Gresham Regulatory News (GHT)

RNS

12 March 2019

Gresham Technologies plc

Annual Financial Report Announcement

Gresham Technologies plc (LSE: "GHT", "Gresham" or the "Group"), the leading software and services company that specialises in providing real-time data integrity and control solutions, announces its results for the year ended 31 December 2018.

Financial

· Group revenues down 8% to £20.0m (2017: £21.7m) including discontinued operations (statutory: down 7% to £19.3m).

· Clareti revenues up 6% to £11.8m (2017: £11.1m), including £0.7m from B2 Group.

· Clareti software revenues down 3% to £7.9m (2017: £8.2m).

· Clareti Annualised Recurring Revenues ("ARR") as at 31 December 2018 up 30% to £7.4m (2017: £5.7m).

· Other revenues as planned and consistent year on year.

· Adjusted EBITDA* down 78% to £1.1m (2017: £5.1m).

· Statutory (loss)/profit before tax as reported down 137% to (£1.4m) (2017: £3.8m).

· Adjusted diluted earnings per share** down 108% to (0.5) pence (2017: 6.5 pence) including discontinued operations (statutory: down 138% to (2.1) pence).

· Cash (including deposits and restricted cash) at 31 December 2018 of £5.6m and no debt (2017: £8.5m and no debt).

· Final dividend proposed at 0.5 pence per share (2017: 0.5 pence).

Operational

· Continued investment in 2018 to increase sales and distribution capacity.

· 15 new Clareti clients added in 2018, including a further Tier 1 global bank.

· B2 Group acquired in July 2018, adding cloud-based cash management technology and 15 clients to the Group.

· Queen's Award for Enterprise: International Trade awarded in recognition of outstanding overseas growth and sales.

· Strategic fintech partnership announced with Australia and New Zealand Banking Group.

· Management confident about the prospects for the Group.

* Earnings before interest, tax, depreciation and amortisation, adjusted to add back share-based payment charges and exceptional items (see note 10 of Group Financial Statements).

** Diluted earnings per share, adjusted to add back share-based payment charges, exceptional items and amortisation from acquired intangible assets.

Ian Manocha, CEO, commented:

"Whilst contract timing issues impacted our full year reported results, the business made significant progress during the year. We won fifteen new Clareti customers and closed an important acquisition, which gives us a platform into continental Europe. As a result, we finished 2018 with a stronger base of Clareti recurring revenues.

2019 has already started positively: we have successfully divested our ageing VME business, one strategic new Clareti contract has been closed and another to follow shortly, and there is good momentum behind our plan to build a more predictable subscription-based business. We remain confident in the opportunity for our market leading Clareti technology and in the profitable growth prospects of the Group."

As announced on 7 March 2019, a presentation for analysts will be held at 8.00 a.m. today by conference call, and a separate presentation for private and retail investors will be held at 4.30 p.m. on Wednesday 13 March 2019 at the offices of N+1 Singer, One Bartholomew Lane, London EC2N 2AX. Admittance for these events is strictly limited to those who register their participation in advance. For analyst conference call details and to register attendance, please contact Gresham at investorrelations@greshamtech.com. A copy of the presentation to be tabled at both sessions will be made available on Gresham's website at 7.00 a.m. today.

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 greshamtech.com/investors.

Printed copies of the Annual Financial Report 2018 will be posted to shareholders in due course.

Enquiries

Inside information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

Note to editors

Gresham Technologies plc is a leading software and services company that specialises in providing real-time data integrity and control solutions. Listed on the main market of the London Stock Exchange (GHT.L) and headquartered in the City of London, its customers include some of the world's largest financial institutions, all of whom are served locally from offices located in Europe, North America and Asia Pacific.

Gresham's award-winning Clareti software platform has been designed to provide financial institutions with complete certainty in their data processing. Clareti is a highly flexible and fully scalable platform for ensuring the integrity of data across an enterprise. It is designed to address today's most challenging financial control, risk management, data governance and regulatory compliance problems.

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

In accordance with the Disclosure and Transparency Rules, the extracts below are from the Annual Financial Report 2018 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 Annual Financial Report 2018.

CHAIRMAN'S STATEMENT

Dear shareholder

I am pleased to present this Annual Financial Report 2018, which records continued progress in pursuit of the Group's strategic goal to build a high-margin, recurring revenue base through the sale and deployment of enterprise data integrity solutions utilising the Clareti platform.

Overview

In the year, Gresham continued to build upon the previously stated strategic objectives (see Strategy, page 13). Market conditions continue to be challenged by geopolitical factors which are well documented.

However, despite these factors weighing heavily on our clients' investment decisions, the demand for better management and transparency over data is ever increasing. The volume and complexity of data flows and the demand for accurate control and reporting over these flows is a matter of concern for company boards and regulators alike. The effective use of technology provides the only viable means to address this need. Clareti Transaction Control (CTC), our flagship product built on the Clareti platform, is directly focused on this demand and is being increasingly selected as a strategic solution for data integrity and control, displacing both in-house and third party vendor solutions.

Group financial performance for the year fell below expectations due principally to two significant contract awards slipping from Q4 2018, one of which is now concluded with the other expected to close shortly. Whilst this was clearly disappointing and resulted in the Group recording an operating loss in the year, the Board remains confident in the strength of the underlying business and the Group's prospects. Indeed, key Clareti metrics in the year were still positive. Financial details can be found in the CFO report on page 17.

Ongoing investments

The Board continues to believe there is a very significant market opportunity for data integrity and control solutions and that ongoing investment in key strategic areas, with appropriate prudence, is essential. We continue to invest in the Clareti platform, commensurate with client demand, but also to embark upon co-development activities with a small number of strategic clients. Where appropriate, we will invest further in sales, marketing and implementation resources based on market demand and focused on high-growth markets, specifically the US and Europe.

The acquisition of the B2 Group in July 2018 was a major investment in the year and has now been successfully integrated into the Group. This acquisition adds significant capabilities and expertise to our cash management and payments business, contributes to our Clareti recurring revenue base and grows our footprint in continental Europe. The Board will continue to consider appropriate acquisition opportunities as they arise.

Shareholder value

Our share price has continued to experience a degree of volatility in the year. The two delayed contracts reported in our December trading update predicated a sharp downturn in the share price, which has since experienced some improvement following recent announcement of awards. It is the Board's belief that its determination to increase recurring revenue as a percentage of total revenue - having a smoothing effect on revenue flow - will help to mitigate against this volatility.

In light of the Company's continued good underlying performance, I am pleased to confirm that the Company will maintain the payment of a progressive dividend. In respect of financial year 2018, the Board is proposing a final dividend of 0.5 pence per share for shareholder approval at the forthcoming Annual General Meeting.

The Gresham organisation and its employees are fully aligned to growing profitable revenue from Clareti sales globally. I remain confident that our investments over the years in sales, marketing and client success provide the platform to deliver shareholder value.

In summary

The demand for technology solutions to manage and report on complex data flows and other data control issues continues to increase. The Clareti platform is a leader in the market to satisfy this increasing demand. The role that Clareti solutions are playing in addressing operations in our client base is increasing in scope and criticality. Our technology is strategically important to a number of major institutions, operating globally. We are well positioned to expand our presence within these accounts and for these successes to broaden our capability to fuel future growth.

With our continued investment in the Clareti portfolio and sales and marketing, I anticipate further improvement in our market position. In addition, we will increase our focus on growing our recurring revenue base, thereby delivering a more predictable financial performance - one which is less dependent on the timing of individual transactions.

2018 has been a challenging yet successful year for the Group, which of course is made up of a great many team and individual successes. This is a testament to the hard work, expertise and professionalism of the Gresham team. 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 enterprise data integrity and control.

Ken Archer

Non-Executive Chairman

CEO'S STATEMENT

Dear shareholder

Strategic overview

Over the last five years or so, Gresham has transformed into an innovative provider of enterprise financial technology to many of the world's largest financial institutions and corporates. The Clareti software business is rapidly overtaking a mixed portfolio of legacy IT businesses which have been in structural decline for a number of years. The recent disposal of our declining VME business, which provided a revenue stream to Gresham for nearly four decades, reaffirms our confidence in and commitment to our Clareti-led growth strategy.

From the first Clareti Transaction Control customer going live in 2012, the Clareti business now accounts for more than 50% of Group revenues and more than 75% of Group annualised recurring revenues. Since 2016, Clareti organic growth has been enhanced by carefully selected acquisitions, which have added recurring revenue, high quality customers, and complementary technology with incremental growth potential. The Group now has over 100 Clareti customers in selected markets around the world.

We will continue to invest, in a sustainable manner, through the current scale-up phase to capitalise on the global opportunity to replace ageing installations of competitor products with our modern disruptive solutions. Given the significant addressable market and the inherent stickiness of core banking and trading systems, Clareti has the potential to evolve into a substantial financial technology business. Our ongoing investment in Clareti is building the foundations for sustained, profitable growth for the Group and long-term value for shareholders.

Clareti business

During 2018, we won a total of 15 new Clareti clients in the USA, the UK, continental Europe and Singapore. In addition, it was pleasing to see a number of clients investing further in the technology following the success of earlier projects. With new wins, growth from existing accounts during the year, high levels of customer retention and the addition of annuities acquired with the acquisition of the B2 Group, we exited the year with a much stronger base of recurring revenues (up 30%).

Our Clareti platform is inherently flexible and can be used to solve a variety of data problems. We are focusing our sales efforts into two market categories: data integrity and control solutions, in banking, investment management, insurance, energy and commodities sector; and cash management and payments solutions, for corporate banking, insurers, wealth managers and complex multi-nationals. Specific licence or service products for these markets draw upon the underlying technical capabilities of the Clareti platform, which continues to expand in functionality.

Data integrity and control

In data integrity and control, we already have strong traction in modernising the post-trade operations of capital markets participants. In line with my statements in last year's report that Gresham is regarded as the emerging champion in enterprise-scale reconciliation software for capital markets, we are now routinely included in vendor selections for replacements as well as new requirements. After competitive evaluations, we signed one of the largest private investment managers in the USA with $1Trillion in assets under management (AUM) as well as a top 10 hedge fund in Europe with around $20bn AUM. During the year, two of the world's largest investment banks independently conducted robust tender processes to replace their legacy global cash and stock reconciliation systems and in December we were delighted to be selected for both projects. Our expectation had been to recognise term licence revenue before year end, but this was not possible. One of the contracts was signed in January 2019 and the other, which was conditionally signed on 31 December 2018, is expected to become non-contingent shortly. Together, the contracts will generate in excess of £7 million in software fees over their respective terms. These wins are regarded as landmark decisions for an industry that has lived with a vendor duopoly for nearly two decades and we believe there is opportunity for others to follow suit over the next few years.

In 2018, we also made progress in extending the use of the Clareti platform into the "RegTech" arena with the signing of a global investment bank for G20 reporting data controls. In addition, we worked with one of North America's largest investment banks on regulatory product enhancements, which has resulted in new functionality to improve the quality of transaction data used for regulatory purposes. This offering is now in production with the bank and the software is now available for sale to other institutions alongside, or separate to, our core reconciliation offering. The regulatory opportunity in financial markets is compelling and we believe our platform offers unique capabilities for market participants and solution providers, as evidenced by our recent announcement of a strategic partnership with RegTek.Solutions.

Cash management and payments

In the cash management and payments space, we believe there is a growing market for corporate cash management and payment control solutions that take advantage of real-time processing, open banking and API's, at a time where global liquidity is a key focus for large organisations. We made excellent progress in this area this year.

We were delighted to announce the acquisition of the B2 Group on 4 July 2018, which added cloud-based bank integration technology and a further 15 customers into the Group. This includes customers such as Easyjet, who benefit from a one-stop-shop cash management portal accessed over the web or mobile providing integration, automation and payment control across multiple banks. B2 was rapidly integrated into the Group and now operates as Gresham's Cash Management Solutions division. The business added four customers in the second half of 2018, including a high-profile German challenger bank and a Luxembourg-based bitcoin exchange.

More widely, we signed one of the world's leading physical cash security providers to control their current business and support expansion into digital services. We also announced a major fintech partnership with ANZ to bring to market the next generation of cash solutions for their institutional and business customers. These projects are building new capabilities and, combined with capabilities within CTC, C24, Clareti Accounts Receivable Management and Clareti Multi Bank, we are able to present a compelling future vision for corporates and banking providers.

Non-Clareti business

Our non-Clareti software businesses (including Cashfac VBT, Wall Street Systems, VME and EDT) remain in structural decline and were down 32%, in line with our plans. Revenues are expected to remain stable in 2019, with exception of the VME business which was divested to Fujitsu effective 31 January 2019 for a consideration of £2 million (representing approximately 2.8 times 2018 revenues). We still expect the remaining businesses to run off in the medium term and are subject to ongoing review.

The Group's Australian IT services contracting business with ANZ finished the year 14% lower than the prior year as a result of reduced customer requirements for contractors. Nevertheless, we exited the year with a strong order book and expect to see modest growth in 2019. Whilst we intend to retain this business in order to continue to service this important customer, the margins remain low and we have no plans to pro-actively grow it.

Outlook and Brexit

The uncertainty relating to the UK withdrawal from the EU continues to be a significant concern to our financial markets customers and, during 2018, many have been distracted as they prepare for alternative operating models. On a positive note, structural change in financial markets often generates new regulatory and data management challenges that our flexible software is well placed to address. Whilst we expect continuity in our software sales activities, it is also important for us to be able to move our professional services consultants freely across borders to support software implementation work for customers. Despite the current lack of clarity on trading arrangements post Brexit, our pro-active step to acquire B2, with its main operations and cloud data centre in Luxembourg, gives us a range of options for the future.

Despite these challenges, we benefit from strong tailwinds in terms of the market dynamics, including: a drive by institutions to replace costly legacy systems; increasing regulatory data challenges; the importance of managing cash in uncertain times; and the promise of intelligent process automation. Our energies are fully focussed on helping our customers through these challenges.

We are confident our strategy is on track and certain about our ability to deliver sustainable long-term profitable growth for our shareholders.

Thank you for your ongoing support.

Ian Manocha

Chief Executive

FINANCIAL REVIEW

Revenues

Our income is analysed between revenues from Clareti Solutions and from Other Solutions, as shown in the table below. See note 4 of the financial statements for further segmentation details.

Clareti Solutions

The Clareti business recorded 6% revenue growth to £11.8m, with the growth being largely driven by revenues from the acquired B2 Group. The reduction in the Clareti revenue growth rate is as a result of the reductions in non-recurring software fees, which typically consist of higher value contracts with lower predictability of the timing of closure, and of the delay in the two high value contracts that were expected to be recognised in 2018, which are discussed in full in the CEO report.

The Group is increasing its drive towards an annuity-based model in order to deliver growth with an increased level of predictability. We made progress against this aim, with recognised Clareti recurring revenues increasing 25% to £6.6m including £0.7m from B2 Group. Our closing Clareti Annualised Recurring Revenues totalled £7.4m (up 30%) due to the addition of annuity revenues from the acquisition of the B2 Group (£1.1m), customer wins in the year and existing customers' increased usage.

Non-recurring Clareti software revenues (initial licence fees) were down 56% to £1.3m as we signed fewer deals under this contracting structure. The Group has continued with the policy adopted in 2016 of granting fixed-term licence grants (typically three to five years) for customers for whom subscription licensing is not appropriate. Consequently, periods of use for these customers beyond the fixed licence term of the contract will attract additional fees, with the first of these additional chargeable periods falling in 2020. As at 31 December 2018, we have achieved initial licence fees under term agreements totalling £4.7m that we anticipate will repeat from 2020 onwards either as repeat upfront fees or additional annuity revenues of an equivalent £1.1m per annum; this is in addition to our stated annualised recurring revenue as at 31 December 2018, which incorporates annually recurring revenues only.

Clareti services revenues were up 34% to £3.9m, continuing the high levels of realisation and utilisation seen in the prior year as our services resources provided new and existing customers with consulting services to enable and increase Clareti use within their organisations.

Other Solutions

Revenues from Other Solutions declined 23% to £7.5m, in line with expectations.

Non-Clareti software revenues from partners are down 31% to £2.1m as a result of one of our legacy partner relationships ceasing as planned in the course of FY2017, with the full year impact in FY2018. This arrangement had a net contribution of 50%. Non-Clareti software revenues from our other legacy products continued to decrease as planned as customers moved off from ageing platforms to newer technologies. This level of attrition is expected to persist as these technology shifts continue, although the longevity of these very old legacy products continues to surpass our expectations. Our VME line of business, which was sold subsequent to the year end, is included within this revenue stream.

Non-Clareti services are predominantly in respect of tactical contracting services provided to ANZ, a strategically important Australian banking customer, which generate a direct net contribution to the Group of approximately 13%. We have increased the ease of forecasting for these contracting services through increasing the committed term of each engagement and we anticipate these low-margin revenues with this customer will continue for the foreseeable future.

Revenue from our discontinuing operation, which was sold subsequent to the balance sheet date, were aligned with our expectations.

IFRS 15 - Revenue from contracts with customers

IFRS 15 was adopted from the 1 January 2018, full disclosure of which can be found in note 29. As anticipated, this has not had a significant impact on our current year or historic revenues or associated costs. The key changes have occurred in relation to: our Clareti subscription licences where accompanying hosting or managed services are not provided to customers; and to the capitalisation of pre-contract costs.

Historically, we recognised all subscription revenues over the term of the subscription. However, upon adoption of IFRS 15, we consider that, for Clareti subscription licences where accompanying hosting or managed services are not provided to the customer, we are providing two distinct deliverables: the software itself; and the maintenance and support service. We therefore assign an estimated stand-alone selling price to each of these deliverables and recognise the value of each upon delivery of our obligations thereunder. The outcome of this is typically that estimated stand-alone selling price of the software licence is recognised at a point in time upon delivery of the software and accompanying annual software licence key, whilst the estimated stand-alone selling price of the maintenance and support service is recognised over the period the service is delivered. The impact of this change has resulted in a cumulative acceleration of recurring revenue prior to the current fiscal year of £0.1m, taken as an adjustment to retained earnings as at 1 January 2018, along with an increase to the current year revenue of £0.1m.

Under previous accounting standards, we also capitalised qualifying pre-contract costs incurred during the sales process, expensing these over the term of the customer contract. Under IFRS 15, we no longer consider this appropriate treatment, therefore we have written off £0.1m to retained earnings as at the 1 January 2018.

Earnings (from continuing operations)

Operating performance is analysed excluding exceptional items, share-based payment charges and amortisation from acquired intangible assets, which is consistent with the way in which the Board reviews the financial results of the Group.

The Group's gross margin fell by 1% to 84%. This fall in gross margin is largely as a result of an ongoing reduction of high margin legacy 'own-solution' software revenues, coupled with an increase in the number of Clareti customers choosing our hosted Clareti-as-a-Service (CaaS) solution, which attracts third party fees classified as a cost of sale.

Our gross margin continues to be affected by the split of contracting service revenues that are provided by third party contractors (which is recorded in cost of sales) and individuals we bring on our payroll as fixed-term employees (which is recorded in administration costs). Excluding the impact of the differences of these splits in contractor and staff costs year on year, our gross margin reduced from 74% in FY2017 to 73% in FY2018.

The Group experienced a significant decline in earnings, with adjusted EBITDA including discontinuing operations falling by 78% to £1.1m, as a result of: the fall in Clareti non-recurring revenues; continued investment in the Clareti business; lower rate of Clareti development spend qualifying for capitalisation; the acquisition of the B2 Group; and decline across all lines of the Other Solutions portfolio.

· Financials quoted in Financial review include discontinued operations

The vast majority (over 95%) of Group spend on staff, buildings and overheads continues to be in respect of Clareti Solutions.

The combined impact of items discussed in the previous paragraphs led to a loss after tax of £1.4m, a reduction of £5.2m on the prior year.

Exceptional items

During the year, the Group incurred exceptional costs completing the acquisition and integration of the B2 Group; exceptional legal and advisory costs associated with the establishment of our all-staff incentive share scheme; and exceptional recruitment costs associated with the recruitment of a new CFO. These costs totalled £333,000 and are offset by exceptional income arising from the fair value adjustment of the C24 contingent consideration of £30,000, resulting in a net exceptional charge of £303,000 (2017: £90,000).

Taxation

For the year ended 31 December 2018, the Group has recorded a net tax credit of £0.1m (2017: £0.7m) which, as in prior years, is primarily as a result of research and development enhanced relief available for our UK development activities, offset by taxation payable both in the UK and overseas in respect of our reselling and servicing operations.

Cash flow

The Group's financial position remained strong at 31 December 2018, with cash and financial assets of £5.6m and no debt (2017: £8.5m and no debt).

The net operating and capital expenditure cash inflow is offset by a £3.0m initial cash payment, including a £1.2m settlement of debt, in respect of the acquisition of the B2 Group in July 2018 and the final £0.4m instalment payable in respect of the acquisition of C24 Technologies in October 2016.

Operating cash flow excluding working capital has decreased by £4.6m to £0.9m in the year for the same reasons as the fall in adjusted EBITDA as detailed above.

The Group also declared and paid its maiden dividend during the year of £0.3m.

With increasing Clareti sales from the growing annuity base and new customer wins, coupled with tight cost control on planned investments, we expect the cash generation capacity of the business to continue and are looking at opportunities to best utilise the excess cash generated, either through bank deposits or to support our M&A ambitions.

Consolidated statement of financial position

Intangible fixed assets have increased since the prior year end from £20.5m to £25.3m. The significant portion of this increase comes from the £4.2m gross value of intangible assets acquired with the acquisition of B2 Group, along with a net increase of £1.3m to capitalised development costs. Trade and other receivables have decreased from £5.5m to £4.6m, which is largely as a result of the timing of new contracts being won compared to the prior year. Trade and other payables have increased from £9.8m to £11.7m as a result of a £0.9m increase in other payables, largely due to an increase in VAT payable and a £1.0m increase in contract liabilities, which is largely as a result of deferred revenue acquired with the B2 Group acquisition as well as the general increase in Clareti recurring revenue base during the year.

Financial outlook

Whilst FY2018 experienced a reduction of the Clareti growth rate as a result of delays to a small number of high value contracts, the Group continues to deliver consistent Clareti growth. However, to drive more predictability into the business, the Group intends to increase its focus on generating higher levels of Clareti recurring revenues rather than initial licence fees.

The contribution from our non-Clareti business, which provides good quality, stable cash flow to support Clareti investments, will reduce in 2019 as a result of the sale of our VME software business to Fujitsu for more than 2.5 times FY2018 revenue, as announced in January 2019. We are planning for further declines in the residual portfolio as customers migrate to newer or alternative platforms.

Tom Mullan

Chief Financial Officer

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 £13,000 (2017: credit of £6,000).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The financial statements were approved by the Board of Directors and authorised for issue on 11 March 2019.

On behalf of the Board

Ian Manocha Tom Mullan

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASHFLOW

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 2018 and 31 December 2017 have been reported on, without qualification or drawing attention to any matters by way of emphasis, by the Company's auditor 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 2018.

Statutory accounts for the year ended 31 December 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2018, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2017 statutory accounts have been applied consistently in all material respects.

This Annual Financial Report Announcement was approved by the Board of Directors on 11 March 2019 and signed on its behalf by Mr. I Manocha and Mr. T Mullan.

2. Responsibility statements under the disclosure and transparency rules

The Annual Financial Report for the year ended 31 December 2018 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; and

· The Annual Financial Report 2018 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 of the principal risks and uncertainties that they face.

The name and function of each of the directors for the year ended 31 December 2018 are set out in the Annual Financial Report 2018.

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 and the Board of Directors.

In addition, the split of revenues and non-current assets by the 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:

· Clareti Solutions - supply of solutions predominantly to the finance and banking markets across Asia Pacific, EMEA and North America. These solutions include:

o Clareti Transaction Control: a high-performance enterprise data control solution for data validation and real-time transaction matching and reconciliation.

o Clareti Accounts Receivable Management: a receivables management application with automated matching, reconciliation and allocation to reduce the order-to-cash cycle.

o Clareti 24 Integration Objects: integration software to enable rapid adoption of financial message standards and transform complex data types.

o Clareti Loan Control: a front-to-back loan servicing solution that enables effective and auditable management of simple and complex loan portfolios.

o Clareti Multi-Bank; Real time visibility of cash and stock portfolios across multiple institutions giving treasurers absolute confidence of their exact positions at all times.

· Other Solutions - supply of a range of well-established solutions to enterprise-level customers in a variety of end markets.

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.

The following disclosures in respect of the Consolidated Income Statement items are presented in respect of continuing operations only, with comparatives restated where appropriate to exclude discontinuing operations from these disclosures. No adjustment has been made to Financial Position items as the discontinuing operations were not an asset held for sale as at 31 December 2017.

Administrative expenses, segment assets and segment liabilities are shared across the Group and cannot be allocated to operating segments.

The Group has a customer relationship with one banking customer which is considered by the Directors to be individually significant; revenue from this relationship exceeded 10% of the Group's revenue, totalling £8.6m (2017: £7.8m). This revenue includes the low-margin contracting revenue of £4.2m (2017: £4.8m) noted above. The revenue from this customer falls predominantly within the Other Solutions segment.

Exceptional items

During the year the Group incurred exceptional costs completing the acquisition and integration of the B2 Group; exceptional legal & tax advisory costs associated with the new all-staff incentive scheme; fair value adjustment in respect of the C24 contingent consideration paid in May 2018; and exceptional recruitment costs associated with the recruitment of a new CFO. These costs totalled £303,000 (2017: £90,000).

Geographic information

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

EMEA includes revenue from external customers located primarily in Germany, France, Luxembourg and Switzerland.

Asia Pacific includes revenue from external customers located primarily in Malaysia and Singapore.

4. Taxation

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

There is a nil tax charge in respect of discontinuing operations for the year ended 31 December 2018 (2017: £nil).

Tax on loss on ordinary activities

Tax credited in the income statement

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 19.00% (2017: 19.00%). The differences are reconciled below:

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 £13,000 (2017: credit of £6,000).

Temporary differences associated with Group investments

At 31 December 2018, there was no recognised deferred tax liability (2017: £nil) for taxes that would be payable on the unremitted 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.

Deferred tax

Recognised deferred tax Asset

A deferred tax debit of £610,000 (2017: credit £322,000) has been recognised in the year in respect of tax losses and capital allowances in excess of depreciation and other temporary differences.

Deferred tax liability

Unrecognised potential deferred tax assets

The deferred tax not recognised in the Group Statement of Financial Position is as follows:

Future tax rates

The main rate of corporation tax for UK companies reduced from 21% to 20% from 1 April 2015. The Finance Bill 2015, which was substantively enacted on 26 October 2015, announced further reductions to the main rate of corporation tax. The rate further reduced to 19% from 1 April 2017 and will reduce by a further 1% to 18% from 1 April 2020. The Finance Act 2016 was approved on 15 September 2016. The Act reduces the main rate of corporation tax to 17% from 1 April 2020 (superseding the 18% rate effective from that date introduced in the Finance (No.2) Act 2015).

The Group's recognised and unrecognised deferred tax assets in the UK, Australian and US subsidiaries have been shown at the rates in the following table, being the substantively enacted rates in these countries.

5. Earnings

Earnings per share

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:

Adjusted EBITDA earnings - continuing operations

During the year ended 31 December 2018, share options granted under the 2010 Share Option Plans were exercised and the Group issued 462,500 (2017: 707,979) ordinary shares accordingly (ranking pari passu with existing shares in issue). See note 23 of the Group financial statements for further details. On 4 July 2018 134,440 shares were issued as part consideration for the acquisition of B2 Group at a placing price of £1.71.

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 2018.

6. Dividends paid and proposed

The final dividend for the year ended 31 December 2017 was approved at the Company Annual General Meeting on 10 May 2018 and paid on 21 May 2018 of 0.5p per share, equating to a total of £338,000. The Company will be proposing a final dividend for approval at the AGM for the year ended 31 December 2018 of 0.5p per share.

7. Intangible assets