TIDMIDE
RNS Number : 0534G
IDE Group Holdings PLC
22 July 2021
IDE Group Holdings Plc
("IDE", the "Group" or the "Company")
Audited Results for the Year Ended 31 December 2020
IDE, the mid-market network, cloud and IT Managed Services
provider, announces its audited results for the year ended 31
December 2020.
The Annual Report and Accounts for the year ended 31 December
2020 will shortly be available on the Company's website at
www.idegroup.com.
Copies of the Annual Report and Accounts are being posted to
shareholders shortly.
Business summary
-- While revenues declined in 2020 to GBP24.1 million from
GBP28.2 million in 2019, gross margins have increased to 24.0%
(2019: 22.8%) reflecting continued strong performance of our Manage
business more than offsetting continued margin pressure in our
Connect business. Adjusted EBITDA** declined to GBP0.5 million from
GBP1.1 million in 2019. Losses on ordinary activities before
taxation amount to GBP21.6 million (2019: GBP10.9 million).
-- While 2020 saw reductions in both revenues and Adjusted
EBITDA, the Group results reflect the consolidated position across
two core businesses which operate in very distinct sectors. Our
Connect business operates in the very congested market for
networking and connectivity and experiences continued pressures on
both revenues and margins. Our Manage business on the other hand
operates very successfully within the managed services arena and
has demonstrated continued revenue and margin growth with strong
momentum.
-- We have made an excellent start to 2021 within our Manage
business, demonstrating significant growth in revenues and
profitability. These results are based on developing long-term
relationships with third-party system integrators and supply
contracts typically with 3-5 year terms. Therefore, as we
experience further growth we are generating a strong annuity income
stream. With a pipeline of prospects within our Manage operations
we can look forward to continued strong financial performance. Our
Connect business is returning modest profits before the allocation
of overheads.
-- Given that the Group results reflect the very different
levels of performance across two distinct business sectors we have
commenced a full review of our operations. This review is focussed
on growing momentum within our managed services business while we
decide how best to return value to our shareholders in the
networking and connectivity arena, which may or may not include the
divestment of the Connect business. This review is ongoing and is a
priority for the Board and management team.
-- We have made key leadership appointments in 2020 and 2021 and
have an experienced senior management team in place. The Group
remains debt-free other than to key shareholders.
We have built a strong base to support a period of sustained
growth and we are exploring organic and acquisitive methods to
accelerate this development.
** Adjusted EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, impairment charges, exceptional items,
loss on disposal of fixed assets and share-based payments
IDE Group Holdings Plc Tel: +44 (0)344
Andy Parker, Non-Executive Chairman 874 1000
David Templeman, CFO
finnCap Limited Tel: +44 (0)20 7220
Nominated Adviser and Broker 0500
Corporate finance: Jonny Franklin-Adams/
Abby Kelly
ECM: Tim Redfern/ Richard Chambers
Chairman's Statement
2020 was an important year in the ongoing rationalisation of our
trading businesses and we have continued the good work from 2019 in
positioning the Group for a period of sustained growth which is now
bearing fruit in 2021.
One key activity that we continued to focus on in 2020 and into
the current year is the delineation between the core
service-offerings across our Manage and Connect businesses. Our
Manage business encompasses service lines broadly covering field
and site engineering, projects and lifecycle, network monitoring
and service desk support. Our Connect business services are broadly
networking and connectivity, cloud and hosting, and
voice/telephony.
During 2020 we continued to realign customer relationships more
clearly associating them with the respective Manage or Connect
offerings and allowing us to focus sales and marketing activity
within the management team, and to allow a clear understanding of
the shared overheads across the two businesses. This process has
allowed us to target our sales activity and to improve management
focus.
Manage
We appointed a new Managing Director of the Connect business in
June 2020 (see also below) allowing our existing senior team to
focus on developing our successful Manage business, with strong
relationships being built with key customers. This has greatly
benefitted the group's performance as we win significant long-term
contracts in our Manage business, giving us excellent visibility of
income in that business and strong performance moving into 2021.
Our relationship with third-party system integrators has continued
to develop on the excellent grounding already put in place, and we
have seen further growth in opportunities both in service provision
and project work through this channel particularly into the public
sector. We are delivering IT services into a growing number of
government departments and blue-chip institutional clients.
Securing and developing our partnership channels has proven to
be a successful model with new customer wins in both the public and
private sectors. We can look forward with great confidence to
continued success in this area.
2020 saw revenues fall to GBP11.5 million (2019: GBP14.7
million). This was largely due to some cyclical variability in our
supplies to system integrators (at somewhat less than GBP1m) and
the novation of contracts to our Connect business. The division has
seen strong improvement in gross profit margins to 39% (2019: 31%
and 2018: 21%) and a continued reduction in overheads. The sum of
these moved adjusted EBITDA to a profit in 2020 of GBP2.1 million
(2019: profit of GBP1.1 million).
This significant improvement in financial performance, shows
that this division is successfully being right-sized, further
consolidation of field engineering is underway, and that continued
profitable growth will be achieved in 2021.
Connect
In June we brought a new Managing Director on-board to develop
and grow our Connect business, together with a small managed
services business called Nimoveri Limited which we acquired as part
of that onboarding. We began a comprehensive review of the Connect
business in 2019 after declines in revenue and complexities in its
operations and in 2020 we have continued a rationalisation
programme, concentrating our sales efforts and building a
management team around him to drive the business forward. We have
continued to concentrate our network and datacentre offerings
wherever possible and have built stronger relationships with our
customers. As I reported in my last Statement, this is a
significant project which will take time to conclude, but we are
confident that it is providing the foundations for growth of our
datacentre, cloud and connectivity business.
Revenues in Connect were down year-on-year at GBP13.1 million
(2019: GBP14.6 million) despite the novation of contracts from
Manage valued at GBP1.7m, and we were disappointed to lose more
cloud customers. The net result was a deterioration in gross
margins to 8.5% (2019: 13%). There has been an increase in
overheads level to GBP5.9 million from GBP4.5 million. The
resulting adjusted EBITDA deteriorated to a loss of GBP0.8 million
(2019: profit GBP0.7 million).
Our objectives in 2021 are to further reduce costs through
datacentre and network consolidation and leverage these savings
into more competitive pricing to generate new, and extend existing,
business opportunities.
Given the prospects for the Connect business we have again
reviewed the carrying value of goodwill, trademarks and customer
relationships, contracts and other assets relating to that part of
our business which results in an impairment charge of GBP14.0m in
2020 (2019: GBP3.0m). These impairment charges now mean that we are
only carrying a small amount of goodwill resulting from the
acquisition of Nimoveri of GBP0.2m. Our detailed forecasts for the
Connect business demonstrate modest profitability at trading EBITDA
(that is before the allocation of group central overheads) and thus
allow us to concentrate on the continued progression of the
business without the burden of carried intangible assets.
COVID-19
The unprecedented circumstances surrounding the COVID-19
pandemic continue to provide an uncertain economic landscape and
increased risk aversion in financial markets. Whilst it is
difficult to predict accurately the potential long-term
consequences, we remain vigilant and, in common with all
businesses, are closely monitoring the situation. The wellbeing of
staff and the customers with whom they interact continues to be our
overriding priority. We have instituted measures to ensure that our
people can work safely and, in most cases, remotely, ensuring the
continuity of the business. To date there has been no material
effect on the business of the new working practices dictated by a
much-changed business and social landscape. As we at last begin to
enter into a post-pandemic business landscape we are confident that
we have developed robust business practices to provide a solid
grounding for sustained growth across our business.
Results
Revenue fell by 14.5% across the Group to GBP24.1 million for
the full year (2019: GBP28.2 million), but significantly we have
seen gross profit margin growth to 24%, (2019: 23%). Resulting
gross profit has fallen year-on-year to 5.8 million (2019: GBP6.4
million).
The significant work undertaken to reduce the Group costs
underpins the improvement in gross margins, but with reduced
revenues and an increase in overheads (excluding non-underlying
costs, impairment, amortisation and depreciation) by some 5% to
GBP5.5 million (2019: GBP5.3 million) has resulted in Adjusted
EBITDA falling to GBP0.5 million (2019: profit of GBP1.1 million).
We received GBP0.38 million under the Covid Job Retention
Scheme.
The net loss for the year from continuing operations is GBP18.5
million (2019: loss GBP8.5 million), after a GBP17.2 million
amortisation and impairment charge (2019: GBP6.3 million against
goodwill and acquired intangible assets).
The Group continues to improve its cash generation and has
maintained strong working capital management.
People
The management team has made continued progress in simplifying
the structure of the business and aligning services better to
support our clients.
The board would like to recognise and thank its employees who
have worked hard to deliver excellent client service and retain
existing key clients.
Strategy
Having been greatly encouraged by the opportunities identified
in the partnership channel and lifecycle businesses, and strong
direct customers the Board has outlined a strategy to provide
better alignment between our operating businesses, customer needs
and driving competitive advantage as we widen the client base to
which we offer the full portfolio of our services.
Additionally, changes to our internal operating model will
assure consistent quality in our relationship and account
management whilst maintaining our strength in financial
management.
Our aim is to drive further operating margin improvement and
deliver consistent growth in earnings in the medium and
long-term.
Financing and dividend
Given the losses from continuing operations the Board is not
proposing to declare a dividend at this time but will keep this
policy under review.
Current trading and outlook
Trading in the current financial year remains buoyant in our key
Manage business with current financial performance significantly
ahead of our 2020 results and reflecting the excellent business
relationships that we have developed with third-party system
integrators. We have also consolidated that business within our
existing premises in Dartford in April 2021 from which we can
deliver first-class business logistics and support to our field and
site engineering, projects and lifecycle, network monitoring and
service desk support functions. Our Connect business continues to
demonstrate the benefits of the rationalisation programme we
commenced in previous years and we can now expect that business at
trading EBITDA level to show modest growth in what is a very
congested business sector.
Overall, despite the operating losses in our overall group in
2020, in the current year we are now seeing the real benefits of
focussing our business strategy on profitable partnership channels
and consolidating our group offering across the Manage and Connect
operations and we can look to the future with confidence and expect
to generate positive operating cashflow for the first time in
several years.
We will now undertake a full strategic review of the ongoing
operations of the Group with the following objectives:
-- Consider how best to capitalise on the excellent progress we
are experiencing in our Manage business with a view to build on
that progress and consolidate our position within the sector,
strengthening further our relationships with partner channels, to
build this business organically and to assess market opportunities
for acquisitive growth.
-- Review our position in the networking and connectivity, cloud
and hosting, and voice/telephony sectors serviced by our Connect
business. Operational changes have given some promise of a slow
recovery in this congested arena, and we will now decide how best
that business can contribute to the future success of our combined
Group
Andy Parker
Non-Executive Chairman
21 July 2021
Financial Review
The Group reported total revenues for the year to 31 December
2020 of GBP24.1 million, down from GBP28.2 million in 2019 and
gross profit of GBP5.8 million (2019: GBP6.4 million). This shows
an improvement year-on-year from 22.8% in 2019 to 24.0% in 2020
which is encouraging and reflects strong gross margin growth in the
Manage business more than offsetting a deterioration in the Connect
business.
The Group uses Adjusted EBITDA which is a non-GAAP measure of
performance as it believes this more accurately reflects the
underlying performance of the business. This is one of the key
operational performance measures monitored by the Board. Adjusted
EBITDA is defined as earnings before interest, tax, depreciation,
amortisation, impairment charges, exceptional items, loss on
disposal of fixed assets and share-based payments.
The adjusted EBITDA for the year to 31 December 2020 was a
profit of GBP0.5 million (2019: profit of GBP1.1 million).
A detailed review of the business is set out in the Chairman's
Statement and this Financial Review. Included in these reviews are
comments on the key performance indicators that are used by the
Board on a monthly basis to monitor and assess the performance of
the business. These indicators include the level of revenue, gross
profit and Adjusted EBITDA together with net debt.
Manage
There was a decrease in revenues to GBP11.5 million (2019:
GBP14.7 million).
For the year we have seen an improvement in gross profit margins
to 39% (2019: 31%), as a result of the services mix and operational
efficiencies, and a reduction in overheads to GBP5.1 million (2019:
GBP7.1 million), which is the result of reduced headcount, costs
moving to Connect alongside novated contracts in 2019, and
continued stringent cost saving initiatives.
Adjusted EBITDA attributable to Manage has moved to GBP2.1
million (2019: profit of GBP1.1 million).
Connect
Revenues in Connect fell to GBP13.1 million (2019: GBP14.6
million). This reflects additional revenues from Manage contracts
novated offset by further customer losses. Gross margins fell to
8.5% (2019:13%). Overheads increased to GBP6.0 million (2019:
GBP4.5 million), and an impairment charge against assets of GBP14.0
million (2019: GBP3 million) was incurred following an annual
impairment review.
Adjusted EBITDA attributable to Connect has declined to a loss
of GBP0.8 million (2019: profit GBP0.7 million).
Exceptional items
Non-underlying items, relating to restructuring and
reorganisation amount to GBP0.5 million in the year (2019: GBP0.6
million).
Finance costs
After incurring net finance costs of GBP1.8 million relating to
interest and arrangement fees for loan notes, leases and bank debt
(2019: GBP1.8 million), the loss before tax is GBP21.6 million
(2019: loss of GBP10.9 million)
Taxation
The utilisation of tax losses and a deferred tax credit arising
on the amortisation and impairment of intangible assets, together
with impairment of PPE of GBP0.6 million has resulted in a tax
credit for the year of GBP3.1 million (2018: GBP2.4 million)
The Group therefore reported a loss after tax from continuing
operations of GBP18.5 million (2019: loss of GBP8.5 million), which
equates to a basic loss per share of 4.61 pence (2019: loss per
share of 2.12 pence).
Statement of Financial Position
Non-current assets
The Group has property, plant and equipment of GBP1.2 million
(2019: GBP9.7 million) all of which are subject to depreciation as
per the policies set out in the accompanying financial statements.
During the year there were additions of GBP0.1m including assets
acquired on acquisition (2019: GBP3.1 million additions, GBP2.9
million of this is in relation to the IFRS16 transition). Assets
amounting to GBP5.6 million were written down as part of the
impairment review of the Connect business.
We invested in operating system licences at the year end in an
amount of GBP2.25 million. These licences will assist with our
client operations and are payable in three tranches at the end of
2021, 2022 and 2023 respectively. The licences are capitalised as
intangible assets at the present value of the payments, which are
included within trade payables at the year end.
Further, intangible assets of goodwill, trademarks, capitalised
technology and customer contracts are GBP11.4 million (2019:
GBP21.1 million) and are subject to amortisation as per the
policies set out in the accompanying financial statements. There
was an impairment charge of GBP8.5m against goodwill and customer
relationships in 2020 relating to the recoverability against future
cashflows from IDE Group Connect (2019: GBP3 million). Details are
shown in note 14.
Trade and other receivables
Trade and other receivables have fallen, reflecting revenue
reductions in comparison to the previous year at GBP5.4 million
(2019: GBP7.6 million) including trade receivables of GBP4.1
million (2019: GBP5.4 million) after a credit loss provision of
GBP0.5 million (2019 GBP0.6 million). Whilst the overall reduction
in trade receivables can be attributed to the fall in year-on-year
revenues, there have been reductions resulting from improved
customer payments and an improvement in the aged profile resulting
in lower credit loss provisions.
Trade and other payables
Trade and other payables amounted to GBP10.1 million (2019:
GBP7.6 million), including trade payables of GBP7.2 million (2019:
GBP5.6 million) taxation and social security of GBP1.5 million
(2019: GBP0.2 million) and accruals of GBP1.2 million (2019: GBP1.3
million).
The increase in taxation and social security has arisen largely
from deferral of liabilities provided as part of Government Covid
support.
Contract liabilities arise from customers being invoiced in
advance of services delivered, in accordance with individual
contractual terms, at the balance sheet date this amounted to
GBP1.4 million (2019: GBP1.9 million), the decrease reflects the
reduction in overall revenues as well as the mix of customers'
contractual obligations for payment.
Cashflow and net debt
Net cash generated from operating activities during the year was
GBP2.1 million (2019 GBP0.04m), reflecting positive underlying
performance and careful management of working capital. Cashflow
suffered due to customer losses in our Connect business, but our
Manage business continues to do very well and has developed
excellent relationships with key strategic partners. The Group
invested GBP0.1 million (2019: GBP0.2 million) in fixed assets and
invested GBP0.1 million in the acquisition of Nimoveri. There were
no new borrowings (2019: GBP6.7 million net), but repayment of
lease liabilities consumed GBP1.9 million (2019: GBP2.6 million) of
cash. The net result is that as at 31 December 2020 there were no
bank borrowings or overdraft debt and the cash balance was GBP0.7
million (2019: GBP0.7 million).
Dividend
The Directors do not propose a dividend in respect of the
current financial year (2019: GBPnil).
Update and outlook for 2021
Set out within the Chairman's Statement are details of the
current trading performance of our two trading businesses. Trading
in the first 7 months of 2021 has been particularly strong in our
Manage business, including very positive further contract wins from
Atos IT Services UK Limited, while our Connect business continues
to suffer in the congested networking and connectivity sector. We
are carrying out a review of our operations and the Board is
confident of the Group's future prospects.
Going concern
The Directors have produced detailed trading forecasts and
cashflows which have been discussed with the Group's major
shareholder who is represented on the Board. In reaching their
conclusion on the going concern assumption, the Directors note and
rely on the letter of support provided by MXC Capital Limited, in
which they confirm they will continue to provide such financial
support needed for continued operations for a period not less than
one year from the date of approval of these financial statements.
The Directors, having made the necessary inquiries, have satisfied
themselves of MXC Capital's ability to provide such finance if
necessary. The directors therefore have an expectation that the
Group has adequate resources available to it to continue in
operational existence for the foreseeable future. Accordingly, the
Group continues to adopt the going concern basis in preparing its
consolidated financial statements.
Strategic Report
Review of the Business
A detailed review of the business is set out in the Chairman's
Statement and the Financial Review. The year under review was
another challenging one for the business with overall revenues
declining year-on-year, however gross margin improved and adjusted
EBITDA* remained positive. Future developments and current trading
and prospects are set out in the Chairman's Statement and the
Financial Review. These reports together with the Corporate
Governance Statement are incorporated into this Strategic Report by
reference and should be read as part of this report. The Group's
strategy is focused on maximising value for stakeholders by
increasing revenues and profits by upselling to our current
customer base as well as by bringing new customers on board.
At 31 December 2020, the Board comprised 3 Directors (2019:3)
all of which were male. At 31 December 2020 the Group had 221
employees including Directors (2019: 262) of which 173 were male
(2019:202) and 48 were females (2019:60).
* Adjusted EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, impairment charges, exceptional items,
loss on disposal of fixed assets and share-based payments.
Principal Risks and Uncertainties
Identifying, evaluating and managing the principal risks and
uncertainties facing the Group is an integral part of the way the
Group does business. There are policies and procedures in place
throughout the operations, embedded within our management structure
and as part of our normal operating processes.
The Board reviews the principal risks on a bi-annual basis. The
impact, measures in place and tactics to mitigate risks are
assessed on a regular basis. The risk categories, set out below,
have been identified by the Board as those currently considered to
potentially have the most material impact on the Group's future
performance. In addition to these risks, note 25 contains details
of financial risks.
COVID-19
The COVID-19 pandemic has caused ongoing significant disruption
to the UK economy and the financial impact to the Group continues
to be difficult to quantify. During the lock-down periods the Group
has seen some reduction in user support desk activities, which were
mitigated by furloughing staff through the Job Retention Scheme.
However, data centre and connectivity business have remained at
expected levels, and we continue to see a significant increase in
lifecycle services as certain customers ramped up deployment of
equipment to facilitate their own staff working remotely,
We believe that demand for centralised managed services, cloud,
user support desk, mobile working & collaboration, and
over-arching business continuity solutions will provide good
opportunities during the current situation. The Board continues to
monitor the situation and act to mitigate any financial impact
which may arise.
Market and Economic Conditions
Market and economic conditions are recognised as one of the
principal risks in the current trading environment. Risk is
mitigated by the monitoring of trading conditions and changes in
government legislation, the development of action plans to address
specific legislative changes and the constant search for ways to
achieve new efficiencies in the business without impacting service
levels.
Exit of UK from European Union
The UK left the European Union on 31 January 2020. As the Group
operations are very-much UK-centric, the Group has not had to make
significant changes or incur significant disruption following
Brexit.
Reliance on Key Personnel and Management
The success of the Group is dependent on the services of key
management and operating personnel. The Directors believe that the
Group's future success will be largely dependent on its ability to
retain and attract highly skilled and qualified personnel and to
train and manage its employee base. During the year, the
restructuring programme continued which resulted in more members of
staff being made redundant and other members of staff moving into
new roles. For those who remain there are several employee benefits
and active communication is encouraged within the business to
mitigate the risk of losing skilled and qualified individuals.
Furthermore, there is an apprenticeship scheme which the Group
believes will assist in training and retaining younger individuals
going forward.
Competition
The Group operates in a highly competitive marketplace and while
the Directors believe the Group enjoys certain strengths and
advantages in competing for business, some competitors are much
larger with considerable scale. The Group monitors competitors'
activity and constantly reviews its own services and prices to
ensure a competitive position in the market is maintained.
Technology
The market for our services is in a state of constant innovation
and change. We devote significant resource to the development of
new service lines, ensuring new technologies can be incorporated
and integrated with the Group's core services. The nature of the
Group's services means that they are exposed to a range of
technological risk, such as viruses, hacking and an ever-changing
spectrum of security risk. We maintain constant pro-active
vigilance against such risks and the Group maintains membership of
some of the highest levels of security accreditation as part of the
service it offers its customers.
Infrastructure Failure
The Directors believe that one of the key differentiators the
Group offers is that its services are provided over its own
controlled and managed infrastructure, such as its own networks and
data centre. Whilst this provides customers with comfort over the
resilience and reliability, the Group is also exposed to risks of
infrastructure failure. A critical element of the Group's operating
methodologies and procedures is to mitigate such risks through the
careful construction, maintenance and management of its
infrastructure. All networks and the data centre have fully
resilient fail-over procedures with regular testing of back-up and
recovery plans.
s.172 Companies Act 2006: Statement of Directors' Duties to
Stakeholders
The Board is mindful of the duties of Directors under S.172 of
the Companies Act 2006. The Directors act in a way they consider,
in good faith, to be most likely to promote the success of the
Company for the benefit of its members. In doing so, they each have
regard to a range of matters when making decisions for the
long-term success of the Company.
The Directors are committed to developing and maintaining a
governance framework that is appropriate to the business and
supports effective decision making coupled with robust oversight of
risks and internal controls.
The main methods used by the Board to perform their duties and
ensure decisions are made with section 172 factors in mind are:
-- Monthly board meetings
-- Board papers that address stakeholder requirements, for
example financial overview, strategic decisions, investor
relations, rolling agenda points and consistent minute taking
-- Consideration of risks facing the business.
Examples of decisions made by the board during the year include
the Group's continuing response to Covid-19, the acquisition of
Nimoveri, restructuring programmes, and customer servicing, and
these decisions involved consideration of all our stakeholders.
Standards of business conduct
The Board's policy is to behave responsibly, ethically and
fairly at all times towards shareholders and other external
stakeholders, in line with our Company values, and to ensure that
our management teams operate the business in a responsible and fair
manner and to the highest standards of business conduct and good
governance.
The impact our business decisions will have on our stakeholders
is central to our strategic thinking as well as our statutory duty
under section 172 of the Companies Act 2006.
We have set out below our key groups of stakeholders.
Investors and shareholders
We place considerable importance on the maintenance of regular
and open dialogue with our investors and shareholders. Our goal is
to deliver returns to them through a return to profitable and
sustainable development with efficient use of capital.
Engagement with Employees
In the face of the COVID-19 pandemic, we took early measures to
protect employees and successfully executed a transition to remote
working across all of its operations. Following careful engagement
with employees, the team co-operated fully and adapted their way of
working to provide uninterrupted service and support to customers
throughout this challenging period.
During the period, the Company faced many challenges including a
programme of cost rationalisation as a result of a downturn in
certain service lines in part due to the COVID-19 pandemic.
Employees were supported throughout this process and management
focused on internal performance management and development to
ensure employees have clear objectives and an understanding of
their contribution to our overall business success and goals.
We strive to create a diverse and inclusive working environment
where every employee feels welcome and can do their best work. We
believe in the benefits of diversity and the importance of bringing
a wide range of skills, experience and perspectives into our
business. The Directors continually work with senior management to
promote our values and to monitor attitudes and behaviours to
ensure that they are consistent with our culture.
Engagement with suppliers, customers and others in a business
relationship with the Company:
Suppliers
As a business dependent on suppliers and partners to deliver
services for all of our stakeholders, we strive to manage these
relationships as closely as possible to ensure they meet our
standards. The Company is committed to ensuring the highest
standards and quality across our operations and require both our
suppliers and partners to operate to the same high standards.
Customers
Our goal is to deliver best-in-class service for all of our
customers and to provide seamless service acting as the outsourced
provider of services to our customers and their staff. The
provision of high-quality service to customers throughout the
COVID-19 pandemic remains a priority for the Group and IDE's
employees were able to provide uninterrupted service and support to
customers.
Society and Environment
We believe our technology and products will benefit and advance
society as a whole.
The Group acknowledges its responsibilities for environmental
matters and where practicable adopts environmentally sound policies
in its working practices, such as recycling paper and packaging
waste and using specialist recyclers of scrap telecommunications
and IT equipment. A major consideration when replacing company
vehicles is their impact on the environment.
We make use of in-house collaboration tools to reduce the need
for travel to meetings and operates flexible working practices
where possible, reducing the environmental impact of commuting.
Positive experience of an increase in these activities during the
COVID-19 pandemic suggests these will continue at a higher level
after the end of the pandemic.
Strategy
The market for network, cloud and IT managed services in the
United Kingdom is highly fragmented and is served by a broad
spectrum of businesses from global telecommunication companies
through hardware and software providers, system integrators and a
range of independent managed service providers of varying sizes
through to companies providing individual elements of the IT
managed services spectrum. The market is growing, driven by the
continued move towards off-premise solutions and mobile access to
secure services.
The Group positions itself in the market as being able to
combine the benefits of its network and data centre with a flexible
and technically skilled workforce able to deliver and support
critical services and solutions in a highly secure environment. The
Group seeks to differentiate itself in three distinct ways:
-- Innovation - innovation in the design and delivery of services;
-- Reliability - the right technical skills organised in the
right way, to give predictable high quality results; and
-- Value - service offerings that are designed to offer value
for money to mid-market customers.
Through these differentiators, the Group aims to attract new
customers and to deepen and broaden the relationship with existing
customers. The Board's strategy for growth comprises:
-- Ongoing investment in expanding and enhancing our own
infrastructure so that we can provide our customers with the very
highest level of security and service;
-- Maximise revenue from our wide ranging customer base through
high levels of service and a varied product and service set;
and
-- Efficient use of our scale and resources to explore and
invest in new technologies so that our customers can benefit from
the high levels of innovation across the whole industry.
We will also consider acquisition opportunities within the
sector which would offer synergies and complementary or additive
products and services. Our acquisition criteria are strict and mean
that we would only consider buying a business whose operating model
is similar to our own, would increase earnings, have high recurring
revenues and would not over-leverage the Group.
Despite the continued challenges we met in 2020, the Board
believes that the Group's position between the very large system
integrators and network operators and the smaller competitors that
may lack delivery structure, reputation, reliability and financial
strength remains a very compelling one.
We have strong and reliable infrastructure and have developed a
delivery model that provides assurance and certainty for customers.
This underlying platform is the core strength of the Group and we
will continue to consider augmenting underlying organic growth in
the Manage business in 2021 with acquisitions to leverage this
platform, should there be a compelling strategic and financial
case.
On behalf of the Board
Ian Smith
Executive Director
21 July 2021
24 Dublin Street
Edinburgh EH1 3PP
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2020
Year ended Year ended
31 December 31 December
Note 2020 2019
GBP000 GBP000
Continuing operations
Revenue 3 24,061 28,161
Cost of sales 5 (18,294) (21,742)
__________ __________
Gross profit 5,767 6,419
__________ __________
Other operating income 4 383 -
Administrative expenses 2
excluding &
impairment 5 (11,835) (12,450)
Impairment loss on
trade
receivables 5 (142) (30)
Impairment charge on
goodwill
and intangibles 14 (8,473) (3,000)
Impairment charge on
property,
plant and equipment 13 (5,481) -
__________ __________
Total administrative
expenses (25,548) (15,480)
Adjusted EBITDA* 533 1,143
Exceptional items 7 (479) (588)
Depreciation 13 (2,616) (3,241)
Amortisation 14 (3,233) (3,289)
Impairment charge on
goodwill
and intangibles 14 (8,473) (3,000)
Impairment charge on
property,
plant and equipment 13 (5,481) -
Charges for share-based
payments 27 (32) (86)
------------------------ ------- --------------------------------------- --------------------------------------
Operating loss (19,781) (9,061)
Finance costs 9 (1,799) (1,827)
__________ __________
Loss on ordinary
activities
before taxation (21,580) (10,888)
Income tax 11 3,103 2,411
__________ __________
Loss for the year from
continuing
operations (18,477) (8,477)
Discontinued
operations
Loss after tax for the
year
from discontinued
operations 8 - (179)
__________ __________
Loss for the year and
total
comprehensive income
attributable
to owners of the
parent company (18,477) (8,656)
From continuing
operations
Basic and diluted loss
per
share 12 (4.61)p (2.12)p
From discontinued
operations
Basic and diluted loss
per
share 12 - (0.04)p
_________ _________
Total basic and diluted
loss
per share 12 (4.61)p (2.16)p
_________ _________
* Adjusted EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, impairment charge, exceptional items,
loss on disposal of fixed assets and share-based payments
The notes are an integral part of these financial
statements.
Statements of Financial Position
As at 31 December 2020
Note Group Company
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
Non-current assets
Property, plant and equipment 13 1,208 9,706 - -
Intangible assets 14 11,429 21,106 - -
Investments 15 - - 7,877 7,877
Deferred tax asset 11 3,439 1,821 - -
Trade and other receivables 16 100 - 16,137 18,940
16,176 32,633 24,014 26,817
Current assets
Trade and other receivables 16 5,444 7,621 140 29
Cash and cash equivalents 17 693 679 7 103
6,137 8,300 147 132
Total assets 22,313 40,933 24,161 26,949
Current liabilities
Trade and other payables 18 8,487 7,562 1,830 2,075
Contract liabilities 19 1,370 1,926 - -
Borrowings 21 531 1,766 - -
Provisions 20 221 192 50 50
10,609 11,446 1,880 2,125
Non-current liabilities
Trade and other payables 18 1,584 - - -
Contract liabilities 19 15 6 - -
Borrowings 21 14,847 14,333 13,988 12,474
Convertible loan notes 22 1,983 1,803 1,983 1,803
Provisions 20 91 230 - -
Deferred tax liabilities 11 1,786 3,272 - -
20,306 19,644 15,971 14,277
Total liabilities 30,915 31,090 17,851 16,402
Net (liabilities)/assets (8,602) 9,843 6,310 10,547
Equity attributable to
equity holders of the parent
Share capital 26 10,020 10,020 10,020 10,020
Share premium 35,439 35,439 35,439 35,439
Equity reserve 967 967 967 967
Retained earnings (54,878) (36,433) (40,116) (35,879)
Foreign currency translation
reserve (150) (150) - -
Total equity (8,602) 9,843 6,310 10,547
The notes are an integral part of these financial statements.
The Company made a loss of GBP4.3 million in the year ended 31
December 2020 (2019: GBP21.7 million) and in accordance with s408
of the Companies Act 2006 has not presented a company statement of
comprehensive income. These financial statements were approved by
the Board of Directors on 21 July 2020 and were signed on its
behalf by:
Ian Smith
Executive Director Company registered number: SC368538
Statements of Changes in Equity
for the year ended 31 December 2020
Group Share Share Equity Retained Foreign currency Total
Capital (a) Premium (b) reserve (c) Earnings (d) translation reserve (e) equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January 2019 10,020 35,439 967 (27,863 ) (150) 18,413
Loss for the financial
year and total
comprehensive expense - - - (8,656) - (8,656)
Transactions with owners
recorded
directly in equity:
Share based payments - - - 86 - 86
Balance at 31 December
2019 10,020 35,439 967 (36,433) (150) 9,843
Loss for the financial
year and total
comprehensive expense - - - (18,477) - (18,477)
Transactions with owners
recorded
directly in equity:
Share based payments - - - 32 - 32
Balance at 31 December
2020 10,020 35,439 967 (54,878) (150) (8,602)
(a) Share capital represents the nominal value of equity shares
(b) Share premium represents the excess over nominal value of
the fair value of consideration received for equity shares net of
expenses of the share issue;
(c) The equity reserve consists of the equity component of
convertible loan notes that were issued as part of the fundraising
in August 2018 less the equity component of instruments converted
or settled.
The fair value of the equity component of convertible loan notes
issued is the residual value after deduction of the fair value of
the debt component of the instrument from the face value of the
loan note.
(d) Retained earnings represents retained profits and accumulated losses
(e) On consolidation, the balance sheets of the Group's foreign
subsidiaries are translated into sterling at the rates of exchange
ruling at the balance sheet date. Exchange gains or losses arising
from the consolidation of these foreign subsidiaries are recognised
in the foreign currency translation reserve.
Company Share Share Equity Retained Total
Capital (a) Premium (b) reserve (c) Earnings (d) equity
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January 2019 10,020 35,439 967 (14,269) 32,157
Total comprehensive loss for the year
Loss for the year - - - (21,696) (21,696)
Transactions with owners recorded directly in
equity:
Share based payments - - - 86 86
Balance at 31 December 2019 10,020 35,439 967 (35,879) 10,547
Total comprehensive loss for the year
Loss for the year - - - (4,269) (4,269)
Transactions with owners recorded
directly in equity:
Share based payments - - 32 32
Balance at 31 December 2020 10,020 35,439 967 (40,116) 6,310
(a) Share capital represents the nominal value of equity shares
(b) Share premium represents the excess over nominal value of
the fair value of consideration received for equity shares net of
expenses of the share issue;
(c) The equity reserve consists of the equity component of
convertible loan notes that were issued as part of the fundraising
in August 2018 less the equity component of instruments converted
or settled.
The fair value of the equity component of convertible loan notes
issued is the residual value after deduction of the fair value of
the debt component of the instrument from the face value of the
loan note.
(d) Retained earnings represents retained profits and accumulated losses
Statements of Cash Flows
for the year ended 31 December 2020
Group
Note 2020 2019
GBP000 GBP000
Cash flows from operating activities
Loss before tax for the year:
Continuing operations (21,580) (10,888)
Discontinued operations - (216)
Total loss before tax (21,580) (11,104)
Adjustments for:
Depreciation 13 2,616 3,241
Amortisation 14 3,233 3,289
Impairment charge on goodwill and intangibles 14 8,473 3,000
Impairment charge on property, plant and
equipment 13 5,481 -
Net finance expenses 9 1,799 1,827
Share based payments 27 32 86
54 339
Decrease in trade and other receivables 2,175 1,271
Increase/(Decrease) in trade and other
payables and contract liabilities* (4) (1,355)
(Decrease)/increase in provisions (111) (208)
Net cash generated from operating activities 2,114 47
Cash flows from investing activities
Acquisition of property, plant and equipment (82) (177)
Acquisition of Nimoveri, net of cash acquired 8 (72) -
Acquisition of other intangible assets* - -
Net cash used in investing activities (154) (177)
Cash flows from financing activities
Interest paid (98) (451)
New loans and borrowings, net of expenses - 11,520
Repayment of loans and borrowings - (4,750)
Repayment of lease liabilities 22 (1,848) (2,605)
Net cash (absorbed by)/generated from
financing activities (1,946) 3,714
Net increase in cash and cash equivalents 14 3,584
Cash and cash equivalents at 1 January 679 (2,905)
Cash and cash equivalents at 31 December 693 679
Cash and cash equivalents comprise
Cash at bank 17 693 679
693 679
* A balance of GBP1.8m has not been included in the additions of
intangible assets as the invoice was outstanding at year end. This
has been deducted from the movement in trade and other
payables.
Company
Note 2020 2019
GBP000 GBP000
Cash flows from operating activities
Loss before tax for the year (4,268) (21,696)
Adjustments for:
Net financial expenses 1,697 1,418
Impairment of intercompany loans 1,769 19,408
Share based payments 32 86
(770) (784)
(Increase)/decrease in trade and other
receivables 28 (17)
Increase/(decrease) in trade and other
payables (388) 424
Net cash used in operating activities (1,130) (377)
Cash flows from investing activities
Amounts (advanced to)/repaid by subsidiaries 1,034 (11,734)
Net cash generated from investing activities 1,034 (11,734)
Cash flows from financing activities
Interest paid - (44)
New loans and borrowings, net of expenses - 11,520
Repayment of loans and borrowings - (4,750)
Net cash generated from financing activities - 6,726
Net decrease in cash and cash equivalents (96) (5,385)
Cash and cash equivalents at 1 January 103 5,488
Cash and cash equivalents at 31 December 17 7 103
Notes to the Consolidated Financial Statements
1. Accounting policies
IDE Group Holdings plc ("IDE Group") is a company incorporated
in Scotland, domiciled in the United Kingdom and limited by shares
which are publicly traded on AIM, the market of that name operated
by the London Stock Exchange. The registered office is 24 Dublin
Street, Edinburgh EH1 3PP and the principal place of business is in
the United Kingdom.
The principal activity of the Group is the provision of network,
cloud and IT managed services.
The principal accounting policies, which have been applied
consistently in the preparation of these consolidated and parent
company financial statements throughout the year and all by
subsidiary companies are set out below.
1.1 Basis of preparation
The above audited financial information does not constitute
statutory financial statements as defined in section 434 of the
Companies Act 2006. The above figures for the year ended 31
December 2020 have been extracted from the Group's financial
statements which have been reported on by the Group's auditors and
received an audit opinion which was unqualified and did not include
any reference to matters to which the auditors drew attention by
way of emphasis without qualifying their report or a statement
under section 498(2) or section 498(3) of the Companies Act 2006.
The Group's statutory financial statements for the year ended 31
December 2019 have been lodged with the Registrar of Companies.
These financial statements received an audit report which was
unqualified and did not include any reference to matters to which
the auditors drew attention by way of emphasis without qualifying
their report or a statement under section 498(2) or section 498(3)
of the Companies Act 2006. The financial statements for the year
ended 31 December 2020 will be dispatched to the shareholders and
filed with the Registrar of Companies. The preliminary announcement
was approved by the Board and authorised for issue on 21 July
2021.
Going concern
The Directors have produced detailed trading forecasts and
cashflows which have been discussed with the Group's major
shareholder who is represented on the Board. In reaching their
conclusion on the going concern assumption, the directors note and
rely on the letter of support provided by MXC Capital Limited, in
which they confirm to continue to provide such financial support
needed for continued operations for a period not less than one year
from the date of approval of these financial statements. The
Directors having made the necessary inquiries, have satisfied
themselves of MXC Capital's ability to provide such finance if
necessary. The Directors therefore have an expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. The group is now also investigating the
possibility of alternative working capital funding sources which if
available will further support working capital as our client
activity increases. Accordingly, the Group continues to adopt the
going concern basis in preparing its consolidated financial
statements.
1.2 Basis of consolidation
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control
ceases.
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the total of the fair values of the assets
transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or
liability resulting from a contingent consideration arrangement.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. The Group
recognises any non-controlling interest in the acquiree on an
acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest's proportionate share of the recognised
amounts of the acquiree's identifiable net assets.
Acquisition related costs are expensed as incurred.
Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated on
consolidation. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with policies adopted
by the Group.
1.3 Investments
Investments in subsidiaries are held at cost less accumulated
impairment losses. A formal assessment of the recoverability of the
investment values is undertaken on an annual basis by the
Directors. Where indicators of impairment identified, fixed asset
investments are impaired accordingly.
1.4 Intangible assets
Goodwill
Goodwill is initially measured as the excess of the aggregate of
the consideration transferred and the fair value of any
non-controlling interest over the fair value of the net
identifiable assets acquired and liabilities assumed. If this
consideration is lower than the fair value of the net assets of the
subsidiary acquired, the difference is recognised in the income
statement as a bargain purchase.
Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses.
For the purposes of impairment testing, goodwill acquired in a
business combination is allocated to a cash generating unit.
Goodwill impairment reviews are undertaken annually or more
frequently if events or changes in circumstances indicate a
potential impairment. Any impairment is recognised immediately as
an expense and is not subsequently reversed.
Other intangible assets arising from business combinations
Intangible assets that meet the criteria to be separately
recognised as part of a business combination are carried at cost
(which is equal to their fair value at the date of acquisition)
less accumulated amortisation and impairment losses. An intangible
asset acquired as part of a business combination is recognised
outside of goodwill if the asset is separable or arises from
contractual or other legal rights and its fair value can be
measured reliably. Intangible assets acquired in this manner
include trademarks and customer contracts. They are amortised over
their estimated useful lives on a straight-line basis as
follows:
-- Customer contracts and related relationships 5 - 13 years
-- Trademarks 5 years
-- Software and licensing 8 years
Impairment and amortisation charges are included within the
administrative expenses line in the income statement.
Technology development
Expenditure on internally developed technology is capitalised if
it can be demonstrated that:
- it is technically feasible to develop the technology for it to
be used or sold
- adequate resources are available to complete the
development
- there is an intention to complete and for the Group to use or
sell the technology
- use or sale of the asset will generate future economic
benefits, and
- expenditure on the project can be measured reliably.
Capitalised development costs are amortised over the periods the
Group expects to benefit from using or selling the assets
developed. The amortisation expense is included within the
administrative expenses line in the income statement. Development
expenditure not satisfying the above criteria and expenditure on
the research phase of internal projects are recognised in the
consolidated income statement as incurred.
1.5 Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and any impairment in value. The cost
includes the original price of the asset and the cost attributable
to bringing the asset to its current working condition for its
intended use.
Computer software includes software purchased from third party
vendors used in conjunction with related hardware, rather than on a
stand-alone basis, and is therefore treated as tangible.
Depreciation, down to residual value, is calculated on a
straight-line basis over the estimated useful life of the asset,
which is reviewed on an annual basis, as follows:
-- Leasehold property Over remaining lease term
-- Computer software 3 - 5 years
-- Network infrastructure 3 - 10 years
-- Equipment, fixtures and fittings 3 - 5 years
An item of property, plant and equipment is de-recognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the item) is
included in the income statement in the year the item is
de-recognised.
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a
lease. The right-of-use asset is measured at cost, which comprises
the initial amount of the lease liability, adjusted for, as
applicable, any lease payments made at or before the commencement
date net of any lease incentives received, any initial direct costs
incurred, and, except where included in the cost of inventories, an
estimate of costs expected to be incurred for dismantling and
removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis
over the unexpired period of the lease or the estimated useful life
of the asset, whichever is the shorter. Where the Group expects to
obtain ownership of the leased asset at the end of the lease term,
the depreciation is over its estimated useful life. Right-of use
assets are subject to impairment or adjusted for any remeasurement
of lease liabilities.
1.6 Impairment of assets
Goodwill is not subject to amortisation and is reviewed for
impairment annually or more frequently if events or changes in
circumstances indicate the carrying value may be impaired. As at
the acquisition date, any goodwill acquired is allocated to each of
the cash generating units expected to benefit from the business
combination's synergies. Impairment is determined by assessing the
recoverable amount of each cash generating unit to which the
goodwill relates. When the recoverable amount of the cash
generating unit is less than the carrying amount, including
goodwill, an impairment loss is recognised.
Other intangible assets and property, plant and equipment are
subject to amortisation and depreciation and are reviewed for
impairment whenever events or changes in circumstances indicate the
carrying values may not be recoverable. If any such indication
exists and where the carrying value exceeds the estimated
recoverable amount, the assets or cash generating units are written
down to their recoverable amount.
The recoverable amount of intangible assets and property, plant
and equipment is the greater of the fair value less costs to sell
and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present values using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. For an asset
that does not generate largely independent cash inflows, the
recoverable amount is determined by the cash generating unit to
which the asset belongs. Fair value less costs to sell is, where
known, based on actual sales price net of costs incurred in
completing the disposal. Non-financial assets, other than goodwill,
that were impaired in previous periods are reviewed annually to
assess whether the impairment is still relevant.
1.7 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction from proceeds.
1.8 Leases
A lease liability is recognised at the commencement date of a
lease. The lease liability is initially recognised at the present
value of the lease payments to be made over the term of the lease,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Lease payments comprise of fixed payments less any
lease incentives receivable, variable lease payments that depend on
an index or a rate, amounts expected to be paid under residual
value guarantees, exercise price of a purchase option when the
exercise of the option is reasonably certain to occur, and any
anticipated termination penalties. The variable lease payments that
do not depend on an index or a rate are expensed in the period in
which they are incurred.
Lease liabilities are measured at amortised cost using the
effective interest method. The carrying amounts are remeasured if
there is a change in the following: future lease payments arising
from a change in an index or a rate used; residual guarantee; lease
term; certainty of a purchase option and termination penalties.
When a lease liability is remeasured, an adjustment is made to the
corresponding right-of use asset, or to profit or loss if the
carrying amount of the right-of-use asset is fully written
down.
1.9 Provisions
Provisions are recognised when the Company has a present
obligation (legal or constructive) as a result of a past event
where it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation. If
the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a
risk-free rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the
liability.
1.10 Current and deferred income tax
Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities,
based on tax rates and laws that are enacted or substantively
enacted by the balance sheet date.
Deferred income tax is provided for on all temporary differences
at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting
purposes, with the following exceptions:
-- where the temporary difference arises from the initial
recognition of goodwill or an asset or liability in a transaction
that is not a business combination that at the time of the
transaction neither affects accounting nor taxable profit or
loss;
-- in respect of taxable temporary differences associated with
investments in subsidiaries, where the timing of the reversal of
the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable
future; and
-- deferred income tax assets are recognised only to the extent
that it is probable that taxable profits will be available against
which deductible temporary differences carried forward tax credits
or tax losses can be utilised.
1.11 Trade and other receivables
Trade receivables, which principally represent amounts due from
customers, are recognised at amortised cost as they meet the IFRS 9
classification test of being held to collect, and the cash flow
characteristics represent solely payments of principal and
interest.
The Group has applied the Simplified Approach applying a
provision matrix based on number of days past due to measure
lifetime expected credit losses and after taking into account
customers with different credit risk profiles and current and
forecast trading conditions.
Trade receivables are written-off when there is no reasonable
expectation of recovery, such as a debtor failing to engage in a
repayment plan with the company. The Group's trade and other
receivables are non-interest bearing.
1.12 Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at
bank and in hand and short-term deposits with an original maturity
of three months or less.
For the purposes of the consolidated cash flow statement, cash
and cash equivalents consist of cash and cash equivalents as
defined above, net of outstanding bank overdrafts.
1.13 Foreign currencies
The presentational currency of the Group is Pound Sterling (GBP)
and the Group conducts the majority of its business in Sterling.
Transactions in foreign currencies are initially recorded in the
presentational currency by applying the rate of exchange ruling at
the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the
presentational currency rate of exchange ruling at the balance
sheet date. All differences are taken to the income statement.
1.14 Accrual for employee benefits, including holiday pay
Provision is made for employee benefits, including holiday pay,
to the extent of the liability as if all employees of the Group had
left the business at its reporting date.
1.15 Financial assets and liabilities
The Group's financial assets and liabilities mainly comprise
cash, borrowings, trade and other receivables and trade and other
payables. These are accounted for in accordance with the relevant
accounting policy note.
Trade and other payables are not interest bearing and are stated
at their amortised cost.
1.16 Convertible loan notes
The component parts of convertible loans issued by the Company
are classified separately as financial liabilities and equity in
accordance with the substance of the contractual arrangements and
the definitions of a financial liability and an equity instrument.
At the date of issue, the fair value of the liability portion of
convertible loan notes is determined using a market interest rate
for a comparable loan note with no conversion option. This amount
is recorded as a liability on an amortised cost basis using the
effective interest method until the loan notes are redeemed or
converted either during or at the end of the term of the
convertible loan notes. The remainder of the carrying amount of the
loan notes is allocated to the conversion option and shown within
equity, and is not subsequently remeasured. When the conversion
option remains unexercised at the maturity date of the convertible
note, the balance recognised in equity will be transferred to
retained earnings. No gain or loss is recognised in the income
statement upon conversion or expiration of the conversion
options.
1.17 Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value
less directly attributable transaction costs. After initial
recognition, interest-bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest method.
Gains and losses arising on the repurchase, settlement or otherwise
cancellation of liabilities are recognised in the finance cost line
in the income statement.
1.18 Finance costs
Loans are carried at fair value on initial recognition, net of
unamortised issue costs of debt. These costs are amortised over the
loan term.
All other borrowing costs are recognised in the income statement
on an accruals basis, using the effective rate method.
1.19 Revenue
Revenue is measured at the fair value of the consideration
received or receivable for the sale of goods and services in the
ordinary course of the Group's activities. Revenue is shown net of
Valued Added Tax, returns, rebates and discounts and after the
elimination of sales within the Group.
The Group recognises revenue when the amount of revenue can be
reliably measured, it is probable that future economic benefits
will flow to the entity and when specific criteria have been met
for each of the Group's activities as described below.
Recurring revenue
The largest portion of the Group's revenues relates to a number
of network, cloud and IT managed services, which the Group offers
to its customers. All of the revenue in this category is contracted
and includes a full range of support, maintenance, subscription and
service agreements. Revenue for these types of services is
recognised as the services are provided on the basis that the
customer simultaneously receives and consumes the benefits provided
by the Group's performance of the services over the contract term.
In terms of performance obligations, the customer can benefit from
each service on its own and the Group's promise to transfer the
service to the customer is separately identifiable from other
promises in the contract. The transaction price for each service is
allocated to each performance obligation. The costs incurred for
these revenue streams typically match the revenue pattern. 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 has not been issued yet.
Project revenue
These project services include mainly installation and
consultancy services. Performance obligations are met once the
hours or days have been worked. Revenue is therefore recognised
over time based on the hours or days worked at the agreed price per
hour or day. The costs incurred for this revenue stream generally
match the revenue pattern, as a significant portion of consultancy
costs relate to staff costs, which are recognised as incurred.
Consultancy services are generally provided on a time and material
basis.
1.20 Government Grants
Grants from the government are recognised at their fair value
where there is a reasonable assurance that the grant will be
received and the Group will comply with all attached conditions.
Where applicable, government grants are offset against the
expenditure to which they relate.
1.21 Exceptional items
It is the policy of the Group to identify certain costs, which
are material either because of their size or nature, separately on
the face of the Income Statement in order that the underlying
profitability of the business can be clearly understood. These
costs are identified as Exceptional costs, and comprise;
a) Professional fees incurred in sourcing and completing
acquisitions and disposals including legal expenses
b) Professional fees incurred in restructuring and refinancing acquisitions
c) Integration costs which are incurred by the Group when
integrating one trading business into another, including rebranding
of acquired businesses
d) Redundancy costs, including employment related costs of staff
made redundant up to the date of their leaving as a consequence of
integration
e) Property costs such as lease termination penalties and vacant
property provisions and third-party advisor fees
1.22 Cost of Sales
Cost of sales include costs which are directly attributable to
the supply of goods and services, including salary costs of all
employees whose roles are directly related to the provision of
services.
1.23 Operating profit or loss
The operating profit or loss is identified in the income
statement and represents the profit or loss on continuing
activities before finance income, finance costs and taxation.
1.24 Alternative performance measure
The group uses an alternative measure in the Income Statement,
being Adjusted EBITDA, defined as earnings before interest, tax,
depreciation, amortisation, impairment charges, exceptional items,
loss on disposal of fixed assets and share-based payments.
1.25 Discontinued operations
Cash flows and operations that relate to a major component of
the business that has been disposed of, or is classified as held
for sale or distribution are shown separately from continuing
operations.
1.26 Segmental reporting
The Chief Operating Decision Maker has been identified as the
Executive Board. The Chief Operating Decision Maker reviews the
Group's internal reporting in order to assess performance and
allocate resources. For management reporting purposes and
operationally, the continuing operations of the Group consist of
three operating segments: IDE Group Manage, IDE Group Connect and
Nimoveri Limited which was acquired during the current year. IDE
Group Manage and Nimoveri Limited consists of IT Managed services
and IDE Group Connect consists of connectivity, cloud and
colocation services. The Board assess the performance of the
operating segments based on profitability and EBITDA. An analysis
of revenue and gross profit of both segments is described under
their respective headings in the financial review. Information
provided to the Executive Board is measured in a manner consistent
with that in the Financial Statements.
1.27 Application of new IFRSs and interpretations
a) New standards, interpretations and amendments effective from
1 January 2020
New standards adopted in the annual financial statements for the
year ended 31 December 2020 but which have not had a significant
effect on the Group are:
-- IAS 1 Presentation of Financial Statements and IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors
(Amendment - Definition of Material)
-- IFRS 3 Business Combinations (Amendment - Definition of Business)
-- Conceptual Framework for Financial Reporting (Revised)
-- COVID-19 Related Rent Concessions (Amendment to IFRS16)
b) New standards, interpretations and amendments not yet
effective
A number of standards, amendments to standards and
interpretations have been issued by the IASB and are effective in
future accounting periods which the Group has decided not to adopt
early. The following amendment is effective for the period
beginning 1 January 2021:
-- Interest Rate Benchmark Reform (Amendments to IFRS9, IAS 39, IFRS 7 and IFRS16
The following amendments are effective for the period beginning
1 January 2022:
-- Onerous Contract - Cost of fulfilling a Contract (Amendments to IAS 37)
-- Property, plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)
-- Annual Improvements to IFRS Standards 2018-2020 (Amendments
to IFRS1, IFRS 9, IFRS 16 and IAS 41)
-- References to Conceptual Framework (Amendments to IFRS 3)
The Group is assessing the impact of these new standards and
amendments but does not expect that they will have a material
impact on the Group
1.28 Critical accounting estimates and judgements
Estimates
The Group makes estimates and assumptions concerning the future,
which by definition will seldom result in actual results that match
the accounting estimate. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial year are
discussed below:
Estimated impairment of goodwill and intangibles - the Group
tests whether goodwill and any non-amortised intangible assets have
suffered any impairment, in accordance with the accounting policy
stated in 1.5 above. The Group also tests at the year end whether
other intangible assets which are amortised have suffered any
impairment. The value-in-use calculations contain a number of
significant estimates and assumptions including future sales,
margins and appropriate discount rates. See note 14 in the
financial statements for an analysis of goodwill and CGUs.
Estimation of probability of loss on recoverability of
intercompany loans - Where full recoverability of an intercompany
loan is not certain, an estimate is determined as to the
probability of recoverability. This considers the probability of
default, loss arising under any default, and the exposure upon any
default
Judgements
In the process of applying the Group's accounting policies,
management makes various judgements which can significantly affect
the amounts recognised in the financial statements. Critical
judgements are considered to be:
Classification of exceptional costs - the Directors have
exercised judgement when classifying certain costs arising during
integration and strategic reorganisation projects. The Directors
believe that these costs are all related to the types of costs
described in 1.20 above and are appropriately clarified.
Recoverability of deferred tax asset - the Directors have
exercised judgement on the recoverability of tax losses
attributable to future trading profits generated by the Group, and
in doing so this has given rise to a deferred tax asset details of
which are shown in note 11 to the financial statements.
2. Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting to the Chief Operating Decision Maker ("CODM").
The CODM has been identified as the Executive Board. The Executive
Board is responsible for resource allocation and assessing the
performance of the operating segments. The operating segments are
defined by distinctly separate product offerings or markets. The
CODM assesses the performance of the operating segments based on a
measure of revenue and gross profit. The CODM does not review the
segmental assets and liabilities on a disaggregated basis and
therefore this information has not been provided
The following table presents revenue and gross profit in respect
of the Group's continuing operating segments for the year ended 31
December 2020. Certain contract novations took place in 2020
between our Manage and Connect businesses with an annualised
contract value of GBP1.7m.
Year ended 31 December IDE Group IDE Nimoveri Central Total
2020 Manage Group Limited & inter-segment Continuing
Connect Operations
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ---------- --------- --------- ----------------- ------------
Revenue from contracts
with customers 11,527 13,062 269 (797) 24,061
Cost of Sales (7,014) (11,953) (124) 797 (18,294)
---------------------------- ---------- --------- --------- ----------------- ------------
Gross profit 4,513 1,109 145 - 5,767
---------------------------- ---------- --------- --------- ----------------- ------------
Other Income 286 82 15 - 383
---------------------------- ---------- --------- --------- ----------------- ------------
Administrative expenses (5,083) (5,962) (126) (806) (11,977)
Impairment charge - (13,954) - - (13,954)
Operating profit/(loss) (284) (18,725) 34 (806) (19,781)
---------------------------- ---------- --------- --------- ----------------- ------------
Analysed as:
Adjusted EBITDA 2,103 (836) 34 (768) 533
Exceptional costs (381) (92) - (6) (479)
Depreciation (837) (1,779) - - (2,616)
Amortisation of intangible
assets (1,169) (2,064) - - (3,233)
Impairment charge - (13,954) - - (13,954)
Share based payments - - - (32) (32)
---------------------------- ---------- --------- --------- ----------------- ------------
Financial costs (86) (16) - (1,697) (1,799)
---------------------------- ---------- --------- --------- ----------------- ------------
Profit/(loss) before
taxation (370) (18,741) 34 (2,503) (21,580)
Tax on profit/(loss)
on ordinary activities 139 404 (4) 2,564 3,103
---------------------------- ---------- --------- --------- ----------------- ------------
Profit/(loss) for
the year after taxation (231) (18,337) 30 61 (18,477)
---------------------------- ---------- --------- --------- ----------------- ------------
Nimoveri has been presented separately in the above table as it
is a hybrid business which does not fit easily into either of the
other two segments, and in order to provide details of the results
since acquisition.
Year ended 31 IDE Group IDE Group Central & Total Discontinued Total
December 2019 Manage Connect inter-segment Continuing Operations
Operations
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------
Revenue from
contracts with
customers 14,660 14,603 (1,102) 28,161 (216) 27,945
Cost of Sales (10,128) (12,716) 1,102 (21,742) - (21,742)
----------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------
Gross profit 4,532 1,887 - 6,419 (216) 6,203
----------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------
Administrative
expenses (7,069) (4,525) (886) (12,480) - (12,480)
Impairment
charge - (3,000) - (3,000) - (3,000)
Operating
profit/(loss) (2,537) (5,638) (886) (9,061) (216) (9,277)
----------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------
Analysed as:
Adjusted EBITDA 1,113 749 (719) 1,143 (216) 927
Exceptional
costs (355) (152) (81) (588) - (588)
Depreciation (1,469) (1,772) - (3,241) - (3,241)
Amortisation of
intangible
assets (1,826) (1,463) - (3,289) - (3,289)
Impairment
charge - (3,000) - (3,000) - (3,000)
Share based
payments - - (86) (86) - (86)
----------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------
Financial costs (369) (38) (1,420) (1,827) - (1,827)
----------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------
Profit/(loss)
before taxation (2,906) (5,676) (2,306) (10,888) (216) (11,104)
Tax on
profit/(loss)
on ordinary
activities 1,130 277 1,004 2,411 37 2,448
----------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------
Profit/(loss)
for the year
after taxation (1,776) (5,399) (1,302) (8,477) (179) (8,656)
----------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------
The Group had one customer who accounted for 29% of revenue from
continuing operations during the year (2019: 27%). This revenue is
attributed fully to the IDE Group Manage segment.
3. Revenue
2020 2019
GBP000 GBP000
Revenue from contracts with customers
Sale of goods 959 925
Rendering of services 23,102 27,236
Total 24,061 28,161
Disaggregation of revenue
The disaggregation of revenue from contracts with customers is
as follows:
Year ended 31 December 2020 Managed Cloud Networks Projects Total
Services Hosting
GBP000 GBP000 GBP000 GBP000 GBP000
Geographical regions
United Kingdom 10,151 5,333 3,774 3,546 22,804
Europe 59 472 332 29 892
Rest of world 11 227 127 - 365
Total 10,221 6,032 4,233 3,575 24,061
Timing of revenue recognition
Goods transferred at a point in time 915 - - 44 959
Services transferred over time 9,306 6,032 4,233 3,531 23,102
Total 10,221 6,032 4,233 3,575 24,061
Year ended 31 December 2019 Managed Cloud Networks Projects Total
Services Hosting
GBP000 GBP000 GBP000 GBP000 GBP000
Geographical regions
United Kingdom 10,998 7,222 4,709 3,968 26,897
Europe 162 421 358 43 984
Rest of world - 104 176 - 280
Total 11,160 7,747 5,243 4,011 28,161
Timing of revenue recognition
Goods transferred at a point in time 925 - - - 925
Services transferred over time 10,235 7,747 5,243 4,011 27,236
Total 11,160 7,747 5,243 4,011 28,161
Contract balances
2020 2019
GBP000 GBP000
Receivables included within trade and other receivables 4,598 6,006
Contract assets 178 590
------- -------
4,776 6,596
Contract liabilities (1,385) (1,932)
Total 3,391 4,664
Contract assets predominantly relate to fulfilled obligations in
respect of projects and managed services which are billed monthly
and in arrears. At the point where completed work is invoiced, the
contract asset is derecognised and a corresponding receivable
recognised.
Contract liabilities relate to consideration received from
customers in advance of work being completed.
The change in contract assets and liabilities is a result of a
reduction in revenue in the year ended 31 December 2020. In the
year, contract liabilities of GBP1,926k were recognised in
revenue.
The Group's standard payment terms are 30 days from the date of
invoice. Refunds are only due in the exceptional circumstances
where the Group does not meet the performance obligations set out
in a contract. The majority of revenue for services is invoiced
monthly, sometimes quarterly, in advance, and goods are invoiced on
delivery.
Unsatisfied performance obligations
All contracts for the provision of services are for periods of
one year or less or are billed based on resources utilised. As
permitted under IFRS 15, the transaction price allocated to these
unsatisfied contracts is not disclosed.
4 Other operating income
Other operating income comprises government grants
receivable.
5 Expenses by nature
2020 2019
GBP000 GBP000
Continuing operations
Direct staff costs 6,549 7,326
Third party cost of sales 11,745 14,416
Employee costs within administrative
expenses 3,024 2,734
Amortisation of intangible
assets 3,233 3,289
Depreciation 2,616 3,241
Impairment charge 13,954 3,000
Impairment loss on trade
receivables 142 30
Share-based payments 32 86
Other restructuring costs 34 261
Other administrative costs 2,896 2,839
Total cost of sales and
administrative expenses 44,225 37,222
6 Auditor's remuneration
2020 2019
GBP000 GBP000
Audit of these financial statements 41 24
Amounts receivable by auditors and
their associates in respect of:
Audit of financial statements of subsidiaries
of the Company 85 78
Additional fees charged in respect
of prior year's audit 30 31
Total 156 133
7 Exceptional costs
In accordance with the Group's policy in respect of exceptional
items, the following charges were incurred for the year in relation
to continuing operations:
2020 2019
GBP000 GBP000
Restructuring and reorganisation
costs 479 466
Other exceptional costs - 122
479 588
Restructuring and reorganisation costs in the year ended 31
December 2020 and the year ended 31 December 2019 relate to costs
incurred on the restructure of the Group, predominantly redundancy
costs, of which GBP445k are staff related as disclosed in note 10
(2019: GBP327k).
Other exceptional costs in the year ended 31 December 2019
relate mainly to costs associated with a break in at the Dartford
facility.
8 Acquisition and discontinued operations
On 1 June 2020, the Group completed the acquisition of 100% of
the issued share capital of Nimoveri Holdings Limited and its
subsidiary, a small cloud and IT services business, for a total
consideration of GBP200,000; GBP100,000 paid in cash on completion
and the issue of GBP100,000 0% loan notes by IDE Group Limited, a
Group company (the "Nimoveri Loan Notes"). The Nimoveri Loan Notes
are secured over the assets of Nimoveri Holdings Limited and
redeemable on 31 December 2021.
The following table summarises the consideration and the fair
value of the assets acquired:
Consideration GBP'000
Cash 100
Loan notes 100
--------
200
--------
Fair value of recognised amounts of identifiable
assets acquired and liabilities assumed
Cash 28
Property, plant and equipment 6
Trade and other receivables 96
Trade and other payables (131)
Deferred tax asset 5
Total identifiable net assets 4
--------
Goodwill 196
--------
Total 200
--------
Acquisition related costs of GBP1k have been charged to
administrative expenses in the Consolidated Income Statement.
There was no credit loss provision in respect of trade and other
receivables.
The revenue included in the Consolidated Income Statement since
1 June 2020 contributed by Nimoveri was GBP269k, and profit before
tax of GBP29k.
If Nimoveri had been consolidated from 1 January 2020 the
Consolidated Statement of Income would show pro-forma revenue of
GBP24.3m and profit before tax of GBP21.6m.
Discontinued operations
On 12 October 2018, the Company sold the entire issued share
capital of 365 ITMS Limited and its subsidiaries to PTCA Newco
Limited., Further losses of GBP0.2m were identified in 2019 on
contracts novated as part of the disposal.
9 Finance costs
Continuing Operations 2020 2019
GBP000 GBP000
Interest payable on bank
loans and overdrafts - 29
Interest expense on lease
liabilities 98 422
Amortisation of loan arrangement
fees 134 138
Interest expense in respect
of convertible loan notes 180 149
Interest expense in respect
of loan notes 1,383 1,089
Other interest 4 -
1,799 1,827
10 Employee benefits expense
Staff costs for the year, including Directors, relating to
continuing operations amounted to:
2020 2019
GBP000 GBP000
Wages and salaries 7,700 8,293
Social security costs 779 841
Other pension costs 649 599
Restructuring costs 445 327
9,573 10,060
At 31 December 2020, the Group employed 237 staff, including
Directors (2019: 262).
The average monthly number of persons employed by the Group
during the year, including Directors, analysed by category, and
relating to continuing operations, was as follows:
Number of employees
2020 2019
Operations 181 200
Sales and Marketing 17 17
Administration 44 48
Directors 3 3
Total average monthly headcount 245 268
The Company employed an average of 4 employees during 2020
(2019: 3).
For Directors who held office during the year, emoluments for
the year ended 31 December 2020 were as follows:
Salary/fees Salary/fees
2020 total 2019 total
GBP GBP
Executive
Ian Smith(1) 202,315 50,000
Andy Parker 80,833 150,000
Non-Executive
Max Royde(2) - 26,048
Sebastian White(2) 30,000 3,952
Total 313,148 230,000
------------ ------------
1. Directors' emoluments to Ian Smith were paid to MXC Advisory
Limited, a subsidiary of MXC Capital Limited
2. Directors' emoluments to Max Royde and Sebastian White were
paid to Kestrel Partners LLP
Social security costs in respect of Directors' emoluments were
GBP10k (2019: GBP19.5k). Pension contributions were made to a
defined contribution scheme for previous Directors. No current
director participates in any Company pension scheme.
None of the Directors made any gains on the exercise of share
options in 2020 or 2019.
11 Taxation
(a) Tax on loss on ordinary activities 2020 2019
GBP000 GBP000
Current tax
Current year - -
Adjustments for prior years - -
Current tax - -
Deferred tax credit (3,103) (2,448)
Total tax credit (3,103) (2,448)
Relating to:
Continuing operations (3,103) (2,411)
Discontinued operations - (37)
(3,103) (2,448)
Following the year end, the Finance Act 2021 increased the main
corporation tax rate from 19% to 25% with effect from 1 April 2023.
Given the extent of the deferred tax asset recognised in respect of
tax losses, it is expected that there will be a material effect to
the deferred tax assets and liabilities as stated from the increase
in the corporation tax rate from 2023.
Reconciliation of the total income tax credit: 2020 2019
GBP000 GBP000
Loss before taxation on continuing operations (21,580) (10,888)
Tax using the United Kingdom corporation tax
rate of 19% (2019: 19%) (4,100) (2,069)
Non-deductible expenses 4 165
Amortisation and impairment of goodwill and
intangibles 915 587
Tax losses utilised (93) -
Prior year adjustment deferred tax - (1,233)
Adjustment for rate change 171 139
Discontinued operations - (37)
Total tax credit (3,103) (2,448)
(b) Deferred tax (asset)/liability
GBP000
GBP000 GBP000
(Asset) Liability Net (asset)/
liability
At 1 January 2019 (1,240) 5,139 3,899
Credit to income statement (1,131) (1,317) (2,448)
At 1 January 2020 (2,371) 3,822 1,451
Business Combinations - (1) (1)
Credit to income statement
Timing differences in respect of intangible
assets - (2,036) (2,036)
Timing differences in respect of tangible
assets (40) - (40)
Recognition of losses (1,026) - (1,026)
Short term timing differences (1) - (1)
(1,067) (2,036) (3,103)
At 31 December 2020 (3,439) 1,786 (1,653)
Deferred tax liabilities arose in respect of the amortisation of
intangible assets recognised on acquisitions made and the
difference between capital allowances and depreciation, details as
follows:
2020 2019
GBP000 GBP000
Fixed asset timing differences 1,786 3,272
At 31 December 1,786 3,272
Deferred tax assets arose in respect of trade losses and fixed
asset differences, details as follows:
2020 2019
GBP000 GBP000
Tax losses recognised 2,832 1,806
Other temporary differences 17 15
Depreciation in advance
of capital allowances 590 -
At 31 December 3,439 1,821
Deferred tax assets are recognised for tax losses carried
forward of GBP14.9 million (2019: GBP10.7 million) to the extent
that the realisation of the related tax benefit through future
taxable profits is probable. In assessing recoverability,
management considers that the appropriate period over which profits
can be assessed with a reasonable degree of certainty, and
therefore used to offset the losses, is the period to 31 December
2029.
The evidence supporting the recognition of the deferred tax
asset for losses is the partial use of losses in the year.
T he Group had unrecognised trading losses carried forward at 31
December 2020 of GBP18.0 million (2019: GBP18.5 million).
Company: The Company has no deferred tax assets or deferred tax
liabilities as at 31 December 2020 or 31 December 2019.
12 Earnings per share
Basic earnings per share has been calculated using the loss
after tax for the year for continuing operations of GBP18.5 million
(2019: GBP8.5 million), a loss after tax for the year for
discontinued operations of GBPnil (2019: GBP0.2 million) and a
weighted average number of ordinary shares of 400,802,032 (2019:
400,802,032). 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, details of
which are given in note 27, would have the effect of reducing the
loss per ordinary share and therefore would be anti-dilutive under
the terms of IAS 33.
Continuing operations
2020 2019
Statutory basic and diluted loss per share ( 4.61
(pence) )p (2.12)p
Discontinued operations
Statutory basic and diluted loss per share
(pence) - (0.04)p
_________ _________
Total basic and diluted loss per share (4.61)p (2.16)p
_________ _________
13 Property, plant and equipment
Group
Equipment,
Leasehold Network fixtures
property infrastructure and fittings Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 January 2019 117 14,441 3,284 17,842
Additions 10 57 110 177
Right of use assets recognised
on transition to IFRS16 2,542 85 307 2,934
At 31 December 2019 2,669 14,637 3,701 20,953
Additions - 54 28 82
Acquisition (note 8) - - 6 6
Lease modification (488) - - (488)
Disposals - - (9) (9)
At 31 December 2020 2,181 14,637 3,726 20,544
Accumulated depreciation
At 1 January 2019 96 5,225 2,685 8,006
Charge for the year -
continuing 521 2,071 649 3,241
At 31 December 2019 617 7,296 3,334 11,247
Charge for the year -
continuing 527 1,781 308 2,616
Disposal - - (8) (8)
Impairment - 5,481 - 5,481
At 31 December 2020 1,144 14,558 3,634 19,336_______
_______ _______ _______
Net carrying amount
31 December 2020 1,037 79 92 1,208
31 December 2019 2,052 7,189 367 9,706
_______ _______ _______ _______
The impairment charge for the year arises from the impairment
review carried out in the year in respect of the Connect segment.
Details are included in note 14. Due to the forecast continuing
losses it has been determined that the Connect CGU has no value in
use and therefore full provision has been made against the carrying
value of the infrastructure assets attributable to the Connect
CGU.
Right of use assets
The carrying amounts of property, plant and equipment include
right of use assets as detailed below:
Equipment,
Network fixtures
Leasehold infrastructure and fittings Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 January 2019
Right of use assets recognised on transition - - - -
to IFRS16 2,542 85 307 2,934
At 31 December 2019 2,542 85 307 2,934
Lease modification (488) - - (488)
At 31 December 2020 2,054 85 307 2,446
Accumulated depreciation
At 1 January 2019 - - - -
Charge for the year 505 73 178 756
At 31 December 2019 505 73 178 756
Charge for the year - continuing 512 12 83 607
At 31 December 2020 1,017 85 261 1,363
_______ _______ _______ _______
Net carrying amount
31 December 2020 1,037 - 46 1,083
31 December 2019 2,037 12 129 2,178
_______ _______ _______ _______
Additions to the right-of-use assets during the year were nil
(2019: GBP2m)
The depreciation charge for the year of GBP2.6million (2019:
GBP3.2 million) relates to continuing operations and has been
charged to administrative expenses.
Company
The Company has no property, plant and equipment at 31 December
2020 and at 31 December 2019.
14 Intangible assets
Group
Customer
contracts and
related Technology Software and
Goodwill Trademarks relationships development Licensing Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost:
At 1 January 2019 32,256 1,707 29,076 935 - 63,974
Additions - - - - - -
At 31 December 2019 32,256 1,707 29,076 935 - 63,974
Additions - - - - 1,833 1,833
Acquisition (see note 8) 196 - - - - 196
At 31 December 2020 32,452 1,707 29,076 935 1,833 66,003
_______ _______ _______ _______ _______ _______
Impairment and amortisation:
At 1 January 2019 26,325 981 8,447 826 - 36,579
Amortisation for the year - continuing operations - 341 2,865 83 - 3,289
Impairment charge - continuing operations 3,000 - - - 3,000
At 31 December 2019 29,325 1,322 11,312 909 - 42,868
Amortisation for the year - continuing operations - 342 2,865 26 - 3,233
Impairment charge - continuing operations 2,931 43 5,499 - - 8,473
At 31 December 2020 32,256 1,707 19,676 935 - 54,574
_______ _______ _______ _______ _______ _______
Net carrying amount:
31 December 2020 196 - 9,400 - 1,833 11,429
___ __ _ __ ___ __ ___ __ ____
31 December 2019 2,931 385 17,764 26 - 21,106
_______ ___ __ _______ ______ ______ ___ ___
The amortisation charge of GBP3.2 million relates to continuing
operations and is included in the loss for the year from continued
operations in the Income Statement within administrative
expenses.
The software and licensing asset is subject to continuing
development and is not fully in use. No amortisation has been
charged for the period.
The group has two major CGUs, Manage and Connect, as described
in note 2, plus Nimoveri which was acquired during the year.
Goodwill is allocated among the CGUs as follows:
Manage Connect Nimoveri Group
GBP'000s GBP'000s GBP'000s GBP'000s
Carrying value at 31 December
2019 - 2,931 - 2,931
Business combinations - - 196 196
Impairment charge in year - (2,931) - (2,931)
- - 196 196
_______ ______ ______ ______
An impairment review was carried out during the year for
Connect.
The key assumptions used in the impairment review were:
Base revenue forecast FY21 GBP12.6m
Revenue growth in forecast 5% for the five-year
period forecast period
Long term growth rate 2
Gross margin % 10.8%
Overheads - rate of increase
after year one 2%
The results of the impairment review showed the Connect CGU was
forecast to report losses after the allocation of overheads for the
duration of the forecast period. As a result, no discounted cash
flow assessment was required, and consequently the goodwill,
intangible assets and property, plant and equipment used in the
business were fully impaired. No impairment was recognised on other
assets, including trade and other receivables.
This resulted in an impairment charge of:
GBP'000s
Goodwill 2,931
Trademarks 43
Customer contracts 5,499
Property, plant and equipment 5,481
---------
Total impairment charge 13,954
=========
The carrying value of the customer contracts at 31 December 2020
of GBP9.4 million is entirely attributable to the Manage CGU. There
were no indications of any impairment in the Manage intangible
assets, given its strong trading results and positive EBITDA both
during the year and in the period post year end, which are forecast
to continue.
The remaining unamortised life of the intangible assets at 31
December 2020 is as follows:
-- IDE Group Manage customer contracts and related relationships
- 8 years, net carrying value GBP9.4 million
-- IDE Group Manage software - 8 years, net carrying value GBP1.8 million
Company
The company had no intangible assets at 1 January 2019, 31
December 2019 or 31 December 2020.
15 Investments
Company
2020 2019
GBP000 GBP000
At 1 January 2019, 31 December
2019 and 31 December 2020 7,877 7,877
The Company has the following investments in subsidiaries:
Country
of Class of Ownership
Incorporation shares 2020 2019
held
Held directly by IDE Group Holdings
plc
IDE Group Limited England(1) Ordinary 100% 100%
Connexions4London Limited Scotland(2) Ordinary 100% 100%
Selection Services Investments
Limited Scotland(2) Ordinary 100% 100%
Selection Services Limited England(1) Ordinary 100% 100%
Castle Digital Services Inc. USA(3) Ordinary 100% 100%
Cupid.com Inc. USA(3) Ordinary 100% 100%
Assistance Genie Logiciel France(4) Ordinary 100% 100%
Held indirectly by IDE Group Holdings
plc
IDE Group Financing Limited England(1) Ordinary 100% 100%
IDE Group Manage Limited England(1) Ordinary 100% 100%
IDE Group Protect Limited England(1) Ordinary 100% 100%
IDE Group Subholdings Limited England(1) Ordinary 100% 100%
IDE Group Connect Limited England(1) Ordinary 100% 100%
IDE Group Voice Limited England(1) Ordinary 100% 100%
Aggregated Telecom Limited England(1) Ordinary 100% 100%
Hooya Digital Limited Cyprus(5) Ordinary 100% 100%
Nimoveri Holdings Limited England(6) Ordinary 100% N/A
Nimoveri Limited England(7) Ordinary 100% N/A
Holdfast Systems Limited England(7) Ordinary 100% N/A
1 Registered office is located at Unit 2, Quadrant Court,
Crossways Business Park, Greenhithe, Dartford, England, DA9 9AY
2 Registered office is located at 24 Dublin Street, Edinburgh EH1 3PP
3 Registered office is located at 2711 Centerville Road, Suite
400, New Castle, Wilmington, Delaware 19808, U.S.A.
4 Registered office is located at 39 Rue Royale, 92201 Saint-Cloud, France
5 Registered office is located at Faneromenis 115, Antouanettas
Building, 6031 Larnaca, Cyprus
6 Registered office is located at 15 Rosemary Lane, Rowledge,
Farnham, United Kingdom, GU10 4DB
7 Registered office is located at Unit 9, The Granary, Waverley
Lane, Farnham, Surry, England, GU9 8BB
At 31 December 2020, the trading subsidiaries of the Company
were IDE Group Manage Limited, IDE Group Connect Limited and
Nimoveri Limited (31 December 2019: IDE Group Manage Limited and
IDE Group Connect Limited).
IDE Group Manage and Nimoveri Limited activity consists of IT
Managed services and IDE Group Connect consists of connectivity,
cloud and colocation services.
All of the remaining subsidiaries are non-trading.
Connexions4London Limited, Selection Services Investments
Limited, Aggregated Telecom Limited, Selection Services Limited,
IDE Group Subholdings Limited, IDE Group Voice, IDE Group Financing
Limited, IDE Group Protect Limited, IDE Group Limited, Nimoveri
Holdings Limited, Nimoveri Limited and Holdfast Systems Limited are
exempt from the requirements of the Companies Act relating to the
audit of individual accounts by virtue of Section 479A and the
parent company has guaranteed all their liabilities at the
reporting date.
16 Trade and other receivables
Group Company
Current 2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
Trade receivables 4,598 6,006 - -
Less provision for impairment
of trade receivables (519) (597) - -
Trade receivables - net 4,079 5,409 - -
Contract assets 178 590 - -
Prepayments and other receivables 1,187 1,596 1 3
Taxation and social security - 26 139 26
5,444 7,621 140 29
Group Company
Non-current 2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
Other receivables 100 - - -
Amounts due from subsidiary
undertakings - - 66,870 67,904
Provision against amounts
due from subsidiary undertakings - - (50,733) (48,964)
100 - 16,137 18,940
In accordance with IFRS 9, the Group reviews the amount of
credit loss associated with its trade receivables, and contract
assets.
Customer credit risk is managed according to strict credit
control policies. The majority of the Group's revenues are derived
from national or multi-national organisations with no prior history
of default with the Group. There is low incidence of default in the
top 50 customers. In respect of these customers credit risk is
deemed lower on customers that contribute higher revenue due to an
increased dependency on the group's services for business
continuity, and because they are larger more secure businesses.
The Group has applied the Simplified Approach applying a
provision matrix based on categorisation of the customer based on
total revenue received by the group per annum to measure lifetime
expected credit losses and after taking into account customers with
different credit risk profiles and current and forecast trading
conditions and the days past due. The historical loss rates will be
adjusted to reflect current and forward looking information on
macroeconomic factors affecting the ability of customers to settle
the receivables.
16 Trade and other receivables (continued)
At period end, customers were categorised into three categories
based on spend in the last 12 months:
1. Top 10
2. Top 50
3. Other
Impairment was calculated based on the category the customer
falls in to:
Category Impairment Rate Carrying amount Credit loss allowance
(net of VAT)
2020 2019 2020 2019 2020 2019
% % GBP000 GBP000 GBP000 GBP000
Top 10 0 0 2,629 3,468 - -
Top 50 2 2 209 751 4 13
Other 5 5 1,178 1,130 49 38
Specific 100 100 582 657 466 546
------- ------------------- ----------- -----------
4,598 6,006 519 597
------- ------------------- ----------- -----------
The group is exposed to credit concentration risk with its
largest customer comprising 37% (2019: 32%) of outstanding trade
receivables.
Specific provisions are also made based on known issues or
changes in the lifetime expected credit loss. As at 31 December
2020, trade receivables of GBP0.5 million (2019: GBP0.5 million)
were impaired and fully provided and were mainly in respect of
individually impaired historic balances over 12 months old, where
recovery activity is still in progress. The majority of the
impairment relates to specific customers in the 'Other' category,
and the credit risk on other customers is considered very low due
to the business-critical nature of the Company's services.
Movements on the Group provision for impairment of trade
receivables are as follows:
Group Company
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
At 1 January 597 725 - -
Increase in impairment provision 142 30 - -
Write offs (220) (158) - -
At 31 December 519 597 - -
The creation and release of a provision for impaired receivables
has been in the main included in "administrative expenses" in the
Income Statement, with an amount being set against contract assets,
GBP5k (2019: GBP6k). The other asset classes within the Group's
trade and other receivables do not contain impaired assets.
Amounts due from subsidiary undertakings
The Company has funded the trading activities of its principal
subsidiaries by way of inter-company loans. The amounts advanced do
not have any specific terms relating to their repayment, are
unsecured and are interest free. As all loans to subsidiaries are
to be treated as due on demand, they fall within the scope of IFRS
9.
In accordance with IFRS 9, the Company is required to make an
assessment of expected credit losses. Having considered the quantum
and probability of credit losses expected to arise, a provision of
GBP1.7million for the expected credit loss was recognised in the
reporting period in respect to trading subsidiaries.
The calculation of the allowance for lifetime expected credit
losses requires a significant degree of estimation and judgement,
in particular in determining the probability weighted likely
outcome for each scenario considered to determine the expected
credit loss in each scenario. Should the assumptions in the
business plan vary, this could have a significant impact on the
carrying value of the intercompany loans in following periods.
The recoverability is sensitive to the probability of the
achievement of future cash flows; however, given the trading
projections and the level of provisions, there is currently no
reasonably plausible scenario in which the provision would alter
materially. A breakdown of the balances is set out in note 29.
17 Cash and cash equivalents
Group Company
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
Cash and cash equivalents 693 679 7 103
The table below shows the balance with the major counterparty in
respect of cash and cash equivalents.
Group Company
2020 2019 2020 2019
Credit rating GBP000 GBP000 GBP000 GBP000
A 693 679 7 103
18 Trade and other payables
Group Company
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
Non Current
Trade payables 1,584 - - -
1.584 - - -
Current
Trade payables 5,603 5,624 518 752
Amounts due to subsidiary
undertakings - - 1,204 1,204
Other payables 220 408 42 42
Taxation and social security 1,491 225 - -
Accruals 1,173 1,305 66 77
8,487 7,562 1,830 2,075
Amounts due to subsidiary undertakings are unsecured, interest
free and are repayable on demand.
19 Contract liabilities
Group Company
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
Contract liabilities recognisable
within 12 months 1,370 1,926 - -
Contract liabilities recognisable
after 12 months 15 6 - -
Total contract liabilities 1,385 1,932 - -
Income is deferred to the Statement of Financial Position when
invoicing of revenue to customers occurs ahead of revenue
recognition in the Income Statement.
20 Provisions
Tax planning provision
The tax planning arrangements relate to two tax schemes entered
into by IDE Group Manage Limited on behalf of ex-Directors in a
previous accounting year prior to becoming part of the Group. The
liabilities for outstanding tax and national insurance were settled
with HMRC during 2017, the 2019 position covered potential further
costs which may have been incurred with the schemes. Confirmation
was received in 2020 that the scheme had been settled in full.
Property provision
The Group currently has some vacant office space. Provisions
have been recognised to cover the rent, business rates and service
charges for the period that the office space is expected to be
vacant. Provisions are calculated using the contracted rates of
rents and service charges on each individual lease arrangement.
Dilapidation provisions are built up over the associated lease
based on estimates of costs of work required to fulfil the Group's
contractual obligation under the lease agreements to return the
property to the same condition as at the commencement of the lease.
Part of this provision will be utilised in 2021, the remaining
provision is not expected to be utilised until 2026. The onerous
space provision is expected to be resolved in 2021.
Other provisions
Other provisions primarily relate to committed costs under
various onerous supplier contracts across hosting, connectivity,
hardware and software services, for example costs in relation to
empty racks within data centres which have to be paid for
regardless of whether populated or not and costs in relation to
excess software licences which are not used. The onerous provisions
are expected to be resolved in 2022.
Group Tax planning Property Other
provision provision provision Total
GBP000 GBP000 GBP000 GBP000
Balance at 1 January 2020 33 109 280 422
Increase in year - 31 - 31
Utilised (33) - (109) (142)
Balance at 31 December 2020 - 140 171 311
2020 2019
Non-current 91 230
Current 221 192
312 422
Company Other
Provision Total
GBP000 GBP000
Balance at 1 January
2020 50 50
Utilised - -
Balance at 31 December
2020 50 50
2020 2019
Non-current - -
Current 50 50
50 50
21 Borrowings
Group Company
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
Non-current
Lease liabilities 859 1,859 - -
Loan Notes 13,988 12,474 13,988 12,474
14,847 14,333 13,988 12,474
Group Company
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
Current
Loan Notes 100 - - -
Lease liabilities 431 1,766 - -
531 1,766 - -
The carrying value is not materially different to the fair value
of these liabilities.
In January 2019 the Company issued GBP5.3 million of secured
loan notes with a six-year term and a 12% coupon which is
compounded, rolled up and payable at the end of the term ("Loan
Notes"). In February and March 2019, a further GBP4.7 million in
total of secured Loan Notes were issued. The Loan Notes carry an
arrangement fee of 2.5 per cent., payable at the end of the term,
and an exit fee of 2.5 per cent., also payable at the end of the
term.
In December 2019 the Company issued an additional GBP1.5 million
of Loan Notes (with the same terms as those issued in the first
quarter of the year).
The Loan Notes are held at amortised cost using the effective
interest rate method. The effective interest rate for the Loan
Notes has been calculated to be 18%.
On 1 June 2020, the Group completed the acquisition of Nimoveri
Holdings Limited (see note 8), a small cloud and IT services
business, for a total consideration of GBP200,000; GBP100,000 paid
in cash on completion and the issue of GBP100,000 0% loan notes by
IDE Group Limited, a Group company (the "Nimoveri Loan Notes"). The
Nimoveri Loan Notes are secured over the assets of Nimoveri
Holdings Limited and redeemable on 31 December 2021.
Lease liabilities
The present value of lease liabilities is as follows:
Group Gross contractual
amounts
payable Carrying
2020 Interest amount
2020 2020
GBP000 GBP000 GBP000
Less than one year 522 91 431
Between one and five years 836 201 635
Greater than five years 242 18 224
1,600 310 1,290
31 December 2019
Group Gross contractual
amounts Carrying
payable Interest amount
2019 2019 2019
GBP000 GBP000 GBP000
Less than one year 1,945 179 1,766
Between one and five years 1,686 407 1,279
Greater than five years 644 64 580
4,275 650 3,625
The Company has no lease liabilities at 31 December 2020 (31
December 2019: nil)
Reconciliation of borrowings:
Group Non-current Current Non-current Current Total
Lease liabilities Lease liabilities Borrowings Borrowings Borrowings
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January 2020 1,859 1,766 12,474 - 16,099
Non-cash changes
Transfer from current to non-current (1,000) 1,000 - - -
Lease liability adjustment due to
change in lease date (487) (487)
Loan note interest - - 1,383 - 1,383
Lease interest - 98 - - 98
Fees in respect of loan notes - - 131 - 131
Issue of deferred consideration loan
notes - - - 100 100
Cash flows
Lease interest paid (98) (98)
Repayment of lease liabilities - (1,848) - - (1,848)
Balance at 31 December 2020 859 431 13,988 100 15,378
The total cash outflow for leases in the year including interest
was GBP1,946,000 (2019: GBP2,709,000).
21 Borrowings (continued)
Company Non-current Current Non-current Total
Lease liabilities Lease liabilities Borrowings Borrowings
GBP000 GBP000 GBP000 GBP000
Balance at 1 January 2020 - - 12,474 12,474
Non-cash changes
Loan note interest - - 1,383 1,383
Amortisation of loan fee - - - -
Fees in respect of loan notes - - 131 131
Interest and other charges - - - -
Balance at 31 December 2020 - - 13,988 13,988
22 Convertible loan notes
Group and Company
GBP000
Balance at 1 January
2020 1,803
Interest unwound 180
Balance at 31 December
2020 1,983
On 21 August 2018, as part of a wider fundraising, the Company
issued GBP2.55 million of unsecured loan notes, which have a term
of 5 years and a zero per cent coupon ("CLNs"). The CLNs can be
converted into new ordinary shares in the capital of IDE at a price
of 2.5 pence per share. Conversion is at the option of the holder
at any time during the 5-year term. At the end of the term, if the
holder has not chosen to convert the CLNs, the CLNs will be settled
with a cash repayment. At issue, the CLNs have a fair value of
GBP2.54 million, split into an equity component (GBP0.96 million)
and a debt component (GBP1.58 million).
23 Financial instruments by category
The objectives of the Group's treasury activities are to manage
financial risk, secure cost-effective funding where necessary and
minimise adverse effects of fluctuations in the financial markets
on the value of the Group's financial assets and liabilities, on
reported profitability and on cash flows of the Group.
The Group's principal financial instruments for fundraising are
convertible loan notes and loan notes. The Group has various other
financial instruments such as cash, trade receivables and trade
payables that arise directly from its operations.
Group
2020 2019
Assets GBP000 GBP000
Amortised cost:
Trade receivables net of
credit loss provision 4,079 5,409
Contract assets 178 590
Other receivables 264 348
Cash and cash equivalents 693 679
Total 5,214 7,026
Company
2020 2019
Assets GBP000 GBP000
Amortised cost:
Amounts due from subsidiary
undertakings 16,137 18,940
Cash and cash equivalents 7 103
Total 16,144 19,043
The carrying amount of these assets is equivalent to their fair
value. At 31 December 2020, trade receivables are reported net of
the expected credit loss provision of GBP0.5 million (2019: GBP0.6
million), amounts due from subsidiary undertakings are reported net
of the expected credit loss provision of GBP40.7 million (2019:
GBP49 million)
Group
2020 2019
Liabilities at amortised GBP000 GBP000
cost
Trade payables 7,187 5,624
Accruals and other payables 1,393 1,714
Lease liabilities 1,290 3, 625
Convertible loan notes 1,983 1,803
Loan Notes 14,088 12,474
Total 25,941 25,240
Company
2020 2019
Liabilities GBP000 GBP000
Trade payables 518 752
Accruals and other payables 108 119
Intercompany payables 1,204 1,204
Convertible loan notes 1,983 1,803
Loan Notes 13,988 12,474
Total 17,801 16,352
The carrying amount of these liabilities is equivalent to their
fair value.
The Group has not entered into any derivative financial
instruments in the current or preceding period.
24 Financial risk management
The Group's activities are exposed to a variety of financial
risks: market risk (including cash flow interest rate risk and
price risk), credit risk and liquidity risk. The Group's overall
risk management programme focuses on the unpredictability of
financial markets and seeks to minimise potential adverse effects
on the Group's financial performance.
Risk management is carried out centrally under policies approved
by the Board of Directors. Management identifies, evaluates and
seeks to mitigate financial risks. The Board of Directors provides
principles for overall risk management as well as policies covering
specific areas, such as foreign exchange risk, interest rate risk,
credit risk, use of derivative financial instruments and
non-derivative financial instruments, and investments of excess
liquidity.
Cash flow interest ris k
The Group pays interest on its borrowings.
The Group has no borrowings at variable rates which would expose
the Group to cash flow interest rate risk. Borrowings issued at
fixed rates expose the Group to fair value interest rate risk. The
Group does not enter into derivatives.
Price risk
The Group is not exposed to significant commodity or security
price risk.
Credit risk
Credit risk is managed at a subsidiary level. Credit risk arises
from cash and cash equivalents as well as credit exposures to
customers, including outstanding receivables. Individual risk
limits are set based on internal and external ratings and reviewed
by management. The utilisation of credit limits is regularly
monitored with appropriate action taken by management in the event
of the breach of a credit limit. The Group has applied the
simplified approach applying a provision matrix based on number of
days past due to measure lifetime expected credit losses and after
taking into account customers with different credit risk profiles
and current and forecast trading conditions . The Group has
recognised a provision in respect of trade receivables of GBP0.5
million (2019: GBP0.6 million).
Liquidity risk
Management reviews cash forecasts of trading companies of the
Group in accordance with practice and limits set by the Group. The
Group's liquidity management policy involves projecting cash flows
and considering the level of liquid assets necessary to meet
these.
The parent company's operations expose it to the following
risks:
interest rate risk
The Company pays interest on its loan note borrowings. These are
at fixed rates and therefore there is no exposure to cash flow
interest rate risk. Borrowings issued at fixed rates expose the
Company to fair value interest rate risk. The Company does not
enter into derivatives.
Credit risk
The Company is exposed to credit risk mainly in respect of
inter-company receivables. Details of the approach to credit loss
provisions in respect of inter company receivables is set out in
note 16 and note 29.
The tables below analyse the Group and the Company's financial
liabilities into relevant maturity groupings based on the remaining
period at the balance sheet date to the contractual maturity date.
These amounts disclosed in the table are the contracted
undiscounted cash flows. Balances within 12 months equal their
carrying balances as the impact of discounting is not
significant.
Group More than
Within 1 1-2 years 2 years Total
year
At 31 December 2020 GBP000 GBP000 GBP000 GBP000
Trade and other payables 6,546 2,034 - 8,580
Lease liabilities 521 215 864 1,600
Convertible loan notes - - 1,983 1,983
Loan Notes 100 - 13,988 14,088
7,167 2,249 16,835 26,251
Group More than
Within 1 1-2 years 2 years Total
year
At 31 December 2019 GBP000 GBP000 GBP000 GBP000
Trade and other payables 7,337 -- - 7,337
Lease liabilities 1,945 619 1,711 4,275
Convertible loan notes - - 1,803 1,803
Loan Notes - - 12,474 12,474
9,282 619 15,988 25,889
Company More than
Within 1 1-2 years 2 years Total
year
At 31 December 2020 GBP000 GBP000 GBP000 GBP000
Trade and other payables 633 - - 633
Intercompany payables 1,204 - - 1,204
Convertible loan notes - - 1,983 1,983
Loan Notes - - 13,988 13,988
1,837 - 15,971 17,808
Company More than
Within 1 1-2 years 2 years Total
year
At 31 December 2019 GBP000 GBP000 GBP000 GBP000
Trade and other payables 871 - - 871
Intercompany payables 1,204 - - 1,204
Convertible loan notes - - 1,803 1,803
Loan Notes - - 12,474 12,474
2,075 - 14,277 16,352
25 Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's future growth and its ability to continue as a going
concern in order to provide returns for shareholders and to
maintain an optimal capital structure to reduce the cost of
capital. The Group operates in the network and cloud hosting
sector, which, from time-to-time requires substantial fixed asset
investments, but the Group is financed predominately by equity.
In order to maintain or adjust the capital structure, the Group
has previously both issued new shares, bank debt and bank
facilities, and both unsecured and secured loan notes. The Group
monitors capital on the basis of the ratio of net debt to adjusted
EBITDA. As at 31 December 2020 the ratio was 28.9. Net debt as at
31 December 2020 is calculated as total bank borrowings, as at 31
December 2020 nil, and loan notes (including 'current and
non-current borrowings' as shown in the consolidated balance sheet)
less cash and cash equivalents. Adjusted EBITDA is defined as
earnings before interest, tax, depreciation, amortisation,
impairment charge, exceptional items, (loss)/gain on disposal of
fixed assets and share-based payments.
The loan note instrument under which the Secured Loan Notes were
issued does not contain any covenants, however, the Group continues
to carefully monitor its capital position. The Group adopts a
risk-averse position with respect to borrowings and maintains
significant headroom to ensure that any unexpected situations do
not create financial stress.
The Group has not proposed a dividend for the current or prior
year.
26 Called up share capital - Group and Company
Share capital 2020 2019
Number Number
In issue at 31 December - fully
paid 400,802,032 400,802,032
2020 2019
GBP GBP
Allotted, called up and fully paid
Ordinary shares of 2.5p 10,020,050 10,020,050
Shares classified in shareholders'
funds 10,020,050 10,020,050
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company.
Dividends
The Directors do not propose a dividend for the year ended 31
December 2020 (2019: GBPnil).
27 Share-based payment
The share-based payment charge comprises:
2020 2019
GBP000 GBP000
Equity-settled share-based charges arising
from warrants 32 86
Total charge 32 86
In 2016, the Group introduced an Employee Share Scheme ("ESS")
to the Executive Directors and various senior managers, granted
Hurdle Shares to the Chairman and granted evergreen warrants to MXC
Capital Limited ("MXC").
In 2017, the Group introduced a Company Share Option Plan
("CSOP") for various senior managers and issued warrants to MXC
following the acquisition of 365 ITMS. No options were issued to
any of the Directors during 2017 or 2018.
The remaining options under these schemes all lapsed in the 2019
year.
On 1 August 2018, MXC was awarded warrants over 1,000,000
ordinary shares, representing 5% of the share capital issued in
connection with the first tranche of the fundraising. On 21 August
2018 MXC was awarded warrants over 9,003,645 ordinary shares,
representing 5% of the share capital issued in connection with the
second tranche of the fundraising and the conversion of certain of
the loan notes issued earlier in the year. All the warrants issued
to MXC in 2018 have an exercise price of 2.5 pence.
MXC warrants CSOP/ESS Total
number of number of
options warrants/options
Options/warrants granted
at 1 January 2019 20,040,101 88,888 20,128,989
Options lapsed in year - (88,888) (88,888)
Options/warrants granted
at 1 January 2020 20,040,101 - 20,040,101
Options lapsed in year - - -
Total options/warrants granted
at 31 December 2020 20,040,101 - 20,040,101
Options awarded under the ESS/ CSOP scheme lapse if the
recipient resigns and in the case of redundancy, the options are
either returned at no cost or purchased by the Company. There was
only one employee remaining at 31 December 2018 who held options
under the ESS/ CSOP scheme which lapsed when he left the Company on
31 January 2019.
The following table illustrates the number and weighted average
exercise prices (WAEP) of, and movements, in share options and
warrants during the year:
2020 2020 2019 2019
Number WAEP Number WAEP
Opening balance 20,040,101 GBP0.17 20,128,989 GBP0.17
Granted during the year - - - -
Lapsed during the year - - (88,888) GBP0.30
Closing balance 20,040,101 GBP0.17 20,040,101 GBP0.17
There were 10,036,456 warrants exercisable at 31 December 2020
(2019: 10,036,456).
The exercise price for warrants outstanding at the end of the
year ranges from GBP0.025 - GBP0.325 (2019: ranged from GBP0.025 -
GBP0.30). There are 10,036,456 warrants with an exercise price of
GBP0.30 to GBP0.325 which had a vesting date of 31 December 2018
and expiry date of 31 December 2022 and a further 10,003,645
warrants have an exercise price of GBP0.025, a vesting date of 1
August 2021 and an expiry date of 31 December 2022.
The fair value of the equity-settled warrants granted is
estimated at the date of grant using a Black Scholes model to take
into account market conditions attaching to the options
granted.
Volatility of 146% was calculated based upon the change in the
daily share price of the company over the previous 24 months. The
risk free rate of return of -0.14% is the yield of zero-coupon UK
government bonds of a term consistent with the assumed life of the
warrant.
The total fair value of the award is charged to the income
statement over the vesting period of the warrants.
The amount charged to the income statement in respect of the
share-based payments was GBP32,000 (2019: GBP86,000).
28 Pensions
The Group operates a defined contribution pension schemes for
eligible employees. The charge for the year ended 31 December 2020
relating to continuing operations is GBP649k (continuing operations
2019: GBP599k). An amount of GBP64k is included in creditors being
outstanding contributions at 31 December 2019 (2019: GBP53k).
29 Related parties
Key management is considered to comprise only the Directors.
Directors' emoluments are disclosed in note 10. Social security
costs in respect of Directors' emoluments were GBP10k (2019:
GBP19.5k).
Ian Smith, Executive Director at 31 December 2020, is Chief
Executive Officer and a substantial shareholder of MXC. MXC owned
43.1% of the issued share capital of the Company at 31 December
2020.
During the year, the Group and Company paid MXC Capital Markets
LLP, a subsidiary of MXC, corporate finance advice and other
services amounting to GBP29,000 (2019: GBP47,000). The balance owed
to MXC Capital Markets LLP as at 31 December 2020 was GBP55,800
(2019: GBP57,000).
In addition, the Group paid MXC Advisory Limited, a subsidiary
of MXC, fees of GBP242,505 (2019: GBP229,259) in respect of the
services of Ian Smith as Executive Director and the services of an
Interim Chief Financial Officer for the year ended 31 December
2020. The balance owed to MXC Advisory Limited as at 31 December
2020 was GBP349,923 (2019: GBP345,854).
The Group also paid MXC Guernsey Limited, a subsidiary of MXC
Capital Limited, fees of GBPnil (2019: GBP239,799) in respect of
underwriting of loan notes and guarantee fee of the finance leases
with Lombard. The balance owed to MXC Guernsey as at 31 December
2020 was GBP29,560 (2019: GBP239,799).
At 31 December 2020, in addition to owning shares in the Company,
MXC Capital Limited held warrants over 20,040,101 shares in the
Company (2019: 20,040,101 shares).
During the year, Kestrel Partners LLP invoiced the Company GBP30,000
(2019: GBP30,092) in respect of the services of Sebastian White
as Non-Executive Director (2019: Max Royde and Sebastian White
as Non-Executive Directors). The balance owed to Kestrel Partners
LLP as at 31 December 2019 was GBP6,000 (2019: GBP6,030)
The Company had the following balances with its subsidiary companies: 2020 2019
Receivables GBP000 GBP000
IDE Group Limited 53,652 53,647
IDE Group Manage Limited 11,027 11,680
IDE Group Connect Limited 1,975 2,366
Assistance Genie Logiciel 151 151
IDE Group Voice Limited 3 3
IDE Group Protect Limited 9 9
IDE Group Financing Limited 52 47
IDE Group Subholdings Limited 1 1
Total 66,870 67,904
In the prior year a provision of GBP1m was made in respect of
the IDE Group Manage receivable, a provision of GBP0.2m was made
in respect of IDE Group Connect and a provision of GBP47.5m was
made in respect of IDE Group Limited receivable. All other receivables
were provided for in full. In the current year a further provision
was made for GBP1.7m in respect of IDE the Connect receivable.
2020 2019
Payables GBP000 GBP000
Cupid.com inc 1,033 1,033
Castle Digital services
inc 61 61
Selection Services Limited 61 61
Hooya Digital Limited 42 42
Connexions4London Limited 6 6
Aggregated Telecom Limited 1 1
Total 1,204 1,204
30 Post balance sheet events
Covid 19
We have now operated in a covid environment for the majority of
2020 and the entirety of 2021 to date. We have not seen significant
operating issues in having our staff working remotely, and indeed
we have successfully amended our working practices to adapt to the
changed landscape. Demand for our managed services remains strong
and we have experienced strong growth as a result in 2021. We have
therefore not experienced any adverse effect on asset values and
look to the future with optimism.
On 7 June 2021 GBP2,397,519 of the unsecured convertible loan
notes issued in August 2018 were converted into 95,900,760 Ordinary
shares of 2.5p each, at a conversion price of 2.5p per share.
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END
FR UAOKRARUBUAR
(END) Dow Jones Newswires
July 22, 2021 02:00 ET (06:00 GMT)
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