Tax : Interim results for the six months ended 30 June 2017

Tax Systems plc

("Tax Systems", the "Group" or the "Company") Interim results for the six months ended 30 June 2017

Tax Systems plc (AIM: TAX), a leading supplier of corporation tax software and services, is pleased to announce its unaudited interim results for the six months ended 30 June 2017. This is the first set of interim results since the acquisition of Tax Computer Systems Limited ("TCSL") on 26 July 2016 which means that comparable numbers for the 6 months to 30 June 2016 are not representative of the Group in its current form.

Highlights

• Revenue

  • Year-on-year comparable organic revenue growth1of 7% compared with none over the previous three years.

  • Year-on-year new order growth of 34% from licences, licence upgrades and professional services

  • 92% of revenue is recurring from software licences. 8% of revenue is from professional services

  • Revenue for the six months of £7.0m

  • 36 new clients won

  • Change of accounting policy for revenue recognition following early adoption of IFRS 15

• Retention

  • Customer retention rate of 96%

• Costs

  • 91% gross margin due to low cost of sales

  • Percentage of operating costs2covered by margin generated from recurring revenue is 197%

• Adjusted EBITDA3

  • Adjusted EBITDA for the period was £3.4m

  • Adjusted EBITDA margin of 49%

• Cash and debt

  − Cash4of £4.2m at 30 June 2017 (31 December 2016: £4.2m)

  • Conversion of Adjusted EBITDA to operating cash flow before exceptional items of 98%

  • £0.9m bank loans repaid during the period

  • Net debt4of £23.6m at 30 June 2017 (31 December 2016: £24.4m). Excluding the element of loan notes deemed as equity, net debt at 30 June 2017 was £21.2m (31 December 2016: £21.8m)

• Acquisitions

  • Acquisition of Osmo Data Technology Limited ("OSMO") on 3 April 2017 for £3.2m in shares

  • OSMO contributed £0.3m to revenue in the three months from date of acquisition

  • OSMO technology now linked with AlphaTax, the Company's flagship product

1 On a proforma basis, applying IFRS 15 to all periods and excluding results from OSMO.

2 Operating costs are other administrative expenses before exceptional items.

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

4 Cash at 31 December 2016 included £2m of cash held in a solicitor escrow account in connection with the acquisition of TCSL which has since been recovered in full. 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.

Gavin Lyons, CEO, commented:

"The first half of the year has been a period of solid progress for the Group. Twelve months ago, when Tax Computer Systems Limited was acquired we embarked on an investment and transformation plan to fuel organic growth whilst controlling costs to generate high margins and pay down our debt. With these results, we are able to provide demonstrable evidence that our activities are generating the desired outcomes and this coupled with the market opportunity, leaves us excited about the Group's continuous growth prospects".

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

Tax Systems plc

Gavin Lyons, Chief Executive Officer Tel: +44 (0) 1784 777700

Kevin Goggin, Chief Financial Officer Tel: +44 (0) 1784 777747

MXC Capital Markets LLP (Financial Adviser) Tel: +44 (0)20 7965 8149 Charlotte Stranner

Steven Zhang

finnCap Limited (Nominated Adviser and Broker) Tel: +44 (0)20 7220 0500 Jonny Franklin-Adams / James Thompson (Corporate Finance)

Tim Redfern / Richard Chambers (Corporate Broking)

Alma PR Tel: +44 (0)20 8004 4217

Hilary Buchanan / Josh Royston / Susie Hudson

About Tax Systems

Tax Systems 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.

Find out more atwww.taxsystems.com

Chairman's Statement

I am pleased to present this interim report covering the six months ended 30 June 2017 and subsequent events.

This is my first interim report as Non-Executive Chairman following the board changes announced in April 2017, when Gavin Lyons became CEO, having previously held the position of Executive Chairman and I moved from Non-Executive Director to my current role. At the same time we also welcomed Kevin Goggin to the board as CFO and Paul Gibson was appointed as a Non-Executive Director. I am pleased to report the new arrangements are working well.

Since the acquisition of TCSL in July 2016 much has been achieved. Gavin has recruited new senior managers in technology, sales & marketing and human resources positions and has successfully integrated them with the core of the team in place at the time of the acquisition.

Customers remain strongly attached to our core products with new customers being added and new services sold to existing customers.

We have begun an overhaul of the products to update both the look and usability and plan to continue releasing product updates at regular intervals. With the acquisition of OSMO on 3 April 2017, we have added to our technology base and are now better placed to continue to exploit the opportunities arising from the general move to digitalise the reporting of tax in the corporate world as well as the requirement for tax departments to improve efficiency and reduce operational risk.

All this has been achieved while keeping control of costs.

In summary we remain pleased with the progress since the acquisition of TCSL and look forward with confidence to the future.

Clive Carver

Non-Executive Chairman

Chief Executive Officer's Review

I am pleased to present my review covering the six months ended 30 June 2017 in which I provide a high-level summary on four main areas:

• Investment and transformation for organic growth

• Goals and strategy

• The market

• Outlook

  Investment and transformation for organic growth

  It has been just over twelve months since the acquisition of TCSL and it was outlined at the time that investment would be required in culture, people, processes, systems and infrastructure to fuel organic growth.

  There has been a tremendous amount of transformation tasks completed by the team including defining our culture and values, an organisational restructure, a cost reduction triage of unnecessarily expensive items, recruitment of over 25 people, implementation of Agile development methodologies, the re-architecture of core technology solutions, research and development of new solutions, the fit out and move to new headquarters, the acquisition of OSMO and defining key performance indicators.

  We still have a number of programmes to be finalised so that we can maximise organic growth opportunities but I am pleased with the results and speed of execution to date, particularly the 34% Year-on-year growth in new orders, the development release of our first cloud product (Data Entry) and the acquisition of OSMO.

  Our employees, customers and core intellectual property continue to be of the highest calibre and I would like to thank everyone for their contributions during a time of substantial change.

  Goals and strategy

  Tax Systems is a leading supplier of corporation tax software and services to large corporates and the accountancy profession in the UK and Ireland. Our goals are to grow organically in UK and Ireland and either build or acquire additional technology solutions that can service the demand of our existing and target customers.

  The acquisition of OSMO (a leading provider of automated data extraction services that connects to 305 versions of accounting systems; cloud, on premise and enterprise) in April 2017 is a good example of how we can help with such demand. 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. Less than 3 months after the acquisition, OSMO is now linked with AlphaTax, the Company's flagship product.

  Having finalised our 18-month technology roadmap we have requirements for further technology components that we will either build or acquire. The objective is to create a single integrated platform that drives organic growth in the UK and Irish territories - once that is a proven and scalable model we will look to expand into new territories and diversify our offering.

  The business currently has £23.6m of net debt so it is critical that we continue to function effectively and get the right balance between developing the business but not overstretching it by having too much leverage.

  The Market

  The market demand for corporation tax compliance and complementary solutions is being fuelled by four main areas:

• Finance and Tax departments are increasingly working closer together meaning that the maintenance, accuracy and consistency of data over the entire compliance life-cycle is critical;