Final Results
15/06/2022 07:00
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RNS Number : 8932O Eckoh PLC 15 June 2022
15 June 2022
Eckoh plc
("Eckoh" or the "Group")
Full year results
- Group and US ARR growing strongly
- Transformational Syntec acquisition progressing well
- Expectation of material growth in FY23
Eckoh plc (AIM: ECK), the global provider of Customer Engagement Security
Solutions, is pleased to announce results for the twelve months to 31 March
2022.
£m (IFRS unless otherwise stated) FY22 FY21 Change
Revenue 31.8 30.5 +4%
Gross profit 25.4 24.2 +5%
US Secure Payments ARR ($m) (1) 11.9 6.5 +82%
Total ARR(1) 25.2 17.0 +48%
Adjusted EBITDA(2) 6.8 6.4 +7%
Adjusted operating profit(3) 5.2 4.7 +10%
Profit before taxation 2.3 3.5 (34%)
Adjusted earnings pence per share(4) 1.57 1.49 +5%
Adjusted diluted earnings pence per share(4) 1.34 1.45 (8%)
1. ARR is the annual recurring revenue of all contracts billing at the end of
the period. Included within Group ARR is all revenue that is
contractually committed and an element of UK revenue that has proven to be
repeatable, but not contractually committed.
2. Adjusted earnings before interest, tax, depreciation and amortisation
(EBITDA) is the profit before tax adjusted for depreciation of owned and
leased assets, amortisation of intangible assets, expenses relating to share
option schemes, restructuring costs and transactional costs.
3. Adjusted operating profit is the profit before tax adjusted for
amortisation of acquired intangible assets, expenses relating to share option
schemes, restructuring and transactional costs
4. Adjusted earnings pence per share - the Group issued 36.2m new ordinary
shares during the year in connection with the acquisition of Syntec which
results in an increase in the weighted average shares in issue across the
period.
Strategic highlights
· Strong ARR(1) growth, especially in the US market, driven
primarily by our clients' need to protect data and comply with increasing
regulation without compromising customer experience
· UK business returned to growth with strong second half revenues
as most client activity recovered
· Transformational Syntec acquisition performing in line with our
expectations with integration on track
o Unification and enhancement of product offering on track for go-to-market
launch in 2022
· As part of our long-term strategic direction, multi-platform
cloud-enablement of our offering is driving:
o Market leadership and competitive advantage
o Scalability into larger client opportunities on an international basis,
characterised by recent contracts
o Significant cross-sell opportunities and faster deployments will drive
increased client value
· Realignment of sales capability and go-to-market proposition to
drive top-line growth, and restructuring of cost base to create greater
operational efficiency
Current trading and Outlook
· Current order levels already substantially exceed FY22's first
quarter outcome
· Significant strengthening of Eckoh's new business pipeline in the
first quarter, including major opportunities for large blue-chip organisations
o Progress reflects success with our strategy to pursue larger, higher
quality opportunities through management action to improve sales function
o Renewals post-period end includes our largest contract scheduled for FY23,
worth £2.1m
· First client deployed and live on our new Azure cloud platform
signed new 3-year contract worth $1.4m for voice security and a further
contract worth $0.6m to secure live chat agents with digital payments
· As previously stated, the Board expects FY23 revenue and profit
to be significantly higher than FY22, driven by strong organic ARR growth,
operational efficiencies and synergistic benefits of the Syntec integration
· The Board is confident of further progress in the year ahead,
supported by an encouraging pipeline, a model with high recurring revenues and
a robust balance sheet.
Financial highlights
· Strong performance, as previously announced in Trading Update on
17 May 2022
· Group ARR(1) up 48%, reflecting market opportunity and ongoing
shift to cloud
· Adjusted operating profit(3) up 10% with successful pivot to
higher quality earnings following the completed exit from US and UK Support,
which contributed £2m to FY21 adjusted operating profit
· US Secure Payments performed strongly:
o Revenue up 8%, underlying growth stronger
o US ARR(1) up 38% on an organic basis and 82% including Syntec
· UK revenues returned to growth with transactional volumes largely
returned to pre-pandemic levels
o Revenue up 9%, excluding third-party support or 3% total
o UK ARR(1) of £16.5m, up 8% on an organic basis and up 36% including
Syntec
· Profit before taxation includes £1.0m of transactional costs (in
connection with the acquisition of Syntec) and £0.9m of one-off restructuring
costs
· Balance sheet remains strong following the Syntec acquisition
with net cash of £2.8m (FY21: £11.7m)
· Increased final proposed Dividend at 0.67p per share (FY21:
0.61p), demonstrating increasing confidence in the ongoing growth opportunity
Nik Philpot, Chief Executive Officer, said:
"Eckoh has made significant progress in the last 12 months. We have shown
the resilience of our business model, with growth in revenue and operating
profit and improved quality of earnings with the completed exit from our
Support activity. Our momentum is underpinned by fast-growing recurring
revenues, with an excellent performance in our US business and a return to
growth in the UK.
We successfully completed the transformational acquisition of Syntec, which
enhanced our position as the largest provider in our industry. The integration
is progressing well and our unified product suite will extend our
market-leading position in Customer Engagement Security Solutions. Our new
multi-platform, cloud delivery has created differentiation within our industry
by offering greater customer choice, enabling us to deliver our services
efficiently and at scale, and address significantly larger and global
mandates.
We have started the year strongly, and looking ahead the Board expects FY23
revenue and profits to be significantly higher than FY22, reflecting our
ongoing organic growth, continued momentum in the US market, a sustained
recovery in UK trading, and the integration of Syntec. In addition, we expect
our progress to be supported by long-term structural growth drivers and
increasing cloud adoption, coupled with the benefits of new products and
operational gearing."
For more information, please contact:
Eckoh plc Tel: 01442 458 300
Nik Philpot, Chief Executive Officer
Chrissie Herbert, Chief Financial Officer
www.eckoh.com (http://www.eckoh.com)
FTI Consulting LLP Tel: 020 3727 1017
Ed Bridges / Jamie Ricketts / Tom Blundell
eckoh@fticonsulting.com (mailto:eckoh@fticonsulting.com)
Singer Capital Markets (Nomad & Joint Broker) Tel: 020 7496 3000
Shaun Dobson / Tom Salvesen / Alex Bond / Kailey Aliyar
www.singercm.com (http://www.n1singer.com)
Canaccord Genuity Limited (Joint Broker) Tel: 020 7523 8000
Simon Bridges / Andrew Potts
www.canaccordgenuity.com (http://www.canaccordgenuity.com)
About Eckoh plc
Eckoh is a global provider of Customer Engagement Security Solutions,
supporting an international client base from its offices in the UK and US.
Our Customer Engagement Security Solutions enable enquiries and transactions
to be performed on whatever device the customer chooses, allowing
organisations to increase efficiency, lower operational costs and provide a
true omnichannel experience.
We help our clients to take payments and transact securely with their
customers through all customer engagement channels. The solutions, which are
protected by multiple patents, remove sensitive personal and payment data from
contact centres and IT environments and are delivered globally through our
multiple cloud platforms or can be deployed on the client's site. They offer
merchants a simple and effective way to reduce the risk of fraud, secure
sensitive data and become compliant with the Payment Card Industry Data
Security Standards ("PCI DSS") and wider data security regulations. Eckoh has
been a PCI DSS Level One Accredited Service Provider since 2010, securing over
£5 billion in payments annually.
Our large portfolio of clients come from a broad range of vertical markets and
includes government departments, telecoms providers, retailers, utility
providers and financial services organisations.
For more information go to www.eckoh.com or email MediaResponseUK@eckoh.com.
Introduction
Eckoh has had a successful year consolidating our position as leaders in the
growing Customer Engagement Security market. Our new metric of Group ARR shows
extremely strong progress and we delivered a robust level of adjusted
operating profit, £5.2 million, an increase of 10% year on year (FY21: £4.7
million) and ahead of consensus market expectations. We acquired Syntec
Holdings Limited in December 2021 and are pleased with the current
performance. The acquisition, alongside our organic business growth, will
further strengthen our market-leading position. In our trading and product
update in April, we announced the significant enhancements to our customer
engagement security portfolio, the majority of which are available globally.
Our performance shows the resilience of our model and the merit of our
long-term strategy, given the remaining challenges presented by the pandemic,
the uncertain macro-economic climate and the planned and completed exit from
US and UK Support, which had contributed £2 million to the previous year's
profit. As a result, the Board has increased the proposed dividend by 10% to
0.67 pence per share (FY21: 0.61 pence per share).
Our strong performance reflects ongoing progress in our US Secure Payments
operation, which now accounts for nearly 90% of total US revenues (FY21: 80%
of total US revenues) and with the enhanced global product offerings provides
the platform for continued growth and additional cross-selling into our
existing clients, a significant part of our strategy. During the year the UK
division has continued to recover and the momentum we saw at the end of the
first half has continued into the second half, with revenue up 9% year on year
in the second half, demonstrating the resilience of our business model.
A year ago, we said we would introduce an ARR(1) metric, which we did for the
US Secure Payments business in our interim results in November. At that time,
we also committed to include an ARR metric for the entire Group with our full
year results, and we are pleased to have been able to fulfil that commitment.
Given the transactional nature of some UK revenues, we have slightly updated
our definition of ARR since our trading update in May. Group ARR(1) was £25.1
million as at 31(st) March 2022, a 48% increase year-year (FY21: £17.0
million), a very strong outcome demonstrating the high level of visibility we
have in our business model.
Total revenue for the year was £31.8 million, an increase year on year of 4%
(FY21: £30.5 million) or 6% adjusting for constant exchange rates. Excluding
the third-party Support business in FY22 and FY21, revenue was £31.2 million,
an increase of 11%. Included within these results are three months of revenue
from Syntec, which is performing in line with our expectations at acquisition.
Gross profit was £25.4 million, an increase year on year of 5% (FY21 £24.2
million), with gross profit margin 80%, (FY21: 79%). US gross profit was £8.5
million (FY21: £8.9 million), with gross profit margin increasing as expected
to 74% (FY21: 71%). The growth in gross profit margin in the US, is aligned
with our expectations as US clients successfully renew their contracts, most
new client deployments are on the cloud platform and there is continued growth
in the Secure Payments activity. UK gross profit was £15.6 million (FY21:
£15.3 million), an increase of 2% with gross profit margin decreasing by 1%
to 84%. Syntec gross profit was £1.4 million, with an 80% gross profit
margin, in line with the Group's gross profit margin.
The prudent cost control we achieved in FY21 has continued into FY22. We
made structural changes to the US Sales team in the second half of the year
and increased our focus on 'vertical selling' (targeting sectors such as
healthcare, which are well suited to our model). We have introduced a global
Network Operations Centre (NOC) and also streamlined the US operational team,
following the planned and completed exit from the third-party Support
business.
Adjusted operating profit(2) was £5.2 million (FY21: £4.7 million), an
increase of 10% year on year. After adjusting for the planned exit from
third-party Support, FY22 adjusted operating profit was £4.8 million, a
year-on-year improvement of 81% (FY21: adjusted operating profit excluding
third party Support £2.7 million).
Total contracted business(3) for the financial year at the Group level was
£22.5 million (FY21: £30.7 million), with 77% of all new business from
Secure Payment solutions. The first half of the year was challenging for new
business and particularly large enterprise contracts with the ongoing impact
of the pandemic at the time. We started to see improvements as the second half
started, but the usually strong final quarter of the year was then impacted
unexpectedly by the global macro-economic challenges arising from the ongoing
conflict in Ukraine. New business won in the year was £10.8 million (FY21:
£15.7 million), an unsatisfactory outcome, but with the continued pandemic
challenges in the first half and the macro-economic challenges in the last
quarter, it was an understandable result. We are, however, very encouraged by
trading in the first quarter of the new year, with order levels already
significantly higher than last year, and with a much stronger pipeline.
Our balance sheet remains robust with a strong net cash position of £2.8
million (FY21: £11.7 million). In the first half of the financial year, we
repaid the final instalment of the term loan with Barclays Bank and in
December we utilised some of our cash reserves to part-fund the acquisition of
Syntec. In addition, and as a result of the acquisition of Syntec, the Group
entered into new banking arrangements with Barclays Bank for a £5.0 million
Revolving Credit Facility (RCF) and a £5.0 million overdraft facility. As at
31(st) March there was no debt drawn under either facility. The RCF is secured
against the Group's UK head office which is an asset we own outright.
A clear growth strategy
Our strategic objectives reflect our primary goal to become the global leader
in our areas of expertise, and in particular, Customer Engagement data and
payment security.
Our strategic objectives include:
· Being the market leader for Customer Engagement data and payment
security
· Capitalise on the fast-growing global market for technology
solutions that help protect customer data
· Maximise client value and retention through cross-selling to
generate higher levels of recurring income
· Make cloud our primary platform and use cloud technologies to
develop and enhance our proprietary solutions
· Evaluate acquisition opportunities that can support our growth
strategy in Customer Engagement security
Highly complementary products brought together into a new enhanced
security-led proposition
Historically Eckoh's go-to-market proposition encompassed two highly
complementary areas: Secure Payment products and Customer Engagement
solutions.
· The Group's patented Secure Payment products help organisations
to reduce the risk of fraud; secure sensitive data; comply with the Payment
Card Industry Data Security Standard ("PCI DSS") and wider security
regulations such as the General Data Protection Regulation ("GDPR") or the US
Consumer Privacy Acts. Eckoh prevents sensitive personal and payment data from
entering IT and contact centre environments when customers make payments for
goods and services.
· The Group's Customer Engagement Solutions help organisations
transform the way they engage with their customers. Eckoh's proposition,
enables enquiries and transactions to be performed on whatever device the
customer chooses, through any inbound communication channel and allows
customers to self-serve or to engage with a customer service advisor. It
enables our clients to increase efficiency, lower operational costs and
increase customer satisfaction by providing a true Omnichannel experience.
The overlap between these two areas has always been significant and has led us
to update and unify our proposition into a new go-to-market vision of Customer
Engagement Security Solutions. Going forward all of our customer engagement
offerings will be underpinned with security features and capabilities to
assist our clients to address security concerns and increasing regulation, but
to do so in a way that doesn't compromise the quality of their customer's
experience. An example of this is our live chat offering which incorporates
our patented and unique ChatGuard capability, that enables payment or personal
information to be entered by a customer into a live chat session without any
of that information traversing our client's environment or being shared with
an advisor.
In the past our UK operations sold our entire product portfolio, but in the US
- a territory that Eckoh entered six years ago - the focus has been on Secure
Payments, where we had the greatest differentiation and the least competition.
Going forward this distinction will no longer be the case, with our new
product proposition being available to any client in any territory. Our
solutions, which will enable our clients to 'Engage, Secure and Protect' their
customers, will all be delivered through our multi-vendor and global cloud
platforms, allowing us to better service international contracts. The
procurement of security and payment solutions to be deployed across multiple
territories is certainly increasing, and we will continue to invest in and
extend our cloud platforms to support this growth. This trend will broaden our
market further and inevitably lead to us having a blurring of our geographical
target markets with Rest of World ('ROW') becoming a more important component
of our future revenue streams.
The growing proportion of cloud deployments we have already seen occur in the
US market, alongside the acquisition of Syntec, means our ability to sell and
deliver additional services to clients is very much enhanced. With our product
roadmap extending our security remit beyond payments and into a broader data
security proposition we expect to be able to increase the lifetime value of
our clients and continue to have very low levels of churn.
As part of the integration of Syntec we have formed a cross-company technical
group who are working on the unification of the security product proposition,
a project that we have named 'Syntegration'. This will lead us to have the
ability to deliver all our Customer Engagement Security Solutions from a
combined cloud native code base and have the flexibility of seamlessly adding
new functionality or additional services as desired by the client, reducing
the time to revenue considerably. The first instantiation of this new unified
offering is expected to be available in this calendar year.
New growth drivers in a broadening global market
Our target market in the UK and US for our Secure Payments proposition has
historically been any sizeable enterprise or organisation that either
transacts or engages with its customers at scale and at volume. This activity
will usually be supported either by an in-house or outsourced contact centre
provider. The greater the volume of payment transactions or customer
engagement activity that the organisation has, the more attractive they are to
Eckoh, and the larger the contact centre operation supporting the organisation
is likely to be.
However, with the advent of a unified go-to-market proposition of Customer
Engagement Security Solutions, enhanced by the new products and delivered
through our expanding cloud platforms, not only will this naturally extend our
reach geographically but it will also increase the opportunity within every
client account. With regulation tightening and the financial impact of data
breaches and fraud growing, organisations are increasingly looking for ways to
move beyond the requirement of merely being compliant to secure themselves
more comprehensively, leading to broadening information security budgets and
remits.
The contact centre industry in both the UK and US is extremely large,
representing around 4% of the entire workforce in both markets. However, the
pandemic and the current economic climate is fundamentally changing the way
that the contact centre industry operates and the pressures it has to deal
with.
§ The pandemic has forced contact centres to adopt hybrid working, increasing
security concerns
§ Recruitment and churn are huge problems, making it very challenging to
properly service clients' needs
§ The cost-of-living crisis will accelerate levels of fraud and increase
collection issues
In the aftermath of the pandemic there is now a much greater reliance on
contact centre agents working remotely, usually from their homes, and that is
only going to accentuate security concerns and requirements. The trend of
remote working for managing customer engagement is almost certainly a
permanent feature, and this can only benefit Eckoh as our security proposition
enables companies to effectively further reduce or remove the risk of data
breaches arising from one of the most challenging parts of their businesses.
Furthermore, the contact centre industry is now battling with a huge problem
of churn and recruitment challenges as a consequence of the realignment of
employees' career aspirations coming out of the pandemic. This is unlikely to
be solved easily or quickly and organisations will be looking even more
acutely at the utilisation of their human agents and turning increasingly to
technology to maximise first contact resolution levels and the average
handling time for each contact. Eckoh's new product portfolio will ensure that
customers can be dealt with swiftly and effectively, without compromising
their customer experience or the security of their data.
Lastly, the cost-of-living crisis will inevitably lead to an increase in
fraud, both from internal employees and external organised criminals. Contact
centres are a relatively low paid sector and it is this tier of employees who
arguably will be most badly hit by the economic pressures, which may lead to a
greater propensity for them to commit criminal acts, whether independently or
on behalf of organised crime. The same economic challenges will also lead to
greater numbers of consumers becoming either unwilling or unable to pay off
charges for services. Managing those customers and trying to successfully and
sensitively collect their payments will require more innovative and effective
use of technology, and Eckoh's security proposition has proven success and a
demonstrable return on investment in this area.
Operational review
US Division (39% of group revenues)
The US business, including the Syntec US activity, represented 39% of Group
revenues in 2022 (FY21: 41%). In the US, the Group's focus has remained on the
US Secure Payments opportunity, where we deliver a patented solution through
the Eckoh CallGuard brand or Syntec CardEasy brand. The product enables
enterprises to take card payments securely within their contact centre
operations and the growth opportunity is underpinned by long-term structural
drivers of tightening regulation, the need to mitigate the risk of data
breaches (and fraud) within our clients' IT and contact centre operations and
the migration to a greater level of remote working.
As the more extensive Customer Engagement Security offering delivered through
our global cloud platforms is introduced to the US this year, there is a huge
opportunity to cross-sell to our existing enterprise clients, many of which
are the largest brands in the US market. This approach has proven to be highly
successful with our UK clients and will drive continued growth.
In the US, Secure Payment revenue was $13.8 million an increase of 8.1% (FY21
$12.8 million) and 88% of total US revenue (FY21: 78%). The revenue growth has
been tempered in this period by the three secure payment contracts that
successfully renewed for the first time during the year, one of which was our
largest contract to date, a $7.4 million 2-year contract that went live in
2019. At the point of renewal, the hardware fees and implementation fees are
fully recognised and as we see more clients go through their first renewal, we
will see the overall percentage of recurring revenue continue to increase.
This is illustrated by the progress in recurring revenue, which was 65% (FY21:
52%), an improvement of 13%, demonstrating both the successful renewals
achieved in the year and the increased number of clients who deploy on our
global cloud platform. We expect the level of cloud deployments to continue at
the current level, which will continue to improve the recurring revenue and
the gross profit of the business.
The planned transition to Secure Payments and ultimate exit from the Support
activity is now completed, with only $0.5m of revenue in this financial year
coming from Support. Over the last five years Secure Payments has grown at a
compound annual growth rate of 30% and the quality of earnings going forward
will be enhanced by the exit from the shorter-term Support contracts. The
growth of the US business is further demonstrated in the new ARR metric. The
Eckoh US Secure payments ARR is $9.0m, an increase of 38% from the same time
last year. When the Syntec US activity is included, the combined ARR is $11.9
million, an increase year on year of 82%.
Total contracted business was $10.6 million a decrease of 35% (FY21 $15.5
million). The level of new contracts was lower in the second half than
expected, reflecting an unusually quiet fourth quarter due to macro-economic
conditions and ramifications of the Ukraine situation. The Company remains
focused on large enterprise contracts, and whilst deals were slow to close at
the end of the year, the pipeline is stronger than a year ago and
encouragingly we have seen much higher levels of activity and value of deals
closing in Q1 of the new year compared to last.
We continue to see, as expected, the general acceleration towards cloud
deployments and with our recently announced implementation of a new Microsoft
Azure Cloud platform with a Fortune 100 US retailer now live, this makes Eckoh
the only provider in our industry to offer alternative cloud providers. This
particular client actively chose to deploy onto the Azure platform,
illustrating that there are sensitivities and preferences that clients will
have that will influence their choice of Cloud provider.
The ability to offer our clients a choice of cloud platform strengthens our
position in the market and the expansion globally of our cloud platforms and
capabilities remains one of our key strategic goals. One of the big advantages
this brings is the speed and ease with which multiple parts of our secure
engagement portfolio can be deployed. The client who is now live on our Azure
platform has entered into two separate contracts with us. The first worth
$1.4m over three years is for securing their voice agents, the second worth
$0.6m is to allow them to securely take digital payments across other
engagement channels, notably live chat. This is a good illustration of how we
expect new and existing clients to take multiple parts of our portfolio and
extend the reach of their overall solution over time.
While cloud deployment remains a key goal and advantage, we still expect that
many of the largest enterprises will take many years to achieve that
objective, so retaining the capability to deploy as required in a client's own
data centres and environment continues to give us a tactical advantage over
our competitors.
The launch of CallGuard Express in the second half, which is deliberately
designed for smaller customers, will see smaller contracts being targeted and
won for the first time. This product is extremely quick to deploy, with very
limited operational overhead associated with it, so the conversion of a sale
into revenue will be much faster than on our larger contacts, and the margin
higher. We expect these contracts to be primarily won through partners and our
sales channels continue to strengthen, so the share of pipeline and revenue
from partners is expected to increase over time. Partner sales opportunities
now represent 30% of our total pipeline.
The average length of new contracts for Secure Payments is three years which
is comparable to the UK, however, it is more typical in the US for renewals to
be annual, often on an auto-renew. During the year there were five contracts
that successfully renewed, one of which was our largest contract signed to
date ($7.4 million over 2 years). There was a significant level of one-off
fees in this contract, which were fully recognised in the first half. In the
second half of the year there were two contracts, which are both on an annual
auto-renew as described above, they are now in their fourth and fifth year
showing similar lifecycle values to our UK clients.
External factors, such as the impending change to version 4 of the Payment
Card Industry Data Security Standard (PCI DSS), the implementation of new data
laws such as US Consumer Privacy Acts and significant fines levied on US
organisations through the GDPR legislation, are undoubtedly helping raise
awareness of the risks of not protecting sensitive data properly. This will
assist us in continuing to build our pipeline which is substantial and
growing. Our focus on these larger contracts means that in future periods
the timing of contract wins continues to be hard to predict given the
typically longer sales cycle.
In the year Coral and Support had a combined revenue of $1.8 million (FY21:
$3.5 million) and accounted for 12% of the revenues (FY21:22%). A proportion
of the restructuring costs incurred in the US in the first half relate to the
third-party Support area of the business and the last stage of the
restructuring took place in October as we merged the UK and US Customer
Support desks to a global Network Operations Centre (NOC).
Coral is a browser-based agent desktop that increases efficiency by bringing
all the contact centre agent's communication tools into a single screen. It
also enables organisations, particularly those who have grown by acquisition,
to standardise their contact centre facilities, as Coral can be implemented in
environments that operate on entirely different underlying technology. In the
prior period, we secured additional licences and functionality of $1.0 million
in the year. In FY22, there were no incremental licence fees, however as we
have indicated previously, the timing of Coral orders remains hard to forecast
and they will be lumpy in nature.
This will be the last time that the US is reviewed in the context of Secure
Payments only. With the shift to a unified Customer Engagement Security
Solutions proposition we will be commenting on our progress across this
broader offering and will be able to assess progress in our ability to
cross-sell new services into existing clients as well as on boarding new
clients.
UK Division, including Syntec UK and Rest of World (61% of group revenues)
During the year the UK division has continued to recover and the momentum we
saw at the end of the first half has continued into the second half, with
revenue up 9% year on year in the second half, demonstrating the resilience of
our business model. This provides us with continued confidence for the new
year coupled with the strong contracted business already achieved in the first
quarter to date.
Revenue in the year was £18.6 million (FY21 £18.0 million) an increase of
3%, this is particularly pleasing given the challenging beginning to the year,
when the country remained impacted by the pandemic. When the third-party
Support revenue is excluded in FY22 and FY21, the underlying growth was 9%
from £16.8 million to £18.3 million. Recurring revenue has decreased to 80%
from 84% in FY21 partly due to the planned exit from third-party Support.
UK clients are contracted through a range of commercial models that have
evolved over time, unlike the newer US business (including Syntec US
activity), which operates entirely on fixed fee contracts. Where the
commercial model is transactional, which is common, it is usual for a client
to commit to a high percentage of its expected volumes and in so doing achieve
the most competitive buying rate. The portion of a client's revenue that is
not committed is generally repeatable, even as we saw in the pandemic, where
the UK activity levels were very significantly impacted but the revenue impact
was only around 10%. In introducing the Group ARR metric, we have had to make
an assumption on the revenue that is not contractually committed but is, and
has been, repeatable. Based on this view UK ARR at the end of the period was
£16.5m, a 36% increase including Syntec, 8% of which was organic.
Gross profit in the year was £15.6 million, an increase of 2% (FY21: £15.3
million) and gross margin in the UK decreased in the period by 1% to 84%
(FY21: 85%).
Total contracted business was £13.3 million compared to £18.9 million in the
prior year and new contracted business was £5.0 million compared to £5.9
million, a 14% decrease year on year. Total contracted business can be
impacted by the timing of particularly large renewals, for example, in FY21 we
completed a six-year contract renewal with Capita for the provision of
services for the Congestion Charge to Transport for London, at a minimum
contract value of £4 million. In FY22 we completed important renewals with
amongst others Premier Inn, Rail Delivery Group, Thames Water and Boots, but
these were comparatively smaller than the Capita agreement. There was only one
significant client that was not renewed in the period, who were contracted
through a partner, and migrated to a different solution, this was the first
such non-renewal for many years. Since the financial year end, we have
successfully renewed our largest contract scheduled for this financial year, a
contract through Capita for a large public service organisation, which was
£2.1 million over the term.
Looking at the segmentation of UK revenue, 28% came from Secure Payment
services (FY21: 27%), 32% from Customer Engagement Solutions (FY21: 36%) and
the remaining 40% from clients where we provide a combination of both
solutions (FY21: 37%). The shift from Customer Engagement Solutions to clients
with combined solutions is principally due to the improving volumes from our
larger clients who take both the Secure Payments solution and the Customer
Engagement Solution.
Our model of cross-selling to existing clients remains a key part of the Eckoh
strategy, not just to generate incremental revenue but also to continue the
trend of strong client retention and to further increase the lifetime value of
the Group's customers. £3.6 million of the new business secured in the year
(FY21: £3.5 million) was contracted with existing customers for delivery of
new solutions or modifications. Our strong track record with existing clients
has also continued to be demonstrated through the extremely high proportion of
clients that are successfully renewed.
New business wins, consistent renewals of existing clients and the improved
transactional volume from our long-standing clients give us high revenue
visibility and our UK clients are underpinned by contractual fees or minimum
transaction levels. We expect the improvement in transactional revenues seen
in the second quarter to continue into the second half, subject to no further
lockdowns being implemented.
Syntec contributed £1.7 million of revenue and £0.3 million of operating
profit in the final quarter of the financial year. This was consistent with
our expectations at the time of the transaction, and the integration of the
businesses is proceeding on plan. Unification of the technology and product
offering is making progress and we expect to deliver a unified and enhanced
go-to-market proposition in 2022.
Product update
In April we announced significant enhancements to our Customer Engagement
Security portfolio to assist organisations in protecting their customers'
payment and personal data in more efficient and diverse ways.
The enhancements support Eckoh's strategic goals to capitalise on the
structural developments in the global market and to use cloud technologies to
develop and enhance our proprietary solutions while maintaining a market
leading position for Customer Engagement data and payment security. These new
enhancements included:
Secure Chat
Eckoh's Live Chat product is used by large enterprises that need the most
versatile customisations and integrations plus the ability to scale to support
the largest and most demanding requirements - something that off-the-shelf
Chat products cannot provide. With a new redesigned interface based on
extensive client feedback, agents and customers can now enjoy an even slicker
and more convenient experience that is fully cloud-hosted, allowing for sudden
and significant fluctuations in demand. With Eckoh's unique and patented
product ChatGuard built-in as standard, organisations can take fast in-chat
payments with the reassurance of full PCI DSS compliance. Eckoh's Secure Chat
is the only service to offer this capability and this updated version is now
available globally and is expected to add significant value to the security
proposition.
Digital Payments
Blending digital security with live person interaction, Eckoh's Digital
Payments can be extended to any customer engagement channel. Organisations can
now provide their customers with a secure payment link triggered by the agent
from an engagement on a chat or messaging session or via an email. The agent
can monitor the progress of the payment process in a similar way to our voice
security product, and without any exposure to any of the data. It also offers
the consumer traditional card payment or popular alternative payment methods
like PayPal, ApplePay or GooglePay. Digital Payments is now available
globally through Eckoh's multi-cloud platforms, the latest addition to the
broadening security product range that is facilitating greater opportunities
for cross-selling into Eckoh's extensive client base.
CallGuard Express
CallGuard Express is designed to make compliance and security straightforward
for any business. It offers companies of any size the same security
functionality and credentials of CallGuard, but without the customisation and
managed service that larger companies often require. This enables CallGuard
Express to be quick to deploy, simple to use and with a lower-cost entry
point. As well as standalone businesses, this new proposition is also
available to resellers through a partner program, enabling them to switch on
new clients within days with no integration required.
CallGuard On-Demand
In response to the increasingly rigorous Payment Card Industry Data Security
Standards ("PCI DSS"), Eckoh has developed an on-demand option for
organisations who may have low or variable volumes of payments but still
require the reassurance of full compliance. This enhancement gives the contact
centre agent the ability to invoke CallGuard only when a payment is taken,
rather than all calls needing to traverse through the system.
Speech technology expansion
Eckoh has a long and successful history of speech-based applications and is
leveraging that knowledge by enabling even more languages for the speech
option in our security solutions. A new five-year contract, which was a
significant cross-sell into a Syntec account, will see 18 different languages
being implemented across the global estate of an international travel
business.
Amazon Connect
During FY22 we have invested in progressing the delivery of Eckoh solutions
that include Amazon Connect as the Cloud telephony layer. When combined with
Eckoh's Customer Engagement Security Solutions this creates a compelling
bundled solution that will enable Eckoh clients to have complex and
feature-rich cloud customer engagement but delivered in a truly flexible,
agile and, most importantly, secure way.
Syntegration - Creating a new cloud delivered Customer Engagement Security
offering
'Syntegration' is an in-flight project to bring the best of Eckoh and Syntec's
existing products and technologies together, and build a unified platform and
roadmap for future new capability. Both company's core development teams have
been working as one cohesive unit to take all the best elements of each
product and bring them together into a truly world-class product suite. It
will provide a seamless upgrade path for current clients to benefit from all
the same capabilities as future clients.
Both Eckoh and Syntec already had well-established, successful products in the
market, having benefitted from many man-years of initial development coupled
with subsequent enhancements and fine tuning based on feedback from some of
the world's largest brands. The combination of the two products not only
enhances the core security aspects of the platform, but also extends
capability to new features almost immediately and creates an extensive roadmap
for future innovation.
With each solution having its own unique strengths, Eckoh has capitalised on
these, bringing them together in a re-worked code base, plugging in additional
capabilities and deployment models, and leveraging advances in Cloud
technology that have emerged in the last five years. As Eckoh's CallGuard
and CardEasy brands will now both benefit from the cross-pollination of
features, many near-term roadmap items will be brought to fruition via this
'Syntegration' rather than net-new development. Further, our long-term
roadmaps now culminate into a single vision where new features can be
developed and released on an accelerated timeline with the larger and more
integrated research and development team.
The benefits of Syntegration are wide ranging, not only strengthening Eckoh's
product proposition and partner integrations, but also delivering a
significant number of operational efficiencies and reduced cost of
ownership. Some key benefits of the new offering will be:
· Best of both product sets
· Cloud agnostic
· Increases automation and agent efficiency
· Seamless upgrade path for all customers
· Reduces the total cost of ownership by lowering the cloud
footprint (less computing power)
· Brings together an unrivalled stable of out-the-box
integrations
· Fits any deployment model we have encountered
· Delivery through configuration rather than bespoke development
· Provides the backbone for our Customer Engagement Security
roadmap
· Combines architectural and engineering expertise with a growing
patent portfolio
Outlook
The balance sheet remains strong with net cash of £2.8m (FY21: £11.7m), well
ahead of expectations. The reduction from last year reflects the completed
acquisition of Syntec in December 2021, which was part funded from our cash
reserves.
The Board expects revenue and profit for FY23 to be significantly higher than
FY22. This will be driven by synergistic benefits of the Syntec integration,
ongoing momentum in the US market, and expected normal trading activity in the
UK; supported by long-term structural growth drivers and cloud adoption. The
Board is confident of further progress in the year ahead, with an encouraging
pipeline, a model with high recurring revenues and a robust balance sheet,
coupled with the benefits of new products and operational efficiencies. These
expectations are subject to ongoing uncertainty in the macro-economic climate.
Financial Review
Eckoh has had a successful year and delivered a robust level of adjusted
operating profit, £5.2 million, an increase of 10% year on year (FY21: £4.7
million) and ahead of consensus market expectations. We acquired Syntec
Holdings Limited in December 2021 and their results for the three months to
31(st) March 2022 are included in the below review.
Revenue for the year increased by 4% to £31.8 million (FY21: £30.5 million)
and at constant exchange(3) rates by 6%. Adjusted operating profit(1) was
£5.2 million an increase of 10% year on year (FY21: £4.7 million). Profit
after tax for the year was £1.6 million, compared to £2.8 million in FY21.
In the current year profit after tax of £1.6 million, there are £1.0 million
of transaction costs relating to the acquisition of Syntec and restructuring
costs of £0.9 million. The restructuring costs include redundancy and
contract termination costs following the acquisition of Syntec and redundancy
costs in Eckoh US following the restructuring of the Sales team, the
introduction of a global Network Operations Centre (NOC) and the completion of
the exit of the third-party Support business.
Basic earnings per share for the year ended 31 March 2022 was 0.59 pence per
share (FY21: 1.09 pence per share). Adjusted earnings per share for the year
ended 31 March 2022 was 1.57 pence per share (FY21: 1.49 pence per share).
Divisional performance
Revenue in the UK, which represents 59% (FY21: 59%) of total group revenues,
increased by 3.1% to £18.6 million (FY21: £18.0m). The US represented 36%
(FY21: 41%) of total group revenues and revenues decreased in the period by
7.7% to £11.5 million (FY21: £12.4m). After excluding the exited third-party
Support business in prior years, revenues increased by 4.9%. Syntec revenue
was £1.7 million, or 5% of total group revenues, in line with expectation at
acquisition. Revenues in local currency grew by 5.7% year on year.
Following the acquisition of Syntec, whose business is split across the US, UK
and Rest of World (ROW), the increasing frequency of contracting on a global
basis with clients and the increased global deployment of our products as we
increase our product availability globally through our multi-cloud offering,
we will review the most appropriate and meaningful approach to measure the
success of our business. Including the Syntec US revenues with Eckoh's US
division, means US revenues account for 39% of revenues, the UK and ROW 61%.
Further explanations of movements in revenue between the US and UK divisions,
including Syntec have been addressed in the Operational Review above.
FY22 FY22 FY22 FY22 FY21 FY21 FY21
(UK) (US) (Syntec) Total (UK) (US) Total
£000 £000 £000 £000 £000 £000 £000
Revenue 18,596 11,487 1,697 31,780 18,037 12,449 30,486
Gross Profit 15,593 8,473 1,357 25,423 15,299 8,896 24,195
Gross margin 84% 74% 80% 80% 85% 71% 79%
Gross profit
The Group's gross profit increased to £25.4 million (FY21: £24.2 million).
Gross profit margin was 80% for the year, an increase of 1% year on year
(FY21: 79%). The UK gross profit margin decreased by 1% to 84%. In the US,
the full year margin increased from 71% to 74% as previously indicated, due to
the continued increase in Secure Payments and particularly in the cloud
environment, the planned transition away from the third-party Support business
and the impact of one-off Coral licences in the prior year.
In the UK, as the service is hosted on an Eckoh platform, there is typically
no hardware provided to clients and the gross profit margin is expected to
remain at 84-85%. In the US, we would expect the gross profit margin to
continue to increase from 74% to approx. 76% over the next two years. This is
driven by the continued growth of the Secure Payments' activities for cloud
solutions coupled with clients renewing their contracts without additional
significant hardware. Syntec has a mixture of business delivered in the US, UK
and ROW, with deployments typically through its hosted cloud platform for its
UK and ROW business, with the US business having a mixture of on-site
deployments and more lately cloud deployments, the gross profit margin is
expected to remain at approx. 80%.
Administrative expenses
Total administrative expenses for the year were £23.0 million (FY21: £20.6
million). Adjusted administrative expenses(4) for the year were £20.2
million (FY21: £19.4 million). The prudent cost control achieved in FY21
has continued into FY22, we made structural changes to the US Sales team at
the end of the first half and increased our focus on 'vertical selling'
(targeting sectors such as healthcare, which are well suited to our model), we
have introduced a global Network Operations Centre (NOC) and also streamlined
the US operational team, following the planned and completed exit from the
third-party Support business. Included in administrative expenses is a trading
foreign currency loss of £0.1 million (FY21: £0.4million loss).
Profitability measures
Adjusted operating profit was £5.2 million, an increase of 10.1% year on year
(FY21: £4.7 million). Included in the year was a foreign currency loss of
£0.1 million (FY21: loss £0.4 million) and nil Coral licences (FY21 £0.3
million). Adjusted EBITDA(2) for the year was £6.8 million, an increase of
7.6% year on year (FY21: £6.4 million).
Year Year
ended ended
31 March 31 March
2022 2021
£'000 £'000
Profit from operating activities 2,386 3,550
Amortisation of acquired intangible assets 751 663
Expenses relating to share option schemes 241 536
Restructuring costs 866 -
Costs relating to business combinations 985 -
Adjusted operating profit(1) 5,229 4,749
Amortisation of other intangible assets 392 398
Depreciation of owned assets 675 704
Depreciation of leased asset 498 505
Adjusted EBITDA(2) 6,794 6,356
1. Adjusted operating profit is the operating profit before adjustments for
expenses relating to share option schemes, amortisation of acquired
intangibles assets, restructuring costs and costs relating to business
combinations.
2. Adjusted earnings before interest, tax, depreciation and amortisation
(EBITDA) is the profit from operating activities adjusted for depreciation,
amortisation, expenses relating to share option schemes, restructuring costs
and costs relating to business combinations.
3. At constant exchange rates (using last year exchange rates)
4. Adjusted administrative expenses are administrative expenses before
adjustments for expenses relating to share option schemes, depreciation of
owned and leased assets, amortisation of acquired intangible assets,
restructuring costs and costs relating to business combinations
Statement of financial position
While Eckoh continues to innovate by developing new products and features such
as those detailed in the product update, little of this is capitalised on the
balance sheet with only £0.3 million (FY21: £0.4m) added in the year to the
value of the intangible assets of the Company. While taking a prudent approach
to capitalising salary cost, which reduces reported profit, management
believes this approach gives an accurate reflection of the trading performance
of the Company.
Finance charges
For the financial year ended 31 March 2022, the interest payable charge was
£74k (FY21: £87k). The interest charge is made up of bank interest of £23k
(FY21: £54k) and interest on leased assets of £51k (FY21: £33k).
Taxation
For the financial year ended 31 March 2022, there was a tax charge of £743k
(FY21: £717k charge). The effective tax rate in the financial year ended 31
March 2022 was 43.8% (FY21: 20.4%). The current year tax rate is impacted by
the non-deductible nature of the fees relating to the transaction of Syntec
and the reversal of deferred tax on the share options for the Exec Directors
which are unlikely to vest in July 2022.
Earnings per share
Basic earnings per share was 0.59 pence per share (FY21: 1.09 pence per
share). Diluted earnings per share was 0.51 pence per share (FY21: 1.06 pence
per share). Adjusted diluted earnings per share was 1.34 pence per share
(FY21: 1.45 pence per share).
Client contracts
Client contracts are typically multi-year in length and have a high proportion
of recurring revenues, usually underpinned by minimum commitments. With a
greater proportion of contracts being delivered through the cloud the initial
set up fees and hardware costs associated with larger customer premise
deployments will be reducing, leading over time to an increase in operating
margin.
Contract liabilities and contract assets
Contract liabilities and contract assets relating to IFRS 15 Revenue from
Contracts with Customers have decreased in the current year, principally as
new contracted business in the US has been predominantly for cloud-based
solutions. Where clients contract for their services to be provided in the
cloud or on our internal cloud platform, the level of hardware is
significantly reduced and implementation fees are typically lower. This
reduces the level of upfront cash received but drives a greater level of
revenue visibility and earnings quality. Total contract liabilities were
£12.5 million (FY21: £11.3 million), included in this balance are £9.5
million of contract liabilities relating to the Secure Payments' product,
hosted platform product or Syntec's CardEasy Secure Payments product, a
decrease from £1.8 million at the same time in the previous year. Contract
assets as at 31 March 2022 were £3.8 million (FY21: £4.4 million).
Cashflow and liquidity
Gross cash at 31 March 2022 was £2.8 million (FY21: £12.7 million), as at 31
March 2022 there was no drawdown of debt (FY21: £1.0 million debt). In April
and July 2021, the Company made the two final quarterly repayments of £1.0
million of the loans outstanding to Barclays Bank in accordance with the terms
of the term loan. During the second half of the year and as a result of the
acquisition of Syntec, we utilised our cash reserves to part-fund the
acquisition, raised funds from Shareholders and the Group secured a new £10
million debt facility with Barclays Bank, which comprises a £5.0 million
overdraft and a £5.0 million revolving credit facility. During the year,
there has been a net cash outflow from working capital of £1.7 million (FY21:
£2.3 million cash outflow) due to the timing of invoicing and cash receipts
and as the deferred revenue for the US large on-site deployments has been
recognised over the term of the contract, generally three years.
Dividends
Post year end the Directors are recommending that a final dividend for the
year ended 31 March 2022 of 0.67 pence per ordinary share be paid to the
Shareholders whose names appear on the register at the close of business on 23
September 2022, with payment on 21 October 2022. The ex-dividend date will be
22 September 2022. This recommendation will be put to the Shareholders at the
Annual General Meeting. Based on the shares in issue at the year end, this
payment would amount to £2.0m.
Consolidated statement of total comprehensive income
for the year ended 31 March 2022
2022 2021
Notes £'000 £'000
Continuing operations
Revenue 2 31,780 30,486
Cost of sales (6,357) (6,291)
Gross profit 25,423 24,195
Administrative expenses (23,037) (20,645)
Operating profit 2,386 3,550
Adjusted operating profit 5,229 4,749
Amortisation of acquired intangible assets (751) (663)
Expenses relating to share option schemes (241) (536)
Exceptional restructuring costs (866) -
Costs relating to acquisition 5 (985) -
Profit from operating activities 2,386 3,550
Finance charges (74) (87)
Finance income 6 48
Profit before taxation 2,318 3,511
Taxation (743) (717)
Profit for the financial year 1,575 2,794
Other comprehensive income
Items that will be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations 139 134
Other comprehensive income for the year, net of income tax 139 134
Total comprehensive income for the year attributable to the equity holders of 1,714 2,928
the parent company
2022 2021
Profit per share pence Pence
Basic earnings per 0.25p share 3 0.59 1.09
Diluted earnings per 0.25p share 3 0.51 1.06
Consolidated statement of financial position
as at 31 March 2022
2022 2021
Notes £'000 £'000
Assets
Non-current assets
Intangible assets 39,664 6,527
Property, plant and equipment 4,189 4,307
Right-of-use leased assets 1,516 1,310
Deferred tax assets 1,789 3,211
47,158 15,355
Current assets
Inventories 268 174
Trade and other receivables 12,283 13,277
Cash and cash equivalents 2,840 12,706
15,391 26,157
Total assets 62,549 41,512
Liabilities
Current liabilities
Trade and other payables (18,286) (18,482)
Other interest-bearing loans and borrowings - (975)
Lease liabilities (609) (517)
(18,895) (19,974)
Non-current liabilities
Lease liabilities (928) (825)
Deferred tax liabilities (2,983) (296)
(3,911) (1,121)
Net assets 39,743 20,417
Shareholders' equity
Called up share capital 732 638
Share premium account 22,180 2,663
Capital redemption reserve 198 198
Merger reserve 2,697 2,697
Currency reserve 1,121 982
Retained earnings 12,815 13,239
Total shareholders' equity 39,743 20,417
Consolidated statement of changes in equity
for the year ended 31 March 2022
Called up Share Capital Merger Currency Retained Total
share premium redemption reserve reserve earnings shareholders'
capital account reserve equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 2021 638 2,663 198 2,697 982 13,239 20,417
Total comprehensive income for the year
Profit for the financial year - - - - - 1,575 1,575
Other comprehensive expense for the period - - - - 139 - 139
Total comprehensive income for the year - - - - 139 1,575 1,714
Dividends paid in the year - - - - - (1,559) (1,559)
Shares transacted through Employee Benefit Trust - - - - - (75) (75)
Purchase of own shares - - - - - (126) (126)
Shares purchased for share ownership plan - - - - - (111) (111)
Shares issued under the share option schemes 3 226 - - - - 229
Share based payment charge - - - - - 464 464
Shares issued as part of acquisition 91 19,291 - - - - 19,382
Deferred tax on share options - - - - - (592) (592)
Transactions with owners recorded directly in equity 94 19,517 - - - (1,999) 17,612
Balance at 31 March 2022 732 22,180 198 2,697 1,121 12,815 39,743
Called up Share Capital Merger Currency Retained Total
share premium redemption Reserve reserve earnings shareholders'
capital reserve equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 2020 638 2,663 198 2,697 848 11,965 19,009
Total comprehensive income for the year
Profit for the financial year - - - - - 2,794 2,794
Other comprehensive expense for the year - - - - 134 - 134
Total comprehensive income for the year - - - - 134 2,794 2,928
Dividends paid in the year - - - - - (1,558) (1,558)
Shares transacted through Employee Benefit Trust - - - - - (138) (138)
Shares purchased for share ownership plan - - - - - (241) (241)
Share based payment charge - - - - - 303 303
Deferred tax on share options - - - - - 114 114
Transactions with owners recorded directly in equity - - - - - (1,520) (1,520)
Balance at 31 March 2021 638 2,663 198 2,697 982 13,239 20,417
Consolidated statement of cash flows
for the year ended 31 March 2022
2022 2021
Notes £'000 £'000
Cash flows from operating activities
Cash generated from operations 4 3,362 4,385
Taxation received/ (paid) 88 (10)
Interest paid (23) (54)
Interest paid on lease liability (51) (33)
Net cash generated from operating activities 3,376 4,288
Cash flows from investing activities
Purchase of property, plant and equipment (308) (1,175)
Purchase of intangible assets (375) (573)
Business acquisition (22,500) -
Interest received 6 48
Net cash utilised in investing activities (23,177) (1,700)
Cash flows from financing activities
Dividends paid (1,559) (1,558)
Repayment of borrowings (975) (975)
Principal elements of lease payments (500) (461)
Purchase of own shares (126) -
Shares purchased for share ownership plan (110) (241)
Issue of shares net of issue costs 13,311 -
Shares acquired/sold by Employee Benefit Trust (75) (138)
Net cash generated from / (utilised in) financing activities 9,966 (3,373)
Decrease in cash and cash equivalents (9,835) (785)
Cash and cash equivalents at the start of the period 12,706 13,541
Effect of exchange rate fluctuations on cash held (31) (50)
Cash and cash equivalents at the end of the period 2,840 12,706
1. Basis of preparation
The preliminary results of Eckoh plc have been prepared in accordance with the
recognition and measurement principles of UK adopted international accounting
standards in conformity with the requirements of the Companies Act 2006 and
effective at 31 March 2022. These statements do not constitute the Company's
statutory accounts within the meaning of section 435 of the Companies Act 2006
but have been derived from those accounts.
Statutory accounts for the year ended 31 March 2021 have been delivered to the
Registrar of Companies but those for the year ended 31 March 2022 have not yet
been delivered.
The auditors have reported on the accounts for the year ended 31 March 2022;
their report was not qualified, did not include references to any matters to
which the auditors drew attention to by way of emphasis without qualifying
their report and did not contain statements under section 498(2) or (3) of the
Companies Act 2006.
Going concern
In determining the appropriate basis of preparation of the Financial
Statements, the Directors are required to consider whether the Group and
Company can continue in operational existence for the foreseeable future.
The Board has carried out a going concern review and concluded that the Group
and Company have adequate cash to continue in operational existence for the
foreseeable future.
The Directors have prepared cash flow forecasts for a period in excess of 12
months from the date of approving the Financial Statements. As at 31(st) March
2022, the £10 million of funding (£5 million RCF and £5 million overdraft)
from Barclays Bank is undrawn. Bank covenants have been reviewed and are
comfortably achieved for the year to 31(st) March 2022.
Our US operation is underpinned completely by fixed contractual fees. In the
UK, clients have a variety of commercial models including fixed fees and
transactional arrangements, with varying levels of commitment.
In addition to our key business indicator, total orders and new business
orders, we have also introduced Annual Recurring Revenue (ARR) to measure the
health of the business, which includes all clients that we are billing. In the
US, we continue to see the majority of the Secure Payments contracts won and
delivered through Eckoh's cloud platforms, as large enterprises have
accelerated their move into the cloud. Following the pandemic, we do not
anticipate this trend to reverse and whilst this reduces the upfront payments
(and cash received) for implementations, it increases the proportion of
recurring revenue and improves the operational gearing, earnings quality and
visibility in the business. We anticipate the renewal rate for the UK and US
businesses to remain unchanged during this period. When preparing the cash
flow forecasts the Directors have reviewed a number of scenarios, including
the severe yet plausible downside scenario which assumes no new business, with
respect to levels of new business. In all scenarios the Directors were able to
conclude that the Group has adequate cash to continue in operational existence
for the foreseeable future.
2. Segment analysis
Following the acquisition of Syntec Holdings Limited on 22(nd) December 2021,
the key segments reviewed at Board level are the UK (including Eckoh Omni), US
operations and Syntec. This will be reviewed over the current year as Eckoh
progress with the integration of Syntec.
Information regarding the results of each operating segment is included below.
Performance is measured on operating segments based on the information that
internally is provided to the Executive Management team, considered to be the
Chief Operating Decision Maker.
Current period segment analysis Total Total
Eckoh UK Eckoh US Syntec(1) 2022 2021
£'000 £'000 £'000 £'000 £'000
Segment Revenue 18,596 11,487 1,697 31,780 30,486
Gross profit 15,593 8,473 1,357 25,423 24,195
Administrative expenses (14,399) (7,300) (1,338) (23,037) (20,645)
Operating profit 1,194 1,173 19 2,386 3,550
Adjusted operating profit 3,194 1,728 307 5,229 4,749
Other expenses(2) (2,000) (555) (289) (2,844) (1,199)
Operating profit 1,194 1,173 19 2,386 3,550
Profit before taxation 1,156 1,149 13 2,318 3,511
Segment assets
Trade and other receivables 2,904 2,059 749 5,712 5,389
Prepayments and contract assets 2,798 954 2,819 6,571 7,888
Deferred tax asset 1,103 513 173 1,789 3,211
Segment liabilities
Trade and other payables 1,364 607 367 2,336 3,364
Accruals and contract liabilities 6,216 4,191 5,543 15,950 15,118
Capital expenditure
Purchase of tangible assets 187 120 1 308 1,066
Purchase of leases - 686 - 686 1,546
Purchase of intangible assets 375 - - 375 573
Depreciation and amortisation
Depreciation of property, plant & equipment 525 130 25 680 704
Depreciation of leased assets 353 108 34 495 505
Amortisation 1,143 - - 1,143 1,061
1. Since date of acquisition of Syntec
Holdings Limited on 22(nd) December 2021.
2. Other expenses include expenses
relating to share option schemes, amortisation of acquired intangible assets,
exceptional restructuring costs and costs from business combinations
In 2021/22 there was no one customer that individually accounted for more than
10% of the total revenue of the continuing operations of the Group. In 2020/21
there was one customer that individually accounted for more than 10% of the
total revenue of the continuing operations of the Group.
Eckoh UK Eckoh US Syntec 2022 Total 2021 Total
Revenue by geography £'000 £'000 £'000 £'000 £'000
UK 18,117 - 739 18,856 17,804
United States of America 339 11,314 776 12,429 12,321
Rest of the World 140 173 182 495 361
Total Revenue 18,596 11,487 1,697 31,780 30,486
Eckoh UK Eckoh US Syntec Total 2022 Total 2021
Timing of revenue recognition £'000 £'000 £'000 £'000 £'000
Services transferred at a point in time 15,193 8,076 1,472 24,741 23,240
Services transferred over time 3,403 3,411 225 7,039 7,246
18,596 11,487 1,697 31,780 30,486
The following table provides information about receivables, contract assets
and contract liabilities from contracts with customers.
2022 2021
£'000 £'000
Receivables, which are included in, 'Trade and other receivables 4,860 4,551
Contract assets which are included in 'Trade and other Receivables' 3,828 4,359
Contract liabilities which are included in 'Trade and other liabilities' (9,470) (11,347)
(782) (2,437)
Payment terms and conditions in client contracts may vary. In some cases,
clients pay in advance of the delivery of solutions or services; in other
cases, payment is due as services are performed or in arrears following the
delivery of the solutions or services. Differences in timing between revenue
recognition and invoicing result in trade receivables, contract assets, or
contract liabilities in the statement of financial position.
Contract assets result when costs directly attributable to the delivery of the
hardware and the implementation fees are capitalised as contract assets and
released over the contract term, thereby also deferring costs to later periods
and revenue earnt not yet invoiced.
Contract liabilities result from client payments in advance of the
satisfaction of the associated performance obligations and relates primarily
to revenue for hardware and implementation fees. Contract liabilities are
released as revenue is recognised.
Contract assets and contract liabilities are reported on a contract by
contract basis at the end of each reporting period.
Significant changes in the contract assets and contract liabilities balances
during the year are as follows:
31 March 2022
Contract Contract liabilities
assets
£'000 £'000
Revenue recognised that was included in the contract liability balance at the - 6,938
beginning of the period
Current year billings recognised in contract liabilities - 4,108
Cost of sales recognised that was included in the contract assets balance at 2,640 -
the beginning of the period
Costs deferred in current year and unbilled revenue included in contract 1,538 -
assets
Contract costs 31 March 2022 31 March 2021
£'000 £'000
Deferred implementation fees 1,028 1,698
Deferred hardware costs 510 316
1,538 2,014
Contract assets are capitalised as 'costs to fulfil a contract' and are
amortised when the related revenues are recognised, which are spread evenly
over the length of the contract, typically 3 years.
Transaction price allocated to the remaining performance obligations
The total amount of revenue held in contract liabilities and allocated to
unsatisfied performance obligations is £9.5m (FY21: £11.3m). We expect to
recognise approximately £3.9m (FY21: £5.4m) in the next 12 months, £5.5m
(FY21: £5.9m) in 1-3 years and the remainder in 3 years or more in time.
The amount represents our best estimate of contractually committed revenues
that are due to be recognised as we satisfy the contractual performance
obligations in these contracts. A large proportion of the Group's revenue is
transactional in nature or is invoiced monthly for support and maintenance and
these are not included in the contract liabilities.
Eckoh UK Eckoh US Total 2021
Prior period segment analysis £'000 £'000 £'000
Segment revenue 18,037 12,449 30,486
Gross profit 15,299 8,896 24,195
Administrative expenses (13,022) (7,623) (20,645)
Operating profit 2,277 1,273 3,550
Adjusted operating profit 3,069 1,680 4,749
Other expenses(1) (792) (407) (1,199)
Operating profit 2,277 1,273 3,550
Profit before taxation 2,285 1,226 3,511
Segment assets
Trade and other receivables 2,648 1,903 4,551
Deferred tax asset 2,699 512 3,211
Segment liabilities
Trade and other payables 2,565 798 3,364
Capital expenditure
Purchase of tangible assets 698 368 1,066
Purchase of leases 1,138 408 1,546
Purchase of intangible assets 573 - 573
Depreciation and amortisation
Depreciation of property, plant & equipment 542 162 704
Depreciation of leased assets 408 97 505
Amortisation 665 396 1,061
1. Other expenses include expenses relating to share option schemes and
amortisation of acquired intangible assets.
Eckoh UK Eckoh US 2021
£'000 £'000 £'000
Revenue by geography
UK 17,804 - 17,804
United States of America - 12,321 12,321
Rest of the World 233 128 361
Total Revenue 18,037 12,449 30,486
3. Earnings per share
The basic and diluted earnings per share are calculated on the following
profit and number of shares. Earnings for the calculation of earnings per
share is the net profit attributable to equity holders of the parent.
2022 2021
£'000 £'000
Earnings for the purposes of basic and diluted earnings per share 1,575 2,794
Earnings for the purposes of adjusted basic and diluted earnings per share 4,181 3,814
Reconciliation of earnings for the purposes of adjusted basic and diluted
earnings per share
2022 2021
£'000 £'000
Earnings for the purposes of basic and diluted earnings per share 1,575 2,794
Taxation 743 717
Amortisation of acquired intangible assets 751 663
Expenses relating to share option schemes 241 536
Exceptional restructuring costs 866 -
Costs relating to acquisition 985 -
Adjusted profit before tax 5,161 4,710
Tax charge based on standard corporation tax rate of 19% (2021: 19%) (980) (895)
Earnings for the purposes of adjusted basic and diluted earnings per share 4,181 3,815
Denominator 2022 2021
'000 '000
Weighted average number of shares in issue in the period 265,968 255,351
Shares held by employee ownership plan (2,028) (1,862)
Shares held in Employee Benefit Trust - -
Number of shares used in calculating basic earnings per share 263,940 253,489
Dilutive effect of share options 20,558 9,426
Dilutive effect of shares for acquisition Dec 21 7,889 -
Dilutive effect of placing Dec 21 18,494 -
Number of shares used in calculating diluted earnings per share 310,881 262,915
2022 2021
Profit per share pence Pence
Basic earnings per 0.25p share 0.59 1.09
Diluted earnings per 0.25p share 0.51 1.06
Adjusted earnings per 0.25p share 1.57 1.49
Adjusted diluted earnings per 0.25p share 1.34 1.45
4. Cashflow from operating activities
2022 2021
£'000 £'000
Profit after taxation 1,575 2,794
Interest income (6) (48)
Interest payable 74 87
Taxation 743 717
Depreciation of property, plant and equipment 680 704
Depreciation of leased assets 495 505
Amortisation of intangible assets 1,143 1,061
Exchange differences (95) 522
Share based payments 241 536
Operating profit before changes in working capital and provisions 4,850 6,878
(Increase) / decrease in inventories (5) 138
Decrease in trade and other receivables 2,423 217
Decrease in trade and other payables (3,906) (2,848)
Net cash generated in operating activities 3,362 4,385
5. Business Combinations
On 22 December 2021 the Group completed the acquisition of Syntec Holdings
Limited for £31.0 million, through a combination of a cash consideration of
£24.7 million with the balance of £6.3 million payable in new Eckoh shares.
The deal was legally structured via the acquisition of 100% of the top holding
company of Syntec Holdings Limited and its subsidiaries.
Syntec is an Ofcom-regulated UK network operator, based in the UK, with an
extensive patent portfolio in the UK, US, EU and Australia. Syntec is a
provider of secure payment solutions (under the brand CardEasy) with
additional telecom and contact centre services provided predominantly in the
UK.
Costs relating to the acquisition were £1.6 million, £0.6 million of costs
relating to the issue of shares have been offset against funds raised in the
share premium account, the remainder £1.0 million of costs have been expensed
as incurred and treated as exceptional items.
Post-acquisition results of the acquired business for the year ended 31 March
2022 are included in the Group Consolidated Financial Statements. Revenue of
£1.7 million and operating profit of £0.3 million relate to the acquired
business. If the acquisition of Syntec Holdings Limited had been completed on
the first day of the financial year, revenue included for the year would have
been £5.8 million and operating profit included would have been £1.0
million.
The fair values of the identifiable asset and liabilities at the acquisition
date are set out below:
£000
Tangible assets 235
Intangible assets - Customer Relationships 12,367
Right-of-use leased assets 686
Deferred tax asset 91
Stock 89
Debtors 1,430
Cash at bank and in hand 2,197
Creditors due within one year (3,940)
Creditors due after one year (694)
Deferred tax liability (2,888)
Fair value of net assets acquired 9,575
Goodwill 21,422
Total consideration 30,997
Satisfied by
Cash 24,697
Shares 6,300
Total Purchase consideration 30,997
Net cash outflow arising on acquisition
Cash consideration 24,697
Less: cash and cash equivalent balance acquired (2,197)
Cash outflow from investing activities 22,500
The goodwill of £21.4 million comprises primarily the estimated value of a
combination of the cross-selling opportunities for Eckoh's products into
Syntec's CardEasy clients and vice versa. These are not included in the
Intangible Assets - Customer Relationships above. The goodwill also comprises
the benefits that will be derived from the combined product as set out in the
Operational Review, in the section setting out the approach to 'Syntegration',
the aim of which is to bring the best of Eckoh and Syntec existing product and
technologies together to build a unified platform and roadmap for future new
capability. The goodwill will not be tax deductible for tax purposes.
6. Events after the Statement of Financial Position Date
As at the date of these statements there were no such events to report.
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