Quarterly Report • Jul 3, 2020
Quarterly Report
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National Storage Mechanism | Additional information
RNS Number : 9197R
Aquila Services Group PLC
03 July 2020
For immediate release 3 July 2020
Aquila Services Group plc
("Aquila", the "Company" or the "Group")
Annual report and financial statements
for the year ended 31 March 2020
Notice of AGM
Annual report
Aquila is pleased to announce its audited annual report and financial statements for the year ended 31 March 2020, extracts from which are set out below.
The Company's annual report and financial statements for the year ended 31 March 2020 are being posted to shareholders today and will shortly be made available from the Company's website at: http://www.aquilaservicesgroup.co.uk/.
In addition, the document will be uploaded to the National Storage Mechanism and will be available for viewing shortly at http://www.morningstar.co.uk/uk/NSM.
Financial Highlights
The comparison between this reporting period, the mid-year results and the previous year's results for the Group is as follows:
| Year ended 31 March 2020 (audited) |
6 months to 30 Sept 2019 (unaudited) |
Year ended 31 March 2019 (audited) |
|
| £000s | £000s | £000s | |
| Turnover | 7,963 | 3,891 | 7,655 |
| Gross profit | 1,752 | 980 | 1,867 |
| Underlying operating profit | 468 | 306 | 724 |
| Share option charge | (105) | (52) | (117) |
| Restructuring costs relating to COVID-19 | (186) | - | - |
| Acquisition costs | (51) | - | - |
| Share of profits from associate | 51 | - | - |
| Statutory profit after tax | 126 | 195 | 466 |
| EPS | 0.35p | 0.55p | 1.32p |
| Cash balances | 828 | 1,127 | 1,719 |
Dividend
Due to the current economic climate and the requirement for the Group to maintain and retain cash reserves within the business, the directors do not propose a final dividend for the year end. The total dividend for the year was 0.30p (paid as an interim dividend in December) compared to a final dividend of 0.89p in 2019.
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014. For further information please visit www.aquilaservicesgroup.co.uk or contact:
Aquila Services Group plc
Claire Banks, Group Finance Director
Tel: 020 7934 0175
Beaumont Cornish Limited, Financial Adviser
Roland Cornish
Tel: 020 7628 3396
Notice of Annual General Meeting ("AGM")
The Company's AGM will be held at Tempus Wharf 29A, Bermondsey Wall West, London, SE16 4SA on 29 July 2020 at 3:00 pm
Please note that arrangements for the Annual General Meeting this year are different from those of previous years. Restrictions on personal movement and social distancing measures implemented by the UK Government in response to the COVID-19 pandemic means that special measures will be adopted for the Annual General Meeting (AGM) to protect the health and safety of Shareholders and others in attendance at the AGM. It is currently envisaged that the AGM will be run as a closed meeting with the minimum number of shareholders present (or via video conferencing in accordance with the Company's articles of association) to ensure that the meeting is quorate and conducted without a presentation or a question and answer session. The Board requests that no Shareholders attend the meeting in person and any Shareholders that do attend (other than to form a quorum) will be refused entry. Accordingly, Shareholders are encouraged to vote on the resolutions by proxy and the votes on each resolution will be taken on a poll. You can vote by completing and returning the proxy form which accompanies the Report and Accounts.
The Board will continue to keep Government guidance under review and may, if necessary, make further changes to the arrangements for the AGM. Further announcements and information will be provided as required and Shareholders should continue to monitor the Company's website at https://aquilaservicesgroup.co.uk/ for any up-dates.
The financial information set out below does not constitute the Company's statutory accounts for the period ending 31 March 2020. The financial information for 2019 is derived from the statutory accounts for that year. The auditors, Crowe U.K. LLP, have reported on the 2020 accounts. Their report was unqualified and did not include a reference to any matters to which the auditors draw attention by way of emphasis without qualifying their report.
Chair's Statement
Dear Shareholder,
I am pleased to present the Annual Report and the Financial Statements for the year to 31 March 2020.
The report has been redesigned to provide a more accessible overview of the Group businesses, activities and outcomes for the year so I am taking this opportunity to give an insight into our trading and decisions for the past year, and our thoughts and plans for the future.
'May you live in interesting times' is an old Chinese greeting although some might say a curse. The implication was not avoiding boredom but that the road ahead would be dangerous and you would need all your skill and endeavour to successfully complete your journey. How apt this greeting would have been at the start of the year. So much has happened. I am pleased to report we are now recognising the successes and overcoming the difficulties so that we look forward with confidence.
A key element of the Group's business objectives was to widen the range of professional services we offer our clients. This expansion would benefit the business by diversifying our income streams both by sectors and geographically.
The acquisition of Oaks which completed in June 2019 widened our consultancy client base in the education, sports and charity sectors as well as providing opportunities with existing clients who provide community services. Oaks also has an established and growing international portfolio. Bringing Finalysis into the Group as part of our treasury subsidiary ATFS earlier this year adds the education sector to our treasury client base as well as a wider range of financial support services.
We have been diversifying our business activities within Altair, updating and expanding our transformation offering, growing and strengthening our technical teams to support clients with their compliance and cladding issues, particularly through Altair governance and leadership teams. The continuing expansion of Altair International and teams developing new products will provide increasing revenues in future years.
We are successfully continuing to develop our high level and short-term placement model mainly through the Group's property division and future plans include rollout to other divisions and specialist teams. As mentioned in previous reports, the interim executive business remains under pressure from a variety of sources: clients utilising internal resources or their own networks, the implementation of IR35 and competition from internet-based platforms.
Early in the financial year the Group Board conducted a governance review streamlined some of our decision making and enabling opportunities for our up and coming ambitious team members. Subsidiary boards will now only have operational members and all Group integration and co-ordination will be routed through these boards. This process completed towards the end of the year is working well in difficult circumstances and is expected to be cost beneficial for the future.
The success of our business strategy was starting to be recognised at the September 2019 interim stage with increased turnover and higher profit, both at the gross and operating level and enhanced cash balances all compared to the same point in the previous year. With Oaks an Finalysis beginning their integration into the Group and some of the wider political uncertainties such as Brexit and the General Election now less important, we looked forward to sustainable growth and reporting improved outcomes for the year.
By the middle of February 2020 there were increasing concerns about the spread of the COVID-19 virus and we were thinking about the implications this could have on our operations. Like most other businesses, it was difficult to assess the impact this might have in the UK and on our clients. Within two weeks we moved from a watching brief to an action plan. The investment we had made in IT meant that the move to home working was swift and seamless. Consultants normally based at the offices of clients were able to continue working from home. The Board agreed that it must reshape the business to focus on client delivery and put on hold our expansion programme. Resources would not be available for our strategic plans such as acquisitions and mergers. As a consequence, the role of our Group CEO Steve Douglas CBE became redundant.
Much depended on the decisions of our clients wanting to continue with existing contracts or defer. For many of our clients their priorities would dramatically change as many needed to put first their own vulnerable residents and service users. This was all done with a high level of co-operation and understanding and reflects the quality of the relationships between our staff and clients.
By the end of March 2020, we had issued or were part-way through a redundancy process for a small number of staff and also took advantage of the government scheme to furlough some staff to protect their employment. All the above was carried out with as much transparency and staff involvement as possible.
Inevitably working through this action plan reduced turnover in what is usually one of the busiest periods of the year. We reviewed the values of our work in progress and contract pipeline, particularly in terms of delay and extra costs that lockdown arrangements could generate. Our actions had cost implications in addition to redundancy costs, the latter are identified separately in the results.
Without the COVID-19 emergency we are confident that reported profits for the year would have been similar or better than the previous year reflecting the progress reported at the interim stage. The gross profit for the twelve months ended 31 March 2020 was £1,752k compared to £1,867k for the twelve months ended 31 March 2019.
Including redundancy costs of £186k (2019 £Nil), the legal costs of acquisitions £51k (2019 £nil) and the costs attributed to the existing share options £105k (2019 £117k) underlying operating profit of the business was £468k (Sept 2019 £306k, Mar 2019 £724k). The shortfall is an indicator of the cost to the business from the crisis. Statutory profit after tax for the year was £126k (Sept 2019 £195k, Mar 2019 £466k). For the first time we are pleased to report there has been a contribution from our share of associates profit of £51k (2019: Nil).
Our most pressing concern was not the continuation of existing contracts but whether clients, hard pressed to manage their existing workload and with new responsibilities to support their own vulnerable clients, could allocate resources to procure future strategic and technical support. We did not know whether new property developments, looking at new ways of working, training and efficiency initiatives would be put on hold and for an uncertain timescale. To plan for this uncertainty, we formulated a range of budgets and cash flows with resulting action plans. I am pleased to report that for the first two months of this year trading has been satisfactory and with some new opportunities coming forward, although not at the level of pre COVID-19, we are likely to be able to sustain trading at a profitable level.
From the early days of the crisis it was obvious that one of the most critical measures was to maximise the Group cash balances. Consequently additional resources and monitoring were inputted into both billing and debt collection as well as reducing non-essential operating costs as much as possible. This included not declaring a final dividend for the year. I am pleased to say that as at the time of writing our cash balances are higher than at the year end, even after deducting the benefit of the deferral of VAT payments. We are also examining options to increase cash availability to have the capacity to expand if competitors cannot deliver or there are relevant opportunities created by government actions to boost economic activity.
I must make special mention of Steve Douglas CBE, our CEO. We will miss his knowledge and experience of the affordable housing sector and his commitment to the diversity agenda. We wish him well for the future.
Following Steve's departure and discussions at Group Board it was agreed that I should become the Executive Chair for an interim period. We will review our longer-term requirements when the future level of business activities is more predictable.
There are so many people I personally and on behalf of the Group Board should mention that deserve our thanks and appreciation. I need to express my gratitude to my fellow board members Claire, Fiona and Richard. It would be invidious to pick out other individuals because every staff member, associate, people we work with at clients, regulators and government have given over and above what should be expected and with good humor and understanding.
We do not know if the crisis is over yet though the current easing of lockdown is promising and hope the future is less 'interesting'. Today we are looking forward with confidence to restarting our growth agenda and again generating increasing returns for shareholders. I look forward to reporting on progress at the interim.
Derek Joseph - Chair
2 July 2020
Consolidated statement of comprehensive income
For the year ended 31 March 2020
| Notes | 2020 | 2019 | |||||
| £'000s | £'000s | ||||||
| Revenue | 4 | 7,963 | 7,655 | ||||
| Cost of sales | 5 | (6,211) | (5,788) | ||||
| Gross profit | 1,752 | 1,867 | |||||
| Administrative expenses | 5 | (1,626) | (1,260) | ||||
| Operating profit | 126 | 607 | |||||
| Finance income | 4 | 1 | 2 | ||||
| Release of contingent consideration | 10 | 555 | - | ||||
| Impairment of goodwill | 10 | (555) | - | ||||
| Share of profits from associate | 13 | 51 | - | ||||
| Profit before taxation | 6 | 178 | 609 | ||||
| Income tax expense | 8 | (52) | (143) | ||||
| Profit for the year | 126 | 466 | |||||
| Other comprehensive income | - | - | |||||
| Total comprehensive income for the year | 126 | 466 | |||||
| Earnings per share attributable to owners of the parent | |||||||
| Basic | 9 | 0.35p | 1.32p | ||||
| Diluted | 9 | 0.32p | 1.15p |
The income statement has been prepared on the basis that all operations are continuing operations.
Consolidated statement of financial position
As at 31 March 2020
| Group | Group | ||||
| 2020 | 2019 | ||||
| Notes | £'000s | £'000s | |||
| Non-current assets | |||||
| Goodwill | 10 | 3,317 | 2,028 | ||
| Property, plant and equipment | 11 | 518 | 72 | ||
| Investment in associates | 13 | 278 | 227 | ||
| Investments | 14 | 121 | 121 | ||
| 4,234 | 2,448 | ||||
| Current assets | |||||
| Trade and other receivables | 15 | 2,387 | 2,193 | ||
| Cash and bank balances | 828 | 1,719 | |||
| 3,215 | 3,912 | ||||
| Current liabilities | |||||
| Trade and other payables | 16 | 1,683 | 1,595 | ||
| Lease liabilities | 16 | 79 | - | ||
| Corporation tax | 76 | 162 | |||
| 1,838 | 1,757 | ||||
| Net current assets | 1,377 | 2,155 | |||
| Non-current lease liabilities | 17 | 369 | - | ||
| Net assets | 5,242 | 4,603 | |||
| Equity | |||||
| Share capital | 18 | 1,897 | 1,765 | ||
| Share premium account | 18 | 1,475 | 1,487 | ||
| Merger reserve | 18 | 3,042 | 2,413 | ||
| Share-based payment reserve | 21 | 769 | 668 | ||
| Retained (losses)/earnings | (1,941) | (1,730) | |||
| Equity attributable to the owners of the parent | 5,242 | 4,603 |
The financial statements were approved by the board on 2 July 2020.
Claire Banks - Group Finance Director
Company statement of financial position
As at 31 March 2020
| Company | Company | ||||
| 2020 | 2019 | ||||
| Notes | £'000s | £'000s | |||
| Non-current assets | |||||
| Property, plant and equipment | 11 | 16 | 37 | ||
| Investment in subsidiaries | 12 | 4,212 | 2,818 | ||
| Investment in associates | 13 | 227 | 227 | ||
| Investments | 14 | 121 | 121 | ||
| 4,576 | 3,203 | ||||
| Current assets | |||||
| Trade and other receivables | 15 | 708 | 1,084 | ||
| Cash and bank balances | 13 | 334 | |||
| 721 | 1,418 | ||||
| Current liabilities | |||||
| Trade and other payables | 16 | 635 | 672 | ||
| 635 | 672 | ||||
| Net current (liabilities)/assets | 86 | 746 | |||
| Net assets | 4,662 | 3,949 | |||
| Equity | |||||
| Share capital | 18 | 1,897 | 1,765 | ||
| Share premium account | 18 | 2,104 | 1,487 | ||
| Share-based payment reserve | 21 | 769 | 668 | ||
| Retained (losses)/earnings | (108) | 29 | |||
| Equity attributable to the owners of the parent | 4,662 | 3,949 |
As permitted by S408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company's profit for the year was £200k (2019: £165k).
The financial statements were approved by the board on 2 July 2020.
Claire Banks - Group Finance Director
Company Registration No. 08988813
Consolidated statement of changes in equity
For the year ended 31 March 2020
| Share | Share based | |||||
| Share | premium | Merger | payment | Retained | Total | |
| capital | account | reserve | reserve | losses | equity | |
| £'000s | £'000s | £'000s | £'000s | £'000s | £'000s | |
| Balance at 1 April 2018 | 1,763 | 1,487 | 2,413 | 558 | (1,907) | 4,314 |
| Issue of shares | 2 | - | - | - | - | 2 |
| Transfer on exercise of options | - | - | - | (7) | 7 | - |
| Total comprehensive income | - | - | - | - | 466 | 466 |
| Share based payment charge | - | - | - | 117 | - | 117 |
| Dividend | - | - | - | (296) | (296) | |
| Balance at 31 March 2019 | 1,765 | 1,487 | 2,413 | 668 | (1,730) | 4,603 |
| Balance at 1 April 2019 | 1,765 | 1,487 | 2,413 | 668 | (1,730) | 4,603 |
| Issue of shares | 132 | (12) | 629 | - | - | 749 |
| Transfer on exercise of options | - | - | - | (4) | 4 | - |
| Total comprehensive income | - | - | - | - | 126 | 126 |
| Share based payment charge | - | - | - | 105 | - | 105 |
| Dividend | - | - | - | - | (341) | (341) |
| Balance at 31 March 2020 | 1,897 | 1,475 | 3,042 | 769 | (1,941) | 5,242 |
Company statement of changes in equity
For the year ended 31 March 2020
| Share | Share based | ||||
| Share | premium | payment | Retained | Total | |
| capital | account | reserve | earnings | equity | |
| £'000s | £'000s | £'000s | £'000s | £'000s | |
| Balance at 1 April 2018 | 1,763 | 1,487 | 558 | 153 | 3,961 |
| Issue of shares | 2 | - | - | - | 2 |
| Total comprehensive income | - | - | - | 165 | 165 |
| Transfer on exercise of options | - | - | (7) | 7 | - |
| Share based payment charge | - | - | 117 | - | 117 |
| Dividend | - | - | - | (296) | (296) |
| Balance at 31 March 2019 | 1,765 | 1,487 | 668 | 29 | 3,949 |
| Balance at 1 April 2019 | 1,765 | 1,487 | 668 | 29 | 3,949 |
| Issue of shares | 132 | 617 | - | - | 749 |
| Total comprehensive income | - | - | - | 200 | 200 |
| Transfer on exercise of options | - | - | (4) | 4 | - |
| Share based payment charge | - | - | 105 | - | 105 |
| Dividend | - | - | - | (341) | (341) |
| Balance at 31 March 2020 | 1,897 | 2,104 | 769 | (108) | 4,662 |
Consolidated statement of cash flow
For the year ended 31 March 2020
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Cash flows from operating activities | |||
| Profit for the year | 126 | 466 | |
| Interest received | (1) | (2) | |
| Income tax expense | 52 | 143 | |
| Share based payment charge | 105 | 117 | |
| Profit from associate | (51) | - | |
| Release of contingent consideration | (555) | - | |
| Impairment of goodwill | 555 | - | |
| Depreciation | 134 | 52 | |
| Operating cash flows before movement in working capital | 365 | 776 | |
| Decrease/(Increase) in trade and other receivables | 122 | (84) | |
| (Decrease)/Increase in trade and other payables | (257) | 566 | |
| Cash generated by operations | 230 | 1,258 | |
| Income taxes paid | (139) | (123) | |
| Net cash inflow from operating activities | 91 | 1,135 | |
| Cash flows from investing activities | |||
| Interest received | 1 | 2 | |
| Purchase of property, plant and equipment | (32) | (28) | |
| Purchase of subsidiary | (544) | - | |
| Acquisition of investment in an associate | - | (66) | |
| Net cash outflow from investing activities | (575) | (92) | |
| Cash flows from financing activities | |||
| Lease liability payments | (66) | - | |
| Proceeds of share issue | - | 2 | |
| Dividends paid | (341) | (296) | |
| Net cash outflow from financing activities | (407) | (294) | |
| Net (decrease)/increase in cash and cash equivalents | (891) | 749 | |
| Cash and cash equivalents at beginning of the year | 1,719 | 970 | |
| Cash and cash equivalents at end of the year | 828 | 1,719 |
Other than the inclusion of lease liabilities on adoption of IFRS 16 all changes in liabilities arising from financing arose from cash flows.
Notes to the consolidated statement of cashflows
| Net assets acquired on acquisitions | Oaks | Finalysis | Total |
| £'000 | £'000 | £'000 | |
| Tangible non-current assets | 34 | - | 34 |
| Trade and other receivables | 315 | 71 | 386 |
| Cash at bank | - | 5 | 5 |
| Trade and other payables | (348) | (27) | (375) |
| Goodwill | 1,161 | 130 | 1,291 |
| 1,162 | 179 | 1,341 | |
| Satisfied by | |||
| Shares allotted | 730 | 30 | 760 |
| Cash | 432 | 149 | 581 |
| 1,162 | 179 | 1,341 | |
Company statement of cash flow
For the year ended 31 March 2020
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Cash flows from operating activities | |||
| Profit for the year | 200 | 165 | |
| Dividends received | (461) | (381) | |
| Interest received | (1) | (1) | |
| Income tax expense | - | - | |
| Depreciation | 21 | 21 | |
| Operating cash flows before movement in working capital | (241) | (196) | |
| Decrease in trade and other receivables | 379 | 43 | |
| (Increase)/Decrease in trade and other payables | (37) | 122 | |
| Cash (outflow)/generated by operations | 101 | (31) | |
| Income taxes paid | - | - | |
| Net cash inflow/(outflow) from operating activities | 101 | (31) | |
| Cash flows from investing activities | |||
| Interest received | 1 | 1 | |
| Dividends received | 461 | 381 | |
| Purchase of property, plant and equipment | - | - | |
| Acquisition of subsidiaries | (544) | - | |
| Acquisition of investment in an associate | - | (65) | |
| Acquisition of investment | - | - | |
| Net cash (outflow)/inflow from investing activities | (82) | 317 | |
| Cash flows from financing activities | |||
| Proceeds of share issue | - | 2 | |
| Dividends paid | (341) | (296) | |
| Net cash outflow from financing activities | (341) | (294) | |
| Net decrease in cash and cash equivalents | (322) | (8) | |
| Cash and cash equivalents at beginning of the year | 335 | 343 | |
| Cash and cash equivalents at end of the year | 13 | 335 |
Noted to the financial statements For the year ended 31 March 2020
1 General information
Aquila Services Group plc ('the Company') and its subsidiaries (together, 'the Group') provide specialist housing, sport, education and treasury management consultancy services. The principal activity of the Company is that of a holding company for the Group as well as providing all the strategic and governance functions of the Group.
The Company is a public limited company which is listed on the London Stock Exchange, domiciled in the United Kingdom and incorporated and registered in England and Wales. The Company's registered office is Tempus Wharf, 29a Bermondsey Wall West, London, SE16 4SA.
2 Accounting policies
The principal accounting policies applied in preparation of these consolidated financial statements are set out below. These policies have been consistently applied unless otherwise stated.
Basis of preparation
The financial statements have been prepared in accordance with International Reporting Standards as adopted by the European Union (IFRSs), issued by the International Accounting Standards Board (IASB), including interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), and the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared on the historical cost basis except for certain assets which are carried at fair value.
The financial statements are presented in Pounds Sterling which is the functional and presentational currency of all companies within the group.
The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas of critical accounting estimates and judgements are set out in note 3.
Going concern
As a result of the COVID-19 pandemic management have produced forecasts that have been adapted to reflect plausible scenarios on revenue and costs over the short term and into a transition period. These have further been stress tested to ensure their viability.
All non-essential spend was suspended and all travel and subsistence spend suspended due to lockdown measure being in place.
The Group made six redundancies between March and June and placed seven members of staff on furlough, one of whom has since returned to work.
All employees continue to work from home and are able to service both the needs of clients and the organisation.
The Group took advantage of the VAT payment deferral plan and have built into the cashflow forecast the payment in March 2021.
The Company has not sought assistance through the CBILS scheme at the current time, but it remains an option that the directors will keep under review. The directors have considered the possibility of bank loans and have opted not to take out debt financing but have considered equity financing and the placement of shares should cash be required.
The Group is in a strong cash position post balance sheet.
The Board continues to review the current position on a fortnightly basis. The subsidiary CEOs and the Group Finance Director monitor weekly to ensure forecasts are sustainable and cash reserves are maintained.
All the actions taken and the forecasts that have been produced and reviewed demonstrate that the Group is forecast to generate profits and cash in the year ended 31 March 2021 and beyond and that the Group has sufficient cash reserves to enable the Group to meet its obligations as they fall due for a period of at least 12 months from the date of signing the financial statements.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of subsidiary entities. A subsidiary is defined as an entity over which the Company has control. Control is achieved when the Company has power over an entity, is exposed to, or has rights to, variable returns from its involvement with the entity, and could use its power to affect its returns.
Consolidation of a subsidiary begins when the Company obtains control and ceases when control is lost. The Company reassesses whether it controls an entity if facts and circumstances indicate that there are changes to one or more of the three control elements listed above.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated on consolidation.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with the Group's accounting policies.
Business combinations
Acquisitions of subsidiaries are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree.
Any excess of the consideration over the fair value of the identifiable assets and liabilities acquired is recognised as goodwill. Goodwill is not amortised but is reviewed for impairment at least annually. If the consideration is less than the fair value of the identifiable assets and liabilities acquired, the difference is recognised in the statement of comprehensive income.
Revenue recognition
The group earns income from the following principal services:
§ Revenue from consultancy services
§ Revenue from interim management
§ Revenue from treasury management
For all these principal services, revenue represents amounts recoverable from clients for professional services provided during the year. Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties.
Revenue is recognised when control of a product or service is transferred to a customer.
Revenue from fixed fee assignments is recognised over a period of time by reference to the stage of completion of the actual services provided at the reporting date, as a proportion of the total services to be provided because the customer receives and uses the benefits simultaneously. This is determined based on the actual labour hours spent relative to the total expected labour hours.
Time and materials assignments are recognised as services are provided at the fee rate agreed with the client. Unbilled revenue on individual client assignments is classified as accrued income for client work within trade and other receivables. Where individual on-account billings exceed recognised revenue on a client assignment, the excess is classified as contract liabilities for client work within trade and other payables.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for use. Depreciation is recognised to write-off the cost of assets less their residual values over their estimated useful lives, using the straight-line method, on the following bases:
| Short leasehold property | Over unexpired term of lease |
| Equipment | 3-5 years |
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income.
Investment in subsidiaries
In the Company's financial statements, investments in subsidiaries are carried at cost less any accumulated impairment.
The cost of an investment in a subsidiary is the aggregate of the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Company, plus any costs directly attributable to the purchase of the subsidiary.
Investment in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group's share of profit or loss and other comprehensive income of the associate.
An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of cost over the Group's share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included in the carrying amount of the investment.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets
Financial assets are classified into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL) and 'amortised cost'. The classification depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them and is determined at the time of initial recognition. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model.
Amortised cost
Financial assets at amortised cost
These assets are held within a business model whose objective is to collect contractual cash flows which are solely payments of principals and interest and therefore classified as subsequently measured at amortised cost. With the exception of trade receivables which are initially measured at transaction price determined in accordance with IFRS 15, financial assets at amortised cost are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The Group's financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents. Cash comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand which have a right of offset against cash balances. These instruments are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.
Financial assets at fair value through profit or loss
Assets that do not meet the criteria for amortised cost 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 period in which it arises. The Group's financial assets measured at FVTPL comprise unquoted equity investments.
Impairment of financial assets
Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of credit losses. During this process the probability of the non-payment of the trade receivable is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the expected credit loss for the trade receivables. Provisions are recorded net in a separate provision account with the loss being recognised in the consolidated income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward-looking expected credit loss model. The methodology used to determine the amount of provision is based on whether there has been a significant increase in credit risk since the initial recognition of the asset.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'amortised cost'. The Group does not currently hold any financial liabilities 'at FVTPL'.
Pensions
The Group contributes to defined contribution schemes for the benefit of its directors and employees. Contributions payable are charged to the statement of comprehensive income in the year they are payable.
Current and deferred income tax
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit or loss, because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial information and the corresponding tax bases used in the computation of taxable profit, and, is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply to the year when the asset is realised, or the liability is settled. Deferred tax is charged or credited in the profit or loss, except when it relates to items credited or charged in other comprehensive income directly to equity, in which case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets
Management regularly assesses the likelihood that deferred tax assets will be recovered from future taxable income. No deferred tax asset is recognised when management believe that it is more likely than not that a deferred asset will not be realised.
Impairment of assets
The Group assesses at each statement of financial position date if there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset.
If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined.
The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use.
If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.
An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss.
An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.
The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods.
A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss.
Provisions
Provisions are recognised when 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 a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at an appropriate pre-tax discount rate.
Leases
The Group has revised its accounting policy for leases where the Group is the lessee following the adoption of IFRS 16 on 1 April 2019.
The Group enters into lease agreements for the use of buildings. Lease terms are negotiated on an individual basis and contain a range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.
Until March 2019 leases of property were classified as operating leases. From 1 April 2019, following the adoption of IFRS 16, leases are recognised as a right-of-use asset (ROU) and a corresponding lease liability for future lease payments at the date at which the leased asset is available for use by the Group. Depreciation of the right-of-use asset will be recognised in the income statement on a straight-line basis, with interest recognised on the lease liability.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
· fixed payments, less any lease incentives receivable;
· variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
· amounts expected to be payable by the Group under residual value guarantees;
· the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
· payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options would also be included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of use asset in a similar economic environment with similar terms, security and conditions.
Lease payments are allocated between principal and interest cost. The finance cost is charged to the income statement 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 generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. 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.
The modified retrospective method has been applied the impact on adoption was a recognition of a right of use asset of £514k with a matching lease liability. There are no adjustments to opening retained earnings as there were no lease liabilities in force at the end of the prior year.
The Group does not have any short-term leases of equipment or vehicles.
Accounting policy applied prior to 1 April 2019
Under IAS 17 (prior to transition to IFRS 16), rental payments under operating leases were charged to the income statement on a straight-line basis over the lease term.
Share capital/equity instruments
Ordinary shares are classified as equity. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. The Company has one class Ordinary share which carries no right to fixed income. Each share carries the right to one vote at general meetings of the Company.
Share-based payments
Equity-settled share-based payments to employees and directors are measured at the fair value of the equity instruments at grant date. The fair value excludes the effect of non-market-based vesting conditions.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises the estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
The fair value of the options is measured using the Black Scholes options valuation model. The inputs into that model are the share price at the date of the grant, the exercise price, the expected life of the option, the risk-free rate based on the yield of a 10-year government bond and the expected share price volatility based on the Company's share price since 20 August 2015.
Adoption of new and revised standards
The following pronouncements have been adopted in the year:
· IFRS 16 Leases.
Standards issued but not yet effective
There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.
3 Critical accounting estimates and judgements
In application of the Group's accounting policies, which are described in note 2, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Critical judgements in applying the Group's accounting policies
The following are the critical judgements, apart from those involving estimations, that the directors have made in the process of applying the Group's accounting policies and that have a significant effect on the amounts recognised in the financial statements.
Work in progress within revenue recognition
Work in progress is calculated on a project by project basis using the fair value of chargeable time that is un-invoiced at the period end. Historic analysis shows that recovery rates of work in progress are very high; the Group does not expect any work in progress to be irrecoverable. Work in progress is reviewed on a monthly basis to ensure it is recognised appropriately, it is probable that economic benefits will flow to the Group and that the fair value can be reliably measured (note 4).
Share based payments
The Company has granted share options to certain employees and directors of the Group. The share options granted become exercisable at varying future dates. If certain conditions are met, following the vesting period, the employee will be eligible to exercise their option at an exercise price determined on the date the share options are granted.
The share-based payment charge is recognised in the statement of comprehensive income and is calculated based on the Company's estimate of the number of share options that will eventually vest.
Assumptions regarding the fair value of the Company's shares and assumptions regarding employee fluctuation are considered when measuring the value of share-based payments for employees, which are required to be accounted for as equity-settled share-based payment transactions pursuant to IFRS 2. The resulting staff costs are recognised pro rata in the statement of comprehensive income to reflect the services rendered as consideration during the vesting period (note 21).
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that may have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Impairment of goodwill
The carrying amounts of the Group's assets value are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated, and an impairment loss is recognised where the recoverable amount is less than the carrying value of the asset. Any impairment losses are recognised in the income statement.
The recoverable amount of the goodwill is determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to income and direct costs during the period.
Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to each acquisition of goodwill. Discount rates of 11% and a terminal value of 1.4% has been used.
Growth rates of 0-15% have been applied, these are based on industry rates, managements' knowledge of the business and the markets and the ability for the business to expand. The maximum period over which the cashflows are reviewed is 5 years.
Sensitivities have been applied to all assumptions. In the light of COVID-19 the cashflows have been further tested to ensure the assumptions are viable.
Intangible assets
On acquisition the following items are reviewed to assess if there is any value in acquiring the intangibles separately.
· Trademarks or trade names
· Technology based intangibles, including any IT systems
· Artistic-related intangibles
· Intellectual property
· Customer-related intangibles
· Employment contracts
On acquisition of the two entities during the year there were no assets identifiable as being separable from the entity that could be sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability. There were also no assets arising from contractual or other legal rights.
Valuation of unquoted investments
The Group determines the fair value of these financial instruments using recent transactions or valuation models if information about recent transactions is not available. The values derived from applying these models are significantly impacted by the choice of the valuation model used and the underlying assumptions made, such as the amounts and timing of future cash flows, discount rates, volatility and credit risk.
Management reviewed all information available at 31 March 2020 taking into account all additional information relating to market participant assumptions that is reasonably available and concluded that there is insufficient information available and a wide range of possible fair value measurements and as such cost is considered to be an appropriate estimate of fair value.
4 Revenue and Finance income
| An analysis of the Group's revenue is as follows: | |||
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Continuing operations - rendering of services | |||
| Specialist housing consultancy income | 6,729 | 7,087 | |
| Treasury management consultancy income | 528 | 568 | |
| Specialist sports and education consultancy | 706 | - | |
| 7,963 | 7,655 | ||
| Finance income is comprised of: | |||
| Interest revenue on bank deposits | 1 | 2 | |
| 7,964 | 7,657 |
5 Operating segments
The Group has three reportable segments being; consultancy, interim management and treasury management services, the results of which are included within the financial information. In accordance with IFRS8 'Operating Segments', information on segment assets is not shown, as this is not provided to the chief operating decision-maker.
The principal activities of the Group are as follows:
Consultancy - a range of services to support the business needs of a diverse range of organisations (including housing associations, local authorities, multi academy trusts and sporting businesses) across the housing, education and sports sectors. Most consultancy projects run over one to two months and on-going business development is required to ensure a full pipeline of consultancy work for the employed team.
Interim Management - individuals are embedded within housing organisations (normally housing associations, local authorities and ALMOs) in a substantive role, normally for a specified period. Interim management provides the Group with a more extended forward sales pipeline as the average contract is for six months. This section of the business provides low risk as the interim consultants are placed on rolling contractual basis and provides minimal financial commitment as associates to the business, rather than employees, are used for these roles.
Treasury Management - a range of services providing treasury advice and fund-raising services to non-profit making organisations working in the affordable housing and education sectors. Within this segment of the business several client organisations enter fixed period retainers to ensure immediate call-off of the required services.
The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 2. Segment profit represents the profit earned by each segment, without allocation of central administration costs, including directors' salaries, finance costs and income tax expense. This is the measure reported to the Group's chief executive for the purpose of resource allocation and assessment of segment performance.
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Revenue from Consultancy | 6,640 | 5,867 | |
| Revenue from Interim management | 795 | 1,220 | |
| Revenue from Treasury management | 528 | 568 | |
| 7,963 | 7,655 | ||
| Cost of sales from Consultancy | 5,315 | 4,381 | |
| Cost of sales from Interim management | 574 | 1,010 | |
| Cost of sales from Treasury management | 322 | 397 | |
| 6,211 | 5,788 | ||
| Gross profit from Consultancy | 1,325 | 1,486 | |
| Gross profit from Interim management | 221 | 210 | |
| Gross profit from Treasury management | 206 | 171 | |
| 1,752 | 1,867 | ||
| Administrative expenses | (1,626) | (1,260) | |
| Operating profit | 126 | 607 |
Within consultancy revenues, approximately 7% (2019: 6%) has arisen from the segment's largest customer; within interim management 24% (2019: 12%); within treasury management 26% (2019: 34%).
Geographical information
Revenues from external customers, based on location of the customer, are shown below:
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| UK | 7,368 | 7,179 | |
| Europe | 279 | 305 | |
| Rest of World | 316 | 171 | |
| 7,963 | 7,655 |
6 Profit before taxation
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Profit before taxation is arrived at after charging: | |||
| Auditors' remuneration (see below) | 42 | 38 | |
| Depreciation of property, plant and equipment | 63 | 52 | |
| Depreciation of leasehold property | 71 | - | |
| Staff costs (see note 7) | 5,351 | 4,270 | |
| Significant reorganisation costs * | 186 | - | |
| Acquisition related costs ** | 51 | - | |
| Operating lease costs - land and buildings | - | 42 |
* Significant restructuring costs include staff related costs of £186k (2019: Nil) arising from the redundancy costs relating to COVID-19 are provided for
** Refer to note 10 for the breakdown of acquisition-related costs
Breakdown of auditors' remuneration
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Auditors' remuneration | |||
| Fees payable to the Company's auditors for the audit of the parent Company | 23 | 19 | |
| Fees payable to the Company's auditors for the audit of the Company's subsidiaries | 19 | 19 | |
| Total | 42 | 38 |
7 Staff costs
| 2020 | 2019 | ||
| The average monthly number of employees (including directors) employed by the Group was: | 74 | 52 | |
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Aggregate remuneration (including directors) | |||
| Wages and salaries | 4,542 | 3,605 | |
| Share-based payments | 105 | 117 | |
| Pension contributions | 215 | 161 | |
| Social security costs | 489 | 387 | |
| 5,351 | 4,270 |
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Company staff costs | |||
| Wages and salaries | 10 | 10 |
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Directors' remuneration | |||
| Salary (including taxable benefits) | 396 | 390 | |
| Share-based payments | 20 | 43 | |
| Pension contributions | 22 | 17 | |
| 438 | 450 | ||
| Three directors are members of the company's defined contribution pension scheme. | |||
| The amounts set out above include remuneration to the highest paid director as follows: | |||
| Salary (including taxable benefits) | 146 | 162 | |
| Share-based payments | 8 | 15 | |
| Pension contributions | 9 | 8 | |
| 163 | 185 |
Remuneration of key management personnel
The remuneration of the key management personnel of the Group, including all directors, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Short-term employee benefits | 664 | 655 | |
| Share-based payments | 29 | 64 | |
| Post-retirement benefits | 22 | 22 | |
| 715 | 741 |
8 Taxation
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Corporation tax: | |||
| Current year | 52 | 143 | |
| The tax charge for the year can be reconciled to the profit in the income statement as follows: | |||
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Profit before taxation | 178 | 609 | |
| Tax at the UK corporation tax rate of 19% (2019: 19%) | 34 | 116 | |
| Post tax income from associate | (9) | ||
| Expenses not deductible | 27 | 27 | |
| Tax expense for the year | 52 | 143 |
9 Earnings per share
Basic earnings per share is calculated by dividing the profit after tax attributable to the equity holders of the Group by the weighted average number of shares in issue during the year. Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potential dilutive shares, namely share options. Details of which are set out in note 21.
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Profit after tax attributable to owners of the parent | 75 | 466 | |
| Weighted average number of shares | |||
| - Basic | 36,285 | 35,272 | |
| - Diluted | 41,665 | 40,353 | |
| Basic earnings per share | 0.35p | 1.32p | |
| Diluted earnings per share | 0.32p | 1.15p |
10 Goodwill
| Group | Goodwill | ||
| £'000s | |||
| Cost | |||
| At 1 April 2018 and 31 March 2019 | 2,028 | ||
| Additions | 1,844 | ||
| At 31 March 2020 | 3,872 | ||
| Accumulated impairment losses | |||
| At 1 April 2018 and 31 March 2019 | - | ||
| Impairment losses for the year | (555) | ||
| At 31 March 2020 | - | ||
| Net book value | |||
| At 1 April 2018 and 31 March 2019 | 2,028 | ||
| At 31 March 2020 | 3,317 |
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units that are expected to benefit from that business combination.
On 11 June 2019, the Group acquired 100% of the share capital of Oaks Consultancy Ltd, a company incorporated in the UK. The principal activity of Oaks is that of consultancy within the sports and education sector. Oaks' business services complement those of existing subsidiaries within the Group and provides strong opportunities for collaboration.
The transaction has been accounted for by the acquisition method of accounting. This comprises an initial consideration of £1,714k being £441k in cash, £718k in ordinary shares and deferred contingent consideration of £555k. The deferred consideration is contingent upon specific targets on the annual recurring revenue (ARR) growth of the business up to March 2021. The directors have reviewed the business performance of Oaks including the future budgets and cashflows up to March 2021 and have concluded that the ARR is unlikely to be achieved and have therefore released the contingent liability. The directors have also impaired the investment by the amount equivalent to the contingent consideration. Further impairment reviews have taken place and no further impairment is required on the remaining goodwill. The costs of acquisition totalling £35k have been included within the profit and loss account of the Group. The total amount of goodwill in the Statement of Financial Position is shown as £1,159k.
The net assets of Oaks totalling £1k were acquired for cash.
On 31 January 2020, the Group acquired 100% of the share capital of Finalysis (UK) Limited a consultancy business providing treasury and banking services.
The transaction has been accounted for by the acquisition method of accounting at a fair value of consideration of £130k being £100k in cash and £30k in ordinary shares. The costs of acquisition of £16k have been included within the profit and loss account of the Group. The total goodwill is calculated at £130k.
The net assets of Finalysis totalling £49k were acquired for cash. The trade and assets of Finalysis were hived into ATFS.
The Group tests goodwill annually for impairment, or more frequently if there are any indications that goodwill might be impaired.
The recoverable amount of goodwill is determined from value in use calculations. The key assumptions for the value in use calculations are those regarding growth rate of client base and project fees. Management's approach to determining the values to each key assumption is based on experience and project work already secured for future periods. Management have projected cash flows over a period of 5 years, based on growth rates of between 0% and 15% per annum, this is based on past performance and expected future activity, also taking into account a slower growth rate due to COVID-19. A discount rate of 11% and a terminal value of 1.4% has been used. Sensitivities have then been applied to the model to stress test the assumptions. As a result of the review an impairment on Oaks has occurred and £555k has been written off in the financial year under review.
The following amounts have been recognised within the consolidated statement of comprehensive income for the reporting period:
| Oaks | Finalysis | ||
| £'000s | £'000s | ||
| Revenue | 706 | 89 | |
| Profit before tax | (21) | 37 |
If the acquisitions had taken place at the start of the financial year, the group revenue would have been £8,381k and the profit before tax £279k
11 Property, plant and equipment
The Group has revised its accounting policy for leases where the Group is the lessee following the adoption of IFRS 16. The Statement of Financial Position shows the following amounts relating to the right of use assets in property.
| Group | Property | Fixtures and fittings | Computer equipment | Total |
| £'000s | £'000s | £'000s | £'000s | |
| Cost | ||||
| At 1 April 2018 | 34 | 110 | 144 | |
| Additions | - | 28 | 28 | |
| At 31 March 2019 | - | 34 | 138 | 172 |
| Additions | 541 | 11 | 28 | 580 |
| At 31 March 2020 | 541 | 45 | 166 | 752 |
| At 1 April 2018 | 13 | 36 | 49 | |
| Charge for the year | 11 | 40 | 51 | |
| At 31 March 2019 | 24 | 76 | 100 | |
| Charge for the year | 71 | 14 | 49 | 134 |
| At 31 March 2020 | 71 | 38 | 125 | 234 |
| Net book value | ||||
| At 1 April 2018 | 21 | 74 | 95 | |
| At 31 March 2019 | 10 | 62 | 72 | |
| At 31 March 2020 | 470 | 7 | 41 | 518 |
| Company | Computer equipment | ||
| £'000s | |||
| Cost | |||
| At 1 April 2018 | 64 | ||
| Additions | - | ||
| At 31 March 2019 | 64 | ||
| Additions | - | ||
| At 31 March 2020 | 64 | ||
| Accumulated depreciation | |||
| At 1 April 2018 | 5 | ||
| Charge for the year | 22 | ||
| At 31 March 2019 | 27 | ||
| Charge for the year | 21 | ||
| At 31 March 2020 | 48 | ||
| Net book value | |||
| At 1 April 2018 | 59 | ||
| At 31 March 2019 | 37 | ||
| At 31 March 2020 | 16 |
12 Investment in subsidiaries
| Company | Investments in subsidiaries | ||||
| £'000s | |||||
| Cost | |||||
| At 1 April 2018 | 2,701 | ||||
| Additions | 117 | ||||
| At 31 March 2019 | 2,818 | ||||
| Additions | 1,949 | ||||
| At 31 March 2020 | 4,767 | ||||
| Accumulated impairment losses | |||||
| At 1 April 2018 and 31 March 2019 | - | ||||
| Impairment losses for the year | 555 | ||||
| At 31 March 2020 | 555 | ||||
| Net book value | |||||
| At 1 April 2018 | 2,701 | ||||
| At 31 March 2019 | 2,818 | ||||
| At 31 March 2020 | 4,212 | ||||
| The addition of £1,949k represents the acquisition of Oaks of £1,714k (including deferred consideration of £555k) the acquisition of Finalysis of £130k and £105k representing capital contributions made to the Company's subsidiaries in respect of the share option expense recognised in those subsidiaries on share options issued by the Company. | |||||
| Details of the Company's subsidiaries at 31 March 2020 are as follows: | |||||
| Place of incorporation and operation | Principal activity | Proportion of ownership and voting rights held | |||
| Altair Consultancy and Advisory Services Limited | England and Wales | Specialist housing consultancy | 100% | ||
| Aquila Treasury and Finance Solutions Limited | England and Wales | Treasury management consultancy | 100% | ||
| Oaks Consultancy Limited | England and Wales | Specialist sports and education consultancy | 100% | ||
The accounting reference date of each of the subsidiaries is co-terminus with that of the Company. The registered office of each subsidiary is Tempus Wharf, 29a Bermondsey Wall West, London, SE16 4SA.
13 Investment in Associates
| Details of the Group's material associates at 31 March 2020 are as follows: | |||
| Place of incorporation and operation | Principal activity | Proportion of ownership and voting rights held | |
| 3C Consultants Limited | England and Wales | IT consultancy | 25% |
The principal activity of the associate is seen as complementing the Group's operations and contributing to achieving the Group's overall strategy.
The above associate is accounted for using the equity method in these consolidated financial statements as set out in the accounting policies in note 2.
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Investment in associate | 278 | 227 | |
The Group's share of the net assets in the associate company is £76k (2019: £26k). Profit for the year, of which £51k is attributable to Aquila has been recognised in the statement of comprehensive income and added to the carrying value. No share of profit was recognised in the prior year. In the Company statement of financial position, the investment is carried at cost of £227k.
Although the Group's share of net assets in the associate is below the carrying value, no impairment has been recorded because the associate was profitable in the year and expected to continue to be profitable going forward.
Summarised financial information in respect of the Group's associates are set out below:
| 3C Consultants Limited | 2020 | 2019 | |
| £'000s | £'000s | ||
| Current assets | 520 | 328 | |
| Non-current assets | 2 | 3 | |
| Current liabilities | (217) | (222) | |
| Non-current liabilities | - | (6) | |
| Equity attributable to the owners of the Company | 305 | 103 | |
| Revenue | 1,416 | 959 | |
| Profit/(loss) for the year | 203 | 65 | |
| Other comprehensive income | - | - | |
| Total comprehensive income | 203 | 65 | |
| Dividends received from associate during the year | - | - |
Reconciliation of the above summarised financial information to the carrying amount recognised in the consolidated financial statements for the prior year:
| 2018 | |||
| £ | |||
| Net assets of associates | 37,651 | ||
| Proportion of the Group's ownership interest in the associate | 9,413 | ||
| Goodwill | 217,207 | ||
| Carrying amount | 226,620 |
14 Investments
| Fair Value Hierarchy | 2020 | 2019 | |
| £'000s | £'000s | ||
| Unquoted equity investments | Level 3 | 121 | 121 |
The Group has a 6% equity shareholding in AssetCore Limited an unquoted company. AssetCore's principal activity is a cloud-based platform used to manage loan security within the affordable housing sector. As explained in Note 3, based on the information available at the reporting date the directors consider cost to be an appropriate estimate of fair value.
Financial instruments measured at fair value subsequent to initial recognition are grouped into levels 1 to 3 based on the degree to which the fair value is observable, i.e.:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
15 Trade and other receivables
| Group | Group | Company | Company | |||||
| 2020 | 2019 | 2020 | 2019 | |||||
| £'000s | £'000s | £'000s | £'000s | |||||
| Trade receivables | 2,063 | 1,872 | - | - | ||||
| Group undertakings | - | - | 685 | 1,082 | ||||
| Other receivables | 23 | 9 | 14 | 0 | ||||
| Prepayments | 79 | 88 | 9 | 2 | ||||
| Contract assets | 222 | 224 | - | - | ||||
| 2,387 | 2,193 | 708 | 1,084 | |||||
| Total | <30 days | 30-60 days | 66-90 days | >90 days | |
| £'000s | £'000s | £'000s | £'000s | £'000s | |
| 31 March 2020 | 2,063 | 1,500 | 209 | 147 | 207 |
| 31 March 2019 | 1,872 | 1,744 | 50 | 24 | 54 |
No expected credit loss is recognised in the accounts. The Group does not expect any debts not to be paid. The directors have reviewed the provision for expected credit loss and have not identified any which need to be provided for.
16 Trade and other payables
| Group | Group | Company | Company | ||||
| 2020 | 2019 | 2020 | 2019 | ||||
| £'000s | £'000s | £'000s | £'000s | ||||
| Trade payables | 154 | 253 | 9 | ||||
| Other payables | 101 | 28 | 50 | - | |||
| Lease liabilities | 79 | - | - | - | |||
| Amounts owed to Group undertakings | - | - | 520 | 560 | |||
| Taxes and social security costs | 613 | 518 | - | ||||
| Accruals | 634 | 569 | 56 | 112 | |||
| Contract liabilities | 181 | 227 | - | ||||
| 1,762 | 1,595 | 635 | 672 |
Of the contract liability brought forward at the start of the year £227k (2019: £226k) was recognised in revenue in the year.
17 Long term liabilities
As explained in note 2, the Group has revised its accounting policy for leases where the Group is the lessee following the adoption of IFRS 16. The Statement of Financial Position shows the following amounts relating to lease liabilities.
| 2020 | ||
| £'000s | ||
| Additions new leases | 514 | |
| Decrease in lease liabilities | (66) | |
| Closing amounts as at 31 March 2020 | 448 | |
| Current | 79 | |
| Non-current | 369 |
18 Share capital
| 2020 | 2019 | ||
| £'000s | £'000s | ||
| Allotted, called up and fully paid | |||
| 37,947,905 (2019: 35,307,776) Ordinary shares of 5p each | 1,897 | 1,765 | |
The Company has one class Ordinary share which carries no right to fixed income. Each share carries the right to one vote at general meetings of the Company.
A reconciliation of share capital, share premium account and merger reserve is set out below:
| Number of Ordinary shares | Amount called up and fully paid | Share premium | Merger reserve | |
| '000 | £'000s | £'000s | £'000s | |
| At 31 March 2018 | 35,265 | 1,763 | 1,487 | 2,413 |
| Issued at 5p per share on 1 Feb 2019 | 42 | 2 | - | - |
| At 31 March 2019 | 35,307 | 1,765 | 1,487 | 2,413 |
| Issued at 28.7p per share on 14 Nov 2019 | 2,544 | 128 | - | 603 |
| Cost of share issue on acquisition | - | - | (12) | - |
| Issued at 35p per share on 31 Jan 2020 | 86 | 4 | - | 26 |
| Issued at 5p per share on 21 Feb 2020 | 10 | - | - | - |
| At 31 March 2020 | 37,947 | 1,897 | 1,475 | 3,042 |
19 Reserves
The share premium account represents the amount received on the issue of Ordinary shares by the Company in excess of their nominal value and is non-distributable.
The merger relief reserve arose on the Company's acquisition of Altair. There is no legal share premium on the shares issued as consideration as section 612 of the Companies Act 2006, which deals with merger relief, applies in respect of the acquisition. Since the shareholders of Altair became the majority shareholders of the enlarged group, the acquisition is accounted for as though the legal acquiree is the accounting acquirer.
Upon acquisition of Oaks and Finalysis in the year to 31 March 2020 the premium arising on the issue of shares has been credited to the merger reserve as shown in note 18.
20 Dividends
| 2020 | 2019 | ||
| Amounts recognised as distributions to equity holders | £'000s | £'000s | |
| Final dividend for the year ended 31 March 2019 of 0.6p per share (2018: 0.55p) | 227 | 194 | |
| Interim dividend for the year ended 31 March 2020 of 0.3p per share (2019: 0.29p) | 114 | 102 | |
| 341 | 296 | ||
| Proposed final dividend for the year ended 31 March 2020 of Nil per share (2019: 0.6p) | - | 211 |
The group do not propose a final dividend for the year ended 31 March 2020.
21 Share-based payment transactions
The Company operates an Unapproved Scheme and an Enterprise Management Incentives Scheme. The total expense recognised in the year to 31 March 2020 arising from share-based payment transactions is £105k (2019: £117k).
| Unapproved scheme | Number '000 | Weighted average exercise price |
| Number of options outstanding at 1 April 2019 | 2,587 | £0.23 |
| Granted during period | 171 | £0.35 |
| Forfeited during period | - | - |
| Exercised during period | - | - |
| Number of options outstanding as at 31 March 2020 | 2,758 | £0.25 |
| Number of options exercisable as at 31 March 2020 | 2,587 | £0.23 |
The exercise price of the options outstanding at 31 March 2020 ranges between £0.05 and £0.35. The weighted average remaining contractual life of the options outstanding at 31 March 2020 is 1 year (2019: 1 year).
On 31 January 2020, following the acquisition of Finalysis, the Company granted 171,428 of options at an exercise price of 35p. The options are exercisable between 31 January 2022 and
31 January 2027. The weighted average fair value of the options at grant date was £0.067. The fair value of the options was measured using the Black Scholes options valuation model. The inputs into that model in respect of the EMI share options were as follows:
| Share price | £0.35 |
| Exercise price | £0.35 |
| Expected volatility | 20.19% |
| Expected option life | 5 years |
| Risk-free rate | 0.61% |
The risk-free rate is based on the yield of a 10-year government bond.
The expected share price volatility is based on the Company's share price since 20 August 2015.
| EMI scheme | Number | Weighted average exercise price |
| Number of options outstanding at 1 April 2019 | 2,851 | £0.05 |
| Granted during period | - | - |
| Forfeited during period | (65) | £0.05 |
| Exercised during period | (10) | £0.05 |
| Number of options outstanding as at 31 March 2020 | 2,776 |
| Number of options exercisable as at 31 March 2020 | 2,005 | £0.05 |
The weighted average remaining contractual life of the options outstanding at 31 March 2020 is 5 years (2019: 6 years).
22 Related party disclosures
Balances and transactions between the Group and other related parties are disclosed below:
Dividends totalling £149k (2019: £137k) were paid in the year in respect of Ordinary Shares held by the Company's directors.
During the year the Group charged £Nil (2019: £10,000) to DMJ Consultancy Services Limited for administrative services, a company in which Derek Joseph serves as a director.
At 31 March 2020, the balance owed to Richard Wollenberg for services as a non-executive director was £8k (2019: £4k).
At 31 March 2020, the balance owed to Fiona Underwood for reimbursement of expenses was £182.
23 Control
In the opinion of the Directors there is no single ultimate controlling party.
24 Financial instruments
Financial risk management
The Group's activities are exposed to a variety of market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk.
Credit risk
Credit risk is the risk of financial loss to the Group resulting from counterparties failing to discharge their obligations to the Group. The Group's principal financial assets are trade and other receivables and cash and cash equivalents.
The Group considers its credit risk to be low. Of the total trade receivables at the 2020 year-end £136k (2019: £148k) is due from one customer (which has since been received).
There are no other customers that represent more than 7% of the total balance of trade receivables. The maximum exposure to credit risk is equal to the carrying value of these instruments.
Liquidity risk
Liquidity risk is the risk of the Group being unable to meet its liabilities as they fall due. The Group manages liquidity risk by maintaining enough cash reserves and holding banking facilities, and by continuously monitoring forecast and actual cash flows. In addition, the Group is a cash generative business with income being received regularly over the course of the year. The Group held cash reserves of £828k (2019: £1,719k) at the year-end.
Foreign currency risk
Foreign exchange risk is the risk of loss due to adverse movements in the exchange rates affecting the Group's profits and cash flows. Only a very small number of clients are invoiced in Euros and USD and the foreign exchange exposure is not considered a significant risk. The Group's principal financial assets are cash and cash equivalents and trade and other receivables, which are almost exclusively denominated in Pounds Sterling.
Interest rate risk
The Group does not undertake any hedging activity in this area. The main element in interest rate risk involves sterling deposits.
Capital risk management
Internal working capital requirements are low and are regularly monitored.
The Groups' objective when managing capital is to safeguard the Group's ability to continue as a going concern in order to provide return for shareholders, benefits for other stakeholders and to maintain optimal capital structure and to reduce the cost of capital.
In order to ensure an appropriate return for shareholder capital invested in the Group, management thoroughly evaluates all material projects and potential acquisitions and has them approved by the Board of Directors where applicable.
The Group monitors capital on a short- and medium-term view
25 Post Balance Sheet event
There are no post balance sheet events
26 Capital commitments
There were no capital commitments at 31 March 2020.
27 Contingent liabilities
There were no contingent liabilities at 31 March 2020.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
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