Last checked at 19 Mar 2014 07:00
19 March 2014
Gresham Computing plc("Gresham", or the "Group" or the "Company")Annual Financial Report AnnouncementYear ended 31 December 2013
Gresham Computing plc, the specialist provider of software based solutions that enable customers to achieve real-time financial certainty in transaction and cash management, is pleased to report its results for the financial year ended 31 December 2013. All financials relate to continuing operations.
Highlights for 2013
· Total revenues up 36% to £14.0m (2012:£10.3m):
o Real-Time Financial Solutions revenues up 62% to £11.5m;
o Within RTFS, CTC revenues up 1650% to £3.5m
· EBITDA up 28% to £2.4m (2012: £1.9m);
· Net Cash £4.4m and no debt (2012: £2.9m and no debt);
· Significant CTC revenue and customer progress in 2013;
· Several CTC sales opportunities at an advanced stage and expansion into new territories well underway for 2014;
· Management confident about outlook.
Chris Errington, CEO of Gresham, commented:
"We have made substantial progress in the execution of our CTC led strategy. We enter 2014 with a proven market-leading product in the global matching and reconciliations market, reference customers, an effective global platform for growth and strong balance sheet.
Further to the £3m placing in December 2013, we have recently completed a number of important new investments in sales & marketing, product development and global support to accelerate our CTC growth plans.
The outlook for 2014 and beyond is strong, with several CTC sales opportunities at an advanced stage and expansion into new territories well underway. The team is 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:
Gresham Computing plcChris Errington, CEORob Grubb, CFO | +44 (0) 20 7653 0200 |
N+1 Singer Shaun Dobson, Head of Corporate FinanceNick Donovan, Corporate Finance | +44 (0) 20 7496 3000 |
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
In accordance with the Disclosure and Transparency Rules, we set out below the extracts from the 2013 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 2013 Annual Financial Report.
CHAIRMAN'S STATEMENT
In 2013, the Group has made substantial progress in the execution of its strategy to develop and sell transaction control solutions, through its flagship product Clareti Transaction Control ("CTC"), to assist organisations (both Financial and non-Financial) to achieve real time financial certainty. The Board established this strategy for the Group in 2010 and began its execution with the appointment of a world class team of software engineers to develop a disruptive technology in the transaction reconciliation and matching market space. Alongside this investment the Group has divested non-strategic business lines (low growth and low profit) whilst building the supporting global organisation for the sales and support of CTC.
I am pleased with the proven market acceptance of CTC with sales in 2013 increasing to £3.5 million from £0.2 million in 2012. We have been successful in securing a number of marquee clients in the Banking, Brokerage and Insurance industries as well continuing to increase recurring revenues from corporate clients of our virtual bank offering (CVBA) sold through our channel partners. Demand for CTC is increasing as market participants continue to engage in complex instruments; driving investment in risk management solutions to properly control the flow of financial data within their own organisation and with their counterparties. Competitor products lack the flexibility to respond to this demand.
Alongside the success in growing CTC sales, the Group has invested to increase sales capacity globally and put in place an organisation capable of supporting clients - post sale. CTC functionality will continue to be enhanced, driven by client and market demand, and we have further invested in R&D accordingly.
Looking ahead, the Group has established an effective platform for profitable growth. The Board is committed to maximising the market potential of CTC whilst maintaining a reputation for quality of delivery and client care and improving financial performance on behalf of our shareholders. We are confident that a combination of market demand, a clear strategic direction, and a responsive and distinctive solution will provide the platform for further progress in 2014 and beyond.
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
18 March 2014
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. Annuity 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 early in 2013 to capitalise on growing market demand for CTC, and then again in late 2013 on the back of strong CTC sales success.
Alongside the focus on CTC development and sales, we have been building 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 started 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 60% of our total current headcount have joined us in the last 3 years and 10% of that headcount will comprise graduates in 2014.
Our development centre currently has a complement of 30 specialist software developers; we have expanded our sales and marketing operation across all three 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. In order to accelerate our strategic plans for CTC, in December 2013 we supplemented our cash resources through a placing to raise £2.9m net of expenses.
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 2014 and beyond.
In terms of exiting low margin / low growth businesses, this shorter term part of the plan is now substantially complete following the disposal of our Canadian subsidiary and closure of our payables financing business during the year. Further details of the disposal can be found in the Financial Review section of this report.
Business model
Central to our strategy is the development of CTC and retention and growth of other 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 (annuity license), generally with a minimum term.
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.
Our preferred business model is to secure and retain recurring revenue annuity streams because these provide high visibility of revenues going into future years. CTC creates a new route for the Group to build these valuable annuity revenues over the long term. We therefore focus on licensing customers through an annuity licensing model, where appropriate and consistent with customer requirements, whereby we charge annual annuity fees representing combined licensing, support and maintenance. Annuity 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 and these tend to be payable 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 annuity 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. We currently have the following sales channels:
· ANZ in Asia Pacific for CTC and CVBA, provided as a service to their corporate customers; and
· Barclays in the UK for CVBA, provided as a service to their corporate customers.
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. 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 user 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 annuity 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.
We provide CVBA to Barclays in the UK and ANZ in Australia / New Zealand.
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 market ("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 2014, we will 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. We monitor the relative level of development expenditure by expressing this expenditure as a percentage of total revenues and comparing this against a benchmark guide of less than or equal to 15% to keep a balance of spend and return. In 2013 this ratio was 14%, in 2012 it was 10%.
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, supplemented where appropriate by new equity issues for cash. To accelerate our strategic plans for CTC, in December 2013 we supplemented our cash resources through a placing raising £2.9m net, further details of which can be found in the Strategic Review section.
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 2013 the Group had the following split of gender of staff:
Female | Male | Total | |
Director | - | 4 | 4 |
Senior Manager | 1 | 7 | 8 |
Staff | 13 | 83 | 96 |
14 | 94 | 108 |
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 the activities of the Group it 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 23 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.
KPIs are adjusted to remove the impact of business Exits and Closures - this allows us to clearly focus on the Ongoing Business we are managing, providing clarity and consistency when reviewing strategic performance. A reconciliation of Ongoing Business and Exits and Closures to the Group Income Statement is provided in the Strategic Review section.
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:
KPIs that provide a measure of execution of strategy | Why the KPI has been selected as a key measure of performance and position | Element of our strategy measured by KPIs |
CTC revenue CTC annuity revenue | CTC revenue based KPIs measure our progress in executing the Group's CTC led growth strategies. | CTC strategic plan: · concentrate our investment and sales efforts on CTC; · create a sustainable global business in support of CTC led volume growth; · grow CTC revenues and build a new high margin recurring CTC revenue stream. In the short term, these CTC revenue based indicators are considered to be the most important measures of strategy execution. |
Total revenues Other annuity revenue
| Revenue based KPIs measure our progress in executing the Group's strategies aimed at retaining and growing other strategic revenues. | General strategic plan: · retain and grow other strategic revenues. |
Total annuity revenue | Annuity revenue based KPIs measure our overall progress in executing the Group's strategies aimed at growing our annuity revenue base. | CTC and General strategic plans · grow CTC revenues and build a new high margin recurring CTC revenue stream; · retain and grow other strategic revenues. |
EBITDA Profit before tax | Earnings based KPIs provide a measure of our progress in executing the overall Group strategy to deliver the objective of profitable growth.
| All elements of the CTC and General strategic plans.
|
EBITDA / Total revenue
| The EBITDA / Total revenue KPI measures our core profitability by presenting earnings in the context of revenues. We believe that a target ratio of >=30% provides a good benchmark measure of return for a product based software company. In achieving our overall objectives, we would expect to come in line with this target in the long term. | All elements of the CTC and General strategic plans. |
The Financial Review section includes a discussion of performance in 2013 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:
Risk | Impact on Group | Assessment of change in risk during year | Mitigation of risk |
Failure to grow CTC revenues and build a new high margin recurring CTC revenue stream | Central to our strategic plan is the growth of CTC revenues along with a business model for CTC annuity growth. Earnings related growth follows directly from revenue growth. Failure to achieve CTC revenue growth would directly impact our achievement of overall objectives or lengthen the period taken to achieve them. During the year, the risk that we would be unable to sell CTC reduced as we validated the product further in our markets through the robust customer and revenue growth achieved. | We believe that the viability of CTC demonstrated by CTC revenue KPIs in 2013 is evidence of a lower overall risk of total failure. The risk is now more one of timing of sales, type and quantum of revenues we are able to achieve from CTC. The sales cycle for larger and more complex deals tends to be long and the value involved high - as a result, the timing of the deal closure may significantly impact reported KPIs in the short term. | We have strengthened our sales operation coming into 2014, with a focus on building visible pipeline going forwards. We are carefully selecting our target geographies and markets to maximize our chances of short term success through sales. We maintain our competitive advantage by delighting our customers and keeping CTC appealing. Our CTC roadmap includes continuous innovation to meet market and customer demand - aimed at keeping us ahead. |
Development of CTC and sales of CTC become misaligned | Acceleration of CTC roadmap items or new customer requirements could place undue pressure on the development team, compromising service quality. This could in turn impact our ability to win and retain customers, impacting our strategic plans for revenue growth. | As we continue to grow CTC sales this risk increases and it will become more critical to ensure that mitigation plans are in place and active, primarily around executive review through regular product board meetings. | We have recently strengthened our development resource to provide additional capacity whilst we grow CTC sales. Communication lines between sales and development have been strengthened during 2013 and a regular executive product board established to monitor risk and resolve issues. |
Over reliance on key customers | The loss of one key customer would have a material impact on our future revenues earnings. Retaining and growing revenues is critical to our achievement of overall objectives. Earnings would be directly affected by a reduction in revenue.
| During the year, this risk became less critical as we began adding new CTC customers and growing revenues generally - thereby spreading the risk of losing one customer. This risk is likely to become less significant in future years as we grow CTC revenues. | Revenue from key customers comprises a growing annuity element which is more predictable than other revenue streams. In addition, the annuity revenue is mostly payable by our sales channel partner banks in respect of our indirect customers - it is structurally more difficult for our sales channel customers to discontinue use, because this would require them to remove a live solution from their much larger direct customer base. |
Significant decline in non-CTC revenues | Whilst CTC revenues are building we are reliant on existing non-CTC revenues. Retaining and growing revenues is critical to our achievement of overall objectives. Earnings would be directly affected by a reduction in revenue. | During the year, this risk became less critical as we began adding new CTC customers and growing revenues generally - thereby reducing reliance on non-CTC revenues. This risk is likely to become less significant in future years as we grow CTC revenues. | Revenues from non-CTC customers are spread across a range of products, geographies and number of customers. Customers here benefit from the business enhancements being made as we focus on CTC deployment globally. Central to our strategy is a continued focus on non-CTC revenues. |
Adequacy of funding / liquidity | Our strategic plans involve investment in CTC development, sales and infrastructure together with a relatively rapid growth in CTC revenues. It is critical that we have adequate funding for the investments required whilst also ensuring that revenue growth is supported by adequate working capital buffers. | This risk was considered carefully in 2013 as we accelerated our strategic plans for investment in CTC and we won a number of significant contracts with large customers. We believe that the working capital risk will persist as we grow our CTC revenues and in the long term reach a steady state. | We carefully monitor cashflows and liquidity to ensure we have adequate funding to meet the needs of our business. In December 2013, we took specific action to mitigate this risk through a firm placing of new shares to raise £2.9m net. Further information concerning how we monitor our cashflows and liquidity together with information on the firm placing can be found in the Financial Review. |
Operational Review of the business
We made significant progress with our key CTC led strategic plans during 2013, winning a succession of high quality and credible CTC customers across all of our target geographies and markets. We also increased our focus on CTC further and built a sustainable global business to support growth.
Continuing Operations
Continuing Operations is analysed excluding exceptional items consistent with the way in which the Board reviews the financial results of the Group.
2013 | 2012 | Variance | ||||
£m | £m | £m | % | |||
Revenue based performance: | ||||||
Real-Time Financial Solutions | CTC revenue | KPI | 3.5 | 0.2 | 3.3 | 1650% |
Other RTFS revenue | 8.0 | 6.9 | 1.1 | 16% | ||
11.5 | 7.1 | 4.4 | 62% | |||
Software | 2.5 | 3.2 | (0.7) | -22% | ||
Total revenues | KPI | 14.0 | 10.3 | 3.7 | 36% | |
Included in total revenues: | ||||||
CTC annuity revenue | KPI | 0.4 | 0.2 | 0.2 | 100% | |
Other annuity revenue | KPI | 5.3 | 5.0 | 0.3 | 6% | |
Total annuity revenue | KPI | 5.7 | 5.2 | 0.5 | 10% | |
Earnings based performance: | ||||||
Profit before tax | KPI | 1.96 | 1.59 | 0.37 | 23% | |
Interest income | (0.03) | (0.03) | 0.00 | 0% | ||
Amortisation and depreciation | 0.46 | 0.30 | 0.16 | 53% | ||
EBITDA | KPI | 2.39 | 1.86 | 0.53 | 28% | |
EBITDA / Total revenue | KPI | 17% | 18% | -1% | -5% | |
Profit after tax | 2.58 | 1.99 | 0.59 | 30% | ||
Basic Earnings per Share (pence) | 4.42 | 3.43 | 0.99 | 29% | ||
EBITDA refers to earnings before interest, tax, depreciation and amortisation. | ||||||
Consistent with our strategy for CTC led growth, RTFS growth was primarily driven by the growth of CTC, with CTC revenues increasing over 16 fold to £3.5m. We also grew other RTFS revenues by 16% to £8.0m, with a net £1.1m of this growth coming from a tactical decision to undertake some lower margin consulting work for major customers. As planned, revenues from our Software business reduced 22% compared to the prior year because one off license sales in 2012 did not repeat in 2013.
As a result, we grew total revenues 36% to £14.0m, growing total revenues in our core Real-time Financial Solutions ("RTFS") business by 62% year on year.
In the year, we also grew total annuity revenues by 10% to £5.7m, with 100% growth in CTC annuity revenue and 6% growth in other annuity revenues. The full year impact of the 2013 annuity growth will benefit 2014, especially in respect of CTC annuity revenue, which was mostly secured in the latter months of 2013.
We saw strong revenue growth across our Asia Pacific and EMEA businesses (which are predominately RTFS businesses) and a planned slight reduction in revenues in our North American business (which is predominately an existing Software business).
CTC revenue
2013 was always going to be about selling CTC to new customers, in new geographies and markets, to demonstrate the viability of CTC. We are pleased to report strong progress with CTC in 2013, demonstrating we have a viable product in the global matching and reconciliations market.
We currently focus on selling CTC to replace User Developed Applications, typically seeking to control the flow of transactions between disparate systems within an organisation - CTC introduces intersystems control. The customer wins in 2013 have a strong intersystems theme for this reason:
· In January, Jones Lang LaSalle went live with CTC to increase the level of automation in matching and allocating incoming receipts between systems for its UK property management business;
· In May, a major financial services company in the Asia Pacific region purchased CTC as a platform technology from which to complete a major intersystems reconciliation project;
· In June, a major Tier 1 investment bank purchased CTC as the technology of choice for real-time intersystems matching and reconciliation, globally. This contract is expected to generate revenues of approximately £3 million over the next 5 years;
· In July, a leading Tier 1 bank purchased CTC for use in its wholesale banking business globally. The contract has a strong matching and reconciliation requirement and an initial term of 20 years. We expect to generate revenues of approximately US$15million (£10 million) over the initial term, approximately $4.5 million (£3 million) of which will be over the next 5 years;
· In August, a London based global fixed income investment manager purchased CTC for real-time matching and reconciliation in their buy-side business;
· In November, a leading UK insurance broker purchased CTC to increase the level of automation in the matching and reconciliation of transactions with counter-party insurers; and
· In December, one of the UK's largest and longest established investment houses purchased CTC for real-time matching and reconciliation in their buy-side business. In addition, a major financial derivatives dealer in the UK purchased CTC for real-time matching and reconciliation, replacing an established incumbent reconciliations vendor.
Alongside this progress, CTC user growth through our sales channel partners accelerated confirming new annuity revenues and opportunity for 2014 and beyond.
Other RTFS revenue
CVBA is the material component of our other RTFS revenues and we continue to gain traction with new customer wins through our sales channel partners, Barclays and ANZ. The associated annuity revenues continue to build and form a significant part of the other annuity revenues of the Group.
Software
Our Software businesses continued to generate strong revenues and cash flows, sustaining a strong cash flow base from which to grow our CTC business. We experienced a planned reduction in revenues as license income reduced to a much lower and sustainable level compared to prior years. These businesses are now primarily annuity revenue based 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. Revenues from these businesses are mainly derived from Europe and North America.
Profitability
We grew profit before tax by 23% to £2.0m and EBITDA by 28% to £2.4m, predominantly through a significant increase in sales of CTC balanced against the additional cost base to drive and support those sales.
Exits and Closures
Exits and Closures are undertaken in line with the Group's strategy to exit low margin / low growth business allowing us to focus our attention and investment on achieving CTC led growth.
Disposal
On 11 March 2013, we announced the disposal 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 annuity revenue) and £1.8m in 2012 (£1.0m of which was annuity revenue). Whilst this business had a relatively high level of annuity 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 a discontinued operation in the Group income statement.
Exceptional item
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.
Cash flow and working capital
The following table summarises the Group's cash movements:
2013 | 2012 | |
£m | £m | |
Profit from continuing operations and before exceptional items | 2.0 | 1.6 |
Exceptional item - impairment charge | (0.3) | - |
Loss from discontinued operations | (0.2) | - |
1.5 | 1.6 | |
Depreciation, amortisation & impairment | 0.8 | 0.4 |
Share based payment expense | 0.2 | 0.2 |
Working capital movements | (1.7) | (1.5) |
Non-cash disposal entries | 0.2 | 0.0 |
Net income taxes received | 0.3 | 0.3 |
Cash (outflow) / inflow from operations | 1.3 | 1.0 |
Purchase of property, plant and equipment | (0.6) | (0.2) |
Payments to acquire intangible fixed assets | (2.3) | (1.5) |
Disposal of subsidiary undertaking | 0.3 | 0.0 |
Net cash used in investing activities | (2.6) | (1.7) |
Net cash from financing | 2.9 | 0.0 |
Net increase / (decrease) in cash and cash equivalents | 1.6 | (0.7) |
Cash at 1 January | 2.9 | 3.6 |
Exchange adjustments | (0.1) | (0.0) |
Cash and cash equivalents at end of period | 4.4 | 2.9 |
The Group's financial position has strengthened at 31 December 2013, with cash of £4.4m and no debt (2012: £2.9m and no debt).
The majority of the £1.7m net working capital outflow in 2013 resulted from increased trading during the last quarter of the year, with a corresponding increase in trade receivables and accrued income at year end. This working capital increase reversed in early 2014, with a cash inflow of £1.8m primarily in respect of two customers.
The significant expenditure on purchase of property, plant and equipment this year represents our investment in global infrastructure, mostly relating to office location moves. During 2013 we exited legacy properties and moved to modern, serviced offices in Sydney, London and Southampton; in addition to opening new offices in New York and Singapore.
Payments to acquire intangible fixed assets represent expenditure on CTC development. Both are consistent with the strategic plan.
Funding
On 3 December 2013, we announced the successful completion of a firm placing to raise £2.9m, net of £0.1m expenses, through the issue of 2,400,000 New Ordinary Shares at a price of 125p per share to certain institutional investors. The majority of the net proceeds are being used to accelerate the commercialisation of CTC through new investment in: acceleration of CTC development, strengthening of our global sales operations (including new sales offices and staff in North America and Singapore) and further enhancing our existing global CTC support infrastructure. The balance of the placing proceeds will be held as working capital to strengthen the balance sheet as we continue to grow our global CTC customer base.
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 2013 and 2012 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 £4.4m for the year ended 31 December 2013.
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 2013.
Taxation
For the year ended 31 December 2013, the Group has recorded a net tax credit of £0.6m, mainly comprising a deferred tax credit of £0.2m (2012: £0.1m) arising from the recognition of prior trading tax losses and an R&D tax credit of £0.4m (2012: £0.3m). The Group's accumulated deferred tax asset of £0.7m 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 2013, the Group had unrecognised tax losses carried forward for offset against future trading profits of £6.8m (2012: £9.7m restated). As a result, the Group has no material tax charge or liability and remains sheltered from UK tax in particular.
Outlook and future developments
We have made substantial progress in the execution of our CTC led strategy. We enter 2014 with a proven market-leading product in the global matching and reconciliations market, reference customers, an effective global platform for growth and strong balance sheet.
Further to the £3m placing in December 2013, we have recently completed a number of important new investments in sales & marketing, product development and global support to accelerate our CTC growth plans. The outlook for 2014 and beyond is strong, with several CTC sales opportunities at an advanced stage and expansion into new territories well underway.
We were pleased to announce in February 2014 that a major Asia Pacific bank had purchased CTC for real-time intersystems matching and reconciliation. We are also seeing strengthening CTC user growth through channel partners confirming new annuity revenues for 2014 and continue to win CTC paid proof-of-concept engagements, often winning such engagements against major global competitors.
We expect to make further CTC led progress in 2014 as new customers come on board, existing customers buy more and the underlying annuity base grows. We remain confident of executing our strategic plans to achieve our long term objective of profitable growth and building shareholder value.
The team is ambitious and excited about the future of the Company.
On behalf of the Board
Chris Errington
Chief Executive Officer
18 March 2014
CONSOLIDATED INCOME STATEMENT
Restated | |||||
Notes | 31 December 2013 | 31 December 2012 | |||
Before exceptional items | Exceptional items | Total | Total | ||
£'000 | £'000 | £'000 | £'000 | ||
CONTINUING OPERATIONS | |||||
Revenue | 3,4 | 14,048 | - | 14,048 | 10,333 |
Cost of goods sold | (3,773) | (3,773) | (2,538) | ||
Gross profit | 10,275 | - | 10,275 | 7,795 | |
Administrative expenses | (8,340) | (298) | (8,638) | (6,240) | |
Operating profit | 5 | 1,935 | (298) | 1,637 | 1,555 |
Finance revenue | 3,8 | 27 | - | 27 | 36 |
Finance costs | 8 | (2) | (2) | (5) | |
Profit before taxation from continuing operations | 1,960 | (298) | 1,662 | 1,586 | |
Taxation | 9 | 618 | 618 | 408 | |
Profit after taxation from continuing operations | 23 | 2,578 | (298) | 2,280 | 1,994 |
DISCONTINUED OPERATIONS | |||||
Loss after taxation for the period from discontinued operations | 15 | (180) | - | (180) | (29) |
Attributable to owners of the parent | 23 | 2,398 | (298) | 2,100 | 1,965 |
Earnings per share - total | |||||
Basic earnings per share - pence | 10 | 4.11 | (0.51) | 3.60 | 3.38 |
Diluted earnings per share - pence | 10 | 3.70 | (0.46) | 3.24 | 3.05 |
Earnings per share - continuing | |||||
Basic earnings per share - pence | 10 | 4.42 | (0.51) | 3.91 | 3.43 |
Diluted earnings per share - pence | 10 | 3.98 | (0.46) | 3.52 | 3.09 |
Year Ended 31 December 2012 restated for Discontinued Operations during the period.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
31 December | 31 December | |
2013 | 2012 | |
£'000 | £'000 | |
Attributable profit for the year | 2,100 | 1,965 |
Other comprehensive (expense) / income | ||
Exchange differences on translation of foreign operations | (428) | (60) |
Exchange differences transferred to income statement on disposal of subsidary undertaking | 145 | - |
(283) | (60) | |
Total comprehensive income for the year | 1,817 | 1,905 |
The tax effect of exchange differences recorded within the Consolidated Statement of Comprehensive Income is a credit of £54,000 (2012: credit of £15,000).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes | 31 December | 31 December | |
2013 | 2012 | ||
£'000 | £'000 | ||
Assets | |||
Non-current assets | |||
Property, plant and equipment | 12 | 674 | 327 |
Intangible assets | 13 | 5,495 | 4,138 |
Deferred tax asset | 9 | 716 | 473 |
Trade and other receivables | 16 | - | 122 |
6,885 | 5,060 | ||
Current assets | |||
Trade and other receivables | 16 | 4,862 | 3,110 |
Income tax receivable | 16 | 415 | 348 |
Cash and cash equivalents | 17 | 4,386 | 2,891 |
9,663 | 6,349 | ||
Total Assets | 16,548 | 11,409 | |
Equity and Liabilities | |||
Equity attributable to owners of the parent | |||
Called up equity share capital | 21 | 3,027 | 2,907 |
Share premium account | 23 | 15,906 | 13,124 |
Other reserves | 23 | 313 | 1,039 |
Foreign currency translation reserve | 23 | 17 | 300 |
Retained earnings | 23 | (8,214) | (11,226) |
Total Equity attributable to owners of the parent | 23 | 11,049 | 6,144 |
Non-current liabilities | |||
Deferred income | 18 | 188 | 548 |
Provisions | 18 | 21 | 53 |
209 | 601 | ||
Current liabilities | |||
Trade and other payables | 18 | 5,248 | 4,538 |
Income tax payable | 18 | 42 | - |
Provisions | 18 | - | 126 |
5,290 | 4,664 | ||
Total liabilities | 5,499 | 5,265 | |
Total Equity and Liabilities | 16,548 | 11,409 |
The financial statements were approved by the Board of Directors and authorised for issue on 18 March 2014.
On behalf of the Board
C Errington R Grubb
18 March 2014 18 March 2014
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share | Share | Other | Currency | Retained | Total | |
capital | premium | reserves | translation | earnings | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 1 January 2012 | 2,907 | 13,124 | 1,039 | 360 | (13,393) | 4,037 |
Attributable profit for the period | - | - | - | - | 1,965 | 1,965 |
Other comprehensive expense | - | - | - | (60) | - | (60) |
Total comprehensive income | - | - | - | (60) | 1,965 | 1,905 |
Share based payment expense | - | - | - | - | 202 | 202 |
At 31 December 2012 | 2,907 | 13,124 | 1,039 | 300 | (11,226) | 6,144 |
Attributable profit for the period | - | - | - | - | 2,100 | 2,100 |
Other comprehensive expense | - | - | - | (283) | - | (283) |
Total comprehensive income | - | - | - | (283) | 2,100 | 1,817 |
Reserves transfer | - | - | (726) | - | 726 | - |
Share issue proceeds | 120 | 2,880 | - | - | - | 3,000 |
Share transaction costs | - | (98) | - | - | - | (98) |
Share based payment expense | - | - | - | - | 186 | 186 |
At 31 December 2013 | 3,027 | 15,906 | 313 | 17 | (8,214) | 11,049 |
CONSOLIDATED STATEMENT OF CASHFLOWS
Restated | |||
31 December | 31 December | ||
Notes | 2013 | 2012 | |
£'000 | £'000 | ||
Cash flows from operating activities | |||
Profit before taxation from continuing operations | 1,662 | 1,586 | |
Loss before taxation from discontinued operations | (180) | (29) | |
Profit before taxation | 1,482 | 1,557 | |
Depreciation, amortisation and impairment | 5 | 820 | 422 |
Share based payment expense | 22 | 186 | 202 |
Increase in trade and other receivables | (2,522) | (101) | |
Increase / (Decrease) in trade and other payables | 870 | (805) | |
Movement in provisions | 18 | (160) | (521) |
Revaluation of foreign exchange instrument | - | (18) | |
Loss on disposal of property, plant and equipment | 14 | - | |
Loss on disposal of subsidiary undertaking | 15 | 185 | - |
Net finance income | 8 | (25) | (36) |
Cash inflow from operations | 850 | 700 | |
Net income taxes received | 343 | 277 | |
Net cash inflow from operating activities | 1,193 | 977 | |
Cash flows from investing activities | |||
Interest received | 8 | 27 | 36 |
Purchase of property, plant and equipment | 12 | (557) | (201) |
Payments to acquire intangible fixed assets | 13 | (2,271) | (1,497) |
Disposal of subsidary undertaking | 15 | 324 | - |
Net cash used in investing activities | (2,477) | (1,662) | |
Cash flows from financing activities | |||
Share Issue | 21 | 2,902 | - |
Net cash generated from financing activities | 2,902 | - | |
Net increase / (decrease) in cash and cash equivalents | 1,618 | (685) | |
Cash and cash equivalents at beginning of year | 2,891 | 3,602 | |
Exchange adjustments | (123) | (26) | |
Cash and cash equivalents at end of year | 4,386 | 2,891 |
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 2013 and 31 December 2012 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 2012 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2013, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2012 statutory accounts have been applied consistently in all material respects.
This Annual Financial Report Announcement was approved by the Board of Directors on 18 March 2014 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 2013 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 2013.
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
· North American RTFS - supply of solutions to the finance and banking North American market (predominantly to the credit union market in the Caribbean during the year)
· Asia Pacific & EMEA RTFS- supply of solutions predominantly to the finance and banking Asia Pacific and EMEA market
"RTFS" refers to Real Time Financial Reporting, 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 in consolidation.
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 included in the North American RTFS segment shown in the following analysis.
The following disclosures in respect of Consolidated Income Statement items are presented in respect of continuing operations only, with the comparatives restated where appropriate to exclude discontinued operations from these disclosures. No adjustment has been made to Statement of Financial Position items as the discontinued operations were not an asset held for sale as at 31 December 2012.
Year Ended 31 December 2013
North | APAC & | Adjustments, | |||
America | EMEA | central & | |||
Software | RTFS | RTFS | eliminations | Consolidated | |
£'000 | £'000 | £'000 | £'000 | £'000 | |
Revenue | |||||
External customer | 2,524 | - | 11,524 | - | 14,048 |
Inter-segment | - | - | - | - | - |
Total revenue | 2,524 | - | 11,524 | - | 14,048 |
Interest revenue | - | - | - | 27 | 27 |
Interest expense | - | - | - | 2 | 2 |
Depreciation | (5) | - | (252) | - | (257) |
Amortisation | (36) | - | (222) | - | (258) |
Impairment (Exceptional item) | - | - | (298) | - | (298) |
Profit / (loss) before taxation from continuing operations | 1,926 | - | 364 | (628) | 1,662 |
Taxation | - | - | - | 618 | 618 |
Profit / (loss) after taxation from continuing operations | 1,926 | - | 364 | (10) | 2,280 |
Profit / (loss) after taxation from discontinued operations | - | (180) | - | - | (180) |
Profit / (loss) after taxation | 1,926 | (180) | 364 | (10) | 2,100 |
Segment assets | 651 | - | 10,375 | 5,522 | 16,548 |
Segment liabilities | (657) | - | (4,654) | (188) | (5,499) |
Year Ended 31 December 2012 - Restated
North | APAC & | Adjustments, | |||
America | EMEA | central & | |||
Software | RTFS | RTFS | eliminations | Consolidated | |
£'000 | £'000 | £'000 | £'000 | £'000 | |
Revenue | |||||
External customer | 3,210 | - | 7,123 | - | 10,333 |
Inter-segment | - | - | 251 | (251) | - |
Total revenue | 3,210 | - | 7,374 | (251) | 10,333 |
Interest revenue | - | - | - | 36 | 36 |
Interest expense | - | - | - | (5) | (5) |
Depreciation | (5) | - | (160) | - | (165) |
Amortisation | (37) | - | (174) | - | (211) |
Profit / (loss) before taxation from continuing operations | 2,196 | - | (206) | (404) | 1,586 |
Taxation | - | - | - | 408 | 408 |
Profit / (loss) after taxation from continuing operations | 2,196 | - | (206) | 4 | 1,994 |
Profit / (loss) after taxation from discontinued operations | - | (29) | - | - | (29) |
Profit / (loss) after taxation | 2,196 | (29) | (206) | 4 | 1,965 |
Segment assets | 338 | 777 | 6,038 | 4,256 | 11,409 |
Segment liabilities | (717) | (452) | (3,585) | (511) | (5,265) |
Revenue and Profit / (loss) after taxation have been adjusted to reflect discontinued operations to align with presentation of these line items in the Consolidated Income Statement.
The Group has two customer relationship with banking customers within the APAC & EMEA RTFS segment, both of which are considered by the directors to be individually significant relationships; revenue from these relationships both individually exceed 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 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.
Adjustments, central & eliminations
Adjustments, central & eliminations to segment profit/(loss) represent net interest income of £25,000 (2012:£nil), share option charge of £91,000 (2012:£167,000), central management functions charge of £562,000 (2012: £237,000) and taxation credit of £618,000 (2012: £408,000).
Adjustments, central & eliminations to segment assets represent cash of £4,386,000 (2012: £2,891,000), taxation of £1,131,000 (2012: £821,000) and other assets of £5,000 (2012: £546,000).
Geographic information
Restated | |||
2013 | 2012 | ||
£'000 | £'000 | ||
Revenues from external customers (by destination) | |||
EMEA | 6,397 | 5,047 | |
North America | 1,041 | 1,179 | |
Asia Pacific | 6,610 | 4,107 | |
14,048 | 10,333 | ||
£'000 | £'000 | ||
Non-current assets | |||
UK | 5,991 | 4,215 | |
North America | 35 | 25 | |
Asia Pacific | 859 | 698 | |
6,885 | 4,938 |
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, with the comparatives restated where appropriate to exclude discontinued operations from these disclosures.
There is a nil tax charge in respect of discontinued operations for the year ended 31 December 2013 (2012: £nil).
(a) Tax on loss on ordinary activities
Tax credited in the income statement
2013 | 2012 | |
£'000 | £'000 | |
Current income tax | ||
UK Corporation tax charge / (credit) | (375) | (335) |
Total current income tax | (375) | (335) |
Deferred income tax | ||
Recognition of deferred tax asset | (257) | (112) |
Tax rate change adjustments | 14 | 39 |
Total deferred income tax | (243) | (73) |
Total credit in the income statement | (618) | (408) |
(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 23.25% (2012 - 24.5%). The differences are reconciled below:
Restated | ||
2013 | 2012 | |
£'000 | £'000 | |
Profit after taxation - from continuing operations | 1,662 | 1,586 |
Accounting profit multiplied by the UK standard rate of | ||
corporation tax of 23.25% / 24.5% | 386 | 389 |
Expenses not deductible for tax purposes | 25 | 6 |
Loss on disposal not deductible for tax purposes | 78 | - |
Differences in tax rates | (1) | - |
R&D tax credit - current year | (376) | (337) |
Losses surrendered for R&D tax credit - current year | 795 | 731 |
R&D enhanced relief | (549) | (399) |
Movement in losses carried forward not recognised | (488) | (483) |
Movement on temporary differences not recognised | (269) | (352) |
Movement on fixed asset temporary differences not recognised | 46 | 60 |
Temporary difference on share based payments | 43 | 50 |
Movement in losses carried forward recognised | (228) | (112) |
Movement on temporary differences recognised | (91) | - |
Movement on fixed asset temporary differences recognised | (3) | - |
Tax rate change adjustments | 14 | 39 |
Total tax credit reported in the income statement | (618) | (408) |
(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 £66,000 (2012: credit of £15,000).
(d) Temporary differences associated with Group investments
At 31 December 2013, there was no recognised deferred tax liability (2012: 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 (2012: £nil).
(e) Deferred tax
Recognised deferred tax
2013 | 2012 | |
£'000 | £'000 | |
1 January | 473 | 400 |
Movement in the period | 257 | 112 |
Impact of change in tax rate | (14) | (39) |
31 December | 716 | 473 |
Deferred tax of £257,000 has been recognised during the year in respect of our UK operations for which there are unutilised losses available to relieve profits. During the prior year £112,000 was recognised in respect of our profitable Australian operations for which there are unutilised losses available to relieve profits
Unrecognised potential deferred tax assets
The deferred tax not recognised in the Group statement of financial position is as follows:
Restated | ||
2013 | 2012 | |
£'000 | £'000 | |
Temporary differences | 878 | 401 |
Tax losses | 1,600 | 2,246 |
Unrecognised deferred tax asset | 2,478 | 2,647 |
Gross temporary differences unrecognised | 4,391 | 1,743 |
Gross tax losses unrecognised | 6,841 | 9,677 |
Gross deferred tax asset unrecognised | 11,232 | 11,420 |
Future tax rates
The following details the intended UK Standard rate of Corporation taxation as announced by the UK government:
· April 2014 - 21%
· April 2015 - 20%
The proposed April 2015 rate has been substantively enacted and therefore the Group's recognised and unrecognised deferred tax assets have been shown at 20% (2012: 23%) of the gross value.
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:
2013 | 2012 | |||
£'000 | £'000 | |||
Basic weighted average number of shares | 58,300,362 | 58,135,978 | ||
Dilutive potential ordinary shares: | ||||
Employee share options - weighted (note 22) | 6,425,500 | 6,386,849 | ||
Diluted weighted average number of shares | 64,725,862 | 64,522,827 | ||
Restated | ||||
31 December 2013
| 31 December 2012 | |||
Before exceptional items | Exceptional items | Total | Total | |
£'000 | £'000 | £'000 | £'000 | |
Earnings attributable to owners of the parent - total | 2,398 | (298) | 2,100 | 1,965 |
Earnings attributable to owners of the parent - continuing | 2,578 | (298) | 2,280 | 1,994 |
Earnings per share - total | ||||
Basic earnings per share - pence | 4.11 | (0.51) | 3.60 | 3.38 |
Diluted earnings per share - pence | 3.70 | (0.46) | 3.24 | 3.05 |
Earnings per share - continuing | ||||
Basic earnings per share - pence | 4.42 | (0.51) | 3.91 | 3.43 |
Diluted earnings per share - pence | 3.98 | (0.46) | 3.52 | 3.09 |
Earnings per share - discontinued | ||||
Basic earnings per share - pence | (0.31) | - | (0.31) | (0.05) |
Diluted earnings per share - pence | (0.28) | - | (0.28) | (0.04) |
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 (2012: None).
7. Intangible Assets
31 December 2013
Development | Patents and | |||
costs | licences | Goodwill | Total | |
£'000 | £'000 | £'000 | £'000 | |
Cost: | ||||
At 1 January 2013 | 7,846 | 1,050 | 1,064 | 9,960 |
Additions | 1,890 | 381 | - | 2,271 |
Disposal of subsidiary (note 15) | (618) | - | - | (618) |
Exchange adjustment | (18) | (2) | (139) | (159) |
At 31 December 2013 | 9,100 | 1,429 | 925 | 11,454 |
Amortisation and impairment: | ||||
At 1 January 2013 | (4,541) | (1,031) | (250) | (5,822) |
Charge for year | (229) | (34) | - | (263) |
Impairment | (298) | - | - | (298) |
Disposal of subsidiary (note 15) | 406 | - | - | 406 |
Exchange adjustment | 18 | - | - | 18 |
At 31 December 2013 | (4,644) | (1,065) | (250) | (5,959) |
Net carrying amount: | ||||
At 31 December 2013 | 4,456 | 364 | 675 | 5,495 |
At 1 January 2013 | 3,305 | 19 | 814 | 4,138 |
31 December 2012
Development | Patents and | |||
costs | licences | Goodwill | Total | |
£'000 | £'000 | £'000 | £'000 | |
Cost: | ||||
At 1 January 2012 | 6,362 | 1,047 | 1,093 | 8,502 |
Additions | 1,494 | 3 | - | 1,497 |
Exchange adjustment | (10) | - | (29) | (39) |
At 31 December 2012 | 7,846 | 1,050 | 1,064 | 9,960 |
Amortisation and impairment: | ||||
At 1 January 2012 | (4,409) | (929) | (250) | (5,588) |
Charge for year | (140) | (102) | - | (242) |
Exchange adjustment | 8 | - | - | 8 |
(4,541) | (1,031) | (250) | (5,822) | |
Net carrying amount: | ||||
At 31 December 2012 | 3,305 | 19 | 814 | 4,138 |
At 1 January 2012 | 1,953 | 118 | 843 | 2,914 |
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 19 years.
In 2013 we closed of 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 Pacific & EMEA 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 5 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. Investments
Disposal of Gresham Computing Inc. (Canadian subsidiary)
On 11 March 2013, the Group announced it had signed and completed an agreement to sell our 100% equity share interest in Gresham Computing Inc (Canada) ("GCI") to BITSS Global Inc. ("Bevertec").
Results of Discontinued Operations
31 December | 31 December | |
2013 | 2012 | |
£'000 | £'000 | |
Revenue | 232 | 1,773 |
Cost of goods sold | (11) | (165) |
Gross profit | 221 | 1,608 |
Administrative expenses | (216) | (1,637) |
Trading profit | 5 | (29) |
Loss on disposal of subsidiary | (185) | - |
Finance revenue | - | - |
Finance costs | - | - |
Profit / (loss) before taxation | (180) | (29) |
Taxation | - | - |
Profit / (loss) after taxation | (180) | (29) |
Assets and liabilities disposed of other than cash
£'000 | |
Intangible assets | 212 |
Property, Plant & Equipment | 15 |
Current assets | 531 |
Current liabilities | (141) |
Deferred income | (253) |
Total assets and (liabilities) disposed of other than cash and cash equivalents | 364 |
Cash and cash equivalents relating to the disposal
£'000 | |
Disposal consideration discharged by means of cash | 513 |
Cash and cash equivalents in company on disposal | (41) |
Net cash inflow from disposal of subsidiary undertaking | 472 |
Costs relating to the disposal | (148) |
Net cash inflow from disposal of subsidiary undertaking after costs | 324 |
Loss on disposal
£'000 | |
Total consideration | 472 |
Net assets (excluding cash) disposed | (364) |
108 | |
Costs relating to the disposal | (148) |
Deferred cumulative foreign exchange transferred from equity | (145) |
Net loss on disposal of Gresham Computing Inc. | (185) |
The disposal of GCI did not qualify as an asset held for sale at 31 December 2012. GCI is included within North America RTFS operating segment as per note 4.
9. Additional information
The following additional information is not extracted from the Annual Financial Report:
Related party transactions
No related parties 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.