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Tungsten Corporation Plc LSE:TUNG London Ordinary Share GB00B7Z0Q502 ORD 0.438P
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Tungsten Corporation PLC Interim Results for six months to 31 October 2019

12/12/2019 7:01am

UK Regulatory (RNS & others)


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TIDMTUNG

RNS Number : 5900W

Tungsten Corporation PLC

12 December 2019

TUNGSTEN CORPORATION PLC

("Tungsten" or the "Company")

12 December 2019

INTERIM RESULTS FOR THE SIX MONTHSED 31 OCTOBER 2019

 
 GBPm (1)                       Group results          Group results 
                                (including TNF)      (excluding TNF)(2) 
 Unaudited                     H1-FY20   H1-FY19     H1-FY20     H1-FY19 
---------------------------  ---------  --------  ----------  ---------- 
 Revenue                          18.2      17.6        17.9        17.2 
 Adjusted EBITDA(3)                1.2     (0.8)         1.8         0.5 
 Adjusted EBITDA margin(4)          7%      (5%)         10%          3% 
 Operating (loss) / profit       (2.1)     (1.2)       (0.8)         0.1 
 
 Transaction volumes(6)           9.6m      9.0m        9.6m        9.0m 
 
                               H1-FY20   H2-FY19 
 Net cash(5)                   GBP1.0m   GBP2.8m 
                             ---------  --------  ---------- 
 

Financial Highlights of Group (excluding TNF)

-- Revenue grew 4% in comparison to H1-FY19 slightly below management expectations due to timings on conversion of new sales.

-- Adjusted EBITDA increased strongly to GBP1.8 million from GBP0.5 million in H1-FY19, including an improved EBITDA margin of 10% (H1-FY19: 3%), as a result of increased sales in the period and a GBP0.5 million one-off benefit from a reduction in the bad debt loss provision.

-- Net cash reduced to GBP1.0 million (30 April 2019: GBP2.8 million) due to an anticipated seasonal working capital outflow, TNF losses and exceptional costs.

-- Recurring and repeatable revenue(8) growth of 7.1% to GBP16.8 million (H1-FY19: GBP15.7 million), representing 94% of total revenues (91% of total revenues H1-FY19).

Operational Highlights of Group (excluding TNF)

   --     New sales billings(9) of GBP1.7 million, in line with management expectations. 

-- Sales pipeline has grown 300% since April 2019, with over 200 opportunities for potential new sales billing opportunities.

-- Significant milestone with first Total AR customer signed in October 2019, one further signed in November and in advanced discussions with further potential customers expected to sign during H2-FY20. 300,000 invoices are initially in scope across these two important deals.

-- Two Total AP customers were signed, one new customer and one converting from our Workflow product with a volume of approximately 200,000 transactions.

-- One key sale of our AP Analytics product to a current customer on a one-year deal for GBP0.3 million.

-- Transaction volume increased over H1-FY19 by 7% or 600,000 transactions to 9.6 million in H1-FY20. LTM(10) total transaction volumes of 18.8 million at 31 October 2019 (17.9 million transactions for twelve months ended 31 October 2018).

Strategic Highlights

   --     We are delivering on our three major new strategic plans as announced on 22 July 2019: 

o Driving the network effect: Introducing Total AR. We have achieved the proof of concept (delivering 100% of a supplier's outbound invoices) by signing our first Total AR deal.

o Strategic partnerships with e-procurement providers to provide an additional channel to market. We are targeting signing in H2-FY20 a major partnership with one of the leading P2P providers which would allow Tungsten Network to provide e-invoicing as part of the overall procure-to-pay offer.

o Interconnecting with other platforms to improve automation, customer services and user experience, which should assist in boosting turnover, volumes and income. A successful conclusion of the current proof of concept pilot would be expected to result in the signing of a major new partnership with a leading P2P vendor that would give Tungsten's suppliers access to approximately 1,000 new buyers on the partner platform.

-- Trade finance strategy reset: Our new strategy is in place with the announcement today that we have signed an exclusive partnership with Orbian, a leading supply chain finance ("SCF") global provider.

o This will give our customers access to a compelling offering through a combination of Orbian's state-of-the-art SCF technology platform and innovative funding products.

o The partnership with Orbian represents the conclusion of the review of the Tungsten Network Finance business.

o A five-year revenue share agreement replaces the existing TNF business.

o TNF will be wound down on a managed, orderly basis.

o The Board believe this is the best outcome for Tungsten as it allows for an ongoing revenue stream rather than a total sale.

FY20 Outlook (excluding TNF)

   --     Continued delivery of our FY20 key areas of strategic focus to increase sales momentum. 

-- Expect to generate cash over H2-FY20 and return to broadly the same levels of net cash as of the end of FY19 (GBP2.8 million).

-- Continued strong recurring and repeatable revenue and new sales billings of at least GBP4 million for H2-FY20 which are in part recognised in FY20.

-- Slower conversion of sales in H1-FY20 expected to result in FY20 revenues slightly below expectations.

   --     Low double-digit adjusted EBITDA margin expected to be achieved in H2-FY20. 

Board Changes

-- Tony Bromovsky reverts to his role as Non-Executive Chairman with immediate effect following his handover to the new Chief Executive Officer, Andrew Lemonofides.

-- Duncan Goldie-Morrison will stand down by the end of January 2020 to avoid any potential conflict of interest over the newly signed partnership with Orbian referenced earlier.

   --     A search for a new non-executive director has commenced. 

Andrew Lemonofides, Chief Executive Officer

"Since joining in September 2019 I have spent time with key buyers and suppliers who have given me further confidence in the Tungsten proposition. Delivering our first Total AR sale is a significant milestone, as is the announcement of the new trade finance partnership. These represent an exciting step forward, delivering tangible benefits to our customers. It is vital that we increase the momentum of the business, through accelerating the delivery of each of the strategic goals, as we seek to firmly reposition the company.

Whilst H1-FY20 revenues were slightly below our expectations due to timing of conversion of the sales pipeline, which is expected to reduce our full year revenues, I am confident of an improved sales performance given the changes to the sales team and an stronger sales pipeline. Growth of both network connections and ultimately revenue remains our primary focus, whilst continuing to implement the findings of the Operating Review. We will continue to further simplify our processes, increase the speed at which we onboard both buyers and suppliers to our network and deliver greatly improved customer satisfaction."

Tony Bromovsky, Non-Executive Chairman

"The progress that has been made delivering each of the strategic plans vindicates the confidence which the Board has in the comprehensive transformation plan that was announced in July 2019. The Board remains confident that the business is well positioned to achieve future growth as it continues to execute on these important strategic plans.

I would like to thank Duncan Goldie-Morrison for the significant contribution he has made in the time he has been on the Tungsten board.

Finally, I would also like to thank the TNF team for their contribution to making trade finance an important part of our offering and to specifically thank Prabhat Vira for his leadership over the past two years and for implementing the current wind-down."

Analyst Presentation

Tony Bromovsky, Non-Executive Chairman, Andrew Lemonofides, CEO and David Williams, CFO will today host a conference call at 9.00am UK time. The dial-in number for the conference call is +44 20 3713 5011 / +1 (571) 317-3116 with the access code 794-672-773 and available online at https://global.gotomeeting.com/join/794672773 with the password '##meetingPassword'. A presentation will be available on the Tungsten website at http://www.tungsten-network.com/uk/about/investor-relations/downloads-reports/.

   (1)      Tungsten's year-end is 30 April 

(2) Tungsten is winding down the business and operations of Tungsten Network Finance ("TNF"). Results presented exclude TNF and present the continuing business to aid future comparability. Group results including and excluding TNF are presented exclusive of management fees charged by the Group to TNF

(3) Adjusted EBITDA is calculated as earnings before net finance cost, tax, depreciation and amortisation, impairment of intangible assets, foreign exchange gain or loss, share based payment expense and exceptional items, and is adjusted to include cash rental expenses and rental income.

   (4)      Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of revenue 
   (5)      Net cash is calculated as cash and cash equivalents less drawings under the HSBC RCF 

(6) Transaction volumes are measured as the total number of invoices and purchase orders delivered between a Supplier and Buyer

(7) Total available liquidity is calculated as net cash plus available working capital under the HSBC RCF

(8) Recurring revenue represents annual subscription and maintenance fees on contracts typically ranging from 1 to 3 years and billed annually in advance. Repeatable revenue represents transaction-based fees from contracted customers, typically billed at the point of usage or at the end of the month of usage

(9) New sales billings represents implementation, subscription, licence, transaction and professional services fees to be billed in the period from new sales made in that period. Implementation and subscription fees are recognised to revenue over the 6 months and 12 months respectively from billing month. Subscription licence and transaction fees are recognised in the month sold. Professional services fees are recognised on work completion milestones

   (10)   LTM is defined as the last twelve months to the reporting date 

Enquiries

 
 Tungsten Corporation plc 
  Andrew Lemonofides, Chief Executive 
  Officer 
  David Williams, Chief Financial Officer       +44 20 7280 7713 
 
 Panmure Gordon UK Limited (Nominated 
  Adviser) 
  Dominic Morley                              +44 20 7886 2500 
 Canaccord Genuity Limited (Broker) 
  Simon Bridges/Andrew Potts                  +44 20 7523 8000 
 

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

About Tungsten Corporation plc

Tungsten Corporation (LSE: TUNG) aims to be the leading global electronic invoicing and purchase order transactions network.

Digital invoicing processes enable large businesses to reduce costs and effectively manage their businesses. They can improve business agility by creating scalable and repeatable growth processes, managing their cash effectively and making better decisions based on a comprehensive analysis of their data.

Tungsten Network processes invoices for 74 percent of the FTSE 100 and 71 percent of the Fortune 500. It enables suppliers to submit tax compliant e-invoices in 50 countries, and last year processed transactions worth over GBP173bn for organisations such as Caesars Entertainment, Computacenter, GlaxoSmithKline, Kraft Foods, Mohawk Industries, Mondelēz International, Procter & Gamble, Shaw Industries, Unilever and the US Federal Government.

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

CEO Business Review

The changes to our strategy and operations have started to deliver results, notably in the growth of our adjusted EBITDA excluding TNF from GBP0.5 million in H1-FY19 to GBP1.8 million in H1-FY20 and a 7.1% growth in the recurring and repeatable revenues of Tungsten Network.

In July 2019, we reconfirmed our three strategic initiatives (see below) aimed at transforming our business model and fortunes. Taken together, these represent a major repositioning of the Group and these effects are anticipated to be felt in H2-FY20 and subsequent years.

These initiatives were:

   1.    Driving the network effect: Introducing Total AR. 

2. Strategic partnerships with e-procurement providers to provide an additional channel to market.

3. Interconnecting with other platforms to improve sales, automation, customer services and user experience.

In addition, Tungsten decided to undertake a comprehensive review of the Tungsten Network Finance business. This has culminated today in the announcement of a new partnership with Orbian, replacing the TNF business and the resultant decision to undertake a managed, orderly wind-down of TNF.

We are pleased to report progress in each of these key initiatives:

   1.    Driving the network effect: introducing Total AR 

Tungsten signed a Total AR (100% supplier's outbound invoices) contract in October 2019 with Elekta, a global leader in Radiotherapy headquartered in Stockholm. This has been followed in November 2019, after the period end, by a further contract with Wolters Kluwer, the leading global provider of professional information, software solutions and services.

These new sales will add 300,000 annual invoices to our transaction turnover and we expect this number to grow further as we move closer to our target of 100% AR. As a result of our new ability to rapidly digitise PDFs and emails, we remain on track to meet our goal of 100% AR with these ground-breaking contracts. We are building a strong pipeline of additional opportunities.

2. Strategic partnerships with e-procurement providers to provide an additional channel to market

Tungsten are targeting signing a major partnership with one of the major P2P providers in the early part of 2020 which would allow Tungsten Network to provide e-invoicing as part of the overall procure-to-pay offer. Tungsten Network will deliver its core expertise of electronic invoicing as part of a wider solution.

3. Interconnecting with other platforms to improve sales, automation, customer service and user experience

A successful conclusion of the current proof of concept pilot would be expected to result in the announcement of a major new partnership to connect with the platform of the same leading P2P vendor. This would then see a three phase project implemented throughout 2020. Initially, Tungsten's suppliers would be given access to approximately 1,000 new buyers on this new network, with further revenues generated from our new-found ability to digitise invoices for customers who reside on this new network.

In addition to the above, we are also talking to a number of other leading vendors to look at how we would achieve similar interconnection to their platforms over the coming 12 months.

Trade finance strategy reset

We are pleased to announce today that we have entered into a new strategic partnership agreement with Orbian, a market leader in the provision of supply chain finance and innovative trade finance solutions. Orbian has 18 years of experience and has financed $185 billion of receivables.

In signing an exclusive five-year revenue-share partnership with Orbian we will be able to offer our buyers and suppliers, simple, effective and low-cost financing products from a market leader. We remain extremely well placed to analyse global commercial flows across our enlarged platform and provide finance accordingly.

The partnership with Orbian represents the conclusion of the review of Tungsten's Network Finance business, which the Board believes is the best outcome for Tungsten. As a result of our partnership with Orbian, Tungsten will no longer continue to sell its loss-making Tungsten Early Payment and Receivables Financing products.

Customers using these products will be supported through the exit process and the operation will be wound down between now and the end of June 2020. As a result, intangible assets with a book value of GBP0.6 million related to Tungsten Network Finance have been fully impaired during the period.

The Board continues to believe that the combination of electronic invoicing and trade finance represents a compelling proposition with a potential for generating significant profits.

Duncan Goldie-Morrison is a founder and shareholder in Orbian. As a result, and in accordance with good corporate governance, he excluded himself from all Board deliberations on the Orbian partnership. The Board and Duncan Goldie-Morrison agreed on signing the Orbian partnership agreement he will step down from the Board by the end of January 2020 to avoid any potential conflict of interest.

Sales performance

Our approach to sales and the sales operation has been reconfigured from the top down. We appointed a new Chief Revenue Officer, Steve Standring, who has led the transformation of the sales team. We are investing in 11 new heads to give us greater capacity to manage and close opportunities across our Total AR and Total AP platforms. New training has been developed and is being deployed across all of the sales teams to enhance the available skill sets and we are managing out underperformers.

The sales pipeline has grown 300% since April 2019, with over 200 opportunities for potential new sales billings. We have focused on simplifying the organisational structure and made a radical assessment of the sales personnel, determining development and capability needs. Teams are now simply aligned by product, driven by a focused commission plan and supported through rigorous account planning and pipeline management discipline. The approach is beginning to show results.

This investment is a critical foundation for future success as there are strong signs that our messaging around our new strategies of Total AR and Total AP are resonating strongly with our buyer and supplier communities.

Over the last 8 months we have seen:

-- Launch of Total AR which brings digitisation of all of a supplier's outbound invoices to their buyers.

   --     A new focus on Total AP, digitising all of a buyer's inbound invoices from their suppliers. 
   --     Reinvigoration of current AP customers to embrace and adopt the concept of 100% Total AP. 
   --     New tactical approach to scaling up existing buyers. 

-- Focus on largest 6,000 global enterprises that operate shared service centres through attendance at key trade events and direct marketing (webinars etc).

Products and technology

As a technology led company, we have invested over GBP1.3 million in H1-FY20 to enable us to accelerate the delivery of our key platform developments. This includes the three core projects critical to improving the user experience and driving connection growth.

Key initiatives delivered in H1-FY20:

-- Customer registration functionality and redesign was delivered as part of our Customer Portal enhancements. This has resulted in a 70% reduction in registration drop-outs.

-- The automated supplier campaign management tool improved the speed at which suppliers can be onboarded and start transacting electronically.

-- Integration of salesforce.com has enabled the real-time data exchange between two of our key platforms and provides the foundation for delivering omni-channel customer support in H2-FY20, which will continue the transformation of our customer support.

In H2-FY20 we will continue the pace of change as we deliver on the following key initiatives:

-- Enhanced supplier onboarding will further decrease the time taken for suppliers to begin transacting on the network.

-- Customer portal user experience will be transformed to improve usability with a new look and feel, several "ease of use" enhancements, improved reporting capability and further supplier connection management options.

Service delivery

A key focus remains the rapid growth of our network, connecting buyers and suppliers in many-to-many relationships. Growth will come by ensuring buyers and suppliers have a fast, simple and effective way to join the network. We have initiated a complete review of our end-to-end processes resulting in a comprehensive plan for transforming the customer experience which will become evident across H2-FY20 as we address key structural inefficiencies and our onboarding speed.

We are upgrading and automating many of our customer interactions, through adopting a multi-channel digital approach that will drive improvements in customer satisfaction. In H1-FY20 we integrated salesforce.com and in H2-FY20 will deliver Customer Connect which simplifies the online registration process and allows buyers to directly manage supplier registration requests.

Over H2-FY20 we will also roll out Service Cloud, part of salesforce.com, building on the successful integration of our legacy CRM system and Salesforce that was completed in H1-FY20 and which allows us to manage the resolution of customer issues more quickly. This will also enable us to provide important new support channels including live chat and chatbots.

CFO Financial Review

Revenue grew 4% in comparison to H1-FY19 (excluding TNF) to GBP17.9 million, due to new customers and expanded product sales. Adjusted EBITDA, excluding TNF, increased by 289% to GBP1.8 million from GBP0.5 million in H1 FY19, reflecting an EBITDA margin of 10% (H1 FY19: 3%).

The growth in adjusted EBITDA was as a result of:

   --     A 4% growth in sales revenue of GBP0.7 million. 
   --     A reduction in cost of sales of GBP0.6 million. 

Financial performance

Income statement

 
 GBPm                                     Group          Group (excl TNF)(1) 
---------------------------------  ------------------  ---------------------- 
                                    H1-FY20   H1-FY19     H1-FY20    H1-FY19 
---------------------------------  --------  --------  ----------  ---------- 
 Revenue                               18.2      17.6        17.9        17.2 
 Cost of sales                        (0.6)     (1.2)       (0.6)       (1.2) 
---------------------------------  --------  --------  ----------  ---------- 
 Gross profit                          17.6      16.4        17.3        16.0 
---------------------------------  --------  --------  ----------  ---------- 
 Gross margin (2)                     97.0%     93.2%       96.9%       93.0% 
 Adjusted operating expenses(3)      (16.4)    (17.2)      (15.5)      (15.5) 
---------------------------------  --------  --------  ----------  ---------- 
 Adjusted EBITDA (4)                    1.2     (0.8)         1.8         0.5 
---------------------------------  --------  --------  ----------  ---------- 
 Adjusted EBITDA margin (5)              7%      (5%)         10%          3% 
 Other operating expenses             (3.3)     (0.4)       (2.6)       (0.4) 
---------------------------------  --------  --------  ----------  ---------- 
 Operating (loss) / profit            (2.1)     (1.2)       (0.8)         0.1 
 Net finance (costs) / income         (0.3)       0.2       (0.3)         0.2 
---------------------------------  --------  --------  ----------  ---------- 
 (Loss) / Profit before taxation      (2.4)     (1.0)       (1.1)         0.3 
 Taxation                               0.1       1.0         0.1         1.1 
---------------------------------  --------  --------  ----------  ---------- 
 (Loss) / Profit / for the 
  period                              (2.3)         -       (1.0)         1.4 
---------------------------------  --------  --------  ----------  ---------- 
 

(1) Tungsten is winding down the business and operations of Tungsten Network Finance ("TNF"). Results presented excluding TNF to aid future comparability. Group results including and excluding TNF are presented exclusive of management fees charged by the Group to TNF

   (2)           Gross margin is calculated as gross profit as a percentage of revenue 

(3) Adjusted operating expenses exclude net finance costs, tax, depreciation and amortisation, impairment of intangible assets, foreign exchange gain or loss, share based payment expense and exceptional items, and is adjusted to include cash rental expenses and rental income.

(4) Adjusted EBITDA is calculated as earnings before net finance cost, tax, depreciation and amortisation, impairment of intangible assets, foreign exchange gain or loss, share based payment expense and exceptional items, and is adjusted to include cash rental expenses and rental income.

   (5)           Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of revenue 

Management utilises adjusted EBITDA to monitor performance as it illustrates the underlying performance of the business by excluding items management consider to be not reflective of the underlying trading operations of the Group or adding items which are reflective of the overall trading operations, as applicable.

Revenue

 
 GBPm                                       H1-FY20   H1-FY19   % Movement(1) 
 Recurring revenue (2)                          9.8       9.2            6.3% 
 Repeatable revenue (3)                         7.0       6.5            8.3% 
-----------------------------------------  --------  --------  -------------- 
 Total recurring and repeatable revenue        16.8      15.7            7.1% 
 Other revenue (4)                              1.1       1.5         (31.3)% 
-----------------------------------------  --------  --------  -------------- 
 Tungsten Network total revenue                17.9      17.2            3.8% 
 TNF revenue (5)                                0.3       0.4         (18.6)% 
-----------------------------------------  --------  --------  -------------- 
 Group revenue                                 18.2      17.6            3.3% 
-----------------------------------------  --------  --------  -------------- 
 
 Recurring revenue % of total Tungsten 
  Network revenue(6)                            55%       53% 
 Total recurring & repeating revenue 
  % of total Tungsten Network revenue(7)        94%       91% 
-----------------------------------------  --------  --------  -------------- 
 
 

(1) Revenue is shown to the nearest GBP0.1 million. Movement is calculated on figures to the nearest GBP1.

(2) Recurring revenue represents annual subscription and maintenance fees on contracts typically ranging from 1 to 3 years and billed annually in advance

(3) Repeatable revenue represents transaction-based fees from contracted customers, typically billed at the point of usage or at the end of the month of usage

(4) Other revenue represents implementation, modification and professional services fees, billed either in advance or on completion of project stages

(5) TNF revenue relates to revenue generated by the trade finance business that is being wound down but is not treated as an asset held for disposal

Revenue excluding TNF for the period was GBP17.9 million (H1-FY19: GBP17.2 million), representing an increase of 3.8%. The growth in revenue reflected the net benefits of new customer sales, additional product sales to current customers, and existing customer price increases. Revenue including TNF for the period was GBP18.2 million (H1-FY19: GBP17.6 million), representing an increase of 3.3%.

Total new sales billings excluding TNF in H1-FY20 were GBP1.7 million, representing year-one billings for new services sold to current and new customers.

Recurring and repeatable Tungsten Network revenue increased by GBP1.1 million or 7.1% to GBP16.8 million (H1-FY19: GBP15.7 million), while other (one-off) revenues fell by GBP0.4 million or 31.3% to GBP1.1 million (H1-FY19: GBP1.5 million).

This growth in recurring and repeatable revenue primarily reflects:

-- A combination of one new Total AP sale, the upgrade of one current customer to our Total AP services, one new Total AR sale, and a sale of our Tungsten Analytics product, which together contributed GBP0.3 million in the period.

-- A growth in transactions processed of 7% to 9.6 million (H1-FY20: 9.0 million) which contributed GBP0.5 million in the period.

-- New Integrated Solution sales to 300 customers which contributed GBP0.3 million of revenues in the period.

The decline in other revenues primarily reflects a reduction of GBP0.4 million in one-off sales compared to H1-FY19, which included new connections to the Italy Sistema di Interscambio (SdI).

Having started the year with 179 Workflow and e-invoicing buyers, the additions, losses and merging of four customer contracts resulted in 174 buyers at the period end.

TNF generated fees of GBP0.3 million in H1-FY20 (H1-FY19: GBP0.4 million).

Revenue by type of customer

Buyer revenue represented 43% of total Tungsten Network revenue in H1-FY20 (H1-FY19: 42%). Total Buyer revenue grew 6.2% to GBP7.7 million (H1-FY19: GBP7.2 million). This reflected a growth in recurring and discretionary revenue of 11.8% (GBP0.7 million) and a fall in one-off revenue of 22.2% (GBP0.3 million).

Supplier revenue represented 57% of total Tungsten Network revenue in H1-FY20 (H1-FY19: 58%). Total supplier revenue grew 2.8% to GBP10.2 million (H1-FY19: GBP9.9 million). This reflected a growth in recurring and discretionary revenue of 4.2% (GBP0.4million) and a fall in one-off revenue of 56.7% (GBP0.1 million).

Expenses

 
 GBPm                                      H1-FY20   H1-FY19   Difference 
----------------------------------------  --------  --------  ----------- 
 Sales & marketing                           (2.8)     (2.9)          0.1 
 Service delivery                            (3.8)     (3.8)            - 
 Technology & product                        (5.2)     (5.2)            - 
 Finance, administration, Board 
  & central overheads                        (3.7)     (3.6)        (0.1) 
----------------------------------------  --------  --------  ----------- 
 Adjusted operating expenses excluding 
  TNF(1)                                    (15.5)    (15.5)            - 
 Cost of sales                               (0.6)     (1.2)          0.6 
 TNF excluding impairment of intangible 
  assets                                     (0.8)     (1.6)          0.8 
 Impairment of intangible assets 
  of TNF                                     (0.6)         -        (0.6) 
 Rent adjustment (2)                           0.5         -          0.5 
 Depreciation and amortisation (2)           (2.3)     (2.0)        (0.3) 
 Foreign exchange gains                        0.2       2.2        (2.0) 
 Share based payment expense                 (0.4)     (0.2)        (0.2) 
 Exceptional items                           (0.7)     (0.5)        (0.2) 
----------------------------------------  --------  --------  ----------- 
 Statutory operating expenses               (20.2)    (18.8)        (1.4) 
 

(1) Adjusted operating expenses excluding net finance cost, tax, depreciation and amortisation, impairment of intangible assets, foreign exchange gain or loss, share based payment expense and exceptional items, and is adjusted to include cash rental expenses and rental income.

(2) Cash rent paid and rental income is included in Adjusted operating expenses to aid comparability to prior periods. For statutory presentation pursuant to IFRS 16 it is included in depreciation and amortisation and finance charges, so added back in this analysis

The Group's statutory expenses grew by GBP1.4 million to GBP20.2 million (H1-FY19: GBP18.8 million).

Excluding foreign exchange gains, which represent the revaluation at period-end of monetary assets and liabilities denominated in foreign currencies (primarily intercompany balances), statutory operating expenses decreased by GBP0.6 million.

Operating expenses

The Group's adjusted operating expenses were flat compared to H1-FY19.

Other movements in expenses were:

Cost of sales: GBP0.6 million reduction primarily from a one-off decrease in our loss provision of GBP0.5 million following the collection of previously provided trade receivable balances.

Tungsten Network Finance expenses: GBP0.8 million decrease in staff and related costs.

Rent: GBP0.5 million of cash rent included in adjusted operating expenses in H1-FY20 (H1-FY19: nil). Pursuant to IFRS 16, GBP0.4 million included in depreciation and amortisation in H1-FY20 (H1-FY19: nil) and GBP0.2 million included in finance costs (not part of operating expenses) in H1-FY20 (H1-FY19: nil).

Depreciation and amortisation: GBP0.3 million increase in depreciation as a result of the adoption of IFRS 16 (GBP0.5 million) offset by a decrease in software amortisation (GBP0.2 million).

Impairment of internally generated capitalised development: GBP0.6 million non-cash expense as a result of the decision to write-off the development work in relation to Tungsten Network Finance following the decision to wind the business down.

Foreign exchange gains: decrease of GBP2.0 million to GBP0.2 million (H1-FY19: GBP2.2 million), reflecting the fluctuation of exchange rates between GBP and USD on intercompany balances.

Share based payment expense: GBP0.4 million (H1-FY19: GBP0.2 million) reflecting new share options granted during the period.

Exceptional items: increased GBP0.2 million to GBP0.7 million (H1-FY19: GBP0.5 million). These include:

   --     GBP0.2 million of redundancy and restructuring costs 
   --     GBP0.1 million recruitment of a new Chief Executive Officer 
   --     GBP0.4 million professional fees in respect of the Board's operating review 

Loss before tax

The Group generated a loss before tax excluding TNF of GBP1.1 million in the period (H1-FY19: profit of GBP0.3 million). The decrease of GBP1.4 million reflects a reduction in foreign exchange gains of GBP2.0 million, offset by GBP0.6 million expense reductions. Including TNF, the Group generated a loss before tax of GBP2.4 million (H1-FY19: GBP1.0 million), the key component of the increase being the reduction in foreign exchange gains.

Taxation

A tax credit of GBP0.1 million (H1-FY19: GBP1.0 million credit) includes a GBP0.1 million income tax expense and a reduction of GBP0.2 million in the deferred tax liability relating to the legacy acquisition of Tungsten Network. The prior period credit includes the Group's research and development tax credit relating to FY17 and FY18 expenditure. The research and development tax credit relating to FY19 expenditure is expected to be recognised in H2-FY20.

The Group has an unrecognised deferred tax asset of approximately GBP13.2 million that is available for offset against future tax expenses in the companies in which losses arise.

Funding and liquidity

Cash and cash equivalents at the end of H1-FY20 were GBP2.0 million (H1-FY19: GBP2.0 million; H2-FY19: GBP3.8 million). Net cash (including borrowings under the revolving credit facility) at the end of H1-FY20 was GBP1.0 million (H1-FY19: GBP2.0 million; H2-FY19: GBP2.8 million).

 
 Cash Flow                                   H1-FY20     H2-FY19     H1-FY19 
----------------------------------------  ----------  ----------  ---------- 
 Net cash flow from operating activities   GBP(0.1)m     GBP2.2m   GBP(2.5)m 
 Net cash flow from investing activities   GBP(1.3)m   (GBP1.3m)   GBP(2.0)m 
 Net cash flow from financing activities   GBP(0.4)m     GBP1.0m           - 
 Net movement in cash & cash equivalents   (GBP1.8)m     GBP1.9m   GBP(4.5)m 
 Exchange adjustments                              -   (GBP0.1)m     GBP0.1m 
 Cash and cash equivalents at the            GBP3.8m     GBP2.0m     GBP6.4m 
  start of the period 
 Cash and cash equivalents at the            GBP2.0m     GBP3.8m     GBP2.0m 
  end of the period 
----------------------------------------  ----------  ----------  ---------- 
 

The H1-FY20 movement in the Group's cash net of drawings was a GBP1.8 million outflow. This follows a GBP4.5 million outflow in H1-FY19 and GBP0.9 million inflow (excluding GBP1.0 million drawings on the RCF) in H2-FY19.

The cash outflow in H1-FY20 reflects the normal seasonality of cash the first half of each financial year. Tungsten experiences the impact of two seasonal factors that result in negative working capital:

-- The settlement of Tungsten Network cash bonuses and other year-end liabilities, which were paid in H1-FY20 and resulted in a working capital outflow from trade and other payables of GBP1.3 million; and

-- The renewal of Tungsten Network's Workflow annual maintenance contracts, which total approximately GBP2 million and which occur in December of each year.

Excluding cash flows relating to the operations and divestment of Tungsten Network Finance, the Group had a cash outflow in H1-FY20 of GBP0.9 million.

Liquidity, including GBP3 million of undrawn revolving credit facility with a maturity date of July 2021, was GBP5.0 million at the end of the period (H1-FY19: GBP6.0 million; H2-FY19: GBP6.8 million)

Cash flows from operating activities

Cash used in operating activities was GBP0.1 million, an improvement of GBP2.4 million (H1-FY19: GBP2.5 million used in operations ), due primarily to the improvement in adjusted EBITDA and changes in working capital between the periods.

 
 Cash flows from operating activities        H1-FY20     H1-FY19 
----------------------------------------  ----------  ---------- 
 Adjusted EBITDA                             GBP1.2m   GBP(0.8)m 
 Exceptional items: cash element           GBP(0.7)m   GBP(0.5)m 
 Decrease in trade and other receivables     GBP1.0m     GBP0.7m 
 Decrease in trade and other payables      GBP(1.3)m   GBP(2.1)m 
 Other operating cash movements            GBP(0.1)m     GBP0.2m 
----------------------------------------  ----------  ---------- 
 Net cash outflows from operating          GBP(0.1)m   GBP(2.5)m 
  activities 
----------------------------------------  ----------  ---------- 
 

-- A decrease in trade and other receivables of GBP1.0 million (H1-FY19: GBP0.7 million) reflects continued improvements in cash collections from customers.

-- A decrease in trade and other payables of GBP1.3 million (H1-FY19: GBP2.1 million) primarily due to the settlement of cash bonuses and Tungsten Network Finance related costs.

Cash flows from investing activities

Cash spent on investing activities decreased by GBP0.7 million to GBP1.3 million (H1-FY19: GBP2.0 million), reflecting the lower run rate of internally generated software development projects. This splits GBP0.1 million in relation to property plant and equipment, and GBP1.2 million in relation to internally capitalised software development.

Cash flows from financing activities

Cash flow from financing activities of GBP0.4 million in H1-FY20 (H1-FY19: nil) relate to part of the rental payments, pursuant to IFRS 16.

Loss per share

The basic and diluted loss per share was 1.81p (H1-FY19: 0.02p).

Consolidated income statement for the

Six Months Ended 31 October 2019

 
                                                                        Six months                          Six months 
                                                                             ended                               ended 
                                                                   31 October 2019                     31 October 2018 
                                       Note(s)                         (unaudited)                         (unaudited) 
                                                                           GBP'000                             GBP'000 
 
 
 Revenue                                  5                                 18,161                              17,575 
 Operating expenses                                                       (20,243)                            (18,813) 
------------------------------------  --------  ----------------------------------  ---------------------------------- 
 Operating loss                                                            (2,082)                             (1,238) 
 
 Adjusted EBITDA                                                             1,247                               (752) 
 IFRS 16 rent adjustment                                                       538                                   - 
 Depreciation and amortisation           7,8                               (2,338)                             (1,981) 
 Impairment of intangible assets          7                                  (609)                                   - 
 Foreign exchange gain                                                         230                               2,151 
 Share based payment expense             12                                  (421)                               (188) 
 Exceptional items                        6                                  (729)                               (468) 
                                                                                    ---------------------------------- 
 Operating loss                                                            (2,082)                             (1,238) 
                                      --------  ----------------------------------  ---------------------------------- 
 
 Finance income                           13                                 1,160                                 866 
 Finance costs                            13                               (1,462)                               (704) 
 Net finance (costs) / income                                                (302)                                 162 
------------------------------------  --------  ----------------------------------  ---------------------------------- 
 
 Loss before taxation                                                      (2,384)                             (1,076) 
 Taxation                                 15                                    97                               1,052 
 Loss for the period                                                       (2,287)                                (24) 
------------------------------------  --------  ----------------------------------  ---------------------------------- 
 
 Loss per share 
 attributable to the 
 equity holders of the 
 parent during the 
 period (expressed 
 in pence per share): 
 
 Basic and diluted loss per share        14                                 (1.81)                              (0.02) 
------------------------------------  --------  ----------------------------------  ---------------------------------- 
 
 

Consolidated Statement of Comprehensive Income for the

Six Months Ended 31 October 2019

 
                                                                   Six months ended             Six months ended 
                                                                    31 October 2019              31 October 2018 
                                                                        (unaudited)                  (unaudited) 
                                                                            GBP'000                      GBP'000 
 Loss for the period                                                        (2,287)                         (24) 
 Other comprehensive (loss)/income: 
 Items that may be reclassified subsequently to 
 profit or loss 
 Currency translation differences                                             (236)                      (2,180) 
 Total comprehensive loss for the period                                    (2,523)                      (2,204) 
--------------------------------------------------------  -------------------------  --------------------------- 
 

Consolidated Statement of Financial Position

At 31 October 2019

 
                                                                                                                 As at 
                                                                                                   As at      30 April 
                                                                                         31 October 2019          2019 
                                                                          Note               (Unaudited)     (Audited) 
                                                                                                 GBP'000       GBP'000 
------------------------------------------------------------  -------  ---------  ---  -----------------  ------------ 
 Assets 
 
   Non-current assets 
 Goodwill                                                                  7                     102,071       102,057 
 Intangible assets                                                         7                      17,606        18,733 
 Property, plant and equipment                                             8                       1,682         2,506 
 Right of use asset                                                        8                       6,202             - 
 Trade and other receivables                                               9                           -           187 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 Total non-current assets                                                                        127,561       123,483 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 
   Current assets 
 Trade and other receivables                                                9                      7,136         7,464 
 Cash and cash equivalents                                                                         2,020         3,810 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 Total current assets                                                                              9,156        11,274 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 Total assets                                                                                    136,717       134,757 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 
 
   Non-current liabilities 
 Deferred taxation                                                                                 1,389         1,533 
 Provisions                                                                11                      1,205         1,568 
 Lease liabilities                                                                                 5,576             - 
 Other payables                                                                                      250           250 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 Total non-current liabilities                                                                     8,420         3,351 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 
 
   Current liabilities 
 Trade and other payables                                                                          6,391         7,089 
 Provisions                                                                11                        128           158 
 Lease liabilities                                                                                   759             - 
 Borrowings                                                                                        1,024         1,000 
 Contract liabilities                                                      10                      6,493         6,816 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 Total current liabilities                                                                        14,795        15,063 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 Total liabilities                                                                                23,215        18,414 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 
 Capital and reserves attributable to the equity shareholders of the parent 
 Share capital                                                                                       553           553 
 Share premium                                                                                   188,802       188,802 
 Merger reserve                                                                                   28,035        28,035 
 Shares to be issued                                                                               3,760         3,760 
 Share-based payment reserve                                                                       6,687         6,538 
 Other reserve                                                                                   (9,649)       (9,413) 
 Accumulated losses                                                                            (104,686)     (101,932) 
---------------------------------------------------------------------             ---  -----------------  ------------ 
 Total equity                                                                                    113,502       116,343 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 Total equity and liabilities                                                                    136,717       134,757 
---------------------------------------------------------------------  ---------  ---  -----------------  ------------ 
 
 

Consolidated statement of changes in equity for the six months ended 31 October 2019

 
                                                                      Shares             Share 
                                                                          to             based 
                       Share             Share          Merger            be           payment              Other              Accumulated 
 (Unaudited)         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 at 30 
  April 
  2019 as 
  previously 
  stated                 553           188,802          28,035         3,760             6,538            (9,413)                (101,932)         116,343 
 Adoption of 
  IFRS 16 
  (see Note 2)             -                 -               -             -                 -                  -                    (467)           (467) 
---------------  -----------  ----------------  --------------  ------------  ----------------  -----------------  -----------------------  -------------- 
 Balance as at 
  1 May 
  2019 as 
  restated               553           188,802          28,035         3,760             6,538            (9,413)                (102,399)         115,876 
 
 Loss for the 
  period                   -                 -               -             -                 -                  -                  (2,287)         (2,287) 
 Other 
  comprehensive 
  expense                  -                 -               -             -                 -              (236)                        -           (236) 
 Total 
  comprehensive 
  expense for 
  the period               -                 -               -             -                 -              (236)                  (2,287)         (2,523) 
---------------  -----------  ----------------  --------------  ------------  ----------------  -----------------  -----------------------  -------------- 
 
 Transaction 
 with owners 
 Share based 
  payment 
  expense                  -                 -               -             -               149                  -                        -             149 
---------------  -----------  ----------------  --------------  ------------  ----------------  -----------------  -----------------------  -------------- 
 Transactions 
  with owners              -                 -               -             -               149                  -                        -             149 
 
 Balance as at 
  31 October 
  2019                   553           188,802          28,035         3,760             6,687            (9,649)                (104,686)         113,502 
---------------  -----------  ----------------  --------------  ------------  ----------------  -----------------  -----------------------  -------------- 
 
 
 
                                                                                         Share 
                                                                      Shares             based 
                       Share             Share          Merger         to be           payment              Other              Accumulated           Total 
 (Unaudited)         capital           premium         reserve        issued           reserve            reserve                   losses          equity 
                     GBP'000           GBP'000         GBP'000       GBP'000           GBP'000            GBP'000                  GBP'000         GBP'000 
 
   Balance as 
   at 1 May 
   2018                  553           188,794          28,035         3,760             6,442            (7,541)                 (98,582)         121,461 
---------------  -----------  ----------------  --------------  ------------  ----------------  -----------------  -----------------------  -------------- 
 
 Loss for the 
  period                   -                 -               -             -                 -                  -                     (24)            (24) 
 Other 
  comprehensive 
  expense                  -                 -               -             -                 -            (2,180)                        -         (2,180) 
---------------  -----------  ----------------  --------------  ------------  ----------------  -----------------  -----------------------  -------------- 
 Total 
  comprehensive 
  expense for 
  the period               -                 -               -             -                 -            (2,180)                     (24)         (2,204) 
---------------  -----------  ----------------  --------------  ------------  ----------------  -----------------  -----------------------  -------------- 
 
 Transaction 
 with owners 
 Share issued 
  during 
  the year                 -                 8               -             -                 -                  -                        -               8 
 Share based 
  payment 
  expense                  -                 -               -             -               146                  -                        -             146 
---------------  -----------  ----------------  --------------  ------------  ----------------  -----------------  -----------------------  -------------- 
 Transactions 
  with owners              -                 8               -             -               146                  -                        -             154 
 
 Balance as at 
  31 October 
  2018                   553           188,802          28,035         3,760             6,588            (9,721)                 (98,606)         119,411 
---------------  -----------  ----------------  --------------  ------------  ----------------  -----------------  -----------------------  -------------- 
 
 

Consolidated Cash Flow Statement for the

Six Months Ended 31 October 2019

 
                                                                                                  Six months ended 
                                                                         Six months ended               31 October 
                                                                          31 October 2019                     2018 
                                                          Note(s)             (unaudited)              (unaudited) 
                                                                                  GBP'000                  GBP'000 
 Cash flows from operating activities 
 Loss before taxation                                                             (2,384)                  (1,076) 
 Adjustments for: 
     Depreciation and amortisation                          7,8                     2,338                    1,981 
     Impairment of intangible assets                                                  609                        - 
     Decrease in provision for trade receivables                                    (451)                    (272) 
     Finance costs                                           13                     1,462                      704 
     Finance income                                          13                   (1,160)                    (866) 
     Foreign exchange gain                                                          (230)                  (2,151) 
     Share based payment expense                             12                       421                      188 
 Changes in working capital: 
      Decrease in trade and other receivables                                         978                      714 
      Decrease in trade and other payables                                        (1,326)                  (2,080) 
 Net interest paid                                                                  (324)                    (247) 
 Net tax (paid)/refund                                      15                       (49)                      621 
 Net cash outflows from operating activities                                        (116)                  (2,484) 
-------------------------------------------------------  --------  ----------------------  ----------------------- 
 
 Cash flows from investing activities 
 Software development costs                                  7                    (1,178)                  (1,699) 
 Purchases of other intangibles                              7                          -                      (9) 
 Purchases of property, plant and equipment                  8                      (145)                    (295) 
 Net cash outflows from investing activities                                      (1,323)                  (2,003) 
-------------------------------------------------------  --------  ----------------------  ----------------------- 
 
 Cash flows from financing activities 
 Lease payments                                                                     (363)                        - 
 Increase in borrowings                                                                24                        - 
 Decrease in invoice receivables                                                        -                        2 
 Proceeds from issues of shares                                                         -                        8 
 Net cash (outflow) / inflow from financing activities                              (339)                       10 
-------------------------------------------------------  --------  ----------------------  ----------------------- 
 
 Net decrease in cash and cash equivalents                                        (1,778)                  (4,477) 
 Cash and cash equivalents at start of the period                                   3,810                    6,418 
 Exchange adjustments                                                                (12)                       88 
 Cash and cash equivalents at the end of the period                                 2,020                    2,029 
-------------------------------------------------------  --------  ----------------------  ----------------------- 
 

Notes to the interim consolidated financial information

   1.    General information 

Tungsten Corporation plc (the Company) and its subsidiaries (together, the Group) is a global e-invoicing network that offers trade finance and spend analytics.

The Company is a public limited company, which is incorporated and domiciled in the UK. The address of its registered office is Pountney Hill House, 6 Laurence Pountney Hill, London EC4R 0BL, UK.

The Board of Directors approved this interim report on 11 December 2019.

   2.    Basis of preparation and accounting policies 

These interim consolidated financial statements have been prepared using accounting policies based on International Financial Reporting Standards (IFRS and IFRIC Interpretations) as adopted for use in the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 30 April 2019 ('2019') Annual Report. The financial information for the half years ended 31 October 2019 and 31 October 2018 does not constitute statutory accounts within the meaning of Section 434 (3) of the Companies Act 2006 and both periods are unaudited.

The annual financial statements of Tungsten Corporation plc ('the group') are prepared in accordance with IFRS as adopted by the European Union. The comparative financial information for the year ended 30 April 2019 included within this report does not constitute the full statutory Annual Report for that period. The statutory Annual Report and Financial Statements for 2019 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 30 April 2019 was unqualified, did not draw attention to a matter by way of emphasis, and did not contain a statement under 498(2) - (3) of the Companies Act 2006.

The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2019 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2019 and will be adopted in the 2020 financial statements. New standards impacting the Group that will be adopted in the annual financial statements for the year ended 30 April 2020, and which have given rise to changes in the Group's accounting policies are:

IFRS 16 leases

The group adopted IFRS 16 from 1 May 2019, replacing the existing guidance in IAS 17 - "Leases" (hereafter - "IAS 17"). IFRS 16 changes the existing guidance in IAS 17 and requires lessees to recognise a lease liability that reflects future lease payments and a "right-of-use asset" in all lease contracts within scope, with no distinction between financing and capital leases. IFRS 16 exempts lessees in short-term leases or the when underlying asset has a low value. The Group has elected to apply the practical expedients permitted by the standard as follows:

-- Not to recognise right-of-use assets and lease liabilities for leases of low-value assets and operating leases with a remaining lease term of less than 12 months.

   --     Use of a single discount rate to all leases with reasonably similar characteristics. 
   --     Exclusion of initial direct costs for the measurement of right-of-use asset. 

-- The use of hindsight in determining the lease term where the contract contains option to extend or terminate the lease.

The adoption of IFRS 16 has resulted in the Group recognising right of use assets and lease liabilities for all contracts of GBP6.6 million and GBP6.7 million respectively that are, or contain, a lease. The difference between the right of use assets and lease liabilities has been recognised as an adjustment to retained earnings on 1 May, 2019. For leases historically classified as operating leases, under legacy accounting requirements the group does not recognise related assets or liabilities, disclosing instead the total commitment in its annual financial statements. The Group has elected to apply the modified retrospective method. Therefore, there will be no impact on any comparative accounting period (interim or annual), with any leases recognised on the statement of financial position on the date of initial application of IFRS 16, being 1 May 2019, as well as any adjustment to the previously stated equity as a result of any difference between the right of use assets and related liabilities recorded. Specifically, lease liabilities have been measured equal to remaining lease payments discounted using the incremental borrowing rate at the date of initial adoption. Right of use assets have been measured as if IFRS 16 had always been applied but using the incremental borrowing rate at the date of initial application. The difference between the right of use assets and lease liabilities recognised upon adoption has been recognised as an adjustment to retained earnings on 1 May 2019.

Finally, instead of recognising an operating expense for its operating lease payments, the group now recognises interest on its lease liabilities and depreciation on its right of use assets. This has increased the reported Adjusted EBITDA by the amount of its current operating lease cost, which for 6 months ended 31 October 2019 was approximately GBP0.5 million.

Adjusted Measure of Performance

The Group considers Adjusted EBITDA, which is defined as operating profit or loss before interest, tax, depreciation and amortisation, impairment of assets, foreign exchange gain or loss from operations, share based payment expense and exceptional items as the most appropriate measure of the Group's underlying performance. For comparability, Adjusted EBITDA for the current period also includes an adjustment for the impact of IFRS 16 of approximately GBP0.5 million.

Exceptional items

Items which are both material and considered by the Directors to be unusual in nature and size are separately disclosed on the face of the consolidated income statement.

Going Concern

The consolidated financial statements have been prepared on a going concern basis. In reaching their assessment, the directors have considered a period extending at least 12 months from the date of approval of this half-yearly financial report. This assessment has included consideration of the forecast performance of the business for the foreseeable future, the cash and financing facilities available to the Group, and the repayment terms in respect of the Group's borrowings.

Principal Risks and Uncertainties

The Group's principal risks and uncertainties remain the same as those set out in the Tungsten Corporation plc Annual Report and Accounts for the year ended 30 April 2019.

In summary, the Group is subject to the same general risks as many other businesses; for example, changes in general economic conditions, currency and interest rate fluctuations, changes in taxation legislation, cyber-security breaches, failure of our IT infrastructure, the impact of competition, political instability and the impact of natural disasters.

The Board has identified risks in relation to the United Kingdom's exit from the European Union. Given the range of possible scenarios it is impossible for us to be specific, however the risk surrounding foreign exchange rate volatility is considered to be the most significant. We will continue with our regular risk mitigation process and will prepare for all likely scenarios until the outcome becomes clear.

   3.    Critical accounting estimates and judgements 

The preparation of interim financial statements requires management to make judgements, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these interim financial statements, 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 that applied to the consolidated financial statements for the year ended 30 April 2019 except where the implementation of IFRS 16 requires a different approach to the accounting previously applied. Significant estimates and judgements that have been required for the implementation of IFRS 16 are:

   --     The determination of whether an arrangement contains a lease. 
   --    The determination of the incremental borrowing rate used to measure lease liabilities. 
   4.    Financial Risk Management 

The Group's activities expose it to a variety of financial risks, predominantly credit, liquidity and foreign currency risk.

Risk management is carried out by the Board of Directors. The interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the group's annual financial statements as at the year ended 30 April 2019. There have been no changes in the risk management department or in any risk management policies since the year end.

   5.    Segment information 

Management has 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 are the Chief Operating Decision Maker (CODM).

The Board of Directors review the financial information for three 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), and Tungsten Corporate (which includes overheads and general corporate costs). Intersegment revenue from management fees and other intersegment charges are eliminated.

Six months ended 31 October 2019

 
                                               Tungsten    Tungsten Network 
                                                Network             Finance             Corporate              Total 
                                                GBP'000             GBP'000               GBP'000            GBP'000 
--------------------------------------   --------------  ------------------  --------------------  ----------------- 
 Revenue                                         17,864                 297                     -             18,161 
---------------------------------------  --------------  ------------------  --------------------  ----------------- 
 Segment revenue                                 17,864                 297                     -             18,161 
 
 Adjusted EBITDA - excluding 
  share-based payment expense/(income)            3,953               (600)               (2,106)              1,247 
 Adjusted EBITDA - including 
  share-based payment expense/(income)            3,874               (647)               (2,401)                826 
 
 Depreciation and amortisation                  (1,844)                (87)                 (407)            (2,338) 
 Impairment of intangible assets                      -               (609)                     -              (609) 
 Foreign exchange gain                              215                  15                     -                230 
 Rent adjustment                                    167                   -                   371                538 
 Share based payment income/(expense)              (79)                (47)                 (295)              (421) 
 Exceptional items                                (221)                   -                 (508)              (729) 
 Finance income                                     767                   -                   393              1,160 
 Finance costs                                    (942)                   -                 (520)            (1,462) 
---------------------------------------  --------------  ------------------  --------------------  ----------------- 
 Loss before taxation                             2,016             (1,328)               (3,072)            (2,384) 
 Income tax credit                                                                                                97 
---------------------------------------  --------------  ------------------  --------------------  ----------------- 
 Loss for the period                                                                                         (2,287) 
---------------------------------------  --------------  ------------------  --------------------  ----------------- 
 
 Capital expenditure                              1,200                   -                   123              1,323 
 Total assets                                   128,267                 203                 8,247            136,717 
 Tol liabilities                                 11,905                 669                10,641             23,215 
---------------------------------------  --------------  ------------------  --------------------  ----------------- 
 

Six months ended 31 October 2018

 
                                             Tungsten    Tungsten Network 
                                              Network             Finance             Corporate                Total 
                                              GBP'000             GBP'000               GBP'000              GBP'000 
------------------------------------   --------------  ------------------  --------------------  ------------------- 
 Revenue                                       17,210                 365                     -               17,575 
-------------------------------------  --------------  ------------------  --------------------  ------------------- 
 Segment revenue                               17,210                 365                     -               17,575 
 
 Adjusted EBITDA - excluding 
  share-based payment 
  expense/(income)                              3,599             (1,203)               (3,148)                (752) 
 Adjusted EBITDA - including 
  share-based payment 
  expense/(income)                              2,878             (1,221)               (2,597)                (940) 
 
 Depreciation and amortisation                (1,851)                 (5)                 (125)              (1,981) 
 Foreign exchange gain/(loss)                   2,219                (66)                   (2)                2,151 
 Share based payment income/(expense)           (721)                (18)                   551                (188) 
 Exceptional items                               (83)                   -                 (385)                (468) 
 Finance income                                   441                   -                   425                  866 
 Finance costs                                  (565)               (123)                  (16)                (704) 
-------------------------------------  --------------  ------------------  --------------------  ------------------- 
 Loss before taxation                           3,039             (1,415)               (2,700)              (1,076) 
 Income tax credit                                                                                             1,052 
-------------------------------------  --------------  ------------------  --------------------  ------------------- 
 Loss for the period                                                                                            (24) 
-------------------------------------  --------------  ------------------  --------------------  ------------------- 
 
 Capital expenditure                            2,004                   -                     -                2,004 
 Total assets                                 132,834                 257                 3,705              136,796 
 Total liabilities                             11,051                 572                 5,762               17,385 
-------------------------------------  --------------  ------------------  --------------------  ------------------- 
 
   6.    Exceptional items 
 
                                           Six months ended    Six months ended 
                                            31 October 2019     31 October 2018 
                                                (unaudited)         (unaudited) 
                                                    GBP'000             GBP'000 
 
 Restructuring costs (1)                                296                   - 
 Board operating review (2)                             375                   - 
 Professional advice (3)                                 58                   - 
 Provision for onerous contracts                          -                 162 
 Shareholder action costs                                 -                 306 
 Total exceptional items                                729                 468 
---------------------------------------  ------------------  ------------------ 
 
 

(1. Restructuring costs includes the redundancy payments of GBP0.3 million.)

(2. An operating review committee was initiated by the Board in the autumn of 2018. This covers a comprehensive review of Tungsten's market, products, operation and cost base. This committee has appointed consultants to perform parts of the review and the total cost incurred in the period was GBP0.4million. This committee is expected to wind down by end of 2019 calendar year.)

(3. Professional advice of GBP0.1million was received in respect of the divestment of TNF.)

   7.    Intangible assets 
 
                                                                                                                  Software 
                                                        Customer                                         development under 
                              Goodwill             relationships       IT platform        Software            construction               Total 
                               GBP'000                   GBP'000           GBP'000         GBP'000                 GBP'000             GBP'000 
------------------    ----------------  ------------------------  ----------------  --------------  ----------------------  ------------------ 
 Cost 
 Balance at 1 May 
  2019                         102,057                    11,116             7,194           8,202                   3,624             132,193 
 Additions                           -                         -                 -               -                   1,178               1,178 
 Reclassification                    -                         -                 -           1,154                 (1,154)                   - 
 Exchange 
  differences                       14                         1                10               -                       -                  25 
 Balance at 31 
  October 2019                 102,071                    11,117             7,204           9.356                   3,648             133,396 
--------------------  ----------------  ------------------------  ----------------  --------------  ----------------------  ------------------ 
 
 Accumulated 
 amortization and 
 impairment 
 Balance at 1 May 
  2019                               -                     3,153             6,084           2,166                       -              11,403 
 Charge for the 
  period                             -                       286               528             889                       -               1,703 
 Impairment                          -                         -                 -             609                       -                 609 
 Exchange 
  differences                        -                         -                 4               -                       -                   4 
 Balance at 31 
  October 2019                       -                     3,439             6,616           3,664                       -              13,719 
--------------------  ----------------  ------------------------  ----------------  --------------  ----------------------  ------------------ 
 
 Net book value 
 At 31 October 2019            102,071                     7,678               588           5,692                   3,648             119,677 
 At 30 April 2019              102,057                     7,963             1,110           6,036                   3,624             120,790 
 

Pursuant to IAS 36, management is required to perform an annual impairment review of the goodwill held in the Group. An impairment assessment was performed as at 30 April 2019 and management is not required to perform another impairment at the half year unless there is considered to be a trigger event. Management has considered whether any impairment indicators exist to trigger a review in relation to the goodwill of the Tungsten Network cash generating unit (CGU) and has concluded that there are no such triggers except for an element of software development, as noted below.

The Board has agreed a partnership arrangement for the future provision of financing related services to customers of Tungsten Network. Accordingly, the operations of Tungsten Network Finance ("TNF"), will be wound down. As a result of this, the net book value of the intangible assets of TNF, all relating to software, has been fully written off and a charge of GBP0.6m recognised in the income statement.

   8.    Property, plant and equipment 
 
 
                                          Right-of-use        Leasehold        Fixtures     Computer 
                                                assets     improvements    and fittings    equipment     Total 
                                               GBP'000          GBP'000         GBP'000      GBP'000   GBP'000 
---------------      ---------------------------------  ---------------  --------------  -----------  -------- 
 Cost 
 Balance at 1 May 
  2019                                               -            3,409             278          750     4,437 
 Impact of IFRS 16                              10,091          (1,206)               -            -     8,885 
 Additions                                           -              123              16            6       145 
 Exchange 
  differences                                        2              (1)             (1)            -         - 
 Balance at 31 
  October 2019                                  10,093            2,325             293          756    13,467 
-------------------  ---------------------------------  ---------------  --------------  -----------  -------- 
 
 Accumulated 
 depreciation 
 Balance at 1 May 
  2019                                               -            1,199             183          549     1,931 
 Impact of IFRS 16                               3,459            (435)               -            -     3,024 
 Charge for the 
  period                                           435              118              29           53       635 
 Exchange 
  differences                                      (3)              (2)             (2)            -       (7) 
 Balance at 31 
  October 2019                                   3,891              880             210          602     5,583 
-------------------  ---------------------------------  ---------------  --------------  -----------  -------- 
 
 Net book value 
 At 31 October 2019                              6,202            1,445              83          154     7,884 
 At 30 April 2019                                    -            2,210              95          201     2,506 
 
   9.    Trade and other receivables 
 
                                                  As at 31 October 2019   As at 30 April 2019 
                                                            (unaudited)             (Audited) 
                                                                GBP'000               GBP'000 
 Non-current assets 
 Loans to employees under EMSS scheme                                 -                   187 
----------------------------------------------  -----------------------  -------------------- 
 
 Current assets 
 Trade receivables                                                6,836                 7,352 
 Less: IFRS 15 gross down (see note 10)                         (2,457)               (2,783) 
 Less: loss allowance                                             (490)                 (941) 
                                                -----------------------  -------------------- 
                                                                  3,889                 3,628 
 Prepayments                                                      1,455                 1,619 
 Contract assets                                                    699                   361 
 VAT receivables                                                     29                   123 
 Corporate tax receivables                                           52                   904 
 Other receivables                                                1,012                   829 
----------------------------------------------  -----------------------  -------------------- 
 Trade and other receivables                                      7,136                 7,464 
----------------------------------------------  -----------------------  -------------------- 
 

10. Contract liabilities

 
                                       As at 31 October 2019 (Unaudited) 
                                                                 GBP'000 
---------------------------------     ---------------------------------- 
 As at 1 May                                                       6,816 
 Invoiced during the period                                       20,365 
 Released to revenue                                            (17,901) 
 IFRS 15 gross down (see note 9)                                 (2,457) 
 Loss allowance                                                    (365) 
 Exchange differences                                                 35 
------------------------------------  ---------------------------------- 
 Balance                                                           6,493 
------------------------------------  ---------------------------------- 
 

11. Provisions

 
                               Leasehold property dilapidations   Onerous contracts      Total 
                                                        GBP'000             GBP'000    GBP'000 
--------------------------    ---------------------------------  ------------------  --------- 
 As at 1 May 2019                                         1,237                 489      1,726 
 Utilised during the year                                     -               (392)      (392) 
 Exchange differences                                       (1)                   -        (1) 
----------------------------  ---------------------------------  ------------------  --------- 
 As at 31 October 2019                                    1,236                  97      1,333 
----------------------------  ---------------------------------  ------------------  --------- 
 
 
                                                As at            As at 
                                      31 October 2019    30 April 2019 
                                              GBP'000          GBP'000 
-------------------------------     -----------------  --------------- 
 Analysis of total provisions: 
 Non-current                                    1,205            1,568 
 Current                                          128              158 
----------------------------------  -----------------  --------------- 
 Total                                          1,333            1,726 
----------------------------------  -----------------  --------------- 
 

12. Share based payments

Share based payments expenses of GBP114,000 have been recognised in the consolidated income statement for the six months ended 31 October 2019 (31 October 2018: GBP188,000). The table below sets out the movement in shares granted under the Company share schemes:

 
                                              Employee 
                           Founder             Matched                   UK                   US 
 Number                 Securities              Shares               Scheme                 Plan               SARs       DBSP        LTIP                Total 
 
 As at 1 
  May 
  2019                   3,760,000             146,055           3,222,650*           3,012,917*           266,248*          -           -             10,407,870 
 Granted 
  during 
  the 
  period                         -                   -                    -                    -                  -    594,819   1,875,901              2,470,720 
 Lapsed 
  during 
  the 
  period                         -           (146,055)            (138,668)             (20,625)           (42,595)   (17,185)           -              (365,128) 
 As at 31 
  October 
  2019                   3,760,000                   -            3,083,982            2,992,292            223,653    577,634   1,875,901             12,513,462 
---------  -----------------------  ------------------  -------------------  -------------------  -----------------  ---------  ----------  --------------------- 
 

* Restated due to correction of options granted to employees

During the period, and pursuant to the Group's new remuneration plan, the Company granted options under two new schemes; the DBSP and LTIP. With the introduction of the DSBP and the LTIP, the existing UK Share Option Scheme and US Stock Option Plan are intended to be retired.

Deferred Bonus Share Plan ('DBSP')

The Company has moved from the payment of annual performance bonuses 100% in cash to a mix of cash and deferred bonus shares under the DBSP. Bonuses for Executive Directors and Exco members for FY19 performance were awarded on the basis of 50% cash and 50% DBSP. 344,819 of the DBSP grants in the period were awarded based on an assessment against performance criteria for FY19 and will vest after 12 months.

250,000 of the DBSPs grants in the period were to the new Chief Executive Officer of Tungsten and will vest over a two year period (50% vesting on the first anniversary of the grant date and the remaining 50% will vest on the second anniversary of the grant date).

Grants under the DBSP are structured as options with a nominal exercise price and vesting is subject to the grantee's continued service with the Tungsten group.

Long Term Incentive Plan ('LTIP')

The Group has introduced a new LTIP for Executive Directors and senior management. The LTIP grants in the period vest after three years based on clearly defined performance criteria providing for stretch targets and including revenue growth, EBITDA growth and increase in share price.

Grants under the LTIP are structured as options with a nominal exercise price and vesting is subject to the grantee's continued service with the Tungsten group.

13. Finance Income and Costs

 
                                                                Six months ended         Six months ended 
                                                                 31 October 2019          31 October 2018 
                                                                     (unaudited)              (unaudited) 
                                                                         GBP'000                  GBP'000 
 Finance income 
 Interest income on short-term deposits                                        -                        - 
 Foreign exchange gains on financing activities                            1,160                      866 
 Total finance income                                                      1,160                      866 
-------------------------------------------------------  -----------------------  ----------------------- 
 
 Finance costs 
 Interest expense and bank charges                                         (157)                    (247) 
 Finance lease costs                                                       (169)                        - 
 Foreign exchange losses on financing activities                         (1,136)                    (457) 
 Total finance costs                                                     (1,462)                    (704) 
-------------------------------------------------------  -----------------------  ----------------------- 
 Net finance loss / income                                                 (302)                      162 
-------------------------------------------------------  -----------------------  ----------------------- 
 

14. 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 period.

Loss per share attributable to the equity holders of the parent during the period:

 
                                        Six months ended                                Six months ended 
                                         31 October 2019                                 31 October 2018 
                              Loss              Shares              EPS      Loss              Shares              EPS 
                           GBP'000                '000                P   GBP'000                '000                P 
 
 Basic and diluted loss 
  per share                (2,287)             126,088           (1.81)      (24)             126,088           (0.02) 
-----------------------  ---------  ------------------  ---------------  --------  ------------------  --------------- 
 

Equity instruments including the Group's various share based payment plans which could potentially dilute basic earnings per share in the future have been considered but not included in the calculation of diluted earnings per share because they are anti-dilutive for the periods presented. This is due to the Group incurring a loss on operations for the period (FY19: was also a loss on operations).

15. Taxation

During the period ended 31 October 2019, a tax credit of GBP0.1 million (31 October 2018: GBP1.1 million) includes a GBP0.1 corporate tax expense and a reduction of GBP0.2 million in the deferred tax liability relating to the acquisition of Tungsten Network.

16. Related-party transactions

Related party transaction for the period ended 31 October 2019 are GBPnil (31 October 2018: GBP14,000).

Transactions between Group entities principally relate to intercompany financing arrangements, which are eliminated on consolidation.

17. Post balance sheet events

A new strategic partnership with Orbian, a global leader in Supply Chain Finance was signed in December 2019. The partnership with Orbian will offer our buyers, and their supply chains, a simple, effective and low-cost financing product from a market leader.

As a result of our partnership with Orbian, Tungsten will no longer continue its loss making Tungsten Early Payment and Receivables Financing products. Suppliers on Tungsten Network using these products will be supported through the exit process and the 15 strong staff of Tungsten Network Finance ("TNF") will be wound-down to nil.

18. Cautionary statement

This document contains certain forward-looking statements relating to Tungsten Corporation plc ('the Company'). The Company considers any statements that are not historical facts as "forward-looking statements". They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Company to differ materially from those contained in any forward-looking statement. These statements are made by the directors in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Independent review report to Tungsten Corporation plc.

Introduction

We have been engaged by Tungsten Corporation plc (the "Company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2019 which comprises the consolidated income statement; consolidated statement of comprehensive income; consolidated statement of financial position; consolidated cash flow statement; consolidated statement of changes in equity; and associated notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' Responsibilities

The interim financial report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim financial report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM, which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the Company's annual financial statements having regard to the accounting standards applicable to such annual financial statements.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2019 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorized to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

BDO LLP

Chartered Accountants & Registered Auditors, London, United Kingdom

11 December 2019

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)

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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