Final Results

RNS Number : 0429B

Eagle Eye Solutions Group PLC

18 September 2018

 

 18 September 2018

Eagle Eye Solutions Group plc

("Eagle Eye", the "Group", or the "Company")

Results for the year ended 30 June 2018

Breakout year sees delivery of world leading digital loyalty programme for Loblaw

Eagle Eye, the leading SaaS marketing technology company that enables businesses to create a real-time connection to attract and retain customers through digital promotion and loyalty services, is pleased to announce its results for the financial year ended 30 June 2018 (the "Year").

Financial highlights:

·   Group revenue increased by 33% to £14.8m (FY17: £11.1m); of which 89%, £13.1m (FY17: 85%, £9.4m) relates to the Eagle Eye AIR ("AIR") platform

·      Revenue from subscription fees and transactions over the network of £11.4m (FY17: £7.5m) represented 77% of total revenue (FY17: 68%) and grew by 51% year-on-year

·      Gross margin maintained at 87% (FY17: 88%)

·   Adjusted EBITDA* loss of £2.0m (FY17: £1.8m loss), as previously announced, ahead of management expectations

·   Net cash of £0.4m (June 2017: £3.7m) in addition to the extended banking facility of £5.0m provides the Company with headroom of £5.4m

Operational highlights:

·      Successful launch of Canada's leading loyalty programme with Loblaw proves the Group's international reach and scalability

·      Launch of loyalty services and the innovative Digital Wallet brings the AIR platform capabilities together

·      Redemptions and interactions volumes increased by 556% to 403.7m (FY17: 61.5m)

·     AIR platform's capability and scale enhanced, now delivering over 3,000 transactions per second and over 150 million offer permutations a week

·      Client and partner wins including Greene King, M&Co., Boparan, Groupon and Google, taking total number of customers to 294, including 85 brands (FY17: 233; 74)

·      Customer churn rate by value of 1.7% (FY17: 2.6%); successful renewal of key contracts of Food & Beverage ("F&B") and other retail clients

·      Investment in operational capability in Canada, product innovation and subject matter experts

*Adjusted EBITDA loss excludes share-based payment charges along with depreciation, amortisation, interest and tax from the measure of profit.

Tim Mason, Chief Executive of Eagle Eye, said:

"The investments we have made into our people, platform and processes mean we have the scale and proof points to deliver upon our growth strategy and potential. We believe our Digital Wallet provides us with significant competitive advantage and that this, coupled with our operational capability, will stand us in good stead to unlock new opportunities.

"We have had a positive start to trading in the year, including the deepening of Greene King and JD Sports as well as the launch of new Loblaw partner Esso. Redemption and Interaction volumes on the platform for the first two months of the current financial year were 132.6 million, showing considerable growth on the prior year, tracking in line with management's forecast.

Whilst it is still early in the current financial year, the momentum and number of visible sales opportunities in the pipeline give the Board confidence that trading is in line with its expectations for the full year. In order to achieve our targets, the focus for the team in the year ahead will be to convert these opportunities and continue to deepen our existing customer accounts.

"The size of our market opportunity underlines our belief that we are just at the start of our journey and we look to the future with confidence."

For further information, please contact:

Tim Mason, Chief Executive Officer Lucy Sharman-Munday, Chief Financial Officer	Tel: [phone]
Investec (Nominated Advisor and Broker)
Corporate Finance: David Anderson / Sebastian Lawrence Corporate Broking: Sara Hale / Helene Comitis	Tel: [phone]
Alma PR
Caroline Forde / Rebecca Sanders-Hewett / Robyn Fisher	Tel: [phone]
Information on Eagle Eye www.eagleeye.com

Eagle Eye is a leading SaaS marketing technology company that enables businesses to create a real-time connection to attract and retain customers, through digital promotion and loyalty services.

The Company's digital marketing platform, Eagle Eye AIR, enables the secure issuance and redemption of digital offers and rewards at scale, across multiple channels, enabling a single customer view. Our platform creates a network between merchants, distributors and brands to enable stronger connections and value for all parties, allowing them to reduce cost, improve their customer offer and accelerate their marketing innovation.

The Company's current customer base comprises leading names in UK Grocery, Retail and Food & Beverage, including John Lewis, Asda, J Sainsbury, Greggs, JD Sports, Marks & Spencer, Mitchells & Butlers, PizzaExpress, Tesco and Loblaw in Canada.  

 

Chairman's Statement

I am delighted to report a breakout year for Eagle Eye, in which a key highlight was the successful launch of PC Optimum for Canada's largest retail group, Loblaw Companies Limited ("Loblaw"). Our activity during the Year confirms our position as a leading provider of digital promotions and loyalty services, underpinning our strategy to become a global leader in personalised digital marketing.

The successful deployment of the PC Optimum loyalty programme is testament to our people and the quality and capability of the technology they have created. On behalf of the Board, I would like to thank and congratulate everybody who has worked so hard to deliver this major project that sets us up to deliver future success.

The last two years have seen us make significant investments in our people and processes and offering, including the launch of the Digital Wallet bringing together all of the services of the AIR platform, such that we now have a compelling capability matched by proven scale to deliver and grow, both in the UK and internationally.

This Year's success has been made possible by the implementation of important changes at all levels of the business, with a particular focus on our culture and people, introduced over the last two years by Tim Mason since his appointment as CEO. As well as the recruitment of experts, we have seen successful internal promotions into key roles. The senior management team is now supported by a bigger and more experienced team with a broader skill set, who together are capable of driving the business into its next stage of growth.

We have continued to deliver against our "Win, Transact and Deepen" strategy, which has helped us win new customers, increase transactions from existing customers and deepen our customer relationships, both in the UK and internationally. Notable successes include the signing of new customers, such as Greene King, Scottish fashion chain M&Co. and Boparan (a group that owns the brands Ed's Easy Diner, Giraffe, Harry Ramsden's and Fishworks).

In the year we have successfully renewed key contracts with Greggs, Mitchells and Butlers, M&S and PizzaExpress. This is the first year in which we have measured customer churn, and I am pleased to report that this was low at 1.7% in value (FY17: 2.6%). Importantly, this low churn rate together with these renewals are the proof points of the continued and growing relevance of the AIR platform for competing in today's rapidly changing retail landscape. 

Notably, we also signed several new partners in the Year, including Groupon and Google, and ran a number of brand campaigns through our Food & Beverage ("F&B") network with leading brands, including Old Mout, Bacardi and Gordons. While we now have the proven capability to support Tier 1 retailers, our offering is relevant to consumer-facing operators and brands across all sectors and of all sizes, with each adding to our network and the growth of our redemption and interaction volumes and recurring revenues.

These achievements have filtered through to our financial results. We recorded Group revenue growth of 33% to £14.8m (FY17: £11.1m) and, importantly, recurring revenue increased to 77% of Group revenue (FY17: 68%), reflecting the growth in volumes through the platform as our significant contracts moved to the transactional stage of their lifecycle. This, in turn, provides us with a strong basis for future growth. Overall, adjusted EBITDA loss for the Year of £2.0m (FY17: £1.8m loss) reflects the investment we have made into the Company and exceeds our expectations as we look to transition to EBITDA breakeven.

With cash reserves ahead of management's expectations at the end of the Year, and our extended £5m banking facility with Barclays Bank PLC, we are confident that we have the headroom to deliver on our growth strategy. 

The value of one-to-one customer connections

We believe the size of the market opportunity is significant and continues to grow as a result of our new Digital Wallet offering. There is a growing desire from retailers and brands to carry out real-time, personalised customer engagement activities, with the intention of driving measurable customer acquisition and retention not only online, but within their physical stores.

In the current tough retail climate, we believe the ability of the AIR platform to attract and retain customers will be game-changing for High Street retail and that the time for this type of technology is now. We are therefore excited about the opportunity ahead.

People

I would like to take this opportunity to thank all of our employees, customers, partners and shareholders for their continued support throughout the Year and I look forward to achieving further successes together in the future.

The Board and I also wish to express our great sadness at the death of our fellow Director, Andrew Thomson, during the Year. Drew's expertise and contribution to the Company will be sorely missed. 

Summary

The growth in total volumes through the platform and associated recurring revenue, coupled with our cash headroom, provide us with a steady financial base on which to build. The strength of our existing customer base, our proven product proposition and size of our market opportunity mean the Board remains confident in the outlook for the business and is committed to driving increased shareholder value in the years ahead.

Malcolm Wall, Non-Executive Chairman

 

CEO's Statement

When I joined as CEO in 2016 I saw an opportunity for Eagle Eye to revolutionise the way that businesses engage with consumers. This Year the market has seen Loblaw and Sainsbury's make significant progress in adopting both digital and personalised approaches to customer engagement. The retail industry is under significant pressure and I am convinced the winners going forward are those integrating digital into their business.

We are proud that we are part of the winning formula for Loblaw. Launched in February 2018 and running on the AIR platform, its PC Optimum loyalty programme operates at a scale, complexity and level of personalisation that is astounding.

We have scaled our operational capability during the Year to service our significant customers. The platform has handled a tremendous increase in volumes, driven predominantly by new, higher-volume digital loyalty transactions. The platform also delivers this volume at speed and is capable of processing over 3,000 transactions per second.

This enhanced operational and product capability means that the world leading retailers can look to Eagle Eye as their provider of digital promotions and loyalty services, positioning us as the marketing technology provider of choice.  

At my appointment I said that I thought Eagle Eye was capable of being "Better, Bigger, Faster". The launch of Loblaw is a proof point of that strategy and my belief is that it will allow us to grow faster with bigger retailers going forward. We firmly believe the time for our technology is now. 

Growing market opportunity

Growing digital consumer adoption is creating an unprecedented marketing opportunity. Consumers are using their mobiles and the internet to make direct connections with retailers, enabling retailers to carry out data driven, real-time, sophisticated digital marketing across all sales channels, including web, mobile and in-store.  

Traditional forms of promotions are impersonalised and cannot be measured with the result being that they are extremely wasteful. The digital equivalent can be personalised and tracked throughout its life. The ability to move to performance-based marketing enables greater value for a company's investment. The more traditional loyalty schemes, such as basic 1% discount programmes that rely on plastic cards to accrue points and paper 'money off' coupons, are expensive to run and take a long time to reach the consumer, potentially losing their relevance. The digital equivalent is much cheaper and delivered in real-time, increasing its likely relevance to the consumer.

To capitalise on the digital consumer adoption trends, retailers need to digitally connect to customers in order to drive visits and spend per visit whilst measuring the effect and returns on marketing performance and sales. Eagle Eye is uniquely positioned to provide solutions that can unlock the available opportunities in this space.

Real-time engagement

Recent consumer research found 87% of shoppers' product searches begin online, up from 71% in 2017* and that 30% of all mobile searches are location-related**. Availability and location are important factors to a consumer. We give our customers the opportunity to add marketing "in the now" which delivers additional levels of relevance leading to engagement retention, frequency and emotional loyalty. This explains why we continually stress the importance of the real-time nature of the connection.

The limitations of legacy marketing systems leave many "bricks and clicks" operators unable to generate and deliver dynamic, personalised campaigns and offers that are context appropriate to all locations and channels. Eagle Eye offers the solution, through digitising marketing messages, promotions and rewards that can be tailored according to individual customer preferences and measured from issuance through to redemption at the point of sale, across all channels, online or in-store.

*SOURCE: Sponsored report (2018) Shopper-First Retailing, Publicis Groupe, 14 August 2018

**SOURCE: https://www.thinkwithgoogle.com/data/near-me-searches-related-to-location/

Digital customer connections

Many larger operators with existing analogue marketing, promotional and loyalty scheme-based capabilities are struggling to find effective ways to move the dial from analogue to digital marketing execution. Under competitive, strategic and operational pressure, they lack the strategic will or means to adapt and innovate.

However, we have begun to see leading loyalty operators take the necessary steps to ensure their customer-facing marketing propositions are fit for digital purpose and can provide deep customer-driven competitive insight. Examples of this include Sainsbury's buyout of Nectar in the UK, Loblaw's launch of the PC Optimum programme with a membership of over 14 million people in Canada and Woolworths in Australia investing in big data analytics specialist Quantium.

This activity is pushing operators across other sectors and regions to consider similar performance marketing and promotional investments for proven ROI, data driven, digitally-enabled customer insight and fraud-busting cost savings and efficiencies.

Measuring marketing performance

A real-time redemption capability at the point of sale is essential to enable a single customer view across both store-based and online platforms. This single customer view is the foundation necessary to enable our customers to capitalise on the potential of Artificial Intelligence ("AI"), as knowing who their customers are, what they buy, where and when will be the first step to a successful AI implementation. The customer connection provided by Eagle Eye combined with AI will identify the next-best action, message, offer or even channel of engagement for every customer, setting the standard for advanced performance marketing, at a speed and scale that only machine learning-based analytical systems can support.

Win, Transact, Deepen

1.   Win:

We made continued progress in adding new brands and retailers to the AIR platform during the Year. At 30 June 2018, Eagle Eye had 294 customers and brands on the AIR platform, including 85 FMCG brands; up from 233 customers including 74 FMCG brands in the prior year.

We signed new contracts with Greene King, Scottish fashion chain M&Co., Boparan (a group owning brands such as Ed's Easy Diner, Giraffe, Harry Ramsden's and Fishworks), the former of which further cements our leading position in the UK F&B market. These contracts cover a range of services across our Gift, digital promotions and app solutions. These wins also benefit our brand partners, as our extended redemption network and user base provides greater opportunities to run measurable campaigns.

2.   Transact 

Redemption and interaction volumes grew 556% year-on-year to 403.7m (FY17: 61.5m) driven by growth in coupon and promotions, the addition of new loyalty services and the annualisation of customers that went live in FY17.

During the Year, we ran several brand campaigns through our F&B network with leading brands including Red Bull, Baileys, Old Mout, Bacardi, Gordons and Carlsberg. The latter three brands used chatbots to issue the offers, which proved a very successful, innovative way of communicating via Facebook and Messenger to millennials whilst providing a new method for Eagle Eye to engage with consumers. 

Issuance partners form a key part of our 'Transact' strategy and remain a significant marketing channel for retailers and brands to run innovative campaigns and extend their audience. During the Year, we were delighted to sign several new framework agreements with Google, Groupon, Hospitality Line, Giftcloud and Global Savings Group as well as renewed contracts with The Marketing Lounge, Dining Club and Student Beans. 

Google built momentum through its partnership during the Year, utilising the benefits of the merchant network to extend its redemption capability across multiple sectors. Its 'Visa Tap & Win' campaign was extended by five months, illustrating how modern technology and appealing offers drive increased and effective consumer engagement. The campaign achieved a conversion rate of over 30% compared to traditional paper-based campaigns that typically deliver a redemption rate of up to 2%.

3.   Deepen

We continue to successfully deepen our customer relationships. Having adopted our technology and realised the real-time marketing benefits, customers are broadening their Eagle Eye-enabled capabilities by accessing our wider suite of products. During the Year, we generated revenue growth from existing clients across all sectors, including Tier 1: 38% and F&B: 28%.

We are also pleased to announce the renewal of five longstanding clients: Greggs (five-year contract), Mitchells & Butlers (three-year contract), PizzaExpress (one-year contract)and M&S (six-month contract). In all cases the AIR platform is being used to power an enhanced digital marketing, loyalty or promotional experience for the client. These renewals reflect the ongoing value and increased strength of Eagle Eye's offering as well as our ability to build both lasting and lucrative client relationships.

There has also been good growth in messaging volumes, which increased 26% to 56.1m (FY17: 44.4m) due to additional services provided for JD Sports and Paragon. Revenue growth was limited to 4% due to price pressures in a competitive and maturing space.

The launch of PC Optimum loyalty programme for Loblaw

Loblaw successfully launched its new PC Optimum programme on 1 February 2018, using the AIR platform to deliver personalised, flexible and convenient rewards to millions of Canadians.

The PC Optimum programme has combined two of Canada's most loved loyalty programmes, PC Plus and Shoppers Optimum, to become one of the largest in Canada. With 8 million and 11 million members respectively, combining these two programmes has created one of the largest in the country's history. The new, state-of-the-art programme offers members more redemption options and greater convenience, and the merger marks the first integration of two retail loyalty programmes of this scale into one programme.

The AIR platform sits at the heart of PC Optimum and integrates with Loblaw's channels and systems, enabling a single customer view across Loblaw's varying businesses, including Loblaw's supermarkets, Shoppers Drug Mart, PC Financial and Joe Fresh. The platform currently generates over 150 million offer permutations per week, meaning we can lay claim to having the world's leading digital loyalty solution.

More than 14 million customers converted to the new PC Optimum programme within the first six months of launch. Loblaw processes approximately 1 billion customer transactions in their stores each year, the majority of which are tied to its loyalty programme.

Activity since launch has significantly accelerated redemption volume growth on the AIR platform. Contract revenue shifted from initial implementation fees in H1 2018 to generate recurring transaction fees in H2 2018, as expected.

Post Year-end, in August 2018, just six months after launch, PC Optimum added Esso fuel stations owner Imperial as a new programme partner. The addition significantly increases the number of locations where Loblaw's customers can earn points and is driving further transaction growth through the platform. Loblaw's customers now have an additional 2,000 locations across Canada at which they can earn points on eligible fuel purchases, convenience store products and car wash services, bringing the total number of participating PC Optimum locations to 4,500. This is another proof point of the level of complexity and scale that the AIR platform can rapidly deliver and manage. We are not aware of any other solution in the market able to offer this scale. 

Innovation

We continued to innovate during the Year with the launch of our Digital Wallet, which powers PC Optimum for Loblaw, and we extended its core capability to other Grocery, F&B and Retail clients. In addition, we have enhanced our Staff Rewards and Gift propositions.

The Digital Wallet is a step change in our offer and capability, bringing together the AIR platform's services. Historically, we have tracked our customers through an ID connected to a particular promotion which had a short life cycle. The Digital Wallet is the new ID, which is now linked to an individual customer, where a customer could have many personas attached to the same wallet (e.g. loyalty card number, credit card, Facebook login, email address etc). This allows them to collect all associated promotions and rewards from Eagle Eye services in one container and is delivered via the customer's preferred channel and media (coupons, email, text and even location-based triggers) to provide a more personalised experience. Linking the Digital Wallet to the customer now allows marketing data to be tracked throughout the customer's life cycle with that retailer. We believe the Digital Wallet capabilities are unique and will be a real differentiator for Eagle Eye going forward.

We have enhanced our Staff Rewards proposition that links with HR systems, enabling staff discounts to be digitally delivered. This delivers multiple benefits, including improving staff engagement, eliminating fraud in staff schemes and boosting retention, whilst providing another use of our Digital Wallet innovation. We have begun to model subscription plans and entitlements in the platform, enabling a further loyalty-based capability to our current customers. This is already being used by two customers, with one due to go live this month.

We have also remodelled our Gift proposition to include support for physical delivery (in partnership with CPI) and implemented best-in-class gift voucher purchase flows. We are currently building our B2B functionality focusing on how the Gift experience can be personalised using both physical and digital gift vouchers. 

During the year we scaled our operational capability for capacity and speed to service our largest customers, the results of which are demonstrated by the growth in our volume and speed KPIs. This has involved the addition of two data centres in North America and the scaling and upgrade of facilities in the UK.

Our focus on innovation continues into the year ahead, which will see us build on the successful launch of the Digital Wallet and introduce subscriptions.

Regulatory Compliance

Eagle Eye was well prepared for the European Union's General Data Protection Regulation ("GDPR"), when it came into force on the 25 May 2018. To ensure we were compliant for this date, we carried out a comprehensive Data Protection Impact Assessment ("DPIA") of the GDPR requirements and impact on our processes, platforms and relationships, implementing the changes required. We trained all our staff, reviewed and analysed all the data we hold and have worked hard to meet and exceed these new data privacy regulatory standards.

We are proud to be fully certified to the International Standard ISO27001:2013. This standard provides for specific operational controls governing how we manage the confidentiality, integrity and accessibility of all the information we use every day, in whatever format it is accessed or stored. We have rolled the GDPR requirements into our existing ISO27001 Information Security and DPA compliance activities and have implemented Privacy by Design into our development processes to continue to engrain GDPR standards into our everyday activities. We see GDPR as a positive development that will help us, and our clients, build and reinforce trust among consumers that their personal data will not be misused. We have also appointed a Compliance Manager to oversee this vital aspect of our business, reporting to David Aylmer, COO, who is responsible for quarterly GDPR updates to the Board.

Partner updates

In March 2017 we signed a new partnership agreement with TCC Global, allowing Eagle Eye to extend its digital promotions offer into the European loyalty market. The AIR platform underpins the TCC Smart Connect proposition to deliver omnichannel shopper engagement through its digital campaigns. We are currently assessing how we can develop a joint turnkey solution to improve TCC's sales cycle.

In March 2018 we signed a global partnership with Aptos, a leading global retail technology solutions provider to more than 1,000 retail brands across 55 countries. We hope the agreement will see us work collaboratively on a pre-integrated solution to provide digital connection to customers without the need for integration at the point of sale. We currently have four joint UK customers with Aptos; Clarks, Thomas Pink, M&Co. and Pets at Home. As a result of this partnership, we will look to expand our footprint in Speciality Retail globally.

Investment

Following the successful placing in June 2017, FY18 was marked by a period of investment in our next phase of growth. The platform has been enhanced to offer world class digital loyalty services, which are now live with Loblaw. In addition, we have integrated new technology and issuance partners that continue to build out our network and audience reach.

We invested in operational capability in Canada to support both performance requirements within Loblaw, as our biggest client, and the Group's growth within the Canadian market, where we see significant additional opportunity. We have begun to explore the market outside of Canada and have had initial conversations with other retailers across North America and Asia Pacific. The interest we have received in Australia has prompted us to increase our presence in the area and this is a geography we will focus on in the year ahead.

We have expanded our 'Win' resource both in sales and operations, to reflect the right combination of commercial management and product skills required to successfully win new customers and deepen existing relationships.

We have also upskilled our senior management team and now have subject matter experts in loyalty, FMCG brands and product marketing to ensure we continue to be relevant in today's market and help us take our proposition to the market quicker.  

People

The past 12 months has seen us continue to grow our team, as we have hired talented new people to help us drive the business forward, as well as promoting from within, aligning those hiring decisions more closely to our Company values. Our average headcount increased from 100 to 130, the majority of which was driven by customer-led growth.

We hired a new HR Director, Claire Essex-Crosby, who has proposed and begun delivering against the People Strategy for the business. We have also promoted one of our own, Al Henderson, who has been with the business for four years most recently running the F&B division, to the critical role of Chief Sales Officer. These appointments set us up for continued success in the years ahead. We have created flexible structures to support the increase in headcount and keep us agile. We have increased our social media presence and hired graduate-level skills in for the first time as part of our ongoing recruitment practices. These investments in our people will enable us to deliver against our strategic plan and we will continue to attract, retain and reward people based on our values and the Eagle Eye 'Purple Standard'.

Looking Ahead

As we enter the new financial year, we have a sense of increasing momentum and confidence. The investments we have made into our people, platform and processes mean we have the scale and proof points to deliver upon our growth strategy and potential.  

We believe Eagle Eye is now well-placed to capitalise on growing market demand. Our proven personalisation offering for Tier 1 retailers opens an avenue of growth internationally that was only theoretical before.  We believe the Digital Wallet, which for the first time brings together all our offerings into a single customer view, provides us with significant competitive advantage and that this, coupled with our proof of delivery with Loblaw, will stand us in good stead to unlock opportunities in new geographies and sectors.

In 2019 we will focus on extending our reach into adjacent sectors to which we believe the AIR platform is applicable, such as QSR, Foodservice, Convenience and Speciality Retail, as well as continuing to develop our market leading position in Grocery, F&B and other Retail. We will continue to build on our strong positions in the UK, Europe and North America, while also increasing our activities in Australia where we have had promising initial discussions.

We have set ourselves the challenge of running our business "Better, Simpler and Cheaper", to assist in our move towards EBITDA profitability. Whilst we will make significant investment during the year in developing the product and growing the business, we will also look for inherent productivity and efficiencies coming from the scale of what we do. 

Outlook

We have had a positive start to trading in the year, including the deepening of Greene King and JD Sports as well as the launch of new Loblaw partner Esso, adding fuel stations to the PC Optimum programme, both of which we expect to drive additional volume growth in the year ahead. Redemption and interaction volumes on the platform for the first two months of the current financial year were 132.6 million, showing considerable growth on the prior year, tracking in line with management's forecast.

Whilst it is still early in the current financial year, the momentum and number of visible sales opportunities in the pipeline give the Board confidence that trading is in line with its expectations for the full year. In order to achieve our targets, the focus for the team in the year ahead will be to convert these opportunities and continue to deepen our existing customer accounts.

The size of our market opportunity underlines our belief that we are just at the start of our journey and we look to the future with confidence.

Tim Mason, Chief Executive Officer

 

Financial Review 2018

Group Results

Key Performance Indicators

	2018 £000	2017 £000
Financial
Revenue	14,755	11,058
Adjusted EBITDA loss(1)	(2,014)	(1,769)
Operating loss before interest and tax	(4,634)	(3,843)
Net cash(2)	372	3,724
Cash and cash equivalents	1,472	3,724
Short-term borrowings	(1,100)	-
	2018	2017
Non-Financial
Number of redemptions and interactions	403.7m	61.5m
Messaging volumes	56.1m	44.4m
% of subscription transaction revenue	77%	68%
Customers and brands on the platform	294	233
Customer churn, by value	1.7%	2.6%

⁽¹⁾ Adjusted EBITDA loss excludes share-based payment charges along with depreciation, amortisation, interest and tax from the measure of profit.

⁽²⁾ Net cash is Cash and cash equivalents less short-term borrowings

Group results

Revenue

Revenue growth for the Group was 33% for the Year (FY17: 71%), with revenue increasing to £14.8m (FY17: £11.1m). This was slightly behind management expectations due to certain strategic contract negotiations extending into the new financial year. However, revenue growth accelerated during the Year, with H2 18 revenue accounting for £8.3m (H1 18: £6.5m), representing growth of 28% on H1 18 (H1 17 to H2 17: 18%).

This growth has been driven by a 64% increase in recurring subscriptions and transactions revenue on the AIR platform to £9.7m (FY17: £5.9m), aided specifically by Loblaw's PC Optimum programme launching in February 2018 and the full year effect on transactions from Sainsbury's. Globally, Tier 1 AIR revenue growth (including one off set up fees) was 38% with growth from existing F&B clients at 28% in the Year.

Overall, revenue from the AIR platform now represents 89% of total revenue, £13.1m (FY17: 85%, £9.4m). This increase was largely as a result of the Group's success with our existing Tier 1 grocer clients, strongly supported by new business wins across all our other sectors, and deepening relationships with existing clients, thus increasing redemption volumes.

Redemption and interaction volumes, a key measure of usage of the AIR platform, grew by 556% year-on-year to £403.7m for the Year (FY17: 61.5m), driven by the full-year impact of Sainsbury's transactions, Loblaw's PC Optimum launch and increased volumes from existing F&B and other retail clients. The PC Optimum launch reflected the coming to market of our new loyalty service, where such services command a lower price per transaction compared to traditional promotional transactions. This, along with the nature and basket value of the underlying consumer purchases made at the Group's grocer clients, meant that as expected the revenue per transaction was lower.

Overall, £11.4m of revenue generated from subscription fees and transactions over the network represented 77% of total revenue (FY17: 68%, £7.5m). The balance, £3.4m, relates to implementation fees for new customers and new services and represents 23% of total revenue (FY17: 32%, £3.5m). The reduction in implementation fees primarily reflects the £2.5m (FY17: £2.8m) implementation fees of UK and international Tier 1 clients that have gone live, opening up recurring transactional revenues, as previously communicated.

Although messaging volumes increased 26% in the Year to 56.1m (FY17: 44.4m), messaging revenue growth was restricted to 4% to £1.7m for the Year (FY17: £1.6m), as anticipated. This reflects the continued pressure on price in the competitive messaging market, with gross margin for messaging falling 2ppts to 40% (FY17: 42%). Throughout the Year, the Group has continued to win new messaging accounts which has helped to drive the transactional volume growth. 

Gross profit

Gross margin was maintained at 87% (FY17: 88%) as gross profit grew 32% to £12.9m (FY17: £9.8m). The core AIR platform gross margin carries a significantly higher margin than the messaging business, at 93% (FY17: 96%). The slight reduction in margin primarily reflects costs associated with the network of redemption partners for the Google 'Visa tap and win' campaign.

Other costs of sales include the cost of sending SMS messages, revenue share agreements and outsourced, bespoke development work. All internal resource costs are recognised within operating costs, net of capitalised development.

Adjusted operating costs

Adjusted operating costs of £14.9m (FY17: £11.5m) represent sales and marketing, product development (net of capitalised costs), operational IT, general and administration costs. The Group has managed its cost base, only adding to it when certain strategic triggers have been achieved. Although the investment in people is the main driver of this growth, with the average headcount for the Year increasing to 130 (FY17: 100), the increase in staff costs has been restricted to 20%, which is less than the growth in gross margin. The only cost category which has increased ahead of gross margin growth is the Group's infrastructure spend, which increased 90% to £2.7m (FY17: £1.4m) as the Group has completed the scaling of the AIR platform to support the throughput and stability required by the Group's Tier 1 clients.

Within staff costs, gross expenditure on product development increased 39% to £4.1m (FY17: £2.9m), predominantly reflecting our investment in our new loyalty services in the Year. Capitalised product development costs were £2.0m (FY17: £1.5m) whilst amortisation of capitalised development costs was £1.3m (FY17: £1.5m).

EBITDA

Reflecting the timing of the Group's strategic investments in the cost base, adjusted EBITDA loss for the Year was, as previously announced, ahead of management expectations at £2.0m (FY17: loss £1.8m). To provide a better guide to the underlying business performance, adjusted EBITDA loss excludes share-based payment charges along with depreciation, amortisation, interest and tax from the measure of profit. The GAAP measure of loss before interest and tax was £4.6m (FY17: £3.8m loss) reflecting an increase in the non-cash share-based payment charge to £1.2m (FY17: £0.4m) reflecting vesting of options.

EPS and dividend

Following receipt of a £0.4m research and development (R&D) tax credit (FY17: £0.3m) and due to historic success in R&D tax claims, we have taken the decision to recognise an additional £0.3m, the receipt of which we expect will follow submission of the Group's 2018 tax returns. As such, reported basic and diluted loss per share was 14.83p (FY17: loss per share 15.73p).

The Board does not feel it appropriate at this time to commence paying dividends.

Group Statement of Financial Position

The Group had net assets of £6.4m at 30 June 2018 (FY17: £8.9m), including capitalised intellectual property of £2.8m (FY17: £2.2m) and net cash of £0.4m (FY17: £3.7m). The movement in net assets reflects the loss made in the Year.

Cashflow and net cash

Net cash at the end of the Year was £0.4m (FY17: £3.7m). The main components to the net cash decrease of £3.3m for the Year (FY17: £2.4m increase) were the operating cash outflow of £1.3m (FY17: £2.0m), reflecting the EBITDA loss of £2.0m (FY17: £1.8m), offset by a working capital inflow of £0.3m (FY17: outflow of £0.5m) and the research and development tax receipt of £0.4m (FY17: £0.3m), and capital investment in the AIR platform of £2.0m (FY17: £1.5m). 

Banking facility

During the Year the Group extended the term and value of its revolving loan facility with Barclays Bank PLC to £5.0m (FY17: £3.0m) which expires on 30 June 2020. The Group's gross cash of £1.5m (FY17: £3.7m) and undrawn facility of £3.9m (FY17: £3.0m) give the Group £5.4m of headroom, which the Directors believe is sufficient to support the Group's existing growth plans.  

 

Consolidated statement of total comprehensive income

for the Year ended 30 June 2018

			2018	2017
Continuing operations	Note		£000	£000
Revenue	3		14,755	11,058
Cost of sales			(1,897)	(1,297)
Gross profit			12,858	9,761
Adjusted operating expenses (1)			(14,872)	(11,530)
Loss before interest, tax, depreciation, amortisation and share-based payment charge			(2,014)	(1,769)
Share based payment charge			(1,204)	(431)
Depreciation and amortisation			(1,416)	(1,643)
Operating loss			(4,634)	(3,843)
Finance expense			(22)	(67)
Loss before taxation			(4,656)	(3,910)
Taxation			887	391
Loss after taxation for the financial year			(3,769)	(3,519)
Foreign exchange adjustments			29	33
Total comprehensive loss attributable to the owners of the parent for the financial year			(3,740)	(3,486)
(1) Adjusted operating expenses excludes share based payment charge, depreciation and amortisation
Loss per share
From continuing operations
Basic and diluted	4		(14.83)p	(15.73)p

Consolidated statement of financial position

as at 30 June 2018

			2018	2017
			£000	£000
Non-current assets
Intangible assets			5,506	4,838
Property, plant and equipment			224	246
			5,730	5,084
Current assets
Trade and other receivables			4,059	3,576
Current tax receivable			302	-
Cash and cash equivalents			1,472	3,724
			5,833	7,300
Total assets			11,563	12,384
Current liabilities Trade and other payables			(4,089)	(3,348)
Financial liabilities			(1,100)	-
			(5,189)	(3,348)
Non-current liabilities
Deferred tax liability			-	(174)
Total liabilities			(5,189)	(3,522)
Net assets			6,374	8,862
Equity attributable to owners of the parent
Share capital			254	253
Share premium			17,055	17,008
Merger reserve			3,278	3,278
Share option reserve			2,430	1,303
Retained losses			(16,643)	(12,980)
Total equity			6,374	8,862

 

Consolidated statement of changes in equity

for the Year ended 30 June 2018

	Share capital	Share premium	Merger reserve		Share option reserve		Retained losses		Total
	£000	£000		£000		£000		£000		£000
Balance at 1 July 2016	222	10,991		3,278		1,230		(9,852)		5,869
Loss for the financial year	-	-		-		-		(3,519)		(3,519)
Other comprehensive income Foreign exchange adjustments	-	-		-		-		33		33
	-	-		-		-		(3,486)		(3,486)
Transactions with owners recognised in equity
Issue of share capital	27	5,973		-		-		-		6,000
Issue costs	-	(240)		-		-		-		(240)
Exercise of share options	4	284		-		-		-		288
Fair value of share options exercised in the year	-	-		-		(319)		319		-
Fair value of share options lapsed in the year	-	-		-		(39)		39		-
Share-based payment charge	-	-		-		431		-		431
	31	6,017		-		73		358		6,479
Balance at 30 June 2017	253	17,008		3,278		1,303		(12,980)		8,862
Loss for the financial year	-	-		-		-		(3,769)		(3,769)
Other comprehensive income
Foreign exchange adjustments	-	-		-		-		29		29
	-	-		-		-		(3,740)		(3,740)
Transactions with owners recognised in equity
Exercise of share options	1	54		-		-		-		55
Issue costs	-	(7)		-		-		-		(7)
Fair value of share options exercised in the year	-	-		-		(77)		77		-
Share-based payment charge	-	-		-		1,204		-		1,204
	1	47		-		1,127		77		1,252
Balance at 30 June 2018	254	17,055		3,278		2,430		(16,643)		6,374

Included in Retained losses is a cumulative foreign exchange balance of £78,000 (2017: £49,000) which could be recycled to profit and loss.

 

Consolidated statement of cash flows

for the Year ended 30 June 2018

		2018	2017
		£000	£000
Cash flows from operating activities
Loss before taxation		(4,656)	(3,910)
Adjustments for:
Depreciation		132	104
Amortisation		1,284	1,539
Share-based payment charge		1,204	431
Finance expense		22	67
Increase in trade and other receivables		(483)	(1,496)
Increase in trade and other payables		738	954
Income tax paid		(1)	(1)
Income tax received		415	346
Net cash flows from operating activities		(1,345)	(1,966)
Cash flows from investing activities
Payments to acquire property, plant and equipment		(110)	(107)
Payments to acquire intangible assets		(1,952)	(1,539)
Net cash flows used in investing activities		(2,062)	(1,646)
Cash flows from financing activities
Net proceeds from issue of equity		46	6,048
Proceeds from borrowings		4,000	5,600
Repayment of borrowings		(2,900)	(5,600)
Interest paid		(20)	(67)
Net cash flows from financing activities		1,126	5,981
Net (decrease)/increase in cash and cash equivalents in the year		(2,281)	2,369
Foreign exchange adjustments		29	33
Cash and cash equivalents at beginning of year		3,724	1,322
Cash and cash equivalents at end of year		1,472	3,724

 

Notes to the consolidated preliminary financial information

1    Basis of preparation

The financial information set out herein does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The financial information for the Year ended 30 June 2018 has been extracted from the Group's audited financial statements which were approved by the Board of Directors on 17 September 2018 and which, if adopted by the members at the Annual General Meeting, will be delivered to the Registrar of Companies for England and Wales. 

The financial information for the Year ended 30 June 2017 has been extracted from the Group's audited financial statements which were approved by the Board of Directors on 18 September 2017 and which have been delivered to the Registrar of Companies for England and Wales.

The reports of the auditor on both these financial statements were unqualified, did not include any references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

The information included in this preliminary announcement has been prepared on a going concern basis under the historical cost convention, and in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the International Financial Reporting Interpretations Committee (IFRIC) interpretations issued by the International Accounting Standards Board ("IASB") that are effective as at the date of these financial statements and in accordance with the provisions of the Companies Act 2006.

The Company is a public limited Company incorporated and domiciled in England & Wales and whose shares are quoted on AIM, a market operated by The London Stock Exchange.

2    Going concern

As part of their going concern review the Directors have followed the guidelines published by the Financial Reporting Council entitled "Guidance on Risk Management and Internal Control and Related Financial and Business Reporting".

The Directors have prepared detailed financial forecasts and cash flows looking beyond 12 months from the date of approval of these consolidated financial statements.  In developing these forecasts, the Directors have made assumptions based upon their view of the current and future economic conditions that will prevail over the forecast period.

On the basis of the above projections, the Directors are confident that the Group has sufficient working capital to honour all of its obligations to creditors as and when they fall due. In reaching this conclusion, the Directors have considered the forecast cash headroom, the resources available to the Group and the potential impact of changes in forecast growth and other assumptions, including the potential to avoid or defer certain costs and to reduce discretionary spend as mitigating actions in the event of such changes. Accordingly, the Directors continue to adopt the going concern basis in preparing this consolidated preliminary financial information.

 

3    Segmental analysis

The Group is organised into one principal operating division for management purposes. Therefore, the Group has only one operating segment and segmental information is not required to be disclosed. Revenue is analysed as follows:

		2018	2017
		£000	£000
Development and set up fees		3,387	3,512
Subscription and transaction fees		11,368	7,546
		14,755	11,058

		2018	2017
		£000	£000
AIR revenue		13,064	9,426
Messaging revenue		1,691	1,632
		14,755	11,058

Continuing revenues can be attributed to the following countries, based on the customers' location, as follows:

		2018	2017
		£000	£000
United Kingdom		9,778	8,249
North America		3,943	2,557
Rest of Europe		1,008	149
Asia Pacific		26	103
		14,755	11,058

4    Loss per share

The calculation of basic and diluted loss per share is based on the result attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the Year. The weighted average number of shares for the purpose of calculating the basic and diluted measures is the same. This is because the outstanding share options would have the effect of reducing the loss per ordinary share and therefore would be anti-dilutive. Basic and diluted loss per share from continuing operations is calculated as follows:

	Loss per share pence	Loss £000	2018 Weighted average number of ordinary shares	Loss per share pence	Loss £000	2017 Weighted average number of ordinary shares
Basic and diluted loss per share	(14.83)	(3,769)	25,420,567	(15.73)	(3,519)	22,373,645

5    Report and Accounts

A copy of the Annual Report and Accounts for the Year ended 30 June 2018 will be sent to all shareholders in due course together with notice of the Annual General Meeting. 

 

END

 

 

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