Half Yearly Report

RNS Number : 7969Q

Gresham Computing PLC

10 August 2010

 



Gresham Computing plc ("Gresham" or the "Company")

Half-yearly report

Gresham, the specialist provider of real-time financial solutions, reports its half-yearly results for the 6 months ended 30 June 2010. 

Revenues, profits and the financial position of the Company at 30 June 2010 are all ahead of the Board's expectations and significantly improved on the prior period.

Highlights for the 6 months ended 30 June 2010 are set out below:

·    Sales ahead of management expectations at £4.3m (2009: £5.6m)

o Planned year on year reduction from restructuring / disposals in 2009

·    All profit lines significantly improved

o Adjusted EBITDA £0.2m profit (2009: £0.4m loss)

o Profit before tax £0.1m (2009: £1.0m loss)

·    Cash at 30 June 2010 £1.9m (31 December 2009: £0.7m)

·    Improved results expected to continue through second half

Chris Errington, CEO of Gresham, commented:

"Trading for the first half was ahead of our expectations and the improved results have so far continued into the third quarter.  Our key measure of performance is Adjusted EBITDA and I am pleased to report a significant improvement on the comparative period, as well as improvements across each of the other profit measures.

These results present the first real financial picture of Gresham since the late 2009 restructuring and demonstrate the progress made so far as we transition the business through stability into improved trading and onward into growth."

For further information please contact:

Gresham Computing plc	[phone]
Chris Errington, CEO
Singer Capital Markets Ltd Shaun Dobson, Partner and Joint Head of Corporate Finance	[phone]
James Maxwell, Director of Corporate Finance

TRADING REVIEW

Gresham Computing plc is a specialist provider of real-time financial solutions.  Our strategy is to grow annuity revenues from real-time financial solutions to build on existing annuity revenues from our more established products.

The results for the first 6 months of 2010 were ahead of our expectations as a result of solid revenues from the core businesses, a much reduced cost base and early progress in improving our sales execution.

Real-time financial solutions

Our focus is on growing real-time financial solutions business, including:

·    Clareti Cash Reporting.  A technology that accepts multiple types of payment information generated by banks and corporates, normalises the data and passes it on for use by banks or corporates to manage both risk and cash situations.  An embodiment of the technology is the Clareti Cash Reporting Service ("CCRS"), which provides banks with access to real-time information about payments enabling them to better control liquidity and risk;

·    Clareti Supply Chain Financing.  A technology that accepts supply chain information from a corporate and presents that information to its suppliers which allows that supplier to take early payment of the invoices presented; and

·    Clareti Banking.  A well established core banking system with over 30 financial institutions in the Caribbean region.

Supporting these solutions is our system integration and implementation abilities developed over the past 20 years and representing one of our core competencies.  These skills are essential in the real-time financial solutions market, where we work with both our own product and that of partners to deliver innovative solutions.

Clareti Cash Reporting

Two major banks use CCRS on a daily basis and their use increased markedly in the first half of 2010 compared with prior years.

We are currently working with these banks to satisfy their demand for more currencies from new correspondent banking partners.  We have added two new provider banks since Q1 2010 and have a pipeline of new provider banks to add going forward, leading to growth in our revenues from H2 2010 in line with currency growth for the first time in many years.

Clareti Supply Chain Financing

We began the deployment of a solution to a major UK company in Q2 2010 and are looking to have the solution live by the end of 2010.

This builds upon our existing experience of deployments in Australia alongside a major bank, where we have so far managed to increase revenues slightly in the first half and are working on further deployment opportunities. 

Clareti Banking

In the Caribbean, we continue to work with customers to provide core banking technology both on an in-house and also an outsourced, centrally hosted, basis.  We have experienced a strong demand from customers in H1 2010 for upgrades and professional services projects as the compliance requirements of banks in this region tighten.

Virtual Accounts

In 2004, we combined a partner's cash management technology with our own integration technology to create an integrated cash management solution for a major UK bank.  The solution is currently available to corporate customers of the bank on either an integrated (i.e. locally installed) basis or a hosted basis, through the bank's own internet banking system.  We made good progress with this solution in the first half with growth in both customer numbers and annuity revenues.  We are now looking to the second half for further growth in both services revenues and the annuity base.

Software

Our EDT and VME software businesses generated strong revenues, profitability and cashflows in the first 6 months of 2010.

The EDT storage software business made an EBITDA profit of £0.4m in the first six months of 2010, the first clean reporting period reported on since the restructuring of this business in October 2009.  This compares very favourably with a broadly breakeven trading position for this business in the comparative period.

The VME software business made an EBITDA profit of £0.6m in the first six months of 2010, some way ahead of our expectations.

Financial Review

Revenue for the first half was £4.3m compared to £5.6m in the prior year, with revenue reducing as planned due to disposal of non-core business and restructuring successfully completed in 2009. 

Expected reductions in RTFS revenues from restructuring and disposals totaled £0.8m, with our IT staff business reducing by a further £0.5m as planned.  Against this, we saw £0.4m of growth from our Banking business in the Caribbean and the virtual accounts deployment in the UK.

Our Software business experienced a planned £0.4m reduction in revenues arising partially from disposals in 2009 but also from some large Storage license deals in 2009 which to date have not been replicated in 2010.  With a significantly adjusted cost base, the completion of a number of solid software license deals in both our VME and EDT product lines has contributed strongly to group profitability.

The following table summarises the group's financial performance:

	6 months 30 June 2010	6 months 30 June 2009
	£m	£m
Software sales	1.6	2.0
Real-time financial solution sales	2.7	3.6
Total sales	4.3	5.6
Profit / (Loss) before tax	0.1	(1.0)
Amortisation and depreciation	0.1	0.5
Share option charges	-	0.1
Interest net	-	-
Adjusted EBITDA profit / (loss)	0.2	(0.4)

The result for the 6 months ended 30 June 2010 includes a one-off net charge of £0.3m in respect of the April 2010 resignation of the then CEO.  The Adjusted EBITDA profit for the first 6 months of 2010, before this charge, is £0.5m (2009: £0.4m loss).

In June 2010, we successfully sub-let a major part of our empty leased property in a deal worth up to £0.2m over 3 years, depending on the duration of the sub-let. The corresponding release of an empty property provision of £0.1m improved trading for H1 2010 and future trading will now benefit from the associated rental income and cash receipts.

Working capital and placing of shares

	2010 £m	2009 £m
Cash at 1 January	0.8	1.2
Net cash inflow / (outflow)	1.1	(0.1)
Cash at 30 June	1.9	1.1

We continue to focus on improving cash flows and working capital balances to further strengthen our balance sheet position.  Cash at 30 June 2010 was slightly ahead of our expectations because of advanced collection of receivables compared to plan.  We are working on a number of multi-year renewals which could enhance cash further in the second half.

In June 2010, we completed a placing of new shares, raising £0.8m of cash and providing further stability to the group.  This enhanced balance sheet strength has already allowed us to negotiate a number of better deals for the group from a position of strength, improving our margin and cash performance.

Foreign exchange

The weakness of the pound continued to have a positive impact on our reported results, predominantly across our US$ and C$ businesses.  We have commenced a program of future cash flow hedges to exchange US$ receipts for £ taking into account the significant volumes of US$ now being generated by our Storage Software business.

Taxation

We recognised a deferred tax credit of £0.1m in the period, arising from the recognition of prior trading tax losses as the business moves into profit. 

At 31 December 2009, the group had total tax losses carried forward for offset against future profits of £18.5m, reducing, with the recognition of £0.1m in this period, to £18.2m at 30 June 2010.

Board changes

Andrew Walton-Green resigned as Chief Executive Officer and director of Gresham Computing plc with effect from 28 April 2010.  Chris Errington, Finance Director, took on the role of interim Chief Executive Officer and Rob Grubb, Company Secretary and Group Financial Controller, took on the role of interim Finance Director.

Ken Archer joined the Board as Non-executive director on 9 June 2010.

Outlook

The improvement in results seen in the first half has so far continued into the third quarter.

We have adjusted our sales approach on a number of fronts and I am pleased to report that in July we won several new customers for the virtual accounts cash management solution building providing both a stronger services order book and annuity income pipeline for the second half and beyond.

We continue to work on a number of good opportunities for our Software products, including long term renewal contracts.  Where the situation permits, and taking advantage of our stronger balance sheet, we will look to convert our traditional revenue model of license and maintenance to a SaaS basis over the coming years.

These results present the first real financial picture of Gresham since the late 2009 restructuring and demonstrate the progress made so far as we transition the business through stability into improved trading and on into growth.  Our aim is to sustain this momentum through the second half and focus on delivering a number of strategic actions to further enhance our financial position and results.

Chris Errington

Chief Executive Officer

9 August 2010

Consolidated Income Statement

For the period ended 30 June 2010

	Notes	6 months ended 30 June 2010 Unaudited £'000	6 months ended 30 June 2009 Unaudited £'000	12 months ended 31 December 2009 Audited £'000
Revenue	2	4,273	5,604	9,886
Cost of goods sold		(1,733)	(2,743)	(5,474)
Gross profit		2,540	2,861	4,412
Administrative expenses		(2,486)	(3,860)	(11,076)
Trading profit / (loss)	2	54	(999)	(6,664)
Loss on disposal of fixed assets		-	(20)	(8)
Profit on disposal of subsidiary undertaking		-	-	132
Loss on disposal of business		-	-	(1,168)
Finance revenue		2	17	10
Finance costs		(3)	-	(21)
Profit / (loss) before tax	2	53	(1,002)	(7,719)
Taxation	3	94	237	355
Attributable to equity holders of the parent	6	147	(765)	(7,364)
Earnings / (loss) per share (total and continuing)
Basic earnings / (loss) per share - pence	4	0.27	(1.45)	(13.93)
Diluted earnings / (loss) per share - pence	4	0.27	(1.45)	(13.93)

Consolidated Statement of Comprehensive Income

For the period ended 30 June 2010

		6 months ended 30 June 2010 Unaudited £'000	6 months ended 30 June 2009 Unaudited £'000	12 months ended 31 December 2009 Audited £'000
Attributable profit / (loss) for the period		147	(765)	(7,364)
Other comprehensive income
Exchange differences on translation of foreign operations		2	53	35
Exchange differences transferred to income statement on disposal of subsidiary undertakings		-	-	39
Net income recognised directly in equity		149	53	74
Total comprehensive income/(loss) for the year		149	(712)	(7,290)

Consolidated Statement of Financial Position

At 30 June 2010

	Notes	At 30 June 2010 Unaudited £'000	At 30 June 2009 Unaudited £'000	At 31 December 2009 Audited £'000
Assets
Non-current assets
Property, plant & equipment		250	457	235
Intangible assets		1,779	6,451	1,757
Deferred tax asset	3	100	-	-
		2,129	6,908	1,992
Current assets
Trade and other receivables		2,179	2,678	3,140
Inventories		-	18	-
Income tax receivable		77	516	340
Cash and cash equivalents		1,855	1,134	745
		4,111	4,346	4,225
Assets held for sale		-	184	-
Total assets		6,240	11,438	6,217
Equity & Liabilities
Equity attributable to equity holders of the parent
Called up equity share capital	6	2,907	2,643	2,643
Share premium account	6	13,134	12,564	12,614
Other reserves	6	1,039	1,039	1,039
Foreign currency translation reserve	6	263	240	261
Retained earnings	6	(15,618)	(9,263)	(15,783)
	6	1,725	7,223	774
Non-current liabilities
Deferred income		342	210	313
Provisions		452	160	586
		794	370	899
Current liabilities
Trade, other payables and deferred income		3,681	3,821	4,449
Financial liabilities		-	-	17
Income tax payable		2	24	2
Provisions		38	-	76
		3,721	3,845	4,544
Total liabilities		4,515	4,215	5,443
Total equity and liabilities		6,240	11,438	6,217

Consolidated Statement of Changes in Equity

	Share capital £'000	Share premium £'000	Other reserves £'000	Currency translation reserves £'000	Retained earnings £'000	Total £'000
At 1 January 2009	2,643	12,564	1,039	187	(8,576)	7,857
Attributable loss for the period	-	-	-	-	(765)	(765)
Other comprehensive income	-	-	-	53	-	53
Total comprehensive income/(expense)	-	-	-	53	(765)	(712)
Share based payment	-	-	-	-	78	78
At 30 June 2009	2,643	12,564	1,039	240	(9,263)	7,223
Attributable loss for the period	-	-	-	-	(6,599)	(6,599)
Other comprehensive income	-	-	-	21	-	21
Total comprehensive income/(expense)	-	-	-	21	(6,599)	(6,578)
Reclaim of VAT on previous share issue costs	-	50	-	-	-	50
Share based payment	-	-	-	-	79	79
At 31 December 2009	2,643	12,614	1,039	261	(15,783)	774
Attributable profit for the period	-	-	-	-	147	147
Other comprehensive income	-	-	-	2	-	2
Total comprehensive income/(expense)	-	-	-	2	147	149
Share issue (note 6)	264	520	-	-	-	784
Share based payment	-	-	-	-	18	18
At 30 June 2010	2,907	13,134	1,039	263	(15,618)	1,725

Consolidated Statement of Cash flows

For the period ended 30 June 2010

		6 months ended 30 June 2010 Unaudited £'000	6 months ended 30 June 2009 Unaudited £'000	12 months ended 31 December 2009 Audited £'000
Cash flows from operating activities
Profit / (loss) before taxation		53	(1,002)	(7,719)
Depreciation, amortisation & impairment		127	545	3,841
Share based payment expense		18	78	157
Decrease/(increase) in inventories		-	(1)	20
Decrease in trade and other receivables		454	515	604
(Increase)/decrease in trade and other payables		(756)	(483)	170
Movement in provisions		(172)	-	494
Loss on disposal of fixed assets		-	20	8
Loss on revaluation of foreign exchange instrument		-	-	17
Gain on disposal of subsidiary undertakings		-	-	(132)
Loss on disposal of businesses		-	-	1,168
Net finance income / (cost)		1	(17)	11
Cash outflow from operations		(275)	(345)	(1,361)
Net income taxes (paid) / received		257	(63)	211
Net cash outflow from operating activities		(18)	(408)	(1,150)
Cash flows from investing activities
Interest received		2	17	10
Disposal of fixed assets		-	771	1
Disposal of subsidiary undertakings		-	-	391
Disposal of businesses		496	-	269
Disposal of assets held for sale		-	-	766
Cash categorised as held for sale for disposal group		-	(13)	-
Purchase of property, plant and equipment		(91)	(114)	(161)
Payments to acquire intangible fixed assets		(75)	(300)	(550)
	Net cash generated in investing activities	332	361	726
	Cash flows from financing activities
	Interest paid	(3)	-	(13)
	Receipts from share issue (net of expenses)	784	-	-
	Repayment of capital element of finance lease	-	(14)	(14)
	Net cash generated by / (used in) financing activities	781	(14)	(27)
	Net increase / (decrease) in cash and cash equivalents	1,095	(61)	(451)
	Cash and cash equivalents at beginning of period	745	1,214	1,214
	Exchange adjustments	15	(19)	18
	Cash and cash equivalents at end of period	1,855	1,134	745

Notes to the condensed interim financial statements

1 Basis of preparation

These condensed interim financial statements are unaudited and do not constitute statutory accounts within the meaning of the Companies Act 2006.  These condensed interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' and the Listing Rules of the Financial Services Authority ('FSA'), and were approved on behalf of the Board by C Errington on 9 August 2010.

The accounting policies and methods of computation applied in these condensed interim financial statements are consistent with those applied in the Group's most recent annual financial statements for the year ended 31 December 2009.

The financial statements for the year ended 31 December 2009, which were prepared in accordance with International Financial Reporting Standards, as endorsed by the European Union ('IFRS'), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, have been delivered to the Registrar of Companies. The auditors' opinion on those financial statements was unqualified and did not contain a statement made under s498(2) or (3) of the Companies Act 2006. 

Copies of these condensed interim financial statements and the Group's most recent annual financial statements are available on request by writing to the Company Secretary at our registered office Gresham Computing plc, Sopwith House, Brook Avenue, Warsash, Southampton, SO31 9ZA, or from our website www.gresham-computing.com 

2 Segmental information

During the six-months ended 30 June 2010 the Group re-evaluated the internal presentation of its operating segments to more appropriately aggregate the differing sets of risks the Group's businesses face.

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

Previous classification	Current classification
North America RFTS	North America RFTS
Asia Pacific RFTS	Asia Pacific RFTS
EMEA RFTS	EMEA RFTS
Enterprise Storage Solutions	Software
Adjustments, central & eliminations	Adjustments, central & eliminations

The Group's Fujitsu/ICL Virtual Machine Environment ("VME") business previously included in EMEA RFTS is now included within Software, which previously only included the Group's Enterprise DistribuTape ("EDT") business.

These changes have been made to 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, and are reflected in the following analysis required by IFRS 8 Operating Segments  (comparatives have been updated accordingly).

6 Months Ended 30 June 2010 (unaudited)

	Software £000	North America RTFS £000	Asia Pacific RTFS £000	EMEA RTFS £000	Adjustments, central & eliminations £000	Consolidated £000
Revenue
External customer	1,561	933	663	1,116	-	4,273
Inter-segment	-		65	-	(65)	-
Total revenue	1,561	933	728	1,116	(65)	4,273
Segment profit/(loss)	1,025	185	(81)	(149)	(833)	147
Segment assets	200	444	1,669	1,072	2,855	6,240

6 Months Ended 30 June 2009 (unaudited)

	Software £000	North America RTFS £000	Asia Pacific RTFS £000	EMEA RTFS £000	Adjustments, central & eliminations £000	Consolidated £000
Revenue
External customer	2,051	649	1,086	1,818	-	5,604
Inter-segment	-	-	73	-	(73)	-
Total revenue	2,051	649	1,159	1,818	(73)	5,604
Segment profit/(loss)	411	(135)	(86)	(315)	(640)	(765)
Segment assets	697	247	2,036	3,942	4,516	11,438

3 Taxation

	6 months ended 30 June 2010 Unaudited £'000	6 months ended 30 June 2009 Unaudited £'000	12 months ended 31 December 2009 Audited £'000
UK Tax
Corporation tax charge / (credit)	6	(156)	(270)
Foreign tax
Corporation tax credit	-	(90)	(98)
Recognition of deferred tax asset (trading losses)	(100)	-	-
Withholding tax charge	-	9	13
Tax credit	(94)	(237)	(355)

4 Earnings / (loss) per ordinary share

Basic earnings / (loss) per share amounts are calculated by dividing net profit / (loss) for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings/(loss) per share amounts are calculated by dividing the net profit / (loss) attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period 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.

The following reflects the profit / (loss) and share data used in the basic and diluted loss per share computations:

	6 months ended 30 June 2010 Unaudited £'000	6 months ended 30 June 2009 Unaudited £'000	12 months ended 31 December 2009 Audited £'000
Net profit / (loss) attributable to equity holders of the parent	147	(765)	(7,364)
	Number	Number	Number
Basic weighted average number of shares	53,464,077	52,850,890	52,850,890
Dilutive potential ordinary shares:
Employee share options	-	-	-
Diluted weighted average number of shares	53,464,077	52,850,890	52,850,890

On 9 June 2010, shareholders approved the allotment and issue of 5,285,088 new ordinary shares (ranking pari passau with existing shares in issue) via a placing to existing institutional shareholders. This has been reflected in the basic and diluted weighted average number of shares.

The employee share options are not dilutive as it is considered unlikely any outstanding options will be exercised.

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

5 Dividends paid and proposed

No dividends were declared or paid during the period or comparative periods.

6 Reconciliation of movements in equity

	Share capital £'000	Share premium £'000	Other reserves £'000	Currency translation reserves £'000	Retained earnings £'000	Total £'000
At 1 January 2009	2,643	12,564	1,039	187	(8,576)	7,857
Exchange differences on translation of foreign operations	-	-	-	53	-	53
Attributable loss for the period	-	-	-	-	(765)	(765)
Share based payment	-	-	-	-	78	78
At 30 June 2009	2,643	12,564	1,039	240	(9,263)	7,223
Exchange differences on translation of foreign operations	-	-	-	(18)	-	(18)
Exchange differences on disposal/closure of subsidiary	-	-	-	39	-	39
Attributable loss for the period	-	-	-	-	(6,599)	(6,599)
Reclaim of VAT on previous share issue costs	-	50	-	-	-	50
Share based payment	-	-	-	-	79	79
At 31 December 2009	2,643	12,614	1,039	261	(15,783)	774
Exchange differences on translation of foreign operations	-	-	-	2	-	2
Attributable profit for the period	-	-	-	-	147	147
Share issue	264	520	-	-	-	784
Share based payment	-	-	-	-	18	18
At 30 June 2010	2,907	13,134	1,039	263	(15,618)	1,725

Issue of Shares

On 9 June 2010, shareholders approved the allotment and issue of 5,285,088 new ordinary shares (ranking pari passau with existing shares in issue) via a placing to existing institutional shareholders. The shares were issued on 10 June 2010 at a placing price of 15.75 pence raising £784,000, after expenses of £48,000.

7 Principal risks and uncertainties

The principal risks and uncertainties facing the Group are disclosed in the Group's financial statements for the year ended 31 December 2009, available from www.gresham-computing.com and remain unchanged.

8 Adjusted EBITDA reconciliation

Adjusted EBITDA is calculated as EBITDA before non-cash share option charges, reconciled as follows:

	6 months ended 30 June 2010 £'000	6 months ended 30 June 2009 £'000
Profit / (loss) before tax	53	(1,002)
Amortisation and depreciation	127	545
Share option charges	18	78
Interest net	1	(17)
Adjusted EBITDA profit / (loss)	199	(396)

9 Statement of directors' responsibilities

The Directors are responsible for preparing the half-yearly financial report, in accordance with applicable law and regulations.

The Directors confirm, to the best of their knowledge that this condensed set of financial statements:

·        has been prepared in accordance with IAS 34 as adopted by the European Union; and

·        includes a fair review of the information required by Rules 4.2.7 and 4.2.8 of the Disclosure and Transparency Rules of the United Kingdom Financial Services Authority.

10 Related Party Transactions

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

 

END

 

 

IR DKLFBBVFBBBD