REG - Vianet Group PLC - Final Results
Press Release
4 June 2019
Vianet Group plc
("Vianet" or the "Group")
Final Results
and Dividend Declaration
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 2019.
Financial highlights (continuing operations)
· Revenue increased 7.7% to £15.68 million (2018: £14.56 million)
· Recurring revenues remain strong at 94% (2018: 90%) helped by the Vendman acquisition in October 2017 and transition from capital to annuity based sales in Smart Machines
· Gross margin stable at 68% (2018: 70%)
· Operating profit pre-amortisation of intangibles, share options and exceptional costs up 6.4% to £3.85 million (2018: £3.62 million)
· Profit before taxation was up 29.8% to £2.66 million post exceptional items (2018: £2.05 million) with profit after tax up 37.1% to £2.48 million (2018: £1.81 million)
· Basic earnings per share (before tax) and post-exceptional costs at 8.87 pence (2018: 6.55 pence)
· Final dividend of 4.00 pence per share proposed giving a full year total of 5.70 pence per share (2018: 5.70 pence)
Divisional highlights
· Smart Machines adjusted operating profit of £1.41 million, including Vendman contribution of £0.42 million, grew 31.8% from £1.07 million
· Smart Machines added 10,285 new connected devices (2018: 4,490) - helped by the highly encouraging roll-out of cloud-based contactless payment solutions
· Smart Zones adjusted operating profit of £4.48 million (2018: £4.53 million) - a positive result given the headwinds in the UK pub sector
· Smart Zones Technology upgrades in 1,901 pubs creating IOT hubs, with a further 2,497 in pipeline for 2019/20
· £3.0 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 very good progress towards delivery of earnings breakthrough and continues to benefit from the focus on exploiting growth opportunities in the Smart Machines division whilst managing performance back towards growth in the Smart Zones division. In the year, the historic Smart Zones contribution was broadly maintained whilst Smart Machines would have nearly doubled its operating profit had the Group not moved to an annuity-based model for new sales. As it was, reported profits rose by 31.8% to £1.41 million.
"Smart Machines leading end-to-end product suite and established presence is continuing to create strong growth opportunities across the UK and Europe. The combined business capability and potential of Vianet and Vendman and the roll-out of the global coffee contract will be transformational for this division. In the coming years, Smart Zones will aim to maintain contribution from the UK pub market whilst taking advantage of growth prospects in the significant US hospitality sector.
"Our recent £3.0 million investment in cloud infrastructure and mobile technology will help develop existing revenues in both Smart Zones and Smart Machines, and also provide the scalability, flexibility and speed to support rapid growth in existing and potential new verticals.
"The Group is in good shape to deliver strong earnings growth and enters FY2020 with solid momentum and focus on our exciting opportunities."
- 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, 4 June 2019 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, CEO
Mark Foster, CFO
Tel: +44 (0) 1642 358 800
Cenkos Securities plc
Stephen Keys / Cameron MacRitchie
Tel: +44 (0) 20 7397 8900
Media enquiries:
Yellow Jersey PR
Sarah Hollins
Henry Wilkinson
Tel: +44 (0)7764 947 137
Tel: +44 (0)7951 402 336
Chairman's Statement
Performance
The Group has made very good progress towards delivery of earnings breakthrough and continues to benefit from the focus on exploiting growth opportunities in the Smart Machines division whilst managing performance back towards growth in the Smart Zones division.
Group turnover was £15.68 million (2018: £14.56 million) whilst adjusted operating profit was up by 6.4% at £3.85 million. Group profit before taxation was £2.66 million post exceptional items (2018: £2.05 million), with profit after tax up 37.1% to £2.48 million. Our Smart Machines division's move from capex to annuity only model had the short term impact of effectively reducing FY2019 turnover by £0.97 million and profit by some £0.5 million. However, there will be a significant benefit to future recurring incomes and visibility of profits.
There was an exceptional net credit of £0.22 million (2018: net cost £0.54 million) principally related to the Vendman acquisition deferred consideration release which was offset by staff rationalisation and network obsolescence costs. Whilst there has been a £0.53 million write back on the Vendman earn out provision, we are delighted with the progress and momentum against a stretching earn out which will be finalised at end H12020.
Basic pre-tax earnings per share was 8.87p (2018: 6.55p) with underlying earnings per share, pre deferred tax release growing 6.4% to 6.97p (2018: 6.55p).
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 gross dividend for the year of 5.70 pence (2018: 5.70 pence). Subject to approval from shareholders at the Annual General Meeting, to be held on 26 June 2019, the final dividend will be paid on 26 July 2019 to shareholders on the register as at 14 June 2019.
Board and Staff
The Board's composition and effectiveness is continually evaluated to ensure it has the optimum balance of experience and independence to support the business and our growth ambitions.
We continue to evaluate and develop the Group's management team who are focused on executing against the exciting growth opportunities for Vianet's IOT expertise and technology.
In an age where change is a constant, our people continue to engage with their usual enthusiasm, commitment, and openness which helps underpin the Group's excellent reputation with customers. Whilst there is still much to be done the Group's recent annual engagement survey demonstrated further year-on-year progress and valuable feedback from employees.
Thank you once again to all employees and my Board colleagues for their ongoing commitment and enthusiasm in taking the Group forward.
Outlook
The Group is in good shape to deliver strong earnings growth and enters FY2020 with solid momentum and focus on our exciting growth opportunities.
· Smart Machines' leading end-to-end product suite and established presence is continuing to create strong growth opportunities across UK and Europe, having already gained long term contracts with major global and national customers.
· The synergy and momentum resulting from the now integrated Vendman acquisition is exciting and together with full realisation of the global coffee company contract will transform Smart Machines' earnings over the next few years. Encouraging progress has been made on the significant opportunity to overlay circa 200,000 Vendman mobile connections with higher value Smart Machines connections and also to cross sell from the integrated portfolio to existing customers and vending operators internationally.
· The Group is making further sales investment to accelerate growth in the areas above, with extra focus on developing our capability and accelerating growth from our leading position in coffee device and contactless payment device connectivity where sales momentum will continue to grow.
· The recent circa £3.0 million investment in cloud infrastructure and mobile technology will help develop existing revenues in both Smart Zones and Smart Machines, and also provide the scalability, flexibility and speed to support rapid growth in existing and potential new verticals.
· Smart Zones will carry momentum from several major customer technology upgrade programs through FY2020 and will benefit greatly from our recent infrastructure investment. This will allow Smart Zones to maintain existing profit contribution whilst taking advantage of improving growth prospects both in the UK pub market and significant US hospitality market.
· The Group has high levels of recurring income and strong cash flow. This operational 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 growth strategy is the right one and that the Group is well positioned to deliver earnings growth and expand the future strategic options for Vianet.
James Dickson
Chairman
Chief Executive's Report
Vianet delivers value to its customers by providing analytics and insight on asset utilisation and performance allowing more informed decision making and business change.
Whilst we currently operate two business divisions: Smart Zones (drinks monitoring and machine management services) and Smart Machines (unattended retail machine ERP and mobile software, telemetry and contactless payment solutions), the technological capability and expertise we have developed supports our market leading ability to connect to any asset with a digital output.
With over 300 customers including several global blue-chip companies with nearly 230,000 devices (excluding circa 200,000 Vendman mobile connections) connected to our 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 to identify means of improving asset utilisation and performance, Vianet is well placed to grow its position in this rapidly developing area.
Whilst hardware and connectivity still has a significant role to play in enabling the connection to an asset, our IOT platform has evolved so that our connectivity capability is agnostic and can connect to any device. Therefore, we do not always need to connect to one of our own Smart Devices. Our ability to harvest data on customer asset performance enables the creation of powerful analytics and insight and this will drive sustained business growth over the coming years.
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 Elavon and Creditcall.
In the last year the Group has continued to take positive steps forward to execute key elements of our growth plan and secure new business.
We were delighted to win a tender process with an existing strategic Smart Machines customer for the supply of connected devices, analytics and insight data. Due to a significant IT project undertaken by the customer, this project will complete in June 2019 and we are confident of progress in the coming year.
Simultaneously, as part of our strategic intent to accelerate growth and improve revenue visibility, we have migrated from a largely capital sales based model to an annuity only model where hardware is effectively leased and not purchased. Whilst this will drive increased quality of earnings in the medium to long term, in the short term it has as expected adversely impacted both turnover and profitability, accounting for just over £967,000 turnover and circa £500,000 profit on a like for like basis when compared to last year.
With the integration of Vendman into the Group complete, progress is now being made towards improving the operating performance of the combined business. As a positive demonstration of this, Vendman contributed £0.42 million of adjusted operating profit in the year, underpinning our belief that the combination of Smart Machines and Vendman has a compelling strategic, commercial and financial rationale.
As well as establishing a market-leading portfolio of solutions for unattended retail through the combination of expertise, products and services, the acquisition of Vendman opened up significant cross-selling opportunities for Vianet IOT connectivity, real-time data and contactless payment technology. In the machine estate there are circa 200,000 vending machines, the vast majority of which are not connected via a real-time device. To date we have connected almost 6,000 (circa 3%) of these machines, which leaves significant conversion headroom that we will exploit in the coming year through increased investment in sales and commercial resource in the field.
At the same time, the presence of Vianet and Vendman in Continental Europe is enhancing our route to market and distribution opportunities through establishing a strong network and footprint with distributors and machine suppliers.
To enable and accelerate our strategy we have also invested nearly £3.0 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 2019.
Operating Review
Smart Zones
The performance of our drinks monitoring and support services solutions for the UK Hospitality sector was maintained year-on-year in respect of operating profit and remains resilient with high gross margins and strong cash generation.
In the period technology upgrades, creating IOT hubs, were completed in 1,901 pubs with a further 2,497 in the pipeline for FY2020. This progress in deploying new technology capability has delivered a healthy pipeline of installs for the next 18 months or so, all of which will help sustain the divisional contribution. However, our customers focus on this high level of activity together with the encouraging extensions to managed pub company commercial pilots resulted in only 88 new site installations.
UK pub disposals have continued but slowed (2019: 911 and 2018: 1,420) with the resulting impact being a net reduction of 823 (2018: 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 circa 202,000 devices in circa 12,600 premises in the UK and USA. The data sent from these devices forms the core of the insight and analytics delivered to customers via our website and mobile applications.
The combination of strong recurring revenues from long term contract extensions, robust cost base and margin management offset the lower turnover resulting from pub closures enabling the Group to maintain profit contribution year-on-year.
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 will continue to use this as the basis for discussion with our customers to unlock business improvement opportunities.
In summary, Smart Zones is focussed on maintaining performance despite the UK pub market headwinds, and executing the roll-out of technology upgrades to give us a platform to provide new analytics and insight to customers.
In our Vianet Americas business we have made more progress with 43 new installations, resulting in year-on-year operating performance being effectively breakeven and an expectation of delivering a maiden profit during FY2020.
The quality of our installation base in Blue Chip operators, including AMC Theatres, across the USA continues to be a source of encouragement and provides strong validation of the value provided by iDraught™. The expectation for the coming year is to secure a new large-scale operator which will further cement our position in the USA.
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 progress is slower than we would wish, we recognise that for a relatively modest level of investment in what is the world's largest multiple operator market, a breakthrough could be significant. Therefore, the Group remains committed to establishing a significant US profit centre.
Overall, the Board is confident that the Smart Zones division will maintain its existing profit contribution whilst also being positioned to benefit from the encouraging growth prospects in both the UK managed pub and US hospitality sectors.
Smart Machines
Smart Machines made great progress in the year as our strategy of securing agreements with significant industry players who have the scale to invest and the sophistication to unlock the value of our technology provides, continues to fuel growth.
With the acquisition of Vendman and the resulting access to new customers and markets, we are now driving growth in the unattended retail market by delivering market leading analytics and insight in premium coffee and snack & can channels from new device connections to assets and roll-out of contactless payment capability.
We are very much encouraged by the sales growth in these channels and our securing of vending contracts with major industry customers whose businesses are growing. This resulted in Divisional adjusted operating profit growth of 31.8% to £1.41 million in the year. Profit before tax however increased to £0.98 million (2018: £0.36 million). Whilst this was helped by a Vendman contribution of £0.42 million, it was a highly encouraging performance as the move from capex to annuity only model effectively reduced FY2019 profit by some £0.5 million.
Our approach is to build an annuity only income model to drive sales and strengthen recurring revenues, improving the quality and visibility of earnings in the medium to long term. Whilst a positive step for the business, this transition adversely impacted turnover in Smart Machines by around £967,000 in the year and also increased our upfront cash requirements. The approach will result in higher quality income streams and profits in the coming years and we have already seen our recurring revenues grow to 87% of Smart Machines income in the year, an increase of 13% on last year's figure of 74%.
Total Smart Machine connections grew by just under 10,300 devices in the year helped by the highly encouraging roll-out of our cloud based contactless payment solution.
The contactless payment solution, which is driving increased sales of around 20% per unattended retail machine for our customers, increased its own footprint by 140% in the year. This strong acceleration is also unlocking further growth opportunities through the provision of analytics and insight to machine operators who wish to unlock more value available from their assets and overall operations.
The strategic contract with a global coffee customer for the roll-out of connected coffee machines to a large part of its estate was slower than anticipated in the year due to software development the customer had to undertake to scale the program. We anticipate the roll-out will begin in the coming months and the phased deployment of this contract across ten further countries in Europe, Australia and New Zealand will gather pace.
From breakeven at acquisition Vendman contributed £0.42 million in the year as it took advantage of cross selling opportunities presented by IOT connectivity and real-time data to customers including the roll-out of Vianet contactless payment technology.
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, continues to be supported by leading industry partners Elavon and CreditCall. This will further evolve in the coming year when we introduce a master merchant capability allowing us to speed up the on-boarding of customers for payment capability. Contactless payment remains a very attractive solution to the 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.
In summary, we expect that Vianet's analytics and insight delivered from data harvested from unattended retailing assets and evolving contactless payment solution will provide exciting growth opportunities in years to come.
R&D Investment
The Group continues to invest in development activity with accelerated activity in the year. Development has broadly covered enhancements to customer experience. Revenue generating analytics and insights from new platforms allows us to leverage new revenue streams, and provide the ability to operate a cloud based self-service model. Simultaneously, it has allowed us to gradually migrate from legacy systems and software to a cloud based technology environment. The accelerated investment took the total investment to date in the cloud platform, analytics and mobile technology to almost £3.0 million.
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 strongly placed to benefit from its proven track record of converting data gathered from its IOT devices into analytics and insight that drive better decision making for customers aimed at improving asset utilisation and increased profitability.
The combined business capability and potential of Vianet and Vendman and the rollout of the global coffee contract will be transformational for the overall Smart Machines business and should drive significantly increased earnings for the Group in the next few years. In tandem, we continue to grow and develop strong working relationships with significant industry players where contracted recurring revenues now represent 94% of turnover.
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 £3.0 million in new cloud and mobile capability, and the transformation of legacy systems, will facilitate rapidly scalable growth in existing and new vertical markets. Our contactless payment solution and introduction of a master merchant scheme, combined with rapid adoption of technology by brand owners and machine operators, positions this division for strong underlying growth.
The Smart Zones division will aim to maintain contribution from the UK pub market helped by new technology upgrades in existing customers, which will enhance existing income streams and unlock further opportunities for enhanced analytics and insight. In parallel, we are encouraged by managed operator growth prospects here and in the USA where we expect to expand our iDraught footprint through existing and new 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 assets.
Stewart Darling
Chief Executive Officer
Financial Review
Growing Profitability
Group operating profit, pre-exceptional costs, was up 6.4% to £3.85 million (FY2018: £3.62 million).
Gross margin remained healthy year-on-year at circa 68%.
The average operating profitability per connected device has grown 10.2% to £16.80 (2018: £15.24).
This KPI 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.
Turnover
Turnover increased by 7.7% helped by the integration of Vendman which offset a moderate decline in Smart Zones and the £0.97 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 94% (2018: 90%), helped by the Vendman integration and the transition from capital to annuity based sales in Smart Machines.
The average recurring revenue per connected device has grown 7.4% to £55.12 (2018: £51.31).
Performance Summary
PBT was up 3.9% at £2.13 (2018: £2.05 million). The table below shows the performance of the Group:
FY2019
FY2018
Change %
Revenue
£15.68m
£14.56m
7.7
Operating profit(a)
£3.85m
£3.62m
6.4
Operating profit
£4.08m
£3.08m
32.2
Operating profit(b)
£3.55m
£3.08m
15.3
Profit before tax(b)
£2.13m
£2.05m
3.9
Profit after tax
Basic EPS(c)
£2.48m
6.97p
£1.81m
6.55p
37.1
6.4
Basic EPS
Dividend per share
8.87p
5.70p
6.55p
5.70p
35.4
Net (debt)/cash(d)
£(1.20)m
£1.20m
a) Pre-exceptional items, share based payments and amortisation
b) Pre deferred consideration
c) Profit after tax pre deferred consideration release
d) Cash at bank after deduction of bank loans including loan for the acquisition of Vendman Systems Limited
Exceptionals
FY2019
'£000
FY2018
'£000
People and office rationalisation
163
260
Network obsolescence costs
107
43
Acquisition costs
-
231
Deferred consideration release
(530)
-
Other items
38
4
Total
(222)
538
Current year total relates to deferred consideration release in relation to the Vendman acquisition, offset by staff rationalisation costs and network obsolescence 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 (2018: 5.70 pence).
On a profit after tax basis, dividend cover has increased to circa 1.56 (2018: circa 1.16), but on an underlying basis cover increased to 1.23. We expect the cover to improve further in FY2020 as a result of our anticipated growth in profits and reduction in exceptional costs.
Cash
Net cash generation pre working capital movements and LTIP taxation payments was £3.99 million (2018: £3.52 million), growth of 13.3% (including share based payments and asset disposals). This year we have invested £0.6 million in increased stock levels to fulfil annuity sales and secure supply chain stocks of key electronic components in a volatile world component market.
This, together with; the impact of a move away from Capex to annuity modelling; externally contracted investment in our new IOT platform; and the incorporation of the Vendman working capital metrics, has meant after working capital movements but before LTIP taxation payment an operational generation of £2.04 million versus £2.97 million last year. Operational generation post LTIP taxation payment was £1.54 million (2018: £2.97 million).
We reported at the half year that H2 would start to see an upturn in cash generation with less investment in stock and external contractors - the working capital position reduced to a £0.76 million impact in H2 compared to £1.19 million in H1, impacted mainly by creditor payments from H1 commitments. This was as forecast and as expected given the transition the business has been going through.
The cash generated was principally used to service accelerated R&D investment, dividend payment and servicing of new borrowings leaving an outflow of £3.12 million (2018: £0.6 million outflow). As expected, however, the H2 outflow was significantly reduced at £0.52 million compared to H1 of £2.60 million.
At the year-end, pre mortgage and the acquisition loan, the Group had net cash including overdraft of £0.80 million (2018: £3.92 million), borrowings of £1.99 million (2018: £2.65 million), and net debt of £1.20 million (2018: net cash £1.20 million) impacted by the £2 million term loan associated with the Vendman acquisition and cloud based platform investment. FY2020 should see an improved cash performance result.
Divisional Performance
Currently the Smart Zones division principally consists of the core beer monitoring business (including the US) and gaming machine monitoring.
Smart Zones
FY2019
FY2018
Change %
Turnover
£11.00m
£11.45m
(3.9)
Operating profit(a)
£4.48m
£4.53m
(1.1)
Profit before tax
Total connected devices
£4.06m
202,513
£4.05m
218,663
0.2
(7.4)
New Installation sales
88
245
(64.1)
YE Net premises(b)
c12,600
c13,570
(7.1)
iDraught penetration(b)
27.0%
28.0%
a) Pre-exceptional items, share based payments and amortisation
b) UK, USA and Europe only
Recurring revenue per device has increased 8.9% to £52.99 (2018: £48.67) 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 increased circa 8.0% to £18.03 (2018: £16.70) reflecting flat profitability against a lower estate size.
The Smart Zones division has performed fairly against a challenging pub market backdrop that resulted in a net estate reduction of 823 sites (2018: 1,175) to circa 12,300 (2018: 13,125) in the UK and Europe.
Against this backdrop, Smart Zones maintained its operating profit at £4.48 million (2018: £4.53 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.
FY2019
FY2018
Change %
Turnover (b)
£4.68m
£3.12m
50.0
Operating profit (a, b)
£1.41m
£1.07m
31.8
Profit before tax
Vendman (d)
£0.98m
£0.42m
£0.36m
£0.12m
172.2
250.0
New Telemetry connections
2,485
1,660
49.7
New Contactless connections
7,800
2,830
175.6
YE Net estate (c)
c27,000
c18,000
(10.0)
a) Pre-exceptional items, share based payments and amortisation on a continuing basis.
b) Included in the above FY2019, Vendman contributed £2.88m in turnover and £0.42m in operating profit
c) Excludes circa 200,000 Vendman connections.
d) Vendman contribution is pre-exceptional items, share based payments and amortisation on a continuing basis, and included in the operating profit figure
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 4,970 ahead of FY2018. The estate figures reflect the net movement shown above.
Average recurring revenue per device decreased 12.9% to £71.11 (2018: £81.66) principally due to the mix of estate, with the shift towards annuity based revenue streams along with increased penetration of contactless solutions.
Average adjusted operating profit per device (above) has increased 4.4% to £52.13 (2018: £49.93) 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 (2018: £nil). The Group will continue to utilise the available tax losses carried forward into FY2020. In the financial year under review, the tax line includes a deferred tax charge of £0.18 million (2018: £0.24 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 after tax from continued operations pre deferred consideration release earnings per share is 6.97 pence for FY2019 compared to 6.55 pence for FY2018.
Basic EPS was 8.87 pence compared to 6.55 pence in 2018.
Balance sheet and cash flow
The Group balance sheet remains strong.
The Group generated operating cash flow (pre LTIP tax payment) of £2.04 million (2018: £2.97 million) with FY2019 impacted by the continued shift to annuity revenue streams and stock investment as well as external contractor investment in our cloud based platform.
The cash generated in FY2019 was utilised to invest in the Group's accelerated technology plans through research and development, to service borrowings and to fund dividend. At the year-end, the Group had borrowings of £1.99 million (2018: £2.65 million), and net debt of £1.20 million (2018: net cash £1.20 million), which was forecast to occur given the transition the Group is going through.
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.
Mark Foster
Chief Financial Officer
Consolidated Statement of Comprehensive Income for the year ended 31 March 2019
Before Exceptional 2019
£000
Exceptional 2019
£000
Total
2019
£000
Before Exceptional 2018
£000
Exceptional 2018
£000
Total
2018
£000
Note
Continuing operations
Revenue
15,683
-
15,683
14,561
-
14,561
Cost of sales
(5,023)
-
(5,023)
(4,381)
-
(4,381)
Gross profit
10,660
-
10,660
10,180
-
10,180
Administration and other operating expenses
(6,805)
222
(6,583)
(6,559)
(538)
(7,097)
Operating profit pre amortisation and share based payments from continuing operations
3,855
222
4,077
3,621
(538)
3,083
Intangible asset amortisation
(1,192)
-
(1,192)
(865)
-
(865)
Share based payments
(132)
-
(132)
(142)
-
(142)
Total administrative expenses
(8,129)
222
(7,907)
(7,566)
(538)
(8,104)
Operating profit
2,531
222
2,753
2,614
(538)
2,076
Net finance costs
(95)
-
(95)
(28)
-
(28)
Profit from continuing operations before tax
2,436
222
2,658
2,586
(538)
2,048
Income tax expense
1
(178)
-
(178)
(239)
-
(239)
Profit and other comprehensive income for the year
2,258
222
2,480
2,347
(538)
1,809
Earnings per share
Total
- Basic
8
8.87p
6.55p
- Diluted
8
8.80p
6.54p
Continuing Operations
- Basic
8
8.87p
6.55p
- Diluted
8
8.80p
6.54p
Consolidated Balance Sheet at 31 March 2019
2019
£000
2018
£000
Assets
Non-current assets
Goodwill
17,975
17,975
Other intangible assets
4,875
4,529
Property, plant and equipment
3,503
3,166
Deferred tax asset
313
391
Total non-current assets
26,666
26,061
Current assets
Inventories
1,670
1,086
Trade and other receivables
3,669
3,246
Cash and cash equivalents
1,788
4,324
7,127
8,656
Total assets
33,793
34,717
Equity and liabilities
Liabilities
Current liabilities
Trade and other payables
4,138
4,416
Borrowings
1,652
1,062
Tax
-
20
5,790
5,498
Non-current liabilities
Other payables
139
1,339
Borrowings
1,333
1,994
Deferred tax
972
872
2,444
4,205
Equity attributable to owners of the parent
Share capital
2,874
2,872
Share premium account
11,530
11,519
Share based payment reserve
314
483
Own shares
(754)
(1,114)
Merger reserve
310
310
Retained profit
11,285
10,944
Total equity
25,559
25,014
Total equity and liabilities
33,793
34,717
Consolidated Statement of Changes in Equity for the year ended 31 March 2019
Share capital
Share premium
account
Own
shares
Share
based
payment
reserve
Merger
reserve
Retained profit
Total
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 2018
2,872
11,519
(1,114)
483
310
10,944
25,014
At 1 April 2018
2,872
11,519
(1,114)
483
310
10,944
25,014
Dividends
-
-
-
-
-
(1,585)
(1,585)
Issue of shares
2
11
-
-
-
-
13
Share based payments
-
-
-
132
-
-
132
Share option forfeitures
-
-
-
(2)
-
2
-
LTIP exercise
-
-
360
(299)
-
(556)
(495)
Transactions with owners
2
11
360
(169)
-
(2,139)
(1,935)
Profit and total comprehensive income for the year
-
-
-
-
-
2,480
2,480
Total comprehensive income less owners transactions
2
11
360
(169)
-
341
545
At 31 March 2019
2,874
11,530
(754)
314
310
11,285
25,559
Consolidated Cash Flow Statement for the year ended 31 March 2019
Note
2019
£000
2018
£000
Cash flows from operating activities
Profit for the year
2,480
1,809
Adjustments for
Net interest payable
95
28
Income tax expense
178
239
Amortisation of intangible assets
1,192
865
Depreciation
450
379
Payment of deferred consideration
(21)
-
Deferred consideration release
(530)
-
Loss on sale of property, plant and equipment
14
61
Share based payments
132
142
Tax payment in respect of LTIP
(495)
-
Operating cash flows before changes in working capital and provisions
3,495
3,523
Change in inventories
(583)
219
Change in receivables
(423)
(537)
Change in payables
(948)
(126)
Change in provisions
-
(105)
(1,954)
(549)
Cash generated from operations
1,541
2,974
Net cash generated from operating activities
1,541
2,974
Cash flows from investing activities
Purchase of subsidiary
-
(1,855)
Cash acquired with subsidiary
-
(62)
Purchases of property, plant and equipment
(801)
(398)
Purchases of intangible assets
(1,538)
(1,610)
Net cash used in investing activities
(2,339)
(3,925)
Cash flows from financing activities
Net interest payable
(95)
(28)
Issue of share capital
13
262
Share options exercised
-
102
New bank loans
-
2,000
Repayments of borrowings
(659)
(450)
Dividends paid
2
(1,585)
(1,562)
Net cash used in financing activities
(2,326)
324
Net decrease in cash and cash equivalents
(3,124)
(627)
Cash and cash equivalents at beginning of period
3,922
4,549
Cash and cash equivalents at end of period
798
3,922
Reconciliation to the cash balance in the Consolidated Balance Sheet
Cash balance as per consolidated balance sheet
1,788
4,324
Bank overdrafts
(990)
(402)
Balance per statement of cash flows
798
3,922
Notes to the financial statements
1. Taxation
Analysis of charge in period
2019
£000
2018
£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
174
230
- Amendment re-recognition of losses
4
9
Income tax charge
178
239
Reconciliation of effective tax rate
The tax for the 2019 period is lower (2018 was lower) than the standard rate of corporation tax in the UK (2019: 19% and 2018: 19%). The differences are explained below:
2019
£000
2018
£000
Profit before taxation
- Continuing and discontinuing operations
2,658
2,226
Profit before taxation multiplied by rate of corporation tax in the UK of 19% (2018: 19%)
505
423
Effects of:
Other expenses not deductible for tax purposes
44
35
Non taxable income
(101)
-
Amortisation of intangibles
189
123
Movement on losses
55
120
Adjustments for prior years
4
9
Research and development
(518)
(471)
Total tax charge
178
239
2. Ordinary dividends
2019
£000
2018
£000
Final dividend for the year ended 31 March 2018 of 4.0p (year ended 31 March 2017: 4.0p)
1,108
1,096
Interim dividend paid in respect of the year of 1.70p (2018: 1.70p)
477
466
Amounts recognised as distributions to equity holders
1,585
1,562
In addition, the directors are proposing a final dividend in respect of the year ended 31 March 2019 of 4.0p per share. If approved by shareholders, it will be paid on 26 July 2019 to shareholders who are on the register of members on 14 June 2019. Total dividend payable 5.70p (2018: 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 2019 before exceptional costs increased to 8.08 pence compared to 8.50 pence at March 2018.
Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders (£2,480k) 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.
2019
2018
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
2,480
8.87p
8.80p
1,809
6.55p
6.54p
Pre-tax profit attributable to equity shareholders
2,658
9.51p
9.43p
2,048
7.42p
7.40p
Pre-tax, pre-exceptional profit attributable to equity shareholders
2,436
8.71p
8.65p
2,586
9.36p
9.35p
Post-tax, pre-exceptional profit attributable to equity shareholders
2,258
8.08p
8.01p
2,347
8.50p
8.48p
Post-tax profit, pre-deferred consideration release attributable to equity shareholders
1,950
6.97p
6.92p
1,809
6.55p
6.54p
Pre-tax profit, pre-deferred consideration release attributable to equity shareholders
2,128
7.61p
7.55p
2,048
7.42p
7.40p
2019
Number
2018
Number
Weighted average number of ordinary shares
27,959,532
27,613,719
Dilutive effect of share options
216,908
54,259
Diluted weighted average number of ordinary shares
28,176,440
27,667,978
4. Exceptional items
2019
£000
2018
£000
Bolton rationalisation
-
(19)
Acquisition costs
29
231
Corporate restructuring and transitional costs
163
260
Deferred consideration release
(530)
-
Network obsolesce costs
107
43
Other
9
23
(222)
538
Acquisition costs relate to fees paid to corporate advisors in respect of prospective acquisitions.
Corporate restructuring and transitional costs relate to the transition 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.
The deferred consideration release refers to the acquisition of Vendman Systems Limited to where a proportion of the consideration was based upon results of the company for two years post acquisition. This balance has now been fair valued at the year end with the change in fair value recognised through the income statement
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.
t 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. Except for the adoption of IFRS15 and IFRS9, the principal accounting policies of the Group have remained unchanged from those set out in the Group's 2018 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 audit of the statutory accounts of Vianet Group plc for the year ended 31 March 2019 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement. The comparative information 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 2019 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 2018 have been delivered to the Registrar of Companies.
6. Annual General Meeting
The Annual General Meeting will be held on 26 June 2019 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 EANKDEAFNEFF
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