TIDMSYS
RNS Number : 6737U
SysGroup PLC
27 November 2023
27 November 2023
SysGroup plc
("SysGroup" or the "Company" or the "Group")
Half year results for the six months ended 30 September 2023
SysGroup plc (AIM:SYS), the end-to-end data solution provider ,
is pleased to announce its unaudited half year results for the six
months ended 30 September 2023 ("H1 FY24" or the "Period").
Financial highlights
-- Revenue decrease of 3% to GBP10.96m (H1 FY23: GBP11.32m)
-- Managed IT Services revenue growth of 8% representing 84% of total revenue (H1 FY23: 75%)
-- Adjusted EBITDA(1) of GBP1.57m (H1 FY23: GBP1.68m)
-- Adjusted profit before tax(2) of GBP0.99m (H1 FY23: GBP1.10m)
-- Statutory loss before tax of GBP1.09m (H1 FY23: loss before tax of GBP0.19m)
-- Adjusted basic EPS(3) of 1.7p (H1 FY23: 2.0p)
-- Basic EPS of (1.5)p (H1 FY23: (0.2)p)
-- Adjusted cashflow from operations of GBP1.24m (H1 FY23: GBP2.01m)
-- Net debt (4) of GBP3.43m at 30 September 2023 (30 September 2022: GBP1.92m)
Operational highlights
-- A new strategy to provide end-to-end solutions focused on
Artificial Intelligence ("AI") and Machine Learning ("ML") with an
associated investment in a team of ML engineers from AWS, JP
Morgan, Validus and McLaren
-- Refreshed the SysCloud infrastructure with the latest
hardware and upgraded our internal security architecture with
industry leading cloud-based security platform
-- Strengthened the senior management team with individuals with
invaluable experience and expertise from industry leading
companies
-- Heejae Chae appointed as Executive Chair and Paul Edwards as new Non-Executive Director
Heejae Chae, Executive Chair, commented:
"Our strategy aims to position SysGroup as the go-to end-to-end
data solution provider for small and medium sized businesses
("SMB") embarking on their AI/ML journey. AI's prominence is
undeniable with daily media coverage and increasing demand for AI
strategies at the board level of every company. We recognise a
significant market gap: while many SMBs are eager to adopt AI/ML,
they often lack a clear strategy or implementation path. There is a
great demand for a partner to support their development of an AI/ML
strategy and transition from the current platform.
We have made significant investments in both technology and
people. We have recruited a team of ML engineers from industry
leaders such as AWS, JP Morgan, Validus and McLaren. We have
significantly strengthened the senior management team to help take
us on this journey, bringing together the right skillsets and
mindsets. Throughout the organisation, we are reinforcing a culture
of customer focus and outstanding service underpinned by
innovation, entrepreneurialism and high performance. Whilst we are
at the early stage of our journey, I am excited at the potential of
what we are building at SysGroup combined with the considerable
unexploited market opportunity that lays ahead of us.
Finally, the core business, which has more than 80% recurring
revenues provides a very solid base from which we can expand,
giving us very good revenue certainty and visibility, albeit that
in the short term we may see our overall bottom line performance
impacted marginally, reflecting the investment we are making in the
Company to drive revenue growth in future financial years."
Notes
1. Adjusted EBITDA is earnings before interest, taxation,
depreciation, amortisation of intangible assets, exceptional items
and share based payments.
2. Adjusted profit before tax 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 number of shares in
issue.
4. Net debt represents cash balances less bank loans and lease
liabilities, and excludes contingent consideration.
For further information please
contact:
Tel: 0151 559
SysGroup Plc 1777
Heejae Chae, Executive Chair
Martin Audcent, Chief Financial
Officer
Zeus Capital (Nominated Adviser Tel: 0161 831
and Broker) 1512
Jordan Warburton
Nick Cowles
Nick Searle
About us
SysGroup plc is a managed service provider of end-to-end data
solutions enabling us to take our customers on their AI data
journey. The Group offers an integrated set of modern technologies
that collectively meets our customers end-to-end data needs
including connectivity, cloud hosting, delivery, analytics and
governance of customer data, as well as a security layer for users
and applications.
The Group has offices in Bristol, Edinburgh, Liverpool, London,
Manchester and Newport.
For more information, visit http://www.sysgroup.com
Overview & Strategy
During the Period, SysGroup maintained a stable revenue of
GBP10.96m. This consistency reflects growth in Truststream, our
CyberSecurity acquisition in April 2022, counterbalancing a
decrease in traditional SysGroup revenues. Notably, managed IT
services now constitutes 84% of our revenues, an increase from 75%
last year, bolstering our financial stability and visibility. In
the Period we delivered Adjusted EBITDA of GBP1.57m, maintaining a
margin comparable to last year.
The Group's gross cash balance was GBP1.99m at the end of the
Period (H1 FY23: GBP4.22m) following payments to satisfy the
Truststream year one earn-out and settle the contractual terms of
the previous CEO's departure including the acquisition of 2,076,394
ordinary shares of 1 pence each ("Ordinary Shares"), now held in
Treasury. Excluding these one-off payments, the cash conversion was
79%. The net debt (4) at the end of the Period was GBP3.43m (H1
FY23: GBP1.92m), which excludes contingent consideration payable
within one year of GBP1.84m (H1 FY23: GBP2.93m).
Since my appointment as Executive Chair in June, I have engaged
with various stakeholders including customers, employees, partners
and competitors. These interactions have provided valuable insights
into both industry trends and company-specific challenges. SysGroup
is well positioned to participate in the burgeoning field of AI/ML,
a technology set to redefine our era. AI's prominence is
undeniable, with daily media coverage and increasing demand for AI
strategies at the board level of every company. The reality is that
AI is here to stay and will be a powerful tool for those that
embrace it.
Factors driving the AI/ML adoption include:
-- The growing availability of data, crucial for training AI/ML
algorithms. As the amount of data that companies collect continues
to grow, so does the potential for AI and ML to deliver value;
-- Decreasing costs of computing power, making AI/ML algorithms
more accessible across various company sizes and budgets; and
-- The increasing sophistication and user-friendliness of AI/ML tools and technologies
Our strategy is to position SysGroup as the go-to end-to-end
data solution provider for SMBs embarking on their AI/ML journey.
It is clear from our conversations with our customers we recognise
a significant market gap: while many SMBs are eager to adopt AI/ML,
they often lack a clear strategy or implementation path. There is a
great demand for a partner to support their development of an AI/ML
strategy and transition from their current platforms. Many
providers claim to be AI/ML experts but lack the capability to
provide an end-to-end solution. Traditionally, most IT providers
specialise in specific technology stacks. AI/ML strategy requires a
holistic approach where the outcome is delivered from both software
and hardware solutions. Over 80% of all AI projects fail because
they have not taken a holistic approach, for example, by not
defining the correct business case or not employing appropriate
data architecture framed by the right technology infrastructure.
Whilst gaps still exist in our offerings, we believe that we have
the framework to build our strategy, underpinned by the
relationship with our customers.
Our Technology Services strategy is to build a modern unified
data solution platform that is simple for SysGroup to sell and
support and is simple for our customers to consume and benefit
from. This will comprise of an integrated set of technologies that
collectively meets our customers end-to-end data needs. It will
allow for connectivity, storage, preparation, delivery, analytics
and governance of customer data, as well as a security layer for
users and applications.
Operations
We have made substantial investments both in our IT
infrastructure and people during the Period. These include
upgrading SysCloud infrastructure with the latest hardware and
enhancing our internal security architecture with a leading
cloud-based security platform. We have completed the refurbishment
of our offices to provide a positive and productive working
environment as we moved to more flexible working.
We have recruited a team of ML engineers with turnkey experience
to deliver AI solutions from design to delivery at an annual cost
of GBP0.5m. They bring considerable combined experience in a
nascent field of technology having worked at industry leaders such
as AWS, JP Morgan, McLaren and Validus. To support the end-to-end
strategy, we have segmented our technology into five key areas: (i)
data analytics and ML; (ii) data storage and management; (iii) data
connectivity; (iv) data engineering; and (v) cybersecurity. We will
invest to enhance the existing competencies organically as well as
through acquisitions to fill the gaps in our technology
offerings.
Board and Management Changes
We have taken steps to ensure robust corporate governance,
reviewing the Board and committees' Terms of Reference and
establishing a new Nomination Committee to ensure that the
composition and succession of the Board is reviewed and reflects a
balance of skills, knowledge and experience which is appropriate
for the Company. Wendy Baker has been appointed as Company
Secretary and General Counsel, providing oversight and guidance on
governance. Wendy was previously at Scapa Group plc, Promethean
World plc and Volex Group plc.
Paul Edwards joined as a Non-Executive Director on 26 September
2023 to balance the independence in the Board. Paul brings
extensive PLC experience as the CFO of Tatton Asset Management plc
and previously Scapa Group plc and NCC Group plc.
We have also upgraded the senior management team with the
appointments of people with relevant experience from leading
companies in the sector:
-- Heinrich Koorts joined us as Chief Revenue Officer from
Softcat plc where he spent the past ten years in London and
Bristol;
-- Paul Sullivan has been appointed as Chief Technology Officer.
Paul was the founder of Truststream which SysGroup acquired in
April 2022;
-- Ross Humphrey has recently joined as the Chief AI Officer to
lead our AI/ML initiative. Ross has over a decade of experience in
machine learning as one of the UK's early adopters during his
tenure at JP Morgan and Validus; and
-- Charles Vivian has joined as Director of Business Development
to support our M&A strategy as acquisitions will be part of our
growth plan. Charles was previously at MXC Capital, Marwyn Capital
and Freshfields Bruckhaus Deringer.
These individuals bring invaluable experience and expertise,
positioning SysGroup for future success.
Results and Trading
The Group has delivered revenue of GBP10.96m (H1 FY23:
GBP11.32m) and Adjusted EBITDA of GBP1.57m (H1 FY23: GBP1.68m) in
H1 FY24. Managed IT services revenue increased to GBP9.22m (H1
FY23: GBP8.54m), a growth of 8% on the comparative period, whilst
Value Added Resale ("VAR") revenue was GBP1.74m (H1 FY23:
GBP2.78m), a decrease of 37%. The driver of the Managed IT services
growth has been in IT security where this year we have seen more
customers take up contracted managed service support in addition to
the provision of security licences. In cases where managed services
and licences are sold together the revenue is recognised as Managed
IT services uniformly across the contract term. This also explains
the reason for the reduction in VAR revenue since fewer "licence
only" contracts are being sold. The revenue mix in H1 FY24 is 84%
Managed IT services and 16% VAR sales (H1 FY23: 75%:25%) and this
is expected to remain similar in H2 FY24.
Gross profit was GBP5.47m with a gross margin of 49.9% (H1 FY23:
GBP5.61m and 49.6% respectively). Whilst the revenue mix has moved
to higher margin Managed IT Services, the IT security sales which
led the contracted income growth are lower margin than core managed
services business. The gross margin has also been impacted by
supplier cost increases which have been prevalent in the UK economy
over the last twelve months.
Adjusted operating expenses of GBP3.90m were broadly flat with
the same period last year (H1 FY23: GBP3.94m). We expect overheads
to increase in H2 FY24 from our investments in the Senior
Leadership Team and AI/Machine Learning team.
The consolidated income statement includes GBP1.05m of
exceptional costs which are for the settlement of the former CEO's
contractual terms, payments of supplier charges which are disputed
and remain subject to ongoing action, and restructuring activity
with the Senior Leadership Team.
Finance costs of GBP0.29m have increased compared to the same
period last year (H1 FY23: GBP0.24m). Finance costs include
GBP0.21m of bank loan interest, which has increased due to the
increase in the Bank of England's base rate, and GBP0.06m of
non-cash finance charges relating to the unwinding of discount on
contingent consideration and amortisation of the loan arrangement
fee.
The Group delivered an adjusted profit before tax of GBP0.99m
(H1 FY23: GBP1.10m) and a statutory loss before tax of GBP1.09m (H1
FY23: loss before tax GBP0.19m). The statutory loss before tax
results from having GBP1.05m of exceptional costs (H1 FY23:
GBP0.34m) in the Period and from an increase in share based
payments.
The taxation credit of GBP0.34m (H1 FY23: credit of GBP0.08m)
represents the movement on deferred tax in the Period with no
corporation tax charge arising on the Group's trading position in
H1 FY24. The corporation tax rate increased on 1 April 2023 from
19% to 25%.
Adjusted basic earnings per share for H1 FY24 was 1.7p (H1 FY23:
2.0p) and basic loss per share was (1.5p) (H1 FY23: loss per share
(0.2p)).
Cashflow & Net Debt
The Group had a gross cash balance of GBP1.99m at 30 September
2023 (H1 FY23: GBP4.22m) and net debt of GBP3.43m (H1 FY23:
GBP1.92m). Cash balances were utilised in H1 FY24 for the
Truststream year one earn-out (GBP0.88m), the acquisition of
2,076,394 Ordinary Shares into Treasury (GBP0.76m), and to settle
the former CEO's contractual terms (GBP0.66m). Cashflow from
operations was GBP0.23m (H1 FY23: GBP1.67m) and included GBP1.00m
of exceptional cash costs. Cash conversion of 79% was broadly in
line with the target range and compares to 120% in H1 FY23 which as
explained at the time was due to a number of VAR deals where
customer payments had been received in advance. Capex expenditure
in H1 includes the refurbishment of the Bristol office which was
completed in July and development costs for the implementation of a
new financial accounts system.
The Truststream year 1 earn-out was finalised in H1 FY24 and in
accordance with the share purchase agreement 75% of the year 1
consideration was paid to the vendors. Accordingly, GBP0.89m was
paid in cash consideration and GBP0.29m is deferred for payment to
H1 FY25. The contingent consideration liability held in the
Consolidated Statement of Financial Position is GBP1.84m which
compares to GBP2.94m as at 31 March 2023 and 30 September 2022. The
liability is held at the maximum consideration payment value under
the terms of the earn-out agreement and this will be re-assessed
for fair value at the 31 March 2024 year end.
Share Options
In April 2023, under the 2020 LTIP Scheme and in respect of
performance for the FY23 financial year , a grant of 362,709
performance shares was made to Adam Binks, Chief Executive Officer,
and 204,024 performance shares to Martin Audcent, Chief Financial
Officer. In May 2023, in respect of Mr Binks' departure, the Board
agreed that the unvested options held by Mr Binks would vest with
immediate effect with restrictions waived. Mr Binks exercised his
share options, totalling 2,076,394 Ordinary Shares and the Company
acquired them at a price of GBP0.375 per Ordinary Share. The
Company holds these Ordinary Shares in Treasury to satisfy the
exercise of future share options under SysGroup's share incentive
schemes.
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHSED 30 SEPTEMBER 2023
Unaudited Unaudited Audited
six months six months year
to to to
30-Sep-23 30-Sep-22 31-Mar-23
Notes GBP'000 GBP'000 GBP'000
Revenue 2 10,963 11,321 21,648
Cost of sales (5,497) (5,708) (10,552)
Gross profit 2 5,466 5,613 11,096
----------------------------------------- ------ ------------ ------------ ----------
Operating expenses before depreciation,
amortisation, exceptional items
and share based payments (3,897) (3,935) (7,768)
----------------------------------------- ------ ------------ ------------ ----------
Adjusted EBITDA 1,569 1,678 3,328
----------------------------------------- ------ ------------ ------------ ----------
Depreciation (297) (330) (625)
Amortisation of intangible assets (866) (866) (1,739)
Exceptional items 4 (1,052) (337) (408)
Share based payments (156) (96) (178)
Administrative expenses (6,268) (5,564) (10,718)
----------------------------------------- ------ ------------ ------------ ----------
Operating (loss)/profit (802) 49 378
Finance costs 5 (287) (243) (483)
----------------------------------------- ------ ------------ ------------ ----------
Loss before taxation (1,089) (194) (105)
Taxation 343 77 98
Total comprehensive loss attributable
to the equity holders of the
company (746) (117) (7)
----------------------------------------- ------ ------------ ------------ ----------
Basic loss per share (pence) 3 (1.5)p (0.2)p 0.0p
Diluted loss per share (pence) 3 (1.5)p (0.2)p 0.0p
----------------------------------------- ------ ------------ ------------ ----------
All the results arise from continuing operations.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2023
Unaudited Unaudited Audited
30-Sep-23 30-Sep-22 31-Mar-23
Notes GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Goodwill 7 21,666 21,894 21,666
Intangible assets 7 5,536 7,005 6,295
Plant, property and equipment 2,013 2,139 1,966
------------------------------- ------ ---------- ---------- ----------
29,215 31,038 29,927
Current assets
Trade and other receivables 8 5,609 4,090 5,007
Cash and cash equivalents 1,986 4,216 4,186
------------------------------- ------ ---------- ---------- ----------
7,595 8,306 9,193
Total Assets 36,810 39,344 39,120
------------------------------- ------ ---------- ---------- ----------
Equity and Liabilities
Equity attributable to the equity shareholders of the
parent
Called up share capital 12 515 494 494
Share premium 9,080 9,080 9,080
Treasury reserve (984) (201) (201)
Other reserve 3,293 3,123 3,205
Retained earnings 8,173 8,741 8,851
------------------------------- ------ ---------- ---------- ----------
20,077 21,237 21,429
Non-current liabilities
Lease liabilities 520 685 621
Contract liabilities 174 486 383
Contingent consideration 11 - 1,060 1,875
Provisions 148 175 191
Deferred taxation 1,106 1,642 1,434
Bank loan 10 4,720 5,187 4,705
6,668 9,235 9,209
------------------------------- ------ ---------- ---------- ----------
Current liabilities
Trade and other payables 9 4,576 3,844 3,861
Lease liabilities 176 268 182
Contract liabilities 3,475 2,885 3,633
Contingent consideration 11 1,838 1,875 806
10,065 8,872 8,482
------------------------------- ------ ---------- ---------- ----------
Total Equity and Liabilities 36,810 39,344 39,120
------------------------------- ------ ---------- ---------- ----------
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
SIX MONTHSED 30 SEPTEMBER 2023
Attributable to equity holders of the parent
Share Share Treasury Other Translation Retained Total
capital premium reserve reserve reserve earnings
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 April 2022 494 9,080 (201) 3,027 4 8,854 21,258
Loss and total comprehensive
e xpense for the
period - - - - - (117) (117)
Reclass of translation
reserve - - - - (4) 4 -
Share options charge - - - 96 - - 96
------------------------------ --------- --------- --------- --------- ------------ ---------- --------
At 30 September
2022 (unaudited) 494 9,080 (201) 3,123 - 8,741 21,237
Profit and total
comprehensive income
for the period - - - - - 110 110
Share options charge - - - 82 - - 82
------------------------------ --------- --------- --------- --------- ------------ ---------- --------
At 31 March 2023 494 9,080 (201) 3,205 - 8,851 21,429
Loss and total comprehensive
e xpense for the
period - - - - - (746) (746)
Purchase of own
shares into Treasury - - (783) - - - (783)
Issue of share capital 21 - - - - - 21
Share options charge - - - 156 - - 156
Reserves transfer
on forfeiture of
share options - - - (68) - 68 -
------------------------------
At 30 September
2023 (unaudited) 515 9,080 (984) 3,293 - 8,173 20,077
------------------------------ --------- --------- --------- --------- ------------ ---------- --------
The following describes the nature and purpose of each reserve
within equity:
Reserve Description and purpose
---------------------- --------------------------------------------------------
Share Premium Reserve Amount subscribed for share capital in excess
of nominal values.
Treasury reserve Company owned shares held for the purpose of settling
the exercise of employee share options.
Other Reserve Amount reserved for share-based payments to be
released over the life of the instruments and
the equity element of convertible loans
Translation Reserve Amount represents differences in relations to
the consolidation of subsidiary companies accounting
for currencies other than the Group's functional
currency.
Retained earnings All other net gains and losses and transactions
with owners (e.g. dividends) not recognised elsewhere.
---------------------- --------------------------------------------------------
CONSOLIDATED CONDENSED STATEMENT OF CASHFLOWS
SIX MONTHSED 30 SEPTEMBER 2023
Unaudited Unaudited Audited
six months six months year
to to to
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
Cashflows used in operating
activities
Loss after tax (746) (117) (7)
Adjustments for:
Depreciation and amortisation 1,163 1,196 2,364
Finance costs 287 243 483
Share based payments 156 96 178
Taxation credit (343) (77) (98)
---------------------------------------------- ------------ ------------ -----------
Operating cashflows before movement
in working capital 517 1,341 2,920
---------------------------------------------- ------------ ------------ -----------
(Increase)/decrease in trade
and other receivables (713) 68 (737)
Increase in trade and other payables 430 260 837
Cashflow from operations 234 1,669 3,020
---------------------------------------------- ------------ ------------ -----------
Taxation paid (64) (128) (303)
Net cash from operating activities 170 1,541 2,717
---------------------------------------------- ------------ ------------ -----------
Cashflows from investing activities
Payments to acquire property, plant
& equipment (180) (105) (252)
Payments to acquire intangible
assets (139) - (163)
Acquisition of subsidiary companies
net of cash acquired - (5,390) (5,389)
Net cash used in investing activities (319) (5,495) (5,804)
---------------------------------------------- ------------ ------------ -----------
Cashflows from financing activities
Payment of contingent consideration (886) - -
on acquisitions
RCF drawdown - 4,500 4,500
Payment of bank loan arrangement fee - (127) (127)
Repayment of bank loan - (82) (582)
Repurchase of shares into treasury (783) - -
Proceeds for issue of share capital 21 - -
Capital/principal paid on lease liabilities (171) (102) (303)
Interest paid on loan facility (217) (138) (316)
Interest paid on lease liabilities (15) (14) (32)
Net cash used in financing activities (2,051) 4,037 3,140
---------------------------------------------- ------------ ------------ -----------
Net (decrease)/increase in cash and
cash equivalents (2,200) 83 53
---------------------------------------------- ------------ ------------ -----------
Cash and cash equivalents at the beginning
of the period /year 4,186 4,133 4,133
Cash and cash equivalents at the
end of the period/year 1,986 4,216 4,186
---------------------------------------------- ------------ ------------ -----------
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHSED 30 SEPTEMBER 2023
1. ACCOUNTING POLICIES
The accounting policies used in the preparation of the unaudited
consolidated condensed financial information for the six months
ended 30 September 2023 are prepared in accordance with UK adopted
International Financial Reporting Standards ("IFRS") and are
consistent with those that will be adopted in the annual statutory
financial statements for the year ended 31 March 2024.
While the financial information included has been prepared in
accordance with the recognition and measurement criteria, in
accordance with UK adopted International Financial Reporting
Standards, these consolidated condensed financial statements do not
contain sufficient information to comply with IFRSs.
The financial information for the six-month period ended 30
September 2023 and 30 September 2022 does not constitute statutory
accounts within the meaning of Section 434(3) of the Companies Act
2006 and is unaudited but has been reviewed by our auditors in
accordance with the International Standard on Review Engagement
2410 issued by the Auditing Practices Board. The comparative
financial information for the year ended 31 March 2023 included
within this report does not constitute the full statutory accounts
for that period. The statutory Annual Report and Financial
Statements for 2023 have been filed with the Registrar of
Companies. The Independent Auditor's Report on that Annual Report
and Financial Statements for 2023 was unqualified, did not draw
attention to any matters by way of emphasis, and did not contain a
statement under 498(2) or 498(3) of the Companies Act 2006.
This Interim Report has been prepared solely to provide
additional information to shareholders to assess the Group's
strategies and the potential for those strategies to succeed. The
Interim Report should not be relied on by any other party or for
any other purpose.
This unaudited interim financial information has been prepared
in accordance with the requirement of the AIM Rules for Companies
and in accordance with this basis of preparation.
Exceptional items
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 (Note 6) as
management believe they should be considered separately to gain an
understanding of the underlying profitability of the trading
businesses.
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 Group has an operating model with a high level of resilience
with 84% of revenue deriving from contracted managed IT services
which are business critical supplies to customers. The Group has a
gross cash balance of GBP1.99m and a net debt position of GBP3.43m
(excluding contingent consideration of GBP1.84m) at 30 September
2023. The Group has undrawn RCF facilities available of GBP3.2m
which can be used for working capital and acquisitions, and an
unutilised overdraft facility of GBP0.5m. The Group is forecasting
to generate healthy operational cashflows and achieve the bank loan
covenants for the full period of the forecast to March 2025.
The Directors have reviewed the Group's financial forecasts and
taken into account the current UK economic outlook. The projected
trading forecasts and resultant cashflows, together with the
confirmed loan and overdraft 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 they continue to adopt the going
concern basis of accounting in preparing the financial
statements.
2. SEGMENTAL REPORTING
The chief operating decision maker for the Group is the Board of
Directors and 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 is for sales of IT
hardware and licences procured from supplier partners.
The monthly management accounts reported to the Board of
Directors are reviewed at a consolidated level and the Board review
the results of the operating segments at a revenue and gross profit
level since the Group's management and operational structure
operate as unified 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, and all revenue is
earned from external customers. The business segments' gross profit
is reconciled to profit before taxation as per the consolidated
income statement. The Group's overheads are managed centrally by
the Board and consequently there is no reconciliation to profit
before tax at a segmental level.
Unaudited Unaudited Audited
six months six months year to
to to
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
--------------------- ------------ ------------ ----------
Revenue
Managed IT Services 9,223 8,543 17,441
Value Added Resale 1,740 2,778 4,207
10,963 11,321 21,648
--------------------- ------------ ------------ ----------
Gross Profit
Managed IT Services 5,167 5,157 10,349
Value Added Resale 299 456 747
5,466 5,613 11,096
--------------------- ------------ ------------ ----------
3. EARNINGS PER SHARE
Unaudited Unaudited Audited
six months six months year to
to to
30-Sep-23 30-Sep-22 31-Mar-23
Loss for the financial period attributable (GBP746,336) (GBP117,000) (GBP7,000)
to shareholders
Adjusted profit for the financial GBP809,553 GBP974,000 GBP1,917,000
period
Weighted number of equity shares in
issue* 48,912,025 48,859,690 48,859,690
Weighted number of equity shares for
diluted calculation* 50,935,963 52,189,652 52,274,633
Adjusted basic earnings per share
(pence) 1.7p 2.0p 3.9p
Basic loss per share (pence) (1.5p) (0.2p) 0.0p
Diluted loss per share (pence) (1.5p) (0.2p) 0.0p
-------------------------------------------- ------------- --------------- ------------------
*The weighted number of equity shares in
issue and for diluted calculation excludes
the Treasury shares held by the Company
Unaudited Unaudited Audited
six months six months year to
to to
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
Loss after tax used for basic earnings
per share (746) (117) (7)
Amortisation of intangible assets 866 866 1,739
Exceptional items 1,052 337 408
Share based payments 156 96 178
Tax adjustments (519) (208) (401)
-------------------------------------------- ------------- --------------- ------------------
Adjusted profit used for Adjusted
earnings per share 809 974 1,917
-------------------------------------------- ------------- --------------- ------------------
The tax adjustments relate to current and deferred tax on the
amortisation of intangible assets, exceptional items and share
based payments.
4. EXCEPTIONAL ITEMS
Unaudited Unaudited Audited
six months six months year
to to to
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
------------------------------- ------------ ------------ ----------
Integration and restructuring
costs 832 113 189
Supplier charges in dispute 220 - -
Acquisition costs - 224 219
1,052 337 408
------------------------------- ------------ ------------ ----------
The integration and restructuring costs relate to the settlement
of the former CEO's contractual terms and costs associated with the
restructuring of the Senior Leadership Team. The supplier charges
in dispute are subject to ongoing action for which the company is
pursuing recovery. In the prior periods, the acquisition and
integration costs relate to two acquisitions in April 2022,
Truststream Security Solutions Limited and Independent Network
Services Limited (trading as "Orchard IT").
5. FINANCE COSTS
Unaudited Unaudited Audited
six months six months year
to to to
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
--------------------------------------- ------------ ------------ ----------
Interest payable on lease liabilities 15 26 32
Interest payable on bank loan 212 120 307
Arrangement fee amortisation
on bank loan 17 18 29
Unwinding of discount on contingent
consideration 43 79 105
Other interest - - 10
287 243 483
--------------------------------------- ------------ ------------ ----------
6. ALTERNATIVE PERFORMANCE MEASURES
Unaudited Unaudited Audited
Reconciliation of operating six months six months year to
profit to adjusted EBITDA to to
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
Operating (loss)/profit (802) 49 378
Depreciation 297 330 625
Amortisation of intangible assets 866 866 1,739
EBITDA 361 1,245 2,742
----------------------------------- ------------ ------------ ----------------
Exceptional items 1,052 337 408
Share based payments 156 96 178
Adjusted EBITDA 1,569 1,678 3,328
----------------------------------- ------------ ------------ ----------------
Reconciliation of loss before Unaudited Unaudited Audited
tax to adjusted profit before six months six months year to
tax to to
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
Loss before tax (1,089) (194) (105)
Amortisation of intangible assets 866 866 1,739
Exceptional items 1,052 337 408
Share based payments 156 96 178
----------------------------------- ------------ ------------ ----------------
Adjusted profit before tax 985 1,105 2,220
----------------------------------- ------------ ------------ ----------------
Cash conversion Unaudited Unaudited Audited
six months six months year to
to to
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
Cashflow from operations 234 1,669 3,020
Adjustments:
Acquisitions, integration and
restructuring cashflows 1,005 337 408
Adjusted cashflow from operations 1,239 2,006 3,428
----------------------------------- ------------ ------------ -------------
Adjusted EBITDA 1,569 1,678 3,328
----------------------------------- ------------ ------------ -------------
Cash conversion 79% 120% 103%
----------------------------------- ------------ ------------ -------------
Net debt Unaudited Unaudited Audited
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
Cash balances 1,986 4,216 4,186
Bank loans - non-current (4,720) (5,187) (4,705)
Net debt before lease liabilities (2,734) (971) (519)
Lease liabilities - property (696) (953) (803)
Net debt (3,430) (1,924) (1,322)
Contingent consideration (1,838) (2,935) (2,681)
Net debt including contingent
consideration (5,268) (4,859) (4,003)
----------------------------------- ---------- ---------- ---------------
7. INTANGIBLE ASSETS
Software Customer
Systems development licences relationships Goodwill Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------------------- ---------- --------------- --------- --------
Cost
At 1 April 2022 1,073 205 9,156 15,554 25,988
Additions 163 - 3,553 6,112 9,828
Disposals (225) (205) - - (430)
At 31 March 2023
(audited) 1,011 - 12,709 21,666 35,386
---------------------- -------------------- ---------- --------------- --------- --------
At 1 April 2023 1,011 - 12,709 21,666 35,386
Additions 107 - - - 107
---------------------- -------------------- ---------- --------------- --------- --------
At 30 September 2023
(unaudited) 1,118 - 12,709 21,666 35,493
---------------------- -------------------- ---------- --------------- --------- --------
Accumulated amortisation
At 1 April 2022 404 205 5,507 - 6,116
Charge for the year 177 - 1,562 - 1,739
Disposals (225) (205) - - (430)
At 31 March 2023
(audited) 356 - 7,069 - 7,425
---------------------- -------------------- ---------- --------------- --------- --------
At 1 April 2023 356 - 7,069 - 7,425
Charge for the year 110 - 756 - 866
---------------------- -------------------- ---------- --------------- --------- --------
At 30 September 2023
(unaudited) 466 - 7,825 - 8,291
---------------------- -------------------- ---------- --------------- --------- --------
Net book value
At 31 March 2023
(audited) 655 - 5,640 21,666 27,961
At 30 September 2023
(unaudited) 652 - 4,884 21,666 27,202
---------------------- -------------------- ---------- --------------- --------- --------
8. TRADE AND OTHER RECEIVABLES
Unaudited Unaudited Audited
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
Trade receivables 2,067 1,723 1,706
Other receivables 3,542 2,367 3,301
-------------------- ---------- ---------- ----------------
5,609 4,090 5,007
------------------- ---------- ---------- ----------------
9. TRADE AND OTHER PAYABLES
Unaudited Unaudited Audited
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
Trade payables 2,304 1,399 1,813
Corporation tax 360 427 438
Other taxes and social
security 615 836 622
Accruals 1,297 1,182 988
------------------------- ---------- ---------- ----------------
4,576 3,844 3,861
------------------------ ---------- ---------- ----------------
10. BANK LOAN
Unaudited Unaudited Audited
30-Sep-23 30-Sep-22 31-Mar-23
GBP'000 GBP'000 GBP'000
Bank loan net of arrangement
fee 4,720 5,187 4,705
4,720 5,187 4,705
------------------------------ ---------- ---------- ----------------
The Group has an GBP8.0m revolving credit facility with
Santander of which GBP4.83m is drawn down at 30 September 2023. The
banking facility has a term of five years to April 2027, an
interest rate of Base Rate +3.25% margin on drawn funds and
covenants that are tested quarterly relating to total net debt to
adjusted EBITDA leverage and minimum liquidity.
11. CONTINGENT CONSIDERATION
The Group acquired Truststream Security Solutions Limited in
April 2022 and the agreement included a two year earn-out mechanism
with contingent consideration payable up to GBP3.08m following the
first and second anniversaries of the transaction. 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 Year 1 earn-out period was completed in April 2023 and a
payment of GBP1.18m was due to the Sellers based on the
Maintainable EBITDA achieved. In accordance with the SPA, 75% of
this amount, GBP0.89m, was paid in August 2023 and GBP0.29m is
deferred to be paid with the Year 2 payment in H1 FY25.
The contingent consideration liability of GBP1.84m has been
assessed at its discounted fair value at 30 September 2023, and
includes the GBP0.29m payment deferred from Year 1. The liability
assumes that Truststream achieves its full Maintainable EBITDA
target in Year 2.
Unaudited Audited
Contingent consideration 30-Sep-23 31-Mar-23
Amounts due within one year GBP'000 GBP'000
------------------------------------- ---------- ----------
Contingent consideration 1,869 806
-------------------------------------- ---------- ----------
Discounted value (31) -
------------------------------------- ---------- ----------
1,838 806
------------------------------------- ---------- ----------
Amounts due after one year
Contingent consideration - 1,949
Discounted value - (74)
====================================== ========== ==========
- 1,875
===================================== ========== ==========
Discounted contingent consideration 1,838 2,681
-------------------------------------- ---------- ----------
12. SHARE CAPITAL
Equity share capital Number GBP'000
=================================== =========== ========
Allotted, called up and fully
paid
At 1 April 2022 49,419,690 494
----------------------------------- ----------- --------
At 31 March 2023 49,419,690 494
----------------------------------- ----------- --------
Issue of share capital - exercise
of share options 2,076,394 21
At 30 September 2023 51,496,084 515
----------------------------------- ----------- --------
In May 2023, the Company issued 2,076,394 shares to the CEO,
Adam Binks, on the exercise of share options under the 2020 LTIP
Scheme. These shares were subsequently repurchased by the Company
into Treasury reserves.
13. AVAILABILITY OF INTERIM REPORT
Copies of this report are available on the Company's website at
http://www.sysgroup.com
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END
IR PPGRGGUPWPGQ
(END) Dow Jones Newswires
November 27, 2023 02:00 ET (07:00 GMT)
SysGroup (AQSE:SYS.GB)
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