Final Results

RNS Number : 5195F

Gresham Technologies PLC

10 March 2020

 

RNS

10 March 2020

Gresham Technologies plc

Annual Financial Report Announcement

Gresham Technologies plc (LSE: "GHT", "Gresham", "Company" or the "Group"), the leading software and services company that specialises in providing solutions for data integrity and control, banking integration, payments and cash management, is pleased to announce its results for the year ended 31 December 2019.

Financial

· Group revenues up 30% to £25.0m (2018: £19.3m)

· Clareti revenues up 31% to £15.5m (2018: £11.8m)

· Clareti software revenues up 40% to £11.1m (2018: £7.9m)

· Clareti annualised recurring revenues ("ARR") as at 31 December 2019 up 30% to £9.5m (2018: £7.4m)

· Other (non-Clareti) revenues up 27% to £9.5m (2018: £7.4m)

· Adjusted EBITDA⁽¹⁾ up £3.2m to £4.1m (2018: £0.9m)

· Cash adjusted EBITDA⁽²⁾ up £2.4m to £0.3m (2018: £(2.1)m)

· Statutory profit/(loss) before tax⁽³⁾ as reported at £1.9m (2018: £(1.4)m)

· Adjusted diluted earnings per share⁽⁴⁾ up 3.5 pence to 2.0 pence (2018: (1.5) pence)

· Cash (including deposits and restricted cash) at 31 December 2019 of £9.6m and no debt (2018: £5.6m and no debt)

· Final dividend proposed at 0.75 pence per share (2018: 0.5 pence)

Operational

· 15 new Clareti clients added in 2019

· Three strategic wins to replace legacy vendors in core cash & securities processing

· Strong growth within global key accounts and in the US market

· Progress in regulatory solutions with multiple OEM wins and go lives

· Cash management partnership with Australia and New Zealand Banking Group delivering to plan

· Continued investment to strengthen global sales and marketing organisation

· Management confident about the prospects for the Group

⁽¹⁾   Adjusted EBITDA refers to earnings before interest, tax, depreciation, impairment and amortisation, adjusted for one-off exceptional charges and share-based payments. Both years are stated after the application of IFRS 16 (leases) which reclassified rental expenses as amortisation and interest. Discontinued operations are not included in either year. (see note 4 of Group financial statements).

⁽²⁾ Adjusted EBITDA less capitalised development spend and any IFRS16 lease related cash payments.

⁽³⁾ Statutory profit/(loss) before tax includes discontinued operations and exceptional items.

⁽⁴⁾ Diluted earnings per share, adjusted to add back share-based payment charges, exceptional items, amortisation from acquired intangible assets and impairment of development costs.

⁽⁵⁾ Percentage increases stated above are based on rounding to the nearest £'000 as disclosed at detailed level within this report.

Ian Manocha, CEO, commented:

"2019 was an excellent year for Gresham, with strong recurring revenue growth driven by 15 new customer wins. During the year, some of the world's largest banks and investment firms put their trust in Clareti as the way forward for the replacement of the industry's legacy cash and stock reconciliation systems. We also made good progress in regulatory and in cash management solutions with further flagship wins. The successes of 2019 illustrate the exceptional opportunity for Clareti technology and our outstanding global team." 

As announced on 4 March 2020, a presentation for analysts will be held at 11.30 a.m. today by conference call, and a separate presentation for private and retail investors will be held at 4.30 p.m. today at the offices of N+1 Singer, One Bartholomew Lane, London EC2N 2AX and also by conference call. Admittance for these events is strictly limited to those who register their participation in advance. For 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.

The Annual Financial Report 2019 will be sent to shareholders in due course.

Enquiries

Gresham Technologies plc	[phone]
Ian Manocha
Tom Mullan
N+1 Singer (Financial Adviser and Broker)	[phone]
Shaun Dobson / Lauren Kettle (Corporate Finance)
Tom Salvesen (Corporate Broking)

Inside information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

Note to editors

Gresham Technologies plc is a leading software and services company that specialises in providing real-time solutions for data integrity and control, banking integration, payments and cash management. Listed on the main market of the London Stock Exchange (GHT.L) and headquartered in the City of London, its customers include some of the world's largest financial institutions and corporates, all of whom are served locally from offices located in Europe, North America and Asia Pacific.

Gresham's award-winning Clareti software platform is a highly flexible and scalable platform, available on-site or in the cloud, designed to address today's most challenging financial control, risk management, data governance and regulatory compliance problems. Learn more at www.greshamtech.com.

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

In accordance with the Disclosure and Transparency Rules, the extracts below are from the Annual Financial Report 2019 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 2019.

CHAIRMAN'S STATEMENT

I am pleased to present this Annual Financial Report 2019.

Overview

The first quarter of 2019 laid an excellent foundation for a successful financial year, in signing two strategic high-value contract awards, previously delayed from 2018, in January and February 2019. Group financial performance in the year was marginally ahead of the Board's expectations, with substantial growth reported across all of our financial KPIs (see KPIs, page 18 and Financial Review, page 21).

We successfully grew both our market share and profitable revenue streams commensurate with our strategy to build a high-margin, recurring revenue base through the sale and deployment of enterprise data integrity solutions utilising our proprietary Clareti platform (see Strategy, page 17). In addition, new contract awards were, and will continue to be, focused on building the base of recurring revenue, thereby increasing forward revenue visibility.

Market conditions continue to be challenged by geopolitical factors, although these headwinds have eased recently, due mainly to the prospect of less uncertainty in relation to the UK's relationship with the EU and improved political stability in the medium term. The Covid-19 situation is a global concern and we are monitoring developments very closely.

The market's appetite for better data integrity and control, particularly as this relates to regulatory reporting demands, continues to increase. The volume and complexity of data flows and the demand for accurate control and reporting over these flows is a matter of priority for company boards and regulators alike. Clareti Transaction Control ("CTC"), our flagship product built on the Clareti platform, is directly focused on addressing this demand and is being increasingly selected as a strategic solution for data integrity and control. As a result of the Company's ongoing investment in product functionality, CTC has displaced several incumbent competitor products in 2019. We would expect to further increase our market share as our competitive position is enhanced as a result of the ongoing investments cited below.

Ongoing investments

The Board continues to believe there is a very significant market opportunity for data integrity and control and cash management solutions and that ongoing investment in key strategic areas, commensurate with customer demand and acceptable ROI, remains a priority. We continue to invest in sales and marketing resources to accelerate revenue growth and in the Clareti platform to maintain our competitive advantages, as well as engaging in new initiatives with a small number of strategic clients. In particular, the previously announced strategic partnership with ANZ Bank is ongoing and performing well, with both parties keen to extend this co-operative effort.

Specifically, we are developing our cash management solutions to meet the growing demand in this area. The acquisition of B2 Group in July 2018 enriched the Clareti platform for cash management by providing multi-bank connectivity and cash management services such as sweeping and funding, payment aggregation and other wholesale banking services. Our wider vision for our cash management solutions is twofold:  firstly, to extend the capabilities of our partner transaction banks to enable them to compete against modern fintechs (and to offer banking services to those same fintechs); and secondly, for Gresham to directly offer such services through a platform hosted by Gresham. We believe we are well positioned to create a leadership position in this emerging market.

The Board has focused on delivering substantial organic growth in 2019 but will continue to consider appropriate acquisition opportunities as they arise.

Shareholder value

The Board is committed to delivering value for all stakeholders within the business. Whilst we recognise that the lumpy revenue profile and timing of historic contracts impacted our financial results, we have transitioned our model to reduce this volatility and drive a higher proportion of predictable annual recurring revenue. In conjunction with a strong product suite and a focus on innovative development, we believe that this is the most appropriate strategy to drive growth and value over the long term. 

In light of the Company's strong financial performance, I am pleased to confirm that the Company will maintain the payment of a progressive dividend. In respect of financial year 2019, the Board is proposing a final dividend of 0.75 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 further 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 market leader, capable of accommodating this increasing demand. Importantly, the role that Clareti solutions are playing in addressing the operational and regulatory challenges within our client base is increasing in scope and criticality. Our technology is strategically important to many major global institutions. 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 sales and marketing to promote our expanding Clareti portfolio, I anticipate further improvement in our market share gains. In addition, we will continue to 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.

2019 has been a pleasing and 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 leadership and excellence in our chosen markets.

As regards my own position, having served on the Board since 2010, I have now decided to step down from my role as Non-Executive Chairman as soon as a suitable replacement has been appointed. It has been an honour and a privilege to fulfil this role and be part of the outstanding Clareti journey for all these years. It has been a pleasure to work with such a talented team of dedicated people and I am confident that the Group will continue to thrive under the leadership of my successor and the executive team.

Ken Archer

Non-Executive Chairman

9 March 2020

CEO'S STATEMENT

Strategic overview

The Group's strategic plan is to create a valuable technology company by establishing our Clareti platform as the leading offering for financial markets participants who need to "be data confident". Our solutions give organisations confidence in the quality of their data and bring the benefits of intelligent automation and digital transformation into their most challenging and complex business processes and operations.

Clareti technology has now been adopted by over 100 firms around the world and Gresham is already regarded as an innovative provider of technology to many of the world's largest financial institutions. We aim to deepen those existing relationships, build further market share in financial services and, over time, extend the technology into other relevant industries.

During 2019, we took the strategic decision to move from more unpredictable upfront licence sales to a predominantly subscription business. This will ensure that we have greater predictability and a higher quality of earnings moving forward. The Clareti business is on track to achieve standalone cash profitability in 2020. This will end the Group's historic reliance on its portfolio of legacy businesses, which have been in structural decline for over a decade. Our ongoing investment in Clareti is building the foundations for sustained, profitable, growth for the Group in-line with our strategy to deliver long-term value for shareholders.

Clareti sales progress

2019 was a record year for new business wins, with 15 new Clareti clients in the USA, the UK and continental Europe, and we also expanded the relationship with a number of existing customers. The growth in recurring revenue during 2019 was particularly pleasing: Clareti forward-looking annualised recurring revenue has grown from £1.6m at the beginning of 2015 to approximately £9.5m today. Clareti software and related services are now responsible for generating around two-thirds of the Group's revenue.

Our technology platform

Our Clareti platform is inherently flexible and can be used to solve a wide variety of data integration, data quality, automation and control problems. The platform has matured and is extremely secure and robust. Our use of scalable cloud architectures, microservices and API's, coupled with modern development processes, enable us to rapidly build out further business services at relatively low incremental cost. To illustrate the depth of functionality available and the richness of IP owned by Gresham, there are now in excess of 6.5 million lines of code in the platform.

These capabilities enable us to address a number of complementary markets. We have chosen to focus our efforts in the following areas:

· data integrity and control solutions in banking, investment management, insurance, energy and commodities sector;

· regulatory reporting solutions in capital markets; and

· cash management and payments solutions for complex multi-nationals, banking service provider, insurers and wealth managers.

We have set medium term objectives for market leadership goals in each of these areas and made good progress in 2019.

Data integrity and control solutions

We were pleased to sign three strategically important agreements in the area of post-trade reconciliation of 'core' cash and securities processing. Two of these wins were with global investment banks and one was with a large investment manager. All three involved the displacement of established legacy vendors. Successful implementation of these wins, and our product investments, will enable us to build on our existing reputation for solving problems based on matching non-standardised data formats. Our goal over the next three to five years is to attack the legacy vendor duopoly that has existed for two decades and secure Gresham's place at the heart of global markets industry infrastructure for the next generation. I believe we can achieve number one in the global market for reconciliation software in financial markets.

Regulatory reporting solutions

The ability to match multiple feeds of non-standardised data and check for integrity against complex rules in order to identify and then resolve exceptions, are also key requirements of market participants struggling to meet ever more challenging regulatory reporting requirements. Our technology delivers against this requirement extremely well and has now been adopted by a number of firms specifically for regulatory purposes. Early in 2019, we went live with a large US bank for a regulatory data quality system. In the second half of the year, we signed a further global bank to support their implementation of CAT reporting in the USA. Our technology is also being adopted by several market services providers, including clearing houses and regulatory reporting vendors on an OEM basis. Several deals were announced in 2019 and we will look to expand our regulatory sales during 2020 with further partnerships and new name wins.

Cash management and payments

Our experience working with clients in this area confirms the growing demand for real-time cash management and payments services accessible through API's. In mid-2018, we acquired the B2 Group adding cloud-based bank integration technology, and we deepened our relationship with ANZ to develop the next generation of cash management solutions. B2 Group's growth during 2019 was unfortunately curtailed by a licence cancellation from a large client unexpectedly winding down their business. Despite this disappointing start, there is robust demand for banking integration services in the market and we expect a stronger performance in 2020 with a growing pipeline. The ANZ development work progressed well and ANZ made their first licence payments against product delivery milestones during 2019. The new software, named Clareti Cash Management, is expected to go into testing in Q2 2020 in order to be in production with ANZ's first clients towards the end of the year. These milestones will drive incremental licence revenues for the Group and give us confidence to commence marketing in Europe and the Americas. Our vision is to deliver Clareti Cash Management on top of Clareti Multi Bank (was B2) in the cloud and win several new bank relationships of comparable scale to ANZ as well as drive direct corporate relationships.

Customer success

Creating great customer references in the market is key to sustainable growth and positive advocacy of our customers is therefore of paramount importance to us. Our technology is used to process many billions of transactions a year across the financial markets and we are regarded as a mission critical part of our clients' businesses. 

Alongside the flagship software development and implementation projects that I have described above, there are a great many other that have been successfully executed. In 2019, our professional services team were running an average of 90 projects at any one time during the year, leading to 24% growth in consulting revenues year on year. Clareti consulting revenues have doubled in under 4 years as new software customers have been on-boarded. In 2019, our global customer support organisation received 5500 tickets into our helpdesk function. I'm pleased to report that our team resolved 96% of tickets within our demanding service level agreements.

This high volume of consulting and service activity is an indicator of the pace of adoption of our technology in the market and demand has undoubtedly stretched our team from time to time. During 2019, we established a customer support team on the east coast of the US. We will continue to invest in our customer success capabilities during 2020 with a focus on project management and a mix of experienced consultants and graduates.

Non-Clareti business

Our non-Clareti software businesses (including our own software and partner products) remain in structural decline. As a whole, these revenues were flat during the year although there has been a change in the mix. We divested our VME business to Fujitsu at the end of January 2019 for a consideration of £2m. These revenues were replaced by growth in VBT usage-based fees driven by one major customer. We expect the remaining software businesses to run off in the medium term and we are planning for a reduction in 2020.

The Group's Australian IT services contracting business with ANZ saw strong revenue growth after a slower year in 2018. 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 proactively grow it in the near term.

Outlook

The UK withdrawal from the EU and recent election has provided a much-needed period of stability in recent months. At the time of writing, concerns are rising globally regarding the potential impact of the Covid-19 virus on business and the community. Our major incident team has been preparing the Company for a possible escalation and we have taken actions to protect our staff and other stakeholders as best we can, as we continue to monitor the situation closely. Whilst the lack of clarity on post-Brexit trading arrangements into 2021 remain a concern, our financial markets customers have now made the necessary changes to their operating models and are focussed on investing for growth and reducing costs to fund innovation. We see continued investment in key areas of interest such as: AI and intelligent automation in operations; creating more robust and optimised regulatory data infrastructures; managing liquidity and improving transparency; learning to partner with innovative fintechs and other partners. The addressable market for our offerings continues to expand and we believe our technology has significant benefits over legacy vendors and newer competitors alike.

The key to success in 2020 and subsequent years will be the successful strengthening and scaling of our global sales and marketing organisation. Our entrepreneurial CTC direct sales team needs to evolve into an organisation that can not only continue to win new name business, but also manage global and key accounts, build out channels and alliances, open up new geographies, and sell our broader range of product offerings. These are well understood challenges for any successful growing enterprise software company and I am confident in our team's ability to tackle them and continue the remarkable Clareti success story. As a Board, we continue to look forward with confidence.

In light of Ken Archer's personal statement, I would like to close by expressing on behalf of all stakeholders our gratitude for the outstanding contribution that our Chairman has made to revitalising the Gresham business. The nomination committee will be looking at the appropriate composition of the Board to lead the Company forward and build on the successes of the last decade. Further announcements will follow in due course.

Thank you for your ongoing support.

Ian Manocha

Chief Executive

9 March 2020

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 31% revenue growth to £15.5m, with the growth being largely driven by revenues generated from new recurring software licences sold during the year, in particular the two high-value contracts that were expected to be recognised in Q4 of 2018 but slipped into Q1 of 2019 which generated approximately £1.9m of the £3.7m growth.

The Group is pleased that its increased focus on driving its annuity-based model, in order to deliver growth with an increased level of predictability, is proving impactful. Recognised Clareti recurring revenues increased 55% to £10.4m including £1.2m from Clareti Multi-Bank (from the 2018 acquired B2 Group). Our closing Clareti annualised recurring revenues totalled £9.5m (up 30%) due to the addition of annuity revenues all from either new software licences or existing customers' increased usage.

As a result of the increased focus on recurring revenues, non-recurring Clareti software revenues (initial licence fees) reduced by 42% to £0.7m as we signed fewer deals under this contracting structure. The portfolio of non-recurring Clareti software licences consist of 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 of 31 December 2019, the annualised equivalent of these non-annually recurring term licence fees is £0.7m, the first of which is due for renewal during 2020 at an annualised rate of £0.1m, and the last of the £0.7m being due for renewal for the first time during 2023. These licences are not recorded within our stated forward looking annualised recurring revenue, which incorporates annually recurring revenues only.

Clareti services revenues were up 13% to £4.4m, 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 increased 27% to £9.5m, which significantly exceeded expectations.

Non-Clareti software revenues from partners are up 24% to £2.6m as a result of one of our legacy partner relationships increasing their usage of the already installed software and another customer who had previously notified us of their intent to cease their use of the software requiring a further six-month extension. These arrangements have an approximate net margin 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. Attrition is expected to persist as these technology shifts continue, although the longevity of these very old legacy products continues to surpass our expectations and still attracts a net margin exceeding 90%. Our VME line of business, which was sold in January 2019, was included within this revenue stream, but is shown separately as a discontinued operation.

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 12%. These low-margin contracting services typically have a minimum committed term of twelve months; therefore, we have strong visibility of the minimum revenues likely to be generated in the near term. During 2019 our expectations were significantly exceeded due to additional resource requests being requested through the service during the year.

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

						2019		2018		Variance		%
Clareti Solutions	Recurring			£m		10.4		6.7		3.7		55%
	Non-recurring			£m		0.7		1.2		(0.5)		(42%)
	Software			£m		11.1		7.9		3.2		40%
	Services			£m		4.4		3.9		0.5		13%
	Total	KPI		£m		15.5		11.8		3.7		31%
Other Solutions	Software - Partners			£m		2.6		2.1		0.5		24%
	Software - Own solutions			£m		0.8		0.9		(0.1)		(11%)
	Services		£m		0.7		0.3		0.4		133%
	Contracting services		£m		5.4		4.2		1.2		29%
	Total		£m		9.5		7.5		2.0		27%
Total from Continuing Operations - note 3		KPI	£m		25.0		19.3		5.7		30%
Discontinued	Software - Own solutions		£m		0.1		0.7		(0.6)		(86%)
Total revenue		KPI	£m		25.1		20.0		5.1		26%
Annualised recurring revenue	Clareti	KPI	£m		9.5		7.4		2.1		30%
as at 31 December 2019	Other		£m		2.8		2.8		-		-
	Total	KPI	£m		12.3		10.2		2.1		21%

Earnings (continuing operations only)

Operating performance is analysed excluding exceptional items, share-based payment charges, amortisation from acquired intangible assets and impairment of development costs, which is consistent with the way in which the Board reviews the financial results of the Group. This is also consistent with the manner in which similar small-cap LSE (or AIM) listed present their results and how we understand the investment community assess performance, with this particularly being case the growth shares in which the recurring cash performance is considered important.

The Group's gross margin remains fairly static and in line with expectations, improving marginally by 1% to 84%.

The majority of our cost of sales is made up of: (i) the customer specific third party costs incurred in providing our hosted Clareti-as-a-Service ("CaaS") solution; and (ii) third party contractor costs incurred by our contracting services business (individuals we bring on our payroll as fixed-term employees to provide this service are recorded in administration costs).

The Group experienced a significant increase in earnings, with adjusted EBITDA, increasing by £3.2m to £4.1m, this is predominantly as a result of the increased Clareti revenues and the adoption of IFRS 16 (see below). The Group has introduced a new KPI, cash adjusted EBITDA, which adjusts EBITDA for capitalised development spend and any IFRS16 lease related cash expenses now classified as depreciation and interest.

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 statutory loss after tax of £0.1m (from continuing operations only), an improvement of £2.0m on the prior year.

				2019	2018	Variance	%
Gross margin			£m	21.0	16.0	5.0	31%
Gross margin			%	84%	83%	1%	n/a
Adjusted EBITDA		KPI	£m	4.1	0.9	3.2	356%
Adjusted EBITDA		KPI	%	20%	6%	14%	n/a
Cash Adjusted EBITDA		KPI	£m	0.3	(2.1)	2.4	n/a
Cash Adjusted EBITDA		KPI	%	1%	(13%)	14%	n/a
Statutory profit after tax			£m	(0.1)	(2.1)	2.0	95%
Adjusted diluted EPS		KPI	pence	1.99	(1.50)	3.49	n/a

Adjusted EBITDA is not an IFRS measure or not considered to be a substitute for, or superior to any IFRS measures. It is not directly comparable to other companies.

Exceptional items

During the year, the Group recognised exceptional income of £2.0m; this was in relation to the sale of the VME software business to Fujitsu in January 2019. There were no material exceptional costs during 2019. In 2018, exceptional costs of £0.3m were incurred which included: 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.

Taxation

For the year ended 31 December 2019, the Group has recorded a net tax charge of £0.4m (2018: credit of £0.1m) which, as in prior years, is primarily as a result of taxation being charged both in the UK and overseas in respect of our reselling and servicing operations, being offset by research and development enhanced relief available for our UK development activities.

Cash flow

The Group's financial position further strengthened throughout 2019, ending the year with cash and financial assets of £9.6m and no debt (2018: £5.6m and no debt).

Operating cash flow excluding working capital has increased by £3.0m to £3.9m in the year. In addition to the reasons identified behind the increase in adjusted EBITDA detailed above, this is also increased due to the adoption of IFRS 16 in which £0.5m of cash outflow (rental expense) that was previously recorded as operating cashflow is now recorded as an other investing and financial activity in the full consolidated statement of cashflow and within 'other' in the summary below (refer to the consolidation statement of financial position section below for further details on IFRS 16).

The movement in working capital of £2.5m is largely explained by the initial three-year prepayment of £3.0m from the £1.0m per annum subscription licence that became non-contingent in March 2019.

The Group received tax receipts of £1.4m during 2019 as a result of research and development activities performed during 2016 and 2017 where enhanced relief is available.

The capitalised development expenditure of £3.3m has increased by £0.7m from the prior year; this is due to an increased portion of development effort being spent on new product or new product features in comparison to the prior year when a number of customer-specific features were developed and as a result not considered capitalisable.

The Group received a net amount of £1.7m through the sale of its legacy VME business, with the £0.3m balance to the sale price being customer advance payments already received at the time of the sale.

Following the announcement of its intention to do so in its FY18 results, the Group also purchased a total of £1.0m of its own shares in the period, £0.1m being in respect of employee bonuses for FY18 and £0.9m to pre-fund employee and executive bonus and long-term incentive schemes in future years.

The shares issued as consideration are an inflow of £0.1m for 2019, resulting solely from the exercise of share options. The prior year included the cash payment of £1.8m to acquire the equity of the B2 Group and the final £0.4m instalment payable in respect of the acquisition in October 2016 of C24 Technologies, offset by inflows from share option exercises.

With increasing Clareti sales from the growing annuity base and new customer wins, coupled with tight cost control on planned investments, we expect the cash generation capacity of the business to continue and are looking at opportunities to best utilise the excess cash generated. In order to maximise our returns, we plan to increase levels of investment in distribution and customer success, whilst continuing to invest excess cash efficiently in bank deposits and giving appropriate consideration to our M&A ambitions.

			2019	2018	Variance	%
Operating cash flow excluding working capital		£m	3.9	0.9	3.0	322%
Movement in working capital		£m	2.5	1.1	1.4	127%
Net tax receipts		£m	1.3	-	1.3	n/a
Capital expenditure - development costs		£m	(3.3)	(2.6)	(0.7)	(27%)
Capital expenditure - other		£m	(0.2)	(0.2)	-	-
Sale of discontinued operation		£m	1.7	-	1.7	n/a
Purchase of own shares in employee benefit trust		£m	(1.0)	-	(1.0)	n/a
Shares issued as consideration and acquisition		£m	0.1	(2.0)	2.1	n/a
Dividend		£m	(0.3)	(0.3)	-	-
Other		m	(0.7)	0.2	(0.9)	n/a
Net increase/(decrease) in cash and financial assets		m	4.0	(2.9)	6.9	n/a
Cash	KPI	£m	9.6	5.6	4.0	71%
Cash and cash equivalents		£m	9.6	5.3	4.3	81%
Financial assets		£m	-	0.3	(0.3)	(100%)

Consolidated Statement of Financial Position

Right-of-use assets of £1.3m have now been recognised as a result of the adoption of IFRS 16, which required our leases greater than twelve months to be capitalised with a corresponding lease liability recognised, which is split between non-current £0.8m and current £0.5m. The adoption of IFRS 16 also had an impact, albeit largely presentational, upon the income statement. The adoption did not have any material impact to statutory earnings, but it did result in £0.5m of expense that was previously recorded as a rental expense within operating expenses now being recorded as depreciation (£0.4m) and IFRS 16 interest (£0.05m), resulting in an improvement to adjusted EBITDA of £0.5m when compared to previous reporting methodologies (also refer to note 27 for further detail on IFRS 16). The impact of IFRS 16 to adjusted EBITDA was known at the time of setting budgets and performance related pay targets for FY2019, therefore this has not impacted performance related pay in relation to FY2019.

An impairment charge of £0.6m was recording against development costs within Intangible Assets during the year, this was due to the discontinuation by mutual agreement of the Group's Clareti Loan Control joint venture with Mount Street, as both parties moved to focus their resources on other parts of their respective businesses. Whilst Gresham still remains owner of this technology, there are no plans in the mid-term to further market this investment, hence the full remaining carrying value at the point of this outcome was determined was impaired.

Trade payables increased by £0.9m which was largely as a result of our contracting services business making significant infrastructure purchases in close proximity to the year end. Current contract liabilities increased since the prior year by £0.7m and non current contract liabilities increased by £0.8m, this is predominantly due to the initial three-year customer prepayment of £3.0m from the £1.0m per annum subscription licence that became non-contingent in March 2019.

Financial outlook

The Group is very pleased with the financial outcome of 2019 - particularly the 31% Clareti growth rate and the 55% Clareti recurring revenue growth rate. In my prior year report, I commented on our strategy to deliver consistent Clareti growth, driving more predictability into the business, through a focus on generating higher levels of Clareti recurring revenues rather than initial licence fees. We intend to continue on with this strategy going forward.

The non-Clareti software portfolio continues to surpass expectations, with customers requiring extensions to contracts as they struggle to migrate to newer or alternative platforms. Whilst such extensions can generate short-term revenue spikes, these portfolios remain in long-term decline, which we continue to plan for. Our contracting services business also grew over and above the expected contracted baseline during 2019 but we expect this business to reduce slightly during 2020.

Overall, we have increased levels of revenue predictability throughout the Group. This predictability comes from the significantly increased Clareti recurring revenue base, high levels of contracted backlog of Clareti services for ongoing implementations and innovation services, and a high portion of non-Clareti portfolio already being under contract for 2020. With this in mind, we intend to continue increasing our investment in Clareti, namely in distribution, product and customer success in order to take advantage of the market opportunity.

Tom Mullan

Chief Financial Officer

9 March 2020

CONSOLIDATED INCOME STATEMENT

	Notes	Year ended 31 December 2019	Year ended 31 December 2018
		£'000	£'000
Revenue	3,4	24,961		19,266
Cost of sales		(3,933)		(3,260)
Gross profit		21,028		16,006
Adjusted administrative expenses		(19,302)		(17,222)
Adjusted operating profit/(loss)		1,726		(1,216)
Adjusting administrative items:
Exceptional items	4	(10)		(303)
Impairment of development costs	13	(647)		-
Amortisation on acquired intangibles	13	(794)		(605)
Share-based payments	23	(77)		(161)
		(1,528)		(1,069)
Total administrative expenses		(20,830)		(18,291)
Statutory operating profit/(loss) from continuing operations	4,5	198		(2,285)
Share of post tax profit from joint venture	16	66		75
Finance revenue	3,8	104		19
Finance costs	8	(65)		(6)
Profit/(loss) before taxation from continuing operations		303		(2,197)
Taxation	9	(443)		114
Loss after taxation from continuing operations		(140)		(2,083)
Net gain on sale of discontinued operations	28	1,985		-
Profit after taxation from discontinuing operations	28	53		667
Profit/(loss) attributable to the Parent		1,898		(1,416)
Earnings per share
Statutory		pence		pence
Basic earnings per share	10	2.78		(2.09)
Diluted earnings per share	10	2.72		(2.09)
Adjusted
Basic earnings per share	10	2.11		(0.50)
Diluted earnings per share	10	2.07		(0.50)
Earnings per share - continuing operations
Statutory
Basic earnings per share	10	(0.21)		(3.07)
Diluted earnings per share	10	(0.21)		(3.07)
Adjusted
Basic earnings per share	10	2.04		(1.50)
Diluted earnings per share	10	1.99		(1.50)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Year ended 31 December 2019	Year ended 31 December 2018
	£'000	£'000
Profit/(loss) attributable to the Parent	1,898	(1,416)
Other comprehensive expenses
Items that will or may be re-classified into profit or loss: Exchange differences on translating foreign operations	(3)	(68)
Total other comprehensive expenses	(3)	(68)
Total comprehensive income/(expense) for the year	1,895	(1,484)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Notes	At 31 December 2019	As restated At 31 December 2018
		£'000	£'000
Assets
Non-current assets
Property, plant and equipment	12	387	480
Right-of-use assets	15	1,292	-
Intangible assets	13	25,575	25,340
Interest in joint venture	16	-	57
Deferred tax assets	9	489	1,166
		27,743	27,043
Current assets
Trade and other receivables	18	4,978	4,639
Income tax receivable	18	43	821
Other financial assets - bank deposits/restricted cash	19	-	278
Asset held for sale	28	-	74
Cash and cash equivalents	19	9,605	5,323
		14,626	11,135
Total assets		42,369	38,178
Equity and liabilities
Equity attributable to owners of the Parent
Called up equity share capital	22	3,413	3,404
Share premium account	24	3,903	3,830
Own share reserve	22	(945)	-
Other reserves	24	536	536
Foreign currency translation reserve	24	(81)	(78)
Retained earnings	24	18,478	16,801
Total equity attributable to owners of the Parent		25,304	24,493
Non-current liabilities
Contract liabilities	20	1,329	486
Lease liabilities	15	788	-
Deferred tax liability	9	952	1,083
Provisions	20	144	59
Contingent consideration	20	-	67
		3,213	1,695
Current liabilities
Trade and other payables	20	12,976	11,575
Lease liabilities	15	457	-
Income tax payable	20	419	5
Liabilities held for sale	28	-	384
Provisions	20	-	26
		13,852	11,990
Total liabilities		17,065	13,685
Total equity and liabilities		42,369	38,178

The financial statements were approved by the Board of Directors and authorised for issue on 9 March 2020.

On behalf of the Board

Ian Manocha  Tom Mullan 

9 March 2020  9 March 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Notes	Share capital	Share premium account	Own share reserve	Other reserves	Foreign currency translation reserve	Retained earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2018		3,375	3,562	-	313	(10)	18,253	25,493
Attributable loss for the period		-	-	-	-	-	(1,416)	(1,416)
Other comprehensive expenses		-	-	-	-	(68)	-	(68)
Total comprehensive expense		-	-	-	-	(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 payments	23	-	-	-	-	-	161	161
Dividend paid		-	-	-	-	-	(338)	(338)
At 31 December 2018 as reported		3,404	3,830	-	536	(78)	16,660	24,352
Prior year adjustment	2	-	-	-	-	-	141	141
At 31 December 2018 as restated		3,404	3,830	-	536	(78)	16,801	24,493
Effect of adoption of:
IFRS 16	27	-	-	-	-	-	41	41
At 1 January 2019 as restated		3,404	3,830	-	536	(78)	16,842	24,534
Attributable profit for the period		-	-	-	-	-	1,898	1,898
Other comprehensive expense		-	-	-	-	(3)	-	(3)
Total comprehensive income		-	-	-	-	(3)	1,898	1,895
Exercise of share options	22	9	73	-	-	-	-	82
Purchase of own shares	22	-	-	(995)	-	-	-	(995)
Issue of shares held by Employee Share Ownership Trust	22	-	-	50	-	-	-	50
Share-based payments	23	-	-	-	-	-	77	77
Dividend paid	11	-	-	-	-	-	(339)	(339)
At 31 December 2019		3,413	3,903	(945)	536	(81)	18,478	25,304

CONSOLIDATED STATEMENT OF CASH FLOW

	Notes	Year ended 31 December 2019	Year ended 31 December 2018
		£'000	£'000
Cash flows from operating activities
Profit/(loss) after taxation		1,898	(1,416)
Depreciation of property, plant and equipment	12	266	297
Amortisation of intangible assets	13	2,364	1,940
Impairment of intangible assets	13	647	-
Amortisation of right-of-use assets	15	461	-
Share-based payments	23	77	161
Net gain on sale of discontinued operations	28	(1,985)	-
Share of post tax profit from joint venture	16	(66)	(75)
Increase in trade and other receivables		(243)	(1,529)
Increase in trade and other payables		2,239	2,045
Movement in deferred tax provisions	9	546	610
Movement in provisions		59	2
Fair value adjustment on deferred contingent consideration		-	(30)
Net finance revenue/(costs)	8	39	(14)
Cash inflow from operations		6,302	1,991
Income taxes received		1,356	96
Income taxes paid		(75)	(118)
Net cash inflow from operating activities		7,583	1,969
Cash flows from investing activities
Interest received	8	37	19
Decrease/(increase) in other financial assets - bank deposits/restricted cash		278	(78)
Purchase of property, plant and equipment	12	(178)	(188)
Proceeds from sale of property, plant and equipment		3	-
Net payments to acquire subsidiary undertaking		-	(1,947)
Proceeds from sale of discontinued operations	28	1,675	-
Payments to acquire intangible fixed assets	13	(3,266)	(2,603)
Net cash used in investing activities		(1,451)	(4,797)
Cash flows from financing activities
Interest paid	8	(17)	(6)
Principal paid on lease liabilities	15	(511)	-
Dividends paid	11	(339)	(338)
Purchase of own shares	22	(995)	-
Issue of shares held by Employee Share Ownership Trust	22	50	-
Share issue proceeds	22	82	292
Net cash used in financing activities		(1,730)	(52)
Net increase/(decrease) in cash and cash equivalents		4,402	(2,880)
Cash and cash equivalents at beginning of year		5,323	8,280
Exchange adjustments		(120)	(77)
Cash and cash equivalents at end of year	19	9,605	5,323

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 2019 and 31 December 2018 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 2019.

Statutory accounts for the year ended 31 December 2018 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2019, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2018 statutory accounts have been applied consistently in all material respects.

This Annual Financial Report Announcement was approved by the Board of Directors on 9 March 2020 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 2019 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 2019 are set out in the Annual Financial Report 2019.

3. Segment information

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

In addition, the split of revenues and non-current assets by the UK and overseas have been included as they are specifically required by IFRS 8 "Operating Segments".

For management purposes, the Group is organised into the following reportable segments:

· Clareti Solutions - supply of solutions predominantly to the finance and banking markets across Asia Pacific, EMEA and North America. Includes both software and services. 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 Integration Studio (formerly Clareti 24 Integration Objects): integration software to enable rapid adoption of financial message standards and transform complex data types.

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

· Contracting Services - Supply of IT contracting services to one banking customer

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

			Other
	Notes	Clareti Solutions	Solutions	Contracting Services	Adjustments, central overheads and elimination	Consolidated
2019		£'000	£'000	£'000	£'000	£'000
Revenue
External customer		15,489	4,078	5,394	-	24,961
Total revenue	3	15,489	4,078	5,394	-	24,961
					-	-
Cost of sales		(1,089)	(1,185)	(1,669)	-	(3,943)
Cost of sales capitalised as intangible asset		10	-	-	-	10
Gross profit		14,410	2,893	3,725	-	21,028
		93%	71%	69%	-	84%
Contracted administrative expenses		-	-	(3,062)	-	(3,062)
Gross profit after contracting fully costed		14,410	2,893	663	-	17,966
		93%	71%	12%	-	72%
Adjusted administrative expenses		(16,097)	(143)	-	-	(16,240)
Adjusted operating (loss)/profit		(1,687)	2,750	663	-	1,726
Adjusting items:
Exceptional costs	4	-	-	-	(10)	(10)
Impairment of development costs	13	-	-	-	(647)	(647)
Amortisation of acquired intangibles	13	-	-	-	(794)	(794)
Share-based payments	23	-	-	-	(77)	(77)
Adjusting administrative expenses		-	-	-	(1,528)	(1,528)
Statutory operating (loss)/profit from continuing operations		(1,687)	2,750	663	(1,528)	198
Share of post tax profit from joint venture	16					66
Finance revenue	8					104
Finance costs	8					(65)
Profit before taxation from continuing operations						303
Taxation	9					(443)
Loss after taxation from continuing operations						(140)
Net gain on sale of discontinued operations						1,985
Profit after taxation from discontinued operations						53
Profit after taxation						1,898
Segment assets						42,369
Segment liabilities						(17,065)
			Other
	Notes	Clareti Solutions	Solutions	Contracting Services	Adjustments, central and eliminations	Consolidated
2018		£'000	£'000	£'000	£'000	£'000
Revenue
External customer		11,810	3,285	4,171	-	19,266
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		(14,969)	(214)	-	-	(15,183)
Adjusted operating (loss)/profit		(3,986)	2,227	543	-	(1,216)
Adjusting items:
Exceptional costs	4	-	-	-	(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		(3,986)	2,227	543	(1,069)	(2,285)
Share of post tax loss from joint venture	16					75
Finance revenue	8					19
Finance costs	8					(6)
Loss before taxation from continuing operations						(2,197)
Taxation	9					114
Loss after taxation from continuing operations						(2,083)
Profit after taxation from discontinuing operations						667
Loss after taxation						(1,416)
Segment assets						38,178
Segment liabilities						(13,826)

 

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 £10,892,000 (2018: £8,574,000). which includes low-margin contracting revenue of £5,394,000 (2018: £4,171,000) which falls predominantly within the Other Contracting Services segment.

Adjusting administrative items  

Operating performance is analysed excluding exceptional items, share-based payment charges, amortisation from intangibles and impairments of development costs which is consistent in with the way in which the Board reviews the financial results of the Group. This is also consistent with the manner in which similar small-cap LSE (or AIM) listed present their results and how we understand the investment community to assess performance, with this particularly being the case the growth shares in which the recurring cash performance is considered important.

The adjusting administrative items are:

	2019	2018
	£'000	£'000
Acquisition and associated integration costs	-	213
Negative goodwill arising on acquisition	(21)	-
Fair value adjustment to acquisition contingent consideration and tax cost	-	14
Advisory fees for establishment of joint venture and all-staff incentive scheme	31	61
Staff costs (recruitment and termination costs)	-	15
Exceptional items	10	303
Impairment of development costs	647	-
Amortisation on acquired intangibles	794	605
Share-based payments	77	161
Total adjusting administrative items	1,528	1,069

The negative goodwill incurred in the year was due to the acquisition of the remaining 50% of the share capital in GMS Loan Technologies. As the purchase price was lower than the net assets acquired the negative goodwill created is disclosed within exceptional items as a non-recurring item.

During the year the Group incurred exceptional legal and tax advisory costs associated with implementing a new all-staff incentive scheme of £31,000 (2018: £61,000). These costs are not expected to occur in the future.

Development costs of £647,000 (2018: £nil) were impaired during the year relating to the termination of a joint venture arrangement, these costs are considered to be significant and non-recurring.

Due to the amount and nature of amortisation of acquired intangibles and share-based payments both costs were treated as an adjusting administrative item.

Adjusted EBITDA - continuing operations

Adjusted EBITDA - continuing operations is disclosed within the financial statements to show the underlying performance of the group on a consistent basis and to aid understanding of the financial performance during the year.

	Notes	2019	2018
		£'000	£'000
Profit/(loss) before tax		303	(2,197)
Adjusting items:
Amortisation of intangibles	13	2,364	1,941
Impairment of development costs	13	647	-
Depreciation of property, plant and equipment	12	266	297
Profit on disposal of property, plant and equipment		-	(3)
Amortisation of right-to-use assets	15	461	-
IFRS 16 interest charge	8	48	-
Finance revenue	8	(104)	(19)
Interest payable	8	4	-
EBITDA		3,989	19
Exceptional items	4	10	303
Share-based payments	23	77	161
Adjusted EBITDA - continuing operations		4,076	483
Property expenses equivalent to IFRS 16		-	420
Adjusted EBITDA - continuing operations after IFRS 16 application		4,076	903

Adjusted EBITDA is not an IFRS measure or not considered to be a substitute for or superior to any IFRS measures. It is not directly comparable to other companies.

Geographic information	2019	2018
	£'000	£'000
Revenues from external customers (by destination)
UK	6,485	4,286
EMEA	3,698	2,733
United States	2,005	2,097
North America	207	265
Australia	11,117	8,664
Asia Pacific	1,449	1,221
	24,961	19,266
	£'000	£'000
Non-current assets
UK	25,877	21,103
EMEA	632	4,041
North America	17	17
Asia Pacific	728	716
	27,254	25,877

Non-current assets consist of property, plant and equipment, right-of-use assets 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 2019 (2018: £nil).

Tax on profit/(loss) on ordinary activities

Tax charge/(credit) in the income statement

	2019	2018
	£'000	£'000
Current income tax
Overseas tax charge - adjustment to previous years	186	22
Overseas tax charge - current year	279	43
UK corporation tax credit - adjustment to previous years	(568)	(789)
UK corporation tax credit - current year	-	-
Total current income tax	(103)	(724)
Deferred income tax
Release of deferred tax asset	546	601
Tax rate change adjustments	-	9
Total deferred income tax	546	610
Total charge/(credit) in the income statement	443	(114)

Reconciliation of the total tax charge

The tax charge/(credit) in the income statement for the year is lower than the standard rate of corporation tax in the UK of 19.0% (2018: 19.0%). The differences are reconciled below:

	2019	2018
	£'000	£'000
Profit/(loss) before taxation	2,341	(1,530)
Accounting profit/(loss) multiplied by the UK standard rate of corporation tax of 19.0% (2018: 19.0%)	445	(291)
Expenses not deductible for tax purposes	101	63
Differences in tax rates	160	3
Overseas tax credit - adjustment to previous years	121	22
Research and development credit - previous year	(568)	(789)
Research and development enhanced relief	(1,262)	(1,007)
Movement in unrecognised losses carried forward	1,339	893
Movement in unrecognised temporary differences	227	219
Movement in unrecognised fixed asset temporary differences	242	162
Temporary difference on share-based payments	(231)	720
Temporary movement on acquired intangibles	(131)	(118)
Tax rate change adjustments	-	9
Total tax charge/(credit) reported in the income statement	443	(114)

 

Unrecognised tax losses

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

The tax effect of exchange differences recorded within the consolidated statement of comprehensive income is a credit of £1,000 (2018: credit of £13,000).

Temporary differences associated with Group investments

At 31 December 2019, there was no recognised deferred tax liability (2018: £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

	2019	2018
	£'000	£'000
1 January	1,166	1,894
Movement in the period: Tax losses	(886)	232
Employee share award schemes	228	(788)
Qualifying research and development expenditure	(157)	(206)
Fixed asset timing differences	138	48
Impact of change in tax rate	-	(14)
31 December	489	1,166
Comprising:
Tax losses	2,353	3,239
Employee share award schemes	364	136
Qualifying research and development expenditure	(2,566)	(2,409)
Fixed asset timing differences	338	200
31 December	489	1,166

A deferred tax asset of £546,000 (2018: £610,000) 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

	2019	2018
	£'000	£'000
Intangible asset acquired on acquisition	952	1,083
Comprising:
1 January	1,083	596
Recognised in the income statement	(131)	(118)
Acquisition of intangibles in subsidiaries	-	605
31 December	952	1,083

Unrecognised potential deferred tax assets

The deferred tax not recognised in the consolidated statement of financial position is as follows:

	2019	2018
	£'000	£'000
Temporary differences	5	(8)
Tax losses	603	501
Unrecognised deferred tax asset	608	493
Gross temporary differences unrecognised	31	(47)
Gross tax losses unrecognised	2,811	2,342
Gross temporary timing differences unrecognised	2,842	2,295

Future tax rates

The Finance Act 2016 which was approved on 15 September 2016 reduces the main rate of corporation tax to 17% from 1 April 2020.

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.

	2019	2018
	%	%
UK	17/19	17/19
Australia	30	30
US	27	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:

		2019	2018
Basic weighted average number of shares		68,168,602	67,772,715
Employee share options - weighted (note 23)		1,499,805	2,649,668
Diluted weighted average number of shares		69,668,407	70,422,383

Including discontinued operations		Notes	2019	2018
			£'000	£'000
Adjusted earnings attributable to owners of the Parent - including discontinuing operations			1,441	(347)
Adjusting items:
Exceptional items		4	(10)	(303)
Amortisation of acquired intangibles		13	(794)	(605)
Impairment of development costs		13	(647)	-
Net gain on sale of discontinued operations		28	1,985	-
Share-based payments		23	(77)	(161)
Statutory earnings attributable to owners of the Parent			1,898	(1,416)
Earnings per share - including discontinued operations
Statutory			pence	pence
Basic earnings per share			2.78	(2.09)
Diluted earnings per share			2.72	(2.09)
Adjusted
Basic earnings per share			2.11	(0.50)
Diluted earnings per share			2.07	(0.50)

Continuing operations		Notes	2019	2018
			£'000	£'000
Adjusted earnings attributable to owners of the Parent			1,388	(1,014)
Adjusting items:
Exceptional items		4	(10)	(303)
Amortisation of acquired intangibles		13	(794)	(605)
Impairment of development costs		13	(647)	-
Share-based payments		23	(77)	(161)
Statutory earnings attributable to owners of the Parent			(140)	(2,083)

Earnings per share - continuing operations Statutory			pence	pence
Basic earnings per share			(0.21)	(3.07)
Diluted earnings per share			(0.21)	(3.07)
Adjusted
Basic earnings per share			2.04	(1.50)
Diluted earnings per share			1.99	(1.50)

During the year ended 31 December 2019, share options granted under the 2010 Share Option Plans were exercised and the Group issued 167,024 (2018: 462,500) ordinary shares accordingly (ranking pari passu with existing shares in issue). See note 22 for further details

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of this Annual Financial Report 2019.

6. Dividends paid and proposed

The final dividend for the year ended 31 December 2018 was approved at the Company Annual General Meeting on 2 May 2019 and paid on 16 May 2019 of 0.5 pence per share, equating to a total of £339,000. The Company will be proposing a final dividend for approval at the AGM for the year ended 31 December 2019 of 0.75 pence per share.

7. Intangible assets

			Separately identified intangibles on acquisition
	Development costs	Patents and licences	Software	Customer relationships	Goodwill	Total
2019	£'000	£'000	£'000	£'000	£'000	£'000
Cost
At 1 January	20,086	881	6,275	1,218	2,962	31,422
Additions	3,259	7	-	-	-	3,266
Disposals	-	(15)	-	-	-	(15)
Exchange adjustment	-	(1)	-	-	(19)	(20)
At 31 December	23,345	872	6,275	1,218	2,943	34,653
Amortisation and impairment
At 1 January	(4,033)	(676)	(850)	(273)	(250)	(6,082)
Charge for year	(1,502)	(68)	(627)	(167)	-	(2,364)
Impairment	(647)	-	-	-	-	(647)
Eliminated on disposal	-	15	-	-	-	15
At 31 December	(6,182)	(729)	(1,477)	(440)	(250)	(9,078)
Net carrying amount
At 31 December	17,163	143	4,798	778	2,693	25,575
At 1 January	16,053	205	5,425	945	2,712	25,340
			Separately identified intangibles on acquisition
	Development costs	Patents and licences	Software	Customer relationships	Goodwill	Total
2018	£'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

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 fourteen years. These assets are tested for impairment where an indicator of impairment arises and annually prior to them being made available for use.

For the years ended 31 December 2019 and 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 five and fifteen 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 13 years.

A joint venture partnership was set up in 2016 with Mount Street to develop a new software application, Clareti Loan Control This partnership was terminated during the year, therefore the development costs capitalised for this application was fully impaired. As a result, an impairment charge of £647,000 was charged to the income statement.

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 Limited 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 Technologies 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 Limited and B2 Group. It is assessed as having an indefinite life and is assessed for impairment at least annually.

8. Effects of changes in accounting policies

The Group adopted IFRS 16 with a transition date of 1 January 2019. The Group has chosen not to restate comparatives on adoption and therefore the revised requirements are not reflected in the prior year financial statements and have been processed at their initial date of application at 1 January 2019 and recognised in the opening equity balances.

Other new and amended standards and interpretations issued by the IASB did not impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

IFRS 16 "Leases"

IFRS 16 has replaced IAS 17 "Leases" and IFRIC 4 "Determining Whether an Arrangement Contains a Lease" and was effective 1 January 2019.

IFRS 16 provides a single lease accounting model, requiring the recognition of assets and liabilities for all leases, excluding leases with a term of less than twelve months or where the value of the underlying asset is of low value. IFRS 16 substantially carries forward the lessor accounting in IAS 17, with the distinction between operating leases and finance leases being retained. The Group does not have any leases acting as a lessor.

Transition method

The Group adopted IFRS 16 using the modified retrospective approach, with the recognition of transitional adjustments on the date of initial application (1 January 2019), without restatement of comparative figures. The Group elected to apply the practical expedient to not reassess whether a contract is, or contains, a lease at the date of initial application. Contracts entered into before the transition date that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. The definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 1 January 2019.

IFRS 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The Group applied the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:

(a)  apply a single discount rate to a portfolio of leases with reasonably similar characteristics;

(b)  exclude initial direct costs from the measurement of right-of-use assets at the date of initial application for leases where the right-of-use asset was determined as if IFRS 16 had been applied since the commencement date;

(c)  reliance on previous assessments on whether leases are onerous as opposed to preparing an impairment review under IAS 36 as at the date of initial application; and

(d)  applied the exemption not to recognise right-of-use assets and liabilities for leases with less than twelve months of lease term remaining as of the date of initial application. 

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most leases. However, the Group has elected not to recognise right-of-use assets and lease liabilities for some leases of low value assets based on the value of the underlying asset when new or for short-term leases with a lease term of twelve months or less.

On adoption of IFRS 16, the Group recognised right-of-use assets and lease liabilities for property and motor vehicle leases previously classified as operating leases under IAS 17. Right-of-use assets were measured as an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued payments. Lease liabilities were measured as the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate of 3.1%.

The following table presents the impact of adopting IFRS 16 on the statement of financial position as at 1 January 2019:

			As originally presented	IFRS 16	1 January 2019
			£'000	£'000	£'000
Right-of-use assets			-	1,779	1,779
Lease liabilities			-	(1,738)	(1,738)
Retained earnings			16,660	41	16,701

The following table reconciles the minimum lease commitments disclosed in the Group's 31 December 2018 financial statements to the amount of lease liabilities recognised on 1 January 2019:

			£'000
Minimum operating lease commitments at 31 December 2018			1,987
Effect of rent review			27
Short-term leases not recognised under IFRS 16			(166)
Effect of discounting using the incremental borrowing as at date of initial application			(110)
Lease liability as at 1 January 2019			1,738

9. Discontinued operations

In January 2019, the Group sold its VME mainframe software business for a cash consideration of £1,675,000. The assets and liabilities relating to this business have been disclosed in line with IFRS 5 Assets Held For Sale; these included trade receivables and deferred income.

The profits included within the income statement are as follows:

		2019	2018
		£'000	£'000
Revenue		64	755
Staff costs		(7)	(42)
Other administration costs		(4)	(46)
Profit from discontinued operations		53	667
Net cash from discontinued operations		53	667
Basic earnings per share from discontinued operations		0.1	1.0
Diluted earnings per share from discontinued operations		0.1	1.0

The post tax gain on disposal of discontinued operations in the year to 31 December 2019 is:

			£'000
Cash consideration			1,675
Net liabilities disposed of:
Trade receivables			(74)
Deferred income			384
Net gain on disposal of discontinued operations			1,985

 There is no tax charge due to the utilisation of Group relief .

10. Events after the reporting date

A dividend of 0.75 pence per share has been approved by the Board to propose to shareholders at the Annual General Meeting.

11. Additional information

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 2019.

 

END

 

 

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