8 March 2022

 

Gresham Technologies plc

 

Annual Financial Report Announcement

 

Gresham Technologies plc (LSE: "GHT", "Gresham", "Group", "Company"), the leading software and services company that specialises in providing solutions for data integrity and control, banking integration, payments and cash management, is pleased to announce its audited results for the financial year ended 31 December 2021 ("FY21").

Financial Highlights

·	Forward-looking Clareti Annualised Recurring Revenue ("ARR") as at 31 December 2021 up 95% to £24.0m, including £9.2m acquired with Electra(5) with strong underlying organic growth of 20%.
·	Group revenues up 49% to £37.0m, including a contribution of £5.6m from Electra(5) since acquisition.
·	Clareti revenues up 65% to £25.5m, including a contribution of £5.6m from Electra(5) since acquisition.
·	Clareti recurring revenues up 63% to £18.8m (2020: £11.5m), including £5.3m from Electra(6) since acquisition.
·	Adjusted EBITDA(1) up 60% to £7.2m (2020: £4.5m).
·	Cash adjusted EBITDA(2) of £2.5m, an increase of £2.2m on the prior year (2020: £0.3m).
·	Profit before tax as reported at £0.4m (2020: £0.3m), including expenses adjusted in EBITDA metrics above of £3.5m (2020: £1.5m).
·	Adjusted diluted earnings per share(3) up 26% at 5.0 pence (2020: 4.0 pence).
·	Cash at 31 December 2021 of £9.1m and no debt drawn upon (2020: £8.9m and no debt)(4).
·	Final dividend proposed at 0.75 pence per share (2020: 0.75 pence).
·	Year closed ahead of market expectations for revenue, profits and cash generation.

 

Operational Highlights

·	Transformational acquisition of Electra in June 2021 providing scale in US market. Integration materially complete.
·	Customer base expanded to 270+ Clareti customers across 30 countries.
·	Strong organic underlying growth of recurring revenues and related services within the Clareti business.
·	Net ARR retention for the year of 106%, including annualised and apportioned rate from Electra(5) since acquisition, highlighting growth within existing customers and new customer wins throughout COVID-19 pandemic.
·	Continued growth and development of key accounts. Net ARR retention rate for top 6 key accounts of 121%.
·	Major deployment milestones with global banks, with legacy software vendors being decommissioned.
·	Digital corporate banking partnership with Australia and New Zealand Banking Group continuing to deliver to plan.
·	Larger, more resilient Group, with more than £37m of FY22 revenues under contract, providing significant visibility and a robust platform to execute growth strategy.
·	Management confident about the prospects for the Group.

 

⁽¹⁾ Adjusted EBITDA refers to earnings before interest, tax, depreciation and amortisation, adjusted for one-off exceptional charges and share-based payments. (see note 5 of the Group financial statements).

⁽²⁾ Adjusted EBITDA less capitalised development spend and any IFRS16 lease-related cash payments.

⁽³⁾ Diluted earnings per share, adjusted to add back share-based payment charges, exceptional items and amortisation from acquired intangible assets.

⁽⁴⁾ Excludes any IFRS16 lease-related payables.

⁽⁵⁾ The Electra acquisition completed on 22 June 2021.

⁽⁶⁾ Percentage increases stated above are based on rounding to the nearest £'000 as disclosed at detailed level within this report.

 

Ian Manocha, CEO, commented:

"This has been a year of significant strategic, operational and financial progress for Gresham. The Group delivered revenue, profits and cash ahead of market expectations whilst completing its largest acquisition to date, cementing its leadership position as a trusted software partner in financial markets and accelerating its opportunity in the major North American market.

Digital transformation and automation remain key priorities within the financial services sectors and our software portfolio is specially designed to help customers navigate and thrive in today's increasingly complex landscape. The new financial year has started with continued trading momentum, a significant and growing base of recurring subscription revenue with £37m of 2022 Group revenues already under contract, and a strong orderbook providing high levels of visibility. As a result, we are excited about the future prospects and the Board remains confident in its ambition to build a £100m ARR SaaS business."

 

Presentations and Documents

A presentation for analysts will be held at 11am GMT today via conference call and a separate presentation for existing and potential shareholders will be held at 2pm GMT today via the Investor Meet Company ("IMC") platform, details of which are set out in the Company's announcement dated 25 February 2022.

A copy of the presentation to be tabled at both sessions is available on Gresham's website: www.greshamtech.com.

A copy of this announcement has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and www.greshamtech.com/investors.

The Annual Financial Report 2021 will be sent to shareholders in due course.

 

Enquiries

 

Gresham Technologies plc Ian Manocha / Tom Mullan	+44 (0) 207 653 0200 investorrelations@greshamtech.com
Singer Capital Markets (Financial Adviser and Broker)	+44 (0) 207 496 3000
Shaun Dobson / Tom Salvesen / Jen Boorer
Alma PR	+44 (0) 203 405 0205
Josh Royston / Hilary Buchanan / Hannah Campbell	greshamtech@almapr.co.uk

 

Inside information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

 

Note to editors

Gresham Technologies plc is a leading software and services company that specialises in providing real-time solutions for data integrity and control, banking integration, payments and cash management. Listed on the main market of the London Stock Exchange (GHT.L) and headquartered in the City of London, its customers include some of the world's largest financial institutions and corporates, all of whom are served locally from offices located in the UK, Europe, North America and Asia Pacific.

 

Gresham's award-winning Clareti software platform is a highly flexible and scalable platform, available on-site or in the cloud, designed to address today's most challenging financial control, risk management, data governance and regulatory compliance problems. Learn more at www.greshamtech.com.

 

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

In accordance with the Disclosure and Transparency Rules, the extracts below are from the Annual Financial Report 2021 in un-edited full text. In order to comply with the regulatory requirement to include un-edited text in this Annual Financial Report Announcement, page and note references refer to page and note numbers in the Annual Financial Report 2021.

CHAIRMAN'S STATEMENT

Dear shareholder

I am pleased to present this 2021 Annual Financial Report.

Overview

I am delighted to be able to report on a period of strong progress for Gresham Technologies. Our core products continue to gain traction in a vast and growing market and play an integral role in some of the world's largest financial organisations. We have built a strong reputation and are now benefitting from the significant investment made in our software solutions in line with our strategic roadmap. Our success is due to great leadership, innovative expanding solutions and our talented and committed team of employees globally.

Throughout the year, we continued to execute effectively against our growth strategy, securing 16 new Clareti customers and growing our relationships with existing customers, reflecting the investment in our solutions and people. COVID-19 has accelerated the rate in which businesses are automating their service platforms and we have taken advantage of these opportunities by investing to drive organic growth in the business as well as integrating carefully selected complementary acquisitions. During the year, we completed our largest acquisition to date, with the purchase of Electra in June 2021 for up to USD $38.6m. As well as expanding our product offering and client base, it provides us with a strong operational foothold in North America, from which we will look to drive our growth in this key market. As part of the acquisition, we raised £21m (gross) by way of a placing and welcomed a number of new shareholders to the register and I would like to thank them and our existing shareholders for their support.

Overall, our revenue for the year was significantly up at £37.0m (2020: £24.8m), with adjusted EBITDA also significantly up at £7.2m (2020: £4.5m). In a year that was still affected by COVID-19 related challenges, this is an excellent achievement for the Group.

We enter the new financial year with positive market tailwinds and high levels of confidence in our business, our people and our ability to continue on our profitable growth trajectory. 

Based on the overall financial performance and the cash within the business, the Board will be recommending a final dividend of 0.75 pence per share (2020: 0.75 pence) at the forthcoming AGM. 

Delivery against our strategic vision

2021 saw strong progress against the major strategic goals identified by the Board, including:

·	the Electra acquisition has brought additional sticky ARR and significantly widens our addressable market;
·	revenues from subscriptions reached 63% of Group revenue in the period, providing high levels of visibility and increased certainty for future years' revenue;
·	we continued to invest in our underlying business systems and processes to increase our scalability.

People and culture

I am delighted to report that, once again, we improved our result in our annual employee engagement survey, scoring 78% overall (2020: 76%), and thereby continuing our trend of annually increasing our engagement score since 2017. This is the clear result of the investments and efforts that the Company has made to develop a brilliant culture and create opportunities for our people to thrive.

On behalf of the Board, I would like to take this opportunity to thank all members of staff for the dedication and commitment to making Gresham what it is today. Employees globally have worked extremely hard to create the right working environment for Gresham to succeed in the future.

Despite the ongoing disturbances caused by COVID-19, our staff have adapted well to a hybrid way of working with little interruption. Although we are a technology driven business, we are also a people-led company and I am proud of the way in which staff at Gresham have responded whilst also helping the business to succeed.

ESG

As Gresham continues to grow, we are committed to ensuring we do so responsibly, to enhance the long-term value generated by our business. Following a review of Gresham's Environmental, Social and Governance priorities in 2021, we have established a three-pillar ESG strategy as part of our approach to continually improve in these areas.

Scaling responsibly is built across the following three pillars:

·	Our customers: leveraging our growth to improve customer outcomes
·	Our people: fostering positive and productive communities in our business and our industry
·	Our world: managing our impact on the environment and being a force for good in our world

The strategy is underpinned by a strong culture and good governance across the Group and we are confident about executing on our strategic vision in the coming year and beyond.

Looking ahead

Following a year of transformation, there is now great momentum in the business and I am pleased to say we have ended the financial year as a more robust company. We have delivered against the strategic priorities the Board approved in December 2020 to strengthen our position in the market:

·	continue to build a global footprint and resilient international operations;
·	increase investment in sales and marketing;
·	make scalability and repeatability key themes within product development and professional services to enhance operating leverage and accelerate speed of implementations;
·	increase investment in AI to support our vision of self-learning and self-optimising solutions;
·	identify options to monetise the IP arising from the ANZ strategic partnership in the wider market; and
·	seek further earnings-enhancing acquisitions which add adjacent technology capabilities, scale, and expand global reach.

We enter the new financial year with a focus on expanding our existing client base and securing new customer wins through investments in our technology, and on completing the integration of Electra into the business. We have £37m of 2022 revenues under contract, which gives us confidence to continue with our investments, and we have a strong pipeline of demand for our products as the digital transformation era continues to accelerate for many businesses. We are excited about the future opportunities this will create.

Our management team have built a rare business with a very exciting future in a substantial, growing market. We have the benefit of a track record with an innovative, well invested product set which has been designed for today's complexities. I believe that the scale of our opportunity is as large as our ambition allows.

 

Peter Simmonds

Non-Executive Chairman

7 March 2022

 

 

CEO'S STATEMENT

Strategic review

Introduction

2021 was a significant year of strategic, operational and financial progress for Gresham Technologies. We further strengthened our position as the leading player in reconciliations software to the financial sector as a result of the successful transformational acquisition of Electra in June 2021, and delivered a strong, high quality, underlying financial performance. We are pleased to close the year ahead of market expectations.

Our Clareti technology solutions provide major banking and investment management clients with the tools to connect, reconcile and control their data enabling them to automate their business processes and have confidence in their digital operations. In the year we signed 16 new clients to reach more than 270 across 30 countries by 31 December 2021, adding to our roster of long-standing relationships including many the world's top 100 investment banks. In addition, we have flagship customers using our technology in retail and commercial banking, asset management, insurance, energy and commodities. 

We support the boards of some of the largest companies in the world to improve operational efficiency, manage risk and regulation, accelerate their digital transformation initiatives, and provide a key part of the data intelligence platform that ensures they remain agile, competitive and compliant. We supply mission-critical technology to our customers and are building a reputation as a trusted industry partner.

Our success reflects the investment and the efforts of our talented team in delivering differentiated solutions that are proven at scale and backed by a high-quality global service capability. This, together with our product roadmap, provides a platform for growth by expanding within our existing clients and winning new ones, and delivering scalable high margin recurring revenues.

As a result of strong trading in the year together with acquisitive contribution, the Group delivered a year of significant growth in revenue and profits as well as cash generation well ahead of both 2020 and market expectations. Underpinning this is the Group's growing base of subscription revenue contributing to a 95% increase in Clareti ARR to £24.0m and providing enhanced visibility into future periods. Notwithstanding strategic acquisition contributions in the year, the Group saw double-digit underlying organic growth of 20% in ARR driven by new sales momentum and ARR net retention levels well in excess of 100%.

The global pandemic over the last two years has accelerated the need for all businesses to invest their core processing systems and data platforms to create more intelligent and automated solutions that reduce the need for manual interventions and the risk of error. Over the past 18 months, we have successfully capitalised on this opportunity with two important acquisitions, as well as investing to drive organic growth. 

Our success reflects our research, planning and focus on delivering value to our clients. Our significant investments in people and infrastructure have put in place the building blocks of a scalable fintech platform with a market-leading product portfolio, highly invested cloud architecture, established blue-chip global customer base, and an ambitious, proven management team. The opportunity in front of us is large and we are ideally placed to pursue our growth ambitions, underpinned by a repeatable, high margin business model.

Business Review - Bringing digital integrity, agility and confidence to the world's financial institutions

The shift to digital within the financial services sector over the past ten years has been compounded by growing regulatory pressures and scrutiny increasing our customers' needs for timely and accurate processing coupled with greater transparency and accountability. This means our customers need to have complete confidence in their data and processes in order to make good decisions and ensure optimal outcomes, including protecting their reputations. Our software helps market participants connect, reconcile and control the many disparate sources of transaction, finance, risk and regulatory data that exist in modern trading ecosystems.

Product portfolio: platform and solutions

During the first half of the year, we re-packaged our Clareti platform capabilities into two product lines, Control and Connect, and, in the second half of the year, we strengthened the portfolio with complementary offerings acquired with Electra. Our products can be combined to quickly deliver real-time digital solutions for customers into environments where generic solutions are inadequate. They are available in the customers' data centres or in a Gresham hosted cloud on a software-as-a-service basis along with optional subscriptions for the collection and aggregation of external data and/or the provision of managed services.  

Control

Clareti Control is an enterprise-grade business self-service platform for the reconciliation and control of "any and all" transaction data in financial markets. Clareti Control is now well established in the market for "non-standardised" problems such as inter-systems reconciliations with dozens of successful implementations. Our investment into additional cash and securities processing functionality over the last three years means we are now the only vendor in the market that can offer "standardised" and "non-standardised" data reconciliations and controls on a single modern self-service platform that has been proven at scale. This is a "holy grail" for the operations functions within large capital markets institutions and we expect to further capitalise on this opportunity in the market over the next few years. Over time, we will bring Electra's reconciliation offering onto the same platform to offer "out of the box" capabilities for handling buy-side nostro/depot as well as leveraging their patented capabilities for combining cash/stock/transaction into a single view (the NAV).

Connect and Data

Our Connect and Data solutions allow customers to participate in the complex inter-connected global financial system without needing to be concerned with third party data access, integration risk, cost and time to market. Our Connect solutions enable customers to interact with their bank partners, trading venues, regulatory reporting venues, and other industry applications and provide intelligent control over complex data flows. Our Data solution is focussed on the needs of the buy-side community and is used by fund managers and service providers alike to collect and aggregate data from third parties such as custodians. These mission-critical services are delivered in the cloud from our secure data centres and operated with exceptionally high levels of service and support. In 2021, we went live with the first customer on our next generation cloud-native architecture Connect 2.0, and we are continuing the migration of customers and, ultimately, we plan to bring together the Electra Data and Clareti Connect services onto a common cloud Connect platform.

I am pleased to say the development work on these two offerings has progressed successfully throughout the financial year and our new messaging and simplified Clareti product story and collateral have been well received in the market.

We also have a third development team working on Digital Banking products driven by our innovation partnership with ANZ which progressed extremely well during the year. In December, our software was formally accepted into testing ahead of deployment with ANZ's first customers during 2022. As a result of achieving this important milestone, ANZ increased their investment into Clareti software, and a further increase is expected upon customer go-live in FY22.

Markets - Digital transformation of financial services continues at pace

Four key drivers continue to support growth in our market and the need for our clients to invest in their systems and reporting

Managing risk and regulation

Every day, we help boards of some of the largest companies in the world manage their financial, operational and reputational risk by providing timely insight into their data and processes.

This is compounded by ever greater regulatory pressures which increases their need for oversight and accurate reporting. The global market for regulatory reporting solutions is expected to reach USD $1.16bn by the end of 2026, with a CAGR of 19.5%. Over the last five years, we have secured a significant number of sales in the regulatory area and our recent acquisitions have further strengthened our position.

Digital automation

Aligned with the above, we are part of our clients' investment to digitise their processes, reduce their operating costs through automation, and serve their customers better. We are part of programmes globally aimed at improving the quality, connectivity and exploitation of data to deliver more intelligent business outcomes.

Underpinning business success

Our software not only enables businesses to survive in the modern era, but importantly to become more competitive through access to information and agile decision-making, all underpinning the launch of new products and innovative customer propositions.

Expanding market

The overall size of the addressable market for Clareti software, and the competitiveness of our offerings is continually expanding and we are well placed to participate in a growing market opportunity.

Growth Strategy - Building blocks to £100m ARR

The overall size of the addressable market for Clareti software, and the competitiveness of our offerings, provides an opportunity for us to build a £100m ARR SaaS business with a best-in-class sales, cost and delivery model with high quality, high growth recurring revenues.

Grow customer footprint in core markets

We remain focused on winning a meaningful share of the global market for reconciliations, data integrity and control software in financial services before turning our attention to other industries and use cases. We are focussed on winning new names through direct sales teams in the key geographies of UK, Europe, North America, Asia and Australia. Our newly appointed sales hires in Luxembourg and Asia Pacific both secured new name customers during the course of the year giving us further confidence in our ability to scale.

Highlights during the year include:

·	a new Clareti contract win with a fast-growing global financial group which is expected to generate total software subscription fees of EUR 1.4m over a committed five-year term, with additional services revenues to deploy the solution;
·	a contract win with one of the world's largest professional services firms to provide advanced technology to its financial services audit practice in the US. This new contract is expected to generate total software subscription fees of USD $2.8m over a committed five-year term, with the annual subscription fee starting at USD $0.25m and committed to rise to USD $0.7m from the third year of the term, in addition to services revenue to deploy the solution;
·	a contract with a leading provider of retirement investment services in the US to replace a legacy reconciliation platform with USD $0.6m software subscriptions over three years.

Expand engagement across existing substantial customer base

We are already regarded as an innovative partner to many of the world's largest financial institutions and we aim to deepen those key account relationships. Winning and growing large "key account" customers is an important aspect of our strategy, the success of which is demonstrated by the Group's consistently strong customer retention levels, with ARR net retention increasing to 106% on an annualised basis across all customers, and even higher for our Key Accounts. Notable successes in the period include:

·	Australia and New Zealand Banking Group, our largest customer, signed contracts totalling over AUD $21m, which combined with existing agreements provide contractual certainty over the renewal of all existing Clareti and non-Clareti licences, as well as securing new incremental revenues from recurring software, recurring managed services, consulting services and contracting services;
·	we successfully executed a five-year subscription with a global Tier 1 bank customer to extend and upgrade its investment in the Clareti software;
·	a five-year subscription with a global Tier 1 bank customer to extend its current investment in Clareti software. The contract value totals £2.8m for the ongoing use of the technology and follows the successful migration of the bank's global legacy "core reconciliations" to Clareti Control;
·	securing a multi-year renewal with the largest customer acquired through Electra, providing greater certainty over future years.

Provide incremental growth opportunities through focused innovation programme

The Board and management team are focused on fostering a culture of innovation, supported by investment in our products, people and client relationships to ensure we continue to deliver market-leading solutions to some of the largest companies in the world. This commitment is demonstrated by the improved matching results and economic performance being seen by the Tier 1 bank development partner for our cash and stock reconciliation offering. Economic benefits are substantially ahead of the displaced legacy transaction lifecycle management product and provides an indicative business case for other institutions.

Our Control software is now a clear leader in the market in terms of functionality and scalability, and the priority for our R&D team has shifted towards ease of adoption and provision of greater business self-service capability. During 2022, we will introduce new web-based interfaces for our Control solutions and progressively upgrade the underlying architectural components such that the Electra and Clareti offerings ultimately operate on a common "micro-service" based cloud-native Control 2.0 platform.

Our Connect 2.0 platform, which brings together our data access and transformation technology assets across the domains of trading STP, regulatory, payments and messaging, has also reached a market level of functional maturity. We will continue to enhance this service for newer industry requirements such as ISO20022, add connectivity to additional industry platforms, and make the technology more accessible through adoption of natural language processing (NLP) and enhanced reporting. Our Connect offering is a powerful capability and extremely relevant to today's global financial markets and we intend to ramp up our marketing during the year.

In addition to the continued enhancement of our product portfolio, a proportion of the R&D team is dedicated to developing and incubating new corporate banking and payments software in partnership with ANZ. After three years of work, the new technologies are being deployed into production use cases and offer a potentially significant break-out opportunity for the Group in the coming years.

M&A

Alongside our strategic pillars, we look to supplement our organic growth opportunities through strategic M&A. We are proud of our successful M&A strategy which has expanded our portfolio of products, deepened our relationships with key clients, and broadened our footprint internationally. Whilst we continue to explore investment opportunities to further scale the business, our priority is to leverage the combined assets and enlarged global business to sustain high levels of profitable organic growth. With that in mind, I am pleased to report that Inforalgo has delivered a very strong performance in its first full year with the Group. The acquisition has brought additional sticky ARR and widened Gresham's customer footprint in North America.

Electra

The standout event of the year was the USD $38.6m acquisition of Electra in June 2021, which not only reinforced our leadership position for reconciliation software in financial markets but also strengthened our market share and portfolio of products for the investment management market. The deal also accelerates our opportunity in the major North American market and creates a truly global platform for the Group from which to deliver strong, long-term growth.

This transformational acquisition opens the door to the next stage of development at Gresham. We are now able to leverage the combined investments in product development, distribution and customer support infrastructure to compete more effectively and ultimately to realise the high margins, strong cash generation, and attractive valuation multiples typical of large mature enterprise software firms.

The acquisition of Electra has been a catalyst for change within the business. We have reviewed our processes for scalability, and made rapid progress with integration work, enabling us to operate as a single global company internally as well as externally in the marketplace.

Current Trading and Outlook

As a result of our acquisitions and the successful transition to subscription revenues in the Clareti business, Gresham now benefits from high levels of recurring revenues. We ended the financial year as a larger, more resilient company, with more than £37m of 2022 Group revenues already under contract (which represents 100% of 2021 Group revenue) in the current year, providing significant visibility and a robust platform to execute our growth strategy.

Today's Gresham has the financial strength and trusted partner client relationships to drive further expansion in the medium-term. We are already regarded as an innovative partner to many of the world's largest financial institutions and our aim is to deepen those key account relationships as well as win new names.

There are now strong indications that financial firms are planning for greater investment in FY22, with digital transformation and automation remaining a priority. During 2021, we saw increasing levels of management ambition and associated budget allocations for change projects in our target markets and our pipeline is much improved over the same period last year. Several large opportunities are moving through competitive tender processes and Gresham is in 'proof of concept' with a number of new 'key accounts'.

Given the continuing market demand for data and process automation, connectivity and control, we also have a significant opportunity to grow with our existing installed base of 270+ customers by expanding across their operational infrastructures, resulting in a regular beat rate of upgrade contracts. We believe there is the opportunity to double revenues with our existing clients as they expand across business lines and geographies.

In addition to securing new key accounts and growing with existing customers, we are investing in the productisation and repeatability of our software to accelerate our scale-up in the mid-market in order to attack a total addressable market comprising over 500 banks globally and more than 1000 investment managers.

At the time of writing, the devastating situation in Ukraine is worsening and, as a Group, we condemn the abhorrent actions of the Russian and Belarusian leadership in the strongest possible terms. Whilst Gresham has limited direct exposure to Russian or Belarusian firms, and we have no operations in the region, we are committed to playing our part by adhering to the governmental sanctions, assessing our operations and relationships to ensure they are legally and morally correct, and supporting the relief effort to the extent possible.  

With your support, and the hard work of our talented global team, we have created the foundations for success and benefit from a focussed strategy, strong balance sheet and growing market opportunity. The Board remains confident in its ambition to build a £100m ARR SaaS business with best-in-class performance metrics expected of a valuable global financial technology company of substantial scale.

Ian Manocha

Chief Executive

7 March 2022

 

 

FINANCIAL REVIEW

 

Transformative acquisition of Electra

We were delighted to complete the transformative acquisition of Electra on 22 June 2021 and are grateful for the support provided by our new and existing shareholders for the transaction. We are also pleased to confirm that since the acquisition Electra has been integrated to become part of the Clareti business segment, thus will be reported as such.

Electra was acquired on a debt free, cash free basis with an upfront consideration of USD $28.95m. Subject to the achievement of performance criteria based on the retention of acquired customer recurring revenues, a maximum of USD $9.65m (£7.2m) in contingent consideration will be due, payable in two instalments after the first and second anniversaries of completion.

Upon acquisition, Electra had £9.2m of forward-looking ARR and the following significant balance sheet items: intangible fixed assets consisting of customer relationships with a fair value of £11.8m and software of £5.0m; right of use assets of £0.3m; trade and other receivables of £1.6m; cash and cash equivalents of £0.1m; trade, lease and other liabilities of £2.3m and a deferred tax liability (generated on acquisition) of £4.1m.

Subsequent to the acquisition, we are also pleased to report that Electra as a standalone business has performed slightly ahead of management's plans. 

Forward-looking annualised recurring revenue "ARR"

Our ARR is an aggregated value of all recurring revenues that are either fully or partially contracted for the next twelve months and/or are highly expected to renew in the next twelve months. Future uplifts in variable usage or contingent recurring fees are not included in ARR unless they are contractually certain with all deliverables having already been met.

				2021	2020	Variance	%
Clareti ARR	Clareti ARR at start of year		£m	12.3	9.5	N/a
	Acquired with Electra/Inforalgo		£m	9.2	1.2	N/a
	Organic increase in ARR		£m	2.5	1.6	0.9	56%
	Clareti ARR at end of year	KPI	£m	24.0	12.3	11.7	95%
Other ARR	Other ARR		£m	4.1	3.5	0.6	17%
Group ARR	Group ARR		£m	28.1	15.8	12.3	78%

 

Our ARR from our strategic growth business, Clareti, is a critical KPI for the Group as it provides a forward-looking view of the minimum expected revenues in the next twelve months which gives confidence to business planning and investment decisions. Whilst the Electra acquisition, completed in June 2021, was transformative to our Clareti ARR, it is pleasing to also have seen strong organic growth of £2.5m or 20% on the ARR brought forward at the start of the year. Our retention and upsell measures remain strong, with the trailing twelve month net Clareti ARR retention rate being 106%, including the annualised Electra rate since acquisition. We calculate our net ARR retention rate as ARR from end of period from customers existing at the start of the period divided by ARR at the start of the period. There remains a significant market opportunity to both upsell and cross-sell to our continually growing existing customer base that we're strategically investing in capturing.

ARR from our Other businesses has also grown by £0.6m to £4.1m in 2021, although it should be noted that the growth has come from increased end customer usage in the lower margin software reselling business as ARR from our own high-margin legacy solutions continues to decline as planned. It remains encouraging to see the ongoing longevity of these business lines continuing to provide predictability and further ability to invest with confidence in the Clareti business.

In addition to Group ARR of £28.1m, expected revenues from non-recurring contracts in place as at 31 December 2021 total £9.1m, thus giving near contractual certainty over £37.2m of revenue for 2022 before any new or incremental contracts are won.

Income Statement

Revenues

Our income is analysed between revenues from Clareti Solutions and from our 'Other' non-strategic solutions and services, revenues from each business of these business segments are then broken into:

-     Recurring revenues - which are generated for software and software-related services such as support, maintenance, and other ongoing managed services all of which are contracted or expected to continue for the foreseeable future.

-     Non-recurring revenues - include professional services, contracting, training and other services that are expected to be one-off or periodic in nature.  

Given the transformational nature of the Electra acquisition, we have also broken out the Clareti business to show the Electra revenues (and gross margin in the Earnings section below) as individual line items within the Clareti business.

				2021	2020	Variance	%
Clareti solutions	Recurring		£m	13.5	11.5	2.0	18%
	Recurring - Electra		£m	5.3	-	N/a	N/a
	Recurring - Clareti total	KPI	£m	18.8	11.5	7.3	63%
	Non-recurring			6.4	4.0	2.4	60%
	Non-recurring - Electra			0.3	-	N/a	N/a
	Non-recurring - Clareti total		£m	6.7	4.0	2.7	68%
	Total Clareti revenues	KPI	£m	25.5	15.5	10.0	65%
Other solutions & services	Recurring		£m	4.6	3.7	0.9	24%
	Non-recurring		£m	6.9	5.6	1.3	23%
	Total		£m	11.5	9.3	2.2	23%
Group	Total	KPI	£m	37.0	24.8	12.2	49%

 

Clareti Solutions

Clareti recurring revenues increased by 63%, up £7.3m on 2020, this included a contribution of £5.3m from Electra since the acquisition late in June 2021. Excluding the impact of Electra, Clareti recurring revenues increased by 18%, or £2.0m since the prior year. These increases were as a result of new recurring revenue sales, increased consumption of Clareti solutions from our existing customers and a full year's contribution from our 2020 acquisition, Inforalgo.

Clareti non-recurring revenues increased by 68%, up £2.7m on the prior year, with a relatively small services contribution from Electra. Excluding the impact of Electra the increase was 60%. This increase is being driven by new implementations associated with the increase in Clareti recurring revenues, step ups in ongoing client support that was delayed during the 2020 lock-down, and a significant pull through of additional services with key customer ANZ. ANZ are transitioning towards go-live with our new digital banking products and we are building out the ongoing support and managed service capability, part of which will begin being recognised as a recurring revenue.

Other Solutions & Services

Total revenues from Other solutions and services increased by 23% to £11.5m, exceeding our original expectations. This business line includes revenues from: a legacy partner relationship where we act as a reseller of third party software; our sole remaining, own IP, legacy software product; and our contracting services business where we provide fixed margin services at a margin of 13% under twelve-month contractual terms.

Recurring revenues within the Other solutions and services portfolio increased by 24% to £4.6m as a result of increased end-user consumption fees from existing customers of our reseller arrangement. As expected we saw lower revenues from our own-IP software, however, these revenue reductions were more than offset by increases in reselling and contracting revenues, albeit at lower margins. The mix of revenues within the Other solutions and services portfolio continues to evolve, and we continue to manage the portfolio carefully benefitting from good visibility of customer intentions.

Earnings

						2021		2020		Variance		%
Clareti Solutions	Gross margin				£m		16.6		14.3		2.3		16%
	Gross margin - Electra				£m		4.9		-		N/a		N/a
	Gross margin - Clareti total				£m		21.5		14.3		7.2		50%
	Gross margin				%		83%		92%		(9%)		N/a
	Gross margin - Electra				%		88%		-		N/a		N/a
	Gross margin - Clareti total				%		84%		92%		(8%)		N/a
Other solutions & services	Gross margin (*)				£m		3.7		3.4		0.3		9%
	Gross margin (*)				%		32%		37%		(5%)		N/a
Group	Gross margin (*)				£m		25.2		17.7		7.5		42%
	Gross margin (*)				%		68%		71%		(3%)		N/a
	Adjusted EBITDA			KPI	£m		7.2		4.5		2.7		60%
	Adjusted EBITDA			KPI	%		19%		18%		1%		N/a
	Cash Adjusted EBITDA			KPI	£m		2.5		0.3		2.2		733%
	Cash Adjusted EBITDA			KPI	%		7%		1%		6%		N/a
	Statutory profit/(loss) after tax				£m		(1.0)		1.3		(2.3)		(177%)
	Adjusted diluted EPS			KPI	pence		5.02		3.96		1.06		27%

 

Gross margin and reporting reclassification (*)

Across all business segments, the majority of our cost of sales is made up of: (i) the customer-specific third party costs incurred in providing our hosted cloud solutions; (ii) third party contractor costs incurred by our contracting services business; and (iii) In this report we have reclassified fixed-term payrolled employees that provide fixed margin contracting/recruitment services to ANZ from operating expenses to cost of sales as we consider this a better reflection of our gross margin. The 2020 comparative has also been restated, the value of this reclassification in the current year is £2.6m (2020: £3.1m).

The acquisition of Electra has accelerated the growth of our high gross margin Clareti business, which in line with long standing Group strategy, offsets the continued and expected decline in gross margin being generated from the legacy Other solutions and services businesses. At a group level, including the impact of the Electra acquisition, gross margins have reduced slightly from 71% to 68%, this is as a result of an increased usage of contractors throughout all areas of the business. 

The gross margin within the existing Clareti business has reduced from 92% to 83%, this is due to an increased use of contractors to assist with project delivery and an increasing proportion of business being hosted in one of our cloud infrastructures. The acquired Electra business is carrying another very high gross margin of 88%. The combination of these is driving a gross margin of 84% for 2021.

As planned and described in the revenue section above, the Other solutions and services business mix has continued to move in balance towards the lower margin software reselling and contracting services business lines from our higher margin legacy owned IP which remains in structural decline.

Adjusted EBITDA

Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) is analysed excluding exceptional items, share-based payment charges, amortisation from acquired intangible assets and impairment of development costs, which is consistent with the way in which the Board reviews the financial results of the Group. We also consider this to be consistent with the manner in which similar small-cap LSE (or AIM) listed companies present their results and how we understand the global investment community assesses performance, with this particularly being the case for growth shares in which the recurring cash performance is considered important. However, whilst we consider them consistent and appropriate, this EBITDA measure and the cash adjusted EBITDA measure below are not necessarily directly comparable to other companies as they are not strictly governed IFRS accounting measures, nor should they be considered as a substitute for, or superior to, any IFRS measures.

Group adjusted EBITDA has improved by £2.7m or 60% since the prior year with the margin improving by 1% to 19% in 2021. This is as a result of the existing higher margin Clareti business continuing to grow and beginning to drive improved operational leverage as it scales along with the impact of the Electra acquisition, which offset the continued reducing margin of the Other solutions and services business lines. Whilst we will ensure that we maximise the current market opportunity through appropriate strategic investments, we do expect to continue to see improvements to these margins in future years. 

Cash Adjusted EBITDA

Cash adjusted EBITDA, refers to adjusted EBITDA reduced by the value of capitalised development spend and any IFRS16 lease-related cash expenses classified as depreciation and interest. We consider this a good measure of cash profitability for modern SaaS business who continue to invest in product development to ensure they remain market leading.  

Group cash adjusted EBITDA has also improved since the prior year, with £2.2m of the £2.7m improvement in adjusted EBITDA (mentioned above) dropping through to improvement cash EBITDA. The £0.5m difference between the improvements in the two EBITDA measures is as a result of capitalised development spend and IFRS-16 lease-related cash expenses in the acquired Electra business. This has resulted in a cash adjusted EBITDA margin of 7%, an improvement of 6% from a margin of 1% in the prior year. Like adjusted EBITDA, we expect to see continued improvements in these margins in future years.

Statutory profit/(loss) after tax and Adjusted diluted EPS

There has been a reduction in statutory profit after tax to a loss of £1.0m from a prior year profit of £1.3m. This reduction of £2.3m is due to the combination of: improved adjusted operating profit of £2.2m as a result of the growth and improved profitability of the Group; offset by; increased exceptional expenses of £1.1m (see below); increased share-based payment charges of £0.2m; increased amortisation on acquired intangibles largely due to the Electra acquisition of £0.8m; and an increased tax charge of £2.4m (see below).

Adjusted diluted EPS has improved by 27% to 5.02 pence per share. Adjusted earnings used in this calculation adjust the statutory result after tax for: exceptional items; amortisation of acquired intangibles, share-based payments and the deferred tax charge in relation to the sale of the IP acquired with Electra from the US to the UK business (see taxation below).

Exceptional items

During the year, the Group recognised exceptional costs of £1.8m, of which: (i) £1.3m were acquisition costs in relation to the acquisition of Electra Information Systems, Inc on 22 June 2021; and (ii) £0.5m related to various integration expenses in relation to the same acquisition. The prior year exceptional costs of £0.4m were in relation to the July 2020 acquisition of Inforalgo and various restructuring costs upon the July 2020 expiry of the earn-out period relating to the acquisition of the B2 Group in July 2018. Offsetting the exceptional costs in the year was exceptional income of £0.3m, which occurred from currency hedging activities taking place to fund the USD denominated Electra acquisition. There was no such exceptional income in the prior year.

Taxation

For the year ended 31 December 2021, the Group has recorded a net tax charge of £1.4m (2020: credit of £1.0m). The material drivers for the variance from the prior year being: an increase in overseas current tax charges of £0.5m as a result of the increased profits from our US and Australian operations as those businesses continue to grow, with US taxes also increasing as a result of the Electra acquisition; a one-off deferred US tax charge of £1.4m has also been incurred in the year as a result of the Group's long-term global tax planning, part of which included the sale of the IP acquired in the Electra acquisition from our US business to our UK business to ensure the UK remains the centralised IP generating entrepreneur within the Group; and the surrender of tax losses in relation to UK R&D activities being £0.3m lower than the prior year which included the surrender of two years' worth of qualifying R&D.

Cash flow

The Group's financial position remained very strong throughout 2021, at a headline level the cash balance at the year end of £9.1m remained fairly consistent with that of the prior year end of £8.9m, however there were a number of significant movements beneath the headline balances which are described below. There continues to be no debt in the business, the USD $15m revolving credit facility, put in place at the time of the Electra acquisition as an insurance policy to fund the contingent consideration payments which coincide with the annual low point in cash, has not been drawn upon.

Operating cash flow excluding working capital and exceptional items has increased by £3.0m to £7.5m in the year as a result of the improved cash EBITDA of the Group in existence prior to the Electra acquisition and the cash generative impact of the operations of Electra post acquisition.

Operating cash outflow from exceptional items has increased by £1.4m since the prior year to £1.8m. This increase is one-off in nature with the significant majority being advisory and integration fees in respect of the Electra acquisition.

The movement in working capital has increased by £0.7m to £1.3m at the end of the year. The increase in the movement in working capital is as a result of the inclusion of Electra working capital in the Group balance sheet since acquisition which was offset by a reduction relating to the unwinding of an initial three-year prepayment of £3.0m from a £1.0m per annum subscription licence that became non-contingent in March 2019.

Net tax payments of £1.1m were made during the year (2020: net tax receipts of £0.8m). Gross tax payments were made in the year of £1.1m (2020: £0.5m), the increase on the prior year largely as a result of increased profitability in the US and Australia. In the prior year the Group also received gross tax receipts of £1.3m in the year as a result of research and development activities performed during 2018 and 2019 where enhanced relief was available, an equivalent gross tax reclaim was made during 2021 totalling £1.1m, however, this was not received from HMRC until January 2022.

The capitalised development expenditure of £4.2m has increased by £0.7m from the prior year, the vast majority of the increase being in relation to such expenditure within the acquired Electra business.

During the year the Group paid £0.9m of contingent consideration in relation to the July 2020 Inforalgo acquisition, in the prior year the initial consideration of £1.9m was paid. The Group is delighted to report that the contingent consideration payment of £0.9m was paid in full shortly after the first anniversary of the acquisition as the target metrics agreed with the sellers were met in full. Subsequent to the year end, the final contingent consideration payment of £0.4m was also paid in full during February 2022.

The Group paid £19.6m (net of cash acquired) of initial consideration during the year to acquire Electra in June 2021. This was funded through the capital raised of £20.2m (net of costs) in June 2021.

The Group received £0.1m upon the exercise of share options during the year (2020: £0.5m).

As was the case in the prior year, with increasing Clareti sales (now including Electra) from the growing annuity base and new customer wins, coupled with carefully selected and controlled investments, we expect the cash-generation capacity of the business to continue and are looking at opportunities to best utilise the excess cash generated. In order to maximise our returns, we plan to increase levels of investment in distribution and customer success, whilst continuing to invest excess cash efficiently in bank deposits and giving appropriate consideration to M&A opportunities.

			2021	2020	Variance	%
Opening cash & cash equivalents at 1 January		£m	8.9	9.6	(0.7)	(7%)
Operating cash flow excluding exceptional items		£m	7.2	4.5	2.7	60%
Operating cash flow from exceptional items		£m	(1.5)	(0.4)	(1.1)	(275%)
Total operating cash flow excluding working capital		£m	5.7	4.1	1.6	39%
Movement in working capital		£m	1.3	0.6	0.7	117%
Cash inflow from operations		£m	7.0	4.7	2.3	49%
Net tax (payments)/receipts		£m	(1.1)	0.8	(1.9)	(239%)
Capital expenditure - development costs		£m	(4.2)	(3.5)	(0.7)	19%
Capital expenditure - other		£m	(0.1)	(0.1)	-	-
Principal paid on lease liabilities		£m	(0.6)	(0.6)	-	-
Inforalgo acquisition (net of cash acquired)		£m	(0.9)	(1.9)	1.0	51%
Electra acquisition (net of cash acquired)		£m	(19.6)	-	(19.6)	-
Shares issued - Electra acquisition (net of costs)		£m	20.2	-	20.2	-
Shares issued - upon option exercises		£m	0.1	0.5	(0.4)	(80%)
Dividend		£m	(0.5)	(0.5)	-	-
Other		£m	(0.1)	(0.1)	-	-
Net increase/(decrease) in cash and cash equivalents		£m	0.2	(0.7)	0.9	129%
Closing cash & cash equivalents at 31 December	KPI	£m	9.1	8.9	0.2	2%

 

Consolidated statement of financial position

Intangible fixed assets have increased from £31.1m to £62.3m, largely as a result of the Electra acquisition in June 2021.

Trade receivables increased from £2.5m to £3.8m and accrued income (a contract asset) have increased from £0.4m to £1.2m both of these increases are aligned with the proportioned increase in revenues from the Electra acquisition and associated billing cycles.

Income tax receivable has increased from nil to £1.1m due to a timing difference in the receipt of funds from HMRC in relation to R&D credits, in which the cash from the 2021 claim in relation to 2020 activity was received in January 2022, whereas the cash from the equivalent claim made in 2020, in relation to 2018 and 2019 was received in December 2020.

Called up equity share capital increased by £0.7m to £4.2m and the share premium account increased by £19.6m to £23.9m. These are both as a result of the capital raise in June 2021 that funded the Electra acquisition.

Deferred tax liabilities have increased by £5.5m to £6.8m as a result of £1.4m deferred tax charge in the year on the IP sale from the US to the UK (see tax section), £3.8m deferred tax generated upon the acquisition of intangibles upon the Electra acquisition (net of subsequent amortisation) and £0.4m in relation to the expected increase in future UK tax rates from 19% to 25%.

Non-current contingent consideration has increased by £3.3m to £3.6m and current contingent consideration has increased by £3.0m to £3.9m. Within non-current contingent consideration during the year, £3.6m was generated on the acquisition of Electra, with the second contingent consideration payment of £0.4m in relation to the Inforalgo acquisition moving from non-current to current contingent consideration since the prior year. Within current contingent consideration during the year £3.6m was generated on the acquisition of Electra, the first contingent consideration payment of £0.9m was paid upon targets being met on the first anniversary of the Inforalgo acquisition and the aforementioned £0.4m in relation to the Inforalgo acquisition moved from non-current to current contingent consideration since the prior year.

Trade payables increased from £0.9m to £1.1m, which is largely aligned with the increased size of the combined business subsequent to the Electra acquisition. Other payables have increased from £3.3m to £6.5m as a result of various other payables related to the Electra acquisition, other payables in relation to regular Electra business activity (e.g. sales tax) and an increase in the bonus provision to all employees and executives reflecting the performance against annual targets. Contract liabilities have increased from £11.0m to £12.0m, the increase is as a result of the proportioned increase in revenues from the Electra acquisition and associated billing cycles; offset by to the unwinding of an initial three-year prepayment of £3.0m from a £1.0m per annum subscription licence that became non-contingent in March 2019.  

Financial outlook

Management is very pleased with the financial performance for the year, particularly given that the Group entered 2021 with a weaker pipeline than desired as a result of the COVID-10 challenges of 2020. It is a testament to the Group that we achieved a 20% organic growth rate in Clareti ARR, bolstered to 95% including the Electra acquisition. The Group plans to at least maintain this level of organic Clareti ARR growth going forward.

The other (non-Clareti) software portfolio continues to surpass expectations. Parts of the portfolio are in long-term decline and since the general trend is towards the lower margin products and services, we continue to plan for a declining contribution to Group earnings. We expect our contracting services business to remain relatively stable in 2022.

Overall, through continued organic growth and the Electra acquisition we have further increased levels of revenue predictability throughout the Group. In addition to the significantly increased Clareti recurring revenue base, high levels of contracted backlog of Clareti services for ongoing implementations and innovation services and a high portion of the non-Clareti portfolio already is already under contract for 2022. This was the case as we entered 2020 and 2021 and is the case to an even greater degree as we enter 2022. With this in mind, we continue to invest for growth, including the re-investment of cost synergies generated through the scale that the combined Clareti and Electra provides the Group. This net investment will be focussed on distribution, product and customer success, to drive revenue synergies to ensure that we are best placed to take advantage of the significant market opportunities.

 

Tom Mullan

Chief Financial Officer

7 March 2022

 

 

 

 

 

CONSOLIDATED INCOME STATEMENT

 

	notes	year ended 31 December 2021	restated year ended 31 December 2020
		£'000	£'000
revenue	4,5	37,026		24,752
cost of sales		(11,799)		(7,003)
gross profit		25,227		17,749
adjusted administrative expenses		(21,146)		(15,911)
adjusted operating profit		4,081		1,838
adjusting administrative items:
exceptional costs	5	(1,821)		(400)
exceptional income	5	330		-
amortisation on acquired intangibles	14	(1,673)		(893)
share-based payments	23	(369)		(220)
		(3,533)		(1,513)
total administrative expenses		(24,679)		(17,424)
operating profit	5,6	548		325
finance revenue	4,9	4		37
finance costs	9	(121)		(54)
profit before taxation		431		308
taxation	10	(1,443)		953
(loss)/profit after taxation attributable to the equity holders of the parent		(1,012)		1,261
earnings per share
statutory		pence		pence
basic earnings per share	11	(1.31)		1.84
diluted earnings per share	11	(1.31)		1.80
adjusted
basic earnings per share	11	5.08		4.04
diluted earnings per share	11	5.02		3.96

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME