REG - Triad Group Plc - Final Results <Origin Href="QuoteRef">TRD.L</Origin> - Part 2
12/06/2017 07:05
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the period they served as a
Director are set out below:
2017
Director Basic salary and fees Benefitsin kind Pension Total
£'000 £'000 £'000 £'000
Executive
J C Rigg 25 - - 25
N E Burrows 92 13 18 123
A Leer 100 9 9 118
Non-executive
A M Fulton 40 - - 40
S M Sanderson 20 - - 20
2016
Director Basic salary and fees Benefitsin kind Pension Total
£'000 £'000 £'000 £'000
Executive
J C Rigg 25 - - 25
N E Burrows 91 12 18 121
A Leer (appointed 3 March 2016) 99 8 9 116
Non-executive
A M Fulton 25 - - 25
S M Sanderson 20 - - 20
Benefits in kind include the provision of company car and medical insurance.
Pension includes a 5% employer contribution together with contributions made
under an employee salary sacrifice scheme.
No performance measures or targets were in place for either the year ended 31
March 2017, or any prior financial year, upon which any variable pay elements
could become payable during the year.
Two Directors are members of a money purchase scheme into which the Group made
contributions during the year.
Payments to past Directors
There were no payments to past Directors during the year.
Payment for loss of office
There were no payments for loss of office during the year.
Directors' interests in shares
The Directors who held office at the end of the financial year had the
following beneficial interests in the ordinary shares of the Company. No
change has occurred between the year end and the date of this report.
1 April 2016 31 March 2017
A M Fulton 354,100 354,100
J C Rigg 4,509,400 4,509,400
S M Sanderson 104,089 104,089
N E Burrows 7,893 9,893
A Leer 5,379 5,379
Directors' share options
The interests of executive Directors in share options were as follows:
At beginning of year Granted during year Exercisedduring year At end of year Exercise price Exercise period
N E Burrows:
granted 07.08.08 25,000 - (20,000) 5,000 14.0p 07.08.11 to 07.08.18
granted 23.09.11 100,000 - - 100,000 13.5p 23.09.14 to 23.09.21
granted 18.09.14 25,000 - - 25,000 11.0p 18.09.17 to 18.09.24
A Leer:
granted 23.09.11 50,000 - - 50,000 13.5p 23.09.14 to 23.09.21
- -
granted 18.09.14 100,000 - - 100,000 11.0p 18.09.17 to 18.09.24
----------- ----------- ----------- -----------
300,000 - (20,000) 280,000
----------- ----------- ----------- -----------
155,000 share options were exercisable at the end of the year (2016:
175,000).
Share options are exercisable provided that the relevant performance
requirement has been satisfied.
· that the Group shall have achieved positive earnings per share in any
financial year commencing at least one year after the date of grant of the
option. This performance requirement is the same as that applying to employee
share options granted at the same time.
The total share based payment expense recognised in the year in respect of
Directors' share options is £1,585 (2016: £1,585).
N E Burrows made a gain of £12,500 (2016: nil) on share options exercised
during the year.
The market price of the Company's shares was 68.00p at 31 March 2017 and the
range during the year was between 24.75p and 85.50p.
Annual Report on Remuneration (Unaudited)
Performance graph
The following graph shows the Group's performance, measured by total
shareholder return, compared with the performance of the FTSE Fledgling Index
("FTSEFI") also measured by total shareholder return ("TSR"). The FTSEFI has
been selected for this comparison because it is an index of companies with
similar current market capitalisation to Triad Group Plc.
Chief executive remuneration
There have been no changes to the remuneration of the Executive Chairman
during the year.
Relative importance of spend on pay
The total dividends or other cash distributions to shareholders during the
year was £nil (2016: £nil). The total employee remuneration (including
directors) during the year was £3,613m (2016: £3.308m).
Consideration of matters related to directors' remuneration
During the financial year the remuneration committee met three times to
consider directors' remuneration. No external advice was sought in relation to
matters discussed at these meetings.
Statement of voting at last general meeting
At the last annual general meeting the Directors' Remuneration Report was
approved with 99.9% of votes cast in favour of the resolution. There were
4,507,951 votes withheld. There was no vote on the directors' remuneration
policy as the policy was unchaged from that last voted on by shareholders.
Alistair Fulton
Chairman, Remuneration Committee
9 June 2017
Independent auditor report to the members of Triad Group Plc
Opinion on the financial statements
In our opinion:
· the financial statements give a true and fair view of the state of the
Group's and the Parent Company's affairs as at 31 March 2017 and of the
Group's and Parent Company's profit for the year then ended;
· the Group and the Parent Company financial statements have been
properly prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union; and
· the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006; and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
The financial statements of Triad Group Plc for the year ended 31 March 2017
comprise:
· The Group and Parent Company statement of comprehensive income;
· The Group and Parent Company statements of financial position;
· The Group and Parent Company statements of changes in equity;
· The Group and Parent Company statements of cash flows; and
· The notes to the financial statements.
The financial reporting framework that has been applied in the preparation of
the Group and Parent Company financial statements is applicable law and IFRSs
as adopted by the European Union.
Respective responsibilities of directors and auditor
As explained more fully in the statement of directors' responsibilities, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. Our responsibility is
to audit and express an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Financial Reporting Council's (FRC's)
Ethical Standards for Auditors.
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we
are required to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we have
formed.
Our assessment of risks of material misstatement and overview of the scope of
our audit
A description of the scope of an audit of financial statements is provided on
the FRC's website at www.frc.org.uk/auditscopeukprivate.
Our Group audit was scoped by obtaining an understanding of the group and its
environment, including the group's system of internal control, and assessing
the risks of material misstatement in the financial statements at the group
level.
We set out below the risk that had the greatest impact on our audit strategy
and scope. The Audit Committee's consideration of these matters is set out on
page 14:
Risk of material misstatement Our response to the risks identified
Revenue recognition
Revenue is predominantly recognised on an approved timecard basis and we consider there to be a significant risk over the completeness of revenue at the year end due to missing or late timecards or contractor invoices. There is a presumed risk of fraud in relation to revenue recognition due to the possibility that management may be motivated to achieve certain results. Our procedures included understanding and testing the controls in respect of billing from approved timecards, the controls over invoicing and the resulting posting to the financial statements. We tested a sample of approved timecards along with invoices
raised either side of the balance sheet date and compared these to recorded revenue, accrued revenue and costs and deferred revenue. Furthermore we tested contractor purchase invoices around the year end to ensure they and the corresponding revenue
invoices have been recorded in the correct period. We reviewed and considered journals posted to revenue during the year.
An overview of the scope of our audit
The Group financial statements are a consolidation of six companies made up of
one trading company (the Parent Company) which provides consultancy and
development services and five dormant companies. In establishing the overall
approach to the Group audit, we determined the type of work that needed to be
performed on each company. The Group operates solely in the United Kingdom.
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including the group's system of internal control, and assessing
the risks of material misstatement in the financial statements at the Group
level.
Based on our assessment we performed an audit of the complete financial
information of the Parent Company as the only trading company.
In our audit, we tested and examined information, using sampling and other
auditing techniques, to the extent we considered necessary to provide a
reasonable basis for us to draw conclusions. Our audit evidence was largely
obtained through substantive procedures.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. For planning, we consider
materiality to be the magnitude by which misstatements, including omissions,
could influence the economic decisions of reasonable users that are taken on
the basis of the financial statements.
The materiality for the group financial statements as a whole was set at
£300,000. This was determined with reference to a benchmark of revenue (of
which it represents one per cent) which we consider to be one of the principal
considerations for members of the company in assessing the financial
performance of the group.
Performance materiality was set at seventy per cent of the above materiality
level.
Materiality levels are not significantly different from those applied in the
previous year.
We agreed with the Audit Committee that we would report to the committee all
individual audit differences in excess of £6,000. We also agreed to report
differences below this threshold that, in our view, warranted reporting on
qualitative grounds.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors' remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit;
· the information given in the strategic report and directors' report for
the financial year for which the financial statements are prepared is
consistent with the financial statements; and
· the strategic report and directors' report have been prepared in
accordance with applicable legal requirements;.
Statement regarding the directors' assessment of principal risks, going
concern and longer term viability of the company
We have nothing material to add or to draw attention to in relation to:
· the directors' confirmation in the annual report that they have carried
out a robust assessment of the principal risks facing the entity, including
those that would threaten its business model, future performance, solvency or
liquidity;
· the disclosures in the annual report that describe those risks and
explain how they are being managed or mitigated;
· the directors' statement in the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in
preparing them and their identification of any material uncertainties to the
entity's ability to continue to do so over a period of at least twelve months
from the date of approval of the financial statements; or
· the directors' explanation in the annual report as to how they have
assessed the prospects of the entity, over what period they have done so and
why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the entity will be able to
continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our
opinion, information in the annual report is:
· materially inconsistent with the information in the audited financial
statements; or
· apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the Group acquired in the course of performing our
audit; or
· is otherwise misleading.
In particular, we are required to consider whether we have identified any
inconsistencies between our knowledge acquired during the audit and the
directors' statement that they consider the annual report is fair, balanced
and understandable and whether the annual report appropriately discloses those
matters that we communicated to the Audit Committee which we consider should
have been disclosed.
In the light of the knowledge and understanding of the group and the parent
company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
· adequate accounting records have not been kept by the parent company,
or returns adequate for our audit have not been received from branches not
visited by us; or
· the parent company financial statements and the part of the directors'
remuneration report to be audited are not in agreement with the accounting
records and returns; or
· certain disclosures of directors' remuneration specified by law are not
made; or
· we have not received all the information and explanations we require
for our audit.
Under the Listing Rules we are required to review:
· the directors' statements, set out on pages 5 and 10, in relation to
going concern and in relation to longer-term viability; and
· the part of the corporate governance statement relating to the
Company's compliance with the provisions of the UK Corporate Governance Code
specified for review by the auditor in accordance with Listing Rule 9.8.10
R(2). We have nothing to report in respect of these matters.
Anna Draper (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
Statements of comprehensive income and expense
for the year ended 31 March 2017
Group and Company Note 2017£'000 2016£'000
Revenue 30,912 28,317
Cost of sales (25,912) (24,081)
------------- -------------
Gross profit 5,000 4,236
Administrative expenses (3,453) (3,256)
------------- -------------
Profit from operations 5 1,547 980
Finance expense 6 (31) (118)
Finance income 5 1
------------- -------------
Profit before tax 1,521 863
Tax credit 8 13 350
------------- -------------
Profit for the year and total comprehensive income attributable to equity holders of the parent 1,534 1,213
------------- -------------
Basic earnings per share 10 10.08p 8.01p
--------- ---------
Diluted earnings per share 10 9.55p 7.72p
--------- ---------
All amounts relate to continuing activities.
Statements of changes in equity
for the year ended 31 March 2017
Group
Share Capital Share premium account Capital redemption reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000
At 1 April 2015 151 562 104 22 839
Profit for the year and total comprehensive income - - - 1,213 1,213
Share-based payments - - - 4 4
-------- -------- -------- -------- --------
At 1 April 2016 151 562 104 1,239 2,056
Profit for the year and total comprehensive income - - - 1,534 1,534
Ordinary shares issued 4 43 - - 47
Share-based payments - - - 2 2
-------- -------- -------- -------- --------
At 31 March 2017 155 605 104 2,775 3,639
--------- --------- --------- --------- ---------
Company
Share Capital Share premium account Capital redemption reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000
At 1 April 2015 151 562 104 17 834
Profit for the year and total comprehensive income - - - 1,213 1,213
Share-based payments - - - 4 4
-------- -------- -------- -------- --------
At 1 April 2016 151 562 104 1,234 2,051
Profit for the year and total comprehensive income - - - 1,534 1,534
Ordinary shares issued 4 43 - - 47
Share-based payments - - - 2 2
-------- -------- -------- -------- --------
At 31 March 2017 155 605 104 2,770 3,634
--------- --------- --------- --------- ---------
Share capital represents the amount subscribed for share capital at nominal
value.
The share premium account represents the amount subscribed for share capital
in excess of the nominal value.
The capital redemption reserve represents the nominal value of the purchase
and cancellation of its own shares by the Company in 2002.
Retained earnings represents the cumulative net gains and losses recognised in
the statement of comprehensive income and expense.
Statements of financial position
at 31 March 2017
Registered number: 2285049
Group Company
Note 2017£'000 2016£'000 2017£'000 2016£'000
Non-current assets
Intangible assets 11 8 13 8 13
Property, plant and equipment 12 134 120 134 120
Deferred tax 8 361 350 361 350
---------- ---------- ---------- ----------
503 483 503 483
---------- ---------- ---------- ----------
Current assets
Trade and other receivables 14 5,051 4,683 5,051 4,683
Cash and cash equivalents 15 2,248 955 2,248 955
---------- ---------- ---------- ----------
7,299 5,638 7,299 5,638
---------- ---------- ---------- ----------
Total assets 7,802 6,121 7,802 6,121
---------- ---------- ---------- ----------
Current liabilities
Trade and other payables 16 (3,702) (3,496) (3,707) (3,501)
Financial liabilities 17 (11) (7) (11) (7)
Short term provisions 18 (405) (254) (405) (254)
---------- ---------- ---------- ----------
(4,118) (3,757) (4,123) (3,762)
---------- ---------- ---------- ----------
Non-current liabilities
Financial liabilities 17 (-) (11) (-) (11)
Long term provisions 18 (45) (297) (45) (297)
---------- ---------- ---------- ----------
(45) (308) (45) (308)
---------- ---------- ---------- ----------
Total liabilities (4,163) (4,065) (4,168) (4,070)
---------- ---------- ---------- ----------
Net assets 3,639 2,056 3,634 2,051
----------- ----------- ----------- -----------
Shareholders' equity
Share capital 19 155 151 155 151
Share premium account 605 562 605 562
Capital redemption reserve 104 104 104 104
Retained earnings 2,775 1,239 2,770 1,234
---------- ---------- ---------- ----------
Total shareholders' equity 3,639 2,056 3,634 2,051
---------- ---------- ---------- ----------
The financial statements on pages 28 to 50 were approved by the Board of
Directors and authorised for issue on 9 June 2017 and were signed on its
behalf by:
Nick Burrows Alistair Fulton
Director Director
Triad Group Plc is registered in England and Wales with registered number
2285049.
Statements of cash flows
for the year ended 31 March 2017
Group and company Note 2017£'000 2016£'000
Cash flows from operating activities
Profit for the year before taxation 1,521 863
Adjustments for:
Depreciation of property, plant and equipment 60 46
Amortisation/impairment of intangible assets 5 107
Interest expense 4 10
Finance income - -
Share-based payment expense 2 4
Changes in working capital
Increase in trade and other receivables (367) (672)
Increase in trade and other payables 205 363
Decrease in provisions (101) (90)
-------------- --------------
Cash generated by operations 1,329 631
Interest paid (4) (10)
Tax received 2 -
-------------- --------------
Net cash flows from operating activities 1,327 621
-------------- --------------
Investing activities
Purchase of intangible assets - (8)
Purchase of property, plant and equipment (74) (42)
-------------- --------------
Net cash used in investing activities (74) (50)
-------------- --------------
Financing activities
Proceeds of issue of shares 47 -
Finance lease principal payments (7) (6)
-------------- --------------
Net cash flows from financing activities 40 (6)
-------------- --------------
Net increase in cash and cash equivalents 1,293 565
Cash and cash equivalents at beginning of the period 955 390
-------------- --------------
Cash and cash equivalents at end of the period 15 2,248 955
-------------- --------------
Notes to the financial statements
for the year ended 31 March 2017
1. Principal accounting policies
Basis of preparation
The principal accounting policies adopted in the preparation of the financial
statements are set out below. The policies have been consistently applied to
all the years presented, unless otherwise stated.
These financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS and IFRIC interpretations), as adopted by
the European Union (EU), issued by the International Accounting Standards
Board (IASB) and with those parts of the Companies Act 2006 applicable to
companies preparing their accounts under IFRS.
These financial statements have been prepared on a going concern basis.
These financial statements have been prepared on a historical cost basis and
are presented in sterling, the functional currency of the Group.
Basis of consolidation
Where the Company has control over an investee, it is classified as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee and the ability of the investor to use its power to affect
those variable returns. The consolidated financial statements present the
results of the Company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between Group companies
are therefore eliminated in full.
Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation and any impairment in value.
Depreciation is calculated so as to write off the cost of assets, less their
estimated residual values, on a straight line basis over the expected useful
economic lives of the assets concerned. The principal annual rates used for
this purpose are:
%
Computer hardware 25-33
Fixtures and fittings 10-33
Motor vehicles 25-33
Intangible assets
Expenditure on internally developed products is capitalised if it can be
demonstrated that:
· it is technically feasible to develop the product so that it will be
available for use or sale;
· adequate resources are available to complete the development;
· there is an intention to complete the product and use or sell it;
· it is able to be used or sold;
· the product will generate future economic benefits, internally and/or
externally; and
· expenditure attributable to the development of the product can be
measured reliably.
Intangible assets are stated at cost, net of accumulated amortisation and any
impairment in value. The cost of internally developed software is the
attributable salary costs and directly attributable overheads.
Amortisation is calculated so as to write off the cost of assets, less their
estimated residual values, on a straight line basis over the expected useful
economic lives of the assets concerned. Amortisation is charged to
administration expenses in the statement of comprehensive income and expense.
The principal annual rates used for this purpose are:
%
Purchased computer software 25-33
Internally developed software 10-25
Impairment of non-financial assets
Non-financial assets are subject to impairment tests whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. Where the carrying value of an asset exceeds its recoverable
amount the asset is written down accordingly. Impairment is charged to
administration expenses in the statements of comprehensive income and
expense.
Trade and other receivables
Trade and other receivables are recognised initially at fair value, and
subsequently measured at amortised cost using the effective interest method,
less provision for impairment.
Amounts are charged to an impairment account when there is objective evidence
that an impairment loss has occurred. Amounts are written off against the
carrying amount of trade receivables when it is certain that the receivable
will not be realised.
Cash
Cash in the balance sheet comprises cash held on demand with banks. For the
purpose of the consolidated cash flow statement, cash and cash equivalents
consist of cash, as defined above, net of bank borrowings due on demand.
Trade and other payables
Trade and other payables are recognised initially at fair value, and
subsequently measured at amortised cost using the effective interest method.
Borrowings
Borrowings are recognised initially at fair value, and subsequently measured
at amortised cost using the effective interest method.
Leases
Costs in respect of operating leases are charged to the statement of
comprehensive income and expense on a straight line basis over the lease
term.
Finance lease payments are apportioned between the finance charge and the
reduction of the outstanding liability. The finance charge is allocated so as
to produce a constant periodic rate of interest on the remaining balance of
the liability.
Foreign currencies
Assets and liabilities expressed in foreign currencies are translated into
sterling at the exchange rate ruling on the balance sheet date. Transactions
in foreign currencies are recorded at the exchange rate ruling as at the date
of the transaction. All differences on exchange are taken to the statement of
comprehensive income and expense in the year in which they arise.
Revenue
Revenue, which excludes value added tax, represents the invoiced value of
goods and services supplied: where a service has been provided, but not yet
invoiced, the amount is included in the financial statements as accrued
income.
Income from consultancy contracts, which are on a time hire basis, is
recognised as the services are provided.
Income from maintenance and fixed price consultancy and development contracts,
is recognised over the life of the contract, using the percentage of
completion method, and is deferred to the extent that it has not been earned.
Taxation
The charge for taxation is based on the profit or loss for the year as
adjusted for disallowable items. It is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet date.
Full provision is made for deferred tax on all temporary differences resulting
from the difference between the carrying value of an asset or liability and
its tax base, and on tax losses carried forward indefinitely. Deferred tax
assets are recognised to the extent that it is probable that the deferred tax
asset will be recovered in the foreseeable future. Deferred tax is calculated
at the tax rates that are expected to apply to the period when the asset is
realised or liability is settled.
Pension costs
Contributions to defined contribution plans are charged to the statements of
comprehensive income and expense as the contributions accrue.
Share-based payments
Share-based incentive arrangements are provided to employees under the Group's
share option scheme. Share options granted to employees are valued at the date
of grant using an appropriate option pricing model and are charged to
operating profit over the performance or vesting period of the scheme. The
annual charge is modified to take account of shares forfeited by employees who
leave during the performance or vesting period and, in the case of non-market
related performance conditions, where it becomes unlikely the option will
vest.
Provisions
A provision is recognised when the Group has a legal or constructive
obligation as a result of a past event and it is probable that an outflow of
economic benefits will be required to settle the obligation. If the effect is
material, expected future cash flows are discounted using a current pre-tax
rate that reflects the risks specific to the liability. Calculations of these
provisions require judgements to be made. The Group has provided for property
dilapidation and vacant property as detailed in note 18.
New standards and interpretations
The Group has adopted with effect from 1 April 2016 certain mandatory new
standards, amendments and interpretations. Adoption of these standards,
amendments and interpretations did not have any impact on the results, cash
flows or financial position of the Group or their presentation.
There are also certain standards, amendments and interpretations which have
been issued but which are not yet mandatory (and in some cases had not yet
been adopted by the EU). The Group has not applied these standards and
interpretations in the preparation of these financial statements.
IFRS 15 'Revenue from Contracts' was published in May 2014 and will be
effective for the Group from 1 April 2018, replacing IAS 18 'Revenue'. The
standard specifies how and when to recognise revenue.The impact of future
adoption of IFRS 15 is under review.
IFRS 16 'Leases' was published in January 2016 and will be effective for the
Group from 1 April 2019, replacing IAS 17 'Leases' subject to EU endorsement.
The standard requires lessees to recognise assets and liabilities for all
leases unless the lease term is 12 months or less or the underlying asset is
of low value. The impact of future adoption of IFRS 16 is under review.
The Directors do not anticipate that the adoption of other standards and
amendments will have a material impact on the Group's financial statements in
the period of initial application.
2. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. The Group makes estimates
and assumptions concerning the future. The resulting accounting estimates
will, by definition, seldom equal the related actual results. The estimates
and assumptions that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial
year are discussed below.
Surplus property
Provision has been made to meet the estimated liabilities of any property
surplus to the requirements of the business. All ongoing costs net of
estimated future rental income are charged to the provision. The provision is
discounted, unless the effect of the time value of money is not material (see
note 18).
Management exercises judgement in estimating costs, rental incomes and the
discount rate used in the calculation of the provision.
Were the discount rate to increase or decrease by 1% this would increase or
decrease net income and equity by £2,000.
Were 50% of the vacant property to be let through to the end of the lease at a
rent that was the same as the rent paid, this would increase net income and
equity by £120,000.
Deferred tax asset
A deferred tax asset of £361,000 (2016: £350,000) has been recognised in
accordance with the accounting policy on page 35. A deferred tax asset of
£732,000 (2016: £1,081,000) has not been recognised due to the assumptions and
judgments made by management on the certainty and timing of future profits.
3. Financial risk management
The Group uses financial instruments that are necessary to facilitate its
ordinary purchase and sale activities, namely cash, bank borrowings in the
form of a receivables finance facility and trade payables and receivables: the
resultant risks are foreign exchange risk, interest rate risk, credit risk and
liquidity risk. The Group does not use financial derivatives in its management
of these risks.
The Board reviews and agrees policies for managing these risks and they are
summarised below. These policies are consistent with last year.
3.1 Financial risk factors
Foreign exchange risk
There are a small number of routine trading contracts with both suppliers and
clients in euros. In all such circumstances the "back to back" contracts with
supplier and client will be in the same currency thereby mitigating the
Group's exposure to movements in exchange rates. Payments and receipts are
made through a bank account in the currency of the contract therefore balances
held in any foreign currency are to facilitate day to day transactions. With a
functional currency of sterling there are the following foreign currency net
assets:
Group and company Note 2017 2016
£'000 £'000
Currency: Euros
Net cash 15 37 47
Trade and other receivables 14 25 20
Trade and other payables 16 (27) (24)
-------- --------
35 43
--------- ---------
Any change in currency rates would have no significant effect on results.
Interest rate risk
The Group's interest rate risk arises from its borrowings, which are at a rate
that fluctuates in relation to movements in bank base rate. This facility, as
detailed in note 17, is secured by way of a debenture over all assets. At the
year-end borrowing under this facility totalled £nil (2016: £nil).
Cash balances are held in short term interest bearing accounts, repayable on
demand: these attract interest rates which fluctuate in relation to movements
in bank base rate. This maintains liquidity and does not commit the Group to
long term deposits at fixed rates of interest.
A 1% change in interest rates would have changed net income and equity by
£1,000 (2016: £4,000).
Credit risk
The Group is mainly exposed to credit risk from credit sales. It is Group
policy to assess the credit risk of new customers before entering into
contracts. Each new customer is assessed, using external ratings and relevant
information in the public domain, before any credit limit is granted. In
addition, trade receivables balances are monitored on a regular basis to
minimise exposure to bad debts. The amount charged to the income statement
during the year in respect of bad debts was £69,000 being 0.22% of revenue
(2016: £12,000).
The Group is also exposed to credit risk from accrued income, being revenue
earned but not yet invoiced (note 14).
Financial assets that are past due but not impaired are analysed in note 14.
Each balance has been reviewed by management to assess its recoverability.
The Group also has credit risk from cash deposits with banks (note 15).
The Group's maximum exposure to credit risk is:
Note 2017 2016
£'000 £'000
Trade and other receivables 14 4,048 3,489
Accrued income 14 757 1,036
Cash and cash equivalents 15 2,248 955
---------- ----------
7,053 5,480
--------- ---------
Liquidity risk
The Group's liquidity risk arises from its management of working capital. The
Group has a facility to borrow an amount up to 90% of approved trade debtors
subject to a maximum limit of £2.5m. The facility may be terminated by either
party with one month's written notice. The Board receives regular cash flow
and working capital projections to enable it to monitor its available headroom
under this facility. At the balance sheet date these projections indicated
that the Group expected to have sufficient liquid resources to meet its
reasonably expected obligations. Maturity of financial liabilities is set out
in notes 16 and 17.
Capital risk management
The Group's capital comprises both borrowings and shareholders' equity. Its
objectives when managing capital are to safeguard the Group's ability to
continue as a going concern in order to maximise shareholder value. To
maintain or adjust the capital structure the Group may adjust the dividend
payment to shareholders, return capital to shareholders, issue new shares or
alter the level of borrowings.
3.2 Fair value estimation
The carrying value of financial assets and liabilities approximate their fair
values.
4. Revenue
The Group operates solely in the UK. All material revenues are generated in
the UK.
53% (2016: 40%) of revenue was generated in the public sector. The largest
single customer
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