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Pelatro PLC (PTRO)

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Wednesday 08 April, 2020

Pelatro PLC

Final Results

RNS Number : 1315J
Pelatro PLC
08 April 2020
 

 

 

8 April 2020

Pelatro Plc

 

("Pelatro" or the "Group")

 

Final results

 

 

Pelatro Plc (AIM: PTRO), the precision marketing software specialist, is pleased to announce today its results for the year ended 31 December 2019.

 

Financial highlights

 

·   Revenue increased 9% to $6.67 million (2018: $6.12m)

·   Recurring revenue increased 63% to $2.96m (2018: $1.82m), 44% of revenue

·   Adjusted EBITDA* $2.89m (2018: $3.75m)

·   Adjusted earnings per share 4.2¢ (2018: 10.2¢)

·  Gross cash as at 31 December 2019 $1.10m (at 31 December 2018: $2.22m); $1.39m received from debtors since year end

 

Operational highlights

 

• Won our largest contract to date, from one of the largest global telcos

• Added 5 customers organically, the highest number of customers in any year to date

• Won the first customer for our Data Monetisation Platform (Tele2, Kazakhstan)

• More than doubled the number of subscribers being processed by our solutions, from 350m to 800m

• Launched version 6 of the mViva Contextual Marketing Solution

• Established sales presence in Latin America and Central America and enhanced sales presence in Asia.

• Set up a dedicated team to focus on Customer Engagement

 

Post year end information

 

·   Current gross cash $0.94m **

·   Trade receivables at 29 February $4.4m

 

Outlook

 

·   Release of mViva v.6 further differentiates us from the competition

·   Clear momentum towards building a recurring revenue model

·   Current revenue visibility of $4.1m

• Pipeline of c. $18m

 

Richard Day, non-executive Chairman of Pelatro commented:

 

"Significant progress has been made by Pelatro this year in developing our product suite, expanding our customer base and broadening our business offering. Our software is now handling and processing the data for over 800 million subscribers from our 19 telco customers in 18 countries around the world, reflecting a step change in our capacity which is a clear validation by the industry of the quality of our mViva system.

 

Although it is still early in our year, revenue visibility  already stands at $4.1m, with an encouraging pipeline of around $18m; despite some uncertainties introduced by the current coronavirus pandemic (which is further elaborated on in our announcement of 24 March 2020 and also below), we are maintaining our momentum in moving towards a revenue sharing business model alongside our licence offering, which gives us every confidence in the coming year and our future."

 

Coronavirus/COVID-19 - further update

 

Cash resources

 

As at 6 April the Group had gross cash of approximately $0.94m (as adjusted for committed near-term capital expenditure), and a drawn overdraft facility of $0.16m, out of a total facility of $0.43m. Of the cash, around two-thirds is held in USD and the balance mainly in INR with some GBP. The current portion of term loans due in the next 12 months is approximately $0.08m. There are no restrictions in transfer of cash intra-Group, and no liabilities arise from any such transfer.

 

Management of short-term expenditure

 

The Group has no material short-term capital expenditure requirements other than the remaining c. $0.65m on hardware for the managed services contract announced in December 2019, which has been match-funded with a 6 year term loan.

 

In terms of costs, for reference cash expenditure in 2019 was approximately $6m. Whilst in the ordinary course of events we would expect this to increase in 2020, because of both general investment for growth as well as specific projects such as the large managed services contract announced in December, on a pro forma basis this is well covered by the brought forward trade debtor balance of $5.5m as well as the recurring revenue contracted to date of c. $4.1m. Given this, the Group is not dependent on generation of new revenue for its short-term cash flows and risks are principally due to either non-payments by customers or a delay in the timing. Given the quality of the debtor base (all of whom are major telco groups for whom Pelatro's software is an integral and vital part of their customer proposition), the Board views the possibility of any material default as remote. In addition, we note the following:

 

(i) just over 50% of the cash costs in 2019 were denominated in INR, another 20% in RUB, and a further 15% in GBP. INR has weakened by approximately 6% since the beginning of 2020 (and approximately 3% since 11 March (when the WHO declared COVID-19 as a pandemic). Similarly, RUB has weakened by 22% and 15%, and GBP by 7% and 3%. If these currencies were to remain at these levels until the end of 2020, the Group's cash expenditure on a pro forma basis would reduce by around 7%. All of the Group's income is currently in USD (with approximately $1m of income expected this year in INR);

 

(ii) approximately $0.6m of costs in 2019 were travel-related; clearly such costs in 2020 will be minimal so long as COVID-19 restrictions remain in place; and

 

(iii) to the extent that the Board foresees any delay to incoming payments, it is able to defer or eliminate certain expenditure, notably on recruitment and related salary and other costs.

 

Country restrictions

 

India and Philippines have been in lock down for the past few weeks and are expected to be so for the next few weeks. This period has enabled us to experience and understand the real life scenario with respect to total Working from Home ("WFH"). We are pleased to note that efficiency is only marginally down by a maximum of around 10% (as measured by the time spent on various tasks). As the world gets more used to WFH, we expect this efficiency to improve, and while it may never reach the pre-COVID level, we expect any drop would be immaterial. The only real casualty seems to be the camaraderie of people working together in one location. The Group has taken adequate steps to mitigate this issue by having regular video conference calls among small groups, and as we have always had an adequate number of subscriptions to video links, this activity is progressing well. Russia is not under lock down, but our staff there are working from home in any case. In summary therefore all customer-related activities like implementation, support etc. are progressing as per plan.

 

Revenue and cost scenarios

 

In the short to medium term, for the reasons stated above the Group is largely unaffected in cash terms by any downturn in revenue generation as new contracts taken on now would be unlikely to produce cash for at least six months and even longer in the case of managed service contracts. As a base case, the Board's financial projections for the Group are based on a broadly "business as usual" scenario, other than a 75% reduction in travel costs for Q2 and Q3. However, In the light of potential COVID-19 challenges and taking into account the factors noted above in "Management of short-term cash expenditure", the Board has sensitised its forecasts and projections for the next 12 months to take account of possible changes in cash flow and performance in order to determine when and to what extent additional measures may be necessary. The Board's downside projections are based on a scenario whereby income from receivables is reduced by up to 10% in 2020 and 20% in 2021 and only 50% of expected new contracts are won (albeit this latter factor only affects cash flows towards the end of the projected period) - under this scenario, the Group would still have sufficient funding to pay planned overheads (including investment for growth) for the period of the projections. The Board's severe downside projections are based on a scenario where income from receivables is reduced by up to 20% in 2020 and 20% in 2021 (and likewise 50% of new contracts) - cost reductions can be made to offset this reduction in cash receipts, principally with a c. 15% reduction in staff costs which would result in the Group having sufficient cash for the period of the projections.

 

Presentation

 

A copy of the results presentation provided to investors and analysts will be available on Pelatro's website in due course ( www.pelatro.com ).

 

For further information contact:

 

Pelatro Plc

 

Subash Menon, Managing Director

c/o finnCap

Nic Hellyer, Finance Director

 

 

 

finnCap Limited (Nominated Adviser and broker)

+44 (0)20 7220 0500

Carl Holmes/Kate Bannatyne/Matthew Radley

 

Tim Redfern / Camille Gochez - ECM

 

 

* earnings before interest, tax, depreciation, amortisation,  exceptional items and share-based payments

** adjusted for $0.65m of term financing matched to expenditure on managed services hardware which will be paid in April

 

 

This announcement is released by Pelatro Plc and, prior to publication, the information contained herein was deemed to constitute inside information under the Market Abuse Regulations (EU) No. 596/2014. Such information is disclosed in accordance with the Company's obligations under Article 17 of MAR. The person who arranged for the release of this announcement on behalf of Pelatro Plc was Nic Hellyer, Finance Director.

 

 

Notes to editors

 

The Pelatro Group was founded in March 2013 by Subash Menon and Sudeesh Yezhuvath with the objective of offering specialised, enterprise class software solutions for customer engagement principally to telcos who face a series of challenges including market maturity, saturation and customer churn.

 

Pelatro provides its "mViva" platform for use by customers in B2C applications, and is well positioned in the Multichannel Marketing Hub space (MMH) - this is technology that orchestrates a customer's communications and offers to customer segments across multiple channels to include websites, social media, apps, SMS, USSD and others.

 

For more information about Pelatro, visit www.pelatro.com

 

 

 

MANAGING DIRECTOR'S STATEMENT

 

"Deepening connections" is a very powerful theme in our industry. We serve telcos who, in turn, serve tens of millions of people. The telecom market has reached saturation point and has also become highly commoditised. In such a scenario, growth depends entirely on engaging with the subscribers in a very deep manner to understand them thoroughly with the objective of providing a superior customer experience leading to higher revenue and lower churn for the telcos. Your company empowers the marketers to achieve this.

 

Deepening the connections

 

While empowering the telcos to deepen their relationships, Pelatro too has been forging deeper relationships with its customers, the telcos. This has meant a strategic shift in our revenue model leading to a more stable, sustainable and predictable future.

 

In its infancy, Pelatro depended mainly on a license model for various reasons, not least an initial lack of credibility to win multi-year contracts and a pressing need to win customers as quickly as possible. Telcos run extremely complex networks with a variety of dependencies and as a result are highly risk averse. Given this, Pelatro could not win large contracts from leading telcos without first building credibility. That in turn, called for customers who could be showcased, thus leading to a "Catch 22" situation. Pelatro opted to pursue one-time license contracts to break out of this situation and, as has been well demonstrated over the past few years, this strategy bore fruit resulting in several large customers. The advanced nature of our products, coupled with superior customer engagement, stood us in good stead in those initial stages.

 

Winning these customers and serving them well helped to establish Pelatro as a credible player in the industry. Furthermore, our products kept evolving in keeping with our vision which was well aligned with that of the telcos. Progressively, Pelatro invested in other capabilities to slowly build a market-leading suite of services to make its offering complete. By the start of 2019, Pelatro was ready to embark on a new strategy - to deepen its connections.

 

Strategic shift

 

Investing in an excellent product offering alone does not help telcos to meet their objectives. Proper, consistent and continued utilisation of the product is equally critical. This has been a major challenge for telcos for a number of reasons, such as inability to attract and retain talent, and to keep up with the evolution of the industry and its practices etc. Consequently, telcos have always relied on specialists to help leverage acquired technology and products. We therefore decided to pursue a strategy of transitioning to such a specialist offering, and offering our products primarily on revenue models other than licensing. This shift in focus towards recurring and repeat revenue was the highlight of last year.

 

Contracts of a recurring and repeat revenue nature lead to deeper engagement between Pelatro and our customers, as we are able to deliver higher value over several years. Owing to the very nature of the model, cash flow improves along with visibility. However, this shift impacts revenue in the near term as large license contracts that bring in spikes in revenue will be absent resulting in a shortfall in revenue in the initial years. Pelatro's management opted for the long term future upside against the short term and the Board is confident this strategy will prove to be correct and the benefits are starting to show.

 

Managed services being provided by Pelatro can be categorized as:

 

• Business Operations - configuring campaigns, executing campaigns, provisioning and reporting

 

• Business Consultancy - defining strategy and designing campaigns

 

• IT Operations - monitoring the application on a 24 x 7 basis

 

This revenue model, which results in a gross margin of about 50%, is either a fixed monthly fee or a combination of a fixed monthly fee and revenue gain share. Contracts typically have an initial term of 3 to 5 years and are renewable at the end of the term. Given the nature of such contracts, the Group benefits from a cumulative effect with every passing year. Thus, the exit "run rate" of recurring and repeat revenue in each year will be higher than the entry level in that particular year - in 2019, the Group won recurring and repeat revenue contracts worth about $15-17m over their term, resulting in the exit level in 2019 being more than twice the entry level.

 

While the Group at the start of 2019 had $1.5m of recurring and repeat revenue to be recognised in that year; we started 2020 with $4m. With the increasing success of our new strategy, we expect this figure to climb steadily each year directly resulting in visibility for each year improving. Consequently, the proportion of recurring and repeat revenue in the total revenue of a particular year will keep rising as time progresses.

 

Product differentiation

 

The mViva Platform comprises a number of products and modules relating to Contextual Marketing, Loyalty Management and Data Monetisation. The platform has always been advanced, in comparison to similar products from other vendors and we endeavour constantly to maintain the differentiation of mViva and launched version 6 recently. This updated version further differentiates mViva from competing products. Some of the key benefits that the new features in mViva V6 will deliver to our customers are detailed below:

 

State Flows: Managing and influencing the journey of every subscriber is increasingly critical. mViva V6 delivers a brand new campaign orchestration framework called State Flows. State Flows can be used to manage a complex journey for any customer over a long period of time resulting in higher revenue, improved customer experience and lower churn.

 

DPeU: Telcos are experiencing an explosion in transaction volume due to increasing consumption of data and a significant increase in online transactions. In large telcos, streaming data for such transactions by subscribers results in billions of transactions each day. mViva V6 employs various new concepts and technologies including DPeU (Distributed Partitioned Execution Unit), which facilitates its application to collect and process such transactions.

 

Glue: Real time interventions by the telcos, with respect to their subscribers, is a key element in Contextual Marketing. For example, if a special offer is to be sent to a subscriber when near a particular retail outlet or when the subscriber has just performed a specific action on the phone, the offer has to be sent at that moment. A delay in such intervention will not help. Hence the need for real time. This requirement means that the solution has to have "high availability". Glue is a proprietary and patent pending technology from Pelatro to achieve this.

 

I thank every one of our stakeholders for the support extended during the last year while the Group was deepening the connections. We will continue to build Pelatro into a global leader in our chosen space.

 

Subash Menon

Managing Director, CEO and Co-Founder

 

 

 

FINANCIAL REVIEW

 

Introduction

 

For the year, total revenue increased by 9 per cent. to $6.67m, including some $4.51m repeat revenue (which comprises gain share, change requests and managed services, as well as PCS) accounting for around 68% of the total. This result highlights the pivot of the Group's revenues towards a repeating revenue base, and increasingly a longer-term managed services model which, with a maintenance and support base which builds with every new license, means that we benefit from truly contractually recurring revenue as well ($2.96m of this was contractually recurring , compared to $1.82m in 2018). This shift has been enhanced by the contract win announced in December 2019 to deliver our Contextual Marketing Platform and Unified Communication Manager software to a major global telco on a managed service basis for an initial period of 5 years; as noted in that announcement, the timing of conversion of certain other pipeline opportunities was impacted by the increasing focus on building such recurring and repeating revenue contracts in line with the Group's stated strategy, and hence the result for the year was below original expectations.

 

 

Key Performance Indicators

 

 

2019

2018

Growth

 

 

 

 

Revenue

$6.67m

$6.12m

9%

 

 

 

 

Repeat revenue

$4.51m

$3.10m

45%

 

 

 

 

Repeat revenue as percentage of total

68%

51%

 

 

 

 

 

Adjusted EBITDA (see Note 7)

$2.89m

$3.75m

-23%

 

 

 

 

Adjusted EBITDA margin

43%

61%

 

 

 

 

 

Profit before tax (before exceptional items)

$0.77m

$2.82m

-73%

 

 

 

 

Cash generated from operating activities (before exceptional items)

$1.37m

$0.88m

56%

 

 

 

 

Contractedcustomers (at year end)

19

14

36%

 

 

Income Statement

 

Revenue

 

Out of the total revenue of $6.67m, approximately $1.9m arose from sales of licenses and the associated implementation (2018: $2.5m) and some $4.5m arose from repeat revenue, notably from gain share contracts and in particular change requests (2018: $3.1m) which are driven from the underlying license base - as we add more licenses so the diversity and activity of the customer base increases, resulting in more change requests and continually improving the product suite. The geographic spread of income has also increased with new customer acquisitions; however, for the reported year customer concentration increased somewhat, driven largely by a strong growth in repeat revenues from one particular customer. We expect this trend to reverse as diverse contracts won in 2019 begin to generate revenue in 2020.

 

Whilst all the Group's revenue is currently in US Dollars (and hence there is currently no impact on revenue arising from foreign exchange movements) with recent contract wins a proportion of future revenue will be in Indian Rupees ("INR") which will form a natural hedge against the Group's cost base, of which just over 50% (in cash terms) is in INR.

 

Cost of sales

 

Cost of sales of $1.0m (2018: $0.56m) comprises principally (i) the direct salary costs of providing software support and maintenance, professional services and consultancy; as well as (ii) sales commissions payable; (iii) expensed customer integration and software maintenance costs. The increase reflects the diversification of revenue streams into managed services and PCS, as an increasing proportion of costs is allocated to cost of sales as the direct costs of service and support for the relevant contracts. However, as the constituents of cost of sales vary markedly depending on the product or service sold, this is not a KPI for the Group.

 

Overheads and exceptional gains

 

Pre-exceptional overheads (excluding depreciation and amortisation) increased to $2.8m (2018: $1.8m; the 2019 figure reflects approximately $0.2m of lease costs allocated to depreciation and interest as a result of the adoption of IFRS 16). This increase results largely from increases in salary costs concomitant with the growth of the number of employees in the Group, as well as travel and marketing costs which also reflect the Group's growth. We continue to target investment in our staff and the infrastructure of the business to support a high level of customer service and to provide a strong, scalable platform for continued organic growth.

 

Exceptional gains

 

As previously notified to shareholders, certain contracts within the pipeline of potential revenue which was acquired from Danateq took longer to complete than originally expected; as a result the related revenue did not fall within the first year earn out period (the 12 months to end July 2019), and hence the contingent cash payment of $2m pursuant to the terms of the acquisition was not payable in respect of that period. As the year progressed, the forecast of revenue deemed likely to arise from the pipeline on which the remaining earn-out payment was contingent became more certain and hence the Board was better able to assess the probable outturn revenue for the year. Given the structure of the earn-out terms (i.e. that a payout is fixed based on revenue between certain thresholds rather than being directly proportional) the Board are now able to predict with confidence that the payout (which is due after the close of the earn-out period on 31 July 2020) will be $1m. Given this re-evaluation, the Group, recorded (i) a credit to goodwill of $275,000 in the first half of the year as this element of the liability was adjusted; and (ii) an exceptional gain through profit and loss of $236,000 relating to the balance adjusted at the end of the financial year.

 

Profitability

 

Adjusted EBITDA (earnings before interest, tax, depreciation, amortisation and exceptional items) decreased by 23% in the year to $2.89m (2018: $3.78m). Profit before tax before exceptional items was $0.77m (2018: $2.82m). Adjusted earnings per share ("EPS") were 4.2¢ (2018: 10.2¢), and reported EPS were 2.5¢ (2018: 8.0¢). Reported profit before tax was $1.01m (2018: $2.51m).

 

Taxation

 

The taxation charge for the year comprises a charge of $0.25m relating to current tax (2018: $0.34m) and a credit of $0.05m relating to the recognition of deferred tax assets (2018: $8,000). Deferred tax assets have arisen in certain Group subsidiaries in which taxable losses arose in the year, which can be carried forward and offset against future profits.

 

Statement of Financial Position

 

Goodwill and other intangible assets

 

Goodwill

 

The goodwill in the Group balance sheet arises from the acquisitions of PSPL in December 2017 and the Danateq Acquisition in August 2018. As noted above, an adjustment of an element of the contingent liability relating to the potential payment to the vendors of the Danateq business led to a concomitant adjustment to goodwill during the year of $275,000.

 

Customer relationships and acquired software for resale

 

Assets acquired pursuant to the Danateq Acquisition comprised principally customer relationships and enterprise software for resale to third parties; the customer relationships acquired are being amortised over 10 years. The software acquired has now been fully integrated into the Group's existing mViva suite and is no longer considered separately. Net of accumulated amortisation for the year, the net book value of the standalone intangible assets thus acquired (i.e. the customer relationships) was approximately $5.9m at the year end.

 

Development costs

 

The Group is committed to the continuous enhancement of its core software suite, and we aim to offer a market-leading platform which addresses the needs of our telco customers. During the year therefore the Group continued to invest in the development of the software suite, leading to the release of mViva v.6 in January 2020, and has capitalised relevant costs of around $2.1m (2018: $1.6m) out of a total of underlying costs of approximately $4.0m ($2.6m in Bangalore, where the Group employs around 90 developers and the balance in the Group's other development centre in Nizhny Novgorod).

 

Amortisation on the standalone and acquired costs increased to $1.0m (2018: $0.6m) accordingly, and net of such amortisation, this capitalisation resulted in intangible assets relating to development costs in the statement of financial position of approximately $4.4m (2018: $3.2m).

 

Property, plant and equipment

 

Expenditure of $256,000 on property, plant and equipment relates principally to $106,000 spend on IT equipment to support the needs of the business. In addition, some $94,000 was spent on fixtures, fittings and leasehold improvements due to the continued expansion of the Group's office space. Also during the year, in line with common remuneration practice in India, a car was provided for the use of the Head of Development at a capital cost of $56,000 (representing an annual cost to the Group of approximately $8,000).

 

Depreciation in the year amounted to $93,000 (excluding amounts relating to Right-to-Use assets now recognised under IFRS 16, and gross of amounts capitalised as intangible assets) (2018: $47,000), and the aggregate net book value of property, plant and equipment rose from $362,000 to $515,000.

 

Trade receivables and contract assets

 

Trade receivables

 

At 31 December 2019 total trade receivables (i.e. including long-term receivables) stood at $5.5m (2018: $4.1m). The increase reflects a significant last quarter weighting of revenues, with over 61% of the total contractual revenue accounted for in the last quarter. Of these receivables, approximately $1.4m has been received since the year end to date.

 

The trade receivables balance at the year end is analysed as follows:

 

 

2019

2019

2019

2018

2018

2018

 

$'000

$'000

 

$'000

$'000

 

 

Receivables

Associated revenue

"Debtor days"

Receivables

Associated revenue

"Debtor days"

 

 

 

 

 

 

 

Total

5,283

6,566

294

3,752

6,019

228

Excluding UBR

967

2,619

135

1,453

3,694

144

The above figures have been adjusted where appropriate for balance sheet reallocations, and exclude contract assets and the associated incremental revenue.

 

Given the wide variety and bespoke nature of the Group's contracts, figures shown for debtor days are illustrative only. UBR receivables have increased as two significant contracts were completed in December 2019 and had not been invoiced at the year end (as invoicing milestones had not been reached). UBR receivables also include approximately $0.6m relating to contracts on term payment structures which are invoiced over the relevant periods.

 

Contract assets

 

Contract assets are recognised relating to support and maintenance revenue and license fees as payments are received in arrears of the services being provided. Short-term contract assets (i.e. those which are expected to reverse in less than one year) increased to $0.29m (2018: $0.07m) largely due to three significant contracts signed in the year which had invoicing terms which differed significantly from the underlying performance obligations. Long-term contract assets (i.e. those which are expected to reverse after more than one year) increased similarly to $0.52m (2018: $0.31m).

 

Trade and other payables and contract liabilities

 

Trade and other payables

 

At the year end, trade payables stood at $82,000 (2018: $118,000). Other payables of $441,000 (2018: $463,000) comprise accrued tax liabilities and provisions of $149,000 and sundry creditors and accruals.

 

Contract liabilities

 

Contract liabilities represent customer payments received in advance of satisfying performance obligations, which are expected to be recognised as revenue in 2020 and beyond. Short-term contract liabilities increased to $0.66m (2018: $0.06m) and long-term contract liabilities to $0.27m (2018: $0.11m) largely as the result of one particular contract entered into in the year.

 

Statement of Cash Flows

 

Cash flow and financing

 

Cash collection has continued to be a key strategic focus for the Group - cash generated by operations, as adjusted for exceptional items, and before tax payments amounted to $1.70m (2018: $1.17m), largely as a result of continued improvement in timing of collection of trade receivables (operating cash inflow of $0.34m in the first half compared to approximately $1.36m in the second); this trend is expected to continue with an increasing proportion of repeat or recurring contracts in the revenue mix (e.g. from revenue share or managed services).

 

During the year the Group refinanced certain term loans and took out a further term loan of c. $56,000 in order to finance the purchase of a motor vehicle for employee use. In addition an overdraft facility used during the year had an outstanding balance of $167,000 at the year end. As a result of the above, the Group had closing gross cash of $1.1m (2018: $2.2m) and net cash of $0.5m (2018: $1.8m) (excluding amounts relating to lease liabilities). Since the year end, the Group has secured financing of approximately $0.8m (on a term basis over 6 years) in order to match fund the cost of hardware associated with the major managed services contract announced in December 2019. Gross cash at 6 April stood at $1.59m; however, this figure includes approximately $0.65m remaining from this financing and relating to capital expenditure expected to be paid out in April.

 

 

Contingent liabilities

 

The Group acquired certain assets from the Danateq Group in August 2018, including enterprise software and customer relationships, both formal (i.e. via a framework agreement) and informal. Potential deferred consideration of up to $5m was payable in respect of this acquisition, based on revenue realised against a defined pipeline of actual or target contracts. Due to the adjustment of previously provided contingent amounts, the contingent liability recognised now stands at $975,000, representing the expected payout of $1m discounted to the balance sheet date (with the amount shown on the balance sheet net of a $27,000 post-acquisition adjustment due from the vendors)

 

Summary

 

The significant contract win announced in December 2019 clearly validated the quality of our software, especially in the context of its relevance to Tier 1 telcos, and marked a major shift for our business in terms of moving towards a recurring revenue model, thus enhancing the quality and visibility of our earnings. Furthermore, the winning of a consultancy contract, also in December 2019, demonstrated our ability to monetise our domain expertise to analyse data, devise campaigning strategies and design appropriate campaigns to enable customers further to increase revenue and reduce churn.

 

The increased product range in the now integrated mViva product suite enables us to target both existing customers with new products and new customers, especially within multi-national groups. With a substantially enlarged customer base of now 19 telcos, we expect an increasing volume of change requests which, combined with a greater proportion of managed services and other repeat income, gives us a solid foundation for the year ahead. As noted below, it remains unclear how, how long the current coronavirus pandemic will last and what the short to medium term effects of this pandemic will be on consumer and corporate behaviour; however, the Directors believe that the telecommunications industry is likely to be less affected by any economic downturn, whether local or global, than most, particularly as certain telecoms activities tend to increase in "stay at home" periods such as end of year holidays and festivals such as Christmas and Ramadan, generating more user spending and more targeted marketing. This is supported by our experience to date, with customers maintaining  a broadly "business as usual" approach despite the logistical disruption of working from home (to which any software based business is well suited). Accordingly, our overall (12 month) pipeline remains strong and notably we have started 2020 with a material proportion of the expected revenues for the year underpinned by recurring and repeating revenue, including the contracts referenced above as well as support and maintenance income built up from previous years'  license sales and regular change request income. Together this will deliver higher quality, sustainable and visible revenues that will significantly enhance the value of the Group over the longer term.

 

 

 

Nic Hellyer

Finance Director

 

 

 

 

Group Statement of Comprehensive Income 

For the year ended 31 December 2019

 

 

 

2019

2018

 

Note

$'000

$'000

 

 

(audited)

(audited)

 

 

 

 

Revenue

5

6,667

6,123

Cost of sales and provision of services

 

(999)

(555)

 

 

_______

_______

Gross profit

 

5,668

5,568

 

 

 

 

Adjusted administrative expenses

6

(4,048)

(2,421)

 

 

_______

_______

Adjusted operating profit

 

1,620

3,147

Exceptional items

7

236

(310)

Amortisation of acquisition-related intangibles

18

(686)

(286)

Share-based payments

11

(52)

-

 

 

_______

_______

Operating profit

 

1,118

2,551

 

 

 

 

Finance income

12

54

33

Finance expense

13

(164)

(71)

 

 

_______

_______

Profit before taxation

 

1,008

2,513

Income tax expense

14

(194)

(334)

 

 

_______

_______

PROFIT FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT

 

814

2,179

 

 

 

 

Other comprehensive income/(expense):

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

Exchange differences on translation of foreign operations

 

(25)

78

 

 

_______

_______

Other comprehensive income, net of tax

 

(25)

78

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

 

789

2,257

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

Attributable to the owners of the Pelatro Group (basic and diluted)

15

2.5¢

8.0¢

Adjusted

 

 

 

From continuing operations (basic and diluted)

15

4.2¢

10.2¢

 

 

 

 

Group Statement of Financial Position 

For the year ended 31 December 2019

 

 

 

2019

2018

 

Note

$'000

$'000

 

 

(audited)

(audited, restated)

Assets

 

 

 

Non-current assets

 

 

 

Intangible assets

18

10,891

10,609

Tangible assets

19

515

362

Right-of-use assets

20

339

-

Deferred tax assets

14

63

-

Contract assets

21

519

312

Trade and other receivables

21

231

321

 

 

_______

_______

 

 

12,558

11,604

Current assets

 

 

 

Contract assets

21

293

72

Trade receivables

21

5,283

3,752

Other assets

22

501

382

Cash and cash equivalents

 

1,101

2,224

 

 

_______

_______

 

 

7,178

6,430

 

 

 

 

TOTAL ASSETS

 

19,736

18,034

 

 

 

 

Liabilities

 

 

 

Non-current liabilities

 

 

 

Borrowings

23

362

382

Lease liabilities

24

187

-

Contract liabilities

25

274

112

Long-term provisions

 

124

-

Other financial liabilities

26

-

1,141

 

 

_______

_______

 

 

947

1,635

Current liabilities

 

 

 

Trade and other payables

25

523

609

Short term borrowings

23

246

69

Lease liabilities

24

205

-

Contract liabilities

25

665

61

Other financial liabilities

26

948

298

 

 

_______

_______

 

 

2,587

1,037

 

 

 

 

TOTAL LIABILITIES

 

3,534

2,672

 

 

 

 

NET ASSETS

 

16,202

15,362

 

 

 

 

Issued share capital and reserves attributable to owners of the parent

 

 

 

Share capital

27

1,065

1,065

Share premium

27

11,603

11,603

Other reserves

27

(643)

(721)

Retained earnings

 

4,177

3,415

 

 

_______

_______

TOTAL EQUITY

 

16,202

15,362

 

 

 

 

Group Statement of Cash Flows 

For the year ended 31 December 2019

 

 

 

2019

2018

 

 

$'000

$'000

 

 

(audited)

(audited)

Cash flows from operating activities

 

 

 

Profit for the year

 

814

2,179

Adjustments for:

 

 

 

Income tax expense recognised in profit or loss

 

247

342

Finance income

 

(54)

(33)

Finance costs

 

160

71

Depreciation of tangible non-current assets

 

188

46

Amortisation of intangible non-current assets

 

1,726

843

(Recognition of) deferred tax assets

 

(53)

(8)

Fair value adjustment on contingent consideration

 

(236)

-

Share-based payments

 

52

-

Foreign exchange (gains)

 

(8)

(69)

 

 

_______

_______

Operating cash flows before movements in working capital

 

2,836

3,371

(Increase)/decrease in trade and other receivables

 

(1,509)

(2,438)

(Increase)/decrease in contract assets

 

(428)

(273)

Increase/(decrease) in trade and other payables

 

103

57

Increase/(decrease) in contract liabilities

 

701

146

 

 

_______

_______

Cash generated from operating activities

 

1,703

863

Income tax paid

 

(334)

(292)

 

 

_______

_______

Net cash generated from operating activities

 

1,369

571

 

 

 

 

Cash flows from investing activities

 

 

 

Development of intangible assets

 

(2,102)

(1,604)

Purchase of intangible assets

 

(35)

(69)

Acquisition of property, plant and equipment

 

(256)

(384)

Cash outflow on acquisition of businesses net of cash acquired

 

-

(7,035)

 

 

_______

_______

Net cash used in investing activities

 

(2,393)

(9,092)

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from issue of ordinary shares, net of issue costs

 

-

7,395

Repayments to related parties

 

-

(436)

Proceeds from borrowings

 

317

394

Repayment of borrowings

 

(313)

(513)

Repayments of principal on lease liabilities

 

(171)

-

Finance income

 

54

33

Finance costs

 

(93)

(62)

Less interest accrued but not paid

 

-

3

Interest expense on lease liabilities

 

(40)

-

 

 

_______

_______

Net cash generated by/(used in) financing activities

 

(246)

6,814

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

(1,270)

(1,707)

Foreign exchange differences

 

(20)

(195)

Cash and equivalent at beginning of period

 

2,224

4,126

 

 

_______

_______

Cash and cash equivalents at end of period

 

934

2,224

 

 

 

 

Comprising:

 

 

 

Cash at bank and in hand

 

1,101

2,224

Overdraft

 

(167)

-

 

 

_______

_______

 

 

934

2,224

Group Statement of Changes in Equity 

For the year ended 31 December 2019

 

 

Share capital

Share premium

Exchange reserve

Merger reserve

Share-based payments reserve

Retained profits

 

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

 

$'000

Balance at 1 January 2018 as previously reported

801

4,472

(2)

(527)

-

1,217

 

5,961

Effect of change of accounting policy (IFRS 15)

-

-

-

-

-

18

 

18

 

_____

_____

_____

_____

_____

_____

 

_____

Balance at 1 January 2018 as restated

801

4,472

(2)

(527)

-

1,235

 

5,979

Profit after taxation for the period

-

-

-

-

-

2,179

 

2,179

Other comprehensive income:

 

 

 

 

 

 

 

 

Exchange differences

-

-

(191)

-

-

 

 

(191)

Transactions with owners:

 

 

 

 

 

 

 

 

Shares issued by Pelatro Plc for cash

264

7,450

-

-

-

-

 

7,714

Issue costs

-

(319)

 

 

 

 

 

(319)

 

_____

_____

_____

_____

_____

_____

 

_____

Balance at 31 December 2018

1,065

11,603

(193)

(527)

-

3,414

 

15,362

Effect of change of accounting policy (IFRS 16)

-

-

-

-

-

(51)

 

(51)

 

_____

_____

_____

_____

_____

_____

 

_____

Balance at 1 January 2019 as restated

1,065

11,603

(193)

(527)

-

3,363

 

15,311

Profit after taxation for the period

-

-

-

-

-

814

 

814

Share-based payments

-

-

-

-

100

-

 

100

Other comprehensive income:

 

 

 

 

 

 

 

 

Exchange differences

-

-

(23)

-

-

-

 

(23)

 

_____

_____

_____

_____

_____

_____

 

_____

Balance at 31 December 2019

1,065

11,603

(216)

(527)

100

4,177

 

16,202

 

 

 

 

Notes

 

5  Revenue and segmental analysis

 

Revenue by type

 

The Group has five principal revenue models, being:

 

(1) contracts based on the sale of perpetual licenses for use of the Group's proprietary enterprise software;

 

(2) contracts for the use of the Group's software on a regular (usually monthly) basis, which may also provide for Group employees to provide related services the customer ("managed services") and/or for the Group to take a share of the revenue gain achieved through use of the software;

 

(3) provision of specific customer-requested modifications to Group software ("change requests");

 

(4) provision of maintenance and support of the software; and

 

(5) provision of consultancy services and/or training relating to the use of the software

 

In addition, the Group may, if required by the customer, supply appropriate hardware on which to host the software, either for the account of the customer or (particularly in the case of managed services) retained in the ownership of the Group.

 

An analysis of revenue by type is as follows:

 

At 31 December

2019

2018

 

$'000

$'000

 

 

 

Repeat software sales and services

3,114

2,288

Maintenance and support

1,399

809

 

_______

_______

Total repeat revenues

4,513

3,097

Software - new licenses

1,887

2,511

Consulting

258

515

Resale of hardware

9

-

 

_______

_______

 

6,667

6,123

 

Revenue by geography

 

The Group recognises revenue in seven geographical regions based on the location of customers, as set out in the following table:

 

At 31 December

2019

2018

 

$'000

$'000

 

 

 

Caribbean

133

357

Central Asia

256

1,653

Eastern Europe

91

380

North Africa

135

314

South Asia

1,791

819

South East Asia

4,181

2,207

Sub-Saharan Africa

80

393

 

_______

_______

 

6,667

6,123

 

Management makes no allocation of costs, assets or liabilities between these segments since all trading activities are operated as a single business unit.

 

An analysis of revenue by status of invoicing is as follows:

 

Year to 31 December

2019

2018

 

$'000

$'000

 

 

 

(i) Revenue invoiced to customers under contractual terms

 

2,619

3,694

(ii) Revenue recognised under terms of contract but unbilled at period end ("UBR")

 

3,947

2,325

(iii) Net revenue recognised other than (ii)

 

144

191

Less: revenue recognised or to be recognised as interest under IFRS 15

(43)

(87)

 

_______

_______

Total revenue recognised in the year

6,667

6,123

 

Revenue recognition

 

License revenue

 

The Group recognises revenue from the sale of licenses and the implementation of the software so licensed separately, as the two activities represent distinct performance obligations. However, as implementation to date has always been carried out by Group personnel and is usually viewed by the customer as an integral part of the license purchase, the two activities are reported as one.

 

Irrespective of the split between license and implementation recognition, some contracts provide for fixed payments to be made by customers (usually monthly) over a given term (e.g. three or five years). Under IFRS 15, in order to reflect the time value of money, such contracts have been recognised as the capitalised value of the income stream plus interest accruing for the year on the credit deemed to be extended to the customer (on a reducing balance basis). For the financial year 2019 this figure amounts to license revenue of $0.45m and related interest income of $7,000 (2018:  $0.13m and $2,000).

 

PCS

 

Ancillary to a license sale, the Group typically provides five years of PCS but does not charge for the first year; similarly in certain contracts the Group may provide PCS at other than a standalone selling price ("SSP"). For revenue recognition purposes this is treated as income accruing over the full term of the service provision (whether paid or otherwise) and, as far as is estimable, at a deemed market rate (i.e. the SSP). Accordingly, the financial statements reflect adjustments to income (i) to accelerate the recognition of revenue for initial years for which no contractual payment is due; and (ii) to accelerate or defer the recognition of revenue in cases where the contractual PCS charge is lower (or higher) than a market rate (the difference being netted off or added to the revenue recognised in respect of the license fee). For the financial year 2019 revenue therefore includes (i) an amount of $104,000 representing revenue from PCS recognised ahead of its contractually due dates (2018: $141,000), and (ii) an amount of $248,000 (2018: $80,000) representing revenue netted off license income and allocated to PCS.

 

Remaining performance obligations

 

There are certain software support, professional service, maintenance and licences contracts that have been entered into for which both:

 

• the original contract period was greater than 12 months; and

 

• the Group's right to consideration does not correspond directly with performance.

 

The amount of revenue that will be recognised in future periods on these contracts when those remaining performance obligations will be satisfied is shown below.

 

Year to 31 December

 

2020

2021

2022-5

 

$'000

$'000

$'000

 

 

 

 

Revenue expected to be recognised on software and service contracts

595

461

522

 

Comparative figures for the year ended 31 December 2018 were as follows:

 

 

Year to 31 December

 

2019

2020

2021-4

 

$'000

$'000

$'000

 

 

 

 

Revenue expected to be recognised on software and service contracts

419

420

476

 

 

6  Operating expenses

 

Profit for the year has been arrived at after charging:

 

2019

2018

 

$'000

$'000

 

 

 

Amortisation of intangible non-current assets

1,726

843

Depreciation of tangible non-current assets

189

47

Staff costs (see note 9)

1,503

582

Auditor's remuneration (see note 8)

41

45

Short-term lease expenses

23

24

Realised foreign exchange (gains)/losses

(14)

(69)

 

Financial effect of initial application of IFRS 16

 

The tables below show the amount of adjustment for each financial statement line item affected by the application of IFRS 16 for the current period. As noted above, where lease-related expenses are directly attributable to the cost of development of the Group's proprietary software such expenses are capitalised in accordance with the Group's accounting policy relating to such development expenditure. The amounts shown in this note are gross of such capitalisation unless otherwise noted.

 

The Group has adopted the modified retrospective approach to the application of IFRS 16 and accordingly the prior year is not restated and hence there is no effect shown.

 

Impact on profit/(loss) for the period

 

Year to

31 December 2019

 

$'000

(Increase) in depreciation

(173)

(Increase) in finance costs

(40)

Decrease in administrative expenses

210

Effects of foreign exchange

1

 

_______

(Decrease) in profit for the period

(2)

 

Certain lease expenses are deemed to be directly attributable overheads for the purposes of capitalising relevant expenditure on developing intangible assets (see Note 18); accordingly, under IFRS 16 the corresponding depreciation and interest expense is capitalised instead. Figures above are shown gross before capitalisation.

 

Impact on earnings per share for the period

 

The impact on earnings per share is too small to be reflected in disclosure to the nearest 0.1c.

 

Impact on consolidated statement of cash flows

 

The application of IFRS 16 has an impact on the consolidated statement of cash flows of the Group as under the Standard lessees must present:

 

• Short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liability as part of operating activities (such payments have no material effect on these financial statements);

 

• Cash paid for the interest portion of lease liabilities as part of financing activities; and

 

• Cash payments for the repayment of the principal portions of leases liabilities as part of financing activities.

 

Under IAS 17, all lease payments on operating leases were presented as part of cash flows from operating activities. Consequently, for the year ended 31 December 2019, the net cash generated by operating activities has increased by $210,000 and net cash used in financing activities increased by the same amount.

 

Extension and termination options

 

Extension and termination options are included in a number of property leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. All of the extension and termination options held are exercisable only by the Group and not by the respective lessor. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

 

For lease liabilities on balance sheet at 31 December 2019 the Group has used a weighted average interest rate of 9.6% in relation to INR liabilities, 9.7% in relation to RUB liabilities and 2.7% in respect of GBP liabilities.

 

 

7  Non-GAAP profit measures and exceptional items

 

Reconciliation of operating profit to adjusted earnings before interest, taxation, depreciation and amortisation ("EBITDA")

 

Year to 31 December

2019

2018

 

$'000

$'000

 

 

 

Operating profit

1,118

2,551

Adjusted for:

 

 

Amortisation and depreciation

1,915

889

Revenue recognised as interest under IFRS 15

43

26

Exceptional items:

 

 

- acquisition expenses

-

310

 - gain on adjustment of contingent liability

(236)

-

Expensed share-based payments

52

-

 

_______

_______

Adjusted EBITDA

2,892

3,776

 

 

 

 

The criteria for adjusting operating income or expenses in the calculation of adjusted EBITDA are that they are material and either (i) arise from an irregular and significant event or (ii) are such that the income/cost is recognised in a pattern that is unrelated to the resulting operational performance. Materiality is defined as an amount which, to a user, would influence decision-making based on, and understandability of, the financial statements.

 

Exceptional items are treated as exceptional by reason of their nature and are excluded from the calculation of adjusted EBITDA (and adjusted earnings per share below) to allow a better understanding of comparable year-on-year trading and thereby an assessment of the underlying trends in the Group's financial performance. These measures also provide consistency with the Group's internal management reporting. Exceptional items in 2019 comprise the gain on the adjustment of contingent liabilities relating to the potential earnout payment in respect of the Danateq Acquisition (see Note 26). Exceptional items in 2018 comprise legal and other costs relating to the Danateq Acquisition.

 

Adjustment for share-based payment expense is made because, once the cost has been calculated for a given grant of options, the Directors cannot influence the share-based payment charge incurred in subsequent years relating to that grant; also the value of the share option to the employee differs considerably in value and timing from the actual cash cost to the Group.

 

Elements of depreciation on right-to-use assets recognised under IFRS 16 and share-based payment expense are deemed to be directly attributable overheads for the purposes of capitalising relevant expenditure on developing intangible assets (see Note 18). The figures above are shown net of amounts so capitalised.

 

The calculation of adjusted earnings per share is shown in Note 15.

 

 

9  Staff costs

 

Year to 31 December

2019

2018

 

$'000

$'000

 

 

 

Wages and salaries

  3,495

  1,975

Social security contributions

65

40

Less: amounts capitalised as intangible assets

(2,057)

(1,433)

 

_______

_______

 

1,503

582

 

The average number of persons employed by the Company during the period was:

 

Year to 31 December

2019

2018

 

 

 

Sales

4

2

Software development

88

70

Support

40

18

Marketing

3

2

Administration

15

13

 

_______

_______

 

150

105

 

 

10  Directors' remuneration and transactions

 

The Directors' emoluments in the year ended 31 December 2019 were:

 

 

Basic

salary

Bonus

Benefits

in kind

Share-based payments

Pension

 

Total

 

Total

 

2019

2019

2019

2019

2019

2019

2018

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

Executive Directors

 

 

 

 

 

 

 

S. Menon

189

49

24

-

-

262

223

S. Yezhuvath

189

49

15

-

-

253

210

N. Hellyer

85

-

17

7

2

111

80

 

 

 

 

 

 

 

 

Non-Executive Directors

 

 

 

 

 

 

 

R. Day

70

-

-

-

2

72

53

P. Verkade

38

-

-

-

-

38

30

 

_______

______

______

______

_______

_______

_______

 

571

98

56

7

4

736

596

 

The remuneration of the executive Directors is decided by the Remuneration Committee. Save as disclosed above no Director had a material interest in any contract of significance with the Group in either year.

 

 

11  Share-based payments

 

A charge of $52,000 (net of amounts capitalised of $48,000) (2018: nil) has been recognised during the year for share-based payments over the vesting period. This share-based payment expense comprises the charge in the current period relating to the expensing of the fair value of (a) the 1,640,000 options granted under the Plan and (b) the 50,000 options issued at the time of the Company's IPO. The options issued under the terms of the Plan were granted with an exercise price of 73p, vesting in tranches as follows: 25% after one year, 25% after two years and 50% after three years. There are no conditions attaching to the vesting of the options other than continued employment. Of this amount, $45,000 net (2018: nil) relates to costs of share options issued to subsidiary employees.

 

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

 

 

No. of options

Average exercise price

 

2019

2018

2019

2018

Outstanding at the beginning of the year

50,000

50,000

62.5p

62.5p

Granted during the year

1,640,000

-

-

-

Forfeited/cancelled during the year

(91,500)

-

73.0p

-

Exchanged for shares

-

-

-

-

 

_______

_______

 

 

Outstanding at the end of the year

1,598,500

50,000

72.7p

62.5p

 

 

12  Finance income

 

 

2019

2018

 

$'000

$'000

 

 

 

Interest receivable on interest-bearing deposits

11

10

Notional interest accruing on contracts with a significant financing component

43

23

 

_______

_______

Total finance income

54

33

 

 

13  Finance expense

 

 

2019

2018

 

$'000

$'000

 

 

 

Interest and finance charges paid or payable on borrowings

96

62

Interest on lease liabilities under IFRS 16

40

-

Less: amounts capitalised as intangible assets

(19)

 

Acquisition-related financing expense (unwinding of discount on financial liabilities)

47

9

 

_______

_______

Total finance expense

164

71

 

An element of interest on lease liabilities is deemed to be directly attributable overheads for the purposes of capitalising relevant expenditure on developing intangible assets (see Note 18).

 

 

14  Taxation

 

Tax on profit on ordinary activities

 

Year to 31 December

2019

2018

 

$'000

$'000

Current tax

 

 

UK corporation tax charge/(credit) on profit for the current year

(32)

136

Overseas income tax charge/(credit)

286

206

Adjustments in respect of prior periods

(7)

-

 

_______

_______

Total current income tax

247

342

 

 

 

Deferred tax

 

 

(Recognition)/reversal of deferred tax asset

(53)

(8)

 

_______

_______

Total deferred income tax

(53)

(8)

 

 

 

Total income tax expense recognised in the year

194

334

 

Deferred tax

 

Recognised deferred tax asset

 

 

2019

2018

 

$'000

$'000

 

 

 

At 1 January 2019

10

2

Recognised in profit and loss

53

8

 

_______

_______

At 31 December 2019

63

10

 

 

 

Comprising:

 

 

Timing differences

8

10

Tax losses

55

-

 

_______

_______

 

63

10

 

The deferred income tax assets at 31 December 2019 above are expected to be utilised in less than one year. Deferred income tax assets have only been recognised to the extent that it is considered probable that they can be recovered against future taxable profits based on profit forecasts for the foreseeable future.

 

 

15  Earnings

 

Reported earnings per share

 

Basic earnings per share ("EPS") amounts are calculated by dividing net profit or loss for the year attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the year.

 

The following reflects the earnings and share data used in the basic earnings per share computations:

 

Year to 31 December

2019

2018

 

$'000

$'000

Profit attributable to equity holders of the parent:

 

 

Profit attributable to ordinary equity holders of the parent for basic earnings

814

2,179

 

 

 

Weighted number of ordinary shares in issue

32,532,431

27,375,741

 

 

 

Basic earnings per share attributable to shareholders

2.5¢

8.0¢

 

Adjusted earnings per share

 

Adjusted earnings per share is calculated as follows:

 

2019

2018

 

$'000

$'000

 

 

 

Profit attributable to ordinary equity holders of the parent for basic earnings

814

2,179

Adjusting items:

 

 

 - exceptional items (see note 7}

(236)

310

 - share-based payments

52

-

 - finance expense on liabilities relating to contingent consideration

47

9

- amortisation of acquisition-related intangibles

686

286

 - prior year adjustments to tax charge

(7)

7

 

_______

_______

Adjusted earnings attributable to owners of the Parent

1,356

2,791

 

 

 

Weighted number of ordinary shares in issue

32,532,431

27,375,741

 

 

 

Adjusted earnings per share attributable to shareholders

4.2¢

10.2¢

 

The criteria for inclusion of adjusting items in the calculation of adjusted EPS are the same as those relating to the calculation of adjusted EBITDA as set out in Note 7. Additionally, finance expense on liabilities relating to contingent consideration are non-cash costs reflecting the time value of money in arriving at the fair value of such liabilities and the effluxion of time over the period for which they are outstanding; and amortisation of acquisition-related intangibles relates to the amortisation of intangible assets in respect of customer relationships and brands which are recognised on a business combination and are non-cash in nature.

 

 

18  Intangible assets

 

Intangible assets comprise capitalised development costs (in relation to internally generated software and software acquired through business combinations), software acquired from third parties for use in the business, patents, customer relationships and goodwill.

 

An analysis of goodwill and other intangible assets is as follows:

 

Financial year 2019

 

Development costs

Third party software

Patents

Customer relationships

Goodwill

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

Cost

 

 

 

 

 

 

At 1 January 2019

4,144

98

-

6,862

745

11,849

Additions

2,247

12

23

-

-

2,282

Fair value adjustment

-

-

-

-

(275)

(275)

Foreign exchange

-

(2)

-

-

-

(2)

 

_______

_______

_______

_______

_______

_______

At 31 December 2019

6,391

108

23

6,862

470

13,854

 

 

 

 

 

 

 

Amortisation or impairment

 

 

 

 

 

 

At 1 January 2019

(935)

(19)

-

(286)

-

(1,240)

Charge for the year

(1,022)

(18)

-

(686)

-

(1,726)

Foreign exchange

-

3

-

-

-

3

 

_______

_______

_______

_______

_______

_______

At 31 December 2019

(1,957)

(34)

-

(972)

-

(2,963)

 

 

 

 

 

 

 

Net carrying amount

 

 

 

 

 

 

At 31 December 2019

4,434

74

23

5,890

470

10,891

 

 

 

 

 

 

 

At 1 January 2019

3,209

79

-

6,576

745

10,609

 

The Company and the Danateq Group entered into a sale and purchase agreement ("SPA") on 30 July 2018 to acquire certain assets of Danateq Pte and Danateq Limited. Further consideration for the Danateq Acquisition of up to $5,000,000 was contingent on the achievement of certain revenue targets ("pipeline revenue") in the two years following the acquisition. On acquisition these liabilities were provisionally assessed at an aggregate fair value of $1.43m (as discounted to the present value at the time of acquisition) based on a probability-weighted analysis of revenue expectations at the time and hence the likely outturn payments; this valuation was unchanged at end of the first measurement period (i.e. as at 31 December 2018) other than as due to the finance expense relating to the unwinding of the time-value discount.

 

At the end of the 6 months to 30 June 2019 the Directors reassessed this fair value due to the deferral of certain potential pipeline revenue from the first year relevant to earnout calculation to the second; the reassessed value was $1.19m and the difference of $275,000 (gross of finance expense) reflecting the net of (i) the derecognition of the then short-term liability in respect of the first year earnout and (ii) a corresponding increase to the then long-term liability in respect of the second. The difference thus arising during the measurement period was credited to goodwill arising on acquisition.

 

Financial year 2018

 

Development costs

Third party software

Patents

Customer relationships

Goodwill

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

Cost

 

 

 

 

 

 

At 1 January 2018

1,290

32

-

-

287

1,609

Additions

1,604

69

-

-

-

1,673

Fair value adjustment

-

-

-

-

140

140

Created as part of a business combination

-

-

-

-

318

318

Acquired as part of a business combination

1,250

-

-

6,862

-

8,112

Foreign exchange

-

(3)

-

-

-

(3)

 

_______

_______

_______

_______

_______

_______

At 31 December 2018

4,144

98

-

6,862

745

11,849

 

 

 

 

 

 

 

Amortisation or impairment

 

 

 

 

 

 

At 1 January 2018

(382)

(16)

-

-

-

(398)

Acquired as part of a business combination

-

-

 

-

-

-

Charge for the year

(553)

(4)

-

(286)

-

(843)

Foreign exchange

-

1

 

-

-

1

 

_______

_______

_______

_______

_______

_______

At 31 December 2018

(935)

(19)

-

(286)

-

(1,240)

 

 

 

 

 

 

 

Net carrying amount

 

 

 

 

 

 

At 31 December 2019

3,209

79

-

6,576

745

10,609

 

 

 

 

 

 

 

At 1 January 2018

908

16

-

-

287

1,211

 

 

19  Tangible assets

 

Financial year 2019

Leasehold improvements

Computer equipment

Office equipment

Vehicles

 

Total

 

$'000

$'000

$'000

$'000

$'000

Cost

 

 

 

 

 

At 1 January 2019

49

93

30

264

436

Additions

63

106

31

56

256

Foreign exchange differences

(3)

(2)

(2)

(8)

(15)

 

_______

_______

_______

_______

_______

At 31 December 2019

109

197

59

312

677

 

 

 

 

 

 

Depreciation

 

 

 

 

 

At 1 January 2019

-

(46)

(2)

(26)

(74)

Charge for the year

(7)

(44)

(8)

(34)

(93)

Foreign exchange differences

-

3

1

1

5

 

_______

_______

_______

_______

_______

At 31 December 2019

(7)

(87)

(9)

(59)

(162)

 

 

 

 

 

 

Net carrying amount

 

 

 

 

 

At 31 December 2019

102

110

50

253

515

 

 

 

 

 

 

At 1 January 2019

49

47

28

238

362

 

 

Financial year 2018

Leasehold improvements

Computer equipment

Office equipment

Vehicles

 

Total

 

$'000

$'000

$'000

$'000

$'000

Cost

 

 

 

 

 

At 1 January 2018

-

56

4

-

60

Additions

49

44

23

270

386

Foreign exchange differences

-

(7)

3

(6)

(10)

 

_______

_______

_______

_______

_______

At 31 December 2018

49

93

30

264

436

 

 

 

 

 

 

Depreciation

 

 

 

 

 

At 1 January 2018

-

(29)

(1)

-

(30)

Charge for the year

-

(20)

-

(27)

(47)

Foreign exchange differences

-

3

(1)

1

3

 

_______

_______

_______

_______

_______

At 31 December 2018

-

(46)

(2)

(26)

(74)

 

 

 

 

 

 

Net carrying amount

 

 

 

 

 

At 31 December 2018

49

47

28

238

362

 

 

 

 

 

 

At 1 January 2018

-

27

3

-

30

 

 

20  Right-of-use assets

 

As disclosed further in Note 2, the Group has adopted IFRS 16 in the year. The following sets out the Impact on assets, liabilities and equity as at 1 January 2019 (the corresponding impact on profit and loss is set out in Note 6):

 

 

As previously reported

IFRS 16 adjustments

As restated

 

$'000

$'000

$'000

 

 

 

 

Right-of-use assets

-

346

346

 

_______

_______

_______

Net impact on total assets

-

346

346

 

 

 

 

 

 

 

 

Lease liabilities

-

(397)

(397)

 

___________

_______

_______

Net impact on total liabilities

-

(397)

(397)

 

 

 

 

Retained earnings

-

51

51

 

_______

_______

_______

Net impact on total liabilities and equity

-

346

346

 

The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

 

Right-of-use assets comprise leases over office buildings and vehicles as follows:

 

 

Office

buildings

Vehicles

Total

 

$'000

$'000

$'000

Cost

 

 

 

At 1 January 2019

-

-

-

Effect of change of accounting policy (IFRS 16)

557

-

557

Additions in the period

139

30

169

Effects of foreign exchange movements

(6)

1

(5)

 

_______

_______

_______

At 31 December 2019

690

31

721

 

 

 

 

Depreciation

 

 

 

At 1 January 2019

-

-

-

Effect of change of accounting policy

(212)

-

(212)

Charge for the period

(160)

(13)

(173)

Effects of foreign exchange movements

4

(1)

3

 

_______

_______

_______

At 31 December 2019

(368)

(14)

(382)

 

 

 

 

Net carrying amount

 

 

 

At 31 December 2019

322

17

339

At 1 January 2019

-

-

-

 

 

21  Trade and other receivables and contract assets

 

Aged analysis of trade receivables

 

At 31 December

Carrying amount

Neither impaired or past due

Past due (in days) but not impaired

 

 

 

61-90

91-120

More than 121

 

$'000

$'000

$'000

$'000

$'000

2019

 

 

 

 

 

Trade receivables

5,263

4,863

-

-

400

 

 

 

 

 

 

2018

 

 

 

 

 

Trade receivables

3,752

3,250

-

-

502

 

 

Contract assets

 

Due within one year

2019

2018

 

$'000

$'000

Contract assets at 1 January

72

-

Effect of change of accounting policy

-

-

Contract assets recognised in the period, net of releases to receivables or cash

108

72

Transfer from non-current contract assets

113

-

 

_______

_______

Contract assets at 31 December

293

72

 

 

Due after one year

2019

2018

 

$'000

$'000

Contract assets at 1 January

312

-

Effect of change of accounting policy

-

119

Contract assets recognised in the period

320

193

Transfer to current contract assets

(113)

-

 

_______

_______

Contract assets at 31 December

519

312

 

 

22  Other assets

 

At 31 December

2019

2018

 

$'000

$'000

Prepayments

109

125

Deposits

131

84

Other assets (including withholding tax, GST and VAT refunds)

261

173

 

_______

_______

Total other assets

501

382

 

 

23  Loans and borrowings

 

Loans and borrowings comprise:

 

At 31 December

2019

2018

 

$'000

$'000

Non-current liabilities

 

 

Secured term loans

362

382

 

_______

_______

 

362

382

Current liabilities

 

 

Current portion of term loans

79

69

Unsecured borrowings

167

-

 

_______

_______

 

246

69

 

 

 

Total loans and borrowings

608

451

 

The Group has four term loans, all in its operating subsidiary in India and denominated in INR. Each has an interest rate of 10%; they are repayable over 5 years from their inception, between January and July 2024.

 

 

24  Lease liabilities

 

Lease liabilities comprise liabilities arising from the committed and expected payments on leases over office buildings and vehicles.

 

Amounts due in less than one year

Office

equipment

Vehicles

Total

 

$'000

$'000

$'000

At 1 January 2019

-

-

-

Effect of change of accounting policy

124

-

124

Leases taken on in the period

43

17

60

Repayments of principal

(155)

(16)

(171)

Transfer from long-term to short-term

180

11

191

Effects of foreign exchange movements

1

-

1

 

_______

_______

_______

At 31 December 2019

193

12

205

 

 

Amounts due in more than one year

Office

equipment

Vehicles

Total

 

$'000

$'000

$'000

At 1 January 2019

-

-

-

Effect of change of accounting policy

273

-

273

Leases taken on in the period

97

12

109

Transfer from long-term to short-term

(180)

(11)

(191)

Effects of foreign exchange movements

(4)

-

(4)

 

_______

_______

_______

At 31 December 2019

186

1

187

 

 

25  Trade and other payables and contract liabilities

 

At 31 December

2019

2018

 

$'000

$'000

Due within a year

 

 

Trade payables

82

118

Other payables and provisions

441

463

Amounts due to related parties

-

28

 

_______

_______

Total trade and other payables

523

609

 

"Other payables" principally comprise provisions for taxation liabilities and other costs.

 

Contract liabilities

 

Contract liabilities represent consideration received in respect of unsatisfied performance obligations. Changes to the Group's contract liabilities are attributable solely to the satisfaction of performance obligations.

 

Due within one year

2019

2018

 

$'000

$'000

Contract liabilities at 1 January

61

-

Effect of change of accounting policy

-

20

Contract liabilities recognised/(released to revenue) in the period

564

1

Transfers from long-term liabilities

40

40

 

_______

_______

Contract liabilities at 31 December

665

61

 

 

Due after one year

2019

2018

 

$'000

$'000

Contract liabilities at 1 January

112

-

Effect of change of accounting policy

-

73

Contract liabilities recognised in the period

202

79

Transfers to short-term liabilities

(40)

(40)

 

_______

_______

Contract liabilities at 31 December

274

112

 

 

26  Other financial liabilities

 

As at 31 December

2019

2018

 

$'000

$'000

Contingent consideration on the acquisition of the Danateq Assets

 

 

- potentially due within one year

948

298

- potentially due after one year

-

1,141

 

_______

_______

 

948

1,439

 

Part of the consideration for the Danateq Acquisition in August 2018 was contingent on the achievement of certain stretch targets for revenue pertaining to the assets acquired ("Danateq Revenue"), payable (if earned) in two tranches in respect of the first year following completion of the acquisition (the "First Year Earnout") and similarly the second (the "Second Year Earnout"). The contingent amount payable under these arrangements was between $nil and $5m, with up to $3m payable in respect of the First Year Earnout and a further $2m in respect of the Second Year Earnout.

 

On acquisition these liabilities were provisionally assessed at an aggregate fair value of $1.43m (as discounted to the present value at the time of acquisition) based on a probability-weighted analysis of revenue expectations at the time and hence the likely outturn payments; this valuation was unchanged at end of the first measurement period (i.e. as at 31 December 2018) other than as due to the finance expense relating to the unwinding of the time-value discount.

 

At the end of the 6 months to 30 June 2019 the Directors reassessed this fair value due to the deferral of certain potential Danateq Revenue from the First Year Earnout to the Second Year Earnout; the reassessed value was $1.19m and the difference of $275,000 (gross of finance expense) reflecting (i) the derecognition of the then short-term liability in respect of the First Year Earnout and (ii) a corresponding increase to the then long-term liability in respect of the Second Year Earnout. The difference thus arising during the measurement period was credited to goodwill arising on acquisition.

 

At the end of the 6 months to 31 December 2019 the Directors further reassessed this fair value based on updated business projections and the likelihood of certain Danateq Revenue thus being either unlikely to be realised or to be deferred into subsequent years which would therefore not fall to be recognised under the terms of the acquisition. The resulting difference of $236,000 (gross of finance expense) arising on the reduction of this liability has been taken as an exceptional gain through profit and loss. The carrying value of this liability will continue to be reassessed at future reporting dates; in any event the liability is expected to be settled in or around October 2020.

 

 

30  Capital commitments and contingent liabilities

 

Other than as disclosed above, as at 31 December 2019 the Group had no material capital commitments (2018: nil) nor any contingent liabilities (2018: nil).

 

 

31  Events after the reporting date

 

There have been no events subsequent to the reporting date which would have a material impact on the financial statements.

 

 

 

 

General

 

Audited accounts

 

The financial information set out above does not comprise the Group or the Company's statutory accounts. The Annual Report and Financial Statements for the year ended 31 December 2018 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements ("Annual Report") for the year ended 31 December 2018 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

The Independent Auditors' Report on the Annual Report for the year ended 31 December 2019 is unqualified, does not draw attention to any matters by way of emphasis, and does not contain a statement under 498(2) or 498(3) of the Companies Act 2006.  The Annual Report will be filed with the Registrar of Companies following the annual general meeting.

 

The Annual Report, together with an notice of the annual general meeting, are expected to be made available to shareholders in May 2020.  Copies will also be available on the Company's website (www.pelatro.com) and from the Company's registered office at 49 Queen Victoria Street, London EC4N 4SA from that date.

 

As this summary announcement is extracted from the full financial statements, certain references may refer to notes which are not included herein, and the Notes section is not reproduced in full.

 

Related party transactions

 

No related party transactions have taken place during the year that have materially affected the financial position or performance of the Company or the Group.

 

Principal risks and uncertainties

 

The principal risks and uncertainties facing the Group together with actions being taken to mitigate them and future potential items for consideration will be set out in the Strategic Report section of the Annual Financial Report 2019.

 

Presentation of figures

 

Figures are rounded to the nearest $0.1m, $0.01m or $'000 as the case may be. Percentage increases or decreases stated above are based on the figures as rounded. Minor differences may arise in tabulation and figures presented elsewhere due to rounding differences.

 

 

This announcement was approved by the Board of Directors on 7 April 2020.

 

 

 

 [END]


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