Half Yearly Report

RNS Number : 9342O

Altitude Group PLC

26 September 2013

Altitude Group plc

("Altitude" or the "Company")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013

Altitude Group plc (AIM: ALT), the provider of information and technology services, announces its interim results for the six month period ended 30 June 2013.

Financial highlights:

• Revenue increased by 2% to £2.88m (H1 2012: £2.84m)

• Adjusted operating profit* of £0.1m (H1 2012: £0.26m)

• Monthly North American Recurring Revenue increased by 44% to $130k on June 2012

• Strong performance at The Trade Only National Show with revenues up 5%

• Solid balance sheet, zero net debt and cash balances of £0.4m

· Full year results expected to be below expectations due to slower than expected recurring revenue generation

Following the start of a strategic review, the initial strategic priorities have been identified as:

· Reorganising the Executive team to develop the strategy and processes to drive the business forward. Stephen Yapp becomes Executive Chairman enabling Martin Varley to prioritise business development in the new role of Global Commercial Director

• A focus on and ongoing investment in the core technology business and its sales routes to market

• Geographical priorities of the USA, Canada and the UK where the SME market opportunities are considered the greatest

• LTIP award introduced to align key managers with the strategy and shareholder value

· KPI benchmarking of monthly recurring revenue ("MRR"), customer acquisition cost ("CAC"), life time value ("LTV") and average revenue per user ("ARPU") to drive future performance and enhance customer satisfaction

(* before amortisation of intangible assets, share-based payments and non-recurring administrative expenses)

Martin Varley commented: "We have made steady progress in the first half of the year in developing and delivering client specific contracts that will have a meaningful impact on our Monthly Recurring Revenues ("MRR"). In parallel, we have invested heavily in the development of our key technology solutions and built customer support and education resources ahead of the curve to ensure the highest levels of customer satisfaction.

"The first half results are comparable to 2012, but recurring revenue generation has been slower than expected due to a decision to divert resources on to the delivery of large client opportunities. Against a background of substantial development expenditure, this is expected to result in the outcome for the full year being materially short of current market expectations.

"I remain confident of the structural opportunities within the SaaS market and it will be the focus on our technology platforms which will position the Company to capitalise on the considerable potential."

Enquiries:

Altitude Group plc
Stephen Yapp (Executive Chairman)	Tel: 07879 443087
WH Ireland Limited (Nominated Adviser and Broker)
Tim Feather James Bavister	Tel: 020 7220 1666

The primary focus of the Group continues to be on the expansion of the Software as a Service ("SaaS") offerings, under the Trade Only umbrella both within the UK and increasingly within North America.

We continue to make progress within the defined promotional product sector, as well as the closely related print reseller market with our integrated Web Store, CRM/ERP solution that enables businesses to operate in these niches for a subscription as little as $99 per month.

Recurring revenue generation has proven to be slower than planned with our decision to divert resources towards the delivery of large client opportunities, which will increase annual revenues by $0.5m going forward. The clear focus on SaaS customers prevented us from carrying out the "one off" projects that featured more heavily in the same period for 2012. Therefore, the most appropriate comparison is that of growth in recurring revenue of 44% as at June 2013 compared to June 2012.

In the sign, print and promotional space, we are focusing our attention on smaller businesses that previously have not had access to enterprise level functionality for a low monthly fee. There is substantial opportunity here. Smaller companies value highly the best in class functionality for a modest monthly cost.

Our Technologo business has continued to deliver growth and revenues for the half year are 10% up on 2012 on headline figures. We have however moved much of our client base to monthly billing rather than annual and project billing in 2012. Allowing for this change our underlying revenues are nearer 20% ahead of 2012 and the revised approach will ensure more stable and recurring revenues in the future. We have also strengthened the sales force in the business and are starting to see further growth.

In the UK the Trade Only National Show in January was sold out in 2013 and delivered revenue growth of 5% despite the fact that we have been at capacity for the last three years. This exhibition continues to be the premier event in the promotional products industry calendar and we have pre-sold almost 90% of the available space for January 2014.

We have continued to refine the business model to ensure that we can offer high levels of customer service with suitable financial returns to a more clearly defined target market of customers. During the period we recruited a new Chairman and Chief Financial Officer and we will continue to strengthen our team with the appointment of further senior level resources in the US over the coming months to build on our experience of selling SaaS offerings and open new routes to market. All senior management will participate in the new LTIP scheme which aligns them with the strategy and delivering shareholder value. The costs of these changes have been reflected in the figures at June 2013 within our non-recurring administrative cost figures.

We have been included in a legal action between Advertising Specialty Institute ("ASI") and Alan Patrick, the COO of our US operations until mid-2013. ASI have asserted that Mr. Patrick acquired and used information without authority prior to his employment by Trade Only. We have demonstrated that Trade Only has no responsibility for the actions of Mr. Patrick prior to his employment with Trade Only Inc., but have decided to agree to a settlement, the terms of which are agreed in principle, rather than incur substantial ongoing costs. We have provided for costs incurred to date and accrued for anticipated further legal expenses within the non-recurring administrative expenses costs at the half year.

The balance sheet position remains solid with net cash balances of £0.4m at 30 June (31 December 2012: £0.76m). During the period £0.2m was repaid against the £4.0m 2016 Loan Note outstanding from the sale in 2011 of the Promotional Marketing Division, which is a good indication of the buyout team's intentions to maintain the expectation of steadily reducing the balance which as at 30 June was £3.1m and we received further capital payments in Q3 of 2013.

Product Development

We have a substantial opportunity within the print, signage and promotional sector and a determination to achieve a market leading position amongst a potential customer market in excess of 50,000 companies, but the greater opportunity for value creation is within the general SME market within the USA.

Our Technologo products continue to lead the market in virtual sample technology for the promotional sector. We are creating almost 2 million virtual samples a month from 50,000 users in over 180 countries and we see excellent opportunities to grow usage further.

UK - Exhibition

In the UK the main performance driver remains The Trade Only National Show, and we see this event continuing to dominate in the promotional products industry. In addition we are investing in the resources to grow our technology sales and will be promoting Customer Focus in 2014.

Outlook

Recurring revenue generation has been slower than expected due to our decision to divert resources on to the delivery of large client opportunities. Against a background of substantial investment in development, this is expected to result in the outcome for the full year being materially short of current market expectations.

I remain confident of the structural opportunities within the SaaS market and it will be the focus on our technology platforms which will position the Company to capitalise on the considerable potential.

Martin Varley

Global Commercial Director

Consolidated income statement for the six month period ended 30 June 2013

	Unaudited 30 June 2013	31 December 2012	Unaudited 30 June 2012
	£'000	£'000	£'000

Revenue	2,888	4,074	2,844

Cost of sales	(774)	(822)	(804)

Gross profit	2,114	3,252	2,040

Administrative costs	(2,726)	(4,233)	(1,975)

Operating profit/(loss) before amortisation of intangible assets, non-recurring administrative expenses and share based payment charges	91	(398)	255
Amortisation of intangible assets	(187)	(370)	(138)
Non recurring administrative expenses	(457)	(105)	-
Share based payment charges	(59)	(108)	(52)

Operating profit/(loss)	(612)	(981)	65

Finance income	129	296	154
Finance expenses	-	(3)	(2)

Profit/(loss) before tax	(483)	(688)	217

Taxation	-	186	(12)

Profit/(loss) from continuing operations	(483)	(502)	205

Profit/(loss) attributable to the equity shareholders of the Company	(483)	(502)	205

Earnings/(loss) earnings per ordinary share attributable to the equity shareholders of the Company :
- Basic (pence)	(1.13)	(1.17)	0.48
- Diluted (pence)	(1.13)	(1.17)	0.48

There were no recognised gains or losses in the period other than the profit for the period and therefore no statement of recognised income and expenses is presented.

Consolidated statement of changes in equity for the six month period ended 30 June 2013

	Share	Share	Retained
	Capital	Premium	Earnings
	£'000	£'000	£'000

At 1 January 2013	172	6,254	(1,117)
Result for the period	-	-	(483)
Foreign exchange difference	-	-	(96)
Share based payment charges	-	-	59

At 30 June 2013	172	6,254	(1,637)

Consolidated balance sheet as at 30 June 2013

	Unaudited 30 June 2013	31 December 2012	Unaudited 30 June 2012
	£'000	£'000	£'000
Non-current assets
Property, plant & equipment	197	222	181
Intangibles	1,222	1,248	1,261
Goodwill	564	564	564
Long-term loan receivable	3,100	3,300	3,600
Deferred tax	244	244	90

	5,327	5,578	5,696
Current assets
Trade and other receivables	657	1,084	802
Cash and cash equivalents	412	760	611

Total current assets	1,069	1,844	1,413


Total assets	6,396	7,422	7,109

Current liabilities
Trade and other payables	(1,607)	(2,113)	(1,145)
Current taxes	-	-	(12)

	(1,607)	(2,113)	(1,157)

Net assets	4,789	5,309	5,952

Called up share capital	172	172	171
Share premium	6,254	6,254	6,231
Retained earnings	(1,637)	(1,117)	(450)

Total equity	4,789	5,309	5,952

Consolidated cash flow statement for the six month period ended 30 June 2013

	Unaudited		Unaudited
	30 June 2013	31 December 2012	30 June 2012
	£'000	£'000	£'000

Operating activities
Profit/(loss) for the period	(483)	(502)	223
Amortisation of intangible assets	187	370	138
Depreciation	47	76	34
Net finance (credit)/expense	(129)	(293)	(152)
Net foreign exchange losses	-	(6)	-
Corporation tax charge/(credit)	-	(186)	12
Share based payment charges	59	108	52

Operating cash flow before changes in working capital	(319)	(433)	307

Movement in trade and other receivables	396	52	255
Movement in trade and other payables	(692)	266	(664)

Operating cash flow from operations	(615)	(115)	(102)

Interest received	129	296	154
Interest paid	-	(3)	(2)
Income taxes	31	-	-

Net cash flow from operating activities	(455)	178	50

Investing activities
Purchase of plant and equipment	(22)	(162)	(79)
Purchase of intangible assets	(71)	(286)	(69)
Repayment of loan note receivable	200	700	400

Net cash flow from investing activities	107	430	252

Financing Activities
Proceeds from issue of share capital	-	41	18

Net cash flow from financing activities	-	41	18

Net increase/(decrease) in cash and cash equivalents	(348)	471	320
Cash and cash equivalents at the beginning of the period	760	294	294
Effect of exchange rate fluctuations on cash held	-	(5)	(3)

Cash and cash equivalents at the end of the period	412	760	611

Notes to the half yearly financial information

1. Basis of preparation

This consolidated half yearly financial information for the half year ended 30 June 2013 has been prepared in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union.

The consolidated half yearly report was approved by the Board of directors on 25 September 2013.

The financial information contained in the interim report does not constitute statutory accounts and does not include all of the information and disclosures required for complete financial statements. Statutory accounts for the year ended 31 December 2012 have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying his report and did not contain a statement made under Section 498 (2) or (3) of the Companies Act 2006.

There were no recognised gains or losses in the six month period ended 30 June 2013 other than the profit for the period and therefore no statement of recognised income and expenses is presented.

The half-year results for the current and comparative period are unaudited.

2. Accounting policies

The condensed, consolidated financial statements in this half-yearly financial report for the six months ended 30 June 2013 have been prepared using accounting policies and methods of computation consistent with those set out in the Annual Report and financial statements for the year ended 31 December 2012, except as described below. In preparing the condensed, consolidated financial statements, management are required to make accounting assumptions and estimates. The assumptions and estimation methods were consistent with those applied to the Annual Report and financial statements for the year ended 31 December 2012.

3. Operating Segments

Under IFRS 8 "Operating Segments" the Group has determined that it has one reportable segment, Technology & Information.

IFRS 8 has been applied to aggregate operating segments on the grounds of similar economic characteristics. This position will be monitored as the Group develops.

4. Basic and diluted earnings per ordinary share

The calculation of earnings per ordinary share is based on the profit or loss for the period divided by the weighted average number of equity voting shares in issue.

	Unaudited		Unaudited
	30 June 2013	31 December 2012	30 June 2012

Earnings (£'000)	(483)	(502)	223

Weighted average number of shares (number '000)	42,908	42,791	42,821

Fully diluted weighted average number of shares (number '000)	42,908	42,791	42,821

Basic earnings per ordinary share (pence)	(1.13)p	(1.17)p	0.52p
Diluted earnings per ordinary share (pence)	(1.13)p	(1.17)p	0.52p