Final Results
RNS
9 March 2021
Gresham Technologies plc
Annual Financial Report Announcement
Gresham Technologies plc (LSE: "GHT", "Gresham", "Company" or the "Group"), the leading software and services company that specialises in providing solutions for data integrity and control, banking integration, payments and cash management, is pleased to announce its results for the year ended 31 December 2020.
Financial
· Group revenues down 1% to £24.8m (2019: £25.0m), including £0.6m from Inforalgo.
· Clareti revenues stable at £15.5m (2019: £15.5m), including £0.6m from Inforalgo.
· Clareti recurring software revenues up 11% to £11.5m (2019: £10.4m), including £0.5m from Inforalgo.
· Clareti annualised recurring revenues ("ARR") as at 31 December 2020 up 29% to £12.3m (2019: £9.5m), including £1.2m from Inforalgo; transition to full subscription licensing model complete.
· Other (non-Clareti) revenues down 2% to £9.3m (2019: £9.5m), in line with strategy.
· Adjusted EBITDA (1) up 10% to £4.5m (2019: £4.1m), including £0.1m from Inforalgo.
· Cash adjusted EBITDA (2) stable at £0.3m (2019: £0.3m), including £0.1m from Inforalgo.
· Profit before tax (3) as reported at £0.3m (2019: £0.3m).
· Adjusted diluted earnings per share (4) up 100% at 4.0 pence (2019: 2.0 pence).
· Cash at 31 December 2020 of £8.9m and no debt (2019: £9.6m and no debt) (5) after an outflow of £2.3m for Inforalgo initial consideration.
· Final dividend proposed at 0.75 pence per share (2019: 0.75 pence).
Operational
· New Tier 1 bank wins in Europe and the US.
· Continued growth within existing global key accounts.
· Go-lives of first cash and securities deployments in global banks.
· Acquisition of Inforalgo in July 2020 to accelerate Clareti sales into regulatory use cases; acquisition fully integrated.
· Cash management partnership with Australia and New Zealand Banking Group delivering to plan.
· Excellent levels of client retention throughout COVID-19 pandemic.
· Management confident about the prospects for the Group.
(1) Adjusted EBITDA refers to earnings before interest, tax, depreciation, impairment and amortisation, adjusted for one-off exceptional charges and share-based payments. Discontinued operations are not included in either year (see note 4 of the Group financial statements).
(2) Adjusted EBITDA less capitalised development spend and any IFRS16 lease-related cash payments.
(3) Profit before tax for both years stated above excludes discontinued operations. There were no discontinued operations in 2020, in 2019 discontinued operations generated profit before tax of £2.0m.
(4) Diluted earnings per share, adjusted to add back share-based payment charges, exceptional items, amortisation from acquired intangible assets and impairment of development costs.
(5) Excludes any IFRS16 lease-related payables.
(6) Percentage increases stated above are based on rounding to the nearest £'000 as disclosed at detailed level within this report
Ian Manocha, CEO, commented:
" In challenging circumstances, the Gresham team performed admirably in 2020 winning new key accounts and growing Clareti ARR by almost 30%. We were able to sustain our high levels of investment into product innovation and customer services, whilst also increasing earnings.
The Inforalgo acquisition, completed in the second half of 2020, has been swiftly integrated and is already delivering returns. We have stepped up investment into sales and marketing for H1 2021 and have a strong field team in place. I am pleased to report that the new financial year has started positively and there are several well-advanced opportunities in the pipeline for the first half."
As announced on 2 March 2021, a presentation for analysts will be held at 10:00 a.m. today by conference call, and a separate presentation for private and retail investors will be held at 4:00 p.m. today on the Investor Meet Company ("IMC") platform, details of which are set out in the Company's announcement dated 2 March 2021. A copy of the presentation to be tabled at both sessions will be made available on Gresham's website at 7.00 a.m. today.
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.
The Annual Financial Report 2020 will be sent to shareholders in due course.
Enquiries
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Gresham Technologies plc |
+44 (0) 207 653 0200 |
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Ian Manocha |
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Tom Mullan |
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N+1 Singer (Financial Adviser and Broker) |
+44 (0) 207 496 3000 |
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Shaun Dobson / Jen Boorer / Iqra Amin (Corporate Finance) |
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Tom Salvesen (Corporate Broking) |
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Inside information
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.
Note to editors
Gresham Technologies plc is a leading software and services company that specialises in providing real-time solutions for data integrity and control, banking integration, payments and cash management. Listed on the main market of the London Stock Exchange (GHT.L) and headquartered in the City of London, its customers include some of the world's largest financial institutions and corporates, all of whom are served locally from offices located in the UK, Europe, North America and Asia Pacific.
Gresham's award-winning Clareti software platform is a highly flexible and scalable platform, available on-site or in the cloud, designed to address today's most challenging financial control, risk management, data governance and regulatory compliance problems. Learn more at www.greshamtech.com.
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
In accordance with the Disclosure and Transparency Rules, the extracts below are from the Annual Financial Report 2020 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 2020.
CHAIRMAN'S STATEMENT
I am pleased to present this Annual Financial Report, my first as Chairman of Gresham.
As forewarned in last year's report, Ken Archer retired as Chairman after ten years in the role. I would like to thank Ken for his excellent stewardship of the business which has seen its evolution into a global leader in the field of enterprise financial software.
Overview
Obviously, the major world event in 2020 was the COVID-19 pandemic. I am pleased to report that the Company has remained fully operational despite this period of unprecedented disruption.
Thanks to strong leadership, resilient systems and a highly committed team of employees globally, the business was able to switch rapidly to 100% home working with no discernible disruption to levels of customer service, project delivery and income levels from existing clients.
However, as customers and prospects inevitably experienced their own internal operational challenges, new projects and initiatives were "parked" in many organisations for a good part of the year. As we moved through the year, we saw signs that clients and prospects appear to have adapted to the new normal and pre-sales momentum started to return to previous levels during the second half of the year, giving us confidence for the future.
So, whilst Clareti new licence revenues were lower than originally anticipated, we were pleased to add several new clients, including substantial long-term agreements with two global Tier 1 banks. 2020 also saw significant expansion by way of new projects from existing clients and the strategic acquisition of Inforalgo in July 2020 to supplement our regulatory credentials and US footprint. Clareti forward-looking ARR, a key performance indicator for the business, grew by 29% on the prior year at £12.3m, including £1.2m from the Inforalgo acquisition.
Overall, our revenue for the year was largely flat at £24.8m versus £25.0m last year, but adjusted EBITDA, stated after exceptional costs of £0.4m (2019: £nil), finished 10% up at £4.5m versus £4.1m last year thanks in part to effective management of operating expenses in the year.
In a period of global uncertainty, cash is obviously front of mind and I am pleased to report that the Company ended the year with a cash balance of £8.9m versus £9.6m at the prior year end after an outflow of £2.3m for the initial consideration for the Inforalgo acquisition.
Based on the overall financial performance and the cash within the business, the Board is recommending a final dividend of 0.75 pence per share, the same as the prior year, for approval at the Company's Annual General Meeting.
Delivery against our strategic vision
Despite the global challenges, 2020 saw significant progress against the major strategic goals identified by the Board. Of particular note:
· all new business in 2020 was signed on "subscription" terms;
· the Inforalgo acquisition brings additional sticky ARR and widens our addressable market;
· subscription model provides high level of visibility and increased certainty for future years' revenue;
· Clareti moved further towards stand-alone cash profitability; and
· underlying business systems and processes are increasingly scalable and global.
People and culture
2020 was a challenging year across the world and it is a testament to the leadership qualities of the executive team that the business continued to perform strongly. The annual employee engagement survey in December showed the highest ever scores across the business with significant improvements in areas highlighted in past years. On behalf of the Board, I would like to take this opportunity to thank all members of the Gresham family for their dedication, commitment and achievements in what will have been for many people a personally challenging time.
During my induction in the summer, I was particularly impressed with the passion, shared values and competence of the people in the business. I greatly look forward to a time when I can get to meet more of the staff and management face to face.
One of my first tasks on joining the Board in the summer was to work with the nomination committee to identify a suitable successor to Imogen Joss for the role of NED and chair of the remuneration committee.
The recruitment process identified two strong candidates with extremely valuable sector experience as well as excellent business experience gained in successful careers in financial services. As a result, the nomination committee took the decision that the Board would be strengthened and enhanced by appointing both candidates and I was delighted to welcome Jenny Knott and Dr Ruth Wandhöfer to the Board in October. Jenny and Ruth joined Andy Balchin, who has been a NED with Gresham since 2017. Jenny has been appointed chair of the remuneration committee and Andy has taken the role of Senior Independent Director. I have been particularly pleased at the speed with which the new Board has formed into a strong team despite the challenges of inductions and Board meetings being "virtual" meetings during the pandemic.
As well as taking the opportunity to consider the Group's business strategy, as noted below, the new Board is increasing its focus on environmental, social and governance ("ESG") matters and will provide details on how the Group is addressing these important issues in future reports and presentations.
Looking ahead
The new Board held a strategic workshop in December, where we engaged in constructively challenging conversations about which of the many opportunities available to the business would create maximum long-term shareholder value. As in many organisations with a subscription revenue model, there are trade-offs between maximising short-term profits and investing for future growth and value. The broad strategic direction approved by the Board focuses the Company on the following priorities:
· continue to build a global footprint and resilient international operations;
· increase investment in sales and marketing;
· make scalability and repeatability key themes within product development and professional services to enhance operating leverage and accelerate speed of implementations;
· increase investment in AI to support our vision of self-learning and self-optimising solutions;
· identify options to monetise the IP arising from the ANZ strategic partnership in the wider market; and
· seek further earnings-enhancing acquisitions which add adjacent technology capabilities, scale, and expand global reach.
We enter 2021 with the world still impacted by COVID-19 but, importantly, with a strong pipeline and a product suite that is increasingly relevant in an era when our clients and prospects are investing in solutions to accelerate digital transformation, remove manual processes, reduce costs and enhance the quality of regulatory reporting.
I am confident that the team has the vision, drive and capabilities to continue to deliver growth in the business and growth in shareholder value.
Peter Simmonds
Non-Executive Chairman
8 March 2021
CEO'S STATEMENT
Strategic Overview
It was nearly a decade ago, in September 2011, that Gresham announced the launch of Clareti Transaction Control 1.0. The Clareti business was born and the Group started its transformation from a UK-centric provider of ageing data-centre software and IT services into an IP-rich enterprise software company.
In recent years, divestments, restructuring, management and operational platform improvements have sharpened the focus of the Group, and our ongoing investment into product development, customer success and distribution has enabled the Clareti business to push through early-stage growth challenges and move confidently into the scale-up phase. A successful track record of new business wins and bolt-on acquisitions has enabled the Group to secure a base of over 120 customers in 20 countries around the world and establish itself as a respected and increasingly important player in the financial services vertical for risk and regulatory software.
As the business has grown, we have also refined our operating model and ensured all systems, processes and functions are global and scalable. In recent years, we have moved our core software to the cloud and introduced subscription services for connectivity and reconciliation solutions. Two years ago, we took the decision to move our on-premise software sales from a less predictable upfront licence model to a recurring revenue model, and, during 2020, all new business wins were signed on subscription terms. The Group now benefits from much improved quality of earnings underpinned by high-quality recurring Clareti licence revenues. Despite the challenging conditions in the year, we have progress our strategy to further reduce the Group's historical reliance on its portfolio of legacy businesses and continued our progress towards making Clareti stand-alone cash profitable. The Clareti business now provides Gresham with a platform for sustained, profitable, organic and in-organic growth.
Vision
Over the last ten years, the shift to digital has driven dramatic change in society and business, with entire industries being reimagined and transformed by data and inter-connected real-time processes. In financial services, these technology advances and competitive pressures are compounded by increasing regulatory, risk and compliance demands. Firms are striving to achieve full front-to-back and end-to-end control and digitisation of their businesses. They are replacing archaic, inflexible systems and manual processes and investing in automation to improve the speed, accuracy and efficiency of their data processing. Promising technologies such as artificial intelligence are making it onto the board agenda as executives think beyond digital transformation towards self-learning and self-optimising organisations. Executives need to have complete confidence in their data and processes to make good decisions, ensure optimal outcomes and protect their reputations. This is our vision - to bring digital integrity, agility and confidence to the world's financial institutions.
Markets
Clareti software helps our customers connect, reconcile and control the many disparate sources of transaction, finance, risk and regulatory data that exist in modern trading ecosystems.
According to Geert Raeves of Adox Research (2020), "The market for reconciliation in capital markets and asset management will grow by 5.2% per annum, to reach a size of USD 400m (excluding internal IT spend) by 2025". The market for reconciliation software in finance and post-trade operations remains an important opportunity for Gresham. Clareti enables firms to handle both core (cash and securities) and non-core (other use cases) reconciliations and data controls across the enterprise - simplifying the complex and scaling up to meet demand. Having initially established a strong position in non-core enterprise controls, our objective is to secure leadership in the core reconciliation space and increase our market share to more than 30%.
Connectivity, reconciliation and control are also fundamental capabilities needed by firms to confidently meet their obligations in the area of regulatory reporting. In 2019, the global market for regulatory reporting solutions was estimated at USD 330m and it is expected to reach USD 1,160m by the end of 2026, with a CAGR of 19.5% during 2021-2026. Over the last four years, we have secured a pleasing number of sales in the regulatory area and our acquisition of Inforalgo has further strengthened our position.
We aim to win a meaningful share of the global market for reconciliations and regulatory reporting control software in financial services before turning our attention to other industries and use- cases. Clareti has been successfully adopted in banking, investment management, insurance, wealth management, energy and commodities, where there are nearly 2,000 firms in Gresham's global target market. We are already regarded as an innovative partner to many of the world's largest financial institutions and we aim to deepen those key account relationships as well as win new names through direct sales teams in key geographies, as well as through OEM agreements and other alliances. I believe that the overall size of the addressable market for Clareti software, and the competitiveness of our offerings, provides an opportunity for us to build out a global financial technology company of substantial scale.
COVID-19 response and impact
I am pleased to confirm that your Company has continued to remain fully operational around the world throughout the current pandemic, and we are taking great care to protect our colleagues, partners and suppliers, customers and local communities. Our Board, major incident team and our wider management team moved proactively to protect the business as the crisis emerged and continue to stay abreast of global developments. Thanks to our strong team, good contingency planning, modern resilient business systems, established collaboration models and flexible working practices, we were able to move all global employees seamlessly to 100% home working during the week of 9 March 2020. At that time, the Company benefited from record levels of recurring revenue, a strong book of contracted services engagements and good cash reserves; nevertheless, with the expectation that the crisis would have an inevitable impact on progress of new sales, management took swift actions during April to preserve cash and protect earnings in a way that would not compromise our excellent long-term prospects. I am pleased to report that we did not need to furlough any staff, or take any loans or business relief, in any of our global businesses.
From March until July 2020, many of our customers and prospects were focused on their own market and operational challenges and unable to devote time to new projects and initiatives. After the summer, pre-sales engagement levels picked up and we were able to requalify our pipeline and move projects forward. Whilst new Clareti licence revenues were lower than originally planned due to customer inertia for a large part of the year, we were pleased with the Clareti sales progress as set out below.
Unfortunately, the virus is a long way from being defeated and the global economy remains fragile. Nevertheless, we are confident in the underlying resilience of the financial services market and the demand for intelligent automation offerings is strong as firms seek to accelerate their digital transformation efforts. We have seen a positive uptick in our pipeline in recent months which we are confident will translate into sales of Clareti solutions.
Clareti sales progress
During 2020, we were pleased to secure initial projects at two new Tier 1 global banks adding over £800k to Clareti ARR. Winning and growing large "key account" customers is an important aspect of our strategy. We look to secure several new name key accounts each year and expect to see steady ARR growth in these accounts over time coming from new projects, new instances or volume upgrades and product cross-sells. To prove the point, in 2020, three existing key accounts committed to significant licence upgrades including a Tier 1 bank customer which selected Clareti to control its regulatory reporting processes across its global business and now has a framework contract for future growth. Several smaller new name wins and installed base upgrades were also added. In line with our strategy, all new agreements signed during the year were subscription based. Organic growth in forward-looking Clareti ARR was 17%.
We took the opportunity to refresh and strengthen our sales team during the year. We made key management appointments in Europe and US and bolstered the team with several new sales and pre-sales hires. Our entrepreneurial direct sales team is now maturing into an organisation that can not only win new name business, but also manage global and key accounts, build out channels and alliances, open up new geographies and sell the broader range of product offerings now available to it. We enter 2021 with a strong team with better market coverage particularly in the UK, Europe and Asia. We will continue to expand our US sales team given the overall size of the market opportunity, as well as building out an inside sales function to support lead generation and account management.
Clareti services revenues were lower in 2020 than 2019 in large part due to investments we made in order to take our Tier 1 bank early adopters live and referenceable. Creating great customer references in the market remains key to sustainable growth. Our software becomes a mission critical part of our clients' trading operations and the Clareti platform has matured in recent years- indeed, its power and robustness were proven during an extraordinary year of market volatility with many clients processing record volumes. Our customer success team is responsible for ensuring successful implementation, adoption and value creation for the customer. During 2020, despite working remotely, our consulting team successfully ran more than 80 projects of varying size and scope, and our support team resolved 97% of tickets within our demanding service level agreements. We were delighted to win the bobsguide Ranking 2020 for Best Customer Support in Financial Technology.
Products and solutions for customers
Clareti technology has been applied to solve a wide variety of problems, such as data integration, data quality, automation and control issues in middle and back office operations as well as in front office, straight-through processing ("STP"), regulatory reporting and cash management and payments.
We deliver these capabilities with a flexible enterprise-grade platform and the full power of our software can be accessed in the cloud, on-premise or deployed into hybrid environments. Our products or cloud services are now available in two primary offerings:
Clareti Control products
• The only modern enterprise-grade business self-service platform for the reconciliation and control of "any and all" transaction data in financial markets.
• Disrupting markets dominated by legacy vendors whose inflexible technology fails to achieve more granular and real-time data control, or replacing in-house systems and manual processes.
• Sold as applications for specific use-cases including Clareti Transaction Control, Clareti Cash Control, Clareti Securities Control and Clareti Regulatory Control.
Clareti Connect products
• A unique service that enables customers to participate in the complex inter-connected global financial system without having to worry about integration risk, cost and time to market.
• Enables institutions to seamlessly connect their banking, payments, trading, accounting and regulatory systems and external partners with intelligent straight-through processing in a way that is reliable and cost effective.
• Sold primarily as a cloud service bringing together tools and software libraries built or acquired by Gresham into a rich menu of industry connectivity and data transformation services
Data integrity and control - one of our long-standing competitive USPs in reconciliations is the ability to ingest and match any type of non-standard data, which provided us with repeat wins in areas such as derivatives and other alternatives, intersystem controls, insurance broking and regulatory reporting controls. In June 2020, we signed a large global bank to deploy controls across its substantial UK retail and commercial business covering a myriad of non-standard data types such as ATMs and payments. This contract further widens our addressable market as we look to target US and European regional banks in 2021 alongside our thrust into capital markets. In December, we signed a new global investment bank to implement controls within its US markets business.
I am pleased to report that our two Tier 1 bank "early adopter" customers that signed in 2019 for global implementations of Clareti for post-trade reconciliation of cash and securities both went live with initial capabilities during the year. The core product development work for Clareti Cash Control and Clareti Securities Control is now complete and we are assisting these customers with finishing their global roll-outs. We continue to attack the legacy vendor duopoly in this part of market and new opportunities are emerging as firms firm up their projects for 2021.
Regulatory reporting - The ability to match multiple feeds of non-standardised data and check for integrity against complex rules in order ensure accuracy and completeness is a key requirement of market participants struggling to meet ever-increasing challenging regulatory reporting demands. Firms also need the ability to resolve exceptions identified in the end-to-end process. In 2020, we went live with the implementation of a Consolidated Audit Trail solution for a global investment bank, representing our largest regulatory implementation to date. We have now completed regulatory projects for customers in the UK, Europe, US, Canada, Asia and Australia and gained substantial experience. In July 2020, we were able to strengthen our position in this market through the acquisition of Inforalgo.
The acquisition of Inforalgo, a niche provider of straight through processing ("STP") software for financial markets, was completed for an initial consideration of £2.3m and contingent consideration of up to £1.3m dependent on recurring revenue retention at the 12-month and 18-month anniversaries of completion. The acquisition added over £1.2m of annualised recurring revenues ("ARR") from approximately 30 new customers, consisting mainly of global banks, asset managers and market infrastructure providers. Nearly 90% of the acquired ARR comes from North American customers, a key market for Gresham. The financial performance in the second half of 2020 was as planned and business integration is now complete. We have been pleased with the quality of the team, the technology and the customer base.
In recent years, the Inforalgo team had started to apply its rich heritage in STP connectivity and valuable know-how towards real-time management of regulatory submissions to external reporting venues. When this intelligent connectivity capability is combined with our reconciliation and exception management software, we are able to deliver end-to-end solutions to our customers. The Inforalgo leadership team has now taken on enhanced roles within Gresham and is driving our product plans and sales efforts in this area.
Cash management and payments - Gresham has a long heritage working in corporate cash management through our VBT reseller agreement, systems integration projects and, in recent years, the application of Clareti technology to data integration or matching problems. Having signed a strategic agreement with ANZ in 2019 to develop a next generation offering named Clareti Cash Management, development work progressed well during 2020 with key milestones achieved driving incremental licence revenues. The solution is on track for go-live in the middle of 2021 when further ARR licence increases are expected.
In parallel with this strategic investment, we continue to sell our reconciliation and control capabilities and our multi-bank connectivity cloud service, acquired from B2 Group, into payments and cash management use cases. Several multi-bank clients went live in 2020 providing good references. In January 2021, one of the world's leading providers of money processing services signed for a new multi-bank connectivity project to integrate with its CTC system. It is this combination of "control" and "connectivity" functionality that is essential in creating end-to-end digital solutions for our cash management customers in much the same way that I have described for regulatory reporting.
Other (Non-Clareti) business
Our other, non-Clareti, software businesses continued to run off as expected during 2020. Our EDT tape storage software licensing now contributes less than £0.5m per annum in revenues and is expected to decline further in 2021. This was offset by a longer than expected tail of residual usage-based fees from the sole remaining UK customer of our historical reseller arrangement for Cashfac's VBT software, which finally ended in December 2020.
The Group's fixed-margin IT services contracting business with ANZ slowed as a result of the COVID-19 pandemic in Australia, finishing 11% lower than 2019. Monthly billings have already recovered to pre-pandemic levels and steady growth is expected in the short term.
People and culture
The Gresham team has performed well in an exceptional year and that is a testament to the quality of our people and the strong culture of collaboration that we have developed. In 2020, many of the injustices that exist in society and prejudices that can be found in the workplace were highlighted on the global stage. During the lockdown in the first half of 2020, we took the opportunity to engage in an extremely constructive process with our global employees to revisit our values, and we also rolled out diversity and inclusion training to our people managers. In December, we were pleased to receive our strongest ever set of scores from our annual employee engagement survey. In 2021, we will be investing in further leadership development programmes as well as our ongoing focus on developing talent and driving performance.
Outlook
We enter 2021 with an installed base of over 120 Clareti customers generating annualised recurring revenue of £12.3m, which is £2.8m and 29% higher than at the beginning of 2020. We also have good visibility of our legacy non-Clareti businesses. As a result, the Company is now much more resilient than it has been for many years. Whilst COVID-19 is expected to cast its dark shadow for at least the rest of the year, we are positive about the opportunity that lies ahead for Gresham. Our pipeline has strengthened considerably in the last six months and our financial services clients are investing into intelligent automation solutions to remove manual processes and save costs. We also expect to see ongoing spend on regulatory reporting infrastructure. We will focus our sales efforts on these growth areas where we also believe our technology has significant benefits over legacy vendors and newer competitors. We will also continue to look for earnings-enhancing acquisitions in these same core markets.
FY2021 has started positively with several new subscriptions already signed. Subject to sustaining our new business win rate, incremental investment in sales and distribution is planned for the second half of the year in order to further strengthen our pipeline into 2022 and capitalise on the significant market opportunities.
Thank you for your ongoing support.
Ian Manocha
Chief Executive
8 March 2021
FINANCIAL REVIEW
Revenues
Our income is analysed between revenues from Clareti Solutions and from Other Solutions, as shown in the table below.
Clareti Solutions
Despite the tough trading conditions created by the COVID-19 pandemic, the strategically important high-margin Clareti recurring revenues recognised in the year grew by 11%, up £1.1m to £11.5m. More importantly, the forward-looking Clareti annualised recurring revenues experienced growth of 29%, up £2.8m to £12.3m, providing further predictability going forward. The acquisition of Inforalgo on 29 July 2020 contributed £0.6m and £1.2m of this growth respectively. In line with the Group's strategy to focus on the aforementioned high-quality recurring revenues, there were no non-recurring licence fees generated in 2020, a reduction of £0.7m on the prior year.
Clareti services revenues were down 9% to £4.0m from £4.4m. This reduction was due to a combination of investment time to successfully deliver the ongoing implementation projects arising from the large strategic Clareti software licences sold to customers during 2019, and a period of lower generation of new services business due to COVID-19.
Other Solutions
Revenues from Other Solutions decreased 2% to £9.3m, which significantly exceeded expectations.
Other software revenues from partners were up 19% to £3.1m as a result of one of our legacy partner relationships increasing its usage of the already installed software, which is offset by reductions from another customer which has finally migrated away from the software after notifying us of its intent to do so during 2017. The ongoing arrangements have an approximate net margin of 50%.
Other software revenues from our remaining legacy products continued to decrease as planned as customers moved off from ageing platforms to newer technologies. Attrition is expected to persist as these technology shifts continue, although the longevity of these very old legacy products continues to surpass our expectations and still attracts a net margin exceeding 90%.
Contracting services are provided to ANZ, a strategically important Australian banking customer, which generate a contractually fixed net contribution to the Group of 13%. Contracts are typically signed for twelve months, giving strong visibility of the expected near-term revenues, although these do fluctuate as resource requirements change. Whilst 9% down on the prior year, our original expectations were significantly exceeded due to additional resource requests being made during the year.
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2020 |
2019 |
Variance |
% |
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Clareti Solutions |
Recurring |
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£m |
11.5 |
10.4 |
1.1 |
11% |
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Non-recurring |
£m |
- |
0.7 |
(0.7) |
(100%) |
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Software |
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£m |
11.5 |
11.1 |
0.4 |
4% |
||||||
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Services |
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£m |
4.0 |
4.4 |
(0.4) |
(9%) |
||||||
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Total |
KPI |
£m |
15.5 |
15.5 |
- |
- |
||||||
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Other Solutions |
Software - Partners |
£m |
3.1 |
2.6 |
0.5 |
19% |
|||||||
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Software - Own solutions |
£m |
0.6 |
0.8 |
(0.2) |
(25%) |
|||||||
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|
Services |
|
£m |
0.7 |
0.7 |
- |
- |
||||||
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Contracting services |
|
£m |
4.9 |
5.4 |
(0.5) |
(9%) |
||||||
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Total |
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£m |
9.3 |
9.5 |
(0.2) |
(2%) |
||||||
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Total from Continuing Operations - note 3 |
KPI |
m |
24.8 |
25.0 |
(0.2) |
(1%) |
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||||||
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Discontinued |
Software - Own solutions |
|
£m |
- |
0.1 |
(0.1) |
(100%) |
||||||
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Total revenue |
|
KPI |
m |
24.8 |
25.1 |
(0.3) |
(1%) |
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|
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Annualised recurring revenue |
Clareti |
KPI |
£m |
12.3 |
9.5 |
2.8 |
29% |
||||||
|
as at 31 December 2020 |
Other |
|
£m |
3.5 |
2.8 |
0.7 |
25% |
||||||
|
|
Total |
KPI |
£m |
15.8 |
12.3 |
3.5 |
28% |
||||||
Earnings (continuing operations only)
|
|
|
|
|
2020 |
2019 |
Variance |
% |
||||
|
Group: |
Gross margin |
£m |
20.9 |
21.0 |
(0.1) |
- |
|||||
|
|
Gross margin |
|
% |
84% |
84% |
- |
|
||||
|
|
Adjusted EBITDA |
KPI |
£m |
4.5 |
4.1 |
0.4 |
10% |
||||
|
|
Adjusted EBITDA |
KPI |
% |
22% |
20% |
2 % |
|
||||
|
|
Cash Adjusted EBITDA |
KPI |
£m |
0.3 |
0.3 |
- |
- |
||||
|
|
Cash Adjusted EBITDA |
KPI |
% |
1 % |
1% |
- |
|
||||
|
|
Statutory profit/(loss) after tax |
|
£m |
1.3 |
(0.1) |
1.4 |
n/a |
||||
|
|
Adjusted diluted EPS |
KPI |
pence |
3.96 |
1.99 |
1.97 |
99 % |
||||
Across all business segments, the majority of our cost of sales is made up of: (i) the customer-specific third party costs incurred in providing our hosted cloud solutions; and (ii) third party contractor costs incurred by our contracting services business (individuals we bring on our payroll as fixed-term employees to provide this service are recorded in administration costs).
Operating performance is analysed excluding exceptional items, share-based payment charges, amortisation from acquired intangible assets and impairment of development costs, which is consistent with the way in which the Board reviews the financial results of the Group. This is also consistent with the manner in which similar small-cap LSE (or AIM) listed companies present their results and how we understand the investment community assesses performance, with this particularly being case for growth shares in which the recurring cash performance is considered important.
There has been an increase in statutory profit after tax from a loss of £0.1m to a profit of £1.3m, refer to the taxation section below for details of this variance.
Included below are tables and commentary for each of our key business segments which describe the underlying trends in gross margin, adjusted EBITDA and cash adjusted EBITDA. Cash adjusted EBITDA, which adjusts EBITDA for capitalised development spend and any IFRS16 lease-related cash expenses classified as depreciation and interest, has also improved since the prior year. Adjusted EBITDA and cash adjusted EBITDA are not IFRS measures nor are they considered to be a substitute for, or superior to, any IFRS measures. They are not directly comparable to other companies.
|
|
|
|
|
2020 |
2019 |
Variance |
% |
|
|||||||||||
|
Clareti Solutions: |
Gross margin |
£m |
14.5 |
14.4 |
0.1 |
1% |
|||||||||||||
|
|
Gross margin |
|
% |
94% |
93% |
1% |
|
|
|||||||||||
|
|
Adjusted EBITDA |
KPI |
£m |
1.2 |
0.6 |
0.6 |
100% |
|
|||||||||||
|
|
Adjusted EBITDA |
KPI |
% |
8% |
4% |
4% |
|
|
|||||||||||
|
|
Cash Adjusted EBITDA |
KPI |
£m |
(2.9) |
(3.1) |
0.2 |
5% |
|
|||||||||||
|
|
Cash Adjusted EBITDA |
KPI |
% |
(19%) |
(20%) |
1% |
|
|
|||||||||||
Despite the challenging global environment, our key growth business, Clareti, has seen an improvement since 2019 across all margin metrics. Our original 2020 plans anticipated that Clareti would be close to a break-even cash adjusted EBITDA position and we are pleased to be reporting a continued trend in this direction. This outcome is as a result of careful management of costs during the COVID-19 related uncertainty of Q2 and Q3. As our confidence in generating new Clareti business increased during Q3, we increased investment, particularly focused on the distribution of Clareti during Q4 to support organic growth in 2021. Our product development team spent more time on new future revenue-generating Clareti features and functions than the prior year; hence, there was an increase in the proportion of development spend being capitalisable, which improved adjusted EBITDA but does not affect cash adjusted EBITDA.
|
|
|
|
|
2020 |
2019 |
Variance |
% |
||||||||||
|
Other Solutions (software): |
Gross margin |
£m |
2.8 |
2.9 |
(0.1) |
(3%) |
|||||||||||
|
|
Gross margin |
|
% |
63% |
71% |
(8%) |
|
||||||||||
|
|
Adjusted EBITDA |
KPI |
£m |
2.6 |
2.8 |
(0.2) |
(7%) |
||||||||||
|
|
Adjusted EBITDA |
KPI |
% |
60% |
67% |
(7%) |
|
||||||||||
|
|
Cash Adjusted EBITDA |
KPI |
£m |
2.6 |
2.8 |
(0.2) |
(7%) |
||||||||||
|
|
Cash Adjusted EBITDA |
KPI |
% |
60% |
67% |
(7%) |
|
||||||||||
As noted above, our Other Solutions business saw the expected reduction in our high-margin own solutions business, offset by an increase in usage fees generated from a legacy partner arrangement. Costs of sales in this business segment are fixed-margin reseller fees, with operating expenses being equivalent to 1.5 full-time equivalent employees to service these portfolios. This business segment is not core to Gresham's strategy and our primary objective is to operate it as profitably as possible and at minimal risk.
|
|
|
|
|
2020 |
2019 |
Variance |
% |
|
|||||||||||
|
Other Solutions (contracting services): |
Gross margin |
£m |
3.7 |
3.7 |
- |
- |
|||||||||||||
|
|
Gross margin |
|
% |
75% |
69% |
6% |
|
|
|||||||||||
|
|
Adjusted EBITDA |
KPI |
£m |
0.6 |
0.7 |
(0.1) |
(14%) |
|
|||||||||||
|
|
Adjusted EBITDA |
KPI |
% |
13% |
13% |
- |
|
|
|||||||||||
|
|
Cash Adjusted EBITDA |
KPI |
£m |
0.6 |
0.7 |
(0.1) |
(14%) |
|
|||||||||||
|
|
Cash Adjusted EBITDA |
KPI |
% |
13% |
13% |
- |
|
|
|||||||||||
As noted above, we provide contracting services to ANZ,at a fixed net margin of 13%. Fees are paid six monthly in advance, providing a helpful contribution to working capital, but otherwise this business segment is not strategically important and will continue to be managed with negligible administrative overheads.
Exceptional items
During the year, the Group recognised exceptional costs of £0.4m, of which: (i) £0.2m were acquisition costs in relation to the acquisition of Inforalgo on 29 July 2020; and (ii) £0.2m related to a restructuring in July 2020 upon the expiry of the earn-out period relating to the acquisition of the B2 Group in July 2018. There were no material exceptional costs during 2019.
There was no material exceptional income during 2020. During 2019, the Group recognised exceptional income of £2.0m arising from the sale of the VME software business to Fujitsu in January 2019.
Taxation
For the year ended 31 December 2020, the Group has recorded a net tax credit of £1.0m (2019: charge of £0.4m). The material drivers for the variance from the prior year being: additional taxation of £0.4m being generated in 2019 upon the sale of the VME business; 2020 accounting for the benefit of two years' worth of credit in relation to research and development activities; 2020 benefitting from a £0.2m release of 2019 overseas tax provisions; and £0.3m of deferred tax assets being generated upon grants of matching shares during the year and increase in share price throughout the year.
Cash flow
The Group's financial position remained very strong throughout 2020, despite the outflow of £2.3m for the initial consideration to acquire Inforalgo, ending the year with cash of £8.9m and no debt (2019: £9.6m and no debt).
Operating cash flow excluding working capital has decreased by £0.1m to £4.1m in the year.
The reduction in the movement in working capital of £1.7m is largely explained by the fact that 2019 included an initial three-year prepayment of £3.0m from the £1.0m per annum subscription licence that became non-contingent in March 2019.
The Group received tax receipts of £1.3m in the year during 2020 as a result of research and development activities performed during 2018 and 2019 where enhanced relief is available (2019: received £1.4m in relation to 2016 and 2017). Tax payments were made in the year of £0.5m (2019: £0.1m), the increase on the prior year largely as a result of increased profitability in the US and Australia and full utilisation of historical Australian tax losses having occurred.
The capitalised development expenditure of £3.5m has increased by £0.2m from the prior year. This is due to an increased portion of product development effort being spent on new product or new product features in comparison to the prior year.
During 2019, the Group received a net amount of £1.7m through the sale of its legacy VME business. No equivalent business sale occurred during 2020.
During 2019, the Group purchased a total of £1.0m of its own shares in the period, £0.1m being in respect of employee bonuses for FY2018 and £0.9m to pre-fund employee and executive bonus and long-term incentive schemes in future years. No such share purchase occurred during 2020.
The Group received £0.5m upon the exercise of share options during the year (2019: £0.1m).
As was the case in the prior year, with increasing Clareti sales from the growing annuity base and new customer wins, coupled with tight cost control on planned investments, we expect the cash-generation capacity of the business to continue and are looking at opportunities to best utilise the excess cash generated. In order to maximise our returns, we plan to increase levels of investment in distribution and customer success, whilst continuing to invest excess cash efficiently in bank deposits and giving appropriate consideration to M&A opportunities.
|
|
|
|
2020 |
2019 |
Variance |
% |
|
Operating cash flow excluding working capital |
|
£m |
4.1 |
4.2 |
(0.1) |
(2%) |
|
Movement in working capital |
|
£m |
0.6 |
2.1 |
(1.5) |
(71%) |
|
Net tax receipts |
|
£m |
0.8 |
1.3 |
(0.5) |
(38%) |
|
Capital expenditure - development costs |
|
£m |
(3.5) |
(3.3) |
(0.2) |
(6%) |
|
Capital expenditure - other |
|
£m |
(0.1) |
(0.2) |
0.1 |
50% |
|
Principal paid on lease liabilities |
|
£m |
(0.6) |
(0.4) |
(0.2) |
(50%) |
|
Acquisition (net of cash acquired) |
|
£m |
(1.9) |
- |
(1.9) |
n/a |
|
Sale of discontinued operation |
|
£m |
- |
1.7 |
(1.7) |
(100%) |
|
Purchase of own shares in employee benefit trust |
|
£m |
- |
(1.0) |
1.0 |
100% |
|
Shares issued upon option exercises |
|
£m |
0.5 |
0.1 |
0.4 |
400% |
|
Dividend |
|
£m |
(0.5) |
(0.3) |
(0.2) |
(67%) |
|
Other |
|
m |
(0.1) |
0.1 |
(0.2) |
(200%) |
|
Net increase/(decrease) in cash and financial assets |
|
m |
(0.7) |
4.3 |
(5.0) |
(116%) |
|
Cash |
KPI |
£m |
8.9 |
9.6 |
(0.7) |
(7%) |
Consolidated statement of financial position
Intangible fixed assets have increased from £25.6m to £31.1m, largely as a result of the Inforalgo acquisition on 29 July 2020.
Trade receivables have reduced from £3.3m to £2.5m. This reduction is largely as a result of an unusually high receivables balance from an Australian customer in December 2019 related to our fixed-margin contracting services business, for which there was a corresponding payable at the time. This is also the reason behind the decrease in trade payables from £1.6m to £0.9m.
Non-current contract liabilities have reduced from £1.3m to £0.1m, as our standard model with customers has been to collect payments annually in advance as opposed to collecting multiple years in advance as was the case with a large three year subscription license signed in 2018. Non-current contingent consideration of £0.3m and current contingent consideration of £0.9m has been recognised in relation to the acquisition of Inforalgo.
Current contract liabilities have increased from £8.8m to £11.0m, due to the deferred revenue acquired from the Inforalgo acquisition and also the increase in Clareti ARR which is typically invoiced annually in advance.
Financial outlook
In light of the COVID-19 challenges of 2020, the Group is very pleased with the financial outcome of the year - particularly achieving a 17% organic growth rate in Clareti ARR, bolstered to 29% with the successful Inforalgo acquisition. Whilst this level of organic growth was lower than we had originally planned, we expect to be able to return closer to pre-COVID-19 Clareti organic growth rates in 2021. In prior year reports, I commented on our strategy to deliver consistent Clareti growth and drive more predictability into the business through a focus on generating higher levels of Clareti recurring revenues rather than initial licence fees - it is now satisfying and to the benefit of the business to confirm that we have completed this transition.
The other (non-Clareti) software portfolio continues to surpass expectations, with customers requiring extensions to contracts as they struggle to migrate to newer or alternative platforms. Whilst such extensions can generate short-term revenue spikes, these portfolios remain in long-term decline, as demonstrated by the previously significant non-Clareti UK banking customer that finally completed its migration after declaring its intent to do so in 2017. We continue to plan for these portfolios to decline. We expect our contracting services business to remain stable in 2021.
Overall, we have further increased levels of revenue predictability throughout the Group. This predictability comes from the significantly increased Clareti recurring revenue base, which has been complemented by the Inforalgo acquisition, high levels of contracted backlog of Clareti services for ongoing implementations and innovation services and a high portion of the non-Clareti portfolio already being under contract for 2021. This was the case as we entered 2020 and is the case to an even greater degree as we enter 2021. With this in mind, we continue to invest in the Clareti business, namely in distribution, product and customer success, in order to ensure that we are best placed to take advantage of the significant market opportunities.
Tom Mullan
Chief Financial Officer
8 March 2021
CONSOLIDATED INCOME STATEMENT
|
|
Notes |
Year ended 31 December 2020 |
Year ended 31 December 2019 |
|
|
|
|
£'000 |
£'000 |
|
|
|
|
|
|
|
|
Revenue |
3,4 |
24,752 |
24,961 |
|
|
Cost of sales |
|
(3,860) |
(3,933) |
|
|
Gross profit |
|
20,892 |
21,028 |
|
|
|
|
|
|
|
|
Adjusted administrative expenses |
|
(19,054) |
(19,302) |
|
|
Adjusted operating profit |
|
1,838 |
1,726 |
|
|
Adjusting administrative items: |
|
|
|
|
|
Exceptional items |
4 |
(400) |
(10) |
|
|
Impairment of development costs |
13 |
- |
(647) |
|
|
Amortisation on acquired intangibles |
13 |
(893) |
(794) |
|
|
Share-based payments |
22 |
(220) |
(77) |
|
|
|
|
(1,513) |
(1,528) |
|
|
Total administrative expenses |
|
(20,567) |
(20,830) |
|
|
|
|
|
|
|
|
Operating profit from continuing operations |
4,5 |
325 |
198 |
|
|
|
|
|
|
|
|
Share of post tax profit from joint venture |
|
- |
66 |
|
|
Finance revenue |
3,8 |
37 |
104 |
|
|
Finance costs |
8 |
(54) |
(65) |
|
|
Profit before taxation from continuing operations |
|
308 |
303 |
|
|
Taxation |
9 |
953 |
(443) |
|
|
Profit/(loss) after taxation from continuing operations |
|
1,261 |
(140) |
|
|
Net gain on sale of discontinued operations |
|
- |
1,985 |
|
|
Profit after taxation from discontinuing operations |
|
- |
53 |
|
|
Profit attributable to the equity holders of the Parent |
|
1,261 |
1,898 |
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
Statutory |
|
pence |
pence |
|
|
Basic earnings per share |
10 |
1.84 |
2.78 |
|
|
Diluted earnings per share |
10 |
1.80 |
2.72 |
|
|
Adjusted |
|
|
|
|
|
Basic earnings per share |
10 |
4.04 |
2.11 |
|
|
Diluted earnings per share |
10 |
3.96 |
2.07 |
|
|
|
|
|
|
|
|
Earnings per share - continuing operations |
|
|
|
|
|
Statutory |
|
|
|
|
|
Basic earnings per share |
10 |
1.84 |
(0.21) |
|
|
Diluted earnings per share |
10 |
1.80 |
(0.21) |
|
|
Adjusted |
|
|
|
|
|
Basic earnings per share |
10 |
4.04 |
2.04 |
|
|
Diluted earnings per share |
10 |
3.96 |
1.99 |
|
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
|
Year ended 31 December 2020 |
Year ended 31 December 2019 |
|
|
£'000 |
£'000 |
|
Profit attributable to the equity holders of the Parent |
1,261 |
1,898 |
|
|
|
|
|
Other comprehensive expenses |
|
|
|
Items that will or may be re-classified into profit or loss: Exchange differences on translating foreign operations |
(113) |
(3) |
|
Total other comprehensive expenses |
(113) |
(3) |
|
|
|
|
|
Total comprehensive income for the year |
1,148 |
1,895 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
|
|
Notes |
At 31 December 2020 |
At 31 December 2019 |
|
|
|
£'000 |
£'000 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
12 |
243 |
387 |
|
Right-of-use assets |
15 |
1,646 |
1,292 |
|
Intangible assets |
13 |
31,108 |
25,575 |
|
Deferred tax assets |
9 |
552 |
489 |
|
|
|
33,549 |
27,743 |
|
Current assets |
|
|
|
|
Trade and other receivables |
17 |
3,497 |
4,367 |
|
Contract assets |
17 |
923 |
611 |
|
Income tax receivable |
17 |
- |
43 |
|
Cash and cash equivalents |
18 |
8,876 |
9,605 |
|
|
|
13,296 |
14,626 |
|
Total assets |
|
46,845 |
42,369 |
|
Equity and liabilities |
|
|
|
|
Equity attributable to owners of the Parent |
|
|
|
|
Called up equity share capital |
21 |
3,508 |
3,413 |
|
Share premium account |
24 |
4,341 |
3,903 |
|
Own share reserve |
21 |
(778) |
(945) |
|
Other reserves |
24 |
536 |
536 |
|
Foreign currency translation reserve |
24 |
(194) |
(81) |
|
Retained earnings |
24 |
19,453 |
18,478 |
|
Total equity attributable to owners of the Parent |
|
26,866 |
25,304 |
|
Non-current liabilities |
|
|
|
|
Contract liabilities |
19 |
66 |
1,329 |
|
Lease liabilities |
15 |
1,004 |
788 |
|
Deferred tax liability |
9 |
1,289 |
952 |
|
Provisions |
19 |
146 |
144 |
|
Contingent consideration |
19 |
349 |
- |
|
|
|
2,854 |
3,213 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
19 |
15,303 |
12,976 |
|
Lease liabilities |
15 |
535 |
457 |
|
Income tax payable |
19 |
378 |
419 |
|
Contingent consideration |
19 |
909 |
- |
|
|
|
17,125 |
13,852 |
|
Total liabilities |
|
19,979 |
17,065 |
|
Total equity and liabilities |
|
46,845 |
42,369 |
The financial statements were approved by the Board of Directors and authorised for issue on 8 March 2021.
On behalf of the Board
Ian Manocha Tom Mullan
8 March 2021 8 March 2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
Notes |
Share capital |
Share premium account |
Own share reserve |
Other reserves |
Foreign currency translation reserve |
Retained earnings |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 January 2019 |
|
3,404 |
3,830 |
- |
536 |
(78) |
16,842 |
24,534 |
|
|
|
|
|
|
|
|
|
|
|
Attributable profit for the period |
|
- |
- |
- |
- |
- |
1,898 |
1,898 |
|
Other comprehensive expenses |
|
- |
- |
- |
- |
(3) |
- |
(3) |
|
Total comprehensive (expense)/income |
|
- |
- |
- |
- |
(3) |
1,898 |
1,895 |
|
|
|
|
|
|
|
|
|
|
|
Exercise of share options |
21 |
9 |
73 |
- |
- |
- |
- |
82 |
|
Purchase of own shares |
21 |
- |
- |
(995) |
- |
- |
- |
(995) |
|
Sale of own shares held by Employee Share Ownership Trust |
21 |
- |
- |
50 |
- |
- |
- |
50 |
|
Share-based payments |
22 |
- |
- |
- |
- |
- |
77 |
77 |
|
Dividend paid |
|
- |
- |
- |
- |
- |
(339) |
(339) |
|
At 31 December 2019 |
|
3,413 |
3,903 |
(945) |
536 |
(81) |
18,478 |
25,304 |
|
|
|
|
|
|
|
|
|
|
|
Attributable profit for the period |
|
- |
- |
- |
- |
- |
1,261 |
1,261 |
|
Other comprehensive expense |
|
- |
- |
- |
- |
(113) |
- |
(113) |
|
Total comprehensive (expense)/income |
|
- |
- |
- |
- |
(113) |
1,261 |
1,148 |
|
|
|
|
|
|
|
|
|
|
|
Exercise of share options |
21 |
95 |
438 |
- |
- |
- |
- |
533 |
|
Sale of own shares held by Employee Share Ownership Trust |
21 |
- |
- |
167
|
- |
- |
- |
167 |
|
Share-based payments |
22 |
- |
- |
- |
- |
- |
220 |
220 |
|
Dividend paid |
11 |
- |
- |
- |
- |
- |
(506) |
(506) |
|
At 31 December 2020 |
|
3,508 |
4,341 |
(778) |
536 |
(194) |
19,453 |
26,866 |
CONSOLIDATED STATEMENT OF CASH FLOW
|
|
Notes |
Year ended 31 December 2020 |
Year ended 31 December 2019 |
|
|
|
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
Profit after taxation |
|
1,261 |
1,898 |
|
Depreciation of property, plant and equipment |
12 |
245 |
266 |
|
Amortisation of intangible assets |
13 |
2,810 |
2,364 |
|
Impairment of intangible assets |
13 |
- |
647 |
|
Amortisation of right-of-use assets |
15 |
496 |
461 |
|
Share-based payments |
22 |
220 |
77 |
|
Net gain on sale of discontinued operations |
|
- |
(1,985) |
|
Share of post tax profit from joint venture |
|
- |
(66) |
|
Decrease/(increase) in trade and other receivables |
|
1,060 |
(210) |
|
Increase in contract assets |
|
(312) |
(33) |
|
Increase in trade and other payables |
|
1,111 |
639 |
|
(Increase)/decrease in contract liabilities |
|
(1,263) |
1,600 |
|
Taxation |
9 |
(953) |
546 |
|
Movement in provisions |
|
- |
59 |
|
Net finance costs |
8 |
17 |
39 |
|
Cash inflow from operations |
|
4,692 |
6,302 |
|
Income taxes received |
|
1,307 |
1,356 |
|
Income taxes paid |
|
(510) |
(75) |
|
Net cash inflow from operating activities |
|
5,489 |
7,583 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Interest received |
8 |
37 |
37 |
|
Decrease in other financial assets - bank deposits/restricted cash |
|
- |
278 |
|
Purchase of property, plant and equipment |
12 |
(87) |
(178) |
|
Proceeds from sale of property, plant and equipment |
|
- |
3 |
|
Payments to acquire subsidiary undertaking (net of cash) |
23 |
(1,900) |
- |
|
Proceeds from sale of discontinued operations |
|
- |
1,675 |
|
Payments to acquire intangible fixed assets |
13 |
(3,565) |
(3,266) |
|
Net cash used in investing activities |
|
(5,515) |
(1,451) |
|
Cash flows from financing activities |
|
|
|
|
Interest paid |
8 |
(16) |
(17) |
|
Principal paid on lease liabilities |
15 |
(576) |
(511) |
|
Dividends paid |
11 |
(506) |
(339) |
|
Purchase of own shares by Employee Share Ownership Trust |
21 |
- |
(995) |
|
Sale of own shares held by Employee Share Ownership Trust |
|
- |
50 |
|
Share issue proceeds |
21 |
533 |
82 |
|
Net cash used in financing activities |
|
(565) |
(1,730) |
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
(591) |
4,402 |
|
Cash and cash equivalents at beginning of year |
|
9,605 |
5,323 |
|
Exchange adjustments |
|
(138) |
(120) |
|
Cash and cash equivalents at end of year |
18 |
8,876 |
9,605 |
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 2020 and 31 December 2019 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 2020.
Statutory accounts for the year ended 31 December 2019 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2020, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2019 statutory accounts have been applied consistently in all material respects.
This Annual Financial Report Announcement was approved by the Board of Directors on 8 March 2021 and signed on its behalf by Mr. I Manocha and Mr. T Mullan.
2. Responsibility statements under the disclosure and transparency rules
The Annual Financial Report for the year ended 31 December 2020 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 Financial Report 2020 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 for the year ended 31 December 2020 are set out in the Annual Financial Report 2020.
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 Officer and the Board of Directors.
In addition, the 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".
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. Includes both software and services that can be accessed in the cloud, on-premise or deployed into hybrid environments. These primary offerings within this segment include:
o Clareti Control products
· The only modern enterprise-grade business self-service platform for the reconciliation and control of "any and all" transaction data in financial markets.
· Disrupting markets dominated by legacy vendors whose inflexible technology fails to achieve more granular and real-time data control, or replacing in-house systems and manual processes.
· Sold as applications for specific use cases including Clareti Transaction Control, Clareti Cash Control, Clareti Securities Control and Clareti Regulatory Control.
o Clareti Connect products
· A unique service that enables customers to participate in the complex inter-connected global financial system without having to worry about integration risk, cost and time to market.
· Enables institutions to seamlessly connect their banking, payments, trading, accounting and regulatory systems and external partners with intelligent straight-through-processing in a way that is reliable and cost effective.
· Sold primarily as a cloud service bringing together tools and software libraries built or acquired by Gresham into a rich menu of industry connectivity and data transformation services.
· Other Solutions - supply of a range of well-established solutions to enterprise-level customers in a variety of end markets
· Contracting Services - Supply of IT contracting services to one banking customer
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 |
|
|
|
|
|
Notes |
Clareti Solutions |
Solutions |
Contracting Services |
Adjustments, central overheads and elimination |
Consolidated |
|
2020 |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Revenue |
3 |
15,453 |
4,395 |
4,904 |
- |
24,752 |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
(1,031) |
(1,605) |
(1,226) |
- |
(3,862) |
|
Cost of sales capitalised as intangible asset |
|
2 |
- |
- |
- |
2 |
|
Gross profit |
|
14,424 |
2,790 |
3,678 |
- |
20,892 |
|
Gross profit % |
|
93% |
63% |
75% |
|
84% |
|
Contracted administrative expenses |
|
(96) |
- |
(3,046) |
- |
(3,142) |
|
Gross profit after contracting fully costed |
|
14,328 |
2,790 |
632 |
- |
17,750 |
|
Gross profit % |
|
93% |
63% |
13% |
|
72% |
|
Adjusted administrative expenses |
|
(15,753) |
(159) |
- |
- |
(15,912) |
|
Adjusted operating (loss)/profit |
|
(1,425) |
2,631 |
632 |
- |
1,838 |
|
|
|
|
|
|
|
|
|
Adjusting items: |
|
|
|
|
|
|
|
Exceptional costs |
4 |
- |
- |
- |
(400) |
(400) |
|
Amortisation of acquired intangibles |
13 |
- |
- |
- |
(893) |
(893) |
|
Share-based payments |
22 |
- |
- |
- |
(220) |
(220) |
|
Adjusting administrative expenses |
|
- |
- |
- |
(1,513) |
(1,513) |
|
Operating (loss)/profit from continuing operations |
|
(1,425) |
2,631 |
632 |
(1,513) |
325 |
|
|
|
|
|
|
|
|
|
Finance revenue |
8 |
|
|
|
|
37 |
|
Finance costs |
8 |
|
|
|
|
(54) |
|
Profit before taxation from continuing operations |
|
|
|
|
|
308 |
|
Taxation |
9 |
|
|
|
|
953 |
|
Profit after taxation from continuing operations |
|
|
|
|
|
1,261 |
|
|
|
|
|
|
|
|
|
Adjusted operating (loss)/profit |
|
(1,425) |
2,631 |
632 |
- |
1,838 |
|
Amortisation of intangibles |
13 |
1,917 |
- |
- |
- |
1,917 |
|
Depreciation of property, plant and equipment |
12 |
213 |
- |
- |
- |
213 |
|
Amortisation of right-of-use assets |
15 |
496 |
- |
- |
- |
496 |
|
Bank charges |
8 |
(13) |
- |
- |
- |
(13) |
|
Adjusted EBITDA - continuing operations |
4 |
1,188 |
2,631 |
632 |
- |
4,451 |
|
Development costs capitalised |
13 |
(3,561) |
- |
- |
- |
(3,561) |
|
Principal paid on lease liabilities |
15 |
(576) |
- |
- |
- |
(576) |
|
Adjusted cash EBITDA |
|
(2,949) |
2,631 |
632 |
- |
314 |
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
|
|
|
46,845 |
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
|
|
|
(19,979) |
|
|
| Other |
|
| |
| Notes | Clareti Solutions | Solutions | Contracting Services | Adjustments, central overheads and elimination | Consolidated |
2019 |
| £'000 | £'000 | £'000 | £'000 | £'000 |
Revenue | 3 | 15,489 | 4,078 | 5,394 | - | 24,961 |
|
|
|
|
|
|
|
Cost of sales |
| (1,089) | (1,185) | (1,669) | - | (3,943) |
Cost of sales capitalised as intangible asset |
| 10 | - | - | - | 10 |
Gross profit |
| 14,410 | 2,893 | 3,725 | - | 21,028 |
|
| 93% | 71% | 69% | - | 84% |
Contracted administrative expenses |
| - | - | (3,062) | - | (3,062) |
Gross profit after contracting fully costed |
| 14,410 | 2,893 | 663 | - | 17,966 |
|
| 93% | 71% | 12% | - | 72% |
Adjusted administrative expenses |
| (16,097) | (143) | - | - | (16,240) |
Adjusted operating (loss)/profit |
| (1,687) | 2,750 | 663 | - | 1,726 |
|
|
|
|
|
|
|
Adjusting items: |
|
|
|
|
|
|
Exceptional costs | 4 | - | - | - | (10) | (10) |
Impairment of development costs | 13 | - | - | - | (647) | (647) |
Amortisation of acquired intangibles | 13 | - | - | - | (794) | (794) |
Share-based payments | 22 | - | - | - | (77) | (77) |
Adjusting administrative expenses |
| - | - | - | (1,528) | (1,528) |
Operating (loss)/profit from continuing operations |
| (1,687) | 2,750 | 663 | (1,528) | 198 |
|
|
|
|
|
|
|
Share of post tax profit from joint venture |
|
|
|
|
| 66 |
Finance revenue | 8 |
|
|
|
| 104 |
Finance costs | 8 |
|
|
|
| (65) |
Profit before taxation from continuing operations |
|
|
|
|
| 303 |
Taxation | 9 |
|
|
|
| (443) |
Loss after taxation from continuing operations |
|
|
|
|
| (140) |
Net gain on sale of discontinued operations |
|
|
|
|
| 1,985 |
Profit after taxation from discontinued operations |
|
|
|
|
| 53 |
Profit after taxation |
|
|
|
|
| 1,898 |
|
|
|
|
|
|
|
Adjusted operating (loss)/profit |
| (1,687) | 2,750 | 663 | - | 1,726 |
Amortisation of intangibles | 13 | 1,570 | - | - | - | 1,570 |
Depreciation of property, plant and equipment | 12 | 266 | - | - | - | 266 |
Amortisation of right-of-use assets | 15 | 461 | - | - | - | 461 |
Share of post-tax profit from joint venture |
| - | - | - | 66 | 66 |
Bank charges | 8 | (13) | - | - | - | (13) |
Adjusted EBITDA - continuing operations | 4 | 597 | 2,750 | 663 | 66 | 4,076 |
Development costs capitalised | 13 | (3,259) | - | - | - | (3,259) |
Principal paid on lease liabilities | 15 | (511) | - | - | - | (511) |
Adjusted cash EBITDA |
| (3,173) | 2,750 | 663 | 66 | 306 |
Segment assets |
|
|
|
|
| 42,369 |
|
|
|
|
|
|
|
Segment liabilities |
|
|
|
|
| (17,065) |
The Group has a customer relationship with one banking customer which is considered by the Directors to be individually significant; revenue from this relationship exceeded 10% of the Group's revenue, totalling £11,388,000 (2019: £10,892,000) which includes low-margin contracting revenue of £5,115,000 (2019: £5,394,000) which falls predominantly within the Other Contracting Services segment.
Adjusting administrative items
Operating performance is analysed excluding exceptional items, share-based payment charges, amortisation from acquired intangibles and impairments of development costs which is consistent in with the way in which the Board reviews the financial results of the Group. This is also consistent with the manner in which similar small-cap LSE (or AIM) listed present their results and how we understand the investment community to assess performance, with this particularly being the case the growth shares in which the recurring cash performance is considered important.
The adjusting administrative items are:
| 2020 | 2019 |
| £'000 | £'000 |
Acquisition and associated integration costs | 423 | - |
Advisory fees for new share option scheme | 33 | - |
Negative goodwill arising on acquisition of remaining shares in Joint Venture | - | (21) |
Advisory fees for establishment of joint venture and all-staff incentive scheme | - | 31 |
Exceptional income | (56) | - |
Exceptional items | 400 | 10 |
|
|
|
Impairment of development costs | - | 647 |
Amortisation on acquired intangibles | 893 | 794 |
Share-based payments | 220 | 77 |
Total adjusting administrative items | 1,513 | 1,528 |
During the year the Group incurred £423,000 (2019: £nil) exceptional costs relating to legal, due diligence and professional fees for acquisitions and associated integration costs.
Exceptional legal and tax advisory costs were incurred in the year of £33,000 (2019: £nil) associated with implementing a new ten year share option incentive scheme. These costs are not expected to occur for a further ten years .
£56,000 was received during the year following an initiative by the Australian Government to support businesses during the COVID-19 pandemic. This income has been treated as exceptional as it is non-recurring.
The negative goodwill incurred in the prior year was due to the acquisition of the remaining 50% of the share capital in GMS Loan Technologies Limited. As the purchase price was lower than the net assets acquired the negative goodwill created is disclosed within exceptional items as a non-recurring item.
Development costs of £nil (2019: £647,000) were impaired during the year relating to the termination of a joint venture arrangement, these costs are considered to be significant and non-recurring.
Due to the amount and nature of amortisation of acquired intangibles and share-based payments both costs were treated as an adjusting administrative item.
Adjusted EBITDA - continuing operations
Adjusted EBITDA - continuing operations is disclosed within the financial statements to show the underlying performance of the group on a consistent basis and to aid understanding of the financial performance during the year.
| Notes | 2020 | 2019 |
|
| £'000 | £'000 |
Profit before taxation |
| 308 | 303 |
Adjusting items: |
|
|
|
Amortisation of intangibles | 13 | 2,810 | 2,364 |
Impairment of development costs | 13 | - | 647 |
Depreciation of property, plant and equipment | 12 | 213 | 266 |
Amortisation of right-to-use assets | 15 | 496 | 461 |
Notional interest on lease liabilities | 8 | 38 | 48 |
Finance revenue | 8 | (37) | (104) |
Interest payable | 8 | 3 | 4 |
EBITDA |
| 3,831 | 3,989 |
|
|
|
|
Exceptional items | 4 | 400 | 10 |
Share-based payments | 22 | 220 | 77 |
Adjusted EBITDA - continuing operations |
| 4,451 | 4,076 |
Adjusted EBITDA is not an IFRS measure or not considered to be a substitute for or superior to any IFRS measures. It is not directly comparable to other companies.
Geographic information | 2020 | 2019 |
| £'000 | £'000 |
Revenues from external customers (by destination) |
|
|
UK | 6,719 | 6,485 |
EMEA | 2,593 | 3,698 |
United States | 3,038 | 2,005 |
Americas | 494 | 207 |
Australia | 11,413 | 11,117 |
Asia Pacific | 495 | 1,449 |
| 24,752 | 24,961 |
| ||
EMEA includes revenue from external customers located primarily in Germany, France, Luxembourg and Switzerland. Asia Pacific includes revenue from external customers located primarily in Malaysia and Singapore. | ||
| ||
| 2020 | 2019 |
| £'000 | £'000 |
Non-current assets |
|
|
UK | 32,269 | 26,366 |
EMEA | 588 | 632 |
North America | 9 | 17 |
Asia Pacific | 683 | 728 |
| 33,549 | 27,743 |
Non-current assets consist of property, plant and equipment, right-of-use assets, intangible assets and deferred tax assets.
4. Taxation
The following disclosures in respect of the consolidated income statement items are presented in respect of continuing operations only, with comparatives restated where appropriate to exclude discontinuing operations from these disclosures.
There is a nil tax charge in respect of discontinuing operations for the year ended 31 December 2020 (2019: £nil).
Tax on profit on ordinary activities
Tax charge in the income statement
| 2020 | 2019 |
| £'000 | £'000 |
Current income tax |
|
|
Overseas tax charge - adjustment to previous years | (124) | 186 |
Overseas tax charge - current year | 599 | 279 |
UK corporation tax credit - adjustment to previous years | (1,307) | (568) |
Total current income tax | (832) | (103) |
|
|
|
Deferred income tax |
|
|
Movement in net deferred tax asset | (202) | 546 |
Tax rate change adjustments | 81 | - |
Total deferred income tax | (121) | 546 |
|
|
|
Total (credit)/charge in the income statement | (953) | 443 |
Reconciliation of the total tax charge
The tax charge in the income statement for the year is lower (2019: lower) than the standard rate of corporation tax in the UK of 19.0% (2019: 19.0%). The differences are reconciled below:
| 2020 | 2019 |
| £'000 | £'000 |
Profit before taxation | 308 | 2,341 |
|
|
|
Profit before taxation multiplied by the UK standard rate of corporation tax of 19.0% (2019: 19.0%) | 59 | 445 |
Expenses not deductible for tax purposes | 137 | 101 |
Differences in tax rates | 168 | 160 |
Overseas tax (credit)/charge - adjustment to previous years | (124) | 121 |
Research and development credit - previous year | (1,307) | (568) |
Research and development enhanced relief | (1,424) | (1,262) |
Movement in unrecognised losses carried forward | 1,359 | 1,339 |
Movement in unrecognised temporary differences | 211 | 227 |
Movement in unrecognised fixed asset temporary differences | (16) | 242 |
Temporary difference on share-based payments | 73 | (231) |
Temporary movement on acquired intangibles | (170) | (131) |
Tax rate change adjustments | 81 | - |
Total tax (credit)/charge reported in the income statement | (953) | 443 |
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 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 £21,000 (2019: £1,000).
Temporary differences associated with Group investments
At 31 December 2020, there was no recognised deferred tax liability (2019: £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.
Deferred tax
Deferred tax assets/(liabilities)
2020 | Asset | Liability | Net |
| |
| £'000 | £'000 | £'000 |
| |
1 January | 489 | (952) | (463) |
| |
Movement in the period: |
|
|
|
| |
- Tax losses | 411 | - | 154 |
| |
- Employee share award schemes | (219) | - | (262) |
| |
- Qualifying research and development expenditure | (513) | - | (211) |
| |
- Fixed asset timing differences | 353 | - | 351 |
| |
- Acquired intangibles | - | 170 | 170 |
| |
Acquisition of intangibles in subsidiaries | - | (395) | (395) |
| |
Impact of change in tax rate | 31 | (112) | (81) |
| |
31 December | 552 | (1,289) | (737) |
| |
|
|
|
|
| |
2019 |
|
|
|
| |
1 January | 1,166 | (1,083) | 83 |
| |
Movement in the period: |
|
|
|
| |
- Tax losses | (886) | - | (886) |
| |
- Employee share award schemes | 228 | - | 228 |
| |
- Qualifying research and development expenditure | (157) | - | (157) |
| |
- Fixed asset timing differences | 138 | - | 138 |
| |
- Acquired intangibles | - | 131 | 131 |
| |
31 December | 489 | (952) | (463) |
| |
|
|
| |||
| 2020 | 2019 | |||
Comprising: | £'000 | £'000 | |||
Tax losses | 2,784 | 2,353 | |||
Employee share award schemes | 145 | 364 | |||
Qualifying research and development expenditure | (3,079) | (2,566) | |||
Acquired intangibles | (1,289) | (952) | |||
Fixed asset timing differences | 702 | 338 | |||
31 December | (737) | (463) | |||
A deferred tax asset of £1,326,000 (2019: £546,000) 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 consolidated statement of financial position is as follows: | 2020 | 2019 |
| £'000 | £'000 |
Temporary differences | - | 5 |
Tax losses | 1,458 | 603 |
Unrecognised deferred tax asset | 1,458 | 608 |
|
|
|
Gross temporary differences unrecognised | - | 31 |
Gross tax losses unrecognised | 6,459 | 2,811 |
Gross temporary timing differences unrecognised | 6,459 | 2,842 |
Future tax rates
The expected reduction in the main UK corporation tax rate to 17% from 1 April 2020 enacted by the Finance Act 2016 was reversed in the Finance Act 2020. Therefore, the UK statutory tax rate remains at 19% and the rate used to calculate deferred tax balances at 31 December 2020 has increased from 17% to 19%.
The Group's recognised and unrecognised deferred tax assets in the UK, Luxembourg, Australian and US subsidiaries have been shown at the rates in the following table, being the substantively enacted rates in these countries.
| 2020 | 2019 |
| % | % |
UK | 19 | 17/19 |
Luxembourg | 25 | 25 |
Australia | 30 | 30 |
US | 27 | 27 |
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:
|
| 2020 | 2019 |
Basic weighted average number of shares |
| 68,697,828 | 68,168,602 |
Employee share options - weighted (note 22) |
| 1,414,549 | 1,499,805 |
Diluted weighted average number of shares |
| 70,112,377 | 69,668,407 |
Including discontinued operations
| Notes | 2020 | 2019 | |
| £'000 | £'000 | ||
Adjusted earnings attributable to owners of the Parent - including discontinuing operations |
| 2,774 | 1,441 | |
Adjusting items: |
|
|
| |
Exceptional items | 4 | (400) | (10) | |
Amortisation of acquired intangibles | 13 | (893) | (794) | |
Impairment of development costs | 13 | - | (647) | |
Net gain on sale of discontinued operations |
| - | 1,985 | |
Share-based payments | 22 | (220) | (77) | |
Statutory earnings attributable to owners of the Parent |
| 1,261 | 1,898 | |
Earnings per share - including discontinued operations |
|
|
| |
Statutory |
|
| pence | pence |
Basic earnings per share |
| 1.84 | 2.78 | |
Diluted earnings per share |
| 1.80 | 2.72 | |
|
|
|
|
|
Adjusted |
|
|
|
|
Basic earnings per share |
| 4.04 | 2.11 | |
Diluted earnings per share |
| 3.96 | 2.07 | |
Continuing operations |
| Notes | 2020 | 2019 | |
|
|
| £'000 | £'000 | |
Adjusted earnings attributable to owners of the Parent |
| 2,774 | 1,388 | ||
Adjusting items: |
|
|
| ||
Exceptional items | 4 | (400) | (10) | ||
Amortisation of acquired intangibles | 13 | (893) | (794) | ||
Impairment of development costs | 13 | - | (647) | ||
Share-based payments | 22 | (220) | (77) | ||
Statutory earnings attributable to owners of the Parent |
| 1,261 | (140) | ||
Earnings per share - continuing operations
Statutory
|
| pence | pence | ||
Basic earnings per share |
| 1.84 | (0.21) | ||
Diluted earnings per share |
| 1.80 | (0.21) | ||
|
|
|
|
| |
Adjusted |
|
|
|
| |
Basic earnings per share |
| 4.04 | 2.04 | ||
Diluted earnings per share |
| 3.96 | 1.99 | ||
During the year ended 31 December 2020, share options granted under the 2010 Share Option Plans were exercised and the Group issued 1,900,000 (2019: 167,024) ordinary shares accordingly (ranking pari passu with existing shares in issue). See note 21 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 Financial Report 2020.
6. Dividends paid and proposed
The final dividend for the year ended 31 December 2019 was approved at the Company Annual General Meeting on 10 May 2020 and paid on 21 May 2020 of 0.75 pence per share, equating to a total of £506,000. The Company will be proposing a final dividend for approval at the AGM for the year ended 31 December 2020 of 0.75 pence per share.
7. Intangible assets
|
|
| Separately identified intangibles on acquisition
|
|
| |
| Development costs | Patents and licences | Software | Customer relationships | Goodwill | Total |
2020 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Cost |
|
|
|
|
|
|
At 1 January | 23,345 | 872 | 6,275 | 1,218 | 2,943 | 34,653 |
Additions | 3,561 | 4 | 886 | 1,192 | 2,656 | 8,299 |
Disposals | - | (44) | - | - | - | (44) |
Exchange adjustment | 90 | - | - | - | 26 | 116 |
At 31 December | 26,996 | 832 | 7,161 | 2,410 | 5,625 | 43,024 |
Amortisation and impairment |
|
|
|
|
| |
At 1 January | (6,182) | (729) | (1,477) | (440) | (250) | (9,078) |
Charge for year | (1,863) | (54) | (664) | (229) | - | (2,810) |
Eliminated on disposal | - | 44 | - | - | - | 44 |
Exchange adjustment | (72) | - | - | - | - | (72) |
At 31 December | (8,117) | (739) | (2,141) | (669) | (250) | (11,916) |
|
|
|
|
|
|
|
Net carrying amount |
|
|
|
|
|
|
At 31 December | 18,879 | 93 | 5,020 | 1,741 | 5,375 | 31,108 |
At 1 January | 17,163 | 143 | 4,798 | 778 | 2,693 | 25,575 |
|
|
|
|
|
| |
|
|
| Separately identified intangibles on acquisition
|
|
| |
| Development costs | Patents and licences | Software | Customer relationships | Goodwill | Total |
2019 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Cost |
|
|
|
|
|
|
At 1 January | 20,086 | 881 | 6,275 | 1,218 | 2,962 | 31,422 |
Additions | 3,259 | 7 | - | - | - | 3,266 |
Disposals | - | (15) | - | - | - | (15) |
Exchange adjustment | - | (1) | - | - | (19) | (20) |
At 31 December | 23,345 | 872 | 6,275 | 1,218 | 2,943 | 34,653 |
Amortisation and impairment |
|
|
|
|
| |
At 1 January | (4,033) | (676) | (850) | (273) | (250) | (6,082) |
Charge for year | (1,502) | (68) | (627) | (167) | - | (2,364) |
Impairment | (647) | - | - | - | - | (647) |
Eliminated on disposal | - | 15 | - | - | - | 15 |
At 31 December | (6,182) | (729) | (1,477) | (440) | (250) | (9,078) |
|
|
|
|
|
|
|
Net carrying amount |
|
|
|
|
|
|
At 31 December | 17,163 | 143 | 4,798 | 778 | 2,693 | 25,575 |
At 1 January | 16,053 | 205 | 5,425 | 945 | 2,712 | 25,340 |
|
|
|
|
|
| |
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 two to twelve years. These assets are tested for impairment where an indicator of impairment arises and annually prior to them being made available for use.
For the years ended 31 December 2020 and 31 December 2019 the Group has capitalised development costs in respect of individual Clareti applications which have been individually assessed against the required capitalisation criteria and been individually assigned useful economic lives reflecting the maturity and availability of comparable applications in our markets. These useful economic lives are assessed to be between two and twelve years.
No changes have been made to development costs capitalised in prior years in respect of the Clareti platform, which continue to be amortised on a systematic basis over the existing useful economic life of twelve 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 acquisitions of C24 Technologies Limited in October 2016, B2 Group in July 2018 and Inforalgo in July 2020.
Software is amortised over its useful economic life, which is deemed to be ten years.
Customer relationships acquired in the year are amortised over their useful economic life, which is deemed to be eight years for the Inforalgo and C24 Technologies Limited acquisitions and six years for B2 Group.
Goodwill
Goodwill arose on the acquisition of our Asia Pacific real-time financial solutions business, C24 Technologies Limited, B2 Group and Inforalgo. It is assessed as having an indefinite life and is assessed for impairment at least annually.
8. Business combinations during the period
On 28 July 2020 Gresham Technologies plc acquired the entire ordinary share capital in Inforalgo Information Technology Limited, a specialist in connectivity and intelligent automation solutions for financial services institutions enabling straight through processing and real-time regulatory reporting.
The initial consideration was £2.3m with contingent consideration dependent upon performance of up to £1.3m payable over an 18-month period post acquisition, therefore the maximum potential consideration is £3.6m.
The amounts recognised in respect of identifiable assets and liabilities assumed are set out in the table below:
| Book value | Adjustments | Fair value |
| £'000 | £'000 | £'000 |
Intangible assets |
|
|
|
Customer relationships | - | 1,192 | 1,192 |
Software | - | 886 | 886 |
Property, plant and equipment | 14 | - | 14 |
Right-of-use assets | 193 | - | 193 |
Trade and other receivables | 189 | - | 189 |
Cash and cash equivalents | 142 | - | 142 |
Trade and other liabilities | (1,384) | - | (1,384) |
Lease liabilities | (193) | - | (193) |
Deferred tax liability | - | (395) | (395) |
Total net (liabilities)/assets | (1,039) | 1,683 | 644 |
|
|
|
|
Satisfied as follows: |
|
|
|
Cash |
|
| 2,042 |
Contingent consideration |
|
| 1,258 |
Total consideration |
|
| 3,300 |
|
|
|
|
Goodwill (note 13) |
|
| 2,656 |
|
|
|
|
Analysis of cash flows on acquisition: |
|
|
|
Net cash acquired |
|
| (142) |
Cash paid |
|
| 2,042 |
Net cash flow |
|
| 1,900 |
|
|
|
|
Fair value of consideration paid: |
|
|
|
Cash |
|
| 2,042 |
Contingent consideration due less than one year |
|
| 909 |
Contingent consideration due more than one year |
|
| 349 |
Total consideration |
|
| 3,300 |
The goodwill recognised above is attributable to intangible assets that cannot be individually separately and reliably measured from Inforalgo due to their nature. These items include the expected value of synergies and assembled workforce.
Intangible assets were identified on acquisition relating to customer contracts and relationships and software. To determine the fair value of the intangible assets a valuation was performed by an independent external expert.
The customer related assets were valued using an Excess earnings method to assess the present value of expected cash received over the life of customer relationships adjusted by an annual attrition rate calculated based on historical revenue data. The software assets relating to internally developed technology were valued using a Replacement cost methodology to estimate the total cost of redeveloping the software.
Acquisition costs of £131,000 were incurred during the year ended 31 December 2020 as a result of the acquisition and integration of Inforalgo. These costs have been recognised as exceptional costs within the Income Statement.
From the date of acquisition, Inforalgo has contributed revenue of £565,000 to the Group and operating profit of £80,000. If the acquisition had occurred on 1 January 2020, Group revenue would have been £25,549,000 and Group operating profit £479,000.
Contingent consideration
As part of the sale and purchase agreement, contingent consideration is payable up to £1,293,000 with the maximum amount payable if the Annual Recurring Revenues are £1,230,000 18 months after acquisition. The consideration is payable on a straight-line basis with no lower threshold with 72% payable in July 2021 and the balance payable in January 2022. Due to the nature of these payments a fair value calculation has been performed by Management to estimate the expected amount of consideration to be paid. As result, contingent consideration of £1,258,000 has been recognised in the statement of financial position, with £909,000 due in less than one year and £349,000 due in more than one year.
9. Related party transactions
Key management compensation (including Directors)
|
| 2020 | 2019 |
|
| £'000 | £'000 |
Directors' emoluments |
|
|
|
Remuneration |
| 618 | 581 |
Social security costs |
| 100 | 87 |
Bonuses |
| 180 | 99 |
Pension |
| 22 | 41 |
Share-based payments |
| 68 | 38 |
|
| 988 | 846 |
Details of Directors' compensation are included in the Directors' Remuneration Report.
There is no single party known that the Directors consider to be a controlling shareholder or ultimate parent undertaking. Refer to page 59 for details of all significant shareholders that the Company has been notified of.
During the year the Group received services from Grant Thornton LLP of £226,000 (2019: £218,000) which are related parties by virtue of Ms I Joss holding a position as an independent non-executive on the Grant Thornton partner oversight board and a Director of the Company until resignation on 31 October 2020. At 31 December 2020 the amounts owed to Grant Thornton LLP was £77,000 (2019: £59,000).
10. Events after the reporting date
A dividend of 0.75 pence per share has been approved by the Board to propose to shareholders at the Annual General Meeting.
11. Additional information
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 2020.
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