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Interim Results for six months to 31 October 2019

12 Dec 2019 07:00

RNS Number : 5900W
Tungsten Corporation PLC
12 December 2019
 

TUNGSTEN CORPORATION PLC

 

("Tungsten" or the "Company")

 

12 December 2019

 

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2019

 

£m (1) 

Group results

(including TNF)

Group results (excluding TNF)(2)

Unaudited

H1-FY20

H1-FY19

H1-FY20

H1-FY19

Revenue

18.2

17.6

17.9

17.2

Adjusted EBITDA(3)

1.2

(0.8)

1.8

0.5

Adjusted EBITDA margin(4)

7%

(5%)

10%

3%

Operating (loss) / profit

(2.1)

(1.2)

(0.8)

0.1

 

 

 

 

 

Transaction volumes(6)

9.6m

9.0m

9.6m

9.0m

 

 

 

 

 

 

H1-FY20

H2-FY19

 

 

Net cash(5)

£1.0m

 

£2.8m

 

 

 

 

Financial Highlights of Group (excluding TNF)

 

·; Revenue grew 4% in comparison to H1-FY19 slightly below management expectations due to timings on conversion of new sales.

·; Adjusted EBITDA increased strongly to £1.8 million from £0.5 million in H1-FY19, including an improved EBITDA margin of 10% (H1-FY19: 3%), as a result of increased sales in the period and a £0.5 million one-off benefit from a reduction in the bad debt loss provision.

·; Net cash reduced to £1.0 million (30 April 2019: £2.8 million) due to an anticipated seasonal working capital outflow, TNF losses and exceptional costs.

·; Recurring and repeatable revenue(8)  growth of 7.1% to £16.8 million (H1-FY19: £15.7 million), representing 94% of total revenues (91% of total revenues H1-FY19).

 

Operational Highlights of Group (excluding TNF)

 

·; New sales billings(9) of £1.7 million, in line with management expectations.

·; Sales pipeline has grown 300% since April 2019, with over 200 opportunities for potential new sales billing opportunities.

·; Significant milestone with first Total AR customer signed in October 2019, one further signed in November and in advanced discussions with further potential customers expected to sign during H2-FY20. 300,000 invoices are initially in scope across these two important deals.

·; Two Total AP customers were signed, one new customer and one converting from our Workflow product with a volume of approximately 200,000 transactions.

·; One key sale of our AP Analytics product to a current customer on a one-year deal for £0.3 million.

·; Transaction volume increased over H1-FY19 by 7% or 600,000 transactions to 9.6 million in H1-FY20. LTM(10) total transaction volumes of 18.8 million at 31 October 2019 (17.9 million transactions for twelve months ended 31 October 2018).

 

Strategic Highlights

 

·; We are delivering on our three major new strategic plans as announced on 22 July 2019:

o Driving the network effect: Introducing Total AR. We have achieved the proof of concept (delivering 100% of a supplier's outbound invoices) by signing our first Total AR deal.

o Strategic partnerships with e-procurement providers to provide an additional channel to market. We are targeting signing in H2-FY20 a major partnership with one of the leading P2P providers which would allow Tungsten Network to provide e-invoicing as part of the overall procure-to-pay offer.

o Interconnecting with other platforms to improve automation, customer services and user experience, which should assist in boosting turnover, volumes and income. A successful conclusion of the current proof of concept pilot would be expected to result in the signing of a major new partnership with a leading P2P vendor that would give Tungsten's suppliers access to approximately 1,000 new buyers on the partner platform.

 

·; Trade finance strategy reset: Our new strategy is in place with the announcement today that we have signed an exclusive partnership with Orbian, a leading supply chain finance ("SCF") global provider.

o This will give our customers access to a compelling offering through a combination of Orbian's state-of-the-art SCF technology platform and innovative funding products.

o The partnership with Orbian represents the conclusion of the review of the Tungsten Network Finance business.

o A five-year revenue share agreement replaces the existing TNF business.

o TNF will be wound down on a managed, orderly basis.

o The Board believe this is the best outcome for Tungsten as it allows for an ongoing revenue stream rather than a total sale.

 

FY20 Outlook (excluding TNF)

 

·; Continued delivery of our FY20 key areas of strategic focus to increase sales momentum.

·; Expect to generate cash over H2-FY20 and return to broadly the same levels of net cash as of the end of FY19 (£2.8 million).

·; Continued strong recurring and repeatable revenue and new sales billings of at least £4 million for H2-FY20 which are in part recognised in FY20.

·; Slower conversion of sales in H1-FY20 expected to result in FY20 revenues slightly below expectations.

·; Low double-digit adjusted EBITDA margin expected to be achieved in H2-FY20.

 

Board Changes

 

·; Tony Bromovsky reverts to his role as Non-Executive Chairman with immediate effect following his handover to the new Chief Executive Officer, Andrew Lemonofides.

·; Duncan Goldie-Morrison will stand down by the end of January 2020 to avoid any potential conflict of interest over the newly signed partnership with Orbian referenced earlier.

·; A search for a new non-executive director has commenced.

 

 

 

Andrew Lemonofides, Chief Executive Officer

 

"Since joining in September 2019 I have spent time with key buyers and suppliers who have given me further confidence in the Tungsten proposition. Delivering our first Total AR sale is a significant milestone, as is the announcement of the new trade finance partnership. These represent an exciting step forward, delivering tangible benefits to our customers. It is vital that we increase the momentum of the business, through accelerating the delivery of each of the strategic goals, as we seek to firmly reposition the company.

 

Whilst H1-FY20 revenues were slightly below our expectations due to timing of conversion of the sales pipeline, which is expected to reduce our full year revenues, I am confident of an improved sales performance given the changes to the sales team and an stronger sales pipeline. Growth of both network connections and ultimately revenue remains our primary focus, whilst continuing to implement the findings of the Operating Review. We will continue to further simplify our processes, increase the speed at which we onboard both buyers and suppliers to our network and deliver greatly improved customer satisfaction."

 

Tony Bromovsky, Non-Executive Chairman

 

"The progress that has been made delivering each of the strategic plans vindicates the confidence which the Board has in the comprehensive transformation plan that was announced in July 2019. The Board remains confident that the business is well positioned to achieve future growth as it continues to execute on these important strategic plans.

 

I would like to thank Duncan Goldie-Morrison for the significant contribution he has made in the time he has been on the Tungsten board.

 

Finally, I would also like to thank the TNF team for their contribution to making trade finance an important part of our offering and to specifically thank Prabhat Vira for his leadership over the past two years and for implementing the current wind-down."

 

Analyst Presentation

 

Tony Bromovsky, Non-Executive Chairman, Andrew Lemonofides, CEO and David Williams, CFO will today host a conference call at 9.00am UK time. The dial-in number for the conference call is +44 20 3713 5011 / +1 (571) 317-3116 with the access code 794-672-773 and available online at https://global.gotomeeting.com/join/794672773 with the password '##meetingPassword'. A presentation will be available on the Tungsten website at http://www.tungsten-network.com/uk/about/investor-relations/downloads-reports/.

 

(1) Tungsten's year-end is 30 April

(2) Tungsten is winding down the business and operations of Tungsten Network Finance ("TNF"). Results presented exclude TNF and present the continuing business to aid future comparability. Group results including and excluding TNF are presented exclusive of management fees charged by the Group to TNF

(3) Adjusted EBITDA is calculated as earnings before net finance cost, tax, depreciation and amortisation, impairment of intangible assets, foreign exchange gain or loss, share based payment expense and exceptional items, and is adjusted to include cash rental expenses and rental income.

(4) Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of revenue

(5) Net cash is calculated as cash and cash equivalents less drawings under the HSBC RCF

(6) Transaction volumes are measured as the total number of invoices and purchase orders delivered between a Supplier and Buyer

(7) Total available liquidity is calculated as net cash plus available working capital under the HSBC RCF

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

(9) 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

(10) LTM is defined as the last twelve months to the reporting date

Enquiries

Tungsten Corporation plc

Andrew Lemonofides, Chief Executive Officer

David Williams, Chief Financial Officer

 

 

+44 20 7280 7713

 

 

 

Panmure Gordon UK Limited (Nominated Adviser)Dominic Morley

 

+44 20 7886 2500

Canaccord Genuity Limited (Broker)Simon Bridges/Andrew Potts

 

+44 20 7523 8000

 

 

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

 

About Tungsten Corporation plc

 

Tungsten Corporation (LSE: TUNG) aims to be the leading global electronic invoicing and purchase order transactions network.

 

Digital invoicing processes enable large businesses to reduce costs and effectively manage their businesses. They can improve business agility by creating scalable and repeatable growth processes, managing their cash effectively and making better decisions based on a comprehensive analysis of their data.

 

Tungsten Network processes invoices for 74 percent of the FTSE 100 and 71 percent of the Fortune 500. It enables suppliers to submit tax compliant e-invoices in 50 countries, and last year processed transactions worth over £173bn for organisations such as Caesars Entertainment, Computacenter, GlaxoSmithKline, Kraft Foods, Mohawk Industries, Mondelēz International, Procter & Gamble, Shaw Industries, Unilever and the US Federal Government.

 

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

 

 

CEO Business Review

 

The changes to our strategy and operations have started to deliver results, notably in the growth of our adjusted EBITDA excluding TNF from £0.5 million in H1-FY19 to £1.8 million in H1-FY20 and a 7.1% growth in the recurring and repeatable revenues of Tungsten Network.

 

In July 2019, we reconfirmed our three strategic initiatives (see below) aimed at transforming our business model and fortunes. Taken together, these represent a major repositioning of the Group and these effects are anticipated to be felt in H2-FY20 and subsequent years.

 

These initiatives were:

 

1. Driving the network effect: Introducing Total AR.

2. Strategic partnerships with e-procurement providers to provide an additional channel to market.

3. Interconnecting with other platforms to improve sales, automation, customer services and user experience.

 

In addition, Tungsten decided to undertake a comprehensive review of the Tungsten Network Finance business. This has culminated today in the announcement of a new partnership with Orbian, replacing the TNF business and the resultant decision to undertake a managed, orderly wind-down of TNF.

 

We are pleased to report progress in each of these key initiatives:

 

1. Driving the network effect: introducing Total AR

 

Tungsten signed a Total AR (100% supplier's outbound invoices) contract in October 2019 with Elekta, a global leader in Radiotherapy headquartered in Stockholm. This has been followed in November 2019, after the period end, by a further contract with Wolters Kluwer, the leading global provider of professional information, software solutions and services.

 

These new sales will add 300,000 annual invoices to our transaction turnover and we expect this number to grow further as we move closer to our target of 100% AR. As a result of our new ability to rapidly digitise PDFs and emails, we remain on track to meet our goal of 100% AR with these ground-breaking contracts. We are building a strong pipeline of additional opportunities.

 

2. Strategic partnerships with e-procurement providers to provide an additional channel to market

 

Tungsten are targeting signing a major partnership with one of the major P2P providers in the early part of 2020 which would allow Tungsten Network to provide e-invoicing as part of the overall procure-to-pay offer. Tungsten Network will deliver its core expertise of electronic invoicing as part of a wider solution.

 

3. Interconnecting with other platforms to improve sales, automation, customer service and user experience

 

A successful conclusion of the current proof of concept pilot would be expected to result in the announcement of a major new partnership to connect with the platform of the same leading P2P vendor. This would then see a three phase project implemented throughout 2020. Initially, Tungsten's suppliers would be given access to approximately 1,000 new buyers on this new network, with further revenues generated from our new-found ability to digitise invoices for customers who reside on this new network.

 

In addition to the above, we are also talking to a number of other leading vendors to look at how we would achieve similar interconnection to their platforms over the coming 12 months.

 

Trade finance strategy reset

 

We are pleased to announce today that we have entered into a new strategic partnership agreement with Orbian, a market leader in the provision of supply chain finance and innovative trade finance solutions. Orbian has 18 years of experience and has financed $185 billion of receivables.

 

In signing an exclusive five-year revenue-share partnership with Orbian we will be able to offer our buyers and suppliers, simple, effective and low-cost financing products from a market leader. We remain extremely well placed to analyse global commercial flows across our enlarged platform and provide finance accordingly.

 

The partnership with Orbian represents the conclusion of the review of Tungsten's Network Finance business, which the Board believes is the best outcome for Tungsten. As a result of our partnership with Orbian, Tungsten will no longer continue to sell its loss-making Tungsten Early Payment and Receivables Financing products.

 

Customers using these products will be supported through the exit process and the operation will be wound down between now and the end of June 2020. As a result, intangible assets with a book value of £0.6 million related to Tungsten Network Finance have been fully impaired during the period.

 

The Board continues to believe that the combination of electronic invoicing and trade finance represents a compelling proposition with a potential for generating significant profits.

 

Duncan Goldie-Morrison is a founder and shareholder in Orbian. As a result, and in accordance with good corporate governance, he excluded himself from all Board deliberations on the Orbian partnership. The Board and Duncan Goldie-Morrison agreed on signing the Orbian partnership agreement he will step down from the Board by the end of January 2020 to avoid any potential conflict of interest.

 

Sales performance

 

Our approach to sales and the sales operation has been reconfigured from the top down. We appointed a new Chief Revenue Officer, Steve Standring, who has led the transformation of the sales team. We are investing in 11 new heads to give us greater capacity to manage and close opportunities across our Total AR and Total AP platforms. New training has been developed and is being deployed across all of the sales teams to enhance the available skill sets and we are managing out underperformers.

 

The sales pipeline has grown 300% since April 2019, with over 200 opportunities for potential new sales billings. We have focused on simplifying the organisational structure and made a radical assessment of the sales personnel, determining development and capability needs. Teams are now simply aligned by product, driven by a focused commission plan and supported through rigorous account planning and pipeline management discipline. The approach is beginning to show results.

 

This investment is a critical foundation for future success as there are strong signs that our messaging around our new strategies of Total AR and Total AP are resonating strongly with our buyer and supplier communities.

 

 

Over the last 8 months we have seen:

 

·; Launch of Total AR which brings digitisation of all of a supplier's outbound invoices to their buyers.

·; A new focus on Total AP, digitising all of a buyer's inbound invoices from their suppliers.

·; Reinvigoration of current AP customers to embrace and adopt the concept of 100% Total AP.

·; New tactical approach to scaling up existing buyers.

·; Focus on largest 6,000 global enterprises that operate shared service centres through attendance at key trade events and direct marketing (webinars etc).

 

Products and technology

 

As a technology led company, we have invested over £1.3 million in H1-FY20 to enable us to accelerate the delivery of our key platform developments. This includes the three core projects critical to improving the user experience and driving connection growth.

 

Key initiatives delivered in H1-FY20:

·; Customer registration functionality and redesign was delivered as part of our Customer Portal enhancements. This has resulted in a 70% reduction in registration drop-outs.

·; The automated supplier campaign management tool improved the speed at which suppliers can be onboarded and start transacting electronically.

·; Integration of salesforce.com has enabled the real-time data exchange between two of our key platforms and provides the foundation for delivering omni-channel customer support in H2-FY20, which will continue the transformation of our customer support.

 

In H2-FY20 we will continue the pace of change as we deliver on the following key initiatives:

·; Enhanced supplier onboarding will further decrease the time taken for suppliers to begin transacting on the network.

·; Customer portal user experience will be transformed to improve usability with a new look and feel, several "ease of use" enhancements, improved reporting capability and further supplier connection management options.

 

Service delivery

 

A key focus remains the rapid growth of our network, connecting buyers and suppliers in many-to-many relationships. Growth will come by ensuring buyers and suppliers have a fast, simple and effective way to join the network. We have initiated a complete review of our end-to-end processes resulting in a comprehensive plan for transforming the customer experience which will become evident across H2-FY20 as we address key structural inefficiencies and our onboarding speed.

 

We are upgrading and automating many of our customer interactions, through adopting a multi-channel digital approach that will drive improvements in customer satisfaction. In H1-FY20 we integrated salesforce.com and in H2-FY20 will deliver Customer Connect which simplifies the online registration process and allows buyers to directly manage supplier registration requests.

 

Over H2-FY20 we will also roll out Service Cloud, part of salesforce.com, building on the successful integration of our legacy CRM system and Salesforce that was completed in H1-FY20 and which allows us to manage the resolution of customer issues more quickly. This will also enable us to provide important new support channels including live chat and chatbots.

 

 

 

CFO Financial Review

 

Revenue grew 4% in comparison to H1-FY19 (excluding TNF) to £17.9 million, due to new customers and expanded product sales. Adjusted EBITDA, excluding TNF, increased by 289% to £1.8 million from £0.5 million in H1 FY19, reflecting an EBITDA margin of 10% (H1 FY19: 3%).

 

The growth in adjusted EBITDA was as a result of:

·; A 4% growth in sales revenue of £0.7 million.

·; A reduction in cost of sales of £0.6 million.

 

Financial performance

Income statement

£m

Group

Group (excl TNF)(1)

 

H1-FY20

H1-FY19

H1-FY20

H1-FY19

Revenue

18.2

17.6

17.9

17.2

Cost of sales

(0.6)

(1.2)

(0.6)

(1.2)

Gross profit

17.6

16.4

17.3

16.0

Gross margin (2)

97.0%

93.2%

96.9%

93.0%

Adjusted operating expenses(3)

(16.4)

(17.2)

(15.5)

(15.5)

Adjusted EBITDA (4)

1.2

(0.8)

1.8

0.5

Adjusted EBITDA margin (5)

7%

(5%)

10%

3%

Other operating expenses

(3.3)

(0.4)

(2.6)

(0.4)

Operating (loss) / profit

(2.1)

(1.2)

(0.8)

0.1

Net finance (costs) / income

(0.3)

0.2

(0.3)

0.2

(Loss) / Profit before taxation

(2.4)

(1.0)

(1.1)

0.3

Taxation

0.1

1.0

0.1

1.1

(Loss) / Profit / for the period

(2.3)

-

(1.0)

1.4

 

(1) Tungsten is winding down the business and operations of Tungsten Network Finance ("TNF"). Results presented excluding TNF to aid future comparability. Group results including and excluding TNF are presented exclusive of management fees charged by the Group to TNF

(2) Gross margin is calculated as gross profit as a percentage of revenue

(3) Adjusted operating expenses exclude net finance costs, tax, depreciation and amortisation, impairment of intangible assets, foreign exchange gain or loss, share based payment expense and exceptional items, and is adjusted to include cash rental expenses and rental income.

(4) Adjusted EBITDA is calculated as earnings before net finance cost, tax, depreciation and amortisation, impairment of intangible assets, foreign exchange gain or loss, share based payment expense and exceptional items, and is adjusted to include cash rental expenses and rental income.

(5) Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of revenue

 

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.

 

 

Revenue

£m

H1-FY20

H1-FY19

% Movement(1)

Recurring revenue (2)

9.8

9.2

6.3%

Repeatable revenue (3)

7.0

6.5

8.3%

Total recurring and repeatable revenue

16.8

15.7

7.1%

Other revenue (4)

1.1

1.5

(31.3)%

Tungsten Network total revenue

17.9

17.2

3.8%

TNF revenue (5)

0.3

0.4

(18.6)%

Group revenue

18.2

17.6

3.3%

 

 

 

 

Recurring revenue % of total Tungsten Network revenue(6)

55%

53%

 

Total recurring & repeating revenue % of total Tungsten Network revenue(7)

94%

91%

 

        

 

(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 that is being wound down but is not treated as an asset held for disposal

Revenue excluding TNF for the period was £17.9 million (H1-FY19: £17.2 million), representing an increase of 3.8%. The growth in revenue reflected the net benefits of new customer sales, additional product sales to current customers, and existing customer price increases. Revenue including TNF for the period was £18.2 million (H1-FY19: £17.6 million), representing an increase of 3.3%.

Total new sales billings excluding TNF in H1-FY20 were £1.7 million, representing year-one billings for new services sold to current and new customers.

Recurring and repeatable Tungsten Network revenue increased by £1.1 million or 7.1% to £16.8 million (H1-FY19: £15.7 million), while other (one-off) revenues fell by £0.4 million or 31.3% to £1.1 million (H1-FY19: £1.5 million).

This growth in recurring and repeatable revenue primarily reflects:

·; A combination of one new Total AP sale, the upgrade of one current customer to our Total AP services, one new Total AR sale, and a sale of our Tungsten Analytics product, which together contributed £0.3 million in the period.

·; A growth in transactions processed of 7% to 9.6 million (H1-FY20: 9.0 million) which contributed £0.5 million in the period.

·; New Integrated Solution sales to 300 customers which contributed £0.3 million of revenues in the period.

 

The decline in other revenues primarily reflects a reduction of £0.4 million in one-off sales compared to H1-FY19, which included new connections to the Italy Sistema di Interscambio (SdI).

Having started the year with 179 Workflow and e-invoicing buyers, the additions, losses and merging of four customer contracts resulted in 174 buyers at the period end.

TNF generated fees of £0.3 million in H1-FY20 (H1-FY19: £0.4 million).

Revenue by type of customer

Buyer revenue represented 43% of total Tungsten Network revenue in H1-FY20 (H1-FY19: 42%). Total Buyer revenue grew 6.2% to £7.7 million (H1-FY19: £7.2 million). This reflected a growth in recurring and discretionary revenue of 11.8% (£0.7 million) and a fall in one-off revenue of 22.2% (£0.3 million).

Supplier revenue represented 57% of total Tungsten Network revenue in H1-FY20 (H1-FY19: 58%). Total supplier revenue grew 2.8% to £10.2 million (H1-FY19: £9.9 million). This reflected a growth in recurring and discretionary revenue of 4.2% (£0.4million) and a fall in one-off revenue of 56.7% (£0.1 million).

 

Expenses

£m

H1-FY20

H1-FY19

Difference

Sales & marketing

(2.8)

(2.9)

0.1

Service delivery

(3.8)

(3.8)

-

Technology & product

(5.2)

(5.2)

-

Finance, administration, Board & central overheads

(3.7)

(3.6)

(0.1)

Adjusted operating expenses excluding TNF(1)

(15.5)

(15.5)

-

Cost of sales

(0.6)

(1.2)

0.6

TNF excluding impairment of intangible assets

(0.8)

(1.6)

0.8

Impairment of intangible assets of TNF

(0.6)

-

(0.6)

Rent adjustment (2)

0.5

-

0.5

Depreciation and amortisation (2)

(2.3)

(2.0)

(0.3)

Foreign exchange gains

0.2

2.2

(2.0)

Share based payment expense

(0.4)

(0.2)

(0.2)

Exceptional items

(0.7)

(0.5)

(0.2)

Statutory operating expenses

(20.2) 

(18.8)

(1.4)

 

(1) Adjusted operating expenses excluding net finance cost, tax, depreciation and amortisation, impairment of intangible assets, foreign exchange gain or loss, share based payment expense and exceptional items, and is adjusted to include cash rental expenses and rental income.

(2) Cash rent paid and rental income is included in Adjusted operating expenses to aid comparability to prior periods. For statutory presentation pursuant to IFRS 16 it is included in depreciation and amortisation and finance charges, so added back in this analysis

 

The Group's statutory expenses grew by £1.4 million to £20.2 million (H1-FY19: £18.8 million).

Excluding foreign exchange gains, which represent the revaluation at period-end of monetary assets and liabilities denominated in foreign currencies (primarily intercompany balances), statutory operating expenses decreased by £0.6 million.

Operating expenses

The Group's adjusted operating expenses were flat compared to H1-FY19.

Other movements in expenses were:

Cost of sales: £0.6 million reduction primarily from a one-off decrease in our loss provision of £0.5 million following the collection of previously provided trade receivable balances.

Tungsten Network Finance expenses: £0.8 million decrease in staff and related costs.

Rent: £0.5 million of cash rent included in adjusted operating expenses in H1-FY20 (H1-FY19: nil). Pursuant to IFRS 16, £0.4 million included in depreciation and amortisation in H1-FY20 (H1-FY19: nil) and £0.2 million included in finance costs (not part of operating expenses) in H1-FY20 (H1-FY19: nil).

Depreciation and amortisation: £0.3 million increase in depreciation as a result of the adoption of IFRS 16 (£0.5 million) offset by a decrease in software amortisation (£0.2 million).

Impairment of internally generated capitalised development: £0.6 million non-cash expense as a result of the decision to write-off the development work in relation to Tungsten Network Finance following the decision to wind the business down.

Foreign exchange gains: decrease of £2.0 million to £0.2 million (H1-FY19: £2.2 million), reflecting the fluctuation of exchange rates between GBP and USD on intercompany balances.

Share based payment expense: £0.4 million (H1-FY19: £0.2 million) reflecting new share options granted during the period.

Exceptional items: increased £0.2 million to £0.7 million (H1-FY19: £0.5 million). These include:

·; £0.2 million of redundancy and restructuring costs

·; £0.1 million recruitment of a new Chief Executive Officer

·; £0.4 million professional fees in respect of the Board's operating review

 

Loss before tax

The Group generated a loss before tax excluding TNF of £1.1 million in the period (H1-FY19: profit of £0.3 million). The decrease of £1.4 million reflects a reduction in foreign exchange gains of £2.0 million, offset by £0.6 million expense reductions. Including TNF, the Group generated a loss before tax of £2.4 million (H1-FY19: £1.0 million), the key component of the increase being the reduction in foreign exchange gains.

Taxation

A tax credit of £0.1 million (H1-FY19: £1.0 million credit) includes a £0.1 million income tax expense and a reduction of £0.2 million in the deferred tax liability relating to the legacy acquisition of Tungsten Network. The prior period credit includes the Group's research and development tax credit relating to FY17 and FY18 expenditure. The research and development tax credit relating to FY19 expenditure is expected to be recognised in H2-FY20.

The Group has an unrecognised deferred tax asset of approximately £13.2 million that is available for offset against future tax expenses in the companies in which losses arise.

 

Funding and liquidity

Cash and cash equivalents at the end of H1-FY20 were £2.0 million (H1-FY19: £2.0 million; H2-FY19: £3.8 million). Net cash (including borrowings under the revolving credit facility) at the end of H1-FY20 was £1.0 million (H1-FY19: £2.0 million; H2-FY19: £2.8 million).

Cash Flow

H1-FY20

H2-FY19

H1-FY19

Net cash flow from operating activities

£(0.1)m

£2.2m

£(2.5)m

Net cash flow from investing activities

£(1.3)m

(£1.3m)

£(2.0)m

Net cash flow from financing activities

£(0.4)m

£1.0m

-

Net movement in cash & cash equivalents

(£1.8)m

£1.9m

£(4.5)m

Exchange adjustments

-

(£0.1)m

£0.1m

Cash and cash equivalents at the start of the period

£3.8m

£2.0m

£6.4m

Cash and cash equivalents at the end of the period

£2.0m

£3.8m

£2.0m

 

The H1-FY20 movement in the Group's cash net of drawings was a £1.8 million outflow. This follows a £4.5 million outflow in H1-FY19 and £0.9 million inflow (excluding £1.0 million drawings on the RCF) in H2-FY19.

The cash outflow in H1-FY20 reflects the normal seasonality of cash the first half of each financial year. Tungsten experiences the impact of two seasonal factors that result in negative working capital:

·; The settlement of Tungsten Network cash bonuses and other year-end liabilities, which were paid in H1-FY20 and resulted in a working capital outflow from trade and other payables of £1.3 million; and

·; The renewal of Tungsten Network's Workflow annual maintenance contracts, which total approximately £2 million and which occur in December of each year. 

 

Excluding cash flows relating to the operations and divestment of Tungsten Network Finance, the Group had a cash outflow in H1-FY20 of £0.9 million.

Liquidity, including £3 million of undrawn revolving credit facility with a maturity date of July 2021, was £5.0 million at the end of the period (H1-FY19: £6.0 million; H2-FY19: £6.8 million)

Cash flows from operating activities

Cash used in operating activities was £0.1 million, an improvement of £2.4 million (H1-FY19: £2.5 million used in operations ), due primarily to the improvement in adjusted EBITDA and changes in working capital between the periods.

Cash flows from operating activities

H1-FY20

H1-FY19

Adjusted EBITDA

£1.2m

£(0.8)m

Exceptional items: cash element

£(0.7)m

£(0.5)m

Decrease in trade and other receivables

£1.0m

£0.7m

Decrease in trade and other payables

£(1.3)m

£(2.1)m

Other operating cash movements

£(0.1)m

£0.2m

Net cash outflows from operating activities

£(0.1)m

£(2.5)m

 

·; A decrease in trade and other receivables of £1.0 million (H1-FY19: £0.7 million) reflects continued improvements in cash collections from customers.

·; A decrease in trade and other payables of £1.3 million (H1-FY19: £2.1 million) primarily due to the settlement of cash bonuses and Tungsten Network Finance related costs.

 

Cash flows from investing activities

Cash spent on investing activities decreased by £0.7 million to £1.3 million (H1-FY19: £2.0 million), reflecting the lower run rate of internally generated software development projects. This splits £0.1 million in relation to property plant and equipment, and £1.2 million in relation to internally capitalised software development.

Cash flows from financing activities

Cash flow from financing activities of £0.4 million in H1-FY20 (H1-FY19: nil) relate to part of the rental payments, pursuant to IFRS 16.

Loss per share

The basic and diluted loss per share was 1.81p (H1-FY19: 0.02p).

 

 

Consolidated income statement for theSix Months Ended 31 October 2019

 

 

 

 

 

 Six months

ended

 Six months

ended

 

 

 

Note(s)

 31 October 2019

(unaudited)

 31 October 2018

(unaudited)

 

 

 

 

 £'000

 £'000

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

18,161

17,575

Operating expenses

 

 

 

(20,243)

(18,813)

Operating loss

 

 

 

(2,082)

(1,238)

 

 

 

 

 

 

Adjusted EBITDA

 

 

 

1,247

(752)

IFRS 16 rent adjustment

 

 

 

538

-

Depreciation and amortisation

 

 

7,8 

(2,338)

(1,981)

Impairment of intangible assets

 

 

7

(609)

-

Foreign exchange gain

 

 

 

230

2,151

Share based payment expense

 

 

12 

(421)

(188)

Exceptional items

 

 

(729)

(468)

Operating loss

 

 

 

(2,082)

(1,238)

 

 

 

 

 

 

Finance income

 

 

 13

1,160

866

Finance costs

 

 

 13

(1,462)

(704)

Net finance (costs) / income

 

 

 

(302)

162

 

 

 

 

 

 

Loss before taxation

 

 

 

(2,384)

(1,076)

Taxation

 

 

 15

97

1,052

Loss for the period

 

 

 

(2,287)

(24)

 

 

 

 

 

 

Loss per share attributable to the equity holders of the parent during the period (expressed in pence per share):

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

 

14

(1.81)

(0.02)

 

 

 

 

 

 

 

 

 

Consolidated Statement of Comprehensive Income for theSix Months Ended 31 October 2019

 

 

 

 

 

 

 Six months ended

 Six months ended

 

 

 

 

 31 October 2019

 31 October 2018

 

 

 

 

(unaudited)

 (unaudited)

 

 

 

 

 £'000

 £'000

Loss for the period

 

 

 

(2,287)

(24)

Other comprehensive (loss)/income:

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

 

 

Currency translation differences

 

 

 

(236)

(2,180)

Total comprehensive loss for the period

 

 

 

(2,523)

(2,204)

 

 

 

 

 

Consolidated Statement of Financial PositionAt 31 October 2019

 

 

Note

 

As at

31 October 2019

(Unaudited)

As at

30 April

2019

(Audited)

 

 

 

 

£'000

£'000

Assets

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

Goodwill

 

7

 

102,071

102,057

Intangible assets

 

7

 

17,606

18,733

Property, plant and equipment

 

8

 

1,682

2,506

Right of use asset

 

8

 

6,202

-

Trade and other receivables

 

 

-

187

Total non-current assets

 

 

 

127,561

123,483

 

Current assets

 

 

 

 

 

Trade and other receivables

 

 9

 

7,136

7,464

Cash and cash equivalents

 

 

 

2,020

3,810

Total current assets

 

 

 

9,156

11,274

Total assets

 

 

 

136,717

134,757

 

 

Non-current liabilities

 

 

 

 

 

Deferred taxation

 

 

 

1,389

1,533

Provisions

 

11

 

1,205

1,568

Lease liabilities

 

 

 

5,576

-

Other payables

 

 

 

250

250

Total non-current liabilities

 

 

 

8,420

3,351

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

 

6,391

7,089

Provisions

 

11

 

128

158

Lease liabilities

 

 

 

759

-

Borrowings

 

 

 

1,024

1,000

Contract liabilities

 

10

 

6,493

6,816

Total current liabilities

 

 

 

14,795

15,063

Total liabilities

 

 

 

23,215

18,414

 

 

 

 

 

 

Capital and reserves attributable to the equity shareholders of the parent

 

 

 

Share capital

 

 

 

553

553

Share premium

 

 

 

188,802

188,802

Merger reserve

 

 

 

28,035

28,035

Shares to be issued

 

 

 

3,760

3,760

Share-based payment reserve

 

 

 

6,687

6,538

Other reserve

 

 

 

(9,649)

(9,413)

Accumulated losses

 

 

 

(104,686)

(101,932)

Total equity

 

 

 

113,502

116,343

Total equity and liabilities

 

 

 

136,717

134,757

 

 

 

 

 

 

Consolidated statement of changes in equity for the six months ended 31 October 2019

 

 

(Unaudited)

Share capital

Share premium

Merger reserve

Shares to be issued

Share based payment reserve

Other reserve

Accumulated losses

Total equity

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 30 April 2019 as previously stated

553

188,802

28,035

3,760

6,538

(9,413)

(101,932)

116,343

Adoption of IFRS 16 (see Note 2)

-

-

-

-

-

-

(467)

(467)

Balance as at 1 May 2019 as restated

553

188,802

28,035

3,760

6,538

(9,413)

(102,399)

115,876

 

 

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

-

-

(2,287)

(2,287)

Other comprehensive expense

-

-

-

-

-

(236)

-

(236)

Total comprehensive expense for the period

-

-

-

-

-

(236)

(2,287)

(2,523)

 

 

 

 

 

 

 

 

 

Transaction with owners

 

 

 

 

 

 

 

 

Share based payment expense

-

-

-

-

149

-

-

149

Transactions with owners

-

-

-

-

149

-

-

149

 

 

 

 

 

 

 

 

 

Balance as at 31 October 2019

553

188,802

28,035

 3,760

6,687

(9,649)

(104,686)

113,502

 

 

 

 

 

 

 

 

 

 

(Unaudited)

Share capital

Share premium

Merger reserve

Shares to be issued

Share based payment reserve

Other reserve

Accumulated losses

Total equity

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

Balance as at 1 May 2018

553

188,794

28,035

3,760

6,442

(7,541)

(98,582)

121,461

 

 

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

-

-

(24)

(24)

Other comprehensive expense

-

-

-

-

-

(2,180)

-

(2,180)

Total comprehensive expense for the period

-

-

-

-

-

(2,180)

(24)

(2,204)

 

 

 

 

 

 

 

 

 

Transaction with owners

 

 

 

 

 

 

 

 

Share issued during the year

-

8

-

-

-

-

-

8

Share based payment expense

-

-

-

-

146

-

-

146

Transactions with owners

-

8

-

-

146

-

-

154

 

 

 

 

 

 

 

 

 

Balance as at 31 October 2018

553

188,802

28,035

 3,760

6,588

(9,721)

(98,606)

119,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Cash Flow Statement for theSix Months Ended 31 October 2019

 

 

Note(s) 

Six months ended31 October 2019

(unaudited)

Six months ended31 October

2018

(unaudited)

 

 

£'000

 £'000

Cash flows from operating activities

 

 

 

Loss before taxation

 

(2,384)

(1,076)

Adjustments for:

 

 

 

Depreciation and amortisation

 7,8

2,338

1,981

Impairment of intangible assets

 

609

-

Decrease in provision for trade receivables

 

(451)

(272)

Finance costs

 13

1,462

704

Finance income

 13

(1,160)

(866)

Foreign exchange gain

 

(230)

(2,151)

Share based payment expense

 12

421

188

Changes in working capital:

 

 

 

Decrease in trade and other receivables

 

978

714

Decrease in trade and other payables

 

(1,326)

(2,080)

Net interest paid

 

(324)

(247)

Net tax (paid)/refund

15

(49)

621

Net cash outflows from operating activities

 

(116)

(2,484)

 

 

 

 

Cash flows from investing activities

 

 

 

Software development costs

 7

(1,178)

(1,699)

Purchases of other intangibles

 7

-

(9)

Purchases of property, plant and equipment

 8

(145)

(295)

Net cash outflows from investing activities

 

(1,323)

(2,003)

 

 

 

 

Cash flows from financing activities

 

 

 

Lease payments

 

(363)

-

Increase in borrowings

 

24

-

Decrease in invoice receivables

 

-

2

Proceeds from issues of shares

 

-

8

Net cash (outflow) / inflow from financing activities

 

(339)

10

 

 

 

 

Net decrease in cash and cash equivalents

 

(1,778)

(4,477)

Cash and cash equivalents at start of the period

 

3,810

6,418

Exchange adjustments

 

(12)

88

Cash and cash equivalents at the end of the period

 

2,020

2,029

 

 

 

Notes to the interim consolidated 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 11 December 2019.

 

2. Basis of preparation and accounting policies

These interim consolidated financial statements have been prepared using accounting policies based on International Financial Reporting Standards (IFRS and IFRIC Interpretations) 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 2019 ('2019') Annual Report. The financial information for the half years ended 31 October 2019 and 31 October 2018 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 comparative financial information for the year ended 30 April 2019 included within this report does not constitute the full statutory Annual Report for that period. The statutory Annual Report and Financial Statements for 2019 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 2019 was unqualified, did not draw attention to a matter 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 2019 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 2019 and will be adopted in the 2020 financial statements. New standards impacting the Group that will be adopted in the annual financial statements for the year ended 30 April 2020, and which have given rise to changes in the Group's accounting policies are:

 

IFRS 16 leases

 

The group adopted IFRS 16 from 1 May 2019, replacing the existing guidance in IAS 17 - "Leases" (hereafter - "IAS 17"). IFRS 16 changes the existing guidance in IAS 17 and requires lessees to recognise a lease liability that reflects future lease payments and a "right-of-use asset" in all lease contracts within scope, with no distinction between financing and capital leases. IFRS 16 exempts lessees in short-term leases or the when underlying asset has a low value. The Group has elected to apply the practical expedients permitted by the standard as follows:

·; Not to recognise right-of-use assets and lease liabilities for leases of low-value assets and operating leases with a remaining lease term of less than 12 months.

·; Use of a single discount rate to all leases with reasonably similar characteristics.

·; Exclusion of initial direct costs for the measurement of right-of-use asset.

·; The use of hindsight in determining the lease term where the contract contains option to extend or terminate the lease.

 

The adoption of IFRS 16 has resulted in the Group recognising right of use assets and lease liabilities for all contracts of £6.6 million and £6.7 million respectively that are, or contain, a lease. The difference between the right of use assets and lease liabilities has been recognised as an adjustment to retained earnings on 1 May, 2019. For leases historically classified as operating leases, under legacy accounting requirements the group does not recognise related assets or liabilities, disclosing instead the total commitment in its annual financial statements. The Group has elected to apply the modified retrospective method. Therefore, there will be no impact on any comparative accounting period (interim or annual), with any leases recognised on the statement of financial position on the date of initial application of IFRS 16, being 1 May 2019, as well as any adjustment to the previously stated equity as a result of any difference between the right of use assets and related liabilities recorded. Specifically, lease liabilities have been measured equal to remaining lease payments discounted using the incremental borrowing rate at the date of initial adoption. Right of use assets have been measured as if IFRS 16 had always been applied but using the incremental borrowing rate at the date of initial application. The difference between the right of use assets and lease liabilities recognised upon adoption has been recognised as an adjustment to retained earnings on 1 May 2019.

 

Finally, instead of recognising an operating expense for its operating lease payments, the group now recognises interest on its lease liabilities and depreciation on its right of use assets. This has increased the reported Adjusted EBITDA by the amount of its current operating lease cost, which for 6 months ended 31 October 2019 was approximately £0.5 million.

 

Adjusted Measure of Performance

The Group considers Adjusted EBITDA, which is defined as operating profit or loss before interest, tax, depreciation and amortisation, impairment of assets, foreign exchange gain or loss from operations, share based payment expense and exceptional items as the most appropriate measure of the Group's underlying performance. For comparability, Adjusted EBITDA for the current period also includes an adjustment for the impact of IFRS 16 of approximately £0.5 million.

 

Exceptional items

Items which are both material and considered by the Directors to be unusual in nature and size are separately disclosed on the face of the consolidated income statement.

 

Going Concern

The consolidated financial statements have been prepared on a going concern basis. In reaching their assessment, the directors have considered a period extending at least 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 for the foreseeable future, the cash and financing facilities available to the Group, and the repayment terms in respect of the Group's borrowings.

 

Principal Risks and Uncertainties

 

The Group's principal risks and uncertainties remain the same as those set out in the Tungsten Corporation plc Annual Report and Accounts for the year ended 30 April 2019.

 

In summary, the Group is subject to the same general risks as many other businesses; for example, changes in general economic conditions, currency and interest rate fluctuations, changes in taxation legislation, cyber-security breaches, failure of our IT infrastructure, the impact of competition, political instability and the impact of natural disasters.

 

The Board has identified risks in relation to the United Kingdom's exit from the European Union. Given the range of possible scenarios it is impossible for us to be specific, however the risk surrounding foreign exchange rate volatility is considered to be the most significant. We will continue with our regular risk mitigation process and will prepare for all likely scenarios until the outcome becomes clear.

3. Critical accounting estimates and judgements

The preparation of interim financial statements requires management to make judgements, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 April 2019 except where the implementation of IFRS 16 requires a different approach to the accounting previously applied. Significant estimates and judgements that have been required for the implementation of IFRS 16 are:

 

·; The determination of whether an arrangement contains a lease.

·; The determination of the incremental borrowing rate used to measure lease liabilities.

 

 

4. Financial Risk Management

The Group's activities expose it to a variety of financial risks, predominantly credit, liquidity and foreign currency risk.

 

Risk management is carried out by the Board of Directors. The interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the group's annual financial statements as at the year ended 30 April 2019. There have been no changes in the risk management department or in any risk management policies since the year end.

 

5. Segment information

Management has determined the operating segments based on the operating reports reviewed by the Board of Directors that are used to assess both performance and strategic decisions. Management has identified that the Board of Directors are the Chief Operating Decision Maker (CODM).

 

The Board of Directors review the 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 overheads and general corporate costs). Intersegment revenue from management fees and other intersegment charges are eliminated.

 

Six months ended 31 October 2019

 

 

Tungsten

Network

Tungsten NetworkFinance

Corporate

Total

 

 

£'000

£'000

£'000

£'000

Revenue

 

17,864

297

-

18,161

Segment revenue

 

17,864

297

-

18,161

 

 

 

 

 

 

Adjusted EBITDA - excluding share-based payment expense/(income)

 

3,953

(600)

(2,106)

1,247

Adjusted EBITDA - including share-based payment expense/(income)

 

3,874

(647)

(2,401)

826

 

 

 

 

 

 

Depreciation and amortisation

 

(1,844)

(87)

(407)

(2,338)

Impairment of intangible assets

 

-

(609)

-

(609)

Foreign exchange gain

 

215

15

-

230

Rent adjustment

 

167

-

371

538

Share based payment income/(expense)

 

(79)

(47)

(295)

(421)

Exceptional items

 

(221)

-

(508)

(729)

Finance income

 

767

-

393

1,160

Finance costs

 

(942)

-

(520)

(1,462)

Loss before taxation

 

2,016

(1,328)

(3,072)

(2,384)

Income tax credit

 

 

 

 

97

Loss for the period

 

 

 

 

(2,287)

 

 

 

 

 

 

Capital expenditure

 

1,200

-

123

1,323

Total assets

 

128,267

203

8,247

136,717

Tol liabilities

 

11,905

669

10,641

23,215

 

Six months ended 31 October 2018

 

 

Tungsten

Network

Tungsten NetworkFinance

Corporate

Total

 

 

£'000

£'000

£'000

£'000

Revenue

 

17,210

365

-

17,575

Segment revenue

 

17,210

365

-

17,575

 

 

 

 

 

 

Adjusted EBITDA - excluding share-based payment expense/(income)

 

3,599

(1,203)

(3,148)

(752)

Adjusted EBITDA - including share-based payment expense/(income)

 

2,878

(1,221)

(2,597)

(940)

 

 

 

 

 

 

Depreciation and amortisation

 

(1,851)

(5)

(125)

(1,981)

Foreign exchange gain/(loss)

 

2,219

(66)

(2)

2,151

Share based payment income/(expense)

 

(721)

(18)

551

(188)

Exceptional items

 

(83)

-

(385)

(468)

Finance income

 

441

-

425

866

Finance costs

 

(565)

(123)

(16)

(704)

Loss before taxation

 

3,039

(1,415)

(2,700)

(1,076)

Income tax credit

 

 

 

 

1,052

Loss for the period

 

 

 

 

(24)

 

 

 

 

 

 

Capital expenditure

 

2,004

-

-

2,004

Total assets

 

132,834

257

3,705

136,796

Total liabilities

 

11,051

572

5,762

17,385

 

6. Exceptional items

 

 

Six months ended31 October 2019

(unaudited)

Six months ended31 October 2018

(unaudited)

 

 

£'000

 £'000

 

 

 

 

Restructuring costs 1

 

296

-

Board operating review 2

 

375

-

Professional advice 3

 

58

-

Provision for onerous contracts

 

-

162

Shareholder action costs

 

-

306

Total exceptional items

 

729

468

 

 

 

 

1. Restructuring costs includes the redundancy payments of £0.3 million.

2. An operating review committee was initiated by the Board in the autumn of 2018. This covers a comprehensive review of Tungsten's market, products, operation and cost base. This committee has appointed consultants to perform parts of the review and the total cost incurred in the period was £0.4million. This committee is expected to wind down by end of 2019 calendar year.

3. Professional advice of £0.1million was received in respect of the divestment of TNF.

 

7. Intangible assets

 

 

 

Goodwill

Customerrelationships

IT platform

Software

Softwaredevelopment under construction

Total

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

 

 

 

Balance at 1 May 2019

 

 

102,057

11,116

7,194

8,202

3,624

132,193

Additions

 

 

-

-

-

-

1,178

1,178

Reclassification

 

 

-

-

-

1,154

(1,154)

-

Exchange differences

 

 

14

1

10

-

-

25

Balance at 31 October 2019

 

 

102,071

11,117

7,204

9.356

3,648

133,396

 

 

 

 

 

 

 

 

 

Accumulated amortization and impairment

 

 

 

 

 

 

 

 

Balance at 1 May 2019

 

 

-

3,153

6,084

2,166

-

11,403

Charge for the period

 

 

-

286

528

889

-

1,703

Impairment

 

 

-

-

-

609

-

609

Exchange differences

 

 

-

-

4

-

-

4

Balance at 31 October 2019

 

 

-

3,439

6,616

3,664

-

13,719

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

At 31 October 2019

 

 

102,071

7,678

588

5,692

3,648

119,677

At 30 April 2019

 

 

102,057

7,963

1,110

6,036

3,624

120,790

 

Pursuant to IAS 36, management is required to perform an annual impairment review of the goodwill held in the Group. An impairment assessment was performed as at 30 April 2019 and management is not required to perform another impairment at the half year unless there is considered to be a trigger event. Management has considered whether any impairment indicators exist to trigger a review in relation to the goodwill of the Tungsten Network cash generating unit (CGU) and has concluded that there are no such triggers except for an element of software development, as noted below.

 

The Board has agreed a partnership arrangement for the future provision of financing related services to customers of Tungsten Network. Accordingly, the operations of Tungsten Network Finance ("TNF"), will be wound down. As a result of this, the net book value of the intangible assets of TNF, all relating to software, has been fully written off and a charge of £0.6m recognised in the income statement.

 

8. Property, plant and equipment

 

 

 

 

 

Right-of-use assets

Leasehold improvements

Fixturesand fittings

Computerequipment

Total

 

 

 

 

 

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

 

 

 

 

Balance at 1 May 2019

 

 

 

 

-

3,409

278

750

4,437

Impact of IFRS 16

 

 

 

 

10,091

(1,206)

-

-

8,885

Additions

 

 

 

 

-

123

16

6

145

Exchange differences

 

 

 

 

2

(1)

(1)

-

-

Balance at 31 October 2019

 

 

 

 

10,093

2,325

293

756

13,467

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

Balance at 1 May 2019

 

 

 

 

-

1,199

183

549

1,931

Impact of IFRS 16

 

 

 

 

3,459

(435)

-

-

3,024

Charge for the period

 

 

 

 

435

118

29

53

635

Exchange differences

 

 

 

 

(3)

(2)

(2)

-

(7)

Balance at 31 October 2019

 

 

 

 

3,891

880

210

602

5,583

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

At 31 October 2019

 

 

 

 

6,202

1,445

83

154

7,884

At 30 April 2019

 

 

 

 

-

2,210

95

201

2,506

 

9. Trade and other receivables

 

 

 

As at 31 October 2019

(unaudited)

As at 30 April 2019

(Audited)

 

 

£'000

 £'000

Non-current assets

 

 

 

Loans to employees under EMSS scheme

 

-

187

 

 

 

 

Current assets

 

 

 

Trade receivables

 

6,836

7,352

Less: IFRS 15 gross down (see note 10)

 

(2,457)

(2,783)

Less: loss allowance

 

(490)

(941)

 

 

3,889

3,628

Prepayments

 

1,455

1,619

Contract assets

 

699

361

VAT receivables

 

29

123

Corporate tax receivables

 

52

904

Other receivables

 

1,012

829

Trade and other receivables

 

7,136

7,464

10. Contract liabilities

 

 

 

 

As at 31 October 2019 (Unaudited)

£'000

As at 1 May

 

 

 

6,816

Invoiced during the period

 

 

 

20,365

Released to revenue

 

 

 

(17,901)

IFRS 15 gross down (see note 9)

 

 

 

(2,457)

Loss allowance

 

 

 

(365)

Exchange differences

 

 

 

35

Balance

 

 

 

6,493

 

11. Provisions

 

 

 

Leasehold property dilapidations

£'000

Onerous contracts

£'000

Total

£'000

As at 1 May 2019

 

 

1,237

489

1,726

Utilised during the year

 

 

-

(392)

(392)

Exchange differences

 

 

(1)

-

(1)

As at 31 October 2019

 

 

1,236

97

1,333

 

 

 

 

 

As at

31 October 2019

£'000

As at

30 April 2019

£'000

Analysis of total provisions:

 

 

 

 

 

Non-current

 

 

 

1,205

1,568

Current

 

 

 

128

158

Total

 

 

 

1,333

1,726

 

12. Share based payments

 

Share based payments expenses of £114,000 have been recognised in the consolidated income statement for the six months ended 31 October 2019 (31 October 2018: £188,000). The table below sets out the movement in shares granted under the Company share schemes:

 

Number

Founder

Securities

Employee

Matched

Shares

UK

Scheme

US

Plan

 

SARs

DBSP

LTIP

 

Total

 

 

 

 

 

 

 

 

 

 

As at 1 May 2019

3,760,000

146,055

3,222,650*

3,012,917*

266,248*

-

-

10,407,870

Granted during the period

-

-

-

-

-

594,819

1,875,901

2,470,720

Lapsed during the period

-

(146,055)

(138,668)

(20,625)

(42,595)

(17,185)

-

(365,128)

As at 31 October 2019

3,760,000

-

3,083,982

2,992,292

223,653

577,634

1,875,901

12,513,462

 

* Restated due to correction of options granted to employees

During the period, and pursuant to the Group's new remuneration plan, the Company granted options under two new schemes; the DBSP and LTIP. With the introduction of the DSBP and the LTIP, the existing UK Share Option Scheme and US Stock Option Plan are intended to be retired.

 

Deferred Bonus Share Plan ('DBSP')

The Company has moved from the payment of annual performance bonuses 100% in cash to a mix of cash and deferred bonus shares under the DBSP. Bonuses for Executive Directors and Exco members for FY19 performance were awarded on the basis of 50% cash and 50% DBSP. 344,819 of the DBSP grants in the period were awarded based on an assessment against performance criteria for FY19 and will vest after 12 months.

 

250,000 of the DBSPs grants in the period were to the new Chief Executive Officer of Tungsten and will vest over a two year period (50% vesting on the first anniversary of the grant date and the remaining 50% will vest on the second anniversary of the grant date).

 

Grants under the DBSP are structured as options with a nominal exercise price and vesting is subject to the grantee's continued service with the Tungsten group.

 

Long Term Incentive Plan ('LTIP')

The Group has introduced a new LTIP for Executive Directors and senior management. The LTIP grants in the period vest after three years based on clearly defined performance criteria providing for stretch targets and including revenue growth, EBITDA growth and increase in share price.

 

Grants under the LTIP are structured as options with a nominal exercise price and vesting is subject to the grantee's continued service with the Tungsten group.

 

13. Finance Income and Costs

 

 

 

Six months ended

31 October 2019

(unaudited)

Six months ended31 October 2018

(unaudited)

 

 

£'000

 £'000

Finance income

 

 

 

Interest income on short-term deposits

 

-

-

Foreign exchange gains on financing activities

 

1,160

866

Total finance income

 

1,160

866

 

 

 

 

Finance costs

 

 

 

Interest expense and bank charges

 

(157)

(247)

Finance lease costs

 

(169)

-

Foreign exchange losses on financing activities

 

(1,136)

(457)

Total finance costs

 

(1,462)

(704)

Net finance loss / income

 

(302)

162

 

 

14. Loss per share

 

Basic 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:

 

 

Six months ended31 October 2019

Six months ended31 October 2018

 

Loss

Shares

EPS

Loss

Shares

EPS

 

£'000

'000

P

£'000

'000

P

 

 

 

 

 

 

 

Basic and diluted loss per share

 (2,287)

126,088

(1.81)

 (24)

126,088

(0.02)

 

Equity instruments including the Group's various share based payment plans which could potentially dilute basic earnings per share in the future have been considered but not included in the calculation of diluted earnings per share because they are anti-dilutive for the periods presented. This is due to the Group incurring a loss on operations for the period (FY19: was also a loss on operations).

 

15. Taxation

 

During the period ended 31 October 2019, a tax credit of £0.1 million (31 October 2018: £1.1 million) includes a £0.1 corporate tax expense and a reduction of £0.2 million in the deferred tax liability relating to the acquisition of Tungsten Network.

 

16. Related-party transactions

Related party transaction for the period ended 31 October 2019 are £nil (31 October 2018: £14,000).

 

Transactions between Group entities principally relate to intercompany financing arrangements, which are eliminated on consolidation.

 

 

17. Post balance sheet events

A new strategic partnership with Orbian, a global leader in Supply Chain Finance was signed in December 2019. The partnership with Orbian will offer our buyers, and their supply chains, a simple, effective and low-cost financing product from a market leader.

 

As a result of our partnership with Orbian, Tungsten will no longer continue its loss making Tungsten Early Payment and Receivables Financing products. Suppliers on Tungsten Network using these products will be supported through the exit process and the 15 strong staff of Tungsten Network Finance ("TNF") will be wound-down to nil.

 

18. 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 2019 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 condensed set of financial statements.

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.

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 2019 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

Use of our report

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.

 

BDO LLP

Chartered Accountants & Registered Auditors, London, United Kingdom

 

11 December 2019

 

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

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
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