Gattaca plc (LON:GATC), the specialist staffing business, has announced its audited financial results for the year ended 31 July 2023.
Financial Highlights
| 2023 | 2022(restated)3 | |
| £m | £m | |
| Continuing operations | ||
| Revenue | 385.2 | 403.9 |
| Net Fee Income (NFI)1 | 43.4 | 44.2 |
| EBITDA | 4.0 | (2.4) |
| Profit / (Loss) before tax – reported | 2.8 | (4.7) |
| Profit / (Loss) before tax – underlying2 | 2.6 | 0.3 |
| Profit / (Loss) after tax | 1.8 | (4.3) |
| Losses from discontinued operations after tax | (0.5) | (0.4) |
| Group reported profit / (loss) after tax | 1.2 | (4.6) |
| Basic earnings per share | 3.8p | (14.3)p |
| Diluted earnings per share | 3.8p | (14.3)p |
| Ordinary dividend per share | 2.5p | 0.0p |
| Special dividend per share | 2.5p | 0.0p |
| Net cash | 21.6 | 12.3 |
· Group NFI of £43.4m, down 2% year-on-year (“YoY”)
o UK NFI of £41.2m flat YoY
o Defence and Infrastructure sectors, representing 51% of Group NFI, delivered strong 8.8% NFI growth YoY
o Gattaca Projects Statement of Work business achieved 59% YoY NFI growth
o Contract vs Perm split 74% / 26% of Group NFI (FY22: 71% / 29%)
o Contract NFI up 2% YoY, reflecting strategic priority to become more focused on contract business alongside shift in opportunities from employers
o Permanent NFI down -11% YoY, following a tightening of the wider economy
· Group underlying profit before tax of £2.6m (2022 restated: £0.3m), reflecting ongoing focus on productivity improvements, exiting lower margin contracts and active cost management
· Group net cash up 76% at £21.6m as at 31 July 2023 (31 July 2022: £12.3m)
· Full year dividend totaling 5.0 pence per share (2022: nil); comprising a 2.5 pence per share ordinary dividend and 2.5 pence per share special dividend. The final dividend payment date will be 15 December 2023, to shareholders on the register as at close of business of 3 November 2023. The ex-dividend date will be 2 November 2023.
Operational Highlights
Continued emphasis on developing the four identified strategic priorities (External focus, Culture, Operational performance and Cost rebalancing) as the Group focus remains on building back to sustained growth:
· Launched our simplified Brand Architecture, with increased marketing investment
· People engagement rose to 8.1 for FY23, up from 7.6 in FY22, with reduced attrition of 33% at 31 July 2023, with improvement particularly in the retention of sales people within their first 12-24 month tenure in the Group
· Increased sales productivity by utilising enhanced Group-wide management information, growing average NFI per sales head +8%, and +4% per total head
· UK property footprint reduced from five to three, alongside other third-party cost savings
· Moved over 80% of our manual time sheeting contractors to online timesheet submission, reducing administrative burden and increasing accuracy
Outlook
We continue to remain mindful of the macro-economic headwinds, which have impacted demand and candidate sentiment across the recruitment sector and slowed our speed of recovery. We are seeing permanent recruitment remaining subdued and are increasing our focus on contractor growth, which takes longer to reflect in NFI, as such we expect profitability will be weighted to second half of the year.
Matthew Wragg, Chief Executive Officer of Gattaca, commented:
“I am pleased with the performance in the year, against a difficult market backdrop. A significant growth in underlying profitability reflects the Group’s focus on productivity improvements and cost management, whilst a positive shift in culture is strengthening the business as whole. Whilst our sales progress has been impacted by the decline in the wider market, I am pleased that we were able to continue to simplify the business this year along with managing our cost base and continue to trade in line with expectations for FY24.”
“The sectors in which we operate and the STEM skillsets that we provide have the right long-term fundamentals for success and we enter FY24 as a more efficient and productive business. We are well positioned to take advantage of the expected recovery in the market and will look to grow our sales headcount where we see the best opportunities for contract expansion, whilst we continue to focus on our strategic priorities enabling us to further strengthen our platform for growth.”
The following footnotes apply, unless where otherwise indicated, throughout these Final Results:
1. NFI is calculated as revenue less contractor payroll costs
2. Continuing underlying results exclude the NFI and (losses) before taxation of discontinued operations (2023: £(0.5)m, 2022: £(0.4)m), non-underlying items within administrative expenses relating to restructuring costs (2023: £(0.2)m, 2022: £(0.4)m), gains associated with exiting properties (2023: gain of £0.6m, 2022: cost of £(0.2)m) and other items (2023: £(0.2m), 2022: nil), amortisation of acquired intangibles (2023: £(0.1)m, 2022: £(0.4)m), impairment of acquired intangibles and ROU leased assets (2023: nil, 2022: £(4.6)m), and exchange gains from revaluation of foreign assets and liabilities (2023: £0.1m, 2022: £0.6m).
3. FY22 results have been restated for the correction of a revenue cut-off error, and the subsequent reassessment of the Group’s accounting policy over how accrued revenue and accrued cost balances have been calculated at each period end. The aggregated impact of these items on FY22 reported results is £0.1m reduction to reported profit before tax. Further details are provided in the Group’s FY23 Annual Report & Accounts.
Chair’s Statement
Stability in a turbulent market
The last three years have been turbulent for us all, with the impact of the Covid-19 pandemic and the subsequent challenging macroeconomic conditions, further exacerbated by the changing geopolitical circumstances that we find ourselves operating in. In addition, we have had to weather the storm through the tightening of the UK tax legislation surrounding IR35. Despite all of those challenges, we find the core key STEM markets that we are operating in are recovering to their pre-pandemic levels with more of a balance between vacancies and candidate availability.
This year, we have also seen the return of higher levels of global inflation which has had an impact on all our clients, contractors and staff, leading to a “cost of living” challenge for many. We are starting to see early indications of these high levels of inflation abating, although the economic horizon continues to be a concern as we enter the period ahead of the next UK General Election.
Group Continuing NFI
The start of FY23 was strong for permanent placements, with contract soft. By Christmas the permanent market had stalled and whilst our contract business became stronger by the end of the year, it still has some way to go to return to our pre-pandemic volumes. Many companies have been reluctant to add permanent employees to their staff base from the turn of the year and whilst there has been a continuing demand for contract it is sector specific. Our focus on the quality of our clients and markets has been a significant plus during the year. We remain a sales-led business but we are also clear that we will not pursue sales which are barely profitable. Our aim is very much to focus our efforts on those clients who recognise that in a “talent short market” margins need to reflect the additional effort to find such talent.
Our net cash position at the end of the year was £21.6m, a significant increase on last year at £12.3m, as we made further progress on debtor days (due to exiting large low margin business) and completion in the previous year of our significant investment in software. As at July 2023 the Group had a working capital facility of £50m, reduced from £60m in the year.
Board Changes
Last year we accelerated the changes at Board level with the appointment of Matt Wragg as CEO and Oliver Whittaker as CFO. Both have settled well into their roles and are one of the main reasons we have returned to profitability. Our four key strategic priorities were around external focus, culture, operational performance and cost rebalancing. We talked about the need to operate with pace, agility and confidence. To that extent we feel that over the last 18 months the business has embraced these four priorities and we are further ahead in those respects than we anticipated. As a result, we feel that now is the right time to reshape the Board to reflect what is required for the next five to six years. I am therefore stepping down a year early to pass the baton to Richard Bradford who will become Chair immediately after the AGM in December. Richard has been a NED at Gattaca in the past and has had no involvement since he stepped down in December 2021 nor has he previously worked directly with the Executive Directors. As such the Board have concluded that Richard should be considered as an Independent Chair.
Equally important, George Materna, who is the founder and largest shareholder will step down from the Board at the AGM. George founded the business nearly 40 years ago and has made a major contribution to the Board. During my 8-year tenure on the Board, George has been both supportive and constructive and acted in the interest of all shareholders. Having watched Matt and Oliver re-establish the culture within the business and reposition ourselves as a sales organisation, George feels this is an ideal opportunity to step down. He will be missed by many but his legacy lives on.
As the number of non-independent members of the Board will reduce, we are further streamlining the Board and Ros Haith will also step down at the AGM. Ros has demonstrated her sales management experience and made a significant contribution to Board discussions. We wish her well in her future endeavours.
Dividend and Share Buyback
The Board’s long stated objective has been to achieve a through-the-cycle dividend payout of approximately 50% of profits after tax. This year the Board is recommending a 2.5 pence per share final dividend in line with its policy and a further 2.5 pence per share special dividend, both of which will be paid in December 2023. The addition of a special dividend, alongside the two share repurchases, supports our intention to return value to shareholders through different means as we return to growth.
In April 2023 we announced our intention to make a series of share repurchases with a view to returning £0.5m to shareholders. This was completed on 9 May 2023 and resulted in 447,000 shares being purchased. In August 2023 we announced our intention to make a further series of share repurchases with a view to returning a further £0.5m to shareholders, of which £390,000 has been achieved to date.
Environmental, Social and Governance
We have had a particular focus this year on developing our approach to sustainable business and are due to publish our first external Sustainability Report with a clear ESG strategy for the years ahead. This has been led by our Head of Sustainability and the Sustainability Committee which includes three members from the Board. We are all hugely committed to doing what we believe is right for the environment and our communities and have started challenging our supply chain to encourage them to do more. We also see the green economy as a growth opportunity for us, particularly in areas such as renewable energy and mobility.
Whilst reshaping the Board as we have announced, from seven members to five, and particularly the loss of Ros we see gender Board representation drop to 20% from 29%. In small Boards such changes will occur, and we fully expect this will not be the general pattern throughout the business.
Diversity and Inclusion
Last year we appointed our first Head of Engagement, ED&I and Talent. As a Group we remain committed to becoming a more diverse organisation and as part of this, we continue to work towards our targets of achieving 40% gender balance in leadership and management roles by 2024 and 50% by 2026. We continue to promote diversity training throughout the business and have engaged externally with advisers to foster a better understanding across the business. We have also started working with our clients to help them further their understanding of how they can achieve their equality goals by embracing equity, diversity and inclusion.
Outlook
We are conscious that the focus on our four Strategic Priorities: External Focus, Culture, Operational Performance and Cost Rebalancing, has made us more resilient than we were 18 months ago, which has served us well during turbulent markets. In addition we have market-leading software which enables us to continue simplifying and streamlining our sales and administrative operations. However, our true strength going forward is our people and the Values that they live by: Trust, Professional, Ambition and Fun. We will continue to invest in their future and in turn that will reflect in our success. As we look to the next 12 months we are aware of the economic challenges that we face, alongside many other businesses who are focused on serving a diverse portfolio of clients. We believe our core focus of STEM skills in well defined markets should insulate us from any significant swings in demand.
Patrick Shanley
Non-Executive Chair
Chief Executive’s Statement
Highlights
· Delivered underlying profit before tax of £2.6m, as a result of executing our planned strategic initiatives for FY23
· Achieved targeted improvements in our people engagement score and staff retention level
· Simplified our Group brand architecture in May 2023, enabling a clearer go-to-market sales message for the future
Overview
FY23 has been a period of significant change, as we’ve implemented our strategy to rebuild the business. In the last 18 months, we’ve stabilised and simplified the business, increased our focus on our customers and candidates, and designed and deployed our culture.
We’ve achieved a lot and have much more to do. This is partly about repetition, so our new way of working becomes routine and we rebuild our corporate memory. We have invested in the development of our leadership teams and I’m excited about what this team will achieve in the years to come, as we continue to raise our standards, expectations and capacity.
Performance
We’ve made a solid start to our rebuild and while challenging markets have slowed our sales progress, our self-help actions enabled us to achieve underlying profit before tax of £2.6m.
However, Gattaca is a sales business and despite tracking the market this year after years of lagging behind, we didn’t grow our absolute NFI, which is key for long-term growth success within the Group. This was partly down to prioritising higher quality business, which saw us exit accounts with high NFI and low profitability. Another factor – and the biggest disappointment – is that we didn’t grow our contractor base, which, representing 74% of our NFI, is critical to achieving sustainable growth. That’s a key focus for us in FY24.
Strategy
In last year’s Report, we set out four strategic priorities: External Focus, Culture, Operational Performance and Cost Rebalancing. These priorities are interlinked, so progress in one area supports progress in another.
I’m pleased to say that we’ve delivered against our planned actions for FY23, and have set new actions for FY24. You can find more detail below.
External Focus
Getting our branding right is key to going to market effectively. For example, our formidable Matchtech brand became diluted over the years because we had too many other STEM brands.
In May 2023, we launched a simplified brand architecture, giving us absolute clarity about what each brand is and what it does. We can now focus on making our brands well known to our customers, candidates and potential colleagues. We’ve started this process with activities such as sharing regular market insights, so customers trust us to help them make real-time decisions. We’ll continue to build on this in the coming years.
Our external focus is also benefiting from our sales leadership bedding in. Twelve months ago, almost half of our sales leaders had new roles or responsibilities. A year on, they fully understand their remits and have complete accountability for achieving their business plans. As we increase our external focus, we’re seeing positive results in our client and candidate feedback, with an average rating of 7.7 and 8.5 (out of 10) respectively.
Culture
Culture is an obsession for us. Together, our Purpose, Vision, Mission and Values make clear where we’re going and why, and ensure everyone understands their role.
This year, we’ve brought our culture to life with the 12 principles that underpin our Values and a set of behaviours we either champion or challenge. We’ve integrated these behaviours into our leadership reward structure and our new quarterly performance reviews, which assess both achievements and behaviours. This allows us to identify and celebrate high performers and help everyone become superstars, whether through learning and development, mentorship or a role that better suits their talents.
To help people feel truly connected to Gattaca, we’ve massively increased communication, including; weekly performance updates on our office screens and our intranet, increased in-person Town Hall and open Q&A sessions in all locations, plus a weekly video from the Senior Leadership Team. The latter typically explains what we’ve done well, what we’re going to do and examples of good performance from around the business. We’re also very vocal about holding ourselves accountable and acknowledging when we need to improve.
We’re seeing our efforts reflected in lower attrition, which has reduced to 33% (FY22: 40%) and in our engagement score, which has increased to 8.1 (FY22: 7.6). We’ve also welcomed back alumni who’ve seen our positive cultural shift and want to be part of it.
Operational Performance
We want operational performance to be a fundamental cornerstone to our culture. Better data gives us improved visibility of Group and individual results and our improved communications and performance reviews mean we’ve put performance front and centre.
We’re now reaping the benefits of our technology stack investments, which beyond giving consistent data, also allows us to plug in new technology to make iterative but important changes and efficiency enhancements. These improve the experience for our clients, candidates and colleagues, while simplifying how we work, increasing automation and reducing manual processes. Our new business improvement function is also working well, helping us implement change quickly and successfully.
Major efficiency initiatives this year include almost halving the number of contractor payroll runs each week through consolidation and completing a corporate restructure of our legal entities to enable us to start the project of moving from multiple billing arrangements to one for all clients. Looking ahead, we’ll continue to digitalise where possible, leveraging our existing technology to further reduce manual processes and overheads.
Cost Rebalancing
Cost rebalancing supports our profitability goals and frees up funds for reinvestment. Operational improvements have a key role, with the single pay and future single bill arrangements, simpler legal processes and increased automation all enabling better cost control and reduced third-party spend. We’ve also right-sized our offices, so they’re fit for purpose in our flexible working environment, at a lower cost.
The new performance management reviews are also making everybody accountable for their own performance and progression. Previously, it was taking significant investment and time before we knew if a new recruit was working out. Now we have a clear picture within three or four months, meaning we can identify those unsuited to recruitment earlier and we can invest in colleagues with potential.
We know there’s always more to do, so we’ll continue to review every area of spend and reinvest where needed, particularly in sales capability in sectors with significant long-term growth opportunities and good quality business.
Environmental, Social and Governance
Sustainability is part of our business from top to bottom and helps to bring our Purpose to life. At a personal level, doing the right thing by society and our colleagues is very important to me and I want Gattaca to be a company I’d be proud for my daughter to join in the future.
We’ve further matured our ESG approach this year, investing in a Head of Sustainability role and creating a Sustainability Committee, which reports to the Board. The Committee is led by our CFO and includes the Board’s Sustainability Sponsor, Ros Haith. We are expecting to publish our first external Sustainability Report shortly and have set out a clear ESG strategy for the years ahead.
As a service business, we strive to do everything we should to control our carbon emissions. The next phase will be to work with our supply chain to encourage them do more. The green economy is also a growth opportunity for us, meaning we can help protect the environment by investing in our sales headcount in areas such as renewable energy and sustainability.
Social mobility, diversity and inclusion are vitally important to ensuring the sustainability of the STEM skills market. We’ve made huge strides internally, with our first Head of Engagement, ED&I and Talent appointed at the end of FY22. Externally, we’ve created exciting partnerships with our chosen charities, to help make STEM opportunities accessible to anyone, and continue to look for relevant and impactful partnerships.
Gattaca is a well-run business, with great governance processes and a technology stack that gives us excellent visibility of our daily operations and performance. This helps us to stand out in a market with many smaller players. To be the STEM talent partner of choice, we have to be trusted by our stakeholders, and our strong governance underpins that trust.
Board Changes
With the business stabilised and vision clear, the Board changes come at the right time for my team and the wider Group.
I am sure succeeding into a CEO role is never simple, however Patrick has made this smooth, given us great support and counsel, allowing Oliver and I to find our feet and enabled the business to make solid progress. He has also navigated the Group through some hugely volatile market conditions and times over the years and we thank him for this guidance and stability throughout this.
The business had been too internally focused for a few years and Ros’ appointment to the Board two years ago has helped to change that direction. Her challenge and support have helped us to bring back a sales culture. We thank her for her contribution and wish her well for the future.
It is obviously a significant moment for the Group with George stepping down. His role over the years has helped to make sure we have maintained a great culture at our very core. Over the past 18 months we’ve really managed to bring that back to life and I am pleased he now feels comfortable to step away from formal involvement. The business he founded has helped hundreds of thousands of clients and candidates, created amazing careers for everyone in the Group and some great alumni, we all have a lot to thank him for and we all wish him the very best.
Richard brings a solid understanding of the business, the staffing sector and the STEM markets we serve. As a former NED, he is someone who the business held in the highest regard, and I look forward to working closely with him when he becomes Chair.
Outlook
Macroeconomic headwinds mean the market remains challenging and the timing of any economic recovery is uncertain. At the same time, we are focused on the quality of the work we take on and growing sustainably.
In the meantime, we will continue to focus on our Strategic Priorities, so we are well placed to take advantage when the recovery arrives. This includes developing our contract business, which takes longer to be reflected in NFI but will deliver recurring revenues. We will also continue to invest in our people, in the knowledge that we are still a few years away from bringing through sales leaders who joined us under our new culture.
In summary, I’m confident about the future and that we are doing the right things to get the best results.
Matt Wragg
Chief Executive Officer
Chief Financial Officer’s Report
Highlights
· Continuing underlying profit before tax of £2.6m in FY23 (2022 restated: £0.3m)
· Net cash of £21.6m (2022: £12.3m)
· Ordinary dividend reintroduced of 2.5 pence per share and special dividend of 2.5 pence per share proposed
· Share buyback of £0.5m completed in the year
· Rationalisation of our UK property portfolio, from 5 offices down to 3
Financial Performance
On a continuing basis, revenue of £385.2m (2022 restated: £403.9m) generated NFI of £43.4m (2022 restated: £44.2m). We achieved contract and Statement of Work (SoW) and other NFI of £32.0m (2022 restated: £31.3m) at a margin of 8.5% (2022 restated: 8.0%), and permanent recruitment fees of £11.4m (2022 restated: £12.9m). SoW NFI, included within contract NFI, of £2.1m (2022: £1.3m) is all delivered though contract labour provision on long term projects. Contract NFI was up 2% against FY22 driven by the Group’s continued its focus on quality of earnings and margin, which saw the us exiting some low margin contracts. The greatest impact of the market conditions on NFI was seen in permanent recruitment, which was down 11% on the prior year, driven by industry-wide client and candidate challenges.
Underlying profit before tax from continuing operations was £2.6m (2022 restated: £0.3m). Statutory profit after tax for the total Group was £1.2m (2022 restated: loss after tax of £(4.6)m). Within underlying trading, net credits of £0.5m (2022: nil) were recorded as a result of releasing aged unclaimed contractor liabilities and customer overpayments in line with our accounting policies.
Net cash at 31 July 2023 was £21.6m (31 July 2022: £12.3m), an increase of £9.2m in net cash year-on-year. The optimisation of the Group’s working capital is a key focus and through the year the Group benefited from a significant improvement in DSO through improved collection performance and renegotiated trading terms.
Discontinued operations and non-underlying costs
The below table reconciles continuing underlying profit before tax to reported statutory profit before tax for the total Group:
| £’000 | Profit before tax |
| Continuing underlying profit before tax | 2,568 |
| Restructuring costs in continuing business | (249) |
| Net gains associated with exited properties | 614 |
| Other continuing non-underlying costs | (190) |
| Operating loss related to discontinued operations: Restructuring and closure costs | (186) |
| Amortisation of acquired intangibles | (68) |
| Net foreign exchange losses | (253) |
| Profit before tax for the total Group | 2,236 |
Non-underlying restructuring costs in the year in continuing business were primarily related to employee rationalisation programmes in our North America, South Africa and European locations. We also enacted exit proceedings over the legacy UK headquarter office of the RSL Rail division; the right of use asset had been fully impaired in FY22, so the associated £0.7m gain realised on release of the lease liability has also been presented as non-underlying in FY23.
All costs associated with discontinued operations are presented as non-underlying, as these solely relate to ongoing closure costs of those operations treated as discontinued in prior periods, primarily Mexico, Malaysia, Singapore, Qatar and Russia. We will continue to incur costs associated with discontinuing legacy operations as the legal wind down of those operations is concluded.
During the year, amortisation of acquired intangible assets was £0.1m.
We continue to co-operate with the US Department of Justice and there have been no significant new matters in this regard during the year. Legal fees on this matter were £2,000 in the year (2022: £33,000). As shown in Note 27 to the financial statements, the Group is not currently in a position to know what the outcome of these enquiries may be and we are therefore unable to quantify the potential financial impact, if any.
Taxation
The Group’s reported effective tax rate was 45.0% (2022 restated: 9.0%), driven by overseas losses not recognised as deferred tax assets, and non-deductible expenses arising from the corporate restructuring and streamlining of the Group. Further detail is set out in Note 9 of the consolidated financial statements. The continuing underlying effective tax rate was 42.7% (2022 restated: 51.4%).
Earnings per share
Basic earnings per share was 3.8 pence (2022 restated: (14.3) pence loss per share), and on a fully diluted basis was 3.8 pence (2022 restated: (14.3) pence diluted loss per share). Continuing underlying basic earnings per share was 4.6 pence (2022 restated: 0.5 pence).
Dividends
Our long-standing objective has been to achieve a through-the-cycle dividend payout of approximately 50% of profits after tax. The Board has proposed a final ordinary dividend of 2.5 pence per share (2022: nil pence), accompanied by a one-off special dividend of 2.5 pence per share, both of which will be paid in December 2023.
Given the Group’s sustained high liquidity and acknowledging the reduced shareholder returns in previous years, the Board are now keen to return value to shareholders through various channels, such as special dividends and the two share buybacks undertaken this year.
Capital expenditure
The Group incurred capital expenditure in the period of £0.2m (2022: £0.4m), on leasehold improvements and replacement of office furniture and fittings.
Net assets and shares in issue at 31 July 2023
The Group had net assets of £30.8m (2022 restated: £30.5m) and had 31.9m (2022: 32.3m) fully paid ordinary shares in issue.
In April 2023 the Group announced the launch of a £0.5m share buyback programme. This share buyback concluded in May 2023 with a total of 447,000 shares bought back, and subsequently cancelled, returning £0.5m of surplus cash to shareholders. With this achieved, on 21 August 2023 the Board announced a further share buyback with a view to returning a further £0.5m to shareholders, of which £0.4m has been completed to date.
Group net cash at 31 July 2023 was £21.6m (31 July 2022: £12.3m), an increase of £9.2m year-on-year.
We saw a strong performance in the Group’s days sales outstanding (DSO) at 31 July 2023 of 46.6 days, being a reduction of 8.0 days since 31 July 2022 (restated 54.6 days). This was driven by further improvements in cash collection and an improved payment terms mix, including the loss of certain clients with longer payment terms, which resulted in a £8.0m reduction in trade receivables and accrued income balances to £47.2m (31 July 2022 restated: £55.2m).
Net bank interest received/(paid) was £0.3m (2022: £(0.1)m) as a result of the positive net cash balance maintained throughout the year.
As at 31 July 2023, the Group had an invoice financing working capital facility of £50m, covering both recourse and non-recourse. Under the terms of the non-recourse facility, the trade receivables are assigned to, and owned by, HSBC and so have been derecognised from the Group’s statement of financial position. In addition, the non-recourse working capital facility does not meet the definition of loans and borrowings under IFRS. At 31 July 2023, utilisation of the recourse facility was nil and utilisation of the non-recourse facility was £3.8m, with unutilised facility headroom after restrictions of £27.6m.
Critical accounting policies
The statement of significant accounting policies is set out in Note 1 to the financial statements.
Whilst reviewing the Group’s revenue cut-off during the FY23 year-end, management identified a revenue cut-off error affecting the prior financial year. Identification of this led us to reassess our accounting policy on how accrued revenue and accrued cost balances are determined at each period end. The Group’s upgraded ERP system, implemented during FY21, and development of our knowledge about how to use our data most effectively, has led management to conclude that it would have been appropriate to have extended the cut-off assessment period of the Group’s revenue and contractor cost cut-off positions, to include a greater period of approved timesheets received late.
Changes have been applied retrospectively, as required by the accounting standards. Prior period financial information throughout the Annual Report and Accounts 2023 has been restated where applicable. Full details are provided in Note 1.24 to the consolidated Financial Statements.
Group financial risk management
The Board reviews and agrees policies for managing financial risks. The Group’s finance function is responsible for managing investment and funding requirements including banking and cash flow monitoring. It seeks to ensure that adequate liquidity exists at all times, to meet its cash requirements. The Group’s financial instruments comprise borrowings, cash and various items, such as trade receivables and trade payables that arise from its operations. The Group does not trade in financial instruments. The main risks arising from the Group’s financial instruments are described below.
Credit risk
The Group seeks to trade only with recognised, creditworthy third parties. We monitor receivable and unbilled balances on an ongoing basis and in 2023 have continued to take a conservative approach to receivables and unbilled risk in light of the challenges in the UK and overseas economies, tempered by an overall reduction in trade receivables and accrued income balances, resulting in a decrease to our loss allowance by £(0.6)m to £2.1m.
There are no significant concentrations of credit risk within the Group, with no single debtor accounting for more than 8% (2022: 8%) of total receivables balances at 31 July 2023.
Foreign currency risk
The Group generates 5% of its annualised NFI from continuing business in international markets. The Group does face risks to both its reported performance and cash position arising from the effects of exchange rate fluctuations. The Group manages these risks by matching sales and direct costs in the same currency and where appropriate entering into forward exchange contracts to effect the same where sales and costs are not in the same currency.
Oliver Whittaker
Chief Financial Officer, Gattaca plc
