TIDMFREE
RNS Number : 3938Y
FreeAgent Holdings PLC
05 December 2017
FreeAgent Holdings plc
("FreeAgent", the "Company" or the "Group")
Interim results for the six months ended 30 September 2017
FreeAgent Holdings plc, a provider of cloud-based
Software-as-a-Service ("SaaS") accounting software solutions and
mobile applications designed specifically for UK micro-businesses,
today announces its unaudited interim results for the six months
ended 30 September 2017.
Financial Highlights
-- Revenue increased by 28% to GBP4.6m (H1 2017: GBP3.6m)
-- Gross profit up 22% to GBP3.7m (H1 2017: GBP3.0m)
-- Gross profit margin 80% (H1 2017: 84%)
-- Adjusted EBITDA loss GBP0.3m (H1 2017: loss GBP0.4m), as expected
-- Net loss of GBP1.0m, reflecting planned growth in further
customer acquisition and support costs and increased investment in
product development (H1 2017: GBP1.3m)
-- Net cash of GBP3.4m as at 30 September 2017 (H1 2017: GBP0.6m)
-- Residual lifetime value of future subscriptions from existing
customer base increased by 15% to GBP44.0m (H1 2017: GBP38.1m)
-- Good revenue visibility maintained with ACMRR up 17% at GBP9.0m (H1 2017: GBP7.7m)
Operational & Strategic Highlights
-- Accounting practice clients increased to 37,600 (H1 2017: 29,485)
-- Direct clients increased to 18,247 (H1 2017: 16,724)
-- Strategic partnership with the RBS Group (RBS) building
momentum with RBS customer portal activated during September
o Initial RBS monthly subscribers 571 (H1 2017: nil)
o Post period-end: a further c1,200 monthly subscribers were
added. Total c1,800 as at 4 December 2017
-- Customer Net Promoter Score (NPS) remained high at 72
Commenting on today's results, Ed Molyneux, Chief Executive,
said:
"The first half has seen FreeAgent report continued strong
revenue growth with an evolving channel mix. Growth has continued
in both our direct sales and practice sale channels and, whilst the
rate of growth in our practice sales has been tempered by changes
to IR35 'off-payroll' legislation which has affected public sector
contractors, the underlying market drivers remain intact as
accounting professionals transition towards digital accounting to
cater for all their business requirements.
Considerable progress has been made in developing our strategic
partnership with the RBS Group, with the Bank's customer portal
going live towards the end of the financial period and initial
monthly subscriptions by early adopters in line with our
expectations. RBS' commitment to the project is evidenced by
significant sector and financial support, and the endorsement of
senior RBS management. We look forward to reporting further
progress with the rollout in the second half."
The glossary on page 5 contains definitions and basis of
calculation of SaaS metrics.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
FreeAgent Holdings plc via FTI Consulting, LLP
Ed Molyneux, CEO
Guy Mitchell, Interim CFO
N+1 Singer +44 (0) 207 496 3057
Sandy Fraser, Jen Boorer
(Corporate Finance)
FTI Consulting, LLP +44 (0) 203 727 1000
Matt Dixon, Jamie Ricketts,
Emma Hall
Chief Executive's Statement
During the six-months ended 30 September 2017, the Group
continued to show strong growth in overall revenue. In H1 2018
revenue was GBP4.6 million, representing a 28% increase compared to
H1 2017 (GBP3.6M). Gross margins remained high at over 80% (H1
2017: 84%).
As at 30 September 2017, the Group had a total of 61,037
subscribers, an increase of 18% over H1 2017 (H1 2017: 51,865). The
Group's growth in the period was underpinned by continued positive
business metrics.
The best measure of financial value created by the business
during the period is the movement in the estimated residual
lifetime value of future subscriptions from our existing customer
base. At the period end this was GBP44.0m (H1 2017: GBP38.1m) which
is comprised of GBP21.3m (H1 2017: GBP18.6m) from our direct
customer base and GBP22.7m (H1 2017: GBP19.5m) from our accountancy
practice channel.
Churn remained low in the direct channel at 1.5% (H1 2017:
1.5%), but increased in the practice channel due to the impact of
IR35 legislation. This created a one-off impact for those practices
supporting contractors supplying the public sector, which we expect
will reduce over time on the assumption that future underlying
churn rates will reflect our historic experience. As a result,
churn in the practice channel was 2.9% (H1 2017: 2.0%).
Importantly, all SaaS businesses need to demonstrate healthy
customer acquisition economics, as measured by LTM/CAC, defined as
the customer acquisition cost ("CAC") calculated per customer and
compared to the lifetime margin expected to be generated from that
customer ("LTM").
Using churn rates to approximate LTM, as we have reported
previously, the Group achieved LTM/CAC ratios of 2.8x (H1 2017:
3.8x) for direct customers and 1.9x (H1 2017: 4.6x) for accountancy
practice clients, reflecting the one-off spike in practice channel
customer churn noted above.
On an alternative basis, using Acquired Residual Lifetime Value,
which we are now able to directly calculate, the Group achieved
LTM/CAC ratios of 3.2x for direct customers and 3.3x for
accountancy practice clients. We believe this calculation more
accurately reflects the economics of acquiring new customers and we
intend to track both measures going forward.
Annualised Committed Monthly Recurring Revenue ("ACMRR"), which
includes committed new customer subscriptions during the next 12
months in accordance with contracts agreed with accountancy
practice customers, increased to GBP9.0 million as at 30 September
2017, up 17% on H1 2017 (GBP7.7m).
Average revenue per user ("ARPU"), derived by dividing monthly
recurring revenue by the number of active subscribers within the
relevant channel at any given point in time, was on average
GBP17.96 (H1 2017: GBP17.63) in the direct channel and GBP9.92 in
the practice channel (H1 2017: GBP10.86) during the six-month
period.
Strategy and New Revenue Channels
FreeAgent's vision is "Making businesses happier and more
successful by putting them in control of their finances."
FreeAgent remains well positioned to scale and develop in the
following ways:
-- Growing the core business with a strict focus on UK
micro-businesses and their banks and accountants
-- Providing a premium, differentiated product experience
-- A continued focus on innovation
FreeAgent has made progress in the first half against the
strategic levers noted above, as outlined at the time of IPO.
FreeAgent's revenue is generated through direct sales,
indirectly through accountancy practices and through the banking
channel, including a developing strategic partnership with RBS.
Growth in the direct sales channel remains buoyant and we
continue to see a good return on the investments we make in our
customer acquisition strategies. A number of tactics are employed,
including tried-and-tested digital marketing (pay-per-click
advertising, content-driven marketing etc). We are also building on
our ability to analyse and segment customer behaviour, thereby
seeking to increase conversion rates and further drive the growth
of this channel.
Accountancy practice channel revenues continued to grow in the
period, although this growth was tempered due to the effect on
public sector contractors of changes in the IR35 legislation. This
impacted those accountancy practice customers who provide Personal
Services Company (PSC) support for contractors supplying public
sector organisations. Despite this specific challenge, the practice
channel still represents a significant opportunity for the Group to
gain market share. It is in this context that we continue to drive
thought leadership and awareness of the benefits of digitisation
within the accountancy market. FreeAgent remains at the forefront
in supporting accounting professionals as they move towards cloud
accounting to cater for all of their business finance requirements
and we will look to maintain and build our market presence in this
important channel.
Our strategic relationship with RBS (incorporating the Royal
Bank of Scotland and NatWest) continues to grow from small
beginnings earlier in 2017, when FreeAgent was selected ahead of
all of our competitors to supply an integrated banking-accounting
proposition for RBS customers. Since that time FreeAgent and the
Bank have together engaged in wide-ranging activities to integrate
systems and create roll-out processes. In the six months ended 30
September 2017, GBP0.26 million of revenues were generated from
advanced integration activities specifically for RBS and this
revenue stream is expected to continue in 2018 as we enhance our
offering for RBS business banking customers.
RBS's positive engagement with FreeAgent is evidenced by
significant sector and financial support, and the endorsement of
senior RBS management. Although in the early stages of rollout,
with the Bank's customer portal activated shortly before the end of
the financial period, early customer adoption rates have been very
encouraging. 571 monthly subscribers were recognised at 30
September 2017 and more than 1,200 were added post period-end, now
totalling c1,800 as at 4 December 2017. Looking ahead, we expect to
deepen our partnership with this important customer as FreeAgent is
introduced on a progressive basis to the Bank's c 665,000 strong
micro-business customer base.
One of the primary drivers of both accounting practice and the
wider banking channel's interest in FreeAgent is the forthcoming
transition to a digital tax regime - HMRC's Making Tax Digital
(MTD) agenda. Despite a softening in the original highly-ambitious
timetable for delivery, work continues apace at both HMRC and with
software vendors to support the necessary new interfaces and
processes. In April 2019 those customers filing VAT returns will do
so within the new MTD system, and from 2020 onwards it is highly
likely that other areas of business tax will follow suit. FreeAgent
is exceptionally well positioned to help businesses manage this
transition smoothly, and similarly, despite the delayed timescales,
we are seeing accountants and banks alike increasingly keen to
support their clients' migration to digital systems.
Even in advance of MTD, our strategy of differentiation drives
us to deliver a fully-integrated compliance solution for our
customers - everything from time-slips to tax returns, and to
continue to invest in simplifying our customers' lives and helping
them be more successful with their digital accounting. As the final
piece of this compliance solution, during the second half FreeAgent
will become the first accounting software provider to launch the
integrated digital filing of corporation tax and statutory
accounts, which will significantly streamline the compliance
process for businesses and their accountants alike.
To maintain this pace of strategic innovation, we have continued
to invest in staff, systems and processes during the period. We
have successfully attracted talent accordingly and have
strengthened our team since IPO: employee headcount (131 employees)
has increased by 22% on H1 2017 (H1 2017: 107 employees).
Current Trading and Outlook
FreeAgent is now operating successfully across three
complementary market channels (direct, practice and banking) and
our cash resources will be deployed across further functionality
advances and specific customer acquisition strategies to service
these markets, in line with our stated strategy.
The Group will also continue to explore with RBS opportunities
for adding further value to the Bank and its customers in terms of
additional functionality, particularly around data insights and
open banking.
Operating costs have grown in line with management expectations
as the Group continues to consolidate and grow market share through
a land, expand and retain strategy. Our balance sheet is strong
with net cash balances at the period end of GBP3.4m and we
anticipate monthly EBITDA break-even towards the end of calendar
year 2018.
We expect to report further strategic progress and solid
business growth during the second half, building on the
achievements of the first six months of the year.
Ed Molyneux
Chief Executive
5 December 2017
Glossary
Subscriber: Subscriber means each unique subscription by an
accounting partner, an end user or a financial institution.
ACMRR: Annualised Committed Monthly Recurring Revenue represents
actual monthly recurring revenue at 30 September 2017 multiplied by
12, plus any incremental revenue committed from accounting partners
within the next 12 months. Accordingly, it provides a 12-month
forward view of revenue.
ARPU: Average revenue per user is calculated as monthly revenue
at 30 September 2017 divided by subscribers at that time.
Lifetime Value (LTV): LTV is the revenue expected from a
subscriber over the lifetime of that subscriber. This is calculated
by taking the average subscriber lifetime multiplied by ARPU. The
residual LTV is the total LTV to be collected from all existing
subscribers across their expected lifetimes.
Lifetime Margin (LTM): LTM is the gross margin expected from a
subscriber over the lifetime of that subscriber. This is calculated
by taking the average subscriber lifetime multiplied by ARPU
multiplied by the gross margin percentage.
CAC: Customer acquisition costs including sales and marketing
activities.
H1 2017: Is the six-months ended 30 September 2016
H1 2018: Is the six-months ended 30 September 2017
INDEPENT REVIEW REPORT TO FREEAGENT HOLDINGS PLC
Introduction
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2017 which comprises the consolidated
statement of comprehensive income, the consolidated statement of
financial position, the consolidated statement of changes in
equity, the consolidated statement of cash flows and the notes to
the interim financial statements.
We have read the other information contained in the interim
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The interim report, including the financial information
contained therein, is the responsibility of and has been approved
by the directors. The directors are responsible for preparing the
interim report in accordance with the rules of the London Stock
Exchange for companies trading securities on AIM which require that
the half-yearly report be presented and prepared in a form
consistent with that which will be adopted in the company's annual
financial statements having regard to the accounting standards
applicable to such annual financial statements.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Our report has been prepared in accordance with the terms of our
engagement to assist the company in meeting the requirements of the
rules of the London Stock Exchange for companies trading securities
on AIM and for no other purpose. No person is entitled to rely on
this report unless such a person is a person entitled to rely upon
this report by virtue of and for the purpose of our terms of
engagement or has been expressly authorised to do so by our prior
written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we
hereby expressly disclaim any and all such liability
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial statements for the six months ended 30
September 2017 is not prepared, in all material respects, in
accordance with the rules of the London Stock Exchange for
companies trading securities on AIM.
BDO LLP
Chartered Accountants and Registered Auditors
Edinburgh
United Kingdom
5 December 2017
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated statement of comprehensive income
For the 6 months ended 30 September 2017
Unaudited Unaudited
6 months 6 months
ended ended
30 Sep 30 Sep
17 16
GBP'000 GBP'000
Revenue 4,612 3,606
Cost of sales (915) (578)
Gross profit 3,697 3,028
Administrative expenses (4,605) (4,154)
Loss from operations (908) (1,126)
Finance expense (50) (188)
Loss before tax (958) (1,314)
Tax 4 -
Loss for the period (954) (1,314)
Other comprehensive income
Items that will be reclassified
subsequently to profit
or loss:
Exchange differences
on translation of foreign
operations - -
Total other comprehensive
income - -
----------- -----------
Total comprehensive loss
for the period
attributable to shareholders
of the parent (954) (1,314)
=========== ===========
Loss per share attributable
to the ordinary equity
holders of the company Pence Pence
Basic and diluted loss
per share (2) (22)
Consolidated statement of financial position
As at 30 September 2017
Unaudited Unaudited
30 Sep 30 Sep
17 16
GBP'000 GBP'000
Non-current assets
Property, plant and equipment 1,308 675
Intangible assets 1,805 1,924
----------- -----------
3,113 2,599
Current assets
Trade and other receivables 1,111 780
Corporation tax receivable 35 50
Cash and cash equivalents 3,439 631
4,585 1,461
Total assets 7,698 4,060
=========== ===========
Non current liabilities
Bank borrowings - (1,875)
Long term provisions (177) (100)
----------- -----------
(177) (1,975)
Current liabilities
Trade and other payables (2,933) (1,804)
Provisions - (39)
Bank borrowings - (650)
----------- -----------
(2,933) (2,493)
Total liabilities (3,110) (4,469)
NET ASSETS / (LIABILITIES) 4,588 (408)
=========== ===========
Issued capital and reserves
attributable to owners of
the parent
Share capital 407 307
Share premium 13,057 5,883
Share based payment reserve 364 1,112
Foreign exchange reserve (10) (10)
Retained earnings (9,230) (7,700)
TOTAL EQUITY 4,588 (408)
=========== ===========
Consolidated statement of changes in equity
For the 6 months ended 30 September 2017
Share Share Share Foreign Retained Total
capital premium based exchange earnings equity
payment reserve
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
31-Mar-16
(audited) 1 6,189 656 (10) (6,442) 394
Loss for
the period - - - - (1,314) (1,314)
---------- ---------- ---------- ----------- ----------- ----------
Total
comprehensive
income for
the period - - - - (1,314) (1,314)
Share based
payment charge - - 512 - - 512
Issue of
share capital
(bonus issue) 306 (306) - - - -
Transfer
- share option
leavers - - (56) - 56 -
Issue costs - - - - - -
---------- ---------- ---------- ----------- ----------- ----------
30-Sep-16
(unaudited) 307 5,883 1,112 (10) (7,700) (408)
31-Mar-17
(audited) 407 13,048 286 (10) (8,276) 5,455
Loss for
the period - - - - (954) (954)
---------- ---------- ---------- ----------- ----------- ----------
Total
comprehensive
income for
the period - - - - (954) (954)
Share based
payment charge - - 78 - - 78
Issue of
share capital - - - - - -
Exercise
of share
options - 9 - - - 9
---------- ---------- ---------- ----------- ----------- ----------
30-Sep-17
(unaudited) 407 13,057 364 (10) (9,230) 4,588
Reserve Description and purpose
Share capital Nominal value of issued shares
Share premium Amount subscribed for share
capital in excess of nominal
value less associated costs.
Share based payment The share based payment reserve
reserve represents equity settled share
based employee remuneration
until such share options are
exercised.
Foreign exchange reserve The foreign exchange reserve
represents the difference arising
on the translation of the assets
and liabilities of the overseas
subsidiary company into the
presentational currency of
the group.
Retained earnings All other net gains and losses
not recognised elsewhere.
Consolidated statement of cash flows
For the 6 months ended 30 September 2017
Unaudited Unaudited
6 months 6 months
ended ended
30 Sep
30 Sep 17 16
GBP'000 GBP'000
Cash flows from operating
activities
Loss for the period (954) (1,314)
Adjustments for:
Depreciation of property,
plant and equipment 209 105
Amortisation of intangible
fixed assets 318 332
Income tax credit 4 -
(Gain) on disposal of
fixed assets - (2)
Share based payment expense 78 512
Finance costs 50 188
Foreign exchange losses
/ (gains) - 262
----------- -----------
(295) 83
Decrease / (increase)
in trade and other receivables 28 (176)
Increase / (decrease)
in trade and other payables 107 (277)
Increase in provisions 16 -
----------- -----------
Cash (used in) / generated
from operations (144) (370)
Income tax received 178 -
----------- -----------
Net cash flows from operating
activities 34 (370)
Investing activities
Purchase of property,
plant and equipment (333) (68)
Development of intangible
assets (485) (352)
----------- -----------
Net cash used in investing
activities (818) (420)
Financing activities
Issue of ordinary shares,
net of issue costs 9 -
Repayment of debt - (210)
Finance costs (50) (188)
----------- -----------
Net cash (used in) /
generated from financing
activities (41) (398)
Net (decrease) / increase
in cash and cash equivalents (825) (1,188)
Cash and cash equivalents
at beginning of period 4,264 1,819
Cash and cash equivalents
at end of period 3,439 631
=========== ===========
Notes to the financial information for the 6 months ended 30
September 2017
1. Basis of preparation
The financial information presented in this interim results has
been prepared in accordance with the recognition and measurement
requirements of International Financial Reporting Standards issued
by the International Accounting Standards Board, as adopted by the
European Union. The principal accounting policies adopted in the
preparation of the financial information in this review are
unchanged from those used in the group's financial statements for
the year ended 31 March 2017 and are consistent with those that the
group expects to apply in its financial statements for the year
ending 31 March 2018.
The interim results for the periods ended 30 September 2016 and
30 September 2017 are unaudited but have been reviewed by the
group's auditor. Full details of the accounting policies are
included in the Report and Financial Statements for the year ended
31 March 2017.
Going concern
The financial information has been prepared on a going concern
basis with the net assets of GBP4.6M at 30 September 17 (30
September 2016 net liabilities GBP408k).
The principal risks and uncertainties facing the group have not
changed from those set out in the Report and Financial Statements
for the year ended 31 March 2017.
The directors are comfortable that committed revenue already
booked, current cash held in the bank and the continued growth of
the various income streams will allow the business to meet all its
obligations and objectives going forward.
Basis of consolidation
The financial information incorporates the results of FreeAgent
Holdings plc and all of its subsidiary undertakings as at 30
September 2017. The results of the subsidiary undertakings are
included from the date of incorporation.
2. Loss per share
6 months 6 months
ended ended
30 Sep 30 Sep
17 16
Numerator
Loss for the period used
in basic and diluted
LPS (954) (1,314)
Denominator
Weighted average number
of shares used in basic
& diluted LPS 40,714,680 5,934,911
Loss per share - basic
& diluted (pence) (2) (22)
At 30 September 2017, there were 3,161,424 (2016: 1,680,800)
share options and 270,000 (2016: 449,330) warrants in issue. In
accordance with IAS 33 where there is a loss for the year, there is
no dilutive effect of options and warrants in issue.
3. Intangible assets
The group has capitalised GBP485k (2016: GBP352k) in respect of
development costs. An amortisation charge of GBP318k (GBP332k) has
been recognised in the consolidated statement of profit and loss
and other comprehensive income for the 6-month period ended 30
September 2017.
4. Taxation
As at 30 September 2017, the tax credit in respect of qualifying
research and development relating to the 31 March 2017 year end is
still being considered by the directors who are confident that a
valid claim for qualifying expenditure in excess of the GBP35k
recognised in the financial statements for the year ended 31 March
2017, will be made. As the outcome is currently unknown, no further
adjustment has been made to the credit previously recognised.
As at 30 September 2017, there is a further unrecognised and
unquantified potential tax credit available to the group relating
to qualifying expenditure on research and development in the
six-month period ended 30 September 2017. The directors have not
yet calculated the claim in respect of this expenditure which will
be made based on the annual results for the year ending 31 March
2018. Accordingly, the directors have not recognised this potential
asset at this time. A full assessment of the credit will be made
and recognised in the annual financial statements.
5. Share based payments
The group operates a SAYE scheme. 570,804 options were issued
during the period with an exercise price of 76 pence.
In addition, a new LTIP scheme for the members of the senior
management team was launched in June 2017. 270,122 options were
granted with an exercise price of GBP1.015 and will vest in 2020
upon achievement of certain performance criteria.
An expense of GBP78k has been recorded in the consolidated
statement of comprehensive income in respect of share based
payments for the 6-month period to 30 September 2017 (2016:
GBP512k).
6. Related party transactions
There are no related party transactions.
7. Foreign exchange loss
The foreign exchange loss recognised in the period ended 30
September 2016 relates to the impact of currency movements on USD
denominated loan funds.
8. Events after the reporting date
There are no events after the reporting date which require
adjustment or disclosure.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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