TIDMTAX
RNS Number : 4897Z
Tax Systems PLC
03 September 2018
3 September 2018
Tax Systems plc
("Tax Systems", the "Group" or the "Company")
Interim results for the six months ended 30 June 2018
Tax Systems plc (AIM: TAX), a leading supplier of corporation
tax software and services, is pleased to announce its unaudited
interim results for the six months ended 30 June 2018.
Financial Highlights
-- Year-on-year order intake growth of 22%, demonstrating
successful delivery of growth strategy through investment in sales,
marketing and pre-sales.
o Year-on-year total revenue growth of 14% to GBP8.0m (H1 2017:
GBP7.0m)
o Year-on-year organic revenue growth of 9%
o 89% of revenue is recurring from software licences,11% from
professional services
-- Gross margin of 92% (H1 2017: 91%)
-- Year-on-year organic and comparable Adjusted EBITDA(1) growth
of 9% to GBP3.7m (H1 2017: GBP3.4m)
o Representing an Adjusted EBITDA(1) margin of 46% (H1 2017:
49%)
-- Net debt(2) reduced ahead of target, to GBP17.5m at 30 June
2018 (15% reduction from GBP20.5m as at 31 December 2017)
-- Conversion of Adjusted EBITDA(1) to operating cash flow
before exceptional items of 91% (H1 2017: 98%)
Operational Highlights
-- 11% increase in new annuity licence orders
-- Annual recurring revenue (ARR) contract retention remains high at 95% (H1 2017: 95%)
-- Year-on-year average professional services day rate growth of 20%
-- Became Cyber Essentials(3) compliant as part of commitment to
achieving highest status of operational standards
(1) Adjusted EBITDA is defined as operating profit or loss
before exceptional items, depreciation, amortisation and
share-based payments charge. Organic Adjusted EBITDA represents the
Group's Adjusted EBITDA normalised for the timing effect of the
acquisition of Osmo Data Technology Limited ("OSMO")
(2) Net debt is defined as bank borrowings and loan notes
recognised as liabilities and the equity element of the loan notes
recognised in equity less cash
(3) Cyber Essentials is a Government-backed, industry-supported
scheme to help organisations protect themselves against common
online threats
Gavin Lyons, CEO, commented:
"It has been a strong first half for Tax Systems, and we are
pleased to have delivered once again against our key strategic
objectives, delivering 22% growth in order intake and reducing debt
levels ahead of target. The operational progress made over the last
two years has been pleasing with enhancements made across the
breadth of the business. The focus now will be on maintaining these
solid foundations while driving the business forward, both
organically and through acquisition as we seek to expand our
offering. With legislation driving market demand there is
considerable scope to develop new solutions for further growth,
especially for Making Tax Digital, and we remain confident in our
outlook for the full financial year."
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Tax Systems plc Tel +44 (0) 1784
777700
Gavin Lyons, Chief Executive Officer
Kevin Goggin, Chief Financial Officer
MXC Capital Markets LLP (Financial Tel: +44 (0)20 7965
Adviser) 8149
Charlotte Stranner / Steven Zhang
finnCap Limited (Nominated Adviser Tel: +44 (0)20 7220
and Broker) 0500
Jonny Franklin-Adams / James Thompson
(Corporate Finance)
Tim Redfern / Richard Chambers (Corporate
Broking)
Alma PR Tel: +44 (0)20 8004
4217
Caroline Forde / Josh Royston / Susie
Hudson
About Tax Systems
Tax Systems is a leading provider of corporation tax software
and services in the UK and Ireland. The business has a long track
record of being a key supplier of corporation tax software and
services to many of the largest companies and the accounting
profession in the UK and Ireland.
Find out more at www.taxsystems.com
Chairman's Statement
Introduction
I am pleased to report on the Company's progress during the six
months ended 30 June 2018 and subsequently.
During the period under review the Company performed well,
increasing sales of existing products and services, and developing
new modules and features for existing products while paying down
our debt faster than required.
The management team led by CEO Gavin Lyons has successfully
moved the business from where it was two years ago, namely a
private company with no growth and products requiring updating, to
one with an energised culture, focus on customers and a desire to
create new state of the art products for our core markets.
We have invested in people and now have in place the
infrastructure expected of a listed group looking to grow
shareholder value through earnings enhancing acquisitions and the
in-house development of new products.
We continue to have high levels of customer retention and
satisfaction for our key Alphatax product.
The above has only been achieved as a result of the dedication
of the Tax Systems staff and we once again thank them for their
continued hard work.
New Products
Much of the development work of the past six months has been
focused on new modules and features for existing products. However,
the focus for the next six months and beyond is on the development
of new solutions and the success of these products in 2019 will be
a key indicator of the ultimate success of the Group strategy.
Growth by acquisition
We remain committed to moving into new areas of tax compliance
and subsequently regulatory compliance more generally. During the
period under review we decided not to pursue two acquisition
possibilities (as announced at the time of the 2017 full year
results) following detailed due diligence findings. We have a
number of further acquisition possibilities under review and will
update the market should these transactions complete.
Corporate Governance
A visit to the Company's website www.taxsystems.com will allow
readers to see how we comply with the new QCA Corporate Governance
Code.
Outlook
In summary we are on track to deliver meaningful shareholder
value in the coming periods.
Clive Carver
Non-Executive Chairman
Chief Executive Officer's Review
I am pleased to present my review of the six months ended 30
June 2018. This was another strong period for the Group in which we
have delivered continued organic growth and significant debt
reduction, in line with our strategy.
Organic growth
Over the period, the team has delivered another strong increase
in sales, with order intake increasing 22% in comparison to H1
2017. We achieved year-on-year total revenue growth of 14% (9%
organic growth) and year-on-year organic Adjusted EBITDA growth of
9%.
This growth has come from both the UK & Irish territories as
a result of our investment in sales, marketing and pre-sales. The
quantity of new licences sold across the business, as well as
upgrades and cross selling to existing customers, has increased and
was in line with our expectations. Sales of professional services,
which includes helping organisations ensure their accounts and tax
computations are in the appropriate iXBRL format, were ahead of
expectations.
OSMO, the acquisition made in April 2017, has performed in line
with expectations, with its infrastructure now integrated into the
Tax Systems platform as planned.
Retention
The Company continues to boast a very high rate of retention of
annual recurring revenue (95%). Maintaining a first-class service
for our established customer base is a vital part of our long-term
success, and as such we are consistently innovating, analysing our
customer successes and listening to customer feedback to ensure we
can deliver the solutions and services they require in the evolving
tax landscape.
Debt reduction
We are very pleased to have reduced the level of the Group's
debt ahead of plan, having lowered our net debt level by GBP3m over
just six months. Getting the right balance between developing the
business, but not overstretching it by having too much leverage
remains very much in focus, and the fact that we have been able to
consistently report double digit debt reduction alongside a
substantial business transformation is a great achievement.
Operations
Over the last two years a great deal of industry, time and
investment has been put into the business and through this we have
improved our culture, processes, systems and infrastructure. We
need to operate to the high standards required by our blue-chip
customer base, and are proud of the progress we have made.
Examples include the introduction of CRM systems, automatic
price quote configuration, customer support technology and finance
control tools. Maintaining the security of our customers' data is
critical to the success of our business, and consequently another
key focus of the first half was upgrading our infrastructure and
policies for GDPR and cyber security. We were delighted to achieve
the Cyber Essentials 2018 qualification in the period.
Goals and Strategy
Our goals are to grow organically in the UK and Ireland and
either build, partner or acquire additional technology solutions
that can service the demand of our existing and target
customers.
The objective is to create a single integrated platform that can
eventually be used for both market segment and international
expansion, and we continue to actively evaluate acquisition
opportunities which fit the requirements of our technology roadmap.
The pool of potential opportunities is good, but we will only
proceed where we believe a business is the right strategic fit and
of a high enough quality to enhance both the Company's offering and
shareholder value.
Outlook
The Group continues to focus on the execution of its strategy to
deliver against its goals and vision and since the period end, the
trading performance of the Company has continued to be strong. The
business continually ensures our software incorporates the latest
updates to tax legislation and the work to continually improve our
operation will carry on through the implementation of further
quality measures. A key focus for the period ahead and beyond will
be on new products for VAT.
The Board remains confident in the ability of the business to
deliver growth in shareholder value. With legislation driving
market demand, as well as market-leading technology and solid
business processes in place, there is considerable scope for
further growth in the business.
Gavin Lyons
Chief Executive Officer
Financial Review
The Group has had a strong start to the year with a 14% increase
in revenue compared to H1 2017, with underlying organic revenue
growth of 9%.
The focus on net debt reduction has continued and, bolstered by
the recovery of GBP1.4m of corporation tax, has reduced by GBP3m
over the six months to GBP17.5m.
Results summary
H1 2018 H1 2017 FY 2017
GBP'm GBP'm GBP'm
-------------------------------- -------- -------- --------
Revenue 8.0 7.0 15.1
Cost of sales (0.6) (0.6) (1.1)
-------------------------------- -------- -------- --------
Gross profit 7.4 6.4 14.0
Other administrative expenses (3.7) (3.0) (7.0)
-------------------------------- -------- -------- --------
Adjusted EBITDA 3.7 3.4 7.0
Amortisation and depreciation (3.3) (3.1) (6.3)
Share-based payments (0.2) - (0.2)
Exceptional items (transaction
and restructuring costs) (0.2) (1.0) (0.7)
Operating loss (0.0) (0.7) (0.2)
Net finance charges (0.8) (0.8) (1.7)
-------------------------------- -------- -------- --------
Loss before tax (0.8) (1.5) (1.9)
-------------------------------- -------- -------- --------
The results for the six months ended 30 June 2017 comprise the
results for Tax Systems plc and Tax Computer Systems Limited
("TCSL") for the six months together with the results for OSMO for
the three-month period from the date of acquisition.
Revenue and gross margin
With effect from 1 January 2017, the Group has early adopted the
new reporting standard on revenue recognition, IFRS 15 'Revenue
from Contracts with Customers'. Previously, the licence fee element
of software licence agreements was recognised in the month in which
the agreement commenced. This is now accounted for evenly over the
period of the licence term and the results for the periods are all
presented under IFRS 15.
Revenue for the period amounted to GBP8.0m (H1 2017: GBP7.0m)
from a mixture of software sales and services mostly to large
blue-chip corporates and major accountancy firms. 89% (H1 2017:
92%) of revenue is from the licenced software solutions and the
balance represents fees from professional services. The high
percentage of revenue from licenced software solutions provides the
Group with a strong recurring revenue model with licence terms
ranging from 1 year to 5 years.
Revenue from professional services was particularly strong in
the first half of the current financial year at GBP0.8m (H1 2017:
GBP0.6m).
89% (H1 2017: 89%) of revenue is derived in the UK with the rest
from Ireland.
Gross profit amounted to GBP7.4m (H1 2017: GBP6.4m) after
accounting for cost of sales which comprised directly attributable
staff costs and third-party hosting costs. The corresponding gross
margin is 92% (H1 2017: 91%).
Operating costs
Total operating costs for the six months to 30 June 2018 were
GBP7.4m (H1 2017: GBP7.1m) and comprised:
H1 2018 H1 2017 FY 2017
GBP'm GBP'm GBP'm
------------------------------- -------- -------- --------
Other administrative expenses 3.7 3.0 7.0
Transaction and restructuring
costs 0.2 1.0 0.7
Share-based payments 0.2 - 0.2
Amortisation and depreciation 3.3 3.1 6.3
------------------------------- -------- -------- --------
Total operating costs 7.4 7.1 14.2
------------------------------- -------- -------- --------
Transaction and restructuring costs in the period represented
legal and professional fees incurred on aborted acquisitions,
together with further restructuring costs in respect of redundancy
costs and systems conversion
Transaction related costs in 2017 represented professional fees,
broker fees and due diligence costs relating to the acquisition of
OSMO. Restructuring costs were principally redundancy and
termination costs associated with the prior acquisition of
TCSL.
Amortisation comprises GBP2.2m on customer contracts, GBP0.8m on
intellectual property rights, GBP0.3m for capitalised development
costs.
At 30 June 2018 the Company employed 91 staff.
Operating loss and Adjusted EBITDA
The Group uses alternative non-Generally Accepted Accounting
Practice ('non-GAAP') financial measures which are not defined
within IFRS. The Directors use these measures in order to assess
the underlying operational performance of the Group and, as such,
these measures are important and should be considered alongside the
IFRS measures. Adjusted EBITDA is stated before exceptional items,
impairments and share-based payment charges.
Adjusted EBITDA for the six months amounted to GBP3.7m (H1 2017:
GBP3.4m). A reconciliation of operating loss to Adjusted EBITDA is
as follows:
H1 2018 H1 2017 FY 2017
GBP'm GBP'm GBP'm
------------------------------------- -------- -------- --------
Operating loss (0.0) (0.7) (0.2)
Amortisation and depreciation 3.3 3.1 6.3
------------------------------------- -------- -------- --------
EBITDA 3.3 2.4 6.1
Share-based payments 0.2 - 0.2
Transaction and restructuring costs 0.2 1.0 0.7
Adjusted EBITDA 3.7 3.4 7.0
------------------------------------- -------- -------- --------
The operating loss for the period was GBP0.0m (H1 FY17:
GBP0.7m).
Net finance costs
Net finance costs for the period amounted to GBP0.8m (H1 2017:
GBP0.8m), principally made up of interest payable on bank
borrowings and unsecured loan notes of GBP0.5m, together with an
effective interest charge of GBP0.3m on the equity element of the
loan notes.
Loss before tax
The Group reported a loss before tax of GBP0.8m for the six
months to 30 June 2018 reduced from GBP1.5m for the same period in
2017.
Tax
The tax credit for the period was GBP0.8m (H1 2017: GBP0.7m),
which primarily related to the release of the deferred tax
liability in relation to acquired intangible assets.
Capitalised development costs
The Group capitalised GBP0.9m (H1 2017: GBP0.6m) of development
costs in the period reflecting the on-going investment required for
developing our core tax software products and the development of
new products.
Cash flow and net debt
The Group generated GBP3.1m (H1 2017: GBP2.4m) of cash from
operating activities after exceptional items during the period. The
key components of the Group's cash flow were:
H1 2018 H1 2017 FY 2017
GBP'm GBP'm GBP'm
------------------------------- -------- -------- --------
Adjusted EBITDA 3.7 3.4 7.0
Exceptional items (0.2) (1.0) (0.7)
Net change in working capital (0.4) - 0.6
------------------------------- -------- -------- --------
Operating cash flow 3.1 2.4 6.9
Net interest paid (0.5) (0.7) (1.2)
Tax received/(paid) 1.4 (0.3) (0.4)
Capital expenditure (1.0) (0.9) (1.6)
------------------------------- -------- -------- --------
Free cash flow 3.0 0.5 3.7
Acquisitions - 2.4 2.4
Repayment of bank borrowings (2.9) (0.9) (4.8)
------------------------------- -------- -------- --------
Net change in cash flow 0.1 2.0 1.3
Cash at start of period/year 3.5 2.2 2.2
------------------------------- -------- -------- --------
Cash at end of period/year 3.6 4.2 3.5
------------------------------- -------- -------- --------
The acceleration in reduction of net debt continued over the
period with a reduction of GBP3.0m over the six months. At 30 June
2018 net debt was GBP17.5m (30 June 2017: GBP23.6m; 31 December
2017: GBP20.5m) and comprised the following:
H1 2018 H1 2017 FY 2017
GBP'm GBP'm GBP'm
-------------------------------------------- -------- -------- --------
Term loans and revolving credit facilities (11.4) (18.2) (14.3)
BGF loan notes (10.0) (10.0) (10.0)
-------------------------------------------- -------- -------- --------
Gross debt (21.4) (28.2) (24.3)
Loan arrangement fees 0.3 0.4 0.3
Cash 3.6 4.2 3.5
-------------------------------------------- -------- -------- --------
Net debt (17.5) (23.6) (20.5)
-------------------------------------------- -------- -------- --------
Kevin Goggin
Chief Financial Officer
Condensed Consolidated Statement of Comprehensive Income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
----------------------------------------- -------- ------------------- ------------------ ------------------
Revenue 4 7,989 7,016 15,109
Cost of sales (636) (627) (1,138)
----------------------------------------- -------- ------------------- ------------------ ------------------
Gross profit 7,353 6,389 13,971
Administrative expenses (7,397) (7,081) (14,205)
----------------------------------------- -------- ------------------- ------------------ ------------------
Operating loss 5 (44) (692) (234)
Finance income 6 5 4 14
Finance costs 6 (765) (839) (1,661)
----------------------------------------- -------- ------------------- ------------------ ------------------
Loss before income tax (804) (1,527) (1,881)
Income tax 7 761 737 1,411
----------------------------------------- -------- ------------------- ------------------ ------------------
Loss for the period/year attributable
to the owners of the parent (43) (790) (470)
Other comprehensive income/(expense)
that may be reclassified subsequently
to profit or loss:
Currency translation differences
on consolidation 2 2 (1)
----------------------------------------- -------- ------------------- ------------------ ------------------
Total comprehensive expense for
the period/year attributable to
the owners of the parent (41) (788) (471)
----------------------------------------- -------- ------------------- ------------------ ------------------
Loss per share attributable to owners
of the parent during the period/year
(expressed in pence per share):
- basic and diluted 8 (0.05p) (1.01p) (0.59p)
----------------------------------------- -------- ------------------- ------------------ ------------------
Non-GAAP measure: Adjusted EBITDA GBP'000 GBP'000 GBP'000
----------------------------------------- -------- ------------------- ------------------ ------------------
Operating loss 5 (44) (692) (234)
Amortisation and depreciation 5 3,380 3,099 6,369
----------------------------------------- -------- ------------------- ------------------ ------------------
Operating profit before share-based
payments and exceptional items 3,336 2,407 6,135
Share-based payments 163 37 188
Exceptional items 5 190 962 680
----------------------------------------- -------- ------------------- ------------------ ------------------
Adjusted EBITDA(1) 3,689 3,406 7,003
----------------------------------------- -------- ------------------- ------------------ ------------------
(1) Adjusted EBITDA is defined as operating profit or loss before
exceptional items, depreciation, amortisation and share-based
payments.
Condensed Consolidated Statement
of Financial Position
As at As at As at
30 June 30 June 31 December
2018 2017 2017
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
----------------------------------- ----- ------------ ------------ ------------
ASSETS
Non-current assets
Property, plant and equipment 329 405 331
Intangible assets 9 77,054 82,009 79,481
Deferred tax assets 3 14 3
----------------------------------- ----- ------------ ------------ ------------
77,386 82,428 79,815
Current assets
Trade and other receivables 10 5,429 3,544 3,173
Current tax assets 487 1,035 1,920
Cash and cash equivalents 11 3,605 4,180 3,468
----------------------------------- ----- ------------ ------------ ------------
9,521 8,759 8,561
----------------------------------- ----- ------------ ------------ ------------
Total assets 86,907 91,187 88,376
----------------------------------- ----- ------------ ------------ ------------
LIABILITIES
Current liabilities
Trade and other payables 12 (11,732) (9,604) (9,850)
Current tax liabilities (157) (14) (116)
Provisions (24) - (24)
Financial liabilities 13 (1,730) (1,730) (1,730)
----------------------------------- ----- ------------ ------------ ------------
(13,643) (11,348) (11,720)
Non-current liabilities
Provisions (51) - (33)
Financial liabilities 13 (17,331) (23,639) (19,985)
Deferred tax liabilities (8,552) (9,389) (9,359)
----------------------------------- ----- ------------ ------------ ------------
Total liabilities (39,577) (44,376) (41,097)
----------------------------------- ----- ------------ ------------ ------------
Net assets 47,330 46,811 47,279
----------------------------------- ----- ------------ ------------ ------------
EQUITY
Capital and reserves attributable
to owners of the parent
Ordinary shares 14 807 807 807
Share premium 14 53,936 53,925 53,936
Foreign exchange reserve 62 63 60
Other reserves 3,715 3,283 3,623
Accumulated losses (11,190) (11,267) (11,147)
----------------------------------- ----- ------------ ------------ ------------
Total equity 47,330 46,811 47,279
----------------------------------- ----- ------------ ------------ ------------
Condensed Consolidated Statement of Changes in
Equity
Equity Share-based Foreign
Ordinary Share Other element payment Accumulated exchange Total
of
shares premium reserve loan reserve losses reserve equity
notes
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Six months to 30
June 2017
Balance at 1
January
2017, as
previously
reported 760 50,775 784 2,624 38 (7,155) 61 47,887
Change in
accounting
policy - - - - - (3,522) - (3,522)
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Balance at 1
January
2017, as restated 760 50,775 784 2,624 38 (10,677) 61 44,365
Loss for the six
months - - - - - (790) - (790)
Other
comprehensive
income - - - - - - 2 2
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Total
comprehensive
(expense)/income - - - - - (790) 2 (788)
Issue of Ordinary
shares (net of
expenses) 14 47 3,150 - - - - - 3,197
Reserves transfer
for loan notes - - - (200) - 200 - -
Share-based
payments - - - - 37 - - 37
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Balance at 30 June
2017 807 53,925 784 2,424 75 (11,267) 63 46,811
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Twelve months to
31 December 2017
Balance at 1
January
2017 760 50,775 784 2,624 38 (7,155) 61 47,887
Change in
accounting
policy - - - - - (3,522) - (3,522)
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Balance at 1
January
2018, as restated 760 50,775 784 2,624 38 (10,677) 61 44,365
Loss for the year - - - - - (470) - (470)
Other
comprehensive
expense - - - - - - (1) (1)
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Total
comprehensive
expense - - - - - (470) (1) (471)
Issue of Ordinary
shares (net of
expenses) 14 47 3,150 - - - - - 3,197
Recognition of
warrants - 11 (11) - - - - -
Share-based
payments - - - - 188 - - 188
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Balance at 31
December
2017 807 53,936 773 2,624 226 (11,147) 60 47,279
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Six months to 30
June 2018
Balance at 1
January
2018 807 53,936 773 2,624 226 (11,147) 60 47,279
Change in - - - - - - - -
accounting
policy
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Balance at 1
January
2018, as restated 807 53,936 773 2,624 226 (11,147) 60 47,279
Loss for the six
months - - - - - (43) - (43)
Other
comprehensive
income - - - - - - 2 2
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Total
comprehensive
(expense)/income - - - - - (43) 2 (41)
Share based
payment
relating to prior
year business
combinations - - - - (71) - - (71)
Share-based
payments - - - - 163 - - 163
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Balance at 30 June
2018 807 53,936 773 2,624 318 (11,190) 62 47,330
------------------- ----- --------- -------- -------- -------- ------------ ------------ --------- --------
Condensed Consolidated Cash Flow
Statements
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
------------------------------------------- ----- ------------ ------------ ------------
Cash flows from operating activities
Cash generated by operations, before
exceptional expenses 15 3,364 3,325 7,540
Exceptional expenses (294) (920) (680)
------------------------------------------- ----- ------------ ------------ ------------
Cash generated by operations after
exceptional items 3,070 2,405 6,860
Net income tax received/(paid) 1,428 (309) (433)
------------------------------------------- ----- ------------ ------------ ------------
Net cash from operating activities 4,498 2,096 6,427
------------------------------------------- ----- ------------ ------------ ------------
Investing activities
Acquisition of subsidiary, net
of cash acquired - 2,384 2,384
Interest received 5 4 14
Purchases of property, plant and
equipment (47) (367) (351)
Purchase and capitalisation of
intangible assets (904) (576) (1,249)
------------------------------------------- ----- ------------ ------------ ------------
Net cash (used in)/generated from
investing activities (946) 1,445 798
------------------------------------------- ----- ------------ ------------ ------------
Financing activities
Interest paid (520) (661) (1,171)
Repayments of long-term borrowings (2,900) (900) (4,800)
------------------------------------------- ----- ------------ ------------ ------------
Net cash used in financing activities (3,420) (1,561) (5,971)
------------------------------------------- ----- ------------ ------------ ------------
Net increase in cash and cash equivalents 132 1,980 1,254
Cash and cash equivalents at beginning
of the period/year 3,468 2,200 2,200
Effect of exchange rate changes 5 - 14
------------------------------------------- ----- ------------ ------------ ------------
Cash and cash equivalents at end
of the period/year 3,605 4,180 3,468
------------------------------------------- ----- ------------ ------------ ------------
1. General information
Tax Systems plc ('the Company') and its subsidiaries (together
'the Group') are leading suppliers of corporation tax and
associated software and services to large corporates and
accountancy firms in both the UK and Ireland. The Group is
headquartered in the UK and, during the six months ended 30 June
2018, operated ventures in the UK and Ireland.
The Company is a public limited company incorporated and
domiciled in England and Wales whose shares are publicly traded on
the AIM market of the London Stock Exchange ('AIM'). The registered
number of the Company is 04998151 and the registered address is
Magna House, 18-32 London Road, Staines-upon-Thames TW18 4BP.
The condensed consolidated interim financial information was
approved for issue by the Board on 31 August 2018.
The condensed consolidated interim financial information does
not comprise statutory accounts within the meaning of Section 434
of the Companies Act 2006. Statutory accounts for the year ended 31
December 2017 were approved by the Board on 20 April 2018 and
delivered to the Registrar of Companies. The Auditors' report on
those accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under Section
498 of the Companies Act 2006.
The condensed consolidated interim financial information is
neither audited nor reviewed by the auditors and the results of the
operations for the six months ended 30 June 2018 are not
necessarily indicative of the operating results for future
operating periods.
2. Basis of preparation
The condensed consolidated interim financial information in this
report has been prepared under the measurement principles of
International Financial Reporting Standards ('IFRS') as adopted by
the European Union ('IFRS as adopted by the EU'), using accounting
policies and methods of computation consistent with those set out
in the Company's 2017 Annual Report and Accounts. The financial
statements have been prepared under the historical cost convention,
as modified, where applicable, by the revaluation of financial
assets and financial liabilities (including derivatives) at fair
value through profit or loss. As permitted by AIM rules, the Group
has not applied IAS 34 'Interim reporting' in preparing this
interim report.
In 2017 the Company reviewed the way that it accounted for
revenue from software licences and had early adopted the new
reporting standard on revenue recognition, IFRS 15 ' Revenue from
Contracts with Customers'. Previously the Company recognised the
licence fee element of software licence agreements in the month in
which the agreement commenced. Under IFRS 15 this is now accounted
for evenly over the period of the licence term. The Company has
applied the change in accounting policy by using a modified
retrospective approach and a cumulative adjustment was recognised
through retained earnings at 1 January 2017 in relation to
agreements which still required performance by the Company at that
date. The results contained in this announcement have all been
accounted for under IFRS 15.
Based on projections prepared of the Group's anticipated future
results, the Directors have reasonable expectations that the Group
will have adequate resources to continue in existence for the
foreseeable future. Therefore, the Directors continue to adopt the
going concern basis in preparing this financial information.
The Directors have considered those Standards and
Interpretations, which have not been applied in the Financial
Statements but are relevant to the Group's operations, that are in
issue but not yet effective and, with the exception of IFRS
16referred to below, do not consider that any will have a material
impact on the future results of the Group.
IFRS 16 'Leases' is effective for periods commencing on or after
1 January 2019. Under the provisions of the standard most leases,
including the majority of those previously classified as operating
leases, will be brought onto the statement of financial position,
as both a right-of-use asset and a largely offsetting lease
liability. The right-of-use asset and lease liability are both
based on the present value of lease payments due over the term of
the lease, with the asset being depreciated in accordance with IAS
16 'Property, Plant and Equipment' and the liability increased for
the accretion of interest and reduced by lease payments.
The majority of the Group's operating lease commitments,
approximately GBP1,074,000 on an undiscounted basis, would be
brought on to the balance sheet and depreciated separately. There
will be no net impact on cash flows although the presentation of
the cash flow statement will change significantly. Management is
currently working on its detailed assessment of the impact of
compliance with this accounting standard.
There are no other new or amended accounting standards relevant
to the Group that were effective for the first time for the
financial year beginning 1 January 2018 that have a material impact
on the Group's consolidated financial statements.
3. Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the financial statements requires the Group
to make estimates, judgements and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. The
Directors base their estimates on historical experience and various
other assumptions that they believe are reasonable under the
circumstances, the results of which form the basis for making
judgements about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
a) Accounting judgements
In the process of applying the Group's accounting policies,
management has made a number of judgements, of which the following
are deemed to have the most significant effect on amounts
recognised in the financial statements:
Revenue
The sale of the software licence itself is not considered
distinct from the provision of access and the provision of
continuous software upgrades and support are not considered to be
separate performance obligations. The Group's software licenses are
therefore considered to be right of access arrangements for a
period of time. Since control of goods and services is transferred
to customers over time the Group considers that the delivery of
access to the software product constitutes a single performance
obligation satisfied over time.
Revenue for professional services is recognised when the right
to consideration is earned as each project progresses. Provisions
against accrued income are made as and when management becomes
aware of objective evidence that the amount of time worked will not
be recoverable in full.
Development costs
The Group has capitalised internally generated intangible assets
in accordance with IAS 38. Management has exercised judgement in
assessing the expected contribution to be generated from these
assets and determined that no adjustment is required to the
carrying value of the assets.
Amortisation of intangibles
Acquired intangible assets, principally customer contracts and
intellectual property rights, are amortised over an estimated
useful life of 10 years based on historical analysis of customer
retention. Judgement has been exercised in estimating those useful
lives.
Deferred tax
The recognition of deferred tax assets and liabilities requires
management to exercise judgement in determining the amounts to be
recognised. In particular, judgement is used when assessing the
timing and level of future taxable income.
Share-based payments
Judgement is exercised in selecting the appropriate methodology
and variables to use in arriving at the fair value of the
awards.
Fair value measurement of other financial instruments
Judgement has been applied in determining the fair value of the
loan notes and associated equity instruments issued to the Business
Growth Fund plc ("BGF") in order to bifurcate the equity and debt
elements. Judgement has also been applied in determining the fair
value of warrants granted to MXC Guernsey Limited.
b) Accounting estimates
In the process of applying the Group's accounting policies,
management has made a number of estimates, of which the following
are deemed to have the most significant effect on amounts
recognised in the financial statements.
Revenue
Management has made estimates in measuring revenue from
professional services including the point at which the right to
consideration is earned as each project progresses and provisions
required against accrued income as and when management becomes
aware of objective evidence that the amount of time worked will not
be recoverable in full.
Development costs
The recoverable amount of the assets has been determined based
on value in use calculations which require the use of estimates.
Management reviews the assets for impairment on a regular
basis.
Share-based payments
Estimation is required in assessing variables in the valuation
model applied including the appropriate risk-free interest rate and
the expected volatility of the market price of the Company's shares
and the number of awards expected to vest.
Fair value measurement of other financial instruments
Estimates have been applied in determining the variables applied
in assessing the fair value of financial instruments and in
bifurcating debt and equity elements of financial instruments
including appropriate cost of capital, discount rates and share
price volatility.
4. Segmental information
Reportable segments
Tax Systems' operating segments are reported based on the
information reviewed by the chief operating decision maker for the
purposes of allocating resources and assessing performance. The
Board of Directors is the Group's chief operating decision
maker.
The Board of Directors considers revenue, cost of sales,
operating costs, exceptional costs and Adjusted EBITDA of the Group
as a whole when assessing the performance of the business and
making decisions about the allocation of resources. In addition,
the Board reviews revenue split by business unit, products and
geographies to assist with the allocation of resources. During the
current financial year, the Group had a single class of business
being the provision of software and services to corporates and
accountancy firms.
Geographical disclosures
In presenting information on the basis of geography, revenue is
based on the location of the customers. Non-current assets are
based on the geographical location of those assets.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBP'000 GBP'000 GBP'000
United Kingdom 6,987 6,213 13,200
Ireland 1,002 803 1,909
---------------------------------- ----------- ----------- ------------
Total 7,989 7,016 15,109
---------------------------------- ----------- ----------- ------------
Products and services
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBP'000 GBP'000 GBP'000
--------------------------------- ----------- ----------- ------------
Revenue from licenced software
solutions 7,146 6,463 13,523
Fees from professional services 843 553 1,586
---------------------------------- ----------- ----------- ------------
Total 7,989 7,016 15,109
---------------------------------- ----------- ----------- ------------
5. Operating loss
This is stated after charging:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Note GBP'000 GBP'000 GBP'000
----------------------------------------- ----- ----------- ----------- ------------
Depreciation 50 18 65
Amortisation of capitalised development
costs 9 324 124 350
Amortisation of other intangible
assets 9 3,006 2,957 5,954
Research and development costs
expensed 290 237 398
----------------------------------------- ----- ----------- ----------- ------------
Exceptional items comprise:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBP'000 GBP'000 GBP'000
----------------------------------------- ----- ----------- ----------- ------------
Exceptional income - - (581)
Restructuring costs 92 773 1,057
Acquisition related costs 98 189 204
----------------------------------------- ----- ----------- ----------- ------------
190 962 680
----------------------------------------- ----- ----------- ----------- ------------
The exceptional income in 2017 relates to an amount received in
respect of a recovery of VAT costs treated as irrecoverable within
exceptional items in prior years.
Acquisition related costs in the period represented legal and
professional fees on aborted acquisitions. The Group incurred
further restructuring costs in respect of redundancy costs and
systems conversions.
Acquisition related costs in 2017 represented professional fees,
broker fees and due diligence costs relating to the acquisition of
Osmo Data Technology Limited. Restructuring costs were principally
redundancy and termination costs associated with the prior
acquisition of Tax Computer Systems Limited.
6. Finance income and expenses
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBP'000 GBP'000 GBP'000
----------------------------------------- ----------- ----------- ------------
Finance income
Interest income on short-term deposits - 4 -
Net foreign exchange gains on financing
activities 5 - 14
------------------------------------------ ----------- ----------- ------------
5 4 14
----------------------------------------- ----------- ----------- ------------
Finance costs
Interest payable on bank borrowings
and loan notes (518) (592) (1,169)
Effective interest on equity element
of loan notes (200) (200) (399)
Amortisation of debt arrangement fees (47) (47) (93)
------------------------------------------ ----------- ----------- ------------
(765) (839) (1,661)
----------------------------------------- ----------- ----------- ------------
Net finance costs (760) (835) (1,647)
7. Tax
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBP'000 GBP'000 GBP'000
----------------------------------------- ----------- ----------- ------------
Current tax
Current tax (55) (124) 4
Adjustments in respect of prior years 9 - 1,358
------------------------------------------ ----------- ----------- ------------
Total current tax (46) (124) 1,362
------------------------------------------ ----------- ----------- ------------
Deferred tax
Deferred tax 807 861 49
------------------------------------------ ----------- ----------- ------------
Total deferred tax 807 861 49
------------------------------------------ ----------- ----------- ------------
Total tax credit in the Statement
of Comprehensive Income 761 737 1,411
------------------------------------------ ----------- ----------- ------------
8. Loss per share
Basic and diluted
Basic loss per share is calculated by dividing the loss
attributable to owners of the parent by the weighted average number
of Ordinary shares in issue during the period. As the Group is
loss-making, any LTIP awards in issue are considered to be
'anti-dilutive'. As such, there is no separate calculation for
diluted loss per share.
Details of the loss and weighted average number of shares used
in the calculation are set out below:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBP'000 GBP'000 GBP'000
----------------------------------- ----------- ----------- ------------
Loss attributable to owners of
the parent (43) (790) (470)
Weighted average number of shares
(thousands) 80,703 78,288 79,505
Loss per share (pence) (0.05) (1.01) (0.59)
------------------------------------ ----------- ----------- ------------
9. Intangible assets
Intellectual Capitalised
Customer property Software development
Goodwill contracts rights licences costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ --------- ---------- ------------- --------- ------------ --------
Six months to 30 June 2017
Cost
As at 1 January 2017 24,927 43,475 14,875 - 417 83,694
Additions - - - - 576 576
Acquisitions 1,788 645 946 - - 3,379
------------------------------ --------- ---------- ------------- --------- ------------ --------
As at 30 June 2017 26,715 44,120 15,821 - 993 87,649
------------------------------ --------- ---------- ------------- --------- ------------ --------
Accumulated amortisation
As at 1 January 2017 - 1,882 644 - 33 2,559
Charge - 2,190 767 - 124 3,081
------------------------------ --------- ---------- ------------- --------- ------------ --------
As at 30 June 2017 - 4,072 1,411 - 157 5,640
------------------------------ --------- ---------- ------------- --------- ------------ --------
Net book value
As at 1 January 2017 24,927 41,593 14,231 - 384 81,135
------------------------------ --------- ---------- ------------- --------- ------------ --------
As at 30 June 2017 26,715 40,048 14,410 - 836 82,009
------------------------------ --------- ---------- ------------- --------- ------------ --------
Twelve months to 31 December
2017
Cost
As at 1 January 2017 24,927 43,475 14,875 - 417 83,694
Additions - - - 51 1,198 1,249
Acquisitions 1,810 645 946 - - 3,401
------------------------------ --------- ---------- ------------- --------- ------------ --------
As at 31 December 2017 26,737 44,120 15,821 51 1,615 88,344
------------------------------ --------- ---------- ------------- --------- ------------ --------
Accumulated amortisation
As at 1 January 2017 - 1,882 644 - 33 2,559
Charge - 4,396 1,558 - 350 6,304
------------------------------ --------- ---------- ------------- --------- ------------ --------
As at 31 December 2017 - 6,278 2,202 - 383 8,863
------------------------------ --------- ---------- ------------- --------- ------------ --------
Net book value
As at 1 January 2017 24,927 41,593 14,231 - 384 81,135
------------------------------ --------- ---------- ------------- --------- ------------ --------
As at 31 December 2017 26,737 37,842 13,619 51 1,232 79,481
------------------------------ --------- ---------- ------------- --------- ------------ --------
Six months to 30 June 2018
Cost
As at 1 January 2018 26,737 44,120 15,821 51 1,615 88,344
Exchange differences - - - (1) - (1)
Additions - - - 41 863 904
------------------------------ --------- ---------- ------------- --------- ------------ --------
As at 30 June 2018 26,737 44,120 15,821 91 2,478 89,247
------------------------------ --------- ---------- ------------- --------- ------------ --------
Accumulated amortisation
As at 1 January 2018 - 6,278 2,202 - 383 8,863
Charge - 2,206 791 9 324 3,330
------------------------------ --------- ---------- ------------- --------- ------------ --------
As at 30 June 2018 - 8,484 2,993 9 707 12,193
------------------------------ --------- ---------- ------------- --------- ------------ --------
Net book value
As at 1 January 2018 26,737 37,842 13,619 51 1,232 79,481
------------------------------ --------- ---------- ------------- --------- ------------ --------
As at 30 June 2018 26,737 35,636 12,828 82 1,771 77,054
------------------------------ --------- ---------- ------------- --------- ------------ --------
10. Trade and other receivables
30 June 30 June 31 December
2018 2017 2017
GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- ------------
Trade receivables 3,891 2,463 2,637
Other receivables 231 468 251
Accrued income 920 402 155
Prepayments 387 211 130
------------------------------------ -------- -------- ------------
Total trade and other receivables
due within one year 5,429 3,544 3,173
------------------------------------ -------- -------- ------------
11. Net debt
30 June 30 June 31 December
2018 2017 2017
Note GBP'000 GBP'000 GBP'000
------------------------------ ----- --------- --------- ------------
Cash at bank and in hand 3,605 4,180 3,468
Bank loans and loan notes 13 (19,061) (25,369) (21,715)
Equity element of loan notes (2,025) (2,424) (2,225)
------------------------------ ----- --------- --------- ------------
Net debt (17,481) (23,613) (20,472)
------------------------------ ----- --------- --------- ------------
12. Trade and other payables
30 June 30 June 31 December
2018 2017 2017
GBP'000 GBP'000 GBP'000
----------------------------------------- -------- -------- ------------
Trade payables 383 201 226
Other taxes and social security 1,144 952 855
Accruals 1,659 1,095 1,859
Deferred income 8,441 7,027 6,855
Other payables 105 329 55
------------------------------------------ -------- -------- ------------
Trade and other payables due within one
year 11,732 9,604 9,850
------------------------------------------ -------- -------- ------------
13. Borrowings
30 June 30 June 31 December
2018 2017 2017
GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- ------------
Due within one year
Bank loans 1,730 1,730 1,730
--------------------------------- -------- -------- ------------
Borrowings due within one year 1,730 1,730 1,730
--------------------------------- -------- -------- ------------
Due after one year
Bank loans 9,460 16,190 12,325
Loan notes 7,871 7,449 7,660
--------------------------------- -------- -------- ------------
Borrowings due after one year 17,331 23,639 19,985
--------------------------------- -------- -------- ------------
Total Borrowings 19,061 25,369 21,715
--------------------------------- -------- -------- ------------
The Group has revolving and term loan facilities, which are
available until 30 June 2021. The term loan is amortised evenly
over the five-year term.
The Company has a GBP10,000,000 unsecured fixed rate loan notes
agreement with the BGF. Repayment will be made in four equal
instalments semi-annually from 30 June 2021. The Company also
granted the BGF an option to subscribe for 5,970,149 Ordinary
shares at a price of 67p at any time before 26 July 2023.
In accordance with IAS 32, the loan notes and option issued to
the BGF are deemed to be linked and are treated as a single
financial instrument and shown at fair value. The fair value of the
loan element was originally calculated at GBP7,203,000 using a
discounted cash flow model over the term of the instrument and an
effective borrowing rate of 13%, deemed by the Directors to be an
appropriate market rate, reflecting the 6% coupon interest payments
and the capital repayment profile of the loan notes. The fair value
of the equity element was credited to Other Reserves.
14. Ordinary shares, share premium
and other reserves
Allotted and fully paid GBP0.01
nominal value shares:
Number Ordinary Share
of shares shares premium Total
'000 GBP'000 GBP'000 GBP'000
------------------------------------ ---------- --------- -------- --------
As at 1 January 2017 76,001 760 50,775 51,535
Issue of new shares 4,702 47 3,150 3,197
Issue of warrants - - 11 11
------------------------------------ ---------- --------- -------- --------
As at 1 January 2018 80,703 807 53,936 54,743
Issue of new shares - - - -
------------------------------------ ---------- --------- -------- --------
As at 30 June 2018 80,703 807 53,936 54,743
As at 1 January 2017 76,001 760 50,775 51,535
Issue of new shares 4,702 47 3,150 3,197
------------------------------------ ---------- --------- -------- --------
As at 30 June 2017 80,703 807 53,925 54,732
------------------------------------ ---------- --------- -------- --------
Share capital and share premium
At 30 June 2018 the share capital of Tax Systems plc consisted
of 80,703,381 fully paid Ordinary shares with a nominal value of 1p
per share. All shares are equally eligible to receive dividends and
the repayment of capital and represent one vote.
On 3 April 2017 the Company issued 4,701,492 Ordinary shares as
consideration for the acquisition of the entire share capital of
OSMO.
15. Reconciliation of net loss to net cash used in operating
activities
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
GBP'000 GBP'000 GBP'000
--------------------------------------- ----------- ----------- ------------
Loss before income tax (804) (1,527) (1,881)
Adjustments for:
Depreciation of property, plant and
equipment 50 18 65
Amortisation of intangible assets 3,330 3,081 6,304
Share-based payments 163 37 188
Finance costs - net 760 835 1,647
---------------------------------------- ----------- ----------- ------------
Operating cash flows before movements
in working capital 3,499 2,444 6,323
(Increase)/decrease in receivables (2,256) (103) 268
Increase in payables 1,913 22 222
Increase in provisions 18 - 47
---------------------------------------- ----------- ----------- ------------
Operating cash flows after movements
in working capital 3,174 2,363 6,860
Exceptional expenses 190 962 680
---------------------------------------- ----------- ----------- ------------
Cash generated by operations, before
exceptional expenses 3,364 3,325 7,540
---------------------------------------- ----------- ----------- ------------
16. Commitments, contingencies and guarantees
No member of the Group is or has been involved in any
governmental, legal or arbitration proceedings and the Directors
are not aware of any such proceedings pending or threatened by or
against the Group during the 12 months preceding the date of these
financial statements which may have or have had, in the recent
past, a significant effect on the financial position or
profitability of the Group.
There are a number of operational and financial guarantees given
by the Company and certain subsidiary companies in each case on
behalf of other subsidiary entities.
17. Acquisitions
Osmo Data Technology Limited ("OSMO")
On 3 April 2017, the Company completed the acquisition of the
entire share capital of OSMO, a supplier of software solutions to
the financial services industry in return for the issue of
4,701,492 ordinary shares in the Company, which valued OSMO at
GBP3,197,000.
There have been no changes made to the fair values of the assets
and liabilities of OSMO as previously disclosed.
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
IR UUSKRWRAKRRR
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