TIDMTUNG
RNS Number : 3227K
Tungsten Corporation PLC
13 December 2018
TUNGSTEN CORPORATION PLC
("Tungsten", the "Company" or "Group")
13 December 2018
INTERIM FINANCIAL REPORT FOR THE SIX MONTHSED 31 OCTOBER
2018
Financial Highlights
-- Revenue increased 3% in H1-FY19 to GBP17.6 million (H1-FY18:
GBP17.1 million); up 3% at constant exchange rates
-- GBP4.2 million improvement in EBITDA(1) to GBP752,000 loss (H1-FY18: GBP5.0 million loss)
-- Gross margin of 93.2%, a 220 basis point improvement from 91.0% in H1-FY18
-- GBP7.8 million improvement in operating loss to GBP1.2
million (H1-FY18: GBP9.0 million loss). Statutory loss of GBP24,000
(H1-FY18: GBP8.5 million loss)
-- GBP4.5 million cash outflow (H1-FY18: GBP9.5 million
outflow), including GBP2.9 million of non-recurring payments
-- Working capital remains adequate, with net cash of GBP2.0
million at 31 October 2018 (30 April 2018: GBP6.4 million),
excluding undrawn GBP4.0 million HSBC facility
Key Performance Metrics
-- 0.2 million transactions added in H1-FY19; last 12 months
total transaction volume of 17.9 million (FY18: 17.7 million)
-- Average revenue per invoice increased to GBP1.91 in H1-FY19 (H1-FY18: GBP1.86)
-- Adjusted operating expenses(2) reduced by 16% to GBP17.2 million (H1-FY18: GBP20.5 million)
-- In October 2018, Tungsten Network Finance average
outstandings of GBP68.5 million (April 2018: GBP43.4 million)
Operational Highlights
-- Five new accounts payable (AP) customers, 17 contracts
renewed of which 12 renewed at mean 24% rate rise; launch of
e-billing to accounts receivable (AR) customers
-- Increase in AR revenue by 8%
-- Reduction in total spend of adjusted operating and capital
expenditure to GBP19.2 million (H1-FY18: GBP22.7 million); H1-FY19
capital expenditure of GBP2.0 million focused on product
enhancements
-- Tungsten Network will be an intermediary for the Italian tax
authority from 1 January 2019 when B2B
e-invoicing becomes mandatory; 42 customers contracted for
revenue of GBP0.5 million in FY19
-- Highest value achieved to date for a sale of Tungsten Network
Analytics to a top-10 (by revenue) customer
-- Launch partner of Mastercard to offer its Mastercard Track
directory services to customers on Tungsten Network from early
2019
Board and Strategy Highlights
-- New appointments to Board of Tony Bromovsky and Duncan
Goldie-Morrison; retirement of Nick Parker and Peter Kiernan and,
since period-end, retirement of David Benello and Ian Wheeler and
appointment of Andrew Doman (the "New Board")
-- New Board now has wide range of relevant skills and
experience to support Tungsten's growth plans
-- Board governance enhanced through separating remuneration and
nomination committees; new operating review committee formed
-- Non-executive director fees reduced to the median of AIM
quoted companies; executive remuneration to be brought in line with
Quoted Companies Alliance code. New Board has approved the
principles of revised remuneration practices, subject to
shareholder consultation
-- Operating review committee to report to the Board by the end
of Q1 calendar 2019. Comprehensive review of Tungsten's markets,
products, operations and cost base, including the support of
external consultants, to assess opportunities to increase revenue
and profit growth rates; phase one conclusions indicate Tungsten
retains a strong market position
FY19 Outlook
-- FY19 revenue expectation now GBP36.0 million to GBP36.5
million, representing full year constant currency growth of 7% to
10%. This reflects H2-FY19 revenue growth over H1-FY19 of 5% to 8%
(10% to 16% annualised), both at constant rates of exchange
-- Stable gross margin and a reduction in adjusted operating
expenses to GBP34.0 million arising from further cost savings and
proposed changes to the Group's remuneration structures
-- EBITDA profit for the full financial year, as a result of
reduced adjusted operating expenses
-- Existing capital sufficient to deliver current plans
Richard Hurwitz, Chief Executive Officer
"We have achieved much in the first half of the financial year
to support future revenue growth, including the new customers that
we have signed, securing our Italian SdI registration and our
partnership with Mastercard. However, these have not had a
significant effect on Tungsten's first half revenue and growth at
3% is disappointing.
"The initial conclusions of our market review support the size
of the opportunity and strength of our market position. Many
customers at our recent conference demonstrated their enthusiasm
for our broader service offering. Under new leadership, our sales
teams are better focused on developing relationships with new and
current customers. These factors give us confidence that the
revenue growth rate in the second-half of the financial year will
surpass the first half and establish momentum for higher growth and
EBITDA in the future."
Tony Bromovsky, Non-Executive Chair
"Duncan and I are grateful for the welcome that we have received
from the Board, our Tungsten Network colleagues, shareholders,
customers and other stakeholders. Today, we are delighted to extend
that welcome to Andrew Doman, who will join the Board as a
Non-Executive Director.
"The revenue growth for H1-FY19 reported today underscores the
need for refreshed focus in a business that has unquestionable
potential. We have begun a root and branch operating review to
deliver increased revenue and profit growth rates, and make the
organisational modifications required to support these.
"We are committed to the highest levels of transparency and
corporate governance. One immediate task of the new Board was to
commission an external review of the Company's remuneration
practices. The Board has approved the implementation of the
recommendations of this review, subject to shareholder
consultation.
"We look forward to concluding our strategic plan in 2019 and
sharing this with our shareholders. We are confident that this will
demonstrate attractive revenue growth rates and operating
margins."
(1) EBITDA excludes interest, tax, depreciation, amortisation,
foreign exchange gain or loss, share-based payments charges and
exceptional items.
(2) Adjusted operating expenses excludes cost of sales,
interest, tax, depreciation, amortisation, foreign exchange gain or
loss, share-based payments charges and exceptional items.
Analyst Presentation
The Company will today host a conference call and webcast at
9.00am UK time. To access the live slide webcast please click
here.
To access the webcast audio, or for participants unable to join
the webcast, the dial-in number for the conference call will be +44
(0)808 109 0700 / +1 866 966 5335 / +44 (0)20 3003 2666 with the
password 'Tungsten' and a presentation will be available on the
Tungsten website.
A replay facility will be available until 27 December 2018. The
dial-in number for the replay facility is +44 (0) 20 8196 1998 with
PIN number 7938519#.
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
Enquiries
Tungsten Corporation plc
Richard Hurwitz, Chief Executive Officer
David Williams, Chief Financial Officer +44 20 7280 7713
Panmure Gordon UK Limited (Nominated Advisor)
Dominic Morley +44 20 7886 2500
Canaccord Genuity Limited (Broker)
Simon Bridges/Emma Gabriel +44 20 7523 8000
Montfort Communications Limited (Financial
Communications)
Robert Bailhache [email] +44 20 3770 7908
About Tungsten Corporation plc
Tungsten Corporation (LSE: TUNG) aims to be the world's most
trusted business transaction network by using data intelligently to
strengthen the global supply chain.
Tungsten Network is a secure business transaction network that
brings businesses and their suppliers closer together with unique
technology that revolutionises invoice processing, maximises
efficiency and improves cash flow. Delivering trusted connections
and streamlined transactions, the network also provides users with
real-time spend analysis and offers access to trade finance through
Tungsten Network Finance.
Tungsten Network processes invoices for 74 percent of the FTSE
100 and 71 percent of the Fortune 500. It enables suppliers to
submit tax compliant e-invoices in 48 countries, and last year
processed transactions worth over GBP164bn for organisations such
as Alliance Data, Cargill, Deutsche Lufthansa, General Motors,
GlaxoSmithKline, Mondelēz International, Henkel, IBM, Kellogg's and
the US Federal Government.
Forward looking statements
This document contains forward-looking statements that may or
may not prove accurate. For example, statements regarding expected
revenue growth and trading margins, market trends and our product
pipeline are forward-looking statements. Phrases such as "aim",
"plan", "intend", "anticipate", "well-placed", "believe",
"estimate", "expect", "target", "consider" and similar expressions
are generally intended to identify forward-looking statements.
Forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause actual
results to differ materially from what is expressed or implied by
the statements. Any forward-looking statement is based on
information available to Tungsten as of the date of this statement.
All written or oral forward-looking statements attributable to
Tungsten are qualified by this caution. Tungsten does not undertake
any obligation to update or revise any forward-looking statement to
reflect any change in circumstances or in Tungsten's
expectations.
Business and Strategic Update
Revenue growth of 3% in the six-months ended 31 October 2018,
compared with the same period in the prior year, is disappointing.
However, your New Board is confident that change made across the
business will enable higher revenue growth and EBITDA
profitability, starting in the second half of this financial
year.
Despite the modest growth over the comparable period in the
prior year, revenue grew 6% compared with the prior six-month
period (H2-FY18: GBP16.6 million). While this does not meet the
Board's expectations, it demonstrates that the Group is closer to
double-digit revenue growth and has reversed the previous
six-month-on-six-month decline.
Our EBITDA performance reflects our continued expectations over
the course of FY19, recording a loss in the first half of the year
followed by an expected profit in the second half equating to an
overall profit. This is primarily due to the planned increase in
adjusted operating expenses reported in H1-FY19 compared with the
previous six months, which was required to invest in future revenue
growth. Therefore, following the reporting of EBITDA profitability
over the first four months of calendar 2018, we report today an
EBITDA loss of GBP0.8 million for H1-FY19.
Over the last three six-month periods our operating loss has
improved from GBP9.0 million (H1-FY18) to GBP3.1 million (H2-FY18)
and most recently to GBP1.2 million (H1-FY19).
Total transaction volumes in the 12 months to 31 October 2018
amounted to 17.9 million, an increase of 0.2 million from the 17.7
million transactions processed in the 12 months to 30 April
2018.
The business achieved a number of customer successes in the
first six months of the financial year. This includes closing five
new accounts payable contracts (excluding sales of our new Italy
Sistema di Interscambio (SdI) connectivity product), adding GBP0.4
million in H1-FY19 revenue and GBP0.6 million in FY19. These
customers include Nice-Pak International, a new global account. In
addition, 42 customers have contracted to use Tungsten Network to
connect to the SdI, adding GBP0.1 million of H1-FY19 revenue and
GBP0.5 million in FY19.
As important as signing new customers is retaining and
developing our relationships with our existing customer base. In
the reporting period we sold new accounts payable products to
ConAgra, DR Horton and our Tungsten Network Analytics product to a
top-10 revenue customer. We also renewed 17 accounts payable
customer contracts, of which 12 were actively renegotiated at a
mean price increase of 24%, reflecting the value our solutions
provide.
Our recurring revenue in H1-FY19 was GBP16.1 million (91% of
total revenue), an increase of 7% over H2-FY18 recurring revenue of
GBP15.1 million. Recurring revenue represents revenues under
contract including subscription, maintenance, transaction and
financing fees.
Sales reconfiguration
In November 2018 we brought Tungsten's sales activities together
under new leadership. Andy Bass, our new SVP, Commercial
Development, is a former executive of Lenovo, Toshiba UK and
Toshiba Europe, and has responsibility for a newly aligned global
customer development and sales team.
Over the second half of FY19 and into FY20, we expect the
results of this to be demonstrated in the signing of high-value new
customers, expanding adoption among existing customers and growth
from trade finance solutions and Mastercard Track.
New product rollout
Tungsten has broadened its service offering and today offers a
suite of products to support our customers in increasing automation
across accounts payable and receivable.
Enhanced Purchase Order (PO) Services allow customers to send,
receive, amend, reject and accept POs using the same system they
use for e-invoicing. The integration of these two processes also
allows customers to convert digital POs into corresponding digital
invoices at the click of a button.
E-billing enables accounts receivable customers to use the
Tungsten Network system to send invoices to their clients who are
not members of Tungsten Network. Through distribution partners,
Tungsten can deliver these invoices in the recipient's required
format, whether digital, pdf or even paper, so customers can
increase the volume of outbound invoices they send using a digital
system up to 100%, while meeting the needs of their clients who
have not yet adopted a digital invoicing system.
Invoice Data Capture (IDC) is a cloud-based solution that
enables accounts payable customers to use the Tungsten Network
system to receive paper invoices from suppliers who are not members
of Tungsten Network. Tungsten scans paper invoices, validates the
data, and then delivers them directly into the customer's
accounting system, so customers can increase the volume of inbound
invoices they receive using a digital system even where their
suppliers do not have digital invoicing capabilities.
When taken as a suite, these services allow Tungsten Network
customers to increase the amount of validated, digital invoice data
in their systems without needing their clients or suppliers to
change their own invoicing processes. Where customers choose to
accelerate the process of digital adoption in this way it also
offers significant revenue upside to Tungsten. Already we have
successfully sold one accounts payable customer a suite of services
on top of the core e-invoicing solution, multiplied revenues from
the core proposition by a multiple of three times.
Tungsten's increasingly flexible platform means that the Company
is also well-placed to develop solutions that meet the rapidly
growing demands placed upon companies by governments, whether this
is from expanding Know Your Customer (KYC), strengthening tax
legislation or mandating the use of e-invoicing services. In fact,
these regulatory requirements represent significant opportunities
for new revenue streams and future growth, as will shortly be the
case in Italy.
Tungsten is one of very few international e-invoicing providers
to register successfully as an intermediary of the Italian tax
authority (SdI) ahead of their B2B e-invoicing mandate, which comes
into effect on 1 January 2019. Tungsten's solution enables
customers transacting in Italy to send and receive 100% of those
invoices via Tungsten Network, while meeting the demands of the new
government legislation. As a number of other governments have
indicated their intention to implement similar e-invoicing
mandates, the Company anticipates the value of these intermediary
services to magnify for our customers who will be able to transact
across multiple tax jurisdictions using a global service
provider.
Tungsten is a launch partner of Mastercard for their new Track
product and has started sales and marketing of its Trade Directory,
expected to be available in early calendar 2019. Mastercard Track
will help customers to manage supply chain information and risk and
we will have the future opportunity to work with Mastercard on
payments. This product leverages one of our key strengths,
supporting an accounts payable team to manage relationships with
the tail of low volume suppliers.
Technology transformation
Our new CTO, Martyn Arbon, joined in April 2018. Under his
stewardship, Tungsten completed two of its major technology
transition projects in H1-FY19. First, all of Tungsten Network's
technology is now fully in the cloud, enabling the platform to
benefit from the scale and elasticity this provides. Secondly,
Tungsten Network's core processing engine has been rebuilt on new
architecture, designed for the cloud, which is delivering scalable
and secure processing capabilities. Each of these changes enable us
to deliver better service to our customers at a lower price.
Other improvements to our technology have enabled Tungsten
Network to be at the vanguard of the first of many expected new
market openings. The Tungsten Network platform has been modified to
support the Italian tax mandate and we also responded to a new
legal requirement in Mexico for our customers to send payment
receipts to their suppliers in Mexico.
With our major infrastructure projects complete our focus now is
on delivering further systems improvements to enhance our
customers' experience, provide high service availability and
continue to improve efficiency.
In H1-FY19 this involved the implementation of the first phase
of Tungsten Network's move to a new service automation platform
based around Salesforce.com and New Voice Media, enabling a highly
automated omni-channel service offering.
Over H2-FY19 and into FY20 we will enhance our customer portal
to improve customer experience, reduce support calls and therefore
lower costs. The future work on these projects will all be
completed within our current technology spend level.
Tungsten Network Finance
Every metric we track of Tungsten Network Finance's trade
finance services continued to grow in H1-FY19. Revenue of
GBP365,000 was 108% higher than in H2-FY18, average monthly
outstandings grew from GBP43.4 million in April 2018 to GBP68.5
million in October 2018, with a high of total outstandings of
GBP73.6 million in September 2018, and the number of users now
exceeds 100 for the first time.
However, this part of our business remains in start-up mode,
contributing an EBITDA loss of GBP1.2 million in the period. As
part of the new Board's work to assess revenue growth opportunities
we will be looking at the most effective ways of taking Tungsten
Network Finance forward.
Operating expenses
Tungsten's adjusted operating expenses in H1-FY19 of GBP17.2
million compare to GBP20.5 million in H1-FY18 and GBP15.5 million
in H2-FY18. Total adjusted operating and capital expenditure was
GBP22.7 million in H1-FY18, GBP20.9 million in H2-FY18 and GBP19.2
million in H1-FY19, representing a reduction in total spend of 15%
compared with H1-FY18 and 8% compared with H2-FY18. This reflects
the impact of the cost reductions achieved in FY18, including the
impact of the technology transformation on the cost of processing
transactions and the reduction and outsourcing of technology
headcount.
Statutory operating expenses have fallen from GBP26.0 million in
H1-FY18, to GBP19.7 million in H2-FY18 and further to GBP18.8
million in H1-FY19. These include a GBP2.2 million foreign exchange
gain in H1-FY19 (H1-FY18: GBP0.2 million loss; H2-FY18: GBP1.4
million loss). The increase is due to the strengthening of USD
currency over the past six months.
Cash and liquidity
Tungsten had net cash of GBP2.0 million at 31 October 2018 (30
April 2018: GBP6.4 million), excluding our GBP4.0 million HSBC
facility, which we drew on for the first time after the period
end.
The Board considers that the Group has sufficient liquidity to
deliver its current plans. GBP2.9 million of the GBP4.5 million
cash outflows in H1-FY19 are not expected to reoccur in H2-FY19 or
beyond. Excluding the settlement of GBP0.6 million of exceptional
costs, the Group was cash positive over November 2018. Future cash
flow will reflect the ongoing business performance improvement and
the seasonal positive working capital in our fiscal third quarter
from annual maintenance renewals of our Workflow product.
Current priorities
Following the Company's 2018 Annual General Meeting, the Board
undertook to review Directors' remuneration and to consult
shareholders further on the conclusions of that review. The Board
has taken advice from specialist remuneration consultants in this
regard and has implemented changes to the remuneration of
Non-Executive Directors to align fees with the median of AIM
companies, a net reduction in total quantum.
Additionally, the Board has taken advice on the level and
structure of total employee remuneration. It intends to consult
shareholders on a move from a structure of share options to
awarding free restricted shares and from performance-based cash
bonus to performance-based free restricted shares. The Board
considers this important to appropriately align the remuneration
structure with shareholder objectives.
While not the reason for the proposals, the new structure would
have a positive impact on EBITDA. Were it to have been implemented
in H1-FY19, Tungsten would have achieved EBITDA breakeven and,
excluding Tungsten Network Finance, the Group would have recorded
an EBITDA profit in the period of GBP1.2 million.
Over H2-FY19 the Company intends to:
1. Deliver accelerated revenue growth through increasing activity with current and new customers
2. Conclude the shareholder consultation and execution of
changes to Board remuneration and the Group's remuneration
structures
3. Complete our operating review and our business planning work for FY20 and beyond
Changes to the Board
In August 2018, the Board of Tungsten welcomed Tony Bromovsky
and Duncan Goldie-Morrison Non-Executive Directors, with Tony
Bromovsky subsequently appointed Deputy Chair. Nick Parker and
Peter Kiernan retired from the Board on 31 October 2018, at which
point Tony Bromovsky was appointed Chair. David Benello and Ian
Wheeler have today retired as Non-Executive Directors of the
Company.
In addition, Tungsten today announced that Andrew Doman has been
appointed to the Board. The new Board wishes to express its
gratitude to each of its members that have retired this year for
their service to the Company.
Outlook
The new Board is confident that Tungsten can deliver attractive
revenue growth rates and operating margins. Following disappointing
growth rates in H1-FY19, the Board expects growth rates to
accelerate over H2-FY19 and into FY20 through disciplined execution
from our people and the identification and delivery of additional
opportunities to increase revenue growth rates.
The updated expectations for FY19 are:
-- FY19 revenue expectation now GBP36.0 million to GBP36.5
million, representing full year constant currency growth of 7% to
10%. This reflects H2-FY19 revenue growth over H1-FY19 of 5% to 8%
(10% to 16% annualised), both at constant rates of exchange
-- Stable gross margin and a reduction in adjusted operating
expenses to GBP34.0 million arising from further cost savings and
proposed changes to the Group's remuneration structures
-- EBITDA profit for the full financial year, as a result of
reduced adjusted operating expenses
-- Existing capital sufficient to deliver current plans
The Group is currently updating its business plan for FY20 and
beyond. The Board and management are being supported by consultants
in this work to help provide an external perspective on the market,
opportunities and Tungsten's position. The total cost of this
support is expected to be GBP0.25 million. The initial work on this
business plan suggests that an increase in revenue and profit
growth rates is achievable in FY20.
The new Board is determined to return Tungsten to double-digit
growth through strong management and strategic focus. To achieve
this, our operating review will help us get a better understanding
of the Company's products and market positioning, feedback from
lost tenders and why Tungsten may not be invited to tender
processes. The review committee will assess opportunities to
increase revenue growth rates, operating changes required to
deliver higher growth rates and further openings to reduce costs in
the business. This work is expected to be concluded by the end of
the first quarter of calendar 2019.
As part of the operating review, the Board is assessing forming
additional strategic partnerships that can increase our services
without the need for significant investment, as well as other
opportunities that may require additional resources.
Principal risks and uncertainties
The Group's principal risks and uncertainties remain the same as
those set out in the Tungsten Corporation plc Annual report and
accounts for the year ended 30 April 2018.
In summary, the Group is subject to the same general risks as
many other businesses; for example, changes in general economic
conditions, currency and interest rate fluctuations, changes in
taxation legislation, cyber-security breaches, failure of our IT
infrastructure, the impact of competition, political instability
and the impact of natural disasters.
The Board has identified risks in relation to the United
Kingdom's exit from the European Union. Given the range of possible
scenarios it is impossible for us to be specific, however the risk
surrounding foreign exchange rate volatility is considered to be
the most significant. We will continue with our regular risk
mitigation process and will prepare for all likely scenarios until
the outcome becomes clear.
Financial Results
Group overview
Tungsten recorded an EBITDA loss of GBP752,000 in H1-FY19 on
revenue of GBP17.6 million. The operating loss has improved to
GBP1.2 million.
In H1-FY19 gross profit of GBP16.4 million represents an
increase of GBP0.9 million from H1-FY18 and GBP0.5 million from
H2-FY18. Gross margin in H1-FY19 was 93.2%, an increase of 220
basis points from H1-FY18 and a decrease of 260 basis points from
H2-FY18. Gross margin in FY18 was 93.1%.
Group EBITDA loss was GBP0.8 million (H1-FY18: loss of GBP5.0
million; H2-FY18: profit of GBP0.4 million). Adjusted operating
expenses of GBP17.2 million were GBP3.3 million, or 16%, lower than
H1-FY18. The GBP1.7 million increase in H1-FY19 adjusted operating
expenses compared with the previous six months was required to
invest in future revenue growth.
GBPm GBPm GBPm Variance Variance
H1-FY18 H2-FY18 H1-FY19 to H1-FY18 to H2-FY18
Revenue 17.1 16.6 17.6 3% 6%
Cost of sales (1.6) (0.7) (1.2) 25% (71%)
----------------------------- --------- -------- --------- ----------- ------------
Gross profit 15.5 15.9 16.4 6% 3%
Gross margin 91.0% 95.8% 93.2%
Adjusted operating expenses (20.5) (15.5) (17.2) 16% (11%)
----------------------------- --------- -------- --------- ----------- ------------
EBITDA (5.0) 0.4 (0.8) 84% (300%)
----------------------------- --------- -------- --------- ----------- ------------
Operating loss (9.0) (3.1) (1.2) 87% 61%
Revenues:
GBPm GBPm GBPm Variance Variance
H1-FY18 H2-FY18 H1-FY19 to H1-FY18 to H2-FY18
Recurring revenue 15.3 15.1 16.1 5% 7%
One-off revenue 1.7 1.5 1.5 (12%) 0%
-------------------------- --------- -------- --------- ----------- ------------
Total revenue 17.1 16.6 17.6 3% 6%
Recurring % 89% 91% 91%
Split by product group:
Accounts payable 7.7 6.8 7.3 (5%) 7%
Accounts receivable 9.2 9.6 9.9 8% 3%
Tungsten Network Finance 0.2 0.2 0.4 100% 100%
Group revenue was GBP17.6 million (H1-FY18: GBP17.1 million),
representing an increase of 3% at actual and constant rates of
exchange. In general, there is no seasonality between the two
halves of our financial year and the underlying growth rate
compared to the prior period of H2-FY18 was 6%. Average revenue per
invoice in H1-FY9 was GBP1.91, an increase of 2.7% from GBP1.86 in
H1-FY18.
Recurring revenue
Recurring revenue represents revenue under contract including
subscription, maintenance, transaction and financing fees. This
grew 5% over H1-FY18 and 7% over H2-FY18 and totalled 91% of
H1-FY19 revenue.
One-off revenue represents licence fees for our Workflow
product, set-up fees and professional services fees. These have
remained broadly constant over the last three six-month reporting
periods.
Revenue by product group
Revenue from accounts payable products of GBP7.3 million fell by
5% from H1-FY18 and grew by 7% from H2-FY18. In the first quarter
we closed five new accounts payable contract sales to customers of
Tungsten Network, which added GBP0.5 million of revenue in H1-FY19.
There was a revenue reduction of GBP0.2 million between H1-FY18 and
H1-FY19 from accounts payable customers who are no longer on
Tungsten Network.
The contracts of 44 of Tungsten Network's accounts payable
automation customers are scheduled to renew in FY19. These
customers contributed GBP3.6 million of revenue on aggregate in
FY18. In H1-FY19 pricing was renegotiated for 12 of these customers
at an average increase of 24%, contributing additional revenue of
GBP0.3 million in FY19. A further five customers had contracts that
allowed for renewal at the same price and five customers that
contributed total revenue of GBP0.2 million in FY18 have chosen not
to renew their contracts. There are a further 22 accounts payable
contracts that are scheduled to be renewed in H2-FY19.
Revenues from accounts receivable products of GBP9.9 million
grew by 8% and 3% from H1-FY18 and H2-FY18 respectively. This
revenue accrued from 23,000 of the 300,000 accounts receivable
customers on Tungsten Network, reflecting the free service that we
provide the majority of our Web Form customers. As we progress the
operating review we intend to identify opportunities to monetise a
higher proportion of the users of our services.
Tungsten Network Finance recorded fees of GBP365,000 in H1-FY19
(H1-FY18: GBP167,000; H2-FY18: GBP175,000). This represents an
average of GBP3,600 from 102 users of the service.
Revenue at constant exchange rates
Tungsten Network
Tungsten Network Finance Group
Revenue H1-FY19 GBP17.2m GBP0.4m GBP17.6m
Revenue H1-FY18 GBP16.9m GBP0.2m GBP17.1m
--------------------------------- ----------------- ----------------- ---------
Change at constant exchange rate 1.4% 119.0% 2.5%
Change at actual exchange rate 1.9% 119.0% 3.0%
--------------------------------- ----------------- ----------------- ---------
Operating and capital expenditure:
GBPm GBPm GBPm Variance Variance
H1-FY18 H2-FY18 H1-FY19 to H1-FY18 to H2-FY18
Adjusted operating expenses (20.5) (15.5) (17.2) 16% (11%)
Capital expenditure (2.2) (5.4) (2.0) 9% 63%
----------------------------- --------- -------- --------- ----------- ------------
Total adjusted operating
and capital expenditure 22.7 20.9 19.2 (15%) (8%)
Exceptional items (2.3) (0.1) (0.5) 78% (400%)
The Group spent GBP3.5 million, or 15%, less on adjusted
operating and capital expenditure in H1-FY19 compared to H1-FY18
and GBP1.7 million, or 8%, less than H2-FY18.
H2-FY18 included capital expenditure on an operational
transformation programme which resulted in a significant increase
in capital expenditure in that period. The primary elements of this
plan were completed over H2-FY18 and the early part of H1-FY19,
representing GBP0.5 million of the GBP2.0 million of total H1-FY19
capital expenditure. All contracts associated with these projects
have now ended. The balance of the H1-FY19 capital expenditure
represents investment in current product enhancements, new products
and tangible fixed assets.
In H1-FY19 the Group increased its expenditure in sales,
marketing and product related costs by a total of GBP1.8 million.
The GBP1.7 million increase in H1-FY19 adjusted operating expenses
compared with the previous six months was required to invest in
future revenue growth. The H1-FY19 adjusted operating expenses run
rate is expected to continue through H2-FY19, excluding any
adjustments to the structure of remuneration.
The Group incurred exceptional items of GBP0.5 million in
H1-FY19. These include GBP0.3 million cost of professional fees
associated with the shareholder request for a general meeting and
GBP0.2 million additional onerous contract termination costs.
EBITDA at constant exchange rates
Tungsten Tungsten Corporate Group
Network Network
Finance
---------------------------------------- ----------- ---------- ---------- -----------
Revenue H1-FY19 GBP17.2m GBP0.4m - GBP17.6m
---------------------------------------- ----------- ---------- ---------- -----------
Revenue H1-FY18 GBP16.9m GBP0.2m - GBP17.1m
Change at constant exchange rate 1.4% 119.0% n/a 2.5%
Change at actual exchange rate 1.9% 119.0% n/a 3.0%
---------------------------------------- ----------- ---------- ---------- -----------
Cost of sales H1-FY19 GBP(1.2)m - - GBP(1.2)m
---------------------------------------- ----------- ---------- ---------- -----------
Cost of sales H1-FY18 GBP(1.5)m GBP(0.0)m - GBP(1.5)m
---------------------------------------- ----------- ---------- ---------- -----------
Change at constant exchange rate (25.9)% (100.0)% n/a (25.9)%
Change at actual exchange rate (23.4)% (100.0)% n/a (23.4)%
---------------------------------------- ----------- ---------- ---------- -----------
Adjusted operating expenses(1) H1-FY19 GBP(12.5)m GBP(1.6)m GBP(3.1)m GBP(17.2)m
---------------------------------------- ----------- ---------- ---------- -----------
Adjusted operating expenses(1) H1-FY18 GBP(16.3)m GBP(1.1)m GBP(3.1)m GBP(20.5)m
---------------------------------------- ----------- ---------- ---------- -----------
Change at constant exchange rate (24.7)% 42.1% 1.1% (17.2)%
Change at actual exchange rate (23.5)% 42.1% 1.1% (16.2)%
---------------------------------------- ----------- ---------- ---------- -----------
EBITDA(2) H1-FY19 GBP3.5m GBP(1.2)m GBP(3.1)m GBP(0.8)m
---------------------------------------- ----------- ---------- ---------- -----------
EBITDA(2) H1-FY18 GBP(0.9)m GBP(0.9)m GBP(3.1)m GBP(5.0)m
---------------------------------------- ----------- ---------- ---------- -----------
Change at constant exchange rate (516.5)% 28.3% 1.1% (87.8)%
Change at actual exchange rate (499.8)% 28.3% 1.1% (84.8)%
---------------------------------------- ----------- ---------- ---------- -----------
(1) Adjusted operating expenses excludes cost of sales,
interest, tax, depreciation, amortisation, foreign exchange gain or
loss, share-based payments charges and exceptional items.
(2) EBITDA excludes interest, tax, depreciation, amortisation,
foreign exchange gain or loss, share-based payments charges and
exceptional items.
Loss before tax:
The Group loss before tax was GBP1.1 million (H1-FY18: GBP9.1
million). This includes:
-- Depreciation and amortisation of GBP2.0 million (H1-FY18: GBP1.2 million)
-- Net foreign exchange gain on operating items of GBP2.2
million (H1-FY18: loss GBP0.1 million). The increase is due to the
strengthening of USD currency over the past six months. The
comparative has been reclassified from finance income and finance
costs to operating expenses as they relate to exchange differences
generated on operating transactions
-- Share-based payment expense of GBP0.2 million (H1-FY18: GBP0.4 million); and
-- Net finance income of GBP0.2 million (H1-FY18: net cost of GBP0.1 million).
The total net finance income represented GBP0.4 million of net
gains on the revaluation of intercompany loans to overseas
subsidiaries (H1-FY18: net gain of GBP0.1 million) plus GBP0.2
million of interest expenses and bank charges (H1-FY18: GBP0.2
million).
Loss for the period:
The statutory Group loss for the period was GBP24,000 (H1-FY18:
loss of GBP8.5 million). A tax credit of GBP1.1 million (H1-FY18:
GBP0.6 million) includes a GBP0.6 million research and development
tax credit and a reduction of GBP0.5 million in the deferred tax
liability relating to the acquisition of Tungsten Network.
Cash flow:
Cash and cash equivalents at the end of H1-FY19 were GBP2.0
million (April 2018: GBP6.4 million).
H1-FY19 Cash Flow Group
------------------------------------------- ----------
Net cash outflow from operating activities GBP(2.5)m
Net cash outflow from investing activities GBP(2.0)m
Net cash inflow from financing activities -
Net decrease in cash & cash equivalents GBP(4.5)m
Exchange adjustments GBP0.1m
Cash and cash equivalents at the GBP6.4m
start of the period
Cash and cash equivalents at the GBP2.0m
end of the period
------------------------------------------- ----------
The cash outflow from operating activities was GBP2.5 million
(H1-FY18: GBP7.3 million outflow). This included:
-- An outflow generated from operations of GBP1.5 million (H1-FY18: GBP4.5 million)
-- An inflow from trade and other receivables of GBP0.7 million
(H1-FY18: GBP1.8 million outflow)
-- An outflow from trade and other payables of GBP1.5 million (H1-FY18: GBP0.9 million outflow)
-- Net interest paid of GBP0.2 million (H1-FY18: GBP0.2 million)
-- An inflow from taxation of GBP0.6 million (H1-FY18: nil)
The outflow generated from operations of GBP1.5 million reflects
the EBITDA loss of GBP0.8 million, exceptional items of GBP0.5
million and other balance sheet movements of GBP0.2 million.
The outflow from trade and other payables of GBP1.5 million
reflects the seasonality to the Group's cash bonus payments in July
/ August 2018, and the reduction in third-party creditors following
the end of a number of technology projects. The Group typically
generates a working capital inflow over the second half of each
financial year due to the seasonality of both receipts and
payments.
The cash outflow from investing activities was GBP2.0 million
(H1-FY18 GBP2.2 million). This primarily reflects expenditure on
capitalised software development costs of GBP1.7 million (H1-FY18:
GBP2.0 million).
Loss per share:
The basic loss per share was 0.02p (H1-FY18: 6.73p).
Net assets:
Net assets decreased by GBP2.1 million to GBP119.4 million
during the period (April 2018: GBP121.5 million) due to the Group's
net loss of GBP24,000 and currency translation differences of
GBP2.2 million being offset by a movement in the share-based
payment reserve of GBP0.1 million.
Condensed consolidated income statement
Six months Six months
ended ended
31 October 2018 31 October 2017
Note (unaudited) (unaudited)
GBP'000 GBP'000
Revenue 5 17,575 17,055
Operating expenses (18,813) (26,041)
---------------------------------------- ----- ---------------------------------- ---------------------------------
Operating loss (1,238) (8,986)
EBITDA (752) (4,952)
Depreciation and amortisation 7,8 (1,981) (1,151)
Foreign exchange gain/(loss) 2,151 (156)
Share based payment expense 11 (188) (383)
Exceptional items 6 (468) (2,344)
---------------------------------
Operating loss (1,238) (8,986)
----- ---------------------------------- ---------------------------------
Finance income 12 866 1,242
Finance costs 12 (704) (1,363)
Net finance income / (costs) 162 (121)
---------------------------------------- ----- ---------------------------------- ---------------------------------
Loss before taxation (1,076) (9,107)
Taxation 14 1,052 626
Loss for the period (24) (8,481)
---------------------------------------- ----- ---------------------------------- ---------------------------------
Loss per share attributable
to the equity holders of
the parent during the
period (expressed
in pence per share):
Basic loss per share 13 (0.02) (6.73)
---------------------------------------- ----- ---------------------------------- ---------------------------------
The notes on pages 18 to 26 are an integral part of these
condensed interim financial statements.
Condensed consolidated statement of comprehensive income
Six months ended Six months ended
31 October 2018 31 October 2017
(unaudited) (unaudited)
GBP'000 GBP'000
Loss for the period (24) (8,481)
Other comprehensive (loss)/income:
Items that may be reclassified subsequently to
profit or loss
Currency translation differences (2,180) 106
Total comprehensive loss for the period (2,204) (8,375)
------------------------------------------------------- --------------------------- --------------------------
Items in the statement above are disclosed net of tax.
The notes on pages 18 to 26 are an integral part of these
condensed interim financial statements.
Condensed consolidated statement of financial position
As at
30 April
2018
As at (Audited)
31 October 2018 (restated)
Note (Unaudited) (note 2)
GBP'000 GBP'000
------------------------------------------------------------ ------- --------- --- ----------------- ------------
Assets
Non-current assets
Intangible assets 7 123,693 123,397
Property, plant and equipment 8 2,840 2,646
Trade and other receivables 330 464
--------------------------------------------------------------------- --------- --- ----------------- ------------
Total non-current assets 126,863 126,507
--------------------------------------------------------------------- --------- --- ----------------- ------------
Current assets
Trade and other receivables 7,904 8,214
Cash and cash equivalents 2,029 6,418
--------------------------------------------------------------------- --------- --- ----------------- ------------
Total current assets 9,933 14,632
--------------------------------------------------------------------- --------- --- ----------------- ------------
Total assets 136,796 141,139
--------------------------------------------------------------------- --------- --- ----------------- ------------
Capital and reserves attributable to the equity shareholders of the parent
Share capital 9 553 553
Share premium 9 188,802 188,794
Merger reserve 28,035 28,035
Shares to be issued 3,760 3,760
Share-based payment reserve 6,588 6,442
Other reserve (9,721) (7,541)
Accumulated losses (98,606) (98,582)
--------------------------------------------------------------------- --- ----------------- ------------
Total equity 119,411 121,461
--------------------------------------------------------------------- --------- --- ----------------- ------------
Non-current liabilities
Deferred taxation 1,692 2,110
Provisions 10 1,155 1,459
Other payables 250 250
Total non-current liabilities 3,097 3,819
--------------------------------------------------------------------- --------- --- ----------------- ------------
Current liabilities
Trade and other payables 7,590 8,607
Provisions 10 633 759
Deferred income 6,065 6,493
--------------------------------------------------------------------- --------- --- ----------------- ------------
Total current liabilities 14,288 15,859
--------------------------------------------------------------------- --------- --- ----------------- ------------
Total liabilities 17,385 19,678
Total equity and liabilities 136,796 141,139
--------------------------------------------------------------------- --------- --- ----------------- ------------
The notes on pages 18 to 26 are an integral part of these
condensed interim financial statements.
Condensed consolidated statement of changes in equity
Share
Shares based
Share Share Merger to be payment Other Accumulated Total
(Unaudited) capital premium reserve issued reserve reserve losses equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance as
at 1 May
2018 553 188,794 28,035 3,760 6,442 (7,541) (98,582) 121,461
-------------- ----------- ---------------- -------------- ------------ ---------------- ----------------- ----------------------- --------------
Currency
translation
differences - - - - - (2,180) - (2,180)
Profit for
the period - - - - - - (24) (24)
-------------- ----------- ---------------- -------------- ------------ ---------------- ----------------- ----------------------- --------------
Balance as at
31 October
2018
excluding
transaction
with owners - - - - - (2,180) (24) (2,204)
-------------- ----------- ---------------- -------------- ------------ ---------------- ----------------- ----------------------- --------------
Transaction
with owners
Share issued
during
the year - 8 - - - - - 8
Share based
payment
expense - - - - 146 - - 146
-------------- ----------- ---------------- -------------- ------------ ---------------- ----------------- ----------------------- --------------
Transactions
with owners - 8 - - 146 - - 154
Balance as at
31 October
2018 553 188,802 28,035 3,760 6,588 (9,721) (98,606) 119,411
-------------- ----------- ---------------- -------------- ------------ ---------------- ----------------- ----------------------- --------------
Share
Shares based
Share Share Merger to be payment Other Accumulated Total
(Unaudited) capital premium reserve issued reserve reserve losses equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance as
at 1 May
2017 553 188,794 28,035 3,760 5,815 (8,964) (86,663) 131,330
-------------- ----------- ---------------- -------------- ------------ ---------------- ----------------- ----------------------- --------
Currency
translation
differences - - - - - 106 - 106
Loss for the
period - - - - - - (8,481) (8,481)
-------------- ----------- ---------------- -------------- ------------ ---------------- ----------------- ----------------------- --------
Balance as at
31 October
2017
excluding
transaction
with owners - - - - - 106 (8,481) (8,375)
-------------- ----------- ---------------- -------------- ------------ ---------------- ----------------- ----------------------- --------
Transaction
with owners
Share based
payment
expense - - - - 369 - - 369
-------------- ----------- ---------------- -------------- ------------ ---------------- ----------------- ----------------------- --------
Transaction
with owners - - - - 369 - - 369
Balance as at
31 October
2017 553 188,794 28,035 3,760 6,184 (8,858) (95,144) 123,324
-------------- ----------- ---------------- -------------- ------------ ---------------- ----------------- ----------------------- --------
The notes on pages 18 to 26 are an integral part of these
condensed interim financial statements.
Condensed consolidated statement of cash flows
Six months ended
Six months ended 31 October
31 October 2018 2017
Note (unaudited) (unaudited)
GBP'000 GBP'000
Cash flows from operating activities
Loss before taxation (1,076) (9,107)
Adjustments for:
Depreciation and amortisation 7,8 1,981 1,150
(Increase)/decrease in provision of trade receivables (272) 496
Finance costs 12 704 1,363
Finance income 12 (866) (1,242)
Foreign exchange (gain)/loss (2,151) 156
Share based payment expense 11 188 383
Provision for onerous contracts - 2,344
------------------------------------------------------- ----- ------------------------- -------------------------
Cash used in operations (1,492) (4,457)
Changes in working capital:
Decrease/(Increase) in trade and other receivables 714 (1,763)
Increase in trade and other payables (1,488) (899)
Provision settlement for onerous contracts 10 (592) -
Net interest paid (247) (193)
Net tax refund 14 621 -
Net cash outflows from operating activities (2,484) (7,312)
------------------------------------------------------- ----- ------------------------- -------------------------
Cash flows from investing activities
Capitalisation of software development costs 7 (1,699) (1,969)
Purchases of other intangibles 7 (9) (35)
Purchases of property, plant and equipment 8 (295) (168)
Net cash outflows from investing activities (2,003) (2,172)
------------------------------------------------------- ----- ------------------------- -------------------------
Cash flows from financing activities
Decrease in invoice receivables 2 24
Proceeds from issues of shares 8 -
Net cash inflow from financing activities 10 24
------------------------------------------------------- ----- ------------------------- -------------------------
Net decrease in cash and cash equivalents (4,477) (9,460)
Cash and cash equivalents at start of the period 6,418 17,498
Exchange adjustments 88 (73)
Cash and cash equivalents at the end of the period 2,029 7,965
------------------------------------------------------- ----- ------------------------- -------------------------
The notes on pages 18 to 26 are an integral part of these
condensed interim financial statements.
Notes to the condensed consolidated financial statements
1. General information
Tungsten Corporation plc (the Company) and its subsidiaries
(together, the Group) is a global e-invoicing network that offers
trade finance and spend analytics.
The Company is a public limited company, which is incorporated
and domiciled in the UK. The address of its registered office is
Pountney Hill House, 6 Laurence Pountney Hill, London EC4R 0BL,
UK.
2. Basis of preparation
These condensed consolidated interim financial statements of
Tungsten Corporation plc for the six months ended 31 October 2018
("the interim financial statements") comprise the company and its
subsidiaries (together referred to as the "Group").
The condensed consolidated interim financial statements for the
six months ended 31 October 2018 were approved by the Board for
issue on 13 December 2018.
The condensed consolidated interim financial statements for the
six months ended 31 October 2018 do not constitute the Group's
statutory accounts for the year ended 30 April 2018, which were
approved by the Board of Directors on 23 July 2018 and delivered to
the Registrar of Companies. The report of the auditors on those
accounts was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under section 498 of
the Companies Act 2016.
The condensed consolidated interim financial statements for the
six months ended 31 October 2018 have been prepared in accordance
with International Accounting Standard ('IAS') 34 'Interim
Financial Reporting' as adopted by the European Union ('EU'). These
interim financial statements should be read in conjunction with the
Group's Annual Report and Accounts for the year ended 30 April
2018, which have been prepared in accordance with International
Financial Reporting Standards as adopted by the European Union, the
Companies Act 2006 that applies to companies reporting under IFRS,
and IFRS Interpretations Committee (IFRS IC).
The condensed consolidated interim financial statements have
been prepared applying the accounting policies, methods of
computation and presentation consistent with those described in the
Annual Report and accounts for the year ended 30 April 2018.
Comparatives
Comparative figures have been reclassified to conform with the
current six months presentation so that they appropriately reflect
the nature of the balances and transactions.
In particular foreign exchange gains of GBP0.09 million and
foreign exchange losses of GBP0.25 million have been reclassified
respectively from finance income and finance expenses to operating
expenses as they relate to exchange differences generated on
operating transactions.
Adjusted Measure of Performance
The Group considers EBITDA, which is defined as operating profit
or loss before interest, tax, depreciation and amortisation,
foreign exchange gain or loss from operations, share based payment
expense and exceptional items as the most appropriate measure of
the Group's underlying performance.
Exceptional items
Items which are both material and considered by the Directors to
be unusual in nature and size are separately disclosed on the face
of the condensed consolidated income statement.
New standards, amendments and interpretations adopted
The accounting policies adopted are consistent with those of the
previous financial year except as described below.
The group has changed its accounting policies and has made
material retrospective adjustments in the statement of financial
position as a result of adopting IFRS 15 'Revenue from Contracts
with Customers'. There is no material impact to the income
statement.
The statement of financial position has been adjusted by the
requirement to net-down deferred income against trade receivables
for amounts that have been invoiced and where services have not yet
been provided and amounts are not yet due.
The following table summarises the impact of adopting IFRS 15 on
the Group's consolidated statement of financial position as at 30
April 2018.
As at As at
30 April 2018 30 April
original IFRS 15 2018
Balance Sheet presentation Adjustment Restated
(extract) GBP'000 GBP'000 GBP'000
--------------------- ------------------ -------------------------- -------------
Current assets
Trade receivable 7,458 (2,108) 5,350
Current liabilities
Deferred income 8,601 (2,108) 6,493
IFRS 9 'Financial Instruments'. The classification and
measurement basis for the Group's financial assets and liabilities
is unchanged by adoption of IFRS 9. There was no impact on the
group's accounting policies and this did not require retrospective
adjustments.
Standards issued but not yet applied
IFRS 16 'Leases' is effective and will be applied for the
financial year beginning on 1 May 2019 ("FY20"). The interim
results for FY20 will be IFRS 16 compliant and the first annual
report published in accordance with IFRS 16 will be the 30 April
2020 report.
On the adoption of IFRS 16, lease agreements will give rise to
both a right-of-use asset and a lease liability for future lease
payables. The lease liability will be initially measured based on
the present value of lease payments to be made, excluding any
contingent rentals, over the lease term. The lease term includes
any extension options reasonably certain of being exercised. The
right-of-use asset will be initially measured at the value of the
lease liability plus any initial direct costs, less any impairment
provisions and will be depreciated on a straight-line basis over
the life of the lease. Interest will be recognised on the lease
liability as the discount unwinds, resulting in a higher interest
expense in the earlier years of the lease term. The total expense
recognised in the Income Statement over the life of the lease will
be unaffected by the new standard. However, IFRS 16 will result in
the timing of lease expense recognition being
accelerated for leases which would be currently accounted for as
operating leases.
The standard is mandatory for first interim periods within
annual reporting periods beginning on or after 1 January 2019. The
group does not intend to adopt the standard before its effective
date.
3. Critical accounting estimates and judgements
The preparation of interim financial statements requires
management to make judgements, estimates, and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed interim financial statements, the
significant judgements made by management in applying the group's
accounting policies and the key sources of estimation uncertainty
were the same as those that applied to the consolidated financial
statements for the year ended 30 April 2018.
Going Concern
The Group's going concern assessment is based on forecasts and
projections of anticipated trading performance. The assumptions
applied are subjective and management applies judgement in
estimating the profitability, timing and value of underlying cash
flows.
4. Financial Risk Management
The Group's activities expose it to a variety of financial
risks, predominantly credit, liquidity and foreign currency
risk.
Risk management is carried out by the Board of Directors. The
interim financial statements do not include all financial risk
management information and disclosures required in the annual
financial statements; they should be read in conjunction with the
group's annual financial statements as at 30 April 2018. There have
been no changes in the risk management department or in any risk
management policies since the year end.
5. Segment information
Management has determined the operating segments based on the
operating reports reviewed by the Board of Directors that are used
to assess both performance and strategic decisions. Management have
identified that the Board of Directors are the Chief Operating
Decision Maker (CODM).
The Board of Directors review the financial information for
three segments: Tungsten Network (which includes the e-invoicing
and spend analytics business of Tungsten Network), Tungsten Network
Finance (which includes the supply chain finance business), and
Tungsten Corporate (which includes overheads and general corporate
costs). Intersegment revenue from management fees and other
intersegment charges are eliminated.
Six months ended 31 October 2018
Tungsten Tungsten Network
Network Finance Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ -------------- ------------------ -------------------- -------------------
Revenue 17,210 365 - 17,575
------------------------------------- -------------- ------------------ -------------------- -------------------
Segment revenue 17,210 365 - 17,575
EBITDA - excluding non-cash share
based payment 3,599 (1,203) (3,148) (752)
EBITDA - including non-cash share
based payment 2,878 (1,221) (2,597) (940)
Depreciation and amortisation (1,981)
Foreign exchange gain 2,151
Share based payment income (188)
Exceptional items (83) (385) (468)
Finance income 866
Finance costs (704)
------------------------------------- -------------- ------------------ -------------------- -------------------
Loss before taxation (1,076)
Income tax credit 1,052
------------------------------------- -------------- ------------------ -------------------- -------------------
Loss for the period (24)
------------------------------------- -------------- ------------------ -------------------- -------------------
Capital expenditure 2,004 - - 2,004
Total assets 132,834 257 3,705 136,796
Total liabilities 11,051 572 5,762 17,385
------------------------------------- -------------- ------------------ -------------------- -------------------
Six months ended 31 October 2017
Tungsten Tungsten Network
Network Finance Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------------- ------------------ -------------------- -----------------
Revenue 16,888 167 - 17,055
--------------------------------------- -------------- ------------------ -------------------- -----------------
Segment revenue 16,888 167 - 17,055
EBITDA - excluding non-cash share
based payment (901) (937) (3,114) (4,952)
EBITDA - including non-cash share
based payment (901) (937) (3,497) (5,335)
Depreciation and amortisation (1,151)
Foreign exchange loss (156)
Share based payment charge (383)
Exceptional items (2,136) (186) (22) (2,344)
Finance income 1,242
Finance costs (1,363)
--------------------------------------- -------------- ------------------ -------------------- -----------------
Loss before taxation (9,107)
Income tax credit 626
--------------------------------------- -------------- ------------------ -------------------- -----------------
Loss for the period (8,481)
--------------------------------------- -------------- ------------------ -------------------- -----------------
Capital expenditure 1,940 - 232 2,172
Total assets 135,487 4,325 4,193 144,005
Total liabilities 16,035 385 4,261 20,681
--------------------------------------- -------------- ------------------ -------------------- -----------------
6. Exceptional items
Six months ended Six months ended
31 October 2018 31 October 2017
(unaudited) (unaudited)
GBP'000 GBP'000
Provision for onerous contracts 162 1,974
Restructuring costs - 370
Shareholder action costs 306 -
Total exceptional items 468 2,344
--------------------------------------- ------------------ -------------------
The Group incurred a number of exceptional items during this
period.
Provision for onerous contracts includes a final settlement for
technology contract termination costs of GBP0.2 million.
Shareholder action costs of GBP0.3 million were incurred in respect
of professional advice received following a requisition request for
a General Meeting. The H1-FY18 exceptional items mainly related to
technology contract termination costs of GBP1.2 million, onerous
lease provisions of GBP0.7 million which reflecting future amounts
owed to a property now vacated in the US and GBP0.4 million
restructuring costs due to contract termination and other
redundancy costs.
7. Intangible assets
Software
Customer development under
Goodwill relationships IT platform Software construction Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ---------------- ------------------------ ---------------- --------------- ---------------------- ------------------
Cost
Balance at 1 May
2018 101,848 11,109 7,014 2,960 8,556 131,487
Additions - - - 9 1,699 1,708
Reclassification - - - 7,367 (7,367) -
Exchange
differences 240 8 206 13 - 467
Balance at 31
October 2018 102,088 11,117 7,220 10,349 2,888 133,662
-------------------- ---------------- ------------------------ ---------------- --------------- ---------------------- ------------------
Accumulated
amortization
Balance at 1 May
2018 - 2,575 4,760 755 - 8,090
Charge for the
period - 289 598 822 - 1,709
Exchange
differences - 6 156 8 - 170
Balance at 31
October 2018 - 2,870 5,514 1,585 - 9,969
-------------------- ---------------- ------------------------ ---------------- --------------- ---------------------- ------------------
Net book value as
at 31 October 2018 102,088 8,247 1,706 8,764 2,888 123,693
Net book value as
at 30 April 2018 101,848 8,534 2,254 2,205 8,556 123,397
Pursuant to IAS 36, management is required to perform an annual
impairment review of the goodwill held in the Group. An impairment
assessment was performed as at 30 April 2018 and management is not
required to perform another impairment at the half year unless
there is considered to be a trigger event. Management has
considered whether any impairment indicators exist to trigger a
review in relation to the goodwill of the Tungsten Network cash
generating unit (CGU) and has concluded that there are no such
triggers.
The Group has estimated the recoverable amount of the Tungsten
Network CGU using a value-in-use model by projecting cash flows for
the next five years together with a terminal value using a growth
rate. The five-year plan used in the impairment models are based on
Board approved budgets and management's past experience and future
expectations of performance. The cash flow projections are based on
the following key assumptions:
-- Revenue growth from accounts payable and accounts receivable
customers using the Tungsten Network, including Tungsten Network
Workflow and Tungsten Network Analytics at a compound annual growth
rate of 9%
-- Pre-tax discount rate of 12.5% (FY2018: 11.75%), being based
on the Group's weighted average cost of capital (WACC)
-- Growth rate used in the annuity of 2.0% (FY2018: 2.0%)
Based on the above assumptions, Tungsten Network exceeded the
carrying value of the CGU by GBP2.0 million (FY2018: GBP68.3
million). The recoverable amount of the Tungsten Network CGU was
particularly sensitive to changes in the compound annual revenue
growth rate and discount rate. Assuming that there is a reduction
in the compound annual growth rate to 11% or the WACC increased to
12.8% the recoverable amount would equal the carrying value of the
CGU.
8. Property, plant and equipment
Leasehold Fixtures Computer
improvements and fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------------------------------- --------------- ----------- --------
Cost
Balance at 1 May 2018 3,194 264 599 4,057
Additions 336 6 113 455
Exchange differences 5 8 17 30
Balance at 31 October 2018 3,535 278 729 4,542
-------------------------------- --------------------------------- --------------- ----------- --------
Accumulated depreciation
Balance at 1 May 2018 914 126 371 1,411
Charge for the period 160 27 85 272
Exchange differences 2 3 14 19
Balance at 31 October 2018 1,076 156 470 1,702
-------------------------------- --------------------------------- --------------- ----------- --------
Net Book Value
At 31 October 2018 2,459 122 259 2,840
At 30 April 2018 2,280 138 228 2,646
9. Share capital and share premium
Ordinary Share Share
shares capital Premium
----------------------------
Issued and Nominal
fully paid Number value GBP'000 GBP'000
------------ -------------------------------- ---------------------------- -------------------- ---------------
Balance as
at 1 May
2017 126,069,397 GBP0.004386 553 188,794
Shares
issued
during the
year - - - -
----------------------------
Balance as
at 30 April
2018 126,069,397 GBP0.004386 553 188,794
Shares
issued
during the
period 18,750 GBP0.004386 - 8
Balance as
at 31
October
2018 126,088,147 GBP0.004386 553 188,802
------------- -------------------------------- ---------------------------- -------------------- ---------------
10. Provisions
Leasehold property dilapidations Onerous contracts Total
GBP'000 GBP'000 GBP'000
-------------------------- --------------------------------- ------------------ ---------
As at 1 May 2018 1,204 1,014 2,218
Additions 160 - 160
Utilised during the year - (621) (621)
Exchange differences 2 29 31
---------------------------- --------------------------------- ------------------ ---------
As at 31 October 2018 1,366 422 1,788
---------------------------- --------------------------------- ------------------ ---------
As at As at
31 October 2018 30 April 2018
GBP'000 GBP'000
------------------------------- ----------------- ---------------
Analysis of total provisions:
Non-current 1,155 1,459
Current 633 759
---------------------------------- ----------------- ---------------
Total 1,788 2,218
---------------------------------- ----------------- ---------------
11. Share based payments
Share based payments expenses of GBP188,000 have been recognised
in the consolidated income statement for the six months ended 31
October 2018 (31 October 2017: GBP383,000). The table below sets
out the movement in shares granted under the Company share
schemes:
Employee Save as
Founder Matched you earn UK US
Number Securities Shares shares Scheme Plan SARs Total
As at 1
May
2018 3,760,000 184,083 3,600 2,750,749 4,392,162 195,419 11,286,013
Granted
during
the
period - - - 838,414 735,250 93,579 1,667,243
Lapsed
during
the
period - (38,028) (3,600) (174,766) (629,620) (18,250) (864,264)
As at 31
October
2018 3,760,000 146,055 - 3,414,397 4,497,792 270,748 12,088,992
--------- ----------------------- ------------------ -------------- ------------------ ------------------ ---------------- ---------------------
12. Finance Income and Costs
Six months ended Six months ended
31 October 2018 31 October 2017
(unaudited) (unaudited)
GBP'000 GBP'000
Finance income
Interest income on short-term deposits - 110
Foreign exchange gains on financing activities 866 1,132
Total finance income 866 1,242
------------------------------------------------------- ----------------------- ---------------------
Finance costs
Interest expense and bank charges (247) (303)
Foreign exchange losses on financing activities (457) (1,060)
Total finance costs (704) (1,363)
------------------------------------------------------- ----------------------- ---------------------
Net finance income / (costs) 162 (121)
------------------------------------------------------- ----------------------- ---------------------
13. Loss per share
Basic loss per share is calculated by dividing the loss
attributable to the ordinary shareholders by the weighted average
number of ordinary shares in issue during the period.
Loss per share attributable to the equity holders of the parent
during the period:
Six months ended Six months ended
31 October 2018 31 October 2017
Profit Shares EPS Loss Shares EPS
GBP'000 '000 P GBP'000 '000 P
Basic loss per share (24) 126,088 (0.02) (8,481) 126,069 (6.73)
---------------------- -------- ------------------ --------------- -------- -------- -------
14. Taxation
During the period ended 31 October 2018, a tax credit of GBP1.1
million (31 October 2017: GBP0.6 million) includes a GBP0.6 million
research and development tax credit and a reduction of GBP0.5
million in the deferred tax liability relating to the acquisition
of Tungsten Network.
15. Related-party transactions
The Group entered into the following transactions with related
parties in the ordinary course of business:
Six months ended Six months ended
31 October 2018 31 October 2017
GBP'000 GBP'000
---------------------- ----------------- ---------------------
Purchase of services 14 14
------------------------- ----------------- ---------------------
Richard Hurwitz held the position of Director of The Witz
Company (USA). During the period ended 31 October 2018, this
includes the services received from The Witz Company (USA)
totalling GBP13,000 (31 October 2017: GBP13,000). Other
related-party transactions totalled GBP1,000 (H1-FY18:
GBP1,000).
Transactions between Group entities principally relate to
intercompany financing arrangements, which are eliminated on
consolidation.
16. Responsibility Statement
We confirm that to the best of our knowledge:
(a) The interim financial statements have been prepared in
accordance with IAS 34 'Interim Financial Reporting'
(b) The interim financial statements include a fair review of
the information required by DTR 4.2.7R (identification of important
events during the first six months and their impact on the
condensed set of financial statements and description of principal
risks and uncertainties for the remaining six months of the
year)
(c) The interim financial statements include a fair review of
the information required by DTR 4.2.8R (disclosure of related
parties' transactions and charges therein)
By order of the Board
Richard Hurwitz, Chief Executive Officer
David Williams, Chief Finance Officer
Independent review report to Tungsten Corporation plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Tungsten Corporation plc's condensed
consolidated interim financial statements (the "interim financial
statements") in the interim financial report of Tungsten
Corporation plc for the 6 month period ended 31 October 2018. Based
on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in
all material respects, in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the AIM Rules for Companies.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated statement of financial position as at 31 October 2018;
-- the condensed consolidated income statement and condensed
consolidated statement of comprehensive income for the period then
ended;
-- the condensed consolidated statement of cash flows for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim
financial report have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the AIM Rules for
Companies.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim financial report, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the interim
financial report in accordance with the AIM Rules for Companies
which require that the financial information must be presented and
prepared in a form consistent with that which will be adopted in
the company's annual financial statements.
Our responsibility is to express a conclusion on the interim
financial statements in the interim financial report based on our
review. This report, including the conclusion, has been prepared
for and only for the company for the purpose of complying with the
AIM Rules for Companies and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
13 December 2018
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
IR DXBDDDBBBGID
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December 13, 2018 02:00 ET (07:00 GMT)
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