Pci-pal Regulatory News (PCIP)

PCI-PAL PLC

("PCI Pal", the "Group" or the "Company")

Final Results

Significant strategic and commercial progress

PCI-PAL PLC (AIM: PCIP), a leading world-wide provider of Payment Card Industry ("PCI") compliance solutions for contact centres, is pleased to announce full year results for the year ended 30 June 2018 (the "Period").

Financial Highlights 

· Revenue increased to £2.1m (2017: £1.9m)

· Recurring revenue increased to 79 per cent of total revenue (2017: 65 per cent)

· Exit run-rate for live customers MRR ("monthly recurring revenue") increased over 60% to £0.2m per month at 30 June 2018 (30 June 2017: £0.1m per month)

· Total contracted RAV ("recurring annual value of revenue") increased to £2.5m per annum at 30 June 2018 (30 June 2017: £2.1m per annum) -

· Pipeline of qualified opportunities RAV stood at £6.2m per annum at 30 June 2018

· Adjusted EBIT loss from continuing operations increased to £3.7m (2017: £1.7m)* following the planned further growth in headcount, investment in technology and expansion into North America during the year

· Loss before tax from continuing operations of £3.7m (2017: £1.7m)

· Improved gross margin 46% (2017: 43%)

· £4.95m fundraise completed in January 2018

· Cash and cash equivalents at 30 June 2018 were £3.7m (30 June 2017: £2.0m)

 * Adjusted EBIT loss is operating loss adjusted to exclude share-based payments and foreign exchange (losses)/gains.

 Technology Highlights

· Second-generation Amazon Web Services ("AWS") platform launched in November 2017 after being certified as PCI DSS Level 1 compliant

· Regional instances of the platform launched in UK, US and Canada

· Capitalised a further £0.5m of research and development as part of the continued investment in the new second-generation AWS platform

Operational Highlights 

· Secured 48 new contracts from new and existing customers (2017: 19)

· Further growth in customer base, which now stands at 94 (2017: 60)

· 63% of all new customers sourced through our partner channel

· International expansion:

o US office opened in Charlotte, North Carolina.

o US office signed five new customers in US and Canada since launch in February 2018

o First sale achieved in Scandinavia

· Employee base grown to 41 (2017: 29), of whom 7 are US based

William Catchpole, CEO, commented:

"We are fast approaching the second anniversary of the re-organisation when the Company decided to exclusively focus on secure payment solutions and the progress reported shows just how far we have come in a short period of time. The sales momentum we have seen this year and the 48 new contracts we have signed underscore our confidence in our offering and the market's readiness to engage in meeting their PCI and data compliance obligations.

"As we move in to the new financial year, we will continue to focus on the many ways in which our commercial momentum is being driven. Our opportunities for geographic expansion continues to develop.

"Our class-leading, second-generation AWS platform, is the jewel in the business enabling rapid deployment of the core platform in any region where our customers require it along with providing unparalleled resilience.

"We have seen particular success in the expansion of our formative channel business and the AWS platform is a key component of that; enabling light-touch, non-invasive integration methods that empower our partners, and customers, to solve the challenges of payment security within their contact centre with no detriment to their core operating systems. The opportunities we are now being offered would not have been available to us using the original platform. 

"The move from direct sale to a principally channel sale approach to market typically impacts short term revenues, however, we believe the long-term benefits of making the change will outweigh this short term impact. 

"This year is showing signs of being another exciting year for PCI-PAL."

PUBLICATION OF ANNUAL REPORT AND ACCOUNTS & NOTICE OF AGM

Copies of the annual report and accounts and notice of AGM will be posted to shareholders prior to 18 September 2018 and electronic copies can be downloaded from the Company's website (https://www.pcipal.com/).

For further information, please contact:

About PCI Pal:

PCI Pal is a Payment Card Industry-Data Security Standard ("PCI DSS") Level 1 certified supplier of contact centre payment solutions and services, with operations in Europe and North America, enabling organisations to take customer payments securely over the phone, and to de-risk their business from the threat of data loss and cybercrime. 

PCI Pal solutions have been procured by more than 90 organisations, many of which are global businesses in the retail, services, and utilities sectors, thereby ensuring they meet industry rules and regulations governing customer data protection.

To understand our core services better please view our video on https://www.pcipal.com/en/solutions/agent-assist/

CHAIRMAN'S STATEMENT

As the Chairman of the Board, I am pleased to report that PCI-PAL continued to make good progress during the last twelve months. Our business continued to evolve and develop which has been under-pinned by the £4.95 million fundraising we undertook in January 2018.

We have seen significant progress in the development of the PCI compliance market due to GDPR and some well publicised breaches by several major companies and well-known brands. PCI-PAL is benefiting from this evolution of the market and has seen a marked increase in enquiries for its global solution. In the period, we have seen a significant increase in our sales pipeline, growth in our customer base and further strengthening of our leading position as the only pure cloud solution in our market.

Our core strategic aim includes building the best technological solution available to help organisations reduce the risk of fraud and PCI compliance costs by removing sensitive payment data from IT environments in contact centres.

Importantly too, PCI-PAL has continued to evolve over the last 12 months into a focussed channel sales model, primarily made up of resellers and strategic referral partners. The executive management is successfully executing this strategy for growth through our partner channel, which is now fully-engaged and growing in both sophistication and breadth, and this wider global reach continues to drive our momentum.

Our North American operation has started well. The business was established in May 2017 and the first employee joined us in July 2017. The North America AWS instance of our platform was launched in February 2018, following the fund raising, and we are now seeing the positive impact of the investment with signed contracts, expansion of our channel model, and, as a result, growth in sales pipeline across both the US and Canada. Employee numbers have continued to grow in the region and stood at seven by the end of the financial year, including James Barham, who transferred with his family to our Charlotte office in April 2018 to head up the team in the region taking on the role of COO - North America, having previously run the UK operation since it was launched in 2012. Post the year end more high calibre staff have joined and we are starting to see good growth in the opportunities available to us. I am looking forward to seeing how our investment in this strategically important market develops over the coming twelve months.

People

While businesses experiencing rapid change often face managerial challenges, the Board is fully engaged with the executive management team to ensure that the Group is positioned to address the growth challenge head-on. In particular, ensuring the ongoing recruitment at the appropriate time of senior experienced staff with strong track records who can proactively engage in the challenge of building a world-class technology company.

We are an ambitious company looking to take first-mover advantage with our unique fully cloud based solutions. We have grown very fast as an organisation. From 12 employees in one office in September 2016 at the time of the reorganisation we are, twenty-one months later, 41 members of staff across two geographic regions.

I believe we have built a first-class, experienced team and it is down to their hard work and determination that we have built the foundations for a strong business. Without the energy, commitment and enthusiasm of the PCI-PAL employees the growth and potential of PCI-PAL would not be what they are today. We thank them for another year of hard work and execution.

Corporate Governance

During the financial year we have reviewed the business against the latest Corporate Governance Code published by the Quoted Company Alliance. In the Governance section we outline how we have complied with the Code and where our policies depart from the Code together with an explanation of the reasons for that departure.

Changes in Accounting Rules

The Company will be implementing IFRS 15: Revenue from Contracts with Customers, with effect from 1 July 2018, on a fully retrospective basis. When the Company reports the interim results for the six months to 31 December 2018, the financial statements will be presented against restated financial statements for the year ended 30 June 2018. Whilst the impact of IFRS 15 is limited for the Group's historic results it will have a more meaningful impact in the coming years as we start to see our sales momentum materialise from our recent investments. It is important to note that neither the business model nor the Group's market opportunity is impacted. The Group does not intend to change the commercial model of the business, so cash generation is also not impacted by the implementation of IFRS 15.

Momentum

In the year ahead, we are focused on maintaining our momentum. The attractiveness of our market will inevitably encourage competition. However, we believe 2019 will be a year in which we capitalise on our evolution to a channel sales business, as we extend our offering to the addressable market through these major resellers and alliance partners, utilising our highly scalable, true cloud environment as we go. 

I look forward to building on these foundations over the next twelve months.

Chris Fielding

Non-Executive Chairman

Chief Executive's Statement

Overview

This financial year was a year of expansion, not only in the UK but also North America, and of commercial momentum. We have seen good increases in our recurring revenues, customer numbers, and geographic coverage. Alongside this, we have continued to build the business, increasing our employee base and opening a new US office.

As our business has developed, so has the market we service. The PCI compliance market is now advancing beyond the early hype stage and our partner channel continues to grow and diversify in recognition of this shift. This channel was responsible for sourcing 63% of all new customers in FY18 and there was a healthy number of customers contracting for our solutions.

We are pleased to report that total recognised revenue for the year ended 30 June 2018 increased to £2.1m (2017: £1.9m) driven by sales from both new and existing customers. Sales momentum built throughout the year and our exit MRR at 30th June 2018 stood at £0.2m (2017: £0.1m). We continue to have an extremely high customer retention rate. A strong foundation for the future.

Like-for-like operating losses for the period were £3.8m (2017: £1.7m) and comparable adjusted EBITDA (1) losses for the period were £3.5m (2017: £1.7m), both representing continued investment in our international expansion. Cash and cash equivalents at 30 June 2018 were £3.7m (30 June 2017: £2.0m), reflecting the fundraising undertaken during the year.

Product development

At the end of October 2017, we announced that our second-generation, PCI-PAL Amazon Web Services based cloud platform, had been certified as PCI DSS Level 1 Compliant allowing us to launch the new platform to the market. Since this date we have made good progress in introducing the service to our major target locations. As at 30 June 2018 we had live and testing instances of the new platform in London, Virginia and Montreal. Since the launch to the year end, we have signed 15 new contracts with a combined RAV of £0.29m. Interest in the new platform continues to build. 

This second-generation platform is technically advanced, and as highlighted in our trading update on 11 July 2018, our partners and prospective customers have undertaken significant levels of load testing. This level of testing was more than we originally anticipated and as a result of the additional testing, our first customers went live last month, after some eight months of deployment testing. It is only at go-live that we start recognising the monthly recurring income and any associated professional services fees. 

In terms of installing the platform infrastructure, our Canadian regional instance, in Montreal, took us about one week to initiate from start to finish and was deployed at a minimal upfront cost. The limited cost and fast deployment time to a new territory is a major benefit of the second-generation platform.

Amazon Web Services have locations almost everywhere we want to be. The ability for us to respond to demand globally by opening territory specific instances of the platform as required should be a major advantage compared to the historic, old-fashioned method of co-locating services with partner telecom companies in their data centres on a revenue share basis. Each territorial instance will allow data to be kept within that region/country to ensure that all the local data sovereignty rules are fully adhered to. However, all our development work and operational aspects of running the AWS instances around the world will continue to be run from our UK offices, thus enhancing efficiency.

Looking forward, we believe we will, in the next twelve months, be opening a regional instance of the platform in mainland Europe to assist in our expansion into the region and as part of our post Brexit contingency planning. We are also actively considering our expansion plans in the Asia Pacific region.

1) being EBITDA before share-based payments and foreign exchange gains/(losses) to remove the effect of volatile share-based payments expenses and foreign exchange gains/(losses))

Sales and marketing

It is PCI-PAL's stated objective to deliver its services in partnership with major partners across the world. The Board is very pleased with the progress that has been made. At the end of the last financial year PCI-PAL was contracted with relatively few channel partners, the majority of whom were focused on the UK market. During this financial year we have successfully negotiated new agreements with several important partners including Capita Pay 360 in Europe, NewVoiceMedia globally, and a major payment service provider and a leading cloud service provider in North America. Whilst this approach, compared to our previous direct sale strategy, typically impacts near term revenue realisation, it benefits ultimate contract capture and in due course speed of on-boarding and long-term revenue growth.

North America

The regional business was only opened in July 2017 and fully launched in February 2018. Despite this relatively recent launch, we have signed and on-boarded a major payment gateway, which has already bought to us two contracted customers. We have also partnered with a major regional telco, which has verbally confirmed its first sale in Canada, and the US business has signed its first customer with a global cloud contact centre provider.

In the financial year ended 30 June 2018, the North American division signed 5 new customers of which three were via our channel partners.

EMEA

The EMEA region is a more developed market than the North American market and our PCI Compliant services have been sold in to this region since 2012, to customers primarily located in the UK.

During the last twelve months we have continued to drive our growth strategy forward. As well as investing in the new North American operation, a great deal of change has been undertaken within the original UK business, including the appointment of a new very experienced President of Sales EMEA. He has been asked to expand our sales growth across the region and we are already seeing some important opportunities.

We continue to focus on developing our channel partnerships in Europe and we expect the numbers to continue to grow in the next financial year. We are particularly pleased to have received confirmation from a major UK telco provider with operations across the globe that they wish to start selling our services to their clients during the next financial year.

In the financial year ended 30 June 2018, the EMEA division signed 43 new contracts (2017: 19) of which 63% were via our channel partners.

Of particular note, the Company was pleased to announce two recent contracts wins in Europe. This included our first Nordic contract (one of the region's railways) and a contract with a significant UK utility provider, with an aggregate RAV of £97,000 for a minimum three years

Also, I am pleased with the fact that we have reached terms for delivering a very significant contract, via a partner reseller, with a major contact centre in the UK for which we have already received a payment for Phase 1 of this complex and difficult project. We have also agreed terms with a major European insurance company as well as received verbal confirmation from our first important Spanish customer.

Pipeline

Our pipeline of qualified sales opportunities continues to grow across all our targeted regions, with the RAV currently standing at £8.8m, which has more than doubled in the last six months.

Partnership strategy

Our stated strategy is to focus on the channel sales route to market, evolving away from our previous mainly direct sale route. I am pleased at how quickly this evolution is happening albeit that we are still learning the timelines of the contracting, testing and go-live process.

Working with channel partners around the world will inevitably mean that revenue momentum may take time to build, but once established we believe we will have access to a far greater market opportunity than that available from direct sales alone. It takes a long time to negotiate and win each new partner and then many months more to integrate our PCI compliant solution into their own, often broader, solution. Despite this time taken to "on-board" our solution into our partners service offerings, it should mean we are looking at much shorter go-live times in the future once the partner becomes accustomed to installing the solution. Hence, as the new business wins start to go live, we are confident, based on our sizeable and growing pipeline, that we will experience strong growth in revenues. This gives us greater confidence for the future.

Market review

During the year GDPR was introduced and much hype was generated, in particular by the legal profession regarding the need for businesses to ensure that they adhere to data guidelines. How many emails did we all get regarding readiness for GDPR? There is almost an inevitability that in the future a big firm is going to receive a very big fine, up to 4% of global turnover, and this in turn will raise awareness of the importance of being compliant with data protection regulations. All the awareness of the regulations and potential implications has meant that many boards are now prepared to put budgets aside and commit to data security projects. This does not mean automatic adoption is rolled out within weeks, but we believe it should only help us win more contracts and deliver our services in the future.

Competing in the market place

UK companies are the leading suppliers of PCI compliant services around the globe, reflecting the early adoption of the regulations within the UK. We are one of only two British quoted companies in our section of the compliance market, and the only true cloud vendor. There are other solution providers and the likelihood is that new entrants will emerge in time, but we believe that with our technological first-mover advantage and our ability to gain meaningful traction with prospective large global partners, will make it a less appealing sector for new entrants.

We continue to grow and deepen our partnerships with channel providers and telecom companies who, with us, are working to make their customer data PCI compliant. New partners and payment gateways seem to be attracted to the technical architecture of our multi-tenanted, cloud platform and the ability to have a homogenised product globally.

Against the competition, PCI-PAL continues to differentiate on the purity of our solution offering, the enterprise scale and security, performance and adaptability. This value arises in the comfort of knowing the solution is going to meet data security, regulatory compliance, and governance requirements locally, whilst being a standard solution available to all the partners clients around the globe.

We believe that the combination of being pioneers in the pure cloud environment supported by technical partners and a robust methodology is appealing to both our resellers and our customers and, along with our public status and strong balance sheet, sets us apart from other PCI solution vendors.

Executing our strategy 

The Group set out a growth strategy at the time of its re-organisation based on three key strategic objectives. During the past twelve months we have continued to make meaningful progress against each, as follows:

1. Building a single, scalable technology platform to allow the delivery of our services worldwide:

We have continued to invest in our pure cloud AWS platform. Since the formal sign off as PCI DSS Level 1 compliant on October 2017 we have continued to develop our product development road map, focusing on adding more core functionality and ensuring the platform is stable and robust and capable of being rolled out anywhere in the world, where required. The Group capitalised a further £0.5m of research and development expenditure as part of the planned development road map. We have, also, during the year built an infrastructure of skilled specialists capable of discussing and deploying the services with any organisation.

The first AWS instance was established in the UK in November 2017, after the successful certification process. Following the fundraising in late January 2018, we launched our regional US instance in February 2018 and a regional Canadian instance in April 2018. These two new international instances have now been rigorously tested by our partners and we are now starting the go-live processes with the first North American based customers.

The rolling out of each platform instance was quick and very easy when compared to the old first-generation platform that would have taken months, if not more than a year, to build in each location. Having proved the ability to successfully roll out quickly and efficiently we will consider expanding the coverage to mainland Europe and the Asia Pacific region when appropriate, on the back of contracted revenue. We can deploy a regional instance far faster than a customer can prepare itself for go-live.

The cost of each new regional platform is relatively low - we hire appropriate processing capacity from Amazon Web Services for which we pay a monthly amount. The only upfront costs we commit to are: a session border controller licence (allowing VoIP telephony access over the network in the new region); and a small number of SIP/RTP licences (which enable individual VoIP call handling). This will give each instance the capacity to handle an initial amount of licences. As demand for the system grows we can automatically add to the AWS processing power and bolt on addition perpetual licences so the system grows with revenue.

We have applied for a number of patents regarding the new processes we have developed for the AWS platform to protect our investments.

2. International growth:

Our focus this year has been to establish and develop our capabilities in North America. We have made significant and pleasing progress with this planned expansion backed up by the fund-raising undertaken in January 2018.

Since the formal launch of our services in the region in February 2018 we have established valuable partnerships and have sold our first solutions. I am particularly pleased that we have also made strong progress in Canada, where our opening of a Canadian platform was well received.

We have a strong team in North America, now headed by James Barham who relocated with his family to Charlotte in April 2018. We will continue to develop our relationships with core partners and look forward to building momentum in this important region.

Looking forward, through our new partnerships, we are already being introduced to other important potential customers in different regions - especially in Asia Pacific. We are already in negotiation with a number of these clients and hope to win our first contracts in this financial year.

3. Channel partners:

We continue to make great strides towards our goal of having 90%+ of all new contracts generated by channel partners. I am pleased to say that we are ahead of our initial expectations set back at the time of the reorganisation in September 2016.

Our belief is that our partners will already have strong and trusted relationships with the potential contact centre customers for PCI-PAL. Being a specialist solution provider only dealing with PCI DSS compliance, and no other competing products, will allow these partners to resell our solution as a value-added service with their full recommendation.

Particularly pleasing are our new relationships with Paymetric in the US, NewVoiceMedia in the UK, US and Australia, and Capita Pay 360 in the UK. We believe we are attractive to channel partners because we supply a complementary solution that solves their customers PCI compliance challenges, that is light-touch to integrate (cloud to cloud) and cost effective to re-sell.

Clearly, signing and working with new channel partners is initially expensive, it takes a great deal of effort to sign these partners and during this process we are not generating any revenues. However, we firmly believe that by partnering with these larger companies we are opening-up the availability of our solution to a far larger pool of potential customers while raising barriers to entry for future competitors.

Our work in this area is beginning to show real promise. Of our current sales pipeline, £6.8m of potential RAV or 77% of the total has been generated by our channel partners.

Operational review

As the business grows we need to ensure that our operational infrastructure evolves with the organisation. The biggest challenges we faced this year were:

· Preparing the organisation for the launch of our second-generation AWS platform,

· Preparing our systems so that we can deploy our solutions in North America and the rest of the world,

· Developing a core group of SIP specialists and architects capable of working with our new clients ensuring that the integration aspects of the new platform are fully designed and documented,

· Developing a full on-boarding programme for our channel partners,

· As well as ensuring that we continue to deliver the first-generation platform requirements.

I am pleased to report that we have made good progress on all fronts and would like to personally thank all our team for undertaking this mammoth task and would like to welcome all the new specialists we have employed as part of this process.

Employees

As at 30 June 2018, PCI-PAL had 41 (2017: 29) employees worldwide. Whilst this level of growth inevitably places challenges on the Company, the management team has worked hard to build a new appropriate organisational infrastructure. In particular, we have strengthened the management team with key appointments including a President of Sales EMEA and a new senior VP of Channel Sales in North America.

Our public company status and employee share options are enabling us to attract high quality talent. We will continue to invest in people to support our growth plans, and in systems and processes to provide an organisational platform for the next phase of PCI-PAL's growth.

Financing

One of the last planks of our strategy was to ensure that we had the financial resources to deliver on our prospects.

The initial growth and development of the Group was initially funded by the sale of our contact centres business in September 2016. During the period we received a payment of £1.0m from the purchaser and also an accelerated payment of £0.1m. £2.2 million is still to be collected via a loan note receivable with the next loan payment due in October 2018.

To fund the next stage of our growth, we raised £4.95m before expenses through an equity placing. Of the funds raised, £3.90m was raised from Venture Capitalist Trusts and these funds have been ring-fenced for the expansion of our North American business. The remaining £1.05m raised was used to pay the costs incurred and has given us additional working capital.

During the year we changed NOMAD and broker to finnCap Ltd. We believe that as we continue to evolve and deliver our business model their leading sector experience will help us deliver greater shareholder value.

Dividend

The Board is not proposing the payment of a dividend in respect of the year ended 30 June 2018.

Summary and outlook

This has been a year of good progress for PCI-PAL. Our technologically advanced platform has been launched and the global partner sales channel, built to commercialise the opportunity, has started to deliver momentum, strengthening our market position and underpinning the belief in our long-term potential.

In the new financial year, the focus remains on generating revenue from our ever-increasing pipeline of orders and opportunities.

Whilst the volume and value of new business are good indicators of market traction and performance, the continuation of recurring licences sold in prior years is of equally critical importance to the Group's strategy. We will continue to invest in the stability and security of our global cloud platform to support multi-national brands.

We remain confident in our strategy for the Group and in its delivery against our plans over the next few years.

I look forward with much excitement to the future as the business continues to gain momentum and scale. The new financial year should be another year of significant progress as we look to convert our exciting pipeline of opportunities into signed contracts.

William Catchpole

Chief Executive Officer

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2018

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2018

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 4 September 2018.

W A Catchpole Director

T W Good Director

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018

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

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2018

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018

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 2018 were authorised for issue by the Board of Directors on 4 September 2018 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

The Consolidated Financial Statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU ("endorsed IFRS"). These Financial Statements have been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at 30 June 2018 as endorsed by the EU.

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:

Effective for the year ending 30 June 2019

• IFRS 15 Revenue from Contracts with Customers (IFRS 15)

• IFRS 9 Financial Instruments - Finalised version, incorporating requirements for classification and measurement, impairment, general hedge accounting and derecognition

• IFRS 2 (amended) Classification and measurement of share-based payment transactions

• 2014-2016 Cycle of annual improvements to IFRS

Effective for the year ending 30 June 2020

• IFRS 16 Leases

• IFRIC 23 Uncertainty over Income Tax Treatments

• Amendments to IFRS 9 Financial instruments

• Amendments to IAS 28 Investments in Associates and Joint Ventures

Effective for the year ending 30 June 2022

• IFRS 17 Insurance contracts

The Directors review newly issued standards and interpretations in order to assess the impact (if any) on the Financial Statements of the Group in future periods.

IFRS 15 Revenue from Contracts with Customers - effective for the year ending 30 June 2019

The review of IFRS 15 is ongoing and the Directors are cognisant of industry practice, which is constantly evolving, that could impact the Group in its implementation. Based on the current position the Directors have undertaken an assessment of the impact of the standard on the Group based on the standard's latest authoritative guidance. The Group will adopt IFRS 15 on 1

July 2018 and anticipates applying the standard on a fully retrospective basis.

For the accounting period beginning on 1 July 2018 the standard will be adopted and the prior year comparison will be restated subject to the application of one or more of the practical expedients available in the standard.

IFRS 15 provides a single, principles-based five-step model to be applied to all sales contracts, based on the transfer of control of goods and services to customers. The Group has undertaken a review of all the services and products the Company provides, and the main types of commercial arrangements used with each service and product.

The most significant effects identified are as follows:

• Revenue for our set-up and cloud provision fee for our PCI Compliant solutions and our hosted telephony services will no longer be recognised at the signature of contracts with our customers. Under IFRS 15 these revenues will be deferred and will be recognised evenly over the estimated term of the contract, having accounted for the automatic auto-renewal of our contracts, up to a maximum of four years. These fees normally account for between 1 and 5% of the minimum total contract value.

• Revenue for all other professional service and installation fees for our PCI Compliant solutions and our hosted telephony services will no longer be recognised at the go-live of a customer installation. Under IFRS 15 these revenues will be deferred and will be recognised evenly over the estimated term of the contract, having accounted for the automatic auto-renewal of our contracts, up to a maximum of four years. These fees normally account for between 3 and 5% of the minimum total contract value.

The overall effect of implementing IFRS 15 on the group is best explained by the following example:

A three-year contract has been signed with XYZ PLC with the following contract terms:

· Date of signature 1 July 2018

· Date of go-live of solution with client 1 January 2019

· A cloud provision fee of £5,000

· Further professional services fees of £30,000 for installation of the service

· Annual licences of £75,000 (released pro rata on a monthly basis)

The total contract value is therefore £260,000. It is expected the contract will auto-renew for several years after the minimum term. The revenue recognition of pre and post IFRS 15 is as follows:

(1) Cloud provision fee released on signature of a contract with the customer

(2) Professional services fees released at go-live of the client installation

(3) Under IFRS 15 Cloud provision fee amortised monthly over a four year period from signature of contract

(4) Under IFRS 15 Professional services fees amortised monthly over a four year period from the date of go-live of the customer installation

• Where contract modifications take place, these are currently recognised as revenue at the point the modification is delivered to the client. Under IFRS 15 consideration will need to be given as to whether these are for services that are distinct from the original contract. Where they are treated as a continuation of the original contract, there may be a cumulative adjustment to revenue at the point the modification was delivered to the client with a portion of the modification fees being recognised over the remainder of the contract term.

• Where our contract involves the supply and installation of third party equipment that can be acquired and supplied by other parties to our customers the revenue and costs relating to this will continue to be released in full to the profit and loss at the time the installation is complete. Therefore, IFRS 15 does not impact this revenue. This revenue stream is expected to diminish over time as the Company rolls out its new AWS platform. In the year ending 30 June 2018 the group booked £72,000 (2017: £218,000) in third party equipment sales.

The underlying business model and the market opportunity for PCI Pal is not impacted by IFRS 15 nor is cash generation of the business.

The Company will be adopting IFRS 15 for the year ending 30 June 2019 and will be restating the results for the prior year.

The Company estimates, the impact of adoption of IFRS 15 for the year ended 30 June 2018, would be to defer £685,000 of revenue and £nil costs into future periods. The net impact of this would have been to reduce revenue generated in the 12 months to 30 June 2018 by £100,000 and reduce retained earnings by £585,000 relating to earlier financial years.

Correspondingly deferred liabilities would increase by £685,000 to be released to the profit and loss over the next four years. Of the £685,000: £279,000 will be released to the profit and loss in the financial year ending 30 June 2019; £217,000 will be released in the year to 30 June 2020; and the balance is subsequent years.

The directors will adopt the other 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 preparation

The financial statements have been prepared on a 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 2018. 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 £3.748 million at the 30 June 2018. It also holds loan notes with a face value of £2.293 million which is being repaid in instalments with the next payment of £0.957 million due on 31 October 2018.

The directors have prepared cash flow forecasts to 30 September 2020. 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 2020 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. Please see Note 3 for the estimated impact of the changes due under the adoption of IFRS 15.

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 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.

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 2018.

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 2018, 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) 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.

n) 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 after accounting for the costs of issuing the shares

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

scheme

· "Profit and loss account" represents retained profits or losses

· "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.

o) 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.

p) 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.

q) 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.

The calculation of the deferred tax asset involved the estimation of future taxable profits. In the year ended 30 June 2018, 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.

During the year 3 (2017: 3) directors participated in money purchase pension schemes.

The Board consider the Board of directors to be the key management for the Group.

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.

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.

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 19% (2016: 20%).

The Group has unrecognised tax losses carried forward of £5.56 million (2017: £2.03 million).

12. INTANGIBLE ASSETS

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

Cost:

There are no assets held as finance leases.

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.

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: Two annual payments of £957,000 starting on 31st October 2018 and a final payment of £379,000 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 2018 the values recorded in the balance sheet of the company is as follows:

Loan notes receivable within one year £908,000

Loan notes receivable after one year £1,206,000

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 2016.

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

18. DEFERRED TAXATION

Deferred taxation is calculated at a rate of 17% (2017: 17%)

The unprovided deferred tax assets are calculated at a rate of 17% (2017: 17%).

19. GROUP UNDERTAKINGS

At 30 June 2018, the Group included the following subsidiary undertakings, which are included in the consolidated accounts:

On 30 January 2018 the company placed 11,000,000 ordinary shares of 1 pence with various institutional investors, priced at 45 pence per share. The placing raised a gross amount of £4.95 million before expenses. The new shares represent approximately 25.8% of the Company's enlarged issued ordinary share capital (excluding those held as treasury shares).

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

During the year, the share price fluctuated between 78.25 pence and 31.30 pence and closed at 31.875 pence on 30 June 2018.

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.

The following options grants have been made.

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 are 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:

The fair value of the options has been calculated at 14.1 pence and £91,116 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:

The fair value of the options has been calculated at 7.8 pence and £2,401 has been charged to the statement of comprehensive income account for this financial year.

Grant Three on 4 October 2017

The grant was for 150,000 options at an exercise price of 44.5 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 October 2018. Of the remaining 112,500 options these will vest in equal tranches over the period of 36 months starting 5 November 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:

The fair value of the options has been calculated at 8.4 pence and £1,860 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 2018 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 2018, the Group had a closing cash balance of £3,748,000 (2017: £1,958,116) and no borrowings.

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 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 £21,600 (2017: £93) have arisen and at the year-end. As at the 30 June 2018 the Group held the following foreign currency cash balances:

US Dollar: $109,684 Sterling equivalent: £83,246 (2017: £655)

Canadian Dollar: $nil Sterling equivalent: £nil

Australian Dollar: $nil Sterling equivalent: £nil

Total Sterling equivalent: £83,246 (2017: £655)

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 as the company trades and spends in the various currencies.

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 2018 or 30 June 2017.

23. CONTINGENT ASSETS

The Group has no contingent assets at 30 June 2018 or 30 June 2017.

24. CONTINGENT LIABILITIES

The Group has no contingent liabilities at 30 June 2018 or 30 June 2017.

Operating lease commitments relate to the following buildings:

London expires March 2019

Ipswich Nos 5,6 & 7 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 2018 or June 2017 other than the dividends noted below.

27. DIVIDENDS

The directors have proposed a dividend of nil pence per share (2017: nil pence per share) post year end (subject to shareholder approval).

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 2018 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 is summarised below: