TIDMGHT
RNS Number : 5596R
Gresham Technologies PLC
09 March 2021
RNS
9 March 2021
Gresham Technologies plc
Annual Financial Report Announcement
Gresham Technologies plc (LSE: "GHT", "Gresham", "Company" or
the "Group"), the leading software and services company that
specialises in providing solutions for data integrity and control,
banking integration, payments and cash management, is pleased to
announce its results for the year ended 31 December 2020.
Financial
-- Group revenues down 1% to GBP24.8m (2019: GBP25.0m), including GBP0.6m from Inforalgo.
-- Clareti revenues stable at GBP15.5m (2019: GBP15.5m), including GBP0.6m from Inforalgo.
-- Clareti recurring software revenues up 11% to GBP11.5m (2019:
GBP10.4m), including GBP0.5m from Inforalgo.
-- Clareti annualised recurring revenues ("ARR") as at 31
December 2020 up 29% to GBP12.3m (2019: GBP9.5m), including GBP1.2m
from Inforalgo; transition to full subscription licensing model
complete.
-- Other (non-Clareti) revenues down 2% to GBP9.3m (2019: GBP9.5m), in line with strategy.
-- Adjusted EBITDA (1) up 10% to GBP4.5m (2019: GBP4.1m), including GBP0.1m from Inforalgo.
-- Cash adjusted EBITDA (2) stable at GBP0.3m (2019: GBP0.3m),
including GBP0.1m from Inforalgo.
-- Profit before tax (3) as reported at GBP0.3m (2019: GBP0.3m).
-- Adjusted diluted earnings per share (4) up 100% at 4.0 pence (2019: 2.0 pence).
-- Cash at 31 December 2020 of GBP8.9m and no debt (2019:
GBP9.6m and no debt) (5) after an outflow of GBP2.3m for Inforalgo
initial consideration.
-- Final dividend proposed at 0.75 pence per share (2019: 0.75 pence).
Operational
-- New Tier 1 bank wins in Europe and the US.
-- Continued growth within existing global key accounts.
-- Go-lives of first cash and securities deployments in global banks.
-- Acquisition of Inforalgo in July 2020 to accelerate Clareti
sales into regulatory use cases; acquisition fully integrated.
-- Cash management partnership with Australia and New Zealand
Banking Group delivering to plan.
-- Excellent levels of client retention throughout COVID-19 pandemic.
-- Management confident about the prospects for the Group.
(1) Adjusted EBITDA refers to earnings before interest, tax,
depreciation, impairment and amortisation, adjusted for one-off
exceptional charges and share-based payments. Discontinued
operations are not included in either year (see note 4 of the Group
financial statements).
(2) Adjusted EBITDA less capitalised development spend and any
IFRS16 lease-related cash payments.
(3) Profit before tax for both years stated above excludes
discontinued operations. There were no discontinued operations in
2020, in 2019 discontinued operations generated profit before tax
of GBP2.0m.
(4) Diluted earnings per share, adjusted to add back share-based
payment charges, exceptional items, amortisation from acquired
intangible assets and impairment of development costs.
(5) Excludes any IFRS16 lease-related payables.
(6) Percentage increases stated above are based on rounding to
the nearest GBP'000 as disclosed at detailed level within this
report
Ian Manocha, CEO, commented:
" In challenging circumstances, the Gresham team performed
admirably in 2020 winning new key accounts and growing Clareti ARR
by almost 30%. We were able to sustain our high levels of
investment into product innovation and customer services, whilst
also increasing earnings.
The Inforalgo acquisition, completed in the second half of 2020,
has been swiftly integrated and is already delivering returns. We
have stepped up investment into sales and marketing for H1 2021 and
have a strong field team in place. I am pleased to report that the
new financial year has started positively and there are several
well-advanced opportunities in the pipeline for the first
half."
As announced on 2 March 2021, a presentation for analysts will
be held at 10:00 a.m. today by conference call, and a separate
presentation for private and retail investors will be held at 4:00
p.m. today on the Investor Meet Company ("IMC") platform, details
of which are set out in the Company's announcement dated 2 March
2021. A copy of the presentation to be tabled at both sessions will
be made available on Gresham's website at 7.00 a.m. today.
A copy of this announcement has been submitted to the National
Storage Mechanism and will shortly be available for inspection at
http://www.hemscott.com/nsm.do and greshamtech.com/investors.
The Annual Financial Report 2020 will be sent to shareholders in
due course.
Enquiries
+44 (0) 207 653
Gresham Technologies plc 0200
Ian Manocha
Tom Mullan
+44 (0) 207 496
N+1 Singer (Financial Adviser and Broker) 3000
Shaun Dobson / Jen Boorer / Iqra Amin (Corporate
Finance)
Tom Salvesen (Corporate Broking)
Inside information
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No. 596/2014 ("MAR"). Upon the
publication of this announcement via a Regulatory Information
Service ("RIS"), this inside information is now considered to be in
the public domain.
Note to editors
Gresham Technologies plc is a leading software and services
company that specialises in providing real-time solutions for data
integrity and control, banking integration, payments and cash
management. Listed on the main market of the London Stock Exchange
(GHT.L) and headquartered in the City of London, its customers
include some of the world's largest financial institutions and
corporates, all of whom are served locally from offices located in
the UK, Europe, North America and Asia Pacific.
Gresham's award-winning Clareti software platform is a highly
flexible and scalable platform, available on-site or in the cloud,
designed to address today's most challenging financial control,
risk management, data governance and regulatory compliance
problems. Learn more at www.greshamtech.com.
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
In accordance with the Disclosure and Transparency Rules, the
extracts below are from the Annual Financial Report 2020 in
un-edited full text. In order to comply with the regulatory
requirement to include un-edited text in this Annual Financial
Report Announcement, page and note references refer to page and
note numbers in the Annual Financial Report 2020.
CHAIRMAN'S STATEMENT
I am pleased to present this Annual Financial Report, my first
as Chairman of Gresham.
As forewarned in last year's report, Ken Archer retired as
Chairman after ten years in the role. I would like to thank Ken for
his excellent stewardship of the business which has seen its
evolution into a global leader in the field of enterprise financial
software.
Overview
Obviously, the major world event in 2020 was the COVID-19
pandemic. I am pleased to report that the Company has remained
fully operational despite this period of unprecedented
disruption.
Thanks to strong leadership, resilient systems and a highly
committed team of employees globally, the business was able to
switch rapidly to 100% home working with no discernible disruption
to levels of customer service, project delivery and income levels
from existing clients.
However, as customers and prospects inevitably experienced their
own internal operational challenges, new projects and initiatives
were "parked" in many organisations for a good part of the year. As
we moved through the year, we saw signs that clients and prospects
appear to have adapted to the new normal and pre-sales momentum
started to return to previous levels during the second half of the
year, giving us confidence for the future.
So, whilst Clareti new licence revenues were lower than
originally anticipated, we were pleased to add several new clients,
including substantial long-term agreements with two global Tier 1
banks. 2020 also saw significant expansion by way of new projects
from existing clients and the strategic acquisition of Inforalgo in
July 2020 to supplement our regulatory credentials and US
footprint. Clareti forward-looking ARR, a key performance indicator
for the business, grew by 29% on the prior year at GBP12.3m,
including GBP1.2m from the Inforalgo acquisition.
Overall, our revenue for the year was largely flat at GBP24.8m
versus GBP25.0m last year, but adjusted EBITDA, stated after
exceptional costs of GBP0.4m (2019: GBPnil), finished 10% up at
GBP4.5m versus GBP4.1m last year thanks in part to effective
management of operating expenses in the year.
In a period of global uncertainty, cash is obviously front of
mind and I am pleased to report that the Company ended the year
with a cash balance of GBP8.9m versus GBP9.6m at the prior year end
after an outflow of GBP2.3m for the initial consideration for the
Inforalgo acquisition.
Based on the overall financial performance and the cash within
the business, the Board is recommending a final dividend of 0.75
pence per share, the same as the prior year, for approval at the
Company's Annual General Meeting.
Delivery against our strategic vision
Despite the global challenges, 2020 saw significant progress
against the major strategic goals identified by the Board. Of
particular note:
-- all new business in 2020 was signed on "subscription" terms;
-- the Inforalgo acquisition brings additional sticky ARR and widens our addressable market;
-- subscription model provides high level of visibility and
increased certainty for future years' revenue;
-- Clareti moved further towards stand-alone cash profitability; and
-- underlying business systems and processes are increasingly scalable and global.
People and culture
2020 was a challenging year across the world and it is a
testament to the leadership qualities of the executive team that
the business continued to perform strongly. The annual employee
engagement survey in December showed the highest ever scores across
the business with significant improvements in areas highlighted in
past years. On behalf of the Board, I would like to take this
opportunity to thank all members of the Gresham family for their
dedication, commitment and achievements in what will have been for
many people a personally challenging time.
During my induction in the summer, I was particularly impressed
with the passion, shared values and competence of the people in the
business. I greatly look forward to a time when I can get to meet
more of the staff and management face to face.
One of my first tasks on joining the Board in the summer was to
work with the nomination committee to identify a suitable successor
to Imogen Joss for the role of NED and chair of the remuneration
committee.
The recruitment process identified two strong candidates with
extremely valuable sector experience as well as excellent business
experience gained in successful careers in financial services. As a
result, the nomination committee took the decision that the Board
would be strengthened and enhanced by appointing both candidates
and I was delighted to welcome Jenny Knott and Dr Ruth Wandhöfer to
the Board in October. Jenny and Ruth joined Andy Balchin, who has
been a NED with Gresham since 2017. Jenny has been appointed chair
of the remuneration committee and Andy has taken the role of Senior
Independent Director. I have been particularly pleased at the speed
with which the new Board has formed into a strong team despite the
challenges of inductions and Board meetings being "virtual"
meetings during the pandemic.
As well as taking the opportunity to consider the Group's
business strategy, as noted below, the new Board is increasing its
focus on environmental, social and governance ("ESG") matters and
will provide details on how the Group is addressing these important
issues in future reports and presentations.
Looking ahead
The new Board held a strategic workshop in December, where we
engaged in constructively challenging conversations about which of
the many opportunities available to the business would create
maximum long-term shareholder value. As in many organisations with
a subscription revenue model, there are trade-offs between
maximising short-term profits and investing for future growth and
value. The broad strategic direction approved by the Board focuses
the Company on the following priorities:
-- continue to build a global footprint and resilient international operations;
-- increase investment in sales and marketing;
-- make scalability and repeatability key themes within product
development and professional services to enhance operating leverage
and accelerate speed of implementations;
-- increase investment in AI to support our vision of
self-learning and self-optimising solutions;
-- identify options to monetise the IP arising from the ANZ
strategic partnership in the wider market; and
-- seek further earnings-enhancing acquisitions which add
adjacent technology capabilities, scale, and expand global
reach.
We enter 2021 with the world still impacted by COVID-19 but,
importantly, with a strong pipeline and a product suite that is
increasingly relevant in an era when our clients and prospects are
investing in solutions to accelerate digital transformation, remove
manual processes, reduce costs and enhance the quality of
regulatory reporting.
I am confident that the team has the vision, drive and
capabilities to continue to deliver growth in the business and
growth in shareholder value.
Peter Simmonds
Non-Executive Chairman
8 March 2021
CEO'S STATEMENT
Strategic Overview
It was nearly a decade ago, in September 2011, that Gresham
announced the launch of Clareti Transaction Control 1.0. The
Clareti business was born and the Group started its transformation
from a UK-centric provider of ageing data-centre software and IT
services into an IP-rich enterprise software company.
In recent years, divestments, restructuring, management and
operational platform improvements have sharpened the focus of the
Group, and our ongoing investment into product development,
customer success and distribution has enabled the Clareti business
to push through early-stage growth challenges and move confidently
into the scale-up phase. A successful track record of new business
wins and bolt-on acquisitions has enabled the Group to secure a
base of over 120 customers in 20 countries around the world and
establish itself as a respected and increasingly important player
in the financial services vertical for risk and regulatory
software.
As the business has grown, we have also refined our operating
model and ensured all systems, processes and functions are global
and scalable. In recent years, we have moved our core software to
the cloud and introduced subscription services for connectivity and
reconciliation solutions. Two years ago, we took the decision to
move our on-premise software sales from a less predictable upfront
licence model to a recurring revenue model, and, during 2020, all
new business wins were signed on subscription terms. The Group now
benefits from much improved quality of earnings underpinned by
high-quality recurring Clareti licence revenues. Despite the
challenging conditions in the year, we have progress our strategy
to further reduce the Group's historical reliance on its portfolio
of legacy businesses and continued our progress towards making
Clareti stand-alone cash profitable. The Clareti business now
provides Gresham with a platform for sustained, profitable, organic
and in-organic growth.
Vision
Over the last ten years, the shift to digital has driven
dramatic change in society and business, with entire industries
being reimagined and transformed by data and inter-connected
real-time processes. In financial services, these technology
advances and competitive pressures are compounded by increasing
regulatory, risk and compliance demands. Firms are striving to
achieve full front-to-back and end-to-end control and digitisation
of their businesses. They are replacing archaic, inflexible systems
and manual processes and investing in automation to improve the
speed, accuracy and efficiency of their data processing. Promising
technologies such as artificial intelligence are making it onto the
board agenda as executives think beyond digital transformation
towards self-learning and self-optimising organisations. Executives
need to have complete confidence in their data and processes to
make good decisions, ensure optimal outcomes and protect their
reputations. This is our vision - to bring digital integrity,
agility and confidence to the world's financial institutions.
Markets
Clareti software helps our customers connect, reconcile and
control the many disparate sources of transaction, finance, risk
and regulatory data that exist in modern trading ecosystems.
According to Geert Raeves of Adox Research (2020), "The market
for reconciliation in capital markets and asset management will
grow by 5.2% per annum, to reach a size of USD 400m (excluding
internal IT spend) by 2025". The market for reconciliation software
in finance and post-trade operations remains an important
opportunity for Gresham. Clareti enables firms to handle both core
(cash and securities) and non-core (other use cases)
reconciliations and data controls across the enterprise -
simplifying the complex and scaling up to meet demand. Having
initially established a strong position in non-core enterprise
controls, our objective is to secure leadership in the core
reconciliation space and increase our market share to more than
30%.
Connectivity, reconciliation and control are also fundamental
capabilities needed by firms to confidently meet their obligations
in the area of regulatory reporting. In 2019, the global market for
regulatory reporting solutions was estimated at USD 330m and it is
expected to reach USD 1,160m by the end of 2026, with a CAGR of
19.5% during 2021-2026. Over the last four years, we have secured a
pleasing number of sales in the regulatory area and our acquisition
of Inforalgo has further strengthened our position.
We aim to win a meaningful share of the global market for
reconciliations and regulatory reporting control software in
financial services before turning our attention to other industries
and use- cases. Clareti has been successfully adopted in banking,
investment management, insurance, wealth management, energy and
commodities, where there are nearly 2,000 firms in Gresham's global
target market. We are already regarded as an innovative partner to
many of the world's largest financial institutions and we aim to
deepen those key account relationships as well as win new names
through direct sales teams in key geographies, as well as through
OEM agreements and other alliances. I believe that the overall size
of the addressable market for Clareti software, and the
competitiveness of our offerings, provides an opportunity for us to
build out a global financial technology company of substantial
scale.
COVID-19 response and impact
I am pleased to confirm that your Company has continued to
remain fully operational around the world throughout the current
pandemic, and we are taking great care to protect our colleagues,
partners and suppliers, customers and local communities. Our Board,
major incident team and our wider management team moved proactively
to protect the business as the crisis emerged and continue to stay
abreast of global developments. Thanks to our strong team, good
contingency planning, modern resilient business systems,
established collaboration models and flexible working practices, we
were able to move all global employees seamlessly to 100% home
working during the week of 9 March 2020. At that time, the Company
benefited from record levels of recurring revenue, a strong book of
contracted services engagements and good cash reserves;
nevertheless, with the expectation that the crisis would have an
inevitable impact on progress of new sales, management took swift
actions during April to preserve cash and protect earnings in a way
that would not compromise our excellent long-term prospects. I am
pleased to report that we did not need to furlough any staff, or
take any loans or business relief, in any of our global
businesses.
From March until July 2020, many of our customers and prospects
were focused on their own market and operational challenges and
unable to devote time to new projects and initiatives. After the
summer, pre-sales engagement levels picked up and we were able to
requalify our pipeline and move projects forward. Whilst new
Clareti licence revenues were lower than originally planned due to
customer inertia for a large part of the year, we were pleased with
the Clareti sales progress as set out below.
Unfortunately, the virus is a long way from being defeated and
the global economy remains fragile. Nevertheless, we are confident
in the underlying resilience of the financial services market and
the demand for intelligent automation offerings is strong as firms
seek to accelerate their digital transformation efforts. We have
seen a positive uptick in our pipeline in recent months which we
are confident will translate into sales of Clareti solutions.
Clareti sales progress
During 2020, we were pleased to secure initial projects at two
new Tier 1 global banks adding over GBP800k to Clareti ARR. Winning
and growing large "key account" customers is an important aspect of
our strategy. We look to secure several new name key accounts each
year and expect to see steady ARR growth in these accounts over
time coming from new projects, new instances or volume upgrades and
product cross-sells. To prove the point, in 2020, three existing
key accounts committed to significant licence upgrades including a
Tier 1 bank customer which selected Clareti to control its
regulatory reporting processes across its global business and now
has a framework contract for future growth. Several smaller new
name wins and installed base upgrades were also added. In line with
our strategy, all new agreements signed during the year were
subscription based. Organic growth in forward-looking Clareti ARR
was 17%.
We took the opportunity to refresh and strengthen our sales team
during the year. We made key management appointments in Europe and
US and bolstered the team with several new sales and pre-sales
hires. Our entrepreneurial direct sales team is now maturing into
an organisation that can not only win new name business, but also
manage global and key accounts, build out channels and alliances,
open up new geographies and sell the broader range of product
offerings now available to it. We enter 2021 with a strong team
with better market coverage particularly in the UK, Europe and
Asia. We will continue to expand our US sales team given the
overall size of the market opportunity, as well as building out an
inside sales function to support lead generation and account
management.
Clareti services revenues were lower in 2020 than 2019 in large
part due to investments we made in order to take our Tier 1 bank
early adopters live and referenceable. Creating great customer
references in the market remains key to sustainable growth. Our
software becomes a mission critical part of our clients' trading
operations and the Clareti platform has matured in recent years-
indeed, its power and robustness were proven during an
extraordinary year of market volatility with many clients
processing record volumes. Our customer success team is responsible
for ensuring successful implementation, adoption and value creation
for the customer. During 2020, despite working remotely, our
consulting team successfully ran more than 80 projects of varying
size and scope, and our support team resolved 97% of tickets within
our demanding service level agreements. We were delighted to win
the bobsguide Ranking 2020 for Best Customer Support in Financial
Technology.
Products and solutions for customers
Clareti technology has been applied to solve a wide variety of
problems, such as data integration, data quality, automation and
control issues in middle and back office operations as well as in
front office, straight-through processing ("STP"), regulatory
reporting and cash management and payments.
We deliver these capabilities with a flexible enterprise-grade
platform and the full power of our software can be accessed in the
cloud, on-premise or deployed into hybrid environments. Our
products or cloud services are now available in two primary
offerings:
Clareti Control products
-- The only modern enterprise-grade business self-service
platform for the reconciliation and control of "any and all"
transaction data in financial markets.
-- Disrupting markets dominated by legacy vendors whose
inflexible technology fails to achieve more granular and real-time
data control, or replacing in-house systems and manual
processes.
-- Sold as applications for specific use-cases including Clareti
Transaction Control, Clareti Cash Control, Clareti Securities
Control and Clareti Regulatory Control.
Clareti Connect products
-- A unique service that enables customers to participate in the
complex inter-connected global financial system without having to
worry about integration risk, cost and time to market.
-- Enables institutions to seamlessly connect their banking,
payments, trading, accounting and regulatory systems and external
partners with intelligent straight-through processing in a way that
is reliable and cost effective.
-- Sold primarily as a cloud service bringing together tools and
software libraries built or acquired by Gresham into a rich menu of
industry connectivity and data transformation services
Data integrity and control - one of our long-standing
competitive USPs in reconciliations is the ability to ingest and
match any type of non-standard data, which provided us with repeat
wins in areas such as derivatives and other alternatives,
intersystem controls, insurance broking and regulatory reporting
controls. In June 2020, we signed a large global bank to deploy
controls across its substantial UK retail and commercial business
covering a myriad of non-standard data types such as ATMs and
payments. This contract further widens our addressable market as we
look to target US and European regional banks in 2021 alongside our
thrust into capital markets. In December, we signed a new global
investment bank to implement controls within its US markets
business.
I am pleased to report that our two Tier 1 bank "early adopter"
customers that signed in 2019 for global implementations of Clareti
for post-trade reconciliation of cash and securities both went live
with initial capabilities during the year. The core product
development work for Clareti Cash Control and Clareti Securities
Control is now complete and we are assisting these customers with
finishing their global roll-outs. We continue to attack the legacy
vendor duopoly in this part of market and new opportunities are
emerging as firms firm up their projects for 2021.
Regulatory reporting - The ability to match multiple feeds of
non-standardised data and check for integrity against complex rules
in order ensure accuracy and completeness is a key requirement of
market participants struggling to meet ever-increasing challenging
regulatory reporting demands. Firms also need the ability to
resolve exceptions identified in the end-to-end process. In 2020,
we went live with the implementation of a Consolidated Audit Trail
solution for a global investment bank, representing our largest
regulatory implementation to date. We have now completed regulatory
projects for customers in the UK, Europe, US, Canada, Asia and
Australia and gained substantial experience. In July 2020, we were
able to strengthen our position in this market through the
acquisition of Inforalgo.
The acquisition of Inforalgo, a niche provider of straight
through processing ("STP") software for financial markets, was
completed for an initial consideration of GBP2.3m and contingent
consideration of up to GBP1.3m dependent on recurring revenue
retention at the 12-month and 18-month anniversaries of completion.
The acquisition added over GBP1.2m of annualised recurring revenues
("ARR") from approximately 30 new customers, consisting mainly of
global banks, asset managers and market infrastructure providers.
Nearly 90% of the acquired ARR comes from North American customers,
a key market for Gresham. The financial performance in the second
half of 2020 was as planned and business integration is now
complete. We have been pleased with the quality of the team, the
technology and the customer base.
In recent years, the Inforalgo team had started to apply its
rich heritage in STP connectivity and valuable know-how towards
real-time management of regulatory submissions to external
reporting venues. When this intelligent connectivity capability is
combined with our reconciliation and exception management software,
we are able to deliver end-to-end solutions to our customers. The
Inforalgo leadership team has now taken on enhanced roles within
Gresham and is driving our product plans and sales efforts in this
area.
Cash management and payments - Gresham has a long heritage
working in corporate cash management through our VBT reseller
agreement, systems integration projects and, in recent years, the
application of Clareti technology to data integration or matching
problems. Having signed a strategic agreement with ANZ in 2019 to
develop a next generation offering named Clareti Cash Management,
development work progressed well during 2020 with key milestones
achieved driving incremental licence revenues. The solution is on
track for go-live in the middle of 2021 when further ARR licence
increases are expected.
In parallel with this strategic investment, we continue to sell
our reconciliation and control capabilities and our multi-bank
connectivity cloud service, acquired from B2 Group, into payments
and cash management use cases. Several multi-bank clients went live
in 2020 providing good references. In January 2021, one of the
world's leading providers of money processing services signed for a
new multi-bank connectivity project to integrate with its CTC
system. It is this combination of "control" and "connectivity"
functionality that is essential in creating end-to-end digital
solutions for our cash management customers in much the same way
that I have described for regulatory reporting.
Other (Non-Clareti) business
Our other, non-Clareti, software businesses continued to run off
as expected during 2020. Our EDT tape storage software licensing
now contributes less than GBP0.5m per annum in revenues and is
expected to decline further in 2021. This was offset by a longer
than expected tail of residual usage-based fees from the sole
remaining UK customer of our historical reseller arrangement for
Cashfac's VBT software, which finally ended in December 2020.
The Group's fixed-margin IT services contracting business with
ANZ slowed as a result of the COVID-19 pandemic in Australia,
finishing 11% lower than 2019. Monthly billings have already
recovered to pre-pandemic levels and steady growth is expected in
the short term.
People and culture
The Gresham team has performed well in an exceptional year and
that is a testament to the quality of our people and the strong
culture of collaboration that we have developed. In 2020, many of
the injustices that exist in society and prejudices that can be
found in the workplace were highlighted on the global stage. During
the lockdown in the first half of 2020, we took the opportunity to
engage in an extremely constructive process with our global
employees to revisit our values, and we also rolled out diversity
and inclusion training to our people managers. In December, we were
pleased to receive our strongest ever set of scores from our annual
employee engagement survey. In 2021, we will be investing in
further leadership development programmes as well as our ongoing
focus on developing talent and driving performance.
Outlook
We enter 2021 with an installed base of over 120 Clareti
customers generating annualised recurring revenue of GBP12.3m,
which is GBP2.8m and 29% higher than at the beginning of 2020. We
also have good visibility of our legacy non-Clareti businesses. As
a result, the Company is now much more resilient than it has been
for many years. Whilst COVID-19 is expected to cast its dark shadow
for at least the rest of the year, we are positive about the
opportunity that lies ahead for Gresham. Our pipeline has
strengthened considerably in the last six months and our financial
services clients are investing into intelligent automation
solutions to remove manual processes and save costs. We also expect
to see ongoing spend on regulatory reporting infrastructure. We
will focus our sales efforts on these growth areas where we also
believe our technology has significant benefits over legacy vendors
and newer competitors. We will also continue to look for
earnings-enhancing acquisitions in these same core markets.
FY2021 has started positively with several new subscriptions
already signed. Subject to sustaining our new business win rate,
incremental investment in sales and distribution is planned for the
second half of the year in order to further strengthen our pipeline
into 2022 and capitalise on the significant market
opportunities.
Thank you for your ongoing support.
Ian Manocha
Chief Executive
8 March 2021
FINANCIAL REVIEW
Revenues
Our income is analysed between revenues from Clareti Solutions
and from Other Solutions, as shown in the table below.
Clareti Solutions
Despite the tough trading conditions created by the COVID-19
pandemic, the strategically important high-margin Clareti recurring
revenues recognised in the year grew by 11%, up GBP1.1m to
GBP11.5m. More importantly, the forward-looking Clareti annualised
recurring revenues experienced growth of 29%, up GBP2.8m to
GBP12.3m, providing further predictability going forward. The
acquisition of Inforalgo on 29 July 2020 contributed GBP0.6m and
GBP1.2m of this growth respectively. In line with the Group's
strategy to focus on the aforementioned high-quality recurring
revenues, there were no non-recurring licence fees generated in
2020, a reduction of GBP0.7m on the prior year.
Clareti services revenues were down 9% to GBP4.0m from GBP4.4m.
This reduction was due to a combination of investment time to
successfully deliver the ongoing implementation projects arising
from the large strategic Clareti software licences sold to
customers during 2019, and a period of lower generation of new
services business due to COVID-19.
Other Solutions
Revenues from Other Solutions decreased 2% to GBP9.3m, which
significantly exceeded expectations.
Other software revenues from partners were up 19% to GBP3.1m as
a result of one of our legacy partner relationships increasing its
usage of the already installed software, which is offset by
reductions from another customer which has finally migrated away
from the software after notifying us of its intent to do so during
2017. The ongoing arrangements have an approximate net margin of
50%.
Other software revenues from our remaining legacy products
continued to decrease as planned as customers moved off from ageing
platforms to newer technologies. Attrition is expected to persist
as these technology shifts continue, although the longevity of
these very old legacy products continues to surpass our
expectations and still attracts a net margin exceeding 90%.
Contracting services are provided to ANZ, a strategically
important Australian banking customer, which generate a
contractually fixed net contribution to the Group of 13%. Contracts
are typically signed for twelve months, giving strong visibility of
the expected near-term revenues, although these do fluctuate as
resource requirements change. Whilst 9% down on the prior year, our
original expectations were significantly exceeded due to additional
resource requests being made during the year.
2020 2019 Variance %
Clareti
Solutions Recurring GBPm 11.5 10.4 1.1 11%
Non-recurring GBPm - 0.7 (0.7) (100%)
----------- ------------- ------------- ---------
Software GBPm 11.5 11.1 0.4 4%
Services GBPm 4.0 4.4 (0.4) (9%)
----------- ------------- ------------- ---------
Total KPI GBPm 15.5 15.5 - -
Other Solutions Software - Partners GBPm 3.1 2.6 0.5 19%
Software - Own solutions GBPm 0.6 0.8 (0.2) (25%)
Services GBPm 0.7 0.7 - -
Contracting
services GBPm 4.9 5.4 (0.5) (9%)
----------- ------------- ------------- ---------
Total GBPm 9.3 9.5 (0.2) (2%)
Total from Continuing Operations
- note 3 KPI GBPm 24.8 25.0 (0.2) (1%)
------------------------------------ ------ -------- ----------- ------------- ------------- -------
Software - Own
Discontinued solutions GBPm - 0.1 (0.1) (100%)
Total revenue KPI GBPm 24.8 25.1 (0.3) (1%)
------------------------------------ ------- ------ ----------- ------------- ------------- ---------
Annualised
recurring
revenue Clareti KPI GBPm 12.3 9.5 2.8 29%
as at 31
December
2020 Other GBPm 3.5 2.8 0.7 25%
----------- ------------- ------------- ---------
Total KPI GBPm 15.8 12.3 3.5 28%
Earnings (continuing operations only)
2020 2019 Variance %
Group: Gross margin GBPm 20.9 21.0 (0.1) -
Gross margin % 84% 84% -
--------------------------- -------- ----- ------ --------- ----
Adjusted EBITDA KPI GBPm 4.5 4.1 0.4 10%
Adjusted EBITDA KPI % 22% 20% 2 %
--------------------------- ----- -------- ----- ------ --------- ----
Cash Adjusted
EBITDA KPI GBPm 0.3 0.3 - -
Cash Adjusted
EBITDA KPI % 1 % 1% -
--------------------------- ----- -------- ----- ------ --------- ----
Statutory profit/(loss)
after tax GBPm 1.3 (0.1) 1.4 n/a
--------------------------- -------- ----- ------ --------- ----
Adjusted diluted 99
EPS KPI pence 3.96 1.99 1.97 %
Across all business segments, the majority of our cost of sales
is made up of: (i) the customer-specific third party costs incurred
in providing our hosted cloud solutions; and (ii) third party
contractor costs incurred by our contracting services business
(individuals we bring on our payroll as fixed-term employees to
provide this service are recorded in administration costs).
Operating performance is analysed excluding exceptional items,
share-based payment charges, amortisation from acquired intangible
assets and impairment of development costs, which is consistent
with the way in which the Board reviews the financial results of
the Group. This is also consistent with the manner in which similar
small-cap LSE (or AIM) listed companies present their results and
how we understand the investment community assesses performance,
with this particularly being case for growth shares in which the
recurring cash performance is considered important.
There has been an increase in statutory profit after tax from a
loss of GBP0.1m to a profit of GBP1.3m, refer to the taxation
section below for details of this variance.
Included below are tables and commentary for each of our key
business segments which describe the underlying trends in gross
margin, adjusted EBITDA and cash adjusted EBITDA. Cash adjusted
EBITDA, which adjusts EBITDA for capitalised development spend and
any IFRS16 lease-related cash expenses classified as depreciation
and interest, has also improved since the prior year. Adjusted
EBITDA and cash adjusted EBITDA are not IFRS measures nor are they
considered to be a substitute for, or superior to, any IFRS
measures. They are not directly comparable to other companies.
2020 2019 Variance %
Clareti Solutions: Gross margin GBPm 14.5 14.4 0.1 1%
Gross margin % 94% 93% 1%
------------------- -------- ------ ------ --------- -----
Adjusted EBITDA KPI GBPm 1.2 0.6 0.6 100%
Adjusted EBITDA KPI % 8% 4% 4%
------------------- ----- -------- ------ ------ --------- -----
Cash Adjusted
EBITDA KPI GBPm (2.9) (3.1) 0.2 5%
Cash Adjusted
EBITDA KPI % (19%) (20%) 1%
Despite the challenging global environment, our key growth
business, Clareti, has seen an improvement since 2019 across all
margin metrics. Our original 2020 plans anticipated that Clareti
would be close to a break-even cash adjusted EBITDA position and we
are pleased to be reporting a continued trend in this direction.
This outcome is as a result of careful management of costs during
the COVID-19 related uncertainty of Q2 and Q3. As our confidence in
generating new Clareti business increased during Q3, we increased
investment, particularly focused on the distribution of Clareti
during Q4 to support organic growth in 2021. Our product
development team spent more time on new future revenue-generating
Clareti features and functions than the prior year; hence, there
was an increase in the proportion of development spend being
capitalisable, which improved adjusted EBITDA but does not affect
cash adjusted EBITDA.
2020 2019 Variance %
Other Solutions
(software): Gross margin GBPm 2.8 2.9 (0.1) (3%)
Gross margin % 63% 71% (8%)
------------------- -------- ---- ----- --------- -----
Adjusted EBITDA KPI GBPm 2.6 2.8 (0.2) (7%)
Adjusted EBITDA KPI % 60% 67% (7%)
------------------- ----- -------- ---- ----- --------- -----
Cash Adjusted
EBITDA KPI GBPm 2.6 2.8 (0.2) (7%)
Cash Adjusted
EBITDA KPI % 60% 67% (7%)
As noted above, our Other Solutions business saw the expected
reduction in our high-margin own solutions business, offset by an
increase in usage fees generated from a legacy partner arrangement.
Costs of sales in this business segment are fixed-margin reseller
fees, with operating expenses being equivalent to 1.5 full-time
equivalent employees to service these portfolios. This business
segment is not core to Gresham's strategy and our primary objective
is to operate it as profitably as possible and at minimal risk.
2020 2019 Variance %
Other Solutions
(contracting
services): Gross margin GBPm 3.7 3.7 - -
Gross margin % 75% 69% 6%
------------------- -------- ---- ----- --------- ------
Adjusted EBITDA KPI GBPm 0.6 0.7 (0.1) (14%)
Adjusted EBITDA KPI % 13% 13% -
------------------- ----- -------- ---- ----- --------- ------
Cash Adjusted
EBITDA KPI GBPm 0.6 0.7 (0.1) (14%)
Cash Adjusted
EBITDA KPI % 13% 13% -
As noted above, we provide contracting services to ANZ,at a
fixed net margin of 13%. Fees are paid six monthly in advance,
providing a helpful contribution to working capital, but otherwise
this business segment is not strategically important and will
continue to be managed with negligible administrative
overheads.
Exceptional items
During the year, the Group recognised exceptional costs of
GBP0.4m, of which: (i) GBP0.2m were acquisition costs in relation
to the acquisition of Inforalgo on 29 July 2020; and (ii) GBP0.2m
related to a restructuring in July 2020 upon the expiry of the
earn-out period relating to the acquisition of the B2 Group in July
2018. There were no material exceptional costs during 2019.
There was no material exceptional income during 2020. During
2019, the Group recognised exceptional income of GBP2.0m arising
from the sale of the VME software business to Fujitsu in January
2019.
Taxation
For the year ended 31 December 2020, the Group has recorded a
net tax credit of GBP1.0m (2019: charge of GBP0.4m). The material
drivers for the variance from the prior year being: additional
taxation of GBP0.4m being generated in 2019 upon the sale of the
VME business; 2020 accounting for the benefit of two years' worth
of credit in relation to research and development activities; 2020
benefitting from a GBP0.2m release of 2019 overseas tax provisions;
and GBP0.3m of deferred tax assets being generated upon grants of
matching shares during the year and increase in share price
throughout the year.
Cash flow
The Group's financial position remained very strong throughout
2020, despite the outflow of GBP2.3m for the initial consideration
to acquire Inforalgo, ending the year with cash of GBP8.9m and no
debt (2019: GBP9.6m and no debt).
Operating cash flow excluding working capital has decreased by
GBP0.1m to GBP4.1m in the year.
The reduction in the movement in working capital of GBP1.7m is
largely explained by the fact that 2019 included an initial
three-year prepayment of GBP3.0m from the GBP1.0m per annum
subscription licence that became non-contingent in March 2019.
The Group received tax receipts of GBP1.3m in the year during
2020 as a result of research and development activities performed
during 2018 and 2019 where enhanced relief is available (2019:
received GBP1.4m in relation to 2016 and 2017). Tax payments were
made in the year of GBP0.5m (2019: GBP0.1m), the increase on the
prior year largely as a result of increased profitability in the US
and Australia and full utilisation of historical Australian tax
losses having occurred.
The capitalised development expenditure of GBP3.5m has increased
by GBP0.2m from the prior year. This is due to an increased portion
of product development effort being spent on new product or new
product features in comparison to the prior year.
During 2019, the Group received a net amount of GBP1.7m through
the sale of its legacy VME business. No equivalent business sale
occurred during 2020.
During 2019, the Group purchased a total of GBP1.0m of its own
shares in the period, GBP0.1m being in respect of employee bonuses
for FY2018 and GBP0.9m to pre-fund employee and executive bonus and
long-term incentive schemes in future years. No such share purchase
occurred during 2020.
The Group received GBP0.5m upon the exercise of share options
during the year (2019: GBP0.1m).
As was the case in the prior year, with increasing Clareti sales
from the growing annuity base and new customer wins, coupled with
tight cost control on planned investments, we expect the
cash-generation capacity of the business to continue and are
looking at opportunities to best utilise the excess cash generated.
In order to maximise our returns, we plan to increase levels of
investment in distribution and customer success, whilst continuing
to invest excess cash efficiently in bank deposits and giving
appropriate consideration to M&A opportunities.
2020 2019 Variance %
Operating cash flow excluding
working capital GBPm 4.1 4.2 (0.1) (2%)
Movement in working capital GBPm 0.6 2.1 (1.5) (71%)
Net tax receipts GBPm 0.8 1.3 (0.5) (38%)
Capital expenditure - development
costs GBPm (3.5) (3.3) (0.2) (6%)
Capital expenditure - other GBPm (0.1) (0.2) 0.1 50%
Principal paid on lease
liabilities GBPm (0.6) (0.4) (0.2) (50%)
Acquisition (net of cash
acquired) GBPm (1.9) - (1.9) n/a
Sale of discontinued operation GBPm - 1.7 (1.7) (100%)
Purchase of own shares
in employee benefit trust GBPm - (1.0) 1.0 100%
Shares issued upon option
exercises GBPm 0.5 0.1 0.4 400%
Dividend GBPm (0.5) (0.3) (0.2) (67%)
Other GBPm (0.1) 0.1 (0.2) (200%)
------ ------ --------- -------
Net increase/(decrease)
in cash and financial assets GBPm (0.7) 4.3 (5.0) (116%)
------------------------------------------ ------ ------ ------ --------- -------
Cash KPI GBPm 8.9 9.6 (0.7) (7%)
Consolidated statement of financial position
Intangible fixed assets have increased from GBP25.6m to
GBP31.1m, largely as a result of the Inforalgo acquisition on 29
July 2020.
Trade receivables have reduced from GBP3.3m to GBP2.5m. This
reduction is largely as a result of an unusually high receivables
balance from an Australian customer in December 2019 related to our
fixed-margin contracting services business, for which there was a
corresponding payable at the time. This is also the reason behind
the decrease in trade payables from GBP1.6m to GBP0.9m.
Non-current contract liabilities have reduced from GBP1.3m to
GBP0.1m, as our standard model with customers has been to collect
payments annually in advance as opposed to collecting multiple
years in advance as was the case with a large three year
subscription license signed in 2018. Non-current contingent
consideration of GBP0.3m and current contingent consideration of
GBP0.9m has been recognised in relation to the acquisition of
Inforalgo.
Current contract liabilities have increased from GBP8.8m to
GBP11.0m, due to the deferred revenue acquired from the Inforalgo
acquisition and also the increase in Clareti ARR which is typically
invoiced annually in advance.
Financial outlook
In light of the COVID-19 challenges of 2020, the Group is very
pleased with the financial outcome of the year - particularly
achieving a 17% organic growth rate in Clareti ARR, bolstered to
29% with the successful Inforalgo acquisition. Whilst this level of
organic growth was lower than we had originally planned, we expect
to be able to return closer to pre-COVID-19 Clareti organic growth
rates in 2021. In prior year reports, I commented on our strategy
to deliver consistent Clareti growth and drive more predictability
into the business through a focus on generating higher levels of
Clareti recurring revenues rather than initial licence fees - it is
now satisfying and to the benefit of the business to confirm that
we have completed this transition.
The other (non-Clareti) software portfolio continues to surpass
expectations, with customers requiring extensions to contracts as
they struggle to migrate to newer or alternative platforms. Whilst
such extensions can generate short-term revenue spikes, these
portfolios remain in long-term decline, as demonstrated by the
previously significant non-Clareti UK banking customer that finally
completed its migration after declaring its intent to do so in
2017. We continue to plan for these portfolios to decline. We
expect our contracting services business to remain stable in
2021.
Overall, we have further increased levels of revenue
predictability throughout the Group. This predictability comes from
the significantly increased Clareti recurring revenue base, which
has been complemented by the Inforalgo acquisition, high levels of
contracted backlog of Clareti services for ongoing implementations
and innovation services and a high portion of the non-Clareti
portfolio already being under contract for 2021. This was the case
as we entered 2020 and is the case to an even greater degree as we
enter 2021. With this in mind, we continue to invest in the Clareti
business, namely in distribution, product and customer success, in
order to ensure that we are best placed to take advantage of the
significant market opportunities.
Tom Mullan
Chief Financial Officer
8 March 2021
CONSOLIDATED INCOME STATEMENT
Notes Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
--------------------------------------------- ----------------- ------------------------ ------------------------
Revenue 3,4 24,752 24,961
Cost of sales (3,860) (3,933)
--------------------------------------------- ----------------- ------------------------ ------------------------
Gross profit 20,892 21,028
Adjusted administrative expenses (19,054) (19,302)
--------------------------------------------- ----------------- ------------------------ ------------------------
Adjusted operating profit 1,838 1,726
--------------------------------------------- ----------------- ------------------------ ------------------------
Adjusting administrative items:
Exceptional items 4 (400) (10)
Impairment of development costs 13 - (647)
Amortisation on acquired
intangibles 13 (893) (794)
Share-based payments 22 (220) (77)
--------------------------------------------- ----------------- ------------------------ ------------------------
(1,513) (1,528)
--------------------------------------------- ----------------- ------------------------ ------------------------
Total administrative expenses (20,567) (20,830)
--------------------------------------------- ----------------- ------------------------ ------------------------
Operating profit from continuing
operations 4,5 325 198
Share of post tax profit from
joint
venture - 66
Finance revenue 3,8 37 104
Finance costs 8 (54) (65)
--------------------------------------------- ----------------- ------------------------ ------------------------
Profit before taxation from
continuing
operations 308 303
Taxation 9 953 (443)
--------------------------------------------- ----------------- ------------------------ ------------------------
Profit/(loss) after taxation from
continuing operations 1,261 (140)
Net gain on sale of discontinued
operations - 1,985
Profit after taxation from
discontinuing
operations - 53
--------------------------------------------- ----------------- ------------------------ ------------------------
Profit attributable to the equity
holders of the Parent 1,261 1,898
--------------------------------------------- ----------------- ------------------------ ------------------------
Earnings per share
Statutory pence pence
Basic earnings per share 10 1.84 2.78
Diluted earnings per share 10 1.80 2.72
--------------------------------------------- ----------------- ------------------------ ------------------------
Adjusted
Basic earnings per share 10 4.04 2.11
Diluted earnings per share 10 3.96 2.07
--------------------------------------------- ----------------- ------------------------ ------------------------
Earnings per share - continuing
operations
Statutory
Basic earnings per share 10 1.84 (0.21)
Diluted earnings per share 10 1.80 (0.21)
--------------------------------------------- ----------------- ------------------------ ------------------------
Adjusted
Basic earnings per share 10 4.04 2.04
Diluted earnings per share 10 3.96 1.99
--------------------------------------------- ----------------- ------------------------ ------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------------------------------------------------ ------------------------ ------------------------
Profit attributable to the equity holders of the
Parent 1,261 1,898
------------------------------------------------------------------ ------------------------ ------------------------
Other comprehensive expenses
Items that will or may be re-classified into profit
or loss:
Exchange differences on translating foreign
operations (113) (3)
------------------------------------------------------------------ ------------------------ ------------------------
Total other comprehensive expenses (113) (3)
------------------------------------------------------------------ ------------------------ ------------------------
Total comprehensive income for the year 1,148 1,895
------------------------------------------------------------------ ------------------------ ------------------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes
At 31 December At 31 December
2020 2019
GBP'000 GBP'000
-------------------------------- ------ ----------------- ---------------
Assets
Non-current assets
Property, plant and equipment 12 243 387
Right-of-use assets 15 1,646 1,292
Intangible assets 13 31,108 25,575
Deferred tax assets 9 552 489
-------------------------------- ------ ----------------- ---------------
33,549 27,743
-------------------------------- ------ ----------------- ---------------
Current assets
Trade and other receivables 17 3,497 4,367
Contract assets 17 923 611
Income tax receivable 17 - 43
Cash and cash equivalents 18 8,876 9,605
-------------------------------- ------ ----------------- ---------------
13,296 14,626
Total assets 46,845 42,369
-------------------------------- ------ ----------------- ---------------
Equity and liabilities
Equity attributable to owners
of the Parent
Called up equity share capital 21 3,508 3,413
Share premium account 24 4,341 3,903
Own share reserve 21 (778) (945)
Other reserves 24 536 536
Foreign currency translation
reserve 24 (194) (81)
Retained earnings 24 19,453 18,478
Total equity attributable to
owners of the Parent 26,866 25,304
-------------------------------- ------ ----------------- ---------------
Non-current liabilities
Contract liabilities 19 66 1,329
Lease liabilities 15 1,004 788
Deferred tax liability 9 1,289 952
Provisions 19 146 144
Contingent consideration 19 349 -
2,854 3,213
-------------------------------- ------ ----------------- ---------------
Current liabilities
Trade and other payables 19 15,303 12,976
Lease liabilities 15 535 457
Income tax payable 19 378 419
Contingent consideration 19 909 -
17,125 13,852
-------------------------------- ------ ----------------- ---------------
Total liabilities 19,979 17,065
-------------------------------- ------ ----------------- ---------------
Total equity and liabilities 46,845 42,369
-------------------------------- ------ ----------------- ---------------
The financial statements were approved by the Board of Directors
and authorised for issue on 8 March 2021.
On behalf of the Board
Ian Manocha Tom Mullan
8 March 2021 8 March 2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Notes Share Share Own Other Foreign Retained Total
capital premium share reserves currency earnings
account reserve translation
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ------ --------- --------- --------- ---------- ------------- ---------- --------
At 1 January 2019 3,404 3,830 - 536 (78) 16,842 24,534
Attributable profit
for the period - - - - - 1,898 1,898
Other comprehensive
expenses - - - - (3) - (3)
---------------------- ------ --------- --------- --------- ---------- ------------- ---------- --------
Total comprehensive
(expense)/income - - - - (3) 1,898 1,895
Exercise of share
options 21 9 73 - - - - 82
Purchase of own
shares 21 - - (995) - - - (995)
Sale of own shares
held by Employee
Share Ownership
Trust 21 - - 50 - - - 50
Share-based payments 22 - - - - - 77 77
Dividend paid - - - - - (339) (339)
At 31 December 2019 3,413 3,903 (945) 536 (81) 18,478 25,304
---------------------- ------ --------- --------- --------- ---------- ------------- ---------- --------
Attributable profit
for the period - - - - - 1,261 1,261
Other comprehensive
expense - - - - (113) - (113)
---------------------- ------ --------- --------- --------- ---------- ------------- ---------- --------
Total comprehensive
(expense)/income - - - - (113) 1,261 1,148
Exercise of share
options 21 95 438 - - - - 533
Sale of own shares
held by Employee
Share Ownership
Trust 21 - - 167 - - - 167
Share-based payments 22 - - - - - 220 220
Dividend paid 11 - - - - - (506) (506)
At 31 December 2020 3,508 4,341 (778) 536 (194) 19,453 26,866
---------------------- ------ --------- --------- --------- ---------- ------------- ---------- --------
CONSOLIDATED STATEMENT OF CASH FLOW
Notes Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
----------------------------------------------- ------ ------------- -------------
Cash flows from operating activities
Profit after taxation 1,261 1,898
Depreciation of property, plant and
equipment 12 245 266
Amortisation of intangible assets 13 2,810 2,364
Impairment of intangible assets 13 - 647
Amortisation of right-of-use assets 15 496 461
Share-based payments 22 220 77
Net gain on sale of discontinued operations - (1,985)
Share of post tax profit from joint
venture - (66)
Decrease/(increase) in trade and other
receivables 1,060 (210)
Increase in contract assets (312) (33)
Increase in trade and other payables 1,111 639
(Increase)/decrease in contract liabilities (1,263) 1,600
Taxation 9 (953) 546
Movement in provisions - 59
Net finance costs 8 17 39
----------------------------------------------- ------ ------------- -------------
Cash inflow from operations 4,692 6,302
Income taxes received 1,307 1,356
Income taxes paid (510) (75)
----------------------------------------------- ------ ------------- -------------
Net cash inflow from operating activities 5,489 7,583
Cash flows from investing activities
Interest received 8 37 37
Decrease in other financial assets -
bank deposits/restricted cash - 278
Purchase of property, plant and equipment 12 (87) (178)
Proceeds from sale of property, plant
and equipment - 3
Payments to acquire subsidiary undertaking
(net of cash) 23 (1,900) -
Proceeds from sale of discontinued operations - 1,675
Payments to acquire intangible fixed
assets 13 (3,565) (3,266)
----------------------------------------------- ------ ------------- -------------
Net cash used in investing activities (5,515) (1,451)
Cash flows from financing activities
Interest paid 8 (16) (17)
Principal paid on lease liabilities 15 (576) (511)
Dividends paid 11 (506) (339)
Purchase of own shares by Employee Share
Ownership Trust 21 - (995)
Sale of own shares held by Employee
Share Ownership Trust - 50
Share issue proceeds 21 533 82
----------------------------------------------- ------ ------------- -------------
Net cash used in financing activities (565) (1,730)
Net (decrease)/increase in cash and
cash equivalents (591) 4,402
Cash and cash equivalents at beginning
of year 9,605 5,323
Exchange adjustments (138) (120)
Cash and cash equivalents at end of
year 18 8,876 9,605
----------------------------------------------- ------ ------------- -------------
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Basis of preparation
The financial information contained in these condensed financial
statements does not constitute the Company's statutory accounts
within the meaning of the Companies Act 2006. Statutory accounts
for the years ended 31 December 2020 and 31 December 2019 have been
reported on, without qualification or drawing attention to any
matters by way of emphasis, by the Company's auditor and do not
contain a statement under s.498 (2) or s.498 (3) of the Companies
Act 2006. Whilst the financial information included in this Annual
Financial Report Announcement has been computed in accordance with
International Financial Reporting Standards ("IFRS"), this
announcement, due to its condensed nature, does not itself contain
sufficient information to comply with IFRS.
In order to comply with the regulatory requirement to include
un-edited text in this Annual Financial Report Announcement, page
and note references refer to page and note numbers in the Annual
Financial Report 2020.
Statutory accounts for the year ended 31 December 2019 have been
delivered to the Registrar of Companies. The statutory accounts for
the year ended 31 December 2020, prepared under IFRS, will be
delivered to the Registrar in due course. The Group's principal
accounting policies as set out in the 2019 statutory accounts have
been applied consistently in all material respects.
This Annual Financial Report Announcement was approved by the
Board of Directors on 8 March 2021 and signed on its behalf by Mr.
I Manocha and Mr. T Mullan.
2. Responsibility statements under the disclosure and
transparency rules
The Annual Financial Report for the year ended 31 December 2020
contains the following statements:
The directors confirm that to the best of their knowledge:
-- The Group financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRSs") as adopted by the European Union and Article 4 of the IAS
Regulation and give a true and fair view of the assets,
liabilities, financial position and profit and loss of the Group;
and
-- The Annual Financial Report 2020 includes a fair review of
the development and performance of the business and the financial
position of the Group and the Parent Company, together with a
description of the principal risks and uncertainties that they
face.
The name and function of each of the directors for the year
ended 31 December 2020 are set out in the Annual Financial Report
2020.
3. Segment information
The segmental disclosures reflect the analysis presented on a
monthly basis to the chief operating decision maker of the
business, the Chief Executive Officer and the Board of
Directors.
In addition, the split of revenues and non-current assets by the
UK and overseas have been included as they are specifically
required by IFRS 8 "Operating Segments".
For management purposes, the Group is organised into the
following reportable segments:
-- Clareti Solutions - supply of solutions predominantly to the
finance and banking markets across Asia Pacific, EMEA and North
America. Includes both software and services that can be accessed
in the cloud, on-premise or deployed into hybrid environments.
These primary offerings within this segment include:
o Clareti Control products
-- The only modern enterprise-grade business self-service
platform for the reconciliation and control of "any and all"
transaction data in financial markets.
-- Disrupting markets dominated by legacy vendors whose
inflexible technology fails to achieve more granular and real-time
data control, or replacing in-house systems and manual
processes.
-- Sold as applications for specific use cases including Clareti
Transaction Control, Clareti Cash Control, Clareti Securities
Control and Clareti Regulatory Control.
o Clareti Connect products
-- A unique service that enables customers to participate in the
complex inter-connected global financial system without having to
worry about integration risk, cost and time to market.
-- Enables institutions to seamlessly connect their banking,
payments, trading, accounting and regulatory systems and external
partners with intelligent straight-through-processing in a way that
is reliable and cost effective.
-- Sold primarily as a cloud service bringing together tools and
software libraries built or acquired by Gresham into a rich menu of
industry connectivity and data transformation services.
-- Other Solutions - supply of a range of well-established
solutions to enterprise-level customers in a variety of end
markets
-- Contracting Services - Supply of IT contracting services to one banking customer
Transfer prices between segments are set on an arm's length
basis in a manner similar to transactions with third parties.
Segment revenue, segment expense and segment result include
transfers between business segments. Those transfers are eliminated
on consolidation.
Other
Notes Clareti Solutions Contracting Adjustments, Consolidated
Solutions Services central
overheads
and elimination
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Revenue 3 15,453 4,395 4,904 - 24,752
Cost of sales (1,031) (1,605) (1,226) - (3,862)
Cost of sales capitalised
as intangible asset 2 - - - 2
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Gross profit 14,424 2,790 3,678 - 20,892
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Gross profit % 93% 63% 75% 84%
Contracted administrative
expenses (96) - (3,046) - (3,142)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Gross profit after contracting
fully costed 14,328 2,790 632 - 17,750
Gross profit % 93% 63% 13% 72%
Adjusted administrative
expenses (15,753) (159) - - (15,912)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Adjusted operating (loss)/profit (1,425) 2,631 632 - 1,838
Adjusting items:
Exceptional costs 4 - - - (400) (400)
Amortisation of acquired
intangibles 13 - - - (893) (893)
Share-based payments 22 - - - (220) (220)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Adjusting administrative
expenses - - - (1,513) (1,513)
Operating (loss)/profit
from continuing operations (1,425) 2,631 632 (1,513) 325
Finance revenue 8 37
Finance costs 8 (54)
Profit before taxation
from continuing operations 308
Taxation 9 953
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Profit after taxation
from continuing operations 1,261
Adjusted operating (loss)/profit (1,425) 2,631 632 - 1,838
Amortisation of intangibles 13 1,917 - - - 1,917
Depreciation of property,
plant and equipment 12 213 - - - 213
Amortisation of right-of-use
assets 15 496 - - - 496
Bank charges 8 (13) - - - (13)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Adjusted EBITDA - continuing
operations 4 1,188 2,631 632 - 4,451
Development costs capitalised 13 (3,561) - - - (3,561)
Principal paid on lease
liabilities 15 (576) - - - (576)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Adjusted cash EBITDA (2,949) 2,631 632 - 314
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Segment assets 46,845
Segment liabilities (19,979)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Other
Notes Clareti Solutions Contracting Adjustments, Consolidated
Solutions Services central
overheads
and elimination
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Revenue 3 15,489 4,078 5,394 - 24,961
Cost of sales (1,089) (1,185) (1,669) - (3,943)
Cost of sales capitalised
as intangible asset 10 - - - 10
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Gross profit 14,410 2,893 3,725 - 21,028
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
93% 71% 69% - 84%
Contracted administrative
expenses - - (3,062) - (3,062)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Gross profit after contracting
fully costed 14,410 2,893 663 - 17,966
93% 71% 12% - 72%
Adjusted administrative
expenses (16,097) (143) - - (16,240)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Adjusted operating (loss)/profit (1,687) 2,750 663 - 1,726
Adjusting items:
Exceptional costs 4 - - - (10) (10)
Impairment of development
costs 13 - - - (647) (647)
Amortisation of acquired
intangibles 13 - - - (794) (794)
Share-based payments 22 - - - (77) (77)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Adjusting administrative
expenses - - - (1,528) (1,528)
Operating (loss)/profit
from continuing operations (1,687) 2,750 663 (1,528) 198
Share of post tax profit
from joint venture 66
Finance revenue 8 104
Finance costs 8 (65)
Profit before taxation
from continuing operations 303
Taxation 9 (443)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Loss after taxation
from continuing operations (140)
Net gain on sale of
discontinued operations 1,985
Profit after taxation
from discontinued operations 53
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Profit after taxation 1,898
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Adjusted operating (loss)/profit (1,687) 2,750 663 - 1,726
Amortisation of intangibles 13 1,570 - - - 1,570
Depreciation of property,
plant and equipment 12 266 - - - 266
Amortisation of right-of-use
assets 15 461 - - - 461
Share of post-tax profit
from joint venture - - - 66 66
Bank charges 8 (13) - - - (13)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Adjusted EBITDA - continuing
operations 4 597 2,750 663 66 4,076
Development costs capitalised 13 (3,259) - - - (3,259)
Principal paid on lease
liabilities 15 (511) - - - (511)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Adjusted cash EBITDA (3,173) 2,750 663 66 306
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
Segment assets 42,369
Segment liabilities (17,065)
---------------------------------- ------ ----------- ----------- ------------ ----------------- -------------
The Group has a customer relationship with one banking customer
which is considered by the Directors to be individually
significant; revenue from this relationship exceeded 10% of the
Group's revenue, totalling GBP11,388,000 (2019: GBP10,892,000)
which includes low-margin contracting revenue of GBP5,115,000
(2019: GBP5,394,000) which falls predominantly within the Other
Contracting Services segment.
Adjusting administrative items
Operating performance is analysed excluding exceptional items,
share-based payment charges, amortisation from acquired intangibles
and impairments of development costs which is consistent in with
the way in which the Board reviews the financial results of the
Group. This is also consistent with the manner in which similar
small-cap LSE (or AIM) listed present their results and how we
understand the investment community to assess performance, with
this particularly being the case the growth shares in which the
recurring cash performance is considered important.
The adjusting administrative items are:
2020 2019
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Acquisition and associated integration costs 423 -
Advisory fees for new share option scheme 33 -
Negative goodwill arising on acquisition of
remaining shares in Joint Venture - (21)
Advisory fees for establishment of joint venture
and all-staff incentive scheme - 31
Exceptional income (56) -
Exceptional items 400 10
-------------------------------------------------- -------- --------
Impairment of development costs - 647
Amortisation on acquired intangibles 893 794
Share-based payments 220 77
-------------------------------------------------- -------- --------
Total adjusting administrative items 1,513 1,528
-------------------------------------------------- -------- --------
During the year the Group incurred GBP423,000 (2019: GBPnil)
exceptional costs relating to legal, due diligence and professional
fees for acquisitions and associated integration costs.
Exceptional legal and tax advisory costs were incurred in the
year of GBP33,000 (2019: GBPnil) associated with implementing a new
ten year share option incentive scheme. These costs are not
expected to occur for a further ten years .
GBP56,000 was received during the year following an initiative
by the Australian Government to support businesses during the
COVID-19 pandemic. This income has been treated as exceptional as
it is non-recurring.
The negative goodwill incurred in the prior year was due to the
acquisition of the remaining 50% of the share capital in GMS Loan
Technologies Limited. As the purchase price was lower than the net
assets acquired the negative goodwill created is disclosed within
exceptional items as a non-recurring item.
Development costs of GBPnil (2019: GBP647,000) were impaired
during the year relating to the termination of a joint venture
arrangement, these costs are considered to be significant and
non-recurring.
Due to the amount and nature of amortisation of acquired
intangibles and share-based payments both costs were treated as an
adjusting administrative item.
Adjusted EBITDA - continuing operations
Adjusted EBITDA - continuing operations is disclosed within the
financial statements to show the underlying performance of the
group on a consistent basis and to aid understanding of the
financial performance during the year.
Notes 2020 2019
GBP'000 GBP'000
---------------------------------------------------- -------------- ------------------- -------------------
Profit before taxation 308 303
---------------------------------------------------- -------------- ------------------- -------------------
Adjusting items:
Amortisation of intangibles 13 2,810 2,364
Impairment of development costs 13 - 647
Depreciation of property, plant and
equipment 12 213 266
Amortisation of right-to-use assets 15 496 461
Notional interest on lease liabilities 8 38 48
Finance revenue 8 (37) (104)
Interest payable 8 3 4
EBITDA 3,831 3,989
Exceptional items 4 400 10
Share-based payments 22 220 77
Adjusted EBITDA - continuing operations 4,451 4,076
-------------- ------------------- -------------------
Adjusted EBITDA is not an IFRS measure or not considered to be a
substitute for or superior to any IFRS measures. It is not directly
comparable to other companies.
Geographic information 2020 2019
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Revenues from external customers (by destination)
UK 6,719 6,485
EMEA 2,593 3,698
United States 3,038 2,005
Americas 494 207
Australia 11,413 11,117
Asia Pacific 495 1,449
--------------------------------------------------- -------- --------
24,752 24,961
--------------------------------------------------- -------- --------
EMEA includes revenue from external customers located primarily
in Germany, France, Luxembourg and Switzerland. Asia Pacific
includes revenue from external customers located primarily in
Malaysia and Singapore.
2020 2019
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Non-current assets
UK 32,269 26,366
EMEA 588 632
North America 9 17
Asia Pacific 683 728
--------------------------------------------------- -------- --------
33,549 27,743
--------------------------------------------------- -------- --------
Non-current assets consist of property, plant and equipment,
right-of-use assets, intangible assets and deferred tax assets.
4. Taxation
The following disclosures in respect of the consolidated income
statement items are presented in respect of continuing operations
only, with comparatives restated where appropriate to exclude
discontinuing operations from these disclosures.
There is a nil tax charge in respect of discontinuing operations
for the year ended 31 December 2020 (2019: GBPnil).
Tax on profit on ordinary activities
Tax charge in the income statement
2020 2019
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Current income tax
Overseas tax charge - adjustment to previous
years (124) 186
Overseas tax charge - current year 599 279
UK corporation tax credit - adjustment to previous
years (1,307) (568)
Total current income tax (832) (103)
Deferred income tax
Movement in net deferred tax asset (202) 546
Tax rate change adjustments 81 -
---------------------------------------------------- -------- --------
Total deferred income tax (121) 546
Total (credit)/charge in the income statement (953) 443
---------------------------------------------------- -------- --------
Reconciliation of the total tax charge
The tax charge in the income statement for the year is lower
(2019: lower) than the standard rate of corporation tax in the UK
of 19.0% (2019: 19.0%). The differences are reconciled below:
2020 2019
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Profit before taxation 308 2,341
Profit before taxation multiplied by the UK standard
rate of corporation tax of 19.0% (2019: 19.0%) 59 445
Expenses not deductible for tax purposes 137 101
Differences in tax rates 168 160
Overseas tax (credit)/charge - adjustment to
previous years (124) 121
Research and development credit - previous year (1,307) (568)
Research and development enhanced relief (1,424) (1,262)
Movement in unrecognised losses carried forward 1,359 1,339
Movement in unrecognised temporary differences 211 227
Movement in unrecognised fixed asset temporary
differences (16) 242
Temporary difference on share-based payments 73 (231)
Temporary movement on acquired intangibles (170) (131)
Tax rate change adjustments 81 -
------------------------------------------------------ -------- --------
Total tax (credit)/charge reported in the income
statement (953) 443
------------------------------------------------------ -------- --------
Unrecognised tax losses
The Group has tax losses that are available indefinitely for
offset against future taxable profits of the companies in which the
losses arose as analysed below. Deferred tax assets have not been
recognised in respect of these losses as they may not be used to
offset taxable profits elsewhere in the Group and they have arisen
in subsidiaries that have been loss making for some time.
The tax effect of exchange differences recorded within the
consolidated statement of comprehensive income is a credit of
GBP21,000 (2019: GBP1,000).
Temporary differences associated with Group investments
At 31 December 2020, there was no recognised deferred tax
liability (2019: GBPnil) for taxes that would be payable on the
unremitted earnings of certain of the Group's subsidiaries as the
Group has determined that undistributed profits of its subsidiaries
will not be distributed in the foreseeable future.
Deferred tax
Deferred tax assets/(liabilities)
2020 Asset Liability Net
GBP'000 GBP'000 GBP'000
-------------------------------------------- -------- ---------- --------
1 January 489 (952) (463)
Movement in the period:
- Tax losses 411 - 154
- Employee share award schemes (219) - (262)
- Qualifying research and development
expenditure (513) - (211)
- Fixed asset timing differences 353 - 351
- Acquired intangibles - 170 170
Acquisition of intangibles in subsidiaries - (395) (395)
Impact of change in tax rate 31 (112) (81)
-------------------------------------------- -------- ---------- --------
31 December 552 (1,289) (737)
-------------------------------------------- -------- ---------- --------
2019
-------------------------------------------- -------- ---------- --------
1 January 1,166 (1,083) 83
Movement in the period:
- Tax losses (886) - (886)
- Employee share award schemes 228 - 228
- Qualifying research and development
expenditure (157) - (157)
- Fixed asset timing differences 138 - 138
- Acquired intangibles - 131 131
31 December 489 (952) (463)
-------------------------------------------- -------- ---------- --------
2020 2019
Comprising: GBP'000 GBP'000
------------------------------------------------------ ---------- ----------
Tax losses 2,784 2,353
Employee share award schemes 145 364
Qualifying research and development expenditure (3,079) (2,566)
Acquired intangibles (1,289) (952)
Fixed asset timing differences 702 338
31 December (737) (463)
------------------------------------------------------ ---------- ----------
A deferred tax asset of GBP1,326,000 (2019: GBP546,000) has been
recognised in the year in respect of tax losses and capital
allowances in excess of depreciation and other temporary
differences.
Unrecognised potential deferred tax assets
The deferred tax not recognised in the consolidated 2020 2019
statement of financial position is as follows:
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Temporary differences - 5
Tax losses 1,458 603
----------------------------------------------------- -------- --------
Unrecognised deferred tax asset 1,458 608
----------------------------------------------------- -------- --------
Gross temporary differences unrecognised - 31
Gross tax losses unrecognised 6,459 2,811
----------------------------------------------------- -------- --------
Gross temporary timing differences unrecognised 6,459 2,842
----------------------------------------------------- -------- --------
Future tax rates
The expected reduction in the main UK corporation tax rate to
17% from 1 April 2020 enacted by the Finance Act 2016 was reversed
in the Finance Act 2020. Therefore, the UK statutory tax rate
remains at 19% and the rate used to calculate deferred tax balances
at 31 December 2020 has increased from 17% to 19%.
The Group's recognised and unrecognised deferred tax assets in
the UK, Luxembourg, Australian and US subsidiaries have been shown
at the rates in the following table, being the substantively
enacted rates in these countries.
2020 2019
% %
------------ ----- ------
UK 19 17/19
Luxembourg 25 25
Australia 30 30
US 27 27
------------ ----- ------
5. Earnings
Earnings per share
Basic earnings per share amounts are calculated by dividing net
profit or loss for the year attributable to owners of the Parent by
the weighted average number of ordinary shares outstanding during
the year.
Diluted earnings per share amounts are calculated by dividing
the net profit or loss attributable to owners of the Parent by the
weighted average number of ordinary shares outstanding during the
year plus the weighted average number of ordinary shares that would
be issued on the conversion of all the dilutive potential ordinary
shares into ordinary shares except when such dilutive instruments
would reduce the loss per share.
The following reflects the earnings and share data used in the
basic and diluted earnings per share computations:
2020 2019
----------------------------------- ----------- -----------
Basic weighted average number
of shares 68,697,828 68,168,602
Employee share options - weighted
(note 22) 1,414,549 1,499,805
Diluted weighted average number
of shares 70,112,377 69,668,407
------------------------------------ ----------- -----------
Including discontinued operations Notes 2020 2019
------------------------------------------------
GBP'000 GBP'000
----------------------------------------------- ------ -------- --------
Adjusted earnings attributable to
owners of the Parent - including
discontinuing operations 2,774 1,441
Adjusting items:
Exceptional items 4 (400) (10)
Amortisation of acquired intangibles 13 (893) (794)
Impairment of development costs 13 - (647)
Net gain on sale of discontinued
operations - 1,985
Share-based payments 22 (220) (77)
Statutory earnings attributable to
owners of the Parent 1,261 1,898
------------------------------------------------ ------ -------- --------
Earnings per share - including discontinued
operations
Statutory pence pence
Basic earnings per share 1.84 2.78
Diluted earnings per share 1.80 2.72
------------------------------------------------ ------ -------- --------
Adjusted
Basic earnings per share 4.04 2.11
Diluted earnings per share 3.96 2.07
------------------------------------------------ ------ -------- --------
Continuing operations Notes 2020 2019
GBP'000 GBP'000
----------------------------------------------- --- ------ -------- --------
Adjusted earnings attributable to
owners of the Parent 2,774 1,388
Adjusting items:
Exceptional items 4 (400) (10)
Amortisation of acquired intangibles 13 (893) (794)
Impairment of development costs 13 - (647)
Share-based payments 22 (220) (77)
Statutory earnings attributable to
owners of the Parent 1,261 (140)
---------------------------------------------------- ------ -------- --------
pence pence
Earnings per share - continuing operations
Statutory
Basic earnings per share 1.84 (0.21)
Diluted earnings per share 1.80 (0.21)
---------------------------------------------------- ------ -------- --------
Adjusted
Basic earnings per share 4.04 2.04
Diluted earnings per share 3.96 1.99
---------------------------------------------------- ------ -------- --------
During the year ended 31 December 2020, share options granted
under the 2010 Share Option Plans were exercised and the Group
issued 1,900,000 (2019: 167,024) ordinary shares accordingly
(ranking pari passu with existing shares in issue). See note 21 for
further details.
There have been no other transactions involving ordinary shares
or potential ordinary shares between the reporting date and the
date of completion of this Annual Financial Report 2020.
6. Dividends paid and proposed
The final dividend for the year ended 31 December 2019 was
approved at the Company Annual General Meeting on 10 May 2020 and
paid on 21 May 2020 of 0.75 pence per share, equating to a total of
GBP506,000. The Company will be proposing a final dividend for
approval at the AGM for the year ended 31 December 2020 of 0.75
pence per share.
7. Intangible assets
Separately identified
intangibles on
acquisition
Development Patents Software Customer Goodwill Total
costs and licences relationships
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------------ -------------- --------- --------------- ---------- ---------
Cost
At 1 January 23,345 872 6,275 1,218 2,943 34,653
Additions 3,561 4 886 1,192 2,656 8,299
Disposals - (44) - - - (44)
Exchange adjustment 90 - - - 26 116
--------------------- ------------ -------------- --------- --------------- ---------- ---------
At 31 December 26,996 832 7,161 2,410 5,625 43,024
--------------------- ------------ -------------- --------- --------------- ---------- ---------
Amortisation and impairment
At 1 January (6,182) (729) (1,477) (440) (250) (9,078)
Charge for year (1,863) (54) (664) (229) - (2,810)
Eliminated on
disposal - 44 - - - 44
Exchange adjustment (72) - - - - (72)
At 31 December (8,117) (739) (2,141) (669) (250) (11,916)
--------------------- ------------ --------- ---------- ---------
Net carrying amount
At 31 December 18,879 93 5,020 1,741 5,375 31,108
At 1 January 17,163 143 4,798 778 2,693 25,575
--------------------- ------------ -------------- --------- --------------- ---------- ---------
Separately identified
intangibles on
acquisition
Development Patents Software Customer Goodwill Total
costs and licences relationships
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------------ -------------- --------- --------------- ---------- -----------------
Cost
At 1 January 20,086 881 6,275 1,218 2,962 31,422
Additions 3,259 7 - - - 3,266
Disposals - (15) - - - (15)
Exchange adjustment - (1) - - (19) (20)
--------------------- ------------ -------------- --------- --------------- ---------- -----------------
At 31 December 23,345 872 6,275 1,218 2,943 34,653
--------------------- ------------ -------------- --------- --------------- ---------- -----------------
Amortisation and impairment
At 1 January (4,033) (676) (850) (273) (250) (6,082)
Charge for year (1,502) (68) (627) (167) - (2,364)
Impairment (647) - - - - (647)
Eliminated on
disposal - 15 - - - 15
At 31 December (6,182) (729) (1,477) (440) (250) (9,078)
--------------------- ------------ --------- ---------- -----------------
Net carrying amount
At 31 December 17,163 143 4,798 778 2,693 25,575
At 1 January 16,053 205 5,425 945 2,712 25,340
--------------------- ------------ -------------- --------- --------------- ---------- -----------------
Development costs
Development costs are internally generated and are capitalised
at cost. These intangible assets have been assessed as having a
finite life and are amortised on a straight-line basis over their
useful lives of two to twelve years. These assets are tested for
impairment where an indicator of impairment arises and annually
prior to them being made available for use.
For the years ended 31 December 2020 and 31 December 2019 the
Group has capitalised development costs in respect of individual
Clareti applications which have been individually assessed against
the required capitalisation criteria and been individually assigned
useful economic lives reflecting the maturity and availability of
comparable applications in our markets. These useful economic lives
are assessed to be between two and twelve years.
No changes have been made to development costs capitalised in
prior years in respect of the Clareti platform, which continue to
be amortised on a systematic basis over the existing useful
economic life of twelve years.
Patents and licences
Patents and licences are the third party costs incurred in
seeking and obtaining protection for certain of the Group's
products and services. These intangible assets have been assessed
as having a finite life and are being amortised evenly over their
useful economic life, to a maximum of ten years. Patents have a
remaining life of three years and licences have a remaining life of
one to ten years.
Separately identified acquired intangibles
Separately identified intangibles acquired through business
combinations represent software and customer relationships which
arose through the acquisitions of C24 Technologies Limited in
October 2016, B2 Group in July 2018 and Inforalgo in July 2020.
Software is amortised over its useful economic life, which is
deemed to be ten years.
Customer relationships acquired in the year are amortised over
their useful economic life, which is deemed to be eight years for
the Inforalgo and C24 Technologies Limited acquisitions and six
years for B2 Group.
Goodwill
Goodwill arose on the acquisition of our Asia Pacific real-time
financial solutions business, C24 Technologies Limited, B2 Group
and Inforalgo. It is assessed as having an indefinite life and is
assessed for impairment at least annually.
8. Business combinations during the period
On 28 July 2020 Gresham Technologies plc acquired the entire
ordinary share capital in Inforalgo Information Technology Limited,
a specialist in connectivity and intelligent automation solutions
for financial services institutions enabling straight through
processing and real-time regulatory reporting.
The initial consideration was GBP2.3m with contingent
consideration dependent upon performance of up to GBP1.3m payable
over an 18-month period post acquisition, therefore the maximum
potential consideration is GBP3.6m.
The amounts recognised in respect of identifiable assets and
liabilities assumed are set out in the table below:
Book value Adjustments Fair value
GBP'000 GBP'000 GBP'000
------------------------------------------ ----------- ------------ -----------
Intangible assets
Customer relationships - 1,192 1,192
Software - 886 886
Property, plant and equipment 14 - 14
Right-of-use assets 193 - 193
Trade and other receivables 189 - 189
Cash and cash equivalents 142 - 142
Trade and other liabilities (1,384) - (1,384)
Lease liabilities (193) - (193)
Deferred tax liability - (395) (395)
Total net (liabilities)/assets (1,039) 1,683 644
------------------------------------------ ----------- ------------ -----------
Satisfied as follows:
Cash 2,042
Contingent consideration 1,258
Total consideration 3,300
------------------------------------------ ----------- ------------ -----------
Goodwill (note 13) 2,656
------------------------------------------ ----------- ------------ -----------
Analysis of cash flows on acquisition:
Net cash acquired (142)
Cash paid 2,042
------------------------------------------ ----------- ------------ -----------
Net cash flow 1,900
------------------------------------------ ----------- ------------ -----------
Fair value of consideration
paid:
Cash 2,042
Contingent consideration due
less than one year 909
Contingent consideration due
more than one year 349
------------------------------------------ ----------- ------------ -----------
Total consideration 3,300
------------------------------------------ ----------- ------------ -----------
The goodwill recognised above is attributable to intangible
assets that cannot be individually separately and reliably measured
from Inforalgo due to their nature. These items include the
expected value of synergies and assembled workforce.
Intangible assets were identified on acquisition relating to
customer contracts and relationships and software. To determine the
fair value of the intangible assets a valuation was performed by an
independent external expert.
The customer related assets were valued using an Excess earnings
method to assess the present value of expected cash received over
the life of customer relationships adjusted by an annual attrition
rate calculated based on historical revenue data. The software
assets relating to internally developed technology were valued
using a Replacement cost methodology to estimate the total cost of
redeveloping the software.
Acquisition costs of GBP131,000 were incurred during the year
ended 31 December 2020 as a result of the acquisition and
integration of Inforalgo. These costs have been recognised as
exceptional costs within the Income Statement.
From the date of acquisition, Inforalgo has contributed revenue
of GBP565,000 to the Group and operating profit of GBP80,000. If
the acquisition had occurred on 1 January 2020, Group revenue would
have been GBP25,549,000 and Group operating profit GBP479,000.
Contingent consideration
As part of the sale and purchase agreement, contingent
consideration is payable up to GBP1,293,000 with the maximum amount
payable if the Annual Recurring Revenues are GBP1,230,000 18 months
after acquisition. The consideration is payable on a straight-line
basis with no lower threshold with 72% payable in July 2021 and the
balance payable in January 2022. Due to the nature of these
payments a fair value calculation has been performed by Management
to estimate the expected amount of consideration to be paid. As
result, contingent consideration of GBP1,258,000 has been
recognised in the statement of financial position, with GBP909,000
due in less than one year and GBP349,000 due in more than one
year.
9. Related party transactions
Key management compensation (including Directors)
2020 2019
GBP'000 GBP'000
----------------------- -------- --------
Directors' emoluments
Remuneration 618 581
Social security costs 100 87
Bonuses 180 99
Pension 22 41
Share-based payments 68 38
------------------------ -------- --------
988 846
----------------------- -------- --------
Details of Directors' compensation are included in the
Directors' Remuneration Report.
There is no single party known that the Directors consider to be
a controlling shareholder or ultimate parent undertaking. Refer to
page 59 for details of all significant shareholders that the
Company has been notified of.
During the year the Group received services from Grant Thornton
LLP of GBP226,000 (2019: GBP218,000) which are related parties by
virtue of Ms I Joss holding a position as an independent
non-executive on the Grant Thornton partner oversight board and a
Director of the Company until resignation on 31 October 2020. At 31
December 2020 the amounts owed to Grant Thornton LLP was GBP77,000
(2019: GBP59,000).
10. Events after the reporting date
A dividend of 0.75 pence per share has been approved by the
Board to propose to shareholders at the Annual General Meeting.
11. Additional information
Principal risks and uncertainties
The principal risks and uncertainties facing the Group together
with actions being taken to mitigate them and future potential
items for consideration are set out in the Strategic Report section
of the Annual Financial Report 2020.
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