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Pelatro PLC Final Results

12/04/2021 7:00am

UK Regulatory (RNS & others)


Pelatro (LSE:PTRO)
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TIDMPTRO

RNS Number : 0563V

Pelatro PLC

12 April 2021

12 April 2021

Pelatro Plc

("Pelatro" or the "Group")

Final results

Pelatro Plc (AIM: PTRO), the precision marketing software specialist, is pleased to announce today its results for the year ended 31 December 2020.

Financial highlights

-- Revenue decreased to $4.02m (2019: $6.67m) as result of switch of focus to recurring revenue

   --              Recurring revenue increased to 71% of revenue (2019: 44%) at $2.85m (2019: $2.96m) 
   --              Adjusted EBITDA(*) of $0.44m (2019: $2.89m) 
   --              Adjusted (loss)/earnings per share of (5.5)c (2019: 4.2c) 
   --              Equity placing to raise $2.6m to invest in our business 

-- Focus on shift to recurring revenue: Annual Recurring Revenue ("ARR")(**) increased 35% to $5.4m (2019: $4.0m)

   --              Gross cash as at 31 December 2020 $1.81m (2019: $1.10m) 

-- Trade receivables of $3.48m (2019: $5.51m); $1.4m received from debtors since year end

Operational highlights

-- Successfully adapted to coronavirus restrictions with minimal residual impact on operations

-- Continued cross-selling of products to existing customers and intra-Group selling in telco groups

-- Enhanced sales presence in Latin America and also for Africa, the Middle East and Asia

-- Roll out of mViva version 6 has been well received, with 3 customers having purchased

-- mViva implemented successfully in one of the largest networks globally - c. 400m subscribers across 23 markets

Outlook

   --              Substantial order book and good visibility over revenues for the coming year 

-- Current contracted revenue visibility for FY21 of $6.0m, of which $5.2m is recurring

   --              Pipeline of c. $16m 
   --              Launch of drive into fast growing mobile advertising space 

Richard Day, non-executive Chairman of Pelatro commented:

"We ended 2020 in a much stronger position, with a substantial order book and good visibility over revenues for the coming year. The start of the second phase of our journey into the mobile advertising space is particularly exciting as an area complementary to our existing operations. We have every confidence in meeting our customers' requirements, growing our business and meeting financial expectations for the year."

Presentation

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

For further information contact:

 
 Pelatro Plc 
 Subash Menon, Managing Director                      c/o Cenkos 
 Nic Hellyer, Finance Director 
 
 Cenkos Securities plc (Nominated Adviser 
  and broker)                                +44 (0)20 7397 8900 
 Stephen Keys / Mark Connelly (Corporate 
  Finance) 
 Michael Johnson (Sales) 
 

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

** ARR is calculated by reference to the full annualised value of a contract; the total ARR thus calculated may not all accrue in the 12 months following due to (for example) implementation periods and other timing differences between signing a contract and the "Go Live" or similar date

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

Notes to editors

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

Pelatro provides its "mViva" platform for use by customers in B2C and B2B applications, and is well positioned in the Customer Engagement space. Our technology orchestrates the digital journey of the customers of the telcos through contextual, relevant and real time offers and loyalty programs across multiple channels including websites, social media, apps and others.

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

CHAIRMAN'S STATEMENT

Overview

This past year always promised to be one of continuing development at Pelatro, and significant progress has been made notwithstanding the COVID-19 pandemic and its effect on social and business interaction. There is still a long way to go but there is clearly light at the end of the tunnel, with the increasing roll-out of effective vaccines around the world and effective steps being taken to help keep the virus in check. Most of our employees have been working from home, with an increasing though limited number working from our offices in India as the lockdown restrictions are being lifted there. We currently have 20-30% of our staff safely attending our offices for work and we expect that to rise steadily over the coming months.

Our customers, the telcos, have continued to rely on our support and our mViva software platform to help them with dedicated and appropriate customer engagement across their networks. We started the year with 18 telco customers and increased that to 19; we have focused this year on extending our reach across our managed networks systems services. Our shareholders will be aware that we have, over the last two years been gradually moving our business model from a predominantly licence fee one to one based on annual recurring revenues. Subash in his CEO's report covers this more fully. I will simply say that this has been a process which we knew would take some time and we very much appreciate the support we have had from all our stakeholders in going through this process. We already have visibility of c. $6m of revenues for this current year, which is a much stronger position than we have been in before; furthermore, our earnings from predominantly licence fee income historically tended to be more back-end weighted, whereas we are now seeing with our annual recurring revenues model a much more even income stream throughout the year. The collection cycle for trade debtors also tends to be shorter.

Operations

From an operational point of view, the roll-out of our upgraded version of mViva to the current V6 has been well received, with three existing customers placing contracts to upgrade. We are also seeing numerous Change Requests coming in as well as customers taking up the Group's new modules. Importantly, this demonstrates Pelatro's ability to enhance our mViva platform to ensure we continue to satisfy the changing and evolving needs of our industry.

In August, we took the opportunity to raise $2.6m net of expenses by way of an equity placing. The funds were raised to invest in growing the business, as well as to fund working capital to ensure we were well placed to look for larger contracts. Marketing for new business is still being impacted due to the pandemic, allowing us to focus more on selling our services to our existing customers. We have taken on two new salespeople, for Latin America and also for Africa, the Middle East and Asia. We were also able to expand our relationship with two separate large telco groups which were already customers of Pelatro, by winning from each a new contract from other operating companies in other territories respectively within those groups.

We continue to develop and look at new applications for our mViva platform. By way of example, during the year we collaborated closely with one of our large telco group customers which is seeing us develop with them advanced analytical capabilities for four operating companies in their group in different countries.

In February 2021, we were delighted to be able to announce the final implementation of mViva had been completed in the network of our largest customer under our five-year Managed Services contract with them. The network has over 400 million individual subscribers and the roll-out was achieved in several tranches, with a smooth and successful implementation. It was executed during the pandemic remotely without any on-site activity being required. This is a significant validation of the scalability of our mViva product.

Environmental, Social and Governance

We present in these accounts our Environmental, Social and Governance report. As a support service company to the telco industry, we are not engaged in any manufacturing process directly producing harmful substances or products. However, we are mindful of the sustainable conservation of natural resources and monitor and control our energy and water consumption as well as our waste production. All employees are valued members of the team and we seek to implement provisions to retain and incentivise them in a fair and open way. We have adopted the Quoted Companies Alliance Corporate Governance Code and believe that strong and transparent governance policies are a key ingredient of our success.

Outlook

We ended 2020 in a much stronger position, with a substantial order book and good visibility over revenues for the coming year. Our mViva platform has been successfully stress-tested to the extreme in being implemented across a network of over 400m subscribers without any losses or fall out. We have been successfully selling our enhanced offering out across our customer base and reaching out to new customers. The start of the second phase of our journey into the mobile advertising space is particularly exciting as an area complementary to our existing operations. We have every confidence in meeting our customers' requirements, growing our business and meeting financial expectations for the year.

Richard Day

Chairman

MANAGING DIRECTOR'S STATEMENT

Relationships between organisations are heavily dependent on the value delivered by one organisation to the other. The higher the value, the deeper and stronger the relationship. As a reliable partner to the telecom industry, your company endeavours to consistently deliver value in every area of engagement covering all aspects of our business such as provisioning of software, implementation, support, consulting and related services. This leads to the concept of recurring delivery of value.

Recurring Value Delivery

Pelatro has been morphing from a company that relies on one-time revenue engagements with telcos to a company that derives most of its revenue from recurring engagements. Such recurring engagements result in higher revenue at a lower cost of obtaining that sale and also leads to a deep relationship with our customers. It enables us to become an integral and almost indispensable part of their business process and system architecture. Attaining such a position is very valuable and will ensure zero or minimal churn in our customer base.

When your company embarked on this journey of strategic change in the nature and quality of our revenue, most of our revenues were "one off" in nature. Over a three-year period the scenario has changed significantly with Annual Recurring Revenue ("ARR") run rate moving from zero to $5.4 million. This metamorphosis is the result of various new products being accepted by our customers and a marked change in the underlying activities that are part of the engagement model. The most fundamental shift is the addition of several customers for our Managed Services offering. While the scope and size of the operations for each customer is different, the general offering is by and large the same - Pelatro handles the operations of the mViva Campaign Management Solution on behalf of the telco, including configuration of campaigns, execution of campaigns, reporting, support and business consulting.

This change has led to increasing value addition from Pelatro to its customers. It is pertinent to note that this value addition continues for a long period of time spread over several years. The period is generally between three to five years and the contracts provide for further extension of this period. An important consequence of such long periods of value creation is the embedding of Pelatro and its products and services within the business of our customers. We will continue to endeavour to leverage the relationships thus built to further grow our business and revenue.

Quality of Revenue

One time revenues are both lumpy and unpredictable which leads to a high level of volatility in annual revenue and profit. Further, new contracts need to be won each year to generate revenue for that particular year. In contrast, recurring revenue contracts ensure a stable predictable stream of revenue each year. New contracts will continue to build on the existing base resulting in the power of compounding. Given the excellent visibility provided by recurring revenue contracts, the Group can also plan investments well in advance and for a longer period of time. Thus, the recurring revenue model tends to be more highly valuable to us compared to new business from one-off contracts.

Our strategy to shift our business from reliance largely on one-time revenues to predominantly recurring revenue has led to an increasing proportion of recurring revenue in the overall revenue of the Group. This proportion has increased steadily over the past four years to reach 71% in 2020. As the Group continues to win recurring revenue contracts, we expect the proportion to tilt further in favour of this attractive and highly beneficial revenue model.

2019 and 2021 - a study in contrast

As we have stated many times in recent years, your company started the shift from contracts with one-time revenues to contracts with recurring revenues in early 2019. The process gathered momentum, and was largely complete towards the end of 2020. Consequently, 2021 will be our first full year of operation after this strategic shift. During the 2019-20 period, reported revenues experienced stagnation and decline, although the overall value of contracts over a longer period is higher, as we are able to rely on dependable receipts over several years. The natural consequence was lumpy revenue giving way to more dependable revenue spread over a longer period of time.

In view of this major shift, it is pertinent to compare the two relevant years (2019 and 2021) to appreciate the full impact of the change. At the start of 2021, we had $5.6m of contracts in hand to be executed and the associated revenue recognised in 2021 (and have since increased that figure to $6.0m). With the mix of potential contracts in our current pipeline, we would expect the year end outturn to be broadly 80/20 in favour of recurring revenue. Thus, while the level of revenues in 2019 and the anticipated revenues in 2021 similar, the composition and quality has changed dramatically with Recurring Revenue increasing in proportion from 44% to around 80%. This is leading to a fundamental change in the quality of revenue and the underlying value of the business. As explained earlier, we expect this trend to continue in the coming years with the proportion of recurring revenue increasing steadily.

Establishing scale

The year that passed has been one when the scalability of our platform mViva and that of our operations was established. We rolled out mViva across 23 markets covering the entire country of India encompassing over 400 million subscribers. This huge project was executed remotely without any onsite presence. The execution was flawless and the migration from two incumbent campaign management solutions was completed without negatively impacting the business of our customer. Consequent to this successful roll out, mViva now has one of the largest implementations in the world and handles the data of over 800 million subscribers globally.

Entry into mobile advertising space

For some time, the Group has been reviewing opportunities in the fast-growing mobile advertising space. as an area complementary to its existing operations. The global mobile advertising market, according to a survey by IMARC Group, is expected to grow from $52 billion in 2018 to $221 billion in 2024 at a CAGR of 27%. Commenting on this space as one of the key opportunities for telecom companies, Gartner identified entry into mobile advertising model as given below and commented as follows:

"Market Trends: CSPs Must Transform Their Advertising Model", Gartner

Formulate and prioritize investments to develop a position in data monetisation in the advertising market before other advertising strategies. Focus should be on maximising Communication Service Provider ("CSP") data usage and availability, rather than on generating and selling ad inventory.

Develop a trusted data provider position with brands, agencies and the wider ecosystem on top of the media or technology activities already developed. As a trusted source of data, CSPs will add transparency by reducing fraud and waste."

The Business

Mobile phones are ubiquitous and the significant penetration of smart phones (in developed countries as high as 80%, and in Asia for example currently about 50%) has opened up a new channel for advertising, namely mobile advertising. This segment is growing at a frenetic pace and currently accounts for about $100 billion globally. Communication Service Providers or CSPs are in a unique situation in this market as they hold the maximum amounts of data about their customers (who may number tens of millions and even hundreds of millions in some countries). This data, with appropriate consent and anonymity, can be shared with B2C players in financial services, retail, travel & hospitality, FMCG and brands to enable the latter to engage in targeted marketing of their products across advertising, campaigns, surveys, loyalty programmes etc. Such targeted campaigning will be contextual, relevant, personalised and real time. Pelatro's platform mViva, which handles such marketing for telcos using the vast quantity of data that it collects and processes applying AI/ML and other analytical techniques, is uniquely positioned to provide access to the segments mentioned earlier for mobile advertising and related activities.

Pelatro's strategy and readiness

Pelatro is now seeing various opportunities by partnering with its telco customers to enter this huge market. To start with, we have already identified six large markets where we have several telco customers using our software collecting and processing the data of about 700 million mobile subscribers. Out of these, about 350 million i.e. 50%, have smart phones. Our technology can help brands and B2C companies to target these 350 million subscribers and mViva's AI/ML capabilities will help us to differentiate our offering from that of the competition by enriching the data through deep analysis. Pelatro's strategy is to partner with our telco customers and sell this access to data to ad agencies who will in turn on-sell to their customers, who are the brands and B2C companies. These end customers will pay based on their usage (i.e. number of campaigns sent, targeting parameters used, number of people targeted etc.). This revenue is then shared by the ad agency, Pelatro and the telco, with a large portion being retained by Pelatro. This strategy therefore builds on our relationships with our telco customers, underpinned by the expansion of our existing business and with clear synergies between the two.

Looking forward

Your company has come a long way since its inception in 2013 and the IPO in December 2017. Apart from winning several Tier 1 telecom companies as customers in 17 countries, we have also built a strong foundation for the future. We will continue to build on this strong foundation to deliver superior results and shareholder value in the coming years.

I thank every one of our stakeholders for the support extended during the last year while the company was progressing on the recurring revenue front. We will continue to build Pelatro into a global leader in our chosen space.

Subash Menon

Managing Director, CEO and Co-Founder

Financial review

Key Performance Indicators

 
                                                   2020      2019    Growth 
 
 Revenue                                           $4.02m   $6.67m    (40)% 
 
 Recurring revenue                                 $2.85m   $2.96m     (4)% 
 
 Recurring revenue as percentage of 
  total                                               71%      44% 
 
 Adjusted EBITDA (see Note 7)                      $0.44m   $2.89m    (85)% 
 
 Adjusted EBITDA margin                               11%      43% 
 
 Profit/(loss) before tax (before exceptional 
  items)                                         $(2.23)m   $0.77m      n/a 
 
 Cash generated from operating activities          $2.26m   $1.41m      60% 
 
 Contracted customers (at year end)                 20        19          1 
 

Income Statement

Revenue

For the year, total revenue decreased by 40 per cent. to $4.02m. This included $2.85m recurring revenue (which comprises gain share, managed services and post-contract support or "PCS") accounting for around 71% of the total; together with around $0.4m of change request revenue this resulted in repeating revenue of $3.3m. The decline in revenue year on year arose principally from a significant reduction in "one off" type revenue (typically license fees) which was not unexpected as our sales efforts were targeted towards the pivot of the Group's revenues towards a recurring revenue base; however, in addition and as announced in November 2020, whilst the coronavirus pandemic had a relatively limited impact on high-level decision making at our customers, other than them necessarily needing to focus more on their day-to-day operations, by Q4 COVID-19 had started to affect some of the employees and immediate relatives of both Pelatro and our customers. This led to a slower than scheduled implementation of certain projects (principally change requests), and as this revenue is recognised only on completion of the relevant project, certain revenue which was visible and expected in 2020 was deferred to the first half of 2021.

One new customer was added during the year; this, together with the number of recurring revenue customers, further reduced customer concentration with now only three customers accounting for more than 10% of revenue. As noted last year, a proportion of the Group's revenue is now invoiced in Indian Rupees ("INR") which forms a natural hedge against the Group's cost base, of which around 60% (in cash terms) is in INR.

Cost of sales

Cost of sales increased by 71% to $1.71m (2019: $1.00m) These costs comprise principally (i) the direct salary costs of providing software support and maintenance, professional services and consultancy; (ii) expensed customer implementation; (iii) third-party software maintenance and licensing costs; and (iv) sales commissions. The increase in FY20 results almost entirely from the cost of extra staff taken on to service several managed service and similar contracts implemented during the year.

Overheads

Pre-exceptional overheads (excluding depreciation and amortisation) decreased to $1.9m (2019: $2.8m), largely due to a substantial reduction in travel costs. Additionally, whilst net staff numbers grew in the year, leavers were all employees whose cost was charged to overheads, whilst the majority of new joiners were recruited for specific customer contract roles (and hence are charged to cost of sales); accordingly the net cost of staff charged to overheads reduced. There was also a general reduction in other costs including plc costs and certain consultancy contracts.

Exceptional gains

The second stage earn-out payment due to the vendors of Danateq was agreed in the year at $1m gross under the terms of the SPA. The net amount paid was some $193,000 lower, being reduced by sums relating either to amounts paid by customers in advance to the former Danateq business but due to Pelatro, or amounts deductible under the terms of the SPA due to differences in outturn in disclosure items. The difference between the estimated value of the liability brought forward and the amount paid (as adjusted for the imputed discount due to the time value of money to the date of payment) resulted in the exceptional gain shown of $149,000.

Profitability

Adjusted EBITDA (earnings before interest, tax, depreciation, amortisation and exceptional items) fell by 85% in the year to $0.44m (2019: $2.89m). Loss before tax before exceptional items was $(2.22)m (2019: profit $0.77m). Adjusted loss per share was (5.5)c (2019: positive 4.2c), and reported loss per share was(7.2)c (2019: positive 2.5c). The reported loss before tax was $(2.08)m (2019: profit $1.01m).

Taxation

The Group suffers a tax charge despite a reported consolidated loss before tax as (i) the Group's operating subsidiary in India is necessarily profitable on a standalone basis in order to comply with local tax laws; and (ii) customer payments in respect of sales to certain jurisdictions suffer Withholding Tax ("WHT") deductions: subject to various restrictions this may be offsetable against other profits but, in the absence of such profits, the WHT is treated as tax suffered.

The taxation charge for the year comprises a charge of $0.30m relating to current tax (2019: $0.25m), which is net of a credit of $18,000 relating to the reassessment of prior year Group tax liabilities and WHT assets, principally in the UK and the US. Partly as a result of that reassessment, the Group is due a tax refund of approximately $42,000. WHT also accounts for the majority of the "Income tax paid" of $0.34m in the Group Statement of Cash Flows.

The tax charge also reflects a charge of $72,000 relating to the derecognition of deferred tax assets (2019: $53,000 credit) due to uncertainty over the timing of when the previously recognised deferred tax assets could be offset against future profits.

Statement of Financial Position

Intangible assets

Customer relationships and acquired software for resale

Assets acquired pursuant to the Danateq Acquisition comprised principally customer relationships and enterprise software for resale to third parties; the customer relationships acquired are being amortised over 10 years. Net of accumulated amortisation for the year, the net book value of the standalone intangible assets acquired (i.e. the customer relationships) was approximately $5.2m at the year end.

Development costs

The Group is committed to the continuous enhancement of its software suite, and we aim to offer a market-leading platform which addresses the needs of our telco customers. The Group now employs around 95 developers in Bangalore and around 20 in the Group's other development centre in Nizhny Novgorod. In addition to the release of the advanced V6 of our proprietary mViva software, the Group released various add-on modules (as detailed above), thus further expanding the scope, functionality and optionality of the software suite. Costs incurred of around $2.9m (2019: $2.1m) were capitalised accordingly. Amortisation on development cost assets increased to $1.4m (2019: $1.0m) and, net of amortisation, this capitalisation resulted in a net book value of intangible assets relating to development costs in the statement of financial position of approximately $5.9m (2019: $4.4m).

Property, plant and equipment

Expenditure of $0.90m on property, plant and equipment relates principally to $0.87m spend on IT equipment placed on site at a customer's premises to implement the related managed services contract. The balance relates mainly to spend on fixtures, fittings and leasehold improvements due to the continued expansion of the Group's office space.

Depreciation in the year amounted to $0.20m (excluding amounts relating to Right-to-Use assets now recognised under IFRS 16, and gross of amounts capitalised as intangible assets) (2019: $93,000), and the aggregate net book value of property, plant and equipment rose from $0.52m to $1.22m.

Trade receivables and contract assets

Trade receivables

At 31 December 2020 total trade receivables (i.e. including long-term receivables) stood at $3.5m (2019: $5.5m). Of these receivables, approximately $1.4m has been received since the year end to date.

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

 
                          2020          2020       2020        2019          2019       2019 
                          $'000        $'000                   $'000        $'000 
                       Receivables   Associated   "Debtor   Receivables   Associated   "Debtor 
                                       revenue     days"                    revenue     days" 
 
 Total                       3,335        3,819       319         5,283        6,566       294 
 Excluding Unbilled 
  Revenue                    1,076        2,593       151           967        2,619       135 
 

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

Given the wide variety and bespoke nature of the Group's contracts, figures shown for debtor days are pro forma for illustration only.

Contract assets

Contract assets are recognised relating to support and maintenance revenue and license fees as invoices are raised in arrears of the revenue recognition relating to the services being provided. In addition, contract assets include contract fulfilment assets relating to sales commission provisions, the cost of which is amortised over the life of the corresponding contract.

Short-term contract assets deriving from revenue (i.e. those which are expected to reverse in less than one year) increased to $0.46m (2019: $0.29m) largely due to one license contract signed in the year which had invoicing terms which differed significantly from the underlying performance obligations. Long-term contract assets deriving from revenue (i.e. those which are expected to reverse after more than one year) decreased to $0.31m (2019: $0.51m), reflecting the invoicing profile of various products and services, principally on PCS.

Fulfilment assets included in contract assets total $0.15m (2019: $9,000) in respect of short-term assets (representing costs directly relating to certain contracts to be recognised in profit and loss in the next 12 months); and $0.44m (2019: $nil) in respect of long-term assets (representing costs directly relating to certain contracts to be recognised in profit and loss after one year).

Trade and other payables, provisions and contract liabilities

Trade and other payables

At the year end, short-term trade payables stood at $0.81m (2019: $82,000) principally comprising an amount of $0.72m due in respect of sales commissions payable. Other short-term payables of $0.28m (2019: $0.44m), were due principally to $0.22m in respect of staff bonuses and the balance for sundry creditors.

Provisions

Short-term provisions include amounts estimated in respect of leave encashment and "gratuity" payments (in respect of staff leavers in the Group's Indian subsidiary), plus sundry expense provisions, in total $79,000 (2019: $53,000). Tax provisions of $84,000 (2019: $149,000) comprise $60,000 relating to current tax payable and a deferred tax liability of $24,000.

Long-term provisions of $0.17m (2019: $0.12m) relate solely to amounts estimated in respect of leave encashment and gratuity payments.

Contract liabilities

Contract liabilities represent customer payments received in advance of satisfying performance obligations, which are expected to be recognised as revenue in 2021 and beyond. Short-term contract liabilities decreased to $0.50m (2019: $0.66m) and long-term contract liabilities to $0.21m (2019: $0.27m) as the performance conditions in the underlying contracts were satisfied.

Statement of Cash Flows

Cash flow and financing

Cash generated by operations before tax payments amounted to $2.60m (2019: $1.75m), largely resulting from the realisation of trade receivables (net working capital inflow of c. $2.2m). As the Group transitions to a recurring revenue model, more contracts and hence revenue will be on a quarterly or even monthly billing cycle and hence we would expect this trend to continue.

During the year the Group secured financing of approximately $0.8m (on a term basis over 6 years) in order to match fund the cost of hardware associated with the major managed services contract announced in December 2019. In addition, the FY19 year end overdraft of $0.17m was repaid. In August the Group raised c. $2.6m net of expenses by way of an equity placing. This has supported the Group's expansion, both in terms of recruitment (in particular in sales) and working capital generally.

Net of expenditure on intangibles (principally development costs of $2.8m) and the hardware referred to above, the Group had closing gross cash of $1.8m (2019: $1.1m). Borrowings amounted to $1.4m (2019: $0.6m) excluding amounts relating to lease liabilities.

Summary

Our performance this year represents a year of transition: the change in the quality of revenue, which now includes major long-term managed service contracts, a solid base of support revenue as well as valuable high margin training and other consultancy income, gives us a sound platform from which to build. Given the geographic spread of the Group, Brexit had little or no effect and, whilst we continue to stay abreast of any developments, we do not anticipate any material impact arising from the EU-UK Trade and Cooperation Agreement. Whilst COVID-19 provides a continuing cause for caution across the world, the Group has made an excellent start to the year, with a material proportion of the expected revenues for the year underpinned by recurring and repeating revenue with significant further change request and other contracts added in the first quarter. The Board therefore remains optimistic that the Group is on track to deliver a strong year of growth.

Nic Hellyer

Finance Director

Group Statement of Comprehensive Income

For the year ended 31 December 2020

 
                                                             2020        2019 
                                                    Note     $'000       $'000 
                                                           (audited)   (audited) 
 
 Revenue                                             5         4,020       6,667 
 Cost of sales and provision of services                     (1,710)       (999) 
                                                             _______     _______ 
 Gross profit                                                  2,310       5,668 
 
 Adjusted administrative expenses                    6       (3,647)     (4,048) 
                                                             _______     _______ 
 Adjusted operating profit/(loss)                            (1,337)       1,620 
 Exceptional items                                   7           149         236 
 Amortisation of acquisition-related intangibles     18        (686)       (686) 
 Share-based payments                                11         (32)        (52) 
                                                          ----------  ---------- 
                                                             _______     _______ 
 Operating profit/(loss)                                     (1,906)       1,118 
 
 Finance income                                      12           64          54 
 Finance expense                                     13        (240)       (164) 
                                                             _______     _______ 
 Profit/(loss) before taxation                               (2,082)       1,008 
 Income tax expense                                  14        (375)       (194) 
                                                             _______     _______ 
 PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE 
  TO OWNERS OF THE PARENT                                    (2,457)         814 
 
 Other comprehensive income/(expense): 
 Items that may be reclassified subsequently 
  to profit or loss: 
 Exchange differences on translation of 
  foreign operations                                              25        (25) 
                                                             _______     _______ 
 Other comprehensive income, net of tax                           25        (25) 
 
 TOTAL COMPREHENSIVE INCOME FOR THE YEAR                     (2,432)         789 
 
 
 Earnings per share 
 Attributable to the owners of the Pelatro 
  Group ( basic and diluted)                         15       (7.2)c        2.5c 
 

Group Statement of Financial Position

For the year ended 31 December 2020

 
                                                            2020        2019 
                                                   Note     $'000       $'000 
                                                          (audited)   (audited) 
 Assets 
 Non-current assets 
 Intangible assets                                  18       11,649      10,891 
 Tangible assets                                    19        1,218         515 
 Right-of-use assets                                20          308         339 
 Deferred tax assets                                14           16          63 
 Contract assets                                    21          751         519 
 Trade and other receivables                        21          149         231 
                                                            _______     _______ 
                                                             14,091      12,558 
 Current assets 
 Contract assets                                    21          609         293 
 Trade receivables                                  21        3,335       5,283 
 Other assets                                       22          485         501 
 Cash and cash equivalents                                    1,805       1,101 
                                                            _______     _______ 
                                                              6,234       7,178 
 
 TOTAL ASSETS                                                20,325      19,736 
 
 Liabilities 
 Non-current liabilities 
 Borrowings                                         23        1,196         362 
 Lease liabilities                                  24          172         187 
 Contract liabilities                               25          207         274 
 Long-term provisions                               26          173         124 
                                                            _______     _______ 
                                                              1,748         947 
 Current liabilities 
 Trade and other payables                           25        1,093         321 
 Short term borrowings                              23          244         246 
 Lease liabilities                                  24          174         205 
 Contract liabilities                               25          495         665 
 Provisions                                         26          163         202 
 Other financial liabilities                                      -         948 
                                                            _______     _______ 
                                                              2,169       2,587 
 
 TOTAL LIABILITIES                                            3,917       3,534 
 
 NET ASSETS                                                  16,408      16,202 
 
 Issued share capital and reserves attributable 
  to owners of the parent 
 Share capital                                      27        1,212       1,065 
 Share premium                                      27       14,045      11,603 
 Other reserves                                     27        (583)       (643) 
 Retained earnings                                            1,734       4,177 
                                                            _______     _______ 
 TOTAL EQUITY                                                16,408      16,202 
 

Group Statement of Cash Flows

For the year ended 31 December 2020

 
                                                         2020        2019 
                                                         $'000       $'000 
                                                       (audited)   (audited) 
 Cash flows from operating activities 
 Profit/(loss) for the year                              (2,457)         814 
 Adjustments for: 
 Income tax expense recognised in profit 
  or loss                                                    375         194 
 Finance income                                             (20)        (11) 
 Finance costs                                               232         160 
 Depreciation of tangible non-current assets                 366         188 
 Profit on disposal of fixed assets                         (10)           - 
 Amortisation of intangible non-current 
  assets                                                   2,122       1,726 
 Fair value adjustment on contingent consideration         (149)       (236) 
 Share-based payments                                         32          52 
 Foreign exchange gains/(losses)                              25         (8) 
                                                         _______     _______ 
 Operating cash flows before movements 
  in working capital                                         516       2,879 
 (Increase)/decrease in trade and other 
  receivables                                              2,229     (1,509) 
 (Increase) in contract assets                             (544)       (428) 
 Increase in trade and other payables                        676         103 
 Increase/(decrease) in contract liabilities               (276)         701 
                                                         _______     _______ 
 Cash generated from operating activities                  2,601       1,746 
 
 Income tax paid                                           (339)       (334) 
                                                         _______     _______ 
 Net cash generated from operating activities              2,262       1,412 
 
 Cash flows from investing activities 
 Development of intangible assets                        (2,807)     (2,102) 
 Purchase of intangible assets                               (9)        (35) 
 Acquisition of property, plant and equipment              (902)       (256) 
 Payment of earn out consideration relating                (851)           - 
  to prior period acquisition 
                                                         _______     _______ 
 Net cash used in investing activities                   (4,569)     (2,393) 
 
 Cash flows from financing activities 
 Proceeds from issue of ordinary shares,                   2,589           - 
  net of issue costs 
 Proceeds from borrowings                                  1,753         317 
 Repayment of borrowings                                   (919)       (313) 
 Repayments of principal on lease liabilities              (171)       (171) 
 Interest received                                            20          11 
 Interest paid                                             (185)        (93) 
 Interest expense on lease liabilities                      (16)        (40) 
                                                         _______     _______ 
 Net cash generated by/(used in) financing 
  activities                                               3,071       (289) 
 
 Net increase/(decrease) in cash and cash 
  equivalents                                                764     (1,270) 
 Foreign exchange differences                               (60)        (20) 
 Cash and cash equivalents at beginning 
  of period                                                1,101       2,224 
                                                         _______     _______ 
 Cash and cash equivalents at end of period                1,805         934 
 
 Comprising: 
 Cash at bank and in hand                                  1,805       1,101 
 Overdraft                                                     -       (167) 
                                                         _______     _______ 
                                                           1,805         934 
 

Group Statement of Changes in Equity

For the year ended 31 December 2020

 
                                 hare     Share    Exchange   Merger   Share-based  Retained   Total 
                                capital   premium   reserve   reserve    payments    profits 
                                                                         reserve 
                                $'000     $'000     $'000     $'000       $'000      $'000     $'000 
Balance at 1 January 
 2019 as previously reported    1,065     11,603    (193)     (527)         -        3,363    15,311 
Profit after taxation 
 for the period                   -         -         -         -           -         814       814 
Share-based payments              -         -         -         -          100         -        100 
Other comprehensive 
 income: 
Exchange differences                  -         -      (23)         -            -               (23) 
Transactions with owners: 
Shares issued by Pelatro              -         -         -         -            -         -        - 
 Plc for cash 
Issue costs                           -         -                                                   - 
                                _____     _____     _____     _____       _____      _____     _____ 
Balance at 31 December 
 2019                           1,065     11,603    (216)     (527)        100       4,177    16,202 
Profit after taxation 
 for the period                   -         -         -         -           -       (2,457)   (2,457) 
Share-based payments              -         -         -         -          98          -        98 
Transfer on lapse of 
 share options                                                            (14)         14        - 
Other comprehensive 
 income: 
Exchange differences              -         -        (24)       -           -          -       (24) 
Transactions with owners: 
Shares issued by Pelatro 
 Plc for cash                       147     2,620     -         -           -          -       2,767 
Issue costs                           -     (178)     -         -           -          -       (178) 
                                _____     _____     _____     _____       _____      _____     _____ 
Balance at 31 December 
 2020                           1,212     14,045    (240)     (527)        184       1,734    16,408 
 

Notes to the Financial Statements

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

   5          Revenue and segmental analysis 

An analysis of revenue by product or service and by geography is given below.

Revenue by type

 
 At 31 December                            2020      2019 
                                           $'000     $'000 
 Recurring software sales and services      1,528     1,563 
 Maintenance and support                    1,323     1,399 
                                          _______   _______ 
 Total recurring revenues                   2,851     2,962 
 Change requests                              426     1,551 
                                          _______   _______ 
 Total repeating revenues                   3,277     4,513 
 Software - new licenses                      698     1,887 
 Consulting                                    45       258 
 Resale of hardware                             -         9 
                                          _______   _______ 
                                            4,020     6,667 
 

Revenue by geography

 
 At 31 December         2020      2019 
                        $'000     $'000 
 
 Caribbean                 145       133 
 Central Asia              175       256 
 Eastern Europe            168        91 
 North Africa               64       135 
 South Asia              1,096     1,791 
 South East Asia         2,372     4,181 
 Sub-Saharan Africa          -        80 
                       _______   _______ 
                         4,020     6,667 
 

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

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

 
 At 31 December                                          2020      2019 
                                                         $'000     $'000 
 
 (i) Revenue invoiced to customers under contractual 
  terms                                                   2,593     2,619 
 (ii) Revenue recognised under terms of contract 
  but unbilled at period end ("UBR")                      1,232     3,947 
 (iii) Net revenue recognised other than (ii)               239       144 
 Less: revenue recognised or to be recognised 
  as interest under IFRS 15                                (44)      (43) 
                                                        _______   _______ 
 Total revenue recognised in the year                     4,020     6,667 
 

Customer concentration

The Group has three customers representing individually over 10% of revenue each and in aggregate approximately 53% of total revenue at $2.14m (2019: four such customers, in aggregate approximately 67% of revenue at $4.48m). The three customers accounted for revenue of $0.89m, $0.63m and $0.62m respectively (2019: $2.02m, $0.82m, $0.81m and $0.79m).

Revenue recognition

License revenue

Irrespective of the split between license and implementation recognition, some contracts provide for fixed payments to be made by customers (usually monthly) over a given term (e.g. three or five years). Under IFRS 15, in order to reflect the time value of money, such contracts are recognised (at the point of transfer of the license) as the capitalised value of the income stream. In addition, interest income accrues on the credit deemed to be extended to the customer (on a reducing balance basis). For the financial year 2020 this figure amounts to license revenue of $0.20m and interest income of $44,000 (2019: $0.45m and $7,000).

PCS

For the financial year 2020 revenue includes/(excludes) (i) a net amount of $(101,000) representing income from PCS already recognised ahead of its contractually due dates (2019: $104,000 recognised ahead of its contractually due dates), and (ii) an amount of $nil (2019: $248,000) representing revenue netted off license income and allocated to PCS.

Remaining performance obligations

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

   --              the original contract period was greater than 12 months; and 
   --              the Group's right to consideration does not correspond directly with performance. 

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

 
                                         Year to 31 December 
                                         2021    2022   2023-6 
                                        $'000   $'000    $'000 
 Revenue expected to be recognised 
  on software and service contracts       579     394      442 
 

Comparative figures for the year ended 31 December 2019 were as follows:

 
                                         Year to 31 December 
                                         2020    2021   2022-5 
                                        $'000   $'000    $'000 
 Revenue expected to be recognised 
  on software and service contracts       595     461      522 
 

Costs of obtaining and fulfilling contracts of $0.59m have been capitalised in 2020 (net of amortisation against revenue recognised in respect of those contracts) (2019: $9,000).

   6          Operating expenses 

Profit for the year has been arrived at after charging:

 
                                                  2020    2019 
                                                  $'000   $'000 
 
 Amortisation of intangible non-current assets    2,122   1,726 
 Depreciation of tangible non-current assets        198      93 
 (Profit)/loss on disposal of Right to Use         (10)       - 
  assets 
 Staff costs (see note 9)                         1,787   1,503 
 Auditor's remuneration (see note 8)                 41      41 
 Short-term lease expenses                           23      23 
 Realised foreign exchange (gains)/losses             3    (14) 
 
   7          Non-GAAP profit measures and exceptional items 

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

 
 Year to 31 December                               2020      2019 
                                                   $'000     $'000 
 
 Operating profit/(loss)                          (1,906)     1,118 
 Adjusted for: 
 Amortisation and depreciation                      2,420     1,915 
 Revenue recognised as interest under IFRS 
  15                                                   44        43 
 Exceptional items: 
  - gain on adjustment of contingent liability      (149)     (236) 
 Expensed share-based payments                         32        52 
                                                  _______   _______ 
 Adjusted EBITDA                                      441     2,892 
 

Criteria for adjustments to operating profit or loss in the calculation of adjusted EBITDA are that they (i) arise from an irregular and significant event or (ii) are such that the income/cost is recognised in a pattern that is unrelated to the resulting operational performance.

Exceptional items are treated as exceptional by reason of their nature and are excluded from the calculation of adjusted EBITDA (and adjusted earnings per share in Note 15) to allow a better understanding of comparable year-on-year trading and thereby an assessment of the underlying trends in the Group's financial performance. These measures also provide consistency with the Group's internal management reporting. Exceptional items in 2020 comprise the gain on the adjustment of contingent liabilities relating to the final earnout payment in respect of the Danateq Acquisition.

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

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

EBITDA (and adjusted EPS) are financial measures that are not defined or recognised under IFRS and should not be considered as an alternative to other indicators of the Group's operating performance, cash flows or any other measure of performance derived in accordance with IFRS. Accordingly, these non-IFRS measures should be viewed as supplemental to, but not as a substitute for, measures presented in this Annual Report and Accounts. Information regarding these measures is sometimes used by investors to evaluate the efficiency of an entity's operations; however, there are no generally accepted principles governing the calculation of these measures and the criteria upon which these measures are based can vary from company to company. These measures, by themselves, do not provide a sufficient basis to compare the Group's performance with that of other companies and should not be considered in isolation or as a substitute for operating profit or any other measure as an indicator of operating performance, or as an alternative to cash generated from operating activities as a measure of liquidity.

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

   8          Auditor's remuneration 
 
 Year to 31 December                              2020      2019 
                                                  $'000     $'000 
 Charged in the financial year: 
 Audit of the financial statements of Pelatro 
  Plc                                                 41        41 
 Amounts receivable by auditor in respect 
  of: 
 Tax compliance                                        4         3 
                                                 _______   _______ 
                                                      45        44 
 
   9          Staff costs 
 
 Year to 31 December                                     2020               2019 
                                                        $'000              $'000 
 
 Wages and salaries                                           4,410              3,495 
 Social security contributions                                   83                 65 
 Less: amounts capitalised as intangible assets             (2,706)            (2,057) 
                                                            _______            _______ 
                                                              1,787              1,503 
 

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

 
 Year to 31 December      2020      2019 
 
 Sales                         4         4 
 Software development         96        88 
 Support                      48        40 
 Marketing                     3         3 
 Administration               15        15 
                         _______   _______ 
                             166       150 
 
   10        Directors' remuneration and transactions 

The Directors' emoluments in the year ended 31 December 2020 were:

 
                         Basic    Bonus    Benefits   Share-based   Pension 
                         salary             in kind     payments                Total     Total 
                         2020      2020      2020        2020        2020      2020      2019 
                         $'000    $'000     $'000        $'000       $'000     $'000     $'000 
 Executive Directors 
 N. Hellyer                  90       28         11             5         3       137       111 
 S. Menon                   191        -         29             -         -       220       262 
 S. Yezhuvath               191        -         16             -         -       207       253 
 Non-Executive 
  Directors 
 R. Day                      70        -          -             -         2        72        72 
 P. Verkade                  39        -          -             -         -        39        38 
                        _______   ______     ______        ______   _______   _______   _______ 
                            581       28         56             5         5       675       736 
 

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

   11        Share-based payments 

In addition to options granted to a director at the time of the Group's IPO, the Group introduced a share option plan for senior employees on 15 January 2019 (the "Plan"). Each share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option and the Company has no legal obligation to repurchase or settle the options in cash. The options carry neither rights to dividends nor voting rights prior to the date on which the options are exercised. Options may be exercised at any time from the date of vesting to the date of expiry.

A charge of $32,000 (net of amounts capitalised of $66,000) (2019: $52,000) has been recognised during the year for share-based payments over the vesting period. This share-based payment expense comprises the charge in the current period relating to the expensing of the fair value of (a) the 1,640,000 options granted under the Plan and (b) the 50,000 options issued at the time of the Company's IPO. The options issued under the terms of the Plan were granted with an exercise price of 73p, vesting in tranches as follows: 25% after one year, 25% after two years and 50% after three years. There are no conditions attaching to the vesting of the options other than continued employment. Of this amount, $27,000 net (2019: $45,000) relates to costs of share options issued to subsidiary employees.

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

 
                                          No. of options        Weighted average 
                                                                 exercise price 
                                         2020        2019        2020      2019 
 Outstanding at the beginning of 
  the year                             1,631,500      50,000      72.7p     62.5p 
 Granted during the year                       -   1,640,000          -     73.0p 
 Forfeited/cancelled during the 
  year                                 (126,000)    (58,500)      73.0p     73.0p 
                                         _______     _______ 
 Outstanding at the end of the year    1,505,500   1,631,500      72.7p     72.7p 
 

Outstanding options are exercisable at prices between 62.5p and 73p, and have a weighted average remaining contractual life of 6.8 years.

   12        Finance income 
 
                                                      2020      2019 
                                                      $'000     $'000 
 
 Interest receivable on interest-bearing deposits         20        11 
 Notional interest accruing on contracts with 
  a significant financing component                       44        43 
                                                     _______   _______ 
 Total finance income                                     64        54 
 
   13        Finance expense 
 
                                                      2020      2019 
                                                      $'000     $'000 
 
 Interest and finance charges paid or payable 
  on borrowings                                          198        96 
 Interest on lease liabilities under IFRS 
  16                                                      31        40 
 Less: amounts capitalised as intangible assets         (14)      (19) 
 Acquisition-related financing expense (unwinding 
  of discount on financial liabilities)                   25        47 
                                                     _______   _______ 
 Total finance expense                                   240       164 
 

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

   14        Taxation 

Tax on profit on ordinary activities

 
 Year to 31 December                              2020      2019 
                                                  $'000     $'000 
 Current tax 
 UK corporation tax charge/(credit) on profit 
  for the current year                                 -      (32) 
 Overseas income tax charge/(credit)                 321       286 
 Adjustments in respect of prior periods            (18)       (7) 
                                                 _______   _______ 
 Total current income tax                            303       247 
 
 Deferred tax 
 Reversal/(recognition) of deferred tax asset         72      (53) 
                                                 _______   _______ 
 Total deferred income tax                            72      (53) 
 
 Total income tax expense recognised in the 
  year                                               375       194 
 

Deferred tax

Recognised deferred tax asset

 
                                   2020      2019 
                                   $'000     $'000 
 
 At 1 January 2020                     63        10 
 Recognised in profit and loss       (47)        53 
                                  _______   _______ 
 At 31 December 2020                   16        63 
 
 Comprising: 
 Timing differences                     -         8 
 Tax losses                            16        55 
                                  _______   _______ 
                                       16        63 
 

Deferred income tax assets have only been recognised to the extent that it is considered probable that they can be recovered against future taxable profits based on profit forecasts for the foreseeable future. The deferred income tax assets at 31 December 2020 above are expected to be utilised in the next two years.

Recognised deferred tax liability

 
                                  2020      2019 
                                  $'000     $'000 
 
 At 1 January 2020                     -         - 
 Recognised in profit and loss        24         - 
                                 _______   _______ 
 At 31 December 2020                  24         - 
 
 Comprising: 
 Timing differences                   24         - 
                                 _______   _______ 
                                      24         - 
 
   15        Earnings 

Reported earnings per share

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

The Group has one category of security potentially dilutive to ordinary shares in issue, being those share options granted to employees where the exercise price (plus the remaining expected charge to profit under IFRS 2) is less than the average price of the Company's ordinary shares during the period in issue. No dilution arose in the year as the exercise price was above the average share price for the year.

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

 
 Year to 31 December                                 2020         2019 
                                                    $'000        $'000 
 Profit/(loss) attributable to equity holders 
  of the parent: 
 Profit/(loss) attributable to ordinary equity 
  holders of the parent for basic earnings           (2,457)          814 
 
 Weighted average number of ordinary shares 
  in issue                                        34,136,617   32,532,431 
 
 Basic earnings/(loss) per share attributable 
  to shareholders                                     (7.2)c         2.5c 
 

Adjusted earnings per share

Adjusted earnings per share is calculated as follows:

 
                                                         2020         2019 
                                                        $'000        $'000 
 Profit/(loss) attributable to ordinary equity 
  holders of the parent for basic earnings               (2,457)          814 
 Adjusting items: 
  - exceptional items (see note 7}                         (149)        (236) 
  - share-based payments                                      32           52 
  - finance expense on liabilities relating 
   to contingent consideration                                25           47 
 - amortisation of acquisition-related intangibles           686          686 
  - prior year adjustments to tax charge                    (18)          (7) 
                                                         _______      _______ 
 Adjusted earnings attributable to owners 
  of the Parent                                          (1,881)        1,356 
 
 Weighted number of ordinary shares in issue          34,136,617   32,532,431 
 
 Adjusted earnings/(loss) per share attributable 
  to shareholders                                         (5.5)c         4.2c 
 

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

   18        Intangible assets 

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

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

 
 Financial year      Development     Third     Patents      Customer      Goodwill    Total 
  2020                  costs        party                relationships 
                                    software 
                        $'000        $'000      $'000        $'000         $'000      $'000 
 Cost 
 At 1 January 
  2020                     6,391         108        23            6,862        470    13,854 
 Additions                 2,872           4         4                -          -     2,880 
 Foreign exchange              -         (2)         -                -          -       (2) 
                         _______     _______   _______          _______    _______   _______ 
 At 31 December 
  2020                     9,263         110        27            6,862        470    16,732 
 
 Amortisation 
 At 1 January 
  2020                   (1,957)        (34)         -            (972)          -   (2,963) 
 Charge for the 
  year                   (1,416)        (20)         -            (686)          -   (2,122) 
 Foreign exchange              -           2         -                -          -         2 
                         _______     _______   _______          _______    _______   _______ 
 At 31 December 
  2020                   (3,373)        (52)         -          (1,658)          -   (5,083) 
 
 Net carrying 
  amount 
 At 31 December 
  2020                     5,890          58        27            5,204        470    11,649 
 
 At 1 January 
  2020                     4,434          74        23            5,890        470    10,891 
 
 
 Financial year           Development     Third     Patents      Customer      Goodwill    Total 
  2019                       costs        party                relationships 
                                         software 
                             $'000        $'000      $'000        $'000         $'000      $'000 
 Cost 
 At 1 January 
  2019                          4,144          98         -            6,862        745    11,849 
 Additions                      2,247          12        23                -          -     2,282 
 Fair value adjustment              -           -         -                -      (275)     (275) 
 Foreign exchange                   -         (2)         -                -          -       (2) 
                              _______     _______   _______          _______    _______   _______ 
 At 31 December 
  2019                          6,391         108        23            6,862        470    13,854 
 
 Amortisation 
 At 1 January 
  2019                          (935)        (19)         -            (286)          -   (1,240) 
 Charge for the 
  year                        (1,022)        (18)         -            (686)          -   (1,726) 
 Foreign exchange                   -           3         -                -          -         3 
                              _______     _______   _______          _______    _______   _______ 
 At 31 December 
  2019                        (1,957)        (34)         -            (972)          -   (2,963) 
 
 Net carrying 
  amount 
 At 31 December 
  2019                          4,434          74        23            5,890        470    10,891 
 
 At 1 January 
  2019                          3,209          79         -            6,576        745    10,609 
 
   19        Tangible assets 
 
 Financial year 2020               Leasehold      Computer      Office     Vehicles    Total 
                                  improvements    equipment    equipment 
                                     $'000         $'000        $'000       $'000      $'000 
 Cost 
 At 1 January 2020                         109          197           59        312       677 
 Additions                                  24          877            1          1       902 
 Foreign exchange differences              (2)           10          (1)        (7)         - 
                                       _______      _______      _______    _______   _______ 
 At 31 December 2020                       131        1,084           59        305     1,579 
 
 Depreciation 
 At 1 January 2020                         (7)         (87)          (9)       (59)     (162) 
 Charge for the year                      (17)        (134)         (11)       (36)     (198) 
 Foreign exchange differences                -          (1)            -          -       (1) 
                                       _______      _______      _______    _______   _______ 
 At 31 December 2020                      (24)        (222)         (20)       (95)     (361) 
 
 Net carrying amount 
 At 31 December 2020                       107          862           39        210     1,218 
 
 At 1 January 2020                         102          110           50        253       515 
 
 
 Financial year 2019               Leasehold      Computer      Office     Vehicles    Total 
                                  improvements    equipment    equipment 
                                     $'000         $'000        $'000       $'000      $'000 
 Cost 
 At 1 January 2019                          49           93           30        264       436 
 Additions                                  63          106           31         56       256 
 Foreign exchange differences              (3)          (2)          (2)        (8)      (15) 
                                       _______      _______      _______    _______   _______ 
 At 31 December 2019                       109          197           59        312       677 
 
 Depreciation 
 At 1 January 2019                           -         (46)          (2)       (26)      (74) 
 Charge for the year                       (7)         (44)          (8)       (34)      (93) 
 Foreign exchange differences                -            3            1          1         5 
                                       _______      _______      _______    _______   _______ 
 At 31 December 2019                       (7)         (87)          (9)       (59)     (162) 
 
 Net carrying amount 
 At 31 December 2019                       102          110           50        253       515 
 
 At 1 January 2019                          49           47           28        238       362 
 
   20        Right-of-use assets 

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

 
                                                Office     Vehicles    Total 
                                               buildings 
                                                $'000       $'000      $'000 
 Cost 
 At 1 January 2020                                   690         31       721 
 Additions in respect of new leases                  227          -       227 
 Disposals in respect of leases terminated         (231)          -     (231) 
 Effects of foreign exchange movements              (25)          1      (24) 
                                                 _______    _______   _______ 
 At 31 December 2020                                 661         32       693 
 
 Depreciation 
 At 1 January 2020                                 (368)       (14)     (382) 
 Charge for the period                             (153)       (14)     (167) 
 Eliminated on leases terminated                     157          -       157 
 Effects of foreign exchange movements                 9        (2)         7 
                                                 _______    _______   _______ 
 At 31 December 2020                               (355)       (30)     (385) 
 
 Net carrying amount 
 At 31 December 2020                                 306          2       308 
 
 At 1 January 2020                                   322         17       339 
 
 
 2019                                       Office     Vehicles    Total 
                                           buildings 
                                            $'000       $'000      $'000 
 Cost 
 At 1 January 2019                                 -          -         - 
 Effect of adoption of IFRS 16                   557          -       557 
 Additions in the period                         139         30       169 
 Effects of foreign exchange movements           (6)          1       (5) 
                                             _______    _______   _______ 
 At 31 December 2019                             690         31       721 
 
 Depreciation 
 At 1 January 2019                                 -          -         - 
 Effect of change of accounting policy         (212)          -     (212) 
 Charge for the period                         (160)       (13)     (173) 
 Effects of foreign exchange movements             4        (1)         3 
                                             _______    _______   _______ 
 At 31 December 2019                           (368)       (14)     (382) 
 
 Net carrying amount 
 At 31 December 2019                             322         17       339 
 
 At 1 January 2019                                 -          -         - 
 
   21        Trade and other receivables and contract assets 

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) (collectively with (i) recognised as "trade receivables"); and

(iii) amounts relating to revenue recognised at the date of the statement of financial position but not invoiceable under the terms of the contract, or fulfilment assets ("contract assets")

Aged analysis of trade receivables

 
   At 31 December     Carrying    Neither      Past due (in days) but not 
                       amount     impaired              impaired 
                                  or past 
                                    due 
                                                                 More than 
                                              61-90    91-120        121 
                       $'000       $'000      $'000     $'000      $'000 
 2020 
 Trade receivables       3,484       3,152        34        93          205 
 
 2019 
 Trade receivables       5,514       5,114         -         -          400 
 

Contract assets

 
 Due after one year                           2020      2019 
                                              $'000     $'000 
 At 1 January                                    519       312 
 Contract assets recognised in the period        441       320 
 Transfer to current contract assets           (209)     (113) 
                                             _______   _______ 
 At 31 December                                  751       519 
 
 
 Due within one year                           2020      2019 
                                               $'000     $'000 
 At 1 January                                     293        72 
 Contract assets recognised in the period, 
  net of releases to receivables or cash, 
  or amortisation to profit or loss               107       108 
 Transfer from non-current contract assets        209       113 
                                              _______   _______ 
 At 31 December                                   609       293 
 

Contract assets are comprised as follows:

 
 Due after one year                      2020      2019 
                                         $'000     $'000 
 Contract assets relating to revenue        311       519 
 Contract fulfilment assets                 440         - 
                                        _______   _______ 
                                            751       519 
 
 
 Due within one year                     2020      2019 
                                         $'000     $'000 
 Contract assets relating to revenue        457       284 
 Contract fulfilment assets                 152         9 
                                        _______   _______ 
                                            609       293 
 

Credit risk and impairments

As outlined in Note 2, the Group recognises impairments under IFRS 9 for relevant classes of assets. The Group thus reviews the amount of expected credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions as opposed to relying on past historical default rates. In the absence of any historic credit losses and the expectation of no specific losses in the foreseeable future, the Directors assess a hypothetical likely default amount by applying a percentage "probability of default" to the receivables balance, such probability being related to the underlying credit rating of the customer or country of origin. Furthermore, taking into account the time value of money when applied to contracts assets (which may unwind over a period of years following their initial recognition), a loss allowance for expected credit losses has been recorded as follows:

 
                                   2020      2019 
                                   $'000     $'000 
 Loss allowance at 1 January           29         - 
 Increase in loss allowance             8        29 
                                  _______   _______ 
 Loss allowance at 31 December         37        29 
 

The loss allowance is comprised as follows:

 
                                   2020      2019 
                                   $'000     $'000 
 On trade receivables                  30        25 
 On contract assets                     7         4 
                                  _______   _______ 
 Loss allowance at 31 December         37        29 
 

The largest individual counterparty to a receivable included in trade and other receivables at 31 December 2020 was $562,000 (of which some $523,000 related to unbilled revenue) (2019: $1,067,000). Based on invoiced receivables, the largest individual counterparty owed the Group $200,000 (2019: $210,000). The Group's customers are spread across a broad range of geographies and consequently it is not otherwise exposed to significant concentrations of credit risk on its trade receivables.

   22        Other assets 
 
 At 31 December                                   2020      2019 
                                                  $'000     $'000 
 Prepayments                                         130       109 
 Deposits                                             80       131 
 Other assets (including withholding tax, GST 
  and VAT refunds)                                   275       261 
                                                 _______   _______ 
 Total other assets                                  485       501 
 
   23        Loans and borrowings 

Loans and borrowings comprise:

 
 At 31 December                    2020      2019 
                                   $'000     $'000 
 Non-current liabilities 
 Secured term loans                   277       362 
 Unsecured borrowings                 919         - 
                                  _______   _______ 
                                    1,196       362 
 Current liabilities 
 Current portion of term loans         99        79 
 Unsecured borrowings                 145       167 
                                  _______   _______ 
                                      244       246 
 
 Total loans and borrowings         1,440       608 
 

The Group has six term loans, all in its operating subsidiary in India and denominated in INR, with interest rates between 10% and 13.5% (in INR) and one USD-linked loan at 5.5%, and repayable between 5 and 6 years from their inception, between April 2023 and September 2026.

   24        Lease liabilities 

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

 
 Financial year 2020 
 Amounts due in more than one year          Office     Vehicles    Total 
                                           buildings 
                                            $'000       $'000      $'000 
 At 1 January 2020                               186          1       187 
 Liabilities taken on in the period              163          -       163 
 Liabilities (disposed of) in the 
  period                                        (28)          -      (28) 
 Transfer from long-term to short-term         (140)        (1)     (141) 
 Effects of foreign exchange movements           (9)          -       (9) 
                                             _______    _______   _______ 
 At 31 December 2020                             172          -       172 
 
 
 Amounts due in less than one year          Office     Vehicles    Total 
                                           buildings 
                                            $'000       $'000      $'000 
 At 1 January 2020                               193         12       205 
 Liabilities taken on in the period               69          -        69 
 Liabilities (disposed of) in the 
  period                                        (56)          -      (56) 
 Repayments of principal                       (164)       (12)     (176) 
 Transfer from long-term to short-term           140          1       141 
 Effects of foreign exchange movements           (8)        (1)       (9) 
                                             _______    _______   _______ 
 At 31 December 2020                             174          -       174 
 
 
 Financial year 2019 
 Amounts due in more than one year          Office     Vehicles    Total 
                                           buildings 
                                            $'000       $'000      $'000 
 At 1 January 2019                                 -          -         - 
 Effect of change of accounting policy           273          -       273 
 Leases taken on in the period                    97         12       109 
 Transfer from long-term to short-term         (180)       (11)     (191) 
 Effects of foreign exchange movements           (4)          -       (4) 
                                             _______    _______   _______ 
 At 31 December 2019                             186          1       187 
 
 
 Amounts due in less than one year          Office     Vehicles    Total 
                                           buildings 
                                            $'000       $'000      $'000 
 At 1 January 2019                                 -          -         - 
 Effect of adoption of IFRS 16                   124          -       124 
 Leases taken on in the period                    43         17        60 
 Repayments of principal                       (155)       (16)     (171) 
 Transfer from long-term to short-term           180         11       191 
 Effects of foreign exchange movements             1          -         1 
                                             _______    _______   _______ 
 At 31 December 2019                             193         12       205 
 

PSPL, the Group's main operating subsidiary, has entered into various leases over office space in Bangalore and Mumbai, typically on 3 to 4 year terms with rollover options. The Group also has a lease on office space in Nizhny Novgorod in Russia. Given the impact of COVID-19 and working from home options, and the near-term expiry of certain leases, the Group intends to review its office accommodation arrangements in 2021/22.

   25        Trade and other payables and contract liabilities 
 
 At 31 December                     2020      2019 
                                    $'000     $'000 
 Due within one year 
 Trade payables                        810        82 
 Other payables                        283       239 
                                   _______   _______ 
 Total trade and other payables      1,093       321 
 

Trade payables include amounts due in respect of sales commissions due to sales agents. Other payables comprise principally amounts due in respect of staff bonuses declared for December and paid in January.

The average credit period taken for normal trade purchases is between 30 and 60 days. Most suppliers do not charge interest on trade payables for the first 30 days from the date of the invoice. The Group has risk management policies in place to ensure that all payables are paid within the appropriate credit time frame. The Directors consider that the carrying amount of trade payables approximates to their fair value.

Contract liabilities

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

 
 At 31 December                                    2020      2019 
                                                   $'000     $'000 
 Due after one year 
 Contract liabilities at 1 January                    274       112 
 Contract liabilities recognised in the period         20       202 
 Transfers to short-term liabilities                 (87)      (40) 
                                                  _______   _______ 
 Contract liabilities at 31 December                  207       274 
 
 
 At 31 December                                2020      2019 
                                               $'000     $'000 
 Due within one year 
 Contract liabilities at 1 January                665        61 
 Contract liabilities recognised/(released 
  to revenue) in the period                     (257)       564 
 Transfers from long-term liabilities              87        40 
                                              _______   _______ 
 Contract liabilities at 31 December              495       665 
 
   26        Provisions 
 
 At 31 December                       2020      2019 
                                      $'000     $'000 
 Due within one year 
 Employee gratuities                      13         9 
 Leave encashment                         24        16 
 Other provisions (including tax)        126       177 
                                     _______   _______ 
                                         163       202 
 
 
 At 31 December          2020      2019 
                         $'000     $'000 
 Due after one year 
 Employee gratuities        116        81 
 Leave encashment            57        43 
                        _______   _______ 
                            173       124 
 

Other provisions comprise tax and other expenses.

Under the Indian Payment of Gratuity Act 1972, employees with more than 5 years' service are eligible for the payment of a "gratuity" upon certain end of employment events, including retirement, resignation, death and termination or redundancy. The calculation of the gratuity due is based on the last drawn salary and number of years of service. The potential liability arising from these requirements is calculated by third party actuaries based on employee profiles, their completed number of years in the organization, their age, salary and also on the probability of termination of employment, and a provision made accordingly.

Under the terms of their employment, employees are eligible to carry forward 30 "earned leaves" (EL) to the next calendar year. Any EL balance over and above this is paid in cash by March the following year, hence resulting in a long-term provision.

   27        Share capital and reserves 

Share capital and share premium

 
 Ordinary shares of 2.5p each (issued and fully     $'000      Number 
  paid) 
 At 1 January 2019                                   1,065   32,532,431 
 Issued for cash during the year                         -            - 
                                                   _______      _______ 
 At 31 December 2019                                 1,065   32,532,431 
 Issued for cash during the year                       147    4,500,000 
                                                   _______      _______ 
 At 31 December 2020                                 1,212   37,032,431 
 

On 21 and 22 August the Company issued a further 4,500,000 2.5 pence Ordinary shares at a price of 47.0 pence per share by way of a placing to institutional and other investors. The Company incurred incremental costs totalling $178,000 in respect of the Placing. IAS 32 Financial Instruments: Presentation requires the costs of issuing new shares to be charged against the share premium account. Management reviewed the incremental costs to identify those solely incurred in issuing new shares, those incurred in connection with the entire share capital, and those not associated with issuing new shares. All of the costs relating to the Placing were deemed to relate directly to the issue of new shares and thus resulted in a debit to share premium of $178,000.

   31        Events after the reporting date 

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

General

Audited accounts

The financial information set out above does not comprise the Group or the Company's statutory accounts. The Annual Report and Financial Statements for the year ended 31 December 2019 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements ("Annual Report") for the year ended 31 December 2019 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The Independent Auditors' Report on the Annual Report for the year ended 31 December 2020 is unqualified, does not draw attention to any matters by way of emphasis, and does not contain a statement under 498(2) or 498(3) of the Companies Act 2006. The Annual Report will be filed with the Registrar of Companies following the annual general meeting.

The Annual Report, together with an notice of the annual general meeting, are expected to be made available to shareholders in June 2021. Copies will also be available on the Company's website (www.pelatro.com) and from the Company's registered office at 49 Queen Victoria Street, London EC4N 4SA from that date.

Related party transactions

During the year Suresh Yezhuvath (the brother of Subash Menon and Sudeesh Yezhuvath) arranged a loan whereby a syndicate of certain business associates of his would provide funding of INR 60m (approx. $820k) in order to facilitate the acquisition of computer hardware needed for the implementation of a long-term managed services contract. The loan was on a 6 year term basis at an interest rate of 15.25%. Neither Mr Menon nor Mr Yezhuvath took any benefit from this loan, which was considered to be on reasonable commercial terms. Suresh Yezhuvath participated in the funding in the amount of c. $130k at the same rate.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group together with actions being taken to mitigate them and future potential items for consideration will be set out in the Strategic Report section of the Annual Financial Report 2020.

Presentation of figures

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

This announcement was approved by the Board of Directors on 11 April 2021.

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END

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April 12, 2021 02:00 ET (06:00 GMT)

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