TIDMTUNG
RNS Number : 1979G
Tungsten Corporation PLC
22 July 2019
TUNGSTEN CORPORATION PLC
("Tungsten", the "Company" or "Group")
22 July 2019
RESULTS FOR FINANCIAL YEARED 30 APRIL 2019
GBPm(1) Group results Group results
(including TNF) (excluding TNF)
(2)
FY19 FY18 FY19 FY18
----------------------------- --------- -------- --------- --------
Revenue 36.0 33.7 35.4 33.3
Adjusted operating expenses
(3) (33.5) (36.0) (31.0) (34.3)
EBITDA (4) 0.6 (4.6) 2.5 (3.3)
EBITDA margin (5) 2% (14%) 7% (10%)
Operating loss (5.2) (12.1) (2.6) (10.5)
Loss for the year (3.4) (11.9) (0.6) (10.1)
Cash - net 2.8 6.4 2.6 5.8
Transaction volumes
(6) 18.2 17.7 18.2 17.7
----------------------------- --------- -------- --------- --------
Financial Highlights (7)
-- First annual EBITDA profit of GBP2.5 million in FY19 (FY18: GBP(3.3) million EBITDA loss)
-- Revenue growth of 6.1% to GBP35.4 million in FY19 (FY18: 7.1%)
-- Recurring and repeatable revenue (8) contributed 92% of Group revenue (FY18: 90%)
-- Reduction in adjusted operating expenses by 10% to GBP31.0 million (FY18: GBP34.3 million)
-- Loss for the year GBP0.6 million (FY18: GBP10.1 million)
-- Cash generated in H2-FY19 of GBP0.8 million (net of RCF
drawdown) with net cash of GBP2.8 million at 30 April 2019 (31
October 2018: GBP2.0 million). GBP6.8 million total liquidity
available
-- Including TNF, EBITDA profit of GBP0.6 million, revenue
growth of 7.1%, adjusted operating expenses reduced by GBP2.5
million and the loss for the year was GBP3.4 million
Operational Highlights
-- Total transaction volumes increased by 0.5 million
transactions to 18.2 million (FY17: 17.7 million)
-- Six new e-invoicing and three new Workflow sales representing
a new sales billings(9) of GBP1.0 million
-- Average revenue per Buyer(10) increased to GBP197k per Buyer (FY18: GBP180k)
-- Completed investment in moving Tungsten Network platform into the cloud
-- Launch of three enhanced offerings; Total AR, Total AP
(including IDC and PO services) and Workflow 5.0
-- Initiation and delivery of an Operating Review with extensive
Board and Management restructuring
-- Redefined value proposition and restructuring of sales and
marketing teams to complement this new focus
(1) All % movements stated are calculated on absolute values to the nearest GBP1
(2) Tungsten announced its intention to divest Tungsten Network
Finance ("TNF") on 30 April 2019. Results presented excluding TNF
to aid future comparability
(3) Adjusted operating expenses exclude cost of sales, other
income, interest, tax, depreciation, amortisation, foreign exchange
gains or losses, loss on disposal of assets, share-based payments
charges and exceptional items
(4) EBITDA is calculated as earnings before net finance cost,
tax, depreciation and amortisation, loss on disposal of assets,
foreign exchange gain or loss, share based payment expense and
exceptional items. The most directly comparable IFRS measure to
segment EBITDA is operating loss for the period. Management
utilises EBITDA to monitor performance as it illustrates the
underlying performance of the business by excluding items
management consider to be not reflective of the underlying trading
operations of the Group or adding items which are reflective of the
overall trading operations, as applicable.
(5) EBITDA margin is calculated as EBITDA as a percentage of revenue
(6) Transaction volumes are measured as the total number of
invoices and purchase orders delivered between a Supplier and
Buyer
(7) Excluding TNF
(8) Recurring revenue represents annual subscription and
maintenance fees on contracts typically ranging from 1 to 3 years
and billed annually in advance. Repeatable revenue represents
transaction-based fees from contracted customers, typically billed
at the point of usage or at the end of the month of usage
(9) New sales billings represents implementation, subscription,
licence, transaction and professional services fees to be billed in
the period from new sales made in that period. Implementation and
subscription fees are recognised to revenue over the 6 months and
12 months respectively from billing month. Subscription Licence and
transaction fees are recognised in the month sold. Professional
services fees are recognised on work completion milestones
(10) A Buyer is defined a contracting party for the use of
Tungsten's AP e-invoicing or Workflow products
FY20 Outlook
-- Delivering results on our re-defined three-pronged strategic
focus to increase sales and continue sales momentum:
o Driving the Network effect: introducing Total AR
o Strategic partnerships with e-procurement providers to provide
an additional channel to market
o Connecting with other platforms to improve automation,
customer service and user experience
-- Revenue growth excluding TNF to accelerate from 6.1% in FY19,
through the continuation of recurring and repeatable revenue and a
100% increase in new sales billings.
-- New sales billings are expected to be weighted to the second
half of FY20 as pipelines are grown, with resultant revenue impact
spread over FY20 and FY21.
-- Low double digit EBITDA (11) margin attained through
continued cost discipline, coupled with revenue growth.
(11) EBITDA to be presented as adjusted for changes in
accounting standards, notably IFRS 16, to aid year-on-year
comparability
Tony Bromovsky, Executive Chairman
"Since becoming Chairman in October 2018, and Executive Chairman
in February 2019, the Company has undergone a period of fundamental
change and transformation, with the sole purpose of generating
sales leads, operational efficiency and future scalability. These
changes are already generating positive momentum, with an EBITDA
profit in FY19, which is a dramatic turnaround from the losses of
prior years.
We launched our Operating Review in the second half of FY19 and
following this, we have a clearer understanding of the market we
serve, what we bring to it and also how to be the best at what we
do. With a redefined strategic vision, new management team
including CEO, a major overhaul of our operations and the creation
of a re-energised sales and customer service team, the coming year
will be about demonstrating the continuation of this momentum.
The Board continues to have confidence in the Tungsten suite of
solutions and offerings, and I believe that the business is now
well positioned, following a period of transformation, to achieve
future growth and profitability."
David Williams, CFO and Interim CEO
"Following the operating review and the establishment of our
restructured executive team, we expect to continue to deliver
network growth through our three strategic aims, being the roll out
of our Total AR solution, expanding our partner ecosystem to
e-procurement players and improving our connectivity with other
platforms to enhance efficiency and deliver better customer
service.
We believe our refocused value proposition and offering is clear
and provides us with confidence that we can deliver sales momentum
across all our offerings. Although our sales cycles are relatively
long, typically more than six months, we expect to increase our
conversion rate in FY20 and double new sales billings from the GBP4
million achieved in FY19."
Statutory Accounts and Analyst Presentation
The Group's statutory accounts will be available today on the
Tungsten website at
http://www.tungsten-network.com/uk/about/investor-relations/downloads-reports/.
Tony Bromovsky, Executive Chairman, and David Williams, CFO and
Interim CEO, will today host a conference call at 9.00am UK time.
The dial-in number for the conference call is +44 20 3713 5011 / +1
(312) 757-3117 with the access code 148-278-133 and available
online at https://global.gotomeeting.com/join/148278133 with the
password 'Tungsten'. A presentation will be available on the
Tungsten website at
http://www.tungsten-network.com/uk/about/investor-relations/downloads-reports/.
Enquiries
Tungsten Corporation plc
Tony Bromovsky, Executive Chairman
David Williams, CFO and Interim CEO +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
About Tungsten Corporation plc
Tungsten Corporation (LSE: TUNG) aims to be the leading global
electronic invoicing and purchase order transactions network.
Digital invoicing processes enable large businesses to reduce
costs and effectively manage their businesses. They can improve
business agility by creating scalable and repeatable growth
processes, managing their cash effectively and making better
decisions based on a comprehensive analysis of their data.
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 50 countries, and last year
processed transactions worth over GBP173bn for organisations such
as Caesars Entertainment, Computacenter, GlaxoSmithKline, Kraft
Foods, Mohawk Industries, Mondelēz International, Procter &
Gamble, Shaw Industries, Unilever 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.
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulation (EU) No 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
Chairman's Statement
I am pleased to present these, our FY19 results. The last year
has been a period of substantial change for the Group following
both significant Board and management changes, the launch and
implementation of the Operating Review, and the resultant
redefinition of Tungsten's strategy. The significantly improved
financial and operational performance in the second half of FY19,
recording EBITDA profitability and cash flow generation for the
first time, is evidence that the changes and new focus are starting
to take effect and deliver the expected results. We are now well
positioned for growth in FY20 and beyond.
Both I and the rest of the Board are delighted that, after an
extensive and rigorous search process, Andrew Lemonofides will join
us in September 2019 as our new Chief Executive Officer. Andrew
will bring the required drive and strategic oversight to implement
our new strategic focus, to improve operational functionality and
also to expand our global footprint. After a suitable integration
period, my intention is to revert back to the role of Non-Executive
Chairman.
On behalf of the Board, I wish to record our gratitude to all
our employees for their efforts throughout the year in continuing
to deliver for our shareholders and customers.
Redefining Tungsten's Purpose
The Operating Review, initiated by the new Board in December
2018, has been deep, detailed and far reaching. It has proved, and
continues to prove, to be highly transformative in how we do
business. We have already seen significant positive effects since
the April 2019 update, and we expect continued positive
contributions to both financial and operational performance in the
future. The key areas to highlight are as follows:
Driving the Network effect: introducing Total AR
The launch of our Total AR solution is a key enabler in Tungsten
becoming the invoice delivery platform of choice for current and
new Suppliers on our global Network. This Total AR solution allows
the delivery of 100% of sales invoices to any customer of the
Supplier - both on and off our Network - in an expedient, secure
and automated manner. Utilising the functionality of the Tungsten
Network platform, coupled with our expanding interconnectivity with
other platforms, our Total AR customers will now have all invoices
delivered across our platform to all of their customers in any form
that their customers require. We have now entered into a formal
agreement with Data Interconnect to be our Total AR partner.
With Total AR as a core solution, we can now offer both
non-network Buyers and Suppliers the ability to enhance their
services by integrating with the Tungsten Network platform to send
and receive compliant, validated invoices; creating the network
effect. We have established a dedicated AR sales team to capitalise
on this opportunity.
Strategic partnerships with e-procurement providers to provide
an additional channel to market
Our core proposition remains the delivery of a best-in-class,
digital, cross-border, tax compliant e-invoicing and adjacent
services proposition. However, we can expand our reach and
scalability by partnering with leading e-procurement providers.
These e-procurement providers have been successful in generating
and winning full service procure-to-pay tenders from companies who
would be a typical Tungsten Buyer. Invoice digitisation and
automation is increasingly becoming a requirement of any wider
procure-to-pay tender, along with e-procurement, and is less
frequently a standalone solution.
We know we lead the competition in relation to e-invoicing, and
to participate in a procure-to-pay tender we will need to partner
with these e-procurement providers. In this way, we would expect
partnerships to provide us with a valuable sales channel for
opportunities which may not have been available to us previously.
We are already in discussions with various e-procurement
partners.
Connecting with other platforms to improve automation, customer
service and user experience
We are committed to increasing interconnection and
interoperability with other platforms where connectivity will
increase efficiency and scope of our delivery and service levels
for our customers. Interconnection (allowing the passage of invoice
data) and interoperation (full integration) alters Tungsten's
previous requirement of only allowing invoices validated by us to
flow through our Network. Our customers increasingly want to source
and receive all their invoices without the friction of multiple
solutions. By building connectivity to other select platforms, we
can capture 100% of the flow of inbound and outbound invoices,
regardless of source or form, whilst maintaining our high standards
of compliance and validation.
We see upside in relation to transaction volumes through the
platform, provision of a better customer experience and other
customer benefits in the form of analytics and trade finance.
Continuous improvements in day-to-day operations
Following the Operating Review, we have focused our efforts on
the following improvements in day-to-day operational matters:
Divestment of non-core business - As part of the Operating
Review, at the end of FY19 we announced our intention to divest our
trade finance business and are happy to say that the sale process
is progressing well. This divestment will allow us to focus on our
core propositions and grow our invoicing business, although we are
not abandoning trade finance. Instead we believe that we can
provide this more effectively and on a larger scale through an
exclusive partnership with a leading global provider.
Curtailing ineffective expenditure - We continue to focus on
cost efficiency, capital allocation discipline and margin
optimisation and creation, aligned to our disciplines in
operational rigour and effectiveness. After a period of rebasing
our spending, specifically in relation to head office costs,
remuneration and advisor spend, we believe we have the right
structure to move forward to deliver growth in EBITDA margin.
Further cost savings will be delivered by automation of processes
which will be made possible by continued investment in our
platform.
A restructured executive team - We have restructured the
Executive Committee, welcoming our new Chief Revenue Officer, Steve
Standring and recently appointing our new CEO, Andrew Lemonofides.
We have also gone through a period of internal reorganisation,
specifically in the areas of product, sales and marketing, so that
our business units and commercial departments are now aligned with
the new management team and will provide improved accountability
and functionality.
A new approach to sales - Steve Standring will be responsible
for driving our global offering across both AR and AP e-invoicing
and developing our partner ecosystem. Steve has significant
knowledge of the market and sector, having more than two decades of
experience. He will be central to driving forward our expanded
value proposition. We are already seeing an increase in pipeline
opportunities and tender activity.
Investment in the platform - One of the key developments in FY19
was the completion of the migration of core technology to the Cloud
in order to provide a safer and more efficient infrastructure. We
removed many years of legacy software by implementing a new core
invoice processing platform, designed to accommodate far greater
transaction volumes.
Compliance and regulatory changes - In FY19 we saw the
regulatory landscape change with an increased focus on automation
and regulation requiring e-invoicing. In Italy, tax authorities
introduced mandatory e-invoicing submission for tax purposes, and
we made the strategic decision to invest in developing the Tungsten
Network platform, so it was able to provide these compliant
services. We see this move to electronic submission as a recurring
global trend. Our development and investment in this area means we
will be well positioned to lead compliance as other governments
across the world move towards electronic submission.
Launch of new products and services or enhancements to existing
offerings - In the past year we launched a new version of our
workflow tool, improvements to our Invoice Data Capture product and
a launch of a comprehensive Purchase Order offering. Purchase Order
services now provide an automated tool for the sending of
electronic purchase orders which can be updated, accepted or
rejected with electronic notifications of changes exchanged between
the Buyer and Supplier. This is an important adjacent service which
will both increase customer service and the efficiency and speed of
settlement.
Aligning remuneration with delivering customer and shareholder
value
A key part of the Operating Review was to assess whether
existing relationships were aligned with delivering long-term value
for customers and shareholders. It was quickly concluded by the
Committee and myself, supported by the advice of external
specialists and discussions with shareholders, that the
remuneration packages, including bonus and share structures in
place, were not aligned - and therefore we have implemented changes
such as a redesigned annual bonus with a deferred share element and
clear performance criteria, and proposing other changes through the
2019 remuneration policy, such as the introduction of LTIP plans
for senior management.
Moving into FY20
I feel that the business opportunity ahead of us is more
significant than it has even been and it is gratifying to be able
to report the early successes that we have had in redefining our
strategic focus, the effectiveness of our operations and service
delivery and ongoing investment in the platform. We are building a
momentum which is showing positive and tangible results.
Tony Bromovsky
Executive Chairman
22 July 2019
Executive Committee's Review
Under the purview of a new Board, we have redefined the true
purpose of Tungsten. We have looked in detail at what we are good
at, how we add value to our customers and how this can be
monetised. Put simply, we believe that we are the world's leading
electronic invoicing company, delivering market-leading solutions
to large, complex and global enterprises.
Tungsten excels at processing and delivering invoices from one
accounting system directly into another accounting system. Our
services provide our customers quicker and more accurate
information than manual methods, which in turn gives them greater
visibility and more immediate control over their working capital.
We also automate the validation of invoice data, which facilitates
compliance with a myriad of global tax regulations and also comfort
that each invoice meets the relevant requirements of the commercial
agreement between the parties. We believe this essentially
eliminates the possibility of a company losing money through fraud
or human error. This is what Tungsten does best.
With the renewed focus on delivering a complete invoicing
service, we announced the proposed disposal of our trade finance
operations, Tungsten Network Finance, on 30 April 2019. While we
see trade finance as an important and complementary service to our
core offering, we believe that we can continue to service our
customers in this area through a partnership agreement rather than
in-house. At this date, the sale process is ongoing, and we have
presented our results for FY19 both including and excluding our
trade finance operations.
Go-to-market strategy
Following the study that we commissioned from a leading research
and consulting firm to review our market and customers, we have
solidified our view that customers want a solution which is global
and spans each stage of the invoice cycle. Therefore, we have
changed our go to market strategy to present a Total AP e-invoicing
offering, which combines our well-established e-invoicing offering
with our IDC product, which digitalises paper and pdf invoices.
This provides the customer with better, more complete analysis and
stronger controls over the entire process.
In line with this, we also provide Total AR, which can deliver
all of the invoices our Suppliers issue to any customer they have,
therefore expanding our service from only those invoices which were
being delivered through the Tungsten Network platform. This
provides a complete AR offering which we believe is sought after in
the current market.
Moving into FY20, we expect to increase our h ecosystem by
working with those who can complement our services and further
improve our offering, specifically in e-procurement. These partners
will be targeted to those who can assist with our integration with
other networks, vendor management and e-procurement as well as Data
Interconnect, our Total AR partner.
Customer base
92% of our FY19 revenue was from customers under contract, of
which 54% is from upfront annual and maintenance fees (recurring)
with the balance from usage related transaction fees (repeatable).
The remaining 8% is from one-off implementation, licence and
professional services fees. In FY19 we added to our revenue by
making total new sales billings of GBP4.0 million (excluding TNF),
representing year-one billings for new services sold to current and
new buyers. GBP2.7 million of this was recognised in FY19.
In FY19 we grew our customer base by signing six new buyers to
our AP e-invoicing solution (three new customers and three sales to
new parts of existing Buyers) and three new Workflow sales to
current customers, which in total contributed GBP0.9 million in new
revenue in FY19 and GBP1.8 million of contracted revenue over a
3-year period. This reflected a similar number of new wins to FY18
and thus was significantly below our expectations which had been
set at the beginning of the year.
Five e-invoicing Buyer customers, that contributed GBP0.1
million of revenue in FY18, and three workflow customers, that also
contributed GBP0.1 million of revenue in FY18, chose not to renew
their contracts and have left the Network. However, more than
offsetting this loss was the retention of 38 customers who renewed
their agreements, primarily for a further three years and we
successfully achieved price increases on 18 of those customers by
an average of 20%, contributing additional recurring revenue of
GBP0.3 million during FY19.
We onboarded 750 new suppliers during the year, which
contributed GBP0.4 million of new supplier revenue in FY19 (FY18:
GBP0.6 million). This was 63% of the sales volume we converted in
FY18 and therefore disappointing in light of the opportunities in
our Supplier ecosystem.
Therefore, moving into FY20, we have made fundamental changes to
defining our value proposition, our route to market and also to how
we organise ourselves internally, with the goal of increasing our
conversion rates and ultimately our new revenue volumes.
Investing in the platform
Our platform strategy is two-fold - to remain relevant, modern
and efficient but also to adapt to the changing regulatory and
compliance landscape. Total spend on products and technology in
FY19 decreased to GBP12.8 million (FY18: GBP17.2 million) as we
prioritised completion of core initiatives or developments.
Following the successful investment in transitioning the primary
technical infrastructure into the cloud and rebuilding core
transaction processing capabilities, FY19 saw a number of products
launching, with the most significant being our new Total AR
solution, enhanced PO services and Workflow 5.0 products
Total AR: FY19 saw investment to enable the Tungsten Network
platform to be a digital post box for 100% of a Supplier's outgoing
sales invoices. This allows the Supplier to raise invoices within
their own ERP system, ensuring that they have all of the required
data for their own reporting, tax and otherwise, whilst ensuring
that the invoice data can be easily and efficiently transmitted to
their Buyer to ensure prompt payment.
Purchase Order services: as part of our focus on increasing user
experience and increasing the value proposition of our products and
services, we launched our newly enhanced capabilities allowing for
digital delivery of purchase orders, conversion to e-invoices and
acknowledgement of changes and updates. We believe that this will
improve visibility and efficiency to both Buyers and Suppliers and
will accelerate the take up of this product in FY20 and beyond.
Workflow 5.0: Workflow automates accounts payable processes,
enabling incoming invoices to be automatically routed, coded,
matched, approved and posted into our customers' ERP systems via an
integrated connection. This has been a Tungsten offering since 2014
and this latest version introduces a range of new features, such as
new reporting tools and a new UX and UI. It was launched in January
2019 and is now being used or installed at seven of our existing
customers. We believe that the added functionality and mobile usage
will make it more of a compelling proposition to both existing and
new customers.
Security remains a key priority and we have recently added
increased security measures, such as multi-factor authentication to
our sign in process and additional configuration to increase our
geographical reach to be tax compliant in Bahrain and the French
Overseas Territories.
In FY19, development to adapt to changing legislation became of
critical importance as we invested in the Tungsten Network platform
in order to be ready to continue to provide compliant services in
Italy. The Italian tax authorities introduced the requirement for
mandatory submission and collection of all invoices to a government
portal. We chose to be one of the first to provide a compliant
solution as we wanted to support our existing customers but also,
we anticipate that submission to tax driven mandated digital
platforms is a trend which will spread globally. Our internal
investment in order to comply was over GBP1.0 million in FY19, yet
we expect resultant revenue to be significantly more than this and
puts us in the position to be a market leader in other
jurisdictions where there are similar changes, as we have the
experience which can be adapted to different countries as needed.
In Italy in FY19, we transacted half a million invoices with new
and current customers to and from the government's platform and we
would expect this number to grow in FY20. This development success
also demonstrates our ability to interconnect with government
platforms and provide our customers with a fully compliant service
against a backdrop of changing regulation.
Moving into FY20, we are refreshing the UX of our customer
portal, investing in the technology to provide self-service
on-boarding for Suppliers as well as improving the speed, ease and
efficiency of Supplier assisted on-boarding. The FY20 road map is
focused on increasing the customer experience with the aim of
growing the customer ecosystem but also improving retention
rates.
Financial results
Revenue in FY19 increased by 7.1% to GBP36.0 million (FY18:
GBP33.7 million). Excluding the results of TNF, revenue was GBP35.4
million (FY18: GBP33.3 million) which represented a 6.1% growth.
The growth in revenue reflects the net benefits of new customer
sales, additional product sales to current customers, and existing
customer price increases. Overall, growth was slower than both
expectation and FY18 performance, as we under-performed in signing
and onboarding new Buyer and Supplier customers and the take up of
new products were also lower than expected.
FY19 returned an EBITDA profit of GBP0.6 million (FY18: (GBP4.6)
million loss) and excluding TNF, this increases to GBP2.5 million
(FY18: (GBP3.3) million loss), an improvement of GBP5.8 million.
This significantly improved EBITDA performance reflects continued
detailed focus on our cost base and provides us with a good basis
for moving into FY20.
Operating and statutory losses for the year were GBP5.2 million
and GBP3.4 million, respectively (FY18: (GBP12.1 million loss and
GBP11.9 million loss, respectively).
Coupled with our move into EBITDA profitability, we were also
cash generative in the second half of the year, generating cash
flows of GBP1.9 million, to retain net cash of GBP2.8 million at
the end of FY19. Gross cash at the end of FY19 was GBP3.8 million,
reflecting the drawing of GBP1.0 million of our GBP4.0 million
RCF.
Outlook
In FY20, we will focus on delivering results on our re-defined
three-pronged strategic focus to increase sales and continue sales
momentum:
-- Driving the Network effect: introducing Total AR
-- Strategic partnerships with e-procurement providers to
provide an additional channel to market
-- Connecting with other platforms to improve automation, customer service and user experience
Revenue growth (excluding TNF) is expected to accelerate from
6.1% in FY19, through the continuation of recurring and repeatable
revenue and a 100% increase in new sales billings.
New sales billings are expected to be weighted to the second
half of FY20 as pipelines are grown, with resultant revenue impact
spread over FY20 and FY21.
Low double digit EBITDA (1) margin attained through continued
cost discipline, coupled with revenue growth.
(1) EBITDA to be presented as adjusted for changes in accounting
standards, notably IFRS 16, to aid year-on-year comparability
David Williams
CFO and Interim CEO
Chief Financial Officer's Review
Income statement
GBPm Group Group (excl TNF)(1)
-------------------------------- ---------------- ----------------------
FY19 FY18 FY19 FY18
-------------------------------- ------- ------- ---------- ----------
Revenue 36.0 33.7 35.4 33.3
Cost of sales (1.9) (2.3) (1.9) (2.3)
-------------------------------- ------- ------- ---------- ----------
Gross profit 34.1 31.4 33.5 31.0
-------------------------------- ------- ------- ---------- ----------
Gross margin (2) 94.7% 93.2% 94.6% 93.0%
Adjusted operating expenses(3) (33.5) (36.0) (31.0) (34.3)
-------------------------------- ------- ------- ---------- ----------
EBITDA (4) 0.6 (4.6) 2.5 (3.3)
-------------------------------- ------- ------- ---------- ----------
EBITDA margin (5) 2% (14%) 7% (10%)
Other operating expenses (5.8) (7.5) (5.3) (7.2)
-------------------------------- ------- ------- ---------- ----------
Operating loss (5.2) (12.1) (2.8) (10.5)
Net finance income / (costs) (0.1) (0.6) 0.1 (0.4)
-------------------------------- ------- ------- ---------- ----------
Loss before taxation (5.3) (12.7) (2.7) (10.9)
Taxation 1.9 0.8 1.9 0.8
-------------------------------- ------- ------- ---------- ----------
Loss for the year (3.4) (11.9) (0.8) 10.1
-------------------------------- ------- ------- ---------- ----------
(1) Tungsten announced its intention to divest Tungsten Network
Finance ("TNF") on 30 April 2019. Results presented excluding TNF
to aid future comparability
(2) Gross margin is calculated as gross profit as a percentage of revenue
(3) Adjusted operating expenses exclude cost of sales, other
income, interest, tax, depreciation, amortisation, foreign exchange
gains or losses, loss on disposal of assets, share-based payments
charges and exceptional items
(4) EBITDA is calculated as earnings before net finance cost,
tax, depreciation and amortisation, loss on disposal of assets,
foreign exchange gain or loss, share based payment expense and
exceptional items. The most directly comparable IFRS measure to
segment EBITDA is operating loss for the period. Management
utilises EBITDA to monitor performance as it illustrates the
underlying performance of the business by excluding items
management consider to be not reflective of the underlying trading
operations of the Group or adding items which are reflective of the
overall trading operations, as applicable
(5) EBITDA margin is calculated as EBITDA as a percentage of revenue
Revenue
GBPm FY19 FY18 % Movement(1)
Recurring revenue (2) 19.0 17.5 8.1%
Repeatable revenue (3) 13.5 12.6 7.1%
------------------------------------------------ ----- ----- --------------
Total recurring and repeatable revenue 32.5 30.1 7.7%
Other revenue (4) 2.9 3.2 (8.7)%
------------------------------------------------ ----- ----- --------------
Tungsten Network total revenue 35.4 33.3 6.1%
TNF revenue (5) 0.6 0.4 96.9%
------------------------------------------------ ----- ----- --------------
Group revenue 36.0 33.7 7.1%
------------------------------------------------ ----- ----- --------------
Recurring revenue % of total Tungsten Network
revenue(6) 54% 53%
Total recurring & repeating revenue % of total
Tungsten Network revenue(7) 92% 90%
------------------------------------------------ ----- ----- --------------
(1) Revenue is shown to the nearest GBP0.1 million. Movement is
calculated on figures to the nearest GBP1.
(2) Recurring revenue represents annual subscription and
maintenance fees on contracts typically ranging from 1 to 3 years
and billed annually in advance
(3) Repeatable revenue represents transaction-based fees from
contracted customers, typically billed at the point of usage or at
the end of the month of usage
(4) Other revenue represents implementation, modification and
professional services fees, billed either in advance or on
completion of project stages
(5) TNF revenue relates to revenue generated by the trade
finance business announced for disposal but not treated as an asset
held for disposal at the end of FY19
(6) Recurring revenue is revenue from annual subscription and
maintenance fees as a % of revenue excluding TNF
(7) Recurring and repeatable revenue is total recurring and
repeatable revenue as a % of revenue excluding TNF
Revenue excluding TNF for the year was GBP35.4 million (FY18:
GBP33.3 million), representing an increase of 6.1%. The growth in
revenue reflected the net benefits of new customer sales,
additional product sales to current customers, and existing
customer price increases. Revenue including TNF for the year was
GBP36.0 million (FY18: 33.7 million), representing an increase of
7.1%.
Total new sales billings excluding TNF in FY19 were GBP4.0
million, representing year-one billings for new services sold to
current and new buyers. GBP2.7 million of this was recognised in
FY19, with the balance of GBP1.3 million to be recognised in
FY20.
Recurring revenue increased by GBP1.5 million or 8.1% to GBP19.0
million (FY18: GBP17.5 million) due to a combination of six new
Buyer sales (three new customers and three sales to new parts of
existing Buyers) and three new Workflow sales to current customers
which contributed GBP0.9 million, and increased pricing in relation
to renewing customers. Offsetting this was the loss of five
e-invoicing Buyers in the year, which contributed a total GBP0.1
million of revenue in FY18, as well as a number of inactive
suppliers. Three Workflow customers which contributed a total of
GBP0.1 million of revenue in FY18 chose not to renew their
maintenance contract in FY19.
Having started the year with 187 Workflow and e-invoicing
Buyers, the additions, losses and merging of four customer
contracts resulted in 179 Buyers at year end.
Repeatable revenue increased by GBP0.9 million of 7.1% to
GBP13.5 million (FY18: GBP12.6 million) due to the 4 new Buyers
contracted as well as an increase in volumes and pricing. Volumes
increased partially due to the new compliance requirements in Italy
requiring all suppliers of goods and services to submit invoices
electronically through a government platform. This increased volume
by half a million transactions in the year.
Other revenue decreased by GBP0.3 million or 8.7% to GBP2.9
million (FY18: GBP3.2 million) due to fewer set-up fees from new
Buyer customers (FY19: 6 new Buyer set-up fees, FY18: 8 new Buyer
set-up fees)
TNF revenue generated fees of GBP0.6 million in FY19 (FY18:
GBP0.4 million), an increase of GBP0.2 million due to an increase
in the average outstandings from GBP26.7 million in FY18 to GBP56.4
million in FY19.
Revenue by type of customer
Buyer revenue represented 43% of total Tungsten Network revenue
in the 2019 financial year (FY18: 43%). Total Buyer revenue grew
4.8% to GBP15.2 million (FY18: GBP14.5 million). This reflected a
growth in recurring and discretionary revenue of 6.8% (GBP0.8
million) and a fall in one-off revenue of 4.4% (GBP0.1
million).
Supplier revenue represented 57% of total Tungsten Network
revenue in the 2019 financial year (FY18: 57%). Total Supplier
revenue grew 7.2% to GBP20.1 million (FY18: GBP18.8 million). This
reflected a growth in recurring and discretionary revenue of 8.3%
(GBP1.5 million) and a fall in one-off revenue of 31.1% (GBP0.1
million).
Expenses
GBPm FY19 FY18 Difference
------------------------------------------ ------- ------- -----------
Sales & marketing (5.9) (6.3) 0.4
Service Delivery (7.8) (7.7) (0.1)
Technology & product (10.0) (9.8) (0.2)
Finance, administration, Board & central
overheads (7.3) (10.5) 3.2
------------------------------------------ ------- ------- -----------
Adjusted operating expenses (1) (31.0) (34.3) 3.3
Cost of sales (1.9) (2.3) 0.4
Tungsten Network Finance Expenses (3.2) (2.2) (1.0)
Depreciation and amortisation (4.0) (2.8) (1.2)
Loss on disposal of assets (2.2) - (2.2)
Foreign exchange gain/(loss) 1.8 (1.4) 3.2
Share based payment expense 0.1 (0.6) 0.7
Exceptional items (1.0) (2.1) 1.1
------------------------------------------ ------- ------- -----------
Statutory operating expenses (41.4) (45.7) 4.3
(1) Adjusted operating expenses exclude cost of sales, other
income, interest, tax, depreciation, amortisation, foreign exchange
gains or losses, loss on disposal of assets, share-based payments
charges and exceptional items
The Group's adjusted operating expenses reduced by 10% to
GBP31.0 million (FY18: GBP34.3 million).
Sales and marketing expenses reduced by GBP0.4 million to GBP5.9
million. This primarily reflects reductions to ineffective
marketing spend in the 2(nd) half of the financial year.
Service delivery and technology and products costs remained
broadly flat year on year (marginal increases of 1% and 2%
respectively). Finance, administration, Board & central
overheads were reduced significantly, by a total of GBP3.2 million,
or 30%, to GBP7.3 million. This primarily reflects reduced
Non-Executive and Executive remuneration, fewer senior management
positions and reduced professional adviser fees.
Statutory operating expenses decreased by GBP4.3 million or 9%
to GBP41.4 million (FY18: GBP45.7 million). Key movements
include:
-- Foreign exchange gains: GBP3.2 million improvement to a gain
of GBP1.8 million (FY18: GBP1.4 million loss) from the revaluation
at year-end of monetary assets and liabilities denominated in
foreign currencies.
-- Share based payment expense: GBP0.7 million reduction
reflecting the net reduction in outstanding options by 1.1 million
options (FY18: net increase by 1.9 million options), primarily from
exiting senior management.
-- Exceptional items: GBP1.1 million reduction primarily as a
result of GBP1.4 million lower provisions for onerous contracts in
(FY19: GBP0.2 million; FY18: GBP1.6 million). Other exceptional
items in FY19 reflected GBP0.6 million of professional advice,
arising in particular from the requisition request for a General
Meeting, as well as GBP0.2 million of restructuring costs.
Offset by:
-- Tungsten Network Finance: GBP1.0 million increase in staff and related costs.
-- Depreciation and amortisation: GBP1.2 million increase in
amortisation as a result of the commencement of amortising software
development costs incurred in FY18.
-- Impairment of internally generated capitalised development:
GBP2.2 million non-cash expense as a result of the decision to
write-off the development work in relation to integration of CRM
systems. GBP2.0m of these costs were incurred in FY18 and GBP0.2
million in FY19. Although the integration will continue, it will be
using different technology and processes.
Loss before tax:
The Group generated a loss before tax excluding TNF of GBP2.7
million in the year (FY18: loss of GBP10.9 million). The
improvement of GBP8.2 million reflects. Including TNF, the Group
generated a loss before tax of GBP5.3 million (FY18: GBP12.7
million)
Taxation
The statutory Group loss for the year was GBP3.4 million (FY18:
GBP11.9 million), an improvement of GBP8.5 million. A tax credit of
GBP1.9 million (FY18: GBP0.8 million) includes a GBP1.5 million
research and development tax credit (FY18: GBP0.3 million). GBP0.6
million of the FY19 charge related to FY17 expenditure, with a
further GBP0.9 million relating to FY18 expenditure.
The Group has an unrecognised deferred tax asset of
approximately GBP14.9 million that is available for offset against
future tax expenses in the companies in which losses arise.
Funding and liquidity
Cash and cash equivalents at the end of FY19 were GBP3.8 million
(FY18: GBP6.4 million). Net cash (including borrowings under the
revolving credit facility) at the end of FY19 was GBP2.8 million
(FY18: GBP6.4 million).
Cash Flow FY19 FY18
---------------------------------------- ---------- -----------
Net cash flow from operating activities GBP(0.3)m GBP(8.0)m
Net cash flow from investing activities GBP(3.3)m GBP(7.6)m
Net cash flow from financing activities GBP1.0m GBP4.3m
Net movement in cash & cash equivalents (GBP2.6)m GBP(11.3)m
Exchange adjustments - GBP0.2m
Cash and cash equivalents at the GBP6.4m GBP17.5m
start of the period
Cash and cash equivalents at the GBP3.8m GBP6.4m
end of the period
---------------------------------------- ---------- -----------
The Group had a cash outflow in FY19 of GBP2.6 million, with
cash and cash equivalents at the end of FY19 of GBP3.8 million.
Excluding borrowings, cash was GBP2.8million. Liquidity, including
GBP3 million of undrawn revolving credit facility with a maturity
date of July 2021, was GBP6.8 million.
Cash flows from operating activities
Cash used in operating activities decreased by GBP7.7 million to
GBP0.3 million (FY18:GBP8.0 million) due to lower operating losses
and a decrease in trade receivables.
By excluding IFRS 15 adjustment, the movements in working
capital generated an inflow of GBP0.4 million from an outflow of
GBP1.8 million in FY18 as a result of our increased focus on cash
collection in relation to receivables which resulted in a cash
inflow of GBP1.8 million from a cash outflow of GBP1.8 million in
FY18. Offsetting this was a cash outflow due to the decrease in
trade payable of GBP1.4 million relating to the end of many of the
Group's technology transformation and the resulting settlement of
outstanding payables.
Cash flows from investing activities
Cash spent on investing activities decreased by GBP4.3 million
(FY18: GBP7.6 million), reflecting the end of the significant FY18
internally generated software development projects, in relation to
the transformation of the core transaction network and rollout of
Salesforce.
Cash flows from financing activities
Cash flow from financing activities in FY19 relate to the
partial draw down of the revolving credit facility entered into in
July 2018 and drawn in November 2018. In FY18 a GBP4.3 million
inflow resulted from the cessation of Tungsten using its own cash
resources to finance Tungsten Network Early Payment invoices.
Analysis of H1 and H2 cash
Cash Flow H1-FY19 H2-FY19 FY19
---------------------------------------- ---------- ---------- ----------
Net cash flow from operating activities GBP(2.5)m GBP2.2m GBP(0.3)m
Net cash flow from investing activities GBP(2.0)m (GBP1.3m) GBP(3.3)m
Net cash flow from financing activities - GBP1.0m GBP1.0m
Net movement in cash & cash equivalents GBP(4.5)m GBP1.9m (GBP2.6)m
Exchange adjustments GBP0.1m (GBP0.1)m -
Cash and cash equivalents at the GBP6.4m GBP2.0m GBP6.4m
start of the period
Cash and cash equivalents at the GBP2.0m GBP3.8m GBP3.8m
end of the period
---------------------------------------- ---------- ---------- ----------
The FY19 movement in the Group's cash, excluding drawings from
the RCF, was a GBP3.6 million outflow. This included a GBP4.4
million outflow in H1-FY19 (net of exchange adjustments), offset by
a GBP0.8 million inflow in H2-FY19 (GBP1.9 million inflow, less
GBP1.0 million drawings on the RCF, less GBP0.1 million exchange
adjustments). The improvement by GBP3.6 million in cash flow net of
RCF drawings and exchange adjustments in the second half of the
financial year primarily reflected:
-- An improvement in cash used in operations by GBP3.3 million,
reflecting the increase in EBITDA in the second half; and
-- An inflow from trade and other receivables of GBP1.0 million,
reflecting improved trade receivable collection processes.
-- A reduction in cash spent on investing activities decreased
by GBP0.7 million from H1-FY19 to H2-FY19, reflecting the end of
the significant FY18 capital projects, payments of which were
partly settled in early FY19.
Capital expenditure
During the year, the Group spent GBP3.3 million on capital
expenditure, being GBP0.4 million in relation to property plant and
equipment, and GBP2.9 million in relation to internally capitalised
software development. This compares to GBP7.6 million in total in
FY18. Our significant internally generated software development
expenditure was in relation to the development of new functionality
and a more modern look and feel for our customer portal and updates
to our core transaction processing software.
Loss per share
The basic and diluted loss per share was 2.66p (FY18:
9.45p).
Dividends
The Company has not paid, and does not propose to pay, a
dividend in relation to FY19.
Post balance sheet event
On 30 April 2019, the Group announced a trading update on the
decision to divest one of the business segments in the Group,
Tungsten Network Finance.
The negotiations for the sale were ongoing and are anticipated
to be agreed prior to 31 October 2019. As it will be determined by
the sale price agreed and the structure of any sale, the financial
effect cannot be reliably estimated at the time of signing the
Annual Report.
David Williams
Chief Financial Officer
22 July 2019
Financial Statements
Consolidated income statement
Year ended Year ended
30 April 2019 30 April 2018
Note GBP'000 GBP'000
Revenue 2 36,045 33,663
Operating expenses (41,256) (45,746)
--------------------------------- ----- ---------------------------------- -----------------------------
Operating loss (5,211) (12,083)
EBITDA(1) 607 (4,647)
Depreciation and amortisation (4,103) (2,813)
Loss on disposal of assets (2,216) -
Foreign exchange gain/(loss) 1,738 (1,547)
Share based payment expense (244) (647)
Exceptional items 3 (993) (2,429)
-----------------------------
Operating loss (5,211) (12,083)
----- ---------------------------------- -----------------------------
Finance income 1,576 1,864
Finance costs (1,650) (2,468)
Net finance costs (74) (604)
--------------------------------- ----- ---------------------------------- -----------------------------
Loss before taxation (5,285) (12,687)
Taxation 1,935 768
Loss for the year (3,350) (11,919)
--------------------------------- ----- ---------------------------------- -----------------------------
Loss per share attributable to the equity holders of the parent during the year (expressed
in pence per share):
Basic and diluted 4 (2.66) (9.45)
--------------------------------- ----- ---------------------------------- -----------------------------
1 EBITDA is calculated as earnings before net finance cost, tax,
depreciation and amortisation, loss on disposal of assets, foreign
exchange gain or loss, share based payment expense and exceptional
items.
Financial Statements
Consolidated statement of comprehensive income
Year ended Year ended
30 April 2019 30 April 2018
GBP'000 GBP'000
Loss for the year (3,350) (11,919)
Other comprehensive (expense)/income:
Items that may be reclassified subsequently to
profit or loss
Currency translation differences (1,872) 1,423
Total comprehensive loss for the year (5,222) (10,496)
----------------------------------------------------- --------------------------- ----------------------------
Items in the statement above are disclosed net of tax.
Financial Statements
Consolidated statement of financial position
As at
As at 30 April 2018
Note 30 April 2019 Restated*
GBP'000 GBP'000
------------------------------------------------------------------ ---------- --------------- ---------------
Assets
Non-current assets
Goodwill 5 102,057 101,848
Intangible assets 5 18,733 21,549
Property, plant and equipment 6 2,506 2,646
Other receivables 187 464
------------------------------------------------------------------- ---------- --------------- ---------------
Total non-current assets 123,483 126,507
------------------------------------------------------------------- ---------- --------------- ---------------
Current assets
Trade and other receivables 7,464 8,212
Invoice receivables - 2
Cash and cash equivalents 3,810 6,418
------------------------------------------------------------------- ---------- --------------- ---------------
Total current assets 11,274 14,632
------------------------------------------------------------------- ---------- --------------- ---------------
Total assets 134,757 141,139
------------------------------------------------------------------- ---------- --------------- ---------------
Non-current liabilities
Deferred taxation 1,533 2,110
Provisions 1,568 1,459
Other payables 250 250
Total non-current liabilities 3,351 3,819
------------------------------------------------------------------- ---------- --------------- ---------------
Current liabilities
Trade and other payables 7,089 8,607
Provisions 158 759
Borrowings 1,000 -
Contract liabilities 6,816 6,493
------------------------------------------------------------------- ---------- --------------- ---------------
Total current liabilities 15,063 15,859
------------------------------------------------------------------- ---------- --------------- ---------------
Total liabilities 18,414 19,678
------------------------------------------------------------------- ---------- --------------- ---------------
Capital and reserves attributable to the equity shareholders of the parent
Share capital 7 553 553
Share premium 7 188,802 188,794
Merger reserve 28,035 28,035
Shares to be issued 3,760 3,760
Share-based payment reserve 6,538 6,442
Other reserves (9,413) (7,541)
Accumulated losses (101,932) (98,582)
------------------------------------------------------------------- --------------- ---------------
Total equity 116,343 121,461
------------------------------------------------------------------- ---------- --------------- ---------------
Total equity and liabilities 134,757 141,139
------------------------------------------------------------------- ---------- --------------- ---------------
Financial Statements
Consolidated statement of changes in equity
Year ended 30 April 2019
Shares Share-based
Share Share Merger to be payment Other Accumulated Total
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
--------------- ----------- ---------------- -------------- ------------ ---------------- ---------------- ----------------------- ------------
Loss for the
year - - - - - - (3,350) (3,350)
Other
comprehensive
expense - - - - - (1,872) - (1,872)
Total
comprehensive
expense for
the year - - - - - (1,872) (3,350) (5,222)
--------------- ----------- ---------------- -------------- ------------ ---------------- ---------------- ----------------------- ------------
Transaction
with owners
in their
capacity as
owners:
Issue of
treasury
shares
to employees - 8 - - - - - 8
Share based
payment
expense - - - - 96 - - 96
--------------- ----------- ---------------- -------------- ------------ ---------------- ---------------- ----------------------- ------------
Transactions
with owners - 8 - - 96 - - 104
Balance as at
30 April
2019 553 188,802 28,035 3,760 6,538 (9,413) (101,932) 116,343
--------------- ----------- ---------------- -------------- ------------ ---------------- ---------------- ----------------------- ------------
Year ended 30 April 2018
Shares Share-based
Share Share Merger to be payment Other Accumulated Total
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
--------------- ----------- ---------------- -------------- ------------ ---------------- ---------------- ----------------------- ----------
Loss for the
year - - - - - - (11,919) (11,919)
Other
comprehensive
income - - - - - 1,423 - 1,423
Total
comprehensive
expense for
the year - - - - - 1,423 (11,919) (10,496)
--------------- ----------- ---------------- -------------- ------------ ---------------- ---------------- ----------------------- ----------
Transaction
with owners
in their
capacity as
owners:
Share based
payment
expense - - - - 627 - - 627
--------------- ----------- ---------------- -------------- ------------ ---------------- ---------------- ----------------------- ----------
Transactions
with owners - - - - 627 - - 627
--------------- ----------- ---------------- -------------- ------------ ---------------- ---------------- ----------------------- ----------
Balance as at
30 April
2018 553 188,794 28,035 3,760 6,442 (7,541) (98,582) 121,461
--------------- ----------- ---------------- -------------- ------------ ---------------- ---------------- ----------------------- ----------
Financial Statements
Consolidated statement of cash flows
Year ended Year ended
30 April 2019 30 April 2018
Note GBP'000 GBP'000
Cash flows from operating activities
Loss before taxation (5,285) (12,687)
Adjustments for:
Depreciation and amortisation 4,103 2,813
Loss on disposal assets 2,216 -
(Decrease)/increase in loss allowance (522) 271
Finance costs 1,650 2,468
Finance income (1,576) (1,864)
Foreign exchange (gain)/loss (1,738) 1,547
Share based payment expense 244 647
Net increase in provisions 146 1,014
---------------------------------------------------- ----- -------------------------- -------------------------
Cash used in operations (762) (5,791)
Changes in working capital:
Decrease/(increase) in trade and other receivables 2,421 (1,796)
(Decrease)/increase in trade and other payables (1,346) 30
Provision settlement for onerous contract (666) -
Net interest paid (430) (394)
Net tax refund 473 -
Net cash outflow from operating activities (310) (7,951)
---------------------------------------------------- ----- -------------------------- -------------------------
Cash flows from investing activities
Capitalisation of software development costs 5 (2,940) (7,223)
Purchases of other intangibles 5 (9) (70)
Purchases of property, plant and equipment 6 (322) (330)
Net cash outflow from investing activities (3,271) (7,623)
---------------------------------------------------- ----- -------------------------- -------------------------
Cash flows from financing activities
Proceeds from borrowings 1,000 -
Decrease in invoice receivables - 4,302
Proceeds from issue of treasury shares 8 -
Net cash inflow from financing activities 1,008 4,302
---------------------------------------------------- ----- -------------------------- -------------------------
Net decrease in cash and cash equivalents (2,573) (11,272)
Cash and cash equivalents at start of the year 6,418 17,498
Exchange adjustments (35) 192
Cash and cash equivalents at the end of the year 3,810 6,418
---------------------------------------------------- ----- -------------------------- -------------------------
Accounting Policies
1. Basis of preparation
The consolidated financial statements of Tungsten Corporation
plc have been prepared in accordance with International Financial
Reporting Standards (IFRS) and IFRS Interpretations Committee
(IFRIC) interpretations as adopted by the European Union and with
the Companies Act 2006 applicable to companies reporting under
IFRS. These policies have been consistently applied to all the
years presented, unless otherwise stated. The consolidated
financial statements have been prepared under the historical cost
convention, except for assets and liabilities measured at fair
value under IFRS 9.
The consolidated financial statements have been prepared on a
going concern basis. The ability of the company to continue as a
going concern is contingent on the ongoing viability of the Group.
The Group meets its day-to-day working capital requirements through
its cash balances and also has a bank facility that it can use. The
current economic conditions continue to create uncertainty,
particularly over (a) foreign exchange rates; and (b) the level of
new sales to new customers. The Group's forecasts and projections,
taking account of reasonably possible changes in trading
performance, show that the Group expects to be able to operate
within the level of its current cash resources without further use
of its bank facilities. Having assessed the principal risks and the
other matters discussed in connection with the viability statement,
the directors considered it appropriate to adopt the going concern
basis of accounting in preparing its consolidated financial
statements.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates.
Comparatives
The Group adopted IFRS 15, 'Revenue from Contracts with
Customers' on 1 May 2018 using the modified retrospective method
applied to the contracts in force on the date of adoption. For this
reason the accounting policy applied as of said date, is not
comparable to that used for the year ended 30 April 2018.
The statement of financial position has been adjusted by
offsetting trade receivables in relation to certain contracts
against contract liabilities 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
Balance Sheet (extract) 30 April 2018 original presentation IFRS 15 Adjustment 30 April 2018 Restated
GBP'000 GBP'000 GBP'000
------------------------- ------------------------------------- ------------------- ------------------------
Current assets
Trade receivables 7,458 (2,108) 5,350
Current liabilities
Contract liabilities(1) 8,601 (2,108) 6,493
(1) Contract liabilities were previously referred to as deferred
income and are amounts collected ahead of services being
delivered.
2. Segment report
The Executive Committee has been identified as the Chief
Operating Decision-Maker (CODM), reviewing the Group's internal
reporting on a monthly basis in order to assess performance and
allocate resources.
The CODM reviews 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 Tungsten Corporation plc and Tungsten
Corporation Guernsey's overheads and general corporate costs).
Intersegment revenue from management fees and other intersegment
charges are eliminated below.
The CODM analyses the financial performance of the business on
the basis of segment EBITDA which is an adjusted profit measure
which reflects loss before finance income and costs, taxation,
depreciation, amortisation, loss on disposal of assets, foreign
exchange gains and losses, share based payment expense and
exceptional items.
The most directly comparable IFRS measure to segment EBITDA is
operating loss for the period. Management utilises EBITDA to
monitor performance as it illustrates the underlying performance of
the business by excluding items management consider to be not
reflective of the underlying trading operations of the Group or
adding items which are reflective of the overall trading
operations, as applicable.
Year ended 30 April 2019
Tungsten Tungsten Network
Network Finance Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- -------------- ----------------- ------------------ ---------------
Segment revenue 35,371 674 - 36,045
EBITDA(1) - excluding share based payment
expense/(income) 8,115 (1,885) (5,623) 607
EBITDA(1) - including share based payment
expense/(income) 7,716 (2,266) (5,087) 363
Depreciation and amortisation (3,668) (144) (291) (4,103)
Loss on disposal of assets (2,216) - - (2,216)
Foreign exchange gain/(loss) 1,792 (54) - 1,738
Share based payment (expense)/income (399) (381) 536 (244)
Exceptional items (285) 14 (722) (993)
Finance income 938 3 635 1,576
Finance costs (1,186) (184) (280) (1,650)
-------------------------------------------- -------------- ----------------- ------------------ ---------------
Profit/(loss) before taxation 3,091 (2,631) (5,745) (5,285)
Income tax credit 1,935
-------------------------------------------- -------------- ----------------- ------------------ ---------------
Loss for the year (3,350)
-------------------------------------------- -------------- ----------------- ------------------ ---------------
As at 30 April 2019
Capital expenditure 2,432 836 3 3,271
Total assets 130,530 998 3,229 134,757
Total liabilities 12,074 909 5,431 18,414
-------------------------------------------- -------------- ----------------- ------------------ ---------------
(1) EBITDA is calculated as earnings before net finance cost,
tax, depreciation and amortisation, loss on disposal of assets,
foreign exchange gain or loss, share based payment expense and
exceptional items.
(1) Year ended 30 April 2018
Tungsten Tungsten Network Total
Network Finance Corporate Restated*
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- -------------- ----------------- ------------------ -----------------
Segment revenue 33,321 342 - 33,663
EBITDA(1) - excluding share based payment
expense/(income) 2,340 (1,300) (5,687) (4,647)
EBITDA(1) - including share based payment
expense/(income) 2,340 (1,300) (6,334) (5,294)
Depreciation and amortisation (2,304) (57) (452) (2,813)
Foreign exchange gain/(loss) (1,319) (169) (59) (1,547)
Share based payment expense - - (647) (647)
Exceptional items (1,946) (118) (365) (2,429)
Finance income 1,379 74 411 1,864
Finance costs (1,457) (276) (735) (2,468)
------------------------------------------ -------------- ----------------- ------------------ -----------------
Loss before taxation (3,307) (1,846) (7,534) (12,687)
Income tax credit 768
------------------------------------------ -------------- ----------------- ------------------ -----------------
Loss for the year (11,919)
------------------------------------------ -------------- ----------------- ------------------ -----------------
As at 30 April 2018
Capital expenditure 7,492 - 122 7,614
Total assets 135,931 852 4,356 141,139
Total liabilities 14,231 223 5,224 19,678
------------------------------------------ -------------- ----------------- ------------------ -----------------
(1) EBITDA is calculated as earnings before net finance cost,
tax, depreciation and amortisation, loss on disposal of assets,
foreign exchange gain or loss, share based payment expense and
exceptional items.
3. Exceptional items
Year ended Year ended
30 April 2019 30 April 2018
GBP'000 GBP'000
------------------------------------- ----------------- -------------------
Professional advice (1) 533 -
Restructuring costs (2) 238 592
Provision for onerous contracts (3) 222 1,587
Loan notes (4) - 250
Total exceptional items 993 2,429
-------------------------------------- ----------------- -------------------
(1 Professional advisor costs of GBP0.5 million were incurred in
respect of the requisition request for a General Meeting and other
corporate finance matters.)
(2 Restructuring costs of GBP0.2 million were incurred due to
contract terminations and other redundancy costs.)
(3 Provision for onerous contracts includes a final settlement
for technology contract termination costs and a discontinued
contract of GBP0.2 million.)
(4 Settlement of disputes in FY18 between the Company,
Disruptive Capital Advisory Limited and the Company's former Chief
Executive Officer Edmund Truell, through the issuance of
convertible loan notes worth GBP0.25 million.)
4. Loss per share
Basic and diluted 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 year.
Loss per share attributable to the equity holders of the parent
during the year:
Year ended 30 April 2019 Year ended 30 April 2018
---------------------------------------------------------- ------------------------------------
Loss Shares Loss per share Loss Shares Loss per share
GBP'000 '000 P GBP'000 '000 P
------------------- --------------------- ------------------ --------------- --------- -------- ---------------
Basic and diluted (3,350) 126,088 (2.66) (11,919) 126,069 (9.45)
------------------- --------------------- ------------------ --------------- --------- -------- ---------------
5. Intangible assets
As at 30 April 2019
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 2,940 2,949
Reclassification - - - 7,872 (7,872) -
Disposal - - - (2,650) - (2,650)
Exchange
differences 209 7 180 11 - 407
Balance at 30
April 2019 102,057 11,116 7,194 8,202 3,624 132,193
------------------- ---------------- ------------------ ---------------- ---------- ---------------------- --------------
Accumulated
amortisation
Balance at 1 May
2018 - 2,575 4,760 755 - 8,090
Charge for the
year - 573 1,189 1,838 - 3,600
Disposal - - - (434) - (434)
Exchange
differences - 5 135 7 - 147
Balance at 30
April 2019 - 3,153 6,084 2,166 - 11,403
------------------- ---------------- ------------------ ---------------- ---------- ---------------------- --------------
Net book value
As at 1 May 2018 101,848 8,534 2,254 2,205 8,556 123,397
As at 30 April
2019 102,057 7,963 1,110 6,036 3,624 120,790
Following the changes to the Tungsten Board, the Group has been
undertaking an operating review. This included an assessment led by
Martyn Arbon, who joined Tungsten as Chief Technology Officer on 3
April 2018, of all ongoing and completed software development
projects.
In particular, the commercial value of Project Belfast, was
assessed. Project Belfast involved mapping of data to point OBI
(the Group's in-house Customer Relations Management team) and our
customer portal to Salesforce. Salesforce went live in July 2018
with this functionality.
During the year, through the operating review, it has been
determined that, whilst the Group intends to continue to work in
the integration of OBI and Salesforce, the work was ineffective,
the technology that was used was not appropriate and that new
integrations were required. Accordingly, the total net book value
of Project Belfast, GBP2.2 million has been fully written off in
the income statement.
As at 30 April 2018
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
2017 102,049 11,116 7,188 660 3,570 124,583
Additions - - - 70 7,223 7,293
Reclassification - - - 2,236 (2,236) -
Exchange
differences (201) (7) (174) (6) (1) (389)
Balance at 30
April 2018 101,848 11,109 7,014 2,960 8,556 131,487
------------------- ---------------- -------------------- ---------------- ------------- ---------------------- --------------
Accumulated
amortisation
Balance at 1 May
2017 - 2,007 3,694 430 - 6,131
Charge for the
year - 572 1,172 331 - 2,075
Exchange
differences - (4) (106) (6) - (116)
Balance at 30
April 2018 - 2,575 4,760 755 - 8,090
------------------- ---------------- -------------------- ---------------- ------------- ---------------------- --------------
Net book value
As at 1 May 2017 102,049 9,109 3,494 230 3,570 118,452
As at 30 April
2018 101,848 8,534 2,254 2,205 8,556 123,397
Impairment testing is carried out at cash generating unit (CGU)
level on an annual basis. The following is a summary of the
goodwill allocation for each reporting segment:
As at As at
30 April 2019 30 April 2018
GBP'000 GBP'000
------------------ --------------------- ---------------------
Tungsten Network 102,057 101,848
Total goodwill 102,057 101,848
------------------- --------------------- ---------------------
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 is 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 customers using the Tungsten Network,
including Tungsten Workflow and Tungsten Analytics at a compound
annual growth rate of at least 14.5%
-- Post-tax discount rate of 12% (2018: 11.75%), being based on
the Group's weighted average cost of capital (WACC)
-- Growth rate used in perpetuity of 2.00% (2018: 2.00%)
-- Corporate overhead of GBP4.7 million
-- Cost growth of 2.60%
Based on the above assumptions, the recoverable amount of the
Tungsten Network CGU exceeded its carrying value by GBP60.3 million
(2018: GBP12.2 million).
The recoverable amount of the Tungsten Network CGU derived from
this analysis was sensitive to the compound annual revenue growth
rate and discount rate. In the event that the compound annual
revenue growth rate assumption is reduced to 9.9%, or the discount
rate assumption is increased to 16.7%, the recoverable amount would
equal the carrying value of the CGU.
6. Property, plant and equipment
As at 30 April 2019
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 210 7 137 354
Disposals - - (1) (1)
Exchange differences 5 7 15 27
Balance at 30 April 2019 3,409 278 750 4,437
--------------------------- --------------------------- --------------- ----------------- -----------
Accumulated depreciation
Balance at 1 May 2018 914 126 371 1,411
Charge for the year 284 53 166 503
Disposals - - (1) (1)
Exchange differences 1 4 13 18
Balance at 30 April 2019 1,199 183 549 1,931
--------------------------- --------------------------- --------------- ----------------- -----------
Net Book Value
At 1 May 2018 2,280 138 228 2,646
At 30 April 2019 2,210 95 201 2,506
As at 30 April 2018
Leasehold Fixtures Computer
improvements and fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------------------------- --------------- ------------------ ------------
Cost
Balance at 1 May 2017 1,823 220 324 2,367
Additions 1,367 37 130 1,534
Disposals - - (2) (2)
Exchange differences 4 7 147 158
Balance at 30 April 2018 3,194 264 599 4,057
--------------------------- --------------------------- --------------- ------------------ ------------
Accumulated depreciation
Balance at 1 May 2017 373 70 68 511
Charge for the year 537 46 155 738
Disposals - - (1) (1)
Exchange differences 4 10 149 163
Balance at 30 April 2018 914 126 371 1,411
--------------------------- --------------------------- --------------- ------------------ ------------
Net Book Value
At 1 May 2017 1,450 150 256 1,856
At 30 April 2018 2,280 138 228 2,646
7. Share capital and share premium
Ordinary Share Share
shares capital Premium
--------
Nominal
Value
Issued and fully paid Number P GBP'000 GBP'000
----------------------------- -------------------------------- -------- -------------------- ------------------
Balance as at 1 May 2017 126,069,397 43.86 553 188,794
Shares issued during the
year - - - -
--------
Balance as at 30 April 2018 126,069,397 43.86 553 188,794
Shares issued during the year 18,750 43.86 - 8
Balance as at 30 April 2019 126,088,147 43.86 553 188,802
------------------------------ -------------------------------- -------- -------------------- ------------------
8. Related-party transactions
The Group entered into the following transactions with related
parties in the ordinary course of business:
Year ended Year ended
30 April 2019 30 April 2018
GBP'000 GBP'000
---------------------- --------------- ----------------
Purchase of services 34 34
----------------------- --------------- ----------------
Richard Hurwitz held the position of Director of The Witz
Company (USA). During the year ended 30 April 2019, this includes
the services received from The Witz Company (USA) totalling
GBP30,000 (2018: GBP34,000). Other related-party transactions
totalled GBP4,000 (2018: GBPnil).
Transactions between Group entities principally relate to
intercompany financing arrangements which are eliminated on
consolidation.
Key management personnel
Key management includes Executive Directors - who are
responsible for controlling and directing the activities of the
Group. The compensation paid or payable to key management for
employee services is shown below:
Year ended Year ended
30 April 2019 30 April 2018
GBP'000 GBP'000
------------------------------ --------------- ---------------
Short-term employee benefits 1,254 1,905
Share-based payment expense (32) 219
------------------------------- --------------- ---------------
Total 1,222 2,124
------------------------------- --------------- ---------------
With the departure of Rick Hurwitz as the Group CEO in February
2019, all the unvested share options of 1,051,250 shares were
lapsed and the share-based payment expense recognised previously
was unwound in the income statement.
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 SEUFUFFUSEIW
(END) Dow Jones Newswires
July 22, 2019 02:00 ET (06:00 GMT)
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