Altitude Group Regulatory News (ALT)

Altitude Group plc

("Altitude", the "Group" or the "Company")

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

Revenues Increase & AIMpro Tech Suite Gains Traction

Altitude Group plc (AIM: ALT), the operator of a leading marketplace for personalised products, announces its audited results for the year ended 31 December 2017.

Financial highlights

· Revenues increased by 41.2% to £6.1m (2016: £4.3m) including first time revenue contribution of £2.1m from the acquisition of certain assets and business undertaking of AdProducts.com Limited ("ADP") in early June 2017

· Technology revenues maintained at £2.4m (2016: £2.4m), with initial ecommerce/throughput revenue recorded in H2 of £0.1m

· Gross profit increased by £0.8m to £4.3m (2016: £3.5m) including £1.2m from ADP

· Technology gross margin maintained at 86.3% (2016: 86.2%)

· Adjusted administrative expenses* (excluding ADP) decreased by £0.4m or 14.1% to £2.5m (2016: £2.9m)

· Adjusted operating profit* £0.9m (2016: £0.6m) an increase of £0.3m or 60.7%. First time ADP contribution of £0.3m

· Profit before taxation £0.1m (2016: £0.1m)

· £2.5m new equity raise (before expenses) to finance and accelerate future growth in the US and UK, including the £0.8m acquisition of ADP, a UK based supplier of promotional products

· Group remains free of bank borrowing, with net cash resources of £2.0m (2016: £0.7m)

* before share-based payment charges, amortisation of intangible assets and exceptional charges.

Operational Highlights

· Nichole Stella appointed as US based Chief Executive

· ChannlPro developed as a "white label" cloud based ecommerce and traditional CRM order management system for AI Mastermind (AIM"), branded as the AIMProTech Suite ("AIMPro")

· andEverything.com soft launched in the UK in December. US launch planned in 2018

· Acquisition of ADP, a UK based supplier of promotional products

Progress Update

· AIMPro officially launched in late January 2018 to the AIM buying group, the largest and fastest growing promotional products distributor group in the US, now comprising 1,704 distributors with aggregate revenues of $1.5bn

· High engagement with AIM members as at 28 May 2018:

· First 57 AIM members placing live orders, 37 of whom (65%) have placed multiple orders

· $2.8m sales orders processed through AIMPro; average order value $1,258

· 51 AIM preferred suppliers signed up (from 28 in March)

· 462 (27%) of AIM members currently actively engaging with US team, of which 80 have been on-boarded

· AIM partnership agreement extended and enhanced

· Recruitment of a permanent management team in Philadelphia

· Two-year partnership to launch ChannlPro signed with NAPCO Media in the US

· Equity fund raise in February 2018 of £1.5m to accelerate rollout of AIMPro

· Graeme Couturier appointed as Group Chief Financial Officer

Non-executive Chairman, Peter Hallett commented:

"We are pleased with the pace of progress currently being achieved with our AIMPro Tech Suite, which remains our key focus and represents a substantial opportunity. In a short period of time the platform has been very well received with 462 (27%) of their 1,704 members either already on-boarded or actively engaging with our US team. AIM is the largest and fastest growing Promotional Products Distributor ("PPD") group in the US, adding a further 200 members since we initially partnered with them. This increase is fuelling our opportunity for growth without additional customer acquisition costs while driving throughput potential to $1.5 billion per annum, the largest aggregated point of access to the $23bn US market.

We are hugely excited by the multiple opportunities that our technology is enabling and which are now beginning to yield tangible evidence of value far in excess of our legacy business. With the recent appointment of a Group CFO and Nichole assuming the role of Chief Executive, the Board looks forward with confidence."

Enquiries:

Chairman's Statement

I am pleased to present the results for the year ended 31 December 2017, which saw the business make considerable operational progress, acquire the trade and certain assets of AdProducts.com Limited ("ADP") and increase Operating Profit (before share-based payment charges, amortisation of intangible assets, and exceptional charges) by £0.3m or 60.7% to £0.9m (2016 £0.6m). Profit before tax for the year was £125k (2016 £73k), an increase of 71.8%.

We are increasingly confident that ChannlPro, our "white label" cloud based combined CRM and Channl ecommerce platform, which is provided free of charge to promotional product distributors, will be a key enabler in moving the PPD industry online. It provides a conduit for suppliers, distributors and end users to seamlessly conduct existing offline business and move it online and further enables end users to easily personalise and purchase promotional products online, without human intervention.

Our main focus is the c$23 billion US personalised and promotional products, signage and printed wearables market ("the US market"), and to increase our share of this market's transactional throughput, both offline and online, across our ChannlPro platform. We have made encouraging progress in this regard during 2018, details of which are set out below, and we expect this to continue and accelerate.

Our partnership with AIM has been extended and the AIMPro Tech Suite ("AIMPro") has become our first white-labelled solution. We are now focused on on-boarding AIM members and suppliers as rapidly as possible and helping them to transact all orders through the platform. Current progress is outlined below. In March 2018, we agreed our second white label partnership with NAPCO Media details of which are outlined below, but which is also scheduled to launch later this year.

The appointment of Nichole Stella as President of US Operations on 13 September 2017 has been key to the rapid progress made in the US and with AIM in particular. Nichole brings a huge amount of knowledge and experience of the US market and, thanks to her being based permanently there, is singularly focussed on driving significant revenue through the ChannlPro platform. I am delighted with the progress we have made under Nichole and her subsequent elevation to Chief Executive is a recognition of that and of the Group's commitment to the US.

On 17 May 2017 the Group successfully completed an equity fund raise of £2.5 million, the proceeds of which were used to finance and accelerate the growth of Channl in the US and UK, including the £0.8m acquisition of the trade and certain assets of ADP, a small UK based promotional product supplier. This facilitated the development of Channl in the UK as it has secured the Group's own UK supply source and secures access to distributors at a trading level. The Group also invested in andeverything.com, which we believe to be the world's first promotional products aggregator site, which we soft launched in the UK in December 2017 ahead of a planned US launch later in 2018.

On 28 February 2018, the Company announced a placing of 2,500,000 new Ordinary Shares in the Company to raise £1.5 million at a price of 60 pence per Ordinary Share which were admitted to trading on 19 March 2018. The proceeds are being used to accelerate the roll out of AIMPro, by expanding the US workforce to increase the rate of on-boarding, monitoring, customer support and service processing capacity of both AIM members and suppliers.

AIMPro Progress

In the US, the AIM buying group continues to grow rapidly and currently comprises 1,704 members with aggregate annual revenues of approximately US$1.5bn, representing almost 6.5% of the US market. It is by far the largest distributor group in the US market, and a natural route for significant engagement and the roll out of ChannlPro.

AIMPro is Altitude's first white-labelled ChannlPro partnership solution. It is provided free of charge and exclusively to AIM members, as a benefit arising from their membership of AIM. AIMPro is also actively endorsed and promoted by AIM to its members.

AIMPro was formally launched to 200 attending AIM members at the national PPAI trade show in Las Vegas in January 2018 to an immediately positive reception. Indeed we are carefully managing demand within our current resources, as any marketing to the AIM members and suppliers prompts immediate response and excitement. Marketing email opening rates of 38.5% (industry average 14.2%), a click through rate of 8.9% (industry average 1.6%) and web site visits to the AIM info site doubled in May illustrating their enthusiasm for engagement.

It also became clear that on-boarding member distributors quickly was dependent on additional investment in marketing, educational and technical support. This gives members the confidence to use the platform and encourages them to utilise AIMPro's unique ecommerce functionality to enable them to compete against the potential online retail threat. We have therefore accelerated the recruitment of our own high quality engagement team, based in the US to provide the necessary intensity of support.

On-Boarding Update

More than 1.4 million items have been ordered through the platform on over 2,200 individual sales orders from the first 57 AIMPro members with total throughput of $2.8 million to date. 65% of active users have used the platform to place multiple orders.

A further 16 members became active users, placing orders, in May 2018, the first full month with the USA based customer success team in place, with recruitment continuing to on-board the 382 members now in the queue, an increase of 281 in the last three months.

Our initial target of ten leading supply partners has been exceeded with 51 contracted to the platform.

We are on target with agreed transaction fees with suppliers, with transaction fee revenue now beginning to accelerate as the number of signed up suppliers and related product data uploaded on to AIMPro achieves critical mass and the predictability of orders placed increases.

The speed of securing consistently transacting members and on-boarded, transaction fee paying preferred AIM suppliers is the key focus for Altitude to maximise its users and traction.

NAPCO Media

Altitude signed their second ChannlPro partnership on 28 February 2018 with the printing, packaging and publishing division of NAPCO, a leading and large North American digital media, marketing and publishing company. Under the terms of the two-year partnership agreement Altitude will provide a 'white labelled' ChannlPro platform to NAPCO that will mirror AIMPro.

The NAPCO partnership will provide Altitude with access to approximately 80,000 commercial print businesses of which approximately 12,500 are already active in the promotional product market. The white-labelled ChannlPro platform will provide these businesses with easy access to the promotional product industry and as they start to transact on the platform Altitude will generate revenue based on the same transaction fee model that was used for AIMPro.

Altitude is developing the white label ChannlPro platform for the NAPCO offering which will be able to leverage the same supplier database already partnering with Altitude on AIMPro. We expect to launch the new solution later this year.

andeverything.com

Andeverything.com has been developed as an Amazon-style marketplace for promotional products, which will be supported by search engine optimisation ("SEO") marketing spend, and provides an online marketplace aimed at end-users searching online for such products. Distributors list products on andeverything.com, attracted by the potential for end-user sales, for which they will pay Altitude a commission of around 12%.

The ability to list products on andeverything.com as an extension to the AIMPro Tech Suite, is attractive to AIM members, and we believe is a complementary and enhancing feature to the overall offer which will generate incremental revenue to both AIM members and the Group. Currently test launched in the UK our intention is to launch andeverything.com in the US later this year.

UK Business

The Group continues to provide various software applications to the promotional industry in the UK on a monthly recurring revenue 'software as a service' (SaaS) revenue mode, though our main focus is to increasingly move all applications to a share of throughput revenue model.

In addition, the acquisition of Ad Products enables us to support the product offering in UK Channl. Although our current focus remains the US, the Channl business in the UK is growing.

The company retains a commercial presence in the UK promotional products industry through delivery of an annual National Show each January, attended by approximately 1,500 distributor/reseller delegates. We also publish two leading trade catalogues Envoy and Spectrum. These businesses are in a declining market sector but nevertheless continue to provide a marketing showcase for our technology applications and generate cash.

Results

Group revenues increased by £1.8m to £6.1m (2016: £4.3m). The increase was primarily due to the acquisition of ADP which contributed incremental revenue of £2.1m. The underlying reduction of £0.3m was attributable to legacy publications and exhibitions activity.

Gross profit increased by £0.8m to £4.3m (2016: £3.5m). The increase was primarily due to the acquisition of ADP which contributed an incremental gross profit of £1.2m. The underlying gross margin reduction was attributable to publications and exhibitions.

Adjusted administration expenses* increased by £0.5m, or 16.6% to £3.4m (2016 £2.9m). ADP accounted for £0.9m of the increase, offset by continued cost reduction in the UK in exhibitions and publications.

Adjusted operating profit* increased by 60.7% to £0.9m (2016 £0.6m). ADP contributed an operating profit of £0.3m. Exceptional charges of £0.3m (2016 £0.1m) principally comprise employment termination costs and acquisition costs.

Included within administrative costs are software maintenance and development costs of £0.4m, (2016 £0.4m), as the Group has maintained its support and development of its proprietary software assets. In addition, the Group capitalised £0.5m of software development costs (2016 £0.3m). The current level of expensed and capitalised development costs is representative of an adequate maintenance level of expenditure and continuous improvement of proprietary software assets including Channl.com and artworktool.

The resulting operating profit and profit before tax for the period was £125k (2016 £73k), an increase of 71.8%.

Basic earnings per share were 0.25p (2016 0.17p) and fully diluted earnings per share were 0.24p (2016 0.15p) an increase of 51.6% and 59.5% respectively.

Cash outflow from operations for the year was £0.3m (2016: inflow £0.5m) reflecting the build-up in working capital following the purchase of certain assets and the business undertaking of ADP.

Net cash outflow from investing activities amounted to £1.4m (2016 outflow £0.3m), including the £0.7m purchase of certain assets and business undertaking of ADP and total capital expenditure on tangible and intangible assets of £0.1m and £0.6m respectively. Financing activities generated £2.9m (net of expenses) from the issue of shares for cash (2016 £0.2m), resulting in a net cash inflow for the year of £1.2m (2016: £0.4m).

The Group remains debt free and had cash resources as at 31 December 2017 of £2.0m (2016 £0.7m). In addition, on 28 February 2018 the Company issued further equity capital, raising approximately £1.4m (net of expenses).

* before share-based payment charges, amortisation of intangible assets and exceptional charges

Board Changes

On 25 January 2017 I became Executive Chairman with immediate effect and the following appointments were effected from 1 February 2017:

· Martin Varley appointed President

· Gellan Watt joined as Independent Non-Executive Director

· In addition it was announced that Richard Sowerby would step down from the Board with effect from 30 April 2017

On 1 February 2017 Sanjay Lobo was appointed to the Board as the UK based Managing Director. He subsequently resigned on 22 September following the appointment of Nichole Stella as President of USA Operations and her appointment to the main Board on 25 September 2017.

My appointment to Executive Chairman, was to particularly help develop the finance function and assist the team to accelerate the evolution of the business. This current three days per week commitment was intended to be temporary in the absence of a full time Chief Financial Officer.

Having joined the Company on 13 March 2018, Graeme Couturier, Chartered Accountant, was subsequently appointed to the Board as Chief Financial Officer on 3 April 2018. Graeme has significant experience across technology, ecommerce, retail and financial services. I am delighted to welcome him to the Board

On 10 May 2018, as a result of Graeme's appointment we announced that I will step back to Non-Executive Chairman from 5th June 2018.

In addition, we also announced that Nichole Stella will be appointed Chief Executive of the Group from 5th June 2018. Nichole has had a considerable impact on the Company since she joined us in September 2017 and I am delighted that she will now be assuming the role of Chief Executive Officer. We have seen first-hand that Nichole has the experience, knowledge and ambition to help Altitude meet its growth objectives and we are confident that we are best placed to achieve these ambitions under her leadership.

Outlook

We are pleased with the pace of progress currently being achieved with our AIMPro Tech Suite, which remains our key focus and represents a substantial opportunity. In a short period of time, the platform has been very well received with 462 (27%) of their 1,704 members either already on-boarded or actively engaging with our US team. AIM is the largest and fastest growing Promotional Products Distributor group in the US, adding a further 200 members since we initially partnered with them. This increase is fuelling our opportunity for growth without additional customer acquisition costs while driving throughput opportunity to $1.5bn per annum, the largest aggregated point of access to the $23bn US market.

We are hugely excited by the multiple opportunities that our technology is facilitating, and which are now beginning to yield tangible evidence of value far in excess of our legacy business. With the recent appointment of a new CFO and Nichole assuming the role of Chief Executive, the Board looks forward with confidence.

Peter J Hallett

Executive Chairman

4 June 2018

Consolidated Statement of Comprehensive Income 

for the year ended 31 December 2017

Consolidated Balance Sheet

as at 31 December 2017

Consolidated Cash Flow Statement

For the year ended 31 December 2017

Consolidated Statement of Changes in Equity

Notes

1 Financial information

The financial information set out herein does not constitute the Group's statutory accounts for the year ended 31 December 2017 or the year ended 31 December 2016 within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 December 2017 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. They will be delivered to the Registrar of Companies in due course. The comparative information in respect of the year ended 31 December 2016 is an extract from the published financial statements on which the auditor gave an unmodified report that did not contain statements under Section 498 (2) or (3) of the Companies Act 2006 and which have been filed with the Registrar of Companies.

The audited accounts will be posted to all shareholders in due course and will be available on the Company's website. A further announcement will be made at that time.

2 Basis of preparation

The financial information 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 2016 annual report except for the addition of an accounting policy for inventory.

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

The Accounts have been prepared under the historical cost convention. The Consolidated Financial Statements are presented in Sterling, rounded to the nearest thousand.

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other source. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

In preparing the condensed, consolidated financial statements, management are required to make accounting assumptions and estimates. The assumptions and estimation methods are consistent with those applied to the Annual Report and financial statements for the year ended 31 December 2016. Additionally the principal risks and uncertainties that may have a material impact on activities and results of the Group remain materially unchanged from those described in that Annual Report.

3. Operating Segments

The Group is currently organised as two operating segments:

• To enable the buyers and sellers of products to interact and trade, through the provision of technology, promotional products, catalogues and exhibition services, predominantly in the promotional merchandising and printing sectors ("Technology and Information")

• The sale of promotional products (AdProducts)

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. An operating segment's operating results are reviewed regularly by the Executive Chairman, who is regarded as the Chief Operating Decision Maker ("CODM") to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The directors have concluded that there are two operating segments on the basis of the information presented to the CODM. This position will be monitored as the Group develops and particularly as AdProducts is integrated vertically with the Technology and Information business.

4. Segmental Information

The results of the "Technology & Information" and "AdProducts" segment are as follows:

Segment assets consist primarily of property, plant and equipment, intangible assets, trade and other receivables and cash and cash equivalents. Segment liabilities comprise operating liabilities.

Capital expenditure comprises additions to property, plant and equipment and intangible assets, including additions resulting from acquisitions through business combinations.

The segment assets and liabilities at 31 December 2017 and capital expenditure for the year then ended are as follows. This information has not been disclosed by reporting segment as the information by segment is not regularly reported to the chief operating decision maker.

The Group's revenue from external customers and information about its segment assets (non-current assets excluding financial instruments, deferred tax assets and other financial assets) by geographical location are detailed below:

5. Exceptional expenses

A summary of the fair values of the assets acquired is set out below.

7. Basic and diluted earnings per ordinary share

The calculation of earnings per ordinary share is based on the profit for the period after taxation and the weighted average number of equity voting shares in issue as follows:

The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options. Additional shares were issued post year end as part of the share placing (note 7).

8. Post Balance Sheet Events

On 28 February 2018, the Company announced a placing of 2,500,000 new Ordinary Shares in the Company to raise £1.5 million at a price of 60 pence per Ordinary Share. These shares were admitted to trading on 19 March 2018.

The proceeds from the Placing will be used to:

· Accelerate the roll out of AIMPro by expanding the US and UK workforce to increase on-boarding, monitoring and customer support and service processing capacity of both members and suppliers

· Commence the roll out of the new ChannlPro solution to NAPCO- complete the 'white label' customisation for NAPCO and then commence the on-boarding, monitoring and customer support and service of members and suppliers throughout 2018

· Continue the commercial development of andeverything.com.