TIDMSYS
RNS Number : 3846P
SysGroup PLC
20 June 2022
20 June 2022
SysGroup plc
("SysGroup" or the "Company" or the "Group")
Final results for the year ended 31 March 2022
SysGroup plc (AIM:SYS), the multi award-winning managed IT
services, cyber security and cloud hosting provider, is pleased to
announce its audited final results for the period ended 31 March
2022.
HIGHLIGHTS
Financial
2022 2021 Change
%
-----------------------------------
Revenue GBP14.75m GBP18.13m -19%
---------- ---------- -------
Recurring revenue as a % of total
revenue 87% 79% +8%
---------- ---------- -------
Gross profit GBP8.92m GBP10.50m -15%
---------- ---------- -------
Adjusted EBITDA (1) GBP2.82m GBP2.91m -3%
---------- ---------- -------
Adjusted EBITDA (1) margin % 19% 16% +3%
---------- ---------- -------
Adjusted PBT (2) GBP2.04m GBP2.09m -2%
---------- ---------- -------
Adjusted Basic EPS (3) 3.6p 3.5p +3%
---------- ---------- -------
Profit before tax GBP0.60m GBP0.21m +192%
---------- ---------- -------
Basic EPS 0.9p 0.5p +80%
---------- ---------- -------
Cashflow from operations GBP2.47m GBP2.93m -16%
---------- ---------- -------
Net cash (4) GBP2.99m GBP1.88m +59%
---------- ---------- -------
Operational
-- Completion of the Group's project to deliver a unified
platform of systems ("Project Fusion"), delivering significant
benefits across all operations
-- Successful migration to SysCloud 2.0, the Group's multi-tenanted
cloud platform which went fully live in May 2022, delivering
higher client performance and Group efficiency with
greater capacity from less physical space
-- Unified sales and marketing hub opened in Manchester
with a number of highly targeted campaigns planned for
FY23 to drive new customer engagement and continue to
build sales pipeline
-- Customer approval scores comfortably ahead of 97% target
throughout entire year
-- Office rationalisation complete with refurbishment programme
delivered in Newport and closure of Telford
Post period-end developments
-- Acquisition of Edinburgh based Truststream Security
Solutions Limited ("Truststream") - a fast growing provider
of cyber security solutions which enhances SysGroup's
security services and gives the Group a presence in
Scotland from which to grow
-- Acquisition of Independent Network Solutions Limited,
which trades as Orchard Computers ("Orchard"), further
enhancing the Group's presence in the Southwest region
and complementing its South Wales based operations
-- Both acquisitions expected to be immediately earnings
enhancing
-- Telford office successfully closed which will generate
a small operational saving
1. Adjusted EBITDA is earnings before interest, taxation,
depreciation, amortisation of intangible assets, exceptional items,
and share based payments.
2. Adjusted profit before tax ("Adjusted PBT") is profit before
tax after adding back amortisation of intangible assets,
exceptional items, and share based payments.
3. Adjusted Basic EPS is profit after tax after adding back
amortisation of intangible assets, exceptional items, share based
payments and associated tax, divided by the weighted average number
of shares in issue.
4. Net cash represents cash balances less bank loans, lease
liabilities and contingent consideration.
Adam Binks, Chief Executive Officer, commented:
"The Adjusted EBITDA performance and strong cash generation in a
year when turnover was impacted by COVID highlights the strength of
our business model. We have invested to drive future growth whilst
maintaining prudent financial discipline throughout the business.
Operationally, the Group is ideally placed to take advantage of
conditions as they begin to normalise and we have started to see
the early green shoots of such a recovery.
The acquisitions of Truststream and Orchard added further
customers, expertise and geographical reach and demonstrate our
ongoing commitment to be consolidators in this highly fragmented
market. M&A activity in our sector is picking up and we believe
there will be further opportunities that we can take advantage of
during the course of this year. With a clear strategy for both
organic and inorganic growth, the Board is confident in the
future."
For further information please
contact:
Tel: 0151 559
SysGroup plc 1777
Adam Binks, Chief Executive
Officer
Martin Audcent, Chief Financial
Officer
Zeus (Nominated Adviser and Tel: 0161 831
Broker) 1512
Dan Bate
James Edis
Alma PR (Financial PR) Tel: 07780 901
Josh Royston 979
Matthew Young
About SysGroup
SysGroup is a leading provider of managed IT services, cloud
hosting, cyber security and expert IT consultancy. The Group
delivers solutions that enable clients to benefit from industry
leading technologies and delivers managed solutions with security,
compliance and governance from the core. SysGroup focuses on a
customer's strategic and operational requirements - enabling
clients to free up resources, grow their core business and avoid
the distractions and complexity of managing IT services.
The Group has offices in Bristol, Edinburgh, Liverpool, London,
Manchester and Newport.
For more information, visit http://www.sysgroup.com
STRATEGIC REPORT
Chairman's Statement
The financial performance of SysGroup over the past year, whilst
highly credible, does not represent the wider progress made.
Revenue decreased as expected due to the impact of the pandemic but
through strong management the Group was able to deliver an Adjusted
EBITDA performance in line with management's expectations coupled
with stronger than expected cash generation, whilst also investing
in the business to prepare it for future growth.
Despite the short-term frustrations caused by the pandemic and
wider economic uncertainty, the market opportunity for SysGroup has
not diminished and, in fact, continues to grow. With this in mind,
the management team has focused on optimising the Group's
operations in readiness for when the market returns to growth, and
the increased activity seen towards the end of the financial year
are grounds for cautious optimism.
Our people are the bedrock of the business and the culture that
pervades across SysGroup has helped us to endure difficult
conditions with great dignity and professionalism. It is their
focus which has resulted in customer satisfaction levels
comfortably ahead of our target and on behalf of the Board, I offer
them my sincere thanks.
The Board is pleased to present its first ESG report this year
and in the forthcoming year we anticipate focusing on how SysGroup
can further improve as a good corporate citizen. It is the first
step in our commitment to do more and having reported our baseline
position this year we will now progress to establishing the
measures we are taking and KPI's against which we will be measured
and be held accountable. It is an exciting and important step in
our evolution.
The two acquisitions completed post the period end complement
our existing operations, bringing talented teams, enhanced offering
and geographical reach as well as new clients and strong recurring
revenue streams. Further, they signal our ongoing commitment to the
Group's buy and build strategy and to act as a consolidator in a
highly fragmented market. The pandemic and associated lockdowns
subdued activity but we are starting to see increasing levels of
M&A activity in our sector and are confident that further
opportunities will present themselves.
Michael Edelson
Chairman
17 June 2022
Chief Executive Officer's report
Introduction
I am pleased to report a very robust performance for the Group
despite a number of sector wide headwinds throughout the period.
The resilience that SysGroup has shown exemplifies the continued
demand for our core services, the quality of our service offering
and our highly talented team. Alongside this performance we have
further improved the operational structure of the business to
enable us to drive growth as demand returns.
As a result of solid trading in the year, the Group achieved
Adjusted EBITDA in line with management's expectations at GBP2.82m,
which has been achieved despite the anticipated decrease in revenue
to GBP14.75m. The strong Adjusted EBITDA performance has been
driven by a greater mix of managed IT services, representing 87.1%
of the Group's total revenue, with lower margin value added resale
("VAR") contributing the balance of 12.9% as businesses deferred
asset refresh spending. It also reflects the synergies throughout
the Group and careful control of overheads, whilst investing in
areas that will drive future performance.
Cash conversion was again typically strong during the period,
ending the year ahead of management's expectations with net cash of
GBP2.99m. This performance was achieved in a financial year that
was dominated by the effects of the global pandemic with economic
uncertainty throughout and a return to office working only coming
through in the second half.
We have used these difficult markets to focus on all areas
within our control, to improve our business where possible and to
ensure it is ideally placed to benefit as confidence and economic
stability returns. I am pleased to say that we have achieved a huge
amount and with customer engagement increasing on new project
discussions and sales opportunities beginning to convert towards
the end of the financial year, we are confident in our opportunity
to succeed.
Market
The pandemic has greatly enhanced the demand for digital
transformation and managed IT services with businesses needing
reliable technology solutions to ensure the continued smooth
running of their operations in an increasingly hybrid working
environment. The pace of the transition away from on-premise IT to
cloud and hybrid solutions has continued as flexible working
becomes the norm for many businesses and cloud-based services offer
the efficiency and practicality required to accommodate businesses'
evolving needs.
Security is increasingly important to businesses as people
continue to work from home, presenting greater threats through
increased access points as well as traditional dangers through
email and web. Similarly, connectivity, storage and backup are
focus areas where customers need the right solutions for their
staff to be effective.
With the technology landscape becoming increasingly complicated
and solutions evolving continuously, outsourced managed IT services
are recognised as the go-to solution. SysGroup's well established
reputation as an industry leader in this field will ensure
accelerated growth as spending commitment returns.
Strategy
The Group's strategy is to consolidate its position as a leading
managed IT services, cyber security and cloud hosting provider to
UK businesses. We are dedicated to remaining up to date with all
recent developments in technology to pre-empt our customers'
demands, so as to offer each individual organisation the solutions
they require in a timely manner.
We have a clear understanding of the market that we can best
serve with our customers typically ranging from 50 to 500 and above
employees.
We place a great emphasis on understanding and servicing the
needs of existing customers through dedicated field-based account
management resources. As a result, we continue to enjoy very high
levels of recurring business and our customer satisfaction levels
remained comfortably ahead of our 97% target throughout the entire
year, meaning we are a highly trusted partner to our clients and
can benefit from any increasing needs within their IT
infrastructure.
Our sales teams have been strengthened and during the year we
were pleased to open the new office in Manchester which creates a
unified marketing and sales team from which to target new clients.
Working closely together provides the unit with the ability to be
more agile and react quickly to any changes in market demand. The
hub is still in its infancy but there are a number of key marketing
campaigns scheduled for the new financial year centred around our
core competencies and tailored specifically towards individual
sector verticals. We are confident these will help us reach new
audiences, encourage engagement and build our sales pipeline.
Through a combination of existing customer focus, increased
relevant service offerings and targeted new client acquisition we
are confident that we can deliver solid and sustainable organic
growth.
Acquisitions
To support the Group's ambitious growth strategy, the Board
continues to monitor the market for complementary acquisitions,
backed by the strong bank support with increased credit facility
and a solid shareholder register all supportive of the M&A
strategy.
Our goal is to find businesses with distinct characteristics
that mirror those of SysGroup. Typically, they will benefit from
high levels of recurring income with an engaged and talented team
and the opportunity to provide cross-selling opportunities.
Geographical reach is also a consideration in helping us to broaden
our national sales coverage, as is the potential to enhance our
existing product expertise.
Post period end, we were pleased to announce the acquisitions of
Truststream and Orchard, prime examples of the characteristics
described above. Both deals have significantly enhanced the
existing service offering, creating additional cross-selling
opportunities, bringing in new talent and expanding the Group's
geographic reach into Scotland whilst enhancing the existing
position in the Southwest.
The expansion of the business enables SysGroup to offer
customers an enhanced suite of IT solutions, providing a
competitive edge over competitors and better positioning the
Company to take advantage of the market opportunities in the near
future. We continue to engage with potential targets and assess
businesses that could enable the continued growth of the Group and
ensure that our customers continue to receive the best possible
service available.
Operational focus
Alongside the opening of the Manchester sales hub, this year has
seen a number of strategic developments completed and from which we
are already experiencing significant benefits. We were able to
close down our Telford office, with all customers continuing to be
supported from other Group locations and we refurbished the offices
in Newport to create a greater working environment for the
team.
In March 2022 we completed Project Fusion, the project to
deliver a unified platform of systems across the Group. In FY21, we
successfully implemented a new and unified CRM, marketing, service
desk, projects and billing system. In FY22 we completed the project
with further functionality for marketing automation, people
management and reporting. As well as providing greater transparency
and efficiency across the existing Group, the platform has enabled
us to immediately commence the integration programme for the two
recent acquisitions. Systems integration for both Truststream and
Orchard are both underway with people integration already completed
and CRM, service desk and billing on track to be completed by the
end of the first half of the current financial year.
SysCloud 2.0, the Group's multi-tenanted cloud platform went
fully live and operational in May 2022. SysGroup offers full cloud
support from the environment, platform, virtualisation up to the
operating system for infrastructure as a service (IaaS) or database
platforms for platform as a service (PaaS). We support the full
cloud lifecycle from design, deployment, provisioning of the
platform as well as customers' applications and data to ongoing
service and change management. SysCloud 2.0 provides our clients
with even better performance and provides the Group with greater
efficiency, giving more capacity from less physical space.
People
As a people led business, our staff are at the very centre of
everything that we do and we have gone to great lengths to both
attract and retain the best talent available in the market.
The recruitment market remains challenging with many companies
competing to hire the best talent available and SysGroup is
committed to investing in this regard. We have revamped our
recruitment process and moved to a direct sourcing model with the
addition of our own talent acquisition partner. The aim is to give
us better access to a wider talent pool and reduce our overall cost
of talent acquisition.
I am proud of the commitment our team members have shown in the
face of challenging conditions brought about by the pandemic. Our
people have returned to the office, largely on a full-time basis
and I am pleased to see the benefits of in-person collaboration and
innovation coming to fruition. The quality of the work produced by
our team is industry-leading and this is reflected in our customer
satisfaction levels remaining above our 97% target throughout the
12 month period.
ESG
SysGroup is a people first business and we hold social
responsibility at the very core of our ethos. As such we continue
to push ourselves to be a more conscientious business and welcome
accountability as we work towards becoming a more socially
impactful business. We are dedicated to our sense of purpose and
are proud to have supported our team throughout the pandemic
without utilising the furlough scheme.
As part of our ongoing social responsibility programme, the
Group has commenced an ESG programme and has chosen to voluntarily
disclose our ESG activities and position. A copy of our summary ESG
report is available to view on our website and the full ESG report
will be available alongside publication of our annual report and
accounts. We believe that being a good corporate citizen, good
employer and working to reduce carbon emissions are of the utmost
importance and are committed to improving in this regard. Through
this disclosure, we will establish a baseline for reporting moving
forward as we set out actionable KPI's and execute on this
commitment.
As a technology focused business, our environmental impact is
relatively low and our recently refurbished offices allow us to
reduce our carbon emissions further. Our management team, staff and
stakeholders are collectively committed to further combat climate
change and we look forward to setting our path to doing so in the
near future.
Summary and Outlook
The Group has delivered strong financial results with high
levels of Adjusted EBITDA and cash generation throughout a
prolonged difficult period caused by the pandemic and the ongoing
macro-economic situation which are beyond the Group's control. We
are well aware that challenges remain. There can be no doubt though
that SysGroup today is a stronger business than at the onset of the
global pandemic.
We have the right service portfolio and technical expertise to
meet the individual and evolving needs of the UK mid-market. We
have an established and engaged customer base that we can provide a
broader range of solutions to and we have a unified sales and
marketing team who can help us convey the SysGroup value
proposition to a broader audience through concise, targeted
campaigns. We also remain committed to exploring further M&A
opportunities which can accelerate this growth.
Towards the end of the last financial year we began to see the
green shoots of recovery for new business, with existing clients
beginning to engage on projects and an increasing pipeline of
opportunities from new potential clients. Whilst these are still
early days and we must remain cautious, I am confident that we will
see improvements to both revenue and EBITDA performance in this new
financial year.
Adam Binks
Chief Executive Officer
17 June 2022
Chief Financial Officer's Report
Group Statement of Comprehensive Income
The Group delivered revenue of GBP14.75m (FY21: GBP18.13m), a
decrease of 19% on the prior year and an Adjusted EBITDA of
GBP2.82m (FY21: GBP2.91m), a decrease of 3% against the FY21
performance.
This has been another challenging period as COVID restrictions
continued for most of the year, and the economy was affected by
high inflation and rising energy costs. During H1 the Government
implemented the roadmap for lifting lockdown to return the public
and businesses to normal home and working life but throughout the
year most businesses continued to operate homeworking policies
which limited the ability to have valued face to face meetings or
attend business facilities. Whilst SysGroup continued to operate
with minimal disruption throughout the COVID period and without
using the furlough scheme, there has been a negative impact on
revenue as customers and prospects deferred spending decisions.
Contract churn also increased beyond normal levels as customers
were forced to reduce or cancel their contracted services on
renewal. This arose from their need to save costs to manage their
financial position or from a reduction in their staff numbers
meaning less resources where required.
Managed IT services revenue was GBP12.85m (FY21: GBP14.34m), a
decrease of 10% on the prior year. We entered this financial year
at a lower level of contracted income than last year due to the
higher level of churn in FY21 and as previously described we
continued to see contract churn in FY22. With most businesses
continuing to enforce homeworking policies, this also meant that
our sales and technical consulting teams were unable to visit many
of our customers until Q4 of FY22. This has eased as we have
entered FY23 with companies gradually returning to the office and
firmly placing IT strategy on board agendas with an increased
interest in cloud hosted solutions. Value added resale ("VAR")
revenue was GBP1.90m (FY21: GBP3.79m), a decrease of 50%, as
companies deferred spending decisions on tech refresh activity and
extended the useful life of on-premise IT assets.
In the short and medium term, managed IT services and VAR
revenue is expected to increase but in the long term, as businesses
opt to move more towards our higher margin cloud hosted service
offerings, we can expect to see VAR revenues continue to trend
down.
The revenue mix of 87% managed IT services and 13% VAR is ahead
of the Group's target business model of 75% managed IT services and
25% VAR which was predominantly due to the lower relative VAR sales
in the year. The FY21 revenue mix was 79%:21%.
Revenue by Operating
Segment 2022 2022 2021 2021
----------------------
GBP'000 % GBP'000 %
---------------------- -------- ----- -------- -----
Managed IT Services 12,845 87% 14,344 79%
Value Added Resale 1,901 13% 3,787 21%
Total 14,746 100% 18,131 100%
---------------------- -------- ----- -------- -----
Gross profit was GBP8.92m with a gross margin of 60.5% (FY21:
GBP10.50m and 57.9% respectively). The higher gross margin
percentage reflects good cost control and an increase in revenue
mix towards higher margin managed IT services. The gross margin for
managed IT services was 66.3% (FY21: 66.9%) and the gross margin
for VAR was 21.5% (FY21: 23.9%).
Adjusted operating expenses of GBP6.10m were GBP1.49m below last
year (FY21: GBP7.59m) with a ratio of overhead to revenue of 41.4%
(FY21: 41.8%). The main driver for this was a reduction in employee
costs as headcount reduced in full realisation of post-acquisition
synergies and we had a slightly higher vacancy rate in the face of
a challenging recruitment market. The Group made no use of the
government furlough scheme throughout the COVID period. Other
overhead costs were well managed throughout the year and we
continued to invest into strategic areas of value such as employee
training and development and the ESG programme. During the year we
opened a new office in Manchester which has given us good presence
in a strong tech sector location and the lease has been recognised
under the IFRS16 lease accounting policy.
Adjusted EBITDA was GBP2.82m for the twelve months to 31 March
2022 which is slightly lower than FY21 Adjusted EBITDA of GBP2.91m.
The Adjusted EBITDA margin was 19.1% in FY22 compared to 16.1% in
FY21 which continues the progressive improvement in profit
efficiency as the Group has scaled up and synergised the cost
base.
The Group had no exceptional items in FY22 (FY21: GBP0.08m).
Amortisation of intangible assets was GBP1.24m (FY21: GBP1.29m), of
which GBP1.10m (FY21: GBP1.22m) relates to the amortisation of
acquired intangible assets from acquisitions and GBP0.14m (FY21:
GBP0.07m) relates to the amortisation of Project Fusion software
development costs.
Finance costs of GBP0.13m remain low (FY21: GBP0.11m) as the
term loan continued to amortise through fixed quarterly loan
repayments and the remaining lease contracts are generally for
office leases. The share-based payments charge of GBP0.20m for the
year (FY21: GBP0.50m) relates to charges for the share options
under the Executive Director LTIP and Employee Management Incentive
schemes.
The reconciliation of operating profit to Adjusted EBITDA is
shown in the table below. The Directors consider that Adjusted
EBITDA is the most appropriate measure to assess the business
performance since this reflects the underlying trading performance
of the Group. Adjusted EBITDA is not a statutory measure and is
calculated differently by each company.
2022 2021
------------------------------------------------
Reconciliation of operating profit to Adjusted
EBITDA GBP'000 GBP'000
------------------------------------------------ -------- --------
Operating profit 725 313
Depreciation 654 722
Amortisation of intangible assets 1,243 1,294
EBITDA 2,622 2,329
------------------------------------------------ -------- --------
Exceptional items - 82
Share based payments 195 504
Adjusted EBITDA 2,817 2,915
------------------------------------------------ -------- --------
The Group has reported a statutory profit before tax of GBP0.60m
which compares to a profit before tax of GBP0.21m in FY21, an
increase of 192%. Whilst Adjusted EBITDA is slightly lower this
year, profit before tax is higher due to the lower charges for
depreciation, amortisation and share based payments. The table
below shows the reconciliation of profit before taxation to
Adjusted PBT.
2022 2021
-----------------------------------
Adjusted Profit before tax GBP'000 GBP'000
----------------------------------- -------- --------
Profit before taxation 598 205
Amortisation of intangible assets 1,243 1,294
Exceptional items - 82
Share based payments 195 504
Total 2,036 2,085
----------------------------------- -------- --------
Adjusted basic earnings per share was 3.6p (FY21: 3.5p) and
basic earnings per share was 0.9p (FY21: 0.5p), both showing a
marginal improvement on the prior year.
Taxation
The Group has a tax charge of GBP0.15m (FY21: GBP0.04m credit)
and this includes a GBP0.17m one-off deferred tax adjustment to
reflect the increase in the corporation tax rate that will apply
from 1 April 2023.
The corporation tax current charge has reduced this year to
GBP0.03m (FY21: GBP0.28m). This reduction is partly from having a
slightly lower trading profit but is also due to a GBP0.1m prior
year adjustment and the availability of accelerated capital
allowances using the new scheme put in place by the UK
Government.
The deferred tax charge has increased to GBP0.12m (FY21:
GBP0.31m credit) which includes the one-off GBP0.17m charge. This
adjustment is to recognise the expected higher future tax liability
which will arise from the increase in corporation tax rate to 25%
in April 2023. The deferred tax charge also includes a GBP0.08m
prior year adjustment for fixed asset timing differences, unrelated
to the change in tax rate.
As an outlook, we expect the tax charge to increase in FY23
since brought forward trading losses have been fully utilised in
FY22 and Project Fusion, which has allowed the Group to claim for
R&D tax credits, has now been completed. Looking further out to
FY24, we expect the tax charge to increase further since the rate
of corporation tax increases on 1 April 2023 from 19% to 25% and
the accelerated capital allowances scheme comes to an end.
Cashflow & Net Cash
The Group had a strong net cash position of GBP2.99m at the end
of the year, an increase of GBP1.11m from FY21 net cash of
GBP1.88m, and had a gross cash balance of GBP4.13m (FY21:
GBP3.47m). Cashflow from operations was GBP2.47m (FY21: GBP2.93m)
and cash conversion of 88% was at the higher end of our target
range of 80-90% (FY21: 103%).
Working capital continues to be managed well with debtor days at
year end below the target level of 25 days and suppliers routinely
paid in our monthly payment runs to agreed terms. Corporation tax
paid was GBP0.16m (FY21: GBP0.10m) reflecting the general increase
in the Group's tax liability. The cash outflow from investing
activities of GBP0.89m (FY21: GBP1.55m) includes GBP0.30m (FY21:
GBPnil) expenditure on office refurbishments for the Newport and
Manchester offices, and GBP0.27m (FY21: GBP0.40m) of Project Fusion
capitalised software development costs. Cashflow from financing
activities includes interest payments, which have been
re-categorised from operating activities in the Consolidated
Cashflow Statement, and bank loan repayments which as expected,
stepped up this financial year in accordance with the terms of the
loan agreement.
The Group's net cash position of GBP2.99m (FY21: GBP1.88m), an
increase of 59% and GBP1.11m, reflects the strength of the business
model for cash generation. We consider net cash to be a KPI of the
business since the level of cash availability and financial
indebtedness of the Group is relevant for Board strategic decisions
and a key financial measure for the Group's shareholder base and
potential investors.
2022 2021
-------------------------------
Net cash GBP'000 GBP'000
------------------------------- -------- --------
Cash balances 4,133 3,473
Bank loans - current (416) (416)
Bank loans - non-current (387) (757)
Lease liabilities - equipment (8) (86)
Lease liabilities - property (331) (334)
Total 2,991 1,880
------------------------------- -------- --------
2022 2021
--------------------------------------------
Cash conversion GBP'000 GBP'000
-------------------------------------------- -------- --------
Cashflow from operations 2,468 2,931
Adjustments:
Acquisition, integration and restructuring
cashflows - 82
Cash generated from operations 2,468 3,013
-------------------------------------------- -------- --------
Adjusted EBITDA 2,817 2,915
-------------------------------------------- -------- --------
Cash conversion 88% 103%
-------------------------------------------- -------- --------
Cash conversion
We have previously reported our cash conversion ratio to include
tax and interest payments as part of operating cash but we have
made the decision to amend the calculation to be more consistent
with our listed peer group by measuring operating cashflows
generated after movements in working capital. The cash conversion
ratio is therefore calculated as cashflow from operations, adjusted
for exceptional cashflow, as a percentage of Adjusted EBITDA. This
performance measure is reported as a KPI to the Board of Directors
each month and is a key indicator of the quality of adjusted profit
as it converts into cash. In FY22 cash conversion was 88% (FY21:
103%).
Consolidated Statement of Financial Position
The Group's net assets of GBP21.3m at 31 March 2022 represent an
increase of GBP0.7m compared to the prior year (FY21:
GBP20.6m).
Non-current assets of GBP21.35m (FY21: GBP22.13m) have reduced
by GBP0.78m and this movement represents capital additions of
GBP1.13m less GBP1.90m of depreciation charge and amortisation of
intangible assets. During the year, we invested GBP0.86m of
tangible capex into our business and office locations. As well as
investing GBP0.30m in the office refurbishments, we also invested
GBP0.13m to significantly enhance our multi-tenanted cloud hosting
platform for greater capacity and resilience. We invested a further
GBP0.27m (FY21: GBP0.39m) into Project Fusion as capitalised
development costs and the final phase of Project Fusion was
completed in March 2022.
Working capital was managed well throughout the year. The gross
trade debtor balance of GBP2.08m compares to GBP1.73m in the
previous year and the trade and other payables balance of GBP2.69m
compares to GBP2.68m in the prior year.
At the year end, the remaining balance on the senior term loan
liability was GBP0.80m (FY21: GBP1.17m). There were no further
drawdowns of the bank facilities during the year and the bank loan
covenants were met throughout the year.
New GBP8.0m Revolving Credit Facility
Following the 31 March 2022 year end, the Company re-financed
its existing term loan facility of GBP1.75m and its undrawn
acquisition revolving credit facility ("RCF") of GBP3.25m and
replaced both with a new GBP8.0m RCF provided by Santander to
provide additional financial flexibility for acquisitions and
working capital requirements. The Group drew down GBP4.5m of RCF
funds to finance the acquisition of Truststream.
The new banking facility has a five year term which expires in
April 2027 and carries an interest rate of base rate +3.25% on
drawn funds and 1.3% on undrawn funds. The bank covenants in the
RCF will be tested quarterly and calculated on total net debt to
Adjusted EBITDA leverage and minimum liquidity.
Project Fusion
The project to deliver a unified platform of systems across the
Group has continued to deliver significant improvements to our
business operations. In FY21, we successfully implemented a unified
CRM, marketing, service desk, projects and billing system and in
FY22 we have gone live with further functionality for marketing
automation, people management and business reporting. As
anticipated, the project was completed in March 2022 with all core
operational systems now on a single platform. This provides a
robust, efficient and single pane of glass view of our business
which will be used as the platform for integrating newly acquired
businesses in the future. Capitalised software development costs
comprising employee and third-party supplier costs were GBP0.27m in
FY22 (FY21: GBP0.39m) .
Share Option Grants
During the period the Company granted options over 336,000
shares to employees and 250,000 shares to senior management under
the 2018 SysGroup EMI Scheme. In June 2021, the Remuneration
Committee granted 179,675 performance shares to Adam Binks, Chief
Executive Officer, and 107,805 performance shares to Martin
Audcent, Chief Financial Officer, in relation the Group's
performance in FY21 and under the terms of the 2020 SysGroup Long
Term Incentive Plan.
Martin Audcent
Chief Financial Officer
17 June 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 MARCH 2022
2022 2021
Group Group
Notes GBP'000 GBP'000
Revenue 3 14,746 18,131
Cost of sales (5,826) (7,630)
Gross profit 8,920 10,501
----------------------------------------- ------ -------- ---------
Operating expenses before depreciation,
amortisation, exceptional items and
share based payments (6,103) (7,586)
Adjusted EBITDA 2,817 2,915
----------------------------------------- ------ -------- ---------
Depreciation (654) (722)
Amortisation of intangibles 6 (1,243) (1,294)
Exceptional items - (82)
Share based payments (195) (504)
Administrative expenses (8,195) (10,188)
Operating profit 725 313
----------------------------------------- ------ -------- ---------
Finance costs (127) (108)
----------------------------------------- ------ -------- ---------
Profit before taxation 598 205
Taxation 5 (147) 35
----------------------------------------- ------ -------- ---------
Total comprehensive profit attributable
to the equity holders of the company 451 240
----------------------------------------- ------ -------- ---------
Basic earnings per share (EPS) 4 0.9p 0.5p
Diluted earnings per share (EPS) 4 0.9p 0.5p
----------------------------------------- ------ -------- ---------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2022
2022 2021
Group Group
Notes GBP'000 GBP'000
Assets
------------------------------------------------ ------ -------- --------
Non-current assets
Goodwill 6 15,554 15,554
Intangible assets 6 4,318 5,290
Property, plant and equipment 1,478 1,281
21,350 22,125
------------------------------------------------ ------ -------- --------
Current assets
Trade and other receivables 7 2,079 1,728
Cash and cash equivalents 4,133 3,473
6,212 5,201
------------------------------------------------ ------ -------- --------
Total Assets 27,562 27,326
------------------------------------------------ ------ -------- --------
Equity and Liabilities
Equity attributable to the equity shareholders
of the parent
Called up share capital 11 494 494
Share premium reserve 9,080 9,080
Treasury reserve (201) (201)
Other reserve 3,027 2,832
Translation reserve 4 4
Retained earnings 8,854 8,403
================================================ ====== ======== ========
21,258 20,612
------------------------------------------------ ------ -------- --------
Non-current liabilities
Deferred taxation 5 1,011 889
Lease liabilities 9 195 190
Bank loan 9 387 757
Contract liabilities 10 296 481
1,889 2,317
------------------------------------------------ ------ -------- --------
Current liabilities
Trade and other payables 8 2,692 2,683
Lease liabilities 9 144 230
Bank loan 9 416 416
Contract liabilities 10 1,163 1,068
4,415 4,397
------------------------------------------------ ------ -------- --------
Total Equity and Liabilities 27,562 27,326
------------------------------------------------ ------ -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2022
Attributable to equity holders of the parent
Share
Share premium Treasury Other Translation Retained
capital account reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- --------- --------- --------- ------------ ---------- --------
As at 1 April 2020 494 9,080 - 2,328 4 8,163 20,069
----------------------- --------- --------- --------- --------- ------------ ---------- --------
Comprehensive income
Profit for the period - - - - - 240 240
Total Comprehensive
income - - - - - 240 240
----------------------- --------- --------- --------- --------- ------------ ---------- --------
Distributions to
owners
Share buy back - - (201) - - - (201)
Share options charge - - - 504 - - 504
Total Distributions
to owners - - (201) 504 - - 303
----------------------- --------- --------- --------- --------- ------------ ---------- --------
At 31 March 2021 494 9,080 (201) 2,832 4 8,403 20,612
----------------------- --------- --------- --------- --------- ------------ ---------- --------
As at 1 April 2021 494 9,080 (201) 2,832 4 8,403 20,612
----------------------- --------- --------- --------- --------- ------------ ---------- --------
Comprehensive income
Profit for the period - - - - - 451 451
Total Comprehensive
income - - - - - 451 451
----------------------- --------- --------- --------- --------- ------------ ---------- --------
Distributions to
owners
Share options charge - - - 195 - - 195
Total Distributions
to owners - - - 195 - - 195
----------------------- --------- --------- --------- --------- ------------ ---------- --------
At 31 March 2022 494 9,080 (201) 3,027 4 8,854 21,258
----------------------- --------- --------- --------- --------- ------------ ---------- --------
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE YEARED 31 MARCH 2022
2022 2021
Group Group
Notes GBP'000 GBP'000
---------------------------------------------------- ------ -------- --------
Cashflows used in operating activities
Profit after tax 451 240
Adjustments for:
Depreciation and amortisation 1,897 2,016
Finance costs 127 108
Share based payments 195 504
Taxation charge/(credit) 5 147 (35)
Operating cashflows before movement in
working capital 2,817 2,833
---------------------------------------------------- ------ -------- --------
(Increase)/decrease in trade and other receivables (354) 987
Increase/(decrease) in trade and other payables 5 (889)
Cashflow from operations 2,468 2,931
---------------------------------------------------- ------ -------- --------
Taxation paid (159) (98)
Net cash from operating activities 2,309 2,833
---------------------------------------------------- ------ -------- --------
Cashflows from investing activities
Payments to acquire property, plant & equipment (620) (179)
Payments to acquire intangible assets 6 (271) (396)
Acquisition of subsidiary companies - (975)
Net cash used in investing activities (891) (1,550)
---------------------------------------------------- ------ -------- --------
Cashflows from financing activities
Payments for share buy-back - (201)
Repayment of loan facility including fees (417) (224)
Capital/principal paid on lease liabilities (256) (288)
Interest paid on loan facility (67) (105)
Interest paid on lease liabilities (18) (28)
Net cash used in financing activities (758) (846)
---------------------------------------------------- ------ -------- --------
Net increase in cash and cash equivalents 660 437
---------------------------------------------------- ------ -------- --------
Cash and cash equivalents at the beginning
of the year 3,473 3,036
---------------------------------------------------- ------ -------- --------
Cash and cash equivalents at the end of
the year 4,133 3,473
---------------------------------------------------- ------ -------- --------
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
FOR THE YEARED 31 MARCH 2022
1. Accounting policies
SysGroup Plc (the 'Company') is a Company incorporated and
domiciled in the United Kingdom. The Company's registered office is
at Walker House, Exchange Flags, Liverpool, L2 3YL. These
consolidated financial statements comprise the Company and its
subsidiaries (together referred to as the 'Group').
Statement of compliance
The Group financial statements have been prepared in accordance
with UK adopted international accounting standards ("endorsed
IFRS") and with those parts of the Companies Act 2006 applicable to
companies preparing their accounts under endorsed IFRS.
This consolidated financial information does not comprise
statutory accounts within the meaning of section 434 of the
Companies Act 2006. The comparative figures for the financial year
ended 31 March 2021 are an extract of the Company's statutory
accounts for the year ended 31 March 2021, prepared in accordance
with International Financial Reporting Standards (IFRS), approved
by the Board of Directors on 18 June 2021 and delivered to the
Registrar of Companies. The report of the auditor on those accounts
was unqualified, did not contain an emphasis of matter paragraph
and did not contain any statement under section 498 (2) or (3) of
the Companies Act 2006.
The statutory accounts for the year ended 31 March 2022 will be
delivered to the Registrar of Companies following the Company's
Annual General Meeting. The Auditors have reported on those
accounts; their report was unqualified, did not contain an emphasis
of matter paragraph and did not contain any statement under section
498 (2) or (3) of the Companies Act 2006.
Basis of preparation
The principal accounting policies adopted in the preparation of
the Financial Statements are set out below. The policies have been
consistently applied to all the years presented, unless otherwise
stated. The consolidated financial statements have been prepared
under the historical cost basis, except for the revaluation of
certain financial liabilities and share based payments which have
been valued in accordance with IFRS9 and IFRS2 respectively.
The preparation of financial statements in compliance with
adopted IFRS requires the use of certain critical accounting
estimates. It also requires Group management to exercise judgement
in applying the Group's accounting policies. The areas where
significant judgements and estimates have been made in preparing
the financial statements and their effect are disclosed in note 2.
The financial statements are presented in pounds sterling, rounded
to the nearest thousand, unless otherwise stated.
Going concern
The Directors have prepared the financial statements on a going
concern basis which assumes that the Group and the Company will
continue to meet liabilities as they fall due.
The Directors have reviewed the base business forecast for the
period to 31 March 2024 and a sensitised version which models the
financial consequences of a considerable downside scenario. In
assessing the forecasts, the Directors have considered the
potential impacts on the world and UK economies from the Russian
invasion of Ukraine and prolonged rises in inflation and energy
costs.
In the base forecast there is significant and increasing
headroom in the bank covenants as the business continues to
generate cash and reduce net debt. In the sensitised forecast, and
despite lower revenue and profits, the Group maintains positive
gross cash balances, reduces net debt and stays within the bank
covenants. The Group has a business model with a high degree of
financial resilience since circa 80% of revenue is derived from
contracted managed IT services which is a continuous and business
critical service supply to customers. This provides a high level of
operating cash generation. At 31 March 2022, the Group had cash
balances of GBP4.1m and a net cash position of GBP3.0m. Subsequent
to the year end, the Group re-financed with Santander and now has
an GBP8.0m Revolving Credit Facility ("RCF") which can be used for
acquisitions and working capital requirements and has no fixed
repayment terms. This provides further financing flexibility to the
Group.
The forecasts, the resultant cashflows, together with the
confirmed new RCF loan facilities, taking account of reasonably
possible changes in trading performance, show that the Group can
continue to operate within the current facilities available to
it.
The Directors therefore have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future and thus they continue to adopt the
going concern basis of accounting in preparing the financial
statements.
New standards and interpretations
A number of new standards and amendments to standards and
interpretations have been issued during the year ended 31 March
2022. The Group has adopted all of the new and revised standards
and interpretations issued by the IASB and the International
Financial Reporting Interpretations Committee (IFRIC) of the IASB
that are relevant to its operations. Other new amended standards
and interpretations issued by the IASB that apply to the financial
statements do not impact the Group as they are either not relevant
to the Group's activities or require accounting which is consistent
with the Group's current accounting policies.
New standards not yet effective
There are a number of standards and amendments to standards, and
interpretations which have been issued by the IASB and in some
cases not yet adopted by the UK Endorsement Board that are
effective in future accounting periods that the Group has decided
not to adopt early. SysGroup plc is currently assessing the impact
of these new standard and amendments. The Group does not expect any
other standards issued by the IASB, but not yet effective, to have
a material outcome on the Group.
Basis of consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee;
exposure to variable returns from the investee; and the ability of
the investor to use its power to affect those variable returns.
Control is re-assessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the
Company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between Group
companies are therefore eliminated in full.
The consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
statement of financial position, the acquirer's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker has been identified as the Board
of Directors.
Alternative profit measures
In reporting its results, the Directors have presented various
alternative profit measures (APMs) of financial performance,
position or cashflows, which are not defined or specified under the
requirements of IFRS. On the basis that these measures are not
defined by IFRS, they may not be directly comparable with other
companies. The key APMs that the group uses include recurring
revenue as a percentage of revenue, Adjusted EBITDA, Adjusted PBT,
Adjusted EPS and Net cash.
The Group makes certain adjustments to the statutory profit in
order to derive many of these APMs. These include exceptional items
and share based payments. The group presents as exceptional items
on the face of the Statement of Comprehensive Income those material
items of income and expense which the Directors consider, because
of their size or nature and expected non-recurrence, merit separate
presentation to facilitate financial comparison with prior periods
and to assess trends in financial performance. Exceptional items
are included in Administration expenses in the Consolidated
Statement of Comprehensive Income but excluded from Adjusted EBITDA
as management believe they should be considered separately to gain
an understanding of the underlying profitability of the trading
businesses on a consistent basis from year to year.
2 Significant accounting estimates and judgements
The preparation of this financial information requires
management to make estimates and judgements that affect the amounts
reported for assets and liabilities at the period end date and the
amounts reported for revenues and expenses during each period. The
nature of the estimation or judgement means that actual outcomes
could differ from the estimates and judgements taken in the
preparation of the financial statements.
Significant accounting estimates
Impairment of goodwill and other intangibles
The Group tests goodwill for impairment annually and in line
with the stated accounting policy. This involves judgement
regarding the future development of the business and the estimation
of the level of future profitability and cash flows to support the
carrying value of goodwill. An impairment review has been performed
at the reporting date taking into account sensitivities around
future business performance, covering a range of outcomes and risks
over levels of revenue, cost and cash generation. No impairment has
been identified.
Valuation of intangible assets acquired in business
combinations
Determining the fair value of customer relationships acquired in
business combinations requires estimation of the value of the cash
flows related to those relationships and a suitable discount rate
in order to calculate the present value.
Significant accounting judgements
Going concern
The Board have approved an Annual Operating Plan for FY23 and a
forecast to 31 March 2024, and management have exercised judgement
in the preparation of the financial forecasts particularly on the
level of future sales, customer contract uplifts and cancellations,
and working capital assumptions. The Board have reviewed the
Group's financial forecasts and a sensitised model in order to
assess the Group's business viability and to form a judgement on
going concern. Having reviewed the forecasts the Board were
satisfied that the Group remains a going concern.
Revenue
Management make judgements in determining the appropriate
application of revenue recognition policies to the sale of services
and products.
Assessment of CGU's and carrying value of intangible assets
A CGU is the smallest identifiable group of assets that generate
cash inflows that are largely independent of the cash inflows from
other assets or groups of assets and the Board of Directors use
their judgement to identify the CGUs of the Group. When SysGroup
acquire a company, the newly acquired business is allocated its own
CGU for the first year and until such time as either the business
and assets have been hived up into the main SysGroup trading
company or when the systems, finances & management of the
business have been successfully integrated, whichever is earlier.
At 31 March 2022, the Board exercised their judgement and concluded
that the Group continues to have one CGU, "Managed IT Services",
which is the same as in the prior year.
Useful economic lives of intangible assets
Intangible assets are amortised over their useful economic
lives. Useful lives are based on management's estimates of the
period over which the assets will generate revenue, which are
periodically reviewed for continued appropriateness. Changes to
estimates can result in changes in the carrying values and hence
amounts charged to the income statement in particular periods which
could be significant. The Group have capitalised system development
expenditure in the current and previous financial year in relation
to Project Fusion, a project to integrate all of the legacy
business systems into one new CRM, Marketing, People, Projects,
Billing & Service Desk system. The System Development
intangible asset is being amortised over a five-year useful life
which the Directors consider appropriate for the Group's core
business system. Project Fusion was completed in March 2022.
IFR16 - Leases
Management make judgements in their assessment of lease contract
agreements to ensure the appropriate lease accounting recognition
under IFRS16 - Leases. The main elements of judgement are:
-- Determining the inherent rate of interest which applies
to each lease or family of leases with similar characteristics;
-- Establishing whether or not it is reasonably certain
that an extension option will be exercised; and
-- Considering whether or not it is reasonably certain
that a termination option will not be exercised.
3 Segmental analysis
The chief operating decision maker for the Group is the Board of
Directors . The Group reports in two segments:
-- Managed IT Services - this segment provides all forms
of managed services to customers and includes professional
services.
-- Value Added Resale (VAR) - this segment provides all
forms of VAR sales where the business sells products
and licences from supplier partners.
The monthly management accounts reported to the Board of
Directors are reviewed at a consolidated level with the operating
segments representative of the business model for growth of
recurring contract income in Managed IT Services and VAR sales as a
complementary business activity. The Board review the results of
the operating segments at a revenue and gross profit level since
the Group's management and operational structure supports both
operational segments as Group functions. In this respect, assets
and liabilities are also not reviewed on a segmental basis. All
assets are located in the UK.
All segments are continuing operations and there are no
transactions between segments.
2022 2022 2021 2021
Revenue by operating segment GBP'000 % GBP'000 %
------------------------------ ------------------ ------ -------- --------
Managed IT Services 12,845 87% 14,344 79%
Value Added Resale 1,901 13% 3,787 21%
Total 14,746 100% 18,131 100%
------------------------------ ------------------ ------ -------- --------
No individual customer account for more than 6% of
the Group's revenue. The revenue by geographic location
for where services are delivered to customers is shown
below.
2022 2022 2021 2021
GBP'000 % GBP'000 %
------------------------------ ------------------ ------ -------- --------
UK 14,706 100% 18,091 100%
Rest of World 40 - 40 -
============================== ================== ====== ======== ========
14,746 100% 18,131 100%
------------------------------ ------------------ ------ -------- --------
2022 2021
GBP'000 GBP'000
------------------------------ ------------------ ------ -------- --------
Revenue
Managed IT Services 12,845 14,344
Value Added Resale 1,901 3,787
Total 14,746 18,131
------------------------------ ------------------ ------ -------- --------
Gross profit
Managed IT Services 8,511 9,594
Value Added Resale 409 907
======== ========
Total 8,920 10,501
------------------------------ ------------------ ------ -------- --------
4 Earnings per share
2022 2021
---------------------------------------------- ---------------------- ----------------------
Profit for the financial year attributable GBP451,264 GBP240,000
to shareholders
Weighted number of issued equity shares 48,859,690 49,234,036
Weighted number of equity shares for diluted
EPS calculation 51,983,666 51,811,233
Adjusted basic earnings per share (pence) 3.6p 3.5p
Basic earnings per share (pence) 0.9p 0.5p
Diluted earnings per share (pence) 0.9p 0.5p
---------------------------------------------- ---------------------- ----------------------
2022 2021
GBP'000 GBP'000
---------------------- ----------------------
Profit after tax used for basic earnings
per share 451 240
Amortisation of intangible assets 1,243 1,294
Exceptional items - 82
Share based payments 195 504
Tax adjustments (141) (376)
---------------------------------------------- ---------------------- ----------------------
Adjusted profit used for Adjusted Earnings
per Share 1,748 1,744
---------------------------------------------- ---------------------- ----------------------
5 Taxation
2022 2021
Current tax GBP'000 GBP'000
--------------------------------------- -------- --------
Current tax - current year 120 260
Adjustments in respect of prior years (94) 16
Total current tax charge 26 276
--------------------------------------- -------- --------
Deferred tax
Deferred tax - timing differences 121 (311)
Total deferred tax 121 (311)
--------------------------------------- -------- --------
Total tax charge/(credit) 147 (35)
--------------------------------------- -------- --------
The effective tax rate for the year to 31 March 2022
is higher (FY21: lower) than the standard rate of corporation
tax in the UK. The differences are explained below:
2022 2021
GBP'000 GBP'000
Profit on ordinary activities before
tax 598 205
-------------------------------------------------- --------------------- ------------------------
Profit on ordinary activities before
taxation multiplied by the standard
rate of UK corporation tax of 19% (FY21:19%) 114 39
Effects of:
Expenses not deductible 34 53
Prior year adjustment (94) 17
Re-measurement of deferred tax due to
changes in UK rate 142 51
Deferred tax asset on share-based payments 6 (122)
Use of brought forward losses (55) (73)
Total tax charge/(credit) 147 (35)
-------------------------------------------------- --------------------- ------------------------
The Group recognised deferred tax assets
and liabilities as follows:
2022 2021
GBP'000 GBP'000
-------------------------------------------------- --------------------- ------------------------
Deferred tax liability on customer relationships (846) (927)
Deferred tax asset on share based payments 116 122
Capital allowances timing differences (281) (84)
Deferred tax liability (1,011) (889)
-------------------------------------------------- --------------------- ------------------------
Recognition of deferred tax assets is restricted to those
instances where it is highly probable that relief against
taxable profit will be available.
The movement in the deferred tax account
during the year was:
Capital
allowances
timing Customer
differences relationships Total
GBP'000 GBP'000 GBP'000
-------------------------------------------------- ------------- -------------------------- ----------
Balance at 1 April 2021 38 (927) (889)
Debited/credited to statement of comprehensive
income (197) 81 (116)
Deferred tax asset on share-based payments (6) - (6)
Balance at 31 March 2022 (165) (846) (1,011)
-------------------------------------------------- ------------- -------------------------- ----------
Factors affecting future tax charges:
Deferred tax balances are recognised at 25% (2021: 19%) following
UK government legislation to increase the rate of corporation
tax from 19% to 25% on 1 April 2023.
6 Intangible assets
Systems Software Customer Positive
Development licences relationships goodwill Total
Cost GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------------- ---------- --------------- ---------- --------
At 1 April 2020 407 204 9,156 15,554 25,321
Additions 395 1 - - 396
At 31 March 2021 802 205 9,156 15,554 25,717
-------------------------- ------------- ---------- --------------- ---------- --------
At 1 April 2021 802 205 9,156 15,554 25,717
Additions 271 - - - 271
At 31 March 2022 1,073 205 9,156 15,554 25,988
-------------------------- ------------- ---------- --------------- ---------- --------
Accumulated amortisation
At 1 April 2020 215 181 3,183 - 3,579
Charge for the year 49 20 1,225 - 1,294
========================== ============= ========== =============== ========== ========
At 31 March 2021 264 201 4,408 - 4,873
-------------------------- ------------- ---------- --------------- ---------- --------
At 1 April 2021 264 201 4,408 - 4,873
Charge for the year 140 4 1,099 - 1,243
========================== ============= ========== =============== ========== ========
At 31 March 2022 404 205 5,507 - 6,116
-------------------------- ------------- ---------- --------------- ---------- --------
Net book value
At 31 March 2021 538 4 4,748 15,554 20,844
-------------------------- ------------- ---------- --------------- ---------- --------
At 31 March 2022 669 - 3,649 15,554 19,872
-------------------------- ------------- ---------- --------------- ---------- --------
All amortisation and impairment charges are included in the
depreciation, amortisation and impairment of non-financial assets
classification, which is disclosed as administrative expenses in
the statement of comprehensive income. Customer relationships have
a remaining amortisation period of between 2 and 5 years.
Cash-generating units ("CGUs")
Goodwill and intangible assets are allocated to CGUs in order to
be assessed for potential impairment. The Group has a single CGU of
"Managed IT Services". As the Group acquires new businesses they
will form their own CGU until they have been integrated into the
Group's core operational structure.
The allocation of goodwill and carrying amounts of assets for
each CGU is as follows:
Carrying value of
Allocation of goodwill assets
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------------ ----------- --------- ---------
Managed IT Services 15,554 15,554 21,280 19,331
Total 15,554 15,554 21,280 19,331
--------------------- ------------ ----------- --------- ---------
Impairment review
When assessing impairment, the recoverable amount of each CGU is
based on value-in-use calculations (VIU). VIU calculations are an
area of material management estimate as set out in note 2. These
calculations require the use of estimates, specifically: pre-tax
cash flow projections; long-term growth rates; and a pre-tax
discount rate. Cash flow projections are based on the Group's
detailed annual operating plan for the forthcoming financial year
which has been approved by the Board.
2022 Managed
IT Services
------------------------------------- -------------
Discount rate 9.40%
Revenue growth rate year 2 to year
5 2.50%
Terminal growth rate 2.50%
----------------------------------- -------------
2021
------------------------------------- -------------
Discount rate 9.50%
Revenue growth rate year 2 to year
5 2.50%
Terminal growth rate 2.50%
----------------------------------- -------------
7 Trade and other receivables
Group Group
2022 2021
Amounts due within one year GBP'000 GBP'000
----------------------------- -------- --------
Trade debtors 1,154 916
Other debtors - -
Prepayments 925 812
Deferred tax asset - -
Total 2,079 1,728
----------------------------- -------- --------
8 Trade and other payables
Group Group
2022 2021
Amounts due within one year GBP'000 GBP'000
--------------------------------- -------- --------
Trade payables 1,116 811
Amounts due to subsidiaries - -
Accruals 889 990
--------------------------------- -------- --------
Total financial liabilities,
excluding loans and borrowings
measured at amortised cost 2,005 1,801
Corporation tax 188 254
Other taxes and social security
costs 499 628
Total 2,692 2,683
--------------------------------- -------- --------
9 Loans and borrowings
Group Group
2022 2021
Non-current GBP'000 GBP'000
------------------- -------- --------
Lease liabilities 195 190
Bank loan 387 757
Total 582 947
------------------- -------- --------
Group Group
2022 2021
Current GBP'000 GBP'000
------------------- -------- --------
Lease liabilities 144 230
Bank loan 416 416
Total 560 646
------------------- -------- --------
Following the 31 March 2022 year end, SysGroup plc re-financed
its existing term loan facility of GBP1.75m and its undrawn
acquisition revolving credit facility of GBP3.25m and replaced both
with a new GBP8.0m revolving credit facility with Santander to
provide additional financial flexibility for the Group. The new
banking facility has a term of five years, an interest rate of Base
Rate +3.25% margin on drawn funds and covenants that will be tested
quarterly relating to total net debt to Adjusted EBITDA leverage
and minimum liquidity. The Group drew down GBP4.5m of RCF funds for
the Truststream acquisition in April 2022.
10 Contract liabilities
Group Group
2022 2021
GBP'000 GBP'000
-------------------------------- -------- --------
Current - contract liabilities 1,163 1,068
Non-current - contract
liabilities 296 481
Total 1,459 1,549
-------------------------------- -------- --------
11 Share Capital
Group Group
Number GBP'000
--------------------------------------------- ----------- --------
Allotted, called up and fully paid ordinary
shares of GBP0.01 each
At 1 April 2020 49,419,690 494
At 31 March 2021 49,419,690 494
--------------------------------------------- ----------- --------
At 31 March 2022 49,419,690 494
--------------------------------------------- ----------- --------
12 Post balance sheet events
Following the year end date, SysGroup plc acquired 100% of the
issued share capital in Truststream Security Solutions Limited
("Truststream") and Independent Network Solutions Limited ("INSL",
holding company of Orchard Computers Limited).
The acquisition purchase price accounting calculation has not
been calculated at the date of this Annual Report but the exercise
will be undertaken and completed ahead of SysGroup's Interim
Announcement later in the year. The acquired book values of the net
assets has been provided for both acquisitions below.
Truststream Security Solutions Limited
Established in 2011 and based in Edinburgh, Truststream is one
of the UK's fastest growing providers of professional and managed
cyber security services. Truststream covers all aspects of cyber
security from analysis and threat detection, through protection
architecture and implementation, to incident response and ongoing
24/7 support and training. The Acquisition further enhances
SysGroup's service offering and is complementary to the Group's
core expertise and key areas of focus. In addition, the Acquisition
enables the Group to further strengthen its UK presence by opening
up Scotland as an attractive hub for the Group.
SysGroup acquired Truststream on 4 April 2022 for GBP4.8m
initial cash consideration on a cash-free debt-free basis with an
earn-out payable following the first and second anniversaries of
the transaction of up to GBP3.075m. The earn-out is subject to the
achievement of certain maintainable EBITDA performance targets in
the first and second 12 month periods following the completion of
the acquisition.
The Truststream acquisition was mainly funded from a new GBP8.0m
revolving credit facility ("RCF") which was signed with Santander
on 4 April 2022. SysGroup utilised GBP4.5m of funds from the RCF to
finance the acquisition.
Independent Network Solutions Limited
INSL is the holding company of Orchard Computers Limited
("Orchard") which is based in Bristol. Orchard has been in
operation for over 30 years and has built a loyal customer base
largely in the South West of England and across a broad range of
sectors, covering both the private and public sectors. Its managed
IT service offering mirrors that of SysGroup, providing high
quality consulting services and building tailor made, vendor
agnostic solutions, designed specifically to meet individual
customer needs, followed by ongoing support. The acquisition of
Orchard will further strengthen SysGroup's presence in the South
West of England.
SysGroup acquired INSL on 26 April 2022 for GBP1.0m cash
consideration on a cash-free debt-free basis. There is no
contingent or deferred consideration for this acquisition. The cash
consideration was funded from the Group's existing cash
balances.
Recognised amounts of net assets acquired Orchard Truststream
and liabilities assumed NBV NBV
GBP'000 GBP'000
------------------------------------------- --------- ------------
Cash and cash equivalents 398 550
Trade and other receivables 305 1,783
Property, plant and equipment 34 1
Trade and other payables (299) (1,709)
Current income tax liability (54) (62)
Deferred tax liability (6) -
Identifiable net assets 378 563
------------------------------------------- --------- ------------
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END
FR FKLFFLQLLBBX
(END) Dow Jones Newswires
June 20, 2022 02:00 ET (06:00 GMT)
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