MAIS.L Regulatory News (MAIS)

1 August 2017

blur Group plc

("blur Group", the "Group" or the "Company")

2016 Final Results

blur Group plc (AIM:BLUR), the market-leading Indirect Spend Management platform, is pleased to announce its audited final results for the year ended 31 December 2016.

2016 Operational Highlights

Top 5 Operational Highlights

1. Continued progress with targeted Enterprise* accounts including a global electronics company, large County Council and multi-national sportswear brand

2. First 12-month subscription to Group buyer plan taken up by a Top 100, UK-based law firm

3. Goods added to the platform creating a comprehensive Indirect Spend Management Platform

4. blur 6.0 completed - further functionality made to the Enterprise platform including multi-user account management, additional machine intelligence and enhanced reporting

5. 60% reduction in adjusted LBITDA compared to 2015. Quarterly, sequential improvements in costs and cash burn** through 2016

2016 Financial Highlights

1 Adjusted LBITDA is loss before interest, tax, depreciation and amortization, foreign exchange movements and share option costs.

1. Revenues reduced as customer pipeline conversion delayed. Sales cycles remain long

2. Adjusted LBITDA improved by 60% compared to 2015

3. Cash burn** reduced by 63% compared to 2015; administrative costs reduced by 55%

4. First buyer subscription plan revenues booked in Q4 2016

5. Higher quality projects from Enterprise customers drives reduction in cancellation fees and improved cash collection; project revenue down as SME revenues decline

6. Investment in platform reduced as Enterprise-class functionality reaches maturity

* blur defines the Enterprise as a business with 50 or more employees.

**cash burn is defined net decrease in cash and cash equivalents before the effect of foreign exchange translation on cash and equivalents (see page 29)

Chairman's Statement

The company made good progress during 2016 in laying the groundwork for blur to drive sales of its Enterprise procurement platform. The sales pipeline has grown strongly and there has been continued strong product innovation.

However, in the absence of positive cash flows, cash resources were depleting and, on 7 July 2017 blur announced the successful result of a proposed placing, via an accelerated book build, to raise net cash proceeds of £1.5 million. Whilst blur has made progress in engaging with and delivering projects for multinational blue chip organizations, converting customer engagement into significant revenues has been slower than anticipated at the time of the Group's admission to AIM in 2012.

In addition, a number of changes were made to blur's board of Directors. The new board is performing a strategic review of the business over the coming weeks and months and intends the net proceeds of the placing to be used as general working capital to enable blur to implement a revised growth plan; a product of that strategic review.

I joined the board as Chairman after the year end on 12 July 2017.

I believe that through the investment made in the development of the blur cloud procurement platform the company is well positioned to address the requirements of Enterprise customers in the area of indirect spend.

Progress has been significant in product development and in building the pipeline of opportunities, the task ahead is to convert the pipeline and create reference customers willing to attest to the benefits of the blur platform.

Further information is set out under Principal Risks and Uncertainties on page 11 and the Going Concern and Viability statement on page 19

In summary I expect the business to make significant progress over the next 12 months building on the efforts of the team during 2016. I would like to thank the team at blur for their commitment and efforts over the last year and for their support to the new board as we conduct our strategic review.

Finally, I would also like to thank blur's shareholders and stakeholders for their continued support of the business.

David Rowe

Chairman

31 July 2017

Chief Executive Officer's Report

2016 has seen progress made in customer and pipeline development, technology and financial performance.

Indeed, it proved a key year for blur as we continued to implement our Enterprise strategy and worked closely with corporate customers thereby gaining a deep understanding of their indirect spend challenges. We aimed to cultivate our relationship with a targeted number of large businesses and are now running trial and onboarding phases with several of those customers which we expect to lead to wider roll outs later in 2017.

Following these initial customer relationships, and in line with the growing market interest in Indirect Spend Management, we are increasingly engaging with more corporates. While sales cycles remain elongated, we are seeing signs that these may shorten as procurement functions innovate and focus more around their indirect spend challenges.

Enterprises have increasingly recognized, in today's economic environment, that improved management and control of indirect spend, especially services, can deliver significant cost and cash improvements. They also recognize that digitization of the indirect procurement process, together with blur's marketplace of vetted, global suppliers can deliver those improvements quickly, with low, scalable set up costs. Using blur's platform increases transparency, compliance and control for our customers.

In line with our Enterprise-focused strategy, completion of our blur 6.0 platform has delivered features specifically designed to support large public and private sector organizations.

While blur remains highly tailored to delivering business services, in Q4 2016 we added the ability to source goods through our cloud-based software, meaning we will have the ability to cover all categories of indirect spend for our customers. We also enhanced our multi-user account management functionality. Workflow approvals, user management and permissions and budgetary control are all integral to blur 6.0.

We further enhanced our management reporting capabilities, allowing our customers to track spend at the project, user, cost center and company levels. We also made significant moves toward a new, universal, dashboard which will bring greater efficiency by allowing our users to buy and sell through a single portal approach.

blur Sense 3.0 was completed and released further improving automation of our supplier shortlist and selection process and pitch ratings. We expect the machine intelligence embedded within our platform to bring even greater efficiency and automation as blur scales and as we widen its use.

In 2017 we will be investing further in our technology, specifically concentrating on the next iteration of blur Sense as well as developing our ability to interface and integrate with other business systems. On top of this we will be adding specific advanced functionality to support upgrade paths to our more valuable subscription-based Enterprise Buyer Plans.

blur's focus on a smaller number of large customers, together with the additional automation delivered in blur 6.0 has meant we've continued to improve our own internal efficiency during the year. The Enterprise-focused strategy provides blur with a lean, focused cost structure that allows us to concentrate on serving our customers.

As a result, adjusted LBITDA has improved by 60% year on year, driven by a reduction in administration costs of 55%. And as a direct result of those reductions, blur's cash burn has reduced by 63%.

In the same period we have seen a short hiatus in project revenues as blur exclusively targets the Enterprise buyer and engages with the anticipated longer sales cycles.

Revenues from SME organizations have declined as have the associated bad debt charges; the quality and collectability of all revenue improving substantially, compared to previous periods, as a result of blur's Enterprise focus.

We anticipate the trials and onboarding projects we're currently running to lead to revenue growth going forward through 2017 and beyond.

However, in the absence of positive cash flows, our cash resources have been depleting and, on 7 July 2017 blur announced the successful result of a proposed placing, via an accelerated book build, to raise net cash proceeds of £1.5 million. Whilst blur has made progress in engaging with and delivering projects for multinational blue chip organizations, converting customer engagement into significant revenues has been slower than anticipated at the time of the Group's admission to AIM in 2012.

I welcome the new board members to blur and look forward to working with them. We are currently working to complete a strategic review of the business with the aim of producing a new plan for growth that will support blur's journey to profitability and cash generation.

Outlook

In Q1 2017 we have seen further progress with our Enterprise customer base. Among other opportunities, we are working with a Top 100 law firm on their document management and digital archiving facility, a multi-brand, European household appliance company on their marketing needs and a global electronics brand.

We have continued to build our pipeline with large Enterprises and are working with the Chartered Institute of Procurement and Supply, leading research with procurement teams across many verticals.

In the first quarter we continued to develop blur's platform, working towards the release of blur 7.0. That release will deliver more of the features and functionality blur's customers and opportunities have identified as important to them. It will also enable us to continue our own drive to maximize internal efficiency and as a result H1 2017 has seen further improvements in adjusted LBITDA.

Finally, I would like to again thank all of our employees, former board members, our customers and our shareholders for their continued support.

Philip Letts

Chief Executive Officer

31 July 2017

2016 Financial Review

Revenue

Revenue for the year decreased by 69% to $0.83m (2015: $2.70m) within which Project fee revenue declined by 63% to $0.72m (2015: $1.95m). As the Group transitioned to an Enterprise-only strategy, it removed access to all contingent projects in the marketplace and ceased direct marketing activities aimed at the SME market. 2016 saw the continued decline of SME-generated revenues while the longer sales cycles in the more mature Enterprise market meant that revenues from this market grew only slowly.

blur sees Enterprises initially trialing its platform to assess its suitability to address their indirect spend problems. The cycle between this initial trial and broader adoption of the platform is long.

As in 2015, the overall quality and collectability of blur's project revenues improved during the year.

Cancellation fee income (previously Listing fees) declined by 99% to $0.01m (2015: $0.65m). The improving quality of projects during the year, from Enterprise customers, drove this decline. Income from Subscriptions & License fees totaled $0.11m (2015: $0.08m). This increase was partially driven by the subscription to a buyer plan by a Top-100 UK law firm.

Gross Margin

blur includes the cost of blur staff directly involved in the delivery of projects from listing to completion, in cost of sales.

Gross loss was $(0.08)m in 2016 (2015: profit $0.29m). The reduction has been driven by the reduction in Cancellation fee (previously Listing fee) income and by lower revenue volumes as blur engages with the long Enterprise sales cycle. The staff costs charged to cost of sales reduced by 61% to $0.33m (2015: $0.84m).

Adjusted LBITDA

The adjusted LBITDA ('Loss before Interest, Tax, Depreciation and Amortization, Foreign Exchange movements and Share Option costs') for the year reduced by 60% to $3.56m (2015: $8.89m) despite the reduction in gross profit. This was driven by an overall reduction in headcount and other costs, enabled by the focus on targeted large corporate customers, higher quality transactions and increased automation in blur's platform.

Costs

Administrative costs decreased by 59% to $4.5m (2015: $11.03m) due to blur's increasing ability to improve efficiency with the launch of blur 6.0. During 2016 the average number of full-time employees reduced from 62 to 31 with a consequent reduction in staff costs. Share-based payments resulted in a credit of $0.21m (2015: charge of $0.53m) and hence reduced accordingly.

The credit risk associated with the customers using the marketplace in 2016 resulted in a $(0.05)m (2015: $0.85m) bad debt provision included in administrative costs. The credit balance was, in part, driven by recovery of previously provided for debts.

Loss after Tax

The loss after tax for the year reduced to $4.3m (2015: $10.1m).

Finance income of $0.03m (2015: $0.2m) reflects lower cash balances held on deposit. Taxation includes $0.3m (2015: $0.45m) of R&D tax credit.

Tax Losses

Tax losses for the Group up to the end of December 2016 amount to a total of $25.8m (2015: $22.50m), none of which are recognized as a deferred tax asset.

Cash

The cash balance at year end was $2.5m (31 December 2015: $7.1m).

Operating cash outflow from operating activities was $2.6m (2015: $7.8m) and working capital increased by $0.38m (2015: decrease $0.8m). Investments in intangible technology assets totaled $0.9m (2015: $1.5m), primarily reflecting the capitalization of internal technology development.

Trade Receivables

Historically, blur had a diverse list of customers, with differing levels of credit risk. There were significant levels of bad debts in respect of small- and medium-sized businesses as blur tested the marketplace.

The transition to an Enterprise-only strategy, the denial of access to the marketplace to all contingent projects and an increased focus on collections has served to mitigate this credit risk in 2016. This resulted in a release of prior period provisions to Administrative expenses of $0.05m.

Consolidated Statement of Total Comprehensive Income

for the year ended 31 December 2016

The results reflected above relate to continuing activities.

The accompanying notes are an integral part of these financial statements.

Consolidated Statement of Financial Position

At 31 December 2016

The financial statements were approved and authorized for issue by the board of Directors on 31 July 2017 and were signed on its behalf by:

David Rowe

Chairman

Company Registration Number: 08188404

The accompanying notes are an integral part of these financial statements.

Consolidated Statement of Changes in Equity

for the year ended 31 December 2016

Consolidated Statement of Cash flows

for the year ended 31 December 2016

The accompanying notes are an integral part of these financial statements.

1. Accounting Policies

Basis of Preparation

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board ('IASB') as adopted by the European Union (adopted IFRSs).

The preparation of financial statements in compliance with adopted IFRSs requires the use of certain critical accounting estimates. It also requires group management to exercise judgement in applying the group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2.

The group financial statements consolidate the financial statements of the company and its subsidiaries (together referred to as the group). The parent company financial statements present information about the company as a separate entity and not about its group.

Over the last two years the group has been changing its business model to focus on large national and multi-national entities ("Enterprise") rather than smaller customers. Q4 2016 saw the first Enterprise customer being won. As part of the change, and as expected, the long sales cycles inherent in entering the Enterprise procurement market contributed to a significant fall in turnover in the current period and continued significant cash burn. The group had cash of $2.5m as at 31 December 2016, which has reduced to $1.0m at 30 June 2017. At the time of approving these financial statements the group has legally binding undertakings from investors to inject equity generating net cash proceeds of £1.5m, contingent only on the company's being readmitted to AIM, without which the group could not have continued. There has also been a new leadership with new board members put in place, aligned with the potential new investment.

Although since the year end the group has entered final negotiations with another, particularly large Enterprise customer, the directors recognize that building the Enterprise business and making the group profitable and cash generative is a medium term goal. During that period further funding may be required depending on trading performance.

Cash forecasts through to 31 December 2018 are based on the £1.5m cash injection, anticipated new key contract wins, with revenues rising to $1.5m in 2017 and then to $6.4m in 2018, and reduced costs through headcount reductions and overhead savings implemented from the end of Q2 2017. Cash burn for 2017 is forecast to be $2.4m (2016: $4.6m) and $0.3m in 2018, and hence cash at the end of 2017 and 2018 of $2.0m and $1.7m respectively. Although an overall cash burn is forecast for 2018, the group is forecast to turn cash generative during 2019.

As at the date of approval of these financial statements, based on the £1.5m cash injection and the forecasts covering a period extending beyond 12 months from the date of approval of these financial statements, the group will be able to continue operating for at least 12 months.

However, the group is evolving technology business, open to disruption, and is itself a disrupter, and the forecast contains assumptions including: significant growth in future revenue, both in project revenues and in premium services; the cost model; and margins. The directors are aware of the risks and uncertainties facing the business but the assumptions used are the directors' estimate of the future development of the business. If performance is not in line with forecasts then additional funding would or may need to be raised, and the ability to raise it will depend on performance itself. In the next 12 months, the most critical assumptions are those concerning the speed of growth in revenues and the control of costs.

Basis of Preparation (continued)

The directors have concluded that the combination of these circumstances represents a material uncertainty that casts significant doubt upon the group and company's ability to continue as a going concern and that, therefore the company and the group may be unable to continue realizing their assets and discharging their liabilities in the normal course of business.  Nevertheless the directors have a reasonable expectation that the company and the group have adequate resources to continue for at least 12 months from the date of approval of these financial statements. For these reasons, they continue to adopt the going concern basis in preparing the annual financial statements.

Basis of consolidation

Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the company and its subsidiaries (the group) as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated statement of financial position, the acquirees' identifiable assets, liabilities, and contingent liabilities are initially recognized at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained.

Inter-company transactions, balances and unrealized gains and losses (where they do not provide evidence of impairment of the asset transferred) on transactions between group companies are eliminated.

Functional and Presentation Currency

The functional currency of the company is Sterling (£). The presentational currency of the Company is the US Dollar ($). The Directors consider the US Dollar is the most appropriate presentational currency.

Changes in Accounting Policies and Disclosures

(a) New and amended standards adopted by the group

The group has applied any applicable new standards, amendments to standards and interpretations that are mandatory for the financial year beginning on or after 1 January 2016. However, none of them has a material impact on the group's consolidated financial statements.

(b) New, amended standards, interpretations not adopted by the group

The following Adopted IFRSs have been issued but have not been applied by the group in these financial statements. Their adoption is not expected to have a material effect on the financial statements unless otherwise indicated:

● IFRS 9 Financial Instruments (effective date 1 January 2018).

● IFRS 15 Revenue from Contract with Customers (effective date 1 January 2018).

● IFRS 16 Leases (effective date to be confirmed).

● Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (effective date to be confirmed).

● Amendments to IAS 7: Disclosure Initiative (effective date to be confirmed).

● Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions (effective date to be confirmed).

● Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (effective date to be confirmed).

Revenue Recognition

Revenue represents the gross value of services provided to customers in respect of revenue earned, net of discounts and sales taxes.

There are four principal sources of revenue:

Project Revenue

Being revenue from projects that list on blur's marketplace, where the customer, in conjunction with blur, selects the service provider and a legally binding contract between blur and its customers is established (referred to as 'kick-off'). At this stage blur has assumed the principal contractual responsibility to deliver the agreed services, the delivery of the service has commenced, and project revenue recognition commences.

Project revenue is recognized on either a timeline, or milestone basis. Timeline refers to the date the delivery of the service commences to the date it is completed. Milestone refers to specific performance targets within each project until completion.

Under the project milestone method, the milestones inserted in the Statement of Work are broadly indicative of the stage of completion and reflect the value of work completed.

In the case of milestone projects, the service provider and customer confirms the proportion of costs incurred to date and the resulting cost to completion which gives the indication of the percentage of completion. This is done on the platform collaboration area, Project Space, which is updated by the service provider, supported at period end with additional electronic confirmation.

Where a project has regular deliverables and is relatively short in duration, the project timeline is used to determine the stage of completion.

Where any element of a project is contingent upon either completion or specific milestones or deliverables, the contingent element of the project is separately identified and revenue recognized only when the contingent element is completed.

Where a project is delayed or suspended for whatever reason, the revenue recognized on a timeline basis is initially fixed to the date of suspension. Revenue will only be further recognized if the project is deemed to be commercially viable with an expectation that it will be realized in cash.

Where the project is delayed and a new completion date established, the revenue is recognized over the longer period associated with the revised completion date. Where the project is suspended, no revenue is recognized during the period of suspension. Where a project is cancelled, the project is assessed as to the stage of completion. blur will specifically reference the cancelled projects' Statement of Works, surveys of work performed, and the proportion of costs incurred in order to assess the amount of revenue to recognize.

Cancellation (Previously Listing Fee) Revenue

Being revenue from customers where a commenced project is cancelled and there is an expectation of collection of the Cancellation fee. The Cancellation fee is a contractual charge when a customer lists a project that subsequently cancels.

Premium Services

Being revenue for the provision of wraparound support services for projects, including blur Manage Ultra, blur Protect Advanced, blur Express, and blur Engage. Revenue is recognized in alignment with the parent project on either a timeline or milestone basis.

Subscriptions and Licences

Being revenue for the provision of:

· Tiered annual subscriptions to service providers to gain access to high value project opportunities and market insights. Revenue is recognized on a timeline basis over the life of the subscription.

· Customer access to blur's software Platform, whereby the customer pays a licence fee for the use of the software Platform. Revenue is recognized at the time of customer acceptance of terms prior to listing a project on the marketplace.

· Annual subscriptions of blur Data, which analyses the business services landscape, including category trends, pricing, and timeline forecasts. Revenue is recognized on a timeline basis over the life of the subscription.

Foreign Currency

The functional currency of blur Group plc and blur Ltd is Pound Sterling, whereas of blur Inc., it is US Dollars.

The presentational currency is US Dollars ($), as the group's management believe that in the future the majority of revenues and activity will be generated in US Dollars. This is consistent with prior years.

The exchange rates used for translating the statement of financial position at 31 December 2016 was at a closing rate of £1 = US$1.23 (2015: US$1.48) and the statement of comprehensive income at an average rate of US$1.24 (2015: US$1.48).

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the reporting period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement in either cost of sales or administrative expenses as appropriate.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities are recognized in other comprehensive income and accumulated in a separate component of equity. Exchange differences are recycled to profit or loss as a reclassification adjustment upon disposal of the foreign operation.

Derivative Instruments

The group uses forward exchange contracts to mitigate exposure to foreign currency risks. Gains or losses from utilizing these instruments are recognized in the income statement in the period in which they occur.

Fair Value Hierarchy

All financial instruments measured at fair value must be classified into the levels below:

· Level 1: Quoted prices, in active markets.

· Level 2: Fair Inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

· Level 3: Inputs that are not based on observable market data.

Trade Receivables

Trade receivables are amounts due from customers for services provided in the ordinary course of business and are stated net of any provision for impairment. Impairment provisions are recognized when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net of bad debt provision, such provisions are recorded in a separate allowance account with the loss being recognized within administrative expenses in the statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written-off against the associated provision.

Cash and Cash Equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and for the purpose of the statement of cash flows - bank overdrafts or outstanding credit card balances.

Convertible Debt

The proceeds received on issue of the group's convertible debt are allocated into their liability and equity components. The amount initially recognized and attributed to the debt component equals the discounted redemption value of the financial instrument, discounted at a deemed market rate of interest (the effective interest rate) and not the financial instrument's coupon rate. The deemed rate of interest utilized in the estimation was compared to the rate of interest that was payable on similar debt instruments that do not include an option to convert.

Subsequently, the debt component is accounted for as a financial liability measured at amortized cost until extinguished on conversion or maturity of the convertible loan. The remainder of the proceeds are allocated to the equity reserve within shareholders' equity, net of income tax effects. 

Share Capital

Financial instruments issued by the company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

The group only has one class of Ordinary shares, denominated as £0.01 (2016: £0.01) Ordinary shares, as set out in note 15. The company's Ordinary shares are classified as equity instruments.

Leases

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Rent paid on operating leases is charged to the statement of comprehensive income on a straight-line basis over the term of the lease.

Property, Plant and Equipment

Items of property, plant and equipment are initially recognized at cost.

Depreciation is provided on all items of property, plant and equipment so as to write-off their carrying value over their expected useful economic lives. It is provided at the following rates:

Furniture, fixtures and fittings - 33% per annum straight line

Computer equipment - 33% per annum straight line

External software - 33% per annum straight line

Intangible Assets

The development of the trading platform is capitalized as an intangible asset. Development activities involve a planned investment in the development and enhancement of the trading platform. The development expenditure of the platform is recognized as intangible assets when the following criteria are met:

1. It is technically feasible to complete the development of the platform so that it will be available for use.

2. Management intends to complete and use or sell the platform.

3. There is an ability to use or sell the platform.

4. It can be demonstrated how the platform will generate future economic benefits.

5. Adequate technical, financial and other resources to complete the development of the platform and to use or sell the use of the platform are available.

6. The expenditure attributable to development of the platform can be measured reliably.

Expenditure being capitalized includes internal staff time and cost spent directly on developing the trading platform. Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment costs. The amortization period is over 48 months on a straight-line basis.

Each version released has built incrementally on the prior release (as opposed to being a completely new platform) so no prior costs have been written-off.

Taxation

Income tax expense represents the sum of the current tax and deferred tax charge for the year.

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantively enacted by the reporting date. During the year, the current tax charge is nil as there are tax losses for the year. R&D credits are recognized as and when eligible, within the tax charge/credit in the financial statements in accordance with IAS 12.

Deferred tax is recognized in respect of relevant temporary differences that have originated but not reversed at the balance sheet date. A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilized. Management has elected not to recognize the deferred tax asset due to the lack of certainty of future profitability as the group is still in its early stage of maturity.

The deferred tax asset on shares and share option charges is affected by the difference between the grant price of the shares and share options and the market price of the company's shares at the accounting year end. If the market value of the shares at the date of exercise were to be lower than the market value at the account year end the amount of tax relief obtained would be less than anticipated in the deferred tax calculations. 

Share-based Payments

In accordance with IFRS 2 'Share-based payments', the group reflects the economic cost of awarding shares and share options to employees and Directors by recording an expense in the statement of comprehensive income equal to the fair value of the benefit awarded. The expense is recognized in the statement of comprehensive income over the vesting period of the award.

Fair value is measured by the use of a Black-Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations.

2. Critical Accounting Estimates and Judgements

In preparing the financial statements, the Directors make certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including the expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the financial year are discussed below.

Judgements and Accounting Estimates and Assumptions

(a) Going concern

As set out in note 1 the Directors have prepared a cash flow forecast covering a period extending 12 months from the date of approval of these financial statements which shows that the group will have sufficient cash to meet its debts as they fall due.

blur is a disruptive and evolving technology company and uncertainties exist in the forecast as a result. The forecast contains certain assumptions about the performance of the business including growth in future revenue, both in project revenues and in premium services, the cost model and margins, and the level of cash recovery from trading. In the next 12 months, the most critical assumptions are those concerning the speed of growth in revenues and the control of costs.

(b) Revenue recognition

Revenue is recognized on a gross basis, as our evaluation and assessment of the indicators under IAS 18 supports the fact that blur is acting as principal for the majority of projects. The factors that are considered and prove decisive in the conclusion of this assessment include the following:

· blur has the latitude to agree the fee for each project;

· blur has primary responsibility for providing the services to a customer;

· blur is responsible for the quality of the service delivery, delivered on time, budget and to a sufficiently high standard. This includes the management of the service delivery of the supplier; and

· blur facilitates both commercial terms and the project management for each project.

Although blur passes on some of the credit risk to the supplier it engages to deliver the services to its customers, blur does not consider this is sufficiently persuasive in light of the other factors noted above to suggest that accounting for the transaction as principal is not appropriate.

blur recognizes revenue when the following criteria are satisfied:

I. The amount or value of the revenue recognized can be reliably measured, which occurs when the Customer Success team, customer and service provider have agreed the contract value upon appointment of the service provider. The measurement date for revenue recognition is from the date a service provider is appointed to the point that the performance has been completed.

II. It is probable that the economic benefits associated with the transaction will flow to blur, when the performance obligation is confirmed in the Statement of Works or project brief confirmed between the contracting parties and to the extent that there exists a track record of successful progress of similar projects. The transfer of economic benefits to blur must be fixed, determinable and reasonably assured.

III. The stage of completion of the transaction at the end of the reporting period can be measured reliably.

IV. The costs incurred for the transaction and the costs to complete the transaction can be measured reliably, with reference to the individual contract terms, Statement of Works and project revenue measurement guidance.

Project Revenue

Project revenue is recognized on either a timeline, or milestone basis. Timeline refers to the date the delivery of the service commences to the date it is completed. Milestone refers to specific performance targets within each project until completion. There can be judgement required in estimating the stage of completion of a project and hence the value of the revenue to be recognized at a point in time.

Premium Services

Premium services revenue is recognized in alignment with the level of completion of the parent project on either a timeline, or milestone basis. There can be judgement required in estimating the stage of completion of a project and hence the value of the associated premium service revenue to be recognized at a point in time.

(c) Intangible assets

Intangible assets include the capitalized development costs of the trading platform. These costs are assessed based on management's view of the technology team's time spent on projects that enhance the trading platform, supported by internal time recording and considering the requirements of IAS 38 'Intangible assets'. The development cost of the platform is amortized over the useful life of the asset. The useful life is based on the management's estimate of the period that the asset will generate revenue, which is reviewed on a project by project basis for continued appropriateness and is one of the key assumptions involved in determining the value of these assets. The carrying value is tested for impairment when there is an indication that the value of the assets might be impaired. The impairment tests also require assumptions about future events which require management judgement. Changes in those assumptions could result in a materially different amortization charge, or an impairment, in future years depending on the circumstances prevailing at that time.

(d) Trade receivables - provision for impairment

Management has provided for all debts, individually, which are deemed doubtful at their estimated irrecoverable amount. Management apply their judgement on whether there is objective evidence that trade receivables should be impaired. The quality of creditworthy customers has improved over the period being a reflection of both improved credit control process and the transition to Enterprise customers.

(e) Share-based payments

The fair value of the share options utilizing the Black-Scholes valuation model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations.

3. Segmental Analysis

The group currently has one reportable segment, provision of services, and categorizes all revenue from operations to this segment.

The group currently has four reportable categories which are:

1. Project revenues - for the provision of services from projects that list on blurs' marketplace, where the customer accepts the bid from the service provider and a legally binding contract between blur and its customers is established;

2. Cancellation fees (formerly Listing fees) - where the project is cancelled after listing and there is an expectation of collection. The Cancellation fee is a mandatory charge when a customer listed a project and decided to close their trading account or not to select a service provider;

3. Premium services - comprising wraparound support services for projects, including blur Manage Ultra, blur Protect Advanced, blur Express, and blur Engage; and

4. Subscriptions and licences - for the provision of tiered annual subscriptions to service providers to gain access to high value project opportunities and market insights; the provision of access to blur's software Platform and for the provision of subscriptions of blur Data, which analyses the business services landscape including category trends, pricing and timeline forecasts.

The Group operates in three main geographic areas: UK, USA and Rest of the World. Revenue and non-current assets by origin of geographical segment for all entities in the group is as follows:

The total loss from operations of $4.6m predominantly relates to project revenue/cancellation fees which make up 87% of revenue. The vast majority of the costs of sales and overheads for 2016 relate to the head office in the UK. Given this, the Directors consider the split of costs across geographical segments would be arbitrary and judgmental. Therefore, they consider reporting the loss by geographical segment could be mis-leading in this early phase of blur's development.

4. Loss from Operations

The operating loss as at 31 December 2016 is stated after charging:

5. Adjusted LBITDA

Loss before interest, tax, depreciation and amortisation is calculated as follows:

6. Staff Costs

Staff costs (including Directors emoluments) incurred in the year were as follows:

6. Staff Costs cont'd

The average monthly number of permanent employees during the period was as follows:

Key management personnel comprise of the board of Directors, as detailed in the table on page 16. Details about the composition of the Directors' emoluments and the Directors' interest in share options of the company are set out on pages 18 and 17, respectively. The information on these pages forms part of this note to the financial statements.

During the year the Directors were awarded a total of 200,000 share options (2015: 460,000) at a weighted average exercise price of £0.15 (2015: £0.2739).

No share options were exercised during the year. Remuneration disclosed above includes the following amounts paid to the highest paid Director:

In the year ended 31 December 2016 the highest paid Director received nil share options (2015: nil). No share options were exercised by this Director in the current financial year (2015: nil).

7. Finance Income and Expenses

8. Income Tax

Analysis of the Tax Credit

No liability to UK corporation tax arose on ordinary activities for the year ended 31 December 2016 nor for the year ended 31 December 2015. However, a receivable cash tax credit in respect of the UK R&D activity has been recognized.

The R&D Tax Credit receipt from HMRC is likely to be received within a few months of the submission of the corporate tax return for blur Limited.

A liability for overseas tax has been recognized on ordinary activities for the year ended 31 December 2016 in respect of blur Inc.

Factors Affecting the Tax Charge

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to the result for the year are as follows:

The group has carried forward losses and accelerated temporary differences amounting to US$25,761,578 as of 31 December 2016 (2015: $22,479,579). As the timing and extent of taxable profits are uncertain, the deferred tax asset of US$4,637,084 (2015: $4,046,324) arising on these losses (at 18% future tax rate) and accelerated timing differences has not been recognized in the financial statements.

9. Loss Per Share

Loss per Ordinary share has been calculated using the weighted average number of shares in issue during the relevant financial periods. The basis for calculating the basic loss per share is as follows:

Due to the loss in the period the effect of the share options was considered anti-dilutive and hence no diluted loss per share information has been provided.

NET BOOK VALUE

12. Trade and Other Receivables

As at 31 December 2016 trade receivables of US$8,975 (2015: US$160,192) were past due but not impaired, see note 21 for the group's assessment of the exposure to credit risk.

All amounts shown under receivables are due within one year.

13. Trade and Other Payables (Including Derivatives)

14. Loans and Borrowings

Book value approximate to fair value for the convertible debt and is stated at fair value at initial recognition and at amortized cost subsequently.

The convertible loan notes (referred to as convertible debt II) were issued in 2011 with a coupon rate of 15% at a total face value of US$78,010. The loan notes are either repayable in four years from the issue date at its total face value, with interest accrued and payable as ordinary shares issued in the company or can be converted at any time within two years into shares at the holder's option. The value of the liability component and the equity conversion component were determined at the date the instrument was issued.

During the period to 31 December 2012 loan note holders converted their loan notes into Ordinary shares of the company. Only one convertible loan note remains outstanding relating to Peter Tahany. There is an ongoing claim relating to the provision of Mr Tahany's consultancy services from September 2009 to early 2010, but the board considers any risk of incurring costs relating to this claim remote.

15. Share Capital

Share Capital Allotted and Fully Paid Up

Ordinary shares of £0.01 carry the right to one vote per share at general meetings of the company and the rights to share in any distribution of profits or returns of capital and to share in any residual assets available for distribution in the event of a winding up. The shares are denominated in Pounds Sterling and translated at the historic rate.

The table below shows the movements in share capital for the year:

The group has not issued any partly paid shares nor any convertible securities, exchangeable securities or securities with warrants. The group does not hold any treasury shares.

16. Subsidiaries

The subsidiaries of the company, all of which have been included in the consolidated financial information, are as follows:

* These investments are held by blur Limited.

17. Reserves

The following describes the nature and purpose of each reserve within equity:

18. Leases

The group's leases consist only of operating leases for office space. Non-cancellable operating lease rentals are payable as follows:

At 31 December 2016, the group had no capital commitments in respect of property, plant and equipment.

19. Related Party Transactions

Out of above balances outstanding at year end in trade payables and accruals are $533 (2015: $16,390).

1 Consultancy fees of $85,625 (2015: $191,646) were paid to Revviva LLC, a company in which K Cardinale has an interest. These were paid for K Cardinale's Director services.

2 Service fees of $3,482 (2015: $68,822) were paid to CFPro Limited and Cambridge Financial Partners LLP for accounting and consultancy support, companies in which Barbara Spurrier has an interest.

3 Other consultancy fees of $nil (2015: $25,137) were paid to Meguro LLP, a company in which Robert Wirszycz has an interest prior to him becoming a Director.

4 Licence fees of $nil (2015: $5,325) were payable to Philip Letts for the use of blur logo artwork.

Related party transactions are not included in compensation costs to key personnel as set out in note 6, with the exception of payments to Revviva LLC in respect of K Cardinale's Director services.

Revenue or other related receipts from key management personnel (including Directors):

1 Project revenue includes $23,749 (2015: $1,521) in revenue recognized for projects carried out on behalf of Letts Estates Limited, a company in which Philip Letts has an interest. The projects were carried out on an arms-length basis. There are no amounts outstanding to or from the company at the period end.

2 Project revenue includes $1,058 (2015: $nil) in revenue recognized for projects carried out on behalf of Tanfield Limited, a company in which Richard Bourne-Arton has an interest. The projects were carried out on an arms-length basis. The amount outstanding from Tanfield Limited at the period end was $7,405.

19. Related Party Transactions cont'd

The following loans are due (to)/from Directors:

The loans are interest free and repayable on demand.

20. Share-based Payments

The company operates two option schemes, namely an unapproved option scheme and an Enterprise Management Incentive ('EMI') scheme. The share capital of the company is denominated in Pounds Sterling. Therefore, disclosures are presented in Sterling.

At 31 December 2016, the following share options have been granted and are outstanding in respect of the Ordinary shares:

At the 31 December 2016, 5,032,300 (2015: 4,079,495) options were in existence, 3,449,500 (2015: 2,087,000) under EMI scheme and 1,582,800 (2015: 1,992,495) under unapproved scheme. The options exercisable as at 31 December 2016 were 538,500 (2015: NIL). The contractual life is ten years and there is no cash settlement of the options. The options vest provided the employees remain in the service of the blur Limited for a period of between two and four years from the grant date.

The fair values of the options are calculated using the Black-Scholes method. Assumptions used in this model for the year ended 31 December were:

EMI Scheme 2016-02 2016-01 2015

Fair value at measurement date £0.079 £0.054  £0.14

Exercise price £0.0388-£0.15 £0.0388-£0.075  £0.18-£0.77

Expected volatility 121% 121% 29%-600%

Expected life 3.00 Years 4.00 Years 4.00 Years

Weighted Average Share Price at grant £0.079 £0.054  £0.24

Risk-free rate 1.49% 1.49% 1.65%-1.831%

Unapproved Scheme 2016 2016 2015

Fair value at measurement date £0.0388 £0.075  £0.10

Exercise price £0.0388 £0.075  £0.18-£0.30

Expected volatility 121% 121% 29%-99%

Expected life 3.00 years 4.00 Years 4.00 years

Weighted Average Share Price at grant £0.0388 £0.075  £0.22

Risk-free rate 1.49% 1.49% 1.65%-1.831%

The expected volatility of 121% was used for options granted during the year which has been based on the historical volatility of blur's share price.

21. Financial Instruments - Risk Management

General Objectives, Policies and Processes

The overall objective of the board is to set policies that seek to reduce risk as far as possible without unduly affecting the group's competitiveness and flexibility. Further details regarding these policies are set out below.

The board reviews its monthly reports through which it assesses the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

The group reports in US Dollars. All funding requirements and financial risks are managed based on policies and procedures adopted by the board of Directors.

Forward contracts are used to control foreign exchange risk. The group's criteria for entering into a forward currency contract would require that the instrument must:

· be related to anticipated foreign currency receipt;

· involve the same currency as the foreign currency receipt; and

· reduce the risk of foreign currency exchange movements on the group's operations.

i) Categories of financial assets and liabilities

The principal financial instruments used by the group, from which financial instrument risk arises, are as follows:

· Trade receivables.

· Cash and cash equivalents.

· Trade and other payables.

· Borrowings and convertible loan notes.

Trade and other receivables are initially measured at fair value and subsequently at amortized cost. Book values and expected cash flows are reviewed by the board and any impairment charged to the consolidated statement of comprehensive income in the relevant period.

Trade and other payables are measured at book value. The book value of financial assets and liabilities equates to their fair value.

A summary of the financial instruments held by category is provided below:

Trade receivables principally comprise amounts outstanding for sales to customers and are net of provision for doubtful recoverability. An impairment review of outstanding trade receivables is carried out at the period end and a specific amount provided for. The average debtor days to settle invoices are 13 days (2015: 171 days).

Trade receivables that are due at the reporting date and have been reviewed and impaired when the collectability is considered unlikely.

R&D Tax Credit relating to 2014 of $402,565 was received in January 2016. R&D Tax Credit relating to 2015 of $409,767 was received in September 2016.

Financial liabilities

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 53 days (2015 : 38 days).

Cash and cash equivalents

Cash and cash equivalents are held in Sterling, Euros and US Dollars and placed on deposit in UK banks and US banks.

ii) Credit risk

Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. At 31 December 2016 the group has net trade receivables of US$13,954 (2015: US$258,724).

The group is exposed to credit risk in respect of these balances such that, if one or more customers encounter financial difficulties, this could materially and adversely affect the group's financial results. The group attempts to mitigate credit risk by assessing the credit rating of new customers prior to entering into contracts and by entering contracts with customers with agreed credit terms. The group also mitigates the credit risk when the customer for a project has not paid for the outstanding debt by withholding payment to the service provider associated with the project where possible.

At 31 December 2016, the group had no customers (2015: no customers) that owed the group more than $100,000 each and accounted for 0% (2015: 0%) of all the net receivables outstanding.

The analysis below shows the ageing of trade and other receivables and the movement in bad debt provision in the year:

The provision for bad debts decreased during the year as the group's policy is to provide fully against receivables due for more than 150 days. A corresponding provision is made against the service provider invoice or accrual to reflect the reduced associated liability.

iii) Liquidity risk

Short-term liquidity risk arises from the group's management of working capital. It is the risk that the group will encounter difficulty in meeting its financial obligations as they fall due. The group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances to meet expected requirements for a period of at least 30 days. The table below analyses the group's financial liabilities by contractual maturities. All amounts disclosed in the table are the contractual undiscounted cash flows.

Longer-term liquidity risk is the ability of the group to continue as a going concern. This risk is managed by the preparation by the Directors of cash flow forecasts and the close management of expenditure.

(iv) Foreign exchange risk

Functional and presentational currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the company operates (the functional currency) which is considered by the Directors to be Pounds Sterling (£). The financial statements have been presented in US Dollars. The effective exchange rate at 31 December 2016 was £1 = US$1.2341 (2015: £1 = US$1.4804).

Foreign exchange risk arises when group entities enter into transactions denominated in a currency other than their functional currency. The group's policy is, where possible, to allow customers to settle liabilities denominated in the customer's functional currency, being primarily Dollar or Pound Sterling.

The group is predominantly exposed to currency risk on sales and purchases made from customers and service providers based in the USA and the Eurozone. Sales and purchases from customers, service providers and suppliers are made on a central basis and the risk is monitored centrally. Apart from these particular cash flows the group aims to fund expenses and investments in the respective currency and to manage foreign exchange risk at a local level by matching the currency in which revenue is generated and expenses are incurred.

Forward contracts are used to control foreign exchange risk. Hedge accounting is not applied in respect of these derivatives.

The group's criteria for entering into a forward currency contract would require that the instrument must:

· be related to anticipated foreign currency receipt;

· involve the same currency as the foreign currency receipt; and

· reduce the risk of foreign currency exchange movements on the group's operations.

At 31 December 2016 the group had no commitments under forward foreign exchange contracts.

As at 31 December 2016, the group's net exposure to foreign exchange risk was as follows for those entities with Pound Sterling functional currencies:

The impact of 10% movement in foreign exchange rate of US$ will result in an increase/decrease of net assets by $16,538 for 2016 (2015: $15,793). The average US$ exchange rate used for 2016 is 1.2399 (2015: 1.521), with a closing rate of 1.2341 (2015: 1.4804).

(v) Capital management

The group's capital is made up of share capital, share premium, equity conversion reserve, merger reserve, foreign currency reserve, share-based payment reserve and retained losses totaling at 31 December 2016 US$4,349,025 (2015: US$9,964,927).

The group's objectives when maintaining capital are:

· To safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders.

· To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

To meet these objectives, the group reviews the budgets and forecasts on at least a quarterly basis to ensure there is sufficient capital to meet the needs of the group through to profitability and positive cash flow.

The capital structure of the group consists of shareholders' equity as set out in the consolidated statement of changes in equity. All working capital requirements are financed from existing cash resources.

(vi) Capital risk management

The group's objectives when managing capital are to safeguard the group's ability to continue as a going concern in a volatile and tight credit economy.

The group will also seek to minimize the cost of capital and attempt to optimize the capital structure, which currently means maintaining equity funding and keeping debt levels to insignificant amounts of lease funding. Share capital and premium together amount to $38,195,035 (see note 15).

Whilst the group does not currently pay dividends it is part of the capital strategy to provide returns for shareholders and benefits for other members in the future. However, the group is planning growth and it will continue to be important to maintain the group's credit rating and ability to borrow should acquisition targets become appropriate and available.

Capital for further development of the group's activities will, where possible, be achieved by share issues or other finance as appropriate.

22. Events After the Reporting Date

Richard Bourne-Arton resigned as Non-executive Director on 31 January 2017.

On 7 July 2017, blur announced the successful result of a proposed placing, via an accelerated book build, to raise net cash proceeds of £1.5 million. Whilst blur has made progress in engaging with and delivering projects for multinational blue chip organisations, converting customer engagement into significant revenues has been slower than anticipated at the time of the Group's admission to AIM in 2012.

The net proceeds of the Placing are intended to be used as general working capital to enable blur to implement its revised growth plan, which is intended to result in the conversion of customer engagements into projects and revenue growth. A revised growth plan will aim to deliver significant progress in establishing relationships with blue chip multinational customers from a variety of sectors whilst minimising the cash requirement of the business.

In addition, a number of changes have been made to blur's board of Directors. David Rowe was appointed as chairman with Preeti Mardia, Richard Rae and Richard Croft being appointed to the board as non-executive directors on 12 July 2017. Simultaneous with these new appointments, David Sherriff, Roger de Peyrecave Rob Wirszycz and Kara Cardinale stepped down from the board. Tim Allen, Chief Financial Officer, also stepped down from the board on 28 July 2017 and James Porter, blur's existing group financial controller, will serve as interim finance lead whilst a review is performed of a suitable replacement for Tim.

23. Control

There is no ultimate controlling party.

24. Posting of Annual Report

blur Group plc's audited Annual Report and Financial Statements for the year ending 31 December 2016 are available for you to download and review on blur's website at www.blurgroup.com/investors/#reports and will shortly be posted to shareholders.

A General Meeting of the Company at which the accounts will be laid before shareholders will be held at 10.00 a.m. on 31 August 2017 at the offices of blur Group plc, Eagle House, 1 Babbage Way, Exeter Science Park, Clyst Honiton, Exeter, Devon EX5 2FN.