Pelatro PLC Half-year Report

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Pelatro PLC Half-year Report

Pelatro (LSE:PTRO)
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2 meses : De Sep 2019 a Nov 2019

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RNS Number : 7032N

Pelatro PLC

26 September 2019

Pelatro Plc

("Pelatro" or the "Group")

Interim results

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

Financial highlights

   --              Revenue increased 14% to $2.71 million (H1 2018: $2.38m) 
   --              Repeat revenue increased 145% to $1.96m (H1 2018: $0.80m), 72% of revenue 

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

   --              Adjusted earnings per share 0.5c (H1 2018: 4.4c) 

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

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

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

Operational highlights

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

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

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

Post period end highlights

   --              Gross cash at 31 August $1.07m 
   --              Trade receivables at 31 August $3.34m (H1 2019: $4.27m) 

Outlook

   --              Management expectations for the year underpinned by: 

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

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

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

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

Richard Day, Non-executive Chairman of Pelatro commented:

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

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

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

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

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

Presentation and analyst presentation

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

For further information contact:

 
 Pelatro Plc 
 Subash Menon, Managing Director                     c/o Walbrook 
 Nic Hellyer, Finance Director 
 
 finnCap Limited (Nominated Adviser and 
  Broker)                                     +44 (0)20 7220 0500 
 Carl Holmes/Kate Bannatyne/Matthew Radley 
 Tim Redfern / Camille Gochez - ECM 
 
 Walbrook (Financial PR and IR)               +44 (0)20 7933 8780 
 Paul Cornelius/Nick Rome 
 

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

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

Notes to editors

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

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

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

Managing Director's statement

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

Strategic Shift

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

Bandwidth

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

Acquisition Update

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

Financial review

Revenue and profitability

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

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

Net cash and trade receivables

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

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

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

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

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

Implementation of IFRS 16

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

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

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

Expenditure on non-current assets

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

Share option scheme

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

Current trading and outlook

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

Group statement of comprehensive income

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

Group statement of financial position

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

Group statement of cash flows

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

Group statement of changes in equity

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

Notes to the Group financial statements

   1              Basis of preparation 

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

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

Change in accounting policy - application of IFRS 16 Leases

(a) General

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

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

(b) Former operating leases

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

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

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

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

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

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

(c) Financial effect of initial application of IFRS 16

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

Impact on profit/(loss) for the period

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

Impact on earnings per share for the period

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

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

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

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

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

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

Impact on consolidated statement of cash flows

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

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

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

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

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

Extension and termination options

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

Share-based payments

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

IFRIC 23 Uncertainty over Income Tax Treatments

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

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

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

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

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

Going concern

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

Comparative financial information

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

   2              Segmental analysis 

Revenue by geography

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

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

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

Revenue by type

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

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

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

A broad analysis of Unbilled Revenue is as follows:

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

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

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

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

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

Share-based payments

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

Adjusted EPS

The calculation of adjusted EPS is shown in Note 5.

   4              Finance income 
 
                                             6 months      6 months      Year to 
                                                 to            to        December 
                                              30 June       30 June        2018 
                                                2019          2018 
                                               $'000         $'000        $'000 
                                            (unaudited)   (unaudited)   (audited) 
 Interest receivable on interest-bearing 
  deposits                                            6             9          10 
 Notional interest accruing on 
  contracts with a significant 
  financing component                                14             -          23 
                                                _______       _______     _______ 
 Total finance income                                20             9          33 
 
   5              Finance expense 
 
                                      6 months      6 months      Year to 
                                          to            to        December 
                                       30 June       30 June        2018 
                                         2019          2018 
                                        $'000         $'000        $'000 
                                     (unaudited)   (unaudited)   (audited) 
 
 Interest and finance charges 
  paid or payable on borrowings               40            37          62 
 Acquisition-related financing 
  expense - unwinding of discount 
  on financial liabilities                    23             -           9 
 Interest on lease liabilities                22             -           - 
  under IFRS 16 
                                         _______       _______     _______ 
 Total finance expense                        85            37          71 
 
   6              Earnings per share 

Earnings per share - reported ("EPS")

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

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

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

Adjusted earnings per share

Adjusted EPS is calculated as follows:

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

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

   7              Intangible assets 

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

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

Comparative figures for the prior period are as follows:

 
                          Development   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                        763             -                -          -       763 
 Fair value adjustment              -             -                         113       113 
 Effect of foreign 
  exchange movements                -           (2)                -          -       (2) 
                              _______       _______          _______    _______   _______ 
 At 30 June 2018                2,053            30                -        400     2,483 
 
 Amortisation 
  or impairment 
 At 1 January 
  2018                          (382)          (16)                -          -     (398) 
 Charge for the 
  period                        (219)           (1)                -          -     (220) 
 Effect of foreign                  -             -                -          -         - 
  exchange movements 
                              _______       _______          _______    _______   _______ 
 At 30 June 2018                (601)          (17)                -          -     (618) 
 
 Net carrying 
  amount 
 At 30 June 2018                1,452            13                -        400     1,865 
 

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

   8              Right-of-use assets 

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

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

Trade receivables

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

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

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

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

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

 
                                            Office     Vehicles    Total 
                                           equipment 
                                            $'000       $'000      $'000 
 At 1 January 2019                                 -          -         - 
 Effect of change of accounting policy           440          -       440 
 Leases taken on in the period                    94         25       119 
 Repayments of principal                        (83)        (5)      (88) 
 Effects of foreign exchange movements            14        (1)        13 
                                             _______    _______   _______ 
 At 30 June 2019                                 465         19       484 
 
   12           Trade and other payables 
 
                                      As at         As at      As at 31 
                                     30 June       30 June      December 
                                       2019          2018         2018 
                                      $'000         $'000        $'000 
                                   (unaudited)   (unaudited)   (audited) 
 Due within a year 
 Trade payables                             12            63         118 
 Other payables                            344           256         463 
 Amounts due to related parties              -            43          28 
                                       _______       _______     _______ 
 Total trade and other payables            356           362         609 
 

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

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

   13           Other financial liabilities 

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

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

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

[END]

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

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