Journeo Regulatory News (JNEO)

26 March 2019

21st Century Technology plc

("21st Century", "the Group", or "the Company")

Final Results for the year ended 31 December 2018

21st Century Technology plc (AIM: C21), the specialist provider of tailored solutions to the transport community, solving complex operational requirements both 'on-vehicle' and 'in-street', announces its final results for the year ended 31 December 2018.

Financial headlines

· Revenue £12.6m (2017: £11.8m) of which £3.9m (2017: £3.5m) was recurring revenue

· Gross profit £4.8m (2017: £5.0m) reflecting business mix

· Underlying loss before tax £138k (2017: underlying profit £11k)

· Profit before tax of £0.1m (2017: loss £0.4m) as a result of beneficial effects from share-based payments credit

· Diluted earnings per share 0.15p (2017: loss per share: 0.38p)

· Net cash flows from operating activities £380k (2017: cash outflow £729k)

· Cash and cash equivalents at year end £0.5m (2017: £0.3m)

· Extended the maturity of the £300k 2016 loan notes to 31 March 2021 and raised a further £250k of loan notes which mature on 31 March 2022 in order to provide additional working capital

Operational headlines

· Fleet sales increased 10% to £8.2m (2017: £7.5m); gross profit decreased to £2.4m (2017: £2.6m) reflecting the business mix.

· Passenger sales increased to £4.4m (2017: £4.3m) and gross profit increased to £2.5m (2017: £2.4m) with an increase in recurring, higher margin maintenance sales.

· Revenues from overseas operations grew to £2.3m (2017: £2.0m).

· Increased orders for our new technologies marketed under the Journeo™ brand and sold as Software as a Service (SaaS) contributed to the £0.4m increase in recurring revenue.

· R&D continues to be crucial to innovation led growth strategy with increased joined-up opportunities drawing from Fleet and Passenger expertise.

Russ Singleton, CEO of 21st Century Technology plc, said: "Our performance last year reflected the state of flux of the UK transport sector whereby continued PTA and local authority spending constraints resulted in significantly lower investment in new vehicles. In the UK we ensured our clients met regulatory requirements and extended the life of older vehicles via retro-fits, while we sought to grow recurring revenues and expand overseas sales.

Despite the persistence of reduced fleet investment, there is a strong recognition by the industry in the need to adopt new technologies to meet H&S and emissions regulations, as well as the joined-up public transport requirements of the future. Inevitably, this will lead to investment in new vehicles and, therefore, it is increasingly a matter of 'when', rather than 'if', it will happen. This is set against a demand to reduce upfront capital investment in technologies and the move towards SaaS business models.

As a result, considerable effort was made last year working in close collaboration with our existing and potential customers to define and develop new technologies for both passengers and operators. Our SaaS solutions, marketed under Journeo™, are being received very well and we are building our reputation for innovation, evidenced by an increasing number of in-bound enquiries. There is therefore a great sense of anticipation at 21st Century, not least resulting from a healthy pipeline of new business opportunities, but also how our new technologies will fundamentally change the profile of the Group. I look forward to reporting on our continued progress."

Enquiries:

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

Notes to editors:

'Connected Systems for Connected Journeys'

21st Century provides tailored solutions to the transport community, solving complex operational requirements both on-board vehicles, through 21st Century Fleet Systems and into Towns & Cities through 21st Century Passenger Systems.

Fleet Systems solutions include on-board CCTV, Wi-Fi and passenger information systems to improve accessibility and safety, vehicle and driver performance telematics, remote condition monitoring and advanced passenger counting technologies, which improve efficiency, alongside our cloud-based agnostic video management software that connects the vehicle to other enterprise stakeholders.

Passenger Systems solutions include a wide range of robust external digital signage such as, on-street interactive wayfinding totems, bus shelter displays and transport interchange departure boards and our powerful content management software, which enables users to inform passengers with graphical real-time departure information, road-works & disruption messaging with supporting advertorial media on a 24/7 basis. 

With over 20 years' experience, we combine our R&D and domain expertise to create technologically converged solutions, leveraging the IoT to deliver more deeply integrated solutions to complex, regulated, safety-critical applications in our current and targeted market spaces.

Further information on the company is available on www.21stplc.com or search for 21st Century Technology on LinkedIn and @21stCenturyLtd on Twitter.

Chairman's statement

I am pleased to report on another year of progress in 2018 during which the Group increased revenues for the fourth successive year to £12.6m (2017: £11.8m) deriving from our increased investment in the future, through further development into our own IP technologies; products, services and software.

Trading results

Group results for the year ending 31 December 2018 show a small underlying loss before tax of £138k (2017: underlying profit £11k). Overall sales volumes increased to £12.6m (2017: £11.8m) and gross profit decreased to £4.8m (2017: £5.0m).

Fleet sales increased 10% to £8.2m (2017: £7.5m) on improved sales performance in Bus UK & Eire and International, particularly in non-EU markets. Gross profit decreased to £2.4m (2017: £2.6m) reflecting the business mix. Passenger sales increased to £4.4m (2017: £4.3m) and gross profit increased to £2.5m (2017: £2.4m) with an increase in recurring, high-margin, software and support sales.

Underlying administrative expenses increased to £5.4m (2017: £5.1m) following the investment in technical and sales personnel.

The effect of a share-based payments credit, R&D tax credits and grant income resulted in a profit before tax of £0.1m (2017: loss £0.4m). The basic profit per share is 0.15p (2017: loss 0.38p).

To support the businesses' investment in R&D and to provide working capital to ensure that anticipated opportunities are capitalised upon, agreement was made to extend the maturity of the £300k 2016 loan notes to 31 March 2021 and the Company raised a further £250k of loan notes which mature on 31 March 2022.

Customer update

Our programme to retain and broaden the customer base and the range of services we provide is working. From a base of three important and large operator customers, First Bus, Arriva Bus and Keolis we were delighted to welcome Abellio and more recently Translink in Northern Ireland. This programme is on-going as we continue to forge new customer relationships.

It is very encouraging to see a growing number of new and existing customers seeking out our technologies, marketed under the Journeo™ brand. New products, software and services are a key component in our growth and diversification strategy. We have identified niche-market opportunities with the potential to effect a profound change on our business, opening global market access for our products & Software as a Service (SaaS) based solutions to value-added resellers, distributors and end-user operators.

Whilst it takes time and investment to bring new products to market it is with the objective of growing a profitable, long-term and sustainable recurring revenue business. In 2018 recurring revenues were £3.9m (31% of total revenue) demonstrating the value of our software, technologies and services throughout the UK and beyond.

Following our breakthrough work in 2017, we were pleased to secure additional sales of £1m into the New Zealand bus market, shielding the Group from impacts associated with reduced new vehicle registrations in the UK. Importantly it has exposed our R&D teams to exciting and scalable opportunities utilising global standards such as GTFS (General Transit Feed Specification) for new technology-based sales outside of the UK, currently dominated by the more complex and variably-interpreted SIRI (Service Interval for Real-time Information) standards.

During 2018 we completed, what turned out to be a challenging £1m fleet-wide safety systems upgrade involving the installation of Handbrake Warning (HBW) technology on over 5,000 buses located in over 60 depots throughout the UK. The logistics associated with coordinating vehicle availability, engineering allocation with just-in-time equipment delivery to each site, in a safety critical quality assured process produced some unexpected and valuable insights. As a result, we are now well positioned to carry out similar business-critical, fleet-wide engineering upgrade programmes and will be making further IT systems investments during 2019 to strengthen capabilities in this area.

A change in the mix of business, particularly within our Fleet segment, resulted in slightly reduced margins at group level of £4.85m (2017: £5m). Large fleet customers in the UK held back investment in the numbers of new double-deck and single-deck vehicles ordered during 2018, resulting in lower numbers than indicated and compared with the average numbers over each of the last few years. To extend the life of some older vehicles within their existing fleets, we carried out important, but lower value mid-life refurbishment of existing on-board technologies. We are anticipating that this situation may persist for a while longer for a variety of reasons; not least the uncertainty surrounding Brexit. 

Market opportunities

A number of bus manufacturers have been increasing investment in their overseas marketing and as a result, have been keen to include and demonstrate their vehicles with the latest range of advanced on-board technology that 21st Century has to offer. We have welcomed the opportunity to provide this support, as it not only improves bonding with our partners, it provides international marketing exposure where we can showcase our solutions. Over the last 12 months we have made new contacts in EU Countries along with Mexico, Chile, Hong Kong and New Zealand. We are now working on opportunities as a result of these visits that we hope will begin to come to fruition later this year.

Investment decisions regarding new vehicle types and numbers are influenced by many factors; Demand Responsive Transport (DRT) such as Uber, congestion, low interest rates and online shopping. As populations continue to coalesce around ever larger urban centres, agile, machine-learning based solutions will become essential for movement around smarter cities of the future. It has taken a while for us to establish our technical credentials in the marketplace, but we are now forging links within a broader eco-system and look forward to playing an increasing role in this paradigm shift.

Transport Authorities and fleet operators are adapting to these changing circumstances in a variety of ways. Some are moving towards smaller, electric or Zero Emission Vehicles (ZEV), others are upgrading existing infrastructure and vehicles, whilst also modifying routes to improve the passenger experience, reduce congestion, attract people to public transport and, at the same time fulfil their commitment to reduce emissions.

Research and Development

We continue to provide engineering services, technical support, new equipment and evaluation systems to bus manufacturers, operators and Transport Authorities. Our research has identified tangible growth opportunities in segments of our target markets; partly as a result of the long operating life of vehicles and associated legacy upgrade requirements, but also due to congestion, modal shift and other changing passenger dynamics. We are fortunate to have a small number of thought-leaders and early- adopter customers who support the development of new-concepts and prototypes.

Increasing the development pulse and pace of innovation for our novel or next-generation solutions that improve safety, efficiency and accessibility for many types of transport related services is a priority. Our sales, marketing and development plans are coordinated and align with the requirements of the Bus Services Act 2017 and the Transforming Cities Fund. We aim to capture an increasing share of both of these market initiatives in the UK and in other overseas territories where similar approaches are being considered.

Governance

As Chairman, it is my responsibility to ensure the highest practicable standards of corporate governance are in place. Of the two widely recognised formal codes, we adhere to the Quoted Companies Alliance's (QCA) Corporate Governance Code for small and mid-size quoted companies, which the Board considers the most appropriate for the size and structure of the Group. More information can be found in the Corporate Governance section of this report and on our website.

Please see www.21stplc.com/en/investors for our full compliance statement.

People

As we further develop into more a customer-centric, technically agile business, so does the expectations and responsibilities that we place on our team members. It pleases me to report that our staff are adapting exceptionally well within this changing environment, improving their skill sets and what they can offer our customers.

We have developed internal resource into key roles and recruited industry-proven specialists where relevant. Focus has been placed on enhancing the skills of our engineering force and throughout the year we have increased the number of our specialist electricians and made great strides towards ensuring all fleet engineers are FITAS accredited, not just those engineers working in London as mandated by TfL.

We are fortunate to have enthusiastic and skilled staff who share our vision for the Company. I would like to thank all of them for their continued dedication and hard work.

Outlook

The focus that the business has placed on developing its technical capabilities in recent years is coming to fruition and gives me greater confidence in our ability to grow the business over the course of the coming years.

By applying our core capabilities to build new solutions that can deliver benefits to our customers and their operations, the value proposition of working with 21st Century grows and our position in the target markets is shifting towards that of innovator and leader. 

This is being echoed by a growing pipeline of opportunities for increasingly complex and valuable systems, that are now within our reach as a result of our own products services and software; with significant scale potential to resell the core technologies in the UK, the EU and further overseas.

Whether it is meeting new statutory regulations or delivering cost and operational efficiencies the technological solutions provided by 21st Century and the range of customers we offer them to has never been greater.

Mark Elliott

Non-executive Chairman

26 March 2019

Chief Executive's report

Principal Activities

The Group's principal activities are in providing tailored solutions to the transport community, solving complex operational requirements both on-board vehicles, through 21st Century Fleet Systems and into towns and cities through 21st Century Passenger Systems.

Fleet Systems solutions include on-board CCTV, Wi-Fi and passenger information systems to improve accessibility and safety, vehicle and driver performance telematics, remote condition monitoring and advanced passenger counting technologies, which improve efficiency, alongside our cloud-based agnostic video management software that connects the vehicle to other enterprise stakeholders.

Passenger Systems solutions include a wide range of robust external digital signage such as, on-street interactive wayfinding Totems, bus shelter displays and transport interchange departure boards and our powerful content management software, which enables users to inform passengers with graphical real-time departure information, road-works & disruption messaging with supporting advertorial media on a 24/7 basis. 

We combine our R&D and domain expertise to create technologically converged solutions, leveraging the Internet of Things (IoT) to deliver more deeply integrated solutions to complex, regulated, safety-critical applications in our current and targeted market spaces.

Business Model

Our business model is to compete in the market as an open provider of technology solutions, unlocking customers from proprietary, or closed systems. We work with global-scale product companies and our supply chain to deliver highly reliable, scalable and cost-effective solutions for the transport community over the lifecycle of the systems. The service offering includes the design, assembly, software development, installation, on-site support and back-office systems.

We compete by striving to offer better, more fully integrated solutions at reduced costs to our customers. We carefully seek out, or in some cases create new, niche-market applications where we see significant growth and market leadership potential. Our customers include multi-national fleet operators, vehicle manufacturers, local authorities and Passenger Transport Executives (PTEs).

Strategic Goals

Our aim is to become market-leaders through our innovative products, technologies and software and the 'go-to' provider of solutions to the wider transport community, by solving the complex operational and information requirements on-board vehicles and the associated connected systems in towns and cities.

Our guiding principle is to improve the customer service experience continuously. We do this by working closely with our customers, partners and suppliers and applying our R&D resources to create new solutions, having the best team of people and having the right systems in place to operate efficiently.

Each year we set strategic goals and monitor performance against them throughout the year. I am pleased to be able to demonstrate the progress we have made this year and further objectives looking forward as part of the continual development of 21st Century.

Key Performance Indicators

The Company uses a number of Key Performance Indicators (KPIs) to monitor progress against its objectives. The KPIs are:

Operational Review

Fleet Systems

Over the last 12-months we have been investing in sales and technical support to broaden the range of services we provide to both retain existing and attract new customers, whether they are small coaching operations, medium-scale fuel distribution or large multi-national bus and rail transport operators such as Abellio, Arriva, First, Keolis and Translink.

Our ambitious plans for growth and market share saw sales increase by 9% to £8.2m (2017: £7.5m) against a backdrop of an industry-wide reduction in the number of new vehicle registrations, and in the case of one of our longest standing customers, significantly so. Sales into Sweden, Holland, France and New Zealand increased to £2.3m (2017: £2.0m), offsetting revenues from reduced new vehicle registrations in the UK. However, currency exchange, support costs and marketing expenses led to slightly reduced margins on international sales, eroding underlying profit for the segment to £148k (2017: £449k).

The growing market share of the Fleet business within Northern Ireland is particularly pleasing and in March 2018 we were able to announce that we had secured a contract with Translink for major upgrade works to the DVR estate of the publicly-owned transport operator. This has since resulted in subsequent orders that, whilst smaller in nature, are a testament to the dedication and hard work of our Belfast-based engineering team.

We are supporting leading bus manufacturers in their overseas marketing efforts as technical partners, which is presenting new opportunities as we build on existing relationships to drive new sales. Expansion into new territories is not a quick-win, but it is already providing valuable market insight, diversifying sales into alternate economic environments and a significantly larger marketplace in which to channel our new solutions. 

Our Research and Development resources are applied to clearly identified customer or market requirements, where no off the shelf solution exists. This approach is delivering new solutions that are required by the regulatory changes present in the UK Bus Services Act along with insights gained through close collaboration with our partners. One example of this approach from the last year, is the further adoption of our Journeo™ Remote Condition Monitoring (RCM) system by a major UK fleet operator customer, as part of a plan to improve CCTV system reliability & availability. Recurring revenues are now £0.4m pa on a monthly subscription basis and we are in discussions with number of other fleet operators who are considering the benefits of the Journeo™ suite of services.

In July of 2018, TfL announced "Vision Zero", which will see a range of technology mandated to eliminate deaths and serious injuries on London's transport network by 2041. We have been working with Vision Systems (France) for over two years on a camera-based solution to replace the large external wing mirrors and secure approval (homologation) for its deployment on UK roads. In October we announced an exclusive distribution agreement for SmartVision; a High Definition camera wing mirror replacement system. This safety-led development is one of the core items within the Vision Zero strategy and is already generating interest ahead of the requirement to install on new London vehicles by 2021. It is currently the only system of its type to be approved for UK Road use. 

Passenger Systems

Revenue for the full year was broadly flat at £4.4m (2017: £4.3m) which was behind management expectation, but the business made a lot of progress including its first breakthrough order for digital signage into the health market for the NHS. Improved margins as a result of recurring revenues from software and maintenance resulted in an operating loss of £57k (2017: loss of £267k).

We have identified a number of growth opportunities for solutions within the emerging smart city transformation. Our Passenger Systems business has long-standing relationships with many influential local government and Passenger Transport Executive customers and provides a vital entry point for our applied technologies and expertise. In September, 10 city regions were shortlisted to receive their share of £840m as part of the £1.7Bn Transforming Cities Fund (TCF) previously announced by the Chancellor. This Funding was increased to £2.4Bn in the 2018 Autumn statement.

Central services

Within the year, all businesses within the Group and all sites retained their ISO9001, ISO14001 and BHOSAS 18001 accreditations. Early in the year, ahead of new legislation, a full GDPR audit was completed to ensure compliance. 

As the software and data components within our cloud-based solutions are playing an increasingly important role in the customers' enterprise and our company's future, we are constantly monitoring our cyber security practices and have initiated a programme to attain ISO27001:2 accreditation for our Information Security Management System (ISMS).

Business review and results

The performance of the Group showed an increase in sales on 2017 with an underlying loss of £138k (2017: £11k profit). Total revenue grew by 7% while gross profit decreased by 3%.

The segmental results show the performance of our Fleet and Passenger Systems segments as seen in table: Segmental results.

Basic profit per share is 0.15p (2017: 0.38p loss).

Fleet Systems sales overall were up 10%, with the varying changes in the elements of the segment being Bus 9% increase, International 11% increase and Rail 11% decrease. Fleet gross profit levels decreased by 3% with a 3% decrease in Bus, a 3% decrease in International and a 3% decrease in Rail. Inflationary increases in overheads resulted in an underlying profit of £148k (2017: £449k).

The trading environment in Passenger Systems remained similar across 2018 as it was in 2017. Sales were up 3% on 2017, with a 2% decrease on new systems, while software and support saw a 12% increase. Gross profit increased 3% in the year. An improvement in absorption of manufacturing costs, combined with the R&D tax credit received contributed to an improved operating loss of £57k (2017: £267k).

The underlying operating loss reconciles to the IFRS operating profit as seen below in table: Reconciling segmental results to IFRS operating profit.

Overall, the Group made an operating profit was £260k (2017: £301k loss).

Principal risks and uncertainties

The management of the business and the execution of the Group's strategy are subject to a number of risks. Risks are formally reviewed by the Board and, where possible, appropriate processes are put in place to monitor and mitigate them. If more than one event occurred, it is possible that the overall effect of such events would compound the possible adverse effects on the Group. The key business risks affecting the Company are set out below:

Future developments

The current trading and outlook are covered in the Chairman's Statement and a more detailed shareholder presentation will be made immediately following the Group's Annual General Meeting (AGM).

Signed on behalf of the Board

Russ Singleton

Chief Executive

26 March 2019

Consolidated statement of comprehensive income

for the year ended 31 December 2018

Consolidated statement of changes in equity

for the year ended 31 December 2018

Consolidated statement of financial position

at 31 December 2018

Consolidated statement of cash flows

for the year ended 31 December 2018

Notes to the consolidated financial statements

for the year ended 31 December 2018

1. Basis of preparation

The Group financial statements are prepared in accordance with International Financial Reporting Standards and IFRIC interpretations issued and effective (or adopted early) and endorsed by the European Union at the time of preparing these financial statements and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention, except financial instruments and share-based payments, which are prepared in accordance with IAS 39 and IFRS 2 respectively.

The financial information contained in this announcement does not constitute statutory accounts for the year ended 31 December 2018 or 31 December 2017. The financial information for the years ended 31 December 2018 and 31 December 2017 is derived from the statutory accounts for those periods which include audit reports which are unqualified, do not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006 and do not include references to any matters to which the auditor drew attention by way of emphasis. The 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 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

Going concern

The Group's business activities, together with factors likely to affect its future development, performance and position, are set out in the Strategic Report along with the principal risks and uncertainties.

The Group's net underlying loss for the year was £138k (2017: underlying profit £11k). As at 31 December 2018 the Group had net current liabilities of £1,084k (2017: £785k) and net cash reserves of £485k (2017: £302k).

In December 2017 a new £1.25m invoice discounting facility was put in place.

In December 2018 the 2016 Loan Notes maturity date was extended and an additional £250k of 2018 Loan Notes were issued to enable the Group to continue its investment in R&D and provide working capital to ensure that the Group can capitalise on anticipated opportunities.

Current trading is in line with management forecasts.

The Directors have prepared Group cash flow projections for the period to 30 June 2020 based on latest forecasts that show that the Group will be able to operate within the Group current funding resources. It is important that we achieve sales forecasts and the profile of cash receipts.

As with all businesses there are particular times of the year where our working capital requirements are at their peak. The Group is well placed to manage these business risks effectively and the Board reviews the Group's performance against budgets and forecasts on a regular basis to ensure action is taken when needed.

These projections indicate that the Group will operate within available facilities throughout the projection period and therefore based on these projections, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and for at least twelve months from the date of these financial statements. The Directors therefore continue to adopt the going concern basis in preparing the financial statements.

2. Revenue

The revenue split between goods and services is:

3. Segmental reporting

IFRS 8 requires operating segments to be determined on the basis of those segments whose operating results are regularly reviewed by the Board of Directors (the Chief Operating Decision Maker as defined by IFRS 8) to make strategic decisions.

As the Board of Directors reviews revenue, gross profit and operating loss on the same basis as set out in the consolidated statement of comprehensive income, no further reconciliation is considered to be necessary.

Revenue and gross profit

Major customers

In the year, two customers within the Fleet Systems segment each accounted for over 10% of Group revenue at 19% and 11%. In the prior year, there were two Fleet Systems customers that each accounted for over 10% of revenue at 22% and 10%. There were no major customers within the Passenger Systems segment.

Underlying (loss)/profit

Reconciling to profit / (loss) before interest and tax

Net assets attributed to each business segment represent the net external operating assets of that segment, excluding goodwill, bank balances and borrowings, which are shown as unallocated amounts, together with central assets and liabilities.

Net assets

Geographical segments

Assets and liabilities by location

All non-current assets are located within the United Kingdom.

4. Taxation

(a) Analysis of (credit)/charge in year:

(b) Factors affecting the total tax (credit)/charge for the year

The tax assessed for the year differs from the standard rate of corporation tax in the UK at 19% (2017: 19.25%). The differences are explained below:

(c) Deferred tax asset/(liability)

The unrecognised and recognised deferred tax assets/(liability) comprise the following:

The Group has £2,987,000 of unutilised tax losses (2017: £3,621,000) which may be carried forward indefinitely.

5. Profit / (loss) per Ordinary Share

Basic earnings per share (EPS) is calculated by dividing the earnings attributable to Ordinary Shareholders by the weighted average number of Ordinary Shares in issue during the year.

For diluted earnings, the weighted average number of Ordinary Shares in issue is adjusted to assume conversion of all dilutive potential Ordinary Shares.

Details of the weighted average number of Ordinary Shares used as the denominator in calculating the earnings per Ordinary Share are given below:

6. Goodwill

Goodwill acquired in a business combination is allocated at acquisition to the cash generating unit (CGU) that is expected to benefit from that business combination. The Group has two CGUs which are its two operating segments, Fleet Systems and Passenger Systems. The carrying amount of goodwill has been allocated to the CGUs as follows:

The Group tests goodwill annually for impairment as at 31 December, or more frequently if there are indications that goodwill might be impaired.

The recoverable amounts of the CGUs are determined based on a value-in-use calculation which uses cash flow projections based on financial budgets and business plans approved by the Directors covering a five-year period. Cash flows beyond that period have been extrapolated in perpetuity assuming no growth, which the Directors consider to be a conservative approach.

The key assumptions for the value-in-use calculations are those regarding discount rates and sales forecasts.

The discount rates needed to equate the net present value from these cash flows to the carrying value of goodwill are compared to the required rate of return from the CGU based upon an assessment of the time value of money, prevailing interest rates and the risks specific to the CGU. If this discount rate is in excess of the required rate of return, then it is assumed that no impairment has occurred to the carrying value of goodwill.

The discount rates are as follows:

The discount rates used are based on the Board's judgement considering macroeconomic factors and reflecting specific risks in each segment such as the nature of the market served, the concentration of customers, cost profiles and barriers to entry.

Passenger Systems also has intangible assets which are considered in the same value-in-use calculations as goodwill.

The Passenger Systems cash flow projections used to determine value in use are based upon assumptions of sales, margins and cost bases. Of these assumptions the value in use is most sensitive to the level of sales. Margins are fixed in the forecast based upon past experience; the cost base is similarly based upon past experience and will vary depending upon the level of sales. In accordance with the requirements of IAS 36 our value-in-use calculations do not include cash flows from restructurings to which the Group is not yet committed.

The level of sales is the key assumption used in the cash flow forecast. Sales have been determined by management using estimates based upon past experience and future performance with reference to market position and the sales pipeline. Due to the difficult macroeconomic environment there has been a reduction in the availability of contracts, which has in turn resulted in pressure on margins. In 2017 a major restructuring took place, followed by a reinvestment in key staff at the end of the year and during 2018. The 2019 forecast predicts growth of 42%. The remaining four years are based upon compound sales growth of 5%.

The value-in-use calculation supports the carrying value of the CGU with headroom of £1,567k. A sensitivity analysis has been performed on the impairment test. The Directors consider that an absolute change in the key sales assumption is possible and a reduction of 10% points in the growth rate in 2019 to 30% would result in an impairment charge being recognised for the current carrying value of goodwill in relation to Passenger Systems of £250k. If sales forecasts were down 10% across the whole period and overheads were partially scaled back by 5% then there would be headroom of £151k.

Based on the review the discount rate applied to equate the net present value of the forecast cash flows to the carrying value of goodwill and the intangible assets was 27.8%, whereas the required rate of return of the CGU is 14%.

In view of this, the Directors consider that no impairment of goodwill or intangible assets is required

7. Reconciliation of operating profit / (loss) to net cash outflow from operating activities

8. Reorganisation costs

Prior year reorganisation costs relate to the additional costs in respect of the December 2016 restructuring programme and costs related to the loss of office of one of the Group's Directors.

All reorganisation costs relate to administrative expenses.

9. Availability of audited accounts:

Copies of the 2018 audited accounts will be made available following the announcement of the date of our AGM. They will also be available on the Company's website (www.21stplc.com) for the purposes of AIM Rule 26 and will be posted to shareholders in due course.