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Altitude Group PLC (ALT)

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Tuesday 28 May, 2019

Altitude Group PLC

Unaudited full year results and operational update

RNS Number : 2248A
Altitude Group PLC
28 May 2019
 

28 May 2019

 

Altitude Group plc

("Altitude", the "Company" or the "Group")

 

Unaudited full year results and operational update

 

Altitude Group plc (AIM: ALT), the operator of a leading marketplace for personalised products, is pleased to announce its unaudited results for the year to 31 December 2018. The Group will make a further announcement when the audited Annual Report for the year ended 31 December 2018 has been published and sent to shareholders.

 

Key corporate developments and operational highlights

 

·     Nichole Stella promoted to Group Chief Executive Officer in June 2018

·    Successful placing to raise £1.5 million (gross) at 60p per Ordinary Share completed in March 2018 to accelerate the roll out of AIMPro in strategic partnership with AI Mastermind Group LLC ("AIM")

·   Significant progress achieved in the adoption of AIMpro by AIM members, sales orders of $19.9m processed in 2018 by 266 AIM members, 78% of whom placed multiple orders

·     During 2018 70 AIM preferred suppliers signed up to pay transaction fees on all orders derived through the AIMPro platform

·     Graeme Couturier appointed as Chief Financial Officer in March 2018

 

Financial Highlights

 

·    Increased revenues £6.6 million (2017: £6.1 million), due to £1.6m incremental revenue from a full year of AdProducts (seven months contribution in 2017), less a £1.1m decline in the legacy exhibitions and publications businesses in the UK and legacy SaaS software in the US

·    Adjusted operating loss* of £0.8m (2017: profit £0.9m), principally due to pre-revenue operating cost investment in the US and the decline in UK exhibitions and publications contribution

·    Loss before taxation £2.8m (2017: profit £0.1m)

·    Group remains debt free and had net cash of £3.8m as of 30 April 2019

 

*Before share-based payment charges, amortisation of intangible assets, depreciation of tangible assets and exceptional charges

 

Post Year End Highlights

·    Cash repayment post year end from HMRC in respect of R&D cash tax credits totalling £0.4m

·    Successful oversubscribed equity placing to raise £9.0m (gross) at 68p per share to fund the transformational acquisition of AIM, the largest and rapidly growing promotional products distributor organization member group in the US for $5.0 million, and provide the associated working capital required to accelerate the monetisation of the combined business

·    The acquisition secured access to the annual c.$1.9 billion aggregate AIM revenue and confers two major benefits:

·       Altitude able to offer additional added value services, leveraging its existing applications and expertise, to help members and supplier partners

·    It enables Altitude to immediately leverage the entire AIM order flow in partnership with key selected contracted suppliers, regardless of whether the order is placed through the AIMPro platform

·    The Board is very pleased with the progress made with AIM since acquisition and we draw shareholder and investor attention to the detailed Summary of Progress contained in the CEO's Report

 

Accounting reference date

Following the acquisition of AIM the Board is considering changing the Group's year end accounting reference date from 31 December to 31 March. Such a change in accounting reference date would bring the Group more in line with the US promotional product industry and would provide a better accounting cut-off date for auditable visibility of revenue due from those suppliers on calendar year settlement terms. The Group will provide a further update in relation to this in due course. 

 

 

Nichole Stella, CEO at Altitude, said:

 

"We have made substantial progress throughout the year as we developed our relationship with AI Mastermind, providing its members with access to our white labelled AIMPro platform. In January 2019 we acquired AIM, the largest promotional product supplier distributor member group in the US, securing ownership of its $1.9 billion throughput pipeline, a huge opportunity for us to deliver great services and value to our members and shareholders alike.

 

"This acquisition is strategically significant and transformative and has now become the core focus of our strategy as we look to expand our US team, formalizing agreements with key industry suppliers as part of our Preferred Supplier Partner Programme and responding to demand from our AIM members.

 

"Just four months post the acquisition of AIM, we are very pleased with progress, especially with both supplier and member adoption. We look to the future with confidence."

 

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014 of the Market Abuse Regulation

 

Enquiries:

 

Altitude Group plc - via Instinctif Partners

020 7457 2020

Nichole Stella, Chief Executive Officer

 

Graeme Couturier, Chief Financial Officer

 

Peter Hallett, Non-Executive Chairman

 

 

 

finnCap Ltd

020 7220 0500

Jonny Franklin-Adams / Scott Mathieson (Corporate Finance)

 

Richard Chambers (ECM)

 

 

 

Instinctif Partners

020 7457 2020

Matthew Smallwood

 

Chantal Woolcock

 

 

Chairman's Statement

Introduction

I am pleased to report that the Group has made considerable progress in its development strategically, financially and operationally in the year to 31 December 2018. It has been a busy year and one of change and operational expansion under the capable leadership of Nikki Stella who joined the Group in Q4 2017 and was appointed CEO in June 2018.

 

During the year we continued to focus on developing and enhancing our relationship with Advertising Industry Mastermind (AIM), the largest and fastest growing promotional products distributor member group in the US with an c. 8% share of a $23 billion market, providing its members with services and solutions to make their businesses more efficient through the use of our combined e-commerce trading platform, cloud-based CRM and order management system.

 

As 2018 progressed we experienced increasing numbers of AIM customers migrate to our white labelled AIMPro platform and request enhanced services from Altitude, encouraging us to think more strategically about the relationship. In January 2019 we acquired AIM for $5.0 million. The acquisition will have multiple benefits, including:

 

·      Securing access for Altitude to the annual c.$1.9 billion AIM aggregate revenue throughput pipeline in perpetuity.

 

·      Enabling Altitude to increase margin by meeting the demand for technology, marketing and sales service packages through the development of tiered service programs for both distributor members and suppliers.

 

·      Accelerating the disruption of the promotional product marketplace which is highly fragmented and currently inefficient

 

AIM Smarter, as it is now called, will be our main focus in developing and growing the Group going forward.  We are excited about the opportunity and potential that will be transformational for the Group. Even in the short space of time since the acquisition was completed much progress has been made. 150 supplier partners have already been contracted to the new tiered packages and we are investing in and growing our team in the US to facilitate and manage the strong demand for service.

 

Results

In the year ended 31 December 2018, the Group achieved revenues of £6.6m (2017: £6.1m) and an adjusted operating loss (before share-based payment charges, amortization of intangible assets, depreciation of tangible assets and exceptional charges) of £0.8m (2017: Profit £0.9m). Losses arose predominately from increased operating cost investment in the United States.

 

Financing development

The development of our relationship with AIM and the accelerated roll out of AIMPro was funded by a placing, announced on 28 February 2018, raising £1.5 million at a price of 60p per Ordinary Share.

 

In addition, to finance the Acquisition of AIM and provide working capital to substantially grow the business, in January 2019, we completed a successful equity placing raising £9.0 million (gross) at a price of 68p per Ordinary Share. Due to significant demand from institutional investors, both existing and new, the fundraise was over-subscribed and scaled up from the £7.0 million we had originally set out to secure. 

 

Board Changes

During the year there has been significant change to the Board:

 

Graeme Couturier was appointed to the Board as Chief Financial Officer on 13 April 2018. We are delighted to have welcomed him to the Board at a time when the development of our finance function will be critical to us realizing our growth potential.

 

Following Graeme's appointment, it was announced that I would step back to Non-Executive Chairman, and Nichole Stella be appointed Chief Executive Officer with effect from 5 June 2018. Nichole's knowledge of the promotional products industry, especially in the US, has and will continue to help us successfully execute on the exciting and disruptive opportunity following the acquisition of AIM. 

 

Martin Varley retired from the role of Executive President on the 30 June 2018 stepping down to the role of Non-Executive Director.

 

On 9 October 2018, Shaun Parker resigned from his position as Chief Operational Officer to pursue other opportunities and was replaced by Deborah Wilkinson who has over 14 years' experience in the promotional merchandise industry having been Head of Technology at Customer Focus Software Ltd and 11 years with Altitude Group.

 

On 5 December 2018 Keith Edelman was appointed to the Board as a Non-Executive Director. Keith brings extensive commercial experience coupled with a background in consumer facing businesses. Keith is currently Chairman of Revolution Bars Group plc and Pennpetro Energy plc, and a non-executive director of Headlam Group plc and the London Legacy Development Corporation.

 

The Future               

The business has been through significant change over the last 18 months and is now positioned for rapid growth. We have put together a strong management team to drive that growth and acquired AIM which provides multiple opportunities and enormous potential. In the first 4 months since the acquisition we are seeing that potential starting to be realized.

 

Peter J Hallett

Non-Executive Chairman

28 May 2019

 

Chief Executive's Statement

I joined the Group in Q4 2017 as President of US operations and was appointed as Group CEO in June 2018.   During the year, we invested in our operations in order to accelerate the building of a significant business opportunity with our strategic partner Advertising Industry Mastermind Group LLC through the utilisation of the AIMPro Tech Suite ("AIMPro") platform by its' members.

 

The roll out of AIMpro required the expansion of our US and UK workforce to increase customer support capacity for both sides of the supply chain. This was achieved.

 

The strategic and financial benefits of our growing relationship with AIM became increasingly apparent and in January 2019 we acquired the business, which has now become the core focus of the Group strategy.

 

As a result, we are adding top talent across all facets of the team in the US including sales, marketing and project management positions. Headcount in the US is currently 32. By the end of 2019, we anticipate headcount to increase further to c.40 US based team members. In particular, we are delighted to have appointed Stacey McConnell as Vice President of Member Services who has over 20 years' experience at top 40 distributor companies, including 4imprint and AIA Corporation, and Cathy Cummings as Head of Vendor Relations who has over 18 years' experience with 4imprint and AIA Corporation.

 

We are also delighted that Jamie Coggeshall, the founder of AIM, agreed to remain as President of AIM for a period of at least three years from completion of the acquisition.

 

In the UK, we continue to provide various software applications to the promotional industry on a monthly recurring revenue software as a service (SaaS) revenue model, though our focus is to increasingly move all applications to a share of throughput revenue model. In May 2019, the UK division also launched an enhanced service package to a loyal base of current UK customers, with a broader launch planned in the second half of 2019. We are optimistic for the potential of this launch as there are currently no similar services available to UK distributors. We will provide a progress report as more information becomes available.

 

Results

Group revenues increased by £0.5m to £6.6m (2017: £6.1m). The increase was primarily due to a full year contribution from ADP, delivering incremental revenue of £1.6m (7 months contribution in 2017). The underlying reduction of £1.1m was principally attributable to legacy publications and exhibitions activity in the UK and legacy SaaS software in the US. The reduction in the US was predominantly due to the expiration of an agreement with a large sign manufacturing group. However, revenues generated from transactional throughput contributed £0.1m.

 

Gross profit decreased by £0.3m to £4.0m (2017: £4.3m).  ADP contributed incremental gross profit of £0.9m.  The underlying gross margin reduction was attributable to legacy publications and exhibitions activity in the UK and SaaS software in the US.

 

Adjusted administration expenses* increased by £1.4m, or 41% to £4.8m (2017: £3.4m) driven by the scaling up operations in the US (£0.9m) and recognising a full year of ADP costs (£1.0m), offset by cost reductions across the business (£0.5m).

 

Adjusted operating loss* increased by £1.8m to £0.8m (2017: £0.9m profit).

 

Exceptional costs of £0.4m (2017: £0.3m) principally comprise employment termination costs, consultancy and legal costs. Share based payment charges increased by £0.6m to £0.7m (2017: £0.1m). In addition, amortisation of intangible assets and depreciation of tangible assets increased by £0.4m to £0.8m, principally due to a £0.2m charge in respect of old intangible assets.

 

Included within administrative costs are software maintenance and development costs of £0.4m (2017: £0.4m) as the Group has maintained its support and development of its proprietary software assets. In addition, the Group capitalised £0.8m of software development costs (2017: £0.5m). The current level of expensed and capitalised development costs is representative of an adequate maintenance level of expenditure and continuous improvement of proprietary software assets including the AIM Tech Suite, Channl.com, Promoserve and artworktooltm.

 

The resulting operating loss and loss before tax for the period was £2.8m (2017: £0.1m profit).

 

The taxation credit for the year arises in respect of tax credits receivable on qualifying research and development expenditure in 2016 and 2017. The tax credits were received in cash on 11 January 2019. 

 

The basic and fully diluted loss per share was (4.38p) (2017: Earnings 0.25p and 0.24p respectively).

 

Cash outflow from operations excluding working capital was £0.8m (2017: Inflow £0.6m) largely reflecting the scale up of US operations during 2018. An increase in working capital resulted in an additional outflow of £1.3m (2017: Outflow £0.9m), arising predominately from the net impact of not holding a UK National Show in January 2019 and an increase in Ad Products inventory. The absence of show preparation impacted working capital by £0.6m in 2018 through a reduction in accrued income to £0.3m (2017: £0.7m) and a decrease in show creditors to £0.1m (2017: £0.3m). In addition, inventory in AdProducts increased by £0.2m to £1.7m (2017: £1.5m), and there was a one-off increase in receivables due to the £0.4m R&D tax credit claim.

 

Net cash outflow from investing activities amounted to £1.1m (2017: £1.4m) comprised of capital expenditure on tangible and intangible assets of £0.3m and £0.8m respectively. Financing activities generated £1.6m (net of expenses) from the issue of shares for cash (2017: £2.9m).

 

Total net cash outflow was £1.5m (2017: £1.2m inflow).

 

The Group remains debt free and had cash resources as at 31 December 2018 of £0.4m (2017: £2.0m). As noted above the Group received a cash repayment of £0.4m from HMRC in respect of R&D tax credits on 11 January 2019, which had been expected to be have been processed by 31 December 2018. In addition, on 15 January 2019 the Company issued further equity capital, raising approximately £8.4m (net of expenses) to fund the acquisition of Advertising Industry Mastermind Group LLC and provide working capital to increase US operational resource. The Group's cash balance as at 30 April 2019 was £3.8m.

 

*Before share-based payment charges, amortisation of intangible assets, depreciation of tangible assets and exceptional charges

 

Summary of Progress since the acquisition of Advertising Industry Mastermind Group LLC

 

On 15 January 2019 the Group acquired the Advertising Industry Mastermind Group LLC business for a total consideration of $5.0m, of which $3.5m was payable in cash at completion, US$0.75m was paid into escrow for a period of 24 months, of which US$0.5m represented conditional deferred consideration (based on the achievement of membership retention targets) and US$0.25m is held as a contingent fund. The balance of consideration of $0.75m was satisfied by the issue of 860,294 consideration shares to the vendor. Post-acquisition the business trading name was changed to AIM Smarter LLC ("AIM").

 

To fund the acquisition of AIM and to provide working capital for the planned growth in the US, the Group raised £9.0 million (gross) through a placing of 14,095,589 new Ordinary Shares at a price of 68 pence per share. 

 

The acquisition of AIM is strategically significant and transformative for Altitude. It is the largest and fastest-growing promotional products distributor member group in the $23 billion US market for promotional products, with a total estimated transaction value across the membership base of c.$1.9 billion annually (as declared by members), representing approximately 8.3% of the market. Over the last 5 years AIM has delivered a 74% CAGR for the number of members and 87% in respect of members' aggregate annual revenue. At acquisition AIM was comprised of 1,917 members (out of approximately 23,000 distributors across the US) and membership numbers have grown by a further 191 or 10.0% since acquisition to a 2,108 currently.

Besides securing access for Altitude to the annual c.$1.9 billion AIM revenue throughput pipeline, the acquisition of AIM significantly and immediately delivers two major strategic benefits: 

 

·      It enables Altitude to offer additional added value services, leveraging its existing applications and expertise, to help members and supplier partners grow their businesses, whilst at the same time increasing our revenues. 

·      It enables Altitude to immediately leverage the entire AIM order flow in partnership with key selected contracted suppliers, regardless of whether the order is placed through the AIMPro platform.

 

In the four months since integration we have maintained clear focus on three key areas; expansion of the US team to deliver enhanced value add programs, formalization of agreements with key industry suppliers as part of our Preferred Supplier Partner Program, and responding to demand from our AIM members, we have added enhanced "paid for" sales support services.

 

Acquiring AIM enables Altitude to formalize agreements and partnerships with suppliers that are both collaborative and reciprocal. Through technology and marketing programs we can assist in growing sales across our partner suppliers and thus immediately leverage the entire AIM purchase order flow to contracted suppliers, regardless of whether the order is placed through the AIMPro platform.

 

Our supplier partner focus has been:

·    Strengthening and securing high performance partner suppliers and purposefully reducing those who dilute performance of the supply chain

·    Developing "Gold", "Platinum" and "Diamond" tiered packages of unique marketing, technology and trending data insight services for suppliers, which will increase their revenue from AIM membership

·    Agreeing contracts with existing AIM preferred suppliers onto either of the new tiers

 

Excellent progress has been made with a total of 149 supplier partners contracted to the new tiered packages, with the majority effective from Q2 2019. First billings commenced in April 2019.

 

We believe that the current total and product range of the 149 currently contracted key supplier partners achieves critical mass for the Preferred Supplier Partner Program, providing a significant degree of coverage and revenue potential.

 

AIMPro Tech Suite

Given our new focus as outlined above, the utilization of the AIMPro Tech Suite is no longer the key KPI of our financial success. We therefore do not intend to continue the high-level focus on this indicator. The platform is however important in developing and maintaining the historically high levels of member retention and assist us in developing a unique data set of industry statistics to develop both our supplier and distributor network providing an effective method of calibrating our supplier revenue.

 

Nevertheless, sales order throughput totalling more than $31.0m, from over 400 members was captured in the first 5 months of 2019, with the weekly average rising from $1.0m per week in March to over $2.0m per week in April (2018 full year sales order throughput totalled $19.9m, averaging $383k per week). We anticipate the weekly average sales order throughput to continue to rise as we capture more data in the coming months. The information provided, allows us to track trends across the membership and deliver this information back to members in the form of Trend Reports, assisting them in their buying decisions. The data also allows us to track purchases across current supplier partners and negotiate the addition of new supplier partners based on member buying habits.

 

Additionally, we have created and launched over 2,900 live distributor member websites and online company stores for their clients, with over 890 members already actively using Altitude services.

 

AIM Members

Acquiring AIM provides the Group with member revenue and the opportunity of managing and maximizing this important new revenue source.

 

AIM membership has continued to grow in the post-acquisition period, adding a further 191 members bringing the total membership to 2,108 from 1,917 at acquisition, an increase of 10.0%. Aggregate member revenues are estimated at $1.9 billion.

 

Post-acquisition, the member services team has been focused on stellar customer service delivery and the development, launch and execution of membership upgrade options from the standard monthly package to enhanced tiered service packages. These options were developed in partnership with our members to assist them in maximizing their business potential.

 

The tiered packages were "beta" launched in March 2019 through day to day contact with members seeking additional assistance. Full marketing for the packages launched in mid-April to great response from the members. To date 51 members have already upgraded to one of the packages, and billing commenced on 1st May 2019.

 

Outlook

We have made substantial progress throughout the year as we developed our relationship with AI Mastermind, providing its members with access to our white labelled AIMPro platform. In January 2019 we acquired AIM, the largest promotional product supplier distributor member group in the US, securing access to its $1.9 billion throughput pipeline, presenting a huge opportunity for us to deliver great services and value to our members and shareholders alike.

 

This acquisition is strategically significant and transformative and has now become the core focus of our strategy as we look to expand our US team, formalizing agreements with key industry suppliers as part of our Preferred Supplier Partner Programme and responding to demand from our AIM members.

 

Just four months post the acquisition of AIM, we are very pleased with progress, with both supplier and member adoption. We look to the future with confidence.

 

 

Nichole Stella

Chief Executive Officer

28 May 2019

 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2018

 

Note

2018

£000

Unaudited

2017

£000

Audited

 

Revenue

 

 

 

- continuing

 

6,603

 

6,106

 

Cost of sales

 

(2,600)

 

(1,775)

 

Gross profit

 

4,003

 

4,331

 

Administrative expenses before share-based payment charges and amortisation of intangible assets, depreciation of tangible assets, interest and exceptional charges

 

(4,840)

 

(3,423)

 

Operating (loss)/profit before share-based payment charges, amortisation of intangible assets, depreciation of tangible assets and exceptional charges

 

 

(837)

 

 

941

 

Share-based payment charges

 

 

 

(736)

 

(79)

 

Depreciation and amortisation

 

 

 

(790)

 

(416)

 

Exceptional charges

 

5

 

(397)

 

(321)

 

Total administrative expenses

 

(6,764)

 

(4,206)

 

Operating (loss)/profit

 

(2,761)

 

125

 

Finance income

 

 

 

(7)

 

-

 

(Loss)/Profit before taxation

 

(2,768)

 

125

 

Taxation credit

 

6

 

423

 

-

 

(Loss)/Profit attributable to the equity shareholders of the Company

 

(2,345)

 

125

 

Other comprehensive (expenditure)/income:

 

 

 

 

 

 

(56)

 

 

 

 

 

18

 

Items that may be reclassified subsequently to profit and loss:

•            Foreign exchange differences

 

Total comprehensive (loss)/profit for the year

 

(2,401)

 

143

 

(Loss)/Earnings per ordinary share attributable to the equity shareholders of the Company:

 

 

 

- Basic (pence)

 

7

 

(4.38p)

 

0.25p

 

- Diluted (pence)

 

7

 

(4.38p)

 

0.24p

 

 

 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2018

 

 

 

Share Capital

 

£000

Share Premium

£000

Retained Losses

£000

Total

 

£000

 

At 1 January 2017

 

180

 

6,451

 

(5,351)

 

1,280

 

Profit for the year

 

-

 

-

 

125

 

125

 

Foreign exchange differences

 

-

 

-

 

18

 

18

 

Total comprehensive income

 

-

 

-

 

143

 

143

 

Transactions with owners recorded directly in equity

 

Shares issued for cash

 

 

 

 

23

 

 

 

2,912

 

 

 

-

 

 

 

2,935

 

Share-based payment charges

 

-

 

-

 

79

 

79

 

Total transactions with owners

 

23

 

 

2,912

 

79

 

3,014

 

At 31 December 2017

 

203

 

9,363

 

(5,129)

 

4,437

 

Loss for the year

 

-

 

-

 

(2,345)

 

(2,345)

 

Foreign exchange differences

 

-

 

-

 

(56)

 

(56)

 

Total comprehensive loss

 

-

 

-

 

(2,401)

 

(2,401)

 

Transactions with owners recorded directly in equity

 

 

16

 

 

1,637

 

 

-

 

 

1,653

 

Shares issued for cash

 

Share-based payment charges

 

-

 

-

 

736

 

736

 

Total transactions with owners

 

16

 

1,637

 

736

 

2,389

 

At 31 December 2018

 

219

 

11,000

 

(6,794)

 

4,425

 

 

 

Consolidated Balance Sheet

as at 31 December 2018

 

 

 

 

2018

£000

Unaudited

 

2017

£000

Audited

 

Non current assets

 

 

 

Property, plant & equipment

 

      

 

319

 

100

 

Intangible assets

 

 

 

1,108

 

1,059

 

Goodwill

 

 

 

564

 

564

 

Deferred tax

 

 

 

426

 

426

 

 

2,417

 

2,149

 

 

Current assets

 

 

 

Inventory

 

 

 

1,734

 

1,518

 

Trade and other receivables

 

 

 

914

 

1,446

 

Cash and cash equivalents

 

 

 

420

 

1,963

 

 

3,068

 

4,927

 

Total assets

 

5,485

 

7,076

 

 

Current liabilities

 

 

 

Trade and other payables

 

 

 

(1,060)

 

(2,639)

 

Total liabilities

 

(1,060)

 

(2,639)

 

Net assets

 

4,425

 

4,437

       

 

 

Equity attributable to equity holders of the Company

 

 

 

Called up share capital

 

 

 

219

 

203

 

Share premium account

 

 

 

11,000

 

9,363

 

Retained losses

 

 

 

(6,794)

 

(5,129)

 

Total equity

 

4,425

 

4,437

 

 

 

Consolidated Cash Flow Statement

for the year ended 31 December 2018

 

 

 

2017

£000

Audited

Cash flows from operating activities

 

 

(Loss)/profit for the period

(2,345)

125

Amortisation of intangible assets

723

383

Depreciation

67

38

Share-based payment charges

736

79

Operating cash inflow before changes in working capital

(819)

625

Movement in inventory

(216)

(392)

Movement in trade and other receivables

532

(1,039)

Movement in trade and other payables

(1,579)

489

Operating cash outflow from operations

(2,082)

(318)

Interest received

-

-

Net cash flow from operating activities

(2,082)

(318)

Cash flows from investing activities

 

 

Purchase of tangible assets

(283)

(56)

Purchase of intangible assets

(769)

(591)

Purchase of certain assets and business undertaking of AdProducts.com Limited (note 4)

-

(748)

Net cash flow from investing activities

(1,052)

(1,395)

Financing activities

 

 

Issue of shares for cash (net of expenses)

1,591

2,935

Net cash flow from financing activities

1,591

2,935

Net (decrease)/increase in cash and cash equivalents

(1,543)

1,222

Cash and cash equivalents at the beginning of the year

1,963

 

741

Effect of exchange rate fluctuations on cash held

-

-

Cash and cash equivalents at the end of the year

420

1,963

 

 

Notes to the Consolidated Financial Statements

 

1           Financial information

 

The financial information set out herein does not constitute the Group's statutory accounts for the year ended 31 December 2018 or the year ended 31 December 2017 within the meaning of section 435 of the Companies Act 2006. The 2018 statutory accounts have not been finalised but this preliminary announcement has been prepared by the Directors based on the results and position which they expect will be reflected in the statutory accounts. The comparative information in respect of the year ended 31 December 2017 has been derived from the audited statutory accounts for the year ended on that date upon which an unmodified audit opinion was expressed and which did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The audited accounts will be posted to all shareholders in due course and will be available on the Group's website. A further announcement will be made at that time.

 

 

2            Basis of preparation

The financial information 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. IFRS 9 and IFRS 15 have been adopted in the current year. The other principal accounting policies of the Group have remained unchanged from those set out in the Group's 2017 annual report.

The Accounts have been prepared under the historical cost convention. The Consolidated Financial Statements are presented in Sterling, rounded to the nearest thousand.

 

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income   and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

In preparing the condensed, consolidated financial statements, management are required to make accounting assumptions and estimates.  The assumptions and estimation methods are consistent with those applied to the Annual Report and financial statements for the year ended 31 December 2017. Additionally, the principal risks and uncertainties that may have a material impact on activities and results of the Group remain materially unchanged from those described in that Annual Report except as noted below with regard to the adoption of IFRS 9 and IFRS 15.

 

The Group has adopted IFRS 9 in these financial statements, with effect from 1 January 2018. IFRS 9 'Financial Instruments' replaced IAS 39 'Financial Instruments: Recognition and Measurement'. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an 'expected credit loss' model for the impairment of financial assets. When adopting IFRS 9, the Group has applied transitional relief and opted not to restate prior periods. No differences arose on the transition to IFRS 9.

 

The Group has adopted IFRS 15 Revenue from Contracts with Customers with a date of initial application of 1 January 2018. As a result, the Group has changed its accounting policy for revenue recognition to be in line with IFRS 15.

 

The Group has applied IFRS 15 using the cumulative effect method - i.e. by recognising the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of equity at 1 January 2018. Therefore, the comparative information has not been restated and continues to be reported under IAS 18. Had the Group not applied IFRS15 in this financial period, there would have been no material difference to the reported results.

Revenue represents the amounts receivable, excluding sales related taxes, for goods and services supplied during the period to external customers shown net of VAT, returns, rebates and discounts.

When assessing revenue recognition against IFRS15, the Group assess the contract against the five steps of IFRS15:

1.   Identifying the contract with a customer

2.   Identifying the performance obligations

3.   Determining the transaction price

4.   Allocating the transaction price to the performance obligations

5.   Recognising revenue when/as performance obligation(s) are satisfied

This process includes the assessment of the performance obligations within the contract and the allocation of contract revenue across these performance obligations once identified. Revenue is recognised either at a point in time or over time, when, or as, the Group satisfies performance obligations by transferring the promised goods or services to its customers.

The Group has a number of different revenue streams. Revenue from trade exhibitions, catalogues, promotional products (through AdProducts) and other services is recognised when the company has delivered its obligations to its customers, normally when an exhibition takes place, or the catalogue or promotional product is delivered, or when that service has been provided to the customer. Revenues in respect of software product licences and associated maintenance and support services are typically recognised evenly over the period to which they relate.

In comparative periods, revenue is recognised at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of business and is shown net of Value Added Tax.

 The difference between the amount of income recognised and the amount invoiced on a particular contract is included in the statement of financial position as deferred income. Amounts included in deferred income due within one year are expected to be recognised within one year and are included within current liabilities.

 

3.         Operating Segments

The Group is currently organised as two operating segments:

•       To enable the buyers and sellers of products to interact and trade, through the provision of technology, promotional products, catalogues and exhibition services, predominantly in the promotional merchandising and printing sectors ("Technology and Information")

•       The sale of promotional products (AdProducts)

 

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components.  An operating segment's operating results are reviewed regularly by the Chief Executive Officer, who is regarded as the Chief Operating Decision Maker ("CODM") to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The directors have concluded that there are two operating segments on the basis of the information presented to the CODM. This position will be monitored as the Group develops and particularly as AdProducts is integrated vertically with the Technology and Information business and the business continues to expand in the United States through the acquisition of the AI Masterminds Group LLC business.

 

 

4.         Segmental Information

The results of the "Technology & Information" and "AdProducts" segment are as follows:

 

 

 

2018

£000

Unaudited

 

2017

£000

Audited

 

Turnover

Technology & Information (all relates to the provision of services)

AdProducts (sale of goods)

 

 

2,889

3,714

6,603

 

 

3,969

2,137

6,106

 

Operating (loss)/profit before share-based charges, amortization of intangible assets, depreciation of tangible assets, interest and exceptional charges

Technology & Information

AdProducts 

 

 

 

(904)

67

(837)

 

 

 

584

357

941

 

Operating (loss)/profit

Technology & Information

AdProducts

 

 

(2,757)

(4)

(2,761)

 

 

(207)

332

125

 

Depreciation

Technology & Information

AdProducts

 

 

 

14

53

67

 

 

27

11

38

 

Amortisation

Technology & Information

AdProducts

 

 

690

33

723

 

 

383

-

383

 

 

 

Segment assets consist primarily of property, plant and equipment, intangible assets, trade and other receivables and cash and cash equivalents. Segment liabilities comprise operating liabilities.

 

Capital expenditure comprises additions to property, plant and equipment and intangible assets, including additions resulting from acquisitions through business combinations.

 

The segment assets and liabilities at 31 December 2018 and capital expenditure for the year then ended are as follows. This information has not been disclosed by reporting segment as the information by segment is not regularly reported to the chief operating decision maker.

 

 

 

2018

£000

Unaudited

 

2017

£000

Audited

 

Assets

 

 

5,485

 

7,076

 

Liabilities

 

 

1,060

 

2,639

 

Operating Profit / (loss)

 

 

(2,761)

 

125

 

Capital expenditure

 

 

1,052

 

647

 

The Group's revenue from external customers and information about its segment assets (non-current assets excluding financial instruments, deferred tax assets and other financial assets) by geographical location are detailed below:

 

 

 

Revenue from external customers

 

Non-current assets

 

2018

£000

Unaudited

 

2017

£000

Audited

 

2018

£000

Unaudited

 

2017

£000

Audited

 

North America

 

498

 

899

 

97

 

23

 

United Kingdom

 

6,105

 

5,207

 

2,320

 

2,126

 

 

6,603

 

6,106

 

2,417

 

2,149

 

 

 

 

 

5.    Exceptional expenses

 

2018

2017

 

£'000

Unaudited

£'000

Audited

Exceptional termination costs

 

180

272

Acquisition and consultancy costs

149

49

Other costs

68

-

 

397

321

 

The exceptional charges relate to the costs of terminating employment arising from restructuring exercises undertaken.  Acquisition and consultancy costs arise from the acquisition of Ad Products and the restructuring. 

Legal, acquisition and consultancy costs arise from the acquisition of AI Mastermind and continued restructuring of legacy UK publications and exhibitions business.

 

6.    Taxation

 

 

2018

£000

Unaudited

 

2017

£000

Audited

 

Corporation tax credit

 

423

 

-

 

Deferred tax origination and reversal of timing differences

 

-

 

-

 

Total tax in consolidated statement of income

 

423

 

-

 

The corporation tax credit for the year is in respect of tax credits receivable on qualifying research and development expenditure in 2016 and 2017. The tax credits were received in cash on 11 January 2019.  The directors are considering the potential level of qualifying research and development spend for 2018 and therefore no amount has been recognised.

 

7.       Basic and diluted earnings per ordinary share

 

The calculation of earnings per ordinary share is based on the profit for the period after taxation and the weighted average number of equity voting shares in issue as follows:

 

 

 

2018

Unaudited

2017

Audited

(Loss)/Profit attributable to the equity shareholders of the Company (£'000)

(2,345)

125

Weighted average number of shares (number '000)

53,579

49,045

Fully diluted average number of shares (number '000)

55,065

51,133

Basic (loss)/earnings per ordinary share (pence)

(4.38p)

0.25p

Diluted (loss)/earnings per ordinary share (pence)

(4.38p)

0.24p

 

In the current year the effects of share options that could potentially dilute basic earnings per share in the future were not included in the calculation of diluted earnings per share because they are anti-dilutive for the current year.

 

In the prior year the calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options. Additional shares were issued post year end as part of the share placing (note 7). 

 

 

8.       Post Balance Sheet Events

On 15 January 2019, the Group announced a conditional placing of 13,235,295 new Ordinary Shares ("the Placing"), and the issue of 860,294 Ordinary Shares ("the Consideration Shares") at a price of 68 pence per Ordinary Share, raising gross cash proceeds of £9 million from the placing and to additionally provide US$0.75m of the consideration to the vendor of Advertising Industry Mastermind LLC.

5,334,525 of the shares were immediately issued on existing shareholder authority and admitted to trading on 16 January 2019 ("the First Placing"), and the remaining 7,900,770 shares were admitted on 1 February 2019 ("the Second Placing"), following a General Meeting held on 31 January 2019 to obtain shareholder authority for the issue of these shares. The 860,294 Consideration Shares were admitted on 27 February 2019 following receipt of an Independent Valuation Report of the non-cash consideration required under the Companies Act 2006.

The proceeds from the Placing and the Consideration shares will be used to:

·       Fund the acquisition of the membership-based trade group of independent promotional product distributors business of Advertising Industry Mastermind Group LLC, for a maximum consideration of US$5.0m, comprising US$4.25m payable in cash from the First Placing and US$0.75m to be satisfied by the issue of the Consideration Shares.

·       US$0.75m of the cash consideration is to be held in escrow for a period of 24 months, US$0.5m as conditional deferred consideration (based on the achievement of membership retention targets) and US$0.25m as a contingent fund.

·       The sterling equivalent of proceeds applied as the cash consideration for the acquisition amounted £3.4 million

·       The balance of the issue proceeds of £5.6m will provide additional working capital to increase US operational resource (£5.1m) and pay the transaction expenses of £0.6 million

9.       Acquisition of the Advertising Industry Mastermind Group LLC business

 

As noted above, on 15 January 2019 the Group acquired the Advertising Industry Mastermind Group LLC business for a total consideration of $5.0m, of which $3.5m was payable in cash at completion, US$0.75m was paid into escrow for a period of 24 months, of which US$0.5m represented conditional deferred consideration (based on the achievement of membership retention targets) and US$0.25m is held as a contingent fund. The balance of consideration of $0.75m was satisfied by the issue of 860,294 consideration shares to the vendor. Post-acquisition the business trading name was changed to AIM Smarter LLC ("AIM")

The transaction has been accounted for in 2019 using the acquisition method of accounting.

 

 

The directors are in the process of valuing the acquired assets and liabilities including the acquired intangible assets.

 

 

 


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