TUNGSTEN CORPORATION PLC
("Tungsten", the "Company" or "Group")
25 February 2019
TRADING UPDATE FOR THE NINE MONTHS ENDED 31 JANUARY 2019
November 2018 to January 2019 ("Q3-FY19") Unaudited Financial Highlights
· Revenue increase of 13.9% from £8.2 million in Q3-FY18 to £9.3m in Q3-FY19
· Positive EBITDA1 of £1.0 million generated in Q3-FY19 compared with an EBITDA loss of £1.8 million in Q3-FY18
· Positive EBITDA1 £0.4 million on an underlying basis in Q3-FY19, excluding bonus release relating to prior quarters
· Gross margin of 96.2%, a 390 basis point improvement from 92.3% in Q3-FY18
· £0.5 million net cash inflow in Q3-FY19 (Q3-FY18: £4.2 million outflow)
· Liquidity improving, with net cash of £2.5 million at 31 January 2019 (31 October 2018: £2.0 million), excluding £4.0 million HSBC facility
May 2018 to January 2019 ("YTD Q3-FY19") Unaudited Financial Highlights
· Revenue increase of 7% YTD Q3-FY19 to £26.9 million (YTD Q3-FY18: £25.2 million)
· £7.0 million improvement in nine-month YTD EBITDA1 from £6.8 million loss YTD Q3-FY18 to £0.2 million profit YTD Q3-FY19
· Gross margin of 94.5%, a 280 basis point improvement from 91.7% in YTD Q3-FY18
· Net cash outflow reduced by £9.9 million from a £13.8 million outflow YTD Q3-FY18 to a £3.9 million outflow YTD Q3-FY19
· 21 contracts now renewed YTD Q3-FY19, of which 16 renewed at mean 21% price rate rise
· Tungsten Network now an approved Italian tax authority intermediary and beneficiary of new regulation mandating government validation of all Italian domestic B2B invoices; incremental Italian revenue of £0.5 million in FY19
· 0.3 million transactions added YTD Q3-FY19; last 12 months (LTM) total transaction volume of 18.0 million
· Average revenue per transaction increased to £1.97 in LTM to Q3-FY19 (LTM to Q3-FY18: £1.89)
· Adjusted operating expenses2 reduced by 16% to £25.2 million (YTD Q3-FY18: £29.9 million)
· In January 2019, TNF average outstandings of £68.9 million (October 2018: £68.5 million)
1. EBITDA excludes interest, tax, depreciation, amortisation, foreign exchange gain or loss, share-based payments charges and exceptional items.
2. Adjusted operating expenses excludes cost of sales, interest, tax, depreciation, amortisation, foreign exchange gain or loss, share-based payments charges and exceptional items.
Tony Bromovsky, Chairman
"Today's Q3 results demonstrate a business that is strong, growing and is now consistently generating a monthly EBITDA profit.
"Through the Board's Operating Review we have already implemented changes to the Group's remuneration and changed key areas of focus in the business. As we finalise the Operating Review and implement its recommendations, we are confident of successfully closing FY19 and delivering a step-change in performance over FY20.
"Our process to appoint a new CEO has identified some exceptional candidates, and we expect to announce an appointment next month".
Tungsten's Operating Review, commenced in the autumn of 2018, has started to generate improved results even before its final conclusion and full execution of its recommendations. The Operating Review is intended to accelerate revenue and profit growth rates and encompasses four workstreams: sales and marketing; products, operations and cost base. Each of these are interlinked and the work to date has identified a number of growth inhibitors and how they can be addressed.
The review has involved significant work within Tungsten and we have also employed a leading market research consultancy who interviewed current and prospective customers to help assess Tungsten's competitive positioning. Their conclusions are that we remain one of the premier networks for both purchase order (PO) and invoice delivery, we have competitive accounts payable (AP) e-Invoicing and accounts receivable (AR) e-Invoicing solutions, we are perceived as having strengths in tax compliance and supplier satisfaction and we are perceived as having a good price/value equation for our offerings.
Sales and marketing
The review has identified areas to address where appropriate disciplines have not been enforced. Some of these have now been addressed, with the remainder now in focus. The review has also identified opportunities to grow sales more effectively. In particular, as more governments follow the Italian example mandating e-Invoicing we intend to focus more on emphasising our tax compliance capabilities, pursue more opportunities in collaboration with specialist procurement vendors and expand and strengthen our AR e-Invoicing solutions.
Tungsten provides a wide range of AR and AP automation services. We intend to make more of our range of services, to expand what we do with our current customers and support new customer acquisition. This includes expanding our current AR e-Invoicing solutions, PO services and invoice status services, and adding complementary services such as Mastercard Track. Tungsten has for some time been taking steps to broaden the product range and changes now implemented have improved our current products and the product pipeline.
We are reviewing opportunities to accelerate the growth and move to profitability in our Tungsten Network Finance business. This involves assessing a number of options, which include strategic operating partnerships, external direct investment or a sale of a majority stake in that part of the business, while still offering a full range of trade finance solutions to our customers.
Over the next year we expect to make significant progress in a number of areas where technology and process improvements can improve our customer experience and our operating efficiency. We have commenced projects to overhaul our customer portal, automate much of our customer support activities, enhance our technologies to connect with customers and integrate our customer billing activities with our customer relationship management. Each of these initiatives will support increased customer onboarding and retention and reduce the cost of servicing these customers.
While Tungsten has achieved significant reductions in its cost base over the past three years, we continue to identify further opportunities to right-size our expenses. This includes reviewing our global office footprint, identifying further opportunities to offshore and outsource internal functions and reduce headcount following delivery of our operational automation projects.
The Board continues to consult widely with shareholders on proposals to change the Group's remuneration structures to align with best practice under the QCA Code. A wide range of feedback has been received, and the Board intends to implement changes to remuneration prior to the end of the financial year. This will include a significant reduction in cash bonus payments in favour of the issuance of free deferred shares and the introduction of an LTIP scheme with clearly defined performance conditions.
The Board expects to complete the Operating Review by April 2019 and thereafter implement the recommended outcomes in close collaboration with the new CEO.
Revenue and sales progress
Unaudited revenue of £9.3 million in Q3-FY19 was 13.9% higher than the same period in the prior year (12.6% on a constant currency basis). Revenue in the comparative quarter (Q3-FY18) of £8.2 million represents a low base on which to compare the Q3-FY19 revenue performance. However, revenue growth of 3.9% compared to Q2-FY19 (Q2-FY19: £8.9 million) reflects the fourth consecutive quarter of revenue growth.
Quarterly revenue of £9.3 million includes:
· Recurring revenue of £8.4 million (Q2-FY19: £8.1 million)
‐ An increase of £0.2 million from new products and services sold to Accounts Payable automation customers
‐ An increase of £0.1 million from transaction fees
· One-off fees of £0.9 million (Q2-FY19: £0.9 million)
‐ £0.2 million of this growth was from non-recurring set-up fees, primarily for customers in Italy
‐ A further £0.1 million of the growth was from non-recurring set-up fees relating to new products
‐ Compares with normal one-off revenues of approximately £0.6 million per quarter
Gross margin, adjusted operating expenses and EBITDA
Gross margin of 96.2% reflected a 390 basis point improvement from 92.3% in Q3-FY18. Gross margin fluctuates depending on the sales mix. In particular, the people cost delivering professional services revenue is included within adjusted operating expenses and not cost of sales.
Adjusted operating expenses of £8.0 million include a £0.7 million benefit from the release of the Group's bonus provision, reflecting the Group's revised remuneration plans. Excluding this £0.7 million benefit, adjusted operating expenses were reduced by £0.7 million (7%) from the same period in the prior year (Q3-FY18: £9.4 million).
Total adjusted operating and capital expenses of £27.8 million in YTD Q3-FY19 (£8.6 million in Q3-FY19) were £5.7 million (17%) lower than YTD Q3-FY18.
Tungsten generated a £1.0 million positive EBITDA in Q3-FY19 (£0.4 million on an underlying basis, which excludes bonus provision releases relating to prior quarters). This compared with an EBITDA loss of £1.8 million in Q3-FY18. YTD Q3-FY19 EBITDA of £0.2 million compared to a loss of £6.8 million in YTD Q3-FY18.
The Q3-FY19 underlying EBITDA profit of £0.4 million includes an EBITDA loss of £0.3 million directly attributable to Tungsten Network Finance (TNF). The Group excluding TNF generated an EBITDA profit for the quarter of £0.7 million.
Ending net cash balance1
1 Includes invoice receivables (TNF invoices that were self-financed by Tungsten), considered as near-cash by Management
Net cash at the end of Q3-FY19 was £2.5 million. This includes £3.5 million of cash, offset by £1.0 million of drawings under our HSBC facility. The quarterly cash movement and quarter-end cash balance since Q1-FY18 is summarised below:
A net cash inflow of £0.5 million over Q3-FY19 represents the first quarterly inflow that Tungsten has ever achieved (excluding where cash grew from the sale of Tungsten Bank). This significant improvement reflects the underlying EBITDA of £0.4 million, £0.2 million of other operating cash inflows and a working capital inflow of £0.5 million, offset by capital expenditure of £0.6 million.
Included within the Q3-FY19 cash flow was the benefit of a seasonal working capital inflow of £1.0 million as a result of the collection of annual maintenance fees from Workflow customers. Normalising for this amount would result in a cash outflow of £0.5 million. Tungsten expects to end FY19 with net cash of approximately £2.0 million.
Tungsten intends to release an unaudited pre-close trading update for FY19 on 23 May 2019. Tungsten's final results for FY19 are scheduled for release on 21 July 2019.
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
This announcement contains inside information for the purposes of the Market Abuse Regulation No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
For further information please contact:
Tungsten Corporation plc
Tony Bromovsky, Chairman
David Williams, Chief Financial Officer
+44 20 7280 7713
Panmure Gordon (Nominated Adviser)
+44 20 7886 2500
Canaccord Genuity Limited (Financial Adviser and Broker)
Simon Bridges / Emma Gabriel
+44 20 7523 8000
About Tungsten Corporation plc
Tungsten Corporation (LSE: TUNG) aims to be the world's most trusted business transaction network by using data intelligently to strengthen the global supply chain.
Tungsten Network is a secure business transaction network that brings businesses and their suppliers closer together with unique technology that revolutionises invoice processing, maximises efficiency and improves cash flow. Delivering trusted connections and streamlined transactions, the network also provides users with real-time spend analysis and offers access to trade finance through Tungsten Network Finance.
Tungsten Network processes invoices for 74 percent of the FTSE 100 and 71 percent of the Fortune 500. It enables suppliers to submit tax compliant e-invoices in 48 countries, and last year processed transactions worth over £164bn for organisations such as Alliance Data, Cargill, Deutsche Lufthansa, General Motors, GlaxoSmithKline, Mondelēz International, Henkel, IBM, Kellogg's and the US Federal Government.
Forward looking statements
This document contains forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Any forward-looking statement is based on information available to Tungsten as of the date of this statement. All written or oral forward-looking statements attributable to Tungsten are qualified by this caution. Tungsten does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in Tungsten's expectations.
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