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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Tungsten Corporation Plc | LSE:TUNG | London | Ordinary Share | GB00B7Z0Q502 | ORD 0.438P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 54.60 | 54.00 | 55.20 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMTUNG
RNS Number : 0630F
Tungsten Corporation PLC
25 July 2016
TUNGSTEN CORPORATION PLC
("Tungsten", the "Company" or "Group")
FULL YEAR FINANCIAL REPORT
FOR THE TWELVE MONTHSED 30 APRIL 2016
25 July 2016
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
Tungsten Corporation plc (LSE: TUNG), the global e-invoicing, purchase order services, analytics and financing company, today announces its results for the twelve months ended 30 April 2016 ("FY16").
Financial Highlights
-- Revenue increased 16% to GBP26.1 million (FY15: GBP22.5 million(1) )
-- EBITDA(2) loss decreased to GBP18.7 million, a GBP6.5 million improvement from prior year (FY15: GBP25.2 million loss(1) )
-- Statutory loss after tax of GBP27.9 million (FY15: GBP27.6 million(1) ), including a GBP6.8 million impairment following signing of a conditional agreement in December 2015 for the sale of Tungsten Bank
-- Net cash and cash equivalents ended at GBP9.3 million (30 April 2015: GBP13.1 million), excluding GBP17.8 million of cash in Tungsten Bank
-- Sale of Tungsten Bank expected to close by 31 October 2016 to release cash of approximately GBP30 million
-- Successful placing of 22.9 million shares to raise GBP17.5 million of new funding in May 2015
-- Agreed GBP10 million revolving credit facility with HSBC should Tungsten Bank sale be unexpectedly delayed
Operational Highlights
-- Strengthened board and enhanced executive management team under new CEO Richard Hurwitz
-- 34 existing buyers renewed contracts with weighted average price increase of 64%. Four further renewals after the year end at similar increases
-- 11 new buyers signed for contract value of at least GBP1.9 million; 175 total buyers -- 22,000 net new suppliers added to bring total suppliers to 203,000
-- 1,000 new Integrated suppliers connected to Tungsten Network, generating aggregate revenue of GBP1 million in first year of contracts, and a further 24,500 Web Form suppliers added
-- Total invoice volumes increased 9% to 16.1 million (FY15: 14.8 million)
-- Tungsten Network Finance being restarted to allow for profitable growth of the early payment solution
(1) Restatement of prior year revenue reduces it by GBP0.6m, as discussed at notes 2 and 3 to the accounts.
(2) EBITDA is defined as operating loss before other income, depreciation, amortisation, impairments and share-based payments charge.
Outlook
-- Revenue of at least GBP30 million expected in FY17, with upside potential reflecting the variability and phasing of new customer sales and successes of new product and service initiatives
-- Operating costs to continue to decline in FY17 through a combination of actions to increase automation, reduce headcount and implement procurement efficiencies
-- Committed to achieving monthly EBITDA breakeven during calendar 2017, with precise month dependent on the phasing of new customer and product sales
-- Expect FY17 EBITDA loss of between GBP12 million and GBP14 million, including expected GBP1.3 million EBITDA loss in Tungsten Bank prior to sale, a reduction of between GBP6.7 million and GBP4.7 million from FY16
-- Cash in excess of GBP20 million expected at 30 April 2017
-- Tungsten Network Early Payment financing levels anticipated to double by end of FY17, with material impact on revenues expected in FY18
Richard Hurwitz, Chief Executive Officer, commented:
"We are building momentum in our business through our strategy of focusing on profitable growth and I am encouraged by the progress we have made in implementing significant organisational improvements to elevate Tungsten's performance. Evidence of our progress is displayed in the talent we have attracted, our improved contract pricing, the value-added new buyers who have joined our network, the resizing of costs to match our tangible opportunities, and our strengthened balance sheet. Tungsten Network processes invoices for 70% of the FTSE 100 and 72% of the Fortune 500 and we are committed to helping these and other businesses do business better."
Nick Parker, Non-Executive Chairman, added:
"The year saw a period of significant change as Tungsten's business strategy was realigned under new leadership. The results demonstrate the impetus this executive team has brought, with revenue growth, expense control and cash preservation performing broadly in line with prior guidance. The Company will continue to realise network benefits for customers, ensure people and processes are effective, provide distinctive financing products, and provide adjacent products and services. The Board is confident the Company is well positioned for further sustainable growth."
Analyst Presentation
Richard Hurwitz, Chief Executive Officer, and David Williams, Chief Financial Officer, will today host a conference call and webcast at 9.00am UK time. To access the webcast please click here. The dial-in number for the conference call is +44 (0) 20 3003 2666 / +1 212 999 6659 with the access code 5929655# and a presentation will be available on the Tungsten Network website.
A replay facility will be available until Friday 5 August 2016. The dial-in number for the replay facility is +44 (0) 20 8196 1480 / +1 866 583 1035 with the above access code.
Enquiries
Tungsten Corporation plc Richard Hurwitz, Chief Executive Officer David Williams, Chief Financial Officer +44 20 7280 7872 Panmure Gordon (Nominated Advisor) Fred Walsh/Peter Steel +44 20 7886 2500 Canaccord Genuity Limited (Broker) Simon Bridges/Cameron Duncan/Emma Gabriel +44 20 7523 8000 Neustria Partners (Investors, Analysts and Media) Robert Bailhache/Nick Henderson/Charles Gorman +44 20 3021 2580
About Tungsten Corporation plc
Tungsten Corporation (LSE: TUNG) aims to be the world's most trusted business transaction network by using data intelligently to strengthen the global supply chain.
Tungsten Network is a secure e-invoicing and purchase order services platform that brings businesses and their suppliers closer together with unique technology that revolutionises invoice processing, maximises efficiency and improves cash flow management. Delivering trusted connections and streamlined transactions, the network also provides users with real-time spend analysis and offers suppliers access to invoice financing through Tungsten Network Finance, a form of alternative finance for businesses.
Tungsten Network processes invoices for 70% of the FTSE 100 and 72% of the Fortune 500. It enables suppliers to submit tax compliant e-invoices in 47 countries, and last year processed transactions worth over $187bn for organisations such as Alliance Data, Aviva, Cargill, Deutsche Lufthansa, General Motors, GlaxoSmithKline, Henkel, IBM, Kellogg's and the US Federal Government.
Trusted, passionate and proven, Tungsten is making the digitisation of global commerce between buyers and suppliers faster, easier and smarter.
Forward looking statements
This document contains forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Any forward-looking statement is based on information available to Tungsten as of the date of this statement. All written or oral forward-looking statements attributable to Tungsten are qualified by this caution. Tungsten does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in Tungsten's expectations.
Chairman's Statement
Tungsten has special operating assets. We have technology, products, customers and people that are the envy of our peers. We process invoices for over 70% of the FTSE 100 and the Fortune 500. However, our financial performance since Tungsten was admitted to London Stock Exchange's AIM in September 2013 has proved disappointing for investors and a new approach was required in order to realise the Company's significant potential.
We had invested heavily in previous years in expanding Tungsten Network and in building Tungsten Network Finance, including the acquisition of a regulated bank. However, given the rate of cash depletion and the operational performance, the Board recognised the need for a change in approach. The 2016 financial year was therefore a period of realigning our strategy under the leadership of Richard Hurwitz with the aim of pursuing profitable growth in Tungsten Network and a more targeted development of the opportunity in Tungsten Network Finance.
The sale of Tungsten Bank is an important component of the execution of our reshaped strategy. Owning a bank proved to be unnecessary to the achievement of our ambitions, and the costs of its operation and regulatory burden impeded our progress. A sale of Tungsten Bank was agreed in December 2015 and on completion the disposal will help to increase our free cash resources, reduce operating expenditure and remove operational complexity from our business.
Tungsten aims to be the world's most trusted business transaction network by using data intelligently to strengthen the global supply chain. The four strategic objectives that support this goal are: elevating our customer engagement by realising network benefits for them; using end-to-end digital processes to ensure our people and processes are effective; using our network and its data to provide distinctive financing products; and offering our customers valuable adjacent products and services.
The Board believes that the Company is making good headway against these objectives, achieving favourable price increases in renewed contracts to reflect the value we generate, realising cost savings by reducing organisational complexity and removing operational inefficiencies, refocusing the invoice financing business, and developing ancillary customer offerings. Our new focus gives the management team the clarity required to execute the Company's strategy for the benefit of customers and shareholders. This puts Tungsten on a stable footing for sustainable future growth.
Board and Management
I was delighted to accept the role as Chairman of Tungsten at our Annual General Meeting ("AGM") in September 2015. I took over from Arnold Hoevenaars, who steered the Company through its admission to LSE AIM and beyond. Arnold retired from the Board with our thanks. Lincoln Jopp also retired from the Board at our AGM and our thanks also go to him.
Tungsten made a number of other changes to its Board during the course of FY16 to increase its breadth and depth of experience and improve corporate governance. In particular, we were pleased to announce the appointment of new Independent Non-Executive Directors, David Benello and Ian Wheeler, at our AGM. Edi Truell, Tungsten's founder, stepped down from the Board in March 2016. The Board of Tungsten would like to thank Edi for his significant contribution to the creation of Tungsten.
The Board appointed Richard Hurwitz as CEO of Tungsten with effect from 13 July 2015 to lead the strategic change required in the business. Rick has built a talented executive management team around him in order to steer the business through its transformation.
Tungsten operates in markets with significant growth characteristics: back-office automation, digitisation, and alternative financing. We are confident that we have now identified the strategic priorities to take advantage of this market growth and have put in place the organisational structure needed to achieve our targets. We look forward to a year of further progress and success.
Annual Report & Accounts
Tungsten's Annual Report & Accounts for the twelve months ended 30 April 2016 will be uploaded to the Company's investor relations website later today.
The Company's investor relations website address is www.tungsten-network.com/us/about/investor-relations.
Annual General Meeting
The Annual General Meeting of the Company will be held on 16 September 2016 at 2.00pm UK time at the offices of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA.
Nick Parker
Chairman
Chief Executive Officer's Review
Strategic Review
The 2016 financial year has been a year of encouraging progress where we demonstrated momentum in the achievement of our revised aims. I was appointed CEO in July 2015, so these results represent a little over nine months of my stewardship. My first act on becoming CEO was to undertake an in-depth analysis of the business; what I found both excited and troubled me.
Tungsten is a global business with a loyal blue-chip customer base and enormous embedded value. Through its predecessor firm, Tungsten pioneered e-invoicing and remains at the vanguard of digitising accounts payable processes. But I also found structural deficiencies and a pressing need for a clearer strategy to produce profitable growth by leveraging the strengths of our core business. That strategic realignment is now in place and so is a talented team of committed individuals that is executing our plans with confidence and achieving notable early successes.
It was clear that the Company suffered from skills gaps in certain key areas. To close these gaps, we have made external appointments of Brian Proffitt as Chief Technology Officer, Guy Miller as Head of Corporate Development, Connie O'Brien as Chief Marketing Officer, and Prabhat Vira as President of Tungsten Network Finance. We have also undertaken internal promotions, including the appointment of Kevin Wilbur as Head of AP Automation.
In December 2015, I set out four areas of strategic priority to achieve profitable growth:
-- Focussing on our core business to provide efficiencies and further benefits for our customers;
-- Improving operational performance by deploying end-to-end digital tools to ensure our people and processes provide products and services to our customers effectively;
-- Further leveraging our network and its data to deliver distinctive financial products for our customers to support their working capital needs; and
-- Enhancing the value of the Tungsten Network by providing value-added adjacent products and services to increase operational efficiencies across the global supply chain.
I am confident we now have the right executive management team in place with shared and targeted objectives, performance measures and incentive structures for the Company to make substantial further progress in FY17.
Focus on our core
Tungsten Network is growing. Revenues for the year grew 16%, with total invoice volumes increasing 9% to 16.1 million. By value, total invoices increased 16% to GBP140 billion. Some 34 of our e-invoicing buyer customer contracts were renewed at a weighted average price increase of 64%, demonstrating that customers recognise the value of our offering. Since the end of our financial year we have renewed four further buyer customer contracts at similar price increases. We added 11 new buyers to Tungsten Network, including Duracell and Sanofi. The global agreement with Sanofi was signed at the end of FY16 and will therefore contribute to revenue in FY17. Each buyer brings their own supply chain to add to our network, and we are working more effectively with new and current buyers to sign up these suppliers. 22,000 net new suppliers were added over the year. This is the virtuous circle of the Tungsten Network: buyers bring suppliers who want to connect with other buyers.
We want to increase the rate of new business sales within Tungsten Network. Our pipeline is strong and continues to grow as we refine and strengthen our customer engagement strategy and increase our portfolio of products and services. We have revised our sales strategy to leverage more effectively our strong Tungsten Network connections and Tungsten Network Workflow customers. We have also developed partnerships with third parties, and won our first two buyer customers through PNC Bank which distributes our e-invoicing platform in the US. We are exploring ways to expand further in the near future our partnership strategy with PNC and others.
Notably, we have established a Digital Command Centre to connect more frequently and materially with our 203,000 suppliers under the direction of our newly appointed Chief Marketing Officer. Maintaining a regular dialogue with our network of suppliers ensures they remain active users as we engage them on the issues important to their commercial success, serving to strengthen the network of buyers and suppliers that underpins our growth strategy. Our Digital Command Centre is deploying advanced digital marketing capabilities and a host of leading-edge tools to increase the presence of Tungsten Network in internet search and traffic.
Improved operational performance
Tungsten seeks to grow profitably. Our history is one of a business where overheads have grown in line with revenues and we therefore needed to increase efficiency and leverage costs, while maintaining product and service standards. We have identified and started to effect the changes required in order to simplify and rationalise the business: sizing costs to match the tangible opportunity, removing organisational inefficiencies and maximising the use of automation tools.
Underpinning operational improvements is a redesign of the architecture of our core systems. This will be an incremental process to decouple core system components and will result in greater stability and flexibility of our systems. This project is well underway and is expected to be completed over FY17.
These initiatives included:
-- A reorganisation of customer relationship management resources designed to consolidate all onboarding activities into separate, dedicated buyer or supplier teams;
-- The first phase of a re-engineering of the technology platform to deliver a simplified infrastructure that will meet future capacity requirements and deliver efficiency benefits;
-- Increased use of digital marketing to improve the identification and conversion of new business leads and existing customer opportunities into product or service sales;
-- A restructuring of our finance team, including implementing new enterprise resource planning software that allows us to use a wider range of accounts payable automation tools and switch to a shared services environment; and,
-- The introduction of a swathe of upgraded procurement and cost policies, processes and disciplines to allow more effective management of the Group's cost base.
Collectively, the initial impact of these measures is demonstrated in the narrowing of our EBITDA loss by GBP6.5 million to GBP18.7 million (FY15: GBP25.2 million(1) ).
As we look to the year ahead, we have identified the initiatives to achieve monthly EBITDA breakeven by the end of FY17, and we will continue to manage our cost base while making the necessary investments in technology, products, digital marketing and operational improvements. However, we will not surrender future growth for the sake of reaching monthly EBITDA breakeven by the end of our financial year in April. We will be prepared to achieve this landmark later in calendar 2017 if we believe to do so is in the best interests of sustaining long term profitable growth and the creation of shareholder value.
Distinctive supply chain financing products
Tungsten Network Finance, our invoice financing business, remains a cornerstone of our strategy. We will pursue this without Tungsten Bank as we determined that operating a regulated deposit-taking financial institution is incompatible with the pursuit of profitable growth and not needed to successfully pursue our invoice financing opportunity. The sale of Tungsten Bank is expected to close by the end of H1-FY17. This will release substantial cash resources of approximately GBP30 million to enable us to invest in our core business as well as reduce our cost base and enhance profitability and cash flow.
Tungsten financed over GBP100 million of invoices in FY16 for an average duration of 34 days at an average gross yield of 6.3%. However, the revenue generated from this activity was less than GBP200,000, and the number of suppliers using the product was limited.
In April 2016, we welcomed Prabhat Vira to Tungsten to lead our efforts in restarting Tungsten Network Finance to scale up the level and profitability of financing. Prabhat has previously held senior positions in banking businesses across the world and at Tungsten has already started to revise our invoice finance offering to widen the number of suppliers that can take advantage of it and make it more flexible and appropriate to our customers' needs.
Following Prabhat's arrival we have commenced the execution of a revised strategy which includes reaffirming and expanding our funding arrangement with Insight Investment, redesigning our product to better meet market needs, segmenting our supplier customers, improving our pricing model, enhancing the Tungsten Network portal, streamlining the on-boarding process, investing in supplier sales and relationship activities and improving the effectiveness of the back-office technology.
We expect the changes to give us the capability to increase the volume of invoices financed and the income Tungsten that is able to earn from the activity. However, we need to complete the execution of the improvements we have identified to capture an increased invoice finance opportunity. As a result, we anticipate a steady increase in financing volumes in FY17, with a more material impact expected from FY18.
Adjacent products and services
Tungsten and its predecessor companies have been at the forefront of accounts payable automation for over 15 years. As a result, 175 of the world's most sophisticated buying organisations connect with 203,000 of their global suppliers over the Tungsten Network. We have identified a series of opportunities to leverage this global connectivity in order to provide our customers with highly relevant adjacent products and services.
The range of opportunities currently include foreign currency translation services, e-invoicing for suppliers in China, and cross-border recovery of value-added taxes on goods and services. Each of these initiatives is currently at a different stage of development, ranging from design to trial. We are pursuing each opportunity with partners, to minimise setup and ongoing costs, with the potential targeted benefit being a share of revenues generated. We expect the list of opportunities to fluctuate over time as some are launched and some are terminated. We are anticipating only marginal revenues from adjacent products and services in FY17, with more material contributions targeted from FY18.
Operational Review
Tungsten Network
Tungsten Network continued to grow in the period, both through the addition of new buyers and their suppliers to the network, and through creating additional connections between existing buyers and suppliers.
Eleven new buyers contracted to join Tungsten Network in FY16. Total buyers as at 30 April 2016 amounted to 175, of which 124 take e-invoicing and other associated solutions, and 51 take Tungsten Network Workflow services. Expanding the solutions that buyers take is a development focus for FY17.
The new e-invoicing buyers each agreed three- or four-year deals for total minimum fees over the aggregate contract periods of GBP1.2 million. This excludes revenues generated from their suppliers, which are expected to contribute from H2-FY17. The new Tungsten Network Workflow buyers each agreed deals with total minimum fees over the aggregate contract periods of GBP0.7 million.
The number of buyers reduced by nine during FY16. This figure includes three buyers with minimal invoice flow leaving the network as part of Tungsten's strategy to focus on accounts with growth potential. Six further buyer contracts were merged, three as a result of customer mergers and three through the replacement of local contracts with global agreements. The buyer reductions are not expected to have a material impact on revenue in FY17.
Buyer revenues represent 39% of total Tungsten Network revenue. Contracts with 42 buyers that take the e-invoicing service were due for renewal in FY16. A key focus of the business during the year was to work with these buyers as part of contract discussions to demonstrate the value Tungsten Network delivers. Tungsten completed contract renegotiations with 34 of these buyers, agreeing weighted average price increases of 64% on a like-for-like basis which applies to approximately 30% of total invoice volumes. We have also secured buyer commitments to acquire additional products and widen the scope of our relationships, and we expect to see the financial benefit of these initiatives in FY17.
New contracts have been agreed with four of the remaining eight buyers after the year end at similar rates of price increase with discussions nearing conclusion with the remaining four buyers.
Due to legacy contractual restrictions we were unable to renegotiate pricing with an additional 10 buyers, who had their current contracts extended during the year. We are in discussions with each of these to agree new terms when the extended contracts expire.
As part of the review of our business we have segmented our supplier customers into four categories, reflecting the products they use and the associated sales channel. These are: Corporate suppliers; Integrated Solution suppliers; Web Form suppliers, and Non Electronic suppliers. This segmentation has allowed us to identify targeted pricing and development opportunities.
A total of 1,000 new Integrated and 24,500 new Web Form suppliers were added to the network during the period. Around 3,500 supplier accounts were closed, the majority of which had stopped trading with our buyer customers. The net impact of these changes was that the total number of suppliers increased 12% to 203,000.
We continue to connect growing numbers of customers to each other, enhancing the interconnectedness of our network. Through our newly created Digital Command Centre we will continue to segment our customer base to actively engage with them.
Growing the number of connected suppliers remains a key factor in the development of the business. This involves working closely with our buyer customers to help them identify where they can further benefit from digitising their accounts payable processes and then supporting them in the change management required to deliver this. Many of our buyer customers want to grow in this way with our support, with the challenge always being the timing of delivering this growth.
The first phase of a restructuring of the operations of Tungsten Network was completed in FY16. This included: the reorganisation of resources into separate teams to focus on the implementation of buyer customers; the sale, implementation and support of supplier customers; and the technical operations of Tungsten Network. The restructuring allows for greater accountability and focus across these teams. The second phase of the restructuring, to be completed over FY17, will be to introduce greater process automation and standardisation across these teams in order to increase their efficiency.
Tungsten Network Finance
Revenue from Tungsten Network Early Payment was GBP194,000 (FY15: GBP120,000). This comprised GBP14,000 of income from Tungsten Network Finance and GBP180,000 of income from Tungsten Bank.
By the end of FY16, 361 suppliers had registered for Tungsten Network Early Payment (FY15: 188). A total of GBP148.5 million of invoices were paid through supplier accounts (FY15: GBP41.0 million), of which Tungsten financed GBP102.7 million (FY15: GBP32.0 million). The average duration of financed invoices was 34 days (FY15: 33 days) and the average gross yield achieved was 6.3% (FY15: 5.3%).
Shortly prior to the end of the period, in April 2016, Prabhat Vira was appointed to lead the restructuring of Tungsten Network Finance and he has already made strong progress.
Tungsten Bank
Following a strategic review, we took the decision to sell Tungsten Bank. The Board had determined that the benefits of owning a regulated firm like Tungsten Bank were outweighed by the fixed costs of operating it, making the retail funding it might provide for Tungsten Network Early Payment relatively expensive compared with the Group's alternative funding arrangement with Insight Investment. A sale agreement was announced in December 2015. The divestment is progressing to plan and the acquirer is expected to make its formal change of control application to the relevant regulatory authorities shortly.
Following the sale, Tungsten will receive approximately GBP30 million in cash. While the sale is expected to complete by the end of H1-FY17, in the event of unexpected delay we have secured a GBP10 million revolving credit facility with HSBC to fund any potential working capital shortfall.
The divestment of Tungsten Bank is expected to produce a net reduction in run-rate costs of GBP2 million per annum. In FY16, Tungsten Bank's operating expenses amounted to GBP2.8 million.
Tungsten Network Analytics
Despite positive feedback from our buyer customers, the Tungsten Network Analytics product remains in development. Pilot users have continued to react favourably throughout FY16 and we remain confident that the core tool, offering access to real-time spend data, can provide our customers with critical information to help them make better buying decisions. We remain in discussions with several buyer customers who are interested in buying the tool.
In order to stimulate demand, early in FY17 we will launch a freemium, or limited feature, version of our Tungsten Network Analytics tool to all buyer customers. This will give them access to certain basic data analysis for free, with a paid-for upgrade available for more advanced services.
We are also using the capabilities that our analytics tool provides us in other areas of product development. For example, our value-added tax reclaim product is built on the Tungsten Network Analytics platform. In addition, as part of the development of services we offer to our supplier customers, we will launch a form of Tungsten Network Analytics geared to assist suppliers to make optimal decisions informed by market level data.
FY17 Priorities
FY17 is a year for delivery. This includes the development of opportunities to grow with our existing customers and attracting new customers as the automation of accounts payable increases.
Equally as important is the capture of benefits from the change underway across the business to achieve the operational excellence we are targeting to provide outstanding products and services to our customers in an efficient manner.
We expect to see benefits from our work to clarify our organisational culture and principles, and invest in our people. Each member of staff is clear how they contribute to ensuring smarter, safer connections for our customers through a cross-border compliant, many-to-many network by providing leading global e-invoicing, purchase order, analytics and financing services.
We have an executive management team in place to achieve our strategic objectives, and outstanding talent across the business to support them. Our immediate aims are to be profitable on a monthly EBITDA basis and to grow our revenues to at least GBP30 million in FY17.
We have identified the initiatives to achieve monthly EBITDA breakeven by the end of FY17, and we will continue to manage our cost base while making the necessary investments in technology, products, digital marketing and operational improvements. However, we will not surrender future growth for the sake of reaching monthly EBITDA breakeven by the end of our financial year in April. We will be prepared to achieve this landmark later in calendar 2017 if we believe to do so is in the best interests of sustaining long-term profitable growth and the creation of shareholder value.
Following the sale of Tungsten Bank, we expect free cash resources to be increased by approximately GBP30 million.
We are confident that we have the right strategy in place to develop the business to achieve profitable growth and a successful future.
Outlook
Subsequent to the end of our financial year, in June 2016 the UK electorate voted to leave the European Union. This decision commences a process expected to take a minimum of two years to complete. The outcome of the process as regards the structure of the UK's trade relationships without European Union membership is unknown. There will be uncertainty over this period and the role that Tungsten Network plays in supporting businesses to navigate international trade has never been more important. Over half of Tungsten's revenues are denominated in currencies other than sterling. We expect the effect of changes in the value of sterling on our non-sterling denominated operating expenses to offset broadly any currency-related movements in reported revenues.
We provide updated guidance on our expectations for trading as follows:
-- Revenue of at least GBP30 million expected in FY17, with upside potential reflecting the variability and phasing of new customer sales and success of new product and service initiatives
-- Operating costs to continue to decline in FY17 through a combination of actions to increase automation, reduce headcount and implement procurement efficiencies
-- On track to achieve monthly EBITDA breakeven in 2017, with the precise month dependent on the phasing of new customer and product sales
-- Expect FY17 EBITDA loss of between GBP12 million and GBP14 million, including expected GBP1.3 million EBITDA loss in Tungsten Bank prior to sale, a reduction of between GBP6.7 million and GBP4.7 million from FY16
-- Cash in excess of GBP20 million expected at 30 April 2017
-- Tungsten Network Early Payment financing levels anticipated to double by end of FY17, with material impact on revenues expected in FY18
Richard Hurwitz
Chief Executive
Chief Financial Officer's Review
Group Overview
After redefining our strategic objectives and putting in place the plans to achieve them, Tungsten made demonstrable progress in FY16 towards achieving its near-term target of monthly EBITDA breakeven.
A restructuring of Tungsten's finance and planning teams has provided the data and analysis that the business needs to put it on a path toward achieving profitable growth. This contributed to the standardisation of buyer pricing, serving to underpin average price increases of 64% across the 34 buyer customers that renewed contracts in FY16.
It has also helped to implement the cost disciplines required to reduce adjusted operating expenses (operating expenses excluding depreciation and amortisation, impairment and share based payment expense) from GBP47.8 million in FY15 to GBP44.6 million in FY16.
A sale of Tungsten Bank was agreed in December 2015. On completion the disposal will help to reduce our operating expenditure by approximately GBP2.0 million per annum, being a GBP3.0 million gross reduction of Tungsten Bank's operating expenses offset by approximately GBP1.0 million of additional costs to provide our financing products through Tungsten Network Finance.
Group revenue was GBP26.1 million (FY15: GBP22.5 million(1) ), representing an increase of 16%.
Revenue from buyers grew 17.3% to GBP10.1 million (FY15: GBP8.6 million(1) ), reflecting price and volume increases of GBP2.0 million offset by a fall in setup and other one-off fees of GBP0.5 million. Revenue from suppliers grew 15% to GBP15.8 million (FY15: GBP13.8 million), reflecting a net increase of 22,000 Integrated and Web Form supplier customers and a change in the structure of supplier pricing.
Revenue from Tungsten Network Finance, including Tungsten Bank, was GBP0.2 million (FY15: GBP0.1 million).
Group EBITDA loss was GBP18.7 million (FY15: GBP25.2 million(1) ), reflecting a decrease in adjusted operating expenses by GBP3.2 million to GBP44.6 million (FY15: GBP47.8 million). There has been significant focus across the business on cost control, resulting in a reduction in one-off costs and in particular professional fees associated with the setup of Tungsten Network Early Payment, which totalled GBP6.6 million in FY15, cost and procurement savings of GBP1.9 million, and decreased bad debt expense of GBP0.7 million. These were offset by an increase in staff costs of GBP2.8 million, reflecting the annualisation of new employee hires over FY15 and the appointment of additional senior executives to the business, increased systems costs of GBP2.0 million being primarily the expense of repurposing operations, and marketing costs of GBP0.6 million.
Group EBITDA loss included GBP4.4 million of one-off costs which are not expected to recur (FY15: GBP11.3 million). This included GBP0.5 million of costs related to operational restructuring, and GBP3.2 million of professional fees, primarily legal and regulatory fees associated with Tungsten Network Finance.
The Group loss before tax was GBP28.6 million (FY15: GBP27.9 million(1) ). This includes depreciation and amortisation of GBP2.5 million (FY15: GBP2.3 million), impairment in the carrying value of the investment in Tungsten Bank of GBP6.8 million (FY15: Nil), and GBP0.5 million of share based expenses (FY15: GBP0.2 million). It also includes other income of GBP0.3 million following the settlement in cash of deferred consideration owed on the acquisition of Image Integration Systems, Inc. which owned the DocuSphere business.
The Group loss after tax was GBP27.9 million (FY15: GBP27.6 million(1) ) reflecting a tax credit of GBP0.7 million (FY15: GBP0.3 million), principally relating to non-cash movements on the unwinding of deferred tax recognised on acquired intangible assets. The Group has an unrecognised deferred tax asset of approximately GBP11.2 million that is available for offset against future tax expenses in the Companies in which losses arise.
Segmental Performance
Tungsten Network
Revenue from Tungsten Network was GBP25.9 million (FY15: GBP22.4 million(1) ), growth of 16%. Tungsten Network revenue can be split as follows:
Buyers
-- Revenue from 175 buyer customers of GBP10.1 million (FY15: GBP8.6 million(1) ), including GBP7.4 million from e-invoicing buyers (FY15: GBP7.2 million(1) ) and GBP2.7 million from buyers that solely take the Tungsten Network Workflow product (FY15: GBP1.4 million);
-- Buyer setup and other one-off fees decreased by GBP1.1 million to GBP0.8 million (FY15: GBP1.9 million) reflecting the significant setup fees from buyers such as GE and Siemens that were recognised in the prior period;
-- The impact on FY16 revenue of contractual price increases agreed with current buyers in the current period was GBP0.4 million; and,
-- Revenue from Tungsten Network Analytics in the period was GBP33,000 (FY15: nil).
Suppliers
-- Revenue of GBP15.8 million (FY15: GBP13.1 million), split 80% Integrated suppliers and 20% Web Form suppliers (FY15: split of 86%/14%).
Other revenue was negligible in FY16 (FY15: GBP0.7 million).
Tungsten Network adjusted operating expenses were GBP36.1 million (FY15: GBP28.3 million). Tungsten Network EBITDA loss for the period was GBP5.8 million (FY15: GBP5.7 million).
Tungsten Network Finance
Tungsten Network Finance includes the origination and operations of Tungsten's financing activities, excluding Tungsten Bank. Revenue from Tungsten Network Finance was GBP14,000 in FY16 (FY15: nil).
The revenue presented for Tungsten Network Finance is shown net of the share of Tungsten Network Early Payment fees due under the arrangement with Insight Investment. Total Tungsten Network Early Payment fees in FY16 were GBP611,000 (FY15: GBP153,000). These were split as follows:
Tungsten Network Finance; GBP14,000 (FY15: nil)
Insight Investment; GBP417,000 (FY15: GBP33,000)
Tungsten Bank; GBP180,000 (FY15: GBP120,000)
Tungsten Network Finance adjusted operating expenses were GBP3.8 million (FY15: GBP10.6 million). The decrease primarily reflects the reduction of one-off setup costs.
Tungsten Bank
Tungsten Bank revenue in FY16 totalled GBP180,000 (FY15: GBP120,000).
Tungsten Bank's adjusted operating expenses were GBP2.8 million (FY15: GBP2.3million). The increase primarily reflects increased compliance costs.
Corporate
The Corporate EBITDA loss was GBP6.6 million (FY15: GBP6.8 million). Tungsten continues to look for opportunities to reduce its corporate costs.
Cash Flow
The cash outflow from operating activities was GBP21.6 million (FY15: GBP31.2 million(1) ), compared to EBITDA of GBP18.7 million (FY15: GBP25.2 million(1) ).
Trade and other receivables grew GBP0.9 million from 30 April 2015. The increase was primarily a result of operational issues with the introduction of a new credit control system. Process improvements made over H2-FY16 did not have the expected impact on debtor balances and subsequent to the year-end personnel changes were made to the credit control team which the Board expects to have an impact by the end of H1-FY17.
Trade and other payables decreased by GBP0.7 million from 30 April 2015, primarily reflecting a decrease in accruals for goods and services provided but not invoiced at the year-end.
Tungsten Network Early Payment invoice receivables held by the Group increased from GBP6.4 million at 30 April 2015 to GBP7.3 million, resulting in a cash outflow of GBP0.9 million.
There was a cash inflow from the equity fundraising in May 2015 of GBP16.7 million, net of fees.
Liquidity and Going Concern
Cash and cash equivalents were GBP27.0 million at the end of FY16 (FY15: GBP32.6 million), an outflow of GBP5.6 million. Excluding the cash held by Tungsten Bank of GBP17.8 million (FY15: GBP19.5 million), Tungsten had cash available to the Group of GBP9.3 million (FY15: GBP13.1 million).
The Group expects to complete the sale of Tungsten Bank by the end of H1-FY17. On completion, the Group will receive the cash on hand and invoice receivables (respectively GBP17.8 million and GBP7.3 million as at 30 April 2016) and a goodwill payment of approximately GBP4.0 million.
Subsequent to the end of the financial year, in July 2016 the Group agreed a revolving capital facility of GBP10 million with its principal bank, HSBC. The facility would be utilised to contribute to the Company's working capital in the event that the sale of Tungsten Bank is not completed as expected.
Loss Per Share
The basic and diluted loss per share was 22.52p (FY15: 26.92p loss per share(1) ). On an adjusted basis excluding share-based payments, other income, impairments and acquisition-related amortisation, basic and diluted loss per share was 16.85p compared to 16.73p in FY15.
Post Balance Sheet Event - UK Referendum on European Union Membership
On 23 June 2016 the UK electorate voted to leave the European Union. This decision commences a process that is expected to take a minimum of two years to complete. The outcome of the process is unknown as regards the structure of the UK's trade relationships without European Union membership. There will be a resulting period of uncertainty for the UK economy, with increased volatility expected in financial markets. This event does not impact the fair value of assets and liabilities reported at the balance sheet date of 30 April 2016.
David Williams
Chief Financial Officer
Consolidated income statement
Hot Features
Premium
Year Year
Ended Ended
Note 30 April 30 April
2016 2015
GBP'000 (restated)
GBP'000
Revenue 26,083 22,549
Operating expenses (54,358) (50,237)
================================================ ================= ====================
Operating loss (28,275) (27,688)
------------------------------------------------- ----------------- --------------------
EBITDA (18,748) (25,228)
Depreciation and amortisation (2,520) (2,263)
Impairment (6,810) -
Share-based payment expense 8 (478) (197)
Other income 281 -
------------------------------------------------ ----------------- --------------------
Operating loss (28,275) (27,688)
------------------------------------------------- ----------------- --------------------
Finance income 83 108
Finance costs (371) (332)
================================================ ================= ====================
Net finance costs (288) (224)
================================================= ================= ====================
Loss before taxation (28,563) (27,912)
------------------------------------------------- ----------------- --------------------
Taxation 705 302
================================================ ================= ====================
Loss for the year (27,858) (27,610)
------------------------------------------------- ----------------- --------------------
Loss per share (expressed in pence per share):
================================================= ================= ====================
Basic and diluted loss per
share 9 (22.52) (26.92)
------------------------------------------------ ----------------- --------------------
Consolidated statement of comprehensive income
Year Year
Ended Ended
Note 30 April 30 April
2016 2015
GBP'000 (restated)
GBP'000
Loss for the year (27,858) (27,610)
Other comprehensive income:
Currency translation differences 320 1,033
======================================= ================== ===================
Total comprehensive loss for the year (27,538) (26,577)
--------------------------------------- ------------------ -------------------
Items in the statement above are disclosed net of tax.
Consolidated statement of financial position
Registered number: 07934335
As at As at
30 April 30 April
Note 2016 2015
GBP'000 (restated)
GBP'000
Assets
Non-current assets
Intangible assets 4 116,770 128,126
Property, plant and equipment 5 1,924 2,211
Trade and other receivables 539 624
===================================== ================== ====================
Total non-current assets 119,233 130,961
-------------------------------------- ------------------ --------------------
Current assets
Trade and other receivables 8,726 7,783 Invoice receivables - 6,392 Cash and cash equivalents 9,268 32,603 Assets held for sale 6 28,737 - ===================================== ================== ==================== Total current assets 46,731 46,778 -------------------------------------- ------------------ -------------------- Total assets 165,964 177,739 ------------------------------------- ------------------ -------------------- Capital and reserves attributable to the equity owners of the parent Share capital 553 454 Share premium 188,794 171,875 Shares to be issued 3,760 3,760 Merger reserve 28,035 28,035 Share-based payment reserve 5,419 5,237 Other reserve (4,019) (4,339) Accumulated losses (76,408) (48,550) ===================================== ================== ==================== Total equity 146,134 156,472 -------------------------------------- ------------------ -------------------- Non-current liabilities Deferred taxation 3,010 4,006 ===================================== ================== ==================== Total non-current liabilities 3,010 4,006 -------------------------------------- ------------------ -------------------- Current liabilities Trade and other payables 7,490 8,628 Deferred income 8,318 8,633 Liabilities directly associated with assets held for sale 6 1,012 - ===================================== ================== ==================== Total current liabilities 16,820 17,261 ====================================== ================== ==================== Total liabilities 19,830 21,267 ====================================== ================== ==================== Total equity and liabilities 165,964 177,739 ------------------------------------- ------------------ --------------------
Consolidated statement of changes in equity
Year ended 30
April 2016
Shares Share-based
Share Share Merger to payment Other Accumulated
be
Capital premium reserve issued reserve reserve losses Total
equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance as at
1 May 2015 454 171,875 28,035 3,760 5,237 (4,339) (48,550) 156,472
Currency
translation
differences1 - - - - - 320 320
Loss for the
year - - - - - - (27,858) (27,858)
============== =============== ============== ============= ============ ================ ============= =============== ==============
Balance as at
30 April 2016 454 171,875 28,035 3,760 5,237 (4,019) (76,408) 128,934
-------------- --------------- -------------- ------------- ------------ ---------------- ------------- --------------- --------------
Transactions
with
owners
Shares issued
during the
year 99 16,919 - - - - - 17,018
Share-based
payment
expense - - - - 182 - - 182
============== =============== ============== ============= ============ ================ ============= =============== ==============
Balance as at
30 April 2016 553 188,794 28,035 3,760 5,419 (4,019) (76,408) 146,134
-------------- --------------- -------------- ------------- ------------ ---------------- ------------- --------------- --------------
1 Agreed to Consolidated statement of comprehensive Income.
Year ended 30
April
2015
(restated)
Shares Share-based
Share Share Merger to payment Other Accumulated
be
Capital premium reserve issued reserve reserve losses Total
equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance as at
1
May 2014 438 160,127 28,035 3,760 5,040 (5,372) (20,940) 171,088
Currency
translation
differences - - - - - 1,033 - 1,033
Loss for the
year - - - - - - (27,610) (27,610)
============== ========= ============== ============= ============ ================ ============= =============== ==============
Balance as at
30
April 2015 438 160,127 28,035 3,760 5,040 (4,339) (48,550) 144,511
-------------- --------- -------------- ------------- ------------ ---------------- ------------- --------------- --------------
Transactions
with
owners
Shares issued
during
the year 16 11,748 - - - - - 11,764
Share-based
payment
expense - - - - 197 - - 197
============== ========= ============== ============= ============ ================ ============= =============== ==============
Balance as at
30
April 2015 454 171,875 28,035 3,760 5,237 (4,339) (48,550) 156,472
-------------- --------- -------------- ------------- ------------ ---------------- ------------- --------------- --------------
Consolidated statement of cash flows
Year Year
Ended Ended
Note 30 April 30 April
2016 2015
GBP'000 (restated)
GBP'000
Cash flows from operating activities
Loss before taxation (28,563) (27,912)
Adjustments for:
Depreciation and amortisation 2,520 2,263
Impairment charge 6,810 -
Finance costs 371 332
Finance income (83) (108)
Share-based payment expense 478 197
Other Income (281) -
================================================= ================= ====================
Cash generated from operations (18,748) (25,228)
------------------------------------------------- ----------------- --------------------
Changes in working capital:
Increase in trade and other receivables (882) (1,681)
Increase in invoice receivables (937) (6,392)
Increase/(decrease) in trade and other payables (732) 1,639
Net interest received/(paid) (307) 108
================================================= ================= ====================
Net cash outflow from operating activities (21,606) (31,554)
------------------------------------------------- ----------------- --------------------
Cash flows from investing activities
Purchases of property, plant and equipment (255) (825)
Purchases of intangibles (912) (271)
Acquisition of subsidiary, net of cash acquired - (9,573)
================================================= ================= ==================== Net cash outflow from investing activities (1,167) (10,669) ------------------------------------------------- ----------------- -------------------- Cash flows from financing activities Proceeds of share issue 16,721 11,765 ================================================= ================= ==================== Net cash inflow from financing activities 16,721 11,765 ------------------------------------------------- ----------------- -------------------- Net decrease in cash and cash equivalents (6,052) (30,458) Cash and cash equivalents at start of year 32,603 62,646 Exchange adjustments 472 415 ================================================= ================= ==================== Cash and cash equivalents at end of year 27,023 32,603 ------------------------------------------------- ----------------- --------------------
Cash and cash equivalents includes cash held across the entities within Tungsten Group in addition to cash held by Tungsten Bank which has been reclassified as Assets Held for Sale (Note 15).
Accounting Policies
1. Basis of preparation
The preliminary announcement for the year ended 30 April 2016 was approved by the Board of Directors on 22 July 2016. The financial information set out above does not constitute the Group's statutory accounts for the year ended 30 April 2016 but is derived from those accounts.
The Group's results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
2. Prior Period Adjustment
The Group provides services to its buyer customers pursuant to contracts that are typically three years in length. Where a buyer is out of contract at a year end and negotiations for a new contract are ongoing the Group will accrue the revenue up to the year end on the same terms as the expired contract. This accrued revenue is then unwound in the subsequent year as a new contract is agreed and the accrued amounts are invoiced.
Following significant change to people and control processes in the Group's finance team GBP0.6 million of accrued revenue from FY14 has been identified as not having been unwound in FY15. In order to aid comparability of revenue and profitability between FY15 and FY16, revenue in the comparative year has been reduced by GBP0.6 million. Accordingly, the EBITDA loss, the retained loss for the year and equity have been reduced by GBP0.6 million, with a consequential impact on earnings per share.
3. Segment report
Management have determined the operating segments based on the operating reports reviewed by the Board of Directors that are used to assess both performance and strategic decisions. Management has identified that the Board of Directors is the chief operating decision maker (CODM).
During the year the operations and management of Tungsten Network Finance and Tungsten Bank were separated. Each now have clearly separate management teams and decision making bodies. As a result, Tungsten Bank is shown as a separate segment in these accounts.
The Board of Directors reviews financial information for four segments: Tungsten Network (which includes the e-Invoicing and spend analytics business of Tungsten Network), Tungsten Network Finance (which includes the supply chain finance business), Tungsten Bank and Corporate (which includes overheads and general corporate costs). Intersegment revenue from management fees is eliminated below.
Year ended 30 April 2016
Tungsten
Tungsten Network Tungsten
Note Network Finance Bank Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 25,889 14 180 - 26,083
========================== =================== ============ ================ ================= ================
Segment revenue 25,889 14 180 - 26,083
-------------------------- ------------------- ------------ ---------------- ----------------- ----------------
EBITDA1 - excluding
non-cash
share-based payment (5,768) (3,779) (2,594) (6,607) (18,748)
EBITDA - including
non-cash
share-based payments (5,770) (3,779) (2,594) (7,083) (19,226)
Share-based payment 7 (2) - - (476) (478)
Depreciation,
amortisation
and impairment (2,259) (89) (6,810) (172) (9,330)
Finance income 25 - - 58 83
Finance cost (151) (182) (35) (3) (371)
Other income 281 - - - 281
------------------------- ------------------- ------------ ---------------- ----------------- ----------------
Loss before taxation (7,874) (4,050) (9,439) (7,200) (28,563)
Income tax credit 705
========================== =================== ============ ================ ================= ================
Loss for the year (27,858)
-------------------------- ----------------------------------------------------------------------------------------
Capital expenditure 900 31 170 66 1,167
Total assets 127,488 292 28,737 9,447 165,964
Total liabilities 15,853 580 1,021 2,376 19,830
-------------------------- ------------------- ------------ ---------------- ----------------- ----------------
1 EBITDA is calculated as earnings before other income, interest, tax, depreciation and amortisation.
Year ended 30 April 2015 (restated)
Tungsten
Tungsten Network Tungsten
Network Finance Bank Corporate Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 22,429 - 120 - 22,549
===================================== ============== ============= ============== =============== ===============
Segment revenue 22,429 - 120 - 22,549
------------------------------------- -------------- ------------- -------------- --------------- ---------------
EBITDA1 - excluding non-cash
share-based payments (5,732) (10,578) (2,115) (6,803) (25,228)
Share-based payments - - - (197) (197)
Depreciation and amortisation (1,747) (370) - (146) (2,263)
Finance income (449) (7) - 564 108
Finance cost 5 - - (337) (332)
------------------------------------- -------------- ------------- -------------- --------------- ---------------
Loss before taxation (7,923) (10,955) (2,115) (6,919) (27,912)
Income tax credit 302
===================================== ============== ============= ============== =============== ===============
Loss for the year - - - - (27,610)
------------------------------------- -------------- ------------- -------------- --------------- ---------------
Capital expenditure 15,844 5 - 518 16,367
Total assets 125,572 548 35,780 15,839 177,739
Total liabilities 15,786 2,680 925 1,876 21,267
------------------------------------- -------------- ------------- -------------- --------------- ---------------
4. Intangible assets
Year ended 30 April 2016
Customer Software Software
Goodwill relationships IT licences development Total
Cost GBP'000 GBP'000 platform GBP'000 GBP'000 GBP'000
GBP'000
Balance at 1
May 2015 108,338 11,098 6,712 4,304 331 130,783
Reclassified
as held for
sale (10,280) (10,280)
Additions: - - - 557 355 912
Disposals: - - - (131) - (131)
Exchange
differences 140 5 244 (15) (23) 351
============== ================ ===================== ================ ============== =================== ===============
Balance at 30
April 2016 98,198 11,103 6,956 4,715 663 121,635
-------------- ---------------- --------------------- ---------------- -------------- ------------------- ---------------
Accumulated
amortisation
Balance at 1
May 2015 - 859 1,244 223 331 2,657
Amortisation
charge - 569 987 208 253 2,017
Impairment
charge 6,810 - - - - 6,810
Impairment
reclassified
as held for
sale (6,810) - - - - (6,810)
Exchange
differences - 3 183 (2) 7 191
============== ================ ===================== ================ ============== =================== ===============
Balance at 30
April 2016 - 1,431 2,414 429 591 4,865
-------------- ---------------- --------------------- ---------------- -------------- ------------------- ---------------
Net asset
value 30
April
2015 108,338 10,239 5,468 4,081 - 128,126
============== ================ ===================== ================ ============== =================== ===============
Net asset
value 30
April
2016 98,198 9,672 4,542 4,286 72 116,770
-------------- ---------------- --------------------- ---------------- -------------- ------------------- ---------------
Tungsten Network
The Group has estimated the recoverable amount of the Tungsten Network CGU using a value-in-use model by projecting cash flows for the next five years together with a terminal value using a growth rate. The five-year plans used in the impairment models are based on Board approved budgets and management's past experience and future expectations of performance. The cash flow projections are based on the following key assumptions:
-- Revenue growth from buyers and suppliers using the Tungsten Network, including Tungsten Workflow and Tungsten Analytics at a compound annual growth rate of 15%
-- Pre-tax discount rate of 14.4% (2015: 9.7%), being based on the Group's weighted average cost of capital (WACC)
-- Growth rate used in the annuity of 2.0% (2015: 2.0%). This does not exceed the long-term expected economic average growth of the territories in which the Group operates in.
Based on the above assumptions, Tungsten Network exceeded the carrying value of the CGU by GBP21.3 million
(2015: GBP143.7 million). Had the 2015 pre-tax discount rate of 9.7% been applied then the carrying value would have exceeded the CGU by GBP131.5 million. The recoverable amount of the Tungsten Network CGU was particularly sensitive to changes in the compound annual revenue growth rate. Assuming that there is a reduction in the compound annual growth rate to 13.1% the recoverable amount would equal the carrying value of the CGU.
Tungsten Bank
The Group has estimated the recoverable amount of the Tungsten Bank CGU using a fair value less costs to sell methodology. The recoverable amount of the Tungsten Bank CGU has been calculated based on management's best estimate of consideration receivable for the proposed sale of Tungsten Bank less directly attributable costs of sale. Accordingly, the Group has recognised an impairment of GBP6.8 million in the value of Tungsten Bank.
5. Property, plant and equipment
Year ended 30 April 2016
Leasehold Fixtures Computer
improvements and equipment Total
fittings
GBP'000 GBP'000 GBP'000 GBP'000
Cost
Balance at 1 May 2015 2,384 383 2,086 4,853
Additions 18 113 124 255
Disposals - (25) (9) (34)
Exchange differences (36) 92 331 387
=========================== ================= ============== ============== =============
Balance at 30 April 2016 2,366 563 2,532 5,461
--------------------------- ----------------- -------------- -------------- -------------
Accumulated depreciation
Balance at 1 May 2015 568 312 1,762 2,642
Charge for the year 188 35 280 503
Exchange 12 82 298 392
=========================== ================= ============== ============== =============
At 30 April 2016 768 429 2,340 3,537
--------------------------- ----------------- -------------- -------------- -------------
Net Book Value
=========================== ================= ============== ============== =============
At 30 April 2016 1,598 134 192 1,924
=========================== ================= ============== ============== =============
At 30 April 2015 1,816 71 324 2,211
--------------------------- ----------------- -------------- -------------- -------------
6. Assets Held for Sale
Assets Held for Sale relate to Tungsten Bank. The assets held for sale and liabilities directly associated with assets held for sale are:
As at 30 As at
April 30 April
2016 2015
GBP'000 GBP'000
Assets classified as held for sale
Intangible assets - balance as at 1 May 2015 10,280 -
Impairment (6,810) -
Trade and other receivables 183 -
Invoice receivables 7,329 -
Cash and cash equivalents 17,755 -
=============================================================================== =============================== ==================
Total assets of the disposal group 28,737 -
------------------------------------------------------------------------------- ------------------------------- ------------------
Liabilities directly associated with assets
held for sale
Trade and other payables 352 -
Deferred taxation 660 -
=============================================================================== =============================== ==================
Total liabilities of the disposal group 1,012 -
=============================================================================== =============================== ==================
Total net assets of the disposal group 27,725 -
------------------------------------------------------------------------------- ------------------------------- ------------------
7. Share capital and share premium
Ordinary shares Share Share
Nominal capital premium
Issued and fully paid Number value GBP'000 GBP'000
Balance as at 1 May 2014 100,000,000 GBP0.004384 438 160,127
Shares issued during the
year 3,529,412 GBP0.004384 16 11,748
============================ =========================================== =========== ========== ===========
Balance as at 30 April 2015 103,529,412 454 171,875
Shares issued during the
year 22,539,985 GBP0.004384 99 16,919
Balance as at 30 April 2016 126,069,397 553 188,794
============================ =========================================== =========== ========== ===========
On 28 May 2015, the Company issued 21,875,985 shares for total proceeds of GBP17.5 million. Transaction costs of GBP0.8 million associated with the raising of the share capital have been recognised against the share premium account.
On 7 January 2016, 664,000 shares of 0.438p were awarded to Richard Hurwitz pursuant to the terms of his service agreement put in place following his appointment as the Company's Chief Executive Officer in July 2015.
8. Share-based payments
A share-based payment expense of GBP0.5 million has been recognised in the consolidated income statement for the year ended 30 April 2016 (30 April 2015: GBP0.2 million). The table below sets out the movement in shares granted under the Company share schemes:
Employee Save
Founder Matched as you Share-based Employee
Number Securities Shares Earn payments Share Total
Shares Options
As at 30 April
2014 3,760,000 - - - - 3,760,000
Granted during the
year - 454,026 261,344 450,515 - 1,165,885
Lapsed during the
year - (33,068) (4,000) - - (37,068)
================== ================== ============ ============= =============== ============== ================
As at 30 April
2015 3,760,000 420,958 257,344 450,515 - 4,888,817
------------------ ------------------ ------------ ------------- --------------- -------------- ----------------
Granted during
the year - - - 115,000 1,064,000 1,179,000
Lapsed during the
year - (169,471) (191,424) (25,515) (153,375) (539,785)
================== ================== ============ ============= =============== ============== ================
As at 30 April
2016 3,760,000 251,487 65,920 540,000 910,625 5,528,032
------------------ ------------------ ------------ ------------- --------------- -------------- ----------------
9. Loss per share
Basic loss per share is calculated by dividing the loss attributable to the ordinary shareholders by the weighted average number of ordinary shares in issue during the year.
30 April 30 April 2015 )
Loss 2016 EPS (restated EPS
GBP'000 p Loss p
Shares GBP'000 Shares
Basic and diluted (27,858) 123,715 (22.52) (27,610) 102,582 (26.92)
EPS may be subject to future dilution as a result of the issue of shares pursuant to the LTIP Securities and SAYE scheme.
10. Related-party transactions
The Group entered into the following transactions with related parties in the ordinary course of business:
For the For the year
year ended ended
30 April 30 April
2016 2015
GBP'000 GBP'000
Purchase of services 1,094 427
--------------------- ------------ ------------
Canaccord was broker to the Group and acted as the sole book runner on the placing that took place during the year. Peter Kiernan held the position of Chairman of European Investment Banking at Canaccord until June 2015 and
subsequently became a senior advisor to the firm and, as a consequence of this role, Canaccord is considered a related party of the Tungsten Group. Mr Kiernan took no part in the negotiation of the terms of Canaccord's engagement or the terms of the Placing Agreement for the share placing. The Group received services from Canaccord totalling GBP0.7 million (2015: GBP0.3 million).
Ice Floe Limited (Ice Floe) is a Guernsey registered financial advisory company controlled by Edmund Truell. During the year, Ice Floe provided services to the Group totalling GBP0.3 million (2015: GBP0.1 million) for the purposes of furthering the management and strategic development of the Group, all of which were paid in the year. These services were provided pursuant to the terms of a consultancy agreement entered into between Ice Floe and the Company, under which the services of Mr Truell were made available to the Company. Tungsten terminated its agreement with Ice Floe on 10 November 2015. Based upon legal advice received, the Board does not believe that any termination payments are likely to be due to Ice Floe and accordingly no provision for them has been made.
Disruptive Capital Finance LLP (Disruptive) is an investment partnership controlled by Edmund Truell. During the year, Disruptive provided consultancy services to the Group totalling GBP0.2 million (2015: GBPnil) to perform the function of Chief Technology Officer.
Transactions between Group entities principally relate to intercompany financing arrangements which are eliminated on consolidation
Key management personnel
Key management includes Directors - Executive and Non-Executive - who are responsible for controlling and directing the activities of the Group. The compensation paid or payable to key management for employee services is shown below:
For the For the
year ended year
ended 30 April
30 April
2016 2015
GBP'000 GBP'000
Short-term employee benefits 1,763 1,552
Share-based payments 478 197
========================================================= ============================= ============================
Total 2,241 1,749
--------------------------------------------------------- ----------------------------- ----------------------------
Further details of the Directors' remuneration can be found in the table on page 41 of the Annual Report and financial statements 2016.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR RIMBTMBJTTRF
(END) Dow Jones Newswires
July 25, 2016 02:00 ET (06:00 GMT)
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