Pci-pal Regulatory News (PCIP)

PCI-PAL PLC("PCI-PAL" the "Group" or the "Company")

2017 Final Results

PCI-PAL PLC, the customer engagement specialist focussed on secure payment solutions, is pleased to announce its Final Results for the 12 months ended 30 June 2017.

The period being reported on includes the strategic sale of the call centre operations of the Group which completed on 30 September 2016 (the "Disposal"). As such, the results being reported reflect both discontinued and continuing operations. Since the Disposal, PCI-PAL has focussed exclusively on its suite of secure payment solutions. 

Financial Highlights

· Call centre operations(1) disposed of for total consideration of £7.123 million payable as follows:

o Cash of £3.35 million received on completion

o Loan notes with a face value of £3.35 million of interest free loan notes repayable in annual payments starting October 2017

o £0.423 million in excess working capital received in December 2016

· Total Group profitability £4,398,000 (2016: £157,000) including £5,443,000 of profit generated from the Disposal

· 70% increase in revenue from continuing operations to £1,879,000 (2016: £1,103,000)

· Recurring revenues increased to £1.228m representing 65% of total turnover (2016: £0.790m, 72%)

· Continuing activities loss of £1,699,000 (2016: £859,000), reflecting scale-up investment in operating expenditure to grow the secure payment solutions business

· Closing cash and cash equivalents balance at 30 June 2017 of £1,958,000 (2016: £895,000)

Operational highlights for continuing operations only:

Since the Disposal the Group has:

· Invested significantly in developing its AWS (Amazon Web Services) cloud platform to enhance support for global clients

· Expanded its sales and marketing and customer service operations

· Fully relocated to new offices nearby in Ipswich, maintaining the sales suite at 1 Cornhill, London

· Concluded major wins including a regional public sector authority, a global utility company, a global heater company, the world's largest logistics firm, a world leader in the automotive repair space and Her Majesty's Immigration Office

· Revealed refreshed corporate branding and a new website at www.pcipal.com, reflecting the new focus and strategy

· Grown employee numbers from 12 at the time of the Disposal to 29 at the year end, with further expansion planned in 2017

· Formed its North American division

· Increased transaction values through PCI-PAL solutions by 81% compared to the previous financial year, reflecting buoyant client activity

· Signed contracts with total estimated contract value of £3.9m over the minimum life of the contract

· Continued strong customer commitment with 100% client retention to date and excellent referrals from the existing client base

(1) The call centre operations consisted of IPPlus (UK) Ltd and CallScripter Ltd and their associated subsidiaries

Current Trading Highlights:

· Strong start to the new financial year, with recurring revenue up 38% compared to July 2016

· Post period end new business secured with a global food business and a leading UK stockbroker

· New office opened in Charlotte, North Carolina, with first employees hired

· "PCIPAL" is now a registered trademark as we start to build a recognised international brand within our industry

· New AWS cloud-based platform currently going through final PCI Industry compliance testing ready for its launch. The new platform will provide the business with a scalable, flexible infrastructure from which it can deliver its international expansion plans

William Catchpole, Chief Executive Officer of PCI-PAL, commented:

"We are delighted to report a year of double digit revenue growth for PCI-PAL, with exciting new contract wins and pipeline growth, and imminent migration to a fully cloud-based platform on which to further expand our business globally.

"We are experiencing very high customer retention. One existing client has accelerated its plans and has contracted to roll out to 15 new countries using this platform. The implementation of PCI-PAL solutions is, in most cases, the first time that a client has deployed a PCI DSS Level 1 solution, reflecting the nascent market opportunity and the opportunity for a broad spectrum of PCI-PAL clients to de-risk their operations by adopting proven market leading technology from the outset.

"The Board believes PCI-PAL is well positioned for further significant growth over the coming years, as consumers become more focussed on the security of their data, in particular payment data. Along with new regulations, this is driving companies to utilise PCI-PAL's technology to secure payments across all channels."

PUBLICATION OF ANNUAL REPORT AND ACCOUNTS

Copies of the annual report and accounts will be posted to shareholders prior to 26 September 2017 and electronic copies can be downloaded from the Company's website (https://www.pcipal.com/).

For further details, please contact:

Notes to Editors:

PCI-PAL is a Payment Card Industry-Data Security Standard Level 1 certified supplier of contact centre payment solutions and services enabling organisations to take customer payments securely, to store customer data safely, in particular credit card data, and to de-risk their business from the threat of data loss and cybercrime.

PCI-PAL solutions are currently used in more than 60 organisations, many of which are global businesses in the retail, services, and utilities sectors, utilising PCI-PAL technology to ensure they meet industry rules and regulations governing customer data protection.

In May 2018, the new General Data Protection Regulations come into force across the EU. Material data breaches can now lead to fines of up to 4% of an offending organisation's worldwide turnover. This, together with the PCI regulations, means that all organisations who take contact centre payments need to carefully monitor and control their PCI and data compliance.

The shares of PCI-PAL PLC and its predecessor have been admitted to trading on the AIM market of the London Stock Exchange since September 2000.

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

PCI-PAL PLC has made considerable progress in the transformational year ended 30 June 2017 with substantial growth delivered in the UK.

Our cloud based service removes sensitive personal and payment data from IT environments and contact centres. This helps organisations to reduce the risk of fraud, secure sensitive data and become compliant with the Payment Card Industry Data Security Standards ("PCI DSS") and wider security regulations such as the forthcoming General Data Protection Regulation ("GDPR").

Contracts are typically multi-year in length and have a high proportion of recurring charges, usually underpinned by minimum commitments.

Strategy

Our strategic objectives for this year and going forward underpin our desire to become a multi-national leader in cloud PCI compliance solutions. They are:

· Expanding our UK and EU footprint to capitalise on our recent successes

· Broadening our channel partnerships

· Continuing to invest in our platform to provide unparalleled resilience and availability, including the launch of a completely cloud based solution via AWS (Amazon Web Services)

· Maximising client value and retention at 100%

· Continuing to evaluate opportunities to expand our business overseas

We have seen significant interest in our services from new international markets. Two of our UK competitors have already opened North American operations and we have embarked post the year end on opening our own office to penetrate this new territory. The US market is estimated to be five times larger than the UK with over 40,000 contact centres and over 3.5 million agent seats, employing 6 million people.

With regulation tightening and the financial impact of data breaches and fraud growing, organisations around the world are increasingly looking for ways to secure themselves and we see that trend only continuing. Information security budgets and remits are broadening and this can only benefit PCI-PAL with our payments proposition enabling companies to remove effectively the risk of data breach from some of the most challenging parts of their businesses.

Operational Review

In the UK, revenue for the continuing business has increased by 70% to £1,879,000 (2016: £1,103,000). We have signed 19 large contracts during the year which should underpin the future growth prospects of the Group.

Partnership channels remain an important route to market for the business and we remain vendor agnostic.

Our new PCI-PAL Cloud environment is currently undergoing final compliance tests and is scheduled to be publicly available later this year. The platform will initially service the EU customers via the AWS hosting infrastructure in London and will service the US customers from the AWS hosting infrastructure on the east coast USA. One of the benefits of the upgraded cloud infrastructure is the ability to rapidly deploy globally into APAC, EMEA, Western United States & Latin America. The new infrastructure is designed to flex as traffic increases, with load balancing across systems, such that

the platform capacity can automatically grow with demand.

On the 1 April 2017, we were very pleased to welcome William Good to the role of Chief Financial Officer. William joined PCI-PAL having previously been the Chief Financial Officer of Card Clear plc, Retail Decisions plc, Revenue Assurance Services plc and Managed Support Services plc and in addition to the relevant industry experience has nearly 20 years' total experience of Main Market listed and AIM quoted companies. He joined PCI-PAL from Beck Optronic Solutions Ltd, where he had been Finance Director since 2014.

Dividend

Each year the Board decides whether to declare a dividend, return capital to shareholders or purchase shares in the market to be held as treasury stock. This decision is taken principally in the light of the Group's present and future expected performance; its net cash balance; and its future working capital requirements considering its investment plans for the future development of the Group.

Taking these factors into consideration the Board is not proposing the payment of a dividend in respect of the year ended 30 June 2017.

Following receipt of the initial consideration in respect of the Disposal, an interim dividend of 3.16 pence per share totaling £1.0m was declared on 9th November 2016 and paid on the 7 December 2016.

People

I would like to thank each of the Directors and employees for all their efforts during the past year. Their commitment, loyalty and support are appreciated in what was a dramatic and transformational year.

Current Trading and Outlook

The strong period of trading seen in the second half of the financial year has continued into the start of the new financial year, with monthly recurring revenues from the existing client base building nicely. This excludes 28 contracts which have been signed before year-end, but have yet to go-live. These contracts will add approximately £70,000 per month in recurring revenues once they are operationally live.

We have an excellent sales pipeline, high revenue visibility from the recurring and other contracted commitments of our client base and, with the trend of high client retention rates, the prospects of the Group remain excellent.

Whilst we expect the strengthening revenue base of UK customers to lead to good organic growth in the year ahead, we also expect to see the US business grow strongly. The US Contact Centre market is several times larger than that of the UK but the implementation of PCI compliant secure payment technologies remains substantially behind that in the UK and Europe.

We have strengthened our operations team which is now more capable than ever of delivering projects successfully. Improved delivery is, in turn, expected to shorten the elapsed time between contract signature and commencement of recurring and service usage revenues from the point of service 'go-live'.

Our focus on PCI-PAL reflects our ambitious expansion plans for this business. We are targeting substantial growth in both gross revenue and new customer wins, both this year and next, with the objective that the UK operation will deliver an inaugural monthly profit in this coming financial year.

The Board is pleased with the progress to date and is confident that the Group's longer term strategy is appropriate. We believe that PCI-PAL's positioning within the 'Fintech' (Financial Technology) space provides exciting growth prospects.

We look forward to reporting further progress in developing this business.

Chris Fielding William Catchpole

Non-Executive Chairman Chief Executive

PCI-PAL PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2017

The accompanying accounting policies and notes form an integral part of these financial statements.

PCI-PAL PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 30 JUNE 2017

PCI-PAL PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)AS AT 30 JUNE 2017

The accompanying accounting policies and notes form an integral part of these financial statements.

The Board of Directors approved and authorised the issue of the financial statements on 8 September 2017.

W A Catchpole Director

T W Good Director

PCI-PAL PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2017

The accompanying accounting policies and notes form an integral part of these financial statements.

PCI-PAL PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2017

PCI-PAL PLC

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

FOR THE YEAR ENDED 30 JUNE 2017

PCI-PAL PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017

1. AUTHORISATION OF FINANCIAL STATEMENTS

The Group's consolidated financial statements (the "financial statements") of PCI-PAL PLC (the "Company") and its subsidiaries (together the "Group") for the year ended 30 June 2017 were authorised for issue by the Board of Directors on 8 September 2017 and the Chief Executive, William Catchpole, and the Chief Financial Officer, William Good, signed the balance sheet.

2. NATURE OF OPERATIONS AND GENERAL INFORMATION

PCI-PAL PLC is the Group's ultimate parent company. It is a public limited company incorporated and domiciled in the United Kingdom. PCI-PAL PLC's shares are quoted and publicly traded on the AIM division of the London Stock Exchange. The address of PCI-PAL PLC's registered office is also its principal place of business.

The Company operates principally as a holding company. The main subsidiaries are engaged in the provision of telephony services and PCI Solutions.

3. STATEMENT OF COMPLIANCE WITH IFRS

These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

The principal accounting policies adopted by the Group are set out in note 4. The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these financial statements.

Standards and interpretations in issue, not yet effective

New standards and interpretations currently in issue but not yet effective for accounting periods commencing on 1 July 2016 are:

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

- IFRS15 Revenue from Contracts with Customers (effective date 1 January 2018).

- IFRS16 Leases (effective date 1 January 2019).

The directors will adopt these standards as they come into effect but have not yet fully assessed the impact each standard may have on the future financial statements of the Group.

4. PRINCIPAL ACCOUNTING POLICIES 

a) Basis of preparations

The financial statements have been prepared on going concern basis in accordance with the accounting policies set out below. These are based on the International Financial Reporting Standards ("IFRS") issued in accordance with the Companies Act 2006 applicable to those companies reporting under IFRS as adopted by the European Union ("EU"). The financial statements are presented in pounds sterling (£), which is also the functional currency of the parent company, and under the historical cost convention.

b) Basis of consolidation

The Group financial statements consolidate those of the Company and its subsidiary undertakings (see note 19) drawn up to 30 June 2017. A subsidiary is a company controlled directly by the Group and all of the subsidiaries are 100% owned by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

The Group has utilised the exemption (within IFRS 1) not to apply IFRS to pre-transition business combinations. All other subsidiaries are accounted for using the acquisition method.

c) Going concern

The financial statements have been prepared on a going concern basis, which the directors believe to be appropriate for the following reasons:

The Group meets its day-to-day working capital requirements through its cash balances and trading receipts. Cash balances for the group were £1.9 million at the 30 June 2017. It also holds loan notes with a face value of £3.35m which will start repaying in October 2017.

The directors have prepared cash flow forecasts to 30 September 2018. These forecasts make several assumptions relating to predicted revenues and cash receipts, new contracts signed; investment in new territories and new employees. The working cash flow forecast shows that the Group will be able to operate within its existing resources throughout the period up to 30 September 2018 and beyond.

The Directors recognise that during the forthcoming year the Group is expected to remain loss making on a month-to-month basis, albeit with an improving trend. The directors will review, on a regular basis, the actual results achieved against the planned forecasts. Some of the planned expenditure assumptions in the current forecast remain discretionary and as a result the directors can delay such expenditure to further ensure the Company is able to meet its day-to-day financial working capital needs.

d) Revenue

Revenue is measured by reference to the fair value of consideration received or receivable by the Group for services provided, excluding VAT and trade discounts.

Transactional revenue is recognised based on billable minutes or transactions incurred in the month, along with standing monthly charges and any specific supplementary monthly service charges.

Licences granting access to our systems are recognised at the point of sale for contracts sold in perpetuity, as it is at this point that the Group has performed all of its obligations.

Revenue from annual software licences and maintenance contracts may be received in a single amount or in monthly instalments but such turnover is recognised evenly over the period to which it relates, reflecting the performance of obligations over time. Amounts invoiced in advance per the customer contracts will be deferred accordingly.

Revenue relating to the delivery of professional services undertaking the installation of our services with the customer are billed per the contract but will only be recognised in the statement of comprehensive income once the services have been completed and the customer has gone live. Amounts invoiced in advance per the customer contracts will be deferred accordingly.

e) Intangible assets

Research and development

Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred.

Development costs incurred are capitalised when all the following conditions are satisfied:

· completion of the intangible asset is technically feasible so that it will be available for use or sale

· the Group intends to complete the intangible asset

· the Group is able to use or sell the intangible asset

· the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits

· there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset

· the expenditure attributable to the intangible asset during the development can be measured reliably

The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Directly attributable costs include development engineer's salary and on-costs incurred on software development. The cost of internally generated software developments are recognised as intangible assets and are subsequently measured in the same way as externally acquired software. However, until completion of the development project, the assets are subject to impairment testing only.

Amortisation commences upon completion of the asset, and is shown within administrative expenses in the statement of comprehensive income. Amortisation is calculated to write down the cost less estimated residual value of all intangible assets by equal annual instalments over their expected useful lives. The rates generally applicable are:

· Development costs 20% to 33%

f) Land, building, plant and equipment

Land, buildings, plant and equipment are stated at cost, net of depreciation and any provision for impairment. Leased plant is included in plant and equipment only where it is held under a finance lease.

Disposal of assets

The gain or loss arising on disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income.

Depreciation

Depreciation is calculated to write down the cost less estimated residual value of all plant and equipment assets by equal annual instalments over their expected useful lives. The rates generally applicable are:

Material residual value estimates are updated as required, but at least annually.

g) Impairment testing of goodwill, other intangible assets, plant and equipment

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows ("cash-generating units"). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.

Goodwill and intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less cost to sell, and value in use based on an internal discounted cash flow evaluation. Any impairment loss is first applied to write down goodwill to nil and then is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised no longer exists.

h) Leased assets

In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability.

The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the statement of comprehensive income over the period of the lease.

All other leases are regarded as operating leases and the payments made under them are charged to the statement of comprehensive income on a straight-line basis over the lease term. Lease incentives are spread over the term of the lease.

i) Equity-based and share-based payment transactions

The Company's share option schemes allow employees to acquire shares in PCI-PAL PLC to be settled in equity. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity in the Company accounts. The fair value is measured at grant date and spread over the period during which the employees will be entitled to the options. The fair value of the options granted is measured using either the Black-Scholes option valuation model or the Monte Carlo option pricing model, whichever is appropriate for the type of options issued. The valuations consider the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest.

j) Taxation

Current tax is the tax payable based on the profit for the year, accounted for at the rates enacted at 30 June 2017.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor the initial recognition of an asset or liability, unless the related transaction is a business combination or affects tax or accounting profit. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, accounted for at the rates enacted at 30 June 2017, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the year end.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the statement of comprehensive income, except where they relate to items that are charged or credited to other comprehensive income or directly to equity in which case the related tax charge is also charged or credited directly to other comprehensive income or equity.

k) Dividends

Dividend distributions payable to equity shareholders are included in "other short term financial liabilities" when the dividends are approved in general meeting prior to the year end. Interim dividends are recognised when paid.

l) Financial assets and liabilities

The Group's financial assets comprise cash and trade and other receivables, which under IAS 39 are classed as "loans and receivables". Financial assets are recognised on inception at fair value plus transaction costs. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in in the year.

Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the assets' carrying amount and the present value of estimated future cash flows.

The Group has a number of financial liabilities including trade and other payables and bank borrowings. These are classed as "financial liabilities measured at amortised cost" in IAS 39. These financial liabilities are carried on inception at fair value net of transaction costs, and are thereafter carried at amortised cost under the effective interest method.

m) Sale and leaseback

For sale and finance leasebacks, profit from the sale is deferred and amortised over the lease term. For sale and operating leasebacks, the assets are sold at fair value and is recognised immediately in the consolidated statement of comprehensive income.

n) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term highly liquid investments with maturities of three months or less from inception that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

o) Equity

Equity comprises the following:

· "Share capital" represents the nominal value of equity shares. The shares have attached to them voting, dividend and capital distribution (including on winding up) rights; they do not confer any rights of redemption.

· "Share premium" represents the difference between the nominal and issued share price

· "Other reserves" represents the net amortisation charge for the Company's share options scheme

· "Profit and loss account" represents retained profits

· "Treasury shares" represents ordinary shares owned by the company and the cost of treasury shares are deducted from the profit and loss account in reserves.

p) Contribution to defined contribution pension schemes

The pension costs charged against profits represent the amount of the contributions payable to the schemes in respect of the accounting period.

q) Foreign currencies

Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the year end.

Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the statement of comprehensive income in the period in which they arise.

r) Significant judgements and estimates

The Group makes estimates concerning the future in assessing the carrying amounts of capitalised development costs. To substantiate the carrying amount the directors have applied the criteria of IAS 38 and considered the future economic benefit likely as a result of the investment.

Careful judgement by the directors is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each balance sheet date. In addition, all internal activities related to the research and development of new software products are continuously monitored by the directors. No costs are considered to meet the criteria in the current year.

The calculation of the deferred tax asset involved the estimation of future taxable profits. In the year ended 30 June 2016, the directors assessed the carrying value of the deferred tax asset and decided not to recognise the asset, as the utilisation of the assets was unlikely in the near future. The directors have reached the same conclusion for this accounting period and so no asset has been recognised.

8. DIRECTORS AND EMPLOYEES

Staff costs of the Group, including the directors who are considered to be part of the key management personnel, during the year were as follows. The 2017 figure is for the continuing operations only while the 2016 figure is for continuing and discontinued operations, as it is not possible to split the information.

During the year 3 (2016: 3) directors participated in money purchase pension schemes.

The amounts set out above include remuneration in respect of the highest paid director as follows:

A detailed breakdown of the Directors' Emoluments, in line with the AIM rules, appears in the Directors' Report.

Key management compensation

9. SEGMENTAL INFORMATION

PCI-PAL PLC operates one business sector: the service of providing data secure payment card authorisations for call centre operations, the previous divisions of Ansaback and CallScripter, which were sold on 30 September 2016 make up the discontinued activity. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated assets comprise items such as cash and cash equivalents, taxation and borrowings. All liabilities, other than the bank loan, are unallocated. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one period.

Revenue can be split by location of customers as follows:

All non-current assets are located in the United Kingdom

10. EARNINGS PER SHARE

The calculation of the earnings per share is based on the profit after taxation added to reserves divided by the weighted average number of ordinary shares in issue during the relevant period as adjusted for treasury shares. Details of potential share options are disclosed in note 20.

12 months 12 months

ended ended

30 June 30 June

2017 2016

11. TAXATION

Factors affecting current tax charge

The tax assessed on the profit on ordinary activities for the year was lower than the standard rate of corporation tax in the UK of 20% (2016: 20%).

The Group has unrecognised tax losses carried forward of £2.03 million (2016: £1.80 million). £1.51 million of the 2016 unrecognised tax losses related to the call centre businesses that were disposed of on the 30th September 2016.

12. INTANGIBLE ASSETS

In calculating the value of capitalised development, management make judgements and estimates of future cash flows.

Cost:

Included within the net book amount of £99,000 (2016: £252,000) is £nil (2016: £98,000) relating to assets held under finance leases. The depreciation charged to the financial statements in the year in respect of such assets amounted to £nil (2016: £41,000).

All amounts are considered to be approximately equal to the carrying value. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Group holds £nil (2016: £12,934) of deposits as security against certain accounts.

Trade receivables have been reviewed for indicators of impairment and a provision has been recorded as follows:

All of the impaired trade receivables are past due at the reporting dates. In addition, some of the non-impaired trade receivables are past due at the reporting date:

Amounts which are not impaired, whether past due or not, are considered to be recoverable at their carrying value. Factors taken into consideration are past experience of collecting debts from those customers, plus evidence of post year end collection.

Loan notes receivable

The loan notes receivable will be repaid to the Company as follows: Three annual payments of £957,000 starting on 31st October 2017 and a final payment of £479,000 on 31st March 2020.

The loan notes do not carry a rate of interest and so have been discounted at a rate of 4% per annum as required by the accounting standards. As at the 30th June 2017 the values recorded in the balance sheet of the company is as follows:

Loan notes receivable within one year £945,000

Loan notes receivable after one year £2,202,000

As the discounting unwinds, the difference between the initial carrying value and the total amount receivable will be credited to the statement of consolidated income over the period of the loan notes.

The obligations of the loan notes are secured by a charge over 94.87% of the shares of the Direct Response Contact Centre Group Ltd being the holding company that acquired the call centre division on the 30 September 2017.

Amounts due under finance leases are secured on the related assets.

On 15 January 2016 the Company obtained a loan of £1,145,529, secured over Melford Court, The Havens, Ransomes Europark, Ipswich IP3 9SJ repayable over 25 years with a 5 year fixed rate of 2.4% above the base rate from the NatWest Bank PLC. Melford Court was sold in September 2016 as part of the Group Disposal and the loan was repaid in full.

Interest on the bank loan falls due as follows:

Amounts due under finance leases are secured on the related assets.

The minimum lease payments due under finance leases fall due as follows:

The above table includes interest included within the amounts due under finance leases which falls due as follows:

The lease agreements are for various fixed assets and include fixed lease payments with a purchase option at the end of the lease terms. The agreements are non-cancellable and do not contain any further restrictions. All the lease agreements were transferred to the discontinued operations.

18. DEFERRED TAXATION

Deferred taxation is calculated at a rate of 17% (2016: 20%)

The unprovided deferred tax assets are calculated at a rate of 17% (2016: 18%).

19. GROUP UNDERTAKINGS

At 30 June 2017, the Group included the following subsidiary undertakings, which are included in the consolidated accounts:

The Group owns 167,229 (2016: 167,229) shares and these are held as Treasury Shares.

During the year, the share price fluctuated between 49 pence and 12.5 pence and closed at 41.5 pence on 30 June 2017.

Share Option schemes

The Company operates an Employee Share Option Scheme. The share options granted under the scheme are subject to performance criteria and generally have a life of 10 years. During the year two tranches of options were issued.

Grant One on 25 May 2017.

The grant was for 3,065,000 options at an exercise price of 33 pence each. Of the 3,065,000 options issued 925,000 were issued to various directors of the Company and these are reported as part of the remuneration committee report. The performance criteria of this grant is as follows: 50% of the options will vest if the share price of the Company as measured on the London Stock Exchange trades above 44p, being the share price at the date of grant, for a continuous 30 day period; 25% if the share price of the Company trade above 66p for a continuous 30 day period; and 25% will vest if the share price of the Company trades above 88 pence for a continuous 30 day period. The options cannot be exercised for three years from the date of grant and will lapse after a ten-year period if they have not been exercised.

The options have been valued using a Monte Carlo Pricing model with the following assumptions:

Spot price £0.44

Strike price £0.33

Estimated Time to Maturity 5 years

Volatility 20%

Risk Free rate 0.57%

Dividend yield 0.00%

No of Steps 10

No of simulations 100,000

The fair value of the options has been calculated at 14.1 pence and £4,000 has been charged to the statement of comprehensive income account for this financial year.

Grant Two on 30 June 2017

The grant was for 150,000 options at an exercise price of 41.5 pence each being the share price the date of issue. The vesting criteria of this grant is as follows: 37,500 Option Shares shall vest and become exercisable on 5 July 2018. Of the remaining 112,500 options these will vest in equal tranches over the period of 36 months starting 5 August 2018. The options will lapse if they have not been exercises within a ten-year period from the date of grant.

The options have been valued using a Black Scholes Pricing model with the following assumptions:

Spot price £0.415

Strike price £0.415

Estimated Time to Maturity 5 years

Volatility 20%

Risk Free rate 0.57%

Dividend yield 0.00%

The fair value of the options has been calculated at 7.8 pence and no change has been charged to the statement of comprehensive income account for this financial year.

An analysis of the Group and Company options as at 30th June 2017 is as follows:

The analysis of the Company's option activity for the financial year is as follows:

21. FINANCIAL INSTRUMENTS

The Group uses various financial instruments including cash, trade receivables, trade payables, other payables, loans and leasing that arise directly from its operations. The main purpose of these financial instruments is to maintain adequate finance for the Group's operations. The existence of these financial instruments exposes the Group to a number of financial risks, which are described in detail below. The directors do not consider price risk to be a significant risk. The directors review and agree policies for managing each of these risks, as summarised below, and these remain unchanged from previous years.

Capital Management

The capital structure of the Group consists of debt, cash, loans and equity. The Group's objective when managing capital is to maintain the cash position to protect the future on-going profitable growth which will reflect in shareholder value.

At 30 June 2017, the Group had a closing cash balance of £1,958,116 (2016: £895,422) and an outstanding mortgage of £nil (2016: £1,109,256).

Financial risk management and objectives

The Group seeks to manage financial risk to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The directors achieve this by regularly preparing and reviewing forecasts based on the trends shown in the monthly management accounts.

Interest rate risk

The total loan balance at 30 June 2017 is £nil (2016: £1,109,256).

Following the disposal, the Group does not use loan or lease finance and so there is no interest rate risk.

Credit risk

The Group's principal financial assets are cash and trade receivables, with the principal credit risk arising from trade receivables. In order to manage credit risks the Group conducts third party credit reviews on all new clients, takes deposits where this is deemed necessary and collects payment by direct debit, limiting the exposure to a build-up of a large outstanding debt.

Liquidity risk

The Group aims to mitigate liquidity risk by closely monitoring cash generation and expenditure. Cash is monitored daily and forecasts are regularly prepared to ensure that the movements are in line with the directors' strategy.

Trade payables and loans fall due as follows:

Foreign currencies

During the year exchange gains of £93 (2015: £11,784) have arisen and at the year--end £655 (2016: £57,333) was held in foreign currency bank accounts.

Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction and monetary assets and liabilities in foreign currencies are translated at the rates ruling at the year end. At present foreign exchange is minimal and hedging and risk management is not deemed necessary. 

Financial assets by category

The fair values of loans and receivables are considered to be approximately equal to the carrying values.

Financial liabilities by category

The fair values of financial liabilities are considered to be approximately equal to the carrying values.

22. CAPITAL COMMITMENTS

The Group has no capital commitments at 30 June 2017 or 30 June 2016.

23. CONTINGENT ASSETS

The Group has no contingent assets at 30 June 2017 or 30 June 2016.

24. CONTINGENT LIABILITIES

The Group has no contingent liabilities at 30 June 2017 or 30 June 2016.

Operating lease commitments relate to the following buildings:

London expires March 2019

Ipswich Gamma Terrace expires December 2021, with optional break clause for September 2019

26. TRANSACTIONS WITH DIRECTORS

There were no transactions with directors in the year to June 2017 or June 2016 other than the dividends noted below.

27. DIVIDENDS

The directors have proposed a dividend of nil pence per share (2016: nil pence per share) post year end (subject to shareholder approval).

Following receipt of the initial consideration in respect of the Disposal, an interim dividend of 3.16 pence per share was declared on 9th November 2016 and paid on the 7 December 2016 (2015: nil pence per share).

The following directors received dividend payments during the year to 30 June 2017 as follows:

28. DISPOSAL OF THE CALL CENTRE DIVISION

On 30 September 2016, the Group disposed of its call centre division, consisting of IPPlus (UK) Ltd, its Ansaback contact centre, and CallScripter Ltd, its call centre software businesses, for an initial consideration of £6.70 million plus any working capital adjustments. The initial consideration was paid as £3.35m cash and a loan note of £3.35m (discounted to £3.15m in the balance sheet) secured over the shareholding of the purchasing directors.

Prior to the disposal, the Group reorganised its assets. The trading division of PCI PAL was sold by IPPlus (UK) Ltd to a separate subsidiary and excluded from the disposal. The consideration for the PCI PAL division was £300,000.

In addition, the Group sold and leased back its freehold property at Melford Court. The consideration was £1,950,000 plus VAT and the group recorded a profit of £360,000 on this transaction. The Melford Court lease was disposed of with the disposal of the Ansaback and CallScripter businesses.

Prior to the disposal IPPlus (UK) Ltd, the owner of the Ansaback and CallScripter businesses, paid a dividend of £909,000 to PCI-PAL PLC.

Revenues and expenses, gains and losses relating to the discontinuance of this division have been eliminated from the loss from the Group's continuing operations and are shown as a single line item on the face of the Consolidated Statement of Comprehensive Income.

Operating profit until the date of disposal are summarised below: