Statement of Directors Responsibilities In Respect of the Strategic Report, the Directors Report and the Financial Statements

Transcription

1 Financial Section

2 Financial Section Statement of Directors Responsibilities In Respect of the Strategic Report, the Directors Report and the Financial Statements The directors are responsible for preparing the Strategic Report, the Directors Report and the group and parent company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they have elected to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

3 Independent Auditor s Statement to the Members of Northgate Information Solutions Limited We have examined the summary financial statement for the year ended 30 April 2014 which comprises the Summary consolidated income statement, Summary statement of financial position, Summary consolidated statement of changes in equity, Statement of recognised income and expense, Summary consolidated cash flow statement and related notes set out on pages 4 to 22. This statement is made solely to the company s members, as a body, in accordance with section 427 of the Companies Act Our work has been undertaken so that we might state to the company s members those matters we are required to state to them in such a statement 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 work, for this statement, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors are responsible for preparing the summarised annual report in accordance with applicable United Kingdom law. Our responsibility is to report to you our opinion on the consistency of the summary financial statement within the summarised annual report with the full annual financial statements, the Directors Report and its compliance with the relevant requirements of section 427 of the Companies Act 2006 and the regulations made thereunder. We also read the other information contained in the summarised annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the summary financial statement. Basis of opinion We conducted our work in accordance with Bulletin 2008/3 The auditor s statement on the summary financial statement in the United Kingdom issued by the Auditing Practices Board. Our report on the group s full annual financial statements describes the basis of our audit opinions on those financial statements and the Directors Report. Opinion In our opinion the summary financial statement is consistent with the full annual financial statements and the Directors Report of Northgate Information Solutions Limited for the year ended 30 April 2014 and complies with the applicable requirements of section 427 of the Companies Act 2006 and the regulations made thereunder. We have not considered the effects of any events between the date on which we signed our report on the full annual financial statements 28 August 2014 and the date of this statement. Paul Gresham (Senior Statutory Auditor) For and on behalf of KPMG LLP (Statutory Auditor) Chartered Accountants 15 Canada Square London E14 5GL 28 August 2014

4 Group income statement for the year ended 30 April 2014 Notes Continuing Continuing Discontinued Total Operations Operations Operations (note 1) Revenue Operating costs 2 (680.0) (699.1) (141.3) (840.4) Group operating loss (13.9) (7.2) (31.2) (38.4) Operating profit before significant restructuring, one-off items, property provisions, amortisation of intangibles, depreciation and impairment of fixed assets Amortisation of other intangible fixed assets (25.0) (15.5) (0.4) (15.9) Depreciation of tangible fixed assets (12.6) (17.4) (5.2) (22.6) Operating profit before significant restructuring, one-off items, property provisions, amortisation of acquired intangibles and impairment of fixed assets Significant restructuring, one-off items and property provisions 2 (49.9) (53.6) (1.8) (55.4) Impairment of intangible fixed assets - (7.3) - (7.3) Impairment of tangible fixed assets - (1.2) - (1.2) Loss on disposal of managed services business (37.5) (37.5) Amortisation of acquired intangibles (49.8) (52.6) (0.3) (52.9) Group operating loss (13.9) (7.2) (31.2) (38.4) Financial income Financial expenses (92.0) (86.8) (1.4) (88.2) Net financing costs (85.7) (81.4) (1.4) (82.8) Loss before tax (99.6) (88.6) (32.6) (121.2) Tax income/(expense) (7.3) 1.8 Loss for the year from continuing/ discontinuing operations (95.6) (79.5) (39.9) (119.4) Loss for the year from discontinued operations - (39.9) Attributable to: Equity holders of the parent (95.6) (119.4) The notes on pages 9 to 22 are an integral part of these consolidated financial statements. 4

5 Group statement of comprehensive income for the year ended 30 April 2014 Year ended Year ended 30 April April 2013 Notes Loss for the year (95.6) (119.4) Items that will never be reclassified to profit or loss Remeasurements of defined benefit pension schemes (20.7) Deferred tax on remeasurements of defined benefit pension schemes (2.0) (16.0) Items that are or may be reclassified to profit or loss Foreign exchange translation differences (1.3) 11.6 (1.3) 11.6 Total recognised income and expense for the year (94.6) (123.8) Attributable to: Equity holders of the parent (94.6) (123.8) The notes on pages 9 to 22 are an integral part of these consolidated financial statements. 5

6 Group statement of financial position as at 30 April 2014 Notes Non-current assets Goodwill Acquired and other intangible assets Total intangible assets 1, ,100.5 Property, plant and equipment Other receivables Total non-current assets 1, ,146.4 Current assets Inventories goods for resale Trade and other receivables Cash and cash equivalents Total current assets Total assets 1, ,444.9 Non-current liabilities Interest-bearing loans and borrowings Employee benefits Provisions Deferred tax liabilities Other financial liabilities 9(f) Total non-current liabilities ,007.7 Current liabilities Interest-bearing loans and borrowings Provisions Taxation Trade and other payables Other financial liabilities 9(f) Total current liabilities Total liabilities 1, ,379.3 Net assets Issued share capital Share premium account Capital contribution Retained earnings (580.2) (485.6) Shareholders funds The notes on pages 9 to 22 are an integral part of these consolidated financial statements. Approved by the Board of Directors on 28 August 2014 and signed on its behalf by: John R Stier Group Finance Director 28 August

7 Group statement of changes in equity as at 30 April 2014 Equity Share Share Capital Retained shareholders capital premium contribution earnings funds m Balance at 30 April (361.8) Loss for the period (119.4) (119.4) Other comprehensive income for the year: Remeasurements of defined benefit pension schemes (20.7) (20.7) Deferred tax on remeasurements of defined benefit pension schemes Foreign exchange translation differences Balance at 30 April (485.6) 65.6 Loss for the period (95.6) (95.6) Capital contribution Other comprehensive income for the year: Remeasurements of defined benefit pension schemes Deferred tax on remeasurements of defined benefit pension schemes (2.0) (2.0) Foreign exchange translation differences (1.3) (1.3) Balance at 30 April (580.2) 25.8 The notes on pages 9 to 22 are an integral part of these consolidated financial statements. 7

8 Group statement of cash flows for the year ended 30 April 2014 Year ended Year ended 30 April April 2013 Notes Cash flows from operating activities Loss for the period (94.0) (119.4) Adjustments for: Amortisation of acquired intangibles Amortisation of other intangibles Impairment of other intangibles Depreciation Impairment of property, plant and equipment Loss on disposal of business Net financing costs Tax credit (5.6) (1.8) Net cash from operating activities before changes in working capital and provisions Foreign exchange movements (10.6) 5.2 Change in trade and other receivables Change in inventories (0.3) 0.5 Change in trade and other payables (13.1) (11.7) Change in provisions and employee benefits 5.3 (14.0) Additional pension deficit contributions (6.6) (6.5) Net cash from operating activities before taxes paid Cash flows from investing activities Proceeds for sale of managed services business Acquisition of intangible assets (28.3) (24.9) Acquisition of property, plant and equipment (14.6) (30.2) Net cash used in investing activities (42.9) (32.0) Net cash from operations after investing activities Taxes paid (2.1) (3.7) Net cash from operations after investing activities and before financing activities Cash flows from financing activities Interest received Interest paid (45.8) (48.5) Cash flows treated as finance costs loan arrangement fees (9.6) (0.5) Capital contribution Movement in borrowings (28.4) 69.0 Repayment of borrowings (5.3) (20.0) Increase in finance lease liabilities Payment of finance lease liabilities (19.6) (20.9) Net cash from financing activities (36.5) 20.5 Cash and cash equivalents at 1 May Net (decrease)/increase in cash and cash equivalents excluding effect of foreign exchange rate movements on cash held (25.4) 58.6 Effect of foreign exchange rate movements on cash held (0.3) 0.3 Net (decrease)/increase in cash and cash equivalents (25.7) 58.9 Cash and cash equivalents at 30 April The notes on pages 9 to 22 are an integral part of these consolidated financial statements. 8

9 Notes to the consolidated accounts for the year ended 30 April ACQUISITION AND DISPOSAL OF SUBSIDIARIES Year ended 30 April 2014 There were no significant disposals or acquisitions during the year. Movements in goodwill which are not related to acquisitions through business combinations comprise change in the value of the net investment hedge and revaluation of foreign denominated goodwill. Year ended 30 April 2013 Disposal of Northgate Managed Services Limited Discontinued Operations On 13 February 2013, the Group disposed of its investment in Northgate Managed Services Limited for a cash consideration of 23.1m and a loss on disposal of 37.5m. Enterprise value m Consideration 23.1 Finance lease liabilities 24.0 Defined benefit pension liabilities estimated actuarial valuation 23.0 Total enterprise value* 70.1 *Enterprise value is defined as the underlying value of the MS division s trade before adjustments for the pension scheme and finance lease liabilities. Based on an annual EBIT of 7.0m the sale generated a multiple of 10 times EBIT. Goodwill of 62.5m and acquired intangibles of 1.6m were disposed of on the sale. As part of the disposal, hire purchase liabilities of 24.0m and defined benefit pension scheme liabilities (estimated actuarial valuation) of 23.0m were also disposed of. Loss on disposal m Consideration 23.1 Fees (0.8) Disposal of goodwill (62.5) Disposal of acquired intangibles (1.6) Disposal of net assets 4.3 Loss on disposal (37.5) The loss for the year from discontinuing operations is shown on the Group Income Statement on page 4. 9

10 2. OPERATING COSTS Year ended Year ended 30 April April 2013 Change in inventories of goods for resale, excluding impact of disposals (0.3) 0.5 Purchase of goods for resale, raw materials and consumables Other external operating charges Staff costs - wages and salaries social security costs other pension costs defined contribution other pension costs defined benefit current year service cost Depreciation of owned assets Depreciation of assets held under finance leases Impairment of tangible fixed assets Amortisation of development costs and purchased software Impairment of intangible fixed assets Amortisation of acquired intangibles Loss on sale of managed services business (note 1) Severance and restructuring Business integration, development and business transformation Contract termination costs Property provisions Non recurring efficiency and productivity projects and other Significant restructuring and property provisions Total operating costs These one off costs principally relate to the business s on-going cost reduction programme, including offshoring of operational and back office functions and the impact of product strategy review and include: 15.8m of severance costs in Group restructuring programmes; 7.1m of project resource costs. These are made up of business integration costs, restructuring programme resources, costs of moving contract fulfilment locations, migration from legacy systems and one off productivity improvement plans; 3.6m of contract termination and internal contract closure costs; 13.4m of property exceptional costs made up of vacant space provisions and dilapidation costs; 10.0m of other costs include non recurring professional fees, pension liability management and non recurring efficiency and productivity projects and fees related to the sale of the managed services business. 3. DIRECTORS EMOLUMENTS Year ended Year ended 30 April April 2013 Directors emoluments Company contributions to money purchase pension plans The aggregate emoluments of the highest paid director were 879,000 (2013: 1,768,000) including 45,000 (2013: 45,000) paid into a money purchase pension plan. At 30 April 2014 and at 30 April 2013, one director had benefits accruing under a defined benefit pension scheme and one director had benefits accruing under a money purchase pension plan. 10

11 4. STAFF NUMBERS The average number of persons employed by the Group, including Executive Directors, during the year was as follows: Year ended Year ended 30 April April 2013 Number Number Sales Business Transformation Operations 5,946 5,713 Product Support 1,540 1,334 HR Consulting 612 1,351 Support Functions 1, ,771 10, INTEREST-BEARING LOANS AND BORROWINGS Non-current liabilities Secured bank loans Finance lease liabilities Current liabilities Secured bank loans Finance lease liabilities The Group s net bank loans are secured by a cross guarantee and a fixed and floating charge over the assets of the Company and its material subsidiaries. Interest on the loans is paid as cash interest plus a payment in kind (PIK) Margin. The cash interest rate applicable to the Sterling denominated bank loans is LIBOR plus a margin which varies between 1.75% and 4.5%, depending on the tranche and the business ratio of debt to EBITDA. The cash interest rate applicable to the Euro denominated bank loans is EURIBOR plus a margin which varies between 1.75% and 4.5%, depending on the tranche and the business ratio of debt to EBITDA. The PIK Margin, depending on the tranche, varies between 0.5% and 10.5%. All bank loans at the period end are due in Sterling, Euros or Australian dollars. Details of the repayment profile are shown in note 9(d). The Group s loan notes are secured by a bank guarantee. Group bank loans are stated net of unamortised issue costs of 14.7m (2013: 10.2m). Issue costs, together with the interest expenses, are allocated to the income statement at a constant rate on the carrying amount. Group bank loans are subject to the following covenant restrictions: Ratio of consolidated net borrowings to consolidated EBITDA Ratio of cash flow to consolidated debt service (interest plus mandated repayments) Ratio of consolidated EBITA to consolidated net interest Value of Capital Expenditure in each Financial Year All covenants are based on International Financial Reporting Standards ( IFRS ). Failure to meet the covenant restrictions results in all amounts outstanding, becoming immediately due and payable. There have been no breaches in covenants in the year or since the inception of the loans. 11

12 5. INTEREST-BEARING LOANS AND BORROWINGS (continued) Finance lease liabilities Finance lease liabilities are payable: Minimum Minimum lease lease payments Interest Principal payments Interest Principal Less than one year Between one and five years Under the terms of the lease arrangements, no contingent rents are payable EMPLOYEE BENEFITS IAS 19, Employee benefits was revised in June The revised employee benefit standard introduces changes to the recognition, measurement, presentation and disclosure of post-employment benefits. The standard also requires net interest expense / income to be calculated as the product of the net defined benefit liability / asset and the discount rate as determined at the beginning of the year. The effect of this is to remove the previous concept of recognising an expected return on plan assets. The changes to the group s accounting policies has been as follows: to immediately recognise all past service costs; and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). Expenses such as record-keeping costs or actuarial valuation fees are recognised in profit or loss when the services are received Total employee benefit liabilities net defined benefit liability For details on the related employee benefit expenses see note 2. The Group contributes to the following post-employment defined benefit plans: The Northgate Public Services Pension Scheme and the Northgate HR Pension Scheme ( the Northgate Schemes ) and the Rebus Group Pension Scheme ( the Rebus Scheme ). The schemes are closed to new employees, who are instead eligible to join another defined contribution scheme. Benefits are related to salary close to retirement or leaving service (if earlier) and also to years of pensionable service. Assets are held in separate, trustee administered funds. Employer contributions to the schemes are determined on the basis of regular valuations undertaken by independent, qualified actuaries. As the schemes are closed to new entrants for pension accrual, under the method used to calculate pension costs in accordance with IAS19, the cost as a percentage of covered pensionable payroll will tend to increase as the average age of the membership increases. These defined benefit plans expose the Group to actuarial risks, such as longevity risk, currency risk, interest rate risk and market (investment) risk. During the prior year the group sold Northgate Managed Services Limited and the group ceased to operate the Northgate Managed Services Pension Scheme at that time, resulting in a curtailment gain. 12

13 6. EMPLOYEE BENEFITS (continued) Funding All three plans are funded by the Group s subsidiaries. Over the next year, the Group will pay estimated contributions of 6.9m (2013: 6.7m) to the defined benefit schemes. The funding requirements are based on the pension fund s actuarial measurement framework set out in the funding policies of the plan. This includes the additional contributions aimed at removing the deficit of the Schemes. Contributions to the defined contribution schemes are in addition to the contributions to the UK defined benefit schemes. Movements in the net defined benefit liability The following table shows a reconciliation from the opening balances to the closing balances for the net defined benefit and its components. Defined benefit Fair value of Impact of Net defined obligation plan assets asset ceiling benefit liability Restated Restated Restated Balance at 1 May before impact of asset ceiling (239.8) (302.8) Impact of asset ceiling Balance at 1 May (239.8) (302.8) Included in income statement Current service cost Past service cost and gains on curtailment (0.2) (108.7) (0.2) (11.5) Interest cost (10.6) (14.5) (90.0) (10.6) (7.3) Included in statement of comprehensive income Remeasurement loss (gain): Actuarial loss (gain) arising from: Financial assumptions (6.7) (6.0) 41.7 Experience Adjustment (1.4) (1.4) - Return on plan assets excluding interest income (16.6) (16.6) Impact of asset ceiling (4.4) - (4.4) (8.1) (15.9) - (4.4) (4.3) 20.7 Other Contributions paid by the employer - - (8.0) (10.5) - - (8.0) (10.5) Benefits paid (6.5) (6.7) (6.5) (6.7) (1.5) (3.8) - - (8.0) (10.5) At 30 April (248.1) (239.8)

14 6. EMPLOYEE BENEFITS (continued) Fair value of plan assets The plan assets are all in investment funds which do not have quoted prices, although the majority of assets held within those funds will have quoted prices. The assets with the funds are split as follows: Equities Bonds LDI Funds Multi-asset credit Property Emerging market multi asset Secured loans Diversified growth funds Cash At 30 April The expected rate of return on pension plan assets is determined as the Company s best estimate of the long term return of the major asset classes - equities, bonds, LDI, and diversified growth funds - weighted by the current strategic allocation at the measurement date less expenses. Defined benefit obligation Actuarial assumptions The principal actuarial assumptions at the balance sheet date were: % % Discount rate 4.5% 4.4% Future salary increases 1.0% 1.0% Retail price inflation 3.3% 3.3%-3.4% Consumer price inflation (CPI) 2.2% 2.2%-2.3% Future pension increases (2.5% LPI) 1.8%-2.2% 1.9%-2.2% Future pension increases (5.0% LPI) 2.2%-3.2% 2.3%-3.2% The weighted average durations of the expected benefit payments is between years across the schemes. The current longevities underlying the values in the defined benefit obligation at the reporting date were as follows: Years Years Longevity at age 65 for current pensioners Males Females Longevity at age 65 for current members aged 45 Males Females

15 6. EMPLOYEE BENEFITS (continued) Defined benefit obligation Sensitivity Analysis Reasonable possible changes at the reporting date to one of the relevant actuarial assumptions, holding the other assumptions constant, would have affected the defined benefit obligation by the amounts shown below: 30 April Increase Decrease Discount rate (0.1% movement) (5.4) 5.5 Future pension growth (0.1% movement) 1.6 (1.6) Inflation and related future pension growth (0.1% movement) 2.5 (2.4) CPI (deferred revaluation increases) 1.1 (1.1) Life expectancy (1 year movement) 7.7 (7.7) Although the analysis does not take account of the full distribution of cash flows expected under the plans, it does provide an approximation of the sensitivity of the assumptions shown. Defined contribution arrangements The Group also operates various defined contribution arrangements for its UK and overseas employees. The contributions paid to defined contribution schemes amounted to 9.8m (2013: 8.0m). The amount recognised as an expense was 9.8m (2013: 7.8m). The amount paid into pension schemes for overseas employees was 4.3m (2013: 5.3m). Amounts payable in respect of defined contribution arrangements at 30 April 2014 were 0.4m (2013: 0.1m). 7. PROVISIONS Property Restructuring Total provisions and other provisions m At 1 May Foreign exchange differences - (0.2) (0.2) Recognised in the income statement Utilised in the period (4.2) (4.5) (8.7) At 30 April Current Non-current At 30 April Current Non-current At 30 April

16 7. PROVISIONS (continued) Property provisions The provision relates to Group properties that have either been sublet or are vacant. It consists of the discounted value of the differential between future liabilities on the property less any expected future sublet receipts extrapolated to the earliest break point in the contract. In addition there is a dilapidations provision to make the property good at the end of the lease. This is made for all leased properties expiring within the next three years. Restructuring and other provisions The Group has provided in full for the anticipated costs of restructuring certain divisions and is management s best estimate of this cost. The provisions are expected to be used within the next 1 to 2 years. 8. NET DEBT Net debt includes cash and cash equivalents, secured bank loans and loan notes and finance lease liabilities Notes Cash and cash equivalents Secured bank loans and loan notes current 5 (15.4) (16.9) non-current 5 (867.0) (894.7) Finance lease liabilities current 5 (9.7) (11.7) non-current 5 (12.8) (16.8) Other financial liabilities current 9(f) (6.2) (4.0) non-current 9(f) (4.8) (4.3) (847.9) (854.7) Set out below is a reconciliation in cash and cash equivalents to the increase in net borrowings at 30 April Net decrease/(increase) in cash and cash equivalents 25.4 (58.6) Effect of foreign exchange rate movements on cash held 0.3 (0.3) Cash and cash equivalents net inflow from increase in debt and debt financing (36.9) 43.8 Movement in net borrowings resulting from cash flows (11.2) (15.1) Amortisation of loan arrangement fees Capitalised finance costs (9.6) (0.5) Non cash mezzanine bank loan interest added to loan Currency translation differences (11.2) 11.0 Movement in net debt in the year (6.8) 10.4 Net debt at 1 May Net debt at 30 April

17 9. FINANCIAL INSTRUMENTS The Group s financial assets and liabilities mainly comprise bank borrowings, cash, liquid resources and various items, such as trade and other receivables and trade and other payables that arise directly from operations. The main financial market risks arising from the Group s operations are credit risk, interest rate risk, foreign exchange risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. The main purpose of the financial instruments is to provide a hedge against the interest rate risk for the Group s financial liabilities. (a) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group s trade and other receivables from customers. Management has a credit policy in place and the exposure to credit risk is monitored on an on-going basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The Group does not require collateral in respect of financial assets. At the balance sheet date, there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet, principally trade and other receivables. The Group provides credit to customers in the normal course of business and the amount that appears in the balance sheet is net of a provision for impairment of 1.9m (2013: 2.8m). The provision for impairment is calculated in accordance with the Group s policy based on the age of the financial asset at each period end and specific doubtful debts. Past history suggests that no provision for impairment is required for trade and other receivables not past due. The ageing of trade receivables at the year-end was: Gross Gross Restated Not past due Past due 0-30 days Past due days Past due days Past due 90 days and above In addition to the above at 30 April 2014 there were also other receivables (long term debtors) of 5.7m (2013: 9.0m). An allowance for impairment of 1.9m (30 April 2013: 2.8m) has been added back to debtors past due 90 days and above in arriving at these figures. The movement in the allowance for impairment in respect of trade and other receivables during the period was as follows: At 1 May Additional bad debt provision Utilised in the period (1.4) (0.5)

18 9. FINANCIAL INSTRUMENTS (continued) (b) Interest rate risk Interest rate risk is the risk of increased net financing costs due to increases in market interest rates. The Group finances its operations and acquisitions through a mixture of retained profits, bank borrowings and equity; the Group s main interest rate risk therefore comes from its bank borrowings, which the Group borrows principally in Sterling and Euros. The Group policy is to undertake interest rate hedging to protect itself against adverse movements in interest rates (see note 9(g)). Any surplus cash is invested in short-term bank deposits at the prevailing rates of interest in order to achieve the market rate of return. At 30 April 2014, the Group had interest rate hedges in place to reduce its exposure to changes in interest rates. Hedging contracts are in place fixing approximately two thirds of the Group s interest rate exposure for the next 3 financial years. The need for further interest rate hedges is reviewed by the Board of Directors annually. This is set out in detail in note 9(g). At the period end the interest rate profile of the Group s interest-bearing financial instruments was: Variable rate instruments Secured bank loans As noted above, interest rate hedges are in place to manage the risk from changing interest rates affecting the cost of these bank loans. Fixed rate instruments Finance lease liabilities (c) Foreign exchange risk The Group operates internationally and is exposed to foreign currency risk on transactions denominated in a currency other than the functional currency and on the translation of the balance sheet and income statement of foreign operations into sterling. The currencies giving rise to this risk are primarily US dollars and Euros. The Group has both cash inflows and outflows in these currencies that create a natural hedge. In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Group s cash inflows and outflows in a foreign currency. The Group also hedges any material foreign currency transaction exposure. The Group has treated 360m of the long term funding of a subsidiary as a net investment hedge. At 30 April 2013 exchange rates the long term funding was 295.3m (2013: 304.4m) and the net investment shown in goodwill was 295.3m (2013: 304.4m). Over the longer term permanent changes in foreign exchange could have an impact on consolidation of foreign subsidiaries earnings. It is estimated that a general increase of one percentage point in the value of sterling against other currencies would have reduced the Group s loss before tax by approximately 0.3m (2012: (reduced) 0.2m). 18

19 9. FINANCIAL INSTRUMENTS (continued) (d) Liquidity Risk Liquidity risk is the risk that the Group will not be able to meet its financial commitments as they fall due. The Group s objective is to ensure that adequate facilities are available through use of bank loans and finance leases. The Group manages liquidity risk through regular cash flow forecasting and monitoring of cash flows, management review and regular review of working capital and costs. The Group regularly monitors its available headroom under its borrowing facilities. At 30 April 2014, 99.0m (2013: 101.6m) of undrawn facilities were available (see note 9(e)). In respect of the Group s financial liabilities including estimated interest where applicable, the table below includes details (at the balance sheet date) of the periods in which they mature. Future cash Less than Book value flows 1 year 1-2 years 2-3 years 3-4 years 4-5 years 30 April 2014 Notes m Secured bank loans 5 (882.4) (1,125.0) (67.3) (69.9) (53.2) (588.9) (345.7) Finance lease liabilities * 5 (22.5) (22.5) (9.7) (6.4) (4.4) (1.6) (0.4) Trade and other payables (47.8) (47.8) (47.8) Interest rate collars/swaps 9(f) (5.3) (5.3) - (3.4) - (1.9) - Other financial liabilities 9(f) (11.0) (11.0) (6.2) (2.9) (1.4) (0.5) - (969.0) (1,211.6) (131.0) (82.6) (59.0) (592.9) (346.1) Future cash Less than Book value flows 1 year 1-2 years 2-3 years 3-4 years 4-5 years 30 April 2013 Notes m Secured bank loans 5 (911.6) (1,212.3) (67.3) (87.8) (295.2) (295.2) (466.8) Finance lease liabilities * 5 (28.5) (28.5) (11.7) (9.4) (4.8) (2.6) - Trade and other payables (36.0) (36.0) (36.0) Interest rate collars/swaps 9(f) (10.5) (10.5) (2.4) (2.4) (5.7) - - Other financial liabilities 9(f) (8.3) (8.3) (4.0) (2.7) (1.3) (0.3) - *These liabilities bear interest at a fixed rate (994.9) (1,295.6) (121.4) (102.3) (307.0) (298.1) (466.8) 19

20 9. FINANCIAL INSTRUMENTS (continued) (e) Borrowing facilities The Group has syndicated Senior and Subordinated facility agreements with a number of banks and investment companies providing 660 million and 360 million of available funding. These facilities were amended and extended in July Of these facilities, the Group has the following available committed floating rate borrowing facilities and cash at 30 April 2014 in respect of which all conditions precedent had been met at that date: Expiring between 2 and 10 years In addition the Group has a facility secured on UK and US trade receivables, providing up to 27.5m of additional liquidity. In July 2013 the Group completed an amendment to the Senior and Subordinated Facilities. This extended the debt maturity profile of majority of the Group s loans, with only 5% of bank facilities due to be repaid before (f) Fair values of financial assets and financial liabilities The fair values, together with the carrying amounts shown in the balance sheet, are as follows: Notes Carrying amount Fair value Trade and other receivables Other receivables (long-term trade debtors) Cash and cash equivalents Secured bank loans 5 (882.4) (911.6) (882.4) (911.6) Finance lease liabilities 5 (22.5) (28.5) (22.5) (28.5) Other financial liabilities current Interest rate collars/swaps - Liabilities - (2.4) - (2.4) Other financial liabilities (6.2) (4.0) (6.2) (4.0) (6.2) (6.4) (6.2) (6.4) Other financial liabilities non-current Other financial liabilities (4.8) (4.3) (4.8) (4.3) Interest rate collars/swaps Liabilities (5.3) (8.1) (5.3) (8.1) (10.1) (12.4) (10.1) (12.4) (758.2) (771.6) (758.2) (771.6) Included in other financial liabilities are assets of 11.0m secured by other financial liabilities of 4.8m due under a year and 6.2m due over a year (2013: 8.3m secured by other financial liabilities of 4.0m due under a year and 4.3m due over a year). Estimation of fair values The fair values of financial instruments reflect the market value at the balance sheet date. The market value of interest rate collars is determined from valuations provided by the issuing financial institution adjusted for credit risk. All other financial instruments are stated at their carrying values which are not materially different to the market value. 20

21 9. FINANCIAL INSTRUMENTS (continued) (g) Hedging In respect of our overall borrowings this covers approximately 66% of our interest exposure in 2015/16 and 2016/17. The average rate of interest fixed over the period is in the range 1.02% to 2.01% for Sterling and 0.87% to 2.01% for Euros plus margin. The effect of the arrangement is to limit any detrimental interest rate moves over the period to the amount of debt not covered by these instruments. These positions are reviewed annually by the Board. The Group also hedges any material foreign currency transaction exposure. Transaction exposures are reviewed periodically and hedged. The Group undertakes interest rate hedging to protect itself against adverse movements in interest rates. Hedging is put in place when significant amounts of borrowing are incurred. A summary of the Group s interest rate hedging position (including interest rate hedges taken on as part of the acquired group ) is given in note 9(d). The figures quoted represent total interest costs including funding margin. Note 9(d) gives details of the carrying value and expected future cash flows associated with the interest rate hedges. The Group has not applied hedge accounting to the interest rate hedges. The fair value of the interest rate hedges is determined by valuations provided by the issuing financial institution of those instruments and is taken through the income statement. (h) Capital Management The Group s objectives when managing capital (retained profits and bank borrowings) are to safeguard the Group s ability to continue as a going concern support the growth of the business and to maintain an optimal capital structure to reduce the cost of borrowing. The Group finances its operations through a combination of retained profits, equity and bank borrowings (see note 5). 10. ACCOUNTING ESTIMATES AND JUDGEMENTS The following sets out the key assumptions concerning the future and key sources of estimation and uncertainty at the balance sheet date that may cause material adjustment to the carrying amounts of assets or liabilities within the next financial year. Revenue recognition The revenue and profit of fixed price contracts is recognised on a percentage completion basis when the outcome of a contract can be estimated reliably. Management exercises judgement in determining whether a contract s outcome can be estimated reliably. Management also make some estimates in the calculation of future contract costs, which are used in determining the value of amounts recoverable on contracts. Estimates are continually revised based on changes in the facts relating to each contract. Pensions Details of the principal actuarial assumptions used in calculating the recognised liability for the defined benefit plans are given in note 6. Changes to the discount rate, mortality rates and actual return on plan assets may necessitate material adjustments to this liability in the future. Provisions Provisions are recognised in the period when it becomes probable that there will be a future outflow of funds resulting from past operations or events which can be reasonably estimated. The timing of recognition requires the application of judgement to existing facts and circumstances, which can be subject to change. Note 7 to the accounts contain information about the assumptions made concerning the Group s provisions. 21

22 10. ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) Fair value measurement on a business combination The measurement of fair values on a business combination requires the recognition and measurement of the identifiable assets, liabilities and contingent liabilities. The key judgements involved are the identification and valuation of intangible assets which require the estimation of future cash flows and the selection of a suitable discount rate. Impairment of intangible assets, including goodwill Following the acquisition of Northgate Information Solutions plc in 2007/08, the Group has significant carrying values of goodwill and intangible assets, such as customer relationships, technology based assets and trade names and other marketing related assets. Goodwill and other intangible assets are tested annually for impairment. The impairment tests involve estimation of future cash flows and the selection of a suitable discount rate. These require an estimation of the valuein-use of the cash generating units to which the intangible assets are allocated. Recognition of internally generated intangible assets from development Under IFRS, internally generated intangible assets from the development phase are recognised if certain conditions are met. These conditions include the technical feasibility, intention to complete, the ability to use or sell the asset under development and the demonstration how the asset will generate probable future economic benefits. The cost of a recognised internally generated intangible asset comprises all directly attributable cost necessary to make the asset capable of being used as intended by management. In contrast, all expenditures arising from the research phase are expensed as incurred. We believe that the determination whether internally generated intangible assets from development are to be recognised as intangible assets requires significant judgement, particularly in the following areas: The determination whether activities should be considered research activities or development activities; The determination whether the conditions for recognising an intangible asset are met requires assumptions about future market conditions, customer demand and other developments; The term technical feasibility is not defined in IFRS, and therefore the determination whether completing an asset is technically feasible requires a company-specific and necessary judgemental approach; The determination of the future ability to use or sell the intangible asset arising from the development and the determination of probability of future benefits from sale or use, and The determination whether a cost is directly or indirectly attributable to an intangible asset and whether a cost is necessary for completing a development. Development Costs During the prior year the Group changed the rate of amortisation of development costs from 3 to 5 years resulting in a decrease in amortisation charge for 2012/13 of 7.3m following a reassessment of the estimated useful lives of these assets. Taxation The Group is subject to corporate taxes in numerous jurisdictions. Management is required to exercise significant judgement in determining the worldwide provision for corporate taxes. Certain transactions require the use of estimates and judgements to determine the financial effect where the ultimate tax determination is uncertain. When the final outcome of such matters is different, from previous estimates, such differences will impact on the corporate tax in the period in which the determination is made. 22