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Castleton Technology (CTP)

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Tuesday 06 November, 2018

Castleton Technology

Half-year Report

RNS Number : 4131G
Castleton Technology PLC
06 November 2018
 

Castleton Technology plc

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

Unaudited Interim Results for the Six Months Ended 30 September 2018

Castleton Technology plc (AIM: CTP), the software and managed services provider to the public and not-for-profit sectors, today announces its unaudited interim results for the six months ended 30 September 2018.

Financial Highlights

·     Revenues increased 20% to £12.9 million (H1 FY18: £10.8 million). Organic(i) revenue growth of 12%.

·     Adjusted EBITDA(ii) increased 31% to £3.0 million (H1 FY18: £2.3 million). Organic(i) Adjusted EBITDA grew by 18%.

·     Cash generated from operations of £3.0 million (H1 FY18: £2.3 million) which is 102% cash conversion(iii)     (H1 FY18 103%).

·     Strong Professional Services growth in the period of 44% has led to a change in revenue mix.  Recurring revenues of £7.0m comprise 55% of total revenue (H1 FY18: recurring revenues of £6.8m comprise 63% of total revenue).

·     Profit before tax for the period of £0.5 million (H1 FY18: £0.2 million)

·     Net debt(iv) as at 30 September 2018 of £5.3 million (30 September 2017: £8.0 million), down from £6.3 million as at 31 March 2018

·     Intention to implement a progressive dividend policy for the full year

 

Operational Highlights

·     Significant new Managed Services contract win with Dumfries and Galloway Housing Partnership ("DGHP")

·     Significant Managed Services contract extension with existing customer Circle Voluntary Housing Association ("Circle") following a full tender process

·     Acquisition of perpetual software licence in relation to the platform upon which Castleton's modelling solution(v) is based with no more licence fees payable, enhancing the Group's gross margin by c.£0.3 million per annum.

·     Organisational integration and legal hive up of Kinetic Information Systems Pty Ltd ('Kinetic') completed, with cross sell of Castleton solutions to the Kinetic customer base underway.

·     Growth in contracted backlog of 12% in Software Solutions and 14% in Managed Services year on year

·     Strong customer retention and visibility over revenues with social housing customer base now 564, compared to 552 as at 31 March 2018.

 

Post-Period Highlights

·     Launch of Castleton.DIGITAL, an interactive platform designed to improve the services between residents and housing providers

·     Shareholder and Court approval for capital reduction, giving the Company the ability to make distributions to shareholders

 

 

David Payne, Chairman of Castleton, commented:

"I am pleased with the progress the Group has made in the first six months of FY19, with the strong organic growth achieved demonstrating Castleton is delivering against its stated strategy. Additionally, new contract wins and the acquisition of the perpetual software licence in relation to the platform upon which Castleton's modelling solution(v) is based further strengthens Castleton's position in the market and offering to customers. The Board remains optimistic about the Group's success and is confident that the growth achieved during the period will continue as we further cross-sell into our customer base. Since the period end, the Company has successfully obtained approval for a capital reduction process which gives the Company the ability to make distributions to shareholders and it is our intention to commence a progressive dividend policy for the full year."

 

(i)     Organic growth is stated after adjusting for;

·      The full year effect of Kinetic Information Systems Pty Ltd ("Kinetic"). During the period the trade and assets of Kinetic were hived up into Castleton Technology Pty Ltd.

·      The impact of IFRS 15 'Revenue from customer contracts', which is effective for the current period and has been adopted on a cumulative basis from the date of initial application, without restatement of comparative amounts.

(ii)     Before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges

(iii)    Cash conversion is calculated as cash generated from operations divided by Adjusted EBITDA(ii)

(iv)    Including deferred consideration and interest accrued on loan notes. For the period ended 30 September 2017 including contingent consideration.

(v)    Castleton's modelling solution, Castleton Strategic Modelling, was formerly named HousingBrixx, and was acquired in 2015 with an option to acquire the exclusive, perpetual and assignable licence. This option was exercised during the period.

 

Please see a video of the Company's results here http://bit.ly/CTP_H118_overview

Enquiries:

Castleton Technology plc

Dean Dickinson, Chief Executive Officer

Haywood Chapman, Chief Financial Officer

 

Tel. +44 (0)845 241 0220

 

finnCap

Jonny Franklin-Adams / Simon Hicks

 

Tel. +44 (0)20 7220 0500

 

 

Alma PR
Rebecca Sanders-Hewett

Helena Bogle

Josh Royston

Tel. +44 (0)7961 075844

 

About Castleton Technology plc

Castleton Technology plc is a leading supplier of complementary software and managed services to the public and not-for-profit sectors. The Group is a 'one stop shop', providing integrated housing systems via the Cloud, working in partnership with its customers and resellers to help drive efficiencies whilst improving controls and customer service. www.castletonplc.com

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

 

 

Chairman's Statement

Dear Shareholder

I am pleased to report the results of the Group for the six months ended 30 September 2018. Castleton has again made solid progress during the period, resulting in double digit organic growth and growing customer penetration. We continue to capitalise on cross-selling opportunities and it is evident that customers value our ability to offer a one-stop-shop for integrated housing solutions. We believe the market opportunity remains large and Castleton is well placed to continue building a scalable, cash generative, subscription-based business.

Operational Review

During the period we completed a number of significant milestones. The acquisition of the perpetual software licence in relation to the platform upon which Castleton's modelling solution is based enables Castleton to use, modify, maintain, distribute and sell the platform.  Due to this, no further licence fees are payable leading to an increase in margin for the Group of approximately £0.3 million per annum in relation to sales of Castleton Strategic Modelling.

The Group completed two important contract wins during the period. The DGHP contract, worth £1.2 million over four years, will provide a full end-to-end managed service offering that demonstrates the progress within our stated strategy of growing recurring revenue and building long term prospects within the core customer base. It also highlights how well-placed we are to win new customers and quality contracts within our chosen sectors. The managed services contract with longstanding customer Circle, extended after a competitive full tender process win, complements the six hosted software products it already receives from Castleton and further demonstrates the Group's ability to cross-sell, providing additional revenue streams.

The launch of Castleton.DIGITAL post period end addresses the wider ongoing market shift towards digitalisation. The platform offers a flexible solution that can link every other existing system together, integrating customer data currently stored in separate silos into a single, simple to use solution. We believe this platform, which is a first for the social housing market, will enable us to continually improve our software in order to adapt to market changes, while also generating further cross-selling opportunities.

Our contracted backlog of revenue has grown 12% (Software Solutions) and 14% (Managed Services) year on year which gives us good forward visibility. We remain focused on product development with the aim of providing our customers with the technology and services they require to operate effectively and achieve their goals.

Trading and Results

The Group generated revenue for the six months to 30 September 2018 of £12.9 million (H1 FY18: £10.8 million), an increase of 20%. Revenue in the Software Solutions division increased 21% and revenue in the Managed Services division increased 18% when compared to H1 FY18. Strong Professional Services growth in the period of 44% has led to a change in mix, with recurring revenues of £7.0m comprising 55% of total revenues (H1 FY18: recurring revenues of £6.8m comprising 63% of total revenues). Further growth in recurring revenue is expected due to the increasing number of multi-year contracts being entered into, as well as our success in selling products on a hosted basis. In the period, a total of nine financial modelling customers signed up to receive hosting of the software.

The Group generated an Adjusted EBITDA* of £3.0 million in the period (H1 FY18: £2.3 million). Adjusted EBITDA* for the Software Solutions division (pre central costs) increased 62% when compared to H1 FY18 driven by strong growth in Professional Services and improved gross margin from our financial modelling solution. In Managed Services Adjusted EBITDA* (pre central costs) was flat year on year as a result of investment in management and operational capability as we look to grow the business and is reflective of the time taken to on board new managed services contracts such as DGHP. Central costs amounted to £0.8 million (H1 FY18: £0.7 million) of Adjusted EBITDA*.

IFRS 15 (Revenue from customer contracts) is effective for the Group for the period starting 1 April 2018. The Group has applied IFRS 15 on a cumulative effect basis from the date of initial application (1 April 2018), without restatement of comparative amounts. The quantitative impact of IFRS 15 on the interim 2019 financial statements is; a £0.1 million reduction in revenue and a £0.1 million reduction in cost of sales and administrative expenses in total, resulting in no material change to operating profit for the period ended 30 September 2018 and an increase in deferred income of £1.2 million and an increase in deferred costs of £1.0 million, both as at 30 September 2018.

With the integration of UK businesses completed, the cost base has stabilised, resulting in administrative expenses of £8.1 million (H1 FY18: £6.7m) being in line with H2 FY18 administrative expenses of £8.1 million. Included within administration expenses is a £0.6 million charge for share based payments (H1 FY18 £0.1 million), which has increased due to full year impact of awards made during the prior year and an acceleration of charge on options which have vested in the period.

There were no exceptional costs in H1 FY19 (H1 FY18: £0.1 million).

Net finance costs amounted to a P&L charge of £0.1 million (H1 FY18: £0.2 million).

The increase in revenues, stabilisation of the cost base and no exceptional costs has contributed to a profit before tax of £0.5 million (H1 FY18: £0.2 million). This is after amortisation of intangibles of £1.6 million (H1 FY18: £1.5 million). The amortisation of intangibles and utilisation of brought forward tax losses, alongside a reduction in future tax rates have resulted in a deferred tax credit of £0.2 million (H1 FY18: £0.4 million). This has been offset by a £0.2 million current tax charge (H1 FY18: nil), due to higher profits chargeable to corporation tax in the period, leading to profit after tax of £0.5 million (H1 FY18: £0.6 million).

Basic earnings per share ('EPS') from continuing activities was 0.68p (H1 FY18: 0.80p). Diluted EPS from continuing activities was 0.65p (H1 FY18: 0.75p). The reduction from H1 FY18 resulted from a £0.4 million reduction in the tax credit for the period, partly offset by a £0.3 million increase in profit before tax. The basic and diluted EPS as at 31 March 2018 of 5.23p and 5.00p respectively were due to exceptional credits and recognition of deferred tax assets related to unused capital allowances and therefore the EPS as at 30 September 2018 was expected to be lower than at the prior year end.

* Before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges

Cash Flow and Net Debt

Cash generated by operations amounted to £3.0 million (H1 FY18: £2.3 million) comprising Adjusted EBITDA* of £3.0 million (H1 FY18: £2.3 million) and operating working capital movements of £0.1 million (H1 FY18: £0.1 million). This gave a cash conversion of EBITDA of 102% (H1 FY18: 103%).

 

Net finance charges paid of £0.1 million (H1 FY18: £0.1 million) reflect the cash cost of the interest on the loan with Barclays, the balance of which has decreased due to repayments of £0.5 million (H1 FY18: £0.5 million) made during the period. As at the balance sheet date, £2.75 million of the term loan was outstanding.

 

The total decrease in cash and cash equivalents was £0.4 million (H1 FY18: increase of £0.1 million). Net debt** at the period end stood at £5.3 million, down from £6.3 million as at 31 March 2018 and £8.0 million as at 30 September 2017.

* Before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges

** Including deferred consideration and interest accrued on loan notes. For the period ended 30 September 2017 including contingent consideration.

 

The Board

There have been no changes in the Board during the first half of 2019.

Further to the sale by MXC of their shareholding in Castleton Technology plc, I am pleased to have retained the services of Paul Gibson as a Non-Executive Director, acting in an independent capacity.

Summary and Outlook

We are pleased to report that Castleton has continued to perform well in delivering a further period of significant organic growth in both revenues and profit, underpinned by ongoing excellent cash generation. The Group has achieved operational milestones including securing key contract wins in Managed Services, whilst in Software Solutions the acquisition of the perpetual software licence in respect of the platform upon which Castleton's financial modelling solution is based has enhanced Group gross margin.

Cross-selling opportunities continue to be a significant opportunity to further penetrate our customer base, with 84% of new sales during the period being to existing customers. There is still significant opportunity to further penetrate our customer base, with the launch post period end of Castleton.DIGITAL providing our customers with a further solution to help them with their digitisation journey.

The market opportunity remains large and given the Group's now established position as a 'one-stop-shop' serving the social housing sector, the Board is very optimistic about the Group's continued growth prospects."

David Payne

Non-Executive Chairman

 

 

Consolidated Statement of Comprehensive Income

 

 

Unaudited six months ended 30 September 2018

Unaudited six months ended 30 September 2017

Audited year ended 31 March
2018

 

 

Note

£000

£000

£000

 

Revenue

2

12,911

10,785

23,279

 

Cost of sales

 

(4,222)

(3,633)

(7,211)

 

Gross profit

 

8,689

7,152

16,068

 

Administrative expenses

 

(8,072)

(6,666)

(14,770)

 

Exceptional charges

 

-

(347)

(576)

 

Exceptional credits

 

-

214

1,420

 

Operating profit

 

617

353

2,142

 

Finance income

 

8

16

26

 

Finance costs

 

(128)

(185)

(340)

 

Profit on ordinary activities before taxation

 

497

184

1,828

 

Income tax credit

3

47

442

2,295

 

Profit for the period attributable to the owners of the parent company

 

544

626

4,123

Items that may be subsequently reclassified to profit or loss

 

 

 

 

Foreign operations - foreign currency translation differences

 

20

29

41

 

Total comprehensive income for the period attributable to the owners of the parent company

 

564

655

4,164

 

Earnings per share

4

 

 

 

 

Basic earnings per share

 

0.68p

0.80p

5.23p

 

Diluted earnings per share

 

0.65p

0.75p

5.00p

 

Non GAAP measure: Adjusted EBITDA

 

 

 

 

 

Operating profit

 

617

353

2,142

 

Depreciation and amortisation

 

1,749

1,631

3,333

 

EBITDA

 

2,366

1,984

5,475

 

Share-based payments

 

603

143

484

 

Exceptional credits

 

-

(215)

(1,420)

 

Exceptional charges

 

-

348

576

 

Adjusted EBITDA*

 

2,969

2,260

5,115

 

*Earnings for the period from continuing operations before net finance costs, depreciation, amortisation, exceptional items, and share based payment charges.
 

Consolidated Statement of Financial Position

 

 

 

Note

Unaudited 30 September
2018

Unaudited 30 September
2017

Audited 31 March
 2018

 

 

£000

£000

£000

 

 

 

 

 

Assets

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

 

32,501

32,300

32,075

Property, plant and equipment

 

847

900

872

Trade and other receivables

5

539

148

250

Deferred tax asset

 

1,410

-

1,462

 

 

35,297

33,348

34,659

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

87

72

72

Trade and other receivables

5

6,583

4,527

6,385

Current income tax receivable

 

154

91

516

Cash and cash equivalents

 

183

571

510

 

 

7,007

5,261

7,483

 

 

 

 

 

Total assets

 

42,304

38,609

42,142

 

 

 

 

 

Equity and liabilities

 

 

 

 

Equity attributable to owners of the parent

 

 

 

 

Called up share capital

 

1,677

1,625

1,628

Share premium account

 

18,835

16,995

17,006

Equity reserve

 

144

2,668

251

Translation reserve

 

61

29

41

Other reserves

 

7,966

7,966

7,966

Accumulated loss

 

(7,386)

(12,976)

(8,383)

Total equity attributable to owners of the parent

 

21,297

16,307

18,509

 

 

Consolidated Statement of Financial Position (cont.)

 

 

 

 

 

 

 

 

Note

Unaudited 30
September
2018

Unaudited 30 September
 2017

Audited 31
March
2018

 

 

£000

£000

£000

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

6

11,343

8,611

11,080

Finance leases

 

-

22

-

Borrowings

 

1,086

1,223

1,008

Deferred consideration

 

435

717

592

Liability in respect of MXC Scheme settlement

 

-

-

1,662

Provisions

 

81

721

121

 

 

12,945

11,294

14,463

 

 

 

 

 

Non-current liabilities

 

 

 

 

Trade and other payables

6

1,506

1,699

1,252

Borrowings

 

1,838

2,846

2,342

Convertible loan notes

 

1,896

2,353

2,378

Deferred consideration

 

-

427

143

Contingent consideration

 

-

748

-

Deferred taxation liability

 

2,782

2,935

3,055

Provisions

 

40

-

-

 

 

8,062

11,008

9,170

Total liabilities

 

21,007

22,302

23,633

Total equity and liabilities

 

42,304

38,609

42,142

 

 

 

 

 

               

 

 

 

Consolidated Statement of Changes in Equity

                                                 Attributable to the owners of the Parent Company                             

 

Called up share capital

Share premium account

Equity Reserve (a)

Merger reserve (b)

Translation reserve    (c)

Accumulated loss

Total equity

 

£000

£000

£000

£000

£000

£000

£000

At 1 April 2017

1,625

16,995

2,919

7,966

-

(13,996)

15,509

Profit for the period

-

-

-

-

-

626

626

Other comprehensive income

-

-

-

-

29

-

29

Total comprehensive income

-

-

-

-

29

626

655

Transactions with owners in their capacity as owners:

Share based payments

-

-

-

-

-

143

143

Waiver of Opus loan notes

-

-

(251)

-

-

251

-

At 30 September 2017

1,625

16,995

2,668

7,966

29

(12,976)

16,307

Profit for the period

-

-

-

-

-

3,497

3,497

Other comprehensive income

-

-

-

-

12

-

12

Total comprehensive income

-

-

-

-

12

3,497

3,509

Transactions with owners in their capacity as owners:

Share based payments

-

-

-

-

-

341

341

Waiver of Opus loan notes

-

-

(141)

-

-

141

-

Exercise of warrants

3

11

-

-

-

-

14

Settlement of MXC warrants

-

-

-

-

-

(1,662)

(1,662)

Settlement of Equity reserve

-

-

(2,276)

-

-

2,276

-

At 31 March 2018

1,628

17,006

251

7,966

41

(8,383)

18,509

Profit for the period

-

-

-

-

-

544

544

Other comprehensive income

-

-

-

-

20

-

20

Total comprehensive income

-

-

-

-

20

544

564

IFRS 15 cumulative adjustment*

-

-

-

-

-

(257)

(257)

Transactions with owners in their capacity as owners:

Share based payments

-

-

-

-

-

603

603

Shares issued to Brixx International (d)

29

1,157

-

-

-

-

1,186

Conversion of MXC loan notes (e)

15

617

(107)

-

-

107

632

Exercise of share options (f)

5

55

-

-

-

-

60

At 30 September 2018

1,677

18,835

144

7,966

61

(7,386)

21,297

                 

 

* Adoption of IFRS 15 from 1 April 2018 has required an adjustment to accumulated loss to reflect the cumulative effect of the change in policy. Further details are included in note 1 'Accounting Policies'.

(a)  Equity reserve

The equity reserve consists of the equity component of convertible loan notes that were issued as part of the consideration for past acquisitions less the equity component of instruments converted or settled.

Consolidated Statement of Changes in Equity (cont.)

The fair value of the equity component of convertible loan notes issued is the residual value after deduction of the fair value of the debt component of the instrument from the face value of the loan note.

The £144,000 balance at 30 September 2018 relates to the loan notes issued for the purchase of Kypera Holding Limited. 

(b) Merger reserve

The merger reserve arose from the acquisition of Redstone Communications Limited (£216,000) and Maxima Holdings Limited (formerly Maxima Holdings plc) (£7,750,000) and represents the difference between the value of the shares acquired (nominal value plus related share premium) and the nominal value of the shares issued.

(c) Translation reserve

On consolidation, the balance sheets of Castleton Technology Pty Ltd (formerly Kypera Australia Pty Ltd) and Kinetic Information Systems Pty Ltd are translated into sterling at the rates of exchange ruling at the balance sheet date. Income statement Items and cash flows are translated into sterling at rates approximating to the foreign exchange rates at the date of the transaction. Exchange gains or losses arising from the consolidation of these two Australian companies are recognised in the translation reserve.

 (d) Shares issued to Brixx International

During the period, the Company issued a total of 1,432,706 new ordinary shares of 2 pence each to Brixx International Limited at a price of 82.75 pence per ordinary share, in respect of; the acquisition of the exclusive, perpetual and assignable licence in relation to the Castleton Strategic Modelling (formerly "Brixx") platform ("the Asset Purchase"), further development of the platform and settlement of pre Asset Purchase licence fees payable. 

The consideration for the Asset Purchase was £1,686,000, of which £1,186,000 was satisfied by the issue of new ordinary shares of 2 pence each and £500,000 was paid in cash on 2 July 2018. The cash element has been included in "Purchase of intangible assets" in the Consolidated Cash Flow Statement.

 (e) Conversion of MXC Loan notes

On 9 August 2018, MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited ("MXC") served a conversion notice with respect to the remaining convertible loan notes ("CLNs") it held, together with the accrued interest, amounting to £632,000 in total.

The CLNs were converted at 85.6 pence per ordinary share of 2 pence each in the capital of the Company therefore 738,896 new ordinary shares of 2 pence were allotted to MXC on 17 August 2018.

(f) Exercise of share options

On 29 August 2018, Haywood Chapman, Chief Financial Officer, exercised 271,000 options over new ordinary shares of 2 pence each in the capital of the Company, at an exercise price of 22 pence per ordinary share.

 

 

Consolidated Cash Flow Statement

 

 

 

Unaudited six months ended 30 September 2018

Unaudited six months ended 30 September 2017

Audited year ended 31 March
 2018

 

 

Note

£000

£000

£000

 

Cash flows from operating activities

 

 

 

 

 

Cash generated from operations

7

3,027

2,331

5,177

 

Exceptional items

 

(160)

(395)

(723)

 

Net finance charges paid

 

(59)

(64)

            (142)

 

Income taxes refunded/(paid)

 

118

54

(8)

 

Net cash flows generated from operating activities

 

2,926

1,926

4,304

 

Cash flows from investing activities

 

 

 

 

 

Receipt of deferred consideration from sale of businesses

 

33

31

63

 

Acquisition of businesses, net of cash acquired

 

(14)

-

(1,052)

 

Purchase of property, plant and equipment

 

(158)

(230)

(368)

 

Purchase of intangible assets

 

(806)

(340)

(356)

 

Net cash flows used in investing activities

 

(945)

(539)

(1,713)

 

Cash flows from financing activities

 

 

 

 

 

Exercise of share options and warrants

 

60

-

14

 

Settlement of deferred consideration

 

(300)

(300)

(850)

 

Settlement of MXC Scheme liability

 

(1,662)

-

-

 

Repayment of borrowings

 

(504)

(1,030)

(1,556)

 

Net cash flows used in financing activities

 

(2,406)

(1,330)

(2,392)

 

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(425)

57

199

 

Foreign exchange effects

 

20

29

41

 

Cash and cash equivalents at beginning of period

 

510

270

270

 

Cash and cash equivalents at end of period

 

105

356

510

 

 

 

 

 

 

 

Comprising:

 

 

 

 

 

Cash and cash equivalents

 

183

571

510

Overdrafts

 

(78)

(215)

-

 

 

105

356

510

                     

                                                                                                                                                                               

Notes to the half-yearly financial information

1.     Basis of preparation and general information

The interim financial information is unaudited. This condensed consolidated interim financial information was approved by the Directors and authorised for issue on 6 November 2018.

The Company is a public limited liability company incorporated and domiciled in England. The address of its registered office is Castleton Technology plc ("Castleton"), 100 Fetter Lane, London, EC4A 1BN. The Company is listed on the AIM market of the London Stock Exchange.

The principal activity of the Group during the period was the provision of software and managed services to the public and not-for-profit sectors, predominantly the social housing sector.

Castleton and its subsidiaries have not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK AIM listed companies, in the preparation of this half-yearly financial report.

This condensed, consolidated interim financial information for the six months ended 30 September 2018 does not comply, therefore with all the requirements of IAS 34, 'Interim financial reporting' as adopted by the European Union.  The consolidated interim financial information should be read in conjunction with the annual financial statements of Castleton for the year ended 31 March 2018, which have been prepared in accordance with IFRS as adopted by the European Union.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2018 were approved by the Board of directors on 18 June 2018 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under sections 498 (2) or (3) of the Companies Act 2006.

Accounting policies

The accounting policies used in the preparation of the financial information for the six months ended 30 September 2018 are in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS") as adopted by the European Union. The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those set out in the Group's Annual Report for the year ended 31 March 2018, except as described below, and will be applied for the year ending 31 March 2019. This is the first set of financial statements where IFRS 15 has been applied and the Group has adopted IFRS 15 from 1 April 2018.

While the financial information included has been prepared in accordance with the recognition and measurement criteria of IFRS, as adopted by the European Union (EU), these financial statements do not contain sufficient information to comply with IFRSs.  

Going concern

The consolidated interim financial information of Castleton has been prepared on the going concern basis.

The Directors have prepared detailed cash flow projections including sensitivity analysis on key assumptions. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance and the timing of key strategic events, show the Group will be able to operate within the level and conditions of available funding. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

Accordingly, the Group continues to adopt the going concern basis in preparing the consolidated financial information.

Revenue recognition

IFRS 15 (Revenue from customer contracts) is effective for the Group for the period starting 1 April 2018. The Group has applied IFRS 15 on a cumulative effect basis with practical expedients from the date of initial application (1 April 2018), without restatement of comparative amounts.

The company generates revenue from the provision of software licences, implementation services, maintenance and support, outsourced hosting managed services and sale of hardware. Products and services are sold in bundled packages and may include ad-hoc consultancy services for example to implement upgrades or to provide for further user licences during the contract period.  

Software licences are provided on either a 'hosted' or 'installed' or basis and contracts typically include an initial contract term of more than one year and, thereafter renew on an annual basis.

Implementation services comprise 'go live' support which can include; design and build, data migration, training, configuration and implementation.

Hosted managed services contracts are multi-element contracts which may include hosted IT infrastructure, hosted desktop, data back-up, support services and provision of various software applications.

Revenue is recognised when the performance obligation has been satisfied by transferring the promised good or service to the customer.  

At contract inception, the transaction price is determined, being the amount that the company expects to receive for transferring the promised goods or services.  The transaction price is allocated to the performance obligations in the contract based on their relative standalone selling prices.

 

Software

Software comprises a licence to use the software, upgrades and support and maintenance. Management have concluded that the upgrades are fundamental to the functionality of the software and that therefore, there is a single performance obligation.  Management have also determined that the licence granted to the customer provides them with the right to access the intellectual property as it exists, throughout the licence period, and consequently, where there is an obligation to provide the licence with upgrades over time, revenue from this single performance obligation is recognised on a straight line basis over the contract period.  In instances where there are no ongoing obligations, the revenue would be recognised at a point in time.

Implementation services

Determination of whether implementation is a distinct performance obligation is based on the degree of complexity involved in the service, as judged by management.  Where the service comprises basic changes and configuration to implement the software, it is regarded as distinct.  Where the implementation requires significant configuration and modification of the underlying software, it is not considered to be distinct and is combined with other promises in the contract.  The treatment of implementation services will be assessed on a contract by contract basis.

Managed services

Excluding implementation, which is assessed separately (see above), all remaining goods and services within managed services contracts are part of a series of goods and services that are substantially the same and have the same pattern of transfer to the customer. The revenue from all these services is recognised on a straight line basis over the contract period, which is the period over which the customer receives and consumes the benefits of goods and services.

Sales of hardware

Sales of hardware are recognised at the point that control of the hardware is transferred to the customer. This is usually on delivery.

Financing arrangements

Where a financing component exists in customer contracts, because of the payment profile of the implementation fee which is paid upfront but may be recognised over the period of the contract, the financing component of the fee is separated from the monthly revenue and recognised separately as interest. 

Contract costs

 

The incremental costs associated with obtaining a contract are recognised as an asset if the company expects to recover the costs.  Costs that are not incremental to a contract are expensed as incurred.   Management determine which costs are incremental and meet the criteria for capitalisation. 

 

Costs to fulfil a contract, which are not in the scope of another standard, are recognised separately as a contract fulfilment asset to the extent that they relate directly to a contract which can be specifically identified and the costs are expected to be recovered. Contract fulfilment assets are amortised over the expected contract period on a systematic basis representing the pattern in which the associated performance obligation is satisfied.  

 

Costs to fulfil a contract, which do not meet the criteria above, are expensed as incurred. 

 

 

The company undertakes an assessment, at each reporting date, to determine whether capitalised contract costs and contract fulfilment assets are impaired.  An impairment loss is recognised if the carrying amount of the capitalised contract costs or contract fulfilment asset exceeds the remaining consideration expected to be received for the services to which the asset relates, less the costs that directly relate to providing the services under the contract. 

 

Deferred and accrued income

 

Where the payment schedule within a customer contract does not match the transfer of goods and services, the company will recognise either accrued or deferred income. 

 

A deferred income contract liability is recognised where payments made exceed the revenue recognised at the period end date.  An accrued income contract asset is recognised where payments made are less than the revenue recognised at the period end date. 

 

Quantitative impact of IFRS 15 adoption

 

The quantitative impact of IFRS 15 on the interim 2019 financial statements is;

 

·   A reduction in revenue of £0.1 million for the period ended 30 September 2018

·    A reduction in cost of sales and administrative expenses of £0.1 million in total, for the period ended 30 September 2018, resulting in no material change to operating profit

·    An increase in deferred income of £1.2 million at 30 September 2018, of which £0.6 million is current and £0.6 million is non-current

An increase in deferred costs of £1.0 million at 30 September 2018, of which £0.6 million is current and £0.4 million is non-current

 

The key reasons for these changes are:

·   Non distinct implementation services and associated contract fulfilment costs - under IFRS 15, implementation services that do not meet the criteria to be a distinct performance obligation will result in the fees associated with these services being combined with other promises in the contract and recognised over the contract term. Under previous accounting policies, implementation costs associated with the implementation of software were expensed to the income statement as incurred. Under IFRS 15, these costs will be capitalised as contract fulfilment assets and amortised over the life of the contract. The treatment of implementation services will be assessed on a contract by contract basis

·    Contract fulfilment costs - U 

 

Financial instruments

The adoption of IFRS 9 'Financial Instruments' with effect from 1 April 2018 has not had a material impact on the results of the Group.

 

 

2.     Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker ('CODM'). The CODM has been identified as the Executive Board.

The Group is comprised of the following main operating segments:

Managed Services This segment comprises the results of Castleton Managed Services Ltd for the six months ended 30 September 2018.

Software Solutions This segment comprises the results of Castleton Software Solutions Ltd, Castleton Australia Pty Limited and Kinetic Information Systems Pty Ltd for the six months ended 30 September 2018 (30 September 2017: Castleton Software Solutions Limited, Kypera Limited and Castleton Australia Pty Limited).

 

Six months ended 30 September 2018 - unaudited

 

Continuing

Managed Services
£000

Software Solutions
£000

 

Central

£000

 

Total

£000

Revenue

5,853

7,058

-

12,911

Operating profit/(loss) before amortisation of acquired intangibles and management charge

1,430

2,159

(1,406)

2,183

Amortisation of acquired intangibles

(469)

(1,079)

(18)

(1,566)

Management charge

(388)

(436)

824

-

Operating profit /(loss)

573

644

(600)

617

Finance income

6

1

1

8

Finance costs

-

(2)

(126)

(128)

Profit/(loss) before tax

579

643

(725)

497

Adjusted EBITDA*

1,553

2,214

(798)

2,969

Assets and liabilities

 

 

 

 

Segment assets

11,861

33,602

(3,159)

42,304

Segment liabilities

(3,592)

(11,988)

(5,427)

(21,007)

Net assets / (liabilities)

8,269

21,614

(8,586)

21,297

 

 

*Earnings for the period from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional items, group management charges and share based payment charges.

 

 

 

Six months ended 30 September 2017 - unaudited

 

Continuing

Managed Services
£000

Software Solutions
£000

 

Central

£000

 

Total

£000

Revenue

4,957

5,828

-

10,785

Operating profit/(loss) before amortisation of acquired intangible and management charge

1,464

985

(594)

1,855

Amortisation of acquired intangibles

(484)

(1,000)

(18)

(1,502)

Management charge

(607)

(204)

811

-

Operating profit /(loss)

373

(219)

199

353

Finance income

9

1

6

16

Finance costs

-

(25)

(160)

(185)

Profit/(loss) before tax

382

(243)

45

184

Adjusted EBITDA*

1,551

1,371

(662)

2,260

Assets and liabilities

 

 

 

 

Segment assets

11,427

29,384

(2,202)

38,609

Segment liabilities

(2,933)

(12,206)

(7,163)

(22,302)

Net assets / (liabilities)

8,494

17,178

(9,365)

16,307

 

 

*Earnings for the period from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional items, group management charge and share based payment charges.

 

Revenue by products and services

Analysis of revenue by category is as follows:

 

 

Unaudited six months

ended 30 September 2018

 

£000

Unaudited six months

ended 30 September 2017

 

£000

 

 

Audited year

ended 31

March 2018
 

£000

Recurring software, managed service revenues and other revenues

8,213

7,427

15,381

Fees from professional services

2,650

1,842

4,445

Sale of hardware

2,048

1,516

3,453

Total revenue

12,911

10,785

23,279

 

 

 

3.     Taxation

Tax on profit on ordinary activities

 

 

Unaudited six months ended 30 September 2018

Unaudited six months ended 30 September 2017

Audited year ended 31 March 2018

 

£000

£000

£000

Corporation Tax

 

 

 

Current tax on profit for the period

174 

-

41

Adjustment in respect of prior period

-

(427)

Deferred tax

 

 

 

Origination and reversal of timing differences                               

(221)

(442)

(1,909)

Total tax credit

(47)

(442)

(2,295)

 

The rate of UK corporation tax for the year beginning 1 April 2017 is 19%. From the year starting 1 April 2020 the UK corporation tax rate drops to 17%. Deferred tax has been measured on the basis of these rates and reflected in the financial statements.

 

4.     Earnings per share

Basic earnings per share and diluted earnings per share are calculated using a weighted average number of shares of 79,946,725 and 83,927,452 respectively (30 September 2017: weighted average number of shares of 78,714,832 and 82,919,847 respectively and at 31 March 2018: weighted average number of shares of 78,714,832 and 82,474,239 respectively).

 

 

Unaudited six months ended 30 September 2018

Unaudited six months ended 30 September 2017

Audited year ended 31 March 2018

Basic earnings per share

0.68p

0.80p

5.23p

Fully diluted                                                                                 

0.65p

0.75p

5.00p

 

 

 

 

 

 

 

 

 

 

 

5.     Trade and other receivables

 

Unaudited six months ended 30 September 2018

Unaudited six months ended 30 September 2017

Audited year ended 31 March 2018

 

£000

£000

£000

Current

 

 

 

Trade receivables

4,255

3,160

5,147

Less: provision for impairment of trade receivables

(236)

(302)

(223)

Trade receivables - net  

4,019

2,858

4,924

Other receivables*

1,716

913

806

Prepayments

848

756

655

 

6,583

4,527

6,385

 

 

 

 

Non-current

 

 

 

Trade receivables

39

111

97

Prepayments

105

-

23

Other receivables*

395

37

130

 

539

148

250

 

* Adoption of IFRS 15 from 1 April 2018 has resulted in an increase in current other receivables of £0.6 million and non-current other receivables of £0.4 million.

 

 

6.     Trade and other payables

 

Unaudited six months ended 30 September 2018

Unaudited six months ended 30 September 2017

Audited year ended 31 March 2018

 

£000

£000

£000

Current

 

 

 

Trade payables

1,409

653

1,167

Other payables

282

100

305

Taxation and social security

1,057

502

772

Accruals

1,306

1,063

1,800

Income tax payable

43

-

113

Deferred income*

7,246

6,293

6,923

 

11,343

8,611

11,080

Non-current

 

 

 

Deferred income*

1,247

1,414

904

Accrued interest

259

285

438

 

1,506

1,699

1,252

 

* Adoption of IFRS 15 from 1 April 2018 has resulted in an increase in current deferred income of £0.6 million and non-current deferred income of £0.6 million.

7.     Net cash flows from operating activities

 

Unaudited six months ended 30 September 2018

Unaudited six months ended 30 September 2017

Audited year ended 31 March 2018

 

£000

£000

£000

Profit on ordinary activities before tax

497

184

1,828

Adjustments for:

 

 

 

Exceptional items

-

133

(844)

Net finance costs

120

169

314

Depreciation of property, plant and equipment

183

129

306

Amortisation of intangible assets

1,566

1,502

3,027

Equity-settled share based payment charge

603

143

484

 

2,969

2,260

5,115

Movements in working capital:

 

 

 

Decrease/(increase) in trade and other receivables

457

518

(1,183)

Increase in trade and other payables

184

332

1,955

Decrease in deferred income

(568)

(656)

(553)

Decrease in provisions

-

(101)

(135)

Increase in inventories

(15)

(22)

(22)

 

58

71

62

Cash generated from operations before exceptional items

3,027

2,331

5,177

 

Non-cash transactions

The principal non-cash transaction is the cumulative effect of adopting IFRS 15 which resulted in an increase to deferred income as at 30 September 2018 of £1.2 million and an increase in deferred costs (presented within Other receivables) of £1.0 million as at 30 September 2018.

 

8.     Net debt

 

Unaudited six months ended 30 September 2018

Unaudited six months ended 30 September 2017

Audited year ended 31 March 2018

 

£000

£000

£000

Cash

183

571

510

Overdraft

(78)

(215)

-

Barclays loan

(2,750)

(3,750)

(3,250)

Mortgage

(96)

(104)

(100)

Net debt before loan notes and deferred/contingent consideration

(2,741)

(3,498)

(2,840)

Loan notes and accrued interest on loan notes*

(2,155)

(2,638)

(2,726)

Net debt before deferred/contingent consideration

(4,896)

(6,136)

(5,566)

Deferred consideration

(435)

(1,144)

(735)

Contingent consideration

-

(748)

-

Net debt

(5,331)

(8,028)

(6,301)

* Accrued interest on loan notes is presented within "Accrued Interest" in Trade and other payables.

9.     Subsequent events

 

On 23 October 2018, the Company completed a capital reduction process, which cancels the amount standing to the credit of the Company's share premium account under section 648 of the Company Act 2006. The purpose of the capital reduction is to create distributable reserves. This will facilitate the implementation of a progressive dividend policy for the current year.

 

 

 

Advisers

Nominated Adviser and Broker

FinnCap, 60 New Broad Street London, EC2M 1JJ

 

Auditors

RSM UK Audit LLP, St Philips Point, Temple Row, Birmingham, West Midlands, B2 5AF

 

Solicitors

Beachcroft LLP, 100 Fetter Lane, London, EC4A 1BN

 

Registrars

Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU

 

Principal Bankers

Barclays Bank plc, 1 Churchill Place, London, E14 5HP

 

Company Number

03336134

Further details can be found on the Castleton website at the following address: www.castletonplc.com

 


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