TIDMECK
RNS Number : 8288H
Eckoh PLC
20 November 2018
20 November 2018
Eckoh plc
Unaudited interim results for the six months ended 30 September
2018
In line results; strong growth in UK and US new business
Eckoh plc (AIM: ECK), the global provider of secure payment
products and customer contact solutions, is pleased to announce its
unaudited results for the six months to 30 September 2018.
GBPm unless otherwise stated H1 FY19 H1 FY18 Change
Restated(1)
--------------------------------
New business contracted (5) 14.2 8.7 63%
-------- ------------- ---------
Total business contracted 16.8 12.2 38%
-------- ------------- ---------
Revenue 13.1 13.4 (2%)
-------- ------------- ---------
Recurring Revenue % (2) 87% 86% +100 bps
-------- ------------- ---------
Gross profit 11.0 11.4 (4%)
-------- ------------- ---------
Adjusted EBITDA (3) 1.6 1.9 (15%)
-------- ------------- ---------
(Loss)/ profit before taxation (0.2) 0.8
-------- ------------- ---------
Diluted Earnings per share (0.07p) 0.31p
-------- ------------- ---------
Net Cash 3.4 1.7
-------- ------------- ---------
Strategic highlights:
-- Results in line with Board expectations
-- Strong momentum in the UK and US underpinned by record new
business contracted and order book
-- New business contracted in half year exceeds entire prior
year in the UK and US Secure Payments
-- Significant progress in US Secure Payments: revenues up 67%,
record new business contracted in the half year, including our
largest ever contract valued at $7.4m
-- Return to growth in UK: improved sales channel, delivered new
contracts through BT and Capita
Financial Highlights:
-- Recurring revenue up to 87% (H1 FY 18(1) : 86%)
-- Significant increase in deferred revenue to GBP12.7m (H1
FY18(1) : GBP8.6m), reflecting business wins and impact of IFRS
15
-- US Secure Payments order book grew 78% to $21.7m (H1 FY18(1) : $12.2m)
-- Revenues down 2%, or 1.4% at constant currency (4)
o UK up 5% driven by successful restructuring of sales
function
o US down 14%: growth in Secure Payments offset by short-term
decline in Support and Coral
-- Balance sheet strengthened with net cash of GBP3.4m (H1 FY18: GBP1.7m)
Current Trading:
-- Year to date new contracted business now exceeds FY18 total of GBP15.3m
-- Strong and growing pipeline in US Secure Payments, further contracts won since period end
-- Largest contract renewal secured with Vue Cinemas worth GBP2m over 3 years
-- Record visibility for second half
1. See note 6 for details regarding the restatement as a result
of adoption of IFRS15 - Revenue from Contracts and Customers
2. Recurring revenue is defined as on-going revenue on a
transactional basis, rather than revenue derived from the set-up
and delivery of a new service or hardware.
3. Adjusted earnings before interest, tax, depreciation and
amortisation (EBITDA) is the profit before tax adjusted for
depreciation, amortisation, finance income, finance expense, legal
fees and settlement costs and expenses relating to share option
schemes.
4. Constant currency (using last year exchange rates)
5. New business contracted excluding renewals with existing customers.
Nik Philpot, Chief Executive Officer, said:
"Eckoh has had an extremely strong first half with significant
increases in new business contracted in both the UK and US.
Following the steps taken last year it is pleasing to see the UK
return to growth in such a convincing manner and the US Secure
Payments business performed particularly strongly with record
levels of new business contracted and a total order book that now
well exceeds $20m.
Whilst the IFRS 15 accounting rule changes have reduced reported
revenue and profit, we have excellent revenue visibility from the
increasing levels of deferred revenue and a fast growing order
book, which provides a solid platform for predictable significant
growth and further confidence in the outlook for future periods. We
remain excited by the prospects for the Group."
For more information, please contact:
Eckoh plc
Nik Philpot, Chief Executive Officer Tel: +44 (0) 1442
458 300
Chrissie Herbert, Chief Financial Officer
www.eckoh.com
FTI Consulting LLP Tel: +44 (0) 203
727 1000
Ed Bridges / Jamie Ricketts / Darius Alexander
eckoh@fticonsulting.com
N+1 Singer (Nomad & Joint Broker)
Shaun Dobson, Justin McKeegan Tel: +44(0) 20 7496
3000
www.n1singer.com
Canaccord Genuity Limited (Joint Broker))
Simon Bridges, Emma Gabriel Tel: +44(0) 20 7523
8000
www.canaccordgenuity.com
About Eckoh plc
Eckoh is a global provider of secure payment products and
customer contact solutions, supporting an international client base
from its offices in the UK and US.
Our secure payments products help our customers take payments
securely from their clients through multiple channels. Our
products, which include the patented CallGuard, can be hosted in
the Cloud or deployed on the client's site and remove sensitive
personal and payment data from contact centres and IT environments.
Our products offer merchants a simple and effective way to reduce
the risk of fraud, secure sensitive data and become compliant with
the Payment Card Industry Data Security Standards ("PCI DSS") and
wider data security regulations. Eckoh has been a PCI DSS Level One
Accredited Service Provider since 2010, securing over $2bn in
payments annually.
Eckoh's customer contact solutions enable enquiries and
transactions to be performed on whatever device the customer
chooses, allowing organisations to increase efficiency, lower
operational costs and provide a true Omni-channel experience. We
also assist organisations in transforming the way that they engage
with their customers by providing support and transition services
as they implement our innovative customer contact solutions.
Our large portfolio of clients come from a broad range of
vertical markets and includes government departments, telecoms
providers, retailers, utility providers and financial services
organisations.
Introduction
Eckoh enjoyed a strong performance in the first half of our 2019
financial year, with strong momentum for new business contracted in
both the UK and US. This included a return to growth in the UK and
another period of strong growth in the US Secure Payments
business.
The implementation of IFRS 15 Revenue from Contracts with
Customers ("IFRS 15") has had the anticipated impact on Eckoh's
profit and loss account. In the near term, it has reduced reported
revenue and profitability, especially in the US operation. At the
same time, it has strengthened recurring revenues and substantially
increased levels of deferred revenue, which gives the Group
excellent revenue visibility and a solid platform for continued,
predictable growth in future periods. Add to that the significant
increase in the value of our newly contracted business and we
expect this to lead to faster levels of revenue growth over the
coming periods.
In 2019 we will evolve our reported financial KPIs to ensure
they accurately measure the performance and financial health of the
business. As a result, we will cease reporting some KPI's used
historically, if no longer deemed appropriate.
Given the delay in revenue being recognised following adoption
of IFRS 15, an important KPI will be our levels of new business
contracted. We are therefore pleased to report in the first six
months of the financial year we have seen a significant increase in
new business contracted, which grew 63% year on year to GBP14.2m
(H1 FY18: GBP8.7m). Indeed, since period end, we have added further
material contracts resulting in us having already now exceeded
total new business for the full prior year of GBP15.3m.
Including renewals of existing client contracts, the total
contracted business for the half-year is GBP16.8m, compared to
GBP12.2m in the prior year. Going forward, given the average length
of our contracts is more than three years and the revenue of
individual clients is varied, we expect total renewal value to be
spread unevenly between periods.
In the US, total new business contracted was $10.5m, an increase
of 33% (H1 FY18: $7.9m). US Secure Payments performed especially
well, with $9.5m of new business contracted, which was a record for
any half year since we entered the US market, exceeding the total
for the full prior year and 70% higher than the same period last
year (H1 FY18: $5.6m). Our focus on larger contracts means that in
future periods the timing of such wins remains hard to predict.
In the UK we grew revenue and gross profit, as well as new
business contracted, showing the benefit of the restructure of the
sales function in FY18. New business contracted was GBP6.2m in the
first half, greater than the GBP6.0m delivered in the whole of
FY18. This positive impact is also starting to be recognised in
revenue, which grew by 4.7% to GBP9.4m (H1 FY18(1) : GBP9.0m),
gross profit grew by 5.1% to GBP8.0m (H1 FY18(1) : GBP7.6m) and
gross profit margin increased by 1% to 85%.
A clear growth strategy
Our strategic objectives remain consistent, reflecting our aim
to become the global leader in our areas of expertise, and in
particular, Contact Centre security.
Our objectives include:
-- Expanding our US footprint and the size of our team to
capitalise on the fast-growing market for secure payment
opportunities
-- Broadening channel partnerships in both UK and US markets
-- Continuing to extract value from the businesses acquired in recent years
-- Continuing to invest in R&D to underpin next generation
product development; protect and enhance our proprietary
technologies; and maintaining our market leading position
-- Maximising client value through cross-selling
-- Continuing to evaluate acquisition opportunities that can
support our growth strategy, where timely and accretive, but on an
opportunistic basis
Operational Review
US Division (55% of Group new business won, 28% of Group
revenue, 79% recurring revenue)
The US division achieved new business contracted of $10.5m, an
increase year on year of 33%. Revenue in the period was $4.9m,
which is a decrease of 14% (H1 FY18(1) : $5.7m), with growth in
Secure Payments offset by a short-term decline in our Support,
Coral and Other revenue lines.
US Secure Payments continued to see strong growth, with revenues
up 67%. Since Eckoh entered the US market in 2015, new business
contracted has grown from $0.3m in FY15 to $9.5m in HY19. The
record levels of new business contracted in this period exceeded
the full prior year and included our largest ever contract win.
This was a two-year contract worth $7.4m to provide secure payment
solutions to one of the largest corporations in the United States,
won in a competitive tender process.
The reason for the overall reduction in US revenue is twofold.
Secure Payments revenue is the only sales activity in the US
impacted by IFRS 15, but only for our lead tokenisation solution.
Our other payments offering, which has a more limited scope (it
protects just the contact centre agent, desktop and call recording
equipment), is not impacted. Previously, approximately 25% of new
contracts were for this payments solution, but there were none in
this period. This meant that a proportion of Secure Payment
revenues expected to be recognised in this year have instead been
contracted as arguably better-quality earnings, which will now be
recognised over future periods. This is reflected in the increase
and size of the Secure Payments order book that has grown by 78% to
$21.7m from $12.2m a year ago.
Secondly, we saw a reduction in revenue from Support and Coral.
The nature of Support agreements is that they generally begin and
end with relatively little notice making them harder to predict.
Coral, as previously stated, has low visibility. This can lead to
greater variation in any one period from these activities compared
to Secure Payments, which is largely underpinned by high levels of
recurring revenue. Support declined year on year because our
largest client ceased part of their contract during the previous
year, but we would expect it to grow again in the second half.
Similarly, Coral had no new license orders in the first half, in
contrast to last year, however we do expect orders in the second
half. So, we would not expect the overall reduction in revenue in
the first half to be repeated in the second half. Indeed, the
improved visibility from new business and revenue deferred under
IFRS 15 shows current year US revenue now at $11.6m.
The Group's US focus remains on three sales activities where it
has the greatest differentiation and the least competition. The
performance of these activities in the US is summarised below.
-- Secure Payments revenue grew 67% to $1.8m, representing 36%
of the US division's revenue compared to $1.1m and 19% for the same
period last year.
-- Support revenue accounted for 50% of revenue in the period at
$2.4m and declined by 24% year on year (H1 FY18(1) : $3.2m) due to
our largest client partially ceasing some of their support
activity.
-- Coral had revenue of $0.6m in the period and decreased by 28%
year on year (H1 FY18(1) : $0.9m) and other product revenues in the
period were nil (H1 FY18: $0.5m).
Secure Payments
Since Eckoh entered the US market in 2015, the total of new
business contracted for Secure Payments contracts has grown
significantly each year, as shown below.
Financial FY15 FY16 FY17 FY18 H1 FY19
Year
New Business
Contracted $0.3m $1.6m $8.3m $9.3m $9.5m
------ ------ ------ ------ --------
In the first half of 2019 a record level of new business has
been won with a value of $9.5m, already more than the total for the
previous year and since period end we have won further contracts.
The pipeline remains strong and is growing.
The Company is focused on large enterprise contracts, the size
and timing of which are difficult to forecast and in the first half
we won our largest ever payments contract at $7.4m, which we expect
to go live late in the second half. As a result of this contract,
the average contract value in this period is significantly greater
than the $750k average contract size we have typically expected to
see.
Recurring revenues for the year in the US were 79% (H1 FY18(1) :
72%) and we anticipate this to grow further as the proportion of
revenue from Secure Payments increases. Progress continues to be
made on broadening our partner channels for Secure Payments, and we
have added NICE InContact as a partner in expectation that we will
start to see opportunities in the Cloud Contact centre space that
are of a sufficient size and value. However, all contracts won so
far this year have again been for solutions where we implement on
site and we expect this trend to continue for some time for the
large enterprises. Nevertheless, our recent annual PCI DSS audit
for our level 1 accreditation also included our platform in Amazon
Web Services, which enables us to deploy Cloud solutions where
required.
Support
In Support, we provide third party support within large Contact
Centre operations for software and hardware from vendors such as
Avaya, Cisco, Genesys and Aspect. Revenues declined year on year by
28%, principally due to the large three-year contract that
commenced in July 2016 with a major US telecommunications company
reducing in scope and value as expected from September 2017. We
continue to pursue new Support opportunities and see this activity
as a key part of our US strategy as we seek to leverage our US
staff across all our sales channels. The customers for whom we
provide support can also be excellent prospects for both our Secure
Payments and Coral product, as seen from the lucrative contracts
the Group has already won through cross-selling. However, as noted
earlier, the nature of Support contracts is that they begin and end
with relatively short notice, which can lead to a fluctuation in
revenue between periods.
Coral
In the period there have been no additional licence sales
achieved for the Coral product, but as explained previously, the
sale of the licences is unpredictable in timing although we do
anticipate orders in the second half. Coral is a browser-based
desktop that increases efficiency by bringing all the contact
centre agent's communication tools into a single screen. It also
enables organisations, particularly those who have grown by
acquisition, to standardise their Contact Centre facilities, as
Coral can be implemented in environments that operate on entirely
different underlying technology.
UK Division (45% of Group new business won, 72% of Group
revenue, 90% recurring revenue)
The UK division returned to growth in the half year, following
the restructuring of the sales team and realignment to focus on
larger, more strategic opportunities. This was reflected in more
contract wins through the partnership channel, and a significantly
improved level of new contracted business.
The division achieved new business contracted of GBP6.2m in the
first half, an increase year on year of 127% (H1 FY18(1) GBP2.7m)
and a total greater than that achieved in the full prior year.
In the UK, unlike the US, the Group sells its full portfolio of
services, the vast majority of which are delivered through Eckoh's
hosted platform. IFRS 15 impacts these, although the impact is not
as great as the US due to the more mature nature of our business in
the UK.
Revenue in the period was GBP9.4m, an increase on last year of
4.7% (H1 FY18(1) : GBP9.0m), and gross profit increased 5.1% to
GBP8.0m (H1 FY18(1) : GBP7.6m). Gross margins in the UK improved in
the period by 1% to 85% (H1 FY18(1) : 84%) and recurring revenue
has decreased as expected to 90% from (H1 FY18(1) : 93%). Over the
next three years, we would expect recurring revenue to fall back to
the level pre-implementation of IFRS 15, a steady state of
approximately 86%.
It was pleasing to see the improvement in revenue and new
business, which can be attributed to the action taken last year
when revenue reduced for the first time in many years. The sales
function was restructured and the team re-focused on larger, more
complex opportunities, where Eckoh's breadth of portfolio and
expertise delivers more value to the client and differentiates
us.
There was also greater emphasis placed on our indirect sales
channel and this has in turn yielded positive results. The Capita
relationship which delivered no new contracts last year returned to
more normal activity with the fifth significant contract won
through the channel since the partnership was created in 2013,
worth a minimum of GBP1.4m. The BT partnership, which has been in
place since the outset of the Company, has also been rejuvenated
delivering more new contracts in the first half than for some
years. There were also significant contacts won through Maintel and
Unify Communications and additional business added with allpay.
Looking at the segmentation of UK revenue, 26% came from Payment
services (H1 FY18(1) : 27%), 29% from Customer Contact Solutions
(H1 FY18(1) : 27%) and the remaining 45% from those clients where
we provide a combination of both solutions (H1 FY18(1) : 46%). Our
model of cross-selling to existing clients remains a key part of
the Eckoh strategy, not just to generate incremental revenue but
also to continue the trend of strong client retention and to
further increase the lifetime value of the Group's customers. Of
the new business contracted in the first half of the GBP6.2m
secured, GBP1.3m was contracted with existing customers for
delivery of new solutions or modifications. In addition to the new
business, renewals of GBP1.1m were contracted.
Since the period end, we are pleased to report that the Vue
contract, which is expected to be worth GBP2m over three years and
the largest to come up for renewal this year, has been renewed for
a further 3 years taking the relationship to 18 years, making them
our longest serving client.
Innovation
Building upon the successful acquisition of Klick2Contact in
July 2016, since the two-year earn out concluded, we have been able
to press ahead with the amalgamation of their technology with
Eckoh's. We have now completed the work to bring voice contacts
seamlessly into the Omnichannel environment, now known as the Eckoh
Experience Portal ('EXP'). This brings together the complete
contact history for customers across all channels with voice
alongside Live Chat, Email, Social and Chatbot interactions
creating a single Omnichannel conversation with consumers and
incorporating Eckoh's patented secure payment solutions.
The newest service to be incorporated into EXP is a Cloud call
recording service that will enable clients to capture and store
recordings with full MiFID II compliance. This will be followed
before the end of the year by the addition of sentiment analysis
that will enable clients to determine not just what a customer's
requirement is, but what their emotional state is. Vue, who have
recently renewed their contract, will be one of the first clients
to deploy EXP.
Current Trading and Outlook
Given the nature of its business, Eckoh has always operated a
model where the second half of the financial year is more
profitable than the first. This will remain the case after the
implementation of IFRS 15 as revenue is not recognised until client
services are delivered or live, and the average number of clients
that will be operational will be greater in the second half than in
the first half, particularly in the fast growing Secure Payments
part of the US business.
As we continue to make progress in the US, combined with the
size of the opportunity in that market, it is our belief that the
US will ultimately surpass the UK. Eckoh remains at the forefront
of contact centre security and our patents now underpin all our US
payments revenue creating a key differentiator and barrier to
future competitors.
As we enter the second half, considering the contracts we have
already won and the forecast of delivery of the solutions to our
clients, we have a solid platform for predictable significant
growth and remain confident in the outlook for future periods. We
are excited by the prospects for the Group.
Financial Review
The Group has adopted IFRS 15 from 1(st) April 2018, the prior
year financial statements and the opening retained earnings at 1
April 2017 have been restated. Full disclosures of the impact of
the adoption of IFRS 15 are in note 6.
As a result of the implementation of IFRS 15, to understand the
growth of the business, the revenue reported in the profit and loss
account, needs to be reviewed in conjunction with the new business
that has been secured during the first half and the level of
deferred costs and liabilities held on the balance sheet. This new
business and increased levels of deferred revenue will continue to
support future revenue growth as our solutions are delivered to
clients and we are able, under IFRS 15 to start to recognise
revenue.
Revenue
Revenue for the period was GBP13.1m (H1 FY18(1) : GBP13.4m).
Movements in revenue between the US and UK divisions have been
addressed in the Operational Review above.
H1 FY19 H1 FY19 H1 FY19 H1 FY18 H1 FY18 H1 FY18
(UK) (US) Total (UK) (US) Total
Restated Restated Restated
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- -------- -------- -------- ---------- ---------- ----------
Revenue 9,433 3,676 13,109 9,007 4,379 13,386
Gross Profit 7,992 2,980 10,972 7,602 3,777 11,379
Gross margin 85% 81% 84% 84% 86% 85%
-------------- -------- -------- -------- ---------- ---------- ----------
Gross profit margin was 84% for the first half of 2019 compared
to 85% for the first half of 2018. The UK business improved gross
profit margin by 1% to 85%. In the US the margin decreased from 86%
to 81% in first half 2018 due principally to the loss of revenue
from support activity and implementation of US Secure payment
clients. As new secure payment clients went live during the half,
the margin decreased due to the hardware delivered as part of the
Secure Payment solutions.
In the UK, as the service is hosted on an Eckoh platform there
is typically no hardware provided to clients. In the US, due to the
impact of IFRS 15, and the growth in the Secure Payments
activities, which are typically provided through our lead product
Audio tokenisation onsite and require hardware to be provided, we
would expect, over the next three years, the gross profit margin to
gradually decrease to approximately 75%.
Administrative expenses
Total administrative expenses were GBP11.1m in the period,
compared to GBP11.5m for the same period last year. Adjusted
administrative expenses were GBP10.0m compared to GBP10.1m for the
same period last year. In the first half of 2019, the goodwill on
the acquisition of Veritape has become fully amortised. In the
first half of 2018, the deferred consideration in relation to the
K2C earn-out was released.
Profitability Measures
Adjusted EBITDA for the period was GBP1.6m, a decrease year on
year of 15% (H1 FY17: GBP1.9m).
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 March
2018 2017 2018
Restated Restated
GBP'000 GBP'000 GBP'000
--------------------------------- ----------- ----------- ----------
(Loss) / profit before tax (197) 822 1,084
Amortisation of intangible
assets 773 1,031 2,329
Legal fees and settlement costs - - 595
Expenses relating to share
option schemes 420 315 793
Interest receivable (16) (3) (34)
Finance income - (975) (975)
Interest payable 40 47 118
--------------------------------- ----------- ----------- ----------
Adjusted operating profit(1) 1,020 1,237 3,910
Depreciation 495 485 914
Amortisation 102 188 325
--------------------------------- ----------- ----------- ----------
Adjusted EBITDA(2) 1,617 1,910 5,149
--------------------------------- ----------- ----------- ----------
Finance income
In the six months ended 30 September 2017 and the year ended 31
March 2018 finance income includes a credit of GBP975k relating to
the K2C contingent consideration.
Finance expense
For the financial period ended 30 September 2018, the net
interest charge was GBP24k (H1 FY18: GBP44k).
Deferred liabilities and assets
Deferred liabilities and deferred assets have both increased as
a result of the adoption of IFRS 15 Revenue from Contracts with
Customers, with the increase in deferred revenue, the Group has an
improved visibility of future revenues. Total deferred liabilities
were GBP12.7m (H1 FY18(1) : GBP8.6m), included in this balance are
GBP11.7m of deferred liabilities relating to the Secure Payments
product or hosted platform product, an increase from GBP6.6m at the
same time in the previous year, a year on year increase of 77%.
Deferred assets as at 30 September were GBP2.5m compared to GBP1.4m
at 30 September 2017.
Cashflow and liquidity
Net cash at 30 September 2018 was GBP3.4m, an improvement of
GBP1.7m to the previous year and a marginal decrease from 31 March
2018 of GBP0.2m. In the period the Company has repaid GBP0.7m of
the loans outstanding to Barclays Bank in accordance with the terms
of the loan. During the period, there was a cash outflow of GBP0.4m
for legal fees and settlement costs recorded in last year's profit
and loss account. Adjusting for the cash outflow for legal fees and
settlement costs, there has been a net cash outflow for trade
debtors, trade creditors, inventory and tax of GBP0.4m (H1 FY18(1)
: cash inflow GBP0.4m).
Consolidated statement of comprehensive income
for the six months ended 30 September 2018
Six months Six months Year
ended 30 ended 30 ended
September September 31 March
2018 2017 2018
GBP'000 GBP'000
GBP'000 Restated Restated
Continuing operations
Revenue 13,109 13,386 27,237
Cost of sales (2,137) (2,007) (3,747)
------------------------------------------- ----------- ----------- ----------
Gross profit 10,972 11,379 23,490
Administrative expenses (11,145) (11,488) (23,297)
------------------------------------------- ----------- ----------- ----------
(Loss)/ profit from operating activities (173) (109) 193
------------------------------------------- ----------- ----------- ----------
Adjusted operating profit 1,020 1,237 3,910
Amortisation of acquired intangible
assets (773) (1,031) (2,329)
Legal fees and settlement costs - - (595)
Expenses relating to share option
schemes (420) (315) (793)
------------------------------------------- ----------- ----------- ----------
Loss from operating activities (173) (109) 193
------------------------------------------- ----------- ----------- ----------
Interest payable (40) (47) (118)
Finance income - 975 975
Interest receivable 16 3 34
(Loss) / profit before taxation (197) 822 1,084
Taxation credit / (charge) 30 (41) 482
(Loss) / profit for the period (167) 781 1,566
=========================================== =========== =========== ==========
(Loss) / profit per share expressed
in pence
------------------------------------------ ----------- ----------- ----------
Basic earnings per 0.25p share (0.07) 0.32 0.63
Diluted earnings per 0.25p share (0.07) 0.31 0.60
------------------------------------------- ----------- ----------- ----------
Other comprehensive income
Items that will be reclassified subsequently
to profit or loss:
Foreign currency translation differences
- foreign operations (392) (242) (157)
Other comprehensive income for the
period, net of income tax (392) (242) (157)
Total comprehensive (loss) / income
for the period attributable to the
equity holders of the parent company (559) 539 1,409
=============================================== ====== ====== ======
Consolidated statement of financial position
as at 30 September 2018
30 September 30 September 31 March
2018 2017 2018
GBP'000 GBP'000
GBP'000 Restated Restated
--------------------------------------------- ------------- ------------- ----------
Assets
Non-current assets
Intangible assets 7,433 8,811 7,959
Tangible assets 4,637 4,818 4,703
Deferred tax asset 3,701 3,275 3,790
---------------------------------------------- ------------- ------------- ----------
15,771 16,904 16,452
--------------------------------------------- ------------- ------------- ----------
Current assets
Inventories 585 622 724
Trade and other receivables 14,248 11,233 11,943
Cash and cash equivalents 7,324 6,909 8,164
---------------------------------------------- ------------- ------------- ----------
22,157 18,764 20,831
--------------------------------------------- ------------- ------------- ----------
Total assets 37,928 35,668 37,283
Liabilities
Current liabilities
Trade and other payables (16,694) (13,683) (15,891)
Other interest-bearing loans and borrowings (1,300) (1,300) (1,300)
---------------------------------------------- ------------- ------------- ----------
(17,994) (14,941) (17,191)
--------------------------------------------- ------------- ------------- ----------
Non-current liabilities
Other interest-bearing loans and borrowings (2,600) (3,900) (3,250)
Deferred tax liability (563) (976) (674)
---------------------------------------------- ------------- ------------- ----------
(3,163) (4,876) (3,924)
--------------------------------------------- ------------- ------------- ----------
Net assets 16,771 15,809 16,168
---------------------------------------------- ------------- ------------- ----------
Shareholders' equity
Share capital 632 630 631
ESOP Reserve (318) (158) (238)
Capital redemption reserve 198 198 198
Share premium 2,640 2,641 2,640
Merger reserve 2,697 2,697 2,697
Currency reserve 708 231 316
Retained earnings 10,214 9,570 9,924
---------------------------------------------- ------------- ------------- ----------
Total shareholders' equity 16,771 15,809 16,168
---------------------------------------------- ------------- ------------- ----------
Consolidated interim statement of changes in equity
as at 30 September 2018
Capital Total
Share ESOP redemption Share Merger Retained Currency shareholders'
capital Reserve reserve premium reserve earnings reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 April
2017(1) 611 (83) 198 2,660 2,697 13,172 473 19,728
Restatement (IFRS
15) - - - - - (4,532) - (4,532)
Balance at 1 April
2017 (restated) 611 (83) 198 2,660 2,697 8,640 473 15,196
Total comprehensive
income for the
period - - - - - 781 - 781
Shares transacted
through Employee
Benefit Trust - 1 - - - (8) - (7)
Purchase of own
shares - (76) - - - - - (76)
Shares issued under
the share option
schemes 19 - - (19) - - - -
Retranslation - - - - - - (242) (242)
Share based payment
charge - - - - - 157 - 157
Balance as at 30
September 2017 630 (158) 198 2,641 2,697 9,570 231 15,809
-------------------- --------- --------- ------------ --------- --------- ---------- --------- ---------------
1. Balance at 1 April 2017 was restated in the Financial Statements 31 March
2018
Balance at 1 April
2018 631 (238) 198 2,640 2,697 9,924 316 16,168
-------------------- --------- --------- ------------ --------- --------- ---------- --------- ---------------
Total comprehensive
income for the
period - - - - - (167) - (167)
Shares transacted
through Employee
Benefit Trust - - - - - 3 - 3
Purchase of own
shares - (80) - - - - - (80)
Dividends paid
in the year - - - - - - - -
Shares issued under
the share option
schemes 1 - - - - - - 1
Retranslation - - - - - - 392 392
Share based payment
charge - - - - - 454 - 456
-------------------- --------- --------- ------------ --------- --------- ---------- --------- ---------------
Balance at 30
September
2018 632 (318) 198 2,640 2,697 10,214 708 16,771
-------------------- --------- --------- ------------ --------- --------- ---------- --------- ---------------
Consolidated statement of cash flows
for the six months ended 30 September 2018
Six months Year
Six months ended ended
ended 30 September 31 March
30 September 2017 2018
2018 Restated Restated
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 247 1,921 5,855
Taxation 120 - (12)
---------------------------------------------- -------------- -------------- ----------
Net cash generated from continuing operating
activities 367 1,921 5,843
---------------------------------------------- -------------- -------------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (441) (280) (647)
Purchase of intangible fixed assets (22) (39) (323)
Proceeds from sale of tangible fixed
assets 6 - -
Proceeds from sale of intangible fixed
assets - - 6
Interest paid (40) (47) (118)
Interest received 16 3 34
Net cash utilised in continuing investing
activities (481) (362) (1,048)
---------------------------------------------- -------------- -------------- ----------
Cash flows from financing activities
Dividends paid - - (1,209)
Repayment of borrowings (650) (650) (1,300)
Purchase of own shares (80) (76) (156)
Issue of shares 1 - -
Shares acquired by Employee Benefit
Trust 3 (7) (49)
---------------------------------------------- -------------- -------------- ----------
Net cash utilised in continuing investing
activities (726) (733) (2,714)
(Decrease) / increase in cash and cash
equivalents (840) 826 2,081
Cash and cash equivalents at the start
of the period 8,164 6,083 6,083
---------------------------------------------- -------------- -------------- ----------
Cash and cash equivalents at the end
of the period 7,324 6,909 8,164
---------------------------------------------- -------------- -------------- ----------
Notes to the interim financial statements
For the six months ended 30 September 2018
1. Basis of preparation
These consolidated interim financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the European Union and should be read in conjunction
with the Group's last annual consolidated financial statements as
at and for the year ended 31 March 2018, which have been prepared
in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union and applicable law. They do
not include all of the information required for a complete set of
International Financial Reporting Standards ("IFRS") financial
statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and
performance since the last annual financial statements.
The unaudited interim financial information for the period ended
30 September 2018 does not constitute statutory accounts within the
meaning of Section 435 of the Companies Act 2066. The comparative
figures for the year ended 31 March 2018 are extracted from the
statutory financial statements which have been filed with the
Registrar of Companies and contain an unqualified audit report and
did not contain statements under Section 498 to 502 of the
Companies Act 2006.
The statutory financial statements for the year ended 31 March
2018 detail the IFRSs which will be effective in the financial
year's ending 31 March 2019, 31 March 2020 and 31 March 2022. The
statutory financial statements for the year ending 31 March 2018
included an estimate of the impact on the Group of the
implementation of IFRS 15. The Group has adopted IFRS 15 from 1
April 2018 and the prior year comparison and the opening reserves
at 1(st) April 2017 have been restated. Note 6 discloses the impact
of adoption of IFRS 15. The Group has also adopted IFRS 9 -
Financial Instruments on 1 April 2018, this has been adopted
prospectively with no retrospective adjustments and as disclosed in
the financial statements for the year ended 31 March 2018 there is
no material change as a result of adopting the standard.
The directors are satisfied that the Group has adequate
resources to continue in operational existence for the foreseeable
future, a period of not less than 12 months from the date of this
report. The Group's liquidity and going concern review can be found
in the Management Report on page 7.
2. Dividends
The proposed dividend of GBP1.4m for the year ended 31 March
2018 of 0.55p per share was paid on 26 October 2018.
3. Earnings per share
The basic and diluted earnings per share are calculated on the
following profit and number of shares. Earnings for the calculation
of earnings per share is the net profit attributable to equity
holders of the parent.
Six months Year
Six months ended ended
ended 30 September 31 March
30 September 2017 2018
2018 Restated Restated
GBP000 GBP000 GBP000
------------------------------------ -------------- -------------- ----------
(Loss) / earnings for the purposes
of basic and diluted earnings per
share (167) 781 1,566
------------------------------------ -------------- -------------- ----------
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2018 2017 2018
Denominator '000 '000 '000
-------------------------------------- -------------- -------------- ----------
Weighted average number of shares
in issue in the period 247,425 245,641 247,424
Shares held by employee ownership
plan (1,070) (550) (805)
Number of shares used in calculating
basic earnings per share 246,355 245,091 246,619
Dilutive effect of share options 11,040 10,902 12,384
-------------------------------------- -------------- -------------- ----------
Number of shares used in calculating
diluted earnings per share (where
applicable) 257,396 255,993 259,003
-------------------------------------- -------------- -------------- ----------
4. Cash flow from operating activities
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2018 2017 2018
GBP'000 GBP'000 GBP'000
-------------------------------------------- -------------- -------------- ----------
(Loss) / profit after taxation (167) 781 1,566
Interest income (16) (3) (34)
Finance income - (975) (975)
Interest payable 40 47 118
Taxation (142) 41 (485)
Depreciation of property, plant and
equipment 495 485 914
Exchange differences 71 (241) (264)
Amortisation of intangible assets 875 1,219 2,654
Legal fees and settlement costs (443) - (152)
Share based payments 454 157 554
-------------------------------------------- -------------- -------------- ----------
Operating profit before changes in
working capital and provisions 1,167 1,511 3,896
Decrease/ (increase) in inventories 139 91 (11)
(Increase)/ decrease in trade and other
receivables (2,305) 1,046 488
Decrease/ (increase) in trade and other
payables 1,246 (727) 1,482
Net cash generated in operating activities 247 1,921 5,855
-------------------------------------------- -------------- -------------- ----------
5. Subsequent events to 30 September 2018
As at the date of these statements there were no such events to
report.
6. Changes in accounting policies
This note explains the impact of the adoption of IFRS 15 Revenue
from Contracts with Customers and IFRS 9 Financial Instruments on
the Group's financial statements and also discloses the new
accounting policies that have been applied from 1(st) April 2018,
where they are different to those applied in prior periods.
Impact on the financial statements
As a result of the changes in the entity's accounting policies,
prior year financial statements had to be restated. IFRS 9
Financial Instruments was implemented without restating comparative
information, on the grounds of materiality. IFRS 15 Revenue from
Contracts with Customers was adopted and the prior year financial
statements have been restated. The tables below show the
adjustments recognised for each individual line item for the
periods ending 30 September 2017 and 31 March 2018. Line items that
were not affected by the changes have not been included. As a
result, the sub-totals and totals disclosed can not be recalculated
from the numbers provided. The adjustments are explained in more
detail below.
30 September
2017 30 September
As originally 2017
presented IFRS 15 Restated
Balance sheet (extract) GBP'000 GBP'000 GBP'000
-------------------------------------------- --------------- -------- -------------
Deferred tax asset 3,139 136 3,275
-------------------------------------------- --------------- -------- -------------
Total Non-Current assets 16,768 136 16,904
Trade and other receivables 9,805 1,428 11,233
-------------------------------------------- --------------- -------- -------------
Total Current assets 17,336 1,428 18,764
Total assets 34,104 1,564 35,668
Trade and other payables (6,975) (6,708) (13,683)
-------------------------------------------- --------------- -------- -------------
Total Current Liabilities (8,275) (6,708) (14,983)
Net assets 20,953 (5,144) 15,809
-------------------------------------------- --------------- -------- -------------
Currency reserve 263 (32) 231
Retained earnings 14,682 (5,112) 9,570
-------------------------------------------- --------------- -------- -------------
Net cash generated in operating activities 20,953 (5,144) 15,809
-------------------------------------------- --------------- -------- -------------
Statement of profit or loss and other As
comprehensive income (extract) - 6 originally Cost of
months to 30 September 2017 presented IFRS 15 Sales(1) Restated
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ ------------ -------- ---------- ---------
Revenue 14,809 (1,423) - 13,386
Cost of sales (3,807) 638 1,162 (2,007)
------------------------------------------ ------------ -------- ---------- ---------
Gross profit 11,002 (785) 1,162 11,379
Administrative expenses (10,395) 69 (1,162) (11,488)
------------------------------------------ ------------ -------- ---------- ---------
Profit/ (loss) from operating activities 607 (716) - (109)
Profit / (loss) before taxation 1,538 (716) - 822
Taxation (177) 136 - (41)
Profit for the period 1,361 (580) - 781
------------------------------------------ ------------ -------- ---------- ---------
Profit per share expressed in pence pence pence pence Pence
------------------------------------------ ------------ -------- ---------- ---------
Basic earnings per 0.25p share 0.55 (0.23) - 0.32
Diluted earnings per 0.25p share 0.53 (0.22) - 0.31
------------------------------------------ ------------ -------- ---------- ---------
1. As a result of the implementation of IFRS 15 Revenue from
Contracts with Customers management have reviewed the type of costs
being recorded in cost of sales in the UK division and the US
division. As part of this review, it was identified that the costs
relating to the on-going support of client solutions were not being
treated consistently. The above restatement of costs from cost of
sales to administrative expenses aligns the US business to the UK
business.
31 March
2018 31 March
As originally 2018
Balance sheet (extract) presented IFRS 15 Restated
GBP'000 GBP'000 GBP'000
-------------------------------------------- --------------- -------- ----------
Deferred tax asset 3,533 257 3,790
-------------------------------------------- --------------- -------- ----------
Total Non-Current assets 16,195 257 16,452
Trade and other receivables 9,835 2,108 11,943
-------------------------------------------- --------------- -------- ----------
Total Current assets 18,723 2,108 20,831
Total assets 34,918 2,365 37,283
Trade and other payables (7,885) (8,006) (15,891)
-------------------------------------------- --------------- -------- ----------
Total Current Liabilities (9,185) (8,006) (17,191)
Net assets 21,809 (5,641) 16,168
-------------------------------------------- --------------- -------- ----------
Currency reserve 329 (13) 316
Retained earnings 15,552 (5,628) 9,924
-------------------------------------------- --------------- -------- ----------
Net cash generated in operating activities 21,809 (5,641) 16,168
-------------------------------------------- --------------- -------- ----------
Statement of profit or loss and other As
comprehensive income (extract) - 12 originally Cost of
months to 31 March 2018 presented IFRS 15 Sales(1) Restated
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------ -------- ---------- ---------
Revenue 30,005 (2,768) 27,237
Cost of sales (7,120) 1,250 2,123 (3,747)
--------------------------------------- ------------ -------- ---------- ---------
Gross profit 22,885 (1,518) 2,123 23,490
Administrative expenses (21,341) 167 (2,123) (23,297)
--------------------------------------- ------------ -------- ---------- ---------
Profit from operating expenses 1,544 (1,351) - 193
Profit / (loss) before taxation 2,435 (1,351) - 1,084
Taxation 225 257 - 482
Profit for the year 2,660 (1,094) - 1,566
--------------------------------------- ------------ -------- ---------- ---------
Profit per share expressed in pence pence pence pence pence
--------------------------------------- ------------ -------- ---------- ---------
Basic earnings per 0.25p share 1.08 (0.45) - 0.63
Diluted earnings per 0.25p share 1.03 (0.43) - 0.60
--------------------------------------- ------------ -------- ---------- ---------
1. As a result of the implementation of IFRS 15 Revenue from
Contracts with Customers management have reviewed the type of costs
being recorded in cost of sales in the UK division and the US
division. As part of this review, it was identified that the costs
relating to the on-going support of client solutions were not being
treated consistently. The above restatement of costs from cost of
sales to administrative expenses aligns the US business to the UK
business.
IFRS 15 - Revenue from Contracts with Customers - Impact of
adoption
The Group has adopted IFRS 15 from 1 April 2018 which resulted
in changes in accounting policies and adjustments to the amounts
recognised in the financial statements. In accordance with the
transition provisions in IFRS 15, the group has adopted the new
rules retrospectively and has restated comparatives both for the
2018 financial year and the opening balance sheet. In summary, the
following adjustments were made to the amounts recognised in the
balance sheet at the date of initial application (1 April
2018).
(i) Revenue
From 1(st) April 2017 hardware and implementation fees
previously recognised in revenue during the implementation phase of
the client projects delivering either a Secure Payments solution or
hosted service have been restated under IFRS 15, the hardware &
implementation fees have been deferred into deferred revenue and
held in the balance sheet. In addition the opening balance sheet
has been restated for current contracts, where implementation fees
and hardware have been recognised in revenue prior to 1 April 2017.
The net impact of this restatement is a reduction in previously
reported revenue of GBP1.4m for the 6 month period to 30 September
2017 and GBP2.8m for the 12 month period to 31 March 2018. The
total deferred liability restated at 30 September 2017 is GBP6.7m
and at 31 March 2018 is GBP8.0m.
Recurring revenue, a Key performance Indicator for the business
has been restated and was 86% for the 6 month period to 30
September 2017 and 85% for the 12 month period to 31 March 2018.
This is as management expect and will gradually, over the next 3
years, fall back to somewhat higher than the 76% group recurring
revenue reported for the year ended 31 March 2018 due to the growth
of the US secure payments.
(ii) Cost of Sales
Costs directly attributable to the delivery of the hardware and
the implementation fees have been capitalised as 'costs to fulfil a
contract'. The net impact of this restatement is a reduction in
previously reported cost of sales of GBP0.6m for the 6 month period
to 30 September 2017 and GBP1.3m for the 12 month period to 31
March 2018. The total deferred costs restated at 30 September 2017
is GBP1.4m and at 31 March 2018 is GBP2.1m.
(iii) Commission costs (administrative expenses)
Commission paid to members of the sale team for the signing of
specific contracts has been deferred onto the balance sheet and
held in other current assets and will be matched to the revenue
over the period of the contract term. Commission costs of GBP0.1m
for the 6 month period to 30 September 2017 and GBP0.2m for the 12
month period to 31 March 2018 have been capitalised into other
current assets. No further restatement was made to the opening
balance sheet due to materiality.
(iv) Deferred tax assets - remeasurement
As a result of the adjustments under the above three headings
the impact to the profit of the business for the 6 month period to
30 September 2017 was reduced by GBP0.6m and for the 12 month
period to 31 March 2018 was reduced by GBP1.1. The tax charge and
utilisation of deferred tax was remeasured and an adjustment of
GBP0.1m made for the 6 month period to 30 September 2017 and
GBP0.3m for the 12 month period to 31 March 2018.
IFRS 15 - Revenue from Contracts with Customers - Accounting
policies
IFRS 15 provides a single, principles-based five-step model to
be applied to all sales contracts, based on the transfer of control
of goods and services to customers. Revenue represents the fair
value of the sale of goods and services and after eliminating sales
within the Group and excluding value added tax or overseas sales
taxes. The following summarises the method of recognising revenue
for the solutions and products delivered by the Group.
(i) Secure Payment solutions and hosted services
Due to the unique nature of the secure payments solution, the
delivery and on-going support and maintenance of the secure
payments solution under IFRS 15 is one single performance
obligation, therefore revenue for implementation fees for our
hosted Secure Payments solution and our hosted Customer Contact
services; and revenue for hardware and implementation fees for our
hosted or onsite Secure Payments Audio tokenisation solution will
be recognised evenly over the period of the contract from the point
of delivery of the solution to the client. Costs directly
attributable to the delivery of the hardware, the implementation
fees and the sales commission costs will be capitalised as 'costs
to fulfil a contract' and released over the contract term from the
point of delivery of the solution to the client.
In addition to the initial set-up costs, there are on-going
support and maintenance and running costs of the service. In the UK
the revenue is typically recognised on a transaction basis, where
the business has determined that users have accessed its services
via a telephone carrier network and/or the Group's
telecommunications call processing equipment connected to that
network. In the US business where the Secure Payments business is
contracted on an opex style basis the monthly license fee charged
to the client is recognised in the month it relates to.
(ii) Support services
Revenue is earnt from providing expert third party support for
Contact Centre infrastructure and is recognised on a pro-rated
basis over the period of the contract.
(iii) Coral product
Revenue arises from the sale of licences, implementation fees
and on-going support and maintenance. Under IFRS 15, each component
is defined as a performance obligation. Revenue is recognised for
sales of licences when they are delivered to the client; revenue
from implementation fees is recognised by estimating a percentage
of completion based on the direct labour costs incurred to date as
a proportion of the total estimated costs required to complete the
implementation; and revenue for on-going support and maintenance is
recognised each month.
IFRS 9 - Financial Instruments - Accounting policies
The Group does not enter into forward contracts to hedge
forecast transactions.
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
IR VKLFFVFFEFBZ
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