The directors present the strategic report for the year ended 29 February 2024.
The principal activity of the group is that of digital agencies.
The main trading subsidiary, CTI Digital Limited, has operated since 2003. The team has built a strong reputation within the digital agency sector, using digital strategy, technical support and integrated marketing to create industry-leading experiences for clients and customers.
Over a number of years, the CTI trading group and service offering has expanded through targeted acquisitions. Services provided across the group include digital strategy and consultancy, creative web design, digital marketing, CMS websites, web applications, Ecommerce websites, hosting and support and mobile app development, delivered across multiple industries including higher education, public sector, retail, charities, leisure, professional services, arts and culture, and health and fitness.
In February 2022, the group secured a £25m non-controlling investment from leading mid-market private equity firm LDC, to support the next stage of growth plans. This investment continues to be be used to expand and enhance the existing suite of digital services, potentially including acquisition of complementary businesses in the UK and overseas.
During the year, there has been significant investment in the senior management team to develop a strong scalable business. The new CEO restructured leadership of the business, hiring a new CCO and COO and adding new roles to the senior leadership team. This team’s combined experience gives the business the skills to deliver the strategic objective of becoming one of the UK’s fastest growing end-to-end digital agencies.
As part of that strategy, the component brands have been consolidated under one umbrella brand “CTI Digital”. An overhaul of contract performance, internal processes, reporting and client and staff engagement provides the platform for operational improvement in the year ahead.
Consolidation and transition to new management, combined with difficult trading conditions, resulted in reduced turnover in the year. Following the leadership changes, new customer win rates improved in the second half of the year, with Mind and Chester Zoo signing significant contracts. A return to growth is forecast in 2025, underpinned by the strong recurring contract base, updated market positioning, improved customer acquisition win rates and account management initiatives.
Group’s adjusted EBITDA is the key measure of profitability for the group, measured as operating profit/ (loss) adding back all items in note 4 of the financial statements. The group’s adjusted EBITDA loss for 2024 was £0.95m (2023: EBITDA £2.30m). This result reflects the turnover impact of consolidating and repositioning the group to focus on strategic growth areas, increased price sensitivity of clients, and the impact of large, complex, bespoke project builds for clients which will deliver increased high margin support retainers for the future. The benefits of the strengthened management team and strategy were not fully materialised in the year; management is confident that the investment in people and processes will deliver improved account management, customer acquisition and project delivery and should return the business to profitability in 2025.
The group statement of comprehensive income includes income and costs for the companies included in the established corporate group. The reported loss for the group is principally a result of goodwill amortisation charged on consolidation, impairment of intangible assets and interest on loan notes, which are all non-cash items. An exceptional impairment of goodwill on consolidation, and associated separately identifiable intangible fixed assets, has been recognised in the year to reflect the reduced EBITDA achieved since acquisition. This impairment will be reviewed annually and reversals will be made when applicable.
Shareholders are fully supportive of the growth plans, with follow-on funding injected into the business on 9th May 2024 (total of £3m facility of which £2m has been drawn down).
In determining whether the group's accounts can be prepared on a going concern basis, the directors considered the group’s business activities together with the factors likely to affect its future development, performance, its financial position including cash flows, liquidity position, borrowing facilities and the risks and uncertainties in relation to its business activities. The directors regularly review these factors to ensure that any risks are recognised and managed effectively.
The group uses various financial instruments including loans, hire purchase, finance leases, trade credit and other creditors that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the group’s operations.
The existence of these financial instruments exposes the group to financial risks, which are described in more detail below. The directors review and agree policies for managing these risks.
The principal risks affecting the business are as follows:
Liquidity risk
The group seeks to manage financial risk by ensuring liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.
Interest rate risk
The group finances its operations through a combination of retained profits, loans, finance leases and hire purchase contracts. The group exposure to interest rate fluctuations on its borrowings is managed through the use of both fixed and floating facilities.
Foreign currency risk
The group’s principal foreign currency exposures arose from trading with overseas companies. Group policy permits but does not demand that these exposures may be hedged to fix the cost in sterling. Less than 10% of revenues and costs are invoiced in foreign currency.
Credit risk
The principal credit risk arises from the group's trade debtors.
All customers who wish to trade on credit terms are subject to credit verification procedures. Trade debtors are monitored on an ongoing basis and provision is made for doubtful debts where necessary.
The group reviews and monitors its performance against key performance indicators both financial and non-financial. The principal measures include revenue growth, improvement of profit margins, management of cash flows, and customer and employee satisfaction levels. These are reviewed by the management team and reported monthly to the board on a monthly basis.
|
|
| 2024 |
| 2023 |
|
|
|
|
|
|
Turnover |
|
| £15.5m |
| £16.8m |
Gross margin % |
| 34.8% |
| 50.4% | |
Adjusted EBITDA |
| (£0.95m) |
| £2.30m | |
Net current assets/ (liabilities) | (£0.2m) |
| £1.8m | ||
Net assets/ (liabilities) | (£45.5m) |
| £4.4m |
As outlined in the review of business, the transition to new management, consolidation of the group into one brand and a challenging market environment all contributed to the decline in turnover, gross margin and adjusted EBITDA. Turnover growth is a key driver of the return to profitability in the forecast period.
The group has strong working capital management practices, and has returned to a net current asset position post year end, following injection of funding into the business on 9th May 2024 (total of £3m facility of which only £2m has been drawn down). This funding is enabling the business to continue to invest for future growth.
The net liability position arises due to the exceptional impairment of goodwill and associated intangible fixed assets, together with the accumulated accrued interest charged on loan notes. As the group's EBITDA recovers and improves in line with the planned growth strategies, the balance sheet will be restored accordingly.
The Directors continue to monitor sales growth, profit margins and cash flow in the forthcoming year. The group's growth strategy is based around strong customer partnerships, improved new customer acquisition, improved utilisation of experienced staff across all service offerings and effective cost monitoring. Management are confident that the investment in people will benefit future years and the company is expected to return to profitability in 2025.
Shareholders are supportive of new management and the growth plan, injecting funding into the business on 9th May 2024 (total of £3m facility of which £2m has been drawn down) to allow investment for future growth.
On behalf of the board
The directors present their annual report and financial statements for the year ended 29 February 2024.
The results for the year are set out on page 9.
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 group continues to utilise its in-house technical expertise to remain at the forefront of world class digital solutions and campaigns for respected brands around the globe. By constantly investing in talented individuals, advancing technology and our clients’ visions, the group crafts innovative and effective technology for all.
The auditor, Sumer Auditco Limited, was appointed during the year and is deemed to be reappointed under section 487(2) of the Companies Act 2006.
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
We have audited the financial statements of Project Airscope Bidco Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 29 February 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.
Conclusions relating to going concern
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.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
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 strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which 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.
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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, and through discussions with the directors (as required by auditing standards) and discussed with the directors the policies and procedures regarding compliance with laws and regulations. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation and taxation legislation. We assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the company's license to operate. We identified the following areas as those most likely to have such an effect: laws related to health and safety, employment law and data protection.
Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and inspection of regulatory and legal correspondence, if any. Through these procedures we did not become aware of any actual or suspected non-compliance.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
We design procedures in line with our responsibilities, outlined below to detect material misstatement due to fraud:
Matters are discussed amongst the audit engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud
Identifying and assessing the design and effectiveness of controls that management have in place to prevent and detect fraud
Detecting and responding to the risks of fraud following discussions with management and enquiring as to whether management have knowledge of any actual, suspected or alleged fraud;
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.
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 £49,453,286 (2023 - £4,671,659 loss).
These financial statements have been prepared in accordance with the provisions relating to medium-sized companies.
Project Airscope Bidco Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Express Network 2, 3 George Leigh Street, Manchester, M4 5DL.
The group consists of Project Airscope Bidco 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. The principal accounting policies adopted are set out below.
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 4 ‘Statement of Financial Position’: Reconciliation of the opening and closing number of shares;
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’: Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument; 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 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The consolidated group financial statements consist of the financial statements of the parent company Project Airscope Bidco Limited together with all entities controlled by the parent company (its subsidiaries).
All financial statements are made up to 29 February 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.
At the time of approving the financial statements, the directors have a reasonable expectation that both the group and company has adequate resources to continue in operational existence for the foreseeable future.
The group's balance sheet shows net current liabilities of £219,335 and excess of liabilities over assets of £45,438,169. The company's balance sheet shows net current liabilities of £1,224,421 and excess of liabilities over assets of £38,118,608.
As the balance sheet date, the company owed fellow group companies £3,505,236 (2023: £3,446,199). This balance is included within other creditors less than one year, on the basis that there are no formal loan agreements and therefore are deemed to be repayable upon demand. However, continued group support has been confirmed by the various trading subsidiaries, that repayment will not be sought until cash flow permits.
The directors have considered the future profitability of the wider group and its ability to continue as a going concern and have prepared profit and cash flow forecasts for a 5 year period ended 28 February 2029. These forecasts include an additional £3,000,000 facility secured in May 2024 from existing loan note holders and the impact of re-financing other borrowings. £2,000,000 of the facility has been drawn down so far post year end. These forecasts support the directors’ opinion that the company will continue to trade as a going concern.
As detailed in note 20, the group’s borrowings are structured with long-term repayment terms, the majority of which have end dates of 2029. Repayment of these borrowings are scheduled in-line with the group’s growth strategy. The detailed financial forecasts prepared for the period ended 28 February 2029, illustrate the planned group growth in respect of turnover, EBITDA and profitability, which in-turn generates cash flow.
Based on all of the above, the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
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 contracts for the provision of professional services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that it is probable will be recovered.
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.
Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.
In the parent company financial statements, investments in subsidiaries 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.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
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.
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.
The group has issued share options to certain directors and employees. These must be measured at fair value and recognised as an expense in the profit and loss with a corresponding increase in equity. The fair value of the options was estimated at the date of grant using the option-pricing model. The fair value will be charged as an expense in the profit and loss account over the vesting period. The charge is adjusted each year to reflect the expected and actual level of vesting.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the balance sheet as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.
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.
Investments in subsidiary undertakings, as included in the company balance sheet, is stated at historical cost which includes consideration paid, associated acquisition professional fees and deferred consideration (if applicable).
Annual impairment reviews are undertaken by the Board considering both current and future profitability linked to the EBITDA multiple established on acquisition.
Impairments indicators may include a reduction in turnover, profitability or EBITDA, and can also be affected by industry specific factors.
At the balance sheet date an exceptional impairment has been recognised based on the deemed carrying value of the various investments in subsidiary undertakings. Independent professional valuations have been obtained as part of this review, and these form the main basis of the reduction in value recognised. This has been processed as an impairment and will be reviewed annually based on EBITDA and industry specific profit multiples. The Board of Directors expect reversals to be recognised in future periods as the group's strategy of EBITDA growth is achieved.
Refer to note 15 for further details of the investments held in subsidiaries and the carrying value impacted by this key judgement.
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 useful economic life of both goodwill and separately identifiable intangible fixed assets have been estimated by the director of the group to ensure an appropriate amortisation charge is recognised each year.
Annual impairment reviews of goodwill are undertaken by the Board considering both current and future profitability linked to the EBITDA multiple established on acquisition of subsidiaries.
Impairments indicators may include a reduction in turnover, profitability or EBITDA, and can also be affected by industry factors.
At the balance sheet date an exceptional impairment has been recognised in the group financial statements, based on the deemed carrying value of the goodwill arising on the various investments in subsidiary undertakings and separately identifiable intangible fixed assets. Independent professional valuations have been obtained from a company investment value perspective, and these form the main basis of the reduction in associated goodwill and intangible fixed assets recognised on consolidation. This has been processed as an impairment and will be reviewed annually based on EBITDA and industry specific profit multiples. The Board of Directors expect reversals to be recognised in future periods as the group's strategy of EBITDA growth is achieved.
Refer to note 13 for the carrying value of intangible fixed assets impacted by this key accounting estimate.
The capitalisation of intangible fixed assets is based on the directors best estimate of time spent by specific employees/directors on internally developed software projects once it has been established that the project is viable and will benefit the company in future periods. Amortisation is incurred on a project-by-project basis, once the software is brought into use and its useful economic life has been determined.
Amortisation charged during the year totalled £92,524 (2023: £Nil).
Refer to note 13 for the carrying value of intangible fixed assets impacted by this key accounting estimate.
Revenue is recognised on an estimated stage of completion, and any variance to amounts invoiced is accrued or deferred as required. to the extent they are judged recoverable. Management reviews are performed to estimate the level of revenue to be recognised.
Accrued income recognised as at 29 February 2024 was £249,757 (2023: £645,975).
Deferred income recognised as at 29 February 2024 was £794,865 (2023: £1,166,919).
Trade debtors are recognised to the extent they are judged recoverable. Management reviews are performed to estimate the level of provisions required for irrecoverable debt. Provisions are made specifically against invoices where recoverability is uncertain.
The bad debt provision as at 29 February 2024 was £185,712 (2023: £335,023).
Refer to note 17 for the carrying value of trade debtors impacted by this key accounting estimate.
The useful economic life of tangible fixed assets has to be estimated by the directors of the company to ensure an appropriate depreciation charge is recognised in the year. The value of the assets ultimately depends on the condition of the assets and whether economic income can be derived from the asset. The directors undertake a periodic review of the assets to ensure the value of the assets is fairly stated within the financial statements.
During the year, depreciation of £150,439 (2023: £132,489) has been charged.
Refer to note 14 for the carrying value of tangible fixed assets impacted by this key accounting estimate.
During the year, the directors have assessed the carrying value of goodwill held on investments in subsidiaries, and the associated separately identifiable intangible fixed assets. Based on EBITDA achieved since acquisition and market led profit multiples applicable to the group, an exceptional impairment has been recognised. This will be reviewed annually and the Board of Directors expect reversals to be recognised in future periods as the group's strategy of EBITDA growth is achieved.
Adjusted EBITDA incorporates a release of arrangement fees of £156,714 (2023: £156,714).
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 4 (2023 - 4).
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:
Deferred tax has been recognised at a rate of 25%. In October 2022, the government announced an increase in the corporation tax main rate from 19% to 25% for companies with profit over £250,000. There is a small company rate of 19% for taxable profits under £50,000 and marginal relief available for profits falling between £50,000 - £250,000 with effect from 1 April 2023.
Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:
The impairment losses in respect of financial assets are recognised in other gains and losses in the profit and loss account.
Further details of the impairment are explained in note 4.
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
Details of the company's subsidiaries at 29 February 2024 are as follows:
Registered office addresses (all UK unless otherwise indicated):
Ixis IT Limited, Mosquito Digital Limited, Worship Digital Limited, Nublue Limited and Silverchip Limited are exempt from audit under the provisions of s479a of the Companies Act 2006. The company has provided a guarantee for the liabilities of the companies, in connection with the financial period ended 29 February 2024.
The bank loan is secured by way of a fixed and floating charge over all assets of the company.
Obligations under finance leases are secured on the assets to which they relate.
The bank loan is secured by way of a fixed charge over all assets of the company.
Obligations under finance leases are secured on the assets to which they relate.
Other borrowings, includes loan notes of £23,995,873 (2023: £21,169,877) which are secured by way of a fixed and floating charge over all assets of the company. All other loan notes are unsecured.
A bank loan of £5,000,000 (2023: £5,000,000) is repayable in full by 21 February 2028 and is subject to interest at a rate of 5.19% p.a. (2023: 4% p.a.), adjusted for the compounded reference rate.
A bank loan of £400,000 (2023: £1,000,000) is repayable in full by 9 May 2024 (2023: 9 May 2023) and is subject to interest at a rate of 5.19% p.a. (2023: 3.4% p.a.), adjusted for the compounded reference rate.
Other borrowings consists of loan notes and capitalised interest payable which are repayable in full by 21 February 2029 and are subject to interest at a rate of 10% p.a.
Finance lease payments represent rentals payable by the company or group for certain items of plant and machinery. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 5 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
Additionally a provision of £83,989 in respect of an onerous contract has been recognised based on the director's best estimate of costs to complete.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
The deferred tax liability in 2023 predominately arose on a fair value adjustment of intangible fixed assets. This historic deferred tax liability provision has been reversed in the current year following an exceptional impairment recognised. The group has significant tax losses which have not been recognised as a deferred tax asset until certainty of future utilisation is known.
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. As at the year-end, contributions due to the schemes in respect of the current reporting year were £54,404 (2023: £53,313).
All share classes rank pari passu.
On 24 March 2023, 10,026 Ordinary C shares of 40p each were repurchased by the company at premium of £4.10 each and were subsequently cancelled.
Includes any premium received on issue of share capital. Any transaction costs allocated with the issuing of shares are deducted from the share premium.
Retained earnings represents cumulative profits or losses, net of dividends paid and other adjustments.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
On 9 May 2024 further funding has been agreed with the current loan note holders. Loan notes totalling £3,000,000 were issued, improving cash flow in the year to 28 February 2025, and facilitating the wider group to pursue its growth plans. £2,000,000 of the facility has been drawn down so far post year end.
The company has taken advantage of the exemption available in accordance with Financial Reporting Standard, section 33, not to disclose transactions entered into between two or more members of a group, where any subsidiary party to the transaction is wholly owned.