Full year results

11 March 2013

Escher Group Holdings plc

Revenue up 66%, adjusted profit before tax up 145% - driven by international contract wins

Escher Group Holdings plc (AIM: ESCH, 'Escher' or 'the Group'), a world leading provider of outsourced point-of-service software to the postal industry, has published its results for the year ended 31 December 2012.

Highlights

·; Year-on-year revenue grew 66% to US$23.0m (2011: US$13.9m)

·; Adjusted EBITDA* up 66% to US$6.4m (2011: US$3.8m)

·; Adjusted profit before tax** up 145% to US$4.8m (2011: US$2.0m)

·; Profit before tax up 282% to US$4.4m (2011: US$1.1m)

·; Adjusted basic earnings per share*** up 50% to US$19.1 cents per share (2011: US$12.7 cents)

·; Basic earnings per share up 211% to US$16.5 cents per share (2011: US$5.3 cents)

·; Profit after tax increased by 397% to US$3.0m

·; Four new contract wins in 2012 with United States Postal Service (USPS), Pos Malaysia, Swaziland Post and Pakistan Post;

·; Scaled organisation to deliver on significant new business opportunity especially USPS, including 74 new employees and contractors and a new office in Washington;

·; Continued to invest in new products; RiposteTrEx platform established as portal for Constitutional Convention website in Ireland

* Operating profit before, depreciation, amortisation, share based payments and exceptional items

** Profit before tax excluding share based payments and 2011's exceptional item

***Earnings per share before share based payments and 2011's exceptional item

Liam Church, Escher's Chief Executive, commented:

"2012 was an excellent year for us, making significant progress in our core postal counter software business. We had our best ever year for new business, both in the number of customers won and their financial impact. 

"In order to service these new customers, we are scaling our operations, increasing staff numbers at all levels and opening new offices. We are developing our infrastructure to support our continued international growth and the demand we are seeing.

"The current financial year has started well and with our investment in our new Riposte TrEx and NFC retail offerings addressing the emerging digital mail and interactive transaction segments, we are in a strong position to continue our rapid growth."

Enquiries:

Notes to Editors:

Escher is a world-leading provider of outsourced, point-of-sale software to the postal industry. Escher's core software, Riposte, provides a solution for postal authorities that are seeking to counteract a decrease in traditional mail revenue by expanding revenue opportunities through new services, thereby reducing cost and increasing efficiency.

Postal authorities' software requirements have become more complex, leading to a growing trend towards outsourcing. Riposte is already in use in 33 countries and territories worldwide. It is licensed for over 170,000 workstations.

Substantially all of Escher's existing customers are national postal authorities including United States Postal Services, An Post in Ireland, Austria Post, Deutsche Post, Norway's Posten and South Africa Post Office. The Group services these customers from its offices in Ireland, South Africa, Singapore, the United Kingdom and the United States.

Long licence and maintenance contracts and repeat business from quasi-governmental customers give Escher good visibility of high quality earnings.

The Group is targeting continued growth through incremental sales to existing customers, new sales within the postal industry, penetration of new vertical markets and through the launch of its revolutionary new product, RiposteTrEx.

Forward looking statements

This press release contains certain forward-looking statements. Actual results may differ materially from those projected or implied in such forward-looking statements. Such forward-looking information involves risks and uncertainties that could significantly affect expected results.

Overview

Escher made significant progress in 2012 with revenue up 66% to US$23.0m (2011: US$13.9m). The Group has continued its expansion and investment while maintaining control of its costs and cashflow. During the year adjusted EBITDA* grew 66% to US$6.4m from US$3.8m and net debt dropped dramatically to US$2.2m from US$8.3m.

Escher secured four new customer wins, including the Group's largest ever win with the United States Postal Service (USPS). This contract is expected to generate approximately US$50m over a fifteen-year term but with scope for substantial additional revenue. In addition, Escher has won significant contracts with Pos Malaysia, SwaziPost and Pakistan Post.

In winning these contracts, the Group has the opportunity to develop and strengthen its business operations enabling it to better meet customer requirements and take on larger transactions. Escher has invested in its infrastructure, doubling its staff numbers from 72 to 146 employees and contractors, recruiting experienced managers and opening a new office in Washington.

The challenges of modernising postal counters present an exciting opportunity and Escher will continue to develop new territories and new solutions. The world of communications is ever changing and demand for secure electronic communication of sensitive personal and business data is increasing. National postal services are the trusted carriers of sensitive communications and Escher believes it is a natural progression for them to become the trusted operators of digital mail and as the 'front office' for governments.

Digital mail should operate in a safe, secure and spam free environment, where communications are confidential between the sender and the receiver without knowledge by or interference from third parties. Escher has developed its Riposte TrEx digital content delivery platform to meet this demand and has made progress in interesting some national postal services in this exciting concept.

Escher has continued to invest in developing RiposteTrEx, targetting its existing customer base as early adoptersduring 2013. RiposteTrEx went live in December 2012, when it was selected by the Irish government to power its Constitutional Convention website, allowing Irish citizens to interact digitally with the state, using the website to make secure submissions.

Current trading and outlook

The Group's strengthening financial position, along with a significant amount of revenue already contracted, leaves Escher in a strong position for 2013. Escher's technology is built to withstand demanding environments and is now used by post offices in 35 countries. As the counter automation supplier of choice for postal organisations across the globe, the Group is ideally positioned to continue to grow its market share and to deliver further on the investments made in 2012.

The current financial year has started well and the Group continues to trade in line with the Board's expectations.

Financial review

Revenue

Revenue increased by 66% to US$23.0m in the year ended 31 December 2012 from US$13.9m in the prior year. This increase was mainly due to the four new contracts signed in 2012.

On account of the strong performance from licensing and professional services, the revenue mix altered with license revenue increasing by US$4.0m to US$6.3m and revenue from software development and consulting services growing strongly by 143% to US$8.7m. This growth is mainly from software development and integration contracts for Armenia, New Caledonia, South Africa and the USA. Revenue from support increased by 15% to US$2.9m. Revenue from maintenance decreased by 7% to US$5.1m, this is mainly due to the renegotiation of some older maintenance contracts.

Gross profit

During 2012, gross profit increased by US$5.0m to US$15.1m (2011: US$10.1m). The gross profit margin was 66% compared to 72.5% in 2011, driven by a change in revenue mix with a greater proportion of professional services revenue. In 2011, the Group had an exceptional item in respect of fundraising activities. The Group had no exceptional items during 2012.

Adjusted EBITDA

Adjusted EBITDA* increased by US$2.6m or 66% to US$6.4m from US$3.8m. Adjusted EBITDA represents operating profit before depreciation, amortisation, exceptional items and share based payments.

Operating expenses and profit

As planned, operating expenses before exceptional items for the year ended 31 December 2012 increased to US$10.2m (45% of revenue) from US$6.7m (49% of revenue) in the previous year, reflecting the growth in staff required to deliver on new projects such as USPS. Other cost increases reflect additional sales and marketing activities and the introduction of new business development teams to exploit the new products emerging from research and development (RiposteTrEx and NFC).

The general and administration (G&A) expenses and sales and marketing (S&M) expenditure increased (before exceptional items) by US$2.2m and US$1.9m respectively. This was in line with the growth in revenue leaving G&A and S&M at 21% and 17% of revenues compared to 20% and 14% in the prior year.

Research & development (R&D) reduced to US$1.5m or 7% of revenue compared to US$1.9m or 14% in the prior year, with many of the R&D staff being redeployed to help with the USPS project and an R&D tax credit of US$0.4m offsetting R&D expenses.

During 2012 operating profit increased 97% to US$4.9m from US$2.5m. Operating profit excludes US$2.7m (2011: US$2.2m) of development costs which have been capitalised on the following projects:

·; Riposte TrEx US$1.1m (2011: US$1.4m), amortisation US$0.6m (2011: US$0.4m)

·; Riposte development US$1.6m (2011: US$0.8m) amortisation US$0.04m (2011: US$nil)

Net finance expense

Net finance expense was US$0.5m, a reduction of US$0.8m or 61% from US$1.3m in 2011. This decrease related to the reduction in debt as a result of new funds raised in the IPO in August 2011; the refinancing of the debt in January 2012 at more attractive interest rates and the placing of additional shares in April 2012.

Included in the net finance expense for the year is US$0.1m (2011: US$nil) of amortisation relating to the finance costs arising on the new Bank of Ireland loan facility arranged in January 2012.

Profit before tax

The Group reported a 282% increase of profit before tax to $4.4m (2011: $1.1m). Adjusted profit before tax, excluding share based payments and last year's exceptional item, increased 145% to US$4.8m (2011: US$2.0m).

Income tax expense

The effective tax rate before exceptional items for the year ended 31 December 2012 was 32% (2011: 28% before exceptional items). The increase was due to number of factors including withholding taxes on revenue of US$0.3m (2011: $nil) and a tax charge of US$0.3m (2011: $nil) relating to corporate restructuring.

Earnings per share

Basic EPS was US$16.5 cents per share, a 211% increase in basic EPS over the prior year (2011: US$5.3 cents). Adjusted basic earnings per share, excluding share based payments and exceptional items, was US$19.1 cents per share (2011: US$12.7 cents). Fully diluted EPS was impacted by share options issued for the first time during 2012 and was US$16.3 cents per share, an increase of 208% (2011: US$5.3 cents).

Dividend

The Board does not propose paying a dividend for the year.

Profit for the period

The Group's profit after tax and exceptional items for the period increased by US$2.4m to US$3.0m for the year ended 31 December 2012 (2011: US$0.6m).

Cash flow and net debt

The Group's net debt was US$2.2m as at 31 December 2012 (31 December 2011: US$8.3m), a decrease of US$6.1m or 74% from the beginning of the year. Cash increased US$4.4m to US$7.8m (2011: US$3.4m). The improvement was mainly due to increased operational cash flow up US$2.5m to US$5.5m and the share issue in April 2012.

Net cash generated from operations for the year increased by 123% to US$4.2m (2011: US$1.9m). The change is driven by a large increase in adjusted EBITDA to US$6.4m (2011: US$3.8m) in addition to an increase in accounts payable of US$1.9m reflecting the increased activity. These increases were offset by a US$2.9m increase in receivables during the year which was in line with the increase in revenue. The balance of the year-on-year movement is primarily as a result of increased tax payments of US$1.1m (2011 US$0.7m) relating to higher profits in 2012 compared to 2011.

Net cash generated from financing activities in 2012 was US$3.6m (2011: US$3.6m). This was driven by net debt repayments of US$2.4m and an equity placement which netted US$6.0m. In January 2012, the Group secured new facilities from Bank of Ireland; a US$9.7m term loan facility and a US$1.8m revolving 12-month facility.

The Group drew down US$10.0m from these facilities to repay the outstanding balances of US$8.44m and US$3.4m on the IBRC and the Loan Note. A further US$2.75m of the Bank of Ireland term loan and the $1.8m revolving credit facilities has been repaid. In December 2012 the Group entered into a new term loan agreement for US$2.75m on substantially the same terms as the original term loan. The balance at 31 December 2012 was US$10.3m on the term loan facility. The revolving 12 month facility for US$1.8m is currently available for draw down. These funds were used to invest US$3.4m (2011: US$2.7m) in tangible and intangible fixed assets additions of US$0.7m and US$2.7m respectively.

Share placing

In April 2012, the Group raised US$6.4m with the additional placing of 1,599,999 shares. The cost of the additional placing of shares of US$0.3m has been fully accounted for in equity and no associated costs were included in the income statement.

Operational review

Postal counter market

The strategic focus for Escher's core postal counter market is to drive incremental sales from existing customers and to further penetrate the outsourced postal counter market with the Group's Riposte range of products. These provide seamlessly integrated counter and automation solutions for postal and retail organisations of all sizes.

2012 was an excellent year for new customer wins in the postal counter market, including the USA, Malaysia, Pakistan and Swaziland confirming Escher as a pre-eminent vendor of software to the postal industry. 35 postal services around the world use the Group's products to provide the infrastructure to generate revenues. USPS was Escher's largest contract win to date and is one of the largest retail software implementations in the world. The contract is expected to generate, over a fifteen-year term, approximately US$50m in revenue for the Group, with scope for substantial additional revenue. The delivery of the USPS contract remains on schedule.

The Group also secured a contract to deliver centralised financial services to Pakistan Post in partnership with TelcoNet. This is the first phase of a comprehensive plan to deliver improvements across Pakistan's network of 13,000 post offices. SwaziPost, the national postal operator in Swaziland chose Escher's Riposte to modernise its postal network, to offer new revenue generating products and services while at the same time reducing the existing cost base.

In December, Malaysia's postal service selected Escher's postal counter product following a rigorous tender process. Escher's Riposte software will provide a single platform for the delivery for a network of services including retail, postal, payments, money transfer, banking and government services to Malaysia's 29 million citizens.

Existing postal customers also generate additional revenues through integration services and requests for additional software functionality. Renewal of maintenance and support contracts by the Group's existing customers remain consistent and in line with previous periods.

The economic environment continues to provide an opportunity for Escher with governments and post offices reviewing their costs and services. There is increased interest in the Group's product offering, which delivers cost savings whilst increasing the number of services that post offices are able to provide.

Combined with Escher's track record of delivery on large scale implementations for major post offices, this has resulted in Escher being involved with a number of additional tenders and early stage tender processes.

RiposteTrEx™ and Interactive Services

Digital technology is an important factor for postal operators. With new opportunities offered by digital point of service, they are diversifying their businesses to find new revenue opportunities, particularly from financial services, mobile money, e-government and the increase in digital mail. Governments are beginning to see their post office networks as strategic assets and as the 'front office' for government. Escher is developing its RiposteTrEx platform to meet these new opportunities.

RiposteTrEx is a digital postbox solution which allows citizens, businesses, governments and international agencies to collaborate securely online. It is the only digital content delivery platform that combines the power of structured data transmission with the convenience of sending traditional mail in electronic form.

RiposteTrEx was recently selected by the Irish government to power its Constitutional Convention website, allowing Irish citizens to interact digitally with the state. It is a powerful messaging platform and its application to Constitutional Convention was its first live usage. This is an unfunded pilot project that demonstrates the capability of the product. Escher is now actively pursuing commercial opportunities in several countries.

Escher Interactive Services (EIS), has implemented its NFC (Near Field Communications) technology in a number of retail outlets in Ireland. This utilises a number of technologies such as card emulation and "Peer to Peer" data transfer. Products currently being used by customers include loyalty & coupon programmes, closed loop and multi merchant payment programmes and interactive customer engagement.

This has developed the Group's experience in the interactive retail market and EIS now has several significant opportunities in the pipeline. A number of these opportunities involve a combination of TrEx and EIS technologies and the Group is now merging these technologies to create a broader platform that is more applicable amongst larger retail opportunities and postal service customers.

CONSOLIDATED INCOME STATEMENT

Extract from the audited results for the year ended 31 December 2012

For the Year Ended 31 December 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the Year Ended 31 December 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Extract from the audited results for the year ended 31 December 2012

At 31 December 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Extract from the audited results for the year ended 31 December 2012

For the Year Ended 31 December 2012

CONSOLIDATED STATEMENT OF CASH FLOWS

Extract from the audited results for the year ended 31 December 2012

For the Year Ended 31 December 2012

SELECTED ACCOUNTING POLICIES AND ESTIMATION TECHNIQUES

For the Year Ended 31 December 2012

Selected accounting policies applied in the preparation of this consolidated financial information are as follows:

1 Basis of preparation

The financial information contained in this preliminary results statement has been extracted from the Group financial statements for the year ended 31 December 2012 and is presented in US$, rounded to the nearest thousand. The financial information does not include all the information and disclosures required in the annual financial statements. The Group financial statements for the year ended 31 December 2012 have been prepared in EU-adopted IFRS and were approved by the Board of Directors on 8 March 2013. The accounting policies used in preparing the group financial statements for 31 December 2012 are consistent with those applied in the prior year. The 2012 Annual Report will be distributed to shareholders and made available on the Company's website www.eschergroup.com. It will also be filed with the Companies Registration Office. The auditors have reported on the financial statements for the year ended 31 December 2012 and their report was unqualified. The financial information for the year ended 31 December 2011 represents an abbreviated version of the Group's statutory financial statements on which an unqualified audit report was issued and which have been filed with the Companies Registration Office.

2 Consolidation

The consolidated financial information include the accounts of Escher Group Holdings plc, and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The Group has availed of the exemption under IFRS1 in relation to business combinations and has not applied IFRS3 retrospectively to business combinations prior to the date of transition to IFRS (1 January 2008).

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group.

3 Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in 'intangible assets'. Goodwill is tested annually for impairment and whenever there is an indicator of impairment by comparing the carrying value to the recoverable amount and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment. The Group has two CGUs. The combination of these CGUs represent the lowest level at which goodwill is monitored by the Group and the lowest level at which management captures information for internal management reporting purposes about the benefits of the goodwill. The combined CGUs are not larger than an operating segment.

4 Revenue recognition

The Group's revenue consists primarily of revenues from the sale of technology products and services. Revenue is measured at fair value of the consideration received or receivable for the sale of products and services in the ordinary course of the Group's activities. Where extended payment terms are agreed, beyond the normal credit period offered, the difference between fair value and nominal amount of the consideration is recognised as finance income in profit or loss by applying the effective interest method. Revenue is shown net of value-added-tax and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group's activities as described below.

Revenue from software development and consulting services is recognised as the services are provided. The Group charges a service fee to customise software. If the service is on a contracted time and material basis, then the revenue is recognised as and when the services are performed. If it is a fixed fee, then the services revenue is recognised under the percentage of completion contract accounting method. The Group measures percentage of completion based on labour hours incurred to date as a proportion of total hours allocated to the contract. If circumstances arise that may change the original estimates of revenues, costs or extent of progress toward completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or costs and are reflected in the period in which the circumstances that give rise to the revision become known by management. Unbilled revenues are recognised as revenue during the month the service is provided.

License revenue for time based licenses is deferred by the Group, and recognised evenly over the term of the license. Revenues for perpetually licensed software is recognised on customer acceptance, provided the company has objective evidence of fair value of any undelivered elements. Revenue is deferred for undelivered elements.

Maintenance revenue is recognised over the contractual periods. Related support services are recognised as the services are performed.

For customers where the collectability is not assured, revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group.

Where the Group receives payment from customers in advance of the performance of its contractual obligations, a liability equal to the amount received is recognised as deferred revenue. That liability is reduced and the amount of the reduction is recognised as revenue, when and as the Group obtains the right to consideration in exchange for the service it provides.

Deferred revenue includes license, software configuration and consulting service fees and maintenance and support contracts billed in advance.

5 Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). These consolidated financial statements are presented in US dollar, which is the company's functional and the Group's presentation currency and is denoted by the symbol "US$".

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the retranslation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Group entities

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

·; assets and liabilities for each reporting period presented are translated at the closing rate at the date of that reporting period;

·; income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

·; all resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations and of borrowings are recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

The Group has availed of the exemption in IFRS1, whereby the cumulative translation differences for all foreign operations were deemed to be reset to zero at the date of transition to IFRS (1 January 2008).

6 Research and development and software development costs

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Research expenditure is recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:

·; it is technically feasible to complete the software so that it will be available for use;

·; management intends to complete the software and use or sell it;

·; there is an ability to use or sell the software;

·; it can be demonstrated how the software will generate probable future economic benefits;

·; adequate technical, financial and other resources to complete the development and to use or sell the software are available; and

·; the expenditure attributable to the software during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software include the software development employee costs and an appropriate portion of relevant overheads.

Development costs that are capitalised are amortised over their expected useful life. The estimated useful lives currently range up to 5 years and are reviewed at each statement of financial position date. Amortisation commences when the asset is available for use.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Research and development tax credits from the government are recognised at their fair value where there is reasonable assurance that the credit will be received and the Group will comply with all the conditions attaching to them.

7 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities, unless the Group has an unconditional right to defer settlement for the liability for at least 12 months after the reporting date.

8 Share-based compensation

The Group operates an equity-settled, share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

·; including any market performance conditions (for example, an entity's share price);

·; excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and

·; including the impact of any non-vesting conditions (for example, the requirement for employees to save).

Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. When the options are exercised, the company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.The grant by the company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity.

NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

1 Critical accounting estimates and judgements

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 reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(a) Estimated impairment of goodwill and intangible assets

The Group tests annually whether goodwill has suffered any impairment. Factors which the Group consider could trigger an impairment include, but are not limited to, significant negative industry or economic trends or changes in key assumptions underpinning the value in use calculation. No impairment charge arose in the course of the year. The recoverable amount of the group of cash generating units has been determined based on value-in-use calculations. These calculations require the use of estimates.

(b) Capitalisation of development costs and estimation of useful lives

Costs incurred on development projects are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably. These calculations require the use of estimates, primarily around the level of directly attributable developer time and an appropriate portion of relevant overheads. Capitalisation ceases and amortisation commences once a product is available for deployment.

The estimated useful lives currently range up to 5 years and are reviewed at each statement of financial position date. Intangibles are tested for impairment if impairment indicators are identified. In 2012, the amortisation charge was US$679,000 (2011: US$358,000). If the amortisation period was shortened by 1 year for all categories of intangible assets, other than goodwill, in 2012 it would have resulted in an additional amortisation charge of US$175,000 (2011: US$90,000).

(c) Revenue recognition

The Group uses the percentage-of-completion method in accounting for its fixed-price contracts to deliver customisation services. Use of the percentage-of-completion method requires the Group to estimate the services performed to date as a proportion of the total services to be performed. Were the proportion of services performed to total services to be performed to differ by 10% from management's estimates, the amount of revenue recognised in the year would increase by US$0.2m (2011: US$0.4m) if the proportion performed were increased, or would decrease by US$0.2m (2011: US$0.4m) if the proportion performed were decreased.

(d) Income tax

The Group is subject to income taxes in various jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(e) Determination of functional currency

The Group is headquartered in Ireland and has significant worldwide operations and accordingly principally operates in three main currencies. Reflecting its economic operating environment, the Group has determined that the US$ is the company's functional currency while for certain subsidiaries the functional currency has been determined to be the Euro.

(f) Trade receivables

Provision is made against trade receivables when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. This is a matter of management judgement, based on their best estimate of the likelihood of recovery on a specific, customer by customer basis.

2 Segment Information

In line with the requirements of IFRS 8, "Operating Segments", the Group has identified its Chief Operating Decision Maker (CODM). The Group has identified the Board of the company as its CODM. The Board reviews the Group's internal reporting in order to assess the performance of the Group and allocates resources. The Board considers the business from a product perspective and reviews working capital and overall statement of financial position performance on a Group wide basis. Consequently the Board determined there to be only one segment.

The Board assesses the performance of the segment based primarily on measures of revenues, adjusted EBIDA and net profit. These product revenues derive from the Group's owned software products and from the following main sources:

The entity is domiciled in the Republic of Ireland. The Group's external revenues are derived from the following main geographic locations:

Fluctuations in revenues with individual customers are typically due to a combination of up-front perpetual licence billings as well as the level and timing of development and other software customisation requirements with that customer (the latter being from both from initial customisation work following a new licence win and periodic projects driven by a customer's internal requirements and software upgrades).

During the year the Group derived revenues from the following external customers which individually represented 10% or more of total reported revenues for that year:

The total of non-current assets other than deferred income tax assets located in the Republic of Ireland is US$5.5m (2011: US$3.1m), and the total of non-current assets located in other countries is US$36.0m (2011: US$31.5m).

3 Exceptional Items

Exceptional expenses of US$nil (2011: US$0.8m) relate to professional fees and other related expenses on the fundraising activities in 2011. These are non-recurring once off expenses. There is no tax impact of these exceptional items.

4 Expenses by nature

(a) The profit on ordinary activities before taxation, all of which arises from continuing operations, is stated after charging:

(b) The Group obtained the following services from the Group's auditor at cost as detailed below:

Included in other assurance services is US$0.1m (2011: US$0.8m) of costs arising from corporate restructuring projects. In 2011 directly attributable costs of US$0.5m in relation to the share issue has been deducted from equity and US$0.3m has been included in exceptional costs in the Income Statement.

(c) Employee share based payments:

The ultimate parent company operates a share based compensation plan which began in 2012. Certain directors and employees were granted shares in the company. The grant of these shares was not subject to performance conditions and the shares will vest at various stages over three years subject to service conditions being met.

The cost of the equity settled amount recognised in the year was US$444,000 (2011: US$nil). The expense in relation to these shares is based on the fair value of the shares at the date that the award was granted using the market price on the date of award. For further details please see note 16.

5 Employee benefit expense

The average number of persons employed by the Group during the period was:

The number of persons employed by the Group (including executive directors) at 31 December 2012 was 146 (2011: 72).

The Group operates a number of defined contribution pension schemes in which the majority of Group employees participate. The assets of these schemes are held separately from those of the Group in independently administrated funds. The pension charge represents contributions payable by the Group to the schemes and amounted to US$149,000 in respect of 2012 (2011: US$129,000), of which US$53,000 was accrued at the year-end (2011: US$154,727).

6 Finance income and costs

Finance income includes a credit of US$nil (2011: US$122,000) to reflect movements in the fair value of interest rate swaps, while finance costs includes a charge of US$nil (2011: US$nil) to reflect movements in the fair value of interest rate swaps.

7 Income tax expense

(c) Deferred tax and unrecognised tax losses

The deferred tax included in the statement of financial position is as follows:

As at 31 December 2012, a potential deferred tax asset has not been recognised by the Group in respect of losses of US$nil (2011: US$nil) that can be carried forward against future taxable income.

The movement in the deferred tax during the financial year is as follows:

(c) Deferred tax and unrecognised tax losses (continued)

8 Property, plant and equipment

Depreciation of US$335,000 (2011: US$155,000) has been charged in administrative expenses and US$nil (2011: US$nil) in cost of sales in the income statement.

9 Intangible assets

During 2012 there was US$2.7m of costs capitalised for intangible assets. US$1.1m of this related to the ongoing development of the Riposte TrEx product. US$1.6m was capitalised for development of new Riposte products. The intangible assets classified as COTS and other intangibles in the prior year have been amalgamated into the Riposte Development classification in the current year.

Amortisation of US$ 679,000 (2011: US$358,000) on Riposte TrEx and Riposte Development is included in cost of sales in the income statement. With the exception of TrEx and two of the Riposte products, these products are still in the development phase and no amortisation has occurred. The average remaining amortisation period of the TrEx development is 44 months (2011: 50 months). In the year there was US$1.5m (2011: US$1.9m) of research and development expenditure recognised as an expense in the income statement as the state of completion was not viewed as being sufficiently developed to warrant capitalisation.

10 Trade and other receivables

The carrying value of trade receivables approximates to their fair value.

Trade receivables are non-interest bearing and are generally settled within a 45 day period.

(a) The carrying amounts of the trade and other receivables are denominated in the following currencies:

As at 31 December 2012, at a Group level, trade receivables with a nominal value of US$233,000 were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows:

Ageing of trade receivables

The ageing analysis of past due trade receivables is set out below:

As of 31 December 2012, trade receivables of US$2,593,000 (2011: US$727,000) were fully performing.

As of 31 December 2012, trade receivables of US$1,236,000 (2011: US$1,647,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default.

As of 31 December 2012, trade receivables of US$233,000 (2011: US$192,000) were impaired. The individually impaired receivables mainly relate to two customers.

(b) The majority of the Group's customers, primarily representing post offices operate within the postal service industry. As at 31 December 2012, a significant portion of the trade receivables of the Group related to 4 customers (2011: 2 customers) as follows:

(c) Amounts owed by Group undertakings are interest free, unsecured and are repayable on demand. The Board have reviewed these amounts for impairment. Following this review, no provision for impairment was deemed necessary.

11 Cash and cash equivalents

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

The maximum exposure to credit risk at the reporting date is the carrying value of cash and cash equivalents noted above.

The Group's currency exposure is set out below. Such exposure comprises the cash and cash equivalents of the Group that are denominated other than in US dollars. As at 31 December 2012 these exposures were as follows:

12 Trade and other payables

The fair values of trade and other trade payables approximate to the values shown above.

The carrying amounts of the Group's trade payables are denominated in the following currencies:

13 Borrowings