Regulatory Announcements

Annual Financial Report Announcement

13 March 2018

RNS Number : 4840H

Gresham Technologies plc (LSE: “GHT”, “Gresham” or the “Group”), the leading software and services company that specialises in providing real-time transaction control and enterprise data integrity solutions, is pleased to announce its results for the year ended 31 December 2017.

Financial highlights

  • Group revenues up 26% to £21.7m (2016: £17.2m), of which:
    • Clareti revenues up 48% to £11.1m (2016: £7.5m), including £1.2m from C24 Technologies (2016: £0.3m);
    • Other revenues as planned and consistent year on year.
  • Clareti software revenues up 74% to £8.2m (2016: £4.7m), of which Clareti software recurring revenues up 83% to £5.3m (2016: £2.9m).
  • Clareti Annualised Recurring Revenues (“ARR”) as at 31 December 2017 up 24% to £5.7m (2016: £4.6m).
  • Group ARR as at 31 December 2017 down 14% resulting from the planned exit of a legacy partner arrangement.
  • Adjusted EBITDA* up 34% to £5.1m (2016: £3.8m).
  • Statutory profit before tax as reported up 41% to £3.1m (2016: £2.2m).
  • Adjusted diluted earnings per share** up 38% to 6.5 pence (2016: 4.7 pence).
  • Cash at 31 December 2017 of £8.5m including £0.2m short-term bank deposits and no debt (2016: £7.2m and no debt).
  • Progressive dividend policy initiated. Final dividend proposed at 0.5 pence per share (2016: nil).

Operational highlights

  • Continued investment in 2017 and planned for 2018 to increase sales and distribution capacity.
  • 15 new CTC clients in 2017 across the US, Canada, Australia, the UK and Europe.
  • Strong performance from North America following direct sales investment in 2016 and 2017.
  • C24 business integration completed and delivering planned benefits.
  • Management confident about the prospects for the Group.

* Adjusted EBITDA refers to earnings before interest, tax, depreciation and amortisation, adjusted to add back share-based payment charges and exceptional items.

** Adjusted to add back share-based payment charges, exceptional items and amortisation from acquired intangible assets.

Ian Manocha, CEO, commented:

“We are delighted to report a record set of results for the Group driven by the success of the Clareti business. We continue to invest in business development resources to sustain the momentum and establish the Clareti platform as the “de-facto” standard for firms with complex data processing challenges seeking to improve integrity and evidence control across their business.”

As announced on 27 February 2018, there will today be a presentation for analysts at 10.00 a.m. and a separate presentation for private and retail investors at 11.00 a.m., both to be held at the offices of N+1 Singer, One Bartholomew Lane, London EC2N 2AX. Admittance for these events is strictly limited to those who have registered their attendance in advance. For further information and to register attendance, please contact Gresham on investorrelations@greshamtech.com. A copy of the presentation to be tabled at both sessions will be made available on Gresham's website at 10.00 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 2017 will be posted to shareholders in due course.

 

Enquiries

Gresham Technologies plc

+44 (0) 207 653 0200

Ian Manocha

 

Tom Mullan

 

 

 

N+1 Singer (Joint Broker)

+44 (0) 207 496 3000

Shaun Dobson

 

Lauren Kettle

 

 

 

Cantor Fitzgerald Europe (Joint Broker)

+44 (0) 207 894 7000

Marc Milmo

 

Catherine Leftley

 

 

Note to editors

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 assuring enterprise data integrity and is designed to address today's most challenging financial control, internal risk management, data governance and regulatory compliance problems. Gresham's portfolio of applications based on the Clareti platform, including Clareti Transaction Control (CTC), Clareti Accounts Receivable Management (Clareti ARM), Clareti Loan Control (CLC) and Clareti 24 Integration Objects (C24 IO), provide innovative industry specific solutions for real-time data management.

Gresham Technologies plc is a leading software and services company that specialises in providing real-time transaction control and enterprise data integrity solutions. Listed on the main market of the London Stock Exchange (GHT.L) and headquartered in the City of London, 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.

 

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.

 

 

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

In accordance with the Disclosure and Transparency Rules, the extracts below are from the Annual Financial Report 2017 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 2017.

CHAIRMAN’S STATEMENT

Dear shareholder,

I am pleased to present this Annual Financial Report 2017 which records another very successful year for the Group.

All financial targets were met or exceeded following the continuing successful deployment of the Clareti platform across a variety of financial services sectors globally.  The Group has achieved notable sales success in North America following its sales and marketing investment in the region.

This result stems from the effectiveness of the Group’s ongoing investment in its core product for transaction data management and its successful implementation on behalf of our clients.

Overview

Gresham continued to build upon the previously stated strategic objectives (see Strategy, page 12) and I am delighted with our 26% top-line growth with total revenues for the Group rising to £21.7m. Importantly, we have continued to secure new, high-margin recurring Clareti revenues, which has resulted in Clareti annualised recurring revenues closing at £5.7m (up 24% over 2016) and associated growth in underlying profitability yielding an adjusted EBITDA for the Group of £5.1m (up 34% over 2016).

Our clients have been operating in a challenging market environment characterised by geo-political and legislative uncertainties as well as increased (and increasing) regulatory demands.  These factors have given rise to client operating cost pressures, which have a constraining effect on IT investment. At the same time, these pressures drive demand for more effective IT solutions to improve internal efficiency. A critical factor in the efficient management and reporting of client processed transactions is the accuracy of the data received by, and contained within, these transaction flows. Clareti offers clients a strategic platform to address these challenges by better management of data, automation of transaction reconciliation and exception management thereby increasing efficiency of processing, improved risk management and compliant reporting.  The increasing volume of transactions is a demand driver for our core solution Clareti Transaction Control (“CTC”).

As mentioned earlier, the Group has made substantial progress in expanding the adoption of Clareti solutions globally. The important North America market contributed 39% of new Clareti sales in 2017 following investment in the direct sales team.   The North America market has the potential for much higher growth and the Board continues to support the ongoing investments in direct sales, in addition to forming strategic alliances to further expand distribution capacity.

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 is essential. Accordingly, the Company is making further investments in sales, marketing and implementation resources, in order to capitalise on the market opportunity and accelerate Clareti growth.

As noted above, regulatory reporting demands on our clients are increasing both in number and complexity. Technology will increasingly be used to respond to these demands and we believe our Clareti platform is well suited as a data framework for regulatory control. We are already working with several clients to develop our offerings and would expect strong sales demand to follow.

Board changes

In May 2017, Andy Balchin joined the Board as Independent Non-Executive Director and chair of the audit committee. Andy Balchin is currently Chief Financial Officer of the cyber division of RUAG Holding AG, a major Swiss organisation, which acquired Clearswift, a provider of cyber security solutions, in January 2017, where he was CFO, and brings significant financial experience in high-growth software companies. He replaced Chris Errington who left the Board after serving previously as CFO and CEO.

We welcome Tom Mullan to the Board as Chief Financial Officer, and we look forward to working with him as we continue the successful development of the Company. He replaces Rob Grubb who has made an outstanding contribution to the Group’s development over the last nine years and who leaves with our very best wishes. 

Shareholder value

Our share price has continued to experience a degree of volatility in the year which is common for the small cap market, but it is pleasing to note that the overall upward trend persists. Earnings per share increased to 6.5 pence on an adjusted and diluted basis (2016: 4.7 pence).

In light of the Company’s increasing profitability and strong cash reserves, I am pleased to confirm that the Company will be commencing the payment of a progressive dividend. In respect of financial year 2017, 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 in sales, marketing and client success provide the platform to deliver shareholder value from our ongoing investments.

In summary

With our continued investment in the Clareti portfolio and sales and marketing expansion, I anticipate further improvement in our market position as we respond to the growing demand for transparency and integrity over risk and financial data processing. 2017 has been a very 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 real-time transaction control and enterprise data integrity.

 

Ken Archer

Non-Executive Chairman

 

CEO’S STATEMENT

Dear shareholder

I am pleased to report another year of strong, profitable growth for the Group, driven by the continued success of the Clareti business.

In 2017, Clareti revenue growth was underpinned by high quality new customer wins in UK, Western Europe, the United States and Canada. It is pleasing to see wins in all our target geographic markets, particularly in North America and in continental Europe, following recent investments into local sales offices. New customer wins were represented across our targeted industry segments including asset managers, hedge funds, sell side banks and brokerages, insurance broking, and our second win into the energy and commodities sector. A total of 15 new clients were won and, with growth from existing accounts during the year, high levels of customer retention, and the addition of annuities acquired with C24, we exited the year with a strong base of recurring revenues.

With the addition of related consulting and managed services, the Clareti business now accounts for more than half of all Group revenues and our dependency on legacy revenues continues to reduce.

Our Australian business saw a strong year of revenue growth with a deepening relationship with one of the region’s leading banks. Our legacy business remained stable during the year with some changes in the mix as we proactively manage the portfolio to optimise returns.

During the year, we also strengthened our organisation with the addition of many excellent new hires.  We have appointed regional sales leaders in both North America and in Europe, and have hired additional staff in direct sales, partner sales and pre-sales. We have brought our first full-time HR leader into the business, and we have scaled up resources in key technical disciplines such as software development, project management and consulting. The continued investment in sales and marketing, product and delivery resources, has been achieved whilst maintaining margins and improving earnings.

Financial year 2017 reflects yet another strong performance from a motivated global team and a further year of excellent progress for the Group, which is transforming into one of the UK’s most exciting listed financial technology companies.

Strategy and opportunity

Our goal is to be recognised as a leading global provider of enterprise financial technology and deliver sustained profitable growth for the Group and long-term value for shareholders.

From a starting point as a newcomer and disruptive challenger in the matching and reconciliation space just a few years ago, Gresham is now regarded as the emerging champion and we are routinely included in vendor selections for new requirements as well as replacements. The core use case for Clareti Transaction Control continues to be that of addressing larger scale reconciliation and transaction data quality problems in financial markets and we intend to capitalise on this opportunity over the next few years.

We also see a broader market opportunity for our modern technology and we aim to establish Clareti within the financial industry as a “de-facto” standard platform for firms with complex data processing challenges who need to improve integrity and evidence control across their entire business. Regulatory drivers are increasingly behind this requirement and it was pleasing to see three RegTech deals signed in 2017.

In addition to our work in capital markets, the Clareti platform has found use cases in corporate banking and payments, securing white label and OEM agreements for CTC, Clareti ARM and Clareti 24. The transformation underway in transaction banking and industry initiatives such as open banking and faster payments is creating opportunities for more agile technologies and more innovative FinTech partnerships.

Finally, in the commercial real estate market, we see a longer-term opportunity to build on the Clareti Loan Control joint venture established at the end of 2016 now that the core product development work is substantially complete.

With a core business in next-generation reconciliation technology, a closely aligned business in regulatory solutions and complementary revenue streams in corporate banking and commercial lending solutions, the Group now has four engines to drive future growth. Thinking about the business in this way also provides a framework in which to consider future acquisitions and to optimise our use of capital. Ultimately, it is our intention to build a high-margin, recurring revenue business of substantial scale based on licence subscriptions and cloud services stemming from our investment into the Clareti platform and our deep knowledge of financial markets.

Outlook

We started 2018 with the Clareti annuity stream up 24% year-on-year and, in the first quarter of 2018 so far, we have signed a further insurance broking business for CTC, a Clareti Adapter sale and several professional services engagements for delivery of software contracts won in late 2017.

We will continue to focus our direct sales effort in the UK, Europe and North America and we are building partner relationships with major system integrators and consulting houses. In Asia Pacific, we will continue to expand our work directly with key accounts in Australia and Singapore, and we will look to resellers to provide a channel into other local markets.

CTC is expected to drive the majority of new wins, with Clareti-as-a-Service providing incremental hosting and managed service revenues. Clareti Analytics and Clareti Adapters are expected to provide upsell opportunity and we also expect to see revenue growing within the installed base. We will look for opportunity to broaden the appeal of our Clareti ARM offering with new capabilities.

The Group’s legacy portfolio of licences and sub-contracting is expected to decline in 2018, although we remain confident that our legacy business will be sustained for the medium term.

With Clareti sales now generating more than half of all Group sales and with the Group now generating surplus cash for the first time in many years, 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

 

OPERATIONAL REVIEW

Introduction

The Group delivered another strong performance in 2017, once again underpinned by strong organic revenue growth from Clareti solutions. We won 15 new CTC customers and grew licence revenues from our existing Clareti base. In addition, during the year we successfully integrated the C24 Technologies business and grew the acquired annuity base. As a result, annualised recurring revenue from Clareti has grown 24% year on year. We now have more than 80 Clareti customers across financial services and global markets. In addition, many corporates are using Clareti technology in their business every day via our bank white labelling partners.

In 2016 and through 2017, we invested in new sales resources to focus on continental European sales and to expand our initial footprint in the United States. We now have experienced new business sales teams in the UK and Europe and in the US and it was pleasing to see strong success in those geographies.

UK and Europe

2017 started strongly for our new European office with an important new customer win, a regional bank in central Europe. The initial deployments are in support of the bank’s treasury function and capital markets business covering foreign exchange, over-the-counter trading, exchange traded derivatives and inter-company transactions. Our European team also signed the Swiss subsidiary of a major Russian bank and finished the year with an important contract with a major bank in the Nordics to implement a strategic data integrity and control framework in its wholesale banking operations. All three contracts will see the deployment of CTC to replace local processes, legacy systems and user developed applications, with Clareti Adapters being used to integrate complex financial messaging data flows. All three clients selected CTC following robust tender processes where Gresham was pitched head-to-head with incumbents and other competitors.

Our UK team also had a positive year winning an important project with a large global asset manager to replace a legacy vendor reconciliation system. In common with many of our customer contracts, we also agreed a framework for licence growth over time as more use cases are identified across their business. We also won two further UK-based hedge fund clients during the year and our recent recognition for being the “Most Innovative Technology Firm” in hedge funds by HFM in both their European and US awards is further evidence that our offering for alternative investment managers is particularly strong. Winning repeatable business in targeted industry niches is important for us to scale efficiently and it was pleasing to secure our second win in the energy and commodities market.

North America

During 2017, we were pleased to see the rewards coming through from our investment into the North American market and we continue to be positive about the market drivers and longer-term opportunity. In the US and Canada, financial firms need to transparently prove the integrity of the data that drives their regulatory reporting and risk management processes and the Clareti platform is ideally suited to these complex use cases.

One of Canada’s largest banks selected CTC to provide assurance of their regulatory reporting of collateral across all markets and all asset classes. The system will also be extended to replace existing manually intensive reconciliation and control processes in their securities division. This customer is also deploying Clareti Analytics to provide deeper management insight into their data control operations.

In the second half of the year, the US capital markets division of one of Asia’s largest financial services firms selected CTC to replace manual intensive data integrity checks and enable senior management to certify and be accountable for the quality of trading related data as it moves throughout the organisation.

A global sell-side bank selected the Clareti platform to support the implementation of a modern global regulatory control framework and prove the integrity of regulatory data and associated reporting processes. The initial implementation is within the customer’s US capital markets business with the potential for deployment across other jurisdictions in the future.

Whilst regulatory use cases have been behind many of our new North America sales, there is ongoing demand for traditional reconciliation systems and the US market in particular is heavily dominated by inflexible old vendor systems.

In a relative short period, North America has grown to represent 25% of Clareti ARR and is also now pulling through demand for implementation services.

Asia Pacific

Our Asia Pacific focus in 2017 was primarily to develop our major accounts in this region. Our relationship with Australia and New Zealand Banking Group (“ANZ”) continues to grow and become increasingly strategic. Our long-standing relationship with ANZ was initiated in 2011 when Gresham was selected to build a bank-to-corporate receivable matching service for use by ANZ’s institutional corporates, as a result of which ANZ became an early adopter of CTC. In 2014, ANZ deployed CTC in its global markets business to enhance its pre and post trade controls. During 2017, we helped ANZ expand its portfolio of corporate cash management offerings with an innovative solution that brings the power of the Clareti platform to its mid-market business customers. This is an excellent example of an established bank partnering with an agile FinTech provider to deliver solutions rapidly. The relationship continues to deliver a steady beat-rate of professional service revenues, a growing Clareti subscription and further opportunities for 2018 and beyond.

In addition to our major account management activities, we were pleased to sign a further project licence with one of Australia’s leading wealth management groups to use CTC to support a multi-year systems migration programme.

Partnering and alliances

We believe partners will increasingly drive incremental business and we invested during 2017 to build a global programme which we intend to scale in 2018.

Our long-standing white label agreements with two global banks in accounts receivables management continue to deliver a steadily growing recurring revenue stream. Our first US Clareti partner, a major financial services organisation which selected CTC as a white labelled offering in 2014 to upsell its asset management clients, won a third and fourth end customer in the US during the year.

The success of Clareti technology in the main financial markets has also come to the attention of the systems integrators and consulting firms. During the year, we signed multiple partner agreements with firms to introduce and/or implement our solutions and have run boot camp training and are building accreditation programmes. One major systems integrator has now delivered two successful projects and is embarking on its third.

In December, a leading provider of capital markets data, trade matching and regulatory reporting services to the global securities market, selected CTC to deliver a new regulatory service to its clients, for which a marketing launch is being planned. In 2018 we will continue to scale up our introducer, delivery partner and white label partnerships, and we will also intend to develop a reseller channel into the key Asian financial markets for CTC and C24.

Customer success and delivery

We aim to provide our customers with a differentiated experience compared to the long-established enterprise software players and have been scaling up our global delivery and customer support operation in line with business growth.

Our consulting operations work closely with the sales function to ensure that we secure rapid implementation success and referenceability across the customer base and to ensure that consulting is profitable on a standalone basis. Throughout 2017, we typically had around a dozen implementation projects and several pre-sale proofs of concept underway at any given point in time.

We offer customers a cloud or on-premise deployment option, although the majority still select to run their systems in-house. This flexibility means that we continue to win business against cloud-only SAAS competitors. During the year, one of our existing US hedge fund clients chose to upgrade their subscription and move to a fully managed Clareti-as-a-Service (CaaS) cloud deployment and one of our larger insurance customers went live on CaaS delivering a very strong ROI back to the business.

In light of our success in North America, we are now investing into local delivery resources through secondments and full time staff as well as partnerships.

Clareti product and innovation

During 2017, our Innovation Labs in Bristol hosted many client and prospect visits. Our ongoing commitment to innovation, our collaborative approach to working with customers, and our agile, high quality, software development processes are seen to be strong aspects of our overall value proposition in the market.

Clareti Transaction Control continues to be our flagship offering and is widely regarded as the best enterprise solution on the market. Its modern architecture and innovative features means we fare very well with prospects running formal evaluations and robust tender processes. During 2017, we delivered enhancements to the “on-boarding” data ingestion capability as well as improvements to ease of use and ease of maintenance. We have been building more sophisticated exception management capabilities and developing the platform’s use of automation, natural language processing and machine learning technology.  

During 2017, the C24 technology acquired in late 2016 was integrated into the Clareti platform and has been sold and deployed multiple times as part of new CTC projects in the form of Clareti Adapters, alongside several standalone sales. The C24 technology is delivering the expected benefits and provides competitive differentiation with prospects with significant and/or complex message transformation requirements.

In the first part of the year, we launched Clareti Analytics as an enhanced reporting and data visualisation capability for management. This has proved to be a strong sales differentiator and a key part of several deals in the second half of the year. We have also secured two up-sells into the existing CTC installed base.

Our joint venture with Mount Street Loan Solutions LLP, one of Europe’s leading commercial real estate servicers, to develop Clareti Loan Control (“CLC”) has now delivered a market ready offering, and whilst no incremental sales were achieved in 2017, there is potential for additional revenues as Mount Street increases its usage of CLC and, more widely, we believe that there is a significant market opportunity to sell CLC into financial institutions.

Other business

The Clareti business is now larger than the Group’s entire legacy licensing and services portfolio and our dependency on these various older businesses is now much reduced. Nevertheless, we continue to manage the portfolio carefully to optimise our returns. In 2017, our legacy portfolio performed broadly in line with our business plan. The Gresham owned EDT and VME software businesses remained relatively stable throughout the year and operated at high margins. Our third party software partner business was partially exited, which was planned for, and resulted in a lower contracted baseline. This reduction was offset by an increase in our lower margin contracting business in Australia.

 

Ian Manocha

Chief Executive

 

FINANCIAL REVIEW

In the year ending 31 December 2017 (“FY2017”) our Clareti business grew 48% to become more than half of our business on all revenue measures, and became break-even and cash-generative as a standalone business. This achievement, coupled with the ongoing stability of our existing cash-strong, non-Clareti businesses which were up 4% year on year, meant we recorded strong year-on-year increases across all Group revenue, earnings and cash metrics.

In the last three years, we have achieved compound annual growth rates (“CAGR”) of 19% in Group revenues, 59% in adjusted earnings per share (adjusted and fully diluted) and become free-cashflow generative as our investments in Clareti are being realised and generate higher margin revenues which continue to grow strongly.

Earnings per share is calculated as fully diluted and adjusted to add back share-based payment charges, exceptional items and amortisation from acquired intangible assets.

Free-cashflow is calculated as cash inflow arising from operating activities (excluding working capital impact) less net cashflows associated with acquiring and disposing of tangible and intangible fixed assets.

Revenues

Our income is analysed between Clareti revenues and Other revenues. Clareti includes Clareti Transaction Control, Clareti Accounts Receivable Management, Clareti Loan Control and Clareti 24 Integration Objects. Other solutions include: Virtual Machine Environment (“VME”), Enterprise DistribuTape (“EDT”), and various other individual legacy software licensing and support arrangements, in addition to partner products encompassing CashFac’s Virtual Bank Technology® and Wall Street Systems’ treasury solutions.

 

 

 

 

2017

2016

Variance

%

 

 

 

 

 

 

 

 

Clareti solutions

Recurring

 

£m

5.3

2.9

2.4

83%

 

Non-recurring

£m

2.9

1.8

1.1

61%

 

Software

 

£m

8.2

4.7

3.5

74%

 

Services

 

£m

2.9

2.8

0.1

4%

 

Total

KPI

£m

11.1

7.5

3.6

48%

 

 

 

 

 

 

 

 

Other solutions

Software - Partners

£m

3.1

4.0

(0.9)

(23%)

 

Software - Own solutions

£m

2.0

2.3

(0.3)

(13%)

 

Services

 

£m

5.5

3.4

2.1

62%

 

Total

 

£m

10.6

9.7

0.9

9%

 

 

 

 

 

 

 

 

Total

 

KPI

 

21.7

17.2

4.5

26%

 

 

 

 

 

 

 

 

Annualised recurring revenue

Clareti

KPI

£m

 5.7

4.6

1.1

24%

as at 31 December 2017

Other

 

£m

 3.7

6.3

(2.6)

(41%)

 

Total

KPI

£m

9.4

10.9

(1.5)

(14%)

                         

Clareti Solutions

The Clareti business recorded another strong year of growth with Clareti revenues rising £3.6m (48%) to £11.1m following the increases of 42% in FY2016 and 51% in FY2015 as the benefits of our previous investments in product, sales & marketing, delivery and associated infrastructure provide a strong return on investment. Clareti revenues now exceed the Group’s revenues from all other products and service lines combined. We continue to plan and invest for similar levels of growth in the financial year 2018 and beyond.

The Group continues with its strategic aim to focus revenue opportunities on annuity-based models to increase recurring revenue and visibility of future revenues that are either contracted or generally expected to renew on an annual basis. We made strong progress against this aim, with recognised Clareti recurring revenues increasing £2.4m (83%) to £5.3m in FY2017 compared to the previous period. Excluding the C24 acquisition in October 2016, this increase year on year was £1.5m (58%). Our annualised recurring Clareti revenues at 31 December 2017 totalled £5.7m, up £1.1m (24%) compared to 31 December 2016 due to the addition of annuity revenues from customer wins in the year and existing customers’ increased usage.

Non-recurring Clareti software revenues (initial licence fees) were up 61% in FY2017 as we were able to deliver more and larger deals from our enlarged sales team and marketing investments. The Group has continued with the policy adopted in the prior year of granting fixed-term licence grants (typically three to five years) rather than perpetual licences for customers for whom subscription licensing is not appropriate. This has opened up charging for additional future periods of use for these customers beyond the fixed licence term of the contract with the first of these additional chargeable periods beginning in 2020. To date, we have achieved initial licence fees under term agreements totalling £4.0m that we anticipate will repeat from 2020 onwards either as repeat upfront fees or additional annuity revenues of an equivalent £0.9m per annum; this is in addition to our stated annualised recurring revenue as at 31 December 2017 which incorporates annually recurring revenues only.

Clareti services revenues were up by 4% and £0.1m to £2.9m, 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

The Group’s Other Solutions grew by £0.9m (9%) to £10.6m in FY2017 although within this software revenues saw a decline and services a sharp increase as the shape of the portfolio changed markedly year on year.

Non-Clareti software revenues from partners are down £0.9m (23%) to £3.1m as one of our legacy partner relationships exited as planned in FY2017. This arrangement had a net contribution of 50%.

Non-Clareti software revenues from our other legacy products decreased as planned as customers moved off from ageing platforms to newer technologies. This level of attrition is planned to persist as these technology shifts continue although the longevity of these very old legacy products continues to surpass our expectations.

Non-Clareti services are mostly (~90%) in respect of tactical contracting services provided to a strategically important Australian banking partner that generate a direct net contribution to the Group of approximately 13%. Whilst these contracting services are difficult to forecast, we anticipate these low-margin revenues with this strategically important partner will continue for the foreseeable future.

Earnings

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

 

 

 

 

2017

2016

Variance

%

 

 

 

 

 

 

 

 

Gross margin

 

 

£m

18.4

14.2

4.2

30%

Gross margin

 

 

%

85%

83%

2%

2%

Adjusted EBITDA

 

KPI

£m

5.1

3.8

1.3

34%

Adjusted EBITDA

 

KPI

%

24%

22%

2%

9%

Statutory profit after tax

 

 

£m

3.8

2.6

1.2

46%

Adjusted Diluted EPS

 

KPI

pence

 6.5

4.7

1.8

38%

The Group’s gross margin rose to 85% in FY2017 from the 83% in FY2016, driven in whole by the additional contribution from increased Clareti revenue.

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 split in contractor and staff costs year on year, our gross margin still rose by 2% to 75% in FY2017 from 73% in FY2016.

The Group delivered another strong increase in earnings with adjusted EBITDA rising by 34% and £1.3m to £5.1m, as the increased gross margin delivered by higher Clareti revenues was in part offset by planned investments throughout the Group’s operations and, in particular, in sales and marketing expenditure in both EMEA and North America.

We also saw less development cost capitalised and a larger amortisation charge as planned which is a sign of our emerging product portfolio and a trend we anticipate will continue. The net impact of development capitalisation and amortisation to the Group Income Statement in FY2017 was £2.2m (FY2016: £2.9m).

The vast majority (95% plus) of our Group’s spend on staff, buildings and overheads continues to be in respect of our Clareti business.

Exceptional items

During the year the Group incurred exceptional costs completing the integration of C24 Technologies Limited; exceptional legal costs associated with the establishment of our joint venture and all-staff incentive scheme; and exceptional recruitment costs associated with the recruitment of a new CFO. These costs totalled £149,000 and are offset by exceptional income arising from the fair value adjustment of the C24 contingent consideration of £59,000, resulting in a net exceptional charge of £90,000 (2016: £275,000).

Taxation

For the year ended 31 December 2017, the Group has recorded a net tax credit of £0.7m (2016: £0.4m) which, as in prior years, is primarily as a result of research and development enhanced relief available for our UK development activities, offset with taxation payable both in the UK and overseas in respect of our reselling and servicing operations. The Group did not surrender losses for R&D tax credit cash refund and losses have instead been directly utilised at full value against current and future UK taxable profits as was the case last year.

Cashflow

 

 

 

2017

2016

Variance

%

 

 

 

 

 

 

 

Operating cashflow excluding working capital

 

£m

5.5

4.3

1.2

28%

Movement in working capital

 

£m

(0.3)

1.8

(2.1)

(117%)

Capital expenditure - development costs

 

£m

(3.2)

(3.8)

0.6

16%

Capital expenditure - other

 

£m

(0.3)

(0.5)

0.2

40%

Placing & acquisition

 

£m

(0.7)

0.4

(1.1)

(275%)

Other

 

 £m

0.1

0.3

(0.2)

(67%)

Net increase in cash

 

 £m

1.1

2.5

(1.4)

(56%)

Cash

KPI

£m

8.5

7.2

1.3

18%

Cash and cash equivalents

 

£m

8.3

7.2

1.1

15%

Bank deposits

 

£m

0.2

-

0.2

n/a

The Group’s financial position remained strong at 31 December 2017 with cash of £8.5m and no debt (2016: £7.2m and no debt). This increase in cash was due to £2.2m arising from operations less capital expenditure (2016: £0.5m) as the Group’s increasing Clareti revenues and earnings were offset by a lower capital expenditure amount as we spent less on development due to releasing temporary development resources engaged in FY2016, and less development spend has been capitalised as certain parts of our Clareti portfolio begin to mature. Working capital remained stable, as large prior year working capital differences reversed in FY2017 but were offset by further cash inflows from new customers wins. 

The net operating and capital expenditure cash inflow is offset by £0.7m payable as part of the October 2016 C24 acquisition (2016: inflow of £0.4m being consideration payable net of the associated placing).

With increasing Clareti sales from the growing annuity base and new customer wins, coupled with tight cost control of planned investments, we expect the cash generation capacity of the business to continue and are looking at opportunities to best utilise the excess cash we have, either through bank deposits or to support our M&A ambitions.

Financial outlook

The Group continues to deliver consistent year-on-year Clareti growth as our planned investments in product, sales & marketing, delivery and associated infrastructure over the previous prior seven years are yielding a strong return.

Our non-Clareti parts of our business that have provided good quality, stable cashflow to invest in Clareti during the previous seven years are decreasing as customers are moving to newer or alternative solutions as planned. Whilst we anticipate these revenues will decline in the long term, there remains nothing to suggest these will drop off significantly in the short term beyond the planned partner exit that occurred in FY2017. These revenues as a portfolio continue to exceed our expectations despite our strategic focus on Clareti.

Overall our Clareti growth is significant compared to the rate of decline in our legacy business and as a combined Group we are achieving higher revenues, higher margins & earnings and strong cash generation as Clareti and its portfolio of applications continues to grow and the non-Clareti elements of our business become less material. We aim to continue this program of expansion and have planned investments for FY2018 and beyond across all aspects of our Group to drive growth but remain cognisant of the need to generate incremental earnings and cash generation to remain an exciting proposition for investors, customers, staff and partners.

 

Rob Grubb

Chief Financial Officer

 

CONSOLIDATED INCOME STATEMENT

 

Notes 

31 December 2017

31 December 2016

 

 

£'000

£'000

 

 

 

 

Revenue

3,4

21,668

17,156

Cost of sales

 

(3,283)

(2,984)

Gross profit

 

18,385

14,172

 

 

 

 

Adjusted administrative expenses

 

(14,602)

(11,488)

Adjusted operating profit

 

3,783

2,684

Adjusting administrative items:

 

 

 

Exceptional items

4

(90)

(275)

Amortisation on acquired intangibles

13

(410)

(108)

Share-based payments

23

(239)

(117)

 

 

(739)

(500)

Total administrative expenses

 

(15,341)

(11,988)

 

 

 

 

Statutory operating profit

4,5

3,044

2,184

 

 

 

 

Share of post tax loss of joint venture

15

(18)

-

Finance revenue

3,8

33

22

Finance costs

8

(2)

-

Profit before taxation

 

3,057

2,206

Taxation

9

744

399

Attributable to owners of the Parent

2

3,801

2,605

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

Statutory

 

 

 

Basic earnings per share – pence

10

5.65

4.06

Diluted earnings per share – pence

10

5.45

3.92

Adjusted

 

 

 

Basic earnings per share – pence

10

6.75

4.83

Diluted earnings per share – pence

10

6.51

4.67

All activities during the year were continuing.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

31 December 2017

31 December 2016

 

£'000

£'000

Attributable to the owners of the Parent

3,801

2,605

 

 

 

Other comprehensive (expenses)/income

 

 

Items that will or may be re-classified into profit or loss - exchange differences

(31)

86

 Total other comprehensive (expenses)/income

(31)

86

 

 

 

Total comprehensive income for the year

3,770

2,691

The tax effect of exchange differences recorded within the Consolidated Statement of Comprehensive Income is a credit of £6,000 (2016: debit of £17,000).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

Notes

31 December 2017

31 December 2016

 

 

£'000

£'000

Assets

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

12

590

656

Intangible assets

13

20,479

18,794

Interest in joint venture

15

(18)

-

Deferred tax assets

9

1,894

1,151

 

 

22,945

20,601

Current assets

 

 

 

Trade and other receivables

17

5,477

4,759

Income tax receivable

17

109

2

Other financial assets-bank deposits

18

200

-

Cash and cash equivalents

18

8,280

7,206

 

 

14,066

11,967

Total assets

 

37,011

32,568

Equity and liabilities

 

 

 

Equity attributable to owners of the Parent

 

 

 

Called up equity share capital

22

3,375

3,340

Share premium account

24

3,562

3,242

Other reserves

24

313

313

Foreign currency translation reserve

24

(10)

21

Retained earnings

24

18,275

14,235

Total equity attributable to owners of the Parent

24

25,515

21,151

Non-current liabilities

 

 

 

Deferred income

19

592

267

Provisions

19

18

44

Deferred tax liability

9

596

680

Contingent consideration

19, 28

-

378

 

 

1,206

1,369

Current liabilities

 

 

 

Trade and other payables

19

9,820

9,060

Financial liabilities

19

-

71

Income tax payable

19

47

139

Provisions

19

67

20

Contingent consideration

19, 28

356

758

 

 

10,290

10,048

Total liabilities

 

11,496

11,417

Total equity and liabilities

 

37,011

32,568

The financial statements were approved by the Board of Directors and authorised for issue on 12 March 2018.

On behalf of the Board

Ian Manocha                Rob Grubb

 

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 2016

 

3,164

9

313

(65)

11,513

14,934

 

 

 

 

 

 

 

 

Attributable profit for the period

 

-

-

-

-

2,605

2,605

Other comprehensive expense

 

-

-

-

86

-

86

Total comprehensive income

 

-

-

-

86

2,605

2,691

 

 

 

 

 

 

 

 

Share issue proceeds

22

158

3,163

-

-

-

3,321

Share transaction costs

22

-

(101)

-

-

-

(101)

 

 

 

 

 

 

 

 

Exercise of share options

22

18

171

-

-

-

189

Share-based payment expense

23

-

-

-

-

117

117

 

 

 

 

 

 

 

 

At 31 December 2016

 

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

 

 

 

 

 

 

 

 

Exercise of share options

22

35

327

-

-

-

362

Share transaction costs

22

-

(7)

-

-

-

(7)

Share-based payment expense

23

-

-

-

-

239

239

 

 

 

 

 

 

 

 

At 31 December 2017

 

3,375

3,562

313

(10)

18,275

25,515

 

CONSOLIDATED STATEMENT OF CASHFLOW

 

Notes 

31 December 2017

31 December 2016

 

 

£'000

£'000

Cashflows from operating activities

 

 

 

Profit after taxation

 

3,801

2,605

Depreciation, amortisation and impairment

5

1,855

1,355

Share-based payment expense

23

239

117

Share of post tax loss from joint venture

15

18

 

Increase in trade and other receivables

 

(781)

(737)

Increase in trade and other payables

 

495

2,551

Movement in deferred tax provisions

 

-

1

Movement in provisions

 

20

21

Fair value adjustment on deferred contingent consideration

28

(69)

-

Loss on disposal of property, plant and equipment

 

-

32

Net finance income

8

(31)

(22)

Cash inflow from operations

 

5,547

5,923

Net income taxes (paid)/received

 

(291)

216

Net cash inflow from operating activities

 

5,256

6,139

 

 

 

 

Cashflows from investing activities

 

 

 

Interest received

8

31

22

Increase in financial assets – bank deposits

 

(200)

-

Purchase of property, plant and equipment

12

(280)

(508)

Disposal of property, plant and equipment

 

-

13

Net payments to acquire subsidiary undertaking

28

(711)

(3,014)

Payments to acquire intangible fixed assets

13

(3,199)

(3,779)

Net cash used in investing activities

 

(4,359)

(7,266)

 

 

 

 

Cashflows from financing activities

 

 

 

Interest paid

 

-

-

Share issue proceeds

23

239

3,510

Share issue transaction costs

22

(7)

(101)

Net cash generated from financing activities

 

232

3,409

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

1,129

2,282

Cash and cash equivalents at beginning of year

 

7,206

4,666

Exchange adjustments

 

(55)

258

Cash and cash equivalents at end of year

18

8,280

7,206

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 2017 and 31 December 2016 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 2017.

Statutory accounts for the year ended 31 December 2016 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2017, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2016 statutory accounts have been applied consistently in all material respects.

This Annual Financial Report Announcement was approved by the Board of Directors on 12 March 2018 and signed on its behalf by Mr. I Manocha and Mr. R Grubb.

  1. Responsibility statements under the disclosure and transparency rules

The Annual Financial Report for the year ended 31 December 2017 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 report 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 2017 are set out in the Annual Financial Report 2017.

  1. 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, 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:
    • Clareti Transaction Control: a high performance enterprise data control solution for data validation and real-time transaction matching and reconciliation.
    • Clareti Accounts Receivable Management: a receivables management application with automated matching, reconciliation and allocation to reduce the order-to-cash cycle.
    • Clareti 24 Integration Objects: integration software to enable rapid adoption of financial message standards and transform complex data types.
    • Clareti Loan Control: a front-to-back loan servicing solution that enables effective and auditable management of simple and complex loan portfolios.
  • 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.

 

 

 

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

5,752

4,770

-

21,668

Inter-segment

 

-

-

-

-

-

Total revenue

3

11,146

5,752

4,770

-

21,668

 

 

 

 

 

-

-

Cost of sales

 

(449)

(869)

(2,081)

-

(3,399)

Cost of sales capitalised as intangible asset

 

116

-

-

-

116

Gross profit

 

10,813

4,883

2,689

-

18,385

 

 

97%

85%

56%

85%

Contracting administrative expenses

 

-

-

(2,038)

-

(2,038)

Gross profit after contracting fully costed

 

10,813

4,883

651

-

16,347

 

 

97%

85%

14%

75%

Adjusted administrative expenses

 

-

-

-

(12,564)

(12,564)

Adjusted operating profit

 

10,813

4,883

651

(12,564)

3,783

 

 

 

 

 

 

 

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

4,883

651

(13,303)

3,044

 

 

 

 

 

 

 

Share of post tax loss from joint venture

15

 

 

 

 

(18)

Interest revenue

8

 

 

 

 

33

Interest expense

8

 

 

 

 

(2)

 

 

 

 

 

 

 

Profit before taxation

 

 

 

 

 

3,057

Taxation

9

 

 

 

 

744

Profit after taxation

 

 

 

 

 

3,801

 

 

 

 

 

 

 

Segment assets

 

 

 

 

 

37,011

 

 

 

 

 

 

 

Segment liabilities

 

 

 

 

 

(11,496)

                   

 

 

 

 

 

Other

 

 

Year ended 31 December 2016

Notes

Clareti Solutions

 Solutions

Contracting

Services

Adjustments, central and eliminations

Consolidated

 

 

£'000

£'000

£’000

£'000

£'000

Revenue

 

 

 

 

 

 

External customer

 

7,491

6,901

2,764

-

17,156

Inter-segment

 

-

-

-

-

-

Total revenue

3

7,491

6,901

2,764

-

17,156

 

 

 

 

 

-

-

Cost of sales

 

(566)

(2,070)

(675)

-

(3,311)

Cost of sales capitalised as intangible asset

 

327

-

-

-

327

Gross profit

 

7,252

4,831

2,089

-

14,172

 

 

97%

70%

76%

83%

Contracting administrative expenses

 

-

-

(1,678)

-

(1,678)

Gross profit after contracting fully costed

 

7,252

4,831

411

-

12,494

 

 

97%

70%

15%

73%

Adjusted administrative expenses

 

 

-

-

(9,810)

(9,810)

Adjusted operating profit

 

7,252

4,831

411

(9,810)

2,684

 

 

 

 

 

 

 

Adjusting items:

 

 

 

 

 

 

Exceptional costs

 

-

-

-

(275)

(275)

Amortisation of acquired intangibles

13

-

-

-

(108)

(108)

Share-based payments

23

-

-

-

(117)

(117)

Adjusting administrative expenses

 

-

-

-

(500)

(500)

 

 

 

 

 

 

 

Statutory operating profit

 

7,252

4,831

411

(10,310)

2,184

 

 

 

 

 

 

 

Interest revenue

8

 

 

 

 

22

Interest expense

 

 

 

 

 

-

 

 

 

 

 

 

 

Profit before taxation

 

 

 

 

 

2,206

Taxation

9

 

 

 

 

399

Profit after taxation

 

 

 

 

 

2,605

 

 

 

 

 

 

 

Segment assets

 

 

 

 

 

32,568

 

 

 

 

 

 

 

Segment liabilities

 

 

 

 

 

(11,417)

                   

 

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 £7.8m (2016: £4.4m), this revenue includes the low-margin contracting revenue of £4.8m (2016: £2.8m) noted above. The revenue from this customer falls predominantly within the Other Solutions segment.

Exceptional items

 

2017

2016

 

£'000

£'000

Exceptionals

   

Acquisition and associated integration costs

77

119

Fair value adjustment to acquisition contingent consideration & tax cost

(59)

-

Advisory fees for establishment of joint venture and all-staff incentive scheme

42

-

Staff costs (recruitment and termination costs)

30

124

Property (office closures)

-

32

 

90

275

 

During the year the Group incurred exceptional costs completing the integration of C24 Technologies Limited; exceptional legal costs associated with the establishment of our joint venture and all-staff incentive scheme; and exceptional recruitment costs associated with the recruitment of a new CFO. These costs totalled £149,000 and are offset by exceptional income arising from the fair value adjustment of the C24 contingent consideration of £59,000, resulting in a net exceptional charge of £90,000 (2016: £275,000).

Geographic information

 

 

2017

2016

 

£'000

£'000

Revenues from external customers (by destination)

   

EMEA

538

333

Austria

466

-

Denmark

843

-

North America

3,562

1,405

UK

7,062

9,310

Australia

8,063

4,683

Asia Pacific

1,134

1,425

 

21,668

17,156

 

 

 

 

£'000

£'000

Non-current assets

 

 

UK

20,277

18,646

North America

22

37

Asia Pacific

752

767

 

21,051

19,450

 

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

EMEA includes revenue from external customers located primarily in Germany and Switzerland.

Asia Pacific includes revenue from external customers located primarily in Malaysia and Singapore

  1. Taxation

(a) Tax on loss on ordinary activities

Tax credited in the income statement

 

2017

2016

 

£'000

£'000

Current income tax

 

 

Overseas tax charge - adjustment to previous years

53

22

Overseas tax charge - current year

50

140

UK corporation tax (credit)/charge - adjustment to previous years

(20)

166

UK corporation tax credit - current year

-

-

Total current income tax

83

328

 

 

 

Deferred income tax

 

 

(Recognition) of deferred tax asset

(827)

(863)

Tax rate change adjustments

-

136

Total deferred income tax

(827)

(727)

 

 

 

Total credit in the income statement

(744)

(399)

 

 (b) 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 19.25% (2016: 20.0%). The differences are reconciled below:

 

2017

2016

 

£'000

£'000

Profit before taxation

3,057

2,206

Accounting profit multiplied by the UK standard rate of

 

 

corporation tax of 19.25% / 20.0%

588

441

Income/expenses not deductible/(taxable) for tax purposes

160

43

Differences in tax rates

84

85

Overseas tax credit - adjustment to previous years

53

22

R&D tax credit - previous year

-

122

R&D enhanced relief

(1,277)

(1,604)

Movement in unrecognised losses carried forward

(388)

(1,307)

Movement in unrecognised temporary differences

451

2,200

Movement in unrecognised fixed asset temporary differences

129

15

Temporary difference on share-based payments

(459)

(552)

Temporary movement on acquired intangibles

(85)

-

Tax rate change adjustments

-

136

Total tax credit reported in the income statement

(744)

(399)

 

(c) 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 £6,000 (2016: debit of £17,000).

(d) Temporary differences associated with Group investments

At 31 December 2017, there was no recognised deferred tax liability (2016: £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.

The temporary differences associated with investments in subsidiaries for which deferred tax liability has not been recognised aggregate to £nil (2016: £nil).

(e) Deferred tax

Recognised deferred tax

 

2017

2016

 

£'000

£'000

1 January

 1,151

 239

Movement in the period- Losses

640

(2,339)

                                       Share-based payments timing differences

421

(552)

                                       Other timing differences

(348)

3,884

                                       Fixed asset timing differences

30

(145)

Acquired on acquisition of subsidiary undertaking

-

200

Impact of change in tax rate

-

(136)

31 December

 1,894

 1,151

 

 

 

Comprising:

 

 

Temporary differences

(1,128)

(1,231)

Tax losses

 3,022

 2,382

31 December

 1,894

 1,151

 

A deferred tax credit of £322,000 (2016: £1,048,000) 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

 

2017

2016

 

£'000

£'000

Intangible asset acquired on acquisition

596

680

 

 

 

Comprising:

 

 

1 January 

680

-

Recognised in the income statement

(84)

-

Acquisition of intangibles in subsidiaries

-

680

31 December

596

680

 

Unrecognised potential deferred tax assets

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

 

2017

2016

 

£'000

£'000

Temporary differences

(87)

159

Tax losses

621

1,009

Unrecognised deferred tax asset

534

1,168

 

 

 

Gross temporary differences unrecognised

(289)

530

Gross tax losses unrecognised

2,588

3,750

Gross temporary timing differences unrecognised

2,299

4,280

 

Future tax rates

The main rate of corporation tax for UK companies reduced from 21% to 20% from 1 April 2015. Finance Bill 2015, which was substantively enacted on 26 October 2015, announced further reductions to the main rate of corporation tax. The rate will reduce to 19% from 1 April 2017 and 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 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.

                        2017                2016

UK                   17%/19%         17/20%

Australia           30%                 30%

US                   40%                 40%

  1. 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 2017

 31 December 2016

Basic weighted average number of shares

 

67,276,136

64,223,010

Dilutive potential ordinary shares

 

-

-

           Employee share options - weighted (note 23)

 

2,488,515

2,198,808

Diluted weighted average number of shares

 

69,764,651

66,421,818

 

 

 

Notes

 31 December 2017

 31 December 2016

 

 

 

 

 

 

£'000

£'000

Adjusted earnings attributable to owners of the Parent

 

4,540

       3,105

Adjusting items:

 

 

 

Exceptional items

4

(90)

(275)

Amortisation of acquired intangibles

13

(410)

(108)

Share-based payments

23

(239)

(117)

Statutory earnings attributable to owners of the Parent

 

       3,801

       2,605

 

 

 

 

 

Earnings per share

 

 

 

Statutory

 

 

 

 

Basic earnings per share - pence

 

         5.65

         4.06

Diluted earnings per share - pence

 

        5.45

        3.92

 

 

 

 

 

Adjusted

 

 

 

 

Basic earnings per share - pence

 

         6.75

         4.83

Diluted earnings per share - pence

 

        6.51

        4.67

 

Adjusted EBITDA earnings

Adjusted EBITDA

 

 

 

Profit before tax

 

3,057

2,206

Adjusting items:

 

 

 

Exceptional items

4

90

275

Amortisation on intangibles

13

1,509

1,004

Depreciation on P,P&E

12

245

224

Loss on disposal

 

-

32

Share-based payments

23

239

117

Interest received

3,8

(31)

(22)

Adjusted EBITDA

 

5,109

3,836

 

During the year ended 31 December 2017, share options granted under the 2010 Share Option Plans were exercised and the Group issued 707,979 (2016: 350,000) ordinary shares accordingly (ranking pari passu with existing shares in issue). See note 23 of the Group financial statements 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 2017.

  1. Dividends paid and proposed

No dividends were declared or paid during the year. The Company will be proposing a first dividend for approval at the AGM for the year ended 31 December 2017 of 0.5p per share (2016: nil). If approved by the passing of a resolution at the AGM, it is intended to pay the final dividend on 24 May 2018 to all shareholders on the register at close of business on 13 April 2018. The ex-dividend date will be 12 April 2018.

  1. Intangible assets

 

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

 

 

 

 

 

 

31 December 2016

 

 

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

15,112

1,673

-

-

876

17,661

Additions

3,690

89

-

-

-

3,779

Additions acquired as part of business combination

-

-

3,067

866

1,376

5,309

Disposals

-

(31)

-

-

-

(31)

Exchange adjustment

41

14

-

-

77

132

At 31 December

18,843

1,745

3,067

866

2,329

26,850

Amortisation and impairment

 

 

 

 

 

At 1 January

(5,506)

(1,257)

-

-

(250)

(7,013)

Charge for year

(741)

(155)

(79)

(29)

-

(1,004)

Eliminated on disposal

-

12

-

-

-

12

Exchange adjustment

(41)

(10)

-

-

-

(51)

At 31 December

(6,288)

(1,410)

(79)

(29)

(250)

(8,056)

 

 

 

 

 

 

 

Net carrying amount

 

 

 

 

 

 

At 31 December

12,555

335

2,988

837

2,079

18,794

At 1 January

9,606

416

-

-

626

10,648

 

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 five to 15 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 5 and 15 years.

For the year ended 31 December 2017 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 15 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. 

Software is amortised over its useful economical life, which is deemed to be ten years.

Customer relationships acquired in the year are amortised over the useful economical life, which is deemed to be eight years.

Goodwill

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

  1. 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 2017.

Notifications relating to LR 9.6.11R

The Company confirms that, with effect as of 13 March 2018, Mr T Mullan has been appointed as Executive Director and Chief Financial Officer in substitution for Mr R Grubb, who steps down from the Board on 13 March 2018 and whose employment will terminate on 31 March 2018.