REG - PCI-PAL PLC - Final Results, Analyst Briefing & Investor Pres
14/09/2020 07:00
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RNS Number : 8178Y PCI-PAL PLC 14 September 2020
PCI-PAL PLC
("PCI Pal", the "Company" or the "Group")
RESULTS FOR THE YEAR ENDED 30 JUNE 2020
ANALYST BRIEFING & INVESTOR PRESENTATION
Continuing Significant Sales Growth with Channel Partnerships Delivering
PCI-PAL PLC (AIM: PCIP), the global provider of secure payment solutions, is
pleased to announce full year results for the year ended 30 June 2020 (the
"Period").
Financial Highlights
· Revenue increase of 56% to £4.40 million (2019: £2.82 million)
· Gross margin increased to 69.2% (2019: 60.2%) reflecting the continuing transition of our service delivery mix to the higher margin Amazon Web Services ("AWS") platform
· Significant increase in new sales bookings leading to signed recurring Annual Contract Value ("ACV") increasing by 37% to £2.62 million (2019: £1.91 million)
· Total contracted recurring ACV ("TACV(1)") increased 66% and now stands at £6.75 million (2019: £4.06 million)
· Deferred income increased 85% to £4.53 million (2019: £2.45 million)
· Loss before Tax in line with expectations at £4.35 million (2019: £4.50 million) following continued investment in our growth plans
· Cash balances at year end of £4.30 million (2019: £1.49 million) with a further £1.25 million of debt facility available to draw
· New £2.75 million debt facility entered into in October 2019 and £5.00 million equity placing undertaken in March 2020 to provide additional working capital to support continued growth of the Group and the path to breakeven
Operating Highlights
· Recurring revenue model proven with record full year on year revenue growth
· Signed 100 new sales contracts in the year
· 78% of new sales contracts for the Group generated from channel partners
· Continued to sign more enterprise customers, including signing the Group's second and third largest contracts in its history, with ACV of US$ 0.57 million signed in North America and £0.55 million ACV in the UK
· North American momentum continues to build, with year on year ACV sales increased 145%
· TACV for North American region increased 181% year on year to £1.66 million (2019: £0.59 million)
· Customers live across all six global regions including EMEA, North America, and ANZ
· Deployed our services with more than 70 new customers
· Time to go live of new contracts from the date of signature to deployment ("TTGL") improved to a 5.5 month average across all sales channels
· Announced new technology partnerships with Avaya and Cisco; as well as competitor displacements at three EMEA-based resellers
· Achieved customer retention of 95% by value in the year
· Simon Wilson, US-based, Chairman appointed with significant public company and international software growth experience
(1) TACV is the total annual recurring revenue of all signed contracts,
whether invoiced and included in deferred revenue or still to be deployed
and/or not yet invoiced
Current Trading & COVID-19 Update
· Strong start to the new fiscal year with ACV in line with management
expectations. Run rate revenue for the two months up to the end of August
2020 is up 41% compared to the same period last year
· Revenue visibility currently at more than 80% for the year against
current market forecasts
· Sales highlights include:
o A significant new customer contract to provide both our Agent Assist and
Digital secure payment solutions to a well-known, North American
headquartered, global retailer with more than 1,500 agents in their North
America based contact centre
o An initial contract to provide our Agent Assist solution to one of the
largest local councils in the UK, sold through our long standing partnership
with Civica
· Launched Speech Recognition feature set for our Agent Assist and IVR
solutions.
· Achieved record TTGL delivery of only 9 weeks for a contact centre of
more than 500 seats, which went live in July, having been the largest deal
signed in Q4 FY20
· Announced the formation of the Company's Advisory Committee, adding
additional breadth of market and product perspectives as the Company navigates
its future and capitalises on the opportunities available to it
COVID-19 Update:
PCI Pal's business model and technology have meant that we have so far not
been materially impacted during the extremes of lockdown in both the UK and US
and remain well positioned to minimise the potential negative impacts of the
COVID-19 pandemic on the Group. Since the start of the new fiscal year we
have continued our growth momentum, which we attribute to:
· our strong relationships with financially stable, large cloud-based
reseller partners through whom we sell the majority of our contracts by both
value and volume; and
· our cloud platform, including our ability to implement and deliver
services to customer entirely remotely.
The on-set of the pandemic has served to accelerate the market-wide transition
from on-premise communications technology to cloud-based services. We
believe that this will benefit PCI Pal over the longer term as the leading
cloud-only provider in the market. PCI Pal's services are critical for
home-workers wishing to handle sensitive customer data, particularly credit or
debit card data. As a result, we believe that demand for our services may
increase with time, despite the short-term general business impact the
pandemic has had in delaying certain buying decisions at prospective
customers.
The following provides an update to the COVID-19 overview provided in our full
year trading update in July 2020:
· Project delivery timescales continue to shorten with high demand for
services as a result of the increased numbers of contact centre agents working
from home. Our performance against our TTGL metric has been strong with 16
projects already delivered by the end of August 2020.
· New customer contracts sales timing remains less predictable than it
was before the start of the pandemic. We had reported that we had seen
delays in contract signing during our Q4 FY20, and whilst these delays are no
longer evident in newly created sales opportunities, we would note that not
all those specific deals delayed in Q4 FY20 have as yet re-commenced
engagement. Demand through new pipeline generation is strong though, and in
line with our expected requirements to deliver management's near-term sales
forecasts.
· The Company has maintained market guidance given the above, and
whilst we will monitor progress very carefully against market expectations, we
believe we are well positioned to take another significant step forward this
year in line with those expectations.
Commenting on results and prospects, James Barham, Chief Executive said:
"I am very pleased with the significant progress that we have made this year, particularly considering the entirety of our final quarter was during the heights of the initial impacts of COVID-19. Despite this we have been able to continue our momentum, evidenced by the signing of 37 new customer logos in our Q4 alone.
"We have taken another strong step forward in revenue growth year on year, which is a result of our continued success in growing our key sales metric of TACV. This is testament to our business model as we have successfully on-boarded new channel partners who are generating an increased pipeline of opportunities, as well as our efforts in adding further improvements to our ability to enable and onboard new customers.
"Our early adoption of cloud technologies in our space, and our commitment to
channel, is enabling us to service the entire contact centre market within our
focus territories, and it is this differentiator that will see us continue our
progress towards cash generation and profit breakeven under the current plan
as we look forward to another year of substantial revenue growth."
Analyst Briefing: 9.30am on Monday 14 September 2020
An online briefing for Analysts will be hosted by James Barham, Chief Executive, and William Good, Chief Financial Officer, at 9.30am on Monday 14 September 2020 to review the results and prospects. Analysts wishing to attend should contact Walbrook PR on
pcipal@walbrookpr.com (mailto:pcipal@walbrookpr.com)
or 020 7933 8780.
Investor Presentation: 10.00am on Thursday 17 September 2020
The Directors will hold an investor presentation to cover the results and prospects at 10.00am on Thursday 17 September 2020.
The presentation will be hosted through the digital platform Investor Meet Company. Investors can sign up to Investor Meet Company and add to meet PCI-PAL PLC via the following link
https://www.investormeetcompany.com/pci-pal-plc/register-investor (https://urldefense.proofpoint.com/v2/url?u=https-3A__www.investormeetcompany.com_pci-2Dpal-2Dplc_register-2Dinvestor&d=DwMGaQ&c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&r=05PHl3GHdShYuaCii2fBRpoqaNr9B1d97X09daeosu0&m=2cbaZ6I4laLZbM7rmMgwZbEMeL2NX7hkjIpg7mqgo34&s=pwrBTMxZzny86eeBmluEYAAy3krXblozKaNUaPXNO7s&e=)
. For those investors who have already registered and added to meet the Company, they will automatically be invited.
Questions can be submitted pre-event to
pcipal@walbrookpr.com (mailto:pcipal@walbrookpr.com)
or in real time during the presentation via the "Ask a Question" function.
For further information, please contact:
PCI-PAL PLC Via Walbrook PR
James Barham - Chief Executive Officer
William Good - Chief Financial Officer
+44 (0) 20 7227 0500
finnCap (Nominated Adviser and Broker)
Marc Milmo/Simon Hicks (Corporate Finance)
Richard Chambers (Corporate Broking)
+44 (0) 20 7933 8780
Walbrook PR
Tom Cooper/Paul Vann +44 (0) 797 122 1972
tom.cooper@walbrookpr.com (mailto:tom.cooper@walbrookpr.com)
About PCI Pal:
PCI Pal is a provider of secure payment solutions for contact centres and businesses taking Cardholder Not Present (CNP) payments. PCI Pal's globally accessible cloud platform empowers organisations to take payments securely without bringing their environments into scope of PCI DSS and other card payment data security rules and regulations.
With its products served from PCI Pal's cloud environment, integrations with existing telephony, payment, and desktop environments are light-touch, ensuring no degradation of service while achieving security and compliance.
PCI Pal has offices in London, Ipswich (UK) and Charlotte NC (USA). For more information visit
www.pcipal.com (http://www.pcipal.com)
or follow the team on Twitter:
https://twitter.com/PCIPAL (https://twitter.com/PCIPAL)
CHAIRMAN'S STATEMENT
FOR THE YEAR ENDED 30 JUNE 2020
In my first year as Chairman and director of PCI Pal, I am very pleased to
report on a major year of progress for the business. This despite the, at
times, daunting challenges and uncertainties caused by the COVID-19 pandemic
and varying government responses around the world.
People
Without question, the pandemic has presented varying challenges on all
businesses in every sector of the global economy, but at the personal and
individual level the challenges have been unprecedented. Almost overnight
our people not only had to cope with working from home, but also with a myriad
of concerns, fears and challenges relating to family health and daily
routines, caring for extended family members, and concerns for financial
security. I am extremely proud to say that our teams in both the U.K. and U.S.
responded gallantly, and in fact drew closer together as a result. Management
supported this rapid transition to a 'new normal' by implementing flexible
work schedules, being sensitive and sympathetic to individuals who perhaps had
more challenging home environments than others and continuing to provide and
enhance remote-based IT support for collaboration with team-mates, partners
and customers.
During the prior year of FY19, James Barham as the new CEO, expanded and
strengthened the management team across the functions of Sales, Technology and
Security. During FY20, against the backdrop of the pandemic but in the face of
top line sales growth, the team's expansion continued to underpin the
management teams' strengths in specific operational areas such as professional
services, partner support, and both pre and post-sales technical expertise. By
select hiring in the U.S., the Group has also further strengthened its ability
to serve an increasingly global profile of both partners and end customers, in
particular those headquartered in North America, which remains the Group's key
target growth market.
The PCI Pal team has grown from 50 to 58 employees over the course of the year
and I would like to personally thank all of our employees for their
excitement, dedication, flexibility and hard work in growing PCI Pal and in
pursuing our Mission: safeguarding the reputation and trust of our customers.
The Board remains as committed as ever to supporting our people in terms of
professional development, flexible work environments and competitive
compensation and benefit packages. I have no doubt that they will all continue
to build on their successes during the last twelve months, both as individuals
and as globally focused teams, as we move forward through and beyond these
globally challenging times.
Strategic Direction
During the year, the Company has made demonstrable progress in executing its
Vision of becoming "the preferred solution provider that technology vendors
globally turn to for achieving PCI compliance for payments by phone" and
pursuing a Cloud strategy. 78% of sales were made through channel partners.
Our Cloud platform hosted on AWS has grown to cover 6 points of presence
around the globe and our Cloud solutions are being adopted by small, medium
and large enterprises alike. The attractiveness of PCI Pal's strategy to focus
on channel partners is matched by the demand from end customers. During FY20
the Company added 100 new end customer logos and deployed 72 new customer
implementations. Behind this strategy, our innovation has continued with the
launch of PCI Pal Digital, an omni-channel offering as well as Rapid Remote to
help those customers rushing to deploy work-from-home solutions in the face of
COVID-19.
Fund Raise
Adding to its £2.75 million debt facility secured in early FY20, the Company
completed a £5.00 million equity fund raise in March 2020. Its success
has been reflected in the Company's share price performance since the date of
the announcement and is evidence of the strong support that the Company enjoys
from its shareholders. In addition to creating a stronger balance sheet,
increasing working capital and providing for flexibility in the face of
uncertainties relating to the pandemic, the fund raise was also designed to
fund expansion. As we look forward to FY21 we are planning for additional
sales and marketing resources, support to North American based channel partner
relationships; and to expanding product management functions targeting long
term improvements in time to go live ("TTGL") for new customers. These
additional funds will also allow the Company to consider potential new
expansion opportunities in the future. Full disclosure of the terms of this
equity fund raise have been made in the notes to these accounts and within the
Chief Financial Officer's Review.
Shareholder Communications
As a board, continuous improvement in shareholder communications remains a key
objective. Building upon the actions taken in FY19 which included more
detailed investor presentations, expanded analysis of results and underlying
KPIs, a more frequent cadence of communications and the judicious use of
RNS-Reach, and participation in investor-focused events such as 'tech demo
days' and investor group conferences, we have taken further steps in FY20.
These include myself as Chairman, offering one-on-one shareholder meetings
around the time of the AGM each year, expanded efforts by the executive team
to meet with retail shareholder groups, use of new communications technology
aimed at shareholder needs such as the Investor Meet Company platform and
plans for enhanced web site disclosures. We look forward to continuing and
reinforcing these programmes and events as each year progresses, and I welcome
your feedback and suggestions for further improvement.
Corporate Governance
During FY20 I have focused the expanded resources of the Board in a number of
key areas of corporate governance and initiatives to set the Board on a path
of continuous improvement over time. These areas included the Board's first
evaluation of the effectiveness of the Board, its committees, and its
individual directors. Other areas of initiative were a fresh review of the
Company's risk profile, and our appetite for risk and steps necessary to
mitigate known and anticipated risks, an update to the Board committees' terms
of reference, and embarking on a 5-year refresh of our forward strategic plan
to take effect from FY21 onwards.
The nature and results of these early initiatives are summarized in more
detail in the Corporate Governance Report.
Changes in Accounting Rules
The Company implemented IFRS 16: Accounting for Leases effective from 1 July
2019. The Group has chosen not to restate the previous years' financial
statements following the adoption and there has been no overall effect on the
loss before tax. Full disclosure of the changes has been made in the notes to
these accounts.
Advisory Committee
Following the year end, in August 2020 we announced the formation of the PCI
Pal Advisory Committee (the "PAC"). The formation of the PAC is consistent
with both enhancing the Board's ability to manage its risk profile, as well as
to provide expert advice into the formation of its future corporate strategy.
Looking Forward
FY20 has been a year of both significant achievement as well as significant
expansion of the risks and opportunities facing the Company and the markets in
which it operates. The Board is cautiously optimistic about managing through
the COVID-19 pandemic but remains vigilant of the potential for as yet unknown
additional economic and business impacts. Nonetheless, we are a growth company
operating in growth markets, and so are confident in our business model. I
look forward to sharing further progress reports and news during the coming
financial year, as we continue our journey to achieve profitability and
positive operating cash flow.
Simon Wilson
Non-Executive Chairman
CHIEF EXECUTIVE'S STATEMENT
FOR THE YEAR ENDED 30 JUNE 2020
Introduction
Reporting on my first full financial year in the role of Group CEO, I am
pleased to report that we have made significant progress against our key
growth metrics. Revenues grew 56% year on year to £4.40 million (2019:
£2.82 million). This year on year increase further illustrates the benefits
of our SaaS-based revenue model as revenue is recognised from TACV, our key
sales metric which has continued to grow in the year by 66% to £6.75 million
(2019: £4.06 million). The start of the current financial year has
started well, and we have strong revenue visibility which for the coming year
is currently at over 80% of the market's revenue expectations for the year.
I am equally pleased to report that we have made extensive progress towards
the Company's Vision: to be the preferred solution provider that technology
vendors globally turn to for achieving PCI compliance for payments by phone.
Having led the way in utilising cloud technology in our market, and launching
our true-cloud environment back in October 2017, we now have the most advanced
and mature cloud offering in our market with customers live on all 6 regional
instances of the platform within AWS across EMEA, North America, and ANZ
regions. It is this technology focus that has enabled us to execute against
our Vision. Many of our technology partners are cloud-native themselves and
are a natural fit for PCI Pal helping them to provide secure payment solutions
to their customers around the world. I am pleased to confirm that we ended
the year with all our major Contact Centre as a Service ("CCaaS") and Unified
Communications as a Service ("UCaaS") partners live and on-boarded across all
regions of our platform.
It is these enabled partnerships that are critical to our continued growth and
long-term profitable scale. As of the end of the year, we are now resold by
over 40% of North American and Western European Gartner Magic Quadrant CCaaS
providers. These same partners are a key reason why we achieved the
milestone of signing more than 100 new customers in the year (2019: 77) with
78% of these customers generated through channel partners. I am extremely
encouraged by the accelerated number of new customers signed as the year
progressed, reflected by the 37 new customers signed in Q4 alone. This is a
76% increase compared to the customers signed in Q1 in spite of the COVID-19
outbreak and illustrates the effectiveness of our channel model in producing
higher quantities of pipeline opportunities. We are optimistic that
opportunities will continue to increase as we on-board more partners, and as
our partner relationships mature over time following full engagement with our
partner programme and channel sales functions.
In the year, the Group signed new contracts across all regions with a
recurring Annual Contract Value ("ACV") of £2.62 million (2019: £1.91
million). I was particularly pleased that despite the pandemic, we signed
£0.80 million ACV in our Q4, so whilst we were impacted by delays in our
sales cycles as a result of the onset of COVID-19, which ultimately reduced
our final ACV number for the year, we were nonetheless able to continue our
momentum.
This sales traction is bolstered by further progress in our ability to
implement new customers, and our key project delivery metric of TTGL is now at
an average of 5.5 months overall across all customers (which remains within
the 4-7 months previously stated). We have made extensive improvements since
we introduced the TTGL metric in January 2019, and customers signed more
recently are being implemented much faster. For instance, contracts signed
in FY20 have an average TTGL across all deployments of just 4.4 months.
Additionally, this improvement is a natural positive result of having more
integrated partners now fully on-boarded, live, and delivering new contract
sales. Their repeatable technology stack integrations result in shorter
implementations, and reduced project effort levels for us, and their end
customers.
We have also achieved a number of large scale customer implementations during
the year. In H1 we announced our largest contract to date in the US (and the
Company's second largest contract in its history), won through both a
competitive tender process, and also a competitive Proof of Concept ("POC").
Our Professional Services team went head-to-head with one of our major
competitors for this POC. We achieved highly positive reviews from the
customer and ultimately won the new contract. Following a successful,
collaborative implementation the customer is live on our platforms, following
a deployment achieved within six months.
The implementation skills of our Professional Services team across EMEA and
North America are having a directly positive impact on our Net Promoter Score
("NPS"), the internationally recognised measure of customer satisfaction. I am
proud to report that our NPS has increased to 87 against the NPS global
benchmark of 43, which puts us comfortably in the top 25(th) percentile of
companies worldwide and 102% above the global benchmark. As a result, our
ability to reference customers and produce case studies and testimonials has
significantly increased putting us in an improved position of strength when
competing for business of any size. This is strong evidence of the
effectiveness of the operational improvements we have made since January 2019,
which has been one of our top Company-wide key initiatives.
Market Drivers & Market Positioning
PCI Pal's addressable market consists of any organisation taking payments by
phone or within contact centre environments anywhere in the world, and in
particular within our core focus geographic markets of the UK and North
America. PCI Pal gains access to these markets by leveraging a partner-first
go-to-market sales model, which involves working primarily through resellers
who themselves are involved in providing services for customer interactions
for the sorts of organisations we are targeting. Today these partners
include CCaaS, UCaaS, Carrier (Telco), Value-Added Resellers ("VARs") of the
major telephony platforms, Payment Service Providers, and consultancies.
When we sell directly to the end customer, this is typically for strategically
important or large enterprise size accounts who have a preference to deal
directly with their technology suppliers.
A key differentiator for us is our ability to serve any size organisation
across our addressable market. Our customers range from small contact
centres up to the very largest with more than 5,000 agent seats. We can
serve these customers from anywhere in the world through our best-in-class
truly-virtualised cloud platform, hosted within AWS. PCI Pal was the first
in this market to launch a true cloud environment and maintains the most
advanced and mature platform globally.
Contact centre markets in both the UK and US represent between 3-4% of the
working populations of those countries, so in contact centres alone there is a
sizeable market opportunity to address. Our ability to serve any size of
contact centre is essential when considering the make-up of this
mass-employment pool across both countries. In the US alone, 93% of contact
centres (37,000) have less than 250 agent seats and employ 2.0 million agents
making up more than 55% of the entire employed agent-base across the
country. As such, our ability to serve contact centres of any size is
critical to maximising our market opportunity.
The market is underpinned and strengthen by two major global industry dynamics
occurring today; the increase in regulation and governance surrounding data
security worldwide; and secondly, the transition in the communications market
of services served from on-premise equipment to services delivered from the
cloud.
In recent years we have seen regulation and governance of data security
increase both through well-publicised standards such as the General Data
Protection Regulations ("GDPR") in the EU, as well as state level statutes in
the US such as the California Consumer Privacy Act. These are in addition to
standards such as the Payment Card Industry Data Security Standard (PCI DSS)
which specifically govern the activities of companies handling personal data,
specifically credit and debit card data. Regulatory and governance standards
combine as one of the primary reasons for the change in organisational mindset
towards the risks posed by cyber-crime today. This change in mindset is
creating a significant shift towards more responsible and thorough data
security protocols across all industry sectors. Specifically, from a payment
security perspective, PCI Pal makes the job of complying with these standards,
and securing data much easier for these companies who otherwise would be faced
with significant challenges, and therefore costs, to achieve compliant and
secure operations. Additionally, PCI Pal secures the most sensitive of
personal data, with payment data being the most easily monetised by cyber
criminals should it fall into their hands.
With the cloud communications market expected to grow considerably, the high
growth UCaaS and CCaaS sectors are evidence of the shift in technology
adoption occurring across the communications industry today. Organisations
are moving from traditional on-premise telephony to cloud-based communications
through the likes of Vonage, 8x8, and RingCentral. This shift has been
further accelerated by the on-set of the COVID-19 pandemic where the benefits
of cloud-based services have been emphasised. These benefits include
flexible homeworking capabilities; robust disaster recovery and responsive
business continuity capabilities; as well as the availability of scalable cost
models. Given our technical approach and channel business model, we are well
positioned to capitalise on this market trend as we work with our partners to
increase our access to this expanding market opportunity.
PCI Pal Cloud
Having launched our cloud environment almost three years ago in October 2017
and having defined a key strategic objective to be the leader in cloud-based
secure payments services in our market globally, we have gathered significant
technical momentum. Our platform continues to evolve and is already the most
mature in the market by some margin, with our competitors' primary offerings
remaining hardware or privately-hosted technologies. This momentum is
underscored by the cloud-to-cloud partnerships that we have built in the last
24 months with the likes of Vonage, 8x8, Genesys, and Talkdesk, as well as our
ability to engage with, sell to, and deliver enterprise size deployment
projects with some of the largest contact centres in the UK and the US.
We utilise AWS for the virtualised hosting of our cloud platform, a hosting
provider that we selected on the basis that they were, and still are, the
market leader both in terms of capacity and geographic coverage. Our
true-cloud approach allows us to deliver services across the globe whilst
maintaining data sovereignty and regional handling of payment traffic by
leveraging the data regions we have created within the AWS global hosting
environment. This is both of appeal to smaller local customers who need
their data to be handled within the territory in which they trade; but equally
to larger multi-national organisations whose businesses may be geographically
dispersed with complex data governance requirements. Our customers can
therefore use a single PCI Pal service, but choose to handle their customers'
data locally wherever that customer is utilising the service.
Additionally, our technology strategy and focus on cloud has been purposefully
made complementary to our partner-first go to market sales model. AWS is the
most commonly adopted hosting environment used by our cloud-served partners,
creating natural integration and interoperability benefits for us when
on-boarding those partners.
PCI Pal's cloud platform has always used cloud native technologies, and today
our platform continues to evolve, using more advanced ways of operating such
as serverless technologies and micro-services. This approach is enabling us to
be nimbler within our development cycles, more robust in our release
processes, and allowing faster development cycles for new products and
features. It has been our first-mover advantage and early commitment to
cloud that is ensuring we lead the way in this technological approach to our
market.
Product Update
In the year we launched two new products; our PCI Pal Digital offering for
omnichannel payments across channels such as WebChat, Social media, SMS, and
email; and Rapid Remote our rapid deployment service, which was developed in
response to the increased demand for ultra-high pace deployments in the face
of the on-set of COVID-19 and increased security requirements for agents
working from home.
Since its launch in February, we have both sold and delivered our first PCI
Pal Digital customer and we have continued to build momentum with this product
with further sales since the year end. Additionally, we have signed a number
of Rapid Remote generated opportunities, several of whom have moved to full
deployment models. One of these being the largest customer that we signed
in Q4 FY20, which went live with the full deployment in just 9 weeks.
In line with our plans following the fundraise in March 2020, we intend to
increase our investment in product management as we look to evolve our product
roadmap and capitalise on our existing channel partnerships, as well as
putting a more strategic and targeted focus into winning more enterprise-size
customers. We have announced in this report the launch of our Speech
Recognition feature-set for both our Agent Assist (live agent payments) and
IVR (fully automated payments). The speech recognition feature will combine
with our existing capabilities to empower our customers to accept secure
payments through either keypad entry (DTMF) or spoken voice. Both with the
same secure outcome, compliance upsides, and cost savings.
North America
We are pleased with our progress in North America. In what is only our
second full financial year in the territory, we have significantly increased
our sales bookings with new contract recurring ACV increased 125% year on year
to £1.08 million (2019: £0.48 million). As we have stated previously, we
have concentrated our efforts in establishing full enablement of the North
American partners with whom we began working in the prior year, and I am very
pleased to confirm that we have on-boarded all major partners announced to
date. It is these partners who will enable us to further grow our pipelines,
and therefore sales bookings, in what is the most significant geographic
territory opportunity for the business.
Contributing to the year-on-year growth in US sales bookings was the win of
the Company's second largest contract to date, won through a competitive
tender process. Announced in December 2019, the contract is for an initial
term of three years with a recurring ACV of $566,000 (approximately
£434,000). This customer is now live, and is further evidence of our
capability to sell to, win, and deliver enterprise customers. Additionally,
and as we have referenced previously, this contract was sold on a multi-year
prepayment commercial model, and we can now confirm that following the year
end, we have received payments for years two and three of their licenses (cash
value $1.13 million). We invoiced the first year licence and set up fees on
signature of the contract and this invoice was paid in H2.
Other sales highlights include a contract to provide both our Agent Assist
solution to more than 700 agents at the US contact centre operations of a
well-known, financial services business which has an extensive European
footprint; and a contract won through a competitive tender process with a
Fortune 100 US insurance company. This contract was for an initial phase of
deployment, which is now live.
The TACV for the region at the end of the year was £1.66 million representing
a 181% increase on the prior year (2019: £0.59 million). Revenues for the
region represented 11% of Group revenues at £0.50 million (2019: 3% £0.10
million), reflecting the SaaS-based revenue model as the growth in new
contract sales TACV begins to feed through into recognised revenue. We are
continuing to see increases in key sales metrics that will cause the North
American business to grow at faster rates than our more mature EMEA region,
and eventually we expect the North American operation to surpass it.
From a new sales contracts perspective, and as noted in our Trading Update for
FY20 in July, as a result of the COVID-19 pandemic, we did experience some
delays in new business sales conversion for a number of more mature
opportunities expected to close at the end of our Q3 or during Q4. For the
North American operation, this had an impact on H2 new sales which otherwise
would have produced a stronger full year outcome but for these delays. I am
pleased to confirm that the decision-making delays we saw during the on-set of
the pandemic have reduced. We have made a strong start to FY21, with newly
created opportunities progressing with sales velocity closer to pre-COVID-19
anticipated levels.
With the majority of our global partners being headquartered in the US, the
North American partner landscape is not only important for the region, but for
the Group worldwide. Having fully on-boarded all key global partners in the
region by the year end, I can report that those partners by majority
contributed to the record 37 new customer contracts signed in Q4 across the
Group. This includes our new global arrangement signed with 8x8, an
extension to our previous UK-only contract, and Talkdesk, both of which were
announced in H2 FY19. These partners add to our existing on-boarded global
resellers headquartered in the region including Vonage, Worldpay B2B
(previously named Paymetric), and Genesys.
In the year we added two key technical partnerships with two of the most
prominent traditional telephony vendors in the world, both headquartered in
the US; Avaya and Cisco. We have been selected by Avaya for membership as a
Technology Partner to their DevConnect Program; and additionally, Cisco has
selected us as a Preferred Solution Partner as well as granting us
certification for compatibility with their various platforms. These technical
partnerships are key in underlining our credibility within both organisations'
reseller communities in the US and worldwide, as well as providing credibility
for our own services' interoperability with their platforms for direct
enterprise customers using their technology.
We continue to see lower levels of competition in North America compared to
the UK, with a small number of US-based competitors. Whilst we were not the
first UK company in our market to launch in the US by a number of years, we
believe that in our short time in the region we are now beginning to establish
our brand as the strongest and most recognised. This is being achieved by a
two-pronged marketing strategy. First, the support of our partners through
collaborative marketing efforts and leveraging their extensive market access
capabilities. Second, continual stepped improvements in both our digital
marketing capabilities and thought leadership activities driving relevant,
interesting, and useful content into the market. In addition to growing our
brand exposure to the enterprise end of the market, our focus on easy-to-use
cloud technologies and partner-first approach means we have an early-stage
foothold on the mass-market small to mid-size contact centre segment. Our
brand momentum in the region is evidenced by our leading position as the brand
receiving the highest Share of Voice ("SOV") in the market compared to our
main competitors, with PCI Pal receiving a very significant 73% of media
mentions in our market sector in the US across the full year.
We continue to run our business in the ANZ region out of the US due to the
beneficial time zone overlap of our employees based on the US west coast. We
are focused on supporting our partners who have businesses in ANZ, and as a
result have grown our customer-base in the year. Reference customers in ANZ
include Queensland State Government and News Corp Australia, and we have also
extended our reach through the signing of a new reseller in the region who is
the second largest Genesys VAR in Australia. This partner also has
operations in the U.K. so as a by-product there is also early stage engagement
in EMEA.
EMEA
The EMEA business, served from the UK, is the more mature of the two core
regions and as a result has a more established base of customers that are live
and producing recurring revenue. We took a major step forward in revenue
from EMEA for the year, 43% ahead of the prior year at £3.89 million (2019:
£2.72 million). 84% of this revenue is recurring licences or transactions.
This is a direct result of the growth in new sales bookings that we have seen
in the last 24 months, which are now producing recognised revenue as the
customers are implemented.
Revenues for the EMEA business are generated both from services on our first
generation, privately-hosted platform and, since 2018, from our true-cloud AWS
environment which enjoys much higher gross margins. We have not sold
services on our first-generation platform since early 2018, with all sales
since then being on our AWS platform. We finished the year with 46% of EMEA
revenues generated from our AWS platform, (2019: 18%) an increase of 156%.
To date we have opportunistically transitioned a number of our customers on
our first-generation platform to our AWS environment. Plans have though now
commenced to proactively transition these customers to our higher gross margin
AWS environment over the next 24 months.
TACV in the region increased 46% year on year to £5.08 million (2019: £3.47
million) illustrating the outlook for recurring revenue from signed contracts
as they are implemented and reach revenue recognition over the coming year.
Incorporated into these TACV numbers, is our new business ACV signed in the
year. Similar to North America, EMEA sales bookings were adversely impacted
due to timing delays during the on-set of the pandemic in the final four
months of the financial year. We finished the year with new ACV sales
bookings 8% greater than the prior year at £1.53 million (2019: £1.42
million). I am pleased to report that the EMEA business has started the new
financial year well and in line with management expectation.
Sales highlights in the year include the signing of another major
enterprise-size government agency contact centre, with more than 4,000 agent
seats. The contract, to deliver our Agent Assist solution, has an ACV value
of £0.55 million. We will be invoicing the first years' license when agreed
delivery milestones have been met, and we continue to expect this to occur in
H1 FY21. We have a particularly strong presence in U.K. public sector and
this latest contract further underlines our position in this specific market
vertical.
Through our resellers, who focus on the public sector, such as Civica, we have
now more than 40 local authorities using our services to secure payments for
U.K. citizens. PCI Pal is a Crown Commercial Services Certified Supplier,
and our products are available to public sector organisations through the U.K.
government G-Cloud framework.
Other sales highlights in the period include a number of further contracts
through our reseller relationship with Capita Pay 360, one of which is to a
well-known FTSE 250 retailer delivering our services into their contact
centres in the UK and South Africa. In H2 this customer went live with all
services across both territories. Additionally, we also won a contract with
a global Nutritional Supplements firm, headquartered in Cambridge, UK to
provide not only secure credit card payment services but also the facility to
securely collect customer bank details for direct debit transactions and bank
transfers. This company serves customers across Europe, including Germany,
where direct bank transfers are more prevalent for orders taken by phone.
This customer was sold through our newly on-boarded integrated partnership
with Puzzel, the Nordic based pan-European CCaaS vendor.
We have been particularly successful in EMEA in opening up partnerships with
new resellers who have had historic relationships with our competitors. As
we have previously reported, a number of our closest competitors invested in
the market earlier than us, and as a result they had been able to achieve
working relationships with the sorts of organisations we would seek to partner
with. Nonetheless we have proactively targeted leading VARs with these
historic competitor relationships in the region, and particularly those that
focus on the resale and maintenance of the major telephony vendors with whom
we are accredited (such as Genesys, Avaya, and Cisco). I am very pleased
with our progress on this initiative and can report that we completed the year
having signed three new important VAR resellers. Two are leading Genesys VARs,
one in Ireland (with whom we have sold and delivered our first customer) and
the other in the UK. The third is a leading UK-based Avaya VAR. Both of the
UK-based resellers have their own hosted instances of Genesys and Avaya
respectively, and so we are deploying repeatable integrations which can be
used across all their customers using services on these platforms.
The EMEA business today is very much focused on the U.K. market. We continue
to monitor opportunities, both through existing and new partners, to gain
footholds in other countries in the territory as we assess our future
long-term strategy and timing to expand across mainland Europe. We remain
cautious to balance the EMEA opportunities with the risk of management
distraction and resource diversion away from our core focus opportunities in
our stated target markets in the UK and North America.
Channel Partners
PCI Pal has a partner-first sales model which means that we have a
company-wide focus on generating most of our sales through channel sales
partners. In the year 78% (2019: 84%) of new customer contracts were sold
through channel partners, equating to 42% of the total ACV by value. We
anticipate channel to be the majority by value over time as our lead
generation from channel increases as a result of our growing base of
on-boarded partners.
As we have referenced in the Market Drivers section of this report, the
contact centre market is by majority made up of contact centres of 250 agent
seats or less. In the US 93% of all contact centres (37,000 in total) have
less than 250 seats and employ 55% of all agents across the country. This is
clear evidence of the long-term scale opportunity for PCI Pal if we are able
to profitably win and serve these smaller, higher quantities of contact
centres who make up a majority of the addressable market. Our channel
approach is integral to this capability, particularly through our integrated
partners such as 8x8, Vonage, and Talkdesk. This growing capability is being
substantiated by the accelerated increase we have seen across the year in the
number of new customers we are signing quarter on quarter as more of our
partners become fully enabled and relationships mature finishing the year with
37 new customers signed in Q4 alone, compared to 24 in Q1.
Channel not only gives us the ability to cost-effectively access a wider
addressable market, but it also empowers us to efficiently deploy higher
quantities of customers leveraging the highly repeatable nature of our
Integrated Partner engagements. Additionally, our partners provide
first-line support to customers, so PCI Pal can be highly efficient in
servicing these accounts, focusing instead primarily on the success of the
partner. This sales strategy plays a major part in establishing the
significant operational gearing that this business is building towards.
Having started the year with the announcement that we had been awarded EMEA
Partner of the Year for Genesys AppFoundry, this award led to increased
cooperation within Genesys. While commercial relationships with large partners
such as this take time to nurture and develop, we are now seeing progress as a
result of the time investment and commitment we have shown to them. This
includes the signing of three new Genesys VAR resellers in the period across
EMEA and APAC. Our collaboration with partners has only increased during the
on-set of the COVID-19 pandemic, and we have been particularly active across
the final four months of the year creating extensive amounts of thought
leadership content and collateral with these partners, naturally strengthening
those relationships while at the same time growing awareness of our products
with their customer bases.
We categorise our partners into four different groups:
· Integrated Partners - Such as CCaas, UCaaS or carrier partners
with tight telephony, and sometimes desktop, integrations. Repeatable
integrations facilitate shorter customer implementation times.
· Solution Providers - Typically VARs or Systems Integrators of the
major telephony platforms such as Genesys, Cisco, and Avaya. Solution
Providers also include payment service providers such as Paymetric and Civica.
· Referral Partners - Partners who introduce customers to us, to
whom we then sell direct. These include Master Agents, consultants, as well as
other organisations who may prefer to first introduce, prior to becoming a
fully enabled reseller.
· Technology Partners - a recent addition to our partner landscape,
and whilst expected to be less numerous, we have identified an important
subset of technology vendors with whom we have sought technology
accreditations that allow us to sell to both their own partner communities and
also major enterprise customers.
Whilst typically, the vendors we would see as Technology Partners have been
the more traditional vendors such as Avaya and Cisco, we have also seen cloud
vendors such as inContact (an existing referral partner) and Five9 adopt the
same approach. Whilst being part of these communities has some value, they
do not produce the same level of volume or interaction that can be achieved
through a fully on-boarded reseller partner. We are therefore careful to
allocate resources judiciously, while being mindful that closer relationships
can be built with these organisations' own VAR reseller communities. We also
carefully assess these technology partners' appetites for direct reseller
relationships.
Operations
I am extremely pleased with the stepped improvements we have made across our
engineering and professional services departments in the first full year since
we re-structured both of them in H2 FY19.
We have continued to invest in these critical functions by adding several new
key resources and skills to the teams. These have been targeted at supporting
larger volumes of telephony deployments both for integrated partners and
direct customer deployments, as well as adding a Head of Development reporting
to the CTO. Some of these new people have been hired in the US to support
increasing demand for our services and delivery there, even during the on-set
of COVID-19 where we benefitted from our ability to deliver services entirely
remotely.
In FY20 we delivered 71 new customer projects which is an increase of 154% on
the prior year (FY2019: 28). This significant increase not only reflects the
accelerated increase in new customers, but it particularly highlights our
improved capabilities in deploying new customers. As we continue to expand
the volume of new business enquiries generated through our channel partners,
the foundations we have now put in place across engineering and professional
services position us to achieve service delivery excellence and, importantly,
efficiency in our processes as we scale this business.
Our key project delivery metric of TTGL, which is a measure of the time it
takes us to get from a new signed contract to revenue recognition (typically
go live), stood at an average of 5.5 months (2019: 6.4 months) across all
channels and all contracts delivered by the year end irrespective of when the
customer was signed. We have also begun tracking TTGL measuring only
contracts signed in the year. I am pleased to report that we are seeing
improvements in this measure of TTGL, for example achieving an average of 4.4
months TTGL for all projects signed and delivered in FY20. These measures
taken together are indicative of further expected improvements in our overall
operational gearing of the Company as the mix of our business continues to
shift towards partner driven and AWS cloud hosted new customers. It reflects
both the result of the considerable positive changes we have implemented since
we introduced the TTGL metric in January 2019, and also the growing number of
customer projects that we are delivering through Integrated Partners, such as
Talkdesk, 8x8, Vonage, and Puzzel.
Given these improvements, it is not surprising that we have experienced a
significant increase in our Net Promoter Scores, the globally recognised
measure of customer (and partner) experience. We finished the year with an
NPS score 102% above the global benchmark, which is a significant improvement
on the prior financial year. The knock on impact of this positive outcome is
that we are well positioned to produce more case studies and testimonials from
partners and customers once their services are live.
Our #1 stated value is "Security is job zero", and so data security is an
intrinsic part of everything we do. In the year we achieved certification
for the third year running against the current version of the Payment Card
Industry Data Security Standards (PCI DSS) for our AWS cloud platform; and for
the eighth year running for our first-generation platform. This
certification testifies that PCI Pal is the highest level of security required
under PCI DSS and, as a Service Provider, can therefore handle payment data
for any size organisation across the globe. Latterly in the year, we also
incorporated our new PCI Pal Digital product into the scope of our PCI DSS
compliance when this was launched across our platform globally in January
2020.
In addition to PCI DSS, we continue to maintain certifications for a variety
of globally-recognised standards, including ISO 27001 (Information Security
Management Systems), ISO 22301 (Business Continuity), ISO 9001 (Quality
Management Systems), and ISO 14001 (Environmental Management). In totality
our accreditations not only bolster our own processes but ensure that our
partners and customer have points of reference to recognisable standards by
which the Company operates.
People
As our vision states, it is our people, beyond our technology, that underpin
this business. Creating an environment within which our people can succeed,
ensures the success of our partners who rely on us. Talent acquisition,
people development and employee retention are a critical part of my role as
CEO. As a business that has grown from 11 to 58 people in under 4 years, we
have maintained considerable attention to our hiring strategies. I am
personally very proud that our employee retention remains high, at more than
95%, with only one employee leaving us in the financial year. From recent
Company-wide surveys we know that our employees believe that the COVID
pandemic has brought them all even closer together as we have worked as a team
to reach a new normal during what have been very busy times for the
business. Our people can be proud of what they have achieved during this
time given they have been managing some of the most challenging circumstances
they will ever meet personally away from work.
Cultural fit carries significant weight during our new hire assessment
process, and it is often the differentiator between a number of strong
candidates. This personal fit to the Company has always been essential as a
small business with global operations. Cohesiveness of our teams and how
they interact with each other is critical to both our internal cohesion but
also our external facing success. And they must also know how to have fun.
To that end, it is very common for senior management to receive positive
feedback from partners and customers, both prospective and existing,
commenting positively on our people, our professionalism, our approachability,
and our personality. All of these things are critical for maintaining high
customer retention and Net Promoter Scores.
New this year we have introduced an array of new processes and activities to
our people strategy and plans; including the launch of the Company's Wellbeing
Portal introduced during the height of COVID-19 lockdown in the UK and US;
twice annual all-company people surveys; the launch of our cloud-based HR
system "Breathe", as well as introducing a kudos initiative allowing employees
to give each other and internal teams kudos, encouraging positive internal
interaction.
These new initiatives, supplement our existing people engagement activities
which include quarterly Company all hands meetings, all now entirely virtual
and run with far greater frequency during COVID-19 lockdown, and OKRs
("Objectives and Key Results") which we use to align our high level corporate
strategy with all individual employees objectives within the business.
I would like to personally take this opportunity to thank every member of the
PCI Pal team for going over and above, and particularly during what have been
trying times for everyone personally away from work.
Funding
As a fast-growing company, it is always critical to have sufficient working
capital available to deliver on our plans. Early in the financial year we
entered into a debt facility arrangement drawing down £1.50 million of a
£2.75 million facility.
In March 2020, we announced an equity fundraising with gross proceeds of
£5.00 million, with £4.25 million of this raised from VCT investors to fund
continued growth in North America. We were delighted with the support shown
by both our existing investors, and new investors, which will enable us to
capitalise on our current North American expansion, and enable us to further
advance our product management and development capabilities in order to
support our long term ambitions and growth opportunity.
The additional funding has also ensured that we have strengthened our balance
sheet. We finished the year with £4.30 million of cash and £1.25 million
of further loan facility to draw giving us sufficient working capital to
continue to grow the business as we work towards the point of cash generation
and then profit both of which are anticipated during FY22.
Outlook
After a year of significant progress against our stated objectives; North American expansion, excellence in our global cloud platform, and execution of our channel go to market strategy, and in a year that incorporated significant market disruption due to the on-set of the COVID-19 pandemic, PCI Pal is positioned well to continue its momentum as a result of its market position and business model.
Following the fund raise in March 2020 we have the opportunity to continue this momentum from a position of greater strength with further, cautious investment in North America, the Company's largest growth opportunity, improved product management capabilities, and a more robust cash position. We are confident of the business' prospects given these factors while companies worldwide give more focus than ever to the security of data handled by home workers, and the availability of robust, flexible cloud services to enable business continuity during challenging times.
We fully anticipate the cloud transformation of the communications industry to continue to increase pace with changing market conditions, and we look forward to another year of strong performance against our key metrics and significant revenue growth as we work towards our first months of cash generation and profit in FY22.
James Barham
CEO
CHIEF FINANCIAL OFFICER'S REVIEW
FOR THE YEAR ENDED 30 JUNE 2020
Revenue and gross margin
Group revenue grew by 56% to £4.40 million (2019: £2.82 million) and gross margin improved to 69% (2019: 60%). This improvement continues to reflect the higher margin revenue generated by the PCI Pal platform hosted on AWS which has only a limited reliance on third party carriers to receive or deliver calls. Going forward, we expect the gross margin to continue to improve as more sales, delivered on the AWS platform, reach revenue recognition.
The Group's revenue reflects its SaaS business model. It delivers its services primarily through channel partner into contact centres who are charged primarily on a recurring licence basis. The terms of the sales contracts generally allow for automatic renewal of the licences for a further 12 month period at the end of their initial term. Renewal and retention rates are extremely high exceeding 95%.
The Company has been selling only services served from its AWS platform since early 2018. As it continues to add and deliver more customers so its visibility of recurring revenue increases. At the year end, the Group finished with a TACV of £6.7 million and so has a very high visibility of the market's expected revenue for the next financial year.
Administrative expenses
Total administrative expenses were £7.22 million (2019: £6.37 million), an increase of 13%. Most of the £0.85 million increase was driven by the investment in additional headcount for the Engineering and Professional Services departments as detailed in the CEO's review.
Personnel costs charged to the Comprehensive Income Statement (including commission, bonuses and travel and subsistence expenses) were £5.54 million (2019: £4.47 million), and £1.00 million (2019: £0.49 million) was capitalised as Development costs. These personnel costs make up 77% (2019: 70%) of the administrative costs of the business.
Changes in accounting rules
The Company has implemented IFRS 16: Leases, effective from 1 July 2019. The Group has chosen not to restate the previous years' financial statements following the adoption of IFRS 16 and there has been no overall effect on the loss before tax following the adoption. Full disclosure of the changes has been made in the notes to these accounts.
Exceptional non-recurring costs
During the year the Group did not charge any item as an exceptional item to the Statement of Comprehensive Income (2019: £0.36 million).
Adjusted operating loss(1)
Adjusted operating loss for the Group changed as follows for the year:
EMEA North America Central Total
£000s £000s £000s £000s
2020 (1,330) (2,081) (692) (4,103)
2019 (1,138) (2,489) (605) (4,232)
Change in year (192) 408 (87) 129
(1) Loss from Operating Activities before exceptional costs and share option charges
The EMEA region's Adjusted Operating Loss increased by £0.19 million in the year. The region continued to deliver strong sales which grew by £1.17 million to £3.89 million resulting in an improvement of £0.99 million in Gross Profit at a margin of 67% (2019: 59%). Administrative costs grew by £1.18 million (13%) primarily reflecting a further investment in personnel, especially in the Engineering and Professional Services departments. Depreciation and amortisation costs were £0.55 million (2019: £0.27 million). The operations within this region have been established longer than those in North America and include the majority of the Engineering, Information Security and Professional Services people and costs for the Group as a whole.
Having opened our business in North America with primarily sales and marketing resources, we now have a number of people in Engineering and Professional Services to meet the growing demand for our services in the region. The North American head office is in Charlotte, North Carolina. Operating Loss in the region improved by £0.41 million primarily driven by a £0.36 million improvement in Gross Profit as new contract sales were deployed. Overheads improved by £0.05 million reflecting the savings made by the move back to the UK of James Barham offset by additional operational hires.
New contract sales in the period have been strong in the region, including the Group's second largest contract to date, and so as these sales and subsequent customer deployments in North America continue to grow, we expect Operating Losses in the future to decrease.
Costs for our Central operations relating to PLC activities increased in the year reflecting the cost of James Barham being fully charged in the year following his relocation back from the US and Simon Wilson joining the Board in the financial year.
We have now reached a stage where the future growth in employee numbers is
starting to slow, having grown rapidly over the last three years. We are now
focusing our hiring policy on targeted improvements and so we are expecting
that our continuing, rapid sales growth will now start to deliver positive
operational gearing as we push towards achieving profitability.
Further segmental information is shown in Note 9.
Key financial performance indicators
The directors use several Key Financial Performance Indicators (KPIs) to monitor the performance of the Group, its subsidiaries and targets. The principal KPIs are as follows:
2020 2019
1. Revenue £4.40 million £2.82 million
2. Gross Margin 69.2% 60.2%
3. Signed ACV in financial period £2.62 million £1.91 million
4. Contracted TACV(1) deployed and live £4.04 million Not available
5. Contracted TACV in deployment £2.19 million Not available
6. Contracted TACV - projects on hold £0.52 million Not available
7. Total Contracted TACV £6.75 million £4.06 million
8. Cash facilities available (2) £5.55 million £1.49 million
9. Deferred Income £4.53 million £2.45 million
10. Ratio Personnel cost to administrative expenses 77% 70%
11. Headcount (excluding non-executive directors) 58 50
(1 )TACV is the total annual recurring revenue of all signed contracts, whether invoiced and included in deferred revenue or still to be deployed and/or not yet invoiced
(2) Cash balance plus undrawn debt facilities
Actual performance to budget is reviewed on a monthly basis and the results are used to continually update the Group's forecast as to expected performance and cash resources.
Capital expenditure
As required by IAS 38, we have capitalised a further £1.00 million (2019: £0.49 million) in development expenditure as we continue to invest in additional headcount in the Engineering department allowing us to continue our investment in our cloud platform and introduce new features and products at an increased pace.
Towards the end of the financial year, following the strong new contract sales and deployments, the Group invested £0.30 million in further perpetual SIP, RTP and SBC software licences (2019: £0.08 million). Other capital expenditure relating to computer equipment was £0.03 million (2019: £0.03 million).
Deferred income
Deferred income increased 85% to £4.53 million (2019: £2.45 million) mostly reflecting the significant growth in new business sales and the consequent increase in invoices raised in advance.
TACV
TACV at the end of the financial year increased 66% to £6.75 million (2019: £4.06 million). This metric is a key indicator of our ability to reach first cash flow and then profit break-even as customers go live with our services. At the end of the financial year £4.04 million of the TACV total was live and delivering monthly recurring revenue. A further £2.19 million was going through our installation processes and so are not yet delivering monthly recognised revenue, but should start within a few months, as the related customer projects go-live. The final £0.52 million related to contracts that were classed as being on hold, normally due to a lack of resource with the customer and/or channel partner, or our solution is part of a larger project being delivered by our partner, which normally has to be deployed first before we can start the installation. The on hold contracts will eventually start being deployed but can take up to six months before the deployment process starts, and so these projects will have a more significant delay prior to reaching recurring revenue recognition. Growing levels of TACV produces increasing levels of future revenue visibility, an attractive aspect of the Group's business model.
Set-up and Professional Services Fees
During the financial year the Group generated £1.29 million (2019 £1.11 million) of set-up and professional services revenue. Of this total £0.09 million (2019: £nil) was for a one off project for a major client and so was released directly to the Statement of Comprehensive Income. The balance will be deferred over the length of the related contract in accordance with IFRS 15.
Trade receivables
Trade receivables grew to £1.263 million (2019: £1.057 million). The level of receivables reflects both debtors generated from new business sales outstanding at the end of the period as well as debtors relating to invoices raised on a monthly basis. As at the 30 June 2020, £0.62 million of the outstanding debtors related to newly signed contracts.
Despite the operating challenges presented by COVID to all businesses, we have nonetheless been able to improve our collection rates, ending the year with 89% of debtors less than 60 days old and a further 8% in the 60 to 90 day period, of which a significant proportion was collected in the first two weeks of the new financial year.
Taxation
During the year the UK entity received £0.22 million as a R & D tax credit from HMRC relating to the financial year ending 30 June 2018. An application was made for an additional credit of £0.15 million related to the financial year ending 30 June 2019, which was received post the year end, and so has not been recognised in the accounts.
Cashflow and liquidity
Net cash as at 30 June 2020 was £4.30 million (2019: £1.49 million).
In September 2019 the Group received £1.50 million in loan funding (£1.31 million after fees) from the facility detailed below and has a further £1.25 million to draw. By the 30 June 2020, the Group has repaid £0.23 million of the £1.50 million loan and had paid interest of £0.13 million.
In March 2020 the Group placed 16.666 million shares at 30 pence per share to raise £5.00 million in new equity finance (£4.57 million net of expenses).
Excluding these additional sources of net cash, the Group cash outflow was £2.71 million against the comparable 2019 figure of £4.56 million. The net cash outflow is far lower than the reported adjusted operating loss of £4.10 million reflecting the advance billing nature of the Group's SaaS business model.
With the existing cash balance of £4.30 million plus the additional £1.25 million of loan facility the Group had available cash resources of £5.55 million at 30 June 2020.
Since the year end we have received $1.13 million of cash for years 2 and 3 of multi-year prepayment arrangement with largest customer in US (signed in FY20), increasing the cash resources of the Group further.
Loan facility
In September 2019, the Group entered into a £2.75 million loan facility with Shawbrook Bank. The principal terms are as follows:
Term 36 months with three month capital repayment holiday
Interest rate 9.3% over LIBOR paid monthly
Arrangement Fee 1.4% of loan facility
Non utilisation fee 0.6% of unutilised amount
Exit fee cash amount calculated on the shares equivalent of 7.5% of the facility payable on takeover of Group or refinance of the loan
Security Fixed and Floating debenture over the assets of the Group.
The loan balance can be drawn in two tranches with a minimum of £1.0 million within five business days of the signing of the agreement and the remaining balance within twelve months. The Company has drawn down £1.5 million of this new facility. The facility is being used to support the working capital requirements of the Group as it continues to grow - see Note 16 for full disclosure of terms.
( )
COVID 19 and Going Concern considerations
The Board of Directors continue to monitor the potential impact of the COVID-19 pandemic closely.
Since the pandemic outbreak there has not been a significant impact on the Group's financial performance. The business was able to transition to home working with relative ease. This was helped by the fact that it is a pure cloud driven business and the fact that before the pandemic some 60% of our employees already worked from home. It was therefore relatively easy to migrate the other 40% to home working as we already provide all employees with laptops and mobile phones. All core documents and systems were already in the cloud and so were immediately available online.
New contract sales for the last quarter of the financial year were a robust £0.8 million, out of a total £2.62 million delivered in the year. When the pandemic hit, despite experiencing delays on some existing pipeline opportunities, the Group saw a noticeable uplift in new sales enquiries and experienced some success with its rapid deployment solution, Rapid Remote, which led to immediate contracts being signed within a few weeks of the launch totalling US $0.2 million. The first quarter of the new financial year has started well. All sales and contract discussions are undertaken via video conference, email, and telephone.
From a marketing point of view all trade conferences have been either cancelled or postponed for the rest of this year, most of which were scheduled to take place in the US This has protected our employees from attending large gatherings and also reduced administration expenditure. We have adjusted our marketing strategy accordingly increasing our digital marketing efforts and collaboration with channel partners. We can report that since the start of the new financial year, we have not experienced the decision-making delays that we saw, and reported on, at the on-set of the COVID-19 pandemic.
Our deployment processes can all be achieved entirely remotely as there is no need for any of our professional services team to attend customer sites. This has allowed us to maintain a strong deployment record with 23 contracts going live in the final quarter of the financial year and this momentum has been maintained into the new financial year.
As a result of the robust performance, the Company has not had to furlough any of its employees, and in fact it has continued to hire new staff to help cope with the additional demand for service delivery. The Group has not taken out any government-backed loans, but it has taken advantage of some of the tax payment deferrals that are available, such as VAT deferment in the UK.
The move to working from home, the lack of trade related shows and the increased use of video conferencing has had the added benefit of dramatically reducing the Group travel and subsistence expenses.
With the Group year-end being 30 June, the Group normally prepares its next financial year budgets in the April to June period. Historically, this has been undertaken face-to-face with all managers meeting in one location. Due to the pandemic this too was moved to being remote sessions by video conference, where the management team presented their departmental forecast based on a COVID-considered market landscape.
This year's budget has made certain cautious assumptions including that sales would be in some part adversely impacted compared to pre-COVID expectations. The budget also assumes, conservatively, that our deployment TTGL would not improve significantly due to the potential for customer delays from having to work remotely. We also took a conservative view of the growth in deferred income.
The Board considered the budget presentation in June and the controls in place that will allow the Group to control its overhead expenditure but still maintain its momentum and deliver market forecasts. Particular attention was paid to the impact of any adverse movement in sales and deployment on the Group's net cash position and the level of headroom achieved.
The Board considered sensitivity models of the budget considering the potential of a longer-term impact of COVID than originally envisaged, which therefore would result in further reduced sales and related cash generation. The Board also considered actions that could be taken to help mitigate the resulting loss in sales.
At all points the directors were satisfied in the robustness of the Group's financial position from the presented plans which, they believe, take a balanced view of the future growth prospects and potential impact of COVID-19, together with the contingencies that can be taken if the budget assumptions are too optimistic. The directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, the directors continue to adopt the going concern basis in preparing the accounts.
Dividend
The Board is not recommending a dividend for the financial year (2019: £nil).
William Good
Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2020
Note 2020 2019
£000s £000s
Revenue 4,396 2,817
Cost of sales (1,353) (1,119)
Gross profit 3,043 1,698
Administrative expenses (7,254) (6,373)
Loss from Operating Activities (4,211) (4,675)
Adjusted Operating Loss (4,103) (4,232)
Exceptional costs - (361)
Expenses relating to Share Options (108) (82)
Loss from Operating Activities (4,211) (4,675)
Finance income 6 1 181
Finance expenditure 7 (140) (8)
Loss before taxation 5 (4,350) (4,502)
Taxation 11 221 136
Loss for the year (4,129) (4,366)
Other comprehensive expense: Items that will be
reclassified subsequently to profit or loss
Foreign exchange translation differences (49) (107)
Total other comprehensive expense (49) (107)
Total comprehensive loss attributable to equity holders for the period
(4,178) (4,473)
Basic and diluted earnings per share 10 (8.84) p (10.30) p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
Note 2020 2019
£000s £000s
ASSETS
Non-current assets
Plant and equipment 13 103 71
Intangible assets 12 2,139 1,300
Trade and other receivables 14 368 207
Deferred taxation 17 - -
Non-current assets 2,610 1,578
Current assets
Trade and other receivables 14 2,343 1,792
Cash and cash equivalents 4,301 1,492
Current assets 6,644 3,284
Total assets 9,254 4,862
LIABILITIES
Current liabilities
Trade and other payables 15 (5,194) (2,781)
Current portion of long-term borrowings 15 (545) -
Current liabilities (5,739) (2,781)
Non-current liabilities
Other payables 16 (875) (666)
Long term borrowings 16 (728) -
Non-current liabilities (1,603) (666)
Total liabilities (7,342) (3,447)
Net assets 1,912 1,415
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)
AS AT 30 JUNE 2020
Note 2020 2019
£000s £000s
EQUITY
Share capital 19 594 427
Share premium 9,018 4,618
Other reserves 289 181
Currency reserves (187) (138)
Profit and loss account (7,802) (3,673)
Total equity 1,912 1,415
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020
Share capital Share premium Other reserves Profit and loss account Currency Reserves Total Equity
£000s £000s £000s £000s £000s £000s
Balance as at 1 July 2018 427 4,618 99 694 (31) 5,807
Share Option amortisation charge 82
- - 82 - -
Transactions with owners
- - 82 - - 82
Foreign exchange translation differences
- - - - (107) (107)
Loss for the year
- - - (4,367) - (4,367)
Total comprehensive loss
- - - (4,367) (107) (4,474)
Balance at 30 June 2019 427 4,618 181 (3,673) (138) 1,415
Share Option amortisation charge
- - 108 - - 108
New shares issued net of costs
167 4,400 - - - 4,567
Transactions with owners
167 4,400 108 - - 4,675
Foreign exchange translation differences
- - - - (49) (49)
Loss for the year
- - - (4,129) - (4,129)
Total comprehensive loss
- - - (4,129) (49) (4,178)
Balance at 30 June 2020 594 9,018 289 (7,802) (187) 1,912
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2020
2020 2019
£000s £000s
Cash flows from operating activities
Loss after taxation (4,129) (4,366)
Adjustments for:
Depreciation of equipment and fixtures 82 53
Amortisation of intangible assets 29 8
Amortisation of capitalised development 433 183
Interest income (1) (181)
Interest expense 126 -
Exchange differences (49) (107)
Income taxes (221) (136)
Share based payments 108 82
Increase in trade and other receivables (713) (1,154)
Increase in trade and other payables 2,575 1,605
Cash used in operating activities (1,760) (4,013)
Dividend paid - -
Income taxes received 221 136
Interest paid (126) -
Net cash used in operating activities (1,665) (3,877)
Cash flows from investing activities
Purchase of equipment and fixtures (33) (27)
Purchase of intangible assets (296) (83)
Proceeds from sale of assets - -
Development expenditure capitalised (1,004) (564)
Repayment of loan note receivable - 2,114
Interest received 1 181
Net cash (used) in /generated from investing activities
(1,332) 1,621
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
FOR THE YEAR ENDED 30 JUNE 2020
2020 2019
£000s £000s
Cash flows from financing activities
Issue of shares - net of cost of issue 4,568 -
Drawdown on loan facility 1,500 -
Repayment of loan facility (227) -
Principal element of lease payments (35) -
Net cash generated from financing activities 5,806 -
Net increase/(decrease) in cash 2,809 (2,256)
Cash and cash equivalents at beginning of year 1,492 3,748
Net increase/(decrease) in cash 2,809 (2,256)
Cash and cash equivalents at end of year 4,301 1,492
This financial information does not constitute full financial statements and is presented as part of a Regulatory News Service announcement of preliminary results of the Group. The information in this announcement has been extracted directly from the audited Financial Statements of the Group for the year ended 30 June 2020, which were approved by the Board on 11 September 2020. The extract should be used for information purposes only. Full copies of the Financial Statements are available to download at www.pcipal.com/en/investors/
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020
1. AUTHORISATION OF FINANCIAL STATEMENTS
The Group's consolidated financial statements (the "financial statements") of
PCI-PAL PLC (the "Company") and its subsidiaries (together the "Group") for
the year ended 30 June 2020 were authorised for issue by the Board of
Directors on 11 September 2020 and the Chief Executive, James Barham, and the
Chief Financial Officer, William Good, signed the balance sheet.
2. NATURE OF OPERATIONS AND GENERAL INFORMATION
PCI-PAL PLC is the Group's ultimate parent company. It is a public limited
company incorporated and domiciled in the United Kingdom. PCI-PAL PLC's shares
are quoted and publicly traded on the AIM division of the London Stock
Exchange. The address of PCI-PAL PLC's registered office is also its principal
place of business.
The Company operates principally as a holding company. The main subsidiaries
are engaged in the provision of telephony services and PCI Solutions.
3. STATEMENT OF COMPLIANCE WITH IFRS
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the European Union.
The principal accounting policies adopted by the Group are set out in note 4.
The accounting policies have been applied consistently throughout the Group
for the purposes of preparation of these financial statements.
Standards and interpretations in issue, not yet effective
The Consolidated Financial Statements of the Group have been prepared in
accordance with International Financial Reporting Standards ("IFRS") as
adopted by the EU ("endorsed IFRS").
These Financial Statements have been prepared in accordance with those IFRS
standards and IFRIC interpretations issued and effective or issued and early
adopted as at 30 June 2020 as endorsed by the EU.
The following adopted IFRSs have been issued but have not been applied by the
Group in these Financial Statements. Their adoption is either not relevant to
the Group or are not expected to have a material effect on the Financial
Statements unless otherwise indicated:
Effective for the year ending 30 June 2020
• IFRIC 23 Uncertainty over Income Tax Treatments
• Amendments to IAS 19 Employee benefits
• Amendments to IFRS 9 Financial instruments
• Amendments to IAS 28 Investments in Associates and Joint Ventures
Effective for the year ending 30 June 2022
• IFRS 17 Insurance contracts
4. PRINCIPAL ACCOUNTING POLICIES
a) Basis of preparation
The financial statements have been prepared on a going concern basis in
accordance with the accounting policies set out below. These are based on the
International Financial Reporting Standards ("IFRS") issued in accordance with
the Companies Act 2006 applicable to those companies reporting under IFRS as
adopted by the European Union ("EU").
The financial statements are presented in pounds sterling (£), which is also
the functional currency of the parent company, and under the historical cost
convention.
b) Basis of consolidation
The Group financial statements consolidate those of the Company and its
subsidiary undertakings (see note 18) drawn up to 30 June 2020. A subsidiary
is a company controlled directly by the Group and all of the subsidiaries are
100% owned by the Group. Control is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee.
All intra-Group transactions, balances, income and expenses are eliminated on
consolidation.
Unrealised gains on transactions between the Group and its subsidiaries are
eliminated. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Amounts reported
in the financial statements of subsidiaries have been adjusted where necessary
to ensure consistency with the accounting policies adopted by the Group.
The Group has utilised the exemption (within IFRS 1) not to apply IFRS to
pre-transition business combinations. All other subsidiaries are accounted for
using the acquisition method.
c) Going concern
The financial statements have been prepared on a going concern basis, which
the directors believe to be appropriate for the following reasons:
The Group meets its day-to-day working capital requirements through its cash
balances and trading receipts. Cash balances for the group were £4.30 million
at the 30 June 2020. The Group also has undrawn banking facilities of £1.25
million.
The directors have considered financial forecasts for the coming year through
to the end of September 2021. As part of these considerations, the directors
reviewed information provided by the management team such as the new contract
sales forecast, the Group current sales pipeline and the likely demand for our
services and any likely impact from the COVID 19 pandemic. The Board also
reviewed other risks within the business that could impact the group's
performance, such as insufficient numbers of employees to ensure the company
can deliver on its contractual obligations or growth opportunities, as it
continues to grow.
The directors reviewed a range of reasonably possible sensitivities in
relation to the future business performance, as detailed in the forecasts, and
the resulting demands on the cash and debt resources detailed above.
The Board also looked at some more severe possibilities, where new sales are
much lower than presented in the forecast models following a prolonged down
due to the COVID 19 pandemic. The executive team detailed what actions and
mitigations the business could take in these circumstances to ensure the
business could continue to trade into the foreseeable future.
Based on these reviews, the directors have concluded that the group will be
able to meet its' obligations as they fall due for the foreseeable future (and
in any event for no less than 12 months from the date of approval of these
financial statements) and accordingly have elected to prepare the financial
statements on a going concern basis.
The Directors recognise that during the forthcoming year the Group is expected
to remain loss making on a month-to-month basis, albeit with an improving
trend. The directors will review, on a regular basis, the actual results
achieved against the planned forecasts. Some of the planned expenditure
assumptions in the current forecast remain discretionary and as a result the
directors can delay such expenditure to further ensure the Group is able to
meet its day-to- day financial working capital needs.
d) Revenue
Revenue represents the fair value of the sale of goods and services and after
eliminating sales within the Group and excluding value added tax or overseas
sales taxes. The following summarises the method of recognising revenue for
the solutions and products delivered by the Group.
(i) PCI compliance solutions and hosted telephony services
Following the implementation of IFRS 15: Revenue from Contracts with Customers
with effect from 1 July 2018 the revenue recognition is more complex and
involves calculation schedules and can be judgemental. Revenue relating to
monthly licence fees or usage generated in the period will be recognised in
the month they relate to once the economic benefit of the contract has passed
to the customer. The economic benefit is normally deemed to have passed
when the contract either goes live or where the customer takes over the
solution for user acceptance testing.
Revenue for set-up and cloud provision fees will be deferred and will be
recognised evenly over the estimated term of the contract, having accounted
for the automatic auto-renewal of our contracts, up to a maximum of four
years, starting the month following from the date of signature of the
underlying contract. The payment profile for such contracts typically
include payment for set-up fees at the point of signature of the contract, but
for revenue recognition purposes, this is deemed to be an integral part of the
wider contract rather than a separate performance obligation.
Revenue for all other professional services and installation fees will be
deferred and will be recognised evenly over the estimated term of the
contract, having accounted for the automatic auto-renewal of our contracts, up
to a maximum of four years, starting in the month following the hand over to
the client for user acceptance testing.
(ii) Third party equipment sales
Where the contract involves the sale of third-party equipment that could be
acquired and supplied by other parties to the client the revenues and costs
relating to this will continue to be released in full to the Statement of
Comprehensive Income at the time the installation is complete.
e) Deferred Costs
Under IFRS 15 costs directly attributable to the delivery and implementation
of the revenue contracts, such as commissions and third party costs, will be
deferred and will be recognised in the statement of comprehensive income over
the length of the contract.
Costs directly attributable to the delivery of the PCI Compliance solutions
and hosted telephony services will be capitalised as 'costs to fulfil a
contract' and released over the estimated term of the contract, having
accounted for the automatic auto-renewal of our contracts, up to a maximum of
four years, starting the month following from the date of signature of the
underlying contract.
Costs relating to commission costs paid to employees for winning the contract
will be capitalised as 'direct costs to fulfil a contract' at the date the
commissions payments become due and will be released in monthly increments
over the estimated economic length of the contract starting the month
following the date the cost is capitalised.
f) Intangible assets
Research and development
Expenditure on research (or the research phase of an internal project) is
recognised as an expense in the period in which it is incurred.
Development costs incurred are capitalised when all the following conditions
are satisfied:
·
completion of the intangible asset is technically feasible so that it will be available for
use or sale
· the Group intends to complete the intangible asset
· the Group is able to use or sell the intangible asset
· the intangible asset will generate probable future economic benefits.
Among other things, this requires that there is a market for the output from
the intangible asset
itself, or, if it is to be used internally, the asset will be used in generating such benefits
· there are adequate technical, financial and other resources to complete
the development and to use or sell the intangible asset
· the expenditure attributable to the intangible asset during the
development can be measured reliably
The cost of an internally generated intangible asset comprises all directly
attributable costs necessary to create, produce and prepare the asset to be
capable of operating in the manner intended by management. Directly
attributable costs include development engineer's salary and on-costs incurred
on software development. The cost of internally generated software
developments are recognised as intangible assets and are subsequently measured
in the same way as externally acquired software. However, until completion of
the development project, the assets are subject to impairment testing only.
The Directors have reviewed the development costs relating to the new AWS
platform and are satisfied that the costs identified meet the tests identified
by IAS 38 detailed above. Specifically, the initial platform was launched in
October 2017 and has been successfully sold in Europe, North America and
Australia, with further sales expected, as detailed in the Chief Executives'
statement. The directors expect that the AWS platform will continue to be
developed, as more functionality is added, and as a result the it is expecting
to continue to capitalise the development costs (which are primarily labour
costs) into the future.
Amortisation commences upon completion of the asset and is shown within
administrative expenses in the statement of comprehensive income. Amortisation
is calculated to write down the cost less estimated residual value of all
intangible assets by equal annual instalments over their expected useful
lives. The rates generally applicable are:
·
Development costs
20% to 33%
Software licences
The cost of perpetual software licences acquired are stated at cost, net of
amortisation and any provision for impairment.
· Software licences
20%
to 30%
g) Land, building, plant and equipment
Land, buildings, plant and equipment are stated at cost, net of depreciation
and any provision for impairment.
Disposal of assets
The gain or loss arising on disposal of an asset is determined as the
difference between the disposal proceeds and the carrying amount of the asset
and is recognised in the statement of comprehensive income.
Depreciation
Depreciation is calculated to write down the cost less estimated residual
value of all plant and equipment assets by equal annual instalments over their
expected useful lives. The rates generally applicable are:
· Land not depreciated
· Buildings 2%
· Fixtures and fittings 20% to 50%
· Right to use asset Length of contract
· Plant 20% to 50%
· Computer equipment 33%
Material residual value estimates are updated as required, but at least
annually.
h) Leases
From 1 July 2019, each lease is recognised as a right-of-use asset with a
corresponding liability at the date at which the lease asset is available for
use by the Group. Interest expense is charged to the consolidated income
statement over the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the lease term on
a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a
present value basis. The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the lessee's
incremental borrowing rate is used, being the rate that the lessee would have
to pay to borrow the funds necessary to obtain an asset of similar value in a
similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the amount of the initial
measurement of the lease liability, any lease payments made at or before the
commencement date less any lease incentives received, any initial direct costs
and restoration costs. Where leases include an element of variable lease
payment or the option to extend the lease at the end of the initial term, each
lease is reviewed, and a decision is made on the likely term of the lease.
Payments associated with short-term leases and leases of low value assets are
recognised on a straight-line basis as an expense in the consolidated income
statement.
i) Impairment testing of other intangible assets, plant
and equipment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows ("cash-generating units"). As a result,
some assets are
tested individually for impairment and some are tested at cash-generating unit level.
Intangible assets not yet available for use are tested for impairment at least
annually. All other individual assets or cash-generating units are tested for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or
cash-generating unit's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions
less cost to sell, and value in use based on an internal discounted cash flow
evaluation. Any impairment loss is first applied to write down goodwill to nil
and then is charged pro rata to the other assets in the cash-generating unit.
With the exception of goodwill, all assets are subsequently reassessed for
indications that an impairment loss previously recognised no longer exists.
j) Equity-based and share-based payment transactions
The Company's share option schemes allow employees to acquire shares in
PCI-PAL PLC to be settled in equity. The fair value of options granted is
recognised as an employee expense with a corresponding increase in equity in
the Company accounts. The fair value is measured at grant date and spread over
the period during which the employees will be entitled to the options. The
fair value of the options granted is measured using either the Black-Scholes
option valuation model or the Monte Carlo option pricing model, whichever is
appropriate for the type of options issued. The valuations consider the terms
and conditions upon which the options were granted. The amount recognised as
an expense is adjusted to reflect the actual number of share options that are
expected to vest.
k) Taxation
Current tax is the tax payable based on the loss for the year, accounted for
at the rates enacted at 30 June 2020.
Deferred income taxes are calculated using the liability method on temporary
differences. Deferred tax is generally provided on the difference between the
carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of goodwill, nor the
initial recognition of an asset or liability, unless the related transaction
is a business combination or affects tax or accounting profit. In addition,
tax losses available to be carried forward as well as other income tax credits
to the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, accounted for at the rates
enacted at 30 June 2020, with no discounting. Deferred tax assets are
recognised to the extent that it is probable that the underlying deductible
temporary differences will be able to be offset against future taxable income.
Current and deferred tax assets and liabilities are calculated at tax rates
that are expected to apply to their respective period of realisation, provided
they are enacted or substantively enacted at the year end.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expense in the statement of comprehensive income, except where they relate
to items that are charged or credited to other comprehensive income or
directly to equity in which case the related tax charge is also charged or
credited directly to other comprehensive income or equity.
l) Dividends
Dividend distributions payable to equity shareholders are included in "other
short term financial liabilities" when the dividends are approved in general
meeting prior to the year end. Interim dividends are recognised when paid.
m) Financial assets and liabilities
The Group's financial assets comprise cash and trade and other receivables,
which under IAS 39 are classed as "loans and receivables". Financial assets
are recognised on inception at fair value plus transaction costs. Loans and
receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. Loans and receivables are
measured subsequent to initial recognition at amortised cost using the
effective interest method, less provision for impairment. Any change in their
value through impairment or reversal of impairment is recognised in in
the year.
Trade receivables are reviewed at inception under an expected credit loss
model, and then subsequently for further indicators of impairment, and a
provision, if required, is determined as the difference between the assets'
carrying amount and the present value of estimated future cash flows.
The Group has a number of financial liabilities including trade and other
payables and bank borrowings. These are classed as "financial liabilities
measured at amortised cost" in IAS 39. These financial liabilities are carried
on inception at fair value net of transaction costs and are thereafter carried
at amortised cost under the effective interest method.
n) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together
with other short-term highly liquid investments with maturities of three
months or less from inception that are readily convertible into known amounts
of cash and which are subject to an insignificant risk of changes in value.
o) Equity
Equity comprises the following:
·
"Share capital" represents the nominal value of equity shares. The shares have attached to
them voting, dividend and capital distribution (including on winding up) rights; they do not
confer any rights of redemption.
· "Share premium" represents the difference between the nominal and issued
share price after accounting for the costs of issuing the shares
·
"Other reserves" represents the net amortisation charge for the Company's share options
scheme
· "Profit and loss account" represent retained profits or losses
generated by the Group
· "currency reserves" represents exchange differences arising from the
translation of assets and liabilities of foreign operations
p) Contribution to defined contribution pension schemes
The pension costs charged against profits represent the amount of the
contributions payable to the schemes in respect of the accounting period.
q) Foreign currencies
Transactions in foreign currencies are translated into Sterling at the
exchange rate ruling at the date of the transaction. Monetary assets and
liabilities in foreign currencies are translated into Sterling at the rates of
exchange ruling at the year end.
Any exchange differences arising on the settlement of monetary items or on
translating monetary items at rates different from those at which they were
initially recorded are recognised in the statement of comprehensive income in
the period in which they arise.
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated to the Group's
presentational currency, Sterling, at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign operations are
translated at the exchange rate applicable at the date of the transactions.
Exchange differences arising from this translation of foreign operations are
reported as an item of other comprehensive income. Exchange differences
arising in respect of the retranslation of the opening net investment in
overseas subsidiaries are accumulated in the currency reserve.
r) Significant judgements and estimates
Capitalised development expenditure
The Group makes estimates concerning the future in assessing the carrying
amounts of capitalised development costs. To substantiate the carrying amount
the directors have applied the criteria of IAS 38 and considered the future
economic benefit likely as a result of the investment.
Careful judgement by the directors is applied when deciding whether the
recognition requirements for development costs have been met. Judgement
factors include: the current sales of the new AWS platform; future demand; and
the resource necessary to finalise the development over the next few years.
This is necessary as the economic success of
any product development is uncertain and may be subject to future technical problems at the time
of recognition. Judgements are based on the information available at each
balance sheet date. In addition, all internal activities related to the
research and development of new software products are continuously monitored
by the directors.
Contract revenue and direct costs
The Group has adopted IFRS 15. A key related judgement is whether fees
relating to the establishment of a contract constitute a separate performance
obligation (see Note 4d above). Having determined that such fees are not a
separate performance obligation, a key estimate is the period over which such
fees are recognised as revenue. The directors have judged that such revenue
will be deferred into deferred revenue and held in the Statement of Financial
Position and will be released to the Statement of Comprehensive Income over
the estimated term of the contract.
That term is estimated as:
- for contracts with defined termination dates, revenue will be recognised
over the period to the termination date
- for rolling contracts with renewal clauses, revenue will be recognised over
the maximum of 4 years, representing the directors' current best estimate of a
minimum contract term.
Associated direct costs such as commission costs directly linked to individual
contracts will be assessed and will also be deferred over the same period.
Deferred tax
The calculation of the deferred tax asset involved the estimation of future
taxable profits. In the year ended 30 June 2019, the directors assessed the
carrying value of the deferred tax asset and decided not to recognise the
asset, as the utilisation of the assets was unlikely in the near future. The
directors have reached the same conclusion for this accounting period and so
no asset has been recognised.
Leases & adoption of IFRS 16
The Group has adopted IFRS 16: Leases using the modified retrospective
approach from 1 July 2019 and has not restated the comparatives for the
reporting period to 30 June 2019 as allowed under the transitional provisions
in the standard.
The only operating lease within the Group relates to its properties in
Ipswich. These leases do not have an implied interest rate and so the
management have used a rate of 12% as the discount rate to calculate the lease
liabilities for each of the leases. This rate was obtained using the
underlying rate of interest applied to our bank loan facilities.
Impairment of investments in subsidiaries (Company only)
The Company has intercompany receivables of £13.66 million. The management
have reviewed these intercompany loans and have concluded that, given the
strong growth and future prospects of the relevant subsidiaries, there is no
impairment required.
Share based payments
The fair value of share-based payments is estimated using the methods detailed
in note 19 and using certain assumptions. The key assumptions around
volatility, expected life and the risk free rate of return are based on
historic volatility over previous periods, the managements judgement of the
average expected period to exercise, and the yield on the UK 5-year gilt at
the date of issuance.
5. LOSS BEFORE TAXATION
The loss on ordinary activities is stated after:
2020 2019
£000s £000s
Disclosure of the audit and non-audit fees
Fees payable to the Group's auditors for:
The audit of Company's accounts 27 20
The audit of the Company's subsidiaries pursuant to legislation 15 12
Fees payable to the Group's auditors for other services
Audit related assurance services - -
Tax - compliance services 6 6
Tax - advisory services 9 12
Depreciation and amortisation - charged in administrative expenses
Right of use assets, equipment and fixtures 82 53
Intangible assets 462 191
Rents payable 64 148
Principal element of lease payments 35 -
Amortisation of share-based payments 108 82
Foreign exchange gain 15 89
6. FINANCE INCOME
2020 2019
£000s £000s
Unwind of loan note receivable discount - 181
Bank interest receivable 1 -
1 181
7. FINANCE EXPENDITURE
2020 2019
£000s £000s
Interest on bank borrowings 126 -
Other 14 8
140 8
8. DIRECTORS AND EMPLOYEES
Staff costs of the Group, including the directors who are considered to be
part of the key management personnel, paid during the year were as follows.
2020 2019
£000s £000s
Wages and salaries 4,712 3,648
Social security costs 474 425
Other pension costs 82 74
5,268 4,147
2020 2019
Heads Heads
Average number of employees during the year 54 45
Remuneration in respect of directors was as follows:
2020 2019
£000s £000s
Emoluments 523 543
Bonus 103 24
Pension contributions to money purchase pension schemes 27 29
Employer's National insurance and US Federal Taxes 84 65
737 661
During the year 4 (2019: 4) directors participated in money purchase pension
schemes.
The Board consider the board of directors to be the key management for the
Group. The amounts set out above include remuneration in respect of the
highest paid director as follows:
2020 2019
£000s £000s
Emoluments 140 157
Bonus/commission 49 24
Pension contributions to money purchase pension schemes 13 14
A detailed breakdown of the Directors' Emoluments, in line with the AIM rules,
appears in the Directors' Report.
9. SEGMENTAL INFORMATION
PCI-PAL PLC operates one business sector: the service of providing data secure
payment card authorisations for call centre operations and this is delivered
on a regional basis. The Group manages its operations by reference to
geographic segments, which are reported on below:
Segment results, assets and liabilities include items directly attributable to
a segment as well as those that can be allocated on a reasonable basis.
Unallocated assets comprise items such as cash and cash equivalents, taxation
and borrowings. All liabilities, other than the bank loan, are unallocated.
Segment capital expenditure is the total cost incurred during the year to
acquire segment assets that are expected to be used for more than one period.
PCI Pal PCI Pal Central Total
EMEA North America £000s £000s
£000s £000s
2020
Revenue 3,894 502 - 4,396
Cost of Sales (1,303) (50) - (1,353)
Gross Profit 2,591 452 - 3,043
67% 90% 69%
Administration Expenses (3,921) (2,533) (800) (7,254)
Loss from Operating Activities (1,330) (2,081) (800) (4,211)
Finance income - - 1 1
Finance costs (16) (8) (116) (140)
Loss before tax (1,346) (2,089) (915) (4,350)
Segment assets 3,860 4,313 1,081 9,254
(3,848) (2,127) (1,367) (7,342)
Segment liabilities
Other segment items:
Capital Expenditure
- Equipment, Fixtures & Licences 329 - - 329
Capital Expenditure
- Capitalised Development 826 178 - 1,004
Depreciation
- Equipment, Fixtures & Licences 111 - - 111
Depreciation
- Capitalised Development 417 16 - 433
PCI Pal PCI Pal Central Total
EMEA North America £000s £000s
£000s £000s
2019
Revenue 2,721 96 - 2,817
Cost of Sales (1,119) - - (1,119)
Gross Profit 1,602 96 - 1,698
59% 100% 60%
Administration Expenses (2,754) (2,680) (939) (6,373)
Loss from Operating Activities (1,152) (2,584) (939) (4,675)
Finance income - - 181 181
Finance costs (3) (5) - (8)
Loss before tax (1,155) (2,589) (758) (4,502)
Segment assets 3,142 537 1,183 4,862
(2,779) (566) (115) (3,447)
Segment liabilities
Other segment items:
Capital Expenditure
- Equipment, Fixtures & Licences 27 - - 27
Capital Expenditure
- Capitalised Development 647 - - 647
Depreciation
- Equipment, Fixtures & Licences 53 - - 53
Depreciation
- Capitalised Development 191 - - 191
Revenue can be split by location of customers as follows:
2020 2019
£000s £000s
PCI - PAL division
United Kingdom and European Union 3,764 2,610
North America 433 90
Asia Pacific 69 6
Middle East 130 111
Continuing Operations 4,396 2,817
All non-current assets are located in the United Kingdom and the largest
customer accounted for 18% of the revenue of the Group
10. EARNINGS PER SHARE
The calculation of the earnings per share is based on the loss after taxation
added to reserves
divided by the weighted average number of ordinary shares in issue during the relevant period as
adjusted for treasury shares. Details of potential share options are disclosed
in note 19.
12 months 12 months ended ended
30 June 30 June
2020 2019
Loss after taxation added to reserves (£4,129,000) (£4,366,000)
Basic weighted average number of ordinary shares in issue during the period
46,720,616 42,386,720
Diluted weighted average number of ordinary shares in issue during the period
51,687,283 47,083,804
Basic and diluted earnings per share (8.84) p (10.30) p
There are no separate diluted earnings per share calculations shown as it is
considered to be anti-dilutive.
11. TAXATION
2020 2019
£000s £000s
Analysis of charge in the year
Current tax:
In respect of the year:
UK Corporation tax based on the results for the year at 19% (2019: 19%) - -
R & D Tax credit received 220 136
Total current tax credited 220 136
Movement on recognition of tax losses - -
Total deferred tax charged - -
Credit 220 136
Factors affecting current tax charge
The tax assessed on the loss on ordinary activities for the year was lower
than the standard rate of corporation tax in the UK of 19% (2019: 19%) and in
the United States of 21% (2019: 21%)
2020 2019
£000s £000s
Loss on ordinary activities before tax (4,350) (4,502)
Loss on ordinary activities multiplied by standard rate of corporation tax in
the UK & US of 19.96% (2019: 20.14%)
(868) (907)
Expenses not deductible for tax purposes 1 1
Depreciation (less than)/in excess of capital allowances for the year
60 28
Utilisation of tax losses - -
Unrelieved tax losses 807 883
Other - (5)
Movement on deferred tax timing differences - -
R&D Tax Credit received 221 136
Prior year adjustment - -
Total tax credited for the year 221 136
The Group has unrecognised tax losses carried forward of £13.69 million
(2019: £9.42 million).
The R&D tax credit received in FY 2020 is in respect to the trading in FY
2018. No credit has been recognised in relation to the financial years 2019 or
2020 which are pending submission to HMRC.
12. INTANGIBLE ASSETS
SIP, RTP and SBC licences
2020 £000s Capitalised Development
£000s Total
£000s
Cost:
At 1 July 2019 83 1,515 1,598
Additions 297 1,004 1,301
Disposals - - -
At 30 June 2020 379 2,519 2,898
Depreciation (included within administrative expenses):
At 1 July 2019 8 290 298
Charge for the year 29 433 462
Disposals - - -
At 30 June 2020 37 723 760
Net book amount at 30 June 2020
343 1,796 2,139
SIP, RTP
2019 and SBC Capitalised
Licences Development Total
£000s £000s £000s
At 1 July 2018 - 951 951
Additions 83 564 647
Disposals - - -
At 30 June 2019 83 1,515 1,598
Depreciation (included within administrative expenses):
At 1 July 2018 - 107 107
Charge for the year 8 183 191
Disposals - - -
At 30 June 2019 8 290 298
Net book amount at 30 June 2019
75 1,225 1,300
13. PLANT AND EQUIPMENT
Right of use Asset Fixtures
2020 £000s and Fittings Computer Equipment
£000s £000s Total
£000s
Cost:
At 1 July 2019 - 22 226 248
On adoption of IFRS 16 82 - - 82
Additions - - 32 32
Disposals - - - -
At 30 June 2020 82 22 258 362
Depreciation (included within administrative expenses):
At 1 July 2019 - 10 167 177
Charge for the year 35 4 43 82
Disposals - - - -
At 30 June 2020 35 14 210 259
Net book amount at 30 June 2020
47 8 48 103
Right Fixtures
2019 of use and Computer
Asset Fittings Equipment Total
£000s £000s £000s £000s
At 1 July 2018 - 22 199 221
Additions - - 27 27
Disposals - - - -
At 30 June 2019 - 22 226 248
Depreciation (included within administrative expenses):
At 1 July 2018 - 6 118 124
Charge for the year - 4 49 53
Disposals - - - -
At 30 June 2019 - 10 167 177
Net book amount at 30 June 2019
- 12 59 71
On the 1(st) July 2019 the Group adopted IFRS 16: Leases. At the time of
the adoption the Group only held one operating lease for its office buildings
in Ipswich.
Following the change in the accounting policy the following items were created
in the balance sheet.
- Right to use asset - increase by £82,000
- Lease liability - increase by £82,000
The net impact on retained earnings on 1 July 2019 was £nil, and there were
no other adjustments required on the balance sheet.
The total cash outflow for leases in the year was £45,000, made up of the
principal lease payments of £35,000 and lease interest payments of £10,000.
There were no additions to right-of-use assets acquired in the year.
14. TRADE AND OTHER RECEIVABLES
Due within one year 2020 2019
£000s £000s
Trade receivables 1,263 1,057
Accrued income 60 35
Other receivables 468 398
Prepayments and accrued income 552 302
Trade and other receivables due within one year 2,343 1,792
Due after more than one year 2020 2019
£000s £000s
Other receivables 368 207
Trade and other receivables due after one year 368 207
All amounts are considered to be approximately equal to the carrying value.
The maximum exposure to credit risk at the reporting date is the carrying
value of each class of receivables mentioned above.
Trade receivables are reviewed at inception under an expected credit loss
model, and then subsequently for further indicators of impairment, and a
provision has been recorded as follows:
2020 2019
£000s £000s
Opening provision 8 8
Credited to income (7) -
Closing provision at 30 June 1 8
All of the impaired trade receivables are past
due at the reporting dates. In addition, some of the non-impaired
trade receivables are past due at the reporting date:
2020 2019
£000s £000s
0-30 days past due 103 118
30-60 days past due 4 19
Over 60 days past due 36 140
143 277
Amounts which are not impaired, whether past due or not, are considered to be
recoverable at their carrying value. Factors taken into consideration are past
experience of collecting debts from those customers, plus evidence of post
year end collection.
15. CURRENT LIABILITIES
2020 2019
£000s £000s
Trade payables 675 491
Social security and other taxes 242 97
Deferred Income 3,674 1,787
Right of use lease 32 -
Accruals 571 406
Trade and other payables 5,194 2,781
Bank Loan (note 16) 545 -
Total current liabilities due within one year 5,739 2,781
The deferred income figure above includes amounts relating to contracts where
the annual licence fee has been invoiced in advance but have not reached a
stage where the revenue is being recognised and so is treated as all due in
less than one year for reporting purposes.
16. NON-CURRENT
LIABILITIES
2020 2019
£000s £000s
Deferred Income 859 666
Right of use lease 16 -
Bank loans 728 -
Total non-current liabilities due after one year 1,603 666
Borrowings
Bank loans are repayable as follows:
2020 2019
£000s £000s
Within one year 545 -
After one year and within two years 545 -
After two years and within five years 183 -
Over five years - -
1,273 -
In October 2019 the Group entered into a £2.75 million loan facility with Shawbrook Bank. The principal terms are as follows:
Term 36 months with three month capital repayment holiday
Interest rate 9.3% over LIBOR paid monthly
Arrangement Fee 1.4% of loan facility
Non utilisation fee 0.6% of unutilised amount
Exit fee shares equivalent of 7.5% of the facility payable as detailed below
Security Fixed and Floating debenture over the assets of the Group.
The loan balance can be drawn in two tranches with a minimum of £1.0 million within five business days of the signing of the agreement and the remaining balance within twelve months. The company initially drew down £1.5 million of this new facility. The facility is being used to support the working capital requirements of the Group as it continues to grow.
Shawbrook Bank will be entitled to receive a cash based exit payment calculated on the value generated, over a 10 year period, on the equivalent of £206,250 of phantom shares (being 7.5% of the facility) if there is a takeover of the Group or a debt refinancing of the Shawbrook debt.
The exit fee is a cash payment of a sum equal to P, where:
P = (A x B) - C
and where:
A = the Phantom Shares Number - the Phantom Shares Value divided by the fair
market value of one ordinary share, calculated using the average of the
closing share price in the previous five days immediately prior to the date of
the facility letter;
B = the fair market value of one ordinary share at the time of the exit fee
event; and
C = the Phantom Shares Value, which is £206,250.
An Exit Fee Event is where there is:
(a) a sale or other disposition of all or substantially
all of the assets in the Company in whatever form (whether in a single
transaction or multiple related transactions); or
(b) an acquisition of shares in the Company by a person
(and any persons acting in concert with that person) that results in that
person (together with any such persons acting in concert) acquiring a
controlling interest in the Company; or
(c) a reorganisation, consolidation or merger of the
Company (whether in a single transaction or multiple related transactions)
where shareholders before the transaction(s) directly or indirectly
beneficially own issued voting securities of the surviving entity after the
transaction(s) together carrying the right to cast 50% or less of the votes
capable of being cast at general meetings of the surviving entity; or
(d) a distribution or other transfer of assets to the
shareholders of the Company in connection with the liquidation of the Company;
or
(e) a refinancing of the Facility with a bank or debt
lender (other than the Bank) within thirty six months of the date of the
Facility Agreement, provided that the outstanding balance of the Facility
prior to the date of such refinancing is equal to or greater than £500,000
As at 30 June 2020 £1.25 million of the
facility remains undrawn.
17. DEFERRED TAXATION
Deferred taxation is calculated at a rate of 19% (2019: 17%) in the UK and 21%
(2019: 21%) in the US
Tax losses Total
£000s £000s
Opening balance at 1 July 2018 - -
(Charged)/credited through the statement of comprehensive income in the year
- -
At 30 June 2019 - -
Charged through the statement of comprehensive income in the year
- -
At 30 June 2020 - -
2020 2019
£000s £000s
Unprovided deferred tax assets
Accelerated capital allowances - -
Trading losses 2,600 1,602
2,600 1,602
The unprovided deferred tax assets are calculated at an average rate of 19.67%
(2019: 17.0%).
18. GROUP UNDERTAKINGS
At 30 June 2020, the Group included the following subsidiary undertakings,
which are included in the consolidated accounts:
Name Country of Incorporation Class of share capital held Proportion held Nature of business
PCI-PAL (U.K.) Limited England Ordinary 100% Payment Card Industry software services provider
IP3 Telecom Limited England Ordinary 100% Dormant
The Number Experts Limited England Ordinary 100% Dormant
PCI PAL (US) Inc United States of America Ordinary 100% Payment Card Industry software services provider
PCI PAL (AUS) Pty Ltd Australia Ordinary 100% Dormant
19. SHARE CAPITAL
Group 2020 2020 2019 2019
Number £000s Number £000s
Authorised:
Ordinary shares of 1 pence each 100,000,000 1,000 100,000,000 1,000
Allotted called up and fully paid:
Ordinary shares of 1 pence each 59,387,845 594 42,721,178 427
On 17 April 2020 the company placed 16,666,667 ordinary shares of 1 pence with
various institutional investors, priced at 30 pence per share. The placing
raised a gross amount of £5.00 million before expenses. The new shares
represent approximately 28.14% of the Company's enlarged issued ordinary share
capital (excluding those held as treasury shares).
The Group owns 167,229 (2016: 167,229) shares and these are held as Treasury
Shares.
During the year, the share price fluctuated between 50.5 pence and 26.0 pence
and closed at 40.0 on 30 June 2020.
Share Option schemes
The Company operates an Employee Share Option Scheme. The share options
granted under the scheme are subject to performance criteria and generally
have a life of 10 years. The grant price is normally taken with reference to
the closing quotation price as derived from the Daily Official List of the
London Stock Exchange, however, the remuneration will adjust the grant price
if it deems there are extraordinary circumstances to justify doing so.
The performance criteria are set by the remuneration committee. The grants are
individually assessed with regard to the location of the employee and
generally have one of the following performance criteria:
1: 50% of the options will vest if the share price of the Company as measured
on the London Stock Exchange trades above the share price at the date of
grant, for a continuous 30 day period; 25% or the options will vest if the
share price of the Company trade 50% above the share price of the Company at
the date of Grant for a continuous 30 day period; and the remaining 25% will
vest if the share price of the Company trades 100% above the share price of
the Company at the date of Grant for a continuous 30 day period. The options
cannot be exercised for a three year period from the date of Grant. or;
2: The number of options granted will vest equally over a four year period in
monthly tranches with the earliest exercise date being 12 months from the date
of issue of the option
All options will lapse after a maximum ten-year period if they have not been
exercised.
The following options grants have been made and are valued using the Monte
Carlo Pricing model with the following assumptions:
Date of Grant 25-May-17 12-Nov-18 10-May-19 13-Jun-19 08-Jul-19 08-Jul-19 08-Jul-19 08-Jul-19 25-Jul-19 Total
Exercise Price 33.0 pence 26.5 pence 22.0 pence 28.5 pence 28.5 pence 26.5 pence 19.0 pence 23.0 pence 19.0 pence
Price at date of grant 44.0 pence 26.5 pence 22.0 pence 28.5 pence 30.0 pence 30.0 pence 30.0 pence 30.0 pence 33.0 pence
Estimated time to Maturity 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years
Expected Dividend yield 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Risk Free Rate 0.57% 1.00% 0.87% 0.62% 0.59% 0.59% 0.59% 0.59% 0.59%
No Steps used in calculation 10 10 10 10 10 10 10 10 10
No of simulations used in calculation 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000
Fair value of Option 14.11 pence 14.23 pence 14.23 pence 14.30 pence 14.18 pence 14.23 pence 14.25 pence 14.21 pence 14.25 pence
Weighted average life in years 1.91 years 4.25 years 4.75 years 4.83 years 4.92 years 4.92 years 4.92 years 4.92 years 4.92 years
# option shares issued at grant 3,065,000 225,000 145,000 525,000 105,000 145,000 145,000 145,000 525,000 5,025,000
# option shares lapsed -780,000 -125,000 0 0 0 0 0 0 0 -905,000
# option shares outstanding as at 30 June 2020 2,285,000 100,000 145,000 525,000 105,000 145,000 145,000 145,000 525,000 4,120,000
# option shares exercisable as at 30 June 2020 1,142,500 0 0 0 0 0 0 0 0 1,142,500
Total charge for year £52,704 £2,856 £4,141 £15,064 £5,982 £3,212 £559 £2,928 £7,992 £95,438
Total cumulative charge as at 30 June 2020 £199,822 £4,658 £4,729 £15,805 £11,897 £5,285 £841 £3,942 £12,211 £259,189
The fair value of these options has been calculated on an issue by issue basis
and £95,438 (2019: £68,635) has been charged to the statement of
comprehensive income account for this financial year.
The following options have been valued using a Black Scholes Pricing model
with the following assumptions:
Date of Grant 28-Jun-17 04-Oct-17 12-Jul-18 12-Jul-18 12-Nov-18 12-Nov-18 07-Jan-19 27-Feb-19 Total
Exercise Price 41.5 pence 44.5 pence 28.5 pence 28.5 pence 26.5 pence 26.0 pence 18.4 pence 23.0 pence
Price at date of grant 41.5 pence 44.5 pence 28.5 pence 28.5 pence 26.5 pence 26.0 pence 18.4 pence 23.0 pence
Estimated time to Maturity 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years
Expected Dividend yield 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Risk Free Rate 0.57% 0.57% 1.00% 1.00% 1.03% 1.03% 0.89% 0.96%
Volatility 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%
Fair value of Option 7.8 pence 8.4 pence 5.6 pence 5.6 pence 5.0 pence 5.2 pence 3.6 pence 4.5 pence
Weighted average life in years 2.0 years 2.26 years 3.03 years 3.03 years 3.36 years 3.36 years 3.52 years 3.66 years
# option shares issued at grant 150,000 150,000 415,000 641,667 150,000 60,000 15,000 100,000 1,681,667
# option shares lapsed 0 0 -25,000 -550,000 0 0 0 0 -575,000
# option shares outstanding at 30 June 2020 150,000 150,000 390,000 91,667 150,000 60,000 15,000 100,000 1,106,667
# option shares exercisable as at 30 June 2020 112,500 100,000 186,875 43,924 59,375 23,750 5,313 33,333 565,070
Total charge for year £2,114 £2,517 £4,415 £1,038 £1,491 £622 £108 £911 £13,215
Total cumulative charge as at 30 June 2020 £7,051 £6,901 £8,686 £2,042 £2,432 £1,015 £160 £1,219 £29,505
The fair value of these options has been calculated on an issue by issue basis
and £13,215 (2019: £11,839) has been charged to the statement of
comprehensive income account for this financial year.
The analysis of the Company's option activity for the financial year is as
follows:
2020 2019
Weighted Number of Weighted Number of
Average exercise Options Average exercise Options
Price price
£ £
Options outstanding at start of year 0.303 5,116,667 0.339 3,255,000
Options granted during the year 0.234 755,000 0.266 3,266,667
Options exercised during the year - -
Options lapsed during the year 0.254 (955,000) 0.300 (1,405,000)
Options outstanding at end of year 0.302 4,916,667 0.303 5,116,667
Options exercisable at the end of year 1,707,570 131,250
20. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
The Group uses various financial instruments including cash, trade
receivables, trade payables, other payables, loans and leasing that arise
directly from its operations. The main purpose of these financial instruments
is to maintain adequate finance for the Group's operations. The existence of
these financial instruments exposes the Group to a number of financial risks,
which are described in detail below. The directors do not consider price risk
to be a significant risk. The directors review and agree policies for managing
each of these risks, as summarised below, and these remain unchanged from
previous years.
Capital Management
The capital structure of the Group consists of debt, cash, loans and equity.
The Group's objective when managing capital is to maintain the cash position
to protect the future on-going profitable growth which will reflect in
shareholder value.
At 30 June 2020, the Group had a closing cash balance of £4,301,000 (2019:
£1,492,000) and borrowings of £1,273,000, with a further £1,250,000
available to draw on the loan account.
Financial risk management and objectives
The Group seeks to manage financial risk to ensure sufficient liquidity is
available to meet foreseeable needs and to invest cash assets safely and
profitably. The directors achieve this by regularly preparing and reviewing
forecasts based on the trends shown in the monthly management accounts.
In October 2019, the Group agreed a £2.75 million, 36 month term loan
facility with Shawbrook Bank secured over the assets of the business to assist
with the working capital requirements of the Group. As at 30 June 2020
£1.25 million of the facility remains available to draw.
In addition, in April 2020 the Group placed 16,666,667 Ordinary shares of 1
pence each with investors raising £5.0 million (£4.57 million net of fees)
to provide further working capital and investment funding.
Interest rate risk
The Group has arranged a bank loan with Shawbrook Bank, as detailed in note
16. As at 30 June 2020 the outstanding balance was £1.273 million.
Interest is calculated at 9.3% over LIBOR and is paid monthly. The Group
does not consider the interest rate risk to be material and so has not entered
into any hedging arrangements.
Credit risk
The Group's principal financial assets are cash and trade receivables, with
the principal credit risk arising from trade receivables. In order to manage
credit risks the Group conducts third party credit reviews on all new clients,
takes deposits or advanced payments where this is deemed necessary and where
possible collects payment by direct debit, limiting the exposure to a build-up
of a large outstanding debt. Concentration of credit risk with respect to
trade receivables are limited due to the wide nature of the Group's customer
base: The largest customer accounted for 18% of revenues in the financial
year, but this is expected to drop to around 10% in the next financial year.
Historically, bad debts within the Group are minimal due to the importance of
our service to the customer, and this situation is not expecting to change in
the future.
Liquidity risk
The Group aims to mitigate liquidity risk by closely monitoring cash
generation and expenditure. Cash is monitored daily and forecasts are
regularly prepared to ensure that the movements are in line with the
directors' strategy.
Foreign currencies and foreign currency risk
During the year exchange gains of £15,100 (2019: £89,400) have arisen and as
at the 30 June 2020 the Group held the following foreign currency cash
balances:
US Dollar:
$350,503 Sterling equivalent: £279,508
(2019: £77,111)
Canadian Dollar: $ 24,772 Sterling
equivalent: £ 14,575 (2019: £5)
Australian Dollar: $ 31,933 Sterling
equivalent: £ 17,608 (2019: £6,130)
Total
Sterling equivalent: £311,691 (2019: £83,246)
Transactions in foreign currencies are translated at the exchange rate ruling
at the date of the transaction and monetary assets and liabilities in foreign
currencies are translated at the rates ruling at the year end. At present
foreign exchange translation is low and therefore hedging and risk management
is not deemed necessary as the company trades and spends in the various
currencies.
The Group's principal exposure to exchange rate fluctuations arise on the
translation of overseas net assets, profits and losses into Sterling, for
presentational purposes. The risk is managed by taking the differences
that arise on the retranslation of the net overseas investments to the
currency reserve. Foreign currency risk on cash balances is monitored
through regular forecasting and the Group tries to maintain a minimum level of
currency in the accounts so as to meet the short term working capital
requirements.
No sensitivity analysis is provided in respect of foreign currency risks as
the risk is considered to be moderate.
Financial assets
Note 2020 2019
Current financial assets
£000s £000s
Cash at bank 4,301 1,492
Trade receivables - current 14 1,263 1,057
Accrued income 14 60 35
5,624 2,584
The fair values of the financial assets are considered to be approximately
equal to the carrying values.
Financial liabilities
Note 2020 2019
Current financial liabilities
£000s £000s
Trade payables 15 675 491
Accruals 15 619 406
Bank debt 16 1,273 -
2,567 897
The fair values of the financial liabilities are considered to be
approximately equal to the carrying values.
21. CAPITAL COMMITMENTS
The Group has no capital commitments at 30 June 2020 or 30 June 2019.
22. CONTINGENT ASSETS
The Group has no contingent assets at 30 June 2020 or 30 June 2019.
23. CONTINGENT LIABILITIES
In September 2019 the Group entered into a loan agreement with Shawbrook Bank
for £2.75 million. As part of this agreement the Group could become subject
to an exit fee payment calculated on £206,250 phantom shares. The
details of how the exit fee is calculated and the triggers for this payment is
detailed in Note 16.
The Group had no contingent liabilities at 30 June 2019.
24. CHANGES IN ACCOUNTING POLICY
The Group has adopted IFRS 16: Leases from 1 July 2019, which has resulted in
the new accounting policies set out below
On adoption of the standard there was no adjustment to opening equity and the
comparative amounts presented in the Consolidated Statement of Comprehensive
Income and Consolidated Statement of Financial Position have not been
restated.
On adoption the Group recognised lease liabilities of £82,000 for leases
previously classified as operating leases, measured at the present value of
the remaining lease payments using a discount rate of 12%, which is the
assumed incremental borrowing rate at the date of adoption. At the same
time the Group recognised a right-to-use asset of £82,000. There is,
therefore, no overall impact to loss before tax.
25. TRANSACTIONS WITH DIRECTORS
During the financial year, prior to becoming a director, Simon Wilson was paid
$83,333 in salary and received $6,860 in benefits.
Apart from the director's standard remuneration there were no other
transactions with directors in the year to June 2020 or June 2019.
26. DIVIDENDS
The directors are not proposing a dividend for the financial year (2019: nil
pence per share).
27. SUBSEQUENT EVENTS
There are no subsequent events to report.
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