REG - Gattaca PLC - Preliminary Results for the year ended 31 July 22
03/11/2022 07:00
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RNS Number : 1479F Gattaca PLC 03 November 2022
3 November 2022
Gattaca plc
Preliminary Results for the year ended 31 July 2022
Ongoing focus on improvement
Gattaca plc ("Gattaca" or the "Group"), the specialist engineering and
technology staffing solutions business, today announces its Preliminary
Results for the year ended 31 July 2022.
Financial Highlights
2022 Restated 2021
Continuing Continuing underlying(2) Continuing Continuing underlying(2) Continuing Continuing underlying(2)
Reported Reported Reported
£m £m £m £m % %
Revenue 403.3 403.3 415.7 415.7 -3.0 -3.0
Net Fee Income (NFI)(1) 44.1 44.1 42.1 42.1 4.9 4.9
(Loss)/profit from operations (5.1) 0.5 1.9 2.2 n/a -77.5
(Loss)/profit before taxation (4.8) 0.3 0.8 1.8 n/a -86.0
Basic (loss)/earnings per share (13.4)p 0.3p 2.4p 5.3p n/a -94.0
Diluted (loss)/earnings per share (13.4)p 0.3p 2.4p 5.3p n/a -94.0
Dividend per share 0.0p n/a 1.5p n/a n/a n/a
Statutory net cash at end of period 12.3 n/a 14.1 n/a -12.6 n/a
Continuing business excludes the discontinued business in South Africa and
Mexico, which were closed in July 2021
Financial Performance
· NFI £44.1m (2021: £42.1m), up 5% on the prior year
O Contract NFI represents 71% of Group NFI on a continuing basis (2021 restated:
74%). Contract NFI was flat year on year driven by contract losses primarily
within contract in H1.
O Benefit is expected to come in the contract market in FY23 as demand for
contractors is shifting to outweigh permanent combined with increased project
demand in our core sectors
O Permanent NFI represents 29% of Group NFI (2021 restated: 26%), recording a
18% growth year on year, driven by recovery post COVID-19 pandemic
· Group continuing underlying profit before tax of £0.3m (2021 restated:
£1.8m), reflecting investment in headcount
· Robust balance sheet:
O Group statutory net cash position of £12.3m at 31 July 2022 (2021: £14.1m
net cash)
O Movement in cash partially driven by £5.6m of deferred VAT fully repaid in
the year
O DSO at 31 July 2022 was 51 days (2021: 52 days), a recovery of the DSO
position from 62 days reported at 31 January 2022, and a return to the long
term trend
O The Group is covenant free
· During the year, we took a further impairment charge of £4.6m (2021: £0.2m),
writing off all remaining goodwill, intangible assets and right-of-use leased
asset values relating to the Resourcing Solutions business acquired in 2017,
due to an expected sustained reduction in future profitability of the division
· No final dividend (2021: 1.5 pence). The Board remains committed to paying
dividends when the Group returns to sustainable levels of profitability
· Continued investment in total Group sales headcount up 10% versus FY21
Strategic Update
Continued focus on developing the four identified strategic priorities:
· Increase external focus
O New Chief Sales Officer appointed to combine client acquisition and growth
across all sectors and geographies
O Investment in brand and enhanced social media presence
O Creation of Group-wide Performance Scorecards including targets set for all
sales colleagues focused on client engagement and sustainable growth
· Culture
O Alignment of leadership team with business objectives, increased visibility,
communication, and openness
O Appointed Head of Engagement, ED&I & Talent
O Enhanced staff engagement and continued focus
· Operational performance
O Appointed new COO to focus on internal operational performance
O Embedded our new technology systems, launched at the end of FY21, into Group
operating processes and procedures with all colleagues now operating on a
single platform
O Deployment of enhanced candidate sourcing tool into our technology platform
O Enhanced visibility of key management information to enable better data-backed
decision making, supporting and informing decisions to exit inefficient and
low-margin business
· Cost rebalancing
O Restructuring of sales leadership
O Optimisation of office space and cost
O Funded 5% cost of living increase for all staff across the group
O Reduced DSO thus reducing our borrowing costs
Evolution and development of the four strategic priorities to continue in 2023
with further progress already underway in the new financial year.
Outlook
We are mindful of the current macro-economic conditions, but as a STEM skills
focused business we do not believe they will have a significant impact on our
business model as we continue to see robust demand in our key markets. There
remains a shortage of candidates which plays to our key strength of deep
knowledge and understanding of our sectors and niche skills.
The development of our strategic priorities will continue as planned and we
are confident that the changes we have made in the last six months combined
with the long-term fundamentals in our core STEM markets leave us well placed
for the future. Our expectations for FY23 remain unchanged at underlying
profit before tax of £2.5m for the year.
Matthew Wragg, CEO commented:
"Although the performance of the business during the year is not acceptable
for a business with our capability, I am pleased with the progress that we
have made during the second half of the year. We have worked hard to transform
the business through the building of our culture and once again becoming a
winning team. Today, with a new leadership structure, a more engaged workforce
and early signs of more consistent and improved performance, we are on track
to be a stronger business.
"Whilst we remain conscious of the uncertain macro-economic environment, we
are far better set up for success than we were 12 months ago and have a
roadmap for further improvements. I am excited about the journey that we are
all on and the start that we have made."
The following footnotes apply, unless where otherwise indicated, throughout
these Preliminary Results:
(1 ) NFI is calculated as revenue less contractor payroll costs
(2) Continuing underlying results exclude the NFI and profits / (losses)
before taxation of discontinued businesses predominantly being operations in
Mexico and South Africa (2022: £(0.3)m, 2021: £(1.2)m), non-underlying items
within administrative expenses in 2022 primarily relating to employee
restructuring and fees associated with exiting properties (2022: £0.6m, 2021:
£(0.2)m), amortisation of acquired intangibles (2022: £0.4m, 2021: £0.5m),
impairment of acquired intangibles and right of use assets (2022: £4.6m,
2021: £0.2m), and exchange (losses) / gains from revaluation of foreign
assets and liabilities (2022: £0.6m, 2021: £(0.7)m)
(3) NFI commentary is on a continuing underlying like for like basis
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
Citigate Dewe Rogerson +44 (0) 20 7638 9571
Ellen Wilton
Anna Clauser
Chair's Statement
The financial year certainly did not turn out as we had expected. Whilst the
pandemic had a small carryover effect in the first half of the year, there was
a recovery in the market, mainly in permanent placements, which represents
only 29% of our business. Our expected growth within the contract placement
market failed to materialise. Whilst the market demand was there, the
combination of major client losses, increased focus on permanent recruitment
and the business adapting to new systems and operating model meant we didn't
capture the market opportunity. We have continued to invest in our technology
and our sales people and we are confident we can move forward with these
building blocks in place.
It also became apparent during the year that to move forward with pace,
agility and confidence we needed to accelerate the planned change in
leadership, given the scale of further improvement required in the business.
It was therefore agreed that Kevin Freeguard would retire from the Board on 1
April 2022 and be replaced by Matt Wragg as Chief Executive Officer.
Matt brings with him a wealth of recruitment experience, knowledge of our
business and has the support and commitment of both the Board and our Senior
Leadership Team. Salar Farzad agreed to leave the business at the same time
and stepped aside to allow Oliver Whitaker to take over as Chief Financial
Officer. Oliver has been with the business since 2018 and has made a seamless
transition into his new role. In December 2021, Ros Haith joined the Board as
a Non-Executive Director.
Our previous Board review concluded that we would benefit from someone with a
sales background; Ros has extensive experience in leading sales at several
large organisations, with a strong focus in digital and technology.
Following the appointment of Matt Wragg as CEO there has been an internal
reset within the business with more focus on the external environment, both
the customer and the market. Equally, we have a renewed and reenergised team
who have clear and aligned objectives and targets for everyone to deliver
against. Our Values are being embedded: we are once again focused on our
people and the initiative we undertook in 2021 on our Purpose, Vision, Mission
and Values is at the bedrock of everything we do. Our priority within the
business is on delivering to our clients and finding the best STEM talent to
fulfil their needs. As we anticipated, we are in a 'candidate short' market
where there are more talent opportunities than candidates; this is when we are
at our best. We have every confidence that we have the right leadership team
to encourage our people and deliver success through growth.
Overview
The market recovery in the first half of the year was in permanent placements
whilst our contract markets were much slower to recover. We saw a 33% increase
in permanent placements largely through contingency recruitment and also via
our Recruitment Process Outsourcing (RPO) contracts. Towards the end of our
financial year, we saw some improvement in our contractor sectors which bodes
well for FY23. We lost a small number of Managed Service Provider (MSP)
clients during the year which had some impact on NFI, less so at net profit
level, and we have also seen a reversal of this trend in the early part of
FY23 with several quality client wins. Our STEM markets are candidate driven
and will continue to be so for the foreseeable future.
During the year, our new leadership team has been challenged with bedding in
our new systems and adding a suite of packages which are now available as a
result of the investment we undertook over the last five years. In the early
part of our system implementation, we placed additional pressure on our sales
and back-office teams which was a distraction when we should have been focused
on our customers. These early teething problems are now behind us and we are
starting to see the benefits of our new systems, which is starting to reflect
in higher productivity from our sales consultants. As with most businesses, we
have seen an increase in people turnover. Our focus on culture has already
begun to show a positive impact on attrition at the end of the year; we will
continue to develop this going forward.
In the second half of the year, we have focused on addressing our cost base.
Firstly, by streamlining the decision-making process with the removal of a
management layer across the global sales business. We have broadened sales
representation in our Senior Leadership Team, to allow for a wider
understanding of key issues and higher clarity on agreed actions.
To optimise our property costs, we have reduced our footprint in the UK and
US; at our head office we have reduced our buildings from three to one,
achieved through hybrid working and a more effective use of space. Further
work remains ongoing in relation to third party costs.
Our net cash position at the end of the year was £12.3m, a reduction from
July 2021, when it was £14.1m, driven by final repayments of the temporary
COVID VAT deferral of £5.6m offset by improved working capital management.
The Group's DSO at the year end of 51.2 days was also slightly ahead of last
year (51.6 days) and substantially below the January 2022 reported DSO of 61.7
days. This reduction was the result of resolving a major customer dispute and
new system implementation issues that had impacted billing cycles.
As at 31 July 2022, the Group had a working capital facility of £60million,
reduced from £75million in the year.
Dividend
Our long-standing objective has been to achieve a through-the-cycle dividend
pay-out of approximately 50% of profits after tax. Last year, the Board felt
comfortable reinstating the dividend and felt that 1.5p per share was a
reasonable first step towards our objective. However, as a result of the loss
for the year, the Board decided not to propose a dividend. The Board remains
committed to paying dividends when the Group returns to sustainable levels of
profitability.
Diversity and inclusion
This year we continued to address the gender balance on the Board. With the
appointment of Ros we now have nearly 30% representation. As a Group, we
remain committed to becoming a more diverse organisation; as part of this, we
continue to work towards our previously set targets of a 40% management gender
balance by 2024 and 50% by 2026. Aligned to our focus on equity, diversity and
inclusions, we are developing our strategy to support all forms of diversity.
We have promoted diversity training throughout the year, having engaged
several external partners to help with fostering a wider understanding
throughout the organisation. We have launched our Limitless programme aimed at
tackling the gender imbalance across our business, set up communities for
LGBTQ+ colleagues and are looking externally to see how we can support our
clients in their endeavours in this area.
Outlook
There is no doubt that Gattaca is well positioned to reap the demand for STEM
talent and, whilst there may be macroeconomic headwinds ahead, we do not
believe they will have a significant impact on our business model. What is
clear is that we are a people business; we will only be successful if we can
harness the potential of our talented people and truly embed our Values of
Trust, Professionalism, Ambition and Fun in everything we do. Whilst we have
achieved many positive things over the years, we are conscious that in recent
years, execution has been our Achilles heel; with our new leadership in place,
we have started to tackle this.
We continue to believe that our key STEM markets will remain short of
candidates which bodes well for our inch-wide, mile-deep knowledge. As the
economy softens we should see a better balance between demand and skills
available but do not expect to be faced with an abundance of candidates. We
believe that large infrastructure and defence projects will continue under
existing government policies; however, in the UK, spend is likely to be slower
to materialise due to economic headwinds and therefore the next six months
will remain relatively flat. We are confident that the changes we have made in
the business leave us better placed for the future.
Patrick Shanley
Non-Executive Chair
Chief Executive's Statement
Key Highlights
• We have aligned our four strategic priorities to our sales growth targets
• We have taken steps towards a fundamental shift in our culture, with
increased focus on embodying our Values, working to reduce attrition and
supporting our ED&I goals
• Substantially increased the regularity and authenticity of our internal
communications
Overview
This year has been one of substantial change for Gattaca. Just over a year ago
we announced our Purpose, Vision, Mission and Values as the bedrock of our
identity, our future direction and the culture we wanted to create. It is the
work that has taken place over the past year to create alignment with these
principles that has started to transform the business. Today, with a new
leadership structure, a more engaged workforce and early signs of more
consistent and improved performance, we are in a much stronger position than
12 months ago.
These changes came against the backdrop of three challenging years: our
operating model and infrastructure, key legislation, financial structures and
systems all saw significant upheaval, combined with the macro-economic
uncertainty from the COVID-19 pandemic and a fundamental change in global
working models to remote and hybrid working.
One of the things that I am most aware of after my first seven months as CEO,
is that it feels like a new chapter - there is a marked improvement in the
atmosphere and culture of the business, and we have achieved some positive
client wins. Our key challenge now will be to convert this momentum into
consistent growth and deliver the performance we know we are capable of over a
sustained period.
I would like to thank the Board for their belief and backing in me and my
leadership team to steer the business through our new chapter, building on the
work that has been done.
Performance
Whilst we saw positive signs of improvement in the second half of the year,
overall performance in FY22 was below our expectations at the outset of the
year.
Although we could see the scale of the external opportunity as the recruitment
markets recovered strongly in the wake of COVID-19, we overestimated the
operational capability of the business to capitalise on this. We also
underestimated the continued impact of the necessary business and operational
changes we were making to build a stronger business.
Although external demand has been high, demand for contract lagged behind
permanent recruitment, and the battle for talent resulting from the shortage
of candidates within our niche STEM focus areas led to far higher
offer-to-reject ratios. With new technology systems embedding, we also
struggled to cope with the significant increase in headcount needed to service
the demand and, like most recruitment companies, suffered from higher
attrition among our own people than we had traditionally seen. Over the year
we saw a significant growth in our permanent recruitment business, with 18%
growth year-on-year, driven to some extent by increased demand from our major
Recruitment Process Outsourcing (RPO) contracts as we saw recovery out of the
COVID-19 pandemic.
During the second half of the year, we delivered against our adjusted
expectations for the full year results and began building positive momentum by
winning our first opportunities of significant scale for a couple of years. We
also began delivering consistent week-on-week growth across both permanent and
contract recruitment. This was as a result of our focus on cultural
transformation, system enhancement optimisation, reducing attrition and
enabling our newly hired frontline sales people to be productive more quickly.
Strategy
At the outset of Q4 we announced four strategic priority areas to deliver
performance:
• External Focus
• Culture
• Operational Performance
• Cost Rebalancing
I am confident that these continue to be the right strategic priorities to
ensure Gattaca fulfil its fantastic potential and capitalise on its many great
strengths. I am pleased to report we have made good strides in the last six
months across all four areas and work continues.
External Focus
We are committed to being market driven and people-oriented.
We have fantastic insights, 'inch-wide, mile-deep' knowledge and understanding
of our sectors and the niche STEM skills that they require. We appointed
Grahame Carter, a long-standing member of the sales leadership team, as Chief
Sales Officer, to work on driving client acquisition and growth across all our
sectors and through the implementation of new performance management
processes, all our sales people have targets focused on client engagement and
growth. With the business refocused externally, we remain confident that these
fundamental strengths will drive us forward as we return to growth.
Businesses in all sectors today are in heavy competition for talent; for us to
deliver for our clients we have had to increase the quality of our candidate
experience. Fortunately, this has been a fundamental ingredient to our
performance for over three decades and, as such, it has come naturally to our
leadership and colleagues.
We have invested in sales training, leadership development and increased
marketing and business development for our brands which will begin to generate
returns in the year ahead.
Culture
We have made huge strides in embedding our culture: engagement, collaboration
and accountability are all up and attrition is improving. We've increased
communication, visibility of leadership and focus on non-financial recognition
across the business and we will see more of this over the months and years to
come.
As a business that helps 'find people to work with people', diversity and
inclusion is something I'm passionate about. As such, I'm really pleased that
we have appointed Sally Spicer as our Head of Engagement, ED&I and Talent.
Sally has been a high performer within our permanent recruitment sales
business for a number of years. Among Sally's first achievements in her new
role is the launch of our 'Limitless' programme aimed at tackling the gender
imbalance within the Group and the set-up of LGBTQ+ communities for our
people. Sally will develop our internal ED&I strategy, build external
partnerships and support the business to take that expertise to market.
Operational Performance
We are continuing to refine our operational processes to improve the client
and candidate journey. This will naturally see us rebalancing our cost base
towards the skills, tooling and locations where we can benefit most.
We appointed Paul King, previously Head of our Solutions division, to Chief
Operating Officer; his remit is to simplify our delivery and improve our
productivity. In FY22, we embedded our technology systems, focusing on user
training to embed behaviours and drive efficiencies. Alongside this, the
integration of an enhanced candidate sourcing tool into our new technology
platform has substantially increased the volume of candidates we can source
through searches which is critical in a candidate-short market. Modern systems
have naturally driven higher quality and more extensive data to better inform
our decision-making. As an example, we took a strategic decision to exit a
major but very low margin client in the year, enabling our people to be
rediverted to more profitable delivery.
Cost Rebalancing
Alongside investments in technology and people, we've managed to reduce costs
in other key areas of the business, including those associated to leadership,
property and third-party contracts. The savings generated from this cost
rationalisation have been used to invest in further technology tools,
marketing and colleague engagement projects and to fund a cost-of-living pay
increase for our people who are currently living through a time of extreme
pressure on living costs.
Outlook
Clearly the performance of the business during the year is not acceptable for
a business with our capability, however I am pleased with the progress that we
have made during the second half of the year. We have worked to transform the
business through the building of our culture and becoming a winning team.
Today, with a new leadership structure, a more engaged workforce and early
signs of more consistent and improved performance, we are in a much stronger
position as a business.
We are better set up for success than we were 12 months ago but remain
conscious of the uncertain macro-economic environment and that we have much to
do to get ourselves to the level we are aiming for. I am excited about the
journey that we are all on and we have made a solid start.
Matt Wragg
Chief Executive Officer
Chief Financial Officer's Report
Key Highlights
• NFI growth of 5% YoY on a continuing underlying basis
• Continuing underlying profit before tax of £0.3m in FY22 (2021: £1.8m
restated)
• Adjusted statutory net cash of £12.3m (2021: £14.1m)
• Investment in our people adding 10% to our Group sales headcount during
the year
• New leadership team in place with revised strategic priorities launched
Financial Performance
On a continuing basis, revenue of £403.3m (2021: £415.7m) generated NFI of
£44.1m (2021: £42.1m). We achieved contract and Statement of Work (SoW) NFI
of £31.4m (2021: £31.3m) at a margin of 8.0% (2021: 7.6%), and permanent
recruitment fees of £12.8m (2021: £10.8m). SoW NFI, included within contract
NFI, of £1.3m (2021: £1.2m) is all delivered though contract labour
provision on long term projects. Contract NFI was flat year-on-year due to the
loss of some key MSP clients including TfL, UKPN and BMW UK, and losses
associated with the collapse of NMCN plc dampening growth.
Underlying profit before tax from continuing operations was £0.3m (2021
restated: £1.8m). Statutory loss after tax for the total Group was £(4.7)m
(2021 restated: loss of £(0.4)m). Within underlying trading, credits of
£0.4m were recorded as a result of revaluation of dilapidation provisions
associated with our property portfolio.
Statutory net cash at 31 July 2022 was £12.3m (31 July 2021: £14.1m); the
reduction in net cash year-on-year of £1.8m included final repayments of
£5.6m of temporary VAT deferral. The optimisation of the Group's working
capital is a key focus and during the second half of the year the group has
benefitted from a significant improvement from the half year as we have
reduced DSO through improved collection performance and resolution of a
substantial disputed debtor balance.
Discontinued operations and non-underlying costs
The below table reconciles continuing underlying profit before tax to reported
statutory loss before tax for the total Group:
£'000 Profit/(loss) before tax
Continuing underlying profit before tax 256
Restructuring costs (405)
Other continuing non-underlying costs (153)
Operating loss related to discontinued operations (476)
Restructuring and closure costs relating to discontinued operations (95)
Amortisation and Impairment of goodwill, acquired intangibles and ROU leased (5,051)
assets
Foreign exchange differences 784
Loss before tax for the total Group (5,140)
Restructuring costs in the year related to the continued activities are
primarily notice payments for previous Executive management and senior
leadership. Costs associated with discontinued operations related to ongoing
closure costs of those operations treated as discontinued in prior periods,
primarily Mexico, South Africa and Malaysia. We will continue to incur costs
associated with discontinuing legacy operations as the legal wind down of
those operations is concluded over the coming years.
During the year, we took a further impairment charge of £4.6m (2021: £0.2),
writing off all remaining goodwill, intangible assets and right-of-use leased
asset values relating to the Resourcing Solutions business acquired in 2017,
due to a downgrade in forecasts for future profitability of the division.
Amortisation of acquired intangible assets was £0.4m.
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 £33,000 in the year (2021: £29,000). As shown in Note 28 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 -9.1% (2021 restated: -6.3%),
driven down by non-deductible expenses such as goodwill impairment and
overseas losses not recognised as deferred tax assets, reducing taxable
losses. Further detail is set out in Note 10 of the consolidated financial
statements. The continuing underlying effective tax rate was 60.2% (2021
restated: 7.2%).
Earnings per share
Basic (loss) per share was (14.5) pence (2021 restated: (1.4) pence), and on a
fully diluted basis was (14.5) pence (2021 restated: (1.4) pence). Continuing
underlying basic earnings per share was 0.3 pence (2021 restated: 5.3 pence).
Dividends
Our long-standing objective has been to achieve a through-the-cycle dividend
payout of approximately 50% of profits after tax. Last year, the Board felt
comfortable reinstating the dividend and felt that 1.5p per share was a
reasonable first step towards our objective. However, this year the Board
decided not to recommend a dividend. The Board remains committed to paying
dividends when the Group returns to sustainable levels of profitability.
Capital expenditure
The Group incurred capital expenditure in the period of £0.4m (2021 restated:
£0.4m). Following the publication of the IFRS Interpretations Committee's
('IFRIC') final agenda decision on accounting for configuration and
customisation costs in a SaaS arrangement, including for cloud-based
arrangements, the Group has updated its accounting policy for this area. This
change in accounting policy has been applied to all relevant capitalised
intangible asset costs held on the balance sheet, see Note 1.25 of the
consolidated financial statements.
Net assets, equity and shares In Issue at 31 July 2022
The Group had net assets of £30.0m (2021 restated: £35.1m) and had 32.3m
(2021: 32.3m) fully paid ordinary shares in issue. During the year, the merger
reserve in Gattaca plc relating to the Networkers 2015 acquisition of £28.5m
was transferred to retained earnings in order to present all distributable
reserves in one place. This merger reserve had become fully realised in prior
periods, as detailed in Note 23.
Cash flow and net cash position
Group statutory net cash at 31 July 2022 was £12.3m (31 July 2021: £14.1m).
The reduction in net cash year-on-year of £1.8m included £5.6m of repayments
of temporary VAT deferral, which is now repaid to HMRC in full. The Group's
trade and other receivables balance was £54.8m at 31 July 2022 (31 July 2021:
£64.1m), of which debtor and accrued income balances were £51.7m (31 July
2021: £60.9m), a £9.2m reduction over the 12 month period.
The Group's days sales outstanding ('DSO') at 31 July 2022 of 51.2 days is a
reduction of 0.4 days since 31 July 2021, however a reduction of 10.5 days on
DSO reported at 31 January 2022. The challenges that the Group was
encountering at 31 January 2022 in relation to a key customer dispute and
system implementation issues are now resolved, which has resulted in the
substantial reduction to normalised levels of DSO. In addition to this, the
loss of a highly working capital intensive MSP client has resulted in an
unwind of working capital.
As at 31 July 2022, the Group had a working capital facility of £60m, reduced
from £75m in the year as the higher limit was not required; this facility
includes both recourse and non-recourse elements. 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. The utilisation of this
facility at 31 July 2022 was £(1.8)m recourse and £(9.6)m non-recourse, with
unutilised facility headroom of £33.1m.
Critical accounting policies
The statement of significant accounting policies is set out 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 2022 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 and the
write-off of certain irrecoverable receivables (such as balances with NMCN
plc), resulting in a decrease to our loss allowance by £(1.8)m to £2.8m.
There are no significant concentrations of credit risk within the Group, with
no single debtor accounting for more than 8% (2021: 7%) of total receivables
balances at 31 July 2022.
In October 2021 NMCN Plc entered into administration. Our total client
exposure at this point was £1.4m, of which £0.8m exposure at the prior year
end was covered by existing credit loss provisions. In the current year we
also utilised existing credit loss provisions against the total exposure
suffered.
Foreign currency risk
The Group generates 6% 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 2022
Note 2022 Restated(1)
£'000 2021
£'000
Continuing operations
Revenue 2 403,346 415,726
Cost of sales (359,206) (373,646)
Gross profit 2 44,140 42,080
Administrative expenses² (49,244) (40,188)
(Loss)/profit from continuing operations 4 (5,104) 1,892
Finance income 6 570 56
Finance cost 7 (253) (1,136)
(Loss)/profit before taxation (4,787) 812
Taxation 10 460 (41)
(Loss)/profit for the year after taxation from continuing operations (4,327) 771
Discontinued operations
Loss for the year from discontinued operations (attributable to equity holders 11 (346) (1,208)
of the Company)
Loss for the year (4,673) (437)
Loss for the year for 2022 and 2021 are 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 2022 Restated(1)
pence 2021
pence
Basic loss per share 12 (14.5) (1.4)
Diluted loss per share 12 (14.5) (1.4)
Earnings from continuing operations per ordinary share Note 2022 Restated(1)
pence 2021
pence
Basic (loss)/earnings per share 12 (13.4) 2.4
Diluted (loss)/earnings per share 12 (13.4) 2.4
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.
2022 Restated(1)
£'000 2021
£'000
(Loss)/profit from continuing operations (5,104) 1,892
Add:
Depreciation of property, plant and equipment, leased right-of-use assets and 2,210 2,185
amortisation of software and software licences
Non-underlying items included within administrative expenses 558 (193)
Amortisation and impairment of goodwill and acquired intangibles and 5,051 548
impairment of leased right-of-use assets
Underlying EBITDA 2,715 4,432
Less:
Depreciation of property, plant and equipment, leased right-of-use assets and (2,210) (2,185)
amortisation of software and software licences
Net finance costs excluding foreign exchange gains and losses (249) (412)
Underlying profit before taxation 256 1,835
Underlying taxation (154) (132)
Underlying profit after taxation from continuing operations 102 1,703
1. Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
2. Administrative expenses from continuing operations includes net impairment
release on trade receivables and accrued income of £295,000 (2021: losses of
£420,000).
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2022
Note 2022 Restated(1)
£'000 2021
£'000
Loss for the year (4,673) (437)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 72 281
Other comprehensive income for the year 72 281
Total comprehensive loss for the year attributable to equity holders of the (4,601) (156)
parent
2022 Restated(1)
£'000 2021
£'000
Attributable to:
Continuing operations (4,024) 1,004
Discontinued operations (577) (1,160)
(4,601) (156)
1. Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
Consolidated and Company Statements of Changes in Equity
For the year ended 31 July 2022
A) Consolidated
Share Share premium Merger reserve Share-based payment reserve Translation reserve Treasury shares reserves Restated¹ Retained earnings Total
capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000
£'000
At 1 August 2020 as per originally presented 323 8,706 28,750 526 (147) (97) 1,711 39,772
Adjustments due to change of accounting policy, net of tax (Note 1.25) - - - - - - (4,738) (4,738)
Restated total equity at 1 August 2020 323 8,706 28,750 526 (147) (97) (3,027) 35,034
Loss for the year - - - - - - (437) (437)
Other comprehensive income - - - - 281 - - 281
Total comprehensive loss - - - - 281 - (437) (156)
Deferred tax movement in respect of share options - - - - - - 65 65
Share-based payments charge (Note 23) - - - 104 - - - 104
Share-based payments reserves transfer - - - (176) - - 176 -
Issue of treasury shares to employees - - - - - 60 - 60
Transactions with owners - - - (72) - 60 241 229
At 31 July 2021 323 8,706 28,750 454 134 (37) (3,223) 35,107
At 1 August 2021 323 8,706 28,750 454 134 (37) (3,223) 35,107
Loss for the year - - - - - - (4,673) (4,673)
Other comprehensive income - - - - 72 - - 72
Total comprehensive loss - - - - 72 - (4,673) (4,601)
Deferred tax movement in respect of share options - - - - - - (60) (60)
Share-based payments charge (Note 23) - - - 145 - - - 145
Share-based payments reserves transfer - - - (249) - - 249 -
Purchase of treasury shares - - - - - (110) - (110)
Translation reserve movements on disposal of foreign operations(2) - - - - 931 - (931) -
Dividends paid in the year (Note 29) - - - - - - (484) (484)
Transfer of merger reserve (Note 23) - - (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) 19,404 29,997
B) Company
Share capital Share premium Merger reserve Share-based payment £'000 Treasury shares reserves Retained earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
At 1 August 2020 323 8,706 28,526 526 - 1,446 39,527
Loss and total comprehensive expense for the year (Note 9) - - - - - (866) (866)
Share-based payments charge (Note 23) - - - 104 - - 104
Share-based payments reserves transfer - - - (176) - 176 -
Purchase of treasury shares - - - - (16) - (16)
Transactions with owners - - - (72) (16) 176 88
At 31 July 2021 323 8,706 28,526 454 (16) 756 38,749
At 1 August 2021 323 8,706 28,526 454 (16) 756 38,749
Profit and total comprehensive income for the year (Note 9) - - - - - 296 296
Share-based payments charge (Note 23) - - - 145 - - 145
Share-based payments reserves transfer - - - (249) - 249 -
Purchase of treasury shares - - - - (91) - (91)
Dividends paid - - - - - (484) (484)
Transfer of merger reserve (Note 23) - - (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
1. Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
2. The movement through the translation reserve in the year ended 31 July 2022 is
in respect of disposal of foreign operations relates to the sale of the South
African recruitment operations in December 2021 and the realisation of
previously unrealised foreign exchange losses.
Consolidated and Company Statements of Financial Position
As at 31 July 2022
Group Company
Note 31-Jul-22 Restated¹ Restated(1) 31-Jul-22 31-Jul-21
31-Jul-21
01-Aug-20(2)
£'000
£'002 £'000
£'000 £'000
Non-current assets
Goodwill and intangible assets 13 2,072 6,343 6,948 11 13
Property, plant and equipment 14 1,359 1,578 1,492 - -
Right-of-use assets 22 3,065 5,674 7,338 - -
Investments 15 - - 19 38,608 38,463
Deferred tax assets 16 604 971 859 - -
Total non-current assets 7,100 14,566 16,656 38,619 38,476
Current assets
Trade and other receivables 17 54,767 64,135 48,946 2,757 3,046
Corporation tax receivables 1,263 818 26 238 195
Cash and cash equivalents 17,768 29,238 34,796 7 4
Assets classified as held for sale 11 - 346 - - -
Total current assets 73,798 94,537 83,768 3,002 3,245
Total assets 80,898 109,103 100,424 41,621 41,721
Non-current liabilities
Deferred tax liabilities 16 (25) (14) (29) - -
Provisions 18 (517) (1,269) (1,587) - -
Lease liabilities 22 (2,490) (4,281) (5,746) - -
Bank loans and borrowings 20 - - (7,304) - -
Total non-current liabilities (3,032) (5,564) (14,666) - -
Current liabilities
Trade and other payables 19 (43,406) (56,121) (46,129) (3,006) (2,972)
Provisions 18 (1,187) (464) (1,207) - -
Current tax liabilities (340) (796) (1,247) - -
Lease liabilities 22 (1,135) (1,480) (1,990) - -
Bank loans and borrowings 20 (1,801) (9,348) (151) - -
Liabilities directly associated with assets classified as held for sale 11 - (223) - - -
Total current liabilities (47,869) (68,432) (50,724) (3,006) (2,972)
Total liabilities (50,901) (73,996) (65,390) (3,006) (2,972)
Net assets 29,997 35,107 35,034 38,615 38,749
Equity
Share capital 23 323 323 323 323 323
Share premium 8,706 8,706 8,706 8,706 8,706
Merger reserve 23 224 28,750 28,750 - 28,526
Share-based payment reserve 350 454 526 350 454
Translation reserve 1,137 134 (147) - -
Treasury shares reserve (147) (37) (97) (107) (16)
Retained earnings 19,404 (3,223) (3,027) 29,343 756
Total equity 29,997 35,107 35,034 38,615 38,749
1. Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
2. Following the material restatement of the comparative information in relation
to cloud computing arrangements, as explained further in Note 1.25, a third
balance sheet has been presented as at 1 August 2020, in line with the
requirements of IAS 1.
The amount of profit generated by the parent Company was £296,000 for the
year ended 31 July 2022 (2021: loss of £866,000).
The financial statements were approved by the board of directors on 2 November
2022 and signed on its behalf by
Oliver Whittaker
Chief Financial Officer
Consolidated and Company Cash Flow Statements
For the year ended 31 July 2022
Group Company
Note 2022 Restated¹ 2022 2021
£'000 2021 £'000 £'000
£'000
Cash flow from operating activities
(Loss)/profit after taxation (4,673) (437) 296 (866)
Adjustments for:
Depreciation of property, plant and equipment and amortisation of goodwill and 4 1,078 901 2 3
intangible assets, software and software licences
Depreciation of leased right-of-use assets 4 1,552 1,875 - -
Loss from sale of subsidiary, associate or investment 82 - - -
Loss on disposal of property, plant and equipment 33 8 - -
Loss on disposal of software and software licences 12 - - -
Impairment of goodwill and acquired intangibles 4 3,780 - - -
Impairment of right-of-use assets 4 852 183 - -
Profit on reassessment of lease term (27) - - -
Impairment of property, plant and equipment - 18 - -
Interest income 6 (4) (65) (1) -
Interest costs 7 253 1,218 - 260
Taxation (credit)/expense recognised in income statement 10 (467) 26 (235) (189)
Decrease/(increase) in trade and other receivables 9,368 (15,499) 582 68,992
(Decrease)/increase in trade and other payables (12,715) 10,098 (67) (60,617)
Increase in provisions (54) (1,064) - -
Share-based payment charge 23 145 271 - -
Investment income - - (1,350) -
Foreign exchange gains 31 - - -
Cash (used in)/generated from operations (754) (2,467) (773) 7,583
Interest paid 7 (138) (320) - (63)
Interest on lease liabilities 7 (115) (156) - -
Interest received 6 4 65 1 -
Income taxes paid (200) (1,322) - -
Cash (used in)/generated from operating activities (1,203) (4,200) (772) 7,520
Cash flows from investing activities
Purchase of property, plant and equipment 14 (370) (332) - -
Purchase of intangible assets 13 (29) (83) - -
Dividends received - - 1,350 -
Cash (used in)/generated from investing activities (399) (415) 1,350 -
Cash flows from financing activities
Lease liability principal repayment (1,924) (2,355) - -
(Purchase)/issue of treasury shares (110) 60 (91) (16)
Working capital facility (repaid)/utilised (7,547) 9,197 - -
Repayment of term loan - (7,500) - (7,500)
Dividends paid 29 (484) - (484) -
Cash used in financing activities (10,065) (598) (575) (7,516)
Effects of exchange rates on cash and cash equivalents 197 (345) - -
(Decrease)/increase in cash and cash equivalents (11,470) (5,558) 3 4
Cash and cash equivalents at the beginning of the year 29,238 34,796 4 -
Cash and cash equivalents at end of year² 17,768 29,238 7 4
1 Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
2 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: £615,000 of restricted cash (2021: £7,115,000) arising from
the Group's non-recourse working capital arrangements, as discussed further in
Note 20; and £1,662,000 of restricted cash (2021: £1,240,000) on deposit in
accounts controlled by the Group but not available to be immediately be drawn
down.
Net decrease in cash and cash equivalents for discontinued operations was
£742,000 (year to 31 July 2021: decrease of £1,534,000).
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. 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 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 1.24.
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.
Post-pandemic, the Group has maintained mitigating actions to enhance working
capital availability, including increases to the payment terms of certain
types of contractors and these actions have created a permanent working
capital benefit, and reduce our working capital requirements during growth.
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 hybrid working style adopted by the majority of our staff is now fully
integrated with our core business processes and there continues to be no
significant impact to our ability to operate effectively.
The Group anticipates macroeconomic challenges over the next financial year,
significantly in the UK where increases in energy prices continue to drive
rising inflation and real potential for a UK recession. The UK Government's
Mini-Budget on 23 September 2022 resulted in increased short-term economic
uncertainty and fluctuations in currency markets. The Bank of England's
response has seen interest rates rise by 100 basis points since the year end.
The Directors have prepared detailed cash flow forecasts to July 2025,
covering a period of 33 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. This base case assumes a return to pre-pandemic NFI in 2026. Trading
has been broadly in line with the forecast since the year end.
A key assumption in preparing the cash flow forecasts is the continued
availability of Group's invoice financing facility to provide liquidity
throughout the forecast period. The current £60m facility has no contractual
renewal date and 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 finance
costs associated with variable rate borrowings considered. The Group has
modelled the impact of a severe but plausible scenario including nil growth in
contract and permanent NFI across FY23 to FY25, operating cost inflation of
5.00%-10.00% and further increases in the Bank of England's base rate to
5.00%.
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 2021 and no new standards have been early adopted. The Group's July
2022 consolidated financial statements have adopted these amendments to IFRS:
· Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate
Benchmark Reform - Phase 2 (effective 1 January 2021)
· Following the IFRS Interpretations Committee's agenda decision published in
March 2021, during the year to 31 July 2022, the Group voluntarily changed its
accounting policy relating to the capitalisation of certain software costs,
specifically relating to the capitalisation of implementation costs such as
configuration and customisation costs for cloud-based software under SaaS
arrangements. This is further described, along with the financial impact, in
Note 1.25.
With the exception of the accounting policy change described above, there have
been no further alterations made to the accounting policies as a result of
considering all of the other 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
only effective for the Group accounting periods beginning on or after 1 August
2022. These new pronouncements are listed as follows:
· Amendments to IAS 1 - Classification of liabilities as current or non-current
(effective 1 January 2022)
· Amendments to IAS 16 - Property, plant and equipment: proceeds before intended
use (effective 1 January 2022)
· Amendments to IAS 37 - Onerous contracts - cost of fulfilling a contract
(effective 1 January 2022)
· Amendments to IFRS 3 - Reference to the conceptual framework (effective 1
January 2022)
· Amendments to IFRS Standards 2018-2022 - Annual improvements on IFRS 9, IFRS
16 and IFRS 1 (effective 1 January 2022)
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 2022 or later:
Standard Effective date (annual period beginning on or after)
IAS 1 and IFRS Practice Statement 2 Improve accounting policy disclosures 1 January 2023
IAS 8 Clarify distinction between accounting policies and accounting estimates 1 January 2023
IAS 12 Deferred tax related to assets and liabilities arising from a single 1 January 2023
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 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.
Other
Other revenue streams are generated from the provision of engineering
management services 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.
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 Government Grants
Government grants are assistance by government in the form of transfers of
resources to an entity in return for past or future compliance with certain
conditions relating to operating activities.
Government grants are recognised when there is a reasonable assurance that the
Group will comply with the conditions attached to it and that the grant will
be received. They are recognised in the consolidated Income Statement on a
systematic basis over the periods in which the related costs that they
compensate are recognised as expenses.
Grants are either presented as grant income or deducted in reporting the
related expense they compensate in the Income Statement.
1.8 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 of 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 Distorting due to fluctuating nature (size) Does not reflect in-year operational performance of continuing business
on year
Material restructuring costs X X X
Lease exit costs X X X
Amortisation and impairment of goodwill and acquired intangibles X X X
Impairment of leased right-of-use assets X X X
Net foreign exchange gains and losses X X
Tax impact of the above X X X
1.9 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.
1.10 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.
1.11 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. The following outlines the accounting treatment of implementation costs
incurred in relation to SaaS arrangements:
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. Provision is made against the carrying value of
an intangible asset where an impairment is deemed to have occurred. Impairment
losses on intangible assets are recognised in the income statement under
administrative expenses.
1.12 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. Provision is made against the
carrying value of an investment where an impairment is deemed to have
occurred. Impairment losses on investments are recognised in the income
statement under administrative expenses.
1.13 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.
1.14 Leases
The Group has applied IFRS 16 using the modified retrospective approach,
effective from 1 August 2019. The comparative information prior to this date
has not been restated and continues to be reported under IAS17 and IFRIC 14.
The Group leases office property, motor vehicles and equipment. Rental
contracts range from monthly to six 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 no longer utilised by the Group but for which lease
liabilities still exist, for example a property exited before the end of the
lease term or break clause, are fully impaired with the expense recognised in
the income statement.
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 re-assessment and not a modification. Changes to
lease cash flows as part of a re-assessment result in a re-measurement 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.
1.15 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.
1.16 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.
1.17 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.
1.18 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 reclassifies debt investments when and only when its business model
for managing those assets changes.
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 ECL's 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 de-recognised and any difference between the receivable value
and amount received through non-recourse factoring is recognised as a finance
cost.
1.19 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 trapped cash. Trapped cash are balances for which
the Group can no longer access the accounts and hence cannot withdraw or
control funds but is still the legal owner.
1.20 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.
1.21 Dividends
Dividend distributions payable to equity shareholders are included in 'other
short term financial liabilities' when the dividends are approved in general
meeting prior to the financial position date.
1.22 Foreign currencies
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which each
entity operates ('the functional currency'). The consolidated financial
statements are presented in 'currency' (GBP), which is the Group's
presentation currency.
Transactions in foreign currencies are translated at the exchange rate ruling
at the date of the transaction. Monetary assets and liabilities in foreign
currencies are translated at the rates of exchange ruling at the Statement of
Financial Position date. Non-monetary items that are measured at historical
cost in a foreign currency are translated at the exchange rate at the date of
the transaction. Non-monetary items that are measured at fair value in a
foreign currency are translated using the exchange rates at the date when the
fair value was determined. 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 Statement of Financial
Position 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 balance sheet 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 the
re-translations 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.
1.23 Equity
Equity comprises the following:
· Share capital' represents the nominal value of equity shares
· 'Share premium' represents the excess over nominal value of the fair value of
consideration received for equity shares, net of expenses of the share issue
· 'Merger reserve' represents the equity balance arising on the merger of
Matchtech Engineering and Matchmaker Personnel and to record the excess fair
value above the nominal value of the share consideration on the acquisition of
Networkers International plc, less any amounts realised and reclassified to
distributable reserves. Unrealised profits held in the merger reserve become
realised when a realised loss is recognised on the associated asset, or the
asset is disposed of in return for qualifying consideration as defined by the
Companies Act 2006. On realisation, the merger reserve can be transferred to
retained earnings
· 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
1.24 Critical accounting judgements and key sources of estimation uncertainty
Critical accounting judgement
The Directors are of the opinion that 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 on-going
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 17. The impact of the
ongoing economic recovery from COVID-19 and other macro-economic factors have
been incorporated into these estimates.
Valuation of goodwill and intangible assets
Goodwill and intangible assets (including acquired intangibles) are tested for
impairment on an annual basis or otherwise when changes in events or
situations indicate that the carrying value may not be recoverable. This
requires an estimate to be made of the recoverable amount of the
cash-generating unit to which the assets are allocated, including forecasting
future cash flows of each cash-generating unit and forming assumptions over
the discount rate and long-term growth rate applied. The impact of the ongoing
economic recovery from COVID-19 and other macroeconomic factors have been
reflected in the forecast future cash flows. More detail of the assumptions
used can be found in Note 13.
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 required. 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. The impact of the ongoing economic recovery from COVID-19 and other
macroeconomic factors have been reflected in the forecast cash flows. More
detail of the assumptions used can be found in Note 15.
1.25 Change in accounting policy - Software-as-a-service ('SaaS') arrangements
In the year to 31 July 2022, following the IFRS Interpretation Committee's
agenda decision published in March 2021, the Group changed its accounting
policy relating to the capitalisation of certain software costs, specifically
relating to the capitalisation of implementation costs such as configuration
and customisation costs for cloud-based software under SaaS arrangements.
The Group's accounting policy was previously to capitalise costs directly
attributable to the development of intangible software assets, including
configuration and customisation costs, irrespective of whether the services
were performed by the SaaS supplier or a third party. Following the adoption
of the IFRIC agenda guidance, all software intangible assets were identified
and assessed to determine if they related to cloud-based software under SaaS
arrangements. The Group then assessed whether they had control over the
software and any associated capitalised implementation costs. For those
arrangements where the Group did not have control of the developed cloud-based
software under the updated IFRIC agenda guidance, to the extent that the
implementation services were performed by a third party, the Group determined
if the service was separate from the underlying software service contract and
if so, derecognised the intangible asset previously capitalised. Amounts paid
to a supplier for customisation costs that were not separate from the
underlying software service contract, were treated as a prepayment over the
period of the service contract.
Accordingly, in line with the treatment prescribed in IAS 8 and IAS 1 in
respect of changes in accounting policies, this change has been applied
retrospectively, restating the prior period balance sheet at 1 August 2020 and
31 July 2021.
The full impact of the change in accounting policy is detailed below.
Condensed Consolidated Income Statement
For the year ended 31 July 2021
As previously reported Adjustment As restated
£'000 £'000 £'000
Continuing operations
Gross profit 42,080 - 42,080
Administrative expenses · Other administrative expenses (38,374) - (38,374)
Administrative expenses · expense of implementation costs - (1,544) (1,544)
Administrative expenses · reversal of amortisation of software implementation costs (422) 283 (139)
Administrative expenses · unwinding of the prepaid software implementation costs - (131) (131)
Profit before taxation 3,284 (1,392) 1,892
Net finance costs (1,080) - (1,080)
Taxation (415) 374 (41)
Profit after taxation from continuing operations 1,789 (1,018) 771
Profit/(loss) for the year 581 (1,018) (437)
Condensed Consolidated Statement of Changes in Equity
As previously reported Adjustment As restated
£'000 £'000 £'000
Total equity at 1 August 2020 39,772 (4,738) 35,034
Profit/(loss) for the period 581 (1,018) (437)
Balance at 31 July 2021 40,863 (5,756) 35,107
Condensed Consolidated Statement of Financial Position
As previously reported as at 1 August 2020 Adjustment as at 1 August 2020 As restated as at 1 August 2020
£'000 £'000 £'000
Non-current assets
Goodwill and intangible assets 12,877 (5,929) 6,948
Deferred tax assets - 859 859
Total non-current assets 21,726 (5,070) 16,656
Current assets
Trade and other receivables 48,862 84 48,946
Total current assets 83,684 84 83,768
Total assets 105,410 (4,986) 100,424
Non-current liabilities
Deferred tax liabilities (277) 248 (29)
Total non-current liabilities (14,914) 248 (14,666)
Total liabilities (65,638) 248 (65,390)
Net assets 39,772 (4,738) 35,034
Equity
Retained earnings 1,711 (4,738) (3,027)
Total equity 39,772 (4,738) 35,034
As previously reported as at 31 July 21 Adjustment As restated
£'000 as at 31 July 21 as at 31 July 21
£'000 £'000
Non-current assets
Goodwill and intangible assets 13,778 (7,435) 6,343
Deferred tax assets - 971 971
Total non-current assets 21,030 (6,464) 14,566
Current assets
Trade and other receivables 63,937 198 64,135
Total current assets 94,339 198 94,537
Total assets 115,369 (6,266) 109,103
Non-current liabilities
Deferred tax liabilities (524) 510 (14)
Total non-current liabilities (6,074) 510 (5,564)
Total liabilities (74,506) 510 (73,996)
Net assets 40,863 (5,756) 35,107
Equity
Retained earnings 2,533 (5,756) (3,223)
Total equity 40,863 (5,756) 35,107
Condensed Consolidated Cash Flow Statement
For period ended 31 July 2021
As previously reported Adjustment As restated
£'000 £'000 £'000
Cash flows from operating activities
Profit/(loss) after taxation 581 (1,018) (437)
Cash used in operating activities (2,411) (1,789) (4,200)
Cash flows from investing activities
Purchase of intangible assets (1,872) 1,789 (83)
Cash used in investing activities (2,204) 1,789 (415)
Cash and cash equivalents at end of year 29,238 - 29,238
2 Segmental Information
An operating segment, as defined by IFRS 8 'Operating segments', is a
component of the Group that engages in business activities from which it may
earn revenues and incur expenses. The Group determines and presents operating
segments based on the information that is provided internally to the chief
operating decision maker, which has been identified as the Board of Directors
of Gattaca plc. Previously, the Group was managed through its three reporting
segments, UK Engineering, UK Technology and International. From August 2021
the Group aligned its operating model to the markets in which its clients
operate. From December 2021 financial information provided to the Board was
based on this new reporting and operating structure. As a result of this
change, the segmental information for the year to 31 July 2022 has been
presented based on the new structure in line with the requirements of IFRS 8
'Operating Segments' and the information for the year to 31 July 2021 has been
restated accordingly.
Year ended 31 July 2022
All amounts in £'000 Mobility Energy Defence Technology, Media and Telecoms Infrastructure International(3) Other Continuing underlying operations Non-recurring items and amortisation of acquired intangibles Discontinued Total Group
Revenue 47,766 40,779 69,811 41,660 140,422 7,969 54,939 403,346 - 781 404,127
Gross profit 4,571 3,884 6,720 4,246 13,561 2,779 8,379 44,140 - 238 44,378
Operating contribution 1,963 2,015 3,003 1,674 5,082 (613) 2,338 15,462 - (440) 15,022
Depreciation, impairment, and amortisation (74) (63) (108) (64) (217) (12) (86) (624) (5,051) (31) (5,706)
Central overheads (1,128) (774) (2,753) (992) (4,418) (1,609) (2,659) (14,333) (558) (100) (14,991)
Profit/(loss) from operations 761 1,178 142 618 447 (2,234) (407) 505 (5,609) (571) (5,675)
Finance (costs)/income, net (249) 566 218 535
Profit/(loss) before tax 256 (5,043) (353) (5,140)
Year ended 31 July 2021 Restated¹(,2)
All amounts in £'000 Mobility Energy Defence Technology, Media and Telecoms Infrastructure International(3) Other Continuing underlying operations Non-recurring items and amortisation of acquired intangibles Discontinued Total Group
Revenue 43,251 48,854 67,680 42,319 146,286 9,816 57,520 415,726 - 3,432 419,158
Gross profit 3,141 3,916 5,858 3,735 14,182 3,528 7,720 42,080 - 1,047 43,127
Operating contribution 1,263 2,231 3,227 1,368 7,707 (483) 3,164 18,477 - (213) 18,264
Depreciation, impairment, and amortisation (388) (438) (607) (380) (1,311) (88) (516) (3,728) (548) (244) (4,520)
Central overheads (1,021) (707) (2,301) (835) (4,041) (1,352) (2,245) (12,502) 193 (693) (13,002)
Profit/(loss) from operations (146) 1,086 319 153 2,355 (1,923) 403 2,247 (355) (1,150) 742
Finance costs (412) (668) (73) (1,153)
Profit/(loss) before tax 1,835 (1,023) (1,223) (411)
1 Segmental disclosures for the year to 31 July 2021 have been restated as a
result of the change in operating model structure.
2 Comparatives are restated following the March 2021 IFRS Interpretations
Committee agenda decision on cloud computing arrangements, resulting in
previously capitalised software assets being expensed, as explained further in
Note 1.25.
3 International 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.
A segmental analysis of total assets has not been included as this information
is not used by the board; the majority of assets are centrally held and are
not allocated across the reportable segments.
Geographical information
All amounts in £'000 Total Group revenue Non-current assets
2022 2021 2022 Restated1
2021
UK 390,861 402,254 6,726 13,740
Rest of Europe 662 2,316 1 -
Middle East and Africa 781 1,685 59 551
Americas 11,823 12,903 314 275
Total 404,127 419,158 7,100 14,566
1. Comparatives are restated following the March 2021 IFRS Interpretations
Committee agenda decision on cloud computing arrangements, resulting in
previously capitalised software assets being expensed, as explained further in
Note 1.25.
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
2022 Mobility Energy Defence Technology, Media and Telecoms Infrastructure International Other Continuing underlying operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Temporary placements 46,249 40,612 67,652 40,493 138,027 5,863 48,728 387,624
Permanent placements 1,483 158 1,909 1,115 2,363 2,106 3,652 12,786
Other 34 9 250 52 32 - 2,559 2,936
Total 47,766 40,779 69,811 41,660 140,422 7,969 54,939 403,346
2021 Restated¹ Mobility Energy Defence Technology, Media and Telecoms Infrastructure International Other Continuing underlying operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Temporary placements 42,326 48,559 65,581 41,376 144,298 7,575 52,430 402,145
Permanent placements 903 259 2,050 922 1,883 2,240 2,557 10,814
Other 22 36 49 21 105 1 2,533 2,767
Total 43,251 48,854 67,680 42,319 146,286 9,816 57,520 415,726
1 As explained in Note 2, reported operating segments have changed at 31 July
2022 as a result of a change in internal operating structure; consequently,
all prior period information has been restated on the new basis.
Timing of revenue recognition - continuing operations
2022 Mobility Energy Defence Technology, Media and Telecoms Infrastructure International Other Continuing underlying operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Point in time 47,766 40,779 69,811 41,660 140,422 7,969 52,436 400,843
Over time - - - - - - 2,503 2,503
Total 47,766 40,779 69,811 41,660 140,422 7,969 54,939 403,346
2021 Restated¹ Mobility Energy Defence Technology, Media and Telecoms Infrastructure International Other Continuing underlying operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Point in time 43,251 48,854 67,680 42,319 146,286 9,816 55,022 413,228
Over time - - - - - - 2,498 2,498
Total 43,251 48,854 67,680 42,319 146,286 9,816 57,520 415,726
1 As explained in Note 2, reported operating segments have changed at 31 July
2022 as a result of a change in internal operating structure; consequently,
all prior period information has been restated on the new basis.
No single customer contributed more than 10% of the Group's revenues (2021:
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 2022 31 July 2021
£'000 £'000
Trade receivables (Note 17) 36,367 34,187
Accrued income (Note 17) 15,327 26,742
Deferred income (330) (880)
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.
4 Profit from Total Operations
2022 2021
£'000 £'000
Profit from total operations is stated after charging:
Depreciation of property, plant and equipment (Note 14) 570 213
Depreciation of right-of-use leased assets (Note 22) 1,552 1,875
Amortisation of acquired intangibles (Note 13) 420 548
Amortisation of software and software licences (Note 13) 88 139
Impairment of property, plant and equipment (Note 14) - 18
Impairment of goodwill and acquired intangibles (Note 13) 3,780 -
Impairment of right-of-use leased assets (Note 22) 852 183
Loss on disposal of property, plant and equipment 33 8
Loss on disposal of software and software licences 12 -
Plant and machinery costs for leases out-of-scope of IFRS 16 17 14
Non-recourse working capital facility bank charges 323 287
Share-based payment charges 114 271
1 Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
The aggregate auditors remuneration was as follows:
2022 2021
£'000 £'000
Fees payable for the audit of the parent company financial statements 11 10
Fees payable for the audit of the subsidiary company financial statements 345 344
Total auditors remuneration 356 354
Non-audit services:
· Taxation - -
· Other services pursuant to legislation - -
Total non-audit services - -
Non-underlying items included within administrative expenses were as follows:
2022 2021
£'000 £'000
Continuing operations
Restructuring costs(1) 405 (284)
Costs associated with exiting properties(2) 153 91
Impairment of goodwill, acquired intangibles and right-of-use leased assets(3) 4,632 -
Non-underlying items included in profit from continuing operations 5,190 (193)
Discontinuing operations
Advisory fees(4) 33 29
Cost relating to discontinuation of group undertakings(5) 5 664
Costs associated with properties previously exited(6) 57 -
Non-underlying items included in profit from discontinued operations 95 693
Total non-underlying items 5,285 500
1 Restructuring cost of £405,000 (2021: £nil) were recognised in 2022 as a
result of changes in the Board and Senior Leadership Team. A gain of £nil
(2021: £284,000) was recognised in 2022 as a result of releasing unutilised
provision for employee related expenses and professional fees.
2 Costs of £153,000 (2021: £91,000) have been recognised in relation to the
exit of a number of UK office buildings that are no longer in use by the
business.
3 Impairment losses have been recognised in 2022 with respect to the
"Infrastructure - RSL Rail" CGU, as discussed in further detail in Note 13.
4 Legal fees incurred in 2022 and 2021 relate to the Group's co-operation with
certain voluntary enquiries from the US Department of Justice, as discussed in
further detail in Note 28.
5 Ongoing costs relating to closure of entities affected by the closure of the
contract Telecoms Infrastructure business as well as the Group's operations in
Mexico and South Africa in 2021, including staff termination costs and
impairment of certain working capital balances.
6 Costs of £57,000 (2021: £nil) have been recognised in relation to final
closure costs for UK property previously exited and no longer used by the
business.
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 2022 2021
No. No.
Sales 381 345
Administration 146 131
Directors 7 7
Total 534 483
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 2022 2021
£'000 £'000
Wages and salaries 26,215 24,269
Social security costs 3,166 2,830
Other pension costs 911 791
Share-based payments 114 271
Total 30,406 28,161
Amounts due to defined contribution pension providers at 31 July 2022 were
£149,000 (2021: £138,000).
Disclosure of the remuneration of Group's key management personnel, as
required by IAS 24, is detailed below:
Total operations 2022 2021
£'000 £'000
Short-term employee benefits 2,009 1,738
Contributions to defined contribution pension schemes 133 123
Share-based payments 34 106
Total 2,176 1,967
6 Finance Income
Continuing operations 2022 2021
£'000 £'000
Interest income 4 56
Net gains on foreign currency translation 566 -
Total 570 56
7 Finance Costs
Total operations 2022 2021
£'000 £'000
Bank interest expense 138 124
Interest expense on lease liabilities 115 148
Amortisation of capitalised finance costs - 196
Net losses on foreign currency translation - 668
Total 253 1,136
8 Government Grants
Grant income recognised from government grants recognised in cost of sales and
administrative expenses are as follows:
Continuing operations 2022 2021
£'000 £'000
UK Government Coronavirus Job Retention Scheme grant income recognised in cost - 43
of sales for temporary workers
UK Government Coronavirus Job Retention Scheme grant income recognised in - 458
administrative expenses for employees
Total - 501
In the previous year, as a response to the COVID-19 global pandemic, the Group
made use of the UK Government's Coronavirus Job Retention Scheme (for the year
to 31 July 2021: claim period is from August 2020 to November 2020). Under
this scheme, Her Majesty's Revenue & Customs (HMRC) provided UK companies
with a non-refundable grant equivalent to a portion of wages, National
Insurance contributions and pension contributions for employees and temporary
workers who were retained in employment but placed on furlough. From 1 August
2021 National Insurance contributions and pension contributions were no longer
eligible for claims. When considering temporary workers, the contractors
employed by Gattaca's clients that Gattaca provides payroll services to and
whose costs are recognised as Cost of Sales by Gattaca, are also considered
eligible.
As the scheme was conditional upon the Group retaining its employees in
employment, or the temporary contract workers being retained by their
employers, whilst they are furloughed during the COVID-19 pandemic, it was
designed to compensate companies for staff or temporary worker costs incurred.
As all claims submitted for all periods have been received, the Group
considers the scheme meets the definition of a government grant as set out in
IAS 20 and has accounted for it as such. For grants received for Gattaca's
employees on furlough, the Group has presented the grant income as a deduction
to staff costs presented in Administrative Expenses in the Income Statement;
for grants received for temporary contract workers of Gattaca's clients on
furlough, the Group has presented the grant income as a deduction to Cost of
Sales.
9 Parent Company Profit/(Loss)
2022 2021
£'000 £'000
The amount of profit/(loss) generated by the parent company was: 296 (866)
10 Taxation
Analysis of charge in the year Continuing 2022 Discontinued 2022 Restated¹ Discontinued 2021
£'000 £'000 Continuing 2021 £'000
£'000
Current tax:
UK corporation tax (654) (33) 748 (48)
Overseas corporation tax 26 26 (134) 40
Adjustments in respect of prior years (138) - (511) -
Current tax (credit)/charge (766) (7) 103 (8)
Deferred tax (Note 16):
Origination and reversal of temporary differences 446 - (323) (5)
Adjustments in respect of prior years (56) - 290 (2)
Changes in tax rate (84) - (29) -
Deferred tax charge/(credit) 306 - (62) (7)
Income tax charge/(credit) for the year (460) (7) 41 (15)
UK corporation tax has been charged at 19% (2021: 19%).
The (credit)/charge for the year can be reconciled to the (loss)/profit as per
the income statement as follows:
Continuing 2022 Discontinued 2022 Restated¹ Discontinued 2021
£'000 £'000 Continuing 2021 £'000
£'000
(Loss)/profit before tax (4,787) (353) 812 (1,223)
(Loss)/profit before tax multiplied by the standard rate of corporation tax in (909) (67) 154 (232)
the UK of 19% (2021: 19%)
Expenses not deductible for tax purposes 15 (11) 139 172
Effect of goodwill impairment loss 502 - - -
Effect of share-based payments 60 - (19) -
Irrecoverable withholding tax 3 - 56 -
Overseas losses not recognised as deferred tax assets 156 47 46 163
Difference between UK and overseas tax rates (9) 24 (85) (116)
Adjustment to tax charge in respect of prior years (194) - (221) (2)
Changes in tax rate (84) - (29) -
Total taxation (credit)/charge for the year (460) (7) 41 (15)
1 Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
Tax charge/(credit) recognised in equity:
2022 2021
£'000 £'000
Deferred tax charge/(credit) recognised directly in equity 60 (65)
Total tax charge/(credit) recognised directly in equity 60 (65)
Reconciliation of statutory continuing tax charge to continuing underlying tax
charge:
2022 Restated¹
£'000 2021
£'000
Income tax expense (460) 41
Impairment and amortisation of acquired intangibles 517 43
Non-underlying items 106 (37)
Foreign currency exchanges differences (9) 85
Underlying income tax expense 154 132
1 Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
Future tax rate changes
At the balance sheet date, the main UK corporation tax rate of 19% was
anticipated to increase 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.
Recent announcements by the UK government have called into question whether
the main rate of corporation tax will increase to 25% or will remain at 19%.
If UK deferred tax assets and liabilities had been measured at 19% at 31 July
2022, the impact would have been to reduce the deferred tax asset by £75,000.
11 Discontinued Operations
2022
On 14 December 2021, the Group completed the sale of its South African
recruitment operations as part of the management buy-out agreement announced
in July 2021. The net loss of £82,000 arising on the disposal of the South
African recruitment operations has been recognised in non-underlying costs as
part of costs relating to discontinuation of group undertakings. Deferred
consideration of £134,000 receivable under the sale agreement was due at the
reporting date and is included in other receivables at 31 July 2022.
Losses from discontinued operations during the year include ongoing closure
costs in connection with the Group's Asian and Mexican operations, in addition
to trading results from the Group's South African recruitment business up
until date of disposal.
2021
On 30 July 2021, the Group announced the decision to close its Mexico
operations. In addition, the Group also announced a management buy-out
agreement of the South Africa recruitment operations which was expected to
complete within one year of 31 July 2021. The Fulfilment, Solutions and Group
Support functions of the South African operations was retained and transferred
to a new South African entity. As a result, the Group reclassified its entire
Mexican and South African recruitment operations as discontinued in the
consolidated financial statements for the year ended 31 July 2021.
Financial performance and cash flow information
2022 2021
£'000 £'000
Revenue 781 3,432
Cost of sales (543) (2,385)
Gross profit 238 1,047
Administrative expenses¹ (809) (2,197)
Loss from operations (571) (1,150)
Finance income - 39
Finance costs - (112)
Exchange gain 218 -
Loss before taxation (353) (1,223)
Taxation 7 15
Loss for the year after taxation from discontinued operations (346) (1,208)
Exchange differences on translation of discontinued operations (231) 48
Other comprehensive loss from discontinued operations (577) (1,160)
1 Included in administrative expenses are £95,000 (2021: £693,000) of
non-underlying items, as detailed in Note 4. In addition, it includes net
impairment costs on trade receivables from discontinued operations of £nil
(2021: release of £80,000).
The following assets and liabilities were reclassified as held for sale in
relation to the discontinued South African recruitment operations as at 31
July 2021:
Assets classified as held for sale 2021
£'000
Software licenses 1
Property, plant and equipment 7
Right-of-use assets 29
Investments 19
Deferred tax assets 9
Trade and other receivables 171
Cash and cash equivalents 110
Total assets of disposal group held for sale 346
Liabilities directly associated with assets classified as held for sale 2021
£'000
Trade and other payables (136)
Provisions (46)
Current tax liabilities (27)
Lease liabilities (14)
Total liabilities of disposal group held for sale (223)
2022 2021
£'000 £'000
Net cash outflow from operating activities (650) (1,348)
Net cash outflow from investing activities - (32)
Net cash outflow from financing activities (92) (139)
Effect of exchange rates on cash and cash equivalents - (15)
Net decrease in cash generated by discontinued operations (742) (1,534)
No balances were classified as held for sale as at 31 July 2022.
12 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
(arising from the Group's share option schemes) into ordinary shares has been
added to the denominator. Share options are treated as dilutive when, at the
reporting date, they would be issuable had the performance year ended at that
date.
The Group has dilutive potential ordinary shares, being the Long Term
Incentive Plan Options. The number of shares that could have been acquired at
fair value (determined as the average annual market share price of the
Company's shares) is calculated based on the monetary value of the
subscription rights attached to the outstanding share options.
The effect of potential ordinary shares are reflected in diluted EPS only when
they are dilutive. Potential ordinary shares are considered dilutive when
their inclusion in the calculation would decrease EPS, or increase the loss
per share from continuing operations in accordance with IAS 33. This is
regardless of whether the potential ordinary shares are dilutive for EPS from
total operations. Where the effect of potential ordinary shares are considered
to be dilutive they have been included in the calculation below.
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:
2022 Restated¹
£'000 2021
£'000
Total loss attributable to ordinary shareholders (4,673) (437)
Number of shares 2022 2021
'000 '000
Basic weighted average number of ordinary shares in issue 32,290 32,290
Dilutive potential ordinary shares 210 68
Diluted weighted average number of shares 32,500 32,358
Total earnings per share 2022 Restated¹
pence 2021
pence
Loss per ordinary share Basic (14.5) (1.4)
Diluted (14.5) (1.4)
Earnings from continuing operations 2022 Restated¹
£'000 2021
£'000
Total (loss)/profit for the year (4,237) 771
Total earnings per share for continuing operations 2022 Restated¹
pence 2021
pence
(Loss)/earnings per ordinary share from continuing operations Basic (13.4) 2.4
Diluted (13.4) 2.4
Earnings from discontinuing operations 2022 2021
'000 '000
Total loss for the year (346) (1,208)
Total earnings per share for discontinuing operations 2022 2021
pence pence
Loss per ordinary share from discontinuing operations Basic (1.1) (3.7)
Diluted (1.1) (3.7)
Earnings from continuing underlying operations 2022 Restated¹
£'000 2021
£'000
Total profit for the year 102 1,703
Total earnings per share 2022 Restated¹
pence 2021
pence
Earnings per ordinary share from continuing underlying operations Basic 0.3 5.3
Diluted 0.3 5.3
1 Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
13 Goodwill and Intangible Assets
In the 12 months to 31 July 2022, following the IFRS Interpretation
Committee's agenda decision published in March 2021, the Group changed its
accounting policy relating to the capitalisation of certain software costs,
specifically relating to the capitalisation of implementation costs such as
configuration and customisation costs for cloud-based software under
Software-as-a-service (SaaS) arrangements. Please refer to Note 1.25 for more
details. The change of the accounting policy has resulted in either a
reclassification of certain cloud-based software intangible assets to a
prepaid asset in the Statement of Financial Position or recognition of the
expenditure as an expense in the Income Statement, impacting both the current
and prior periods presented.
Goodwill Customer relationships Trade Other Software and software licences Total
£'000 £'000 names £'000 £'000 £'000
£'000
Cost At 1 August 2020 28,739 22,245 5,346 3,809 8,573 68,712
Effect of change in accounting policy - - - - (6,052) (6,052)
At 1 August 2020 (restated) 28,739 22,245 5,346 3,809 2,521 62,660
Additions - - - - 1,872 1,872
Reclassification to assets held for sale - - - - (2) (2)
Reclassification to prepayments as a result of change of accounting policy - - - - (245) (245)
Written off to Income Statement as a result of change of accounting policy - - - - (1,544) (1,544)
At 31 July 2021 28,739 22,245 5,346 3,809 2,602 62,741
Additions - - - - 29 29
Disposals - - - - (70) (70)
At 31 July 2022 28,739 22,245 5,346 3,809 2,561 62,700
Amortisation and impairment At 1 August 2020 24,382 20,530 5,057 3,527 2,339 55,835
Effect of change in accounting policy - - - - (123) (123)
At 1 August 2020 (restated) 24,382 20,530 5,057 3,527 2,216 55,712
Amortisation for the period - 332 45 171 422 970
Reclassification to assets held for sale - - - - (1) (1)
Reclassification to prepayments as a result of change of accounting policy - - - - (19) (19)
Written off to Income Statement as a result of change of accounting policy - - - - (264) (264)
At 31 July 2021 24,382 20,862 5,102 3,698 2,354 56,398
Amortisation for the period - 269 43 108 88 508
Impairment 2,645 946 189 - - 3,780
Released on disposal - - - - (58) (58)
At 31 July 2022 27,027 22,077 5,334 3,806 2,384 60,628
Net book value At 31 July 2021 4,357 1,383 244 111 248 6,343
At 31 July 2022 1,712 168 12 3 177 2,072
The carrying amount of goodwill allocated to Cash Generating Unit's (CGUs) is
as follows:
2022 2021
£'000 £'000
Energy (previously UK Engineering) 1,712 1,712
Infrastructure - RSL Rail (previously Resourcing Solutions Limited) - 2,645
Total 1,712 4,357
As part of the operational restructure disclosed in Note 2, the Cash
Generating Units (CGUs) to which goodwill and intangible assets have
previously been allocated to have been amended as follows: UK Engineering to
Energy which is a reportable segment, and Resourcing Solutions to
Infrastructure - RSL Rail, a sub-division of the reportable operating segment
Infrastructure for which distinct financial information is available but not
used by the Chief Operating Decision Maker (CODM). These changes best
represent the original business units that the assets were allocated to,
ensuring that the cashflows that form the FY22 VIU valuations of the CGUs are
aligned to previous year's impairment assessments.
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 using value-in-use calculations.
As a result of management's trading forecasts now being lower that those at
time of acquisition, impairment losses of £2,645,000 and £1,135,000 (year to
31 July 2021: £nil) have been recorded in respect of goodwill, acquired
intangible assets respectively within the Infrastructure - RSL Rail CGU, fully
impairing all remaining goodwill and intangible assets to a carrying value of
£nil. Impairment losses of £852,000 (year to 31 July 2021: £nil) have also
been recorded in respect of the right-of-use asset associated with the lease
of the UK property occupied by the RSL sales team and several motor vehicles,
which is included in the assets of the CGU. Please refer to Note 22 for more
details.
After suffering the same widespread downturn in trading activity as the
majority of the UK economy during the 2020 COVID-19 pandemic, management had
aligned the FY21 internal forecasts of the Infrastructure - RSL Rail CGU to
the externally projected post-COVID economic trajectory of the UK construction
and transportation sectors and whilst the models indicated sensitvity, factors
pointed towards slow but steady post-pandemic recovery. However, throughout
FY22, as a result of 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.
Goodwill and acquired intangibles within the Energy CGU relate to the
Networkers acquisition. At 31 July 2022, the recoverable amount of the
infrastructure - RSL Rail CGU was £nil.
The key assumptions and estimates used when calculating a CGU's value-in-use,
are as follows:
Cash flows from operations
Cash flows from operations are based on the Group's 3 year business plan,
starting with the FY2023 budget and applying the over-arching Group NFI and
cost growth rates in FY2026 and FY2027 for the Energy and Infrastructure - RSL
Rail sectors. 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.
Discount rates
The pre-tax rates used to discount the forecast cash flows ranged from 13.9%
to 14.4% (year to 31 July 2021: 15.0% to 16.0%) 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
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 13.8% (year to 31 July 2021:
12.5%) for 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% (year to 31 July
2021: 2.0%), using a weighted average of operating country real growth
expectations.
Impairment expenses Goodwill Intangible assets Total Goodwill Intangible assets Total
2022 2022 2022 2021 2021 2021
£'000 £'000 £'000 £'000 £'000 £'000
Energy (previously UK Engineering) - - - - - -
Infrastructure - RSL Rail (previously Resourcing Solutions Limited) 2,645 1,135 3,780 - - -
Total 2,645 1,135 3,780 - - -
Sensitivity analysis has been performed to show the impact of reasonable or
possible changes in key assumptions. An increase in the post-tax discount rate
by a factor of 5% to 14.5%, or a reduction in the long-term growth rate to
1.8%, would not trigger a further material impairment for the Energy CGU. A
reduction of 25% in management's mid-term gross profit forecasts for FY24-FY27
would not trigger any material impairment.
Company
Trade names £'000
Cost At 1 August 2020 20
Additions -
At 31 July 2021 20
Additions -
At 31 July 2022 20
Amortisation and impairment At 1 August 2020 4
Amortisation for the year 3
Impairment -
At 31 July 2021 7
Amortisation for the year 2
Impairment -
At 31 July 2022 9
Net book value At 31 July 2021 13
At 31 July 2022 11
14 Property, Plant and Equipment
Group Motor Leasehold improvements Fixtures, fittings & equipment Total
vehicles £'000 £'000 £'000
£'000
Cost At 1 August 2020 (16) 3,055 4,721 7,760
Additions - - 332 332
Disposals 16 (25) - (9)
Impairment - (29) (92) (121)
Reclassification to assets held for sale - - (13) (13)
At 31 July 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
Depreciation and impairment At 1 August 2020 (16) 1,867 4,417 6,268
Charge for the year - 58 155 213
Released on disposal 16 (17) - (1)
Impairment - (29) (74) (103)
Reclassification to assets held for sale - - (6) (6)
At 31 July 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
Net book value At 31 July 2021 - 1,122 456 1,578
At 31 July 2022 - 1,130 229 1,359
Impairment charges during the prior year relate to the closure of the Mexican
operations as disclosed in Note 11.
There were no capital commitments as at 31 July 2022 or 31 July 2021.
15 Investments in Subsidiary Undertakings
Cost and carrying value: Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Balance at 1 August - 19 38,463 8,520
Capital contributions to subsidiaries - - 145 29,943
Reclassifications to assets held for sale - (19) - -
Balance at 31 July - - 38,608 38,463
The movement in investments in the parent Company in the prior year represents
capitalisation of intercompany receivables due from Matchtech Group (Holdings)
Limited in return for an issue of shares in Matchtech Group (Holdings) Limited
as well as capital contributions made in Matchtech Group (UK) Limited relating
to share-based payments.
The movement in investments held by the Group in the prior year related to the
reclassification of the Sakha Sonke Private Equity Fund and its associated
investment asset to held-for-sale following the announcement of the expected
sale of the South African recruitment operations on 30 July 2021. As noted
below, the sale of the South African operations was completed in the 2022
year.
Impairment testing
The Directors have assessed that the reduction in the Group's market
capitalisation during the year is an indicator of impairment of the Parent
Company's investments in subsidiary undertakings and as a result have
performed a year end 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 FY2023 budget and
applying over-arching NFI and cost growth rates in FY2026 and FY2027. A
pre-tax discount rate of 13.8% 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 calculated value-in-use results in a material excess of the recoverable
amount above the asset's carrying amount. The Directors consider that there is
no combination of reasonably plausible changes in key assumptions which would
result in a material change to the outcome of the impairment assessment and
have concluded that the Parent Company's investments in subsidiaries is not
impaired.
The subsidiary undertakings at the year end are as follows:
Registered Office Note Country of Incorporation Share Class % Held % Held Main Activities
2022 2021
Alderwood Education Ltd1 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Barclay Meade Ltd1 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Cappo Group Limited1 1 United Kingdom Ordinary 100% 100% Holding
Cappo International Limited1 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Comms Software Limited4 1 United Kingdom Ordinary 0% 100% Non-trading
Comms Resources Limited1 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Connectus Technology Limited1 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Elite Computer Staff Ltd 1 United Kingdom Ordinary 100% 100% Non-trading
Gattaca Projects Limited (formerly Application Services Limited)1 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Gattaca Recruitment Limited 1 United Kingdom Ordinary 100% 100% Non-trading
Gattaca Solutions Limited1 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Matchtech Engineering Limited 1 United Kingdom Ordinary 100% 100% Non-trading
Matchtech Group (Holdings) Limited1 1 United Kingdom Ordinary 99.7% 99.7% Holding
Matchtech Group (UK) Limited1 1 United Kingdom Ordinary 99.998% 99.998% Provision of recruitment consultancy
Matchtech Group Management Company Limited2 1 United Kingdom Ordinary 100% 100% Non-trading
Matchtech Limited4 1 United Kingdom Ordinary 0% 100% Non-trading
MSB Consulting Services Limited4 1 United Kingdom Ordinary 0% 100% Non-trading
Networkers International (UK) Limited1 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
Networkers International Limited1 1 United Kingdom Ordinary 100% 100% Holding
Networkers International Trustees2 1 United Kingdom Ordinary 100% 100% Non-trading
Networkers Recruitment Services Limited2 1 United Kingdom Ordinary 100% 100% Non-trading
Provanis Limited4 1 United Kingdom Ordinary 0% 100% Non-trading
Resourcing Solutions Limited1 1 United Kingdom Ordinary 100% 100% Provision of recruitment consultancy
The Comms Group Limited1 1 United Kingdom Ordinary 100% 100% Holding
Gattaca GMBH 2 Germany Ordinary 100% 100% Provision of recruitment consultancy
MSB International GMBH 12 Germany Ordinary 100% 100% Non-trading
Gattaca BV 3 Netherlands Ordinary 100% 100% Provision of recruitment consultancy
Cappo Inc. 5 United States Ordinary 100% 100% Provision of recruitment consultancy
Networkers Inc. 5 United States Ordinary 100% 100% Provision of recruitment consultancy
Networkers International LLC 5 United States Ordinary 100% 100% Non-trading
Networkers International (Canada) Inc. 11 Canada Ordinary 100% 100% Provision of recruitment consultancy
Gattaca Mexico Services, S.A. de C.V 6 Mexico Ordinary 100% 100% Provision of recruitment consultancy
NWI Mexico, S. de R.L. de C.V. 6 Mexico Ordinary 100% 100% Provision of recruitment consultancy
Kithara Investments Proprietary Limited4 8 South Africa Ordinary 0% 100% Holding
Kula Nathi Investments Proprietary Limited4 7 South Africa Ordinary 0% 100% Holding
Networkers International Proprietary Limited4 7 South Africa Ordinary 0% 100% Provision of recruitment consultancy
Networkers International South Africa Proprietary Limited4 7 South Africa Ordinary 0% 100% Provision of recruitment consultancy
Gattaca Services South Africa 7 South Africa Ordinary 100% 0% Provision of recruitment consultancy
Networkers International (China) Co. Limited 9 China Ordinary 100% 100% Provision of recruitment consultancy
Comms Resources SDN. BHD 10 Malaysia Ordinary 100% 100% Non-trading
Networkers International (Malaysia) Sdn Bhd 10 Malaysia Ordinary 100% 100% Non-trading
Cappo Qatar LLC 14 Qatar Ordinary 49% 49% Non-trading
Networkers Consultancy (Singapore) PTE. Limited 13 Singapore Ordinary 100% 100% Non-trading
Gattaca Information Technology Services SLU 15 Spain Ordinary 100% 100% Provision of recruitment consultancy
Gattaca Recruitment ETT, SLU 15 Spain Ordinary 100% 100% Non-trading
Networkers International (India) PTE(4) 16 India Ordinary 0% 100% Non-trading
1 For the year ended 31 July 2022, Gattaca plc has provided a legal guarantee
dated 2 November 2022 under s479a-s479c of the Companies Act 2006 to these
subsidiaries for audit exemption.
2 These dormant companies are exempt from preparing individual financial
statements by virtue of s394A of Companies Act 2006.
3 Gattaca plc has 100% of the beneficial interest in these entities, and
consolidates them as wholly owned subsidiaries in line with IFRS 10.
4 These companies were disposed of, or liquidated in the year, with the
shareholding remaining the same as per the year ended 31 July 2021 up to the
date of disposal or liquidation.
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 has a branch in Russia which is
consolidated into the Group's results.
The Group's Share Incentive Plan (SIP) is held by Gattaca plc UK EBT. The
Group has control over the EBT and therefore it has been consolidated in the
Group's results.
During the 2021 year, Gattaca plc set up a branch for a new Employee Benefit
Trust ('the EBT') and appointed Apex Financial Services Limited as the Trustee
and the administrator to this new EBT. The Company and Group has control over
the new EBT and therefore it has been consolidated in the Group and Company's
results.
Registered office addresses
1 1450 Parkway, Solent Business Park, Whiteley, Fareham, Hampshire, PO15 7AF,
United Kingdom
2 c/o Grant Thornton, Jahnstrasse 6, 70597, Stuttgart, Germany
3 Herengracht 124-128, 1015 BT Amsterdam, Netherlands
4 33 SW Flager Avenue, Stuart, Florida, USA
5 6400 International Parkway, Suite 1510, Plano TX 75093, USA
6 Avenida Paseo de la Reforma No. 296 Piso 15 Oficina A, Colonia Juárez,
Delegación Cuauhtémoc, Código Postal 06600. Ciudad de México, Mexico
7 201 Heritage House, 20 Dreyer Street, Claremont, 7735, South Africa
8 6th Floor, 119 Hertzog Boulevard, Foreshre, Cape Town, 8001, South Africa
9 B-2701, Di San Zhi Ye Building, No. A1 Shuguang Xili, Chao Yang District,
Beijing, China
10 Level 8, Symphony House, Block D13, Pusat Dagangan Dana 1, Jalan PJU 1A/46,
47301 Petaling Jaya, Selangor, Malaysia
11 1 Richmond Street West, Suite 902, Toronto, Ontario, M5H 3W4, Canada
12 Franlinstr. 48, 60456, Frankfurt, Germany
13 371 Beach Road, #15-09 Keypoint, Singapore 199597
14 Suite #204, Office #40 Al Rawabi Street, Muntazah, Doha, State of Qatar. PO
Box 8306
15 Calle General, Moscardo 6. Espaco Office, Madrid 28020, Spain
16 3rd Floor, 301 DLF City Court Sikandarpur, Gurgaon-122002 Harayana, India
16 Deferred Tax
2022 Asset Liability Net Credited/ Credited to equity Disposal of subsidiaries Foreign exchange £'000
(charged)
Group £'000 £'000 £'000
to profit £'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 427 - 427 427 - - -
Other temporary and deductible differences 109 - 109 (46) - (16) (3)
Gross deferred tax assets/(liabilities) 601 (22) 579 (306) (60) (16) (3)
Amounts available for offset 3 (3) -
Net deferred tax assets/(liabilities) 604 (25) 579
2021 Restated1 Asset Liabilit Net Credited/ (charged) Credited to equity Foreign exchange Impact of restatement(1)
to profit
Group £'000 £'000 £'000
£'000 £'000 £'000
£'000
Share-based payments 146 - 146 60 65 - -
Accelerated capital allowances - (35) (35) (265) - - 336
Internally generated intangibles 1,050 - 1,050 279 - - 771
Acquired intangibles - (369) (369) 45 - - -
Other temporary and deductible differences 174 - 174 (50) - 2 -
Gross deferred tax assets/(liabilities) 1,370 (404) 966 69 65 2 1,107
Amounts available for offset (390) 390 -
Reclassification to assets held for sale (9) - (9)
Net deferred tax assets/(liabilities) 971 (14) 957
1 Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
The movement on the net deferred tax is shown below:
Group
2022 Restated
£'000 20211
£'000
At 1 August (524) (277)
Impact of restatement(1) 1,481 1,107
At 1 August, as restated 957 830
Recognised in income (Note 10) (306) (69)
Recognised in equity (60) 65
Disposal of subsidiaries (16) -
Foreign exchange (5) 2
Reclassification to assets held for sale 9 (9)
At end of year 579 957
2022 Restated
£'000 20211
£'000
Deferred tax assets reversing within 1 year 469 1,298
Deferred tax liabilities reversing within 1 year (15) (107)
Reclassification of deferred tax assets reversing within 1 year to assets held - (9)
for sale
At end of year 454 1,182
2022 Restated
£'000 20211
£'000
Deferred tax assets reversing after 1 year 132 72
Deferred tax liabilities reversing after 1 year (7) (297)
At end of year 125 (225)
1 Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
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. Recent
announcements by the UK government have called into question whether the main
rate of corporation tax will increase to 25% or will remain at 19% from 1
April 2023. Since these changes were not substantively enacted as at the
balance sheet date, deferred tax has been valued based on the original tax
rate rises, based on when the deferred tax is expected to reverse.
Unrecognised deferred tax assets
Group
2022 2021
£'000 £'000
Tax losses carried forward against profits of future years 2,400 1,865
Net deferred tax assets 2,400 1,865
Of the unused tax losses £5,612,000 (2021: £2,071,000) can be carried
forward indefinitely, £1,257,000 (2021: £817,000) expires within 10 years
and £3,649,000 (2021: £3,053,000) expires within 20 years. £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 £2,345,000 (2021: £3,675,000). If the earnings
were remitted, tax of £2,000 (2021: £45,000) would be payable.
17 Trade and Other Receivables
Group Company
2022 Restated 2022 2021
£'000 20211 £'000 £'000
£'000
Trade receivables from contracts with customers, net of loss allowance 36,367 34,187 - -
Amounts owed by Group companies - - 2,757 3,046
Other receivables 1,701 1,619 - -
Prepayments 1,372 1,587 - -
Accrued income 15,327 26,742 - -
Total 54,767 64,135 2,757 3,046
1 Prepayments as at 31 July 2021 have been restated as a result of change of
accounting policy in light of the International Financial Reporting Standards
Interpretations Committee (IFRIC) latest guidance on SaaS arrangements, as
explained further in Note 1.25.
The amounts owed by Group companies in the Company Statement of Financial
Position are considered to approximate fair value. Amounts owed by Group
companies are unsecured, repayable on demand and accrue no interest.
The Directors consider that the carrying amount of trade and other receivables
approximates to the fair value.
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
2022 2021
£'000 £'000
Trade receivables from contracts with customers, gross amounts 38,444 37,636
Loss allowance (2,077) (3,449)
Trade receivables from contracts with customers, net of loss allowance 36,367 34,187
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 aging 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, the projected post-COVID economic recovery based on
external reports, forecast data and scenario analysis, has been taken into
account along with other macro-economic factors when assessing the credit risk
profiles for specific industries and geographies.
The loss allowance for trade receivables was determined as follows:
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% 7.9% 15.9% 48.0%
Gross carrying amount - trade receivables (£'000) 35,817 1,241 327 1,059 38,444
Loss allowance (£'000) 1,418 99 52 508 2,077
31 July 2021 Current More than More than More than Total
30 days past 60 days past 90 days past
Weighted expected loss rate (%) 5.2% 5.0% 18.6% 60.9%
Gross carrying amount - trade receivables (£'000) 33,741 654 743 2,498 37,636
Loss allowance (£'000) 1,756 33 138 1,522 3,449
The loss allowance for trade receivables at year end reconciles to the opening
loss allowance as per below:
Group
2022 2021
£'000 £'000
Opening loss allowance at 1 August 3,449 3,987
Increase/(decrease) in loss allowance recognised in the year 136 (296)
Receivables written off during the year as uncollectable (1,508) (242)
Closing loss allowance at 31 July 2,077 3,449
Impairment of accrued income
Group
2022 2021
£'000 £'000
Gross accrued income 16,009 27,807
Loss allowance (682) (1,065)
Accrued income, net of loss allowance 15,327 26,742
The loss allowance for accrued income was determined as follows:
31 July 2022 Current More than More than More than Total
30 days past 60 days past 90 days past
Weighted expected loss rate (%) 2.5% 2.5% 2.5% 30.6%
Gross carrying amount - accrued income (£'000) 13,269 1,090 649 1,001 16,009
Loss allowance (£'000) 333 27 16 306 682
31 July 2021 Current More than More than More than Total
30 days past 60 days past 90 days past
Weighted expected loss rate (%) 2.9% 2.7% 2.6% 23.7%
Gross carrying amount - accrued income (£'000) 21,455 3,546 1,519 1,287 27,807
Loss allowance (£'000) 624 96 40 305 1,065
The loss allowance for accrued income at year reconciles to the opening loss
allowance as per below:
Group
2022 2021
£'000 £'000
Opening loss allowance at 1 August 1,065 269
(Decrease)/increase in loss allowance recognised in profit and loss during the (383) 796
year
Closing loss allowance at 31 July 682 1,065
18 Provisions
2022 2021
Group Dilapidations Other provisions Total Dilapidations £'000 Other provisions £'000 Total
£'000 £'000 £'000 £'000
Balance at 1 August 1,680 53 1,733 1,710 1,084 2,794
Provisions made in the year 18 824 842 74 40 114
Provisions utilised (145) (40) (185) - (679) (679)
Provisions released (698) (13) (711) (58) (392) (450)
Effect of movements in exchange rates 25 - 25 (46) - (46)
Balance at 31 July 880 824 1,704 1,680 53 1,733
2022 2021
Group Dilapidations Other provisions Total Dilapidations £'000 Other provisions £'000 Total
£'000 £'000 £'000 £'000
Non-current 517 - 517 1,269 - 1,269
Current 363 824 1,187 411 53 464
Total 880 824 1,704 1,680 53 1,733
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 six years.
Other provisions have been recognised in respect of restructuring activities
relating to discontinuation of overseas operations and claims for certain
legal matters. Other provisions held as at 31 July 2021 are primarily in
respect of claims for certain legal matters.
No provisions are held by the parent Company (2021: £nil).
19 Trade and Other Payables
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Trade payables 3,753 4,530 - -
Amounts owed to group undertakings - - 3,006 2,972
Taxation and social security 6,672 10,473 - -
Contractor wages payable 25,841 27,209 - -
Accruals and deferred income 3,828 5,158 - -
Other payables 3,312 8,751 - -
Total 43,406 56,121 3,006 2,972
Amounts owed to Group undertaking are unsecured, repayable on demand and
accrue no interest.
20 Loans and Borrowings
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Recourse working capital facility 1,801 9,348 - -
Bank loans and borrowings due in less than one year 1,801 9,348 - -
Total bank loans and borrowings 1,801 9,348 - -
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 de-recognised 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 reporting period that had not been
transferred to HSBC, is presented as restricted cash included within the
Group's cash balance. At 31 July 2022, the Group had agreed banking facilities
with HSBC totalling £60m (31 July 2021: £75m) invoice financing working
capital facility (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 £60m (31 July 2021:
£75m). Interest is charged on the recourse borrowings at a rate of 1.90% (31
July 2021: 1.75%) over the HSBC Bank base rate of 1.25% (2021: 0.1%).
21 Financial Assets and Liabilities Statement of Financial Position
Clarification
The carrying amount of the Group's financial assets and liabilities as
recognised at the Statement of Financial Position date of the reporting date
of the reporting years under review may also be categorised as follows:
Financial assets are included in the Statement of Financial Position within
the following headings:
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Trade and other receivables (Note 17)
· Financial assets recorded at amortised cost 53,395 62,548 2,757 3,046
Cash and cash equivalents
· Financial assets recorded at amortised cost 17,768 29,238 7 4
Total 71,163 91,786 2,764 3,050
Financial liabilities are included in the statement of financial position
within the following headings:
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Borrowings (Note 20)
· Financial liabilities recorded at amortised costs 1,801 9,348 - -
Leases (Note 22)
· Financial liabilities recorded at amortised costs 3,625 5,761 - -
Trade and other payables (Note 19)
· Financial liabilities recorded at amortised costs 36,734 45,648 3,006 2,972
Total 42,160 60,757 3,006 2,972
22 Leases
The balance sheet shows the following amounts related to leases where the
Group is a lessee.
Right-of-use assets Buildings £'000 Vehicles £'000 Other £'000 Total £'000
Cost At 1 August 2020 10,004 348 16 10,368
Effect of reassessment of lease terms 416 - 5 421
Effect of movement in exchange rates 41 - 1 42
Reclassification to assets held for sale (216) - (14) (230)
At 31 July 2021 10,245 348 8 10,601
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
Accumulated depreciation and impairment At 1 August 2020 2,847 176 7 3,030
Depreciation charge 1,749 119 7 1,875
Impairment 183 - - 183
Effect of movement in exchange rates 40 - - 40
Reclassification to assets held for sale (190) - (11) (201)
At 31 July 2021 4,629 295 3 4,927
At 1 August 2021 4,629 295 3 4,927
Depreciation charge 1,491 59 2 1,552
Impairment 827 25 - 852
Effect of reassessment of dilapidation assets (481) - - (481)
Effect of movement in exchange rates 40 - - 40
At 31 July 2022 6,506 379 5 6,890
Net book value At 1 August 2021 5,616 53 5 5,674
At 31 July 2022 3,049 13 3 3,065
At 31 July 2022, included within property right-of-use assets is costs of
£854,000 (2021: £1,491,000) and net book value of £248,000 (2021:
£526,000) relating to dilapidation assets.
During the year, the Group recognised an impairment of £852,000 in relation
the right-of-use assets belonging to the Infrastructure - RSL Rail CGU, as
discussed in more detail in Note 13. In the prior year, an impairment of
£114,000 was recognised in respect of a UK property that was no longer in use
by the business, with the remaining £69,000 impairment relating to the
closure of the Mexican operations.
2022 2021
Lease liabilities Buildings Vehicles Other Total Buildings Vehicles Other Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Current 1,112 21 2 1,135 1,423 55 2 1,480
Non-current 2,470 17 3 2,490 4,268 9 4 4,281
Total 3,582 38 5 3,625 5,691 64 6 5,761
Lease liabilities for properties have lease terms of between one and six
years.
The discount rates used to measure the lease liabilities at 31 July 2022 range
between 2.0% to 7.5% for properties (2021: 1.6% - 10.1%), 4.7% for vehicles
(2021: 4.7%) and 10.1% for other leases (2021: 10.1%).
Reconciliation of lease liabilities movement in the year
Buildings Vehicles Other Total
£'000 £'000 £'000 £'000
At 1 August 2020 7,551 176 9 7,736
Lease payments (2,387) (116) (8) (2,511)
Interest expense of lease liabilities 151 4 1 156
Effect of reassessment of lease terms 268 - 5 273
Effect of movement in exchange rates 120 - 1 121
Liabilities directly associated with assets held for sale (12) - (2) (14)
At 31 July 2021 5,691 64 6 5,761
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
Amounts in respect of leases recognised in the income statement
2022 2021
£'000 £'000
Depreciation expense of right-of-use assets 1,555 1,875
Impairment of right-of-use assets 852 183
Interest expense on lease liabilities 115 156
Expense relating to leases of low-value assets and short-term leases (included 17 14
in administrative expenses)
On the 5th October 2022, a sublease agreement was signed between Gattaca plc
and a third party to sublet a portion of the office space within the London
office. The annual rent has been agreed at £134,000. The sublease runs for
the duration of the underlying lease of the building.
23 Share Capital
Authorised share capital:
Company
2022 2021
£'000 £'000
40,000,000 (2021: 40,000,000) Ordinary shares of £0.01 each 400 400
Allotted, called up and fully paid:
Company
2022 2021
£'000 £'000
32,290,400 (2021: 32,290,400) Ordinary shares of £0.01 each 323 323
The number of shares in issue in the Company is shown below:
Company
2022 2021
£'000 £'000
In issue at 1 August 32,290 32,290
Exercise of share options - -
In issue at 31 July 32,290 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.
Merger reserves
A merger reserve was created in 2015 in Gattaca plc under section 612 of the
Companies Act 2006, relating to the acquisition of Networkers International
plc. Gattaca plc's investment in Networkers International plc was subsequently
transferred to a subsidiary undertaking in exchange for consideration of an
intercompany receivable. The asset to which the merger reserve relates, being
the goodwill and acquired intangible assets recognised on consolidation as
part of the acquisition, was impaired in 2018, 2019 and 2021. Additionally,
the intercompany receivable was settled in 2020 in exchange for qualifying
consideration of offset with an intercompany payable. As a result, the full
merger reserve of £28,526,000 became realised across these years. A choice
has now been made to transfer the realised merger reserve to retained earnings
in the year ended 31 July 2022 to present all distributable reserves in one
place.
Share Options
The following options arrangements exist over the Company's shares:
2022 2021 Date of grant Exercise price pence Exercise period
'000s '000s
From To
Long-term Incentive Plan Options - 1 31/01/2012 1 31/01/2014 31/01/2022
Long-term Incentive Plan Options - 1 31/01/2012 1 31/01/2015 31/01/2022
Long-term Incentive Plan Options 2 1 31/01/2013 1 31/01/2015 31/01/2023
Long-term Incentive Plan Options 5 2 31/01/2013 1 31/01/2016 31/01/2023
Long-term Incentive Plan Options 5 4 01/01/2014 1 01/01/2016 01/01/2024
Long-term Incentive Plan Options 38 32 01/01/2014 1 01/01/2017 01/01/2024
Long-term Incentive Plan Options 5 3 28/01/2015 1 28/01/2017 28/01/2025
Long-term Incentive Plan Options 27 24 28/01/2015 1 28/01/2018 28/01/2025
Long-term Incentive Plan Options 5 - 25/06/2015 1 25/06/2018 25/06/2025
Long-term Incentive Plan Options 13 - 11/02/2016 1 11/02/2019 11/02/2026
Long-term Incentive Plan Options 71 402 19/12/2018 1 19/12/2021 19/12/2028
Long-term Incentive Plan Options 162 704 20/01/2020 1 20/01/2023 20/01/2030
Long-term Incentive Plan Options 160 282 01/12/2020 1 01/12/2023 01/12/2030
Long-term Incentive Plan Options 410 - 16/12/2021 1 16/12/2024 16/12/2031
Long-term Incentive Plan Options 70 - 09/05/2022 1 16/12/2024 09/05/2032
Long-term Incentive Plan Options 130 - 09/05/2022 1 09/05/2025 09/05/2032
Total 1,103 1,456
During the year, the Group granted share options under the Long-Term Incentive
Plan for Executive Directors and senior management. The share options were
granted on 16 December 2021 and 9 May 2022 to members of staff to be held over
a three-year vesting period and are subject to various performance conditions.
All share options have a life of 10 years from grant date and are equity
settled on exercise.
The movement in share options is shown below:
2022 2021
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 1,456 1.2 - 1,176 74.6 -
Granted 1,026 1.0 - 1,106 1.0 -
Forfeited/lapsed (1,379) 1.3 - (826) 1.3 -
Exercised - - - - - -
Outstanding at 31 July 1,103 1.0 1,456 1.2 -
Exercisable at 31 July 171 1.0 69 1.0 -
The numbers and weighted average exercise prices of share options vesting in
the future are shown below.
2022 2021
Exercise date Weighted average remaining contract life Number Weighted average exercise price Weighted average remaining contract life (months) Number Weighted average exercise price
(months) '000 (pence) '000 (pence)
19/12/2021 - - - 5 402 1.0
20/01/2023 6 162 1.0 18 703 1.0
01/12/2023 16 160 1.0 28 219 2.4
31/01/2024 - - - 30 60 -
16/12/2024 29 410 1.0 - - -
16/12/2024 29 70 1.0 - - -
09/05/2025 33 130 1.0 - - -
Outstanding at 31 July 932 1,384
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. During the year the Company
purchased 25,711 shares (2021: 73,190) under this scheme.
The Group's Share Incentive Plan is held by an Employee Benefit Trust (EBT)
for tax purposes. The EBT buys shares with funds from the Group and any shares
held by the EBT are distributed to employees once vesting conditions are
satisfied. The Group has control over the EBT and therefore it has been
consolidated at 31 July 2022 and 31 July 2021. During the year ended 31 July
2021, a new EBT was set up as the branch of Gattaca plc and Apex Financial
Services Limited was appointed as the Trustee and the administrator to this
new EBT.
As at 31 July 2022, excess funds of £27,000 (2021: £28,000) were held by the
EBTs, which has been included in cash and cash equivalents.
The following expenses or credits were recognised in the income statement in
relation to share-based payment transactions:
2022 2021
£'000 £'000
Long-term incentive plan options 106 133
Share incentive plan 39 138
Total 145 271
The key assumptions used in the calculation of fair value per awards are as
follows:
Date of grant Share price on the date of grant (£) Exercise price Volatility Vesting period (yrs) Dividend yield Risk free rate of interest (%) Fair value (£)
(£) (%) (%)
31/01/2012 Long Term Incentive Plan Options 2.12 0.01 20.4% 2.00 7.4% 0.5% 2.12
31/01/2012 Long Term Incentive Plan Options 2.12 0.01 20.4% 3.00 7.4% 0.5% 2.12
31/01/2013 Long Term Incentive Plan Options 2.69 0.01 14.0% 2.00 5.8% 0.6% 2.67
31/01/2013 Long Term Incentive Plan Options 2.69 0.01 14.0% 3.00 5.8% 0.6% 2.67
01/01/2014 Long Term Incentive Plan Options 5.75 0.01 16.8% 2.00 3.1% 1.2% 5.75
01/01/2014 Long Term Incentive Plan Options 5.75 0.01 16.8% 3.00 3.1% 1.2% 5.75
28/01/2015 Long Term Incentive Plan Options 5.08 0.01 16.4% 2.00 3.9% 0.7% 5.08
28/01/2015 Long Term Incentive Plan Options 5.08 0.01 16.4% 3.00 3.9% 0.6% 5.08
25/06/2015 Long Term Incentive Plan Options 5.49 0.01 16.4% 3.00 3.9% 1.1% 5.49
11/02/2016 Long Term Incentive Plan Options 4.35 0.01 20.9% 3.00 4.9% 0.5% 4.50
19/12/2018 Long Term Incentive Plan Options 1.08 0.01 44.9% 3.00 0.0% 0.7% 1.07
07/08/2019 SIP 1.44 0.01 n/a 3.00 n/a n/a 1.44
09/09/2019 SIP 1.28 0.01 n/a 3.00 n/a n/a 1.28
08/10/2019 SIP 1.32 0.01 n/a 3.00 n/a n/a 1.32
08/11/2019 SIP 1.18 0.01 n/a 3.00 n/a n/a 1.18
09/12/2019 SIP 1.10 0.01 n/a 3.00 n/a n/a 1.10
10/01/2020 SIP 1.29 0.01 n/a 3.00 n/a n/a 1.29
20/01/2020 Long Term Incentive Plan Options 1.13 0.01 n/a 3.00 0.0% n/a 1.24
10/02/2020 SIP 0.82 0.01 n/a 3.00 n/a n/a 0.82
09/03/2020 SIP 0.76 0.01 n/a 3.00 n/a n/a 0.76
09/04/2020 SIP 0.39 0.01 n/a 3.00 n/a n/a 0.39
11/05/2020 SIP 0.44 0.01 n/a 3.00 n/a n/a 0.44
08/06/2020 SIP 0.45 0.01 n/a 3.00 n/a n/a 0.45
10/07/2020 SIP 0.45 0.01 n/a 3.00 n/a n/a 0.45
14/08/2020 SIP 0.54 0.01 n/a 3.00 n/a n/a 0.54
08/09/2020 SIP 0.58 0.01 n/a 3.00 n/a n/a 0.58
08/10/2020 SIP 0.54 0.01 n/a 3.00 n/a n/a 0.54
10/11/2020 SIP 0.60 0.01 n/a 3.00 n/a n/a 0.60
01/12/2020 Long Term Incentive Plan Options 0.84 0.01 n/a 3.00 n/a n/a 0.84
08/12/2020 SIP 0.82 0.01 n/a 3.00 n/a n/a 0.82
11/01/2021 SIP 0.82 0.01 n/a 3.00 n/a n/a 0.82
12/02/2021 SIP 0.86 0.01 n/a 3.00 n/a n/a 0.86
08/03/2021 SIP 1.15 0.01 n/a 3.00 n/a n/a 1.15
12/04/2021 SIP 1.50 0.01 n/a 3.00 n/a n/a 1.50
11/05/2021 SIP 1.49 0.01 n/a 3.00 n/a n/a 1.49
08/06/2021 SIP 2.24 0.01 n/a 3.00 n/a n/a 2.24
07/07/2021 SIP 2.64 0.01 n/a 3.00 n/a n/a 2.64
06/08/2021 SIP 2.46 0.01 n/a 3.00 n/a n/a 2.46
07/09/2021 SIP 2.01 0.01 n/a 3.00 n/a n/a 2.01
07/10/2021 SIP 2.00 0.01 n/a 3.00 n/a n/a 2.00
05/11/2021 SIP 1.67 0.01 n/a 3.00 n/a n/a 1.67
07/12/2021 SIP 1.39 0.01 n/a 3.00 n/a n/a 1.39
16/12/2021 Long Term Incentive Plan Options 1.29 0.01 59.2% 3.00 3.0% 0.5% 2.05
10/01/2021 SIP 1.49 0.01 n/a 3.00 n/a n/a 1.49
07/02/2022 SIP 0.83 0.01 n/a 3.00 n/a n/a 0.83
07/03/2022 SIP 0.79 0.01 n/a 3.00 n/a n/a 0.79
07/04/2022 SIP 0.71 0.01 n/a 3.00 n/a n/a 0.71
09/05/2022 SIP 0.66 0.01 n/a 3.00 n/a n/a 0.66
09/05/2022 Long Term Incentive Plan Options 0.66 0.01 66.9% 2.50 2.8% 1.4% 0.60
09/05/2022 Long Term Incentive Plan Options 0.66 0.01 67.6% 3.00 2.8% 1.4% 0.37
09/06/2022 SIP 0.64 0.01 n/a 3.00 n/a n/a 0.64
07/07/2022 SIP 0.69 0.01 n/a 3.00 n/a n/a 0.69
Prior to the 2018 award, the volatility of the Company's share price on each
date of grant was calculated as the average of the annualised standard
deviations of daily continuously compounded returns on the Company's stock,
calculated over five years back from the date of grant, where applicable. For
2018 onwards, the volatility of the Company's share price on date of grant was
calculated using the historical daily share price of the Company over a term
commensurate with the expected life of the award. For all awards the risk-free
rate is the yield to maturity on the date of grant of a UK Gilt Strip, with
term to maturity equal to the life of the option.
24 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 Gattaca plc £1,028,000
(2021: £525,000) for provision of management services.
The remuneration of key management personnel is disclosed in Note 5.
25 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 years £'000 1 to < 2 years £'000 2 to < 5 years £'000 5 years and over £'000 Contractual cash flows £'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 32,713 - - - 32,713
Total 35,785 1,093 1,616 48 38,542
2021
Invoice financing working capital facility 9,382 - - - 9,382
Lease liabilities 1,494 1,192 2,438 651 5,775
Trade and other payables 40,490 - - - 40,490
Total 51,366 1,192 2,438 651 55,647
Company
The Company had no financial liabilities at the reporting date (2021: £nil).
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 20. 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. The information for the year ended 31
July 2022 and the comparative information for the year ended 31 July 2021 are
both based upon actual utilisation of the facility during that year.
Projected increase in finance costs arising from increases in the Bank of
England's base rate of 1.25% as at 31 July 2022 (31 July 2021: 0.10%):
Group
2022 2021
£000's £000's
100 basis point increase 68 62
200 basis point increase 136 123
500 basis point increase 339 308
Borrowing facilities
The Group makes use of working capital facilities, details of which can be
found in Note 20. The undrawn working capital facilities available at year end
in respect of which all conditions precedent had been met was as follows:
Group
2022 2021
£'000 £'000
Undrawn working capital facility 33,051 24,163
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting
the obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset. The Group has a robust approach to
forecasting both net debt and trading results on a monthly basis, looking
forward to at least the next 12 months. At 31 July 2022, the Group had agreed
banking facilities with HSBC totalling £60m (2021: £75m) comprised solely of
a £60m invoice financing working capital facility (2021: £75m invoice
financing working capital facility). The available financing facilities in
place are sufficient to meet the Group's forecast cash flows.
Foreign currency risk
The Group's main 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.
Net foreign currency monetary assets are shown below:
Group
2022 2021
£'000 £'000
US dollar 5,696 6,436
Euro 2,119 5,224
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% (2021: 25%) strengthening and weakening of
Sterling against the US Dollar and Euro is set out below. The Group's exposure
to other foreign exchange movements is not material.
Group
2022 2021
£'000 £'000
USD / EUR exchange rate - increase 10% (2021: 25%) 704 3,397
USD / EUR exchange rate - decrease 10% (2021: 25%) (596) (2,352)
The Company only holds balances denominated in its functional currency and so
is not exposed to foreign currency risk.
26 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 on the face of the statement of financial position.
The Group sets the amount of capital in proportion to its overall financing
structure, i.e. equity and financial liabilities. The Group manages the
capital structure and makes adjustments in the light of changes in economic
conditions and risk characteristics of the underlying assets. Capital for the
reporting year under review is summarised as follows:
Group
2022 Restated1
2021
£'000
£'000
Total equity 29,997 35,107
Cash and cash equivalents (17,768) (29,238)
Capital 12,229 5,869
Total equity 29,997 35,107
Borrowings 1,801 9,348
Lease liabilities 3,625 5,761
Overall financing 35,423 50,216
Capital to overall financing ratio 35% 12%
1 Results are restated following the March 2021 IFRS Interpretations Committee
agenda decision on cloud computing arrangements, resulting in previously
capitalised software assets being expensed, as explained further in Note 1.25.
27 Net Cash/(Debt)
Net cash/(debt) 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.
2022 1 August 2021 Net cash flows Non-cash movements 31 July 2022
£'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
2021 1 August 2020 Net cash flows restated1 Non-cash movements restated1 31 July 2021
£'000 £'000 £'000 £'000
Cash and cash equivalents 34,796 (5,213) (345) 29,238
Interest-bearing term loan (7,500) 7,500 - -
Working capital facilities (151) (9,197) - (9,348)
Lease liabilities (7,736) 2,511 (536) (5,761)
Total net cash/(debt) 19,409 (4,399) (881) 14,129
Capitalised finance costs 196 - (196) -
Total net cash/(debt) after capitalised finance costs 19,605 (4,399) (1,077) 14,129
1 The reconciliation to adjusted net debt is restated for non-cash movements
relating to the effect of foreign exchange rates on cash and cash equivalents
as presented in the Consolidated Cash Flow Statement.
28 Contingent Liabilities
We continue our cooperation with the United States Department of Justice and
in 2022 have incurred £33,000 (2021: £29,000) 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 at the
date of approval of these financial statements which may result in a future
liability. The Group considers that the likelihood of a material economic
outflow is remote, and therefore no provision is being made.
29 Dividends
2022 2021
£'000 £'000
Equity dividends proposed after the year end (not recognised as - 484
a liability) at nil pence per share (2021: 1.5 pence per share)
The Group declared a dividend of 1.5 pence per share on 4 November 2021.
30 Events After the Reporting Date
The Group has not identified any subsequent events other than the sublease
that has been disclosed in Note 22.
31 Availability of Annual Report and Accounts and Notice of AGM
It is expected that the Company's Annual Report and Accounts for the year
ended 31 July 2022 (the "Accounts") will be published before the end of 3
November 2022 and that copies will be posted to shareholders and available to
download from the Company's website at www.gattacaplc.com
(http://www.gattacaplc.com/) shortly. Accompanying the Accounts will be
notice of Gattaca's 2022 Annual General Meeting, to be held at 9.30am on
Tuesday 6 December 2022 at The Solent Hotel & Spa, Rookery Avenue,
Whiteley, Hampshire.
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