TIDMCLCO
RNS Number : 7785D
Cloudcoco Group PLC
07 March 2022
7 March 2022
CloudCoCo Group plc
("CloudCoCo", "the Group" or "the Company")
Final Results
A transformational year laying the foundations for long-term
growth
CloudCoCo (AIM: CLCO), a leading UK provider of managed IT
services and communications solutions to private and public sector
organisations, announces its final results for the year ended 30
September 2021.
Financial highlights
-- Revenue of GBP 8.1 million (2020: GBP8.0 million )
-- Trading Group EBITDA (1) increased 185% to GBP745k (2020:
GBP261k)
-- Pre-tax loss decreased to GBP 2.0 million (2020: loss of
GBP 3.0 million)
-- Cash at bank of GBP 1.2 million at 30 September 2021 (2020:
GBP 0.6 million)
-- Net assets of GBP 5.2 million at 30 September 2021 (2020:
GBP 5.0 million)
(1) profit or loss before net finance costs, tax, depreciation,
amortisation, plc costs, exceptional items and share-based
payments
Operational highlights
-- Successful fundraising of GBP2.1 million (gross) to fund
acquisitions and future growth
-- Acquisition of Systems Assurance Limited and More Computers
Limited
-- 35 new logo customers added, providing significant opportunity
for further revenue growth
-- Multi-year contract renewals with Vantage Motor Group, Kings
College London and boohoo
-- Appointment of Darron Giddens as Chief Financial Officer
-- Appointment of Nigel Redwood, former CEO of AIM-listed IT
service management company Nasstar PLC, as Strategic Consultant
to support the Group's acquisition strategy
Post-period highlights
-- Record total contract value sales performance in Q1 of FY22,
representing 129% of the total contract value sales achievement
in FY21
o Includes significant new logo contract win worth c.GBP3
million revenue over three years with a global leader in
the digital transformation services industry, with an additional
GBP1 million revenue upside already secured.
o Recurring Managed Services representing 72% of Q1 sales
(2020: 41%)
-- Acquisitions completed of IDE Group Connect Limited ("Connect")
and Nimoveri Limited from IDE Group Holdings PLC
-- Appointment of Mark Ward, former CEO of Hunter Macdonald,
as Strategic Advisor to support the Group's growth initiatives
-- Appointment of Mike Chester as Group Operations Director
to ensure the Group continues to provide the very highest
standard of customer support as it expands further
Outlook
-- Strong start to the year and easing of travel restrictions
has paved the way for a year of continued commercial progress,
with a significantly enlarged customer base and enhanced
capabilities from acquisitions expected to have a transformative
impact on FY22 revenues
-- Significant upside from the acquisitions anticipated in FY22,
following the expected completion of decisive corrective
actions to stem the losses and achieve monthly profitability
in the Connect business in the second half
-- Strengthened management team, staff and customer base means
the Group now has the scale and experience to leverage and
unlock new opportunities
Mark Halpin, CEO of CloudCoCo, commented:
"I'm delighted to report on another period of significant
progress for CloudCoCo, with our platform now primed for
sustainable, long-term growth.
Since October 2019 we have shaped our future success and laid
the foundations for the 'Get Bigger' stage of our strategy. After
executing on a successful fundraise in August, we acquired a number
of complementary businesses. The focus now is on stabilising and
optimising these businesses while realising synergistic benefits
and, ultimately, unlocking the huge potential within them.
We will continue this strategy in a similar vein through the new
financial year while pursuing opportunities for organic growth as
our core objective. As appropriate, we will also continue to
explore the possibility of further accretive acquisitions where
they are a good strategic fit.
With an enlarged Group serving circa 1,000 customers, we now
have the ability and impetus to provide a broader range of services
to a broader range of customers. We have made an exceptional start
to the new financial year - our best ever quarter by sales - and
have made excellent progress in integrating the acquisitions, with
the actions taken to get Connect from loss-making to anticipated
profitability later in FY22 a particularly noteworthy
achievement.
FY21 was a landmark year for the Group and we are now a very
different proposition in terms of scale and opportunity, which will
be reflected in our FY22 financials. With an exceptional team in
place, improving market conditions and having demonstrated our
ability to overcome challenges as and when they arise, we remain
confident in our ability to continue making good progress towards
our growth ambitions."
Simon Duckworth, Chairman of CloudCoCo, said:
"Mark and the CloudCoCo team have once again met and exceeded
the Board's expectations, successfully transforming the existing
business while delivering on our ambitious acquisition
strategy.
Customer feedback remains exceptionally positive. We have a
growing reputation for consistently delivering quality which,
coupled with our enhanced service propositions, has allowed the
Company to record its most successful sales quarter yet at the
start of FY22.
I am grateful to all our colleagues - new and old - for their
contributions to the progress we have made during the year under
review. Their hard work and enthusiasm for the business has driven
us forward and makes me excited for what we can achieve together in
the new financial year and beyond."
Contacts
CloudCoCo Group plc Via Alma PR
Mark Halpin (CEO)
Darron Giddens (CFO)
Allenby Capital Limited (Nominated Adviser & Broker) Tel: +44 (0)20 3328 5656
Jeremy Porter / James Reeve - Corporate Finance
Tony Quirke / Amrit Nahal - Sales & Corporate Broking
Alma PR (Financial PR) cloudcoco@almapr.co.uk
David Ison Tel: +44 (0)20 3405 0205
Josh Royston
Kieran Breheny
About CloudCoCo
Supported by a team of industry experts and harnessing a diverse
ecosystem of partnerships with blue-chip technology vendors,
CloudCoCo makes it easy for private and public sector organisations
to work smarter, faster and more securely by providing a single
point of purchase for their connectivity, telephony, cyber
security, cloud, IT hardware and support needs.
CloudCoCo has offices in Warrington, Leeds and Sheffield in the
UK.
www.cloudcoco.co.uk
Chairman's statement
Overview
Since the formation of CloudCoCo Group plc in 2019, the business
has been on a journey towards excellence and has consistently
delivered against its objectives. We have viewed the development of
the business in phases, defined internally as:
-- Get Well
-- Get Fit
-- Get Bigger
This year saw us enjoy the benefits of the 'Get Well' phase,
implemented in 2020, which allowed us to concentrate on the 'Get
Fit' and 'Get Bigger' phases of our plan, resulting in a greater
focus on new business development and the acquisition of four
companies towards the end of FY21 and the beginning of FY22 as
detailed below.
As we have progressed through each phase, we have maintained our
focus on four key areas. These are: accelerate sales, maintain
excellent support levels, maintain cost vigilance and improve the
cash position.
In September 2021, the Company raised GBP2.1m to fund
acquisitions to broaden its service offering, increase revenue, and
provide scope for a substantial increase in profitability going
forward. The additional funds will be used for the integration of
the acquisitions and to strengthen the balance sheet and working
capital.
This laser focus by our leadership team, led by our CEO Mark
Halpin, has been delivering improvements day-by-day,
project-by-project and has successfully built a strong platform for
long-term, sustainable growth. We have reduced our costs, improved
our customer service levels, and secured new business and
multi-year renewals with existing customers, despite the
considerable disruption caused by the pandemic.
Prior to year-end, as part of our plan to "Get Bigger", we
acquired Systems Assurance Limited and More Computers Limited into
the Group, to build on the success seen in FY21 through delivering
Value Added Resale services to customers, and just after the
year-end, we also acquired IDE Group Connect Limited and Nimoveri
Limited, to support growth through the significantly enlarged
customer base, technical capabilities and talented staff provided
by these businesses.
The Group is currently working through an accelerated 'Get Well'
programme for the newly acquired businesses, focusing on managing
costs, driving efficiencies and realising synergy benefits, with a
view to supporting sustainable, profitable growth.
We are delighted with the talented staff, customers, and new
services that these most recent acquisitions have brought to the
Group and are optimistic about how the combined business will
perform.
People
Our colleagues old and new have demonstrated a fantastic
dedication to our shared mission, particularly in the challenging
circumstances posed by the pandemic. I would like to thank them all
for their valuable contribution during the year.
CloudCoCo prides itself on its strong corporate culture which
places an emphasis on cultivating the passion and creativity of our
colleagues while always ensuring we are set apart by first-class
customer service. Our colleagues who have joined the Group through
acquisition and new hires have proven an excellent cultural fit and
I am delighted to see them settle in well.
As a reflection of this inclusive culture and focus on improving
the working lives of our people, we launched CoCo-One, our
Group-wide people initiative encompassing a number of projects,
during the period. This initiative includes a share options plan,
currently providing qualifying employees with performance-based
share options to align colleague incentivisation with shareholders'
interests.
Other projects carried out during the year include investment
into a new employee experience platform that increases employee
engagement through regular surveys and polls, encouraging
colleagues to provide instant feedback to each other from within
our everyday business applications. Engaging with our colleagues
allows us to make better decisions and drive meaningful change,
taking all opinions into account.
Recognising the critical importance of our colleagues to our
success, we always look to reward exceptional performance and do
what we can to make CloudCoCo a great place to work. We look
forward to welcoming our new colleagues onto the programme.
In line with our growth ambitions, the Group's senior leadership
and advisory team has been strengthened significantly. As announced
on 9 June 2021, we were pleased to welcome Darron Giddens as Chief
Financial Officer and to the Board. Darron has been with the Group
since 2009 and was promoted from his previous role as Group Finance
Director. His transition has been seamless, and he has already
played a vital role in integrating the acquisitions and further
strengthening the finance function of the business following the
recent acquisitions.
Darron replaced Mike Lacey, who had joined the Board of
Directors in January 2020 and played an important role in
stabilising the Group's finances and cementing the foundations for
long-term growth. I would like to wholeheartedly thank Mike for his
contribution to the Group and wish him well in his future
endeavours.
In June 2021 we announced the appointment of Nigel Redwood,
former CEO of AIM-listed Nasstar PLC, as Strategic Consultant (a
non-board position). Nigel's experience leading high-growth IT and
managed service businesses has proven highly valuable in executing
the Group's acquisition, integration and people strategies, and he
continues to play an important role in assessing a pipeline of
further acquisition opportunities.
Post-period, in October 2021, we also announced the appointment
of Mark Ward, former founder and CEO of Hunter Macdonald, as a
Strategic Adviser (a non-board position) to the Group. Mark's
wealth of experience scaling businesses in the technology sector
has already proven extremely useful and I have no doubt he will
continue to play a pivotal role in the Group's development.
As announced post-period on 1 February 2022, we have appointed
Mike Chester as Group Operations Director (a non-board position),
to ensure CloudCoCo continues to provide the very highest standard
of customer support as it expands. Mike has an extensive, 25-year
track record of positioning organisations for operational success
and has been responsible for the operational integration of
acquisitions ranging from c. GBP3m to GBP40m and has played a
pivotal role in the planning and delivery of over GBP5m of synergy
savings and significant headcount expansion.
I would like to welcome these new appointments to CloudCoCo and
we look forward to working with them in 2022 as we move through the
next stage of the Company's growth strategy.
Ambitions for this financial year
Having successfully met our key areas of focus for 2021, as
detailed above, we now look forward to building on our progress and
scaling the business as part of our "Get Bigger" strategy.
We approach the new year with the same objectives across the
larger business, looking to replicate the good work done in
managing costs and improving efficiency across our new acquisitions
while integrating them into the Group.
While our teams are focused on driving new business development
in the new year, we will continue to appraise further acquisition
opportunities, only progressing those that have exceptional
potential and are a good strategic fit.
Simon Duckworth
Chairman
6 March 2022
Chief Executive's Review
Introduction
CloudCoCo provides IT and communications solutions to
organisations across the UK public and private sectors, enabling
business optimisation and transformation, team-working, streamlined
workflows and reduced costs. We collaborate with an extensive range
of partners, service providers, distributors, and vendors.
The year under review has been a transformational period for the
Group. Despite the persistence of national and local restrictions
as a result of the pandemic, we have delivered a resilient
financial performance. The Group achieved revenues of GBP8.1
million (FY20: GBP8.0 million) and total contract value of GBP5.2
million (FY20: GBP5.2 million). Cash at 30 September 2021 was
GBP1.2 million (FY20: GBP0.6 million). I am particularly pleased
with the progress we have made in Trading Group EBITDA(1) , an
important metric for the Group's progress, which increased over
185% to GBP745k (FY20: GBP261k).
Acquisitions
Supported by the appointment of Nigel Redwood during the period,
we have significantly expanded the Group's offering and customer
base through acquisitions and expect these to have a major
long-term impact on the Group's ability to scale and compete
against the larger players in our space.
In August 2021 we announced the acquisition of Systems Assurance
Limited ("Systems Assurance"), an IT group comprised of a B2B
value-added reseller ("VAR") and an automated B2C cloud-based VAR
and IT managed service provider for an initial net consideration of
GBP0.83m. This acquisition provides the Group with a proven,
scalable hardware engine alongside expanding its IT managed
services offering. Additionally, the acquisition of Systems
Assurance provided the Group with a further 125 customers, offering
the potential for up-sell and cross-sell from the Group's existing
services. Importantly, the More Computers B2C e-commerce platform
acquired provides us with automation capabilities and access to a
large number of UK distributors and vendors that will benefit the
wider Group in the coming years. The strategy this year is to
further improve the More Computers engine in H1-FY22 and then
launch a B2B version for our now circa 1,000 public and private
business customers.
Post-period, in October 2021, we announced further acquisitions
in the shape of IDE Group Connect Limited ("Connect"), a specialist
cloud, advanced support, connectivity and co-location data centre
provider and Nimoveri Limited, an IT managed services business,
from IDE Group Holdings PLC for a combined deferred consideration
of GBP250,000.
Connect significantly boosts the Group's overall offering,
providing an additional 85 talented staff members, 33 data centres,
an impressive lifecycle device management capability, circa 100,000
IPv4 addresses and a 100Gb fibre-network in London and the South of
England. The Connect business recorded an adjusted EBITDA(2) loss
of GBP0.7 million on revenues of GBP13.0 million in the audited
accounts for the year to 31 December 2020. Our immediate focus has
been to rapidly improve this business with a view to reaching
profitability, which we expect to achieve during the second half of
FY22. Following the acquisition, we engaged in an in-depth
consultation with management and the wider team, including
conducting a skills matrix survey to ensure we capitalise on the
immense talent and technology available. We are now working through
clear steps to realise synergistic benefits while growing sales. We
believe that there is significant upside to be generated from the
Connect business once we have completed the "Get Well" actions.
Progress against FY21 objectives
Accelerate sales
The business achieved revenues of GBP8.1m in the 12 months to 30
September 2021 in line with the prior year (FY20: GBP8.0m).
2021 2020
GBP'000 GBP'000
-------------------- --------- ---------
Managed IT Services 5,648 6,131
Value added resale 2,459 1,839
-------------------- --------- ---------
Total Revenue 8,107 7,970
==================== ========= =========
A key focus for the year was securing a greater number of
multi-year contracts in order to provide the business with the
enhanced security of contracted and committed revenues and the
opportunity to develop its partnerships with customers
long-term.
Total contract value ("TCV") measures the total revenue that we
expect to generate from new customer contracts signed in the year
over their contractual term. TCV remains an important indicator for
the Group. This was flat relative to 2020 at GBP5.2m, predominantly
due to the pandemic's impact on our Managed IT Services
division.
Our Managed IT Services division provides a range of IT
infrastructure and services, enabling our customers to focus on
their day-to-day business needs and priorities. The period under
review was characterised by national and local lockdowns and
restrictions as well as working from home measures. We experienced
a slowdown and delay in customer decision making, primarily in H1,
as a result of general uncertainty prompted by COVID-19 resulting
in downsizing of license types and closure of locations by our end
customers.
Despite this, and a few cancellations as a result of customers
in trading difficulty, we have successfully navigated the effects
of the pandemic to date and saw an increase in customer spend in Q4
2021 with positive signs moving through FY22. We secured 35 new
logo customers in the period, and made key renewals with existing
customers including Vantage Motor Group, Kings College London and
boohoo.
We expect the healthy trading seen in Q4 of FY21 and into Q1 of
the current financial year to continue as restrictions ease,
face-to-face meetings become more frequent and organisations begin
to increase their IT spend in the face of a more stable and certain
external environment. We also expect our enhanced capabilities and
increasing activity across our target markets to deliver greater
returns.
Managed IT Services constitutes c.70% of the Group's revenues.
In line with the normalisation of trading patterns post-pandemic,
we expect this proportion to increase over the next few financial
years.
Our Value Added Resale division provides a range of additional
IT products and services. This division experienced strong demand
for collaboration and cyber security solutions throughout the
period as organisations across the public and private sectors
adapted to home working measures. This includes existing customer
boohoo, who expanded the range and depth of services they take from
us during the year.
Maintaining excellent support levels
CloudCoCo is built around the ethos of providing the highest
levels of support to our customers and going above and beyond
expectations. There is no room for complacency, but I am delighted
with the continually exceptional levels of customer support,
contributing to a further reduction in customer churn.
Our excellent levels of support are further strengthened by the
recent appointment of Mike Chester, as announced on
1 February 2022.
Maintain cost vigilance
Following our comprehensive spending review in FY20, we remain
vigilant around the reduction of costs and optimising expenditure
in the business, including our newly acquired businesses.
Improve cash position
We have performed excellently in our aim to improve the Group's
cash position, supplemented by the Group's GBP2.1 million fundraise
through a conditional placing in August 2021. During the period,
cash increased to GBP1.18m (FY20: GBP0.6m), and we have
significantly increased our Trading EBITDA(1) to GBP745k (FY20:
GBP261k).
A portion of the proceeds from fundraising was utilised to pay
down the GBP0.1 million working capital debt to MXC Capital.
The market
We target our services across all industries and sectors where
there is a need for digital change. In line with wider market
trends, we continue to observe a strong demand for our range of
products across our four principal areas of expertise - cloud,
collaboration, connectivity and cyber security.
While many organisations have adopted hybrid working patterns as
a standard practice, as pandemic-related restrictions ease, we are
now seeing organisations shift their focus towards optimising their
core long-term communications and cyber security
infrastructure.
Given the Group's position in the market, this represents a good
opportunity and we expect to see demand for these services continue
to grow across both the public and private sectors.
Partnership ecosystem
A core element of CloudCoCo's business model is the development
of its partnership ecosystem with world-class vendors and
innovative technology partners. This represents a key competitive
advantage for the Group, and it has continued to strengthen in this
area in the period.
We are pleased to be one of a limited number of UK partners to
be listed on the AWS (Amazon Web Services) Marketplace for Dynamic
Cloud Security solutions, while THG Hosting, THG PLC's web hosting
business also announced CloudCoCo as a UK partner in H2. During the
year we have also progressed through status bands with our existing
partners Fortinet, Lenovo, and Dell, as well as maintaining the
'Gold' partner status with Mitel.
Current trading and outlook
We have made an excellent start to H1 2022, recording a record
sales performance in the first quarter. The Group's teams have done
an outstanding job to achieve this, with total contract value from
submitted sales in Q1 FY22 of GBP6.7 million representing 129% of
the prior financial year. While in part due to the normalising of
activity as COVID-19 related delays abate, it is also an important
reflection of the strong foundations we have put in place in prior
periods, including targeted marketing strategies and our new and
improved website.
New business wins in the current year are drawn from a range of
sectors including manufacturing, charity, accountancy and financial
services. The Group continues to focus on winning longer and larger
contracts and, as announced in November 2021, we secured a
significant new contract worth approximately GBP3m over three years
with a new customer in the digital transformation services industry
with an additional GBP1m upside secured in December 2021. While we
recognise the effects of COVID-19 are likely to continue to have a
suppressing effect on customer confidence in the near-term, we are
seeing positive signs as conditions normalise.
We now have around 1,000 customers and demand for our products
remains strong, enhanced by the significantly enlarged service
offering and customer base provided by the Group's recent
acquisitions. In the immediate term we remain focused on using our
experience to drive efficiencies in the acquired businesses and
ensure they are seamlessly integrated into the Group.
As anticipated by the Board, the loss-making nature of Connect
at acquisition is expected to impact Group profitability for the
first half of FY22. A positive monthly contribution is expected
from Connect later in FY22 as a result of the completion of
decisive corrective actions, together with the transition to the
accelerated 'Get Fit' phase of this business in the second half of
the year. We are already making strong progress towards getting
Connect to breakeven and see significant upside potential for this
business.
In line with the 'Get Bigger' phase of our strategy, we will
continue to appraise potential new acquisition opportunities, only
progressing those with exceptional potential that would be a sound
strategic and cultural fit.
With an enhanced service offering, significantly expanded
customer base, a healthy financial position and a team of
passionate, talented IT specialists, the future is exciting for
CloudCoCo. I would like to thank all our colleagues, shareholders,
partners and customers for their continued support, and look
forward to providing a further update on FY22 at the interim
results later this year.
Mark Halpin
Chief Executive Officer
6 March 2022
(1) profit or loss before net finance costs, tax, depreciation,
amortisation, plc costs, exceptional items and share-based
payments.
(2) adjusted EBITDA is defined by IDE as profit or loss before
interest, tax, depreciation, amortisation, impairment charges,
exceptional
items, loss on disposal of fixed assets and share-based
payments.
Financial review
Placing
On 2 September 2021, the Company raised GBP2.1 million before
expenses through a conditional placing arranged by Allenby Capital
of 210,990,000 new Ordinary Shares at a price of 1 penny per share
to fund growth by acquisition and provide additional working
capital to fund the subsequent integration. The Placing was carried
out at an approximate 13 per cent. discount to the Company's
closing price of 1.15p per share on Monday 16 August 2021.
Acquisition of Systems Assurance Limited and More Computers
Limited
On 6 September 2021, the Group acquired the entire share capital
of Systems Assurance Limited and its wholly owned subsidiary More
Computers Limited on a cash-free debt-free basis, for an initial
cash consideration payment of GBP0.83 million before associated
expenses. The initial consideration represented approximately four
times the Trading EBITDA(1) of the acquired companies in the year
to 31 December 2020, excluding remuneration costs of the vendors.
Further details are provided in Note 11.
In return for assisting the Company integrate the acquired
businesses into the Group and to provide an incentive for their
continued support and advice, the vendors were issued with an
aggregate of 4,000,000 share warrants between them, giving them the
right to subscribe in cash for Ordinary Shares in the Group, at a
subscription price of 1.5p per Ordinary Share, subject to certain
pre-conditions during the ten-year exercise period, commencing 3
March 2022.
The pre-conditions to be satisfied on the exercise date are that
i) the current market price of the Company is not less than 2 pence
per share and ii) that the prior six-month revenues of the acquired
businesses are at least GBP3.2 million, calculated in accordance
with the share warrant agreement signed on 3 September 2021.
Provided that the pre-conditions are met on the exercise date, the
share warrants may be exercised in whole or part, subject to the
vendors issuing a notice to the Company in agreed form during the
exercise period.
Revenue and gross margin
Group revenue for the year to 30 September 2021 grew by 1%
overall to GBP8.1 million (FY20 GBP8.0 million) with sales of
Managed IT Services falling by 8% in the period, mainly as a result
of the impact of COVID-19 and a reduction in the requirement for
in-office managed IT solutions during lockdown and a customer
reluctance to sign longer term IT service contracts with the
uncertainty caused by the pandemic. The reduction in Managed IT
Services was more than offset by a 34% increase in value added
resale ("VAR") sales during the year, as UK business customers
mobilised their workforce in order to work from home. This trend in
customer spend shifted once more at the end of FY21 back towards
Managed IT Services, as business customers took the opportunity to
refresh their core IT infrastructure and invest in new cloud-based
solutions. This shift in investment could be seen mainly from
on-line and e-commerce related business and international
service-related business customers with a requirement for 24 x 7
Managed IT support across multiple countries.
This produced a total gross profit of GBP3.2 million (FY20:
GBP3.4 million) representing a gross margin of 39.7% (FY20: 42.9%).
The reduction in margin related to the increase mix of VAR
revenues, which has an element of third-party costs.
The analysis of revenue from each of our operating segments is
shown in Note 3 and is detailed below.
Managed IT Services
Managed IT Services relate to the provision of recurring IT
services which either have an ongoing billing and support element
or utilise the technical expertise of our people.
Revenues from Managed IT Services were GBP5.6 million (FY20:
GBP6.1 million) the reduction of GBP0.5 million being represented
by incentives provided to customers for longer term renewals and a
few cancellations at the end of their contractual term as a result
of customers in trading difficulty during the pandemic. Managed IT
Services generated a gross profit of GBP2.6 million (FY20: GBP3.0
million) and a gross margin of 46% (FY20: 49%). The reduction in
the gross margin is due to the mix of services provided between in
house and third party resources.
The proportion of our total revenue derived from Managed IT
Services continued to be high at 70% (FY20: 77%).
Value added resale
VAR is the resale of one-time solutions (hardware and software)
from our leading technology partners, including revenues from the
More Computers e-commerce platform.
Revenues from VAR were GBP0.7 million higher than those in FY20
at GBP2.5 million (FY20: GBP1.8 million) due to hardware sales in
advance of multi-year support contracts and assisting customers who
were transitioning to home working. VAR generated a gross profit of
GBP0.6 million (FY20: GBP0.4 million) and gross margin of 24%
(FY20: 22%).
Operating performance, costs and Trading Group EBITDA
As well as revenue, gross profit and cash balances, one of our
main financial key performance indicators is our Trading Group
EBITDA(1) - our operational trading performance before plc costs.
This measure best equates to the cash profitability of the Group
before plc costs, exceptional items and net finance expenses.
With sustainable recurring profits in mind, our core objectives
for the financial year were to accelerate sales, maintain excellent
support levels, maintain cost vigilance and improve cash
position.
Excluding plc costs of GBP0.5 million (FY20: GBP0.5 million),
our trading overheads(2) during the year fell by 22% over FY20 to
GBP2.5 million (FY20: GBP3.2 million), of which staff costs
comprised 85% (FY20: 81%). Following the COVID-19 pandemic, various
measures were taken in the second half of FY20 and early FY21 to
help protect the business, including temporary pay cuts and use of
the Government furlough scheme.
In addition, a number of initiatives from the "Get Well" and
"Get Fit" phases of our plan helped to improve trading performance.
These included a review of customer profitability on a line-by-line
basis - a process of re-matching and re-negotiating supplier costs
at the individual service level. A further initiative saw us
re-focus our technical service team as a separate cost-centre - as
we challenged our Technical teams to cover their salary costs
through additional chargeable time from customers as opposed to
business as usual recurring support work.
The effect of focussing on the key objectives of increasing
sales, reducing customer churn, reducing costs, and returning to
net cash generation is described in the Chairman's Statement.
Despite the continued uncertainty and disruption as a result of the
pandemic, the Group reported a 285% improvement in underlying
profitability as measured by Trading Group EBITDA(1) (2021:
GBP0.7m; 2020: GBP0.3m). The acquisition of Systems Assurance
Limited and More Computers Limited increased FY21 Trading Group
EBITDA(1) in the year by GBP30,000, results for those companies
being included since their acquisition on 3 September 2021.
Plc costs
Plc costs in the year remained in-line with FY20 at GBP0.5
million. These are non-trading costs, relating to the Board of
Directors of the Parent Company, it's listing on the AIM Market of
the London Stock Exchange and its associated professional
advisors.
Exceptional Items
During the year we incurred certain costs which were not
directly related to the generation of revenue and trading profits.
Given their size and nature, they have been classified as
exceptional items within the Consolidated Income Statement. These
items totalled GBP0.4 million, of which GBP0.2 million relates to
Systems Assurance Limited and More Computers Limited acquisition
costs and GBP0.2 million relates to placing fees, integration and
reorganisation costs. In the year to 30 September 2020, exceptional
items were GBP0.5 million of which GBP0.3m related to the
acquisition of CloudCoCo Limited and GBP0.2 million related to
integration and reorganisation costs.
Net finance expenses, depreciation, amortisation and financial
results for the full year
During the year the Group incurred net finance costs of GBP0.5
million (FY20: GBP0.5 million). GBP0.4 million of this was accrued
interest on loan notes payable at the end of the loan notes' term.
The Group incurred other non-cash costs including total
amortisation and depreciation charges of GBP1.1 million (FY20:
GBP1.7 million) and share-based payments charge of GBP217,000
(FY20: GBP26,000 credit). After accounting for a deferred tax
charge of GBP0.1 million (FY20: GBP0.3 million credit) arising as
part of business combinations but also impacted by the rise in
corporation tax rates from 2023, the reported loss for the year
after tax was GBP2.1 million compared to a loss after tax for the
year to 30 September 2020 of GBP2.7 million.
Statement of Financial Position and cash
The Group had positive net assets at 30 September 2021 totalling
GBP5.2 million (FY20: GBP5.0 million) and the cash position
improved by GBP0.6 million to GBP1.2 million (FY20: GBP0.6
million). The placing, completed in September 2021, the underlying
trading performance of CloudCoCo Limited and the subsequent
acquisition of two cash generative businesses in Systems Assurance
Limited and More Computers Limited, provides the business with a
solid platform for growth.
Contract liabilities increased by GBP0.4 million to GBP1.3
million (FY20: GBP0.9 million) reflecting the success that the
Group had during the year, signing customers onto new longer term
recurring revenue contracts, billed in advance. A number of larger
deals were signed towards the end of the financial year, reflected
in the GBP1.1 million increase in Trade and other receivables at
September 2021, compared to September 2020. This will benefit
working capital in FY22 as these balances are received. In so far
as possible, the Directors look to balance movements in trade
receivables and trade payables throughout the year to maintain a
consistent bank balance, hence the small outflow in net cash from
operating activities before acquisition costs.
In order to reduce interest expense and overall net debt, the
Group repaid the GBP100,000 working capital loan from MXC Guernsey
Limited ("MXCG") in September 2021. Overall Net debt reduced by
GBP0.3 million to GBP2.9 million during the year. Net debt
comprises cash balances of GBP1.2 million less the loan notes and
rolled up interest of GBP3.9 million together with GBP0.1 million
of lease liabilities and a COVID-19 Bounce Back Loan of some
GBP50,000. The Trading Group EBITDA(1) of the business exceeded the
loan note interest in the year by GBP0.3 million (FY20: a shortfall
of GBP0.1 million).
CloudCoCo remains asset light, reflected in the GBP0.1 million
carrying value of tangible assets at year-end (FY20: GBP0.2
million) and the costs of additional capex in the year of only
GBP31k (FY20: GBP37k).
The Group had a net cash inflow during the year of GBP0.6
million (FY20: GBP0.3 million), the main components being:
-- Small outflow in cash generated from operating activities
excluding the costs of acquisition of GBP0.3 million;
-- costs of GBP0.6 million (net of cash acquired) to acquire
Systems Assurance Limited and More Computers Limited;
-- proceeds of GBP2.1 million before associated costs of GBP0.2m
from Placing in September 2021;
-- repayment of MXCG working capital facility of GBP0.1 million; and
-- repayment of lease liabilities in the year of GBP0.1 million.
Further details on the financial position of the Group are
contained in note 1.
Darron Giddens
Chief Financial Officer
6 March 2022
(1) profit or loss before net finance costs, tax, depreciation,
amortisation, plc costs, exceptional items and share-based
payments.
(2) trading overheads are the group's administrative costs
excluding depreciation and amortisation, plc costs, exceptional
items
and share-based payments
Consolidated income statement
for the year ended 30 September 2021
Note 2021 2020
GBP'000 GBP'000
------------------------------------------------- ---- -------- --------------
Continuing operations
Revenue 3 8,107 7,970
Cost of sales (4,891) (4,554)
------------------------------------------------- ---- -------- --------------
Gross profit 3,216 3,416
Other income 67 97
Administrative expenses (4,794) (5,963)
Trading Group EBITDA (1) - non statutory measure 745 261
Amortisation of intangible assets (1,009) (1,623)
Plc costs(2) (492) (461)
Depreciation (97) (113)
Exceptional items - other 4 (441) (540)
Share-based payments (217) 26
------------------------------------------------- ---- -------- --------------
Operating loss 5 (1,511) (2,450)
Interest receivable 6 1 1
Interest payable 6 (535) (518)
================================================= ==== ======== ==============
Loss before taxation (2,045) (2,967)
Taxation 7 (83) 288
================================================= ==== ======== ==============
Loss and total comprehensive loss for the year
attributable to owners of the parent (2,128) (2,679)
================================================= ==== ======== ==============
Loss per share
Basic and fully diluted 8 (0.42)p (0.56)p
================================================= ==== ======== ==============
(1) profit or loss before net finance costs, tax, depreciation,
amortisation, plc costs, exceptional items and share-based payments
.
(2) Plc costs are non-trading costs relating to the Board of
Directors of the Parent Company, its listing on the AIM Market of
the London
Stock Exchange and its associated professional advisors.
Consolidated statement of financial position
as at 30 September 2021
30 September 30 September
2021 2020
GBP'000 GBP'000
=============================== ============ ============
Non-current assets
Intangible assets 10,393 10,359
Property, plant and equipment 149 221
================================ ============ ============
Total non-current assets 10,542 10,580
================================ ============ ============
Current assets
Inventories 86 31
Trade and other receivables 2,953 1,856
Cash and cash equivalents 1,183 588
================================ ============ ============
Total current assets 4,222 2,475
================================ ============ ============
Total assets 14,764 13,055
================================ ============ ============
Current liabilities
Trade and other payables (2,872) (2,465)
Contract liabilities (177) (565)
Borrowings (172) (104)
Lease liability (86) (122)
================================ ============ ============
Total current liabilities (3,307) (3,256)
================================ ============ ============
Non-current liabilities
Contract liabilities (1,092) (364)
Borrowings (3,991) (3,458)
Lease liability (11) (61)
Deferred tax liability (1,188) (940)
================================ ============ ============
Total non-current liabilities (6,282) (4,823)
================================ ============ ============
Total liabilities (9,589) (8,079)
================================ ============ ============
Net assets 5,175 4,976
================================ ============ ============
Equity
Share capital 7,062 4,952
Share premium account 17,630 17,630
Capital redemption reserve 6,489 6,489
Merger reserve 1,997 1,997
Other reserve 339 122
Retained earnings (28,342) (26,214)
================================ ============ ============
Total equity 5,175 4,976
================================ ============ ============
Consolidated statement of changes in equity
for the year ended 30 September 2021
Capital
Share Share redemption Merger Other Retained
capital premium reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================= ======== ======== =========== ======== ======== ========= ========
At 1 October 2019 2,271 11,337 6,489 1,997 1,720 (24,925) (1,111)
================================= ======== ======== =========== ======== ======== ========= ========
Loss and total comprehensive
loss for the period - - - - - (2,679) (2,679)
================================= ======== ======== =========== ======== ======== ========= ========
Transactions with owners in their capacity
of owners
Extinguishment of BGF Loan Notes
in consideration for issue of
50,000,000 shares at 0.35p per
share (note 9) 500 1,275 - - (1,330) 1,148 1,593
Issue of 218,160,586 shares to
CloudCoCo vendors at 3.3p per
share (note 9) 2,181 5,018 - - - - 7,199
Cancellation of 11,353,255 share
warrants held by MXC Guernsey
on acquisition of CloudCoCo Ltd - - - - (242) 242 -
Share-based payments - - - - (26) - (26)
================================= ======== ======== =========== ======== ======== ========= ========
Total transactions with owners 2,681 6,293 - - (1,598) 1,390 8,766
================================= ======== ======== =========== ======== ======== ========= ========
Total movements 2,681 6,293 - - (1,598) (1,289) 6,087
================================= ======== ======== =========== ======== ======== ========= ========
Equity at 30 September 2020 4,952 17,630 6,489 1,997 122 (26,214) 4,976
================================= ======== ======== =========== ======== ======== ========= ========
Capital
Share Share redemption Merger Other Retained
capital premium reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- ----------- -------- -------- --------- --------
At 1 October 2020 4,952 17,630 6,489 1,997 122 (26,214) 4,976
---------------------------------- -------- -------- ----------- -------- -------- --------- --------
Loss and total comprehensive
loss for the period - - - - - (2,128) (2,128)
================================== ======== ======== =========== ======== ======== ========= ========
Transactions with owners in their capacity
of owners
Issue of 210,990,000 shares at
1p per share via a Placing (note
10) 2,110 - - - - - 2,110
Share-based payments - - - - 217 - 217
================================== ======== ======== =========== ======== ======== ========= ========
Total transactions with owners 2,110 - - - 217 - 2,327
================================== ======== ======== =========== ======== ======== ========= ========
Total movements 2,110 - - - 217 (2,128) 199
================================== ======== ======== =========== ======== ======== ========= ========
Equity at 30 September 2021 7,062 17,630 6,489 1,997 339 (28,342) 5,175
================================== ======== ======== =========== ======== ======== ========= ========
Consolidated statement of cash flows
for the year ended 30 September 2021
2021 2020
GBP'000 GBP'000
====================================================== ======== ==================
Cash flows from operating activities
Loss before taxation (2,045) (2,967)
Adjustments for:
Depreciation - owned assets 22 36
Depreciation - right of use assets 75 77
Amortisation 1,009 1,623
Share-based payments 217 (26)
Net finance expense 534 517
Costs relating to acquisitions(1) 202 435
Costs relating to Placing of 210,990,000 shares (note
10) 171 -
Increase in trade and other receivables (408) (65)
(Increase) / decrease in inventories (24) 1
(Decrease) / increase in trade payables, accruals
and contract liabilities (57) 866
Cash flows from taxation - -
====================================================== ======== ==================
Net cash (outflow) / inflow from operating activities
before acquisition costs (304) 497
Costs relating to acquisitions(1) (202) (435)
====================================================== ======== ==================
Net cash (outflow) / inflow from operating activities (506) 62
====================================================== ======== ==================
Cash flows from investing activities
Purchase of property, plant and equipment (31) (37)
Acquisitions net of cash acquired(1) (563) 157
Interest received 1 1
====================================================== ======== ==================
Net cash (outflow) / inflow from investing activities (593) 121
====================================================== ======== ==================
Cash flows from financing activities
Proceeds from Placing of 210,990,000 shares (note
10) 2,110 -
Less transaction fees relating to the Placing (171) -
Proceeds from exercise of BGF share options - 175
(Repayment) / receipt of loan funds from MXCG (100) 100
Receipt of loan funds from COVID-19 Bounce Back Loan - 50
Payment of lease liabilities (120) (183)
Interest paid (25) (48)
====================================================== ======== ==================
Net cash inflow from financing activities 1,694 94
====================================================== ======== ==================
Net increase in cash 595 277
Cash at bank and in hand at beginning of period 588 311
====================================================== ======== ==================
Cash at bank and in hand at end of period 1,183 588
====================================================== ======== ==================
Comprising:
Cash at bank and in hand 1,183 588
------------------------------------------------------ -------- ------------------
(1) FY21 relates to the acquisition of Systems Assurance Limited
and More Computers Limited.
FY20 relates to the acquisition of CloudCoCo Limited
Notes to the financial information
1. General information
CloudCoCo Group plc is a public limited company incorporated in
England and Wales under the Companies Act 2006. The principal
activity of the Group is the provision of IT Services to small and
medium-sized enterprises in the UK. The Board of Directors approved
this preliminary announcement on 6 March 2022.
Whilst the financial information included in the preliminary
announcement has been prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006, this announcement does not itself contain
sufficient information to comply with all the disclosure
requirements of IFRS and does not constitute statutory accounts of
the Company for the years ended 30 September 2021 and 2020. The
financial statements are presented in pounds sterling because that
is the currency of the primary economic environment in which each
of the Group's subsidiaries operates.
The financial information for the period ended 30 September 2020
is derived from the statutory accounts for that year which have
been delivered to the Registrar of Companies. The statutory
accounts for the year ended 30 September 2021 will be delivered to
the Registrar of Companies as soon as practicable following
approval. The auditors have reported on those accounts; their
reports were unqualified and did not contain a statement under
s498(2) or s498(3) of the Companies Act 2006.
1.1 Basis of preparation
The consolidated financial statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006. The measurement
bases and principal accounting policies of the Group are set out
below. These policies have been consistently applied to all years
presented unless otherwise stated.
Going concern
The Group had positive net assets at 30 September 2021 totalling
GBP5.2 million compared to GBP5.0 million at the end of FY20. The
net proceeds from the Placing referred to in the Financial Review
and the subsequent acquisition of Systems Assurance Limited and
More Computers increased the net asset position, due to the issue
of share capital of GBP2.1 million.
The Group's progress towards its key objectives of increasing
sales, reducing customer churn, reducing costs, and returning to
net cash generation is described in the Chairman's and Chief
Executive's review. Despite continued uncertainty and disruption as
a result of the pandemic, the Group reported a three-fold
improvement in underlying profitability as measured by Trading
Group EBITDA (2021: GBP0.75 million; 2020: GBP0.27 million). Cash
outflow from operating activities before acquisition costs was
GBP0.3 million (FY20: GBP0.5 million inflow).
The key operational risk the Group faces is the general economic
outlook including the continued uncertainty caused by the pandemic.
Although COVID-19 has not had a material impact on the Group's
ability to operate, it has resulted in delays in sales cycles for
certain services and delays in project delivery as customers assess
the impact of COVID-19 on their own businesses. The Group responded
during the year by taking action to conserve cash including
temporary pay cuts, use of the Government's furlough and VAT
deferral schemes and a COVID-19 Bounce Back Loan.
The Directors have reviewed the forecast sales growth, budgets
and cash projections for the period to March 2023, including
sensitivity analysis on the key assumptions such as the potential
impact of reduced sales or slower cash receipts, for the next
twelve months and beyond and the Directors have reasonable
expectations that the Group and the Company have adequate resources
to continue operations for the period of at least one year from the
date of approval of these financial statements. The Directors have
not identified any material uncertainties that may cast doubt over
the ability of the Group and Company to continue as a going concern
and the Directors continue to adopt the going concern basis in
preparing these financial statements.
1.2 New standards and interpretations of existing standards that
have been adopted by the Group for the first time
New standards or amendments to existing standards and
interpretations that became effective for the annual period
commencing on 1 October 2020 include Definition of Material -
Amendment to IAS 1 and IAS 8 and Amendment to IFRS3 Conceptual
framework of financial reporting Interest Rate Benchmark Reforms as
well as Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS
16
None of the new standards or interpretations of existing
standards above had a material impact on the Group during the year
ended 30 September 2021.
2. Principal accounting policies
a) Basis of consolidation
The financial information provided incorporates the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) prepared to 30 September each year. Control is
achieved where the Company is exposed to, or has the rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
The Group obtains and exercises control through voting rights.
Unrealised gains on transactions between the Group and its
subsidiaries are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the
asset transferred. Amounts reported in the financial statements of
subsidiaries have been adjusted where necessary to ensure
consistency with the accounting policies adopted by the Group.
Acquisitions of subsidiaries are dealt with using the
acquisition method. The acquisition method involves the recognition
at fair value of all identifiable assets and liabilities, including
contingent liabilities of the subsidiary, at the acquisition date,
regardless of whether or not they were recorded in the financial
statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are
included in the Consolidated Statement of Financial Position at
their fair values, which are also used as the cost bases for
subsequent measurement in accordance with the Group accounting
policies.
Goodwill is stated after separating out identifiable intangible
assets. Goodwill represents the excess of acquisition costs over
the fair value of the Group's share of the identifiable net assets
of the acquired subsidiary at the date of acquisition.
b) Goodwill
Goodwill representing the excess of the cost of acquisition over
the fair value of the Group's share of the identifiable net assets
acquired is capitalised and reviewed annually for impairment.
Goodwill is carried at cost less accumulated impairment losses.
Refer to principal accounting policy (k) for a description of
impairment testing procedures.
c) Revenue and revenue recognition
Revenue arises from the sale of goods and the rendering of
services as it is performed and the performance obligations
fulfilled. It is measured by reference to the fair value of
consideration received or receivable, excluding valued added tax,
rebates, trade discounts and other sales-related taxes.
The Group enters into sales transactions involving a range of
the Group's products and services; for example, for the delivery of
hardware, software, support services, managed services and
professional services. At the inception of each contract the Group
assesses the goods or services that have been promised to the
customer. Goods or services can be classified as either i) distinct
or ii) substantially the same, having the same pattern of transfer
to the customer as part of a series. Using this analysis, the
Company identifies the separately identifiable performance
obligations over the term of the contract. A contract liability is
recognised when billing occurs ahead of revenue recognition. A
contract asset is recognised when the revenue recognition criteria
were met but in accordance with the underlying contract the sales
invoice had not been issued.
Goods and services are classified as distinct if the customer
can benefit from the good or services on their own or in
conjunction with other readily available resources. A series of
goods or services, such as Recurring Services, would be an example
of a performance obligation that is transferred to the customer
consecutively over time. The Group applies the revenue recognition
criteria set out below to each separately identifiable performance
obligation of the sale transaction. The consideration received from
multiple-component transactions is allocated to each separately
identifiable performance obligation in proportion to its relative
fair value.
Sale of goods (hardware and software)
Sale of goods is recognised at the point in time when the
customer obtains control of the goods. Revenue from the sale of
software with no significant service obligation is recognised on
delivery at a point in time.
Rendering of services
The Group generates revenues from managed services, support
services, maintenance, resale of telecommunications and
professional services ("Managed IT Services"). Consideration
received for these services is initially deferred (when invoiced in
advance), included in accruals and contract liabilities and
recognised as revenue in the period when the service is performed
and the performance obligation fulfilled, measured by reference to
hourly rates.
In recognising recurring Managed IT Services revenues, the Group
recognises revenue equally over the duration of the contractual
term. Sales commission and third-party costs (where relevant)
relating to these services are shown within Contract Assets and are
spread equally over the duration of the contractual term, in line
with when the customer benefits from the services. Internal
technical resources utilised in setting up recurring Managed IT
Services over twelve months in duration are capitalised at the
start of the contract within Contract Assets and spread equally
over the duration of the contractual term.
d) Financial assets
All financial assets are initially recognised at fair value,
plus transaction costs and subsequently measured at amortised
cost.
Trade receivables are held in order to collect the contractual
cash flows and are initially measured at the transaction price as
defined in IFRS 15, as the contracts of the Group do not contain
significant financing components. Impairment losses are recognised
based on lifetime expected credit losses in profit or loss.
The Group reviews the amount of credit loss associated with its
trade receivables based on forward looking estimates, taking into
account current and forecast credit conditions.
Other receivables are held in order to collect the contractual
cash flows and accordingly are measured at initial recognition at
fair value, which ordinarily equates to cost and are subsequently
measured at cost less impairment due to their short-term nature. A
provision for impairment is established based on 12-month expected
credit losses unless there has been a significant increase in
credit risk when lifetime expected credit losses are recognised.
The amount of any provision is recognised in profit or loss.
All financial assets are recognised when the Group becomes a
party to the contractual provisions of the instrument.
Derecognition of financial assets occurs when the rights to receive
cash flows from the instruments expire or are transferred and
substantially all of the risks and rewards of ownership have been
transferred. An assessment for impairment is undertaken, at least,
at each reporting date.
Interest and other cash flows resulting from holding financial
assets are recognised in the Consolidated Income Statement when
receivable.
3. Segment reporting
The Chief Operating Decision Maker ("CODM") has been identified
as the executive directors of the Company and its subsidiaries, who
review the Group's internal reporting in order to assess
performance and to allocate resources.
The CODM assess profit performance principally through adjusted
profit measures consistent with those disclosed in the Annual
Report and Accounts. The Board believes that the Group comprises a
single reporting segment, being the provision of IT managed
services to customers. Whilst the CODM reviews the revenue streams
and related gross profits of two categories separately (Managed IT
Services and Value added resale), the operating costs and operating
asset base used to derive these revenue streams are the same for
both categories and are presented as such in the Group's internal
reporting.
The segmental analysis below is shown at a revenue level in line
with the CODM's internal assessment based on the following
reportable operating categories:
Managed IT Services
* This category comprises the provision of recurring IT
services which either have an ongoing billing and
support element or utilise the technical expertise of
our people.
Value added resale
* This category comprises the resale of one-time
solutions (hardware and software) from our leading
technology partners, including revenues from the More
Computers e-commerce platform.
=================== =================================================================
All revenues are derived from customers within the UK and no
customer accounts for more than 10% of external revenues in both
financial years. Inter-category transactions are accounted for
using an arm's length commercial basis.
3.1 Analysis of continuing results
All revenues from continuing operations are derived from
customers within the UK. In order to simplify our reporting of
revenue, we have taken the decision to condense our reporting
segments into two new categories - Managed IT Services and Value
Added Resale. This analysis is consistent with that used internally
by the CODM and, in the opinion of the Board, reflects the nature
of the revenue. Trading EBITDA is reported as a single segment.
3.1.1 Revenue
2021 2020
GBP'000 GBP'000
-------------------- --------- ---------
Managed IT Services 5,648 6,131
Value added resale 2,459 1,839
-------------------- --------- ---------
Total Revenue 8,107 7,970
==================== ========= =========
3.1.2 Revenue
2021 2020
GBP'000 GBP'000
------------------------------ --------- ---------
Recognised at a point in time 3,041 2,558
Recognised over time 5,066 5,412
------------------------------ --------- ---------
Total Revenue 8,107 7,970
============================== ========= =========
4. Exceptional Items
Items which are material and non-routine in nature are presented
as exceptional items in the Consolidated Income Statement.
2021 2020
GBP'000 GBP'000
======================================================= ======== ========
Costs relating to the acquisition of CloudCoCo Limited - (435)
Costs relating to the acquisition of Systems Assurance
Limited and More Computers Limited (202) -
Costs relating to the Placing (171) -
Integration and restructure costs (68) (105)
Exceptional items (441) (540)
======================================================= ======== ========
5. Operating loss
2021 2021
GBP'000 GBP'000
========================================== ========= =========
Operating loss is stated after charging:
Depreciation of owned assets 22 36
Depreciation of right of use assets 75 77
Short life lease expense 34 50
Amortisation of intangibles 1,009 1,623
Auditor's remuneration:
- Audit of parent company 20 20
- Audit of subsidiary companies 53 50
- Other audit-related assurance services 7 7
------------------------------------------ --------- ---------
Government grants of GBP67,000 (2020: GBP97,000) received as
part of the Coronavirus Job Retention Scheme ("furlough") are
recorded as Other Income in the income statement.
6. Finance income and finance costs
Finance cost includes all interest-related income and expenses.
The following amounts have been included in the Consolidated Income
Statement line for the reporting periods presented:
2021 2020
GBP'000 GBP'000
======================================================== ======== ========
Interest income resulting from short-term bank deposits 1 1
======================================================== ======== ========
Finance income 1 1
======================================================== ======== ========
Interest expense resulting from:
Lease liabilities 12 27
MXC rolling working capital facility 12 9
Loan note interest 420 398
Interest on Government related COVID19 VAT deferral
scheme 6 3
Effective interest on liability element of the loan
notes measured at amortised cost 85 81
======================================================== ======== ========
Finance costs 535 518
======================================================== ======== ========
Loan note interest includes GBP420,000 (2020: GBP398,000) which
is accrued and is only payable when the loan notes are repaid in
2024 or earlier if the Group chooses.
7. Income tax
2021 2020
GBP'000 GBP'000
===================================================== ======== ========
Current tax
UK corporation tax for the period at 19% (2020: 19%) - -
===================================================== ======== ========
Deferred tax
Deferred tax charge / (credit) on intangible assets 83 (288)
===================================================== ======== ========
Total tax charge / (credit) for the year 83 (288)
===================================================== ======== ========
The relationship between expected tax (credit) / expense based
on the standard rate of tax in the UK of 19% (2020: 19%) and the
tax expense actually recognised in the Consolidated Income
Statement can be reconciled as follows:
2021 2020
GBP'000 GBP'000
======================================================= ======== ========
Loss for the year before tax: (2,045) (2,967)
======================================================= ======== ========
Tax rate 19% 19%
======================================================= ======== ========
Expected tax credit (389) (564)
Adjusted for:
Non-deductible expenses 59 91
Change in tax rates 334 -
Difference in tax rates (60) -
Movement in unprovided deferred tax relating to losses 135 191
Short-term timing differences 4 (6)
======================================================= ======== ========
Total tax charge / (credit) for the year 83 (288)
======================================================= ======== ========
The Group has unrecognised deferred tax assets in respect of tax
losses carried forward totalling GBP2,196,000 (2020: GBP1,522,000).
Deferred tax assets remain unrecognised until it becomes probable
that the underlying deductible temporary differences will be able
to be utilised against future taxable income. During the year, the
substantively enacted tax rate increased from 19% to 25%, the
impact shown in the table above.
8. Loss per share
2021 2020
GBP'000 GBP'000
===================================================== =========== ===========
Loss attributable to ordinary shareholders (2,128) (2,679)
Number
===================================================== =========== ===========
Weighted average number of Ordinary Shares in issue,
basic and diluted 510,759,930 478,427,400
Basic and diluted loss per share (0.42)p (0.56)p
----------------------------------------------------- ----------- -----------
The weighted average number of ordinary shares for the purpose
of calculating the basic and diluted measures is the same. This is
because the outstanding share incentives would have the effect of
reducing the loss per ordinary share and therefore would be
anti-dilutive under the terms of IAS 33.
9. Financial instrument
On 26 May 2016, the Company issued GBP5m unsecured loan notes
("Loan Notes") to the Business Growth Fund ("BGF") with a
seven-year term (although redemption was permissible from the third
anniversary) with repayment between the fifth and seventh
anniversaries in equal semi-annual repayments that carry interest
at 8% per annum ("Coupon"). On the same date, the Company also
agreed to grant the BGF an option to subscribe for 50,000,000
Ordinary Shares of 1p at a subscription price of 6p any time before
26 May 2031. As the Loan Notes were unsecured, no collateral was
offered to the BGF as security. The Loan Notes were not exposed to
market interest rate increases over the term.
In the opinion of the directors, the Loan Notes and share option
elements were linked and were therefore treated as a single
financial instrument. In accordance with IAS 32, the Loan Notes
were recorded at a fair value of GBP3.6m which was measured using a
discounted cash flow model over the seven-year term of the
instrument and an effective interest rate of 15%. The difference to
the consideration received represented the element attributable to
the options, which was credited to equity. The Loan Notes were
subsequently measured at amortised cost whereby the difference
between the face value of the Loan Notes and their fair value on
initial recognition is recognised as an effective interest charge
over the term of the instrument.
On 21 October 2019, the Company and BGF agreed to modify the
exercise price of the share options and the options were
immediately exercised. The directors consider this to be in
consideration for the extinguishment of Loan Notes with a principal
amount of GBP1.5m and accrued interest of GBP0.1m. In accordance
with IAS 32, the carrying value of the Loan Notes that were
extinguished, GBP1.3m, has been derecognised and recorded in
equity; no gain or loss has been recognised in the Consolidated
Income Statement.
On the same date, the remaining loan notes with a principal
amount of GBP3.5m were acquired by a MXC Guernsey Limited, a
subsidiary of MXC Capital (UK) Limited. The terms of the loan notes
were revised by increasing the coupon to 12% per annum compound,
rolled up and payable at maturity, and extending the term to
October 2024. When measured using the loan notes' original
effective interest rate, the present value of the cash flows of the
revised instrument were not significantly different to that of the
instrument prior to the modification. As a result, the Loan Notes
were not treated as a new instrument and continue to be measured at
amortised cost.
10. Placing
On 2 September 2021, the Company raised GBP2.1 million before
expenses through a conditional Placing arranged by Allenby Capital
of 210,990,000 new Ordinary Shares at a price of 1 penny per share
to fund growth by acquisition and provide additional working
capital to fund the subsequent integration. The Placing was carried
out at an approximate 13 per cent. discount to the Company's
closing price of 1.15p per share on Monday 16 August 2021. Costs
relating to the Placing were GBP171,000 and were expensed in the
income statement during the year.
11. Acquisition of Systems Assurance Limited
On 6 September 2021, the Group acquired the entire issued share
capital of Systems Assurance Limited and its wholly owned
subsidiary More Computers Limited, for GBP1.72 million, including
the return of GBP731,000 of excess cash-assets to the vendors to
acquire the business on a cash-free debt-free basis. The remaining
GBP991,000 was settled as GBP836,000 on completion with the
remaining GBP155,000 being paid in November 2021, following
agreement of the Completion Statement.
The acquisition of Systems Assurance Limited and More Computers
Limited increased FY21 Trading EBITDA(1) performance in the year by
GBP30,000, having only been acquired on 3 September 2021. It is not
practical to measure the impact on the full FY21 trading results,
given a number of material differences in the cost and remuneration
structure of the businesses pre-acquisition. The Group has assessed
the combined fair value of the acquisition of Systems Assurance
Limited and More Computers Limited as follows:
Book Fair Value
Cost Adjustment Fair Value
GBP'000 GBP'000 GBP'000
--------------------------------------------------------------------- --------- --------------- -------------
Non-current assets
Intangible assets - brand - 470 470
Intangible assets - IT systems - 1 79 17 9
Intangible assets - customer lists - 141 1 41
Property, plant and equipment 1 3 4 35
Total non-current assets 1 824 825
--------------------------------------------------------------------- --------- --------------- -------------
Current assets
Inventories 31 - 31
Trade and other receivables 967 - 967
Cash at bank 1,004 - 1,004
--------------------------------------------------------------------- --------- --------------- -------------
Total current assets 2,002 - 2,002
--------------------------------------------------------------------- --------- --------------- -------------
Total assets 2,003 824 2,827
--------------------------------------------------------------------- --------- --------------- -------------
Current liabilities
Lease liability - ( 28) ( 28)
Trade and other payables (1,049) - (1,049)
Other taxes and social security costs (52) - (52)
Deferred Income and accruals (8) - (8)
--------------------------------------------------------------------- --------- --------------- -------------
(1,109) (28) (1,137)
Non-current liabilities
Borrowings (50) - (50)
Lease liability - (6) (6)
Deferred tax liability - (165) (165)
--------------------------------------------------------------------- --------- --------------- -------------
Total liabilities (1,159) ( 199) (1,358)
--------------------------------------------------------------------- --------- --------------- -------------
Net Assets 844 625 1,469
--------------------------------------------------------------------- --------- --------------- -------------
Consideration in cash - cash-free debt-free payment paid to vendors 731
Consideration in cash - initial consideration 836
Consideration in cash - deferred consideration 155
Fair value of cost of acquisition 1,722
--------------------------------------------------------------------- --------- --------------- -------------
Goodwill 253
===================================================================== ========= =============== =============
Cash used to acquire the business net of cash acquired: GBP'000
------------------------------------------------------------------ --------
Cash at bank 1,004
Less cash-free debt-free payment paid to vendors (731)
---------------------------------------------------------------------- --------
Net cash acquired 273
Acquisition date fair value of initial consideration transferred (836)
---------------------------------------------------------------------- --------
Net cash used (563)
---------------------------------------------------------------------- --------
Costs associated with the acquisition were GBP202,000 and were
expensed during the year and are included in the statement of
profit or loss and in operating cash flows in the statement of cash
flows. The fair value of trade receivables is GBP968,000, with
gross contractual amounts for trade receivables due of GBP983,000
of which GBP15,000 is not expected to be collected.
12. Post Balance Sheet events
On 19 October 2021, the Company acquired IDE Group Connect
Limited ("Connect") and Nimoveri Limited ("Nimoveri") (together,
the "Acquisitions") from IDE Group Holdings PLC ("IDE") for a
deferred consideration of GBP250,000.
The Acquisitions provided the Group with circa 660 additional
clients and a significant opportunity to upsell and cross sell
services across the Group. The Acquisitions were acquired from IDE
on a normalised net cash basis for a consideration of GBP250,000,
funded via a loan note from IDE for GBP250,000 to be repaid over
five years with an annual interest rate of Bank of England base
rate +3% with no payments due in the first six months. The book
value of net assets acquired under the transaction equate to
GBP250,000, including a cash balance of GBP400,000.
IDE agreed to provide the Group with a working capital facility
of up to GBP500,000 on request, should it be required to help fund
the initial restructure of the Connect business. Amounts drawn
would be convertible into new ordinary shares in the Group at 1
pence per share, if not repaid in full by 19 October 2022. As at 6
March 2022, none of the working capital facility has been drawn
down.
The consideration terms reflected the financial state of the
Connect business at the date of the acquisition, the limited-scope
warranties offered by IDE and the small number of unprofitable
contracts contained within the business. The Group's management
team have implemented a number of steps to help improve the
profitability of the Connect business.
The acquisition of IDE Group Connect and Nimoveri was a related
party transaction pursuant to rule 13 of the AIM Rules for
Companies, due to MXC Guernsey Limited owning 10.6%. of the
Company's issued share capital and 34.8% of IDE's issued share
capital.
The Directors of the Company (save for Jill Collighan who was
not deemed independent for this purpose) having consulted with the
Company's Nominated Adviser, agreed that the terms of the
transaction were fair and reasonable insofar as the Company's
shareholders were concerned.
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END
FR BKABPKBKBPNK
(END) Dow Jones Newswires
March 07, 2022 02:00 ET (07:00 GMT)
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