18 Jul 2017 07:00
18 July 2017
Castleton Technology plc
("Castleton", the "Group" or the "Company")
Final Results
For the Year Ended 31 March 2017
Castleton Technology plc (AIM: CTP), the software and managed services provider to the public and not-for-profit sectors, announces its audited final results for the year ended 31 March 2017.
Financial Highlights
· Revenue up 12% to £20.3m (2016: £18.0m) of which over 60% is recurring (2016: 58%)
· Adjusted EBITDA* up 22% to £4.4m (2016: £3.5m)
· Operating cashflow pre exceptionals up £4.0m to £4.6m (FY16: £0.6m)
§ Post exceptionals at £3.9m (FY16: outflow of £1.6m)
· Operating cash conversion pre exceptionals at 105% (FY16: 16%)
§ Post exceptionals at 86%
· Total net debt reduced from £10.0m to £9.4m
· Basic EPS up to 0.59p from a loss per share of (1.56p) for FY16
Operational Highlights
· Customer base expanded to over 750 customers (including commercial customers)
§ 35% of customers now taking more than one product or service
· Secured significant multi-year and multi-product contracts throughout the year, including:
§ 10 year contract with Clúid Housing Association in Ireland
§ 5 year contract with Arcon Housing Association in Manchester
§ 4 year contract with Wentworth Community Housing in Australia
· Integration of acquired businesses largely complete
· Dean Dickinson appointed CEO on 31 October 2016
· Paul Gibson today appointed Non-Executive Director with Ian Smith stepping down from the Board
· Completed two further contracts at year end:
§ 7 year contract with North Hertfordshire Homes for the provision of a fully managed hosted desktop service
§ 3 year contract with a community regeneration and housebuilding company for Castleton's scheduling software product
Dean Dickinson, CEO of Castleton, said: "Our focus this year has been on completing the integration of acquired businesses and putting in place the right support to enable the business to scale effectively and profitably. I am therefore pleased to report that this has been achieved whilst also improving all of our key financial metrics.
"The new financial year has started in line with expectations, with a large, engaged customer base, a strong order pipeline and the right structure in place to maximise this significant market opportunity."
*Before net finance costs, depreciation, amortisation, exceptional costs and share based payment charges
The Annual Report and Accounts for the year ended 31 March 2017 will be posted to shareholders at least 21 days prior to the AGM and a copy is available on the Company's website at www.castletonplc.com.
Enquiries:
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About Castleton Technology plc Castleton Technology plc is a leading supplier of complementary software and managed services to the public and not-for-profit sectors. The acquisitions of Montal, Documotive, Opus, Keylogic, Brixx, Impact Applications and Kypera bring together an exceptional suite of solutions, providing the foundation for this platform. Castleton works in partnership with its customers and resellers to help drive efficiencies whilst improving controls and customer service. www.castletonplc.com The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.
Chairman's Statement Dear Shareholder I am pleased to be able to report on another year of solid progress for Castleton. Following the acquisitive growth of FY2015 and FY2016, FY2017 has been a year of consolidation as we put in place firm foundations for the Group to build on its position as a successful niche player in software and IT managed services within the public sector market place. The acquisition of seven small companies brings great rewards but also significant integration efforts. Despite early teething issues previously noted, I'm delighted to say that the business has now dealt with these and as we enter our fourth year, we fully expect the company to demonstrate its growth potential. With respect to the year under review, I am encouraged that we have demonstrated our ability to improve the mix of sales as the Company has successfully transitioned to targeting multiyear SaaS software revenues whilst continuing to grow our overall sales. A key success in the year has been clearly demonstrating the highly cash generative nature of our business model which facilitated a reduction in our net debt. The Board There have been changes at Board level as the Group puts in place our foundations for future growth. Dean Dickinson joined the Board as CEO on 31 October 2016, replacing Ian Smith who became Executive Deputy Chairman. Dean was previously Managing Director of Advanced Business Solutions, part of Advanced Computer Software Group Limited (previously Advanced Computer Software plc ("ACS")), where he led the impressive growth of the Public Sector and Enterprise division following the acquisition of COA Solutions in 2010. Dean was part of the senior management team that sold ACS to Vista Private Equity for £725 million in March 2015. Caro Bell resigned from the Board as Operations Director on 30 August 2016 having joined in November 2015 and Davinder Sanghera resigned from the Board as Chief Operations Officer on 16th January 2017 having joined when Documotive was acquired by Castleton in November 2014. Davinder was appointed as Chief Operations Officer on 9 April 2015. I would like to thank them both for the hard work they have put in to help make Castleton the company it is today. Opportunity / Outlook The year has primarily been one of consolidation and we continue to see enormous potential to become the go-to supplier for software and IT services in the social housing market. There remain significant cross-selling opportunities within the customer base in order to provide our customers with the technology and services that they require. The low penetration of our comprehensive product and service set across our customer base combined with a healthy pipeline of new business gives me confidence for the year ahead. With the team currently in place, a broad customer base, a wide range of products and services and solid cash flows enabling repayment of debt, I am confident of our future success and I expect that the Group will show further growth when it next reports.
Chief Executive's Review
Overview I am pleased to report the significant progress the Group has made during the financial year to 31 March 2017. I arrived at the end of October 2016 with the Company having made multiple acquisitions in prior years and the start of the financial year saw Castleton improve the terms of its existing exclusive reseller agreement with 365 Agile Group plc ("Agile") granting us an exclusive licence for Agile's suite of mobile working software solutions in relation to the social housing sector. Each of the acquisitions has brought best in class software solutions and managed services capability, so the foundations for a successful and scalable business were already in place. The focus during the year has also been on integrating the businesses acquired, and since my arrival in October 2016, I have made further changes to the structure and organisation which strengthened our platform and which will allow the Group to grow and maximise the opportunities available in our chosen market. Our Market and What We Do The markets in which we operate are focused around public sector and not-for-profit social housing but also include the contractors who provide repairs services to the social housing providers. Castleton has six offices in the UK and a growing operation in Australia, demonstrating our ability to grow and scale our business in a new geography. The Group remains aligned along two divisions; Software Solutions and Managed Services, with each focusing on their separate yet complementary offerings. Our Software Solutions division provides all key business processes to social landlords covering everything from tenant engagement, rent collection, financial planning and control, document managing and repairs management. All key processes are available to be utilised on a mobile platform via apps or digital engagement. The range of solutions provides customers with significant improvements in service, performance and insight. Our Managed Services division offers a wide range of IT Infrastructure solutions which support an organisation's business objectives, including helping to drive efficiencies, manage legacy architectures or providing customers and staff with the latest social, mobile and cloud technologies. Trading Results Revenue for the year showed an increase of 13% to £20.3 million (2016: £18 million) with in excess of 60% of revenue being recurring in nature (2016: 58%). Adjusted EBITDA* showed a stronger performance, improving by 22% to £4.4 million (2016: £3.6 million), reflecting the Company's operational gearing and ability to scale profitably. The underlying metrics of the business were particularly encouraging. The Managed Services division's trading EBITDA** grew 31% year on year as we look to transition to more profitable deals. The Software Solutions division's trading EBITDA** grew 15%. Cash conversion was outstanding at 105% of adjusted EBITDA* pre exceptional costs and 86% of adjusted EBITDA* post exceptional costs, enabling a reduction in net debt*** and, pleasingly, earnings per share at a basic level were 0.59p, following a loss in the previous year of 1.56p per share. *earnings for the year from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional costs and share based payment charges. ** adjusted EBITDA before Group costs (i.e. the cost of the plc Board and its advisors) *** net cash less borrowings, deferred and contingent consideration and convertible loan notes
Operational Review Much of the focus this year has been on completing the integration of the companies acquired since June 2014, which I am pleased to say is largely done, and building a platform and infrastructure to enable continued profitable growth and take full advantage of the market opportunity. We have made improvements to the quality of the business processes, people, structure and control. The organic growth of the business is building on the back of the acquisitive growth. Our contracted backlog of revenue has grown by over 40%, which gives us good forward visibility of revenue. The increase in revenues was driven by the addition of new customers and through cross-selling of products and / or services into the Group's existing base. Castleton now supports over 750 customers and during the year the number of those who have two or more of our products increased to 35%. Not only does this show traction in our intention to cross-sell and our customers' confidence in our product suite, but also means that 65% of our customer base still uses just one product, providing a very strong opportunity for further organic growth. As referred to above, the start of the year, in April 2016, saw Castleton improve the terms of its existing exclusive reseller agreement with Agile by entering into a new perpetual licence agreement with the company whereby we were granted an exclusive licence for their suite of mobile working software solutions in relation to the social housing sector. New contracts signed during the year include a landmark agreement with Wentworth Community Housing in Australia, signed in November 2016, for the provision of Kypera's housing system and three other products including Agile's mobile working solutions. This followed on from the installation of a local management team and is evidence of the opportunity available in the Australian market and the relevance of Castleton's product suite in that country. In January this year, two new contracts were announced, namely a ten-year agreement with Clúid Housing Association ("Clúid") in Ireland and a five-year contract with Arcon Housing Association ("Arcon") in Manchester. Both agreements were for multiple products and / or services, with Clúid being the first customer to take the complete suite of software products, validating the Group's intention of becoming a "one stop shop" serving the social housing sector and showing the Group's ability to cross-sell and upsell the product suite. Our success in winning these new contracts demonstrates the unique proposition that Castleton can bring to the market and we continue to seek to expand on this success by increasing the number of customers who take multiple products, which is a major focus going forwards. At the end of the year, the Company had further success in signing two multi-year agreements, extending both the contract base and the level of recurring revenue. The first is a seven year contract with North Hertfordshire Homes and the second a three year contract with a community regeneration and housebuilding company. Post year end, a new operational structure has been put in place with clearly aligned objectives and sales teams have been tasked with defined territories and targets. The initial feedback has been positive, both internally and from customers.
Outlook Castleton is well positioned to provide an eco-system of integrated modular solutions supported by scalable infrastructure platforms, helping organisations to operate more effectively and achieve their goals, whilst bringing visible recurring annuity revenues to the Group. The Group brings together trusted brands with a pedigree of delivering solutions that meet customer needs whilst offering a refreshing change of culture and approach, focusing on customer collaboration using modern technology. We see the public and not-for-profit sectors as attractive markets due to their niche requirements and we believe a significant opportunity exists to capitalise on the ability to address historic under-investment in IT infrastructure in those sectors. I am confident that the business is now in a position to maximise the opportunities that we see in our chosen markets by offering our customers an integrated suite of products, either on an installed or cloud delivery basis, in turn allowing them to increase efficiencies and lower their costs of operating. Post year-end we have had a number of successes selling our software products on a cloud basis. Combined with the general long term nature of the contracts entered into, selling our products on a hosted basis gives greater recurring revenue and greater visibility of earnings and cash flow as we move forward. The new financial year has started well and in line with expectations. The Company has good visibility of revenues, a strong and improving product suite combined with a defined roadmap for further development, and an improved structure to enable us to execute our strategy. The existing customer base provides a significant opportunity for cross-selling opportunities, adding further organic growth along with new customers. The Board continues to view the future with confidence.
Financial Review
I am pleased to present this report as Chief Financial Officer. Principal events and overview Other than the new licence agreement with Agile, further details of which can be found below, the period since the last report has been one of consolidation compared to the previous two years of considerable acquisitive activity. As with the prior years, there has been a considerable amount of integration activity, partly contributing to the £0.7 million exceptional charge within the Income Statement. Agile's suite of solutions have been merged into Castleton Software Solutions Ltd, which, along with Castleton Managed Services Ltd, form the two divisions in the Group. Also during the year, we merged the offices acquired along with the acquisition of Impact Applications Limited into our Software Solutions headquarters in Sutton Coldfield. With the exception of Kypera, all acquired entities are on a common accounting platform across the Group, which brings a greater degree of process and visibility to our back office operations. We plan to bring Kypera onto our common accounting platform during the current year. Agile On 4 April 2016, the Group improved its existing exclusive reseller agreement with Agile and entered into a new perpetual licence agreement whereby Castleton was granted an exclusive licence for Agile's suite of mobile working software solutions in relation to the social housing sector (the "Agile Licence"). Agile's software solutions are complementary to Castleton's range of solutions which have been designed to enable social housing organisations to work more efficiently and effectively. Agile's software solutions allow field based/ customer facing teams to securely access any system, data and/ or document from any global location, allowing users to complete tasks in real time. To continue to support and develop the product, a number of staff members transferred from Agile to the Group, and as a result, the grant of the licence and the transfer of staff collectively meet the definition of a business combination under IFRS3 and consequently are recorded as a business combination in these accounts. Under the terms of the Agile Licence, Castleton will pay Agile £600,000 per year over a three year period with the potential for a further payment of at least £300,000 in the year to 31 March 2019 dependent on total sales during the first three years of the agreement. The Board of Castleton believes that the Agile Licence and staff transfer are strategically important as they secure the Group's use of Agile's software solutions going forward, whilst enhancing the margin, with an estimated payback period of two years. Goodwill A fair value reassessment of £0.9 million was performed on Kypera, the majority of which relates to claims in relation to onerous contracts that were in place prior to acquisition together with the associated rectification costs. Discussions are currently ongoing, however, the resolution of such claims remains uncertain. Trading results The trading results for the year comprise a full year of trading for all entities acquired in the prior years and, from 4 April 2016, a full year of trading from the updated Agile Licence Revenue and gross profit Revenue amounted to £ 20.3 million (2016: £18.0 million), of which £10.8 million was generated by the Software Solutions division (2016: £8.3 million) and £9.4 million (2016: £9.7 million) was generated by the Managed Services division. Recurring revenue is in excess of 60% of total revenues (2016: 58%). Gross profit amounted to £14.3 million (2016: £11.3 million), representing a gross margin of 70% (2016: 63%). The increase in overall gross margin is partly due to a full year of trading from the Kypera business which was acquired in the previous year (and sits in the Software Solutions division) and has a higher gross margin and also as a result of the new Agile Licence where there is no longer a 70% commission included in cost of sales. Gross margin for the Software Solutions division increased from 80% to 84% and for the Managed Services division it increased from 40% to 45%. Administrative expenses including exceptional items The administrative expenses from continuing activities were incurred in the running of the acquired entities, and include the cost of the Board and its advisors, including the cost of occupancy, back office support services, and the fees associated with maintaining the AIM listing as well as amortisation and exceptional items. Exceptional items of £0.7 million (2016: £2.2 million) include costs relating restructuring activities undertaken in the year. Adjusted EBITDA* The adjusted EBITDA for the year amounts to £4.4 million (2016: £3.6 million). The cost in the year for the plc Board and its advisors was £1.3 million (2016: £1.2 million), and we continue to maintain tight controls on expenditure. Trading EBITDA was therefore £5.7 million (2016: £4.6 million). *Earnings for the year from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional costs and share based payment charges. Finance income and costs Finance income represent the interest earned on deferred income from the sale of the consulting business sold in 2015, and finance costs comprise interest payable on bank borrowings and the interest and unwind of discount on the convertible loan notes issued in January 2016 to part fund the acquisition of Kypera ("Loan Notes"). Finance income and costs amounted to £0.02 million (2016: £0.3 million) and £0.7 million (2016: £0.7 million) respectively. Profit for the year attributable to the owners of the parent company The Group profit for the year to 31 March 2017 was £0.5 million (2016: Loss of £1.1 million). This comprises the loss before tax of £0.5 million (2016: loss of £1.9 million), which includes the finance income of £0.02 million (2016: £0.3 million) and a tax credit of £1.0 million (2016: £0.8 million) arising from R&D tax credits, unwind of deferred tax on intangible assets and prior year adjustments. Cash flow Cash generated from operations during the year was £4.6 million (2016: £0.6 million) reflecting a decrease in working capital of approximately £0.1 million (2016: increase of £3.0 million). Net of cash acquired, £1.0 million of cash was used for the acquisition of subsidiaries (£0.5 million for Brixx and £0.5 million for Agile) which was funded through cash generated by the business. This resulted in an overall increase in funds of £0.6 million, giving a net positive cash position at the balance sheet date of £0.3 million (2016: net negative cash position of £0.3 million). Deferred income Deferred income arises where revenue is invoiced ahead of delivery of performance obligations and therefore recognition of revenue. This is common in software maintenance, hosting, managed services and software subscription agreements. Invoicing is largely quarterly, half yearly or annually and therefore deferred income levels fluctuate throughout the year. At 31 March 2017 deferred revenue of £8.4 million is £0.7 million higher than at the end of March 2016 due to growth in the above contracts. Funding and Debt Repayment During the year, the Group repaid £1.0 million of the Barclays term loan in line with the facility agreement. As at the balance sheet date, £4.3 million of term loan was outstanding. In addition, in March 2017, the Group repaid £0.5 million of the £3.5 million Loan Notes issued to part fund the acquisition of Kypera. A further £0.5 million of the Loan Notes were repaid in April 2017. The Loan Notes are capable of being converted into new ordinary shares at a price of 85.6 pence per ordinary share, which represented a 5% premium to the mid closing price on 28 January 2016, the day immediately prior to completion of the acquisition of Kypera. Conversion is at the option of the holder at any time during the 5-year term. On 29 May 2016, the final £0.5 million of deferred consideration for the acquisition of Brixx was paid and also during the year, £0.5 million of the £1.8 million due under the terms of the Agile Licence was paid. During the year, £0.15 million of the £0.45 million of convertible loan notes that were issued as part of the acquisition of Opus (the "Opus Loan Notes") were converted into shares. Post year-end, the remaining £0.3 million of the Opus Loan Notes were cancelled in agreement with the holders. Going Concern The Directors have prepared detailed cash flow projections including sensitivity analysis on key assumptions. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance and the timing of key strategic events, show the Group will be able to operate within the level and conditions of available funding. Based on the funding available, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements. |
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Consolidated Statement of Comprehensive Income
For the year ended 31 March 2017
| Note | Yearended31 March2017£000 | Yearended31 March2016£000 |
Revenue |
| 20,269 | 17,987 |
Cost of sales |
| (5,980) | (6,721) |
Gross Profit |
| 14,289 | 11,266 |
Administrative expenses |
| (14,100) | (12,759) |
Adjusted EBITDA*
|
| 4,383 | 3,601 |
Exceptional costs | 3 | (741) | (2,184) |
Depreciation |
| (225) | (168) |
Amortisation |
| (2,997) | (2,542) |
Charges for share-based payments |
| (231) | (200) |
Operating profit / (loss) |
| 189 | (1,493) |
Finance income | 5 | 21 | 321 |
Finance costs | 5 | (749) | (728) |
Loss on ordinary activities before taxation |
| (539) | (1,900) |
Income tax | 6 | 1,002 | 773 |
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Profit/(loss) for the year attributable to owners of the parent company |
| 463 | (1,127) |
Earnings /(loss) per share |
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Total basic profit / (loss) per share | 7 | 0.59p | (1.56p) |
Total diluted profit / (loss) per share | 7 | 0.54p | (1.56p) |
* Total result for the year before net finance costs, tax, depreciation, amortisation, exceptional costs and share-based payment charges
Consolidated Balance Sheet
As at 31 March 2017
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| Note | 31 March 2017 £000 | 31 March 2016 £000 |
| Assets |
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Non-current assets |
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Intangible assets | 8 | 33,605 | 32,674 | |
Property, plant and equipment | 9 | 781 | 680 | |
Trade and other receivables | 10 | 261 | 418 | |
|
| 34,647 | 33,772 | |
Current assets |
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Inventories |
| 50 | 187 | |
Trade and other receivables | 10 | 5,050 | 6,552 | |
Current income tax asset | 6 | 145 | - | |
Cash and cash equivalents | 11 | 586 | 823 | |
|
| 5,831 | 7,562 | |
Total assets |
| 40,478 | 41,334 | |
Equity and liabilities |
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Equity attributable to owners of the parent |
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Share capital |
| 1,625 | 1,612 | |
Share premium account |
| 16,995 | 16,758 | |
Equity reserve |
| 2,919 | 2,919 | |
Other reserves |
| 7,966 | 7,966 | |
Accumulated loss |
| (13,996) | (14,690) | |
Total equity attributable to the owners of the parent |
| 15,509 | 14,565 | |
Liabilities |
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Current liabilities |
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Trade and other payables | 12 | 8,836 | 8,880 | |
Current income tax liabilities | 6 | - | 340 | |
Finance leases |
| 46 | 24 | |
Borrowings | 13 | 1,324 | 2,194 | |
Convertible loan notes | 14 | 140 | 443 | |
Deferred consideration | 15 | 838 | 500 | |
Provisions |
| 751 | 332 | |
|
| 11,934 | 12,713 | |
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|
| Note | 31 March 2017 £000 | 31 March 2016 £000 |
Non-current liabilities
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Trade and other payables | 12 | 11,893 | 2,443 | |
Borrowings | 13 | 3,352 | 4,360 | |
Convertible loan notes | 14 | 2,957 | 3,277 | |
Deferred consideration | 15 | 707 | - | |
Contingent consideration | 15 | 748 | - | |
Provisions |
| - | 224 | |
Deferred taxation liabilities | 6 | 3,377 | 3,762 | |
|
| 13,034 | 14,056 | |
Total liabilities |
| 24,968 | 26,769 | |
Total equity and liabilities |
| 40,478 | 41,334 | |
Consolidated Statement of Changes in Equity
For the year ended 31 March 2017
| Attributable to the owners of the Parent Company | ||||||
| Called up share capital | Share premium account | Equity reserve (a) | Merger reserve (b) | Accumulated Loss | Total equity | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
At 1 April 2015 | 1,206 | 10,689 | 1,423 | 7,966 | (13,763) | 7,521 | |
Loss for the period | - | - | - | - | (1,127) | (1,127) | |
Transactions with owners in their capacity as owners: |
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Share based payments | - | - | - | - | 200 | 200 | |
Convertible loan notes issued | - | - | 600 | - | - | 600 | |
Conversion of financial instruments | 206 | 3,187 | (40) | - | - | 3,353 | |
Exercise of options | 16 | 119 | - | - | - | 135 | |
Exercise of warrants | 12 | 116 | - | - | - | 128 | |
Issue of replacement options | - | (936) | 936 | - | - | - | |
Share Issue | 172 | 3,583 | - | - | - | 3,755 | |
At 31 March 2016 | 1,612 | 16,758 | 2,919 | 7,966 | (14,690) | 14,565 | |
Profit for the period | - | - | - | - | 463 | 463 | |
Transactions with owners in their capacity as owners: |
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Share based payments | - | - | - | - | 231 | 231 | |
Conversion of loan notes (c) | 13 | 237 | - | - | - | 250 | |
At 31 March 2017 | 1,625 | 16,995 | 2,919 | 7,966 | (13,996) | 15,510 | |
(a) Equity reserve
The equity reserve consists of the equity element of convertible loan notes that were issued as part of the consideration for the acquisitions of Castleton Software Solutions Ltd, Keylogic Limited, Opus Information Technology Limited and Kypera Holdings Limited.
The fair value of the equity component of convertible loan notes issued is the residual value after deduction of the fair value of the debt component of the instrument from the face value of the loan note.
(b) Merger reserve
The merger reserve arose from the acquisition of Redstone Communications Limited (£216,000) and Maxima Holdings Limited (formerly Maxima Holdings plc) (£7,750,000) and represents the difference between the value of the shares acquired (nominal value plus related share premium) and the nominal value of the shares issued.
(c) Conversion of loan notes
On 8 July 2016, the company issued 250,000 new ordinary shares of 2 pence each ("Ordinary Shares") at a price of 40 pence pursuant to the conversion of loan notes issued as part of the previous acquisition of Opus Information Technology Limited. The vendors have undertaken not to sell or otherwise dispose of their interests in the new Ordinary Shares at any time during the 12 months following the admission of the new Ordinary Shares to trading on AIM.
On 4 October 2016, the company issued a further 375,000 new Ordinary Shares at a price of 40 pence pursuant to the conversion of loan notes issued as part of the previous acquisition of Opus Information Technology Limited. The vendors have undertaken not to sell or otherwise dispose of their interests in the new Ordinary Shares at any time during the 12 months following the admission of the new Ordinary Shares to trading on AIM.
Consolidated Cash Flow Statement
For the year ended 31 March 2017
| Note |
31 March 2017 £000 |
31 March 2016 £000 |
Cash flows from operating activities |
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Cash generated from operations | 16 | 4,581 | 589 |
Exceptional costs |
| (797) | (1,499) |
Finance charges paid |
| (256) | (611) |
Income taxes refunded / (paid) |
| 133 | (170) |
Net cash flows generated from/ (used in) operating activities |
| 3,661 | (1,691) |
Cash flows from investing activities |
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Receipt of deferred consideration from sale of businesses |
| 53 | 48 |
Acquisition of businesses net of cash acquired |
| (450) | - |
Acquisition of subsidiaries net of cash acquired |
| - | (11,660) |
Purchase of property, plant and equipment |
| (297) | (167) |
Purchase of intangible assets
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| (309) | (42) |
Net cash flows used in investing activities |
| (1,003) | (11,821) |
Cash flows from financing activities |
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Proceeds from issuance of shares |
| - | 2,200 |
Cost of share Issue |
| - | (111) |
Borrowings |
| - | 11,000 |
Exercise of share options |
| - | 135 |
Exercise of share warrants |
| - | 220 |
Settlement of deferred consideration |
| (500) | - |
Repayment of borrowings |
| (1,558) | (788) |
Net cash flows (used in)/generated from financing activities |
| (2,058) | 12,656 |
Net increase/(decrease) in cash and cash equivalents from activities |
| 600 | (856) |
Cash and cash equivalents at 1 April |
| (330) | 526 |
Cash and cash equivalents at 31 March |
| 270 | (330) |
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Comprising: |
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Cash and cash equivalents | 11 | 586 | 823 |
Overdraft | 13 | (316) | (1,153) |
|
| 270 | (330) |
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Notes to the Consolidated Financial Statements
Year ended 31 March 2017
1 Basis of preparation
The consolidated financial statements of Castleton have been prepared on the going concern basis and in accordance with EU adopted International Financial Reporting Standards (IFRS), IFRIC interpretations and the provisions of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies.
Publication of non-statutory accounts
This summary does not constitute statutory accounts within the meaning of the Companies Act 2006. It is an extract from the full accounts for the year ended 31 March 2017 on which the auditor has expressed an unqualified opinion and does not include any statement under section 498 of the Companies Act 2006. The full accounts contain a detailed statement of the accounting policies which have been used to prepare this summary and remained unchanged from the prior year. The accounts will be posted to shareholders on or before 31 July 2017 and subsequently filed at Companies House.
A full set of the audited statutory accounts will be available at www.castletonplc.com
2 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Makers ('CODM'). The CODM has been identified as the Executive Board.
The Group is comprised of the following main operating segments:
Managed Services
In this segment are the results of Castleton Managed Services Ltd for the year ended 31 March 2017.
In the year ended 31 March 2016, this segment comprised the results of Castleton Managed Services Ltd for the year and Keylogic Limited, from 1 April 2015 to 20 September 2015, at which point the trade and assets of Keylogic were hived up into Castleton Managed Services Ltd.
The segment is engaged in the provision of IT infrastructure and support for businesses throughout the United Kingdom.
Software Solutions
This segment comprises the results of Castleton Software Solutions Ltd, Kypera Limited and Kypera Australia Pty Limited for the year ended 31 March 2017.
In the year ended 31 March 2016, this segment comprised the results of Opus Information Technology Limited for the period from 1 April 2015 to 30 November 2015 as well as Castleton Financial Modelling Solutions Ltd and Impact Applications Limited for the period from acquisition on 31 May 2015 to 30 November 2015.
On 1 December 2015 the trade and assets of Opus Information Technology Limited, Impact Applications Limited and Castleton Financial Modelling Solutions Ltd were hived up into Castleton Software Solutions Ltd.
The segment also included the results of Kypera Limited and Kypera Pty from the date of acquisition on 29 January 2016 to 31 March 2016.
The segment is engaged in the provision of document management, process management, customer relationship management solutions, provision of IT consultancy, IT solutions, software and finance software solutions and software support to the housing association sector.
Year ended 31 March 2017
| Managed Services£000 | Software Solutions£000 |
Central £000 |
Total £000 |
Revenue | 9,437 | 10,832 | - | 20,269 |
Operating profit/(loss) before amortisation of intangible assets and management charge
| 2,750 | 2,127 | (1,691) | 3,186 |
Amortisation of acquired intangibles | (969) | (2,028) | - | (2,997) |
Management charge | (1,063) | (368) | 1,431 | - |
Operating profit /(loss) | 718 | (269) | (260) | 189 |
Finance income | 20 | - | 1 | 21 |
Finance costs | - | (189) | (560) | (749) |
Profit/(loss) before tax | 738 | (458) | (819) | (539) |
Adjusted EBITDA* | 3,012 | 2,668 | (1,297) | 4,383 |
*Earnings for the year before net finance costs, tax, depreciation, amortisation, exceptional items, group management charge and share based payment charges.
| Managed Services£000 | Software Solutions£000 |
Central £000 |
Total £000 | |||||
Segment Assets | 11,454 | 31,757 | (2,733) | 40,478 | |||||
Segment Liabilities | (3,070) | (13,535) | (8,363) | (24,968) | |||||
Net assets/ (liabilities)
| 8,384 | 18,222 | (11,096) | 15,510 | |||||
|
|
|
|
| |||||
| Managed Services£000 | Software Solutions£000 |
Central £000 |
Total £000 |
| ||||
Capital Expenditure: |
|
|
|
|
| ||||
Property, plant and equipment | 186 | 114 | 26 | 326 |
| ||||
Intangibles
| 25 | 284 | - | 309 |
| ||||
Depreciation | (125) | (99) | (1) | (225) |
| ||||
Amortisation of intangibles | (969) | (2,028) | - | (2,997) |
| ||||
Year ended 31 March 2016
| Managed Services£000 | Software Solutions£000 |
Central £000 |
Total £000 |
Revenue | 9,665 | 8,322 | - | 17,987 |
Operating profit/(loss) before amortisation of intangible assets and management charge
| 2,208 | 638 | (1,797) | 1,049 |
Amortisation of acquired intangibles | (945) | (1,597) | - | (2,542) |
Management charge | (963) | (575) | 1,538 | - |
Operating profit /(loss) | 300 | (1,534) | (259) | (1,493) |
Finance income | 25 | - | 296 | 321 |
Finance costs | (3) | (7) | (718) | (728) |
Profit/(loss) before tax | 322 | (1,541) | (681) | (1,900) |
Adjusted EBITDA* | 2,301 | 2,318 | (1,018) | 3,601 |
*Earnings for the year before net finance costs, tax, depreciation, amortisation, exceptional items, group management charge and share based payment charges.
| Managed Services£000 | Software Solutions£000 |
Central £000 |
Total £000 | |||||
Segment Assets: | 12,778 | 28,354 | 202 | 41,334 | |||||
Segment Liabilities | (4,268) | (10,019) | (12,482) | (26,769) | |||||
Net assets/ (liabilities)
| 8,510 | 18,335 | (12,280) | 14,565 | |||||
|
|
|
|
| |||||
| Managed Services£000 | Software Solutions£000 |
Central £000 |
Total £000 |
| ||||
Capital Expenditure: |
|
|
|
|
| ||||
Property, plant and equipment | 121 | 39 | 7 | 167 |
| ||||
Intangibles
| 42 | - | - | 42 |
| ||||
Depreciation | (95) | (71) | (2) | (168) |
| ||||
Amortisation of intangibles | (945) | (1,597) | - | (2,542) |
| ||||
Income streams originating outside of the United Kingdom comprised £353,000 in respect of Kypera Australia Pty Limited (2016: £38,000).
The Group had no customers who accounted for more than 10% of the Group's revenue during the year (2016: nil).
3 Exceptional costs
In accordance with the Group's policy in respect of exceptional costs the following charges were incurred for the year:
|
| 2017£000 | 2016£000 |
Integration and strategic costs |
| 295 | 488 |
Acquisition and reorganisation costs
|
| 431 | 812 |
Opus- settlement of contingent consideration |
| - | 734 |
Creation of restructuring provision (see note 17) |
| 15 | 65 |
Other reorganisation |
| - | 85 |
|
| 741 | 2,184 |
4 Business Combinations
Agile
On 4 April 2016, the Group improved its existing exclusive reseller agreement with 365 Agile Group plc ("Agile") and entered into a new perpetual licence agreement with Agile whereby Castleton has been granted an exclusive licence for Agile's suite of mobile working software solutions in relation to the social housing sector.
To continue to support and develop the product, a number of staff members transferred from Agile to the Group, and as a result the grant of the licence and the transfer of staff collectively meet the definition of a business combination under IFRS3 and consequently are recorded as a business combination in these accounts.
Castleton will pay Agile consideration of £1.8 million payable over three years, with a contingent element payable depending on total revenue in the first three years of the agreement.
From the date of acquisition to 31 March 2017, Agile recorded revenue of £0.7 million and a profit before taxation of £0.2 million compared to profit before taxation of £0.2 million under the previous arrangement. The recorded revenue for the period 1 April 2016 to 3 April 2016 was £2,645 with a profit of £611.
The total goodwill, representing synergies expected to accrue to the enlarged group and the knowledge and ability of the workforce, and intangible assets arising from the business combinations is the difference between the fair value of consideration less the fair value of assets acquired, as set out below.
|
|
|
| Total |
| Agile | Kypera | Impact | Total |
| £000 | £000 | £000 | £000 |
Deferred consideration | 1,795 | - | - | 1,795 |
Contingent consideration | 619 | - | - | 619 |
Fair value of purchase consideration | 2,414 | - | - | 2,414 |
Less fair value of assets acquired: |
|
|
|
|
Software | (2,189) | - | - | (2,189) |
Fair value adjustment | - | 912 | 43 | 955 |
Goodwill | 225 | 912 | 43 | 1,180 |
Cash consideration is payable over three years for a value of £1.8 million, of which £0.5 million has been paid to date. Further contingent consideration of £0.3 million is payable if revenue from the software of £2.2 million is generated by 4 April 2019. Further contingent consideration will be paid at 50% of the revenue that exceeds the £2.2 million threshold. If the conditions are met the amounts payable are due to be paid within 90 days of 4 April 2019.
On acquisition the Directors assessed the business acquired to identify any intangible assets. Intellectual property met the criteria for recognition as intangible assets as it is separable and has a measurable fair value, being the amount for which an asset would be exchanged between knowledgeable and willing parties in an arm's length transaction.
For the intellectual property the fair value of the intangible assets was calculated by using the discounted cash flows arising from the revenue forecast.
A long term growth rate of 2.0% was applied with a discount rate of 9.9%. The reasonable economic life of the intellectual property was assumed to be 15 years.
Kypera
The assessment of the fair values of the assets and liabilities on acquisition has been completed. A fair value adjustment to goodwill was made in relation to an onerous contract provision which existed at the date of acquisition of £0.752 million which related to a customer claim and the associated rectification costs.
A further fair value adjustment of £0.16 million was made upon review of the acquisition balance sheet.
Impact
A fair value adjustment in relation to accrued costs was also created of £43,000.
Other
On 26 January 2017 the Group entered into individual agreements with the former owners of Keylogic to ensure that neither individual are able to compete with the company or a Group Company in the sale of hosted desktop services to a Social Housing Entity in exchange for £125,000 each payable in equal tranches in April 2017 and October 2017.
5 Finance income and costs
Finance income
| 2017£000 | 2016£000 |
Fair value gain on interest rate swap | - | 298 |
Other finance income | 21 | 23 |
| 21 | 321 |
Finance costs
| 2017£000 | 2016£000 |
Interest payable on bank loans and overdrafts | 278 | 581 |
Interest expense in respect of: |
|
|
Convertible loan notes and deferred consideration unwind | 471 | 146 |
Finance lease obligations | - | 1 |
| 749 | 728 |
6 Income Tax
(a) Tax on profit on ordinary activities
|
|
|
Total | ||||
|
|
|
|
| 2017£000 | 2016£000 | |
Corporation Tax |
|
|
|
|
|
| |
Adjustments in respect of prior periods |
|
|
|
| (617) | - | |
Deferred tax |
|
|
|
|
|
| |
Origination and reversal of timing differences |
|
|
|
| (385) | (773) | |
Total tax (credit) |
|
|
|
| (1,002) | (773) | |
The rate of UK Corporation tax for the year beginning1 April 2015 is 20% and will be19% from 1 April 2017 and 17% from the year beginning 1 April 2020. Deferred tax has been re-measured on the basis of these new rates and reflected in the financial statements.
(b) Reconciliation of the total income tax credit
The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to losses of the consolidated entities as follows:
|
| 2017 £000 | 2016 £000 |
Loss from operations before taxation |
| (539) | (1,900) |
Accounting loss multiplied by the UK standard rate of corporation tax of 20% (2016: 20%) |
| (108) | (380) |
Net items not deductible for tax purposes |
| 154 | 185 |
Unrelieved losses |
| - | (50)
|
Adjustment to tax charge in respect of previous year |
| (617) | - |
Movement in unprovided deferred tax and the effect of the change of tax rate |
| (431) | (508) |
Total income tax credit on operations |
| (1,002) | (773) |
(c) Unrecognised deferred tax asset
The Group has unrecognised deferred tax assets in respect of losses and reliefs, of £9.1 million (2016: £13.7 million). The composition of these losses and reliefs is as follows: property, plant and equipment differences £3.1 million (2016: £4.8 million), short-term temporary differences £0.1 million (2016: £0.1 million) and tax losses of £5.9 million (2016: £8.8 million). Deferred tax assets have not been recognised in respect of losses and reliefs where it is the view of the Directors that it is not certain that future taxable profits of the nature required will be available to offset against any deferred tax asset
(d) Deferred tax liability
|
|
| £000 |
At 31 March 2015 | 2,478 |
Business combinations | 2,063 |
On acquisitions | (6) |
Credit to income statement | (773) |
At 31 March 2016 | 3,762 |
Credit to income statement | (1,002) |
Adjustment to tax charge in respect of previous year | 617 |
At 31 March 2017 | 3,377 |
Deferred tax liabilities arise in respect of the temporary differences on acquired intangible assets.
7 Earnings/loss per share
Basic earnings/loss per share and diluted earnings/loss per share are calculated using a weighted average number of shares of 78,339,832 and 86,215,879 respectively (March 2016: weighted average number of shares of 72,265,145 and 80,345,997).
|
|
| 2017£000 | 2016£000 |
Statutory EPS: |
|
|
|
|
Total basic profit / (loss) per share |
|
| 0.59p | (1.56p) |
Total diluted profit / (loss) per share |
|
| 0.54p | (1.56p) |
The weighted number of shares and the loss for the year ended 31 March 2016 for the purposes of calculating the fully diluted earnings per share are the same as the basic loss per share calculation. This is because the outstanding share options and warrants would have the effect of reducing the loss per ordinary share and would, therefore, not be dilutive under the terms of IAS 33.
8 Intangible assets
| Goodwill£000 | Software£000 | Customer contracts and related relationships£000 | Development Expenditure£000 | Total£000 |
Cost |
|
|
|
|
|
At 1 April 2015 | 5,209 | 618 | 12,622 | 94 | 18,543 |
Additions | - | - | - | 42 | 42 |
Business Combinations | 5,827 | 2,844 | 8,604 | - | 17,275 |
At 31 March 2016 | 11,036 | 3,462 | 21,226 | 136 | 35,860 |
Additions | - | - | 250 | 309 | 559 |
Business Combinations | 1,180 | 2,189 | - | - | 3,369 |
At 31 March 2017 | 12,216 | 5,651 | 21,476 | 445 | 39,788 |
Amortisation |
|
|
|
|
|
At 1 April 2015 | - | (50) | (568) | (26) | (644) |
Charge for the year | - | (349) | (2,155) | (38) | (2,542) |
At 31 March 2016 | - | (399) | (2,723) | (64) | (3,186) |
Charge for the year | - | (498) | (2,435) | (64) | (2,997) |
At 31 March 2017 | - | (897) | (5,158) | (128) | (6,183) |
|
|
|
|
|
|
Net carrying amount |
|
|
|
|
|
31 March 2017 | 12,216 | 4,754 | 16,318 | 317 | 33,605 |
31 March 2016 | 11,036 | 3,063 | 18,503 | 72 | 32,674 |
31 March 2015 | 5,209 | 568 | 12,054 | 68 | 17,899 |
The amortisation in both years relates to operations, and is included in the profit / loss for the year from operations in the Income Statement within administrative expenses.
Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate thatthe carrying value may be impaired Goodwill is supported by calculating the discounted cash flows arising from the existing businesses. A long term growth rate of 2.0% was applied with a discount rate of 9.9%.
Impairment tests for goodwill
The recoverable amount of all cash generating units (CGU) has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management until 31 March 2018. Cash flows beyond this period are extrapolated using the estimated growth rates stated below.
For each of the CGUs with a significant amount of goodwill the key assumptions in addition to long term growth rate and discount rate used in the value-in-use calculations are as follows:
Managed Services
Gross margin - 44%
Operating margin - 31%
Software Solutions
Gross margin - 90%
Operating margin - 32%
For all cash generating units the long term growth rate assumed is 2.0%. The pre-tax discount rate used is 9.9%, which reflects management's risk-adjusted estimate of the weighted average cost of capital.
A reasonably possible adverse movement in any of the above key assumptions made would not give rise to impairment.
9 Property, plant and equipment
|
| Leasehold property£000 | Network infrastructureand equipment£000 | Equipment,fixtures and fittings£000 | Total£000 | |
Cost |
|
|
|
|
| |
At 1 April 2015 |
| 222 | 401 | 95 | 718 | |
Additions |
| 7 | 69 | 91 | 167 | |
Business Combinations |
| 23 | 39 | 93 | 155 | |
At 31 March 2016 |
| 252 | 509 | 279 | 1,040 | |
Additions |
| 51 | 204 | 71 | 326 | |
At 31 March 2017 |
| 303 | 713 | 350 | 1,366 | |
|
|
|
|
|
| |
Accumulated depreciation |
|
|
|
|
| |
At 1 April 2015 |
| 24 | 160 | 8 | 192 | |
Charge for the year |
| 7 | 112 | 49 | 168 | |
At 31 March 2016 |
| 31 | 272 | 57 | 360 | |
Charge for the year |
| 13 | 20 | 192 | 225 | |
At 31 March 2017 |
| 44 | 292 | 249 | 585 | |
|
|
|
|
|
| |
Net book amount |
|
|
|
|
| |
31 March 2017 |
| 259 | 421 | 101 | 781 | |
31 March 2016 |
| 221 | 237 | 222 | 680 | |
31 March 2015 |
| 198 | 242 | 87 | 527 | |
As at 31 March 2017 included in equipment, fixtures and fittings are assets held under finance leases with a carrying value of £69,000 (2016: £54,000) on which the depreciation charge was £27,000 (2016: £11,000).
The depreciation for the year of £225,000 (2016: £168,000) and has been charged to administrative expenses.
A mortgage loan of £110,000 (2016: £118,000) is secured on a long leasehold property with a book value of £170,000. Short leasehold property has a book value of £89,000.
10 Trade and other receivables
| 2017£000 | 2016£000 | |
Trade receivables | 3,929 | 5,281 | |
Less: provision for impairment of trade receivables | (220) | (344) | |
Trade receivables - net | 3,709 | 4,937 | |
Other receivables | 435 | 625 | |
Prepayments | 906 | 990 | |
Amounts due with 12 months | 5,050 | 6,552 | |
|
|
| |
Prepayments due after more than 12 months | 261 | 418 | |
Total receivables | 5,311 | 6,970 | |
As at 31 March 2017, trade receivables of £0.2 million (2016: £0.3 million) were impaired and fully provided for.
The carrying value of trade receivables that would otherwise be past due or impaired but whose terms were renegotiated were £nil. The individually impaired receivables relate to receivables over 182 days, customers in financial difficulty, customer acceptance issues and cancelled contracts.
As at 31 March 2017, trade receivables of £1.9 million were past due but not impaired (2016: £2.9 million). In the table below, these comprise the receivables over 30 days, which relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of net trade receivables which are past due and not impaired is as follows:
Days outstanding |
2017£000 |
2016£000 | |
31-60 days | 1,038 | 1,412 | |
61-90 days | 448 | 697 | |
91-180 days | 379 | 749 | |
| 1,865 | 2,858 | |
The provision is calculated by central management with local knowledge on a specific basis based on their best estimate of recoverability taking into account the age and specific circumstances relating to the debtor. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security. The carrying amounts of the Group's trade and other receivables are denominated in pounds.
Movements on the Group provision for impairment of trade receivables are as follows:
| £000 |
At 31 March 2015 | 83 |
Fair Value on Business Combinations | 108 |
Utilised in year | (84) |
Created in year | 237 |
At 31 March 2016 | 344 |
Utilised in year | (324) |
Created in year | 200 |
At 31 March 2017 | 220 |
The creation and release of a provision for impaired receivables has been included in 'administrative expenses' in the income statement. Amounts charged to the allowance account are generally written-off, when there is no expectation of recovering additional cash.
The other asset classes within trade and other receivables do not contain impaired assets.
11 Cash and cash equivalents
| 2017 £000 | 2016£000 |
Cash at bank and in hand (excluding overdrafts) | 586 | 823 |
The table below shows the balance with the major counterparty in respect of cash and cash equivalents.
Credit rating | 2017 £000 | 2016£000 |
A | 586 | 823 |
12 Trade and other payables
Current
| 2017£000 | 2016£000 |
Trade payables | 297 | 1,645 |
Other payables | 67 | 90 |
Taxation and social security | 646 | 675 |
Accruals | 1,180 | 1,257 |
Deferred income | 6,645 | 5,213 |
| 8,835 | 8,880 |
Non-current
| 2017£000 | 2016£000 |
Deferred income | 1,718 | 2,433 |
Other payables | 175 | - |
| 1,893 | 2,433 |
13 Borrowings
Current
| 2017 £000 | 2016 £000 |
Mortgage | 8 | 8 |
Bank loan | 1,000 | 1,033 |
Overdraft | 316 | 1,153 |
| 1,324 | 2,194 |
Non-current
| 2017 £000 | 2016£000 |
Bank Loan | 3,250 | 4,250 |
Mortgage | 102 | 110 |
| 3,352 | 4,360 |
The mortgage is secured over a long leasehold property. The property is held within fixed assets at a cost £0.2 million. The mortgage is repayable at an interest rate of 2.9% above base rate. The remaining term at 31 March 2017 is 137 months.
Overdraft facility
The Company has an overdraft facility of £2.5 million with Barclays. Interest is payable at 3.5% above LIBOR on the overdraft balance, which is repayable on demand. At the balance sheet date £0.3 million (2016: £1.15 million) of the facility had been utilised. The overdraft is secured on the assets of the group by way of fixed and floating charges.
Bank loan
On 31 May 2015, the Company entered into a loan facility agreement with Barclays Bank plc ("Barclays") for £5 million. Interest is payable at 3.5% above LIBOR on the outstanding balance, which is repayable at a rate of £250,000 per quarter over 5 years. On 31 January 2016, Barclays extended the facility by a further £1 million, which increased the payment terms by 12 months. The overdraft is secured on the assets of the group by way of fixed and floating charges.
14 Convertible loan notes
|
|
| Opus£000 | Kypera£000 | Total£000 | |
|
|
|
|
|
| |
At 1 April 2015 |
|
| - | - | - | |
Additions |
|
| 443 | 3,500 | 3,943 | |
Interest unwound |
|
| - | 28 | 28 | |
Fair value adjustment |
|
| - | (251) | (251) | |
At 31 March 2016 |
|
| 443 | 3,277 | 3,720 | |
Interest unwound |
|
| 22 | 280 | 302 | |
Interest due to be paid |
|
|
| (175) | (175) | |
Conversion |
|
| (250) | - | (250) | |
Repayments |
|
| - | (500) | (500) | |
At 31 March 2017 |
|
| 215 | 2,882 | 3,097 | |
|
|
|
|
|
| |
Within one year |
|
| 140 | - | 140 | |
Over one year |
|
| 75 | 2,882 | 2,957 | |
|
|
| 215 | 2,882 | 3,097 | |
|
|
|
|
|
| |
£0.4 million of convertible loan notes were issued in the year ended 31 March 2016 to satisfy the contingent consideration for the acquisition of Opus Information Technology Limited ("Opus Loan Notes"). The Opus Loan Notes were redeemable in cash or convertible into new ordinary shares of 2 pence each in the capital of the Company ("Ordinary Shares") at a price of 40 pence per Ordinary Share in various tranches: £0.15 million on 30 September 2016, £0.15 million on 30 September 2017 and £0.1 million on 30 September 2018. On 21 June 2017, it was agreed by the beneficiaries of the loan notes issued at the time of the Company's acquisition of Opus Information Technology Limited ("Opus") that they would waive the remaining £0.25 million of loan notes in lieu of surrendering any potential warranty claims under the sale and purchase agreement. On 8 July 2016, the company issued 250,000 new Ordinary Shares pursuant to the conversion of loan notes issued as part of the previous acquisition of Opus Information Technology Limited. A further 375,000 Ordinary shares pursuant to the conversion of loan notes were issued on 4 October 2016, all in part settlement of the balance.
The noteholder can convert the loan note at any time given sufficient notice is provided per the agreement. Interest is accrued on the compounding amount at 5% per annum.
In addition on 31 January 2016, in order to fund the acquisition of Kypera, the Company issued £3.5 million of unsecured loan notes ("Kypera Loan Notes"), which have a term of 5 years and carry interest at a rate of 5% per annum, which is rolled up into the loan. The Kypera Loan Notes can be converted into new Ordinary Shares at a price of 85.6 pence per Ordinary Share. Conversion is at the option of the holder at any time during the 5 year term. The Company can redeem the Kypera Loan Notes from the third anniversary of issue if not already converted and earlier by request.
On 31 March 2017 £0.5 million of the Kypera Loan Notes were repaid. A further repayment of £0.5 million was made on 27 April 2017 in respect of the Kypera Loan Notes.
15 Deferred and contingent consideration
Current
| 2017 £000 | 2016 £000 |
Deferred consideration | 838 | 500 |
| 838 | 500 |
Non-current
| 2017 £000 | 2016£000 |
Deferred Consideration | 707 | - |
Contingent consideration | 748 | - |
| 1,455 | - |
Castleton will pay Agile consideration of £1.8 million payable over four years, with a contingent element payable depending on total revenue in the first three years of the agreement. The Group believes that this is strategically important, as it secures the use of the Agile product going forward whilst enabling Castleton to keep 100% of the revenue associated with sales thereof by the Group, compared to having a 70% commission payable to Agile under the previous agreement. Cash consideration is payable over four years for a value of £1.8 million, of which £0.5 million has been paid to date. Further contingent consideration of £0.3 million is payable if revenue from the software of £2.2 million is generated by 4 April 2019. A further contingent fee will be paid at 50% of the revenue that exceeds the £2.2 million threshold. If the conditions are met the amounts payable are due to be paid within 90 days of 4 April 2019. The balance shown as due after more than one year includes the unwinding of the discount on deferred consideration.
On 26 January 2017 the Group entered into individual agreements with the former owners of Keylogic to ensure that neither individual are able to compete with the company or a Group Company in the sale of hosted desktop services to a Social Housing Entity in exchange for £125,000 each payable in equal tranches in April 2017 and October 2017.
16 Net cash flows from operating activities
| 2017£000 | 2016£000 |
Loss on ordinary activities before taxation | (539) | (1,900) |
Adjustments for: |
|
|
Exceptional items | 797 | 1,499 |
Net finance costs | 727 | 407 |
Non-cash contingent consideration through income statement | - | 695 |
Depreciation of property, plant and equipment | 225 | 168 |
Amortisation of intangibles | 2,997 | 2,542 |
Equity-settled share-based payment charge | 231 | 200 |
Movements in working capital: |
|
|
Decrease/ (increase) in trade and other receivables | 1,514 | (1,907) |
Decrease in trade and other payables | (950) | (509) |
Decrease in provisions | (558) | (461) |
Decrease/ (increase) in inventories | 137 | (145) |
Cash generated from operations | 4,581 | 589 |
17 Subsequent events
On 27 April 2017, the Group repaid a further £0.5 million of the £3.5 million of unsecured convertible loan notes that were issued on 29 January 2016 to assist in the funding for the acquisition of Kypera ("Loan Notes"). This was in addition to the £0.5 million Loan Notes repaid on 29 March 2017. On 21 June 2017 it was agreed by the beneficiaries of the loan notes issued at the time of the Company's acquisition of Opus Information Technology Limited ("Opus") to waive their remaining loan notes in consideration of surrendering any potential warranty claims under the sale and purchase agreement.