TIDMPTRO
RNS Number : 9964T
Pelatro PLC
26 March 2019
Pelatro Plc
("Pelatro", the "Company" or the "Group")
Final Results
Pelatro Plc (AIM: PTRO), the global Multichannel Marketing Hub
software specialist, is pleased to announce its final results for
the year ended 31 December 2018.
Financial Highlights
-- Revenue increased by 95% to $6.12m (2017: $3.15m)
-- Repeat revenue increased to $3.10m (2017: $0.62m)
-- Repeat revenue now accounts for 51% of revenues (2017: 20%)
-- Pre-exceptional EBITDA* increased by 88% to $3.75m (2017: $2.0m)
-- Adjusted profit before tax increased by 73% to $3.1m (2017: $1.8m)
-- Adjusted earnings per share** increased by 13% to 10.1c (2017: 8.9c)
-- Net cash as at 31 December 2018 $1.8m (2017: $3.1m)
-- Operating cash flow increased by 56% to $1.2m (2017: $0.75m)
* earnings before interest, tax, depreciation, amortisation and
exceptional items
** based on pre-exceptional earnings after tax
Operational Highlights
-- Earnings enhancing acquisition of certain assets from the Danateq Group:
o Initial payment of $7m funded by equity fundraising
o Doubled subscriber base to 325m and increased customers to 12
following acquisition
o Broadened product suite
-- Contract win worth $1.7m with Tele2
-- Contract win with Telenor to supply Loyalty Management Solution globally:
o Further strengthening existing relationship
o Opportunity to provide services to range of Telenor operating
companies
-- Contract to provide mViva Contextual Marketing Solution to PrimeTel of Cyprus:
o Further expansion into Europe
-- Contract with NCell to supply mViva Campaign Management Solution:
o Deepens engagement with the Axiata Group
Post Year End Highlights
-- Contract win worth $1.5m with Vietnam-based Vinaphone:
o First contract in Vietnam
-- Contract win worth $1.6m with Ooredoo Maldives:
o Significant opportunity to cross sell into the wider Ooredoo
Group
-- Inaugural mViva Data Monetization Platform contract with Tele2 Kazakhstan:
o Establishing a new revenue stream for the Company
-- Revenue, Cash and Collection:
o Visibility over c.$5.2m revenues for the current year
o $1.8m cash collected
o Current net cash at $2.22m
o Debtor Days down from 251 to 153
Richard Day, Non-executive Chairman of Pelatro commented: "This
first full year as an AIM-quoted public company has been one of
progress and significant achievement for Pelatro, at both the
operational and strategic levels. Growth in our revenues from $3.1m
to $6.1m was in line with our expectations and was underpinned by a
combination of increased business with existing customers as well
as the addition of new revenue lines as we expanded our customer
base, which has grown from 7 to 16 to date. We also broadened our
geographic reach, breaking into the European market with our first
contract win in the region with Primetel of Cyprus in October
2018."
"In July 2018 we announced our acquisition of certain assets
from Danateq, with its customers and real-time self-learning
analytics platform and complementary campaign management solutions.
The acquisition was funded with a further equity placing which was
strongly supported by our shareholders, raising approximately
GBP6m. We are grateful for their support. I am pleased to say that
the Danateq business is living up to our expectations and the staff
joining our enlarged group have been a tremendous fit."
"With our growing customer base, we have an increasing ability
to cross-sell our products deeper across our network. We are
winning new business with the telcos and have announced two new
customers already in the current year, in addition to the launch of
our Data Monetization Platform. Visibility over some $5.2m of
revenue and a $15m pipeline, gives us every confidence as we look
forward to the rest of the year."
A copy of the results presentation provided to analysts will be
available on Pelatro's website later today (www.pelatro.com).
Enquiries:
Pelatro plc Via Walbrook PR
Subash Menon, Managing Director & CEO
Nic Hellyer, Finance Director
finnCap - AIM Nominated Adviser and Broker Tel: +44 (0) 20 7720
0500
Carl Holmes/Kate Bannatyne/Matthew Radley
Walbrook PR (Media & Investor Relations) Tel: +44 (0) 20 7933
8780
Paul Cornelius / Nick Rome / Sam Allen pelatro@walbrookpr.com
This announcement is released by Pelatro Plc and, prior to
publication, the information contained herein was deemed to
constitute inside information under the Market Abuse Regulations
(EU) No. 596/2014. Such information is disclosed in accordance with
the Company's obligations under Article 17 of MAR. The person who
arranged for the release of this announcement on behalf of Pelatro
Plc was Nic Hellyer, Finance Director.
Notes to editors
The Pelatro Group was founded in March 2013 by Subash Menon and
Sudeesh Yezhuvath with the objective of offering specialised,
enterprise class software solutions for customer engagement
principally to telcos who face a series of challenges including
market maturity, saturation and customer churn.
Pelatro provides its "mViva" platform for use by customers in
B2C applications, and is well positioned in the Multichannel
Marketing Hub space (MMH) - this is technology that orchestrates a
customer's communications and offers to customer segments across
multiple channels to include websites, social media, apps, SMS,
USSD and others.
For more information about Pelatro, visit www.pelatro.com
Managing Director's statement
Your company has completed one full year as a listed entity and
it has turned out to be a foundation building year for us. Our
objective is to build the best in our industry and the first step
in the building of any edifice is building the foundation. That is
exactly what we did in 2018. Let me elaborate what we achieved in
those twelve months.
The Past Year
We forged ahead in three areas during the year - products,
customers and inorganic growth - as the first step towards
leadership in our chosen space. The result is a platform that can
cater to the expanding neds of telcos, doubling of customer
relationships and a well thought out, strategic acquisition.
Products
Pelatro started out with one product and that continued to be
the case well into 2018. While retaining that product as the
mainstay of the company, we have built out a large suite in line
with our vision for the industry. The suite, called Multichannel
Marketing Hub, encompasses Contextual Marketing Solution, Loyalty
Management Solution, Gamification, Data Monetization Platform and
Intelligent Notification Manager. While the first four solutions
help in deepening the engagement between the telco and its
subscribers through various means like contextual campaigns,
loyalty programs, games etc. for both telco and non-telco products,
the last product assists the telco to support this extensive
engagement exercise by providing a robust communication platform.
The products function in tandem as a well integrated platform
addressing the twin objectives of revenue enhancement and churn
reduction. Your company is pioneering this approach by offering
related products on a common platform for the first time. Needless
to say, this pioneering endeavour will propel Pelatro towards
leadership.
Customers
Pelatro's customer base has been growing by leaps and bounds. It
now includes several prestigious names in the telco industry like
Telenor, Axiata, Tele2, SingTel, Cable & Wireless etc. The
strong progress is highlighted by the fact that our customer base
doubled in 2018. This growth has enabled us to reduce customer
concentration and also to gain credibility and stature.
A notable aspect of the addition of new customers is the
presence within specific telco groups. Pelatro strategically enters
a large telco group by winning a contract from one of the OpCos.
For example, we won the contract from Robi of Bangladesh, an Axiata
Group company, by offering a Proof of Concept engagement to
establish the differentiation and efficacy of our mViva Contextual
Marketing Solution. This extremely successful engagement was
followed by contracts from other Axiata Group OpCos like Dialog,
Celcom, Smart and Ncell. A similar strategy has worked out well
with the Telenor Group resulting in our presence in Telenor OpCos
in Bangladesh, Myanmar and Bulgaria with more in the pipeline.
Another arrow in our quiver is the ability to leverage multiple
in our portfolio. As explained earlier, all the products from
Pelatro work in harmony to deliver the same objectives from
different angles. This has enabled us to sell more than one product
to each customer thereby strengthening our relationship with
customers which leads to a virtuous cycle of growth. For example,
the Global Frame Agreement with Telenor currently includes two
product - Contextual Marketing Solution and Loyalty Management
Solution - after having started with one. We now have the
possibility to sell both the products to Telenor OpCos. While the
current average is 1.2 products per customer, it is our stated aim
to constantly increase this penetration which will bring rich
dividends to the company. Needless to say, a follow-on sale has a
higher probability as compared to the initial sale. Further, when
multiple products from Pelatro are used by any telco, the overall
gain realised by them will be higher due to the benefits that they
experience from the inter play of the products.
The exponential growth in the number of customers is evidence of
the fact that the customer acquisition and growth strategy employed
by Pelatro is working quite effectively. We will continue on the
same path thereby ensuring a steady and commendable progress on
this front.
Inorganic growth
For all software companies, inorganic growth is a key element.
At Pelatro, we view this as an opportunity to expand our global
footprint and to strengthen the product offering. In keeping with
this philosophy, we continuously scan the space for appropriate
opportunities. In 2018, we identified a company that had certain
assets which turned out to be an excellent fit on both fronts -
customers and products. We acquired these assets from Danateq,
based out of Singapore, in August/September 2018 and completed the
integration soon thereafter. This acquisition catapulted the
company to a higher orbit due to variety of factors detailed
herein.
A Global Framework Agreement with the Telenor Group for
Contextual Marketing Solution and a large contract with Globe,
Philippines were the key assets on the customer front. While the
former brought entry into a large global group with operations in
11 countries, and the potential to sell to all of them, the latter
brought us a very valuable repeating revenue stream. We are in the
process of expanding and deepening our relationship with the
Telenor Group. As part of that activity, we have been successful in
getting another product - Loyalty Management Solution - included in
the Global Framework Agreement and also sold that product to
Grameenphone, the Telenor OpCo in Bangladesh. We now have the
opportunity to gradually sell both Contextual Marketing Solution
and Loyalty Management Solution across the Telenor operation.
Efforts are on to include a third product also in the Global
Framework Agreement. With regard to Globe, we have been able to
step up the revenue and to engage in dialogue to expand the product
portfolio that is being used by Globe. We are confident of
receiving significant revenue from these relationships with Telenor
and Globe in the coming years. The engagement with Telenor helped
us enter Central & Eastern Europe and could also potentially
take us into Western Europe in the foreseeable future.
The acquisition also brought us two additional products -
Loyalty Management Solution and Intelligent Notification Manager -
and helped us to strengthen our Multichannel Marketing Hub. This
has now enabled us to sell multiple products from the platform
thereby leveraging existing relationships through cross selling.
Further, the presence of multiple products forming a platform has
substantially increased our credibility resulting in a positive
thrust to our endeavour to grow quickly. In addition to this
obvious benefit, we are now able to enter telcos through multiple
opportunities by leveraging different products as against the
earlier situation of having to rely on a single product to enter
with.
Needless to say, the acquisition is expected to be accretive in
this current year. Thus, we have been able to identify, acquire and
integrate these assets resulting in huge benefits across various
elements. Your company will continue to seek out such highly
beneficial opportunities in the future.
Cash Collection
At the end of the financial year, trade receivables stood at
$4.1m (2017: $1.8 million) i.e. 251 days. The increase relates
largely to the weighting of revenues in the second half of the
year, with over 60% of the total revenue accounted for in the last
quarter . Approximately $1.8m has been collected since the year end
and to date, resulting in debtor days of 153.
Cash collection has been a key strategic focus for management
this year - cash generated by operations, as adjusted for
exceptional items, amounted to just under $1.2m (2017: $750,000),
largely as a result of the improving timing of collection of trade
receivables (operating cash outflow of $52,000 in the first half
comparing to adjusted operating cash inflow of approximately $1.2m
in the second); this improvement is expected to continue as the
Group becomes more established and also with an increasing
proportion of repeat or monthly contracts in the revenue mix (e.g.
from revenue share or managed services).
Vision
Building an organisation calls for vision. Articulation of this
vision, acceptance of the same by all stakeholders and flawless
execution results in leadership. Pelatro has always been a
visionary in its chosen space. Our vision is resonating well with
the telco industry which has led to their enthusiasm for our
products. The telcos have comprehended that Pelatro could play the
role of a valuable partner in their quest for digitization of their
business, increase in revenue and reduction in churn. Over the past
few years, we have been executing in line with this vision and have
now built a strong foundation to grow on.
Our vision encompasses the entire area of customer engagement
and monetization of deep customer relationship. The most important
asset that any telco has is the continuing relationship with its
subscribers and the data that is generated as a result of this
relationship. Pelatro's solutions help the telcos to ensure
continuous and deep engagement with customers to ensure a high
level of satisfaction leading to higher revenue and lower churn.
This multichannel and multifaceted engagement generates a
significant amount of data related to consumption behaviour of
these subscribers covering a wide gamut of areas like voice, data,
broadband, music, video, messaging, browsing etc. This data is
collected by the platform from Pelatro and is then analysed to come
up with actionable insights. Thus, the solutions from Pelatro hold
a wealth of data and insights that are valuable for various B2C
business entities like banks, insurance companies, retail, brands
etc. Our visions is to build an ecosystem of all these players who
will benefit from this vast understanding of hundreds of millions
of subscribers. The telcos can monetize this by providing access to
the B2C business entities mentioned earlier, who will gain by being
able to engage with the subscribers of the telco in a contextual,
relevant and real time manner. This engagement will be in the form
of campaigning and mobile advertisement. This means that, with the
help of Pelatro, the telcos can earn a material share of the
burgeoning mobile advertisement market.
Pelatro's products now cover about 370 million subscribers,
including a penetration level of about 70% of the population of
four countries. Consequently, Pelatro's platform facilitates
partnership with B2C companies in those countries and Pelatro's
telco customers based on the ability of these telcos to provide
mobile advertising and campaigning to 70% of the population in
these countries to their B2C partners. Thus, Pelatro is building an
ecosystem of its telco customers and a variety of B2C players in
each country. As this gets built and achieves a critical mass in a
large number of countries in the foreseeable future, Pelatro will
become an indispensable partner to the telcos leading to Pelatro's
revenue growing at a fast pace on the back of increasing revenue
for the telcos and sharing of that revenue with Pelatro. In short,
Pelatro envisions an ecosystem that generates significant revenue
for the telcos through mobile advertising and campaigning and
sharing of the same by Pelatro.
I thank every one of our stakeholders for the supprt extended
during the last year while the company was building a strong
foundation. Let us work towards enhanced growth by leveraging the
foundation that we have built.
Subash Menon
Managing Director, CEO and Co-Founder
26 March 2019
Financial Review
Introduction
Our full year results highlight the rapid growth the Group has
experienced in 2018, and reflect a broader product offering of both
software and services. Revenue increased by 95 per cent. to $6.1m,
including some $3.1m repeat revenue (including gain share, change
requests and managed services, as well as PCS). Repeat revenues
such as this are a key strategic focus and they have grown strongly
because of both the continuing emphasis on growing sales of service
contracts (including PCS) and the acquisition of the Danateq Assets
during the year which brought significant levels of repeat revenue.
We expect this growth to continue as our products achieve wider
adoption throughout the telecommunications industry - 2019 has
already started positively with significant customer wins, notably
Vinaphone of Vietnam and Ooredoo in the Maldives (part of the large
Ooredoo Group of Qatar).
Key performance indicators
2018 2017 Growth
Revenue $6.12m $3.15m 95%
Repeat revenue $3.10m $0.62m 411%
Repeat revenue as percentage of total 51% 20%
Adjusted EBITDA (see Note 9) $3.75m $2.00m 88%
Adjusted EBITDA margin(1) 61% 69%
Profit before tax (pre exceptional
items) $3.1m $1.8m 73%
Cash generated from operating activities
(pre exceptional items) $1.2m $0.75m 56%
Contracted customers (at year end) 14 7 100%
(1) 2017 margin adjusted for $255,000 of hardware sales at nil
net profit
Income statement
Revenue
2018 continued the trends seen in the prior year, with total
revenues rising around 95% to $6.12m (2017: $3.15m), and more than
doubling when adjusted for the $255,000 sale of hardware in the
2017 figures. Of this $6.1m, approximately $2.5m arose from sales
of licenses and the associated implementation (2017: $2.3m) and
some $3.1m arose from repeat revenue, notably from gain share
contracts and in particular change requests (2017: $0.6m). The
geographic spread of income has also increased, with some 14
customers across as many countries; likewise, the concentration of
revenue has significantly decreased, with now two customers each
accounting for more than 10% of the revenue compared to 6 in
2017.
As detailed further in Note 5, the Group implemented IFRS 15
Revenue from Contracts with Customers ("IFRS 15") with effect from
1 January 2018. The principal changes resulting from its
application were: (1) recognition of revenue from the sale of a
license and its implementation as two separate performance
obligations, without reference to contractual invoicing milestones;
and (2) recognition of revenue from post-contract support ("PCS")
over the term for which support is provided (typically 5 years)
rather than the period over which customers usually pay (usually 4
years). In addition, certain contracts which have terms which allow
for instalment payments or similar over an extended period are now
treated as contracts with a "Significant Financing Component";
accordingly, the Group recognises effective interest income on the
amounts deemed to be credit extended to the customer.
The implementation of IFRS 15 has not affected the revenue
recognition of income from change requests, revenue gain share
contracts (except where there is also a fixed monthly payment),
managed services or the resale of hardware.
In summary, the effect of IFRS 15 has been to accelerate
approximately $271,000 of income (relating to PCS and contracts
where fixed amounts are payable over time) which otherwise would
have been recognised in later periods, and to defer approximately
$167,000 of income (principally relating to license fees) which
otherwise would have been recognised in this financial year (offset
by some $23,000 of revenue which has been recognised as
interest).
As all the Group's revenue is in US Dollars, there is no impact
on revenue arising from foreign exchange movements.
Cost of sales
Cost of sales of $555,000 (2017: $799,000) represents the direct
labour costs of providing software support and maintenance,
professional services and consultancy, as well as sales commissions
payable, expensed customer integration and software maintenance
costs. As the Group diversifies its revenue streams into (for
example) managed services and PCS, an increasing proportion of
costs will be allocated to cost of sales reflecting the direct
costs of service and support for the relevant contracts.
Prior to its acquisition in December 2017, amounts invoiced to
the Group by the then third-party owned software development centre
PSPL and which were not eligible for capitalisation were accounted
for as cost of sales; these costs reflected that company's
underlying administrative costs as well as costs directly relating
to technical and related services. Following its acquisition, the
Group cost of sales excludes administrative expenses in PSPL which
are included instead in the relevant category; hence the prior year
figure is not directly comparable. Such expenses were approximately
$200,000 in 2017, the majority of which related to travel. The 2017
figure also includes $274,000 relating to the cost of hardware
which was sold on to a customer.
Overheads and exceptional costs
Pre-exceptional overheads (excluding depreciation and
amortisation) increased to $1.8m (2017: $0.34m) as a result of
staff costs (which were previously included in cost of sales) and
directors' remuneration as well as additional costs relating to
maintenance of the Company's admission to the AIM market (the
Group's admission to AIM was in December 2017). Reflecting the
global reach of the Group, more than double the number of customers
and a similar increase in staff needing to travel to service them,
travel and other marketing costs were also a significant
contributor to this increase. The Group will continue to invest in
staff to ensure a level of service which befits the standard of the
software products; likewise, with the number of opportunities
available worldwide, marketing and travel will continue to be an
important component of Group expenditure.
As well as exposure to Pounds Sterling on costs arising in the
UK, the Group is exposed also to foreign exchange movements in the
Indian Rupee due to the software development and support activities
carried out by its Indian subsidiary, PSPL. The Group has a small
exposure to the Philippines peso and the Russian rouble because of
its activities in those countries. Overhead costs also include the
net effect of realised foreign exchange movements which resulted in
a gain in the year of $70,000 (2017: $15,000), arising principally
from the weakness of Sterling and the Indian Rupee.
As a result of the acquisition of the Danateq Assets and the
placing of ordinary share capital to fund it, the Group incurred a
number of exceptional costs during the year amounting to
approximately $310,000, being principally legal and other fees
(2017: $701,000 relating to the Company's IPO). Costs relating
directly to the placing were taken directly to share premium.
Profitability
Adjusted EBITDA (earnings before interest, tax, depreciation,
amortisation and exceptional items) increased by 88% in the year to
$3.75m (2017: $2.00m) reflecting in part increasing levels of
repeat revenue. Profit before tax, exceptional items and
amortisation of acquisition-related intangibles was $3.1m (2017:
$1.8m). On a similar basis adjusted earnings per share ("EPS") were
10.1c (2017: 8.9c), and reported EPS were 8.0c (2017: 4.8c).
Reported profit before tax was $2.6m (2017: $1.1m).
Taxation
The increase in the income tax for the year reflects the
increased profitability of the Group and in particular the
increased size of the PSPL subsidiary which is taxed at higher
rates than the rest of the Group entities. The effective rate of
13% (which is lower than the statutory rates of 19% in the UK, 18%
in Singapore and 31% in India, being the jurisdictions of the
majority of the Group's activities, is principally a result of
certain items in the calculation of statutory profit before tax not
being factors in the relevant local income tax calculation (e.g.
capitalisation of developments costs and the associated
amortisation).
Statement of financial position
Goodwill and other intangible assets
Goodwill
The goodwill in the Group balance sheet arises from the
acquisitions of PSPL in December 2017 and the Danateq Acquisition
in August 2018. As PSPL was initially loss-making and then
minimally profitable, and had been funded largely by related party
and third-party debt, it had significant negative net assets at the
time of acquisition, thus leading to the goodwill acquired.
Goodwill also arose from the Danateq Acquisition as further
explained below.
Customer relationships and acquired software for resale
As noted in more detail in Note 26, the assets acquired pursuant
to the Danateq Acquisition comprised principally customer
relationships and enterprise software for resale to third parties.
The consideration payable for the acquisition comprised an initial
payment and two payments which are contingent on certain revenue
targets being met. As at the effective date of the acquisition, the
Directors calculated the expected value of the contingent
consideration payable as approximately $8.4m, which has been
allocated approximately $6.9m to customer relationships and $1.3m
to software, with the residual balance being ascribed to goodwill.
The customer relationships acquired are being amortised over 10
years, and the software acquired (in common with the Group's
existing capitalised development costs) over 4 years. Net of
accumulated amortisation for the 5 months from the effective date
of acquisition, the net book value of the intangible assets thus
acquired was approximately $7.7m at the year end, which the
Directors consider to be in line with their fair value.
Development costs
During the year the Group has continued to invest substantially
in the development of its proprietary software through its software
development centres in Bangalore and, since the Danateq
Acquisition, Nizhny Novgorod. Over the year the Group capitalised
relevant costs of around $1.6m (2017: $752,000) out of a total of
underlying costs of approximately $2.7m, of which the majority were
incurred in Bangalore. This investment reflects the continuing
expansion of the development team (around 70% of Group staff in the
year) and underpins the planned further improvements to and
diversification of products and hence further growth in revenues.
As noted above, as part of the Danateq Acquisition, the Group also
acquired development costs (relating to the development work on the
acquired software products which had been carried out in Nizhny
Novgorod) which were valued at approximately $1.3m on acquisition.
Amortisation on the standalone and acquired costs increased to
$0.6m (2017: $201,000) accordingly, and net of such amortisation,
this capitalisation resulted in an intangible asset in the
statement of financial position of approximately $3.2m (2017:
$908,000).
Property, plant and equipment
During the year the Group acquired motor vehicles for the
benefit of two Directors at a cost of $270,000. Furthermore, due to
expansion of the Group's activities, an additional lease over a
property in Bangalore was taken on; the property so acquired
required substantial renovation at the expense of the Group (which
requirement was reflected in the terms of the lease), and the
associated costs of $49,000 have been capitalised as leasehold
improvements. Additional investments were made in computer and
office equipment amounting to $67,000. Depreciation in the year
amounted to $47,000 (2017: $1,000, reflecting the acquisition of
PSPL in December that year) and the aggregate net book value of
property, plant and equipment rose from $30,000 to $362,000.
Trade and other receivables
At 31 December 2018 trade receivables stood at $4.1m (2017: $1.8
million). The increase relates largely to the weighting of revenues
in the second half of the year, with over 60% of the total revenue
accounted for in the last quarter, as well as certain contracts
being on bespoke or extended settlement terms and others (notably
change requests) typically being billed on a cumulative basis.
Approximately $1.8m has been collected since the year end and to
date, of which $202,000 relates to the $502,000 debtor over 121
days referred to in Note 19 and the balance relates to one other
customer.
As part of its reported debtor balances, the Group may at any
one time have amounts outstanding representing Unbilled Revenue
("UBR"). This may arise, for example, where Pelatro undertakes work
for customers in accordance with contract terms, but the "Go Live"
date (which may represent the initial invoicing date) is expected
much later in the term of the contract. As is standard practice in
the telecoms industry, contractual revenue milestones (and now
completion of a performance obligation for the purposes of
recognition of revenue for IFRS 15) are typically reached much
earlier than invoicing milestones and credit terms of 90 days start
following the invoice. Also certain contracts may be structured
such that a fixed amount is payable over an extended term, and
hence at any one time there will be a debtor balance outstanding
which is not invoiced under the contract terms.
The trade receivables balance at the year end is analysed as
follows:
2018 2018 2018 2017 2017 2017
$'000 $'000 $'000 $'000
Receivables Associated "Debtor Receivables Associated "Debtor
revenue days" revenue days"
Gross trade receivables 4,138 6,019 251 1,778 3,146 206
Trade receivables excluding
UBR 1,813 3,694 179 1,721 3,089 203
Trade receivables above exclude contract assets and the
associated revenue is the relevant contractual revenue excluding
any adjustment for IFRS 15. Given the wide variety and bespoke
nature of the Group's contracts, figures shown for debtor days are
illustrative only. Further commentary on trade receivables is given
below in the section regarding cash flow and financing.
Trade and other payables
At the year end trade payables stood at $118,000 (2017:
$53,000). Other payables of $463,000 (2017: $320,000) comprise an
accrued tax liability of $271,000 and sundry creditors and
accruals. The Group has tax liabilities with UK, Singaporean and
Indian tax authorities in relation to trading in 2018. Costs
relating to the IPO in 2017 and the Placing in 2018 are not tax
deductible, whether taken to share premium or through the profit
and loss account, and hence have a concomitant effect on the
effective tax rate.
A further $28,000 (2017: $101,000) was owed to Directors largely
as a result of travel and other expenses incurred by them on behalf
of Group companies for which reimbursement was outstanding at the
year end.
Statement of cash flows
Cash flow and financing
Cash collection has been a key strategic focus this year - cash
generated by operations, as adjusted for exceptional items,
amounted to just under $1.2m (2017: $750,000), largely as a result
of the improving timing of collection of trade receivables
(operating cash outflow of $52,000 in the first half comparing to
adjusted operating cash inflow of approximately $1.2m in the
second); this improvement is expected to continue as the Group
becomes more established and also with an increasing proportion of
repeat or monthly contracts in the revenue mix (e.g. from revenue
share or managed services).
During the year the Group used some of the funds raised from the
Group's IPO in 2017 to repay founders' loans which were acquired as
a result of the acquisition of PSPL ($436,000). In addition, PSPL's
overdraft of c.$316,000 was repaid. Two term loans totalling
approximately $246,000 were taken out to part fund purchases of
vehicles for the use of directors.
The acquisition of the business and certain assets of Danateq
(further detailed in Note 26) was broadly cash neutral: an initial
cash consideration paid of $7.0 million was funded via a placing of
8.2 million new ordinary shares at a price of 73p raising
approximately $7.9 million before expenses; direct expenses
relating to the placing amounted to $319,000 and expenses relating
to the acquisition were around $310,000.
As a result of the above, the Group had closing gross cash of
$2.2m (2017: $4.1m) and net cash of $1.8m (2017: $3.1m).
Contingent liabilities
As explained in further detail in Note 26, the Group acquired
certain assets from the Danateq Group in August 2018, including
enterprise software and customer relationships, both formal (i.e.
via a framework agreement) and informal. Potential deferred
consideration of up to $5m may be payable in respect of this
acquisition, contingent on certain revenue hurdles being met. Such
consideration would be payable in two tranches: up to $3m in August
2019 (the "2019 contingent payment") and up to $2m in August 2020.
These hurdles relate to specific projects in a closely defined
pipeline of actual or target contracts and are each further
structured in two bands: the 2019 payment is $2m cash if a hurdle
of $2.25m total revenue is cleared, and $3m (in total, i.e. an
additional $1m) if a hurdle of $4.5m total revenue is cleared.
Since the acquisition, the Group has been successful in
utilising the software acquired as well as the customer
relationships (for example as evidenced by the contract win for the
Loyalty Management Solution with Grameenphone) and expects to
continue to win such business in 2019 and beyond, but predominantly
outside the defined pipeline. Accordingly, it is unlikely that the
higher hurdle level for the 2019 contingent payment will be met and
thus the $3m payment will not be due. There is a greater
possibility that the lower hurdle will be cleared, with the
consequential $2m payment falling due; however, the hurdle is
absolute such that any shortfall, no matter how small, will mean
that no payment is due. In any event the Group is confident that it
has adequate resources to make any such payment that falls due.
Summary
Throughout the year the Group has demonstrated its ability to
win contracts across its product range from large telcos across the
globe, and particularly those in wider groups which enables Pelatro
to open up multiple routes to market within such groups. Our
increased product range, including our recently announced Data
Monetisation Platform, enables us to target both existing customers
with new products and new customers, and with wide geographic
footprint and a substantially enlarged customer base of now 16
telcos, we expect a significantly increasing volume of change
requests which, combined with a greater proportion of managed
services and other repeat income, gives us a solid foundation for
the year ahead.
Nic Hellyer
Finance Director
25 March 2019
Group statement of comprehensive income
For the year ended 31 December 2018
2018 2017
Note $'000 $'000
(audited) (audited)
Revenue 5 6,123 3,146
Cost of sales and provision of
services (555) (799)
_______ _______
Gross profit 5,568 2,347
Adjusted administrative expenses 6 (2,421) (546)
_______ _______
Adjusted operating profit 3,147 1,801
Exceptional items 9 (310) (701)
Amortisation of acquisition-related
intangibles 17 (286) -
--------------------------------------- ----- ---------- ----------
_______ _______
Operating profit 2,551 1,100
Finance income 7 33 -
Finance expense 8 (71) (4)
_______ _______
Profit before taxation 2,513 1,096
Income tax expense 13 (334) (252)
_______ _______
PROFIT FOR THE YEAR 2,179 844
Attributable to:
Owners of the Pelatro Group 2,179 830
Non-controlling interests - 14
_______ _______
2,179 844
Other comprehensive income/(expense):
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on translation
of foreign operations 78 (2)
Items that not will be reclassified
subsequently to profit or loss:
Gain on bargain purchase of minority
interest - 14
_______ _______
Other comprehensive income, net
of tax 78 12
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR 2,257 856
Attributable to:
Owners of the Pelatro Group 2,257 842
Non-controlling interests - 14
_______ _______
2,257 856
Earnings per share
Statutory
Attributable to the owners of the
Pelatro Group (basic and diluted) 14 8.0c 4.8c
From continuing operations (basic
and diluted) 14 8.0c 4.8c
Adjusted
From continuing operations (basic
and diluted) 14 10.1c 8.9c
Group statement of financial position
For the year ended 31 December 2018
2018 2017
Note $'000 $'000
(audited) (audited)
Assets
Non-current assets
Intangible assets 17 10,609 1,324
Property, plant and equipment 18 362 30
_______ _______
10,971 1,354
Current assets
Trade receivables 19 4,138 1,778
Contract assets 19 384 -
Other assets 382 217
Cash and cash equivalents 2,224 4,126
_______ _______
7,128 6,121
Total assets 18,099 7,475
Liabilities
Non-current liabilities
Borrowings 21 382 266
Other financial liabilities 22 1,141 -
_______ _______
1,523 266
Current liabilities
Trade and other payables 20 609 474
Short term borrowings 21 69 774
Contract liabilities 20 238 -
Other financial liabilities 22 298 -
_______ _______
1,214 1,248
Total liabilities 2,737 1,514
NET ASSETS 15,362 5,961
Issued share capital and reserves
attributable to owners of the parent
Share capital 23 1,065 801
Share premium 23 11,603 4,472
Other reserves 23 (721) (529)
Retained earnings 3,415 1,217
_______ _______
TOTAL EQUITY 15,362 5,961
Group statement of cash flows
For the year ended 31 December 2018
2018 2017
$'000 $'000
(audited) (audited)
Cash flows from operating activities
Profit for the year 2,179 844
Adjustments for:
Income tax expense recognised in
profit or loss 342 247
Finance income (33) -
Finance costs 71 4
Depreciation of tangible non-current
assets 46 1
Amortisation of intangible non-current
assets 843 202
Provision for/(recognition of)
deferred taxes (8) 5
Foreign exchange (69) 5
_______ _______
Operating cash flows before movements
in working capital 3,371 1,308
(Increase)/decrease in trade and
other receivables (2,438) (1,698)
(Increase)/decrease in contract (273) -
assets
Increase/(decrease) in trade and
other payables 57 440
Increase/(decrease) in contract 146 -
liabilities
_______ _______
Cash generated from operating activities 863 50
Income tax paid (292) (78)
_______ _______
Net cash generated from operating
activities 571 (28)
Cash flows from investing activities
Acquisition of property, plant
and equipment (384) (1)
Development of intangible assets (1,604) (752)
Acquisition of intangible assets (69) -
Cash inflow/(outflow) on acquisition
of businesses net of cash acquired (7,035) 9
_______ _______
Net cash used in investing activities (9,092) (744)
Cash flows from financing activities
Proceeds from issue of ordinary
shares, net of issue costs 7,395 4,742
Amounts advanced by related parties - 2
Repayments to related parties (436) (9)
Repayment of loans from members
of Pelatro LLC - 17
Proceeds from borrowings 394 2
Repayment of borrowings (513) (47)
Finance income 33 -
Finance costs (62) (4)
Less interest accrued but not paid 3 4
_______ _______
Net cash generated by/(used in)
financing activities 6,814 4,707
Net increase/(decrease) in cash
and cash equivalents (1,707) 3,935
Foreign exchange differences (195) (5)
Cash and equivalent at beginning
of period 4,126 196
_______ _______
Cash and cash equivalents at end
of period 2,224 4,126
Group statement of changes in equity
For the year ended 31 December 2018
Share Share Translation Merger Retained Attributable Non-controlling Total
capital premium reserve reserve profits to owners interests equity
of the
Pelatro
Group
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Pro forma balance
at 1 January 2017 551 - - (531) 359 379 - 379
Profit after
taxation
for the financial
year - - - 830 830 14 844
Other
comprehensive
income:
Exchange
differences - (2) - - (2) - (2)
Bargain purchase
of
non-controlling
interest in
subsidiary 14 14 - 14
Non-controlling
interest
lost on
acquisition
of minority
interest
in subsidiary - 14 14 (14) -
Transactions with
owners:
Reserves arising
on reconstruction (20) - - 4 - (16) - (16)
Shares issued by
Pelatro Plc for
cash 270 4,901 - - - 5,171 - 5,171
Issue costs - (429) (429) - (429)
_____ _____ _____ _____ _____ _____ _____ _____
Balance at 31
December
2017 as
previously
reported 801 4,472 (2) (527) 1,217 5,961 - 5,961
Effect of IFRS 15 - - - 18 18 - 18
_____ _____ _____ _____ _____ _____ _____ _____
Balance at 31
December
2017 as restated 801 4,472 (2) (527) 1,235 5,979 - 5,979
Profit after
taxation
for the year - - - 2,179 2,179 - 2,179
Other
comprehensive
income:
Exchange
differences - (191) - (191) - (191)
Transactions with
owners:
Shares issued by
Pelatro Plc for
cash 264 7,450 - - - 7,714 - 7,714
Issue costs - (319) (319) - (319)
_____ _____ _____ _____ _____ _____ _____ _____
Balance at 31
December
2018 1,065 11,603 (193) (527) 3,414 15,362 - 15,362
Notes to the financial statements
As at 31 December 2018
Please note that references to notes below are to the
forthcoming report and accounts and may not conform with Notes as
presented in this announcement
1 General information
Pelatro Plc ("Pelatro" or the "Company") is a public limited
company incorporated and domiciled in England. The Company's
ordinary shares are traded on the AIM market of the London Stock
Exchange. These financial statements are the consolidated financial
statements of Pelatro Plc and its subsidiaries ("the Pelatro Group"
or the "Group") and the company financial statements for Pelatro
Plc. The financial statements are presented in US dollars as the
currency of the primary economic environment in which the Group
operates.
Pelatro's registered office is at 49 Queen Victoria Street,
London EC4N 4SA and its principal place of business is at No. 403,
7th A Main, 1st Block, HRBR Layout, Bangalore 560043, India.
2 Adoption of new and revised standards
Certain new standards and amendments to existing standards that
have been published and are mandatory for the first time for the
financial year beginning 1 January 2018 have been adopted and their
impact on the Group and Company is explained later in this section.
New standards, amendments to standards and interpretations which
have been issued but are not yet effective (and in some cases had
not been adopted by the EU) for the financial year beginning 1
January 2018 have not been adopted early in preparing these
financial statements. The main new accounting standards which are
relevant to the Group are set out below:
IFRS 9 Financial Instruments
The Group has adopted IFRS 9 from 1 January 2018, replacing IAS
39 Financial instruments: Recognition and Measurement. IFRS 9 sets
out the requirements for assessing the impairment of financial
assets, requiring consideration of the likelihood of their default
or impairment, firstly by splitting out the high-risk balances and
continuing to provide for these separately, and then applying a
loss rate to the remaining balance where it is known from
experience that the loss rate is not nil.
The Group has three types of financial assets that are subject
to IFRS 9's new expected credit loss model: (1) trade receivables
from the sale of software and the provision of services; (2)
contract assets arising from sale of software and from the
provision of services; and (3) sundry deposits and other similar
assets. The Group was required to revise its impairment methodology
under IFRS 9 for each of these classes of assets; however, on
application of this revised methodology no provision was required
(see Note 19).
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities and has
not had a significant effect on the Group's accounting policy.
IFRS 15 Revenue Recognition
IFRS 15 has replaced IAS 18 Revenue, IAS 11 Construction
Contracts and related interpretations and has been adopted for the
Group's IFRS financial statements for the period beginning on 1
January 2018. This standard introduces a single, five-step revenue
recognition model that is based upon the principle that revenue is
recognised at the point that control of goods or services is
transferred to the customer. The standard also updates revenue
disclosure requirements.
The Directors have considered the effect of the adoption of IFRS
15 on the Group's activities, and in particular on (i) the revenue
recognition of the Group's on-premise software license contracts,
which combine the delivery and implementation of software; and (ii)
support and maintenance services ("post contract support" or
"PCS"). Under accounting policies applicable to prior years, the
Group recognised license income in accordance with contractual
milestones agreed with customers, and PCS as invoiced (typically
after one year free of payment). Implementation services were
typically included in the overall cost of the license or, if
specifically agreed, invoiced on completion.
Revised accounting policies under IFRS 15
As part of the review of IFRS 15 accounting policies, the
Directors have considered whether contracts under (i) above
represent a right and ability to use the software at the point of
initial delivery (with license revenue recognisable at that point),
and a further delivery of implementation services, irrespective of
associated cashflows. The Directors concluded that:
(a) such license contracts represent an immediate right and
ability to benefit from the software (as it is technically possible
for the customer to engage a third party to implement the software
concerned) and hence that an appropriate amount of the total fee
payable should be recognised at that point;
(b) a further appropriate amount (based on a deemed market rate
for such services as if provided on a standalone basis) should also
be recognised on completion of the implementation; and
(c) PCS income (under (ii) above) should be recognised rateably
over the term of the contract provision
The Group's four other revenue categories are: gain share
contracts; change requests; consulting/managed services and
hardware. Of these, gain share contracts have a performance
obligation that is met at points in time as defined by the contract
(typically monthly). Likewise change requests are typically
short-term projects which performance obligation is met on delivery
of the relevant update in the software to the customer. Revenue
from the sale of hardware has a performance obligation that is met
at a point in time, being the point in time when hardware is
delivered. The performance obligations for the Group's consulting
and managed services are typically satisfied over time as the
service is provided.
Contracts with any one customer may incorporate more than one of
these revenue categories such that revenue which is contractually
linked may be recognised separately. Likewise, the standard
requires the Group to adjust the promised amount of consideration
to reflect the time value of money if the contract has a
significant financing component, irrespective of the recognition of
license, implementation or service income as the case may be.
Application of IFRS 15
The Group has applied IFRS 15 using the cumulative effect of
initially applying the new revenue standard as an adjustment to the
opening balance of equity at 1 January 2018. Therefore, comparative
information has not been restated and continues to be reported
under IAS 11 and IAS 18. Furthermore, the Group has elected to make
use of the following practical expedients:
-- Completed contracts under IAS 11 and IAS 18 before the date
of transition have not been reassessed
-- Contract costs incurred relating to contracts with an
amortisation period of less than one year have been expensed as
incurred
-- As permitted by paragraph 12.1 of IFRS 15 the Group does not
disclose information about remaining performance obligations that
have original expected durations of one year or less
-- As permitted by paragraph C5(d) of IFRS 15 the Group does not
disclose the amount of transaction price allocated to the remaining
performance obligations nor an explanation of when the Group
expects to recognise that revenue
In applying IFRS 15, the Directors have been required to make
certain estimates and assumptions in determining the allocation of
the contract price between licence, implementation and PCS where
the market rate for provision of the software or services is not
directly observable. The Directors have used their judgement and
experience in applying such estimates and assumptions and consider
that the range of possible outcomes from these estimates and
assumptions does not give rise to a material difference on the
revenue recognised.
Details of the significant changes and the quantitative impact
of the changes are set out in Notes 5 and 28.
IFRS 16 Leases (effective for 2019 financial report)
IFRS 16 (effective for the year ending 31 December 2019), which
supersedes IAS 17 Leases and related interpretations, will require
all leases to be recognised on the balance sheet, eliminating the
distinction between operating and finance leases. This IFRS will
thus require the Group to recognise any operating leases as both an
asset and a rental commitment in its consolidated statement of
financial position. Pelatro does not intend to apply the standard
retrospectively and so any difference between the carrying value of
the asset created and the corresponding liability will be applied
as an adjustment to opening equity at the date of initial
application. Any such adjustment is not expected to be
material.
3 Significant accounting policies
The principal accounting policies which apply in preparing the
financial statements for the year ended 31 December 28 are
consistent with those used in preparing the financial statements
for the year ended 31 December 2017, other than the adoption of
revised accounting policies required by the introduction of IFRS 9
and IFRS 15. Otherwise there have been no significant changes to
the Group's accounting policies during the year.
5 Revenue and segmental analysis
The Directors consider that the Group has a single business
segment, being the sale of information management software to
providers of telecommunication services. The operations of the
Group are managed centrally with Group-wide functions covering
sales and marketing, development, professional services, customer
support and finance and administration.
An analysis of revenue by product or service and by geography is
given below.
Revenue by type
The Group has four key revenue models, being (1) contracts based
on the sale of perpetual licenses for use of the Group's
proprietary enterprise software; (2) contracts for the use of the
Group's software on a regular (usually monthly) basis, which may
also provide for Group employees to provide related services the
customer and/or for the Group to take a share of the revenue gain
achieved through use of the software; (3) provision of bespoke
modifications to Group software; and (4) provision of maintenance
and support of the software. In addition, the Group may provide
certain consulting and training services and, if required by the
customer, appropriate hardware on which to host the software.
At 31 December 2018 2017
$'000 $'000
Repeat software sales and managed services 2,288 618
Maintenance and support 809 -
_______ _______
Total repeat revenues 3,097 618
Software - new licenses 2,511 2,264
Consulting 515 9
Resale of hardware - 255
_______ _______
6,123 3,146
As explained further in Note 28, no adjustment has been made to
2017 comparative figures in respect of the change in accounting
policy for revenue recognition as a result of the implementation of
IFRS 15. In order to aid comparison, 2017 revenue under IFRS 15 for
license fees would have been approximately $2,162,000 and for
maintenance and support approximately $119,000.
Revenue by geography
The Group recognises revenue in seven geographical regions based
on the location of customers, as set out in the following
table:
At 31 December 2018 2017
$'000 $'000
Caribbean 357 331
Central Asia 1,653 -
Eastern Europe 380 -
North Africa 314 756
South Asia 819 1,214
South East Asia 2,207 690
Sub-Saharan Africa 393 155
_______ _______
6,123 3,146
Management makes no allocation of costs, assets or liabilities
between these segments since all trading activities are operated as
a single business unit.
An analysis of revenue by status of invoicing is as follows:
Year to 31 December 2018 2017
$'000 $'000
(i) Revenue invoiced to customers under
contractual terms 3,694 3,089
(ii) Revenue recognised under terms of contract
but unbilled at period end ("UBR") 2,325 57
(iii) Revenue recognised other than (ii) 271 -
(i.e. on the completion of performance obligations
but before any billing milestone is reached)
Less: net revenue deferred under IFRS 15 (80) -
Less: revenue recognised or to be recognised (87) -
as interest under IFRS 15
_______ _______
Total revenue recognised in the year 6,123 3,146
Customer concentration
The Group has two customers representing individually over 10%
of revenue each and in aggregate approximately 48% of total revenue
at $2,912,000 (2017: six customers representing individually over
10% each and in aggregate approximately 985% of revenue at
$2,991,000). The two customers accounted for revenue of $1,653,000
and $1,259,000 respectively (2017: $756,000, $628,000, $586,000,
$350,000, $340,000 and $331,000).
Further impacts of the adoption of IFRS 15
The Group has applied IFRS 15 using the cumulative effect of
initially applying the effects of the new revenue standard as an
adjustment to the opening balance of equity at 1 January 2018.
Therefore, the relevant comparative information has not been
restated and continues to be reported under IAS 11 and IAS 18.
License revenue
As explained in Note 2, the Group now recognises revenue from
the sale of licenses and the implementation of the software so
licensed separately, as the two activities represent distinct
performance obligations. However, as implementation to date has
always been carried out by Group personnel and is usually viewed by
the customer as an integral part of the license purchase, the two
activities are reported as one. The effect of this revised revenue
recognition policy has had no material effect on prior years or
this year, as all contracts were either complete at the year end or
the contractual amount due on completion of implementation was
broadly similar to the deemed value of the implementation
subsequently carried out.
Irrespective of the split between license and implementation
recognition, some contracts provide for fixed payments to be made
by customers (usually monthly) over a given term (e.g. three or
five years). Under IFRS 15, in order to reflect the time value of
money, such contracts have been recognised as (i) a capitalisation
of the income stream less (ii) an amount relating to the notional
interest accruing and to be accrued on the credit deemed to be
extended to the customer (on a reducing balance basis). For the
financial year 2018 this figure amounts to (i) $131,000 less (ii)
$65,000 (net of $23,000 of contractual revenue recognised instead
as interest in 2018).
PCS
Related to a license sale, the Group typically provides five
years of PCS but does not charge for the first year; similarly in
certain contracts may provide the PCS at less than a notional
market rate. For revenue recognition purposes this is treated as
income accruing over the full term of the service provision
(whether paid or otherwise) and, as far as is estimable, at a
deemed market rate. Accordingly, the financial statements reflect
adjustments to income (i) to accelerate the recognition of revenue
for initial years for which no contractual payment is due; and (ii)
to defer the recognition of revenue in cases where the contractual
PCS charge is lower than a market rate (the difference being set
against the revenue recognised in respect of the license fee). For
the financial year 2018 revenue therefore includes (i) an amount of
$141,000 representing revenue from PCS recognised ahead of its
contractually due dates, less (ii) an amount of $80,000
representing revenue deferred from license income and allocated to
PCS.
Summary
The net effect of such adjustments is (i) a retrospective
adjustment of $18,000 (credit) to reserves to take into account the
financial effects of its implementation for periods prior to the
current year (i.e. revenue would have been $18,000 greater than
reported); and (ii) a net acceleration of income recognised of
$104,000 plus a further $23,000 recognised as interest income which
would otherwise have been recognised as revenue. Accordingly at 31
December 2018, the Group would have recognised a reduced profit of
$127,000 if it had continued to apply IAS 11 and IAS 18 in 2018.
There is no other impact on the Group's consolidated income
statement for the year as a result of applying previous revenue
accounting standards.
Non-current assets
Information about the Group's non-current assets by location of
assets are as follows:
At 31 December 2018 2017
$'000 $'000
Singapore 2,295 908
UK 8,300 287
India 14 159
_______ _______
10,609 1,354
Non-current assets comprise intangible assets, goodwill,
deferred tax assets and plant, property and equipment.
6 Operating expenses
Profit for the year has been arrived at after charging:
2018 2017
$'000 $'000
Staff costs (see note 11) 582 14
Amortisation of intangible non-current assets 843 202
Depreciation of tangible non-current assets 46 1
Auditor's remuneration (see note 10) 45 124
Operating lease charges - land and buildings 45 6
Realised foreign exchange (gains)/losses (69) (15)
7 Finance income
2018 2017
$'000 $'000
Interest receivable on interest-bearing deposits 10 -
Notional interest accruing on contracts with 23 -
a significant financing component
_______ _______
Total finance income 33 -
8 Finance expense
2018 2017
$'000 $'000
Interest and finance charges paid or payable
on borrowings 62 4
Acquisition-related financing expense - unwinding 9 -
of discount on financial liabilities
_______ _______
Total finance expense 71 4
9 Non-GAAP profit measures and exceptional items
Reconciliation of operating profit to earnings before interest,
taxation, depreciation and amortisation ("EBITDA")
Year to 31 December 2018 2017
$'000 $'000
Operating profit 2,551 1,100
Adjusted for:
Amortisation and depreciation 889 203
Exceptional items within operating expenses 310 701
_______ _______
Adjusted EBITDA 3,750 2,004
Exceptional items in 2018 comprise legal and other costs
relating to the Danateq Acquisition. Exceptional items in 2017
comprise financial advisory, legal, accounting and other costs
relating to the admission to trading of the Company's shares in
December, the associated placing of new Ordinary shares (other than
amounts allocated directly to share premium), and the Group
reconstruction and acquisition of PSPL carried out to facilitate
this. Exceptional items are treated as exceptional by reason of
their size or nature and are excluded from the calculation of
adjusted EBITDA and adjusted earnings per ordinary share to allow a
better understanding of comparable year-on-year trading and thereby
an assessment of the underlying trends in the Group's financial
performance. These measures also provide consistency with the
Group's internal management reporting.
The calculation of adjusted earnings per share is shown in Note
14.
11 Staff costs
Year to 31 December 2018 2017
$'000 $'000
Wages and salaries 1,975 60
Social security contributions 40 2
Benefits - -
Less: amounts capitalised (1,433) (48)
_______ _______
582 14
The average number of persons employed by the Company during the
period was:
Year to 31 December 2018 2017
Sales 2 2
Software development 70 36
Support 18 8
Marketing 2 1
Administration 13 11
_______ _______
105 56
12 Directors' remuneration and transactions
The Directors' emoluments in the year ended 31 December 2018
were:
Basic Benefits Pension Total Total
salary in kind
2018 2018 2018 2018 2017
$'000 $'000 $'000 $'000 $'000
Executive Directors
S. Menon 192 31 - 223 78
S. Yezhuvath 192 18 - 210 78
N. Hellyer 79 - 1 80 33
Non-Executive
Directors
R. Day 52 - 1 53 53
P. Verkade 30 - - 30 7
_______ ______ _______ _______ _______
545 49 2 596 248
In addition to the above, Pieter Verkade was paid $30,000 during
the year in respect of marketing consultancy services.
The remuneration of the executive Directors is decided by the
Remuneration Committee. Save as disclosed above no Director had a
material interest in any contract of significance with the Group in
either year.
13 Taxation
Tax on profit on ordinary activities
Year to 31 December 2018 2017
$'000 $'000
Current tax
UK corporation tax charge/(credit) on profit 225 -
for the current year
Overseas income tax charge/(credit) 117 247
_______ _______
Total current income tax 342 247
Deferred tax
(Recognition)/reversal of deferred tax asset (8) 5
_______ _______
Total deferred income tax (8) 5
Total income tax expense recognised in the
year 334 252
Pelatro LLC is a US Limited Liability Company and, for the
period from its incorporation to 7 September 2017 was treated as a
flow-through entity for both US federal and state income tax
purposes. As such, its then members were taxed on their
distributable share of the profits of the business, and Pelatro LLC
itself was not subject to US federal or state income tax. Hence no
provision or liability (including deferred tax) for federal or
state income taxes relating to Pelatro LLC is included in the tax
charge for those periods and accordingly no tax charge arose in the
Group accounts for the period when Pelatro LLC was the sole
constituent of the Group. From 8 September 2017 Pelatro LLC elected
to be taxed as a C Corporation and hence tax arising at the
corporate level within Pelatro LLC is accounted for accordingly in
the consolidated tax expense and liability.
Reconciliation of the total tax charge
The effective tax rate in the income statement for the year is
lower than the standard rate of corporation tax in the UK of 19%. A
reconciliation of income tax expense applicable to the profit
before taxation at the statutory tax rate to income tax expense at
the effective tax rate is as follows:
Year to 31 December 2018 2017
$'000 $'000
Profit before taxation 2,513 1,108
Tax at the applicable rate of 19% 477 211
Tax effect of amounts which are not deductible (taxable)
in calculating
taxable income:
Effect of tax chargeable to underlying members - 4
Expenses not deductible for tax purposes and other
permanent items 279 176
Income not taxable and other permanent items (395) (154)
Movement in fair value of contingent consideration 2 -
not taxable
Tax exemptions, allowances and rebates (27) (29)
Foreign tax credits (30) 6
Overseas taxation at different rates 36 (10)
Overseas withholding tax expenses - 48
Derecognition of deferred tax asset (8) -
_______ _______
Income tax expense recognised for the current year 334 252
The tax effect of exchange differences recorded within the Group
Statement of Comprehensive Income is a charge of $10,000 (2017:
nil).
Temporary differences associated with Group investments
At 31 December 2018, there was no recognised deferred tax
liability (2017: $nil) for taxes that would be payable on the
unremitted earnings of certain of the Group's subsidiaries as the
Group has determined that undistributed profits of its subsidiaries
will not be distributed in the foreseeable future.
Deferred tax
Recognised deferred tax
2018 2017
$'000 $'000
At 1 January (5) -
Movement in the period:
- acquired on acquisition of subsidiary undertaking - 118
- other timing differences 8 (5)
_______ _______
At 31 December 3 113
Comprising:
Timing differences 3 (7)
Tax losses - 120
_______ _______
3 113
During the period, further evidence was obtained in respect of
the deferred tax asset of $118,000 that was recognised as part of
the acquisition of PSPL in December 2017. As this related to the
conditions existing at the date of acquisition and was obtained
within one year of the acquisition date, IFRS 3 allows for the
acquisition accounting to be revised. Consequently, the deferred
tax asset has been derecognised and a corresponding increase has
been made to goodwill.
Factors affecting future tax charges
The Finance Act 2017, which was approved on 15 September 2017,
will reduce the UK corporation tax rate by 2% from the current 19%
to 17% from 1 April 2020.
The Group's recognised and unrecognised deferred tax assets in
its Indian subsidiary have been shown at 28%, being the effective
rate in that country.
14 Earnings
Reported earnings per share
Basic earnings per share ("EPS") amounts are calculated by
dividing net profit or loss for the year attributable to owners of
the Company by the weighted average number of ordinary shares
outstanding during the year (such calculation for 2017 having been
adjusted to reflect the issue of ordinary shares by the Company for
the acquisition of Pelatro LLC as if these shares had been issued
on incorporation of Pelatro LLC). A calculation of diluted earnings
per share is not presented as the number of dilutive potential
shares outstanding at the end of the reporting period was not
material.
The following reflects the earnings and share data used in the
basic earnings per share computations:
Year to 31 December 2018 2017
$'000 $'000
Profit attributable to equity holders of
the parent:
Continuing operations 2,179 830
_______ _______
Profit attributable to ordinary equity holders
of the parent for basic earnings 2,179 830
Weighted number of ordinary shares in issue 27,375,741 17,273,968
Basic earnings per share attributable to
shareholders 8.0c 4.8c
Basic earnings per share for continuing operations
attributable to shareholders 8.0c 4.8c
Adjusted earnings per share
Adjusted earnings per share is calculated as follows:
2018 2017
$'000 $'000
Profit attributable to ordinary equity holders
of the parent for basic earnings 2,179 830
Adjusting items:
- exceptional items 310 701
- amortisation of acquisition-related intangibles 286 -
_______ _______
Adjusted earnings attributable to owners
of the Parent 2,775 1,531
Weighted number of ordinary shares in issue 27,375,741 17,273,968
Adjusted earnings per share attributable
to shareholders 10.1c 8.9c
17 Intangible assets
Intangible assets comprise capitalised development costs (in
relation to internally generated software and software acquired
through business combinations), software acquired from third
parties for use in the business, customer relationships and
goodwill.
Financial year 2018
Development Third party Customer Goodwill Total
costs software relationships
$'000 $'000 $'000 $'000 $'000
Cost
At 1 January 2018 1,290 32 - 287 1,609
Additions 1,604 69 - - 1,673
Fair value adjustment - - - 140 140
Created as part of
a business combination - - - 318 318
Acquired as part
of a business combination 1,250 - 6,862 - 8,112
Foreign exchange - (3) - - (3)
_______ _______ _______ _______ _______
At 31 December 2018 4,144 98 6,862 745 11,849
Amortisation or impairment
At 1 January 2018 (382) (16) - - (398)
Acquired as part - - - - -
of a business combination
Charge for the year (553) (4) (286) - (843)
Foreign exchange - 1 - - 1
_______ _______ _______ _______ _______
At 31 December 2018 (935) (19) (286) - (1,240)
Net carrying amount
At 31 December 2018 3,209 79 6,576 745 10,609
At 1 January 2018 908 16 - 287 1,211
During the year, further evidence was obtained in respect of the
eligibility of certain tax losses giving rise to the deferred tax
asset of $118,000 that was recognised as part of the acquisition of
PSPL in December 2017, and it is now considered that these tax
losses are unavailable for use. As this related to the conditions
existing at the date of acquisition and was obtained within one
year of the acquisition date, IFRS 3 allows for the acquisition
accounting to be revised. Consequently, the deferred tax asset has
been derecognised (and a similar adjustment made in respect of an
amount of $22,000 relating to current tax liabilities acquired) and
a corresponding increase has been made to goodwill.
Financial year 2017
Development Third party Customer Goodwill Total
costs software relationships
$'000 $'000 $'000 $'000 $'000
Cost
At 1 January 2017 538 - - - 538
Additions 752 - - - 752
Created as part of
a business combination - - - 287 287
Acquired as part
of a business combination - 32 - - 32
_______ _______ _______ _______ _______
At 31 December 2017 1,290 32 - 287 1,609
Amortisation or impairment
At 1 January 2017 (181) - - - (181)
Acquired as part
of a business combination - (15) - - (15)
Charge for the year (201) (1) - - (202)
_______ _______ _______ _______ _______
At 31 December 2017 (382) (16) - - (398)
Net carrying amount
At 31 December 2017 908 16 - 287 1,211
At 1 January 2017 357 - - - 357
Development costs
Development costs are either internally generated or acquired
and are capitalised at cost or fair value on acquisition. Such
costs comprise capitalised staff costs (and allocable related
direct costs) associated with the development of new products and
services which will be saleable to more than one customer.
These intangible assets have been assessed as having a finite
life and are amortised on a straight-line basis over their useful
life, which is estimated at four years. The amortisation charge on
intangible assets is included in administrative expenses in the
consolidated statement of comprehensive income. These assets are
tested for impairment when an indicator of impairment arises and
annually prior to them being made available for use.
Software
Software assets represent purchased licences and distribution
rights for third party software which are capitalised at cost and
amortised on a straight-line basis over the relevant estimated
useful life. The estimated useful life of these intangible assets
ranges between three and nine years depending on their nature.
Amortisation charges in respect of intangible assets are included
in administrative expenses.
Customer relationships
Customer relationships were acquired as part of a business
combination (see Note 26). They are recognised at their fair value
at the date of acquisition and are subsequently amortised on a
straight-line based over their estimated useful life of 10
years.
Goodwill
Goodwill arose on the acquisition of the Danateq Assets and
PSPL. It is assessed as having an indefinite life but the Group
tests whether goodwill has suffered any impairment on an annual
basis. For the 2017 and 2018 reporting periods, the recoverable
amount of the cash generating units ("CGUs") was determined based
on value-in-use calculations which require the use of assumptions.
The calculations use cash flow projections based on financial
budgets approved by management covering a five-year period. Cash
flows beyond the five-year period are extrapolated using the
estimated growth rates stated below.
Danateq cash-generating unit
The Danateq CGU comprises the contracts and customer
relationships acquired as part of the Danateq Acquisition (further
detailed in Note 26), the enterprise software acquired for resale
and the related workforce. Given the opportunity to leverage this
expertise across Pelatro's existing business and the ability to
exploit the Group's thus enlarged customer base, the value of the
Danateq Assets was deemed to be greater than the assessed book
value of the assets as recognised in the financial statements of
Pelatro, thus leading to the recognition of an amount of
goodwill.
This goodwill was tested for impairment at 31 December 2018 by
comparing the carrying value of the CGU with the recoverable
amount. The recoverable amount was determined using a value in use
methodology based on discounted cash flow projections. The key
assumptions used in the value in use calculations were as
follows:
(i) The operating cash flows for this business for the year to
31 December 2019 are taken from the budget approved by the Board
which is closely linked with recent historical performance and
current expected levels of activity. The operating cash flow budget
is most sensitive to sales of software and services to third
parties;
(ii) Growth has been assumed in operating cash flows for the
remainder of the value in use in line with short term pipeline
expectations as well as longer-term growth expectations for the
software products in the market. Revenue growth after 5 years is
forecast at -20% in US Dollars terms to reflect the integration of
the products into those of the Group overall;
(iii) A post-tax discount rate of approximately 10% has been
used (being the Weighted Average Cost of Capital in US Dollars);
and
(iv) The use of cash flow projections over longer than a 5-year
period is considered appropriate as the Group has an increasing
recurring revenue base and the Group continues to invest in the
development of the products via this CGU
PSPL cash-generating unit
The PSPL CGU comprises the Group's software development centre
in Bangalore which was acquired in December 2017, and whose
principal activity is to develop the Group's software and provide
administrative support for the rest of the Group. The goodwill
relating to this CGU was tested for impairment at 31 December 2018
by comparing the carrying value of the CGU with the recoverable
amount. The recoverable amount was determined using a value in use
methodology based on discounted cash flow projections. The key
assumptions used in the value in use calculations were as
follows:
(i) The operating cash flows for this business for the year to
31 December 2019 are taken from the budget approved by the Board
which is closely linked with recent historical performance and
current expected levels of activity. The operating cash flow budget
is most sensitive to the number of employees, particularly the more
highly-skilled developers; revenue for the CGU is all intra-Group
and is thus dependent on other Group companies making third-part
sales;
(ii) Growth has been assumed in operating cash flows for the
remainder of the value in use such that a consistent post-tax
margin is maintained over the calculation period (which is how the
business is managed within the Group). Revenue growth after 5 years
is forecast at 15% in local currency terms;
(iii) A post-tax discount rate of approximately 14% has been
used (being the Weighted Average Cost of Capital in local
currency); and
(iv) The use of cash flow projections over longer than a 5-year
period is considered appropriate as the business is expected to
continue to support the Group for the period of the projections,
the Group has an increasing recurring revenue base and the Group
continues to invest in the development of the products via this
CGU
Sensitivity to changes in assumptions
A change in a key assumption in respect to operating cash flows
could cause the carrying value of the goodwill to exceed the
recoverable amount, resulting in an impairment charge. The Board is
confident that the assumptions in respect of operating cash flows
remain appropriate. Where the operating cash flows incorporate
products or solutions that will be sold in an existing known
market, past experience is used as a guide to the level of sales
achievable, growth rates and associated margins. Where the
operating cash flows relate to products or solutions that will be
sold into a new or emerging market, past experience with similar
products or solutions is combined with relevant information from
external market sources, such as competitor pricing and discussions
with potential customers, in arriving at the level of sales
achievable, growth rates and associated margins.
Conclusion
The Directors have concluded that, based on the above,
recoverable value exceeds the carrying value of the goodwill at 31
December 2018.
Deferred tax asset
An analysis of the Group's deferred tax asset is given in Note
13.
18 Tangible assets
Leasehold Computer Office Vehicles Total
improvements equipment equipment
$'000 $'000 $'000 $'000 $'000
Cost
At 1 January 2018 - 56 4 - 60
Additions 49 44 23 270 386
Foreign exchange differences - (7) 3 (6) (10)
_______ _______ _______ _______ _______
At 31 December 2018 49 93 30 264 436
Depreciation
At 1 January 2018 - (29) (1) - (30)
Charge for the year - (20) - (27) (47)
Foreign exchange differences - 3 (1) 1 3
_______ _______ _______ _______ _______
At 31 December 2018 - (46) (2) (26) (74)
Net carrying amount
At 31 December 2018 49 47 28 238 362
At 1 January 2018 - 27 3 - 30
Leasehold Computer Office Vehicles Total
improvements equipment equipment
$'000 $'000 $'000 $'000 $'000
Cost
At 1 January 2017 - - - - -
Additions - - 1 - 1
Acquired as part of
a business combination - 56 3 - 59
Foreign exchange differences - - - - -
_______ _______ _______ _______ _______
At 31 December 2017 - 56 4 - 60
Depreciation
At 1 January 2017 - - - - -
Acquired as part of
a business combination - (28) (1) - (29)
Charge for the year - (1) - - (1)
Foreign exchange differences - - - - -
_______ _______ _______ _______ _______
At 31 December 2017 - (29) (1) - (30)
Net carrying amount
At 31 December 2017 - 27 3 - 30
At 1 January 2017 - - - - -
The Group entered into a new lease 1 September 2018 in
Bangalore, India over premises which required substantial
improvement and modernisation, which costs have been capitalised as
leasehold improvements and depreciated over 5-10 years.
19 Trade and other receivables and contract assets
The timing of revenue recognition, invoicing and cash collection
results in: the recognition of the following assets on the
Consolidated Statement of Financial Position:
(i) invoiced accounts receivable;
(ii) accounts invoiceable but uninvoiced at the period end (i.e.
"unbilled revenue" or UBR) (collectively with (i) "trade
receivables"); and
(iii) as required by IFRS 15, amounts relating to revenue
recognised at the date of the statement of financial position but
not invoiceable under the terms of the contract ("contract
assets")
Amounts recognised under (iii) "Contract assets" represent
assets resulting from balance sheet reclassifications arising from
the adoption of IFRS 15. The balance of $384,000 (which includes
amounts arising from balances brought forward from 2017) relates to
license and PCS income recognised but not yet invoiceable.
Analysis of trade and other receivables
At 31 December 2018 2017
$'000 $'000
Due within a year
Trade receivables 4,138 1,778
Other receivables and prepayments 424 217
_______ _______
Total trade and other receivables 4,562 1,995
Aged analysis of trade receivables
At 31 December Carrying Neither Past due but not impaired
amount impaired
or past
due
61-90 days 91-120 days More than
121 days
$'000 $'000 $'000 $'000 $'000
2018
Trade receivables 4,138 3,636 - - 502
2017
Trade receivables 1,778 1,022 - - 756
Trade terms and impairments
Unless specific agreement has been reached with individual
customers, sales invoices are usually due for payment between 60
and 90 days after the date of the invoice. If customers delay
making payment, an assessment of the potential loss of customer
goodwill arising from the enforcement of contractual payment terms
may take place when considering actions to be taken to secure
payment. Furthermore, interest is not typically charged on overdue
debts although it is provided for in some contracts.
As explained in Note 2, the Group was required to revise its
impairment methodology under IFRS 9 for relevant classes of assets.
In adopting IFRS 9, the only change made from the previous
reporting period was in relation to the impairment of financial
assets. The Group now reviews the amount of credit loss associated
with its trade receivables based on forward looking estimates that
take into account current and forecast credit conditions as opposed
to relying on past historical default rates. In adopting IFRS 9 the
Group has applied the Simplified Approach applying a provision
matrix to measure lifetime expected credit losses and after taking
into account customers with different credit risk profiles and
current and forecast trading conditions. The Group has elected to
adopt the initial application date of 1 Jan 2018 and therefore has
chosen not to restate comparatives. The Directors applied a
percentage "probability of default" to the receivables balance
related to the underlying credit rating of the customer (many of
whom have investment grade credit ratings provided by well-known
ratings agencies), which resulted in a hypothetical expected
default amount which was not material to the Group's financial
statements. Given this, and the fact that the Group has no history
of trade receivable write offs, the Directors concluded that no
provision is required and therefore no allowance for doubtful debts
was recognised in 2018 (2017: nil).
Credit risk
Management has a credit policy in place and the exposure to
credit risk is monitored on an ongoing basis. Credit evaluations
are performed on customers as deemed necessary based on, inter
alia, the nature of the prospect and size of order. The Group does
not require collateral in respect of financial assets.
At the reporting date, the largest exposure was represented by
the carrying value of trade and other receivables, against which no
provision is carried at 31 December 2018 (2017: nil) as detailed
above. The largest individual counterparty to a receivable included
in trade and other receivables at 31 December 2018 owed the Group
$884,000 (of which some $747,000 was unbilled revenue) (2017:
$756,000). Based on invoiced receivables, the largest individual
counterparty owed the Group $449,000 (2017: $756,000). The Group's
customers are spread across a broad range of geographies and
consequently it is not otherwise exposed to significant
concentrations of credit risk on its trade receivables.
20 Trade and other payables and contract liabilities
At 31 December 2018 2017
$'000 $'000
Due within a year
Trade payables 118 53
Other payables 463 320
Amounts due to related parties 28 101
_______ _______
Total trade and other payables 609 474
The average credit period taken for trade purchases is between
30 and 60 days. Most suppliers do not charge interest on trade
payables for the first 30 days from the date of the invoice. The
Group has risk management policies in place to ensure that all
payables are paid within the appropriate credit time frame. The
Directors consider that the carrying amount of trade payables
approximates to their fair value.
"Other payables" principally comprise provisions for taxation
liabilities and other costs. "Contract liabilities" represent
liabilities resulting from balance sheet reclassifications arising
from the adoption of IFRS 15. The balance of $238,000 (which
includes amounts arising from balances brought forward from 2017)
relates to income invoiced but yet to be recognised as PCS or
interest receivable.
21 Loans and borrowings
At 31 December 2018 2017
$'000 $'000
Non-current liabilities
Secured term loans 382 266
_______ _______
382 266
Current liabilities
Current portion of term loan 69 30
Unsecured borrowings - 744
_______ _______
69 774
Total loans and borrowings 451 1,040
During 2018, PSPL secured two new loans: in January it entered
into a vehicle loan agreement with Kotak Mahindra Prime Ltd to fund
a vehicle purchase. The loan amount granted was INR 5.9m (c.
$92,000) with a term of 5 years, secured on the vehicle. In March a
term loan of INR 10.0m (c. $154,000) was secured from Kotak
Mahindra Bank for a term of 5 years, also in relation to a vehicle
purchase at an interest rate of 9.25%. The loan is repayable in 60
equal monthly instalments. During the year unsecured borrowings
(PSPL's overdraft) and directors' loans were repaid in full.
Reconciliation between opening and closing balances for
liabilities resulting in financing cash flows
1 January Non-cash Interest Transfer Cash flows 31 December
2018 changes accruals from non-current - 2018
- foreign included to current net (repayments)
exchange in cash and drawdowns
movements flow
$'000 $'000 $'000 $'000 $'000 $'000
Non-current liabilities
Secured term loan 266 (26) 3 (69) 208 382
Current liabilities
Current portion
of secured term
loan 30 - - 69 (30) 69
Unsecured borrowings 316 (20) - - (296) -
Directors' loans 428 1 - - (429) -
_______ _______ _______ _______ _______ _______
Total 1,040 (45) 3 - (547) 451
The Directors consider that the carrying amount of borrowings
approximates to their fair value.
22 Contingent consideration on business combinations
As at 31 December 2018 2017
$'000 $'000
Contingent consideration on the acquisition
of Danateq assets
- potentially due within one year 298 -
- potentially due after one year 1,141 -
_______ _______
1,439 -
Part of the consideration for the Danateq Acquisition in August
2018 was contingent on the achievement of certain revenue targets
in the two years following the acquisition. The contingent amounts
payable under these arrangements was between $nil and $5,000,000.
At the date of acquisition, the Directors assessed the fair value
of the contingent consideration payable under this arrangement at
$1,430,000, based on a probability-weighted analysis of the likely
outturn payments. Other than as a result of the unwinding of the
discount attributable to the time value of money, there has been no
change in the fair value of the contingent consideration since the
acquisition date.
23 Share capital and reserves
Share capital and share premium
Ordinary shares of 2.5p each (issued and $'000 Number
fully paid)
At 1 January 2017 -
Issued for cash during the year 270
Issued in exchange for shares during the
year 531
_______
At 31 December 2017 801 24,313,252
Issued for cash during the year 264
_______ _______
At 31 December 2018 1,065 32,532,431
The Company was incorporated on 21 February 2017 with 100
Ordinary shares of GBP1 each in issue. A further 49,900 shares were
issued on 31 July. On 7 September these shares were split on the
basis of 39 new shares for every old share such that there were
then 2,000,000 Ordinary shares of 2.5 pence each in issue. Also on
7 September, 16,211,040 shares of 2.5 pence each were issued in
connection with the acquisition of Pelatro LLC.
On 19 December 2017 the Company's shares were admitted to
trading on the AIM market of the London Stock Exchange
("Admission"). In conjunction with Admission, the Company made an
initial public offering of 6,102,212 new 2.5 pence ordinary shares
at a price of 62.5 pence per ordinary share (the "IPO"). On 17
August 2018 the Company issued a further 8,219,179 2.5 pence
Ordinary shares at a price of 73.0 pence per share by way of a
placing to institutional and other investors to fund the
acquisition of the Danateq Assets (the "Placing") (see note
26).
The Company incurred incremental costs totalling $319,000 in
respect of the Placing in 2018 and $1,129,000 in respect of the IPO
in 2017. IAS 32 Financial Instruments: Presentation requires the
costs of issuing new shares to be charged against the share premium
account. Management has reviewed the incremental costs to identify
those solely incurred in issuing new shares, those incurred in
connection with the entire share capital, and those not associated
with issuing new shares.
All of the costs relating to the Placing in 2018 were deemed to
relate directly to the issue of new shares and thus resulted in a
debit to share premium of $319,000. In respect of costs relating to
the IPO in 2017, those costs incurred in connection with the entire
share capital were apportioned to the issue of new shares by
reference to the number of new shares compared to the entire share
capital. As a consequence, costs relating directly to the issue of
new shares in connection with the IPO, plus attributable IPO costs
allocated between the share premium account and profit and loss
account in proportion to the number of primary and secondary shares
admitted to trading on Admission, resulted in a debit of $428,000
against share premium and a charge of the remaining $701,000 to
administrative expenses.
24 Operating leases
Total payments under non-cancellable operating leases will be
made as follows:
2018 2017
$'000 $'000
Not later than one year 123 97
Later than one year and not later than five
years 17 62
Later than five years - -
_______ _______
140 159
PSPL entered into a five-year lease in November 2014 for its
premises at 1st Block, HRBR Layout, Bangalore. The Company entered
into a short-term lease in September 2017 for its premises at Queen
Victoria Street, London, UK. Furthermore, PSPL entered into a lease
on 1 September 2018 for additional office space at 7th Main Road,
2nd Block, HRBR Layout, Bangalore, for an initial term of two years
with a rollover option.
IFRS 16 Leases (effective for the year ending 31 December 2019),
which supersedes IAS 17 Leases and related interpretations, will
require all leases to be recognised on the balance sheet,
eliminating the distinction between operating and finance leases.
The Group has two operating lease arrangements which would require
recognition under IFRS 16 and will consider the financial impact of
IFRS 16 in due course. If adopted as at 31 December 2018, the
impact would be to recognise lease liabilities of approximately
$123,000 and corresponding assets relating to the right to use the
properties which are the subject of the current leases.
The Company does not intend to apply the standard
retrospectively and so any difference between the carrying value of
the assets created and the corresponding liabilities will be
applied as an adjustment to opening equity at the date of initial
application
26 Business combinations
Danateq
The Company and the Danateq Group entered into a sale and
purchase agreement ("SPA") on 30 July 2018 to acquire certain
assets of Danateq Pte and Danateq Limited (together "the Danateq
Group" or where appropriate "Danateq") for an initial consideration
of $7.0 million with potential further payments of up to $5.0
million, depending on certain targets being met (the "Danateq
Acquisition"). The Danateq Group was founded by entrepreneurs with
backgrounds in robotics, telecom control systems and defence who
came together to develop LINK(TM), a real-time self-learning
"cognitive" analytics platform, with the vision of enabling
enterprises to implement continuously improving automated business
processes through cognitive loops. The Danateq Group used data
analytics to provide campaign management solutions to telcos over a
range of geographies. In addition to its campaign management
solution, the Danateq Group also offered two additional products
complementary to Pelatro's product: loyalty management and a
notification platform.
Through the Acquisition, Pelatro acquired or had
transferred:
(i) certain assets from the Danateq Group, including contracts
and sales staff;
(ii) certain employees of the Danateq Group, including staff in
a development centre in Nizhny Novgorod;
(iii) contracts from the Danateq Group pursuant to which it
provided software and services to Globe Telecom Inc. of the
Philippines ("Globe") and certain operating companies ("OpCos")
within the Telenor group of companies ("Telenor") pursuant to a
Global Framework Agreement ("GFA") with Telenor ASA of Norway. The
GFA was signed in 2016 for 5 years and since that time the Danateq
Group had entered into contracts with 3 OpCos of Telenor in
Bulgaria, Myanmar and Bangladesh (where it trades as Grameenphone).
These contracts cover 90 million subscribers, and the GFA provided
the potential to win 8 further OpCo contracts across Central Europe
and Asia, covering a further 85 million subscribers. The Danateq
Group has also provided software and services since 2013 to Globe
through a re-seller agreement. This contract, which renews
automatically on an annual basis, is a maintenance and managed
services contract covering 75 million subscribers across the
Philippines;
(iv) two re-seller agreements with Ericsson and Wireless
Services Asia which were originally signed on 3-year terms; and
(v) sundry other intellectual property
(together the "Danateq Assets").
The key terms and provisions of the SPA are as follows:
-- an initial cash consideration of $7.0 million to the vendors at completion;
-- a further $2.0 million payable should the Danateq Assets
generate revenue of $2.25 million in the first twelve-month period
following completion, with an additional $1.0 million payable
should the Danateq Assets generate in excess of $4.5 million during
the same period; and
-- $1.0 million payable should the Danateq Assets generate
revenue of $2.9 million in the second twelve-month period following
Completion, with an additional $1.0 million payable should the
Danateq Assets generate in excess of $5.8 million during the same
period.
The amounts recognised in respect of identifiable assets
acquired is set out in the table below.
Book value Adjustment Fair value
$'000 $'000 $'000
Customer relationships - 6,862 6,862
Enterprise software for sale to third
parties - 1,250 1,250
_______ _______ _______
Net assets acquired - 7,532 7,532
Goodwill on acquisition 318
_______
Fair value of assets acquired 8,430
Initial cash consideration paid 7,000
Contingent purchase consideration
estimated to be paid 1,430
_______
Consideration payable in cash 8,430
The goodwill represents:
* the technical expertise of the acquired workforce
* the opportunity to leverage this expertise across Pelatro's existing business; and
* the ability to exploit the Group's enlarged customer base
The fair value of contingent consideration payable of $1,430,000
at acquisition was estimated based on performance observed to date
and the expectation of likely future cash flows and is discounted
at the Group's notional cost of borrowing over the earn-out period.
The Danateq Assets contributed approximately $1.3m of revenue and
$456,000 of profit after tax for the year ended 31 December 2018.
As the acquisition was for certain assets and contracts only and
not the corporate entity which controlled them up to the point of
sale, it is impractical to state what would have been the Group's
reported revenue and profit after tax if the acquisition had been
made at the start of the financial year.
Pelatro Solutions Private Limited
On 13 December 2017 the Group completed the acquisition of
Pelatro Solutions Private Limited ("PSPL"), the company with which
the Group has an agreement for software development, implementation
and support. The amounts recognised in respect of identifiable
assets acquired and liabilities assumed are set out in the table
below.
Book value Adjustment Fair value
$'000 $'000 $'000
Property, plant and equipment 31 - 31
Intangible assets 16 - 16
Deferred tax asset - 118 118
Trade and other receivables 802 - 802
Cash and bank balances 11 - 11
Long-term borrowings (272) - (272)
Trade and other payables (117) (33) (150)
Short term borrowings (808) - (808)
_______ _______ _______
Net identifiable assets and liabilities (337) 85 (252)
Goodwill on acquisition 287
_______
Consideration payable in cash 35
Analysis of cash flows on acquisition
Net cash acquired with subsidiary 11
Cash paid -
_______
Net cash inflow 11
The goodwill recognised above is attributable to intangible
assets from PSPL that cannot be individually separated and reliably
measured due to their nature. These items include the expected
value of synergies and assembled workforce. The cash consideration
for PSPL of $34,644 was paid to the former shareholders of PSPL in
January 2018.
27 Related party transactions
Amounts outstanding at the end of the year in respect of
transactions with related parties were as follows:
Amount outstanding - (debtor)/creditor 2018 2017
$'000 $'000
Key management personnel - net loans outstanding - 428
Key management personnel - outstanding reimbursements
in respect of expenses incurred on behalf
of Group companies 28 101
Details of unsecured loan transactions with key management
personnel are as follows:
Related party and nature of transaction 2018 2017
$'000 $'000
Outstanding at the beginning of the year 428 -
Acquired as part of a business combination - 431
Loan taken during the year - 2
Loan repaid during the year (429) (9)
Foreign exchange movements 1 4
_______ _______
Loans outstanding at the end of the year - 428
The remuneration of the Directors, who are deemed to be the only
key management personnel of the Group, is set out below in
aggregate for each of the categories specified in IAS 24 Related
Party Disclosures.
2018 2017
$'000 $'000
Wages and salaries 594 248
Payments in respect of other services 30 -
Pension cost 2 -
_______ _______
626 248
To comply with local legislation regarding resident directors,
Hamish Christie is a director of Pelatro Pte Ltd. Mr Christie is
also the proprietor of H.A. Christie & Co., which firm provides
accountancy and tax advisory services to that company. During the
year payments of approximately $5,000 were made to H.A. Christie
& Co., and a further $4,000 was outstanding at the year end in
relation to 2018 expenses.
Other than disclosed in this note or elsewhere in this financial
information as appropriate, no related party transactions have
taken place during the year that have materially affected the
financial position or performance of the Group.
28 Impact of IFRS 15 on opening balance sheet at 1 January 2018
The Group has applied IFRS 15 using the cumulative effect of
initially applying the effects of the new revenue standard as an
adjustment to the opening balance of equity at 1 January 2018.
Therefore relevant comparative information has not been restated
and continues to be reported under IAS 11 and IAS 18. The details
of the significant changes and the quantitative impact of the
changes are as follows:
-- A net $18,000 credit to retained profits brought forward
relating to the recognition of the impact on transition to IFRS 15
at 1 January 2018. The adjustment relates to the unbundling of
certain contracts according to the Group's assessment of each
contract's performance obligation to be delivered to its customers,
and comprises:
(i) a creditor balance of $93,000 in contract liabilities
relating principally to PCS income invoiced (as part of an overall
license fee) but not yet performed; and
(ii) a debtor balance of $111,000 relating to PCS income
recognised but not invoiceable
A summary of these changes is as follows:
31 December 31 December 31 December
2017 2017 2017
As reported Effect of As adjusted
IFRS 15
$'000 $'000 $'000
(audited) (unaudited) (unaudited)
------------------------------------- ------------ ------------ ------------
Income statement
Revenue 3,146 18 3,164
Balance sheet
Current assets
Trade receivables 1,721 - 1,721
Accrued income - UBR 57 - 57
Accrued income - contract assets - 111 111
_______ _______ _______
Total trade and related receivables 1,778 111 1,889
Current liabilities
Contract liabilities - (93) (93)
Equity
Accumulated profits 1,217 18 1,235
Earnings per share
Basic 4.8c 0.1c 4.9c
Adjusted (non IFRS) 8.9c 0.1c 9.0c
29 Capital commitments and contingent liabilities
Other than as disclosed above, as at 31 December 2018 the Group
had no material capital commitments (2017: nil) nor any contingent
liabilities (2017: nil).
30 Events after the balance sheet date
There have been no events subsequent to the reporting date which
would have a material impact on the financial statements.
General
The financial information set out above does not comprise the
Company's statutory accounts. The Annual Report and Financial
Statements for the year ended 31 December 2017 have been filed with
the Registrar of Companies. The Independent Auditors' Report on the
Annual Report and Financial Statements for the year ended 31
December 2017 was unqualified, did not draw attention to any
matters by way of emphasis, and did not contain a statement under
498(2) or 498(3) of the Companies Act 2006.
The Independent Auditors' Report on the Annual Report and
Financial Statements for the year ended 31 December 2018 was
unqualified, did not draw attention to any matters by way of
emphasis, and did not contain a statement under 498(2) or 498(3) of
the Companies Act 2006. These will be filed with the Registrar of
Companies following the annual general meeting.
This preliminary announcement was approved by the Board of
Directors on 25 March 2019.
The full financial statements are expected to be posted to
shareholders in May 2019. Further copies will also be available on
the Company's website (www.pelatro.com) and from the Company's
registered office at 49 Queen Victoria Street, London EC4N 4SA from
that date.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LIFERVLIRFIA
(END) Dow Jones Newswires
March 26, 2019 03:01 ET (07:01 GMT)
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