REG - Vianet Group PLC - Final Results
Press Release
5 June 2018
Vianet Group plc
("Vianet" or the "Group")
Final Results
Vianet Group plc (AIM: VNET), the international provider of actionable data and business insight through devices connected to its Internet of Things ("IOT") platform, is pleased to announce its final results for the year ended 31 March 2018.
Financial highlights (continuing operations)
· Revenue for the year of £14.56 million (2017: £14.26 million)
· Smart Machines adjusted operating profit of £1.07 million, including Vendman contribution of £0.12 million grew 20.1% from £0.89 million (up 6.7% excluding Vendman)
· Recurring revenues remain strong at 90% (2017: 85%) helped by the Vendman acquisition in October 2017 and transition from capital to annuity based sales in Smart Machines
· Gross margin stable at 70% (2017: 70%)
· Operating profit pre-amortisation of intangibles, share options and exceptional costs up 9.2% to £3.62 million (2017: £3.32 million)
· Profit before taxation was up 41.5% to £2.05 million post exceptional items (2017: £1.45 million)
· Operating cash generation of £2.97million (2017: £3.93 million)
· Net cash of £1.2 million (2017: £3.45 million) post acquisition of Vendman
· Basic earnings per share (before tax) and post-exceptional costs at 7.42 pence (2017: 5.30 pence)
· Final dividend of 4.00 pence per share proposed giving a full year total of 5.70 pence per share (2017: 5.70 pence)
Operational highlights
· Acquisition of Vendman Systems Ltd, the UK's leading unattended retail management software company for a total consideration (including earn-out), of up to £4.25 million, payable in cash
· Smart Machines contract win for pan European and ANZ operations of a leading international coffee company with roll out commencing in 2018/19
· Smart Zones Division resilient with 245 new drinks monitoring system installed, offsetting some of the impact of pub closures
· Smart Machines Division added 4,490 new connected devices excluding Vendman (2017: 5,092) and increased underlying profitability by 6.7%
· £2.0 million investment in cloud and mobile technology to modernise the Smart Zones platform and support growth in the Smart Machines division
Commenting on the final results, James Dickson, Chairman of Vianet Group plc, said:
"Vianet has made significant steps towards the delivery of its earnings transformation plan and continues to benefit from its focus on exploiting growth opportunities in the Smart Machines division whilst optimising performance in the Smart Zones division. The Group has a proven track record of converting data from its IOT connected devices into actionable information and solutions for b2b markets. We continue to develop and grow our working relationships with our blue-chip customer base where contracted recurring revenues now represent over 90% of turnover.
The acquisition of Vendman with c. 200,000 mobile connections and roll out of the recently won global coffee contract, is expected to be transformational for the Smart Machines division and should drive significantly increased earnings for the Group in the next few years.
The Group has high levels of recurring income, strong cash flow and a healthy balance sheet, which means we are well placed for further investment to accelerate Smart Machines expansion and for selective acquisitions.
The Board is confident that the Group's long term strategy is the right one and that it is positioned to deliver earnings growth and expand future strategic options."
- Ends -
An audio cast of the full year results presentation given by Stewart Darling (Chief Executive) and Mark Foster (Chief Finance Officer), was released this morning, Tuesday, 5 June 2018 at 07.00hrs on the Group's website www.vianetplc.com with the link also being distributed by Yellow Jersey PR.
An analyst briefing will be held today at 09.30hrs at Cenkos, 6-8 Tokenhouse Yard, London EC2R 7AS.
Enquiries:
Vianet Group plc
James Dickson, Chairman
Stewart Darling, Chief Executive Officer
Mark Foster, Chief Financial Officer
Tel: +44 (0) 1642 358 800
Cenkos Securities plc
Stephen Keys / Camilla Hume
Tel: +44 (0) 20 7397 8900
Media enquiries:
Yellow Jersey PR
Sarah Hollins
Abena Affum
Tel: +44 (0)7764 947 137
Tel: +44 (0)7555 159 808
Chairman's Statement
Performance
The Group has made significant steps towards delivery of earnings transformation and continues to benefit from the focus on exploiting growth opportunities in the Smart Machines division whilst optimising performance in the Smart Zones division.
Group turnover was £14.56 million (2017: £14.26 million) whilst adjusted operating profit was up by 9.2% at £3.62 million. Group profit before taxation amounted to £2.05 million post exceptional items (2017: £1.45 million).
Exceptional costs of £0.54 million (2017: £0.96 million) were down on the previous year and principally related to the Vendman acquisition and staff rationalisation costs.
Basic pre-tax earnings per share, post-exceptional costs and deferred tax asset movement, increased to 7.42 pence from 5.30 pence in 2017. Basic EPS after tax was 6.55 pence compared to 3.77 pence in 2017.
Given the solid underlying performance, high quality recurring income and the strong prospects for the Group, the Board is proposing to maintain the final dividend at 4.00 pence which, if approved by shareholders, would give a total dividend for the year of 5.70 pence (2017: 5.70 pence). Subject to approval from shareholders at the Annual General Meeting, to be held on 28 June 2018, the final dividend will be paid on 27 July 2018 to shareholders on the register as at 15 June 2018.
Board and Staff
We continue to evaluate the Board's composition to ensure it remains effective and has the optimum balance of experience and independence to support our operations and growth agenda.
To this end I was delighted to welcome Dave Coplin as a Non-Executive Director. Dave, formerly Chief Envisioning Officer at Microsoft, brings a wealth of experience and insight within the technology space which will be an invaluable asset to the Group as we execute our growth strategy in the Internet of Things and big data areas.
Mike McGoun, whose valued contribution and support will be missed, has chosen to retire from the Board at the time of the Annual General Meeting.
The Group's experienced management team is focused on delivering against the strong growth opportunities and new applications for Vianet's IOT expertise and technology.
Our people continue to respond with their usual enthusiasm and commitment, helping to build on the Group's excellent reputation with customers as we deliver significant development and change programmes.
I would once again like to thank all employees and my Board colleagues, for their continued efforts and commitment in taking the Group forward over the past year.
Outlook
The Group is in good shape to deliver strong earnings growth and enters FY2019 with momentum and concerted focus on our exciting growth opportunities.
· Smart Machines' leading product suite and established presence provides strong growth opportunities across UK and Europe, having already developed significant new sales opportunities with major global customers in this geography as evidenced by the major global coffee company contract.
· Together the Vendman acquisition and the global coffee company contract roll out is expected to transform Smart Machines' earnings over the next few years. There is a significant opportunity to overlay c 200,000 Vendman mobile connections with higher value Smart Machines connections and also to cross sell from the portfolio to existing customers and vending operators internationally.
· There is a concerted focus on developing our capability and accelerating growth to take advantage of our leading position in coffee device and contactless payment device connectivity where sales momentum will continue to grow.
· Smart Zones is well equipped to defend existing earnings performance and manage the decline in the UK pub market whilst securing US expansion from existing customers.
· The recent c £2.0 million investment in cloud infrastructure and mobile technology will help sustain existing revenues and facilitates growth in existing and potential new verticals.
· The Group has high levels of recurring income and strong cash flow. This cash generation and strong balance sheet gives scope for further investment to accelerate Smart Machines expansion and for selective acquisitions.
The Board remains confident that Vianet's long term strategy is the right one and that the Group is well positioned to deliver earnings growth and expand the future strategic options for Vianet.
Chief Executive's Report
Vianet continues to deliver value for its customers by providing actionable information and unparalleled insight with the power to drive real business change.
We currently operate two business divisions: Smart Zones (drinks monitoring and machine management services) and Smart Machines (unattended retail machine telemetry and contactless payment solutions and Vendman ERP software and mobile connectivity).
With over 300 customers including several global blue-chip companies and more than 235,000 devices (excluding c 200,000 Vendman mobile connections) connected to our Internet of Things ('IOT') platform, our experience and knowledge combine to form a powerful technology and insight capability that, we believe, is unmatched by competitors in our markets.
As the IOT evolves and businesses seek more data and insight on everything from asset performance to process automation, Vianet is well placed to grow its position in this rapidly developing area. The data and insight generated via our connected devices and web portal will deliver value for customers by materially improving decision making that will drive real business change.
At the same time, hardware and connectivity still has a significant role to play, and whilst we may not always connect to customer assets using our smart devices, our IOT platform has evolved so that our connectivity capability is agnostic and can connect to any device. Gathering information on customer asset performance enables the creation of powerful data and insight and this will drive sustained growth over the coming years.
Whilst we focus on delivering actionable information business insight using data captured via our IOT platform and third-party sources, we have resisted the distraction of developing other enablement technologies necessary to create the overall solution. Instead, our strategic choice has been to build partnerships with leading providers and partners such as Connor Solutions, a leading electronics manufacturer in the North East of England.
In the last six months the Group has also taken some significant steps forward as we strive to robustly execute key elements of our strategic plan and secure new business.
We have been successful in a tender process with an existing strategic customer for the supply of connected devices, actionable data and insight data across multiple European countries plus Australia and New Zealand. This contract with a global coffee company is for an initial three years and demonstrates both the global scalability of our IOT platform, and the competency in delivering the information and insight that major customers require to successfully manage their business.
Simultaneously, as part of our strategic intent we have sought to reduce our dependency on a capital sales based model by evolving our earnings streams, wherever possible, towards an annuity only model where hardware is rented rather than purchased. This will lead to increased quality of earnings in the long term, however, in the short term it has adversely impacted both turnover and profitability, accounting for just over £300,000 turnover on a like for like basis compared to last year.
Just after the half year, the Group acquired Vendman Systems, the leading UK provider of mobile and ERP solutions for the unattended retail market. The reason for this acquisition is that we believe the combination of Smart Machines and Vendman has a compelling strategic, commercial and financial rationale in that it will:
· Establish a market leading portfolio of solutions for unattended retail through the combination of expertise, products and services;
· Provide the combined commercial team with significant cross selling opportunities for Vianet IOT connectivity and real-time data and contactless payment technology to Vendman customers where there are already c 200,000 mobile connections; and the sale of Vendman ERP and mobile platform to Vianet customers;
· Create an incremental big data revenue opportunity through building market leading analytics and insight from combined data sets;
· Significantly enhance our route to market and distribution opportunities across Continental Europe through establishing a strong network and footprint.
To enable and accelerate our strategy we have also invested almost £2 million in new cloud and mobile technology that will allow us to scale quickly and effectively whilst engaging customers via new mobile applications and connectivity.
We aim to complete the substantial task of migrating all customers and data from our legacy platform to this new platform and capability in 2018.
Operating Review
Smart Zones
Our legacy core business of drinks monitoring and services for the UK Leisure sector experienced a moderate 6% decline in operating profit but remains resilient with high gross margins and strong cash generation. The challenging backdrop of industry headwinds remains and this adversely impacts the operating performance and financials of pub companies generally, our key market in this division.
As result, the iDraught pipeline slowed a little on the previous year as pub operators assess and adapt to these pressures which include increasing business rates, the national living wage and the rising cost of food and other goods and services.
Whilst we continue to make progress in the mid-sized Managed pub businesses by demonstrating the value of our Smart Zone technology, it is slower in the larger managed pub companies than originally anticipated.
UK pub disposals have continued (2018: 1,420 and 2017: 940) with the resulting impact being a net reduction of 1,175 licenced premises in our installation base over the financial year with a consequential impact on operating contribution.
Despite these pub disposals, our Smart Zones connected device base remains significant with c 219,000 devices in c 13,400 premises. The data sent from these devices forms the core of the information and insight delivered to customers via our website and mobile applications.
However the combination of strong recurring revenues from long term contract extensions and ad-hoc support activity, combined with 195 iDraught™ sales failed to offset this increase in pub closures, resulting in reduced income stream for the period under review.
Whilst we focus on strengthening our recurring income streams, pub companies are also adapting to the changing landscape through different strategies such as developing managed estates from high performing or strategically located properties and creating franchised models with increased operating performance potential and greater transparency. We expect these different strategies to be beneficial to our business as the pub companies seek to improve retailing capability and quality standards and will likely be targeting investment expenditure on that basis.
Our annual Beer Quality report continues to demonstrate the cost to the industry of poor draught beer management and we are hopeful this will be a driver for increased traction.
The challenge and focus for the Smart Zones business in the coming year is to deliver a stable performance despite the headwinds which continue to dominate the UK pub market.
In our Vianet Americas business we have once again made progress with more streamlined operations, and 60 new installations, resulting in year on year operating losses being further reduced to just over £100k with an expectation that these will further close towards breakeven during FY2019.
The quality of our installation base is encouraging with iDraught installed in 265 high quality blue chip operator sites across the USA, including AMC Theatres our largest US customer, which provides strong validation of the value provided by iDraught.
A review of the competitor landscape clearly indicates that Vianet's iDraught™ solution is substantially ahead of all competitors in the USA, and this advantage, combined with our strategic alliance with Micro Matic USA for nationwide installation, service and sales support places us in a strong position to build sales momentum.
Whilst the pace of delivery of results is slower than we would wish, the Board recognises that given the relatively modest level of investment required, a breakthrough in what is the world's largest multiple operator market could be significant. Therefore the Group continues to work hard to establish the iDraught proposition in the USA.
Overall, the Board remains cautiously confident for the prospect of the Smart Zones division returning to growth going forward.
Smart Machines
Smart Machines made good progress in the year as our deep understanding of the key dynamics of the vending market, together with a strategy aligned to securing agreements with major blue-chip customers who have the scale to invest and the sophistication to unlock the value of our Smart Machine technology, continues to fuel growth.
The two specific areas of opportunity we continue to focus on and increase traction in are premium coffee and contactless payment solutions for snack and can vendors generally. We are much encouraged by our further sales growth in both these areas and our securing of vending contracts with major blue chip customers whose businesses are growing. This resulted in Divisional profit growth of 20.1% to £1.07 million in the year helped by a small contribution of £0.12 million from Vendman.
Last year we adopted an annuity model approach to pricing to strengthen recurring revenues and improve quality of earnings in the medium to long term, thus reducing our dependency on the fluctuating income of the capital sales model. This change adversely impacted turnover in Smart Machines by around £300,000 in the year. This approach will result in higher quality income streams and profits in the coming years. We have already seen our recurring revenues grow to 74% of Smart machines income in the year, an increase of 10% on last year.
Total Smart Machine connections grew by just over 4,400 devices in the year helped by the highly encouraging rollout of our cloud based contactless payment solution.
Our contactless payment solution, which is driving increased sales of around 20% per unattended retail machine for our customers, increased its own footprint by 113% in the year. This strong traction in the market is unlocking further growth opportunities, and is also particularly relevant to smaller snack and can vendors where telemetry alone may not support unlocking the level of value available in their operations.
During the year, Smart Machines won a large contract with a strategic global coffee customer for the rollout of connected coffee machines to a large part of its estate. This contract will see us rollout 2, 3 and 4G devices to connect machines whilst rendering data analytics and insight for the customer via our new Project Neo portal. Following on from the original deployments in its home country, we are now working closely with the customer on the phased deployment of this contract across ten further countries in Europe, Australia and New Zealand
Our supply chain and data management capabilities have been further strengthened by recent outsourcing of our device supply chain to Connor Solutions, a renowned electronics manufacturer in the North East of England. Combined with our new portal this will allow us to increase quickly and effectively the installation of many thousands of devices leading to a significant rise in the number of connected machines globally.
Vendman with c 200,000 connected machines is well placed to materially improve the operating and financial performance of the Smart Machines in FY2019 and beyond. This includes significant cross selling opportunities for the combined commercial team through the sale of Vianet IOT connectivity and real-time data to Vendman customers; the rollout of Vianet contactless payment technology to Vendman customers; and the sale of Vendman ERP and mobile platform to Vianet customers.
The market opportunity remains extensive even when limited to the immediately addressable market projections of 300,000 vending machines rather than all vending machines across mainland Europe. As technology adoption evolves, it is anticipated that the addressable market will grow to nearly 1 million vending machines with Vianet being at the forefront to grow with the market.
Our contactless payment solution, supported by leading industry partners Elavon and CreditCall, has provided a very attractive solution to the Smart Machines marketplace where traditional cash-only payments have long been an inhibitor of vending-related consumption, usage and customer experience. We believe the evolution and growth of contactless payment solutions provides a material opportunity to change this dynamic and attract more consumers to the vending vertical.
We expect that Vianet's contactless payment solution and significant experience developed in this new and dynamic space will provide exciting growth opportunities in years to come.
R&D Investment
The Group continues to invest in development activity as noted above and accelerated this activity in the year. This development has broadly covered enhancements to the customer experience, revenue generating reporting insights from our new platforms which allows us to leverage new revenue streams and necessary infrastructure investment moving away from legacy systems and software to an agile cloud based technology environment. The accelerated investment of an additional c £800,000 on top of the 'normal' development activity range of £50,000 to £600,000 per annum took the total investment in the cloud platform, analytics and mobile technology to almost £2 million with further investment expected in FY2019.
The Board believes this further investment in enhancing our core data management capability and IOT technology will enhance the Group's ability to improve the quality of the existing recurring revenue stream and to generate substantial new growth opportunities.
Looking Forward
The business is well placed and benefiting from its proven track record of converting data gathered from its IOT connected devices into actionable data and solutions for b2b markets.
In tandem, we continue to grow and develop strong working relationships with blue chip customers where contracted recurring revenues now represent well over 90% of turnover.
The acquisition of Vendman with c 200,000 mobile connections and the rollout of the recently won global coffee contract is expected to be transformational for the overall Smart Machines business and should drive significantly increased earnings for the Group in the next few years.
Whilst Smart Machines is already exploiting growth opportunities through its strong portfolio of products and services to existing customers across Europe, the recent investment of almost £2 million in new cloud and mobile capability, and the transformation of legacy systems, will facilitate much increased growth in existing and new vertical markets. The addition of our new contactless payment solution and rapid adoption of technology by brand owners and machine operators, positions this division for strong underlying growth.
In our Smart Zones division, given well publicised industry headwinds, we will continue to manage the decline in the UK pub market whilst working to grow our iDraught footprint in the USA through mid-size multiple operators.
Finally, the combination of our experienced team and robust finances provide a strong platform for the further development and expansion of our IOT capability and the delivery of data and insight applications that help our customers make better decisions about their business.
Financial Review
Turnover increased by 2.1% helped by the acquisition of Vendman which offset a moderate decline in Smart Zones and the £0.3 million revenue impact of the shift from capex to annuity model and vending estate rationalisation in Smart Machines.
Recurring Revenue
Blended recurring revenue across the two divisions was 90% (2017: 85%), helped by the Vendman acquisition and the transition from capital to annuity based sales in Smart Machines.
The average recurring revenue per connected device has grown 7.0% to £51.53 (2017: £48.18);
Performance Summary
Pre-exceptional cost PBT was up 7.3% at £2.59 million (2017: £2.41 million), with PBT being up 41.5% at £2.05 (2017: £1.45 million). The table below shows the performance of the Group;
FY2018
FY2017
Change %
Revenue
£14.56m
£14.26m
2.1
Operating profit(a)
£3.62m
£3.32m
9.2
Operating profit
£3.08m
£2.35m
31.1
Profit before tax(b)
£2.59m
£2.41m
7.3
Profit before tax
£2.05m
£1.45m
41.5
Basic EPS(c)
8.50p
7.30p
16.4
Dividend per share
5.70p
5.70p
Net cash(d)
£1.20m
£3.45m
a) Pre-exceptional items, share based payments and amortisation
b) Pre-exceptional items
c) Profit after tax pre-exceptional items
d) Cash at bank after deduction of bank loans including new loan for the acquisition of Vendman Systems Limited
Exceptional Items
FY2018
'£000
FY2017
'£000
US legal costs
-
388
People and office rationalisation
241
573
VFS disposal
-
(102)
Acquisition costs
231
-
Other items
66
5
Total
538
864
Current year costs predominately relate to Vendman Systems Limited acquisition costs and staff rationalisation costs.
Dividend
The Board is proposing to maintain the final dividend at 4.00 pence which, if approved by shareholders, would give a total dividend for the year of 5.70 pence (2017: 5.70 pence).
On a profit after tax basis, dividend cover has increased to c 1.16 (2017: c 0.66). We expect the cover to improve further in FY2019 as a result of our anticipated growth in profits and reduction in exceptional costs.
Cash
Net operational cash generation (including share based payments and asset disposals) was £2.97 million (2017: £3.93 million). The year on year cash generation and resulting net cash position was adversely impacted by phasing of collections in FY2017 including one customer paying upfront, and the FY2018 acquisition related costs associated with Vendman. Otherwise the like for like cash generation was broadly in line.
The cash generation of £2.97 million was principally used to service accelerated R&D investment, dividend payment and servicing of new borrowings leaving an outflow of £0.6 million (2017: £0.9 million inflow).
Factoring out the accelerated R&D spend and acquisition costs the net cash flow position was within c £300k of last year.
At the year end, pre mortgage and the acquisition loan, the Group had net cash including overdraft of £3.92 million (2017: £4.55 million), borrowings of £2.65 million (2017: £1.10 million), and net cash of £1.20 million (2017: £3.45 million) impacted by the £2 million term loan associated with the Vendman acquisition.
Divisional Performance
Currently the Smart Zones division principally consists of the core beer monitoring business (including the US) and gaming machine monitoring.
Smart Zones
FY2018
FY2017
Change %
Turnover
£11.45m
£11.93m
(4.1)
Operating profit(a)
£4.53m
£4.82m
(5.8)
Total connected devices
218,663
230,489
(5.1)
New Installation sales
245
380
(35.5)
YE Net premises(b)
c13,570
c14,500
(6.4)
iDraught penetration(b)
28.0%
25.8%
a) Pre-exceptional items, share based payments and amortisation
b) UK, USA and Europe only
Recurring revenue per device has increased 6.1% to £48.67 (2017: £45.89) reflecting the higher quality recurring revenue streams which has resulted from our customers' disposal of relatively lower performing pubs during their estate rationalisation programmes.
Average operating profitability per device is measured by taking full year operating profit before amortisation, share based payments and exceptional items and dividing by the total number of connected devices at the year end.
Average adjusted operating profit per device (above) has decreased c 1.1% to £16.70 (2017: £16.89) reflecting lower new unit sales offset by continuing overhead rationalisation.
The Smart Zones division has performed fairly against a continuing challenging pub market landscape that resulted in a net estate reduction of c 1,175 sites (2017: c 600) to c 13,125 (2017: 14,300) in the UK and Europe.
Against this backdrop, Smart Zones delivered a credible operating profit of £4.53 million (2017: £4.82 million).
Smart machines
The Smart Machines division consists of telemetry and contactless monitoring predominantly in the vending sector, and includes six months of recently acquired Vendman.
FY2018
FY2017
Change %
Turnover
£3.12m
£2.33m
33.9
Operating profit (a)
£1.07m
£0.89m
20.2
New Telemetry connections
1,660
4,275
(61.2)
New Contactless connections
2,830
817
246.4
YE Net estate
c 18,000
c20,000
(10.0)
a) Pre-exceptional items, share based payments and amortisation on a continuing basis.
b) Included in the above FY2018, Vendman contributed £1.18m in turnover and £0.12m in operating profit
c) The net estate reduction in FY2018 reflects the vending machine estate rationalisation (enabled by Smart Machines), the loss of one midsized customer who sought exclusivity, and the new device sales pipeline being impacted by two customers temporarily delaying orders during their respective negotiations with Smart Machines. One of these being the Vendman acquisition and the other being the significant contract with a global coffee vendor.
d) Excludes c 200,000 Vendman connections.
Smart Machines continued to make progress in the year with growth in number of new connected devices, especially in contactless with new contactless connections being 2,013 ahead of FY2017. Growth in the estate figures is reflected in the net movement.
Average recurring revenue per device increased 15.9% to £86.25 (2017: £74.44) principally due to the improving mix of estate, the increased penetration of contactless solutions, and the shift towards annuity based revenue streams.
Average adjusted operating profit per device (above) has increased 19.2% to £52.74 (2017: £44.26) due to sales/revenue stream mix as noted above set against a relatively stable fixed cost base.
Taxation
The Group has continued to utilise available tax losses during the year resulting in no tax being paid (2017: £nil). The Group will continue to utilise the available tax losses carried forward into FY2019. In the financial year under review, the tax line includes a deferred tax charge of £0.24 million (2017: £0.42 million) recognising the impact of the tax losses available and being utilised.
Earnings per share
Earnings per share has been impacted by the recognition of the deferred tax assets provision referred to above, realising the losses carried by the Group and the unwinding of that provision since FY2014.
The underlying profit before tax from continued operations pre-exceptional items earnings per share is 9.36 pence for FY2018 compared to 8.83 pence for FY2017. Underlying fully diluted earnings per share (before exceptional costs), which takes account of all outstanding share options, amounted to 9.35 pence in FY2018 which compares to 8.79 pence for FY2017.
Basic EPS was 6.55 pence compared to 3.77 pence in 2017.
Balance sheet and cash flow
The Group balance sheet remains strong.
The Group generated operating cash flow of £2.97 million (2017: £3.93 million) with FY2017 impacted by a customer paying a five year contract up front, and FY2018 impacted by Vendman Systems Limited acquisition costs. Despite the headwinds noted in the Smart Zones above, the division itself had a healthy operational cash generation of c £4.3 million (2017: £5.5 million).
The cash generated in FY2018 was utilised to invest in the Group's accelerated technology plans through research and development, to service borrowings, fund dividends and acquire Vendman. At the year end, the Group had borrowings of £2.65 million (2017: £1.10 million), and net cash of £1.20 million (2017: £3.45 million) impacted by the Vendman acquisition funded by a £2.0 million 4 year term bank loan drawn down in October 2017
The balance sheet and cash generating capacity of Vianet provides a continued strong base to pursue the significant growth opportunities that the Board has identified in order to generate increased shareholder value.
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2018
Before Exceptional 2018
£000
Exceptional 2018
£000
Total
2018
£000
Before Exceptional 2017
£000
Exceptional 2017
£000
Total
2017
£000
Note
Continuing operations
Revenue
14,561
-
14,561
14,263
-
14,263
Cost of sales
(4,381)
-
(4,381)
(4,327)
-
(4,327)
Gross profit
10,180
-
10,180
9,936
-
9,936
Administration and other operating expenses
(6,559)
(538)
(7,097)
(6,621)
(964)
(7,585)
Operating profit pre amortisation and share based payments from continuing operations
3,621
(538)
3,083
3,315
(964)
2,351
Intangible asset amortisation
(865)
-
(865)
(693)
-
(693)
Share based payments
(142)
-
(142)
(206)
-
(206)
Operating profit post amortisation and share based payments
2,614
(538)
2,076
2,416
(964)
1,452
Net finance costs
(28)
-
(28)
(5)
-
(5)
Profit from continuing operations before tax
2,586
(538)
2,048
2,411
(964)
1,447
Income tax expense
1
(239)
-
(239)
(417)
-
(417)
Profit from continuing operations
2,347
(538)
1,809
1,994
(964)
1,030
Profit/(loss) from discontinued operations:
-
-
-
-
100
100
Profit and other comprehensive income for the year
2,347
(538)
1,809
1,994
(864)
1,130
Earnings per share
Total
- Basic
8
6.55p
4.14p
- Diluted
8
6.54p
4.12p
Continuing Operations
- Basic
8
6.55p
3.77p
- Diluted
8
6.54p
3.76p
Discontinued Operations
- Basic
8
0.00p
0.37p
- Diluted
8
0.00p
0.36p
Consolidated Balance Sheet
at 31 March 2018
2018
£000
2017
£000
Assets
Non-current assets
Goodwill
17,975
15,503
Other intangible assets
4,529
2,000
Property, plant and equipment
3,166
3,069
Total non-current assets
25,670
20,572
Current assets
Inventories
1,086
1,308
Trade and other receivables
3,246
2,708
Tax asset
391
460
Cash and cash equivalents
4,324
4,549
9,047
9,025
Total assets
34,717
29,597
Equity and liabilities
Liabilities
Current liabilities
Trade and other payables
4,436
3,728
Borrowings
1,062
325
Provisions
-
62
5,498
4,115
Non-current liabilities
Other payables
1,339
-
Borrowings
1,994
778
Provisions
-
48
Deferred tax
872
395
4,205
1,221
Equity attributable to owners of the parent
Share capital
2,872
2,843
Share premium account
11,519
11,287
Share based payment reserve
483
418
Own shares
(1,114)
(1,221)
Merger reserve
310
310
Retained profit
10,944
10,624
Total equity
25,014
24,261
Total equity and liabilities
34,717
29,597
Consolidated Statement of Changes in Equity
for the year ended 31 March 2018
Share capital
Share premium
account
Own
shares
Share
based
payment
reserve
Merger
reserve
Retained profit
Total
At 1 April 2016
2,843
11,287
(1,221)
217
310
11,045
24,481
Dividends
-
-
-
-
-
(1,557)
(1,557)
Share based payments
-
-
-
207
-
-
207
Share option forfeitures
-
-
-
(6)
-
6
-
Transactions with owners
-
-
-
201
-
(1,551)
(1,350)
Profit and total comprehensive income for the year
-
-
-
-
-
1,130
1,130
Total comprehensive income less owners transactions
-
-
-
-
-
(421)
(220)
At 31 March 2017
2,843
11,287
(1,221)
418
310
10,624
24,261
At 1 April 2017
2,843
11,287
(1,221)
418
310
10,624
24,261
Dividends
-
-
-
-
-
(1,562)
(1,562)
Issue of shares
29
232
-
(50)
-
50
261
Share based payments
-
-
-
115
-
27
142
Exercise of options
-
-
107
-
-
(4)
103
Transactions with owners
29
232
107
65
-
(1,489)
(1,056)
Profit and total comprehensive income for the year
-
-
-
-
-
1,809
1,809
Total comprehensive income less owners transactions
29
232
107
65
-
320
753
At 31 March 2017
2,872
11,519
(1,114)
483
310
10,944
25,014
Consolidated Cash Flow Statement
for the year ended 31 March 2018
Note
2018
£000
2017
£000
Cash flows from operating activities
Profit for the year
1,809
1,130
Adjustments for
Net interest payable
28
5
Income tax expense
239
417
Amortisation of intangible assets
865
693
Depreciation
378
348
(Profit)/Loss on sale of property, plant and equipment and businesses
62
(50)
Share based payments
142
207
Operating cash flows before changes in working capital and provisions
3,523
2,750
Change in inventories
219
502
Change in receivables
(537)
857
Change in payables
(126)
(289)
Change in provisions
(105)
110
(549)
1,180
Cash generated from operations
2,974
3,930
Net cash generated from operating activities
2,974
3,930
Cash flows from investing activities
Proceeds on disposal of subsidiary division
-
100
Purchase of subsidiary
(1,917)
-
Purchases of property, plant and equipment
(398)
(325)
Purchases of intangible assets
(1,610)
(711)
Net cash used in investing activities
(3,925)
(936)
Cash flows from financing activities
Net interest payable
(28)
(5)
Issue of share capital
261
-
Share options exercised
103
-
New bank loans
2,000
-
Repayments of borrowings
(450)
(488)
Dividends paid
2
(1,562)
(1,557)
Net cash used in financing activities
324
(2,050)
Net increase/(decrease) in cash and cash equivalents
(627)
944
Cash and cash equivalents at beginning of period
4,549
3,605
Cash and cash equivalents at end of period
3,922
4,549
Notes to the financial statements
1. Taxation
Analysis of charge in period
2018
£000
2017
£000
Current tax expense
- Amounts in respect of the current year
-
-
- Amounts in respect of prior periods
-
-
-
-
Deferred tax credit:
- Amounts in respect of the current year
230
427
- Amendment re-recognition of losses
9
(10)
Income tax charge
239
417
Reconciliation of effective tax rate
The tax for the 2018 period is lower (2017 was higher) than the standard rate of corporation tax in the UK (2018: 19% and 2017: 20%). The differences are explained below:
2018
£000
2017
£000
Profit before taxation
- Continuing and discontinuing operations
2,226
1,547
Profit before taxation multiplied by rate of corporation tax in the UK of 19% (2017:20%)
423
309
Effects of:
Other expenses not deductible for tax purposes
35
25
Amortisation of intangibles
123
125
Movement on losses
120
266
Adjustments for prior years
9
(10)
Research and development
(471)
(298)
Total tax charge
239
417
2. Ordinary dividends
2018
£000
2017
£000
Final dividend for the year ended 31 March 2017 of 4.0p (year ended 31 March 2016: 4.0p)
1,096
1,092
Interim dividend paid in respect of the year of 1.70p (2017: 1.70p)
466
465
Amounts recognised as distributions to equity holders
1,562
1,557
In addition, the directors are proposing a final dividend in respect of the year ended 31 March 2018 of 4.0p per share. If approved by shareholders, it will be paid on 28 July 2018 to shareholders who are on the register of members on 17 June 2018. Total dividend payable 5.70p (2017: 5.70p).
3. Earnings per share
Earnings per share has been impacted by the release of a deferred tax asset provision. After adjustment for the lower tax charge, the overall basic earnings per share for the year ended 31 March 2018 before exceptional costs increased to 8.50 pence compared to 7.30 pence at March 2017.
Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders (£1,809,000) by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share are calculated on the basis of profit for the year after tax divided by the weighted average number of shares in issue in the year plus the weighted average number of shares which would be issued if all the options granted were exercised
The table below shows the earnings pre and post the impact of the movement in the deferred tax asset.
2018
2017
Earnings
£000
Basic earnings per share
Diluted earnings per share
Earnings
£000
Basic earnings per share
Diluted earnings per share
Post-tax profit attributable to equity shareholders
1,809
6.55p
6.54p
1,130
4.14p
4.12p
Pre-tax profit attributable to equity shareholders
2,048
7.42p
7.40p
1,547
5.67p
5.64p
Of which is attributable to continuing operations
2,048
7.42p
7.40p
1,447
5.30p
5.28p
Pre-tax, pre-exceptional profit attributable to equity shareholders
2,586
9.36p
9.35p
2,411
8.83p
8.79p
Post-tax, pre-exceptional profit attributable to equity shareholders
2,347
8.50p
8.48p
1,994
7.30p
7.27p
2018
Number
2017
Number
Weighted average number of ordinary shares
27,613,719
27,302,694
Dilutive effect of share options
54,259
114,063
Diluted weighted average number of ordinary shares
27,667,978
27,443,757
4. Exceptional items
2018
£000
2017
£000
US litigation
-
388
Bolton rationalisation
(19)
495
Acquisition costs
231
-
Corporate restructuring and transitional costs
260
83
Other
66
-
Disposal of VFS subsidiary
-
(102)
538
864
Acquisition costs relate to the acquisition of Vendman Systems Limited in October 2017.
Corporate restructuring and transitional costs relate to the redundancy of people and management to ensure we have to succession and calibre of people on board to deliver the strategic aims and aspirations of the Group.
5. Basis of preparation
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined by section 434 of the Companies Act 2006.
It has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) adopted for use in the European Union, including IFRIC interpretations issued by the International Accounting Standards Board, and in accordance with the AIM rules and is not therefore in full compliance with IFRS. The principal accounting policies of the Group have remained unchanged from those set out in the Group's 2017 annual report. The financial statements have been prepared under the historical cost convention with the exception of certain items which are required to be measured at fair value
The financial information for the period ended 31 March 2018 was approved by the Board on 4 June 2018 and has been extracted from the Group's financial statements upon which the auditor's opinion is unmodified and does not include a statement under section 498(2) or (3) of the Companies Act 2006. The statutory accounts for the year ended 31 March 2018 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on our website vianetplc.com and on request by contacting the Company Secretary at the Company's Registered Office. In due course, they will be delivered to the Registrar of Companies.
The statutory accounts for the year ended 31 March 2017 have been delivered to the Registrar of Companies.
6. Annual General Meeting
The Annual General Meeting will be held on 28 June 2018 at 11.00am, at the offices of Grant Thornton UK LLP, No 1 Whitehall Riverside, Leeds, LS1 4BN.
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 FIMMTMBMMTMP
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