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DJ Netalogue Technologies Plc Final Results Year Ended 31 March 2016

 
TIDMNTLP 
 
NETALOGUE TECHNOLOGIES PLC 
 
ANNUAL REPORT 
FOR THE YEAR ENDED 
31 MARCH 2016 
 
The information contained in this announcement is extracted from the audited 
financial statements of the Company. 
 
Chairman's Statement 
for the year ended 31 March 2016 
 
Dear Shareholder, 
 
I am delighted to present my first Chairman's report following my appointment 
in March 2016 and would like to recognise and thank my predecessor, Geoff 
Henderson, for his excellent work with Netalogue over the past 8 years, and his 
support ensuring a smooth transition. 
 
Financially the company is very stable with a strong cash position, no debt and 
Intellectual Property that delivers profitable growth. 
 
I write these notes, three months into the role, having had the opportunity to 
meet with the Netalogue team, consider the Netalogue platform and the market 
opportunities, and to speak with customers and partners. Later in this report, 
I will address the outlook for the company. 
 
As I look back on the financial year 2016 I see a year of stability; a focus on 
the establishment of a fully packaged platform, the migration of existing 
customers to the standardised B2B Ecommerce platform, the exit from the hosting 
business and the previously noted Spicers contract. 
 
Key Highlights 
 
·    GBP 1,117,000 turnover, a decrease of 19% compared with the prior year 
 
·    EBITDA has decreased by GBP 266,000 to GBP 119,000 
 
·    Continued R&D investment of GBP 113,000 in the Netalogue B2B Ecommerce 
Platform, delivering new advanced functionality enabling future releases 
 
·    Continued acquisition of new clients and expansion into new sectors 
 
·    Reserves of GBP 120,000 distributed as a dividend to shareholders 
 
·    Net assets of GBP 738,000 with a strong cash balance and no borrowing 
 
Results commentary 
 
The early termination of the Spicers agreement saw a significant negative 
revenue and profit implication and also diverted resource in the first half of 
the year.  However, the adverse effect was offset by significant new customer 
additions including Bunzl. The company now has a healthy spread of customers 
resulting in a reduced reliance on the top five customers by revenue of 22%. 
Operating expenses were held in line with reduced revenue expectations and the 
company continued to maintain its investments in R&D and increased its 
investment in marketing. 
 
Developments 
 
All key clients are now utilising the standard Netalogue B2B Ecommerce Platform 
and consequently they are enjoying the benefits of our continuous R&D 
programme. This allows us to deliver a high level of support services whilst 
keeping our clients current with the very latest features and functionality. 
New customer wins are attributable to the B2B enterprise class functionality 
with easy expansion via drop-in modules, rapid deployment, complete ERP 
integration and investment in a cutting edge user interface. The group 
continues to refine its "go to market" strategy, further developing its 
reseller channel with the addition of Eden One, a fast growth SAP partner. 
 
Principal risk and uncertainties 
 
The principal risks to the group are those faced by all businesses in the tech 
sector; constant technology change, competition with well-known incumbents, 
migrators from adjacent markets and new start-ups with few customers, poor 
funding and limited functionality. The directors consider however, that the 
group's software IP value and growth potential will increase with the growing 
global recognition that B2B ecommerce is markedly different in complexity to 
that of more generic B2C ecommerce requirements. The worldwide shift to online 
offers the group and its partners an ever increasing pool of opportunity. 
 
The Outlook 
 
The outlook for Netalogue excites me. The Netalogue platform is functionally 
rich, enterprise class software for organisations that require sophisticated 
B2B Ecommerce web stores and portals and deep integration with the World's 
major ERP and CRM platforms. 
 
The market opportunity is significant.  A recent Frost & Sullivan report 
predicts that by 2020 the B2B ecommerce market will be twice as large at the 
B2C market ($6.7 trillion), as organisations attempt to drive new revenue 
streams and reduce costs.  Indeed, Forester Research note that 58% of B2B 
companies have identified ecommerce platforms as an investment priority in 
2016. 
 
Most of us now purchase goods and services online as consumers - these web 
stores and portals are based upon easy to use but relatively unsophisticated 
"B2C" ecommerce engines.  "B2B" ecommerce is more sophisticated and 
functionally more extensive.  Netalogue has built an ecommerce platform based 
upon B2B requirements integrated with B2C ease of use and consequently is well 
positioned to enjoy the direction predicted by market analysts. 
 
As a result, our client base continues to expand in 2016 with excellent 'new 
names' added to the Netalogue portfolio and we expect similar in 2017, despite 
increased marketing from B2C solution providers who have very limited B2B 
capabilities. 
 
Since arriving in March I have spent a considerable amount of time with the 
board of directors discussing the market opportunity and our go-to-market 
strategy, working on enhanced marketing and branding, and developing extended 
routes to market and new alliances.   We have developed a sound three-year 
business plan which maps out strategies for enhanced revenue growth and 
profitability.  Our plans are solid and optimistic; the product is very 
competitive, our pricing is right.  We have to continue to execute well and be 
operationally efficient. 
 
The fruits of this work I hope will be seen in the 2017 financial year and I 
look forward to updating you in due course. 
 
Dividend 
 
No decision has been made at the date of this announcement to declare a 
dividend. 
 
Nick Barley 
Chairman 
Netalogue Technologies plc 
 
Netalogue B2B Ecommerce Software 
www.netalogue.com 
 
Registered no: 4137677 
 
 
Consolidated statement of comprehensive income 
for the year ended 31 March 2016 
 
                                                           2016      2015 
 
                                                         GBP000    GBP000 
 
Turnover                                                  1,117     1,384 
 
Cost of sales                                              (81)      (61) 
 
Gross profit                                              1,036     1,323 
 
Administrative expenses                                   (966)   (1,121) 
 
Operating profit before depreciation and                    119       385 
amortisation 
 
Depreciation of tangible assets                             (9)      (11) 
 
Amortisation of intangible assets                          (40)     (172) 
 
Operating profit                                             70       202 
 
Interest payable and similar charges                          -         - 
 
Profit on ordinary activities before taxation                70       202 
 
Tax on profit on ordinary activities                         14      (42) 
 
Profit for the financial year                                84       160 
 
Profit per ordinary share expressed in pence per          0.172     0.328 
share - basic 
 
Profit per ordinary share expressed in pence per          0.162     0.308 
share  - diluted 
 
 
Total comprehensive income for the year 
attributable to: 
 
Owners of the parent company                                 84       160 
 
Total comprehensive income for the year                      84       160 
 
 
Consolidated balance sheet 
at 31 March 2016 
 
                                                            2016       2015 
 
                                                          GBP000     GBP000 
 
Fixed assets 
 
Intangible assets                                            133         60 
 
Tangible assets                                               29         34 
 
                                                             162         94 
 
Current assets 
 
Debtors                                                      348        383 
 
Cash at bank and in hand                                     549        583 
 
                                                             897        966 
 
Creditors: amounts falling due within                      (313)      (279) 
one year 
 
Net current assets                                           584        687 
 
Total assets less current liabilities                        746        781 
 
Provisions for liabilities                                   (8)        (7) 
 
Net assets                                                   738        774 
 
Capital and reserves 
 
Called up share capital                                      487        487 
 
Share Premium                                                210        210 
 
Profit and loss account                                       41         77 
 
Total equity                                                 738        774 
 
 
 
1          Summary of accounting policies 
 
The principal accounting policies applied in the preparation of these financial 
statements are set out below. These policies have been consistently applied to 
all the years presented, unless otherwise stated. 
 
Basis of preparation 
 
These summary financial statements are prepared on a going concern basis, under 
the historical cost convention. 
 
The preparation of financial statements in conformity with FRS 102 requires the 
use of certain critical accounting estimates. It also requires management to 
exercise its judgement in the process of applying the group and company's 
accounting policies. The areas involving higher degree of judgement or 
complexity, or areas where assumptions and estimates are significant to the 
financial statements are disclosed in note 2. 
 
Basis of consolidation 
 
The group consolidated financial statements include the financial statements of 
the Company and all of its subsidiary undertakings. 
 

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DJ Netalogue Technologies Plc Final Results Year -2-

A subsidiary is an entity controlled by the Group. Control is the power to 
govern the financial statements and operating policies of an entity so as to 
obtain benefits from its activities. Where the Group owns less than 50% of the 
voting powers of an entity but controls the entity by virtue of an agreement 
with other investors which give it control of the financial and operating 
policies of the entity it accounts for that entity as a subsidiary. 
 
Intercompany transactions and balances between group companies are eliminated 
on consolidation and the accounting policies of subsidiaries are changed when 
necessary to ensure consistency with group accounting policies. 
 
Foreign currency 
 
i)     Functional and presentation currency 
 
The group financial statements are presented in pound sterling. 
 
Revenue recognition 
 
Revenue is measured at the fair value of the consideration received or 
receivable and represents the invoiced value of the sale of B2B ecommerce 
software solutions and support services. Turnover on sales of software products 
is recognised on the delivery and acceptance of the systems. Turnover on 
software licences and support is recognised over the period in which the 
licence or support is available to the customer. 
 
Employee benefits 
 
The group provides a range of benefits to employees, including annual bonus 
arrangements, paid holiday arrangements and defined contribution pension plans. 
 
i)   Short term benefits 
 
Short term benefits, inducing holiday pay and other similar non-monetary 
benefits, are recognised as an expense in the period in which the service is 
received. 
 
1          Summary of significant accounting policies (continued) 
 
Taxation 
 
Taxation expense for the period comprises current and deferred tax recognised 
in the reporting period. Tax is recognised in the profit and loss account, 
except to the extent that it relates to items recognised in other comprehensive 
income or directly in the equity. 
 
Current or deferred taxation assets and liabilities are not discounted. 
 
i)     Current tax 
 
Current tax is the amount of income tax payable in respect of the taxable 
profits for the year or prior years. Tax is calculated on the basis of tax 
rates and laws that have been enacted or substantively enacted by the period 
end. 
 
ii)     Deferred tax 
 
Deferred tax arises from timing differences that are differences between 
taxable profits and total comprehensive income as stated in the financial 
statements. These timing differences arise from the inclusion of income and 
expenses in tax assessments in the periods different from those in which they 
are recognised in financial statements. 
 
Deferred tax is recognised on all timing differences at the reporting date 
except for certain exceptions. Unrelieved tax losses and other deferred tax 
assets are only recognised when it is probable that they will be recovered 
against the reversal of deferred tax liabilities or other future taxable 
profits. 
 
Deferred tax is measured using tax rates and laws that have been enacted or 
substantively enacted by the period end and that are expected to apply to the 
reversal of the timing difference. 
 
Business combinations and goodwill 
 
Business combinations are accounted for by applying the purchase method. 
Purchased goodwill (representing the excess of the fair value of the 
consideration given over the fair value of the separable net assets acquired) 
arising on consolidation in respect of acquisitions is capitalised.  Goodwill 
is amortised on a straight line basis over its estimated useful economic life. 
The estimated useful economic life is calculated having regard to the period 
over which the Group expects to derive economic benefits from the assets.  The 
directors consider the estimated useful economic life of the purchased goodwill 
to be 10 years. 
 
Intangible assets 
 
Intangible assets relates to software development costs. The costs of software 
development are stated at cost less accumulated amortisation and accumulated 
impairment losses. This period is considered to be 3-5 years. 
 
Tangible assets 
 
Tangible assets are stated at cost (or deemed cost) less accumulated 
depreciation and accumulated impairment losses. Cost includes the original 
purchase price, costs directly attributable to bringing the asset to its 
working condition for its intended use. 
 
i)     Computer equipment 
 
Computer equipment is stated at cost less accumulated depreciation and 
accumulated impairment losses. 
 
ii)     Plant and machinery 
 
Plant and machinery are stated at costs less accumulated depreciation and 
accumulated impairment losses. 
 
iii)    Depreciation 
 
Depreciation on tangible assets is calculated to write off the cost of the 
assets concerned on a reducing balance basis as follows: 
 
§  Computer equipment     - 25% 
 
§  Plant and machinery      - 25% 
 
vi)    Derecognition 
 
Tangible assets are derecognised on disposal or when no future economic 
benefits are expected. On disposal, the difference between the net disposal 
proceeds and the carrying amount is recognised in profit and loss and included 
in 'Other operating (losses)/gains'. 
 
Leased assets 
 
i)     Operating leased assets 
 
Leases that do not transfer all the risks and rewards of ownership are 
classified as operating leases. Payments under operating leases are charged to 
the profit and loss account on a straight-line basis over the period of the 
lease. 
 
Cash and cash equivalents 
 
Cash and cash equivalents includes cash in hand. Bank overdrafts, when 
applicable, are shown within borrowings in current liabilities. 
 
Financial instruments 
 
The company enters into basic financial instruments transactions that result in 
the recognition of financial assets and liabilities like trade and other 
accounts receivable and payable, loans from banks and other third parties and 
loans to related parties. 
 
Debt instruments (other than those wholly repayable or receivable within one 
year), including loans and other accounts receivable and payable, are initially 
measured at present value of the future cash flows and subsequently at 
amortised cost using the effective interest method. Debt instruments that are 
payable or receivable within one year, typically trade payables or receivables, 
are measured, initially and subsequently, at the undiscounted amount of the 
cash or other consideration, expected to be paid or received. However, if the 
arrangements of a short-term instrument constitute a financing transaction, 
like the payment of a trade debt deferred beyond normal business terms or 
financed at a rate of interest that is not a market rate or in case of an 
out-right short-term loan not at market rate, the financial asset or liability 
is measured, initially, at the present value of the future cash flow discounted 
at a market rate of interest for a similar debt instrument and subsequently at 
amortised cost. 
 
Financial instruments (continued) 
 
Financial assets that are measured at cost and amortised cost are assessed at 
the end of each reporting period for objective evidence of impairment. If 
objective evidence of impairment is found, an impairment loss is recognised in 
the Statement of Comprehensive Income. 
 
For financial assets measured at amortised cost, the impairment loss is 
measured as the difference between an asset's carrying amount and the present 
value of estimated cash flows discounted at the asset's original effective 
interest rate. If a financial asset has a variable interest rate, the discount 
rate for measuring any impairment loss is the current effective interest rate 
determined under the contract. 
 
For financial assets measured at cost less impairment, the impairment loss is 
measured as the difference between an asset's carrying amount and best 
estimate, which is an approximation of the amount that the company would 
receive for the asset if it were to be sold at the balance sheet date. 
 
Financial assets and liabilities are offset and the net amount reported in the 
Balance sheet when there is an enforceable right to set off the recognised 
amounts and there is an intention to settle on a net basis or to realise the 
asset and settle the liability simultaneously. 
 
Share capital 
 
Ordinary shares are classified as equity. Incremental costs directly 
attributable to the issue of new ordinary shares are shown in equity as a 
deduction, net of tax, from the proceeds. 
 
Distribution to equity holders 
 
Dividends and other distributions to the Group's shareholders are recognised as 
a liability in the financial statements in the period in which the dividends 
and other distributions are approved by the shareholders. These amounts are 
recognised in the statement of changes in equity. 
 
Related party transactions 
 
The group discloses transactions with related parties which are not wholly 
owned within the same group. It does not disclose transactions with members of 
the same group that are wholly owned. 
 
2        Critical judgements in applying the entity's accounting policies 
 
Estimates and judgements are continually evaluated and are based on historical 
experience and other factors, including expectations of future events that are 
believed to be appropriate and reasonable in the circumstances. 
 
a) Critical judgements in applying the company's accounting policies 
 
The directors do not consider there to be any critical accounting judgments to 
the financial statements. 
 
b) Key accounting estimates and assumptions 
 
The group makes estimates and assumptions concerning the future. The resulting 
accounting estimates will, by definitions, seldom equal the related actual 
results. The estimates and assumptions that have a significant risk of causing 
a material adjustment to the carrying value amounts of assets and liabilities 
within the next financial year are addressed below. 
 
i)   Useful economic lives of tangible and intangible  assets 
 
The annual depreciation charge for tangible assets and amortisation charge for 

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DJ Netalogue Technologies Plc Final Results Year -3-

intangible assets are sensitive to changes in the estimated useful economic 
lives of the assets. The useful economic lives are re-assessed and amended when 
necessary to reflect current estimates, based on technological advancement, 
future investments, economic utilisation and physical condition of the assets. 
 
ii)  Impairment of debtors 
 
The group makes an estimate of the recoverable value of trade and other 
debtors. When assessing impairment of trade and other debtors, management 
considers factors including the current credit rating of the debtor, the ageing 
profile of debtors and historical experience. 
 
 
 
END 
 

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