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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Petards Group Plc | LSE:PEG | London | Ordinary Share | GB00B4YL8F73 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 7.75 | 7.50 | 8.00 | 7.75 | 7.75 | 7.75 | 4,661 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Security Systems Service | 10.87M | 524k | 0.0093 | 8.33 | 4.38M |
From Apr 2019 to Apr 2024
TIDMPEG
RNS Number : 3331B
Petards Group PLC
20 September 2018
20 September 2018
Petards Group plc
("Petards", "the Group" or "the Company")
Interim results for the six months ended 30 June 2018
Petards Group plc (AIM: PEG), the AIM quoted developer of advanced security and surveillance systems, is pleased to report its interim results for the six months ended 30 June 2018.
Key Highlights:
-- Operational
o Order book at 30/06/2018 GBP20 million (31/12/2017- GBP18 million)
o Current order coverage for H2/2018 in excess of GBP9.5 million and almost GBP8 million scheduled for 2019
o Orders for eyeTrain of over GBP6.5 million received since 30/06/2018, adding to coverage for 2019 and beyond
o Strong revenue performance arising from Defence related products
o Acquisition of RTS Solutions ("RTS") successfully completed in May 2018
o QRO secured two significant framework agreements generating new orders of over GBP1 million
o Continued investment in eyeTrain software solutions
-- Financial
o Revenue increased 21% to GBP9.7 million (2017 - GBP8.0 million); 20% excluding RTS
o Gross margins 34.6% (2017 - 38.6%) reflecting higher levels of Defence product revenues
o Adjusted EBITDA up 17% to GBP1,085,000 (2017 - GBP925,000)
o Adjusted pre-tax profit up 17% to GBP602,000 (2017 - GBP515,000)
o Pre-tax profit up 2% to GBP514,000 (2017 - GBP503,000)
o Cash generated from operating activities GBP966,000 (2017 - GBP218,000 outflow)
o Cash balances of GBP2.3 million at 30/06/2018 (31/12/2017 - GBP1.3 million)
o Net cash GBP1.0 million (post RTS acquisition) (31/12/2017 - GBP1.3 million)
o Diluted EPS 0.88p (2017 - 0.98p)
Commenting on the current outlook, Raschid Abdullah, Chairman, said:
"The Group continues to benefit from a good balance sheet and a strong forward order book of GBP20 million which has been further enhanced with the recently announced award of three contracts totalling over GBP6.5 million from Bombardier and Siemens."
"The Board is also pleased with the performance of its more recent acquisitions, QRO and RTS, and continues to review other acquisition opportunities."
"With the June 2018 order book containing revenues of approaching GBP10 million for the second half of 2018 and almost GBP8 million for 2019, the Board remains confident in the future prospects for the Group."
This announcement includes inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.
Contacts:
Hot Features
Premium
Petards Group plc www.petards.com
Raschid Abdullah, Chairman Mb: 07768 905004
WH Ireland Limited, Nomad and www.whirelandcb.com
Joint Broker
Mike Coe, Ed Allsopp Tel: 0117 945 3470
Hybridan LLP, Joint Broker www.hybridan.com
Claire Louise Noyce Tel: 020 3764 2341
claire.noyce@hybridan.com
Chairman's statement
I am pleased to report that in the first six months of 2018 the Group recorded growth in revenues, profits and operating cash generation over the same period in 2017. The Group has continued to make good progress against its strategic objectives in the first half of 2018 achieving organic growth and adding to its software solution portfolio with the successful completion of the acquisition of RTS Solutions ("RTS").
Group pre-tax profits were up by 2% to GBP514,000 (June 2017 - GBP503,000) on revenues of GBP9.7 million, a 21% increase over the first half of 2017 (June 2017 - GBP8.0 million). While eyeTrain products continue to account for the largest proportion of the Group's revenues, Petards' Defence products performed strongly. Defence related revenues were up GBP2.5 million on the same period in 2017, but as these generally attract lower margins, the change in mix meant overall gross margin was 34.6%, compared with 36.8% in 2017.
Business overview
Petards' operations continue to be focused upon the development, supply and maintenance of technologies used in advanced security, surveillance and ruggedized electronic applications, the main markets for which are:
-- Rail - software driven video and other sensing systems for on-train applications sold under the eyeTrain brand to global train builders, integrators and rail operators, and web-based real-time safety critical integrated software applications supporting the UK rail network infrastructure sold under the RTS brand to Network Rail and its Tier 1 contractors;
-- Traffic - in-car speed enforcement and end-to-end Automatic Number Plate Recognition ("ANPR") systems sold under the ProVida and QRO brands to UK and overseas law enforcement agencies and UK based commercial customers; and
-- Defence - electronic countermeasure protection systems, mobile radio systems and related engineering services sold predominantly to the UK Ministry of Defence ("MOD").
Operating review
During the six months ended 30 June 2018 the Group continued to perform well across all its chosen markets. The pick-up in activity in our defence markets reported in March has boosted revenues from this sector in the first half of 2018 and was the main driver behind the 21% increase in revenues over the comparable period in 2017. Deliveries of the Group's eyeTrain on-board train solutions remained strong although, as explained below, recorded revenues were less than 2017 following the adoption of the new revenue recognition accounting standard IFRS 15. Within the Traffic market, demand for QRO's products and services was very strong, although ProVida revenues were down on the first half of 2017.
Revenues from eyeTrain continue to be the largest element of overall Group revenues with deliveries in the six months to June 2018 being spread across multiple projects with the major global train builders such as Siemens, Bombardier, Hitachi and Stadler, mainly for new train build projects. While there were no major eyeTrain orders received in the period, shortly after 30 June three significant contracts totalling over GBP6.5 million that had been expected in the first half year were secured.
As I have commented on previously, in recent years the volume of new rolling stock ordered has driven demand for Petards' eyeTrain solutions. That continues to be the case and in addition more opportunities are arising for larger UK retrofit projects utilising the additional system functionality developed by Petards in recent times such as Driver Controlled Operation ("DCO") and Automatic Selective Door Opening ("ASDO"). We are hopeful that further retrofit orders will be forthcoming.
As previously anticipated, as the eyeTrain installed base has increased, so have revenues from service and spares and these totalled around GBP0.8 million for the first half year. This is an important area of the business and one that we continue to focus on continuing to grow.
The Group has continued to invest in the development of its core eyeTrain solutions and in customer specific functionality and that is expected to continue in the second half year. On completion of the current development phase we anticipate that the required level of ongoing investment will reduce.
As I have mentioned, revenues from Defence products were up significantly on the first six months of 2017. The main drivers of this were the receipt and delivery of GBP1.5 million in contracts for the provision of communications equipment and services under the framework agreement Petards presently operates for the MOD. While such orders are received on an ongoing basis, these were larger than usual. In addition, the Group successfully completed the delivery of the GBP1 million "Emulator" contract from the MOD. This tool will enable the MOD to use Petards ALE-47 Threat Adaptive Countermeasures Dispenser System (TACDS) more effectively and so better protect its large transport aircraft.
Engineering services performed by Petards, for the MOD in particular, represent an important contributor to the Group's profits. We were therefore very pleased that the MOD exercised its option to extend Petards' existing three year contract for a further two years to 31 December 2021 for the support of ALE 47 and M147 TACDS Systems which are fitted to Puma, Chinook, Merlin, and C130J aircraft. The contract extension is worth GBP1.1 million for which Petards will continue to perform core post design services. This should be further supplemented by additional engineering, repair, refurbishment and manufacturing orders that are expected to significantly enhance the value of the extended agreement.
QRO was acquired by Petards over two years ago and we are pleased with the progress it has made. As I reported in March, early in 2018 QRO secured two non-exclusive framework agreements to provide ANPR equipment and services. The first is a 4 year framework contract with Thames Valley Police and Hampshire Constabulary which can be extended at their option by a further 3 years. The second is a 3 year framework contract with Cheshire Police which again at their option may be extended by up to a further 3 years. Other UK forces may utilise these framework agreements to procure their own ANPR equipment and services and as a consequence QRO has recorded a strong order intake in the first half year, with over GBP1 million of orders being placed under these agreements.
QRO has always had strong relationships with UK police forces. However, as was hoped, these framework agreements are providing opportunities with other UK forces that were previously unavailable to it. As a result, QRO's overall order intake for the first six months of 2018 exceeded that achieved in the whole of 2017 by some margin. Revenues from the Group's other Traffic products under the ProVida brand were similar to those achieved in the second half of 2017 but were lower than achieved in the first half of 2017. QRO revenues were up on the first six months of 2017 and as the majority of the orders received by QRO in that period will be delivered in the second half of 2018, overall we expect Traffic products to achieve a strong performance for 2018.
Acquisition
On 11 May RTS was acquired by the Group for an initial consideration of GBP1.0 million, contingent consideration of up to GBP0.5 million plus a payment of GBP0.6 million made on a pound for pound basis for surplus cash in RTS's balance sheet on acquisition. In June GBP0.25 million of the contingent consideration was paid and the board considers at this stage that it is likely that the balance of GBP0.25 million will also be payable in 2019. The consideration was satisfied in cash from Petards' existing cash reserves and a new GBP1.25 million five year bank term loan.
RTS is a specialist transportation software engineering company delivering a suite of web-based, real-time safety critical applications, whose main customers are Network Rail and its Tier 1 contractors. It supplies end-to-end integrated solutions that support the UK rail network infrastructure by maximising effectiveness for operational, engineering and maintenance programmes. These solutions include incident and fault management, work site management, resource management, machine plant management and asset/inventory management applications.
The acquisition of RTS adds to Petards' existing capabilities in the rail sector providing the Group with an entry into the UK rail infrastructure market, strengthens the Group's portfolio of software solutions and adds a strong base of recurring revenues.
On revenues of GBP128,000, RTS made a contribution of GBP48,000 to the Group's profits in the 6 weeks following its acquisition (before acquisition costs and amortisation of acquisition related intangibles). In that period it also added significantly to its order book for recurring revenues by securing the renewal of a contract with Network Rail. The contract is for the provision of software licences, maintenance and third line support in respect of Network Rail's real time failure and incident management system that supports the UK's national rail infrastructure. The new contract will generate annual revenues in excess of GBP250,000 and runs until June 2023, the final two years of which are at Network Rail's option and will be added to the order book on the exercise of those options.
Financial review
Operating performance
Overall revenues for the six months ended 30 June 2018 increased by 21% to GBP9.7 million (30 June 2017 - GBP8.0 million) and by 20% excluding RTS. This is the first reporting period that the Group has reported under IFRS 15 "Revenue from contracts with customers" and its implementation has not altered the revenue recognition policy for the majority of the Group's revenue streams. The one area of the Group's business in which the adoption of IFRS 15 has resulted in a change, is that of the work performed relating to the delivery of customer specific development projects.
Prior to the adoption of IFRS 15, the Group recognised such revenue upon achievement of specific pre agreed, customer-set milestones (other than advance payments) and for which the Group could invoice the customer for payment. Under IFRS 15, work of this nature will result in later recognition of the related revenue and predominantly affects eyeTrain revenues. As a consequence, the adoption of IFRS 15 has reduced eyeTrain revenues in the period ended 30 June 2018. The Group has adopted IFRS 15 using the "cumulative effect" method under which comparative information is not restated. The cumulative effect of revising the revenue and profit previously recognised up to 31 December 2017 is shown as an adjustment to brought forward retained earnings, details of which are set out in Note 5 to the Interim Statement. The reduction in revenue and cost previously recorded has increased both contract assets and contract liabilities accordingly, details of which are set out on the Statement of Financial position.
Overall margins for the six months ended 30 June 2018 were 34.6% (June 2017 - 38.6%). The reduction over the comparable period in 2017 largely reflects the product mix with lower margin Defence products comprising a larger proportion of revenues in 2018.
Total charges for amortisation, depreciation and share based payments were GBP157,000 higher than the first six months of 2017 following the investment in product and infrastructure made during 2017. Costs of GBP77,000 were also incurred relating to the acquisition of RTS. Together these factors led to an increase in administrative expenses that totalled GBP2.8 million for the six months ended 30 June 2018 (June 2017 - GBP2.5 million).
Adjusted earnings before interest, tax, depreciation, amortisation, acquisition costs and share based payment charges ("Adjusted EBITDA") improved by 17% to GBP1,085,000 (June 2017 - GBP925,000). As a result of higher amortisation and depreciation charges, operating profits reduced by 13% to GBP517,000 (June 2017 - GBP591,000).
Net financial expenses totalled GBP3,000 (June 2017 - GBP88,000) with the reduction arising due to the conversion of the Group's 7% convertible loan notes in the latter part of 2017. With no tax charge, profits before and after tax on the Group's activities increased by 2% to GBP514,000 (June 2017 - GBP503,000). On an adjusted basis, pre-tax profits increased 17% to GBP602,000 (2017 - GBP515,000). While profits increased, diluted earnings per share were 10% lower at 0.88p (June 2017 - 0.98p) as in 2018 there is no add back of interest payable on convertible loan notes (June 2017 - GBP73,000 add back).
Cash and cash flow
The Group generated a net operating cash inflow for the period of GBP966,000 (June 2017 - GBP218,000 outflow) resulting in cash balances at 30 June 2018 increasing to GBP2.3 million (31 Dec 2017 - GBP1.3 million). The GBP1.25 million 5 year term loan that funded the majority of the RTS acquisition, repayable in equal quarterly instalments, resulting in a net cash position at 30 June 2018 of GBP1.0 million (31 December 2017 - net cash GBP1.3 million).
Outlook
The Group continues to benefit from a good balance sheet and a strong forward order book of GBP20 million which has been further enhanced with the recently announced awards of three contracts totalling over GBP6.5 million from Bombardier and Siemens.
The Board is also pleased with the performance of its more recent acquisitions, QRO and RTS, and continues to review opportunities for other acquisitions.
With the June 2018 order book containing revenues of approaching GBP10 million for the second half of 2018 and almost GBP8 million for 2019, the Board remains confident in the future prospects for the Group.
Raschid Abdullah
20 September 2018
Condensed Consolidated Income Statement
for the six months ended 30 June 2018
Unaudited Unaudited
6 months 6 months Audited
ended 30 ended 30 Year ended
June June 31 December
Note 2018 2017 2017
GBP000 GBP000 GBP000
Revenue 9,672 7,972 15,581
Cost of sales (6,326) (4,896) (9,566)
Gross profit 3,346 3,076 6,015
Administrative expenses 6 (2,829) (2,485) (4,770)
--------- --------- ------------
Adjusted EBITDA* 1,085 925 1,619
Amortisation of intangibles (364) (242) (547)
Depreciation (116) (80) (162)
Exceptional income 8 - - 362
Exceptional acquisition costs (77) - -
Share based payment charges (11) (12) (27)
Operating profit 517 591 1,245
Financial income (including
exceptional financial income
of GBPnil (2017 GBP340,000) 7,8 4 - 340
Financial expenses (including
exceptional financial expense
of GBPnil, (2017 GBP211,000) 7,8 (7) (88) (380)
Profit before tax 514 503 1,205
Income tax 9 - - 32
Profit for the period attributable
to equity shareholders of
the company 514 503 1,237
--------- --------- ------------
Basic earnings per share
(pence) 12 0.92 1.39 3.31
Diluted earnings per share
(pence) 12 0.88 0.98 2.32
--------- --------- ------------
The Group has adopted IFRS 15 using the cumulative effect method, under which the comparative information is not restated (Note 5). The cumulative effect of adopting IFRS 15 is recognised in equity at the date of first adoption on 1 January 2018.
* Earnings before financial income and expense, depreciation, amortisation, exceptional items, share based payment charges and tax.
Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2018
Notes Unaudited Unaudited
6 months 6 months Audited
ended 30 ended 30 Year ended
June June 31 December
2018 2017 2017
GBP000 GBP000 GBP000
Profit for period 514 503 1,237
Other comprehensive income
Items that may be reclassified
to profit:
Release of foreign currency
reserve on abandonment of
US subsidiary
(included in financial expenses) 7,8 - - 211
Total comprehensive income
for the period 514 503 1,448
--------- --------- ------------
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2018
Currency
Share Share Equity Retained Translation Total
capital premium Reserve earnings reserve Equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January
2017 (audited) 357 68 200 3,768 (211) 4,182
Profit for the period - - - 503 - 503
Total comprehensive income
for the
Period - - - 503 - 503
Conversion of convertible
loan notes 7 51 (2) - - 56
Exercise of share options 3 22 - - - 25
Equity-settled share
based payments - - - 12 - 12
Balance at 30 June 2017
(unaudited) 367 141 198 4,283 (211) 4,778
-------- -------- -------- --------- ------------ -------
Balance at 1 January
2017 (audited) 357 68 200 3,768 (211) 4,182
Profit for the year - - - 1,237 - 1,237
Other comprehensive income - - - - 211 211
-------- -------- -------- --------- ------------ -------
Total comprehensive income
for the
Year - - - 1,237 211 1,448
Conversion of convertible
loan
Notes 198 1,383 (169) 142 - 1,554
Exercise of share options 3 22 (6) - - 19
Equity-settled share
based payments - - - 27 - 27
-------- -------- -------- --------- ------------ -------
Balance at 31 December
2017 (audited) 558 1,473 25 5,174 - 7,230
-------- -------- -------- --------- ------------ -------
Balance at 1 January
2018 (audited) 558 1,473 25 5,174 - 7,230
Impact of change in accounting
policy * - - - (564) - (564)
-------- -------- -------- --------- ------------ -------
Adjusted balance at 1
January 2018 558 1,473 25 4,610 - 6,666
Profit for the period - - - 514 - 514
-------- -------- -------- --------- ------------ -------
Total comprehensive income
for the period - - - 514 - 514
Exercise of share options 17 144 (11) 11 - 161
Equity-settled share
based payments - - - 11 - 11
-------- -------- -------- --------- ------------ -------
Balance at 30 June 2018
(unaudited) 575 1,617 14 5,146 - 7,352
-------- -------- -------- --------- ------------ -------
* The Group has adopted IFRS 15 using the cumulative effect method, under which the comparative information is not restated (Note 5). The cumulative effect of adopting IFRS 15 is recognised in equity at the date of first adoption on 1 January 2018.
Condensed Consolidated Statement of Financial Position
at 30 June 2018
Unaudited Unaudited Audited
30 June 30 June 31 December
2018 2017 2017
ASSETS GBP000 GBP000 GBP000
Non-current assets
Property, plant and equipment 756 667 825
Intangible assets 10 3,819 2,044 2,488
Deferred tax assets 344 364 344
--------- --------- ------------
4,919 3,075 3,657
--------- --------- ------------
Current assets
Inventories 2,254 1,060 1,192
Contract assets ** 3,873 - -
Due from construction contract
customers * - 1,768 2,211
Trade and other receivables 3,886 3,392 3,743
Cash and cash equivalents 2,272 1,543 1,324
--------- --------- ------------
12,285 7,763 8,470
--------- --------- ------------
Total assets 17,204 10,838 12,127
========= ========= ============
EQUITY AND LIABILITIES
Equity attributable to equity
holders
of the parent
Share capital 575 367 558
Share premium 1,617 141 1,473
Equity reserve 14 198 25
Currency translation reserve - (211) -
Retained earnings * 5,146 4,283 5,174
Total equity 7,352 4,778 7,230
--------- --------- ------------
Non-current liabilities
Interest-bearing loans and
borrowings 11 1,016 1,503 23
--------- --------- ------------
1,016 1,503 23
--------- --------- ------------
Current liabilities
Interest-bearing loans and
borrowings 11 265 7 15
Contract liabilities *** 2,938 - -
Due from construction contract
customers * - - 382
Trade and other payables 5,633 4,550 4,477
--------- --------- ------------
8,836 4,557 4,874
--------- --------- ------------
Total liabilities 9,852 6,060 4,897
--------- --------- ------------
Total equity and liabilities 17,204 10,838 12,127
========= ========= ============
* The Group has adopted IFRS 15 using the cumulative effect method, under which the comparative information is not restated (Note 5). The cumulative effect of adopting IFRS 15 is recognised in equity at the date of first adoption on 1 January 2018.
** The balance at 30 June 2018 includes GBP2,151,000 representing the impact of the adoption of IFRS 15.
*** The balance at 30 June 2018 includes GBP2,748,000 representing the impact of the adoption of IFRS 15.
Condensed Consolidated Statement of Cash Flows
for the six months ended 30 June 2018
Unaudited Unaudited
6 months 6 months Audited
ended 30 ended 30 Year ended
June June 31 December
2018 2017 2017
GBP000 GBP000 GBP000
Cash flows from operating
activities
Profit for the period 514 503 1,237
Adjustments for:
Depreciation 116 80 162
Amortisation of intangible
assets 364 242 547
Equity settled share-based
payment expenses 11 12 27
Financial income (4) - (340)
Financial expense 7 88 380
Income tax (credit)/charge - - (32)
--------- --------- ------------
Operating cash flows before movement
in working capital 1,008 925 1,981
Change in inventories (1,062) (875) (1,450)
Change in contract assets (3,873) - -
Change in amounts due from
construction contract customers 2,211 - -
Change in trade and other
receivables (61) (992) (1,003)
Change in contract liabilities 2,938 - -
Change in amounts due to construction
contract customers (382) - -
Change in trade and other
payables 169 793 1,057
--------- --------- ------------
Cash generated from operations 948 (149) 585
Interest received 4 - -
Interest paid (40) (69) (107)
Income tax received 54 - 61
--------- --------- ------------
Net cash from operating activities 966 (218) 539
--------- --------- ------------
Cash flows from investing
activities
Acquisition of subsidiary,
net of cash acquired 10 (1,169) - -
Acquisition of property, plant
and equipment (47) (291) (509)
Capitalised development expenditure (206) (294) (1,043)
--------- --------- ------------
Net cash outflow from investing
activities (1,422) (585) (1,552)
--------- --------- ------------
Cash flows from financing
activities
Bank loan received 11 1,250 - -
Finance lease repayments (7) (1) (10)
Proceeds from exercise of
share options 161 25 25
--------- --------- ------------
Net cash inflow from financing
activities 1,404 24 15
--------- --------- ------------
Net increase/(decrease) in
cash
and cash equivalents 948 (779) (998)
Cash and cash equivalents
at start of period 1,324 2,322 2,322
--------- --------- ------------
Cash and cash equivalents
at end of period 2,272 1,543 1,324
========= ========= ============
Cash and cash equivalents
comprise:
Cash and cash equivalents
per balance sheet 2,272 1,543 1,324
========= ========= ============
* The Group has adopted IFRS 15 using the cumulative effect method, under which the comparative information is not restated (Note 5). The cumulative effect of adopting IFRS 15 is recognised in equity at the date of first adoption on 1 January 2018.
Notes
1 Reporting entity
Petards Group plc (the 'Company') is incorporated and domiciled in England and its shares are publicly traded on the Alternative Investment Market ('AIM') of the London Stock Exchange. These condensed consolidated interim financial statements ('interim financial statements') as at and for the six months ended 30 June 2018 comprise the Company and its subsidiaries (together referred to as the 'Group'). The Group is primarily involved as a developer of advanced security and surveillance systems.
Copies of these interim statements will be available on the Company's website (www.petards.com) and from the Company's registered office at Parallel House, 32 London Road, Guildford, GU1 2AB.
2 Basis of preparation
As permitted, these interim financial statements have been prepared in accordance with AIM Rules for Companies and are not required to comply with IAS 34 'Interim Financial Reporting' to maintain compliance with IFRS. They should be read in conjunction with the Group's last annual consolidated financial statements as at and for the financial year ended 31 December 2017 ('last annual financial statements'). They do not include all of the financial information required for a complete set of IFRS financial statements, however selected explanatory notes are included to explain events and transactions that are significant to the understanding of the changes in the Group's financial position and performance since the last annual financial statements. This financial information does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.
The comparative amounts for the financial year ended 31 December 2017 in these interim statements are not the Group's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
This is the first set of Group financial statements where IFRS 15 and IFRS 9 have been applied. Changes to significant accounting policies are described at Note 4.
3 Use of judgements and estimates
In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual amounts may differ from these estimates.
The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements, except for new significant judgements and the key sources of estimation uncertainty related to the application of IFRS 9 and IFRS 15, which are described at Note 4.
4 Changes in significant accounting policies
In preparing these interim financial statements, the Board have considered the impact of new standards which will be applied in the 2018 annual financial statements. Other than the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers, which are both effective for accounting periods starting on or after 1 January 2018, there are not expected to be any changes in the accounting policies compared with those applied for the financial year ended 31 December 2017. A full description of these accounting policies is contained in the Group's 2017 Annual Report and Accounts, which is available on the Company's website.
These interim financial statements have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards issued by the International Accounting Standards Board, as adopted by the European Union as effective for periods beginning on or after 1 January 2018.
IFRS 9 Financial instruments (effective 1 January 2018)
IFRS 9 addresses the classification and measurement of financial assets and liabilities and replaces IAS 39. Among other things, the standard introduces a forward- looking credit loss impairment model whereby entities need to consider and recognise impairment triggers that might occur in the future (an 'expected loss' model). The Board has considered the potential impact of the introduction of IFRS9 and determined that it does not have a significant impact on the numbers reported in these interim financial statements or as previously presented.
IFRS 15 Revenue from contracts with customers (effective 1 January 2018)
IFRS 15 sets out a single and comprehensive framework for revenue recognition. The guidance in IFRS 15 is considerably more detailed than previous IFRSs for revenue recognition (IAS 11 Construction Contracts and IAS 18 Revenue and associated interpretations).
The Group has adopted IFRS 15 from 1 January 2018. The Group has adopted IFRS 15 retrospectively and has chosen to apply the cumulative effect approach. As a result, the Group has restated its opening equity position as at 1 January 2018 to reflect the impact of transitioning to IFRS 15. A summary of the effect of the impact of the adoption of IFRS 15 is set out at Note 5. This adjustment primarily reflects the impact of unbundling a handful of contracts according to what the Group has assessed to be the performance obligations to be delivered to the customer.
In line with the requirements of the standard with regards to the transition option adopted, the Group has not restated its comparative information which continues to be reported under previous revenue standards, IAS 11 and IAS 18.
IFRS 16 Leases
The Group currently plans to adopt IFRS 16 initially on 1 January 2019. The Group has not yet determined which transition approach to apply.
5 Impact of the adoption of IFRS 15
An assessment of the impact of IFRS 15 has been completed, including a comprehensive review of the contracts that were not completed contracts at the date of initial application, across the Group's revenue streams.
This review has ascertained that GBP564,000 of profit taken in the previous periods to 31 December 2017 is now deferred to future periods. The effect on these interim financial statements of the adoption of IFRS 15 is to reduce profit by GBP33,000 with profits of GBP597,000 to be recognised after 30 June 2018.
In addition to the impact on equity following transition to IFRS 15 at 1 January 2018, the Group's consolidated balance sheet is also impacted as a result of moving away from IAS 11 balance sheet captions to those prescribed by IFRS 15. The main reclassification adjustment is in relation to reclassifying amounts due to/from Construction Contract Customers to Contract Assets or Contract Liabilities.
The Group recognises revenue when it transfers control over a product or service to its customer. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties.
Where a modification to an existing contract occurs, the Group assesses the nature of the modification and whether it represents a separate performance obligation required to be satisfied by the Group or whether it is a modification to the existing performance obligation.
The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust its transaction price for the time value of money.
A summary of the new accounting policies and the nature of the changes to previous accounting policies in relation to the Group's various goods and services are set out below.
Type of Nature, timing and satisfaction Nature of change in
product of performance obligations accounting policy
or service and significant payment terms
Revenue Revenue from sales of goods No material impact on
from the and equipment is recognised the adoption of IFRS
sale of on despatch unless the customer 15.
goods and specifically requests deferred
equipment delivery. For deliveries deferred
at the customer's request,
revenues are recognised when
the customer takes title to
the goods provided that it
is probable that delivery
will be made, the goods are
identified and ready for delivery
and usual payment terms apply.
------------------------------------- -------------------------------
Revenue Revenue from service contracts, No material impact on
from service where services are performed the adoption of IFRS
contracts by an indeterminate number 15.
of acts over a specified period
of time, is recognised on
a straight line basis over
the period of the contract.
------------------------------------- -------------------------------
Revenue Construction contracts comprise
from construction contracts specifically negotiated
contracts for the construction and delivery
of a combination of electronic
services and/or electronic
assets. A typical contract
identifies the consideration
applicable to each and milestones
are usually specified for
the provision of electronic
services.
Each contract is reviewed
to identify and assess distinct
performance obligations, and
the consideration applying
to each.
An expected loss on a contract
is recognised immediately
in the income statement.
------------------------------------- -------------------------------
Revenue deriving from the There is no material
provision of electronic assets impact on the adoption
is recognised at the point of IFRS 15.
in time that the assets are
provided.
------------------------------------- -------------------------------
Revenue deriving from the The impact of IFRS 15
provision of electronic services, on this element of contract
which is normally classified revenue is to defer
as non-recurring development revenue and profit until
expenditure, is recognised the completion of each
at the point that each development development service
service obligation has been obligation.
completed.
Under IAS 11 revenue
If at the end of a reporting was recognised in proportion
period the provision of this to the stage of completion
service is incomplete, costs of the contract, which
incurred are included in the was assessed by reference
balance sheet as Contract to the completion of
Assets. Costs include all each agreed milestone.
expenditure related directly
to specific projects and an Previously, contract
allocation of fixed and variable work in progress represented
overheads incurred in the the gross unbilled amount
Group's contract activities expected to be collected
based on normal operating from customers for contract
capacity. work performed to date.
It was measured at cost
plus any appropriate
profit recognised to
date less progress billing
and recognised losses.
Payments from customers,
to the extent that they
If at the end of a reporting exceed income recognised,
period the provision of this were included as payments
service is incomplete, payments on account within trade
received from customers on and other payables.
the achievement of milestones
are included in the Balance
Sheet as Contract Liabilities
until the provision of the
service is complete.
------------------------------------- -------------------------------
6 Administrative expenses
Legal and professional fees incurred in connection with the acquisition of RTS Solutions (Holdings) Limited and RTS Solutions (UK) Limited in 2018 totalled GBP77,000 and were charged to the Condensed Consolidated Income Statement within administrative expenses. The audited results as at and for the year ended 31 December 2017 include within administrative expenses, an exceptional credit of GBP362,000 (Note 8).
7 Financial income and expenses
Unaudited Unaudited
6 months 6 months Audited
ended 30 ended 30 Year ended
June June 31 December
2018 2017 2017
Recognised in profit or loss
Exceptional interest income
(Note 8) - - 340
Other exchange gains 4 - -
--------- --------- ------------
Financial income 4 - 340
--------- --------- ------------
Interest expense on financial
liabilities
at amortised cost 7 75 133
Exceptional foreign exchange
loss (Note 8) - - 211
Other exchange losses - 13 36
--------- --------- ------------
Financial expenses 7 88 380
--------- --------- ------------
8 Exceptional items
The 2017 audited results included two exceptional items. Firstly, the Group accepted an offer to settle a historic matter, which was unrelated to the current trading activities of the Group and which arose over ten years ago. Under the settlement, the Group received a total of GBP702,000 in cash comprising an amount of GBP362,000, plus compensatory interest of GBP340,000.
The second exceptional item was also unrelated to the current trading activities of the Group. During 2017 the Board decided that the US subsidiary that had been dormant for several years should be abandoned, and any future activities that the Group may undertake in the US would not be conducted through the subsidiary. The GBP211,000 deficit on the Group's currency translation reserve was reclassified from equity to income and shown as an expense.
9 Taxation
No provision for taxation has been made in the Condensed Consolidated Income Statement for the six months to 30 June 2018 based on the estimated tax provision required for the year ending 31 December 2018. No provision was required in the six months to 30 June 2017.
10 Acquisition of RTS Solutions (Holdings) Limited and RTS Solutions (UK) Limited
On 11 May 2018, the Group acquired the entire issued share capital of RTS Solutions (Holdings) Limited which was the sole shareholder of RTS Solutions (UK) Limited ("RTS") for GBP2.1 million, comprising GBP1.5 million for the business and GBP0.6 million for surplus cash. This consideration was settled by an initial cash consideration of GBP1 million, funded by a 5 year bank loan and GBP547,000 paid from internal cash reserves. Further deferred consideration of GBP250,000 was paid in June 2018, funded by an additional drawdown on the 5 year bank loan and a further GBP55,000 was paid in July, funded from cash reserves. A final payment of GBP250,000 is subject to RTS achieving certain financial targets during the 12 months ending 31 March 2019. The Group currently assesses the probability of this payment being made as high.
During the period from acquisition to 30 June 2018, RTS contributed GBP128,000 of revenue and GBP48,000 of profit to the Group.
The provisional fair values of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
Provisional
fair value Provisional
Book value adjustments fair values
GBP000 GBP000 GBP000
Net assets acquired:
Intangible assets - 601 601
Property, plant & equipment 2 - 2
Inventory 18 - 18
Trade and other receivables 131 - 131
Cash and cash equivalents 628 - 628
Trade and other payables (166) - (166)
------------- ------------- --------------
613 601 1,214
------------- -------------
Goodwill 888
--------------
Total consideration 2,102
--------------
Cash flow:
Total consideration 2,102
Less deferred consideration (305)
--------------
Total consideration paid in the period 1,797
Cash included in undertaking acquired (628)
--------------
Net cash consideration in cash flow
statement 1,169
--------------
The above intangible assets and goodwill amounting to GBP1,489,000 are included within Intangible Assets on the Condensed Consolidated Statement of Financial Position. The Group also capitalised development expenditure of GBP206,000 during the period. Total amortisation of Group intangibles amounting to GBP364,000 has been expensed during the period.
11 Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings measured at amortised cost.
Current liabilities
Unaudited Unaudited
6 months 6 months Audited
ended 30 ended 30 Year ended
June June 31 December
2018 2017 2017
GBP000 GBP000 GBP000
Bank loan 250 - -
Finance lease liabilities 15 7 15
---------- ---------- -------------
265 7 15
========== ========== =============
Non-current liabilities
Unaudited Unaudited
6 months 6 months Audited
ended 30 ended 30 Year ended
June June 31 December
2018 2017 2017
GBP000 GBP000 GBP000
Convertible loan notes - 1,485 -
Bank loan 1,000 - -
Finance lease liabilities 16 18 23
---------- ---------- -------------
1,016 1,503 23
========== ========== =============
On 11 May 2018 Santander UK plc provided the Company with a loan facility of GBP1.25 million repayable by equal quarterly instalments over 60 months. The interest rate is set at LIBOR plus 3.19% and the loan is secured by a fixed and floating charge over the assets of the Group.
The convertible loan notes of GBP1 each, carried a fixed interest rate of 7% per annum and were convertible into ordinary shares of 1p each at any time prior to maturity on 10 September 2018. The conversion price was 8p. Following a general meeting of the loan note holders, all outstanding loan notes were converted on 15 December 2017. Therefore, at 30 June 2018 and 31 December 2017 there were no outstanding loan notes (30 June 2017: GBP1,484,804).
12 Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit for the period attributable to the shareholders by the weighted average number of shares in issue.
Unaudited Unaudited
6 months 6 months Audited
ended 30 ended 30 Year ended
June June 31 December
2018 2017 2017
Earnings
Profit for the year (GBP000) 514 503 1,237
========= ========= ============
Number of shares
Weighted average number of ordinary
shares ('000) 56,047 36,149 37,418
========= ========= ============
Diluted earnings per share
Diluted earnings per share assumes conversion of all potentially dilutive ordinary shares, which arise from share options (and in June 2017 convertible loan notes), and is calculated by dividing the adjusted profit for the period attributable to the shareholders by the assumed weighted average number of shares in issue. The adjusted profit for the period comprises the profit for the period attributable to the shareholders after adding back any interest on convertible loan notes for the period.
Unaudited Unaudited
6 months 6 months Audited
ended 30 ended 30 Year ended
June June 31 December
2018 2017 2017
Adjusted earnings
Profit for the year (GBP000) 514 576 1,368
========= ========= ============
Number of shares
Weighted average number of ordinary
shares ('000) 58,598 58,607 58,844
========= ========= ============
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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