Final Results

Artilium plc

("Artilium" or the "Company" or the "Group")

Audited Full Year Results

Artilium plc (LSE/AIM: ARTA), the AIM quoted provider of innovative telecommunication software and solutions, announces its audited results for year-ended 30 June 2017.

Highlights

§ Revenue growth of 8.6% to € 10.5 million (2016: € 9.6 million)

§ Adjusted EBITDA growth of 21.7% to € 0.38 million (2016: € 0.31 million)

§ New MVNOs activated adding to our wholesale and retail subscriber base

§ New corporate business customers won on cloud PBX SaaS software solution

§ Expanded portfolio of services enabling penetration into new markets such as Germany

§ Telenet licence renewed in February 2017 for € 5.3m for services over the next five years

Post Period End

§ Appointment of Chief Financial Officer, Rupert Hutton, to the Board on 1 July 2017

§ Entered into strategic partnership and share exchange with Pareteum Corporation (NYSE: TEUM) to jointly pursue new and developed markets, accelerate growth and market share

§ Under the share exchange, Artilium becomes 19.9% shareholder of Pareteum and Pareteum becomes 8.8% shareholder of Artilium

§ First office opened in Germany where strong demand is seen for our fixed line mobile and data telecom based software solutions

Commenting on the results and outlook, Jan Paul Menke, Non-Executive Chairman of Artilium said:

"I am pleased to report Artilium has made significant operational and technological progress in this financial year. We accelerated revenue growth, kept costs under control and strengthened our leading position in innovative telecom software solutions. Our focus on innovative cloud based telecom software used by data centres, telecom operators and corporates enables us to grow revenues and profit at a faster pace. We are very excited to be a leader in this high growth market and we expect to translate this into both revenue and EBITDA growth in the year ahead."

Copies of Artilium's Annual Report are available in the 'Investors' section of the Company's website at www.artilium.com.

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

For further information please contact: 

About Artilium

Artilium is a demonstrated leader in the development of next generation communication technologies. Artilium's strategy focuses on supporting its customers to successfully grow their business by providing flexible, cost effective and innovative solutions.

Artilium's innovation-driven strategy empowers telecom operators around the globe to face the tremendous challenges ahead. We combine next-generation technology with traditional telecom environments to create exciting new business opportunities for our customers. This ensures that our customers are able to keep up with rapidly evolving market demands while simultaneously growing their businesses.

ARTA® is the real-time Authentication, Authorization and Accounting (AAA) software that brings a full suite of new functionalities to telecom Operators and virtual Operators. Thanks to ARTA® value-added services portfolio, including for instance AAA of voice, text and data services, VoIP, 3G and 4G compliance, mobile payments and location-based services, our partners are more than ready to meet future customer needs.

Today, multiple renowned national and international telecommunication companies rely on Artilium to deliver voice, text and data services to about 1.5 million end users every day.

Artilium's "Pay-As-You-Grow" model allows us to scale our solutions to the exact needs of our customers. As a latest innovation, Artilium offers its product suite from the Cloud as a PAAS (Platform As A Service), yielding ARTA's scalability, flexibility and proven stability.

Artilium plc is a publicly listed software company on the AIM market of the London Stock Exchange (LSE/AIM: ARTA).

Forward Looking Statements

This report contains certain "forward looking" statements and information relating to the Company that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate", "believe", "estimate", "expect", and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitation, competitive factors, general economic conditions, customer relations, relationships with vendors, borrowing arrangements, interest rates, foreign exchange rates, litigation, governmental regulation and supervision, seasonality, product introductions and acceptance, technological change, changes in industry practices, one-time events and other factors described herein and in other announcements made by the Company. Based upon changing conditions, should any one or more of these risks or uncertainties materialise, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.

Chairman's statement

I am very pleased to report that Artilium continued to deliver revenue and adjusted EBITDA growth for the year to 30 June 2017, building on the solid foundations and acquisitions of the last couple of years. Revenues increased by 8.6% to €10.5 million from €9.6 million and the Company achieved an increased adjusted EBITDA margin of 3.6% compared to 3.3% in 2016. This was achieved as a result of increasing revenue from wholesale contracts and achieving a reduction in consolidated data centre costs from recent acquisitions. Revenue growth was driven by our core telecom software business Artilium NV together with the acquisition of Comsys. Revenues were slightly up in United Telecom, our fixed, mobile and internet telecom business, which experienced tough market conditions but the recent acquisition of the Digiweb customer base should see significant increases in revenue in 2017/18 in this business unit.

We are seeing the benefits of our acquisition of Livecom and Comsys as this adds considerable breadth to our product offering. We are confident that the investments made in both technology and distribution will give us the platform to capitalise on the new opportunities that are available in an increasingly global market where data and telecoms products and services continues to evolve.

Emerging markets continue to have an enormous appetite and potential for our innovative, flexible telecom and data solutions in a cloud based environment. We believe that as the infrastructure develops, we will have the access we need to achieve further revenue growth in the coming year.

In February 2017, we secured an expanded MVNE platform agreement with our largest customer, Telenet Group BVBA, securing the relationship for the next five years. As part of the extension Artilium secured a cash payment of €5.3 million for revenue which will be recognised until 2021. Since the contract extension additional revenue streams have been secured, further strengthening our relationship.

Operationally, our strategic alliance with Green IT Globe has developed well during the financial year 2016/17 with both companies working together to develop products such as our e-portal solution to satisfy the rapidly growing demand for data centre solutions. Artilium expects revenue to grow in 2017/18 and this coupled with the Wbase acquisition gives us a solid foundation from which to move forward and develop our solutions further in this segment of the market.

Post balance sheet events

On 16 October 2017, Artilium entered into a strategic partnership (the "Alliance") with Pareteum Corporation (NYSE: TEUM) ("Pareteum") to jointly pursue new and developed markets, creating accelerated growth and market penetration for both companies. The global collaboration will include the development of new joint products and services, enhanced sales coverage for both companies, increased speed to market and access to greater knowledge and resources, forming a significant competitive advantage in the fast-growing IT telecoms market. The Alliance will pursue mature markets as well as high growth and underserved developing markets. Artilium and Pareteum's combined cloud-based product sets will continue the Artilium philosophy of connecting any device, anywhere, on any network.

The formal arrangement between both companies was signified and strengthened by a strategic minority share exchange, whereby Artilium issued 27,695,177 new ordinary shares at a notional price of 11 pence per ordinary share to Pareteum in exchange for Pareteum issuing 3,200,332 new common shares at a notional price of US$1.26 per common share to Artilium. Following the share exchange, Artilium is beneficially interested in approximately 19.9% of Pareteum's issued share capital and Pareteum is beneficially interested in approximately 8.8% of Artilium's issued share capital.

In keeping with our strategy, on 18 October 2017, Artilium opened a new office in Bocholt, North Rhine-Westphalia, to further expand into the significant and growing German market, where sales will be achieved exclusively through IT resellers and systems integrators to business customers. Ron Miedema was appointed Managing Director of Artilium GmbH with responsibility for all business operations in Germany.

Outlook

We look forward to the 2017/18 financial year with continued optimism as we develop opportunities secured over the last 12 months. Our focus on innovative cloud based telecom software together with an increasing order book positions us well for increasing revenue and profit growth in the year ahead. The Board would like to thank our staff for their hard work and dedication over the last year, as well as our shareholders for their continued support.

Jan Paul Menke

Executive Chairman

30 October 2017

Chief Executive's statement

Overview

Artilium plc has worked hard during the financial year at enhancing its offerings and expanding its geographical presence into an internationally diverse software group offering telecommunication and cloud-based services for datacentre, messaging and customer interaction. In order to streamline operations and maintain a tight control of costs, we have integrated our recent acquisitions and datacentres to reduce operating costs of the enlarged group. We have increased our international presence and now have operational businesses in Belgium, the Netherlands, Germany, Indonesia and China and are moving into other developing markets. We see significant opportunity in growing internationally and our expanded portfolio of services is enabling us to penetrate new markets and attract new business around the world.

Operationally we have been integrating acquisitions and have started to realise the synergies available while developing mutual growth opportunities. We expect further synergies to be realised in the coming financial year. New business development is progressing well and starting to bear fruit having built a solid foundation over the last couple of years. Additional resources have been deployed into developing our commercial strength and capability across the globe. Our product portfolio shows strong operational performance with 24/7 support being delivered directly from our business units. Customer solutions are available on a flexible basis using either the ARTA® platform as a whole or by using software modules as required.

Our business lines

Our market leading mobile enablement platform, ARTA® has delivered a consistent performance to our largest customers, such as Telenet. Our cloud-based platform is growing and we are focusing on developing this further, both locally and internationally in developed and developing markets. New functionalities such as payment management have been delivered to our customers and added to our core product offering, in line with the newest developments in the market and we are expanding the range of available products and services such as prepaid identification (Know Your Customer) as well as new user interfaces and business intelligence solutions. We have also increased our efforts in security and controls on the Group's platforms to manage the expanded product suite in a secure way, in compliance with European General Data Protection Regulation (GDPR), the new European legislation on privacy.

United Telecom, our MVNE (Mobile Virtual Network Enabler) and retail business in Belgium and the Netherlands is starting to see growth from new MVNOs (Mobile Virtual Network Operator) and B2B contracts that we have signed in retail. The recent acquisition of the Digiweb customer base has successfully been transferred to United Telecom, and we expect further growth from this and other parts of the business for the year ahead.

At Comsys, our call centre and customer interaction software solutions continue to grow internationally and are supporting our MVNO and business customers around the globe either directly or through our partners. This software is now integrated with ARTA® further enhancing our software platform and making it more attractive to some of the largest players in the mobile telecom market. We are investing in further development of the product suite including new social media interaction channels to offer a 'one stop shop' offering to the growing SME market.

Financial Results

For the reconciliation between operating profit, net result and Adjusted EBITDA, refer to note 4.

Revenue

Consolidated revenue for the year ended 30 June 2017 amounted to € 10.5 million (2016: € 9.6 million). Revenue growth principally comprises increased license and subscriber fees. Fees from professional services relating to project management and implementation services have been somewhat less compared to previous years. Revenue from maintenance and support contracts, as well as call charges for fixed line and mobile, have been relatively stable despite further price reductions.

Gross profit

The Company generated a gross profit of € 7.7 million or 74.0% of revenues (2016: € 7.0 million or 72.9% of revenues).

Adjusted EBITDA and adjusted EBITDA margin

The adjusted EBITDA margin of the Group was 3.6% (2016: 3.3%).

Strategic Outlook

Investment in expanding commercial capabilities are starting to produce additional revenue for 2018. Further expansion in the range of services offered to new and existing customers is part of our strategy of delivering a holistic solution to customers' needs as well as leading the way in transforming the data and telecom market. IT and telecoms are increasingly intertwined as data becomes the growth area for the future. As a software development business we are able to shape these developments and take advantage of the new opportunities that are arising in not only fixed and mobile telecoms but the rapidly evolving and growing data market. Connected devices (Internet of Things) will become a mainstream requirement driving market growth globally and creating additional opportunities for our mobile enablement platform.

Bart Weijermars

Chief Executive

30 October 2017

Consolidated income statement

Year ended 30 June 2017

Consolidated statement of comprehensive income

Year ended 30 June 2017

Consolidated statement of financial position

As at 30 June 2017

Consolidated statement of financial position (continued)

As at 30 June 2017

Consolidated statement of changes in equity

Year ended 30 June 2017

Consolidated cash flow statement

Year ended 30 June 2017

Notes to the consolidated financial statements

Year ended 30 June 2017

1. General information

Artilium plc is a Company incorporated in the United Kingdom. The nature of the Group's operations and its principal activities are set out in the Strategic report and Directors' report contained within the Annual Report. The Group's principal place of business is Belgium and the Netherlands. The ultimate parent Company of the Group is Artilium plc.

The consolidated financial statements were authorised for issue by the Board of Directors on 30 October 2017.

Standards adopted early by the Group

The Group has not adopted any standards or interpretations early in either the current or the preceding financial year.

New and amended standards and interpretations

Standards and interpretations effective in the current period but with no significant impact

No new standards and amendments to standards and interpretations effective for annual periods beginning on or after 1 July 2016 have had a material impact on the Group.

New and amended standards issued but not yet effective for the financial year beginning 1 July 2016 and not early adopted

Standard Effective Date

IFRS 9 Financial Instruments 1 January 2018

IFRS 15 Revenue from Contracts with Customers 1 January 2018

IFRS 16 Leases *1 January 2019

IAS 7 (amendments) Disclosure Initiative *1 January 2017

IAS 12 (amendments) Recognition of Deferred Tax Assets for Unrealised Losses *1 January 2017

Annual Improvements 2014-2016 Cycle *1 January 2018

*Subject to EU endorsement

IFRS 9 and IFRS 15 are expected to be effective for the year ended 30 June 2019, with IFRS 16 expected to be effective for the year ended 30 June 2020. The impact of IFRS 9 is being assessed by management, with the main impact likely to arise from the expected credit loss model although the financial effect, if any, has not yet been quantified. The impact of IFRS 15 has begun to be assessed by management given the number of different revenue streams, and in connection with current new contracts which have a duration exceeding the date of IFRS 15 adoption. Although the assessment is ongoing, the work undertaken to date has not highlighted any potentially material adjustments. The impact of IFRS 16 has not yet been assessed.

Functional and presentation currency

The individual financial statements of each company within the Group is presented in the currency of the primary economic environment in which it operates (its functional currency). The consolidated financial statements are presented in EUR in order to reflect the economic substance the Group operates in (see also accounting policies - Note 2). These financial statements are presented in round thousand Euros.

2. Significant accounting policies

Basis of preparation

The financial statements have been prepared in accordance with IFRSs adopted by the European Union (EU) and the Companies Act 2006 that applies to companies reporting under IFRS as adopted by the EU and IFRIC interpretations.

The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or conformity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3 of the Financial Statements which can be found in the Annual Report.

3. Segmental information

Segment reporting

The Group identifies three reportable segments with different economic characteristics. The three reportable segments reflect the level at which the Group's Chief Operating Decision Maker ("CODM") reviews the financial performance of the business and makes decisions about the allocation of resources and other operational matters. The reportable segments are equal to the operating segments.

The three reportable segments "Artilium", "United Telecom" and "Comsys" correspond with the three principal trading activities of the Group.

Artilium provides advanced mobile telecommunications software to network operators and enablers (managed services providers, systems integrators etc). Its core product is its ARTA Mobile Applications Platform which enables network operators to open networks to third party developers and launch new services which feature elements from the telecoms and web environments.

The business of United Telecom consists of rendering telecom services to the Belgium corporate and consumer market as well as the development and sale of advanced "carrier grade" shared services for telecom service providers (including fixed, mobile and VOIP).

Comsys is a specialist in interactive telephony services and provides telecommunication products, solutions and hosted services in the converging arena of IN, 3G, SIP and VOIP networks for mobile and fixed line telephone operators, MVNOs and contact centres.

In line with the Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of Directors which is considered to be the CODM. The CODM reviews on a regular basis the following financial key data of each segment:

· Revenue;

· Recurring adjusted EBITDA = Operating result before depreciation, amortization, impairment of assets and non-recurring expenses;

· Recurring EBIT = Operating result before interests and taxes less non-recurring expenses;

· Non-recurring items;

· Segment profit/loss.

The accounting principles applied to the operating segments are the same as those described in note 2.

3. Segmental information (continued)

An analysis of the Group's result is as follows:

Refer to note 4 for a reconciliation of the operating result and net result to the adjusted EBITDA and above for the definition of the adjusted EBITDA.

Refer to 'Principal activities' within the strategic report for a description of revenue by type.

The acquisition of Ello Mobile during the year has been allocated to the United Telecom segment.

The acquisition of Wbase during the year has been allocated to the Artilium segment.

3. Segmental information (continued)

An analysis of the Group's assets and liabilities is as follows:

All assets and liabilities of the Group are allocated to the operating segments. Segment assets and liabilities are presented before intersegment balances. Intersegment sales and transfers are registered at arm's length as if the sales and transfers were executed with third parties.

Geographical information

The Group revenue and location of non-current assets is derived from and located in mainland Europe. An analysis by geographical destination is as follows:

Information about major customers

22% of the consolidated revenue is generated by sales to an external customer within the segment "Artilium" (25% for the year ended 30 June 2016). There are no other sales to single external customers exceeding 10% of the consolidated revenue.

4. Reconciling table net result, operating result-adjusted EBITDA

  Artilium defines adjusted EBITDA as operating result before interests, taxes, depreciation and impairments of property, plant and equipment and client's receivables and amortization and impairments of intangible assets.

5. Earnings per share

The weighted average number of ordinary shares is calculated as follows:

Basic and diluted earnings per share is calculated as follows:

6. Business Combinations

Ello Mobile BVBA

On 23 December 2016 Artilium plc acquired 100% of the share capital of Ello Mobile BVBA and thereby obtained 100% of the voting power. Ello Mobile BVBA is an MVNO based in Belgium.

The following summarises the details about the acquisition.

Consideration transferred

The acquisition cost of Ello Mobile BVBA of €0.3 million was settled by the issuance of 3,823,636 new ordinary shares at 6.6 pence per share, being the market share price on the acquisition date.

The excess of consideration paid over net liabilities acquired, amounting to €0.756 million, has been fully attributed to the fair value of the customer base acquired, including deferred taxation at 34%.

Assets acquired and liabilities recognized at date of acquisition

6. Business Combinations (continued)

Goodwill arising on acquisition

The revenue included in the Consolidated Income Statement since 23 December 2016 contributed by Ello Mobile BVBA was €259,000. Ello Mobile BVBA reported a profit of €31,000 over the same period.

Wbase Comm. V

On 12 April 2017 Artilium plc acquired 100% of the share capital of Wbase and thereby obtained 100% of the voting power. Wbase is a web development agency based in Belgium.

The following summarises the details about the acquisition.

Consideration transferred

The acquisition cost of Wbase Comm. V of €0.11 million was settled by the issuance of 254,776 new ordinary shares at 6.6 pence per share, being the market share price on the acquisition date and €90,000 in cash which was immediately used by the vendors to satisfy an outstanding debt owed to Wbase.

Under the terms of the sale and purchase agreement, additional shares up to a maximum of €0.3 million may be issued to the vendors, dependent upon Wbase achieving certain revenue targets over the next financial year. No liability has been recognised in the financial statements in respect of these contingent additional shares on the basis that the targets were not expected to be met at the date of acquisition.

Valuation of acquired software

Software with a fair value of €0.1 million was identified and separately recognised. The fair value of the acquired software was calculated on an estimated replacement cost basis.

6. Business Combinations (continued)

Assets acquired and liabilities recognized at date of acquisition

Goodwill arising on acquisition

No revenue or profit/(loss) has been included in the Consolidated Income Statement since 12 April 2017.

7. Trade and other receivables

Amounts receivable for the sale of goods and services are all denominated in Euros.

The Directors consider that the carrying amount of trade and other receivables above approximates to their fair value. The average credit period taken on sales of goods is 67 days (2016: 53 days). No interest is charged on receivables.

Included within trade and other receivables is an amount of €338,000 (2016: €335,000) in respect of amounts that were past due at 30 June, but not impaired. The Group believes that the balances are ultimately recoverable based on a review of past payment history and the credit quality of those customers.

The ageing analysis of past due but not impaired receivables are shown below:

The Group holds no collateral against these receivables at the reporting date.

As at 30 June 2017 €247,000 of trade receivables were impaired (2016: €1,136,000). This allowance is specific and has been determined by reference to the age of the debt or where amounts are in dispute on a customer by customer basis. To the extent they have not been specifically provided against, the trade receivables are considered to be of sound credit rating. The ageing analysis of the allowance for doubtful debts is as follows:

Movement in the Group's allowance for doubtful debt is as follows:

Other receivables includes a loan due to the Group of €1 million (2016:€nil). On 18 July 2016 the Group entered into a Strategic Alliance with Green IT Globe NV to launch the OneApp platform and issued a loan note for a cash amount of €1 million, financed by external investors in the Group. The loan was repayable by 26 July 2017 and interest is receivable at ten per cent per annum. During the year Green IT Globe NV assigned the loan to GIG Technology NV and, on 12 June 2017, both parties agreed to postpone the repayment date to 26 July 2018.

8. Trade and other payables

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value.

9. Bank Loans

The different bank loans are mainly secured on the trade receivables of the Group. One unsecured loan with an outstanding amount of €65,000 is repayable in 12 months on a monthly basis. Interest rates are fixed at 2.21% per annum respectively and are market conforming. The carrying amount approximates to fair values because of the short maturity of these loans. The second bank loan with a principal of €85,000 is repayable in 48 months on a monthly basis. The interest rate is fixed at 2.43% per annum.

10. Other loans

Other loans comprise loans from third parties at interest rates of between 7.5% and 10% and are repayable as follow:

€1,308,000 (repayable within one year)

€400,000 (repayable August 2018)

€350,000 (repayable between 2 to 5 years at €120,000 per annum)

11. Notes to the cash flow statement

12. Events since the balance sheet date

On 28 August 2017 Artilium NV entered into an agreement with GIG Technology NV ("GIG NV") and its parent undertaking, Green IT Globe Holding S.C.S ("GIG Holdings"), to replace the original loan agreement entered into on 18 July 2016. Under the original agreement, the Group had issued a loan note to Green IT Globe NV (which subsequently merged with GIG NV) for €1,000,000 which was financed by loans to the Group from external investors for an equal amount. As at 30 June 2017, the amount due from GIG NV and payable to external investors for €1,000,000 and €1,200,000 respectively was included in other receivables and other loans . Under the new agreement, the loan to GIG NV is assigned to GIG Holdings and converted into share capital of that entity. The Group in turn has entered into agreements with the external investors dated 12 September 2017 to repay their loans using the shares of GIG Holdings.

On 19 October 2017 the Group opened a new office in Germany via subsidiary undertaking Artilium GmbH, to achieve revenues through IT resellers and system integrators to business customers.

On 16 October 2017 Artilium has entered into a strategic partnership (the "Alliance") with Pareteum Corporation (NYSE: TEUM) ("Pareteum") to jointly pursue new and developed markets. In conjunction with the Alliance, Artilium and Pareteum have also entered into a share exchange agreement whereby Artilium will issue 27,695,177 ordinary shares in the Company ("New Ordinary Shares") at a notional price of 11 pence each to Pareteum in exchange for Pareteum issuing 3,200,332 common shares in Pareteum ("New Common Shares") at a notional price of USD$1.26 each to Artilium. Following the Share Exchange, Artilium will be beneficially interested in approximately 19.9% of Pareteum's issued share capital and Pareteum will be beneficially interested in approximately 8.8% of Artilium's issued share capital. ("New Common Shares") at a notional price of USD$1.26 each to Artilium. Following the Share Exchange, Artilium will be beneficially interested in approximately 19.9% of Pareteum's issued share capital and Pareteum will be beneficially interested in approximately 8.8% of Artilium's issued share capital.