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Pelatro PLC (PTRO)

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Wednesday 26 September, 2018

Pelatro PLC

Interim Results

RNS Number : 9106B
Pelatro PLC
26 September 2018
 

 

 

 

26 September 2018

 

 

Pelatro Plc

 

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

 

Interim results

 

 

Pelatro Plc (AIM: PTRO), the precision marketing software specialist, is pleased to announce today its interim results for the 6 months ended 30 June 2018.

 

Financial highlights

 

·              Revenue up 53% to $2.38 million (H1 2017: $1.55 million)

 

·              EBITDA* increased 42% to $1.47 million (H1 2017: $1.04 million)

 

·              Profit before tax increased 24% to $1.2 million (H1 2017: $972,000)

 

·              Earnings per share 4.4¢ (H1 2017: 5.1¢), reflecting new shares issued pre IPO

 

·              Net cash as at 30 June 2018 $1.6 million (at 30 June 2017: $347,000); approximately $530,000 received from debtors since period end

 

·              Adjustment (credit) to reported profits in first half of approximately $517,000 due to change to IFRS 15 revenue recognition (expected largely to reverse in second half)

 

* earnings before interest, tax, depreciation, amortisation and exceptional items

 

 

Operational highlights

 

·           In April 2018 the Group won its largest contract from the Swedish telco group Tele2, both to implement mViva and to provide managed services for its network in Kazakhstan. This is the Group's largest contract to date and also provides an opportunity for Pelatro to showcase its capabilities in managed services

 

 

Post period end highlights

 

·              In August 2018 the Group announced the acquisition of certain assets (principally customer contracts and products) from the Danateq Group. The acquisition expands Pelatro's geographic footprint and also broadens the Company's product suite and underling subscriber base. As a result of the acquisition 32 people from Danateq joined the Pelatro team

 

·              The acquisition also brings two large and well respected telco groups,  Telenor and SingTel, as customers

 

·              Pelatro has re-positioned its product offering as a Multichannel Marketing Hub. This has considerably improved the Group's positioning in the market, with a campaign management solution, a loyalty management solution and an intelligent notification manager, thereby leading to more opportunities for growth

 

 

Richard Day, Non-executive Chairman of Pelatro commented:

 

"Since our AIM flotation at the end of last year, we have maintained momentum, with an expanded customer base, a significant acquisition and an enhanced product offering. Our current trading is in line with expectations and we look forward with confidence with a strong pipeline of sales opportunities currently under negotiation."

 

 

A copy of the results presentation provided to analysts will be available on Pelatro's website later today (www.pelatro.com).

 

 

For further information contact:

 

Pelatro Plc

 

Subash Menon, Managing Director

c/o IFC

Nic Hellyer, Finance Director

 

 

 

finnCap Limited (Nominated Adviser and Broker)

+44 (0)20 7220 0500

Carl Holmes/Kate Bannatyne/Matthew Radley

 

 

 

IFC Advisory Limited (Financial PR and IR)

+44 (0)20 3934 6630

Tim Metcalfe/Miles Nolan/ Zach Cohen

 

 

 

 

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

 

 

 

Notes to editors

 

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

 

Pelatro provides its precision marketing software "mViva" for use by customers in B2C applications, and is well positioned in the Multi-Channel Marketing Hub space (MCMH) - this is technology that orchestrates a customer's communications and offers to customer segments across multiple channels to include websites, social media, mobile, direct mail, email and others.

 

Pelatro is expanding by a mix of organic and acquisition led growth. In August 2018 the Company completed the acquisition of certain assets of Danateq Pte Ltd (Danateq). This acquisition doubles the subscriber base to 325 million and brings immediate entry into Central Europe as well as a large recurring revenue base.

 

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

 

 

 

Managing Director's statement

 

Given the challenges faced by telcos, there is a crying need for advanced technology to assist them to increase revenue and reduce churn. Prominent among the limited options is the possibility to engage with subscribers in a personalised, contextual and relevant manner. This is exactly what Pelatro provides and thus Pelatro's offering, the Multichannel Marketing Hub, has become a crucial and strategic element for the telcos thereby opening up a plethora of opportunities for Pelatro.

 

 

Progress vs strategy

 

In April 2018 Pelatro announced a major contract win with Tele2, the Central Asian subsidiary of a Western European telco with over 6 million customers. The contract was for the sale and implementation of mViva and also a 12 month consultancy agreement to assist the telco in setting up a Customer Value Management department. The contract is expected to be worth approximately $1.7 million and is the largest entered into by the Company to date. The majority of the fees are expected to be recognised in 2018 (the difference being principally fees for consultancy services to be rendered in 2019).

 

Total Full Time Equivalent (FTE) headcount has increased by 26 FTEs to 78 as at the end of the period, with a further 32 FTEs added as a result of the Danateq acquisition, due mostly to increased customer volume and activity and an expanding road map of activities.

 

 

Pipeline

 

The Group is focused on building and maintaining a healthy sales pipeline. There are at present over 20 qualified opportunities in the pipeline both from existing and potential customers, including new license sales as well as change requests and other software installations.

 

 

Acquisition update

 

Pelatro is in the process of integrating the acquisition of the business and certain assets of Danateq Pte and Danateq Limited ("Danateq") which was announced on 30 July, for an initial cash consideration paid of $7.0 million and potential deferred consideration of up to $5.0 million. This was funded via a placing of 8.2 million new ordinary shares at a price of 73p raising approximately $7.9 million before expenses. This was a significant strategic acquisition for Pelatro , doubling the subscriber base covered from 160 million to 325 million and the number of customers from 8 to 12. It also gave the Group immediate entry into Central Europe and is expected to accelerate entry into Western Europe over the next 18-24 months. It also broadened Pelatro's product suite by the addition of two complementary products that can be sold into the existing customer base of Pelatro and positions Pelatro as a highly credible player in the new Multi-Channel Marketing Hub space.

 

Integration activities are proceeding well and personnel, customer support and sales activities were transferred to Pelatro on 5 September. The software products themselves are expected to be migrated over the next 8-10 months.

 

 

 

 

 

Financial performance

 

Revenue

 

Revenue in the six months amounted to $2,376,000, including an amount of $103,000 representing revenue from Post Contract Support ("PCS") recognised ahead of its contractually due dates under IFRS 15, and an amount of $396,000 in respect of license fees which likewise under IFRS 15 have been recognised ahead of their milestone invoicing dates.

 

Revenue was split broadly between license fee income of $1,729,000 (including gain share as well as implementation fees of c. $250,000 recognised separately under IFRS 15), change request income of $414,000 and PCS (net of adjustments to spread the income over previous years) of $228,000. A minor amount arose from the resale of hardware.

 

Cost of sales

 

Cost of sales represents the costs of the software support, research and development teams in PSPL not otherwise capitalised. Prior to the acquisition of PSPL in December 2017, amounts invoiced to the Group by PSPL included underlying administrative costs as well as costs relating to technical and related services, and hence these were included in cost of sales. Now PSPL is part of the Group, cost of sales excludes administrative expenses which are included instead in the relevant category. Such expenses were approximately $200,000 in FY 2017.

 

Net cash and trade receivables

 

Cash generated from operating activities was marginally negative after working capital movements. After repayment of short term debt of $746,000 and capital expenditure of around $1.07m (which was part funded by a secured loan of $254,000), gross cash at 30 June 2018 was approximately $2.1m. Short and long term debt (comprising overdraft facilities and a term loan) was approximately $489,000, giving net cash of approximately $1.6 million (H1 2017: $347,000).

 

Trade receivables (including unbilled revenue but excluding contract assets recognised under IFRS 15) as at 30 June 2018 were $2,677,000 compared to $1,778,000 at 31 December 2017. Of the balance outstanding at 31 December 2017, some $965,000 was collected in the period under review. In relation to the debt outstanding at 31 December 2017 from the Group's North African customer, to date some $418,000 of the total amount outstanding from this customer has been paid and a further $280,000 is expected before the year end. This customer is wholly creditworthy and has continued to generate significant change request work during the period ($238,000, with an additional $350,000 expected in the second half of 2018).

 

Unbilled revenue

 

As part of its reported debtors balances, the Group may at any one time have significant amounts outstanding representing Unbilled Revenue ("UBR"). This may arise, for example, where Pelatro undertakes work for customers in accordance with contract terms, but the "Go Live" date (which may represent the initial invoicing date) is expected much later in the term of the contract. As is standard practice in the telecoms industry, contractual revenue milestones (and now completion of performance obligation for the purposes of recognition of revenue for IFRS 15) are typically reached much earlier than invoicing milestones and credit terms of 90 days start following the invoice.

 

Furthermore, Pelatro typically accumulates a volume of completed minor change requests ("CRs") before formally contracting with the customer to receive a purchase order and invoice accordingly. The process is further lengthened by the need for certain customers to enter into Letters of Credit with correspondent banks; Pelatro views this as sound commercial practice as the customers continue to generate significant volumes of CRs and hence valuable repeating revenue.

 

Effect of IFRS 15

 

Pelatro has implemented IFRS 15 "Revenue from Contracts with Customers" ("IFRS 15") with effect from 1 January 2018. The principal changes resulting from its application are:

 

(1)          recognition of revenue from the sale of a license and its implementation as two separate performance obligations, without reference to contractual invoicing milestones; and

 

(2)          recognition of revenue from post-contract support ("PCS") over the term of the support (typically 5 years) rather than the actual 4 years over which customers usually pay.

 

The implementation of IFRS 15 has not affected the revenue recognition of income from change requests, revenue gain share contracts or managed services.

 

With regard to (1) above, the effect of the recognition of revenue from the sale of licenses and the associated implementation as two separate performance obligations has had:

 

(a) no effect on prior years, as all contracts were either complete as at 31 December 2017 or the contractual amount due on completion of implementation was broadly similar to the deemed value of the implementation carried out; and

 

(b) In the period under review, given that the transfer of the license for the Tele2 contract referred to above had taken place, albeit that implementation was not complete, the Group has recognised approximately $936,000 of revenue relating to the transfer of the software itself, and will recognise a further $100,000 on completion of implementation (being the value attributed as a "standalone" selling price of the implementation services). These figures are net of approximately $80,000 being an adjustment to reflect the payment terms of the contract, which will be recognised over the life of the contract as interest income. This change of revenue recognition will not have a material effect on the full year results for 2018.

 

With regard to (2) above, the Group typically provides 5 years of PCS but does not charge for the first year. This contractual structure is now recognised for revenue purposes as income accruing over the 5 years of service provision; accordingly the contractual amounts due in years 2 to 5 are in effect "discounted" and the difference recognised in year 1. The effect of this is:

 

(a) to accelerate the recognition of revenue where the PCS is charged at a deemed "market rate"; and

 

(b) to defer the recognition of revenue in the limited cases where the contractual PCS charge is lower than a market rate (the difference being deducted from the license fee)

 

The net effect of such adjustments is (i) a retrospective adjustment of $18,000 (credit) to reserves to take into account the financial effects of its implementation for periods prior to the current year (i.e. revenue would have been $18,000 greater than reported); and (ii) if the results for H1 2018 had been reported under the Group's previous accounting policies, revenue and profits would be $512,000 and $517,000 lower respectively (though this difference is not expected to have any effect on the full year results).

 

Further information on the effects of implementing IFRS 15 is given in Note 10.

 

Expenditure on non-current assets

 

Expenditure on non-current assets of $1,068,000 comprises capitalised development costs of $763,000 and expenditure on tangible assets of $305,000.  Capitalisation of intangibles as a percentage of the underlying costs in the Group's software development subsidiary was approximately 68%. The capitalisation of development costs has resulted in an intangible asset in the statement of financial position of $1,452,000 (net of amortisation; at end H1 2017: $529,000).

 

 

Current trading and outlook

 

We have full visibility of $4.9m for FY 2018 of contractual revenue from pre-acquisition contracts and the contracts acquired from Danateq are performing according to our expectations. With regard to 2019, we are in substantive discussions with a number of telcos, existing customers and new, with regard to further mViva licenses as well as a significant volume of Change Requests and contracts for the Group's enhanced range of products including Loyalty Management Solution, Emergency Credit, Data Monetisation and so on. Already contracted revenue for 2019 is $2.4m and our strong pipeline supports our expectations of further growth.

 

Our experience to date suggests that, once we make an initial sale into a new telco group, we have a greater ability to sell our mViva product to other subsidiaries in the same group. The Group's largest ever contract win from Tele2 both enables us to market more effectively to other members of that telco's group as well as establishing our credentials in managed services. Furthermore the acquisition of customer contracts and products from Danateq brings Telenor and Globe Philippines as customers.

 

Consequent to this acquisition our product portfolio has expanded sufficiently to make us a credible player in the Multichannel Marketing Hub space. This is a significant step as it opens up a plethora of opportunities - from being a single product company, Pelatro has transformed to a multi-product organisation offering a suite which is fast becoming crucial for the telcos. We believe that Pelatro is about to witness a point of inflection owing to the increasing need for personalised, contextual and relevant engagement with subscribers and our ability to fulfil that need.

 

A consequence of this scenario is the large number of potential opportunities in our pipeline. This pipeline has opportunities from existing customers for new products and enhancements, along with those from potential customers. All these developments underpin our confidence that we will continue to grow at an attractive pace in the years ahead.

 

 

Group statement of comprehensive income

 

 

6 months to

30 June

6 months to

30 June

Year to 31 December

 

 

2018

2017

2017

 

Note

USD'000

USD'000

USD'000

 

 

(unaudited)

(unaudited)

(audited)

Revenue

3

2,376

1,548

3,146

Cost of sales

 

(361)

(354)

(799)

 

 

_______

_______

_______

Gross profit

 

2,015

1,194

2,347

 

 

 

 

 

Adjusted administrative expenses

 

(781)

(222)

(546)

 

 

_______

_______

_______

Adjusted operating profit

 

1,234

972

1,801

Exceptional items - admission and related expenses

 

-

-

(701)

 

 

_______

_______

_______

Operating profit

 

1,234

972

1,100

 

 

 

 

 

Interest income

 

9

-

-

Finance expense

 

(37)

-

(4)

 

 

_______

_______

_______

Profit before taxation

 

1,206

972

1,096

 

 

 

 

 

Income tax expense

 

(145)

(153)

(252)

 

 

_______

_______

_______

PROFIT FOR THE PERIOD

 

1,061

819

844

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

Owners of the Pelatro Group

 

1,061

822

830

Non-controlling interests

 

-

(3)

14

 

 

_______

_______

_______

 

 

1,061

819

844

Other comprehensive income/(expense):

 

 

 

 

Items that will be reclassified subsequently to profit or loss:

 

 

 

 

Exchange differences on translation of foreign operations which may subsequently be reclassified to profit or loss

 

(60)

(2)

(2)

Items that not will be reclassified subsequently to profit or loss:

 

 

 

 

Gain on bargain purchase of minority interest

 

-

-

14

 

 

_______

_______

_______

Net other comprehensive income

 

(60)

(2)

12

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

 

1,001

817

856

 

 

 

 

 

Attributable to:

 

 

 

 

Owners of the Pelatro Group

 

1,001

820

842

Non-controlling interests

 

-

(3)

14

 

 

_______

_______

_______

 

 

1,001

817

856

Earnings per share

 

 

 

 

Statutory

 

 

 

 

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

4

4.4¢

5.1¢

4.8¢

Adjusted

 

 

 

 

From continuing operations (basic and diluted)

4

4.4¢

5.1¢

8.9¢

 

 

 

Group statement of financial position

 

 

As at

30 June

As at

30 June

As at 31 December

 

 

2018

2017

2017

 

Note

USD'000

USD'000

USD'000

 

 

(unaudited)

(unaudited)

(audited)

Assets

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

5

1,865

529

1,211

Property, plant and equipment

6

302

-

30

Deferred tax asset

 

-

-

113

 

 

_______

_______

_______

 

 

2,167

529

1,354

 

 

 

 

 

Current assets

 

 

 

 

Trade receivables

7

2,677

906

1,778

Contract assets

7

643

-

-

Other assets

 

356

17

217

Cash and cash equivalents

               

2,096

347

4,126

 

 

_______

_______

_______

 

 

5,772

1,270

6,121

 

 

 

 

 

Total assets

 

7,939

1,799

7,475

 

 

 

 

 

Liabilities

 

 

 

 

Non-current liabilities

 

 

 

 

Borrowings

8

420

-

266

 

 

_______

_______

_______

 

 

420

-

266

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

9

362

523

474

Short term borrowings

8

69

-

774

Deferred revenue

 

106

80

-

 

 

_______

_______

_______

 

 

537

603

1,248

 

 

 

 

 

Total liabilities

 

957

603

1,514

 

 

 

 

 

NET ASSETS

 

6,982

1,196

5,961

 

 

 

 

 

Issued share capital and reserves attributable to owners of the parent

 

 

 

 

Share capital

 

801

567

801

Share premium

 

4,472

-

4,472

Other reserves

 

(587)

(549)

(529)

Retained earnings

 

2,296

1,181

1,217

Non-controlling interests

 

-

(3)

-

 

 

_______

_______

_______

TOTAL EQUITY

 

6,982

1,196

5,961

 

 

 

 

 

 

 

 

Group statement of cash flows

 

 

6 months to

30 June

6 months to

30 June

Year to 31 December

 

 

2018

2017

2017

 

Note

USD'000

USD'000

USD'000

 

 

(unaudited)

(unaudited)

(audited)

Cash flows from operating activities

 

 

 

 

Profit for the period

 

1,061

819

844

Adjustments for:

 

 

 

 

Income tax expense recognised in profit or loss

 

145

153

247

Interest income

 

(4)

-

-

Finance costs

 

37

-

4

Depreciation of tangible non-current assets

 

20

-

1

Amortisation of intangible non-current assets

 

220

65

202

Provision for deferred taxes

 

-

-

5

Foreign exchange (gains)/losses

 

18

-

-

 

 

_______

_______

_______

Operating cash flows before movements in working capital

 

1,497

1,037

1,303

(Increase)/decrease in trade and other receivables

 

(1,022)

(766)

(1,698)

(Increase)/decrease in contract assets

 

(505)

-

-

Increase/(decrease) in trade and other payables

 

(9)

(65)

440

Increase in deferred income

 

(13)

80

-

 

 

_______

_______

_______

Cash generated from operating activities

 

(52)

286

45

 

 

 

 

 

Income tax paid

 

(263)

-

(78)

 

 

_______

_______

_______

Net cash generated from operating activities

 

(315)

286

(33)

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Acquisition of property, plant and equipment

 

(305)

-

(1)

Development of intangibles

 

(763)

(237)

(752)

Cash (out)/inflow on acquisition of subsidiaries net of cash acquired

 

(14)

-

9

 

 

_______

_______

_______

Net cash used in investing activities

 

(1,082)

(237)

(744)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Issue of ordinary shares, net of issue costs

 

-

-

4,742

Amounts advanced by related parties

 

-

-

2

Repayments to related parties

 

(407)

-

(9)

Repayment of loans from members of Pelatro LLC

 

-

-

17

Proceeds from borrowings

 

254

104

2

Repayment of borrowings

 

(339)

-

(47)

Interest income

 

4

-

-

Finance costs

 

(37)

-

(4)

Less interest accrued but not paid

 

1

-

4

 

 

_______

_______

_______

Net cash generated by/(used in) financing activities

 

(524)

104

4,707

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

(1,921)

153

3,930

Net foreign exchange differences

 

(109)

(2)

-

Cash and equivalent at beginning of period

 

4,126

196

196

 

 

_______

_______

_______

Cash and cash equivalents at end of period

 

2,096

347

4,126

 

 

 

 

 

 

 

 

 

 

Group statement of changes in equity

 

 

Share capital

 

Share premium

Exchange reserve

 

Merger reserve

Retained profits

 

Attributable to owners of the Pelatro Group

Non-controlling interests

 

Total equity

 

$'000

$'000

$'000

$'000

$'000

 

$'000

$'000

 

$'000

Pro forma balance at 1 January 2017

551

-

-

(531)

359

 

379

-

 

379

Profit after taxation for the period

-

 

-

-

822

 

822

(3)

 

819

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

Exchange difference on translation of overseas subsidiaries

-

-

(2)

-

-

 

(2)

-

 

(2)

Transactions with owners:

 

 

 

 

 

 

 

 

 

 

Shares issued by Pelatro Plc for cash

16

-

-

(16)

-

 

-

-

 

-

Issue costs

-

-

 

 

 

 

-

-

 

-

 

_____

_____

_____

_____

_____

 

_____

_____

 

_____

Balance at 30 June 2017

567

-

(2)

(547)

1,181

 

1,199

(3)

 

1,196

Profit after taxation for the period

-

 

-

-

8

 

8

17

 

25

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

Exchange differences on translation of overseas subsidiaries

-

-

-

-

 

 

-

-

 

-

Bargain purchase of non-controlling interest in subsidiary

-

 

-

-

-

14

 

14

-

 

14

Non-controlling interest lost on acquisition of minority interest in subsidiary

-

-

-

-

14

 

14

(14)

 

-

Transactions with owners:

 

 

 

 

 

 

 

 

 

 

Reserves arising on reconstruction

(20)

-

-

20

-

 

-

-

 

-

Shares issued by Pelatro Plc for cash

254

4,901

-

-

-

 

5,155

-

 

5,155

Issue costs

-

(429)

 

 

 

 

(429)

-

 

(429)

 

_____

_____

_____

_____

_____

 

_____

_____

 

_____

Balance at 31 December 2017 as previously reported

801

4,472

(2)

(527)

1,217

 

5,961

-

 

5,961

Effect of IFRS 15

-

 

-

-

18

 

18

-

 

18

 

_____

_____

_____

_____

_____

 

_____

_____

 

_____

Balance at 31 December 2017 as restated

801

4,472

(2)

(527)

1,235

 

5,979

-

 

5,979

Profit after taxation for the period

-

 

-

-

1,061

 

1,061

-

 

1,061

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

Exchange differences on translation of overseas subsidiaries

-

-

(58)

-

 

 

(58)

-

 

(58)

 

_____

_____

_____

_____

_____

 

_____

_____

 

_____

Balance at 30 June 2018

801

4,472

(60)

(527)

2,296

 

6,982

-

 

6,982

 

 

 

 

 

 

 

 

 

 

 

                       

 

 

Notes to the Group financial statements

 

1. General information

 

Pelatro Plc is a public limited company listed on the AIM Market of the London Stock Exchange, incorporated and domiciled in the England and Wales under the Companies Act 2006. The address of its principal place of business is 403, 7th A Main, HRBR Layout 1st Block, Kalyan Nagar, Bangalore,  560043, India and its registered office is 49 Queen Victoria Street, London EC4N 4SA.

 

 

2. Basis of preparation

 

The Group has prepared its interim financial statements for the 6 months ended 30 June 2018 (the "interim results") in accordance with the recognition and measurement principles of International Financial Reporting Standards ("IFRS") as adopted by the European Union and also in accordance with the recognition and measurement principles of IFRS issued by the International Accounting Standards Board. They have been prepared under the historical cost convention as modified to include the revaluation of certain non-current assets.  The accounting policies used in the interim results are consistent with IFRS and those which will be adopted in the preparation of the Group's Annual Report and Financial Statements for the year ended 31 December 2018.

 

As permitted, the interim results have been prepared in accordance with the AIM Rules of the London Stock Exchange and not in accordance with IAS34 "Interim Financial Reporting". They do not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 and are unaudited.

 

Changes in accounting policy

 

(a) IFRS 15

 

IFRS 15 (effective for the Group's IFRS financial statements for the period beginning on 1 January 2018) replaces IAS 18 "Revenue", IAS 11 "Construction Contracts" and related interpretations. This standard introduces a single, five-step revenue recognition model that is based upon the principle that revenue is recognised at the point that control of goods or services is transferred to the customer. The standard also updates revenue disclosure requirements.

 

The Directors have considered the effect of the adoption of IFRS 15 on the Group's activities, and in particular on (i) the revenue recognition of the Group's on-premise software license contracts, which combine the delivery and implementation of software; and (ii) support and maintenance services ("post contract support" or "PCS"). Under accounting policies applicable to prior years, the Group recognised license income in accordance with contractual milestones agreed with customers, and PCS as invoiced (typically after one year free of payment). Implementation services were typically included in the overall cost of the license.

 

(b) Revised accounting policies under IFRS 15

 

As part of the review of IFRS 15 accounting policies, the Directors have considered whether such contracts represent a right and ability to use the software at the point of initial delivery (with license revenue recognisable at that point), and a further delivery of implementation services, irrespective of associated cashflows. The Directors have concluded that:

 

(1) such license contracts represent an immediate right and ability to benefit from the software and hence that an appropriate amount of the total fee payable should be recognised at that point;

 

(2) a further appropriate amount (based on a deemed "market rate" for such services as if provided on a standalone basis) should also be recognised on completion of the implementation; and

 

(3) PCS income should be recognised rateably over the term of the contract provision

 

The Group's four other revenue categories are: gain share contracts; change requests; consulting/managed services and hardware. Of these, gain share contracts have a performance obligation that is met at points in time as defined by the contract (typically monthly). Likewise change requests are typically short term projects which performance obligation is met on delivery of the relevant update in the software to the customer. Revenue from the sale of hardware has a performance obligation that is met at a point in time, being the point in time when hardware is delivered or installed. The performance obligations for the Group's consulting and managed service activities (which have not produced revenue in the period under review) are typically satisfied over time, either as the service is provided or the project delivered.

 

(c) application of IFRS 15

 

The Group has applied IFRS 15 using the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of equity at 1 January 2018. Therefore, the comparative information has not been restated and continues to be reported under IAS 11 and IAS 18. The details of the significant changes and the quantitative impact of the changes are set out in Note 10.

 

(d) IFRS 9

 

The Group has adopted IFRS 9 "Financial Instruments" from 1 January 2018, replacing IAS 39 "Financial instruments: Recognition and Measurement". IFRS 9 sets out the requirements for assessing the impairment of financial assets, requiring consideration of the likelihood of default of trade receivables, firstly by splitting out the high risk balances and continuing to provide for these separately, and then applying a loss rate to the remaining balance where it is known from experience that the loss rate is not nil. On the basis that the Group has no history of unprovided trade receivable write offs, adopting this new standard has not had a material impact and accordingly no financial restatement has been made. It has not had a significant effect on the Group's accounting policy, which is to make specific provisions against high risk trade receivable balances, where balances are in dispute or where doubt exists about the customer's ability to pay.

 

IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities and has not had a significant effect on the Group's accounting policy.

 

Going concern

 

The Directors have considered trading and cash flow forecasts prepared for the Group, and based on these, and confirmed banking facilities, are satisfied that the Group will continue to be able to meet its liabilities as they fall due for at least one year from the date of these results.  On this basis, they consider it appropriate to have adopted the going concern basis in the preparation of the interim results, which were approved by the Board of Directors on 25 September 2018.

 

 

Comparative financial information

 

The H1 2017 comparative information represents the consolidated results of the Pelatro LLC group prior to the acquisition of Pelatro LLC by Pelatro Plc. This information is extracted from the admission document of the Company dated 13 December 2017 issued in connection with the admission of the Company's Ordinary Shares to trading on AIM (the "Admission Document") and which contained an accountants' report on this information as required by paragraph 20.1 of Annex 1 of the Prospectus Directive Regulation as applied by part (a) of Schedule Two to the AIM Rules for Companies, which was given for the purposes of complying with the AIM Rules and for no other purpose.

 

Statutory accounts for the year ended 31 December 2017, which were prepared under IFRS, have been filed with the Registrar of Companies.  These statutory accounts carried an unqualified Auditors Report and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

 

 

3. Segmental analysis

 

Operating segments

 

For management purposes, the Group's activities are principally related to the provision of data analytics services to customers, and all other activities performed by the Pelatro Group are solely to support its primary revenue generation activities. All the processes are primarily subject to the same risks and returns and the Directors therefore consider that there are no identifiable business segments that are subject to risks and returns different to the core business. As such, internal reporting provided to the chief operating decision-maker ("CODM", which has been determined to be the Board of Directors) for making decisions about resource allocations and performance assessment relates to the consolidated operating results of the Pelatro Group.

 

Accordingly, the Directors have determined that there is only one reportable segment under IFRS 8 and the financial information therefore presents entity-wide information. The results and assets for this segment can be determined by reference to the statement of comprehensive income and statement of financial position.

 

The Pelatro Group primarily serves customers in Africa, Asia and the Caribbean.

 

Revenue by geography

 

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

 

 

6 months to

30 June

6 months to

30 June

Year to  31 December

 

2018

2017

2017

 

USD'000

USD'000

USD'000

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

Caribbean

189

134

331

North Africa

288

691

756

Sub-Saharan Africa

370

-

155

Central Asia

987

-

-

South and South East Asia

542

723

1,904

 

_______

_______

_______

 

2,376

1,548

3,146

 

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

 

Revenue by type

 

The Group's revenue is analysed between the sale of licenses to use mViva software, associated maintenance and support, and the resale of hardware to host the software, as set out in the following table:

 

 

6 months to

30 June

6 months to

30 June

Year to  31 December

 

2018

2017

2017

 

USD'000

USD'000

USD'000

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

License fees (including implementation)

1,568

1,098

2,264

Gain share contracts

161

138

467

Change requests

414

50

151

Maintenance and support

228

7

9

Resale of hardware

5

255

255

 

_______

_______

_______

 

2,376

1,548

3,146

 

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

 

 

6 months to

30 June

6 months to

30 June

Year to 31 December

 

2018

2017

2017

 

USD'000

USD'000

USD'000

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

(i) Revenue invoiced to customers under contractual terms

 

488

1,548

3,089

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

 

1,376

-

57

(iii) Revenue recognised other than (ii) (i.e. on the completion of performance obligations but before any billing milestone is reached)

 

512

-

-

 

_______

_______

_______

 

 

 

 

Total revenue recognised in the year

2,376

1,548

3,146

 

 

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

 

 

4. Earnings

 

Reported earnings per share

 

Basic earnings per share ("EPS") amounts are calculated by dividing net profit or loss for the year attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the year (such calculation having been adjusted to reflect the issue of ordinary shares by the Company for the acquisition of Pelatro LLC as if these shares had been issued on incorporation of Pelatro LLC). A calculation of diluted earnings per share is not applicable as there were no dilutive potential shares outstanding at the end of the reporting periods.

 

In respect of figures for the 6 months ended 30 June 2017, as equity capital was represented by members' interests and not ordinary shares, pro forma earnings per share has been included based on the relevant number of shares in the Company following the group reorganisation but prior to the issue of shares to raise new funds on admission to AIM.

 

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

 

 

6 months to

30 June

6 months to

30 June

Year to 31 December

 

2018

2017

2017

 

USD'000

USD'000

USD'000

 

(unaudited)

(unaudited)

(audited)

Profit attributable to equity holders of the parent:

 

 

 

Continuing operations

1,061

822

830

 

_______

_______

_______

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

1,061

822

830

 

 

 

 

Weighted number of ordinary shares in issue

24,313,252

16,211,040

17,273,968

 

 

 

 

Basic earnings per share attributable to shareholders

4.4¢

5.1¢

4.8¢

 

 

 

 

Basic earnings per share for continuing operations attributable to shareholders

4.4¢

5.1¢

4.8¢

 

 

Adjusted earnings per share

 

Adjusted earnings per share is calculated as follows:

 

 

6 months to

30 June

6 months to

30 June

Year to 31 December

 

2018

2017

2017

 

USD'000

USD'000

USD'000

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

Statutory earnings attributable to owners of the Parent

1,061

822

830

Adjusting items:

 

 

 

 - exceptional items

-

-

701

 

_______

_______

_______

Adjusted earnings attributable to owners of the Parent

1,061

822

1,531

 

 

 

 

Weighted number of ordinary shares in issue

24,313,252

16,211,040

17,273,968

 

 

 

 

Adjusted earnings per share attributable to shareholders

4.4¢

5.1¢

8.9¢

 

 

5. Intangible assets

 

Intangible assets comprise capitalised development costs, acquired software and goodwill.

 

 

Development costs

Purchased

software

Goodwill

Total

 

USD'000

USD'000

USD'000

USD'000

Cost

 

 

 

 

At 1 January 2018

1,290

32

287

1,609

Additions

763

-

-

763

Fair value adjustment

-

-

113

113

Effect of foreign exchange movements

-

(2)

-

(2)

 

_______

_______

_______

_______

At 30 June 2018

2,053

30

400

2,483

 

 

 

 

 

Amortisation or impairment

 

 

 

 

At 1 January 2018

(382)

(16)

-

(398)

Charge for the year

(219)

(1)

-

(220)

Effect of foreign exchange movements

-

-

-

-

 

_______

_______

_______

_______

At 30 June 2018

(601)

(17)

-

(618)

 

 

 

 

 

Net carrying amount

 

 

 

 

At 30 June 2018

1,452

13

400

1,865

 

 

 

 

 

At 1 January 2018

908

16

287

1,211

 

During the period, further evidence was obtained in respect of the deferred tax asset of $113,000 that was recognised as part of the acquisition of Pelatro Solutions Private Limited in December 2017. As this related to the conditions existing at the date of acquisition and was obtained within one year of the acquisition date, IFRS 3 allows for the acquisition accounting to be revised. Consequently the deferred tax asset has been derecognised and a corresponding increase has been made to goodwill.

 

Comparative figures for the prior period are as follows:

 

 

Development costs

Purchased

software

Goodwill

Total

 

USD'000

USD'000

USD'000

USD'000

Cost

 

 

 

 

At 1 January 2017

538

-

-

538

Additions

237

-

-

237

 

_______

_______

_______

_______

At 30 June 2017

775

-

-

775

 

 

 

 

 

Amortisation or impairment

 

 

 

 

At 1 January 2017

(181)

-

-

(181)

Charge for the year

(65)

-

-

(65)

 

_______

_______

_______

_______

At 30 June 2018

(246)

-

-

(246)

 

 

 

 

 

Net carrying amount

 

 

 

 

At 30 June 2017

529

-

-

529

 

 

 

 

 

At 1 January 2017

357

-

-

357

 

 

 

6. Tangible assets

 

Tangible assets comprise computer and office equipment, and vehicles

 

 

Computer

equipment

Office

equipment

Vehicles

Total

 

USD'000

USD'000

USD'000

USD'000

Cost

 

 

 

 

At 1 January 2018

56

4

-

60

Additions

25

1

279

305

Effects of foreign exchange movements

(5)

-

(12)

(17)

 

_______

_______

_______

_______

At 30 June 2018

76

5

267

348

 

 

 

 

 

Amortisation or impairment

 

 

 

 

At 1 January 2018

(29)

(1)

-

(30)

Charge for the period

(8)

-

(12)

(20)

Effects of foreign exchange movements

3

-

1

4

 

_______

_______

_______

_______

At 30 June 2018

(34)

(1)

(11)

(46)

 

 

 

 

 

Net carrying amount

 

 

 

 

At 30 June 2018

42

4

256

302

 

 

 

 

 

At 1 January 2018

27

3

-

30

 

All categories of tangible assets other than vehicles (which were acquired in the period) were acquired as a result of the acquisition of PSPL on 12 December 2017; accordingly, it is not relevant to present comparative information for 2016.

 

 

7. Trade and other receivables

 

The timing of revenue recognition, invoicing and cash collection results in: the recognition of the following assets on the Consolidated Statement of Financial Position:

 

(i) invoiced accounts receivable;

 

(ii) accounts invoiceable but uninvoiced at the period end (i.e. "unbilled revenue" or UBR) (together with (i) "trade receivables"); and

 

(iii) as required by IFRS 15, amounts relating to revenue recognised but not invoiceable at the date of the statement of financial position under the terms of the contract ("contract assets")

 

Contracts with a Significant Financing Component as defined by IFRS 15 will also result in an accrued interest receivable balance (as well as related interest income in the Group statement of comprehensive income).

 

 

Trade receivables

 

Trade receivables amounted to $2.68 million (at 30 June 2017: $906,000), net of a provision of £nil (as at 30 June 2017: £nil) for impairment.

 

Trade receivables analysed by age were as follows:

 

 

Carrying amount

Neither impaired or past due

Past due but not impaired

 

 

 

61-90 days

91-120 days

More than 121 days

 

USD'000

USD'000

USD'000

USD'000

USD'000

As at 30 June 2018

 

 

 

 

 

Trade receivables

2,677

1,838

-

-

839

 

           

 

 

 

 

As at 30 June 2017

 

 

 

 

 

Trade receivables

906

847

-

8

51

 

 

 

 

 

 

As at 31 December 2017

 

 

 

 

 

Trade receivables

1,778

1,022

-

-

756

 

 

8. Loans and borrowings

 

As at

30 June

As at

30 June

As at 31 December

 

2018

2017

2017

 

USD'000

USD'000

USD'000

 

(unaudited)

(unaudited)

(audited)

Non-current liabilities

 

 

 

Secured term loans

420

-

266

 

_______

_______

_______

 

420

-

266

Current liabilities

 

 

 

Current portion of term loans

69

-

30

Unsecured borrowings

-

-

744

 

_______

_______

_______

 

69

-

774

 

 

 

 

Total loans and borrowings

489

-

1,040

 

Unsecured current borrowings at 31 December 2017 comprised loans from Directors of the Company of $428,000 (at nil interest cost) and an overdraft facility ($316,000) from a commercial bank (which carries an interest rate of 10.5%). The loans from Directors and the overdraft were completely repaid in the period.

 

 

9. Trade and other payables

 

As at

30 June

As at

30 June

As at 31 December

 

2018

2017

2017

 

USD'000

USD'000

USD'000

 

(unaudited)

(unaudited)

(audited)

Due within a year

 

 

 

Trade payables

63

266

53

Other payables

256

153

320

Amounts due to related parties

43

104

101

 

_______

_______

_______

Total trade and other payables

362

523

474

 

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

 

 

10. Further impacts of the adoption of IFRS 15 "Revenue from Contracts with Customers"

 

Introduction

 

The Group has applied IFRS 15 using the cumulative effect of initially applying the effects of the new revenue standard as an adjustment to the opening balance of equity at 1 January 2018. Therefore, the relevant comparative information has not been restated and continues to be reported under IAS 11 and IAS 18. The details of the significant changes and the quantitative impact of the changes are set out below:

 

·              A net $18,000 credit to retained profits brought forward relating to the recognition of the impact on transition to IFRS 15 at 1 January 2018. The adjustment relates to the unbundling of certain contracts according to the Group's assessment of each contract's performance obligation to be delivered to its customers, and comprises:

 

(i) a creditor balance of $119,000 in contract liabilities relating to PCS income invoiced but not yet performed; and

 

(ii) a debtor balance of $137,000 relating to PCS income recognised but not invoiceable

 

·              In addition to the impact on equity following transition to IFRS 15 at 1 January 2018, the Group's consolidated balance sheet is also impacted as a result of moving away from IAS 11 balance sheet captions to those prescribed by IFRS 15. The main reclassification adjustment is in relation to adding captions relating to "contract assets" and "contract liabilities"

 

 

Impact on the Group's consolidated income statement at 30 June 2018

 

At 30 June 2018, the Group would have recognised a reduced profit of $517,000 if it had continued to apply IAS 11 and IAS 18 in 2018. There is no other impact on the Group's consolidated income statement for the first-half of the year as a result of applying previous revenue accounting standards.

 

 

Impact on the Group's consolidated balance sheet at 30 June 2018

 

The Group's consolidated balance sheet is impacted by balance sheet reclassifications and as a result of adopting balance sheet captions prescribed by IFRS 15. These are as follows:

 

·              Recognition of a debtor balance of $240,000 relating to PCS income recognised but not yet invoiceable;

 

·              Recognition of a debtor balance of $396,000 relating to license income recognised but not yet invoiceable;

 

·              Recognition of a debtor balance of $5,000 relating to notional interest income resulting from the Significant Financing Component of a contract; and

 

·              Recognition of a creditor balance of $107,000 in contract liabilities relating to PCS income invoiced but not yet performed; and

 

 

Practical expedients

 

The Group has elected to make use of the following practical expedients:

 

*              Completed contracts under IAS 11 and IAS 18 before the date of transition have not been reassessed

 

*              Contract costs incurred relating to contracts with an amortisation period of less than one year have been expensed as incurred

 

*              As permitted by paragraph 12.1 of IFRS 15 the Group does not disclose information about remaining performance obligations that have original expected durations of one year or less

 

*              As permitted by paragraph C5(d) of IFRS 15 the Group does not disclose the amount of transaction price allocated to the remaining performance obligations nor an explanation of when the Group expects to recognise that revenue

 

A summary of these changes is as follows:

 

31 December 2017

 

31 December 2017

 

As reported

Effect of IFRS 15

As adjusted

 

USD'000

USD'000

USD'000

 

(audited)

(unaudited)

(unaudited)

 

 

 

 

Income statement

 

 

 

Revenue

3,146

18

3,164

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

Current assets

 

 

 

Trade receivables

1,721

-

1,721

Accrued income - UBR

57

-

57

Accrued income - contract assets

-

137

137

 

_______

_______

_______

Total trade and related receivables

1,778

137

1,915

 

 

 

 

Current liabilities

 

 

 

Contract liabilities

-

(119)

(119)

 

 

 

 

Equity

 

 

 

Accumulated profits

1,217

18

1,235

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

Basic

4.8¢

0.1¢

4.9¢

Adjusted (non IFRS)

8.9¢

0.1¢

9.0¢

 

 


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