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Blue Prism Group PLC (PRSM)

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Thursday 24 January, 2019

Blue Prism Group PLC

Full Year Results for the Year 31 October 2018

RNS Number : 9810N
Blue Prism Group PLC
24 January 2019
 

 

24 January 2019

Blue Prism Group plc

("Blue Prism" or the "Group")

Full Year Results for the Year Ended 31 October 2018

 

Another year of exciting growth, supported by the Group's ongoing investments to address the rapidly growing global market opportunity

ALASTAIR BATHGATE, CEO, COMMENTED: "I am delighted with the significant growth we have achieved in our 2018 financial year. We have continued to build a high quality, software licence revenue-base which provides a solid platform for future growth. I am particularly pleased that our loyal customers continue to expand their licence footprint in strategic ways that add enormous value to their business, continually proving that Blue Prism, alongside our valued partners, genuinely scales. The RPA market is in a period of rapid growth and competition is increasing accordingly. The £100.0m placing announced today is planned to accelerate our growth and position us to seize this market opportunity."

FINANCIAL HIGHLIGHTS £M

FY 2018

FY 2017

% MOVEMENT

Group revenue

55.2

24.5

125%

Exit monthly recurring revenue

5.6

2.8

100%

Recurring licence revenues

94%

90%

-

Adjusted EBITDA loss*

(21.6)

(8.3)

(160)%

Operating cash flow

(5.4)

4.4

(223)%

Net cash

50.5

16.3

210%

*Adjusted EBITDA loss is EBITDA loss adjusted to exclude share-based payments, exceptional expenses and foreign exchange (losses)/gains.

OPERATIONAL HIGHLIGHTS

§ Excellent commercial momentum, 1,359 software deals secured (FY17: 609), consisting of:

-    528 new customers (FY17: 324)

-    723 upsells, secured across 310 customers (FY17: 264 upsells across 131 customers)

-    108 renewals (FY17: 21)

§ Customer base of 992 (FY17: 477)

§ Significant progress in the key US market

-    Americas revenue increased by 137%

-    349 customers (FY17: 135)

-    214 new customers (FY17: 109)

-    224 upsells across 106 customers (FY17: 63 upsells across 135 customers)

-    29 renewals (FY17: 3)

§ Growing global reach

-    New offices opened in Singapore, Hong Kong, France and Germany

-    Offices in 9 countries

-    Global employee base of 469 (FY17: 187), of whom 162 are US based

-    95 partners with 42 certifications (across 28 partners)

§ Continual product development and maturity of the technology alliance programme providing increasingly sophisticated solutions to customers

-    Blue Prism Digital Exchange (DX) launched, allowing customers direct access to in-house technologies and third-party content created by the ecosystem of technology partnerships such as ABBYY and Google

-    Several releases during the year culminating in v6.4 in November 2018 which allows users to 'drag and drop' content from the DX, improves usability and increases the speed of third-party development on the platform

The Group has this morning also launched a process to raise up to £100.0m (before expenses) in an equity placing, carried out by way of an accelerated book build. Details of the placing can be found in a separate announcement issued this morning.
 

CONTACT

Blue Prism Group plc

Tom Hull, Head of Investor Relations

+44 (0)7736 707 407

 

 

[email protected]

 

 

 

FTI Consulting

Matt Dixon

+44 (0)20 3727 1000

 

Darius Alexander

 

 

Investec

Carlton Nelson

Sebastian Lawrence

Andrew Pinder

+44 (0)20 7597 5970

FINANCIAL CALENDAR

Capital markets day                                                                                                               H1 2019

Half year results                                                                                                                     19 June 2019

ANALYST PRESENTATION

Alastair Bathgate, CEO & Ijoma Maluza, CFO, will host an analyst presentation today (24 January 2019) at FTI Consulting (200 Aldersgate Street, London EC1A 4HD) at 10.30am GMT.

 

 

RESULTS FOR THE YEAR ENDED 31 OCTOBER 2018

GROUP OPERATIONAL PERFORMANCE

Group revenue increased 125%, as strong sales and upsells during the year built on the exit revenue generated in FY17. The monthly recurring revenue ("MRR") at 31 October doubled to £5.6m (FY17: £2.8m), demonstrating the strong new business run-rate during the year. This metric indicates the level of licence revenue that the Group would achieve on a monthly basis assuming no new business and full renewals accruing for revenue on a daily basis.

In January 2018 the Group raised £40m (before expenses) to accelerate and underwrite its investment plans to capitalise on the rapidly developing RPA market opportunity and reinforce its status as a market leader. The accelerated investment allowed the Group to continue its global expansion by making investments in sales and marketing and to strengthen its proposition through continued product development. Adjusted EBITDA losses increased to £21.6m (FY17: £8.3m) as a result of these investments and an increase in sales commission driven by a strong fourth quarter.

The operating loss before share-based payments and foreign exchange movements was £21.9m (FY17: £8.4m). The reported operating loss after share-based payments and foreign exchange movements was £26.0m (FY17: £10.1m).

MARKETPLACE

The RPA marketplace continues to expand and while there are a range of industry analyst estimates on the potential addressable market, the consensus is that it remains in its infancy. Blue Prism sees a global opportunity for RPA, reinforced by its already geographically diverse customer base covering 67 countries.

As this market develops, Blue Prism observes increasing segmentation between vendors, primarily into desktop RPA, and enterprise RPA. Blue Prism offers the latter, believing this best addresses the opportunity for organisational transformation and enhanced competitive strategy.

The Group believes that in this digital century, every organisation-regardless of what sector they may operate in-is vulnerable to disruption. Start-ups, targeting traditional organisations with the latest in technology, alongside changing consumer and organisational behaviour, are creating a business climate where only the most agile and innovative will survive. Business leaders need to be able to empower their employees to create and innovate like the entrepreneurs within these start-ups.

The scalability, control and governance of the Blue Prism product, combined with the Group's access to a wide range of technology partners and supported by the Blue Prism Digital Exchange, can help businesses access the same AI, Machine Learning, analytics and other technologies as these challengers. This results in a fully connected, entrepreneur focused enterprise which can evolve with market demands.

To effectively communicate its difference, Blue Prism has defined its approach and offering as 'connected-RPA' and plans to use this to launch a new point of view. This will also define its product development strategy, and several new product enhancements and investments are planned in the current financial year. Increasing understanding of connected-RPA as a strategic organisational tool, alongside rapid technological change, provides expanded use cases and further opportunities for widescale deployments and upsells.

The scale and attractiveness of this market opportunity means that there is vocal and active competition. Industry analysts such as Forrester and HfS point to Blue Prism, Automation Anywhere and UI Path as the market leaders. These competitors have recently raised significant funds from private investors in order to address the market opportunity. Blue Prism believes its key differentiation of connected-RPA as well as its product, distribution model and business-led approach separate it in the competitive marketplace, and plan to continue to invest in these differentiators to ensure it maximises the market opportunity.

CUSTOMERS

In FY18 Blue Prism has continued to deliver ongoing sales momentum, accelerating growth in total customer base, new customers and upsells as follows:

CUSTOMER LICENCE DEALS

FY 2018

FY 2017

New customers

528

324

Upsells

723

264

Renewals

108

21

Total

1,359

609

 

As at 31 October 2018, the Group had 992 end-customers (customers who the Group had end-user agreements with). Some partners also provide managed services platforms using Blue Prism's digital workforce, increasing the number of organisations that are using the product at any one time and it is estimated that this results in a further several hundred companies using Blue Prism globally.

In FY18, Blue Prism saw 723 upsells across 310 of its customers, demonstrating the scalability of the product and customers' increasing recognition of the transformative nature of the Group's software. One particular example of this during FY18 was one of the Group's early customers - first signed as a customer over 10 years ago - who more than doubled the number of Blue Prism licences in the year. A recent customer survey of existing users of RPA, undertaken by Blue Prism, found that 92% of business leaders surveyed planned to extend use cases of RPA across their businesses.

Blue Prism takes pride in having a loyal, connected customer base and hosted numerous events during the year to support this. Blue Prism World events were hosted in New York and London, with over 3,000 attendees across both. These events saw partners, customers and industry experts discuss their Blue Prism use cases with existing and potential customers alike. There were also 12 Blue Prism Cafés, a monthly webinar series on intelligent automation and the future of work, during FY18. Blue Prism Pulse events, aimed at building local communities of users, were also held in London, San Francisco, Munich, Tokyo, New York, Sydney, Melbourne, Chicago and Paris.

At 31 October 2018, there were over 78,000 (FY17: over 35,000) individuals registered on the Blue Prism portal, and the organisations served are across multiple sectors, including banking, insurance, financial services, professional services, telecoms and utilities.

The Group continues to work with its channel partner network to increase business across new and existing customers and manage the implementation of Blue Prism's Digital Workforce. At the end of the financial year there were 95 partners. In calendar year 2017, a certification programme was launched, designed to maintain quality and service level in the partner network and by the end of FY18, 28 partners were certified, with 42 certifications between them.

During the latter part of FY18, the Group announced that it would create more flexible contracting terms for its clients by introducing 1-year licence terms, in addition to the 3 and 5-year terms already available. It is anticipated that this change will encourage initial adoption. Whilst in the short-term this may result in smaller initial contract sizes, over time it is anticipated that these customers will provide an incremental upsell opportunity as they experience the benefits of Blue Prism's Digital Workforce.

 

PEOPLE

A significant proportion of the Group's investment in the financial year has been in its people, who are critical to achieving the Group's growth ambitions. As at 31 October 2018, the Group had 469 employees, an increase of 282 people on the prior year.

NUMBER OF EMPLOYEES

FY 2018

FY 2017

EMEA

231

109

Americas

162

64

APAC

76

14

These heads were recruited across key geographies. As the employee base grows, steps are also being taken to ensure the Group has sufficient resources, processes and systems in place to efficiently manage this growth. There are a clear set of cultural and behavioural qualities which we use to assess new hires and ensure organisational fit. The Group has also invested in new HR systems which are being implemented to support this recruitment. Management structure and composition has also been amended in order to reflect the maturity and size of the Group, with new Executive level recruits in HR, marketing and the sales organisations.

In FY18, Blue Prism formalised and began investing in customer management via the Customer Success function whose primary role is to engage with partners and customers to help unlock the full value from the Group's Digital Workforce. Early indications are that these investments are delivering good results for the customers targeted, and it is anticipated that this will support Blue Prism's ambitions in becoming a critical tool for business leaders and increase upsell activity.

The global growth of the RPA market means that the market for suitable employees to help drive the Group's growth ambitions is competitive, however employee retention remains at very high levels. Blue Prism ensures all employees have access to share ownership schemes, to invest them in the long-term success of the business.

PRODUCT

Blue Prism has a clear R&D and product development strategy and also looks to leverage developments from its broad ecosystem of technology partnerships, in order to provide customers with an intelligent digital workforce that provides true operational agility.

Following the launch of Blue Prism version 6 at the end of the calendar year 2017, there have been 3 incremental in-house product updates across FY18. After the financial year-end, the Group released version 6.4 which included several product developments including integration with the Group's new content sharing platform (or 'app store'), the Blue Prism Digital Exchange (DX).

Blue Prism views the DX as an important development in its product strategy. It provides a platform which allows the Group's customers to download and utilise prebuilt in-house and third-party partner technologies which integrate seamlessly with Blue Prism's digital workforce to enhance its capabilities and support customisation to an organisation's specific needs. It is anticipated that the DX will help customers accelerate, broaden and deepen their automation footprint. Third party technologies are supplied by Blue Prism's developed ecosystem of over 15 technology partnerships, which includes vendors such as ABBYY, Appian, Google and Microsoft. The DX also allows a simplified platform for the development of further content to continually widen the use cases for the digital workforce. Finally, the Group has continued to make progress in building a strong ecosystem of accredited developers across the partner and customer base, demonstrating the increasing following and excitement around the product.

 

STRATEGIC UPDATE

The Group's strategy has been designed to enhance its position as a market leader in the rapidly growing RPA market. Its key strategic goals are:

-     Building scalable development, sales and delivery channels: Building scalable channels to market in addition to processes and structures that ensure growth is sustainable and customer satisfaction remains high

-     Increasing business with our existing customers: Once in a customer's organisation an opportunity exists to establish other areas where Blue Prism can be deployed to aid business goals, driving further growth

-     Focusing on the key US market: The US is the world's largest and most important software market. It is a global market leader driving global trends and adoption, as well as being the single largest market in its own right.

-     Using market leadership to continue to attract new customers: As a market leader in a rapidly growing market there is an opportunity to increase the customer base and drive growth.

In January 2018, Blue Prism raised £40m (before expenses) via an equity placing to drive progress in the existing strategic goals at pace. Specific objectives were designed to accelerate the execution of the strategy and seize the market opportunity available. These objectives and details of progress made during the year are as follows:

-     Expand sales and marketing activities across the US, Asia Pacific and EMEA

New locations opened in Germany, France, Singapore and Hong Kong

Sales and marketing headcount increased by 182%, with an increase of 145% in the Americas, 700% in APAC (which has been built out from a small base) and 140% in EMEA

Established the Chief Customer Office (CCO) function, which is engaged throughout the entire customer lifecycle and designed to create a direct contact point between the end customer and Blue Prism, to maintain customer satisfaction and advocacy and increase conversions. It is anticipated that as the CCO embeds within Blue Prism it will help drive upsell activity

Significantly expanded marketing campaigns with digital and select physical campaigns focusing on a range of topics including scalability, AI, security and Blue Prism's role in a digital strategy

-     Develop and scale the global Channel Partner network through partner certification

Network of 95 channel partners

42 certifications, with 1 at platinum, 8 at gold and 33 at silver levels

-     Commercialise the Technology Alliance Programme (TAP)

Over 15 technology alliance partners

Established the Digital Exchange, which directly links the TAP and the customer base and provides a platform for future commercialisation

-     Reinforce market leadership by investing further in our product and differentiation

Continued product development including the DX and launched versions 6.2, 6.3 and 6.4

Establishment of a research team focused on investigating emerging technology trends

-     Invest in people, process and infrastructure to support the growing business

Back office functions expanded, including legal, HR and finance

Robust HR and Finance frameworks and processes established including new systems

-     Balance sheet support

A prudent amount was allocated to strengthen the balance sheet and provide financial flexibility

The Group ended the year with a strong cash position

 

 

OUTLOOK

The Board is encouraged by the exit monthly recurring revenue generated by the sales momentum in the financial year ended 31 October 2018, and as a result, expects revenue for the 2019 financial year to be in line with the improved expectations outlined in its trading update issued on the 27th November 2018.

The anticipated net proceeds of the Placing the Group have announced today will be invested in initiatives to accelerate future growth and to ensure the Group retains its position as a market leader in a rapidly growing marketplace. These investments will increase the EBITDA loss ahead of the levels guided to in the trading update referenced above.

It is expected that these investments should start benefitting the Group's financial performance in the next financial year with revenue for the year ending 31 October 2020 now expected to be above the top end of the current analyst range.1

[1] The company believe that the current analyst range for FY2020 revenues to be between £100.9m and £154.3m

 

TRADING PERFORMANCE

REVENUES

Recognised revenue for the period increased 125% to £55.2m (FY17: £24.5m).

Recurring licence revenue, driven by strong sales and upsell activities, accounted for 94% of recognised revenue at £51.2m (FY17: 90%, at £22.1m).

Professional services and support revenue for the period increased to £3.5m (FY17: £2.2m), mainly due to an increase in education services and training revenues which accounted for £0.9m (FY 2017: £0.2m).

Non-recurring revenues for the period were £0.5m (FY17: £0.2m), primarily driven by partners sponsoring the Blue Prism World events staged during the first half of 2018.

The monthly exit run rate, which is the amount of recurring software licence revenue recognised as at 31 October 2018, increased 100% to £5.6m per month (FY17: £2.8m). This metric indicates the level of licence revenue that the Group would achieve on a monthly basis assuming no new business and full renewals.

Recognised revenue by region were as follows:

 

FY 2018

FY 2017

% MOVEMENT

 

£M

% OF TOTAL

£M

% OF TOTAL

EMEA

26.8

49%

13.7

56%

96%

Americas (inc. Latam)

21.3

38%

9.0

37%

137%

APAC

7.1

13%

1.8

7%

294%

Total

55.2

100%

24.5

100%

125%

 

LOSS FROM OPERATIONS

Losses from operations for the period and including share-based payments were £26.0m, compared to £10.1m in FY17. The increase primarily related to continued investments in the Group's international growth strategy, with significant investments in sales, marketing, product and underlying business infrastructure. These investments particularly focused on international expansion into APAC and the Americas. In addition, increased sales activity year-on-year and in particular toward the end of the period increased the amount of sales commissions, which are paid upfront on contract signing, but which only generate revenues in the financial year from point of signing.

CASH FLOW

Cash and cash equivalents at the period end were £50.5m (31 October 2017: £16.3m).

The cash outflow from operating activities was £5.4m (31 October 2017: inflow of £4.4m), as an increase in deferred revenues partially offset the operating loss. Both deferred revenues (defined as the value invoiced versus the recognised revenue during the year) and receivables increased during the year, with the closing balance primarily driven by the sales growth seen in the fourth quarter.

The January placing of £39m (net of fees) drove the cash and cash equivalents at the end of the period of £50.5m.

CURRENCY IMPACT

The Group generated foreign exchange gains during the period of £0.1m. The gains generated are as a result of the changes in the GBP: USD exchange rate during the period.

 

 

OTHER COMPREHENSIVE INCOME

During the year the translation of the overseas subsidiaries from their local currency into the Group's reporting currency resulted in other comprehensive loss of £0.7m (2017: gain of £0.3m).

STATEMENT OF FINANCIAL POSITION

Deferred revenue increased to £47.9m (FY17: £27.3m). This increase is the result of the strong growth achieved in new business, particularly the activity levels seen in the fourth quarter.

Trade and other receivables increased to £28.1m (FY17: £14.9m). The increase was again driven by increased activity levels seen in the fourth quarter.

During the year development costs of £0.3m have been capitalised relating to product developments which will give rise to future economic benefits. These costs are being amortised over 18 months.

PRINCIPAL RISKS & UNCERTAINTIES

In day to day operations the Group faces risks and uncertainties. The Board aim to mitigate and manage these risks by regularly reviewing and assessing these risks and identifying suitable strategies to minimise the risks. The risks and mitigation strategies are described in more detail in the Annual Report and Accounts and a summary of the key risks is presented below:

-     Failure of the market to accept the Group's operating model

-     Issues with software reliability

-     Issues with security breaches

-     Potential cyber attacks

-     Potential for rapid change in technology

-     Challenges of operating in a competitive marketplace

-     Growth management

-     Unforeseen new regulations or laws

-     Uncertainties surrounding the United Kingdom's decision to leave the European Union (Brexit)

Alastair Bathgate, CEO

Ijoma Maluza, CFO

 

 

BLUE PRISM GROUP PLC

Company number: 052218840

CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS FOR THE YEAR ENDED 31 OCTOBER 2018

£M

YEAR ENDED 31 OCTOBER 2018

RESTATED

YEAR ENDED 31 OCTOBER 2017

Revenue

55.2

24.5

Cost of sales

-

-

Gross profit

55.2

24.5

Operating expense

(81.2)

(34.6)

Operating expenses before share based payments and foreign exchange movements

(77.2)

(32.9)

Share based payments

(4.0)

(1.7)

Operating expenses

(81.2)

(34.6)

Operating loss

(26.0)

(10.1)

Interest received on bank deposits

-

-

Loss before tax

(26.0)

(10.1)

Tax expense

(0.2)

(0.3)

Loss from operations

(26.2)

(10.4)

Basic and diluted loss per share attributable to shareholders

(39.92) pence

(16.67) pence

 

 

 

BLUE PRISM GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 OCTOBER 2018

£M

2018

RESTATED

2017

Non-current assets

 

 

Intangible fixed assets

0.2

-

Property, plant and equipment

0.9

0.4

 

 

 

Total non-current assets

 

1.1

0.4

Current assets

 

 

Trade and other receivables

28.1

14.9

Cash and cash equivalents

50.5

16.3

Total current assets

 

78.6

31.2

Total assets

 

79.7

31.6

Current liabilities

 

 

Trade and other payables

20.0

9.1

Deferred revenue

42.1

23.0

Total current liabilities

 

62.1

32.1

Non-current liabilities

 

 

Deferred revenue

5.8

4.3

Total non-current liabilities

 

5.8

4.3

Total liabilities

 

67.9

36.4

Net assets/ (liabilities)

 

11.8

(4.8)

Equity attributable to shareholders

 

 

Called up share capital

1.7

1.7

Share premium

50.2

9.6

Merger reserve

0.4

0.4

Foreign exchange reserve

(0.4)

0.3

Share based payment reserve

4.2

1.3

Accumulated losses

(44.3)

(18.1)

 

 

11.8

(4.8)

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 OCTOBER 2018

£M

2018

RESTATED

2017

Cash flows from operating activities

 

 

Loss for the year

(26.2)

(10.4)

Adjustments for:

 

 

Depreciation of property, plant & equipment

0.3

0.1

Amortisation of intangible fixed assets

0.1

-

Share-based payment expense

3.0

1.1

Exceptional expenses

0.1

-

Income tax expense

0.2

0.3

 

 

(22.6)

(8.9)

Increase in trade and other receivables

(13.1)

(9.3)

Increase in trade and other payables

9.7

5.7

Increase in deferred revenue

20.6

16.9

Cash (used in) / generated from operations

 

(5.4)

4.4

Income taxes paid

-

-

Net cash flows from operating activities

 

(5.4)

4.4

Investing activities

 

 

Purchases of intangible fixed assets

(0.3)

-

Purchase of property, plant and equipment

(0.8)

(0.4)

Interest received

-

-

Net cash used in investing activities

 

(1.1)

(0.4)

Financing activities

 

 

Issue of ordinary shares

41.9

0.4

Issue costs

(1.3)

-

Net cash from financing activities

 

40.6

0.4

Net increase in cash and cash equivalents

34.1

4.4

Cash and cash equivalents at the beginning of the year

16.3

11.8

Effect of foreign exchange on cash & cash equivalents

0.1

0.1

Cash and cash equivalents at end of year

 

50.5

16.3

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2018

 

SHARE CAPITAL £M

SHARE PREMIUM £M

SHARE BASED PAYMENT RESERVE £M

FOREIGN EXCHANGE RESERVE £M

MERGER RESERVE £M

RESTATED

ACCUM-ULATED LOSSES

£M

RESTATED

TOTAL EQUITY

£M

Equity at 31 October 2016

1.7

9.2

0.3

-

0.4

(7.7)

3.9

Comprehensive income for 2017

 

 

 

 

 

 

 

Loss

-

-

-

-

-

(10.4)

(10.4)

Other comprehensive income

-

-

-

0.3

-

-

0.3

Total comprehensive income for the year

-

-

-

0.3

-

(10.4)

(10.1)

Contributions by & distributions to owners

 

 

 

 

 

 

 

Exercise of options

-

0.4

-

-

-

-

0.4

Share based payments

-

-

1.1

-

-

-

1.1

Forfeit of share options

-

-

(0.1)

-

-

-

(0.1)

Equity at 31 October 2017

1.7

9.6

1.3

0.3

0.4

(18.1)

(4.8)

Comprehensive income for 2018

 

 

 

 

 

 

 

Loss

-

-

-

-

-

(26.2)

(26.2)

Other comprehensive income

-

-

-

(0.7)

-

-

(0.7)

Total comprehensive income for the year

-

-

-

(0.7)

-

(26.2)

(26.9)

Contributions by and distributions to owners

 

 

 

 

 

 

 

Exercise of options

-

1.9

-

-

-

-

1.9

Issue of shares

-

40.0

-

-

-

-

40.0

Cost of share issue

-

(1.3)

-

-

-

-

(1.3)

Share based payments

-

-

2.9

-

-

-

2.9

Forfeit of share options

-

-

-

-

-

-

-

Equity as at 31 October 2018

1.7

50.2

4.2

(0.4)

0.4

(44.3)

11.8

 

 

 

NOTES FORMING PART OF THE FINANCIAL INFORMATION FOR THE YEAR ENDED 31 OCTOBER 2018

 

Accounting policies

Basis of preparation

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

The financial statements of the Group have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ('IFRS') and their interpretations which have been issued by the International Accounting Standards Board ('IASB'), as adopted by the European Union. They have also been prepared with those parts of the 2006 Companies Act applicable to companies reporting under IFRS.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2.

Changes in accounting policies

a)  New standards, interpretations and amendments effective from 1 November 2016

There were no new standards or interpretations effective for the first time for periods beginning on or after 1 November 2016. None of the amendments to Standards that are effective from that date had a significant effect on the Group's financial statements.

b)  New standards, interpretations and amendments not yet effective

The following new IASB standards, interpretations and amendments, which are not yet effective and have not been adopted early in these financial statements, may have a material impact on these financial statements:

IFRS 15 Revenue from Contracts with Customers, effective for periods commencing on or after 1 January 2018. The Company has undertaken a thorough review of the impact of IFRS 15, which will become effective for the accounting period beginning 1 November 2018. The standard has the potential to impact revenue recognition and accounting for commission on sales.

·    Revenue recognition: Under the prior standard, IAS 18, revenue was recognised rateably/straight line over the life of the contract. IFRS 15 requires us to make more detailed judgments and the implication is that a small portion of licence revenues must be recognised at the point in time that a licence key is issued to a customer. In FY18 the impact to revenues (had they been reported under IFRS15) would have been an uplift in the range of £1-2m.

·   Accounting for commission on sales: previously commission on sales was recognised in its entirety on completion of the sale. This will change under IFRS 15, and sales commission will be capitalised and then amortised over time in line with the revenue treatment for the contract it relates to. In FY18 this would have reduced commissions expense by £8-10m had Blue Prism reported under IFRS 15.

·    The combined effect of the above would have improved the operating loss by £9-12m.

·   Additionally, Blue Prism would have reported an asset on the balance sheet related to capitalisation of commissions. At the end of the financial year this would have been in the range of £14-16m.

IFRS 9 Financial Instruments, effective for periods commencing on or after 1 January 2018. The impact of this standard is not considered material on these financial statements.

 

IFRS 16 Leases, effective for periods commencing on or after 1 January 2019. The directors are assessing the impact of this standard and the possible impact of any leases being capitalised on the balance sheet. A full review is yet to take place. Due to the pace of growth of the business this will be more appropriately reviewed during 2019.

c) Share based payments

The company has amended its accounting policy for national insurance on share-based payments following recent guidance and changes to IFRS 2.   Following the adoption of this guidance the company is now accruing for national insurance as part of its share-based payments charge in each accounting period.   A prior year restatement has been made following this change in accounting policy.

Basis of consolidation

The consolidated financial statements present the results of the company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.  The financial statements of the Group have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ('IFRS') and their interpretations which have been issued by the International Accounting Standards Board ('IASB'), as adopted by the European Union. They have also been prepared with those parts of the 2006 Companies Act applicable to companies reporting under IFRS. Due to the nature of the Group's business model, which involves annual invoicing of software licences and recognising the revenues over the period of the contract, and due to the fast growth of the business, the deferred revenue account has grown significantly which has created the negative balance sheet in the financial statements. The deferred income is non-refundable and so the Directors are confident that the business has sufficient working capital to satisfy liabilities as they arise.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2.

Group reorganisation and IPO

During 2016 the Group was subject to restructuring prior to the IPO. Blue Prism Group PLC was positioned at the top of the Group as the new parent company, with the former parent, Blue Prism Limited, becoming a wholly owned direct subsidiary of Blue Prism Group plc through a share-for-share exchange. Such group reorganisations are outside of IFRS3 as the Company does not meet the definition of a business and as such has been accounted for as a group reorganisation rather than a reverse acquisition.

The Group reconstruction in 2016 has been accounted for using merger accounting principles. Therefore, the consolidated financial statements of Blue Prism Group plc are presented as if Blue Prism Group plc and Blue Prism Limited had always been part of the same Group. Accordingly, the results of Blue Prism Limited for the entire year ended 31 October 2016 are shown in the consolidated statement of comprehensive income.

Transaction costs that relate directly to the issue of new equity instruments were accounted for as a deduction from equity.  Where IPO transaction costs related to both the listing of pre-existing and newly issued shares, those costs have been allocated proportionally between profit or loss and equity on the basis of the proportion of the new shares issued.

Revenue recognition

The Group recognises revenue depending on the substance and legal form of the contracts with its customers. Revenue is recognised once a legally binding contract between the Group and its customers has been established and the delivery of the service has commenced. Service delivery is triggered by providing a 'software key' to the customer, and the commencement date of the license is reached, allowing them access to the software for the license period.

Revenue includes the provision of a license through a software key, follow up support, and maintenance, throughout the term of the license.  Provided the amount of revenue can be measured reliably and it is probable that the Group will receive consideration, revenue from the provision of a license and follow up services is recognised from the license start date over the period of the license, which is also the period in which the services are rendered, on a straight-line basis.

Licence fee revenues, support revenues, and maintenance revenues are bundled together, as the revenue streams have no individual value as standalone items, due to the specific nature of the software, and the specific nature of the support services and maintenance.  As such, these elements are considered as being intertwined and therefore inseparable due to their value together.  Maintenance is incurred throughout the licence term on an ongoing basis.  Support is provided throughout the license period, and varies depending on how the customer chooses to deploy the software. 

Revenue for these licenses, support, and maintenance are recognised on an accruals basis; when invoiced in advance, the income is deferred in the statement of financial position and recognised in the income statement over the length of the licence and maintenance period.  This policy is consistently applied across all customers and contracts.

Professional services revenues are recognised when the service has been delivered. If billed in advance, the income related to consultancy days not yet delivered at the end of the period is deferred and recognised in the income statement when the service takes place.

Training revenues are recognised at the point the training course has been completed.

The group also recognises revenue from Blue Prism World events which are held annually in multiple geographies. This revenue mainly relates to sponsorship revenue received from various partners and external organisations participating in the Blue Prism World events.

Introductory commission

Introductory commission is recognised in the profit and loss in wages and salaries at the point at which the contract is signed and paid once the initial invoice has been collected. This is recognised up front as opposed to deferring this cost over the period of the contract as it is deemed an introductory fee, and is not affected by the future performance of a contract. Introductory commissions are made for new wins and upsells but not for renewals.

Foreign currency

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur.  Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date.  Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss. At the balance sheet date the non-sterling-balances of the overseas entities are retranslated at the rate ruling at the Balance sheet date and the foreign exchange gain or loss is shown in foreign exchange reserves.

Trade receivables

Trade receivables are amounts due from customers for services provided in the ordinary course of business and are stated net of any provision for impairment. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default, or significant delay in payment) that the Blue Prism Group will be unable to collect all of the amounts due. The amount of such a provision is the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.

 

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less.

Financial assets

The only financial assets held by Blue Prism Group plc are trade receivables and other cash and cash equivalents.  Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables approximate their fair value.

Financial liabilities

Financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

All financial liabilities are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method other than those categorised as fair value through income statement.

Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

 

The Group's ordinary shares are classified as equity instruments.

 

Share-based payments

Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period.  Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest.  Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted.  As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied.  The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of goods and services received.

Defined contribution pension schemes

Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

Leased assets

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term.  The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

Deferred taxation

Deferred tax is recognised in respect of relevant temporary differences that have originated but not reversed at the balance sheet date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. The deferred tax assets and liabilities are not discounted.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. 

Depreciation is calculated under the straight-line method to write off the depreciable amount of the assets over their estimated useful lives. The principal annual rates used for this purpose are:

Plant and Machinery   -   straight line over 3 years

Leasehold improvements - straight line over 5 years

Research and development expenditure

Research expenditure is recognised as an expense when it is incurred.

Development expenditure is capitalised if, and only if, the Group can demonstrate all of the following:

(i)         the ability to measure reliably the expenditure attributable to the asset under development;

(ii)        the product or process is technically and commercially feasible; its future economic benefits are probable;

(iii)       the ability to use or sell the developed asset; and

(iv)       the availability of adequate technical, financial and other resources to complete the asset under development.

Historically development expenditure did not meet the criteria to be capitalised as it was not possible to reliably measure the expenditure attributable to RPA. This development expenditure was expensed as incurred. The capitalisation criteria are met, development expenditure may be measured at cost less accumulated amortization and impairment losses, if any.

Any capitalised development expenditure will be amortised on a straight-line method when the services are ready for sale or use over a period of 18 months. In the event that it is no longer probable that the expected future economic benefits will be recovered, the development expenditure would be written down to its recoverable amount.

 

Any future capitalised development expenditure will be amortised on a straight-line method when the services are ready for sale or use over a period of 18 months. In the event that it is no longer probable that the expected future economic benefits will be recovered, the development expenditure would be written down to its recoverable amount.

Criteria for recognition of intangible assets

Internally-generated RPA development costs qualify for capitalisation when Blue Prism can demonstrate all the following:

·    The technical feasibility of completing the intangible asset so that it will be available for use or sale;

·    Its intention to complete the intangible asset and use or sell it;

·    Its ability to use or sell the intangible asset;

·    How the intangible asset will generate probable future economic benefits;

·    The existence of a market or, if it is to be used internally, the usefulness of the intangible asset;

·    The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset;

·    Its ability to measure reliably the expenditure attributable to the intangible asset during development.

 

Generally, commercial viability of new RPA innovations and product enhancements is not proven until development issues have been resolved through testing pre-launch versions. Blue Prism assesses the eligibility of development costs for capitalisation on a project-by project basis.

Development costs which are incurred after the release of internally-generated RPA or costs which are incurred in order to enhance existing RPA products are expensed in the period in which they are incurred and included within research and development expense in the consolidated statement of profit or loss and other comprehensive income.

Amortisation of intangible assets

Amortisation is charged to the income statement on a straight-line basis over the estimated useful life of internally generated RPA. Blue Prism currently only has intangible assets with finite lives.

The estimated useful life of internally generated RPA is 18 months to 2 years depending on the intangible asset.


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