Half-year Report

RNS Number : 7032N

Pelatro PLC

26 September 2019

 

Pelatro Plc

("Pelatro" or the "Group")

Interim results

Pelatro Plc (AIM: PTRO), the precision marketing software specialist, is pleased to announce today its interim results for the 6 months ended 30 June 2019.

Financial highlights

·              Revenue increased 14% to $2.71 million (H1 2018: $2.38m)

·              Repeat revenue increased 145% to $1.96m (H1 2018: $0.80m), 72% of revenue

·              Adjusted EBITDA^* decreased 46% to $0.8m (H1 2018: $1.47m), largely due to increased expansion for growth

·              Adjusted earnings per share 0.5¢ (H1 2018: 4.4¢)

·              Gross cash as at 30 June 2019 $1.12m (at 31 December 2018: $2.22m); approximately $0.9m received from debtors since period end

·              Current revenue visibility of $6.3m, including additional revenue of $2.5m booked post period end

•              In addition to the visibility of $6.3m, the Group has a near-term pipeline of $9.2m of which $5.5m is from existing customers

Operational highlights

•              Significant investment in expanded work force and improved infrastructure to deliver best in class service and capture wider range of opportunities

·              Sales efforts in Latin America are starting to generate a healthy pipeline (currently some $3.5m)

·              Cross-selling and up-selling of Pelatro's products within customer telco groups like Telenor is progressing successfully

Post period end highlights

·              Gross cash at 31 August $1.07m

·              Trade receivables at 31 August $3.34m (H1 2019: $4.27m)

Outlook

·              Management expectations for the year underpinned by:

                - revenue visibility of $6.3m, of which $5.2m has been booked to date

- 2019 pipeline of $9.2m, of which $5.5m is from existing customers for various new modules and/or products, i.e. cross-selling opportunities where Pelatro is the only contender in most cases

 - $3.7m is from potential new customers and comprises three opportunities where we are in the final shortlist with commercial negotiations in progress

- a medium term pipeline of c.$19m (inclusive of the $9.2m near term pipeline) comprised of  over 40 live opportunities

Richard Day, Non-executive Chairman of Pelatro commented:

"The development in our business continues. As we win more new customers we are also expanding our product line and services while continuing to deepen our engagement and cross-sell our offering our existing customer base of global telecom groups, as shown by our contract win with the large telco in Thailand, a part of a global telco group, announced earlier this year. 

"Alongside this we have been confidently investing in our prime asset - our people. Already this year, we have taken on almost as many staff  as we did over the whole of last year to ensure we are well able to manage and maintain new clients, as well as ensuring all our existing clients are well served and supported across our offering.

"We have also increased our sales effort, with new colleagues targeting opportunities in Latin America and Africa, and I am pleased to say we are already seeing tangible benefits to our visibility of our ongoing pipeline from them for these areas.

"Revenue visibility currently still stands at $6.3m, as development over the traditionally quieter summer months being slightly slower than expected, resulting in a more pronounced H2 weighting this year. Despite management seeing some extended sales cycles, we have booked $5.23m of revenue to date (and $2.52m post period end); this is supported by an encouraging near term pipeline of $9.2m, a significant  proportion of which the Board is expecting to close before the year end. We are increasingly seeing opportunities to align our interests  more with those of our customers through gain share arrangements rather than one off licenses, providing us with potentially fuller returns though the life of the contract and also greater visibility over the medium and longer term as well. The Board therefore remains confident, based on current visibility and the encouraging pipeline described above, of delivering full year results in line with expectations.

"With our increasing spread of business we are working towards the next phase in our development, as we aim to develop more revenue sharing opportunities, as well as our licence offering. We are seeing plenty of opportunities and look forward to keeping investors informed on progress."

Presentation and analyst presentation

A copy of the results presentation provided to analysts will be available on Pelatro's website later today (www.pelatro.com). Management will be hosting a presentation for analysts today at 9.30am at the office of Walbrook PR, 4 Lombard Street, London, EC3V 9HD. Analysts wishing to attend the presentation should register their interest by e-mailing [e-mail] or telephoning 020 7933 8780.

For further information contact:

Pelatro Plc
Subash Menon, Managing Director	c/o Walbrook
Nic Hellyer, Finance Director
finnCap Limited (Nominated Adviser and Broker)	[phone]
Carl Holmes/Kate Bannatyne/Matthew Radley
Tim Redfern / Camille Gochez - ECM
Walbrook (Financial PR and IR)	[phone]
Paul Cornelius/Nick Rome

* earnings before interest, tax, depreciation, amortisation,  exceptional items and share-based payments

This announcement is released by Pelatro Plc and, prior to publication, the information contained herein was deemed to constitute inside information under the Market Abuse Regulations (EU) No. 596/2014. Such information is disclosed in accordance with the Company's obligations under Article 17 of MAR. The person who arranged for the release of this announcement on behalf of Pelatro Plc was Nic Hellyer, Finance Director.

Notes to editors

The Pelatro Group was founded in March 2013 by Subash Menon and Sudeesh Yezhuvath with the objective of offering specialised, enterprise class software solutions for customer engagement principally to telcos who face a series of challenges including market maturity, saturation and customer churn.

Pelatro provides its "mViva" platform for use by customers in B2C applications, and is well positioned in the Multichannel Marketing Hub space (MMH) - this is technology that orchestrates a customer's communications and offers to customer segments across multiple channels to include websites, social media, apps, SMS, USSD and others.

For more information about Pelatro, visit www.pelatro.com

Managing Director's statement

We have been building on the foundation laid over the past few years, having won five new contracts and added four new customers in the first half of 2019. However, continuous innovation is key to sustain the growth momentum. In addition, it is essential to explore new avenues and models keeping long term challenges and prospects in mind.

Strategic Shift

Building a self-sustaining business should be the key objective of the senior management of every company. The team at Pelatro is committed to this key objective. The main pillars of such a business would be annuity business, a strong portfolio of world class products, a growing market and healthy margin. In its initial years, Pelatro focused on entering an expanding market and carving out a position for itself on the strength of its offerings and referenceable customers, while structuring a profitable business model. While ensuring the superiority of our products and maintaining profitability will be an ongoing task, the fundamentals are in place and we can now work towards the next phase of our growth. This phase is about our revenue model. Recurring and repeat revenue is an essential foundation to build the future on. It is pertinent to note here that four out of six contracts won in 2019 are for revenue share models, and several of our new opportunities too are similar in nature. This will better align revenue milestones and invoicing milestones thereby reducing Unbilled Revenue and Accounts Receivables on the one hand and provide higher visibility and stability to the business in the medium and long term.

Bandwidth

In keeping with our continuing growth led by addition of more customers, we have been expanding our teams handling sales, development, implementation and support. The total strength of the organisation at the end of the first half of 2019 stands at 145. While we added 48 people in the whole of 2018, we added 37 people in the first half of 2019, including 1 sales person, 15 in development and testing, 20 in support and implementation, and the balance in administrative functions. A further sales person was added to the team in August.

Acquisition Update

The business assets that were acquired from Danateq have been fully integrated and we are gaining significantly from the wider portfolio of customers. The expected cross-selling opportunities have been identified and are in various stages of progress. Further, the new relationships are being leveraged to extract more value from the acquisition. All these efforts will bear fruit in the years to come. As we expected at the time of the AGM update, certain contracts within the acquired pipeline have taken slightly longer to complete than originally forecast; as a result their revenue, when recognised, will not fall within the first year earn out period (the 12 months to end July 2019) but are likely to be recognised instead in the second. As a result the contingent cash payment of $2m pursuant to the terms of the acquisition is not payable in respect of the first earnout period.

Financial review

Revenue and profitability

In the six months to 30 June 2019 revenue increased by 14% over the comparable period to $2.71m (H1 2018: $2.38m). Of this, approximately $1.96m (H1 2018: $0.80m) was repeating revenue comprising gain share, change requests and other services of $1.32m and post-contract support ("PCS") of around $0.64m. The growth in repeating revenue continues to be driven by the installed customer base as well as additional demand from customers for gain share and similar contracts.

Underlying operating profit (excluding the impact of non-cash share-based payments, amortisation of customer-related intangible assets) was $0.20m (H1 2018: $1.23m) reflecting a period of continued investment, principally in headcount but also a much-needed increase office space as the operations have grown to deliver our growth expectations (with some $0.1m of additional lease expenses taken on in the last year). We expect H2 costs to be stable or marginally lower, partly reflecting the ending of the consultancy contract with Tele2 and the associated provision of consultants.

Net cash and trade receivables

Cash generated from operating activities was approximately $0.34m after working capital movements. After net financing payments of $0.15m (including approximately $88,000 relating to the reclassification of lease payments under IFRS 16) and capital expenditure of around $1.20m (including capitalised development expenditure of $1.11m) gross cash at 30 June 2019 was approximately $1.12m. Financial debt (excluding IFRS 16 liabilities) was approximately $0.43m, giving net cash of approximately $0.69m (FY 2018: $1.77m).

Short-term trade receivables (including unbilled revenue but excluding contract assets) as at 30 June 2019 were $4.27m compared to $3.78m at 31 December 2018 (and at 31 August were $3.34m). Of the balance outstanding at 31 December 2018, some $2.59m has been collected to date.

The trade receivables balance at the period end is analysed as follows:

	H1 2019	H1 2019	H1 2019	FY 2018	FY 2018	FY 2018
	$'000	$'000		$'000	$'000
	Receivables	Associated revenue	"Debtor days"	Receivables	Associated revenue	"Debtor days"
Gross trade receivables	4,272	6,813	229	3,778	6,019	229
Trade receivables excluding UBR	1,453	5,622	94	1,453	3,694	144

Trade receivables above exclude contract assets and the associated revenue is the relevant contractual revenue excluding any adjustment for IFRS 15. Given the wide variety and bespoke nature of the Group's contracts, figures shown for debtor days are illustrative only. Unbilled Revenue ("UBR") of $1.58m (H1 2018: $1.38m) arises principally from contractual revenue milestones being reached earlier than invoicing milestones.

Implementation of IFRS 16

Pelatro has adopted IFRS 16 Leases for the financial year ending 31 December 2019 and has chosen  to  use  the  modified retrospective approach  to  adoption  which  means  there  are  no restatements to the prior year figures. IFRS 16 introduces a single lessee accounting model, whereby the Group will recognise lease liabilities and "right of use" assets at 1 January 2019 for leases previously classified as operating leases. Within the income statement rental expense is replaced by depreciation and interest expense. The adoption of IFRS 16 has resulted in aggregate right of use assets of $420,000 with corresponding liabilities of $484,000 being recognised as at 30 June 2019

In order to allow users of the accounts to see how the impact of IFRS 16  has affected adjusted EBITDA, we present a reconciliation below:

	Adjusted EBITDA	Adjusted EBITDA
	6 months to 30 June 2019	6 months to 30 June 2018
	$'000	$'000
Consistent with 2018 presentation and accounting policy	682	1,474
Changes due to IFRS 16	111	-
	_______	_______
Consistent with 2019 presentation and accounting policy	793	1,474

Expenditure on non-current assets

Expenditure on non-current assets of $1.20m (2018: $1.07m) comprises principally capitalised development costs of $1.1m plus minor expenditure on third party software and licenses, plus  expenditure on tangible assets of $78,000. Capitalisation of intangibles as a percentage of the underlying costs in the Group's software development operation was approximately 55% (H1 2018: 68%). The capitalisation of development costs has resulted in an intangible asset in the statement of financial position of $3.87m (net of amortisation; H1 2018: $1.45m).

Share option scheme

The Company established a share option plan on 14 January 2019 in order to align the longer-term interests of senior employees with those of shareholders and incentivise the creation of shareholder value. The initial award of options was for a total of 1,640,000 Ordinary Shares at an exercise price of 73p per share (representing approximately 5 per cent. of the Company's issued share capital). The Options are exercisable, subject to the grantee remaining in employment with a member of the Pelatro Group, over 4 years and their exercise on vesting is not dependent upon any performance criteria.

Current trading and outlook

Revenue visibility is a key element of our business - the longer the visibility, the greater the stability and predictability. Revenue visibility is currently $6.3m and despite not having full visibility on 2019 revenue at this stage, the near term sales pipeline gives the Board confidence in the outturn for the year. This healthy sales pipeline is a crucial aspect of our business and we are currently tracking more than 40 opportunities across a range of products worth over $19m in aggregate from existing and potential customers. Of this, some $9.2m represents a broad spread of some 20+ pipeline opportunities that are being actively managed and that could close before the year end including some of significant size; of this $9.2m, some $5.5m is from existing customers. Given the size and quality of this pipeline we remain confident in the outturn for the year and of achieving market expectations.

Group statement of comprehensive income

		6 months to 30 June 2019	6 months to 30 June 2018	Year to December 2018
	Note	$'000	$'000	$'000
		(unaudited)	(unaudited)	(audited)
Revenue	2	2,714	2,376	6,123
Cost of sales and provision of services		(634)	(361)	(555)
		_______	_______	_______
Gross profit		2,080	2,015	5,568
Administrative expenses		(1,879)	(781)	(2,421)
		_______	_______	_______
Adjusted operating profit		201	1,234	3,147
Exceptional items	3	-	-	(310)
Amortisation of acquisition-related intangibles	3	(349)	-	(286)
Share-based payments	3	(49)	-	-
		_______	_______	_______
Operating profit		(197)	1,234	2,551
Finance income	4	20	9	33
Finance expense	5	(85)	(37)	(71)
		_______	_______	_______
Profit/(loss) before taxation		(262)	1,206	2,513
Income tax credit/(expense)		4	(145)	(334)
		_______	_______	_______
PROFIT/(LOSS) FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT		(258)	1,061	2,179
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit or loss:
Exchange differences		1	(60)	78
		_______	_______	_______
Other comprehensive income, net of tax		(1)	(60)	78
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		(257)	1,001	2,257
Earnings per share
Reported
Attributable to the owners of the parent (basic and diluted)	6	(0.8)¢	4.4¢	8.0¢
Adjusted
Basic	6	0.5¢	4.4¢	10.1¢
Diluted	6	0.5¢	4.4¢	10.1¢

Group statement of financial position

		As at 30 June 2019	As at 30 June 2018	As at 31 December 2018
	Note	$'000	$'000	$'000
		(unaudited)	(unaudited)	(audited)
Assets
Non-current assets
Intangible assets	7	10,648	1,865	10,609
Property, plant and equipment		408	302	362
Right-of-use assets	8	420	-	-
Trade and other receivables		306	414	360
Contract assets		117	127	303
		_______	_______	_______
		11,899	2,708	11,634
Current assets
Trade receivables	9	4,272	2,263	3,778
Contract assets		304	516	81
Other assets		425	356	382
Cash and cash equivalents		1,118	2,096	2,224
		_______	_______	_______
		6,119	5,231	6,465
Total assets		18,018	7,939	18,099
Liabilities
Non-current liabilities
Borrowings	10	359	420	382
Lease liabilities	11	260	-	-
Contract liabilities		202	-	67
Other financial liabilities	13	1,187	-	1,141
		_______	_______	_______
		2,008	420	1,590
Current liabilities
Trade and other payables	12	356	362	609
Borrowings	10	73	69	69
Lease liabilities	11	224	-	-
Contract liabilities and deferred revenue		257	106	171
Other financial liabilities	13	-	-	298
		_______	_______	_______
		910	537	1,147
Total liabilities		2,918	957	2,737
NET ASSETS		15,100	6,982	15,362
Issued share capital and reserves
Share capital		1,065	801	1,065
Share premium		11,603	4,472	11,603
Other reserves		(668)	(587)	(721)
Retained earnings		3,100	2,296	3,415
		_______	_______	_______
TOTAL EQUITY		15,100	6,982	15,362

Group statement of cash flows

	6 months to 30 June 2019	6 months to 30 June 2018	Year to December 2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Cash flows from operating activities
Profit/(loss) for the period	(258)	1,061	2,179
Adjustments for:
Income tax expense recognised in profit or loss	(8)	145	342
Interest income	(20)	(4)	(33)
Finance costs	85	37	71
Depreciation of tangible non-current assets	132	20	46
Amortisation of intangible non-current assets	809	220	843
Provision for/(benefit of) deferred taxes	4	-	(8)
Share-based payments	49	-	-
Foreign exchange (gains)/losses	(6)	18	(69)
	_______	_______	_______
Operating cash flows before movements in working capital	787	1,497	3,371
(Increase)/decrease in trade and other receivables	(402)	(1,022)	(2,438)
(Increase)/decrease in contract assets	(38)	(505)	(273)
Increase/(decrease) in trade and other payables	(230)	(9)	57
Increase in contract liabilities and other deferred income	220	(13)	146
	_______	_______	_______
Cash generated from operating activities	337	(52)	863
Income tax paid	(96)	(263)	(292)
	_______	_______	_______
Net cash generated from operating activities	241	(315)	571
Cash flows from investing activities
Acquisition of property, plant and equipment	(78)	(305)	(384)
Development of intangible assets	(1,111)	(763)	(1,604)
Acquisition of intangible assets	(12)	-	(69)
Cash (out)/inflow on acquisition of subsidiaries net of cash acquired	-	(14)	(7,035)
	_______	_______	_______
Net cash used in investing activities	(1,201)	(1,082)	(9,092)
Cash flows from financing activities
Proceeds from issue of ordinary shares, net of issue costs	-	-	7,395
Repayments to related parties	-	(407)	(436)
Proceeds from borrowings	276	254	394
Repayment of borrowings	(300)	(339)	(513)
Repayments of principal on lease liabilities	(88)	-	-
Interest income	20	4	33
Finance costs	(40)	(37)	(62)
Less interest accrued but not paid	1	1	3
Interest expense on lease liabilities	(22)	-	-
	_______	_______	_______
Net cash generated by/(used in) financing activities	(153)	(524)	6,814
Net increase/(decrease) in cash and cash equivalents	(1,113)	(1,921)	(1,707)
Net foreign exchange differences	7	(109)	(195)
Cash and equivalent at beginning of period	2,224	4,126	4,126
	_______	_______	_______
Cash and cash equivalents at end of period	1,118	2,096	2,224

Group statement of changes in equity

	Share capital	Share premium	Exchange reserve	Merger reserve	Share-based payments reserve	Retained profits		Total
	$'000	$'000	$'000	$'000	$'000	$'000		$'000
Balance at 31 December 2017 as previously reported	801	4,472	(2)	(527)	-	1,217		5,961
Effect of change of accounting policy (IFRS 15)	-	-	-	-	-	18		18
	_____	_____	_____	_____	_____	_____		_____
Balance at 31 December 2017 as restated	801	4,472	(2)	(527)	-	1,235		5,979
Profit after taxation for the period	-	-	-	-	-	1,061		1,061
Other comprehensive income:
Exchange differences on translation of overseas subsidiaries	-	-	(58)	-	-	-		(58)
	_____	_____	_____	_____	_____	_____		_____
Balance at 30 June 2018	801	4,472	(60)	(527)	-	2,296		6,982
Profit after taxation for the period	-	-	-	-	-	1,118		1,118
Other comprehensive income:
Exchange differences	-	-	(133)	-	-			(133)
Transactions with owners:
Shares issued by Pelatro Plc for cash	264	7,450	-	-	-	-		7,714
Issue costs	-	(319)						(319)
	_____	_____	_____	_____	_____	_____		_____
Balance at 31 December 2018	1,065	11,603	(193)	(527)	-	3,414		15,362
Effect of change of accounting policy (IFRS 16)	-	-	-	-	-	(57)		(57)
	_____	_____	_____	_____	_____	_____		_____
Balance at 31 December 2018 as restated	1,065	11,603	(193)	(527)	-	3,357		15,305
Profit/(loss) after taxation for the period	-	-	-	-	-	(258)		(258)
Share-based payments	-	-	-	-	49	-		49
Other comprehensive income:
Exchange differences	-	-	4	-	-	-		4
Transactions with owners:
	_____	_____	_____	_____	_____	_____		_____
Balance at 30 June 2019	1,065	11,603	(189)	(527)	49	3,099		15,100

Notes to the Group financial statements

1              Basis of preparation

The Group has prepared its interim financial statements for the 6 months ended 30 June 2019 (the "interim results") in accordance with the recognition and measurement principles of International Financial Reporting Standards ("IFRS") as adopted by the European Union and also in accordance with the recognition and measurement principles of IFRS issued by the International Accounting Standards Board, but do not include all the disclosures that would otherwise be required. They have been prepared under the historical cost convention as modified to include the revaluation of certain non-current assets. Other than the adoption of IFRS 16 Leases the accounting policies adopted in the interim financial statements are consistent with those adopted in the Group's Annual Report and Financial Statements for the year ended 31 December 2018 and those which will be adopted in the preparation of the annual report for the year ending 31 December 2019.

As permitted, the interim results have been prepared in accordance with the AIM Rules of the London Stock Exchange and not in accordance with IAS34 Interim Financial Reporting. They do not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 and are unaudited.

Change in accounting policy  - application of IFRS 16 Leases

(a) General

In the current period the Group has applied IFRS 16 Leases (as issued by the IASB in January 2016) for the first time ("IFRS 16" or the "Standard"). IFRS 16 introduces new or amended requirements with respect to lease accounting, resulting in significant changes to lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset and a lease liability at the lease commencement for all leases, except for short-term leases and leases of low value assets.

The Group has applied the definition of a lease and related guidance set out in the Standard to all lease contracts entered into or modified on or after 1 January 2014, with the date of initial application as 1 January 2019. The Group has applied IFRS 16 using the modified retrospective approach, with no restatement of comparative information.

(b) Former operating leases

IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off balance sheet. Applying IFRS 16, for all leases (except as noted below), the Group:

(i) recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of future lease payments;

(ii) recognises depreciation of right-of-use assets, and interest on lease liabilities, in the consolidated statement of comprehensive income; and

(iii) separates the total amount of cash paid in respect of lease obligations into a principal portion and interest (both presented within financing activities) in the consolidated statement of cash flows.

Lease payments under (i) are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Group's estimated incremental borrowing rate. The finance cost is charged to the Consolidated Statement of Comprehensive Income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.  Additionally under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts. For the leases taken on balance sheet at 30 June 2019 the Group has used a weighted average interest rate of 9.4%.

For short-term leases (lease term of 12 months or less) and leases of low-value assets the Group has opted to recognise a lease expense on a straight-line basis as permitted by the Standard. This expense is presented within other expenses in the consolidated statement of profit or loss.

(c) Financial effect of initial application of IFRS 16

The tables below show the amount of adjustment for each financial statement line item affected by the application of IFRS 16 for the current period. As the Group has adopted the modified retrospective approach the prior year and period are not restated and hence there is no effect shown.

Impact on profit/(loss) for the period

	6 months to 30 June 2019
	$'000
	(unaudited)
Increase in depreciation	94
Increase in finance costs	22
Loss on foreign currency translation	2
Decrease in other expenses	(111)
	_______
Increase in profit for the period	7

Impact on earnings per share for the period

The impact on earnings per share is too small to be reflected in disclosure to the nearest 0.1c

Impact on assets, liabilities and equity as at 1 January 2019

	As previously reported	IFRS 16 adjustments	As restated
	$'000	$'000	$'000
	(audited)	(unaudited)	(unaudited)
Right-of-use assets	-	383	383
	_______	_______	_______
Net impact on total assets	-	383	383
Lease liabilities	-	(440)	(440)
	___________	_______	_______
Net impact on total liabilities	-	(440)	(440)
Retained earnings	-	57	57
	_______	_______	_______
Net impact on total liabilities and equity	-	383	383

The recognised right-of-use assets relate to the following types of assets:

	As at 30 June 2019	As at 1 January 2019
	$'000	$'000
	(unaudited)	(unaudited)
Leasehold properties	401	383
Motor vehicles	19	-
	_______	_______
Total right-of-use assets	420	383

The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

Impact on consolidated statement of cash flows

The application of IFRS 16 has an impact on the consolidated statement of cash flows of the Group as under the Standard lessees must present:

•              Short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liability as part of operating activities (such payments have no material effect on these financial statements);

•              Cash paid for the interest portion of lease liabilities as part of financing activities; and

•              Cash payments for the repayment of the principal portions of leases liabilities as part of financing activities.

Under IAS 17, all lease payments on operating leases were presented as part of cash flows from operating activities. Consequently, for the 6 months ended 30 June 2019, the net cash generated by operating activities has increased by $111,000 and net cash used in financing activities increased by the same amount.

Extension and termination options

Extension and termination options are included in a number of property leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. All of the extension and termination options held are exercisable only by the Group and not by the respective lessor. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

Share-based payments

The Group has applied the requirements of IFRS 2 Share-based payments in respect of options granted under the share option plan for senior employees dated 15 January 2019  (the "Plan"). Under the terms of the Plan,  the Group is able to make equity-settled share-based payments to certain employees and Directors by way of issue of options over ordinary shares. Such equity-settled share-based payments are measured at fair value at the date of grant. This fair value is determined as at the grant date of the options and is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of options that will eventually vest. Fair value is measured by use of a Black-Scholes model; the expected life value used in the model has been adjusted, based on management's best estimates, for the effects of non-transferability, exercise restrictions and behavioural considerations.

IFRIC 23 Uncertainty over Income Tax Treatments

IFRIC 23 is effective for periods beginning on or after 1 January 2019 and requires:

•              The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;

•              The Group to consider if it is probable that the tax authorities will accept the uncertain tax treatment; and

•              If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty

The Group does not believe that it is impacted by IFRIC 23 and therefore opening retained earnings remain unaffected.

Going concern

The Directors have considered trading and cash flow forecasts prepared for the Group, and based on these, and confirmed banking facilities, are satisfied that the Group will continue to be able to meet its liabilities as they fall due for at least one year from the date of these results.  On this basis, they consider it appropriate to have adopted the going concern basis in the preparation of the interim results, which were approved by the Board of Directors on 25 September 2019.

Comparative financial information

The comparative financial information presented herein for the year ended 31 December 2018 does not constitute full statutory accounts for that period. Statutory accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies.  These statutory accounts carried an unqualified Auditor's Report, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

2              Segmental analysis

Revenue by geography

The Group recognises revenue in seven geographical regions based on the location of customers, as set out in the following table:

	6 months to 30 June 2019	6 months to 30 June 2018	Year to December 2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Caribbean	243	189	357
Central Asia	206	987	1,653
Eastern Europe	56	-	380
North Africa	95	288	314
South Asia	1,088	542	819
South East Asia	561	-	2,207
Sub-Saharan Africa	465	370	393
	_______	_______	_______
	2,714	2,376	6,123

Management makes no allocation of costs, assets or liabilities between these region since all trading activities are operated as a single business unit.

Revenue by type

	6 months to 30 June	6 months to 30 June	Year to  31 December
	2019	2018	2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Repeat software sales and services	1,316	575	2,288
Maintenance and support	645	228	809
	_______	_______	_______
Total repeat revenues	1,961	803	3,097
Software - new licenses	498	1,568	2,511
Consulting	250	-	515
Resale of hardware	5	5	-
	_______	_______	_______
	2,714	2,376	6,123

An analysis of revenue by status of invoicing is as follows:

	6 months to 30 June	6 months to 30 June	Year to 31 December
	2019	2018	2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
(i) Revenue invoiced to customers under contractual terms	1,076	488	3,694
(ii) Revenue due under terms of contract but unbilled at period end ("UBR")	1,582	1,376	2,325
(iii) Revenue recognised other than (ii) (i.e. on the completion of performance obligations but before any billing milestone is reached)	90	512	271
Less: net revenue deferred (under IFRS 15 or otherwise)	(20)	-	(80)
Less: revenue recognised or to be recognised as interest under IFRS 15	(14)	-	(87)
	_______	_______	_______
Total revenue recognised in the period	2,714	2,376	6,123

A broad analysis of Unbilled Revenue is as follows:

	6 months to 30 June 2019
	$'000
	(unaudited)
Gain share contracts awaiting administrative process	203
Other contracts awaiting administrative process	38
Annual contractual payment date not yet reached	181
Invoicing milestone not yet reached	1,160
	_______
UBR	1,582

3              Non-GAAP profit measures and exceptional items

Reconciliation of operating profit to earnings before interest, taxation, depreciation and amortisation ("EBITDA"):

	6 months to 30 June 2019	6 months to 30 June 2018	Year to December 2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Operating profit/(loss)	(197)	1,234	2,551
Adjusted for:
Amortisation and depreciation	940	240	889
Exceptional items:
- acquisition expenses	-	-	310
Share-based payments	49	-	-
	_______	_______	_______
Adjusted EBITDA	792	1,474	3,750

The  criterion  for  adjusting  items  in  the  calculation  of  adjusted  EBITDA is  operating  income  or expenses  that  are  material  and  either (i) arise  from  an  irregular  and significant event or  (ii) are such that the  income/cost  is recognised in a pattern that is unrelated to the resulting operational performance. Materiality is defined as an  amount  which,  to  a  user,  would  influence decision-making based on,  and  understandability  of,  the  financial statements.  Adjustment for share-based payment expense is made because, once  the  cost  has  been  calculated,  the  Directors  cannot  influence  the  share  based  payment charge  incurred  in  subsequent  years, and  the  value  of  the  share  option  to  the  employee  differs considerably in value and timing from the actual cash cost to the Group.

Exceptional items are treated as exceptional by reason of their size or nature and are excluded from the calculation of adjusted EBITDA (and adjusted earnings per ordinary share) to allow a better understanding of comparable year-on-year trading and thereby an assessment of the underlying trends in the Group's financial performance. These measures also provide consistency with the Group's internal management reporting. Exceptional items in 2018 comprise legal and other costs relating to the Danateq Acquisition.

Share-based payments

Share-based payment expense comprises the charge in the current period relating to the expensing of the fair value of (a) the 1,640,000 options granted under the share option plan for senior employees dated 15 January 2019 (the "Plan") and (b) 74,000 options issued at the time of the Company's IPO. The options issued under the terms of the Plan were granted with an exercise price of 73p, vesting in tranches as follows: 25% after one year, 25% after two years and 50% after three years. There are no conditions attaching to the vesting of the options other than continued employment.

Adjusted EPS

The calculation of adjusted EPS is shown in Note 5.

4              Finance income

	6 months to 30 June 2019	6 months to 30 June 2018	Year to December 2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Interest receivable on interest-bearing deposits	6	9	10
Notional interest accruing on contracts with a significant financing component	14	-	23
	_______	_______	_______
Total finance income	20	9	33

5              Finance expense

	6 months to 30 June 2019	6 months to 30 June 2018	Year to December 2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Interest and finance charges paid or payable on borrowings	40	37	62
Acquisition-related financing expense - unwinding of discount on financial liabilities	23	-	9
Interest on lease liabilities under IFRS 16	22	-	-
	_______	_______	_______
Total finance expense	85	37	71

6              Earnings per share

Earnings per share - reported ("EPS")

The calculation of the basic and diluted EPS is based on the following data:

	6 months to 30 June 2019	6 months to 30 June 2018	Year to December 2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Earnings
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent	(258)	1,061	2,179
Number of shares
Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share	32,532,431	24,313,252	27,375,741

The weighted average number of shares and the loss for the year for the purposes of calculating the fully diluted earnings per share are the same as for the basic loss per share calculation. This is because the outstanding share options would have the effect of reducing the loss per ordinary share and would therefore not be dilutive under IAS33.

Adjusted earnings per share

Adjusted EPS is calculated as follows:

	6 months to 30 June 2019	6 months to 30 June 2018	Year to December 2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Earnings attributable to owners of the Parent	(258)	1,061	2,179
Adjusting items:
- exceptional items (note 3)	-	-	310
- amortisation of acquisition-related intangibles	349	-	286
- share-based payments	49	-	-
Finance charge on liabilities relating to contingent consideration	23		9
	_______	_______	_______
Adjusted earnings attributable to owners of the Parent	163	1,061	2,784
Adjusted earnings per share attributable to shareholders (basic)	0.5¢	4.4¢	10.1¢
Weighted number of ordinary shares in issue	32,532,431	24,313,252	27,375,741
Effect of dilutive potential ordinary shares:
- in-the-money share options	6,702	n/a	n/a
	________
Weighted average number of ordinary shares for the purposes of diluted earnings per share	32,539,133	n/a	n/a
Adjusted earnings per share attributable to shareholders (diluted)	0.5¢	4.4¢	10.1¢

The Group has one category of potentially dilutive ordinary share, being those share options granted to employees where the exercise price (plus the remaining expected charge to profit under IFRS 2) is less than the average price of the Company's ordinary shares during the period. The weighted average number of shares for the calculation of diluted earnings per share is computed using the treasury share method.

7              Intangible assets

Intangible assets comprise capitalised development costs, acquired software, customer relationships and goodwill.

	Development costs	Third party software	Customer relationships	Goodwill	Total
	$'000	$'000	$'000	$'000	$'000
Cost
At 1 January 2019	4,144	98	6,862	745	11,849
Additions	1,111	12	-	-	1,123
Fair value adjustment	-	-	-	(275)	(275)
	_______	_______	_______	_______	_______
At 30 June 2019	5,255	110	6,862	470	12,697
Amortisation or impairment
At 1 January 2019	(935)	(19)	(286)	-	(1,240)
Charge for the period	(450)	(10)	(349)	-	(809)
	_______	_______	_______	_______	_______
At 30 June 2019	(1,385)	(29)	(635)	-	(2,049)
Net carrying amount
At 30 June 2019	3,870	81	6,227	470	10,648
At 1 January 2019	3,209	79	6,576	745	10,609

Comparative figures for the prior period are as follows:

	Development costs	Third party software	Customer relationships	Goodwill	Total
	$'000	$'000	$'000	$'000	$'000
Cost
At 1 January 2018	1,290	32	-	287	1,609
Additions	763	-	-	-	763
Fair value adjustment	-	-		113	113
Effect of foreign exchange movements	-	(2)	-	-	(2)
	_______	_______	_______	_______	_______
At 30 June 2018	2,053	30	-	400	2,483
Amortisation or impairment
At 1 January 2018	(382)	(16)	-	-	(398)
Charge for the period	(219)	(1)	-	-	(220)
Effect of foreign exchange movements	-	-	-	-	-
	_______	_______	_______	_______	_______
At 30 June 2018	(601)	(17)	-	-	(618)
Net carrying amount
At 30 June 2018	1,452	13	-	400	1,865

The Company and the Danateq Group entered into a sale and purchase agreement ("SPA") on 30 July 2018 to acquire certain assets of Danateq Pte and Danateq Limited. Further consideration for the Danateq Acquisition of up to $5,000,000 was contingent on the achievement of certain revenue targets in the two years following the acquisition. Following the completion of the measurement period at 31 December 2018 the contingent consideration liability for payments potentially due in the period 2019 to 2020 was valued at $1.44m (as discounted to the then present value at an imputed cost of funds). At 30 June 2019 the value of this liability was revised downwards to $1.19m million, a $0.25m decrease (net of the unwinding of the present value discount). This reduction reflected revised expectations of sales from the acquired pipeline (particularly those for the first earn out period to 31 July 2019) based on the performance in the 6 month period and updated business projections. Accordingly a contingent liability of $275,000 has been adjusted (to nil) and a corresponding decrease has been made to goodwill. The carrying value of this liability will continue to be reassessed at future reporting dates.

8              Right-of-use assets

Right-of-use assets comprise leases over office buildings and vehicles

	Office buildings	Vehicles	Total
	$'000	$'000	$'000
Cost
At 1 January 2019	-	-	-
Effect of change of accounting policy (IFRS 16)	603	-	603
Additions in the period	94	25	119
Effects of foreign exchange movements	17	(1)	16
	_______	_______	_______
At 30 June 2019	714	24	738
Depreciation
At 1 January 2019	-	-	-
Effect of change of accounting policy	(219)	-	(219)
Charge for the period	(89)	(5)	(94)
Effects of foreign exchange movements	5	-	5
	_______	_______	_______
At 30 June 2019	(313)	(5)	(318)
Net carrying amount
At 30 June 2019	401	19	420
At 1 January 2019	-	-	-

9              Trade and other receivables

Trade receivables

Trade receivables (due in less than one year) amounted to $4.27 million (at 31 December 2018: $3.78m), net of a provision of £nil (as at 31 December 2018: £nil) for impairment. Trade receivables analysed by age were as follows:

	Carrying amount	Neither impaired or past due	Past due but not impaired
			61-90 days	91-120 days	More than 121 days
	$'000	$'000	$'000	$'000	$'000
As at 30 June 2019
Trade receivables	4,272	2,820	145	84	1,223
As at 30 June 2018
Trade receivables	2,263	1,838	-	-	425
As at 31 December 2018
Trade receivables	3,778	3,636	-	-	142

In addition to the above, $306,000 (FY 2018: $360,000) is included in trade receivables payable in more than one year.

10           Loans and borrowings

	As at 30 June 2019	As at 30 June 2018	As at 31 December 2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Non-current liabilities
Secured term loans	359	420	382
	_______	_______	_______
	359	420	382
Current liabilities
Current portion of term loans	73	69	69
	_______	_______	_______
	73	69	69
Total loans and borrowings	432	489	451

11           Lease liabilities

Lease liabilities comprise liabilities arising from the committed and expected payments on leases over office buildings and vehicles .

	Office equipment	Vehicles	Total
	$'000	$'000	$'000
At 1 January 2019	-	-	-
Effect of change of accounting policy	440	-	440
Leases taken on in the period	94	25	119
Repayments of principal	(83)	(5)	(88)
Effects of foreign exchange movements	14	(1)	13
	_______	_______	_______
At 30 June 2019	465	19	484

12           Trade and other payables

	As at 30 June 2019	As at 30 June 2018	As at 31 December 2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Due within a year
Trade payables	12	63	118
Other payables	344	256	463
Amounts due to related parties	-	43	28
	_______	_______	_______
Total trade and other payables	356	362	609

Other payables principally comprise provisions for taxation liabilities and other costs.

Contract liabilities represent liabilities resulting from balance sheet reclassifications arising from the application of IFRS 15.

13           Other financial liabilities

Other financial liabilities comprise the fair value of potential liabilities for the contingent payments due in respect of the Danateq acquisition.

	As at 30 June 2019	As at 30 June 2018	As at 31 December 2018
	$'000	$'000	$'000
	(unaudited)	(unaudited)	(audited)
Contingent consideration on the acquisition of Danateq assets
- potentially due within one year	-	-	298
- potentially due after one year	1,187	-	1,141
	_______	_______	_______
Total other financial liabilities	1,187	-	1,439

14           Post balance sheet events

There  have  been  no  events  subsequent  to  the  reporting  date  which  would  have  a  material impact on these interim financial results

 [END]

 

END

 

 

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