TUNG.L Regulatory News (TUNG)

Embargoed Release: 07:00hrs Monday 14 December 2020

TUNGSTEN CORPORATION PLC

("Tungsten" or the "Company")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2020

Tungsten Corporation plc (AIM: TUNG), a leading provider of digital financial management products and software solutions, announces the following unaudited interim results for the six months ended 31 October 2020:

Financial highlights

· Group revenue reduced by 1% to £18.0 million: excluding Tungsten Network Finance (TNF), revenue grew 1% to £18.0 million and grew 2% excluding the impact of FX.

· 93% of revenue was repeatable and recurring, compared to 94% in H1-FY20.

· Gross profit was £16.7 million, a decrease of £0.9 million from H1-FY20; primarily driven by a non-recurring bad debt collection of £0.5 million in H1-FY20, a £0.2 million increase in commissions in the current period and a £0.2 million increase in set up costs of newly acquired Total AR and AP customers.

· Adjusted EBITDA of £0.8 million, down £0.2 million from H1-FY20, with reduction in gross profit being to a large part offset by a reduction in operating expenses of £0.7 million. The annualised run rate of recent restructuring activities and cost savings are £4.0 million.

· Operating loss of £29.9 million increased by £27.8 million from H1-FY20. This predominantly reflects a non-cash goodwill impairment of £26.2 million relating to the carrying value of goodwill associated with the OB10 acquisition in 2013, increased FX costs of £1.1 million (reflecting the fluctuation of exchange rates between GBP and USD on intercompany balances) and an increase in exceptional costs of £1.3 million primarily due to restructuring activities to deliver the £4m cost savings.

· Net cash of £1 million broadly in line with H1-FY20, with £2.0 million remaining undrawn and available under the RCF which matures in December 2023.

Operational highlights

· New sales billings at £2.1 million up £0.4 million versus H1-FY20, maintaining the momentum seen in H2-FY2020.

· 5 new wins (3 Accounts Payable ("AP") and 2 Accounts Receivable ("AR") products - one customer has taken both AP and AR) from large multinational corporations delivering total contract value of £1.3 million and annual recurring revenue of £0.3 million.

· Concluded our largest ever single AP partnership agreement with a leading US bank, expected to launch in Q4-FY21. This has the potential to deliver e-invoicing volumes of up to 2.5 million invoices from up to 28 new AP buyers, who in turn could release up to 40,000 new AP suppliers onto our platform.

· Key executive appointments made during the period were of Ian Kelly as interim Chief Financial Officer, a Product and Business Development Officer and a Chief Marketing Officer.

· Executed the first agreement under the partnership with Orbian with a major UK retailer, securing access to their supplier base.

· Transaction volumes of 9.0 million, down 0.6 million versus H1-FY20 primarily due to impact of COVID-19.

FY21 outlook

· In H1 FY21 new business momentum continued with Tungsten securing 4 new customer wins. However the Company is witnessing longer sales conversion cycle which is conservatively expected to continue for the remainder of the current financial year. As a consequence of this, coupled with a decline in transaction volumes, the Company now expects FY21 revenues to be similar to FY20. 

· As per our trading update of 27 November 2020, underlying adjusted EBITDA is now expected to be not less than £3.2million, impacted by the lower transaction volumes, product mix of new sales, our new Total AR contracts requiring increased set-up costs, as well as additional costs related to our investment in the sales team.

· Planned actions to reduce operating costs were actioned during H1-FY21, which will serve to improve the Group's future underlying EBITDA. Although this had a short-term negative impact on cash, the programme is expected to deliver annualised savings of £4 million from FY22 onwards, but we expect to utilise a portion to re-invest in the business to help drive future growth and efficiencies.

· As a result of the reduced revenue and adjusted EBITDA the Group's net cash balance at the end of FY21 is anticipated to be similar to the balance as at 31 October 2020 of £1million. This represents cash of £3 million less £2 million drawn on the RCF. As of today, £2 million remains undrawn on the facility which expires in December 2023. This balance includes the impact of current period exceptional costs as well as the cash costs of prior period restructuring activities.

Andrew Lemonofides, Chief Executive Officer of Tungsten Corporation plc, said:

"Tungsten has faced a challenging and unpredictable market in 2020 due in part as a result of COVID-19. In spite of this, we have continued to grow the pipeline and win new customer relationships and we expect to deliver broadly similar revenues to FY20. We continue to invest in our sales and product capabilities, whilst maintaining financial rigour in relation to our cost base, in order that we continue to improve efficiency and are well placed to convert the sales pipeline."

1 Gross profit is calculated as revenue less cost of sales

2 Adjusted operating expenses exclude cost of sales, adding back rent adjustment for rental expenses and rental income , interest, tax, depreciation, amortisation, foreign exchange gains or losses, loss on disposal of assets, share-based payments charges, goodwill impairment and exceptional items

3 Adjusted EBITDA is defined as operating profit adding back rent adjustment for rental expenses and rental income and before other income, depreciation, amortisation, goodwill impairment, gain or loss on sale, foreign exchange gain or loss,  share-based payments charge, and exceptional items 

4 Adjusted EBITDA margin is defined as adjusted EBITDA divided by revenue

5 Net cash is calculated as cash and cash equivalents on the balance sheet less drawings under the HSBC Revolving Credit Facility

6 New sales billings  represents implementation, subscription, licence, transaction and professional services fees to be billed in the period from new sales made in that period. Implementation and subscription fees are recognised to revenue over the 6 months and 12 months respectively from billing month. Subscription licence and transaction fees are recognised in the month sold. Professional services fees are recognised on work completion milestones

7 Tungsten announced its intention to divest Tungsten Network Finance, its legacy trade finance division, ("TNF") on 30 April 2019

8. Cash Generation is net increase/(decrease) in cash and cash equivalents less increase in borrowing less exchange adjustment; see the Group's consolidated cash flow

9 Total AR is the automating of invoice processing for 100% of invoices, in an Accounts Receivable department, across all types and formats

10 Total AP is the automating of invoice processing for 100% of invoices, in an Accounts Payable department, across all types and formats

Enquiries

About Tungsten Corporation plc

Tungsten Corporation (AIM: TUNG) is the world's largest, compliant business transaction network. A leading global electronic invoicing and purchase order transactions network, Tungsten's mission is centred on enabling a touchless invoice process allowing businesses around the globe to gain maximum value from their invoice process.

Tungsten processes invoices for 74% of the FTSE 100 and 71% of the Fortune 500. It enables suppliers to submit tax compliant e-invoices in 50 countries, and last year processed transactions worth £195bn for organisations such as Caesars Entertainment, Computacenter, GlaxoSmithKline, Kraft Foods, Mohawk Industries, Mondelēz International, Procter & Gamble, Shaw Industries, Unilever and the US Federal Government.

Founded in 2000 and headquartered in London, Tungsten has offices in the US, Bulgaria and Malaysia, employing over 200 people.

Forward looking statements

This document contains forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Any forward-looking statement is based on information available to Tungsten as of the date of this statement. All written or oral forward-looking statements attributable to Tungsten are qualified by this caution. Tungsten does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in Tungsten's expectations.

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

CEO Business Review

Overview

In H1 FY21 new business momentum has continued, with us delivering 24% YonY growth in New Sales Billings. Tungsten secured 4 new customer wins (3 new AP deals and 2 AR deals) in H1 FY21 (compared to 5 wins across the full previous year). We are seeing our pipeline further strengthen and we are actively listening to and adapting our offerings quickly to customer needs. We are continuing to be nimble and flexible in a challenging world.

Our purpose

With our significant knowledge of the market and our customers, coupled with our innovative and globally relevant suite of products, we continue to be integral to our customers succeeding and benefiting in the digital economy. Tungsten provides an end-to-end solution, digitising invoice flows, enabling faster and more automated invoice processing and allowing greater flexibility and transparency around cashflow management.

Our potential market continues to grow as organisations have yet to fully digitise their invoice flows. We are working with many of our existing customers to define ways to speed up their digitisation plans, as we play our part of being an essential partner on their journey to best-in-class digital invoice processing.

COVID-19 response

The COVID-19 pandemic has led to challenging market conditions globally, and we have experienced a 7% decline in transaction volumes across H1 FY21.

The current expectation is that transaction volumes will remain at a lower level for the remainder of FY21, although we remain cautiously optimistic in the mid-term that these will rebound.

In light of the unprecedented market conditions, we have undertaken the following in H1 FY21:

- We accelerated planned cost savings which will deliver an annualised benefit of c. £4 million from FY22.

- Preserved liquidity and reduced discretionary spend, postponing salary increases and freezing non-essential recruitment.

- As we look to exit the various lockdown restrictions in FY21, it is clear that we will move to a "new operating model" which we have included within our broader "Tungsten Ways of Working" plan.

Foundations for growth

We continue to execute against our strategic priorities, which will provide a solid foundation to the growth aspirations that we have for Tungsten. We have three fundamental pillars of success:

1. Our global network - this remains a significant differentiator as the overall network effect is multiplied as more buyers and suppliers are connected through, and transact across the network. Clearly our goals are around maximising these connections and interconnecting with other networks to broaden our reach.

2. Innovation remains key to our long-term success. We will continue augmenting our product set and also focusing on platform usability as these become increasingly important differentiators.

3. Our people are fundamental to our long-term growth. Whilst much of our initial focus was around creating the right organisational structure, this has been balanced with changing the culture to one which is more value driven and inclusive.

Our strategic focus areas

In the current rapidly changing environment, we have continued to invest and strengthen the capabilities and skills of our teams to support the growing needs of our global customers' base, especially as their own customers (buyers and suppliers) are also accelerating the rate of invoice digitisation. We remain fully focused and committed to actively supporting our customers and providing them with solutions that meet their strategic demands and regulatory requirements.

Our strategy remains one of achieving sustainable growth through delivering on the four main strategic initiatives agreed at the start of the financial year.

- Driving the network effect - Total AR

The key objective here is to handle 100% of outgoing invoices in all formats. In H1 FY21 we have signed a further two Total AR deals, continuing the momentum in this new product area.

- Strategic partnerships with e-procurement providers

Ensures our service receives the widest possible attention. Having integrated with the Coupa network and gained CoupaLink certification we are exploring partnerships with a number of other key P2P players.

- Integrating with other leading e-invoice platforms

This is designed to improve the scale and reach of our customer base, in turn increasing turnover, volume and income for Tungsten. Our major partnership with a US bank is expected to add up to 28 new buyers and 40,000 suppliers to our network, is nearing completion of the integration phase and is scheduled to "go live" in January 2021.

- Trade Finance Reset

Focused on accessing the considerable trade flows across our global platform, our exclusive partnership with Orbian has continued to provide opportunities. Our launch customer who signed in April 2020, has now expanded the offering to its full supplier base. We have a strong pipeline of further opportunities for the coming year, primarily from our existing customer base.

Performance

Despite the reduction in transaction volumes, our core business has continued to perform well and we have seen further momentum in new sales billings which underlines the investment that has been made in our new sales capabilities.

In H1 FY21 we had 5 new wins. Of this, 3 were Accounts Payable wins where Tungsten transmits e-invoices from buyer to supplier, and 2 were Accounts Receivable which is the opposite, in which suppliers send their invoices to a number of buyers. One customer purchased both Accounts Payable and Accounts Receivable. In both cases, we look to handle 100% of the invoice volume to maximise efficiencies and cost savings. These wins show that in H1 we exceeded the number of new wins secured in the whole of FY20. This performance stems from the investments we made in our salesforce, and with the growing opportunity in the pipeline we anticipate further growth in H2 FY21 as this momentum continues.

Tungsten has continued to invest in streamlining the onboarding of new buyers and suppliers to the network, in addition to maximise the straight through processing of invoices for customers. This allows our customers to maximise the potential savings associated with invoice digitisation.

Expansion of our customer base and network remain key, not only through our existing and new customer base, but through extending our offering, for example Supply Chain Finance. We also have our Workflow offering and are examining how to monetise our data through the provision of analytics.

An evolving competitive landscape

As we look to leverage our global network effect, we will make investment in building out our partner business to provide greater reach over the coming year. We need to have the capability to deliver our sales model both directly and indirectly to allow us to most effectively meet the increasing demands of our customers.

The changing dynamics of the market mean that network interconnection and interoperability form the foundation of future success which we will continue to address through our strategic initiatives.

Equally with the increasing complexity of the regulatory frameworks being introduced by individual countries, we remain heavily focused on building out our compliant network to give presence in those countries that introduce mandates for invoice processing to ensure that we continue to offer our comprehensive service to our customers.

Our people

In H1 FY21 our leadership team continues to grow and I welcomed Ian Kelly who stepped into the Interim CFO role, having previously held this role earlier in the year before moving to our newly created Chief Commercial Officer role.

As a result of Ian's move to head Finance, Eric Craig, our Chief Sales Officer moved to become our Chief Commercial Officer, allowing us to utilise his extensive commercial skills, whilst retaining important links into our sales organisation and our customer base. David Hazard joined as our new Global Head of Sales, with Marisa Teh joining to lead Product and Business Development, and Miriam Weidner to lead Marketing.

Our "Tungsten Ways of Working" initiative was launched to allow ongoing support to be provided to our employees, helping them with practical and emotional support as we adapted to the new working environments under COVID-19.

Looking ahead

Although we and our customers have been impacted by the COVID-19 pandemic, we are cautiously optimistic in the mid-term that business volumes will return to normalised levels in FY22.

We will continue to work closely with our partners, develop our network, invest in innovative new revenue streams and in our people. We will continue to deliver on our four strategic initiatives to ensure that we remain the leading player in our industry.

Finally, success in the coming periods is focused on execution as we seek to deliver on our plans. Operational excellence clearly underpins our route to future success and with the right senior team now in place, Tungsten is well placed to capitalise on the opportunities being presented.

Andrew Lemonofides

Chief Executive Officer

CFO Financial Review

Income statement

(1) HY-FY20 income statement is restated to reclassify £0.2m of costs between Adjusted operating expenses and Other operating expenses and to reverse prior deferred tax credit of £0.1m booked in the period to 31 October 2019. (see note 14).

(2) Adjusted operating expenses exclude cost of sales, other income, interest, tax, depreciation, amortisation, impairment of intangible assets, loss on disposal of assets, foreign exchange gains or losses, share-based payments charges, goodwill impairment and exceptional items.

(3) Adjusted EBITDA is calculated as earnings adding back rent adjustment for rental expenses and rental income and before net finance cost, tax, depreciation and amortisation, impairment of intangible assets, loss on disposal of assets, foreign exchange gain or loss, share-based payment expense, goodwill impairment and exceptional items.

(4) The HY-FY19 adoption of IFRS 16 includes rent cost in depreciation; this adjustment is to create visibility of the cash cost of our rent expense and rental income.

(5) EBITDA is calculated as earnings before net finance cost, tax, depreciation and amortisation, impairment of intangible assets, loss on disposal of assets, foreign exchange gain or loss, share-based payment expense, goodwill impairment and exceptional items. The most directly comparable IFRS measure to segment EBITDA is Operating loss for the period.

Management adopts EBITDA to monitor business underlying performance since items considered non-indicative of its run-rate operations are excluded, as appropriate.

Revenue

(1) Revenue is shown to the nearest £0.1 million. Movement is calculated on figures to the nearest £1.

(2) Recurring revenue represents annual subscription and maintenance fees on contracts typically ranging from 1 to 3 years and billed annually in advance.

(3) Repeatable revenue represents transaction-based fees from contracted customers, typically billed at the point of usage or at the end of the month of usage.

(4) Other revenue represents implementation, modification and professional services fees, billed either in advance or on completion of project stages.

(5) TNF revenue relates to revenue generated by the trade finance business announced for disposal but not treated as an asset held for disposal at the end of FY19.

(6) Recurring revenue is revenue from annual subscription and maintenance fees as a % of revenue excluding TNF.

(7) Recurring and repeatable revenue is total recurring and repeatable revenue as a % of revenue excluding TNF.

Revenue excluding TNF for the period was £18.0 million (H1-FY20: £17.9 million), representing an increase of 1%. The growth in revenue reflected the net benefits of new customer sales in H2-FY20 and H1-FY21 (including the impact of new customer set up fees in H1-FY21) but was offset by a decline in transactional volumes and revenue associated with COVID-19. Revenue including TNF for the period was £18.0 million (H1-FY20: £18.2 million), representing a decrease of 1%.

Total new sales billings increased by £0.4 million to £2.1 million (H1-FY20: £1.7 million), representing year one billings for new services sold to both existing and new buyers. On an underlying basis excluding the impact of transaction revenue (including the impact of COVID-19), this represents an increase of £0.8 million in comparison to H1-FY20.

Recurring revenue of £9.8 million remained in line with H1-FY20, demonstrating strength in visibility of revenue streams from long term contracts.

Repeatable revenue decreased by £0.1 million to £6.9 million (H1-FY20: £7.0 million) due to the decline in our transactional revenue and volumes. Transaction volumes reduced by 0.6 million to 9.0 million (H1-FY20: 9.6 million).

Other revenue increased by £0.2 million to £1.3 million (H1-FY20: £1.1 million) due to set up fees associated with the new AP/AR deals won in H2-FY20 and H1-FY21.

Our TNF business was wound down in H2-FY20 (revenue in H1-FY20: £0.3m million) and all revenue generated by the Orbian partnership will be recognised as part of Group revenue going forward. Partnership revenue represents 1% of Tungsten network revenue in H1-FY21.

Revenue by type of customer

42% of Tungsten network revenue was generated by our Buyer customers in H1-FY21 (H1-FY20: 43%). Total Buyer revenue was £7.5 million (H1-FY20: £7.7 million). This reflected a decline in recurring revenue of £0.2 million.

Supplier revenue represented 57% of Tungsten revenue in H1-FY21 (H1-FY20: 57%). Total Supplier revenue grew 1% to £10.3 million (HY20: £10.2 million).

Expenses

(1) Adjusted operating expenses includes adjustment for rental expenses and rental income and excludes cost of sales, other income, interest, tax, depreciation, amortisation, impairment of intangible assets, loss on disposal of assets, foreign exchange gains or losses, share-based payments charges, goodwill impairment and exceptional items.

The Group's statutory expenses grew by £27.6 million to £47.9 million (H1-FY20: £20.3 million). This increase is primarily due to a £26.2 million further impairment to goodwill associated with the OB10 acquisition in 2013. Whilst significant operational progress has been made with the with strategic plan during the period, as referenced in our trading update of 27th November 2020, COVID-19 has had a negative impact on trading performance, therefore we have conducted an impairment review of our goodwill and concluded that a further impairment was required. Goodwill at 31st October 2020 was £49.8 million (30th April 2020: £76.1 million).

Statutory expenses, excluding impairment, were £21.7 million which represents an increase on H1-FY20 of £2 million primarily due to £0.8 million of foreign exchange losses on intercompany balances denominated in USD and an increase in exceptional items of £1.3 million (of which £1.1 million reflects restructuring activities).

Operating expenses

The Group's adjusted operating expenses reduced by 4% to £15.9 million (H1-FY20: £16.6 million). This is primarily due to a reduction in travel and expense spend of £0.5 million due to the impact of COVID-19 and other staff cost savings from the wind-down of TNF partially offset by increased staff costs with investment in the sales team and a new senior management team. We have recently implemented plans to deliver annualised savings of £4 million from FY22 onwards, but we expect to utilise a portion to re-invest in the business to help drive future growth and efficiencies.

Other movements in expenses were:-

Cost of sales increased by £0.7 million to £1.3 million (H1-FY20: £0.6 million)

· Increase in bad debt of £0.3 million due to a one-off decrease in H1-FY20 in our loss provision following collection of previous provided receivables

· Increase of £0.2 million in commissions

· Increase in AR costs of £0.2 million due to launch of new AR customers.

Share based payment expense decreased by £0.3 million to £0.1 million (H1-FY20: £0.4 million) due to a reduced number of vesting options and the unwinding of prior charges for forfeited options awarded to employees and executives departing the business due to restructuring activity.

Loss before tax

The Group generated a loss before tax of £30.5 million (H1-FY20: £2.5 million). The basic and diluted loss per share was 24.18p (H1-FY20 restated: 1.97p).

Prior period and year adjustments

At the year ended 30 April 2020, prior year adjustments were made to the Group accounts for deferred tax, deferred income, employee holiday costs and indirect tax accruals. The impact of these in the period to 31 October 2019 was to increase Loss for the period by £0.2 million. See note 14 to the interim financial statements for further detail.

Funding and liquidity

Cash and cash equivalents at the end of H1-FY21 were £3.0 million (H1-FY20: £2.0 million). Net cash (including amounts drawn down under the revolving credit facility) at the end of H1-FY21 was £1.0 million (H1-FY20: £1.0 million).

The Group had a net cash outflow of £2.3 million during the period. Tungsten experiences the impact of seasonality in some of its billing with the renewal of its workflow annual maintenance contracts, which total approximately £2.0 million, occurring in December each year.

Cash flows from operating activities

Cash used in operating activities was flat year on year despite absorbing the impact of exceptional cash costs of £1.0 million relating to restructuring activities from towards the end of FY20 and in H1-FY21.

Cash flows from investing activities

Cash spent on investing activities increased by £0.4 million to £1.7 million (H1-FY20: £1.3 million), with increase driven by various initiatives within our service improvement programme which was initiated to allow Tungsten to drive automation and improved experience for our customers whilst at the same time reducing customer support tickets/volumes.

Cash flows from financing activities

Cash flow from financing activities at £0.6 million was a marginal increase to last year (H1-FY20: £0.5 million) due chiefly to lease payments on the Group's property portfolio.

Principal Risks and Uncertainties

The principal risks and uncertainties facing the Group remain broadly consistent with the Principal Risks and Uncertainties reported in Tungsten's 30 April 2020 Annual Report. Since the 2020 Annual Report, the Board has been monitoring and mitigating the effects of the following international events on the Group's business:

COVID-19

COVID-19 has been declared a global pandemic, spreading globally and enforcing restrictions on people movements and curtailing international travel. This continues to have a widespread impact economically and several industries have been heavily impacted. This has resulted in impacts on certain industries and a more general need to consider whether budgets and targets previously set are realistic considering these events.

As stated in our trading update of 27th November 2020, the COVID-19 pandemic has impacted our business with a decline in transactional volumes of 7% in H1-FY21 and a lengthening of the sales conversion cycle. We continue to monitor the situation closely and maintain a sufficient cash position, including £2 million of available revolving credit facilities, to weather any further impacts. The Board and executive leadership team will continue to closely monitor the impact of COVID-19 on the business.

Brexit

The United Kingdom ('UK') formally left the European Union ('EU') on 30 January 2020. The period from when the UK voted to exit the EU on 23 June 2016 and the formal process initiated by the UK government to withdraw from the EU, or Brexit, created volatility in the global financial markets. The UK enters a transition period, being an intermediary arrangement covering matters like trade and border arrangements, citizens' rights and jurisdiction on matters including dispute resolution, taking account of The EU (Withdrawal Agreement) Act 2020, which ratified the Withdrawal Agreement, as agreed between the UK and the EU. The transition period is currently due to end on 31 December 2020 and ahead of this date, negotiations are ongoing to determine and conclude a formal agreement between the UK and EU on the matters.

As the Group operates subsidiaries in many countries, there are several channels available to us to continue business with the same customers, should the need arise, with little to no effect from Brexit changes. As such, the Directors currently deem that the effects of the UK's current transitional period outside the EU and the impact of ongoing discussions with the EU will not have a significant impact on the Group's operations due to the global geographical footprint of the business and the nature of is operations. We do not consider it likely that the Group will be significantly impacted as the Group is not an importer or exporter of goods across EU borders. However, the Directors and senior leadership team are closely monitoring the situation to be able to manage the risk of any volatility in global financial markets and impact on global economic performance due to Brexit.

CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 OCTOBER 2020

(1) Adjusted EBITDA is calculated as operating loss before other income, depreciation, amortisation, goodwill impairment, gain or loss on sale, foreign exchange gain or loss, share based payments charge and exceptional items.

(2) The income statement is restated to reclassify £0.2m of costs between Operating expenses and Exceptional items, and to reverse prior deferred tax credit of £0.1m booked in the period to 31 October 2019. (see Note 14).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 31 OCTOBER 2020

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED CASH FLOW STATEMENT

(1) An amount of £169,000 in the period to 31 October 2019 was previously included in Net interest paid.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 OCTOBER 2020

Six months ended 31 October 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 OCTOBER 2020

Six months ended 31 October 2019

NOTES TO THE INTERIM FINANCIAL INFORMATION

1. General information

Tungsten Corporation plc (the Company) and its subsidiaries (together, the Group) is a global e‐invoicing network that offers trade finance and spend analytics.

The Company is a public limited company, which is incorporated and domiciled in the UK. The address of its registered office is Pountney Hill House, 6 Laurence Pountney Hill, London EC4R 0BL, UK.

The Board of Directors approved this interim report on 13th December 2020.

2. Basis of Preparation

These interim consolidated financial statements have been prepared using accounting policies based on International Financial Reporting Standards (IFRS and IFRIC Interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 30 April 2020 Annual Report. The financial information for the half years ended 31 October 2020 and 31 October 2019 does not constitute statutory accounts within the meaning of Section 434 (3) of the Companies Act 2006 and both periods are unaudited.

The annual financial statements of Tungsten Corporation Plc ('the Group') are prepared in accordance with IFRS as adopted by the European Union. The statutory Annual Report and Financial Statements for 2020 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 30 April 2020 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under 498(2) - (3) of the Companies Act 2006. 

The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 30 April 2020 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2020 and will be adopted in the 2021 financial statements. There are deemed to be no new and amended standards and/or interpretations that will apply for the first time in the next annual financial statements that are expected to have a material impact on the Group.

3. Going Concern

In March 2020, the World Health Organisation declared a global pandemic due to the COVID-19 virus that has spread across the globe, causing different governments and countries to enforce restrictions on people movements, a stop to international travel, and other precautionary measures. This has had a widespread impact economically and a number of industries have been heavily impacted. This has resulted in supply chain disruption in certain industries, uncertainty over cash collection from certain suppliers, and a more general need to consider whether budgets and targets previously set are realistic in light of these events.  

In carrying out the going concern assessment, the Directors have considered several scenarios, taking account of the possible impacts of the pandemic, in relation to revenue forecasts for the next 12 months. A material downside scenario assumed that current agreed contractual minimum revenues will be maintained over the period, there will be no uplift for repeatable (including transaction volumes)/recurring revenues, and that non-recurrent and non-repeatable revenue will reduce by 50%. In such a scenario, the Group has identified cost reductions which could be implemented, to help mitigate the impact on cash outflows. The forecasts do contain assumptions over revenue and the directors' ability to execute cost containment measures, which are reasonable uncertainties given the current economic environment but are not deemed to be evaluated above this level.

In reaching their going concern assessment, the Directors have considered the foreseeable future, a period extending 12 months from the date of approval of this half-yearly financial report. This assessment has included consideration of the forecast performance of the business, as noted above, the cash and financing facilities available to the Group. Considering all this analysis, the Directors are satisfied that, even if this downside scenario were to occur, the Group has sufficient cash resources over the period. As such, the interim condensed consolidated financial information has been prepared on a going concern basis.

4. Segmental Analysis

The Executive Committee has been identified as the Chief Operating Decision-Maker (CODM), reviewing the Group's internal reporting on a monthly basis in order to assess performance and allocate resources.

The CODM reviews financial information for three segments: Tungsten Network (which includes the e-invoicing and spend analytics business of Tungsten Network), Tungsten Network Finance (which includes the supply chain finance business), and Tungsten Corporate (which includes Tungsten Corporation plc and Tungsten Corporation Guernsey's overheads and general corporate costs). Intersegment revenue from management fees and other intersegment charges are eliminated below.

The CODM analyses the financial performance of the business on the basis of segment ADJUSTED EBITDA which is an adjusted profit measure which reflects loss adding back rent adjustment for rent expense and rent income and before finance income and costs, taxation, depreciation, amortisation, loss on disposal of assets, foreign exchange gains and losses, share based payment expense and exceptional items.

The most directly comparable IFRS measure to segment EBITDA is operating loss for the period. Management utilises ADJUSTED EBITDA to monitor performance as it illustrates the underlying performance of the business by excluding items management consider to be not reflective of the underlying trading operations of the Group or adding items which are reflective of the overall trading operations, as applicable. 

Six months ended 31 October 2020

(1) Adjusted EBITDA is calculated as operating loss adding back rent adjustment for rental expenses and rental income and before other income, depreciation, amortisation, goodwill impairment, gain or loss on sale, foreign exchange gain or loss, share based payments charge and exceptional items.

Six months ended 31 October 2019

(2) Adjusted EBITDA is calculated as operating loss adding back rent adjustment for rental expenses and rental income and before other income, depreciation, amortisation, goodwill impairment, gain or loss on sale, foreign exchange gain or loss, share based payments charge and exceptional items.

(3) Taxation charge now includes the unwinding of deferred tax credit initially booked in the period to 31 October 2019. (See note 14)

5. Exceptional items

6. Finance income and costs

7. Earnings per share

Basic and diluted loss per share is calculated by dividing the loss attributable to the ordinary shareholders by the weighted average number of ordinary shares in issue during the period.

Loss per share attributable to the equity holders of the parent during the period:

8. Goodwill & Intangibles

Impairment testing is carried out at cash generating unit (CGU) level on an annual basis. The following is a summary of the goodwill allocation for each reporting segment:

Whilst significant operational progress has been made with the strategic plan during the period, as referenced in our trading update of 27th November, COVID-19 has had a negative impact on our current trading performance, therefore we have conducted an impairment review of our goodwill and concluded that a further impairment was required in the current period. Goodwill at 31st October 2020 was £49.8 million (30th April 2020: £76.1 million).

The recoverable amount of the Tungsten Network CGU which was hitherto established as £101.1 million at 30 April 2020 using a value-in-use model projecting cash flows for the next five years together with a terminal value using a growth rate, is now revised to £73.9 million.

We used four scenarios to calculate the value in use ranging from up to 12% growth in our upside scenario, up to 8% growth in our base case scenario and included a risk of much smaller growth (up to 3% and 0.5%) in our downside and severe downside scenarios. In addition, costs growth has now been set at 2%. All other key assumptions, relating to post tax discount rates and long terms growth rates remain unchanged from the year end.

9. Right of use assets, Property, plant and equipment

10. Trade and other receivables

11. Lease liabilities

12. Trade and other payables

13. Contract liabilities

14. Prior Period (H1, FY20) Adjustments

A deferred tax credit of £144,000 was recognised in the Income Statement for the period to 31 October 2019, as part of the tax treatment of some historic acquisitions. This credit is being reversed as the Group should have adopted an alternative accounting treatment at the time of the acquisition.

A further adjustment of £10,000 and another for £54,000 are made for compensated absence accrual and for indirect taxation respectively. The background and history to all these is fully discussed in the Group's Annual Report and Accounts 2020 on page 106.

The following table summarises the impact of these prior period adjustments on the income statement and loss per share.

15. Cautionary Statement

This document contains certain forward-looking statements relating to Tungsten Corporation plc (the "Company"). The Company considers any statements that are not historical facts as "forward-looking statements". They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Company to differ materially from those contained in any forward-looking statement. These statements are made by the Directors in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Independent review report to TUNGSTEN CORPORATION plc

Introduction

We have been engaged by Tungsten Corporation plc (the "Company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2020 which comprises the consolidated income statement; consolidated statement of comprehensive income; consolidated statement of financial position; consolidated cash flow statement; consolidated statement of changes in equity; and associated notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial information.

Directors' Responsibilities

The interim financial report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim financial report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM, which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the Company's annual financial statements having regard to the accounting standards applicable to such annual financial statements.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorized to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2020 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies whose shares are admitted to trading on AIM.

BDO LLP

Chartered Accountants & Registered Auditors, London, United Kingdom

13 December 2020

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).