Vianet Group PLC

Final Results

RNS Number : 0036B
Vianet Group PLC
04 June 2019
 

 

Press Release

4 June 2019

 

Vianet Group plc

("Vianet" or the "Group")

 

Final Results

and Dividend Declaration

 

Vianet Group plc (AIM: VNET), the international provider of actionable data and business insight through devices connected to its Internet of Things ("IOT") platform, is pleased to announce its final results for the year ended 31 March 2019.

 

Financial highlights (continuing operations)

·    Revenue increased 7.7% to £15.68 million (2018: £14.56 million)

·    Recurring revenues remain strong at 94% (2018: 90%) helped by the Vendman acquisition in October 2017 and transition from capital to annuity based sales in Smart Machines

·    Gross margin stable at 68% (2018: 70%)

·    Operating profit pre-amortisation of intangibles, share options and exceptional costs up 6.4% to £3.85 million (2018: £3.62 million)

·    Profit before taxation was up 29.8% to £2.66 million post exceptional items (2018: £2.05 million) with profit after tax up 37.1% to £2.48 million (2018: £1.81 million)

·    Basic earnings per share (before tax) and post-exceptional costs at 8.87 pence (2018: 6.55 pence)

·    Final dividend of 4.00 pence per share proposed giving a full year total of 5.70 pence per share (2018: 5.70 pence)

 

Divisional highlights

·    Smart Machines adjusted operating profit of £1.41 million, including Vendman contribution of £0.42 million, grew 31.8% from £1.07 million

·    Smart Machines added 10,285 new connected devices (2018: 4,490) - helped by the highly encouraging roll-out of cloud-based contactless payment solutions

·    Smart Zones adjusted operating profit of £4.48 million (2018: £4.53 million) - a positive result given the headwinds in the UK pub sector

·    Smart Zones Technology upgrades in 1,901 pubs creating IOT hubs, with a further 2,497 in pipeline for 2019/20

·    £3.0 million investment in cloud and mobile technology to modernise the Smart Zones platform and support growth in the Smart Machines division

  

 

Commenting on the final results, James Dickson, Chairman of Vianet Group plc, said:

"Vianet has made very good progress towards delivery of earnings breakthrough and continues to benefit from the focus on exploiting growth opportunities in the Smart Machines division whilst managing performance back towards growth in the Smart Zones division. In the year, the historic Smart Zones contribution was broadly maintained whilst Smart Machines would have nearly doubled its operating profit had the Group not moved to an annuity-based model for new sales.   As it was, reported profits rose by 31.8% to £1.41 million.

 

"Smart Machines leading end-to-end product suite and established presence is continuing to create strong growth opportunities across the UK and Europe. The combined business capability and potential of Vianet and Vendman and the roll-out of the global coffee contract will be transformational for this division. In the coming years, Smart Zones will aim to maintain contribution from the UK pub market whilst taking advantage of growth prospects in the significant US hospitality sector.

 

"Our recent £3.0 million investment in cloud infrastructure and mobile technology will help develop existing revenues in both Smart Zones and Smart Machines, and also provide the scalability, flexibility and speed to support rapid growth in existing and potential new verticals.

 

"The Group is in good shape to deliver strong earnings growth and enters FY2020 with solid momentum and focus on our exciting opportunities."

 

- Ends -

 

An audio cast of the full year results presentation given by Stewart Darling (Chief Executive) and Mark Foster (Chief Finance Officer), was released this morning, Tuesday, 4 June 2019 at 07.00hrs on the Group's website www.vianetplc.com with the link also being distributed by Yellow Jersey PR.   An analyst briefing will be held today at 09.30hrs at Cenkos, 6-8 Tokenhouse Yard, London EC2R 7AS.

 

Enquiries:

Vianet Group plc

 

James Dickson, Chairman

Stewart Darling, CEO

Mark Foster, CFO

Tel: +44 (0) 1642 358 800

www.vianetplc.com

 

Cenkos Securities plc

 

Stephen Keys / Cameron MacRitchie

Tel: +44 (0) 20 7397 8900

 

www.cenkos.com 

Media enquiries:

Yellow Jersey PR

 

Sarah Hollins

Henry Wilkinson  

[email protected]

            Tel: +44 (0)7764 947 137

            Tel: +44 (0)7951 402 336

www.yellowjerseypr.com

 

 

 

Chairman's Statement

 

Performance

 

The Group has made very good progress towards delivery of earnings breakthrough and continues to benefit from the focus on exploiting growth opportunities in the Smart Machines division whilst managing performance back towards growth in the Smart Zones division.  

 

Group turnover was £15.68 million (2018: £14.56 million) whilst adjusted operating profit was up by 6.4% at £3.85 million. Group profit before taxation was £2.66 million post exceptional items (2018: £2.05 million), with profit after tax up 37.1% to £2.48 million. Our Smart Machines division's move from capex to annuity only model had the short term impact of effectively reducing FY2019 turnover by £0.97 million and profit by some £0.5 million. However, there will be a significant benefit to future recurring incomes and visibility of profits. 

 

There was an exceptional net credit of £0.22 million (2018: net cost £0.54 million) principally related to the Vendman acquisition deferred consideration release which was offset by staff rationalisation and network obsolescence costs.  Whilst there has been a £0.53 million write back on the Vendman earn out provision, we are delighted with the progress and momentum against a stretching earn out which will be finalised at end H12020.

 

Basic pre-tax earnings per share was 8.87p (2018: 6.55p) with underlying earnings per share, pre deferred tax release growing 6.4% to 6.97p (2018: 6.55p).

 

Given the solid underlying performance, high quality recurring income and the strong prospects for the Group, the Board is proposing to maintain the final dividend at 4.00 pence which, if approved by shareholders, would give a total gross dividend for the year of 5.70 pence (2018: 5.70 pence).  Subject to approval from shareholders at the Annual General Meeting, to be held on 26 June 2019, the final dividend will be paid on 26 July 2019 to shareholders on the register as at 14 June 2019.

 

Board and Staff

 

The Board's composition and effectiveness is continually evaluated to ensure it has the optimum balance of experience and independence to support the business and our growth ambitions.

 

We continue to evaluate and develop the Group's management team who are focused on executing against the exciting growth opportunities for Vianet's IOT expertise and technology.

 

In an age where change is a constant, our people continue to engage with their usual enthusiasm, commitment, and openness which helps underpin the Group's excellent reputation with customers.  Whilst there is still much to be done the Group's recent annual engagement survey demonstrated further year-on-year progress and valuable feedback from employees.

 

Thank you once again to all employees and my Board colleagues for their ongoing commitment and enthusiasm in taking the Group forward. 

 

Outlook

 

The Group is in good shape to deliver strong earnings growth and enters FY2020 with solid momentum and focus on our exciting growth opportunities. 

 

·    Smart Machines' leading end-to-end product suite and established presence is continuing to create strong growth opportunities across UK and Europe, having already gained long term contracts with major global and national customers. 

 

·    The synergy and momentum resulting from the now integrated Vendman acquisition is exciting and together with full realisation of the global coffee company contract will transform Smart Machines' earnings over the next few years. Encouraging progress has been made on the significant opportunity to overlay circa 200,000 Vendman mobile connections with higher value Smart Machines connections and also to cross sell from the integrated portfolio to existing customers and vending operators internationally.

 

·    The Group is making further sales investment to accelerate growth in the areas above, with extra focus on developing our capability and accelerating growth from our leading position in coffee device and contactless payment device connectivity where sales momentum will continue to grow.

 

·    The recent circa £3.0 million investment in cloud infrastructure and mobile technology will help develop existing revenues in both Smart Zones and Smart Machines, and also provide the scalability, flexibility and speed to support rapid growth in existing and potential new verticals.

 

·    Smart Zones will carry momentum from several major customer technology upgrade programs through FY2020 and will benefit greatly from our recent infrastructure investment. This will allow Smart Zones to maintain existing profit contribution whilst taking advantage of improving growth prospects both in the UK pub market and significant US hospitality market.

 

·    The Group has high levels of recurring income and strong cash flow. This operational cash generation and strong balance sheet gives scope for further investment to accelerate Smart Machines expansion and for selective acquisitions.

 

The Board remains confident that Vianet's long term growth strategy is the right one and that the Group is well positioned to deliver earnings growth and expand the future strategic options for Vianet. 

 

 

James Dickson
Chairman

 

 

 

 

 

 

 

Chief Executive's Report

 

Vianet delivers value to its customers by providing analytics and insight on asset utilisation and performance allowing more informed decision making and business change.

 

Whilst we currently operate two business divisions: Smart Zones (drinks monitoring and machine management services) and Smart Machines (unattended retail machine ERP and mobile software, telemetry and contactless payment solutions), the technological capability and expertise we have developed supports our market leading ability to connect to any asset with a digital output.

 

With over 300 customers including several global blue-chip companies with nearly 230,000 devices (excluding circa 200,000 Vendman mobile connections) connected to our IOT platform, our experience and knowledge combine to form a powerful technology and insight capability that, we believe, is unmatched by competitors in our markets.

 

As the IOT evolves and businesses seek to identify means of improving asset utilisation and performance, Vianet is well placed to grow its position in this rapidly developing area.

 

Whilst hardware and connectivity still has a significant role to play in enabling the connection to an asset, our IOT platform has evolved so that our connectivity capability is agnostic and can connect to any device. Therefore, we do not always need to connect to one of our own Smart Devices. Our ability to harvest data on customer asset performance enables the creation of powerful analytics and insight and this will drive sustained business growth over the coming years.

 

We have resisted the distraction of developing other enablement technologies necessary to create the overall solution. Instead, our strategic choice has been to build partnerships with leading providers and partners such as Elavon and Creditcall.

 

In the last year the Group has continued to take positive steps forward to execute key elements of our growth plan and secure new business.

 

We were delighted to win a tender process with an existing strategic Smart Machines customer for the supply of connected devices, analytics and insight data. Due to a significant IT project undertaken by the customer, this project will complete in June 2019 and we are confident of progress in the coming year.

 

Simultaneously, as part of our strategic intent to accelerate growth and improve revenue visibility, we have migrated from a largely capital sales based model to an annuity only model where hardware is effectively leased and not purchased. Whilst this will drive increased quality of earnings in the medium to long term, in the short term it has as expected adversely impacted both turnover and profitability, accounting for just over £967,000 turnover and circa £500,000 profit on a like for like basis when compared to last year.

 

With the integration of Vendman into the Group complete, progress is now being made towards improving the operating performance of the combined business. As a positive demonstration of this, Vendman contributed £0.42 million of adjusted operating profit in the year, underpinning our belief that the combination of Smart Machines and Vendman has a compelling strategic, commercial and financial rationale.  

 

As well as establishing a market-leading portfolio of solutions for unattended retail through the combination of expertise, products and services, the acquisition of Vendman opened up significant cross-selling opportunities for Vianet IOT connectivity, real-time data and contactless payment technology.  In the machine estate there are circa 200,000 vending machines, the vast majority of which are not connected via a real-time device.  To date we have connected almost 6,000 (circa 3%) of these machines, which leaves significant conversion headroom that we will exploit in the coming year through increased investment in sales and commercial resource in the field.

 

At the same time, the presence of Vianet and Vendman in Continental Europe is enhancing our route to market and distribution opportunities through establishing a strong network and footprint with distributors and machine suppliers.

 

To enable and accelerate our strategy we have also invested nearly £3.0 million in new cloud and mobile technology that will allow us to scale quickly and effectively whilst engaging customers via new mobile applications and connectivity.

 

We aim to complete the substantial task of migrating all customers and data from our legacy platform to this new platform and capability in 2019.

 

Operating Review

 

Smart Zones

 

The performance of our drinks monitoring and support services solutions for the UK Hospitality sector was maintained year-on-year in respect of operating profit and remains resilient with high gross margins and strong cash generation.

 

In the period technology upgrades, creating IOT hubs, were completed in 1,901 pubs with a further 2,497 in the pipeline for FY2020. This progress in deploying new technology capability has delivered a healthy pipeline of installs for the next 18 months or so, all of which will help sustain the divisional contribution. However, our customers focus on this high level of activity together with the encouraging extensions to managed pub company commercial pilots resulted in only 88 new site installations.

 

UK pub disposals have continued but slowed (2019: 911 and 2018: 1,420) with the resulting impact being a net reduction of 823 (2018: 1,175) licenced premises in our installation base over the financial year with a consequential impact on operating contribution.

 

Despite these pub disposals, our Smart Zones connected device base remains significant with circa 202,000 devices in circa 12,600 premises in the UK and USA. The data sent from these devices forms the core of the insight and analytics delivered to customers via our website and mobile applications.

 

The combination of strong recurring revenues from long term contract extensions, robust cost base and margin management offset the lower turnover resulting from pub closures enabling the Group to maintain profit contribution year-on-year. 

 

Whilst we focus on strengthening our recurring income streams, pub companies are also adapting to the changing landscape through different strategies such as developing managed estates from high performing or strategically located properties and creating franchised models with increased operating performance potential and greater transparency. We expect these different strategies to be beneficial to our business as the pub companies seek to improve retailing capability and quality standards and will likely be targeting investment expenditure on that basis.

 

Our annual Beer Quality Report continues to demonstrate the cost to the industry of poor draught beer management and we will continue to use this as the basis for discussion with our customers to unlock business improvement opportunities.

 

In summary, Smart Zones is focussed on maintaining performance despite the UK pub market headwinds, and executing the roll-out of technology upgrades to give us a platform to provide new analytics and insight to customers.

 

In our Vianet Americas business we have made more progress with 43 new installations, resulting in year-on-year operating performance being effectively breakeven and an expectation of delivering a maiden profit during FY2020.

 

The quality of our installation base in Blue Chip operators, including AMC Theatres, across the USA continues to be a source of encouragement and provides strong validation of the value provided by iDraught™. The expectation for the coming year is to secure a new large-scale operator which will further cement our position in the USA.

 

A review of the competitor landscape clearly indicates that Vianet's iDraught™ solution is substantially ahead of all competitors in the USA, and this advantage, combined with our strategic alliance with Micro Matic USA for nationwide installation, service and sales support places us in a strong position to build sales momentum.

 

Whilst the pace of progress is slower than we would wish, we recognise that for a relatively modest level of investment in what is the world's largest multiple operator market, a breakthrough could be significant. Therefore, the Group remains committed to establishing a significant US profit centre.

 

Overall, the Board is confident that the Smart Zones division will maintain its existing profit contribution whilst also being positioned to benefit from the encouraging growth prospects in both the UK managed pub and US hospitality sectors. 

 

Smart Machines 

 

Smart Machines made great progress in the year as our strategy of securing agreements with significant industry players who have the scale to invest and the sophistication to unlock the value of our technology provides, continues to fuel growth.

 

With the acquisition of Vendman and the resulting access to new customers and markets, we are now driving growth in the unattended retail market by delivering market leading analytics and insight in premium coffee and snack & can channels from new device connections to assets and roll-out of contactless payment capability.  

 

We are very much encouraged by the sales growth in these channels and our securing of vending contracts with major industry customers whose businesses are growing. This resulted in Divisional adjusted operating profit growth of 31.8% to £1.41 million in the year. Profit before tax however increased to £0.98 million (2018: £0.36 million).  Whilst this was helped by a Vendman contribution of £0.42 million, it was a highly encouraging performance as the move from capex to annuity only model effectively reduced FY2019 profit by some £0.5 million.

 

Our approach is to build an annuity only income model to drive sales and strengthen recurring revenues, improving the quality and visibility of earnings in the medium to long term. Whilst a positive step for the business, this transition adversely impacted turnover in Smart Machines by around £967,000 in the year and also increased our upfront cash requirements. The approach will result in higher quality income streams and profits in the coming years and we have already seen our recurring revenues grow to 87% of Smart Machines income in the year, an increase of 13% on last year's figure of 74%.

 

Total Smart Machine connections grew by just under 10,300 devices in the year helped by the highly encouraging roll-out of our cloud based contactless payment solution.

 

The contactless payment solution, which is driving increased sales of around 20% per unattended retail machine for our customers, increased its own footprint by 140% in the year. This strong acceleration is also unlocking further growth opportunities through the provision of analytics and insight to machine operators who wish to unlock more value available from their assets and overall operations.

 

The strategic contract with a global coffee customer for the roll-out of connected coffee machines to a large part of its estate was slower than anticipated in the year due to software development the customer had to undertake to scale the program. We anticipate the roll-out will begin in the coming months and the phased deployment of this contract across ten further countries in Europe, Australia and New Zealand will gather pace.

 

From breakeven at acquisition Vendman contributed £0.42 million in the year as it took advantage of cross selling opportunities presented by IOT connectivity and real-time data to customers including the roll-out of Vianet contactless payment technology.

 

The market opportunity remains extensive even when limited to the immediately addressable market projections of 300,000 vending machines rather than all vending machines across mainland Europe. As technology adoption evolves, it is anticipated that the addressable market will grow to nearly 1 million vending machines with Vianet being at the forefront to grow with the market.

 

Our contactless payment solution, continues to be supported by leading industry partners Elavon and CreditCall. This will further evolve in the coming year when we introduce a master merchant capability allowing us to speed up the on-boarding of customers for payment capability. Contactless payment remains a very attractive solution to the marketplace where traditional cash-only payments have long been an inhibitor of vending-related consumption, usage and customer experience. We believe the evolution and growth of contactless payment solutions provides a material opportunity to change this dynamic and attract more consumers to the vending vertical.

 

In summary, we expect that Vianet's analytics and insight delivered from data harvested from unattended retailing assets and evolving contactless payment solution will provide exciting growth opportunities in years to come.

 

 

R&D Investment

 

The Group continues to invest in development activity with accelerated activity in the year. Development has broadly covered enhancements to customer experience. Revenue generating analytics and insights from new platforms allows us to leverage new revenue streams, and provide the ability to operate a cloud based self-service model. Simultaneously, it has allowed us to gradually migrate from legacy systems and software to a cloud based technology environment. The accelerated investment took the total investment to date in the cloud platform, analytics and mobile technology to almost £3.0 million.

 

The Board believes this further investment in enhancing our core data management capability and IOT technology will enhance the Group's ability to improve the quality of the existing recurring revenue stream and to generate substantial new growth opportunities.

 

Looking Forward

 

The business is strongly placed to benefit from its proven track record of converting data gathered from its IOT devices into analytics and insight that drive better decision making for customers aimed at improving asset utilisation and increased profitability.

 

The combined business capability and potential of Vianet and Vendman and the rollout of the global coffee contract will be transformational for the overall Smart Machines business and should drive significantly increased earnings for the Group in the next few years. In tandem, we continue to grow and develop strong working relationships with significant industry players where contracted recurring revenues now represent 94% of turnover.

 

Whilst Smart Machines is already exploiting growth opportunities through its strong portfolio of products and services to existing customers across Europe, the recent investment of almost £3.0 million in new cloud and mobile capability, and the transformation of legacy systems, will facilitate rapidly scalable growth in existing and new vertical markets. Our contactless payment solution and introduction of a master merchant scheme, combined with rapid adoption of technology by brand owners and machine operators, positions this division for strong underlying growth.

 

The Smart Zones division will aim to maintain contribution from the UK pub market helped by new technology upgrades in existing customers, which will enhance existing income streams and unlock further opportunities for enhanced analytics and insight. In parallel, we are encouraged by managed operator growth prospects here and in the USA where we expect to expand our iDraught footprint through existing and new mid-size multiple operators.

 

Finally, the combination of our experienced team and robust finances provide a strong platform for the further development and expansion of our IOT capability and the delivery of data and insight applications that help our customers make better decisions about their assets.

 

 

Stewart Darling

Chief Executive Officer

 

 

 

 

Financial Review

 

Growing Profitability

 

Group operating profit, pre-exceptional costs, was up 6.4% to £3.85 million (FY2018: £3.62 million).

 

Gross margin remained healthy year-on-year at circa 68%.

 

The average operating profitability per connected device has grown 10.2% to £16.80 (2018: £15.24).

 

This KPI is measured by taking full year operating profit before amortisation, share based payments and exceptional items and dividing by the total number of connected devices at the year-end.

 

Turnover

 

Turnover increased by 7.7% helped by the integration of Vendman which offset a moderate decline in Smart Zones and the £0.97 million revenue impact of the shift from capex to annuity model and vending estate rationalisation in Smart Machines. 

 

Recurring Revenue

 

Blended recurring revenue across the two divisions was 94% (2018: 90%), helped by the Vendman integration and the transition from capital to annuity based sales in Smart Machines.

 

The average recurring revenue per connected device has grown 7.4% to £55.12 (2018: £51.31).

 

Performance Summary

 

PBT was up 3.9% at £2.13 (2018: £2.05 million). The table below shows the performance of the Group:

 

 

FY2019

FY2018

Change %

Revenue

£15.68m

£14.56m

7.7

Operating profit(a)

£3.85m

£3.62m

6.4

Operating profit

£4.08m

£3.08m

32.2

Operating profit(b)

£3.55m

£3.08m

15.3

Profit before tax(b)

£2.13m

 

£2.05m

3.9

Profit after tax

Basic EPS(c)      

 £2.48m

6.97p

£1.81m

6.55p

37.1

6.4

Basic EPS

Dividend per share

8.87p

5.70p

6.55p

5.70p

35.4

Net (debt)/cash(d)

£(1.20)m

£1.20m

 

 

 

a)    Pre-exceptional items, share based payments and amortisation

b)    Pre deferred consideration

c)    Profit after tax pre deferred consideration release

d)    Cash at bank after deduction of bank loans including loan for the acquisition of Vendman Systems Limited

 

Exceptionals

 

 

FY2019

'£000

FY2018

'£000

 

 

 

 

People and office rationalisation

163

260

Network obsolescence costs

107

43

Acquisition costs

-

231

Deferred consideration release

 

(530)

 

-

Other items

38

4

Total

(222)

538

 

Current year total relates to deferred consideration release in relation to the Vendman acquisition, offset by staff rationalisation costs and network obsolescence costs.

 

Dividend

 

The Board is proposing to maintain the final dividend at 4.00 pence which, if approved by shareholders, would give a total dividend for the year of 5.70 pence (2018: 5.70 pence).

 

On a profit after tax basis, dividend cover has increased to circa 1.56 (2018: circa 1.16), but on an underlying basis cover increased to 1.23. We expect the cover to improve further in FY2020 as a result of our anticipated growth in profits and reduction in exceptional costs. 

 

Cash

 

Net cash generation pre working capital movements and LTIP taxation payments was £3.99 million (2018: £3.52 million), growth of 13.3% (including share based payments and asset disposals). This year we have invested £0.6 million in increased stock levels to fulfil annuity sales and secure supply chain stocks of key electronic components in a volatile world component market. 

 

This, together with; the impact of a move away from Capex to annuity modelling; externally contracted investment in our new IOT platform; and the incorporation of the Vendman working capital metrics, has meant after working capital movements but before LTIP taxation payment an operational generation of £2.04 million versus £2.97 million last year.  Operational generation post LTIP taxation payment was £1.54 million (2018: £2.97 million). 

 

We reported at the half year that H2 would start to see an upturn in cash generation with less investment in stock and external contractors - the working capital position reduced to a £0.76 million impact in H2 compared to £1.19 million in H1, impacted mainly by creditor payments from H1 commitments. This was as forecast and as expected given the transition the business has been going through.

 

The cash generated was principally used to service accelerated R&D investment, dividend payment and servicing of new borrowings leaving an outflow of £3.12 million (2018: £0.6 million outflow).  As expected, however, the H2 outflow was significantly reduced at £0.52 million compared to H1 of £2.60 million.

 

At the year-end, pre mortgage and the acquisition loan, the Group had net cash including overdraft of £0.80 million (2018: £3.92 million), borrowings of £1.99 million (2018: £2.65 million), and net debt of £1.20 million (2018: net cash £1.20 million) impacted by the £2 million term loan associated with the Vendman acquisition and cloud based platform investment.  FY2020 should see an improved cash performance result.

 

Divisional Performance

 

Currently the Smart Zones division principally consists of the core beer monitoring business (including the US) and gaming machine monitoring.

 

Smart Zones

 

 

FY2019

FY2018

Change %

Turnover

£11.00m

£11.45m

(3.9)

Operating profit(a)

£4.48m

£4.53m

(1.1)

Profit before tax

Total connected devices

£4.06m

 

202,513

£4.05m

 

218,663

0.2

 

(7.4)

New Installation sales

88

245

(64.1)

YE Net premises(b)

c12,600

c13,570

(7.1)

iDraught penetration(b)

27.0%

28.0%

 

 

 

 

 

a)    Pre-exceptional items, share based payments and amortisation

b)    UK, USA and Europe only

 

  

 

Recurring revenue per device has increased 8.9% to £52.99 (2018: £48.67) reflecting the higher quality recurring revenue streams which has resulted from our customers' disposal of relatively lower performing pubs during their estate rationalisation programmes.

 

Average operating profitability per device is measured by taking full year operating profit before amortisation, share based payments and exceptional items and dividing by the total number of connected devices at the year end.

 

Average adjusted operating profit per device (above) has increased circa 8.0% to £18.03 (2018: £16.70) reflecting flat profitability against a lower estate size.

 

The Smart Zones division has performed fairly against a challenging pub market backdrop that resulted in a net estate reduction of 823 sites (2018: 1,175) to circa 12,300 (2018: 13,125) in the UK and Europe.

 

Against this backdrop, Smart Zones maintained its operating profit at £4.48 million (2018: £4.53 million).

 

Smart Machines

 

The Smart Machines division consists of telemetry and contactless monitoring predominantly in the vending sector, and includes six months of recently acquired Vendman.      

 

 

FY2019

FY2018

Change %

Turnover (b)

£4.68m

£3.12m

50.0

Operating profit (a, b)

£1.41m

£1.07m

31.8

Profit before tax

Vendman (d)

£0.98m

£0.42m

£0.36m

£0.12m

172.2

250.0

New Telemetry connections

2,485

1,660

49.7

New Contactless connections

7,800

2,830

175.6

YE Net  estate (c)

c27,000

c18,000

(10.0)

 

 

 

 

a)    Pre-exceptional items, share based payments and amortisation on a continuing basis.

b)    Included in the above FY2019, Vendman contributed £2.88m in turnover and £0.42m in operating profit

c)    Excludes circa 200,000 Vendman connections.  

d)    Vendman contribution is pre-exceptional items, share based payments and amortisation on a continuing basis, and included in the operating profit figure

 

Smart Machines continued to make progress in the year with growth in number of new connected devices, especially in contactless with new contactless connections being 4,970 ahead of FY2018. The estate figures reflect the net movement shown above.

  

Average recurring revenue per device decreased 12.9% to £71.11 (2018: £81.66) principally due to the mix of estate, with the shift towards annuity based revenue streams along with increased penetration of contactless solutions.

 

Average adjusted operating profit per device (above) has increased 4.4% to £52.13 (2018: £49.93) due to sales/revenue stream mix as noted above set against a relatively stable fixed cost base.

 

Taxation

 

The Group has continued to utilise available tax losses during the year resulting in no tax being paid (2018: £nil). The Group will continue to utilise the available tax losses carried forward into FY2020. In the financial year under review, the tax line includes a deferred tax charge of £0.18 million (2018: £0.24 million) recognising the impact of the tax losses available and being utilised.

 

Earnings per share

 

Earnings per share has been impacted by the recognition of the deferred tax assets provision referred to above, realising the losses carried by the Group and the unwinding of that provision since FY2014.

 

The underlying profit after tax from continued operations pre deferred consideration release earnings per share is 6.97 pence for FY2019 compared to 6.55 pence for FY2018.

 

Basic EPS was 8.87 pence compared to 6.55 pence in 2018.

 

Balance sheet and cash flow

 

The Group balance sheet remains strong.

 

The Group generated operating cash flow (pre LTIP tax payment) of £2.04 million (2018: £2.97 million) with FY2019 impacted by the continued shift to annuity revenue streams and stock investment as well as external contractor investment in our cloud based platform.

 

The cash generated in FY2019 was utilised to invest in the Group's accelerated technology plans through research and development, to service borrowings and to fund dividend. At the year-end, the Group had borrowings of £1.99 million (2018: £2.65 million), and net debt of £1.20 million (2018: net cash £1.20 million), which was forecast to occur given the transition the Group is going through.

 

The balance sheet and cash generating capacity of Vianet provides a continued strong base to pursue the significant growth opportunities that the Board has identified in order to generate increased shareholder value.

 

 

Mark Foster

Chief Financial Officer

 

 

 

 

 

Consolidated Statement of Comprehensive Income for the year ended 31 March 2019

 

 

 

 

 

 

 

Before Exceptional   2019

£000

 

 

 

 

 

 Exceptional   2019

£000

 

 

 

 

 

Total

 2019

£000

 

 

 

 

 

Before Exceptional   2018

£000

 

 

 

 

 

Exceptional   2018

£000

 

 

 

 

 

Total

  2018

£000

 

Note

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

 

 

 

 

 

Revenue

 

15,683

-

15,683

14,561

-

14,561

Cost of sales

 

(5,023)

-

(5,023)

(4,381)

-

(4,381)

 

 

 

 

 

 

 

 

Gross profit

 

10,660

-

10,660

10,180

-

10,180

 

 

 

 

 

 

 

 

Administration and other operating expenses

 

 

(6,805)

 

222

 

(6,583)

 

(6,559)

 

(538)

 

(7,097)

 

 

 

 

 

 

 

 

Operating profit pre amortisation and share based payments from continuing operations

 

 

3,855

 

222

 

4,077

 

3,621

 

(538)

 

3,083

 

 

 

 

 

 

 

 

Intangible asset amortisation

 

(1,192)

-

(1,192)

(865)

-

(865)

Share based payments

 

(132)

-

(132)

(142)

-

(142)

 

 

 

 

 

 

 

 

Total administrative expenses

 

(8,129)

222

(7,907)

(7,566)

(538)

(8,104)

Operating profit

 

 

2,531

 

222

 

2,753

 

2,614

 

(538)

 

2,076

 

 

 

 

 

 

 

 

Net finance costs

 

(95)

-

(95)

(28)

-

(28)

 

 

 

 

 

 

 

 

 

 

Profit from continuing operations before tax

 

 

 

2,436

 

 

222

 

 

2,658

 

 

2,586

 

 

(538)

 

 

2,048

 

 

 

 

 

 

 

 

Income tax expense

1

(178)

-

(178)

(239)

-

(239)

 

 

 

 

 

 

 

 

Profit and other comprehensive income for the year

 

 

2,258

 

222

 

2,480

 

2,347

 

(538)

 

1,809

Earnings per share

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

- Basic

8

 

 

8.87p

 

 

6.55p

 

 

 

 

 

 

 

 

- Diluted

8

 

 

8.80p

 

 

6.54p

 

 

 

 

 

 

 

 

Continuing Operations

 

 

 

 

 

 

 

- Basic

8

 

 

8.87p

 

 

6.55p

 

 

 

 

 

 

 

 

- Diluted

8

 

 

8.80p

 

 

6.54p

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheet at 31 March 2019

 

 

 

 

2019

£000

2018

£000

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

Goodwill

 

 

 

17,975

17,975

Other intangible assets

 

 

 

4,875

4,529

Property, plant and equipment

 

 

 

3,503

3,166

Deferred tax asset

 

 

 

313

391

Total non-current assets

 

 

 

26,666

26,061

Current assets

 

 

 

 

 

Inventories

 

 

 

1,670

1,086

Trade and other receivables

 

 

 

3,669

3,246

Cash and cash equivalents

 

 

 

1,788

4,324

 

 

 

 

7,127

8,656

Total assets

 

 

 

33,793

34,717

Equity and liabilities

 

 

 

 

 

Liabilities

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

 

4,138

4,416

Borrowings

 

 

 

1,652

1,062

Tax

 

 

 

-

20

 

 

 

 

5,790

5,498

Non-current liabilities

 

 

 

 

 

Other payables

 

 

 

139

1,339

Borrowings

 

 

 

1,333

1,994

Deferred tax

 

 

 

972

872

 

 

 

 

2,444

4,205

 

 

 

 

 

 

Equity attributable to owners of the parent

 

 

 

 

 

Share capital

 

 

 

2,874

2,872

Share premium account

 

 

 

11,530

11,519

Share based payment reserve

 

 

 

314

483

Own shares

 

 

 

(754)

(1,114)

Merger reserve

 

 

 

310

310

Retained profit

 

 

 

11,285

10,944

Total equity

 

 

 

25,559

25,014

 

 

 

 

 

 

Total equity and liabilities

 

 

 

33,793

34,717

 

Consolidated Statement of Changes in Equity for the year ended 31 March 2019

 

Share capital

Share premium

account

 

 

Own

shares

Share

based

payment

reserve

 

 

Merger

reserve

Retained profit

Total

At 1 April 2017

2,843

11,287

(1,221)

418

310

10,624

24,261

Dividends

-

-

-

-

-

(1,562)

(1,562)

Issue of shares

29

232

-

(50)

-

50

261

Share based payments

-

-

-

115

-

27

142

Exercise of options

-

-

107

-

-

(4)

103

Transactions with owners

 

29

 

232

 

107

 

65

 

-

 

(1,489)

 

(1,056)

Profit and total comprehensive income for the year

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,809

 

 

1,809

Total comprehensive income less owners transactions

29

232

107

65

-

320

753

 

 

 

 

 

 

 

 

At 31 March 2018

2,872

11,519

(1,114)

483

310

10,944

25,014

 

 

 

 

 

 

 

 

At 1 April 2018

2,872

11,519

(1,114)

483

310

10,944

25,014

Dividends

-

-

-

-

-

(1,585)

(1,585)

Issue of shares

2

11

-

-

-

-

13

Share based payments

-

-

-

132

-

-

132

Share option forfeitures

-

-

-

(2)

-

2

-

LTIP exercise

-

-

360

(299)

-

(556)

(495)

Transactions with owners

 

2

 

11

 

360

 

(169)

 

-

 

(2,139)

 

(1,935)

Profit and total comprehensive income for the year

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,480

 

 

2,480

Total comprehensive income less owners transactions

2

11

360

(169)

-

341

545

 

 

 

 

 

 

 

 

At 31 March 2019

2,874

11,530

(754)

314

310

11,285

25,559

 

Consolidated Cash Flow Statement for the year ended 31 March 2019

 

Note

2019

£000

2018

£000

Cash flows from operating activities

 

 

 

Profit for the year

 

2,480

1,809

Adjustments for

 

 

 

Net interest payable

 

95

28

Income tax expense

 

178

239

Amortisation of intangible assets

 

1,192

865

Depreciation

 

450

379

Payment of deferred consideration

 

(21)

-

Deferred consideration release

 

(530)

-

Loss on sale of property, plant and equipment

 

14

61

Share based payments

 

132

142

Tax payment in respect of LTIP

 

(495)

-

Operating cash flows before changes in working capital and provisions

 

3,495

3,523

Change in inventories

 

(583)

219

Change in receivables

 

(423)

(537)

Change in payables

 

(948)

(126)

Change in provisions

 

-

(105)

 

 

(1,954)

(549)

Cash generated from operations

 

1,541

2,974

Net cash generated from operating activities

 

1,541

2,974

Cash flows from investing activities

 

 

 

Purchase of subsidiary

 

-

(1,855)

Cash acquired with subsidiary

 

-

(62)

Purchases of property, plant and equipment

 

(801)

(398)

Purchases of intangible assets

 

(1,538)

(1,610)

Net cash used in investing activities

 

(2,339)

(3,925)

Cash flows from financing activities

 

 

 

Net interest payable

 

(95)

(28)

Issue of share capital

 

13

262

Share options exercised

 

-

102

New bank loans

 

-

2,000

Repayments of borrowings

 

(659)

(450)

Dividends paid

2

(1,585)

(1,562)

Net cash used in financing activities

 

(2,326)

324

Net decrease in cash and cash equivalents

 

(3,124)

(627)

Cash and cash equivalents at beginning of period

 

3,922

4,549

Cash and cash equivalents at end of period

 

798

3,922

 

 

Reconciliation to the cash balance in the Consolidated Balance Sheet

Cash balance as  per consolidated balance sheet

 

1,788

4,324

Bank overdrafts

 

(990)

(402)

Balance per statement of cash flows

 

798

3,922

 

 

Notes to the financial statements

 

1. Taxation

Analysis of charge in period

 

2019

£000

2018

£000

Current tax expense

 

 

- Amounts in respect of the current year

-

-

- Amounts in respect of prior periods

-

-

 

-

-

 

 

 

Deferred tax credit:

 

 

- Amounts in respect of the current year

174

230

- Amendment re-recognition of losses

4

9

 

 

 

Income tax charge

178

239

 

Reconciliation of effective tax rate

The tax for the 2019 period is lower (2018 was lower) than the standard rate of corporation tax in the UK (2019: 19% and 2018: 19%). The differences are explained below:

 

 

2019

£000

2018

£000

Profit before taxation

- Continuing and discontinuing operations

2,658

2,226

 

 

 

Profit before taxation multiplied by rate of corporation tax in the UK of 19% (2018: 19%)

505

423

Effects of:

 

 

Other expenses not deductible for tax purposes

44

35

Non taxable income

(101)

-

Amortisation of intangibles

189

123

Movement on losses

55

120

Adjustments for prior years

4

9

Research and development

(518)

(471)

Total tax charge

178

239

 

 

 

2. Ordinary dividends

 

2019

£000

2018

£000

Final dividend for the year ended 31 March 2018 of 4.0p (year ended 31 March 2017: 4.0p)

1,108

1,096

Interim dividend paid in respect of the year of 1.70p (2018: 1.70p)

477

466

Amounts recognised as distributions to equity holders

1,585

1,562

 

In addition, the directors are proposing a final dividend in respect of the year ended 31 March 2019 of 4.0p per share. If approved by shareholders, it will be paid on 26 July 2019 to shareholders who are on the register of members on 14 June 2019. Total dividend payable 5.70p (2018: 5.70p).

3. Earnings per share

Earnings per share has been impacted by the release of a deferred tax asset provision. After adjustment for the lower tax charge, the overall basic earnings per share for the year ended 31 March 2019 before exceptional costs increased to 8.08 pence compared to 8.50 pence at March 2018.

Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders (£2,480k) by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share are calculated on the basis of profit for the year after tax divided by the weighted average number of shares in issue in the year plus the weighted average number of shares which would be issued if all the options granted were exercised.

The table below shows the earnings pre and post the impact of the movement in the deferred tax asset.

 

2019

2018

 

Earnings

 

 

£000

Basic earnings per share

Diluted earnings per share

Earnings

 

 

£000

Basic earnings per share

Diluted earnings per share

Post-tax profit attributable to equity shareholders

2,480

8.87p

8.80p

1,809

6.55p

6.54p

Pre-tax profit attributable to equity shareholders

2,658

9.51p

9.43p

2,048

7.42p

7.40p

Pre-tax, pre-exceptional profit attributable to equity shareholders

2,436

8.71p

8.65p

2,586

9.36p

9.35p

Post-tax, pre-exceptional profit attributable to equity shareholders

2,258

8.08p

8.01p

2,347

8.50p

8.48p

Post-tax profit, pre-deferred consideration release attributable to equity shareholders

1,950

6.97p

6.92p

1,809

6.55p

6.54p

Pre-tax profit, pre-deferred consideration release attributable to equity shareholders

2,128

7.61p

7.55p

2,048

7.42p

7.40p

 

  

 

2019

Number

2018

Number

Weighted average number of ordinary shares                                                                      

27,959,532

27,613,719

Dilutive effect of share options

216,908

54,259

Diluted weighted average number of ordinary shares

28,176,440

27,667,978

 

4. Exceptional items

 

2019

£000

2018

£000

Bolton rationalisation

-

(19)

Acquisition costs

29

231

Corporate restructuring and transitional costs

163

260

Deferred consideration release

(530)

-

Network obsolesce costs

107

43

Other

9

23

 

 

 

 

(222)

538

 

Acquisition costs relate to fees paid to corporate advisors in respect of prospective acquisitions.

Corporate restructuring and transitional costs relate to the transition of people and management to ensure we have to succession and calibre of people on board to deliver the strategic aims and aspirations of the Group.

The deferred consideration release refers to the acquisition of Vendman Systems Limited to where a proportion of the consideration was based upon results of the company for two years post acquisition. This balance has now been fair valued at the year end with the change in fair value recognised through the income statement

5. Basis of preparation

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined by section 434 of the Companies Act 2006.

 

t has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) adopted for use in the European Union, including IFRIC interpretations issued by the International Accounting Standards Board, and in accordance with the AIM rules and is not therefore in full compliance with IFRS. Except for the adoption of IFRS15 and IFRS9, the principal accounting policies of the Group have remained unchanged from those set out in the Group's 2018 annual report. The financial statements have been prepared under the historical cost convention with the exception of certain items which are required to be measured at fair value

 

The audit of the statutory accounts of Vianet Group plc for the year ended 31 March 2019 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement.  The comparative information has been extracted from the Group's financial statements upon which the auditor's opinion is unmodified and does not include a statement under section 498(2) or (3) of the Companies Act 2006.   The statutory accounts for the year ended 31 March 2019 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on our website vianetplc.com and on request by contacting the Company Secretary at the Company's Registered Office.  In due course, they will be delivered to the Registrar of Companies

 

The statutory accounts for the year ended 31 March 2018 have been delivered to the Registrar of Companies.

 

6. Annual General Meeting

 

The Annual General Meeting will be held on 26 June 2019 at 11.00am, at the offices of Grant Thornton UK LLP, No 1 Whitehall Riverside, Leeds, LS1 4BN.

 


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