Gattaca Regulatory News (GATC)

14 October 2014

Matchtech Group plc

Preliminary Results for the year ended 31 July 2014

Matchtech Group plc ("Matchtech" or the "Group"), one of the UK's leading specialist engineering and professional services recruitment companies, today announces its Preliminary Results for the year ended 31 July 2014.

Financial Highlights

The following footnotes apply, where indicated, throughout these Preliminary Results:

1 NFI is calculated as revenue less contractor payroll costs

2 Underlying results exclude trading of the Provanis acquisition and restructuring costs in 2013 (£0.4m)

3 Adjusted results exclude £0.7m (2013: £0.2m) of amortisation from acquired intangibles

Operational Highlights

· Increase in contract margins to 7.5% (2013: 6.8%)

· Volume of permanent placements up 15%

· NFI per sales head up 5%

· Increased NFI conversion ratio to 30% (2013: 28%)

· Successful integration of Provanis acquisition

· Continued investment in sales headcount in targeted growth markets

Commenting on the results, Adrian Gunn, Chief Executive of the Group said:

"The Group has continued its track record of delivering year-on-year double-digit growth in Net Fee Income and it is particularly pleasing that contract margins have also increased, driving a 19% increase in adjusted earnings per share.

"There remains very strong demand in the UK and worldwide for skilled engineers and this demand is increasing as the global economy recovers and manufacturing output rises. The Group is ideally placed to benefit from these trends due to our niche focus within Engineering and Technology, market leading position and balanced business model of contract and permanent recruitment.

"We therefore continue to invest to accelerate the on-going medium term success of the business particularly focusing on increasing our consultant headcount within Engineering in the first half of FY2015.

"We have refined our 2017 Vision for the Group to be a market leading specialist recruiter, the employer of choice, the best partner to clients & candidates with a rapidly developing international business.

"The new financial year has started well, building on our solid foundations and I am confident that the Group will continue to make significant progress again this year."

For further information please contact:

Chairman's Statement

Introduction

On behalf of the Board it gives me great pleasure to report a further year of progression for the Group, with adjusted earnings up 19% to 39.1 pence per share (2013: 32.9 pence).

Matchtech Group was incorporated in 1984 by George Materna, our founder and my predecessor as Chairman. On 1 August 2014 we celebrated the Group's 30th birthday and its remarkable achievements in that time.

I must thank George for his inspiration in creating Matchtech Group and for the legacy he bestowed to me when he stepped down from the Chairmanship.

Strategy, Purpose and Vision

I joined Matchtech Group because I believed it was a great company with lots of potential and everything I have seen since arriving here in December 2013 has confirmed that view. We have a strong client proposition, good people, a terrific culture and the Group is financially sound.

During this year we have refined and sharpened our strategy so that we can do even better in the future. We have conducted research both internally and externally to ensure that we completely understand how the Group is seen by our staff, clients and candidates.

This has enabled us to agree on our Purpose, whereby we aim to engage our staff, delight our clients and promote our candidates.

This in turn has enabled us to build our Vision to 2017 and beyond.

We have a solid foundation based around high quality people. We know that on-going growth depends on us continuing to value and engage our staff, so this year we used our engagement survey to find out what they think of the Group.

Our overall engagement score was an outstanding 90% placing us in the top 5% of our benchmark group.

The survey confirmed that culture is one of the most important factors driving our engagement score. Our staff told us it was our culture and values that attracted them to us and these are one of the biggest reasons they stay. This demonstrates the huge importance our culture plays in the Group's success.

The Board

During the year we said goodbye to Andy White who left the business having joined the Board in 1990.

His counsel, energy and commitment to our business will be missed. I thank him on behalf of the Board and our shareholders for all his input over the years.

Dividend

The Group's progressive dividend policy remains an important part of our investment proposition and having maintained the dividend through the recession we are pleased to add to last year's increase.

The Board recommends to shareholders a final dividend of 14.59 pence per share, an increase of 14% on last year.

This gives a total dividend for the year of 20.0 pence per share (2013: 18.0 pence) up 11%, with adjusted dividend cover increasing to 2.0 times (2013: 1.8 times).

If approved by shareholders at the Annual General Meeting, to be held on 14 November 2014, the final dividend will be payable on 5 December 2014 to those shareholders registered on 7 November 2014.

Outlook

With a clear purpose and vision, a refined strategy and an engaged workforce I am more confident than ever that we can continue to outperform our competitors and deliver excellent returns to our shareholders.

Chief Executive's Review

This has been another successful year with strong performance across the Group.

Our focus as a specialist recruiter, on higher margin, harder to fill roles, is bearing fruit.

We are focused on putting the right value on the quality service we provide. By increasing our staff's ability to appreciate their own added value, we have improved their negotiating confidence which, in turn, has increased margins whilst maintaining nurtured client relationships.

Whilst contractor numbers on assignment, excluding the Provanis acquisition, has increased by only 100 to 7,100 from the 7,000 we had at the start of the year, we have grown the Net Fee Income (NFI) we generate from contract recruitment by 14%.

We have replaced the contractor reductions at Portsmouth Naval Base with better paid, higher margin contractors elsewhere. We increased our contract margin percentage from 6.8% last year to 7.5% this year which equates to 10% more NFI from the same revenue and this, along with wage inflation and placing candidates at higher pay rates, has driven the NFI forward.

In 2014 we also made over 3,000 permanent placements, generating in excess of £12m in fees.

However, whilst the UK economy is in recovery mode, the acute skills shortage means that candidates are finding themselves with multiple job offers. This leads to more offer rejections and counter offers from incumbent employers, somewhat elongating the time to hire and slowing the growth in permanent fees.

We have maintained a healthy business mix with contract NFI now representing 73% and permanent fees 27% of Group NFI.

The Group has continued its track record of delivering year-on-year organic double-digit growth in NFI with both the average permanent fee and contract margins increasing.

The acquisition of Provanis has added to our capabilities. It has been successfully integrated into the Group and has positively impacted on profitability.

Having mapped our most attractive markets against our teams of strongest capability, we have identified the areas of greatest potential.

We continue to invest heavily in additional consultants, particularly focusing on increasing our consultant headcount within Engineering in the first half of FY2015.

We refined our 2017 Vision for the Group to be the market leading specialist recruiter within Engineering and Technology, the employer of choice, the best partner to clients and candidates with a rapidly developing international business and being a premium stock for investors.

The Group is ideally placed to benefit from the very strong demand in the UK and worldwide for skilled engineers and this demand is increasing as the global economy recovers and manufacturing output rises.

Our niche Engineering and Technology focus, market leading position and balanced business model of contract and permanent recruitment put us in a good position to take advantage of these trends.

I look forward to reporting on further progress throughout the coming year.

Engineering Sector

The engineering sector delivered 13% growth in Net Fee Income (NFI) to £27.1m, with a 15% increase in Contract NFI and Permanent Fees slightly ahead of the prior year.

Infrastructure was our strongest performing area with a 36% increase in NFI on the back of major investment in rail, highways, utilities and building structures. Network Rail announced £38bn of funding into engineering projects and the Highways Agency delivered record spending reports, increasing confidence to the infrastructure sector. Both private and public organisations throughout the industry proactively targeted niche engineering talent, resulting in increased activity across both contract and permanent recruitment.

Aerospace NFI grew by 17% as the design and engineering phases of the A380, A400m and A350 moved into volume manufacturing, resulting in the UK having an order backlog of more than 10 years.

NFI in Automotive was up 5%, there were sustained high levels of investment from Jaguar Land Rover (JLR) and increased levels of interest in UK automotive capability from developing countries.

Energy produced similar NFI to the previous year, the Nuclear division (Defence and New Build) recorded strong growth, whilst our Oil & Gas team was impacted by stalling North Sea investment.

As expected Maritime was impacted by the planned completion of the QEC aircraft carrier build phase at Portsmouth Naval Base, but with NFI down only 7% year on year this highlights our ability to supply into shipyards nationally.

Our low risk international strategy of following key clients has led us to place candidates in 30 countries from our UK office. Our German business continues to be challenging but operational results have shown an improved performance compared to 2013.

Engineering has continued to differentiate its recruitment service by providing a clear focus on niche and specialist skills, whilst also positioning ourselves as authoritative thought leaders in the sector.

Gaining credibility with engineering industry stakeholders through association and partnerships is key and we have continued to provide valuable market intelligence and balanced opinion, as well as facilitating events and highlighting recommendations and actions in order to address the skills gap.

In partnership with the Institute of Marine, Engineering, Science & Technology (IMarEST), a report, 'Mitigating the Skills Gap', in the Maritime and Oil & Gas Market, identified 16 recommendations to government, educators and industry which are being implemented through the Marine Industries Alliance and UK Naval Engineering, Science and Technology Forum (UK NEST).

Our annual 'Confidence Index' which examines, by sector, how confident engineers are about a variety of different career related issues, including career progression, job security and salary, attracts a healthy amount of debate, media coverage and interaction with the Department of Business Innovation and Skills.

We provided valuable insight on recruitment trends within the engineering community contributing to a high profile report 'Inventing the Future', which was produced by the New Engineering Foundation. Submitted to Government the report challenges the way Science, Technology, Engineering and Mathematics (STEM) education subjects are delivered, managed and funded.

Our new partnership with Women in Engineering Society (WES) supports activities such as 'National Women in Engineering Day' which attracted an overwhelmingly positive response from clients, candidates and EngineeringUK.

We are committed to addressing the skills gap by addressing diversity, supporting a pipeline of talent, exploring the advantages of skills transfer, celebrating engineering excellence, promoting engineering as the career of choice and maintaining a focus on attracting and retaining talent to ensure a long-term sustainable engineering future for UK industry.

Professional Services Sector

The Professional Services sector delivered £17.9m of Net Fee Income (NFI) up 24% (2013: £14.4m) and now generates 40% of the Group's NFI.

Excluding £1.8m of NFI generated from the acquisition of Provanis, underlying NFI grew by 13%. Contract NFI was up 34% to £10.2m (2013: £7.6m), 11% on an underlying basis, and permanent fees were up 13% to £7.7m (2013: £6.8m).

With Provanis generating almost all its business from contractors, there has been a shift in the business mix within Professional Services with contract now generating 57% of NFI (2013: 53%) and permanent fees 43% NFI (2013: 47%).

Technology, which is the largest part of Professional Services, increased NFI by 27%, 8% excluding Provanis and has a business mix of 83% contract and 17% permanent fees.

Technology operates seven niche teams within Controls & Automation, Electronics & Systems, Software, Communications & Infrastructure, Business Intelligence, ERP and Project Management. These specialist teams focus on higher margin, lower volume contingency business.

A centralised Corporate Accounts Team has also been set up to service our high volume, lower margin framework agreements more profitably.

Provanis, the niche Oracle Applications agency acquired in September, has accelerated our penetration into the ERP marketplace. Provanis has been successfully integrated into the business, with an outturn NFI conversion ratio in excess of 60%.

Professional Staffing NFI was up 19% with strong growth in permanent fees giving a business mix of 27% contract and 73% permanent fees.

Similar to Technology, Professional Staffing operates within skill specific teams who focus on Procurement, Finance, HR, Sales & Marketing and Training. These specialist teams are split across two recruitment centres, London and Whiteley and as well as being skill specific these teams only focus on four key sectors including Engineering and Technology.

This clearly defined remit is accelerating new client acquisition, improving the candidate experience and helping identify cross selling opportunities between brands. This strategy also underpins our primary objective of driving up productivity levels within Professional Services and we have the capacity to increase this productivity within our existing staff levels before further headcount investment is required.

Chief Financial Officer's Report

Performance

Net Fee Income (NFI) grew by 17% to £45.0m (2013: £38.4m). Excluding a £1.8m contribution from the Provanis acquisition made during the year, NFI grew by 13%.

This was against the backdrop of a growth in revenue of 10% to £451.6m (2013: £408.9m). This lower growth in revenue than NFI reflects the increase in our contract margin from 6.8% last year to 7.5% this year, as we focus on new contingency business rather than large, lower margin framework contracts.

Contract NFI grew by 21% to £32.8m (2013: £27.2m), with the key drivers of this growth being the Provanis acquisition (7%), increasing margins (5%) with the balance of a combination of volume, higher pay rates and hours worked.

Contractor numbers on assignment at 31 July 2014 grew by 3% to 7,200 (31 July 2013: 7,000).

Permanent recruitment fees were up 9% to £12.2m (2013: £11.2m).

The following adjusted results exclude £0.7m (2013: £0.2m) of amortisation from acquired intangibles.

EBITA was up 27%, to £13.6m (2013: £10.7m), reflecting a NFI conversion rate of 30%, up 2 percentage points (2013: 28%).

Adjusted profit before tax of £12.6m was up 25% (2013: £10.1m).

The Group's effective tax rate has fallen to 23.6% (2013: 23.9%).

Adjusted basic earnings of 39.1 pence per share rose 19% (2013: 32.9 pence) with adjusted diluted earnings per share of 36.9 pence up 17% (2013: 31.6 pence).

Dividends Paid

In the year the Group paid a final dividend of £3.17m at 12.85 pence per share on 6 December 2013 (£2.48m at 10.6 pence per share on 7 December 2012) and an interim dividend of £1.35m at 5.41 pence per share on 20 June 2014 (£1.17m at 5.15 pence per share on 21 June 2013).

Capital Expenditure and Tangible and Intangible Assets

Capital expenditure in the year was £0.3m (2013: £0.9m). Tangible assets at 31 July 2014 of £1.3m (2013: £1.7m) consist of the Group's motor fleet, office equipment, leasehold improvements and computer equipment.

Intangible assets at 31 July 2014 were £3.7m (2013: £0.6m), £3.3m relating to the acquisition of Provanis: £1.7m of unamortised acquired intangible assets and £1.6m of goodwill, and external software licences of £0.4m which are amortised over the expected life of the licence.

Working Capital, Cash Flow and Net Debt

Debtor days at the year end improved by 3 days to 46 (31 July 2013: 49).

Net cash from operating activities was £12.3m (2013: £8.5m) with an operating cash conversion of 121% (2013: 110%).

Net debt at 31 July 2014 was £3.1m (31 January 2014: £8.6m, 31 July 2013: £10.5m), consisting of a working capital facility of £3.3m (2013: £11.4m), bank overdrafts £0.4m (2013: £0.1m) less cash £0.6m (2012: £0.9m) and capitalised finance costs £nil (2013: £0.1m).

Banking Facilities

On 30 July 2014 the Group agreed to transfer its banking relationship to HSBC.

The new agreement is a three year, £60m Invoice Financing Facility, at a lower rate of 1.1% over HSBC bank base rate.

Group Consolidated Statement of Financial Position

At 31 July 2014 the Group had net assets of £42.7m (2013: £32.3m) and had 25.0m fully paid ordinary shares in issue (2013: 23.6m).

Critical Accounting Policies

The Statement of Significant Accounting Policies is set out in Note 1 to the Financial Statements.

The Board considers that the estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are the measurement of tangible assets (where the Group estimates useful lives for the purposes of depreciation).

Group Financial Risk Management

The Board reviews and agrees policies for managing financial risks. The Group's Finance function is responsible for managing investment and funding requirements including banking and cash flow monitoring. It seeks to ensure that adequate liquidity exists at all times in order to meet its cash requirements.

The Group's financial instruments comprise borrowings, cash and various items, such as trade receivables and trade payables that arise from its operations. The main purpose of these financial instruments is to finance the Group's operations. The Group does not trade in financial instruments. The main risks arising from the Group's financial instruments are described below.

Liquidity and Interest Rate Risk

The Group had net debt of £3.1m at the year end, comprising £3.7m debt less £0.6m cash. The Group's exposure to market risk for changes in interest rates relates primarily to the Group's bank loan and sales financing facility debt obligations. Bank interest is charged on a floating rate basis.

Credit Risk

The Group trades only with recognised, creditworthy third parties. Receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant.

There are no significant concentrations of credit risk within the Group, with no single debtor accounting for more than 9% (2013: 18%) of total receivables balances at 31 July 2014.

Foreign Currency Risk

The Board considers that the Group does not have any material risks arising from the effects of exchange rate fluctuations.

CONSOLIDATED INCOME STATEMENT

for the year ended 31 July 2014

EARNINGS PER ORDINARY SHARE

STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 July 2014

STATEMENT OF CHANGES IN EQUITY

for the year ended 31 July 2014

A) GROUP

B) COMPANY

STATEMENTS OF FINANCIAL POSITION

for the year ended 31 July 2014

These financial statements were approved by the Board of Directors on 14 October 2014, and signed on their behalf by:

Tony Dyer

Chief Financial Officer

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 July 2014

NOTES

forming part of the financial statements

1. SIGNIFICANT ACCOUNTING POLICIES

i. The business and address of the GroupMatchtech Group plc is a human capital resources business dealing with contract and permanent recruitment in the Private and Public Sectors. The Company is incorporated in the United Kingdom. The Group's address is: Matchtech Group plc, 1450 Parkway, Whiteley, Fareham PO15 7AF.

ii. Basis of preparation of the financial statementsThe financial statements have been prepared in accordance with applicable International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and which are effective at 31 July 2014.These financial statements have been prepared under the historical cost convention. The accounting policies have been applied consistently throughout both the Group and the Company for the purposes of preparation of these financial statements. A summary of the principal accounting policies of the Group are set out below.

iii. Going concernThe Directors have reviewed forecasts and budgets for the coming year, which have been drawn up with appropriate regard for the current macroeconomic environment and the particular circumstances in which the Group operates. These were prepared with reference to historic and current industry knowledge, taking future strategy of the Group into account. As a result, at the time of approving the financial statements, the Directors consider that the Company and the Group have sufficient resources to continue in operational existence for the foreseeable future, and accordingly, that it is appropriate to adopt the going concern basis in the preparation of the financial statements. As with all business forecasts, the directors cannot guarantee that the going concern basis will remain appropriate given the inherent uncertainty about future events.

iv. New standards and interpretationsThere are no new standards and amendments to existing standards applicable for the period ending 31 July 2014.

New standards in issue, not yet effective

Based on the Group's current business model and accounting policies, the Directors do not expect material impacts on the figures in the Group's financial statements when the interpretations become effective.

The Group does not expect to apply any of these pronouncements early.

v. Basis of consolidationThe Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to the Statement of Financial Position date. Subsidiaries are entities over which the Group has power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated statement of financial position at their fair values, which are also used as the basis for subsequent measurement in accordance with Group accounting policies.Transactions between Group companies are eliminated on consolidation.

vi. RevenueRevenue is measured by reference to the fair value of consideration received or receivable by the Group for services provided, excluding VAT and trade discounts. Revenue on temporary placements is recognised upon receipt of a client approved timesheet or equivalent. Revenue from permanent placements, which is based on a percentage of the candidate's remuneration package, is recognised when candidates commence employment, at which point it is probable that the economic benefits associated with the transaction will be transferred. Fees for the provision of engineering services are recognised on completion of work performed in accordance with customer contracts. Other fees are recognised on confirmation from the client committing to the agreement.

vii. Property, plant and equipmentProperty, plant and equipment is stated at cost, net of depreciation and any provision for impairment.Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset. Depreciation is charged per annum as follows:Motor vehicles 25.0% Reducing balanceComputer equipment 25.0% Straight-lineOffice equipment 12.5% Straight-lineLeasehold improvements Over the period of the lease term

Residual value estimates are updated as required, but at least annually, whether or not the asset is revalued.

viii. Intangible assets

Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the fair value of the consideration given for a business over the Company's interest in the fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree. Goodwill is stated at cost less accumulated impairment.

Goodwill is allocated to cash-generating units and is not amortised, but is tested at least annually for impairment. For the purpose of impairment testing, goodwill acquired in a business acquisition is allocated to each of the cash generating units (CGUs), or groups of CGUs that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Software licences

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortised using the straight line method to allocate the cost of the software licences over their useful lives of between two and five years. Software licences are stated at cost less accumulated amortisation.

Other Intangibles

Acquired customer relationships

Acquired customer relationships comprise principally of existing customer relationships which may give rise to future orders (customer relationships), and existing order books (backlog orders). Acquired customer relationships are recognised at fair value at the acquisition date and have a finite useful life. Amortisation of customer relationships is amortised in line with the expected cashflows. Acquired customer relationships are stated at cost less accumulated amortisation and impairment. Backlog orders are recognised at fair value at the acquisition date and amortised in line with the expected cash flows. Backlog orders are stated at cost less accumulated amortisation and impairment.

Trade names and trademarks

Trade names and trademarks have arisen on the consolidation of recently acquired businesses and are recognised at fair value at the acquisition date. Where trade names and trademarks are considered to have a finite useful life, amortisation is calculated using the straight line method to allocate the cost of trade names and trademarks over their estimated useful lives. Where trade names and trademarks are considered to have an indefinite useful life, they are not subject to amortisation; they are tested annually for impairment and when there are indications that the carrying value may not be recoverable, as detailed within the impairment of non-financial assets section below. Trade names and trademarks are stated at cost less accumulated amortisation and impairment.

Other

Other intangible assets acquired by the Group and have a finite life useful lives are measured at cost less accumulated amortisation and accumulated losses. Amortisation of intangible assets is recognised in the income statement under administrative expenses. Provision is made against the carrying value of intangible assets where an impairment in value is deemed to have occurred. Impairment losses are recognised in the income statement under administrative expenses.

ix. Disposal of assetsThe gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the Income Statement.

x. Operating lease agreementsRentals applicable to operating leases are charged against profits on a straight line basis over the lease term. Lease incentives are spread over the term of the lease.

xi. TaxationCurrent tax is the tax currently payable based on taxable profit for the year.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the Statement of Financial Position date.Deferred tax on temporary differences associated with shares in subsidiaries is not provided if these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future.Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity (such as share-based payments) in which case the related deferred tax is also charged or credited directly to equity.

xii. Pension costsThe Company operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Company. The contributions payable are charged to the Income Statement as they accrue.

xiii. Share-based paymentThe transitional arrangements of IFRS 1 have been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 August 2006. All share-based remuneration is ultimately recognised as an expense in the income statement with a corresponding credit to "share-based payment reserve". All goods and services received in exchange for the grant of any share-based remuneration are measured at their fair values. Fair values of employee services are indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options, proceeds received net of attributable transaction costs are credited to share capital and share premium.

The Company is the granting and settling entity in the group share-based payment arrangement where share options are granted to employees of its subsidiary companies. The Company recognises the share-based payment expense as an increase in the investment in subsidiary undertakings.The Group operates a Share Incentive Plan (SIP) which is HMRC approved, and enables employees to purchase Company shares out of pre-tax salary. For each share purchased the Company grants an additional share at no cost to the employee. The expense in relation to these 'free' shares is recorded as employee remuneration and measured at fair value of the shares issued as at the date of grant.

xiv. Business combinations completed prior to date of transition to IFRSThe Group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations prior to 1 August 2006.Accordingly the classification of the combination (merger) remains unchanged from that used under UK GAAP. Assets and liabilities are recognised at date of transition if they would be recognised under IFRS, and are measured using their UK GAAP carrying amount immediately post-acquisition as deemed cost under IFRS, unless IFRS requires fair value measurement. Deferred tax is adjusted for the impact of any consequential adjustments after taking advantage of the transitional provisions.

xv. Financial assetsAll financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are recognised at fair value plus transaction costs.In the Company financial statements, investment in the subsidiary company is measured at cost, and provision made where an impairment value is deemed to have occurred.Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the Income Statement.Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows.A financial asset is derecognised only where the contractual rights to cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the Group transfers substantially all the risks and rewards of ownership of the asset, or if the Group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset.Trade receivables subject to the invoice discounting facility are recognised in the Statement of Financial Position until they are settled by the customer.

Trade receivables subject to factoring arrangements are derecognised in the Statement of Financial Position when the Group has transferred its rights to receive cash flows from the receivables; and either the Group has transferred substantially all of the risks and rewards of the ownership of the receivables, or the Group has neither transferred nor retained substantially all of the risks and rewards, but has transferred control of the assets.

xvi. Financial liabilitiesFinancial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument and comprise trade and other payables and bank loans. Financial liabilities are recorded initially at fair value, net of direct issue costs and are subsequently measured at amortised cost using the effective interest rate method.A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires.

xvii. Cash and cash equivalentsCash and cash equivalents comprise cash on hand, on demand deposits and bank overdrafts.

xviii. DividendsDividend distributions payable to equity shareholders are included in "other short term financial liabilities" when the dividends are approved in general meeting prior to the balance sheet date.

xix. Foreign currenciesTransactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the statement of Financial Position date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the Income Statement in the period in which they arise.The assets and liabilities in the financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the Statement of Financial Position date. Income and expenses are translated at the actual rate. The exchange differences arising from the retranslation of the opening net investment in subsidiaries are taken directly to "Translation of foreign operations" in equity. On disposal of a foreign operation the cumulative translation differences are transferred to the Income Statement as part of the gain or loss on disposal.As permitted by IFRS 1, the balance on the cumulative translation adjustment on retranslation of subsidiaries' net assets has been set to zero at the date of transition to IFRS.

xx. EquityEquity comprises the following:

- "Share capital" represents the nominal value of equity shares.

- "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.

- "Share-based payment reserve" represents equity-settled share-based employee remuneration until such share options are exercised.

- "Merger reserve" represents the equity balance arising on the merger of Matchtech Engineering Limited and Matchmaker Personnel Limited.

- "Translation of foreign operations" represents the foreign currency differences arising on translating foreign operations into the presentational currency of the Group.

- "Retained earnings" represents retained profits.

xxi. Significant accounting estimates and judgementsEstimates and assumptions concerning the future and judgments are made in the preparation of the financial statements. They affect the application of the Group's accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical judgementsThe judgements made which, in the opinion of the Directors, are critical in drawing up the financial statements are as follows:Invoice discounting facilityThe terms of this arrangement are judged to be such that the risk and rewards of ownership of the trade receivables do not pass to the finance provider. As such the receivables are not derecognised on drawdown of funds against this facility. This facility is recognised as a liability for the amount drawn.Factoring arrangements

In the event of sale of receivables and factoring, the Group derecognises receivables when the Group has given up control or continuing involvement.

The Group derecognises receivables in case of sale and factoring when the Group has transferred its rights to receive cash flows from the receivables; and either the Group has transferred substantially all of the risks and rewards of the ownership of the receivables, or the Group has neither transferred nor retained substantially all of the risks and rewards, but has transferred control of the assets.

Key sources of estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at the Statement of Financial Position date are discussed below. These are included for completeness, although it is the Directors' view that none of these have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.Estimated useful lives of property, plant and equipmentThe cost of equipment is depreciated on a straight-line basis and the cost of motor vehicles is depreciated on a reducing balance basis over their useful lives. Management estimates the useful lives of property, plant and equipment to be within 2 to 8 years. These are common life expectancies applied in the industry in which the Group operates. Changes in the expected level of usage and technological development could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised.Impairment loss of trade and other receivablesThe Group's policy for doubtful receivables is based on the on-going evaluation of the collectability and ageing analysis of the trade and other receivables and on management's judgements. Considerable judgement is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each debtor. If the financial conditions of the Group's receivables were to deteriorate, resulting in an impairment of their ability to make payments, additional impairment loss of trade and other receivables may be required. The carrying amounts of these assets are shown in Note 15.IntangiblesThe Group determines whether goodwill and other intangible assets (including acquired intangibles) are impaired on an annual basis or otherwise when changes in events or situations indicate that the carrying value may not be recoverable. This requires an estimation of the recoverable amount of the cash generating unit to which the assets are allocated. Consideration is given to the future cash flows of each cash generating unit and the discount rate applied to calculate the present value of those cash flows.

Restatement of prior period comparatives

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in finance costs or finance income. In previous periods these costs have been recognised within administrative expenses. The comparative figures have been restated to be consistent with the current year policy which has resulted in an increase in administrative costs in the year to 31 July 2013 of £178,000 with a corresponding increase to interest income.

2. SEGMENTAL INFORMATION

The chief operating decision maker, as defined in IFRS 8, has been identified as the Board of Directors of Matchtech Group plc. The information reported below is consistent with the reports regularly provided to the Board of Directors.

Reportable segments

A segmental analysis of total assets has not been included as this information is not available to the board; the majority of assets are centrally held and are not allocated across the reportable segments. Only trade receivables are reported by segment and as such they are included as segment net assets above. Unallocated net liabilities include non-current assets, other receivables, cash and cash equivalents and current liabilities.

Geographical information

Revenue and net non-current assets are allocated to the geographic market based on the domicile of the respective subsidiary. Included within UK revenues is cross-border revenues of £13,667,000 (2013: £5,171,000).

Largest customers

During the year revenues of £35,287,000 (2013: £54,853,000) were generated from sales to the Group's largest client and its business process outsourcer. The majority of this revenue is included in the Engineering segment.

No single client contributed more than 10% of the Group's revenues.

3. PROFIT FROM OPERATIONS

Profit from operations is stated after charging/(crediting):