The directors present their annual report and financial statements for the year ended 31 March 2024.
The results for the year are set out on page 6.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The Directors have prepared cash flow forecasts extending beyond September 2025. The base case forecasts shows a funding requirement starting in September 2024. The Group has reached an agreement in principle with the current investors to receive 2 tranches of funding over the next 12 months, with the first tranche to be received in September 2024. At the time of writing the funding is subject to legal clearances and is not yet guaranteed. The current investor has always been very supportive of the business, having provided funding previously, and the Directors are extremely confident that the necessary funding will be received. The Directors believe that the Group has a unique product offering and position in an expanding market and so ongoing support from the investor is highly likely.
The Group operates in a dynamic market and, as is common with growth-stage businesses, is not yet profitable and is funded predominantly through private equity. Following the conversion of loan notes during the period the Group now has no outstanding debt obligations. The Group has relied on the ongoing financial support of the principal investor; agreement in principle has been reached for further funding to be received over the next 12 months however this has yet to be finalised and there is a further risk that if forecasts are not met then further funding will be required from the investor later in the year and such funding has not been committed. The Directors are extremely confident that necessary funding will be received however as the Group is reliant on such funding, this indicates the existence of a material uncertainty which may cast significant doubt over the Group’s ability to continue as a going concern.
The Directors believe that any necessary funding will be forthcoming and therefore it remains appropriate to prepare the financial statements on a going concern basis. The financial statements do not include any adjustments that would result if the Group were unable to continue as a going concern.
We have audited the financial statements of Netacea Group Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 March 2024 which comprise the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 1.4 in the financial statements, which indicates that the Company is forecasting a funding shortfall within the next 12 months. As stated in Note 1.4, these events or conditions, along with the others matters as set forth in Note 1.4, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in this respect.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the directors' report has been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the directors' report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit; or
the directors were not entitled to take advantage of the small companies exemption from the requirement to prepare a strategic report.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the parent company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:
the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
we identified the laws and regulations applicable to the Group through discussions with directors and other management, and from our commercial knowledge and experience of the trade;
we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the Group;
we assessed the extent of compliance with the laws and regulations considered above through making enquiries of management and inspecting legal correspondence; and
identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by;
making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; and
considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations.
To address the risks of fraud through management bias and override controls, we:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries to identify unusual transactions;
assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias; and
investigated the rationale behind significant or unusual transactions.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
agreeing financial statement disclosures to underlying supporting documentation;
reading the minutes of meetings of those charged with governance;
enquiring of management as to actual and potential litigation and claims; and
discussions with senior management regarding relevant regulations and reviewing the company’s legal and professional fees.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the director’s and other management and the inspection of regulatory and legal correspondence.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Other matters which we are required to address
The corresponding figures are unaudited.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £2,446,818 (2023 - £920,059 loss).
Netacea Group Limited (“the company”) is a private limited company limited by shares, domiciled and incorporated in England and Wales. The registered office is Suite 4.15 Department Bonded Warehouse, 18 Lower Byrom Street, Manchester, England, M3 4AP.
The group consists of Netacea Group Limited and all of its subsidiaries.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.
During the current period a prior year adjustment has been identified, which is explained in note 27.
The company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements for parent company information presented within the consolidated financial statements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 26 ‘Share based Payment’: Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The directors applied the merger accounting method on the basis that the relative rights of the shareholders were preserved during the restructure in which Netacea Group Limited acquired the group. Accordingly, under the merger accounting method, the assets and liabilities of the Group have been carried at their book value and all profits before and after the transaction continue to be consolidated. Dividends received from demerged entities as part of the demerger have been recognised as an increase in the merger reserve as the Directors consider this to best reflect the substance of the transaction.
The consolidated group financial statements consist of the financial statements of the parent company Netacea Group Limited together with all entities controlled by the parent company (its subsidiaries) and the group’s share of its interests in joint ventures and associates. In addition, the group includes the results of Netacea EBT Limited, an employee benefit trust set up for the purpose of remunerating the Group's employees and therefore considered to be under the control of the Group.
All financial statements are made up to 31 March 2024. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
The Directors have prepared cash flow forecasts extending beyond September 2025. The base case forecasts shows a funding requirement starting in September 2024. The Group has reached an agreement in principle with the current investors to receive 2 tranches of funding over the next 12 months, with the first tranche to be received in September 2024. At the time of writing the funding is subject to legal clearances and is not yet guaranteed. The current investor has always been very supportive of the business, having provided funding previously, and the Directors are extremely confident that the necessary funding will be received. The Directors believe that the Group has a unique product offering and position in an expanding market and so ongoing support from the investor is highly likely.
The Group operates in a dynamic market and, as is common with growth-stage businesses, is not yet profitable and is funded predominantly through private equity. Following the conversion of loan notes during the period the Group now has no outstanding debt obligations. The Group has relied on the ongoing financial support of the principal investor; agreement in principle has been reached for further funding to be received over the next 12 months however this has yet to be finalised and there is a further risk that if forecasts are not met then further funding will be required from the investor later in the year and such funding has not been committed. The Directors are extremely confident that necessary funding will be received however as the Group is reliant on such funding, this indicates the existence of a material uncertainty which may cast significant doubt over the Group’s ability to continue as a going concern.
The Directors believe that any necessary funding will be forthcoming and therefore it remains appropriate to prepare the financial statements on a going concern basis. The financial statements do not include any adjustments that would result if the Group were unable to continue as a going concern.
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
Revenue from software product licence rentals is realised over the duration of the rental period.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the profit and loss account.
In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell 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 which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
The component parts of compound instruments issued by the group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument's maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity net of income tax effects and is not subsequently remeasured.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
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 and loss account 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 group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, 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 if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest, although is adjusted for the probability of an exit being made. A corresponding adjustment is made to equity.
The expense in relation to options over the parent company’s shares granted to employees of a subsidiary is recognised by the company as a capital contribution, and presented as an increase in the company’s investment in that subsidiary.
Related party transactions
The company has taken the exemption in FRS102 from disclosing transactions and balances with wholly-owned subsidiaries.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount 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 considered to be 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 where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
The Group was formed via a share-for-share exchange which took place as part of a capital reduction demerger. Whilst the principles of merger accounting are established, and disclosed in note 1, the Directors have prepared the financial statements on the basis of exclusion of a former subsidiary of Netacea Holdings Limited on the basis that it was only temporarily owned prior to capital reduction demerger, and therefore does not meet the criteria of a combining entity for the purpose of accounting for the merger. The adjustments for these have been recognised as a deduction from the merger reserve which existed prior to the date of creation of the Group.
Determine whether there are indicators of impairment of the company's amounts due from trade debtors. When assessing impairment of these amounts the factors taken into consideration include the financial position and expected future performance of those entities.
Determine whether there are indicators of impairment of the company's tangible assets. Factors taken into consideration in reaching such a decision include the economic viability and expected future financial performance of the asset and where it is a component of a larger cash-generating unit, the viability and expected future performance of the unit.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
The Group was party to a convertible loan note ("CLN") at the prior year end, which was settled during the current year. This provided the holder of the CLN with the right to subscribe for new equity shares at a discount to market value in the event of a future fundraising taking place. Such a fundraising took place in October 2023. Details of the key inputs to the valuation are provided in note 18, of which the key non-observable input is the estimate of the probability of conversion as at 31 March 2023.
In order to evaluate the presence of impairment indicators in the Company's investment of £28.3m in subsidiaries, the Directors have prepared discounted cash flow forecasts which demonstrate that, based on the expected future profitability of the trading group, the investment value in the balance sheet is supported by the estimated future cash flows. However the Directors acknowledge that the recoverable amount of the investment is highly sensitive to changes in both the estimate future cash flows and the discount rate applied to those cash flows. Adverse movements in either of those inputs could lead to a material impairment in the investment. The Directors acknowledge that this is an area of high estimation uncertainty in the financial statements of the Company and will continue to actively monitor the recoverable amount of investment in subsidiaries. Further details are provided in note 13.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The Group has taken advantage of the disclosures available to small companies which permit it to not disclose details of Directors' remuneration.
The Group has taken advantage of the exemptions available to small companies which permit it to not disclose fees payable to its auditor for the audit of the group's financial statements.
The loss reflects fair value movements on the convertible loan notes, which are explained in note 18.
The actual credit for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
The main corporation tax rate increased from 19% to 25% on 1 April 2023. The deferred tax balances at 31 March 2024 have been measured using the rates expected to apply in the reporting periods when the timing differences reverse, being 25% (2023 - 25%).
The Group has estimated tax losses of £19,900,000 (2023 - £16,300,000) carried forward and available for use against future trading profits of the Group. The tax losses do not expire. However, as the timing and extent of use of these is uncertain, no deferred tax asset has been recognised in respect of these losses; if such an asset was to be recognised then it would increase the Group's net assets by approximately £5,000,000.
The Company's investment In Netacea Holdings Limited has been considered for recoverability in the current year given that the ongoing results of the trade in its subsidiaries carry indicators of impairment.
This has been done through a discounted cashflow model into perpetuity, based on the forecasts of trading results for a period of 6 years, extrapolated to terminal value using a long term growth rate of 2%. A post-tax weighted average cost of capital of 18.9% has been used in this assessment, with this estimate being a key input, which results in no impairment needing to be recognised.
If the discount rate increased by 1%, there would be an impairment of approximately £1,050,000. If the long term growth rate fell to 1%, there would be an impairment of approximately £300,000. However, the Directors are confident that the carrying value of the investment does not need to be impaired, based on the underlying forecasts.
Details of the company's subsidiaries at 31 March 2024 are as follows:
Group loans are interest-free and repayable on demand.
Amounts owed to group undertakings are interest-free and repayable on demand.
Other creditors represents deferred income where the Group will provide services to the customer in more than one year, but where the Group already holds the cash or recognises a trade debtor for the services to be rendered.
The convertible loan note ("CLN") in the prior year represented a loan with a principal value of £4,000,000, carrying interest at 10% and incorporating an embedded derivative which permits the CLN to be converted into equity shares. It carried a maturity date 5 years from drawdown, being December 2027. Interest was accrued and paid only on redemption of the CLN, or on conversion.
The conversion feature includes several terms, most significantly a conversion discount of either 10%, 20% or 30% (depending on the timing of the conversion and the new amount raised), where the discount is by reference to the price per share of a new fundraising round. At 31 March 2023, the 10% discount has been closed as the threshold of timing for this fundraise has passed.
The Directors have performed a valuation, and engaged a specialist third party, to determine the CLN's fair value at 31 March 2023 in accordance with Section 12 of FRS 102. This value considers the expected routes to payoff, including the likely timing of each route and anticipated payoff to the holder of the CLN, as well as volatilities in the market and areas such as the Group's own credit risk. The key inputs to the model were:
Probability of non-conversion (i.e. hold to maturity) - 50%
Probability of conversion - varying up to 36 months
Discount to market price expected - 30%
Credit risk adjustment - 10% (on the non-conversion route only).
The key estimate is the probability of non-conversion. If this probability was reduced to 40% then the value of the CLN would increase by approximately £138,000.If the probability was increased to 60%, then the value of the CLN would decrease by approximately £138,000.
During the current year, additional CLN drawdowns took place to increase the principal value of the CLN's to £7,500,000. In October 2023 a new qualifying fundraising round took place, raising new equity share monies as disclosed in note 22. As part of this fundraising, most of the CLN converted into equity shares at a discount of 30% to the new fundraise price, resulting in the CLN being converted for equity shares at £6.26 per share, with £2,046,027 of the principal plus interest converting without discount, and £14,384 of accrued interest being paid in cash. Therefore, £5,846,096 was converted via payment in discounted equity shares.
To reflect this position, an expense to the P&L of £2,148,727 (2023 - £783,709) has been included to account for the fair value of the CLN immediately prior to conversion. Following this conversion, the CLN has been fully extinguished with no future debt characteristics remaining.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
Details of tax losses are given in note 10.
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
At the year end the Group owed £22,999 (2023 - £49,296) of contributions to the scheme where an expense was recognised for services rendered during the year.
The options outstanding at 31 March 2024 had an exercise price ranging from £0.01 to £0.88, and a remaining contractual life of 8 years. Options may be exercised typically only when the Group makes an exit.
The Directors of the Group are of the opinion that the fair value of the options are immaterial, and accordingly have not reflected any charge in the P&L in either the current or prior year in respect of these.
All classes of share have the right to attend and vote at general meetings, to receive dividends in accordance with the articles of association, and to receive a return of capital in the proportions and priority set out in the articles of association.
The Company issued the following shares during the year:
905,346 E1 ordinary shares on 13 October 2023 for cash at £6.26
483,581 E1 ordinary shares on 13 October 2023 for cash at £8.95
30,568 E2 ordinary shares on 13 October 2023 for cash at £6.26
19,024 E2 ordinary shares on 13 October 2023 for cash at £8.95
6,994 ordinary shares on 8 March 2024 for cash at par
5,556 ordinary shares on 15 February 2024 for cash at par
46,695 ordinary shares on 25 October 2023 for cash at par
97,222 ordinary shares on 19 June 2023 for cash at par
Of these, the issue of E1 and E2 ordinary shares at £8.95 per share represents the fundraising, resulting in cash inflows of £2,449,984. This represented a fundraising event, as described in note 18, which triggered the conversion of convertible loan notes at a 30% discount, resulting in the conversion of the liability to E1 and E2 shares at £6.26 per share.
The remuneration of key management personnel is as follows.
The above represents Directors remunerated through a subsidiary. In the opinion of the Directors there are no additional key management personnel.
The company has taken advantage of the exemptions offered by section 33.1A of FRS 102 to not present details of transactions with wholly owned group companies. Details of the amounts outstanding at the year end are provided in notes 15 and 16.
The Group received funding in the form of convertible loan notes during the current and previous year from certain shareholders of the Group. These convertible loan notes converted to equity shares during the current year, with a loss to the P&L recognised in respect of the fair value of these. Details of the transaction are provided in note 18.
The conversion of a convertible loan note into equity share capital during the year, with debt carrying value immediate before the conversion of £7,906,567, and a carrying value equal to fair value of £10,432,536, is a major non-cash transaction of the Group during the year. Details of this conversion are provided in note 18.
The prior year adjustment has arisen through two transactions:
1. The incorrect treatment of the group restructure, and resulting capital reduction demerger, in the prior year accounts. The error arose from an impairment being duplicated as part of this demerger, resulting in an expense to the profit and loss account when this should have been retained as a cost of investment in the subsidiary.
2. The carrying value of the convertible loan note. In the previous year only the accrued interest at 10% was carried on this liability, however in the current year the Directors have identified that this instrument was non-basic and therefore should have been carried at fair value through profit and loss, in accordance with Section 12 of FRS 102. Therefore, the accrued interest has been reversed and instead the convertible loan note has been revalued to fair value, based on the terms disclosed in note 18.
The prior year adjustment has no impact on the group financial statements on the basis that no group financial statements have previously been prepared. There is no tax impact from the changes detailed.