REG - Gattaca PLC - Final results for the year ended 31 July 2023
24/10/2023 07:00
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RNS Number : 0329R Gattaca PLC 24 October 2023
24 October 2023
Gattaca plc
("Gattaca" or the "Group")
Final results for the year ended 31 July 2023
"Execution of strategy"
Gattaca plc ("Gattaca" or the "Group"), the specialist staffing business,
announces its audited financial results for the year ended 31 July 2023.
Financial Highlights
2023 2022
(restated)(3)
£m £m
Continuing operations
Revenue 385.2 403.9
Net Fee Income (NFI)(1) 43.4 44.2
EBITDA 4.0 (2.4)
Profit / (Loss) before tax - reported 2.8 (4.7)
Profit / (Loss) before tax - underlying(2) 2.6 0.3
Profit / (Loss) after tax 1.8 (4.3)
Losses from discontinued operations after tax (0.5) (0.4)
Group reported profit / (loss) after tax 1.2 (4.6)
Basic earnings per share 3.8p (14.3)p
Diluted earnings per share 3.8p (14.3)p
Ordinary dividend per share 2.5p 0.0p
Special dividend per share 2.5p 0.0p
Net cash 21.6 12.3
· Group NFI of £43.4m, down 2% year-on-year ("YoY")
o UK NFI of £41.2m flat YoY
o Defence and Infrastructure sectors, representing 51% of Group NFI,
delivered strong 8.8% NFI growth YoY
o Gattaca Projects Statement of Work business achieved 59% YoY NFI growth
o Contract vs Perm split 74% / 26% of Group NFI (FY22: 71% / 29%)
o Contract NFI up 2% YoY, reflecting strategic priority to become more
focused on contract business alongside shift in opportunities from employers
o Permanent NFI down -11% YoY, following a tightening of the wider economy
· Group underlying profit before tax of £2.6m (2022 restated:
£0.3m), reflecting ongoing focus on productivity improvements, exiting lower
margin contracts and active cost management
· Group net cash up 76% at £21.6m as at 31 July 2023 (31 July
2022: £12.3m)
· Full year dividend totaling 5.0 pence per share (2022: nil);
comprising a 2.5 pence per share ordinary dividend and 2.5 pence per share
special dividend. The final dividend payment date will be 15 December 2023, to
shareholders on the register as at close of business of 3 November 2023. The
ex-dividend date will be 2 November 2023.
Operational Highlights
Continued emphasis on developing the four identified strategic priorities
(External focus, Culture, Operational performance and Cost rebalancing) as the
Group focus remains on building back to sustained growth:
· Launched our simplified Brand Architecture, with increased
marketing investment
· People engagement rose to 8.1 for FY23, up from 7.6 in FY22, with
reduced attrition of 33% at 31 July 2023, with improvement particularly in the
retention of sales people within their first 12-24 month tenure in the Group
· Increased sales productivity by utilising enhanced Group-wide
management information, growing average NFI per sales head +8%, and +4% per
total head
· UK property footprint reduced from five to three, alongside other
third-party cost savings
· Moved over 80% of our manual time sheeting contractors to online
timesheet submission, reducing administrative burden and increasing accuracy
Outlook
We continue to remain mindful of the macro-economic headwinds, which have
impacted demand and candidate sentiment across the recruitment sector and
slowed our speed of recovery. We are seeing permanent recruitment remaining
subdued and are increasing our focus on contractor growth, which takes longer
to reflect in NFI, as such we expect profitability will be weighted to second
half of the year.
Matthew Wragg, Chief Executive Officer of Gattaca, commented:
"I am pleased with the performance in the year, against a difficult market
backdrop. A significant growth in underlying profitability reflects the
Group's focus on productivity improvements and cost management, whilst a
positive shift in culture is strengthening the business as whole. Whilst our
sales progress has been impacted by the decline in the wider market, I am
pleased that we were able to continue to simplify the business this year along
with managing our cost base and continue to trade in line with expectations
for FY24."
"The sectors in which we operate and the STEM skillsets that we provide have
the right long-term fundamentals for success and we enter FY24 as a more
efficient and productive business. We are well positioned to take advantage of
the expected recovery in the market and will look to grow our sales headcount
where we see the best opportunities for contract expansion, whilst we continue
to focus on our strategic priorities enabling us to further strengthen our
platform for growth."
The following footnotes apply, unless where otherwise indicated, throughout
these Final Results:
1. NFI is calculated as revenue less contractor payroll costs
2. Continuing underlying results exclude the NFI and (losses) before
taxation of discontinued operations (2023: £(0.5)m, 2022: £(0.4)m),
non-underlying items within administrative expenses relating to restructuring
costs (2023: £(0.2)m, 2022: £(0.4)m), gains associated with exiting
properties (2023: gain of £0.6m, 2022: cost of £(0.2)m) and other items
(2023: £(0.2m), 2022: nil), amortisation of acquired intangibles (2023:
£(0.1)m, 2022: £(0.4)m), impairment of acquired intangibles and ROU leased
assets (2023: nil, 2022: £(4.6)m), and exchange gains from revaluation of
foreign assets and liabilities (2023: £0.1m, 2022: £0.6m).
3. FY22 results have been restated for the correction of a revenue cut-off
error, and the subsequent reassessment of the Group's accounting policy over
how accrued revenue and accrued cost balances have been calculated at each
period end. The aggregated impact of these items on FY22 reported results is
£0.1m reduction to reported profit before tax. Further details are provided
in the Group's FY23 Annual Report & Accounts.
The information contained within this announcement is deemed by the Group to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014. Upon the publication of this announcement via a Regulatory
Information Service, this inside information is now considered to be in the
public domain.
For further information, please contact:
Gattaca plc +44 (0) 1489 898989
Matthew Wragg, Chief Executive Officer
Oliver Whittaker, Chief Financial Officer
Liberum Capital Limited (Nomad and Broker) +44 (0) 20 3100 2000
Lauren Kettle Richard Lindley
IFC Advisory (Financial PR and IR) +44 (0) 203 934 6630
Tim Metcalfe
Graham Herring
Florence Chandler
Chair's Statement
Stability in a turbulent market
The last three years have been turbulent for us all, with the impact of the
Covid-19 pandemic and the subsequent challenging macroeconomic conditions,
further exacerbated by the changing geopolitical circumstances that we find
ourselves operating in. In addition, we have had to weather the storm through
the tightening of the UK tax legislation surrounding IR35. Despite all of
those challenges, we find the core key STEM markets that we are operating in
are recovering to their pre-pandemic levels with more of a balance between
vacancies and candidate availability.
This year, we have also seen the return of higher levels of global inflation
which has had an impact on all our clients, contractors and staff, leading to
a "cost of living" challenge for many. We are starting to see early
indications of these high levels of inflation abating, although the economic
horizon continues to be a concern as we enter the period ahead of the next UK
General Election.
Group Continuing NFI
The start of FY23 was strong for permanent placements, with contract soft. By
Christmas the permanent market had stalled and whilst our contract business
became stronger by the end of the year, it still has some way to go to return
to our pre-pandemic volumes. Many companies have been reluctant to add
permanent employees to their staff base from the turn of the year and whilst
there has been a continuing demand for contract it is sector specific. Our
focus on the quality of our clients and markets has been a significant plus
during the year. We remain a sales-led business but we are also clear that we
will not pursue sales which are barely profitable. Our aim is very much to
focus our efforts on those clients who recognise that in a "talent short
market" margins need to reflect the additional effort to find such talent.
Our net cash position at the end of the year was £21.6m, a significant
increase on last year at £12.3m, as we made further progress on debtor days
(due to exiting large low margin business) and completion in the previous year
of our significant investment in software. As at July 2023 the Group had a
working capital facility of £50m, reduced from £60m in the year.
Board Changes
Last year we accelerated the changes at Board level with the appointment of
Matt Wragg as CEO and Oliver Whittaker as CFO. Both have settled well into
their roles and are one of the main reasons we have returned to profitability.
Our four key strategic priorities were around external focus, culture,
operational performance and cost rebalancing. We talked about the need to
operate with pace, agility and confidence. To that extent we feel that over
the last 18 months the business has embraced these four priorities and we are
further ahead in those respects than we anticipated. As a result, we feel that
now is the right time to reshape the Board to reflect what is required for the
next five to six years. I am therefore stepping down a year early to pass the
baton to Richard Bradford who will become Chair immediately after the AGM in
December. Richard has been a NED at Gattaca in the past and has had no
involvement since he stepped down in December 2021 nor has he previously
worked directly with the Executive Directors. As such the Board have concluded
that Richard should be considered as an Independent Chair.
Equally important, George Materna, who is the founder and largest shareholder
will step down from the Board at the AGM. George founded the business nearly
40 years ago and has made a major contribution to the Board. During my 8-year
tenure on the Board, George has been both supportive and constructive and
acted in the interest of all shareholders. Having watched Matt and Oliver
re-establish the culture within the business and reposition ourselves as a
sales organisation, George feels this is an ideal opportunity to step down. He
will be missed by many but his legacy lives on.
As the number of non-independent members of the Board will reduce, we are
further streamlining the Board and Ros Haith will also step down at the AGM.
Ros has demonstrated her sales management experience and made a significant
contribution to Board discussions. We wish her well in her future endeavours.
Dividend and Share Buyback
The Board's long stated objective has been to achieve a through-the-cycle
dividend payout of approximately 50% of profits after tax. This year the Board
is recommending a 2.5 pence per share final dividend in line with its policy
and a further 2.5 pence per share special dividend, both of which will be paid
in December 2023. The addition of a special dividend, alongside the two share
repurchases, supports our intention to return value to shareholders through
different means as we return to growth.
In April 2023 we announced our intention to make a series of share repurchases
with a view to returning £0.5m to shareholders. This was completed on 9 May
2023 and resulted in 447,000 shares being purchased. In August 2023 we
announced our intention to make a further series of share repurchases with a
view to returning a further £0.5m to shareholders, of which £390,000 has
been achieved to date.
Environmental, Social and Governance
We have had a particular focus this year on developing our approach to
sustainable business and are due to publish our first external Sustainability
Report with a clear ESG strategy for the years ahead. This has been led by our
Head of Sustainability and the Sustainability Committee which includes three
members from the Board. We are all hugely committed to doing what we believe
is right for the environment and our communities and have started challenging
our supply chain to encourage them to do more. We also see the green economy
as a growth opportunity for us, particularly in areas such as renewable energy
and mobility.
Whilst reshaping the Board as we have announced, from seven members to five,
and particularly the loss of Ros we see gender Board representation drop to
20% from 29%. In small Boards such changes will occur, and we fully expect
this will not be the general pattern throughout the business.
Diversity and Inclusion
Last year we appointed our first Head of Engagement, ED&I and Talent. As a
Group we remain committed to becoming a more diverse organisation and as part
of this, we continue to work towards our targets of achieving 40% gender
balance in leadership and management roles by 2024 and 50% by 2026. We
continue to promote diversity training throughout the business and have
engaged externally with advisers to foster a better understanding across the
business. We have also started working with our clients to help them further
their understanding of how they can achieve their equality goals by embracing
equity, diversity and inclusion.
Outlook
We are conscious that the focus on our four Strategic Priorities: External
Focus, Culture, Operational Performance and Cost Rebalancing, has made us more
resilient than we were 18 months ago, which has served us well during
turbulent markets. In addition we have market-leading software which enables
us to continue simplifying and streamlining our sales and administrative
operations. However, our true strength going forward is our people and the
Values that they live by: Trust, Professional, Ambition and Fun. We will
continue to invest in their future and in turn that will reflect in our
success. As we look to the next 12 months we are aware of the economic
challenges that we face, alongside many other businesses who are focused on
serving a diverse portfolio of clients. We believe our core focus of STEM
skills in well defined markets should insulate us from any significant swings
in demand.
Patrick Shanley
Non-Executive Chair
Chief Executive's Statement
Highlights
· Delivered underlying profit before tax of £2.6m, as a result of
executing our planned strategic initiatives for FY23
· Achieved targeted improvements in our people engagement score and
staff retention level
· Simplified our Group brand architecture in May 2023, enabling a
clearer go-to-market sales message for the future
Overview
FY23 has been a period of significant change, as we've implemented our
strategy to rebuild the business. In the last 18 months, we've stabilised and
simplified the business, increased our focus on our customers and candidates,
and designed and deployed our culture.
We've achieved a lot and have much more to do. This is partly about
repetition, so our new way of working becomes routine and we rebuild our
corporate memory. We have invested in the development of our leadership teams
and I'm excited about what this team will achieve in the years to come, as we
continue to raise our standards, expectations and capacity.
Performance
We've made a solid start to our rebuild and while challenging markets have
slowed our sales progress, our self-help actions enabled us to achieve
underlying profit before tax of £2.6m.
However, Gattaca is a sales business and despite tracking the market this year
after years of lagging behind, we didn't grow our absolute NFI, which is key
for long-term growth success within the Group. This was partly down to
prioritising higher quality business, which saw us exit accounts with high NFI
and low profitability. Another factor - and the biggest disappointment - is
that we didn't grow our contractor base, which, representing 74% of our NFI,
is critical to achieving sustainable growth. That's a key focus for us in
FY24.
Strategy
In last year's Report, we set out four strategic priorities: External Focus,
Culture, Operational Performance and Cost Rebalancing. These priorities are
interlinked, so progress in one area supports progress in another.
I'm pleased to say that we've delivered against our planned actions for FY23,
and have set new actions for FY24. You can find more detail below.
External Focus
Getting our branding right is key to going to market effectively. For example,
our formidable Matchtech brand became diluted over the years because we had
too many other STEM brands.
In May 2023, we launched a simplified brand architecture, giving us absolute
clarity about what each brand is and what it does. We can now focus on making
our brands well known to our customers, candidates and potential colleagues.
We've started this process with activities such as sharing regular market
insights, so customers trust us to help them make real-time decisions. We'll
continue to build on this in the coming years.
Our external focus is also benefiting from our sales leadership bedding in.
Twelve months ago, almost half of our sales leaders had new roles or
responsibilities. A year on, they fully understand their remits and have
complete accountability for achieving their business plans. As we increase our
external focus, we're seeing positive results in our client and candidate
feedback, with an average rating of 7.7 and 8.5 (out of 10) respectively.
Culture
Culture is an obsession for us. Together, our Purpose, Vision, Mission and
Values make clear where we're going and why, and ensure everyone understands
their role.
This year, we've brought our culture to life with the 12 principles that
underpin our Values and a set of behaviours we either champion or challenge.
We've integrated these behaviours into our leadership reward structure and our
new quarterly performance reviews, which assess both achievements and
behaviours. This allows us to identify and celebrate high performers and help
everyone become superstars, whether through learning and development,
mentorship or a role that better suits their talents.
To help people feel truly connected to Gattaca, we've massively increased
communication, including; weekly performance updates on our office screens and
our intranet, increased in-person Town Hall and open Q&A sessions in all
locations, plus a weekly video from the Senior Leadership Team. The latter
typically explains what we've done well, what we're going to do and examples
of good performance from around the business. We're also very vocal about
holding ourselves accountable and acknowledging when we need to improve.
We're seeing our efforts reflected in lower attrition, which has reduced to
33% (FY22: 40%) and in our engagement score, which has increased to 8.1 (FY22:
7.6). We've also welcomed back alumni who've seen our positive cultural shift
and want to be part of it.
Operational Performance
We want operational performance to be a fundamental cornerstone to our
culture. Better data gives us improved visibility of Group and individual
results and our improved communications and performance reviews mean we've put
performance front and centre.
We're now reaping the benefits of our technology stack investments, which
beyond giving consistent data, also allows us to plug in new technology to
make iterative but important changes and efficiency enhancements. These
improve the experience for our clients, candidates and colleagues, while
simplifying how we work, increasing automation and reducing manual processes.
Our new business improvement function is also working well, helping us
implement change quickly and successfully.
Major efficiency initiatives this year include almost halving the number of
contractor payroll runs each week through consolidation and completing a
corporate restructure of our legal entities to enable us to start the project
of moving from multiple billing arrangements to one for all clients. Looking
ahead, we'll continue to digitalise where possible, leveraging our existing
technology to further reduce manual processes and overheads.
Cost Rebalancing
Cost rebalancing supports our profitability goals and frees up funds for
reinvestment. Operational improvements have a key role, with the single pay
and future single bill arrangements, simpler legal processes and increased
automation all enabling better cost control and reduced third-party spend.
We've also right-sized our offices, so they're fit for purpose in our flexible
working environment, at a lower cost.
The new performance management reviews are also making everybody accountable
for their own performance and progression. Previously, it was taking
significant investment and time before we knew if a new recruit was working
out. Now we have a clear picture within three or four months, meaning we can
identify those unsuited to recruitment earlier and we can invest in colleagues
with potential.
We know there's always more to do, so we'll continue to review every area of
spend and reinvest where needed, particularly in sales capability in sectors
with significant long-term growth opportunities and good quality business.
Environmental, Social and Governance
Sustainability is part of our business from top to bottom and helps to bring
our Purpose to life. At a personal level, doing the right thing by society and
our colleagues is very important to me and I want Gattaca to be a company I'd
be proud for my daughter to join in the future.
We've further matured our ESG approach this year, investing in a Head of
Sustainability role and creating a Sustainability Committee, which reports to
the Board. The Committee is led by our CFO and includes the Board's
Sustainability Sponsor, Ros Haith. We are expecting to publish our first
external Sustainability Report shortly and have set out a clear ESG strategy
for the years ahead.
As a service business, we strive to do everything we should to control our
carbon emissions. The next phase will be to work with our supply chain to
encourage them do more. The green economy is also a growth opportunity for us,
meaning we can help protect the environment by investing in our sales
headcount in areas such as renewable energy and sustainability.
Social mobility, diversity and inclusion are vitally important to ensuring the
sustainability of the STEM skills market. We've made huge strides internally,
with our first Head of Engagement, ED&I and Talent appointed at the end of
FY22. Externally, we've created exciting partnerships with our chosen
charities, to help make STEM opportunities accessible to anyone, and continue
to look for relevant and impactful partnerships.
Gattaca is a well-run business, with great governance processes and a
technology stack that gives us excellent visibility of our daily operations
and performance. This helps us to stand out in a market with many smaller
players. To be the STEM talent partner of choice, we have to be trusted by our
stakeholders, and our strong governance underpins that trust.
Board Changes
With the business stabilised and vision clear, the Board changes come at the
right time for my team and the wider Group.
I am sure succeeding into a CEO role is never simple, however Patrick has made
this smooth, given us great support and counsel, allowing Oliver and I to find
our feet and enabled the business to make solid progress. He has also
navigated the Group through some hugely volatile market conditions and times
over the years and we thank him for this guidance and stability throughout
this.
The business had been too internally focused for a few years and Ros'
appointment to the Board two years ago has helped to change that direction.
Her challenge and support have helped us to bring back a sales culture. We
thank her for her contribution and wish her well for the future.
It is obviously a significant moment for the Group with George stepping down.
His role over the years has helped to make sure we have maintained a great
culture at our very core. Over the past 18 months we've really managed to
bring that back to life and I am pleased he now feels comfortable to step away
from formal involvement. The business he founded has helped hundreds of
thousands of clients and candidates, created amazing careers for everyone in
the Group and some great alumni, we all have a lot to thank him for and we all
wish him the very best.
Richard brings a solid understanding of the business, the staffing sector and
the STEM markets we serve. As a former NED, he is someone who the business
held in the highest regard, and I look forward to working closely with him
when he becomes Chair.
Outlook
Macroeconomic headwinds mean the market remains challenging and the timing of
any economic recovery is uncertain. At the same time, we are focused on the
quality of the work we take on and growing sustainably.
In the meantime, we will continue to focus on our Strategic Priorities, so we
are well placed to take advantage when the recovery arrives. This includes
developing our contract business, which takes longer to be reflected in NFI
but will deliver recurring revenues. We will also continue to invest in our
people, in the knowledge that we are still a few years away from bringing
through sales leaders who joined us under our new culture.
In summary, I'm confident about the future and that we are doing the right
things to get the best results.
Matt Wragg
Chief Executive Officer
Chief Financial Officer's Report
Highlights
· Continuing underlying profit before tax of £2.6m in FY23 (2022
restated: £0.3m)
· Net cash of £21.6m (2022: £12.3m)
· Ordinary dividend reintroduced of 2.5 pence per share and special
dividend of 2.5 pence per share proposed
· Share buyback of £0.5m completed in the year
· Rationalisation of our UK property portfolio, from 5 offices down to
3
Financial Performance
On a continuing basis, revenue of £385.2m (2022 restated: £403.9m) generated
NFI of £43.4m (2022 restated: £44.2m). We achieved contract and Statement of
Work (SoW) and other NFI of £32.0m (2022 restated: £31.3m) at a margin of
8.5% (2022 restated: 8.0%), and permanent recruitment fees of £11.4m (2022
restated: £12.9m). SoW NFI, included within contract NFI, of £2.1m (2022:
£1.3m) is all delivered though contract labour provision on long term
projects. Contract NFI was up 2% against FY22 driven by the Group's continued
its focus on quality of earnings and margin, which saw the us exiting some low
margin contracts. The greatest impact of the market conditions on NFI was seen
in permanent recruitment, which was down 11% on the prior year, driven by
industry-wide client and candidate challenges.
Underlying profit before tax from continuing operations was £2.6m (2022
restated: £0.3m). Statutory profit after tax for the total Group was £1.2m
(2022 restated: loss after tax of £(4.6)m). Within underlying trading, net
credits of £0.5m (2022: nil) were recorded as a result of releasing aged
unclaimed contractor liabilities and customer overpayments in line with our
accounting policies.
Net cash at 31 July 2023 was £21.6m (31 July 2022: £12.3m), an increase of
£9.2m in net cash year-on-year. The optimisation of the Group's working
capital is a key focus and through the year the Group benefited from a
significant improvement in DSO through improved collection performance and
renegotiated trading terms.
Discontinued operations and non-underlying costs
The below table reconciles continuing underlying profit before tax to reported
statutory profit before tax for the total Group:
£'000 Profit before tax
Continuing underlying profit before tax 2,568
Restructuring costs in continuing business (249)
Net gains associated with exited properties 614
Other continuing non-underlying costs (190)
Operating loss related to discontinued operations: Restructuring and closure (186)
costs
Amortisation of acquired intangibles (68)
Net foreign exchange losses (253)
Profit before tax for the total Group 2,236
Non-underlying restructuring costs in the year in continuing business were
primarily related to employee rationalisation programmes in our North America,
South Africa and European locations. We also enacted exit proceedings over the
legacy UK headquarter office of the RSL Rail division; the right of use asset
had been fully impaired in FY22, so the associated £0.7m gain realised on
release of the lease liability has also been presented as non-underlying in
FY23.
All costs associated with discontinued operations are presented as
non-underlying, as these solely relate to ongoing closure costs of those
operations treated as discontinued in prior periods, primarily Mexico,
Malaysia, Singapore, Qatar and Russia. We will continue to incur costs
associated with discontinuing legacy operations as the legal wind down of
those operations is concluded.
During the year, amortisation of acquired intangible assets was £0.1m.
We continue to co-operate with the US Department of Justice and there have
been no significant new matters in this regard during the year. Legal fees on
this matter were £2,000 in the year (2022: £33,000). As shown in Note 27 to
the financial statements, the Group is not currently in a position to know
what the outcome of these enquiries may be and we are therefore unable to
quantify the potential financial impact, if any.
Taxation
The Group's reported effective tax rate was 45.0% (2022 restated: 9.0%),
driven by overseas losses not recognised as deferred tax assets, and
non-deductible expenses arising from the corporate restructuring and
streamlining of the Group. Further detail is set out in Note 9 of the
consolidated financial statements. The continuing underlying effective tax
rate was 42.7% (2022 restated: 51.4%).
Earnings per share
Basic earnings per share was 3.8 pence (2022 restated: (14.3) pence loss per
share), and on a fully diluted basis was 3.8 pence (2022 restated: (14.3)
pence diluted loss per share). Continuing underlying basic earnings per share
was 4.6 pence (2022 restated: 0.5 pence).
Dividends
Our long-standing objective has been to achieve a through-the-cycle dividend
payout of approximately 50% of profits after tax. The Board has proposed a
final ordinary dividend of 2.5 pence per share (2022: nil pence), accompanied
by a one-off special dividend of 2.5 pence per share, both of which will be
paid in December 2023.
Given the Group's sustained high liquidity and acknowledging the reduced
shareholder returns in previous years, the Board are now keen to return value
to shareholders through various channels, such as special dividends and the
two share buybacks undertaken this year.
Capital expenditure
The Group incurred capital expenditure in the period of £0.2m
(2022: £0.4m), on leasehold improvements and replacement of office furniture
and fittings.
Net assets and shares in issue at 31 July 2023
The Group had net assets of £30.8m (2022 restated: £30.5m) and had 31.9m
(2022: 32.3m) fully paid ordinary shares in issue.
In April 2023 the Group announced the launch of a £0.5m share buyback
programme. This share buyback concluded in May 2023 with a total of 447,000
shares bought back, and subsequently cancelled, returning £0.5m of surplus
cash to shareholders. With this achieved, on 21 August 2023 the Board
announced a further share buyback with a view to returning a further £0.5m to
shareholders, of which £0.4m has been completed to date.
Group net cash at 31 July 2023 was £21.6m (31 July 2022: £12.3m), an
increase of £9.2m year-on-year.
We saw a strong performance in the Group's days sales outstanding (DSO) at 31
July 2023 of 46.6 days, being a reduction of 8.0 days since 31 July 2022
(restated 54.6 days). This was driven by further improvements in cash
collection and an improved payment terms mix, including the loss of certain
clients with longer payment terms, which resulted in a £8.0m reduction in
trade receivables and accrued income balances to £47.2m (31 July 2022
restated: £55.2m).
Net bank interest received/(paid) was £0.3m (2022: £(0.1)m) as a result of
the positive net cash balance maintained throughout the year.
As at 31 July 2023, the Group had an invoice financing working capital
facility of £50m, covering both recourse and non-recourse. Under the terms of
the non-recourse facility, the trade receivables are assigned to, and owned
by, HSBC and so have been derecognised from the Group's statement of financial
position. In addition, the non-recourse working capital facility does not meet
the definition of loans and borrowings under IFRS. At 31 July 2023,
utilisation of the recourse facility was nil and utilisation of the
non-recourse facility was £3.8m, with unutilised facility headroom after
restrictions of £27.6m.
Critical accounting policies
The statement of significant accounting policies is set out in Note 1 to the
financial statements.
Whilst reviewing the Group's revenue cut-off during the FY23 year-end,
management identified a revenue cut-off error affecting the prior financial
year. Identification of this led us to reassess our accounting policy on how
accrued revenue and accrued cost balances are determined at each period end.
The Group's upgraded ERP system, implemented during FY21, and development of
our knowledge about how to use our data most effectively, has led management
to conclude that it would have been appropriate to have extended the cut-off
assessment period of the Group's revenue and contractor cost cut-off
positions, to include a greater period of approved timesheets received late.
Changes have been applied retrospectively, as required by the accounting
standards. Prior period financial information throughout the Annual Report and
Accounts 2023 has been restated where applicable. Full details are provided in
Note 1.24 to the consolidated 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.
The Group does not trade in financial instruments. The main risks arising from
the Group's financial instruments are described below.
Credit risk
The Group seeks to trade only with recognised, creditworthy third parties. We
monitor receivable and unbilled balances on an ongoing basis and in 2023 have
continued to take a conservative approach to receivables and unbilled risk in
light of the challenges in the UK and overseas economies, tempered by an
overall reduction in trade receivables and accrued income balances, resulting
in a decrease to our loss allowance by £(0.6)m to £2.1m.
There are no significant concentrations of credit risk within the Group, with
no single debtor accounting for more than 8% (2022: 8%) of total receivables
balances at 31 July 2023.
Foreign currency risk
The Group generates 5% of its annualised NFI from continuing business in
international markets. The Group does face risks to both its reported
performance and cash position arising from the effects of exchange rate
fluctuations. The Group manages these risks by matching sales and direct costs
in the same currency and where appropriate entering into forward exchange
contracts to effect the same where sales and costs are not in the same
currency.
Oliver Whittaker
Chief Financial Officer
Consolidated Income Statement
For the year ended 31 July 2023
Note 2023 Restated(1)
£'000 2022
£'000
Continuing operations
Revenue 2 385,174 403,873
Cost of sales (341,773) (359,672)
Gross profit 2 43,401 44,201
Administrative expenses (40,967) (49,244)
Profit/(loss) from continuing operations 4 2,434 (5,043)
Finance income 6 408 570
Finance cost 7 (87) (253)
Profit/(loss) before taxation 2,755 (4,726)
Taxation 9 (1,004) 451
Profit/(loss) for the year after taxation 1,751 (4,275)
from continuing operations
Discontinued operations
Loss for the year from discontinued operations 10 (522) (346)
(attributable to equity holders of the Company)
Profit/(loss) for the year 1,229 (4,621)
Profit/(loss) for the year is wholly attributable to equity holders of the
Company. The Company has elected to take the exemption under section 408 of
the Companies Act 2006 from presenting the parent company Income Statement.
Total earnings per ordinary share Note 2023 Restated(1)
pence 2022
pence
Basic earnings/(loss) per share 11 3.8 (14.3)
Diluted earnings/(loss) per share 11 3.8 (14.3)
Earnings per ordinary share from continuing operations Note 2023 Restated(1)
Pence 2022
pence
Basic earnings/(loss) per share 11 5.4 (13.2)
Diluted earnings/(loss) per share 11 5.4 (13.2)
(1) FY22 results have been restated as explained further in Note 1.24.
Reconciliation to adjusted profit measure
Underlying profit is the Group's key adjusted profit measure; profit from
continuing operations is adjusted to exclude non-underlying income and
expenditure as defined in the Group's accounting policy, amortisation and
impairment of goodwill and acquired intangibles, impairment of leased
right-of-use assets and net foreign exchange gains or losses.
2023 Restated(1)
£'000
2022
£'000
Profit/(loss) from continuing operations 2,434 (5,043)
Add:
Non-underlying items included within administrative expenses (175) 558
Amortisation and impairment of goodwill and acquired 68 5,051
intangibles and impairment of leased right-of-use assets
Depreciation of property, plant and equipment, leased right-of-use 1,475 2,210
assets and amortisation of software and software licences
Underlying EBITDA 3,802 2,776
Less:
Depreciation of property, plant and equipment, leased right-of-use (1,475) (2,210)
assets and amortisation of software and software licences
Net finance income/(costs) excluding foreign exchange gains and losses 241 (249)
Underlying profit before taxation from continuing operations 2,568 317
Underlying taxation (1,096) (163)
Underlying profit after taxation from continuing operations 1,472 154
(1) FY22 results have been restated as explained further in Note 1.24.
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2023
2023 Restated(1)
£'000
2022
£'000
Profit/(loss) for the year 1,229 (4,621)
Other comprehensive (loss)/income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (243) 72
Other comprehensive (loss)/income for the year (243) 72
Total comprehensive income/(loss) for the year 986 (4,549)
attributable to equity holders of the parent
2023 Restated(1)
£'000
2022
£'000
Attributable to:
Continuing operations 1,708 (3,972)
Discontinued operations (722) (577)
986 (4,549)
( )
(1 ) FY22 results have been restated as explained further in Note
1.24
Consolidated and Company Statements of Financial Position
For the year ended 31 July 2023
Note Group Company
31 July 2023 Restated(1) 31 July 2023 31 July 2022
£'000 31 July 2022 £'000 £'000
£'000
Non-current assets
Goodwill and intangible assets 12 1,962 2,072 8 11
Property, plant and equipment 13 1,024 1,359 - -
Right-of-use assets 21 1,873 3,065 - -
Investments 14 - - 38,550 38,608
Deferred tax assets 15 440 595 - -
Total non-current assets 5,299 7,091 38,558 38,619
Current assets
Trade and other receivables 16 52,168 58,245 1,357 2,757
Corporation tax receivables 534 1,263 145 238
Cash and cash equivalents 23,375 17,768 8 7
Total current assets 76,077 77,276 1,510 3,002
Total assets 81,376 84,367 40,068 41,621
Non-current liabilities
Deferred tax liabilities 15 (101) (25) - -
Provisions 17 (366) (517) - -
Lease liabilities 21 (964) (2,490) - -
Total non-current liabilities (1,431) (3,032) - -
Current liabilities
Trade and other payables 18 (46,895) (46,419) (2,742) (3,006)
Provisions 17 (1,046) (1,187) - -
Current tax liabilities (330) (340) - -
Lease liabilities 21 (857) (1,135) - -
Bank loans and borrowings 19 - (1,801) - -
Total current liabilities (49,128) (50,882) (2,742) (3,006)
Total liabilities (50,559) (53,914) (2,742) (3,006)
Net assets 30,817 30,453 37,326 38,615
Equity
Share capital 22 319 323 319 323
Share premium 8,706 8,706 8,706 8,706
Capital redemption reserve 4 - 4 -
Merger reserve 224 224 - -
Share-based payment reserve 334 350 334 350
Translation reserve 696 1,137 - -
Treasury shares reserve (331) (147) (244) (107)
Retained earnings 20,865 19,860 28,207 29,343
Total equity 30,817 30,453 37,326 38,615
(1 ) FY22 results have been restated as explained further in Note
1.24
The amount of loss generated by the Parent Company was £588,000 for the year
ended 31 July 2023 (2022: profit of £296,000).
The financial statements were approved by the Board of Directors on 23 October
2023 and signed on its behalf by
Oliver Whittaker
Chief Financial Officer
Consolidated and Company Statements of Changes in Equity
For the year ended 31 July 2023
A) Consolidated
Share Share premium Capital redemption Merger reserve Share-based payment reserve Translation reserve Treasury shares reserve Restated(1) Retained earnings Restated(1)
capital
£'000 reserve £'000 £'000 £'000 £'000 £'000 Total
£'000
£'000 £'000
At 1 August 2021, as originally presented 323 8,706 - 28,750 454 134 (37) (3,223) 35,107
Retrospective adjustments to revenue cut-off (Note 1.24) - - - - - - - 404 404
Restated total equity at 1 August 2021 323 8,706 - 28,750 454 134 (37) (2,819) 35,511
Loss for the year - - - - - - - (4,621) (4,621)
Other comprehensive income - - - - - 72 - - 72
Total comprehensive loss - - - - - 72 - (4,621) (4,549)
Share-based payments charge (Note 22) - - - - 145 - - - 145
Share-based payments reserves transfer - - - - (249) - - 249 -
Deferred tax movement in respect of share options - - - - - - - (60) (60)
Purchase of treasury shares - - - - - - (110) - (110)
Translation reserve movements on disposal of foreign operations(2) - - - - - 931 - (931) -
Dividends paid in the year - - - - - - - (484) (484)
Transfer of merger reserve - - - (28,526) - - - 28,526 -
Transactions with owners - - - (28,526) (104) 931 (110) 27,300 (509)
At 31 July 2022 323 8,706 - 224 350 1,137 (147) 19,860 30,453
At 1 August 2022 323 8,706 - 224 350 1,137 (147) 19,860 30,453
Profit for the year - - - - - - - 1,229 1,229
Other comprehensive loss - - - - - (243) - - (243)
Total comprehensive income - - - - - (243) - 1,229 986
Share-based payments credit (Note 22) - - - - (64) - - - (64)
Share-based payments reserves transfer - - - - 48 - - (48) -
Deferred tax movement in respect of share options - - - - - - - 126 126
Purchase of treasury shares - - - - - - (184) - (184)
Purchase and cancellation of own shares (Note 22)(3) (4) - 4 - - - - (500) (500)
Translation reserve movements on disposal of foreign operations(2) - - - - - (198) - 198 -
Transactions with owners (4) - 4 - (16) (198) (184) (224) (622)
At 31 July 2023 319 8,706 4 224 334 696 (331) 20,865 30,817
(1) FY22 results have been restated as explained further in Note 1.24
(2) The movement through the translation reserve in the year ended 31
July 2023 is in respect of the liquidation of MSB International GmbH and the
realisation of previously unrealised foreign exchange gains. The movement
through the translation reserve in the year ended 31 July 2022 is in respect
of disposal of foreign operations relating to the sale of the South African
recruitment operations in December 2021 and the realisation of previously
unrealised foreign exchange losses.
(3) During the year ended 31 July 2023, Gattaca plc undertook a public
share buyback and a capital redemption reserve was created as a result of the
subsequent cancellation of these shares, as discussed in Note 22.
B) Company
Share Share premium Capital redemption reserve Merger reserve Share-based payment reserve Treasury shares reserve Retained earnings Total
capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000
£'000
At 1 August 2021 323 8,706 - 28,526 454 (16) 756 38,749
Profit and total comprehensive income for the year (Note 8) - - - - - - 296 296
Share-based payments charge (Note 22) - - - - 145 - - 145
Share-based payments reserves transfer - - - - (249) - 249 -
Purchase of treasury shares - - - - - (91) - (91)
Dividends paid in the year - - - - - - (484) (484)
Transfer of merger reserve - - - (28,526) - - 28,526 -
Transactions with owners - - - (28,526) (104) (91) 28,291 (430)
At 31 July 2022 323 8,706 - - 350 (107) 29,343 38,615
At 1 August 2022 323 8,706 - - 350 (107) 29,343 38,615
Loss and total comprehensive loss for the year (Note 8) - - - - - - (588) (588)
Share-based payments credit (Note 22) - - - - (64) - - (64)
Share-based payments reserves transfer - - - - 48 - (48) -
Purchase of treasury shares - - - - - (137) - (137)
Purchase and cancellation of own shares (Note 22)(1) (4) - 4 - - - (500) (500)
Transactions with owners (4) - 4 - (16) (137) (548) (701)
At 31 July 2023 319 8,706 4 - 334 (244) 28,207 37,326
( )
(1) During the year ended 31 July 2023, Gattaca plc undertook a public
share buyback and a capital redemption reserve was created as a result of the
subsequent cancellation of these shares, as discussed in Note 22.
Consolidated and Company Cash Flow Statements
For the year ended 31 July 2023
Note Group Company
2023 Restated(1) 2023 2022
£'000 2022 £'000 £'000
£'000
Cash flows from operating activities
Profit/(loss) for the year 1,229 (4,621) (588) 296
Adjustments for:
Depreciation of property, plant and equipment and amortisation 4 591 1,078 2 2
of intangible assets, software and software licences
Depreciation of leased right-of-use assets 4 952 1,552 - -
Loss from sale of subsidiary, associate or investment - 82 - -
Loss on disposal of property, plant and equipment 4 17 33 - -
Loss on disposal of software and software licences 4 8 12 - -
Impairment of goodwill and acquired intangibles 4 - 3,780 - -
Impairment of right-of-use assets 4 - 852 - -
Profit on reassessment of lease term 21 (672) (27) - -
Profit on reassessment of dilapidation asset 21 (58) - - -
Interest income 6 (328) (4) (93) (1)
Interest costs 7 87 253 - -
Taxation expense/(credit) recognised in Income Statement 9 1,007 (458) (145) (235)
Decrease in trade and other receivables 6,243 8,841 1,400 582
Increase/(decrease) in trade and other payables 476 (12,249) (531) (67)
Decrease in provisions 17 (285) (54) - -
Share-based payment (credit)/charge 22 (64) 145 - -
Dividends received - - - (1,350)
Foreign exchange gains 37 30 - -
Cash generated from/(used in) operations 9,240 (755) 45 (773)
Interest paid 7 (19) (138) - -
Interest paid on lease liabilities 7 (68) (115) - -
Interest received 6 328 4 93 1
Income taxes repaid/(paid) 61 (200) - -
Cash generated from/(used in) operating activities 9,542 (1,204) 138 (772)
Cash flows from investing activities
Purchase of property, plant and equipment 13 (178) (370) - -
Purchase of intangible assets 12 - (29) - -
Sublease rent receipts 130 - - -
Dividends received - - - 1,350
Cash (used in)/generated from investing activities (48) (399) - 1,350
Cash flows from financing activities
Lease liability principal repayments (1,200) (1,923) - -
Purchase of treasury shares (184) (110) (137) (91)
Purchase of own shares for cancellation 22 (500) - - -
Working capital facility repaid (1,801) (7,547) - -
Dividends paid - (484) - (484)
Cash used in financing activities (3,685) (10,064) (137) (575)
Effects of exchange rates on cash and cash equivalents (202) 197 - -
Increase/(decrease) in cash and cash equivalents 5,607 (11,470) 1 3
Cash and cash equivalents at the beginning of the year 17,768 29,238 7 4
Cash and cash equivalents at end of year(2) 26 23,375 17,768 8 7
(1) FY22 results have been restated as explained further in Note 1.24
(2) Cash and cash equivalents as at 31 July 23 and 31 July 22 includes
restricted cash balances, for further details please refer to Note 26.
Net decrease in cash and cash equivalents from discontinued operations was
£281,000 (2022: decrease of £742,000).
Notes Forming Part of the Financial Statements
1 The Group and Company Significant Accounting Policies
1.1 The Business of the
Group
Gattaca plc ("the Company") and its subsidiaries (together "the Group") is a
human capital resources business providing contract and permanent recruitment
services in the private and public sectors across the UK, Europe and North
America regions. The Company is a public limited company, which is listed on
the Alternative Investment Market (AIM) and is incorporated and domiciled in
England, United Kingdom. The Company's address is: 1450 Parkway, Solent
Business Park Whiteley, Fareham, Hampshire, PO15 7AF. The registration number
is 04426322.
1.2 Basis of preparation of the financial
statements
The consolidated and company financial statements of Gattaca plc have been
prepared in accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
These financial statements have been prepared under the historical cost
convention. The accounting policies have been applied consistently to all
years throughout both the Group and the Company for the purposes of
preparation of these Financial Statements. A summary of the principal
accounting policies of the Group are set out below.
The preparation of financial statements requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in
the process of applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the consolidated financial statements, are
disclosed in Note 1.23.
1.3 Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Strategic
Report. The financial position of the Group, its cash flows and liquidity are
described in the Chief Financial Officer's Report.
At the year end the Group reported a strong balance sheet with statutory net
cash of £21.6m. The Group ensures the availability of working capital through
close management of customer payment terms. There is sufficient headroom on
our working capital facilities to absorb a level of customer payment term
extensions, but we would also manage supply to the customer if payment within
an appropriate period was not being made. Whilst there is no evidence that it
would occur, a significant deterioration in average payment terms has the
potential to impact the Group's liquidity.
The Directors have prepared detailed cash flow forecasts, covering a period of
at least 12 months from the date of approval of these financial statements.
This base case is drawn up with appropriate regard for the current
macroeconomic environment and the particular circumstances in which the Group
operates. The base case assumes a steady growth in the Group's NFI year on
year.
Improvements in quality of earnings and gross margin during FY23 have provided
a platform for contract NFI growth, with increases in contractor numbers and
average timesheet values being key focuses for FY24. Whilst we expect customer
and candidate challenges in the permanent recruitment market to continue
during FY24, strong contract pipelines in Defence and Mobility sectors,
combined with increasing customer demand for Statement of Works contracts,
underpin the Group's NFI growth expectations in FY24 and beyond.
A key assumption in preparing the cash flow forecasts is the continued
availability of Group's invoice financing facility throughout the forecast
period. At the year end, the unutilised facility headroom after restrictions
was £27.6m. The current £50m facility has no contractual renewal date; the
Directors remain confident that the facility will remain available.
The output of the base case forecasting process has been used to perform
sensitivity analysis on the Group's cash flow to model the potential effects
should principal risks actually occur either individually or in unison. The
sensitivity analysis modelled scenarios with significantly lower NFI growth
rates, significantly increased operating cost inflation and increased customer
payment terms considered. The Group has modelled the impact of a severe but
plausible scenario including nil growth in contract and permanent NFI across
FY24 to FY26, operating cost inflation of 10% and an increase in DSO by five
days.
After making appropriate enquiries and considering the uncertainties described
above, the Directors have a reasonable expectation at the time of approving
these financial statements that the Group and the Company have adequate
resources to continue in operational existence for the foreseeable future.
Following careful consideration the Directors do not consider there to be a
material uncertainty with regards to going concern and consider it is
appropriate to adopt the going concern basis in preparing these financial
statements.
1.4 New standards and interpretations
The following are new standards or improvements to existing standards that are
mandatory for the first time in the Group's accounting period beginning on 1
August 2022 and no new standards have been early adopted. The Group's July
2023 consolidated financial statements have adopted these amendments to IFRS:
· Amendments to IAS 16 - Property, plant and equipment: proceeds before
intended use
· Amendments to IAS 37 - Onerous contracts - cost of fulfilling a
contract
· Amendments to IFRS 3 - Reference to the conceptual framework
· Amendments to IFRS Standards 2018-2022 - Annual improvements on IFRS
9, IFRS 16 and IFRS 1
There have been no alterations made to the accounting policies as a result of
considering all of the amendments above that became effective in the year, as
these were either not material or were not relevant to the Group or Company.
New standards in issue, not yet
adopted
The Group has not yet adopted certain new standards, amendments and
interpretations to existing standards, which have been published but which are
effective for the Group accounting periods beginning on or after 1 August
2023. These new pronouncements are listed as follows:
· IFRS 17, "Insurance contracts" as amended in December 2021 (effective
1 January 2023)
· Amendments to IAS 1 - Classification of liabilities as current or
non-current (effective 1 January 2023)
· Amendments to IAS 1 and IFRS Practice Statement 2 - Improve
accounting policy disclosures (effective 1 January
2023)
· Amendments to IAS 8 - Clarify distinction between accounting policies
and accounting estimates (effective 1 January 2023)
· Amendments to IAS 12 - Deferred tax relating to assets and
liabilities arising from a single transaction (effective 1 January 2023)
The Directors are currently evaluating the impact of the adoption of all other
standards, amendments and interpretations but do not expect them to have a
material impact on the Group's operations or results.
Forthcoming
requirements
The following amendments are required for application for the Group's periods
beginning after 1 August 2023 or later:
Standard Effective date (annual period beginning on or after)
IAS 1 Non-current liabilities with covenants: Clarify how conditions with which an 1 January 2024
entity must comply within 12 months after the reporting period affect the
classification of a liability
IFRS 16 Requirements for sale and leaseback transactions explaining how a 1 January 2024
seller-lessee accounts for a sale and leaseback after the date of the
transaction
1.5 Basis of consolidation
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date on which that control ceases. The results of
all subsidiaries, including those with non-coterminous reporting dates, are
consolidated in line with the Group's financial reporting period.
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.
1.6 Revenue
Revenue is measured by reference to the fair value of consideration received
or receivable by the Group for services provided, excluding VAT and trade
discounts.
Temporary
placements
Revenue from temporary, or contract, placements is recognised at the point in
time when the candidate provides services, upon receipt of a client-approved
timesheet or equivalent proof of time worked. Timing differences between the
receipt of a client-approved timesheet and the raising of an invoice are
recognised as accrued income. The Group has assessed its use of third party
providers to supply candidates for temporary placements under the agent or
principal criteria and has determined that it is the principal on the grounds
that it retains primary responsibility for provision of the services.
A number of contractual rebate arrangements are in place in respect of volume
and value of sales; these are accounted for as variable consideration reducing
revenue and estimated in line with IFRS 15.
Any consideration payable at the start of contracts to customers is recognised
as a prepayment and released to profit or loss over the terms of the contract
it relates to, as a reduction to revenue.
Permanent
placements
Revenue from permanent placements, which is based on a percentage of the
candidate's remuneration package, is recognised when candidates commence
employment which is the point at which the performance obligation of the
contract is considered met. Some permanent placements are subject to a
"claw-back" period whereby if a candidate leaves within a set period of
starting employment, the customer is entitled to a rebate subject to the
Group's terms and conditions. Provisions as a reduction to revenue are
recognised for such arrangements if considered probable. In addition, a number
of contractual rebate arrangements are in place in respect of volume and value
of sales; these are accounted for as variable consideration reducing revenue
and estimated in line with IFRS 15.
Revenue cut-off: temporary and permanent placements
Revenue from temporary and permanent placements is recognised in the financial
year to which it relates, to the extent that the Group has, within two months
of the year-end date, received confirmation that the contractual performance
obligation has been satisfied; either through receipt of a client-approved
timesheet, or confirmation of commencement of employment (for permanent
placements). Late timesheets and placements approved after this period are
recognised in the subsequent financial year; remaining timesheets or
placements would not be expected to be material, with a low confidence level
over any further estimate being highly probable not to reverse as a long
submission delay is highly unusual.
Other
Other revenue streams are generated from the provision of engineering
management services through Statement of Work packages and other fees.
Revenue from the provision of engineering management services is recognised
either over a period of time (where the customer benefits from the services
provided as the Group performs those services) or at a point in time upon
receipt of client-approved timesheets. Where the Group determines revenue
should be recognised over time an estimate is made of progress using an input
method, by reference to the proportion of costs incurred to date compared to
total expected costs for the contract. This is considered to best reflect the
benefit the customer receives from the Group's performance.
Other fees mainly relate to account management fees for providing recruitment
services. Revenue from other fees is recognised following client commitment to
the agreement at either a point in time or over time in accordance with terms
of each individual agreement.
1.7 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 proper understanding of the Group's business performance.
Items which are included within this category include but are not limited to:
· material restructuring costs, including related professional fees and
staff costs, and costs relating to disposal of discontinued
business;
· costs of acquisitions;
· lease exit costs;
and
· integration costs followings acquisitions.
In addition, the Group also excludes from underlying results amortisation and
impairment of goodwill and acquired intangibles, impairment of leased
right-of-use assets and net foreign exchange gains or losses.
Specific adjusting items are included as non-underlying based on the following
rationale:
Item Distorting due to irregular nature year on year Distorting due to fluctuating nature (size) Does not reflect in-year operational performance of continuing business
Material restructuring costs
Lease exit costs
Amortisation and impairment of
goodwill and acquired intangibles
Impairment of leased right-of-use assets
Net foreign exchange gains and losses
Tax impact of the above
1.8 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:
Fixtures, fittings and equipment 12.5% to 33.3% Straight line
Leasehold improvements Over the period of the 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.
1.9 Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess
of the fair value of the consideration given for a business over the Company's
interest in the fair value of the net identifiable assets, liabilities and
contingent liabilities of the acquiree. Goodwill is stated at cost less
accumulated impairment.
Goodwill impairment reviews are undertaken annually, or more frequently if
events or changes in circumstances indicate a potential impairment. Goodwill
is allocated to cash-generating units, being the lowest level at which
goodwill is monitored. The carrying value of the assets of the cash-generating
unit, including goodwill, intangible and tangible assets and working capital
balances, is compared to its recoverable amount, which is the higher of value
in use and fair value less costs to sell. Any excess in carrying value over
recoverable amount is recognised immediately as an impairment expense and is
not subsequently reversed. Gains and losses on the disposal of an entity
include the carrying amount of goodwill relating to the entity sold.
1.10 Intangible assets
Customer
relationships
Customer relationships comprise principally of existing customer relationships
which may give rise to future orders (customer relationships), and existing
order books. They are recognised at fair value at the acquisition date, and
subsequently measured at cost less accumulated amortisation and impairment.
Customer relationships are determined to have a useful life of ten years and
are amortised on a straight-line basis.
Trade names and trademarks
Trade names and trademarks have either arisen on the consolidation of acquired
businesses or have been separately purchased and are recognised at fair value
at the acquisition date. They are subsequently measured at cost less
accumulated amortisation and impairment. Trade names and trademarks are
determined to have a useful life of ten years and are amortised on a
straight-line basis.
Software and software
licences
Acquired computer software licences are capitalised on the basis of the costs
incurred to acquire and bring into use the specific software. These costs are
amortised using the straight-line method to allocate the cost of the software
licences over their useful lives of between two and five years. Subsequent
licence renewals are expensed to profit or loss as incurred. Software licences
are stated at cost less accumulated amortisation and impairment.
Costs incurred for the development of software code that enhances or modifies,
or creates additional capability to existing on-premise systems and meets the
definition of and recognition criteria for an intangible asset are recognised
as intangible software assets and depreciated over a useful life of between
two and ten years.
Implementation costs for cloud-based software under Software-as-a-Service
(SaaS) arrangements
SaaS arrangements are service contracts providing the Group with the right to
access the cloud provider's application software over the contract period. In
most cases, this will not meet the definition of an intangible asset under IAS
38.
Implementation costs relating to cloud-based software under SaaS arrangements
are assessed as they are incurred. These would include implementation support,
consultancy, configuration costs, customisation costs and testing services.
If the services are provided by the cloud supplier or a third party and are
considered to be distinct from the access to the software, then they are
either recognised as an intangible asset under IAS 38 if they meet the
relevant capitalisation criteria or, more likely, they are expensed to the
Income Statement as incurred. If the implementation services are provided by
the cloud provider but are not considered to be distinct from access to the
software, which generally is the case for customisation costs for cloud-based
software, then they are recognised as an expense over the period of the
service contract, resulting in a prepayment asset if the services are paid for
in advance.
Internally generated intangible assets
Internal development costs that are directly attributable to the design and
testing of identifiable and unique non-cloud based software products are
capitalised as part of internally generated software and include employee
costs and professional fees attributable to the development of the asset.
Other internal expenditure that does not meet these criteria is recognised as
an expense to profit or loss as incurred. Software development internal costs
recognised as assets are amortised on a straight-line basis over their
estimated useful lives of between two and ten years.
Expenditure on internally generated brands and other intangible assets is
expensed to profit or loss as incurred.
Other
Other intangible assets acquired by the Group have a finite useful life
between five and ten years and are measured at cost less accumulated
amortisation and accumulated losses.
Amortisation of intangible assets and impairment losses are recognised in
profit or loss within administrative expenses.
Intangible assets are tested for impairment either as part of a
goodwill-carrying cash-generated unit, or when events arise that indicate an
impairment may be triggered. An impairment loss is recognised for the amount
by which the carrying value of intangible assets exceeds the recoverable
amount. The recoverable amount is the higher of the assets' fair value less
costs of disposal and value in use. Impairment losses on intangible assets are
recognised in the income statement in administrative expenses.
1.11 Investments
Investments in subsidiary undertakings are initially recognised at cost and
subsequently carried at cost less accumulated impairment.
Investments are tested for impairment at the reporting date if events arise
that indicate an impairment may be triggered. An impairment loss is recognised
for the amount by which the carrying amount of the investment exceeds its
recoverable amount. The recoverable amount is the higher of fair value less
costs of disposal and value in use. Impairment losses on investments are
recognised in the income statement in administrative expenses.
1.12 Disposal of assets
The gain or loss arising on the disposal of an asset is determined as the
difference between the disposal proceeds and the carrying amount of the asset
and is recognised in the income statement at the time of disposal.
1.13 Leases
The Group leases office property, motor vehicles and equipment. Rental
contracts range from monthly to five years.
At inception of a contract, the Group assesses whether a contract is, or
contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in
exchange for consideration. Contracts may contain both lease and non-lease
components, and consideration is allocated in the contract to the lease and
non-lease components based on their relative stand-alone prices.
Assets and liabilities arising from a lease are initially measured on a
present value basis at the lease commencement date. Lease liabilities include
the net present value of the fixed payments less any lease incentives
receivable, variable lease payments that are based on an index or a rate,
amounts expected to be payable by the group under residual value guarantees,
the exercise price of any purchase option if the Group is reasonably certain
to exercise that option, and payments of penalties for terminating the lease
if that option is expected to be taken.
Lease payments to be made under reasonably certain extension options are also
included in the measurement of the liability.
Lease payments are discounted at either the interest rate implicit in the
lease or when this interest rate cannot be readily determined, the Group's
incremental borrowing rate associated with a similar asset. When calculating
lease liabilities, the Group uses its incremental borrowing rate, being the
rate it would have to pay to borrow the funds necessary to obtain an asset of
similar value in a similar economic climate with similar terms, security and
conditions. This is estimated using publicly available data adjusted for
changes specific to the lease in financing conditions, lease term, country and
currency.
The Group does not have leases with variable lease payments based on an index
or rate.
Extension or termination options are included in a number of the Group's
leases. In determining the lease term, the Group considers all facts and
circumstances that create an economic incentive to exercise, or not to
exercise, an option. Extension options are only included in the lease term if
the lease is reasonably certain to be extended. The lease term is reassessed
if an option is actually exercised or the Group becomes obliged to exercise
(or not to exercise) it. The assessment of reasonable certainty is only
revised if a significant event or a significant change in circumstances occurs
that is within the control of the Group.
Lease payments are allocated between principal and finance cost. The finance
cost is charged to profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability
for each period.
Right-of-use assets are measured at cost comprising the following:
· the amount of the initial measurement of lease
liability,
· any lease payments made at or before the commencement date less any
lease incentives received,
· any initial direct costs,
and
· restoration costs.
Right-of-use assets are depreciated on a straight-line basis over the term of
the lease with depreciation expense recognised in the income statement.
Right-of-use assets are tested for impairment either as part of a
goodwill-carrying cash-generated unit, or when events arise that indicate an
impairment may be triggered. An impairment loss is recognised for the amount
by which the carrying value of right-of-use assets exceeds the recoverable
amount. The recoverable amount is the higher of the asset's fair value less
costs of disposal and value in use. Impairment losses on right-of-use assets
are recognised in the income statement in administrative expenses.
Lease modifications are a change in scope of a lease that was not part of the
original lease. Any change that is triggered by a clause already part of the
original lease contract is a reassessment and not a modification. Changes to
lease cash flows as part of a reassessment result in a remeasurement of the
lease liability using an updated discount rate and a corresponding adjustment
to the carrying value of the right-of-use asset.
Advantage has been taken of the practical expedients for exemptions provided
for leases with less than 12 months to run, for leases of low value, to
account for leases with similar characteristics as a portfolio with a single
discount rate and to present existing onerous lease provisions against the
carrying value of right-of-use assets. Payments associated with short-term
leases and leases of low value are recognised on a straight-line basis as an
expense in profit or loss.
Sublease of office space at certain of the Group's leased properties is
accounted for in accordance with IFRS 16; the right-of-use asset relating to
the head lease is derecognised to the extent that control of the asset (or a
portion thereof) is transferred to the sublessee, and the net investment in
the sublease is recognised as a net finance lease receivable. The lease
liability relating to the head lease, representing future lease payments due
to the head lessor, is unaffected by the sublease arrangement.
1.14 Taxation
The tax expense for the year comprises current and deferred tax. Tax is
recognised in the income statement, except to the extent that it relates to
items recognised in other comprehensive income or directly in equity. In this
case, the tax is also recognised in other comprehensive income or directly in
equity, respectively.
The current tax charge is calculated on the basis of the tax laws enacted or
substantively enacted at the Statement of Financial Position date in the
countries where the Company and its subsidiaries operate and generate taxable
income. Management periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions, where appropriate, on the basis of
amounts expected to be paid to the tax authorities.
Deferred income taxes are calculated using the liability method on temporary
differences. Deferred tax is generally provided on the difference between the
carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of goodwill, nor on
the initial recognition of an asset or liability unless the related
transaction is a business combination or affects tax or accounting profit.
Deferred tax liabilities are provided in full, with no discounting. Deferred
tax assets are recognised to the extent that it is probable that the
underlying deductible temporary differences will be able to be offset against
future taxable income. Current and deferred tax assets and liabilities are
calculated at tax rates that are expected to apply to their respective period
of realisation, provided they are enacted or substantively enacted at the
Statement of Financial Position date.
Deferred tax on temporary differences associated with shares in subsidiaries
is not provided for if these temporary differences can be controlled by the
Group and it is probable that reversal will not occur in the foreseeable
future.
Deferred tax assets and liabilities are offset only where there is a legally
enforceable right to the offset and there is an intention to settle balances
on a net basis.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expense in the income statement, except where they relate to items that
are charged or credited directly to equity (such as share-based payments) in
which case the related deferred tax is also charged or credited directly to
equity.
1.15 Pension costs
The Group operates a number of country-specific defined contribution plans for
its employees. A defined contribution plan is a pension plan under which the
Group pays fixed contributions into a separate entity. Once the contributions
have been paid the Group has no further payment obligations. The contributions
are recognised as an expense when they are due. Amounts not paid are shown in
other creditors in the Statement of Financial Position. The assets of the plan
are held separately from the Group in independently administered funds.
1.16 Share-based payments
All share-based remuneration is ultimately recognised as an expense in the
Income Statement with a corresponding credit to the share-based payment
reserve. All goods and services received in exchange for the grant of any
share-based remuneration are measured at their fair values. Fair values of
employee services are indirectly determined by reference to the fair value of
the share options awarded. Their value is appraised at the grant date and
excludes the impact of non-market vesting conditions (for example,
profitability and sales growth targets).
If vesting periods or other non-market vesting conditions apply, the expense
is allocated over the vesting period, based on the best available estimate of
the number of share options expected to vest. Estimates are subsequently
revised if there is any indication that the number of share options expected
to vest differs from previous estimates. Any cumulative adjustment prior to
vesting is recognised in the current period. No adjustment is made to any
expense recognised in prior periods if share options ultimately exercised are
different to that estimated on vesting. Upon exercise of share options,
proceeds received net of attributable transaction costs are credited to share
capital and share premium.
The Company is the granting and settling entity in the Group share-based
payment arrangement where share options are granted to employees of its
subsidiary companies. The Company recognises the share-based payment expense
as an increase in the investment in subsidiary undertakings.
The Group operates Long-Term Incentive Plan Options which have exercise prices
above £0.01. Grants have been made as part of a CSOP scheme, depending on the
terms of specific grants.
The Group also operates a Share Incentive Plan ("SIP"), the Gattaca plc Share
Incentive Plan ("the Plan"), which is approved by HMRC. The Plan is held by
Gattaca plc UK Employee Benefit Trust ("the EBT"), the purpose of which is to
enable employees to purchase Company shares out of pre-tax salary. For each
share purchased the Group grants an additional share at no cost to the
employee. The expense in relation to these "free" shares is recorded as
employee remuneration and measured at fair value of the shares issued as at
the date of grant. The assets and liabilities of the EBT are included in the
Gattaca plc Consolidated Statement of Financial Position.
1.17 Financial instruments
Financial
assets
IFRS 9 contains a classification and measurement approach for financial assets
that reflects the business model in which assets are managed and their cash
flow characteristics. Under IFRS 9, all financial assets are measured at
either amortised cost, fair value through profit and loss ("FVTPL") or fair
value through other comprehensive income ("FVOCI").
Financial assets: debt
instruments
The Group classifies its debt instruments in the following measurement
categories depending on the Group's business model for managing the asset and
the cash flow characteristics of the asset:
(i) those to be measured subsequently at fair value through other
comprehensive income (OCI): Assets that are held for collection of contractual
cash flows and for selling the financial assets, where the assets' cash flows
represent solely payments of principal and interest, are measured at FVOCI.
Movements in the carrying amount are taken through OCI, except for the
recognition of impairment gains or losses, interest revenue and foreign
exchange gains and losses which are recognised in profit or loss. When the
financial asset is derecognised, the cumulative gain or loss previously
recognised in OCI is reclassified from equity to profit or loss and recognised
in other gains/(losses). Interest income from these financial assets is
included in finance income using the effective interest rate method. Foreign
exchange gains and losses are presented in other gains/(losses) and impairment
expenses are presented as separate line item in the Income Statement.
(ii) those to be measured subsequently at FVTPL: Assets that do not meet the
criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on
a debt investment that is subsequently measured at FVTPL is recognised in
profit or loss and presented net within other gains/(losses) in the year in
which it arises.
(iii) those to be measured subsequently at amortised cost: Assets that are
held for collection of contractual cash flows where those cash flows represent
solely payments of principal and interest are measured at amortised cost.
Interest income from these financial assets is included in finance income
using the effective interest rate method. Any gain or loss arising on
derecognition is recognised directly in profit or loss and presented in other
gains/ (losses), together with foreign exchange gains and losses. Impairment
losses are presented as a separate line item in the Income Statement.
The Group holds unclaimed sales ledger credits on the balance sheet that arise
in the course of normal trading operations due to the high volume of timesheet
invoices and customer receipts. Following a review of its credit control
procedures, the Group has reinstated its policy of releasing any unclaimed
sales ledger credits to the income statement after all reasonable steps have
been taken to return funds to the customer and two years have elapsed since
release of the funds.
Financial assets: equity
instruments
The Group subsequently measures all equity investments at fair value. Where
the Group's management has elected to present fair value gains and losses on
equity investments in OCI, there is no subsequent reclassification of fair
value gains and losses to profit or loss following the derecognition of the
investment. Dividends from such investments continue to be recognised in
profit or loss as other income when the Group's right to receive payments is
established.
Impairment losses (and reversal of impairment losses) on equity investments
measured at FVOCI are not reported separately from other changes in fair
value.
Impairment of financial
assets
IFRS 9 require the application of the "Expected Credit Loss" model ("ECL").
This applies to all financial assets measured at amortised cost or FVOCI,
except equity investments.
The Group assesses on a forward looking basis the expected credit losses
associated with its debt instruments carried at amortised cost and FVOCI.
The Group has reviewed each category of its financial assets to assess the
level of credit risk and ECL provision to apply:
· Trade receivables: the Group has chosen to take advantage of the
practical expedient in IFRS 9 when assessing default rates over its portfolio
of trade receivables, to estimate the ECL based on historical default rates
specific to groups of customers by industry and geography that carry similar
credit risks. Separate ECLs have been modelled for UK customers in different
industries, and customers in the Americas, Europe, Asia and Africa.
· Accrued income is in respect of temporary placements where a
client-approved timesheet has been received or permanent placements where a
candidate has commenced employment, but no invoice has been raised. Default
rates have been determined by reference to historical
data.
· Cash and cash equivalents are held with established financial
institutions. The Group has determined that based on the external credit
ratings of counterparties, this financial asset has a very low credit risk and
that the estimated expected credit loss provision is not material.
At each reporting date, the expected credit loss provision will be reviewed to
reflect changes in credit risk and historical default rates and other economic
factors. Changes in the ECL provision are recognised in profit or loss.
Financial liabilities
Financial liabilities are obligations to pay cash or other financial assets
and are recognised when the Group becomes a party to the contractual
provisions of the instrument and comprise trade and other payables and bank
loans. Financial liabilities are recorded initially at fair value, net of
direct issue costs and are subsequently measured at amortised cost using the
effective interest rate method.
A financial liability is derecognised only when the obligation is
extinguished, that is, when the obligation is discharged, cancelled or
expires.
Non-recourse receivables factoring is not recognised as a financial liability
as there is no contractual obligation to deliver cash; subsequently, the
receivables are derecognised and any difference between the receivable value
and amount received through non-recourse factoring is recognised as a finance
cost.
1.18 Cash and cash equivalents
In the Consolidated Cash Flow Statement, cash and cash equivalents include
cash in hand, deposits held at call with banks, other short-term highly liquid
investments with original maturities of three months or less and bank
overdrafts. In the Statement of Financial Position and Cash Flow Statement,
bank overdrafts are netted against cash and cash equivalents where the
offsetting criteria are met.
Cash in transit inbound from, or outbound to, a third party is recognised when
the transaction is no longer reversible by the party making the payment. This
is determined to be in respect of all electronic payments and receipt
transactions that commence before or on the reporting date and complete within
one business day after the reporting date.
Restricted cash and cash equivalent balances are those which meet the
definition of cash and cash equivalents but are not available for wider use by
the Group. These balances arise from the Group's non-recourse working capital
arrangements as well as from balances for which the Group can no longer access
the accounts and hence cannot withdraw or control funds, but is still the
legal owner.
1.19 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. Provisions are not recognised for future operating losses.
1.20 Dividends
Dividend distributions payable to equity shareholders are included in "other
short term financial liabilities" when the dividends are approved in a general
meeting prior to the reporting date.
1.21 Foreign currencies
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which each
entity operates ("the functional currency"). The consolidated financial
statements are presented in Pounds Sterling (£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 reporting
date. Non-monetary items that are measured at historical cost in a foreign
currency are translated at the exchange rate at the date of the transaction.
Non-monetary items that are measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value was
determined. Income and expenses are translated at the actual rate.
Any exchange differences arising on the settlement of monetary items or on
translating monetary items at rates different from those at which they were
initially recorded are recognised in the Income Statement in the year in which
they arise.
The assets and liabilities in the financial statements of foreign subsidiaries
are translated at the rate of exchange ruling at the reporting date.
The individual financial statements of each Group company are presented in its
functional currency. On consolidation, the assets and liabilities of overseas
subsidiaries, including any related goodwill, are translated to Sterling at
the rate of exchange at the reporting date. The results and cash flows of
overseas subsidiaries are translated to Sterling using the average rates of
exchange during the period. Exchange adjustments arising from retranslation of
the opening net investment and the results for the period to the period end
rate are accounted for in the translation reserve in the Statement of
Comprehensive Income. On divestment, these exchange differences are
reclassified from the translation reserve to the income statement.
1.22 Equity
Equity comprises the following:
· "Share capital" represents the nominal value of equity shares.
· "Share premium" represents the excess over nominal value of the fair
value of consideration received for equity shares, net of expenses of the
share issue.
· "Merger reserve" represents the equity balance arising on the merger
of Matchtech Engineering and Matchmaker Personnel and, previously, to record
the excess fair value above the nominal value of the share consideration on
the acquisition of Networkers International plc, less any amounts realised and
reclassified to distributable reserves. During the year to 31 July 2022, the
realised merger reserve created in 2015 in Gattaca plc under section 612 of
the Companies Act 2006, relating to the acquisition of Networkers plc, was
transferred to retained earnings to present all distributable reserves in one
place. The balance retained in the Group's merger reserve relates to the
merger of Matchtech Engineering and Matchmaker Personnel.
· "Share-based payment reserve" represents equity-settled share-based
employee remuneration until such share options are exercised or lapse.
· "Translation reserve" represents the foreign currency differences
arising on translating foreign operations into the presentational currency of
the Group.
· "Treasury shares reserve" represents Company shares purchased
directly by the Group to satisfy obligations under the employee share plan.
· "Retained earnings" represents retained profits.
1.23 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:
ECL provisions in respect of trade
receivables
The Group's policy for default risk over receivables is based on the ongoing
evaluation of the credit risk of its trade receivables. Estimation is used in
assessing the ultimate realisation of these receivables, including reviewing
the potential likelihood of default, the past collection history of each
customer, any insurance coverage in place and the current economic conditions.
As a result, expected credit loss provisions for impairment of trade
receivables have been recognised, as discussed in Note 16.
Valuation of
investments
The Parent Company's investments in subsidiary undertakings are tested for
impairment at the reporting date if events arise that indicate an impairment
may be triggered. This requires an estimate to be made of the recoverable
amount of the investments, including forecasting future cash flows of the
asset and forming assumptions over the discount rate and long-term growth rate
applied. More detail of the assumptions used can be found in Note 14.
1.24 Prior period restatement
Whilst reviewing the Group's revenue cut-off policy during the FY23 year-end,
management identified a revenue cut-off error affecting the prior financial
year. Data relating to late timesheet approvals and permanent placements was,
due to human error, incorrectly extracted during the FY22 year end close
process from the Group's ERP system. This resulted in an immaterial
understatement in the FY22 Income Statement of Net Fee Income (NFI), the
primary trading KPI for the Group, of £204,000. However, whilst the net
impact of this error on the FY22 reported profits and net assets is considered
immaterial to those accounts as a whole, this net understatement was comprised
of a material understatement of FY22 reported revenue in the Income Statement,
and accrued income in the Statement of Financial Position, of £1,668,000, and
of an understatement of associated costs of sales in the Income Statement, and
contractor wages liabilities in the Statement of Financial Position, of
£1,464,000 for the same period. The Group's financial position at 31 July
2022, and the results and cash flows for the year then ended, have been
restated for correction of this error. The Parent Company's results and
financial position as reported are unaffected.
Identification of this error led management to reassess how accrued revenue
and accrued cost balances have been calculated at each period end. The Group's
upgraded ERP system, implemented during FY21 allowed for a more accurate
assessment of the Group's revenue and contractor cost cut-off position. On
this basis, management concluded that it would have been appropriate to have
extended the cut-off period for late receipt of approved timesheets. This has
resulted in an adjustment to FY22 opening reserves and FY22 revenue, cost of
sales, accrued income and contractor wages payable as quantified below.
In line with the treatment prescribed in IAS 8 and IAS 1, this change has been
applied retrospectively, restating the Group's opening reserves at 1 August
2021, its financial position as at 31 July 2022, and the results and cash
flows of the Group for the year then ended. The impact of the change as at 1
August 2021 is to increase Group net assets and retained earnings by
£404,000, increase accrued income (trade and other receivables) by
£2,951,000 and increase contractor wages payable (trade and other payables)
by £2,547,000.
The combined impact of these changes is detailed below:
Condensed Consolidated Income
Statement
For the year ended 31 July 2022
As previously reported Adjustment due As restated
£'000 Extension of cut-off assessment period to incorrect FY22 cut-off data £'000
£'000 £'000
Revenue 403,346 (1,141) 1,668 403,873
Cost of sales (359,206) 998 (1,464) (359,672)
Gross profit 44,140 (143) 204 44,201
Loss before taxation from continuing operations (4,787) 204 (4,726)
(143)
Taxation 460 22 (31) 451
Loss after taxation from continuing operations (4,327) 173 (4,275)
(121)
Loss for the year (4,673) (121) 173 (4,621)
Condensed Consolidated Statement of Changes in
Equity
As previously reported Adjustment due As restated
£'000 Extension of cut-off assessment period to incorrect FY22 cut-off data £'000
£'000 £'000
Total equity at 1 August 2021 35,107 404 - 35,511
Loss for the period (4,673) (121) 173 (4,621)
Balance at 31 July 2022 29,997 283 173 30,453
Condensed Consolidated Statement of Financial Position
As previously reported as at 31 July 2022 Adjustment due As restated as at 31 July 2022
£'000 to incorrect FY22 cut-off data £'000
Extension of cut-off assessment period £'000
£'000
Non-current assets
Deferred tax assets 604 22 (31) 595
Total non-current assets 7,100 22 (31) 7,091
Current assets
Trade and other receivables 54,767 1,810 1,668 58,245
Total current assets 73,798 1,810 1,668 77,276
Total assets 80,898 1,832 1,637 84,367
Current liabilities
Trade and other payables (43,406) (1,549) (1,464) (46,419)
Total current liabilities (47,869) (1,549) (1,464) (50,882)
Total liabilities (50,901) (1,549) (1,464) (53,914)
Net assets 29,997 283 173 30,453
Equity
Retained earnings 19,404 283 173 19,860
Total equity 29,997 283 173 30,453
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 Gattaca plc group defines its operating segments by reference to the
sectors in which it operates. Segmentation of the Group's activities by sector
is consistent with the segmentation of information provided internally to the
chief operating decision maker, being the Board of Directors of Gattaca plc.
Reportable segments are identified by reference to quantitative and
qualitative thresholds prescribed in IFRS 8. There were no operating segments
that met the criteria for aggregation with other operating segments.
Year ended 31 July 2023
All amounts Mobility Energy Defence Technology, Media and Telecoms Infrastructure Gattaca Projects International(2) Other Continuing underlying operations Non-recurring items and amortisation of acquired intangibles Discontinued Total
Group
in £'000
Revenue 40,387 40,605 80,652 27,660 148,843 5,512 6,543 34,972 385,174 - - 385,174
Gross profit 4,536 4,119 8,003 2,569 14,094 2,091 2,165 5,824 43,401 - - 43,401
Operating contribution 2,227 2,624 4,768 580 5,776 1,364 (994) 1,580 17,925 - - 17,925
Depreciation, impairment, and amortisation (155) (155) (309) (106) (570) (21) (25) (134) (1,475) (68) - (1,543)
Central overheads (1,588) (685) (2,018) (1,160) (4,473) (346) (1,424) (2,429) (14,123) 175 (186) (14,134)
Profit/(loss) from operations 484 1,784 2,441 (686) 733 997 (2,443) (983) 2,327 107 (186) 2,248
Finance income/(costs), net 241 80 (333) (12)
Profit/(loss) before tax 2,568 187 (519) 2,236
Year ended 31 July 2022 restated(1)
All amounts Mobility Energy Defence Technology, Media and Telecoms Infrastructure Restated(3) Gattaca Projects International(2) Restated(3) Other Continuing underlying operations Non-recurring items and amortisation of acquired intangibles Discontinued Total
Group
in £'000
Revenue 47,828 40,832 69,902 41,714 140,607 5,324 7,979 49,687 403,873 - 781 404,654
Gross profit 4,577 3,889 6,729 4,252 13,580 1,315 2,783 7,076 44,201 - 238 44,439
Operating contribution restated(4) 2,157 2,180 3,287 1,844 5,653 727 (577) 1,838 17,109 - (440) 16,669
Depreciation, impairment, and amortisation restated(4) (262) (223) (383) (228) (769) (29) (44) (272) (2,210) (5,051) (31) (7,292)
Central overheads (1,128) (774) (2,753) (992) (4,418) (329) (1,609) (2,330) (14,333) (558) (100) (14,991)
Profit/(loss) from operations 767 1,183 151 624 466 369 (2,230) (764) 566 (5,609) (571) (5,614)
Finance (costs)/income, net (249) 566 218 535
Profit/(loss) before tax 317 (5,043) (353) (5,079)
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.
(1) FY22 results have been restated as explained further in Note
1.24.
(2) International segment revenue and gross profit is generated from
the location of the commission-earning sales consultant, as opposed to the
domicile of the respective subsidiary by which they are employed.
(3) The Gattaca Projects operating segment met the quantitative
thresholds to be reported separately for the first time in the year ended 31
July 2023. In line with the requirements of IFRS 8, the comparative period has
been restated to present the Gattaca Projects segment separately from the
"Other" segment in which it had previously been presented.
(4) Operating contribution and depreciation, impairment and
amortisation has been restated for the year ended 31 July 2022 to present
depreciation of right-of-use assets in the depreciation line.
Geographical information
All amounts in £'000 Total Group revenue Non-current assets
2023 Restated(1) 2023 Restated(1)
2022 2022
UK 375,436 391,359 5,173 6,717
Rest of Europe 775 691 2 1
Middle East and Africa - 781 24 59
Americas 8,963 11,823 100 314
Total 385,174 404,654 5,299 7,091
(1) FY22 results have been restated as explained further in Note
1.24.
Revenue and non-current assets are allocated to the geographical market based
on the domicile of the respective subsidiary.
3 Revenue from Contracts with Customers
Revenue from contracts with customers is disaggregated by major service line
and operating segment, as well as timing of revenue recognition as follows:
Major service lines - continuing underlying operations
2023 Mobility Energy Defence Technology, Media and Telecoms Infrastructure Gattaca Projects International Other Continuing
underlying operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
£'000
Temporary placements 38,426 40,155 77,916 26,660 146,584 2,572 5,353 31,896 369,562
Permanent placements 1,771 268 2,427 778 1,978 - 1,190 3,037 11,449
Other 190 182 309 222 281 2,940 - 39 4,163
Total 40,387 40,605 80,652 27,660 148,843 5,512 6,543 34,972 385,174
2022 restated(1) Mobility Energy Defence Technology, Media and Telecoms Infrastructure Restated(2) International Restated(2) Continuing
Gattaca Projects
Other
underlying operations
£'000 £'000 £'000 £'000 £'000
£'000
£'000 £'000 £'000
Temporary placements 46,302 40,657 67,729 40,539 138,184 2,821 5,871 45,969 388,072
Permanent placements 1,492 166 1,923 1,123 2,391 - 2,108 3,662 12,865
Other 34 9 250 52 32 2,503 - 56 2,936
Total 47,828 40,832 69,902 41,714 140,607 5,324 7,979 49,687 403,873
(1) FY22 results have been restated as explained further in Note
1.24.
(2) The Gattaca Projects operating segment met the quantitative
thresholds to be reported separately for the first time in the year ended 31
July 2023. In line with the requirements of IFRS 8, the comparative period has
been restated to present the Gattaca Projects segment separately from the
"Other" segment in which it had previously been presented.
Timing of revenue recognition - continuing operations
2023 Mobility Energy Defence Technology, Media and Telecoms Infrastructure Gattaca Projects International Other Continuing
underlying operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
£'000
Point in time 40,387 40,605 80,652 27,660 148,843 2,572 6,543 34,972 382,234
Over time - - - - - 2,940 - - 2,940
Total 40,387 40,605 80,652 27,660 148,843 5,512 6,543 34,972 385,174
2022 restated(1) Mobility Energy Defence Technology, Media and Telecoms Infrastructure Restated(2) International Restated(2) Continuing
Gattaca Projects
Other
underlying operations
£'000 £'000 £'000 £'000 £'000
£'000
£'000 £'000 £'000
Point in time 47,828 40,832 69,902 41,714 140,607 2,821 7,979 49,687 401,370
Over time - - - - - 2,503 - - 2,503
Total 47,828 40,832 69,902 41,714 140,607 5,324 7,979 49,687 403,873
No single customer contributed more than 10% of the Group's revenues (2022:
none). Revenue recognised over time is recognised based on costs incurred to
date as a proportion of total forecast costs.
The Group has determined that its contract assets from contracts with
customers are trade receivables and accrued income, and its contract
liabilities are deferred income, which are set out below:
31 July 2023 Restated(1)
£'000
31 July 2022
£'000
Trade receivables (Note 16) 31,905 36,367
Accrued income (Note 16) 15,309 18,805
Deferred income (129) (330)
Accrued income relates to the Group's right to consideration for temporary and
permanent placements made but not billed by the year end. These transfer to
trade receivables once billing occurs. All accrued income at a given reporting
date is billed within the following financial year and is classified in
current assets. Deferred income at a given reporting date is recognised as
revenue in the following financial year once performance obligations are
satisfied and is classified in current liabilities.
(1) FY22 results have been restated as explained further in Note
1.24.
(2) The Gattaca Projects operating segment met the quantitative
thresholds to be reported separately for the first time in the year ended 31
July 2023. In line with the requirements of IFRS 8, the comparative period has
been restated to present the Gattaca Projects segment separately from the
"Other" segment in which it had previously been presented.
4 Profit from Total Operations
2023 2022
£'000
£'000
Profit from total operations is stated after charging/(crediting):
Depreciation of property, plant and equipment (Note 13) 489 570
Depreciation of right-of-use leased assets (Note 21) 952 1,552
Amortisation of acquired intangibles (Note 12) 68 420
Amortisation of software and software licences (Note 12) 34 88
Impairment of goodwill and acquired intangibles (Note 12) - 3,780
Impairment of right-of-use leased assets (Note 21) - 852
Release of sales ledger credits(1) (538) (6)
Gain on reassessment of lease term(2) (672) -
Net impairment release on trade receivables (334) (295)
and accrued income (Note 16)
Loss on disposal of property, plant and equipment 17 33
Loss on disposal of software and software licences 8 12
Plant and machinery rental expenses for leases out-of-scope of IFRS 16 59 17
Non-recourse working capital facility bank charges 515 323
Share-based payment (credits)/charges(3) (Note 22) (64) 114
(1) The Group holds unclaimed aged sales ledger credits on the balance
sheet that arise in the course of normal trading operations due to the high
volume of timesheet invoices and customer receipts. Releases of unclaimed
sales ledger credits to the Income Statement are made in accordance with the
Group's accounting policy, discussed further in Note 1.17.
(2) The profit on reassessment of lease term resulted from the
exercise of a break clause on a property that was fully impaired in the prior
year, as discussed further in Note 21, and is presented in non-underlying
items.
(3) The share-based payment credit in the current year arises from the
reversal of charges accrued in prior years as a result of a change in
expectation of vesting outcomes of LTIP share options.
The aggregate auditors' remuneration was as follows:
2023 2022
£'000
£'000
Fees payable for the audit of the Parent Company financial statements 12 11
Fees payable for the audit of the Group's financial statements 367 345
Total auditors' remuneration 379 356
The auditors do not provide any non-audit services.
Non-underlying items included within administrative expenses were as follows:
Continuing operations 2023 2022
£'000
£'000
Restructuring costs(1) 249 405
Net (income)/costs associated with exiting properties(2) (614) 153
Write down of acquired working capital balances(3) 190 -
Impairment of goodwill, acquired intangibles and right-of-use leased assets(4) - 4,632
Non-underlying items included in profit from continuing operations (175) 5,190
Discontinued operations 2023 2022
£'000
£'000
Advisory fees(5) 2 33
Costs relating to discontinuation of group undertakings(6) 184 5
Costs associated with properties previously exited - 57
Non-underlying items included in loss from discontinued operations 186 95
Total non-underlying items 11 5,285
(1) Restructuring costs of £249,000 (2022: £405,000) were recognised
in 2023 as a result of personnel re-organisations and changes in the Board and
Senior Leadership Team.
(2) Net gains of £614,000 (2022: net costs of £153,000) have
been recognised in relation to the exit of a number of UK office buildings
that are no longer in use by the business. The gain in 2023 includes a
£672,000 credit associated with the exercise of a break clause for an office
that was fully impaired in the prior year, as discussed in more detail in Note
21.
(3) Write down of unsupportable and uncollectable working capital
balances in subsidiaries acquired during previous years' business
combinations.
(4) Impairment losses were recognised in 2022 with respect to the
"Infrastructure - RSL Rail" CGU, as discussed in further detail in Note 12.
(5) Legal fees incurred relating to the Group's co-operation
with certain voluntary enquiries from the US Department of Justice, as
discussed in further detail in Note 27.
(6) Ongoing costs relating to closure of entities affected by the
cessation of the contract Telecoms Infrastructure business in 2018 as well as
the ongoing closure costs of the Group's operations in Russia, Mexico and
Germany, including the write off of certain working capital balances.
5 Particulars of Employees
The monthly average number of staff employed by the Group, including executive
directors, during the financial year amounted to:
Total operations 2023 2022
No. No.
Sales 347 381
Administration 148 146
Directors 7 7
Total 502 534
UK employees are directly contracted with the ultimate parent company, Gattaca
plc, and staff costs are paid by the Matchtech Group (UK) Limited, then
recharged to fellow UK subsidiaries.
The aggregate payroll costs of the above were:
Total operations 2023 2022
£'000 £'000
Wages and salaries 24,877 26,215
Social security costs 2,978 3,166
Other pension costs 915 911
Share-based payments (Note 22)(1) (64) 114
Total 28,706 30,406
(1) The share-based payments credit in the current year arises from the
reversal of costs accrued in prior years as a result of a change in
expectation of vesting outcomes of LTIP share options.
Amounts due to defined contribution pension providers at 31 July 2023 were
£158,000 (2022: £149,000).
The Group's key management personnel are defined as the Board and Senior
Leadership Team. Disclosure of the remuneration of Group's key management
personnel, as required by IAS 24, is detailed below:
Key management personnel remuneration 2023 2022
£'000
£'000
Short-term employee benefits 1,739 2,009
Contributions to defined contribution pension schemes 77 133
Share-based payments (5) 34
Total 1,811 2,176
6 Finance Income
Continuing operations 2023 2022
£'000 £'000
Interest income 328 4
Net gains on foreign currency translation 80 566
Total 408 570
7 Finance Costs
Continuing operations 2023 2022
£'000
£'000
Bank interest expense 19 138
Interest expense on lease liabilities 68 115
Total 87 253
8 Parent Company (Loss)/Profit
2023 2022
£'000
£'000
The amount of (loss)/profit generated by the Parent Company was: (588) 296
9 Taxation
Analysis of charge in the year Continuing Discontinued Restated(1) Discontinued
2023 2023 Continuing 2022
£'000 £'000 2022 £'000
£'000
Current tax:
UK corporation tax 641 - (654) (33)
Overseas corporation tax (1) 3 26 26
Adjustments in respect of prior years 5 - (138) -
645 3 (766) (7)
Deferred tax (Note 15):
Origination and reversal of temporary differences 421 - 454 -
Adjustments in respect of prior years (46) - (56) -
Changes in tax rate (16) - (83) -
359 - 315 -
Income tax charge/(credit) for the year 1,004 3 (451) (7)
UK corporation tax has been charged at 21% (2022: 19%).
The charge for the year can be reconciled to the profit/(loss) as per the
Income Statement as follows:
Continuing Discontinued Restated(1) Discontinued
2023 2023 Continuing 2022
£'000 £'000 2022 £'000
£'000
Profit/(loss) before tax 2,755 (519) (4,726) (353)
Profit/(loss) before tax multiplied by the standard rate of corporation tax in 579 (109) (898) (67)
the UK of 21% (2022: 19%)
Expenses not deductible for tax purposes 145 112 15 (11)
Income not taxable (182) - - -
Effect of goodwill impairment loss - - 502 -
Effect of share-based payments (1) - 60 -
Irrecoverable withholding tax 2 - 3 -
Overseas losses not recognised as deferred tax assets 563 - 152 47
Difference between UK and overseas tax rates (45) - (8) 24
Adjustment to tax charge in respect of prior years (41) - (194) -
Changes in tax rate (16) - (83) -
Total taxation charge/(credit) for the year 1,004 3 (451) (7)
Tax charge recognised in equity:
2023 2022
£'000 £'000
Deferred tax (credit)/charge recognised directly in equity (126) 60
Total tax (credit)/charge recognised directly in equity (126) 60
Reconciliation of statutory continuing tax charge to continuing underlying tax
charge:
2023 Restated(1)
£'000
2022
£'000
Income tax expense 1,004 (451)
Impairment and amortisation of goodwill, acquired intangibles and leased - 517
right-of-use assets
Non-underlying items 75 106
Foreign currency exchanges differences 17 (9)
Underlying income tax expense 1,096 163
(1) FY22 results have been restated as explained further in Note 1.24.
Future tax rate changes
The main UK corporation tax rate of 19% increased to 25% from 1 April 2023.
Deferred tax has been valued based on the substantively enacted rates at each
balance sheet date at which the deferred tax is expected to reverse.
10 Discontinued Operations
Losses from discontinued operations during the current and prior year include
closure costs in connection with the closed operations in Germany, Malaysia,
Singapore, Qatar, Mexico and South Africa. In addition, discontinued
operations in 2022 also included trading results from the Group's South
African recruitment operations up until its sale as part of a management
buy-out in December 2021 and the net loss on disposal of the business.
Financial performance and cash flow information
2023 2022
£'000
£'000
Revenue - 781
Cost of sales - (543)
Gross profit - 238
Administrative expenses(1) (186) (809)
Loss from operations (186) (571)
Finance income - -
Finance costs - -
Exchange (loss)/gain (333) 218
Loss before taxation (519) (353)
Taxation (3) 7
Loss for the year after taxation from discontinued operations (522) (346)
Exchange differences on translation of discontinued operations (200) (231)
Total comprehensive loss from discontinued operations (722) (577)
2023 2022
£'000
£'000
Net cash outflow from operating activities (281) (650)
Net cash outflow from investing activities - -
Net cash outflow from financing activities - (92)
Effect of exchange rates on cash and cash equivalents - -
Net cash used by discontinued operations (281) (742)
(1) Included in administrative expenses are £186,000 (2022: £95,000)
of non-underlying items, as detailed in Note 4.
11 Earnings Per Share
Earnings per share (EPS) has been calculated by dividing the consolidated
profit or loss after taxation attributable to ordinary shareholders by the
weighted average number of ordinary shares in issue during the 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 into
ordinary shares has been added to the denominator. The Group's potential
ordinary shares, being the Long Term Incentive Plan Options, are deemed
outstanding and included in the dilution assessment when, at the reporting
date, they would be issuable had the performance period ended at that date.
The effect of potential ordinary shares are reflected in diluted EPS only when
they are dilutive. Potential ordinary shares are considered to be dilutive
when the monetary value of the subscription rights attached to the outstanding
share options is less than the average market share price of the Company's
shares during the period. Furthermore, potential ordinary shares are only
considered dilutive when their inclusion in the calculation would decrease
earnings per share, or increase loss per share, in accordance with IAS 33.
There are no changes to the profit numerator as a result of the dilution
calculation.
The earnings per share information has been calculated as follows:
2023 Restated(1)
£'000
2022
£'000
Total profit/(loss) attributable to ordinary shareholders 1,229 (4,621)
Number of shares 2023 2022
'000
'000
Basic weighted average number of ordinary shares in issue 32,196 32,290
Dilutive potential ordinary shares 487 210
Diluted weighted average number of shares 32,683 32,500
Total earnings per share 2023 Restated(1)
pence
2022
pence
Earnings/(loss) per ordinary share Basic 3.8 (14.3)
Diluted 3.8 (14.3)
Earnings from continuing operations 2023 Restated(1)
£'000
2022
£'000
Total profit/(loss) for the year 1,751 (4,275)
Total earnings per share for continuing operations 2023 Restated(1)
pence
2022
pence
Earnings/(loss) per ordinary share Basic 5.4 (13.2)
from continuing operations
Diluted 5.4 (13.2)
Earnings from discontinued operations 2023 2022
£'000 £'000
Total loss for the year (522) (346)
Total earnings per share for discontinued operations 2023 2022
pence
pence
Loss per ordinary share from Basic (1.6) (1.1)
discontinuing operations
Diluted (1.6) (1.1)
Earnings from continuing underlying operations 2023 Restated(1)
£'000
2022
£'000
Total profit for the year 1,472 154
Total earnings per share from continuing underlying operations 2023 Restated(1)
pence
2022
pence
Earnings per ordinary share from Basic 4.6 0.5
continuing underlying operations
Diluted 4.5 0.5
(1) FY22 results have been restated as explained further in Note 1.24
12 Goodwill and Intangible Assets
Goodwill Customer relationships Trade names Software and software licences Other Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost At 1 August 2021 28,739 22,245 5,346 2,602 3,809 62,741
Additions - - - 29 - 29
Disposals - - - (70) - (70)
At 31 July 2022 28,739 22,245 5,346 2,561 3,809 62,700
Disposals(1) - - - (1,956) - (1,956)
At 31 July 2023 28,739 22,245 5,346 605 3,809 60,744
Amortisation and impairment At 1 August 2021 24,382 20,862 5,102 2,354 3,698 56,398
Amortisation for the period - 269 43 88 108 508
Impairment 2,645 946 189 - - 3,780
Released on disposal - - - (58) - (58)
At 31 July 2022 27,027 22,077 5,334 2,384 3,806 60,628
Amortisation for the period - 62 3 34 3 102
Released on disposal(1) - - - (1,948) - (1,948)
At 31 July 2023 27,027 22,139 5,337 470 3,809 58,782
Net book value At 31 July 2022 1,712 168 12 177 3 2,072
At 31 July 2023 1,712 106 9 135 - 1,962
(1) Assets in relation to legacy systems no longer in use with a cost
of £1,956,000 and net book value of £nil were disposed in the year.
The carrying amount of goodwill allocated to Cash Generating Units (CGUs) is
as follows:
2023 2022
£'000 £'000
Energy 1,712 1,712
Total 1,712 1,712
Goodwill and acquired intangibles within the Energy CGU relate to the
Networkers acquisition.
Impairment testing
Goodwill and intangible assets are reviewed and tested for impairment on an
annual basis or more frequently to determine if there is an indication of
impairment.
If any indication of impairment exists, then the recoverable amount of the
CGU, including goodwill, intangible assets and right-of-use assets, is
determined as the higher of its value in use or fair value less costs to sell.
As a result of the impairment testing completed, no impairments have been
recorded in either 2023 or 2022 in relation to the Energy CGU. In 2022,
impairment charges of £3,780,000 were recorded to fully impair the goodwill,
acquired intangibles and right-of-use assets associated with the
"Infrastructure - RSL Rail" CGU due to the ongoing challenges of the UK rail
industry combined with the sustained post-pandemic loss of a substantial
number of legacy temporary workers with some of the UK rail industry's core
customers, management undertook a substantial review of the long-term
expectations of the sector and reduced the long-term growth forecasts further
in FY22 resulting in a material reduction to the VIU terminal value which
could not sustain the CGU's asset base.
Amounts recognised in the Income Statement with respect to impairment of
acquired intangible assets:
Impairment expenses Goodwill Intangible assets Total Goodwill Intangible assets Total
2023 2023 2023 2022 2022 2022
£'000 £'000 £'000 £'000 £'000 £'000
Infrastructure - - - - 2,645 1,135 3,780
RSL Rail
Total - - - 2,645 1,135 3,780
The key assumptions and estimates used when calculating a CGU's value-in-use,
are as follows:
Cash flows from operations
Discounted cash flows from operations have been prepared based on the Group's
Board-approved three-year business plan, starting with the FY24 budget and
applying overarching NFI and cost growth rates in FY27 and FY28. The Group
prepares cash flow forecasts adjusted for allocations of group overhead costs,
and extrapolates cash flows into perpetuity based on long-term growth rates.
The Group's working capital requirement, assessed at 2.2% of revenue for FY23,
is expected to increase proportionally with revenue growth.
Discount rates
The pre-tax rate used to discount the forecast cash flows was 18.7% (2022: a
range from 13.9% to 14.4%) reflecting the Group's weighted average cost of
capital, adjusted for specific risks associated with the asset's estimated
cash flows. The nominal discount rate is based on the weighted average cost of
capital (WACC). The risk-free rate, based on UK 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 14.1% (2022: 13.8%) for all CGUs assessed.
Growth rates
The medium-term growth rates are based on management forecasts, reflecting
past experience and economic environment. Long-term growth rates are based on
external sources of an average estimated growth rate of 2.0% (2022: 2.0%),
using a weighted average of operating country real growth expectations.
13 Property, Plant and Equipment
Group Leasehold improvements Fixtures, fittings & Total
£'000 equipment £'000
£'000
Cost At 1 August 2021 3,001 4,948 7,949
Additions - 370 370
Disposals (41) (586) (627)
Effects of movements in exchange rates 26 10 36
At 31 July 2022 2,986 4,742 7,728
Additions 61 117 178
Disposals (800) (3,790) (4,590)
Effects of movements in exchange rates (7) (16) (23)
At 31 July 2023 2,240 1,053 3,293
Depreciation and impairment At 1 August 2021 1,879 4,492 6,371
Charge for the year - 570 570
Released on disposal (41) (553) (594)
Effects of movements in exchange rates 18 4 22
At 31 July 2022 1,856 4,513 6,369
Recategorisation of accumulated depreciation 207 (207) -
Charge for the year 290 199 489
Released on disposal (800) (3,773) (4,573)
Effects of movements in exchange rates (6) (10) (16)
At 31 July 2023 1,547 722 2,269
Net book value At 31 July 2022 1,130 229 1,359
At 31 July 2023 693 331 1,024
During the year, management have rationalised the Group's property, plant and
equipment registers and have recorded disposals of assets that are fully
depreciated and are no longer in use by the business.
There were no capital commitments as at 31 July 2023 or 31 July 2022.
14 Investments in Subsidiary Undertakings
Cost and carrying value: Company
2023 2022
£'000 £'000
Balance at 1 August 38,608 38,463
Capital contributions to subsidiaries/(reversal of capital contributions) (58) 145
Balance at 31 July 38,550 38,608
The movement in investments in the parent Company represents capital
contributions made relating to share-based payments.
Impairment testing
The Directors have assessed that the carrying amount of investments exceeding
the Group's market capitalisation at the year-end, and the Group's financial
performance, in terms of NFI, falling below its budget for the year ended 31
July 2023, to be indicators of impairment of the Parent Company's investments
in subsidiary undertakings and as a result have performed an impairment review
in accordance with IAS 36.
The recoverable amount of investments in subsidiaries has been determined
based on value-in-use calculations, which require the use of estimates.
Discounted cash flows from operations have been prepared based on the Group's
Board-approved 3 year business plan, starting with the FY24 budget and
applying over-arching NFI and cost growth rates in FY27 and FY28. A pre-tax
discount rate of 18.7% has been used, reflecting the Group's post-tax weighted
average cost of capital, adjusted for specific risks associated with the
asset's estimated cash flows. Medium-term growth rates modelled are based on
management forecasts, reflecting past experience and the economic environment.
Long-term growth rates, based on external sources of information, are an
average estimated growth rate of 2.0%. The Group's working capital
requirement, assessed at 2.2% of revenue for FY23, is expected to increase
proportionately with revenue growth.
At 31 July 2023, the recoverable amount of investments was £46,233,000, an
excess of £7,683,000 above the carrying amount. The Directors have therefore
concluded that the Parent Company's investment in subsidiary undertakings is
not impaired.
The Directors have considered and assessed reasonably possible changes in the
key assumptions and have performed sensitivity analysis on the estimates of
recoverable amount. The following changes, when considered individually or in
aggregate, do not result in a material impairment of the Parent Company's
investments in subsidiary undertakings:
· 100 basis points increase in the pre-tax discount rate;
· 200 basis points increase in the Group's working capital requirement,
from 2.2% to 4.2% of revenue;
· 30% reduction in medium-term (FY27 to FY28) NFI growth rates, with no
corresponding costs reduction.
The Directors do not consider that these changes would have a consequential
effect on other key assumptions.
Details of the Group's subsidiary undertakings are provided in Note 30.
15 Deferred Tax
2023 Asset Liability Net Credited/ Credited/ Foreign
(charged)
(charged)
exchange
Group £'000 £'000 £'000
to profit
to equity
£'000
£'000 £'000
Share-based payments 172 - 172 3 126 -
Accelerated capital allowances 126 (92) 34 16 - -
Acquired intangibles 17 (23) (6) 12 - -
Tax losses - - - (418) - -
Other temporary and deductible differences 139 - 139 28 - 2
Gross deferred tax assets/(liabilities) 454 (115) 339 (359) 126 2
Amounts available for offset (14) 14 -
Net deferred tax assets/(liabilities) 440 (101) 339
2022 restated(1) Asset Liability Net Credited/ Credited Disposal of subsidiaries Foreign
(charged)
to equity
Group £'000 £'000 £'000
to profit
£'000 exchange
£'000
£'000 £'000
Share-based payments 43 - 43 (41) (60) - -
Accelerated capital allowances 22 (4) 18 53 - - -
Internally generated intangibles - - - (1,050) - - -
Acquired intangibles - (18) (18) 351 - - -
Tax losses 418 - 418 418 - - -
Other temporary and deductible differences 109 - 109 (46) - (16) (5)
Gross deferred tax assets/(liabilities) 592 (22) 570 (315) (60) (16) (5)
Amounts available for offset 3 (3) -
Net deferred tax assets/(liabilities) 595 (25) 570
The movement on the net deferred tax is shown below:
Group
2023 Restated(1)
£'000 2022
£'000
At 1 August 570 957
Recognised in income (Note 9) (359) (315)
Recognised in equity 126 (60)
Disposal of subsidiaries - (16)
Foreign exchange 2 (5)
Reclassification to assets held for sale - 9
At end of year 339 570
2023 Restated(1)
£'000
2022
£'000
Deferred tax assets reversing within 1 year 188 463
Deferred tax liabilities reversing within 1 year (90) (18)
At end of year 98 445
2023 2022
£'000
£'000
Deferred tax assets reversing after 1 year 252 132
Deferred tax liabilities reversing after 1 year (11) (7)
At end of year 241 125
Deferred tax has been valued based on the substantively enacted rates at each
reporting date at which the deferred tax is expected to reverse.
(1) FY22 results have been restated as explained further in Note 1.24
Unrecognised deferred tax assets
Group
2023 Restated(1)
£'000
2022
£'000
Tax losses carried forward against profits of future years 2,347 2,396
Net deferred tax assets 2,347 2,396
Of the unused tax losses £5,465,000 (2022 restated: £5,595,000) can be
carried forward indefinitely, £887,000 (2022: £1,257,000) expires within 10
years and £3,763,000 (2022: £3,649,000) expires within 20 years. £139,000
(2022 restated: £133,000) of the unused tax losses carried forward
indefinitely relate to unrecognised capital losses which may be offset against
future chargeable (capital) gains only.
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 £902,000 (2022: £2,345,000). If the earnings
were remitted, tax of £nil (2022: £2,000) would be payable.
(1) FY22 results have been restated as explained further in Note
1.24
16 Trade and Other Receivables
Group Company
2023 Restated(1) 2023 2022
£'000 2022 £'000 £'000
£'000
Trade receivables from contracts with customers, net of loss allowance 31,905 36,367 - -
Amounts owed by group undertakings - - 1,357 2,757
Other receivables(2) 3,809 1,701 - -
Prepayments 1,145 1,372 - -
Accrued income 15,309 18,805 - -
Total 52,168 58,245 1,357 2,757
(1) FY22 results have been restated as explained further in Note 1.24
(2) Other receivables includes retentions of £2,838,000 (2022:
£1,181,000) on trade receivable balances assigned to HSBC under the
non-recourse invoice factoring facility, discussed further in Note 19.
The Directors consider that the carrying amount of trade and other receivables
approximates to their fair value.
Amounts owed to the Company by group undertakings includes an intercompany
loan receivable totalling £1,350,000, upon which interest is charged at a
variable rate of 3-month GBP LIBOR plus 2.5%. Amounts owed by group
undertakings are unsecured, repayable on demand and accrue no interest, with
the exception of the loan receivable noted above, and are considered to
approximate fair value.
Accrued income relates to the Group's right to consideration for temporary and
permanent placements made but not billed at the year end. These transfer to
trade receivables once billing occurs.
Impairment of trade receivables from contracts with customers
Group
2023 2022
£'000
£'000
Trade receivables from contracts with customers, gross amounts 33,538 38,444
Loss allowance (1,633) (2,077)
Trade receivables from contracts with customers, net of loss allowance 31,905 36,367
Trade receivables are amounts due from customers for services performed in the
ordinary course of business. They are generally settled within 30-60 days and
are therefore all classified as current.
The Group uses a third party credit scoring system to assess the
creditworthiness of potential new customers before accepting them. Credit
limits are defined by customer based on this information. All customer
accounts are subject to review on a regular basis by senior management and
actions are taken to address debt ageing issues.
Trade receivables are subject to the expected credit loss model. The Group
applies the IFRS 9 simplified approach to measuring expected credit losses
which uses a lifetime expected loss allowance for all trade receivables.
To measure the expected credit losses, trade receivables have been grouped
based on shared credit risk characteristics by geographical region or customer
industry.
The expected loss rates are based on the payment profiles of sales over a
period of 36 months before the relevant period end and the corresponding
historical credit losses experienced within this period. The historic loss
rates are adjusted to reflect any relevant current and forward-looking
information expected to affect the ability of customers to settle the
receivables. Additionally, external economic forecasts and scenario analysis
has been taken into account along with other macroeconomic factors when
assessing the credit risk profiles for specific industries and geographies.
The loss allowance for trade receivables can be analysed as:
31 July 2023 Current More than More than More than Total
30 days past
60 days past
90 days past
Weighted expected loss rate (%) 3.6% 3.7% 15.4% 69.5%
Gross carrying amount - 31,973 903 13 649 33,538
trade receivables (£'000)
Loss allowance (£'000) 1,147 33 2 451 1,633
31 July 2022 Current More than More than More than Total
30 days past
60 days past
90 days past
Weighted expected loss rate (%) 4.0% 8.0% 15.9% 48.0%
Gross carrying amount - 35,817 1,241 327 1,059 38,444
trade receivables (£'000)
Loss allowance (£'000) 1,418 99 52 508 2,077
The loss allowance for trade receivables at year end reconciles to the opening
loss allowance as per below:
Group
2023 2022
£'000
£'000
Opening loss allowance at 1 August 2,077 3,449
(Decrease)/increase in loss allowance recognised in the year (156) 136
Receivables written off during the year as uncollectable (288) (1,508)
Closing loss allowance at 31 July 1,633 2,077
Impairment of accrued income
Group
2023 Restated(1)
£'000
2022
£'000
Gross accrued income 15,813 19,487
Loss allowance (504) (682)
Accrued income, net of loss allowance 15,309 18,805
The loss allowance for accrued income can be analysed as:
31 July 2023 Current More than More than More than Total
30 days past
60 days past
90 days past
Weighted expected loss rate (%) 2.3% 2.8% 18.3% 98.5%
Gross carrying amount - 15,476 143 60 134 15,813
accrued income (£'000)
Loss allowance (£'000) 357 4 11 132 504
31 July 2022 restated(1) Current More than More than More than Total
30 days past
60 days past
90 days past
Weighted expected loss rate (%) 2.0% 2.5% 2.5% 30.6%
Gross carrying amount - 16,747 1,090 649 1,001 19,487
accrued income (£'000)
Loss allowance (£'000) 333 27 16 306 682
(1) FY22 results have been restated as explained further in Note 1.24
The loss allowance for accrued income at year reconciles to the opening loss
allowance as per below:
Group
2023 2022
£'000
£'000
Opening loss allowance at 1 August 682 1,065
Decrease in loss allowance recognised in (178) (383)
profit and loss during the year
Closing loss allowance at 31 July 504 682
17 Provisions
Group 2023 2022
Dilapidations Other provisions Total Dilapidations Other provisions Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 August 880 824 1,704 1,680 53 1,733
Provisions made in 187 194 381 18 824 842
the year
Provisions utilised (353) (79) (432) (145) (40) (185)
Provisions released (35) (199) (234) (698) (13) (711)
Effect of movements (2) (5) (7) 25 - 25
in exchange rates
Balance at 31 July 677 735 1,412 880 824 1,704
Group 2023 2022
Dilapidations Other provisions Total Dilapidations Other provisions Total
£'000 £'000 £'000 £'000 £'000 £'000
Non-current 347 19 366 517 - 517
Current 330 716 1,046 363 824 1,187
Total 677 735 1,412 880 824 1,704
Dilapidation provisions are held in respect of the Group's office properties
where lease obligations include contractual obligations to return the property
to its original condition at the end of the lease term, ranging between one
and five years. During the year the Group agreed dilapidation settlements for
two office properties which were both exited in the prior year. Remaining
dilapidation provisions have been reassessed reflecting new information
available, including the cost of settlements in the year.
Other provisions held at 31 July 2023 are primarily in relation to claims for
legal and tax matters, relating to both UK and operations and certain
discontinued operations.
No provisions are held by the Parent Company (2022: £nil).
18 Trade and Other Payables
Group Company
2023 Restated(1) 2023 2022
£'000 2022 £'000 £'000
£'000
Trade payables 5,048 3,753 - -
Amounts owed to group undertakings - - 2,742 3,006
Taxation and social security 7,139 6,672 - -
Contractor wages payable 27,146 28,854 - -
Accruals and deferred income 4,256 3,828 - -
Other payables 3,306 3,312 - -
Total 46,895 46,419 2,742 3,006
(1) FY22 results have been restated as explained further in Note 1.24
Amounts owed to group undertakings are unsecured, repayable on demand and
accrue no interest. The Directors consider that the carrying amount of trade
and other payables approximates to their fair value.
19 Loans and Borrowings
Group
2023 2022
£'000
£'000
Recourse working capital facility - 1,801
Total bank loans and borrowings - 1,801
The Group holds both recourse and non-recourse working capital facilities.
Under the terms of the non-recourse facility, the trade receivables assigned
to the facility are owned by HSBC and so have been derecognised from the
Group's statement of financial position; in addition, the non-recourse working
capital facility does not meet the definition of loans and borrowings under
IFRS. The Group continues to collect cash from trade receivables assigned to
the non-recourse facility on behalf of HSBC which is then transferred to them
periodically each month. Any cash collected from trade receivables under the
non-recourse facility at the end of the reporting period that had not been
transferred to HSBC, is presented as restricted cash included within the
Group's cash balance. At 31 July 2023, the Group had agreed invoice financing
working capital facilities with HSBC totalling £50m (31 July 2022: £60m)
(covering both recourse and non-recourse).
The Group's working capital facilities are secured by way of an all assets
debenture, which contains fixed and floating charges over the assets of the
Group. This facility allows certain companies within the Group to borrow up to
90% of invoiced or accrued income up to a maximum of £50m (31 July 2022:
£60m). Interest is charged on the recourse borrowings at a rate of 1.90% (31
July 2022: 1.90%) over the Bank of England base rate of 5.00% (2022: 1.25%).
The Company did not have any loans or borrowings during 2023 or 2022.
20 Financial Assets and Liabilities Statement of Financial Position
Clarification
The carrying amount of the Group's financial assets and liabilities at the
reporting date may also be categorised as follows:
Financial assets are included in the Statement of Financial Position within
the following headings:
Group Company
2023 Restated(1) 2023 2022
£'000 2022 £'000 £'000
£'000
Trade and other receivables (Note 16)
- Financial assets recorded at amortised cost 51,023 56,873 1,357 2,757
Cash and cash equivalents
- Financial assets recorded at amortised cost 23,375 17,768 8 7
Total 74,398 74,641 1,365 2,764
Financial liabilities are included in the Statement of Financial Position
within the following headings:
Group Company
2023 Restated(1) 2023 2022
£'000 2022 £'000 £'000
£'000
Borrowings (Note 19)
- Financial liabilities recorded at amortised cost - 1,801 - -
Leases (Note 21)
- Financial liabilities recorded at amortised cost 1,821 3,625 - -
Trade and other payables (Note 18)
- Financial liabilities recorded at amortised cost 39,756 39,747 2,742 3,006
Total 41,577 45,173 2,742 3,006
(1) FY22 results have been restated as explained further in Note 1.24
21 Leases
The Statement of Financial Position reports the following amounts related to
leases where the Group is a lessee:
Right-of-use assets Buildings Vehicles Other Total
£'000 £'000 £'000 £'000
Cost At 1 August 2021 10,245 348 8 10,601
Additions 183 44 - 227
Effect of reassessment of dilapidation assets (412) - - (412)
Effect of reassessment of lease terms (965) - - (965)
Effect of change in lease consideration 440 - - 440
Effect of movement in exchange rates 64 - - 64
At 31 July 2022 9,555 392 8 9,955
At 1 August 2022 9,555 392 8 9,955
Additions - 20 - 20
Disposals (1,905) (352) - (2,257)
Effect of reassessment of dilapidation assets 161 - - 161
Derecognition of assets (740) - - (740)
sub-let to third parties(1)
Effect of movement (34) - - (34)
in exchange rates
At 31 July 2023 7,037 60 8 7,105
Accumulated depreciation At 1 August 2021 4,629 295 3 4,927
and impairment
Depreciation charge 1,491 59 2 1,552
Impairment(2) 827 25 - 852
Effect of reassessment (481) - - (481)
of dilapidation assets
Effect of movement 40 - - 40
in exchange rates
At 31 July 2022 6,506 379 5 6,890
At 1 August 2022 6,506 379 5 6,890
Depreciation charge 937 13 2 952
Disposals (1,904) (352) - (2,256)
Effect of reassessment 103 - - 103
of dilapidation assets
Derecognition of assets sub-let to third parties(1) (444) - - (444)
Effect of movement (13) - - (13)
in exchange rates
At 31 July 2023 5,185 40 7 5,232
Net book value At 1 August 2022 3,049 13 3 3,065
At 31 July 2023 1,852 20 1 1,873
(1) During the year the Group entered into sublease agreements with
third parties to sublet a portion of the office space within the London and
Toronto offices. The right-of-use assets corresponding to the sublet portion
of the offices have been derecognised in line with the requirements of IFRS
16. Finance lease receivables of £275,000 were recognised in other
receivables.
(2) An impairment was recognised in 2022 in relation to right-of-use
assets belonging to the "Infrastructure - RSL Rail" CGU, as discussed in more
detail in Note 12.
At 31 July 2023, included within property right-of-use assets is costs of
£677,000 (2022: £854,000) and net book value of £198,000 (2022: £248,000)
relating to dilapidation assets.
During the year, management have rationalised the Group's right-of-use asset
registers and have recorded disposals of assets that are fully depreciated and
are no longer in use by the business.
Lease liabilities
2023 2022
Buildings Vehicles Other Total Buildings Vehicles Other Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Current 840 15 2 857 1,112 21 2 1,135
Non-current 945 18 1 964 2,470 17 3 2,490
Total 1,785 33 3 1,821 3,582 38 5 3,625
Lease liabilities for properties have lease terms of between one and five
years.
The discount rates used to measure the lease liabilities at 31 July 2023 range
between 2.0% to 6.15% for properties (2022: 2.0% to 7.5%), 4.7% to 6.0% for
vehicles (2022: 4.7%) and 10.1% for other leases (2022: 10.1%).
Reconciliation of lease liabilities movement in the year
Buildings £'000 Vehicles £'000 Other Total
£'000
£'000
At 1 August 2021 5,691 64 6 5,761
Additions 165 40 - 205
Lease payments (1,968) (68) (2) (2,038)
Interest expense of lease liabilities 112 2 1 115
Effect of changes in lease consideration 440 - - 440
Effect of reassessment of lease terms (892) - - (892)
Effect of movement in exchange rates 34 - - 34
At 31 July 2022 3,582 38 5 3,625
At 1 August 2022 3,582 38 5 3,625
Additions - 20 - 20
Lease payments (1,171) (27) (2) (1,200)
Interest expense of lease liabilities 66 2 - 68
Effect of reassessment of lease terms (672) - - (672)
Effect of movement in exchange rates (20) - - (20)
At 31 July 2023 1,785 33 3 1,821
Amounts in respect of leases recognised in the Income Statement
2023 2022
£'000
£'000
Depreciation expense of right-of-use assets 952 1,552
Impairment of right-of-use assets - 852
Interest expense on lease liabilities 68 115
Expense relating to leases of low-value assets and 59 17
short-term leases (included in administrative expenses)
22 Share Capital
Authorised share capital:
2023 2022
£'000
£'000
40,000,000 (2022: 40,000,000) ordinary shares of £0.01 each 400 400
Allotted, called up and fully paid:
2023 2022
£'000
£'000
31,856,612 (2022: 32,290,400) ordinary shares of £0.01 each 319 323
The number of shares in issue in the Company is shown below:
2023 2022
'000 '000
In issue at 1 August 32,290 32,290
Exercise of LTIP share options 14 -
Shares cancelled (447) -
In issue at 31 July 31,857 32,290
The Company has one class of ordinary shares. Each share is entitled to one
vote in the event of a poll at a general meeting of the Company. Each share is
entitled to participate in dividend distributions.
Share buyback and cancellation
During April and May 2023 the Company made market purchases of and
subsequently cancelled 447,000 of its own ordinary shares as part of a public
share buyback. The buyback and cancellation was approved by shareholders at
the Annual General Meeting held in December 2022. The shares were acquired at
an average price per share of £1.11, with prices ranging from £0.94 to
£1.16. The total cost of the share buyback, financed from the Group's cash
reserves, was £500,000 which has been deducted from retained earnings. On
cancellation of the shares, the aggregate nominal value of shares was
transferred out of share capital to a capital redemption reserve.
Share Options
Share option arrangements exist over the Company's shares, awarded under the
Long-Term Incentive Plan ("LTIP") to maximise the Group's medium- and
long-term performance and therefore drive higher returns for shareholders.
Under the LTIP, participants are granted options which vest if certain
performance conditions are met over the vesting period, typically three years.
Performance conditions upon which option vesting is assessed in current live
grants include total shareholder return ("TSR") ranking, growth in adjusted
earnings per share ("EPS"), growth in underlying profit before tax ("PBT") and
reduction in people attrition.
Once vested, each option may be converted into one ordinary share of the
Company for consideration of £0.01 or above. The options remain exercisable
for a period of up to 10 years from the grant date.
Participation in the LTIP and the quantum and timing of awards is at the
Board's discretion, and no individual has a contractual right to receive any
guaranteed benefits.
The movement in share options is shown below:
2023 2022
Number Weighted average exercise price Weighted average share price Number Weighted average exercise price Weighted average share price
'000 (pence) (pence) '000 (pence) (pence)
Outstanding at 1 August 1,103 1.0 1,456 1.2
Granted 864 1.0 1,026 1.0
Forfeited/lapsed (230) 1.0 (1,379) 1.3
Exercised (13) 1.0 73.5 - - -
Expired (7) 1.0 - -
Outstanding at 31 July 1,717 1.0 1,103 1.0
Exercisable at 31 July 102 1.0 171 1.0
The numbers and weighted average exercise prices of share options vesting in
the future are shown below.
Exercisable from 2023 2022
Weighted average remaining contract life (months) Number Weighted average exercise price (pence) Weighted average remaining contract life (months) Number Weighted average exercise price (pence)
'000 '000
20 January 2023 - - - 6 162 1.0
1 December 2023 4 160 1.0 16 160 1.0
16 December 2024 17 461 1.0 29 480 1.0
9 May 2025 22 130 1.0 33 130 1.0
6 December 2025 29 864 1.0 - - -
Outstanding at 31 July 1,615 932
Fair value of options granted
For share options granted during the year, the fair value at grant date was
independently determined with the valuation method depending on the
performance condition:
· Fair values of EPS, PBT and people attrition awards are determined
with reference to the share price at grant date, discounted to exclude any
expected dividends.
· Fair value of TSR awards is determined using a Monte Carlo simulation
model that takes into account the probability of achieving the performance
conditions, based on the expected volatility of the Company and the comparator
companies.
The model inputs and associated fair values determined for options granted
during the year are as follows:
2023 2022
EPS, PBT TSR EPS and PBT TSR EPS and PBT TSR
and people attrition
(Dec)
(Dec)
(May)
(May)
Exercise price (£) 0.01 0.01 0.01 0.01 0.01 0.01
Grant date 06/12/2022 06/12/2022 16/12/2021 16/12/2021 11/05/2022 11/05/2022
Expiry date 06/12/2032 06/12/2032 16/12/2031 16/12/2031 11/05/2032 11/05/2032
Share price at grant date (£) 0.74 0.74 1.29 1.29 0.66 0.66
Expected volatility of the Company's shares(1) 66.06% 60.41% 59.20% 62.39% 66.94% 67.60%
Expected dividend yield 6.00% 6.00% 3.00% 3.00% 2.83% 2.83%
Risk-free rate 3.22% 3.22% 0.51% 0.51% 1.36% 1.38%
Fair value per option at grant date (£) 0.61 0.44 1.18 0.63 0.60 0.37
(1) Expected volatility was calculated independently, by using the
historical daily share price of the Company over a term commensurate with the
expected life of the award.
At 31 July 2023, liabilities arising from share-based payment transactions
total £33,000 (31 July 2022: £nil). This relates to a provision for
employer's National Insurance contributions that would be payable on exercise
of LTIP share options.
Other share-based payment arrangements
In addition to the share option schemes the Group operated a Share Incentive
Plan ("SIP"), which is a 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 to the employee
which vests after a three-year period of employment. During the year the
Company purchased 75,809 shares (2022: 25,711) under this scheme.
The Group's Share Incentive Plan is held by an Employee Benefit Trust ("the
SIP EBT") for tax purposes. The SIP EBT buys Company shares at market value
with funds from the Group and employees, and shares held by the SIP EBT are
distributed to employees once vesting conditions are satisfied. The Group has
control over the SIP EBT and therefore it has been consolidated at 31 July
2023 and 31 July 2022.
A second EBT ('the Apex EBT') exists as a branch of Gattaca plc to purchase
Company shares to be used to settle LTIP share-based payment arrangements that
are due to vest in the future. Apex Financial Services Limited is appointed as
the Trustee and the administrator to this EBT.
As at 31 July 2023, excess funds of £13,000 (2022: £27,000) were held by the
SIP EBT and the Apex EBT, which has been included in cash and cash
equivalents.
Expenses arising from equity-settled share-based payment transactions
The following expenses or credits were recognised in the Income Statement in
relation to equity-settled share-based payment transactions:
2023 2022
£'000
£'000
Long-term Incentive Plan options (81) 106
Share Incentive Plan 17 39
Total (64) 145
23 Transactions with Directors and Related Parties
There were no related party transactions with entities outside of the Group.
During the year Matchtech Group (UK) Limited charged the Company £607,000
(2022: £1,028,000) for provision of management services.
At the reporting date the Company had advanced a loan of £1,350,000 to
Matchtech Group (UK) Limited (2022: £1,350,000), upon which interest has
accrued at a rate of 3-month GBP LIBOR plus 2.5%.
The remuneration of key management personnel is disclosed in Note 5.
24 Financial Instruments
The financial risk management policies and objectives including those related
to financial instruments and the qualitative risk exposure details, comprising
credit and other applicable risks, are included within the Chief Financial
Officer's Report under the heading "Group financial risk management".
Maturity of financial liabilities
The following table sets out the contractual maturities of financial
liabilities, including interest payments. This analysis assumes that interest
rates prevailing at the reporting date remain constant:
Group 0 to 1 to 2 to 5 years Contractual cash flows
< 1 years
< 2 years
< 5 years
and over
£'000
£'000 £'000 £'000 £'000
2023
Invoice financing working capital facility - - - - -
Lease liabilities 1,002 444 611 - 2,057
Trade and other payables 35,500 - - - 35,500
Total 36,502 444 611 - 37,557
Group restated(1) 0 to 1 to 2 to 5 years Contractual cash flows
< 1 years
< 2 years
< 5 years
and over
£'000
£'000 £'000 £'000 £'000
2022
Invoice financing working capital facility 1,801 - - - 1,801
Lease liabilities 1,271 1,093 1,616 48 4,028
Trade and other payables 35,919 - - - 35,919
Total 38,991 1,093 1,616 48 41,748
( 1) FY22 results have been restated as explained further in Note 1.24
Company
The Company had no financial liabilities at the reporting date (2022: £nil)
other than amounts due to group undertakings, which are unsecured and
repayable on demand.
Interest rate sensitivity
The Group's exposure to fluctuations in interest rates on borrowing is limited
to its recourse working capital facility, as explained in Note 19. The
Directors have considered the potential increase in finance costs and
reduction in pre-tax profits due to increases in the Bank of England's base
rate over a range of possible scenarios. Having performed sensitivity
analysis, based upon the actual utilisation of the facility during the year
ended 31 July 2023, the effect of a 100 basis point increase in interest rates
would be an increase to the 2023 net interest expense of £1,000 (2022:
£68,000).
Borrowing facilities
The Group makes use of working capital facilities, details of which can be
found in Note 19. The undrawn working capital facilities available at year end
in respect of which all conditions precedent had been met was as follows:
Group
2023 2022
£'000
£'000
Undrawn working capital facility 27,565 33,051
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 cash/debt and trading results on a monthly basis, looking
forward to at least the next 12 months. At 31 July 2023, the Group had agreed
banking facilities with HSBC totalling £50m (2022: £60m) comprised solely of
a £50m invoice financing working capital facility (2022: £60m invoice
financing working capital facility). The Directors consider that the available
financing facilities in place are sufficient to meet the Group's forecast cash
flows.
Foreign currency risk
The Group's principal foreign currency risk is the short-term risk associated
with the trade receivables 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. No such contracts existed at
31 July 2023.
Net foreign currency monetary assets are shown below:
Group
2023 2022
£'000
£'000
US Dollar 4,968 5,696
Euro 1,142 2,119
The Directors have considered the effect of a change in the Sterling exchange
rate with the US Dollar and Euro on the balances of cash, aged receivables and
aged payables held at the reporting date, assuming no other variables have
changed. The effect of a 10% (2022: 10%) strengthening and weakening of
Sterling against the US Dollar and Euro is set out below. The Group's exposure
to other foreign currencies is not material.
Group
2023 2022
£'000
£'000
USD / EUR exchange rate - increase 10% (2022: 10%) 527 704
USD / EUR exchange rate - decrease 10% (2022: 10%) (449) (596)
The Company only holds balances denominated in its functional currency and so
is not exposed to foreign currency risk.
25 Capital Management Policies and Procedures
Gattaca plc's capital management objectives are:
· to ensure the Group's ability to continue as a going concern;
· to provide an adequate return to shareholders; and
· by pricing products and services commensurately with the level of
risk.
The Group monitors capital on the basis of the carrying amount of equity as
presented in the Statement of Financial Position.
The Group sets the amount of capital in proportion to its overall financing
structure, i.e. equity and financial liabilities. The Group manages the
capital structure and makes adjustments in the light of changes in economic
conditions and risk characteristics of the underlying assets. Capital for the
reporting year under review is summarised as follows:
Group
2023 Restated(1)
£'000 2022
£'000
Total equity 30,817 30,453
Cash and cash equivalents (23,375) (17,768)
Capital 7,442 12,685
Total equity 30,817 30,453
Borrowings - 1,801
Lease liabilities 1,821 3,625
Overall financing 32,638 35,879
Capital to overall financing ratio 23% 35%
(1) FY22 results have been restated as explained further in Note 1.24
26 Net Cash
Net cash is the total amount of cash and cash equivalents less
interest-bearing loans and borrowings, including finance lease liabilities.
Net cash flows include the net drawdown of loans and borrowings and cash
interest paid relating to loans and borrowings.
2023 1 August 2022 Net cash Non-cash movements 31 July 2023
flows
£'000
£'000 £'000
£'000
Cash and cash equivalents 17,768 5,809 (202) 23,375
Working capital facilities (1,801) 1,801 - -
Lease liabilities (3,625) 1,200 604 (1,821)
Total net cash 12,342 8,810 402 21,554
2022 1 August 2021 Net cash Non-cash movements 31 July 2022
flows
£'000
£'000 £'000
£'000
Cash and cash equivalents 29,238 (11,667) 197 17,768
Working capital facilities (9,348) 7,547 - (1,801)
Lease liabilities (5,761) 2,038 98 (3,625)
Total net cash 14,129 (2,082) 295 12,342
Restricted cash
Included in cash and cash equivalents is the following restricted cash which
meets the definition of cash and cash equivalents but is not available for use
by the Group:
2023 2022
£'000
£'000
Balances arising from the Group's non-recourse working capital arrangements 253 615
Cash on deposit in accounts controlled by the Group but not available for 1,101 1,662
immediate drawdown
Total restricted cash 1,354 2,277
Included within restricted cash is £391,000 (2022: £698,000) held on deposit
in a Russian bank account, to which the Group currently has no access.
Following legal consultation, the Directors have implemented a plan to regain
access to this account with a view to repatriating the cash to the UK at the
earliest opportunity.
27 Contingent Liabilities
We continue our cooperation with the United States Department of Justice and
in the year ended 31 July 2023 have incurred £2,000 (2022: £33,000) in
advisory fees on this matter. The Group is not currently in a position to know
what the outcome of these enquiries may be and therefore we are unable to
quantify the likely outcome for the Group.
The Directors are aware of other potential claims against the Group from a
client which may result in a future liability. The Group considers that at the
date of approval of these financial statements, the likelihood of a future
material economic outflow is not probable and an estimate of any future
economic outflow cannot be measured reliably, therefore no provision is being
made.
28 Dividends
2023 2022
£'000
£'000
Equity dividends proposed after the year end (not recognised 1,580 -
as a liability) at 5.0 pence per share (2022: nil pence per share)
On 16 August 2023, the Board announced its intentions to recommend a full year
dividend in line with its policy of 2.5 pence per share, accompanied by a
one-off special dividend of 2.5 pence per share, both of which are expected to
be paid in December 2023.
29 Events After the Reporting Date
During August and September 2023, the Company made market purchases and
subsequently cancelled 313,941 of its own ordinary shares as part of another
public share buyback. The buyback and cancellation was approved by
shareholders at the Annual General Meeting held in December 2022. The shares
were acquired at an average price per share of £1.11, with prices ranging
from £0.94 to £1.16. The total cost of the share buyback, financed from the
Group's cash reserves, was £390,000.
On 22 September 2023 the Company issued and allotted 82,844 ordinary shares
upon the exercise of LTIP share options.
On 3 October 2023, Matchtech Group (Holdings) Limited purchased 1 ordinary
share of Matchtech Group (UK) Limited, being the entire minority interest in
the subsidiary, from George Materna, a director of Gattaca plc. The share
purchase was made at market value.
The Group has not identified any subsequent events in addition to those
detailed above.
30 Subsidiary Undertakings
The subsidiary undertakings at the year end are as follows:
Registered Office Country of Incorporation Share Class % Held 2023 % Held 2022 Main Activities
Note
Alderwood Education Ltd (1,6) 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Barclay Meade Ltd (1,6) 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Cappo Group Limited (1,6) 1 United Kingdom Ordinary 100% 100% Holding
Cappo International Limited (1,6) 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
CommsResources Limited (1,6) 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Connectus Technology Limited (1,6) 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Elite Computer Staff Ltd (5) 1 United Kingdom Ordinary 100% 100% Non-trading
Gattaca Projects Limited (1) 1 United Kingdom Ordinary 100% 100% Non-trading
Gattaca Recruitment Limited (5) 1 United Kingdom Ordinary 100% 100% Non-trading
Gattaca Solutions Limited (1,6) 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Matchtech Engineering Limited (5) 1 United Kingdom Ordinary 100% 100% Non-trading
Matchtech Group (Holdings) Limited (1) 1 United Kingdom Ordinary 100% 99.7% Holding
Matchtech Group (UK) Limited (1,7) 1 United Kingdom Ordinary 99.998% 99.998% Provision of recruitment consultancy
Matchtech Group Management Company Limited (1,6) 1 United Kingdom Ordinary 100% 100% Non-trading
MSB Consulting Services Limited (2,5) 1 United Kingdom Ordinary 100% 100% Non-trading
Networkers International (UK) Limited (1,6) 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Networkers International Limited (1,6) 1 United Kingdom Ordinary 100% 100% Holding
Networkers International Trustees Limited (3) 1 United Kingdom Ordinary 0% 100% Non-trading
Networkers Recruitment Services Limited (1,6) 1 United Kingdom Ordinary 100% 100% Non-trading
Resourcing Solutions Limited (1) 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
The Comms Group Limited (1,6) 1 United Kingdom Ordinary 100% 100% Holding
Gattaca BV 1 Netherlands Ordinary 100% 100% Provision of recruitment consultancy
Gattaca GmbH 2 Germany Ordinary 100% 100% Provision of recruitment consultancy
MSB International GmbH (3) 3 Germany Ordinary 0% 100% Non-trading (dissolved)
Gattaca Information Technology Services SLU 4 Spain Ordinary 100% 100% Provision of recruitment consultancy
Gattaca Recruitment ETT, SLU (3) 4 Spain Ordinary 0% 100% Non-trading (dissolved)
Cappo Inc. 5 United States Ordinary 100% 100% Non-trading
Networkers Inc. 5 United States Ordinary 100% 100% Provision of recruitment consultancy
Networkers International LLC 6 United States Ordinary 100% 100% Non-trading
Networkers International (Canada) Inc. 7 Canada Ordinary 100% 100% Provision of recruitment consultancy
Gattaca Mexico Services, S.A. de C.V 8 Mexico Ordinary 100% 100% Non-trading
NWI Mexico, S. de R.L. de C.V. 8 Mexico Ordinary 100% 100% Non-trading
Gattaca Services South Africa Pty Limited 9 South Africa Ordinary 100% 100% Provision of support services
Networkers International (China) Co. Limited 10 China Ordinary 100% 100% Non-trading
CommsResources Sdn Bhd 11 Malaysia Ordinary 100% 100% Non-trading
Networkers International (Malaysia) Sdn Bhd 11 Malaysia Ordinary 100% 100% Non-trading
Cappo Qatar LLC (4) 12 Qatar Ordinary 49% 49% Non-trading
Networkers Consultancy (Singapore) PTE. Limited 13 Singapore Ordinary 100% 100% Non-trading
(1) For the year ended 31 July 2023, Gattaca plc has provided a legal
guarantee dated 23 October 2023 under s479a-s479c of the Companies Act 2006 to
these subsidiaries for audit exemption.
(2) These dormant companies are exempt from preparing audited
individual financial statements by virtue of s480 of Companies Act 2006.
(3) These companies were disposed of or liquidated in the year, with
the shareholding remaining the same as per the year ended 31 July 2022 up to
the date of disposal or liquidation.
(4) Gattaca plc controls 95% of the beneficial interest in Cappo Qatar
LLC and consolidates the entity as a subsidiary in line with IFRS 10.
(5) These entities were liquidated post year-end on 19 August 2023,
with the exception of MSB Consulting Services Limited which was liquidated on
5 September 2023. The shareholding remained the same as per the year ended 31
July 2023 up to the date of liquidation.
(6) The trade and assets of these subsidiaries were transferred to
Matchtech Group (UK) Limited on 31 July 2023 as part of the legal entity
rationalisation project, discussed further below.
(7) The minority interest of this subsidiary was purchased by
Matchtech Group (Holdings) Limited on 3 October 2023, see Note 29 for more
details.
All holdings by Gattaca plc are indirect except for Matchtech Group (Holdings)
Limited, Gattaca GmbH and Matchtech Group Management Company Limited.
Networkers International (UK) Limited had a branch in Russia, which is
consolidated into the Group's result. The branch ceased trading in FY20 and
was deregistered by the Federal Tax Services of Russia in December 2022.
The Group's Share Incentive Plan (SIP) is held by Gattaca plc UK EBT ("the SIP
EBT"). The Group has control over the SIP EBT and therefore it has been
consolidated in the Group's results.
Gattaca plc has a branch for an Employee Benefit Trust ("the Apex EBT"). Apex
Financial Services Limited is the Trustee and the administrator to this EBT.
The Group and Company has control over the Apex EBT and therefore it has been
consolidated in the Group and Company's results.
During the year, the Group began a legal entity rationalisation project with
the aim to simplify the group structure. On 31 July 2023, as part of the
rationalisation project, the trade and assets of a number of UK subsidiaries
were transferred to the largest UK trading subsidiary, Matchtech Group (UK)
Limited, with the intention that the transferring entities become non-trading
from 1 August 2023, to enable liquidation or strike off processes to commence
once all required regulatory filings are complete. There is no income
statement, balance sheet or cash flow impact to the Group or Company as a
result of the rationalisation steps undertaken during the financial year.
Registered office addresses
1 1450 Parkway, Solent Business Park, Whiteley, Fareham, Hampshire, PO15 7AF,
United Kingdom
2 c/o ETL Breiler & Schnabl GmbH, Steuerberatungsgesellschaft,
Bahnhofstraße, 55-57, 65185 Wiesbaden, Germany
3 c/o ETL Breiler & Schnabl GmbH, Franklinstraße 48, 60486, Frankfurt am
Main, Germany
4 Calle General, Moscardo 6. Espaco Office, Madrid 28020, Spain
5 18333 Preston Road, Suite 260 TX 75252, USA
6 2041 Rosecrans Ave Ste 320, El Segundo, CA, 90245, USA
7 1 Richmond Street West, Suite 902, Toronto, Ontario, M5H 3W4, Canada
8 Avenida Paseo de la Reforma No. 296 Piso 15 Oficina A, Colonia Juárez,
Delegación Cuauhtémoc, Código Postal 06600. Ciudad de México, Mexico
9 201 Heritage House, 20 Dreyer Street, Claremont, 7735, South Africa
10 B-2701, Di San Zhi Ye Building, No. A1 Shuguang Xili, Chao Yang District,
Beijing, China
11 6th Floor, Menara Boustead, 69, Jalan Raja Chulan, 50200 Kuala Lumpur,
Malaysia
12 Suite #204, Office #40 Al Rawabi Street, Muntazah, Doha, State of Qatar, PO
Box 8306
13 3 Phillip Street #14-05 , Royal Group Building, Singapore 048693
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