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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Castleton Technology Plc | LSE:CTP | London | Ordinary Share | GB00BYV2WV72 | ORD 2P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 94.75 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCTP
RNS Number : 7855R
Castleton Technology PLC
19 June 2018
Castleton Technology plc
("Castleton", the "Group" or the "Company")
Final Results
For the Year Ended 31 March 2018
Castleton Technology plc (AIM: CTP), the software and managed services provider to the public and not-for-profit sectors, announces its audited final results for the year ended 31 March 2018.
Financial Highlights
-- Revenue up 15% to GBP23.3 million (FY17: GBP20.3 million) of which 60% is recurring (2017: 65%)
-- Adjusted EBITDA* up 17% to GBP5.1 million (FY17: GBP4.4 million) -- Operating cashflow pre exceptionals up 13% to GBP5.2 million (FY17: GBP4.6 million)
-- Post exceptionals at GBP4.5 million (FY17: GBP3.8 million)
-- Operating cash conversion pre exceptionals consistently strong at 101% (FY17: 105%)
-- Post exceptionals at 88% (FY17: 86%)
-- Total net debt reduced from GBP9.0 million to GBP6.3** million -- Basic EPS up 786% to 5.23 pence from 0.59 pence for FY17
Operational Highlights
-- 77% of new product and service sales were to existing customers showing significant progress in cross-selling strategy
-- 40% of customers now taking more than one product or service, up from 35% in FY17 -- Secured significant multi-year and multi-product contracts throughout the year, including:
-- 7 year, GBP2.6 million contract with North Hertfordshire Homes for the provision of a fully managed hosted desktop service
-- 10 year contracts with both Co-operative Housing Ireland ("CHI") and Circle VHA, Ireland, for the integrated product suite, with CHI's on a hosted basis
-- Existing customer New Gorbals added four additional solutions to now have the complete solution set
-- Acquisition of Kinetic Information Systems Pty Ltd ("Kinetic"), the leading provider of software solutions to the Community Housing sector in Australia, for an initial cash consideration of AU$2.0 million (GBP1.14 million)
-- Strategic acquisition to enable Castleton to leverage Kinetic's market leading status and enhance the Group's existing operations in Australia's growing Community Housing sector
-- Post year end acquisition of exclusive and perpetual licence in relation to the platform upon which Castleton's modelling solution, is based, for GBP1.6 million in cash and shares, as announced today
-- No more licence fees payable, thereby enhancing the Group's margin by c.GBP0.3 million per annum
-- Licence enables Castleton to use, modify, maintain, distribute and sell the platform
Corporate Highlights
-- Removal of all evergreen options from Company's balance sheet
-- Establishment of new Long-Term Incentive Plan to incentivise certain members of the Company's management team expected to be instrumental in the creation of long-term value for shareholders
Dean Dickinson, CEO of Castleton, said: "We are pleased to report that Castleton has continued to perform well in delivering another year of significant organic growth in both revenues and profit, underpinned by ongoing excellent cash generation. The Group has also achieved a number of key operational milestones, notably the delivery of our integrated product suite on two milestone contracts and the acquisition of Kinetic, enhancing our existing operations in Australia's growing Community Housing sector."
"We have begun to capitalise on cross-selling opportunities with an impressive 77% of new sales being to existing customers, though there is still significant opportunity to further penetrate our customer base. We also continue to see success in winning significant, multi-year contracts with new customers. 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."
*Before net finance costs, depreciation, amortisation, exceptional costs and share based payment charges
**Excluding GBP1.6 million owed in respect of exercise of options held by MXC Guernsey Limited, as announced on 21 February 2018
The Annual Report and Accounts for the year ended 31 March 2018 will be posted to shareholders at least 21 days prior to the AGM and a copy is available on the Company's website at www.castletonplc.com.
Please see a video of the Company's results here http://bit.ly/CTP_FY18.
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Enquiries: Castleton Technology plc Tel. +44 (0)845 241 0220
Dean Dickinson, Chief Executive
Officer
Haywood Chapman, Chief Financial
Officer
finnCap Ltd Tel. +44 (0)20 7220 0500
Jonny Franklin-Adams / Simon Hicks
MXC Capital Markets LLP Tel. +44(0)20 7965 1849
Charlotte Stranner
Alma PR Tel. +44(0) 7780 901979
Rebecca Sanders-Hewett/ Helena
Bogle/ Josh Royston
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 contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.
Chairman's Statement
Dear Shareholder
I am pleased to be able to report on another year of solid progress for Castleton. Following the acquisitive growth of prior years to build our market position, the financial year ended 31 March 2018 has been a year where execution of the strategy of building a cash generative, recurring revenue business showing good levels of organic growth has been demonstrated. The year has also seen significant success in cross-selling into the customer base with 77% of new sales being with existing customers. The level of cash generation has continued to be impressive, allowing the Group not only to reduce net debt, but also make a bolt-on acquisition which has bolstered our presence in the Australian market.
The Board
There have been changes at Board level as the Group continues to grow and evolve.
Ian Smith, Executive Deputy Chairman, stepped down from the Board on 18 July 2017. I would like to thank Ian for his instrumental role in establishing and delivering Castleton's organic and acquisitive growth strategy, formerly as CEO and latterly as Executive Deputy Chairman. During his tenure on the board we have built a leading supplier of software and IT managed services within the public and not for profit sectors and he leaves us well placed to maximise the opportunities we see in our chosen markets.
On 18 July 2017 Paul Gibson was appointed as Non-Executive Director. Paul is an operating partner at MXC Capital Limited and has had a highly successful career in the TMT sector, most recently as Chief Operating Officer of Advanced Computer Software Plc ("ACS") prior to its acquisition by Vista Equity Partners for GBP725 million. In his five years at ACS Paul oversaw a period of exceptional value creation and transformation, with responsibility for driving both organic and acquisitive growth. Prior to ACS, Paul held a number of senior roles in both financial and operational capacities, latterly as finance director of Redac Limited, the Alchemy backed turnaround that was subsequently sold to ACS for GBP100 million. The foundations of Paul's career were built at Unigate GrandMet (now Diageo) and Oracle.
Opportunity / Outlook
We continue to see enormous potential to become the supplier of choice for software and IT services in the social housing market. The breadth and level of integration of our offering and expertise provides our customers with the technology and services that they require and means there is a significant cross-sell opportunity for the Group. Though we have started to gain traction in cross-selling our product and service set to our existing customers, the level of penetration across our customer base is still low and continues to represent a significant opportunity and this, combined with a healthy pipeline of new business, gives me confidence for the year ahead.
As well as changes at Board level as mentioned above, there has been a significant strengthening of the senior management team within the Group consisting of new role creation and external hires. To help drive performance, the Group has established a new Long-Term Incentive Plan (the "LTIP") in order to incentivise the senior management team who are expected to be instrumental in the creation of long-term value for shareholders. The options are exercisable at the nominal value of the Ordinary Shares and represent approximately 1.7% of the current issued share capital of the Group. The LTIP provides for the options to vest in stages dependent on the share price growth, with full vesting being dependent on the Group's share price growing at 40% per annum over a three-year period from a base price of 68 pence, being the share price at the date the Board resolved to establish the LTIP.
With the team now in place, which has been much enhanced during the current year, a broad customer base, a wide range of products and services and solid cash flows enabling repayment of debt, I am confident of our future success and I expect that the Group will show further growth when it next reports.
Given our confidence in future prospects, the Board intends to implement a progressive dividend policy during the current year.
Chief Executive's Review
Overview
I am pleased to report the significant progress the Group has made during the financial year to 31 March 2018, demonstrating double digit organic growth at both the revenue and EBITDA level. Excellent cash generation has not only resulted in a continued reduction in net debt, but also enabled the small bolt-on acquisition of Kinetic Information Systems Pty Ltd ("Kinetic") to be made to enhance our Australian operation.
In addition, the development of the integrated product suite was completed to schedule in September 2017 and delivered to customers for implementation starting in October 2017. This gives us further opportunities to deliver a fully integrated ERP housing suite as well as individual best in class software solutions. We sold our first integrated product suite, delivered in the Cloud by our Managed Services division, which has gone live in June 2018. This has given us the platform to deliver significant organic growth as well as increasing the number of solutions sold to our customers.
The focus during the year has also been on optimising the business, strengthening the management team and business platform and expanding our product offering which will in turn allow the Group to grow and maximise the opportunities available in our chosen market.
Our Market and What We Do
The markets in which we operate are focused around public sector and not-for-profit social housing but also include the contractors who provide repairs services to the social housing providers. Castleton now has six offices in the UK and a growing operation in Australia, which was expanded during the year by the acquisition of Kinetic, demonstrating our ability to grow and scale our business in a new geography.
The Group remains aligned along two divisions; Software Solutions and Managed Services, with each focusing on their separate, yet complementary, offerings.
Our Software Solutions division provides all key business processes to social landlords covering everything from tenant engagement, rent collection, financial planning and control, document management and repairs management. All key processes are available to be utilised on a mobile platform via apps or digital engagement. The range of solutions provides customers with significant improvements in service, performance and insight, as well as delivering a solid return on investment.
Our Managed Services division offers a wide range of IT infrastructure solutions which support an organisation's business objectives, including helping to drive efficiencies, manage legacy architectures or providing customers and staff with the latest social, mobile and cloud technologies. We also have the capability to provide a full IT outsource service where we become the Housing Associations IT capability.
Trading Results
Revenue for the year showed an increase of 14.9% to GBP23.3 million (2017: GBP20.3 million) with 60% of revenue being recurring in nature (2017: 65%). Adjusted EBITDA* showed a stronger performance, improving by 16.7% to GBP5.1 million (2017: GBP4.4 million), reflecting the Company's operational gearing and ability to scale profitably.
The underlying metrics of the business were particularly encouraging. The Managed Services division's trading EBITDA** grew 10.0% year on year from GBP3.0 million in the prior year to GBP3.3 million in the current year as we look to transition to more profitable deals. The Software Solutions division's trading EBITDA** grew 18.5% from GBP2.7 million in the prior year to GBP3.2 million in the current year.
Operating cash conversion was outstanding for the second year in a row at 101% of adjusted EBITDA* (2017: 105%) and 88% of adjusted EBITDA* post exceptional costs (2017: 86%), demonstrating the cash generative nature of the business. The cash generated enabled a reduction in net debt*** and also the acquisition of Kinetic. The earnings per share at a basic level was 5.23p, compared to earnings per share of 0.59p in the previous year, driven by growth in EBITDA*, significant exceptional credits and recognition of deferred tax assets relating to brought forward losses.
*Earnings for the year from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional costs and share based payment charges.
** Trading EBITDA before Group costs (i.e. the cost of the plc Board and its advisors)
*** Net cash less borrowings, deferred consideration and convertible loan notes.
Kinetic
On 1 December 2017, the Group acquired Kinetic, the leading provider of software solutions to the Community Housing sector in Australia, for an initial cash consideration of AU$2.6 million (GBP1.48 million) financed through cash generated in the year. The AU$2.6 million included $0.6 million (GBP0.34 million) for cash acquired with the business.
Kinetic is Australia's leading provider of ERP software solutions for the Australian social housing sector and has 50 customers, with revenue of AUS$ 2.3 million and normalised EBITDA of AUS$ 0.6 million for the year to 30th June 2017. Adding Kinetic to the existing business in Australia gives Castleton a stronger market presence and adds scale to the operation. The 50 customers also present an opportunity to cross sell Castleton products, thereby increasing organic growth potential and creating value for these customers.
To drive the Australian focus, during the year, we have recruited a new experienced General Manager to head up Castleton Australia and help evolve the business in that geography.
Operational Review
During the year, we have continued to make improvements to the quality of the business processes, people, structure and control. We have also launched new products, both our own IP and partnering arrangements. I am therefore confident that the organic growth demonstrated during the current year will continue as we further cross-sell into the customer base. Our contracted backlog of revenue has grown by 9%, which gives us good forward visibility of revenue.
The increase in revenues was driven by the addition of new customers and through cross-selling of products and / or services into the Group's existing base. During the year, existing customers took 77% of new product sales demonstrating the cross-sell uptake and the number of those who have two or more of our products increased to 40% from 35% in 2017. Whilst this shows good progress, it also means that 60% of our customer base still uses just one product, providing a very strong opportunity for further organic growth. The acquisition of Kinetic brings another 50 customers in the Australian market into which we can cross-sell other products from the Castleton group.
The individual value of new contracts continues to grow. New contracts signed during the year include a seven-year contract with North Hertfordshire Homes with a total contract value of GBP2.6 million for the provision of a fully managed hosted desktop service and five housing deals selling the integrated product including a 10-year deal with Co-operative Housing Ireland. Not only is this deal significant due to the 10-year tenure of the contract, but Co-operative Housing Ireland are the first of our customers to take a number of modules of the integrated product on a hosted basis. In addition, an existing customer New Gorbals has now purchased the complete solution set including our Business Intelligence suite with the latest purchase adding four additional solutions to the five that they had previously procured. This further demonstrates the cross-sell opportunity.
In order to increase our ability to create further innovative IP solutions we have entered into a service agreement with an Indian development capability. This will allow us to bring new solutions to the market quicker and at a reduced cost when compared to UK development costs.
Outlook
Castleton is increasingly well positioned to provide an eco-system of integrated modular solutions supported by scalable infrastructure platforms, helping organisations to operate more effectively and achieve their goals, whilst bringing visible recurring annuity revenues to the Group. We see the public and not-for-profit sectors as attractive markets due to their niche requirements and we believe a significant opportunity exists to capitalise on the ability to address historic under-investment in IT infrastructure in those sectors.
The Group has clearly demonstrated execution of the strategy we have set out and I am confident that the business will continue to maximise the opportunities that we see in our chosen markets by offering our customers an integrated suite of products, either on an installed or cloud delivery basis, in turn allowing them to increase efficiencies and lower their costs of operating. We have now developed a fully integrated solution, which is demonstrable and referenceable and which will enable us to bid for more new opportunities.
The new financial year has started well and is comfortably in line with expectations. The Group has good visibility of revenues, a strong product pipeline, and a significantly improved structure, even compared to a year ago, that will enable us to continue to execute our strategy. Our growing customer base provides a significant opportunity for cross-selling, adding further organic growth along with new customers. The Board continues to view the future with confidence.
Financial Review
I am pleased to present this report as Chief Financial Officer.
Principal events and overview
The year ended 31 March 2018 has been one of demonstrating the impact of the strategy started in 2014 of bringing together a number of best of breed software and managed services providers to the social housing market. Organic growth, which excludes revenue of GBP0.4 million and adjusted EBITDA* of GBP0.1 million for Kinetic, has been 12.9% at the revenue level and 15.1% at the adjusted EBITDA* level, demonstrating operational leverage as additional recurring revenues are added. Recurring revenues now stand at GBP14.0 million (2017: GBP13.1 million) representing 60% (2017: 65%) of total revenue.
Cash generation has been very pleasing with cash generated from operations during the year of GBP5.2 million (2017: GBP4.6 million), thereby representing 101% operating cash conversion. The resulting cash flow has allowed us to reduce net debt to GBP6.3 million (including convertible loan notes and deferred consideration) from GBP9.0 million at the end of the prior year. The balance of the loan from Barclays Bank has reduced by GBP1.0 million from GBP4.3 million to GBP3.3 million during the year.
The cash generative nature of the business has also allowed us to agree to pay cash of GBP1.7 million to MXC Guernsey Limited, a wholly owned subsidiary of MXC Capital Limited (together, "MXC") to acquire the B shares MXC held in Castleton Technology Intermediate Holding Company Limited which were issued in July 2015 and which entitled MXC to 5% of shareholder value created from that date (the "MXC Scheme"). With regard to the GBP1.7 million payable in respect of the MXC Scheme, the cash was paid post year-end on 3 April 2018. If this had been paid pre year-end, resulting net debt would have been GBP8.0 million.
The strong levels of cash flow also enabled us to repay during the year GBP0.5 million of the GBP3.5 million convertible loan notes issued to part fund the acquisition of Kypera ("Kypera Loan Notes"), leaving GBP2.5 million Kypera Loan Notes outstanding at the year-end. These actions have avoided any dilution from the MXC Scheme and reduced the dilutive effect of the Kypera Loan Notes.
The cash generated also allowed us to acquire Kinetic Information Systems Pty Ltd ("Kinetic") for AUS$2.0 million (GBP1.14 million) - net of cash acquired - which has bolstered our presence in the Australian market and added 50 customers to our customer base.
Included in exceptional items is a restructuring charge of GBP0.1 million relating to the closure in the year of a scanning bureau in one of the Group's offices which led to 20 redundancies and hence the reduction in average headcount in the year from 185 in 2017 to 169. Scanning services to our customers are now provided by a specialist third party scanning provider.
Key Performance Indicators ('KPIs')
On a monthly basis, the Directors review KPIs relating to revenue, operating costs and cash to ensure the continued growth and development of the Group. Primary KPIs for 2017 and 2018 were:
Year to 31 March 2018 Year to 31 March 2017
GBP'000 GBP'000
---------------------------------------------------------------------- ---------------------- ----------------------
Total revenue 23,279 20,269
Recurring revenue 13,996 13,135
Gross Margin % 69% 70%
Adjusted trading EBITDA* 6,468 5,680
Adjusted EBITDA* 5,115 4,383
Adjusted EBITDA* as % of revenue 22.0% 21.6%
Operating profit 2,142 189
Cash generated from operations 5,177 4,581
Cash conversion ratio (Cash generated from operations/Adjusted
EBITDA*) 101% 105%
Net debt excluding deferred consideration and loan notes 2,840 4,136
Net debt including deferred consideration and loan notes 6,301 8,953
Average headcount (number) 169 185
Adjusted EBITDA per head 30.3 23.7
---------------------------------------------------------------------- ---------------------- ----------------------
*Earnings for the year from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional costs and share based payment charges.
Trading results
The trading results for the year comprise a full year of trading for all entities acquired in the prior years and four months of trading for Kinetic which was acquired on 1 December 2017. Kinetic, the leading provider of software solutions to the Community Housing sector in Australia, was acquired for an initial cash consideration, net of cash acquired, of AU$2.0 million (GBP1.14 million) financed through cash generated in the year. During the period, Kinetic contributed GBP0.4 million of revenue and GBP0.1 million of profit before tax.
Revenue and gross profit
Revenue amounted to GBP 23.3 million (2017: GBP20.3 million), of which GBP12.4 million was generated by the Software Solutions division (2017: GBP10.8 million) and GBP10.9 million (2017: GBP9.4 million) was generated by the Managed Services division. Recurring revenue represents 60.1% of total revenues (2017: 64.8%), the decrease in percentage terms due to the strong performance of non-recurring revenues, predominately implementation revenues, during the year.
Gross profit amounted to GBP16.1 million (2017: GBP14.3 million), representing a gross margin of 69% (2017: 70%). Gross margin for the Software Solutions division decreased slightly from 92% to 91% and for the Managed Services division it also decreased slightly from 45% to 44%, due to some changes in the sales mix.
Administrative expenses including exceptional items
The administrative expenses were incurred in the running of the business, and include the cost of the Board and its advisors, including the cost of occupancy, back office support services, and the fees associated with maintaining the AIM listing as well as amortisation of GBP3.0 million (2017: GBP3.0 million) and exceptional items. A credit of GBP0.8 million in relation to exceptional items (2017: charge of GBP0.7 million) includes costs relating to restructuring activities undertaken in the year, offset by the release of exceptional provisions made in prior periods, including the release of provisions for an onerous contract, the claim for which has now been settled during the period and also includes a credit in relation to the revaluation of contingent consideration.
Adjusted EBITDA*
The adjusted EBITDA for the year amounts to GBP5.1 million (2017: GBP4.4 million).
The cost in the year for the plc Board and its advisors was GBP1.4 million (2017: GBP1.3 million), and we continue to maintain tight controls on expenditure. Trading EBITDA was therefore GBP6.5 million (2017: GBP5.7 million).
*Earnings for the year from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional costs and share based payment charges.
Finance income and costs
Finance income represents the interest earned on deferred income from the sale of the consulting business sold in 2015, and finance costs comprise interest payable on bank borrowings and the interest and unwind of discount on the Kypera Loan Notes. Finance income and costs amounted to GBP0.02 million (2017: GBP0.02 million) and GBP0.3 million (2017: GBP0.7 million) respectively.
Profit for the year attributable to the owners of the parent company
The Group profit after tax for the year to 31 March 2018 was GBP4.3 million (2017: profit of GBP0.5 million). This comprises the profit before tax of GBP1.8 million (2017: loss of GBP0.5 million), which includes the finance income of GBP0.03 million (2017: GBP0.02 million), and a tax credit of GBP2.5 million (2017: GBP1.0 million) arising from R&D tax credits, the unwind of deferred tax recognised on intangible assets and the recognition of a deferred tax asset relating to unused capital allowance.
Earnings per share
Earnings per share at a basic level were 5.23p, compared to earnings per share of 0.59p in the previous year, driven by growth in EBITDA*, significant exceptional credits and recognition of deferred tax assets relating to unused capital allowances. Due to the level of exceptional credits which are not expected to recur as well as a higher than usual tax credit during the year, earnings per share going forward are expected to be lower than in the current year.
Cash flow
Cash generated from operations during the year was very solid at GBP5.2 million (2017: GBP4.6 million), thereby representing a second year with more than 100% operating cash conversion. Working capital decreased by approximately GBP0.1 million (2017: decrease of GBP0.1 million).
Net of cash acquired, GBP1.1 million of cash was used in business combinations which was the acquisition of Kinetic (2017: GBP1.0 million, GBP0.5 million for Brixx and GBP0.5 million in relation to the exclusive licence agreement with 365 Agile Group plc ("Agile Licence")) which was funded through cash generated by the business.
This resulted in an overall increase in funds of GBP0.2 million (2017: GBP0.6 million), giving a net positive cash position at the balance sheet date of GBP0.5 million (2017: GBP0.3 million).
Given the strong cash generation of the business, the Group has the confidence to increasingly invest in customer related capex and infrastructure in the coming year as we seek to win new hosted and managed service deals. The Group will also look to continue the investment in software development
Deferred income
Deferred income arises where revenue is invoiced ahead of delivery of performance obligations and therefore recognition of revenue. This is common in software maintenance, hosting, managed services and software subscription agreements. Invoicing is largely quarterly, half yearly or annually in advance and therefore deferred income levels fluctuate throughout the year. At 31 March 2018 deferred revenue was GBP7.8 million (2017: GBP8.4 million).
Funding and debt repayment
During the year, the Group repaid GBP1.0 million of the Barclays term loan in line with the facility agreement (2017: GBP1.0 million). As at the balance sheet date, GBP3.3 million (2017: GBP4.3 million) of term loan was outstanding.
In February 2018, the Group agreed to pay cash of GBP1.7 million to MXC in full settlement of the MXC Scheme. The cash was paid on 3 April 2018.
Over the course of the year, GBP0.6 million (2017: GBP0.5 million) of the GBP1.8 million due under the terms of the Agile Licence was paid with GBP0.7 million (2017: GBP1.3 million) owed at the balance sheet date. A further GBP0.3 million was paid in April 2018.
During the year, the remaining GBP0.3 million of the convertible loan notes issued in relation to the acquisition of Opus were cancelled in agreement with the holders.
In addition, in April 2017, the Group repaid GBP0.5 million of the GBP3.5 million Kypera Loan Notes issued. GBP0.5 million had already been repaid in March 2017. The Kypera Loan Notes are capable of being converted into new ordinary shares at a price of 85.6 pence per ordinary share, which represented a 5% premium to the mid closing price on 28 January 2016, the day immediately prior to completion of the acquisition of Kypera. Conversion is at the option of the holder at any time during the five-year term.
Going Concern
The Directors have prepared detailed cash flow projections including sensitivity analysis on key assumptions. The Group's forecasts and projections, taking into account 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. Based on the funding available, 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 its consolidated financial statements.
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2018
Year ended Year ended
31 March 2018 31 March
GBP000 2017
Note GBP000
Revenue 23,279 20,269
Cost of sales (7,211) (5,980)
------------------------------------------------------------------------------ ---- ----------------- -------------
Gross profit 16,068 14,289
Administrative expenses (14,770) (13,359)
Exceptional charges 3 (576) (741)
Exceptional credits 3 1,420 -
Operating profit 2,142 189
Finance income 5 26 21
Finance costs 5 (340) (749)
------------------------------------------------------------------------------ ---- ----------------- -------------
Profit / (loss) on ordinary activities before taxation 1,828 (539)
Income tax credit 6 2,295 1,002
------------------------------------------------------------------------------ ---- ----------------- -------------
Profit for the year attributable to owners of the parent company 4,123 463
Other comprehensive income
Items that may be subsequently reclassified to profit or loss
Foreign operations - foreign currency translation differences 41 -
------------------------------------------------------------------------------ ---- ----------------- -------------
Total comprehensive income for the year attributable to owners of the parent
company 4,164 463
------------------------------------------------------------------------------ ---- ----------------- -------------
Earnings per share
Basic earnings per share 7 5.23p 0.59p
------------------------------------------------------------------------------ ---- ----------------- -------------
Diluted earnings per share 7 5.00p 0.54p
------------------------------------------------------------------------------ ---- ----------------- -------------
Non-GAAP measure: Adjusted EBITDA
Operating profit 2,142 189
Depreciation and amortisation 3,333 3,222
---------------------------------- ---------- --------
EBITDA 5,475 3,411
Share-based payments 484 231
Exceptional credits 5 (1,420) -
Exceptional charges 5 576 741
---------------------------------- ---------- --------
Adjusted EBITDA (1) 5,115 4,383
---------------------------------- ---------- --------
(1) Adjusted EBITDA is defined as operating profit or loss before exceptional items, depreciation, amortisation and share based payments.
Consolidated Balance Sheet
As at 31 March 2018
31 March 31 March
2018 2017
Note GBP000 GBP000
Assets
Non-current assets
Intangible assets 8 32,075 33,605
Property, plant and equipment 9 872 781
Trade and other receivables 10 250 261
Deferred tax asset 6 1,462 -
34,659 34,647
------------------------------------ ---- -------- --------
Current assets
Inventories 72 50
Trade and other receivables 10 6,385 5,050
Current income tax receivable 6 516 145
Cash and cash equivalents 11 510 586
------------------------------------ ---- -------- --------
7,483 5,831
------------------------------------ ---- -------- --------
Total assets 42,142 40,478
------------------------------------ ---- -------- --------
Equity and liabilities
Equity attributable to owners of
the parent
Share capital 1,628 1,625
Share premium account 17,006 16,995
Equity reserve 251 2,919
Translation reserve 41 -
Other reserves 7,966 7,966
Accumulated loss (8,383) (13,996)
------------------------------------ ---- -------- --------
Total equity attributable to the
owners of the parent 18,509 15,509
------------------------------------ ---- -------- --------
Liabilities
Current liabilities
Trade and other payables 12 11,080 8,836
Finance leases - 46
Borrowings 13 1,008 1,324
Convertible loan notes 14 - 140
Deferred consideration 15 592 838
Liability in respect of MXC Scheme
settlement 1,662 -
Provisions 121 751
14,463 11,935
------------------------------------ ---- -------- --------
Non-current liabilities
Trade and other payables 12 1,252 1,893
Borrowings 13 2,342 3,352
Convertible loan notes 14 2,378 2,957
Deferred consideration 15 143 707
Contingent consideration 15 - 748
Deferred taxation liabilities 6 3,055 3,377
------------------------------------ ---- -------- --------
9,170 13,034
------------------------------------ ---- -------- --------
Total liabilities 23,633 24,969
------------------------------------ ---- -------- --------
Total equity and liabilities 42,142 40,478
------------------------------------ ---- -------- --------
Consolidated Statement of Changes in Equity
For the year ended 31 March 2018
Attributable to the owners of the Parent Company
Called Share Equity Merger Translation Accumulated Total
up share premium reserve reserve reserve Loss equity
capital account (a) (b) (c)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April 2016 1,612 16,758 2,919 7,966 - (14,690) 14,565
Profit for the year - - - - - 463 463
Transactions with owners in their capacity as owners:
Share based payments - - - - - 231 231
Convertible loan
notes issued (d) 13 237 - - - - 250
------- --------- --------- --------- ------------ ------------ --------
At 31 March 2017 1,625 16,995 2,919 7,966 - (13,996) 15,509
Profit for the year - - - - - 4,123 4,123
Other comprehensive
income - - - - 41 - 41
----------------------- ------- --------- --------- --------- ------------ ------------ --------
Total comprehensive
income - - - - 41 4,123 4,164
Transactions with owners in their capacity as owners:
Share based payments - - - - - 484 484
Waiver of Opus loan
notes (e) - - (392) - - 392 -
Exercise of warrants
(f) 3 11 - - - - 14
Settlement of MXC
warrants (g) - - - - - (1,662) (1,662)
Settlement of Equity
reserve (a) - - (2,276) - - 2,276 -
At 31 March 2018 1,628 17,006 251 7,966 41 (8,383) 18,509
----------------------- ------- --------- --------- --------- ------------ ------------ --------
(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.
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 GBP251,000 (2017: GBP2,919,000) balance at 31 March 2018 relates to the loan notes issued for the purchase of Kypera Holding Limited. The remainder of the reserve has been transferred into the accumulated loss because the other loan notes which were issued to finance the acquisitions of Castleton Software Solutions Limited, Keylogic Limited and Opus Information Technology Limited, have been fully settled.
(b) Merger reserve
The merger reserve arose from the acquisition of Redstone Communications Limited (GBP216,000) and Maxima Holdings Limited (formerly Maxima Holdings plc) (GBP7,750,000) 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) Conversion of loan notes
On 8 July 2016, the Company issued 250,000 new ordinary shares of 2 pence each ("Ordinary Shares") at a price of 40 pence pursuant to the conversion of loan notes issued as part of the previous acquisition of Opus Information Technology Limited ("Opus Loan Notes").
On 4 October 2016, the Company issued a further 375,000 new Ordinary Shares at a price of 40 pence pursuant to the conversion of Opus Loan Notes.
(e) Waiver of Opus Loan Notes
On 21 June 2017, it was agreed by the beneficiaries of the Opus Loan Notes that they would waive the remaining GBP220,000 of loan notes held by them in consideration for the Group surrendering any potential warranty claims for onerous contracts under the sale and purchase agreement. This has resulted in the release of the equity component of GBP392,000.
(f) On 16 November 2017, the Company issued 175,000 new Ordinary Shares at a premium of 6p per share pursuant to the exercise of share warrants.
(g) On 20 February 2018, the Company agreed to pay cash of GBP1,662,000 to MXC in full settlement of the MXC Scheme described in the Financial Review. The cash was paid on 3 April 2018.
Consolidated Cash Flow Statement
For the year ended 31 March 2018
31 March 31 March
2018 2017
Note GBP000 GBP000
--------------------------------------------------- ---- ---------- ----------
Cash flows from operating activities
Cash generated from operations 16 5,177 4,581
Exceptional costs 3 (723) (797)
Finance charges paid (142) (256)
Income taxes (paid) / refunded (8) 133
--------------------------------------------------- ---- ---------- ----------
Net cash flows generated from operating activities 4,304 3,661
Cash flows from investing activities
Receipt of deferred consideration from sale
of businesses sold 63 53
Acquisition of businesses net of cash acquired (1,052) (450)
Purchase of property, plant and equipment (368) (297)
Purchase of intangible assets (356) (309)
Net cash flows used in investing activities (1,713) (1,003)
--------------------------------------------------- ---- ---------- ----------
Cash flows from financing activities
Exercise of share warrants 14 -
Settlement of deferred consideration (850) (500)
Repayment of borrowings (1,556) (1,558)
Net cash used in financing activities (2,392) (2,058)
Net increase in cash and cash equivalents 199 600
Foreign exchange effects 41 -
Cash and cash equivalents at 1 April 270 (330)
--------------------------------------------------- ---- ---------- ----------
Cash and cash equivalents at 31 March 510 270
--------------------------------------------------- ---- ---------- ----------
Comprising:
Cash and cash equivalents 11 510 586
Overdraft 13 - (316)
--------------------------------------------------- ---- ---------- ----------
510 270
--------------------------------------------------- ---- ---------- ----------
Notes to the Consolidated Financial Statements
Year ended 31 March 2018
1 Accounting policies - Group
Basis of preparation
The consolidated financial statements of Castleton have been prepared on the going concern basis and in accordance with EU adopted International Financial Reporting Standards (IFRS), IFRIC interpretations and the provisions of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies.
Publication of non-statutory accounts
This summary does not constitute statutory accounts within the meaning of the Companies Act 2006. It is an extract from the full accounts for the year ended 31 March 2017 on which the auditor has expressed an unqualified opinion and does not include any statement under section 498 of the Companies Act 2006. The full accounts contain a detailed statement of the accounting policies which have been used to prepare this summary and remained unchanged from the prior year. The accounts will be posted to shareholders on or before 31 July 2017 and subsequently filed at Companies House.
A full set of the audited statutory accounts will be available at www.castletonplc.com
2 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Makers ('CODM'). The CODM has been identified as the Executive Board.
The Group is comprised of the following main operating segments:
Managed Services
In this segment are the results of Castleton Managed Services Ltd for the year ended 31 March 2018.
The segment is engaged in the provision of IT infrastructure and support for businesses throughout the United Kingdom.
Software Solutions
This segment comprises the results of Castleton Software Solutions Ltd and Castleton Australia Pty Limited for the year ended 31 March 2018.
The results of Kinetic Information Systems Pty Ltd ("Kinetic") are included in this segment from the date of acquisition on 1 December 2017.
The segment is engaged in the provision of integrated software solutions to the housing association sector.
Year ended 31 March 2018
Managed Software
Services Solutions Central Total
GBP000 GBP000 GBP000 GBP000
---------------------------------------------- --------- ---------- --------- --------
Revenue 10,872 12,407 - 23,279
---------------------------------------------- --------- ---------- --------- --------
Operating profit/(loss) before amortisation
of intangible assets and management charge 3,111 3,825 (1,767) 5,169
Amortisation of acquired intangibles (968) (2,022) (37) (3,027)
Management charge (1,013) (489) 1,502 -
---------------------------------------------- --------- ---------- --------- --------
Operating profit /(loss) 1,130 1,314 (302) 2,142
Finance income 17 3 6 26
Finance costs - (42) (298) (340)
---------------------------------------------- --------- ---------- --------- --------
Profit/(loss) before tax 1,147 1,275 (594) 1,828
---------------------------------------------- --------- ---------- --------- --------
Adjusted EBITDA* 3,313 3,155 (1,353) 5,115
---------------------------------------------- --------- ---------- --------- --------
*Earnings for the year before net finance costs, tax, depreciation, amortisation, exceptional items, group management charge and share based payment charges.
Managed Software
Services Solutions Central Total
GBP000 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- --------- --------
Segment Assets 12,265 30,344 (467) 42,142
Segment Liabilities (4,079) (11,440) (8,114) (23,633)
---------------------------------- --------- ---------- --------- --------
Net assets/ (liabilities) 8,186 18,904 (8,581) 18,509
---------------------------------- --------- ---------- --------- --------
Managed Software
Services Solutions Central Total
GBP000 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- --------- ----------
Capital Expenditure:
Property, plant and equipment 319 56 3 378
Intangibles - 355 - 355
Depreciation (198) (98) (10) (306)
Amortisation of intangibles (968) (2,022) (37) (3,027)
---------------------------------- --------- ---------- --------- ----------
Year ended 31 March 2017
Managed Software
Services Solutions Central Total
GBP000 GBP000 GBP000 GBP000
-------------------------------------------- --------- ---------- --------- --------
Revenue 9,437 10,832 - 20,269
-------------------------------------------- --------- ---------- --------- --------
Operating profit/(loss) before amortisation
of intangible assets and management charge 2,750 2,127 (1,691) 3,186
Amortisation of acquired intangibles (969) (2,028) - (2,997)
Management charge (1,063) (368) 1,431 -
-------------------------------------------- --------- ---------- --------- --------
Operating profit /(loss) 718 (269) (260) 189
Finance income 20 - 1 21
Finance costs - (189) (560) (749)
-------------------------------------------- --------- ---------- --------- --------
Profit/(loss) before tax 738 (458) (819) (539)
-------------------------------------------- --------- ---------- --------- --------
Adjusted EBITDA* 3,012 2,668 (1,297) 4,383
-------------------------------------------- --------- ---------- --------- --------
*Earnings for the year before net finance costs, tax, depreciation, amortisation, exceptional items, group management charge and share based payment charges.
Managed Software
Services Solutions Central Total
GBP000 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- --------- --------
Segment Assets 11,454 31,757 (2,733) 40,478
Segment Liabilities (3,070) (13,535) (8,364) (24,969)
---------------------------------- --------- ---------- --------- --------
Net assets/ (liabilities) 8,384 18,222 (11,097) 15,509
---------------------------------- --------- ---------- --------- --------
Managed Software
Services Solutions Central Total
GBP000 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- --------- ----------
Capital Expenditure:
Property, plant and equipment 186 114 26 326
Intangibles 275 284 - 559
Depreciation (125) (99) (1) (225)
Amortisation of intangibles (969) (2,028) - (2,997)
---------------------------------- --------- ---------- --------- ----------
Income streams originating outside of the United Kingdom comprised GBP1,000,000 in respect of Kypera Australia Pty Limited and Kinetic (2017: GBP353,000). Income and expenditure from both these Australian companies have been grouped within Software Solutions in the above analysis
The Group had no customers who accounted for more than 10% of the Group's revenue during the year (2017: nil).
Revenue by products and services
Analysis of revenue by category is as follows:
2018 2017
GBP000 GBP000
------------------------------------------------- ------- -------
Sale of goods 3,453 2,900
Fees from professional services 4,445 3,476
Recurring software, managed service revenues and
other revenue
(sale of licenced software solutions) 15,381 13,893
------------------------------------------------- ------- ---------
Total revenue 23,279 20,269
------------------------------------------------- ------- ---------
3 Exceptional Items
In accordance with the Group's policy in respect of exceptional items the following (credits)/charges arose during the year:
Exceptional Exceptional 2018 2018 2017 2017
Charges Credits Total Exceptional Total Exceptional
GBP000 GBP000 GBP000 cash paid GBP000 cash paid
---------------- ---------------- ---------------- ------- --------------- ------- ---------------
Revaluation of
Agile contingent
consideration - (748) (748) - - -
Integration and
strategic costs - - - 240 278 352
Acquisition and
reorganisation
costs 240 - 240 207 448 445
Waiver of Opus
loan notes - (220) (220) - - -
Creation of
contract
provision
relating to Opus 215 - 215 - - -
Full and final
settlement of
customer claim
provision
provided on
acquisition of
Kypera - (452) (452) 178 - -
Restructuring 121 - 121 98 15 -
576 (1,420) (844) 723 741 797
---------------- ---------------- ---------------- ------- --------------- ------- ---------------
A deferred tax charge was recognised for GBP523,000 of the GBP748,000 credit relating to the revaluation of the Agile contingent consideration.
The exceptional costs relating to the acquisition of Kinetic have been transferred to Castleton Technology Pty Ltd in Australia where no tax credit has been recognised.
No tax charge has been recognised in relation to GBP250,000 reduction in acquisition costs.
There have been no other significant tax adjustments relating to the other exceptional items
4 Business Combinations
Kinetic Information Systems Pty Ltd ('Kinetic')
On 1 December 2017, the Group purchased Kinetic, the leading provider of software solutions to the Community Housing sector in Australia. This strategic acquisition enables the Group to capitalise on the significant opportunities that Australia's growing Community Housing sector presents, using the capabilities that the Group has developed to successfully serve the UK.
The Group paid an amount of AU$2,605,000 (GBP1,479,000) to acquire 100% of the share capital of Kinetic from the previous owners which included a cash for cash payment of GBP427,000. A further AU$24,000 (GBP14,000) completion payment was paid after the year-end.
GBP240,000 of Kinetic acquisition costs were taken as an expense to exceptional costs during the year.
Conditions required to trigger the payment of a further AU$500,000 of deferred consideration payable contingent on the vendor remaining in employment and treated as remuneration, have not been met so there is now no further liability. An immaterial amount of remuneration has not been accrued as a result of this non adjusting post balance sheet event.
One-off costs relating to the acquisition of Kinetic of GBP212,000 have been recognised within the Consolidated Statement of Comprehensive Income within "Exceptional Items".
In the four months from the date of acquisition to 31 March 2018, Kinetic recorded revenue of AU$0.7 million (GBP0.4 million) and profit before tax of AU$0.1 million (GBP0.07 million). For the year ended 30 June 2017, Kinetic recorded (unaudited) revenue of AU$2.3 million (GBP1.4 million) and profit before tax of AU$0.4 million (GBP0.3 million).
The calculation of provisional fair values of consideration, assets and liabilities such as goodwill and intangible assets involve the estimation of future cash flows delivering from or accruing to those assets.
The gross contracted amount of trade receivables acquired was GBP124,000.
Provisional Fair values
--------------------------------------------- -----------------------
GBP000
--------------------------------------------- -----------------------
Cash consideration paid 1,479
Completion payment 14
Provisional fair value of purchase
consideration 1,493
Less provisional fair value of assets
acquired:
Property plant & equipment
T (11)
Trade receivables net (102)
Other receivables (180)
Cash (427)
Trade payables 3
Corporation tax payable 136
Deferred taxation 125
Other liabilities 122
Software intangible fixed asset - amortised
over 10 years (41)
Reseller agreement intangible fixed
asset - amortised over 10 years (452)
Provisional goodwill recognised 666
--------------------------------------------- -----------------------
Agile
On 4 April 2016, the Group improved its existing exclusive reseller agreement with 365 Agile Group plc ("Agile") and entered into a new perpetual licence agreement with Agile whereby Castleton has been granted an exclusive licence for Agile's suite of mobile working software solutions in relation to the social housing sector.
Cash consideration for Agile is payable over three years for a value of GBP1.8 million, of which GBP1.1 million (2017: GBP0.5 million) has been paid up to the balance sheet date and a further GBP0.3m was paid in April 2018.
The original agreement with Agile included contingent consideration if the total annual recurring revenue from sales of the Agile product exceeded GBP2.2 million over three years from the date of the agreement which was 4 April 2016. At 31 March 2018, management's view is that the annual recurring revenue figure of GBP2.2 million will not be achieved over this timescale and therefore the contingent consideration relating to the purchase of Agile has been valued at GBPnil (2017: GBP0.7 million). This has been released as a credit to exceptional items in the Consolidated Statement of Comprehensive income.
Kypera
In the prior year, a fair value adjustment to goodwill was made in relation to an onerous contract provision which existed at the date of acquisition of GBP0.752 million which related to a customer claim and the associated rectification costs. During the year, full and final settlement has resulted in an exceptional credit of GBP0.5 million which includes a settlement payment from the former owner of Kypera.
5 Finance income and costs
Finance income
2018 2017
GBP000 GBP000
--------------------- ------- -------
Other finance income 26 21
--------------------- ------- -------
26 21
--------------------- ------- -------
Finance costs
2018 2017
GBP000 GBP000
-------------------------------------------------------------- ------- -------
Interest payable on bank loans and overdrafts 150 278
Interest expense in respect of:
Convertible loan notes and deferred consideration
discount unwind 190 471
340 749
-------------------------------------------------------------- ------- -------
6 Income tax credit
(a) Income tax credits
2018 2017
GBP000 GBP000
------------------------------------- ------- -------
Current Tax
Current tax on profit/(loss) for
the year 41 -
Adjustment in respect of prior years (427) (617)
Deferred tax
Origination and reversal of timing
differences (1,909) (385)
----------------------------------------- ------- -------
Total tax (credit) (2,295) (1,002)
----------------------------------------- ------- -------
The rate of UK Corporation tax for the year beginning 1 April 2016 is 20% and 19% from 1 April 2017 and will be 17% from the year beginning 1 April 2020.
(b) Reconciliation of the total income tax credit
The tax on the Group's profit/(loss) before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to losses of the consolidated entities as follows:
2018 2017
GBP000 GBP000
------------------------------------------------------- ------- -------
Profit/(loss) from operations before taxation 1,828 (539)
Accounting profit/(loss) multiplied by the UK standard
rate of corporation tax of 19% (2017: 20%) 347 (108)
Net items not deductible for tax purposes 56 154
Use of previously unrecognised losses (325) -
Adjustment to tax charge in respect of previous year (427) (617)
Effect of different tax rates 6 -
Movement in unprovided deferred tax (1,952) (431)
-------------------------------------------------------- ------- -------
Total income tax credit on operations (2,295) (1,002)
-------------------------------------------------------- ------- -------
A research and development claim of GBP427,000 relating to 2015/16 was submitted to HMRC during the year. Further claims are expected to be made for 2016/17 and 2017/18 although a reasonable estimate of the value cannot be made at this point. No tax charge or credit has been booked for 2016/17 or 2017/18 relating to research and development. Post year-end, GBP110,000 cash was received in respect of research and development claims relating to the year ending 31 March 2016.
(c) Unrecognised deferred tax asset
The Group has unrecognised deferred tax assets in respect of certain losses and reliefs, of GBP7.3 million (2017: GBP9.1 million). The composition of these losses and reliefs is as follows: property, plant and equipment differences GBP1.6 million (2017: GBP3.1 million), short-term temporary differences GBPnil (2017: GBP0.1 million) and tax losses of GBP5.7 million (2017: GBP5.9 million). Deferred tax assets have not been recognised in respect of these losses and reliefs where it is the view of the Directors that it is not certain that future taxable profits of the nature required will be available to offset against any deferred tax asset.
During the year a deferred tax asset of GBP1,385,000 was recognised in respect of decelerated allowances from property plant and equipment due to the increased certainty of future taxable profits.
(d) Deferred tax asset/(liability) Deferred tax liability Deferred tax asset Net deferred tax liability
GBP000 GBP000 GBP000
------------------------------------------ ------------------------ ------------------ ----------------------------
At 1 April 2016 (3,762) - (3,762)
Credit to income statement 1,002 - 1,002
Adjustment to tax charge in respect of
previous year (617) - (617)
At 31 March 2017 (3,377) - (3,377)
------------------------------------------ ------------------------ ------------------ ----------------------------
Credit to income statement 461 1,448 1,909
Acquisitions (139) 14 (125)
At 31 March 2018 (3,055) 1,462 (1,593)
------------------------------------------ ------------------------ ------------------ ----------------------------
Deferred tax liabilities arise in respect of the temporary differences on acquired intangible assets.
Deferred tax assets are recognised for tax losses, unused capital allowances and tax relief carried forward of GBP1,385,000 and in respect of share based payments of GBP63,000, to the extent that the realisation of the related tax benefit through future taxable profits is probable.
7 Earnings per share
Basic earnings per share and diluted earnings per share are calculated by dividing the profit attributable to equity shares of the Company GBP4,123,000 (2017: GBP463,000) by the weighted average number of shares of 78,714,832 and 82,474,239 respectively (March 2017: weighted average number of shares of 78,339,832 and 86,215,879).
2018 2017
GBP000 GBP000
Statutory EPS:
Basic earnings per share 5.23p 0.59p
----------------------------- -------- --------
Diluted earnings per share 5.00p 0.54p
----------------------------- -------- --------
8 Intangible assets
Customer
contracts
and related Development
Goodwill Software relationships Expenditure Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ -------- -------- -------------- ------------ -------
Cost
At 1 April 2016 11,036 3,462 21,226 136 35,860
Additions - - 250 - 250
Internally developed - - - 309 309
Business Combinations 1,180 2,189 - - 3,369
At 31 March 2017 12,216 5,651 21,476 445 39,788
Internally developed - - - 355 355
Business combinations 667 41 452 - 1,160
Transferred to Property
plant & equipment - - - (18) (18)
At 31 March 2018 12,883 5,692 21,928 782 41,285
------------------------ -------- -------- -------------- ------------ -------
Amortisation
At 1 April 2016 - (399) (2,723) (64) (3,186)
Charge for the year - (498) (2,435) (64) (2,997)
------------------------ -------- -------- -------------- ------------ -------
At 31 March 2017 - (897) (5,158) (128) (6,183)
Charge for the year - (504) (2,485) (38) (3,027)
At 31 March 2018 - (1,401) (7,643) (166) (9,210)
Net carrying amount
31 March 2018 12,883 4,291 14,285 616 32,075
------------------------ -------- -------- -------------- ------------ -------
31 March 2017 12,216 4,754 16,318 317 33,605
------------------------ -------- -------- -------------- ------------ -------
31 March 2016 11,036 3,063 18,503 72 32,674
------------------------ -------- -------- -------------- ------------ -------
Customer contracts and related relationships relate to the value of contracts and relationships of acquired companies and includes the value of reseller agreements.
The amortisation in both years relates to operations, and is included in the profit for the year from operations in the Income Statement within administrative expenses.
Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired Goodwill is supported by calculating the discounted cash flows arising from the existing businesses.
Impairment tests for goodwill
The recoverable amount of all cash generating units (CGU) has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management until 31 March 2019. Cash flows beyond this period are extrapolated using the estimated growth rates stated below.
For each of the CGUs with a significant amount of goodwill the key assumptions used in the value-in-use calculations are as follows:
Assumptions 2018 2017 Assumptions 2018 2017
for Managed for Software
Services Solutions
Gross margin 42% 44% Gross margin 84% 90%
--------------- ------------- -------------------- --------------- -------------
Operating Operating
margin 28% 31% margin 28% 32%
--------------- ------------- -------------------- --------------- -------------
Capital expenditure 10% of revenue GBPnil Capital expenditure GBP500,000p.a. GBPnil
--------------- ------------- -------------------- --------------- -------------
Long term Long term
growth rate 2% 2% growth rate 2% 2%
--------------- ------------- -------------------- --------------- -------------
Discount rate 10.2% 9.9% Discount rate 10.2% 9.9%
--------------- ------------- -------------------- --------------- -------------
Value of goodwill GBP3,248,000 GBP3,248,000 Value of goodwill GBP9,633,000 GBP8,966,000
--------------- ------------- -------------------- --------------- -------------
A reasonably possible adverse movement in any of the above key assumptions made would not give rise to impairment
9 Property, plant and equipment
Equipment,
Network fixtures
Leasehold infrastructure and
property and equipment fittings Total
GBP000 GBP000 GBP000 GBP000
----------------------------- --------- --------------- ---------- -------
Cost
At 1 April 2016 252 509 279 1,040
Additions 51 204 71 326
At 31 March 2017 303 713 350 1,366
Additions 11 337 30 378
Business Combinations - - 11 11
Disposals - - (18) (18)
Exchange movements - - (2) (2)
Transfers (from intangibles) - 18 - 18
Adjustments 2 153 (155) -
At 31 March 2018 316 1,221 216 1,753
------------------------------ ---------- --------------- ---------- -------
Accumulated depreciation
At 1 April 2016 (31) (272) (57) (360)
Charge for the year (13) (20) (192) (225)
At 31 March 2017 (44) (292) (249) (585)
Charge for the year (18) (235) (53) (306)
Disposals - - 10 10
Transfers (2) (153) 155 -
At 31 March 2018 (64) (680) (137) (881)
------------------------------ ---------- --------------- ---------- -------
Net book amount
31 March 2018 252 541 79 872
------------------------------ ---------- --------------- ---------- -------
31 March 2017 259 421 101 781
------------------------------ ---------- --------------- ---------- -------
31 March 2016 221 237 222 680
------------------------------ ---------- --------------- ---------- -------
As at 31 March 2018 included in equipment, fixtures and fittings are assets held under finance leases with a carrying value of GBPnil (2017: GBP69,000) on which the depreciation charge was GBPnil (2017: GBP27,000).
The depreciation for the year of GBP306,000 (2017: GBP225,000) and has been charged to administrative expenses.
A mortgage loan of GBP100,000 (2017: GBP110,000) is secured on a long leasehold property with a book value of GBP167,000 (2017: GBP170,000). Short leasehold property has a book value of GBP85,000 (2017: GBP89,000).
10 Trade and other receivables
2018 2017
GBP000 GBP000
---------------------------------------------------- ------- -------
Trade receivables 5,147 3,929
Less: provision for impairment of trade receivables (223) (220)
Trade receivables - net 4,924 3,709
Other receivables 806 435
Prepayments 655 906
Amounts due within 12 months 6,385 5,050
---------------------------------------------------- ------- -------
Trade receivables due after more than 12 months 97 -
Prepayments due after more than 12 months 23 261
Other receivables due after more than 12 months 130 -
---------------------------------------------------- ------- -------
Amounts due after more than 12 months 250 261
---------------------------------------------------- ------- -------
Total receivables 6,635 5,311
---------------------------------------------------- ------- -------
As at 31 March 2018, trade receivables of GBP0.2 million (2017: GBP0.2 million) were impaired and fully provided for.
The carrying value of trade receivables that would otherwise be past due or impaired but whose terms were renegotiated were GBPnil. The individually impaired receivables relate to receivables over 182 days, customers in financial difficulty, customer acceptance issues and cancelled contracts.
As at 31 March 2018, trade receivables of GBP1.8 million were past due but not impaired (2017: GBP1.9 million). In the table below, these comprise the receivables over 30 days, which relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of net trade receivables which are past due and not impaired is as follows:
2018 2017
Days outstanding GBP000 GBP000
------------------- --------- --------
31-60 days 1,240 1,038
61-90 days 135 448
91-180 days 392 379
1,767 1,865
-------------------- -------- --------
The provision is calculated by central management with local knowledge on a specific basis based on their best estimate of recoverability taking into account the age and specific circumstances relating to the debtor. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security. The carrying amounts of the Group's trade and other receivables are denominated in pounds.
Movements on the Group provision for impairment of trade receivables are as follows:
GBP000
------------------------------------ ------
At 31 March 2016 344
Utilised in year (324)
Created in year 200
At 31 March 2017 220
Fair Value on Business Combinations 22
Utilised in year (133)
Created in year 114
------------------------------------ ------
At 31 March 2018 223
------------------------------------ ------
The creation and release of a provision for impaired receivables has been included in 'administrative expenses' in the income statement. Amounts charged to the allowance account are generally written-off, when there is no expectation of recovering additional cash.
The other asset classes within trade and other receivables do not contain impaired assets.
11 Cash and cash equivalents
2018 2017
GBP000 GBP000
------------------------------------------------ ------- -------
Cash at bank and in hand (excluding overdrafts) 510 586
------------------------------------------------ ------- -------
The table below shows the balance with the major counterparty in respect of cash and cash equivalents.
2018 2017
Credit rating GBP000 GBP000
-------------- ------- -------
A 510 586
-------------- ------- -------
12 Trade and other payables
Current
2018 2017
GBP000 GBP000
----------------------------- ------- -------
Trade payables 1,167 298
Other payables 305 67
Taxation and social security 772 646
Accruals 1,800 1,180
Income tax payable 113 -
Deferred income 6,923 6,645
11,080 8,836
----------------------------- ------- -------
Non current
2018 2017
GBP000 GBP000
----------------- ------- -------
Deferred income 904 1,718
Accrued interest 348 175
1,252 1,893
----------------- ------- -------
13 Borrowings
Current
2018 2017
GBP000 GBP000
---------- ------- -------
Mortgage 8 8
Bank loan 1,000 1,000
Overdraft - 316
1,008 1,324
---------- ------- -------
2018 2017
Non-current GBP000 GBP000
------------ ------- -------
Bank Loan 2,250 3,250
Mortgage 92 102
2,342 3,352
------------ ------- -------
The mortgage is secured over a long leasehold property. The property is held within fixed assets at a cost GBP0.2 million. The mortgage is repayable monthly at an interest rate of 2.9% above base rate. The remaining term at 31 March 2018 is 125 months.
Overdraft facility
The Company has an overdraft facility of GBP2.5 million with Barclays. Interest is payable at 2.5% above LIBOR on the overdraft balance, which is repayable on demand. At the balance sheet date none (2017: GBP0.3 million) of the facility had been utilised. The overdraft is secured on the assets of the Group by way of fixed and floating charges.
Bank loan
On 31 May 2015, the Company entered into a loan facility agreement with Barclays Bank plc ("Barclays") for GBP5 million. Interest is payable at 2.5% above LIBOR on the outstanding balance, which is repayable at a rate of GBP250,000 per quarter over 5 years. On 31 January 2016, Barclays extended the facility by a further GBP1 million, which increased the payment terms by 12 months. The overdraft is secured on the assets of the Group by way of fixed and floating charges.
14 Convertible loan notes
Opus Kypera Total
GBP000 GBP000 GBP000
---------------------------------- --- ------- ------- -------
At 1 April 2016 443 3,277 3,720
Interest unwound 22 280 302
Interest due to be paid - (175) (175)
Conversion (250) - (250)
Repayments - (500) (500)
At 31 March 2017* 215 2,882 3,097
---------------------------------------- ------- ------- -------
Interest unwound 5 169 174
Interest due to be paid - (173) (173)
Waiver (220) - (220)
Repayments - (500) (500)
At 31 March 2018 - due to be paid
in more than one year - 2,378 2,378
---------------------------------------- ------- ------- -------
* At 31 March 2017 the Kypera loan notes were due to be paid in more than one year and the Opus loan notes had GBP140,000 due in less than one year and GBP75,000 due in more than one year.
Opus Loan Notes
During the year ended 31 March 2016 GBP0.4 million of convertible loan notes were issued to satisfy the contingent consideration for the acquisition of Opus Information Technology Limited ("Opus Loan Notes"). The Opus Loan Notes were redeemable in cash or convertible into new ordinary shares of 2 pence each in the capital of the Company ("Ordinary Shares") at a price of 40 pence per Ordinary Share in various tranches: GBP0.15 million on 30 September 2016, GBP0.15 million on 30 September 2017 and GBP0.1 million on 30 September 2018.
On 8 July 2016, the company issued 250,000 new Ordinary Shares pursuant to the conversion of Opus Loan Notes. A further 375,000 Ordinary shares pursuant to the conversion of Opus Loan Notes were issued on 4 October 2016, all in part settlement of the balance.
On 21 June 2017, it was agreed by the beneficiaries of the Opus Loan Notes that they would waive the remaining GBP0.22m of loan notes held by them in consideration of surrendering any potential warranty claims under the sale and purchase agreement.
Kypera Loan notes
On 31 January 2016, in order to fund the acquisition of Kypera, the Company issued GBP3.5 million of unsecured loan notes ("Kypera Loan Notes"), which have a term of 5 years and carry interest at a rate of 5% per annum, which is rolled up into the loan. The Kypera Loan Notes can be converted into new Ordinary Shares at a price of 85.6 pence per Ordinary Share. Conversion is at the option of the holder at any time during the 5 year term. The Company can redeem the Kypera Loan Notes from the third anniversary of issue if not already converted and earlier by request.
On 31 March 2017 GBP0.5 million of the Kypera Loan Notes were repaid. A further repayment of GBP0.5 million was made on 27 April 2017 in respect of the Kypera Loan Notes.
15 Deferred and contingent consideration
Current
2018 2017
GBP000 GBP000
----------------------- ------- -------
Deferred consideration 592 838
592 838
----------------------- ------- -------
2018 2017
Non-current GBP000 GBP000
------------------------- ------- -------
Deferred Consideration 143 707
Contingent consideration - 748
143 1,455
------------------------- ------- -------
The acquisition of the Agile business in the prior year gave rise to a liability for deferred consideration payable over 4 years plus a contingent consideration based on the revenue from the business generated by 4 April 2019.
Management has assessed that the targets for contingent consideration will not be met and has consequently released the balance of GBP748,000 relating to the contingent consideration as an exceptional credit in the Consolidated Statement of Comprehensive Income.
16 Net cash flows from operating activities
2018 2017
GBP000 GBP000
------------------------------------------------------- ----------- -----------
Profit/(loss) on ordinary activities before taxation 1,828 (539)
Adjustments for:
Exceptional items (844) 797
Net finance costs 314 727
Depreciation of property, plant and equipment 306 225
Amortisation of intangibles 3,027 2,997
Equity-settled share-based payment charge 484 231
Movements in working capital:
(Increase)/decrease in trade and other receivables (1,183) 1,514
Increase/(decrease) in trade and other payables 1,402 (950)
Decrease in provisions (135) (558)
(Increase)/decrease in inventories (22) 137
Cash generated from operations 5,177 4,581
------------------------------------------------------- ----------- -----------
Non-cash transactions
The principal non-cash transactions are as below:
The waiver of the debt part of the Opus Loan Notes which credited provisions and debited Loan notes with GBP215,000
The waiver of the equity part of the Opus Loan Notes which credited the accumulated loss and debited the Equity reserves with GBP392,000.
Settlement of the MXC Scheme which credited other creditors and debited the accumulated loss reserve with GBP1,662,000. On 3 April 2018, the cash was paid to MXC which resulted in a financing cash outflow of GBP1,662,000 during the financial year ending 31 March 2019.
Reconciliation of net debt
Net debt as referred to in the Strategic Report is calculated as follows:
2018 2017
GBP000 GBP000
Cash and Cash equivalents 510 586
Borrowings - repayable within one year* (1,600) (2,423)
Borrowings - repayable after one year (5,211) (7,116)
------------------------------------------- ----------- -----------
Net Debt (6,301) (8,953)
------------------------------------------- ----------- -----------
Cash and Cash equivalents 510 586
Gross debt - fixed interest rates (3,461) (4,863)
Gross debt - variable interest rates* (3,350) (4,676)
------------------------------------------- ----------- -----------
Net Debt (6,301) (8,953)
------------------------------------------- ----------- -----------
* Included within Gross debt - variable interest rates and also within Borrowings - repayable within one year, is an overdraft of GBPnil (2017: GBP316,000).
Accrued
Cash / Kypera interest
bank Finance Opus Loan Loan on loan Deferred
overdraft leases Bank borrowings Notes Notes notes consideration Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2016 (330) (24) (5,401) (443) (3,277) - (500) (9,975)
Cash flows 600 51 1,188 - 500 - 500 2,839
Additions - (73) - - - - (1,504) (1,577)
Interest
unwound - - (180) (22) (280) - (41) (523)
Interest
reclassified - - 33 - - - - 33
Interest due
to be paid - - - - 175 (175) - -
Conversion - - - 250 - - - 250
At 31 March
2017 270 (46) (4,360) (215) (2,882) (175) (1,545) (8,953)
Cash flows 199 46 1,136 - 500 - 850 2,731
Interest
unwound - - (126) (5) (169) - (40) (340)
Interest due
to be paid - - - - 173 (173) - -
Waiver - - - 220 - - - 220
Foreign
exchange
effects 41 - - - - - - 41
At 31 March
2018 510 - (3,350) - (2,378) (348) (735) (6,301) ------------- --------- --------- ------------------- --------- -------- -------- ------------- ------- Within one year - - (1,008) - - - (592) (1,600) Over one year - - (2,342) - (2,378) (348) (143) (5,211) ------------- --------- --------- ------------------- --------- -------- -------- ------------- ------- At 31 March 2018 - - (3,350) - (2,378) (348) (735) (6,811) ------------- --------- --------- ------------------- --------- -------- -------- ------------- ------- Within one year (316) (46) (1,008) (215) - - (838) (2,423) ------------- --------- --------- ------------------- --------- -------- -------- ------------- ------- Over one year - - (3,352) - (2,882) (175) (707) (7,116) ------------- --------- --------- ------------------- --------- -------- -------- ------------- ------- At 31 March 2017 (316) (46) (4,360) (215) (2,882) (175) (1,545) (9,539) ------------- --------- --------- ------------------- --------- -------- -------- ------------- -------
17 Subsequent events
On 31 May 2015 the Company acquired Brixx Solutions Limited ("Brixx"), since renamed Castleton Strategic Modelling, whose solution, HousingBrixx, enables users to produce financial models and long-term forecasts. At the time of the Brixx acquisition it was announced that the platform upon which Castleton Strategic Modelling is based was owned by Brixx International Ltd, to whom a licence fee has since been payable, and that Castleton had an option to acquire the IP for this platform (the "Option").
On 18 June 2018 the Company exercised the Option to acquire an exclusive, perpetual and assignable licence in relation to the platform (the "Acquisition") which enables Castleton to use, modify, maintain, distribute and sell the platform. Following the Acquisition, no further licence fees are payable to Brixx International Ltd leading to an increase in margin for the Group of approximately GBP0.3 million per annum in relation to sales of Castleton Strategic Modelling.
The consideration for the Acquisition was GBP1.6 million, of which GBP1.1 million was satisfied by the issue of 1,299,094 Ordinary Shares at a price of 82.75 pence per Ordinary Share, being the closing mid-price on the day of exercise of the Option (the "Share Price"). The remaining GBP0.5 million was paid in cash from the Company's existing resources.
Castleton has also agreed to pay Brixx International Ltd GBP0.06 million for further development of the platform, such amount to be satisfied by the issue of 72,508 new Ordinary Shares at the Share Price.
Furthermore, at the date of Acquisition, GBP51,000 was due and owing by the Group to Brixx International Ltd, in respect of licence fees payable pre Acquisition which was settled by the issue of 61,079 Ordinary Shares at the Share Price. As stated above, no further licence fees are or will be payable to Brixx International Ltd.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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June 19, 2018 02:00 ET (06:00 GMT)
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