1Spatial Holdings Regulatory News (SPA)

10 October 2017

1Spatial plc (AIM: SPA)

("1Spatial", the "Group" or the "Company")

Interim Results for the six month period ended 31 July 2017

Turnaround delivering improved results

The Board of Directors of 1Spatial (the ''Board''), the software solutions provider and global leader in geospatial data management, is pleased to announce the Group's interim results for the six month period ended 31 July 2017.

Highlights

In January 2017, the new management team set in place a clear plan to achieve a strong financial and operational platform for the business which would be evidenced through the generation of cash, growing profits and sustainable growth.

The financial performance in this half year provides clear evidence that the turnaround plan is working.

Financial highlights

· Revenues grew by 2% from £11.9m to £12.1m

o High-margin Geospatial underlying revenues** up by 19% from £7.2m to £8.6m

o In line with strategy, the low-margin hardware revenues from IT managed services business have reduced by £1m in the period

o Continued strong recurring revenues base

· Total cost base (including capitalised costs) reduced by 8% (£1.1m). This equates to an annualised cost saving of £2.2m.

· Gross profit margin increased from 39% to 43%

· Adjusted EBITDA* on a like-for-like basis1 has improved from a loss of £0.4m to a profit of £0.3m

· Operating loss reduced 37% from £1.9m to £1.2m

· £2.7m positive swing in cash flow in the period (outflow of £0.3m compared to an outflow of £3m in H1 2016/17)

o Net cash balance at 31 July 2017 of £0.3m (31 January 2017: £0.6m)

o Overdraft facility of £3m renewed in May 2017

· Significantly reduced loss after tax of £1.4m (year ended 31 January 2017: £18.3m loss: H1 2016/17 loss of £2.1m)

· The board believes that that the current bank overdraft facility is sufficient to support the Company's working capital requirements

Operational highlights

· Sales increased in all geographic segments with a focus on three key sectors of Land Management, Utilities and Transportation

o The enhanced sales strategy refocused on the key sectors has delivered growth from existing clients as well as established relationships with new potential customers

· Key customer wins:

o UK - major contract with Northern Gas Networks (NGN). This will run for an initial three year period with an option to extend for a further three years

o US - strategically important contract with the US Federal Highways Administration (FHWA) for software and services together with ongoing support and maintenance for four option years (total value US$540k)

o US - strategically important contract with the National Oceanic and Atmospheric Administration (NOAA) for software and services together with ongoing support and maintenance for four option years (total value US$207k)

· Portfolio streamlined with:

o Disposal of significant share of loss-making business Enables IT Inc. in March 2017 for £0.1m receivable

o Acquisition of the remaining 27% of the Company's exclusive US distributor 1Spatial Inc. strengthening the Group's ability to serve key US customers and partners such as US Census and ESRI

o Acquisition of the remaining 51% of Sitemap, strengthening the Group's technology platform

Board changes

· The board has continued to be strengthened and includes the following changes :

o Francis Small appointed to the Board as a Non-Executive Director on 1 August 2017

o Claire Milverton appointed CEO from 9 October 2017

o Nicole Payne appointed CFO from 9 October 2017

Commenting on the results 1Spatial CEO, Claire Milverton, said:

"The first half has shown considerable progress on our turnaround strategy. The focus on execution, and a greater engagement with our existing clients has seen an increase in revenues. Emphasis on growing our client base has also seen wins with a number of exciting new clients such as Northern Gas Networks and the Federal Highways Agency. From a financial perspective through increased sales and operational effectiveness we've also delivered a substantial improvement in profitability and cash flow, both of which remain key priorities for us going forward.

We are confident for the full year and that through our strategy of working in partnership with our customers to provide them with technology enabled innovative solutions, we are well placed to grow a substantial, profitable and cash-generative business out into the future".

* Adjusted for strategic, integration, other one-off items and share-based payment charge

** Underlying revenue - revenue on a like-for-like1 basis, at constant currency (prior period figures at current period exchange rates)

1 Like-for-like - prior half year revenues include £0.4m of revenues arising from recharges to associates, that are not recurring in the current half year as a result of these associates now being wholly-owned and the revenue being eliminated on consolidation

For further information, please contact:

About 1Spatial

1Spatial plc is a group of market leading software and solutions companies trading under the brands 1Spatial and Enables IT.

1Spatial

1Spatial is a software solutions provider and global leader in managing geospatial data. We work with our clients to deliver real value by making data current, complete and consistent through the use of automated processes - ensuring that decisions are always based on the highest quality information available.

Our unique, rules-based approach delivers enterprise-scale, cross-platform automation to all stages of the data lifecycle. It builds confidence in the data while reducing the time and cost of stewardship.

Our global clients include utilities, national mapping and land management agencies, government departments, transportation organisations, emergency services, defence and census bureaus. A leader in our field, we have a wealth of experience and a record of continual innovation and development. We partner with some of the leading technology vendors including, ESRI and Oracle.

We have offices in the UK, US, France, Belgium, Ireland and Australia.

Enables IT

Enables IT provides IT Managed Services. It offers public, private and hybrid cloud offerings with everything from Backup-as-a-service through to managed desktops. Their end-to-end IT capability provides everything from consultancy and project management, to the installation of physical infrastructure.

Clients trust Enables IT to manage their systems and secure their data. From Healthcare to Education and from Financial Services to Legal, leading organisations rely on Enables IT to ensure their IT is an asset, not a liability.

To find our more, visit www.1spatial.com

Half-year review

In January 2017, the new management team set in place a clear plan to achieve a strong financial and operational platform for the business which would be evidenced through cash, growing profits and sustainable growth. This plan was the result of a full strategic review to develop a clear focus for the Group going forwards and included streamlining the business into two core units, the alignment of the Group to better meet market needs, and creation of an organisational structure that provides clear responsibilities and accountability.

The financial performance in this half year provides clear evidence that the turnaround plan is working.

Our strategy

1Spatial is a software solutions provider and global leader in managing geospatial data. We work with our clients to deliver real value by making data current, complete and consistent through the use of automated processes; ensuring that decisions are always based on the highest quality information available. Our own software architectures are 'Open' which allows us to integrate with other vendors' technology and enables us to provide the most appropriate solution to our clients.

Our key focus is across three sectors, namely Land Management, Utilities and Transportation and we operate globally but have offices in the UK, US, France, Belgium, Ireland and Australia.

During the period, we have continued to develop and deliver our world-class technology, increase our market reach and cemented strategic relationships with key partners to ensure that we deliver the right solutions to our clients. We have continued to invest in sales and marketing ensuring that these investments are aligned to our strategy.

Financial performance

Revenue growth

Our enhanced sales team helped deliver revenue growth in all geographies, and, the quality of this revenue has improved with a higher proportion of licence revenue driving additional service revenues.

The Group's revenue mix continued to improve in the first half. Revenues were up 19 per cent. in the higher-margin Geospatial business (£1.3m on a like-for-like basis, at constant currency), and Enables IT sales reduced by £1m as we chose to move away from lower-margin hardware revenue.

Our sales strategy focuses on both growing existing accounts, and building new relationships across our key verticals; Land Management, Utilities and Transport. During the period, the majority of growth in revenue was derived from existing customers. Post period end, new contracts have been secured for new customers such as NGN (UK), FHWA (US), NOAA (US), reflecting the sales execution efforts made in the first half.

As well as growing revenues, it is also key that we maintain our recurring support and maintenance revenues; initiatives have been put in place during the period to ensure this is achieved.

Cost savings

During the period, we have delivered on our plan to reduce costs by £1.1m (8 per cent.) - this equates to £2.2m annualised costs. These costs also include the cost of capitalised development. We now believe that the cost structure is much better aligned with the current business needs.

Gross profit

Gross profit in the period improved from 39 per cent. to 43 per cent. even after significantly less direct costs were capitalised, in the period (£0.5m compared to £1.9m in H1 2016/17). This improvement is due to better project management on professional service contracts and increased high-margin software sales in the period.

Adjusted EBITDA and cash flow

The actions to grow quality revenues and reduce costs resulted in a transition from an adjusted EBITDA loss (on a like-for-like basis) of £0.4m in the prior period to a profit of £0.3m. This has also resulted in a positive impact on cash, with a cash inflow from operations of £0.2m (after cash one-off costs of £0.5m) compared with a cash outflow from operations in the prior period of £0.9m.

Overall net cash flow has shown a £2.7m positive swing year-on-year (outflow of £0.3m compared to an outflow of £3m in H1 2016/17). The net cash balance at 31 July 2017 was £0.3m (31 January 2017: £0.6m). The overdraft facility of £3m was renewed in May 2017.

Loss for the period

Loss after tax of £1.4m for the period is significantly reduced (year ended 31 January 2017: £18.3m loss, H1 2016/17 loss: £2.1m). This loss is the adjusted EBITDA figure less depreciation, amortisation and impairment, strategic, integration, other one-off items, share-based payment charges, net finance costs and income tax.

Balance sheet

The net asset position at 31 July 2017 is £8.5m, down from £9.2m at 31 January 2017. The balance of non-current assets remains the same at £13.0m as a result of acquiring control of Sitemap Ltd in the period (£0.2m intangibles on acquisition), net of amortisation of existing intangible assets. No further goodwill arises on acquisition of the final 27 per cent. of 1Spatial Inc. Net current assets are down by £0.8m, £0.3m of this is cash and the remainder is working capital. The line item "other components of equity" arose on the acquisition of the final 27 per cent. of 1Spatial Inc. after eliminating non-controlling interest.

Outlook 

The key objective for the management team for the remainder of the year to 31 January 2018 is to ensure that the Group's realigned focus and revised strategy continues to drive cash generation and profitable adjusted EBITDA, as well as follow through on key strategic initiatives which will boost revenue growth.

The second half of the year has started well and whilst there are always challenges in any business and in particular during a turnaround year, we are confident of meeting full year expectations.

Looking forward

1Spatial is well-positioned in a fast-growing part of the market and has developed a unique patented technology to deliver targeted solutions to our existing and potential customers.

A May 2017 report by market analyst P&S Market Research estimates the size of the global GIS software, services and hardware market at $9.0bn and forecasts that it will grow at a 10.1 per cent. CAGR to reach $17.5bn by 2023. To ensure that we are positioned at the forefront of this sector, we continue to invest in our technology platform and make it accessible to other vendors - a key element of our strategy for scalable revenue growth to reach a growing addressable market.

We have a strong and focussed management team, which combined with our in-depth subject matter expertise and technology-led solutions and services, gives the business the opportunity to develop into a significant force in the market.

Looking ahead, we are well placed to grow a substantial, profitable and cash-generative business over the long term.

* Other components of equity arose through the acquisition of further shares in 1Spatial Inc.

** Total equity attributable to the equity shareholders of the parent.

* Total equity attributable to the equity shareholders of the parent.

Notes to the Interim Financial Statements

1. Principal activity

1Spatial plc is a public limited company which is listed on the AIM London Stock Exchange and is incorporated and domiciled in the UK. The address of the registered office is Tennyson House, Cambridge Business Park, Cowley Road, Cambridge, CB4 0WZ. The registered number of the Company is 5429800.

The principal activity of the Group is the development and sale of IT software along with related consultancy and support. The principal activity of the Company is that of a parent holding company which manages the Group's strategic direction and underlying subsidiaries.

2. Basis of preparation

The condensed consolidated interim financial information for the six months ended 31 July 2017, has been prepared in accordance with the accounting policies that are expected to be adopted in the Group's full financial statements for the year ended 31 January 2018 and are not expected to be significantly different to those set out in the Group's audited financial statements for the year ended 31 January 2017.

The financial information for the half years ended 31 July 2017 and 31 July 2016 is neither audited nor reviewed and does not constitute statutory financial statements within the meaning of section 434(3) of the Companies Act 2006 for 1Spatial plc or for any of the entities comprising the 1Spatial Group. Statutory financial statements for the preceding financial year ended 31 January 2017 were filed with the Registrar and included an unqualified auditors' report.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed consolidated financial statements.

3. Taxation

The tax expense on the result for the six months ended 31 July 2017 is based on the estimated tax rates in the jurisdictions in which the Group operates, for the year ending 31 January 2018.

4. Loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

5. Dividends

No dividend is proposed for the six months ended 31 July 2017 (31 January 2017: nil; 31 July 2016: nil).

6. Segmental information

6. Segmental information (continued)

7. Strategic, integration and other one-off items

In accordance with the Group's policy for strategic, integration and other one-off items, the following charges were included in this category for the period:

8. Business combinations

On the 11 April 2017, the Group acquired the 51 per cent. of Sitemap Ltd that it did not already own for £200,000 in shares. The company's investment in Sitemap to date has funded the development of a solution which locates and visualises sites which best fit commercial and residential property developer needs.

The following table summarises the consideration paid for the Sitemap Ltd non-controlling interests and the fair value of assets acquired and liabilities at the acquisition date:

9. Investments

Investments are carried at fair value through profit or loss.

A 19.9 per cent. share of Enables IT Inc., with a fair value of £25,000, remains within investments following the part disposal of the previously wholly-owned entity.

A 80.1 per cent. share of Enables IT Inc. was sold on 3 March 2017 to the management of the company for a deferred consideration of £100,000 payable in 2019. The amount payable has been included within other non-current assets.

As at 31 January 2017, the assets and liabilities of the disposal group were classified as held for sale and the results of the company classified as discontinued operations in the current and comparative period. 

10. Interests in associates

Investments in associates are stated at cost less provision for any impairment and are accounted for using the equity method.

The associates of the Group in the period are set out below:

Note 1: A 49 per cent. share of Sitemap Ltd was first acquired on 30 January 2015 and brought a new, although complementary, opportunity to the Group in its potential to generate revenue from data services. On the 11 April 2017, the Group acquired the remaining 51 per cent. of Sitemap Ltd that it did not already own for a consideration payable in shares, taking the Group's total holding in Sitemap Ltd to 100 per cent.

Note 2: 1Spatial Inc. - 47 per cent. of the sole US-based distributor of 1Spatial geospatial products and solutions across the Americas was first acquired on 3 February 2015 by 1Spatial Holdings Limited (a wholly-owned subsidiary of 1Spatial plc) to provide 1Spatial with long-term security of its Americas distribution channel, and ensure continuity of service to key customers. On the 29 February 2016, the Group acquired a further 26 per cent. shareholding in 1Spatial Inc., taking the total shareholding up to 73 per cent.. On 11 April 2017, the Group exercised its call option to acquire a further 27 per cent. of 1Spatial Inc., payable in shares, taking the Group's total holding in 1Spatial Inc. to 100 per cent.

1Spatial Inc. became a subsidiary from 26 February 2016 and was included as part of consolidated results from that date.

Summarised financial information for associates

The financial information reflects the amounts presented in the financial statements of the associate (and not the Group's share of those amounts).

Summarised statement of financial position

Note 1 - Sitemap Ltd's information shown here is as at 11 April 2017 (not 31 July 2017) when it ceased to be an associate and became a subsidiary of the Group.

Summarised statement of comprehensive income

Note 1 - Sitemap Ltd's information for the period shown above is for the period that it was an associate - being 1 February to 11 April 2017.

* Strategic, integration and other one-off items comprise the write-off of intangible assets prior to 1Spatial plc gaining control of Sitemap Ltd.

** Excludes write-off of inter-company loan balances prior to acquisition.

*** 1Spatial plc discontinued recognising its share of losses after these exceeded its interest in Sitemap Ltd.

11. Trade and other receivables