Final Results

Tax Systems plc

("Tax Systems", the "Group" or the "Company")

Audited Results for the year ended 31 December 2016

Tax Systems plc (AIM: TAX), a leading supplier of corporation tax software and services, is pleased to announce its audited results for the year ended 31 December 2016.

Highlights

· Acquisition of Tax Computer Systems Limited on 26 July 2016 for an enterprise value of £73m

· £75m of new capital raised during the year to fund the acquisition, transaction costs, working capital and future growth:

− Oversubscribed placing of new ordinary shares raising £45m

− New bank facilities of £20m

− £10m unsecured loan notes issued to the Business Growth Fund plc

· Revenue for the year of £5.8m, representing the trading of Tax Computer Systems Limited for the five months from date of acquisition to 31 December 2016

· EBITDA1 for the year was £2.7m

· Cash2 of £4.2m and net debt3 of £24.4m as at 31 December 2016

· New Board and senior management team with strong track record of delivery recruited

· Significant investment made into leadership, software engineering and development teams and methodology to maintain and enhance the software portfolio

· Post year end strategic acquisition of OSMO Data Technology Limited, a provider of automated data extraction software that connects to 295 versions of accounting packages, on 3 April 2017 for £3.2m in shares

1 EBITDA is defined as operating profit or loss before exceptional items, depreciation, amortisation and share-based payments

2 Cash includes £2m of cash held in a solicitor escrow account in connection with the acquisition of Tax Computer Systems Limited

3 Net debt is defined as bank borrowings and loan notes recognised as liabilities and the equity element of the loan notes recognised in equity less cash

Gavin Lyons, CEO, commented:

"I'm pleased to present Tax Systems' first set of results as a leading supplier of corporation tax software and services, which represent a period of significant change for the Company. In July 2016 we completed the acquisition of Tax Computer Systems Limited, a business which represents a strong and stable platform from which to build a tax software and services business of scale. Since then we have invested significantly into new senior management and software development and go to market teams. We remain confident in the ability of the business to deliver shareholder value over the coming years. I look forward to 2017 and beyond with excitement."

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

Tax Systems plc

Gavin Lyons, Chief Executive Officer +44 20 3845 3552

MXC Capital Markets LLP (Financial Adviser)

Marc Young/Charlotte Stranner +44 20 7965 8149

finnCap Limited (Nomad and Broker)

Jonny Franklin-Adams/James Thompson (Corporate Finance) +44 20 7220 0500

Tim Redfern/Richard Chambers (Corporate Broking)

About Tax Systems Plc

Tax Systems plc is a leading provider of corporation tax software and services in the UK and Ireland. The business has a long track record of being a key supplier of corporation tax software and services to many of the largest companies and the accounting profession in the UK and Ireland.

Chairman's Statement 

These financial statements provide the first opportunity to report to shareholders on the performance of Tax Systems for the year ended 31 December 2016. These are also the first results of the Group since the acquisition of Tax Computer Systems Limited ("TCSL") (the "Acquisition") in July 2016.

In summary, the integration of the acquired business has been successfully completed as planned. Clients have been retained, new senior management have been added to an already successful operational team and product development initiatives are well underway.

The process of introducing greater automation into the tax reporting process has begun with the acquisition of OSMO Data Technology Limited ("OSMO") at the beginning of April and will continue with further targeted acquisitions and internally generated product enhancements and developments.

In April 2017, we were pleased to announce that Gavin Lyons became the Chief Executive Officer having formerly held the position of Executive Chairman. At the same time, we announced a number of other board changes. I became the Non-Executive Chairman, Kevin Goggin was appointed Chief Financial Officer, with Grahame Benson, the previous Finance Director and COO, stepping down and Paul Gibson joined the Board as a Non-Executive Director. I am very pleased to welcome Kevin and Paul to the Board, both of whom have strong backgrounds in the technology sector, and wish Grahame all the best for his future endeavours.

Gavin Lyons and his management team fully understand the opportunities the Company enjoys and have the backing of the Board and the Company's leading shareholders to use the Group's strong competitive position as a base to deliver growth in the years to come. This growth, in the UK, Ireland and potentially overseas, is set to be technology led as the pace of increasing automation of the tax reporting and compliance process quickens.

I look forward to updating shareholders further over the coming months with news of our progress.

Annual General Meeting

The Annual General Meeting of the Company will be held on 14 June 2017 at 11a.m. at the offices of K&L Gates, One New Change, London EC4M 9AF.

Clive Carver

Non-Executive Chairman

Chief Executive Officer's Review

As an investment company, Eco City Vehicles plc ("ECV"), the Company's previous name, the stated strategy was to invest in and/or acquire companies in the technology sector where there are opportunities for growth which, if achieved, would enhance earnings for shareholders.

TCSL was acquired for £73 million in cash which was funded via a placing of new ordinary shares, raising £45 million, senior debt from HSBC plc, raising £20 million and debt from the Business Growth Fund plc ("BGF"), raising £10 million.

The Acquisition was a reverse takeover under the AIM Rules for Companies and, following shareholder approval, the

Company was re-admitted to AIM on 26 July 2016 and changed its name to Tax Systems plc.

The first five months of operation have demonstrated that our employees, customers and core intellectual property are of the highest calibre and I would like to thank everyone for their contribution since the Acquisition completed. The business has required investment in people, processes, systems and infrastructure, which was known to us at the time of the Acquisition, and I am pleased with the way employees have embraced change. As a team we are all excited about the future.

There are several challenges for our customers' tax department which in broad terms fall into three categories - managing tax risk and audit, leveraging tax data and automating as much of the end to end tax process as possible.

Tax departments need to be able to provide meaningful tax intelligence so that effective decisions regarding tax risk can be made and to ensure businesses remain compliant with tax regulations and filing requirements while driving as much efficiency and automation into their tax processes. The government's policy of 'Making Tax Digital' by 2020 is a key driver for the Group. This will require organisations to submit quarterly reports rather than an annual tax return which will force many companies to evaluate how they manage their process as it will place a substantial strain on resources to move from annual to quarterly reporting.

Our vision to help tax departments has been broken down into technology component parts and, to achieve this goal, we will execute a buy, build or borrow strategy. The maturing of digitalisation and digital ecosystems means that we do not have to develop every component ourselves - it provides us the opportunity to utilise other technologies which we would consider non-core but are still required to deliver an end to end customer solution.

The number one priority was finding a solution to help organisations automatically collect data as it is the first point in the end to end tax process and we decided to buy that technology component which we consider to be a critical building block. Our acquisition of OSMO on 3 April 2017 is the first step towards our vision of improved automation of the tax process. OSMO was acquired in return for the issue of 4,701,492 new ordinary shares in the capital of the Company. At the previous day's mid closing price, this valued OSMO at £3.2 million.

OSMO is a leading provider of automated data extraction services that connects to 295 versions of accounting systems; cloud, on premise and enterprise, with new ones being continually added. Using OSMO's technology, finance and tax teams can reduce the time spent on manual inputs and rekeying of data by automating the collection of data from their accounting systems. This will significantly reduce the manual workload for finance and tax teams thus increasing efficiency and cost savings. OSMO's products are ideal add-ons to the existing software and services that Tax Systems already provides.

Outlook

The Group continues to focus on executing its vision for an end to end solution for tax departments to manage tax risk and audit, leverage tax data and automate as much of the tax process as possible. This will be achieved through the development of its own software solutions and services as well as complementary acquisitions or borrow (OEM) deals. The route to market and opportunity to grow is via the existing customer base, new customers in the UK and Ireland and then geographical expansion.

We believe we have the right business platform from which to grow, in no small part thanks to the hard work and diligence of our people, whom I would like to thank for their dedication and contribution to the ongoing success of the business.

The Board remains confident in the ability of the business to deliver increasing shareholder value over the coming years. I look forward to 2017 and beyond with excitement.

Gavin Lyons

Chief Executive Officer

Financial Review

I am pleased to report the results of Tax Systems for the year ended 31 December 2016.

The year ended 31 December 2016 has been a transformational year for the Company with its transition from an investing company to becoming a leading supplier of tax software and services following the acquisition of TCSL on 26 July 2016.

The results for the year ended 31 December 2016 are comprised of the results for Tax Systems plc for the full year together with the results for TCSL for the five-month period from the date of Acquisition.

Revenue and gross margin

Revenue for the year to 31 December 2016 amounted to £5.8m (2015: £nil) from a mixture of software sales and services mostly to large blue-chip corporates and major accountancy firms. 87% of revenue is derived in the UK with the balance from Ireland.

Sales of annually renewable software licences amounted to £5.0m, representing 86% of total revenue. This revenue stream provides the Group with a strong recurring revenue model. The Group's services revenue for the period from Acquisition was £0.8m.

Gross profit amounted to £5.4m (2015: £nil) after accounting for cost of sales which comprised of directly attributable staff costs and third-party hosting costs. The gross margin is 93%.

Operating costs

Total operating costs for the year were £8.6m (2015: £0.3m). The increase was largely driven by the operating costs of

TCSL, £3.3m of transaction and restructuring costs associated with the Acquisition and amortisation and depreciation of £2.6m in respect of acquired intangible assets.

The other administrative expenses of £2.7m relate to the overhead costs of TCSL which principally include staff and premises costs.

Operating loss and EBITDA

The operating loss for the year was £3.2m (2015: £0.3m).

The Directors use EBITDA as a non-GAAP measure in order to assess the underlying performance of the Company. This is considered to be the most relevant measure of the performance of the Group. EBITDA is defined as operating profit or loss before exceptional items, depreciation, amortisation and share-based payments.

EBITDA amounted to £2.7m (2015: loss £0.2m) for the year.

A reconciliation of operating loss to EBITDA is as follows:

Net finance costs

Net finance costs for the year amounted to £0.8m (2015: £nil), principally made up of interest payable on bank borrowings and unsecured loan notes of £0.6m, together with an effective interest charge of £0.2m on the equity element of the loan notes.

Loss before tax

The Group reported a loss before tax of £4.0m in 2016 (2015: £0.3m).

Tax

The tax credit for the year was £0.3m (2015: £nil), represented by a corporation tax charge of £0.2m which was offset by a deferred tax credit of £0.5m. The deferred tax credit primarily related to acquired intangible assets.

Statutory loss after tax

The reported loss after tax was £3.7m (2015: £0.3m).

Capital raise

On 26 July 2016, the Company completed the acquisition of the entire issued share capital of TCSL for an enterprise value of £73m, settled in cash.

The Acquisition was financed as follows:

· A placing of 67,164,180 ordinary shares of 1p each ("Ordinary Shares") at a price of 67p per share raising £45m (before costs)

· New bank facilities of £20m, comprising a revolving credit facility of £11m and a term loan of £9m

· The issue of £10m unsecured loan notes to the BGF with an associated option to subscribe for 5,970,149 Ordinary Shares at a price of 67p per share. These loan notes and options are considered as linked and are treated as one financial instrument with loan and equity elements. The fair values of the loan and equity elements have been assessed to be £7.2m and £2.6m respectively at the year end.

Warrants

During the year, as a result of sourcing, running and corner stoning the capital raise and the Acquisition, the Company issued warrants to MXC Capital Limited ("MXC") to subscribe for 4,409,299 Ordinary Shares at a price of 67p per share. This brings the total number of warrants issued to MXC to 4,851,184, equating to 6% of the share capital of the

Company. The fair value of the warrants granted was assessed to be £0.3m and has been recognised in Other Reserves and offset against Share Premium.

Long Term Incentive Plan

A Long Term Incentive Plan ("LTIP") was implemented in July 2016 to incentivise certain directors and senior executives of the Group. The awards are structured as Employee Shareholder Shares in TCSL. Beneficiaries will share in a pool of up to 6% of the growth in value in the market capitalisation of the Company from the market capitalisation of the Company on the date of its re-admission to trading on AIM adjusted for further share issuance and capital returns if any.

At the reporting date, LTIP awards equal to 5.3% of the growth in value have been made.

Capital reorganisation

During the year the Company undertook a capital reorganisation to reduce the number of shares in issue. The capital reorganisation was effected by way of a consolidation, subdivision and reclassification of every 50 existing ordinary shares into one new ordinary share of 1p each and one deferred share of 49p each. The deferred shares were subsequently acquired by the Company and cancelled.

Cash flow

The Group absorbed £2.8m of cash during the year with the key components of the Group's cash flow being:

Net debt

The Group ended the year with cash balances of £2.2m (2015: £5.0m). In addition, an amount of £2.0m was classified as restricted cash to satisfy a final payment, if any, in respect of the acquisition of TCSL.

Net debt at 31 December 2016 amounted to £24.4m (2015: net funds £5.0m) which comprised of the following:

· £18.8m of term loan and revolving credit facilities

· £7.2m of the debt element of loan notes recognised as liabilities

· £2.6m of the equity element of the loan notes

· £2.2m of cash and cash equivalents

· £2.0m of cash held in escrow

Change in accounting policy for FY2017

The Company is reviewing the way it accounts for revenue from annual software licences in the light of the new reporting standard on revenue recognition, IFRS 15 'Revenue from Contracts with Customers'. Currently the Company recognises the licence fee element of software licence agreements in the month in which the agreement commences. It is likely that the Company will early adopt IFRS 15 for the year ending 31 December 2017 and expects that this will result in a change to its current accounting policy to one of recognising revenue from the licence fee element of software licence agreements evenly over the term of the agreement. Such a change in revenue recognition policy will impact revenue recognised but is not expected to affect invoicing, cash flow profile or net debt position.

Should the Company early adopt IFRS 15 it will apply the change using a modified retrospective approach in which the comparative results for 2016 will not be restated, instead the Company will recognise a cumulative adjustment to opening retained earnings at 1 January 2017 in relation to agreements which still required performance by the Company at that date. The early adoption of IFRS 15 demonstrates the Board's desire to align ourselves with best practice.

Kevin Goggin

Chief Financial Officer 

Consolidated statement of comprehensive income

for the year ended 31 December 2016

1 EBITDA is defined as operating profit or loss before exceptional items, depreciation, amortisation and share-based payments.

Consolidated Statement of Financial Position

as at 31 December 2016

Consolidated statement of changes in equity

for the year ended 31 December 2016

Consolidated cash flow statement

for the year ended 31 December 2016

1. Basis of Preparation

The financial information presented in this announcement is extracted from, and is consistent with, the Group's audited financial statements for the year ended 31 December 2016.

The announcement for the year ended 31 December 2016 was approved by the Board of Directors on 18 April 2016. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2016 or 2015 but is derived from those accounts. Statutory accounts for 2016 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The Group's results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

Going concern

These consolidated financial statements have been prepared on the going concern basis. The Group meets its day to day working capital requirements through its existing cash resources and borrowing facilities which are sufficient to meet currently maturing obligations as they fall due. The Directors have reviewed the Group's financial projections including sensitivities for at least the next 12 months and have, at the time of approving the financial statements, a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future and accordingly these financial statements are prepared on the going concern basis.

2. Segmental information

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. During the year ended 31 December 2016, the Group had one single operating segment, being the provision of software and services to corporates and accountancy firms.

Geographical disclosures

In presenting information on the basis of geography, revenue is based on the location of the customers. Non-current assets are based on the geographical location of those assets.

3. Operating loss

4. Loss per share

Basic and diluted

Basic loss per share is calculated by dividing the loss attributable to owners of the parent by the weighted average number of Ordinary shares in issue during the year. As the Group is loss-making, any LTIP awards in issue are considered to be 'anti-dilutive'. As such, there is no separate calculation for diluted loss per share.

Reconciliations of the loss and weighted average number of shares used in the calculation are set out below:

5. Intangible assets

6. Reconciliation of net loss to net cash used in operating activities

7. Net (debt)/funds

8. Financial liabilities

The Company entered into a £10,000,000 unsecured fixed rate loan notes agreement with the BGF with a 6.5 year term from 26 July 2016. Repayment will be made in four equal instalments semi-annually from 30 June 2021. The Company also granted the BGF an option to subscribe for 5,970,149 Ordinary Shares at a price of 67p at any time before 26 July 2023. In accordance with IAS 32, the loan notes and warrants issued to the BGF are deemed to be linked and are treated as a single financial instrument and shown at fair value. The fair value of the loan element was calculated at £7,203,000 using a discounted cash flow model over the term of the instrument and an effective borrowing rate of 13%, deemed by the Directors to be an appropriate market rate, reflecting the 6% coupon interest payments and the capital repayment profile of the loan notes. The balance of £2,797,000 is deemed to be the fair value of the equity element and is credited to Other Reserves.

9. Share capital and share premium

The share capital of Tax Systems plc consists of 76,001,889 fully paid Ordinary shares with a nominal value of 1p per share. All shares are equally eligible to receive dividends and the repayment of capital and represent one vote.

On 26 July 2016, the Company issued 67,164,180 New Ordinary Shares with a nominal value of 1p at 67p each raising £45,000,000, before costs, as part of its funding of the Acquisition.

At the same time the Company undertook a capital restructuring in order to reduce the number in shares in issue. The capital restructuring was effected by way of a consolidation, subdivision and reclassification of every 50 existing ordinary shares of 1p each into one new ordinary share of 1p each and one deferred share of 49p each. The deferred shares were then acquired by the Company and cancelled.

The movements in share capital in 2015 arose from share capital restructuring and recapitalisation undertaken as part of the process of the Company (formerly Eco City Vehicles plc) exiting administration and becoming an investing company under the AIM Rules.

10. Acquisition

On 26 July 2016, the Company completed the acquisition of the entire share capital of TCSL, a leading supplier of tax software and services to the large corporate sector and the accounting profession in the UK and Ireland for an enterprise value of £73,000,000 settled entirely in cash from the proceeds from the equity placing of new ordinary shares, banking borrowings and loan notes. The acquisition constituted a reverse takeover under the AIM Rules for Companies. The acquisition method of accounting has been used as the Company is the acquirer, the consideration was paid wholly in cash and the former shareholders of TCSL exited the business on acquisition and have no interest in the enlarged group.

The acquisition had the following effect on the Group's assets and liabilities:

No adjustments for accounting policy alignments were required.

£58,350,000 of customer related and intellectual property rights intangible assets were capitalised as part of the acquisition of TCSL and will be amortised over ten years. A deferred tax liability of £10,386,000 on the capitalisation of the intangible assets has been created on acquisition.

The calculation of provisional fair values of consideration, assets and liabilities such as goodwill and intangible assets as well as the assessment of any impairment to fair values generally, involve estimations of likely future cash flows delivering from or accruing to those assets and liabilities.

Judgement is also involved in selecting appropriate discount rates for determining the present value of those future cash flows. Final fair values may differ materially from those provisional values stated.

11. Post balance sheet events

Post year end, on 4 April 2017, the Group announced the acquisition of OSMO Data Technology Limited ("OSMO") in return for the issue of 4,701,492 ordinary shares in the Company. At the previous day's mid closing price, this valued OSMO at £3,200,000.