Contents
2
CEO Letter
9
Financial Highlights
10
Corporate Social Responsibility
14
Directors’ Report
17
Strategic Report
CEO Letter
One Company.
One Focus.
Building on Our Advantage
To our Stakeholders:
Northgate Information Solutions has been on a transformative journey over the past several years – and in 2015 that journey turned a milestone corner.
With the sale of Northgate Public Services (NPS) in December 2014 and the sale of Northgate Managed Services (NMS) in 2013, we have achieved an important strategic milestone of streamlining our portfolio and focusing exclusively on our core business NGA HR – HR technologies and services. In fact, while Northgate Information Solutions continues to exist in name, our business is now 100% focused on NGA Human Resources. As such, we are continuing our transformation as a people-critical partner for our clients. In last year’s annual report, we outlined NGA’s operating strategy for a market-segment focus, which we have fully put into action this year. And, through it all, the key differentiator in our journey continues to be the NGA Advantage – our combination of market experience and insight, advanced technology, and flexible service delivery – which will continue to drive our success as we move forward.
NGA operates in an attractive market, where HR investments and transformation – focused on improving how companies manage their human capital – are the top priorities of every board, big or small. We first saw the introduction of Software as a Service (SaaS) in the HR space, which created new demand from clients around the world for us to help them transform their HR operations and simplify their software, payroll, and HR administration services.
Over the last five years, we have grown into a leader in the markets in which we operate with our SaaS and BPaaS (Business Process as a Service) offerings, and through partnerships with global HR SaaS leaders, bringing innovative HR as a Service solutions to our clients.
As we developed and deployed our strategy, we had to work through a variety of headwinds. However, it’s the way in which
CEO Letter continued
With the sale of NMS and NPS, we have accomplished our objective of streamlining our portfolio. We are now focused on refining NGA strategy and go to market. FY15 was the first full year in which we brought that strategy to life by defining and clarifying NGA’s market approach. This evolution in our strategy drove investments in four market segments with clear market definitions, targeted offerings, dedicated teams and dedicated investments to enable their growth. Today, we have a clear direction and market positioning for each market segment we play in, with unique and attractive value propositions to our clients in each segment. The four market segments are:
Between 2012 and today, we invested in improving our service delivery scale and global footprint, which is critical to our growth and competitiveness. We drove significant consolidation across a very fragmented delivery landscape. Starting with more than 60 delivery points across the globe, we created seven strategic centres and three onshore premium centres with scale, while maintaining a presence in local markets where our subject matter experts continue to support our clients and our global delivery centres.
UK Small and
Medium Market
SMBs are a vibrant and growing segment around the world — and one becoming more and more reliant on external expertise given the growing complexities of legislation in the UK. NGA leads this market in the UK with integrated, cloud-based software solutions supported by a range of BPaaS services.
UK and Ireland Large
and Mid-Market
The UK and Ireland large and mid-market segment is at the heart of NGA’s success and market leadership, with more than 4.2 million employees served and a 28% market share. In the UK & Ireland, NGA’s market-leading ResourceLink platform covers core HR, talent functionality, and payroll, providing solutions for organisations with more than 500 employees, including many of the nation’s largest employers.
ANZ Large and
Mid-Market
In Australia and New Zealand, NGA has been a pioneer in SaaS solutions providing the first cloud-based HCM and payroll solution – Preceda - for employers with more than 200 employees since the early 2000s. Our fast-growing ANZ business is currently in a strong 2nd position in the market, represent-ing a market share of 13%.
Global Enterprise
Market
The global enterprise market is characterised for us as an IT-led HR services business, built around our unique application and integration technologies — with payroll and workforce administration at the foundation, and enabled through a global HR service delivery network with capabilities in 145 countries.
500
employees
500+
employees
200+
employees
5,000+
employees
Payroll
Services OutsourcingHR ConsultingHR Application Management
Services
CEO Letter continued
Starting in 2012, we saw a major shift in the HR consulting market, from complex on-premise system integration projects
to agile and fast-moving SaaS architectures. We were working with a skill set that did not match what our clients were looking for and where the market was going. To this, we responded by transforming our HR consulting capabilities, offerings, and size of the practice.
Today we have an agile and cloud-focused HR consulting practice with market-leading SaaS HR capabilities, giving us a solid foundation from which we can grow. HR consulting’s strategic mission is to win new clients, help them with HR technology landscapes, and act as the tip of the arrow for the rest of our offerings where we develop long-term, annuity-based client relationships.
The most challenging headwind we faced was in our HR outsourcing (HRO) line of business, where we faced attrition of
the legacy client base we acquired from Convergys. As a result, we needed to restructure and transition a number of older, mature contracts from our Convergys acquisition. Convergys was acquired in June 2010 with the strategic ambition of NGA becoming a leader in the enterprise HRO market by leveraging Convergys’ delivery capabilities, footprint in North America and blue-chip customer base. The acquisition of Convergys HRM included 16 significant blue-chip corporate customer contracts, which operated mainly under an outdated ‘lift and shift’ model that offered limited opportunity for transformation, innovation and productivity improvements.
The anticipated nonrenewal at the time of the acquisition of four large customer contracts, which were acquired through Convergys HRM, has impacted results over several years. The restructuring and transition effort around these contracts spanned multiple years, and the revenue effects of attrition and de-scoping of contracts by remaining clients is expected to end in FY17.
The restructuring efforts will leave us with a strong and trusted portfolio of remaining clients, with strong relationships, modern operating models, and high levels of client satisfaction. This is illustrated by significant renewals from our largest and most complex clients, who are taking advantage of the innovation, investments and service delivery improvements enabled by NGA. The acquisition of Convergys HRM provided us with a solid global delivery platform and a remaining group of key clients that we expect to work with for many years to come.
One of the key foundations of our company is our people. Over the last three years, we have created an integrated global approach across the HR functions. This includes implementing a performance-based culture, investing in programs that
develop our employees, encouraging and enabling peer collaboration, delivering a supportive work environment, and retaining our top talent. At NGA we are committed to investing in our people, providing them with an environment where they can learn and grow as they take advantage of the opportunities NGA offers across the globe.
Over the past several years, we have invested significantly in innovation and further developing our Intellectual Property
Platforms, including our products and our process knowledge and expertise. Not too long ago we had a fragmented product and offering development team. Two years ago we made a bold move by creating a global product and offerings development team. We then tasked them to drive more innovation and shifted more of our investments into new platforms, new products and new innovation. Today more than 60% of our R&D budget is spent on innovative new offerings that help us maintain our leadership in the marketplace. As a result, we have seen several new product launches, including Payroll Exchange, myHRW, Preceda and ResourceLink.
CEO Letter continued
Business Performance
As a result of our continued transformation and focus, FY15 saw a number of critical events across the company, delivering variable results for NIS.
FY15 results for NGA Human Resources were mixed, with increased profitability across the business but also continued headwinds in the enterprise segment. NGA closed the year with revenue of £451.7m (-6.9%) and EBITDA of £81.5m (+0.1%). The reduction in revenue owed largely to two factors:
First, the erosion of the Convergys legacy contracts, as described above. The impact of these erosions in the year was £7.7m revenue. We expect Convergys legacy contract erosion to complete and stabilise in FY17.
Second, we have completed the restructuring of our HR consulting business to reduce OnPremise systems integration work, growing our cloud capabilities, rightsizing the business and building stronger, more strategic customer relationships. Our business strategy is to be a predominantly annuity-based business through long-term relationships with our clients. As a result we exited smaller, low-margin consulting projects, where there was no strategic relationship with larger or international clients. Our planned and proactive transformation of the HR consulting business resulted in 32% (£18.4m) of revenue loss but provides us with better profitability and a more stable client base to grow from. The strategic position of our HR consulting activity is to be the tip of the spear for new client acquisitions and creating beachheads to sell annuity business. Normalising for both of the above factors (Convergys legacy contracts erosion and HRC transformation) NGA performance was £415.7m revenue, 3.2% CAGR in three years. This demonstrates true underlying performance of our business.
On December 22, 2014, we sold our NPS business to Cinven, a leading European private equity firm. Our Public Services division had delivered a strong performance in recent years, growing 7.2% in revenue and 6.9% in EBITDA, at £181.0m and £42.0m respectively in FY14. NPS delivered eight consecutive quarters of growth in both the top line and bottom line as part of Northgate. Stakeholders welcomed the transition as it offered the Public Services division a platform for continued growth, and made NGA the primary focus of Northgate.
After one-off restructuring and property costs of £24.8m, profit on sale of the NPS business of £24.8m and amortisation of acquired intangibles of £45.1m, NIS recorded an operating profit of £26.0m. Net financing costs increased to £95.9m, and loss on ordinary activities before tax was £69.9m.
Our Strategy for Growth
Our growth strategy incorporates several components. One element continues to be the NGA Advantage. The NGA Advantage offers our clients a unique combination of deep market experience and insight, advanced technology platforms and applications, and unparalleled, flexible service delivery, making us unique in the marketplace and very difficult to replicate.
Underlying Business Revenue (£m)
390.1 407.9
FY13-15 CAGR: 3.2%
415.7
FY13 FY14 FY15
Note: NGA sales FY13-FY15 excluding HR consulting and select non-renewed contracts. All figures shown at budget rates. Financials shown are for financial year ending April 30.
350 400 450
Underlying Business Revenue (£m)
CEO Letter continued
Overall, our strategy for growth has included four main focal points.
1. Market Leadership: We support more than 8 million employees globally and produce more than 50 million payslips per
year, with more than 1,000 HR implementations in 25 languages, supporting customers in 145+ countries. Clients and advisors continue to position us as a strategic partner, resulting in continued top rankings in analyst reports, from Gartner and Everest. We have organised ourselves around four market segments: UK SMB, UK Mid-Market, ANZ Mid-Market and Global Enterprise, our strategy is to be a leader in each of these segments by continuously investing in our offerings and teams supporting these segments.
2. World-class delivery: We have been working hard on building our capabilities for success, including creation of
scalable delivery centres around the world (moving from 60+ centres to seven strategic and three premium centres), establishing NGA standards, and driving automation and standardisation by leveraging our IP across our delivery network. We will continue on this journey, with productivity, analytics and automation being our next areas of focus. 3. IP platforms: We strongly believe that intellectual property is a critical differentiator, both across our software and
R E S E A R C H
Aon Hewitt Zalaris
Talent2 Celergo TMF Group Ceridian CloudPay ADP Leaders Major Contenders Emerging Players NGA Acrede SGWI Emerging Players Major Contenders 75th percentile 25th percentile 25 th percentile 75 th percentile Market success
Everest Group Performance | Experience | Ability | Knowledge (PEAK) Matrix for MCPO (Multi-Country Payroll Outsourcing)
MCPO delivery capability
Leaders Infosys Toutatis HLA Low High High Low TCS HCL
(Scale, scope, technology solution, and delivery footprint)
Copyright © 2016, Everest Global, Inc.
Neeyamo
Source: Everest Group (2016)
CEO Letter continued
Over the past four years, we have gone through a very significant transformation – from a portfolio of three businesses to a single focus on NGA HR, which reflects our core strengths and our view that HR will be the best business for us over the long term. Within our HR-focused business, we have refined our go-to-market strategy to be focused on four key segments, which is a key platform for future growth.
Let me expand on the point above and speak further to the strategy behind our market segmentation. It recognises that NGA is not one offering, but a group of offerings and value propositions tailored to the needs of different market segments. Specifically, we have targeted four strategic product-market combinations: UK small and medium-sized business (SMB), UK and Ireland large and mid-market, Australia/New Zealand mid-market, and global enterprise business. These segments now compose the foundation of our growth strategy and our overall go-to-market approach. They represent how we measure ourselves and how we will report results going forward. Let’s look at each.
UK SMB – Moorepay
The SMB mark is a vibrant and growing segment around the world – and one becoming more and more reliant on external expertise given the growing complexities of legislation in the UK. NGA leads this market in the UK with integrated software and services solutions under the Moorepay brand.
Through Moorepay, we market a BPaaS offering – business process as a service – that which combines subscription to our leading software through the cloud, delivering payroll services on top of that software, and accessing a pool of legislative and regulatory experts that small organisations typically don’t have access to on their own. In addition to cloud-based HR software and payroll services, we provide our SMB clients with HR Services and Health & Safety services, all managed by NGA, leveraging proprietary software platforms and our extensive local knowledge and expertise. Today, Moorepay serves 5.7% of the UK SMB HR and payroll market, processes 12m payslips and 250,000 HR service engagements on an annual basis.
Over the past few years, we overlooked this business, and, as a result, our growth suffered. With the dedicated team, clear strategy, and focus on execution, we expect SMB to get back to growth in the next 12 months.
UK and Ireland Large and Mid-Market
Our UK and Ireland large and mid-market business remains strong. We have a market-leading offering, strong market share, a buoyant market environment and an outstanding team. Our focus here is to get to new growth levels by executing our growth plans.
In the UK and Ireland, we provide HR software and services on NGA’s proprietary ResourceLink platform that covers core HR, talent functionality, and payroll. NGA is a market-leading player with 28% market share, more than 1,000 customers and 4.2 million employees served in the UK and Republic of Ireland.
Our ResourceLink platform has been a pioneering cloud HR solution since 2000. In addition to our HR software platform, we have been growing HR BPO/BPaaS services, providing our clients flexibility in service delivery models. As we progress, we will expand our sales through new channels and more effective sales activities.
Over the last few years, our UKIE business has grown 2%–3%. With the new strategy and focus, we expect it to grow in excess of 5%.
ANZ Large and Mid-Market
CEO Letter continued
Last financial year, our ANZ mid-market business saw double-digit revenue growth in the second half of the year, with revenue growth of 8.2% to achieve £17.9m GBP over the year and as such established a record year in terms of revenue performance. The business entered the new year with strong momentum, making this segment living proof that our strategy is working and investments are paying off. We anticipate a strong order intake over the next year as well, ensuring that this segment continues to flourish.
Global Enterprise
This market is characterised for us as a technology platform–led HR services business, built around our unique application and integration technologies – with payroll and workforce administration at the foundation, leveraging global delivery capabilities and strong partnerships with SAP SuccessFactors and Workday.
Our global enterprise segment is of critical importance to NGA, but was also subject to several headwinds, as laid out earlier, including the transformation of our HR consulting business and the results of the Convergys acquisition. These headwinds are well understood and adequately managed. We recorded strong deal flow this past year in the enterprise segment. This is especially true for our global payroll offering, which saw the introduction of Payroll Exchange: a new, highly innovative capability to connect cloud HR solutions with payroll solutions in 145 countries. At the time of publication, nine months after go-live of Payroll Exchange, 15 global multinationals and 250,000 employees signed up for the new offering.
This market segment–based structure allows us to combine our focus on local and regional customer requirements, with an integrated sales and delivery organisation for the markets in which we operate. Each segment has started to deliver on the growth plans it put forward, and we continue to feel confident about our growth strategy, built on a solid delivery footprint and a market segment–focused view of the HR and payroll services marketplace.
Business Outlook
Today NGA is truly one company, with one focus…
We’ve come a long way, based on our team’s hard work, effort and determination. We’ve managed to transform ourselves into a truly global player and our brand recognition is impressive. For the year ahead, we will continue to drive our segment-focused strategy which we established two years ago, with growth as the main objective for all segments. The foundations of our growth are laid in our focus on customer satisfaction, delivery quality, and innovation.
In March 2016, we completed our refinancing. Our new capital structure significantly strengthens our balance sheet and will help accelerate the growth of NGA. Following agreement between our shareholders and our lenders, the Merchant Banking Division of Goldman Sachs and funds advised by Park Square Capital are now the majority shareholders of NGA Human Resources and its parent company Northgate. Northgate’s current shareholder, KKR, stays on as a minority shareholder. The refinancing package comprises the conversion of subordinated debt into equity and a full repayment of outstanding senior debt using proceeds from the sale of Northgate Public Services in December 2014 and from new £395m term facilities.
Financial Highlights
To clarify for the reader of the accounts, we have adjusted the continuing operating profit and EBITDA* for years ending 30 April 2014 and 30 April 2015, to account for one-off items, property provisions and amortisation of acquired intangibles.
Continuing
2015 2014 operations
Continuing Continuing change
operations operations (% yty)
Revenue £451.7m £485.1m (7)%
Adjusted operating profit before significant restructuring, one-off items, property provisions, amortisation of intangibles,
depreciation and impairment of fixed assets (EBITDA)* £81.5m £81.4m (2)%
Adjusted operating profit before significant restructuring, one-off items, property provisions, amortisation of acquired
intangibles and impairment of fixed assets £54.2m £51.7m 1%
Corporate Social Responsibility
As a global business operating in 35 countries, NGA HR is committed to sustainable growth which promotes social, economic and environmental improvement.
Our aim is to conduct our business in a socially responsible way, contributing to the communities in which we operate, minimising our impact on the environment and respecting the needs of employees, clients and other stakeholders.
Governance
Our corporate responsibility agenda is included within the overall framework set by the Corporate Responsibility Group (CRG). The CRG sets our Corporate Responsibility policy and strategy and is responsible for best practice across the Group.
Adel Al-Saleh, our Group Chief Executive, is Executive Sponsor of the CRG. Our corporate responsibility programme is managed to ensure that corporate responsibility is embedded into day-to-day practice.
Sustainable Services
Our services have an impact on people all over the world.
In NGA we work to make organisations more efficient and effective, saving money and reducing environmental impact. Improving organisational performance is at the core of what we do – at work, at home, in school and within the community. Globally, we understand the business of HR and the role it plays within an organisation.
We help our clients become better employers through smarter, more streamlined business processes — to save money, manage employee life cycles, and support globally connected, agile organisations.
The combination of deep HR experience and insight, advanced technology platforms and applications and a global portfolio of flexible service delivery options is how NGA’s experience and insight make a measurable difference for our clients outsourcing services.
We work with our clients to introduce remote and flexible working, reducing environmental impacts and improving quality of life for employees. We continue to extend our Software as a Service delivery model, reducing environmental impact and making services more readily available for our clients.
Combating climate change remains integral to developing sustainable services for NGA HR’s clients. Our business continues to place a strong focus on improving our clients’ environmental performance by enabling them to access modern ‘on demand’ technologies which enable working practices that reduce environmental footprint and generate considerable savings.
Environmental sustainability is fully embedded into service delivery methodology. We focus both on reducing the number of assets required as well as favouring energy-efficient energy consumption models. Assets are reused wherever possible and where they are beyond economical repair, they are recycled in accordance with the Waste Electrical and Electronic Equipment Directive (WEEE).
Further reductions are gained by equipping our employees with the tools and technology to enable flexible and mobile working.
Corporate Social Responsibility continued
Sustainable Procurement
Northgate is committed to ensuring that the products and services that we buy are sustainable. As such, we have integrated corporate social responsibility criteria into our group-wide procurement activities. Sustainability considerations are integrated across our entire procurement process - in the identification of needs, evaluation of options, evaluation of tenders, and post-contract management. This approach is applied globally to all new and existing major suppliers.
Together with our Legal, Finance and Compliance departments, our Procurement department has developed standards to ensure we meet NGA’s commitment to the UN Global Compact principles and work to ensure that all suppliers who wish to do business with any Northgate Company sign up to those same standards we hold ourselves up to. This approach helps propagate the benefits and global best practices onto the workforces across our supply chain. We are continuously evaluating suppliers who might not meet those principles with the objective of bringing our entire supplier base to the same global standard.
Our People
Northgate continues to enhance skills and increase employability in our communities through Apprenticeships, Graduate Trainee Schemes, Careers Visits, Work Experience and partnership with companies.
In the UK, the company has continued to support the Young Apprentice scheme. Within the last year, the company welcomed Young Apprentices working across a range of services and clients, while gaining accreditations in ICT, Customer Service or Business Administration. Several of these young adults have gone on to become permanent employees of the company and several others have used the skills and experience they have gained to obtain permanent jobs with other organisations. By enhancing employability through these schemes, Northgate is addressing shortages of skilled staff, gender issues and supply chain issues, creating a skilled future workforce which will benefit the growth of the IT sector.
ActNow
Through Northgate’s ActNow programme every employee is encouraged to do something, however small, to help deliver value and build sustainable and healthy communities. The programme’s initiatives embrace sustainability, community involvement and engagement.
The company has sponsored numerous charities throughout the last year, encouraging employees to get involved in
Corporate Social Responsibility continued
Key Highlights and Measurements for This
Year:-• In 2014 we have rolled out a Business Fundamentals Programme which was mandatory for all employees. This program includes a module on CSR which explains our commitment to the UN Compact, explains the 10 principles and what we do as a Company toward fulfilling our obligations. The course also includes information on responsibilities for our employees to ensure they are aware and committed to helping us fulfill this commitment. This course is also mandatory for all new joiners within 1 month of joining NGA.
• Northgate aims to be an employer of choice, for people from different backgrounds and to promote respect for the individual, and equality of opportunity. Northgate is committed to eliminating discrimination and encouraging diversity. Our aim is for our workforce to be truly representative of all sections of the wider community and for each employee to feel respected and able to perform their duties to the best of their ability. We have recently updated our Equality, Diversity and Dignity Policy and have published this on our intranet so all employees are aware of our expectations on acceptable conduct.
• We have Mandatory Compliance training for all employees and this year the completion rate was 98%. The small amount who did not complete this training were on Long Term absences – ie Maternity leave. Long term sick leave etc.
• We are a diverse organisation — geographically and culturally — and we celebrate our different talents and skills with personalised development plans for each of our 8,500+ employees around the world. All employees at NGA HR are required to participate in the yearly performance development review with their manager. We aim for 100% completion for this program and this year 99% of employees received a performance review rating and had a performance and development conversation with their manager. The small percentage of employees who did not complete this program, have various reasons for non-completion, such as long term sick, maternity leave or they have joined NGA HR after the start date for the program.
Donations / CSR Activities
Throughout all regions, NGA supports employees to find ways to give back to their communities, including mentoring, volunteering, and donations to their favorite charities. Below are some examples of the last year of activities we have supported.
• Our employees in the UK donated to nearly 100 different charities.
• As a business our Australia sites sponsor 2 children through World Vision. Employees are invited to donate each month and NGA matches the donations received.
• Our Hyderabad site held their first Blood Donation Camp this year.
• Post-Haiyan Relief Operations - Through local and global donations and event savings, NGA HR PH raised funds for post-Haiyan relief operations.
• Colleagues from Wincanton offshore team conducted “Kappa Fest” (by selling Kerala traditional dish prepared from tapioca). The fund was raised for charity to help an old age home near to our site in Kochi, India.
Corporate Social Responsibility continued
• Our UK offices participated in fund raising activities for Red Nose Day in support of the national Comic Relief charity which helps disadvantaged people throughout the world.
• Australia offices participated in Jeans for Genes day raising money for much needed research.
• Employees at our Jacksonville, Florida location hosted an annual charitable giving campaign for their local United Way, a non-profit organisation that disperses funds in the most impactful ways to improve education health and income in the community. In addition to raising thousands of dollars, many employees volunteer for local United Way agencies. Most recently, hundreds of employees wrote letters of encouragement for graduating students to help motivate them to continue along their current path of success.
• Employees in our Irvine Office in North America, recently donated equipment to one of our clients who is a charity, Camp Alandale. They run summer and winter camps for abused children giving them hope and 1-2-1 counselling to assist them in their future lives.
• Our Manila office works with Gawad Kalinga Community Development Foundation, Inc. (GK), which is a Philippine-based movement that aims to end poverty for 5 million families, by first restoring the dignity of the poor. Our support included community service by our employees in building houses, as well as Disaster recovery volunteerism when needed. • We also support the Hands on Manila Servathon (HOM Servathon). This is a day of community service that mobilises
hundreds of volunteers, both first time as well as veterans, to work together in providing assistance to marginalised sectors. NGA’s volunteers over the last year provided community service in restoring classrooms for Grade Schools, and participating in ‘Run for a Cause’.
• Our St John’s office in North America supported the Janeway Children’s Hospital Telethon, manning the phones and helping to raise funds.
• Employees in our St John’s office supported the Ronald McDonald House Home for Dinner Program, providing a meal for families with sick children and took part in the Breast Cancer Foundation “Dress for the Cure” fundraiser, wearing pink in support of the cause and donating contributions through the sales of pink ribbons.
Environment
• Our Kochi site celebrated World Environment Day with the theme Raise your Voice, not the Sea Level. NGA distributed 500 saplings to employees and created awareness about the importance of planting trees and caring for our environment. • As part of our work with Hands on Manila Servathon (HOM Servathon), NGA’s volunteers participated in a Costal and river
clean-up this year.
Directors’ Report
The Directors present their report and financial statements for the year ended
30 April 2015.
Directors
The Board of Directors consists of the following members who possess the necessary range of backgrounds, qualities and experience to lead and maintain effective control over Northgate’s activities.
Adel Al-Saleh Group Chief Executive
Joerg Metzner Non-Executive Director (appointed 27 November 2015) William L. Cornog Non-Executive Director
Stuart Ross Group Finance Director (appointed 1 April 2015) Edouard Pillot Non-Executive Director
Brian Carroll Chairman (resigned 27 November 2015) John Stier Group Finance Director (resigned 20 April 2015)
Risk Assessment
The Board has overall responsibility for the Group’s approach to assessing risk and the systems of internal control, and for monitoring their effectiveness in providing its ultimate stakeholders, certain funds advised by KKR, with a return that is consistent with a responsible assessment and mitigation of risks. This includes reviewing financial, operational and compliance controls and risk management procedures, which themselves include the security and controls around customer and internal data. The Board has established on-going processes for identifying, evaluating and managing the significant risks faced by the Group which accord with the Internal Control Guidance for Directors in the Combined Code (which only applies to UK listed companies but is used for best practice). Further independent assurance is provided by an internal audit function, operating across the Group, and the Group’s auditors. All employees are accountable for operating within these policies.
Internal Control
Whilst the Board maintains full control and direction over appropriate strategic, financial, organisational and compliance issues, it has delegated to executive management the implementation of the systems of internal control within an established framework.
Directors’ Report continued
Assurance
On behalf of the Board, the Audit Committee examines the effectiveness of the Group’s:
• assessment of risk by reviewing evidence of risk assessment activity and a report from internal audit on the risk assessment process; and
• systems of internal control primarily through agreeing the scope of the internal audit programme and reviewing its findings, reviews of the annual financial statements and a review of the nature and scope of the external audit.
Any significant findings or identified risks are closely examined so that appropriate action can be taken. The work of the internal audit department is focused on areas of priority as identified by the risk analysis and in accordance with the annual audit plan approved by the Audit Committee and the Board. External auditors are engaged to express an opinion on the financial statements. They review and test the systems of internal financial control and the data contained in the financial statements to the extent necessary to express their audit opinion. They discuss with management the reporting of operational results and the financial position of the Group and present their findings to the Audit Committee.
Audit Committee
The Committee assists the Board in fulfilling its overview responsibilities, primarily reviewing the reporting of financial and non-financial information, the systems of internal control and risk management, and the audit process. It comprises Edouard Pillot (Chairman) and Joerg Metzner. The Committee intends to meet at least three times a year and the Group Chief Executive Officer, the Group Finance Director, the Group Internal Audit Director and our Auditors, currently KPMG LLP, will attend the meetings by invitation.
Auditors
KPMG LLP was appointed by the Board as auditors of the Group during the period. KPMG LLP has confirmed its willingness to continue in office as auditors of Northgate and in accordance with Section 485 of the Companies Act 2006, a resolution to re-appoint it will be proposed at a future meeting of the Board.
Dividend Policy
The Board reviews the dividend policy in conjunction with a policy of retaining significant funds for future growth. No dividends were declared during the year under review.
Employees
We actively promote an internal recruitment process encouraging internal succession planning and career development. All UK employees have the opportunity to elect members to an Employee Consultation Group (ECG). The ECG meets formally with Northgate’s management on a quarterly basis to discuss issues of importance. The Group also has a number of works councils and employee groups in place across the globe to ensure effective communication takes place with all employees.
Equal Opportunities and Diversity
Northgate aims to be an employer of choice for people from different backgrounds and through our policy and mandatory diversity training (completed annually) we promote respect for the individual and equality of opportunity for employment, development and promotion. Opportunities also exist for employees of the Group who become disabled to continue their employment or to be trained for other positions in the Group. An Equality Survey is conducted regularly.
Health and Safety
Directors’ Report continued
Donations
During the period the Group made no charitable or political donations.
Relationships with key stakeholders
Northgate manages its relationships with its key stakeholder groups as follows: • Customers
Northgate appoints one or more individuals through which all customer contact with each customer is managed. Larger customers have dedicated account managers, or teams that focus directly on customer needs. A number of active user groups are in place where customers can provide feedback on product performance, future requirements and issues of strategic significance.
• Suppliers and partners
Northgate performs reviews of its key suppliers and partners on a regular basis to ensure that maximum performance and value are being obtained, and that risk and reward are equitably shared. Northgate negotiates agreements within which the Group and its suppliers operate.
Significant events during the period
On December 22, 2014 we disposed of our Public Services (NPS) business for a cash consideration of £346.6m, generating a profit on disposal of £24.8m.
Disclosure of information to auditors
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit information of which the Group’s auditors are unaware; and each director has taken all the steps he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Group’s auditors are aware of that information.
This Directors’ Report was approved by the Board and signed on its behalf by:
Daniel William Schenck
Group Company Secretary
Principal Activities
The principal activity of the company is to provide technology solutions and services for human resources management through our NGA Human Resources (NGA) business, founded on advanced technology platforms and applications, and a global portfolio of flexible service delivery options.
Business Performance
Revenue from continuing operations declined by 6.9% to £451.7m (FY14: £485.1m), mainly due to attrition in legacy Convergys contracts, as well as a planned HR consulting transformation. On December 22, 2014 we disposed of our Public Services (NPS) business for a cash consideration of £346.6m, generating a profit on disposal of £24.8m. NGA closed the year with revenues of £451.7m (-6.9%) and EBITDA of £81.5m (+0.1%). After one-off restructuring and property costs of £24.8m (FY14: £49.9m), profit on disposal of the NPS business of £24.8m and amortisation of acquired intangibles of £45.1m (FY14: £49.8m) the Group recorded an operating profit of £26.0m (FY14: loss of £13.9m). Net financing costs increased to £95.9m (FY14: £85.7m). Loss on ordinary activities before tax was £69.9m (2014: £99.6m). Our financial structure was further strengthened by our owners in the past year and we have restructured our debt to support growth. This is important to our clients who seek a HR & payroll partner with the stability, longevity and strength to execute multi-year contracts. NGA also continued to drive strong contract signings by recording a total contract value of £450m GBP and an order book value of £968m.
The Northgate Information Solutions business continues to focus on certain key performance indicators, specifically on revenue growth, earnings before interest, tax, depreciation and amortisation (EBITDA), margin % and order book total contract value.
Business Model and Strategy
Over the course of FY15 NGA HR implemented a market-segment based business model, focused on its core markets and segments. This market-segment approach is defined through four strategic product-market combinations: UK small & medium-sized business (SMB), UK large & mid-market business, Australia and New Zeland business (ANZ), and global enterprise business. These segments are now the foundation for our growth strategy and for our overall go-to-market approach.
This market segment-based structure also allows us to combine our focus on local and regional customer requirements with an integrated sales and delivery organisation. Each segment has started to deliver on the growth plans through the integrated sales and delivery organisation structures and client-centric solution portfolios.
Customer satisfaction has been a particular focus area in FY15. Improved Service Level Agreement (SLA) performance continued to reflect increased levels of client satisfaction and we continued to see company-wide delivery improvements, both in terms of quality and efficiency.
We will continue to build on our client-centric and segment-focused foundations to deliver growth in revenue, profit and cash flow.
Principal Risks and Uncertainties
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.
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. 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.
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. Over the longer term permanent changes in foreign exchange could have an impact on consolidation of foreign subsidiaries earnings.
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.
Strategic Report continued
Business Risks
Risks to the business include the buoyancy of the world economy and levels of employment around the globe impacting income in our HR services business. In addition, despite all the security systems and disaster recovery, business continuity and crisis management plans and procedures in place to protect our infrastructure and business, a cyber attack or other unforeseen events such as natural disasters may cause an interruption to our services and operations. As regards the risk from loss of key personnel, the company has succession plans in place and continually monitors the situation. Price pressures in the market are mitigated by improving the operational efficiency of our services. The Board are very conscious of these matters and that we ensure we continually flex costs in the Group to meet client demand.
Employees
Northgate continues to enhance employability in our communities through Apprenticeships, Graduate Trainee Schemes, Careers Visits, Work Experience and partnership with companies. By doing this, Northgate is addressing shortages of skilled staff, gender issues and supply chain issues, creating a skilled future workforce which will benefit IT sector growth.
Northgate promotes respect for the individual and equality of opportunity for employment through our policy and mandatory diversity training and actively encourages succession planning and career development. Northgate also provides employees with a Flexible Benefits scheme, which enables them to choose benefits that best support their lifestyle. Opportunities also exist for employees of the Group who become disabled to continue their employment or to be trained for other positions in the Group. An Equality Survey is conducted regularly.
The Directors recognise the importance of good communications with Northgate’s employees and of informing and consulting with them on a regular basis. This is mainly achieved through regular meetings, personal appraisals, e-mail communications and the Your Say employee survey.
Health and Safety
Northgate has an established health and safety policy that focuses on the ability to measure performance and to pursue continuous improvement in managing health and safety. The policy is reviewed regularly by the Health and Safety Manager.
Environmental Performance
Combating climate change remains integral to developing sustainable services for Northgate’s clients in all sectors. Our businesses continue to place a strong focus on improving our clients’ environmental performance by enabling them to access modern ‘on demand’ technologies which enable working practices that reduce environmental footprint and generate considerable savings.
Environmental sustainability is fully embedded into service delivery methodology. We focus both on reducing the number of assets required as well as favouring energy-efficient energy consumption models. Assets are reused wherever possible and where they are beyond economical repair, they are recycled in accordance with the Waste Electrical and Electronic Equipment Directive (WEEE). Further reductions are gained by equipping our employees with the tools and technology to enable flexible and mobile working.
Subsequent Events
Strategic Report continued
The table below shows the impact of the restructuring had it been completed on 30 April 2015, excluding the impact of transaction fees incurred.
30 April 15 Impact of 30April 15
Actual restructuring Adjusted
£m £m £m
Non-current assets
Fixed assets 676.3 - 676.3
Other receivables 2.9 - 2.9
Total non-current assets 679.2 - 679.2
Current assets
Trade and other receivables 142.0 - 142.0
Cash and cash equivalents 349.9 (266.7) 83.2
Total current assets 491.9 (266.7) 225.2
Total assets 1,171.1 (266.7) 904.4
Non-current liabilities
Interest-bearing loans and borrowings 878.8 (558.8) 320.0
Other non-current liabilities 65.5 - 65.5
Total non-current liabilities 944.3 (558.8) 385.5
Current liabilities
Interest-bearing loans and borrowings 32.3 (32.3)
-Other current liabilities 236.9 - 236.9
Total current liabilities 269.2 (32.3) 236.9
Total liabilities 1,213.5 (591.1) 622.4
Net (liabilities)/assets (42.4) 324.4 282.0
Shareholders’ (deficit)/funds (42.4) 324.4 282.0
Daniel William Schenck
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 2006. 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.
Independent Auditor’s Report to the Members of Northgate Information
Solutions Limited
We have audited the financial statements of Northgate Information Solutions Limited for the year ended 30 April 2015 set out on pages 10 to 54. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 8, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 April 2015 and of the group’s loss for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; • the parent company financial statements have been properly prepared in accordance with UK Generally Accepted
Accounting Practice;
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
Financial Section continued
Group income statement for the year ended 30 April 2015
Year ended 30 April 2015 Year ended 30 April 2014
Continuing Dis- Total Continuing Dis- Total
Operations continued Operations continued
Operations Operations
(note 2) (note 2)
Notes £m £m £m £m £m £m
Revenue 451.7 119.8 571.5 485.1 181.0 666.1
Operating costs 3 (455.4) (90.1) (545.5) (515.8) (164.2) (680.0)
Group operating profit/(loss) 5 (3.7) 29.7 26.0 (30.7) 16.8 (13.9)
Operating profit before significant restructuring, one-off items, property provisions, amortisation of intangibles, depreciation and
impairment of fixed assets 81.5 23.1 104.6 81.4 42.0 123.4
Amortisation of other intangible
fixed assets 9 (19.0) (4.8) (23.8) (18.6) (6.4) (25.0)
Depreciation of tangible fixed assets 10 (8.3) (1.4) (9.7) (11.1) (1.5) (12.6)
Operating profit before significant restructuring, one-off items, property provisions, amortisation of acquired intangibles and impairment
of fixed assets 54.2 16.9 71.1 51.7 34.1 85.8
Significant restructuring, one-off
items and property provisions 3 (22.5) (2.3) (24.8) (48.2) (1.7) (49.9)
Profit on disposal of Public Services
business 2 - 24.8 24.8 - -
-Amortisation of acquired intangibles 9 (35.4) (9.7) (45.1) (34.2) (15.6) (49.8)
Group operating profit/(loss) (3.7) 29.7 26.0 (30.7) 16.8 (13.9)
Financial income 6 0.3 0.5 0.8 5.4 0.9 6.3
Financial expenses 6 (96.1) (0.6) (96.7) (91.0) (1.0) (92.0)
Net financing costs 6 (95.8) (0.1) (95.9) (85.6) (0.1) (85.7)
Loss before tax (99.5) 29.6 (69.9) (116.3) 16.7 (99.6)
Financial Section continued
Group statement of comprehensive income for the year ended 30 April 2015
Year ended Year ended
30 April 2015 30 April 2014
Notes £m £m
Loss for the year (57.3) (95.6)
Items that will never be reclassified to profit or loss
Remeasurements of defined benefit pension schemes 15 (26.7) 4.3
Deferred tax on remeasurements of defined benefit pension schemes 8 5.3 (2.0)
(21.4) 2.3
Items that are or may be reclassified to profit or loss
Foreign exchange translation differences 10.5 (1.3)
10.5 (1.3)
Total other comprehensive income (10.9) 1.0
Comprehensive income for the year (68.2) (94.6)
Attributable to:
Equity holders of the parent (68.2) (94.6)
Financial Section continued
Group statement of financial position as at 30 April 2015
2015 2014
Notes £m £m
Non-current assets
Goodwill 9 496.9 762.7
Acquired and other intangible assets 9 152.8 284.3
Total intangible assets 9 649.7 1,047.0
Property, plant and equipment 10 26.6 33.8
Other receivables 11 2.9 5.7
Total non-current assets 679.2 1,086.5
Current assets
Inventories – goods for resale - 0.6
Trade and other receivables 11 142.0 200.4
Cash and cash equivalents 13 349.9 68.0
Total current assets 491.9 269.0
Total assets 1,171.1 1,355.5
Non-current liabilities
Interest-bearing loans and borrowings 14 878.8 879.8
Employee benefits 15 42.0 37.4
Provisions 16 2.4 4.7
Deferred tax liabilities 12 6.7 29.2
Other financial liabilities 20(f) 14.4 10.1
Total non-current liabilities 944.3 961.2
Current liabilities
Interest-bearing loans and borrowings 14 32.3 25.1
Provisions 16 5.7 10.2
Taxation 5.8 7.8
Trade and other payables 17 221.2 319.2
Other financial liabilities 20(f) 4.2 6.2
Total current liabilities 269.2 368.5
Total liabilities 1,213.5 1,329.7
Net (liabilities)/assets (42.4) 25.8
Issued share capital 18 108.2 108.2
Financial Section continued
Group statement of changes in equity as at 30 April 2015
Equity
Share Share Capital Retained shareholders’ capital premium contribution earnings funds
£m £m £m £m £m
Balance at 30 April 2013 108.2 0.6 442.4 (485.6) 65.6 Loss for the period - - - (95.6) (95.6) Capital contribution - - 54.8 - 54.8 Other comprehensive income for the year:
Remeasurements of defined benefit pension schemes - - - 4.3 4.3 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 2014 108.2 0.6 497.2 (580.2) 25.8 Loss for the period - - - (57.3) (57.3)
Other comprehensive income for the year:
Remeasurements of defined benefit pension schemes - - - (26.7) (26.7) Deferred tax on remeasurements of defined benefit
pension schemes - - - 5.3 5.3
Foreign exchange translation differences - - - 10.5 10.5
Balance at 30 April 2015 108.2 0.6 497.2 (648.4) (42.4)
Financial Section continued
Group statement of cash flows for the year ended 30 April 2015
Year ended Year ended
30 April 2015 30 April 2014
Notes £m £m
Cash flows from operating activities
Loss for the period (57.3) (95.6)
Adjustments for:
Amortisation of acquired intangibles 9 45.1 49.8
Amortisation of other intangibles 9 23.8 25.0
Depreciation 10 9.7 12.6
Profit on disposal of business 2 (24.8)
-Net financing costs 6 95.9 85.7
Tax credit 8 (12.6) (4.0)
Net cash from operating activities before changes in
working capital and provisions 79.8 73.5
Foreign exchange movements (3.3) (10.6)
Change in trade and other receivables (6.7) 7.6
Change in inventories 0.3 (0.3)
Change in trade and other payables (43.8) (13.1)
Change in provisions and employee benefits (5.6) 5.3
Additional pension deficit contributions (6.3) (6.6)
Net cash from operating activities before taxes paid 14.4 55.8
Cash flows from investing activities
Disposal of discontinued operations net of cash disposed 2 338.3
-Acquisition of intangible assets (22.8) (28.3)
Acquisition of property, plant and equipment (13.4) (14.6)
Net cash used in investing activities 302.1 (42.9)
Net cash from operations after investing activities 316.5 12.9
Taxes paid (1.9) (2.1)
Net cash from operations after investing activities and before
financing activities 314.6 10.8
Cash flows from financing activities
Interest received 0.8 1.0
Interest paid (34.5) (45.8)
Cash flows treated as finance costs – loan arrangement fees - (9.6)
Capital contribution - 54.8
Movement in borrowings 11.4 (28.4)
Repayment of borrowings (5.2) (5.3)
Increase in finance lease liabilities 11.1 16.4
Financial Section continued
1. ACCOUNTING POLICIES
Northgate Information Solutions Limited (the ‘Company’) is a company incorporated and domiciled in the United Kingdom. The consolidated accounts of the Company for the year ended 30 April 2015 comprise the Company and its subsidiaries (together referred to as the ‘Group’).
The financial statements were approved by the Directors and authorised for issue on 24 March 2016.
Statement of Compliance
The Group accounts have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU (”adopted IFRS’s”). The Company has elected to prepare its parent company accounts in accordance with UK GAAP and these are presented on pages 63 to 67. The parent company financial statements present information about the Company as a separate entity and not about its Group.
Basis of Preparation
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Directors’ Report and Strategic Report set out on pages 14 to 20. Note 20 to the financial statements includes the group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
Details of how the Group is funded are set out in Note 14.
Notwithstanding the Group has net current liabilities, the Directors are satisfied that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future as set out in the Strategic Report on page 17. For this reason they continue to adopt the going concern basis in preparing the accounts.
The accounts are presented in pounds sterling, rounded to the nearest 0.1 million and have been prepared under the historic cost convention except for the following assets and liabilities that are stated at fair value: derivative financial instruments and defined benefit pension schemes. Accounting policies have been applied consistently in the period.
Non-GAAP Performance Measures
The board believe that these measures provide additional useful information for the shareholders on the underlying performance of the business. These measures are consistent with how business performance is monitored internally. The adjusted operating profit is not a recognised profit measure under adopted IFRS and may not be directly comparable with ‘adjusted’ profit measures used by other companies. The adjustments made to operating profit have the effect of excluding exceptional income and charges, which are predominantly one-off in nature and therefore create volatility in reported earnings.
Basis of Consolidation
The consolidated accounts incorporate the accounts of the Company and entities controlled by the Company (its subsidiaries) made up to 30 April each period. The Group had one joint venture at the year end.
The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Financial Section continued
Notes to the consolidated accounts for the year ended 30 April 2015 (continued)
1. ACCOUNTING POLICIES (continued)
Basis of Preparation (continued)
Acquisitions on or after 1 January 2010
For acquisitions on or after 1 January 2010, 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. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.
Acquisitions between 1 May 2004 and 1 January 2010
For acquisitions between 1 May 2004 and 1 January 2010, goodwill represents the excess of the cost of the acquisition over the Group’s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess was negative, a bargain purchase gain was recognised immediately in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in connection with business combinations were capitalised as part of the cost of the acquisition.
Change in subsidiary ownership and loss of control
Changes in the group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Where the group loses control of a subsidiary, the assets and liabilities are derecognised along with any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Transactions eliminated on consolidation
