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Access Intelligence (ACC)

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Monday 07 March, 2011

Access Intelligence

Final Results

RNS Number : 4101C
Access Intelligence PLC
07 March 2011
 



FOR RELEASE

7.00AM

07 march 2011

 

ACCESS INTELLIGENCE PLC

("Access Intelligence" or "the Group")

PRELIMINARY RESULTS
FOR
THE FINANCIAL YEAR ENDED 30 NOVEMBER 2010

 

Access Intelligence Plc (AIM: ACC), a leading supplier of compliance Software-as-a-Service solutions for the financial services, procurement and media sectors, is pleased to announce its preliminary results for the year ended 30 November 2010.

 

Financial Highlights

*     Turnover from continuing activities up 38% to £7,974,381 (2009: £5,772,000) 

*     Adjusted trading profit on continuing activities up 153% to £1,479,960 (2009: £584,000)*

*     Adjusted basic earnings per share on continuing operations were 0.40p (2009: 0.36p)*

*     Loss after tax on continuing activities was £1,669,474 (2009: profit £570,000)

*     Basic loss per share on continuing operations negative 0.72p (2009: positive 0.36p)

*     Positive cash balance of £2,214,278 (2009: £1,714,243)

 

Operational Highlights

*     Fundraising of £3,000,000 at 5p per share in February 2010

*     Acquisition of Cobent Ltd on 1 March 2010 for £5,200,000, of which £2,000,000 was in vendor shares priced at 6p per share

*     Strong performance from all other subsidiaries

*     Wired-Gov Ltd sold in May 2010 for a cash consideration of £142,692 as no longer a strategic fit

*     Total software development spend up to £816,000 (2009: £276,000) of which £413,000 capitalised

*     Sales drive into the private sector at AIMediaComms and Due North starting to deliver

*     Recurring revenue up 51% to £5,240,950 (2009:£3,461,280) being 65% of sales (2009: 61%)

*     Disappointing sales progress at Cobent Limited resulted in a re-evaluation of future performance and a goodwill impairment of £2,600,000

Post Period End Highlights

 

*     Joanna Arnold joined the group board in December 2010 as business development director

*     Howard Sears to step down from executive responsibilities in March 2011

*The adjusted operating profit has been arrived at before goodwill impairment, cost of acquisition, share based payments and compensation for loss of office.

 

Michael Jackson, Executive Chairman, commented: -

'Investment in technology across the group will continue following the successes of 2010 that have led to several significant product upgrades either completed or for launch in the first half of 2011. The board remains confident that the strategy to focus on compliance and the group's ability to offer a "rented" as well as a "purchased" solution through software-as-a-service will provide good long-term returns for our shareholders.'

 



For further information:

Access Intelligence plc  

Michael Jackson (Chairman)                                                       020 7831 5088

Jeremy Hamer (Finance Director)                                                07977 234 614 

Cubitt Consulting

Chris Lane                                                                                 020 7367 5100

Northland Capital Partners

Shane Gallwey/ Katie Shelton                                                     020 7492 4775

 

Notes to Editors:

Access Intelligence plc is the parent company of a group of compliance Software-as-a-Service ("SaaS") businesses providing solutions for the financial services, procurement and media sectors.  The board is headed by Michael Jackson as Executive Chairman and Jeremy Hamer as Group Finance Director.

Product Portfolio - Software as a service

e-Procurement:

•     Managed by Alan Gray, a founder of the original business, who has been involved in developing financial solutions for over 20 years.

 

•     SaaS procurement & contract management solutions. Heavily compliance focussed following the recommendations of the Glover Report which proposed that all Public Sector organisations must engage suppliers via electronic tendering by 2012.Further opportunities driven by the Bribery Act 2010.

 

•     Over 130 customers incl. Bank of England, Met Police, Ladbrokes, and many large Local Government Authorities.  Recurring revenue now represents 90% of total costs.

Training & Competence:

•     Managed by David Alderson, a founder of the business with over 35 years of experience in the financial services sector, and a recognised industry expert in business critical software.

•     SaaS solutions for the financial services sector solving the industry's key challenges; controlling and monitoring compliance commitments and reducing administration overheads. Sales driven by the need to comply with the FSA's Retail Distribution Review. Key customers include RBS & Aviva.

•     Solcara managed by Rob Martin offers federated search technology connecting lawyers, compliance and risk managers and information professionals to all the information they need.

•     Cobent managed by Joanna Arnold was founded in 2003 and has developed a 'gold standard' training and compliance delivery platform operating in a number of markets including FDA, FSA and HSE regulated industries.

Stakeholder Relationship and Reputation Management:

•     A new division created from the merger of two recent acquisitions, Solcara & Ether-Ray is managed by Charlie O'Rourke.

 

•     SaaS solutions for media relations & public sector news flow management. A market leader in the UK for media relations management software.

 

•     One integrated application enables users to capture, create, distribute, and analyse all communications, facilitating compliance with corporate messaging and upholding the reputation of the organisation.

 

•     Over 220 clients in local government, central government, police and several major private sector clients from Solcara. Recurring revenue represents 140% of total costs.

 

•     As an addition to the reputation management offering AIControlPoint, managed by Charlie Lass has developed a suite of incident management software, hosted online.  Applications include a secure notification system and online virtual incident room through which security and safety incidents can be managed.

 

Product Portfolio - IT Support Services

•     Willow Starcom, managed by Mark Berry offers IT support services to a range of SME and larger customers.

 

•     Originally concentrating on storage solutions the company has recently endeavoured to move into higher value markets which now include hosted services.

 

•     The company has an excellent reputation for service quality.

 

 



CHAIRMAN'S STATEMENT

 

I am pleased to announce our results for the year ended 30 November 2010, a period in which the group has continued to make considerable strategic and financial progress.  Our overall strategy as a compliance software-as-a-service provider remains our priority and drives our activities. With the exception of the recently acquired Cobent Limited significant progress was made in all areas of the business in 2010.

 

Results

 

Group turnover from continuing activities increased by 38% to £7,974,381 (2009: £5,772,000). Like for like sales growth was £ 1,239,913 up 21%. Adjusted profits from trading activities were up 153% to £1,479,960 (2009: £584,000). A goodwill impairment of £2,600,000 (2009: nil), acquisition costs of £98,276 (2009: nil), compensation for loss of office £124,080 (2009: nil) and share based payment charge of £53,004 (2009: nil) reducing the trading profit to a loss for the year attributable to the equity holders of the parent company of £1,562,427 (2009: profit £601,892).The basic loss per share from continuing operations was 0.7p (2009: profit 0.30p). The group had net cash and bank balances of £2,214,278 (2009: £1,714,243).

 

The continued focus on the software-as-a-service business model has enabled the group to build its long-term visibility of revenues and for the year under review recurring revenues accounted for 65% (2009: 61%) of total revenues at £5,240,950 (2009: £3,461,280). 

 

The directors are unable to recommend the payment of an ordinary dividend. However, it is the board's intention to begin dividend payment in the future and it will be seeking the authority of shareholders at the forthcoming General Meeting to authorise the capital reorganisation that will be required to allow such payments to begin.

 

Acquisitions

 

On 01 March 2010 the group announced the acquisition of the entire share capital of Cobent Ltd, a training and compliance software delivery business for £5.2 million. Cobent was founded in 2003 and has developed a 'gold standard' training and compliance delivery platform operating in a number of markets including FDA, FSA and HSE regulated industries. It remains our view that the Cobent delivery platform fits the group's compliance software-as-a-service provider strategy well and long-term will provide significant synergy benefits across most of the group

 

Of the £5,000,000 due at completion, £3 million was paid in cash, £2,000,000 in vendor shares whilst the final £200,000 cash payment was made in June 2010.  The £3,000,000 was funded through the placing of 60 million new ordinary shares at 5p. The vendors also received 33.3 million new ordinary shares priced at 6p per share, giving an average issue price per share of 5.4p.The costs of the acquisition were £98,276 expensed through the profit and loss account and £130,265 fund raising costs charged directly to the share premium account.

 

During this financial year Cobent contributed an operating profit of £183,153 which was below our initial expectations at the date of acquisition. However this lower than expected performance and the current need to rebuild both the sales and marketing team and the sales pipeline have led to the directors deciding upon a goodwill impairment charge for the year of £2,600,000. Despite this setback Access Intelligence remain confident that we have an excellent software product in the Cobent Learning Compliance Suite.

 

In February 2011, the group began establishing a new management team at Cobent and the company is being streamlined to bring costs in line with current sales levels.

 

Disposal

 

In May 2010 the group sold Wired-Gov Limited to its management for £142,692 in cash. The direct costs of the sale were £7,000 together with the write-off of the inter-company balance of £50,954. Wired-Gov Limited was fundamentally an on-line publisher and as such was non-core to the compliance led strategy.

 

 

Convertible Loan Notes

 

In June and July 2009 the group raised £1,850,000 by way of Convertible Loan Notes to fund the acquisition of Ether Ray Ltd, now trading as AI Media & Communications Ltd. These Loan Notes have a coupon of 6% per annum and convert at 4p. In September 2010 £100,000 were converted to equity.

 

Until December 2010 the company had the authority to elect to redeem these loans at par plus a 10% premium.  A decision was taken in November by the board not to exercise this right and so these loan notes will all convert in June 2014 or such earlier date as the loan note holders may elect. At the next balance sheet date these loans will form a part of the shareholders equity.

 

Operations - Software as a Service segment

 

As part of its overall strategy, the group has focused on delivering services through three core divisions: e-Procurement, training & compliance and stakeholder relationship and reputation management, supported by the IT support services division.

 

e-Procurement

 

Due North had another successful year, opening 25 new accounts despite a general slowdown in public sector decision making after the election. Recurring revenues have reached £105,000 per month (2009: £80,000), resulting in a record turnover for the subsidiary.

 

Due North is successfully developing its private sector offering and investment in sales and marketing in this area has been rewarded with early wins including Tenet Education Services. Demand for services such as Managed Tenders and Auctions, further contributed to Due North's market leadership in the Public Sector.

 

2011 brings further strategic investment in our e-Procurement and supplier relationship solutions to help build on our early successes in the private sector and drive Due North's reputation as an innovator in the procurement market.

 

Stakeholder Relationship and Reputation Management

 

AI Media & Communications Ltd (AIMediaComms) continued to cement its leadership position in the public sector market whilst benefiting from private sector wins including Carphone Warehouse, RBS and Northern Gas. The merged Solcara Spotlight and EtherRay acquisitions, renamed AI Media & Communications Ltd on 1st December 2009, resulted in the launch of Vuelio and the repositioning of the combined entity as a major provider of stakeholder relationship management software. Recurring revenues have reached £145,000 per month (2009: £100,000) as a result of extending the product reach to incorporate broader stakeholder teams and expanding our overseas accounts including BG Group.

 

2011 brings further investment in strategic sales and marketing to position AIMediaComms as a major provider in the corporate sector.

 

A further offering in this segment is AIControlPoint which has developed a suite of incident management software, hosted online.  Applications include a secure notification system and online virtual incident room through which security and safety incidents can be managed.  This forms part of the group's solution for those companies who take their reputation management responsibilities seriously. 

 

Training & Compliance

 

MS2M produced a significant turnaround in profitability in 2010, delivering a strong financial performance through strategic relationships with RBS and Aviva. In 2011 the management will bring significant focus to the sales and marketing activity on the TrackRecord product as a key risk mitigation solution for the financial services sector.

 

Cobent, our latest acquisition, despite starting well by winning significant framework agreements with DSG and Focus Solutions has since seen sales slow in part due to market conditions. Cobent's domain expertise in the FDA compliance market was reinforced by new account wins including Sterigenics and I3 Research. Cobent's product offering has been enhanced by the development of a new Controlled Document Manager product, designed to improve the creation and delivery of standard operating procedures (SOPs) within regulated industries, which will be launched during the summer of 2011.

 

2011 brings new management, a tighter focus on cost control and a rebuilding of the sales and marketing team aiming at the FDA and FSA markets both in the US and UK.

 

Solcara's federated search technology Solsearch has seen steady growth in 2010 connecting lawyers, compliance and risk managers and information professionals to all the information they need when they need it.  The software improves efficiencies and reduces costs and looks well positioned for further growth in 2011. 

 

Operations - IT Support Services segment

 

Willow Starcom had a successful year, and notably has begun to refocus the business towards hosted services. Although monthly recurring revenues have remained fairly static at £103,000 (2009: £108,000), the product margin mix has been greatly improved over the past 12 months, supported by winning more direct end user relationships. Whilst hardware maintenance retention rates have proved challenging, Willow has focussed on gaining long-term revenue visibility by winning three year contracts within the first three months of launching the Hosted Services Portfolio. 2011 brings investment in data centre infrastructure to broaden the Software-as-a-Service product offering.

 

Strategy and Market

 

The group continues to invest heavily in its suite of compliance solutions for the Public and Private sectors both in the UK and, increasingly, globally. In all the investment in software research and development in 2009/10 amounted to £815,000. The product suite delivered by the group's portfolio of software and support subsidiaries provides Access Intelligence with the ability to competitively engage with enterprise and SME customers at many stages of the compliance value chain.

 

The software-as-a-service ("SaaS") business model remains highly attractive to both customers and vendors.  The increased adoption of SaaS by customers is driven by a desire to reduce capital expenditure costs combined with a greater awareness of the data security services available. As a software vendor, the group benefits from long term visibility of revenue and cash flows, with many of our customers on three to six year contracts. Furthermore, due to the capital efficiency, high profitability and "lock-in" effect, the SaaS business model is increasingly more highly valued than the traditional perpetual software model. Nonetheless, despite the improved data security offered, there are some clients that choose to host our software solutions internally and therefore the group continues to provide the perpetual license model on a case-by-case basis.

 

The market for compliance solutions, in both the public and private sectors, is driven by risk management requirements and the needs of compliance professionals who are turning to technology to improve the way their companies operate, to ensure that organisations comply with regulations and manage operational issues.  The global governance, risk and compliance software market ("GRC") was estimated to be worth c. $749 million in 2010 and is expected to grow 20% y-o-y over the next three years. The group stands to benefit well from this encouraging trend by focussing on process improvement, strategic communication, and risk mitigation solutions offered within Access Intelligence's compliance suite.

 

2011 brings increased focus on organic growth with investment in cross-selling and marketing resources and the emergence of a .Net centre of excellence at Cobent enabling the sharing of best practices in the development of workflow, user experience and database architecture. This investment will further align the product and operational strategy of the subsidiaries, enabling Access Intelligence to deliver a holistic product offering and cost rationalisation across the group.

 

2010 saw Access Intelligence's software-as-a-service proposition become more efficient and more competitive and the group will continue to provide innovative solutions that deliver sustainable profits and long-term growth.

 

The board is excited about the organic growth opportunities based upon the initial market penetration of the group's products into the private sector.  Access Intelligence will continue to look for interesting acquisitions with an emphasis on developing recurring revenues and building compliance related solutions.

 

Directors and Staff

 

On 1st March 2010 Howard Sears joined the board as a non-executive director and whilst on 31st January 2011 the group announced that he would be giving up his executive responsibilities at Cobent Ltd he continues to serve as a non-executive on the PLC board.

 

On 16th December 2010 Joanna Arnold joined the PLC board as business development director. She joined the company in November 2008 after an early career in financial services and has been performing the business development role since joining.

 

I would like to thank all our staff for their hard work and help in a year where progress was considerable. Together we have delivered significant advances in most areas of the group and I look forward to working with them in 2011.

 

Outlook

 

Investment in technology across the group will continue following the successes of 2010 that have led to several significant product upgrades either completed or for launch in the first half of 2011.

 

Early indications suggest that the renewal rates for public sector licenses within AIMediaComms and Due North are promising. These will run in parallel with a continuing push into the private sector for software sales and a gradual move to the provision of 'cloud' computing services for the group's support business. At Cobent management is focussed on rebuilding the sales and marketing activities and the resulting sale pipeline. Investment in our software will continue at current levels maintaining the group's competitive position in our markets.

 

The board remains confident that the strategy to focus on compliance and the group's ability to offer a "rented" as well as a "purchased" solution through software-as-a-service will provide good long-term returns for our shareholders.

 

On behalf of Access Intelligence's board and management, I would like to thank you for your on-going support.

 

 

 

Michael Jackson

Chairman

07 March 2011



Consolidated Statement of Comprehensive Income for the Year Ended 30th November 2010






Note

2010

2009



£'000

£'000





Revenue - continuing operations

4

7,975

5,772





Cost of sales


(2,242)

(2,593)



______

______





Gross profit


5,733

3,179





Administrative expenses


(4,377)

(2,595)

Share based payment

10

(53)

-



______

______



1,303

584

Impairment of goodwill

9

(2,600)

-

Cost of acquisition


(98)

-



______

______

Operating (loss)/profit 


(1,395)

584

Financial income


-

2

Financial expense


(155)

(66)



______

______

(Loss)/profit before taxation


(1,550)

520





Taxation (charge)/credit

5

(119)

50



______

______

(Loss)/profit for the year from continuing operations


(1,669)

570

Profit for the year from discontinued operations net of income tax expense

6

107

31



______

______

(Loss)/profit  for the year attributable to the equity holders of the parent company

4

(1,562)

601





Other comprehensive income


-

-



______

______

Total comprehensive income for the period attributable to the owners of the parent company


 

(1,562)

 

601



______

______









Earnings per share








Continuing and discontinued operations




Basic (loss) / profit per share

7

(0.67)p

0.38p

Diluted (loss) / profit per share

7

(0.67)p

0.29p





Continuing operations




Basic (loss) / profit per share

7

(0.72)p

0.36p

Diluted (loss) / profit per share

7

(0.72)p

0.27p

 



Consolidated Balance Sheet as at 30th November 2010










2010


2009


Note


£'000


£'000

Non-current assets






Property, plant and equipment



204


181

Intangible assets

9


8,519


4,996

Deferred tax assets



420


493




-----------------


-----------------

Total non-current assets



9,143


5,670




----------------


-----------------

Current assets






Inventories



248


265

Trade and other receivables



2,041


1,481

Cash and cash equivalents



2,214


1,714




-----------------


-----------------

Total current assets



4,503


3,460




-----------------


-----------------







Total assets



13,646


9,130




-----------------


-----------------

Current liabilities












Trade and other payables



761


662

Accruals and deferred income



2,889


2,349

Current income tax liabilities



-


98




-----------------


-----------------

Total current liabilities



3,650


3,109




-----------------


-----------------

Non - current liabilities






Interest bearing loans and borrowings

11


1,607


1,655

Deferred tax liabilities



554


55




-----------------


-----------------

Total non - current liabilities



2,161


1,710




-----------------


-----------------







Total liabilities



5,811


4,819




-----------------


-----------------







Net Assets



7,835


4,311




______


______







Equity






Share capital



1,286


797

Share premium account



13,490


8,955

Capital redemption reserve



191


191

Share option valuation reserve



319


247

Equity reserve



176


186

Retained earnings



(7,627)


(6,065)




-----------------


-----------------

Total equity attributable to the equity holders of the parent company



7,835


4,311




______


______

 

 

 


Consolidated Cash Flow Statement for the Year Ended 30th November 2010



2010

              

2009

Cash flows from continuing operating activities


£'000

£'000





(Loss) / profit for the year attributable to equity shareholders of the parent


(1,669)

570





Adjusted for:




Depreciation


82

79

Impairment of intangible assets


2,600

-

Share option valuation charge


53

-

Interest income


-

(1)

Interest expense


155

66

Taxation


119

(35)

Loss on disposal of property, plant and equipment


11

1



--------------

--------------

Operating cash inflow before changes in working capital


1,351

680





(Increase)  in trade and other receivables


(436)

(620)

Decrease in inventories


27

3

Increase in trade and other payables


478

598



--------------

--------------

Net cash inflow from the continuing operations


1,420

661





Taxation (paid) / received


(128)

98



--------------

--------------

Net cash inflow from continuing activities


1,292

759



--------------

--------------





Cash flows from investing in continuing activities




Interest received


-

1

Acquisition of subsidiary


(3,200)

(2,598)

Cash acquired with subsidiary


64

889

Acquisition of property, plant and equipment


(108)

(61)

Proceeds of sale of subsidiary (net)


136

-

Cost of software development


(415)

-



--------------

--------------

Net cash (outflow) from investing in continuing activities


(3,523)

(1,769)



--------------

--------------





Cash flows from financing continuing activities




Interest paid


(113)

(1)

Issue of equity share capital


3,055

100

Issue of loan notes


-

1,850

Cost of share issues


(130)

-

Repayment of borrowings


(17)

(43)



--------------

--------------

Net cash inflow from financing continuing activities


2,795

1,906



--------------

--------------





Net increase in cash and cash equivalents


564

896

Cash from discontinued operations


(64)

55

Opening cash and cash equivalents


1,714

763



--------------

--------------





Closing cash and cash equivalents


2,214

1,714



--------------

--------------

 

 



1.         Notes to the Shareholders' funds

Share capital and share premium account

 

When shares are issued, the nominal value of the shares is credited to the share capital reserve. Any premium paid above the nominal value is taken to the share premium account.  Access Intelligence plc shares have a nominal value of 0.5p per share.  Directly attributable transaction costs associated with the issue of equity investments are accounted for as a reduction from equity, net of any relating income tax benefit.

 

Share option valuation reserve

 

This reserve arises as a result of amounts being recognised in the income statement relating to share based payment transactions granted under the group's share option scheme.  The reserve will fall as share options vest and are exercised over the life of the options.

 

Capital redemption reserve

 

This reserve arises as a result of keeping with the doctrine of capital maintenance when the company purchases and redeems its own preference shares.  Amounts transferred into/out from this reserve from a purchase/redemption is equal to the amount by which share capital has been reduced/increased, when the purchase/redemption has been financed wholly out of distributable profits, and is the amount by which the nominal value exceeds the proceeds of any new issue of share capital, when the purchase/redemption has been financed partly out of distributable profits.

 

Equity reserve

 

The equity reserve arises as a result of the equity component that has been recognised on the convertible loan notes that have been issued by the group (note 17).  The reserve is determined by deducting the amount of the liability component from the fair value of the convertible loan notes as a whole, net of income tax effects and the relative proportion of the directly attributable transaction costs associated with the issue of the compound instruments.

 

Retained earnings

 

The retained earnings reserve records the accumulated profits and losses of the group since inception of the business. Where subsidiary undertakings are acquired, only profits arising from the date of acquisition are included.

 

2.         Statement of Compliance.

The Group results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the European Union and as applied in accordance with the provisions of the Companies Act 2006.

 

3.         Basis of consolidation and Goodwill

The group results comprise the financial statements of Access Intelligence plc and its subsidiaries as at 30th November 2010. They are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000).

 

4.         Revenue

The group's revenue is primarily derived from the rendering of services with the value of sales of goods being not significant in relation to total group revenue.

The group's revenue was split into the following territories:-


2010

2009


£'000

£'000




United Kingdom

7,524

5,643

European Union

85

87

Rest of the World

366

42


---------------------

---------------------


7,975

5,772


________

________

 

All non current assets are held in the United Kingdom as they were in 2009.

 

No customer represents 10% or more of revenue as was the case in 2009.

 

Segment reporting

 

Segment information is presented in respect of the group's business segments which are based upon the group's management and internal business reporting.

 

Inter-segment pricing is determined on an arm's length basis.

 

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly head office expenses.

 

Segment non-current asset additions show the amounts relating to property, plant and equipment and intangibles including goodwill.

 

Business segments

 

The group business segments have been decided upon according to their revenue model and product or service offering. The software as a service segment derives its revenues from software licence sales and support and training revenues. The IT support services revenue derives from maintenance and back-up services. The segments are:-

 

·      Software as a service

·      IT support services

·      Head Office

 

           



            The segment information for the year ended 30 November 2010 is as follows:-


Software

 as a

 Service

IT

 Support

Services

Head

 Office

Other

 

Consolidation Adjustment

Total


£'000

£'000

£'000

£'000

£'000

£'000








External revenue

6,215

1,760

-

-

-

7,975

Internal revenue

5

10

-


(15)

-


----------------------

----------------------

------------------

------------------

------------------

----------------------

Operating profit

1,519

156

(372)

-

-

1,303

Impairment of Goodwill

(2,600)

-

-

-

 

-

(2,600)

Cost of acquisition

-

-

(98)

-

-

(98)

Finance income

-

-

-

-

-

-

Finance costs

(4)

-

(151)

-

-

(155)

Taxation

(142)

(8)

31

-

-

(119)

Discontinued operations

-

-

-

107

 

 

107


----------------------

----------------------

------------------

------------------

------------------

----------------------

Profit/(loss) after taxation

(1,227)

148

(590)

107

 

-

(1,562)


----------------------

----------------------

------------------

------------------

------------------

----------------------

Reportable segment assets

6,471

1,263

10,623

-

 

(4,711)

13,646


----------------------

----------------------

------------------

------------------

------------------

------------------

Reportable segment liabilities

3,584

665

3,772

-

 

(2,210)

5,811


----------------------

----------------------

------------------

------------------

------------------

------------------

Other information:






 

Additions to property, plant and equipment

90

18

-

-



Additions to intangible assets

5,327

-

-

-



Depreciation and amortisation

42

33

7

-




----------------------

----------------------

------------------

------------------



The segment information for the year ended 30 November 2009 restated is as follows:-


Software

 as a

 service

IT

 support

services

Head

 office

Other

 

Consolidation Adjustment

 

 

Total


£'000

£'000

£'000

£'000

£'000

£'000

External Revenue

3,517

2,255

-

-

 

-

 

-

Internal Revenue

12

8

-

-

 

(20)

 

5,772


----------------------

----------------------

------------------

----------------------

---------------------

---------------------

Operating profit

629

277

(322)

-

 

-

 

584

Finance income

2

-

-

-

 

-

 

2

Finance costs

(4)

(1)

(61)

-

 

-

 

(66)

Taxation

(20)

(26)

96

-

-

50

Discontinued Operations

-

-

-

31

 

-

 

31


----------------------

----------------------

------------------

----------------------

----------------------

----------------------

Profit/(loss) after taxation

607

250

(287)

31

 

-

 

601


----------------------

----------------------

------------------

----------------------

----------------------

----------------------

Reportable segment Assets

3,994

1,392

7,855

172

 

 

(4,283)

 

 

9,130


----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

Reportable segment Liabilities

2,726

978

3,256

1,080

 

 

(3,221)

 

 

4,819


----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

Other information:







Additions to property, plant and equipment

28

34

-

-



Additions to intangible assets

2,274

-

-

-



Depreciation and amortisation

38

34

8

-




----------------------

----------------------

------------------

------------------





5.         Taxation




 

Analysis of tax charge/(credit) in the year

2010

2009


£'000

£'000

Current income taxes credit:



UK corporation tax credit for the year

(74)

(101)

Adjustment in respect of prior year

(22)

16


-----------

-----------


(96)

(85)

Deferred tax (note 22)



Origination and reversal of temporary differences

215

35


-----------

-----------

Income tax expense on continuing operations

119

(50)


____

____

 

 

As shown above, the tax assessed on the (loss)/profit for the year is higher than (2009: lower than) the standard rate of corporation tax in the UK of 28% (2009: 28%). The differences are explained as follows:

 




Factors affecting tax credit

2010

2009


£'000

£'000




(Loss)/profit on ordinary activities before tax

(1,550)

520


-----------------

------------------




(Loss)/profit on ordinary activities by rate of tax of 28% (2009: 28%)

(434)

146

Expenses not deductible for tax purposes

748

4

Adjustment in respect of prior year

(22)

(16)

Utilisation of previously unrecognised losses

-

(55)

Additional R&D claim CTA 2009

(173)

(161)


-----------

-----------


119

(50)


-----------

-----------

 

6          Discontinued Operations

On 12 May 2010 the group sold the share capital of Wired-Gov Limited for £142,692 less costs. This company was one of the legacy businesses acquired when the group was admitted to AIM. The business was not a discontinued operation or classified as held for resale as at 30 November 2009 and the comparative income statement has been restated to show the discontinued operation separately from continuing operations.



 

Results of discontinued operation

2010

2009

Note

£'000

£'000

Revenue

92

243

Expenses

(96)

(196)


-----------

-----------

Results from operating activities

(4)

47

Financial expense

-

(1)


-----------

-----------

Pre-tax (loss)/profit of the discontinued operation

(4)

46

Related tax expense

-

(15)


-----------

-----------


(4)

31




Proceeds of sale

142

-

Net assets sold

(25)

-

Costs of sale

(6)

-


-----------

-----------

Profit for the period

107

31


-----------

-----------




Basic profit per share                                      

0.005p

0.002p

Diluted profit per share                                    

0.003p

0.002p


____

____

 

Cash flows from discontinued operation



Net cash used in operating activities

(64)

55





-----------

-----------

Net cash used in discontinued operation

(64)

55


____

____

 

Effect of disposal on the financial position of the group



2010

2009


£'000

£'000

Property Plant and equipment

3

2

Trade and other receivables

70

38

Cash and cash equivalents

(2)

62

Trade and other payables

(33)

(95)

Accruals

(13)

(27)


-----------

-----------

Net Assets

25

(20)


____

____

 

7.         Earnings per share

The calculation of earnings per share is based upon the loss for the continuing and discontinued business after taxation of £1,562,427 (2009: profit of £601,892) divided by the weighted average number of ordinary shares in issue during the year which was 231,609,874 (2009: 159,337,737). The loss for continuing operations of the group of £1,669,474 (2009: £570,892. The weighted average number of ordinary shares used in the calculation of diluted earnings per share is 311,054,231 (2009: 209,231,224). This has been adjusted for the effect of potentially dilutive share options granted under the company's share option schemes and convertible loan notes issued.

 

This has been computed as follows:



 


2010

2009


(Loss)
 after tax

£'000

Weighted
 average no. of shares

Loss per share (pence)

Profit
 after tax

£'000

Weighted average no. of shares

 Earnings per share (pence)

Continuing and discontinued operations





Loss/earnings attributable to ordinary shareholders from continuing activities

(1,562)

231,609,874

(0.67)

601

159,337,737

0.38

Dilutive effect of options 

-

77,444,357

-

-

49,893,487

-

Dilutive effect of conversion

-

2,000,000

-

-

-

-

Diluted loss/earnings per share for the year

(1,562)

311,054,231

(0.67)

601

209,231,224

0.29


______

     _______

     ___

______

     _______

     ___






Continuing operations





Loss/earnings attributable to ordinary shareholders from continuing activities

(1,669)

231,609,874

(0.72)

570

159,337,737

0.36

Dilutive effect of options 

-

77,444,357

-

-

49,893,487

-

Dilutive effect of conversion

-

2,000,000

-

-

-

-

Diluted loss/earnings per share for the year

(1,669)

311,054,231

(0.72)

570

209,231,224

0.27


______

     _______

     ___

______

     _______

     ___








 

If converted in full the options would generate £1,223,473 in cash and reduce actual interest charges by £105,000 per annum.

 

At the 30 November 2010 22,570,714 staff options were eligible for exercising at an average price of 3p plus the 43,750,000 shares that would be issued if conversion notices were served by the holders of the £1,750,000 of loan notes. At the 30th November 2010 21,387,744 of these options were priced below the market price.

 

Potential ordinary shares from the share option schemes and convertible loan notes have an anti-dilutive effect due to the Group being in a loss position. As a result, dilutive loss per share is disclosed as the same value as basic loss per share.

 



 

8.         Purchase of subsidiary undertaking and business

On 1 March 2010 the Group acquired 100% of the share capital of Cobent Limited, a software provider of learning platforms for regulated markets.

 

The fair and book values of the assets and goodwill acquired is set out below:


 

Book value

 

 

Adjustment

 

Brand Value

Deferred

tax liability

 

Fair value


£'000

£'000

£'000

£'000

£'000

Net liabilities acquired






Property, plant and equipment

8

-

-

-

8

Deferred Tax Asset

51

-

-

-

51

Work in Progress

Trade and other receivables

9

349

-

(275)

-

-

-

-

9

74

Cash and cash equivalents

64

-

-

-

64

Trade and other payables

(338)

5

-

-

(333)

Brand value

-

-

169

-

169


------------------

-----------------

-----------------

-----------------

------------------


143

(270)

169

-

42

Deferred tax

-

-

-

(383)

(383)

Goodwill

5,057

270

(169)

383

5,541


------------------

-----------------

-----------------

-----------------

------------------


5,200

-

-

-

5,200


_______

_______

_______

_______

_______







Consideration made up of:-






Cash

3,200




3,200

Shares

2,000




2,000


------------------




------------------


5,200




5,200


_______




_______

 

Brand value relates to the brand value associated with software products and is defined in more detail in note 13 to the financial statements.

 

Goodwill represents the value of synergies, future prospects and the acquiree's assembled workforce and is defined in more detail in note 13 to the financial statements.

 

In September 2010, immediately prior to the filing of the Cobent Limited December 2009 accounts, the directors of Cobent Limited reviewed its trade receivables and decided that a trade debt of £275,000 relating to a 2009 sale to Organization Metrics Inc. of Canada should be provided against (see adjustment column above). This provision and a tax adjustment of £5,000 were recognised increasing the goodwill on acquisition from £5,057,000 to £5,327,000 before the recognition of brand value. The group is now taking legal action against Organization Metric Inc. to recover the debt.

 

Following an impairment review at 30th November 2010 the Directors are of the opinion that the goodwill should be written-down by £2,600,000 to reflect the less than optimal trading performance in the 9 months since acquisition. See note 13 for additional information on the impairment tests applied.

 

In the 12 months to November 2010 Cobent Ltd earned revenues of £1,548,081 and made a profit before tax of £135,586. For the period from 1 March 2010 to 30 November 2010, the company earned revenues of £964,968 and made a profit, before tax of £174,788.

 

9.         Intangible Fixed Assets

 


Brand value

Goodwill

Development

costs

Total


£'000

£'000

£'000

£'000

Cost





At 1 December 2008

-

5,672

639

6,311

Additions on acquisition of subsidiary

1,200

1,074

-

2,274

Fully impaired and no longer in use

-

-

(639)

(639)


-----------------

-----------------

-----------------

-----------------

At 30 November 2009

1,200

6,746

-

7,946


-----------------

-----------------

-----------------

-----------------

At 1 December 2009

1,200

6,746

-

7,946

Additions on acquisition of subsidiary

169

5,541

-

5,710

Capitalised during the year

-

-

413

413


-----------------

-----------------

-----------------

-----------------

At 30 November 2010

1,369

12,287

413

14,069


-----------------

-----------------

-----------------

-----------------

Amortisation and impairment





At 1 December 2008

-

2,950

639

3,589

Amortisation in year

-

-

-

-

Fully impaired and no longer in use

-

-

(639)

(639)


-----------------

-----------------

-----------------

-----------------

At 30 November 2009

-

2,950

-

2,950


-----------------

-----------------

-----------------

-----------------

At 1 December 2009

-

2,950

-

2,950

Amortisation in year

-

-

-

-

Impairment

-

2,600

-

2,600


-----------------

-----------------

-----------------

-----------------

At 30 November 2010

-

5,550

-

5,550


-----------------

-----------------

-----------------

-----------------

Net Book Value





At 30 November 2010

1,369

6,737

413

8,519


-----------------

-----------------

-----------------

-----------------






At 30 November 2009

1,200

3,796

-

4,996


-----------------

-----------------

-----------------

-----------------

 

Brand value

On the acquisition of Ether Ray Ltd (now renamed AI Media Communications Ltd) the directors judged the brand value associated with the software products purchased on the basis of a multiple of the 'clean' annualised operating profit of the business at the end of June 2009 The valuation was agreed by the directors at £1,200,000.

 

On the acquisition of Cobent Ltd the directors judged the brand value associated with the software products purchased on the basis of a multiple of the 'clean' annualised operating profit of the business in the 12 months before acquisition. The valuation was agreed by the directors at £169,000.

 

            Impairment testing for cash-generating units containing goodwill

 

For the purpose of impairment testing, goodwill is allocated to the group's business segments which represent the lowest level within the group at which the goodwill is monitored for internal management accounts purposes.

 

The aggregate carrying amounts of goodwill allocated to each business segment are:-

 


2010

2009


£'000

£'000




Software as a service

5,937

2,996

IT Support Services

800

800


________

________


6,737

3,796


______

______

 

The value in use was determined by discounting the future cash flows generated from the continuing operation of the business segment and was based on the following assumptions:

 

·    Cash flows were projected based on actual operating results and a one year Group trading forecast as approved by management.

·    Cash flows were extrapolated for a further 9 years based on a revenue growth rate in a range of between 2 and 20%  per annum in each year from 2 to 10, and an increasing cost base in a range of between 3 and 15% per annum. These rates of revenue growth are based upon past achievements of the group companies and have been decided upon company by company.

·    The weighted average cost of capital used in the DCF calculation is 11% (2009: 5%)

 

In addition to revenue growth, the key assumptions used in the impairment testing were:-

 

·    Gross margins remain consistent over the 10 year period with software businesses of a similar type. 

·    60% of costs relate to employment costs which are therefore the key cost driver. Our experience has been that in the recent low inflation years we have been able to hold salary increases to 3% levels.  Certain subsidiaries are expected to grow significantly over the next few years and will need to build their infrastructure accordingly.  Our costs have been assumed to rise at 20%.

·    In overall terms the directors view the key sensitivity to be employment costs. However it would take an increase of over 15% in employment costs (as opposed to 3%) in the case of each subsidiary to bring about any impairment to the carrying value of goodwill with the exception of Cobent Limited.

 

In the case of Cobent Limited the resulting discounted cash flows fell short of the carrying value of goodwill by £2.6 million.  Whilst there may have been strong arguments for introducing a residual value to justify the carrying value of goodwill the directors concluded that on the basis of their experiences with Cobent since its acquisition in March 2010 it would be appropriate to reduce the carrying value of goodwill by that full shortfall.  The directors concluded following this review that they can justify for all other segments the carrying value of the respective goodwill.



10.     Equity settled share based payments 

 

The company has a share option scheme for employees of the group. Details of the share options are as follows:-

 

 

At 1/12/09

Granted in year

Exercised in year

Lapsed in year

At 30/11/10

Exercise price

Exercise date

From            To

No.

No

No

No

No




















90,000

-



90,000

8.0p

Oct 2008

Oct 2015

881,303

-



881,303

7.5p

Apr 2009

Apr 2016

100,000

-


-

100,000

6.75p

Nov 2009

Nov 2016

111,667

-



111,667

6.75p

Nov 2010

Nov 2017

1,000,000

-



1,000,000

2.75p

Feb 2010

Feb 2018

23,300,000

-

2,000,000

-

21,300,000

2.75p

Immediately

 


1,000,000



-

1,000,000

2.75p

Apr 2012

Apr 2019

5,999,999

-


-

5,999,999

3.0p

Apr 2012

Apr 2019

200,244

-


112,500

87,744

3.5p

Nov 2009

Nov 2016

2,000,000

-


-

2,000,000

4.375p

Sep 2012

Sep 2019

-

1,000,000

-

-

1,000,000

5.5p

Dec 2012

Dec 2019

-

1,739,130

-

-

1,739,130

5.75p

Mar 2013

Mar 2020

-

1,739,130

-

1,739,130

-

5.75p

Mar 2013

Mar 2020

-

1,739,130

-

-

1,739,130

4p

Mar 2013

May 2020

_________________

________________


_______________

_________________




34,683,213

6,217,390

2,000,000

1,851,630

37,048,973




____________

____________


___________

____________




 

During the year to 30 November 2010 2,000,000 options were exercised by J.Hamer at an exercise price of 2.75p.  Details of the number of share options and the weighted average exercise price ('WAEP') outstanding during the year are as follows:-

 


2010

2009


Number

WAEP (pence)

Number

WAEP (pence)

Outstanding at start of year

34,683,213

3.05

30,061,135

3.64

Granted during year

6,217,390

5.22

9,200,243

3.28

Exercised during year

2,000,000

2.75

-

-

Forfeited during the year

1,851,630

5.61

4,578,165

7.38


________________


________________


Outstanding at the year end

37,048,973

3.30

34,683,213

3.05


____________


____________


Exercisable at the year end

22,570,714

3.00

24,571,547

2.96


____________


____________


 

The options grants detailed below resulted in a share based payment charge for the group of £53,004 (2009: nil)



 

2010

 

Inputs and Assumptions

4 December

2009

25 March

2010

17 May

2010

Share price at grant date

5.5p

5.18p

4.65p

Exercise price

5.5p

5.75p

4.0p

Expected volatility

72%

72%

72%

Expected life of options

7 years

7 years

7 years

Expected dividend yield

0%

0%

0%

Risk free rate

2.64%

2.83%

2.5%





 

 

2009

 

Inputs and Assumptions

1 February 2009

3 April 2009

8 April 2009

19 May 2009

29 Sept 2009

Share price at grant date

 

2.5p

 

2.5p

 

3.25p

 

3.00p

 

4.38p

Exercise price

2.75p

2.75p

3.0p

3.50p

4.38p

Expected volatility

72%

72%

72%

72%

74%

Expected life of options

 

7 years

 

7 years

 

7 years

 

7 years

 

7 years

Expected dividend yield

 

0%

 

0%

 

0%

 

0%

 

0%

Risk free rate

2.64%

2.64%

2.62%

2.63%

2.71%

 

11.       Other interest bearing loans and borrowings


2010

2009


£'000

£'000




Non-current



Convertible loan notes

1,607

1,655

 

On 30 June 2009 £1,750,000 convertible loan notes were issued. The notes mature on 30 June 2014 and carry a coupon of 6% per annum, payable semi-annually until such time as they were repaid or converted in accordance with their terms. The holders of the notes may convert all or part of the notes held by them into new ordinary shares in the company on delivery to the company of a conversion notice, at 4 pence per share. The company reserved the right to redeem the Notes, in whole or part, at any time within 18 months of the date of issue, at a premium of 10%. The directors decided in November 2010 not to exercise the redemption option and that opportunity has now lapsed.

 

On 9 July 2009 the company issued a further £100,000 convertible loan notes with the same terms as those issued on 30 June 2009 except that their maturity date is 9 July 2014.  In August 2010 this loan note holder exercised his right to convert this loan to equity at 4p per share. These 2,500,000 shares were admitted to AIM on 1st September 2010.

 

The net proceeds received from the issues of the convertible loan notes have been split between the liability element and an equity component, representing the fair value of the embedded option to convert the liability into equity of the company, as follows:-

 


2010

2009


£'000

£'000




Proceeds of issue of convertible loan notes

1,750

1,850

Equity component

(176)

(186)

Deferred taxation

(40)

(72)


________

________


1,534

1,592

Interest charged

73

63


________

________

Liability component at 30 November 2010

1,607

1,655


______

______

 

The equity component of £175,834 (2009: £185,882) has been credited to equity reserve (see note 9 of the parent company). The interest charged for the year is calculated by applying an effective rate of interest of 9.8% to the liability component for the 5 month period since the loan notes were issued. The liability component is measured at amortised cost.  The difference between the carrying amount of the liability component at the date of issue and the amount reported in the balance sheet at 30 November 2010 represents the effective interest rate less interest paid to that date.

 

12.        AGM date

It is intended that the AGM will take place at the company's registered office, 32 Bedford Row, London, WC1R 4HE, at 10.00 am on Tuesday, 12th April 2011.


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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