Company Background, Key Achievements and KPIs
The Company was established by its Founding Shareholder, Rob Terry, in 2003 and restructured in late 2014 with a view to working with and investing in companies that are focused on the benefits of digital transformation.
To judge success by Key Achievements and establish Key Performance Indicators (KPIs) for the foreseeable future, we first need to disclose the background that was provided to potential investors, within the Company’s Private Placement Memorandums (PPMs), when it raised significant funds at £5 and £10 per share respectively. Only then can anyone look at the Company’s achievements to date objectively.
It was anticipated that revenues would be generated by a combination of consultancy/advisory fees, management charges in relation to corporate central functions, debt funding and equity investments. The Company would use its own capital alongside investment capital, primarily from high net worth partners or funds as appropriate. In addition, the Company was, and remains, likely to issue further shares from time to time, either as consideration for acquisitions, or to raise additional funding to fund debt and equity investment opportunities.
In both 2015 and 2016, the majority of the Company’s revenues were generated in this manner. Now that the Company’s four main technology investments have been rationalised and consolidated into a new trading division within Quob Park Estate, named Quob Park Solutions, a greater proportion of revenue will be billed directly to end user clients, rather than being billed to and / or onwards billed via our investments. Revenue in itself is not considered a KPI for the Company.
The Founding Directors created a successful methodology for acquiring businesses, used during their previous ventures, combining future warranted profit before tax at today’s share price value and potential clawbacks to protect investors whilst also aligning all parties’ interests. This methodology had been key to undertaking a significant amount of Merger and Acquisition (M&A) activity within a short period of time, whilst avoiding the pitfalls associated with typical M&A transactions and also benefiting from the significant level of growth and accretion associated with incubation phase companies.
By utilising equity as the acquisition capital, successful investment into relatively early stage companies has been enabled, without suffering the problems of disincentivisation of management teams or the failure to achieve efficiency savings that would normally occur with large cash transactions.
EQUITY ISSUE PRICE AVERAGE FOR M&A
£10 INCREASING TO £15 (+50%) 2016 / 17
NOW TARGETED AT £25
EQUITY ISSUE PRICE FOR M&A KPI
The Company’s primary KPI, as it underpins the Company’s methodology, is to demonstrate its ability (and proven track record) to be able to increase the average price at which it will issue its equity for major investments and other forms of significant M&A by 50%+ per annum during the early phases of the Company’s growth.
During 2015, equity was initially issued at £5 per share to raise capital primarily from added value investors. Following this, the average price used for further equity issues for funding and for major investments / significant M&A, within the following 12 months, was £10 per share, a 100% increase. This demonstrates the Company easily met the ‘Average Equity Issue Price for M&A’ KPI target of 50%+ growth in that year.
During 2016/17, the ‘Average Equity Issue Price for M&A’ has been at £15 per share, a 50% increase during this period. Also, a number of secondary trades have been conducted at a price of £15 per share. Some shares have been acquired in secondary trading below this £15 per share level, during the period, but only by existing investors (and related parties) and usually when the shares had been provided as security for debt when the selling investors had no other viable options. In total, c.£5m of equity has been transacted at £15 per share. Thereby, demonstrating this KPI of 50%+ growth in ‘Average Equity Issue Price for M&A’ was met for a second year in a row.
Looking forward, the Company now has all key assets in place to target its first Initial Public Offering (IPO) at a price that would demonstrate equity value of £80+. It is therefore the intention not to issue any further significant equity for M&A purposes at a price below £25 per share. This represents a 66% increase, thereby underpinning the performance of this KPI in 2017/18.
Regarding the methodology for acquiring and investing in businesses, a Key Achievement to date has been significantly enhancing this with templated legal contracts for both equity and debt related transactions, a significant investment for the Company. All costs associated with this investment have been fully expensed to date. Recent enhancements to this method also include Private Placement Memorandum, Secured Loan Notes with Equity Convertibles plus an optional downside protection via Warrants, Equity Investment with downside protection via Warrants and Exclusive Investment Advisory agreements.
SIGNIFICANT ADJUSTED PBT KPI AND STRONG CASH COLLECTION KPI
The Company’s second KPI is to continue to demonstrate its ability to generate ‘Significant Adjusted Profit Before Tax’ (being c.£1m per annum). This target is appropriate whilst the business transforms and as it continues to invest in its management team, underlying digital transformation platform and geographic footprint to support its intended rapid growth.
The Company’s third and final KPI for its core business, whilst in this foundation period, is to demonstrate the validity of its transactions by ensuring the collection of a significant proportion of any short term debt balance at the balance sheet date, unless, of course, arrangements are put in place, between the Company and its debtor, to turn it into secured long term debt.
As already stated, to date, these KPIs have been successfully delivered, as the core business generated a very strong Operating Cash inflow, including having collected all £8.6m of debtors as at the 31 December 2015 Balance Sheet date. For the second year in a row it has also delivered a significant ‘Adjusted Profit Before Tax’ of £2.9m (US$3.6m) down slightly from the Statutory Profit Before Tax of £3.6m (US$4.5m) in 2015, both well above our current KPI target of c.£1m per annum. Revenue averaged over £3.5m (US$4.3m) in 2015 and 2016, but as already stated, this is not considered a KPI for the Company.
The achievement of the KPIs, being multi-year ‘Strong Cash Collection’ and ‘Significant Adjusted Profit Before Tax’, has also continued into 2017.
This exceptional performance was only possible as the Founding Shareholder had confirmed that it was his intention to offer to the Company all material projects and / or investment opportunities, arising in the next five years (three years remaining), that he is introduced to and considers worth pursuing, and that he shall not pursue such opportunities in his personal capacity unless and until the Company determines that it no longer wishes to proceed with the relevant opportunity.
The resultant opportunities with businesses that were known to the Founding Shareholder and some of the Board from prior ventures, have materially contributed to the Company’s profits, whilst the digital transformation led technology solutions business and new investments have started to mature. Key transactions include those with 360Globalnet in insurance, AioMed in the Connected Health Sector and The BE Smart Group in outsourcing.