REG - Pelatro PLC - Final Results
Pelatro Plc
("Pelatro", the "Company" or the "Group")
Final Results
Pelatro Plc (AIM: PTRO), the global Multichannel Marketing Hub software specialist, is pleased to announce its final results for the year ended 31 December 2018.
Financial Highlights
· Revenue increased by 95% to $6.12m (2017: $3.15m)
· Repeat revenue increased to $3.10m (2017: $0.62m)
· Repeat revenue now accounts for 51% of revenues (2017: 20%)
· Pre-exceptional EBITDA* increased by 88% to $3.75m (2017: $2.0m)
· Adjusted profit before tax increased by 73% to $3.1m (2017: $1.8m)
· Adjusted earnings per share** increased by 13% to 10.1c (2017: 8.9c)
· Net cash as at 31 December 2018 $1.8m (2017: $3.1m)
· Operating cash flow increased by 56% to $1.2m (2017: $0.75m)
* earnings before interest, tax, depreciation, amortisation and exceptional items
** based on pre-exceptional earnings after tax
Operational Highlights
· Earnings enhancing acquisition of certain assets from the Danateq Group:
o Initial payment of $7m funded by equity fundraising
o Doubled subscriber base to 325m and increased customers to 12 following acquisition
o Broadened product suite
· Contract win worth $1.7m with Tele2
· Contract win with Telenor to supply Loyalty Management Solution globally:
o Further strengthening existing relationship
o Opportunity to provide services to range of Telenor operating companies
· Contract to provide mViva Contextual Marketing Solution to PrimeTel of Cyprus:
o Further expansion into Europe
· Contract with NCell to supply mViva Campaign Management Solution:
o Deepens engagement with the Axiata Group
Post Year End Highlights
· Contract win worth $1.5m with Vietnam-based Vinaphone:
o First contract in Vietnam
· Contract win worth $1.6m with Ooredoo Maldives:
o Significant opportunity to cross sell into the wider Ooredoo Group
· Inaugural mViva Data Monetization Platform contract with Tele2 Kazakhstan:
o Establishing a new revenue stream for the Company
· Revenue, Cash and Collection:
o Visibility over c.$5.2m revenues for the current year
o $1.8m cash collected
o Current net cash at $2.22m
o Debtor Days down from 251 to 153
Richard Day, Non-executive Chairman of Pelatro commented: "This first full year as an AIM-quoted public company has been one of progress and significant achievement for Pelatro, at both the operational and strategic levels. Growth in our revenues from $3.1m to $6.1m was in line with our expectations and was underpinned by a combination of increased business with existing customers as well as the addition of new revenue lines as we expanded our customer base, which has grown from 7 to 16 to date. We also broadened our geographic reach, breaking into the European market with our first contract win in the region with Primetel of Cyprus in October 2018."
"In July 2018 we announced our acquisition of certain assets from Danateq, with its customers and real-time self-learning analytics platform and complementary campaign management solutions. The acquisition was funded with a further equity placing which was strongly supported by our shareholders, raising approximately £6m. We are grateful for their support. I am pleased to say that the Danateq business is living up to our expectations and the staff joining our enlarged group have been a tremendous fit."
"With our growing customer base, we have an increasing ability to cross-sell our products deeper across our network. We are winning new business with the telcos and have announced two new customers already in the current year, in addition to the launch of our Data Monetization Platform. Visibility over some $5.2m of revenue and a $15m pipeline, gives us every confidence as we look forward to the rest of the year."
A copy of the results presentation provided to analysts will be available on Pelatro's website later today (www.pelatro.com).
Enquiries:
Pelatro plc
Via Walbrook PR
Subash Menon, Managing Director & CEO
Nic Hellyer, Finance Director
finnCap - AIM Nominated Adviser and Broker
Tel: +44 (0) 20 7720 0500
Carl Holmes/Kate Bannatyne/Matthew Radley
Walbrook PR (Media & Investor Relations)
Tel: +44 (0) 20 7933 8780
Paul Cornelius / Nick Rome / Sam Allen
This announcement is released by Pelatro Plc and, prior to publication, the information contained herein was deemed to constitute inside information under the Market Abuse Regulations (EU) No. 596/2014. Such information is disclosed in accordance with the Company's obligations under Article 17 of MAR. The person who arranged for the release of this announcement on behalf of Pelatro Plc was Nic Hellyer, Finance Director.
Notes to editors
The Pelatro Group was founded in March 2013 by Subash Menon and Sudeesh Yezhuvath with the objective of offering specialised, enterprise class software solutions for customer engagement principally to telcos who face a series of challenges including market maturity, saturation and customer churn.
Pelatro provides its "mViva" platform for use by customers in B2C applications, and is well positioned in the Multichannel Marketing Hub space (MMH) - this is technology that orchestrates a customer's communications and offers to customer segments across multiple channels to include websites, social media, apps, SMS, USSD and others.
For more information about Pelatro, visit www.pelatro.com
Managing Director's statement
Your company has completed one full year as a listed entity and it has turned out to be a foundation building year for us. Our objective is to build the best in our industry and the first step in the building of any edifice is building the foundation. That is exactly what we did in 2018. Let me elaborate what we achieved in those twelve months.
The Past Year
We forged ahead in three areas during the year - products, customers and inorganic growth - as the first step towards leadership in our chosen space. The result is a platform that can cater to the expanding neds of telcos, doubling of customer relationships and a well thought out, strategic acquisition.
Products
Pelatro started out with one product and that continued to be the case well into 2018. While retaining that product as the mainstay of the company, we have built out a large suite in line with our vision for the industry. The suite, called Multichannel Marketing Hub, encompasses Contextual Marketing Solution, Loyalty Management Solution, Gamification, Data Monetization Platform and Intelligent Notification Manager. While the first four solutions help in deepening the engagement between the telco and its subscribers through various means like contextual campaigns, loyalty programs, games etc. for both telco and non-telco products, the last product assists the telco to support this extensive engagement exercise by providing a robust communication platform. The products function in tandem as a well integrated platform addressing the twin objectives of revenue enhancement and churn reduction. Your company is pioneering this approach by offering related products on a common platform for the first time. Needless to say, this pioneering endeavour will propel Pelatro towards leadership.
Customers
Pelatro's customer base has been growing by leaps and bounds. It now includes several prestigious names in the telco industry like Telenor, Axiata, Tele2, SingTel, Cable & Wireless etc. The strong progress is highlighted by the fact that our customer base doubled in 2018. This growth has enabled us to reduce customer concentration and also to gain credibility and stature.
A notable aspect of the addition of new customers is the presence within specific telco groups. Pelatro strategically enters a large telco group by winning a contract from one of the OpCos. For example, we won the contract from Robi of Bangladesh, an Axiata Group company, by offering a Proof of Concept engagement to establish the differentiation and efficacy of our mViva Contextual Marketing Solution. This extremely successful engagement was followed by contracts from other Axiata Group OpCos like Dialog, Celcom, Smart and Ncell. A similar strategy has worked out well with the Telenor Group resulting in our presence in Telenor OpCos in Bangladesh, Myanmar and Bulgaria with more in the pipeline.
Another arrow in our quiver is the ability to leverage multiple in our portfolio. As explained earlier, all the products from Pelatro work in harmony to deliver the same objectives from different angles. This has enabled us to sell more than one product to each customer thereby strengthening our relationship with customers which leads to a virtuous cycle of growth. For example, the Global Frame Agreement with Telenor currently includes two product - Contextual Marketing Solution and Loyalty Management Solution - after having started with one. We now have the possibility to sell both the products to Telenor OpCos. While the current average is 1.2 products per customer, it is our stated aim to constantly increase this penetration which will bring rich dividends to the company. Needless to say, a follow-on sale has a higher probability as compared to the initial sale. Further, when multiple products from Pelatro are used by any telco, the overall gain realised by them will be higher due to the benefits that they experience from the inter play of the products.
The exponential growth in the number of customers is evidence of the fact that the customer acquisition and growth strategy employed by Pelatro is working quite effectively. We will continue on the same path thereby ensuring a steady and commendable progress on this front.
Inorganic growth
For all software companies, inorganic growth is a key element. At Pelatro, we view this as an opportunity to expand our global footprint and to strengthen the product offering. In keeping with this philosophy, we continuously scan the space for appropriate opportunities. In 2018, we identified a company that had certain assets which turned out to be an excellent fit on both fronts - customers and products. We acquired these assets from Danateq, based out of Singapore, in August/September 2018 and completed the integration soon thereafter. This acquisition catapulted the company to a higher orbit due to variety of factors detailed herein.
A Global Framework Agreement with the Telenor Group for Contextual Marketing Solution and a large contract with Globe, Philippines were the key assets on the customer front. While the former brought entry into a large global group with operations in 11 countries, and the potential to sell to all of them, the latter brought us a very valuable repeating revenue stream. We are in the process of expanding and deepening our relationship with the Telenor Group. As part of that activity, we have been successful in getting another product - Loyalty Management Solution - included in the Global Framework Agreement and also sold that product to Grameenphone, the Telenor OpCo in Bangladesh. We now have the opportunity to gradually sell both Contextual Marketing Solution and Loyalty Management Solution across the Telenor operation. Efforts are on to include a third product also in the Global Framework Agreement. With regard to Globe, we have been able to step up the revenue and to engage in dialogue to expand the product portfolio that is being used by Globe. We are confident of receiving significant revenue from these relationships with Telenor and Globe in the coming years. The engagement with Telenor helped us enter Central & Eastern Europe and could also potentially take us into Western Europe in the foreseeable future.
The acquisition also brought us two additional products - Loyalty Management Solution and Intelligent Notification Manager - and helped us to strengthen our Multichannel Marketing Hub. This has now enabled us to sell multiple products from the platform thereby leveraging existing relationships through cross selling. Further, the presence of multiple products forming a platform has substantially increased our credibility resulting in a positive thrust to our endeavour to grow quickly. In addition to this obvious benefit, we are now able to enter telcos through multiple opportunities by leveraging different products as against the earlier situation of having to rely on a single product to enter with.
Needless to say, the acquisition is expected to be accretive in this current year. Thus, we have been able to identify, acquire and integrate these assets resulting in huge benefits across various elements. Your company will continue to seek out such highly beneficial opportunities in the future.
Cash Collection
At the end of the financial year, trade receivables stood at $4.1m (2017: $1.8 million) i.e. 251 days. The increase relates largely to the weighting of revenues in the second half of the year, with over 60% of the total revenue accounted for in the last quarter . Approximately $1.8m has been collected since the year end and to date, resulting in debtor days of 153.
Cash collection has been a key strategic focus for management this year - cash generated by operations, as adjusted for exceptional items, amounted to just under $1.2m (2017: $750,000), largely as a result of the improving timing of collection of trade receivables (operating cash outflow of $52,000 in the first half comparing to adjusted operating cash inflow of approximately $1.2m in the second); this improvement is expected to continue as the Group becomes more established and also with an increasing proportion of repeat or monthly contracts in the revenue mix (e.g. from revenue share or managed services).
Vision
Building an organisation calls for vision. Articulation of this vision, acceptance of the same by all stakeholders and flawless execution results in leadership. Pelatro has always been a visionary in its chosen space. Our vision is resonating well with the telco industry which has led to their enthusiasm for our products. The telcos have comprehended that Pelatro could play the role of a valuable partner in their quest for digitization of their business, increase in revenue and reduction in churn. Over the past few years, we have been executing in line with this vision and have now built a strong foundation to grow on.
Our vision encompasses the entire area of customer engagement and monetization of deep customer relationship. The most important asset that any telco has is the continuing relationship with its subscribers and the data that is generated as a result of this relationship. Pelatro's solutions help the telcos to ensure continuous and deep engagement with customers to ensure a high level of satisfaction leading to higher revenue and lower churn. This multichannel and multifaceted engagement generates a significant amount of data related to consumption behaviour of these subscribers covering a wide gamut of areas like voice, data, broadband, music, video, messaging, browsing etc. This data is collected by the platform from Pelatro and is then analysed to come up with actionable insights. Thus, the solutions from Pelatro hold a wealth of data and insights that are valuable for various B2C business entities like banks, insurance companies, retail, brands etc. Our visions is to build an ecosystem of all these players who will benefit from this vast understanding of hundreds of millions of subscribers. The telcos can monetize this by providing access to the B2C business entities mentioned earlier, who will gain by being able to engage with the subscribers of the telco in a contextual, relevant and real time manner. This engagement will be in the form of campaigning and mobile advertisement. This means that, with the help of Pelatro, the telcos can earn a material share of the burgeoning mobile advertisement market.
Pelatro's products now cover about 370 million subscribers, including a penetration level of about 70% of the population of four countries. Consequently, Pelatro's platform facilitates partnership with B2C companies in those countries and Pelatro's telco customers based on the ability of these telcos to provide mobile advertising and campaigning to 70% of the population in these countries to their B2C partners. Thus, Pelatro is building an ecosystem of its telco customers and a variety of B2C players in each country. As this gets built and achieves a critical mass in a large number of countries in the foreseeable future, Pelatro will become an indispensable partner to the telcos leading to Pelatro's revenue growing at a fast pace on the back of increasing revenue for the telcos and sharing of that revenue with Pelatro. In short, Pelatro envisions an ecosystem that generates significant revenue for the telcos through mobile advertising and campaigning and sharing of the same by Pelatro.
I thank every one of our stakeholders for the supprt extended during the last year while the company was building a strong foundation. Let us work towards enhanced growth by leveraging the foundation that we have built.
Subash Menon
Managing Director, CEO and Co-Founder
26 March 2019
Financial Review
Introduction
Our full year results highlight the rapid growth the Group has experienced in 2018, and reflect a broader product offering of both software and services. Revenue increased by 95 per cent. to $6.1m, including some $3.1m repeat revenue (including gain share, change requests and managed services, as well as PCS). Repeat revenues such as this are a key strategic focus and they have grown strongly because of both the continuing emphasis on growing sales of service contracts (including PCS) and the acquisition of the Danateq Assets during the year which brought significant levels of repeat revenue. We expect this growth to continue as our products achieve wider adoption throughout the telecommunications industry - 2019 has already started positively with significant customer wins, notably Vinaphone of Vietnam and Ooredoo in the Maldives (part of the large Ooredoo Group of Qatar).
Key performance indicators
2018
2017
Growth
Revenue
$6.12m
$3.15m
95%
Repeat revenue
$3.10m
$0.62m
411%
Repeat revenue as percentage of total
51%
20%
Adjusted EBITDA (see Note 9)
$3.75m
$2.00m
88%
Adjusted EBITDA margin1
61%
69%
Profit before tax (pre exceptional items)
$3.1m
$1.8m
73%
Cash generated from operating activities (pre exceptional items)
$1.2m
$0.75m
56%
Contracted customers (at year end)
14
7
100%
(1) 2017 margin adjusted for $255,000 of hardware sales at nil net profit
Income statement
Revenue
2018 continued the trends seen in the prior year, with total revenues rising around 95% to $6.12m (2017: $3.15m), and more than doubling when adjusted for the $255,000 sale of hardware in the 2017 figures. Of this $6.1m, approximately $2.5m arose from sales of licenses and the associated implementation (2017: $2.3m) and some $3.1m arose from repeat revenue, notably from gain share contracts and in particular change requests (2017: $0.6m). The geographic spread of income has also increased, with some 14 customers across as many countries; likewise, the concentration of revenue has significantly decreased, with now two customers each accounting for more than 10% of the revenue compared to 6 in 2017.
As detailed further in Note 5, the Group implemented IFRS 15 Revenue from Contracts with Customers ("IFRS 15") with effect from 1 January 2018. The principal changes resulting from its application were: (1) recognition of revenue from the sale of a license and its implementation as two separate performance obligations, without reference to contractual invoicing milestones; and (2) recognition of revenue from post-contract support ("PCS") over the term for which support is provided (typically 5 years) rather than the period over which customers usually pay (usually 4 years). In addition, certain contracts which have terms which allow for instalment payments or similar over an extended period are now treated as contracts with a "Significant Financing Component"; accordingly, the Group recognises effective interest income on the amounts deemed to be credit extended to the customer.
The implementation of IFRS 15 has not affected the revenue recognition of income from change requests, revenue gain share contracts (except where there is also a fixed monthly payment), managed services or the resale of hardware.
In summary, the effect of IFRS 15 has been to accelerate approximately $271,000 of income (relating to PCS and contracts where fixed amounts are payable over time) which otherwise would have been recognised in later periods, and to defer approximately $167,000 of income (principally relating to license fees) which otherwise would have been recognised in this financial year (offset by some $23,000 of revenue which has been recognised as interest).
As all the Group's revenue is in US Dollars, there is no impact on revenue arising from foreign exchange movements.
Cost of sales
Cost of sales of $555,000 (2017: $799,000) represents the direct labour costs of providing software support and maintenance, professional services and consultancy, as well as sales commissions payable, expensed customer integration and software maintenance costs. As the Group diversifies its revenue streams into (for example) managed services and PCS, an increasing proportion of costs will be allocated to cost of sales reflecting the direct costs of service and support for the relevant contracts.
Prior to its acquisition in December 2017, amounts invoiced to the Group by the then third-party owned software development centre PSPL and which were not eligible for capitalisation were accounted for as cost of sales; these costs reflected that company's underlying administrative costs as well as costs directly relating to technical and related services. Following its acquisition, the Group cost of sales excludes administrative expenses in PSPL which are included instead in the relevant category; hence the prior year figure is not directly comparable. Such expenses were approximately $200,000 in 2017, the majority of which related to travel. The 2017 figure also includes $274,000 relating to the cost of hardware which was sold on to a customer.
Overheads and exceptional costs
Pre-exceptional overheads (excluding depreciation and amortisation) increased to $1.8m (2017: $0.34m) as a result of staff costs (which were previously included in cost of sales) and directors' remuneration as well as additional costs relating to maintenance of the Company's admission to the AIM market (the Group's admission to AIM was in December 2017). Reflecting the global reach of the Group, more than double the number of customers and a similar increase in staff needing to travel to service them, travel and other marketing costs were also a significant contributor to this increase. The Group will continue to invest in staff to ensure a level of service which befits the standard of the software products; likewise, with the number of opportunities available worldwide, marketing and travel will continue to be an important component of Group expenditure.
As well as exposure to Pounds Sterling on costs arising in the UK, the Group is exposed also to foreign exchange movements in the Indian Rupee due to the software development and support activities carried out by its Indian subsidiary, PSPL. The Group has a small exposure to the Philippines peso and the Russian rouble because of its activities in those countries. Overhead costs also include the net effect of realised foreign exchange movements which resulted in a gain in the year of $70,000 (2017: $15,000), arising principally from the weakness of Sterling and the Indian Rupee.
As a result of the acquisition of the Danateq Assets and the placing of ordinary share capital to fund it, the Group incurred a number of exceptional costs during the year amounting to approximately $310,000, being principally legal and other fees (2017: $701,000 relating to the Company's IPO). Costs relating directly to the placing were taken directly to share premium.
Profitability
Adjusted EBITDA (earnings before interest, tax, depreciation, amortisation and exceptional items) increased by 88% in the year to $3.75m (2017: $2.00m) reflecting in part increasing levels of repeat revenue. Profit before tax, exceptional items and amortisation of acquisition-related intangibles was $3.1m (2017: $1.8m). On a similar basis adjusted earnings per share ("EPS") were 10.1¢ (2017: 8.9¢), and reported EPS were 8.0¢ (2017: 4.8¢). Reported profit before tax was $2.6m (2017: $1.1m).
Taxation
The increase in the income tax for the year reflects the increased profitability of the Group and in particular the increased size of the PSPL subsidiary which is taxed at higher rates than the rest of the Group entities. The effective rate of 13% (which is lower than the statutory rates of 19% in the UK, 18% in Singapore and 31% in India, being the jurisdictions of the majority of the Group's activities, is principally a result of certain items in the calculation of statutory profit before tax not being factors in the relevant local income tax calculation (e.g. capitalisation of developments costs and the associated amortisation).
Statement of financial position
Goodwill and other intangible assets
Goodwill
The goodwill in the Group balance sheet arises from the acquisitions of PSPL in December 2017 and the Danateq Acquisition in August 2018. As PSPL was initially loss-making and then minimally profitable, and had been funded largely by related party and third-party debt, it had significant negative net assets at the time of acquisition, thus leading to the goodwill acquired. Goodwill also arose from the Danateq Acquisition as further explained below.
Customer relationships and acquired software for resale
As noted in more detail in Note 26, the assets acquired pursuant to the Danateq Acquisition comprised principally customer relationships and enterprise software for resale to third parties. The consideration payable for the acquisition comprised an initial payment and two payments which are contingent on certain revenue targets being met. As at the effective date of the acquisition, the Directors calculated the expected value of the contingent consideration payable as approximately $8.4m, which has been allocated approximately $6.9m to customer relationships and $1.3m to software, with the residual balance being ascribed to goodwill. The customer relationships acquired are being amortised over 10 years, and the software acquired (in common with the Group's existing capitalised development costs) over 4 years. Net of accumulated amortisation for the 5 months from the effective date of acquisition, the net book value of the intangible assets thus acquired was approximately $7.7m at the year end, which the Directors consider to be in line with their fair value.
Development costs
During the year the Group has continued to invest substantially in the development of its proprietary software through its software development centres in Bangalore and, since the Danateq Acquisition, Nizhny Novgorod. Over the year the Group capitalised relevant costs of around $1.6m (2017: $752,000) out of a total of underlying costs of approximately $2.7m, of which the majority were incurred in Bangalore. This investment reflects the continuing expansion of the development team (around 70% of Group staff in the year) and underpins the planned further improvements to and diversification of products and hence further growth in revenues. As noted above, as part of the Danateq Acquisition, the Group also acquired development costs (relating to the development work on the acquired software products which had been carried out in Nizhny Novgorod) which were valued at approximately $1.3m on acquisition. Amortisation on the standalone and acquired costs increased to $0.6m (2017: $201,000) accordingly, and net of such amortisation, this capitalisation resulted in an intangible asset in the statement of financial position of approximately $3.2m (2017: $908,000).
Property, plant and equipment
During the year the Group acquired motor vehicles for the benefit of two Directors at a cost of $270,000. Furthermore, due to expansion of the Group's activities, an additional lease over a property in Bangalore was taken on; the property so acquired required substantial renovation at the expense of the Group (which requirement was reflected in the terms of the lease), and the associated costs of $49,000 have been capitalised as leasehold improvements. Additional investments were made in computer and office equipment amounting to $67,000. Depreciation in the year amounted to $47,000 (2017: $1,000, reflecting the acquisition of PSPL in December that year) and the aggregate net book value of property, plant and equipment rose from $30,000 to $362,000.
Trade and other receivables
At 31 December 2018 trade receivables stood at $4.1m (2017: $1.8 million). The increase relates largely to the weighting of revenues in the second half of the year, with over 60% of the total revenue accounted for in the last quarter, as well as certain contracts being on bespoke or extended settlement terms and others (notably change requests) typically being billed on a cumulative basis. Approximately $1.8m has been collected since the year end and to date, of which $202,000 relates to the $502,000 debtor over 121 days referred to in Note 19 and the balance relates to one other customer.
As part of its reported debtor balances, the Group may at any one time have amounts outstanding representing Unbilled Revenue ("UBR"). This may arise, for example, where Pelatro undertakes work for customers in accordance with contract terms, but the "Go Live" date (which may represent the initial invoicing date) is expected much later in the term of the contract. As is standard practice in the telecoms industry, contractual revenue milestones (and now completion of a performance obligation for the purposes of recognition of revenue for IFRS 15) are typically reached much earlier than invoicing milestones and credit terms of 90 days start following the invoice. Also certain contracts may be structured such that a fixed amount is payable over an extended term, and hence at any one time there will be a debtor balance outstanding which is not invoiced under the contract terms.
The trade receivables balance at the year end is analysed as follows:
2018
2018
2018
2017
2017
2017
$'000
$'000
$'000
$'000
Receivables
Associated revenue
"Debtor days"
Receivables
Associated revenue
"Debtor days"
Gross trade receivables
4,138
6,019
251
1,778
3,146
206
Trade receivables excluding UBR
1,813
3,694
179
1,721
3,089
203
Trade receivables above exclude contract assets and the associated revenue is the relevant contractual revenue excluding any adjustment for IFRS 15. Given the wide variety and bespoke nature of the Group's contracts, figures shown for debtor days are illustrative only. Further commentary on trade receivables is given below in the section regarding cash flow and financing.
Trade and other payables
At the year end trade payables stood at $118,000 (2017: $53,000). Other payables of $463,000 (2017: $320,000) comprise an accrued tax liability of $271,000 and sundry creditors and accruals. The Group has tax liabilities with UK, Singaporean and Indian tax authorities in relation to trading in 2018. Costs relating to the IPO in 2017 and the Placing in 2018 are not tax deductible, whether taken to share premium or through the profit and loss account, and hence have a concomitant effect on the effective tax rate.
A further $28,000 (2017: $101,000) was owed to Directors largely as a result of travel and other expenses incurred by them on behalf of Group companies for which reimbursement was outstanding at the year end.
Statement of cash flows
Cash flow and financing
Cash collection has been a key strategic focus this year - cash generated by operations, as adjusted for exceptional items, amounted to just under $1.2m (2017: $750,000), largely as a result of the improving timing of collection of trade receivables (operating cash outflow of $52,000 in the first half comparing to adjusted operating cash inflow of approximately $1.2m in the second); this improvement is expected to continue as the Group becomes more established and also with an increasing proportion of repeat or monthly contracts in the revenue mix (e.g. from revenue share or managed services).
During the year the Group used some of the funds raised from the Group's IPO in 2017 to repay founders' loans which were acquired as a result of the acquisition of PSPL ($436,000). In addition, PSPL's overdraft of c.$316,000 was repaid. Two term loans totalling approximately $246,000 were taken out to part fund purchases of vehicles for the use of directors.
The acquisition of the business and certain assets of Danateq (further detailed in Note 26) was broadly cash neutral: an initial cash consideration paid of $7.0 million was funded via a placing of 8.2 million new ordinary shares at a price of 73p raising approximately $7.9 million before expenses; direct expenses relating to the placing amounted to $319,000 and expenses relating to the acquisition were around $310,000.
As a result of the above, the Group had closing gross cash of $2.2m (2017: $4.1m) and net cash of $1.8m (2017: $3.1m).
Contingent liabilities
As explained in further detail in Note 26, the Group acquired certain assets from the Danateq Group in August 2018, including enterprise software and customer relationships, both formal (i.e. via a framework agreement) and informal. Potential deferred consideration of up to $5m may be payable in respect of this acquisition, contingent on certain revenue hurdles being met. Such consideration would be payable in two tranches: up to $3m in August 2019 (the "2019 contingent payment") and up to $2m in August 2020. These hurdles relate to specific projects in a closely defined pipeline of actual or target contracts and are each further structured in two bands: the 2019 payment is $2m cash if a hurdle of $2.25m total revenue is cleared, and $3m (in total, i.e. an additional $1m) if a hurdle of $4.5m total revenue is cleared.
Since the acquisition, the Group has been successful in utilising the software acquired as well as the customer relationships (for example as evidenced by the contract win for the Loyalty Management Solution with Grameenphone) and expects to continue to win such business in 2019 and beyond, but predominantly outside the defined pipeline. Accordingly, it is unlikely that the higher hurdle level for the 2019 contingent payment will be met and thus the $3m payment will not be due. There is a greater possibility that the lower hurdle will be cleared, with the consequential $2m payment falling due; however, the hurdle is absolute such that any shortfall, no matter how small, will mean that no payment is due. In any event the Group is confident that it has adequate resources to make any such payment that falls due.
Summary
Throughout the year the Group has demonstrated its ability to win contracts across its product range from large telcos across the globe, and particularly those in wider groups which enables Pelatro to open up multiple routes to market within such groups. Our increased product range, including our recently announced Data Monetisation Platform, enables us to target both existing customers with new products and new customers, and with wide geographic footprint and a substantially enlarged customer base of now 16 telcos, we expect a significantly increasing volume of change requests which, combined with a greater proportion of managed services and other repeat income, gives us a solid foundation for the year ahead.
Nic Hellyer
Finance Director
25 March 2019
Group statement of comprehensive income
For the year ended 31 December 2018
2018
2017
Note
$'000
$'000
(audited)
(audited)
Revenue
5
6,123
3,146
Cost of sales and provision of services
(555)
(799)
_______
_______
Gross profit
5,568
2,347
Adjusted administrative expenses
6
(2,421)
(546)
_______
_______
Adjusted operating profit
3,147
1,801
Exceptional items
9
(310)
(701)
Amortisation of acquisition-related intangibles
17
(286)
-
_______
_______
Operating profit
2,551
1,100
Finance income
7
33
-
Finance expense
8
(71)
(4)
_______
_______
Profit before taxation
2,513
1,096
Income tax expense
13
(334)
(252)
_______
_______
PROFIT FOR THE YEAR
2,179
844
Attributable to:
Owners of the Pelatro Group
2,179
830
Non-controlling interests
-
14
_______
_______
2,179
844
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
78
(2)
Items that not will be reclassified subsequently to profit or loss:
Gain on bargain purchase of minority interest
-
14
_______
_______
Other comprehensive income, net of tax
78
12
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
2,257
856
Attributable to:
Owners of the Pelatro Group
2,257
842
Non-controlling interests
-
14
_______
_______
2,257
856
Earnings per share
Statutory
Attributable to the owners of the Pelatro Group (basic and diluted)
14
8.0¢
4.8¢
From continuing operations (basic and diluted)
14
8.0¢
4.8¢
Adjusted
From continuing operations (basic and diluted)
14
10.1¢
8.9¢
Group statement of financial position
For the year ended 31 December 2018
2018
2017
Note
$'000
$'000
(audited)
(audited)
Assets
Non-current assets
Intangible assets
17
10,609
1,324
Property, plant and equipment
18
362
30
_______
_______
10,971
1,354
Current assets
Trade receivables
19
4,138
1,778
Contract assets
19
384
-
Other assets
382
217
Cash and cash equivalents
2,224
4,126
_______
_______
7,128
6,121
Total assets
18,099
7,475
Liabilities
Non-current liabilities
Borrowings
21
382
266
Other financial liabilities
22
1,141
-
_______
_______
1,523
266
Current liabilities
Trade and other payables
20
609
474
Short term borrowings
21
69
774
Contract liabilities
20
238
-
Other financial liabilities
22
298
-
_______
_______
1,214
1,248
Total liabilities
2,737
1,514
NET ASSETS
15,362
5,961
Issued share capital and reserves attributable to owners of the parent
Share capital
23
1,065
801
Share premium
23
11,603
4,472
Other reserves
23
(721)
(529)
Retained earnings
3,415
1,217
_______
_______
TOTAL EQUITY
15,362
5,961
Group statement of cash flows
For the year ended 31 December 2018
2018
2017
$'000
$'000
(audited)
(audited)
Cash flows from operating activities
Profit for the year
2,179
844
Adjustments for:
Income tax expense recognised in profit or loss
342
247
Finance income
(33)
-
Finance costs
71
4
Depreciation of tangible non-current assets
46
1
Amortisation of intangible non-current assets
843
202
Provision for/(recognition of) deferred taxes
(8)
5
Foreign exchange
(69)
5
_______
_______
Operating cash flows before movements in working capital
3,371
1,308
(Increase)/decrease in trade and other receivables
(2,438)
(1,698)
(Increase)/decrease in contract assets
(273)
-
Increase/(decrease) in trade and other payables
57
440
Increase/(decrease) in contract liabilities
146
-
_______
_______
Cash generated from operating activities
863
50
Income tax paid
(292)
(78)
_______
_______
Net cash generated from operating activities
571
(28)
Cash flows from investing activities
Acquisition of property, plant and equipment
(384)
(1)
Development of intangible assets
(1,604)
(752)
Acquisition of intangible assets
(69)
-
Cash inflow/(outflow) on acquisition of businesses net of cash acquired
(7,035)
9
_______
_______
Net cash used in investing activities
(9,092)
(744)
Cash flows from financing activities
Proceeds from issue of ordinary shares, net of issue costs
7,395
4,742
Amounts advanced by related parties
-
2
Repayments to related parties
(436)
(9)
Repayment of loans from members of Pelatro LLC
-
17
Proceeds from borrowings
394
2
Repayment of borrowings
(513)
(47)
Finance income
33
-
Finance costs
(62)
(4)
Less interest accrued but not paid
3
4
_______
_______
Net cash generated by/(used in) financing activities
6,814
4,707
Net increase/(decrease) in cash and cash equivalents
(1,707)
3,935
Foreign exchange differences
(195)
(5)
Cash and equivalent at beginning of period
4,126
196
_______
_______
Cash and cash equivalents at end of period
2,224
4,126
Group statement of changes in equity
For the year ended 31 December 2018
Share capital
Share premium
Translation reserve
Merger reserve
Retained profits
Attributable to owners of the Pelatro Group
Non-controlling interests
Total equity
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Pro forma balance at 1 January 2017
551
-
-
(531)
359
379
-
379
Profit after taxation for the financial year
-
-
-
830
830
14
844
Other comprehensive income:
Exchange differences
-
(2)
-
-
(2)
-
(2)
Bargain purchase of non-controlling interest in subsidiary
14
14
-
14
Non-controlling interest lost on acquisition of minority interest in subsidiary
-
14
14
(14)
-
Transactions with owners:
Reserves arising on reconstruction
(20)
-
-
4
-
(16)
-
(16)
Shares issued by Pelatro Plc for cash
270
4,901
-
-
-
5,171
-
5,171
Issue costs
-
(429)
(429)
-
(429)
_____
_____
_____
_____
_____
_____
_____
_____
Balance at 31 December 2017 as previously reported
801
4,472
(2)
(527)
1,217
5,961
-
5,961
Effect of IFRS 15
-
-
-
18
18
-
18
_____
_____
_____
_____
_____
_____
_____
_____
Balance at 31 December 2017 as restated
801
4,472
(2)
(527)
1,235
5,979
-
5,979
Profit after taxation for the year
-
-
-
2,179
2,179
-
2,179
Other comprehensive income:
Exchange differences
-
(191)
-
(191)
-
(191)
Transactions with owners:
Shares issued by Pelatro Plc for cash
264
7,450
-
-
-
7,714
-
7,714
Issue costs
-
(319)
(319)
-
(319)
_____
_____
_____
_____
_____
_____
_____
_____
Balance at 31 December 2018
1,065
11,603
(193)
(527)
3,414
15,362
-
15,362
Notes to the financial statements
As at 31 December 2018
Please note that references to notes below are to the forthcoming report and accounts and may not conform with Notes as presented in this announcement
1 General information
Pelatro Plc ("Pelatro" or the "Company") is a public limited company incorporated and domiciled in England. The Company's ordinary shares are traded on the AIM market of the London Stock Exchange. These financial statements are the consolidated financial statements of Pelatro Plc and its subsidiaries ("the Pelatro Group" or the "Group") and the company financial statements for Pelatro Plc. The financial statements are presented in US dollars as the currency of the primary economic environment in which the Group operates.
Pelatro's registered office is at 49 Queen Victoria Street, London EC4N 4SA and its principal place of business is at No. 403, 7th A Main, 1st Block, HRBR Layout, Bangalore 560043, India.
2 Adoption of new and revised standards
Certain new standards and amendments to existing standards that have been published and are mandatory for the first time for the financial year beginning 1 January 2018 have been adopted and their impact on the Group and Company is explained later in this section. New standards, amendments to standards and interpretations which have been issued but are not yet effective (and in some cases had not been adopted by the EU) for the financial year beginning 1 January 2018 have not been adopted early in preparing these financial statements. The main new accounting standards which are relevant to the Group are set out below:
IFRS 9 Financial Instruments
The Group has adopted IFRS 9 from 1 January 2018, replacing IAS 39 Financial instruments: Recognition and Measurement. IFRS 9 sets out the requirements for assessing the impairment of financial assets, requiring consideration of the likelihood of their default or impairment, firstly by splitting out the high-risk balances and continuing to provide for these separately, and then applying a loss rate to the remaining balance where it is known from experience that the loss rate is not nil.
The Group has three types of financial assets that are subject to IFRS 9's new expected credit loss model: (1) trade receivables from the sale of software and the provision of services; (2) contract assets arising from sale of software and from the provision of services; and (3) sundry deposits and other similar assets. The Group was required to revise its impairment methodology under IFRS 9 for each of these classes of assets; however, on application of this revised methodology no provision was required (see Note 19).
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities and has not had a significant effect on the Group's accounting policy.
IFRS 15 Revenue Recognition
IFRS 15 has replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations and has been adopted for the Group's IFRS financial statements for the period beginning on 1 January 2018. This standard introduces a single, five-step revenue recognition model that is based upon the principle that revenue is recognised at the point that control of goods or services is transferred to the customer. The standard also updates revenue disclosure requirements.
The Directors have considered the effect of the adoption of IFRS 15 on the Group's activities, and in particular on (i) the revenue recognition of the Group's on-premise software license contracts, which combine the delivery and implementation of software; and (ii) support and maintenance services ("post contract support" or "PCS"). Under accounting policies applicable to prior years, the Group recognised license income in accordance with contractual milestones agreed with customers, and PCS as invoiced (typically after one year free of payment). Implementation services were typically included in the overall cost of the license or, if specifically agreed, invoiced on completion.
Revised accounting policies under IFRS 15
As part of the review of IFRS 15 accounting policies, the Directors have considered whether contracts under (i) above represent a right and ability to use the software at the point of initial delivery (with license revenue recognisable at that point), and a further delivery of implementation services, irrespective of associated cashflows. The Directors concluded that:
(a) such license contracts represent an immediate right and ability to benefit from the software (as it is technically possible for the customer to engage a third party to implement the software concerned) and hence that an appropriate amount of the total fee payable should be recognised at that point;
(b) a further appropriate amount (based on a deemed market rate for such services as if provided on a standalone basis) should also be recognised on completion of the implementation; and
(c) PCS income (under (ii) above) should be recognised rateably over the term of the contract provision
The Group's four other revenue categories are: gain share contracts; change requests; consulting/managed services and hardware. Of these, gain share contracts have a performance obligation that is met at points in time as defined by the contract (typically monthly). Likewise change requests are typically short-term projects which performance obligation is met on delivery of the relevant update in the software to the customer. Revenue from the sale of hardware has a performance obligation that is met at a point in time, being the point in time when hardware is delivered. The performance obligations for the Group's consulting and managed services are typically satisfied over time as the service is provided.
Contracts with any one customer may incorporate more than one of these revenue categories such that revenue which is contractually linked may be recognised separately. Likewise, the standard requires the Group to adjust the promised amount of consideration to reflect the time value of money if the contract has a significant financing component, irrespective of the recognition of license, implementation or service income as the case may be.
Application of IFRS 15
The Group has applied IFRS 15 using the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of equity at 1 January 2018. Therefore, comparative information has not been restated and continues to be reported under IAS 11 and IAS 18. Furthermore, the Group has elected to make use of the following practical expedients:
· Completed contracts under IAS 11 and IAS 18 before the date of transition have not been reassessed
· Contract costs incurred relating to contracts with an amortisation period of less than one year have been expensed as incurred
· As permitted by paragraph 12.1 of IFRS 15 the Group does not disclose information about remaining performance obligations that have original expected durations of one year or less
· As permitted by paragraph C5(d) of IFRS 15 the Group does not disclose the amount of transaction price allocated to the remaining performance obligations nor an explanation of when the Group expects to recognise that revenue
In applying IFRS 15, the Directors have been required to make certain estimates and assumptions in determining the allocation of the contract price between licence, implementation and PCS where the market rate for provision of the software or services is not directly observable. The Directors have used their judgement and experience in applying such estimates and assumptions and consider that the range of possible outcomes from these estimates and assumptions does not give rise to a material difference on the revenue recognised.
Details of the significant changes and the quantitative impact of the changes are set out in Notes 5 and 28.
IFRS 16 Leases (effective for 2019 financial report)
IFRS 16 (effective for the year ending 31 December 2019), which supersedes IAS 17 Leases and related interpretations, will require all leases to be recognised on the balance sheet, eliminating the distinction between operating and finance leases. This IFRS will thus require the Group to recognise any operating leases as both an asset and a rental commitment in its consolidated statement of financial position. Pelatro does not intend to apply the standard retrospectively and so any difference between the carrying value of the asset created and the corresponding liability will be applied as an adjustment to opening equity at the date of initial application. Any such adjustment is not expected to be material.
3 Significant accounting policies
The principal accounting policies which apply in preparing the financial statements for the year ended 31 December 28 are consistent with those used in preparing the financial statements for the year ended 31 December 2017, other than the adoption of revised accounting policies required by the introduction of IFRS 9 and IFRS 15. Otherwise there have been no significant changes to the Group's accounting policies during the year.
5 Revenue and segmental analysis
The Directors consider that the Group has a single business segment, being the sale of information management software to providers of telecommunication services. The operations of the Group are managed centrally with Group-wide functions covering sales and marketing, development, professional services, customer support and finance and administration.
An analysis of revenue by product or service and by geography is given below.
Revenue by type
The Group has four key revenue models, being (1) contracts based on the sale of perpetual licenses for use of the Group's proprietary enterprise software; (2) contracts for the use of the Group's software on a regular (usually monthly) basis, which may also provide for Group employees to provide related services the customer and/or for the Group to take a share of the revenue gain achieved through use of the software; (3) provision of bespoke modifications to Group software; and (4) provision of maintenance and support of the software. In addition, the Group may provide certain consulting and training services and, if required by the customer, appropriate hardware on which to host the software.
At 31 December
2018
2017
$'000
$'000
Repeat software sales and managed services
2,288
618
Maintenance and support
809
-
_______
_______
Total repeat revenues
3,097
618
Software - new licenses
2,511
2,264
Consulting
515
9
Resale of hardware
-
255
_______
_______
6,123
3,146
As explained further in Note 28, no adjustment has been made to 2017 comparative figures in respect of the change in accounting policy for revenue recognition as a result of the implementation of IFRS 15. In order to aid comparison, 2017 revenue under IFRS 15 for license fees would have been approximately $2,162,000 and for maintenance and support approximately $119,000.
Revenue by geography
The Group recognises revenue in seven geographical regions based on the location of customers, as set out in the following table:
At 31 December
2018
2017
$'000
$'000
Caribbean
357
331
Central Asia
1,653
-
Eastern Europe
380
-
North Africa
314
756
South Asia
819
1,214
South East Asia
2,207
690
Sub-Saharan Africa
393
155
_______
_______
6,123
3,146
Management makes no allocation of costs, assets or liabilities between these segments since all trading activities are operated as a single business unit.
An analysis of revenue by status of invoicing is as follows:
Year to 31 December
2018
2017
$'000
$'000
(i) Revenue invoiced to customers under contractual terms
3,694
3,089
(ii) Revenue recognised under terms of contract but unbilled at period end ("UBR")
2,325
57
(iii) Revenue recognised other than (ii) (i.e. on the completion of performance obligations but before any billing milestone is reached)
271
-
Less: net revenue deferred under IFRS 15
(80)
-
Less: revenue recognised or to be recognised as interest under IFRS 15
(87)
-
_______
_______
Total revenue recognised in the year
6,123
3,146
Customer concentration
The Group has two customers representing individually over 10% of revenue each and in aggregate approximately 48% of total revenue at $2,912,000 (2017: six customers representing individually over 10% each and in aggregate approximately 985% of revenue at $2,991,000). The two customers accounted for revenue of $1,653,000 and $1,259,000 respectively (2017: $756,000, $628,000, $586,000, $350,000, $340,000 and $331,000).
Further impacts of the adoption of IFRS 15
The Group has applied IFRS 15 using the cumulative effect of initially applying the effects of the new revenue standard as an adjustment to the opening balance of equity at 1 January 2018. Therefore, the relevant comparative information has not been restated and continues to be reported under IAS 11 and IAS 18.
License revenue
As explained in Note 2, the Group now recognises revenue from the sale of licenses and the implementation of the software so licensed separately, as the two activities represent distinct performance obligations. However, as implementation to date has always been carried out by Group personnel and is usually viewed by the customer as an integral part of the license purchase, the two activities are reported as one. The effect of this revised revenue recognition policy has had no material effect on prior years or this year, as all contracts were either complete at the year end or the contractual amount due on completion of implementation was broadly similar to the deemed value of the implementation subsequently carried out.
Irrespective of the split between license and implementation recognition, some contracts provide for fixed payments to be made by customers (usually monthly) over a given term (e.g. three or five years). Under IFRS 15, in order to reflect the time value of money, such contracts have been recognised as (i) a capitalisation of the income stream less (ii) an amount relating to the notional interest accruing and to be accrued on the credit deemed to be extended to the customer (on a reducing balance basis). For the financial year 2018 this figure amounts to (i) $131,000 less (ii) $65,000 (net of $23,000 of contractual revenue recognised instead as interest in 2018).
PCS
Related to a license sale, the Group typically provides five years of PCS but does not charge for the first year; similarly in certain contracts may provide the PCS at less than a notional market rate. For revenue recognition purposes this is treated as income accruing over the full term of the service provision (whether paid or otherwise) and, as far as is estimable, at a deemed market rate. Accordingly, the financial statements reflect adjustments to income (i) to accelerate the recognition of revenue for initial years for which no contractual payment is due; and (ii) to defer the recognition of revenue in cases where the contractual PCS charge is lower than a market rate (the difference being set against the revenue recognised in respect of the license fee). For the financial year 2018 revenue therefore includes (i) an amount of $141,000 representing revenue from PCS recognised ahead of its contractually due dates, less (ii) an amount of $80,000 representing revenue deferred from license income and allocated to PCS.
Summary
The net effect of such adjustments is (i) a retrospective adjustment of $18,000 (credit) to reserves to take into account the financial effects of its implementation for periods prior to the current year (i.e. revenue would have been $18,000 greater than reported); and (ii) a net acceleration of income recognised of $104,000 plus a further $23,000 recognised as interest income which would otherwise have been recognised as revenue. Accordingly at 31 December 2018, the Group would have recognised a reduced profit of $127,000 if it had continued to apply IAS 11 and IAS 18 in 2018. There is no other impact on the Group's consolidated income statement for the year as a result of applying previous revenue accounting standards.
Non-current assets
Information about the Group's non-current assets by location of assets are as follows:
At 31 December
2018
2017
$'000
$'000
Singapore
2,295
908
UK
8,300
287
India
14
159
_______
_______
10,609
1,354
Non-current assets comprise intangible assets, goodwill, deferred tax assets and plant, property and equipment.
6 Operating expenses
Profit for the year has been arrived at after charging:
2018
2017
$'000
$'000
Staff costs (see note 11)
582
14
Amortisation of intangible non-current assets
843
202
Depreciation of tangible non-current assets
46
1
Auditor's remuneration (see note 10)
45
124
Operating lease charges - land and buildings
45
6
Realised foreign exchange (gains)/losses
(69)
(15)
7 Finance income
2018
2017
$'000
$'000
Interest receivable on interest-bearing deposits
10
-
Notional interest accruing on contracts with a significant financing component
23
-
_______
_______
Total finance income
33
-
8 Finance expense
2018
2017
$'000
$'000
Interest and finance charges paid or payable on borrowings
62
4
Acquisition-related financing expense - unwinding of discount on financial liabilities
9
-
_______
_______
Total finance expense
71
4
9 Non-GAAP profit measures and exceptional items
Reconciliation of operating profit to earnings before interest, taxation, depreciation and amortisation ("EBITDA")
Year to 31 December
2018
2017
$'000
$'000
Operating profit
2,551
1,100
Adjusted for:
Amortisation and depreciation
889
203
Exceptional items within operating expenses
310
701
_______
_______
Adjusted EBITDA
3,750
2,004
Exceptional items in 2018 comprise legal and other costs relating to the Danateq Acquisition. Exceptional items in 2017 comprise financial advisory, legal, accounting and other costs relating to the admission to trading of the Company's shares in December, the associated placing of new Ordinary shares (other than amounts allocated directly to share premium), and the Group reconstruction and acquisition of PSPL carried out to facilitate this. Exceptional items are treated as exceptional by reason of their size or nature and are excluded from the calculation of adjusted EBITDA and adjusted earnings per ordinary share to allow a better understanding of comparable year-on-year trading and thereby an assessment of the underlying trends in the Group's financial performance. These measures also provide consistency with the Group's internal management reporting.
The calculation of adjusted earnings per share is shown in Note 14.
11 Staff costs
Year to 31 December
2018
2017
$'000
$'000
Wages and salaries
1,975
60
Social security contributions
40
2
Benefits
-
-
Less: amounts capitalised
(1,433)
(48)
_______
_______
582
14
The average number of persons employed by the Company during the period was:
Year to 31 December
2018
2017
Sales
2
2
Software development
70
36
Support
18
8
Marketing
2
1
Administration
13
11
_______
_______
105
56
12 Directors' remuneration and transactions
The Directors' emoluments in the year ended 31 December 2018 were:
Basic
salary
Benefits
in kind
Pension
Total
Total
2018
2018
2018
2018
2017
$'000
$'000
$'000
$'000
$'000
Executive Directors
S. Menon
192
31
-
223
78
S. Yezhuvath
192
18
-
210
78
N. Hellyer
79
-
1
80
33
Non-Executive Directors
R. Day
52
-
1
53
53
P. Verkade
30
-
-
30
7
_______
______
_______
_______
_______
545
49
2
596
248
In addition to the above, Pieter Verkade was paid $30,000 during the year in respect of marketing consultancy services.
The remuneration of the executive Directors is decided by the Remuneration Committee. Save as disclosed above no Director had a material interest in any contract of significance with the Group in either year.
13 Taxation
Tax on profit on ordinary activities
Year to 31 December
2018
2017
$'000
$'000
Current tax
UK corporation tax charge/(credit) on profit for the current year
225
-
Overseas income tax charge/(credit)
117
247
_______
_______
Total current income tax
342
247
Deferred tax
(Recognition)/reversal of deferred tax asset
(8)
5
_______
_______
Total deferred income tax
(8)
5
Total income tax expense recognised in the year
334
252
Pelatro LLC is a US Limited Liability Company and, for the period from its incorporation to 7 September 2017 was treated as a flow-through entity for both US federal and state income tax purposes. As such, its then members were taxed on their distributable share of the profits of the business, and Pelatro LLC itself was not subject to US federal or state income tax. Hence no provision or liability (including deferred tax) for federal or state income taxes relating to Pelatro LLC is included in the tax charge for those periods and accordingly no tax charge arose in the Group accounts for the period when Pelatro LLC was the sole constituent of the Group. From 8 September 2017 Pelatro LLC elected to be taxed as a C Corporation and hence tax arising at the corporate level within Pelatro LLC is accounted for accordingly in the consolidated tax expense and liability.
Reconciliation of the total tax charge
The effective tax rate in the income statement for the year is lower than the standard rate of corporation tax in the UK of 19%. A reconciliation of income tax expense applicable to the profit before taxation at the statutory tax rate to income tax expense at the effective tax rate is as follows:
Year to 31 December
2018
2017
$'000
$'000
Profit before taxation
2,513
1,108
Tax at the applicable rate of 19%
477
211
Tax effect of amounts which are not deductible (taxable) in calculating
taxable income:
Effect of tax chargeable to underlying members
-
4
Expenses not deductible for tax purposes and other permanent items
279
176
Income not taxable and other permanent items
(395)
(154)
Movement in fair value of contingent consideration not taxable
2
-
Tax exemptions, allowances and rebates
(27)
(29)
Foreign tax credits
(30)
6
Overseas taxation at different rates
36
(10)
Overseas withholding tax expenses
-
48
Derecognition of deferred tax asset
(8)
-
_______
_______
Income tax expense recognised for the current year
334
252
The tax effect of exchange differences recorded within the Group Statement of Comprehensive Income is a charge of $10,000 (2017: nil).
Temporary differences associated with Group investments
At 31 December 2018, there was no recognised deferred tax liability (2017: $nil) for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries as the Group has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future.
Deferred tax
Recognised deferred tax
2018
2017
$'000
$'000
At 1 January
(5)
-
Movement in the period:
- acquired on acquisition of subsidiary undertaking
-
118
- other timing differences
8
(5)
_______
_______
At 31 December
3
113
Comprising:
Timing differences
3
(7)
Tax losses
-
120
_______
_______
3
113
During the period, further evidence was obtained in respect of the deferred tax asset of $118,000 that was recognised as part of the acquisition of PSPL in December 2017. As this related to the conditions existing at the date of acquisition and was obtained within one year of the acquisition date, IFRS 3 allows for the acquisition accounting to be revised. Consequently, the deferred tax asset has been derecognised and a corresponding increase has been made to goodwill.
Factors affecting future tax charges
The Finance Act 2017, which was approved on 15 September 2017, will reduce the UK corporation tax rate by 2% from the current 19% to 17% from 1 April 2020.
The Group's recognised and unrecognised deferred tax assets in its Indian subsidiary have been shown at 28%, being the effective rate in that country.
14 Earnings
Reported earnings per share
Basic earnings per share ("EPS") amounts are calculated by dividing net profit or loss for the year attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the year (such calculation for 2017 having been adjusted to reflect the issue of ordinary shares by the Company for the acquisition of Pelatro LLC as if these shares had been issued on incorporation of Pelatro LLC). A calculation of diluted earnings per share is not presented as the number of dilutive potential shares outstanding at the end of the reporting period was not material.
The following reflects the earnings and share data used in the basic earnings per share computations:
Year to 31 December
2018
2017
$'000
$'000
Profit attributable to equity holders of the parent:
Continuing operations
2,179
830
_______
_______
Profit attributable to ordinary equity holders of the parent for basic earnings
2,179
830
Weighted number of ordinary shares in issue
27,375,741
17,273,968
Basic earnings per share attributable to shareholders
8.0¢
4.8¢
Basic earnings per share for continuing operations attributable to shareholders
8.0¢
4.8¢
Adjusted earnings per share
Adjusted earnings per share is calculated as follows:
2018
2017
$'000
$'000
Profit attributable to ordinary equity holders of the parent for basic earnings
2,179
830
Adjusting items:
- exceptional items
310
701
- amortisation of acquisition-related intangibles
286
-
_______
_______
Adjusted earnings attributable to owners of the Parent
2,775
1,531
Weighted number of ordinary shares in issue
27,375,741
17,273,968
Adjusted earnings per share attributable to shareholders
10.1¢
8.9¢
17 Intangible assets
Intangible assets comprise capitalised development costs (in relation to internally generated software and software acquired through business combinations), software acquired from third parties for use in the business, customer relationships and goodwill.
Financial year 2018
Development costs
Third party software
Customer relationships
Goodwill
Total
$'000
$'000
$'000
$'000
$'000
Cost
At 1 January 2018
1,290
32
-
287
1,609
Additions
1,604
69
-
-
1,673
Fair value adjustment
-
-
-
140
140
Created as part of a business combination
-
-
-
318
318
Acquired as part of a business combination
1,250
-
6,862
-
8,112
Foreign exchange
-
(3)
-
-
(3)
_______
_______
_______
_______
_______
At 31 December 2018
4,144
98
6,862
745
11,849
Amortisation or impairment
At 1 January 2018
(382)
(16)
-
-
(398)
Acquired as part of a business combination
-
-
-
-
-
Charge for the year
(553)
(4)
(286)
-
(843)
Foreign exchange
-
1
-
-
1
_______
_______
_______
_______
_______
At 31 December 2018
(935)
(19)
(286)
-
(1,240)
Net carrying amount
At 31 December 2018
3,209
79
6,576
745
10,609
At 1 January 2018
908
16
-
287
1,211
During the year, further evidence was obtained in respect of the eligibility of certain tax losses giving rise to the deferred tax asset of $118,000 that was recognised as part of the acquisition of PSPL in December 2017, and it is now considered that these tax losses are unavailable for use. As this related to the conditions existing at the date of acquisition and was obtained within one year of the acquisition date, IFRS 3 allows for the acquisition accounting to be revised. Consequently, the deferred tax asset has been derecognised (and a similar adjustment made in respect of an amount of $22,000 relating to current tax liabilities acquired) and a corresponding increase has been made to goodwill.
Financial year 2017
Development costs
Third party software
Customer relationships
Goodwill
Total
$'000
$'000
$'000
$'000
$'000
Cost
At 1 January 2017
538
-
-
-
538
Additions
752
-
-
-
752
Created as part of a business combination
-
-
-
287
287
Acquired as part of a business combination
-
32
-
-
32
_______
_______
_______
_______
_______
At 31 December 2017
1,290
32
-
287
1,609
Amortisation or impairment
At 1 January 2017
(181)
-
-
-
(181)
Acquired as part of a business combination
-
(15)
-
-
(15)
Charge for the year
(201)
(1)
-
-
(202)
_______
_______
_______
_______
_______
At 31 December 2017
(382)
(16)
-
-
(398)
Net carrying amount
At 31 December 2017
908
16
-
287
1,211
At 1 January 2017
357
-
-
-
357
Development costs
Development costs are either internally generated or acquired and are capitalised at cost or fair value on acquisition. Such costs comprise capitalised staff costs (and allocable related direct costs) associated with the development of new products and services which will be saleable to more than one customer.
These intangible assets have been assessed as having a finite life and are amortised on a straight-line basis over their useful life, which is estimated at four years. The amortisation charge on intangible assets is included in administrative expenses in the consolidated statement of comprehensive income. These assets are tested for impairment when an indicator of impairment arises and annually prior to them being made available for use.
Software
Software assets represent purchased licences and distribution rights for third party software which are capitalised at cost and amortised on a straight-line basis over the relevant estimated useful life. The estimated useful life of these intangible assets ranges between three and nine years depending on their nature. Amortisation charges in respect of intangible assets are included in administrative expenses.
Customer relationships
Customer relationships were acquired as part of a business combination (see Note 26). They are recognised at their fair value at the date of acquisition and are subsequently amortised on a straight-line based over their estimated useful life of 10 years.
Goodwill
Goodwill arose on the acquisition of the Danateq Assets and PSPL. It is assessed as having an indefinite life but the Group tests whether goodwill has suffered any impairment on an annual basis. For the 2017 and 2018 reporting periods, the recoverable amount of the cash generating units ("CGUs") was determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below.
Danateq cash-generating unit
The Danateq CGU comprises the contracts and customer relationships acquired as part of the Danateq Acquisition (further detailed in Note 26), the enterprise software acquired for resale and the related workforce. Given the opportunity to leverage this expertise across Pelatro's existing business and the ability to exploit the Group's thus enlarged customer base, the value of the Danateq Assets was deemed to be greater than the assessed book value of the assets as recognised in the financial statements of Pelatro, thus leading to the recognition of an amount of goodwill.
This goodwill was tested for impairment at 31 December 2018 by comparing the carrying value of the CGU with the recoverable amount. The recoverable amount was determined using a value in use methodology based on discounted cash flow projections. The key assumptions used in the value in use calculations were as follows:
(i) The operating cash flows for this business for the year to 31 December 2019 are taken from the budget approved by the Board which is closely linked with recent historical performance and current expected levels of activity. The operating cash flow budget is most sensitive to sales of software and services to third parties;
(ii) Growth has been assumed in operating cash flows for the remainder of the value in use in line with short term pipeline expectations as well as longer-term growth expectations for the software products in the market. Revenue growth after 5 years is forecast at -20% in US Dollars terms to reflect the integration of the products into those of the Group overall;
(iii) A post-tax discount rate of approximately 10% has been used (being the Weighted Average Cost of Capital in US Dollars); and
(iv) The use of cash flow projections over longer than a 5-year period is considered appropriate as the Group has an increasing recurring revenue base and the Group continues to invest in the development of the products via this CGU
PSPL cash-generating unit
The PSPL CGU comprises the Group's software development centre in Bangalore which was acquired in December 2017, and whose principal activity is to develop the Group's software and provide administrative support for the rest of the Group. The goodwill relating to this CGU was tested for impairment at 31 December 2018 by comparing the carrying value of the CGU with the recoverable amount. The recoverable amount was determined using a value in use methodology based on discounted cash flow projections. The key assumptions used in the value in use calculations were as follows:
(i) The operating cash flows for this business for the year to 31 December 2019 are taken from the budget approved by the Board which is closely linked with recent historical performance and current expected levels of activity. The operating cash flow budget is most sensitive to the number of employees, particularly the more highly-skilled developers; revenue for the CGU is all intra-Group and is thus dependent on other Group companies making third-part sales;
(ii) Growth has been assumed in operating cash flows for the remainder of the value in use such that a consistent post-tax margin is maintained over the calculation period (which is how the business is managed within the Group). Revenue growth after 5 years is forecast at 15% in local currency terms;
(iii) A post-tax discount rate of approximately 14% has been used (being the Weighted Average Cost of Capital in local currency); and
(iv) The use of cash flow projections over longer than a 5-year period is considered appropriate as the business is expected to continue to support the Group for the period of the projections, the Group has an increasing recurring revenue base and the Group continues to invest in the development of the products via this CGU
Sensitivity to changes in assumptions
A change in a key assumption in respect to operating cash flows could cause the carrying value of the goodwill to exceed the recoverable amount, resulting in an impairment charge. The Board is confident that the assumptions in respect of operating cash flows remain appropriate. Where the operating cash flows incorporate products or solutions that will be sold in an existing known market, past experience is used as a guide to the level of sales achievable, growth rates and associated margins. Where the operating cash flows relate to products or solutions that will be sold into a new or emerging market, past experience with similar products or solutions is combined with relevant information from external market sources, such as competitor pricing and discussions with potential customers, in arriving at the level of sales achievable, growth rates and associated margins.
Conclusion
The Directors have concluded that, based on the above, recoverable value exceeds the carrying value of the goodwill at 31 December 2018.
Deferred tax asset
An analysis of the Group's deferred tax asset is given in Note 13.
18 Tangible assets
Leasehold improvements
Computer equipment
Office equipment
Vehicles
Total
$'000
$'000
$'000
$'000
$'000
Cost
At 1 January 2018
-
56
4
-
60
Additions
49
44
23
270
386
Foreign exchange differences
-
(7)
3
(6)
(10)
_______
_______
_______
_______
_______
At 31 December 2018
49
93
30
264
436
Depreciation
At 1 January 2018
-
(29)
(1)
-
(30)
Charge for the year
-
(20)
-
(27)
(47)
Foreign exchange differences
-
3
(1)
1
3
_______
_______
_______
_______
_______
At 31 December 2018
-
(46)
(2)
(26)
(74)
Net carrying amount
At 31 December 2018
49
47
28
238
362
At 1 January 2018
-
27
3
-
30
Leasehold improvements
Computer equipment
Office equipment
Vehicles
Total
$'000
$'000
$'000
$'000
$'000
Cost
At 1 January 2017
-
-
-
-
-
Additions
-
-
1
-
1
Acquired as part of a business combination
-
56
3
-
59
Foreign exchange differences
-
-
-
-
-
_______
_______
_______
_______
_______
At 31 December 2017
-
56
4
-
60
Depreciation
At 1 January 2017
-
-
-
-
-
Acquired as part of a business combination
-
(28)
(1)
-
(29)
Charge for the year
-
(1)
-
-
(1)
Foreign exchange differences
-
-
-
-
-
_______
_______
_______
_______
_______
At 31 December 2017
-
(29)
(1)
-
(30)
Net carrying amount
At 31 December 2017
-
27
3
-
30
At 1 January 2017
-
-
-
-
-
The Group entered into a new lease 1 September 2018 in Bangalore, India over premises which required substantial improvement and modernisation, which costs have been capitalised as leasehold improvements and depreciated over 5-10 years.
19 Trade and other receivables and contract assets
The timing of revenue recognition, invoicing and cash collection results in: the recognition of the following assets on the Consolidated Statement of Financial Position:
(i) invoiced accounts receivable;
(ii) accounts invoiceable but uninvoiced at the period end (i.e. "unbilled revenue" or UBR) (collectively with (i) "trade receivables"); and
(iii) as required by IFRS 15, amounts relating to revenue recognised at the date of the statement of financial position but not invoiceable under the terms of the contract ("contract assets")
Amounts recognised under (iii) "Contract assets" represent assets resulting from balance sheet reclassifications arising from the adoption of IFRS 15. The balance of $384,000 (which includes amounts arising from balances brought forward from 2017) relates to license and PCS income recognised but not yet invoiceable.
Analysis of trade and other receivables
At 31 December
2018
2017
$'000
$'000
Due within a year
Trade receivables
4,138
1,778
Other receivables and prepayments
424
217
_______
_______
Total trade and other receivables
4,562
1,995
Aged analysis of trade receivables
At 31 December
Carrying amount
Neither impaired or past due
Past due but not impaired
61-90 days
91-120 days
More than 121 days
$'000
$'000
$'000
$'000
$'000
2018
Trade receivables
4,138
3,636
-
-
502
2017
Trade receivables
1,778
1,022
-
-
756
Trade terms and impairments
Unless specific agreement has been reached with individual customers, sales invoices are usually due for payment between 60 and 90 days after the date of the invoice. If customers delay making payment, an assessment of the potential loss of customer goodwill arising from the enforcement of contractual payment terms may take place when considering actions to be taken to secure payment. Furthermore, interest is not typically charged on overdue debts although it is provided for in some contracts.
As explained in Note 2, the Group was required to revise its impairment methodology under IFRS 9 for relevant classes of assets. In adopting IFRS 9, the only change made from the previous reporting period was in relation to the impairment of financial assets. The Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions as opposed to relying on past historical default rates. In adopting IFRS 9 the Group has applied the Simplified Approach applying a provision matrix to measure lifetime expected credit losses and after taking into account customers with different credit risk profiles and current and forecast trading conditions. The Group has elected to adopt the initial application date of 1 Jan 2018 and therefore has chosen not to restate comparatives. The Directors applied a percentage "probability of default" to the receivables balance related to the underlying credit rating of the customer (many of whom have investment grade credit ratings provided by well-known ratings agencies), which resulted in a hypothetical expected default amount which was not material to the Group's financial statements. Given this, and the fact that the Group has no history of trade receivable write offs, the Directors concluded that no provision is required and therefore no allowance for doubtful debts was recognised in 2018 (2017: nil).
Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on customers as deemed necessary based on, inter alia, the nature of the prospect and size of order. The Group does not require collateral in respect of financial assets.
At the reporting date, the largest exposure was represented by the carrying value of trade and other receivables, against which no provision is carried at 31 December 2018 (2017: nil) as detailed above. The largest individual counterparty to a receivable included in trade and other receivables at 31 December 2018 owed the Group $884,000 (of which some $747,000 was unbilled revenue) (2017: $756,000). Based on invoiced receivables, the largest individual counterparty owed the Group $449,000 (2017: $756,000). The Group's customers are spread across a broad range of geographies and consequently it is not otherwise exposed to significant concentrations of credit risk on its trade receivables.
20 Trade and other payables and contract liabilities
At 31 December
2018
2017
$'000
$'000
Due within a year
Trade payables
118
53
Other payables
463
320
Amounts due to related parties
28
101
_______
_______
Total trade and other payables
609
474
The average credit period taken for trade purchases is between 30 and 60 days. Most suppliers do not charge interest on trade payables for the first 30 days from the date of the invoice. The Group has risk management policies in place to ensure that all payables are paid within the appropriate credit time frame. The Directors consider that the carrying amount of trade payables approximates to their fair value.
"Other payables" principally comprise provisions for taxation liabilities and other costs. "Contract liabilities" represent liabilities resulting from balance sheet reclassifications arising from the adoption of IFRS 15. The balance of $238,000 (which includes amounts arising from balances brought forward from 2017) relates to income invoiced but yet to be recognised as PCS or interest receivable.
21 Loans and borrowings
At 31 December
2018
2017
$'000
$'000
Non-current liabilities
Secured term loans
382
266
_______
_______
382
266
Current liabilities
Current portion of term loan
69
30
Unsecured borrowings
-
744
_______
_______
69
774
Total loans and borrowings
451
1,040
During 2018, PSPL secured two new loans: in January it entered into a vehicle loan agreement with Kotak Mahindra Prime Ltd to fund a vehicle purchase. The loan amount granted was INR 5.9m (c. $92,000) with a term of 5 years, secured on the vehicle. In March a term loan of INR 10.0m (c. $154,000) was secured from Kotak Mahindra Bank for a term of 5 years, also in relation to a vehicle purchase at an interest rate of 9.25%. The loan is repayable in 60 equal monthly instalments. During the year unsecured borrowings (PSPL's overdraft) and directors' loans were repaid in full.
Reconciliation between opening and closing balances for liabilities resulting in financing cash flows
1 January 2018
Non-cash changes - foreign exchange movements
Interest accruals included in cash flow
Transfer from non-current to current
Cash flows -
net (repayments) and drawdowns
31 December 2018
$'000
$'000
$'000
$'000
$'000
$'000
Non-current liabilities
Secured term loan
266
(26)
3
(69)
208
382
Current liabilities
Current portion of secured term loan
30
-
-
69
(30)
69
Unsecured borrowings
316
(20)
-
-
(296)
-
Directors' loans
428
1
-
-
(429)
-
_______
_______
_______
_______
_______
_______
Total
1,040
(45)
3
-
(547)
451
The Directors consider that the carrying amount of borrowings approximates to their fair value.
22 Contingent consideration on business combinations
As at 31 December
2018
2017
$'000
$'000
Contingent consideration on the acquisition of Danateq assets
- potentially due within one year
298
-
- potentially due after one year
1,141
-
_______
_______
1,439
-
Part of the consideration for the Danateq Acquisition in August 2018 was contingent on the achievement of certain revenue targets in the two years following the acquisition. The contingent amounts payable under these arrangements was between $nil and $5,000,000. At the date of acquisition, the Directors assessed the fair value of the contingent consideration payable under this arrangement at $1,430,000, based on a probability-weighted analysis of the likely outturn payments. Other than as a result of the unwinding of the discount attributable to the time value of money, there has been no change in the fair value of the contingent consideration since the acquisition date.
23 Share capital and reserves
Share capital and share premium
Ordinary shares of 2.5p each (issued and fully paid)
$'000
Number
At 1 January 2017
-
Issued for cash during the year
270
Issued in exchange for shares during the year
531
_______
At 31 December 2017
801
24,313,252
Issued for cash during the year
264
_______
_______
At 31 December 2018
1,065
32,532,431
The Company was incorporated on 21 February 2017 with 100 Ordinary shares of £1 each in issue. A further 49,900 shares were issued on 31 July. On 7 September these shares were split on the basis of 39 new shares for every old share such that there were then 2,000,000 Ordinary shares of 2.5 pence each in issue. Also on 7 September, 16,211,040 shares of 2.5 pence each were issued in connection with the acquisition of Pelatro LLC.
On 19 December 2017 the Company's shares were admitted to trading on the AIM market of the London Stock Exchange ("Admission"). In conjunction with Admission, the Company made an initial public offering of 6,102,212 new 2.5 pence ordinary shares at a price of 62.5 pence per ordinary share (the "IPO"). On 17 August 2018 the Company issued a further 8,219,179 2.5 pence Ordinary shares at a price of 73.0 pence per share by way of a placing to institutional and other investors to fund the acquisition of the Danateq Assets (the "Placing") (see note 26).
The Company incurred incremental costs totalling $319,000 in respect of the Placing in 2018 and $1,129,000 in respect of the IPO in 2017. IAS 32 Financial Instruments: Presentation requires the costs of issuing new shares to be charged against the share premium account. Management has reviewed the incremental costs to identify those solely incurred in issuing new shares, those incurred in connection with the entire share capital, and those not associated with issuing new shares.
All of the costs relating to the Placing in 2018 were deemed to relate directly to the issue of new shares and thus resulted in a debit to share premium of $319,000. In respect of costs relating to the IPO in 2017, those costs incurred in connection with the entire share capital were apportioned to the issue of new shares by reference to the number of new shares compared to the entire share capital. As a consequence, costs relating directly to the issue of new shares in connection with the IPO, plus attributable IPO costs allocated between the share premium account and profit and loss account in proportion to the number of primary and secondary shares admitted to trading on Admission, resulted in a debit of $428,000 against share premium and a charge of the remaining $701,000 to administrative expenses.
24 Operating leases
Total payments under non-cancellable operating leases will be made as follows:
2018
2017
$'000
$'000
Not later than one year
123
97
Later than one year and not later than five years
17
62
Later than five years
-
-
_______
_______
140
159
PSPL entered into a five-year lease in November 2014 for its premises at 1st Block, HRBR Layout, Bangalore. The Company entered into a short-term lease in September 2017 for its premises at Queen Victoria Street, London, UK. Furthermore, PSPL entered into a lease on 1 September 2018 for additional office space at 7th Main Road, 2nd Block, HRBR Layout, Bangalore, for an initial term of two years with a rollover option.
IFRS 16 Leases (effective for the year ending 31 December 2019), which supersedes IAS 17 Leases and related interpretations, will require all leases to be recognised on the balance sheet, eliminating the distinction between operating and finance leases. The Group has two operating lease arrangements which would require recognition under IFRS 16 and will consider the financial impact of IFRS 16 in due course. If adopted as at 31 December 2018, the impact would be to recognise lease liabilities of approximately $123,000 and corresponding assets relating to the right to use the properties which are the subject of the current leases.
The Company does not intend to apply the standard retrospectively and so any difference between the carrying value of the assets created and the corresponding liabilities will be applied as an adjustment to opening equity at the date of initial application
26 Business combinations
Danateq
The Company and the Danateq Group entered into a sale and purchase agreement ("SPA") on 30 July 2018 to acquire certain assets of Danateq Pte and Danateq Limited (together "the Danateq Group" or where appropriate "Danateq") for an initial consideration of $7.0 million with potential further payments of up to $5.0 million, depending on certain targets being met (the "Danateq Acquisition"). The Danateq Group was founded by entrepreneurs with backgrounds in robotics, telecom control systems and defence who came together to develop LINK™, a real-time self-learning "cognitive" analytics platform, with the vision of enabling enterprises to implement continuously improving automated business processes through cognitive loops. The Danateq Group used data analytics to provide campaign management solutions to telcos over a range of geographies. In addition to its campaign management solution, the Danateq Group also offered two additional products complementary to Pelatro's product: loyalty management and a notification platform.
Through the Acquisition, Pelatro acquired or had transferred:
(i) certain assets from the Danateq Group, including contracts and sales staff;
(ii) certain employees of the Danateq Group, including staff in a development centre in Nizhny Novgorod;
(iii) contracts from the Danateq Group pursuant to which it provided software and services to Globe Telecom Inc. of the Philippines ("Globe") and certain operating companies ("OpCos") within the Telenor group of companies ("Telenor") pursuant to a Global Framework Agreement ("GFA") with Telenor ASA of Norway. The GFA was signed in 2016 for 5 years and since that time the Danateq Group had entered into contracts with 3 OpCos of Telenor in Bulgaria, Myanmar and Bangladesh (where it trades as Grameenphone). These contracts cover 90 million subscribers, and the GFA provided the potential to win 8 further OpCo contracts across Central Europe and Asia, covering a further 85 million subscribers. The Danateq Group has also provided software and services since 2013 to Globe through a re-seller agreement. This contract, which renews automatically on an annual basis, is a maintenance and managed services contract covering 75 million subscribers across the Philippines;
(iv) two re-seller agreements with Ericsson and Wireless Services Asia which were originally signed on 3-year terms; and
(v) sundry other intellectual property
(together the "Danateq Assets").
The key terms and provisions of the SPA are as follows:
• an initial cash consideration of $7.0 million to the vendors at completion;
• a further $2.0 million payable should the Danateq Assets generate revenue of $2.25 million in the first twelve-month period following completion, with an additional $1.0 million payable should the Danateq Assets generate in excess of $4.5 million during the same period; and
• $1.0 million payable should the Danateq Assets generate revenue of $2.9 million in the second twelve-month period following Completion, with an additional $1.0 million payable should the Danateq Assets generate in excess of $5.8 million during the same period.
The amounts recognised in respect of identifiable assets acquired is set out in the table below.
Book value
Adjustment
Fair value
$'000
$'000
$'000
Customer relationships
-
6,862
6,862
Enterprise software for sale to third parties
-
1,250
1,250
_______
_______
_______
Net assets acquired
-
7,532
7,532
Goodwill on acquisition
318
_______
Fair value of assets acquired
8,430
Initial cash consideration paid
7,000
Contingent purchase consideration estimated to be paid
1,430
_______
Consideration payable in cash
8,430
The goodwill represents:
* the technical expertise of the acquired workforce
* the opportunity to leverage this expertise across Pelatro's existing business; and
* the ability to exploit the Group's enlarged customer base
The fair value of contingent consideration payable of $1,430,000 at acquisition was estimated based on performance observed to date and the expectation of likely future cash flows and is discounted at the Group's notional cost of borrowing over the earn-out period. The Danateq Assets contributed approximately $1.3m of revenue and $456,000 of profit after tax for the year ended 31 December 2018. As the acquisition was for certain assets and contracts only and not the corporate entity which controlled them up to the point of sale, it is impractical to state what would have been the Group's reported revenue and profit after tax if the acquisition had been made at the start of the financial year.
Pelatro Solutions Private Limited
On 13 December 2017 the Group completed the acquisition of Pelatro Solutions Private Limited ("PSPL"), the company with which the Group has an agreement for software development, implementation and support. The amounts recognised in respect of identifiable assets acquired and liabilities assumed are set out in the table below.
Book value
Adjustment
Fair value
$'000
$'000
$'000
Property, plant and equipment
31
-
31
Intangible assets
16
-
16
Deferred tax asset
-
118
118
Trade and other receivables
802
-
802
Cash and bank balances
11
-
11
Long-term borrowings
(272)
-
(272)
Trade and other payables
(117)
(33)
(150)
Short term borrowings
(808)
-
(808)
_______
_______
_______
Net identifiable assets and liabilities
(337)
85
(252)
Goodwill on acquisition
287
_______
Consideration payable in cash
35
Analysis of cash flows on acquisition
Net cash acquired with subsidiary
11
Cash paid
-
_______
Net cash inflow
11
The goodwill recognised above is attributable to intangible assets from PSPL that cannot be individually separated and reliably measured due to their nature. These items include the expected value of synergies and assembled workforce. The cash consideration for PSPL of $34,644 was paid to the former shareholders of PSPL in January 2018.
27 Related party transactions
Amounts outstanding at the end of the year in respect of transactions with related parties were as follows:
Amount outstanding - (debtor)/creditor
2018
2017
$'000
$'000
Key management personnel - net loans outstanding
-
428
Key management personnel - outstanding reimbursements in respect of expenses incurred on behalf of Group companies
28
101
Details of unsecured loan transactions with key management personnel are as follows:
Related party and nature of transaction
2018
2017
$'000
$'000
Outstanding at the beginning of the year
428
-
Acquired as part of a business combination
-
431
Loan taken during the year
-
2
Loan repaid during the year
(429)
(9)
Foreign exchange movements
1
4
_______
_______
Loans outstanding at the end of the year
-
428
The remuneration of the Directors, who are deemed to be the only key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
2018
2017
$'000
$'000
Wages and salaries
594
248
Payments in respect of other services
30
-
Pension cost
2
-
_______
_______
626
248
To comply with local legislation regarding resident directors, Hamish Christie is a director of Pelatro Pte Ltd. Mr Christie is also the proprietor of H.A. Christie & Co., which firm provides accountancy and tax advisory services to that company. During the year payments of approximately $5,000 were made to H.A. Christie & Co., and a further $4,000 was outstanding at the year end in relation to 2018 expenses.
Other than disclosed in this note or elsewhere in this financial information as appropriate, no related party transactions have taken place during the year that have materially affected the financial position or performance of the Group.
28 Impact of IFRS 15 on opening balance sheet at 1 January 2018
The Group has applied IFRS 15 using the cumulative effect of initially applying the effects of the new revenue standard as an adjustment to the opening balance of equity at 1 January 2018. Therefore relevant comparative information has not been restated and continues to be reported under IAS 11 and IAS 18. The details of the significant changes and the quantitative impact of the changes are as follows:
• A net $18,000 credit to retained profits brought forward relating to the recognition of the impact on transition to IFRS 15 at 1 January 2018. The adjustment relates to the unbundling of certain contracts according to the Group's assessment of each contract's performance obligation to be delivered to its customers, and comprises:
(i) a creditor balance of $93,000 in contract liabilities relating principally to PCS income invoiced (as part of an overall license fee) but not yet performed; and
(ii) a debtor balance of $111,000 relating to PCS income recognised but not invoiceable
A summary of these changes is as follows:
31 December 2017
31 December 2017
31 December 2017
As reported
Effect of IFRS 15
As adjusted
$'000
$'000
$'000
(audited)
(unaudited)
(unaudited)
Income statement
Revenue
3,146
18
3,164
Balance sheet
Current assets
Trade receivables
1,721
-
1,721
Accrued income - UBR
57
-
57
Accrued income - contract assets
-
111
111
_______
_______
_______
Total trade and related receivables
1,778
111
1,889
Current liabilities
Contract liabilities
-
(93)
(93)
Equity
Accumulated profits
1,217
18
1,235
Earnings per share
Basic
4.8¢
0.1¢
4.9¢
Adjusted (non IFRS)
8.9¢
0.1¢
9.0¢
29 Capital commitments and contingent liabilities
Other than as disclosed above, as at 31 December 2018 the Group had no material capital commitments (2017: nil) nor any contingent liabilities (2017: nil).
30 Events after the balance sheet date
There have been no events subsequent to the reporting date which would have a material impact on the financial statements.
General
The financial information set out above does not comprise the Company's statutory accounts. The Annual Report and Financial Statements for the year ended 31 December 2017 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 31 December 2017 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 31 December 2018 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. These will be filed with the Registrar of Companies following the annual general meeting.
This preliminary announcement was approved by the Board of Directors on 25 March 2019.
The full financial statements are expected to be posted to shareholders in May 2019. Further copies will also be available on the Company's website (www.pelatro.com) and from the Company's registered office at 49 Queen Victoria Street, London EC4N 4SA from that date.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR LIFERVLIRFIA
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