Final Results

RNS Number : 3205R

Gresham Computing PLC

08 March 2016

 

8 March 2016

Gresham Computing plc

Annual Financial Report Announcement

Year ended 31 December 2015

Gresham Computing plc (LSE: "GHT", "Gresham" or the "Group"), the leading software and services company that specialises in providing real-time transaction control and enterprise data integrity software, is pleased to announce its results for the financial year ended 31 December 2015.

Highlights

·    Continued strong CTC customer progress in 2015:

o  Eleven new customer wins in the UK, continental Europe, the US and Singapore; and

o  Continued expansion of use from existing customer base.

·    Total revenues up 16% to £14.8m (2014: £12.8m), of which recurring revenues increased 20% to £7.8m (2014: £6.5m).

·    CTC revenues up 51% to £5.3m (2014: £3.5m).

·    CTC software revenues up 212% to £3.4m (2014: £1.1m), of which CTC software recurring revenues up 90% to £1.9m (2014: £1.0m).

·    Adjusted EBITDA* up 145% to £2.7m (2014: £1.1m).

·    Statutory profit before tax as reported up 243% to £1.6m (2014: £0.5m).

·    Cash £4.7m and no debt at 31 December 2015 (2014: £4.7m and no debt), with net operating cash inflow £3.2m (2014: £3.1m).

·    Continuing high level of investment in product innovation and building sales distribution globally to continue to grow recurring revenues strongly.

·    Further new and existing CTC customer wins in Q1 2016, including a significant new services order for 2016 from an existing major UK clearing bank customer.

·    Management confident about the prospects for the Group.

* Adjusted EBITDA refers to earnings before interest, tax, depreciation and amortisation, adjusted to add back share-based payment charges and exceptional items.

Ian Manocha, CEO, commented:

"Gresham made significant progress in 2015. High quality new customer wins helped drive CTC licence revenue up 212% and contribute to improving margins. We extended our portfolio of innovative products, launched our cloud platform Clareti-as-a-Service, and strengthened the global organisation to sustain the positive momentum into 2016. 

As a result of increased risk and regulatory focus, data integrity and control is now a board level issue in our target markets. The Group is well placed to take advantage of this opportunity."

A copy of this announcement has been submitted to the National Storage Mechanism and will shortly be available for inspection at http://www.hemscott.com/nsm.do and www.gresham-computing.com. Printed copies of the Annual Financial Report will be posted to shareholders in due course.

Enquiries

Gresham Computing plc

Ian Manocha                                                                              [phone]

Rob Grubb

N+1 Singer (Broker)

Shaun Dobson                                                                           [phone]

Lauren Kettle

Note to editors

Gresham's award-winning software platform Clareti Transaction Control (CTC) has been designed to provide financial institutions with complete certainty in their data processing. CTC combines best-in-class performance with future-proofed technology, providing real-time data management based on business-driven controls. CTC is a highly flexible and fully scalable platform for assuring enterprise data integrity and is designed to address today's most challenging financial control, internal risk management and regulatory compliance problems.

Gresham Computing plc is a leading software and services company that specialises in providing real-time transaction control and enterprise data integrity solutions, and is listed on the main market of the London Stock Exchange (GHT.L). With over 30 years' experience and headquartered in the City of London, customers include some of the world's largest financial institutions, all of whom are served locally from offices located in Europe, North America and Asia Pacific.

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

In accordance with the Disclosure and Transparency Rules, the extracts below are from the Annual Financial Report 2015 in un-edited full text. In order to comply with the regulatory requirement to include un-edited text in this Annual Financial Report Announcement, page and note references refer to page and note numbers in the Annual Financial Report 2015.

CHAIRMAN'S STATEMENT

I am pleased to present this Annual Report which records a very successful 2015 for the Group on a number of fronts.

Overview

Gresham continued its good progress in executing on key strategic objectives, and I am pleased to report 16% top-line growth with total revenues for the Group rising to £14.8m for the year. Importantly, the additional revenues are generated by high margin CTC software sales, which has resulted in strong growth in underlying profitability and an associated sharp increase in recurring revenues. This provides a solid platform for continued and profitable growth.

During the year an important milestone was reached when CTC became the Group's best-selling software product with a number of major new clients adopting CTC as their strategic platform for ensuring the integrity of their data and transaction processing. Regulatory compliance, internal risk management and control were the key business drivers of this success, which we expect will continue into 2016 and beyond. To capitalise on this opportunity the Company is now extending its Clareti portfolio and is building a series of applications that use the CTC platform to meet specific customer business requirements. The Company has also developed and deployed a cloud-based service offering which allows our customers to utilise the CTC software through a Gresham managed service. This investment will allow us to grow our existing customer base and to attract new customers from numerous market segments. We have also invested and will continue to invest in our sales and marketing resources to fulfil demand globally.

Shareholders will have noted our announcements in 2015 regarding CTC contract wins in the US and in Asia. I am particularly pleased with these wins as they demonstrate the good progress the Group has made in expanding CTC adoption globally. The US and Asia markets have the potential for much higher growth and the Board continues to support the ongoing investments in direct sales resources, in addition to forming strategic alliances to further expand distribution capacity. Our sales success to date has resulted in a high quality referenceable customer base from which we can grow sales through account expansion whilst attracting new customers with our increasing portfolio of offerings. With our continued investment in the Clareti platform and sales and marketing expansion, I anticipate further improvement in our market position as we have a proven product addressing a growing demand for transparency and integrity over risk and financial data processing.

In addition to the contribution of CTC, our partner solutions and our legacy software businesses continue to provide valuable contributions to earnings through mainly recurring revenues representing lower risk revenue in the near to medium term. As previously highlighted these legacy revenues are in long-term decline and are being replaced by the growing higher margin revenues from our Clareti portfolio of products.

Dividend

As reported last year, we received court approval in March 2015 to make the necessary changes to our capital structure, through cancellation of the share premium account, such that the Company now has the ability to pay dividends and make other returns of capital when the Board considers it appropriate and desirable to do so. As a Board we are committed to commencing a progressive dividend when the circumstances are deemed to be appropriate. Whilst our priority remains to reinvest cash generated in 2016 into the business to support our strategic aims, as a Board we have a firm intention to review the position subsequent to that and consider declaring a maiden dividend in respect of financial year 2017.  

Board changes

As stated in last year's Annual Report and in subsequent announcements, we welcomed Ian Manocha as our new Chief Executive on 1 June 2015 to help us capitalise on the significant market opportunity that we are seeing to accelerate CTC growth and to realise our vision of becoming a market leader in real-time transaction control and enterprise data integrity solutions. I am delighted to be working with Ian as we execute and extend our strategy for the ongoing development of the Group. Ian succeeds Chris Errington, who remains on the Board as a Non-Executive Director. Hamish Purdey left the Board in January 2015.

Outlook

The Gresham organisation and its employees are fully aligned to growing profitable revenue from CTC sales globally. I remain confident that our investments in sales, marketing and client support provide the platform to deliver shareholder value from our ongoing investment in CTC.

I would like to thank the management and staff for their continued support and resolve to achieve success in our pursuit of market leadership in real-time transaction control and enterprise data integrity.

Ken Archer

Non-Executive Chairman

7 March 2016

CEO'S STATEMENT

This is my first report to you as Chief Executive and I am pleased to report a positive year of progress aligned with the strategic plan set out by the Board. We delivered 212% CTC software revenue growth driven by high quality new customer wins, as well as extensions in the existing CTC subscriber base and implementation successes. We enhanced our portfolio of offerings with innovative new products, including our cloud platform Clareti-as-a-Service ("CaaS"), and we further strengthened the global organisation.

Objectives and strategy

Our objective is to be recognised as a leading financial technology provider focused on enterprise data integrity and transaction control solutions that deliver sustained profitable growth for the Group and build shareholder value.

To achieve our long-term objective, we are following a strategic plan focused originally on CTC and now, more broadly, on the Clareti portfolio. The Group regards the plan to streamline and strengthen our legacy business (the general strategic plan referred to in previous Annual Financial Reports) as largely complete with the remaining EDT, VME and other legacy lower margin revenues now being managed efficiently in light of the inevitable run off in the medium to long term.

The strategy has further matured as the opportunity to build on CTC's success has unfolded positively. We plan to:

·      focus the significant majority of our product investment and sales efforts on CTC, our flagship product;

·      establish CTC as the enterprise data integrity platform "category leader" in a world awash with real-time streaming data;

·      leverage the Clareti platform and CaaS to bring new "Control" applications to market;

·      build a high-margin, recurring revenue stream based on Clareti licence sales, subscriptions and cloud services; and

·      create a sustainable global business to enable Clareti-led growth and exceptional rates of customer loyalty.

Operational performance

It is pleasing to report high quality CTC wins in all our target geographic markets of UK and Europe, Asia Pacific and the US. New customer wins were represented across our targeted financial services industry sub-segments including insurance, banking and capital markets, payments, clearing and settlements. Use cases were also in line with our plan, namely financial and risk control, regulatory compliance and transition management. A full review of the year's operational performance is included in the Operational Review.

People

Since joining Gresham in June 2015, I have been very impressed with the openness, the depth of knowledge, and the expertise that exists across the business, and it is a pleasure to be working in such a positive and constructive environment.

We recognise that people are key to our ability to deliver on our strategic plans. We need the right level of expertise across all functions of the business in order to grow the business successfully, innovate and expand our offerings, and delight our customers on a global basis. This philosophy is reflected in our business model, and I have reported in the Operational Review on some of the steps we have implemented in 2015 to help our people achieve their potential at Gresham.

Outlook and opportunity

We have entered 2016 with a strong CTC annuity stream and related professional services backlog. In the first quarter of 2016 so far, we have signed a significant professional services extension with the Tier 1 bank we won in the last quarter of 2015, and we have also achieved a new CTC client win in the US, which represents our second asset management client and our first CaaS client in North America.

Our solution focus will continue to be risk, regulatory and financial control as well as transition management and white label. Our 2016 new sales focus will be weighted towards two primary initiatives:

Firstly, we will target capital markets clients where risk and regulatory driven data integrity challenges are a good fit for CTC. Risk IT spending is rising as financial institutions invest to comply with post-global crisis regulations such as Basel III and associated principles such as the Basel Committee on Banking Supervision ("BCBS") 239 Principles for Effective Risk Data Aggregation & Reporting. According to research published by Chartis in January 2016, Risk Data Aggregation and Reporting alone is a market valued at $4.67bn in new risk IT spend. The Group is targeting Tier 1 bank investment programmes for improved enterprise-wide data collection, quality and risk data governance procedures. Tier 1s are expected to spend the most on new initiatives in 2016 ($1.93bn); Tier 2s $1bn; and Tier 3s $1.7bn.

Secondly, we are targeting global transaction banks with our best-in-class Accounts Receivable Management solution to sell to their corporates. At a time when traditional transaction services are facing severe competition and a rapidly changing payment landscape, banks need to differentiate to win, retain and grow corporate accounts. Our white label platform enables banks to deliver enhanced cash management and analytic based products extremely rapidly and at a far lower cost than building in-house. The solution is proven to help banks win new clients, and increase deposits driving net interest income.

We expect to grow recurring revenue with existing direct CTC customers and through our white label channel partners who are gaining momentum with their own client wins. We are confident that CaaS, our cloud platform, and managed services will feature strongly in our new business wins and further enhance recurring revenue streams. As expected, the Group's legacy licence base is gradually declining and we have factored this into our financial model.

We are confident that our strategy to achieve sustainable long-term profitable growth and shareholder value based on CTC, and now the Clareti portfolio, is on track. There is a positive confidence and focused sense of purpose throughout the Gresham team and we are all excited about the potential to create a global leader in the enterprise data integrity market.

Thank you for your ongoing support.

Ian Manocha

Chief Executive

7 March 2016

OPERATIONAL REVIEW

Gathering CTC momentum

During 2015, we saw eleven new CTC customers contributing to Group revenues for the first time. New customer wins were represented across our targeted financial services industry sub-segments including insurance, banking and capital markets, payments, clearing and settlements. Use cases were also in line with our plan, namely financial and risk control, regulatory compliance and transition management.

We have invested strongly in direct sales and marketing resources in the year, in addition to forming strategic alliances to further expand distribution capability, and it was pleasing to see high quality wins in all our target geographic markets of UK and Europe, Asia Pacific and the US.

Sales progress in UK and Europe

Three new CTC clients started their subscriptions in the first quarter of 2015, including one of the world's leading clearers of derivatives, cash securities, OTCs and other financial instruments, that is deploying CTC for real-time matching and reconciliation of exchange traded derivatives and intersystem transactions.

One of the world's leading legal services businesses contracted to use CTC for the matching and reconciliation of its Oracle record of payment transactions with third party statements from around the world.

A major European investment bank selected CTC to assist with a high profile regulatory reporting and compliance project which was successfully completed on time, and for which CTC was used to validate the bank's transaction data against specific Approved Reporting Mechanism formats and rules prior to being reported. Supervisory authorities are putting much greater emphasis on the accuracy and completeness of risk and financial data and our data integrity platform has unique capabilities that enable institutions to confirm that they are reporting correctly.

One of the largest global insurance and reinsurance brokers, and leading global risk adviser, selected CTC to control its inter-company trading between international offices using disparate systems, currencies, languages, formats and reporting methods. They intend to further expand the use of the technology to control broker and bureau transactions. The use of CTC workflow has transformed hitherto manual processes, and CTC also automates the generation of key reports required for regulatory purposes as well as control of settlement and collections.

A leading provider of corporate employee equity and non-equity plan administration services with a client base across Europe and Asia contracted to use CTC for replacement of manual and spreadsheet based controls and reconciliations in its securities and cash accounts. CTC is expected to become the client's standard transaction control platform deployed across its international businesses.

In the fourth quarter, one of the UK's largest banks adopted CTC Transition Management in its digital transformation programme for data integrity assurance during business change. As a new "key customer", this account has significant growth potential and we are already seeing incremental opportunities come into our pipeline. A key customer is an account which has potential to generate revenues greater than £3m over five years.

Finally, Europe's leading real estate debt specialists selected Gresham to partner with them to build a new application based on Clareti-as-a-Service that will enable them to disrupt the third party loan servicing market, and for Gresham to target the global lending systems market with an innovative cloud solution. We are positive about the potential to sell a broader loan control offering into financial institutions that are also a key market for our transaction control solutions.

Aside from CTC, as noted by your Chairman we saw increased revenues from our UK cash management clients, although we do not expect that trend to continue in the medium term. It was therefore encouraging to see a consistent beat rate of new CTC UK and European sales closing throughout the year.

Sales progress in the US

Our investment in a New York office in 2014 has started to bear fruit. Our first US client, a major financial services organisation, which selected CTC as a white labelled matching and reconciliation offering to its asset management clients, made its first contribution to Group revenues.

In June we signed a leading North America based provider of solutions for the pre-paid products market to use CTC to control and reconcile payment transaction data within its settlement operations and accounting functions. This win in the payments arena underlines the versatility and power of the Clareti platform to adapt across multiple industries. The platform's PCI-DSS accreditation was instrumental in giving the client confidence in using CTC to handle payment card data.

A New York based asset manager became our third client in North America adopting CTC to perform cash, position and trade transaction control to underpin its internal risk control processes. As a global specialist in alternative risk exposures, the business is growing rapidly and it intends to use CTC to deliver all internal data validation checks across current and future business lines in line with our enterprise data integrity vision.

During the year we strengthened the sales team, expanded our New York presence and initiated a plan to move our Denver support operations into New York to gain scale on the East Coast closer to our target financial services community. We regard success in the US and Canada financial markets as important for the Group's future and 2015 results represent very good progress.

Sales progress in Asia Pacific

We continue to build on our long established presence in Australia and our more recent investment in Singapore to target the Asian financial services market. We have now established dedicated sales teams in each location alongside our delivery hubs and are positive about the potential in the region.

Through 2015 we saw steady account growth in our Australian business as client usage of CTC increased. Our 2013 customer win of white labelled Accounts Receivable Management ("ARM") in Singapore also increased its investment, and is working collaboratively with us to extend the ARM offering even further ahead of competitive alternatives.

Alongside existing customer growth, it was especially pleasing to win a second client in Singapore. The Asia operation of a leading global insurance and asset management provider selected CTC for financial control and was able to go live with its first controls within just a few weeks. CTC is used to provide control and integrity of Nostro Bank Accounts, reconciling high value payments from customers against a number of internal policy ledger systems. Prior to implementing CTC, these processes were managed using a combination of manual checks and spreadsheets. The project will improve transaction integrity, create efficiencies and reduce operating costs, and will establish a robust global control framework for future projects.

Customer loyalty and implementation success

We continue to see strong loyalty within the CTC customer base. Nine existing CTC customers extended their investment proving the potential to grow the relationship within accounts based on high levels of customer satisfaction, a licensing model with fees based on usage, and strong demand for data integrity across a wide variety of use cases within our client base.

We pay close attention to securing rapid implementation success and gaining referenceability across the customer base. The Group's professional services are profitable with implementation projects on track and customer satisfaction remaining high. We now measure Net Promoter Score® after key points of interaction with customer support and are encouraged by the results.

Notable successes during the year included one of our larger early-adopter global investment banking clients signing off its multi-year enterprise control framework migration project. It is now live with an enterprise scale implementation of CTC with in excess of 400 controls on a single instance processing up to 180 million trades a day with three million in real-time. This is a ground breaking project for the industry and an excellent demonstration of the adaptability and scalability of the Clareti platform, the best-in-class processing speed of our matching engine, and the rapid pace at which controls can be deployed.

Our CTC Transition Management offering received comparable endorsements after flawlessly managing the data integrity processes related to the migration and reconciliation of 1.5 billion records as part of a substantial master data management project for a global insurer. The traditional manually intensive approach would have been far more costly and time consuming, and lacked transparency and auditability.

Innovation

The Group continues to invest heavily in research and development in order to maintain its technology advantage in the core matching and reconciliation market and the expansion into enterprise data integrity. The Clareti platform presents the Group with multiple possibilities for long-term sustained growth and in addition to making extensions to the platform we will grow the portfolio of packaged applications. We have introduced a "Cloud First & Cloud Native" strategy that underpins our 2016 programme of work.

During 2015 we announced a number of new product initiatives:

A major new version of our CTC Accounts Receivable Management application was released. CTC ARM automates matching and allocations in the order-to-cash cycle which is often slow, manual and prone to error. With CTC ARM, matching is performed quickly and accurately, and working capital can be released in good time. The application is based on our multi-tenanted Clareti platform with white labelling flexibility and enhanced cash and information management functionality. This enables banks to offer innovative products to their corporate customers via the banks' own secure private cloud. This release has been well received and we are positive about the potential for CTC ARM, building on the success we have achieved so far.

Our core platform also benefited from ongoing investment. The platform is based on a robust modern architecture and is continually evolving as prospects and customers challenge the software with new use cases. We received PCI-DSS accreditation as a validation of our security model enabling us to target the credit card and payment processing market. We also introduced the CTC On-boarding Accelerator, which has been extremely well received by our customers because it enables them to build, deploy and maintain controls entirely through a graphical interface.

In the third quarter, we announced the availability of CaaS, our cloud and managed services platform. It was pleasing to see our first wins for CaaS come through during the year and in the first quarter of 2016, and we believe there is also potential for incremental managed service revenue in our existing customer base.

People

In 2015 we undertook a first externally benchmarked employee engagement study with Great Place to Work® and were encouraged by a strong set of overall scores including class-leading results for "strategy and direction" and "values and ethics". Staff are encouraged to discuss issues openly and managers are encouraged to enter the "zone of uncomfortable debate" in the search for the best outcomes.

We have also introduced a Group-wide programme to implement strategies for retaining staff on an ongoing basis that are appropriate to the local geographic and industry economic climate. These strategies include the provision of competitive terms and conditions, a defined contribution pension scheme, consideration of family and personal needs, training and career development coaching, and in some cases, performance related incentives aligned to achievement of strategic objectives, measured by Group KPIs, and relevant to their role.

There is a programme of regular "all hands" communications from me and other members of the senior management team, and regular team "stand ups" and social events encourage high levels of engagement. An awards and recognition programme was introduced in 2015.

The Group is moving towards an environment of continuous employee / manager dialogue, rather than annual performance appraisals, to ensure that staff are getting ongoing support from the Group (including training needs) to satisfactorily complete their job requirements and achieve Group objectives.

Ian Manocha

Chief Executive

7 March 2016

FINANCIAL REVIEW

I am pleased to present this financial review for the year ended 31 December 2015, which has been a breakthrough year for CTC and a validation of our ongoing strategies to grow CTC and other new Clareti revenues from a base of sustainable partner and legacy revenues.

Operating performance

As CTC has become ever more central to our business, we now segment our operating performance between Clareti software and services revenues and Other software and services revenues. For the years 2015 and 2014, Clareti revenues were solely attributable to CTC, and our expectation for future years is that this segment will include revenues from other applications running on the same Clareti platform as CTC. Further discussion of the Group's change in reportable segments is set out in note 4 of the Group financial statements.

Operating performance is analysed excluding exceptional items, which is consistent with the way in which the Board reviews the financial results of the Group.

		2015	2014	Variance
		£m	£m	£m	%
Revenue based performance:
Clareti Software
Recurring		1.9	1.0	0.9	90%
Non-Recurring		1.5	0.1	1.4	1400%
	KPI	3.4	1.1	2.3	212%
Clareti Services		1.9	2.4	(0.5)	-21%
Clareti Revenues - Total	KPI	5.3	3.5	1.8	51%
Other Software & Services
Recurring		5.9	5.5	0.4	7%
Non-Recurring		3.6	3.8	(0.2)	-5%
		9.5	9.3	0.2	2%
Total revenues	KPI	14.8	12.8	2.0	16%
Total recurring revenue	KPI	7.8	6.5	1.3	20%
Earnings based performance:
Statutory profit before tax as reported		1.58	0.46	1.12	243%
Adjustments for exceptional items		0.15	0.00	0.15	n/a
Adjusted profit before tax		1.73	0.46	1.27	276%
Interest income		(0.02)	(0.04)	0.02	-50%
Amortisation and depreciation		0.88	0.63	0.25	40%
Share-based payments charge		0.11	0.05	0.06	120%
Adjusted EBITDA	KPI	2.70	1.10	1.60	145%
Adjusted EBITDA / Total revenue	KPI	18%	9%	10%	113%
Profit after tax		1.95	1.10	0.85	77%
Basic earnings per share (pence)		3.08	1.77	1.31	74%
Basic earnings per share (pence) - adjusted		3.32	1.77	1.55	88%
EBITDA refers to earnings before interest, tax, depreciation and amortisation.

Revenues

2015 was a significant year for the Group's Clareti-led strategy as the Clareti platform and applications continued to win high quality and credible customers in our target geographies and markets as well as generating strong additional revenues from increased usage by existing customers. Clareti revenues rose 51% as result, increasing £1.8m to £5.3m year on year and achieved the milestone of becoming the Group's highest revenue generating product set in addition to becoming the largest gross margin contributor.

The Group has a strategic aim to focus revenue opportunities on annuity-based models to increase recurring revenue and visibility of future revenues that are either contracted or generally expected to automatically renew. Software recurring revenues typically include customers paying for support and maintenance for installed software plus customer subscriptions that combine licence fees for use of the software and support and maintenance charges. Conversely, software non-recurring revenues comprise software perpetual licences. Services comprise project-based consultancy services. During 2015 the Group saw good progress against this strategic aim with Clareti software recurring revenues rising 90%, increasing £0.9m to £1.9m year on year.

The following table further analyses the Clareti software revenue recognised in the current and prior financial years, together with the run-rate achieved at the end of each financial year:

	2015	2014	2013	2012	2011
	£m	£m	£m	£m	£m
Clareti revenue
Software revenue	3.4	1.1	1.5	0.2	0.0
of which software recurring revenue	1.9	1.0	0.4	0.2	0.0
Recurring revenue run rate1 31 December	2.4	1.6	0.7	0.2	0.0
1 being Clareti software recurring revenue to be recognised in the following financial period arising from existing customer contracts

The Group's Other software and services revenue is comprised of the non-Clareti portfolio of software products and services and includes revenues from our legacy products such as VME and EDT, as well as those from our partner products such as CashFac's Virtual Bank Technology® and Wall Street Systems' treasury products. This portfolio of products remained stable as anticipated, recording growth of 2% and increasing £0.2m to £9.5m year on year. These Other software and services revenues continue to be mostly recurring in nature.

Earnings

The Group delivered a strong increase in earnings with adjusted EBITDA rising by 145%, increasing £1.6m to £2.7m year on year. This increase was consistent with the growth in Clareti revenues and reflects the high margins (typically 90%+) associated with CTC revenues and the profitability they generate. Administrative costs in the business continue to be closely controlled with planned increases in sales and marketing spend as the Group seeks to maximise the investments in product development and the market opportunities available for the Clareti platform and applications.

Exceptional items

In H1 2015 the Group completed its planned CEO succession, which incurred a number of one-off costs from professional advisers involved throughout the process. In H2 2015 the Group undertook a review of its marketing and operating activities and made changes that resulted in a number of one-off costs being incurred. These one-off items totalled £149,000 and have been disclosed as exceptional items. There were no exceptional items for the year ended 31 December 2014.

Cashflow and working capital

The following table summarises the Group's cash movements:

	2015	2014
	£m	£m
Statutory profit before tax as reported	1.6	0.5
Depreciation, amortisation & impairment	1.0	0.7
Share based payment expense	0.1	0.1
Working capital movements	(0.5)	1.8
Net income taxes received	1.0	-
Cash inflow from operations	3.2	3.1
Purchase of property, plant and equipment	(0.2)	(0.2)
Payments to acquire intangible fixed assets	(3.0)	(3.3)
Net cash used in investing activities	(3.2)	(3.5)
Net cash from financing	0.0	0.8
Net increase in cash and cash equivalents	0.0	0.4
Cash and cash equivalents at 1 January	4.7	4.4
Exchange adjustments	0.0	(0.1)
Cash and cash equivalents at end of period	4.7	4.7

The Group's financial position remains strong at 31 December 2015 with cash of £4.7m and no debt (2014: £4.7m and no debt). Cash remained flat year on year as the cash generated from the business was invested in both product development and distribution channels (primarily our own sales and marketing activities currently).

Cashflow and funding more generally remain a focus as the Group carefully balances the need to invest upfront in product and the sales and marketing required to distribute it in advance of winning and getting paid by new clients. The Group is particularly sensitive to this with larger customers that typically require long selling cycles pre-contract and lengthy on-boarding processes.

Despite this, cashflow for the Group remains well balanced and cash generated from operating activities is supplemented with the research and development tax credit that is available in the UK to facilitate investment in innovation. The Group anticipates cash will increase as the trend of increasing Clareti revenue continues and moves ahead of product and sales and marketing investment and other operational expenditure required to service these revenues.

Development spend

In 2015, development spend was slightly down on 2014 at £2.9m (2014: £3.1m) and is expected to continue at this level whilst the Group targets new markets and use-cases that require product innovation. During the year, our development activities focused on Clareti-as-a-Service, Accounts Receivable Management and PCI-DSS compliance, in addition to various incremental improvements to existing and anticipated customer use-cases. Development spend is prioritised on product innovation that generates the most likely recurring revenue returns.

Taxation

For the year ended 31 December 2015, the Group has recorded a net tax credit of £0.4m (2014: £0.6m), mainly comprising a research and development tax credit of £0.8m (2014: £0.8m), offset with a deferred tax charge of £0.4m (2014: £0.2m). The Group's accumulated deferred tax asset of £0.2m will reverse as a non-cash taxation charge to the income statement in future periods whilst the research and development tax credits are receivable in cash during the year following recognition.

At 31 December 2015, the Group had unrecognised tax losses carried forward for offset against future trading profits of £10.2m (2014: £10.1m). The majority of these are attributable to the UK statutory company that owns the intellectual property rights in the Clareti platform and associated applications.

Rob Grubb

Chief Financial Officer

7 March 2016

CONSOLIDATED INCOME STATEMENT

	Notes		31 December 2015				31 December 2014
			Before exceptional items	Exceptional items	Total		Total
			£'000	£'000	£'000		£'000
Revenue	3,4		14,842	-	14,842		12,832
Cost of sales			(2,822)	-	(2,822)		(3,409)
Gross profit			12,020	-	12,020		9,423
Administrative expenses			(10,310)	(149)	(10,459)		(8,991)
Operating profit / (loss)	5		1,710	(149)	1,561		432
Finance revenue	3,8		21	-	21		36
Finance costs	8		-	-	-		(12)
Profit / (loss) before taxation			1,731	(149)	1,582		456
Taxation	9		368	-	368		639
Attributable to owners of the parent	23		2,099	(149)	1,950		1,095
Earnings per share
Basic earnings per share - pence	10		3.32	(0.24)	3.08		1.77
Diluted earnings per share - pence	10		3.21	(0.23)	2.98		1.62

All activities during the year were continuing.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	31 December	31 December
	2015	2014
	£'000	£'000
Attributable profit for the year	1,950	1,095
Other comprehensive expense
Items that will or may be re-classified into profit or loss - exchange differences	(27)	(55)
	(27)	(55)
Total comprehensive income for the year	1,923	1,040

The tax effect of exchange differences recorded within the Consolidated Statement of Comprehensive Income is a credit of £5,000 (2014: credit of £11,000).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Notes	31 December	31 December
		2015	2014
		£'000	£'000
Assets
Non-current assets
Property, plant and equipment	12	499	617
Intangible assets	13	10,648	8,313
Deferred tax assets	9	239	547
		11,386	9,477
Current assets
Trade and other receivables	16	3,472	3,303
Income tax receivable	16	892	1,224
Cash and cash equivalents	17	4,666	4,707
		9,030	9,234
Total assets		20,416	18,711
Equity and Liabilities
Equity attributable to owners of the parent
Called up equity share capital	21	3,164	3,162
Share premium account	23	9	16,522
Other reserves	23	313	313
Foreign currency translation reserve	23	(65)	(38)
Retained earnings	23	11,513	(7,069)
Total equity attributable to owners of the parent	23	14,934	12,890
Non-current liabilities
Deferred income	18	53	82
Provisions	18	24	28
		77	110
Current liabilities
Trade and other payables	18	5,294	5,645
Financial liabilities	18	3	-
Income tax payable	18	89	58
Provisions	18	19	8
		5,405	5,711
Total liabilities		5,482	5,821
Total equity and liabilities		20,416	18,711

The financial statements were approved by the Board of Directors and authorised for issue on 7 March 2016.

On behalf of the Board

Ian Manocha                                        Rob Grubb                  

7 March 2016                                        7 March 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share	Share	Other	Currency	Retained	Total
	capital	premium	reserves	translation	earnings
	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2014	3,027	15,906	313	17	(8,214)	11,049
Attributable profit for the period	-	-	-	-	1,095	1,095
Other comprehensive expense	-	-	-	(55)	-	(55)
Total comprehensive income	-	-	-	(55)	1,095	1,040
Exercise of share options	135	616	-	-	-	751
Share-based payment expense	-	-	-	-	50	50
At 31 December 2014	3,162	16,522	313	(38)	(7,069)	12,890
Attributable profit for the period	-	-	-	-	1,950	1,950
Other comprehensive expense	-	-	-	(27)	-	(27)
Total comprehensive income	-	-	-	(27)	1,950	1,923
Share premium cancellation	-	(16,522)	-	-	16,522	-
Exercise of share options	2	9	-	-	-	11
Share-based payment expense	-	-	-	-	110	110
At 31 December 2015	3,164	9	313	(65)	11,513	14,934

CONSOLIDATED STATEMENT OF CASHFLOW

		31 December	31 December
	Notes	2015	2014
		£'000	£'000
Cashflows from operating activities
Profit before taxation		1,582	456
Depreciation, amortisation and impairment	5	976	692
Share-based payment expense	22	110	50
(Increase)/decrease in trade and other receivables		(217)	1,559
(Decrease)/increase in trade and other payables		(277)	291
Movement in provisions	18	7	15
Loss on disposal of property, plant and equipment		-	6
Net finance income	8	(21)	(24)
Cash inflow from operations		2,160	3,045
Net income taxes received		1,035	15
Net cash inflow from operating activities		3,195	3,060
Cash flows from investing activities
Interest received	8	21	36
Other bank charges		-	(12)
Purchase of property, plant and equipment	12	(217)	(244)
Payments to acquire intangible fixed assets	13	(3,014)	(3,238)
Net cash used in investing activities		(3,210)	(3,458)
Cash flows from financing activities
Share issue	21	11	751
Net cash generated from financing activities		11	751
Net (decrease)/increase in cash and cash equivalents		(4)	353
Cash and cash equivalents at beginning of year		4,707	4,386
Exchange adjustments		(37)	(32)
Cash and cash equivalents at end of year	17	4,666	4,707

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1. Basis of preparation

The financial information contained in these condensed financial statements does not constitute the Company's statutory accounts within the meaning of the Companies Act 2006. Statutory accounts for the years ended 31 December 2015 and 31 December 2014 have been reported on, without qualification or drawing attention to any matters by way of emphasis, by the Company's auditor and do not contain a statement under s.498 (2) or s.498 (3) of the Companies Act 2006. Whilst the financial information included in this Annual Financial Report Announcement has been computed in accordance with International Financial Reporting Standards ("IFRS") this announcement, due to its condensed nature, does not itself contain sufficient information to comply with IFRS.

In order to comply with the regulatory requirement to include un-edited text in this Annual Financial Report Announcement, page and note references refer to page and note numbers in the Annual Financial Report.

Statutory accounts for the year ended 31 December 2014 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2015, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2014 statutory accounts have been applied consistently in all material respects.

This Annual Financial Report Announcement was approved by the Board of Directors on 7 March 2016 and signed on its behalf by I Manocha and R Grubb.

2. Responsibility statements under the disclosure and transparency rules

The Annual Financial Report for the year ended 31 December 2015 contains the following statements:

The directors confirm that to the best of their knowledge:

·      The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.

·      The annual report includes a fair review of the development and performance of the business and the financial position of the Group and the parent Company, together with a description or the principal risks and uncertainties that they face.

The name and function of each of the directors are set out in the Annual Financial Report for the year ended 31 December 2015.

3. Segment information

The segmental disclosures reflect the analysis presented on a monthly basis to the chief operating decision maker of the business, the Chief Executive and the Board of Directors.

In addition, split of revenues and non-current assets by the UK and overseas have been included as they are specifically required by IFRS 8 Operating Segments.

During the year ended 31 December 2015 the Group re-evaluated the internal presentation of its operating segments to more appropriately aggregate the differing sets of risks that the Group's businesses face.

For management purposes, the Group is organised into the following reportable segments:

·      Clareti Solutions - supply of solutions predominantly to the finance and banking markets across Asia Pacific, EMEA and North America. These solutions include Clareti Transaction Control ("CTC") currently and for future periods will include other associated Clareti platform applications.

·      Other Solutions - supply of a range of well established solutions to enterprise-level customers in a variety of end markets.

The change has had the following impact on classification of operating segments:

Previous classification		Current classification
RTFS	CTC	Clareti Solutions
	Non-CTC RTFS	Other Solutions
Software		Other Solutions

"RTFS" refers to Real-Time Financial Solutions, and "EMEA" refers to Europe, the Middle East and Africa.

Disclosures is respect of the year ended 31 December 2014 have been updated accordingly.

Transfer prices between segments are set on an arm's length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment result include transfers between business segments. Those transfers are eliminated on consolidation.

Year ended 31 December 2015

	Clareti Solutions	Other Solutions	Adjustments, central and eliminations	Consolidated
	£'000	£'000	£'000	£'000
Revenue
External customer	5,270	9,572	-	14,842
Inter-segment	-	-	-	-
Total revenue	5,270	9,572	-	14,842
			-	-
Cost of sales	(172)	(2,650)	-	(2,822)
Gross profit	5,098	6,922	-	12,020
	97%	72%		81%
Administrative expenses	-	-	(10,310)	(10,310)
Operating profit/(loss)	5,098	6,922	(10,310)	1,710
Interest revenue				21
Interest expense				-
Profit before taxation before exceptional items				1,731
Exceptional items				(149)
Profit before taxation after exceptional items				1,582
Taxation				368
Profit after taxation				1,950
Segment assets				20,416
Segment liabilities				(5,482)

Year ended 31 December 2014

	Clareti Solutions	Other  Solutions	Adjustments, central and eliminations	Consolidated
	£'000	£'000	£'000	£'000
Revenue
External customer	3,470	9,362	-	12,832
Inter-segment	-	-	-	-
Total revenue	3,470	9,362	-	12,832
			-	-
Cost of sales	(459)	(2,950)	-	(3,409)
Gross profit	3,011	6,412	-	9,423
	87%	68%		73%
Administrative expenses	-	-	(8,991)	(8,991)
Operating profit/(loss)	3,011	6,412	(8,991)	432
Interest revenue				36
Interest expense				(12)
Profit before taxation before exceptional items				456
Exceptional items				-
Profit before taxation after exceptional items				456
Taxation				639
Profit after taxation				1,095
Segment assets				18,711
Segment liabilities				(5,821)

Administrative expenses, segment assets and segment liabilities are shared across the Group and cannot be allocated to operating segments.

The Group has customer relationships with two banking customers which are both considered by the Directors to be individually significant relationships; revenue from these relationships both individually exceeded 10% of the Group's revenue. The revenues from these two customers fall predominantly within the Other Solutions segment.

Exceptional items

In H1 2015 the Group completed its planned CEO succession, which incurred a number of one-off costs from professional advisers involved throughout the process. In H2 2015 the Group undertook a review of its marketing and operating activities and made changes that resulted in a number of one-off costs being incurred. These one-off costs totalled £149,000 and have been disclosed as exceptional items. There were no exceptional items for the year ended 31 December 2014.

Geographic information

		2015	2014
		£'000	£'000
Revenues from external customers (by destination)
EMEA		8,362	7,241
North America		1,317	786
Asia Pacific		5,163	4,805
		14,842	12,832
		£'000	£'000
Non-current assets
UK		10,538	8,612
North America		109	82
Asia Pacific		739	783
		11,386	9,477

Non-current assets consist of property, plant and equipment, intangible assets, and deferred tax assets.

EMEA includes revenue from external customers located primarily in the UK, Germany, Switzerland and Austria.

Asia Pacific includes revenue from external customers located primarily in Australia, Malaysia and Singapore.

4. Taxation

(a) Tax on loss on ordinary activities

Tax credited in the income statement

	2015	2014
	£'000	£'000
Current income tax
Overseas tax charge/(credit) - adjustment to previous years	(21)	(29)
Overseas tax charge - current year	139	69
UK corporation tax (credit)/credit - adjustment to previous years	98	29
UK corporation tax credit - current year	(892)	(877)
Total current income tax	(676)	(808)
Deferred income tax
Reversal of deferred tax asset	322	93
Tax rate change adjustments	(14)	76
Total deferred income tax	308	169
Total credit in the income statement	(368)	(639)

(b) Reconciliation of the total tax charge

The tax credit in the income statement for the year is lower than the standard rate of corporation tax in the UK of 20.3% (2014: 21.5%). The differences are reconciled below:

	2015	2014
	£'000	£'000
Profit before taxation	1,582	456
Accounting profit multiplied by the UK standard rate of
corporation tax of 20.3%/21.5%	321	98
Income/expenses not (taxable)/deductible for tax purposes	(31)	12
Differences in tax rates	(7)	65
Overseas tax credit - adjustment to previous years	(21)	(29)
R&D tax credit - previous year	98	29
R&D tax credit - current year	(892)	(877)
Losses surrendered for R&D tax credit - current year	1,246	1,358
R&D enhanced relief	(692)	(755)
Movement in unrecognised losses carried forward	129	449
Movement in unrecognised temporary differences	(486)	(643)
Movement in unrecognised fixed asset temporary differences	5	44
Temporary difference on share-based payments	(24)	(537)
Prior year adjustments on recognised deferred tax	-	71
Tax rate change adjustments	(14)	76
Total tax credit reported in the income statement	(368)	(639)

(c) Unrecognised tax losses

The Group has tax losses that are available indefinitely for offset against future taxable profits of the companies in which the losses arose as analysed in (e) below. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group and they have arisen in subsidiaries that have been loss making for some time.

The tax effect of exchange differences recorded within the Consolidated Statement of Comprehensive Income is a credit of £5,000 (2014: credit of £11,000).

(d) Temporary differences associated with Group investments

At 31 December 2015, there was no recognised deferred tax liability (2014: nil) for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries as the Group has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future.

The temporary differences associated with investments in subsidiaries for which deferred tax liability has not been recognised aggregate to £nil (2014: £nil).

(e) Deferred tax

Recognised deferred tax

	2015	2014
	£'000	£'000
1 January	547	716
Movement in the period	(322)	(93)
Impact of change in tax rate	14	(76)
31 December	239	547
Comprising:
Temporary differences	42	(21)
Tax losses	197	568
31 December	239	547

A deferred tax charge of £322,000 has been recognised in the year in respect of tax losses and capital allowances in excess of depreciation and other temporary differences.

Unrecognised potential deferred tax assets

The deferred tax not recognised in the Group Statement of Financial Position is as follows:

	2015	2014
	£'000	£'000
Temporary differences	(1,421)	(921)
Tax losses	2,150	2,291
Unrecognised deferred tax asset	729	1,370
Gross temporary differences unrecognised	(7,169)	(4,913)
Gross tax losses unrecognised	10,173	10,140
Gross deferred tax asset unrecognised	3,004	5,227

Future tax rates

The main rate of corporation tax for UK companies reduced from 21% to 20% from 1 April 2015. Finance Bill 2015, which was substantively enacted on 26 October 2015, announced further reductions to the main rate of corporation tax. The rate will reduce to 19% from 1 April 2017 and by a further 1% to 18% from 1 April 2020.

The Group's recognised and unrecognised deferred tax assets in the UK, Australian and US subsidiaries have been shown at the rates in the following table, being the substantively enacted rates in these countries.

	2015	2014
UK	18%/20%	20%
Australia	30%	30%
US	40%	40%

5. Earnings per ordinary share

Basic earnings per share amounts are calculated by dividing net profit or loss for the year attributable to owners of the Parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit or loss attributable to owners of the Parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares except when such dilutive instruments would reduce the loss per share.

The following reflects the earnings and share data used in the basic and diluted earnings per share computations:

			2015	2014
			£'000	£'000
Basic weighted average number of shares			63,238,526	61,992,825
Dilutive potential ordinary shares:
Employee share options - weighted (note 22)			2,178,202	5,468,653
Diluted weighted average number of shares			65,416,728	67,461,478
	31 December 2015			31 December 2014
	Before exceptional items	Exceptional items	Total	Total
	£'000	£'000	£'000	£'000
Earnings attributable to owners of the parent	2,099	(149)	1,950	1,095
Earnings per share
Basic earnings per share - pence	3.32	(0.24)	3.08	1.77
Diluted earnings per share - pence	3.21	(0.23)	2.98	1.62

During the year ended 31 December 2015, share options granted under the 2010 Share Option Plans were exercised and the Group issued 37,500 (2014: 2,697,500) ordinary shares accordingly (ranking pari passu with existing shares in issue). See note 22 of the Group financial statements for further details.

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of this Annual Report.

6. Dividends paid and proposed

No dividends were declared or paid during the year and no dividends will be proposed for approval at the AGM (2014: none).

7. Intangible assets

31 December 2015

	Development	Patents and
	costs	licences	Goodwill	Total
	£'000	£'000	£'000	£'000
Cost
At 1 January	12,201	1,568	903	14,672
Additions	2,911	103	-	3,014
Exchange adjustment	-	2	(27)	(25)
At 31 December	15,112	1,673	876	17,661
Amortisation and impairment
At 1 January	(4,975)	(1,134)	(250)	(6,359)
Charge for year	(531)	(123)	-	(654)
Exchange adjustment	-	-	-	-
At 31 December	(5,506)	(1,257)	(250)	(7,013)
Net carrying amount
At 31 December	9,606	416	626	10,648
At 1 January	7,226	434	653	8,313

31 December 2014

	Development	Patents and
	costs	licences	Goodwill	Total
	£'000	£'000	£'000	£'000
Cost
At 1 January	9,100	1,429	925	11,454
Additions	3,099	139	-	3,238
Exchange adjustment	2	-	(22)	(20)
At 31 December	12,201	1,568	903	14,672
Amortisation and impairment
At 1 January	(4,644)	(1,065)	(250)	(5,959)
Charge for year	(329)	(71)	-	(400)
Exchange adjustment	(2)	2	-	-
At 31 December	(4,975)	(1,134)	(250)	(6,359)
Net carrying amount
At 31 December	7,226	434	653	8,313
At 1 January	4,456	364	675	5,495

Development costs

Development costs are internally generated and are capitalised at cost. These intangible assets have been assessed as having a finite life and are amortised on a straight-line basis over their useful lives of six to 20 years. These assets are tested for impairment where an indicator of impairment arises and annually prior to them being made available for use. Development costs have a remaining life of 17 years.

Patents and licences

Patents and licences are the third-party costs incurred in seeking and obtaining protection for certain of the Group's products and services. These intangible assets have been assessed as having a finite life and are being amortised evenly over their useful economic life, to a maximum of ten years. Patents have a remaining life of three years and licences have a remaining life of one to ten years.

Goodwill

Goodwill arose on the acquisition of our Asia Pacific real-time financial solutions business. It is assessed as having an indefinite life and is assessed for impairment at least annually.

8. Additional information

The following additional information is not extracted from the Annual Financial Report 2015:

Related party transactions

No related party transactions have taken place during the year that have materially affected the financial position or performance of the Company.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group together with actions being taken to mitigate them and future potential items for consideration are set out in the Strategic Report section of the Annual Financial Report 2015.

Notifications relating to LR 9.6.11R

The Company confirms that it has formed a nomination committee as of 7 March 2016, the membership of which is comprised of K Archer (committee chairman) and C Errington (committee member). The role and responsibilities of the nomination committee are set out in terms of reference available on request from the Company Secretary. The Company further confirms that C Errington will become chairman of the audit committee following conclusion of the 2016 Annual General Meeting in substitution for M Royde, who at that time will cease to be a constituent member of the audit committee but will remain on the Board as a Non-Executive Director and continue in his role as chairman of the remuneration committee. The date of the 2016 Annual General Meeting will be announced in due course.

 

END

 

 

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