Final Results

RNS Number : 2756L
Beeks Financial Cloud Group PLC
05 September 2019
 

Beeks Financial Cloud Group plc

("Beeks" or the "Company")

Final Results for the year ended 30 June 2019

5 September 2019 - Beeks Financial Cloud Group plc (AIM: BKS), a cloud computing and connectivity provider for financial markets, is pleased to announce its final results for the year ended 30 June 2019.

Financial highlights

·      Revenues increased 32% to £7.35m (2018: £5.58m)

·      Annualised Committed Monthly Recurring Revenue (ACMRR) up 32% to £9.1m (2018: £6.9m)

·      Gross profit up 22% to £3.65m (2018: £2.98m)

·      Gross profit margin 50% (2018: 53%)

·      Underlying* EBITDA increased 27% to £2.48m (2018: £1.95m)

·      Underlying* EBITDA margin 34% (2018: 35%)

·      Underlying profit before tax** increased 11% to £1.32m (2018: £1.19m)

·      Underlying EPS** 2.58p (2018: 2.27p)

·      Net cash as at 30 June 2019 of £1.02m (30 June 2018: Net cash £2.09m)

·      Proposed final dividend of 0.15p per share equating to full year dividend payment of 0.35p (2018: 0.30p)

 * Underlying EBITDA is defined as earnings before amortisation, depreciation, finance costs, taxation, acquisition costs, share based payments and exceptional non-recurring costs

** Underlying profit before tax and underlying EPS excludes amortisation on acquired intangibles, acquisition costs, share based payments and exceptional non-recurring costs

Operational Highlights

·      Signing of three Tier 1 clients representing a major step change for the Company with strong pipeline of further institutional contracts

·      No. of institutional customers increased to 220 (2018: 192)

·      Average entry level new institutional customer contract increased to £2,200/month (2018: £800/month)

·      Expansion of second Equinix New York data centre, and generation of first revenues from our two newest data centres - London InterXion and Singapore

·      Acquisition of Commercial Network Services (CNS), a US-based online service provider, for $1.4m

·      Continued expansion of our new asset classes, including our Fixed Income and Cryptocurrency offerings, including new partnership with BeQuant Exchange, a leading cryptocurrency exchange based in London and Malta

·      Further key developments to the Self-service portal, including the ability to provision dedicated servers, manage infrastructure inventory, and monitor Beeks' global server capacity

 

Outlook

·      Positive market environment and considerably increased sales pipeline

·      Confident in securing additional Tier 1 customers in the year ahead

 

Statutory Equivalents

The above highlights are based on underlying results. Reconciliations between underlying and statutory results are contained within these financial statements. The statutory equivalents of the above results are as follows:

·      Profit before tax was £1.04m (2018: £0.75m)

·      Basic EPS was 2.10p (2018: 2.37p)

 

 

Gordon McArthur, CEO of Beeks Financial Cloud commented:

"Following an excellent close to the year, during which Beeks signed three Tier 1 clients, we have entered the new financial year in a strong position and enjoyed a good level of trading in the first two months of the year. Our core business with mid-tier organisations continues to grow and we are now layering on more strategic engagements with larger organisations.

Overall, the business is delivering on its early promise, using the enhanced profile and strengthened balance sheet resulting from the IPO in 2017 to capitalise on the growth in demand for Infrastructure as a Service offerings within financial markets. We are confident the quality of our service will see our client list continue to grow in the year ahead, and we look to the future with confidence."

 

For further information, please contact:

Beeks Financial Cloud Group plc

 

Gordon McArthur, CEO

via Alma PR

Fraser McDonald, CFO

 

 

 

Cenkos Securities plc

+44(0)131 220 6939

Derrick Lee / Pete Lynch

 

 

 

Alma PR

+44(0)20 3405 0212

Caroline Forde / Josh Royston / Helena Bogle

 

 

ABOUT BEEKS FINANCIAL CLOUD

Beeks Financial Cloud is a UK-based low-latency Infrastructure-as-a-Service (IaaS) provider for automated trading in Forex, Futures, Equities, Fixed income and cryptocurrency financial products. With eleven data centres globally and low-latency connectivity between sites, the Beeks Financial Cloud focuses on reducing barriers to entry and time to market for institutional clients. For more information, visit: www.beeksfinancialcloud.com.
 

Chairman's statement

 

I am pleased to report on another successful year of trading for Beeks Financial Cloud as a public company. As anticipated, we experienced a significant increase in momentum in the second half of the year. For the year, we delivered £7.4m revenue, an increase of 32%, underlying EBITDA of £2.5m, an increase of 27% and a strong exit run rate of Annualised Committed Monthly Recurring Revenue of £9.1m. This provides us with an excellent foundation for growth in the year ahead.

 

A key strategic focus through the year was the expansion of our client base to include larger Tier 1 organisations. Significant progress was achieved in this respect, signing a financial services organisation from within the insurance sector, a global bank and a global investment management organisation. Importantly, we have a strong pipeline of additional institutional contracts ahead, demonstrating the growing capabilities of the business and our expanding addressable market. With our enhanced product offering and global network, we are well placed to take advantage of these opportunities.

 

We have continued to invest in our platform and operations, and expanded our geographical footprint, in line with our stated strategy set out at the time of the IPO. With the addition of the second Equinix data centre in New York, we now operate out of eleven data centres and were pleased to see our two newest data centres, London InterXion and Singapore, become revenue generating in the year, in line with our targets.

 

Alongside our focus on growing the institutional client base, we were pleased to complete our first acquisition since Admission. The addition of Commercial Network Services augmented our retail trade offering, bringing established customer relationships and strong levels of recurring revenue, and I am pleased to say that the integration is going well. We expect this acquisition to be earnings enhancing in this new financial year.

 

As a result of our strong financial performance, the Board is pleased to propose a final dividend payment of 0.15p, which, combined with the interim dividend of 0.2p, equates to a total dividend for the year of 0.35p (2018: 0.30p).

 

In October, Fraser McDonald was appointed to the Board as CFO following the departure of Simon Goulding.  Fraser greatly contributed to the success of the Company's IPO in 2017, in his role as Financial Controller, and has been an excellent addition to the Board. 

 

We would like to take this opportunity to thank our entire team for their hard work and dedication which has enabled Beeks to expand and enter new markets, while retaining and growing our existing customer base. We have entered the new financial year in a strong position and are confident for further growth in the year ahead.

 

Mark Cubitt

Chairman

4 September 2019

 

 

Strategic overview

 

Market Overview

The Group continues to operate successfully in a demanding, time-sensitive industry. Our addressable market is extensive with up to 20,000 financial institutions as potential customers. The majority of these organisations are currently utilising their own IT infrastructure and are yet to move to the cloud computing model. We believe the decreased latency, increased flexibility and cost-benefits of cloud computing that we facilitate will see a gradual long-term shift to this model. The flexibility of cloud computing will allow financial institutions to accelerate new product development, generate new sources of income and test new geographies and markets, while moving costs from a capital expenditure to an operational expenditure model. Our innovations, enhanced product range position, breadth of asset classes and growing number of referenceable Tier 1 customers, positions us well to benefit from the growth in the market for automated trading, the continued adoption of cloud computing by financial services organisations and the opportunity for accelerated growth through corporate acquisitions in a fragmented market place.

 

Business Model

Beeks Financial Cloud is a leading cloud computing and connectivity provider for financial markets, offering Infrastructure as a Service and the management of hybrid cloud deployments to institutional and retail traders in forex, futures, equities, fixed income and cryptocurrency asset classes.

 

Beeks provides:

·      Dedicated and virtual servers that host traders and brokers in 11 data centres around the world

·      Ultra-low latency connectivity between clients and key financial venues and exchanges

·      Co-location for clients to position their own computing power in our space, benefitting from our proximity to financial hubs

·      In-house security software in order to protect client infrastructure from DDoS attacks

·      The management of hybrid cloud deployments for customers wishing to combine the Beeks IaaS with the public cloud

·      Our model focuses on efficiency and flexibility, offering our clients the ability to scale up and scale down as needed. Due to market fluctuations and the inherent risk involved in algorithmic trading, this makes our services highly attractive to clients.

 

Strategy

Our main strategic priority is to grow our institutional customer base both for hybrid cloud management and our core low latency offering and we are encouraged by the significant opportunities we have identified.

 

In order to satisfy existing client demand, and attract new customers, we will continue expanding into new asset classes and geographies, furthering our offering.

 

Our retail trader offering continues to grow, providing the business with a strong, profitable foundation. We will maintain our investment into this part of the business, to ensure we continue to provide a market leading offering, while we focus our strategic initiatives on the growth of the institutional offering.

 

While our focus is on organic growth, we will continue to assess further strategic acquisition opportunities that will accelerate growth and complement our business model. The acquisition of CNS adds both scale and cost-synergies to Beeks' retail trader offering, and we will look to acquire other businesses that are profitable and will add additional resources.

 

 

 

Strategic Report - Chief Executive's Review

 

Our vision is simple: to provide a rapidly deployed, secure and scalable cloud environment for trading applications.

 

The year under review was another successful one for Beeks in which we both delivered strong financial results and also built more of the foundations that will continue to benefit the Company in years to come.

 

The signing of our first three Tier 1 customers represents a major milestone and one that undoubtedly reflects on our successful AIM Admission in 2017. The procurement processes for Tier 1 customers are long and detailed and it is hard to envisage us having achieved this goal as a private company, despite the fact that the quality of our offering has never been in question. It is evident that Beeks' reputation continues to grow, as does our pipeline of opportunities.

 

The reason for the increasing adoption of our services is that our cloud-based Infrastructure as a Service ('IaaS') model allows financial organisations the flexibility and agility to deploy and connect to a variety of trading venues globally, at speed and at a fraction of the cost of building their own networks and infrastructure, irrespective of the organisation's size. We continue to invest in our offering and the ability to now offer dedicated servers is resonating well in our market.

 

In line with our clients' needs, we have continued to expand into new data centres and the relationship that we have with our partners in this field is stronger than ever as we continue to grow together.

 

As well as our ongoing focus on institutional clients we were pleased to complete our first acquisition since Admission. The addition of Commercial Network Services, acquired in May 2019, is highly complementary to our existing retail trader offering, bringing an established customer base, high levels of recurring revenue and a strong service offering. I am pleased to report that integration is proceeding well and the business is performing in line with our expectations. Following the acquisition, 20% of our revenue is currently derived from retail customers. While this segment is expected to be a strong profit generator for the Group moving forward and enhancements will continue to be made to the offering, the main focus of the management team will be on the growth of the institutional customer base.

 

Financial performance

I am very pleased to report another year of strong growth for the Company and one which has continued the trend of quarter on quarter growth since inception. Revenue increased by 32% year on year with growth in institutional sales, on which management is focussed, particularly encouraging. Beeks has strong recurring revenue and customer retention remained high with losses mainly as a result of customers exiting the market. Our Annualised Committed Monthly Recurring Revenues (ACMRR) reached £9.10m at 30 June 2019, increasing 32% from £6.90m at 30 June 2018.

 

Gross profit margin has reduced in line with our expectations to 50%, reflecting investment in the Group including the expansion into two new data centres and our self-service portal.

 

Market & Strategy

Our principal objective is to grow our institutional customer base in the markets for automated trading and hybrid cloud. Financial institutions around the world are looking to increase their customer offerings and require sophisticated cloud-based technology platforms to do so. Ongoing growth will continue to be achieved through entry into new geographies, further development of our offerings across the asset classes, and the continued evolution of our self-service web portal. The ease and speed with which our customers can increase their use of our platform via the web portal continues to be a strong competitive differentiator for the Group. The success of this approach is evident by the traction that we are gaining through our Fixed Income offering, an asset class that was only introduced by the Company in the prior financial year. We are particularly pleased with the progress we are making in this field and see this is a significant area of future growth for our business.

 

We will continue to add further services to our platform, such as data feeds from additional trading venues, data normalisation (where data from trading venues is collated and packaged), cloud data recovery and additional connectivity offerings and WAN capacity.

 

We have made our first strides into the Tier 1 institutional space with three significant wins and remain confident that we will add further in this space looking forward into the next financial year.

 

We continue to see the forex sector fragment, with new entrants requiring IaaS solutions. The cryptocurrency markets continue to evolve at break-neck speed and we are seeing a maturing in exchanges' hosting and connectivity requirements. We anticipate these factors as being continued drivers for demand for our service in the year ahead.

 

Competitive positioning

We have an established customer base and a strong competitive advantage through the breadth of our connectivity to trading venues, the sophistication of our self-service web portal, and the breadth of our services. We now have a foot-hold in all asset classes of note, meaning we can enter into contract discussions with any financial institution within the trading ecosystem. We believe we are now one of only very few businesses with this breadth globally and are unique in delivering these services via the cloud. We will continue to develop our cloud services in the year ahead, to capitalise on our strength in this area of the market. We are confident in our ability to remain at the forefront of this evolving market and grow our market share.

 

Operational Strengthening

This year saw the strengthening of our business in several key areas: across our people, our locations, the asset classes we cover and the sophistication of our product offering.

 

Headcount has remained steady at 33 as at 30 June 2019, compared with 33 as at 30 June 2018. Included within this though are a number of senior hires towards the end of the financial year, including a Global Head of Sales and a Head of Pre-Sales and Service Delivery. Both of these new hires bring over 40 years of industry experience and will help the Group access and support the larger customers in the market.

 

IT Support and development staff have also increased, replacing some management and administration roles.

 

Whilst we continue to hire quality people, our aim is to automate tasks wherever possible - from billing through to service delivery, to allow us to provide a competitive price and to build operational leverage.

 

Our two newest sites became revenue generating during the year, being Singapore Exchange, Asia's leading international, multi-asset exchange, and InterXion in London. Good levels of customer interest means we are on track to reach break-even at a monthly operating level at these new sites within our targeted timeline of 12 months. Following a period of investigation of the B3 exchange in Brazil, we have decided not to launch in this data centre for commercial and operational reasons. With the recent regulatory changes in the domestic Chinese market we have maintained our "wait and see" strategy before investing in hard assets in country.

 

We will continue to review new sites and locations as part of our growth and expansion plans and be led by customer demand.

 

Our expansion into new asset classes and geographies has aided the increase in our average monthly client revenue, as well as bringing new customers. We have continued to add connectivity to several cryptocurrency exchanges, as well as beginning to host more crypto exchanges and platforms on our infrastructure, meeting the rise in customer demand and connecting clients to mutual partners. We will continue to expand our offering in this area, in addition to seeking to exploit further opportunities within the Fixed Income and Equities space as client demand dictates.

 

Our web portal is an industry-leading customer self-service portal that automates the creation of infrastructure to allow clients the ability to build servers themselves. By reducing human intervention, the speed and ease of the provision of products is greatly improved with a basic virtual private server, the building block for our clients being able to trade, being ready in as little as five minutes. Our continuous development of the portal now allows for provision of dedicated servers, as well as providing a platform for our clients to take inventory of their infrastructure and to check available capacity of Beeks' servers across our global locations. This, in turn, facilitates the scaling of client infrastructure as clients can choose and build additional servers at their own pace. This is unique to Beeks in the financial services sector.

 

We have sufficient unused power and capacity around the world to meet our current growth projections without significant additional increase in monthly operating spend requirements.

 

Customers

 

Institutional customer numbers using the platform grew from 192 at 30 June 2018 to 220 at 30 June 2019 and the average entry level new institutional customer contract has increased to £2,200 per month from £800 per month when compared to the same period last year. Institutional revenue, which continues to be our focus, represented almost 90% of total revenue before the CNS acquisition. This percentage has been reduced to approx. 80% following the acquisition of the predominately retail business of CNS.

 

The opportunist acquisition of CNS in May 2019, added approximately 1,000 retail trader customers to the Group and £0.8m of Annualised Committed Monthly Recurring Revenue. Integration of the business has progressed well and we believe there is the opportunity for revenue expansion through the provision of additional elements of the Beeks service, not previously available to the CNS customers.

 

The last year has seen a considerable expansion of the types of customer we support, with Beeks now catering for banks, brokers, hedge funds, insurers, crypto traders and exchanges.

 

Future Growth and Outlook

 

Following an excellent close to the year, we have entered the new financial year in a strong position and enjoyed a good level of trading in the first two months of the year. Our core business with mid-tier organisations continues to grow and we are now layering on more strategic engagements with larger organisations.

 

The market environment is positive, with a growing number of financial institutions turning to the flexibility and scalability offered by Infrastructure as a Service. This positive market backdrop, combined with an increased breadth of offering and depth of experience within our sales team, means our sales pipeline is considerably larger than ever before and our existing customers continue to increase their use of the Beeks Financial Cloud. While the more strategic Tier 1 engagements naturally take longer to close, the number of opportunities in which we are engaged gives us confidence that we will secure additional long-term Tier 1 customers this year.

 

Overall, the business is delivering on its early promise, using the enhanced profile and strengthened balance sheet resulting from the IPO in 2017 to capitalise on the growth in demand for Infrastructure as a Service offerings within financial markets. We are confident the quality of our service will see our client list continue to grow in the year ahead, and we look to the future with confidence.

 

 

Gordon McArthur

Chief Executive Officer

4 September 2019

 

 

Strategic Report - Financial Review

 

KEY PERFORMANCE INDICATOR REVIEW

 

 

 

 

 

Revenue

£7.35m

£5.58m

31.7%

ACMRR

£9.10m

£6.90m

31.9%

Gross margin

49.6%

53.4%

 

Underlying EBITDA*

£2.48m

£1.95m

27.1%

Underlying EBITDA margin

33.7%

34.7%

 

Underlying profit before tax

£1.32m

£1.19m

10.9%

Underlying EPS (note 23) **

2.58p

2.27p

13.7%

Dividend per share

0.35p

0.30p

16.7%

 

 

 

 

 

* Underlying EBITDA is defined as earnings before amortisation, depreciation, finance costs, acquisition costs, share based payments, taxation and exceptional costs

** Underlying profit before tax and underlying EPS excludes amortisation on acquired intangibles, acquisition costs, share based payments and exceptional non-recurring costs

 

Revenue

FY19 was a good year in terms of revenue growth. Group revenues grew by 31.7% to £7.35m (2018: £5.58m), driven mainly by continued organic growth. The CNS acquisition contributed £0.1m revenue in the final two months of the year. 99% of the Group's revenues were recurring.  Annualised Committed Monthly Recurring Revenues (ACMRR) increased by 31.9% to £9.1m (2018: £6.9m) with CNS representing £0.8m of this increase.

 

We continue to have a healthy level of customer concentration with no single customer accounting for more than 6% of ACMRR. We have increased the number of institutional customers to 220 from 192 as at 30 June 2018 and our top 10 customers accounted for 32% of recognised revenue in the year (2018: 29%).

 

Gross Profit

Gross profit earned increased 22.5% to £3.65m (2018: £2.98m), however the Group saw a decrease in gross margins from 53.4% to 49.6% as anticipated. Part of this reduction was within direct costs due to the investment made this year into our two new data centres in London InterXion and Singapore. These data centres are revenue generating but not yet at breakeven levels which is typically achieved 12 months from go-live. Gross margin has also been impacted by an increase of depreciation to £0.89m (FY18: £0.58m) as the Group has continued to invest in capacity to support our increased revenues and customer growth. In relation to sales growth, fixed asset investment and therefore depreciation has increased at a higher rate, partly due to the timing of sales order to revenue recognition and the longer sales cycle we have seen in the Tier 1 space. The Group has continued to invest in developing innovative technology solutions such as the customer portal and has incurred internal capitalised development costs of £0.8m (2018: £0.4m).

 

Other Operating Expenses

Operational costs, which are defined as operating expenses less exceptional costs, share based payments and non-recurring costs, have increased by £0.5m as we support both a growing and more mature customer base and to gear up for future growth plans. Overall, they increased by 29% to £2.2m (2018: £1.7m). Within this, staff costs have increased by £0.4m mainly as a result of having our staff numbers in place for the full financial year in comparison to last year. This year was also our first full financial year as a PLC, therefore the added regulatory, legal and financial costs had an impact of an additional £0.1m when compared with last year.

 

Finance Costs

Finance costs are relatively flat when compared with last year. Finance lease interest costs have reduced as a result of some finance leases coming to the end of life but this has been offset partly by higher loan interest latterly due to the £1m debt facility taken to finance the CNS acquisition. Other than the loan to finance the acquisition, there has been no additional debt taken on by the Group during the period as operating cash flow and IPO proceeds has been sufficient to meet the Group's working capital requirements.

 

Earnings before interest, tax, depreciation, amortization and exceptional non-recurring costs ("Underlying EBITDA") increased by 27.1% to £2.48m (2018: £1.95m) with underlying EBITDA margin largely maintained when compared to last year at 33.7% (2018: 34.7%). The growth in Underlying EBITDA has largely been driven by the increase in organic sales.

 

Underlying EBITDA, underlying profit before tax and underlying earnings per share are alternative performance measures, considered by the Board to be a better reflection of true business performance than statutory measures only. 

 

PROFIT BEFORE TAX

 

 

Profit before tax for the year

1,043

747

Add back:

 

 

IPO Exceptional costs

-

368

Acquisition costs

127

-

Share Based payments

63

-

Exceptional Non-recurring costs

21

-

Amortisation of acquired intangibles

62

76

Underlying profit for the period

 

 

Underlying Profit before tax increased to £1.32m (2018: £1.19m). The impact of higher depreciation and amortization as a result of both investment in our operational asset base and the self-service customer portal have had an impact on PBT.

 

Taxation

 

The effective tax rate ('ETR') for the period was (1.9%), (2018: (1.3%)).

 

The ETR has been reduced by both deductions for share options and R&D tax credit claims.

 

Further tax has become payable in the US which has been provided for at a US tax rate estimate of 25%.

 

Earnings per Share and Dividends

 

Underlying earnings per share rose 14% to 2.58p (2018: 2.27p).  Underlying diluted earnings per share rose to 2.55p (2018: 2.20p). 

 

Basic earnings per share decreased to 2.10p (2018: 2.37p).  Basic EPS has shown a decrease due to the calculation method used in 2018 where the weighted average number of ordinary shares was impacted by the share split during IPO. Diluted earnings per share was also impacted by this and reduced to 2.09p (2018: 2.26p).

 

The Board proposes a final dividend of 0.35p (2018:0.3p).  This is in line with our progressive dividend policy for dividend growth.  Subject to shareholder approval at the forthcoming Annual General Meeting, the final dividend is expected to be paid on 31 October 2019 to shareholders on the register at 30 September 2019.

 

Balance Sheet and Cash flows

 

The statement of financial position shows an increase in non-current assets to £4.81m (2018: £3.24m). This is as a result of the £1.1m acquisition of the trade assets of CNS, investment in property, plant and equipment of over £1m (2018: £1.4m) and further investment in our customer self-service portal of £0.4m (2018: £0.4m), offset by depreciation and amortization. Trade and other receivables have increased proportionately with revenue growth and because of the CNS acquisition. The increase in accrued income is largely driven by the two months of CNS income that was transferred to Beeks' bank following the year end.

 

During the year the Group repaid £0.4m of loan and lease finance and drew down £1m of loan finance to part fund the CNS acquisition of trade assets.

 

At 30 June 2019 net assets were £5.63m compared to net assets of £4.84m at 30 June 2018.

 

The Group ended the period with net cash of £1.02m (30 June 2018: net cash £2.09m).

 

 

Fraser McDonald

Chief Financial Officer

4 September 2019

 

 

Beeks Financial Cloud Group PLC

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2019

 

 

 

2019 

 

2018 

 

Note 

£000 

 

£000 

 

 

 

 

 

Revenue

3

7,352 

 

5,583 

 

 

 

 

 

Cost of sales

 

(3,707)

 

(2,602)

 

 

 

 

 

Gross profit

 

3,645 

 

2,981 

 

 

 

 

 

Administrative expenses

 

(2,457)

 

(2,081)

 

 

 

 

 

Operating profit

4

1,188 

 

900 

 

 

 

 

 

Analysed as

 

 

 

 

Earnings before depreciation, amortisation, acquisition costs, share based payments and non-recurring costs:

 

2,479 

 

1,946 

Depreciation

11

898 

 

584 

Amortisation

10

182 

 

94 

Acquisition costs

9

127 

 

- 

Share based payments

19

63 

 

- 

Non-recurring costs

 

21 

 

368 

Operating profit

 

1,188 

 

900 

 

 

 

 

 

Finance income

 

7 

 

2 

Finance costs

5

(152)

 

(155)

 

 

 

 

 

Profit before taxation

 

1,043 

 

747 

 

 

 

 

 

Taxation

8

20 

 

10 

 

 

 

 

 

Profit after taxation for the year attributable to the owners of Beeks Financial Cloud Group PLC

 

1,063 

 

757 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

Amounts which may be reclassified to profit and loss

 

 

 

 

Gain on exchange

 

18 

 

1 

 

 

 

 

 

Total comprehensive income for the year

 

1,081 

 

758 

 

 

 

 

 

Basic earnings per share

23

2.10 

 

2.37 

Diluted earnings per share

23

2.09 

 

2.26 

 

 

 

The above income statement should be read in conjunction with the accompanying notes.

 

 

Beeks Financial Cloud Group PLC

Consolidated Statement of Financial Position

As at 30 June 2019

 

 

 

 

 

2019 

 

2018 

 

 

Note

 

£000 

 

£000 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Intangible assets

 

10

 

2,229 

 

852 

Property, plant and equipment

 

11

 

2,440 

 

2,137 

Deferred tax

 

12

 

136 

 

255 

 

 

 

 

4,805 

 

3,244 

Current assets

 

 

 

 

 

 

Trade and other receivables

 

13

 

1,104 

 

664 

Cash and cash equivalents

 

14

 

2,338 

 

2,887 

 

 

 

 

3,442 

 

3,551 

 

 

 

 

 

 

 

Total assets

 

 

 

8,247 

 

6,795 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Borrowings and other financial liabilities

 

16

 

699 

 

332 

Deferred tax

 

12

 

48 

 

108 

Total non-current liabilities

 

 

 

747 

 

440 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

17

 

1,868 

 

1,511 

Total current liabilities

 

 

 

1,868 

 

1,511 

 

 

 

 

 

 

 

Total liabilities

 

 

 

2,615 

 

1,951 

 

 

 

 

 

 

 

Net assets

 

 

 

5,632 

 

4,844 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Issued capital

 

18

 

64 

 

62 

Reserves

 

20

 

4,531 

 

4,450 

Retained earnings

 

 

 

1,037 

 

332 

Total equity

 

 

 

5,632 

 

4,844 

 

 

 

 

 

 

 

 

 

The above statement of financial position should be read in conjunction with the accompanying notes.

 

 

Beeks Financial Cloud Group PLC

Consolidated Statement of Changes in Equity

As at 30 June 2019

 

 

 

Foreign

 

 

Share

Share

 

 

 

Issued

currency

Merger

Other

based

premium

Retained

Total

 

capital

reserve

reserve

reserve

payments

reserve

earnings

equity

 

£000 

£000 

£000 

£000 

£000 

£000 

£000 

£000 

 

 

 

 

 

 

 

 

 

As at 1 July 2017

2 

83 

372

(315) 

- 

- 

(517)

(375)

Profit after income tax expense for the year

- 

- 

- 

- 

- 

- 

757 

757 

Total comprehensive income

- 

- 

- 

- 

- 

- 

757 

757 

 

 

 

 

 

 

 

 

 

Exchange gain

- 

1 

- 

- 

- 

- 

- 

1 

Deferred tax

- 

- 

- 

- 

- 

- 

104 

104 

Issue of share capital

60 

- 

- 

- 

- 

4,309 

(12)

4,357 

As at 30 June 2018

62 

84 

372

(315)

- 

4,309 

332 

4,844 

 

 

 

 

 

 

 

 

 

Profit after income tax expense for the year

- 

- 

- 

- 

- 

- 

1,063 

1,063 

Total comprehensive income

- 

- 

- 

- 

- 

- 

1,063 

1,063 

 

 

 

 

 

 

 

 

 

Exchange gain

- 

18 

- 

- 

- 

- 

- 

18 

Deferred tax

- 

- 

- 

- 

- 

- 

(104) 

(104) 

Issue of share capital

2 

- 

- 

- 

- 

- 

- 

2 

Share based payments

- 

- 

- 

- 

63 

- 

- 

63 

Dividends paid

- 

- 

- 

- 

- 

- 

(254)

(254)

As at 30 June 2019

64 

102 

372

(315)

63 

4,309 

1,037 

5,632 

 

 

 

 

 

 

 

 

 

 

The above statement of changes in equity should be read in conjunction with the accompanying notes.

 

 

 

Beeks Financial Cloud Group PLC

Consolidated Cash Flow Statement

For the year ended 30 June 2019

 

 

 

 

2019 

 

2018 

 

Note

£000 

 

£000 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

Profit before taxation for the year

 

1,043 

 

747 

Adjustments for:

 

 

 

 

Depreciation and amortisation

 

1,080 

 

678 

Share options

 

63 

 

- 

Impairment

 

21 

 

- 

Foreign exchange

 

(16)

 

- 

Interest received

 

(7)

 

(2)

Finance fees and interest

 

152 

 

155 

Operating cash flows

 

2,336 

 

1,578 

 

 

 

 

 

(Increase) in receivables

 

(440)

 

(270)

Increase/ (decrease) in payables

 

229 

 

(768)

Operational cash flows after movement in working capital

 

2,125 

 

540 

 

 

 

 

 

Corporation tax paid

 

(26)

 

(92)

Net cash inflow from operating activities

 

2,099 

 

448 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Capitalised development costs

10

(437)

 

(384)

Acquisition of trading assets of business

9/10

(1,112)

 

-

Payments for property, plant and equipment

11

(1,222)

 

(1,071)

 

 

 

 

 

Net cash (outflow)/ inflow from investing activities

 

(2,771)

 

(1,455)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Repayment of existing loan borrowings

 

(34)

 

(78)

Dividends paid

 

(254)

 

- 

Sale and leaseback of property, plant and equipment

 

- 

 

203 

Issue of loans

 

990 

 

- 

Finance lease repayments

 

(435)

 

(458)

Finance fees and interest

5

(152)

 

(155)

Interest received

5

7 

 

2 

Proceeds from the issue of share capital

 

1 

 

4,357 

Net cash outflow from financing activities

 

123 

 

3,871 

 

 

 

 

 

Net (decrease) / increase in cash and cash equivalents

 

(549)

 

2,864 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

2,887 

 

23 

 

 

 

 

 

Cash and cash equivalents at end of year

14

2,338 

 

2,887 

 

 

The above cash flow statement should be read in conjunction with the accompanying notes.

 

 

Beeks Financial Cloud Group PLC

Notes to the Consolidated Financial Statements

For the year ended 30 June 2019

 

1.    Summary of significant accounting policies

 

CORPORATE INFORMATION

Beeks Financial Cloud Group PLC is a public limited company which is listed on the AIM Market of the London Stock Exchange and is incorporated in Scotland. The address of its registered office is Lumina Building, 40 Ainslie Road, Ground Floor, Hillington Park, Glasgow, UK, G52 4RU. The principal activity of the Group is the provision of information technology services. The registered number of the Company is SC521839.

 

The financial statements are prepared in pounds sterling.

 

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

 

BASIS OF PREPARATION

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the Companies Act 2006 applicable to companies reporting under IFRS. 

 

The financial statements have been prepared under the historical cost convention.

 

Publication of non-statutory accounts

The financial information set out in this announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.

 

The consolidated statement of financial position, the consolidated statement of changes in equity and the consolidated statement of cash flows as at 30 June 2019 and the consolidated statement of comprehensive income for the year ended 30 June 2019, together with the associated notes, have been extracted from the Group's 2019 financial statements upon which the auditor's opinion is unqualified and does not include any statement under section 498 of the Companies Act 2006.

 

 

International Financial Reporting Standards and Interpretations issued but not yet effective

At the date of authorisation of these financial statements, the following standards, interpretations and amendments have been issued but are not yet effective and have no material impact on the Group's financial statements:

·    IFRS 10 and IAS 28 (amendments) - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.

·    IFRS 11 - Amendments relating to Acquisitions of Interests in Joint Operations.

·    IFRS 2 (amendments) - Classification and Measurement of Share-Based Payment Transactions.

·    Annual Improvements to IFRSs 2012 - 2014 cycle - Amendments to IFRS 1 first-time adoption of International Financial Reporting Standards.

 

Amendments that are expected to have an impact on the Group's consolidated financial statements:

 

IFRS 16 - Leases

The Group is currently completing its assessment of IFRS 16, however, at this time the Group intends to transition to IFRS 16 applying the modified retrospective adoption method, with no restatement of prior year comparatives, and will therefore recognise leases on balance sheet as at 1 July 2019. Adopting IFRS 16 will result in the recognition of a right-of-use asset and corresponding liability on the balance sheet for each lease, with the associated depreciation and interest expense being recognised in the income statement over the period of the lease.  The right-of-use asset will be assessed for impairment under IAS 36 at the date of initial application.

 

The current initial impact assessment of IFRS 16 has provisionally concluded that our intention is to make the following policy choices on transition to IFRS 16 on 1 July 2019:The Group plans to apply IFRS 16 initially on 1 July 2019 using the modified retrospective approach with the cumulative effect of adopting IFRS 16 recognised through opening retained earnings with no restatement of comparatives.

 

·       The value of the right-of-use asset recognised on the initial application of IFRS 16 will be equal to the lease liability.

·       The Group intends to apply the practical expedient that permits the exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application.

·       The Group intend to use the practical expedient not to recognise short-term leases (with a term of less than twelve months) and low-value leases (where the value of lease on inception is less than £5,000). These leases will continue to be classed as operating leases under IAS 17.

·       The lease liability at 1 July 2019 will be measured at the present value of unpaid lease payments applying an appropriate incremental borrowing rate based on the rate of interest on the Group's external borrowings, adjusted for the term of the lease.

 

Based on our preliminary assessment the impact will be:

·       There will be recognition of a right-of-use asset and lease liability of an estimated £1.3m to £1.5m at 1 July 2019 based on the values disclosed in the operating lease commitment note adjusted to present value and for our provisional view of the definition of a lease under IFRS 16.

·       It is estimated that proforma EBITDA for the year ended 30 June 2019 would have increased by £500k to £560k as operating lease expenses previously recognised as operating expenses will be reclassified to depreciation and finance costs under IFRS 16.

·       Our preliminary assessment will be further advanced over the coming months.

 

ADOPTION OF NEW AND REVISED STANDARDS

 

Amendments to IFRS that are mandatorily effective for the current year. In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective in the current year.

 

A number of new and revised standards are effective for annual periods beginning on or after 1 July 2018.

 

The Group has considered the impact of these standards and revisions and has concluded that they will not have a significant impact on the Group's financial statements. The accounting policies set out below have been applied consistently to all periods presented in the financial statements by the Group.

 

IFRS 9 "Financial Instruments"

IFRS 9 replaces IAS 39 "Financial Instruments: Recognition and Measurement". It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an "expected credit loss" model for the impairment of financial assets. The Group's finance team performs valuations of financial items for financial reporting purposes. The Group has no complex Financial Instruments.

 

Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. The finance team reports directly to

the Chief Financial Officer (CFO) and to the audit committee. Valuation processes and fair value changes are discussed among the audit committee and the valuation team at least every year, in line with the Group's reporting dates.

 

When adopting IFRS 9, the group has applied transitional relief and opted not to restate prior periods. Differences arising from the adoption of IFRS 9 in relation to classification, measurement, and impairment are recognised in retained earnings.

 

The adoption of IFRS 9 has impacted the following areas:

·    The impairment of financial assets applying the expected credit loss model. This affects the group's trade receivables and investments in debt type assets measured at amortised cost. For contract assets arising from IFRS 15 and trade receivables, the group applies a simplified model of recognising lifetime expected credit losses on these assets. There are no significant financing components attached to these assets.

·    The reclassification of financial instruments, financial assets previously classified as loans and receivables are now classified as financial assets subsequently measured at amortised cost. There has been no reclassification of financial liabilities, and the reclassification of financial assets has not resulted in any adjustment to the values previously reported.

 

IFRS 9 has no impact on the on the balance sheet presentation of financial liabilities and minimal impact for financial assets, mainly being the reduction of the categories of financial assets.

 

IFRS 15 "Revenue from Contracts with Customers"

IFRS 15 "Revenue from Contracts with Customers" and the related "Clarifications to IFRS 15 Revenue from Contracts with Customers" (hereinafter referred to as "IFRS 15") replaced IAS 18 "Revenue", IAS 11 "Construction Contracts", and several revenue-related Interpretations. The new Standard has been applied retrospectively without restatement as it had no material impact on previously reported results or retained earnings. In accordance with the transition guidance, IFRS 15 has only been applied to contracts that are incomplete as at 1 July 2018.

 

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under IFRS 15, revenue is recognised when the performance obligation on each contract has been satisfied with the customer. At the outset of each contract, an assessment is completed to determine the relevant performance obligations on each contract. As defined in IFRS 15, performance obligations in a contract are either goods or services that are distinct, or a series of goods or services that are substantially the same. Services which are not distinct, are combined with other services in the contract until a performance obligation is satisfied.

 

Whilst implementing IFRS 15 the Group has not made any significant judgements.

 

The Group has considered the following areas where IFRS 15 may have a potential Impact: -

1)       Set-up fees charged on contracts. When a set-up fee is arranged, Beeks will consider the material rights of the set-up fee, if in substance it constitutes a payment in advance, the set-up fee will be deemed to be a material right.

 

The accounting treatment for both material rights and non-material rights set-up fees is as follows:

·       Any set up fees that are material rights are spread over the term of the contract.

·       Set up fees that are not material rights are recognised over one month.

 

2)       Access and use of server, here revenue is generally recognised over time as the group satisfies performance obligations by transferring the promised services to its customers.

 

3)       In addition to recurring services, the Group also generates revenue from the sale of hardware, software, and consultancy services. Again consistent with IFRS 15, revenue is recognised in line with the satisfaction of the performance obligation which in the vast majority of instances is in line with the delivery of the item or service to the customer. As a result, the revenue recognition policy for these services remains unchanged under IFRS 15.

 

The Group has considered these areas and is of the opinion that adoption of IFRS 15 has not resulted in any adjustment to previously reported results or retained earnings.

 

As the Group enters into new streams of business it will consider the impact of IFRS 15 on an individual basis.

 

GOING CONCERN

 

The Directors have assessed the current financial position of Beeks Financial Cloud Group PLC, taking account of its business activities, together with the factors likely to affect its future development, performance and position as set out in the Strategic Report on pages 6 to 16.

 

The key factors considered by the Directors were:

·      historic and current trading and profitability of the Group,

·      the rate of growth in sales both historically and forecast,

·      the competitive environment in which the group operates,

·      the current level of cash reserves,

·      current level of debt obligations,

·      the finance facilities available to the Group, including the availability of any short term funding required.

 

The Group prepares regular forecasts and projections of revenues, profits and cash flows that are essential for identifying areas on which management can focus to improve performance and mitigate the possible adverse impact of a deteriorating economic outlook. They also provide projections of working capital requirements. The Directors have reviewed the trading and cash flow forecasts for the 18 months after the year ended 30th June 2019 as part of their going concern assessment, including downside sensitivities, which take into account the uncertainties in the current operating environment.

 

Having considered all the factors impacting the Group's business and having prepared relevant financial projections and sensitivities, including financial projections which allow for reasonably possible downsides to the Group's base case projections, and taking account of mitigating actions that can be taken in periods when headroom is tight, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors have adopted the going concern basis in preparing the annual financial statements.

 

CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.

 

PRINCIPLES OF CONSOLIDATION

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary or a business is the fair values of the assets transferred, the liabilities incurred to former owners of the acquiree and the equity interests issued to the Group. The consideration transferred includes the fair values of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values on the acquisition date. Acquisition related costs are expensed as incurred. As each of the subsidiaries are 100% wholly owned, the Group has full control over each of its investees. Intercompany transactions, unrealised gains and losses on intragroup transactions and balances between group companies are eliminated on consolidation.

 

Foreign currency transactions

Foreign currency transactions are translated into pound sterling using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

 

Foreign operations

The assets and liabilities of foreign operations are translated into pound sterling using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Pound sterling using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity.

 

REVENUE RECOGNITION

Revenue arises from the provision of cloud-based localisation. To determine whether to recognise revenue, the group follows a 5-step process as follows:

1. Identifying the contract with a customer

2. Identifying the performance obligations

3. Determining the transaction price

4. Allocating the transaction price to the performance obligations

5. Recognising revenue when/as performance obligation(s) are satisfied.

 

Revenue is measured at transaction price, stated net of VAT and other sales related taxes, if applicable.

 

The Group considers the performance condition to be the provision of access and use for clients of our servers. As the client receives and consumes the benefit of this use and access over time, the related revenue is recognised evenly over the life of the contract.

 

Revenue is generally recognised over time as the group satisfies performance obligations by transferring the promised services to its customers.

 

Cost of Sales

Costs considered to be directly related to revenue are accounted for as cost of sales. All direct production costs and overheads, including indirect overheads that can reasonably be allocated, have been classified as cost of sales.

 

Interest

Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

 

TAXATION AND DEFERRED TAXATION

The income tax expense or income for the period is the tax payable on the current period's taxable income. This is based on the national income tax rate enacted or substantively enacted for each jurisdiction with any adjustment relating to tax payable in previous years and changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in financial statements.

 

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applicable when the asset or liability crystallises based on current tax rates and laws that have been enacted or substantively enacted by the reporting date. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability.

 

A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of temporary differences can be deducted. The carrying amount of deferred tax assets are reviewed at each reporting date.

 

CURRENT AND NON-CURRENT CLASSIFICATION

Assets and liabilities are presented in the statement of financial position based on current and non-current classification.

 

An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current.

 

A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current.

 

Deferred tax assets and liabilities are always classified as non-current.

 

CASH AND CASH EQUIVALENTS

Cash at bank, overnight and longer term deposits which are held for the purpose of meeting short term cash commitments are disclosed within cash and cash equivalents.

 

IFRS 9 - FINANCIAL INSTRUMENTS

In the current year, the Group has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments of IFRS 7 Financial Instruments: Disclosures that are effective for an annual period that begins on or after 1 July 2018. The Group and parent company has elected to apply the transition provisions of IFRS 9 and opted not to restate comparatives. Any differences from the adoption of IFRS 9 in relation to classification, measurement and impairment are recognised in retained earnings.

 

IFRS 9 introduced new requirements for:

1.   The classification and measurement of financial assets and financial liabilities;

2.   Impairment of financial assets; and

3.   Hedge accounting.

 

There has not been a material impact to the Group on adoption of IFRS 9. The Group has applied the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables.

 

The expected credit loss provision under IFRS 9 as at 30 June 2019 is £4,000. In the prior year, the impairment of trade receivables was assessed based on the incurred loss model under IAS 39. The allowance provision for impairment calculated under IAS 39 "Financial instruments: recognition and measurement" and IFRS 9 "Financial Instruments" at 1 July 2019 are not materially different, accordingly, there are no adjustments on transition.

 

TRADE AND OTHER RECEIVABLES

Trade and other receivables are recognised at fair value, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that Beeks Financial Cloud Group PLC will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtors, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade and other receivables may be impaired.   The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the profit or loss within 'administrative expenses'. When a trade or other receivable is uncollectible, it is written off against the allowance account for trade and other receivables. Subsequent recoveries of amounts previously written off are credited against 'cost of sales' in the profit or loss.

 

SHARE BASED PAYMENTS

Options are measured at fair value at grant date using the Black Scholes model. The fair value is expensed on a straight line basis over the vesting period, based on an estimate of the number of options that will eventually vest.

 

Under the group's share option scheme, share options are granted to directors and selected employees. The options are expensed in the period over which the share based payment vests. A corresponding increase to the share option reserve under shareholder's funds is recognised.

 

When share options are exercised, the company issues new shares. The nominal share value from the proceeds received are credited to share capital and proceeds received above nominal value, net of attributable transaction costs, are credited to the share premium when the options are exercised. When share options are forfeited, cancelled or expire, the corresponding fair value is transferred to the accumulated losses reserve.

 

The group has no legal or constructive obligation to repurchase or settle the options in cash.

 

PROPERTY, PLANT AND EQUIPMENT (PPE)

PPE is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.  Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Beeks Financial Cloud Group PLC and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

 

Depreciation on plant and machinery and fixtures and fittings is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows:

 

-      Leasehold improvements                                 over the lease period

-      Computer Equipment                                      3 to 4 years and over the length of lease

 

The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.

 

Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter.

 

An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits.

 

LEASES

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

 

A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits.

 

Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability.

 

Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term.

 

Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease.

 

Sale and leaseback transactions

For a sale and leaseback transaction that results in a finance lease, any excess of proceeds over the carrying amount is deferred and amortised over the lease term.

For a transaction that results in an operating lease:

·    if the transaction is clearly carried out at fair value - the profit or loss should be recognised immediately,

·    if the sale price is below fair value - profit or loss should be recognised immediately, except if a loss is compensated for by future rentals at below market price, the loss it should be amortised over the period of use,

·    if the sale price is above fair value - the excess over fair value should be deferred and amortised over the period of use,

·    if the fair value at the time of the transaction is less than the carrying amount - a loss equal to the difference should be recognised immediately.

 

INTANGIBLE ASSETS AND AMORTISATION

 

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the assets and liabilities assumed at the date of acquisition. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Intangible assets carried forward from prior years are re-valued at the exchange rate in the current financial year. Impairment testing is carried out by assessing the recoverable amount of the cash generating unit to which the goodwill relates. Negative goodwill is immediately released to the Income Statement in the year of acquisition.

 

Customer relationships

Included within the value of intangible assets are customer relationships. These represent the purchase price of customer lists and contractual relationships purchased on the acquisition of the business and assets of Gallant VPS Inc., and Commercial Network Services. These relationships are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method over periods of between five and ten years.

 

Development costs

The Group reviews half yearly whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each bi-annual review. During the year ended 30 June 2019, management conducted a comprehensive review of all capitalised development. Development costs relating to the company's customer self-service portal and cyber-attack prevention products have been capitalised. Management have estimated that 5 years is an appropriate useful life of these asset based on future revenues and cost savings. All new capitalised development is reviewed on an individual project basis and management will select the most appropriate rate of amortisation for each asset. For details on the estimates made in relation to intangible assets, see note 2.

 

IMPAIRMENT

Goodwill and assets that are subject to amortisation are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.

 

Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.

 

TRADE AND OTHER PAYABLES

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. These amounts represent liabilities for goods and services provided to Beeks Financial Cloud Group plc prior to the end of the financial period which are unpaid as well as any outstanding tax liabilities.

 

BORROWINGS

Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method.

 

DEFINED CONTRIBUTION SCHEMES

The defined contribution scheme provide benefits based on the value of contributions made. Contributions to the defined contribution superannuation plans are expensed in the period in which they are incurred.

 

FAIR VALUE MEASUREMENT

When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.

 

Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

 

EQUITY

Ordinary shares are classified as equity.  An equity instrument is any contract that evidences a residual interest in the assets of Beeks Financial Cloud Group plc after deducting all of its liabilities. Equity instruments issued by Beeks Financial Cloud Group plc are recorded at the proceeds received net of direct issue costs.

 

The share capital account represents the amount subscribed for shares at nominal value.

 

The accounting policies set out above have, unless otherwise stated, been applied consistently by the Group to all periods presented.

 

EARNINGS PER SHARE

 

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the owners of Beeks Financial Cloud Group PLC, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.

 

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

 

VALUE-ADDED TAX ('VAT') AND OTHER SIMILAR TAXES

Revenues, expenses and assets are recognised net of the amount of associated VAT, unless the VAT incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense.

 

Receivables and payables are stated inclusive of the amount of VAT receivable or payable. The net amount of VAT recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position.

 

Cash flows are presented on a gross basis. The VAT components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.

 

Commitments and contingencies are disclosed net of the amount of VAT recoverable from, or payable to, the tax authority.

 

ROUNDING OF AMOUNTS

Amounts in this report have been rounded off to the nearest thousand pounds, or in certain cases, the nearest pound.

 

 

2.       Critical accounting judgements, estimates and assumptions

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.

 

Estimation of useful lives of assets

The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.

 

Goodwill and other indefinite life intangible assets

The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 1. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Sensitivity analysis is also performed to reduce growth assumptions and increase discount rates and there is still sufficient headroom in the asset, see note 10.

 

Valuation of intangible assets and fair value adjustments on acquisition

As the Group continues to implement its acquisition strategy there is a requirement to fair value the assets and liabilities of any business acquired during the year. The Group is required to make an assessment as to what intangible assets exist within the acquired business at the time of the acquisition and what fair value adjustments are required. When reviewing the existence of intangible assets, consideration has been given to potential intangible assets such as customer relationships. The estimation of the valuation of customer relationships is based on the value in use calculation which requires estimates of the future cash flows expected to arise from the existing customer relationships over their useful life and to select a suitable discount rate in order to calculate the present value. Full details of the assumptions used in the calculation of intangible assets and fair value adjustments on the acquisitions that have occurred during the current year are disclosed in note 9.

 

Development costs

The Group reviews half yearly whether the recognition criteria for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each review period. In addition, all internal activities related to the development of new products are continuously monitored by the Directors. See note 10 for further information.

 

Taxation

The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

 

Recovery of deferred tax assets

The Group has tax losses available to offset future taxable profits. In estimating the amount of deferred tax to be recognised as an asset the Group estimates the future profitability of the relevant business unit. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Within the deferred tax provisions are deferred tax assets that have been recognised in the US due to the difference between the amortisation period. The group has elected to amortise the US assets over a period of 15 years in line with US tax authorities. This gives rise to a deferred tax asset as the Group is using a five year useful life for financial reporting purposes. The deferred tax asset has been calculated at an average US tax rate of 30%. This is shown in note 12.

 

Allowance for expected credit losses

The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience and historical collection rates.

 

Share based payments

The Group operates equity-settled share based remuneration plans for its employees. All goods and services received in exchange for the grant of any share based payment are measured at their fair values.  Where employees are rewarded using share based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant.

 

All share based remuneration plans are ultimately recognised as an expense through profit or loss with a corresponding credit to 'retained earnings'.

 

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest.   Estimates are subsequently revised if there is any indication that the number of share based incentives expected to vest differs from previous estimates. The two main vesting conditions that apply to share options relate to the achievement of annual objectives and continuous employment. Any cumulative adjustment prior to vesting is recognised in the current period.  No adjustment is made to any expense recognised in prior periods if share based incentives ultimately exercised are different to that estimated on vesting.

 

Upon exercise of share based incentives the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.

 

 

3.       Segment Information

 

Operating segments are reporting in a manner consistent with the internal reporting provided to the chief operating decision makers.

 

The chief operating decision makers, who are responsible for allocating resources and assessing performance of operating segments, have been identified as the PLC Board. 

 

During the year ended 30 June 2019, the Group was organised into two main business segments for revenue purposes, institutional and private customers. The group does not place reliance on any specific customer and has no individual customer that generates 6% or more of its total group revenue. Performance is assessed by a focus on the change in revenue across both institutional and retail revenue. Cost is reviewed at a cost category level but not split by segment. Assets are used across all segments and are therefore not split between segments so management review profitability at a group level.

 

 

 

2019 

 

2018 

 

£000 

 

£000 

Revenues by business segment are as follows:

 

 

 

 

 

 

 

Institutional

6,437 

 

4,752 

Retail

915 

 

831 

Total

7,352 

 

5,583 

 

 

 

 

Revenues by geographic location are as follows:

 

 

 

United Kingdom

1,525 

 

760 

Europe

863 

 

729 

Rest of World

4,964 

 

4,094 

Total

7,352 

 

5,583 

 

 

 

 

Non-Current Assets by geographic location are as follows:

 

 

 

United Kingdom - Property, plant and equipment

1,369 

 

1,268 

Europe - Property, plant and equipment

30 

 

20 

Rest of World - Intangible assets

1,701 

 

459 

Rest of World - Goodwill

528 

 

393 

Rest of World - Property, plant and equipment

1,041 

 

849 

Total Non-Current Assets

4,669 

 

2,989 

 

 

 

 

 

Intangible assets have been classified as "Rest of World" due to the fact they represent products that are available to customers throughout the World as well as the US intangible assets referred to in note 10.

 

The Group has taken advantage of the practical expedient permitted by IFRS 15 and has therefore not disclosed the amount of the transaction price allocated to unsatisfied performance obligations or when it expects to recognise that revenue, as contracts have an expected duration of less than one year.

 

 

4.       Operating Profit

 

Operating Profit is stated after charging:

 

 

2019 

 

2018 

 

£000 

 

£000 

 

 

 

 

Staff costs (note 6)

1,839 

 

1,390 

Depreciation (note 11)

898 

 

584 

Amortisation of intangibles (note 10)

182 

 

94 

Foreign exchange losses

36 

 

15 

Operating leases*

608 

 

617 

Acquisition costs (note 9)

127 

 

- 

Share based payments (note 19)

63 

 

- 

Leasehold property write down

21 

 

- 

IPO exceptional items

- 

 

368 

 

*2018 figures have been restated to reflect IFRS 16 (see note 21),

 

 

 

Exceptional costs are recognised in relation to corporate transactions.

 

 

 

 

Auditors remuneration

 

 

 

 

 

 

 

Audit

 

 

 

Auditors services

 

 

 

Fees payable for the audit of the consolidation and the parent company accounts

24 

 

18 

Fees payable for the audit of the subsidiaries

15 

 

15 

 

 

 

 

Non Audit

 

 

 

Fees payable for the interim review of the group  

9 

 

6 

Tax compliance

- 

 

8 

Corporate finance

- 

 

62 

 

48 

 

109 

 

 

 

 

 

 

5.       Finance costs

 

 

2019 

 

2018 

 

£000 

 

£000 

 

 

 

 

Bank charges

61 

 

62 

Loans and leasing

91 

 

89 

Other finance costs

- 

 

4 

Total finance income

152 

 

155 

 

 

 

6.       Average number of employees and employee benefits expense

 

 

2019 

 

2018 

 

£000 

 

£000 

 

 

 

 

Excluding directors, the average number of employees (at their full time equivalent) during the year was as follows:

 

 

 

Management and administration

11 

 

10 

Support and development staff

18 

 

13 

Average numbers of employees

29 

 

23 

 

 

 

 

 

 

 

 

The employee benefits expense during the year was as follows:

 

 

 

Wages and salaries

1,612

 

1,241 

Social security costs

201

 

139 

Other pension costs

26 

 

10 

Total employee benefits expense

1,839 

 

1,390 

 

 

 

 

Share based payments (note 19)

63 

 

- 

 

 

7.       Directors remuneration

 

 

 

2019 

 

2018 

 

£000 

 

£000 

 

 

 

 

Aggregate remuneration in respect of qualifying services

264 

 

304 

Aggregate amounts of contributions to pension schemes in respect of qualifying services

3 

 

2 

Highest paid director - aggregate remuneration

78 

 

120 

 

 

 

 

 

There are two directors (2018: two) who are accruing retirement benefits in respect of qualifying services.

 

 

 

8.       Taxation expense

 

2019 

 

2018 

 

£000 

 

£000 

Current tax

 

 

 

Foreign tax on overseas companies

25 

 

56 

Adjustment in respect of prior periods

- 

 

3 

Total current tax

25 

 

59 

 

 

 

 

Origination and reversal of temporary differences

(45)

 

(53)

Adjustment in respect of prior periods

- 

 

(16)

Total deferred tax

(45) 

 

 

 

 

 

Tax on profit on ordinary activities

(20) 

 

 

 

 

 

The differences between the total tax charge above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax, together with the impact of the effective tax rate, are as follows:

 

 

2019 

% ETR 

2018 

% ETR 

 

£000 

movement 

£000 

movement 

Profit before tax

1,043 

 

Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 19% (2018: 19%)

198 

19% 

142 

19.00% 

Effects of:

 

 

 

 

Expenses not deductible for tax purposes

42 

4.03% 

16 

2.14% 

R&D tax credits relief

(86) 

(8.25%) 

(63)

19.00% 

Share option deduction

(128) 

(12.28%) 

(104)

(13.92%)

Prior year over-provision

- 

- 

3 

0.40% 

Prior year deferred tax adjustments

(44) 

(4.22%) 

(16)

(2.14%)

Adjustment for tax rate differences

- 

- 

6 

0.80% 

Foreign tax suffered

(3) 

(0.29%) 

2 

0.27% 

Other

1 

0.1%- 

4 

0.54% 

Total tax charge

(1.92%) 

(1.34%)

 

 

 

 

 

The effective tax rate ('ETR') for the period was (1.9%), (2018: (1.3%)).

 

 

 

 

UK unrelieved trading losses

Foreign unrelieved trading losses

Total unrelieved trading losses

Tax effect

 

£000 

£000 

£000 

£000 

As at 1 July 2018

258 

315 

573 

109 

Recognised during the year

(74) 

(315) 

(389) 

(74) 

As at 30 June 2019

184 

- 

184 

35 
 

 

 

9.       Acquisitions

On 9 May 2019, the Group acquired the assets of Commercial Network Services ("CNS"), a US-based online service provider, for a total consideration of up to USD $1.4 million. This has been financed by a loan of £1m ($1.27m) the remainder being funded by Beeks own cash resources.

 

CNS specialises in hosting low latency algorithmic trading systems, virtual private networks and streaming media from data centres in London, New York and Los Angeles. Founded in 2000, CNS provides services to approximately 1,000 retail traders across multiple geographies.

 

During the current period the Group incurred £127k of third party acquisition related costs in respect of this acquisition and another acquisition that failed during diligence. These expenses are included in administrative expenses in the Group's consolidated statement of comprehensive income for the year ended 30 June 2019.

 

The following table summarises the consideration to acquire CNS and the amounts of identified assets acquired and liabilities assumed at the acquisition date which are now final.

 

Recognised amounts of net assets acquired

 

 

 

 

 

 

Customer relationship

 

 

1,186 

Other intangibles

 

 

75 

Identifiable net assets

 

 

Goodwill

 

 

151 

Total consideration

 

 

 

 

 

 

Satisfied by:

 

 

 

Cash - payable on acquisition

 

 

1,362 

Contingent consideration - payable

 

 

50 

Total consideration transferred

 

 

 

 

 

 

 

Under the terms of the Transaction, $1.3m was due on completion (the "Initial Consideration") with $0.1m held as retention subject to satisfactory completion of warranties (the "Contingent Consideration"). The Initial Consideration and Contingent Consideration was financed out of the Group's existing cash balance and banking facilities.

 

The goodwill arising on the acquisition of CNS is attributable to the premium payable for a pre-existing, well positioned business and the specialised, industry specific knowledge of its staff, together with the benefits to the Group in merging the business with its existing infrastructure and the anticipated future operating synergies from the combination.

 

The fair value included in respect of the acquired customer relationships intangible asset is £0.993m. There is no difference between the fair value and the book value of the intangible asset. To estimate the fair value of the customer relationships intangible asset, a discounted cash flow method, specifically the income approach, was used with reference to the directors' estimates of the level of revenue, which will be generated from them. A post-tax discount rate of 14.5% was used for the valuation. Customer relationships are being amortised over an estimated useful life of 10 years.

 

CNS earned revenue of £0.10m and generated profits, before allocation of group overheads, share based payments and tax, of £0.03m in the period since acquisition. If the CNS business had been owned by Beeks for the entire 12 months, the effect on the results, before cost synergies, would have been: increase in profits, £0.1m increase in revenue £0.8m.

 

 

 

10.     Intangible assets

 

 

 

 

 

 

 

 

Cost

 

 

 

 

Balance at 1 July 2017

390 

- 

400 

790 

Additions

- 

384 

- 

384 

Balance at 30 June 2018

 

 

 

 

 

Acquisition of trading assets

993 

- 

119 

1,112 

Additions

- 

437 

- 

437 

As at 30 June 2019

 

 

 

 

 

Accumulated Depreciation

 

 

 

 

Balance at 1 July 2017

(216)

- 

- 

(216)

Charge for the year

(76)

(18)

- 

(94)

Foreign exchange movements

(5)

- 

(7)

(12)

Balance at 30 June 2018

 

 

 

 

 

Charge for the year

(99)

(83)

- 

(182)

Foreign exchange movements

(6)

- 

16 

10 

As at 30 June 2019

 

 

 

 

 

N.B.V. 30 June 2018

 

 

 

 

 

N.B.V. 30 June 2019

 

 

The customer relationships list primarily relates to the acquisition of CNS with a net book value of USD $1.3m and with a remaining useful life of 10 years. The customer relationship list relating to Gallant VPS Inc. was fully amortised during the year. Fair value is not considered to be materially different to the value paid by the Group.

 

Development costs have been recognised in accordance with IAS 38 in relation to the creation of the company's self-service portal, website and cyber-attack prevention software (DDoS). As at 30 June 2019 the remaining useful lives of these assets are 3 years and 7 months, 3 years and 6 months and 3 years and 5 months respectively.

 

Included within goodwill is:-

·              goodwill relating to the recent acquisition CNS with a value of £119k,

·              the historic goodwill relating to VDIWare LLC with a value of £409k.

 

The goodwill relating to CNS has been recently valued and will be assessed for impairment on an annual basis.

 

Goodwill arising from the acquisition of the business and assets of VDIWare LLC has been capitalised and is assessed on an annual basis for impairment. The revaluation represents exchange adjustment only.  Impairment reviews are carried out on an annual basis to ensure that the carrying value of each individual asset is still appropriate. In performing these reviews, under the requirements of IAS 36 "Impairment of Assets" management prepared forecasts for future trading in which assumptions over sales growth, gross margins and costs were applied over a useful life period of five years.

 

The forecasts were performed assuming an 8% growth in sales with a 3% annual price increase as was applied by the company during June 2019. There was an assumption of 2% growth in costs for the period which was considered prudent and appropriate, using a discount rate of 12%. Sensitivities were applied by reducing the growth assumptions to 4% and increasing the discount rate to 14%. After running these sensitivities, management concluded that there is still sufficient headroom in the value of the asset.

 

Management consider these assumptions to be reasonable based on current performance of the Group. As at 30 June 2019, no change to the impairment provision against the carrying value of intangibles was required.

 

 

11.     Non-current assets - Property, plant and equipment

 

 

 

Computer 

Office 

Leasehold 

 

 

equipment 

equipment 

improvement

Total 

 

£000 

£000 

£000 

£000 

Cost

 

 

 

 

Balance at 1 July 2017

2,219 

7 

30 

2,256 

Additions

1,622 

14 

- 

1,636 

Disposals

(222)

- 

- 

(222)

Balance at 30 June 2018

3,619 

21 

30 

3,670 

 

 

 

 

 

Additions

1,220 

2 

- 

1,222 

Disposals

- 

- 

(30)

(30)

As at 30 June 2019

4,839 

23 

- 

4,862 

 

 

 

 

 

Depreciation

 

 

 

 

Balance at 1 July 2017

(943)

(2)

(4)

(949)

Charge for the year

(576)

(3)

(5)

(584)

Balance at 30 June 2018

(1,519)

(5)

(9)

(1,533)

 

 

 

 

 

Charge for the year

(892)

(6)

- 

(898)

Disposals

- 

- 

9 

9 

As at 30 June 2019

(2,411)

(11)

- 

(2,422)

 

 

 

 

 

N.B.V. 31 June 2018

2,100 

16 

21 

2,137 

 

 

 

 

 

N.B.V. 31 June 2019

2,428 

12 

- 

2,440 

 

 

The Group recognised a loss of £21,000 (2018: a profit of £4k) in relation to fixed asset disposals during the year. £21,000 of this related to non-recurring leasehold improvement costs in relation to the Group's Head office

All depreciation charges are included within cost of sales.

The net book value of assets held under finance lease at 30 June 2019 was £0.54m (2018:  £1.01m), the depreciation for the year on these assets was £0.45m (2018: £0.40m).

 

 

 

12.     Non-current assets - Deferred tax

 

Deferred tax is recognised at the standard UK corporation tax of 19% for fixed assets in the UK (2018: 19%). Deferred tax in the US is recognised at an average rate of 25% for 2019 (2018: 21%)..  The deferred tax asset relates to the difference between the amortisation period of the US acquisitions for tax and reporting purposes as well as the impact of the share options exercised during the year and tax losses carried forward in both UK and overseas companies.

 

 

 

2019 

 

2018 

 

 

£000 

 

£000 

The split of fixed and intangible asset are summarised as follows:

 

 

 

 

Deferred tax liabilities

 

(48) 

 

(108)

Deferred tax asset

 

136 

 

255 

Total deferred tax

 

88 

 

147 

 

 

 

 

 

Movements

 

 

 

 

Opening balance

 

147 

 

(39)

Charged to profit or loss (note 8)

 

45 

 

69 

Charged to equity

 

(104) 

 

104 

Other movement

 

- 

 

13 

Closing balance

 

88 

 

147 

 

 

 

 

 

 

The movement in deferred income tax assets and liabilities during the year is as follows:

 

 

 

Tax

 

Total

Total

 

Share

losses

Accelerated

deferred

deferred

 

based

carried

tax

tax

tax

 

payments

forward

depreciation

asset

liability

 

£000 

£000 

£000 

£000 

£000 

At July 2017

- 

- 

27 

27 

(66)

Charge to income

- 

110 

14 

124 

(29)

Charge to equity

104 

- 

- 

104 

- 

Other movement

- 

- 

- 

- 

(13)

As at 30 June 2018

104 

110 

41 

255 

(108)

Charge to income

- 

(75) 

60 

(15) 

60 

Charge to equity

(104) 

- 

- 

(104) 

- 

As at 30 June 2019

- 

35 

101 

136 

(48) 

 

 

 

 

 

 
                 

 

 

13.     Current assets - Trade and other receivables

 

 

 

2019 

 

2018 

 

 

£000 

 

£000 

 

 

 

 

 

Trade receivable

 

679 

 

460 

Less: provision for impairment of receivables

 

(63)

 

(82)

 

 

616 

 

378 

Prepayments and accrued income

 

388 

 

169 

Other taxation

 

40 

 

69 

Other receivables

 

60 

 

48 

 

 

1,104 

 

664 
 

 

 

 

The credit risk relating to trade receivables is analysed as follows:

 

Trade receivables

 

679 

 

460 

Less: provision for impairment of receivables

 

(63)

 

(82)

 

 

616 

 

378 

 

 

 

 

 

Movements in the allowance for expected credit losses are as follows:

 

 

 

 

Opening balance

 

82 

 

5 

Additional provisions recognised

 

63 

 

86 

Receivables written off during the year as uncollectable

 

(82)

 

(6)

Unused amounts reversed

 

- 

 

(3)

Closing balance

 

63 

 

82 

 

 

 

 

 

The provision allowance in respect of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible. At that point, the amounts are considered irrecoverable and are written off against the trade receivable directly. Where trade receivables are past due, an assessment is made of individual customers and the outstanding balance.

 

Past due but not impaired

 

 

 

 

The Group did not consider a credit risk on the aggregate balances after reviewing the credit terms of the customers based on recent collection practices.

 

 

 

 

 

The aging of trade receivables at the reporting date is as follows:

 

 

 

 

Past due

 

365 

 

287 

Past due 1 to 3 months

 

152 

 

116 

Past due 3 to 6 months

 

23 

 

15 

More than 6 months past due

 

139 

 

42 

 

 

679 

 

460 

 

14.     Current assets - Cash and cash equivalents

 

The credit risk on cash and cash equivalents is considered to be negligible because over 99% of the balance is with counter parties that are UK and US banking institutions.

 

 

15.     Current assets - Financial instruments and risk management

 

Financial risk management objectives and policies

The Group's principal financial instruments comprise cash and cash equivalents, short term deposits and bank and other borrowings.

 

The main purpose of these financial instruments is to finance the Group's operations. The Group has other financial instruments which mainly comprise trade receivables and trade payables which arise directly from its operations.

 

Risk management is carried out by the finance department under policies approved by the Board of Directors. The Group finance department identifies, evaluates and manages financial risks. The Board provides guidance on overall risk management including foreign exchange risk, interest rate risk, credit risk, and investment of excess liquidity.

 

The impact of the risks required to be discussed under IFRS 7 are detailed below:

 

Market risk

 

Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the functional currency of the operations. The Group has minimal exposure to foreign exchange risk as a result of natural hedges arising between sales and cost transactions. A 10% movement in the USD rate would have an impact on the Group's profit and equity by approximately £6,000. The Group had potential exchange rate exposure within USD trade payable balances of £91,842 as at 30 June 2019 (£69,775, at 30 June 2018).

 

Cash flow and interest rate risk

The Group has limited exposure to interest rate risk in respect of cash balances and long-term borrowings held with banks and other highly rated counterparties. All loans and leases are at fixed rates of interest therefore the group does not have exposure to interest rate risk.

 

Credit risk

 

The Group's maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, as summarised below:

 

 

2019 

 

2018 

 

£000 

 

£000 

 

 

 

 

Cash and cash equivalents

2,338 

 

2,887 

Trade receivables

679 

 

460 

Accrued income

234 

 

91 

Other receivables

60 

 

48 

VAT

40 

 

69 

 

3,351 

 

3,555 

 

 

 

 

 

Credit risk is managed on a Group basis. Credit risks arise from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions.

 

The Group's credit risk is primarily attributable to its trade receivables. It is the policy of the Group to present the amounts in the balance sheet net of allowances for doubtful receivables, estimated by the Group's management based on prior experience and the current economic environment. The Group reviews the reliability of its customers on a regular basis, such a review takes into account the nature of the Group's trading history with the customer.

 

The credit risk on liquid funds is limited because the majority of funds are held with two banks with high credit-ratings assigned by international credit-rating agencies. Management does not expect any losses from non-performance of these counterparties.

 

None of the Group's financial assets are secured by collateral or other credit enhancements.

 

Liquidity risk

The Group closely monitors its access to bank and other credit facilities in comparison to its outstanding commitments on a regular basis to ensure that it has sufficient funds to meet obligations of the Group as they fall due.

 

The Board receives regular debt management forecasts which estimate the cash inflows and outflows over the next twelve months, so that management can ensure that sufficient financing is in place as it is required. Surplus cash within the Group is put on deposit in accordance with limits and counterparties agreed by the Board, the objective being to maximise return on funds whilst ensuring that the short-term cash flow requirements of the Group are met.

 

As at 30 June 2019, the Group's financial liabilities have contractual maturities (including interest payments where applicable) as summarised below:

 

 

 

 

Current

Non-current

 

Within

1-3

3-12

1-5

After

 

1 month

months

months

years

5 years

 

£ 

£

£

£

£

 

 

 

 

 

 

Trade payables

413 

47 

169 

- 

- 

Other payables

22 

210 

- 

- 

- 

Other loans

5 

90 

263 

701 

- 

 

 

 

 

 

 

The above amounts reflect the contractual undiscounted cash flows, which may differ from the carrying values of the liabilities at the reporting date.

 

Capital risk management

 

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts.

 

 

2019 

 

2018 

 

£000 

 

£000 

 

 

 

 

Total equity

5,632 

 

4,844 

Cash and cash equivalents

2,338 

 

2,887 

Capital

7,970 

 

7,731 

Total equity

5,632 

 

4,844 

Other loans

997 

 

35 

Finance leases

326 

 

761 

Overall financing

6,955 

 

5,640 

 

 

 

 

Capital-to-overall financing ratio

1.15 

 

1.37 

 

 

 

 

 

 

 

16.     Non-current liabilities - Borrowings and other financial liabilities

 

 

 

2019 

 

2018 

 

£000 

 

£000 

 

 

 

 

Other loans

672 

 

6 

Finance leases

27 

 

326 

 

 

 

 

 

 

 

Other loans

 

 

 

Under one year

325 

 

35 

Between one to five years

672 

 

6 

 

 

 

 

 

 

 

Finance leases

 

 

 

Under one year

299 

 

435 

Between one to five years

27 

 

326 

 

 

 

Finance leases, The future minimum finance lease payments are as follows:

Under one year

348 

 

494 

Between one to five years

33 

 

380 

Total gross payments

 

 

 

 

 

 

The finance leases are secured on the fixed assets to which they relate.

 

The present value of the future minimum finance lease payments:

 

 

 

Under one year

316 

 

450 

Between one to five years

27 

 

312 

 

 

The discount applied to the future payments was 10% per annum.

 

Reconciliation of net debt:

Finance 

 

 

Other 

Total 

Balance at 1 July 2018

Proceeds from new loans

- 

990 

990 

Loan and lease repayments

(435)

(34)

(469)

Balance at 30 July 2019

 

During the year a loan of £1m was taken out to fund the acquisition of CNS.

 

 

17.     Current liabilities - Trade and other payables

 

 

 

2019 

 

2018 

 

 

£000 

 

£000 

 

 

 

 

 

Trade payables

 

629 

 

662 

Other loans

 

325 

 

35 

Finance leases

 

299 

 

435 

Accruals and deferred income

 

364 

 

319 

Other taxation and social security

 

28 

 

45 

Other payables

 

223 

 

15 

 

 

1,868 

 

1,511 

 

 

 

 

 

 

18.     Equity - issued capital

 

 

2019 

2018 

2019 

2018 

 

shares 

shares 

£000 

£000 

Ordinary shares - fully paid

50,864,800 

50,043,100 

64 

62 

 

 

 

 

 

Movements in ordinary share capital

Details

Date 

Shares 

Issue price 

£000 

 

 

 

 

 

Balance

30 June 2018 

50,043,100 

 

62 

EMI Share options exercised

31 August 2018 

677,700 

£.00125

1

EMI Share options exercised

24 October 2018 

32,200 

£.00125

-

EMI Share options exercised

20 June 2019 

111,800 

£.00125

1

Balance

30 June 2019 

50,864,800 

 

64 

 

 

 

 

 
           

 

Ordinary shares

During the year there were 821,700 of share options exercised. At the date of the grant the fair value was immaterial.

 

 

19.     Share based payments

 

The movements in the share options during the year, were as follows:-

 

 

2019 

 

2018 

 

 

 

 

 

Outstanding at the beginning of the year

 

821,700 

 

1,864,800 

Exercised during the year

 

(821,700)

 

(1,043,100)

Issued during the year

 

308,824 

 

- 

 

 

 

 

 

Outstanding at the end of the year

 

308,824 

 

821,700 

Exercisable at the end of the year

 

- 

 

821,700 

 

The Group granted a total of 308,824 share options to members of its management team on 6 September 2018. These share options outstanding at the end of the year have the following expiry dates and exercise prices:

·       The exercise price for all of the outstanding issued share options is £0.00125.

·       All of these options vest on 6 September 2021, which is three years after the issue date.

 

These share options vest under challenging performance conditions based on underlying EPS growth during the three year period.

 

The Black Scholes model was used to calculate the fair value of these options, the resulting fair value is expensed over the vesting period. The following table lists the range of assumptions used in the model:

 

Stock price

 

1.02 

Standard deviation

 

5% 

Annual risk free rate

 

4% 

Exercise strike price

 

0.00125 

Time to maturity (yrs.)

 

2.1667 

 

The total expense recognised from share based payments transactions on the group's profit for the year was £62,647 (2018: nil).

 

These share options vest on the achievement of challenging growth targets. It is management's intention that the Company will meet these challenging growth targets therefore, for prudency, the share options are included in the calculation of underlying diluted EPS in note 23.

 

20.     Equity - Reserves

 

The foreign currency retranslation reserve represents exchange gains and losses on retranslation of foreign operations. Included in this is revaluation of opening balances from prior years.

 

The merger relief reserve arose on the share for share exchange reflecting the difference between the nominal value of the share capital in Beeks Financial Cloud Group Limited and the value of the Group being acquired, Beeks Financial Cloud Limited.

 

Share premium represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.

 

Retained earnings represents retained profits.

 

The other reserve arose on the share for share exchange and reflects the difference between the value of Beeks Financial Cloud Group Limited and the share capital of the Group being acquired through the share for share exchange. Also included in the other reserve is the fair value of the warrants issued on the acquisition of VDIWare LLC.

 

Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

 

 

21.     Capital and other commitments

 

The Group had the following future minimum lease payments under non-cancellable operating leases for each of the following periods. Operating lease payments represent rentals payable by the Group for office premises and computer equipment. The leases for computer equipment contain an option to purchase the assets at the end of the lease period. The leases are standard operating leases with no special clauses.

 

 

 

restated

 

2019 

 

2018 

 

£000 

 

£000 

Lease commitments - operating

 

 

 

Committed at the reporting date but not recognised as liabilities, payable:

 

 

 

Within one year

497 

 

629 

One to five years

862 

 

797 

Over five years

235 

 

133 

 

 

 

 

 

 

*Based on our preliminary assessment of the impact of IFRS 16 (see note 1), we have restated the prior year to include contracts identified as containing a lease under IAS 17 Leases.

 

A new office lease contract was entered into during the year, this lease commences on 1 July 2019.

 

22.     Related party transactions

 

Parent entity

Beeks Financial Cloud Group PLC is the parent entity.

 

Subsidiaries

Interests in subsidiaries are set out in note 24.

 

Transactions with related parties

The following transactions occurred with related parties:

 

 

 

2019 

 

2018 

 

 

£000 

 

£000 

 

 

 

 

 

Withdrawals from the director, Gordon McArthur

 

33 

 

24 

 

 

 

 

 

The loan account owed by the director; Gordon McArthur was repaid in full following the year end.

 

Beeks Financial Cloud Limited provided services in the normal course of its business and at arm's length to Ofelia Algos Limited, a company owned by Gordon McArthur. During the financial year Beeks Financial Cloud Limited made sales of £141,120 (2018: £72,453) to Ofelia Algos Limited and the amounts due to Beeks Financial Cloud Limited at the year-end were £53,600 (2018: £35,280).

 

 

 

 

 

Key management personnel

 

 

 

 

Compensation paid to key management (which comprises the executive and non-executive PLC Board members) during the year was as follows:

 

 

2019 

 

2018 

 

 

£000 

 

£000 

 

 

 

 

 

 

Wages and salaries including social security costs

 

256 

 

294 

Other pension costs

 

3 

 

2 

Other benefits in kind

 

11 

 

10 

 

 

 

 

23.     Earnings per share

 

 

2019 

 

2018 

 

 

£000 

 

£000 

Profit after income tax attributable to the owners of Beeks Financial Cloud Group PLC

 

1,063 

 

757 

 

 

 

 

 

 

 

Pence

 

Pence

Basic earnings per share

 

2.10 

 

2.37 

Diluted earnings per share

 

2.09 

 

2.26 

 

 

 

 

 

 

 

Number

 

Number

Weighted average number of ordinary shares used in calculating basic earnings per share

 

50,632,965 

 

31,900,070 

Adjustments for calculation of diluted earnings per share:

 

 

 

 

Options over ordinary shares

 

231,835 

 

1,660,204 

Weighted average number of ordinary shares used in calculating diluted earnings per share

 

50,864,800 

 

33,560,274 

 

 

 

 

 

 

 

2019 

 

2018 

 

 

£000 

 

£000 

Underlying earnings per share

 

 

 

 

Profit for the year

 

1,043 

 

757 

Exceptional costs

 

- 

 

368 

Acquisition costs

 

127

 

-

Share Based payments

 

63

 

-

Amortisation on acquired intangibles

 

62

 

76 

Exceptional non-recurring costs

 

21

 

-

Tax effect

 

(12)

 

(84)

Underlying profit for the year

 

1,304

 

1,117 

 

 

 

 

 

Weighted average number of shares in issue - basic

 

50,632,965 

 

49,204,596 

Weighted average number of shares in issue - diluted

 

51,116,936 

 

50,864,800 

 

 

 

 

 

Underlying earnings per share - basic

 

2.58 

 

2.27 

Underlying earnings per share - diluted

 

2.55 

 

2.20 

 

Included in the weighted average number of shares for the calculation of underlying diluted EPS are share options outstanding but not exercisable.  It is management's intention that the Company will meet the challenging growth targets therefore, for prudency, the share options are included in the calculation of underlying diluted EPS.

 

24.     Subsidiaries

 

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries held by the company in accordance with the accounting policy described in note 1.

 

The subsidiary undertakings are all 100% owned, with 100% voting rights.

 

 

Country of 

Principal place of business/ 

Company name

incorporation 

Registered office 

 

 

 

Beeks Financial Cloud Co Ltd

Japan 

FARO 1F, 2-15-5, Minamiaoyama, Minato-Ku, Tokyo, Japan.

Beeks FX VPS USA Inc.

Delaware, USA 

874 Walker Road, Suite C, Dover, Kent, Delaware, 19904, USA.

Beeks Financial Cloud Limited

Scotland 

Lumina Building, 40 Ainslie Road, Ground Floor, Hillington Park, Glasgow, UK, G52 4RU

 

25.     Events after the reporting period

 

No matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years.

 

26.     Ultimate controlling party

 

The Group is ultimately controlled by Gordon McArthur by virtue of his majority shareholding.

 


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