Gresham Regulatory News (GHT)

24 March 2015

Gresham Computing plc("Gresham" or the "Group" or the "Company")Annual Financial Report AnnouncementYear ended 31 December 2014

Gresham, the leading software and services company that specialises in providing real-time financial transaction control software to the global matching and reconciliation market, reports its results for the financial year ended 31 December 2014.

Highlights for 2014

· Significant CTC customer progress in 2014, doubling of customer base including winning an additional 3 key customer accounts;

· Total revenues £12.8m (2013:£14.0m):

o Recurring revenues up 14% to £6.5m;

o CTC recurring revenues up 150% to £1.0m;

· EBITDA ahead of consensus, set in October 2014, at £1.1m (2013: £2.4m);

· Profit before tax £0.5m (2014: £2.0m) and profit after tax £1.1m (2014: £2.6m);

· Cash £4.7m and no debt (2013: £4.4m and no debt);

· High visibility over revenues going into 2015, with 85% of planned total revenues visible and the majority of this contracted (2014: 60%);

· Q1 2015 to date significantly stronger than Q1 2014;

· Further new and existing CTC customer progress made in Q1 2015;

· Ian Manocha to join as CEO effective 1 June 2015; and

· Management confident about the prospects for the Group.

Chris Errington, CEO of Gresham, commented:

"The first quarter of 2015 has started well, with a trading performance in the first two months significantly stronger than for the comparative first quarter of 2014. We are confident of making further progress with CTC in 2015 and continue to win direct and indirect CTC customers and grow CTC recurring revenues in line with our strategy. The Board firmly believes that executing our strategic plans to achieve long term profitable growth and shareholder value remain on track.

Our financial position remains strong, and the team remain ambitious and excited about the future of the Company."

A copy of this announcement has been submitted to the National Storage Mechanism and will shortly be available for inspection at http://www.hemscott.com/nsm.do and www.gresham-computing.com. Printed copies of the Annual Financial Report will be posted to shareholders in due course.

For further information please contact:

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

In accordance with the Disclosure and Transparency Rules, we set out below the extracts from the 2014 Annual Financial Report in un-edited full text. In order to comply with the regulatory requirement to include un-edited text in this Annual Financial Report Announcement, page and note references refer to page and note numbers in the 2014 Annual Financial Report. 

CHAIRMAN'S STATEMENT

In 2014, Gresham made good progress in attracting new customers to its flagship product Clareti Transaction Control ("CTC") and delivering a number of complex implementations for our key customer accounts. Recurring revenues associated with CTC deployments are central to the Company's strategy of building sustainable revenues from institutions engaged in financial transaction processing and I am pleased to report a significant increase in these revenues, which are up almost three times in the year, with much more growth to come in 2015.

CTC incorporates class leading Reconciliation and Matching functionality at its core and is being deployed in a variety of ways to underpin the integrity of financial transactions which flow within and beyond customers' internal processes and systems. This is essential to the efficient deployment of capital, the reduction of trading risk and meeting increasing regulatory demands. Ever more complex trading instruments have heightened the need for rapid automation in many market segments which is driving demand for CTC. I am pleased to report that we have more than doubled the number of CTC customers during 2014, with more progress already announced for 2015.

Despite this customer acquisition success we were unable to recognise the level of revenue we had expected in the year due to a number of clients deferring projects at a late stage of the sales cycle, either into the last quarter of 2014 or into 2015. It is a characteristic of our business that such decisions can impact short term reported results whereas the underlying business remains strong, as evidenced by a number of significant customer wins in the fourth quarter. Revenue from these wins will be mainly recognised in 2015. Our strategy of building a recurring revenue base through a bias towards recurring revenue annuity contracts will serve to mitigate the short term effects of changing customer priorities as these revenues build further in 2015.

We entered 2015 with a strong pipeline for CTC and we are confident of continuing our progress towards becoming a leading supplier in an ever increasing market for financial transaction control.

Outside of CTC, our Cash Management solution (in partnership with CashFac), a service provided by our banking clients to their corporate customers, continues to deliver an increasing level of recurring revenue resulting from the Banks' success in growing their client base and hence use of this service. In addition, our legacy software businesses, comprising utility software for the VME operating system, used principally by UK Government, and EDT tape management software, continue to provide valuable contributions to earnings through mainly recurring revenues representing lower risk revenue in the near to medium term.

We have made significant progress with our strategic plan: developing a market leading and viable product in CTC, creating an operational platform to deliver growth, winning a high quality base of global CTC customers and building a valuable new CTC recurring revenue stream.

The Board believes there is now a significant market opportunity to accelerate the growth of CTC and to realise our vision of becoming a market leader in real-time financial transaction control. In order to capitalise on this opportunity, the Board has decided it is appropriate to introduce new skills and experience to lead the Company through the next phase of its growth. Accordingly, on 5 March 2015 we announced the appointment of Ian Manocha as Chief Executive Officer, effective 1 June 2015. Chris Errington, the current Chief Executive Officer, will remain in office until Ian's appointment becomes effective, when he will step down from his current role and remain on the Board as a non-executive director.

I am delighted that we have secured someone of Ian's calibre to join Gresham at this exciting time. Ian is a well-respected software executive with a proven track record of successfully taking software businesses and growing them to significant scale, both in an executive leadership and sales capacity. He is an ideal appointment to advance our strategy and deliver rapid growth.

Chris has been instrumental in Gresham's progress and achievement of our strategic plans. I would like to take this opportunity to thank him for all he has contributed to the Company during his tenure as CEO and I look forward to working with him from June in his new role as a Non-Executive Director as we continue to execute on our strategy.

Shareholders will note that we have now received Court approval to make the necessary changes to our capital structure, through cancellation of the share premium account, such that the Company has the flexibility to pay dividends and make other returns of capital. When the Board considers it appropriate and desirable to do so, having regard to the circumstances at the time, we intend to commence a progressive dividend policy.

The Gresham organisation and its employees are fully aligned to growing profitable revenue from CTC sales globally. I remain confident that our investments in sales, marketing and client support will provide the platform to deliver shareholder value from our ongoing investment in CTC.

I would like to thank the management and staff for their continued support and resolve to achieve success in our pursuit of market leadership in real-time transaction control.

Ken Archer

Chairman

23 March 2015

STRATEGIC REPORT

Gresham is a leading software and services company that specialises in providing real-time financial transaction control software to the global matching and reconciliation market. We provide customers with Real-time Financial Certainty© through our innovative software Clareti Transaction Control ("CTC").

We are listed on the main market of the London Stock Exchange with headquarters in London and operations in Australia, Malaysia, North America, Singapore and the United Kingdom.

Objectives and Strategy

Our long term objective is to be recognised as a market leader in real-time financial transaction control in order to drive profitable growth and build shareholder value.

We are executing a strategic plan to achieve this objective built around developing, selling and supporting a leading matching and reconciliation software developed by Gresham and called CTC.

Key to our strategy is winning then retaining recurring revenue annuity streams from the sale of our software solutions. Recurring revenues provide high visibility of revenues going into future years and CTC provides the Group with a new source of these high margin revenues to drive profitable growth.

To achieve our long term objective, we are following a strategic plan with a focus on CTC (the CTC strategic plan) supported by a plan to strengthen our existing business (the General strategic plan). Core elements of these plans are set out below:

· CTC strategic plan:

o concentrate our investment and sales efforts on CTC;

o create a sustainable global business in support of CTC led volume growth;

o grow CTC revenues and build a new high margin recurring CTC revenue stream;

· General strategic plan:

o retain and grow other strategic revenues; and

o exit low margin / low growth businesses.

The Business Model section sets out how we intend to achieve our long term objective and execute the strategic plan.

We measure progress against delivering our strategic plan by reference to Key Performance Indicators ("KPIs"), more information on which can be found in the KPIs section of this report. We aim to achieve a balance between revenue based KPIs which measure our rate of growth, especially those concerning CTC, and earnings based KPIs in order to drive our long term objective of profitable growth.

We regularly review progress towards our overall objective in the context of strategic plan execution, Business Model, KPIs, the market and changes to risks and uncertainties faced by the Group. Where necessary, we change, modify or fine tune our plans to provide the best chance for the Group to achieve its long term objective.

CTC strategic plan - progress so far and planned activities for the future

In July 2010, we identified a gap in the market for new matching and reconciliation software and responded with a strategy for profitable growth built around new software, called CTC. In support of this plan, we created a dedicated software development centre in the UK and staffed it with a new expert team of highly experienced matching and reconciliation software engineers to build CTC. We set about designing and developing CTC using modern tools and techniques to address the significant levels of market and customer demand for modern matching and reconciliation software, a demand unmet by other vendors and as discussed further in the Business Model section.

In July 2011, we won our first major customer for an early version of CTC and in the second half of 2011 established a modest sales capability whilst CTC development progressed. We accelerated the growth of both our development and sales capabilities in both 2013 and 2014 to capitalise on our success with winning new CTC customers and growing market demand for CTC.

Alongside the focus on CTC development and sales, we have built sustainable global business lines to support CTC led volume growth, including; regional management, implementation teams, 24/7 global software support, finance and legal functions. We have also established a CTC graduate intake programme to bring new people and skills into the business in support of our strategic objectives as well as bringing in new experienced hires to the business with excellent skill sets matched to our strategic plan.

As a measure of the execution of our strategic plan to focus on CTC, almost 75% of our total current headcount have joined us in the last 4 years and 20% of that headcount will comprise graduates in 2015.

Our development centre currently has a complement of approximately 40 specialist software developers; we have expanded our sales and marketing operation across all of our regions, with presence in: Sydney, Singapore, London and New York; we have a global 24/7 support operation; and we have strengthened and aligned implementation teams.

The initial phases of our strategic plan have therefore been successfully executed: creating a viable and market leading product in the global matching and reconciliations market, establishing a functional sales team and a sustainable global business to support CTC led volume growth.

We will continue to execute our strategic plan to now deliver our longer term objective of profitable growth, by continuing to invest in product development, winning new CTC customers in our chosen markets and delighting our customers with market-leading implementations and support.

General strategic plan - progress so far and planned activities for the future

It is important to our strategic plans that we retain and grow other strategic revenues, whilst exiting low margin / low growth businesses to keep the Group in a strong financial and operational position whilst CTC is established.

Our strategic plan is to retain and grow revenues from customers that do not, at present, use CTC who remain strategically important to the Group for the long term. These customers are already benefitting from the CTC led investment being made in the Group, through complementary enhancements to our global service lines. We will continue with our strategic plan to retain and grow non-CTC strategic revenues moving into 2015 and beyond.

In terms of exiting low margin / low growth businesses, this shorter term part of the plan is now substantially complete, but we continue to keep all areas of our business under review. Over time, we expect to exit the next tranche of lower to medium margin businesses where this makes strategic sense and there is an opportunity to redeploy existing resources to focus on CTC.

Business model

Central to our strategy is the development of CTC and retention and growth of other higher margin strategic revenues. The business model explains how we intend to achieve our long-term objective and execute the strategic plan.

The types of sale we make and how we earn revenue

We sell software based solutions that generate license, support and maintenance and professional services revenues for the Group.

The software element of any solution is licensed to the customer and a license fee is payable either up-front (perpetual license or term license) or under a 'pay as you go' arrangement (recurring license payments), generally with a minimum term.

Our preferred business model is to secure and retain recurring revenue streams because these provide high visibility of revenues going into future years. CTC creates a new route for the Group to build these valuable recurring revenues over the long term. We therefore focus on licensing customers through a recurring licensing model, where appropriate and consistent with customer requirements, whereby we charge annual fees representing combined licensing, support and maintenance. Recurring revenue licensing fees tend to be payable annually in advance.

Where the arrangement follows a more traditional perpetual or term licensing route, we charge support and maintenance fees separately and these tend to be payable annually in advance.

Software licenses typically include use restrictions that ensure the fee payable is consistent with the value being gained by the customer, the license fee scaling with higher usage. Examples of metrics used for this scaling include: number of transactions being controlled by the software, number of users, number of reconciliations being managed or other measurable criteria. License fees from usage-based arrangements tend to be payable quarterly in arrears prior to folding into the normal pattern for established usage of annually in advance.

The professional services element of any sale is typically charged on a time and materials basis based on an agreed scope of engagement, payable monthly in arrears.

We typically sign recurring revenue licensing contracts with initial terms of at least 3 years, with automatic continuation at the end of that initial term. We aim to include scheduled increases to all fees by indexation during the term of the contract. Credit terms offered are typically 30 days.

How we sell

We have established a global team of experienced and well-respected sales professionals that sell direct to customers. These direct sales efforts are focused on geographic locations where we have a presence, to maximise our efficiency and effectiveness in the sales process. We also consider working with customers in new locations where the business case makes sense.

We also make use of sales channels to access a larger addressable market and reach into new locations where we do not have a presence - these channels include parties that 'white label'. We expect that sales channels will feature more in the execution of our strategic plans as CTC becomes established in the market.

Sales and marketing operations are co-ordinated on a global basis by a head of sales and marketing. We pay sales commission at various rates applied to the net value of a sale to incentivise behaviour aligned to our strategic plans.

What we sell

Clareti Transaction Control ("CTC")

CTC is our innovative software for the global matching market. CTC is designed to provide our financial institutions and corporate customers with real-time financial transaction control. At the core of CTC is a versatile high performance transaction matching and reconciliation engine around which we have built innovative and market leading functionality targeted at specific financial transaction control requirements. A key element of CTC is the Rapid Onboarding Accelerator, which allows customers to rapidly configure reconciliations for non-standardised data and differentiates us in the market.

Our current focus for CTC is on replacing User Developed Applications (UDAs). UDAs are commonplace at the majority of global financial institutions and corporates, most often in the form of bespoke internally developed solutions and / or Excel. They have been deployed to manage areas of the business which would ordinarily be controlled by enterprise class matching or reconciliation products from external vendors.

However, companies find themselves unable to quickly and safely migrate from these UDAs to vendor products that are fit for purpose. This is because existing vendor solutions are generally unable to rapidly control the transactions in question; making moving to a vendor solution prohibitively expensive, uncertain in the required project timeframe and in many cases impossible. This 'technology trap' perpetuates the use of UDAs leaving the companies exposed to the associated risks of control breaks, reliance on key people and end of life internal technology, fraud and error.

CTC addresses all these matching and reconciliation issues, allowing customers to rapidly replace UDAs with certainty, whilst providing them with access to innovative functionality and high performance all on one control platform. The proven rapidity with which CTC can be configured and brought into use by customers is a significant differentiator and unique selling point. Where a business has a large backlog of reconciliations currently being controlled by UDAs, CTC provides a credible and demonstrable migration path to the safety of a controlled vendor product environment. We estimate that 80% of reconciliations across all companies currently employ User Developed Applications, providing a very large market to target with CTC.

Other CTC differentiators include scalability to extreme volumes, flexibility with all data types, simplification of processes into one platform and high quality management information. In addition, CTC has been designed from the outset to operate in real-time, as opposed to the industry normal of batch operation, which is becoming a major requirement of customers globally, driven in large part by regulatory pressures.

Clareti Virtual Bank Accounts ("CVBA")

CVBA is a real-time cash management solution comprising Gresham's Clareti Integration and our partner CashFac's Virtual Bank Technology® (VBT).  Two major banks act as our sales channel for this solution. We contract with the bank who host the solution on their corporate banking platform from which they offer their corporate customers access to the cash management solution. The bank channel provides us with indirect access to the bank's extensive customer base, initially in defined regions but with opportunity for expansion to new geographies and customers. Our primary source of income from these channels is recurring revenue based, with a high per transaction element based on usage.

CVBA provides significant control and efficiency improvements for those managing cash, especially client money or client funds. Re-keying and other high cost, manually intensive operations are removed allowing the corporate to streamline the entire process of managing individual client funds whilst demonstrating compliance with regulatory requirements.

VME and EDT

We provide global support and maintenance for our own VME and EDT software products that are installed in a stable base of major organisations around the world.

Operational model

We work with customers globally and, consistent with our strategic plan, we have created a sustainable global business model to support CTC led volume growth, including; regional management, implementation teams, 24/7 global software support, finance and legal functions together with a CTC graduate intake programme. We continue to refine our business lines and infrastructure to best service customer demand.

We control our business through an Executive Management team representing business lines and regions. This team meets regularly to discuss progress with the strategic plan, performance against KPIs, the market, risks and uncertainties and all issues affecting the Group as whole. Formal reports from all members of this team are submitted to the Board for review and discussion on a monthly basis.

Chosen geographies and markets

We operate globally in three regions: EMEA, North America and Asia Pacific. We currently have presence in Australia, Malaysia, Singapore, UK and US because they are major centres for the business operations of both existing and target customers in our chosen markets.

We split out business into two major segments: Real-time Financial Solutions ("RTFS") and Software. The RTFS business forms the majority of the Group's activity, with the majority of that RTFS activity now CTC based.

We focus on the financial institution market (banks and non-bank financial institutions) as well as certain non-finance vertical markets (corporates). These markets exhibit the right characteristics against which we are best positioned to sell our solutions to replace UDAs, as discussed further in the 'What we sell' CTC section.

In 2015, we expect to benefit from new sales operations established in Singapore and New York where we see significant market opportunity: Singapore because it is a fast growing financial hub for the wider Asia Pacific region, and New York because of the large concentration of financial institutions and in particular target customers on the East Coast of North America.

We regularly review our chosen geographies and markets to keep them consistent with the progress towards our overall strategic objectives.

Product development

The Group actively reviews technical development in its markets with a view to taking advantage of the available opportunities to maintain and improve its competitive position through our own development work. We remain committed to maintaining our ongoing high levels of investment in product development to maintain and extend our competitive position.

We continue to develop CTC in line with an agile development roadmap, delivering new functionality for existing and emerging markets, whilst keeping a balance between development and sales to ensure we deliver committed customer requirements.

The market for CTC, product functionality and benefits can be found in the 'What we sell' section.

Funding

Our business model is to fund strategic plans from working capital.

People

People are key to Gresham's expertise and ability to deliver on a global basis. Retaining people and allowing them to fulfil their potential is important. Loss of key people could slow our ability to grow the business and we seek to provide rewards and job fulfilment that mitigates this risk. We continue to invest in a graduate intake scheme which has proven successful in bringing new ideas and skills into the business.

Each of the Group's business units reviews strategies for retaining staff on an ongoing basis that are appropriate to the local geographic and industry economic climate. These strategies include the provision of competitive terms and conditions, administration of and matched contribution to a defined contribution pension scheme, consideration of family and personal needs, provision of training where required and, in some cases, share options and bonuses.

Performance based rewards payable to employees in the form of share options and bonus are aligned to achievement of strategic objectives, measured by Group KPIs, and relevant to their role.

Employees are invited to attend regular meetings within individual segments throughout the Group, in addition to regular Group-wide communications. Performance appraisals are made annually or more frequently if required, to ensure that employees are getting sufficient support from the Group (including training needs) in order to satisfactorily complete their job requirements.

The Group gives full consideration to applications for employment from disabled persons where the candidate's particular aptitudes and abilities are consistent with adequately meeting the requirements of the job. Opportunities are available to disabled employees for training, career development and promotion. Where existing employees become disabled, it is the Group's policy to provide continuing employment wherever practicable in the same or an alternative position and to provide appropriate training to achieve this aim.

Gender Diversity

The Group strives to enable equality of opportunity and workplace cultures that promote inclusion. At 31 December 2014 the Group had the following split of gender of staff:

Human Rights

The Group supports the protection of human rights around the world and is guided by fundamental principles such as those in the United Nations Universal Declaration of Human Rights and the International Labour Organisation (ILO) Core Conventions. This support is reflected in our policies and actions in the countries in which we do business.

The vast majority of our supply chain exists in the countries we operate (staff costs or partner shares mainly) and are well known and managed directly by us. Where we do utilise suppliers in unknown markets, we will not knowingly work with any supplier that does not share our value of human rights and in particular protection of employee rights.

Environmental considerations

The directors consider that, because of the nature of its activities, the Group does not have a significant impact on the environment in which it operates. However, the Group recognises the importance of environmental responsibility and seeks, wherever possible, to reduce its environmental impact through focus on areas that it can control such as energy saving, recycling and appropriate disposal of old computer equipment and mobile phones.

We continue to look at ways of controlling our environmental impact. Refer to the Directors' Report on page 25 for our Carbon Reporting disclosures.

Key Performance Indicators ("KPIs")

We use a number of KPIs to monitor the progress being made with the execution of our strategy and achievement of our overall objectives.

The Group's KPIs have been selected as the most appropriate measures of strategy execution and progress towards achievement of our overall objectives. The KPIs, reasons for their selection and links with strategy are set out below:

The Financial Review section includes a discussion of performance in 2014 based on these KPIs. Non-financial performance indicators were also initially set around exiting low margin / low growth business based on the identification and then execution of an exit or profit improvement plan. Measurement of non-financial performance was based on whether we had, or had not, exited low margin / low growth business. As explained elsewhere, this element of the plan is substantially complete with exits and closures executed to plan.

Principal Risks and Uncertainties

The Board has a standing agenda item to discuss the risks and uncertainties facing the Group together with actions being taken to mitigate them and future potential items for consideration.

The principal risks and uncertainties that affect the Group and our ability to execute the strategic plan are as follows:

Operational Review of the Business

We made good progress with our CTC led strategic plans during 2014, continuing to win high quality and credible CTC customers in our target geographies and markets. We more than doubled the number of CTC customers and increased recognised CTC recurring revenues from £0.4m (in 2013) to £1.0m in the year.

Continuing Operations

Continuing Operations is analysed excluding exceptional items (there were none in 2014) consistent with the way in which the Board reviews the financial results of the Group.

Overview

Total revenues were down 9% primarily as a result of a reduction in lower margin non-CTC RTFS revenues, with nearly half of this decrease caused by adverse £:A$ currency movements. The profitability impact of this revenue reduction was relatively modest with these non-CTC RTFS revenues attracting a lower gross margin, of approximately 15%.

Consistent with our strategy, we continued to grow total recurring revenues, increasing these by 14% in 2014, with the largest growth contribution coming from CTC where recognised recurring revenues more than doubled to £1.0m in the year.

CTC revenues were stable year on year as we continued to perform the work to bring on new customers and build the recurring revenue base. We more than doubled the number of CTC customers and increased CTC recurring revenues from £0.4m (in 2013) to £1.0m in the year.

With other non-CTC parts of the business in balance, Group profitability in the short term is to a large extent reliant on the absolute level of high margin CTC revenues recognised in the year. Whilst we made good progress in winning new CTC customers during the year and building recurring revenues for the long term, a number of new CTC contracts we anticipated for 2014 were deferred to the fourth quarter of 2014 or moved wholly into 2015. As a consequence, our 2014 profitability was reduced against our expectations and, having invested in sales and marketing early in 2014 in anticipation of winning new CTC customers, our profitability against the prior period also suffered.

New CTC customers

We made good progress with our CTC led strategic plans during 2014, continuing to win high quality and credible CTC customers in our target geographies and markets:

· In January, a major bank purchased CTC for real-time intersystems matching and reconciliation, expanding the use of CTC in this key customer account from the corporate to the investment bank side of operations. This is an important example of our ability to cross sell CTC from one area of a customer to another;

· In May, MainstreamBPO, a back office processing company serving clients across Asia Pacific, purchased CTC to automate the intersystem and cash and stock reconciliations it handles on behalf of its clients;

· In June:

o one of the world's largest banking and financial services organisations purchased CTC to assist with the matching and reconciliation of complex and non-standardised transactions in their Investment Bank;

o a global provider of banking and funds management services purchased CTC to offer as a service to its broker dealer customers in North America for the matching and reconciliation of derivative transactions;

· In July, one of the largest retail businesses in the UK purchased CTC to manage matching and reconciliation of complex and non-standardised transactions in its central shared services operation, providing automated match rates significantly ahead of their expectations;

· In August, ETX Capital, a major financial derivatives dealer in the UK, purchased CTC for real-time matching and reconciliation;

· In November:

o a buy-side financial services house specialising in Investment Management, Securities Lending, Principal and Agency Brokerage services purchased CTC for matching and reconciling broker fees, cash allocation and bank reconciliations;

o one of the world's leading clearers of derivatives, cash securities, OTCs and other financial instruments purchased CTC for real-time matching and reconciliation of exchange traded derivatives and intersystem transactions;

o one of the world's leading legal services businesses purchased CTC for the matching and reconciliation of their Oracle record of payment transactions with third party statements from around the world.

· In December:

o Solo Capital, a boutique financial services house specialising in supplying investment management, securities lending, principal and agency brokering services, purchased CTC to enable it to automate and streamline the matching and reconciliation process across its middle and back office operations;

o a leading North America based provider of front to back office solutions to global asset managers, insurance companies, custodians, pension funds and banks purchased CTC for the provision of real-time reconciliation and matching services to its customers.

The timing of new customers wins in the year was weighted towards the fourth quarter and as a result, much of the new revenue impact of these wins will be recognised in 2015.

Existing CTC customers

We made good progress in rolling out the use of CTC at existing customer sites during the year. At an investment bank, we are well progressed with a major migration project taking their large portfolio of intersystems reconciliations from an old legacy in-house product to CTC - the bank is currently bringing new reconciliations onto CTC at a rate ten times faster than they can achieve with other reconciliation vendor products. During the year, we completed the development of an advanced receivables matching solution with a wholesale bank whose first customer went live in the second half of 2014 - further customers have since been added and we expect this solution to grow further in 2015 as the bank expands globally.

Other customers continued to make more use of CTC in their business, in most cases increasing CTC recurring revenues as a direct result.

We also continued to experience CTC user growth through channel partners, including the wholesale bank discussed above, increasing indirect CTC customer numbers significantly in 2014 with growth in the associated CTC recurring revenues in 2014 building a stronger source of revenues for 2015.

The absolute value of CTC recurring revenue recognised in any one financial period depends on the timing of new customer wins during that period - with customers won later in the period contributing far less recognised revenue than those won at the beginning of the period. It is therefore important to consider the 'run rate' of CTC recurring revenues when assessing underlying performance because this metric reveals visibility of revenues for future periods. The following table identifies the CTC recurring revenue recognised in the current and prior financial year together with the 'run rate' achieved at the end of each financial year:

1 being CTC recurring revenue to be recognised in the following financial period arising from existing customer contracts

We have CTC recurring revenues arising from existing customer contracts of £1.6m for recognition in 2015, up £0.9m on the levels we had coming into 2014. As we win further CTC customers, this trend of increasing revenue recognised and increasing run rate visible for the following financial year will continue.

Key CTC customer accounts

A key CTC customer account is one that is capable of generating in excess of £3m in revenues over a 5 year period. During 2014, we won three new key accounts, adding to the three secured in prior periods.

We had three key CTC customer accounts coming in to 2014 that are already generating levels of revenues over a 5 year period in excess of £3m. We will continue working to drive revenues from these accounts and bring the three newer key CTC customer accounts secured during 2014 into the same profile in future years.

Key CTC customer accounts are a strong driver for recurring revenue growth. CTC recurring revenues from key customer accounts recognised in 2014 totalled £0.6m (2013: £0.1m). The CTC recurring revenue run rate at 31 December 2014 for these key customer accounts is approximately £1.0m (31 December 2013: £0.3m).

We have also successfully sold further non-CTC RTFS products and services into one of these CTC key customer accounts, contributing a further £3.4m of non-CTC RTFS revenues in 2014 (2013: £4.0m).

Other RTFS revenues

Other RTFS revenues reduced by £1.1m in 2014, £0.6m of which arose from adverse £:A$ FX translation rates and £0.5m from lower non-recurring services, some of which was an active decision to reduce lower margin revenues and some from a slightly lower demand for such services. The gross margin associated with this revenue reduction is on average approximately 15% and as a result this is not a major factor affecting Group profitability.

Whilst lower margin non-recurring revenues reduced year on year, in line with our strategy we still grew other RTFS recurring revenues by 14% to £3.4m (2013: £3.1m).

Software revenues

Our Software businesses, comprising VME and EnterpriseDistributape (EDT) continued to generate strong high margin revenues, sustaining a strong cash flow base from which to grow our CTC business. These businesses are now primarily recurring revenue based, with over 85% of revenues (or £2.1m) recurring in nature, and whilst revenue attrition is likely to continue we believe that the rate of attrition will be relatively slow and in part offset by indexation increases and a limited number of new licensing opportunities. Revenues from both these businesses are mainly derived from significant businesses in Europe and North America.

Development spend

In 2014, we accelerated the development of CTC in order to meet market demand and service existing customers. Our CTC development cost in 2014 was £3.1m compared to £1.9m in 2013, on which we claim tax allowances as a cash refund equating to approximately 20% of the amount incurred. We plan for CTC development to reduce in 2015 back to a more normal level of activity following completion of certain complex elements of functionality which required additional resources, but which in turn led directly to new recurring revenues.

Discontinued operations prior year

On 11 March 2013, we disposed of our Banking and Lending business operating in the Caribbean market, allowing us to focus attention on our strategic objectives for CTC in North America. The total consideration received was £0.5m, generating a loss on disposal of £0.19m with a net cash inflow of approximately £0.33m. The revenues associated with this business were £0.2m in 2013 (£0.2m of which was recurring revenue) and £1.8m in 2012 (£1.0m of which was recurring revenue). Whilst this business had a relatively high level of recurring revenues, it was not aligned to our strategic plan for retention because of a related high cost base and low growth potential.

This disposal of a subsidiary is presented as within discontinued operations in the Group income statement for 2013.

Exceptional item prior year

In 2013 we closed our payables financing business which had insufficient growth prospects and we are no longer selling. We recognised an impairment charge in the Group income statement of £298,000 in respect of this closure, which is disclosed as an Exceptional item in 2013.

Cash flow and working capital

The following table summarises the Group's cash movements:

The Group's financial position strengthened at 31 December 2014, with cash of £4.7m and no debt (2013: £4.4m and no debt). Two main factors contributed to the increase in cash. Firstly, we controlled working capital closely and achieved a significant £1.8m reversal in working capital during the year. Secondly, the exercise of share options gave rise to a capital cash inflow of £0.8m. With an overall profit of £0.5m, these cash inflows were sufficient to offset the cash outflows associated with spend on intangible assets (including £3.1m of CTC development spend) giving rise to a £0.3m overall increase in cash.

Treasury policies

The objective of the treasury team is to manage the Group's financial risk; consider and where appropriate secure cost-effective funding for the Group's operations and to minimise the adverse effects of fluctuations in the financial markets on the value of the Group's financial assets and liabilities, on reported profitability and on the cash flows of the Group. The treasury team is accountable through the Finance Director to the Board.

The Group finances its activities with cash and short-term deposits, as disclosed in note 17 and 20 to the Group financial statements. Other financial assets and liabilities, such as trade debtors and trade creditors, arise directly from the Group's operating activities.

Where appropriate, the Group enters into financial derivative transactions, specifically through forward and option currency contracts. The purpose is to manage the currency risks arising from the Group's operations. It is and has been throughout 2014 and 2013 the Group's policy that no trading in derivatives shall be undertaken.

Financial instruments give rise to foreign currency, interest rate, credit and liquidity risk. Information on how these risks arise is set out in note 20, as are the objectives, policies and processes agreed by the Board for their management and the methods used to measure each risk. Derivative instruments are used where appropriate to change the economic characteristics of financial instruments in accordance with the Group's treasury policies.

Capital management

Capital comprises the share capital and reserves, and the working capital of the Group as set out in the notes to the Group financial statements. The key element is cash and cash equivalents totalling £4.7m for the year ended 31 December 2014.

The primary objective of the Group's capital management is to ensure that it maintains sufficient funds in order to support its business including planned expansion, fund on-going development and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions as is discussed in note 20. To maintain or adjust the capital structure, the Group may issue new shares subject always to the rules governing such new issues.

No changes were made in the Capital management objectives, policies or processes during the year ended 31 December 2014.

Taxation

For the year ended 31 December 2014, the Group has recorded a net tax credit of £0.6m, mainly comprising an R&D tax credit (2013: £0.4m). The Group's accumulated deferred tax asset of £0.5m will reverse as a non-cash taxation charge to the income statement in future periods whilst the R&D tax credits are receivable in cash during the year following recognition.

At 31 December 2014, the Group had unrecognised tax losses carried forward for offset against future trading profits of £10.0m (2013: £6.8m). As a result, the Group has no material tax charge or liability and remains sheltered from UK tax in particular.

Board changes

As previously announced, on 1 June 2015 Ian Manocha will join the Company as Chief Executive Officer. At that point, I will change role to that of non-executive director, taking up a position vacated by Hamish Purdey who left the Company in January 2015 to concentrate on his new role as Chief Executive Officer of Intelliflo.

Ian is an excellent choice to lead the Company and I look forward to working with him as we continue delivery of our CTC led growth strategy.

Outlook and future developments

The first quarter of 2015 has started well, with a trading performance in the first two months significantly stronger than for the comparative first quarter of 2014. Our financial position remains strong.

Visibility over revenues for 2015 recognition has increased significantly compared with the prior period. We enter 2015 with high visibility over nearly 85% of our planned total revenues for 2015 (entering 2014: 60%), the majority of which is contracted. We have a strong CTC pipeline and are confident of delivering the balance of revenues in 2015 to meet our plan.

In January 2015, a major European investment bank purchased CTC to provide control over its adherence to certain transaction reporting regulations, compliance with which is enforced in this case by the UK Financial Conduct Authority. The bank's transaction data will be validated by the CTC control platform against specific Approved Reporting Mechanism formats and rules, prior to being reported.

In February 2015, we extended an existing customer's use of CTC, increasing the associated recurring CTC revenues from the account, providing further evidence of a trend that continues to develop across our CTC customer base. 

We are confident of making further progress with CTC in 2015 and firmly believe that executing our strategic plans to achieve long term profitable growth and shareholder value remain on track. We continue to win direct and indirect CTC customers and grow CTC recurring revenues in line with our strategy.

The investments we have made in commercialising CTC have delivered good progress in the final quarter of the year both in terms of new customers and qualified prospects. We have a strong order book of work and qualified pipeline for 2015 and beyond.

The team remains ambitious and excited about the future of the Company.

On behalf of the Board

Chris Errington

Chief Executive Officer

23 March 2015

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The tax effect of exchange differences recorded within the Consolidated Statement of Comprehensive Income is a credit of £11,000 (2013: credit of £54,000).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The financial statements were approved by the Board of Directors and authorised for issue on 23 March 2015.

On behalf of the Board

C Errington R Grubb

23 March 2015 23 March 2015

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASHFLOWS

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1. Basis of preparation

The financial information contained in these condensed financial statements does not constitute the Company's statutory accounts within the meaning of the Companies Act 2006. Statutory accounts for the years ended 31 December 2014 and 31 December 2013 have been reported on, without qualification or drawing attention to any matters by way of emphasis, by the Company's auditors and do not contain a statement under s.498 (2) or s.498 (3) of the Companies Act 2006. Whilst the financial information included in this Annual Financial Report Announcement has been computed in accordance with International Financial Reporting Standards ('IFRS') this announcement, due to its condensed nature, does not itself contain sufficient information to comply with IFRS.

In order to comply with the regulatory requirement to include un-edited text in this Annual Financial Report Announcement, page and note references refer to page and note numbers in the Annual Financial Report. 

Statutory accounts for the year ended 31 December 2013 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2014, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2013 statutory accounts have been applied consistently in all material respects.

This Annual Financial Report Announcement was approved by the Board of Directors on 23 March 2015 and signed on its behalf by C Errington and R Grubb.

2. Responsibility statements under the disclosure and transparency rules

The Annual Financial Report for the year ended 31 December 2014 contains the following statements:

The directors confirm that to the best of their knowledge:

· The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.

· The annual report includes a fair review of the development and performance of the business and the financial position of the Group and the parent Company, together with a description or the principal risks and uncertainties that they face.

The name and function of each of the directors is listed on page 1 of the Annual Financial Report for the year ended 31 December 2014.

3. Segment information

The segmental disclosures reflect the analysis presented on a monthly basis to the chief operating decision maker of the business, the Chief Executive Officer and the Board of Directors.

In addition split of revenues and non-current assets by UK and overseas have been included as they are specifically required by IFRS 8 Operating Segments.

For management purposes, the Group is organised into the following reportable segments as follows:

· Software - supply of solutions predominantly to the enterprise level storage market

· RTFS - supply of solutions predominantly to the finance and banking Asia Pacific, EMEA & North American market

· North American RTFS - supply of solutions to the credit union market in the Caribbean during the year. The results of Gresham Computing Inc., the Canadian subsidiary of the Group disposed of on 11 March 2013 (see note 15) consolidated by the Group prior to the disposal are the only constituent of the North American RTFS segment shown in the following analysis.

"RTFS" refers to Real Time Financial Solutions, and "EMEA" refers to Europe, Middle East and Africa.

Transfer prices between segments are set on an arm's length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment result include transfers between business segments. Those transfers are eliminated on consolidation.

Revenue and Profit / (loss) after taxation for the year ended 31 December 2013 has been adjusted to reflect discontinued operations to align with presentation of these line items in the Consolidated Income Statement. There are no discontinued operations for the year ended 31 December 2014.

Year Ended 31 December 2014

Year Ended 31 December 2013

The Group has customer relationships with two banking customers within its EMEA RTFS segment and a banking customer within its APAC RTFS segment, all three of which are considered by the directors to be individually significant relationships; revenue from these relationships both individually exceeded 10% of the Group's revenue.

Segment profit / (loss) represent segment profit after tax, prior to adjustments for reallocation of share option charges.

Exceptional item

In 2013 we closed our payables financing business which was part of our RTFS segment but had insufficient growth prospects and we are no longer selling. We recognised an impairment charge in the Group income statement of £298,000 in respect of this closure, which is disclosed as an Exceptional item. There were no exceptional items for the year ended 31 December 2014.

Adjustments, central & eliminations

Adjustments, central & eliminations to segment profit/(loss) represent net interest income of £24,000 (2013:£25,000), share option charge of £50,000 (2013:£91,000), central management functions charge of £580,000 (2013: £562,000) and taxation credit of £639,000 (2013: £618,000).

Adjustments, central & eliminations to segment assets represent cash of £4,707,000 (2013: £4,386,000), taxation deferred and current taxation of £1,758,000 (2013: £1,131,000) and other assets of £48,000 (2013: £5,000).

Geographic information

Non-current assets consist of property, plant & equipment, intangible assets, and deferred tax assets.

EMEA includes revenue from external customers located primarily in the UK, Germany, Switzerland & Austria.

Asia Pacific includes revenue from external customers located primarily in Australia, Malaysia & Singapore.

4. Taxation

The following disclosures in respect of Consolidated Income Statement items are presented in respect of continuing operations only.

(a) Tax on loss on ordinary activities

Tax credited in the income statement

(b) Reconciliation of the total tax charge

The tax credit in the income statement for the year is lower than the standard rate of corporation tax in the UK of 21.5% (2013 - 23.25%). The differences are reconciled below:

(c) Unrecognised tax losses

The Group has tax losses that are available indefinitely for offset against future taxable profits of the companies in which the losses arose as analysed in (e) below. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group and they have arisen in subsidiaries that have been loss-making for some time.

The tax effect of exchange differences recorded within the Consolidated Statement of Comprehensive Income is a credit of £11,000 (2013: credit of £66,000).

(d) Temporary differences associated with Group investments

At 31 December 2014, there was no recognised deferred tax liability (2013: Nil) for taxes that would be payable on the un-remitted earnings of certain of the Group's subsidiaries, as the Group has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future.

The temporary differences associated with investments in subsidiaries for which deferred tax liability has not been recognised aggregate to £nil (2013: £nil).

(e) Deferred tax

Recognised deferred tax

A deferred tax charge of £93,000 has been recognised in the year in respect of tax losses and capital allowances in excess of depreciation and other temporary differences.

Unrecognised potential deferred tax assets

The deferred tax not recognised in the Group statement of financial position is as follows:

Future tax rates

The Group's recognised and unrecognised deferred tax assets in the UK, Australian and US subsidiaries have been shown at 20%, 30% & 40% of the gross value respectively (2013: 20%, 30% & 40% respectively), being the substantively enacted rates in these countries.

5. Earnings per ordinary share

The following disclosures in respect of Consolidated Income Statement items are presented in respect of total and continuing operations, with the comparatives restated where appropriate to exclude discontinued operations from these disclosures.

Basic earnings per share amounts are calculated by dividing net profit or loss for the year attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit or loss attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares except when such dilutive instruments would reduce the loss per share.

The following reflects the earnings and share data used in the basic and diluted earnings per share computations:

During the year-ended 31 December 2014, share options granted under the 2010 Share Option Plans were exercised and the Group issued 2,697,500 (2013: none) ordinary shares accordingly (ranking pari passu with existing shares in issue). See note 22 of the Group Financial Statements for further details.

On 6 December 2013, the Group issued 2,400,000 new ordinary shares (ranking pari passu with existing shares in issue) via a placing to institutional shareholders to contribute to accelerating growth. The shares were issued at a placing price of £1.25 pence raising £2,902,000, after expenses of £98,000.

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of this Annual Financial Report.

6. Dividends paid and proposed

No dividends were declared or paid during the year and no dividends are proposed for approval at the AGM (2013: None).

7. Intangible Assets

31 December 2014

31 December 2013

Development costs

Development costs are internally generated and are capitalised at cost. These intangible assets have been assessed as having a finite life and are amortised on a straight line basis over their useful lives of 6 to 20 years. These assets are tested for impairment where an indicator of impairment arises and annually prior to them being made available for use. Development costs have a remaining life of 18 years.

In 2013 we closed our payables financing business which had insufficient growth prospects and we are no longer selling. We recognised an impairment charge in the Group income statement of £298,000 in respect of this closure, which is disclosed as an Exceptional item. The value of the impairment charge is equal to the carrying value of the asset at the point of impairment. The payables financing business the impairment relates to was part of our Asia RTFS segment.

Patents and licences

Patents and licences are the third party costs incurred in seeking and obtaining protection for certain of the Group's products and services. These intangible assets have been assessed as having a finite life and are being amortised evenly over their useful economic life, to a maximum of 10 years. Patents have a remaining life of 4 years and licences have a remaining life of 1 to 10 years.

Goodwill

Goodwill arose on the acquisition of our Asia Pacific real-time financial solutions business. It is assessed as having an indefinite life and is assessed for impairment at least annually.

8. Additional information

The following additional information is not extracted from the Annual Financial Report:

Related party transactions

No related party transactions have taken place during the year that have materially affected the financial position or performance of the Company.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group together with actions being taken to mitigate them and future potential items for consideration are set out in the Strategic Report section.