Interim Results

RNS Number : 3316Z

Eagle Eye Solutions Group PLC

14 March 2017

Eagle Eye Solutions Group PLC

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

Interim Results for the six months ended 31 December 2016

Strong revenue growth and strong operational momentum

Eagle Eye, the SaaS technology company that validates and redeems digital promotions in real-time for the grocery, retail and hospitality industries, is pleased to announce its unaudited interim results for the six months ended 31 December 2016 (the "Period").

Financial highlights¹:

•	Group revenue increased by 72% to £5.1m (H1 2016: £3.0m) - ahead of market expectations of £4.8m
•	Accelerating revenue growth half-on-half, 44% H1 2017 vs. H2 2016 (H2 2016 vs. H1 2016: 19%)
•	Revenue from subscription fees and transactions over the network represented 66% of total revenue in H1 2017 (H1 2016: 84%) reflecting a 'deepening' of Eagle Eye's technology within major accounts
•	Net debt position £0.2m (June 2016: Cash of £1.3m)

Operational and commercial highlights:

•	Redemption volumes of 25.2m, an increase of 81% (H1 2016: 13.9m)
•	Total customer and brand count at 215 (H1 2016:190) including 70 FMCG brands (H1 2016: 56)
•	SMS volumes of 19.0m, an increase of 2% (H1 2016: 18.8m)
•	Enhanced scalability, performance and new feature delivery to meet the needs of tier 1 grocery and food and beverage clients
•	Tim Mason, previously Non-Executive Chairman, appointed Chief Executive in September 2016
•	Malcolm Wall, previously a Non-Executive Director, appointed Non-Executive Chairman in September 2016

Post Period-end developments:

•	Extended credit facility with Barclays Bank PLC to £3.0m
•	Exclusive partnership with TCC Global to take digital promotions into Europe signed in March 2017

Tim Mason, Chief Executive of Eagle Eye, said:

"The first half of FY17 was a period of significant growth for the Group with revenue up 72% year on year, exceeding expectations. This accelerating growth rate was supported by continued operational momentum with more customer wins, increased transactions on the Eagle Eye AIR platform and the deepening of customer relationships with our tier 1 clients.

Progress has continued post the period end with the extension of our credit facility with Barclays Bank PLC and an exciting partnership with TCC Global that will provide Eagle Eye with a strong platform to access the European market.

Eagle Eye has a clear and focused growth strategy, proven and scalable technology and a strong first mover advantage in a rapidly growing market driven by structural change. With these qualities and our accelerating momentum, the Board remains excited and confident about the future."

For further information, please contact: Eagle Eye
Tim Mason, Chief Executive Officer Lucy Sharman-Munday, Chief Financial Officer	Tel: 0844 824 3686
Investec (Nominated Advisor and Broker)
Dominic Emery/David Anderson, Corporate Finance	Tel: 020 7597 5970
Matt Lewis, Corporate Broking Hudson Sandler
Nick Lyon/Alex Brennan	Tel: 020 7796 4133
Information on Eagle Eye www.eagleeye.com

Eagle Eye is a leading SaaS technology company that securely validates and redeems digital promotions in real-time for the grocery, retail and hospitality industries.

The Company's digital marketing platform, Eagle Eye AIR, enables the secure, real-time, multi-channel issuance, management and redemption of digital promotions and rewards, replacing previously used paper-based methods. Our Eagle Eye platform creates a network effect between merchants, distributors and brands enabling stronger connections and value to all parties. Through our four products we enable brands and merchants to reduce cost, improve their customer offer and accelerate their innovation.

The Company's current customer base comprises leading names in UK grocery, retail and hospitality including Asda, J Sainsbury, Greggs, JD Sports, Ladbrokes, Marks & Spencer, Mitchells & Butlers, Pizza Express, Tesco and Thomas Pink.

¹ Unaudited

Chairman's Review

During the first half of FY 2017 the Group continued to deliver strong progress with revenue of £5.1m representing a significantly accelerating half on half growth rate of 44% (19% H2 2016 vs. H1 2016) and exceeding market expectations of £4.8m.

In September the Board appointed Tim Mason as CEO after a 6 month period as Chairman. Since then our focus has been on strengthening our strategy to become a global digital marketing leader. To achieve this we aspire to be Better, Bigger and Faster by improving in three core areas of customer interaction: 'Win' (bringing more customers on to the Eagle Eye AIR platform); 'Transact' (driving higher redemption volumes through the platform) , and; 'Deepen' (enrich relationships with our customers as the breadth of our product portfolio becomes more developed).

1. Win

We made continued progress in adding new brands and retailers to the AIR platform in the first half of the year. At the end of the period, Eagle Eye had 215 live users, including 70 FMCG brands, up from 190 users with 56 brands at the end of H1 2016.

Since the end of the Period the Company's momentum has continued with the signing of a strategic partnership with TCC Global, a world leader in creating retail marketing programmes and continuity loyalty schemes, allowing Eagle Eye to extend its digital promotions offer into the European loyalty market.

TCC Global works with many of Europe's largest retailers, making them a logical partner for Eagle Eye, and will enable the Company to build on its success in the UK and accelerate our growth.

2. Transact

Adding new customers to the AIR platform and powering new brand campaigns through it drives incremental transaction volumes. The volume of transactions through the platform increased by 81% to 25.2m (H1 2016: 13.9m) supported by Asda's nationwide roll-out in February 2016. Adoption of a further use case for Asda included Asda Money delivering enhanced loyalty points and cashback rewards to customers using the AIR platform.

Using Asda as a nationwide redemption channel, from July to October, Coke Zero Sugar ran a promotional campaign across the AIR platform that generated a redemption rate of over 10%, compared to the typical redemption rate of a traditional analogue campaign of 0.5% -2%¹. This significant uplift in redemptions is proof that Eagle Eye can successfully drive higher redemption rates through the power of digital.

Through the food and beverage network we have attracted new brands to the platform and during the Period powered successful digital campaigns with leading drinks brands including Sol, Desperados and Bulmers.

In messaging services, despite the Public Health England Stoptober campaign not including an SMS element this year, SMS volumes still increased 2% to 19.0m (H1 2016: 18.8m), reflecting new messaging clients and the cross sell of messaging services to the existing client base.

3. Deepen

We have made significant progress in deepening our tier 1 client relationships during the Period with 52% of revenue, £2.6m (H1 2016: 29%, £0.9m) being generated by extending our service offering within major clients. The embedding of Eagle Eye's technology within these clients is a strong demonstration of the capability and reliability of our technology as a digital marketing platform.

During the Period our tier 1 customers further adopted our product set to drive their customer centric agendas and accelerate their digital ambitions in order to gain competitive advantage. This will help to drive significant transactional revenue growth in future periods.

Progress in the key food and beverage ("F&B") market has also been pleasing with revenues increasing 19% to £0.8m (H1 2016: £0.7m). The increase in revenue has been made not only as existing clients have onboarded additional brands (including Stonehouse and Las Iguanas) on to the AIR platform, but in deepening relationships. During the Period, seven Mitchells & Butlers brands rolled out beacon technology across their properties. By using beacons, operators are able to deliver tailored real time offers to their repeat customers via the AIR platform, enhancing the customers' experiences and encouraging further visits.

Innovation

Underpinning our strategy to become a global leader in digital marketing by winning more customers, deepening relationships and driving increased transactions through our platform, is a continued focus on product leadership and innovation.

The areas of focus for new feature development have been largely around extending the product offering for retailers' loyalty schemes. We have added new capability for retailers to offer 'friends and family' schemes to their consumers, enabled brands to fund promotional activity as part of the traditional loyalty scheme mix, and given retailers the ability to drive consumer behaviours through targeted discount, continuity and points based promotions, with personalised value that is relevant to the individual consumer.

Financial results

During the Period, the Group delivered a revenue increase of 72% to £5.1m (H1 2016: £3.0m). AIR platform revenue of £4.3m represented 85% of total revenue (H1 2016: 68%) and AIR transactional revenues grew 61% against the prior year to £2.6m (H1 2016: £1.6m) driven primarily by the deepening of our tier 1 customer relationships and increased transaction revenue from existing customers. Although SMS volumes increased 2% in the period, as expected, overall messaging revenue fell to £0.8m (H1 2016: £1.0m) reflecting the lower margin on new contract wins between the periods.

Revenue generated from subscription fees and transactions over the network represented 66% (H1 2016: 84%) of total revenue for the first half of FY 2017. This reflected the progress being made in deepening Eagle Eye's product offering within major accounts, which will open up recurring transactional revenues in future periods.

Gross profit grew 97% to £4.4m (H1 2016: £2.2m) and the gross margin increased to 87% (H1 2016: 76%). Gross margin improved as a result of the change in the Company's revenue mix, with a greater proportion represented by AIR platform revenue that has a higher margin than messaging revenue. AIR margin itself also improved to 95% (H1 2016: 93%) reflecting the lessening requirement for revenue share agreements with partners.

Operating expenses of £5.3m (H1 2016: £3.5m) increased primarily as a result of the investment in people for our planned strategic growth, together with incremental costs linked to revenue growth and ensuring the robustness and security of the AIR platform and ISO 27001 (recognised information security and risk certification) accredited systems. The number of employees at the end of the Period increased to 98 (H1 2016: 72).

Adjusted EBITDA loss for the Period was £0.9m (H1 2016: loss £1.3m). To provide a better guide to the underlying business performance, Adjusted EBITDA excludes share-based payment charges along with depreciation, amortisation, interest and tax from the measure of profit.

The Group had net assets of £4.6m at the end of the Period (June 16: £5.9m), the expected reduction in net assets reflected the movement in cash explained below. At the end of the Period, the Group held cash of £0.3m and had utilised £0.5m of its 3 year revolving credit facility with Barclays Bank PLC, resulting in an overall net debt of £0.2m (June 2016: Cash of £1.3m). The movement in net debt reflected the operating cash outflow of £0.8m and the continued investment in capitalised intellectual property of £0.7m.

On 6 February 2017, the Group announced an extension to its revolving credit facility with Barclays Bank PLC to £3.0m, which the Board is confident provides sufficient headroom to support the Group's current strategic ambitions.

Board

Having joined Eagle Eye in January 2016 as Chairman, Tim Mason was appointed Chief Executive Officer in September 2016. His wealth of experience and relationships, both domestically and internationally, will help support the delivery of Eagle Eye's exciting potential.

Malcolm Wall, a Non-Executive Director of Eagle Eye since IPO in 2014, was appointed as Non-Executive Chairman at the same time.

After the Period end, Phill Blundell, Deputy Chief Executive Officer, left the Company.

Outlook

The first six months of FY 2017 has seen significant operational and financial progress. The Group's strong and accelerating revenue growth of 72% in H1 2017 coupled with continued success in winning new customers, driving increased transactions through our platform and deepening customer relationships demonstrates the excellent momentum the business has. This level of growth gives the Board confidence to deliver against its full year expectations.

We have made strategic progress internationally and will continue to focus on building in North America following the delivery of our contract with the market leading Canadian grocer, Loblaws Inc. Furthermore, the new partnership with TCC Global will support our move into the previously untouched European market, giving Eagle Eye an even greater international reach.

The extended £3.0m revolving loan facility agreed with Barclays Bank PLC in February 2017 provides the business with adequate funding to support the Group's current strategic ambitions.

¹ www.pointofsale.com - Study for ROI on mobile coupon redemption

Consolidated unaudited interim statement of total comprehensive income for the six months ended 31 December 2016

		Unaudited	Unaudited	Audited
		6 months to	6 months to	Year to
		31 December	31 December	30 June
		2016	2015	2016
	Note	£000	£000	£000
Continuing operations
Revenue	3	5,064	2,950	6,458
Cost of sales		(653)	(713)	(1,369)

Gross profit		4,411	2,237	5,089
Adjusted operating expenses⁽¹⁾		(5,290)	(3,502)	(6,912)
Loss before interest, tax, depreciation, amortisation and share-based payment charge		(879)	(1,265)	(1,823)

Share-based payment charge		(77)	(300)	(632)
Depreciation and amortisation		(859)	(788)	(1,645)

Operating loss		(1,815)	(2,353)	(4,100)
Finance income		3	-	2
Finance expense		(15)	-	-

Loss before taxation		(1,827)	(2,353)	(4,098)
Taxation		432	449	473

Loss after taxation for the financial period		(1,395)	(1,904)	(3,625)
Foreign exchange adjustments		29	-	16
Total comprehensive loss attributable to the owners of the parent for the financial period		(1,366)	(1,904)	(3,609)
⁽¹⁾ Adjusted operating expenses excludes share based payment charge, depreciation and amortisation
Loss per share

From continuing operations
Basic and diluted	4	(6.30)p	(8.59)p	(16.36)p

Consolidated unaudited interim statement of financial position as at 31 December 2016

	Unaudited	Unaudited	Audited
	31 December	31 December	30 June
	2016	2015	2016
	£000	£000	£000
Non-current assets
Intangible assets	4,704	4,989	4,838
Property, plant and equipment	256	271	243

	4,960	5,260	5,081
Current assets
Trade and other receivables	3,606	2,084	2,080
Cash and cash equivalents	324	2,726	1,322

	3,930	4,810	3,402

Total assets	8,890	10,070	8,483

Current liabilities Trade and other payables	(4,177)	(2,584)	(2,394)
Non-current liabilities Deferred tax liability	(133)	(244)	(220)

Total liabilities	(4,310)	(2,828)	(2,614)

Net assets	4,580	7,242	5,869

Equity attributable to owners of the parent
Share capital	222	222	222
Share premium	10,991	10,991	10,991
Merger reserve	3,278	3,278	3,278
Share option reserve	1,307	897	1,230
Retained losses	(11,218)	(8,146)	(9,852)

Total equity	4,580	7,242	5,869

Consolidated unaudited interim statement of changes in equity for the six months ended 31 December 2016

	Share capital	Share premium	Merger reserve	Share option reserve	Retained losses	Total
	£000	£000	£000	£000	£000	£000
At 1 July 2015	221	10,985	3,278	608	(6,253)	8,839

Loss for the period	-	-	-	-	(1,904)	(1,904)
Transactions with owners
Fair value of options exercised in the period	-	-	-	(11)	11	-
Exercise of share options	1	6	-	-	-	7
IFRS 2 share-based payment charge	-	-	-	300	-	300
	1	6	-	289	11	307

At 31 December 2015	222	10,991	3,278	897	(8,146)	7,242
Loss for the period	-	-	-	-	(1,721)	(1,721)
Other comprehensive income Foreign exchange adjustments	-	-	-	-	16	16
	-	-	-	-	(1,705)	(1,705)
Transactions with owners
Fair value of share options exercised	-	-	-	1	(1)	-
IFRS 2 share-based payment charge	-	-	-	332	-	332
	-	-	-	333	(1)	332
At 30 June 2016	222	10,991	3,278	1,230	(9,852)	5,869

Loss for the period	-	-	-	-	(1,395)	(1,395)
Other comprehensive income Foreign exchange adjustments	-	-	-	-	29	29
	-	-	-	-	(1,366)	(1,366)
Transactions with owners
IFRS 2 share-based payment charge	-	-	-	77	-	77
	-	-	-	77	-	77

At 31 December 2016	222	10,991	3,278	1,307	(11,218)	4,580

Consolidated unaudited interim statement of cash flows for the six months ended 31 December 2016

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year to
	31 December	31 December	30 June
	2016	2015	2016
	£000	£000	£000
Cash flows from operating activities
Loss before taxation	(1,827)	(2,353)	(4,098)
Adjustments for:
Depreciation	46	34	80
Amortisation	813	754	1,565
Share-based payment charge	77	300	632
Finance income	(3)	-	(2)
Finance expense	15	-	-
Increase in trade and other receivables	(1,526)	(668)	(663)
Increase in trade and other payables	1,271	746	555
Income tax received	346	403	403
Net cash flows from operating activities	(788)	(784)	(1,528)

Cash flows from investing activities
Payments to acquire property, plant and equipment	(59)	(252)	(270)
Payments to acquire intangible assets	(679)	(537)	(1,197)
Net cash flows from investing activities	(738)	(789)	(1,467)

Cash flows from financing activities
Net proceeds from issue of equity	-	7	7
Proceeds from borrowings	800	-	-
Repayment of borrowings	(300)	-	-
Interest paid	(4)	-	-
Interest received	3	-	2
Net cash flows from financing activities	499	7	9

Net decrease in cash and cash equivalents in the period	(1,027)	(1,566)	(2,986)
Foreign exchange adjustments	29	-	16
Cash and cash equivalents at beginning of period	1,322	4,292	4,292
Cash and cash equivalents at end of period	324	2,726	1,322

Notes to the consolidated unaudited interim financial statements

1. Basis of preparation

The Group's half-yearly financial information, which is unaudited, consolidates the results of Eagle Eye Solutions Group plc and its subsidiary undertakings up to 31 December 2016. The Group's accounting reference date is 30 June. Eagle Eye Solutions Group plc's shares are listed on the Alternative Investment Market of the London Stock Exchange (AIM).

The Company is a public limited liability company incorporated and domiciled in England & Wales. The consolidated financial information is presented in Pounds Sterling (£) which is also the functional currency of the parent.

Eagle Eye Solutions Group plc and its subsidiary undertakings have not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK AIM listed Groups, in the preparation of this half-yearly financial report.

The accounting policies used in the preparation of the financial information for the six months ended 31 December 2016 are in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS') as adopted by the European Union and are consistent with those which will be adopted in the annual financial statements for the year ending 30 June 2017.

While the financial information included has been prepared in accordance with the recognition and measurement criteria of IFRS, as adopted by the European Union, these interim financial statements do not contain sufficient information to comply with IFRS.

The comparative financial information for the year ended 30 June 2016 has been extracted from the annual financial statements of Eagle Eye Solutions Group plc. These interim results for the period ended 31 December 2016, which are not audited, do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information does not therefore include all of the information and disclosures required in the annual financial statements.

Full audited accounts of the Group in respect of the year ended 30 June 2016, which received an unqualified audit opinion and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, have been delivered to the Registrar of Companies.

2. Going concern basis

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 this half-yearly financial information. 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 half-yearly financial information.

3. Segmental analysis

The Group is organised into one principal operating division for management purposes. Revenue is analysed as follows:

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year to
	31 December	31 December	30 June
	2016	2015	2016
	£000	£000	£000
Development and set up fees	1,698	484	1,275
Subscription and transaction fees	3,366	2,466	5,183
	5,064	2,950	6,458

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year to
	31 December	31 December	30 June
	2016	2015	2016
	£000	£000	£000
AIR revenue	4,314	1,997	4,637
Messaging revenue	750	953	1,821
	5,064	2,950	6,458

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 period. 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 not be dilutive.

	Unaudited 2016 Loss per share pence	Unaudited 2016 Loss £000	Unaudited 2016 Weighted average number of ordinary shares	Unaudited 2015 Loss per share pence	Unaudited 2015 Loss £000	Unaudited 2015 Weighted average number of ordinary shares

Basic and diluted loss per share	(6.30)	(1,395)	22,158,286	(8.59)	(1,904)	22,152,267