Tax : Audited Final Results – year ending 31 December 2016

Tax Systems plc (AIM: TAX), a leading supplier of corporation tax software and services, is pleased to announce its audited results for the year ended 31 December 2016.

• Acquisition of Tax Computer Systems Limited on 26 July 2016 for an enterprise value of £73m

• £75m of new capital raised during the year to fund the acquisition, transaction costs, working capital and future growth:

  • Oversubscribed placing of new ordinary shares raising £45m

  • New bank facilities of £20m

  • £10m unsecured loan notes issued to the Business Growth Fund plc

• Revenue for the year of £5.8m, representing the trading of Tax Computer Systems Limited for the five months from date of acquisition to 31 December 2016

• EBITDA1for the year was £2.7m

• Cash2of £4.2m and net debt3of £24.4m as at 31 December 2016

• New Board and senior management team with strong track record of delivery recruited

• Significant investment made into leadership, software engineering and development teams and methodology to maintain and enhance the software portfolio

• Post year end strategic acquisition of OSMO Data Technology Limited, a provider of automated data extraction software that connects to 295 versions of accounting packages, on 3 April 2017 for £3.2m in shares

1. EBITDA is defined as operating profit or loss before exceptional items, depreciation, amortisation and share-based payments

2. Cash includes £2m of cash held in a solicitor escrow account in connection with the acquisition of Tax Computer Systems Limited

3. Net debt is defined as bank borrowings and loan notes recognised as liabilities and the equity element of the loan notes recognised in equity less cash

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

Gavin Lyons, Chief Executive Officer +44 20 3845 3552

Marc Young/Charlotte Stranner +44 20 7965 8149

Jonny Franklin-Adams/James Thompson (Corporate Finance) +44 20 7220 0500 Tim Redfern/Richard Chambers (Corporate Broking)

About Tax Systems Plc

Tax Systems plc is a leading provider of corporation tax software and services in the UK and Ireland. The business has a long track record of being a key supplier of corporation tax software and services to many of the largest companies and the accounting profession in the UK and Ireland.

Chairman's Statement

These financial statements provide the first opportunity to report to shareholders on the performance of Tax Systems for the year ended 31 December 2016. These are also the first results of the Group since the acquisition of Tax Computer Systems Limited ("TCSL") (the "Acquisition") in July 2016.

In summary, the integration of the acquired business has been successfully completed as planned. Clients have been retained, new senior management have been added to an already successful operational team and product development initiatives are well underway.

The process of introducing greater automation into the tax reporting process has begun with the acquisition of OSMO Data Technology Limited ("OSMO") at the beginning of April and will continue with further targeted acquisitions and internally generated product enhancements and developments.

In April 2017, we were pleased to announce that Gavin Lyons became the Chief Executive Officer having formerly held the position of Executive Chairman. At the same time, we announced a number of other board changes. I became the Non-Executive Chairman, Kevin Goggin was appointed Chief Financial Officer, with Grahame Benson, the previous Finance Director and COO, stepping down and Paul Gibson joined the Board as a Non-Executive Director. I am very pleased to welcome Kevin and Paul to the Board, both of whom have strong backgrounds in the technology sector, and wish Grahame all the best for his future endeavours.

Gavin Lyons and his management team fully understand the opportunities the Company enjoys and have the backing of the Board and the Company's leading shareholders to use the Group's strong competitive position as a base to deliver growth in the years to come. This growth, in the UK, Ireland and potentially overseas, is set to be technology led as the pace of increasing automation of the tax reporting and compliance process quickens.

I look forward to updating shareholders further over the coming months with news of our progress.

The Annual General Meeting of the Company will be held on 14 June 2017 at 11a.m. at the offices of K&L Gates, One New Change, London EC4M 9AF.

Chief Executive Officer's Review

As an investment company, Eco City Vehicles plc ("ECV"), the Company's previous name, the stated strategy was to invest in and/or acquire companies in the technology sector where there are opportunities for growth which, if achieved, would enhance earnings for shareholders.

TCSL was acquired for £73 million in cash which was funded via a placing of new ordinary shares, raising £45 million, senior debt from HSBC plc, raising £20 million and debt from the Business Growth Fund plc ("BGF"), raising £10 million.

The Acquisition was a reverse takeover under the AIM Rules for Companies and, following shareholder approval, the Company was re-admitted to AIM on 26 July 2016 and changed its name to Tax Systems plc.

The first five months of operation have demonstrated that our employees, customers and core intellectual property are of the highest calibre and I would like to thank everyone for their contribution since the Acquisition completed. The business has required investment in people, processes, systems and infrastructure, which was known to us at the time of the Acquisition, and I am pleased with the way employees have embraced change. As a team we are all excited about the future.

There are several challenges for our customers' tax department which in broad terms fall into three categories - managing tax risk and audit, leveraging tax data and automating as much of the end to end tax process as possible.

Tax departments need to be able to provide meaningful tax intelligence so that effective decisions regarding tax risk can be made and to ensure businesses remain compliant with tax regulations and filing requirements while driving as much efficiency and automation into their tax processes. The government's policy of 'Making Tax Digital' by 2020 is a key driver for the Group. This will require organisations to submit quarterly reports rather than an annual tax return which will force many companies to evaluate how they manage their process as it will place a substantial strain on resources to move from annual to quarterly reporting.

Our vision to help tax departments has been broken down into technology component parts and, to achieve this goal, we will execute a buy, build or borrow strategy. The maturing of digitalisation and digital ecosystems means that we do not have to develop every component ourselves - it provides us the opportunity to utilise other technologies which we would consider non-core but are still required to deliver an end to end customer solution.

The number one priority was finding a solution to help organisations automatically collect data as it is the first point in the end to end tax process and we decided to buy that technology component which we consider to be a critical building block. Our acquisition of OSMO on 3 April 2017 is the first step towards our vision of improved automation of the tax process. OSMO was acquired in return for the issue of 4,701,492 new ordinary shares in the capital of the Company. At the previous day's mid closing price, this valued OSMO at £3.2 million.

OSMO is a leading provider of automated data extraction services that connects to 295 versions of accounting systems; cloud, on premise and enterprise, with new ones being continually added. Using OSMO's technology, finance and tax teams can reduce the time spent on manual inputs and rekeying of data by automating the collection of data from their accounting systems. This will significantly reduce the manual workload for finance and tax teams thus increasing efficiency and cost savings. OSMO's products are ideal add-ons to the existing software and services that Tax Systems already provides.

The Group continues to focus on executing its vision for an end to end solution for tax departments to manage tax risk and audit, leverage tax data and automate as much of the tax process as possible. This will be achieved through the development of its own software solutions and services as well as complementary acquisitions or borrow (OEM) deals. The route to market and opportunity to grow is via the existing customer base, new customers in the UK and Ireland and then geographical expansion.

We believe we have the right business platform from which to grow, in no small part thanks to the hard work and diligence of our people, whom I would like to thank for their dedication and contribution to the ongoing success of the business.

The Board remains confident in the ability of the business to deliver increasing shareholder value over the coming years. I look forward to 2017 and beyond with excitement.

I am pleased to report the results of Tax Systems for the year ended 31 December 2016.

The year ended 31 December 2016 has been a transformational year for the Company with its transition from an investing company to becoming a leading supplier of tax software and services following the acquisition of TCSL on 26 July 2016.

The results for the year ended 31 December 2016 are comprised of the results for Tax Systems plc for the full year together with the results for TCSL for the five-month period from the date of Acquisition.

Revenue for the year to 31 December 2016 amounted to £5.8m (2015: £nil) from a mixture of software sales and services mostly to large blue-chip corporates and major accountancy firms. 87% of revenue is derived in the UK with the balance from Ireland.

Sales of annually renewable software licences amounted to £5.0m, representing 86% of total revenue. This revenue stream provides the Group with a strong recurring revenue model. The Group's services revenue for the period from Acquisition was £0.8m.

Gross profit amounted to £5.4m (2015: £nil) after accounting for cost of sales which comprised of directly attributable staff costs and third-party hosting costs. The gross margin is 93%.

Total operating costs for the year were £8.6m (2015: £0.3m). The increase was largely driven by the operating costs of

TCSL, £3.3m of transaction and restructuring costs associated with the Acquisition and amortisation and depreciation of £2.6m in respect of acquired intangible assets.

The other administrative expenses of £2.7m relate to the overhead costs of TCSL which principally include staff and premises costs.

The operating loss for the year was £3.2m (2015: £0.3m).

The Directors use EBITDA as a non-GAAP measure in order to assess the underlying performance of the Company. This is considered to be the most relevant measure of the performance of the Group. EBITDA is defined as operating profit or loss before exceptional items, depreciation, amortisation and share-based payments.

EBITDA amounted to £2.7m (2015: loss £0.2m) for the year.