Interim Results

14 December 2016

FreeAgent Holdings plc

("FreeAgent", the "Company" or the "Group")

Interim results for the six months ended 30 September 2016

FreeAgent Holdings plc, a provider of cloud-based Software-as-a-Service ("SaaS") accounting software solutions and mobile applications designed specifically for UK micro-businesses, today announces its unaudited interim results for the six months ended 30 September 2016.

Financial Highlights

· Revenue increased by 36% to £3.6 m (H1 2015: £2.6m).

· Gross Profit up 38% to £3.0 m (H1 2015: £2.2m).

· Gross Profit Margin at 84% (H1 2015: 83%).

· Strong revenue visibility with ACMRR up 35% at £7.7m.

· Net loss of £1.3m (H1 2015: £0.4m) reflecting investment in customer acquisition, a share options expense of £0.5m, and unrealised losses on the USD loan facility of £0.2m.

Operational Highlights

· Accounting Practice clients significantly increased to 27,137 (H1 2015: 12,611).

· Direct Clients increased to 16,724 (H1 2015: 14,582).

· Growth driven by investments in customer acquisition, particularly in the practice channel.

Post-period Highlights

· Successful placing of £8 million of new equity and admission to AIM in November 2016.

· Balance sheet strengthened, with repayment of debt leaving £5 million of net cash immediately after IPO.

· Andy Roberts appointed non-executive chairman and Nigel Halkes appointed non-executive director.

Commenting on today's results, Ed Molyneux, Chief Executive, said:

"On 16 November 2016, FreeAgent was admitted to the AIM market of the London Stock Exchange. This is a significant milestone for us, and an achievement which the Board believes will be transformational for the Group's future growth and prospects. The repayment of the loan facility with the placing proceeds and the new investment from the IPO has significantly strengthened our balance sheet and provides us with the opportunity to further invest in customer acquisition activities and product development to enhance our product offering.

As a newly-listed public company, we are especially pleased to report strong performance in our first set of interim results. The 36% growth in revenue maintains our FY15 and FY16 growth rates, and at the same time we have also improved gross margins. The second half has started positively and we are confident we will report further significant progress within our full-year results, consistent with market expectations."

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

Chief Executive's Statement

During the period, the Group continued its strong revenue growth. Revenue in H1 2016 was £3.6 million, a 36% increase on £2.6 million in H1 2015. The Group also maintained strong gross margins in the period at 84% (H1 2015: 83%) and continues to benefit from excellent revenue visibility.

As at 30 September 2016, the Group had a total of 51,865 subscribers, an increase of 18% over H1 2015 (30 September 2015: 43,811 subscribers). The Group now employs over 100 people.

The Group has continued to invest to create a platform to deliver future growth. During the period, administrative expenses increased by 67% to £4.2m, reflecting a controlled increase in the overhead cost base brought about by a planned move to larger office premises and recruitment of additional sales and engineering personnel with a view to establishing a sound platform to deliver expected future growth. Finance expense reflects the capital structure that was in place prior to the IPO. All debt has since been repaid out of the IPO proceeds.

Customer Acquisition and relevant KPIs

The Group's strong growth performance in the period was underpinned by continued positive business metrics.

LTM/CAC, which consists of the customer acquisition cost ("CAC") calculated per customer and compared to the lifetime margin that might be generated from that customer ("LTM"), was 3.8x for direct customers and 4.6x for accountancy practice clients. Customer churn remained low in the direct channel at 1.5% and in the practice channel the Company continues to see positive renewal rates as a result of staged on-boarding of underlying customers by existing practice clients.

Annualised committed monthly recurring revenue ("ACMRR"), which includes revenue committed to be added in the next 12 months in accordance with contracts agreed with accountancy practice customers, increased to £7.7 million as at 30 September 2016, an increase of 35% on the prior period.

Average revenue per user ("ARPU"), derived by dividing Monthly Recurring Revenue by the number of active subscribers within the relevant channel at any given point in time, was on average £17.63 in the direct channel (H1 2015: £17.22) and £10.86 in the practice channel (H1 2015: £10.10 ) during the six month period.

As highlighted within our Admission Document, the Directors' estimate of the residual lifetime value of future subscription payments from the Group's current customer base totalled £37.1m at IPO which is comprised of £18.4m from our direct customer base and £18.7m from our accountancy practice channel.

FreeAgent's revenue is generated via both direct sales and through accountancy practices.

Direct subscriptions are paid directly to FreeAgent by businesses. We continue to demonstrate very positive return on our investments in direct customer acquisition, and are continually evolving our marketing approach to further drive the scalability of this channel.

Accountancy practice sales are made where accountancy practices pay FreeAgent bulk licence fees to connect their underlying clients to the FreeAgent SaaS solution. The Group has seen particular success in its "key" accountancy practice channel with new deals agreed in the period with some very large IT contractor focused practices including JSA, Danbro and Independent Contractor Services. Our growing market presence in this channel, as well as increasing awareness of HMRC's Making Tax Digital agenda, is already driving up levels of inbound interest from accountancy practices.

Strategy and Uses of IPO Funds

Post period end, on 16 November 2016, FreeAgent successfully listed on AIM raising £10.7 million from institutional investors via a placing of 9,523,810 new ordinary shares, raising gross proceeds of £8.0m for the Company, and 3,192,850 existing ordinary shares raising gross proceeds of £2.7m for the selling shareholders. This was a transformational event for FreeAgent and immediately following the IPO and subsequent repayment of the outstanding loan, our balance sheet has been strengthened with £5 million of net cash to support our growth plans.

The Company's vision is "Making businesses happier and more successful by putting them in control of their finances".

As highlighted at the time of IPO, FreeAgent's medium-term ambition is to grow to a position of significant market leadership in the supply of SaaS accounting solutions to micro-businesses in the UK. To realise this ambition, management has endeavoured to build a sustainable, effective and valuable business model.

FreeAgent has a clear strategy to drive future growth and the Group is well-positioned to scale and develop the business by doing the following:

· Grow core business with a strict focus on UK micro-businesses (defined as sole traders and companies with fewer than 10 employees) and their accountants

This is the market sector addressed by the Group since its foundation in 2007 and is a sector which will see continuing growth driven by HMRC's move to digitisation and more frequent reporting requirements.

· A premium, differentiated product experience

The FreeAgent SaaS solution commands a premium price point which reflects the greater scope of functionality relevant to its focused market segment and the higher velocity of ongoing product enhancements. A key aspect of differentiation is the integration of the service with HMRC along with its unique depth of functionality in relation to tax forecasting and filing.

· A continued focus on innovation

A strong corporate culture with an engaged and collaborative team has enabled FreeAgent to attract and retain the talent required to drive innovation. The Group believes that there are many opportunities to deliver valuable product capabilities which can further widen FreeAgent's appeal and sustain or even extend the Group's competitive advantage.

As outlined at our IPO, funds raised will be allocated to driving continued growth by investing in customer acquisition, particularly in the key accountancy practice channel and by investing in product development as the Group looks forward to the Making Tax Digital agenda from HMRC.

Board and Employees

Admission to AIM entailed a reorganisation of our Board and management structures. We were delighted to appoint two high calibre non-executive directors to the Group Board in advance of IPO: Andy Roberts, formerly of Innovation Group, as independent non-executive chairman; and Nigel Halkes, formerly of Ernst & Young, as senior independent non-executive director and chair of the audit committee. The management team is represented on the Group Board by myself as CEO and Katherine Tenner, CFO, with my co-founders Roan Lavery and Olly Headey retaining key management responsibilities on our executive board as Product Director and Chief Technology Officer respectively.

Successful delivery of the IPO in line with our project timetable involved a substantial commitment of management time and an increased reliance on those employees not directly involved in the project to plug the resulting internal resource gaps. As always, the FreeAgent team rose to the challenge, and I would like to express the new Board's appreciation for the enthusiastic support and commitment of employees throughout the Group during the IPO process.

Current Trading and Outlook

Following the successful IPO post period end, the Group has commenced recruitment to enlarge primarily its accountancy practice sales, and product and engineering teams. The Edinburgh market for software engineers remains competitive but the Group is optimistic of being able to find the right people to fill roles in line with demand.

October 2016 saw the soft launch of a new commercial collaboration with a major UK bank under which small business customers of that institution which meet FreeAgent's core target market profile will be offered the branded FreeAgent SaaS solution as an additional part of their account on-boarding process. The Group does not yet have meaningful visibility over the likely growth in this channel however we remain encouraged by this partnership with the full roll out to all New Business Call Centres expected in the New Year.

FreeAgent's entry to the AIM market is an exciting step that marks the next phase of the Group's development as it progresses its growth strategy. Admission has provided the springboard necessary to accelerate growth and to attract more customers through both direct and accountancy practice channels, creating the potential to introduce the benefits of FreeAgent's software to many thousands of additional UK micro-businesses.

The new Board is focused on delivering continued revenue growth, although second half profitability will be moderated as planned by investment in headcount and business infrastructure to grow and develop the business as a quoted entity in line with our stated growth strategy.

The Board looks forward to the Group's future as a quoted company and remains confident of reporting further significant progress within our full-year results, consistent with market expectations.

Ed Molyneux

Chief Executive

14 December 2016

INDEPENDENT REVIEW REPORT TO FREEAGENT HOLDINGS PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim results for the six months ended 30 September 2016 which comprise the consolidated statement of profit and loss and other comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and the related explanatory notes.

We have read the other information contained in interim results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors responsibilities

The condensed set of financial statements in the interim results are the responsibility of and have been approved by the directors. The directors are responsible for preparing the condensed set of financial statements in the interim results in accordance with the accounting policies which are expected to be adopted in the financial statements for the year ending 31 March 2017.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim results based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the Company and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly interim results for the six months ended 30 September 2016 are not prepared, in all material respects, in accordance with the accounting policies which are expected to be adopted in the financial statements for the year ending 31 March 2017.

BDO LLP

Chartered Accountants

Edinburgh

United Kingdom

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

14 December 2016

Consolidated statement of profit and loss and other comprehensive income

For the 6 months ended 30 September 2016

Consolidated statement of financial position

As at 30 September 2016

Consolidated statement of changes in equity

For the 6 months ended 30 September 2016

The following describes the nature and purpose of each reserve within equity.

Consolidated statement of cash flows

For the 6 months ended 30 September 2016

Notes to the interim results for the 6 months ended 30 September 2016

1. Basis of preparation

The financial information presented in these interim results has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards issued by the International Accounting Standards Board, as adopted by the European Union. The principal accounting policies adopted in the preparation of the financial information in this update are unchanged from those used in the Group's financial statements for the year ended 31 March 2016 and are consistent with those that the Group expects to apply in its financial statements for the year ending 31 March 2017.

The financial information for the periods ended 30 September 2015 and 30 September 2016 are unaudited but have been reviewed by the Group's auditor. Full details of the accounting policies for the subsidiary company, FreeAgent Central Limited, are included in the Report and Financial Statements for the year ended 31 March 2016.

The comparative figures for the year ended 31 March 2016 were derived from the financial statements for the subsidiary company, FreeAgent Central Limited, for that year which have been delivered to the Registrar of Companies. Those financial statements received an unqualified audit report which did not contain statements under sections 498(2) or (3) (accounting record or returns inadequate, financial statements not agreeing with records and returns or failure to obtain necessary information and explanations) of the Companies Act 2006.

Going concern

The financial information has been prepared on a going concern basis despite the net liabilities of of £408k at September 16.

On 16 November 2016, the Group completed a successful IPO on the AIM market of the London Stock Exchange. The Group raised £8m gross new money for the Company and £2.7m for selling shareholders. £2.9m was used to repay the debt facility, leaving net cash of £5m on the balance sheet after payment of the costs of Admission.

The principal risks and uncertainties facing the Group have not changed from those set out in the IPO Admission document.

Basis of consolidation

The financial information incorporates the results of FreeAgent Holdings plc and all of its subsidiary undertakings as at 30 September 2016. The results of the subsidiary undertakings are included from the date of acquisition.

FreeAgent Holdings plc was incorporated on 25 July 2016, and on 21 October 2016 it acquired the issued share capital of FreeAgent Central Limited by way of a share-for-share exchange. The latter had one wholly owned subsidiary, FreeAgent Inc. The consideration for the acquisition was satisfied by the issue of 14,944,270 Ordinary shares, 7,065,000 A preference shares and 8,671,200 B preference shares in FreeAgent Holdings plc to the shareholders of FreeAgent Central Limited.

The accounting treatment in relation to the addition of FreeAgent Holdings plc as a new UK holding Company of the Group falls outside the scope of IFRS3 'Business Combinations'. The share scheme arrangement constituted a combination of entities under common control as FreeAgent Holdings plc, due to all shareholders of FreeAgent Holdings plc being issued shares in the same proportion, and the continuity of ultimate controlling parties. The reconstructed group was consolidated using merger accounting principles as outlined in Financial Reporting Standard 102 ("FRS") section 19 and treated the reconstructed group as if it had always been in existence. There was no difference between the nominal value of the shares issued in the share exchange and the book value of the shares obtained.

The Company has taken advantage of merger relief available under the Companies Act 2006 in respect of the share for share exchange as the issuing company has secured more than 90% equity in the other entity. The carrying value of the investment is carried at the nominal value of the shares issued.

2. Loss per share

At 30 September 2016 there were 1,680,800 (2015: 1,122,600) share options and 449,330 (2015: 449,330) warrants in issue. In accordance with IAS 33 where there is a loss for the year, there is no dilutive effect of options and warrants.

3. Intangible assets

The Company has capitalised £353k (2015: £496k) in respect of development costs. An amortisation charge of £332k (£282k) has been recognised in the consolidated statement of profit and loss and other comprehensive income for the 6-month period to 30 September 2016.

4. Taxation

As at 30 September 2016, there is an unrecognised potential tax credit available to the Company of £78k, relating to estimated qualifying expenditure on research and development. The directors have not recognised this potential asset because of uncertainty over its availability at this time.

5. Share Capital

In September 2016, the Company completed a bonus issue of shares. £306,293 was capitalised from the share premium account to pay up in full 895,161,813 ordinary shares, 423,193,518 series A preference shares and 519,404,902 series B preferences shares each of £0.0001666666.

After completion of the Bonus issue, the shares were consolidated into £0.01 shares.

6. Share based payments

The Company issued a round of share options to employees in May 2016. 71,500 options were issued with an exercise price of £10. An expense of £512k has been recorded in the consolidated statement of profit and loss and other comprehensive income in respect of share based payments for the 6-month period to 30 September 2016 (2015: £nil)

7. Related party transactions

During the period, the Group continued to transact with IRIS Group Ltd who are not members of the group. IRIS Group Ltd. is a shareholder of the group. Revenue for the period of £202k (2015: £308k) was recorded. A receivable of £85k (2015: £100k) at the period end.

8. Events after the statement of financial position date

In October 2016, FreeAgent Central Limited became the 100% owned subsidiary of FreeAgent Holdings Limited via a share for share exchange.

In November 2016, the Group raised £8m through a Placing on the AIM market of the London Stock Exchange.