1Spatial Holdings Regulatory News (SPA)

20 October 2015

1Spatial plc (AIM: SPA)

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

Interim Results for the six month period ended 31 July 2015

The Board of Directors of 1Spatial (the ''Board''), the AIM Spatial Big Data company today announces the Group's unaudited interim results for the six month period ended 31 July 2015.

Highlights

Financial highlights

· Revenues of £8.4m including recurring revenues of £3.6m (43%)

· Client software maintenance renewal rate of 98%, with 614 new orders below US$1m across the group in the period

· Improvement in gross profit margin from 52% to 56% reflecting focus on strong commercial management. Adjusted* EBITDA of £0.9m

· Robust period-end net cash position of £6.4m

· Growing pipeline of opportunities at high margins enhanced by growing strategic relationships with enterprise vendors.

· Acquisition of 47 per cent of US distributor Laser Scan Inc. (LSI) in February for £1.5m allowing the Group to strengthen its position within this key market

· Acquisition of Enables IT Group plc for £1.8m of shares enhancing the managed services and cloud services offering

· Outlook for 2015 maintained

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

Operational highlights

· Continued focus on R&D, further development of scalable open technology in order to:

- Widen addressable market

- Increase global reach

- Quicken route to market

- Enable integration with enterprise technology vendors

· Continued focus on important US markets

- Segmentation of our US market into two divisions - Government and Corporate Commercial

- Delivering on target on US Census contract

- Increased investment focused sales and marketing execution

- Enhancing relationships with key Federal Government Agencies

· Increase marketing activity to support revenue generation:

- Participation and sponsorship of Esri User Conferences in the UK, Europe and US

- Key business development activities around the Geospatial marketplace

- Launch of 1Integrate for ArcGIS service

Post Period-End Highlights

Contract win of US$1m post period end to provide geospatial services to a US Federal Government Agency reflecting strengthening of US presence

Commenting on the results CEO, Marcus Hanke, said:

"The first half of this year has been one of significant operational progress on our stated aims. We are delighted to have developed a scalable, open product that we believe will secure future growth for the Group.

Revenues came in lower year-on-year due to a number of factors, therefore the full year results will have a greater weighting to the second half compared to previous years, but our pipeline remains strong and we expect to convert a good proportion of the opportunities over the next six months. In terms of profitability, our focus on higher margin work has improved our gross margin to record levels. The Board still expects to deliver growth in Adjusted* EBITDA for the full year to January 2016 in line with market expectations.

Looking ahead, the Board remains confident and believe that the Company's stated strategy positions 1Spatial for future, scalable growth in an exciting market space."

Business review

The Group reports revenue of £8.4m and Adjusted* EBITDA of £0.9m. These results are a reduction on the prior half year numbers; however, management believes the Group is still on track to meet full year expectations which is an overall increase on the prior year revenues and Adjusted* EBITDA.

The key reasons for the decline in revenues and Adjusted* EBITDA are the strengthening of the sterling against the euro and Australian dollar, a greater second half weighting of service delivery revenues due to re-deployment of manpower to development of 'Open' technology, an expected second half weighting of deals and licence revenue and the strategic exit from low-margin revenues in Australia.

The Group acquired Enables IT Group for £1.8m (valued as at 25 June 2015) of shares on 23 July 2015 and whilst this did not have an impact on the period under review, its revenues and results will be included in full year numbers to 31 January 2016.

The Group is still on track with its stated strategic objectives and has made significant progress in the period with the development of its 'open' technology; in particular the development of 1Integrate on the Esri platform, known as '1Integrate for ArcGIS' which it is set to launch in the second half of the year.

The Group enters the second half of the year with an order backlog and a healthy pipeline of sales opportunities, enhanced by the Esri relationship coupled with a strong balance sheet and cash position.

Corporate transactions

The Company has made two strategic investments in the period under review as summarise below:

Laser Scan Inc. (LSI)

On 3 February 2015, the Company acquired 47 per cent of Laser Scan Inc. (LSI) for a cash consideration of US$2.25m (£1.5m). LSI is the sole distributor for 1Spatial products and solutions across the Americas and the two companies have worked closely together on strategic accounts including the United States Census Bureau and the Brazilian Army. LSI's personnel already have expert knowledge of 1Spatial's solutions and this transaction will secure 1Spatial's American base, bringing additional opportunities and enabling growth across this significant market.

Under the terms of the sale and purchase agreement, 1Spatial has an option to acquire the remaining 53 per cent of the share capital of LSI in two tranches (on 1 February 2016 and 1 February 2017) for the total sum of US$2.55m, payable in cash or by the issue of new ordinary shares in 1Spatial. If this option is not exercised, the seller has the right to buy back the holding for US$1.125m, being 50 per cent of the original consideration.

Enables IT Group plc

On 23 July 2015, 1Spatial plc acquired 100% of Enables IT Group plc for £1.8m of shares (valued as at 25 June 2015). Enables IT Group is a leading provider of cloud computing, managed and professional services and was acquired in order to broaden and enhance the enlarged Group's managed services and cloud services offering.

The Group's solutions are often needed to work alongside and interoperate with the technology of other vendors. The 1Spatial Directors believe the ability to work seamlessly with other technologies is increasingly important and further developing this capability at a product level is an important area of focus for the 1Spatial Group. 1Spatial Group's strategy includes providing software solutions that are 'open' and which will work well with key vendors in the field including Esri. 1Spatial intends to use Enables IT's data centers and managed service solutions in both the UK and US to provide cost effective managed service and cloud services to 1Spatial Group's businesses. The transaction will also support the Group's growing need for a more formalised and structured internal IT department as the Group grows and moves into new markets and territories.

A number of other opportunities were identified during the period which would help 1Spatial satisfy its strategic ambition, a selection of which remains under review.

Strategy and performance

During this year, we have continued to develop and build upon our corporate strategy, determined in 2013. We have established new structures to support future growth, seized opportunities where they aligned with our strategy and reviewed areas that were not performing as expected. Where necessary, we have made changes to adapt to market or other external forces.

Progress has been made in all four strategy areas: product and service offerings, geographical coverage, organisational structure and brand.

Product and service offerings

At the heart of 1Spatial's strategy is the opportunity to capitalise on the Company's intellectual property - built up over forty years' expertise and innovation - through a platform and suite of off-the-shelf software products.

1Spatial's Unique Selling Point (USP) is its approach to Spatial Big Data; its quality, aggregation and enrichment. Our scalable software enables these processes to be automated, providing customers with efficiency savings and consistently high quality spatial data that they can sell onto their clients or use in their own internal processes.

The nature of 1Spatial's expertise means that our solutions are often found at the heart of complex installations, working alongside and interoperating with the technology of other vendors. The ability to work ever more seamlessly with other technologies is increasingly important. It is our intention to provide software solutions that are 'open' and which will work well with key vendors in the field. In line with this strategic objective, during the period we have put significant investment into our open technology and in particular the integration with the Esri platform.

We are seeing a greater need in the market to provide cloud and managed service offerings to our customers and we are looking to utilise Enables IT Group's product suite to facilitate this.

During the period we also continued to develop our data services platform known as Sitemap which leverages 'Open Data' opportunities. This is an exciting opportunity for the Group which we will continue to develop in the second half of the year with an anticipated commercialisation date of Q3 next financial year.

Geographical coverage

The Group's headquarters are in Cambridge, UK; our offices in France and Belgium cover French-speaking markets, especially in Africa. We also have an Asia-Pacific office in Sydney, Australia and an office in Ireland. We are supported by a global network of partners including those in the USA, Malaysia and Brazil.

1Spatial's geographic reach continues to increase through acquisition, opening new offices and forging new partnerships. Our investment in LSI, discussed above, will strengthen 1Spatial's presence in the Americas and enable us to drive more opportunities there.

Organisational structure

We continue to review our organisational structures which are aligned to specific industry sectors (which support and are supported by the development of industry-specific applications).Key sectors for 1Spatial include utilities, national mapping and land registration agencies, telecommunications and defence.

1Spatial's professional services team is seen as a leader in spatial consultancy services and works with leading organisations and government bodies around the globe. Demand for geospatial data has never been greater. Data accuracy and the ability to manage multiple data sets are essential to effective and informed decision-making.

Our development team is now centred in our Cambridge headquarters where our product development roadmap is determined and we continue to draw on regional development expertise in other territories.

We are in the process of evolving the organisational structure in the second half of the year given the acquisition of Enables IT Group plc and the launch of our 1Integrate for ArcGIS solution.

Building the brand and creating demand

We continue and are consistent in our marketing and sales strategy along key industry sectors and focus countries. Marketing and sales are an important area of investment in the coming year, as we build the brand across target industries and geographies, and create the demand for existing and new products.

From a global perspective the US remains a key target market for us and with the addition of Enables IT, provides a further foothold in the market and product offerings. We will leverage our existing customer base in the US market across the Group and open cross-sell opportunities and customer reference to support our go-to market.

The Esri market is key for us as we build upon our awareness following the sponsorship and attendance at a number of key Esri user groups in the UK and the US. We are also sponsors of the forthcoming Esri Europe User Conference and Middle East and Africa conference providing exposure of our offering to thousands of Esri users, raising awareness and demand for 1Integrate for ArcGIS. There will also be local in-market targeted campaigns for 1Integrate for ArcGIS in the key UK and US markets in H2, to create demand.

Successful campaigns and participation in industry-focused global events has resulted in a pipeline of potential new customers and partners that the sales team will engage in the coming year. These targeted activities, improving our brand reach and establishing local sales structures are laying a solid foundation for development in the years to come and a healthy pipeline for the coming financial year.

Enables IT will undergo a brand refresh in H2, to gain consistency and alignment across their offices in the UK, US and South Africa. Also this will support the go-to-market plan and our opportunity to leverage their services and offerings across the wider Group.

Board and people

In January 2015 David Richards took on the role as interim Non-Executive Chairman following the retirement of Steve Berry. The Board is progressing its search for the right person as a replacement for Steve Berry but in the meantime, David Richards and Marcus Yeoman are still in a position to give 1Spatial the support it requires.

1Spatial's success, the business relationships it has built and the reputation it enjoys within the field of Spatial Big Data, is entirely due to its management team and employees across the world. 1Spatial people are approachable, smart, innovative and agile.

Financial performance

Income statement

The Group's revenues of £8.4m and Adjusted* EBITDA of £0.9m were lower year on year due to the below factors. The Board remains confident on hitting revenue targets for the full year:

a. Revenues and Adjusted* EBITDA from France, Belgium, Ireland and Australia have been adversely affected by foreign exchange movements as the sterling rate has strengthened against the euro and Australian dollar. This impact is £0.7m on revenues and £0.2m on Adjusted* EBITDA. Revenues at constant currency were down 11%.

b. The Group's Australian operation had a low-margin contract with a third party to distribute and support and maintain their software. The gross margin on this contract was worth 20% to the Group. This contract was exited in the prior year and therefore there is no equivalent revenue in this half year. In addition there were some services associated to this contract. Whilst the loss to revenue on this contract was £0.4m, the impact on the Adjusted* EBITDA was negligible.

c. Revenue reduction - timing and revenue recognition has an impact of £0.6m on revenues and £0.1m on Adjusted* EBITDA. There are two key elements to this line item as follows:

- Re-deployment of teams to focus on development of technology. Service revenue is recognised on delivery of the services. During the period there has been a focus on the development of the technology which has consequently led to less client work being carried out to fulfil existing orders.

- Perpetual licences. There is a reduction in perpetual licences sold in the period. The reason for this is twofold; firstly there were a number of licence deals that were due to close in H1 that are now being delayed to H2. Secondly there is a trend of new deals in the market starting to take the form of annual licencing rather than perpetual licencing with annual support and maintenance. This is an industry trend and whilst may give a dip on short-term revenues and profit, will provide longer term straight-line revenues with greater visibility on earnings rather than the peaks and troughs of perpetual licencing.

A summary of the income statement to Adjusted* EBITDA level is set out below:

Whilst the revenue and gross profit are down when compared to the prior period last year, the overall gross profit percentage has improved to 56% which is a significant improvement on the prior year given the backdrop of reduced perpetual licence sales which are generally at a high margin. The improved gross profit percentage is as a result of strict commercial process and procedures being brought in across the Group and exiting from lower-margin reseller contracts as the business looks to deploy resources in the most value added areas. In January 2015 some restructuring took place in France and Belgium, which lowered overall cost base for this half year and has therefore had a positive impact although this has been offset by some increased cost in the UK to support the development strategy.

Our revenue streams continue to be licence fees, services and support and maintenance. The proportion that these streams represent of total revenue is approximately 15%, 42% and 43% (2014: 20%, 40% and 40%). The main reduction in the period is with respect to licence revenues as noted above in part c.). We still continue to maintain our strong support and maintenance revenue stream which provides good visibility on revenues and provides a strong customer base to build relationships and provide additional engagements.

Given the costs of the subsidiaries which are denominated in euros and Australian dollars as well as the revenues, there is some natural hedging which takes place thus reducing the impact on the overall Adjusted* EBITDA. In addition, the reduction in the Australian revenues has had minimal impact on Adjusted* EBITDA given the low margins of this revenue. So whilst there is a reduction in revenues of £1.7m in the period, the impact on Adjusted* EBITDA is only £0.3m.

A summary of the results from Adjusted* EBITDA to the loss for the period is set out below

Depreciation, amortisation and the share-based payment charges are in line with the previous period. The exceptional costs in the period mainly relate to professional costs for corporate transactions such as the LSI and Enables IT Group plc transactions. The amount of cost in relation to the corporate transactions is £0.4m.

In addition, during the period, a review was undertaken of the pension provision in France. A small provision was put in place at the time of acquisition but further investigations have identified that this provision should be higher and therefore an exceptional one-off additional amount of £0.2m has been provided. There are other costs of redundancy etc. of £0.2m.

Of the finance cost of £0.1m, £28k relates to interest paid on the Belgium loan. The remainder is foreign exchange losses arising on intercompany balances in overseas subsidiaries where the balances are denominated in GBP.

The share of associates' loss is in relation to Sitemap Ltd and LSI and information on these two associated undertakings is set out in note 9 to the half year statement. From an Adjusted EBITDA perspective, these businesses are break even.

Balance sheet

A summary of the balance sheet is set out below:

The main reason for the overall increase in the various line items in the balance sheet is the inclusion of the Enables IT Group Ltd balance sheet at 31 July 2015. Whilst the full balance sheet is included in the half year statement, the results of Enables IT Group Ltd is minimal since it was only acquired shortly before the half year end.

Also included in non-current assets is £1.8m in relation to the investments in associated undertakings in Sitemap Ltd and LSI.

Cash flow

A reconciliation from Adjusted* EBITDA to cash is set out below:

Whilst there was a net cash outflow in the period, the above summary details some of the key cash outflows which are strategically important for the Group including the transaction with LSI and the investment in the R&D activities. From a trading perspective the main cash outflow was the payment of exceptional costs which includes transaction costs in relation to the acquisitions and reorganisation costs of approximately £1.1m in relation to the France and Belgium businesses which were accrued in January 2015 but paid out in February 2015.

The Company was pleased to secure an investment from Azini Capital in May 2015 which strengthened the balance sheet position.

Conclusion

During the period, we have continued to develop and deliver our world-class technology, increased our market and global reach and cemented strategic relationships with key partners. We have also delivered Adjusted* EBITDA profits of £0.9m, which whilst behind the previous year, we still expect to be up year on year due to a second half weighting.

Post period end, we announced a contract win of US$1m post period end to provide geospatial services to a US Federal Government Agency.

Innovation remains important to us, with internal development and new intellectual property, such as that owned by Sitemap, continuing to strengthen our business. At the same time, we continue to evaluate potential strategic future acquisitions which would add value or new capabilities to the Group. We have solid foundations in place and clear objectives across the business. Our product offering is more defined and we look forward to working with our new associate, LSI, which will help us develop our presence in the important US market. Strategic partnerships, like the one with Esri, along with our move towards increased software interoperability and openness, will help us gain market share and growth in all markets.

Outlook

In our January 2015 annual report that the year ending 31 January 2016 we explained that this year will be one of consolidation and targeted investment to position the Group best for the future. We stated that we would continue to support our existing customers and develop the business along the lines discussed above; continuing to develop innovative, off-the-shelf software supported by our professional services, supporting strategically important industry sectors and exploiting opportunity across geographic markets.

We believe that it is vital for growth and future shareholder value that we make continued investment in our spatial software so that it can be seamlessly integrated with other vendor platforms. As a result of this investment, there will continue to be significant research and development costs during the second half of the year. Some revenue-generating resource will continue to be used during this development phase which will have an impact on revenue growth in the short-term; however, it is the opinion of the Board that this is a necessary investment to secure future scalable growth and value for the Group.

As anticipated, our revenue mix and cash outflow profile has continued to adapt and develop during the first half of the year - a trend we expect to continue for the rest of the financial year. We have a strong balance sheet and a significant secured order book, alongside a healthy pipeline of opportunities; which we expected to be weighted towards the second half of the year. Whilst these changes have had a detrimental impact on our headline figures in the first half, with revenue and Adjusted EBITDA slightly lower than expected, the Group is continually reviewing ways to mitigate against this; as a result seeing gross margins improving to record levels. The Board is encouraged by the progress made during the current financial year, remains confident on its expectations for the full year and looks forward to the future with confidence.

For further information, please contact:

Notes to Editors:

About 1Spatial:

1Spatial manages the world's largest Spatial Big Data and works with users and creators of the largest geospatial databases, helping them collect, store, manage and interpret location-specific information.

1Spatial's clients include national mapping and cadastral agencies, utility and telecommunications companies, and government departments including emergency services, defence and census bureaus.

A leader in the field, 1Spatial has over forty years' experience and a record of continual innovation and development. Today, with an ever increasing reliance on spatial and location-critical data, demand for our expertise has never been greater.

1Spatial operates globally, and has a portfolio of customers both in the Commercial and Government sector, with headquarters in Cambridge, UK and offices in France, Belgium, Ireland and Australia. To find out more, visit www.1spatial.com

* 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 40 Dukes Place, London, EC3A 7NH. The registered number of the Company is 5429800.

The principal activity of the Group is a management consultancy and software business that provides companies with advice and solutions in order to enhance overall profitability.

2. Basis of preparation

The condensed consolidated interim financial information for the six months ended 31 July 2015, 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 2016 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 2015.

The financial information for the half years ended 31 July 2015 and 31 July 2014 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 2015 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 2015 is based on the estimated tax rates in the jurisdictions in which the Group operates, for the year ending 31 January 2016.

4. (Loss)/Earnings per share

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

The information as at 31 July 2014 has been restated to include depreciation in the adjustments to the loss attributable to equity holders, so that the adjusted basic and diluted earnings per share are based on Adjusted EBITDA.

5. Dividends

No dividend is proposed for the six months ended 31 July 2015 (31 January 2015: nil; 31 July 2014: nil).

6. Segmental information

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 23 July 2015, 1Spatial plc acquired control of Enables IT Group plc (now Enables IT Group Limited) by acquiring 100% of its issued share capital for £1,812,878. Enables IT Group is a leading provider of cloud computing, managed and professional services and was acquired in order to broaden and enhance the enlarged group's managed services and cloud services offering.

The following table summarises the consideration paid for the Enables IT Group, the provisional fair value of assets acquired and liabilities assumed at the acquisition date:

Acquisition-related costs (included in administrative expenses in the 1Spatial plc Statement of Comprehensive Income for the period ended 31 July 2015) amounted to £253,000.

9. Interests in associates

Set out below are the associates of the Group:

Note 1: Sitemap Ltd was acquired on 30 January 2015, and brings a new, although complementary, opportunity to the Group in its potential to generate revenue from data services.

Note 2: Laser Scan Inc. ("LSI") - the sole US-based distributor of 1Spatial geospatial products and solutions across the Americas - was 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. 47 per cent was acquired for cash consideration of US$2.25m.

Under the terms of the sales and purchase agreement, 1Spatial Holdings has a call option to acquire the remaining 53 per cent of LSI in two tranches, on 1 February 2016 and 1 February 2017, for the sum of US$2.55m, payable in cash or by the issue of new ordinary shares in 1Spatial. If this option is not exercised, the seller has the right to buy back the holding for US$1.125m, being 50 per cent of the original consideration.

Summarised balance sheet

The Group had no associates at 31 July 2014.

Summarised statement of comprehensive income

Note 3: Laser Scan Inc. was acquired on 3 February 2015, after the 31 January 2015 year end.

10. Share capital

On 7 May 2015, 1Spatial plc issued 32,000,000 new ordinary shares ("Subscription Shares") in the capital of the Company to Azini Capital Partners LLP at a price of 6p per share, raising total gross proceeds of £1.92m for the Company.

On 23 July 2015, 1Spatial plc acquired control of Enables IT Group plc (now Enables IT Group Limited). The purchase consideration was satisfied in part by the issue of 30,831,262 ordinary shares of 1Spatial plc (1.13 1Spatial plc shares for each Enables IT Group plc share).

On 30 July 2015, Strand Hanson exercised 2,252,692 warrants (issued on 30 July 2010) at an exercise price of 5.09p.