30 November 2021

Altitude Group plc

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

Altitude Group sees continuing recovery and growth

UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2021

Altitude Group plc (AIM: ALT), the operator of a leading marketplace for the global promotional products industry, is pleased to announce its unaudited interim results for the six months to 30 September 2021.

Financial Highlights

·      Group revenues increased by £1.5m to £5.9m, a 33% increase, in the half year period (H1 2020: £4.4m)

·      Acceleration of core strategic AIM Capital Solutions ("ACS") merchanting revenues of £3.0m in H1 2021 replaces one-off sales of Protective Personal Equipment of £2.0m H1 2020

·      Gross profit increased 12% to £2.8m (H1 2020 £2.5m) with increased trading activity

·      Administrative costs held steady £2.3m (H1 2020 £2.2m)

·      Adjusted operating profit* before central plc costs increased 57% to £1.2m (H1 2020: £0.7m) comprising:

•           increase of 58% in the US to £1.0m (H1 2020: £0.7m)

•           increase of 47% in the UK to £0.1m (H1 2020: £0.1m)

·      Group adjusted operating profit* increased by 86% to £0.5m (H1 2020: £0.3m)

·      Statutory loss before taxation reduced by 31% to £0.4m (H1 2020: loss £0.6m)

·      Cash inflow from operating activities was £0.7m (H1 2020: £0.1m)

·      Working capital investment of £1.7m driven by growth in trading activity and recovery

·      The Group currently remains debt free

·      Short term facility secured with a permanent credit line expected to be in place in the new year

·      The Group continues to trade positively, with current business performance remaining in line with the Board's expectations

*Operating profit before share-based payment charges, amortisation of intangible assets, depreciation of tangible assets and exceptional charges

Key corporate developments and operational highlights

·      Accelerating recovery evidenced by strong growth across all revenue streams in both recurring & repeating services and merchanting activity:

o  US services revenue grew by 34% to £2.2m (H1 2020: £1.7m)

o  US merchanting revenue grew by 41% to £3.1m (H1 2020: £2.2m)

·      The Group now has 318 members of the AIM global Preferred Partner network (H1 2020: 228), 187 US Preferred Partners (H1 2020: 175), 131 UK Preferred Partners (H1 2020: 53)

·      Preferred partner service fees increased by 79.8% on H1 2020 and 11.2% on H1 2019

·      AIM global membership increasing to 2,405 members (H1 2020: 2,200)

·      Global AIM Technology platform adoption increased 20% to 431 (H1 2020: 359) for search and orders

·      The Group is continuing to accelerate its ACS offering and continues to develop programmes that will accelerate the growth of merchanting revenue

Nichole Stella, Group CEO of Altitude, said:

"Throughout H1 2021, the industry has experienced initial recovery from the impact of the pandemic. Though caution across the industry still remains, our team continues to be focused on executing our strategic growth plan including developing and supporting our community, technology, services, and pipeline development, thus successfully increasing both Services and Merchanting revenue. The Board is pleased to report that the Group continues to trade positively, and current business performance is in line with the Board's expectations. With ongoing investment in growth, strong focus on core business development and sustained recovery the Board is optimistic and expects continued profitability in the full year."

 Enquiries:

Chief Executive's statement

Interim results for the 6 months ended 30 September 2021

Throughout this period, the management team remained focused on both recovery and our long-term strategic growth plans. We continued to invest in the development of our technology and software applications to drive ease of use and greater efficiencies for members, affiliates and preferred partners, as well as investing in our people and strategic growth areas of the business. Despite supply chain disruption, the Group traded positively throughout the period.   

AIM membership has increased to 2,405 (H1 2020: 2,200) with average US distributor revenue of c.$1.1 million pa and aggregate member revenue rising to c.$2.6 billion per self-certification (pre-COVID-19). Our continuous development of our order management platform, e-commerce and popup shops, and marketing programmes have initiated recovery and growth in our Service programmes. These combined efforts have helped us to grow our US service revenues by 34% in the period to £2.2m (HY1 2020: £1.7m) and overall service revenues by 26% to £2.8m (H1 2020: £2.2m).

The nature of our service revenues is very sticky whether derived from our AIM members or our stable of contracted Preferred Partners. Approximately 98% of our services revenues are either annual recurring fixed revenues or repeating ad valorem marketing revenues based on AIM members transactional volume with contracted Preferred Partners.

We continue to enjoy strong relationships with our key partners and have retained 100% of them throughout the period. Trading has recovered well with Preferred Partner service fees increasing by 79.8% on H1 2020 and 11.2% on H1 2019.

Additionally, our Merchanting programmes, which includes ACS acting as principal in the underlying transaction and therefore all gross transactional revenue ("GTR") is recognised as Group revenue, grew by 41% in the half year to £3.1m (H1 2020: £2.2m). Whilst the business is lower in margin at 7.2% it is high volume and has potential for significant growth. It is worth noting that H1 2020 included £1.9m of PPE merchanting generated in a direct and opportunistic response to the pandemic and which yielded a gross margin of circa 16%. These products have now become over-supplied in the market and therefore the business has not been repeated in 2021.

Our continued focus on execution resulted in an overall Group revenue increase of £1.5 million to £5.9 million (H1 2020: £4.4m). As a result, the Group adjusted operating profit* increased 86% to £0.5m (H1 2020: £0.3m) and adjusted operating profit* before central Plc costs increased 57% to £1.2m (H1 2020: £0.7m).

The Group remained debt-free, with the exception of leases held under IFRS 16. The Group is also pleased to report it has secured a short term facility ahead of a permanent credit line to support continued growth for ACS currently anticipated to be in place in the new year.

The Group continues to be cautious in its approach to all discretionary spend and is carefully managing cash whilst adapting programmes and services to meet the changing needs of the industry.

*Operating profit before share-based payment charges, amortisation of intangible assets, depreciation of tangible assets and exceptional charges

AIM Smarter Progress and Trading

AIM Smarter US & UK support the development and growth of small to mid-size global promotional products businesses through the delivery of supply chain management, efficiency through technology platforms, and marketing services. AIM continues to drive awareness and grow sales for both our Preferred Partners and for our AIM members to their clients. Through these services to our members and Preferred Partners, we are creating an interconnected growth-oriented marketplace that benefits all participants and delivers growth for the Group.

Routes to Revenue:

Services Revenue (Annual recurring and repeating revenues):

·      Continued growth in the AIM membership of high-quality promotional product distributors

·      Continued development of our Preferred Partner network and increasing their sales through the network

·      Continued Sales of Enhanced Packages to assist AIM members and affiliates grow their business to end-user clients

·      Continued growth in member utilisation of the AIM Tech Suite to drive efficiencies, transactional visibility and growth across the AIM network

Merchanting Revenue:

·      Promoting and growing ACS, which completes the Groups current portfolio of services to its AIM members

·      Continued development of our Group buys & Adjacent Markets Programmes

US Business

The US business delivered £5.3m of revenue in the period. AIM US membership is stable with 2,070 members, up from 1917 at the time of acquisition and poised for growth as US industry recovery accelerates. Our Preferred Partner network has grown to 187 partners (H1 2020: 175).

The US has seen acceleration of its newly launched ACS Program despite the one-off PPE merchanting sales generated in 2020. ACS requires mandatory use of the full AIM Tech suite and offers technology driven back-office support, procurement, and supply chain finance. ACS is recognised as "Principal" in the underlying transactions generated by affiliate members. Accordingly, we recognise the revenue and gross margin of the full transaction, including the commission paid to ACS affiliates as a cost of sale. We anticipate significant further uptake of the programme by new and existing AIM members.

During the period, we continued to invest in our people and technology to deliver on our future growth plans and advance the business further as recovery accelerates.

UK Business

The UK business also experienced recovery, albeit not as pronounced as the US markets, delivering revenue of £0.6m in the period, an increase of 3% (H1 2020 £0.6m). 

AIM UK Membership continues to grow since the launch of the AIM Membership package in May 2020. Currently, there are 335 UK Members, an increase of 129% from the 146 Members in September 2020. In addition, the UK continues to provide and support the Group's proprietary enterprise-level software solutions to mid-sized UK and US based distributors and suppliers.

Technology 

The Group continues to research and actively develop technological advancements within the AIM Tech Suite for both AIM and ACS Members. Following the successful implementation of the Group's agile development processes and strengthening of the structure of the core technology development team within a new centralised location in the UK, a series of major technology releases have taken place to advance the efficiencies and promote the growth of ACS Members and group processes.

Key integrations with global leading accounting platforms and shipping agents were also launched to strengthen the end-to-end nature of the Tech Suite, along with promotional product industry specific integrations allowing the easy passage of product and order data between Members and Partner Suppliers to widen the connectivity of the platform. 

The continued technological advancements and user desire for connected solutions is reflected in the ongoing growth of Member Tech Suite adoption with usage continuing to grow, having increased 20% within the past 12 months from 359 to 431 distributors adopting the AIM Tech Suite for search and order creation.  Our e-commerce platforms continue to be attractive in the current environment with 2,594 live pop-up stores and websites.

Board Changes

There were a number of board changes in the period. Keith Edelman stepped down from his role as Non-Executive Chairman on 26 November 2021. The Board thanks Keith for his valuable contribution to the Group during his term, especially throughout the global COVID-19 pandemic, and wish him well in his future endeavours.

In November, the Board was pleased to welcome David Smith, he has stepped into the role of Non-Executive Chairman as of 26 November 2021. David's extensive experience in industries that have evolved through technology advancements and industry shifting buying behaviours will be invaluable to the Group as it continues to grow.

Additionally, on 5 October 2021, the board welcomed Graham Feltham to the board as Chief Financial Officer, replacing Graeme Couturier. Graham Feltham is an experienced public company CFO and brings a wealth of knowledge to the finance team. His expertise will be instrumental in delivering accelerated growth in the future.

Financial Results

Group revenue for the period increased by £1.5m to £5.9m (H1 2020: £1.1m), an increase of 33%.

The recognition of ACS revenue, with ACS being the principal in the transaction, along with the recovery in the membership network related revenues, has driven our top line growth.

When compared with last year, this growth was countered by the non-recurring AIM Smarter merchanting revenues of £1.9m which related to the direct sourcing of Personal Protective Equipment (PPE) in response to COVID-19 demand. However, our ACS merchanting revenue, inclusive of Group Buys and adjacent market merchanting activities were successful and more than compensated for the non-repeating PPE revenue in the first half of the year.

Gross profit increased by £0.3m, or 12.1%, to £2.8m (H1 2020: £2.5m), with gross margin decreasing to 48% (H1 2020: 57%) reflecting lower margins on ACS merchanting compared to the non-repeating PPE margin.

Administration expenses before share-based payments, amortisation of intangible assets, depreciation of tangible assets and exceptional charges slightly increased with prior year at £2.3m (H1 2020: £2.2m).

Adjusted operating profit* increased by 86% to £0.5m (H1 2020: £0.3m) and the loss before taxation fell by 31.1% to £0.4m (H1 2020: loss £0.6m).

Statutory operating loss was £0.4m (H1 2020: loss £0.6m), with basic and diluted loss per share falling by 51.2% to 0.42p (H1 2020: loss 0.86p).

Operating cash inflow from continuing operations (before changes in working capital) was £0.7m (H1 2020: £0.1m).

Operating cash outflow of £1.7m (H1 2020: £0.4m) was driven by £0.9m increased trading activity generated by market recovery and growth in ACS revenue with one off recovery outflows of £0.3m relating to the partial repayment of the UK HMRC 'time to pay' initiative and the deferred receivable of £0.5m from the US employee retention scheme to be set-off against future payroll taxes.

Net cash outflow from investing activities was £0.4m (H1 2020: £0.3m outflow), primarily comprising capitalised software development costs.

Net cash outflows from financing activities of £0.1m were mainly comprised of lease repayments and interest. The prior period activities of £0.6m reflects repayment of finance agreements and interest of £0.5m, lease repayments of £0.1m and the issue of shares for cash (net of expenses) of £0.1m in respect of options exercised during the period.

Total net cash outflow was £1.3m (H1 2020: £1.1m outflow).

* Operating profit before share-based payment charges, amortisation of intangible assets, depreciation of tangible assets and exceptional charges

Outlook

Throughout H1 2021, the industry has experienced initial recovery from the impact of the pandemic. Though caution across the industry still remains, our team continues to be focused on executing our strategic growth plan including developing and supporting our community, technology, services, and pipeline development, thus successfully increasing both Services and Merchanting revenue. The Board is pleased to report that the Group continues to trade positively, and current business performance is in line with the Board's expectations. With ongoing investment in growth, strong focus on core business development and sustained recovery the Board is optimistic and expects continued profitability in the full year.

Nichole Stella

Chief Executive Officer

30 November 2021

Consolidated income statement for the six months ended 30 September 2021

Consolidated statement of changes in equity for the six months ended 30 September 2021

Consolidated balance sheet as at 30 September 2021

Consolidated cash flow statement for the six months ended 30 September 2021

Notes to the half yearly financial information

1. Basis of preparation

This consolidated half yearly financial information for the half year ended 30 September 2021 has been prepared in accordance with the AIM rules and applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the period ended 31 March 2021. The Group's accounting policies are based on the recognition and measurement principles of UK-adopted international accounting standards. The financial information is presented in Sterling and has been rounded to the nearest thousand (£000).

The consolidated half yearly report was approved by the Board of directors on 30 November 2021.

The financial information contained in the interim report has not been reviewed or audited, and does not constitute statutory accounts for the purpose of Section 434 of the Companies Act 2006, and does not include all of the information or disclosures required and should therefore be read in conjunction with the Group's 2020/21 consolidated financial statements, which have been prepared in accordance with UK-adopted international accounting standards. The financial information relating to the period ended 31 March 2021 is an extract from the latest published financial statements on which the auditor gave an unmodified report that did not contain statements under Section 498 (2) or (3) of the Companies Act 2006 and which have been filed with the Registrar of Companies.

2. Accounting policies

The condensed, consolidated financial statements in this half-yearly financial report for the six months ended 30 September 2021 have been prepared in accordance with the AIM Rules for Companies and on a basis consistent with the accounting policies and methods of computation consistent with those set out in the Annual Report and financial statements for the period ended 31 March 2021, except as described below. The Group has chosen not to adopt IAS 34 'Interim Financial Statements' in preparing these interim financial statements and therefore the Interim financial information is not in full compliance with International Financial Reporting Standards.

In preparing the condensed, consolidated financial statements, management are required to make accounting assumptions and estimates.  The assumptions and estimation methods are consistent with those applied to the Annual Report and financial statements for the period ended 31 March 2021.  Additionally, the principal risks and uncertainties that may have a material impact on activities and results of the Group remain materially unchanged from those described in that Annual Report. The financial statements have been prepared on a going concern basis. The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the strategic report and Chairman's statement in the Annual Report and financial statements for the period ended 31 March 2021.

The Financial Reporting Council issued "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies" in 2009, and "Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks" in 2016. The Directors have considered these when preparing the interim financial statements.

The current economic conditions caused by the COVID-19 pandemic have created uncertainty particularly over the level of demand for the Group's products and services and over the availability of finance which the directors are mindful of. The Board is confident that the Group has sufficient liquidity to trade through to more normalised trading conditions. The interim financial statements have therefore been prepared on a going concern basis. The directors have taken steps to ensure that they believe the going concern basis of preparation remains appropriate. The key conditions are summarised below:

·      The Directors have prepared cash flow forecasts extending to December 2022. These show that the Group has sufficient funds available to meet its trading requirements.

·      The Group's year to date financial performance has been factored into the cash flow forecasts.

·      The Group does not currently have external bank borrowings, or any covenants based on financial performance. The Group is in the process of finalising a permanent credit line for growing the ACS business and has secured the offer of a temporary short-term facility in advance of this should it be required.

·      The Directors have considered the position of the individual trading companies in the Group to ensure that these companies are also in a position to continue to meet their obligations as they fall due

·      There are not believed to be any contingent liabilities which could result in a significant impact on the business if they were to crystallise

Based on the above indications and assumptions, the Directors believe that it remains appropriate to prepare the interim financial statements on a going concern basis. However, the impact of COVID-19 could still possibly result in revenue and resulting cash inflows that are less and later than modelled potentially creating a need to secure additional funding. The Directors consider that such a severe, yet plausible scenario indicates the existence of a material uncertainty which may cast significant doubt on the Group and company's ability to continue as a going concern. Notwithstanding that these factors represent a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern, the Board has a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. The interim financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.

Revenue recognition

Revenue represents the amounts receivable, excluding sales related taxes, for goods and services supplied during the period to external customers shown net of sales taxes, returns, rebates and discounts.

When assessing revenue recognition against IFRS15, the Group assess the contract against the five steps of IFRS15:

1.     Identifying the contract with a customer

2.     Identifying the performance obligations

3.     Determining the transaction price

4.     Allocating the transaction price to the performance obligations

5.     Recognising revenue when/as performance obligation(s) are satisfied

This process includes the assessment of the performance obligations within the contract and the allocation of contract revenue across these performance obligations once identified. Revenue is recognised either at a point in time or over time, when, or as, the Group satisfies performance obligations by transferring the promised goods or services to its customers.

The difference between the amount of income recognised and the amount invoiced on a particular contract is included in the statement of financial position as accrued or deferred income. Amounts included in accrued and deferred income due within one year are expected to be recognised within one year and are included within current assets and current liabilities respectively.

The Group has a number of different revenue streams which are described below.

Services Revenue

Includes a range of member and member-related revenues as well as legacy software license revenue.

Member subscription revenues

AIM distributor members pay a monthly subscription fee for basic membership which confers immediate access to a range of commercial benefits at no additional cost to the member. Members may elect to upgrade their membership to access a range of enhanced services provided by AIM in exchange for an increased monthly subscription fee. Subscription revenues are recognised on a monthly basis over the membership period.

Other discretionary services

Certain other services are made available to AIM members on a discretionary usage basis such as artwork processing services, catalogues and merchandise boxes. These revenues are recognised upon performance of the service or delivery of the product. For example, catalogue and merchandise box revenues are recognised on dispatch of the products to members.

Events and exhibitions revenues

AIM promotes and arranges events for AIM members and groups of supplier customers to meet and build relationships. Revenue from these events is recognised once the performance obligations have been satisfied, typically on completion of an event or exhibition.

Preferred Partner revenues

AIM provides services to vendors within the promotional products industry whereby preferred partners are actively promoted to AIM members via a variety of methods including utilising the AIM technology platform, webinars, email communications and quarterly publications.

Revenues are variable and depend on the value of purchases made and services utilised by the AIM members from preferred partners. Revenue is recognised over time by reference to the value of transactions in the period. Payment for AIM's marketing services is made by preferred partner customers on a calendar quarter or annual basis.

An element of preferred partner revenue is treated as variable consideration under IFRS 15 due to uncertainty over timing and value. Revenue is recognised to the extent that it is highly probable that it will not reverse based on historic fact pattern and latest market information.

Software and technology services revenues

Revenues in respect of software product licences and associated maintenance and support services are recognised evenly over the period to which they relate. An element of technology services revenue is dependent on the value of orders processed via the Group's technology platforms. Revenue is accrued based on the value of underlying transactions and the relevant contractual arrangements with the customer. Revenue is constrained to the extent that is that it is highly probable that it will not reverse.

Merchanting revenues

Merchanting revenues arise when group companies contract with customers to supply goods and includes revenues generated through ACS affiliated members and other merchanting activities.

By far the most significant operation that carries out merchanting is within ACS. Under the terms of the ACS contract the AIM member affiliates act as independent sales representatives of ACS to secure sales with customers. All transactions are mandatorily processed through the AIM technology platform and utilise ACS people and know-how to efficiently operate the back office function. ACS bears the risk of the transaction as Principal, determining the transaction price, performing credit control and processing payments. The GTR of the full transaction is therefore recognised as revenue, with the related costs of goods supplied, freight and AIM affiliates selling commission recognised as the cost of goods sold.

During the COVID-19 pandemic the Group established a Group Buy scheme whereby it sourced products directly through its network of preferred partners, which it sells to AIM members and adjacent markets, where such sales do not conflict with the interest of either suppliers or the AIM membership.

3. Segmental Performance

The chief operating decision maker has been identified as the Board of Directors and the segmental analysis is presented in the Group's internal reporting to the Board. At 30 September 2021, the Group has two operating segments, North America, and the United Kingdom.

To demonstrate the evolving nature of the Group's operations an additional analysis presenting 'Service' and 'Merchanting' is shown. Service revenues are derived from servicing our AIM membership base and generating throughput with our contracted Preferred Partners. Merchanting revenues are when the Group acts as principal in the underlying transaction and therefore all GTR is recognised as Group merchanting revenue.

* Operating profit before share-based payment charges, amortisation of intangible assets, depreciation of tangible assets and exceptional charges

* Operating profit before share-based payment charges, amortisation of intangible assets, depreciation of tangible assets and exceptional charges

4. Basic and diluted earnings per share

The calculation of earnings per ordinary share is based on the profit or loss for the period divided by the weighted average number of equity voting shares in issue.

Share options that could potentially dilute basic earnings per share in the future were not included in the calculation of diluted earnings per share because they are antidilutive for the six months ended 30 September 2021.