REG - Pelatro PLC - Half-year Report
Pelatro Plc
("Pelatro" or the "Group")
Interim results
Pelatro Plc (AIM: PTRO), the precision marketing software specialist, is pleased to announce today its interim results for the 6 months ended 30 June 2019.
Financial highlights
· Revenue increased 14% to $2.71 million (H1 2018: $2.38m)
· Repeat revenue increased 145% to $1.96m (H1 2018: $0.80m), 72% of revenue
· Adjusted EBITDA* decreased 46% to $0.8m (H1 2018: $1.47m), largely due to increased expansion for growth
· Adjusted earnings per share 0.5¢ (H1 2018: 4.4¢)
· Gross cash as at 30 June 2019 $1.12m (at 31 December 2018: $2.22m); approximately $0.9m received from debtors since period end
· Current revenue visibility of $6.3m, including additional revenue of $2.5m booked post period end
• In addition to the visibility of $6.3m, the Group has a near-term pipeline of $9.2m of which $5.5m is from existing customers
Operational highlights
• Significant investment in expanded work force and improved infrastructure to deliver best in class service and capture wider range of opportunities
· Sales efforts in Latin America are starting to generate a healthy pipeline (currently some $3.5m)
· Cross-selling and up-selling of Pelatro's products within customer telco groups like Telenor is progressing successfully
Post period end highlights
· Gross cash at 31 August $1.07m
· Trade receivables at 31 August $3.34m (H1 2019: $4.27m)
Outlook
· Management expectations for the year underpinned by:
- revenue visibility of $6.3m, of which $5.2m has been booked to date
- 2019 pipeline of $9.2m, of which $5.5m is from existing customers for various new modules and/or products, i.e. cross-selling opportunities where Pelatro is the only contender in most cases
- $3.7m is from potential new customers and comprises three opportunities where we are in the final shortlist with commercial negotiations in progress
- a medium term pipeline of c.$19m (inclusive of the $9.2m near term pipeline) comprised of over 40 live opportunities
Richard Day, Non-executive Chairman of Pelatro commented:
"The development in our business continues. As we win more new customers we are also expanding our product line and services while continuing to deepen our engagement and cross-sell our offering our existing customer base of global telecom groups, as shown by our contract win with the large telco in Thailand, a part of a global telco group, announced earlier this year.
"Alongside this we have been confidently investing in our prime asset - our people. Already this year, we have taken on almost as many staff as we did over the whole of last year to ensure we are well able to manage and maintain new clients, as well as ensuring all our existing clients are well served and supported across our offering.
"We have also increased our sales effort, with new colleagues targeting opportunities in Latin America and Africa, and I am pleased to say we are already seeing tangible benefits to our visibility of our ongoing pipeline from them for these areas.
"Revenue visibility currently still stands at $6.3m, as development over the traditionally quieter summer months being slightly slower than expected, resulting in a more pronounced H2 weighting this year. Despite management seeing some extended sales cycles, we have booked $5.23m of revenue to date (and $2.52m post period end); this is supported by an encouraging near term pipeline of $9.2m, a significant proportion of which the Board is expecting to close before the year end. We are increasingly seeing opportunities to align our interests more with those of our customers through gain share arrangements rather than one off licenses, providing us with potentially fuller returns though the life of the contract and also greater visibility over the medium and longer term as well. The Board therefore remains confident, based on current visibility and the encouraging pipeline described above, of delivering full year results in line with expectations.
"With our increasing spread of business we are working towards the next phase in our development, as we aim to develop more revenue sharing opportunities, as well as our licence offering. We are seeing plenty of opportunities and look forward to keeping investors informed on progress."
Presentation and analyst presentation
A copy of the results presentation provided to analysts will be available on Pelatro's website later today (www.pelatro.com). Management will be hosting a presentation for analysts today at 9.30am at the office of Walbrook PR, 4 Lombard Street, London, EC3V 9HD. Analysts wishing to attend the presentation should register their interest by e-mailing pelatro@walbrookpr.com or telephoning 020 7933 8780.
For further information contact:
Pelatro Plc
Subash Menon, Managing Director
c/o Walbrook
Nic Hellyer, Finance Director
finnCap Limited (Nominated Adviser and Broker)
+44 (0)20 7220 0500
Carl Holmes/Kate Bannatyne/Matthew Radley
Tim Redfern / Camille Gochez - ECM
Walbrook (Financial PR and IR)
+44 (0)20 7933 8780
Paul Cornelius/Nick Rome
* earnings before interest, tax, depreciation, amortisation, exceptional items and share-based payments
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
We have been building on the foundation laid over the past few years, having won five new contracts and added four new customers in the first half of 2019. However, continuous innovation is key to sustain the growth momentum. In addition, it is essential to explore new avenues and models keeping long term challenges and prospects in mind.
Strategic Shift
Building a self-sustaining business should be the key objective of the senior management of every company. The team at Pelatro is committed to this key objective. The main pillars of such a business would be annuity business, a strong portfolio of world class products, a growing market and healthy margin. In its initial years, Pelatro focused on entering an expanding market and carving out a position for itself on the strength of its offerings and referenceable customers, while structuring a profitable business model. While ensuring the superiority of our products and maintaining profitability will be an ongoing task, the fundamentals are in place and we can now work towards the next phase of our growth. This phase is about our revenue model. Recurring and repeat revenue is an essential foundation to build the future on. It is pertinent to note here that four out of six contracts won in 2019 are for revenue share models, and several of our new opportunities too are similar in nature. This will better align revenue milestones and invoicing milestones thereby reducing Unbilled Revenue and Accounts Receivables on the one hand and provide higher visibility and stability to the business in the medium and long term.
Bandwidth
In keeping with our continuing growth led by addition of more customers, we have been expanding our teams handling sales, development, implementation and support. The total strength of the organisation at the end of the first half of 2019 stands at 145. While we added 48 people in the whole of 2018, we added 37 people in the first half of 2019, including 1 sales person, 15 in development and testing, 20 in support and implementation, and the balance in administrative functions. A further sales person was added to the team in August.
Acquisition Update
The business assets that were acquired from Danateq have been fully integrated and we are gaining significantly from the wider portfolio of customers. The expected cross-selling opportunities have been identified and are in various stages of progress. Further, the new relationships are being leveraged to extract more value from the acquisition. All these efforts will bear fruit in the years to come. As we expected at the time of the AGM update, certain contracts within the acquired pipeline have taken slightly longer to complete than originally forecast; as a result their revenue, when recognised, will not fall within the first year earn out period (the 12 months to end July 2019) but are likely to be recognised instead in the second. As a result the contingent cash payment of $2m pursuant to the terms of the acquisition is not payable in respect of the first earnout period.
Financial review
Revenue and profitability
In the six months to 30 June 2019 revenue increased by 14% over the comparable period to $2.71m (H1 2018: $2.38m). Of this, approximately $1.96m (H1 2018: $0.80m) was repeating revenue comprising gain share, change requests and other services of $1.32m and post-contract support ("PCS") of around $0.64m. The growth in repeating revenue continues to be driven by the installed customer base as well as additional demand from customers for gain share and similar contracts.
Underlying operating profit (excluding the impact of non-cash share-based payments, amortisation of customer-related intangible assets) was $0.20m (H1 2018: $1.23m) reflecting a period of continued investment, principally in headcount but also a much-needed increase office space as the operations have grown to deliver our growth expectations (with some $0.1m of additional lease expenses taken on in the last year). We expect H2 costs to be stable or marginally lower, partly reflecting the ending of the consultancy contract with Tele2 and the associated provision of consultants.
Net cash and trade receivables
Cash generated from operating activities was approximately $0.34m after working capital movements. After net financing payments of $0.15m (including approximately $88,000 relating to the reclassification of lease payments under IFRS 16) and capital expenditure of around $1.20m (including capitalised development expenditure of $1.11m) gross cash at 30 June 2019 was approximately $1.12m. Financial debt (excluding IFRS 16 liabilities) was approximately $0.43m, giving net cash of approximately $0.69m (FY 2018: $1.77m).
Short-term trade receivables (including unbilled revenue but excluding contract assets) as at 30 June 2019 were $4.27m compared to $3.78m at 31 December 2018 (and at 31 August were $3.34m). Of the balance outstanding at 31 December 2018, some $2.59m has been collected to date.
The trade receivables balance at the period end is analysed as follows:
H1 2019
H1 2019
H1 2019
FY 2018
FY 2018
FY 2018
$'000
$'000
$'000
$'000
Receivables
Associated revenue
"Debtor days"
Receivables
Associated revenue
"Debtor days"
Gross trade receivables
4,272
6,813
229
3,778
6,019
229
Trade receivables excluding UBR
1,453
5,622
94
1,453
3,694
144
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. Unbilled Revenue ("UBR") of $1.58m (H1 2018: $1.38m) arises principally from contractual revenue milestones being reached earlier than invoicing milestones.
Implementation of IFRS 16
Pelatro has adopted IFRS 16 Leases for the financial year ending 31 December 2019 and has chosen to use the modified retrospective approach to adoption which means there are no restatements to the prior year figures. IFRS 16 introduces a single lessee accounting model, whereby the Group will recognise lease liabilities and "right of use" assets at 1 January 2019 for leases previously classified as operating leases. Within the income statement rental expense is replaced by depreciation and interest expense. The adoption of IFRS 16 has resulted in aggregate right of use assets of $420,000 with corresponding liabilities of $484,000 being recognised as at 30 June 2019
In order to allow users of the accounts to see how the impact of IFRS 16 has affected adjusted EBITDA, we present a reconciliation below:
Adjusted EBITDA
Adjusted EBITDA
6 months to
30 June 2019
6 months to
30 June 2018
$'000
$'000
Consistent with 2018 presentation and accounting policy
682
1,474
Changes due to IFRS 16
111
-
_______
_______
Consistent with 2019 presentation and accounting policy
793
1,474
Expenditure on non-current assets
Expenditure on non-current assets of $1.20m (2018: $1.07m) comprises principally capitalised development costs of $1.1m plus minor expenditure on third party software and licenses, plus expenditure on tangible assets of $78,000. Capitalisation of intangibles as a percentage of the underlying costs in the Group's software development operation was approximately 55% (H1 2018: 68%). The capitalisation of development costs has resulted in an intangible asset in the statement of financial position of $3.87m (net of amortisation; H1 2018: $1.45m).
Share option scheme
The Company established a share option plan on 14 January 2019 in order to align the longer-term interests of senior employees with those of shareholders and incentivise the creation of shareholder value. The initial award of options was for a total of 1,640,000 Ordinary Shares at an exercise price of 73p per share (representing approximately 5 per cent. of the Company's issued share capital). The Options are exercisable, subject to the grantee remaining in employment with a member of the Pelatro Group, over 4 years and their exercise on vesting is not dependent upon any performance criteria.
Current trading and outlook
Revenue visibility is a key element of our business - the longer the visibility, the greater the stability and predictability. Revenue visibility is currently $6.3m and despite not having full visibility on 2019 revenue at this stage, the near term sales pipeline gives the Board confidence in the outturn for the year. This healthy sales pipeline is a crucial aspect of our business and we are currently tracking more than 40 opportunities across a range of products worth over $19m in aggregate from existing and potential customers. Of this, some $9.2m represents a broad spread of some 20+ pipeline opportunities that are being actively managed and that could close before the year end including some of significant size; of this $9.2m, some $5.5m is from existing customers. Given the size and quality of this pipeline we remain confident in the outturn for the year and of achieving market expectations.
Group statement of comprehensive income
6 months to
30 June 2019
6 months to
30 June 2018
Year to
December 2018
Note
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Revenue
2
2,714
2,376
6,123
Cost of sales and provision of services
(634)
(361)
(555)
_______
_______
_______
Gross profit
2,080
2,015
5,568
Administrative expenses
(1,879)
(781)
(2,421)
_______
_______
_______
Adjusted operating profit
201
1,234
3,147
Exceptional items
3
-
-
(310)
Amortisation of acquisition-related intangibles
3
(349)
-
(286)
Share-based payments
3
(49)
-
-
_______
_______
_______
Operating profit
(197)
1,234
2,551
Finance income
4
20
9
33
Finance expense
5
(85)
(37)
(71)
_______
_______
_______
Profit/(loss) before taxation
(262)
1,206
2,513
Income tax credit/(expense)
4
(145)
(334)
_______
_______
_______
PROFIT/(LOSS) FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT
(258)
1,061
2,179
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit or loss:
Exchange differences
1
(60)
78
_______
_______
_______
Other comprehensive income, net of tax
(1)
(60)
78
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
(257)
1,001
2,257
Earnings per share
Reported
Attributable to the owners of the parent (basic and diluted)
6
(0.8)¢
4.4¢
8.0¢
Adjusted
Basic
6
0.5¢
4.4¢
10.1¢
Diluted
6
0.5¢
4.4¢
10.1¢
Group statement of financial position
As at
30 June 2019
As at
30 June 2018
As at 31 December 2018
Note
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Assets
Non-current assets
Intangible assets
7
10,648
1,865
10,609
Property, plant and equipment
408
302
362
Right-of-use assets
8
420
-
-
Trade and other receivables
306
414
360
Contract assets
117
127
303
_______
_______
_______
11,899
2,708
11,634
Current assets
Trade receivables
9
4,272
2,263
3,778
Contract assets
304
516
81
Other assets
425
356
382
Cash and cash equivalents
1,118
2,096
2,224
_______
_______
_______
6,119
5,231
6,465
Total assets
18,018
7,939
18,099
Liabilities
Non-current liabilities
Borrowings
10
359
420
382
Lease liabilities
11
260
-
-
Contract liabilities
202
-
67
Other financial liabilities
13
1,187
-
1,141
_______
_______
_______
2,008
420
1,590
Current liabilities
Trade and other payables
12
356
362
609
Borrowings
10
73
69
69
Lease liabilities
11
224
-
-
Contract liabilities and deferred revenue
257
106
171
Other financial liabilities
13
-
-
298
_______
_______
_______
910
537
1,147
Total liabilities
2,918
957
2,737
NET ASSETS
15,100
6,982
15,362
Issued share capital and reserves
Share capital
1,065
801
1,065
Share premium
11,603
4,472
11,603
Other reserves
(668)
(587)
(721)
Retained earnings
3,100
2,296
3,415
_______
_______
_______
TOTAL EQUITY
15,100
6,982
15,362
Group statement of cash flows
6 months to
30 June 2019
6 months to
30 June 2018
Year to
December 2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Cash flows from operating activities
Profit/(loss) for the period
(258)
1,061
2,179
Adjustments for:
Income tax expense recognised in profit or loss
(8)
145
342
Interest income
(20)
(4)
(33)
Finance costs
85
37
71
Depreciation of tangible non-current assets
132
20
46
Amortisation of intangible non-current assets
809
220
843
Provision for/(benefit of) deferred taxes
4
-
(8)
Share-based payments
49
-
-
Foreign exchange (gains)/losses
(6)
18
(69)
_______
_______
_______
Operating cash flows before movements in working capital
787
1,497
3,371
(Increase)/decrease in trade and other receivables
(402)
(1,022)
(2,438)
(Increase)/decrease in contract assets
(38)
(505)
(273)
Increase/(decrease) in trade and other payables
(230)
(9)
57
Increase in contract liabilities and other deferred income
220
(13)
146
_______
_______
_______
Cash generated from operating activities
337
(52)
863
Income tax paid
(96)
(263)
(292)
_______
_______
_______
Net cash generated from operating activities
241
(315)
571
Cash flows from investing activities
Acquisition of property, plant and equipment
(78)
(305)
(384)
Development of intangible assets
(1,111)
(763)
(1,604)
Acquisition of intangible assets
(12)
-
(69)
Cash (out)/inflow on acquisition of subsidiaries net of cash acquired
-
(14)
(7,035)
_______
_______
_______
Net cash used in investing activities
(1,201)
(1,082)
(9,092)
Cash flows from financing activities
Proceeds from issue of ordinary shares, net of issue costs
-
-
7,395
Repayments to related parties
-
(407)
(436)
Proceeds from borrowings
276
254
394
Repayment of borrowings
(300)
(339)
(513)
Repayments of principal on lease liabilities
(88)
-
-
Interest income
20
4
33
Finance costs
(40)
(37)
(62)
Less interest accrued but not paid
1
1
3
Interest expense on lease liabilities
(22)
-
-
_______
_______
_______
Net cash generated by/(used in) financing activities
(153)
(524)
6,814
Net increase/(decrease) in cash and cash equivalents
(1,113)
(1,921)
(1,707)
Net foreign exchange differences
7
(109)
(195)
Cash and equivalent at beginning of period
2,224
4,126
4,126
_______
_______
_______
Cash and cash equivalents at end of period
1,118
2,096
2,224
Group statement of changes in equity
Share capital
Share premium
Exchange reserve
Merger reserve
Share-based payments reserve
Retained profits
Total
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Balance at 31 December 2017 as previously reported
801
4,472
(2)
(527)
-
1,217
5,961
Effect of change of accounting policy (IFRS 15)
-
-
-
-
-
18
18
_____
_____
_____
_____
_____
_____
_____
Balance at 31 December 2017 as restated
801
4,472
(2)
(527)
-
1,235
5,979
Profit after taxation for the period
-
-
-
-
-
1,061
1,061
Other comprehensive income:
Exchange differences on translation of overseas subsidiaries
-
-
(58)
-
-
-
(58)
_____
_____
_____
_____
_____
_____
_____
Balance at 30 June 2018
801
4,472
(60)
(527)
-
2,296
6,982
Profit after taxation for the period
-
-
-
-
-
1,118
1,118
Other comprehensive income:
Exchange differences
-
-
(133)
-
-
(133)
Transactions with owners:
Shares issued by Pelatro Plc for cash
264
7,450
-
-
-
-
7,714
Issue costs
-
(319)
(319)
_____
_____
_____
_____
_____
_____
_____
Balance at 31 December 2018
1,065
11,603
(193)
(527)
-
3,414
15,362
Effect of change of accounting policy (IFRS 16)
-
-
-
-
-
(57)
(57)
_____
_____
_____
_____
_____
_____
_____
Balance at 31 December 2018 as restated
1,065
11,603
(193)
(527)
-
3,357
15,305
Profit/(loss) after taxation for the period
-
-
-
-
-
(258)
(258)
Share-based payments
-
-
-
-
49
-
49
Other comprehensive income:
Exchange differences
-
-
4
-
-
-
4
Transactions with owners:
_____
_____
_____
_____
_____
_____
_____
Balance at 30 June 2019
1,065
11,603
(189)
(527)
49
3,099
15,100
Notes to the Group financial statements
1 Basis of preparation
The Group has prepared its interim financial statements for the 6 months ended 30 June 2019 (the "interim results") in accordance with the recognition and measurement principles of International Financial Reporting Standards ("IFRS") as adopted by the European Union and also in accordance with the recognition and measurement principles of IFRS issued by the International Accounting Standards Board, but do not include all the disclosures that would otherwise be required. They have been prepared under the historical cost convention as modified to include the revaluation of certain non-current assets. Other than the adoption of IFRS 16 Leases the accounting policies adopted in the interim financial statements are consistent with those adopted in the Group's Annual Report and Financial Statements for the year ended 31 December 2018 and those which will be adopted in the preparation of the annual report for the year ending 31 December 2019.
As permitted, the interim results have been prepared in accordance with the AIM Rules of the London Stock Exchange and not in accordance with IAS34 Interim Financial Reporting. They do not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 and are unaudited.
Change in accounting policy - application of IFRS 16 Leases
(a) General
In the current period the Group has applied IFRS 16 Leases (as issued by the IASB in January 2016) for the first time ("IFRS 16" or the "Standard"). IFRS 16 introduces new or amended requirements with respect to lease accounting, resulting in significant changes to lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset and a lease liability at the lease commencement for all leases, except for short-term leases and leases of low value assets.
The Group has applied the definition of a lease and related guidance set out in the Standard to all lease contracts entered into or modified on or after 1 January 2014, with the date of initial application as 1 January 2019. The Group has applied IFRS 16 using the modified retrospective approach, with no restatement of comparative information.
(b) Former operating leases
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off balance sheet. Applying IFRS 16, for all leases (except as noted below), the Group:
(i) recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of future lease payments;
(ii) recognises depreciation of right-of-use assets, and interest on lease liabilities, in the consolidated statement of comprehensive income; and
(iii) separates the total amount of cash paid in respect of lease obligations into a principal portion and interest (both presented within financing activities) in the consolidated statement of cash flows.
Lease payments under (i) are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Group's estimated incremental borrowing rate. The finance cost is charged to the Consolidated Statement of Comprehensive Income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Additionally under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts. For the leases taken on balance sheet at 30 June 2019 the Group has used a weighted average interest rate of 9.4%.
For short-term leases (lease term of 12 months or less) and leases of low-value assets the Group has opted to recognise a lease expense on a straight-line basis as permitted by the Standard. This expense is presented within other expenses in the consolidated statement of profit or loss.
(c) Financial effect of initial application of IFRS 16
The tables below show the amount of adjustment for each financial statement line item affected by the application of IFRS 16 for the current period. As the Group has adopted the modified retrospective approach the prior year and period are not restated and hence there is no effect shown.
Impact on profit/(loss) for the period
6 months to
30 June 2019
$'000
(unaudited)
Increase in depreciation
94
Increase in finance costs
22
Loss on foreign currency translation
2
Decrease in other expenses
(111)
_______
Increase in profit for the period
7
Impact on earnings per share for the period
The impact on earnings per share is too small to be reflected in disclosure to the nearest 0.1c
Impact on assets, liabilities and equity as at 1 January 2019
As previously reported
IFRS 16 adjustments
As restated
$'000
$'000
$'000
(audited)
(unaudited)
(unaudited)
Right-of-use assets
-
383
383
_______
_______
_______
Net impact on total assets
-
383
383
Lease liabilities
-
(440)
(440)
___________
_______
_______
Net impact on total liabilities
-
(440)
(440)
Retained earnings
-
57
57
_______
_______
_______
Net impact on total liabilities and equity
-
383
383
The recognised right-of-use assets relate to the following types of assets:
As at
30 June 2019
As at
1 January 2019
$'000
$'000
(unaudited)
(unaudited)
Leasehold properties
401
383
Motor vehicles
19
-
_______
_______
Total right-of-use assets
420
383
The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.
Impact on consolidated statement of cash flows
The application of IFRS 16 has an impact on the consolidated statement of cash flows of the Group as under the Standard lessees must present:
• Short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liability as part of operating activities (such payments have no material effect on these financial statements);
• Cash paid for the interest portion of lease liabilities as part of financing activities; and
• Cash payments for the repayment of the principal portions of leases liabilities as part of financing activities.
Under IAS 17, all lease payments on operating leases were presented as part of cash flows from operating activities. Consequently, for the 6 months ended 30 June 2019, the net cash generated by operating activities has increased by $111,000 and net cash used in financing activities increased by the same amount.
Extension and termination options
Extension and termination options are included in a number of property leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. All of the extension and termination options held are exercisable only by the Group and not by the respective lessor. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based payments in respect of options granted under the share option plan for senior employees dated 15 January 2019 (the "Plan"). Under the terms of the Plan, the Group is able to make equity-settled share-based payments to certain employees and Directors by way of issue of options over ordinary shares. Such equity-settled share-based payments are measured at fair value at the date of grant. This fair value is determined as at the grant date of the options and is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of options that will eventually vest. Fair value is measured by use of a Black-Scholes model; the expected life value used in the model has been adjusted, based on management's best estimates, for the effects of non-transferability, exercise restrictions and behavioural considerations.
IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 is effective for periods beginning on or after 1 January 2019 and requires:
• The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;
• The Group to consider if it is probable that the tax authorities will accept the uncertain tax treatment; and
• If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty
The Group does not believe that it is impacted by IFRIC 23 and therefore opening retained earnings remain unaffected.
Going concern
The Directors have considered trading and cash flow forecasts prepared for the Group, and based on these, and confirmed banking facilities, are satisfied that the Group will continue to be able to meet its liabilities as they fall due for at least one year from the date of these results. On this basis, they consider it appropriate to have adopted the going concern basis in the preparation of the interim results, which were approved by the Board of Directors on 25 September 2019.
Comparative financial information
The comparative financial information presented herein for the year ended 31 December 2018 does not constitute full statutory accounts for that period. Statutory accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies. These statutory accounts carried an unqualified Auditor's Report, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.
2 Segmental analysis
Revenue by geography
The Group recognises revenue in seven geographical regions based on the location of customers, as set out in the following table:
6 months to
30 June 2019
6 months to
30 June 2018
Year to
December 2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Caribbean
243
189
357
Central Asia
206
987
1,653
Eastern Europe
56
-
380
North Africa
95
288
314
South Asia
1,088
542
819
South East Asia
561
-
2,207
Sub-Saharan Africa
465
370
393
_______
_______
_______
2,714
2,376
6,123
Management makes no allocation of costs, assets or liabilities between these region since all trading activities are operated as a single business unit.
Revenue by type
6 months to
30 June
6 months to
30 June
Year to 31 December
2019
2018
2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Repeat software sales and services
1,316
575
2,288
Maintenance and support
645
228
809
_______
_______
_______
Total repeat revenues
1,961
803
3,097
Software - new licenses
498
1,568
2,511
Consulting
250
-
515
Resale of hardware
5
5
-
_______
_______
_______
2,714
2,376
6,123
An analysis of revenue by status of invoicing is as follows:
6 months to
30 June
6 months to
30 June
Year to 31 December
2019
2018
2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
(i) Revenue invoiced to customers under contractual terms
1,076
488
3,694
(ii) Revenue due under terms of contract but unbilled at period end ("UBR")
1,582
1,376
2,325
(iii) Revenue recognised other than (ii) (i.e. on the completion of performance obligations but before any billing milestone is reached)
90
512
271
Less: net revenue deferred (under IFRS 15 or otherwise)
(20)
-
(80)
Less: revenue recognised or to be recognised as interest under IFRS 15
(14)
-
(87)
_______
_______
_______
Total revenue recognised in the period
2,714
2,376
6,123
A broad analysis of Unbilled Revenue is as follows:
6 months to
30 June 2019
$'000
(unaudited)
Gain share contracts awaiting administrative process
203
Other contracts awaiting administrative process
38
Annual contractual payment date not yet reached
181
Invoicing milestone not yet reached
1,160
_______
UBR
1,582
3 Non-GAAP profit measures and exceptional items
Reconciliation of operating profit to earnings before interest, taxation, depreciation and amortisation ("EBITDA"):
6 months to
30 June 2019
6 months to
30 June 2018
Year to
December 2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Operating profit/(loss)
(197)
1,234
2,551
Adjusted for:
Amortisation and depreciation
940
240
889
Exceptional items:
- acquisition expenses
-
-
310
Share-based payments
49
-
-
_______
_______
_______
Adjusted EBITDA
792
1,474
3,750
The criterion for adjusting items in the calculation of adjusted EBITDA is operating income or expenses that are material and either (i) arise from an irregular and significant event or (ii) are such that the income/cost is recognised in a pattern that is unrelated to the resulting operational performance. Materiality is defined as an amount which, to a user, would influence decision-making based on, and understandability of, the financial statements. Adjustment for share-based payment expense is made because, once the cost has been calculated, the Directors cannot influence the share based payment charge incurred in subsequent years, and the value of the share option to the employee differs considerably in value and timing from the actual cash cost to the Group.
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. Exceptional items in 2018 comprise legal and other costs relating to the Danateq Acquisition.
Share-based payments
Share-based payment expense comprises the charge in the current period relating to the expensing of the fair value of (a) the 1,640,000 options granted under the share option plan for senior employees dated 15 January 2019 (the "Plan") and (b) 74,000 options issued at the time of the Company's IPO. The options issued under the terms of the Plan were granted with an exercise price of 73p, vesting in tranches as follows: 25% after one year, 25% after two years and 50% after three years. There are no conditions attaching to the vesting of the options other than continued employment.
Adjusted EPS
The calculation of adjusted EPS is shown in Note 5.
4 Finance income
6 months to
30 June 2019
6 months to
30 June 2018
Year to
December 2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Interest receivable on interest-bearing deposits
6
9
10
Notional interest accruing on contracts with a significant financing component
14
-
23
_______
_______
_______
Total finance income
20
9
33
5 Finance expense
6 months to
30 June 2019
6 months to
30 June 2018
Year to
December 2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Interest and finance charges paid or payable on borrowings
40
37
62
Acquisition-related financing expense - unwinding of discount on financial liabilities
23
-
9
Interest on lease liabilities under IFRS 16
22
-
-
_______
_______
_______
Total finance expense
85
37
71
6 Earnings per share
Earnings per share - reported ("EPS")
The calculation of the basic and diluted EPS is based on the following data:
6 months to
30 June 2019
6 months to
30 June 2018
Year to
December 2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Earnings
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent
(258)
1,061
2,179
Number of shares
Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share
32,532,431
24,313,252
27,375,741
The weighted average number of shares and the loss for the year for the purposes of calculating the fully diluted earnings per share are the same as for the basic loss per share calculation. This is because the outstanding share options would have the effect of reducing the loss per ordinary share and would therefore not be dilutive under IAS33.
Adjusted earnings per share
Adjusted EPS is calculated as follows:
6 months to
30 June 2019
6 months to
30 June 2018
Year to
December 2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Earnings attributable to owners of the Parent
(258)
1,061
2,179
Adjusting items:
- exceptional items (note 3)
-
-
310
- amortisation of acquisition-related intangibles
349
-
286
- share-based payments
49
-
-
Finance charge on liabilities relating to contingent consideration
23
9
_______
_______
_______
Adjusted earnings attributable to owners of the Parent
163
1,061
2,784
Adjusted earnings per share attributable to shareholders (basic)
0.5¢
4.4¢
10.1¢
Weighted number of ordinary shares in issue
32,532,431
24,313,252
27,375,741
Effect of dilutive potential ordinary shares:
- in-the-money share options
6,702
n/a
n/a
________
Weighted average number of ordinary shares for the purposes of diluted earnings per share
32,539,133
n/a
n/a
Adjusted earnings per share attributable to shareholders (diluted)
0.5¢
4.4¢
10.1¢
The Group has one category of potentially dilutive ordinary share, being those share options granted to employees where the exercise price (plus the remaining expected charge to profit under IFRS 2) is less than the average price of the Company's ordinary shares during the period. The weighted average number of shares for the calculation of diluted earnings per share is computed using the treasury share method.
7 Intangible assets
Intangible assets comprise capitalised development costs, acquired software, customer relationships and goodwill.
Development costs
Third party
software
Customer relationships
Goodwill
Total
$'000
$'000
$'000
$'000
$'000
Cost
At 1 January 2019
4,144
98
6,862
745
11,849
Additions
1,111
12
-
-
1,123
Fair value adjustment
-
-
-
(275)
(275)
_______
_______
_______
_______
_______
At 30 June 2019
5,255
110
6,862
470
12,697
Amortisation or impairment
At 1 January 2019
(935)
(19)
(286)
-
(1,240)
Charge for the period
(450)
(10)
(349)
-
(809)
_______
_______
_______
_______
_______
At 30 June 2019
(1,385)
(29)
(635)
-
(2,049)
Net carrying amount
At 30 June 2019
3,870
81
6,227
470
10,648
At 1 January 2019
3,209
79
6,576
745
10,609
Comparative figures for the prior period are as follows:
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
763
-
-
-
763
Fair value adjustment
-
-
113
113
Effect of foreign exchange movements
-
(2)
-
-
(2)
_______
_______
_______
_______
_______
At 30 June 2018
2,053
30
-
400
2,483
Amortisation or impairment
At 1 January 2018
(382)
(16)
-
-
(398)
Charge for the period
(219)
(1)
-
-
(220)
Effect of foreign exchange movements
-
-
-
-
-
_______
_______
_______
_______
_______
At 30 June 2018
(601)
(17)
-
-
(618)
Net carrying amount
At 30 June 2018
1,452
13
-
400
1,865
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. Further consideration for the Danateq Acquisition of up to $5,000,000 was contingent on the achievement of certain revenue targets in the two years following the acquisition. Following the completion of the measurement period at 31 December 2018 the contingent consideration liability for payments potentially due in the period 2019 to 2020 was valued at $1.44m (as discounted to the then present value at an imputed cost of funds). At 30 June 2019 the value of this liability was revised downwards to $1.19m million, a $0.25m decrease (net of the unwinding of the present value discount). This reduction reflected revised expectations of sales from the acquired pipeline (particularly those for the first earn out period to 31 July 2019) based on the performance in the 6 month period and updated business projections. Accordingly a contingent liability of $275,000 has been adjusted (to nil) and a corresponding decrease has been made to goodwill. The carrying value of this liability will continue to be reassessed at future reporting dates.
8 Right-of-use assets
Right-of-use assets comprise leases over office buildings and vehicles
Office
buildings
Vehicles
Total
$'000
$'000
$'000
Cost
At 1 January 2019
-
-
-
Effect of change of accounting policy (IFRS 16)
603
-
603
Additions in the period
94
25
119
Effects of foreign exchange movements
17
(1)
16
_______
_______
_______
At 30 June 2019
714
24
738
Depreciation
At 1 January 2019
-
-
-
Effect of change of accounting policy
(219)
-
(219)
Charge for the period
(89)
(5)
(94)
Effects of foreign exchange movements
5
-
5
_______
_______
_______
At 30 June 2019
(313)
(5)
(318)
Net carrying amount
At 30 June 2019
401
19
420
At 1 January 2019
-
-
-
9 Trade and other receivables
Trade receivables
Trade receivables (due in less than one year) amounted to $4.27 million (at 31 December 2018: $3.78m), net of a provision of £nil (as at 31 December 2018: £nil) for impairment. Trade receivables analysed by age were as follows:
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
As at 30 June 2019
Trade receivables
4,272
2,820
145
84
1,223
As at 30 June 2018
Trade receivables
2,263
1,838
-
-
425
As at 31 December 2018
Trade receivables
3,778
3,636
-
-
142
In addition to the above, $306,000 (FY 2018: $360,000) is included in trade receivables payable in more than one year.
10 Loans and borrowings
As at
30 June 2019
As at
30 June 2018
As at 31 December 2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Non-current liabilities
Secured term loans
359
420
382
_______
_______
_______
359
420
382
Current liabilities
Current portion of term loans
73
69
69
_______
_______
_______
73
69
69
Total loans and borrowings
432
489
451
11 Lease liabilities
Lease liabilities comprise liabilities arising from the committed and expected payments on leases over office buildings and vehicles .
Office
equipment
Vehicles
Total
$'000
$'000
$'000
At 1 January 2019
-
-
-
Effect of change of accounting policy
440
-
440
Leases taken on in the period
94
25
119
Repayments of principal
(83)
(5)
(88)
Effects of foreign exchange movements
14
(1)
13
_______
_______
_______
At 30 June 2019
465
19
484
12 Trade and other payables
As at
30 June 2019
As at
30 June 2018
As at 31 December 2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Due within a year
Trade payables
12
63
118
Other payables
344
256
463
Amounts due to related parties
-
43
28
_______
_______
_______
Total trade and other payables
356
362
609
Other payables principally comprise provisions for taxation liabilities and other costs.
Contract liabilities represent liabilities resulting from balance sheet reclassifications arising from the application of IFRS 15.
13 Other financial liabilities
Other financial liabilities comprise the fair value of potential liabilities for the contingent payments due in respect of the Danateq acquisition.
As at
30 June 2019
As at
30 June 2018
As at 31 December 2018
$'000
$'000
$'000
(unaudited)
(unaudited)
(audited)
Contingent consideration on the acquisition of Danateq assets
- potentially due within one year
-
-
298
- potentially due after one year
1,187
-
1,141
_______
_______
_______
Total other financial liabilities
1,187
-
1,439
14 Post balance sheet events
There have been no events subsequent to the reporting date which would have a material impact on these interim financial results
[END]
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