Final Results

RNS Number : 5225S

Gresham Technologies PLC

12 March 2019

 

RNS

12 March 2019

Gresham Technologies plc

Annual Financial Report Announcement

Gresham Technologies plc (LSE: "GHT", "Gresham" or the "Group"), the leading software and services company that specialises in providing real-time data integrity and control solutions, announces its results for the year ended 31 December 2018.

Financial

·      Group revenues down 8% to £20.0m (2017: £21.7m) including discontinued operations (statutory: down 7% to £19.3m).

·      Clareti revenues up 6% to £11.8m (2017: £11.1m), including £0.7m from B2 Group.

·      Clareti software revenues down 3% to £7.9m (2017: £8.2m).

·      Clareti Annualised Recurring Revenues ("ARR") as at 31 December 2018 up 30% to £7.4m (2017: £5.7m).

·      Other revenues as planned and consistent year on year.

·      Adjusted EBITDA* down 78% to £1.1m (2017: £5.1m).

·      Statutory (loss)/profit before tax as reported down 137% to (£1.4m) (2017: £3.8m).

·      Adjusted diluted earnings per share** down 108% to (0.5) pence (2017: 6.5 pence) including discontinued operations (statutory: down 138% to (2.1) pence). 

·      Cash (including deposits and restricted cash) at 31 December 2018 of £5.6m and no debt (2017: £8.5m and no debt).

·      Final dividend proposed at 0.5 pence per share (2017: 0.5 pence).

Operational

·      Continued investment in 2018 to increase sales and distribution capacity.

·      15 new Clareti clients added in 2018, including a further Tier 1 global bank.

·      B2 Group acquired in July 2018, adding cloud-based cash management technology and 15 clients to the Group.

·      Queen's Award for Enterprise: International Trade awarded in recognition of outstanding overseas growth and sales. 

·      Strategic fintech partnership announced with Australia and New Zealand Banking Group.

·      Management confident about the prospects for the Group.

* Earnings before interest, tax, depreciation and amortisation, adjusted to add back share-based payment charges and exceptional items (see note 10 of Group Financial Statements).

** Diluted earnings per share, adjusted to add back share-based payment charges, exceptional items and amortisation from acquired intangible assets.

Ian Manocha, CEO, commented:

"Whilst contract timing issues impacted our full year reported results, the business made significant progress during the year. We won fifteen new Clareti customers and closed an important acquisition, which gives us a platform into continental Europe. As a result, we finished 2018 with a stronger base of Clareti recurring revenues.

2019 has already started positively: we have successfully divested our ageing VME business, one strategic new Clareti contract has been closed and another to follow shortly, and there is good momentum behind our plan to build a more predictable subscription-based business. We remain confident in the opportunity for our market leading Clareti technology and in the profitable growth prospects of the Group."

As announced on 7 March 2019, a presentation for analysts will be held at 8.00 a.m. today by conference call, and a separate presentation for private and retail investors will be held at 4.30 p.m. on Wednesday 13 March 2019 at the offices of N+1 Singer, One Bartholomew Lane, London EC2N 2AX. Admittance for these events is strictly limited to those who register their participation in advance. For analyst conference call details and to register attendance, please contact Gresham at [e-mail]. 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.

Printed copies of the Annual Financial Report 2018 will be posted to shareholders in due course.

Enquiries

Gresham Technologies plc	[phone]
Ian Manocha
Tom Mullan
N+1 Singer (Joint Broker)	[phone]
Shaun Dobson / Lauren Kettle (Corporate Finance)
Tom Salvesen (Corporate Broking)
Cantor Fitzgerald Europe (Joint Broker)	[phone]
Philip Davies
Richard Salmond

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 data integrity and control solutions. 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, all of whom are served locally from offices located in Europe, North America and Asia Pacific.

Gresham's award-winning Clareti software platform has been designed to provide financial institutions with complete certainty in their data processing. Clareti is a highly flexible and fully scalable platform for ensuring the integrity of data across an enterprise. It is designed to address today's most challenging financial control, risk management, data governance and regulatory compliance problems.

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

In accordance with the Disclosure and Transparency Rules, the extracts below are from the Annual Financial Report 2018 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 2018.

CHAIRMAN'S STATEMENT

Dear shareholder

I am pleased to present this Annual Financial Report 2018, which records continued progress in pursuit of the Group's strategic goal to build a high-margin, recurring revenue base through the sale and deployment of enterprise data integrity solutions utilising the Clareti platform.

Overview

In the year, Gresham continued to build upon the previously stated strategic objectives (see Strategy, page 13). Market conditions continue to be challenged by geopolitical factors which are well documented.

However, despite these factors weighing heavily on our clients' investment decisions, the demand for better management and transparency over data is ever increasing. The volume and complexity of data flows and the demand for accurate control and reporting over these flows is a matter of concern for company boards and regulators alike. The effective use of technology provides the only viable means to address this need. Clareti Transaction Control (CTC), our flagship product built on the Clareti platform, is directly focused on this demand and is being increasingly selected as a strategic solution for data integrity and control, displacing both in-house and third party vendor solutions.

Group financial performance for the year fell below expectations due principally to two significant contract awards slipping from Q4 2018, one of which is now concluded with the other expected to close shortly. Whilst this was clearly disappointing and resulted in the Group recording an operating loss in the year, the Board remains confident in the strength of the underlying business and the Group's prospects. Indeed, key Clareti metrics in the year were still positive. Financial details can be found in the CFO report on page 17.

Ongoing investments

The Board continues to believe there is a very significant market opportunity for data integrity and control solutions and that ongoing investment in key strategic areas, with appropriate prudence, is essential. We continue to invest in the Clareti platform, commensurate with client demand, but also to embark upon co-development activities with a small number of strategic clients. Where appropriate, we will invest further in sales, marketing and implementation resources based on market demand and focused on high-growth markets, specifically the US and Europe.

The acquisition of the B2 Group in July 2018 was a major investment in the year and has now been successfully integrated into the Group. This acquisition adds significant capabilities and expertise to our cash management and payments business, contributes to our Clareti recurring revenue base and grows our footprint in continental Europe. The Board will continue to consider appropriate acquisition opportunities as they arise.

Shareholder value

Our share price has continued to experience a degree of volatility in the year. The two delayed contracts reported in our December trading update predicated a sharp downturn in the share price, which has since experienced some improvement following recent announcement of awards. It is the Board's belief that its determination to increase recurring revenue as a percentage of total revenue - having a smoothing effect on revenue flow - will help to mitigate against this volatility. 

In light of the Company's continued good underlying performance, I am pleased to confirm that the Company will maintain the payment of a progressive dividend. In respect of financial year 2018, the Board is proposing a final dividend of 0.5 pence per share for shareholder approval at the forthcoming Annual General Meeting.

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

In summary

The demand for technology solutions to manage and report on complex data flows and other data control issues continues to increase. The Clareti platform is a leader in the market to satisfy this increasing demand. The role that Clareti solutions are playing in addressing operations in our client base is increasing in scope and criticality. Our technology is strategically important to a number of major institutions, operating globally. We are well positioned to expand our presence within these accounts and for these successes to broaden our capability to fuel future growth.

With our continued investment in the Clareti portfolio and sales and marketing, I anticipate further improvement in our market position. In addition, we will increase our focus on growing our recurring revenue base, thereby delivering a more predictable financial performance - one which is less dependent on the timing of individual transactions.

2018 has been a challenging yet successful year for the Group, which of course is made up of a great many team and individual successes. This is a testament to the hard work, expertise and professionalism of the Gresham team. I would like to thank the management and staff for their continued support and resolve to achieve success in our pursuit of market leadership in enterprise data integrity and control.

Ken Archer

Non-Executive Chairman

CEO'S STATEMENT

Dear shareholder

Strategic overview

Over the last five years or so, Gresham has transformed into an innovative provider of enterprise financial technology to many of the world's largest financial institutions and corporates. The Clareti software business is rapidly overtaking a mixed portfolio of legacy IT businesses which have been in structural decline for a number of years. The recent disposal of our declining VME business, which provided a revenue stream to Gresham for nearly four decades, reaffirms our confidence in and commitment to our Clareti-led growth strategy.

From the first Clareti Transaction Control customer going live in 2012, the Clareti business now accounts for more than 50% of Group revenues and more than 75% of Group annualised recurring revenues. Since 2016, Clareti organic growth has been enhanced by carefully selected acquisitions, which have added recurring revenue, high quality customers, and complementary technology with incremental growth potential. The Group now has over 100 Clareti customers in selected markets around the world.

We will continue to invest, in a sustainable manner, through the current scale-up phase to capitalise on the global opportunity to replace ageing installations of competitor products with our modern disruptive solutions. Given the significant addressable market and the inherent stickiness of core banking and trading systems, Clareti has the potential to evolve into a substantial financial technology business. Our ongoing investment in Clareti is building the foundations for sustained, profitable growth for the Group and long-term value for shareholders.

Clareti business

During 2018, we won a total of 15 new Clareti clients in the USA, the UK, continental Europe and Singapore.  In addition, it was pleasing to see a number of clients investing further in the technology following the success of earlier projects. With new wins, growth from existing accounts during the year, high levels of customer retention and the addition of annuities acquired with the acquisition of the B2 Group, we exited the year with a much stronger base of recurring revenues (up 30%).

Our Clareti platform is inherently flexible and can be used to solve a variety of data problems. We are focusing our sales efforts into two market categories: data integrity and control solutions, in banking, investment management, insurance, energy and commodities sector; and cash management and payments solutions, for corporate banking, insurers, wealth managers and complex multi-nationals. Specific licence or service products for these markets draw upon the underlying technical capabilities of the Clareti platform, which continues to expand in functionality.

Data integrity and control

In data integrity and control, we already have strong traction in modernising the post-trade operations of capital markets participants. In line with my statements in last year's report that Gresham is regarded as the emerging champion in enterprise-scale reconciliation software for capital markets, we are now routinely included in vendor selections for replacements as well as new requirements. After competitive evaluations, we signed one of the largest private investment managers in the USA with $1Trillion in assets under management (AUM) as well as a top 10 hedge fund in Europe with around $20bn AUM. During the year, two of the world's largest investment banks independently conducted robust tender processes to replace their legacy global cash and stock reconciliation systems and in December we were delighted to be selected for both projects. Our expectation had been to recognise term licence revenue before year end, but this was not possible.  One of the contracts was signed in January 2019 and the other, which was conditionally signed on 31 December 2018, is expected to become non-contingent shortly. Together, the contracts will generate in excess of £7 million in software fees over their respective terms. These wins are regarded as landmark decisions for an industry that has lived with a vendor duopoly for nearly two decades and we believe there is opportunity for others to follow suit over the next few years.

In 2018, we also made progress in extending the use of the Clareti platform into the "RegTech" arena with the signing of a global investment bank for G20 reporting data controls. In addition, we worked with one of North America's largest investment banks on regulatory product enhancements, which has resulted in new functionality to improve the quality of transaction data used for regulatory purposes. This offering is now in production with the bank and the software is now available for sale to other institutions alongside, or separate to, our core reconciliation offering. The regulatory opportunity in financial markets is compelling and we believe our platform offers unique capabilities for market participants and solution providers, as evidenced by our recent announcement of a strategic partnership with RegTek.Solutions.

Cash management and payments

In the cash management and payments space, we believe there is a growing market for corporate cash management and payment control solutions that take advantage of real-time processing, open banking and API's, at a time where global liquidity is a key focus for large organisations. We made excellent progress in this area this year.

We were delighted to announce the acquisition of the B2 Group on 4 July 2018, which added cloud-based bank integration technology and a further 15 customers into the Group. This includes customers such as Easyjet, who benefit from a one-stop-shop cash management portal accessed over the web or mobile providing integration, automation and payment control across multiple banks. B2 was rapidly integrated into the Group and now operates as Gresham's Cash Management Solutions division. The business added four customers in the second half of 2018, including a high-profile German challenger bank and a Luxembourg-based bitcoin exchange.

More widely, we signed one of the world's leading physical cash security providers to control their current business and support expansion into digital services. We also announced a major fintech partnership with ANZ to bring to market the next generation of cash solutions for their institutional and business customers. These projects are building new capabilities and, combined with capabilities within CTC, C24, Clareti Accounts Receivable Management and Clareti Multi Bank, we are able to present a compelling future vision for corporates and banking providers.

Non-Clareti business

Our non-Clareti software businesses (including Cashfac VBT, Wall Street Systems, VME and EDT) remain in structural decline and were down 32%, in line with our plans. Revenues are expected to remain stable in 2019, with exception of the VME business which was divested to Fujitsu effective 31 January 2019 for a consideration of £2 million (representing approximately 2.8 times 2018 revenues). We still expect the remaining businesses to run off in the medium term and are subject to ongoing review.

The Group's Australian IT services contracting business with ANZ finished the year 14% lower than the prior year as a result of reduced customer requirements for contractors. Nevertheless, we exited the year with a strong order book and expect to see modest growth in 2019. Whilst we intend to retain this business in order to continue to service this important customer, the margins remain low and we have no plans to pro-actively grow it.

Outlook and Brexit

The uncertainty relating to the UK withdrawal from the EU continues to be a significant concern to our financial markets customers and, during 2018, many have been distracted as they prepare for alternative operating models. On a positive note, structural change in financial markets often generates new regulatory and data management challenges that our flexible software is well placed to address. Whilst we expect continuity in our software sales activities, it is also important for us to be able to move our professional services consultants freely across borders to support software implementation work for customers. Despite the current lack of clarity on trading arrangements post Brexit, our pro-active step to acquire B2, with its main operations and cloud data centre in Luxembourg, gives us a range of options for the future.

Despite these challenges, we benefit from strong tailwinds in terms of the market dynamics, including: a drive by institutions to replace costly legacy systems; increasing regulatory data challenges; the importance of managing cash in uncertain times; and the promise of intelligent process automation. Our energies are fully focussed on helping our customers through these challenges.

We are confident our strategy is on track and certain about our ability to deliver sustainable long-term profitable growth for our shareholders.

Thank you for your ongoing support.

Ian Manocha

Chief Executive

FINANCIAL REVIEW

Revenues

Our income is analysed between revenues from Clareti Solutions and from Other Solutions, as shown in the table below. See note 4 of the financial statements for further segmentation details.

Clareti Solutions

The Clareti business recorded 6% revenue growth to £11.8m, with the growth being largely driven by revenues from the acquired B2 Group. The reduction in the Clareti revenue growth rate is as a result of the reductions in non-recurring software fees, which typically consist of higher value contracts with lower predictability of the timing of closure, and of the delay in the two high value contracts that were expected to be recognised in 2018, which are discussed in full in the CEO report.

The Group is increasing its drive towards an annuity-based model in order to deliver growth with an increased level of predictability. We made progress against this aim, with recognised Clareti recurring revenues increasing 25% to £6.6m including £0.7m from B2 Group. Our closing Clareti Annualised Recurring Revenues totalled £7.4m (up 30%) due to the addition of annuity revenues from the acquisition of the B2 Group (£1.1m), customer wins in the year and existing customers' increased usage.

Non-recurring Clareti software revenues (initial licence fees) were down 56% to £1.3m as we signed fewer deals under this contracting structure. The Group has continued with the policy adopted in 2016 of granting fixed-term licence grants (typically three to five years) for customers for whom subscription licensing is not appropriate. Consequently, periods of use for these customers beyond the fixed licence term of the contract will attract additional fees, with the first of these additional chargeable periods falling in 2020. As at 31 December 2018, we have achieved initial licence fees under term agreements totalling £4.7m that we anticipate will repeat from 2020 onwards either as repeat upfront fees or additional annuity revenues of an equivalent £1.1m per annum; this is in addition to our stated annualised recurring revenue as at 31 December 2018, which incorporates annually recurring revenues only.

Clareti services revenues were up 34% to £3.9m, continuing the high levels of realisation and utilisation seen in the prior year as our services resources provided new and existing customers with consulting services to enable and increase Clareti use within their organisations.

Other Solutions

Revenues from Other Solutions declined 23% to £7.5m, in line with expectations.

Non-Clareti software revenues from partners are down 31% to £2.1m as a result of one of our legacy partner relationships ceasing as planned in the course of FY2017, with the full year impact in FY2018. This arrangement had a net contribution of 50%. Non-Clareti software revenues from our other legacy products continued to decrease as planned as customers moved off from ageing platforms to newer technologies. This level of attrition is expected to persist as these technology shifts continue, although the longevity of these very old legacy products continues to surpass our expectations. Our VME line of business, which was sold subsequent to the year end, is included within this revenue stream.

Non-Clareti services are predominantly in respect of tactical contracting services provided to ANZ, a strategically important Australian banking customer, which generate a direct net contribution to the Group of approximately 13%. We have increased the ease of forecasting for these contracting services through increasing the committed term of each engagement and we anticipate these low-margin revenues with this customer will continue for the foreseeable future.

Revenue from our discontinuing operation, which was sold subsequent to the balance sheet date, were aligned with our expectations.

IFRS 15 - Revenue from contracts with customers

IFRS 15 was adopted from the 1 January 2018, full disclosure of which can be found in note 29. As anticipated, this has not had a significant impact on our current year or historic revenues or associated costs. The key changes have occurred in relation to: our Clareti subscription licences where accompanying hosting or managed services are not provided to customers; and to the capitalisation of pre-contract costs.

Historically, we recognised all subscription revenues over the term of the subscription. However, upon adoption of IFRS 15, we consider that, for Clareti subscription licences where accompanying hosting or managed services are not provided to the customer, we are providing two distinct deliverables: the software itself; and the maintenance and support service. We therefore assign an estimated stand-alone selling price to each of these deliverables and recognise the value of each upon delivery of our obligations thereunder. The outcome of this is typically that estimated stand-alone selling price of the software licence is recognised at a point in time upon delivery of the software and accompanying annual software licence key, whilst the estimated stand-alone selling price of the maintenance and support service is recognised over the period the service is delivered. The impact of this change has resulted in a cumulative acceleration of recurring revenue prior to the current fiscal year of £0.1m, taken as an adjustment to retained earnings as at 1 January 2018, along with an increase to the current year revenue of £0.1m.

Under previous accounting standards, we also capitalised qualifying pre-contract costs incurred during the sales process, expensing these over the term of the customer contract. Under IFRS 15, we no longer consider this appropriate treatment, therefore we have written off £0.1m to retained earnings as at the 1 January 2018.

				2018	2017	Variance	%
Clareti Solutions	Recurring		£m	6.6	5.3	1.3	25%
	Non-recurring		£m	1.3	2.9	(1.6)	(56%)
	Software		£m	7.9	8.2	(0.3)	(3%)
	Services		£m	3.9	2.9	1.0	34%
	Total	KPI	£m	11.8	11.1	0.7	6%
Other Solutions	Software - Partners		£m	2.1	3.1	(1.0)	(31%)
	Software - Own solutions		£m	0.9	1.1	(0.2)	(24%)
	Services		£m	4.5	5.5	(1.0)	(19%)
	Total		£m	7.5	9.7	(2.2)	(23%)
Total from Continuing Operations - note 3		KPI	£m	19.3	20.8	(1.5)	(7%)
Discontinued	Software - Own solutions		£m	0.7	0.9	(0.2)	(18%)
Total Revenue		KPI	£m	20.0	21.7	(1.7)	(8%)
Annualised recurring revenue	Clareti	KPI	£m	7.4	5.7	1.7	30%
as at 31 December 2018	Other		£m	2.8	3.7	(0.9)	(24%)
	Total	KPI	£m	9.7	9.4	0.3	3%

Earnings (from continuing operations)

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

The Group's gross margin fell by 1% to 84%. This fall in gross margin is largely as a result of an ongoing reduction of high margin legacy 'own-solution' software revenues, coupled with an increase in the number of Clareti customers choosing our hosted Clareti-as-a-Service (CaaS) solution, which attracts third party fees classified as a cost of sale.

Our gross margin continues to be affected by the split of contracting service revenues that are provided by third party contractors (which is recorded in cost of sales) and individuals we bring on our payroll as fixed-term employees (which is recorded in administration costs). Excluding the impact of the differences of these splits in contractor and staff costs year on year, our gross margin reduced from 74% in FY2017 to 73% in FY2018.

The Group experienced a significant decline in earnings, with adjusted EBITDA including discontinuing operations falling by 78% to £1.1m, as a result of: the fall in Clareti non-recurring revenues; continued investment in the Clareti business; lower rate of Clareti development spend qualifying for capitalisation; the acquisition of the B2 Group; and decline across all lines of the Other Solutions portfolio.

·          Financials quoted in Financial review include discontinued operations

The vast majority (over 95%) of Group spend on staff, buildings and overheads continues to be in respect of Clareti Solutions.

The combined impact of items discussed in the previous paragraphs led to a loss after tax of £1.4m, a reduction of £5.2m on the prior year.

Including discontinued operations				2018	2017	Variance	%
Gross margin			£m	16.8	18.4	(1.6)	(9%)
Gross margin			%	84%	85%	(1%)	(1%)
Adjusted EBITDA		KPI	£m	1.1	5.1	(4.0)	(78%)
Adjusted EBITDA		KPI	%	5%	24%	(19%)	(77%)
Statutory profit after tax			£m	(1.4)	3.8	(5.2)	(137%)
Adjusted diluted EPS		KPI	pence	(0.50)	6.51	(7.01)	(108%)

Exceptional items

During the year, the Group incurred exceptional costs completing the acquisition and integration of the B2 Group; exceptional legal and advisory costs associated with the establishment of our all-staff incentive share scheme; and exceptional recruitment costs associated with the recruitment of a new CFO. These costs totalled £333,000 and are offset by exceptional income arising from the fair value adjustment of the C24 contingent consideration of £30,000, resulting in a net exceptional charge of £303,000 (2017: £90,000).

Taxation

For the year ended 31 December 2018, the Group has recorded a net tax credit of £0.1m (2017: £0.7m) which, as in prior years, is primarily as a result of research and development enhanced relief available for our UK development activities, offset by taxation payable both in the UK and overseas in respect of our reselling and servicing operations.

Cash flow

The Group's financial position remained strong at 31 December 2018, with cash and financial assets of £5.6m and no debt (2017: £8.5m and no debt).

The net operating and capital expenditure cash inflow is offset by a £3.0m initial cash payment, including a £1.2m settlement of debt, in respect of the acquisition of the B2 Group in July 2018 and the final £0.4m instalment payable in respect of the acquisition of C24 Technologies in October 2016.

Operating cash flow excluding working capital has decreased by £4.6m to £0.9m in the year for the same reasons as the fall in adjusted EBITDA as detailed above.

The Group also declared and paid its maiden dividend during the year of £0.3m. 

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, either through bank deposits or to support our M&A ambitions.

			2018	2017	Variance	%
Operating cash flow excluding working capital		£m	0.9	5.5	(4.6)	(84%)
Movement in working capital		£m	1.1	(0.3)	1.4	467%
Capital expenditure - development costs		£m	(2.6)	(3.2)	0.6	19%
Capital expenditure - other		£m	(0.2)	(0.3)	0.1	33%
Shares issued as consideration and acquisition		£m	(2.0)	(0.7)	(1.3)	(182%)
Dividend		£m	(0.3)	-	(0.3)	-
Other		£m	0.5	0.1	0.4	400%
Net (decrease)/increase in cash & financial assets		£m	(2.6)	1.1	(3.7)	(337%)
Cash	KPI	£m	5.6	8.5	(2.9)	(34%)
Cash and cash equivalents		£m	5.3	8.3	(3.0)	(36%)
Financial assets		£m	0.3	0.2	0.1	50%

Consolidated statement of financial position

Intangible fixed assets have increased since the prior year end from £20.5m to £25.3m. The significant portion of this increase comes from the £4.2m gross value of intangible assets acquired with the acquisition of B2 Group, along with a net increase of £1.3m to capitalised development costs. Trade and other receivables have decreased from £5.5m to £4.6m, which is largely as a result of the timing of new contracts being won compared to the prior year. Trade and other payables have increased from £9.8m to £11.7m as a result of a £0.9m increase in other payables, largely due to an increase in VAT payable and a £1.0m increase in contract liabilities, which is largely as a result of deferred revenue acquired with the B2 Group acquisition as well as the general increase in Clareti recurring revenue base during the year.

Financial outlook

Whilst FY2018 experienced a reduction of the Clareti growth rate as a result of delays to a small number of high value contracts, the Group continues to deliver consistent Clareti growth. However, to drive more predictability into the business, the Group intends to increase its focus on generating higher levels of Clareti recurring revenues rather than initial licence fees.

The contribution from our non-Clareti business, which provides good quality, stable cash flow to support Clareti investments, will reduce in 2019 as a result of the sale of our VME software business to Fujitsu for more than 2.5 times FY2018 revenue, as announced in January 2019. We are planning for further declines in the residual portfolio as customers migrate to newer or alternative platforms.

Tom Mullan

Chief Financial Officer

CONSOLIDATED INCOME STATEMENT

	Notes	31 December 2018	31 December 2017
		£'000	£'000
Revenue	3,4	19,266		20,792
Cost of sales		(3,260)		(3,283)
Gross profit		16,006		17,509
Adjusted administrative expenses		(17,222)		(14,514)
Adjusted operating (loss)/profit		(1,216)		2,995
Adjusting administrative items:
Exceptional items	4	(303)		(90)
Amortisation on acquired intangibles	13	(605)		(410)
Share-based payments	23	(161)		(239)
		(1,069)		(739)
Total administrative expenses		(18,291)		(15,253)
Statutory operating (loss)/profit from continuing operations	4,5	(2,285)		2,256
Share of post tax profits/(losses) of joint venture	15	75		(18)
Finance revenue	3,8	19		33
Finance costs	8	(6)		(2)
(Loss)/profit before taxation from continuing operations		(2,197)		2,269
Taxation	9	114		744
(Loss)/profit after taxation from continuing operations		(2,083)		3,013
Profit after taxation from discontinuing operations	30	667		788
Attributable to owners of the Parent	2	(1,416)		3,801
Earnings per share
Statutory
Basic earnings per share - pence	10	(2.09)		5.65
Diluted earnings per share - pence	10	(2.09)		5.45
Adjusted
Basic earnings per share - pence	10	(0.50)		6.75
Diluted earnings per share - pence	10	(0.50)		6.51
Earnings per share - continuing
Statutory
Basic earnings per share - pence	10	(3.07)		4.48
Diluted earnings per share - pence	10	(3.07)		4.32
Adjusted
Basic earnings per share - pence	10	(1.50)		5.58
Diluted earnings per share - pence	10	(1.50)		5.38

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	31 December 2018	31 December 2017
	£'000	£'000
Attributable to the owners of the Parent	(1,416)	3,801
Other comprehensive expenses
Items that will or may be re-classified into profit or loss - exchange differences	(68)	(31)
Total other comprehensive expenses	(68)	(31)
Total comprehensive (expenses)/income for the year	(1,484)	3,770

The tax effect of exchange differences recorded within the Consolidated Statement of Comprehensive Income is a credit of £13,000 (2017: credit of £6,000).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Notes	31 December 2018	31 December 2017
		£'000	£'000
Assets
Non-current assets
Property, plant and equipment	12	480	590
Intangible assets	13	25,340	20,479
Interest in joint venture	15	57	(18)
Deferred tax assets	9	1,166	1,894
		27,043	22,945
Current assets
Asset held for sale	30	74	-
Trade and other receivables	17	4,639	5,477
Income tax receivable	17	821	109
Other financial assets - bank deposits/restricted cash	18	278	200
Cash and cash equivalents	18	5,323	8,280
		11,135	14,066
Total assets		38,178	37,011
Equity and liabilities
Equity attributable to owners of the Parent
Called up equity share capital	22	3,404	3,375
Share premium account	24	3,830	3,562
Other reserves	24	536	313
Foreign currency translation reserve	24	(78)	(10)
Retained earnings	24	16,660	18,275
Total equity attributable to owners of the Parent	24	24,352	25,515
Non-current liabilities
Contract Liabilities	19	486	592
Provisions	19	59	18
Deferred tax liability	9	1,083	596
Contingent consideration	19, 28	67	-
		1,695	1,206
Current liabilities
Liabilities held for sale	30	384	-
Trade and other payables	19	11,716	9,820
Income tax payable	19	5	47
Provisions	19	26	67
Contingent consideration	19, 28	-	356
		12,131	10,290
Total liabilities		13,826	11,496
Total equity and liabilities		38,178	37,011

The financial statements were approved by the Board of Directors and authorised for issue on 11 March 2019.

On behalf of the Board

Ian Manocha                        Tom Mullan

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Notes	Share capital	Share premium	Other reserves	Currency translation	Retained earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2017		3,340	3,242	313	21	14,235	21,151
Attributable profit for the period		-	-	-	-	3,801	3,801
Other comprehensive expense		-	-	-	(31)	-	(31)
Total comprehensive income		-	-	-	(31)	3,801	3,770
Share transaction costs	22	-	(7)	-	-	-	(7)
Exercise of share options	22	35	327	-	-	-	362
Share-based payment expense	23	-	-	-	-	239	239
At 31 December 2017 (as reported)		3,375	3,562	313	(10)	18,275	25,515
Adjustment arising from change in accounting standard IFRS 15
-       Prepaid contract costs	29	-	-	-	-	(142)	(142)
-       Revenue adjustment	29	-	-	-	-	139	139
-       Commission expense	29	-	-	-	-	(19)	(19)
		3,375	3,562	313	(10)	18,253	25,493
Attributable profit for the period		-	-	-	-	(1,416)	(1,416)
Other comprehensive expense		-	-	-	(68)	-	(68)
Total comprehensive income		-	-	-	(68)	(1,416)	(1,484)
Exercise of share options	22	23	278	-	-	-	301
Share issue proceeds	22	6	-	223	-	-	229
Share transaction costs	22	-	(10)	-	-	-	(10)
Share-based payment expense	23	-	-	-	-	161	161
Dividend paid	11	-	-	-	-	(338)	(338)
At 31 December 2018		3,404	3,830	536	(78)	16,660	24,352

CONSOLIDATED STATEMENT OF CASHFLOW

	Notes	31 December 2018	31 December 2017
		£'000	£'000
Cashflows from operating activities
Profit after taxation		(1,416)	3,801
Depreciation, amortisation and impairment	5	2,237	1,855
Share-based payment expense	23	161	239
Share of post tax loss from joint venture	15	(75)	18
Increase in trade and other receivables		(1,529)	(781)
Increase in trade and other payables		2,045	495
Movement in deferred tax provisions		610	-
Movement in provisions		2	20
Fair value adjustment on deferred contingent consideration	28	(30)	(69)
Net finance income	8	(14)	(31)
Cash inflow from operations		1,991	5,547
Income taxes received		96	-
Income taxes paid		(118)	(291)
Net cash inflow from operating activities		1,969	5,256
Cashflows from investing activities
Interest received	8	19	31
Decrease/(increase) in financial assets - bank deposits/restricted cash		(78)	(200)
Purchase of property, plant and equipment	12	(188)	(280)
Net payments to acquire subsidiary undertaking	28	(1,947)	(711)
Payments to acquire intangible fixed assets	13	(2,603)	(3,199)
Net cash (used in)/generated from investing activities		(4,797)	(4,359)
Cashflows from financing activities
Interest paid		(6)	-
Dividend paid	11	(338)	-
Share issue proceeds	23	292	239
Share issue transaction costs	22	-	(7)
Net cash generated from financing activities		(52)	232
Net (decrease)/increase in cash and cash equivalents		(2,880)	1,129
Cash and cash equivalents at beginning of year		8,280	7,206
Exchange adjustments		(77)	(55)
Cash and cash equivalents at end of year	18	5,323	8,280

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 2018 and 31 December 2017 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 2018.

Statutory accounts for the year ended 31 December 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2018, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2017 statutory accounts have been applied consistently in all material respects.

This Annual Financial Report Announcement was approved by the Board of Directors on 11 March 2019 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 2018 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 2018 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 2018 are set out in the Annual Financial Report 2018.

3. Segment information

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

In addition, 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. These solutions include:

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

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

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

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

o  Clareti Multi-Bank; Real time visibility of cash and stock portfolios across multiple institutions giving treasurers absolute confidence of their exact positions at all times.

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

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

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. No adjustment has been made to Financial Position items as the discontinuing operations were not an asset held for sale as at 31 December 2017.

			Other
Year ended 31 December 2018	Notes	Clareti Solutions	Solutions	Contracting Services	Adjustments, central and eliminations	Consolidated
		£'000	£'000	£'000	£'000	£'000
Revenue
External customer		11,810	3,285	4,171	-	19,266
Inter-segment		-	-	-	-	-
Total revenue	3	11,810	3,285	4,171	-	19,266
					-	-
Cost of sales		(860)	(844)	(1,589)	-	(3,293)
Cost of sales capitalised as intangible asset		33	-	-	-	33
Gross profit		10,983	2,441	2,582	-	16,006
		93%	74%	62%	-	83%
Contracted administrative expenses		-	-	(2,039)	-	(2,039)
Gross profit after contracting fully costed		10,983	2,441	543	-	13,967
		93%	74%	13%	-	72%
Adjusted administrative expenses		-	-	-	(15,183)	(15,183)
Adjusted operating (Loss)/profit		10,983	2,441	543	(15,183)	(1,216)
Adjusting items:
Exceptional costs		-	-	-	(303)	(303)
Amortisation of acquired intangibles	13	-	-	-	(605)	(605)
Share-based payments	23	-	-	-	(161)	(161)
Adjusting administrative expenses		-	-	-	(1,069)	(1,069)
Statutory operating (Loss)/profit		10,983	2,441	543	(16,252)	(2,285)
Share of post tax profits from joint venture	15					75
Interest revenue	8					19
Interest expense	8					(6)
Loss before taxation from continuing operations						(2,197)
Taxation	9					114
Loss after taxation from continuing operations						(2,083)
Profit from discontinuing operations						667
Loss after taxation						(1,416)
Segment assets						38,178
Segment liabilities						(13,826)
			Other
Year ended 31 December 2017	Notes	Clareti Solutions	Solutions	Contracting Services	Adjustments, central and eliminations	Consolidated
		£'000	£'000	£'000	£'000	£'000
Revenue
External customer		11,146	4,876	4,770	-	20,792
Inter-segment		-	-	-	-	-
Total revenue	3	11,146	4,876	4,770	-	20,792
					-	-
Cost of sales		(449)	(869)	(2,081)	-	(3,399)
Cost of sales capitalised as intangible asset		116	-	-	-	116
Gross profit		10,813	4,007	2,689	-	17,509
		97%	82%	56%	-	84%
Contracted administrative expenses		-	-	(2,038)	-	(2,038)
Gross profit after contracting fully costed		10,813	4,007	651	-	15,471
		97%	82%	14%	-	74%
Adjusted administrative expenses		-	-	-	(12,476)	(12,476)
Adjusted operating profit		10,813	4,007	651	(12,476)	2,995
Adjusting items:
Exceptional costs		-	-	-	(90)	(90)
Amortisation of acquired intangibles	13	-	-	-	(410)	(410)
Share-based payments	23	-	-	-	(239)	(239)
Adjusting administrative expenses		-	-	-	(739)	(739)
Statutory operating profit		10,813	4,007	651	(13,215)	2,256
Share of post tax loss from joint venture	15					(18)
Interest revenue	8					33
Interest expense	8					(2)
Profit before taxation from continuing operations						2,269
Taxation	9					744
Profit after taxation from continuing operations						3,013
Profit after taxation from discontinuing operations						788
Profit after taxation						3,801
Segment assets						37,011
Segment liabilities						(11,496)

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

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 £8.6m (2017: £7.8m). This revenue includes the low-margin contracting revenue of £4.2m (2017: £4.8m) noted above. The revenue from this customer falls predominantly within the Other Solutions segment.

Exceptional items

	2018	2017
	£'000	£'000
Exceptionals
Acquisition and associated integration costs	213	77
Fair value adjustment to acquisition contingent consideration and tax cost	14	(59)
Advisory fees for establishment of joint venture and all-staff incentive scheme	61	42
Staff costs (recruitment and termination costs)	15	30
	303	90

During the year the Group incurred exceptional costs completing the acquisition and integration of the B2 Group; exceptional legal & tax advisory costs associated with the new all-staff incentive scheme; fair value adjustment in respect of the C24 contingent consideration paid in May 2018; and exceptional recruitment costs associated with the recruitment of a new CFO. These costs totalled £303,000 (2017: £90,000).

Geographic information

	2018	2017
	£'000	£'000
Revenues from external customers (by destination)
EMEA	2,733	1,847
North America	265	875
UK	4,286	6,186
United States	2,097	2,687
Australia	8,664	8,063
Asia Pacific	1,221	1,134
	19,266	20,792
	£'000	£'000
Non-current assets
UK	21,103	20,277
North America	17	22
EMEA	4,041	-
Asia Pacific	716	752
	25,877	21,051

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

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.

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 2018 (2017: £nil).

Tax on loss on ordinary activities

Tax credited in the income statement

	2018	2017
	£'000	£'000
Current income tax
Overseas tax charge - adjustment to previous years	22	53
Overseas tax charge - current year	43	50
UK corporation tax credit - adjustment to previous years	(789)	(20)
UK corporation tax credit - current year	-	-
Total current income tax	(724)	83
Deferred income tax
Release/(recognition) of deferred tax asset	601	(827)
Tax rate change adjustments	9	-
Total deferred income tax	610	(827)
Total credit in the income statement	(114)	(744)

Reconciliation of the total tax charge

The tax credit in the income statement for the year is lower than the standard rate of corporation tax in the UK of 19.00% (2017: 19.00%). The differences are reconciled below:

	2018	2017
	£'000	£'000
(Loss)/profit before taxation	(1,530)	3,057
Accounting (loss)/profit multiplied by the UK standard rate of
corporation tax of 19.00% / 19.25%	(291)	588
Income/expenses not deductible for tax purposes	63	160
Differences in tax rates	3	84
Overseas tax credit - adjustment to previous years	22	53
R&D tax credit - previous year	(789)	-
R&D enhanced relief	(1,007)	(1,277)
Movement in unrecognised losses carried forward	893	(388)
Movement in unrecognised temporary differences	219	451
Movement in unrecognised fixed asset temporary differences	162	129
Temporary difference on share-based payments	720	(459)
Temporary movement on acquired intangibles	(118)	(85)
Tax rate change adjustments	9	-
Total tax credit reported in the income statement	(114)	(744)

 

Unrecognised tax losses

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

The tax effect of exchange differences recorded within the Consolidated Statement of Comprehensive Income is a credit of £13,000 (2017: credit of £6,000).

Temporary differences associated with Group investments

At 31 December 2018, there was no recognised deferred tax liability (2017: £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

Recognised deferred tax Asset

	2018	2017
	£'000	£'000
1 January	1,894	1,151
Movement in the period- Losses	232	640
Share-based payment timing differences	(788)	421
Qualifying R&D expenditure	(206)	(348)
Fixed asset timing differences	48	30
Acquired on acquisition of subsidiary undertaking	-	-
Impact of change in tax rate	(14)	-
31 December	1,166	1,894
Comprising:
Qualifying R&D expenditure	(2,409)	(2,204)
Accelerated capital allowances	200	152
Employee share award schemes	136	924
Tax losses	3,239	3,022
31 December	1,166	1,894

A deferred tax debit of £610,000 (2017: credit £322,000) has been recognised in the year in respect of tax losses and capital allowances in excess of depreciation and other temporary differences.

Deferred tax liability

	2018	2017
	£'000	£'000
Intangible asset acquired on acquisition	1,083	596
Comprising:
1 January	596	680
Recognised in the income statement	(118)	(84)
Acquisition of intangibles in subsidiaries	605	-
31 December	1,083	596

Unrecognised potential deferred tax assets

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

	2018	2017
	£'000	£'000
Temporary differences	(8)	(87)
Tax losses	501	621
Unrecognised deferred tax asset	493	534
Gross temporary differences unrecognised	(47)	(289)
Gross tax losses unrecognised	2,342	2,588
Gross temporary timing differences unrecognised	2,295	2,299

Future tax rates

The main rate of corporation tax for UK companies reduced from 21% to 20% from 1 April 2015. The Finance Bill 2015, which was substantively enacted on 26 October 2015, announced further reductions to the main rate of corporation tax. The rate further reduced to 19% from 1 April 2017 and will reduce by a further 1% to 18% from 1 April 2020. The Finance Act 2016 was approved on 15 September 2016. The Act reduces the main rate of corporation tax to 17% from 1 April 2020 (superseding the 18% rate effective from that date introduced in the Finance (No.2) Act 2015).

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

	2018	2017
	%	%
UK	17/19	17/19
Australia	30	30
US	40	40

5. Earnings

Earnings per share

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

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

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

		31 December 2018	31 December 2017
Basic weighted average number of shares		67,772,715	67,276,136
Dilutive potential ordinary shares		-	-
Employee share options - weighted (note 23)		2,649,668	2,488,515
Diluted weighted average number of shares		70,422,383	69,764,651

		Notes	31 December 2018	31 December 2017
			£'000	£'000
Adjusted earnings attributable to owners of the Parent - including discontinuing operations			(347)	4,540
Adjusting items:
Exceptional items		4	(303)	(90)
Amortisation of acquired intangibles		13	(605)	(410)
Share-based payments		23	(161)	(239)
Statutory earnings attributable to owners of the Parent			(1,416)	3,801
Earnings per share - including discontinued
Statutory
Basic earnings per share - pence			(2.09)	5.65
Diluted earnings per share - pence			(2.09)	5.45
Adjusted
Basic earnings per share - pence			(0.50)	6.75
Diluted earnings per share - pence			(0.50)	6.51

Continuing operations		Notes	31 December 2018	31 December 2017
			£'000	£'000
Adjusted earnings attributable to owners of the Parent			(1,014)	3,752
Adjusting items:
Exceptional items		4	(303)	(90)
Amortisation of acquired intangibles		13	(605)	(410)
Share-based payments		23	(161)	(239)
Statutory earnings attributable to owners of the Parent			(2,083)	3,013

Earnings per share-Continuing Statutory
Basic earnings per share - pence			(3.07)	4.48
Diluted earnings per share - pence			(3.07)	4.32
Adjusted
Basic earnings per share - pence			(1.50)	5.58
Diluted earnings per share - pence			(1.50)	5.38

Adjusted EBITDA earnings - continuing operations

Adjusted EBITDA
(Loss)/profit before tax		(2,197)	2,269
Adjusting items:
Exceptional items	4	303	90
Amortisation of intangibles	13	1,941	1,509
Depreciation of P,P&E	12	297	245
Profit on disposal		(3)	-
Share-based payments	23	161	239
Interest received	3,8	(19)	(31)
Adjusted EBITDA - continuing operations		483	4,321
Discontinued operations		667	788
Adjusted EBITDA - including discontinuing operations		1,150	5,109

During the year ended 31 December 2018, share options granted under the 2010 Share Option Plans were exercised and the Group issued 462,500 (2017: 707,979) ordinary shares accordingly (ranking pari passu with existing shares in issue). See note 23 of the Group financial statements for further details. On 4 July 2018 134,440 shares were issued as part consideration for the acquisition of B2 Group at a placing price of £1.71.

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 2018.

6. Dividends paid and proposed

The final dividend for the year ended 31 December 2017 was approved at the Company Annual General Meeting on 10 May 2018 and paid on 21 May 2018 of 0.5p per share, equating to a total of £338,000. The Company will be proposing a final dividend for approval at the AGM for the year ended 31 December 2018 of 0.5p per share.

7. Intangible assets

31 December 2018			Separately identified intangibles on acquisition
	Development costs	Patents and licences	Software	Customer relationships	Goodwill	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Cost
At 1 January	17,503	923	3,067	866	2,323	24,682
Additions	2,583	20	-	-	-	2,603
Additions acquired as part of business combination	-	-	3,208	352	656	4,216
Disposals	-	(63)	-	-	-	(63)
Exchange adjustment	-	1	-	-	(17)	(16)
At 31 December	20,086	881	6,275	1,218	2,962	31,422
Amortisation and impairment
At 1 January	(2,774)	(661)	(383)	(135)	(250)	(4,203)
Charge for year	(1,259)	(77)	(467)	(138)	-	(1,941)
Eliminated on disposal	-	63	-	-	-	63
Exchange adjustment	-	(1)	-	-	-	(1)
At 31 December	(4,033)	(676)	(850)	(273)	(250)	(6,082)
Net carrying amount
At 31 December	16,053	205	5,425	945	2,712	25,340
At 1 January	14,729	262	2,684	731	2,073	20,479
31 December 2017			Separately identified intangibles on acquisition
	Development costs	Patents and licences	Software	Customer relationships	Goodwill	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Cost
At 1 January	18,843	1,745	3,067	866	2,329	26,850
Additions	3,148	51	-	-	-	3,199
Disposals	(4,482)	(870)	-	-	-	(5,352)
Exchange adjustment	(6)	(3)	-	-	(6)	(15)
At 31 December	17,503	923	3,067	866	2,323	24,682
Amortisation and impairment
At 1 January	(6,288)	(1,410)	(79)	(29)	(250)	(8,056)
Charge for year	(974)	(125)	(304)	(106)	-	(1,509)
Eliminated on disposal	4,482	870	-	-	-	5,352
Exchange adjustment	6	4	-	-	-	10
At 31 December	(2,774)	(661)	(383)	(135)	(250)	(4,203)
Net carrying amount
At 31 December	14,729	262	2,684	731	2,073	20,479
At 1 January	12,555	335	2,988	837	2,079	18,794

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 four to 14 years. These assets are tested for impairment where an indicator of impairment arises and annually prior to them being made available for use. Development costs have remaining lives between 4 and 14 years.

For the year ended 31 December 2018 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 5 and 15 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 14 years.

Patents and licences

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

Separately identified acquired intangibles

Separately identified intangibles acquired through business combinations represent software and customer relationships which arose through the acquisition of C24 Technologies Ltd in October 2016 and B2 Group in July 2018.

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 C24 Limited acquisition and six years for B2 Group.

Goodwill

Goodwill arose on the acquisition of our Asia Pacific real-time financial solutions business, C24 Technologies Ltd and B2 Group. It is assessed as having an indefinite life and is assessed for impairment at least annually.

8. Business combinations

Acquisition of B2 Group S.a.R.L

On 4 July 2018 Gresham Technologies Plc acquired all of the issued shares in B2 Group S.a.R.L, specialists in bank-to-corporate integration and cash management software with a focus on the growing multi-bank solutions market. B2 Group's core product is an innovative, proprietary, cloud-based software platform that connects corporates and asset managers with their bank partners. It provides organisations with real-time visibility of their cash position, improved control of outgoing payments and automated processing of incoming statements. The acquisition was made for initial consideration of EUR 3.65m, comprising cash of EUR 3.35m and newly issued shares in Gresham Technologies Plc to the value of EUR 0.3m. Contingent consideration dependent upon performance of up to EUR 4.85m may be payable over the two year period subsequent to the acquisition, therefore the total potential consideration is up to EUR 8.50m.

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

	Notes
		Book value £'000	Adjustment £'000	Fair value £'000
Intangible assets
Software	13	-	3,208	3,208
Customer relationships	13	-	352	352
Property, plant and equipment		1	-	1
Trade receivables		322	-	322
Other receivables		53	-	53
Bank overdraft		(73)	-	(73)
Trade payables		(298)	-	(298)
Contract liabilities		(570)	-	(570)
Other liabilities		(561)	-	(561)
Bank and other loans payable		(641)	-	(641)
Deferred tax		-	-	-
Total identifiable assets		(1,767)	-	-
Deferred tax on differences between fair values and tax bases		-	(605)	(605)
Goodwill	13	-	656	656
Total net assets/consideration		(1,767)	3,611	1,844
Satisfied as follows:
Cash & Shares				1,777
Contingent consideration				67
Total purchase consideration				1,844
Analysis of cashflows on acquisitions:
Net cash acquired with subsidiary				(74)
Cash paid				(1,547)
Net cash outflow				(1,621)
Fair value of consideration paid
Cash Shares issued				1,547 230
Contingent consideration due < 1 year				-
Contingent consideration due >1 year				67
Total consideration				1,844

The goodwill recognised above is attributable to intangible assets that cannot be individually separated and reliably measured from B2 Group S.a.R.L due to their nature.  These items include the expected value of synergies and assembled workforce.

Acquisition costs of £213k arose as a result of the acquisition and integration of B2 Group. These have been recognised within exceptional costs within the statement of comprehensive income.

From the date of acquisition, B2 Group S.a.R.L has contributed £696,000 of revenue to the Group and operating losses £470,000. If the acquisition had occurred on 1 January 2018, group revenue would have been £19,784,000 (£20,538,000 inclusive of discontinued operations) and group loss before tax would have been £2,799,000 (£2,132,000 including discontinued operations).

Contingent consideration - B2 Group S.a.R.L

As part of the share sale and purchase agreement, contingent consideration of €4,850,000 was agreed. This payment is subject to certain transition related objectives and forecasted customer contract renewals and wins being achieved. The contingent consideration is payable in two tranches, one 12 months on the anniversary of the completion of up to €2,425,000 and the second payable 24 months after completion, and relating to the second twelve months post acquisition, of up to a further €2,425,000. However due to the first six months of results not being achieved management have not provided for any of the potential contingent consideration in respect of the first anniversary earn out, in relation to the second anniversary earn out, relevant to the second year post acquisition, 25% of the amount expected to be payable to non employee shareholders has been recognised as part of the acquisition consideration.

Due to a condition of the contingent consideration being that two of the former shareholders retain employment with the Gresham Technologies Group at the anniversaries of the completion dates; in line with IFRS 3 any Earn Out in relation these employees will be treated as compensation, rather than consideration, and will be expensed in the period to which it relates. Nothing has been accrued at the balance sheet date as the first anniversary earn out, relevant to performance during the financial year, is not expected to be achieved.

During the year ended 31 December 2018 the Group settled the second tranche of contingent consideration in relation to the C24 Technologies Limited acquisition in 2016; which resulted in a reduction in contingent consideration liability on the balance sheet. The reduction in the fair value paid was due to slightly lower achievement of performance targets, this adjustment has been recognised as a gain within the Group exceptional line in the Group Income Statement.

	2018
	£'000
Contingent consideration
Brought forward	356
Adjustment due to lower achievement of performance obligations	(30)
Paid in the year	(326)
B2 Group Year 2 EO	67
Carried forward	67

9. Effects of changes in accounting policies

IFRS 9 Financial Instruments (IFRS 9)

IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement (IAS 39), and has not had an impact  on the Group to date and therefore no adjustments have been applied.

IFRS 15 Revenue from Contracts with Customers (IFRS 15)

IFRS 15 has replaced IAS 18 Revenue (IAS 18) and IAS 11 Construction Contracts as well as various Interpretations previously issued by the IFRS Interpretations Committee. 

IFRS 15 Revenue from Contracts with Customers (effective for the Group's first IFRS financial statements for the period beginning on 1 January 2018) which replaced IAS 18 'Revenue', IAS 11 'Construction Contracts' and related interpretations. The standard introduces a single, five-step revenue recognition model that is based upon the principle that revenue is recognised at the point that control of goods or services is transferred to the customer. The standard also updates revenue disclosure requirements, which have been made in note 3.

The Directors have specifically considered the adoption of IFRS 15 on the revenue recognition of the Group's entire revenue base and associated costs such as commissions and pre-customer acquisition costs. As a result of the IFRS 15 and the changes in revenue accounting policy, the Group has chosen not to restate the comparatives, applying the cumulative catch up method through opening equity as at 1 January 2018 and therefore not reflected in prior year financial statements.

It has been necessary for us to measure an appropriate stand-alone selling price for our software products and associated maintenance and support services. This is not dissimilar to the assessment of fair value under the preceding IAS 18 standard. We have used both external benchmarking data, industry norms and our own experience is creating and servicing our software assets to establish appropriate stand-alone sales prices. Ultimately, we have concluded that each software contract is unique with regards to exact volumes, scope of use and value it brings to customers, therefore the stand-alone sales price of each element of a typical software, support and maintenance contract must be considered as a whole and apportions then assigned to each performance obligation. The annual stand-alone sales price of our standard support and maintenance offering will always be equal to 20% of the five year software licence fee, or of the total combined five year licence, support and maintenance fees, the stand-alone sales price of the licence will be 50% and the support and maintenance 50%. This ratio is also well aligned to the proportion of development costs capitalised in proportion to our annual support and maintenance costs.

The IASB's basis of conclusion document, BC100, which does not form part of the IFRS15 standard itself, but is the IASB's clarification of their intention upon writing the standard is critical in understanding the rationale behind the Directors conclusion that there would be changes required to revenue recognition as a result of the adoption of IFRS15. BC100 reads as follows:

"The boards observed that the assessment of whether the "customer can benefit from the goods or services on its own" should be based on the characteristics of the goods or services themselves instead of the way in which the customer may use the goods or services. Consequently, an entity would disregard any contractual limitations that might preclude the customer from obtaining readily available resources from a source other than the entity."

Historically, under IAS 18, it was differences in contractual obligations between perpetual or term type licence arrangements and bundled subscription arrangements that was key to concluding upon whether software licences were recognised upfront, upon satisfaction of licence performance obligations, which was usually software delivery. Or, whether the contractual obligations of the software licence were not distinguishable from the contractual requirements to provide software support and maintenance over a contractual service period, and therefore the bundled subscription fee would be recognised as the combined service was delivered. Under IFRS 15, it is only differences in technical, delivery, functional or operational performance obligations that are appropriate to warrant differences in recognition methods. We have therefore needed to categorise our software licences into two categories, those where:

1.     The satisfaction of a performance obligation with a stand-alone selling price is operationally, technically, functionally separate, and deliverable separately, from other deliverables to the customer; and

2.     The satisfaction of a performance obligation with a stand-alone selling price is not operationally, technically, functionally and deliverable separate from other deliverables to the customer.

These categories are analysed further here below.

The satisfaction of a performance obligation with a stand-alone selling price is operationally, technically, functionally separate, and deliverable separately, from other deliverables to the customer

This covers the majority of our Clareti software licences, regardless of contract type, where we deploy our software on the customers premises or in a cloud infrastructure for which we are not responsible. Under such deployments we are able to deliver our standard software, provide the customer with a licence key and thus recognise revenue based upon the stand-alone selling price for the given software at the point in time at which our performance obligation with regards to the software is met. If there is associated support and maintenance provided to the customer, then the stand-alone selling price of such a service is recognised over the service period. This scenario also covers the majority of our own and our partners legacy software products.

Scenarios where this has resulted in a change of revenue recognition are:

·      Clareti subscription licences where we are not responsible for providing a hosted infrastructure to deploy the software upon:

The adjustment in respect of this scenario on opening equity equated to an increase of £107,000 and additional revenue in 2018 of £18,000.

·      Clareti licence arrangements which contain an initial upfront fee and an ongoing recurring fee that is greater than or less than the standalone selling price of maintenance and support:

The adjustment in respect of these contracts on opening equity equated to an increase of £32,000 and additional revenue in 2018 of £22,000.

The satisfaction of a performance obligation with a stand-alone selling price is not operationally, technically, functionally separately, and deliverable separately, from other deliverables to the customer

Under such a scenario, the 'bundled' fee is recognised over the service obligation period. Examples of such a scenario include:

·      Clareti subscription licences under our Clareti-as-a-Service ("CaaS") offering where we are also contracted by the customer to provide, and continue to provide, a hosted infrastructure to deploy our software upon. Without providing and continuing to provide the hosted infrastructure we cannot provide the customer with access to the software, therefore provision of the software is not separable from the ongoing hosting.

·      Our customer licences acquired (and sold since) the acquisition of the B2 Group, which are sold as a hosted solution.

·      Our C24 customers, who cannot gain value from the software provided without our ongoing maintenance of data conversion libraries as they are updated by their third-party owners.

Revenue recognition of these licences falling under this scenario have not changed since the adoption of IFRS 15.

Prepaid customer acquisition costs which were previously capitalised when the Group became the preferred bidder and classified as prepayments and accrued income and subsequently expensed to the profit and loss in line with the profile of the revenue have all been derecognised as these costs no longer meet the definitions of prepaid contract costs under IFRS 15. The impact to opening equity is negative £142,000.

Under IFRS 15, commissions directly attributed to the acquisition or ongoing servicing of a customer remain appropriate to capitalise, with the associated release to the income statement occurring in proportion with the revenue recognised to which the commission relates. Commissions associated with each of these revenue stream have also been adjusted to reflect the revised revenue recognition, impact on opening equity being negative £19,000.

The net impact of adjustments in relation to IFRS 15 have a cumulative negative on the Group Financial assets of £22,000, reducing other receivables by £161,000 and deferred income by £139,000.

Earnings per share attributable to the ordinary equity holders of the parent-Statutory	31 December 2017 As originally presented £'000	IFRS 15 £'000	1 January 2018 As restated £'000
Profit or loss Basic - Pence Diluted - Pence	5.65 5.45	(0.03) (0.03)	5.62 5.42
Continuing operations Basic - Pence Diluted - Pence	4.48 4.32	(0.03) (0.03)	4.45 4.29

10. Post-balance sheet events

On 11 January 2019, Gresham Technologies (UK) Limited, a wholly owned subsidiary of the Company, entered into a definitive agreement with Fujitsu Services Limited for the sale of its VME mainframe software business for £2m cash consideration overall. The disposal was completed on 31 January 2019. The sale is making a positive contribution to the profit for 2019. As such the assets and liabilities relating to this business have been disclosed in line with IFRS 5 assets held for sale and relate to outstanding Trade Receivables and Deferred income as at the balance sheet date.

Profits from discontinued operations		31 December	31 December
		2018	2017
		£'000	£'000
Revenue		755	876
Staff Costs		(42)	(37)
Other admin costs		(46)	(51)
Profit from discontinued operations		667	788
Net cash from discontinued operations		667	788

The post tax anticipated gain on disposal of discontinued operations in the financial year 31 December 2019

		£'000
Cash consideration		1,690
Net assets to be disposed of:
Trade receivables		(74)
Deferred income		384
Anticipated pre tax gain on disposal of discontinued operations		2,000

We do not anticipate a tax charge due to the utilisation of group relief.

11. Additional information

Related party transactions

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

Principal risks and uncertainties

The principal risks and uncertainties facing the Group together with actions being taken to mitigate them and future potential items for consideration are set out in the Strategic Report section of the Annual Financial Report 2018.

Long-term incentive plan

In December 2017, following shareholder approval at a general meeting, the Company adopted a new Deferred Share Bonus Plan ("DSBP"). All staff were eligible to participate in the DSBP, with the exception of the Gresham executive directors. At the time, the Company's remuneration committee committed to seeking independent advice to design and implement a new long-term incentive plan for executives. Following this consultation process, it is proposed that the new arrangements be implemented in 2019, subject to shareholder approval at the forthcoming annual general meeting. In doing so, the remuneration committee recognises that these changes must remain affordable and take into account relevant circumstances and, to this end, the implementation of these proposals would be phased such that potential awards in respect of 2019 will be reduced by 50% before full implementation in subsequent years.

The Company intends to publish and post its Annual Financial Report for the year ended 31 December 2018, together with the notice of the 2019 annual general meeting (the "AGM"), to shareholders on or about 26 March 2019. Included within the matters to be proposed at the AGM are two ordinary resolutions to facilitate these new arrangements; the first being to approve the directors' remuneration policy (with certain changes to facilitate participation by the executive directors in the DSBP), the full details of which will be set out in the Annual Financial Report 2018, and the second to authorise participation in the DSBP by the executive directors. Headline terms of the DSBP are set out in the circular to shareholders originally published in December 2017, a copy of which is available to download from the Gresham website at https://www.greshamtech.com/hubfs/gresham_investor/Gresham_Circular_Nov_2017.pdf.

In connection with the establishment and implementation of the DSBP, the Company has also created an employee benefit trust ("EBT"), managed by independent trustees, to operate the plan. The Board intends to authorise the EBT to buy existing shares to satisfy anticipated awards under the DSBP, thereby ensuring that any dilution upon exercise of awards under the DSBP is kept within the limits permitted by the Investment Association's remuneration guidelines. It is intended that the EBT be authorised to purchase existing ordinary shares over the next three to six months up to an aggregate market value of £1 million, to be funded from the Company's existing cash resources. Further purchases may be authorised at the Board's discretion.

 

END

 

 

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