. A
financial asset is transferred if the contractual rights to receive
the cash flows of the asset have been transferred or the Group
retains the contractual rights to receive the cash flows of the
asset, but assumes a contractual obligation to pay the cash flows
to one or more recipients. A financial asset that is transferred
qualifies for derecognition if the Group transfers substantially
all the risks and rewards of ownership of the asset, or if the
Group neither retains nor transfers substantially all the risks and
rewards of ownership but does transfer control of that asset.
Trade receivables subject to the invoice financing facility are
recognised in the Statement of Financial Position until they are
settled by the customer.
xviii Financial liabilities
Financial liabilities are obligations to pay cash or other
financial assets and are recognised when the Group becomes a party
to the contractual provisions of the instrument and comprise trade
and other payables and bank loans. Financial liabilities are
recorded initially at fair value, net of direct issue costs and are
subsequently measured at amortised cost using the effective
interest rate method.
A financial liability is derecognised only when the obligation
is extinguished, that is, when the obligation is discharged or
cancelled or expires.
xix Financial instruments
Financial instruments often consist of a combination of debt and
equity and the Group has to decide how to attribute values to each.
They are treated as equity only to the extent that they meet the
following two conditions:
(i) they include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
(ii) where the instrument will or may be settled in the Group's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Group's own
equity instruments or is a derivative that will be settled by the
Group exchanging a fixed amount of cash or other financial assets
for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of
issue are classified as a financial liability, and where such an
instrument takes the legal form of the Company's own shares, the
amounts presented in these financial statements for called-up share
capital and share premium account exclude amounts in relation to
those shares.
Finance payments associated with financial liabilities are dealt
with as part of finance costs. Finance payments associated with
financial instruments that are classified in equity are dividends
and are recorded directly in equity.
The Group uses financial instruments to manage the financial
risks associated with the Group's underlying business activities.
The forward exchange contracts are used to hedge foreign currency
exposures arising on forecast receipts and payments in foreign
currencies. These forward contracts are revalued to the rates of
exchange at the Statement of Financial Position date and any
aggregate unrealised gains and losses arising on revaluation are
included in profit or loss. The Group does not undertake any
trading activity in financial instruments.
Fair value hierarchy
The Group analyses financial instruments carried at a fair value
by valuation method. The different levels have been defined as
follows:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1
that are observable for assets or liabilities, either directly
(i.e. as prices) or indirectly (i.e. directly from prices); and
Level 3: inputs for assets or liabilities that are not based on
observable market data (unobservable inputs)."
xx Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, on demand
deposits and bank overdrafts.
In the Consolidated Statement of Cash Flows, cash and cash
equivalents include cash in hand, deposits held at call with banks,
other short-term highly liquid investments with original maturities
of three months or less and bank overdrafts. In the balance sheet,
bank overdrafts are netted against cash and cash equivalent in the
statement of cash flows where the offsetting criteria are met.
xxi Provisions
Provisions are recognised where: the Group has a present legal
or constructive obligation as a result of past events; it is
probable that an outflow of resources will be required to settle
the obligation; and the amount has been reliably estimated.
Restructuring provisions comprise lease termination penalties and
employee termination payments. Provisions are not recognised for
future operating losses.
xxii Dividends
Dividend distributions payable to equity shareholders are
included in "other short term financial liabilities" when the
dividends are approved in general meeting prior to the financial
position date.
xxiii Foreign currencies
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which each entity operates ('the functional
currency'). The consolidated financial statements are presented in
'currency' (GBP), which is the Group's presentation currency.
Transactions in foreign currencies are translated at the
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities in foreign currencies are translated at the
rates of exchange ruling at the Statement of Financial Position
date. Non-monetary items that are measured at historical cost in a
foreign currency are translated at the exchange rate at the date of
the transaction. Non-monetary items that are measured at fair value
in a foreign currency are translated using the exchange rates at
the date when the fair value was determined.
Any exchange differences arising on the settlement of monetary
items or on translating monetary items at rates different from
those at which they were initially recorded are recognised in the
profit or loss in the period in which they arise.
The assets and liabilities in the Financial Statements of
foreign subsidiaries are translated at the rate of exchange ruling
at the Statement of Financial Position date. Income and expenses
are translated at the actual rate. Transactions in currencies other
than the functional currency are translated at the exchange rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in non-functional currencies are
retranslated at the exchange rate ruling at the balance sheet date
and any exchange differences arising are taken to the Income
Statement.
For consolidation purposes, the assets and liabilities of
foreign operations are translated at closing exchange rates. Income
statements of such undertakings are consolidated at average rates
of exchange as an approximation for actual rates during the year.
Exchange differences arising on these translations are accounted
for in the translation reserve in Other Comprehensive Income (OCI).
On divestment, these exchange differences are reclassified from the
translation reserve to the Income Statement.
xxiv Equity
Equity comprises the following:
-- 'Share capital' represents the nominal value of equity shares.
-- 'Share premium' represents the excess over nominal value of
the fair value of consideration received for equity shares, net of
expenses of the share issue.
-- 'Merger reserve' represents the equity balance arising on the
merger of Matchtech Engineering and Matchmaker Personnel and to
record the excess fair value above the nominal value of the
consideration on the acquisition of Networkers International
plc.
-- 'Share-based payment reserve' represents equity-settled
share-based employee remuneration until such share options are
exercised.
-- 'Translation of foreign operations' represents the foreign
currency differences arising on translating foreign operations into
the presentational currency of the Group.
-- 'Retained earnings' represents retained profits.
xxv Alternative performance measures
Alternative performance measures used within the Group's Annual
Report are explained within Note 25.
xxvi Critical accounting judgements and key sources of
estimation uncertainty
Critical accounting judgements
The directors are of the opinion there are no critical
accounting judgements.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources
of estimation uncertainty at the Statement of Financial Position
date that carry a risk of causing a material adjustment within the
next 12 months are discussed below:
Provisions in respect of recoverability of trade receivables
The Group's policy for default risk over receivables is based on
the on-going evaluation of the collectability and ageing analysis
of trade and other receivables. Considerable judgement is required
in assessing the ultimate realisation of these receivables,
including reviewing the potential likelihood of default, the past
collection history of each customer and the current economic
conditions. As a result, provisions for impairment of trade
receivables have been recognised, as discussed in Note 15.
Valuation of goodwill and intangible assets
Goodwill and intangible assets (including acquired intangibles)
are tested for impairment on an annual basis or otherwise when
changes in events or situations indicate that the carrying value
may not be recoverable. This requires an estimate to be made of the
recoverable amount of the cash-generating unit to which the assets
are allocated, including forecasting future cash flows of each
cash-generating unit and forming assumptions over the discount rate
and long-term growth rate applied. These assumptions are set out in
Note 11.
2 Segmental Information
An operating segment, as defined by IFRS 8 'Operating segments',
is a component of the Group that engages in business activities
from which it may earn revenues and incur expenses. The Group is
managed through its three reporting segments, UK Engineering, UK
Technology and International, which form the operating segments on
which the information below is prepared. The Group determines and
presents operating segments based on the information that is
provided internally to the chief operating decision maker, which
has been identified as the Board of Directors of Gattaca plc.
Non-underlying
items and
amortisation
and impairment
2018 of acquired Group
All amounts in GBP'000 UK Engineering UK Technology International Underlying intangibles Total
------------------------------ -------------- ------------- ------------- ---------- --------------- ---------
Revenue 451,738 159,626 56,180 667,544 - 667,544
Gross profit 47,567 16,599 14,697 78,863 - 78,863
Operating contribution 26,033 7,617 4,814 38,464 - 38,464
Depreciation, impairment
and amortisation (694) (247) (86) (1,027) (36,011) (37,038)
Central overheads (14,478) (6,051) (2,626) (23,155) (1,676) (24,831)
------------------------------ -------------- ------------- ------------- ---------- --------------- ---------
Profit/(loss) from operations 10,861 1,319 2,102 14,282 (37,687) (23,405)
------------------------------ -------------- ------------- ------------- ---------- --------------- ---------
Finance costs, net (1,454)
------------------------------ -------------- ------------- ------------- ---------- --------------- ---------
Loss before tax (24,859)
------------------------------ -------------- ------------- ------------- ---------- --------------- ---------
Non-underlying
items and
amortisation
and impairment
2017 of acquired Group
All amounts in GBP'000 UK Engineering UK Technology International Underlying intangibles Total
------------------------------ -------------- ------------- ------------- ---------- --------------- ---------
Revenue 420,782 158,374 63,209 642,365 - 642,365
Gross profit 43,080 16,178 15,450 74,708 - 74,708
Operating contribution 23,759 7,061 5,619 36,439 - 36,439
Depreciation and amortisation (588) (220) (88) (896) (3,074) (3,970)
Central overheads (9,683) (4,525) (3,947) (18,155) (1,610) (19,765)
------------------------------ -------------- ------------- ------------- ---------- --------------- ---------
Profit/(loss) from operations 13,488 2,316 1,584 17,388 (4,684) 12,704
------------------------------ -------------- ------------- ------------- ---------- --------------- ---------
Finance costs, net (1,196)
------------------------------ -------------- ------------- ------------- ---------- --------------- ---------
Profit before tax 11,508
------------------------------ -------------- ------------- ------------- ---------- --------------- ---------
A segmental analysis of total assets has not been included as
this information is not used by the Board; the majority of assets
are centrally held and are not allocated across the reportable
segments.
Geographical information
Revenue Non-current assets
------------------ --------------------
All amounts in GBP'000 2018 2017 2018 2017
----------------------- -------- -------- --------- ---------
UK 608,540 579,156 19,794 54,659
Rest of Europe 2,824 773 2 -
Middle East and Africa 14,588 22,378 63 204
Americas 25,280 21,150 139 194
Asia Pacific 16,312 18,908 106 22
----------------------- -------- -------- --------- ---------
Total 667,544 642,365 20,104 55,079
----------------------- -------- -------- --------- ---------
Revenue and non-current assets are allocated to the geographical
market as reported internally to the Board.
Largest customers
No single client contributed more than 10% of the Group's
revenues (2017: none).
All revenues are derived from contract and permanent recruitment
services in the Private and Public Sectors.
3 (Loss)/Profit from Operations
2018 2017
GBP'000 GBP'000
-------------------------------------------------------------------- -------- --------
(Loss)/profit from operations is stated after charging/(crediting):
Depreciation (Note 12) 686 609
Amortisation of acquired intangibles (Note 11) 2,691 3,074
Amortisation of software and software licences (Note
11) 341 287
Impairment of goodwill and acquired intangibles (Note
11) 33,320 -
Profit on disposal of property, plant and equipment (14) (9)
Operating lease costs:
Plant and machinery 369 424
Land and buildings 2,319 2,297
Share-based payment charge 324 774
Net gains on foreign currency translation (note 5) (86) (36)
-------------------------------------------------------------------- -------- --------
The aggregate auditors' remuneration was as follows:
2018 2017
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Fees payable for the audit of the Parent Company Financial
Statements 10 10
Fees payable for the audit of the Subsidiary Company
Financial Statements 255 263
----------------------------------------------------------- -------- --------
Total auditors' remuneration 265 273
----------------------------------------------------------- -------- --------
Non-audit services:
Taxation - 188
Other services pursuant to legislation - 16
----------------------------------------------------------- -------- --------
Total non audit services - 204
----------------------------------------------------------- -------- --------
Non-underlying items were as follows:
2018 2017
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Acquisition costs(1) - 174
Other non-underlying items(2) 1,676 1,436
---------------------------------------------------- -------- --------
Non-underlying items included in (loss)/profit from
operations 1,676 1,610
---------------------------------------------------- -------- --------
1 In 2017 acquisition costs of GBP174,000 were incurred due to
the acquisition of Resourcing Solutions Limited, these costs were
considered as non-underlying due to their one-off nature and
incidence.
2 Other non-underlying items of GBP1,676,000 (2017:
GBP1,436,000) were incurred in the year relating integration costs
of GBP227,000 (2017: GBP362,000) and restructuring costs of
GBP1,449,000 (2017: GBP1,074,000).
4 Particulars of Employees
The average number of staff employed by the Group during the
financial year amounted to:
2018 2017
No. No.
--------------- ---- ----
Sales 625 601
Administration 226 221
Directors 9 10
--------------- ---- ----
Total 860 832
--------------- ---- ----
There are no employees employed by the Parent Company (2017:
nil).
The aggregate payroll costs of the above were:
2018 2017
GBP'000 GBP'000
---------------------- -------- --------
Wages and salaries 39,865 35,975
Social security costs 4,929 3,957
Other pension costs 1,835 1,484
---------------------- -------- --------
Total 46,629 41,416
---------------------- -------- --------
Disclosure of the remuneration of Group's key management
personnel, as required by IAS 24, is detailed below. Disclosure of
the remuneration of the statutory Directors is further detailed in
the audited part of the Remuneration Report on pages 52 to 57.
2018 2017
GBP'000 GBP'000
----------------------------- -------- --------
Short-term employee benefits 1,770 2,016
Post-employment benefits 130 128
Share-based payments (86) 287
----------------------------- -------- --------
Total 1,814 2,431
----------------------------- -------- --------
5 Finance Income
2018 2017
GBP'000 GBP'000
------------------------------------------ -------- --------
Interest receivable 112 8
Net gains on foreign currency translation 86 36
------------------------------------------ -------- --------
Total 198 44
------------------------------------------ -------- --------
6 Finance Costs
2018 2017
GBP'000 GBP'000
------------------------------------------ -------- --------
Bank interest payable 1,537 1,154
Amortisation of capitalised finance costs 115 86
------------------------------------------ -------- --------
Total 1,652 1,240
------------------------------------------ -------- --------
7 Dividends
2018 2017
GBP'000 GBP'000
------------------------------------------------------------- -------- --------
Equity dividends paid during the year at 20.0 pence
per share (2017: 23.0 pence) 6,441 7,195
------------------------------------------------------------- -------- --------
Equity dividends proposed after the year end (not recognised
as a liability) at 0.0 pence per share (2017: 17.0p) - 5,406
------------------------------------------------------------- -------- --------
8 Parent Company Profit
2018 2017
GBP'000 GBP'000
------------------------------------------------------- -------- --------
The amount of profit dealt with in the accounts of the
Company is: 4,670 6,278
------------------------------------------------------- -------- --------
The Company has taken advantage of the exemption in section 408
of the Companies Act 2006 not to present the Parent Company's
Income Statement.
9 Taxation
2018 2017
GBP'000 GBP'000
--------------------------------------- -------- --------
Current tax:
UK corporation tax 1,271 1,808
Overseas corporation tax 2,386 3,063
Adjustments in respect of prior years 409 236
--------------------------------------- -------- --------
4,066 5,107
Deferred tax credit (Note 14) (1,849) (947)
--------------------------------------- -------- --------
Income tax expense 2,217 4,160
--------------------------------------- -------- --------
UK corporation tax has been charged at 19.0% (2017: 19.7%).
The charge for the year can be reconciled to the (loss)/profit
before taxation as per the Income Statement as follows:
2018 2017
GBP'000 GBP'000
--------------------------------------------------------- --------- --------
(Loss)/profit before tax (24,859) 11,508
--------------------------------------------------------- --------- --------
Profit before tax multiplied by the standard rate of
corporation tax in the UK of 19.0% (2017: 19.7%) (4,723) 2,267
Expenses not deductible for tax purposes 4,220 103
Effect of share-based payments (12) (190)
Irrecoverable withholding tax 1,389 1,976
Overseas losses not recognised as deferred tax assets 132 57
Difference between UK and overseas tax rates 146 271
--------------------------------------------------------- --------- --------
Total tax charge excluding adjustments in respect of
prior periods 1,152 4,484
Adjustments to tax charge in respect of previous periods 1,065 100
Changes in UK tax rates - (424)
--------------------------------------------------------- --------- --------
Total tax charge for period 2,217 4,160
--------------------------------------------------------- --------- --------
Tax charge recognised in other comprehensive income:
2018 2017
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Deferred tax recognised directly in equity (211) (121)
--------------------------------------------------- -------- --------
Total tax recognised in other comprehensive income (211) (121)
--------------------------------------------------- -------- --------
Future tax rate changes
The UK corporation tax rate of 20% reduced to 19% from 1 April
2017 and will reduce to 17% from 1 April 2020 and this has been
reflected in the Consolidated Financial Statements.
As these changes of rates have been enacted at the financial
position date, the impact of these reductions has been reflected in
the deferred tax liability at 31 July 2018.
Reconciliation of statutory to underlying tax charge:
2018 2017
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Income tax expense 2,217 4,160
Impairment and amortisation of acquired intangibles 2,704 606
Non-underlying items 318 317
Foreign currency exchange differences (17) (7)
---------------------------------------------------- -------- --------
Underlying income tax expense 5,222 5,076
---------------------------------------------------- -------- --------
10 Earnings per Ordinary Share
Earnings per share has been calculated by dividing the
consolidated (loss)/profit after taxation attributable to equity
holders of the parent company by the weighted average number of
ordinary shares in issue during the period.
Diluted earnings per share has been calculated on the same basis
as above, except that the weighted average number of ordinary
shares that would be issued on the conversion of all the dilutive
potential ordinary shares (arising from the Group's share option
schemes) into ordinary shares has been added to the
denominator.
The Group has dilutive potential ordinary shares, being the LTIP
and zero-priced share options (Note 21). The number of shares that
could have been acquired at fair value (determined as the average
annual market share price of the Company's shares) is calculated
based on the monetary value of the subscription rights attached to
the outstanding share options.
There are no changes to the profit (numerator) as a result of
the dilutive calculation.
2018 2017
GBP'000 GBP'000
-------------------------------------------------------------- --------- --------
(Loss)/profit after tax attributable to ordinary shareholders (27,351) 7,348
-------------------------------------------------------------- --------- --------
Number of shares '000s '000s
Weighted average number of ordinary shares in issue 32,079 31,453
Effect of dilutive potential ordinary shares under option - 939
-------------------------------------------------------------- --------- --------
Total 32,079 32,392
-------------------------------------------------------------- --------- --------
Share incentive plans (Note 21) are treated as dilutive when, at
the reporting date, they would be issuable had the performance
period ended at that date.
2018 2017
pence pence
------------------- ------- ------
Earnings per share
Basic (85.3) 23.4
Diluted (85.3) 22.7
------------------- ------- ------
11 Intangible Assets
Software
Customer Trade and software
Goodwill relationships names Other licences Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------------------- -------- -------------- -------- -------- ------------- --------
Cost At 1 August 2016 26,094 20,152 4,907 2,686 1,958 55,797
Additions - - - - 512 512
Acquisitions 2,645 2,093 419 1,123 - 6,280
------------------------------------- -------- -------------- -------- -------- ------------- --------
At 31 July 2017 28,739 22,245 5,326 3,809 2,470 62,589
Additions - - - - 899 899
------------------------------------- -------- -------------- -------- -------- ------------- --------
At 31 July 2018 28,739 22,245 5,326 3,809 3,369 63,488
------------------------------------- -------- -------------- -------- -------- ------------- --------
Amortisation
and impairment At 1 August 2016 - 3,496 1,441 1,378 1,111 7,426
Amortisation charge
for the year - 2,145 423 506 287 3,361
------------------------------------- -------- -------------- -------- -------- ------------- --------
At 31 July 2017 - 5,641 1,864 1,884 1,398 10,787
Amortisation charge
for the year - 1,814 343 534 341 3,032
Impairment 21,779 9,243 1,833 465 - 33,320
------------------------------------- -------- -------------- -------- -------- ------------- --------
At 31 July 2018 21,779 16,698 4,040 2,883 1,739 47,139
------------------------------------- -------- -------------- -------- -------- ------------- --------
Net book value At 31 July 2017 28,739 16,604 3,462 1,925 1,072 51,802
At 31 July 2018 6,960 5,547 1,286 926 1,630 16,349
------------------------------------- -------- -------------- -------- -------- ------------- --------
Within Intangible assets, the following are individually
material based on cost at acquisition:
Remaining
Carrying Carrying amortisation
Cost at 31 value Cost at value period at
July 2018 2018 31 July 2017 2017 31 July 2018
GBP'000 GBP'000 GBP'000 GBP'000 Years
------------------------------------ ---------- -------- ------------- -------- -------------
Within Customer Relationships:
Networkers Telecoms customer
relationship 7,620 1,729 7,620 5,842 7
Networkers IT customer relationship 9,421 985 9,421 7,193 7
Within Trademarks:
Networkers Telecoms trademark 3,785 930 3,785 2,964 8
------------------------------------ ---------- -------- ------------- -------- -------------
Other intangibles comprises candidate databases and non-compete
agreements.
Goodwill arising on business combinations is reviewed and tested
on an annual basis or more frequently if there is indication that
goodwill might be impaired. Goodwill has been tested for impairment
by comparing the carrying amount of each cash-generating unit
(CGU), including goodwill, with the recoverable amount.
Goodwill is allocated to CGUs, which are determined as the
lowest level of detail available for the assets that generate cash
inflows relating to the goodwill. From 1 August 2017, the
determination of the CGUs was changed to better align to the way
the Group has changed over time.
2018 2017
GBP'000 GBP'000
----------------------------- -------- --------
Professional Services - 1,643
UK Engineering 1,712 1,712
UK Technology - 11,611
International 2,603 11,128
Resourcing Solutions Limited 2,645 2,645
----------------------------- -------- --------
Total 6,960 28,739
----------------------------- -------- --------
Changes to CGU reporting from the 2017 audited Financial
statements.
For the year to 31 July 2017, a change in reported segments was
made to separate UK and International business. As a result, the
CGUs were presented on a different basis to the table above. The
analysis below reconciles the change in CGU allocations for the
year to 31 July 2017:
2017
restated Adjustments 2017
GBP'000 GBP'000 GBP'000
----------------------------- --------- ----------- --------
Professional Services 1,643 - 1,643
UK Engineering 1,712 2,667 4,379
UK Technology 11,611 8,461 20,072
International 11,128 (11,128) -
Resourcing Solutions Limited 2,645 - 2,645
----------------------------- --------- ----------- --------
Total 28,739 - 28,739
----------------------------- --------- ----------- --------
The recoverable amounts of the CGUs for the purposes of
monitoring goodwill are determined from value-in-use calculations.
Common assumptions have been adopted for the purposes of testing
goodwill across the business as the risk profiles are similar. Key
assumptions used when estimating the net present value of future
cash flows are as follows:
Profit from operations
Profit from operations is based on the latest five year forecast
approved by the Group's Board of Directors which is prepared using
expectations of revenue and operating cost growth over the next
five years. The Group prepares cash flow forecasts based on the
most recent forecast information approved by the Directors,
adjusted for allocations of Group overhead costs, and extrapolates
cash flows into perpetuity based on long-term growth rates.
Discount rates
The pre-tax rates used to discount the forecast cash flows were
a range from 12.9% to 13.3% (2017: 15.4%) reflecting the Group's
weighted average cost of capital, adjusted for specific risks
associated with the asset's estimated cash flows. The discount rate
is based on the weighted average cost of capital (WACC). The
risk-free rate, based on government bond rates, is adjusted for
equity and industry risk premiums, reflecting the increased risk
compared to an investor who is investing the market as a whole. Net
present values are calculated using pre-tax discount rates derived
from the Group's post-tax WACC of 11.0% (2017: 10.2%).
Growth rates
The medium-term growth rates are based on management forecasts,
reflecting past experience and economic environment. Long-term
growth rates are based on management forecasts, consistent with
external sources of an average estimated growth rate of 2.7% (2017:
2.5%), based on weighted average of operating country real GDP
growth expectations.
Impairment testing
Goodwill and intangible assets were tested for impairment at the
year end in accordance with the Group's accounting policy, by
comparing the carrying value of goodwill with the recoverable
amount of the CGU's to which goodwill has been allocated.
Total impairment losses of GBP33,320,000 have been recorded in
respect of goodwill and intangibles within the UK Technology,
International and Professional Services CGU's, as follows:
Intangible
Goodwill assets Total
GBP'000 GBP'000 GBP'000
---------------------- -------- ---------- --------
UK Technology 11,611 9,126 20,737
International 8,525 1,961 10,486
Professional Services 1,643 454 2,097
---------------------- -------- ---------- --------
Total 21,779 11,541 33,320
---------------------- -------- ---------- --------
Goodwill and intangibles within the Professional Services CGU,
which wholly related to the Provanis acquisition, have been fully
impaired as the business has been de-branded and fully integrated
into the Group's existing Technology business. The recoverable
amount of the Professional Services CGU at 31 July 2018 is
GBPnil.
Goodwill and intangibles within the UK Technology and
International CGUs relates to the Networkers acquisition and have
been impaired due to lower forecasts of trading performance against
original expectations at the time of acquisition, primarily as a
result of decline in revenues from key clients in the Telecoms
sector. The recoverable amounts of the UK Technology CGU and
International CGU at 31 July 2018 are GBP11,737,000 and
GBP14,002,000 respectively.
As noted above for the two CGUs impaired in the year that
continue to hold intangible assets, future deterioration in the
underlying assumptions could result in the need for further
impairments.
12 Property, Plant and Equipment
Fixtures,
Motor Leasehold fittings
vehicles improvements & equipment Total
Group GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------------------------ --------- ------------- ------------ --------
Cost At 1 August 2016 729 1,326 3,655 5,710
Additions - 1,559 422 1,981
Acquisitions - - 93 93
Disposals (381) - (20) (401)
-------------------------------------------------- --------- ------------- ------------ --------
At 31 July 2017 348 2,885 4,150 7,383
Additions - 1,431 422 1,853
Disposals (296) - (19) (315)
Effects of movements in
exchange rates - - 2 2
-------------------------------------------------- --------- ------------- ------------ --------
At 31 July 2018 52 4,316 4,555 8,923
-------------------------------------------------- --------- ------------- ------------ --------
Accumulated depreciation At 1 August 2016 551 872 3,162 4,585
Charge for the year 39 198 372 609
Released on disposal (315) - - (315)
-------------------------------------------------- --------- ------------- ------------ --------
At 31 July 2017 275 1,070 3,534 4,879
Charge for the year 12 313 361 686
Released on disposal (243) - (19) (262)
-------------------------------------------------- --------- ------------- ------------ --------
At 31 July 2018 44 1,383 3,876 5,303
-------------------------------------------------- --------- ------------- ------------ --------
Net book value At 31 July 2017 73 1,815 616 2,504
At 31 July 2018 8 2,933 679 3,620
-------------------------------------------------- --------- ------------- ------------ --------
Included within leasehold improvements is a cost of GBP1,390,000
(2017: GBP1,390,000) relating to the dilapidations provision (Note
16).
There were no capital commitments as at 31 July 2018 or 31 July
2017.
13 investments
Company
------------------
2018 2017
GBP'000 GBP'000
------------------------------------------ -------- --------
Investment in Group companies at 1 August 7,987 7,213
Movement in investment in Group companies 324 774
------------------------------------------ -------- --------
Investment in Group companies at 31 July 8,311 7,987
------------------------------------------ -------- --------
The movement in investment in Group companies represents a
capital contribution made in Matchtech Group (UK) Limited relating
to share-based payments.
Subsidiary undertakings
Registered Country % held % held
Company office of incorporation 2018 2017 Main activities
------------------------------- ---------- ----------------- --------- --------- --------------------------------
Matchtech Group (Holdings) United
Limited(3) 1 Kingdom 100% 100% Holding
Matchtech Group Management United
Company Limited(4) 1 Kingdom 100% 100% Non trading
United Provision of recruitment
Matchtech Group (UK) Limited(3) 1 Kingdom 99.998% 99.998% consultancy
Matchtech Engineering United
Limited(4) 1 Kingdom 100% 100% Non trading
United
Matchtech Limited(4) 1 Kingdom 100% 100% Non trading
United Provision of recruitment
Barclay Meade Limited(3) 1 Kingdom 100% 100% consultancy
Alderwood Education Limited United Provision of recruitment
(3) 1 Kingdom 100% 100% consultancy
United Provision of recruitment
Gattaca Solutions Limited(3) 1 Kingdom 100% 100% consultancy
United Provision of recruitment
Connectus Technology Limited(3) 1 Kingdom 100% 100% consultancy
United
Gattaca Recruitment Limited(4) 1 Kingdom 100% 100% Non trading
Provision of recruitment
Gattaca GmbH 2 Germany 100% 100% consultancy
Gattaca BV 3 Netherlands 100% 100% Non trading
Matchtech Engineering United
Inc. 4 States 100% 100% Non trading
United Provision of recruitment
Application Services Limited(3) 1 Kingdom 100% 100% consultancy
United
Provanis Limited(4) 1 Kingdom 100% 100% Non trading
Networkers International United
Limited(3) 5 Kingdom 100% 100% Holding
Networkers International United Provision of recruitment
(UK) Limited(3) 5 Kingdom 100% 100% consultancy
Networkers International United
LLC 6 States 100% 100% Non trading
United Provision of recruitment
Networkers Inc. 6 States 100% 100% consultancy
NWI de Mexico S. de R.L. Provision of recruitment
de C.V. 7 Mexico 100% 100% consultancy
Networkers International
South Africa Proprietary South Provision of recruitment
Limited 8 Africa 100% 87% consultancy
Networkers International South Provision of recruitment
Proprietary Limited 8 Africa 100% 100% consultancy
South
Kithara Limited 8 Africa 100% 100% Holding
Networkers International Provision of recruitment
(China) Co. Limited 9 China 100% 100% consultancy
Networkers International Provision of recruitment
(Malaysia) Sdn Bhd 10 Malaysia 100% 100% consultancy
Networkers International Provision of recruitment
(Canada) Inc. 11 Canada 100% 100% consultancy
Networkers International United
Trustees Limited(4) 5 Kingdom 100% 100% Non trading
United
The Comms Group Limited(3) 5 Kingdom 100% 100% Holding
United Provision of recruitment
CommsResources Limited(3) 4 Kingdom 100% 100% consultancy
Gattaca Malaysia Sdn. Provision of recruitment
Bhd 10 Malaysia 100% 100% consultancy
United
Comms Software Limited(4) 5 Kingdom 100% 100% Non trading
Gattaca de Colombia SAS 12 Colombia 100% 100% Non trading
United
Elite Computer Staff Limited(4) 5 Kingdom 100% 100% Non trading
Provision of recruitment
NWKI Consultancy FZ LLC 13 Dubai 100% 100% consultancy
Networkers Recruitment
Services Limited(4) 5 United Kingdom 100% 100% Non trading
MSB International GmbH 14 Germany 100% 100% Non trading
Provision of recruitment
NWKI Communications LLC(2) 13 Dubai 49% 49% consultancy
Networkers Consultancy
(Singapore) PTE. Limited 15 Singapore 100% 100% Non trading
Cappo Group Limited(3) 5 United Kingdom 100% 100% Holding
Provision of recruitment
Cappo Inc. 6 United States 100% 100% consultancy
Provision of recruitment
Cappo International Limited(3) 5 United Kingdom 100% 100% consultancy
Provision of recruitment
Cappo Qatar LLC(2) 16 Qatar 49% 49% consultancy
Networkers Consultoria
Em Technologia da Informacao
Limiteda 17 Brazil 100% 100% Non trading
Resourcing Solutions Provision of recruitment
Limited(1,3) 18 United Kingdom 100% 70% consultancy
MSB Consulting Services
Limited(4) 5 United Kingdom 100% 100% Non trading
Provision of recruitment
Gattac SAS 19 France 100% 100% consultancy
Gattaca Recruitment ETT,
SLU 20 Spain 100% 100% Non trading
Gattaca Information Technology Provision of recruitment
Services SLU 20 Spain 100% 100% consultancy
All holdings by Gattaca plc are indirect except Matchtech Group
(Holdings) Limited, Gattaca GmbH and Matchtech Group Management
Company Limited.
All holdings are held as Ordinary share capital.
1 In 2018, the Group acquired the remaining 30% stake in
Resourcing Solutions Limited for consideration of GBP3,552,000.
2 Gattaca plc has 100% of the beneficial interest in these
entities, and consolidates them as wholly owned subsidiaries in
line with IFRS 10.
3 For the year ended 31 July 2018, Gattaca plc has provided a
legal guarantee under s479C of the Companies Act 2006 to these
subsidiaries for audit exemption.
4 These dormant companies are exempt from preparing individual
accounts by virtue of s394A of Companies Act 2006.
Registered office addresses:
1 1450 Parkway, Solent Business Park, Whiteley, Fareham, Hampshire, PO15 7AF
2 c/o Grant Thornton, Jahnstrasse 6, 70597 Stuttgart
3 Herengracht 124-128, 1015 BT Amsterdam, Netherlands
4 33 SW Flager Avenue, Stuart, Florida, USA
5 Hanover Place, 8 Ravensbourne Road, Bromley, Kent, BR1 1HP,
subsequent to the year end the registered office changed to 1450
Parkway, Solent Business Park, Whiteley, Fareham, Hampshire, PO15
7AF
6 6400 International parkway, 1510, Plano TX 75093, USA
7 Torre Reforma Latino, Paseo de la Reforma 296, Piso 15 A. Del.Cuauhtemoc, C.P. 06600, Mexico
8 6th Floor Grant Thornton House, 119 Hertzog Boulevard, Foreshore, Cape Town, 8001, South Africa
9 B2701 Di San Zhi Ye Building, Shu Guang Xi Li, Chaoyang District, Beijing, China
10 Level 8, Symphony House, Block D13, Pusat Dagangan Dana 1,
Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor, Malaysia
11 181 Bay Street, Suite 4400, Brookfield Place, Toronto,
Ontario, Canada M5J 2T3
12 Av 9 A Norte, 14 N 73 OF 202, Valle del Caua, Cali,
Colombia
13 Office 3022, Shatha Tower, Dubai Media City, Dubai, UAE
14 Franlinstr. 48, 60456, Frankfurt, Germany
15 371 Beach Road, #15-09 Keypoint, Singapore 199597
16 Suite #204, Office #40 Al Rawabi Street, Muntazah, Doha,
State of Qatar. PO Box 8306
17 Avenida Engenheiro Luiz Carlos Berrini, ndeg 1461, 12deg
andar, Cidade Moncoes, cidade de Sao Paulo,Estado Sao Paulo, CEP
04571-011
18 Ruscombe Park, Reading, RG10 9JW
19 1 Rue Favart, 75002, Paris, France
20 Calle General, Moscardo n.6, Espaco Office, Madrid 28202,
Spain
14 Deferred Tax
Credited/(charged) Charged
Asset Liability Net to profit to equity Foreign exchange
2018 2018 2018 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- --------- -------- ------------------ ---------- ----------------
Share-based payments 92 - 92 (142) (211) -
Depreciation in excess
of capital allowances 43 - 43 (74) - -
Accelerated capital allowances - (1,398) (1,398) 2,516 - -
Other temporary and deductible
differences - (238) (238) (451) - 2
------------------------------------- -------- --------- -------- ------------------ ---------- ----------------
Net deferred tax assets/(liabilities) 135 (1,636) (1,501) 1,849 (211) 2
------------------------------------- -------- --------- -------- ------------------ ---------- ----------------
(Charged)/
credited
to Charged
Asset Liability Net profit to equity Foreign exchange
2017 2017 2017 2017 2017 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------- --------- -------- ---------- ---------- ----------------
Share-based payments 445 - 445 (109) (121) -
Depreciation in excess
of capital allowances 117 - 117 9 - -
Acquired intangibles - (3,914) (3,914) 1,027 - -
Other temporary and deductible
differences 211 - 211 20 - 5
-------------------------------------- -------- --------- -------- ---------- ---------- ----------------
Net deferred tax assets/(liabilities) 773 (3,914) (3,141) 947 (121) 5
-------------------------------------- -------- --------- -------- ---------- ---------- ----------------
The movement on the net deferred tax is as shown below:
Group
------------------
2018 2017
GBP'000 GBP'000
------------------------------ -------- --------
At 1 August (3,141) (3,317)
Acquired intangibles - (655)
Recognised in income (Note 9) 1,849 947
Recognised in equity (211) (121)
Foreign exchange 2 5
------------------------------ -------- --------
At 31 July (1,501) (3,141)
------------------------------ -------- --------
The movement on the net deferred tax is as shown below:
Group
------------------
2018 2017
GBP'000 GBP'000
------------------------------------------------- -------- --------
Deferred tax assets reversing within 1 year 20 626
Deferred tax liabilities reversing within 1 year (469) (611)
------------------------------------------------- -------- --------
(449) 15
------------------------------------------------- -------- --------
Group
------------------
2018 2017
GBP'000 GBP'000
------------------------------------------------ -------- --------
Deferred tax assets reversing after 1 year 115 147
Deferred tax liabilities reversing after 1 year (1,167) (3,303)
------------------------------------------------ -------- --------
(1,052) (3,156)
------------------------------------------------ -------- --------
Unrecognised deferred tax assets
Group
------------------
2018 2017
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Tax losses carried forward against profits of future
years 537 472
Depreciation in excess of capital allowances 45 45
Other temporary and deductible differences 645 645
----------------------------------------------------- -------- --------
Net deferred tax assets 1,227 1,162
----------------------------------------------------- -------- --------
Of unused tax losses of GBP1,730,000 (2017: GBP1,442,000) can be
carried forward indefinitely and GBP99,000 (2017: GBPnil) expires
within 20 years. No deferred tax is recognised on unremitted
earnings of overseas subsidiaries as the Group is in a position to
control the timing of the reversal of temporary differences and it
is probable that such differences will not reverse in the
foreseeable future. The temporary differences associated with the
investments in subsidiaries for which a deferred tax liability has
not been recognised aggregate to GBP10,617,000 (2017:
GBP9,595,000). If the earnings were remitted, tax of GBP191,000
(2017: GBP177,000) would be payable.
The UK corporation tax rate reduced from 20% to 19% from 1 April
2017 and will reduce further to 17% from 1 April 2020. Deferred tax
has been valued based on the substantively enacted rates at each
balance sheet date at which the deferred tax is expected to
reverse.
15 Trade and Other Receivables
Group Company
------------------ ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- --------
Trade receivables 81,773 82,296 - -
Amounts owed by Group companies - - 94,925 86,606
Corporation tax receivable 241 - - -
Other receivables 1,351 1,729 2 2
Prepayments 1,600 2,291 - -
Accrued income 27,947 28,681 - -
-------------------------------- -------- -------- -------- --------
Total 112,912 114,997 94,927 86,608
-------------------------------- -------- -------- -------- --------
The amounts owed by Group undertakings in the Company Statement
of Financial Position are considered to approximate to fair
value.
Accrued income largely comprises timing differences between
receipt of a client-approved timesheet and an invoice being raised,
as well as smaller differences between the time that a worker
delivers services and receipt of a client-approved timesheet.
Amounts owed by group companies are unsecured, repayable on
demand and accrue no interest
The Directors consider that the carrying amount of trade and
other receivables approximates to the fair value.
Included in the Group's trade receivable balance are debtors
with a carrying amount of GBP14,162,000 (2017: GBP15,661,000) which
are past due at the reporting date for which the Group has not
provided as the Directors believe the amounts to be recoverable in
full. The Group does not hold any collateral over these
balances.
The Group uses a third party credit scoring system to assess the
creditworthiness of potential new customers before accepting them.
Credit limits are defined by customer based on this information.
All customer accounts are subject to review on a regular basis by
senior management and actions are taken to address debt ageing
issues.
The Directors believe that there is no requirement for further
provision over and above the allowance for doubtful debts.
Ageing of past due but not impaired trade receivables:
Group
------------------
2018 2017
GBP'000 GBP'000
----------- -------- --------
0-30 days 8,243 9,007
30-60 days 3,027 3,233
60-90 days 1,628 1,463
90+ days 1,264 1,958
----------- -------- --------
Total 14,162 15,661
----------- -------- --------
Movement in the allowance for doubtful debts:
Group
------------------
2018 2017
GBP'000 GBP'000
----------------------------- -------- --------
At 1 August 1,028 915
Acquisitions - 42
Impairment losses recognised 519 71
----------------------------- -------- --------
At 31 July 1,547 1,028
----------------------------- -------- --------
Ageing of impaired trade receivables:
Group
------------------
2018 2017
GBP'000 GBP'000
------------------------------- -------- --------
Not past due at reporting date - -
0-30 days 83 -
30-60 days 104 -
60-90 days 33 -
90+ days 1,327 1,028
------------------------------- -------- --------
Total 1,547 1,028
------------------------------- -------- --------
16 Provisions
Group
------------------
2018 2017
GBP'000 GBP'000
------------------------------------ -------- --------
At 1 August 1,596 602
Increase in year 43 994
Provisions released during the year (249) -
------------------------------------ -------- --------
At 31 July 1,390 1,596
------------------------------------ -------- --------
Non-current 1,390 1,596
Current - -
------------------------------------ -------- --------
Total 1,390 1,596
------------------------------------ -------- --------
The above relates to dilapidation provisions based on the
requirement to return leased buildings to their original condition
at the end of the lease term. The provision relates to offices held
under lease arrangements that expire between August 2018 and March
2027.
17 Trade and Other Payables
Group Company
------------------ ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- --------
Trade payables 2 159 - -
Amounts owed to group companies - - 47,647 32,031
Taxation and social security 10,144 8,627 - -
Contractor wages payable 16,560 19,015 - -
Accruals and deferred income 11,980 9,882 - -
Other payables 2,164 1,307 - -
-------------------------------- -------- -------- -------- --------
Total 40,850 38,990 47,647 32,031
-------------------------------- -------- -------- -------- --------
Accruals largely relate to staff costs, and lease arrangements.
Amounts payable to group companies are unsecured, repayable on
demand and accrue no interest.
18 Loans and Borrowings
Group Company
------------------ ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------- -------- -------- --------
Working capital facility 35,859 25,693 - -
Finance costs capitalised (158) (67) - -
-------------------------------------- -------- -------- -------- --------
Bank loans and borrowings due in less
than one year 35,701 25,626 - -
-------------------------------------- -------- -------- -------- --------
Term loan 15,000 20,714 15,000 20,714
Finance costs capitalised (69) (250) (69) (250)
-------------------------------------- -------- -------- -------- --------
Bank loans and borrowings due in more
than one year 14,931 20,464 14,931 20,464
-------------------------------------- -------- -------- -------- --------
Total bank loans and borrowings 50,632 46,090 14,931 20,464
-------------------------------------- -------- -------- -------- --------
At 31 July the Group had agreed banking facilities with HSBC
totalling GBP95m comprising a GBP75m Invoice Financing facility and
a GBP20m Term Loan Facility. Subsequent to the year end, the
facility was amended with the Term Loan Facility reduced from
GBP20m to GBP15m, providing total banking facilities of GBP90m
committed until October 2020.
The Group has working capital facilities with HSBC which are
secured by way of an all assets debenture, which contains fixed and
floating charges over the assets of the Group. This facility allows
the Company to borrow up to 90% of its invoiced debtors up to a
maximum of GBP75m. Interest is charged on borrowings at a rate of
1.6% (2017: 1.1%) over HSBC Bank base rate.
At 31 July 2018 the Group has a GBP20m (2017: GBP30m) Term Loan
Facility agreement with HSBC which is secured by way of a fixed and
floating charge over assets of the Group. Interest is charged on
borrowings at a rate of 3.25% (2017: 3.0%) over HSBC LIBOR
rate.
19 Financial Assets and Liabilities Statement of Financial
Position Classification
The carrying amount of the Group's financial assets and
liabilities as recognised at the Statement of Financial Position
date of the reporting periods under review may also be categorised
as follows:
Financial assets are included in the Statement of Financial
Position within the following headings:
Group Company
------------------ ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- -------- -------- --------
Trade and other receivables
Loans and receivables 111,071 112,706 94,927 86,608
Cash and cash equivalents
Loans and receivables 9,758 5,802 - -
---------------------------- -------- -------- -------- --------
Total 120,829 118,508 94,927 86,608
---------------------------- -------- -------- -------- --------
Financial liabilities are included in the Statement of Financial
Position within the following headings:
Group
------------------
2018 2017
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Borrowings
Financial liabilities recorded at amortised cost 50,632 46,090
Trade and other payables
Financial liabilities recorded at amortised cost 30,706 30,363
-------------------------------------------------- -------- --------
Total 81,338 76,453
-------------------------------------------------- -------- --------
The amounts at which the assets and liabilities above are
recorded are considered to approximate to fair value.
20 Commitments Under Operating Leases
The Group had commitments to pay the following amounts under
non-cancellable operating leases as set out below:
Group
------------------
2018 2017
GBP'000 GBP'000
--------------- ----------------- -------------- -------- --------
Payments falling
Land/buildings due: within 1 year 2,067 2,454
within 1 to 5
years 6,894 7,950
after 5 years 4,670 6,419
------------------------------------------------ -------- --------
Payments falling
Other due: within 1 year 183 364
within 1 to 5
years 176 510
------------------------------------------------ -------- --------
21 Share Capital
Authorised share capital
Company
------------------
2018 2017
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
40,000,000 (2017: 40,000,000) ordinary shares of GBP0.01
each 400 400
--------------------------------------------------------- -------- --------
Allotted, called up and fully paid:
Company
------------------
2018 2017
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
32,256,000 (2017: 31,801,000) ordinary shares of GBP0.01
each 323 318
--------------------------------------------------------- -------- --------
The number of shares in issue in the Company is shown below:
Company
----------------
2018 2017
'000s '000s
-------------------------- ------- -------
In issue at 1 August 31,801 31,167
Exercise of share options 455 634
-------------------------- ------- -------
In issue at 31 July 32,256 31,801
-------------------------- ------- -------
Share Options
The following options arrangements exist over the Company's
shares:
Exercise period
----------------------
Exercise
2018 2017 Date of price
'000s '000s grant pence From To
------------------------- ------ ------ ---------- -------- ---------- ----------
Zero Priced Share Option
Bonus 1 1 18/01/2010 1 18/01/2012 18/01/2020
Zero Priced Share Option
Bonus 1 1 18/01/2010 1 18/01/2013 18/01/2020
Zero Priced Share Option
Bonus 1 1 04/02/2011 1 03/02/2013 04/02/2021
Zero Priced Share Option
Bonus 1 1 04/02/2011 1 03/02/2014 04/02/2021
Zero Priced Share Option
Bonus 1 1 31/01/2012 1 30/01/2014 31/01/2022
Zero Priced Share Option
Bonus 1 2 31/01/2012 1 30/01/2015 31/01/2022
Zero Priced Share Option
Bonus 2 3 31/01/2013 1 30/01/2015 31/01/2023
Zero Priced Share Option
Bonus 4 7 31/01/2013 1 30/01/2016 31/01/2023
Zero Priced Share Option
Bonus 6 6 01/01/2014 1 01/01/2016 01/01/2024
Zero Priced Share Option
Bonus 41 53 01/01/2014 1 01/01/2017 01/01/2024
Zero Priced Share Option
Bonus 5 7 28/01/2015 1 28/01/2017 28/01/2025
Zero Priced Share Option
Bonus 35 92 28/01/2015 1 28/01/2018 28/01/2025
Zero Priced Share Option
Bonus - 31 30/01/2015 1 30/01/2018 30/01/2025
Zero Priced Share Option
Bonus - 5 26/06/2015 1 26/06/2018 26/06/2025
Value Creation Plan - 380 02/07/2015 1 18/11/2017 18/11/2021
Zero Priced Share Option
Bonus 10 - 16/10/2015 1 16/10/2018 16/10/2025
Long Term Incentive Plan
Options 13 33 11/02/2016 1 11/02/2019 11/02/2026
Zero Priced Share Option
Bonus - 65 11/02/2016 1 11/02/2018 11/02/2026
Zero Priced Share Option
Bonus 60 65 11/02/2016 1 11/02/2019 11/02/2026
Long Term Incentive Plan
Options - 23 11/02/2016 225 11/02/2018 11/02/2026
Long Term Incentive Plan
Options 15 23 11/02/2016 225 11/02/2019 11/02/2026
Zero Priced Share Option
Bonus 62 159 03/02/2017 1 03/02/2020 03/02/2027
Zero Priced Share Option
Bonus 122 176 31/01/2017 1 31/01/2020 31/01/2027
Long Term Incentive Plan
Options 83 92 31/01/2017 72 31/01/2019 31/01/2027
Long Term Incentive Plan
Options 83 92 31/01/2017 72 31/01/2020 31/01/2027
Long Term Incentive Plan
Options 55 79 31/01/2017 145 31/01/2019 31/01/2027
Long Term Incentive Plan
Options 55 79 31/01/2017 145 31/01/2020 31/01/2027
------------------------- ------ ------ ---------- -------- ---------- ----------
Total 657 1,477
------------------------- ------ ------ ---------- -------- ---------- ----------
No share options were granted during 2018.
During 2017, the Group granted share options under a Zero Priced
Share Option for Executive Directors and senior management, and
Long Term Incentive Plan (LTIP) Options for key staff. The Zero
Priced Share Options were granted on 31 January and 3 February 2017
to members of staff subject to a three year holding period and are
subject to an TSR, EPS and share price performance targets. The
Long Term incentive Plan Options were granted to staff on 31
January 2017 and are subject to a Share Price performance target.
The Long Term Incentive Plan Options were granted to staff on 31
January 2017 and are subject to two and three year holding periods
with a release price of 290 pence per share. All share options have
a life of 10 years and are equity settled on exercise.
The movement in share options is shown below:
2018 2017
--------------------------- ---------------------------
Weighted Weighted Weighted Weighted
average average average average
exercise share exercise share
Number price price Number price price
'000s (pence) (pence) '000s (pence) (pence)
------------------------ ------ --------- -------- ------ --------- --------
Outstanding at 1 August 1,477 30.4 - 1,650 9.3 -
Granted - 22.6 - 758 51.1 -
Forfeited/lapsed (365) 40.5 - (182) 31.1 -
Exercised (455) 1.7 276.6 (749) 1.0 293.3
------------------------ ------ --------- -------- ------ --------- --------
Outstanding at 31 July 657 48.2 1,477 30.4
------------------------ ------ --------- -------- ------ --------- --------
Exercisable at 31 July 109 1.0 83 1.0
------------------------ ------ --------- -------- ------ --------- --------
The numbers and weighted average exercise prices of share
options vesting in the future are shown below:
2018 2017
----------------------------- -----------------------------
Weighted Weighted
average Weighted average Weighted
remaining average remaining average
contract exercise contract exercise
life Number price life Number price
Exercise Date (months) '000s (pence) (months) '000s (pence)
-------------- ---------- ------ --------- ---------- ------ ---------
18/11/2017 - - - 4 380 1.0
28/01/2018 - - - 6 92 1.0
30/01/2018 - - - 6 31 1.0
11/02/2018 - - - 7 88 60.0
26/06/2018 - - - 11 5 1.0
31/01/2019 6 138 101.8 18 171 105.6
11/02/2019 7 88 41.1 19 121 44.5
31/01/2020 18 260 53.8 30 347 52.5
03/02/2020 18 62 1.0 30 159 1.0
-------------- ---------- ------ --------- ---------- ------ ---------
Total 548 1,394
-------------- ---------- ------ --------- ---------- ------ ---------
In addition to the share option schemes the Group operated a
Share Incentive Plan (SIP), which is an HMRC approved plan
available to all employees enabling them to purchase shares out of
pre-tax salary. For each share purchased the Company grants an
additional share at no cost. During the year the company purchased
83,740 shares (2017: 49,604) under this scheme, incurring a charge
of GBP26,723 (2017: GBP32,480) recognised in the share based
payment reserve.
The fair values of the LTIP options were calculated using a
Monte Carlo simulation method along with the assumptions detailed
below. The fair values of the SIPS were calculated as the market
values on the date of the grant adjusted for the assumptions as
detailed below.
Share
price
on the Risk free
date of Exercise Vesting Dividend rate of
grant price Volatility period yield interest Fair value
Date of grant (GBP) (GBP) (%) (years) (%) (%) (GBP)
-------------- ----------- -------- -------- ---------- -------- -------- --------- ----------
05/08/2015 SIP 5.81 0.01 N/A 3.00 N/A N/A 5.81
04/09/2015 SIP 5.64 0.01 N/A 3.00 N/A N/A 5.64
05/10/2015 SIP 5.18 0.01 N/A 3.00 N/A N/A 5.18
15/10/2015 LTIP 5.05 0.01 N/A 3.00 N/A N/A 4.51
03/11/2015 SIP 5.45 0.01 N/A 3.00 N/A N/A 5.45
08/12/2015 SIP 5.43 0.01 N/A 3.00 N/A N/A 5.43
05/01/2016 SIP 5.35 0.01 N/A 3.00 N/A N/A 5.35
05/02/2016 SIP 5.08 0.01 N/A 3.00 N/A N/A 5.08
11/02/2016 LTIP 4.35 0.01 21.4% 3.00 5.1% 0.4% 1.45
11/02/2016 LTIP 4.35 2.25 21.4% 3.00 5.1% 0.4% 0.88
Zero price
11/02/2016 bonus 4.50 0.01 20.9% 3.00 4.9% 0.5% 3.88
07/03/2016 SIP 4.29 0.01 N/A 3.00 N/A N/A 4.29
14/04/2016 SIP 4.74 0.01 N/A 3.00 N/A N/A 4.74
10/05/2016 SIP 4.65 0.01 N/A 3.00 N/A N/A 4.65
06/06/2016 SIP 4.25 0.01 N/A 3.00 N/A N/A 4.25
05/07/2016 SIP 3.19 0.01 N/A 3.00 N/A N/A 3.19
05/08/2016 SIP 3.54 0.01 N/A 3.00 N/A N/A 3.54
09/09/2016 SIP 3.87 0.01 N/A 3.00 N/A N/A 3.87
07/10/2016 SIP 3.57 0.01 N/A 3.00 N/A N/A 3.57
08/11/2016 SIP 3.16 0.01 N/A 3.00 N/A N/A 3.16
07/12/2016 SIP 2.95 0.01 N/A 3.00 N/A N/A 2.95
16/01/2017 SIP 2.98 0.01 N/A 3.00 N/A N/A 2.98
Zero price
31/01/2017 bonus 2.92 0.01 31.6% 3.00 7.9% 0.3% 1.27
Zero price
31/01/2017 bonus 2.92 0.01 31.6% 3.00 7.9% 0.3% 1.51
Zero price
31/01/2017 bonus 2.90 0.01 31.6% 3.00 7.9% 0.3% 1.23
Zero price
31/01/2017 bonus 2.90 0.01 31.6% 3.00 7.9% 0.3% 1.49
31/01/2017 LTIP 2.90 0.72 37.9% 2.00 7.9% 0.2% 0.99
31/01/2017 LTIP 2.90 0.72 31.6% 3.00 7.9% 0.3% 0.86
31/01/2017 LTIP 2.90 1.45 37.9% 2.00 7.9% 0.2% 0.80
03/02/2017 LTIP 2.90 1.45 31.6% 3.00 7.9% 0.3% 0.66
07/02/2017 SIP 2.94 0.01 N/A 3.00 N/A N/A 2.94
07/03/2017 SIP 2.94 0.01 N/A 3.00 N/A N/A 2.94
07/04/2017 SIP 3.10 0.01 N/A 3.00 N/A N/A 3.10
09/05/2017 SIP 3.18 0.01 N/A 3.00 N/A N/A 3.18
07/06/2017 SIP 3.28 0.01 N/A 3.00 N/A N/A 3.28
07/07/2017 SIP 3.09 0.01 N/A 3.00 N/A N/A 3.09
07/08/2017 SIP 2.87 0.01 N/A 3.00 N/A N/A 2.87
08/09/2017 SIP 2.99 0.01 N/A 3.00 N/A N/A 2.99
09/10/2017 SIP 3.10 0.01 N/A 3.00 N/A N/A 3.10
08/11/2017 SIP 3.12 0.01 N/A 3.00 N/A N/A 3.12
08/12/2017 SIP 3.05 0.01 N/A 3.00 N/A N/A 3.05
09/01/2018 SIP 3.00 0.01 N/A 3.00 N/A N/A 3.00
08/02/2018 SIP 2.63 0.01 N/A 3.00 N/A N/A 2.63
08/03/2018 SIP 2.31 0.01 N/A 3.00 N/A N/A 2.31
12/04/2018 SIP 1.84 0.01 N/A 3.00 N/A N/A 1.84
09/05/2018 SIP 1.40 0.01 N/A 3.00 N/A N/A 1.40
08/06/2018 SIP 1.58 0.01 N/A 3.00 N/A N/A 1.58
09/07/2018 SIP 1.25 0.01 N/A 3.00 N/A N/A 1.25
08/08/2018 SIP 1.50 0.01 N/A 3.00 N/A N/A 1.50
-------------- ----------- -------- -------- ---------- -------- -------- --------- ----------
The volatility of the Company's share price on each date of
grant was calculated as the average of the annualised standard
deviations of daily continuously compounded returns on the
Company's stock, calculated over five years back from the date of
grant, where applicable. The risk-free rate is the yield to
maturity on the date of grant of a UK Gilt Strip, with term to
maturity equal to the life of the option.
22 Transactions with Directors and Related Parties
During the year the Group made sales of GBP152,000 (2017:
GBP381,000) to InHealth Group and purchases of GBP7,000 from
Preventicum UK Limited (2017: GBPnil) which are related parties by
virtue of common directorship of Richard Bradford and also sales of
GBP393,000 (2017: GBP863,000) to the Waterman Group by virtue of
common directorship of Ric Piper. As at the year end, Waterman
Group had a balance outstanding of GBP34,000 (2017: GBP126,000) and
Inhealth Group has a balance outstanding of GBP5,000 (2017:
GBP26,000). Group policy is for all transactions with related
parties to be made on an arm's length basis and no guarantees have
been given to, or received from, related parties.
There were no other related party transactions with entities
outside of the Group.
During the year Matchtech Group (UK) Limited charged Gattaca plc
GBP803,000 (2017: GBP921,000) for provision of management services.
Further details of transactions with Directors are included in the
Director's Remuneration Report.
23 Financial Instruments
The financial risk management policies and objectives including
those related to financial instruments and the qualitative risk
exposure details, comprising credit and other applicable risks, are
included within the Chief Financial Officer's Report under the
heading 'Group financial risk management'.
Maturity of financial liabilities
The following table sets out the contractual maturities of
financial liabilities, including interest payments. This analysis
assumes that interest rates prevailing at the reporting date remain
constant:
5 years
and Contractual
Group 0 to <1 year 1 to <2 years 2 to <5 years over cash flows
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ------------- ------------- -------- -----------
Term loan 556 500 15,121 - 16,177
Working Capital invoice Financing
Facility 35,907 - - - 35,907
Trade payables 18,725 - - - 18,725
---------------------------------- ------------ ------------- ------------- -------- -----------
Total 55,188 500 15,121 - 70,809
---------------------------------- ------------ ------------- ------------- -------- -----------
2017
---------------------------------- ------------ ------------- ------------- -------- -----------
Term loan 548 556 500 15,121 16,725
Working Capital Invoice Financing
Facility 25,693 - - - 25,693
Trade payables 20,481 - - - 20,481
---------------------------------- ------------ ------------- ------------- -------- -----------
Total 46,722 556 500 15,121 62,899
---------------------------------- ------------ ------------- ------------- -------- -----------
5 years Contractual
Company 0 to <1 year 1 to <2 years 2 to <5 years and over cash flows
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ------------ ------------- ------------- --------- -----------
Term loan 556 500 15,121 - 16,177
---------- ------------ ------------- ------------- --------- -----------
Total 556 500 15,121 - 16,177
---------- ------------ ------------- ------------- --------- -----------
2017
Term loan 548 556 500 15,121 16,725
---------- ------------ ------------- ------------- --------- -----------
Total 548 556 500 15,121 16,725
---------- ------------ ------------- ------------- --------- -----------
Borrowing facilities
The Group makes use of working capital facilities and a term
loan, details of which can be found in Note 18. The undrawn
facility available at 31 July 2018 in respect of which all
conditions precedent had been met was as follows:
Group Company
------------------ ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- -------- -------- --------
Expiring in 1 to 5 years 19,506 58,593 5,000 9,286
------------------------- -------- -------- -------- --------
The Directors have calculated that the effect on profit of a 100
basis point movement in interest rates would be an expense of
GBP756,000 (2017: expense of GBP526,000).
The Directors believe that the carrying value of borrowings
approximates to their fair value.
Foreign currency risk
The Group's main foreign currency risk is the short-term risk
associated with the trade debtors denominated in US dollars and
Euros relating to the UK operations whose functional currency is
Sterling. The risk arises on the difference between exchange rates
at the time the invoice is raised to when the invoice is settled by
the client. For sales denominated in foreign currency, the Group
ensures that direct costs associated with the sale are also
denominated in the same currency. Further foreign exchange risk
arises where there is a gap in the amount of assets and liabilities
of the Group denominated in foreign currencies that are required to
be translated into sterling at the year end rates of exchange.
Where the risk to the Group is considered to be significant, the
Group will enter into a matching forward foreign exchange contract
with a reputable bank.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group has a robust approach to forecasting
both net debt and trading results on a monthly basis, looking
forward to at least the next two covenant periods. As at 31 July
2018 the Group has financing facilities of GBP95m comprising a
GBP75m Invoice Financing Facility and a GBP20m Term Loan Facility.
Subsequent to the year end, the facility was amended and Term Loan
Facility was reduced from GBP20m to GBP15m, making the total
banking facilities of GBP90m until October 2020.
The available financing facilities in place are sufficient to
meet the Group's forecast cash flows.
Net foreign currency monetary assets are shown below:
Group
------------------
2018 2017
GBP'000 GBP'000
---------- -------- --------
US Dollar 8,371 8,097
Euro 5,541 3,503
---------- -------- --------
The effect of a 25 cent strengthening of the Euro and US Dollar
against Sterling at the financial position date on the Euro and US
Dollar denominated trade and other receivables and payables carried
at that date would, all other variables held constant, have
resulted in a net increase in pre-tax profit for the year and
increase of net assets of GBP3,567,000 (2017: GBP2,898,000). A 25
cent weakening in the exchange rates would, on the same basis, have
decreased pre-tax profit and reduced net assets by GBP2,353,000
(2017: GBP1,928,000).
Company
The Company holds no material balances of this nature other than
intercompany balances, which are not subject to a fair value
adjustment.
24 Capital Management Policies and Procedures
Gattaca plc's capital management objectives are:
-- to ensure the Group's ability to continue as a going concern;
-- to provide an adequate return to shareholders: and
-- pricing products and services commensurately with the level of risk.
The Group monitors capital on the basis of the carrying amount
of equity as presented on the face of the Statement of Financial
Position.
The Group sets the amount of capital in proportion to its
overall financing structure, i.e. equity and financial liabilities.
The Group manages the capital structure and makes adjustments in
the light of changes in economic conditions and risk
characteristics of the underlying assets. Capital for the reporting
period under review is summarised as follows:
Group
------------------
2018 2017
GBP'000 GBP'000
----------------------------------- -------- --------
Total equity 47,019 84,702
Cash and cash equivalents (9,758) (5,802)
----------------------------------- -------- --------
Capital 37,261 78,900
----------------------------------- -------- --------
Total equity 47,019 84,702
Borrowings 50,632 46,157
----------------------------------- -------- --------
Overall financing 97,651 130,859
----------------------------------- -------- --------
Capital to overall financing ratio 38% 60%
----------------------------------- -------- --------
25 Alternative performance measures
Alternative performance measures are disclosed below to show the
underlying trading performance of the Group
Net debt
Net debt is the total amount of cash and cash equivalents less
interest-bearing loans and borrowings. The table below also
provides the required reconciliation evaluating the changes in
liabilities arising from financing activities.
Net cash flows include the net drawdown of loans and borrowings
and cash interest paid relating to loans and borrowings.
Amortisation
1 August Net cash of financing 31 July
2017 flows Acquisitions costs 2018
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- --------- --------- ------------ ------------- ---------
Cash and cash equivalents 5,802 3,956 - - 9,758
Interest-bearing term loan (20,714) 5,714 - - (15,000)
Working capital facilities (25,693) (10,166) - - (35,859)
--------------------------------- --------- --------- ------------ ------------- ---------
Total net debt (40,605) (496) - - (41,101)
Capitalised finance costs 317 25 - (115) 227
--------------------------------- --------- --------- ------------ ------------- ---------
Total net debt after capitalised
finance costs (40,288) (471) - (115) (40,874)
--------------------------------- --------- --------- ------------ ------------- ---------
Amortisation
1 August Net cash of financing 31 July
2016 flows Acquisitions costs 2017
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- --------- --------- ------------ ------------- ---------
Cash and cash equivalents 7,428 (1,626) - - 5,802
Interest-bearing term loan (13,608) (7,106) - - (20,714)
Working capital facilities (18,939) (2,970) (3,784) - (25,693)
--------------------------------- --------- --------- ------------ ------------- ---------
Total net debt (25,119) (11,702) (3,784) - (40,605)
Capitalised finance costs 106 250 - (39) 317
--------------------------------- --------- --------- ------------ ------------- ---------
Total net debt after capitalised
finance costs (25,013) (11,452) (3,784) (39) (40,288)
--------------------------------- --------- --------- ------------ ------------- ---------
26 Non-Controlling Interests
The non-controlling interests in 2017 related to a 30% minority
stake in Resourcing Solutions Limited. The total non-controlling
interest as at 31 July 2017 was GBP2,222,000, which included profit
in the year of GBP172,000 and deferred consideration of
GBP2,050,000.
In 2018, the Group acquired the remaining 30% stake in
Resourcing Solutions Limited for consideration of GBP3,552,000.
From that date, it was consolidated as a wholly owned subsidiary
with no non-controlling interest.
27 Contingent liabilities
The Group is subject to corporate and other tax rules in the
jurisdictions where it conducts its business operations. Changes in
tax rates, tax reliefs and tax laws, changes in practice or
interpretation of the law by the relevant tax authorities,
increasing challenges by relevant tax authorities on transfer
pricing and other matters, or any failure to manage tax risks
adequately could result in increased charges, financial loss,
penalties and reputational damage, which may materially adversely
affect the Group's financial condition and results of
operations.
The Group is currently reviewing the systems and processes in
respect of their compliance obligations under the Construction
Industry Scheme ('CIS'). As part of this review the Group has
sought guidance from the tax authorities as to the correct
interpretation of the current CIS legislation.
If HMRC disagree with our current interpretation, this could
lead to increased tax liabilities in excess of those provided in
the Group's Balance Sheet, and result in additional tax payments
becoming due, which may also be subject to interest charges from
the relevant authority. The Group has taken external advice and
considers that it has strong support for its position. However, the
timing and resolution of this issue is uncertain.
28 Events after the reporting date
On 4 September 2018 the Company announced that it is withdrawing
from the contract Telecoms Infrastructure markets in Africa, Asia
and Latin America as well as its operations in Dubai, Malaysia and
Qatar. Given the timing of the announcement, these are not
disclosed as discontinued operations in the Financial Statements
for the year ended 31 July 2018.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BRBPTMBIMBBP
(END) Dow Jones Newswires
November 08, 2018 02:00 ET (07:00 GMT)
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