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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Eagle Eye Solutions Group plc    EYE   GB00BKF1YD83

EAGLE EYE SOLUTIONS GROUP PLC

(EYE)
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Delayed Quote. Delayed London Stock Exchange - 10/14 11:35:22 am
164.5 GBp   -2.66%
09/17EAGLE EYE : Final Results
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Eagle Eye : Final Results

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09/17/2019 | 02:13am EDT

17 September 2019

Eagle Eye Solutions Group plc

('Eagle Eye', the 'Group', or the 'Company')

Final Results for the year ended 30 June 2019

32% AIR platform revenue growth and breakthrough to EBITDA* profitability

Eagle Eye, a leading SaaS technology company that creates digital connections enabling personalised, real-time marketing through coupons, loyalty, apps, subscriptions and gift services, is pleased to announce its results for the financial year ended 30 June 2019 (the 'Year').

Financial Highlights

· Eagle Eye AIR platform revenue growth of 32%, representing 94% of Group revenue (FY18: 88%)

· Group revenue increased 23% to £16.9m (FY18: £13.8m)

· Gross margin of 93% (FY18: 89%)

· EBITDA* of £0.7m, ahead of the Board's expectations(FY18: EBITDA loss of £(2.0)m)

· Recurring revenue increased to £12.0m, representing 71% of Group revenue (FY18: 77%), due to higher one-off implementation fees with larger clients

· Net debt of £(1.2)m at 30 June 2019 (30 June 2018: £0.4m net cash), better than the Board's expectations, with £0.6m net cash generated in H2 2019

Operational Highlights

· Continued growth of the Tier 1 customer base, including the signing of a 5 year contract with Waitrose & Partners and further expansion with existing Tier 1 customers

· Redemption and interactions increased 110% in the year to 847m (FY18: 404m)

· Customer churn reduced to 0.8% (FY18: 1.7%)

· Successful migration to the Google Cloud Platform

· Market reach expanded through partnership with News America Marketing for North America and successful launch of Australian subsidiary

· Growing adoption of our enhanced product offering, including the Digital Wallet, Gift and Eagle Eye App

Outlook

· Entered the new financial year with a considerably increased geographic reach and sales pipeline

· The Board believes that the Group's funding position is comfortable with sufficient headroom within the Group's £5m banking facility to support existing growth plans

· Positive start to FY 20 with current trading in line with Board's expectations.

Notes

All FY18 financials have been restated following adoption of IFRS15 'Revenue from Contracts with Customers' & 16 'Leases'

*EBITDA has been adjusted for the exclusion of share-based payment charges along with depreciation, amortisation, interest and tax from the measure of profit and is reconciled to the GAAP measure of Loss before tax in note 6.

Tim Mason, Chief Executive of Eagle Eye, said:'I am delighted to report a year of continued growth; in revenues, capabilities and market reach, delivering a breakthrough into EBITDA profitability. However, we believe that we are just at the start of our journey. Our customers see the Eagle Eye AIR platform as key to competing in today's digital retail environment and we are confident that the drive to digital is only going to increase in the years ahead.

'We enter the current financial year with a rapidly expanding pipeline of both UK and international opportunities, and the enhanced ability to service them through our powerful and more scalable new Google Cloud environment. Our expanded geographic reach, increasing base of recurring revenues, blue chip customers and strengthened financial and operational position, means that we look to the future with confidence.'

For further information, please contact:

Tim Mason, Chief Executive Officer

Lucy Sharman-Munday, Chief Financial Officer

Tel: 0844 824 3686

Investec (Nominated Advisor and Joint Broker)

Corporate Finance: David Anderson / Sebastian Lawrence

Corporate Broking: Sara Hale / Toba Fatimilehin

Tel: 020 7597 5970

Shore Capital (Joint Broker)

Hugh Morgan/ Daniel Bush/ Sarah Mather

Tel: 020 7408 4090

Alma PR

Caroline Forde/ Rebecca Sanders-Hewett/ Jessica Joynson

Tel: 020 3405 0205

About Eagle Eye

Eagle Eye is a leading SaaS technology company transforming marketing by creating digital connections that enable personalised performance marketing in real time through coupons, loyalty, apps, subscriptions and gift services.

Eagle Eye AIR enables the secure issuance and redemption of digital offers and rewards at scale, across multiple channels, enabling a single customer view. We create a network between merchants, brands and audiences to enable customer acquisition, interaction and retention at lower cost whilst driving marketing innovation.

The Group's current customer base comprises leading names in UK Grocery, Retail and Food & Beverage sectors, including Asda, Sainsbury's, Tesco, Waitrose and John Lewis & Partners, JD Sports, Greggs, Mitchells & Butlers, Pizza Express and in Canada, Loblaws, Shoppers Drug Mart and Esso.

For more information, please visit www.eagleeye.com

Chairman's Statement

I am delighted to report on a year of significant progress, the Group's AIR platform revenue grew 32% whilst at the same time the Group broke through to EBITDA profitability, generated positive net cashflow in the second half of the year and expanded its international reach and capabilities. Our successes in the year have been achieved on many fronts, including winning Waitrose & Partners as a client, expanding our contracts with Loblaw and other Tier 1 clients, enhancing the capabilities of the AIR platform, and making successful inroads into new geographies and sectors. Against this backdrop, management's focus on running the business 'Better, Simpler, Cheaper' has seen the business exceed expectations at the profit level, creating a strengthened financial and operational platform as we move into the new financial year.

The most impressive and strategically important accomplishment in the year was the successful transition of our UK platforms onto the Google Cloud Platform ('GCP') and the completion of our global transition post Year end. This is the largest global GCP migration conducted by Rackspace, our technology partner, and the smooth execution of the project is testament to the skill of our operations and development teams. We are now in the advantageous position of being able to benefit from cutting edge technology, thus enabling us to scale and grow internationally, without considerable upfront costs.

Financial Results

The Group's achievements have delivered another year of strong growth. Group revenue grew 23% to £16.9m (FY18: £13.8m), underpinned by the strong revenue growth from the AIR platform which grew by 32%, to represent 94% (FY18: 88%) of total revenue for the Year. The growth in revenue, combined with the challenge we set ourselves this year of running the business 'Better, Simpler, Cheaper' has resulted in the breakthrough to an EBITDA profit of £0.7m (FY18: loss of £(2.0)m) with loss before interest and tax falling to £2.5m (FY18: £5.1m). EBITDA is a key performance measure for the Group and is reconciled to the GAAP measure of loss before taxation in note 6. This EBITDA profit was delivered ahead of the Board's expectations, due to careful management of costs against our opportunities. This performance helped deliver better than expected cash consumption during the Year, resulting in a £0.6m reduction in the Group's net debt position in the second half of the Year to £(1.2)m as at 30 June 2019 (31 December 2018: net debt of £(1.8)m, 30 June 2018: net cash of £0.4m). The Board believes that the Group's funding position is comfortable and sufficient headroom remains within the Group's £5m banking facility to support our existing growth plans.

As a Board, we are aware and discuss the implications of the current uncertainty with regards to Brexit. That said, we are fortunate that the implications for our business are less than those of a physical goods company. The amount of business performed by the Group in Europe is currently not material and the number of employees impacted is manageable. We continue to monitor as events unfold further.

Bringing eCommerce tools to bricks and mortar retail

We are confident we have a considerable opportunity ahead of us. Non-digital businesses of any type need to acquire the capabilities to deliver data driven, real time, personalised messages and offers to their customers fast, because, if they are unable to do so, they are at a significant disadvantage to their online competitors. The AIR platform provides any retailer with a physical capability to bridge online to offline through coupons, loyalty, apps, subscriptions and gift services. In the continued tough retail climate, the ability of the AIR platform to attract, interact with and retain consumers will be game-changing for non-digital retailers remaining relevant and competitive and wehave seen several indications throughout the Year that the market is now coming towards us. Our existing clients continue to expand their use of the AIR platform, in line with our 'Win, Transact and Deepen' strategy, our level of churn remains very low and our base of recurring revenue is increasing.

We have entered the new financial year with an exciting sales pipeline, as we continue to create opportunities across a greater number of sectors and to enter new geographies. The number of advanced customer discussions in our new territories, Australia and the US, are particularly encouraging and reinforces our conviction that there is demand for the platform across a breadth of markets.

Summary

I would like to take this opportunity to once again thank all our employees, customers, partners and shareholders for their continued support throughout the Year and I look forward to achieving further successes together in the future.

We enter the new financial year in a stronger position than ever before. We believe the market is embracing the move to digital and as a result our pipeline is consistently broadening and deepening. We have all the characteristics you would expect from a well-run SaaS business: high levels of recurring revenues, strong margins, low levels of customer churn and the ability to consistently deepen our customer engagements through product innovation. The breakthrough into EBITDA profitability provides us with a strengthened financial position and we enter the new year with confidence.

Malcolm Wall, Non-Executive Chairman

CEO's Statement

As outlined by our Chairman, this has been a year of achievements. Of note in the Year was our move to the Google Cloud, a milestone feat achieved with no disruption to the business, continued progress with key customers, new customer wins, our growing traction in Australia and the new partnership with News America Marketing, which opens up the North American market. Importantly, the quality of conversations we are having with new prospects is improving, through both increased market awareness and refocused digital marketing campaigns driving inbound opportunities. We once again added a leading retailer to our growing client roster, Waitrose & Partners (joining John Lewis & Partners, a client since May 2017), and look forward to working closely with them on their digital customer strategy in the years ahead.

We remain convinced that these successes are just the beginning for Eagle Eye. Our opportunity is significant, and we have proven the Eagle Eye AIR Platform is relevant across multiple geographies and industries.

Market opportunity

The AIR platform provides retailers with the ability to digitally connect with their customers, whether in an online or offline environment. Research shows that 90% of sales are still completed in a store [1]. Our platform allows businesses with non-digital stores to use the tools of the e-commerce world. Through AIR, retailers and brands can deliver personalised offers to customers, in order to drive visits and increase spend per visit, whilst measuring the effect and returns on marketing performance and sales. The results of this measurement ultimately provide valuable insight into customers' shopping behaviours, enabling further improved marketing initiatives.

Mary Meeker's well respected annual 'Internet Trends' report this year highlighted the rapid growth in mobile advertising spend. The report illustrates the significant shift from press or paper-based advertising towards mobile advertising. Within just eight years, the proportion of global advertising spend on mobile grew from 0.5% in 2010 to 33% in 2018[2], which is forecast to grow to $166bn in 2019[3]. We believe there is pent up demand in the world of promotions, which continues to be predominantly paper based which will follow the same trajectory.

There is significant opportunity in each of the markets we operate in:

· In the promotions market, 302 billion coupons were distributed in 2017 with digital coupon distribution increasing within that by 38%[4];

· The global loyalty management market was valued at USD 2.6 billion in 2018 and is expected to reach a value of USD 9.3 billion by 2024[5],

· The global gift cards market is forecast to grow from USD 307 billion in 2016 to USD 698 billion by 2024[6].

This data illustrates the addressable market for Eagle Eye is significant, and therefore even relatively small increases in market share would be transformational for our business.

Platform

The continued success of our best-in-class digital marketing platform is evidenced by our extensive client base and their loyalty to Eagle Eye. We have enhanced the capability of the Eagle Eye AIR platform which can now deliver over 3,000 transactions per second, which is necessary to meet the needs of Tier 1 clients. Additionally, our ability to provide many products based on a single platform sets us apart from many competitors.

We have never been more confident that the opportunity and market is real and that we have the right platform to succeed. Our focus is, therefore, on ensuring we have the structure and approach across the business to ensure we can execute, whilst continuing to explore new territories and sectors.

Our growth strategy has four main elements

I am pleased to report the following progress across the four main elements of our growth strategy.

1.'Win, Transact and Deepen'

Our customer strategy is to:

· 'Win': bring more customers on to the Eagle Eye AIR platform;

· 'Transact': drive higher redemption and interaction volumes through the platform; and

· 'Deepen': encourage our customers to adopt more of our product portfolio as they become more adept at digital marketing.

With our low rate of customer churn, just 0.8% in the Year, each new customer win significantly adds to our growth prospects. Over the last four years we have seen revenue from our largest revenue-generating customers increase by a multiple of three and a half times. Currently, our top 20 customers take on average two of our five core services, providing significant scope for expansion.

Win

In January 2019 we were excited to announce another new blue-chip client win. We signed a new five-year contract with Waitrose & Partners, who will use the AIR platform to improve their digital marketing proposition, extending our existing relationship with John Lewis & Partners.

We have been pleased with the improved win rate through the year, including securing initial customer engagements which in time should translate into multi-year contracts. During the Year we added new brands and retailers to the Eagle Eye AIR platform. As of 30 June 2019, Eagle Eye had 327 customers and brands on the AIR platform, including 103 FMCG brands, up from 294 customers including 85 FMCG brands at the end of FY18. Other new customers won in the year included Dobbies, Lyle & Scott, Unruled and a number of premium F&B brands.

Transact

The technical strength of the AIR platform and its growing consumer reach can be seen in the strong growth in redemptions and interactions ('AIR volumes') in the Year. These increased 110% in the Year, to 847m (FY18: 404m), primarily driven by the deepening of our relationships with Tier 1 retailers, including the continued expansion of Loblaw's PC Optimum loyalty programme which now has 18m members. The huge success of the Digital Wallet has driven loyalty transactions in the year, which is positive for overall revenue but carries a lower revenue per interaction.

Brands and Audience Partners

As well as being utilised directly by our retail customers, the AIR platform is also used by brands to run campaigns across our Merchant and Audience partner network. We saw a step-up during the Year, both in terms of the number of consumers now part of our network, and the number and average value of the brand promotions run across our platform.As a result, the revenue from brands and audience partners has continued to grow, generating revenue of £0.7m in the year (FY18: £0.5m). We believe this will be a significant additional layer of revenue in future years and a number of initiatives are underway to explore this opportunity.

Clients regularly running brand campaigns include Diageo, Heineken, AB InBev, Britvic and Pernod Ricard, who use innovative and creative channels to deliver brand activation coupon campaigns to consumers by connecting to the Eagle Eye network. New channels used during the Year included chatbots and mobile app-based games; brand-specific campaigns promoted Beck's Blue, Bulmers, Gordon's Gin and the relaunch of Carlsberg Pilsner. This year we ran our first multi-merchant drinks brand campaigns into independent pubs which drives higher campaign value as consumers have a wider range of merchants to redeem offers whilst providing brands with greater consumer insights.

The other element of our 'Transact' strategy are our Audience partners who include affiliate networks and membership groups. These partners add value to our merchants by promoting deals and discounts to their members and through their website traffic. New partners signed in the year included Saga (1.1m members), Days Out With The Kids (17m users a year) and Blue Light Card (1.9m members). These new partners join existing household names in our network such as Groupon, Vouchercloud and the RAC. Our Audience partners not only expand the reach for retailers and brands to run campaigns but also represent a wide range of demographics and interests including students, the over 50s, motorists and those working in the emergency services and Armed Forces.

Deepen

During the Year, like-for-like revenue from existing clients grew by 18% against FY18. The key driver of this is the Tier 1 sector where we have seen growth from both the use of the platform for increased promotional activity and the addition of new services. 65% of the Group's top 20 customers increased their use of the Eagle Eye AIR platform in the year demonstrating high engagement levels.

Most notably, Sarah R. Davis , President, Loblaw Companies Limited, our largest client, said in their Q1 2019 Earnings call: 'We have seen an incredible shift in our ability to use the data from across our organization to provide better consumer offers, make better promotional decisions and more efficiently manage our supply chain network. We are really starting to get some traction.'

As part of our Deepen strategy, retaining clients on the platform is as critical as new client wins. We continue to maintain an exceptionally low level of customer churn rate by value of 0.8% (FY18: 1.7%). We are pleased to have renewed many of our longstanding clients in the F&B, Retail and Leisure sectors, with contracts ranging from one to three years in length.

2. Innovation

Innovation lies at the heart of Eagle Eye and with a focus on enabling our clients to drive acquisition and increase frequency and size of purchase.

The Digital Wallet

I have been delighted to see our Digital Wallet capability, one of our most significant pieces of development work in recent years, move out of development, through launch and now into sales. Following its successful launch with Loblaw, this innovation has been adopted by ten additional clients to provide a more personalised experience and it has a broader appeal across our wider client base.

The Digital Wallet has two key benefits. Firstly, it groups all the things that a consumer can use during a transaction (coupons, points, accounts, gift vouchers) and allows the consumer to access them through any digital channel. Secondly it provides a consistent and real time stream of data about a consumer's actions, making it much simpler for retailers to query, analyse and decide on the next message or offer for that individual consumer.

App

Significant improvements have been made to the App capabilities during the Year; chiefly by incorporating more of the core AIR platform features. This enables retailers using the branded app to offer richer content and a smoother end-user experience for their consumers.

The App business continues to grow, with 3.4 million users now registered across 23 apps, as of end of June 2019. This represents 40% growth in the Year. We are seeing tremendous results from customer campaigns with mobile redemption levels reaching as high as 97% in the F&B sector. This demonstrates that mobile is a powerful engagement tool and enables our customers to quickly and easily push out, test and gather reports on campaigns.

We now also offer multilingual capabilities as we have deployed Apps across Europe in Austria, Belgium, Czech Republic, France and Hungary.

Gift

Our Gift business accounted for 5% of our revenue during the Year, growing 35% on the prior year. During the Year, we have significantly enhanced our branded microsite offering to help our customers grow their digital gift sales: first by launching a brand new business-to-business microsite and then by enabling a more personalised consumer experience and introducing mobile payment on our business-to-consumer microsites. The Gift business now has 39 brands on the platform, including JD Sports, Greggs, Browns, Theatre Tokens, M & Co and Pink the Shirtmaker.

3. International growth

A year ago, we highlighted our intention to enter the Australian market, where we saw strong ties with the UK retail market and believed there would be a significant opportunity for the AIR platform. We are delighted to report that our entry into this region has been extremely successful, as a result of a combination of local sales investment and UK support.We now have several revenue-generating customer engagements, which we are confident will progress to multi-year contracts in the coming year, and a growing pipeline of additional opportunities.

North America is a more mature market for paper couponing and promotions, and we believe that it will ultimately be one of the largest digital promotions markets in the world. In May 2019, we were delighted to announce a partnership with News America Marketing ('NAM'), the premier marketing services company in the US and Canada to deliver next-generation retailer and brand marketing solutions. On announcing the partnership, Martin Garofalo, CEO of News America Marketing described the partnership as a milestone in executing on NAM's strategy to deliver open-platform digital innovation across its network, adding, 'The AIR platform provides superior infrastructure and features for brands and retailers to understand and communicate with their customers. We believe that Eagle Eye is a best-in-class solution that, combined with NAM's core capabilities, will create significant value for all players.'

The partnership continues to open up new conversations and support our growth in the region.

4. 'Better, Simpler, Cheaper'

This time last year we set ourselves the challenge of running our business 'Better, Simpler and Cheaper'. While investing in innovation and growing the business, we would simultaneously look for inherent productivity and efficiencies coming from the scale of what we do. The success of this ethos and the wholehearted manner with which it has been adopted across the organisation, is demonstrated by our breakthrough to EBITDA profitability, ahead of our initial expectations.

For the year ahead, we will be building on these successes and implementing the agile methodology, not only within software development, but across the business, providing us with the means to be more flexible and responsive to changing customer and market demands across multiple geographies.

Google Cloud

We have made excellent progress in our transition to the Google Cloud Platform, our lead 'Better, Simpler, Cheaper' initiative.

'Better' because of Google's superior technology, giving Eagle Eye the benefit of increased performance, better resilience and additional layers of security.We have already seen huge leaps in performance. For example, database backups are now 74 times faster and we can deploy code to all our servers 144 times faster. Looking forward, it allows us to use the tools and technologies provided by Google, such as Artificial Intelligence, logging and monitoring, to aid in the innovation of the AIR platform.

'Simpler' because it consolidates our technology estate across the globe. We will have a single set of build scripts, code releases and deployment methods for all our Google Cloud platforms which will allow efficient management of the platform as we scale.

'Cheaper' because the model allows us to scale on demand; rather than having a datacentre 'on' at all times, we only pay for what we use. Geographic expansion can be achieved faster and with less upfront costs, this being a key driver for change as we grow internationally.

A successful move of our UK test environment in February 2019 was followed in June 2019 by the smooth transition of the UK production environment to GCP. We started the US data centre transition in FY19 and completed the migration to plan in August 2019 post Year end. Associated operating efficiencies and technology enhancements will continue in FY20 as well as further international roll out linked to new contract wins.

People

We were delighted to welcome Robert Senior as a Non-executive Director during the Year. Previously Worldwide CEO of Saatchi & Saatchi, Robert brings valuable and relevant experience to our Board.

In the business, our average headcount has increased in the Year to 138, mainly reflecting recruitment to service new customers won in the Year. A notable hire was Jonathan Reeve whose specialism lies in retail and loyalty. He joined to head up our new Australian and New Zealand operations; we are pleased to welcome him to the Eagle Eye family.

We introduced and successfully implemented the concept of 'Dev 2.0' that re-organised our development team around Agile methodology to provide shared consciousness and deliver through empowered execution. Going forward we will be applying these principles more broadly across the business as we build on the success of our 'Better, Simpler, Cheaper' initiative.

We have created a 'Purple' place to work where people believe in our mission, have pride in their contribution and satisfaction in our achievements. Our culture is important to us and we continue to re-emphasise and reward our employees based on demonstrating 'Purple' behaviour.

Outlook

I am delighted to report on a year of continued growth; in revenues, capabilities and market reach, delivering a breakthrough into EBITDA profitability. However, we believe that we are just at the start of our journey. Our customers see the Eagle Eye AIR platform as key to competing in today's digital retail environment and we are confident that the drive to digital is only going to increase in the years ahead.

Our strategic objectives for the next year are to continue the expansion of our existing customer relationships, secure additional customers in our core geographies and convert the rapidly growing number of international opportunities. We remain focused on delivering our 'Better, Simpler, Cheaper' initiative as a key driver towards an increase in EBITDA profitability, building on the efficiencies realised during the Year.

We have started the current financial year positively and the Group's current trading is in line with the Board's expectations. Our funding position is comfortable and sufficient headroom remains with the Group's £5m banking facility to support our existing growth plans.

We have also entered the current financial year with a rapidly expanding pipeline of both UK and international opportunities and the enhanced ability to service them through our powerful and scalable new Google Cloud environment. Our expanded reach, increasing base of recurring revenues, blue chip customers and strengthened financial and operational position means that we look to the future with confidence.

Tim Mason, Chief Executive Officer

Financial Review

Adoption of IFRS 15 and IFRS 16

These are the first full year results presented by the Group following the adoption of IFRS 15 (Revenue from Contracts with Customers) and IFRS 16 (Leases), which has resulted in the restatement of the comparative information for the financial year ended 30 June 2018.

Under IFRS 15, a SaaS business will typically recognise revenue (including implementation revenue) over time. However, reflecting the agile methodology used to develop and implement solutions for our Tier 1 clients, revenue recognised in each period from these clients is broadly unchanged. Revenue from Tier 1 clients represented 66% of revenue in FY19 (FY18: 56%). For the balance of revenue which comes from non-Tier 1 clients, implementation revenue is now recognised over the period the service is live, rather than as the implementation services are performed. Therefore, during the period of implementation, which is typically between two and six months for non-Tier 1 clients, no revenue will be recognised, although directly attributable associated costs are also spread over the contract period, matching revenue and costs.

This pushes revenue into future periods and resulted in a reduction in reported revenue of £0.6m for FY18. In addition, the assessment of whether the Group is an agent or a principal is different under IFRS 15 and, therefore, revenue and costs of sales (associated with one specific piece of work in FY18) are reduced by £0.4m for FY18. Costs capitalised under IFRS 15 reduce operating costs by £0.3m for FY18.

The adoption of IFRS 16 sees lease costs recognised as depreciation (of a lease asset in the statement of financial position) and interest (reflecting the time value of money) over the period of the lease, instead of within adjusted operating expenses. Reported operating costs reduce by £0.3m in FY18 as a result of the adoption of IFRS 16.

There is no impact on cash flow as a result of adoption of either of these standards, although there are changes to the classifications of some cash flows within the statement of cash flows. Net assets reduce by £0.6m at 30 June 2018.

These adjustments are reflected in the narrative below. Reconciliations are provided in note 5.

Key Performance Indicators

Financial

2019

£000

2018

(restated)(4)

£000

2018

(as previously stated)

£000

Total revenue

16,929

13,781

14,755

AIR revenue

15,927

12,071

13,064

Adjusted EBITDA (1)

714

(2,005)

(2,014)

Operating loss before interest and tax

(2,531)

(5,139)

(4,634)

Net (debt)/cash (2)

(1,237)

372

372

Cash and cash equivalents

1,363

1,472

1,472

Short-term borrowings

(2,600)

(1,100)

(1,100)

Non-financial

2019

2018

AIR volumes

847.2m

403.7m

Messaging volumes

32.9m

56.1m

% of subscription transaction revenue

71%

77%

Customers and brands on the platforms (3)

324

294

Customer churn by value (3)

0.8%

1.7%

(1)Adjusted EBITDA excludes share-based payment charges along with depreciation, amortisation, interest and tax from the measure of profit and is reconciled to the GAAP measure of loss before taxation in note 6.

(2)Net (debt)/cash is Cash and cash equivalents less short-term borrowings.

(3)See the Win and Deepen paragraphs of the CEO's Statement for commentary on number of customers and brands on the platforms and customer churn respectively

(4)See note 5 for the reconciliation between key performance indicators for the year ended 30 June 2018 as previously stated and as restated.

Group results

Revenue

Revenue growth for the Group was 23% for the Year (FY18: 24%), with revenue increasing to £16.9m (FY18: £13.8m) driven by a 32% growth in AIR revenue to £15.9m (FY18: £12.1m). Revenue growth accelerated during the Year, with H2 19 revenue accounting for £8.9m (H1 19: £8.0m), representing growth of 11% on H1 19.

A key element of this growth has been a 23% increase in recurring licence and transaction revenue on the AIR platform to £11.0m (FY18: £9.0m), aided specifically by the full year effect of Loblaw's successfully launching their PC Optimum programme in February 2018 and increased transactional revenue from existing and new customers.

Overall, revenue from the AIR platform now represents 94% of total revenue, £15.9m (FY18: 88%, £12.1m). This increase was largely as a result of the Group's success with deepening our existing Tier 1 grocer clients, in particular from continued development work for Loblaw as they further transform themselves into a customer-centric company driven by data. This was strongly supported by new business wins across all our sectors including initial projects in Australia and New Zealand, and deepening relationships with existing clients across other sectors, thus increasing redemption volumes.

Redemption and interaction volumes, a key measure of usage of the AIR platform, grew by 110% year-on-year to 847.2m for the Year (FY18: 403.7m), driven by the full-year impact of Loblaw's PC Optimum launch and increased volumes through existing F&B and other retail clients, in part driven by a 40% increase in Brand and Audience partner revenue. The growth in volumes associated with our new loyalty product originally built for Loblaw and now adopted by 10 other clients meant that as expected the overall blended revenue per transaction was lower in FY19.

Overall, £12.0m of revenue generated from subscription fees and transactions over the network represented 71% of total revenue (FY18: 77%, £10.6m).The balance, £4.9m, relates to implementation fees for new customers and new services and represents 29% of total revenue (FY18: 23%, £3.2m). The increase in implementation fees primarily reflects the deepening of our relationship with Loblaw, where we continue to help them to drive innovative new features to their loyalty programme, and new Tier 1 wins with Waitrose and other initial customer engagements , helping to drive a 43% increase in Tier 1 revenue to £11.1m (FY18: £7.7m).

However, revenue growth was held back by a 42% reduction in SMS messaging non-core revenue as expected following the loss of a client through a merger event. Overall, SMS messaging is a small revenue stream, which now accounts for only 6% of Group revenue, £1.0m (FY18: 13%, £1.7m). As growth is focussed on the higher margin AIR business, SMS is expected to continue to represent a decreasing proportion of the business in future years.

Gross profit

Gross profit grew 28% to £15.8m (FY18: £12.3m) and the gross margin increased by a further 4ppts to 93% (FY18: 89%). This improvement in margin reflects the increase in AIR platform gross margin to 97% (FY18: 96%) due to the higher proportion of Tier 1 revenue, which is not subject to revenue share agreements, and the lessening impact of the lower margin SMS messaging business which now accounts for only 2% of gross profit (FY18: 6%).

Other costs of sales include the cost of sending SMS messages, revenue share agreements and outsourced, bespoke development work. All internal resource costs are recognised within operating costs, net of capitalised development and contract costs.

Adjusted operating expenses

Despite revenue growth of 23%, growth in adjusted operating expenses has been limited to just 5% at £15.0m (FY18: £14.3m). This cost represents sales and marketing, product development (net of capitalised costs), operational IT, general and administration costs. The increase reflects higher infrastructure costs of £4.1m (FY18: £3.0m) reflecting client funded data storage costs and the initial costs of our transition to Google Cloud (which is expected to generate like-for-like infrastructure cost savings in FY20), primarily offset by a £0.2m increase in capitalised product development costs and a £0.2m reduction in marketing spend as we have been more targeted with our campaign activity. Although average headcount has increased to 138 (FY18: 130) staff costs have been maintained at £11.1m (FY18: £11.1m) primarily reflecting the prior year investment in people and staff mix. Net staff costs and infrastructure costs in aggregate represent 84% (FY18: 83%) of the Group's operating costs.

Within staff costs, gross expenditure on product development remained constant at £4.0m (FY18: £4.1m), but with increased focus on packaged product development over one-off bespoke work for clients, capitalised product development costs were £2.2m (FY18: £2.0m), whilst amortisation of capitalised development costs was £1.7m (FY18: £1.3m). Contract costs, recognised as assets under IFRS 15, were £0.4m (FY18: £0.3m) and amortisation of contract costs was £0.3m (FY18: £0.3m).

Adjusted EBITDA

The growth in revenue and margin, combined with successfully making progress towards meeting the challenge we have set ourselves of running the business 'Better, Simpler, Cheaper' has resulted in the breakthrough to an adjusted EBITDA profit of £0.7m (FY18: loss of £(2.0)m) for the Year. To provide a better guide to the underlying business performance, adjusted EBITDA excludes share-based payment charges along with depreciation, amortisation, interest and tax from the measure of profit. The GAAP measure of operating loss before interest and tax was £2.5m (FY18: £5.1m) reflecting the EBITDA profit achieved in the year and a decrease in the non-cash share-based payment charge to £0.8m (FY18: £1.2m) reflecting vesting of options in FY18, offset by increased depreciation and amortisation costs.

EPS and dividend

Finance expense increased to £0.3m (FY18: £0.1m) reflecting planned increased utilisation of the Group's revolving loan facility.

Following receipt of a £0.5m research and development (R&D) tax credit (FY18: £0.4m) and due to historic success in R&D tax claims, the Group has also recognised an additional £0.4m, the receipt of which we expect will follow submission of the Group's FY19 tax returns. As such, reported basic and diluted loss per share improved by 46% to 9.27p (FY18: loss per share 17.06p).

The Board does not feel it appropriate at this time to commence paying dividends and continues to invest in its growth strategy.

Group Statement of Financial Position

The Group had net assets of £4.3m at 30 June 2019 (30 June 2018: £5.8m), including capitalised intellectual property of £3.3m (30 June 2018: £2.8m). The movement in net assets reflects the loss before tax made in the Year.

Cashflow and net cash

The improved EBITDA performance and careful working capital management resulted in a £0.6m cash inflow in H2 2019, resulting in an overall net cash outflow for the year of £1.6m (FY18: outflow of £3.4m). The Group ended the Year with net debt of £1.2m (30 June 2018: net cash of £0.4m) being better than the Board's expectations. The main components to the net cash outflow were the operating cash inflow of £1.6m (FY18: outflow of £(0.8)m), reflecting the EBITDA profit of £0.7m (FY18: loss of £(2.0)m), a working capital inflow of £0.4m (FY18: £0.8m) and the research and development tax receipt of £0.5m (FY18: £0.4m), offset by capital investment in the AIR platform of £2.2m (FY18: £2.0m), payments in respect of leases £0.3m (FY18: £0.3m) and interest due on the Group's revolving credit facility with Barclays £0.2m (FY18: £22,000).

Banking facility

During the Year the Group extended the term of its £5.0m revolving loan facility with Barclays Bank PLC to expire on 31 May 2021. The Group's gross cash of £1.4m (FY18: £1.3m) and the undrawn facility of £2.4m (FY18: £3.9m) gives the Group £3.8m of headroom, which the Directors believe is sufficient to support the Group's existing growth plans.

Consolidated statement of total comprehensive income

for the Year ended 30 June 2019

2019

2018

(restated)

Continuing operations

Note

£000

£000

Revenue

3

16,929

13,781

Cost of sales

(1,171)

(1,475)

Gross profit

15,758

12,306

Adjusted operating expenses (1)

(15,044)

(14,311)

Profit / (loss) before interest, tax, depreciation, amortisation and share-based payment charge

714

(2,005)

Share based payment charge

(822)

(1,204)

Depreciation and amortisation

(2,423)

(1,930)

Operating loss

(2,531)

(5,139)

Finance income

1

-

Finance expense

(277)

(85)

Loss before taxation

(2,807)

(5,224)

Taxation

447

887

Loss after taxation for the financial year

(2,360)

(4,337)

Foreign exchange adjustments

51

29

Total comprehensive loss attributable to the owners of the parent for the financial year

(2,309)

(4,308)

(1)Adjusted operating expenses excludes share based payment charge, depreciation and amortisation

Loss per share

From continuing operations

Basic and diluted

4

(9.27)p

(17.06)p

Disclaimer

Eagle Eye Solutions Group plc published this content on 17 September 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 September 2019 06:11:06 UTC

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NameTitle
Timothy John Rollit Mason Chief Executive Officer & Executive Director
Malcolm Robert Wall Non-Executive Chairman
David Aylmer Chief Operating Officer
Lucy Sharman-Munday CFO, Secretary & Executive Director
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