SJH.L Regulatory News (SJH)

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.

30 July 2018

BOXHILL TECHNOLOGIES PLC

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

Preliminary Results for the Year to 31 January 2018

The Board of Directors of Boxhill is pleased to announce unaudited preliminary results for the year to 31 January 2018 (set out below), and that they expect to publish the audited annual report and accounts for the year to 31 January 2018 on 31 July 2018.

For further information, contact:

Boxhill Technologies PLC 020 7493 9644

Lord Razzall, Executive Chairman

Website www.boxhillplc.com

Allenby Capital Limited (Nomad & Broker) 020 3328 5656

John Depasquale / Nick Harriss

Chairman's Statement

Operating and Financial Review

The principal activities of Boxhill Technologies PLC are that of lottery administrators and the provision of payment processing products and services.

Performance in the Payments processing business in the year to 31 January 2018 was impacted by a number of regulatory changes limiting the volume of activity undertaken. These included the residual effect of the 2016 Visa and Mastercard geographical location regulations and then later in the year the impact of the of Industry wide preparation for, and the ultimate introduction of, MIFID II in early 2018.

During the year, the Group has placed considerable focus and investment in enhancing the suite of payment technologies and related services that it is able to offer its customers:

On 10 April 2017, the Company acquired all of the ordinary shares in Timegrand Limited for £1,000,000 satisfied in full by the issue of 500,000,000 ordinary shares in the Company with a consideration value of 0.2p per share. Timegrand Limited holds intellectual property, software and knowhow including a new 10-year licence, granted on 10 April 2017, to use an advanced payment gateway software system known as the WPJ Services Control Center, with advanced analytics and security/fraud management as well as finance and administration services. The acquisition of Timegrand Limited further enhances the offering of the Payments Division bringing about improved efficiencies between our delivery and internal back office functions.

In July 2017 EmexGo started issuing Virtual IBANs, with development of the full functionality completed in November 2017, meaning that its customers are able to supply their account information in standardised international bank account format, with the customer as the named beneficiary, to receive inward and make outward payments. Available in multiple currencies this important improvement makes our services user friendly and therefore more attractive to those wishing to use alternative payment platforms by utilising internationally understood account formats which other providers are unable to do.

Also in July 2017, a high value transfer service, facilitating transactions in excess of €10,000,000, for corporate and individual customers was launched. The service takes into account the additional care and attention that such low frequency but high value transactions require to complete smoothly.

Together with the above, the creation of Market Access Limited ("Market Access") as a wholly owned subsidiary to operate a foreign exchange and treasury services business means the Group is able to provide an enhanced set of traditional and alternative payment services to more businesses and individuals than ever before.

Boxhill's suite of financial services makes it well placed to enable merchants to accept traditional and alternative payment methods in the ever-growing electronic transactions market. We offer instant peer to peer transactions, access to foreign and digital currency exchanges, worldwide wire payments and other transaction methods allowing businesses and individuals to securely pay before, during or after using a service or purchasing a product.

Looking forward the Group will rationalise the brands it operates whilst working to see the realisation of the benefits the Timegrand acquisition is bringing in terms of customer service along with significant growth expected in the foreign exchange and treasury services business alongside our existing payment processing and digital wallet products.

During the year to 31 January 2018, Prize Provision Services Limited completed upgrades to client services systems as planned and rolled out upgrades which allow clients greater control and visibility of their lotteries throughout the year. In November 2017, Prize Provision Services launched Sports Club Lottery website to better support the large number of sports clubs it provides services for and allow a specific focus on sporting societies across Great Britain.

Financial key performance indicators ("KPI's")

KPIs provide an illustration of management's ability to successfully deliver against the Group's strategic objectives. The Board periodically reviews the KPIs of the Group taking into account the strategic objectives and the challenges facing implementation of such. The measures reflect the Group's development focused strategy, the importance of a positive cash position and our underlying commitment to ensuring safe operations. These KPI's can be categorised into operational and financial. These include, but are not limited to:

• Revenue

• Gross profit

• EBITDA

• Profit before taxation

• Profit after taxation

The Group Board review these indicators at least once a month. Explanations are sought and given for any material variances and the management are required to provide plans to resolve any performance failures as they occur during the year.

As the business grows and increases its expenditure on internally generated and externally purchased tangible and intangible assets, resulting in increased depreciation and amortisation, the business has moved to measuring performance using EBITDA as it provides a better measurement of underlying operational performance.

EBITDA is defined as profit before tax, net finance costs, depreciation and amortisation.

Financial Summary

For the full year to 31 January 2018 the Group incurred an EBITDA loss of £616,000 compared to an EBITDA profit of £38,000 for the year ended 31 January 2017. This figure includes the bargain purchase of £243,000 for Timegrand Limited. This is comprised of the initial consideration of £1,005,000, recognition of intangible assets of £1,504,000 and a deferred tax liability of £256,000.

In summary, for the year to 31 January 2018 the Group performance was as follows: 

Revenue : £1,228,000 (2017: £1,727,000)

Gross Profit : £692,000 (2017: £1,165,000)

EBITDA : Loss of £616,000 (2017 : Profit of £38,000)

Depreciation & Amortisation : £122,000 (2017 : £27,000)

(Loss)/profit before tax : Loss of £738,000 (2017: Profit of £2,000)

(Loss)/Profit after tax : Loss of £719,000 (2017 Profit of £2,000) 

The overall loss after tax is comprised of a a small loss of £16,000 (2017: profit of £46,000) in the Lottery business and a loss during the year to 31 January 2018 of £115,000 (2017: Profit of £337,000) in the Payment processing businesses, further reduced by unallocated central costs of £588,000 (2017: £381,000).

Following the previous year's consolidatory work, Prize Provision Services Limited has begun to implement its growth strategy for the business. In addition to the continued development of client services, this year saw the launch of the Sports Club Lottery website which has been designed to support sporting societies raise money through their own lottery. All sports societies who the company provides services to will be listed within the Sports Club Lottery Website and several new societies have already signed up.

As a result, the trend of reducing revenue experienced in the Lottery segment for several years was halted in Autumn 2017, with small month-on-month revenue growth experienced in the last couple of months of the year to 31 January 2018, and this trend is expected to continue through future periods.

Costs have remained relatively stable in the year to 31 January 2018 compared to the prior year.

Performance in the Payments processing business in the year to 31 January 2018 was impacted by a number of regulatory changes limiting the volume of activity undertaken. These included the residual effect of the 2016 Visa and Mastercard geographical location regulations and then later in the year the impact of the of Industry wide preparation for, and the ultimate introduction of, MIFID II in early 2018.

During the year, the Payment processing business has maintained its infrastructure and invested in a number of internally developed systems and licences including the high value transfer service and the introduction of virtual IBANS to Emexgo customers. We saw the return of growth in the card based payment services in the second half of the year to 31 January 2018 and Q1 of FY2019. Following a substantial decline in certain payment processing revenues during Q2 2019 due to a requirement by particular banks to change the nature of transactions they are willing to deal with following regulatory changes mentioned above, the business announced a re-structuring of the Group. Following the implementation of this restructure, growth is expected to recommence and contribute significantly to the Group's results in the second half of the year to 31 January 2019.

During the year, the Group recorded amortisation expense on internally generated and acquired intangible assets of £120,000 (2017: £26,000).

During the year to 31 January 2018 trade and other receivables increased by £1,323,000, driven by the investment in the high value transaction service with Phillite D UK Limited as announced to the market in November 2017. In addition, the client balances within other payables increased by £5,398,000 due to an increased volume of client funds held in Emexgo, the Groups digital wallet services. Together these were the major drivers of the increase in bank and cash balances as at 31 January 2018 to £2,541,000 (2016: £818,000), offset by cash absorbed in the operating activities.

Operational Summary

The Board continues in its commitment to building out services in preparation for future growth. The acquisition of Timegrand's reporting and analysis capabilities in April 2017 will help deliver improved customer services by streamlining our backend processes. The Group can now ensure it is able to take advantage of its increased capability and functionality, with improvements to customer delivery and administration and new revenue opportunities brought about by the FX business.

Prize Provision Services Limited, which operates The Weather Lottery and The Sports Club Lottery, has performed in line with expectations and continues to play an important role in raising funds for hundreds of small non-profit organisations across Great Britain.

Outlook

The payments division has dealt with changes in the card payment market and has seen an increase in the number of individuals and companies opening digital wallet accounts to take advantage of the full range of alternative payment methods offered. We have also entered the foreign exchange market, with our own card processing customers forming the base of a growing and dynamic business. We also work with channel sales partners to broaden our reach locally and internationally.

Continuing investments in technology through internal research and development, external acquisition, the creation of Market Access Limited ("Market Access") means the Group is well placed to provide an enhanced set of traditional and alternative payment, foreign exchange and treasury services to more businesses and individuals than ever before. By adding improved reporting and administrative services we are ensuring that all the elements for driving growth are in place. In addition, the Board believes that the implementation of the sale of subsidiaries announced on 12th July 2018 will enable the company to focus on the development of Market Access.

The year ahead sees the step change from investment to driving shareholder value through the growth in the payments business, which will be aided by the appointment of the new chief executive.

Principal risks and uncertainties facing the Group

There are a number of potential risks and uncertainties that could have a material impact on the Group's long-term performance, and the Group takes a positive approach to risk management.

Management and employees

The nature of the Group and its business model creates reliance upon retaining and incentivising its senior management and certain key employees, whose expertise will be important to the fortunes of the Group going forward. The Directors have endeavoured to ensure that the principal members of its management team are suitably incentivised, but the retention of such staff cannot be guaranteed.

The Group may need to recruit additional senior management and other staff in order to further develop its business. There can be no guarantee that such individuals will be recruited in the Group's preferred timetable or at the cost levels anticipated by the Group. Competition for staff is strong and therefore the Group may find it difficult to retain key management and staff. The loss of key personnel and the inability to recruit further key personnel could have a material adverse effect on the future of the Group through the impairment of the day-to-day running of the businesses and the inability to maintain existing client relationships.

Economic risk

Demand for the Group's services may be significantly affected by the general level of economic activity and economic conditions in the regions and sectors in which the Group operates. Therefore, a continuation of the challenging economic environment, especially in regions or sectors where the Group's operations are focused, could have a material adverse effect on the Group's business and financial results.

Financial Risk

The Group's financial risk management strategy is based on sound economic objectives and corporate practices. The main financial risks concern the availability of funds to meet obligations as they arise (liquidity risk) and fluctuations in exchange rates (exchange rate risk).

Competition

The Group is engaged in business activities where there are a number of competitors. Many of these competitors are larger than the relevant businesses carried on by the Group and have access to greater funds than the Group, which will potentially enable them to gain market share at the expense of the Group.

Acquisitions

The Directors cannot discount circumstances where an acquisition would support the Group's business strategy. However, there is no guarantee that the Group will successfully be able to identify, attract and complete suitable acquisitions or that the acquired business will perform in line with expectations.

Funding and working capital

Maintaining a sufficient level of working capital is essential to enable the Group to meet its foreseeable obligations and achieve its strategy. Failure to manage working capital or to collect receivables such as amounts due from Phillite D UK Limited of £2,867,538 in a timely manner could impact upon the ability of the Group to grow.

Management of growth

The ability of the Group to implement its strategy in an expanding market requires effective planning and management control systems. The Group's growth plans may place a significant strain on its management, operational, financial and personnel resources. The Group's future growth and prospects will, therefore, depend on its ability to manage the growth and to continue to expand and improve operational, financial and management information and quality control systems on a timely basis, whilst at the same time maintaining effective cost controls. Any failure to expand and improve operational, financial and management information and quality control systems in line with the Group's growth could have a material adverse effect on its business, financial condition and results of operations.

Market developments

Any failure to expand the Group's service offering in response to customer demand and/or industry developments may have an adverse effect on the Group's financial performance and prospects.

Reliance on Partners

Much of the Group's business is dependent on partners (acquiring banks, charities, clubs, etc.). Changes in key relationships with those partners, change of strategic direction by partner organisations, changes in the viability of partner-owned technology, economic and other business circumstances could all have an adverse effect on the financial performance of the Group.

Legal and regulatory matters

The Group is subject to a considerable degree of regulation and legislation. Changes in or extensions of laws and regulations affecting the industry in which the Group operates (or those in which its customers operate) and the rules of industry organisations could restrict or complicate the Group's business activities, with the potential to increase compliance/legal costs significantly.

As announced on 31 October 2017, the historic legal matters surrounding the Company's relationship with its former regulated payment processor, EUPay Group Limited ("EUPay") has been settled. Phillite D UK Limited has independently of the Company taken responsibility for the amounts owed by EUPay to the Group. As a result of the settlement, Phillite D UK Limited is now in a position to pursue the collection of these amounts without any hindrance from litigation. This will facilitate the repayment of the amounts outstanding to the Group.

Consolidated Statement of Profit and Loss and Other Comprehensive Income

for year ended 31 January 2018

All of the profit/(loss) for the period is attributable to equity holders of the Parent Company.

Consolidated Balance Sheet

At 31 January 2018

Consolidated Statement of Changes in Equity

*Unaudited accounts

·

Consolidated Cash Flow Statement

for year ended 31 January 2018

There is no material difference between the fair value and the book value of cash and cash equivalents.

Notes

(forming part of the financial information)

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 January 2018 or 2017. The financial information for 2017 is derived from the statutory accounts for 2017 which have been delivered to the registrar of companies. The auditor has reported on the 2017 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2018 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course.

1 Accounting policies

Boxhill Technologies PLC is a public company incorporated, domiciled and registered in the UK under the Companies Act 2006. The registered number is 04458947 and the registered address is 39 St James's Street, London, SW1A 1JD.

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

The group financial information has been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs").

The financial information has been prepared under the historical cost basis except where specifically noted.

Operating profit is defined to be revenue less cost of sales and administrative expenses and so excludes profits and losses on items that are not considered to be part of ordinary operating activities.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in this group financial information.

1.1 Change in accounting policy

There have been no changes in accounting policies during the year to 31 January 2018.

1.2 Adopted IFRS not yet applied

The following standards that are not yet effective will be adopted by the Group in future periods:

IFRS 9 - 'Financial instruments'

The standard is effective for reporting periods beginning on or after 1 January 2018. The date of adoption by the Group will be 1 February 2018 for the financial statements for the year ending 31 January 2019.

IFRS 9 includes new classification of financial assets and liabilities as either measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through Profit or loss (FVTPL).

The assessment of IFRS 9's impact on the Group's financial statements is not yet complete.

IFRS 15 - 'Revenue from Contracts with Customers'

The standard is effective for reporting periods beginning on or after I January 2018. The date of adoption by the Group will be 1 February 2018 for the financial statements for the year ending 31 January 2019.

IFRS 15 introduces a new revenue recognition model that recognises revenue either at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised.

The assessment of IFRS 15's impact on the Group's financial statements is not yet complete.

IFRS 16 - 'Leases'

The standard is effective for reporting periods beginning on or after I January 2019. The date of adoption by the Group will be 1 February 2019 for the financial statements for the year ending 31 January 2020.

The assessment of IFRS 16's impact on the Group's financial statements has not yet commenced.

1.3 Going concern

UK Company Law requires Directors to consider whether it is appropriate to prepare the financial statements on the basis that the Company and the Group are going concerns. Throughout the financial statements there are various disclosures relating to Group funding and operational risks. The Directors' report summarises the key themes.

The Group does have some exposure to current economic conditions which have the potential to impact annual revenues. The Directors have prepared cash flow forecasts covering a period of over 12 months from the date of approval of this Annual report. Having considered reasonably possible downside scenarios, the Directors are confident that subject to the expected sale of the Emex businesses to MDC Nominees on 30 July 2018, the Group will have sufficient resources and cash generation from its trading to meet the Group's future requirements and settle its liabilities as they fall due. As a result of these reviews, the Directors are of the opinion that, subject to the expected sale of the Emex business to MDC Nominees Limited on 30 July 2018, the Group will have adequate resources to continue in operation for the foreseeable future. For this reason, they consider it appropriate to adopt the going concern basis in preparing the financial statements.

1.4 Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The financial information of subsidiaries is included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

1.5 Foreign currency

The individual financial statements of each Group company are prepared in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each Group company are expressed in Pounds Sterling, which is the functional currency of the parent company, and the presentational currency for the consolidated Financial statements.

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined.

1.6 Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Trade and other receivables

Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses.

Trade and other payables

Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.

Investments in debt and equity securities

Investments in debt and equity securities are stated at amortised cost less impairment. Financial instruments held for trading or designated upon initial recognition are stated at fair value, with any resultant gain or loss recognised in profit or loss.

Other investments in debt and equity securities held by the Group are classified as being available-for-sale and are stated at fair value, with any resultant gain or loss being recognised directly in equity (in the fair value reserve), except for impairment losses and, in the case of monetary items such as debt securities, foreign exchange gains and losses. When these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement.

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses.

1.7 Derivative financial instruments and hedging

At 31 January 2018 and 31 January 2017, the Group had no derivatives in place for cash flow hedging purposes.

1.8 Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised accumulated impairment losses. Useful lives are reviewed annually by the Directors.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows:

• buildings 20 years

• plant and equipment 4 years

• fixtures and fittings 4 years

• vehicles 5 years

Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.

1.9 Business combinations

All business combinations are accounted for by applying the acquisition method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.

The Group measures goodwill at the acquisition date as:

the fair value of the consideration transferred; plus

the recognised amount of any non-controlling interests in the acquiree; plus

the fair value of the existing equity interest in the acquiree; less

the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.

Where fair values are estimated on a provisional basis they are finalised within 12 months of acquisition with consequent changes to the amount of goodwill.

1.10 Intangible assets and goodwill

Goodwill

Goodwill arising on consolidation represents the excess cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reviewed.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment in the investee.

Research and development

Expenditure on research activities is recognised in the income statement as an expense as incurred.

Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group intends to and has the technical ability and sufficient resources to complete development, future economic benefits are probable and if the Group can measure reliably the expenditure attributable to the intangible asset during its development. Development activities involve a plan or design for the production of new or substantially improved products or processes. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and less accumulated impairment losses.

Other intangible assets

Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.

Amortisation 

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

Licences, patents and trademarks 25 years

Capitalised development costs 10 years

1.11 Impairment excluding inventories, investment properties and deferred tax assets

Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

Non-financial assets

The carrying amounts of the Group's non-financial assets, other than investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

1.12 Employee benefits

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Share-based payment transactions

Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Group.

The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

Share-based payment transactions in which the Group receives goods or services by incurring a liability to transfer cash or other assets that is based on the price of the Group's equity instruments are accounted for as cash-settled share-based payments. The fair value of the amount payable to employees is recognised as an expense, with a corresponding increase in liabilities, over the period in which the employees become unconditionally entitled to payment. The liability is remeasured at each balance sheet date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense in profit or loss.

Other than for business combinations, the only share based payments of the Group are equity settled share options and certain liability settlements. The Group has applied the requirements of IFRS 2 - Share-based Payments.

For share options granted an option pricing model is used to estimate the fair value of each option at grant date. That fair value is charged on a straight line basis over the vesting period as an expense in the income statement over the period that the holder becomes unconditionally entitled to the options (vesting period), with a corresponding increase in equity.

For shares issued in settlement of fees and/or liabilities, the Directors estimate the fair value of the shares at issue date and that value is charged on a straight line basis as an expense in the income statement (for fees) or reduction in the balance sheet liability (for liabilities) with a corresponding increase in equity.

1.13 Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.

1.14 Revenue

Revenue is recognised when the service is rendered:

• Lottery business revenue represents takings received for entry into the lottery prize draws. Revenue is recognised on the date that the draw takes place.

• Payment processing revenue represents the consideration received or receivable from the merchants for services provided. Key revenue streams the company reports are transaction service charges that relate to services provided to process transactions between the customer and an acquiring bank, which is a bank that accepts card payments from the card-issuing banks. Revenue is recognised when the transactions are successfully processed and is recognised per transaction. Process fees are charged per transaction for providing gateway services.

• Digital wallet revenue is recognised at the point when a chargeable transaction occurs.

1..15 Expenses

Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.

Financing income and expenses

Financing expenses comprise interest payable and finance charges recognised in profit or loss using the effective interest method, unwinding of the discount on provisions, and net foreign exchange losses that are recognised in the income statement (see foreign currency accounting policy. Financing income comprise interest receivable on funds invested, dividend income, and net foreign exchange gains.

Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity's right to receive payments is established. Foreign currency gains and losses are reported on a net basis.

1.16 Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.

2 Earnings per share

The calculation is based on the earnings attributable to ordinary shareholders divided by the weighted average number of Ordinary Shares in issue during the period as follows:

The denominator as at 31 January 2018 is calculated as the weighted average of the 1,855,829,770 equity shares as at 1 February 2017 plus the 500,000,000 shares issued in April 2017.

In June 2010 the Company issued 24 million options to subscribe for Ordinary Shares of 0.1p each. At the period end 8.1 million options were outstanding. As the exercise price for all of these options was greater than the average share price in both periods, the options are not dilutive and therefore diluted earnings per share is the same as basic earnings per share.

3 Equity Share capital

On 31 January 2016 the Company issued £1.6m of 0% unsecured, undated, convertible loan stock which converted into 400,000,000 Ordinary Shares and were allotted to loan stock holders on 7 June 2016 and were admitted to trading on AIM on 15 June 2016. The shares were consideration for the acquisition of Emex (UK) Group Limited, and the associated company, Freepaymaster Limited (collectively, "Emex").

On 10 April 2017, the Company acquired all of the ordinary shares in Timegrand Limited for £1,000,000 satisfied in full by the issue of 500,000,000 ordinary shares of 0.1p nominal each in the Company with a consideration value of 0.2p per share.

On 23 April 2018 new shares totalling 410,000,000 Ordinary Shares of 0.1 pence each ("Ordinary Shares") were issued in settlement of amounts invoiced from key management personnel. In addition, 60,000,000 share options were granted to Directors and key management.

On 9 May, new shares totalling 50,000,000 Ordinary Shares of 0.1 pence each were issued in settlement of invoices for consultancy fees totalling £50,000 from Nineteen Twelve Management Limited, a company controlled by James Rose.

4 Capital and reserves

Dividends

No dividends were recognised in either the period to 31 January 2018 or to 31 January 2017.

Share Premium

On 10 April 2017, the Company acquired all of the ordinary shares in Timegrand Limited for £1,000,000 satisfied in full by the issue of 500,000,000 ordinary shares of 0.1p nominal each in the Company with a consideration value of 0.2p per share.

5 Related parties

The transactions set out below took place between the Group and certain related parties.

Lord E T Razzall

Lord E T Razzall, a director, charged the Group £24,000 (2017: £24,000) in the period, for directorship services provided, via an entity trading as R T Associates. At the period end R T Associates was owed £17,932 (2017: £35,400).

Andrew J A Flitcroft

Andrew Flitcroft, a director, charged the Group £33,000 (2017: £33,000) in the period, for directorship and company secretarial services provided, via an entity FS Business Limited. At the period end FS Business Limited was owed £77,250 (2017: £59,550).

Clive M Hyman

Clive Hyman, a director, charged the Group £20,000 (2017: £14,000) in the period, for directorship services provided, via an entity Hyman Capital Limited. At the period end Hyman Capital Limited was owed £14,000 (2017: £8,000).

Philip I Jackson and John M Botros

During the period Philip Jackson and John Botros were directors of Phillite D UK Limited. During the year to 31 January 2018 the Group earned net fees from the provision of services to Group clients by Phillite D UK Limited of £nil (2017: £626,723).

Phillite D UK Limited performed regulated services on behalf of the Group between December 2014 and November 2016, which gave the Group the regulatory authorisation to perform payment processing. The revenue recognised and costs associated with this processing was reflected within the parent company (Boxhill Technologies Plc). Since November 2016, Phillite D UK Limited's services have been undertaken within the Group by Emex Technologies Limited which obtained the necessary Financial Conduct Authority licences in May 2016.

During the period the Company launched a high value transfer service facilitating transactions in excess of €10,000,000 for corporate and individual customers ("HVTS"). The development of HVTS has involved substantial investment. It has been agreed that part of this investment will be funded by Phillite D UK Limited ("PDU"), a company which between December 2014 and November 2016 undertook certain regulated payment processing activities on behalf of the Group. PDU will market HVTS to its clients as part of its offering of payment services, charging fees independently and not receiving any share of the Processing Fees. PDU's share of the investment costs, £1,600,000 will be met from future receipts secured by PDU on HVTS transactions where PDU will in some circumstances be acting as the principal and other circumstances as an agent. PDU's share of the investment costs are currently represented on the Boxhill balance sheet as a trade receivable (the "Agreement").

At the period end the Group was owed £2,857,538 from Phillite D UK Limited (2017: £1,767,536), the increase reflecting the costs of the HVTS, less amounts paid back to the Group. The services provided to the Group's clients by Phillite D UK Limited were at cost to the Group with no profit or uplift being made by Phillite D UK Limited.

Also, included within prepayments is £301,000 relating to the historic legal matters surrounding the Company's relationship with its former regulated payment processor, EUPay Group Limited ("EUPay") which has now been settled. Phillite D UK Limited has independently of the Company taken responsibility for the amounts owed by EUPay to the Group.

John Botros was appointed as a Director of Phillite D UK Limited on 27 December 2017.

Philip Jackson resigned as a Director of Phillite D UK Limited on 2 January 2018.

In addition, John Botros, a director of Emexconsult Limited, Emex Technologies Limited, Emex (UK) Group Limited, Soccerdome Limited and Market Access Limited, charged the Group £3,000 (2017: £nil) in the period, for Legal services provided, via St James Chambers. At the period end all invoices for St James Chambers Limited and Bluedale Limited had been settled.

James Rose

James Rose is a director of Prize Provision Services Limited ("PPSL") a wholly owned subsidiary of Boxhill Technologies PLC. During the period James Rose charged PPSL £60,000 for consultancy services via an entity Nineteen Twelve Management Limited (2017: £60,000). At the period end Nineteen Twelve Management Limited was owed £141,200 (2017: £134,450).

Mr Rose is a director of House of V Ltd, during the period the Group was charged £nil (2017: £2,112) from House of V Limited.

Remuneration of key management personnel

The remuneration of the Directors and Phil Jackson, who are the key management personnel of the Group, is as referred to above.

6 Subsequent events

Disposal of Subsidiaries

On 12 July 2018, the Group announced its intention to separate the provision of payment services to high risk Customers from the rest of the Group. As a result, and following negotiation, the Board agreed to sell Emex (UK) Group Limited, Emexconsult Limited and Emex Technologies Limited to MDC Nominees Limited, subject to the approval, by Shareholders, of the Resolution.

The consideration for the purchase of Emex is £2,000,000, satisfied through the issue by MDC Nominees Limited of the Loan Note, which has the following key terms:

· Amount - £2,000,000

· Term - 10 years

· Interest rate - 0 per cent

· Security - A debenture over the issued share capital of Emex Technologies Limited, Emexconsult Ltd, Net World Limited and Emex (UK) Group Limited

· Repayment - by way of the establishment of a sinking fund into which the net revenues of Emex resulting from the customers left in place at the time of the transaction or any new Non-Conforming Customers referred by Market Access shall be transferred on a monthly basis and used for general working capital purposes and any balance outstanding at the end of 10 years, after the above sinking fund has been extinguished, by MDC Nominees Limited.

As part of the Transaction, it is proposed that those merchants other than Non-Conforming Customers of Emex ("Conforming Customers") will be novated to Market Access Limited as part of the transaction, clear of any liabilities. In consideration for the novation of the Conforming Customers, Boxhill will issue 100,000,000 Shares to MDC. 

Under the terms of the Transaction, Market Access will continue to have an ongoing commercial relationship with Emex, with Market Access referring any new Non-Conforming Customers to Emex, and Market Access providing certain ongoing support services to Emex. Once the Loan Note is fully repaid, Market Access will receive a commission of 50 per cent of the net revenues resulting from the Non-Conforming Customers both in place at the time of the Transaction and those subsequently referred to Emex by Market Access.

The Board believes that this transaction will be financially beneficial to the Group. While profits will be reduced in the short-term until Market Access becomes more established, the structure of the transaction will be neutral in terms of Group cashflow in the short term. The separation of the Conforming Clients from the Non-Conforming Clients is anticipated to lead to improved banking relationships for the Group, which in turn should generate financial benefits over the medium term.

MDC Nominees Limited is owned by John Botros, a director of certain Group subsidiaries and, with persons closely associated (as defined under the Market Abuse Regulation), a substantial shareholder (as defined by the AIM Rules) of Boxhill. The Transaction therefore constitutes a related party transaction under the AIM Rules. The Board consider, having consulted with Allenby Capital Limited, the Company's nominated adviser, that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned.

This announcement is available on Boxhill Technologies PLC's website at www.boxhillplc.com. Copies are available from the Company at its registered office:

39 St James's Street, London, SW1A 1JD, United Kingdom