Final Results

Significant Sales Growth and Channel Partnerships Delivering

PCI-PAL PLC (AIM: PCIP), the customer engagement specialist that secures and protects payment card data for companies handling payments by phone, is pleased to announce full year results for the year ended 30 June 2019 (the "Period").

Financial Highlights

• Revenue increase of 40% to £2.82 million (2018: £2.01 million)
• Gross margin increased to 60.2% (2018: 42.6%) reflecting the transition of our service delivery to AWS
• Substantial increase in sales leading to:
  • Signed Annual Contract Value ("ACV") increasing by 290% to £1.91 million (2018: £0.49 million); and
  • Total Contract Value ("TCV") increasing by 223% to £5.66 million (2018: £1.75 million)
• Total contracted recurring ACV¹ now stands at £4.06 million (2018: £2.17 million)
• Deferred income increased 117% to £2.45 million (2018: £1.13 million) as a result of new business sales growth
• Loss before Tax in line with expectations at £4.50 million (2018: £3.78 million) following significant investment in the North American operations
• Cash balances at year end of £1.49 million (2018: £3.75 million)
• New £2.75 million debt facility entered into in October 2019 to provide additional working capital to support continued growth

Strategic Highlights

• Strong performance against all key metrics across EMEA and North America businesses
• Established as the only partner-first, pureplay organisation operating in the PCI phone payment space with a truly cloud delivery model with availability zones across multiple continents
• Partner-first strategy proven with 84%² of all new business sold via partners (2018: 40%)
• Signed and delivered largest contract in Company's history in UK
• Signed second largest contract in Company's history in North America
• Established global, integrated reseller partnerships with two more global leading CCaaS vendors
• Established reseller partnership and delivered first customer with largest telco in Canada
• Services and customers live across five Amazon Web Services ("AWS") regions of the PCI Pal cloud platform globally
• Maintained customer retention at over 95%

Current Trading

• Successful start to FY 2020 with new business sales levels tracking to management expectations
• New business sold through channel partners has continued at a high rate of >85%
• Announced as EMEA Partner of the Year for the Genesys Partner Community, "AppFoundry"
• Total Contracted ACV as at 30 June 2019 providing over 80% revenue visibility against management expectations for FY 2020
• Appointment of US-based software executive, Simon Wilson, to the board in the role of Non-Executive Director, effective from 1st November 2019

¹ Contracted ACV is the total annual recurring revenue of all signed contracts, whether invoiced and included in deferred revenue or still to be deployed and/or not yet invoiced

² Percentage of new business by signed ACV
 

Commenting on results and prospects, James Barham, Chief Executive Officer said:

"I am pleased to report that we have continued our momentum from the first half of FY 2019, showing continued strong growth in all our key metrics, in particular signed new business ACV. 

"As the only partner-first, globally available cloud provider in our space, we continue to see increases in sales opportunities as we successfully on-board and enable these partner relationships.  As a result the business is developing strong revenue visibility, and I can report that the new financial year has started well and in line with management expectations."

PUBLICATION OF ANNUAL REPORT AND ACCOUNTS & NOTICE OF AGM

Copies of the annual report and accounts and notice of AGM will be posted to shareholders prior to 24^th October 2019 and electronic copies can be downloaded from the Company's website (https://www.pcipal.com/).

This announcement contains inside information for the purposes of Article 7 of Regulation 596/2014.

For further information, please contact:

About PCI Pal:

PCI Pal is a specialist provider of secure payment solutions for contact centres and businesses taking Cardholder Not Present (CNP) payments.   PCI Pal's globally accessible cloud platform empowers organisations to take payments securely without bringing their environments into scope of PCI DSS and other card payment data security rules and regulations.

With the entire product portfolio served from PCI Pal's cloud environment, integrations with existing telephony, payment, and desktop environments are light-touch, ensuring no degradation of service while achieving security and compliance.

PCI Pal has offices in London, Ipswich (UK) and Charlotte NC (USA). For more information visit www.pcipal.com or follow the team on Twitter:  https://twitter.com/PCIPAL

CHAIRMAN'S STATEMENT

FOR THE YEAR ENDED 30 JUNE 2019

During the last twelve months, PCI Pal has made significant progress against both its strategic and operational goals, while at the same time bringing further clarity and specificity to its operating plans. Our business now has a clearly stated Vision: To be the preferred solution provider that technology vendors globally turn to for achieving PCI compliance for payments by phone. We are determined to achieve that Vision through a channel-first approach.

Early and rapid channel success is already becoming evident. For example, 84% of this year's new business bookings were generated through partners and we have created tight-knit, integrated product partnerships with several of the world's leading Cloud Contact Centre-as-a-Service (CCaaS) vendors and other leading technology companies.

The advantages of a channel-first approach and our Cloud-based solutions go beyond just winning new business. Having varying degrees of pre-integration with our contact centre, telephony, and payment gateway partners is now enabling us to deploy and take our customers live in shorter periods of time. The ease of Cloud deployments (compared to on-premise) is also reducing customer delivery challenges that are frequently encountered in our industry. We believe that this is becoming a major source of competitive differentiation for PCI Pal, as well as improving the capital and people efficiency of our business model. We will continue to focus on further improvements in deployment efficiencies going forward, thereby ensuring higher levels of success for both our partners and their customers, as well as our own direct customers.

People

The appointment of James Barham as CEO in October 2018 and his work in building the North American team and operation has marked an acceleration of our plan to expand the operational capability of our business to handle sales and delivery growth in a capital efficient and cost-effective manner, in order to scale the business. Key aspects of the plan include establishing global rather than regional functions to avoid localised-based thinking, duplication and inefficiencies; the creation of a Chief Information Security Officer function to underpin the reliability and safety of our customer services; and the recruitment and development of first class talent.

The ranks of our management team have been expanded to include a new CTO based in the U.K. and a new CRO based in the U.S. Our ability to attract such technically talented and wonderful people in both North America and the U.K. is a testament to both the attractiveness of the market opportunity ahead for PCI Pal as well as the management team's dedication to people development.

In addition, I am very pleased with the appointment of Simon Wilson to the Group board as a non-executive director.  Simon's background includes thirty years in international business to business software.  He has been a resident of the United States for over twenty five years and past positions include CEO, CFO and corporate development roles as well as independent board director in a range of US and UK companies including SurfControl plc, Endace plc and M86 Security.

The PCI Pal team has grown from 34 to 50 employees over the course of the year and I would like to personally thank all of our employees for their excitement, dedication and hard work in growing PCI Pal and in pursuing our Mission: safeguarding the reputation and trust of our customers. I have no doubt that they will all continue to build on their successes during the last twelve months, both as individuals and as globally focused teams.

New debt facility

On 8 October 2019 the Company entered into a new £2.75 million debt facility. In common with many Cloud companies operating a SaaS business model, we have chosen to utilize a layer of debt on top of equity funds raised so as to optimise the growth in shareholder value.  The additional capital available under the facility, of which £1.5 million will be drawn immediately, provides the Company with additional working capital as it continues to grow and expand thereby enabling it to continue to capitalise on the Company's excellent growth opportunities. Full disclosure of the terms of the facility has been made in the notes to these accounts and within the Chief Financial Officer's Review.

Shareholder Communications

As a board we set out this year to expand and improve our communications with current and prospective shareholders as we sought to increase transparency and understanding of the global PCI market opportunity ahead for the Group. Examples have included more detailed investor presentations, expanded analysis of results and underlying KPIs, more frequent communications and the judicious use of RNS-Reach, and participation in investor-focused events such as 'tech demo days' and investor group conferences. We look forward to continuing and reinforcing these programmes and events as each year progresses, and I welcome your feedback and suggestions for further improvement.

Corporate Governance

We continue to monitor the business in line with the latest Corporate Governance Code published by the Quoted Company Alliance. In the Corporate Governance section of our Annual Accounts, we outline how we have complied with the Code and where our policies depart from the recommendations made by the Code, and the reasons for doing so, which reflect the current size and scale of our business.

Looking Forward

We are clearly seeing an expansion of the market drivers causing businesses to properly adopt solutions that provide adherence to PCI compliance standards. In addition to the enforcement of the industry standards themselves, the advent of actual legislation such as GDPR and the clear and measurable business risks of reputational damage in the event of customer data loss, are all increasing the logic and value of adopting solutions like PCI Pal's. Increasing demands from consumers for data protection, as well as the rapid adoption of Cloud-technologies, are also accelerating the rate of adoption.

With a clear strategy; experienced management; an attractive business model; a growing global market opportunity and good corporate governance, PCI Pal is well positioned to build on this year's success. As we take our next steps towards achieving additional key milestones on the journey to building shareholder value and profitable growth, I look forward to sharing further progress reports and news during the coming financial year.

Chris Fielding

Non-Executive Chairman

CHIEF EXECUTIVE'S STATEMENT

FOR THE YEAR ENDED 30 JUNE 2019

PCI Pal Overview

With this being my first annual report as Chief Executive, I am pleased to report that we have continued our momentum from the half year by showing continued strong growth in all our key metrics. In particular, new business Annual Contract Value ("ACV") increased 290% year on year to £1.91 million (2018: £0.49 million); with new business Total Contract Value ("TCV") increasing 223% year on year to £5.66 million (2018: £1.75 million).

Revenues grew 40% year on year to £2.82 million (2018: £2.01 million), with Contracted ACV¹ at the year-end now standing at £4.06 million (2018: £2.17 million), illustrating the build-up in future revenue visibility that our SaaS licensing model produces as new sales are achieved and revenue eventually recognised. This progress is firmly establishing the building blocks towards future sustainable cash generation and profitability.

We have delivered against our stated strategies for the year: focusing on the accessibility of our virtualised cloud offering hosted on AWS; penetrating the North American market through channel relationships; and growing our capability to attract major global technology partners through our easy-to-integrate, cloud technology. As a result, we have established ourselves as the only channel-first, pureplay organisation operating in the PCI phone payment space with a truly global cloud delivery model with availability zones across multiple continents.

The increase in our North American ACV from £0.10 million to £0.44 million is evidence of this year's success in North America which is substantially the result of our achievements in building channel relationships with 70% of sales for the year coming from channel partners.

We have made substantial progress in our focus of being channel-first by adding reseller partnerships with several leading global technology vendors including 8x8, Talkdesk, and Genesys, as well as partnerships with some of those companies' leading resellers including maintaining our partnership with the largest carrier in Canada. These new partners have chosen to work with PCI Pal because of our pureplay, cloud business model which is in contrast to that of our competitors whose solutions are typically legacy hardware offerings, or privately-hosted cloud solutions.

Through our vision to be the chosen payment security provider to technology vendors globally, we are opening up an area of the market previously untapped. Our easy-to-use, light touch integrations allow our partners to sell our services to not only enterprise, large organisations, but also cost-effectively to the higher volume of small to medium size enterprises. Additionally, we have proven our ability to service all size contact centres from the cloud having this year won, and successfully delivered within six months of signing, the contract to supply one of the largest contact centres in Europe, with over 4,000 agents active on our platform each day for this customer alone.

During the course of the year, we have made significant steps forward as we establish ourselves as a global business engaged with enterprise partners yet still retaining the benefits of being small and agile. We have introduced a clear mission and vision for the business, as well as identifying the core values which represent our business. We have brought our international businesses closer together, ensuring that we maximise our global sales opportunities and partnerships. This has been particularly evident in sales where we created the position of Chief Revenue Officer, responsible for sales globally, bringing the global sales function together to maximise the benefits of all sales activity across all territories. We have also strengthened our Engineering and Professional Services teams, ensuring we can deliver our solutions on-time wherever they are required. All of these actions have helped us win new customers across multiple continents.

¹ Contracted ACV is the total annual recurring revenue of all signed contracts (excludes professional services and setup fees), whether invoiced and included in deferred revenue or still to be deployed and/or not yet invoiced

Market Drivers

As thought leaders in our growing marketplace, we have taken the lead in research in the market carrying out consumer research campaigns across the UK, U.S., Australia, and Canada in our "This is" series. In these market research reports, we have seen strong similarities between these four developed contact centre and payment markets, with consumers becoming increasingly aware of the security of companies from whom they buy products and services. Across our reports more than 33% of consumers in all regions surveyed claim to have been victims of security theft. Additionally, and more specific to our market, we found that between 40% - 55% of consumers were uncomfortable to share their credit and debit card information over the phone.

The market for PCI Pal is any organisation taking payments by phone or within contact centre environments globally, and particularly in our core markets across EMEA and North America. Contact centre markets in both the UK and US represent between 3-4% of the working populations of those countries, so in contact centres alone there is a sizeable market to address.

We access our market through a channel go-to-market sales model, working primarily with technology vendors who are involved in customer interactions for those companies. By majority today these include CCaaS, UCaaS, Carrier, VARs, Payment Service Providers, and consultancies advising these organisations. These partner organisations work with PCI Pal to provide cloud-based, globally accessible payment security solutions to their customers who use their broader customer experience, call handling, and payment solutions. PCI Pal's position as the only true-cloud, pureplay vendor in the PCI space for contact centres positions us with strength in being selected by these companies as their partner for secure payments.

The UK market is the most advanced globally in terms of adoption of compliance standards, such as PCI compliance, related to payment security. It is our belief that the North American region and mainland Europe are beginning to adopt improved security practices and working towards achievement of PCI compliance across their businesses and as a result we have seen increases in enquiries across these territories. We are seeing organisations worldwide move towards the use of technology to solve complex compliance and security challenges through the use of secure technology like PCI Pal's. This evolution toward secure operations is not only being driven by the major risks to companies that lose data (including loss of reputation, loss of customers, and reductions in share price or company value) but more recently by regulations being introduced across all territories within which we operate. Chiefly this is led by the General Data Protection Regulations (GDPR) which is law that governs companies handling EU citizen's data, but also more regional data regulations such as the California Consumer Privacy Act in the U.S. Recent well-publicised data breaches include market leaders in a variety of sectors from airlines, to financial services, to technology.

In terms of the contact centre market itself, there is a significant shift from traditional on-premise technology to cloud environments offering improved customer experience through a growing number of additional digital customer engagement channels, with research forecasting CAGRs of nearly 25% between 2019 - 2024. We believe that this trend will naturally suit our true-cloud, pureplay offering as we can fully integrate our solution seamlessly into our cloud partners offerings in a light-touch fashion that does not interrupt that partners ability to provide their core service offerings.

Cloud

PCI Pal has continued to develop its position as the only true-cloud, globally available, partner-first provider of secure payment solutions to contact centres worldwide. We have extended the accessibility of our platform with availability zones within AWS in the UK, Ireland, Germany, United States, Canada, and Australia with customers live across all regions.

We have proven our ability to move at pace when scaling the platform, activating new availability zones in Germany and Australia to meet partner and customer demand within 2 weeks each. Our ability to react quickly to provide partners who operate globally with service availability anywhere in the world is a significant competitive advantage. In addition, these partners' customers benefit from localised data sovereignty across our multi-region, cloud platform environment.

In addition to the ability to scale geographically, our AWS-based platform also allows us to scale automatically to meet the demands of customer growth. The ability to scale for greater volume handling is an essential part of the capital efficiency of our model which in turn allows us to offer more competitive pricing to our partners. In addition, we are able to manage our entire global cloud platform from our Network Operations Centre (NOC), located at our UK headquarters.

Channel Partners

Having outlined our commitment to making PCI Pal a channel-first business, I am pleased to report that we finished the period with 84% of sales generated from channel partners, a 110% increase on the prior year (2018: 40%). The channel strategy is essential to maximising our long-term sales growth potential by being able to address all sizes of organisations, to utilise PCI Pal solutions, as well as giving us the ability to scale the business internationally. This strategy is significantly supported by our capabilities in light-touch, easy-to-integrate methodologies that suit the leading cloud technology vendors with whom we work. Channel partners are driving sales pipelines to record levels across both EMEA and North America.

We have three categories of partners:

Integrated Partners - Telephony pre-integration with the PCI Pal environment from CCaaS and UCaaS platforms and Carrier networks creates opportunities for both us and our partners to shorten sales cycles and enable more efficient and faster project delivery. Adding to the integrated partners we worked with going into the year, we were successful in winning global agreements with two well-known global vendors, 8x8 and Talkdesk (both headquartered in the United States), as well as pan-European vendor, Puzzel. In addition, we secured and delivered our first customer through our reseller partnership with the leading carrier in Canada.

Solutions Providers - Reseller relationships in this category are typically Value-added Resellers (VARs) and Systems Integrators focused on selling licences and services around the traditional on-premise contact centre platforms, for example Genesys, Cisco, Mitel and Avaya. Solutions Providers also include payment service providers and payment gateways who resell PCI Pal services to complement their existing portfolio of payment solutions, such as Civica, Paymetric, and Capita Pay 360. Such relationships provide access to the wide installed customer bases of these vendors. In the period we have signed three of the largest North American VARs serving the Genesys contact centre marketplace, some of whom are also focused on newer offerings from the CCaaS providers.

Referral Partners - Our strategy in this category is two-fold. Firstly, we utilise referral arrangements with some major technology vendors with whom reseller arrangements are not immediately available as a first step in working with them towards becoming an Integrated Partner. Secondly, we have targeted relationships with Master Agents in order to capitalise on the rising trend and success in the software marketing world of agent networks, particularly for CCaaS and UCaaS vendors in the United States. Master Agents are highly organised networks of agents specialising in all segments of enterprise class cloud software applications. During the year we signed a global referral agreement with Telarus, the largest Master Agent in North America for contact centre technology.

All of these partners benefit from the PCI Pal partner program which was fully launched during the year. The Partner Program not only oversees the on-boarding of partners from a technical stand-point but ensures that we are engaged at the appropriate level in all relevant areas of the partner's organisation; with sales enablement, marketing support and collaboration, and co-ordinated service delivery. Our significant focus on speed of partner enablement is illustrated by a number of successful "Fast Start" campaigns with new partners, supporting them in creating real value from reselling our services early in the relationship, and generating early stage pipeline for PCI Pal.

North America

We launched our PCI Pal solution in the US in February 2018 and following a successful first full financial year in North America, we can report TCV sales bookings for the region increased by 328% to £1.50 million (2018: £0.35 million) of which recurring ACV is £0.44 million.

As well as gaining sales momentum, we made progress in our strategy of winning partnerships with major technology vendors in the territory, particularly in the CCaaS, Carrier and Payment markets. These types of partners underpin our ability to sell our solutions in volume and at scale to any size organisation within that partner's customer ecosystem. Whilst this is a globally consistent strategy for us, it is particularly important in the United States where the addressable market is more than five times the size of the UK. I am pleased to report we have made strong progress against this strategy, winning a number of partnerships with well-known technology vendors, one of which resulted in a global contract with a US headquartered, home appliance manufacturer. This was the second largest contract in the Company's history.

We secured global reseller agreements as the sole provider to leading CCaaS and UCaaS vendors 8x8 and Talkdesk. Additionally, we extended our relationship with NewVoiceMedia, following their acquisition by Vonage, into their wider global group which incorporates NewVoiceMedia (CCaaS), Vonage (UCaaS), and Nexmo, (CPaaS - Communications-Platform-as-a-Service). Additionally, we have secured a number of customers through our referral arrangement with NICE inContact and have been recognised with an award for our thought-leadership efforts into their partner programme.

In the carrier space, we signed and delivered our first order through our reseller agreement with the largest carrier in Canada, who is also a major regional distributor of several other contact centre technology partners with whom we have relationships globally. Our cross-pollination of these relationships within our ecosystem is a good example of how we are able to benefit from the progress we have made in being the only channel-focused, pureplay vendor with a growing number of market leading technology partnerships.

As noted above, of the traditional platform providers, we focused the majority of our efforts into our Genesys relationship and have signed three of their major US-based VARs. In addition, since the end of the year we were awarded EMEA AppFoundry Partner of the Year with Genesys (AppFoundry being their technology and partner marketplace). We achieved this award as a result of our work on key customer projects where PCI Pal played a specialist and important role in wider Genesys deals.

Having spent the majority of the year working in the U.S. establishing our business in the region, I am pleased to report that we have put together an excellent team of experienced professionals, the majority of whom have extensive knowledge of the contact centre and unified communications space having worked at successful channel focused businesses. We now have a team spread across all time zones in the United States, with sales, marketing, engineering and delivery resources in country.

With low levels of competition in the North American market, limited primarily to UK-domiciled competitors who deploy a direct sales approach, we believe we are in a strong position from which to expand our pipeline and gain market share through our channel-first approach, as well as our positioning as the go-to provider to the CCaaS / UCaaS market.

During the year our partners have introduced us to a number of customers in the Australia/New Zealand region (ANZ). Due to the time zone overlap, we have been running our early activities from our US-based team, supported by our Engineering and Professional Services teams in the UK.

The majority of our global partners have businesses in Australia covering the ANZ region, and naturally due to the repeatable nature of our integrations, we have felt a pull from these partners towards the territory. We have demonstrated our commitment to these partners by the activation of our Sydney AWS instance, upon which we have a number of live customers. The Australian market is culturally and technologically similar to the UK and US so, as such, we see this as important strategic activity for the future.

EMEA

We have seen a significant step forward for the UK-based EMEA business, with excellent growth across all key metrics including a 180% increase in TCV sales bookings for the year at £3.92m (2018: £1.40m) which incorporated ACV value of £1.41 million (2018: £0.38 million), with 90% of ACV sales coming from channel. Included in channel generated business was the signing and delivery of the Company's largest contract to date, as announced in December 2018, through a major new partner in the payment processing space. In June, we also won a milestone contract with a FTSE 100 company, via our reseller partnership with Genesys. These results confirm the long term value of our channel strategy.

Our business is more mature in the UK, in a market more advanced in its adoption of security solutions for payments. As such we have been focusing on our relationships with existing channel partners in the region to drive new customer acquisition. These partners include Civica, Capita Pay 360, 8x8, and Vonage.

Outside of the UK, the EMEA market has lower levels of adoption for PCI solutions and, like North America, less competition. As a result, we believe there is an early-stage opportunity to capitalise on what is collectively a large and under-penetrated contact centre market. During the year we have taken initial steps towards finding suitable partners such as our partnership with a French telecoms company, and a Norwegian-based pan-European CCaaS vendor. Additionally, we have signed end-user customers in the Nordics, France, Germany and Spain. Many of our global partners see a similar market opportunity and are hiring extensively in the wider region as contact centres across Europe begin to adopt cloud technologies. In a similar way to what we have seen in ANZ, we are optimistic that our partners will pull us into customer opportunities in the territory over time. Our partnerships, and more importantly technical integrations with these partners, are repeatable globally across their platforms and we are leveraging their business expansion to achieve our own strategic objectives in this regard. As a result of this positive momentum we opened the Frankfurt (Germany) instance of our platform earlier in the year to ensure EU customer data can retain appropriate sovereignty requirements post-Brexit.

Operations

The focus of the business in the previous two years has been to build a team and foundation from which we can scale, in order to benefit from the operational gearing of a true-cloud operation. During the year we have taken further steps to scale the business by focusing increasingly on people, process, and technology to underpin this foundation, namely engineering and operations. As part of this we restructured these departments into three teams: engineering; compliance and IT; and professional services. We created the role of Chief Information Security Officer (CISO) which was taken up by the Group's long standing Chief Technology Officer (CTO), Geoff Forsyth.

Additionally, we hired a new CTO who joined the business in January 2019. Hugh James brought with him a wealth of experience specific to DevOps, telecommunications, and SaaS environments, as well as specific experience of the PCI marketplace. Hugh spent a number of years working in a senior role at one of our key partners, NewVoiceMedia (now Vonage) during their global expansion. Along with this hire, we have added resources into engineering during the year in order to meet the growing demand from our new technology partners. As part of the operational restructuring, we have created a global professional services function that focuses entirely on assisting partner and customer solutions delivery, incorporating both implementation and project management. We have reduced the dependency of professional services on engineering as we continually drive for repeatability in our technical solutions for our partners and customers. We have added resource in the core area of SIP telephony to aid a growing number of implementations and to contribute to further reductions in Time-To-Go-Live (TTGL). In addition, we have enabled more natural collaboration between sales and professional services by assigning global responsibility to the heads of sales, presales, and professional services.

Throughout the year we have achieved solid improvements in project delivery times as a result of changes that have been made with projects now being delivered in 4-7 months compared to our higher historical average of 6-9 months. The changes we are making with people, process, and technology are expected to continue to improve deployment efficiencies that will in turn further reduce TTGL.

The business is now better positioned with a stable operational function upon which to maximise the opportunities presented by our partners as well as strategically important enterprise customers anywhere in the world. This stable foundation will enable PCI Pal to benefit from the advantages of operational gearing as we grow our revenues at a faster rate than our costs.

People

As we state in our Vision, it is our people, beyond the technology, that underpin our business. Creating an environment within which our employees can succeed ensures the success of the partners that rely on us. We have built a small, dynamic, and committed team who are experts in their chosen fields, and together they are driving this business forward at pace.

During the year we have placed significant emphasis in developing the business' focus and application of personal development planning and support for all our staff and managers. We created the role of People and Development Manager, which reports directly to me, illustrating the Company's commitment to an improved focus in this key area. Examples of that focus include the implementation of personal and professional development reviews; increasing the availability of both internal and external training courses for key skills; and proactively building a benefits and talent development strategy across the business.

For the forthcoming year we have introduced OKRs (Objectives and Key Results) for every employee in the Company. OKRs create a framework for defining and tracking objectives and their outcomes, providing a top-down view of what is required from individuals within the business in order for them to contribute to the Company's achievement against its corporate goals, mission, and vision.

As a business that has grown from 11 to 50 people in under 3 years, we have given considerable attention to our approach to hiring, and I am proud to report that our employee retention remains very high. We are passionate about hiring and bringing great talent into this business, not just in terms of market, technical, human or managerial skills but also in terms of international and cultural understanding, language skills and a desire to have fun. We focus on this in every aspect of our recruitment processes. Technology is a globally competitive market so we have made improvements to our employee benefits packages to continue to attract the best people. These benefits support the broader appeal of working for our dynamic growing business, and are designed to be strongly competitive for the geographic markets in which we hire.

New this year we have introduced quarterly company "all-hands" meetings where the CEO and other contributors from across the business speak to the whole Company simultaneously across all time zones. These sessions provide a company-wide update, including progress against key or high-profile OKRs. These meetings ensure that employees of all levels regularly receive a wider-view of business progress and therefore can better understand the part they play in that journey. Between the quarterly all-hands meetings, we run regular cross departmental social events and encourage departmental team building.

I view talent acquisition, development and retention as one my most important responsibilities as CEO, and I am very pleased with the accelerated progress the Company has made in this area during the year.

New Debt Facility

In September 2016, the Group began a five year journey to fully develop the payment security opportunity offered by the PCI Pal business. We are now three years into the original journey, and I am very pleased with the strong position we have built. We have made significant progress in establishing major partnerships and transitioned our business to a channel-first organisation. We have established our core service offerings across the globe and have built an excellent team upon which we can scale. As a result of this momentum, we are seeing more opportunities from organisations of all sizes, including large enterprise partners and customers.

As we look to continue to grow and capitalise on the excellent market opportunity before us, we have taken the opportunity to strengthen our balance sheet and on 8 October 2019 entered into a £2.75 million debt facility with Shawbrook Bank. We have drawn down £1.5 million of this facility and the balance remains available to be drawn down in the next twelve months. This facility will underpin the Group's working capital requirements for the foreseeable future.

Current Trading and Outlook 

Following the strong growth and improvement in the business' key metrics in FY 2019, I can report that the new financial year has started well and in line with management expectations.  Our strength as the only partner-first, globally available cloud provider in our space has been underpinned by PCI Pal being awarded "Partner of the Year EMEA" by Genesys, one of our key technology partners, and their partner community, the "AppFoundry".  To date in FY 2020 our continued partner-focus has resulted in the proportion of new business sales coming from channel partners being higher than that of the full prior financial year.  Additionally, the nature of our SaaS revenue model provides for greater than 80% revenue visibility against management expectations for FY 2020. 

I am also very pleased to announce the appointment of Simon Wilson to the Board as Non-Executive Director effective 1^st November 2019.  Simon has provided valuable consultancy to the Board in helping us create, plan and execute our North American market entry plans. His extensive board-level and international corporate strategy experience is a strong addition to the team. 

James Barham

Chief Executive Officer

CHIEF FINANCIAL OFFICER'S REVIEW

FOR THE YEAR ENDED 30 JUNE 2019

Changes in accounting rules

The Company has implemented IFRS 15: Revenue from Contracts with Customers, effective from 1 July 2018, on a fully retrospective basis, with the financial statements being presented against restated financial statements for the year ended 30 June 2018. Full disclosure of the changes has been made in the notes to these accounts.

The retrospective impact of adopting IFRS 15 has been limited. PCI Pal's SaaS contracted revenue model is made up of monthly and annual license fees which, both before and following the adoption of IFRS 15, are recognised monthly across the term of the contract. The forward impact for PCI Pal of IFRS 15 is therefore mostly limited to the impact of also spreading implementation professional service fees over the contract periods.

Revenue and gross margin

Group revenue grew by 40% to £2.82 million (2018: £2.01 million) and gross margin improved to 60% (2018: 43%). This shift reflects the higher margin revenue generated by the PCI Pal platform hosted on AWS which has only a limited reliance on third party carriers to receive or deliver calls. Going forward, we expect the gross margin to continue to improve as all new business will be delivered on this platform.

The Group's revenue reflects its SaaS business model. It delivers its services through the partnership channel to contact centres who are charged primarily on a recurring licence basis. The terms of the sales contracts generally allow for automatic renewal of the licences for a further 12 month period at the end of their initial term. Renewal and retention rates are therefore extremely high exceeding 95%. As the business sells and delivers more contracts the visibility of recurring revenue increases. At the year end, the Group had visibility of more than 80% of management's expected revenue for the next financial year.

Administrative expenses

Total administrative expenses were £6.37 million (2018: £4.65 million), an increase of 37%. Of the £1.72 million increase, £1.67 million was driven by the establishment and expansion of our North American operations, following the successful fundraising in January 2018.

Personnel costs charged to the Comprehensive Income Statement (including travel and subsistence expenses) were £4.47 million (2018: £3.30 million), of which £0.56 million (2018: £0.46 million) was capitalised as Development costs. These personnel costs make up 70% (2018: 71%) of the administrative costs of the business.

Following the adoption of IFRS 15, commissions of £0.30 million (2018: £0.14 million) payable to the sales team members and directly attributable to new contracts was deferred and will be released over the length of the contract to which they apply.

Exceptional costs

During the year the Group charged an exceptional cost of £0.36 million to the Statement of Comprehensive Income. This cost wholly related to the costs of termination of the employment contract with William Catchpole, the former CEO and board director.

Adjusted operating loss¹

Adjusted operating loss for the Group changed as follows for the year:

¹ Loss from Operating Activities before exceptional costs and share option charges

The EMEA region's Adjusted Operating Loss improved by £0.82 million in the year.   The operations within this region have been established longer than those in North America and include the majority of the Engineering, Information Security and Professional Services people and costs for the Group as a whole.   EMEA's Adjusted Operating Loss has started to improve during the period because the rate of expansion of headcount and operating costs is slowing at the same time as revenues and gross margin are increasing.  

Following the fundraising in January 2018 PCI Pal fully launched its cloud services in North America.   James Barham, originally in his capacity as COO prior to becoming group CEO, was seconded to the region and was living and working there for most of the period. During this time, we fully established the North American office in Charlotte, NC, the operational team and our channel-centric route-to-market strategy.   As of the year end the team had 10 employees. The Operating Losses incurred in the region therefore reflect the build out of the team in the region.    As sales and subsequent customer deployments in North America continue to grow, we expect Operating Losses in the future to start to decrease when the rate of revenue growth exceeds the rate of growth in operating costs.

Costs for our Central operations relating to PLC activities decreased in the period as for a portion of the year, the costs of the CEO were charged to the North American operations.

Further divisional information is shown in Note 9.

Key financial performance indicators

The directors use several Key Financial Performance Indicators (KPIs) to monitor the performance of the Group, its subsidiaries and targets.   The principal KPIs are as follows:

^*  Cash balance plus Loan notes receivable plus undrawn debt facilities

Actual performance to budget is reviewed on a monthly basis and the results are used to continually update the Groups forecasts as to expected performance and cash resources.

Capital expenditure

As required by IAS 38, we have capitalised a further £0.56 million (2018: £0.46 million) in development expenditure as we continue to invest in the AWS platform.

As a business we are not hindered by having to commit significant amounts upfront in capital to deploy new instances of our AWS platform globally, nor to extend its load-capacity handling. Our AWS platform is paid for on a monthly basis and charged as an administrative expense. In total we spent £0.03 million on new computer equipment in the year.

Deferred income

Deferred income increased to £2.45 million (2018: £1.13 million) mostly reflecting the significant growth in new business sales and the consequent increase in invoices raised in advance, per our contract terms and revenue model.

Contracted ACV

Total Contracted ACV² at the end of the financial year was £4.06 million (2018: £2.17 million). This is a new metric that we have started tracking in the period and is a key indicator of our ability to reach first cash flow and then profit break-even.  Growing levels of Contracted ACV² produces increasing levels of future revenue visibility, an attractive aspect of the Group's business model.

Trade receivables

Trade receivables grew to £1.057 million (2018: £0.475 million). The level of receivables reflects both significant growth in new business sales overall during the period, as well as the typical year end boost in sales levels. This balance should be converted into cash in the first half of FY 2020.

Taxation

During the year the UK entity received £0.14 million as a R & D tax credit from HMRC relating to the financial year ending 30 June 2017. An application has been made for an additional credit of £0.22 million related to the financial year ending 30 June 2018, which has been received post the year end, but has not been recognised in the accounts.

Cashflow and liquidity

Net cash as at 30 June 2019 was £1.49 million (2018: £3.75 million), net cash decreased by £2.26 million in the year. During the year we received the final loan repayment from the sale of the contact centre business of £2.30 million. Adjusting for this loan repayment the Group invested £4.56 million in cash in the period reflecting the expansion of operations and the consequent loss made for the financial year.

Post the close of the financial year, the Group has entered into a £2.75 million loan facility with Shawbrook Bank. The principal terms are as follows:

The loan balance can be drawn in two tranches with a minimum of £1.0 million within five business days of the signing of the agreement and the remaining balance within twelve months. The Company will initially be drawing down £1.5 million of this new facility. The facility is being used to support the working capital requirements of the Group as it continues to grow - see Note 28 for full disclosure of terms.

This debt facility will support our working capital needs created by rapid growth and the expansion of our Sterling-exposure to multiple currencies. In common with many Cloud companies operating a SaaS business model, we have chosen to utilise this layer of debt on top of equity funds raised to fund the journey to becoming a cash generative business. This mixed financing structure is intended to optimise the growth in shareholder value over time.

Dividend

The Board is not recommending a dividend for the financial year (2018: £nil).

William Good

Chief Financial Officer

² Contracted ACV is the total annual recurring revenue of all signed contracts, whether invoiced and included in deferred revenue or still to be deployed and/or not yet invoiced

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2019

The accompanying accounting policies and notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2019

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

AS AT 30 JUNE 2019

The accompanying accounting policies and notes form an integral part of these financial statements.

The Board of Directors approved and authorised the issue of the financial statements on 8 October 2019.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019

The accompanying accounting policies and notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2019

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

FOR THE YEAR ENDED 30 JUNE 2019