TIDMTUNG
RNS Number : 9352Q
Tungsten Corporation PLC
25 February 2019
TUNGSTEN CORPORATION PLC
("Tungsten", the "Company" or "Group")
25 February 2019
TRADING UPDATE FOR THE NINE MONTHSED 31 JANUARY 2019
November 2018 to January 2019 ("Q3-FY19") Unaudited Financial
Highlights
-- Revenue increase of 13.9% from GBP8.2 million in Q3-FY18 to GBP9.3m in Q3-FY19
-- Positive EBITDA(1) of GBP1.0 million generated in Q3-FY19
compared with an EBITDA loss of GBP1.8 million in Q3-FY18
-- Positive EBITDA(1) GBP0.4 million on an underlying basis in
Q3-FY19, excluding bonus release relating to prior quarters
-- Gross margin of 96.2%, a 390 basis point improvement from 92.3% in Q3-FY18
-- GBP0.5 million net cash inflow in Q3-FY19 (Q3-FY18: GBP4.2 million outflow)
-- Liquidity improving, with net cash of GBP2.5 million at 31
January 2019 (31 October 2018: GBP2.0 million), excluding GBP4.0
million HSBC facility
May 2018 to January 2019 ("YTD Q3-FY19") Unaudited Financial
Highlights
-- Revenue increase of 7% YTD Q3-FY19 to GBP26.9 million (YTD Q3-FY18: GBP25.2 million)
-- GBP7.0 million improvement in nine-month YTD EBITDA(1) from
GBP6.8 million loss YTD Q3-FY18 to GBP0.2 million profit YTD
Q3-FY19
-- Gross margin of 94.5%, a 280 basis point improvement from 91.7% in YTD Q3-FY18
-- Net cash outflow reduced by GBP9.9 million from a GBP13.8
million outflow YTD Q3-FY18 to a GBP3.9 million outflow YTD
Q3-FY19
Operational Highlights
-- 21 contracts now renewed YTD Q3-FY19, of which 16 renewed at mean 21% price rate rise
-- Tungsten Network now an approved Italian tax authority
intermediary and beneficiary of new regulation mandating government
validation of all Italian domestic B2B invoices; incremental
Italian revenue of GBP0.5 million in FY19
-- 0.3 million transactions added YTD Q3-FY19; last 12 months
(LTM) total transaction volume of 18.0 million
-- Average revenue per transaction increased to GBP1.97 in LTM
to Q3-FY19 (LTM to Q3-FY18: GBP1.89)
-- Adjusted operating expenses(2) reduced by 16% to GBP25.2
million (YTD Q3-FY18: GBP29.9 million)
-- In January 2019, TNF average outstandings of GBP68.9 million (October 2018: GBP68.5 million)
(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.
Tony Bromovsky, Chairman
"Today's Q3 results demonstrate a business that is strong,
growing and is now consistently generating a monthly EBITDA
profit.
"Through the Board's Operating Review we have already
implemented changes to the Group's remuneration and changed key
areas of focus in the business. As we finalise the Operating Review
and implement its recommendations, we are confident of successfully
closing FY19 and delivering a step-change in performance over
FY20.
"Our process to appoint a new CEO has identified some
exceptional candidates, and we expect to announce an appointment
next month".
Operating Review
Tungsten's Operating Review, commenced in the autumn of 2018,
has started to generate improved results even before its final
conclusion and full execution of its recommendations. The Operating
Review is intended to accelerate revenue and profit growth rates
and encompasses four workstreams: sales and marketing; products,
operations and cost base. Each of these are interlinked and the
work to date has identified a number of growth inhibitors and how
they can be addressed.
The review has involved significant work within Tungsten and we
have also employed a leading market research consultancy who
interviewed current and prospective customers to help assess
Tungsten's competitive positioning. Their conclusions are that we
remain one of the premier networks for both purchase order (PO) and
invoice delivery, we have competitive accounts payable (AP)
e-Invoicing and accounts receivable (AR) e-Invoicing solutions, we
are perceived as having strengths in tax compliance and supplier
satisfaction and we are perceived as having a good price/value
equation for our offerings.
Sales and marketing
The review has identified areas to address where appropriate
disciplines have not been enforced. Some of these have now been
addressed, with the remainder now in focus. The review has also
identified opportunities to grow sales more effectively. In
particular, as more governments follow the Italian example
mandating e-Invoicing we intend to focus more on emphasising our
tax compliance capabilities, pursue more opportunities in
collaboration with specialist procurement vendors and expand and
strengthen our AR e-Invoicing solutions.
Products
Tungsten provides a wide range of AR and AP automation services.
We intend to make more of our range of services, to expand what we
do with our current customers and support new customer acquisition.
This includes expanding our current AR e-Invoicing solutions, PO
services and invoice status services, and adding complementary
services such as Mastercard Track. Tungsten has for some time been
taking steps to broaden the product range and changes now
implemented have improved our current products and the product
pipeline.
We are reviewing opportunities to accelerate the growth and move
to profitability in our Tungsten Network Finance business. This
involves assessing a number of options, which include strategic
operating partnerships, external direct investment or a sale of a
majority stake in that part of the business, while still offering a
full range of trade finance solutions to our customers.
Operations
Over the next year we expect to make significant progress in a
number of areas where technology and process improvements can
improve our customer experience and our operating efficiency. We
have commenced projects to overhaul our customer portal, automate
much of our customer support activities, enhance our technologies
to connect with customers and integrate our customer billing
activities with our customer relationship management. Each of these
initiatives will support increased customer onboarding and
retention and reduce the cost of servicing these customers.
Cost base
While Tungsten has achieved significant reductions in its cost
base over the past three years, we continue to identify further
opportunities to right-size our expenses. This includes reviewing
our global office footprint, identifying further opportunities to
offshore and outsource internal functions and reduce headcount
following delivery of our operational automation projects.
The Board continues to consult widely with shareholders on
proposals to change the Group's remuneration structures to align
with best practice under the QCA Code. A wide range of feedback has
been received, and the Board intends to implement changes to
remuneration prior to the end of the financial year. This will
include a significant reduction in cash bonus payments in favour of
the issuance of free deferred shares and the introduction of an
LTIP scheme with clearly defined performance conditions.
The Board expects to complete the Operating Review by April 2019
and thereafter implement the recommended outcomes in close
collaboration with the new CEO.
Trading Update
Revenue and sales progress
Unaudited revenue of GBP9.3 million in Q3-FY19 was 13.9% higher
than the same period in the prior year (12.6% on a constant
currency basis). Revenue in the comparative quarter (Q3-FY18) of
GBP8.2 million represents a low base on which to compare the
Q3-FY19 revenue performance. However, revenue growth of 3.9%
compared to Q2-FY19 (Q2-FY19: GBP8.9 million) reflects the fourth
consecutive quarter of revenue growth.
Quarterly revenue of GBP9.3 million includes:
-- Recurring revenue of GBP8.4 million (Q2-FY19: GBP8.1 million)
-- An increase of GBP0.2 million from new products and services
sold to Accounts Payable automation customers
-- An increase of GBP0.1 million from transaction fees
-- One-off fees of GBP0.9 million (Q2-FY19: GBP0.9 million)
-- GBP0.2 million of this growth was from non-recurring set-up
fees, primarily for customers in Italy
-- A further GBP0.1 million of the growth was from non-recurring
set-up fees relating to new products
-- Compares with normal one-off revenues of approximately GBP0.6 million per quarter
Gross margin, adjusted operating expenses and EBITDA
Gross margin of 96.2% reflected a 390 basis point improvement
from 92.3% in Q3-FY18. Gross margin fluctuates depending on the
sales mix. In particular, the people cost delivering professional
services revenue is included within adjusted operating expenses and
not cost of sales.
Adjusted operating expenses of GBP8.0 million include a GBP0.7
million benefit from the release of the Group's bonus provision,
reflecting the Group's revised remuneration plans. Excluding this
GBP0.7 million benefit, adjusted operating expenses were reduced by
GBP0.7 million (7%) from the same period in the prior year
(Q3-FY18: GBP9.4 million).
Total adjusted operating and capital expenses of GBP27.8 million
in YTD Q3-FY19 (GBP8.6 million in Q3-FY19) were GBP5.7 million
(17%) lower than YTD Q3-FY18.
Tungsten generated a GBP1.0 million positive EBITDA in Q3-FY19
(GBP0.4 million on an underlying basis, which excludes bonus
provision releases relating to prior quarters). This compared with
an EBITDA loss of GBP1.8 million in Q3-FY18. YTD Q3-FY19 EBITDA of
GBP0.2 million compared to a loss of GBP6.8 million in YTD
Q3-FY18.
The Q3-FY19 underlying EBITDA profit of GBP0.4 million includes
an EBITDA loss of GBP0.3 million directly attributable to Tungsten
Network Finance (TNF). The Group excluding TNF generated an EBITDA
profit for the quarter of GBP0.7 million.
Cash flow
GBPm Q1-FY18 Q2-FY18 Q3-FY18 Q4-FY18 Q1-FY19 Q2-FY19 Q3-FY19
Cash movement(1) (4.0) (5.6) (4.2) (1.6) (2.4) (2.0) +0.5
-------- -------- -------- -------- -------- -------- --------
Ending net cash
balance(1) 17.8 12.2 8.0 6.4 4.0 2.0 2.5
-------- -------- -------- -------- -------- -------- --------
(1) Includes invoice receivables (TNF invoices that were
self-financed by Tungsten), considered as near-cash by
Management
Net cash at the end of Q3-FY19 was GBP2.5 million. This includes
GBP3.5 million of cash, offset by GBP1.0 million of drawings under
our HSBC facility. The quarterly cash movement and quarter-end cash
balance since Q1-FY18 is summarised below:
A net cash inflow of GBP0.5 million over Q3-FY19 represents the
first quarterly inflow that Tungsten has ever achieved (excluding
where cash grew from the sale of Tungsten Bank). This significant
improvement reflects the underlying EBITDA of GBP0.4 million,
GBP0.2 million of other operating cash inflows and a working
capital inflow of GBP0.5 million, offset by capital expenditure of
GBP0.6 million.
Included within the Q3-FY19 cash flow was the benefit of a
seasonal working capital inflow of GBP1.0 million as a result of
the collection of annual maintenance fees from Workflow customers.
Normalising for this amount would result in a cash outflow of
GBP0.5 million. Tungsten expects to end FY19 with net cash of
approximately GBP2.0 million.
Tungsten intends to release an unaudited pre-close trading
update for FY19 on 23 May 2019. Tungsten's final results for FY19
are scheduled for release on 21 July 2019.
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.
This announcement contains inside information for the purposes
of the Market Abuse Regulation No. 596/2014. Upon the publication
of this announcement, this inside information is now considered to
be in the public domain.
For further information please contact:
Tungsten Corporation plc
Tony Bromovsky, Chairman
David Williams, Chief Financial Officer +44 20 7280 7713
Panmure Gordon (Nominated Adviser)
Dominic Morley +44 20 7886 2500
Canaccord Genuity Limited (Financial Adviser
and Broker)
Simon Bridges / Emma Gabriel +44 20 7523 8000
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.
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END
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