Final Results

RNS Number : 3332Z

Gresham Technologies PLC

14 March 2017

 

14 March 2017

Gresham Technologies plc

Annual Financial Report Announcement

Gresham Technologies 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 solutions, is pleased to announce its results for the financial year ended 31 December 2016.

Highlights

·     Continued strong Clareti customer progress in 2016:

o  Eleven new customer wins in the UK, the US and Asia Pacific

o  Continued expansion of use from the existing customer base through increased existing usage and new use-cases.

·     Completed the acquisition of C24 Technologies Limited ("C24"), adding approximately thirty-five C24 customers to the Clareti client base.

·     Group revenues up 16% to £17.2m (2015: £14.8m), of which Clareti revenues were up 42% to £7.5m (2015: £5.3m), including £0.3m from C24. Other revenues remained stable as planned.

·     Clareti software revenues up 38% to £4.7m (2015: £3.4m), of which Clareti software recurring revenues up 53% to £2.9m (2015: £1.9m).

·     Clareti annualised recurring revenues up 92% to £4.6m as at 31 December 2016 (2015: £2.4m), including £1.2m from C24.

·     Adjusted EBITDA* up 41% to £3.8m (2015: £2.7m).

·     Statutory profit before tax as reported up 38% to £2.2m (2015: £1.6m).

·     Adjusted diluted earnings per share** up 38% to 4.67p (2015: 3.38p).

·     Cash £7.2m and no debt at 31 December 2016 (2015: £4.7m and no debt), benefiting from strong customer cash collection in the last quarter of the year.

·     Continued investment in product innovation and global sales and marketing to build recurring revenues.

·     Three new CTC wins achieved in 2017 to date.

·     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.

** Adjusted to add back share-based payment charges, exceptional items and amortisation from acquired intangible assets.

Ian Manocha, CEO, commented:

"The Group delivered an extremely confident performance in 2016 underpinned by strong organic revenue growth from Clareti solutions. We grew licence revenues from our existing Clareti base, won eleven new CTC customers, and brought another thirty-five customers into the Group through our acquisition of C24 Technologies Ltd. As a result our recurring revenue from Clareti has grown 53% year on year.

2017 has already started positively with three new CTC customer wins."

A copy of the results presentation provided to analysts will be available on Gresham's website by 9.00a.m. today. Gresham will also be holding a presentation for private and retail investors at 12.30p.m. on Wednesday 15 March 2017 at One Bartholomew Lane, London EC2N 2AX. Admittance for the event is strictly limited to those who register their attendance in advance. For further information and to register attendance, please contact Gresham on [e-mail].

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 greshamtech.com/investors. Printed copies of the Annual Financial Report 2016 will be posted to shareholders in due course.

Enquiries

Gresham Technologies plc	[phone]
Ian Manocha
Rob Grubb
N+1 Singer (Broker)	[phone]
Shaun Dobson
Lauren Kettle

Note to editors

Gresham's award-winning Clareti software platform has been designed to provide financial institutions with complete certainty in their data processing. Clareti 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, data governance and regulatory compliance problems. Gresham's portfolio of applications based on the Clareti platform, including Clareti Transaction Control (CTC), Clareti Accounts Receivable Management (Clareti ARM), Clareti Loan Control (CLC) and Clareti 24 Integration Objects (C24 IO), provide innovative industry specific solutions for real-time data management.

Gresham Technologies plc is a leading software and services company that specialises in providing real-time transaction control and enterprise data integrity solutions. Listed on the main market of the London Stock Exchange (GHT.L) 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 2016 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 2016.

CHAIRMAN'S STATEMENT

I am pleased to present this Annual Report which records a very successful year for the Group, meeting management's expectations for both strategy execution and financial performance.

Overview

Gresham continued its good progress in executing on key strategic objectives, and I am delighted with our 16% top-line growth with total revenues for the Group rising to £17.2m. Importantly, the additional revenues are driven by high margin recurring and new Clareti sales, which has resulted in a strong increase in annualised recurring revenues (17% over 2015) and associated growth in underlying profitability (adjusted EBITDA up 41% over 2015).

As in 2015, the Group's Clareti sales growth has been driven by our clients' focus on internal risk management and responding to regulatory demands over their financial transaction flows. The volumes and complexity of these transactions give rise to increasing operating costs and risk exposure to market participants. Clareti offers clients a strategic platform to address these challenges. Financial transactions and their attendant interactions, both within client organisations and with their counterparties, are evident in all financial institutions, and Gresham has been successful in addressing these needs in several new market segments.

The Group has made good progress in expanding the adoption of Clareti solutions globally. I was particularly pleased with the CTC win that we announced with the Tier 1 US bank in December 2016. The US market has 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.

The non Clareti parts of the business once again provided a valuable contribution to the Group's results, with the partner solutions and legacy software revenues that are in long-term decline showing resilience, and a solid performance from our Australian contracting business.

Ongoing investments

The Board continues to believe there is a very significant market opportunity for data integrity and control solutions, and that ongoing investment in key strategic areas is essential. Accordingly, the Company is building additional Clareti solutions to address specific industry segment problems, including a data management application and enhanced analytics capabilities. These are expected to generate revenue growth from both new and existing clients.

In addition, the Board is actively pursuing growth through carefully selected acquisitions and strategic partnerships. In October 2016, we announced the acquisition of C24 Technologies, a company that has developed a series of plug-in interfaces to connect to industry-standard financial messaging networks, thereby expanding the market opportunity for the Group's Clareti solutions. The acquisition resulted in a doubling of Gresham's customer base and further increases in recurring revenue. In addition, we have partnered with loan servicing specialists Mount Street Loan Solutions to build Clareti Loan Control (CLC), a cloud-based loan administration system.

These strategic investments will enable us to grow our existing customer base and attract new customers from numerous market segments.

Board changes

In September 2016, Imogen Joss replaced Max Royde as Senior Independent Non-Executive Director. Imogen has worked within the financial sector for over 20 years and brings extensive experience in financial sales and marketing. Imogen's executive career includes leadership roles in a range of high-profile financial services organisations including S&P Global, Lloyds Bank, Reuters Plc and FTSE Group. I would like to thank Max for his significant contribution to the Board's efforts over the past seven years.

Shareholder value

The Board recognises and appreciates shareholders' long-standing and ongoing commitment to Gresham. Our share price has experienced a degree of volatility in the year which is common for the small cap market, but it is pleasing to note that the overall upward trend persists. Earnings per share increased to 4.67 pence on an adjusted and diluted basis (2015: 3.38 pence).

As reported last year, the Board is committed to commencing a progressive dividend as soon as circumstances are considered to be appropriate, having regard to the need for ongoing investments to support long-term growth. The Board's firm intention remains to declare a maiden dividend in respect of the financial year 2017. 

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

In summary

With our continued investment in the Clareti portfolio and sales and marketing expansion, I anticipate further improvement in our market position as we respond to the growing demand for transparency and integrity over risk and financial data processing. It has been a very successful year for the Group, which of course is made up of a great many team and individual successes. This is a testament to the hard work, expertise and professionalism of the Gresham team. 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

CEO'S STATEMENT

I am pleased to report a further year of very positive progress aligned with the strategic plan agreed with the Board. In 2016, we delivered solid Clareti software revenue growth driven by high quality new customer wins and excellent retention and growth from existing customers. Our legacy software portfolio remained stable, and our professional services business grew profitably, adding value to the core licence relationships. We stepped up our investment in both business development and product development, and at the same time improved gross margins and earnings.

This was a confident performance from a highly motivated, talented and well-aligned team. Alongside the new sales wins our customer satisfaction, referenceability and retention was sustained at excellent levels. During the year, we also refreshed the Company name and brand, consolidated our R&D operations at our new Innovation Labs in Bristol, developed a 24/7 support infrastructure for cloud and global clients, and further strengthened the organisation and the senior team to deliver sustainable success.

Objectives and strategy

Our goal is to be recognised as a leading global provider of enterprise financial technology and deliver sustained profitable growth for the Group and long-term value for shareholders.

The Group's ongoing investment in sales and product development, combined with our deep domain experience in financial markets and strong customer-centric culture, means we are well positioned at a time when the pressure on market participants to be in complete control of their business has never been greater. We want to be the first company organisations turn to when they need to be in control of their data and their data-driven processes.

CTC, our flagship offering, is maturing from a niche challenger in the matching and reconciliations market into a mainstream offering with broad appeal across many financial services segments. We aim to establish the Clareti platform within the financial industry as a "de facto" standard technology for firms with complex data processing challenges who need to improve integrity and evidence control. Our award in 2016 from Chartis, naming us as "category winner for data integrity and control in financial services", confirmed the market potential and the completeness of our offering.

In 2017, we will continue to invest in innovative new data integrity and control products such as Clareti Loan Control and Clareti Data Accelerator to broaden the commercial opportunity for our core platform. We will also develop chargeable upgrades to the platform, such as Clareti Adapters (based on C24 technology) and Clareti Analytics, to drive growth in our existing accounts. Our approach to new product development is to leverage our core technology assets to develop IP-rich applications that address repeatable industry problems that are not well served by established players.

Acquisitions

During 2016, the Group made its first acquisition since setting out on the Clareti-led strategy in 2010. The C24 Technologies business has now been fully integrated and we are pleased with the technology assets, the loyal client base, and the talent we have acquired. Since the acquisition, we have signed three new standalone Clareti 24 Integration Objects clients, and have already enhanced the software to interface directly with our Clareti platform and thereby facilitate cross-selling into the CTC customer base as Clareti Adapters. The C24 team have settled in well and are now working to bring Clareti Data Accelerator to market.

The experience gained from the acquisition has been valuable and, during 2017, the Group will look for further accretive acquisitions that bring complementary technology, build our recurring licence revenues, and enable us to grow faster.

Outlook and opportunity

In 2017, Clareti solutions are expected to deliver more than half of all Group revenues. We expect Clareti sales success to come largely from direct CTC sales in the UK, Europe and North America where there is strong demand for newer more agile technologies, with Clareti-as-a-Service providing incremental hosting revenues in an increasing proportion of cases. We are tracking US banking regulatory developments carefully and remain confident in our strategy to invest in the North American market.

We should also see steady revenue growth from the existing Clareti base including our bank partners who white label our technology, and we will build our network of OEM partners and industry alliances to drive future sales growth at lower acquisition costs. Mount Street, our debt servicing partner, are now live on Clareti Loan Control (CLC) and growing their business, which in time will lead to an increasing financial contribution from our joint venture.

We will continue to efficiently manage our legacy software revenues, including EDT, VME, and other OEM solutions, as they gradually run off in the medium to long term. One of our lower margin OEM offerings is being retired over the next two years and as a result we have planned for our total legacy software revenues to decline in 2017. Conversely, our non-core, low-margin services contracting business is expected to grow revenues during the year.

We are confident our strategy is on track and we have an ambitious plan to address a growing market. Furthermore, we are excited about the opportunity to create a global leader in enterprise data integrity and certain about our ability to deliver sustainable long-term profitable growth for our shareholders.

Thank you for your ongoing support.

Ian Manocha, Chief Executive

OPERATIONAL REVIEW

Introduction

The Group delivered an extremely confident performance in 2016, which was underpinned by strong organic revenue growth from Clareti solutions. We grew licence revenues from our existing Clareti base, won eleven new CTC customers, and brought another 35 customers into the Group through our acquisition of C24 Technologies. As a result, our recurring revenue from Clareti has grown 53% year on year. We continued to invest in innovation and further strengthened the organisation to deliver sustainable growth and service to customers.

Business development

We invested further in sales and marketing resources during 2016 and we now have experienced direct sales staff in UK, mainland Europe, Asia Pacific and the US. Compared to the mainstream competition, our sales team is small and we need to have a focussed strategy. Our approach to opening markets is to gain sales, delivery and product expertise in specific use cases in targeted industry sub-segments. We then aim to replicate those solution sales across an industry niche in our chosen geographies to win new customers. In addition, we target new use cases in our customer base to drive licence adoption and growth. Our targeted industry segments include banking and capital markets where we started the Clareti journey.

In more recent years, we have opened new verticals such as insurance broking, asset management, payments, clearing and settlements, and more exotic niches such as FX trading and spread betting.  In 2016, our new business came primarily from these key markets. We also won our first customer in the commodities space.

In addition to direct sales, we have bank white labelling agreements to access the corporate market. In the US, a major provider of data, software and services to the asset management community is a value-added reseller of CTC.

New Clareti wins

During 2016, we signed eleven new customers for CTC taking the total to over 40. Including our recently acquired C24 customers, we now have about 75 Clareti customers across financial services and global markets, with many more corporates using Clareti technology via our bank white labelling partners.

UK and Europe

Our UK team had a strong performance in 2016, starting the year well with two new hedge fund client wins for CTC. This is a niche market segment where we have built an excellent base of referenceable clients and our reputation is starting to provide us with referrals.

One of the UK leading on-line trading firms specialising in spread betting and contracts for difference (CFD) has commenced a subscription for CTC as its strategic data integrity and control solution. This is the Group's third CFD market win and further proof of the Group's ability to win repeatable business in targeted industry niches.

Similarly, we have started to secure repeatable wins in insurance broking. In the fourth quarter, a leading UK insurance intermediary selected CTC to improve financial control of payables and receivables within its broker business as part of a wider finance transformation programme. This was our fourth client win in insurance and the client also made a seven-year strategic commitment to use the Group's Clareti-as-a-Service cloud platform.

We were also pleased to close the Group's first win in the commodities market. One of the world's leading independent commodity trading and logistics houses selected CTC as its global enterprise data integrity solution. The initial implementation will provide end to end control in trading operations across clearing brokers, execution brokers and over-the-counter (OTC) counterparties. Future phases are expected to include controls across payments, static data and intercompany transactions as well as inventory assurance in their metal, minerals, oil and petroleum businesses. The commodities industry is facing increasing data governance and regulatory challenges alongside macro-economic pressures and we believe there is potential to replicate this win across the sector in the same way as we have done in other industries.

Following new investment in 2016 to focus on European sales, we signed an important new European regional bank client for CTC in early 2017 and we also won a Swiss subsidiary of a major Russian bank for CTC in February 2017. In addition, we have signed several professional services engagements for deployment projects won in 2016.

North America

Our North American operations started 2016 with a stronger new business sales orientation targeting the financial services communities in New York and Toronto. In the first quarter, we secured a major US hedge fund as a client for CTC. They also elected to use the software in the cloud and, as a result, became our first US Clareti-as-a-Service customer. We were also delighted that our first US Clareti partner, a major financial services organisation which had selected our technology in late 2014 to be a white labelled offering for its asset management clients, won its first two end-customer sales. All three fund managers are now live using CTC daily and we believe there is strong potential for growth in the substantial US buy-side industry.

In December, after completing rigorous due diligence, a New York based Global Systemically Important Bank (G-SIB) Tier 1 bank purchased CTC to underpin a technology enabled transformation in the data processing operations of one of its key business divisions. This represents Gresham's first major Clareti win with a US-based Tier 1 bank. The five-year contract will see CTC deployed to replace outdated manual processes and user developed applications to improve data quality and customer service and to reduce operational processing costs. There is potential for licence growth in future years as the customer's use of the Clareti platform grows.

Since the year end, we have signed a leading global brokerage firm based in the US who selected CTC as part of a plan to modernise its approach to transaction lifecycle management. CTC will be used to ensure the integrity of trading data, improve the effectiveness of controls and reduce operational costs.

Asia Pacific

Our Asia Pacific operations remain largely focussed on servicing and growing our two key accounts in this region, both of which performed largely as expected.

Our Singapore-based Tier 1 bank customer, signed in 2013, continued to draw on our Innovation Labs for enhancements to the core solution, which delivered a steady flow of chargeable product development services and an increase in the base annual subscription. In Australia, we consolidated our relationship with Australia and New Zealand Banking Group Ltd (ANZ) through another year of close collaboration, and the relationship continues to deliver a beat-rate of services revenues. ANZ also increased its base Clareti subscription modestly as they added several additional end customers.

In terms of new Clareti sales, one of the largest asset managers in Australia was signed in December for a small Clareti subscription, with potential for growth in 2017.

Customer loyalty and growth

I am convinced that we provide our customers with a differentiated experience compared to the long-established legacy players in the core matching and reconciliation market, which is something we are all passionate about sustaining as we scale up.

During 2016, we moved our Denver-based support function, and our cloud development function, to be co-located in Bristol with our development team. In conjunction with our Sydney operation, we are now able to offer 24/7 "bank grade" support globally. We have consolidated our services and support operations under a new executive with overall responsibility for service delivery and customer success.

Our consulting operations work closely with the sales function to ensure that we secure rapid implementation success and referenceability across the customer base and to ensure that consulting is profitable on a standalone basis. During the year, we saw around 15 customers "go live" with new CTC projects.

We continue to conduct quarterly face-to-face service reviews with customers and Net Promoter^® scores are taken at key points of interactions and reviewed monthly. During 2016, we started our user group "Clareti Partners" and we continue to encourage customers to have an ongoing direct dialogue with our development team. We also hosted several client workshops at our Innovation Labs.

In the year, three existing customers increased their CTC licence investment. In particular, we saw an important contract upgrade from one of our larger early-adopter global investment banking clients. This customer completed its multi-year enterprise inter-system controls migration project in 2015, and is live with an enterprise scale implementation of more than 500 controls on a single instance processing up to 200 million trades a day. In 2016, the customer decided to extend the use of the platform to provide control over market-facing data and consequently we signed a contract extension that provides a framework for additional licence growth over the coming years.

Clareti Loan Control

In 2016, we took a strategic decision to enter into a joint venture with Mount Street Loan Solutions LLP, one of Europe's leading real estate debt specialists. Mount Street originally selected Gresham in 2015 to build a new software application, Clareti Loan Control (CLC), to enable Mount Street to streamline the complex data management flows in loan servicing and deliver enhanced services to their customers. The first release of CLC is now live in their business and delivering the expected benefits.

We believe that there is a significant market opportunity for selling CLC as a disruptive loan control offering into financial institutions, which are also a key market for our transaction control solutions. Further, we believe that partnering with Mount Street via a legal joint venture provides the quickest and most effective route to early success and we are excited about the prospects. I am pleased to confirm that we have also been selected for a CLC pilot with a major European bank, a potential second CLC client.

C24 Technologies

In October, following a successful fund raise, the acquisition of C24 Technologies was completed. Integration is now also substantially complete and I am confident that the expected benefits will be realised during 2017. There are high levels of satisfaction amongst the current customers and an ongoing demand in the market for message transformation technology.

In December, a fintech innovator signed for Clareti 24 Integration Objects as part of an OEM agreement to include enhanced financial message processing capabilities in its blockchain settlement products. We also signed a further OEM agreement with a global intelligence and technology company who are embedding Clareti 24 Integration Objects into a new solution offering that it expects to launch in H2 2017.

The talented C24 software development team is working closely with their colleagues at our Innovation Labs and has integrated the technology with the Clareti platform and cross-trained our teams. We expect to secure further new standalone sales of Clareti 24 Integration Objects, as well as cross-sell the new Clareti Adapters to our CTC base. The acquired development team is now turning its attention to developing our Clareti Data Accelerator solution.

Other business

Our legacy licensing and services business performed broadly in line with our business plan. EDT and VME remained stable during the year and operated at high margins. Our cash management clients for whom we are supporting third party software provided a steady flow of revenue during the year, although we are planning for cancellations during 2017 as older systems are replaced. Our contracting business in Australia performed strongly, delivering healthy cashflows from low margin rolling contracts.

Products and innovation

The Group continues to invest in research and development in order to maintain a technology advantage in the core matching and reconciliation market and build a leadership position in the wider data integrity and control solutions market.

Our flagship application, CTC, is now regarded as the best-in-class enterprise grade offering in the mainstream matching, reconciliation and controls market. We were pleased to have this confirmed when we were named as category winner by Chartis Research in their assessment of vendors in their FinTech Quadrant™ for data integrity and control solutions in November 2016. We are now seeing direct competitor replacements alongside new use cases or replacements of user developed applications and manual intensive processes in our new client list and in our pipeline.

In addition to enhancing the existing CTC and Clareti ARM solutions, a significant amount of resource in the year was focussed on developing new applications, including Clareti Loan Control and, later in the year, Clareti Data Accelerator (CDA). CDA, which leverages a combination of Gresham and C24 acquired core technology and will give us a play in the substantial enterprise data management market within financial services, and potentially into other industries over time.

Further details on our programme of technology innovation can be found in the Market, Technology and Talent section on page 13.

People

In my operational review last year, I observed that I was impressed by the professional, proactive and mission-led Gresham team. The Company continues to thrive with a healthy mix of bright young technology talent and experienced finance industry professionals.

I particularly encourage high levels of collaboration between the business functions and across geographies, and aim to achieve a balance between start-up pace and entrepreneurial thinking, and the quality management processes of a well-established enterprise technology provider. During 2016, I took steps to strengthen the leadership team by consolidating our regional post-sales activities under a single global executive.

We also undertook our second annual employee engagement study with Great Place to Work® with very positive results once again and enjoy extremely low levels of staff turnover. In 2017, we will step up the recruitment of graduates to bring further new talent into the business as we build for our future as one of the world's leading enterprise financial technology firms.

Ian Manocha, Chief Executive

FINANCIAL REVIEW

The year ending 31 December 2016 (FY2016) was a milestone year for the Group as we continued to add new Clareti customers at a regular beat-rate, expanded revenues from existing Clareti customers and inherited a significant number of new customer revenue relationships from our acquisition of C24 Technologies Limited. These factors led to a year on year increase of 42% in Clareti revenues and an increase of 92% in our closing Clareti annualised recurring revenues.

The Clareti growth, in addition to strong retention of our non-Clareti revenues and good cost and cashflow management generally, led to record levels of revenue, earnings and closing cash for the Group in FY2016.

Revenues

Our income is analysed between Clareti solutions revenues and Other solutions revenues. Clareti includes Clareti Transaction Control, Clareti Accounts Receivable Management, Clareti Loan Control and Clareti 24 Integration Objects. Other solutions include: Virtual Machine Environment (VME), Enterprise DistribuTape (EDT), and various other individual legacy software licensing and support arrangements, in addition to partner products encompassing CashFac's Virtual Bank Technology® and Wall Street Systems' treasury solutions.

				2016	2015	Variance	%
Clareti solutions	Recurring		£m	2.9	1.9	1.0	53%
	Non-recurring		£m	1.8	1.5	0.3	20%
	Software		£m	4.7	3.4	1.3	38%
	Services		£m	2.8	1.9	0.9	47%
	Total	KPI	£m	7.5	5.3	2.2	42%
Other solutions	Software		£m	6.3	6.3	-	n/a
	Services		£m	3.4	3.2	0.2	6%
	Total		£m	9.7	9.5	0.2	2%
Total		KPI		17.2	14.8	2.4	16%
Annualised recurring revenue	Clareti	KPI	£m	4.6	2.4	2.2	92%
as at 31 December 2016	Other		£m	6.3	6.5	(0.2)	(3%)
	Total	KPI	£m	10.9	8.9	2.0	22%

Clareti solutions

FY2016 continued the trends seen in the prior year. In the year ended 31 December 2015 (FY2015), the Group achieved significant growth with Clareti revenues rising 51% by £1.8m to £5.3m and Clareti becoming the Group's highest revenue-generating product set and largest gross margin contributor. This significant success continued in FY2016 as Clareti revenues increased by a further 42% and £2.2m to £7.5m, and, on a net revenue basis (excluding revenue-share to partners), Clareti exceeded the aggregate value of all non-Clareti revenues for the first time. We continue to plan and invest for similar levels of growth in the financial year 2017 and beyond.

The Group continues with its 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. We made excellent progress against this aim, with booked Clareti recurring revenues increasing 53% and £1.0m to £2.9m in FY2016 compared to the previous period, and by a significant 92% and £2.2m to £4.6m as an annualised run-rate at the end of the year. The C24 business acquired in October 2016 contributed £0.3m to the Clareti recurring revenues booked in FY2016 and £1.2m of the annualised run-rate as at 31 December 2016.

Non-recurring Clareti software revenues (initial licence fees) were up 20% in FY2016. During the year, the Group implemented a policy of granting fixed term licence grants (typically five years), rather than perpetual licences, for customers for whom subscription licensing is not appropriate, opening up charging for additional future periods of use for these customers beyond the fixed licence term of the contract.

Clareti services revenues were also up strongly by 47% and £0.9m to £2.8m as new and existing customers purchased more consulting services to enable more Clareti use throughout their organisations. All parts of our services business were highly utilised and therefore profitable during FY2016.

Other solutions

The Group's Other solutions portfolio remained stable as anticipated. Non-Clareti software revenues continue to be almost entirely recurring in nature and remained flat year on year as customer attrition was offset by inflationary increases and licence changes. A significant number of customers continue to use the various software solutions within this diverse portfolio; however, due to the age of some of these products we continue to anticipate a decline in the revenues from these solutions over the next 10 years.

Non-Clareti services revenue recorded modest growth of £0.2m to £3.4m in FY2016. The majority of these revenues (80%+) are in respect of tactical contracting services provided to a strategically important Australian banking partner that generate a direct net contribution to the Group of approximately 15%.

Earnings

Operating performance is analysed excluding exceptional items, share option charges and amortisation from acquired intangible assets, which is consistent with the way in which the Board reviews the financial results of the Group.

				2016	2015	Variance	%
Earnings
Gross margin			£m	14.2	12.0	2.2	18%
Gross margin			%	83%	81%	1%	2%
Adjusted EBITDA		KPI	£m	3.8	2.7	1.1	41%
Adjusted EBITDA		KPI	%	22%	18%	4%	21%
Statutory profit after tax			£m	2.6	2.0	0.6	30%
Adjusted Diluted EPS		KPI	pence	4.67	3.38	1.29	38%

The Group's gross margin rose to 83% in FY2016 from 81% in FY2015, driven in whole by the additional £2.2m contribution from increased Clareti revenue.

The Group delivered a strong increase in earnings with adjusted EBITDA rising by 41% and £1.1m to £3.8m, as the increased gross margin delivered by higher Clareti revenues was in part offset by planned investments throughout the Group's operations and, in particular, in sales and marketing expenditure to maximise the market opportunities and future growth available for the Clareti platform and solutions.

Exceptional items

In H1 2016, the Group completed its planned office closures, which incurred a number of one-off costs relating to the termination of property leases and the associated costs of repair together with one-off costs for recruitment of key personnel. In October 2016, the Group acquired C24 Technologies Limited, which resulted in further one-off costs being incurred. In aggregate, these one-off costs totalled £275,000 (2015: £149,000).

Cashflow

			2016	2015	Variance	%
Operating cashflow excluding working capital		£m	4.3	3.7	0.6	16%
Movement in working capital		£m	1.8	(0.5)	2.3	(460%)
Capital expenditure - development costs		£m	(3.8)	(3.0)	(0.8)	27%
Capital expenditure - other		£m	(0.5)	(0.3)	(0.2)	67%
Placing & acquisition		£m	0.4	-	0.4	n/a
Other		£m	0.3	0.1	0.2	223%
Closing cash	KPI	£m	7.2	4.7	2.5	53%

The Group's financial position remained strong at 31 December 2016 with closing cash of £7.2m and no debt (2015: £4.7m and no debt). The year-on-year increase was largely due to the following factors: higher than anticipated working capital inflows as cash collection in Q4 2016 was significantly improved year-on-year; a small net cash inflows from the C24 acquisition and associated share placing; and gains arising from foreign exchange re-translations as a result of weaker Sterling at 31 December 2016 compared to 31 December 2015.

Operating cashflow excluding working capital movements was again mostly re-invested in product development, which increased year on year as the result of expansion of our core development team throughout 2015 and 2016, plus temporary additional resourcing to accelerate the development of Clareti Loan Control in the first half of 2016.

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

The Group anticipates that development spend will remain close to current levels for the foreseeable future. Further, with increasing Clareti sales from the growing annuity base and new customer wins coupled with tight cost control of planned investments, we expect the cash generation ability of the business to accelerate.

Taxation

For the year ended 31 December 2016, the Group has recorded a net tax credit of £0.4m (2015: £0.4m) which, as in prior years, is primarily as a result of research and development enhanced relief available for our UK development activities, offset with taxation payable both in the UK and overseas in respect of our reselling and servicing operations. As a sign of the Group's maturity and increasing profitability in 2016, the Group did not surrender losses for R&D tax credit cash refund and losses have instead been directly utilised at full value against current and future UK taxable profits.

Rob Grubb, Chief Financial Officer

CONSOLIDATED INCOME STATEMENT

	Notes	31 December 2016	31 December 2015
		£'000	£'000
Revenue	3,4	17,156	14,842
Cost of sales		(2,984)	(2,822)
Gross profit		14,172	12,020
Adjusted administrative expenses		(11,488)	(10,200)
Adjusted operating profit		2,684	1,820
Adjusting administrative items:
Exceptional items	4	(275)	(149)
Amortisation on acquired intangibles	13	(108)	-
Share based payments	22	(117)	(110)
		(500)	(259)
Total administrative expenses		(11,988)	(10,459)
Statutory operating profit	4,5	2,184	1,561
Finance revenue	3,8	22	21
Finance costs	8	-	-
Profit before taxation		2,206	1,582
Taxation	9	399	368
Attributable to owners of the Parent	2	2,605	1,950
Earnings per share
Statutory
Basic earnings per share - pence	10	4.06	3.08
Diluted earnings per share - pence	10	3.92	2.98
Adjusted
Basic earnings per share - pence	10	4.83	3.49
Diluted earnings per share - pence	10	4.67	3.38

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	31 December 2016	31 December 2015
	£'000	£'000
Attributable to the owners of the Parent	2,605	1,950
Other comprehensive income/(expense)
Items that will or may be re-classified into profit or loss - exchange differences	86	(27)
Total other comprehensive income/(expense)	86	(27)
Total comprehensive income for the year	2,691	1,923

The tax effect of exchange differences recorded within the Consolidated Statement of Comprehensive Income is a debit of £17,000 (2015: credit of £5,000). 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Notes	31 December 2016	31 December 2015
		£'000	£'000
Assets
Non-current assets
Property, plant and equipment	12	656	499
Intangible assets	13	18,794	10,648
Deferred tax assets	9	1,151	239
		20,601	11,386
Current assets
Trade and other receivables	16	4,759	3,472
Income tax receivable	16	2	892
Cash and cash equivalents	17	7,206	4,666
		11,967	9,030
Total assets		32,568	20,416
Equity and liabilities
Equity attributable to owners of the Parent
Called up equity share capital	21	3,340	3,164
Share premium account	23	3,242	9
Other reserves	23	313	313
Foreign currency translation reserve	23	21	(65)
Retained earnings	23	14,235	11,513
Total equity attributable to owners of the Parent	23	21,151	14,934
Non-current liabilities
Deferred income	18	267	53
Provisions	18	44	24
Deferred tax liability	9	680	-
Contingent consideration	27	378	-
		1,369	77
Current liabilities
Trade and other payables	18	9,060	5,294
Financial liabilities	18	71	3
Income tax payable	18	139	89
Provisions	18	20	19
Contingent consideration	27	758	-
		10,048	5,405
Total liabilities		11,417	5,482
Total equity and liabilities		32,568	20,416

The financial statements were approved by the Board of Directors and authorised for issue on 13 March 2017.

On behalf of the Board

Ian Manocha                                                        Rob Grubb

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Notes	Share capital	Share premium	Other reserves	Currency translation	Retained earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2015		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	21	2	9	-	-	-	11
Share-based payment expense	22	-	-	-	-	110	110
At 31 December 2015		3,164	9	313	(65)	11,513	14,934
Attributable profit for the period		-	-	-	-	2,605	2,605
Other comprehensive income		-	-	-	86	-	86
Total comprehensive income		-	-	-	86	2,605	2,691
Share issue proceeds	21	158	3,163	-	-	-	3,321
Share transaction costs	21	-	(101)	-	-	-	(101)
Exercise of share options	21	18	171	-	-	-	189
Share-based payment expense	22	-	-	-	-	117	117
At 31 December 2016		3,340	3,242	313	21	14,235	21,151

CONSOLIDATED STATEMENT OF CASHFLOW

	Notes	31 December 2016	31 December 2015
		£'000	£'000
Cashflows from operating activities
Profit after taxation		2,605	1,582
Depreciation, amortisation and impairment	5	1,355	976
Share-based payment expense	22	117	110
Increase in trade and other receivables		(737)	(217)
Increase/(decrease) in trade and other payables		2,551	(277)
Movement in deferred tax provisions		1	-
Movement in provisions		21	7
Loss on disposal of property, plant and equipment		32	-
Net finance income	8	(22)	(21)
Cash inflow from operations		5,923	2,160
Net income taxes received		216	1,035
Net cash inflow from operating activities		6,139	3,195
Cash flows from investing activities
Interest received	8	22	21
Purchase of property, plant and equipment	12	(508)	(217)
Disposal of property, plant and equipment		13	-
Net payments to acquire subsidiary undertaking	27	(3,014)	-
Payments to acquire intangible fixed assets	13	(3,779)	(3,014)
Net cash used in investing activities		(7,266)	(3,210)
Cash flows from financing activities
Interest paid		-	-
Share issue proceeds	21	3,510	-
Share issue transaction costs	21	(101)	11
Net cash generated from financing activities		3,409	11
Net increase/(decrease) in cash and cash equivalents		2,282	(4)
Cash and cash equivalents at beginning of year		4,666	4,707
Exchange adjustments		258	(37)
Cash and cash equivalents at end of year	17	7,206	4,666

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 2016 and 31 December 2015 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 2015 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2016, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2015 statutory accounts have been applied consistently in all material respects.

This Annual Financial Report Announcement was approved by the Board of Directors on 13 March 2017 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 2016 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; and

·      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 of 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 2016.

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:

o  Clareti Transaction Control: a high performance enterprise data control solution for data validation and real-time transaction matching and reconciliation.

o  Clareti Accounts Receivable Management: a receivables management application with automated matching, reconciliation and allocation to reduce the order-to-cash cycle.

o  Clareti 24 Integration Objects: integration software to enable rapid adoption of financial message standards and transform complex data types.

o  Clareti Loan Control: a front-to-back loan servicing solution that enables effective and auditable management of simple and complex loan portfolios.

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

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.

			Other
Year ended 31 December 2016	Notes	Clareti Solutions	Solutions	Contracting Services	Adjustments, central and eliminations	Consolidated
		£'000	£'000	£'000	£'000	£'000
Revenue
External customer		7,491	6,901	2,764	-	17,156
Inter-segment		-	-	-	-	-
Total revenue	3	7,491	6,901	2,764	-	17,156
					-	-
Cost of sales		(566)	(2,070)	(675)	-	(3,311)
Cost of sales capitalised as intangible asset		327	-	-	-	327
Gross profit		7,252	4,831	2,089	-	14,172
		97%	70%	76%	-	83%
Contracting administrative expenses		-	-	(1,678)	-	(1,678)
Gross profit after contracting fully costed		7,252	4,831	411	-	12,494
		97%	70%	15%	-	73%
Adjusted administrative expenses			-	-	(9,810)	(9,810)
Adjusted operating profit		7,252	4,831	411	(9,810)	2,684
Adjusting items:
Exceptional costs		-	-	-	(275)	(275)
Amortisation of acquired intangibles	13	-	-	-	(108)	(108)
Share based payments	22	-	-	-	(117)	(117)
Adjusting administrative expenses		-	-	-	(500)	(500)
Statutory operating profit		7,252	4,831	411	(10,310)	2,184
Interest revenue	8					22
Interest expense						-
Profit before taxation						2,206
Taxation	9					399
Profit after taxation						2,605
Segment assets						32,568
Segment liabilities						(11,417)

			Other
Year ended 31 December 2015	Notes	Clareti Solutions	Solutions	Contracting Services	Adjustments, central and eliminations	Consolidated
		£'000	£'000	£'000	£'000	£'000
Revenue
External customer		5,270	7,070	2,502	-	14,842
Inter-segment		-	-	-	-	-
Total revenue	3	5,270	7,070	2,502	-	14,842
					-	-
Cost of sales		(172)	(1,977)	(673)	-	(2,822)
Gross profit		5,098	5,093	1,829	-	12,020
		97%	72%	73%	-	81%
Contracting administrative expenses		-	-	(1,441)	-	(1,441)
Gross profit after Contracting fully costed		5,098	5,093	388	-	10,579
		97%	72%	16%	-	71%
Adjusted administrative expenses		-	-	-	(8,759)	(8,759)
Adjusted operating profit		5,098	5,093	388	(8,759)	1,820
Adjusting items:
Exceptional costs		-	-	-	(149)	(149)
Amortisation of acquired intangibles	13	-	-	-	-	-
Share based payments	22	-	-	-	(110)	(110)
Adjusting administrative expenses		-	-	-	(259)	(259)
Statutory operating profit		5,098	5,093	388	(9,018)	1,561
Interest revenue	8					21
Interest expense						-
Profit before taxation						1,582
Taxation	9					368
Profit after taxation						1,950
Segment assets						20,416
Segment liabilities						(5,482)

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, with one customer totalling £3.0m for the year and the other customer totalling £4.4m (this revenue includes the low margin contracting revenue of £2.8m noted above). The revenues from these two customers fall predominantly within the Other Solutions segment.

Exceptional items

	2016	2015
	£'000	£'000
Exceptionals
Staff costs (recruitment and termination costs)	124	149
Property (office closures)	32	-
Acquisition costs	119	-
	275	149

In H1 2016, the Group completed its planned office closures, which incurred a number of one-off costs relating to the termination of property leases and the associated costs to repair and property damage together with costs for recruitment of key personnel. In H2 2016 the Group acquired the company C24 Technologies Limited in October 2016 which resulted in further one-off costs being incurred. In aggregate, these one-off costs totalled £275,000 (2015: £149,000). 2015 costs related to CEO succession costs and a review of the group marketing and operational activities, which incurred a number of one-off costs.

Geographic information

	2016	2015
	£'000	£'000
Revenues from external customers (by destination)
EMEA	333	385
North America	1,405	1,340
UK	9,310	7,371
Australia	4,683	4,118
Asia Pacific	1,425	1,628
	17,156	14,842
	£'000	£'000
Non-current assets
UK	18,646	10,304
North America	37	104
Asia Pacific	767	739
	19,450	11,147

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

	2016	2015
	£'000	£'000
Current income tax
Overseas tax charge/(credit) - adjustment to previous years	22	(21)
Overseas tax charge - current year	140	139
UK corporation tax charge - adjustment to previous years	166	98
UK corporation tax credit - current year	-	(892)
Total current income tax	328	(676)
Deferred income tax
(Recognition)/reversal of deferred tax asset	(863)	322
Tax rate change adjustments	136	(14)
Total deferred income tax	(727)	308
Total credit in the income statement	(399)	(368)

For the year ended 2015 the group surrendered tax losses in a UK company in return for an R&D tax credit. 

Given the group and UK companies are profitable, rather than surrendering these losses going forward they are being used to directly offset UK tax liabilities.

(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 20.0% (2015: 20.3%). The differences are reconciled below:

	2016	2015
	£'000	£'000
Profit before taxation	2,206	1,582
Accounting profit multiplied by the UK standard rate of
corporation tax of 20.0% / 20.3%	441	321
Income/expenses not deductible/(taxable) for tax purposes	43	(31)
Differences in tax rates	85	(7)
Overseas tax credit - adjustment to previous years	22	(21)
R&D tax credit - previous year	122	98
R&D tax credit - current year	-	(892)
Losses surrendered for R&D tax credit - current year	-	1,246
R&D enhanced relief	(1,604)	(692)
Movement in unrecognised losses carried forward	(1,307)	129
Movement in unrecognised temporary differences	2,200	(486)
Movement in unrecognised fixed asset temporary differences	15	5
Temporary difference on share-based payments	(552)	(24)
Prior year adjustments on recognised deferred tax	-	-
Tax rate change adjustments	136	(14)
Total tax credit reported in the income statement	(399)	(368)

 

(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 debit of £17,000 (2015: credit of £5,000).

(d) Temporary differences associated with Group investments

At 31 December 2016, there was no recognised deferred tax liability (2015: £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 (2015: £nil).

(e) Deferred tax

Recognised deferred tax

	2016	2015
	£'000	£'000
1 January	239	547
Movement in the period- Losses	(2,339)	(376)
Share based payments timing differences	(552)	40
Other timing differences	3,884	6
Fixed asset timing differences	(145)	8
Acquired on acquisition of subsidiary undertaking	200	-
Impact of change in tax rate	(136)	14
31 December	1,151	239
Comprising:
Temporary differences	(1,231)	42
Tax losses	2,382	197
31 December	1,151	239

A deferred tax credit of £1,048,000 has been recognised in the year in respect of tax losses and capital allowances in excess of depreciation and other temporary differences.

Deferred tax liability

	2016	2015
	£'000	£'000
Intangible asset acquired on acquisition	680	-
Comprising:
1 January	-	-
Acquisition of intangibles in subsidiaries	680	-
31 December	680	-

Unrecognised potential deferred tax assets

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

	2016	2015
	£'000	£'000
Temporary differences	159	(1,421)
Tax losses	1,009	2,150
Unrecognised deferred tax asset	1,168	729
Gross temporary differences unrecognised	530	(7,169)
Gross tax losses unrecognised	3,750	10,173
Gross temporary timing differences unrecognised	4,280	3,004

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 Finance Act 2016 was approved on 15 September 2016. The Act reduces the main rate of corporation tax to 17% from 1 April 2020 (superseding the 18% rate effective from that date introduced in Finance (No.2) Act 2015.

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.

                                                2016                       2015

UK                           17%/20%                18/20%

Australia                                30%                        30%

US                           40%                        40%

5. Earnings

Earnings per 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:

		31 December 2016	31 December 2015
		000	000
Basic weighted average number of shares		64,223,010	63,238,526
Dilutive potential ordinary shares		-	-
Employee share options - weighted (note 22)		2,198,808	2,178,202
Diluted weighted average number of shares		66,421,818	64,223,010

		Notes	31 December 2016	31 December 2015
			£'000	£'000
Adjusted earnings attributable to owners of the parent			3,105	2,209
Adjusting items:
Exceptional items		4	(275)	(149)
Amortisation of acquired intangibles		13	(108)	-
Share based payments		22	(117)	(110)
Statutory earnings attributable to owners of the Parent			2,605	1,950
Earnings per share
Statutory
Basic earnings per share - pence			4.06	3.08
Diluted earnings per share - pence			3.92	2.98
Adjusted
Basic earnings per share - pence			4.83	3.49
Diluted earnings per share - pence			4.67	3.38

Adjusted EBITDA earnings

Adjusted EBITDA
Profit before tax		2,206	1,582
Adjusting items:
Exceptional items	4	275	149
Amortisation on intangibles	13	1,004	654
Depreciation on PPE (exc Development)	12	224	225
Loss on disposal		32	-
Share based payments	22	117	110
Interest received	3,8	(22)	(21)
Adjusted EBITDA		3,836	2,699

During the year ended 31 December 2016, share options granted under the 2010 Share Option Plans were exercised and the Group issued 350,000 (2015: 37,500) 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 (2015: none).

7. Intangible assets

31 December 2016					Separately identified intangibles on acquisition
		Development costs	Patents and licences		Software		Customer relationships		Goodwill		Total
		£'000	£'000		£'000		£'000		£'000		£'000
Cost
At 1 January		15,112	1,673		-		-		876		17,661
Additions		3,690	89		-		-		-		3,779
Additions acquired as part of business combination		-	-		3,067		866		1,376		5,309
Disposals		-	(31)		-		-		-		(31)
Exchange adjustment		41	14		-		-		77		132
At 31 December		18,843	1,745		3,067		866		2,329		26,850
Amortisation and impairment
At 1 January	(5,506)		(1,257)		-		-		(250)		(7,013)
Charge for year	(741)		(155)		(79)		(29)		-		(1,004)
Eliminated on disposal	-		12		-		-		-		12
Exchange adjustment	(41)		(10)		-		-		-		(51)
At 31 December	(6,288)		(1,410)		(79)		(29)		(250)		(8,056)
Net carrying amount
At 31 December	12,555		335		2,988		837		2,079		18,794
At 1 January	9,606		416		-		-		626		10,648
31 December 2015					Separately identified intangibles on acquisition
	Development costs		Patents and licences		Software		Customer relationships		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

 

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 twenty 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 sixteen 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.

Separately identified acquired intangibles

Separately identified intangibles acquired through business combinations represent software and customer relationships which arose through the acquisition of C24 Technologies Ltd in October 2016. 

Software is amortised over its useful economical life, which is deemed to be ten years.

Customer relationships acquired in the year are amortised over the useful economical life, which is deemed to be eight years.

Goodwill

Goodwill arose on the acquisition of our Asia Pacific real-time financial solutions business and C24 Technologies Ltd. It is assessed as having an indefinite life and is assessed for impairment at least annually. See note 27.

8. Business combinations

Acquisition of C24 Technologies Limited

On 3 October 2016, the Company acquired 100% of the voting shares of C24 Technologies Limited a niche financial markets software product business founded in 2000, specialising in standards-based financial messaging and integration solutions. C24 is focussed on writing adapters to help move data from common back office systems into a SWIFT format which is a standardised message language used by financial institutions to make bank transfers. C24 updates all adapters and interfaces if and when swift messages change.

The amounts recognised in respect of identifiable assets acquired and liabilities assumed are set out in the table below:

	Notes	Book value £'000	Adjustment £'000	Fair value £'000
Intangible assets
Software	13	-	3,067	3,067
Customer relationships	13	-	866	866
Property, plant and equipment		-	-	-
Current assets		630	-	630
Assumed liabilities		(914)	-	(914)
Deferred tax		200		200
Total identifiable assets		(84)		4,024
Deferred tax on differences between fair values and tax bases			(680)	(680)
Goodwill	13	-	1,376	1,376
Total net assets/consideration		(84)	4,629	4,545
Satisfied as follows:
Cash				3,409
Contingent consideration				1,136
Total purchase consideration				4,545
Analysis of cashflows on acquisitions:
Net cash acquired with subsidiary				395
Cash paid				(3,409)
Net cash outflow				(3,014)
Fair value of consideration paid
Cash				3,409
Contingent consideration due < 1 year				758
Contingent consideration due >1 year				378
Total consideration				4,545

The goodwill recognised above is attributable to intangible assets that cannot be individually separated and reliably measured from C24 Technologies Limited due to their nature.  These items include the expected value of synergies and assembled workforce.

From the date of acquisition, C24 Technologies Limited has contributed £270,000 of revenue to the Group and operating profits £205,000. If the combination had taken place at the beginning of the year, the Group revenue would have been £855,000 and operating losses would have been £220,000.

Contingent consideration-C24 Technologies Limited

As part of the share sale and purchase agreement, contingent consideration of £1,136,000 has been agreed. This payment is subject to certain transition related objectives and forecasted customer contract renewals being achieved. The contingent consideration is payable in two tranches, one on the anniversary of the completion £758,000 and the second payable 18 months after completion £378,000.

9. Additional information

The following additional information is not extracted from the Annual Financial Report 2016:

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 2016.

Notifications relating to LR 9.6.11R

The Company confirms that, with effect as of 13 March 2017, Ms I Joss has been appointed chair of the remuneration committee in substitution for Mr K Archer, who will continue to serve as a member of the remuneration committee.

 

END

 

 

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