Gresham Regulatory News (GHT)

RNS

21 July 2020

Gresham Technologies plc

Interim Report Announcement

Gresham Technologies plc (LSE: "GHT", "Gresham" or the "Group"), the leading software and services company that specialises in providing solutions for data integrity and control, banking integration, payments and cash management, announces its unaudited half year results for the six months ended 30 June 2020.

Financial highlights

· Group revenues down 2% to £12.2m (H1 19: £12.4m)

· Clareti revenues down 10% to £7.4m (H1 19: £8.3m)

· Clareti recurring software revenues down 2% to £5.4m (H1 19: £5.5m)

· Clareti annualised recurring revenues up 18% to £10.7m (30 June 19: £9.1m), crossing the £10.0m mark for the first time

· Group annualised recurring revenues up 16% to £13.8m (30 June 19: £11.9m)

· Adjusted EBITDA down 4% to £2.4m (H1 19: £2.5m)

· Cash EBITDA down 57% to £0.3m (H1 19: £0.7m)

Operational highlights

· Seamless transition to remote working and operating at full capacity

· New Clareti Tier 1 bank win opens up retail and commercial banking segment

· Second licence milestone achieved alongside ANZ Innovation Service agreement

· Go-live of strategically important cash and stock deployment at global Tier 1 bank

· Non-Clareti portfolio continuing to prove resilient and performing ahead of expectations

· Management confident in the strategy and outlook for the Group

Adjusted EBITDA refers to earnings before interest, tax, depreciation, Impairment and amortisation, adjusted for one-off exceptional charges and share-based payments.

Cash EBITDA refers to adjusted EBITDA less the cash spend on capitalised development and rental charges treated under IFRS 16 capital lease payments.

Ian Manocha, Gresham CEO, commented:

"Despite the difficult global market, we're pleased to report a solid start to the year with 18% growth in Clareti ARR and a strong performance across our legacy portfolio. We have good visibility into the second half and are firmly on track to achieve our full year earnings expectations."

As announced on 16 July 2020, a presentation for analysts will be held today at 10.00 a.m. over conference call, with a separate presentation for private and retail investors at 4.00 p.m. on Wednesday 22 July 2020 via the Investor Meet Company platform. 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. Information on how to register attendance for the private and retail investor presentation is set out in the Company's announcement of 16 July 2020. A copy of the presentation to be tabled at both sessions will be made available on Gresham's website at 9.00 a.m. today.

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 solutions for data integrity and control, banking integration, payments and cash management. 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 and corporates, all of whom are served locally from offices located in the UK, Europe, North America and Asia Pacific.

Gresham's award-winning Clareti software platform is a highly flexible and scalable platform, available on-site or in the cloud, designed to address today's most challenging financial control, risk management, data governance and regulatory compliance problems. Learn more at www.greshamtech.com.

Chief Executive review

Strategic overview

Whilst winning new Clareti business during the first half of 2020 has been slower than our original pre-Covid operating plan, we remain confident in and committed to our strategic objective to create a valuable, modern, enterprise financial technology company that enables organisations to be in control of their critical data and business processes. We believe that the Covid-19 pandemic has highlighted the pressing need for financial institutions to further invest in intelligent automation solutions in order to reduce the need for manual interventions in their core processing activities.

Our Clareti platform helps our customers connect, reconcile, and control the many disparate sources of trading, finance, risk and regulatory data that exist in modern trading ecosystems. Our applications and cloud services enhance the platform with capabilities across our three go-to-market initiatives: data integrity and control solutions primarily for post-trade operations in capital markets; regulatory solutions for financial market participants; cash management and payments solutions for transaction banks and corporates. The successful adoption of our platform and applications creates value for our customers by improving their operating efficiency, reducing their risk, enabling them to deliver innovative services to their clients and differentiate themselves in the market.

Our go-to-market strategy involves deploying direct sales teams into the major global financial markets in order to win high quality new name accounts and extend the use of our software and cloud services within existing customers. Ultimately, as our platform becomes widely adopted in the market, we will be able to leverage our investments in product development and global support services and realise the high margins, strong cash generation, and attractive valuation multiples typical of large mature enterprise software firms.

As a niche player within a very substantial global financial technology market dominated by large players, it is important to gain scale rapidly and carefully selected acquisitions are a means to expand our global footprint, win share of wallet in major customers, build recurring revenue and enhance earnings. C24 Technologies Limited was acquired in 2016 and its financial messaging technology is now an integral part of the Clareti platform. B2 Group, acquired in July 2018, provides bank connectivity cloud services and give us a footprint in the EU. We continue to look for opportunities to gain further scale and distribution in each of our go-to-market initiatives.

Trading update

Revenue

The Group earns revenues from the sale of software cloud services, and provision of ancillary consultancy services. The following table summarises the Group's revenue performance in the six months to 30 June 2020:

In the first half of the year we were pleased to secure two important new Clareti software contracts as well a small number of new licenses and upgrades with existing customers. In line with our plan to underpin our future earnings with high quality recurring revenue, both contracts were subscription based.

The first important commitment was an additional recurring licence fee from ANZ, our innovation partner, for a next generation cash management solution. This step up in fees followed the achievement of the second milestone in the joint programme of work being delivered alongside the Innovation Service signed in 2018. ANZ are on track to go-live with the solution in mid-2021, when a further step up in recurring fees will be due.

The second important win in the period was with one of the world's largest banks who signed an enterprise agreement with £0.6m per annum Clareti software fees, initially committed for three years. CTC will be deployed across the bank's UK operations, including retail accounts and products, cards, payments and commercial banking. Gresham's selection followed a particularly rigorous evaluation of competitor offerings by the bank and indicates the strong potential for further sales outside of our core capital markets industry. In particular, the flexibility of the Clareti platform to directly ingest a diverse and complex range of source data types and automate a broad set of business processes, all on a single platform, were key differentiators.

Clareti renewals were also strong with no new material cancellations being notified during the period. It should be noted that, whilst Clareti recurring revenues are 2% lower than the comparative period in the prior year, the first half of 2019 included revenues from two customers in run-off, as well as some revenue from the Clareti Loan Control joint venture that is now terminated.

As a result of new and incremental business, our forward-looking Clareti annualised recurring revenues (ARR) are 18% higher than a year ago.

Whilst experiencing a slight drop versus the equivalent period in the prior year, our Clareti professional services revenues held up extremely well during the first half considering the Covid-19 situation and the transition to remote working. A high level of on-going implementation work is continuing to be generated from key accounts with some strategic investments being made where necessary. In the first six months of the year, new services contracts totaling over £1m were signed for implementation projects in Europe.

Other Solutions, the Group's portfolio of legacy revenues, were 17% higher than the same period in 2019. This performance was ahead of our planning assumptions, with the majority of the growth coming from our lower margin Australian contracting business and the additional recurring revenues from increased usage of partner software by ANZ.

Earnings - continuing operations

Firm control over costs during the Covid-19 crisis means that earnings have closed in line with expectations and the Company is tracking confidently towards its planned full year Group EBITDA and Group cash EBITDA. It should be noted that earnings in H1 2019 were bolstered by £0.6m on non-annually recurring licence fees.

We have disclosed adjusted EBITDA at two different levels, both of which are post the implementation of IFRS 16, in the table above:

· Adjusted EBITDA refers to earnings before interest, tax, depreciation, impairment and amortisation, adjusted for one-off exceptional charges and share-based payments and is stated after the application of IFRS 16 (leases) which reclassified rental expenses as amortisation and interest.

· Cash EBITDA is Adjusted EBITDA less capitalised development spend and IFRS 16 capital lease payments (which pre IFRS 16 were classified as rental costs within administrative expenditure). We consider this to be the most appropriate indicator of cash profitability for the Group in its current stage of evolution as it removes any variability between capitalisable and operational development spend.

Cashflow

The Group continues to be funded from operating cash and has no debt. Operating cashflow remains strong and is materially consistent with the equivalent period in the prior year. The movement in working capital is largely explained by the unwinding of upfront payment of £3.0m for the first three years subscription licence fees that was received during the first half of 2019.

Capitalised development costs have increased compared to the prior first half but are consistent with the second half of 2019. Gross development spend has remained largely consistent, however as focus has increased towards new features and functions, the portion of which is capitalisable has increased.

During the first half of 2019, the Group received a net amount of £1.7m through the sale of its legacy VME business, with the £0.3m balance to the sale price being customer advance payments already received at the time of the sale. There was no equivalent business disposal during the first half of 2020.

The Group paid a dividend of £0.5m which is an increase of 0.25 pence per share on the previous year and also collected a net tax refund of £0.5m as a result of enhanced relief available for research and development activities which was slightly lower than the previous first half.

In the prior first half, a cash outflow of £0.9m occurred to fund the employee benefit trust to purchase our own shares to fund employee and executive bonus and long-term incentive schemes for future years.

Covid-19 crisis response

Our priority as the crisis unfolded was to ensure the safety of Gresham staff and families and provide extraordinary levels of support to our customers. In recent years, the Company has invested in its global business systems and processes in order to build resilience. All internal systems and software development servers are hosted in the cloud, all staff are equipped with laptops, there is extensive use of modern collaboration and communication tools in the business, and our networks and security protocols are designed for 100% remote working. As a result, during the week of 9 March, our global staff in eight offices around the world moved to home working with no disruption to the business or unplanned IT costs. During February and March, our customers were experiencing unprecedented volumes and patterns of trading and we were pleased to note that all our Clareti software deployments handled the performance stresses extremely well and proved valuable in ensuring our customers' operational processes were able to continue efficiently. Our client-facing support, hosting and consulting operations have continued to provide full-service levels to our customers. During the first six months of 2020, our customer support team handled 2,686 tickets, and scored a Customer Satisfaction rating of 95% and a Service Level Agreement rate of 98.6%. Gresham proved itself during the crisis to be a trusted and reliable partner to the financial community.

As the Covid-19 crisis unfolded, we promptly made adjustments to our own annual operating plan to preserve cash and protect liquidity in a way that would not compromise the excellent long-term prospects of the business. In order to maintain capacity, cost savings have been made without recourse to staff losses, pay cuts or furloughs.

Our global offices will be re-opened for use on a voluntary basis, as and when it is safe to do so, although we expect flexible working policies to be part of our future and will continue to adapt our management practices accordingly. 

Go-to-market

Direct sales remain our primary route to market, and sales cycles have tended to be high touch with competitive tendering processes, presentations, demonstrations, client references and proofs of concept. We have adjusted our pre-sales processes to support remote engagements and our marketing engagements have switched to digital platforms. Recruitment for critical sales and marketing staff has continued throughout the period. I am pleased to say we have been able to remotely hire and on-board some excellent people in Q2, and have additional new sales staff joining in Q3. We continue to pursue partnerships including selling alongside global system integrators as well as white-labelling and OEM arrangements.

Clareti platform & Solutions

At our Innovation Labs in Bristol and our Innovation Hub in Luxembourg, our use of modern and agile development processes, scalable cloud architectures leveraging containers, microservices and API's, fast cycle releases, and integrated testing are regarded as market leading practices. Whilst the majority of our customers choose to deploy our software deployments on-premise our technology is equally at home in the cloud. We have deployments in Amazon's AWS and Microsoft's Azure as well as in a secure private cloud in Luxembourg for our cash management and payments customers. During H2 we will be stepping up our investment in cloud services.

Development work has progressed throughout H1 at full capacity as we enhance our Clareti platform to deliver core capabilities that support our three growth initiatives: data integrity and control solutions; regulatory solutions; and cash management and payments solutions.

Data integrity and control solutions

Clareti Transaction Control (CTC) was built to disrupt a market dominated by a small number of legacy vendors whose inflexible technology architectures fail to address the need for more granular and real-time data control across the entirety of a firm's operations.

With dozens of successful projects completed, CTC is now regarded as an industry leading solution for the control and reconciliation of complex 'non-standardised' transaction data in financial markets. We have long recognised that, to achieve market leadership, we would need to enhance the platform to tackle the 'standardised' cash and securities markets and ultimately displace deeply embedded legacy solutions such as Smartstream TLM and FIS Intellimatch. In Q1 2019, two Tier 1 global investment banks signed agreements to work with us to deliver on the vision of a true enterprise solution. Both banks have successfully migrated some processing across to CTC in the first half of 2020 and are on track to completely replace their legacy platforms. The Tier 1 retail and commercial bank that signed for Clareti in June 2020 was also a TLM customer. We believe that there is a compelling opportunity to replace further legacy installations in the global market, although the Covid-19 crisis has inevitably delayed a number of these projects into 2021.

Regulatory solutions

Our regulatory solutions leverage the power of the Clareti platform to help firms control and ensure the accuracy of the data being collected for regulatory reporting and compliance purposes. Several institutions are already live with Clareti technology for regulations such as MiFID, and, during H1 2020, we have been working with a large global investment bank to deploy CTC into the Microsoft Azure cloud to manage the exceptions that come from the US CAT regulatory reporting process. This is expected to go live in Q3 and will be one of the largest scale CTC deployments to date. The CAT reporting process enables the regulator to track orders throughout their life cycle and identify the broker-dealers handling them. We believe there will be opportunity to repeat this project in Tier 2 institutions as the US CAT regulations are rolled down to them in 2021.

Today our current capabilities only address a proportion of the requirements for a typical end-to-end regulatory solution and we will partner with other vendors, or acquire technology, to expand our offerings over time in order to develop the domain skills needed to be successful. We have now signed partnerships with solutions providers, clearing houses and market connectivity providers, as well as the direct sales to institutions.

Cash management and payments solutions

Gresham has two decades of experience in providing solutions to the corporate banking market and continues to support third party cash management products within our Other Solutions business segment. Our strategic partnership with ANZ to develop modern cash management offerings and our acquisition of B2 Group set us on the path to our own licensable intellectual property. B2 itself has not performed at the levels originally envisaged for the initial two year earn-out period which closed on 4th July 2020. No earn-out payments have been made and the business is now being re-aligned with Gresham's global operating model. We have combined B2's multi-bank connectivity service with Clareti Integration software and will now sell this as part of a portfolio of cloud connectivity services. The ANZ development is progressing well and is expected to go-live in the summer of 2021 and will provide Gresham with a modern cloud-native bank account platform to take to market around the world.

Outlook

As a result of our pro-active transition to subscription licensing over the last 18 months, the Group benefits from record levels of forward-looking ARR. We started the year with a strong book of contracted services engagements and signed a further £1m services commitments in the first half of the year. Renewal rates within the Clareti business in the first six months of the year were excellent, with cancellation notifications in the first half of year totaling just 0.2% of the Clareti ARR brought into the year from 31 December 2019. Revenues from business already won and renewals that have been contractually committed or confidently expected together provide a high level of visibility for the current year equivalent to 88% of planned FY2020 Group revenues.

New business wins in the first half were inevitably slower than planned, with a number of pre-sales engagements being delayed and decisions deferred as a result of the Covid-19 crisis. Whilst we expect sales activity levels to steadily increase in the coming months as delayed customer projects are re-visited and investment priorities and budgets are firmed up for 2021, it is reasonable to assume that a difficult economic environment will persist well into the next year.

The pandemic and the associated economic downturn have impacted the Group's ability to generate new-win Clareti revenues to the levels originally planned for FY2020. Nevertheless, we are confident that our Clareti recurring revenues will grow during the year and our Clareti services revenues are tracking close to our original plans. Furthermore, our Australian sub-contracting and legacy revenues from Other Solutions are all performing well and provide excellent levels of visibility. We remain confident in our ability to achieve FY2020 plans for Group Adjusted EBITDA and Cash EBITDA based solely on the already contracted and highly visible revenues.

In addition, the Group's strong balance sheet, cash position, lack of debt and excellent mid to long term prospects should provide significant comfort to shareholders, and the director's prior conclusion on the going concern status of the business remains unchanged.

From these strong financial foundations, with a loyal customer base, an experienced team and very relevant solutions, we believe there is an excellent opportunity for the Group to more aggressively attack the market. We will continue to manage out costs carefully, refine our go-to-market plans for the new circumstances, and look for strategic growth opportunities where they exist.

Thank you for your support,

Ian Manocha

Chief Executive Officer

21 July 2020

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated statement of cashflows

Notes to the interim report

1. Basis of preparation

Gresham Technologies plc (LSE: "GHT", "Gresham" or the "Company" or the "Group" or the "Parent") is a Public limited company and is listed on the London Stock Exchange. The Company's registered address is Aldermary House, 10 - 15 Queen Street, London, EC4N 1TX and the Company's registration number is 1072032.

These condensed interim financial statements are unaudited, have not been reviewed by the Group's auditors, and do not constitute statutory accounts within the meaning of the Companies Act 2006.

These condensed interim financial statements have been prepared on a going concern basis and in accordance with IAS 34 'Interim Financial Reporting', the Disclosure and Transparency Rules and the Listing Rules of the Financial Conduct Authority, and were approved on behalf of the Board by the Chief Executive Officer Ian Manocha and Chief Financial Officer Tom Mullan on 20 July 2020.

The accounting policies and methods of computation applied in these condensed interim financial statements are consistent with those applied in the Group's most recent annual financial statements for the year ended 31 December 2019.

The financial statements for the year ended 31 December 2019, which were prepared in accordance with International Financial Reporting Standards, as endorsed by the European Union ('IFRS'), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, have been delivered to the Registrar of Companies. The auditors' opinion on those financial statements was unqualified and did not contain a statement made under s498(2) or (3) of the Companies Act 2006.

Copies of these condensed interim financial statements and the Group's most recent annual financial statements are available from the Group's website www.greshamtech.com or by writing to the Company Secretary at the Company's registered office.

2. Segmental 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, 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 (both software and services) 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 Integration Studio: integration software to enable rapid adoption of financial message standards and transform complex data types.

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.

· Contracting Services - supply of IT contracting services to one banking customer

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.

6 months ended 30 June 2020 (unaudited) - Segmental Information

6 months ended 30 June 2019 (unaudited) - Segmental Information

Adjusted EBITDA - continuing operations

Adjusted EBITDA - continuing operations is calculated as EBITDA excluding exceptional charges and share-based payments, reconciled as follows:

3. Taxation

As in the prior year the UK corporation tax prior period adjustment relates to the cash credit received upon the surrender of losses.

4. Earnings per ordinary share

Basic earnings per share amounts are calculated by dividing net profit for the period attributable to ordinary equity holders of the Parent by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the Parent by the weighted average number of ordinary shares outstanding during the period 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.

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

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

Exceptional items in the period largely relate to the final integration costs relating ot the acquisition of B2 Group S.a.R.L. following the completion of the 2 year earn-out period.

5. Dividends paid and proposed

Amounts recognised as distributions to equity holders during the period:

6. Statement of directors' responsibilities

The Directors are responsible for preparing the half-yearly financial report, in accordance with applicable law and regulations.

The Directors confirm, to the best of their knowledge, that this condensed set of financial statements:

· has been prepared in accordance with IAS 34 as adopted by the European Union; and

· includes a fair review of the information required by Rules 4.2.7 and 4.2.8 of the Disclosure and Transparency Rules of the United Kingdom Financial Conduct Authority (as detailed in the Chief Executive review).

The principal risks and uncertainties facing the Group for the period ending 30 June 2020 and anticipated for the remainder of the year ended 31 December 2020 remain consistent with those disclosed in the Group's financial statements for the year ended 31 December 2019, which are available from www.greshamtech.com.

Specific consideration has been given to the risks due to the Covid crisis, for further details see Chief Executive Review.

7. Related party transactions

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