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Vianet Group PLC (VNET)

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Tuesday 02 June, 2020

Vianet Group PLC

Final Results

RNS Number : 6050O
Vianet Group PLC
02 June 2020
 

 

 

2 June 2020

Vianet Group plc

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

 

Final Results

 

Vianet Group plc (AIM: VNET), the international provider of actionable data and business insight through devices connected to its Internet of Things platform ("IOT"), is pleased to announce its final results for the year ended 31 March 2020.

 

Financial highlights

· Revenue increased 3.8% to £16.28 million (2019: £15.68 million)

· Recurring revenues remain strong at 92% (2019: 94%,) being sustained by both contactless growth, maintained Smart Zones contribution and continued shift towards annuity-based sales from capital sales in Smart Machines

· Gross margin remained constant year-on-year at c. 68% (2019: 68%)

· Adjusted operating profit, pre-exceptional costs, amortisation and share based payments was up 4.5% to £4.03 million (2019: £3.86 million)

· Profit before taxation was £2.40 million post exceptional items (2019: £2.66 million), with profit after tax flat at £2.43 million (2019: £2.48 million)

· Basic earnings per share at 8.56 pence (2019: 8.87 pence)

· The Board decided to withdraw its recommendation to pay a final dividend due to COVID-19, which would amount to approximately £1.16 million. This makes a total dividend for the year of 1.70 pence (2019: 5.70 pence)

· Government business support measures being utilised including £3.5 million CIBL facility, Job Retention Scheme and loan repayment deferrals 

 

Divisional highlights

· Smart Machines adjusted operating profit of £1.53 million was up 8.5% (2019: £1.41 million)

· Smart Machines added 12,059 new connected devices (2019: 10,285)

· Three significant new 3 - 5-year contracts with leading vending operators. The combined contracts for 20,000 units will generate in the region of £10 million of revenue over the contract terms

· Smart Zones recurring revenue per device has increased 9.5% to £58.00 (2019: £52.99), reflecting the higher quality recurring revenue streams which has resulted from customers' disposal of relatively lower performing pubs during their estate rationalisation programmes

· Smart Zones average adjusted operating profit per device increased c. 7.5% to £19.39 (2019: £18.03), reflecting sustained profitability against a lower estate size

· Smart Zones adjusted operating profit of £4.57 million (2019: £4.48 million)

· Smart Zones Technology upgrades in 2,518 pubs (2019: 1,901 pubs) creating IOT hubs, with a further 900 in the pipeline for FY21


Commenting, James Dickson, Chairman of Vianet Group plc, said:

"I am pleased to report the Company's final results for the year ended 31 March 2020. Operationally, both divisions of the business have performed well. Smart Machines connections grew by c. 12,000 to c. 38,000 in the year, excluding the Vendman estate of c. 200,000 mobile connections. Our plan is to convert the majority of these Vendman connections to higher value Smart Machines connections, with some 8,600 now converted. Significantly, we also announced three significant new 3 - 5-year contracts with leading vending operators, which will generate in the region of £10 million of revenue over the contract terms.

 

"Despite continued pub disposals in the UK, our Smart Zones division maintained its profit contribution, helped by our Tech Refresh programmes, and we are delighted to note several key contract renewals, including Charles Wells, Greene King, Hawthorn, Hydes, JW Lees, and Punch. Having already received orders and enquiries for installations of new systems as we look to pubs reopening, we believe Smart Zones are well positioned to navigate the COVID-19 exit and recover strongly.

 

"From the very outset of the pandemic, our goal has been to preserve cash to ensure both business continuity and to enable ongoing investment in the business, with the aim of being strongly positioned for the COVID-19 exit phase. Whilst these are still early days, we are encouraged that April's trading performance was well ahead of our revised forecasts, and that the measures we have taken to protect the business have been successful, giving us confidence that we are well positioned to exit from the COVID-19 phase with momentum to accelerate our growth plans.

 

"As such, we would like to thank all Vianet employees for their efforts during this unprecedented time and we look forward to updating the market on our progress in due course."

 

- Ends -

 

An online analyst briefing given by Stewart Darling, Chief Executive and Mark Foster, Chief Financial Officer will be held today at 09.30hrs via Microsoft Teams.  Please contact [email protected] for details.

 

 

Enquiries:

Vianet Group plc

 

James Dickson, Chairman

Stewart Darling, CEO / Mark Foster, CFO

Tel: +44 (0) 1642 358 800

www.vianetplc.com

 

Cenkos Securities plc

 

Stephen Keys / Cameron MacRitchie

Tel: +44 (0) 20 7397 8900

www.cenkos.com  

 

 

Media enquiries:

Yellow Jersey PR

 

Sarah Hollins

Henry Wilkinson 

[email protected]

  Tel: +44 (0)7764 947 137

  Tel: +44 (0)7951 402 336

www.yellowjerseypr.com

 

COVID-19 ("C19") report

 

Proactive Initial Response to Management of C19

 

There is nothing like a crisis to create a common sense of purpose and provide an opportunity to demonstrate leadership.  From the very outset, our goal has been to preserve cash to ensure both business continuity and to enable ongoing investment in the business with the aim of being strongly positioned for the C19 exit phase. To this end we have been proactive on a number of fronts:

 

Commercial Approach

· The majority of our Smart Zones customers have signed up to a new and reduced weekly charge. The result of this variation is that approximately 25% of our recurring revenue income is protected. Prior to the mandatory pub closures by the Government, we contacted all of our customers to confirm our business continuity preparations and our commercial response to C19. These plans, which were well received by customers, provided the option to continue contracts at a reduced rate during shutdown rather than incur a more costly future reconnection charge. 

 

· For our Smart Machines customers, we proactively introduced reduced monthly charges for Vending machines with no activity. There have been mixed trading impacts for customers. Some vending machines, including those for essential workers, are trading very well, whereas those in city centre offices have seen little or no sales. For vending machines which are subject to lockdown in closed offices, we provided the option of a reduced weekly charge rather than the more costly option of a future reconnection. Encouragingly, approximately 70% of machines have remained active and we are seeing an increase in demand and usage of our contactless payment solution rather than 'dirty' coins.

 

· Both these initiatives have been extremely well received and bodes well for relationships during the exit and recovery phase from C19.

 

Technology

· We have been working hard in recent weeks to drive our Technology roadmap forward and also progress some exciting new product development opportunities, including potential new verticals for our contactless payment solution, new features for Smart Zones customers, and establishing a C19 sanitisation service for pubs and bars.

 

Government Assistance

· Vianet moved swiftly to utilise the Governments Job Retention scheme and almost 60% of our 155 employees are now furloughed, whilst the balance are working from home.  

 

· The business also secured a £3.5 million Coronavirus Business Interruption Loan ("CBIL") which provides some comfort should there be a prolonged recovery period. Our aim is that the CBIL will be used for maintaining investment in growth rather than day-to-day business.

 

Our People

· Systems and processes are in place to support both retained and furloughed employees through what may be difficult and mentally challenging times. Microsoft Teams is being used extensively to maintain strong two-way communication across the business to ensure that we keep everyone fully engaged regardless of status or role.

 

Taking account of our current cash, available resources and possible worst case forecasts, the actions that we have already taken will provide us with a healthy cash runway into 2021, protecting our business for a period well beyond official indications of the likely duration of the crisis.

 

Whilst these are still early days, we are encouraged that April's trading performance was well ahead of our prudent C19 re-forecasted loss, giving us confidence that we are well positioned going forward.

 

C19 exit strategy

 

The business impact of C19 has been markedly different in each of our divisions. 

 

For Smart Zones, the overnight closure of pubs meant that the full range of insight and analytics required to support compliance and retail services were temporarily no longer required by our customers. This has been a significant challenge: however it has also provided opportunities for a wider engagement with our customers and acceleration of our product roadmap. In addition to ongoing compliance information, our customers are increasingly seeking trading data to improve decision-making during the exit phase. There is also an increasing desire to embrace digital capability to improve efficiency and to enable more frictionless delivery both back of house and front of house to consumers.

 

By contrast, activity levels in our Smart Machines Division has seen only marginal declines due to many unattended retail assets being installed in sites where essential workers were still required.  Importantly we anticipate that the C19 crisis will accelerate the growing business requirement and industry trend for telemetry and contactless payment solutions.

 

Pub market recovery and implications for Smart Zones

 

Current thinking suggests that the mandatory closure of pubs could be removed as early as July with strict social distancing criteria required. 

 

The existing two metre social distancing guidelines would likely restrict capacity in a pub to around 30% of maximum, well below profitable levels. By contrast a move from the current two metres to one metre, now being used in France, will restrict capacity to around 70% of maximum. 

 

The social distancing requirements may put extreme pressure on the viability of city centre pubs whereas the average community-based leased and tenanted pubs are likely to fare better.

 

This could mean that some pubs will decide not to re-open whilst the existing social distancing measures remain in place.

 

It is also likely that some 15-20% of managed estates may also not open immediately, whilst others will only be able to open if they are successful in finding some way to effectively manage their existing cost base.

 

Our core Leased & Tenanted customers are likely to be highly proactive in exploring all possible avenues to ensure they find effective ways to re-open from the outset:

 

· Self-employed tenants are generally more entrepreneurial and creative than managers

· Tenants may be able to work longer hours to reduce staff costs

· Pubco's may be able to flex rents during the recovery period - with the potential to use Smart Zones data to validate trading levels

· Community-based pubs are more likely to work with locals to find ways to re-open effectively.

 

Whilst pubs may find ways of resuming operations, consumer confidence is likely to be impacted. A recent MCA Insight snap poll identified that a majority of consumers were either "worried" or "very worried" about the prospect of eating or drinking out.

 

In the absence of a vaccine, rebuilding consumer confidence is likely to require focus on three key areas:

 

· Hyper Clean - everything from cutlery to toilets - even sachets of ketchup will need to be clean and perceived as being clean.

· Frictionless - finding ways of demonstrating less handling of everything in the consumer experience, for example, drinks pre-ordering apps with serve at table.

· Employee welfare - effective PPE for staff and employee training and welfare.

 

Consumers will want to know that retailers are proactively managing the C19 threat.

 

Smart Zones are well positioned to navigate the C19 exit and recover strongly

 

We are currently running at 25-30% of weekly service pack charges during mandatory closure and we are working proactively to support our customers during this difficult time.

 

When pubs are allowed to re-open, albeit with social distancing conditions, we anticipate that:

 

· In those pubs remaining closed we will receive 30% of normal weekly charges.

· In pubs which are able to open we will invoice 70% of weekly charges for a period of time which will remain under review.

 

Draught beer insights will be vital to our customers in order to better understand tenant and lessee trading performance and patterns during the C19 exit phase. Consequently, we have already received orders and enquiries for installations of new systems.

 

Our Smart Zones product roadmap has been accelerated during the crisis to bring new features and functionality which will generate increased customer interest. These include automated line cleaning manager, automated till variance alerts, market data provision, and interface with labour management.

 

In the past month, in partnership with Filta Group Holdings plc, we have introduced Vianet Smart Shield, which is a C19 sanitisation service which kills C19 and provides 30-day protection. The solution utilises an existing certified product and vapour applicator. Initial interest has been encouraging and we are also introducing to vending operators for sanitisation of keypads. Whilst very early days, we see this as an opportunity to help our customers and allow our field engineers to provide a valuable service.

 

Smart Machines to accelerate growth during C19 exit

 

Unattended machines have been operating in sites for essential workers, with a material increase in the use of contactless payments. We strongly believe that the trend away from cash payments will accelerate post lockdown, increasing the requirement for remote connection to unattended retail assets.

 

We have made a significant investment in additional sales and marketing capability in addition to increasing investment in the product roadmap.

 

The Group has the cash to invest in growth through C19 exit phase

 

We have conservatively modelled our cash forecasts on a range of recovery scenarios over varying periods of time with a return to more normal trading in the second half of FY21. This includes a full review of cash and bank facilities and all trade debt and receipts post 31 March.

 

A CBIL scheme facility of £3.5 million was signed for on 26 May 2020. Combined with the measures already taken the Group is confident that it has funding to support business cash requirements and ongoing investment in growth for a period significantly beyond the next 12 months.

 

We have assumed no reduction in staff, but this will be reviewed on an ongoing basis during the easing of lockdown and resumption of business.

 

 

 

Chairman's Statement

 

Performance

 

I have been very pleased with how Vianet and its employees have responded to this crisis, and the actions implemented to ensure Vianet comes through the C19 exit phase with momentum to accelerate our growth plans.

 

Prior to C19, the Group has made very good progress towards delivery of earnings momentum and continues to benefit from the focus on exploiting growth opportunities in the Smart Machines division whilst delivering a solid performance in the Smart Zones division.  

 

Group turnover was £16.28 million (2019: £15.68 million) and adjusted operating profit was up by 4.5% at £4.03 million. Group profit before taxation was £2.40 million post exceptional items (2019: £2.66 million), with profit after tax flat at £2.43 million (2019: £2.48 million). Our Smart Machines division's move from Capex to an Opex annuity only model had the short-term impact of reducing FY2020 turnover by £0.73 million and profit by £0.40 million. However, there will be a significant long-term benefit for future recurring income streams and the visibility of profits.

 

Net exceptional cost was minimal (2019: net credit £0.22 million) as the release of the Vendman acquisition deferred consideration provision was offset by costs associated with staff transition, corporate restructuring, network obsolescence, and loan impairment. Whilst there has been a £1.45 million overall write back on the Vendman earn out provision, including £1.08 million in the period, we are delighted with the progress and momentum in this part of the business against what was a stretching earn out which concluded at H1 2020 period end.

 

Basic earnings per share was 8.56p (2019: 8.87p).

 

Despite the strong financial position of the Group, given the level of uncertainty as to how the C19 exit and recovery phase will develop and alongside the other measures we are taking to preserve the Company's cash position, the Board withdrew its recommendation to pay a final dividend at the forthcoming AGM, which would amount to approximately £1.16 million. This makes a total dividend for the year of 1.70 pence (2019: 5.70 pence). 

 

The Board will review this decision again later in the year once the outlook becomes clearer, however our goal remains to re-introduce the dividend as soon as it is practical and prudent to do so.

 

The Board recognises that this is a significant decision but believes that it is an appropriate and prudent measure to take at this point as the Group seeks to preserve its strong liquidity, cash flow, and financial position through these uncertain times.

 

Board and Staff

 

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

 

We continue to evaluate and develop the Group's management team who in addition to navigating C19 are focused on executing against the exciting growth opportunities for Vianet's IOT expertise and technology.

 

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

 

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

 

Conclusion and Outlook

 

Ahead of the impact of the C19 restrictive measures introduced in March by the Government, momentum and performance of the Group had been encouraging across both divisions.

 

Whilst the start to the new financial year has been challenging, initial results have been encouraging with losses being well lower than forecast, and the Group is very well equipped to weather this storm and emerge with even stronger customer relationships and growth prospects.

 

It is worth re-iterating that through the C19 exit phase the Group remains in good shape to resume strong earnings growth and pick up the solid momentum that was building into FY2021 in order to deliver on our exciting growth opportunities. 

 

· Smart Machines' leading end-to-end product suite and established presence is continuing to create strong growth opportunities across UK and Europe, having already gained long-term contracts with major global and national customers, coupled with the opportunities from the now integrated business and estate of Vendman. 

 

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

 

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

 

· Smart Zones will continue to complete the customer technology upgrade programs through FY2021 and will benefit greatly from our recent infrastructure investment. This will allow our Smart Zones division to maintain its existing profit contribution whilst taking advantage of improving growth prospects both in the UK pub market and the significant US hospitality market.

 

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

 

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

 

In the meantime, the Board's absolute focus is on ensuring that Vianet comes through this global crisis in a position to continue to take advantage of its exciting growth opportunities, whilst maintaining the health, well-being and safety of our employees and customers.

 

James Dickson  

Chairman     

 

Strategic Report

 

Our core strategy centres on IOT and the collection and collation of customers' asset data, to deliver actionable insight and analytics that drive improved operating performance for businesses, machine owners and operators in our chosen market segments.

 

By connecting and analysing an increasing number of remote assets, Vianet is able to deliver insights and analytics that support better decision-making, enabling customers to improve their key asset utilisation and performance metrics.

 

Combined with a leading-edge contactless payment capability to support sales growth in unattended retail machines, Vianet is well placed to strengthen its position in this rapidly developing area. 

 

Whilst our focus is predominantly on delivering insight and analytics, hardware and software remain critical components in enabling remote assets to be connected. To support this our IOT platform has evolved in a manner that supports much greater flexibility of device connection and data connectivity to the extent that it is now possible to connect a range of business critical third-party devices and not just those we supply. Underpinning this is our ability to collaborate with customers to identify compelling end-to-end solutions to address business opportunities. This rich combination of capabilities will enable us to drive sustained business growth over the coming years.

 

The process of developing and promoting end-to-end solutions has also been supported by a conscious and strategic choice to explore partnerships with industry leading third-party technology providers such as Elavon and OTI, rather than attempt to replicate technologies and market knowledge that already exist.

 

In the last year, the Group has continued to take positive steps forward to execute key elements of our growth plan and secure new business. One of our key strategic goals is to accelerate growth and improve revenue visibility by continuing to migrate to an Opex annuity model where hardware is effectively leased and not purchased, thereby aligning payment out of customers' cash flow. The result of this will be an increase in the quality, visibility and longevity of earnings for the Group.

 

The transition from higher value one off capital sales to regular smaller payments over the contract duration hits turnover and profit in the short term but has a positive impact in the longer term. Typically, the Opex model will deliver 1.3x the profit of an outright sale over the life of the device. In this financial year, on a like for like basis, the impact was a reduction of c. £726,000 in turnover and c. £370,000 in profit. 

 

Smart Machines

 

Conversion of the Vendman estate to higher value Smart Machines connections will be further accelerated through a significant increase in resource in the commercial team towards the end of the financial year. There are now c. 200,000 vending machines in the Vendman estate, the vast majority of which are not yet connected via a real-time device. To date we have connected almost 8,600 (c. 3.8%) of these machines which leaves a significant conversion runway that will be addressed in the coming year, principally through increased marketing and commercial efforts.

 

This will further accelerate the roll out of our contactless payment solution which drives increased machine utilisation and sales. The growth of non-cash transactions is accelerating with contactless payments giving customers a fast, easy and secure transaction in a world where fewer people are carrying cash. Retailers benefit from reduced cost of cash handling, improved cash flow and an assured payment. This trend is likely to accelerate further as a result of the C19 crisis.

 

I am encouraged by our continued progress in Continental Europe with key customers and significant major distributors, all of which enhances our route to market and distribution opportunities through establishing a strong network and footprint with distributors and machine suppliers.

 

Smart Zones

 

We are proactively supporting our clients during these difficult times through temporarily reduced fees and adapting our contract terms. As the lockdown begins to be relaxed and the pub and hospitality sectors re-open we believe that the insights and analytics offered by our iDraught offering will be especially valuable, helping to optimise revenues and minimise costs. We are seeing an increased level of interest in new analytics and insights to support management decision making and we are exploring an exciting range of new services specifically designed to help clients during this unprecedented crisis.

 

Operating Review

 

Smart Zones

 

We saw modest growth in the operating profit of our drinks monitoring and support services solutions for the UK Hospitality sector supported by high gross margins and strong cash generation.

 

In the period, technology upgrades to our fourth generation IOT hubs were completed in 2,519 pubs (FY20: 1,901) with a potential further c. 900 to complete in the pipeline for FY2021. This progress in deploying new technology capability has also created a healthy pipeline of installs for the next 12 months or so which will help sustain the divisional contribution. Despite customers being focused on this high level of technology upgrade activity, we still carried out 151 new site installations, which was ahead of the 88 new installations in the prior year.

 

UK pub disposals have continued but it is encouraging that the rate of disposal has slowed (FY 2020: 838 and FY 2019: 911). The resulting impact is that there was a net reduction of 687 (FY 2019: 823) licenced premises in our installation base over the financial year, with a consequential impact on operating contribution.

 

However, our Smart Zones connected device base remains significant with c. 186,000 devices in c. 12,000 premises in the UK and USA, and with evermore granular levels of data from our fourth generation IOT hubs, we are better placed than ever to offer insight and analytics delivered via our website and mobile applications. This is particularly relevant for the provision of retail data for Brewers where we are now contracted with the Oxford Partnership to deliver ground-breaking insight that will support consumer level decision making in respect of beer brands.

 

Whilst we focus on strengthening our recurring income streams , pub companies are also adapting to the changing landscape through different strategies, such as developing managed estates from high performing or strategically located properties and creating franchised models with increased operating performance potential and greater transparency.

 

The past year has also seen significant level of corporate activity with the acquisition of major pub companies by Private Equity . Consequently, we expect to see increased focus on operational and retail performance in pubs with the aim of driving greater value. This will play to the strengths of our operational and retail analytics and insight toolsets against which we will likely be targeting investment expenditure.

 

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

 

The Vianet Americas business achieved break even on £0.4 million of revenue and we look to build on this going forward.  

 

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

 

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

 

The opportunity for the Company remains significant in the world's largest single operator market, and while progress is slower than anticipated, the Company remains committed to establishing a US profit centre.

 

The combination of strong recurring revenues from long term contract extensions, a robust cost base and margin management offset by the lower turnover resulting from pub closures enabled the Group to maintain profit contribution year-on-year. Overall, the Board remains confident that the Smart Zones division will not only maintain its significant contribution but also has the potential to grow further post C19.

 

Smart Machines 

 

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

 

In this combined division we are now driving growth in the unattended retail market by delivering market-leading analytics and insight in premium coffee and snack & can channels from new device connections to assets and roll-out of contactless payment capability. This is supported by increasing recognition from vending operators that the use of cash by consumers continues to decline and that the ability to manage the operation efficiently and effectively is being materially inhibited by the pricing inflexibility of cash and the continued reliance on frequent and costly machine visits.

 

We secured long term contracts with fast growing major industry operators, which contributed to an overall operating profit growth of 8.5% to £1.53 million in the year. The shift from capital sales to Opex effectively reduced profit by £373,000.

 

This gives us confidence that the transition from capital sales to an Opex model will be well supported by customers, giving the Company a more balanced mix of revenues and greater profit potential over the longer term.

 

Our strategy is to continue to drive more annuity income sales, to improve the quality and visibility of earnings, but we recognise that the business model must be able to adapt to meet different customer requirements. Whilst turnover for the year was held back by annuity sales there was also a year on year increase in Capex sales during the period. This sales mix resulted in the portion of recurring revenues reducing from 87% to 78%.

 

Total Smart Machine connections grew by just over 12,000 devices in the year, helped by the highly encouraging roll-out of our cloud-based contactless payment solution which is driving an average sales growth of around 17% per unattended retail machine for our customers. This acceleration is also unlocking further growth opportunities through the provision of analytics and insight to machine operators who wish to unlock more value from their assets and overall operation.

 

The market opportunity remains extensive even when limited to the immediately addressable market projections of over 300,000 vending machines in the UK. Beyond this, it is estimated that the addressable market in mainland Europe is nearer 3 million machines. As technology adoption evolves, and the benefits of insight and analytics in the vending sector become more widely recognised, it is anticipated that more of the addressable market will embrace the technology and the corresponding opportunity.

 

Our contactless payment solution, is supported by leading industry partners, Elavon and NMI. This was further evolved in the year when our PCI Master Merchant status was granted and launched, allowing us to speed up the on-boarding of customers for payment capability. Contactless payment remains a very attractive solution to the marketplace where traditional cash-only payments have long been an inhibitor of vending-related consumption, usage and customer experience. We believe the evolution and growth of contactless payment solutions will materially change this dynamic and attract more consumers to the vending vertical, which will accelerate post C19.

 

In summary, the prospects for our Smart Machines business are extremely positive, and we expect that Vianet's analytics and insight delivered from data harvested from unattended retailing assets and evolving contactless payment solution will continue to provide exciting growth opportunities.

 

R&D Investment

 

The Group continued to invest in the development of its technology and capabilities with accelerated activity in the year. Development has ranged from customer experience enhancements through to revenue generating analytics and insights from new platforms which allow us to leverage new revenue streams, and provide the ability to operate a cloud based self-service model.

 

Simultaneously, it has allowed us to gradually migrate from legacy systems and software to a cloud-based environment. We have now migrated all our Smart Machines customers to the new platform and expect to migrate our historic Smart Zones division in the coming months.

 

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

 

Looking Forward

 

Whilst it is difficult to ignore the short-term impact of C19, it is equally important to acknowledge that its impact may be short term and that we will return to the levels of growth the Group has enjoyed for the past 5 years. In short, the Group is well placed to operate within the anticipated "new normal" of a post C19 landscape. 

 

Beyond C19, the business is strongly placed to benefit from its proven track record of converting data gathered from its IOT devices into analytics and insight that drive better decision-making for customers aimed at improving asset utilisation and increased profitability.

 

Smart Machines will continue to leverage its strong portfolio of products and services to existing customers across Europe and the recent significant investment in commercial resource will add further momentum. Our new cloud and mobile capability will continue to transform what we deliver to customers and will facilitate rapidly scalable growth in existing and new vertical markets. Our contactless payment solution and introduction of our PCI Master Merchant scheme, combined with declining use of cash by consumers and rapid adoption of technology by brand owners and machine operators, positions this division for strong year-on-year growth.

 

The Smart Zones division will strive to maintain contribution from the UK pub market, helped by new technology upgrades for existing customers, which will enhance existing income streams and unlock further opportunities for enhanced analytics and insight. The arrival of Private Equity into the pub market is expected to drive greater focus on operating and retail performance, areas in which we are well placed to deliver value for customers.

 

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

 

Stewart Darling

Chief Executive Officer

 

 

 

Financial Review

 

Pre C19


Growing Profitability

 

Group operating profit, pre-exceptional costs, amortisation and share based payments was up 4.5% to £4.03 million (FY2019: £3.86 million).

 

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

 

The average operating profitability per connected device has grown 6.9% to £17.96 (2019: £16.80). This KPI is measured by taking full year operating profit before amortisation, share based payments and exceptional items and dividing by the total number of connected devices at the year end.

 

Turnover

 

Turnover increased by 3.8% principally from growth in Smart Machines division despite it being held back by c. £0.73 million due to the shift from Capex to Opex. Smart Zones division had modest year on year growth despite being impacted by the ongoing decline in pub numbers, albeit the rate of closure has slowed year on year.

 

Recurring Revenue

 

Recurring revenue is measured by taking full year revenue from service packs, licenses, rentals and technology upgrades, as per Note 3.

 

Consolidated recurring revenue across the two divisions remained strong at 92% (2019: 94%), being sustained by contactless growth, maintained smart zones contribution and a continued strategic shift towards an Opex annuity-based sales model in Smart Machines, albeit with a more balanced mix in the year.

 

Impacted positively by higher value technology upgrades in Smart Zones the average recurring revenue per connected device has grown 7.4% to £59.18 (2019: £55.12). This KPI is measured by taking full year recurring revenue and dividing by the total number of connected devices at the year end.

 

Performance Summary

 

PBT was down 9.8% at £2.40 million (2019: £2.66 million) principally from higher intangible amortisation of R&D costs in the year. The table below shows the performance of the Group;

 

 

FY2020

FY2019

Change %

Revenue

£16.28m

£15.68m

3.8

Operating profit(a)

£4.03m

£3.86m

4.4

 

 

 

 

Profit after tax

£2.43m

£2.48m

(2.0)

Basic EPS

8.56p

8.87p

(3.5)

 

Dividend per share

 

1.70p

 

5.70p

 

Net debt (b)

£0.95m

£1.20m

 

 

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

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

 

Exceptionals

 

 

FY2020

'£000

FY2019

'£000

 

 

 

 

People and office rationalisation

415

163

Network obsolescence costs

50

107

Deferred consideration release

 

(1,086)

 

(530)

Loan impairment

200

-

Corporate Activity

311

-

Other items

109

38

Total

(1)

(222)

 

Net impact was negligible overall, with a deferred consideration release in relation to the Vendman acquisition, offset by staff rationalisation costs, network obsolescence costs and corporate activity costs in the main.

 

Dividend

 

Due to C19 the Board has not proposed a final dividend giving a total dividend for the year of 1.70 pence (2019: 5.70 pence).

 

Dividend cover has not been calculated due to the dividend being suspended due to C19 (2019: circa 1.56).

 

Cash

 

Net cash generation pre-working capital movements and LTIP taxation payments was down 6.3% to £3.74 million (2019: £4.01 million), impacted by the net movement between amortisation, depreciation and the Vendman deferred consideration release.

 

Relatively stable working capital, together with the unwinding of the working capital investment in FY19, has meant that after working capital movements but before LTIP taxation payment there was an operational cash generation of £4.23 million versus £2.06 million last year. Operational cash generation post LTIP taxation payment was £4.22 million (2019: £1.56 million).

 

The cash generated was principally used to service accelerated R&D investment, dividend payment, servicing of borrowings and deferred consideration payment, offset by Treasury and share option sale proceeds which resulted in a much-reduced outflow of £0.42 million (2019: £3.12 million outflow).

 

At the year end, pre-mortgage and the acquisition loan, the Group had net cash including overdraft of £0.38 million (2019: £0.80 million) and net debt of £0.95 million (2019: £1.20 million). 

 

C19

 

C19 has impacted our business as referred to in the C19 Report where the actions taken to mitigate the impact have been presented. In addition to the borrowing we had at the year end, we have secured a £3.5 million CBIL. Following the CIBL we now have solid cash runway forecasts well into 2021, which will underpin our business strategy and allow us to return to our growth plans. 

 

The going concern section of the report and accounts makes reference to this, but based on known factors, the actions taken, and the funding secured, we are well placed to navigate C19 successfully and exit with momentum.

 

Divisional Performance

 

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

 

Smart Zones

 

 

FY2020

FY2019

Change %

Turnover

£11.06m

£11.00m

0.5

Operating profit(a)

£4.57m

£4.48m

2.0

Profit before tax

£3.75m

4.06m

(7.6)

Total connected devices

186,554

202,513

(7.9)

New Installation sales

151

88

71.6

YE Net premises(b)

c12,000

c12,600

(4.8)

iDraught penetration(b)

26.6%

27.0%

 

 

 

 

 

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

b)  UK, USA and Europe only

 

Turnover mix is shown below with recurring revenue being 98% (2019: 97%)

 

Recurring revenue per device has increased 9.5% to £58.00 (2019: £52.99) reflecting the higher quality recurring revenue streams which has resulted from our customers' disposal of relatively lower performing pubs during their estate rationalisation programmes.

 

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

 

Average adjusted operating profit per device (above) has increased circa 7.5% to £19.39 (2019: £18.03) reflecting sustained profitability against a lower estate size.

 

The Smart Zones division has performed well against a challenging pub market backdrop that resulted in a net estate reduction of 687 sites (2019: 823) to circa 11,600 (2018: 12,300) in the UK and Europe (excluding USA).

 

Despite this we were able to maintain Smart Zones operating profit at £4.57 million (2019: £4.48 million).

 

Smart Machines

 

The Smart Machines division consists of telemetry and contactless monitoring predominantly in the vending sector, as well as ERP and mobile connectivity services from the Vendman integration.

 

 

FY2020

FY2019

Change %

Turnover

£5.22m

£4.68m

11.5

Operating profit (a)

£1.53m

£1.41m

8.5

Profit before tax (b)

£2.09m

£0.98m

113.3

 

 

 

 

New Telemetry connections

3,111

2,485

25.2

New Contactless connections

8,948

7,800

14.7

YE Net estate (c)

C38,000

c27,000

40.7

 

 

 

 

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

b)  FY2020 includes £1.09 million of deferred consideration release (2019: £0.53 million)

c)  Excludes circa 200,000 Vendman connections. 

 

Turnover mix is shown in the chart below. Recurring revenues were 80% of turnover (2019: c. 87%) impacted by year-on-year Capex sales being higher in the year.

 

New contactless connections in our Smart Machines division continued to show good progress. New connected devices grew by 14.7% to 8,948 an increase of 1,148 year on year. The estate figures reflect the net movement shown above.

 

Average recurring revenue per device was £64.40 (2019: £71.11) principally due to the mix of estate, with a more balanced split between Capex and annuity sales in the year. As stated previously we consider this to be an evolving growth story, with overall turnover and profit growth trends being driven by increased penetration of our contactless solutions.

 

There was a reduction in profit per device to £40.32 (2019: £52.13). This was due to higher one-off income from development fees in FY19 versus FY20, as well as a large competitively priced order, increased investment in commercial sales resource in Q4 and some legacy Vendman debt provisions which were prudently taken at the time of the earn out closing. 

 

Taxation

 

The Group has continued to utilise available tax losses during the year resulting in no tax being paid (2019: £nil). The Group will continue to utilise the available tax losses carried forward into FY2021. In the financial year under review, the tax line includes a deferred tax credit of £0.03 million (2019: tax charge of £0.18 million) recognising the impact of the tax losses available and being utilised.

 

Earnings per share

 

Basic EPS was 8.56 pence compared to 8.87 pence in 2019. This small fall was principally due to an additional c. £0.20 million intangible asset amortisation for R&D, c. £0.14 million bad debt provisions for C19 and Vendman earn out, together with the weighted average number of shares increasing by c. 451,000 in the year.

 

Balance sheet and cash flow

 

The Group balance sheet remains strong.

 

The Group generated operating cash flow (pre LTIP tax payment) of £4.23 million (2019: £2.06 million).

Helped by Treasury and Share option sale proceeds the cash generated in FY2020 was used to accelerate the Group's technology plans, to service borrowings, and fund the final payment for Vendman and the share dividend.

 

At the year end, the Group had borrowings of £1.33 million (2019: £1.99 million), and net debt of £0.95 million (2019: £1.20 million) with a post balance sheet borrowing of £3.5m in relation to a Coronavirus Business Interruption Loan facility.

 

Our strong balance sheet and capacity to generate cash provides the Company with a solid base to pursue the significant growth opportunities that have been identified.

 

Mark Foster

Chief Financial Officer

 

Business Risk

 

In normal circumstances, the Board and senior management review business risk at least half yearly.  Prior to the impact of C19, the Directors had considered the areas of potential risk in assessing the Group's future prospects. On the basis of their review, and having considered various factors such as market conditions, they believe that the business is of sound financial footing and has a sustainable operating future. In particular they note that the business has achieved an acceptable result in the year despite the difficult trading conditions for the pub sector, and overall market confidence in liquidity and credit.

 

In addition to C19 which is covered earlier, the Directors consider that material business risks are limited to:

 

· The ongoing impact of well publicised headwinds in the pub retailing market.

· The potential for a cyber security breach where data security is compromised resulting in unauthorised access to information which is sensitive and/or proprietary to Vianet or its customers. This threat is in common with most technology businesses, however both short term and long-term mitigation plans are in place. Payment Card Industry Data Security Standard (PCI DSS - Level 1) highest level of compliance has already been achieved to support the Group's contactless payment solutions.

 

Key performance indicators

 

 

 

Actual

Actual

 

Target

2020

2019

Percentage of revenue from recurring income streams1

80%

92%

94%

Gross Margin2

70%

68%

68%

Employee Turnover3

2%

2.1%

2.1%

 

Notes to KPIs

 

1 Percentage of revenue from recurring income streams = recurring income streams as a percentage of all income streams. Group trading companies aim to increase shareholder value through growth in revenue, linked to profitability (see Gross Margin below). Source data is taken from management information. The recurring contractual nature of the company's income stream has led to continued improvement in performance versus target. The achievement of this target depends on the mix of new hardware sales versus on going recurring revenue.

 

2 Gross Margin = Gross profit as a percentage of revenue. Group trading companies aim to generate sufficient profit for both distribution to shareholders and re-investment in the company, as measured by Gross Margin. Source data is taken from the audited financial statements. The above gross margin represents continuing operations excluding the margin impact of the fuel business which operated on lower margins. It is important to recognise the margins we achieve are a reflection of the direct cost of sale and not do not include some of the key infrastructure overheads required to provide the services to our customers.

 

3 Employee Turnover = Group trading companies aim to be seen as a good, attractive employer with positive values and career prospects, measured against internal People & Development reports. In addition to normal employee turnover, the figure also includes employees leaving as a result of business rationalisation activity.

 

The Strategic Report includes the above sections on Business risks and KPI.

 

C19

 

Despite the current uncertainty surrounding C-19, this report has sought to outline our approach to managing and mitigating its impact and risk and we remain confident of the future path for our business.

 

On behalf of the Board

 

Stewart Darling

Chief Executive Officer

 

 

 

Consolidated Statement of Comprehensive Income for the year ended 31 March 2020

 

 

 

 

 

 

 

 

Before Exceptional

2020

£000

 

 

 

 

 

 

 Exceptional  2020

£000

 

 

 

 

 

Total

 2020

£000

 

 

 

 

 

Before Exceptional  2019

£000

 

 

 

 

 

Exceptional  2019

£000

 

 

 

 

 

Total

  2019

£000

 

Note

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

 

 

 

 

 

Revenue

 

16,282

-

16,282

15,683

-

15,683

Cost of sales

 

(5,164)

-

(5,164)

(5,023)

-

(5,023)

 

 

 

 

 

 

 

 

Gross profit

 

11,118

-

11,118

10,660

-

10,660

 

 

 

 

 

 

 

 

Administration and other operating expenses

 

 

(7,088)

 

1

 

(7,087)

 

(6,805)

 

222

 

(6,583)

 

 

 

 

 

 

 

 

Operating profit pre amortisation and share based payments from continuing operations

 

 

4,030

 

1

 

3,855

 

222

 

4,077

 

 

 

 

 

 

 

 

Intangible asset amortisation

 

(1,390)

-

(1,390)

(1,192)

-

(1,192)

Share based payments

 

(125)

-

(125)

(132)

-

(132)

 

 

 

 

 

 

 

 

Total administrative expenses

 

(8,603)

1

(8,602)

(8,129)

222

(7,907)

Operating profit

 

 

2,515

 

1

 

2,516

 

2,531

 

222

 

2,753

 

 

 

 

 

 

 

 

Net finance costs

 

(113)

-

(113)

(95)

-

(95)

 

 

 

 

 

 

 

 

 

 

Profit from continuing operations before tax

 

 

 

2,402

 

 

1

 

 

2,403

 

 

2,436

 

 

222

 

 

2,658

 

 

 

 

 

 

 

 

Income tax credit/(expense)

1

28

-

28

(178)

-

(178)

 

 

 

 

 

 

 

 

Profit and other comprehensive income for the year

 

 

2,430

 

1

 

2,431

 

2,258

 

222

 

2,480

Earnings per share

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

- Basic

3

 

 

8.56p

 

 

8.87p

 

 

 

 

 

 

 

 

- Diluted

3

 

 

8.47p

 

 

8.80p

 

 

 

 

 

 

 

 

Continuing Operations

 

 

 

 

 

 

 

- Basic

3

 

 

8.56p

 

 

8.87p

 

 

 

 

 

 

 

 

- Diluted

3

 

 

8.47p

 

 

8.80p

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheet at 31 March 2020

 

 

 

 

2020

£000

2019

£000

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

Goodwill

 

 

 

17,856

17,975

Other intangible assets

 

 

 

5,505

4,875

Property, plant and equipment

 

 

 

3,795

3,503

Deferred tax asset

 

 

 

510

313

Total non-current assets

 

 

 

27,666

26,666

Current assets

 

 

 

 

 

Inventories

 

 

 

1,491

1,670

Trade and other receivables

 

 

 

3,544

3,669

Cash and cash equivalents

 

 

 

1,728

1,788

 

 

 

 

6,763

7,127

Total assets

 

 

 

34,429

33,793

Equity and liabilities

 

 

 

 

 

Liabilities

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

 

2,710

4,138

Leases

 

 

 

64

-

Borrowings

 

 

 

2,011

1,652

Tax

 

 

 

-

-

 

 

 

 

4,785

5,790

Non-current liabilities

 

 

 

 

 

Other payables

 

 

 

117

139

Leases

 

 

 

35

-

Borrowings

 

 

 

670

1,333

Deferred tax

 

 

 

1,141

972

 

 

 

 

1,963

2,444

 

 

 

 

 

 

Equity attributable to owners of the parent

 

 

 

 

 

Share capital

 

 

 

2,895

2,874

Share premium account

 

 

 

11,709

11,530

Share based payment reserve

 

 

 

364

314

Own shares

 

 

 

-

(754)

Merger reserve

 

 

 

310

310

Retained profit

 

 

 

12,403

11,285

Total equity

 

 

 

27,681

25,559

 

 

 

 

 

 

Total equity and liabilities

 

 

 

34,429

33,793

 

Consolidated Statement of Changes in Equity for the year ended 31 March 2020

 

Share capital

Share premium

account

 

 

Own

shares

Share

based

payment

reserve

 

 

Merger

reserve

Retained profit

Total

At 1 April 2018

2,872

11,519

(1,114)

483

310

10,944

25,014

Dividends

-

-

-

-

-

(1,585)

(1,585)

Issue of shares

2

11

-

-

-

-

13

Share based payments

-

-

-

132

-

-

132

Share option forfeitures

-

-

-

(2)

-

2

-

LTIP exercise

-

-

360

(299)

-

(556)

(495)

Transactions with owners

 

2

 

11

 

360

 

(169)

 

-

 

(2,139)

 

(1,935)

Profit and total comprehensive income for the year

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,480

 

 

2,480

Total comprehensive income less owners transactions

2

11

360

(169)

-

341

545

 

 

 

 

 

 

 

 

At 31 March 2019

2,874

11,530

(754)

314

310

11,285

25,559

 

 

 

 

 

 

 

 

At 1 April 2019

2,874

11,530

(754)

314

310

11,285

25,559

Dividends

-

-

-

-

-

(1,604)

(1,604)

Issue of shares

21

179

-

-

-

-

200

Share based payments

-

-

-

125

-

-

125

Share option forfeitures

-

-

-

(43)

-

43

-

LTIP exercise

-

-

12

(32)

-

3

(17)

Disposal of own shares

-

-

232

-

-

83

315

Disposal of treasury shares

-

-

510

-

-

162

672

Transactions with owners

 

21

 

179

 

754

 

50

 

-

 

(1,313)

 

(309)

Profit and total comprehensive income for the year

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,431

 

 

2,431

Total comprehensive income less owners transactions

21

179

754

50

-

1,118

2,122

 

 

 

 

 

 

 

 

At 31 March 2020

2,895

11,709

-

364

310

12,403

27,681

 

Consolidated Cash Flow Statement for the year ended 31 March 2020

 

Note

2020

£000

2019

£000

Cash flows from operating activities

 

 

 

Profit for the year

 

2,431

2,480

Adjustments for

 

 

 

Net interest payable

 

113

95

Income tax (credit)/expense

 

(28)

178

Amortisation of intangible assets

 

1,390

1,192

Depreciation

 

674

450

Deferred consideration release

 

(1,088)

(530)

Loss on sale of property, plant and equipment

 

3

14

Goodwill write off

 

119

-

Share based payments

 

125

132

Tax payment in respect of LTIP

 

(17)

(495)

Operating cash flows before changes in working capital and provisions

 

3,722

3,516

Change in inventories

 

178

(583)

Change in receivables

 

125

(423)

Change in payables

 

191

(948)

 

 

494

(1,954)

Cash generated from operations

 

4,216

1,562

Net cash generated from operating activities

 

4,216

1,562

Cash flows from investing activities

 

 

 

Purchases of property, plant and equipment

 

(969)

(801)

Purchases of intangible assets

 

(2,020)

(1,538)

Net cash used in investing activities

 

(2,989)

(2,339)

Cash flows from financing activities

 

 

 

Net interest payable

 

(113)

(95)

New leases

 

239

-

Repayment of leases

 

(141)

-

Issue of share capital

 

200

13

Disposal of own shares

 

988

-

Payment of deferred consideration

 

(552)

(21)

Repayments of borrowings

 

(661)

(659)

Dividends paid

2

(1,604)

(1,585)

Net cash used in financing activities

 

(1,644)

(2,347)

Net decrease in cash and cash equivalents

 

(417)

(3,124)

Cash and cash equivalents at beginning of period

 

798

3,922

Cash and cash equivalents at end of period

 

381

798

 

 

 

 

Reconciliation to the cash balance in the Consolidated Balance Sheet

Cash balance as per consolidated balance sheet

 

1,728

1,788

Bank overdrafts

 

(1,347)

(990)

Balance per statement of cash flows

 

381

798

 

 

Notes to the financial statements

 

1. Taxation

Analysis of charge in period

 

2020

£000

2019

£000

Current tax expense

 

 

- Amounts in respect of the current year

-

-

- Amounts in respect of prior periods

-

-

 

-

-

 

 

 

Deferred tax (credit)/charge:

 

 

- Amounts in respect of the current year

(9)

174

- Amendment re-recognition of losses

(19)

4

 

 

 

Income tax charge

(28)

178

 

Reconciliation of effective tax rate

The tax for the 2020 period is lower (2019 was lower) than the standard rate of corporation tax in the UK (2020: 19% and 2019: 19%). The differences are explained below:

 

 

2020

£000

2019

£000

Profit before taxation

- Continuing and discontinuing operations

2,403

2,658

 

 

 

Profit before taxation multiplied by rate of corporation tax in the UK of 19% (2019: 19%)

457

505

Effects of:

 

 

Other expenses not deductible for tax purposes

132

44

Non taxable income

(205)

(101)

Amortisation of intangibles

201

189

Movement on losses

46

55

Adjustments for prior years

(19)

4

Research and development

(640)

(518)

Total tax (credit)/charge

(28)

178

 

2. Ordinary dividends

 

2020

£000

2019

£000

Final dividend for the year ended 31 March 2019 of 4.0p (year ended 31 March 2018: 4.0p)

1,123

1,108

Interim dividend paid in respect of the year of 1.70p (2019: 1.70p)

481

477

Amounts recognised as distributions to equity holders

1,604

1,585

 

In addition, the directors are not proposing a final dividend in respect of the year ended 31 March 2020. Total dividend payable 1.70p (2019: 5.70p).

 

3. Earnings per share

Earnings per share for the year ended 31 March 2020 was 8.56p (2019: 8.87p).

Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders (£2,431k) by the weighted average number of ordinary shares outstanding during the period.

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

 

2020

2019

 

 

Earnings

£000

Basic earnings per share

Diluted earnings per share

Earnings

£000

Basic earnings per share

Diluted earnings per share

 

Post-tax profit attributable to equity shareholders

2,431

8.56p

8.47p

2,480

8.87p

8.80p

 

 

 

 

 

 

 

 

 

 

2020

Number

2019

Number

Weighted average number of ordinary shares 

28,410,348

27,959,532

Dilutive effect of share options

281,866

216,908

Diluted weighted average number of ordinary shares

28,692,214

28,176,440

          

 

4. Exceptional items

 

2020

£000

2019

£000

Corporate activity and acquisition costs

311

-

Corporate restructuring and transitional costs

415

163

Deferred consideration release

(1,086)

(530)

Network obsolesce costs

50

107

Loan impairment

200

-

Other

109

38

 

(1)

(222)

 

Corporate activity and acquisition costs relate to fees paid to corporate advisors in respect of prospective acquisitions and corporate evaluations.

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

The deferred consideration release refers to the acquisition of Vendman Systems Limited where a proportion of the consideration was based upon results of the company for two years post acquisition.  Within the year the final balance was paid and the change in fair value has been recognised through the income statement.  The deferred period has now closed.

 

5. Basis of preparation

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

 

It has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) adopted for use in the European Union, including IFRIC interpretations issued by the International Accounting Standards Board, and in accordance with the AIM rules and is not therefore in full compliance with IFRS. Except for the adoption of IFRS 16, the principal accounting policies of the Group have remained unchanged from those set out in the Group's 2019 annual report. The financial statements have been prepared under the historical cost convention with the exception of certain items which are required to be measured at fair value.

 

This preliminary announcement does not constitute the Company's statutory accounts within the meaning of Section 434 of the Companies Act 2006. The results for the year ended 31 March 2020 have been extracted from the full accounts of the Group for that year which received an unqualified auditor's report and which have not yet been delivered to the Registrar of Companies.  The financial information for the year ended 31 March 2019 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The report of the auditor on those filed accounts was unqualified.  The accounts for the year ended 31 March 2020 and 31 March 2019 did not contain a statement under s498 (1) to (4) of the Companies Act 2006. The statutory accounts for the year ended 31 March 2020 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on our website vianetplc.com and on request by contacting the Company Secretary at the Company's Registered Office

 

The Directors have prepared this financial information on the fundamental assumption that the Group is a going concern and will continue to trade for at least 12 months following the date of approval of the financial information. In determining whether the Group's accounts should be prepared on a going concern basis the Directors have considered the factors likely to affect future performance

 

COVID-19

COVID-19 is an unprecedented business interruption event impacting business and economies globally.

 

The potential uncertainty as to the future impact on the Group from COVID19 has been separately considered and acted upon, as part of the Directors consideration of the going concern basis of preparation, noting FY20 was largely un-impacted by COVID-19 pre the month of March 2020. In any downside scenario analysis performed, the Directors have considered the potential impact of COVID19 alongside the proactive actions implemented, in its trading and, in particular, cash forecasts. The Board has taken a number of key steps and reviews in those cash projections as follows;

 

1)  Pro-actively worked with its customers to vary their business trading terms during the mandatory lockdown period, in both trading divisions, where such varied terms are appropriate. In so doing, the majority of customers have agreed to these terms which provides a level of certainty regarding revenue and cash coming into the business

2)  Trading terms at the time of writing will revert to normal terms at the end of the mandatory lockdown period

3)  Cash forecasting assuming the above trading conditions for a period of time with a move toward normality in the second half of FY21, such forecasting taking a cautious view versus what is more likely to be better trading

4)  Company Cash and bank facilities

5)  Overlay of opportunities won or likely to be won above those scenario reviews

6)  Trade receivable receipts post 31 March 2020

7)  Appropriate staff have been furloughed to take advantage of the Government Job Retention Scheme support measure

8)  We have assumed no reduction in staff but this will be reviewed on an ongoing basis during the easing of lockdown and resumption of business.

9)  Shareholder dividend has been cancelled for the forthcoming Final and Interim dividend due in July 2020 and January 2021

10)  Loan and mortgage payments have been deferred for 6 months, reducing due within one year from £664,000 to £639,000

11)  Business running costs cancelled, suspended, deferred as appropriate

12)  A Coronavirus Business Interruption Loan Scheme receipt of £3.5 million confirmed on 12 May 2020.

 

 

It is difficult to predict the overall impact of COVID-19 in the vertical markets we serve beyond a recognition that the Pub trade, which we expect to re-open in July, will be slower to recover whereas the Vending and contactless payment activity is likely to see a more rapid return to more normal levels helped by the accelerated demise of cash in that industry. 

 

Based on the above, however, the combination of all actions taken provide Vianet with a clear cash runway well into 2021, noting there are further mitigating operational actions we can take that have not been factored in, thereby allowing the company to pro-actively come through COVID-19 and return to the growth ambition it has, building on the last 5 years of year on year growth, with market opportunities that clearly exist in the verticals it serves, particularly for Contactless growth.

 

As a result of the above principal factors, the Board consider the Group has adequate resources to continue in operational existence for at least 12 months from the date of signing these accounts. Thus, they continue to adopt the going concern basis in preparing the annual financial statements. The Board does recognise, however, COVID-19 provides a level of uncertainty arising from COVID-19 only, and as such, dependent on the recovery path from COVID-19, there is a level of uncertainty associated with any forecasts and their duration, which could cast some doubt on our cash position beyond the minimum 12 months currently forecast from date of signing, pre any further action we may seek to take which is referenced.

 

6. Annual General Meeting

 

The Annual General Meeting will be held on 30 June 2020 at 11.00am, at the offices of Vianet Group plc, One Surtees Way, Surtees Business Park, Stockton on Tees, TS18 3HR, but will be a closed meeting due to COVID-19.

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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