Arcontech Group Regulatory News (ARC)

ARCONTECH GROUP PLC

("Arcontech", the "Company" or the "Group")

Final Results for the year ended 30 June 2023

Arcontech (AIM: ARC), the provider of products and services for real-time financial market data processing and trading, is pleased to announce its final audited results for the year ended 30 June 2023.

Financial Highlights:

Operational Highlights:

Commenting on the results, Geoff Wicks, Chairman and Non-Executive Director of Arcontech said:

"We remain optimistic that we will return to revenue growth in the near term even though our markets remain challenging. Interest in our products is higher than we have seen for some time, and we have demonstrated we can compete in a price sensitive market with products that are market leading".

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR.

Enquiries:

To access more information on the Group please visit: www.arcontech.com

Chairman's Statement

Arcontech retains a significant customer base and has worked hard to ensure that products are resilient and competitive. We have also successfully renewed contracts for longer periods of time in order to increase the stability of our revenue base which also provides good forward visibility. There is now revenue growth at our existing customers and a number of potential new customers at an advanced stage of negotiation. We are of course cognisant that the market for our products remains challenging as turbulence in financial markets generally has slowed down decision making and increased competitive pressure. However, the year has started positively, and the Company remains confident about the outcome for the current year.

The year to 30 June 2023 had a better level of new orders although, as reported earlier, cancellations late in the previous year and during the course of the year had a negative impact on revenue for FY23. We go into the new financial year with a growing and more positive list of potential new customers that will drive better results in future years but with our starting revenue base for the current year lower than last year.

Turnover was £2,730,172 (2022: £2,757,795) down by £27,623 on last year as a result of a net customer loss. Profit before taxation was £985,696 (2022: £758,573) up by £227,123. This increase in profit before tax is, as previously reported, due to a combination of lower than anticipated staff related costs arising from lower variable costs and delayed hires, and a release of accruals to the Consolidated Statement of Income totalling £110,000. These are expected to be once off savings in the year to 30 June 2023. 100% of our revenue was recurring and average contract periods have increased over the last year so while revenue has reduced, it has increased in resilience and quality. Statutory earnings per share for the year to 30 June 2023 were 7.33p (2022: 4.57p).

Investment in growing technical and sales and marketing operations was held back in the early part of the year as costs were kept under review. However, towards the end of the year the Company was back up to the expected staffing levels in order to support our existing base and the increasing number of customer trials and product developments.

The strong revenue base of recurring revenue gives us confidence to continue with our strategy to grow our core business and to expand into new market areas. We have started to extend our reach geographically and continue to build our sales and marketing capability.

Financing

Cash balances were £6,411,241 (2022: £6,026,468) at the year end, an increase of 6.4%. This strong balance sheet allows the Company to invest in both organic growth and to and to be alert for opportunities to make complementary acquisitions.

Dividend

I am pleased to announce that subject to approval at the Annual General Meeting we intend to pay a dividend of 3.5p per share for the year ended 30 June 2023 (2022: 3.25 pence) an increase of 7.7%, to those shareholders on the register as at the close of business on 6 October 2023 with a dividend payment date of 3 November 2023.

Outlook

We remain optimistic that we will return to revenue growth in the near term even though our markets remain challenging. Interest in our products is higher than we have seen for some time, and we have demonstrated we can compete in a price sensitive market with products that are market leading.

Geoff Wicks

Chairman and Non-Executive Director

Chief Executive's Review

The 2022/23 financial year evidenced greater engagement with both our existing and prospective clients when compared with last year. Our continued focus on positioning ourselves as an independent provider of market-data platform components allows us to add value to the data vendors solutions and meet the varied requirements of the data consumer. 

The year has seen the addition of one new client and a 9% increase in the number of end users of our products. Whilst end user growth generally has less revenue impact than the higher margin side of the business, it is encouraging, nonetheless. We are also working on several active opportunities with both existing and prospective Tier 1 clients where our software has been installed for testing. These opportunities encompass both server-side (high margin) and our user-based solutions and have involved a good degree of work to both facilitate integration and accommodate in-house client development. This work adds optionality to our product range to create additional opportunities for deployment in the wider marketplace.

During the year we have continued to work on extending the terms of our contracts with our larger clients to multiple years so that we now have just under 50% of our recurring revenues subject to multi-year agreements and further discussions are underway.

With regard to sales resources, we have two seasoned and highly experienced professionals based in London. As a result, the current pipeline is looking increasingly optimistic whilst being added to with new opportunities. Further and in recognising the value of local sales and support, we have engaged a consultants based in Asia. The consultant has several decades of experience and has been a client of Arcontech in the past. Having started working with us at the end of the reporting year we look forward to seeing the benefit of this association in terms of reassurance, continuity and new business with both clients and prospective clients, over the coming year.

During the year we have looked at and entered discussions with prospective acquisitions, however, the fit has to be right, and our search continues.

Our staff are a key asset to the Company and have continued to provide exemplary service and support to our clients. I would like to express my thanks for their continued commitment.

With our increased sales footprint and the encouraging signs from existing clients and prospects alike, we feel optimistic for the year ahead and beyond.

Matthew Jeffs

Chief Executive

Strategic Report

The Directors present the group strategic report for Arcontech Group plc and its subsidiaries for the year ended 30 June 2023.

Principal activities

The principal activities of the Company and its subsidiaries during the year were the development and sale of proprietary software and provision of computer consultancy services.

Review of the business and prospects

A full review of the operations, financial position and prospects of the Group is given in the Chairman's Statement and Chief Executive's Review on pages 2 to 3.

Key performance indicators (KPIs)

The Directors monitor the business using management reports and information, reviewed and discussed at monthly Board meetings. Financial and non-financial KPIs used in this report include:

Financial KPIs:

Revenue £2,730,172 (2022: £2,757,795; 2021: £2,988,842) Measurement:

Revenue from sales made to all customers (excluding intra-group sales which eliminate on consolidation)

Performance:

Loss of two customers during the year impacted sales in the second half of the year

Adjusted profit £861,716 (2022: £601,566; 2021: £959,110) Measurement:

Profit after tax and before release of accruals for administrative costs in respect of prior years . This is an alternative, non-IFRS performance measure, that is considered relevant as it provides a more accurate reflection of trading performance than net profit after tax. The adjusted profit is Net profit after tax less the amount of accruals for administrative costs released as disclosed in the footnote to the Income Statement. The accruals release for 2023 includes a release of £110,000 which is disclosed separately in the Group Statement of Income.

Performance:

Revenue is constant with the previous year and staff costs were below the previous year due to a temporary reduced headcount.

Cash £6,411,241 (2022: £6,026,468; 2021: £5,395,457) Measurement:

Cash and cash equivalents held at the end of the year

Performance:

The Group continues to maintain healthy cash balances

subject to any exceptional circumstances or acquisition

opportunities

Earnings per share (basic) 7.33p (2022: 4.57; 2021: 7.88p) Measurement:

Earnings after tax divided by the weighted average number of shares

Performance:

Decrease due to the loss of two customers during the year

Earnings per share (diluted) 7.32p (2022: 4.56p; 2021: 7.79p) Measurement:

Earnings after tax divided by the fully diluted number of shares

Performance:

Decrease due to the loss of two customers during the year

Strategic Report (continued)

Non-financial KPIs:

Staff retention rate (net) 94% (2022: 87%; 2021: 93%) Measurement:

Net retention after adjusting for joiners and leavers during the year

Performance:

Staff morale from our dedicated employees remains strong, reflected in the stable retention rate

Principal risks and uncertainties

The Group's performance is affected by a number of risks and uncertainties, which the Board monitor on an ongoing basis in order to identify, manage and minimise their possible impact. General risks and uncertainties include changes in economic conditions, interest rate fluctuations and the impact of competition. The Group's principal risk areas and the action taken to mitigate their outcome are shown below:

Relations with shareholders

Section 172(1) Statement - Promotion of the Company for the benefit of the members as a whole

The Directors believe they have acted in the way most likely to promote the success of the Group for the benefit of its members as a whole, as required by s172 of the Companies Act 2006.

The requirements of s172 are for the Directors to:

Section 172(1) Companies Act 2006

The Board takes decisions with the long term in mind, and collectively and individually aims to uphold the highest standards of conduct. Similarly, the Board understands that the Company can only prosper over the long term if it understands and respects the views and needs of its customers, distributors, employees, suppliers and the wider community in which it operates.

A firm understanding of investor needs is also vital to the Company's success. The Directors are fully aware of their responsibilities to promote the success of the Company in accordance with Section 172(1) of the Companies Act 2006. The text of Section 172(1) of the Companies Act 2006 has been sent out to each main Board Director.

Strategic Report (continued)

The Board ensures that the requirements are met, and the interests of stakeholders are considered as referred to elsewhere in this report and through a combination of the following:

· A rolling agenda of matters to be considered by the Board through the year, which includes an annual strategy review meeting, where the strategic options for the following year are developed;

· At each board meeting, to receive and discuss a will report on customers, employees and other colleagues, and investors;

· Standing agenda points and papers;

· A review of certain of these topics through the Audit Committee and the Remuneration Committee agenda items referred to in this report; and

The Group's operation is the development and sale of proprietary software and provision of computer consultancy services. The Board has identified its key stakeholders as its customers, shareholders, employees and suppliers. The Board keeps itself appraised of its key stakeholders' interests through a combination of both direct and indirect engagement, and the Board has regard to these interests when discharging its duties.

The application of the s172 requirements can be demonstrated in relation to some of the key decisions made during the year to 30 June 2023:

During the year to 30 June 2023, the Board assessed its current activities between the Board and its stakeholders, which demonstrated that the Board actively engages with its stakeholders and takes their various objectives into consideration when making decisions. Specifically, actions the Board has taken to engage with its stakeholders over the last twelve months include:

· All Directors attended the 2022 AGM to answer questions and receive additional feedback from investors;

· The outcome of the AGM is published on the Company's corporate website;

· The Board receives regular updates on the views of shareholders through briefings and reports from the executive directors, and the Company's brokers;

· Arranged meetings with certain stakeholders to provide them with updates on the Company's operational activities and other general corporate updates;

· We discussed feedback from investors' and analysts' meetings following the release of our annual and half-year announcements. We have an investor relations programme of meetings with existing and potential shareholders;

· Monitored company culture and engaged with employees on efforts to continuously improve company culture and morale; and

· A range of corporate information (including all Company announcements) is also available to shareholders, investors and the public on the Company's corporate website: www.arcontech.com.

The Board believes that appropriate steps and considerations have been taken during the year so that each Director has an understanding of the various key stakeholders of the Company. The Board recognises its responsibility to contemplate all such stakeholder needs and concerns as part of its discussions, decision-making, and in the course of taking actions, and will continue to make stakeholder engagement a top priority in the coming years.

Approved on behalf of the board on 4 September 2023 by:

Group Income Statement and Statement of Comprehensive Income

For the year ended 30 June 2023

*Adjusted to exclude the release of accruals for administrative costs of £118,393 (2022: £9,000), which includes the £110,000 (2022: nil) shown above in respect of estimated variable remuneration liability releases in respect of prior years. This is a non-IFRS alternative performance measure that the Board considers to be a more accurate indicator of underlying trading performance. This measure has been adopted as a KPI and is disclosed in the Strategic Report on page 4.

All of the results relate to continuing operations.

There was no Other Comprehensive Income other than Profit for the year after tax for the year under review.

The notes on pages 33 to 59 form part of these financial statements

Statement of Changes in Equity

For the year ended 30 June 2023

Group:

Company:

The notes on pages 33 to 59 form part of these financial statements.

Statements of Financial Position

Registered number: 04062416

As at 30 June 2023

As permitted by s408 of the Companies Act 2006, the Company has not presented its own income statement. The parent Company profit for the year was £304,044 (2022: £273,286).

The notes on pages 33 to 59 form part of these financial statements.

Approved on behalf of the board on 4 September by:

Matthew Jeffs, Chief Executive

Group Statement of Cash Flows

For the year ended 30 June 2023

For the year to 30 June 2023, the Group had no debt, and there were no material non-cash transactions.

The notes on pages 33 to 59 form part of these financial statements.

Company Statement of Cash Flows

For the year ended 30 June 2023

For the year to 30 June 2023, the Company had no debt, and there were no material non-cash transactions.

The notes on pages 33 to 59 form part of these financial statements.

Notes to the Financial Statements

For the year ended 30 June 2023

1. Accounting policies

The principal accounting policies are summarised below. They have all been applied consistently throughout the period covered by these financial statements except where changes have been noted below.

Reporting entity

Arcontech Group plc ("the Company") is a company incorporated in England and Wales with a registered address at 1st floor, 11-21 Paul Street, London, EC2A 4JU. The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries (together referred to as "the Group").

Principal Activity

The principal activities of the Company and its subsidiaries during the year were the development and sale of proprietary software and provision of computer consultancy services.

Basis of preparation

These financial statements have been prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006.

On the basis of current projections, confidence of future profitability and cash balances held, the Directors have adopted the going concern basis in the preparation of the financial statements.

The financial statements have been prepared under the historical cost convention. As at 30 June 2023 all assets and liabilities are recorded at amortised cost, and there were no assets or liabilities recorded at fair value.

Going Concern

On the basis of current projections and having regard to the Group's existing cash reserves, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. In reaching this conclusion the Directors have projected cash flow out twelve months from the date of signing this report. Revenue projection has been based on recurring revenue streams from existing customers and a forecast for new revenue from additional sales that the Directors feel is achievable. The Group has a highly stable cost base which has been reviewed to incorporate the impact of additional costs for revenue generation activities such as industry trade shows. The Directors have stress tested the cash flow projections assuming no new revenue generation and an increase in costs of up to 8.5%, given the current inflationary environment. Under this scenario given expected cash generation from operations and existing cash balances, the Group will have sufficient resources to continue trading for well in excess of the next twelve months. Accordingly, the Directors have adopted the going concern basis in the preparation of the financial statements.

Changes in accounting policies and disclosures

a) New and amended Standards and Interpretations adopted by the Group and Company

The International Accounting Standards Board (IASB) issued various amendments and revisions to International Financial Reporting Standards and IFRIC interpretations per the table below. The amendments and revisions were applicable for the period year 30 June 2023 but did not result in any material changes to the financial statements of the Group.

Notes to the Financial Statements

For the year ended 30 June 2023 (continued)

1. Accounting policies (continued)

b) New and amended Standards and Interpretations issued but not effective for the financial year beginning 1 July 2022

The new and amended Standards and Interpretations which are in issue but not yet mandatorily effective is not expected to be material.

Basis of consolidation

The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared to 30 June 2023. Subsidiaries are entities controlled by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. The acquisition method is used to account for the acquisition of subsidiaries.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations and goodwill

On acquisition, the assets and liabilities and contingent liabilities of subsidiaries are measured at their fair value at the date of acquisition. Any excess of cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition. Goodwill arising on consolidation is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.

Notes to the Financial Statements

For the year ended 30 June 2023 (continued)

1. Accounting policies (continued)

Revenue recognition

Revenue is recognised in accordance with the transfer of promised services to customers (i.e. when the customer gains control of the service) and is measured as the consideration which the group expects to be entitled to in exchange for those services. Consideration is typically fixed on the agreement of a contract except for quarterly flexible license contracts. Payment terms are agreed on a contract by contract basis.

A service is distinct if the customer can benefit from the service on its own or together with other resources that are readily available to the customer and the entity's promise to transfer the service to the customer is separately identifiable from other promises in the contract.

Contracts with customers do not contain a financing component.

Under IFRS 15, revenue earned from contracts with customers is recognised based on a five-step model which requires the transaction price for each identified contract to be apportioned to separate performance obligations arising under the contract and recognised either when the performance obligation in the contract has been performed (point in time recognition) or over time as control of the performance obligation is transferred to the customer.

The group recognises revenue when it satisfies a performance obligation by transferring a promised service to the customer as follows:

• Revenue from recurring license fees and other license fees is recognised on an over time basis via a straight line across the period the services are provided. In reaching this conclusion the group has assessed that ongoing contractual obligations are not separately identifiable from other promises in the contract and are not distinct from the licence, and hence are accounted for as a single performance obligation. As the license is not distinct the combined performance obligation is recognised over time.

In assessing whether a licence is distinct the Group considered the continuing requirement to:-

- optimise functionality;

- optimise performance; and

- provide enhancements to ensure user regulatory compliance.

• Revenue from flexible license contracts that include variable consideration are quarterly contracts assessed at the end of each calendar quarter and revenue is recognised based on actual usage confirmed for that quarter at the point of customer acceptance;

• Revenue from project work is recognised on satisfactory completion of each project, as this is considered to be the point in time the customer gains control over the results of the project work.

Taxation

The tax charge/(credit) represents the sum of the tax payable/(receivable) and any deferred tax.

Research and development tax credits are recognised when received.

The tax payable/(receivable) is based on the taxable result for the year. The taxable result differs from the net result as reported in the income statement 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 balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements 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 generally 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 goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Notes to the Financial Statements

For the year ended 30 June 2023 (continued)

1. Accounting policies (continued)

Taxation (continued)

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current assets and liabilities on a net basis.

Share-based payments

The cost of share-based employee compensation arrangements, whereby employees receive remuneration in the form of shares or share options, is recognised as an employee benefit expense in the income statement.

The total expense to be apportioned over the vesting period of the benefit is determined by reference to the fair value (excluding the effect of non market-based vesting conditions) at the date of grant. Fair value is measured by the use of the Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of the non-transferability, exercise restrictions and behavioural considerations. A cancellation of a share award by the Group or an employee is treated consistently, resulting in an acceleration of the remaining charge within the consolidated income statement in the year of cancellation.

Impairment of tangible and intangible assets

The carrying amounts of the Group's and Company's tangible and intangible assets are reviewed at each year end date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.

Expenses incurred on Research & Development are currently expensed through the income statement as the expenditure is incurred on the maintenance and enhancement of existing products. The applicability of this treatment is reviewed regularly by the Company.

For goodwill, the recoverable amount is estimated at each year end date, based on value in use. The recoverable amount of other assets is the greater of their net selling price and value in use.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.

An impairment loss is recognised in the income statement whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis.

A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Notes to the Financial Statements

For the year ended 30 June 2023 (continued)

1. Accounting policies (continued)

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is charged so as to write off the cost of assets, over their estimated useful lives, on the following bases:

Investments in subsidiaries

Investments in subsidiaries are stated at cost less any provision for impairment.

Financial instruments

Financial assets and financial liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

The Group does not hold any investments other than investments in subsidiaries.

Trade receivables are held in order to collect the contractual cash flows and are initially measured at the transaction price as defined in IFRS 15, as the contracts of the Group do not contain significant financing components. Impairment losses are recognised based on lifetime expected credit losses in profit or loss.

Other receivables are held in order to collect the contractual cash flows and accordingly are measured at initial recognition at fair value, which ordinarily equates to cost and are subsequently measured at cost less impairment due to their short-term nature. A provision for impairment is established based on 12-month expected credit losses unless there has been a significant increase in credit risk when lifetime expected credit losses are recognised. The amount of any provision is recognised in the income statement.

Cash and cash equivalents

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group are classified in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. 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 company are recorded at the proceeds received, net of direct issue costs.

Effective interest rate method

The effective interest rate method is a method of calculating the amortised cost of a financial asset or liability and allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows through the expected life of the financial asset or liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Notes to the Financial Statements

For the year ended 30 June 2023 (continued)

1. Accounting policies (continued)

Financial instruments (continued)

(a) Classification

The Group classifies its financial assets in the following measurement categories:

The classification depends on the Group's business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will be recorded either in profit or loss or in OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). See Note 16 for further details.

(b) Recognition

Purchases and sales of financial assets are recognised on trade date (that is, the date on which the Group commits to purchase or sell the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. 

(c) Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. 

Debt instruments 

Amortised cost; Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method.

Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in the statement of profit or loss.

(d) Impairment

The Group assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

Leases

Leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group.

Notes to the Financial Statements

For the year ended 30 June 2023 (continued)

1. Accounting policies (continued)

Leases (continued)

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:

Lease payments to be made under reasonably certain extension options are also 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 finance cost. The finance cost is charged to profit or loss over the lease period.

Right-of-use assets are measured at cost which comprises the following:

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. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.

Payments associated with short-term leases (term less than 12 months) and all leases of low-value assets (generally less than £4k) are recognised on a straight-line basis as an expense in profit or loss.

Provisions

Provisions are recognised when the Group has a present obligation, legal or constructive, resulting from past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation.

Research and development

Research costs are charged to the income statement in the year incurred. Development expenditure is capitalised to the extent that it meets all of the criteria required by IAS 38, otherwise it is charged to the income statement in the year incurred. In order for development expenditure to meet the capitalisation criteria of IAS 38, it must be both technically feasible to complete the work, and there must be the intention to either use or sell the asset created.

Pension costs and other post-retirement benefits

The Group makes payments to occupational and employees' personal pension schemes. Contributions payable for the year are charged in the income statement.

Notes to the Financial Statements

For the year ended 30 June 2023 (continued)

1. Accounting policies (continued)

Foreign currencies

Transactions denominated in foreign currencies are translated into sterling at the exchange rate ruling when the transaction was entered into. Where consideration is received in advance of revenue being recognised the date of the transaction reflects the date the consideration is received. Foreign currency monetary assets and liabilities are translated into sterling at the exchange rate ruling at the balance sheet date. Exchange gains or losses are included in operating profit.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker as required by IFRS 8 "Operating Segments". The chief operating decision-maker responsible for allocating resources and assessing performance of the operating segments has been identified as the Board of Directors. The accounting policies of the reportable segments are consistent with the accounting policies of the group as a whole. Segment profit/(loss) represents the profit/(loss) earned by each segment without allocation of foreign exchange gains or losses, investment income, interest payable and tax. This is the measure of profit that is reported to the Board of Directors for the purpose of resource allocation and the assessment of segment performance. When assessing segment performance and considering the allocation of resources, the Board of Directors review information about segment assets and liabilities. For this purpose, all assets and liabilities are allocated to reportable segments with the exception of cash and cash equivalents and current and deferred tax assets and liabilities.

2. Critical accounting judgments and key sources of estimation uncertainty

The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period.