27th Nov 2020 14:33
(Alliance News) - Tungsten Corp PLC on Friday materially lowered its guidance as it expects transaction volumes to be stuck at lower levels for the rest of its financial year.
Shares in Tungsten were down 7.4% at 29.00 pence in London in afternoon trading. The stock is down 32% so far in 2020.
Tungsten provides digital financial management products and software solutions. When it announced its financial 2020 results in September, for its year that ended April 30, Tungsten said it had suffered "challenging market conditions" in the first quarter of financial 2021 as a result of the Covid-19 pandemic.
These conditions had led to an 8% volume decline in the first quarter. At that time, Tungsten said that should transactions remain at a similar percentage decline for the rest of financial 2021, then its revenue and adjusted earnings before interest, tax, depreciation and amortisation would suffer.
This trend has persisted in the second quarter, Tungsten confirmed on Friday, resulting in an approximately 7% transaction volume decline in the first half of its financial year.
Moreover, Tungsten is expecting that transaction levels will stay at lower levels for the rest of financial 2021.
Tungsten said: "In H1 FY21 new business momentum has been positive with Tungsten securing 4 new customer wins; however the company is experiencing a longer sales conversion cycle which is conservatively expected to continue for the remainder of the current financial year.
"As a consequence of the transaction volumes in H1 FY21 and the continued expectation of lower transaction volumes in H2 FY21, together with a longer sales conversion cycle, the company expects FY21 revenues to be similar to FY20."
The company is expecting to report interim revenue of GBP18.0 million excluding Tungsten Network Finance.
Underlying adjusted Ebitda is now forecast at no less than GBP3.2 million "materially lower than previous guidance".
"Adjusted Ebitda has been impacted by the lower transaction volumes, product mix of new sales, our new Total AR contracts requiring increased set-up costs, as well as additional costs related to our investment in the sales team," Tungsten said.
In financial 2020, revenue had inched up 2.2% to GBP36.8 million from GBP36.0 million but Tungsten's pretax loss had ballooned to GBP25.9 million from GBP5.3 million.
The company said Friday it has brought forward "planned actions" in the first half of financial 2021 so as to shrink its costs base, which should boost underlying profitability going forward. These have, however, resulted in a short-term negative impact on Tungsten's cash in the first half of its 2021 financial year, though are expected to result in annualised savings of around GBP4 million from financial 2022.
Given its reduced revenue and adjusted Ebitda, Tungsten expects its net cash balance at the end of financial 2021 will be similar to the October 31 figure of GBP1 million, represenitng cash of GBP3 million less GBP2 million drawn on its revolving credit facility. GBP2 million of the facility is still undrawn, with the loan set to expire December 2024.
A part of its interim results preparation, Tungsten is intending to reassess the carry value of goodwill for impairment as a consequence of this revised guidance.
Looking ahead, Tungsten said: "The company expects the macro economic environment to remain challenging over the coming months but it does anticipate that, with the gradual easing of Covid-19 restrictions, transaction volumes will begin to return to pre-Covid levels during FY22."
Chief Executive Andrew Lemonofides said: "Tungsten has faced a difficult and unpredictable market in 2020. In spite of these challenges and the decline in transaction volumes, we have won new customer relationships and we expect to deliver broadly similar revenues to FY20. This performance is underpinned by the investments that we have continued to make in our sales and product capabilities, coupled with our operational gearing following our cost base reductions in H1.
"It is disappointing that our profitability is going to be materially lower that we expected this year, however the company remains focused on improving efficiency and converting its pipeline of opportunities to drive growth in sales."
By Anna Farley; [email protected]
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