Regulatory News

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2022

1.  Reporting entity

OTAQ plc ("the Company'') and its subsidiaries (together, "the Group'') develop, provide and support the technology for use in the aquaculture industry and offshore oil & gas industries. The principal activity of the Company is that of a holding company for the Group as well as performing all administrative, corporate finance, strategic and governance functions of the Group.  The Company is a public limited company, which is listed on the London Stock Exchange and domiciled in England and incorporated and registered in England and Wales.  The address of its registered office is 8-3-4 Harpers Mill, South Road, White Cross, Lancaster, England, LA1 4XF. The registered number of the Company is 11429299. 

The principal accounting policies adopted by the Group and Company are set out in note 2.

2.  Accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied unless otherwise stated.

(a)  Basis of preparation

The consolidated financial statements of OTAQ plc have been prepared in accordance with International Financial Reporting Standards in conformity with the requirements UK-adopted International Accounting Standards applicable to companies reporting under IFRS and the Companies Act 2006. The consolidated financial statements have been prepared under the historical cost convention, as modified for any financial assets which are stated at fair value through profit or loss. The consolidated financial statements of OTAQ plc are presented in pounds sterling, which is the presentation currency for the consolidated financial statements. The functional currency of each of the group entities is Sterling apart from OTAQ Chile SpA which is the Chilean Peso. Figures have been rounded to the nearest thousand.

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement and complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

The Group has taken advantage of the audit exemption for three of its subsidiaries, OTAQ Aquaculture Limited (company number SC498922), OTAQ Offshore Limited (company number SC314760) and OTAQ Connectors Limited (company number 03390514) by virtue of s479A of the Companies Act 2006. The Group has provided parent guarantees to these three subsidiaries which have taken advantage of the exemption from audit.

(b)  Basis of consolidation

The Group's financial statements consolidate the financial information of OTAQ plc and the entities it controls (its subsidiaries) drawn up to 31 March each year. All business combinations (except for the Hertsford Capital plc reverse takeover on 31 March 2020 which used the merger accounting method) are accounted for by applying the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.

The Group measures goodwill at the acquisition date as:

-  the fair value of the consideration transferred; plus

-  the recognised amount of any non-controlling interests in the acquiree; plus

-  the fair value of the existing equity interest in the acquiree; less

-  the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

Transaction costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

All subsidiaries are entities over which the Group has the power to govern the financial and operating policies. The percentage holdings of the Company in its subsidiaries is set out in note 14. The subsidiaries have been fully consolidated from the date control passed. All intra-group transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. The accounting policies of subsidiaries are amended where necessary to ensure consistency with the policies adopted by the Group. 

(c)  Going concern

Basis of preparation

These financial statements are prepared on the going concern basis. The directors have a reasonable expectation that the Group will continue in operational existence for the foreseeable future.

Background

The Group is focussed on delivering long-term shareholder value and this requires the Group to develop new products for its services, leading the Group to invest heavily in the development and procurement of these products. This has been possible to date through the use of its cash reserves as well as the drawdown of a £2.0m loan facility in February 2021 and the issue of new shares for £1.3m in January 2022. In addition, the Group has historically been able to utilise the significant cash generated from the rental of its Sealfence units in the Aquaculture division. The Aquaculture business unit has been impacted by regulatory reviews in the core markets in which it operates. The Scottish market Aquaculture rentals were historically under long-term rental contracts, contributing regular and guaranteed income from the time of the Company's floatation in March 2020 until the termination of one major contract in December 2020 and the termination of the second major contract in April 2022. The Group is hopeful that Sealfence rentals will return but under what terms and to what level is very difficult to forecast at present given the ongoing uncertainty in the Scottish market created by regulatory guidance being updated.

Results for the year

The performance in the year to 31 March 2022 has been sustained by the launch of new products but also the final revenue relating to the long-term rental contracts that have now ended. As a result of these contracts no longer being in place, the Group has entered a period of transition with greater reliance now being placed on future revenue generation based on developing the rental business in new markets with different regulatory environments, continuing growth in other areas of the Group's business and the commercialisation of new products developed internally.  Whilst the new financial year is entered into with no guarantees of future revenues, the Group has worked hard to commercialise new products, make strategic investments and develop customer relationships. As at 31 March 2022, the Group had cash and cash equivalents of £1.0m.

Forecasts

The directors have prepared forecasts which cover the period to July 2023. The forecasts include revenue from the Group's identified pipeline of sales opportunities as well as revenues where specific customer opportunities are yet to be identified. If new business and new sales orders are not delivered as expected, the Group can reduce costs accordingly and improve cash flow. However, the most impactful cost reductions would put at risk the completion of the development of new products, some of which are believed to be close to commercialisation and therefore revenue generating. For this reason, the directors are reluctant to reduce costs at this stage but are able to do so if new sales orders are not received as expected and additional funding is not available. The forecasts demonstrate a reasonable expectation that the Group is able to continue to meet its obligations as they fall due in the context of the material uncertainties detailed. Following the completion of quarter one of the new financial year, the Group is ahead of these forecasts in terms of both revenue and profit.

Sensitivities

The directors have modelled various downside scenarios and under each scenario the directors have reviewed the Group's funding requirements over the next year. Based on the scenarios and forecasts that have been reviewed by the directors, the directors have a reasonable expectation that the Group has sufficient financial resources to meet its financial commitments and strategic objectives if new sales orders are delivered reasonably in line with the forecasts. The directors have modelled various plausible scenarios and in the most pessimistic there is a shortfall in the financial resources required where new sales orders are not delivered.

New funding

The directors, in conjunction with its advisers, are progressing discussions with respect to funding options, including but not limited to debt and/or equity, from existing and other potential investors which would enable the Group to mitigate the risk of not achieving its forecast performance, accelerate the ongoing development of new products and provide funding for the period beyond that covered by the going concern assessment. Whilst the directors are confident that new funding will be available, should this not be concluded in a satisfactory manner, the Group may need to consider alternative funding options and the board cannot be certain that such funding would be secured.

Material uncertainty in respect of going concern

In preparing their forecasts the directors recognise the inherent difficulties in forecasting future performance. The Group is in discussion with customers for a significant value of forecast orders but the timing and the ability to convert discussions into confirmed orders is dependent on normal commercial considerations as well as the results of trials and, to an extent, the results of regulatory reviews. The outcome of both trials and regulatory reviews cannot be predicted with certainty. As at 23^rd July 2022, the cash level of £0.7m is expected to be sufficient to allow the business to continue to operate for the next five months if additional orders are not received as forecast and no additional funding is completed. However, revenues reported in the period since the year end are in line with those forecast.

Any material change in the timing or value of future revenue would negatively impact the Group's forecast cash position. In the event that the Group is not able to generate the forecast revenues, action would need to be taken to reduce costs or raise additional funds. Management are committed to and confident that they will be successful in raising additional funding which will mitigate uncertainties in respect of the forecasts and secure the Group's funding needs beyond the forecast period. A shortfall in revenues and uncertainty around the timing and success of the realisation of cost savings or fund raising could have a material impact on the Group's liquidity position such that the directors believe the ability to achieve the forecasts and ability to successfully raise funds represent material uncertainties which may cast significant doubt on the Group's ability to continue as a going concern.

However, the directors have a reasonable expectation that new business will be delivered as modelled in the Group's forecasts and that additional funding will be available having entered into discussions with advisors. For these reasons, the directors continue to adopt the going concern basis in preparing the Group's financial statements.

(d)  Functional and presentational currency

The financial statements are presented in pounds sterling, which is the Group's functional and presentation currency. All financial information presented has been rounded to the nearest thousand.

(e)  Foreign currency transactions

Transactions in foreign currencies are initially recorded in the functional currency by applying the spot rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to the Consolidated statement of comprehensive income.

(f)  Segmental reporting

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segmental information is set out in note 4.

(g)  Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of sales related taxes.

Revenue related to sales of stock is recognised when goods are dispatched and the title and control over a product have passed to the customer, in accordance with agreed delivery terms.

Revenue under service contracts is recognised over the period in which the performance obligation relating to the agreed contract are satisfied. For rentals of the Group's assets, revenue is recognised on a monthly basis based on the agreed rate and number of days for which the asset is on hire to the customer.

(h)  Government grants

Government grants are recognised when it is reasonable to expect that the grants will be received and that all related conditions are met, usually on submission of a valid claim for payment.  Government grants of a revenue nature are deducted from administrative expenses in the consolidated statement of comprehensive income in line with the terms of the underlying grant agreement. Government grants relating to capital expenditure are deducted in arriving at the carrying amount of the asset. Government grants relating specifically to Covid-19 support measures have been disclosed as "other operating income".

(i)  Leases

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise:

-  Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;

-  Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

-  The amount expected to be payable by the lessee under residual value guarantees;

-  The exercise price of purchase options, if the lessee is reasonably certain to exercise the options;

-  Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

The lease liability is presented as a separate line in the statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

-  The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;

-  The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); and

-  A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

The Group did not make any such adjustments during the periods presented.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset.

The depreciation starts at the commencement date of the lease. The right-of-use assets are presented as a separate line in the statement of financial position.

The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the 'Property, Plant and Equipment' policy. Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in 'Administrative expenses' in profit or loss.

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient.

(j)  Finance expense

Finance expense comprises interest expense on borrowings. All borrowing costs are recognised using the effective interest method.

(k)  Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the consolidated statement of comprehensive income except to the extent that it relates to items recognised directly in equity or in other comprehensive income.

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to, the tax authorities.  The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements with the following exceptions:

-  where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination, that at the time of the transaction affects neither accounting nor taxable profit nor loss; and

-  in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are measured on an undiscounted basis using the tax rates and tax laws that have been enacted or substantively enacted by the date and which are expected to apply when the related deferred tax asset is realised, or the deferred tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which differences can be utilised. An asset is not recognised to the extent that the transfer or economic benefits in the future is uncertain.

Amounts due under the HMRC Research and Development tax credit scheme are accounted for based on the amount of qualifying expenditure in the year and assuming 14.5% of the claim is paid in cash once applicable losses and future profitability have been reviewed.

(l)  Property, plant and equipment

Property, plant and equipment assets are recognised initially at cost.  After initial recognition, these assets are carried at cost less any accumulated depreciation and any accumulated impairment losses.  Cost comprises both the aggregate amount paid and the fair value of any other consideration given to acquire the asset, and includes costs directly attributable to making the asset capable of operating as intended.

Depreciation is computed by allocating the depreciable amount of an asset on a systematic basis over its useful life and is applied separately to each identifiable component.

The following bases and rates are used to depreciate classes of assets:

Systems for rental  -  straight line over 4 years

Plant and equipment   -  straight line over 4 to 5 years

Office Equipment  -  straight line over 2 to 4 years

Motor vehicles  -  straight line over 3 years

The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively.

All property, plant and equipment items are de-recognised on disposal, or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the de-recognition of the asset is included in the Consolidated statement of comprehensive income in the period of de-recognition.

(m)  Intangible assets

Intangible assets acquired either as part of a business combination or from contractual or other legal rights are recognised separately from goodwill, provided they are separable and their fair value can be measured reliably.  This includes the costs associated with acquiring and registering patents in respect of intellectual property rights. Trademarks are assessed on recognising fair value of assets acquired by calculating the future net book value of expected cash flows.

Development costs are also charged to the statement of comprehensive income in the year of expenditure, except when individual projects satisfy the following criteria:

·the project is clearly defined and related expenditure is separately identifiable;

·the project is technically feasible and commercially viable;

·current and future costs will be exceeded by future sales; and

·adequate resources exist for the project to be completed.

Where intangible assets recognised have finite lives, after initial recognition their carrying value is amortised on a straight-line basis over those lives. Development costs are amortised once the project to which they relate is viewed to be completed and capable of generating revenue. The nature of those intangibles recognised and their estimated useful lives are as follows:

Intellectual property licence  -  straight line over 4 years

Development costs  -  straight line over 6 years

Trademarks  -  straight line over 8 years

Goodwill is recognised when the purchase price of a business exceeds the fair value of the assets acquired. Goodwill is subject to annual impairment reviews.

(n)  Impairment of assets

At each reporting date the Group reviews the carrying value of its plant, equipment and intangible assets to determine whether there is an indication that these assets have suffered an impairment loss. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an assessment of the asset's recoverable amount.

An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 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. In determining fair value less costs of disposal, an appropriate valuation model is used, these calculations corroborated by valuation multiples, or other available fair value indicators.  Impairment losses on continuing operations are recognised in the Consolidated statement of comprehensive income in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased.  If such indication exists, the recoverable amount is estimated.  A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised.  If that is the case the carrying amount of the asset is increased to its recoverable amount.  That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.  Such reversal is recognised in the Consolidated statement of comprehensive income unless the asset is carried at re-valued amount, in which case the reversal is treated as a valuation increase. 

After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

(o)  Inventories

Inventories are stated at the lower of cost and net realisable value. Cost based on latest contractual prices includes all costs incurred in bringing each product to its present location and condition. Net realisable value is based on estimated selling price less any further costs expected to be incurred to disposal. Provision is made for slow-moving or obsolete items if they are deemed to be no longer usable or sellable.

(p)  Financial instruments

A financial asset or financial liability is initially measured at fair value. For an item not at fair value, adjustments to fair value are made through profit and loss (FVTPL) including transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at fair value and subsequently measured at amortised cost.

Financial assets

On initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income (FVOCI) - debt investment; FVOCI - equity investment; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

The Group has only financial assets measured at amortised cost. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

-  it is held within a business model whose objective is to hold assets to collect contractual cash flows;

-  its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets - Business model assessment

The Group makes an assessment of the objective of the business model in which a financial asset is held at portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

-  the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management's strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets;

-  how the performance of the portfolio is evaluated and reported to the Company's management;

-  the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

-  how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and

-  the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

Financial assets: Assessment whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:

-  contingent events that would change the amount or timing of cash flows;

-  terms that may adjust the contractual coupon rate, including variable‑rate features;

-  prepayment and extension features; and

-  terms that limit the Group's claim to cash flows from specified assets (e.g. non‑recourse features).

Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in the income statement. Any gain or loss on derecognition is recognised in the income statement.

Financial liabilities

Financial liabilities are classified according to the substance of the contractual arrangements entered into. Basic financial liabilities, including trade and other payables and bank loans 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. Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts 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 payables are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Derecognition of financial liabilities

Financial liabilities are derecognised when, and only when, the company's obligations are discharged, cancelled, or they expire.

(q)      Cash and cash equivalents

Cash and cash equivalents comprise cash at hand and deposits with maturities of three months or less. Foreign balances are revalued with any gain or loss adjusted.

(r)      Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the consolidated statement of comprehensive income, net of any expected reimbursement, but only where recoverability of such reimbursement is virtually certain. 

Provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risk specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

(s)      Share capital and premium

Proceeds on issue of shares are included in shareholders' equity, net of transaction costs.  The carrying amount is not re-measured in subsequent years. The proceeds of the issue of shares up to the nominal ordinary share value of 15p are included in share capital with the balance of the proceeds, net of relevant transaction costs, included in the share premium

(t)      Share option reserve

The cost of issuing share options is calculated using the Black-Scholes method and are included in the share option reserve until the share options are exercised, lapsed or cancelled.

(u)       Unlisted Investments

Unlisted investments are stated at fair value with adjustments made following annualised fair value reviews through impairment charges.

(v)      Defined contribution pension scheme

The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amounts charged against profits represent the contributions payable to the scheme in respect of the accounting period.

(w)  New and amended standards adopted by the Group

The following new accounting standards, interpretations and amendments to existing standards have been published and are mandatory for the accounting period beginning on 1 April 2022 or later. The Group has not early adopted them.

• Amendments to IAS 16: Property, Plant and Equipment: Proceeds before intended use.

• Amendments to IFRS 3: Reference to the Conceptual Framework.

• Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a Contract

• Annual Improvements to IFRS Standards 2018 - 2020: Including amendments to IFRS 9 Financial Instruments and IFRS 16 Lease

New standards and interpretations not yet adopted

The Group continues to monitor the potential impact of other new standards and interpretations which may be endorsed and require adoption by the Group in future reporting periods. The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant impact on the financial statements.

3.  Use of estimates and judgements

The preparation of financial statements requires management to make estimates and judgements that affect the amounts reported for assets and liabilities as at the reporting date and the amounts reported for revenues and expenses during the year.  The nature of estimation means that actual amounts could differ from those estimates.  Estimates and judgements used in the preparation of the financial statements are continually reviewed and revised as necessary. While every effort is made to ensure that such estimates and judgements are reasonable, by their nature they are uncertain and, as such, changes in estimates and judgements may have a material impact on the financial statements. The key sources of judgement and estimation uncertainty that have a significant risk of causing material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

Taxation

Management judgement is required to determine the amount of tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies. The carrying value of the unrecognised deferred tax asset for tax losses and other timing differences at 31 March 2022 was £790,000 (2021: £243,000). The value of the deferred tax liability at the year-end is £105,000 (2021: £176,000) and which has not been recognised, as it is covered by accumulated tax losses. Further information is included in notes 8 and 23.

Revenue recognition

Judgements are required as to whether and when contractual obligations have been fulfilled and in turn the period over which systems rental revenue should be recognised. Further information is included in note 4.

Useful Economic Life of assets and impairment

Judgements are required as to the useful economic life of Sealfence assets. Further information on all useful economic lives of assets is included in notes 2 and 10.

Development costs

Management judgement is required to determine the appropriate value of an asset as well as when an asset should be recognised. These judgements are based upon the likely timing and level of future revenues. Development costs are periodically assessed for impairment and costs are written-off if the project to which they relate is no longer considered to be commercially viable. The value of the development costs capitalised at 31 March 2022 was £1,532,000 (2021: £1,262,000). Further information is included in note 12.

Goodwill impairment

Judgements are required as to the useful economic life of goodwill. These judgements are based upon the likely future benefits that will be derived from the recognised goodwill. Further information on all useful economic lives of assets is included in notes 2 and 12.

4.  Segmental information

The directors review segmental information at a revenue, gross margin, salary and operating cost level but do not review the balance sheet by segments.

A segment is a distinguishable component of the Group's activities from which it may earn revenue and incur expenses, whose operating results are regularly reviewed by the Group's chief operational decision makers to make decisions about the allocation of resources and assessment of performance and about which discrete financial information is available. In identifying its operating segments, management generally follows the Group's service line which represent the main products and services provided by the Group.

The directors believe that the Group operates in four primary segments being the rental and sale of intelligent acoustic systems designed to deter seals and sea lions from attacking fish farms (Aquaculture), the rentals and sale of underwater measurement and leak detection devices in the Offshore (oil & gas) market and the manufacture, supply of underwater communication and other marine goods in the Connectors division and new sector technology sales, partially derived following the Minnowtech LLC investment and the purchase of the trade and assets of ROS Technology Limited. 

All of the Group's revenue have been generated from continuing operations and are from external customers.

Included within revenue are amounts earned from system rentals and associated charges from one material customer of £725,000 (2021, two: £1,041,000 and £506,000).

The Group operates in six main geographic areas, although all are managed in the UK. The Group's revenue per geographical segment based on the customer's location is as follows:

The Group's assets are located in the UK and Chile and although some of its tangible assets, in the form of systems for rental, are located in Chile, all are owned by the company or its subsidiaries.

5.  Operating loss

Operating loss is stated after charging/(crediting):

6.  Staff costs and numbers

The average monthly number of employees (including executive directors) for the continuing operations was:

Staff costs for the Group during the year including executive directors:

Directors' remuneration

Full details of the directors' remuneration, for current directors, is provided in the audited part of the  Directors' Remuneration Report.

The Group operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the Group in an independently administered fund.

The charge to the statement of comprehensive income in respect of defined contribution schemes was £56,000 (2021: £60,000). Contributions totalling £8,000 (2021: £9,000) were payable to the fund at the year-end and are included in creditors.

7.  Net finance costs

8.  Taxation

The tax credit is made up as follows:

The tax charge differs from the standard rate of corporation tax in the UK of 19% for the year ended 31 March 2022 (19% for the year ended 31 March 2021).  The differences are explained below:

The Group has accumulated losses available to carry forward against future trading profits. The estimated value of the deferred tax asset measured at a standard rate of 25% (2021: 19%) is £790,000 (2021: £243,000), of which £nil (2021: £nil) has been recognised, as it is not certain that future taxable profits will be available against which the unused tax losses can be utilised.

The Group also has a deferred tax liability being accelerated capital allowances, for which the tax measured at a standard rate of 25% (2021: 19%) is £105,000 (2021: £176,000) and which has not been recognised, as it is covered by accumulated tax losses.

In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate will increase to 25%. This was substantively enacted on 24 May 2021. The deferred tax balance at 31 March 2022 has been calculated based on the rate as at the balance sheet date of 25%.

9.  Losses per share

Basic earnings or losses per share are calculated by dividing the loss or profit after tax attributable to the equity holders of the Group by the weighted average number of shares in issue during the year.

Diluted earnings or losses per share are calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potential dilutive shares, namely share options. The calculation of earnings or losses per share is based on the following losses and number of shares.

In calculating the weighted average number of ordinary shares outstanding (the denominator of the earnings per share calculation) during the period in which the reverse occurs:

(a)  The number of ordinary shares outstanding from the beginning of that period to the acquisition date shall be computed, on the basis of the weighted average number of ordinary shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement; and

(b)  The number of ordinary shares outstanding from the acquisition date to the end of that period shall be the actual number of ordinary shares of the legal acquirer (the accounting acquiree) outstanding during that period.

A reconciliation is set out below.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has share options that are dilutive potential ordinary shares.

*These shares are not considered dilutive because they decrease the loss per share.

10.  Property, plant and equipment

Depreciation charges in relation to Systems for rental are included in costs of sale. All other depreciation is included in administrative expenses.

Impairment charges for the year relate to Sealfence rental systems returned from customers.

11.  Leases

The Group leases several assets including buildings and facilities as well as motor vehicles acquired during the year. The average lease term by asset is 2.8 years (2021: 3.6 years). This term includes an extension option, which the Group is reasonably certain to exercise.

The total cash outflow for leases amount to £181,000 (2021: £111,000).

Lease liabilities

Maturity analysis

A maturity analysis of lease liabilities based on undiscounted gross cash flows is reported in the table below:

The Group does not face a significant liquidity risk with regard to its lease liabilities. All lease obligations are denominated in pounds sterling.

12.  Intangible assets

Goodwill relates to the acquisition of MarineSense Limited of £611,000 and the acquisition of Link Subsea Limited of £420,000. Impairment calculations are reviewed bi-annually to ensure goodwill is valued fairly. Discounted cash flow modelling is undertaken based on forecast future revenues and costs and the values compared to the value of goodwill recognised with any required adjustments made accordingly.

IP license additions during the prior year mostly pertained to the intellectual property acquired as a part the acquisition of assets and liabilities of ROS Technology Limited, which took place in November 2020. The Group elected to apply the optional concentration test, which resulted in a conclusion that the acquisition is not a business combination on the basis that substantially all of the fair value of the gross assets acquired is concentrated in a group of similar identifiable assets. Therefore, this acquisition was accounted as an asset acquisition (i.e. outside the scope of IFRS 3). The remaining useful life of this asset is 3.6 years (2021: 4.6 years).

Development costs primarily relate to the development of the Group's new products which involve the utilisation internal salary costs and purchase of external materials for the development of prototypes.

13.     Unlisted investments

Unlisted equity securities pertain to 15% of ordinary share capital of Minnowtech LLC and 10% of ordinary share capital of Blue Lions Labs Ltd which are both held directly by OTAQ Group Limited.

The directors consider that the carrying amount of unlisted equity securities approximates to their fair value and that no impairment is required at the reporting date.

14.     Subsidiaries of the Group

The principal subsidiaries of the Group at 31 March 2022 and 31 March 2021 are as follows:

OTAQ Group UK Limited and OTAQ UK Limited were formally dissolved on 27 July 2021.

*OTAQ Chile SpA has a year end date of 31 December in order to comply with the requirements of the Chilean authorities.

¹ Registered office address: 8-3-4 Harpers Mill, South Road, White Cross, Lancaster, England, LA1 4XF

² Registered office address: Crombie Lodge, Aberdeen Innovation Park, Campus 2, Aberdeen, Scotland, AB22 8GU

³ Registered office address: Pacheco Altamarino 2875, Puerto Montt, Chile

15.  Trade and other receivables

Trade receivables are non-interest bearing and are generally due and paid within 30 to 60 days. The directors consider that the carrying amount of trade and other receivables approximates to their fair value and that no impairment is required at the reporting date. Trade and other receivables represent financial assets and are considered for impairment on an expected credit loss model. Therefore, there is no provision for impairment at the statement of financial position date (2021: £28,000).

The age of net trade receivables is all within one year (2021: one year) except for £23,000 which is less than two years and the average gross debtor days calculated on a count back basis were 78 days (2021: 44 days).

16.  Income tax asset

17.  Inventories

The value of inventory provided for as at 31 March 2022 is £64,000 (2021: £97,000). £1,010,000 of stock was expensed in the year through cost of sales (2021: £671,000).

18.  Cash and cash equivalents

Cash at banks earns interest at floating rates based on daily bank deposit rates. An analysis of cash and cash equivalents by denominated currency is given in note 28.

19.  Share capital and share premium

The called-up and fully paid share capital of the Company is as follows: