Castleton Technology plc

("Castleton", the "Group" or the "Company")

Unaudited Interim Results for the Six Months Ended 30 September 2017

Castleton Technology plc (AIM: CTP), the software and managed services provider to the public and not-for-profit sectors, today announces its unaudited interim results for the six months ended 30 September 2017.

Financial Highlights

·     Revenues increased 10.9% to £10.8 million (H1 FY17: £9.7 million), of which 63% are recurring

·     Adjusted EBITDA* increased 11.5% to £2.3 million (H1 FY17: £2.0 million)

·     Cash flow from operations of £2.3 million (H1 FY17: £1.8 million)

·     Profit before tax for the period of £0.2 million (H1 FY17: £0.04 million)

·     Net debt** (including deferred and contingent consideration) as at 30 September 2017 of £8.0 million (30 September 2016: £11.1 million), down from £9.7 million as at 31 March 2017

Operational Highlights

·     Significant new multi-year contract wins with North Hertfordshire Homes and a community regeneration and housebuilding company

·     Delivery of integrated product suite on two milestone contracts

·     Increase in software sales on a hosted basis leading to a stronger base of recurring revenues and greater visibility of earnings  

·     Strong customer retention with customer base now over 730

David Payne, Chairman of Castleton, commented:

"I am pleased to report on a strong performance from the Group during the first half of the year. Whilst recording significant organic growth in both revenues and profit, underpinned by excellent cash generation, the Group has also achieved some key operational milestones, notably the delivery of our integrated product suite on two milestone contracts, which illustrate both the appetite for the proposition and our ability to deliver.

Current trading remains robust and in line with market expectations. As such, the long term prospects for the Group remain positive and we are confident that we have the foundations in place to significantly scale the business."

* Before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges

**Including deferred and contingent considerations and interest accrued on loan notes

Enquiries:

About Castleton Technology plc

Castleton Technology plc is a leading supplier of complementary software and managed services to the public and not-for-profit sectors. The Group is a 'one stop shop', providing integrated housing systems via the Cloud, working in partnership with its customers and resellers to help drive efficiencies whilst improving controls and customer service. www.castletonplc.com

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

Chairman's Statement

Dear Shareholder

I am pleased to report the results of the Group for the six months ended 30 September 2017. The prior year was one of consolidation for the Group, with the focus on completing the integration of the seven companies acquired during the previous two years. We therefore entered FY18 with a strong platform from which Castleton could grow and maximise the opportunities in our chosen markets. The first six months of FY18 have demonstrated that we are able to capitalise on this growth potential with the results showing significant growth in our revenues, adjusted EBITDA and profit before tax, as well as strong operating cash generation.

Operational Review

During the period we have implemented a new operational structure with clearly aligned objectives. Alongside this, sales teams have been tasked with defined territories and targets to enable the Company to better execute its strategy.

Significant multi-year contracts were won during the period. The long term nature of the contracts being entered into, as well as the increasing success we are experiencing in selling our products on a hosted basis, both increases our level of recurring revenues and provides better visibility of earnings and cash flow.

The delivery of Castleton's integrated product suite on two milestone contracts illustrates Castleton's ability to be a 'one stop shop' serving the social housing sector. This followed a period of significant product development and demonstrates that Castleton is able to provide its customers with the technology and services they require to operate effectively and achieve their goals.

The Group remains focused on increasing the number of customers who take multiple products, both by winning new customers and cross selling and upselling products to our existing base, thereby driving further growth in revenues and profit. Illustrating the Group's success in cross selling, the number of customers taking more than one product has increased in the period, with 37 new product sales to 21 existing customers.

Trading and Results

The Group generated revenue for the six months to 30 September 2017 of £10.8 million (H1 FY17: £9.7 million). Recurring revenues are more than 63% of total revenues, with further growth in recurring revenue expected due to the increasing number of multi-year contracts being entered into as well as the success in selling products on a hosted basis. Revenue in the Software Solutions division increased 14% and revenue in the Managed Services division increased 7% when compared to H1 FY17.

The Group generated an adjusted EBITDA* of £2.3 million in the period (H1 FY17: £2.0 million). Adjusted EBITDA* for the Software Solutions division and the Managed Services division (pre central costs) increased 20% and 5% respectively when compared to H1 FY17.

Central costs amounted to £0.7 million (H1 FY17: £0.6 million) before management recharges, excluding net finance costs, depreciation, amortisation of intangible assets, acquisition and integration costs and share based payments.

Exceptional costs amounted to £0.1 million (H1 FY17: £0.1 million) and related to restructuring costs of the Group's scanning bureau operation. 

Net finance costs amounted to a P&L charge of £0.17 million (H1 FY17: £0.20 million).

As the integration of businesses is now complete the cost base has stabilised, the increase in revenues and reduction in exceptional integration and strategic costs and acquisition and reorganisation costs has contributed to a profit before tax of £0.18 million (H1 FY17: £0.04 million). This is after amortisation of intangibles of £1.5 million (H1 FY17: £1.5 million). The amortisation of intangibles and utilisation of brought forward tax losses, alongside a reduction in future tax rates have resulted in a deferred tax credit of £0.4 million (H1 FY17: £0.6 million) leading to profit after tax of £0.6 million (H1 FY17: £0.6 million).

Basic earnings per share from continuing activities was 0.80p (H1 FY17: 0.80p). Diluted earnings per share from continuing activities was 0.75p (H1 FY17: 0.72p). Adjusted diluted earnings per share was 2.73p (H1 FY17: 2.32p).

*Before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges.

Cash Flow and Net Debt

Cash generated by operations amounted to £2.3 million (H1 FY17: £1.8 million) comprising adjusted EBITDA* of £2.3 million (H1 FY17: £2.0 million) and operating working capital movements of £0.07 million (H1 FY17: £(0.28) million). This gave a cash conversion of EBITDA of 103% (H1 FY17: 86%) with the increase on H1 FY17 being largely driven by an increase in trade and other payables.

Net finance charges paid of £0.06 million (H1 FY17: £0.15 million) reflect the cash cost of the interest on the loan with Barclays, the balance of which has decreased due to repayments of £0.5 million (H1 FY17: £0.5 million) made during the period. As at the balance sheet date, £3.75 million of the term loan was outstanding.

In April 2017 Group repaid £0.5 million of the convertible loan notes issued in January 2016 to part fund the acquisition of Kypera ("Kypera Loan Notes"). There are £2.7 million Kypera Loan Notes outstanding, including £0.3 million of accrued interest (30 September 2016: £3.4 million including £0.1 million accrued interest).

On 21 June 2017, it was agreed by the beneficiaries of the Opus loan notes issued at the time of the Company's acquisition of Opus Information Technology Limited that they would waive the remaining £0.2 million of loan notes in consideration of surrendering any potential warranty claims for onerous contracts under the sale and purchase agreement.

The total increase in cash and net cash equivalents was £0.06 million (H1 FY17: decrease £0.02 million). Net Debt (including contingent and deferred consideration and interest accrued on loan notes) at the period end stood at £8.0 million, down from £9.7 million as at 31 March 2017 and £11.1 million as at 30 September 2016.

The Board

In July 2017 Ian Smith, Deputy Chairman, stepped down from the Board. We would like to thank Ian for his instrumental role in establishing and delivering Castleton's organic and acquisitive growth strategy.

At the same time, Paul Gibson was appointed as Non-Executive Director of the Company. Paul is a partner at MXC Capital Limited and has had a highly successful career in the TMT sector, most recently as Chief Operating Officer of Advanced Computer Software Plc ("ACS") prior to its acquisition by Vista Equity Partners for £725 million. In his five years at ACS Paul oversaw a period of exceptional value creation and transformation, with responsibility for driving both organic and acquisitive growth. Prior to ACS, Paul held a number of senior roles in both financial and operational capacities, latterly as Finance Director of Redac Limited, the Alchemy backed turnaround that was subsequently sold to ACS for £100 million. The foundations of Paul's career were built at Unigate, GrandMet (now Diageo) and Oracle. Paul is a qualified accountant and currently sits on the board of Tax Systems plc as Non-Executive Director.

Outlook

Castleton made significant progress during the first six months of the year and this has continued into the start of the second half.

We will continue to concentrate on driving further organic growth across the Group, whilst increasing profitability by providing more of our customers with our broader range of complementary services - and all the time building our core of repeat revenues. 

The Group remains on course to meet market expectations for the full year and looks forward to continuing to build on the solid foundations in place, cementing Castleton's position as a 'one stop shop' serving the social housing sector.

David Payne

Non-Executive Chairman

Consolidated Statement of Comprehensive Income

*Earnings for the period from continuing operations before net finance costs, depreciation, amortisation, exceptional items, group management charges and share based payment charges.

Consolidated Statement of Comprehensive Income

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

                                          ^{Attributable to shareholders of the parent company}                            

a)     Merger reserve

The merger reserve arose from the acquisition of Redstone Communications Limited (£216,000) and Maxima Holdings Limited (£7.75 million) and represents the difference between the value of the shares acquired and the nominal value of the shares issued.

b)     Equity reserve

The equity reserve consists of the equity element of convertible loan notes that were issued as part of the consideration for the acquisition of Kypera Holdings Limited. The fair value of the equity component of convertible loan notes issued is the residual value after deduction of the fair value of the debt component of the instrument from the fair value of the loan note.

c)     Translation reserve         

On consolidation, the balance sheet of Kypera Australia is translated into sterling at the rates of exchange ruling at the balance sheet date. Income statements and cash flows of Kypera Australia are translated into sterling at rates approximating to the foreign exchange rates at the date of the transaction. Gains or losses arising from the consolidation of Kypera Australia are recognised in the translation reserve.

d)     Conversion of loan notes

On 8 July 2016, the company issued 250,000 new ordinary shares of 2 pence each ("Ordinary Shares") at a price of 40 pence pursuant to the conversion of loan notes issued and on 4 October 2016 issued a further 375,000 new Ordinary Shares at a price of 40 pence pursuant to the conversion of loan notes issued as part of the previous acquisition of Opus Information Technology Limited.

Comprising:

Notes to the half-yearly financial information

1.     Basis of preparation and general information

The interim financial information is unaudited. This condensed consolidated interim financial information was approved by the Directors and authorised for issue on 6 November 2017.

The Company is a public limited liability company incorporated and domiciled in England. The address of its registered office is Castleton Technology plc ("Castleton"), 100 Fetter Lane, London, EC4A 1BN. The Company is listed on the AIM market of the London Stock Exchange.

The principal activity of the Group during the period was the provision of software and managed services to the public and not-for-profit sectors, predominantly the social housing sector.

Castleton and its subsidiaries have not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK AIM listed companies, in the preparation of this half-yearly financial report.

This condensed, consolidated interim financial information for the six months ended 30 September 2017 does not comply, therefore with all the requirements of IAS 34, 'Interim financial reporting' as adopted by the European Union.  The consolidated interim financial information should be read in conjunction with the annual financial statements of Castleton for the year ended 31 March 2017, which have been prepared in accordance with IFRS as adopted by the European Union.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2017 were approved by the Board of directors on 17 July 2017 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under sections 498 (2) or (3) of the Companies Act 2006.

Accounting policies

The accounting policies used in the preparation of the financial information for the six months ended 30 September 2017 are in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS") as adopted by the European Union and are consistent with those which will be adopted in the annual statutory financial statements for the year ending 31 March 2018.

While the financial information included has been prepared in accordance with the recognition and measurement criteria of IFRS, as adopted by the European Union (EU), these financial statements do not contain sufficient information to comply with IFRSs.  

Going concern

The consolidated interim financial information of Castleton has been prepared on the going concern basis.

The Directors have prepared detailed cash flow projections including sensitivity analysis on key assumptions. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance and the timing of key strategic events, show the Group will be able to operate within the level and conditions of available funding. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

Based on these facts, the Directors consider that the adoption of the going concern basis is appropriate.

2.     Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Makers ('CODM'). The CODM has been identified as the Executive Board.

The Group is comprised of the following main operating segments:

Managed Services In this segment are the results of Castleton Managed Services Ltd for the six months ended 30 September 2017.

Software Solutions This segment comprises the results of Castleton Software Solutions Ltd, Kypera Limited and Kypera Australia Pty for the six months ended 30 September 2017.

Six months ended 30 September 2017 - unaudited

*Earnings for the period from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional items, group management charges and share based payment charges.

Six months ended 30 September 2016 - unaudited

*Earnings for the period from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional items, group management charges and share based payment charges.

3.     Exceptional costs

 In accordance with the Group's policy in respect of exceptional costs the following charges were incurred:

Restructuring costs relate to closure of the scanning bureau in the period.

On 21 June 2017, it was agreed by the beneficiaries of the Opus loan notes issued at the time of the company's acquisition of Opus Information Technology Limited that they would waive the remaining £0.2 million of loan notes in consideration of surrendering any potential warranty claims for onerous contracts under the sale and purchase agreement.

During the 6 months ended 30 September 2017, a provision was created in respect of onerous contracts associated with the acquisition of Opus Information Technology Limited.

4.     Taxation

Tax on profit on ordinary activities

The rate of UK corporation tax for the year beginning 1 April 2017 is 19% (year beginning 1 April 2016 it was 20%). From the year starting 1 April 2020 the UK corporation tax rate drops to 17%. Deferred tax has been measured on the basis of these rates and reflected in the financial statements.

5.     Earnings per share

Basic earnings per share and diluted earnings per share are calculated using a weighted average number of shares of 78,714,832 and 82,919,847 respectively (30 September 2016: weighted average number of shares of 78,204,586 and 86,743,592 respectively and at 31 March 2017: weighted average number of shares of 78,339,832 and 86,215,879 respectively).

Adjusted diluted EBITDA* per share has been shown on the grounds that it is a common metric used by the market in monitoring similar businesses.

*Earnings for the period from continuing operations before net finance costs, tax, depreciation, amortisation, exceptional items and share based payment charges.

6.     Trade and other payables

7.     Net cash flows from operating activities

8.     Net debt

* Accrued interest on loan notes is presented within "Accrued Interest" in Trade and other payables.
 

Advisers

Nominated Adviser and Broker

FinnCap, 60 New Broad Street London, EC2M 1JJ

Financial Adviser

MXC Capital Limited, 25 Victoria Street, London SW1H 0EX

Auditors

RSM UK Audit LLP, Portland, 25 High Street, Crawley, West Sussex, RH10 1BG

Solicitors

Beachcroft LLP, 100 Fetter Lane, London, EC4A 1BN

Registrars

Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU

Principal Bankers

Barclays Bank plc, 1 Churchill Place, London, E14 5HP

Company Number

03336134

Further details can be found on the Castleton website at the following address: www.castletonplc.com